THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Huayi Tencent Entertainment Company Limited, you should at once hand this circular, together with the enclosed form of proxy, to the purchaser(s) or the transferee(s) or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser(s) or the transferee(s).

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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華誼騰訊娛樂有限公司 Huayi Tencent Entertainment Company Limited

(Incorporated in the Cayman Islands with limited liability) (Stock Code: 419)

MAJOR TRANSACTION – INVESTMENT IN HB ENTERTAINMENT AND NOTICE OF EXTRAORDINARY GENERAL MEETING

A notice convening an extraordinary general meeting of the Company to be held at Boardroom 3, Mezzanine Floor, Renaissance Harbour View Hotel Hong Kong, 1 Harbour Road, Wan Chai, Hong Kong on Tuesday, 5 July 2016 at 2:30 p.m. is set out on pages 88 to 89 of this circular.

Whether or not you are able to attend the extraordinary general meeting, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and deposit the same at the office of the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the extraordinary general meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the extraordinary general meeting or any adjournment thereof should you so wish.

13 June 2016

		Page
Definitions. . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		6
Appendix I –	Financial Information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . .	25
Appendix II –	Financial Information of HB Entertainment. . . . . . . . . . . . . . . . . . .	27
Appendix III –	Unaudited Pro Forma Statement of Assets and Liabilities
	of the Enlarged Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	74
Appendix IV –	General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	82
Notice of EGM . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	88

– i –

DEFINITIONS

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

“Adjusted HB Corp the final consideration payable to HB Corp for the HB Corp Purchase Price” Acquisition, calculated in accordance with the terms of the Investment Agreement
“Adjusted HB Entertainment the final consideration payable to the HB Entertainment Major Major Shareholder Shareholder for the HB Entertainment Major Shareholder Purchase Price” Acquisition, calculated in accordance with the terms of the Investment Agreement
“associate(s)” has the same meaning as ascribed to it under the Listing Rules
“Board” the board of Directors
“Business Day” any day that is not a Saturday, Sunday or other day on which banks are required or authorized by law to be closed in Seoul, Korea
“China” the People’s Republic of China
“Company” Huayi Tencent Entertainment Company Limited, a company incorporated in the Cayman Islands, the issued Shares of which are listed on the Main Board of the Stock Exchange
“connected person(s)” has the same meaning as ascribed to it under the Listing Rules
“CPS”
convertible preferred stock with par value of KRW5,000 (equivalent to approximately HK$33) each in HB Entertainment with details of conversion features set out under the paragraph headed “Principal terms of the CPS” in the Letter from the Board section of this circular
“CPS Subscription” the subscription of 23,334 CPS (under the First CPS Subscription and the Second CPS Subscription) by the Company pursuant to the terms of the Investment Agreement
“CPS Subscription Price” the aggregate of the First CPS Subscription Price and the Second CPS Subscription Price

– 1 –

DEFINITIONS

“Director(s)”

the director(s) of the Company

“EGM”

the extraordinary general meeting of the Company to be convened and held at Boardroom 3, Mezzanine Floor, Renaissance Harbour View Hotel Hong Kong, 1 Harbour Road, Wan Chai, Hong Kong on Tuesday, 5 July 2016 at 2:30 p.m. to consider and, if thought fit, approve the Investment Agreement and the transactions contemplated thereunder

“Enlarged Group”
the Group including its interest in HB Entertainment upon completion of the Share Purchase Closing, the First CPS Subscription Closing, the Second CPS Subscription Closing and full conversion of the CPS
“First CPS Subscription”
the subscription of 2,864 CPS by the Company under the terms of the Investment Agreement
“First CPS Subscription Closing”
the closing of the First CPS Subscription in accordance with the terms of the Investment Agreement
“First CPS Subscription Closing Date”
the fifth Business Day after all the conditions precedent set out under the paragraph headed “First CPS Subscription Conditions Precedent” in the Letter from the Board section of this circular are satisfied (or waived where applicable), or such other date as agreed between the Company and HB Entertainment in writing
“First CPS Subscription Price”
the subscription price of KRW1,723,555,053 (equivalent to approximately HK$11.4 million) for the First CPS Subscription
“Group”

the Company and its subsidiaries

“HB Corp”
HB Corporation, a company incorporated under the laws of Korea
“HB Corp Acquisition” the acquisition of 23,333 HB Shares by the Company from HB Corp under the terms and conditions of the Investment Agreement
“HB Corp Purchase Price” the purchase price of KRW14,042,400,000 (equivalent to approximately HK$92.7 million) for the HB Corp Acquisition (subject to adjustments as set out under the paragraph headed “Purchase Price” in the Letter from the Board section of this circular)

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DEFINITIONS

“HB Entertainment”
HB Entertainment Co., Ltd., a company incorporated under the laws of Korea
“HB Entertainment Major Ms. Bo Mi Moon (文普美), an individual citizen of Korea Shareholder”
“HB Entertainment Major the acquisition of 23,333 HB Shares by the Company from Shareholder Acquisition” the HB Entertainment Major Shareholder under the terms and conditions of the Investment Agreement
“HB Entertainment Major Shareholder”
“HB Entertainment Major the purchase price of KRW14,042,400,000 (equivalent to Shareholder Purchase approximately HK$92.7 million) for the HB Entertainment Price” Major Shareholder Acquisition (subject to adjustments as set out under the paragraph headed “Purchase Price” in the Letter from the Board section of this circular)
“HB Share(s)” common stock(s) with par value of KRW5,000 (equivalent to approximately HK$33) each in HB Entertainment
“HK$” Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong” the Hong Kong Special Administrative Region of the People’s Republic of China
“Huayi Brothers” Huayi Brothers International Limited, a wholly-owned subsidiary of Huayi Brothers Media Corporation (華誼兄弟傳媒股份有限公司), which is a company listed on the Shenzhen Stock Exchange (stock code: 300027)
“Investment” the CPS Subscription and the Share Purchase
“Investment Agreement” the investment agreement dated 23 March 2016 entered into among the Company, HB Entertainment, the HB Entertainment Major Shareholder and HB Corp in relation to the CPS Subscription and the Share Purchase
“JPY”
Japanese yen, the lawful currency of Japan
“Korea” the Republic of Korea
“KRW” Korean won, the lawful currency of South Korea

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DEFINITIONS

“Latest Practicable Date” 7 June 2016, being the latest practicable date prior to the printing of this circular for ascertaining certain information therein
“Listing Rules” the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
“Long Stop Date” six months after the date of the Investment Agreement
“Material Adverse Effect” any event, change, circumstance, occurrence, effect or state of facts that has an adverse effect exceeding KRW500 million (equivalent to approximately HK$3.3 million) to the business, assets, liabilities, condition, results of operations or prospects of HB Entertainment
“Purchase Price” the aggregate of the HB Entertainment Major Shareholder Purchase Price and the HB Corp Purchase Price
“RMB” Renminbi, the lawful currency of China
“RMB”
“Sale Shares”
the 46,666 HB Shares in aggregate held by the HB Entertainment Major Shareholder and HB Corp to be disposed to the Company under the Share Purchase

“Second CPS Subscription” the subscription of 20,470 CPS by the Company under the terms of the Investment Agreement

“Second CPS Subscription the closing of the Second CPS Subscription in accordance Closing” with the terms of the Investment Agreement
“Second CPS Subscription Closing Date”
the closing date for the Second CPS Subscription as specified in the written notice provided by the Company to HB Entertainment, which shall be at least 10 Business Days after the delivery of such notice but before the end of 12 months following the First CPS Subscription Closing Date
“Second CPS Subscription Price”

the subscription price of KRW12,318,844,947 (equivalent to approximately HK$81.3 million) for the Second CPS Subscription

“Share(s)” the ordinary share(s) with a par value of HK$0.02 each in the share capital of the Company

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DEFINITIONS

“Share Purchase” collectively, the HB Entertainment Major Shareholder Acquisition and the HB Corp Acquisition “Share Purchase Closing” the closing of the Share Purchase in accordance with the terms of the Investment Agreement “Share Purchase Closing the fifth Business Day after all the conditions precedent set Date” out under the paragraph headed “Share Purchase Conditions Precedent” in this circular are satisfied (or waived where applicable), or such other date as agreed by the Company, the HB Entertainment Major Shareholder and HB Corp in writing “Shareholder(s)” holder(s) of the issued Shares “Stock Exchange” The Stock Exchange of Hong Kong Limited “US$” United States dollars, the lawful currency of the United States of America

For illustration purposes, KRW is translated into HK$ at an exchange rate of KRW1.00 = HK$0.0066 unless otherwise stated.

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LETTER FROM THE BOARD

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華誼騰訊娛樂有限公司 Huayi Tencent Entertainment Company Limited

(Incorporated in the Cayman Islands with limited liability) (Stock Code: 419)

Directors:

Mr. WANG Zhongjun[1] (Chairman)

Mr. LAU Seng Yee[1] (Vice Chairman)

Mr. WANG Zhonglei[1]

Mr. LIN Haifeng[1]
Ms. WANG Dongmei[1]

Registered office: Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

Mr. YUEN Hoi Po[1]
Dr. WONG Yau Kar, David, BBS, JP[2]
Mr. YUEN Kin[2]
Mr. CHU Yuguo[2]
1 Executive Director
2 Independent Non-executive Director

Principal place of business in Hong Kong: Suite 3503, 35/F Tower Two, Lippo Centre 89 Queensway Hong Kong

13 June 2016

To the Shareholders

Dear Sir/Madam,

MAJOR TRANSACTION – INVESTMENT IN HB ENTERTAINMENT AND NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

Reference is made to the announcement of the Company dated 23 March 2016, in which the Company announced that on 23 March 2016, after trading hours, the Company, HB Entertainment, the HB Entertainment Major Shareholder and HB Corp entered into the Investment Agreement pursuant to which, (i) the Company will subscribe for 23,334 CPS at the subscription price of KRW14,042.4 million (equivalent to approximately HK$92.7 million); and (ii) the Company will

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LETTER FROM THE BOARD

purchase 46,666 HB Shares from the HB Entertainment Major Shareholder and HB Corp (i.e. 23,333 HB Shares from each of the HB Entertainment Major Shareholder and HB Corp) at an aggregate Purchase Price of KRW28,084.8 million (equivalent to approximately HK$185.4 million) (subject to adjustments as described under the paragraph headed “Purchase Price” below, whereby the maximum Purchase Price shall not exceed KRW30,893.28 million (equivalent to approximately HK$203.9 million) and the minimum Purchase Price shall not be below KRW25,276.3 million (equivalent to approximately HK$166.8 million)).

The purpose of this circular is to give you the details of the Investment Agreement and the other information in compliance with the requirements of the Listing Rules and to give you notice of the EGM at which an ordinary resolution will be proposed to seek your approval on the Investment Agreement and the transactions contemplated thereunder.

THE INVESTMENT AGREEMENT

On 23 March 2016 (after trading hours), the Company entered into the Investment Agreement, the principal terms of which are set out below:

Date

23 March 2016

Parties

(a) the Company;
(b) HB Entertainment;
(c) the HB Entertainment Major Shareholder; and
(d) HB Corp.

As at the date of the Investment Agreement and as at the Latest Practicable Date, the HB Entertainment Major Shareholder and HB Corp held approximately 61.67% and approximately 33.33% respectively of the issued shares of HB Entertainment. HB Corp is principally engaged in the import and export of pulp and papers, and real estate rental business while the principal activities of HB Entertainment are set out under the section headed “Information on HB Entertainment” below.

To the best knowledge, information and belief of the Directors after having made all reasonable enquiries, as at the Latest Practicable Date, HB Entertainment, HB Corp and their respective ultimate beneficial owners, and the HB Entertainment Major Shareholder are third parties independent of the Company and its connected persons.

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LETTER FROM THE BOARD

Subject matters

Pursuant to the Investment Agreement:

(a) CPS Subscription – the Company will subscribe for a total of 23,334 CPS at the subscription price of KRW14,042.4 million (equivalent to approximately HK$92.7 million); and
(b) Share Purchase – the Company will purchase 46,666 HB Shares from the HB Entertainment Major Shareholder and HB Corp (i.e. 23,333 HB Shares from each of the HB Entertainment Major Shareholder and HB Corp) at an aggregate Purchase Price of KRW28,084.8 million (equivalent to approximately HK$185.4 million) (subject to adjustments as described under the paragraph headed “Purchase Price” below, whereby the maximum Purchase Price shall not exceed KRW30,893.28 million (equivalent to approximately HK$203.9 million) and the minimum Purchase Price shall not be below KRW25,276.3 million (equivalent to approximately HK$166.8 million)).

Upon completion of the Share Purchase Closing and the First CPS Subscription Closing, the Company will hold approximately 22.22% of the issued share capital of HB Entertainment and 2,864 CPS; and upon completion of the Second CPS Subscription Closing and full conversion of the CPS, the Company will hold approximately 30% of the enlarged issued share capital of HB Entertainment.

CPS Subscription

Having considered the Group’s cash flow position and needs, the parties agreed that completion of the CPS Subscription shall take place in two tranches. Under the First CPS Subscription, the Company will subscribe for, and HB Entertainment will issue, 2,864 CPS at the First CPS Subscription Price of KRW1,723,555,053 (equivalent to approximately HK$11.4 million). Completion of the First CPS Subscription shall take place on the First CPS Subscription Closing Date subject to satisfaction (or waiver where applicable) of all the conditions precedent set out under the paragraph headed “First CPS Subscription Conditions Precedent” below.

Under the Second CPS Subscription, the Company will subscribe for, and HB Entertainment will issue, 20,470 CPS at the Second CPS Subscription Price of KRW12,318,844,947 (equivalent to approximately HK$81.3 million). Completion of the Second CPS Subscription shall take place within 12 months after the First CPS Subscription Closing Date. If the Company fails to subscribe for all the CPS within 12 months following the First CPS Subscription Closing, HB Entertainment shall have the right, but is not obligated, to issue to any other person the remaining CPS in whole or in part at a price not less than KRW601,799.95 (equivalent to approximately HK$3,972) per CPS.

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LETTER FROM THE BOARD

CPS Subscription Price

The aggregate CPS Subscription Price of KRW14,042.4 million (equivalent to approximately HK$92.7 million), representing approximately KRW601,799.95 (equivalent to approximately HK$3,972) per CPS, shall be payable as follows:

(a) the First CPS Subscription Price of KRW1,723,555,053 (equivalent to approximately HK$11.4 million) is payable at least three Business Days before the First CPS Subscription Closing Date; and
(b) the Second CPS Subscription Price of KRW12,318,844,947 (equivalent to approximately HK$81.3 million) is payable at least three Business Days prior to the Second CPS Subscription Closing Date.

First CPS Subscription Conditions Precedent

The First CPS Subscription Closing is conditional upon satisfaction (or waiver by the Company, other than condition (d) below which is not waivable) of the following conditions:

(a) each of the representations and warranties made by HB Entertainment under the Investment Agreement being true and correct in all material respects as of the date of the Investment Agreement and the First CPS Subscription Closing Date and HB Entertainment having performed all agreements, obligations and covenants as required under the Investment Agreement on or prior to the First CPS Subscription Closing Date;
(b) since the date of the Investment Agreement, no applicable law, order or governmental authority shall have been enacted, made effective or instituted (as the case may be) that materially delays or makes illegal the performance of the Investment Agreement;
(c) all regulatory approvals required to have been obtained by HB Entertainment having been obtained on terms reasonably satisfactory to the Company;
(d) all regulatory approvals required to have been obtained by the Company, including the approval of the Shareholders at the EGM for the entering into of the Investment Agreement and the transactions contemplated thereunder, having been obtained;
(e) since the date of the Investment Agreement, there having been no development, change, event, fact, circumstance or occurrence that (i) had or is likely to have a Material Adverse Effect; (ii) would reasonably likely to have a material adverse effect on the consummation of the transactions under the Investment Agreement; or (iii) has been or is reasonably likely to constitute a material adverse change generally in the industry in which HB Entertainment conducts business;

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LETTER FROM THE BOARD

(f) HB Entertainment having delivered to the Company a compliance certificate executed by the chief executive officer or the president of HB Entertainment certifying that conditions (a) to (e) above (excluding (d)) have been satisfied; and
(g) the following covenants having been completed to the Company’s satisfaction. HB Entertainment shall, and the HB Entertainment Major Shareholder and HB Corp shall cause HB Entertainment to:
(i) amend HB Entertainment’s articles of incorporation to enable it to issue the CPS by way of a third-party allocation to the Company;
(ii) use reasonable efforts to obtain the consent or waiver of the counterparties to any agreement that contains a termination provision which would be triggered by the transactions contemplated under the Investment Agreement; and
(iii) consult the counterparties to any agreement that contains a consultation requirement which would be triggered by the transactions contemplated under the Investment Agreement.

As at the Latest Practicable Date, none of the above conditions have been satisfied or waived (as applicable).

Second CPS Subscription Closing

Within 12 months following the First CPS Subscription Closing, the Company shall provide a written notice to HB Entertainment specifying the closing date for the subscription of 20,470 CPS under the Second CPS Subscription which shall be at least 10 Business Days after the delivery of such notice but before the end of 12 months following the First CPS Subscription Closing. The Company shall make full payment of the Second CPS Subscription Price to the account designated by HB Entertainment at least three Business Days prior to the Second CPS Subscription Closing Date.

Principal terms of the CPS

A summary of the principal terms of the CPS is set out below:

Issue price: KRW14,042,400,000 (equivalent to approximately HK$92.7 million)

Conversion date: Immediately upon the issuance of the audit report of HB Entertainment for the fiscal year 2017 (but no later than 31 March 2018), HB Entertainment shall convert the CPS into HB Shares in accordance with the terms of the Investment Agreement, and the Company shall provide assistance to HB Entertainment that is reasonably necessary for the foregoing conversion.

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LETTER FROM THE BOARD

Conversion ratio:

The CPS shall be convertible into HB Shares on the basis of 1: 1 provided, however, that if the aggregate audited net profits after tax of HB Entertainment for the fiscal years 2016 and 2017 are more or less than KRW12,872,200,000 (equivalent to approximately HK$85.0 million), the conversion ratio shall be adjusted as follows:

KRW140,424,000,000

(equivalent to approximately HK$926.8 million) CPS: HB Share = 1 : Adjusted Valuation[#]

# As calculated below under the paragraph headed “Purchase Price”.

A fractional share, which is less than one share, shall not be issued. The Company may not exercise conversion right with respect to the fraction of the par value of the CPS.

The Investment Agreement does not specify any dispute resolution regarding the above conversion ratio and/or whether the aggregate audited net profits after tax threshold has been reached as the calculation as set out above is clear.

The aforesaid aggregate audited net profits after tax of HB Entertainment (representing net profits after tax including any other income and/or expenses) shall be determined upon issuance of the audit report of HB Entertainment for the fiscal years 2016 and 2017 which shall be issued no later than 31 March 2018. The Investment Agreement does not specify the financial reporting standard and policy for the audit report or the auditors responsible for preparing such report. It is the understanding of the parties that such audit report of HB Entertainment will be prepared based on the current practice of HB Entertainment which is under Korean Generally Accepted Accounting Principles (“ K-GAAP ”) and by the current auditors of HB Entertainment, being Samil PricewaterhouseCoopers, Korea. Pursuant to the terms of the Investment Agreement, without the prior written consent of the Company, HB Entertainment shall not change its auditors other than to one of the Big Four accounting firms, and shall not change its accounting methods other than required under K-GAAP.

Dividends:

The Company shall be entitled to an annual dividend of 1.0% of the par value per CPS. Such dividend shall be participatory and noncumulative and shall be paid prior to payment of any dividend to holders of HB Shares.

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LETTER FROM THE BOARD

Ranking:

The CPS shall rank equally with and afford its holders the same rights (including voting rights and priority in distribution upon liquidation), privileges and restrictions as HB Shares.

Share Purchase

The Company will purchase:

(a) 23,333 HB Shares from the HB Entertainment Major Shareholder at the HB Entertainment Major Shareholder Purchase Price of KRW14,042,400,000 (equivalent to approximately HK$92.7 million) (subject to adjustments as described under the paragraph headed “Purchase Price” below, whereby the maximum Adjusted HB Entertainment Major Shareholder Purchase Price shall not exceed KRW15,446.64 million (equivalent to approximately HK$101.9 million) and the minimum Adjusted HB Entertainment Major Shareholder Purchase Price shall not be below KRW12,638,160,000 (equivalent to approximately HK$83.4 million)); and
(b) 23,333 HB Shares from HB Corp at the HB Corp Purchase Price of KRW14,042,400,000 (equivalent to approximately HK$92.7 million) (subject to adjustments as described under the paragraph headed “Purchase Price” below, whereby the maximum HB Corp Purchase Price shall not exceed KRW15,446.64 million (equivalent to approximately HK$101.9 million) and the minimum Adjusted HB Corp Purchase Price shall not be below KRW12,638,160,000 (equivalent to approximately HK$83.4 million)).

The Share Purchase Closing shall take place on the Share Purchase Closing Date subject to satisfaction (or waiver where applicable) of all the conditions precedent set out under the paragraph headed “Share Purchase Conditions Precedent” below.

Purchase Price

The Company will purchase the Sale Shares at an aggregate Purchase Price of KRW28,084.8 million (equivalent to approximately HK$185.4 million) and shall be subject to adjustments if the aggregate audited net profits after tax of HB Entertainment for the fiscal years 2016 and 2017 are more or less than KRW12,872,200,000 (equivalent to approximately HK$85.0 million), as follows:

(a) the Adjusted HB Entertainment Major Shareholder Purchase Price shall equal to 10% of the Adjusted Valuation (as calculated below):

Adjusted Valuation = 10.9091 x (aggregate audited net profits after tax of HB Entertainment for the fiscal years 2016 and 2017),

subject to a ceiling of KRW154,466,400,000 (equivalent to approximately HK$1,019.5 million) and a floor of KRW126,381,600,000 (equivalent to approximately HK$834.1 million); and

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LETTER FROM THE BOARD

(b) the Adjusted HB Corp Purchase Price shall equal to 10% of the Adjusted Valuation (as calculated under (a) above).

The above adjustment factors of 10.9091 and 10% were determined after arm’s length negotiation between the parties, as further elaborated under the paragraph headed “Basis of determining the consideration for the Investment” below.

The above aggregate audited net profits after tax of HB Entertainment shall be determined on the same basis as set out in the section headed “Conversion ratio” under the paragraph headed “Principal terms of the CPS” above.

The Purchase Price shall be payable as follows:

(a) 90% of the HB Entertainment Major Shareholder Purchase Price amounting to KRW12,638,160,000 (equivalent to approximately HK$83.4 million) and 90% of the HB Corp Purchase Price amounting to KRW12,638,160,000 (equivalent to approximately HK$83.4 million) is payable on or prior to two Business Days prior to the Share Purchase Closing Date; and
(b) if any, the difference between the Adjusted HB Entertainment Major Shareholder Purchase Price and the amount paid by the Company to the HB Entertainment Major Shareholder under (a) above, and the difference between the Adjusted HB Corp Purchase Price and the amount paid by the Company to HB Corp under (a) above, shall be payable within 15 Business Days from the Company’s receipt of the audit report of HB Entertainment for the fiscal year 2017.

Share Purchase Conditions Precedent

The Share Purchase Closing is conditional upon fulfillment (or waiver by the Company, other than condition (d) below which is not waivable) of the following conditions:

(a) each of the representations and warranties made by the HB Entertainment Major Shareholder and HB Corp as set out in the Investment Agreement being true and correct in all material respects as of the date of the Investment Agreement and the Share Purchase Closing Date and each of the HB Entertainment Major Shareholder and HB Corp having performed all agreements, obligations and covenants as required under the Investment Agreement on or prior to the Share Purchase Closing Date;
(b) since the date of the Investment Agreement, no applicable law, order or governmental authority shall have been enacted, made effective or instituted (as the case may be) that materially delays or makes illegal the performance of the Investment Agreement;

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LETTER FROM THE BOARD

(c) all regulatory approvals required to have been obtained by HB Entertainment and/or the HB Entertainment Major Shareholder and HB Corp having been obtained on terms reasonably satisfactory to the Company;
(d) all regulatory approvals required to have been obtained by the Company, including the approval of the Shareholders at the EGM for the entering into of the Investment Agreement and the transactions contemplated thereunder, having been obtained;
(e) since the date of the Investment Agreement, there having been no development, change, event, fact, circumstance or occurrence that (i) had or is likely to have a Material Adverse Effect; (ii) would reasonably likely to have a material adverse effect on the consummation of the transactions under the Investment Agreement; or (iii) has been or is reasonably likely to constitute a material adverse change generally in the industry in which HB Entertainment conducts business;
(f) the HB Entertainment Major Shareholder and HB Corp having delivered to the Company a compliance certificate certifying that conditions (a) to (e) above (excluding (d)) have been satisfied;
(g) the First CPS Subscription Closing taking place simultaneously with or prior to the Share Purchase Closing; and
(h) the covenants set out in condition (g) of the First CPS Subscription Conditions Precedent above having been completed to the Company’s satisfaction.

As at the Latest Practicable Date, none of the above conditions have been satisfied or waived (as applicable).

Basis of determining the consideration for the Investment

Each of the CPS Subscription Price, the HB Entertainment Major Shareholder Purchase Price and the HB Corp Purchase Price, including the adjustment factors of 10.9091 and 10% as set out under the paragraph headed “Purchase Price” above, were determined after arm’s length negotiation between the Company and HB Entertainment, the HB Entertainment Major Shareholder and HB Corp respectively with reference to, among others, (i) the audited revenue and net profits of HB Entertainment for the years ended 31 December 2014 and 2015, (ii) HB Entertainment’s track record in producing popular movies and TV drama series such as “My Love from the Star” (來自星星的你) casted by Jun Ji-Hyun (全智賢) and Kim Soo-Hyun (金秀賢), (iii) the market trend that Korean TV drama series and entertainment are highly popular in Asia including China and Hong Kong, (iv) the future prospects of HB Entertainment, and (v) the reasons and benefits as stated in the paragraph headed “Reasons for and benefits of the Investment Agreement” below.

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LETTER FROM THE BOARD

Initial public offering

After the Share Purchase Closing, HB Entertainment, the HB Entertainment Major Shareholder and HB Corp shall use their respective best efforts to commence and effect an initial public offering of HB Shares and a simultaneous listing of the HB Shares on a reputable stock exchange of Korea or, upon approval of all parties to the Investment Agreement, other reputable stock exchange (the “ QIPO ”) by 31 December 2020 (or a later date agreed among all parties), and allow the Company to sell or otherwise dispose of the HB Shares held by it upon expiration of any lock-up period (if applicable). Given that the Korea Exchange (KRX) is currently the sole major securities exchange operator in Korea, the parties have not agreed on a list of reputable stock exchange of Korea for the purposes of the QIPO nor any dispute resolution method if the parties cannot agree whether a stock exchange is “reputable”.

Board of HB Entertainment

As from the First CPS Subscription Closing Date and Share Purchase Closing Date, the board of HB Entertainment shall have four directors, one of which shall be nominated, appointed and removed by the Company, up to the date that the Company no longer holds 10% or more of the shares in issue of HB Entertainment.

Cooperation and Alliance

As from the First CPS Subscription Closing Date and Share Purchase Closing Date, the HB Entertainment Major Shareholder and HB Corp shall cause HB Entertainment to discuss and cooperate with the Company in good faith regarding the possibility of the Company’s participation and cooperation with HB Entertainment in potential investments, projects or other businesses of HB Entertainment in the People’s Republic of China arising after the First CPS Subscription Closing Date and Share Purchase Closing Date. HB Entertainment and the Company shall engage in good faith negotiations to execute a separate definitive agreement prescribing the details of the foregoing. As at the Latest Practicable Date, HB Entertainment and the Company have not commenced any negotiation and/or reached any agreement on the aforesaid potential investments, projects or other businesses.

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LETTER FROM THE BOARD

Non-competition undertaking

From the First CPS Subscription Closing Date until the earlier of (i) completion of the QIPO, (ii) when the Company holds less than 10% of the issued capital of HB Entertainment following the sale of its holding of HB Shares, and (iii) the termination of the Investment Agreement, each of the HB Entertainment Major Shareholder and HB Corp shall not, directly or through the HB Entertainment Major Shareholder’s close relatives or any other person controlled by such person, engage in, be employed by, or render any related services to, acquire any financial interest or become actively involved in any Entertainment Business (as defined in the Investment Agreement and set out below) in Korea, or interfere with business relationships (whether formed before or after the date of the Investment Agreement) relating to any Entertainment Business in Korea between HB Entertainment and its customers, suppliers, partners, members or investors (except with prior written consent of the Company).

“Entertainment Business” shall mean the following business:

(a) Production of, investment in production of and distribution of films;
(b) Production of broadcasting programs and domestic and international sale of the broadcastings programs;
(c) Production of films, cultural films, advertising films and TV films;
(d) Management of singers, TV actors/actresses, film actors/actresses, models and other entertainers;
(e) Sale and distribution of portrait rights of Korean and foreign entertainers and sports players;
(f) Event business related to the overall entertainment business;
(g) Interaction among Korean and foreign entertainers and performance of Korean and foreign entertainers;
(h) Development and supply of multimedia contents (on the Internet, CD-ROM or any other physical or electronic medium);
(i) Agency of planning and production of online commercials; and
(j) Publication, printing, distribution and export/import of books and other publications.

– 16 –

LETTER FROM THE BOARD

Restriction on transfer of shares

Pursuant to the terms of the Investment Agreement:

(a) each of the HB Entertainment Major Shareholder and HB Corp shall obtain prior written consent of the Company before any intended disposal of all or any portion of the HB Shares held by them to any person;
(b) the HB Entertainment Major Shareholder, who held approximately 13.48% in HB Corp as at the date of the Investment Agreement, shall obtain prior written consent from the Company before any intended disposal of all or any portion of the shares in HB Corp it holds;
(c) HB Entertainment shall obtain the Company’s written consent prior to any issuance of new equity securities or equity-linked securities or any other action concerning HB Entertainment that would result in dilution of the Company’s shareholding in HB Entertainment, provided however if the Company fails to provide written objection within 15 Business Days after the Company is notified, the Company is deemed to have given written consent; and
(d) the HB Entertainment Major Shareholder and HB Corp shall notify the Company in writing at least 10 Business Days before any proposed changes in the shareholding structure of HB Corp, and the HB Entertainment Major Shareholder and HB Corp shall ensure that Mr. Sung Jun Moon, the majority shareholder of HB Corp, shall not sell or dispose of his shares in HB Corp without prior written consent of the Company if such sale may adversely affect the rights of control and management of the HB Entertainment Major Shareholder of HB Entertainment.

In addition to the above, pursuant to the terms of the Investment Agreement, HB Corp and HB Entertainment shall not register in their own respective books and records or assist to register or complete registration with or obtain any required approval from the relevant governmental authority in relation to any share transfer or issuance in violation of the above terms of the Investment Agreement.

Although Mr. Sung Jun Moon has not signed any undertaking in favour of the HB Entertainment Major Shareholder or HB Corp not to dispose of his shares in HB Corp without prior written consent of the Company, as stated above, HB Corp has agreed not to register any transfer of its shares, thus effectively ensuring that Mr. Sung Jun Moon shall not dispose of his shares in HB Corp without prior written consent of the Company.

– 17 –

LETTER FROM THE BOARD

Termination

If the First CPS Subscription Closing or the Share Purchase Closing does not occur by the Long Stop Date, either party may terminate the Investment Agreement by providing written notice to the other parties, provided, however, even before the Long Stop Date, in the event that the Shareholders do not approve the entering into of the Investment Agreement and the transactions contemplated thereunder, the Investment Agreement shall be terminated automatically immediately in which case, none of the Company, the HB Entertainment Major Shareholder, HB Corp or HB Entertainment will be liable for such termination. Further, if the Shareholders’ approval fails to be obtained by the Long Stop Date, the Investment Agreement shall be terminated automatically without liability of any party.

HB ENTERTAINMENT GROUP STRUCTURES

Set out below are the group structures of HB Entertainment (a) as at the Latest Practicable Date; (b) upon completion of the Share Purchase Closing and the First CPS Subscription Closing; and (c) upon completion of the Second CPS Subscription Closing and full conversion of the CPS.

(a) As at the Latest Practicable Date

==> picture [399 x 183] intentionally omitted <==

----- Start of picture text -----

HB Entertainment
Mr. Sung Jun Moon [#] Mr. Heung Ryul Moon [#]
Major Shareholder [#]
13.48%^ 50.66%^ 35.86%
HB Corp Heungryeol Moon
129,500 HB Shares 70,000 HB Shares 10,500 HB Shares
(61.67%) ^ (33.33%) ^ (5.00%)
HB Entertainment
----- End of picture text -----

– 18 –

LETTER FROM THE BOARD

(b) Upon completion of the Share Purchase Closing and the First CPS Subscription Closing

==> picture [441 x 197] intentionally omitted <==

----- Start of picture text -----

HB Entertainment
Mr. Sung Jun Moon [#] Mr. Heung Ryul Moon [#]
Major Shareholder [#]
13.48% ^ 50.66% ^ 35.86%
HB Corp Heungryeol Moon The Company
106,167 46,667 10,500 46,666
HB Shares HB Shares HB Shares HB Shares
(50.56%) ^ (22.22%) ^ (5.00%) (22.22%)
HB Entertainment
2,864 CPS
----- End of picture text -----

(c) Upon completion of the Second CPS Subscription Closing and full conversion of the CPS

==> picture [441 x 197] intentionally omitted <==

----- Start of picture text -----

HB Entertainment
Mr. Sung Jun Moon [#] Mr. Heung Ryul Moon [#]
Major Shareholder [#]
13.48% ^ 50.66% ^ 35.86%
HB Corp Heungryeol Moon The Company
106,167 46,667 10,500 70,000
HB Shares HB Shares HB Shares HB Shares
(45.50%) ^ (20.00%) ^ (4.50%) (30.00%)
HB Entertainment
----- End of picture text -----

^ Subject to transfer restriction as described under the paragraph headed “Restriction on transfer of shares” above.
# Mr. Sung Jun Moon is the brother of the HB Entertainment Major Shareholder and Mr. Heung Ryul Moon is the father of the HB Entertainment Major Shareholder and Mr. Sung Jun Moon.

– 19 –

LETTER FROM THE BOARD

INFORMATION ON HB ENTERTAINMENT

HB Entertainment is a Korean based entertainment company principally engaged in the production of and investment in movies and TV drama series and the provision of entertainer/ artist management and agency services. HB Entertainment’s business model includes TV drama production and artiste management. Revenue from TV drama production includes sale of dramas to TV stations, advertising fee income from product placement, supply of multimedia contents via internet protocol television or video on demand service, and international sale of broadcasting rights of dramas. Revenue from artiste management includes fee income through the artiste’s performances in drama, film, events and advertisements. HB entertainment also recognises an expense for the artistes under its management based on the agreed proportion in the contracts of each artiste.

TV drama series produced by HB Entertainment in recent years include (i) Yong Pal (龍八夷) (2015); (ii) You’re All Surrounded (你們被包圍了) (2014); (iii) My Love from the Star (來自星星的你) (2013); (v) Seoyeong, My Daughter (我的女兒㥠榮) (2012); and (iv) 49 Days (49天) (2011) while Ji Jin-Hee (池珍熙), Ahn Jae-Hyeon (安宰賢) and Shin Seongrok (申成祿) are among some of the entertainers/artists currently managed by HB Entertainment.

As at the Latest Practicable Date, there is currently one TV drama, being “Cinderella and the Four Knights” (灰姑娘與四騎士), under production by HB Entertainment. The terms of each drama production contract differs from case to case. In respect of the TV drama currently being produced, HB Entertainment and the other investors of the TV drama shall fund the production cost at an agreed proportion and will share in the profits from the drama based on an agreed proportion.

There are currently 23 artistes being managed by HB Entertainment and the average length of these management contracts is approximately 4.5 years. The terms of each artiste management contract, including the term of contract, activities of the artiste for contract and the charge rate, differs from artiste to artiste taking into account the popularity of the artiste, his/her career filmography as well as his/her personality.

HB Entertainment owns the copyrights of the TV drama series “My Love from the Star” (來自星星的你) and had licensed the TV broadcasting rights in Korea and the United States of America to an independent third party for a period of two years. HB Entertainment had also licensed the international copyrights (except China) of “My Love from the Star” (來自星星的你) to an independent third party for a period of five years with a profit-sharing mechanism in an agreed proportion with the licensee. HB Entertainment’s copyrights related to the dramas it produces differs from case to case according to the terms of each production contract. In respect of the drama currently under production, being “Cinderella and the Four Knights” (灰姑娘與四騎士), HB Entertainment holds full copyrights and as stated above, profits generated from the drama would be shared among HB Entertainment and the other investors at an agreed proportion.

HB Entertainment also holds a 40% equity interest in CUP Corp. which is principally engaged in the management of film and drama directors, at an investment cost of KRW4,000,000 (equivalent to approximately HK$26,000).

– 20 –

LETTER FROM THE BOARD

FINANCIAL INFORMATION OF HB ENTERTAINMENT

The table below sets out certain audited financial information of HB Entertainment for the three years ended 31 December 2013, 2014 and 2015 as extracted from the Accountant’s Report included in Appendix II to this circular:

	For the	year ended 31	December
	2013	2014	2015
	HK$ million	HK$ million	*HK$ million*
Revenue	77.9	266.7	205.5
Profit before taxation	8.1	54.5	16.3
Profit after taxation	6.6	43.0	12.8

As at 31 December 2015, HB Entertainment had audited net assets of approximately HK$61.1 million. Further details of the financial information of HB Entertainment are set out in Appendix II to this circular.

FINANCIAL EFFECTS OF THE TRANSACTIONS

Upon completion of the Share Purchase Closing, the First CPS Subscription Closing and the Second CPS Subscription Closing, HB Entertainment will become a 22.22% owned associate of the Company and upon full conversion of the CPS, HB Entertainment will become a 30% owned associate of the Company. The Group’s investment in HB Entertainment will be equity accounted for in the Company’s consolidated financial statements.

Based on the unaudited pro forma statement of assets and liabilities of the Enlarged Group set out in Appendix III to this circular, on the basis of the assets and liabilities of the Group and HB Entertainment as at 31 December 2015, upon completion of the Share Purchase and the First CPS Subscription (on the basis that the Second CPS Subscription takes place 12 months after the First CPS Subscription Closing), the Group’s total assets as at 31 December 2015 of approximately HK$675.0 million would be increased to approximately HK$696.8 million for the Enlarged Group while the Group’s total liabilities as at 31 December 2015 of approximately HK$98.2 million would be increased to approximately HK$120.0 million for the Enlarged Group. Further details in respect of the impact of the Investment on the Group’s assets and liabilities are set out in Appendix III to this circular.

HB Entertainment reported net profit of approximately HK$12.8 million for the year ended 31 December 2015. Upon completion of the Share Purchase Closing, the First CPS Subscription Closing and the Second CPS Subscription Closing, the Group will recognise a share of 22.22% of the profit or loss of HB Entertainment in the Company’s consolidated financial statements, and upon full conversion of the CPS, the Group’s share of HB Entertainment’s profit or loss would increase to 30%.

– 21 –

LETTER FROM THE BOARD

REASONS FOR AND BENEFITS OF THE INVESTMENT AGREEMENT

The Group is principally engaged in media and entertainment business and provision of online and offline healthcare and wellness services.

As stated in the Company’s circular dated 14 January 2016 (the “ Subscription Circular ”) in relation to the subscription of Shares by a group of investors, including Huayi Brothers, the Company will invest in, develop and operate offline and online cultural and new media business in China and overseas and intends to leverage on the support of Huayi Brothers and tap into international investment opportunities, for example, in Hollywood production and Korean productions.

HB Entertainment is one of the reputable privately owned TV drama producer companies in Korea. It has a track record of producing high-quality and popular TV drama series including “My Love from the Star” (來自星星的你) casted by Jun Ji-Hyun (全智賢) and Kim Soo-Hyun (金秀賢), “You’re All Surrounded” (你們被包圍了) and “Yong Pal” (龍八夷), and also owns certain intellectual property rights of the TV drama series “My Love from the Star” (來自星星的你), which was a huge success and contributed to the high revenue and profit level for year 2014. Although HB Entertainment’s revenue dropped by 23% in year 2015, the Company is of the view that HB Entertainment has the capacity and talents to create new blockbuster TV drama series. The Company also understands that there is currently one TV drama being produced by HB Entertainment, namely “Cinderella and the Four Knights” (灰姑娘與四騎士), and it is expected that a total of three TV dramas would be produced by HB Entertainment by end of 2016. By investing in a minority stake in HB Entertainment, the Group would be able to tap into the Korean media and entertainment market and be exposed to more opportunities in investing in Korean cultural and media-related works such as Korean TV drama series, and in marketing and distribution (offline and online) of such Korean cultural and media-related works in China. Although the parties have not yet commenced any negotiation and/or reached any agreement on future marketing and distribution of the works in China and/or any assistance in TV production, the Company is of the view that by leveraging on the experiences and resources of the Company and its substantial Shareholder, Huayi Brothers, in Chinese movies and TV drama production and in Chinese artist management, the Investment can assist HB Entertainment in producing popular TV drama series and movies in the future with broader focus on the Greater China market, and hence further improve the business and financial performance of HB Entertainment which would in turn benefit the Group. Furthermore, upon the First CPS Subscription Closing Date and the Share Purchase Closing Date, the Company would be entitled to appoint one (out of four) director to the board of HB Entertainment, despite the Investment being a minority stake in HB Entertainment, which the Company believes would pave the way for future negotiations of cooperation with the Group.

– 22 –

LETTER FROM THE BOARD

Out of the total consideration for the Investment (comprising the CPS Subscription and the Share Purchase) of up to approximately KRW44,935.7 million (equivalent to approximately HK$296.6 million), approximately KRW26,999.9 million (equivalent to approximately HK$178.2 million) will be payable upon completion of the Share Purchase Closing and the First CPS Subscription Closing, and will be financed by the Group’s internal resources. The remaining portion of up to approximately KRW17,935.8 million (equivalent to approximately HK$118.4 million) will be financed from expected investment returns from the Ten Film Production Cooperation Agreement and the Animation Film Cooperation Agreement (details of both agreements are as set out in the Subscription Circular, under the paragraph headed “Use of proceeds and future business plan” of the Letter from the Board section). No additional debt or equity fundraising will be required for the Investment.

Having considered the aforesaid factors, including the TV dramas currently in HB Entertainment’s pipeline, and the factors stated in the paragraph headed “Basis of determining the consideration for the Investment” above, the Directors consider that the terms of the Investment Agreement, including the aggregate consideration, are fair and reasonable and the Investment Agreement is in the interests of the Company and the Shareholders as a whole.

LISTING RULES IMPLICATIONS

Based on the applicable percentage ratios, the transactions contemplated under the Investment Agreement constitute a major transaction for the Company and is subject to the announcement and shareholders’ approval requirements under Chapter 14 of the Listing Rules. The EGM will be convened and held for the Shareholders to consider and, if thought fit, approve the Investment Agreement and the transactions contemplated thereunder.

The Company has engaged Samil PricewaterhouseCoopers, Korea to issue the Accountant’s Report on HB Entertainment. The Company has applied for and the Stock Exchange has granted a waiver from strict compliance with Rule 4.03 of the Listing Rules and permitted such financial information to be reported on by Samil PricewaterhouseCoopers, Korea on the basis that they comply with the relevant independence requirement and auditing standards required of reporting accountant’s under the Listing Rules.

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, the HB Entertainment Major Shareholder, HB Corp and HB Entertainment and their respective associates did not hold any Shares, options or securities convertible or exchangeable into Shares as at the Latest Practicable Date. To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, no Shareholder has a material interest in the transactions contemplated under the Investment Agreement which is different from the other Shareholders. Therefore, no Shareholder is required to abstain from voting on the resolution to be proposed at the EGM to approve the Investment Agreement and the transactions contemplated thereunder. If the HB Entertainment Major Shareholder, HB Corp and HB Entertainment and their respective associates hold any Shares on the date of the EGM, they will be required to abstain from voting on the aforesaid resolution to be proposed at the EGM.

– 23 –

LETTER FROM THE BOARD

THE EGM

Set out on pages 88 to 89 of this circular is a notice convening the EGM to be held at Boardroom 3, Mezzanine Floor, Renaissance Harbour View Hotel Hong Kong, 1 Harbour Road, Wan Chai, Hong Kong on Tuesday, 5 July 2016 at 2:30 p.m. at which an ordinary resolution will be proposed and, if thought fit, passed to approve the Investment Agreement and the transactions contemplated thereunder by way of poll.

A form of proxy for use by the Shareholders at the EGM is enclosed. Shareholders are advised to read the notice and to complete the accompanying form of proxy for use at the EGM in accordance with the instructions printed thereon and return the same to the Company’s branch share registrar in Hong Kong, Tricor Tengis Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event, not less than 48 hours before the time appointed for holding the EGM or any adjourned meeting thereof (as the case may be). Completion and return of the form of proxy will not preclude Shareholders from attending and voting in person at the EGM if they so wish.

RECOMMENDATION

The Board considers that the terms of the Investment Agreement and the transactions contemplated thereunder are fair and reasonable and the Investment Agreement and the transactions contemplated thereunder are in the interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends that the Shareholders should vote in favour of the ordinary resolution to be proposed at the EGM to approve the Investment Agreement and the transactions contemplated thereunder.

ADDITIONAL INFORMATION

Your attention is drawn to the information set out in the appendices to this circular.

By Order of the Board Huayi Tencent Entertainment Company Limited WANG Zhongjun Chairman

– 24 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL INFORMATION OF THE GROUP

Details of the financial information of the Group for each of the three years ended 31 December 2013, 2014 and 2015 are disclosed in the annual reports of the Company for the years ended 31 December 2013 (pages 45 to 131), 2014 (pages 48 to 139) and 2015 (pages 51 to 135) respectively. These annual reports are published on the website of the Stock Exchange (www.hkexnews.hk) and the website of the Company (www.huayitencent.com).

2. STATEMENT OF INDEBTEDNESS

As at the close of business on 30 April 2016, being the latest practicable date for the purpose of this indebtedness statement, the Group had no outstanding borrowings.

Apart from intra-group liabilities and normal trade payables in the ordinary course of business, the Group did not have any debt securities issued and outstanding or authorised or otherwise created but unissued, or any term loans, other borrowings or indebtedness in the nature of borrowing including bank overdrafts, loans or other similar indebtedness, liabilities under acceptance (other than normal trade bills), acceptance credits, debentures, mortgages, charges, hire purchase or finance lease commitments, guarantees or contingent liabilities as at 30 April 2016.

3. WORKING CAPITAL

The Directors are of the opinion that, taking into account the impact of the Investment, and the Group’s available financial resources, the Group will have sufficient working capital for its present requirements and for at least twelve months from the date of this circular in the absence of unforeseeable circumstances.

4. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2015, being the date to which the latest audited financial statements of the Group were made up, up to and including the Latest Practicable Date.

– 25 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

The State Council has released the Guiding Opinions for Actively Promoting the “Internet Plus” Action Plan . On the cultural front, the Council proposes to develop new segments of diversified forms building on Internet-based cultural, media and tourism services. With regard to health management services, the Council voices support for the innovation and application of smart healthcare products, as well as encourages health service institutions to utilise various technologies, including cloud computing and big data to build platforms of public information and provide customised healthcare services featuring continuous tracking, prognosis and health alerts. The “Internet plus” concept would inject new momentum into the traditional culture and entertainment industry as well as the healthcare sector, guiding them towards transformation and upgrade. Supported by a number of favourable national policies, new segments like Internet-based culture and mobile healthcare have become the most sought-after investment opportunities. Directing the Group’s two major lines of businesses to cope with national policies, the Group aims at seizing opportunities to reach new heights in the future and ushering its operations to the next stage in their development.

According to Prospects of China’s Culture and Entertainment Industry issued by Deloitte, China’s culture and entertainment industry is expected to be worth RMB1 trillion by 2020. The Chinese film industry is going to become a RMB200 billion sector by then, overtaking North America in box office receipts and admissions to become the world’s biggest film market. As a result, China’s cultural industry is predicted to enter its Golden Age during the 13th Fiveyear Plan. Having brought in Huayi Brothers and Tencent Holdings Limited (“ Tencent ”) as its strategic shareholders, the majority of the Group’s newly appointed board members also come from the core management of Huayi Brothers and Tencent. Relying on the vast resources from these two substantial shareholders, the Group intends to adopt a diversified investment approach towards projects related to the cultural and media industries, gradually establish its own pool of intellectual property rights, and actively seek opportunities to invest in quality international projects from Hollywood and Korea. Furthermore, the Group plans to build a comprehensive entertainment platform that integrates key functions including online promotion, marketing, distribution and sales, with a view to becoming a company known for high potential within the online to offline cultural sector as well as the new media industry.

According to estimates by the International Diabetes Federation, the world-wide aggregate healthcare expenditure on diabetes will increase to US$802 billion by 2040. Home to the largest population of diabetic patients, China is expected to see this group expanding to 151 million by 2040. Gazing into the future, enabled by the knowledge and experience accumulated from serving the large customer base of the “Kangxun 360” platform, the Group will launch new products that better cater for the needs of the Groups’ users to solidify its competitive advantage. The Group will also utilise quality resources from its offline health management business to seize considerable opportunities arising from the provision of health management services, all with a view to creating great values.

– 26 –

FINANCIAL INFORMATION OF HB ENTERTAINMENT

APPENDIX II

(A) ACCOUNTANT’S REPORT OF HB ENTERTAINMENT

The following is the text of a report for the sole purpose of inclusion in this circular, from the reporting accountants, Samil PricewaterhouseCoopers, Certified Public Accountants, Seoul Korea.

13 June, 2016

==> picture [91 x 57] intentionally omitted <==

==> picture [125 x 57] intentionally omitted <==

The Directors Huayi Tencent Entertainment Company Limited

Dear Sirs,

We report on the financial information of HB Entertainment Co., Ltd. (“ HBE ”), which comprises the statements of financial position of HBE as at 31 December 2013, 2014 and 2015, and the statements of comprehensive income, the statements of changes in equity and the statements of cash flows of HBE for each of the years ended 31 December 2013, 2014 and 2015 (the “ Relevant Periods ”) and a summary of significant accounting policies and other explanatory information (the “ Financial Information ”). This Financial Information is set out in Sections I to III below for inclusion in Appendix II to the circular of Huayi Tencent Entertainment Company Limited (the “ Company ”) dated 13 June 2016 (the “ Circular ”) in connection with the proposed investment in HBE by the Company.

HBE was incorporated in the Republic of Korea on 1 October 2006 under the Korean Commercial Code, to engage in the production of drama and movies, as well as entertainment management business.

The audited financial statements of HBE have been prepared in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board (“ IFRS ”).

The financial statements of HBE for each of the years ended 31 December 2013, 2014 and 2015 presented in Korean Won were audited by Samil PricewaterhouseCoopers pursuant to separate terms of engagement.

==> picture [455 x 90] intentionally omitted <==

– 27 –

FINANCIAL INFORMATION OF HB ENTERTAINMENT

APPENDIX II

The directors of HBE during the Relevant Periods are responsible for the preparation of the financial statements of HBE that give a true and fair view in accordance with IFRS, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

The financial information has been prepared based on the audited financial statements of HBE.

Directors’ Responsibility for the Financial Information

The directors of the Company are responsible for the preparation of the financial information that gives a true and fair view in accordance with Hong Kong Financial Reporting Standards (“ HKFRS ”) as issued by the Hong Kong Institute of Certified Public Accountants (the “ HKICPA ”) and accounting policies adopted by the Company and its subsidiaries (together, the “ Group ”) as set out in the annual report of the Company for the year ended 31 December 2015.

Reporting Accountant’s Responsibility

Our responsibility is to express an opinion on the financial information and to report our opinion to you. We carried out our procedures in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

Opinion

In our opinion, the financial information gives, for the purpose of this report, a true and fair view of the state of affairs of HBE as at 31 December 2013, 2014 and 2015 and of HBE’s results and cash flows for the Relevant Periods then ended.

– 28 –

APPENDIX II FINANCIAL INFORMATION OF HB ENTERTAINMENT

I. FINANCIAL INFORMATION OF HBE

The following is the financial information of HBE prepared by the directors of the Company (the “ Financial Information ”):

Statements of Financial Position

As at 31 December	As at 31 December	As at 31 December
2013 HK$’000 57,574 7,915 1,825 2,735 70,049 1,220 1,062 19,386 491 17,415 29 39,603 109,652	2014 HK$’000 91,466 5,419 3,060 5,548 105,493 2,785 1,335 – 4,790 20,641 28 29,579 135,072	2015 HK$’000 70,255 6,572 3,881 3,849
		84,557
		3,352 966 3,643 4,545 20,427 26
		32,959
		117,516

– 29 –

FINANCIAL INFORMATION OF HB ENTERTAINMENT

APPENDIX II

As at 1 January, 2013 Notes HK$’000 Liabilities Current liabilities Trade payables 4,6,13 1,134 Other financial liabilities 4,5,6,13 2,117 Other liabilities 14 4,314 Current income tax liabilities 2,665 10,230 Non-current liabilities Net defined benefit liability 15 727 Other liabilities 14 – Deferred income tax liabilities 16 392 1,119 Total liabilities 11,349 Equity Share Capital 17 8,567 Other components of equity 235 Retained earnings 18 25,597 Total equity 34,399 Total liabilities and equity 45,748	As at 31 December 2013 2014 2015 HK$’000 HK$’000 HK$’000 6,751 12,635 4,459 2,585 741 21,320 7,305 25,040 25,603 829 14,230 2,564 17,470 52,646 53,946 972 1,467 2,464 49,495 – – – – – 50,467 1,467 2,464 67,937 54,113 56,410 8,567 8,567 8,567 1,009 (2,413) (6,973) 32,139 74,805 59,512 41,715 80,959 61,106 109,652 135,072 117,516	As at 31 December 2013 2014 2015 HK$’000 HK$’000 HK$’000 6,751 12,635 4,459 2,585 741 21,320 7,305 25,040 25,603 829 14,230 2,564 17,470 52,646 53,946 972 1,467 2,464 49,495 – – – – – 50,467 1,467 2,464 67,937 54,113 56,410 8,567 8,567 8,567 1,009 (2,413) (6,973) 32,139 74,805 59,512 41,715 80,959 61,106 109,652 135,072 117,516
	2013 HK$’000 6,751 2,585 7,305 829 17,470 972 49,495 – 50,467 67,937 8,567 1,009 32,139 41,715 109,652	2014 HK$’000 12,635 741 25,040 14,230 52,646 1,467 – – 1,467 54,113 8,567 (2,413) 74,805 80,959 135,072

The accompanying notes are an integral part of this financial information.

– 30 –

FINANCIAL INFORMATION OF HB ENTERTAINMENT

APPENDIX II

Statements of Comprehensive Income

Notes Revenue 19 Cost of sales 20,24 Gross profit Selling and administrative expenses 21,24 Other gains/(losses), net 22 Operating profit Finance income 23 Finance costs 23 Profit before income tax Income tax expense 16 Profit for the period Other comprehensive income Items that will not be reclassified to profit or loss: Currency translation differences Remeasurements of the net defined benefit liability Total comprehensive income for the period	Year ended December 31 2013 2014 2015 HK$’000 HK$’000 HK$’000 77,911 266,748 205,520 (62,688) (194,787) (169,321) 15,223 71,961 36,199 (7,595) (17,400) (19,943) 393 178 (167) 8,021 54,739 16,089 121 303 257 (34) (564) – 8,108 54,478 16,346 (1,482) (11,490) (3,509) 6,626 42,988 12,837 774 (3,422) (4,560) (84) (322) (723) 7,316 39,244 7,554	Year ended December 31 2013 2014 2015 HK$’000 HK$’000 HK$’000 77,911 266,748 205,520 (62,688) (194,787) (169,321) 15,223 71,961 36,199 (7,595) (17,400) (19,943) 393 178 (167) 8,021 54,739 16,089 121 303 257 (34) (564) – 8,108 54,478 16,346 (1,482) (11,490) (3,509) 6,626 42,988 12,837 774 (3,422) (4,560) (84) (322) (723) 7,316 39,244 7,554
	2013 HK$’000 77,911 (62,688) 15,223 (7,595) 393 8,021 121 (34) 8,108 (1,482) 6,626 774 (84) 7,316	2014 HK$’000 266,748 (194,787) 71,961 (17,400) 178 54,739 303 (564) 54,478 (11,490) 42,988 (3,422) (322) 39,244

The accompanying notes are an integral part of this financial information.

– 31 –

FINANCIAL INFORMATION OF HB ENTERTAINMENT

APPENDIX II

Statements of Changes in Equity

Balances at January 1, 2013 Comprehensive income Profit for the period Currency translation differences Remeasurements of the net defined benefit liability Balances at December 31, 2013 Balances at January 1, 2014 Comprehensive income Profit for the period Currency translation differences Remeasurements of the net defined benefit liability Balances at December 31, 2014 Balances at January 1, 2015 Comprehensive income Profit for the period Currency translation differences Remeasurements of the net defined benefit liability Dividends paid Balances at December 31, 2015	Share Capital HK$’000 8,567 – – – 8,567 8,567 – – – 8,567 8,567 – – – – 8,567	Other components of equity HK$’000 235 – 774 – 1,009 1,009 – (3,422) – (2,413) (2,413) – (4,560) – – (6,973)	Retained Earnings HK$’000 25,597 6,626 – (84) 32,139 32,139 42,988 – (322) 74,805 74,805 12,837 – (723) (27,407) 59,512	Total Equity HK$’000 34,399 6,626 774 (84) 41,715 41,715 42,988 (3,422) (322) 80,959 80,959 12,837 (4,560) (723) (27,407) 61,106

The accompanying notes are an integral part of this financial information.

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FINANCIAL INFORMATION OF HB ENTERTAINMENT

APPENDIX II

Statements of Cash Flows

Notes Cash flows from operating activities Cash generated from operations 26 Interest received Income tax paid Net cash inflow/(outflow) from operating activities Cash flows from investing activities Proceeds from disposal of other financial assets Proceeds from disposal of property and equipment Acquisition of other financial assets Acquisition of investments in associates Acquisition of property and equipment 11 Acquisition of intangible assets 12 Net cash outflow from investing activities Cash flows from financing activities Increases in investment deposits Dividends paid Net cash outflow from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Exchange gains/(losses) on cash and cash equivalents Cash and cash equivalents at the end of the year	Year ended December 31 2013 2014 2015 HK$’000 HK$’000 HK$’000 64,172 39,581 8,705 22 240 181 (4,125) (1,888) (14,523) 60,069 37,933 (5,637) 1,006 736 – 156 204 – (744) (368) (34) (28) – – (894) (768) (31) (24,911) – (3,776) (25,415) (196) (3,841) – – 20,871 – – (27,407) – – (6,536) 34,654 37,737 (16,014) 21,300 57,574 91,466 1,620 (3,845) (5,197) 57,574 91,466 70,255	Year ended December 31 2013 2014 2015 HK$’000 HK$’000 HK$’000 64,172 39,581 8,705 22 240 181 (4,125) (1,888) (14,523) 60,069 37,933 (5,637) 1,006 736 – 156 204 – (744) (368) (34) (28) – – (894) (768) (31) (24,911) – (3,776) (25,415) (196) (3,841) – – 20,871 – – (27,407) – – (6,536) 34,654 37,737 (16,014) 21,300 57,574 91,466 1,620 (3,845) (5,197) 57,574 91,466 70,255
	2013 HK$’000 64,172 22 (4,125) 60,069 1,006 156 (744) (28) (894) (24,911) (25,415) – – – 34,654 21,300 1,620 57,574	2014 HK$’000 39,581 240 (1,888) 37,933 736 204 (368) – (768) – (196) – – – 37,737 57,574 (3,845) 91,466

The accompanying notes are an integral part of this financial information.

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FINANCIAL INFORMATION OF HB ENTERTAINMENT

APPENDIX II

II. NOTES TO THE FINANCIAL INFORMATION

1. GENERAL INFORMATION

HB Entertainment (“ HBE ”) was incorporated in the Republic of Korea on October 1, 2006 under the Korean Commercial Code, to engage in the production of drama and movies, as well as entertainment management business. As of December 31, 2015, HBE’s operations are headquartered in Sinsa-dong, Seoul.

As of December 31, 2015, HBE’s major shareholders include Bo-mi Moon (61.7%), HB Corp (33.3%) and Heung-Ryul Moon (5.0%).

This financial information is presented in thousands of Hong Kong dollars (HK$’000), unless otherwise stated.

2. SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies applied by the directors of the Company in the preparation of the financial information. These policies have been consistently applied to all the years presented.

2.1 Basis of Preparation

The principal accounting policies adopted in the preparation of the Financial Information are set out below. These policies have been consistently applied to all the periods presented. The Financial Information has been prepared in accordance with Hong Kong Financial Reporting Standards (“ HKFRS ”) issued by the Hong Kong Institute of Certified Public Accountants (the “ HKICPA ”).

The preparation of the financial information in conformity with HKFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgment. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial information are disclosed in Note 3 below.

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APPENDIX II

2.2 New standards, amendments and interpretations not yet adopted

The following new standards and amendments to standards and interpretations are effective and have not been applied in preparing the Financial Information:

Effective for annual periods beginning on or after

Annual improvements Project	Annual improvements 2012-2014	January 1, 2016
	Cycle
HKAS 1 (Amendment)	Disclosure Initiative	January 1, 2016
HKAS 16, HKAS 38	Clarification of Acceptable Methods	January 1, 2016
(Amendment)	of Depreciation and Amortisation
HKAS 16, HKAS 41	Agriculture: Bearer Plants	January 1, 2016
(Amendment)
HKAS 27 (Amendment)	Equity Method in Separate Financial	January 1, 2016
	Statements
HKFRS 9	Financial Instruments	January 1, 2018
HKFRS 10, HKAS 28	Sale or Contribution of Assets	To be determined
(Amendment)	between an Investor and its
	Associate or Joint Venture
HKFRS 10, HKFRS 10,	Investment Entities: Applying the	January 1, 2016
HKAS 28 (Amendment)	Consolidation Exception
HKFRS 11 (Amendment)	Accounting for Acquisitions of	January 1, 2016
	interests in Joint Operations
HKFRS 15	Revenue from Contracts with	January 1, 2018
	Customers
HKFRS 16	Leases	January 1, 2019

The Company has commenced an assessment of the impact of these new and amended standards, but is not yet in a position to state whether they would have a significant impact on its results of operations and financial position.

2.3 Associates

Associates are all entities over which HBE has significant influence, and investments in associates are initially recognized at acquisition cost using the equity method. Unrealized gains on transactions between HBE and its associates are eliminated to the extent of HBE’s interest in the associates. If there is any objective evidence that the investment in the associate is impaired, HBE recognizes the difference between the recoverable amount of the associate and its book value as impairment loss.

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APPENDIX II

2.4 Foreign Currency Translation

(1) Functional and presentation currency

Items included in the financial information are measured using the currency of the primary economic environment (the “ functional currency ”). HBE’s functional currency is the Korean won and the financial information is presented in HK dollars (HK$).

(2) Translation into the presentation currency

The results and financial position of HBE have been translated into the presentation currency as follows:

assets and liabilities for each statement of financial position presented are translated at the closing rate at the end of the reporting period;
income and expenses for each statement of income are translated at average exchange rates; and
equity is translated at the historical exchange rate; and
all resulting exchange differences are recognized in other comprehensive income

2.5 Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of less than three months.

2.6 Financial Assets

(1) Classification and measurement

Financial assets have been classified in the following categories: financial assets at fair value through profit or loss, available-for-sale financial assets, loans and receivables, and held-to-maturity financial assets. Regular purchases and sales of financial assets are recognized on trade date.

A regular way purchase of financial assets shall be recognized as applicable, using trade date accounting. At initial recognition, financial assets are measured at fair value plus, in the case of financial assets not carried at fair value through profit or loss, transaction costs. Transaction costs of financial assets carried at fair value through profit or loss are expensed in the statement of income. After the initial recognition, availablefor-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables, and held-to-maturity investments are subsequently carried at amortized cost using the effective interest rate method.

Changes in fair value of financial assets at fair value through profit or loss are recognized in profit or loss and changes in fair value of available-for-sale financial assets are recognized in other comprehensive income. When the available-for-sale financial assets are sold or impaired, the fair value adjustments recorded in equity are reclassified into profit or loss.

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APPENDIX II

(2) Impairment

Management assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or a group of financial assets that can be reliably estimated.

Impairment of loans and receivables is presented as a deduction in an allowance account. Impairment of other financial assets is directly deducted from their carrying amount. HBE writes off financial assets when the assets are determined to be no longer recoverable.

The objective evidence that a financial asset is impaired includes significant financial difficulty of the issuer or obligor; significant delinquency in interest or principal payments; or the disappearance of an active market for that financial asset because of financial difficulties. Significant or continuance decline in the fair value of an availablefor-sale equity instrument is also an objective evidence of impairment.

(3) Offsetting of financial instruments

Financial assets and liabilities are offset and the net amount reported in the statements of financial position where there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the assets and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of HBE or the counterparty.

2.7 Property and equipment

Property and equipment are stated at its cost less accumulated depreciation and accumulated impairment losses. Historical cost includes expenditures that is directly attributable to the acquisition of the items.

Depreciation on property and equipment is calculated using the straight-line method to allocate the difference between their cost and their residual values over their estimated useful lives, as follows:

Vehicles Office equipment	Estimated Useful Lives
	5 years 5 years

The depreciation method, residual values and useful lives of property and equipment are reviewed at the end of each reporting period and, if appropriate, accounted for as changes in accounting estimates.

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APPENDIX II

2.8 Intangible Assets

Intangible assets, except for goodwill, are shown at historical cost which includes acquisition cost, production cost and other costs required to prepare the asset for its intended use. These assets have definite useful lives and are carried at historical cost less accumulated amortization. Assets with definite useful lives, except for copyright are amortized using the straight-line method according to the estimated useful lives presented below.

Estimated Useful Lives

Software 5 years Exclusive Contract Terms of contract

Copyright of drama is amortized over its contract term or period of revenue realization based on the consumption pattern of the economic benefit.

2.9 Impairment of Non-Financial Assets

Intangible assets with indefinite useful lives are tested annually for impairment. Depreciable assets are tested for impairment when there is any indication an asset may be impaired.

Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. Non-financial assets, other than goodwill, that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

2.10 Financial Liabilities

(1) Classification and measurement

HBE’s financial liabilities at fair value through profit or loss are financial instruments held for trading and designated as financial liabilities at fair value through profit or loss. Financial liabilities held for trading are financial liabilities that are incurred principally for the purpose of repurchasing them in the near term and derivatives that are not designated as hedges or bifurcated from financial instruments containing embedded derivatives. Financial liabilities at fair value through profit or loss are structured financial liabilities containing embedded derivatives issued by HBE.

HBE classifies non-derivative financial liabilities, except for financial liabilities at fair value through profit or loss, financial guarantee contracts and financial liabilities that arise when a transfer of financial assets does not qualify for derecognition, as financial liabilities carried at amortized cost and presented as ‘trade payables’, ‘borrowings’, and ‘other financial liabilities’ in the statement of financial position.

(2) Derecognition

Financial liabilities are removed from the statement of financial position when it is extinguished, for example, when the obligation specified in the contract is discharged, cancelled or expired or when the terms of an existing financial liability are substantially modified.

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APPENDIX II

2.11 Employee Benefits

(1) Post-employment benefits

HBE has defined benefit plan as its pension scheme. A defined benefit plan is a pension plan that is not a defined contribution plan. Typically defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The liability recognized in the statement of financial position in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets.

The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds and that have terms to maturity approximating to the terms of the related pension obligation. The remeasurements of the net defined benefit liability are recognized in other comprehensive income.

If any plan amendments, curtailments, or settlements occur, past service costs or any gains or losses on settlement are recognized as profit or loss for the year.

2.12 Revenue Recognition

Revenue is measured at the fair value of the consideration received or receivable for the rendering of services arising from the normal activities of HBE. It is stated as net of value added taxes.

HBE recognizes revenue when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the entity; and when specific criteria have been met for each of HBE’s activities, as described below. HBE bases its estimate on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

(1) Rendering of services

Under accrual basis of accounting, HBE is recognizing revenue when profit yielding process is completed or substantially completed, the amount of revenue can be reliably measured, and it is probable that future economic benefits will flow into HBE.

(2) Interest income

Interest income is recognized using the effective interest method according to the time passed. When a loan and receivable is impaired, HBE reduces the carrying amount to its recoverable amount and continues unwinding the discount as interest income. Interest income on impaired loans and receivables is recognized using the original effective interest rate.

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APPENDIX II

2.13 Current and Deferred Income Tax

The tax expense for the period consists of current and deferred tax. Tax is recognized on the profit for the period in the statement of income, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively. The tax expense is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period.

Management periodically evaluates tax policies that are applied in tax returns in which applicable tax regulation is subject to interpretation. HBE recognizes current income tax on the basis of the amount expected to be paid to the tax authorities.

Deferred tax is recognized for temporary differences arising between the tax bases of assets and liabilities and their carrying amounts as expected tax consequences at the recovery or settlement of the carrying amounts of the assets and liabilities. However, deferred tax assets and liabilities are not recognized if they arise from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.

Deferred tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences can be utilized.

Deferred tax liability is recognized for taxable temporary differences associated with investments in associates except to the extent that HBE is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. In addition, deferred tax asset is recognized for deductible temporary differences arising from such investments to the extent that it is probable the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

2.14 Dividend

Dividend distribution to HBE’s shareholders is recognized as a liability in the financial information in the period in which the dividends are approved by HBE’s shareholders.

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FINANCIAL INFORMATION OF HB ENTERTAINMENT

APPENDIX II

3. CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

HBE makes estimates and assumptions concerning the future. The estimates and assumptions are continuously evaluated with consideration to factors such as events reasonably predictable in the foreseeable future within the present circumstance according to historical experience. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.

3.1 Net defined benefit liability

The present value of net defined benefit liability depends on a number of factors that are determined on an actuarial basis using a number of assumptions including the discount rate (Note 15)

4. FINANCIAL RISK MANAGEMENT

4.1 Financial Risk Factors

HBE’s activities expose it to a variety of financial risks: credit risk and liquidity risk. HBE’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on HBE’s financial performance.

Risk management is carried out under policies approved by the board of directors. The board reviews and approves written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, and investment of excess liquidity.

4.1.1 Credit Risk

Credit risk arises from cash and cash equivalents, as well as credit exposures to customers, including outstanding trading receivables. If customers are independently rated, these ratings are used. If there is no independent rating, the credit quality of the customer is evaluated taking into account its financial position, past experience and other factors. The book value of financial instruments represents the maximum amount of credit exposures.

The maximum exposure to credit risk as of January 1, 2013 and December 31, 2013, 2014 and 2015, is as follows:

Cash and cash equivalents Trade receivables Other financial assets (current) Other financial assets (non-current)	1 January, 2013 HK$’000 21,300 13,401 1,959 619 37,279	2013 HK$’000 57,574 7,915 1,825 1,220 68,534	2014 HK$’000 91,466 5,419 3,060 2,785 102,730	2015 HK$’000 70,255 6,572 3,881 3,352
				84,060

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FINANCIAL INFORMATION OF HB ENTERTAINMENT

APPENDIX II

4.1.2 Liquidity Risk

HBE monitors rolling forecasts of HBE’s liquidity requirements to ensure it has sufficient cash to meet operational needs. Such forecasting takes into consideration HBE’s debt financing plans, covenant compliance, compliance with internal financial ratio targets and, if applicable external regulatory or legal requirements.

Details of HBE’s liquidity risk analysis as of January 1, 2013 and December 31, 2013, 2014 and 2015, are as follows:

	1 January, 2013 HK$’000	1 January, 2013 HK$’000
Less than 6 months 1,134 2,117 3,251	Between 6 months and 1 year Between 1 year and 2 years – – – – – – 2013 HK$’000		Over 2 years – –
			–


Less than 6 months 6,751 2,585 9,336	Between 6 months and 1 year Between 1 year and 2 years – – – – – – 2014 HK$’000		Over 2 years – –
			–


Less than 6 months 12,635 741 13,376	Between 6 months and 1 year – – –	Between 1 year and 2 years – – –	Over 2 years – –
			–

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FINANCIAL INFORMATION OF HB ENTERTAINMENT

APPENDIX II

Trade payables Other financial liabilities		2015 HK$’000	2015 HK$’000
	Less than 6 months 4,459 21,320 25,779	Between 6 months and 1 year – – –	Between 1 year and 2 years – – –	Over 2 years – –
				–

4.2 Capital Risk Management

HBE’s objectives when managing capital are to safeguard HBE’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, HBE may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

Consistent with others in the industry, HBE monitors capital on the basis of the debt-toequity ratio. This ratio is calculated as dividing the total equity by total liabilities.

HBE’s debt-to-equity ratio as of January 1, 2013 and December 31, 2013, 2014 and 2015, are as follows:

	1 January,
	2013	2013	2014	2015
	HK$’000	HK$’000	HK$’000	HK$’000
Total liabilities (A)	11,349	67,937	54,113	56,410
Total equity (B)	34,399	41,715	80,959	61,106
Debt to equity
(C=A/B)	33.0%	162.9%	66.8%	92.3%

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FINANCIAL INFORMATION OF HB ENTERTAINMENT

APPENDIX II

5. FAIR VALUE

5.1 Fair Value of Financial Instruments by Category

The carrying amount and fair value of financial instruments by category as of January 1, 2013 and December 31, 2013, 2014 and 2015, are as follows:

*As of January 1, 2013* Financial assets Cash and cash equivalents Other financial assets Total Financial liabilities Other financial liabilities Total *As of December 31, 2013* Financial assets Cash and cash equivalents Other financial assets Total Financial liabilities Other financial liabilities Total	Carrying amount HK$’000 21,300 2,578 23,878 2,117 2,117 57,574 3,045 60,619 2,585 2,585	Fair value HK$’000 21,300 2,578
		23,878

		2,117
		2,117

		57,574 3,045
		60,619

		2,585
		2,585

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FINANCIAL INFORMATION OF HB ENTERTAINMENT

APPENDIX II

*As of December 31, 2014* Financial assets Cash and cash equivalents Other financial assets Total Financial liabilities Other financial liabilities Total *As of December 31, 2015* Financial assets Cash and cash equivalents Other financial assets Total Financial liabilities Other financial liabilities Total	Carrying amount HK$’000 91,466 5,845 97,311 741 741 70,255 7,233 77,488 21,320 21,320	Fair value HK$’000 91,466 5,845
		97,311

		741
		741

		70,255 7,233
		77,488

		21,320
		21,320

5.2 Offsetting Financial Assets and Financial Liabilities

There are no recognized financial assets and liabilities subject to enforceable master netting arrangements or similar agreements.

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FINANCIAL INFORMATION OF HB ENTERTAINMENT

APPENDIX II

6. FINANCIAL INSTRUMENTS BY CATEGORY

6.1 Carrying Amounts of Financial Instruments by Category

Categorizations of financial assets and liabilities as of January 1, 2013 and December 31, 2013, 2014 and 2015, are as follows:

*As of January 1, 2013* Cash and cash equivalents Trade receivables Other current financial assets Other non-current financial assets Trade payables Other financial liabilities Total *As of December 31, 2013* Cash and cash equivalents Trade receivables Other current financial assets Other non-current financial assets Trade payables Other financial liabilities Total *As of December 31, 2014* Cash and cash equivalents Trade receivables Other current financial assets Other non-current financial assets Trade payables Other financial liabilities Total *As of December 31, 2015* Cash and cash equivalents Trade receivables Other current financial assets Other non-current financial assets Trade payables Other financial liabilities Total	Loans and receivables HK$’000 21,300 13,401 1,959 619 – – 37,279 57,574 7,915 1,825 1,220 – – 68,534 91,466 5,419 3,060 2,785 – – 102,730 70,255 6,572 3,881 3,352 – – 84,060	Other financial liabilities at amortized cost HK$’000 – – – – 1,134 2,117
		3,251

		– – – – 6,751 2,585
		9,336

		– – – – 12,635 741
		13,376

		– – – – 4,459 21,320
		25,779

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APPENDIX II FINANCIAL INFORMATION OF HB ENTERTAINMENT

6.2 Net gains or Losses by Category of Financial Instruments

Net gains or net losses on each category of financial instruments for the years ended December 31, 2013, 2014 and 2015, are as follows:

	2013	2014	2015
	HK$’000	HK$’000	HK$’000
Loans and receivables
Bad debt expense	–	–	435
Interest Income	121	122	253
Foreign exchange gain, net	(34)	(383)	4

7. TRADE RECEIVABLES

Details of trade receivables as of January 1, 2013 and December 31, 2013, 2014 and 2015, are as follows:

Trade receivables Less: allowance for doubtful accounts Trade receivables, net	1 January, 2013 HK$’000 13,438 (37) 13,401	2013 HK$’000 7,953 (38) 7,915	2014 HK$’000 5,455 (36) 5,419	2015 HK$’000 7,026 (454)
				6,572

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APPENDIX II FINANCIAL INFORMATION OF HB ENTERTAINMENT

The aging analysis of the trade receivables on invoice date as of January 1, 2013 and December 31, 2013, 2014 and 2015, are as follows:

Receivable not past due Less than 3 months Past due but not impaired Less than 3 months Between 3 months and 6 months Between 6 months and 1 year Between 1 year and 2 years Impaired receivables 1 year or less 1 year or more Total	1 January, 2013 HK$’000 13,401 13,401 – – – – – – 37 37 13,438	2013 HK$’000 7,915 7,915 – – – – – – 38 38 7,953	2014 HK$’000 4,027 4,027 – 427 965 – 1,392 – 36 36 5,455	2015 HK$’000 5,875
				5,875
				– – 504 193
				697
				– 454
				454
				7,026

The changes in allowance for doubtful accounts for the years ended December 31, 2013, 2014 and 2015, are as follows:

Opening balance Bad debt expense Currency translation difference Ending balance	2013 HK$’000 37 – 1 38	2014 HK$’000 38 – (2) 36	2015 HK$’000 36 435 (17)
			454

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APPENDIX II

8. OTHER FINANCIAL ASSETS

Other financial assets as of January 1, 2013 and December 31, 2013, 2014 and 2015, are as follows:

Current Non-trade receivables Accrued revenues Short-term financial instruments Short-term loans Total Non-current Lease deposits Other deposits Total	1 January, 2013 HK$’000 – 77 130 1,752 1,959 195 424 619	2013 HK$’000 6 181 132 1,506 1,825 625 595 1,220	2014 HK$’000 1,702 137 127 1,094 3,060 1,905 880 2,785	2015 HK$’000 2,577 127 119 1,058
				3,881

				2,645 707
				3,352

9. INVESTMENTS IN ASSOCIATE

Details of associate as of December 31, 2013, 2014 and 2015, are as follows:

			1 January,
		Ownership	2013	2013	2014	2015
		ratio (%)	HK$’000	HK$’000	HK$’000	HK$’000
Equity	investments
CUP	Corp.	40%	–	29	28	26

Summary of condensed financial information of associate as of and for the years ended December 31, 2013, 2014 and 2015, are as follows:

				Profit from	Total
				continuing	comprehen-
	Assets	Liability	Revenue	operations	sive income
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
2013	74	6	–	(5)	(5)
2014	72	5	2	2	2
2015	62	–	–	–	–

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APPENDIX II

10. OTHER ASSETS

Other assets as of January 1, 2013 and December 31, 2013, 2014 and 2015, are as follows:

Current Advance payments Prepaid expenses Non-current Advance payments Total	1 January, 2013 HK$’000 745 23 768 6,976 7,744	2013 HK$’000 1,710 1,025 2,735 17,415 20,150	2014 HK$’000 5,470 78 5,548 20,641 26,189	2015 HK$’000 3,811 38
				3,849
				20,427
				24,276

11. PROPERTY AND EQUIPMENT

The changes in property and equipment for the years ended December 31, 2013, 2014 and 2015, are as follows:

	2013 HK$’000
Vehicles 406 714 (182) (90) 23 871 1,186 (315)	Equipment 37 180 – (32) 6 191 329 (138)	Total 443 894 (182) (122) 29
		1,062

		1,515 (453)

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APPENDIX II

Opening amounts, net Additions Disposals Depreciation Currency translation difference Ending amounts, net Acquisition cost Accumulated depreciation Opening amounts, net Additions Disposals Depreciation Currency translation difference Ending amounts, net Acquisition cost Accumulated depreciation		2014 HK$’000	Total 1,062 768 (126) (314) (55) 1,335 1,845 (510) Total 1,335 31 – (325) (75) 966 1,682 (716)
	Vehicles 871 221 (126) (202) (30) 734 1,005 (271)	Equipment 191 547 – (112) (25) 601 840 (239) 2015 HK$’000
	Vehicles 734 – – (179) (40) 515 865 (350)	Equipment 601 31 – (146) (35) 451 817 (366)

All of depreciation expense for the years ended December 31, 2013, 2014 and 2015 has been charged to selling and administrative expenses.

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APPENDIX II FINANCIAL INFORMATION OF HB ENTERTAINMENT

12. INTANGIBLE ASSETS

The changes in intangible assets for the years ended December 31, 2013, 2014 and 2015, are as follows:

	2013 HK$’000	2013 HK$’000
Software – – – – – – –	Exclusive Contract Copyright 282 – – 24,911 (236) (6,263) (4) 696 42 19,344 286 25,841 (244) (6,497) 2014 HK$’000
Software – – – – – – –	Exclusive Contract Copyright 42 19,344 – – (42) (19,383) – 39 – – – – – – 2015 HK$’000
Software – 85 (3) (2) 80 83 (3)	Exclusive Contract – – – – – – –	Copyright – 3,691 – (128) 3,563 3,563 –

– 52 –

FINANCIAL INFORMATION OF HB ENTERTAINMENT

APPENDIX II

13. TRADE PAYABLES AND OTHER FINANCIAL LIABILITIES

Trade payables and other financial liabilities as of January 1, 2013 and December 31, 2013, 2014 and 2015, are as follows:

1 January, 2013 2013 HK$’000 HK$’000 Current Trade payables 1,134 6,751 Other financial liabilities Non-trade payables 2,022 2,339 Accrued expenses 95 246 Investment deposits – – 2,117 2,585 Total 3,251 9,336 The aging analysis of the trade payables on invoice date as of 13, 2014 and 2015, are as follows: 1 January, 2013 2013 HK$’000 HK$’000 Less than 3 months 1,132 6,751 Between 3 months and 6 months 2 – Total 1,134 6,751	2014 HK$’000 12,635 575 166 – 741 13,376 January 1, 2013 2014 HK$’000 12,635 – 12,635	2015 HK$’000 4,459 839 336 20,145
		21,320
		25,779

		and December 2015 HK$’000 4,459 –
		4,459

The aging analysis of the trade payables on invoice date as of January 1, 2013 and December 31, 2013, 2014 and 2015, are as follows:

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FINANCIAL INFORMATION OF HB ENTERTAINMENT

APPENDIX II

14. OTHER LIABILITIES

Other liabilities as of January 1, 2013 and December 31, 2013, 2014 and 2015, are as follows:

Current Advances from customers Unearned revenues Withholdings Value added tax withheld Non-current Long-term unearned revenues Total	1 January, 2013 HK$’000 1,314 – 193 2,807 4,314 – 4,314	2013 HK$’000 367 – 270 6,668 7,305 49,495 56,800	2014 HK$’000 16,943 6,723 460 914 25,040 – 25,040	2015 HK$’000 18,224 5,243 275 1,861
				25,603
				–
				25,603

15. NET DEFINED BENEFIT LIABILITY

The details of net defined benefit liabilities recognized in the statements of financial position as of January 1, 2013 and December 31, 2013, 2014 and 2015, are as follows:

	1 January,
	2013	2013	2014	2015
	HK$’000	HK$’000	HK$’000	HK$’000
Present value of defined
benefit obligation	727	972	1,467	2,464
Fair value of plan assets	–	–	–	–
Liabilities on the statement
of financial position	727	972	1,467	2,464

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APPENDIX II FINANCIAL INFORMATION OF HB ENTERTAINMENT

The changes in net defined benefit liabilities for the years ended December 31, 2013, 2014 and 2015, are as follows:

Opening balance Current service cost Interest expense Remeasurements: – Actuarial gains and losses arising from – changes in demographic assumptions – changes in financial assumptions experience adjustments Payments from plans: – Benefit payments Effect of foreign currency translation Ending balance	2013 HK$’000 727 191 28 – (30) 137 (101) 20 972	2014 HK$’000 972 321 42 – 120 293 (220) (61) 1,467	2015 HK$’000 1,467 554 49 2 16 908 (400) (132)
			2,464

The principal actuarial assumptions as of December 31, 2013, 2014 and 2015, are as follows:

	2013	2014	2015
Discount rate	4.60%	3.60%	3.20%
Salary growth rate	4.94%	4.69%	4.19%

The sensitivity of the defined benefit obligations as of December 31, 2015, to changes in the weighted principal assumptions is:

Effect on defined benefit obligation

	Changes in principal	Increase in principal	Decrease in principal
	assumption	assumption	assumption
Discount rate	1%	7.16% decreased	8.06% increased
Salary growth rate	1%	8.04% increased	7.28% decreased

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APPENDIX II FINANCIAL INFORMATION OF HB ENTERTAINMENT

Expected maturity analysis of undiscounted pension benefits as of December 31, 2015, is as follows:

	Less than	Between 1	Between 2	Over 5
	1 year	and 2 years	and 5 years	years	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Retirement benefits	225	275	1,112	3,197	4,809

The weighted average duration of the defined benefit obligations is 7.68 years.

16. INCOME TAX EXPENSE

Income tax expense for the years ended December 31, 2013, 2014 and 2015, consists of:

Current tax: Current tax on profits for the year Total current tax Deferred tax: Origination and reversal of temporary differences Income tax expense	2013 HK$’000 2,316 2,316 (834) 1,482	2014 HK$’000 15,904 15,904 (4,414) 11,490	2015 HK$’000 3,364
			3,364
			145
			3,509

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APPENDIX II FINANCIAL INFORMATION OF HB ENTERTAINMENT

Reconciliation of effective tax rate for the years ended December 31, 2013, 2014 and 2015, is as follows:

Profit before tax Income tax expenses by applicable tax rate Tax effects of: Expenses not deductible for tax purposes Income not subject to tax Tax credits Others Total tax effects Income tax expense Effective tax rate	2013 HK$’000 8,108 1,628 51 – (177) (20) (146) 1,482 18.3%	2014 HK$’000 54,478 11,823 3,821 (2,809) (1,506) 161 (333) 11,490 21.1%	2015 HK$’000 16,346 3,445 165 (87) – (14)
			64
			3,509
			21.5%

Income tax effects related to components of other comprehensive income/(expenses) for the years ended December 31, 2013, 2014 and 2015, are as follows:

2013 2014 2015	Remeasurements of defined benefit obligation
	Before tax Tax effect After tax HK$’000 HK$’000 HK$’000 (108) 24 (84) (413) 91 (322) (927) 204 (723)

The changes in deferred tax assets and liabilities for the years ended December 31, 2013, 2014 and 2015, are as follows:

Deferred tax assets: Accrued expenses Net defined benefit liability Depreciation expense Other Total		2013 HK$’000
	Opening balance Statement of income – 18 – 26 27 – (419) 790 (392) 834	Equity – 24 – – 24	Effect of foreign currency translation – 2 – 23 25	Ending balance 18 52 27 394
				491

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FINANCIAL INFORMATION OF HB ENTERTAINMENT

APPENDIX II

	2014 HK$’000
Opening balance Statement of income 18 20 52 (25) – 8 27 (27) – 5 – 4,535 394 (102) 491 4,414	Equity – 91 – – – – – 91 2015 HK$’000	Effect of foreign currency translation (2) (5) – – – (188) (11) (206)	Ending balance 36 113 8 – 5 4,347 281
			4,790


Opening balance Statement of income 36 41 113 35 8 56 5 (4) 4,347 – 281 (273) 4,790 (145)	Equity – 204 – – – – 204	Effect of foreign currency translation (3) (16) (2) (1) (274) (8) (304)	Ending balance 74 336 62 – 4,073 –
			4,545

17. SHARE CAPITAL

Share capital as of January 1, 2013 and December 31, 2013, 2014 and 2015 consist of

Total number of		Discount on
*shares issued ()**	Share capital	Share capital	Paid-in capital
	HK$’000	HK$’000	HK$’000
210,000	8,567	(126)	8,441

(*) HBE is authorized to issue 500,000 shares with the par value per share of 5,000 Korean

Won.

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FINANCIAL INFORMATION OF HB ENTERTAINMENT

APPENDIX II

18. RETAINED EARNINGS

Retained earnings as of January 1, 2013 and December 31, 2013, 2014 and 2015 consist of

Legal reserves* Unappropriated retained earnings Total	1 January, 2013 HK$’000 – 25,597 25,597	2013 HK$’000 – 32,139 32,139	2014 HK$’000 – 74,805 74,805	2015 HK$’000 2,741 56,771
				59,512

The Commercial Code of the Republic of Korea requires HBE to appropriate for each financial period, as a legal reserve, an amount equal to a minimum of 10% of cash dividends paid until such reserve equals 50% of its issued capital stock. The reserve is not available for cash dividends payment, but may be transferred to capital stock or used to reduce accumulated deficit. When the accumulated legal reserves (the sum of capital reserves and earned profit reserves) are greater than 1.5 times the paid-in capital amount, the excess legal reserves may be distributed.

19. REVENUE

Revenue for the years ended December 31, 2013, 2014 and 2015 are as follows:

Revenue for management Revenue for drama production Total	2013 HK$’000 20,160 57,751 77,911	2014 HK$’000 32,384 234,364 266,748	2015 HK$’000 41,162 164,358
			205,520

20. COST OF SALES

Cost of sales for the years ended December 31, 2013, 2014 and 2015 are as follows:

Cost of sales for management Cost of sales for drama production Total	2013 HK$’000 15,230 47,458 62,688	2014 HK$’000 29,680 165,107 194,787	2015 HK$’000 36,911 132,410
			169,321

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FINANCIAL INFORMATION OF HB ENTERTAINMENT

APPENDIX II

21. SELLING AND ADMINISTRATIVE EXPENSES

Selling and administrative expenses for the years ended December 31, 2013, 2014 and 2015 are as follows:

Salary expenses Retirement benefits Employee benefits Transportation expenses Entertainment expenses Communication expenses Utility expenses Taxes and dues Depreciation expenses Amortization expenses Rent expenses Repairs expenses Insurance expenses Vehicles maintenance expenses Freight expenses Training expenses Printing expenses Meeting expenses Office supplies expenses Supplies expenses Service expenses Bad debt expenses Total	2013 HK$’000 3,571 219 753 134 504 140 3 113 122 – 698 6 122 727 17 – 16 – 40 263 147 – 7,595	2014 HK$’000 6,654 363 3,993 388 449 85 18 212 314 – 470 61 143 2,353 43 47 50 51 143 240 1,323 – 17,400	2015 HK$’000 9,464 603 2,136 332 365 113 – 266 325 3 784 – 237 2,491 27 77 41 193 1 133 1,917 435
			19,943

22. OTHER GAINS/(LOSSES), NET

The details of other gains and losses for the years ended December 31, 2013, 2014 and 2015 are as follows:

Gains from disposal of property and equipment Miscellaneous gain Other bad debt expenses Losses from disposal of property and equipment Miscellaneous loss Total	2013 HK$’000 – 448 – (26) (29) 393	2014 HK$’000 78 503 (398) – (5) 178	2015 HK$’000 – 493 – – (660)
			(167)

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FINANCIAL INFORMATION OF HB ENTERTAINMENT

APPENDIX II

23. FINANCE INCOME AND COSTS

The details of financial income and expenses for the years ended December 31, 2013, 2014 and 2015 are as follows:

Finance income

Interest income Gains on foreign currency transaction Total Finance costs Losses on foreign currency transaction Losses on foreign currency translation Total	2013 HK$’000 121 – 121 2013 HK$’000 3 31 34	2014 HK$’000 122 181 303 2014 HK$’000 564 – 564	2015 HK$’000 253 4
			257

			2015 HK$’000 – –
			–

24. EXPENSES BY NATURE

Expenses by nature for the years ended December 31, 2013, 2014 and 2015 are as follows

Salary expenses Retirement benefits Script, writer fee Salary for actors Cost of sales for management Depreciation expenses Amortization expenses Rent expenses Service expenses Vehicles maintenance expenses Freight expenses Employee benefits Other expenses Total	2013 HK$’000 7,467 219 5,411 20,650 14,994 122 6,499 698 12,185 725 17 887 409 70,283	2014 HK$’000 20,768 363 27,002 65,303 29,638 314 19,425 470 40,765 2,351 43 4,380 1,365 212,187	2015 HK$’000 17,232 603 5,218 81,123 36,911 325 3 784 40,160 2,490 27 2,469 1,919
			189,264

Total expenses includes cost of sales and selling and administrative expenses in the statement of comprehensive income

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FINANCIAL INFORMATION OF HB ENTERTAINMENT

APPENDIX II

25. DIVIDENDS

A dividend in respect of the year ended December 31, 2014, of HK$130.51 per share, amounting to a total dividend of HK$27,406,645(4,000 million Korean Won) was approved at the annual general shareholders’ meeting on March 30, 2015 and was paid in 2015.

26. CASH FLOW FROM OPERATING ACTIVITIES

Cash flow from operating activities for the years ended December 31, 2013, 2014 and 2015 are as follows

Profit before income tax Adjustments: Interest income Depreciation expense Amortization expense Bad debt expense Other bad debt expense Gains from foreign currency translation Losses from foreign currency translation Gains from disposal of property and equipment Losses from disposal of property and equipment Retirement benefit Changes in operating assets and liabilities: Decrease/(increase) in trade receivables Decrease/(increase) in accrued revenues Decrease/(increase) in advance payments Decrease/(increase) in prepaid expenses Decrease/(increase) in non-trade receivables Decrease/(increase) in other non-current assets Increase/(decrease) in long-term unearned revenues Increase/(decrease) in unearned revenues Increase/(decrease) in trade payables Increase/(decrease) in non-trade payables Increase/(decrease) in withholdings Payment of retirement benefits Increase/(decrease) in advances from customers Increase/(decrease) in accrued expenses Cash flows from operating activities	2013 HK$’000 8,108 (121) 122 6,499 – – – – – 26 219 5,488 – (920) (965) (5) (10,530) 47,714 – 5,398 276 3,751 (101) (932) 145 64,172	2014 HK$’000 54,478 (122) 314 19,425 – 398 (172) 59 (78) – 363 2,389 (79) (3,994) 946 (1,771) (6,166) (49,593) 7,014 6,418 (1,744) (5,518) (220) 17,308 (74) 39,581	2015 HK$’000 16,346 (253) 325 3 435 – – – – – 603 (1,985) 73 1,362 37 (1,017) (1,891) – (1,095) (7,647) 311 879 (400) 2,432 187 8,705

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FINANCIAL INFORMATION OF HB ENTERTAINMENT

APPENDIX II

27. RELATED PARTY TRANSACTIONS

The related parties as of 1 January 2013 and 31 December 2013, 2014, and 2015 are as follows

Classification		Name of related	parties
	1 January 2013	2013	2014	2015
Major shareholder	HB Corp.	HB Corp.	HB Corp.	HB Corp.
Associate	–	CUP Corp.	CUP Corp.	CUP Corp.

Transactions with related parties for the years ended 31 December 2013, 2014 and 2015 are as follows:

	2013 HK$’000
Sales – –	Purchases Receivables 52 37 52 37 2014 HK$’000	Payables 5
		5


Sales – – –	Purchases Receivables 876 1,764 2 – 878 1,764 2015 HK$’000	Payables 71 –
		71


Sales – –	Purchases Receivables 732 1,653 732 1,653	Payables 65
		65

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FINANCIAL INFORMATION OF HB ENTERTAINMENT

APPENDIX II

Fund transaction with a related party for the years ended December 31, 2013, 2014 and 2015, follows:

		2013	2014	2015
	Transaction	HK$’000	HK$’000	HK$’000
CUP Corp.	Equity contribution in
	cash	28	–	–

Key management refers to those who have significant authority and responsibility in respect to planning, operating and controlling of HBE’s business activities. The compensation paid for key management for the years ended December 31, 2013, 2014 and 2015, consists of:

Salary expenses Retirement benefit Total	2013 HK$’000 1,527 152 1,679	2014 HK$’000 1,825 162 1,987	2015 HK$’000 2,748 292
			3,040

28. TRANSITION TO HKFRS – JANUARY 1, 2013

For the purpose of this financial information the directors of the Company have transited to HKFRS from January 1, 2013. The directors of the Company considers that there are no differences between the financial statements previously presented under IFRS and the financial information presented under HKFRS herein. As such no reconciliation is prepared.

29. CONTINGENCIES AND COMMITMENTS

HBE is under exclusive contract with the celebrities for its management business.

HBE is in joint liability with the celebrities, and if there exists any violation of advertisement contract, there may be penalties for breach of contract. As of December 31, 2015, the maximum amount of penalty that HBE may have to pay is 1,515 million Korean Won, equivalent to approximately HK$10 million (2014: 1,764 million Korean Won, equivalent to approximately HK$12 million, 2013: nil) under the effective advertisement contract.

As of December 31, 2015, in relation to its service provision contract, HBE is under a performance guarantee insurance of 320 million Korean Won, equivalent to approximately HK$2 million (2014: nil, 2013: 600 million Korean Won, equivalent to approximately HK$4 million) at Seoul Guarantee Insurance Co., Ltd.

In relation to the drama that is currently in production, HBE has entered in to an investment agreement and received the investment. According to the investment agreement, the revenue or net income from the drama should be shared in agreed proportion.

– 64 –

APPENDIX II

FINANCIAL INFORMATION OF HB ENTERTAINMENT

30. SUBSEQUENT EVENTS

On March 23, 2016 HBE entered into an investment agreement with the Company to subscribe for convertible preferred stock and to purchase shares in HBE.

Other than the above, there are no significant subsequent events.

III. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared for HBE subsequent to December 31, 2015. Save as disclosed in this reports, no dividend or distribution has been declared or paid by HBE in respect of any period subsequent to December 31, 2015.

Yours faithfully, Samil PricewaterhouseCoopers Certified Public Accountants Seoul, Korea

– 65 –

FINANCIAL INFORMATION OF HB ENTERTAINMENT

APPENDIX II

(B) MANAGEMENT DISCUSSION AND ANALYSIS ON HB ENTERTAINMENT

For the year ended 31 December 2013

Business and financial review

HB Entertainment recorded revenue of approximately HK$77.9 million for the year ended 31 December 2013 (“ FY2013 ”). Revenue for drama production, which includes (i) fixed broadcasting fees receivable from television stations determined on a per episode basis; (ii) licencing fee receivable from television stations as a result of (1) granting broadcasting licence in form of profit-sharing, or (2) sale of broadcasting licence determined on a per episode basis; and (iii) advertising fee income receivable in respect of rolling banner ads at the end of each episode and product placement, represented 74.1% of revenue for FY2013 while revenue for management, which represents income from the provision of entertainer/ artist management and agency services represented 25.9% of revenue for FY2013. HB Entertainment produced some new TV drama series including “My Love from the Star” (來自星星的你) and “Kind Words” (溫暖的一句話) and entered into four new artist management contracts with Korean celebrities in FY2013.

Cost of sales of HB Entertainment for FY2013 amounted to approximately HK$62.7 million which principally includes actors fees, drama production costs, crew and script writer costs mainly related to the TV drama series “Seoyeong, My Daughter” (我的女兒㥠榮) produced in 2012, based on the number of episodes aired in FY2013, “My Love from the Star” (來自星星的你) and “Kind Words” (溫暖的一句話) amounting to approximately HK$30.5 million, HK$7.1 million and HK$9.8 million respectively.

HB Entertainment recorded gross profit of approximately HK$15.2 million for FY2013, representing a gross profit margin of approximately 19.5%.

For FY2013, HB Entertainment recorded selling and administrative expenses of approximately HK$7.6 million, consisting primarily of salary expenses and employee benefits which in aggregate contributed to approximately 56.9% of selling and administrative expenses.

HB Entertainment recorded net other gains of approximately HK$393,000 for FY2013 which consisted mainly of certain advances from customers which amounted to approximately HK$448,000 being reclassified to “Miscellaneous gain” as HB Entertainment was no longer required to repay such advances which were partly offset by losses from disposal of property and equipment of HK$26,000 and miscellaneous loss of HK$29,000.

HB Entertainment recorded finance income of approximately HK$121,000 for FY2013 which represented interest income from bank deposits and short-term loans.

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FINANCIAL INFORMATION OF HB ENTERTAINMENT

APPENDIX II

For FY2013, HB Entertainment recorded finance costs of approximately HK$34,000 which represented losses on foreign currency transaction and translation arising from foreign currency bank deposits and foreign exchange transactions from business trips.

HB Entertainment recorded net profit of approximately HK$6.6 million for FY2013, representing a net profit margin of approximately 8.5%.

Employees

As at 31 December 2013, HB Entertainment had 16 full time employees and 3 part time employees. The remuneration of employees includes salary, wages and benefits, and staff retirement scheme contributions. HB Entertainment did not have any written policy for employee profit-sharing programs, share options schemes or mandatory bonuses. There were no bonuses paid to any employees in FY2013. During FY2013, the total staff cost of HB Entertainment amounted to approximately HK$4.5 million.

Liquidity and financial resources

The working capital requirements of HB Entertainment were financed by cash generated from operations.

As at 31 December 2013, HB Entertainment had cash and cash equivalents of approximately HK$57.6 million and did not have any outstanding bank borrowings.

Exposure to fluctuations in exchange rates

During FY2013, HB Entertainment transacted primarily in KRW and US$. HB Entertainment did not engage in any financial instruments to hedge currency movements during FY2013.

Material acquisitions and disposals of subsidiaries and associates

During FY2013, HB Entertainment acquired 40% interest in CUP Corp.

Save as disclosed above, HB Entertainment did not have any material acquisitions and disposals of subsidiaries and associates.

Future plans for material investments or capital assets

As at 31 December 2013, HB Entertainment did not have any plans for material investments or capital assets for the year ended 31 December 2014.

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FINANCIAL INFORMATION OF HB ENTERTAINMENT

APPENDIX II

Charges on assets

HB Entertainment did not have any charges on assets as at 31 December 2013.

Contingent liabilities

HB Entertainment did not have any significant contingent liabilities as at 31 December 2013.

For the year ended 31 December 2014

Business and financial review

HB Entertainment recorded revenue of approximately HK$266.7 million for the year ended 31 December 2014 (“ FY2014 ”), which represented an increase of 242.4% compared with FY2013. Revenue for drama production and revenue for management represented 87.9% and 12.1% of revenue for FY2014 respectively. The increase in revenue was mainly due to the increase in drama production sales resulting from the releases of two new drama series titled “My Love from the Star” (來自星星的你) in December 2013 and “You’re All Surrounded” (你們被包圍了) in May 2014. In addition, in FY2014, HB Entertainment produced some new TV drama series including “Punch” (重擊) and “Run, Rose” (奔跑吧玫瑰) and entered into six new artist management contracts with Korean celebrities.

Cost of sales of HB Entertainment for FY2014 amounted to approximately HK$194.8 million, representing an increase of 210.7% compared with FY2013. The increase in cost of sales was mainly due to an increase in costs incurred in the production of drama series particularly those related to the three new dramas produced in 2014 as well as costs related to “My Love from the Star” (來自星星的你) which was recognised based on the number of episodes aired in FY2014.

HB Entertainment recorded gross profit of approximately HK$72.0 million for FY2014, representing a gross profit margin of 27.0%. The increase in gross profit margin compared with 19.5% recorded in FY2013 was due to the majority of the revenue related to “My Love from the Star” (來自星星的你) which had commenced production in FY2013 being recognised in FY2014 upon release of the drama series in December 2013. In addition, due to the drama’s huge success on screen, additional sales of overseas copyright were made in FY2014.

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FINANCIAL INFORMATION OF HB ENTERTAINMENT

APPENDIX II

HB Entertainment recorded selling and administrative expenses of approximately HK$17.4 million in FY2014, which represented an increase of 129.1% compared with FY2013. The increase was mainly due to increased staff cost arising from the increased number of employees and an increase in expenses related to overseas sales activities. Salary expenses and employee benefits contributed approximately 61.2% of the total selling and administrative expenses.

HB Entertainment recorded net other gains of approximately HK$178,000 for FY2014 which consisted of compensation received from a modelling contract due to a disagreement with the related advertisement company of approximately HK$221,000, a refund of approximately HK$214,000 from a drama producer and gains from disposal of property and equipment of HK$78,000 which were offset by other bad debt expenses of HK$398,000 related to advance payments made for script writing which did not lead to drama production and therefore had to be written off in FY2014.

HB Entertainment recorded finance income of approximately HK$303,000 for FY2014. The increase in finance income compared with HK$121,000 recorded in FY2013 was mainly attributable to gains on foreign currency transaction of HK$181,000 recorded in FY2014 arising from an increase in overseas business trips.

HB Entertainment recorded finance costs of approximately HK$564,000 for FY2014, representing an increase of more than 15 times compared with FY2013. The substantial increase was due to an increase in losses on foreign currency transaction from approximately HK$3,000 in FY2013 to approximately HK$564,000 in FY2014 arising from foreign currency trade receivables and business trips.

HB Entertainment recorded net profit of approximately HK$43.0 million for FY2014, representing a net profit margin of 16.1%. The increase in net profit margin compared with 8.5% recorded in FY2013 was due to the improvement in gross profit margin as explained above.

Employees

As at 31 December 2014, HB Entertainment had 23 full time employees and 3 part time employees. The remuneration of employees includes salary, wages and benefits, and staff retirement scheme contributions. HB Entertainment did not have any written policy for employee profit-sharing programs, share options schemes or mandatory bonuses. There were no bonuses paid to any employees in FY2014. During FY2014, the total staff cost of HB Entertainment amounted to approximately HK$11.0 million.

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FINANCIAL INFORMATION OF HB ENTERTAINMENT

APPENDIX II

Liquidity and financial resources

The working capital requirements of HB Entertainment were financed by cash generated from operations.

As at 31 December 2014, HB Entertainment had cash and cash equivalents of approximately HK$91.5 million and did not have any outstanding bank borrowings.

Exposure to fluctuations in exchange rates

During FY2014, HB Entertainment transacted primarily in KRW, US$, RMB and JPY. HB Entertainment did not engage in any financial instruments to hedge currency movements during FY2014.

Material acquisitions and disposals of subsidiaries and associates

During FY2014, HB Entertainment did not have any material acquisitions and disposals of subsidiaries and associates.

Future plans for material investments or capital assets

As at 31 December 2014, HB Entertainment did not have any plans for material investments or capital assets for the year ended 31 December 2015.

Charges on assets

HB Entertainment did not have any charges on assets as at 31 December 2014.

Contingent liabilities

During FY2014, HB Entertainment was in joint liability with the celebrities, and if there existed any violation of advertisement contract, there may be penalties for breach of contract. As of December 31, 2014, the maximum amount of penalty that HB Entertainment may have to pay was KRW 1,764 million (equivalent to approximately HK$12 million) under the effective advertisement contract.

Save as disclosed above, HB Entertainment did not have any significant contingent liabilities as at 31 December 2014.

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FINANCIAL INFORMATION OF HB ENTERTAINMENT

APPENDIX II

For the year ended 31 December 2015

Business and financial review

HB Entertainment recorded revenue of approximately HK$205.5 million) for the year ended 31 December 2015 (“ FY2015 ”), which represented a decrease of 23.0% compared with FY2014. Revenue for drama production and revenue for management represented 80.0% and 20.0% of revenue for FY2015 respectively. The decrease in revenue was mainly due to the decrease in revenue for drama production as revenue from the hugely successful drama released in December 2013 “My Love from the Star” (來自星星的你) tapered off in FY2015 and revenue generated from new dramas produced and aired in FY2015 such as “High Society” (上流社會), “The Gang Doctor” (流氓醫生) and “Lucid Dream” (雪蓮花) were not as high as that recorded in FY2014 from “My Love from the Star” (來自星星的你). In FY2015, HB Entertainment also entered into eight new artist management contracts with Korean celebrities.

Cost of sales of HB Entertainment for FY2015 amounted to approximately HK$169.3 million), representing a decrease of 13.1% compared with FY2014. The decrease in cost of sales was mainly due to smaller budgets for the three new drama series produced in FY2015.

HB Entertainment recorded gross profit of approximately HK$36.2 million for FY2015, representing a gross profit margin of 17.6%. The decrease in gross profit margin compared with 27.0% recorded in FY2014 was due to the decrease in revenue as explained above as well as the smaller budgets for the dramas produced in FY2015.

HB Entertainment recorded selling and administrative expenses of approximately HK$19.9 million in FY2015, representing an increase of 14.6% compared with FY2014. The increase in selling and administrative expenses despite the decrease in revenue for FY2015 was mainly due to an increase in employee salaries including the chief executive officer of HB Entertainment. Salary expenses and wages and employee benefits contributed approximately 58.2% of the total selling and administrative expenses.

HB Entertainment recorded net other losses of approximately HK$167,000 for FY2015 which consisted mainly of compensation of approximately HK$306,000 received by HB Entertainment in respect of one of its actor’s contract, which was offset by certain miscellaneous losses.

HB Entertainment recorded finance income of approximately HK$257,000 for FY2015, which consisted mainly of interest income from bank deposits and short-term loans. The decrease in finance income in FY2015 was mainly due to a decrease in gains on foreign currency transaction due to a decrease in business trips abroad and transactions in China.

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FINANCIAL INFORMATION OF HB ENTERTAINMENT

APPENDIX II

HB Entertainment reported net profit of approximately HK$12.8 million for FY2015, representing a net profit margin of 6.2%. The decrease in net profit margin compared with 16.1% recorded in FY2014 was due to the deterioration in gross profit margin as well as the other losses recorded in FY2015 (as opposed to other gains recorded in FY2014) as explained above.

Employees

As at 31 December 2015, HB Entertainment has 25 full time employees and 1 part time employee. The remuneration of employees includes salary, wages and benefits, and staff retirement scheme contributions. HB Entertainment did not have any written policy for employee profit-sharing programs, share options schemes or mandatory bonuses. Discretionary bonuses of approximately HK$101,000 were paid to the employees in FY2015. During FY2015, the total staff cost of HB Entertainment amounted to approximately HK$12.2 million.

Liquidity and financial resources

The working capital requirements of HB Entertainment were financed by cash generated from operations.

As at 31 December 2015, HB Entertainment had cash and cash equivalents of approximately HK$70.3 million and did not have any outstanding bank borrowings.

Exposure to fluctuations in exchange rates

During FY2015, HB Entertainment transacted primarily in KRW, US$, HK$ and RMB. HB Entertainment did not engage in any financial instruments to hedge currency movements during FY2015.

Material acquisitions and disposals of subsidiaries and associates

During FY2015, HB Entertainment did not have any material acquisitions and disposals of subsidiaries and associates.

Future plans for material investments or capital assets

As at 31 December 2015, HB Entertainment did not have any plans for material investments or capital assets for the year ending 31 December 2016.

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FINANCIAL INFORMATION OF HB ENTERTAINMENT

APPENDIX II

Charges on assets

HB Entertainment did not have any charges on assets as at 31 December 2015.

Contingent liabilities

During FY2015, HB Entertainment was in joint liability with the celebrities, and if there exists any violation of advertisement contract, there may be penalties for breach of contract. As of December 31, 2015, the maximum amount of penalty that HB Entertainment may have to pay is KRW 1,515 million (equivalent to approximately HK$10 million) under the effective advertisement contract.

Save as disclosed above, HB Entertainment did not have any significant contingent liabilities as at 31 December 2015.

– 73 –

APPENDIX III UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE ENLARGED GROUP

(A) UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE ENLARGED GROUP

The following is an illustrative unaudited pro forma consolidated statement of assets and liabilities of the Group and the Group’s proposed investment in HB Entertainment Co., Ltd. (the “ Target Company ”) (collectively the “ Enlarged Group ”) (the “ Unaudited Pro Forma Financial Information ”) which has been prepared in accordance with paragraph 4.29 of the Listing Rules and on the basis of the notes set out below, for the purpose of illustrating the effect of the proposed investment in the Target Company (the “ Transaction ”) as if it had taken place on 31 December 2015.

The Unaudited Pro Forma Financial Information has been prepared using the accounting policies consistent with those of the Group as set out in the published annual report of the Company for the year ended 31 December 2015.

This Unaudited Pro Forma Financial Information has been prepared by the Directors for illustrative purposes only and because of its hypothetical nature, it may not give a true picture of the financial position of the Enlarged Group had the Transaction been completed as at 31 December 2015 or at any future date.

The Unaudited Pro Forma Financial Information should be read in conjunction with other financial information included elsewhere in this circular.

– 74 –

UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE ENLARGED GROUP

APPENDIX III

ASSETS Non-current assets Property, plant and equipment Intangible assets Interests in joint ventures and an associate Deferred income tax assets Available-for-sale financial assets Prepayments, deposits and other receivables Current assets Trade receivables Inventories Amounts due from a joint venture and its subsidiary Programmes and film production in progress Financial assets at fair value through profit or loss Prepayments, deposits and other receivables Cash and cash equivalents Total assets	Audited consolidated statement of assets and liabilities of the Group as at 31 December 2015 Pro forma adjustments Unaudited pro forma consolidated statement of assets and liabilities of the Enlarged Group HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Note 1 Note 4 Note 5 Note 6 15,734 – – – 15,734 23,887 – – – 23,887 179 183,863 – 4,763 188,805 2,012 – – – 2,012 – – 11,375 – 11,375 86,628 – – – 86,628 128,440 328,441 400 – – – 400 7,595 – – – 7,595 165,535 – – – 165,535 50,271 – – – 50,271 13,900 – – – 13,900 28,483 – – – 28,483 280,400 (166,824) (11,375) – 102,201 546,584 368,385 675,024 696,826	Audited consolidated statement of assets and liabilities of the Group as at 31 December 2015 Pro forma adjustments Unaudited pro forma consolidated statement of assets and liabilities of the Enlarged Group HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Note 1 Note 4 Note 5 Note 6 15,734 – – – 15,734 23,887 – – – 23,887 179 183,863 – 4,763 188,805 2,012 – – – 2,012 – – 11,375 – 11,375 86,628 – – – 86,628 128,440 328,441 400 – – – 400 7,595 – – – 7,595 165,535 – – – 165,535 50,271 – – – 50,271 13,900 – – – 13,900 28,483 – – – 28,483 280,400 (166,824) (11,375) – 102,201 546,584 368,385 675,024 696,826
		328,441
		400 7,595 165,535 50,271 13,900 28,483 102,201
		368,385
		696,826

– 75 –

UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE ENLARGED GROUP

APPENDIX III

LIABILITIES
Non-current liabilities
Other payables
Deferred income tax liabilities
Current liabilities
Trade payables
Receipt in advance, other payables and
accrued liabilities
Current income tax liabilities
Total liabilities
Net assets

Audited
consolidated
statement of
assets and
liabilities of
the Group
as at 31
December
2015
Pro forma adjustments
Unaudited
pro forma
consolidated
statement of
assets and
liabilities of
the Enlarged
Group
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
Note 1
Note 4
Note 5
Note 6
(11,509)
–
–
–
(11,509)
(707)
–
–
–
(707)
(12,216)
–
(12,216)
(3,920)
–
–
–
(3,920)
(24,655)
(17,039)
–
(4,763)
(46,457)
(57,378)
–
–
–
(57,378)
(85,953)
(107,755)
(98,169)
–
–
–
(119,971)
576,855
576,855

– 76 –

APPENDIX III UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE ENLARGED GROUP

Notes to the unaudited pro forma statement of assets and liabilities of the Enlarged Group

The amounts are extracted from the audited consolidated balance sheet of the Group as at 31 December 2015 as set out in the published annual report of the Company for the year ended 31 December 2015.
For the purpose of the Unaudited Pro Forma Financial Information only, the amounts denominated in KRW have been translated into HK$ at the exchange rate of KRW1 to HK$0.0066.
Pursuant to the agreement relating to the Transaction (“ Investment Agreement ”), the Company will purchase 46,666 shares of the Target Company from the existing shareholders of the Target Company at a purchase price of KRW28,084,800,000 (equivalent to approximately HK$185,360,000) (the “ Share Purchase ”) subject to adjustments, and will subscribe for 23,334 convertible preferred stocks (“ CPS ”) at the subscription price of KRW14,042,400,000 (equivalent to approximately HK$92,679,000) (“ CPS Subscription ”).
The adjustment represents the consideration for the Share Purchase. Pursuant to the Investment Agreement, 90% of the purchase price amounting to KRW25,276,320,000 (equivalent to approximately HK$166,824,000) shall be payable upon the completion of the Share Purchase. The purchase price of the Share Purchase shall be subject to adjustments if the aggregate audited net profits after tax of the Target Company for the year ending 31 December 2016 and 2017 are more or less than KRW12,872,200,000 (equivalent to approximately HK$84,956,000) (the ‘‘ Profit Level ’’), and the maximum purchase price shall not exceed KRW30,893,280,000 (equivalent to approximately HK$203,896,000) and the minimum purchase price shall not be below KRW25,276,320,000 (equivalent to approximately HK$166,824,000). The difference between the adjusted purchase price and the amount paid by the Company shall be payable upon the Company’s receipt of the audit report of the Target Company for the year ending 31 December 2017. The payable of KRW2,581,681,833 (equivalent to approximately HK$17,039,000) was recognised after taking into account of the discount rate.

For the purpose of this Unaudited Pro Forma Financial Information, it is assumed that the Profit Level will be achieved such that the consideration for the Share Purchase shall not require any adjustment. On that basis, the fair value of this contingent consideration is estimated to be insignificant. The Share Purchase will be accounted for using equity accounting as prescribed in Hong Kong Accounting Standards 28 (2011) “Investments in Associates and Joint Ventures” (“ HKAS 28 ”), and the consideration of the Share Purchase of approximately HK$183,863,000 is accounted for as “Interests in an associate”.

– 77 –

APPENDIX III UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE ENLARGED GROUP

The adjustment represents the consideration for the CPS Subscription. Pursuant to the Investment Agreement, the CPS Subscription shall take place in two tranches. Immediately upon the issuance of the audit report of the Target Company for the year ending 31 December 2016 and 2017 (but no later than 31 March 2018), the Target Company shall convert the CPS into its shares. The CPS shall be converted into shares of the Target Company on the basis of 1:1. However, the conversion ratio shall be subjected to adjustments if the aggregated audited net profits after tax of the Target Company for the year ending 31 December 2016 and 2017 are more or less than the Profit Level, subject to a ceiling of 1 CPS to 1.11 shares of the Target Company and a floor of 1 CPS to 0.91 share of the Target Company.

Under the first tranche of CPS subscription, the Company will subscribe for 2,864 CPS at the subscription price of KRW1,723,555,053 (equivalent to approximately HK$11,375,000) (“ First CPS Subscription ”), which shall be payable simultaneously with or prior to the Share Purchase. The First CPS Subscription contains a host contract that is accounted for as “Available-for-sale financial assets” and a conversion option which is accounted for as “Derivative” (“ First Derivative ”). For the purpose of this Unaudited Pro Forma Financial Information, it is assumed that the Profit Level will be achieved such that the conversion ratio shall not require any adjustment. Measurement of fair value of the Available-for-sale financial assets also takes into account the par value and history of dividend distribution. The fair value of Available-for-sale financial assets is estimated to be KRW1,723,555,053 (equivalent to approximately HK$11,375,000), while the fair value of the First Derivative is estimated to be insignificant with the consideration of the compulsory conversion feature and insignificant adjustment possibility.

Under the second tranche of CPS Subscription, the Company will subscribe for 20,470 CPS at the subscription price of KRW12,318,844,947 (equivalent to approximately HK$81,304,000) (“ Second CPS Subscription ”). The Second CPS Subscription shall take place within 12 months following the completion of the First CPS Subscription. The Second CPS Subscription shall be accounted for as “Derivative” (“ Second Derivative ”) and initially recognised at fair value. The fair value of the Second Derivative is insignificant as the present value of the forward price approximates market price. The fair value measurement also takes into account of forward exchange rate and discount rate.

The adjustment represents the estimated transaction costs payable by the Company upon completion of the Transaction, which included the costs of legal advisers, financial adviser and reporting accountant for the Transaction. The estimated total transaction costs of HK$4,763,000 will be settled in cash.
No adjustments have been made to reflect any trading results or other transactions of the Group entered into subsequent to 31 December 2015. The final amounts of interests in an associate, available-for-sale financial assets, derivatives and contingent consideration payable would be subjected to the changes in the key assumptions underlying the respective fair value measurements and may be different upon the completion of the Transaction.

– 78 –

APPENDIX III UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE ENLARGED GROUP

(B) REPORT ON UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE ENLARGED GROUP

The following is the text of a report received from PricewaterhouseCoopers, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.

==> picture [78 x 56] intentionally omitted <==

INDEPENDENT REPORTING ACCOUNTANT’S ASSURANCE REPORT ON THE COMPILATION OF UNAUDITED PRO FORMA FINANCIAL INFORMATION

To the Directors of Huayi Tencent Entertainment Company Limited

We have completed our assurance engagement to report on the compilation of unaudited pro forma financial information of Huayi Tencent Entertainment Company Limited (the “ Company ”) and its subsidiaries (collectively the “ Group ”), and HB Entertainment Co., Ltd. (the “ Target Company ”) (collectively the “ Enlarged Group ”) by the directors for illustrative purposes only. The unaudited pro forma financial information consists of the unaudited pro forma statement of assets and liabilities as at 31 December 2015, and related notes (the “ Unaudited Pro Forma Financial Information ”) as set out on pages 74 to 78 of the Company’s circular dated 13 June 2016, in connection with the proposed investment in the Target Company (the “ Transaction ”) by the Company. The applicable criteria on the basis of which the directors have compiled the Unaudited Pro Forma Financial Information are described on pages 74 to 78.

The Unaudited Pro Forma Financial Information has been compiled by the directors to illustrate the impact of the Transaction on the Group’s financial position as at 31 December 2015 as if the Transaction had taken place at 31 December 2015. As part of this process, information about the Group’s financial position has been extracted by the directors from the Group’s financial statements for the year ended 31 December 2015, on which an audit report has been published.

Directors’ Responsibility for the Unaudited Pro Forma Financial Information

The directors are responsible for compiling the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “ Listing Rules ”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” (“ AG 7 ”) issued by the Hong Kong Institute of Certified Public Accountants (“ HKICPA ”).

– 79 –

APPENDIX III UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE ENLARGED GROUP

Our Independence and Quality Control

We have complied with the independence and other ethical requirement of the Code of Ethics for Professional Accountants issued by the HKICPA, which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.

Our firm applies Hong Kong Standard on Quality Control 1 issued by the HKICPA and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.

Reporting Accountant’s Responsibilities

Our responsibility is to express an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements 3420 “Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus”, issued by the HKICPA. This standard requires that the reporting accountant plans and performs procedures to obtain reasonable assurance about whether the directors have compiled the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Listing Rules and with reference to AG 7 issued by the HKICPA.

For purposes of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the Unaudited Pro Forma Financial Information, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the Unaudited Pro Forma Financial Information.

The purpose of unaudited pro forma financial information included in a circular is solely to illustrate the impact of a significant event or transaction on unadjusted financial information of the entity as if the event had occurred or the transaction had been undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the Transaction at 31 December 2015 would have been as presented.

– 80 –

APPENDIX III UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE ENLARGED GROUP

A reasonable assurance engagement to report on whether the unaudited pro forma financial information has been properly compiled on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used by the directors in the compilation of the unaudited pro forma financial information provide a reasonable basis for presenting the significant effects directly attributable to the event or transaction, and to obtain sufficient appropriate evidence about whether:

The related pro forma adjustments give appropriate effect to those criteria; and
The unaudited pro forma financial information reflects the proper application of those adjustments to the unadjusted financial information.

The procedures selected depend on the reporting accountant’s judgment, having regard to the reporting accountant’s understanding of the nature of the company, the event or transaction in respect of which the unaudited pro forma financial information has been compiled, and other relevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the unaudited pro forma financial information.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion:

(a) the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

PricewaterhouseCoopers

Certified Public Accountants

Hong Kong, 13 June 2016

– 81 –

GENERAL INFORMATION

APPENDIX IV

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. DIRECTORS’ AND CHIEF EXECUTIVES’ INTERESTS AND SHORT POSITIONS IN THE SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY OR ANY ASSOCIATED CORPORATION

As at the Latest Practicable Date, the interests and short positions of the Directors and the chief executive of the Company in the shares, underlying shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (the “ SFO ”)) which were required to be (i) notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO; (ii) recorded in the register required to be kept by the Company under Section 352 of the SFO; or (iii) notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the “ Model Code ”) as set out in Appendix 10 of the Listing Rules were as follows:

Long positions in ordinary shares and underlying shares of the Company:

				Number of
				underlying		% of total
				shares held		issued share
		Nature of	Number of	under equity		capital of
Name of Director	Capacity	interests	shares held	derivatives	Total	the Company
YUEN Hoi Po	Interest of controlled	Corporate interest	1,976,492,607	–	1,976,492,607	14.64
	corporations				(Note 1)
CHU Yuguo	Beneficial owner	Personal interest	2,000,000	–	2,000,000	0.01

Note:

Mr. YUEN was deemed to be interested in 1,976,492,607 Shares held by his wholly-owned corporations namely, Ming Bang Limited, Rich Public Limited and Smart Concept Enterprise Limited.

– 82 –

GENERAL INFORMATION

APPENDIX IV

Save as disclosed above, as at the Latest Practicable Date, none of the Directors, the chief executive of the Company nor their associates had any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of the SFO) as recorded in the register required to be kept under Section 352 of the SFO, or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code and Divisions 7 and 8 of Part XV of the SFO.

Save as disclosed below, no Director was also a director or employee of a company which had an interest or short position in the shares or underlying shares of the Company which would fall to be disclosed under the provisions of Divisions 2 and 3 of Part XV of the SFO:

(a) Mr. WANG Zhongjun is the chairman and a director of Huayi Brothers Media Corporation (“ Huayi Media ”);
(b) Mr. LAU Seng Yee is an employee of a wholly-owned subsidiary of Tencent Holdings Limited (“ Tencent ”);
(c) Mr. WANG Zhonglei is a director of Huayi Brothers and the vice chairman and general manager of Huayi Media;
(d) Mr. LIN Haifeng is an employee of a wholly-owned subsidiary of Tencent;
(e) Ms. WANG Dongmei is an employee of Huayi Media; and
(f) Mr. YUEN Hoi Po is a director of Smart Concept Enterprise Limited.

3. EXPERTS AND CONSENTS

The following are the qualifications of the experts who have given advice or opinion which are contained in this circular:

Name Qualification PricewaterhouseCoopers (“ PwC ”) Certified Public Accountants, Hong Kong Samil PricewaterhouseCoopers (“ PwC Korea ”) Certified Public Accountants, Korea

Each of PwC and PwC Korea has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter or report as set out in this circular and references to its name in the form and context in which they respectively appear.

As at the Latest Practicable Date, each of PwC and PwC Korea did not have any direct or indirect interest in any asset which had been acquired, disposed of by, or leased to any member of the Group, or was proposed to be acquired, or disposed of by, or leased to any member of the Group, since 31 December 2015, the date to which the latest audited financial statements of the Group was made up; and did not have 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.

– 83 –

GENERAL INFORMATION

APPENDIX IV

4. MATERIAL LITIGATION

As at the Latest Practicable Date, so far as the Directors are aware, no member of the Group was engaged in any litigation or arbitration of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened against the Group.

5. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or was proposing to enter into any service contracts with the Company or any member of the Group (excluding contracts expiring or determinable by the Group within one year without payment of any compensation (other than statutory compensation)).

6. MATERIAL CONTRACTS

The following material contracts, not being contracts entered into in the ordinary course of business of the Group, have been entered into by the Company or its subsidiaries within the two years preceding the Latest Practicable Date:

(a) the Investment Agreement;
(b) as per the Company’s announcement dated 10 December 2015, the subscription agreement dated 10 December 2015 entered into by the Company (as issuer) with Mr. YUEN Hoi Po and Huayi Brothers (as investor) in respect of the subscription of 2,452,447,978 new Shares at an issue price of HK$0.08 per subscription share;
(c) as per the Company’s announcement dated 10 December 2015, the subscription agreement dated 10 December 2015 entered into by the Company (as issuer) with Mr. YUEN Hoi Po and Mount Qinling Investment Limited (as investor) in respect of the subscription of 2,116,251,467 new Shares at an issue price of HK$0.08 per subscription share;
(d) as per the Company’s announcement dated 10 December 2015, the subscription agreements dated 10 December 2015 entered into by the Company (as issuer) and Mr. YUEN Hoi Po with each of Confidex Key Limited, Merit New Limited, Key Ability Limited and Lofty Rainbow Limited (as investors) in respect of the subscription of an aggregate of 2,268,920,415 new Shares at an issue price of HK$0.08 per subscription share;

– 84 –

GENERAL INFORMATION

APPENDIX IV

(e) as per the Company’s joint announcement with Eternity Investment Limited dated 15 May 2015, the sale and purchase agreement dated 11 December 2014 entered into between Eternity Investment Limited as purchaser, Unique Talent Group Limited as vendor and the Company as guarantor (“ S&P Agreement ”) at an aggregate consideration of HK$1,650 million, pursuant to which (i) the vendor conditionally agreed to sell and Eternity Investment Limited conditionally agreed to purchase the entire shareholding interest in the Smart Title Limited; and (ii) the Vendor agreed to assign the benefit and interest in a loan due from the Smart Title Limited to the Vendor to Eternity Investment Limited upon completion of the relevant transactions under the S&P Agreement free from encumbrances;
(f) as per the Company’s joint announcement with Eternity Investment Limited dated 15 May 2015, the supplemental sale and purchase agreement dated 30 March 2015 entered into by parties to the S&P Agreement;
(g) as per the Company’s joint announcement with Eternity Investment Limited dated 15 May 2015, the supplemental agreement entered into on 12 June 2015 by parties to the S&P Agreement to extend the long stop date of the S&P Agreement from 31 August 2015 to 31 December 2015;
(h) as per the Company’s announcements dated 19 December 2014 and 9 June 2015, the agreement dated 19 December 2014 entered into between the Company and REORIENT Financial Markets Limited, in respect of the introduction of the transactions contemplated under the S&P Agreement to the Company and related financial advisory services provided and to be provided by REORIENT Financial Markets Limited to the Company at the consideration of HK$49,500,000 payable by the Company in the form of 82,500,000 new Shares (the “ FAS Agreement ”), the addendum to the FAS Agreement entered into between the Company and REORIENT Financial Markets Limited on 8 June 2015 in respect of the change of payment terms of the consideration under the FAS Agreement of HK$49,500,000 to be payable in the form of cash (the “ Addendum ”), and the letter of termination dated 17 June 2015 between the Company and REORIENT Financial Markets Limited terminating the FAS Agreement (as amended by the Addendum); and
(i) a variation agreement dated 22 July 2014 entered into between Beijing Bayhood No. 9 Business Hotel Company Limited* (北京北湖九號商務酒店有限公司), an indirect wholly-owned subsidiary of Smart Title Limited, and Beijing Chaolai Football Centre (北京朝來足球中心) pursuant to which Beijing Bayhood No. 9 Business Hotel Company Limited has the rights of development of and operation on the land of approximately 580 Chinese acres (equivalent to approximately 387,000 square metres), adjacent to the land on which Beijing Bayhood No. 9 Business Hotel Company Limited is operated, and to manage and operate the properties erected thereon for a revised term of up to 30 January 2062 as opposed to the original term of up to 31 May 2048.

* For identification purposes only

– 85 –

GENERAL INFORMATION

APPENDIX IV

7. INTEREST IN ASSETS OR CONTRACTS

As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any assets which had been or proposed to be acquired, disposed of by or leased to, any member of the Group since 31 December 2015, (being the date to which the latest published audited financial statements of the Group were made up).

As at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement, subsisting at the date of this circular, which is significant in relation to the business of the Group.

8. DIRECTORS’ INTERESTS IN COMPETING BUSINESSES

As at the Latest Practicable Date, none of the Directors or, so far as is known to them, any of their respective close associates was interested in any business (apart from the Group’s business) which competes or is likely to compete, either directly or indirectly, with the Group’s business (as if each of them were treated as a controlling shareholder under Rule 8.10 of the Listing Rules).

9. MISCELLANEOUS

(a) The registered office of the Company is at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands and the principal place of business of the Company in Hong Kong is at Suite 3503, 35/F, Tower Two, Lippo Centre, 89 Queensway, Hong Kong.
(b) The Hong Kong branch share registrar and transfer office of the Company is Tricor Tengis Limited, Level 22, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.
(c) The company secretary of the Company is Mr. HAU Wai Man, Raymond, who is a fellow member of the Association of Chartered Certified Accountants and a member of Hong Kong Institute of Certified Public Accountants and has accumulated over 10 years of experience in international accounting firms and corporations in Hong Kong and the People’s Republic of China.
(d) The English text of this circular shall prevail over the Chinese text in the case of inconsistency.

– 86 –

GENERAL INFORMATION

APPENDIX IV

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours at the principal place of business of the Company at Suite 3503, 35/F, Tower Two, Lippo Centre, 89 Queensway, Hong Kong up to and including 5 July 2016, being the date of the EGM:

(a) this circular;
(b) the articles of association of the Company;
(c) the annual reports of the Company for the years ended 31 December 2014 and 2015;
(d) the consent letters from PwC and PwC Korea as referred to in the above paragraph headed “Experts and Consents” in this appendix;
(e) the accountant’s report from PwC Korea on HB Entertainment for the years ended 31 December 2013, 2014 and 2015, the text of which is set out in Appendix II to this circular, together with the associated statement of adjustments;
(f) the report from PwC on the unaudited pro forma statement of assets and liabilities of the Enlarged Group, the text of which is set out in Appendix III to this circular; and
(g) a copy of each of the material contracts referred to in the paragraph headed “Material Contracts” in this appendix.

– 87 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

==> picture [263 x 51] intentionally omitted <==

華誼騰訊娛樂有限公司 Huayi Tencent Entertainment Company Limited

(Incorporated in the Cayman Islands with limited liability) (Stock Code: 419)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “ Meeting ”) of Huayi Tencent Entertainment Company Limited (the “ Company ”) will be held at Boardroom 3, Mezzanine Floor, Renaissance Harbour View Hotel Hong Kong, 1 Harbour Road, Wan Chai, Hong Kong on Tuesday, 5 July 2016 at 2:30 p.m. for the purpose of considering and, if thought fit, passing, with or without modification, the following resolution:

ORDINARY RESOLUTION

“ THAT ,

(i) the investment agreement dated 23 March 2016 entered into among the Company, HB Entertainment Co., Ltd., Ms. Bo Mi Moon and HB Corporation in relation to the subscription by the Company of 23,334 convertible preferred shares in HB Entertainment Co., Ltd. and the acquisition by the Company of an aggregate of 46,666 shares in HB Entertainment Co., Ltd. from Ms. Bo Mi Moon and HB Corporation (the “ Investment Agreement ”) (a copy of which has been produced to the Meeting and marked “A” and signed by the chairman of the Meeting for the purpose of identification) and all the incidental transactions contemplated thereunder be and are hereby approved, ratified and confirmed; and

– 88 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

(ii) any one director or (if affixing of seal is required) any two directors or one director and the company secretary of the Company be and are hereby authorized for and on behalf of the Company to do all things and acts and sign, execute, perfect, deliver (including under seal where applicable) and to authorise the signing, executing, perfecting and delivering (including under seal where applicable) of all documents which he/she may in his/her discretion consider necessary, desirable or expedient in connection with or/to implement and/or give effect to the Investment Agreement and the transactions contemplated thereunder and to agree to such variation, amendment or waiver of a non-material nature as he/she may in his/her discretion consider to be desirable and in the interests of the Company.”

On behalf of the Board Huayi Tencent Entertainment Company Limited WANG Zhongjun Chairman

Hong Kong, 13 June 2016

As at the date hereof, the Board comprises executive directors: Mr. WANG Zhongjun (Chairman), Mr. LAU Seng Yee (Vice Chairman), Mr. WANG Zhonglei, Mr. LIN Haifeng, Ms. WANG Dongmei, Mr. YUEN Hoi Po and independent non-executive directors: Dr. WONG Yau Kar David, BBS, JP, Mr. YUEN Kin, Mr. CHU Yuguo.

Notes:

(i) A member entitled to attend and vote at the above meeting is entitled to appoint one or more proxies to attend and vote instead of him/her. A proxy needs not be a member of the Company.
(ii) Where there are joint holders of any share of the Company, any one of such joint holders may vote at the meeting, either personally or by proxy, in respect of such share as if he/she was solely entitled thereto, but if more than one of such joint holders be present at the meeting personally or by proxy, that one of the said persons so present whose name stands first on the register of members of the Company in respect of such share shall alone be entitled to vote in respect thereof.
(iii) The instrument appointing a proxy and the power of attorney or other authority, if any, under which it is signed, or a notarially certified copy of such power of attorney or authority, must be lodged with the company’s share registrar and transfer office in Hong Kong, Tricor Tengis Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong for registration not less than 48 hours before the time appointed for holding the meeting.
(iv) Completion and return of the form of proxy will not preclude a member from attending the meeting and voting in person at the meeting or any adjournment thereof if he/she so desires. If a member attends the meeting after having deposited the form of proxy, his/her form of proxy will be deemed to have been revoked.

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AI assistant

CHINA STATE CONSTRUCTION DEVELOPMENT HOLDINGS LIMITED — Proxy Solicitation & Information Statement 2016

49495_rns_2016-06-10_ec857246-e106-4ffa-80c9-66be803fde95.pdf

華誼騰訊娛樂有限公司 Huayi Tencent Entertainment Company Limited

MAJOR TRANSACTION – INVESTMENT IN HB ENTERTAINMENT AND NOTICE OF EXTRAORDINARY GENERAL MEETING

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

華誼騰訊娛樂有限公司 Huayi Tencent Entertainment Company Limited

MAJOR TRANSACTION – INVESTMENT IN HB ENTERTAINMENT AND NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

LETTER FROM THE BOARD

THE INVESTMENT AGREEMENT

Date

Parties

LETTER FROM THE BOARD

Subject matters

CPS Subscription

CPS Subscription Price

First CPS Subscription Conditions Precedent

Second CPS Subscription Closing

Principal terms of the CPS

KRW140,424,000,000

LETTER FROM THE BOARD

Share Purchase

Purchase Price

Share Purchase Conditions Precedent

Basis of determining the consideration for the Investment

LETTER FROM THE BOARD

Initial public offering

Board of HB Entertainment

Cooperation and Alliance

LETTER FROM THE BOARD

Non-competition undertaking

LETTER FROM THE BOARD

Restriction on transfer of shares

Termination

HB ENTERTAINMENT GROUP STRUCTURES

(a) As at the Latest Practicable Date

LETTER FROM THE BOARD

INFORMATION ON HB ENTERTAINMENT

FINANCIAL INFORMATION OF HB ENTERTAINMENT

FINANCIAL EFFECTS OF THE TRANSACTIONS

REASONS FOR AND BENEFITS OF THE INVESTMENT AGREEMENT

LETTER FROM THE BOARD

LISTING RULES IMPLICATIONS

THE EGM

RECOMMENDATION

ADDITIONAL INFORMATION

1. FINANCIAL INFORMATION OF THE GROUP

2. STATEMENT OF INDEBTEDNESS

3. WORKING CAPITAL

4. MATERIAL ADVERSE CHANGE

5. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

(A) ACCOUNTANT’S REPORT OF HB ENTERTAINMENT

The Directors Huayi Tencent Entertainment Company Limited

Directors’ Responsibility for the Financial Information

Reporting Accountant’s Responsibility

Opinion

I. FINANCIAL INFORMATION OF HBE

Statements of Financial Position

APPENDIX II

Statements of Comprehensive Income

APPENDIX II

Statements of Changes in Equity

Statements of Cash Flows

II. NOTES TO THE FINANCIAL INFORMATION

1. GENERAL INFORMATION

2. SIGNIFICANT ACCOUNTING POLICIES

2.1 Basis of Preparation

2.2 New standards, amendments and interpretations not yet adopted

2.3 Associates

2.4 Foreign Currency Translation

(1) Functional and presentation currency

(2) Translation into the presentation currency

2.5 Cash and Cash Equivalents

2.6 Financial Assets

CHINA STATE CONSTRUCTION DEVELOPMENT HOLDINGS LIMITED Proxy Solicitation & Information Statement 2016