Chinasoft International Limited - Proxy Solicitation & Information Statement 2010

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

This circular is not an offer to sell or the solicitation of an offer to buy any securities and neither this circular nor anything herein forms the basis for any contract or commitment whatsoever.

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, registered institution in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Melco International Development Limited, you should at once hand this circular, together with the enclosed form of proxy, to the purchaser or transferee or to the bank, the licensed securities dealer, registered institution in securities or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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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Melco International Development Limited

(Incorporated in Hong Kong with limited liability) Website: http://www.melco-group.com (Stock Code: 200)

CONNECTED TRANSACTION – MATERIAL AMENDMENTS TO TERMS OF THE HK$1,175 MILLION CONVERTIBLE LOAN NOTES DUE 2010 UNDER RULE 28.05 OF THE LISTING RULES

APPLICATION FOR A WHITEWASH WAIVER

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

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A letter from the Board of Directors of the Company is set out on pages 5 to 19 of this circular. A letter from the Independent Board Committee of the Company containing its advice to the Independent Shareholders is set out on pages 20 to 21 of this circular. A letter from Cinda International Capital Limited, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders of the Company, containing its advice to the Independent Board Committee and the Independent Shareholders of the Company is set out on pages 22 to 42 of this circular.

A notice convening an extraordinary general meeting (“EGM”) of the Company to be held at 38th Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong at 10:30 a.m. on Monday, 8 February 2010 is set out on pages 179 to 180 of this circular. A form of proxy for use at the EGM is enclosed. Whether or not you intend to attend and vote at the EGM or any adjourned meeting in person, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon and return it to the Company’s registered office at 38th Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong as soon as possible, but in any event not less than 48 hours before the time appointed for holding the EGM or any adjourned meeting thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjourned meeting should you so wish.

20 January 2010

	Page
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Letter from the Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Letter from the Independent Financial Adviser. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Appendix I – Financial Information of the Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Appendix II – General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
Notice of EGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179

This circular is printed on environmentally friendly paper.

DEFINITIONS

In this circular, unless the context otherwise requires, the following terms have the meanings set opposite them below:

“22 July 2005 Circular”

the circular of the Company dated 22 July 2005 relating to, inter alia, the Convertible Loan Notes

“Acquisition” the acquisition by the Company’s subsidiary of an approximately 49.2% interest in a joint venture relating to a parcel of land located on the Cotai Strip in Macau in 2005

“Additional Class 6 Presumed
Concert Parties”

the Directors and their close relatives, related trusts and companies controlled by such Directors, their close relatives and related trusts (other than Mr. Lawrence Ho and his close relatives, related trusts and companies controlled by him, his close relatives and related trusts)

“Announcement” the announcement of the Company dated 16 December 2009 relating to the Deed of Amendment and the Whitewash Waiver
“associate” the meaning assigned to that expression in the Listing Rules
“Better Joy” Better Joy Overseas Limited, beneficial interests in which are owned by persons and/or trusts associated with Mr. Lawrence Ho
“Board” the Board of Directors of the Company
“Business Day” a day (excluding Saturday and any day on which a tropical cyclone warning no. 8 or above is hoisted at any time between 9:00 a.m. and 5:30 p.m. or on which a “black” rainstorm warning is hoisted at any time between 9:00 a.m. and 5:30 p.m.) on which licensed banks in Hong Kong are open for business
“Company” Melco International Development Limited, a company established under the laws of Hong Kong and having its Shares listed on the Stock Exchange
“Conversion Shares” the Shares that are to be issued and allotted upon conversion of the Convertible Loan Notes
“Convertible Loan Notes” the HK$1,175 million in principal amount of convertible loan notes due 2010 issued by the Company to Great Respect
“Deed of Amendment” the deed of amendment entered into between the Company and Great Respect on 16 December 2009
“Directors” directors of the Company

DEFINITIONS

“Dr. Stanley Ho” Dr. Ho Hung Sun, Stanley “EGM” an extraordinary general meeting of the Company convened to be held at 10:30 a.m. on Monday, 8 February 2010 for the purpose of considering, and if thought fit, approving: (a) the Deed of Amendment; and (b) the Whitewash Waiver
“Executive” the Executive Director of the Corporate Finance Division of the SFC or any of his delegates
“Great Respect” Great Respect Limited, a company incorporated in the British Virgin Islands which is controlled by a discretionary family trust of Dr. Stanley Ho, beneficiaries of which trust are members of Dr. Stanley Ho’s family, including but not limited to Dr. Stanley Ho, Mr. Lawrence Ho and Madam Lucina Laam King Ying
“Group” the Company and its subsidiaries from time to time
“Independent Board Committee” the independent board committee of the Company comprising the Independent Non-executive Directors, namely Sir Roger Lobo, Dr. Lo Ka Shui and Mr. Sham Sui Leung, Daniel, appointed to advise the Independent Shareholders on the Deed of Amendment and the Whitewash Waiver and as to whether or not the terms of the Deed of Amendment and the Whitewash Waiver are fair and reasonable and in the interests of the Independent Shareholders as a whole
“Independent Financial Adviser” Cinda International Capital Limited, the independent financial adviser appointed to advise the Independent Board Committee in connection with the Deed of Amendment and the Whitewash Waiver
“Independent Shareholders” the Shareholders other than the members of the Lawrence Ho Concert Party, the Additional Class 6 Presumed Concert Parties, the trustee holding Shares for The Melco Share Purchase Scheme Trust and The Melco Share Award Scheme Trust and persons otherwise involved or interested in the Deed of Amendment and the Whitewash Waiver
“Independent Third Party” an independent third party not connected with the Directors, chief executive or substantial shareholders of the Company or any of its subsidiaries or their respective associates

DEFINITIONS

“Initial Conversion Price”

HK$9.965 per Share

“Last Trading Date” 15 December 2009, being the last date on which the Shares were traded on the Stock Exchange prior to the date of the Announcement

“Lasting Legend”

Lasting Legend Limited, beneficial interests in which are owned by persons and/or trusts associated with Mr. Lawrence Ho

“Latest Practicable Date”

15 January 2010, being the latest practicable date prior to the despatch of this circular for ascertaining certain information for the purpose of inclusion in this circular

“Lawrence Ho Concert Party” Mr. Lawrence Ho and certain persons either acting in concert with him or presumed to be acting in concert with him for the purposes of the Takeovers Code, including Better Joy (beneficial interests in which are owned by persons and/or trusts associated with Mr. Lawrence Ho); Lasting Legend (beneficial interests in which are owned by persons and/or trusts associated with Mr. Lawrence Ho); The L3G Capital Trust (beneficial interests in which are owned by persons and/or trusts associated with Mr. Lawrence Ho); Dr. Stanley Ho (the father of Mr. Lawrence Ho); Lanceford Company Limited (a company controlled by Dr. Stanley Ho); Madam Lucina Laam King Ying (the mother of Mr. Lawrence Ho); STDM, (an associate of Dr. Stanley Ho); Ms. Ho Daisy Chiu Fung (the sister of Mr. Lawrence Ho) and Great Respect.

Shareholders should note that the Additional Class 6 Presumed Concert Parties (as referred to in the definition of that expression above), The Melco Share Purchase Scheme Trust and The Melco Share Award Scheme Trust are also presumed for the purposes of the Takeovers Code to be acting in concert with Mr. Lawrence Ho in respect of the Company and the Whitewash Waiver. In the case of the Additional Class 6 Presumed Concert Parties, this is by virtue of Class 6 of the presumptions under the definition of “Acting in concert” under the Takeovers Code and Note 7 to that definition. In the case of The Melco Share Purchase Scheme Trust and The Melco Share Award Scheme Trust, this is by virtue of the application of Note 20 to Rule 26.1 of the Takeovers Code. The Additional Class 6 Presumed Concert Parties are separately defined in this circular and are not included in the defined term “Lawrence Ho Concert Party” and their holdings of and dealings (if any) in the securities of the Company are separately disclosed. Similarly, The Melco Share Purchase Scheme Trust and The Melco Share Award Scheme Trust and their respective holdings of and dealings (if any) in the securities of the Company are separately dealt with and separately disclosed in this circular.

DEFINITIONS

“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange
“Mr. Lawrence Ho”	Mr. Ho, Lawrence Yau Lung
“Notice of EGM”	the notice of the Company dated 20 January 2010 convening the
	EGM as set out on pages 179 to 180 of this circular
“Original Maturity Date”	4 September 2010, being five years from the date of issue of the
	Convertible Loan Notes
“Relevant Period”	the period commencing on the date falling six months prior to the
	date of the Announcement and ended on the Latest Practicable
	Date
“Revised Conversion Price”	HK$3.93
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the Laws of
	Hong Kong)
“Shareholders”	holders of Shares
“Shares”	shares of HK$0.5 each in the share capital of the Company
“STDM”	Sociedade de Turism e Diversões de Macau, S.A., a company
	established under the laws of Macau, which is an associate of Dr.
	Stanley Ho
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Takeovers Code”	the Hong Kong Code on Takeovers and Mergers
“Whitewash Waiver”	the waiver by the Executive of the obligations of Mr. Lawrence
	Ho and Great Respect to make a mandatory general offer pursuant
	to the provisions of Rule 26 of the Takeovers Code to acquire
	the entire issued share capital of the Company not otherwise
	owned by them and parties acting in concert with them under the
	Takeovers Code which would otherwise arise as a result of any
	and all future exercises of the conversion rights conferred by the
	Convertible Loan Notes (as amended by the Deed of Amendment),
	such waiver to be subject to such conditions as are customary,
	including the approval of the Independent Shareholders pursuant
	to a vote conducted by way of poll having been obtained at the
	EGM and full compliance with the provisions of the Takeovers
	Code

LETTER FROM THE BOARD

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Melco International Development Limited

(Incorporated in Hong Kong with limited liability) Website: http://www.melco-group.com (Stock Code: 200)

Executive Directors: Mr. Ho, Lawrence Yau Lung (Chairman and Chief Executive Officer) Mr. Tsui Che Yin, Frank Mr. Chung Yuk Man, Clarence

Registered Office: 38th Floor, The Centrium 60 Wyndham Street Central Hong Kong

Non-executive Director: Mr. Ng Ching Wo

Independent Non-executive Directors: Sir Roger Lobo Dr. Lo Ka Shui Mr. Sham Sui Leung, Daniel

20 January 2010

To the Shareholders

Dear Sir or Madam,

CONNECTED TRANSACTION – MATERIAL AMENDMENTS TO TERMS OF THE HK$1,175 MILLION CONVERTIBLE LOAN NOTES DUE 2010 UNDER RULE 28.05 OF THE LISTING RULES

APPLICATION FOR A WHITEWASH WAIVER

1. INTRODUCTION

In its Announcement dated 16 December 2009, the Company announced that on 16 December 2009, the Company had entered into a Deed of Amendment with Great Respect to amend the terms of the Convertible Loan Notes. The principal terms of the Convertible Loan Notes and the proposed amendments of the terms of the Convertible Loan Notes to be effected by the Deed of Amendment were summarised in the Announcement.

The purpose of this circular is to give you further details of:

(a) the Deed of Amendment and the transactions contemplated thereunder; and
(b) the Whitewash Waiver application.

LETTER FROM THE BOARD

This circular also sets out the recommendations from the Independent Board Committee to the Independent Shareholders, a letter of advice from the Independent Financial Adviser to the Independent Board Committee, financial information (in Appendix I) and other general information (in Appendix II) in relation to the Group and the Notice of the EGM.

2. BACKGROUND

The Company refers to its announcement dated 13 May 2005 and the 22 July 2005 Circular. As described in the 22 July 2005 Circular, the Company issued the Convertible Loan Notes to Great Respect, as consideration for the Acquisition.

The principal terms of the Convertible Loan Notes are summarised again below for Shareholders’ ease of reference:

Principal Amount : HK$1,175 million, equal to the consideration payable to Great Respect pursuant to the Acquisition.
Status : General, unsecured obligations of the Company ranking equally among themselves and pari passu with all other present and future unsecured and unsubordinated obligations of the Company.
Maturity : On the Original Maturity Date. Interest : The Convertible Loan Notes do not bear interest. Conversion : The principal amount of the Convertible Loan Notes is currently convertible into Conversion Shares at the Initial Conversion Price, subject to customary adjustments to accommodate, among other things, subdivisions and consolidations of the shares of the Company, in accordance with the terms of the Convertible Loan Notes. The conversion price was equal to the average closing price of the Company’s shares (after adjusting for a share subdivision) on the five trading days immediately preceding 10 May 2005, being the last date on which the Company’s shares were traded on the Stock Exchange prior to the suspension of trading in the Company’s shares pending the release of the announcement relating (among other things) to the issue of the Convertible Loan Notes. Shares issued upon an exercise of the conversion rights conferred under the Convertible Loan Notes rank pari passu in all respects with all other existing Shares outstanding at the relevant conversion date and all Shares issued upon conversion shall include rights to participate in all dividends and other distributions the record date for which falls on or after the relevant conversion date.

LETTER FROM THE BOARD

Transfer : The Convertible Loan Notes are not transferable without the consent of the Company.
Redemption : The Convertible Loan Notes (if not already redeemed or converted) must be redeemed by the Company on the Original Maturity Date. The Convertible Loan Notes may be redeemed, at the option of the holder of the Convertible Loan Notes, on the occurrence of certain specified events of default of the Company. In either case, the Convertible Loan Notes shall be redeemed at an amount equal to 100% of the principal amount of the Convertible Loan Notes being redeemed.

Shareholders are also referred to the 22 July 2005 Circular for further details of the Acquisition and the Convertible Loan Notes.

The issue of the Convertible Loan Notes was approved as a connected transaction under the Listing Rules

The issue of the Convertible Loan Notes was a connected transaction for the Company under Chapter 14A of the Listing Rules and was approved by the independent shareholders of the Company at an extraordinary general meeting of the Company held on 10 August 2005.

Whitewash Waiver

In addition, the Convertible Loan Notes were issued with the benefit of a whitewash waiver granted under Note 1 on Dispensations from Rule 26 of the Takeovers Code. The whitewash waiver was a waiver of the general offer obligation of Great Respect which would otherwise arise on conversion of the Convertible Loan Notes in full. The whitewash waiver was approved by the independent shareholders of the Company at the extraordinary general meeting of the Company held on 10 August 2005 and granted by the Executive on 28 July 2005.

LETTER FROM THE BOARD

Shareholding structure of the Company as at the Latest Practicable Date and upon full conversion of the Convertible Loan Notes (in accordance with their existing terms, prior to the amendments proposed to be made by the Deed of Amendment)

The issued share capital of the Company (1) as at the Latest Practicable Date and (2) assuming conversion of the Convertible Loan Notes (in accordance with their existing terms, prior to the amendments proposed to be made by the Deed of Amendment) in full (but no other changes to the Company’s issued share capital), are set out in the table below:

Name of shareholder Mr. Lawrence Ho and entities controlled by him Mr. Lawrence Ho Better Joy Lasting Legend The L3G Capital Trust Lawrence Ho Group sub-total Dr. Stanley Ho Lanceford Company Limited Madam Lucina Laam King Ying Sociedade de Turismo e Diversoes de Macau, S.A. Ms. Ho Daisy Chiu Fung Great Respect Lawrence Ho Concert Party sub-total Additional Class 6 Presumed Concert Parties Shares held by the trustee on behalf of The Melco Share Purchase Scheme Trust and The Melco Share Award Scheme Trust Total of (1) Lawrence Ho Concert Party, (2) Additional Class 6 Presumed Concert Parties and (3) Shares held by the trustee on behalf of The Melco Share Purchase Scheme Trust and The Melco Share Award Scheme Trust Public Total*	Existing shareholding as at the Latest Practicable Date Number of Percentage Shares Shareholding 7,793,951 0.63% 288,532,606 23.45% 115,509,024 9.39% 7,294,000 0.59% 419,129,581 34.07% 18,587,789 1.51% 3,127,107 0.25% 444,574 0.04% 222 0.00002% 67,500 0.005% – – 441,356,773 35.88% 2,319,988 0.19% 1,601,485 0.13% 445,278,246 36.19% 784,980,693 63.81% 1,230,258,939 100.00%	Assuming full conversion of the Convertible Loan Notes Number of Percentage Shares Shareholding 7,793,951 0.58% 288,532,606 21.40% 115,509,024 8.57% 7,294,000 0.54% 419,129,581 31.09% 18,587,789 1.38% 3,127,107 0.23% 444,574 0.03% 222 0.00002% 67,500 0.005% 117,912,694 8.75% 559,269,467 41.48% 2,319,988 0.17% 1,601,485 0.12% 563,190,940 41.77% 784,980,693 58.23% 1,348,171,633 100.00%	Assuming full conversion of the Convertible Loan Notes Number of Percentage Shares Shareholding 7,793,951 0.58% 288,532,606 21.40% 115,509,024 8.57% 7,294,000 0.54% 419,129,581 31.09% 18,587,789 1.38% 3,127,107 0.23% 444,574 0.03% 222 0.00002% 67,500 0.005% 117,912,694 8.75% 559,269,467 41.48% 2,319,988 0.17% 1,601,485 0.12% 563,190,940 41.77% 784,980,693 58.23% 1,348,171,633 100.00%
			31.09% 1.38% 0.23% 0.03% 0.00002% 0.005% 8.75%
			41.48% 0.17% 0.12%
			41.77% 58.23%
			100.00%

LETTER FROM THE BOARD

As at the Latest Practicable Date, Mr. Lawrence Ho and the other directors of the Company presumed to be acting in concert under Class 6 of the definition of “Acting in concert” under the Takeovers Code also hold the respective numbers of options granted under the share option scheme of the Company adopted on 8 March 2002 and Shares awarded under The Melco Share Purchase Scheme Trust of the Company adopted on 18 October 2007 shown in the table on page 10 below.

As at the Latest Practicable Date, the Lawrence Ho Concert Party held Shares representing (in aggregate) approximately 35.88% of the total voting rights of the Company.

Great Respect is controlled by a discretionary family trust of Dr. Stanley Ho and beneficiaries of such trust are members of Dr. Stanley Ho’s family, including but not limited to Dr. Stanley Ho, Mr. Lawrence Ho and Madam Lucina Laam King Ying.

In addition, pursuant to Note 7 to the definition of “Acting in concert” in the Takeovers Code and Note 1 to paragraph 3 of Schedule VI (Whitewash Guidance Note) to the Takeovers Code, the presumption in Class 6 of the definition of “Acting in concert” under the Takeovers Code is applicable in the context of a whitewash waiver application. Pursuant to Class 6 of the definition of “Acting in concert”, directors of a company (together with their close relatives, related trusts and companies controlled by such directors, their close relatives and related trusts) which is the subject of a whitewash waiver application are presumed to be acting in concert with each other unless the contrary is established. The shareholdings of the Directors are set out in the table on page 10 below. As at the Latest Practicable Date, the Lawrence Ho Concert Party and the Additional Class 6 Presumed Concert Parties held Shares in the Company representing, in aggregate, approximately 36.06% of the total voting rights of the Company. In addition, as at the Latest Practicable Date, the trustee holding Shares for The Melco Share Purchase Scheme Trust and The Melco Share Award Scheme Trust held Shares in the Company representing approximately 0.13% of the total voting rights of the Company.

Other than (i) the Lawrence Ho Concert Party; (ii) the Additional Class 6 Presumed Concert Parties and (iii) the trustee of The Melco Share Purchase Scheme Trust and The Melco Share Award Scheme Trust, there are no other parties acting or presumed to be acting in concert with Mr. Lawrence Ho and/or Great Respect who either hold Shares or have dealt for value in the Shares during the Relevant Period.

On conversion of the Convertible Loan Notes in full (prior to the amendments of the Convertible Loan Notes to be effected by the Deed of Amendment), the aggregate shareholding of the Lawrence Ho Concert Party would be increased to approximately 41.48% of the Company’s issued share capital and the aggregate shareholding of the Lawrence Ho Concert Party, the Additional Class 6 Presumed Concert Parties and the trustee of The Melco Share Purchase Scheme Trust and The Melco Share Award Scheme Trust would be increased to approximately 41.77% of the Company’s issued share capital.

LETTER FROM THE BOARD

As at the Latest Practicable Date, the Directors hold the following Shares and options to subscribe for Shares:

			Number of
			unvested awarded
			Shares under
	Existing		The Melco Share
	shareholding in	Number of share	Purchase Scheme
	the Company	options held	Trust held
	as at the Latest	as at the Latest	as at the Latest
Name of director of the Company	Practicable Date	Practicable Date	Practicable Date
Mr. Lawrence Ho	7,793,951	1,458,520	318,661
Mr. Tsui Che Yin, Frank	103,104	1,018,000	78,556
Mr. Chung Yuk Man, Clarence	80,884	1,618,000	78,556
Dr. Lo Ka Shui	2,034,000	442,000	38,000
Sir Roger Lobo	34,000	442,000	38,000
Mr. Sham Sui Leung, Daniel	34,000	142,000	38,000
Mr. Ng Ching Wo	34,000	442,000	38,000
Total	10,113,939	5,562,520	627,773

CONVERTIBLE LOAN NOTES

Proposed amendments of the terms of the Convertible Loan Notes

On 16 December 2009, the Company entered into the Deed of Amendment with Great Respect, to amend the terms of the Convertible Loan Notes. The amendments of the terms of the Convertible Loan Notes proposed to be effected by the Deed of Amendment are summarised below:

Revised maturity date

: To extend the maturity date, so that it is eight years from the date of issue of the Convertible Loan Notes. The revised maturity date, therefore, would be 4 September 2013.

Revised Conversion Price

: To reduce the conversion price, to HK$3.93 per Share to be issued by the Company upon exercise of the conversion rights under the amended Convertible Loan Notes, subject to customary adjustments in, amongst others, the following circumstances:
(a) share consolidation and share subdivision;
(b) issue of shares by way of capitalisation of profits or reserves, other than shares issued in lieu of the whole or a part of a cash dividend;

LETTER FROM THE BOARD

(c) capital distribution;
(d) issue of shares or options, warrants or other rights to subscribe for shares, by way of rights at less than 95% of the then current market price per share;
(e) issue of other securities by way of rights;
(f) issue of shares other than by way of rights;
(g) issue of shares upon conversion or exchange at less than 95% of the then current market price per share;
(h) modification of rights of conversion, exchange or subscription so that the consideration receivable by the Company is less than 95% of the then current market price per share;
(i) offer for shares; and
(j) other events, where the Company or the noteholders holding not less than 75% in value of the outstanding principal amount of the Convertible Loan Notes determine that an adjustment should be made to the conversion price and an independent accountant certifies that the adjustment proposed to be made would be fair and reasonable. In the event that any adjustment is made to the conversion price pursuant to this item (j), the Company will comply with the applicable requirements of the Listing Rules, as and when appropriate.

For the avoidance of doubt, the adjustment events in respect of the Convertible Loan Notes are not being amended by the Deed of Amendment and are the same as those disclosed in the 22 July 2005 Circular.

Early redemption at the option of : To permit the Company to redeem all or part of the the Company outstanding Convertible Loan Notes in the Company’s absolute discretion, at any time prior to the maturity date of the Convertible Loan Notes, at 100% of their principal amount outstanding.

LETTER FROM THE BOARD

Early redemption at the option of the Noteholder

: To permit the holder of the Convertible Loan Notes to require the Convertible Loan Notes to be redeemed prior to their maturity in any of the following circumstances:
(i) the Lawrence Ho Concert Party ceases to be interested (in aggregate) in at least 30% of the issued shares of the Company, except as a result of disposals of shares by members of the Lawrence Ho Concert Party;
(ii) a general offer by way of takeover (other than one proposed by a member of the Lawrence Ho Concert Party or such member’s associate or a scheme of arrangement contemplated by (iii) below) is made to all or substantially all the holders of shares in the Company (or all or substantially all such holders other than the offeror and persons acting in concert with the offeror) and such offer becomes or is declared unconditional; or
(iii) a privatisation proposal by way of scheme of arrangement (other than one proposed by a member of the Lawrence Ho Concert Party or such member’s associate) is made and approved by the necessary numbers of shareholders of the Company at the requisite meetings.

Conditions of the Deed of Amendment

The Deed of Amendment is conditional on, and the proposed amendments thereunder will only become effective subject to:

(a) (unless waived by Great Respect), the grant in terms satisfactory to Great Respect (acting reasonably) by the SFC of a “whitewash” waiver of the general offer obligation of Great Respect which would otherwise arise on exercise of the conversion rights under the amended Convertible Loan Notes in full;
(b) approval of the Deed of Amendment and the issue of new shares on exercise in full of the conversion rights under the Convertible Loan Notes as amended by the Deed of Amendment, by one or more resolutions of the Company’s independent shareholders passed at an extraordinary general meeting of the Company;
(c) the Stock Exchange approving the proposed amendments contemplated by the Deed of Amendment pursuant to Rule 28.05 of the Listing Rules; and

LETTER FROM THE BOARD

(d) the Listing Committee of the Stock Exchange granting the listing of and permission to deal in the new Conversion Shares.

The Revised Conversion Price

The Revised Conversion Price of HK$3.93 per New Conversion Share was determined after arm’s length negotiations between the Company and Great Respect with reference to the recent traded prices of the Shares. The Revised Conversion Price represents:

(i) a premium of approximately 1.81% over the closing price of HK$3.86 per Share as quoted on the Stock Exchange on the Last Trading Day;
(ii) a premium of approximately 0.77% over the average of the closing prices of approximately HK$3.90 per Share as quoted on the Stock Exchange for the five consecutive trading days up to and including the Last Trading Day;
(iii) a discount of approximately 2.00% to the average of the closing prices of approximately HK$4.01 per Share as quoted on the Stock Exchange for the ten consecutive trading days up to and including the Last Trading Day;
(iv) a discount of approximately 60.56% to the Initial Conversion Price; and
(v) a discount of approximately 38.79% to the audited net assets value per Share (calculated based on the net assets attributable to equity holders of the Company as at 31 December 2008 of approximately HK$7,899,505,000 divided by 1,230,258,939 Shares in issue as at the Latest Practicable Date) of approximately HK$6.42 per Share.

The exercise in full of the conversion rights under the amended Convertible Loan Notes, at the Revised Conversion Price, would result in the issue of an aggregate of 298,982,188 Shares, representing approximately 24.30% of the existing issued share capital of the Company (prior to any exercise of the conversion rights under the Convertible Loan Notes) or approximately 19.55% of the diluted share capital of the Company assuming the exercise of the conversion rights under the amended Convertible Loan Notes in full.

Reasons for the proposed amendments of the Convertible Loan Notes

The terms of the Deed of Amendment were agreed following arm’s length negotiations between the Company and Great Respect.

Without the extension, the Convertible Loan Notes will be repayable on 4 September 2010. The Board has concluded that the cost of obtaining alternative sources of medium to long term debt funding to repay the amount due to Great Respect when the Convertible Loan Notes mature on 4 September 2010 year would have been very high, and hence would not be in the best interests of the Company and its shareholders. Further, if the maturity date of the Convertible Loan Notes is not extended before the Company publishes its 2009 accounts, the Company will have a going concern issue (since its current liabilities will exceed its current assets) and its accounts may be qualified by its auditors. Accordingly, the

LETTER FROM THE BOARD

Directors consider that it would be in the best interests of the Company and its Shareholders as a whole to extend the maturity date of the Convertible Loan Notes. The extended maturity date also has the benefit of relieving the immediate funding needs of the Company.

The Company and its Directors acknowledge that, following recent volatility in the financial markets, the Shares have been trading at prices substantially lower than the Initial Conversion Price under the Convertible Loan Notes. In order to achieve the benefits of an extended maturity date under the Convertible Loan Notes, the Company considers that it would be reasonable to agree to reduce the conversion price under the Convertible Loan Notes, to one that is more in line with the current traded prices of the Company’s Shares; and that this would be consistent with the commercial rationale underlying the determination of the Initial Conversion Price when the Convertible Loan Notes were originally issued. A future conversion of the Convertible Loan Notes at the Revised Conversion Price would have the benefit of further strengthening the equity capital reserves of the Company and reducing debt levels and the Company’s gearing ratio. In connection with the proposed reduction of the conversion price, it is also proposed that the terms of the Convertible Loan Notes will be amended by giving the Company a right to redeem the Convertible Loan Notes at any time prior to their maturity date, at 100% of the principal amount of the Convertible Loan Notes outstanding. The early redemption right would be exercisable by the Company at its discretion.

Mr. Lawrence Ho and Great Respect do not anticipate that the Whitewash Waiver will impact on the continuation of, or cause any major changes to the business (including any redeployment of the fixed assets of the Group) or affect the continued employment of the employees of the Group. Unrelated to the Deed of Amendment or the Whitewash Waiver, however, the Company is currently in discussions relating to the possible disposal of its wholly owned subsidiary, Elixir International Limited, which is a gaming product supplier specialising in the design, development and supply of gaming technologies, including surveillance equipment and other gaming products used in casinos. Those discussions are ongoing and, as at the Latest Practicable Date, no terms have been agreed in relation to any such possible disposal and there is no assurance that those discussions will ultimately result in the terms of such a disposal being agreed.

IMPLICATIONS UNDER THE TAKEOVERS CODE

As at the Latest Practicable Date, none of the conversion rights under the Convertible Loan Notes have been exercised by Great Respect.

If the Deed of Amendment becomes unconditional and the proposed amendments become effective, the total number of Shares which would be issued on exercise in full of the conversion rights under the Convertible Loan Notes would increase from 117,912,694 Shares to 298,982,188 Shares (subject to adjustment in accordance with the amended terms of the Convertible Loan Notes).

LETTER FROM THE BOARD

The table below shows the issued share capital of the Company (1) as at the Latest Practicable Date and (2) assuming conversion of the amended Convertible Loan Notes in full (but no other changes to the Company’s issued share capital):

Name of shareholder Mr. Lawrence Ho and entities controlled by him Mr. Lawrence Ho Better Joy Overseas Ltd. Lasting Legend Ltd. The L3G Capital Trust Mr. Lawrence Ho Group sub-total Dr. Ho Hung Sun, Stanley Lanceford Company Limited Madam Lucina Laam King Ying STDM Ms. Ho Daisy Chiu Fung Great Respect Lawrence Ho Concert Party sub-total Additional Class 6 Presumed Concert Parties Shares held by the trustee on behalf of The Melco Share Purchase Scheme Trust and The Melco Share Award Scheme Trust Total of (1) Lawrence Ho Concert Party, (2) Additional Class 6 Presumed Concert Parties and (3) Shares held by the trustee on behalf of The Melco Share Purchase Scheme Trust and The Melco Share Award Scheme Trust Public Total	Existing shareholding as at the Latest Practicable Date Number of Percentage Shares Shareholding 7,793,951 0.63% 288,532,606 23.45% 115,509,024 9.39% 7,294,000 0.59% 419,129,581 34.07% 18,587,789 1.51% 3,127,107 0.25% 444,574 0.04% 222 0.00002% 67,500 0.005% – – 441,356,773 35.88% 2,319,988 0.19% 1,601,485 0.13% 445,278,246 36.19% 784,980,693 63.81% 1,230,258,939 100.00%	Assuming full conversion of the amended Convertible Loan Notes Number of Percentage Shares Shareholding 7,793,951 0.51% 288,532,606 18.87% 115,509,024 7.55% 7,294,000 0.48% 419,129,581 27.41% 18,587,789 1.22% 3,127,107 0.20% 444,574 0.03% 222 0.00001% 67,500 0.004% 298,982,188 19.55% 740,338,961 48.41% 2,319,988 0.15% 1,601,485 0.10% 744,260,434 48.66% 784,980,693 51.33% 1,529,241,127 100.00%	Assuming full conversion of the amended Convertible Loan Notes Number of Percentage Shares Shareholding 7,793,951 0.51% 288,532,606 18.87% 115,509,024 7.55% 7,294,000 0.48% 419,129,581 27.41% 18,587,789 1.22% 3,127,107 0.20% 444,574 0.03% 222 0.00001% 67,500 0.004% 298,982,188 19.55% 740,338,961 48.41% 2,319,988 0.15% 1,601,485 0.10% 744,260,434 48.66% 784,980,693 51.33% 1,529,241,127 100.00%
			27.41% 1.22% 0.20% 0.03% 0.00001% 0.004% 19.55%
			48.41% 0.15% 0.10%
			48.66% 51.33%
			100.00%

LETTER FROM THE BOARD

An application has been made to the SFC under Note 1 on Dispensations from Rule 26 of the Takeovers Code, for the Whitewash Waiver.

The Executive has agreed, subject to approval by a resolution of the Independent Shareholders (which is to be proposed for approval at the EGM), to waive any obligation of Great Respect and Mr. Lawrence Ho to make a mandatory general offer under the Takeovers Code to acquire all of the Shares of the Company other than those already owned by them and persons acting in concert with them, which would otherwise arise on exercise of the conversion rights under the amended Convertible Loan Notes in full.

If the Whitewash Waiver is not approved by a resolution of the Independent Shareholders, Great Respect would be entitled (but not required) to waive that condition under the Deed of Amendment. If it did so, Great Respect would only exercise the conversion rights under the amended Convertible Loan Notes in a manner that would not result in Great Respect incurring an obligation to make a mandatory general offer under the Takeovers Code to acquire all of the Shares of the Company other than those already owned by Great Respect and persons acting in concert with it.

As disclosed in the Announcement, three Directors of the Company were awarded Shares on 17 December 2008 under The Melco Share Purchase Scheme Trust, which are subject to a vesting schedule whereby one-third of the Shares awarded to the relevant Director vested on each of 1 May 2009, 1 August 2009 and 1 November 2009. The Directors and the numbers of Shares involved are as follows:

(a) Mr. Lawrence Ho – 289,998 Shares in total, vesting in three equal tranches on the dates specified above.
(b) Mr. Tsui Che Yin, Frank – a total of 43,998 Shares vesting in three equal tranches on the dates specified above.
(c) Mr. Chung Yuk Man, Clarence – a total of 43,998 Shares vesting in three equal tranches on the dates specified above.

Following the relevant Shares having vested, they were transferred to the relevant Directors by the trustee.

In addition, a further tranche of the Shares awarded to the three Directors on 17 December 2008 under The Melco Share Purchase Scheme Trust will vest on 1 February 2010, as follows:

(a) Mr. Lawrence Ho – 96,666 Shares vesting on 1 February 2010.
(b) Mr. Tsui Che Yin, Frank – 14,666 Shares vesting on 1 February 2010.
(c) Mr. Chung Yuk Man, Clarence – 14,666 Shares vesting on 1 February 2010.

After those Shares have vested, the relevant Directors entitled to the vested Shares can require the trustee of The Melco Share Purchase Scheme Trust to transfer the relevant vested Shares to the Director.

LETTER FROM THE BOARD

Similarly, an aggregate of 49,665 Shares became vested in respect of awards made on 17 December 2008 to employees of the Group under The Melco Share Award Scheme Trust, on 1 August 2009 and 1 November 2009. Following the relevant Shares having vested, they were transferred to the relevant employees by the trustee. In addition, a total of 49,665 Shares awarded to the employees on 17 December 2008 under The Melco Share Award Scheme Trust will also vest on 1 February 2010. Following those Shares having vested, the relevant employees can require the trustee to transfer the Shares to them.

An application for a ruling has been made to the Executive to (i) confirm whether or not the vesting of those Shares under The Melco Share Purchase Scheme Trust and The Melco Share Award Scheme Trust on 1 August 2009 and 1 November 2009 (and the transfer by the trustee of such vested Shares to the relevant Directors and employees) constitutes disqualifying transactions for the purpose of the Whitewash Waiver application and (ii) seek the Executive’s consent to the vesting of the Shares to Directors and employees of the Group on 1 February 2010 and the transfer by the trustee of such vested Shares to the relevant Directors and employees under The Melco Share Purchase Scheme Trust and The Melco Share Award Scheme Trust.

Further details of the awards made to the Directors under The Melco Share Purchase Scheme Trust are set out in Section 4(a)(I)(iii) of Appendix II under the main heading “Disclosure of Interests under the SFO” and the sub-heading “Shares awarded to the Directors pursuant to The Melco Share Purchase Scheme Trust (share incentive award scheme) adopted by the Company on 18 October 2007.”

As at the Latest Practicable Date, there are no agreements, arrangements or understandings entered into by Great Respect or Mr. Lawrence Ho to transfer, charge or pledge to any other persons any Conversion Shares which might be issued on conversion of the Convertible Loan Notes and to which the Whitewash Waiver proposal relates.

LISTING RULES IMPLICATIONS

The proposed amendments to the Convertible Loan Notes to be effected by the Deed of Amendment constitute a material change to the terms of the Convertible Loan Notes, the issue of which was originally approved as a connected transaction of the Company under the Listing Rules. Accordingly, the proposed amendments to be effected under the Deed of Amendment are subject to approval, as a connected transaction of the Company under the Listing Rules, by a resolution of the Independent Shareholders to be proposed at the EGM.

Pursuant to Rule 28.05 of the Listing Rules, any alterations in the terms of convertible debt securities after issue must be approved by the Stock Exchange, except where the alterations take effect automatically under the existing terms of such convertible debt securities. The Company will apply to the Stock Exchange for its approval of the proposed amendments contemplated by the Deed of Amendment.

The listing approval granted by the Stock Exchange on 15 August 2005 for the listing of and permission to deal in the shares to be issued on conversion of the Convertible Loan Notes only extends to a maximum number of 117,912,694 Conversion Shares. The Company will apply to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, 298,982,188 new Conversion Shares (subject to adjustment in accordance with the amended terms of the Convertible Loan Notes) which may be issued by the Company pursuant to the exercise of the conversion rights under the amended Convertible Loan Notes. The listing approval granted by the Stock Exchange on 15 August 2005 would be superseded accordingly.

LETTER FROM THE BOARD

ONLY INDEPENDENT SHAREHOLDERS WILL VOTE ON THE RESOLUTIONS TO APPROVE THE DEED OF AMENDMENT AND THE WHITEWASH WAIVER

The members of the Lawrence Ho Concert Party, the Additional Class 6 Presumed Concert Parties and the trustee holding Shares for The Melco Share Purchase Scheme Trust and The Melco Share Award Scheme Trust and persons otherwise involved or interested in the Deed of Amendment and the Whitewash Waiver will abstain from voting on the respective resolutions to approve the Deed of Amendment and the Whitewash Waiver, to be proposed at the EGM. In aggregate, as at the Latest Practicable Date, those persons held Shares representing approximately 36.19% of the issued share capital of the Company.

In addition, any connected persons with a material interest in the Deed of Amendment and the Whitewash Waiver and any other Shareholder of the Company with a material interest in the Deed of Amendment and the Whitewash Waiver and such Shareholder’s associates are required to abstain from voting on the resolutions approving the Deed of Amendment and the Whitewash Waiver.

APPOINTMENT OF INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

An independent committee of the Board comprising its independent non-executive directors (namely, Sir Roger Lobo, Dr. Lo Ka Shui and Mr. Sham Sui Leung, Daniel) has been appointed to advise the Independent Shareholders in relation to the Deed of Amendment and the Whitewash Waiver and whether or not the terms of the Deed of Amendment and the proposed Whitewash Waiver are fair and reasonable and in the interests of the Independent Shareholders as a whole. The remaining non-executive director of the Company, Mr. Ng Ching Wo, is a partner in the law firm which is advising Great Respect in connection with the Deed of Amendment and the Whitewash Waiver. Accordingly, the Company considers that it would not be appropriate for Mr. Ng to serve as a member of the Independent Board Committee.

The Independent Financial Adviser has been appointed (with the approval of the Independent Board Committee) to advise the Independent Board Committee and the Independent Shareholders in respect of the Deed of Amendment and the Whitewash Waiver proposal.

VIEWS OF THE DIRECTORS

The Directors (excluding the independent non-executive directors whose recommendations are set out separately in the letter from the Independent Board Committee on pages 20 to 21 of this circular) are of the view that the terms of the Deed of Amendment and the Whitewash Waiver are fair and reasonable and in the interests of Shareholders of the Company as a whole.

RECOMMENDATIONS

Your attention is drawn to (i) the letter from the Independent Board Committee set out on pages 20 to 21 of this circular which contains the recommendations of the Independent Board Committee to the Independent Shareholders concerning the Deed of Amendment and the Whitewash Waiver; and (ii) the letter from the Independent Financial Adviser to the Independent Board Committee set out on pages 22 to 42 of this circular containing its advice to the Independent Board Committee in that regard.

LETTER FROM THE BOARD

As set out in its letter on pages 20 to 21 of this circular, the Independent Board Committee, having taken into account the advice from the Independent Financial Adviser in relation to the Deed of Amendment and the Whitewash Waiver, considers that the therms of the Deed of Amendment and the proposed Whitewash Waiver are fair and reasonable so far as the Independent Shareholders are concerned and are in the interest of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee has recommended the Independent Shareholders to vote in favour of the relevant resolutions to be proposed at the EGM to approve the Deed of Amendment and the Whitewash Waiver.

The other Directors also recommend the Independent Shareholders to vote in favour of the resolutions to be proposed at the EGM to approve the Deed of Amendment and the Whitewash Waiver.

GENERAL

The Company is principally engaged in: (i) leisure and entertainment; and (ii) property and other investments.

Great Respect is controlled by a discretionary family trust of Dr. Stanley Ho, and beneficiaries of such trust are members of Dr. Stanley Ho’s family, including but not limited to Dr. Stanley Ho, Mr. Lawrence Ho and Madam Lucina Laam King Ying. SG Trust (Asia) Ltd. is the trustee of the aforesaid discretionary family trust. The directors of SG Trust (Asia) Ltd are Mr. Olivier Gougeon, Mr. Fung Wai Kai Alex, Mr. Daniel Max Truchi, Mr. Peng Ngiap Luan Luke, Mr. Yeo Kee Soon George and Mr. Baer Pierre Francois Alec. The sole director of Great Respect is TSG Management Limited. The principal business activity of Great Respect is to hold the Convertible Loan Notes.

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

By order of the Board of Melco International Development Limited Tsui Che Yin, Frank Executive Director

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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Melco International Development Limited

(Incorporated in Hong Kong with limited liability) Website: http://www.melco-group.com (Stock Code: 200)

Penthouse 38th Floor The Centrium 60 Wyndham Street Central Hong Kong 20 January 2010

To the Independent Shareholders

Dear Sir or Madam,

CONNECTED TRANSACTION – MATERIAL AMENDMENTS TO TERMS OF THE HK$1,175 MILLION CONVERTIBLE LOAN NOTES DUE 2010 UNDER RULE 28.05 OF THE LISTING RULES

APPLICATION FOR A WHITEWASH WAIVER

We have been appointed as members of the Independent Board Committee to advise you in connection with the connected transaction under the Listing Rules arising as a result of the Deed of Amendment having been entered into and the related Whitewash Waiver application under the Takeovers Code, details of each of which are set out in the “Letter from the Board” in the Company’s circular dated 20 January 2010 (the “ Circular ”), of which this letter forms part. Terms used in this letter have the same meanings as defined in the said circular unless the context otherwise requires.

We wish to draw your attention to the letter of advice from the Independent Financial Adviser as set out on pages 22 to 42 of the Circular, which contains its advice and recommendation to us as to whether or not the connected transaction under the Listing Rules arising as a result of the Deed of Amendment having been entered into and the Whitewash Waiver proposed under the Takeovers Code are fair and reasonable and in the interests of the Independent Shareholders in respect of those transactions as a whole, as well as the principal factors and reasons for its advice and recommendation. We also wish to draw your attention to the letter from the Board set out on pages 5 to 19 of the Circular and the additional information set out in the appendices to the Circular.

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having considered, amongst other matters, the factors and reasons considered by the Independent Financial Adviser, and the opinions, advice and recommendations of the Independent Financial Adviser, all as set out in its aforementioned letter of advice, we are of the opinion that the connected transaction under the Listing Rules arising as a result of the Deed of Amendment having been entered into and the Whitewash Waiver proposal under the Takeovers Code are each fair and reasonable so far as the Independent Shareholders in respect of those transactions are concerned. We therefore recommend the Independent Shareholders to vote in favour of the relevant resolutions to be proposed at the EGM to approve the connected transaction under the Listing Rules arising as a result of the Deed of Amendment having been entered into and the grant of the Whitewash Waiver under the Takeovers Code.

Sir Roger Lobo

Yours faithfully, For and on behalf of the Independent Board Committee Dr. Lo Ka Shui Independent Non-executive Directors

Mr. Sham Sui Leung, Daniel

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the full text of a letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders for the purpose of inclusion in this circular:

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45th Floor, COSCO Tower 183 Queen’s Road Central Hong Kong

20 January 2010

To the Independent Board Committee and the Independent Shareholders of

Melco International Development Limited

Dear Sir/Madam,

CONNECTED TRANSACTION – MATERIAL AMENDMENTS TO TERMS OF THE HK$1,175 MILLION CONVERTIBLE LOAN NOTES DUE 2010 UNDER RULE 28.05 OF THE LISTING RULES

APPLICATION FOR A WHITEWASH WAIVER

INTRODUCTION

We refer to our engagement as the independent financial adviser to the Independent Board Committee and the Independent Shareholders on the Whitewash Waiver and whether or not the terms of the Deed of Amendment are fair and reasonable and in the interests of the Independent Shareholders as a whole, details of which are set out in the Letter from the Board (the “ Letter from the Board ”) contained in the circular (the “ Circular ”) of the Company to the Shareholders dated 20 January 2010, of which this letter forms part. Terms used in this letter have the same meanings as defined in the Circular unless the context otherwise requires.

On 16 December 2009, the Company entered into the Deed of Amendment with Great Respect, to amend the terms of the Convertible Loan Notes which were issued by the Company of HK$1,175 million in principal amount to Great Respect as consideration for the Acquisition in 2005. The proposed amendments to the Convertible Loan Notes to be effected by the Deed of Amendment constitute a material change to the terms of the Convertible Loan Notes, the issue of which was originally approved as a connected transaction of the Company under the Listing Rules. Accordingly, the proposed amendments to be effected under the Deed of Amendment are subject to approval, as a connected transaction of the Company under the Listing Rules, by the Independent Shareholders at an extraordinary general meeting to be convened.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

An application has been made to the SFC under Note 1 on Dispensations from Rule 26 of the Takeovers Code, for a waiver of the mandatory general offer obligation of Great Respect and Mr. Lawrence Ho under the Takeovers Code to acquire all of the Shares of the Company other than those already owned by them and persons acting in concert with them, which would otherwise arise on exercise of the conversion rights under the amended Convertible Loan Notes in full. Any such Whitewash Waiver would only be granted by the SFC subject to it first being approved by a resolution of the Independent Shareholders in general meeting. The Deed of Amendment and the proposed amendments thereunder are conditional on, among other conditions, the grant in terms satisfactory to Great Respect (acting reasonably) by the SFC of the Whitewash Waiver. However, if the Whitewash Waiver is not granted, Great Respect would be entitled (but not required) to waive the said condition under the Deed of Amendment. If it did so, Great Respect would only exercise the conversion rights under the amended Convertible Loan Notes in a manner that would not result in Great Respect incurring an obligation to make a mandatory general offer under the Takeovers Code to acquire all of the Shares of the Company other than those already owned by Great Respect and persons acting in concert with it.

Pursuant to Note 1 of the Notes on Dispensations from Rule 26 of the Takeovers Code and Rule 14A.18 of the Listing Rules, (i) the members of the Lawrence Ho Concert Party, the Additional Class 6 Presumed Concert Parties and the trustee holding Shares for The Melco Share Purchase Scheme Trust and The Melco Share Award Scheme Trust and persons otherwise involved or interested in the Deed of Amendment and the Whitewash Waiver and (ii) any connected persons with a material interest in the Deed of Amendment and the Whitewash Waiver and any other Shareholder of the Company with a material interest in the Deed of Amendment and the Whitewash Waiver and such Shareholder’s associates will be required to abstain from voting for the approval in respect of the Deed of Amendment and the Whitewash Waiver at the EGM.

The Independent Board Committee comprising the Company’s independent non-executive directors (namely, Sir Roger Lobo, Dr. Lo Ka Shui and Mr. Sham Sui Leung, Daniel) has been appointed to advise the Independent Shareholders in relation to the Deed of Amendment and the Whitewash Waiver and whether or not the terms of the Deed of Amendment and the proposed Whitewash Waiver are fair and reasonable and in the interests of the Independent Shareholders as a whole. The remaining non-executive director of the Company, Mr. Ng Ching Wo, is a partner in the law firm which is advising Great Respect in connection with the Deed of Amendment and the Whitewash Waiver. Accordingly, the Company considers that it would not be appropriate for Mr. Ng to serve as a member of the Independent Board Committee. Our appointment as the independent financial adviser to the Independent Board Committee and the Independent Shareholders has been approved by the Independent Board Committee.

BASIS OF OUR ADVICE

In arriving at our recommendation, we have relied on the statements, information and representations contained in the Circular and the information and representations provided to us by the Directors and the management of the Company. We have assumed that all information and representations contained or referred to in the Circular and all information and representations which have been provided by the Directors and the management of the Company for which they are solely responsible, are true and accurate as at the date of the despatch of the Circular. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Directors and the management of the Company.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We consider that we have been provided with sufficient information on which to form a reasonable basis for our opinion. We have no reason to suspect that any relevant information has been withheld, nor are we aware of any facts or circumstances which would render the information provided and representations made to us untrue, inaccurate or misleading. We consider that we have performed all the necessary steps to enable us to reach an informed view and to justify our reliance on the information provided so as to provide a reasonable basis for our opinion. Having made all reasonable enquiries, the Directors have further confirmed that, to the best of their knowledge, they believe there are no other facts or representations the omission of which would make any statements in the Circular, including this letter, misleading. We have not, however, carried out any independent verification of the information provided by the Directors and the management of the Company, nor have we conducted an independent investigation into the business and affairs of the Group and Great Respect.

PRINCIPAL FACTORS TAKEN INTO ACCOUNT

The principal factors and reasons that we have taken into consideration in arriving at our opinion are set out as follows:

1. Background of the Deed of Amendment

The Company issued the Convertible Loan Notes amounting HK$1,175 million due 2010 in 2005 to Great Respect as consideration for the acquisition by the Company’s subsidiary of an interest in a joint venture relating to a parcel of land located on the Cotai Strip in Macau. The principal terms of the Convertible Loan Notes are disclosed in the Letter from the Board.

Up to the Latest Practicable Date, none of the conversion rights under the Convertible Loan Notes have been exercised by Great Respect. Considering the Convertible Loan Notes will be due on 4 September 2010 and the recent market price of the Shares is significantly below the Initial Conversion Price, the Board is of the view that Great Respect is not likely to exercise its conversion rights under the Convertible Loan Notes and hence the Group has to repay the Convertible Loan Notes when become due if there is no amendment to the terms of the Convertible Loan Notes. As such, the Company entered into the Deed of Amendment with Great Respect on 16 December 2009 to amend the terms of the Convertible Loan Notes.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2. Financial position of the Group

The Group is principally engaged in the provision of catering, entertainment, gaming and related services, gaming technology consultation services in Macau, development and sale of financial trading and settlement systems in Asia, and property investments and other investments. Based on the information set out in the annual report of the Company for the year ended 31 December 2007 (“ 2007 Annual Report ”), 31 December 2008 (“ 2008 Annual Report ”) and the interim report of the Company for the six months ended 30 June 2009 (“ 2009 Interim Report ”), the financial positions of the Company as at 31 December 2006, 2007, 2008 and 30 June 2009 are summarised as follows:

	As at 30	As at 31	As at 31	As at 31
	June	December	December	December
	2009	2008	2007	2006
	HK$’000	HK$’000	HK$’000	HK$’000
	(Unaudited)	(Audited)	(Audited)	(Audited)
Current assets	1,092,459	888,154	1,612,591	2,646,599
Non-current assets	8,255,744	9,518,027	10,701,588	6,698,028
Total assets	9,348,203	10,406,181	12,314,179	9,344,627
Current liabilities	727,172	826,198	638,070	419,153
Non-current liabilities	1,428,616	1,654,443	1,334,566	1,263,996
Total liabilities	2,155,788	2,480,641	1,972,636	1,683,149
Equity attributable to equity
holders of the Company	7,165,853	7,899,505	10,319,113	7,567,107
Share options reserve of
a subsidiary	–	–	–	265
Minority interests	26,562	26,035	22,430	94,106
Cash and cash equivalents	116,775	239,875	308,865	1,209,826

Comparison between 31 December 2007 and 31 December 2006

The total assets of the Group increased from approximately HK$9,344.6 million as at 31 December 2006 to approximately HK$12,314.2 million as at 31 December 2007. The increase in total assets was mainly attributable to the increase in interests in associates from approximately HK$5,802.6 million as at 31 December 2006 to approximately HK$8,689.3 million as at 31 December 2007. Save as the increase in interests in associates, the increase in non-current assets was attributable to the pledged bank deposits amounting approximately HK$972.5 million arisen in the year ended 31 December 2007.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Comparison between 31 December 2008 and 31 December 2007

The total assets of the Group decreased from approximately HK$12,314.2 million as at 31 December 2007 to approximately HK$10,406.2 million as at 31 December 2008. The decrease in total assets was mainly attributable to the decrease in interests in associates from approximately HK$8,689.3 million as at 31 December 2007 to approximately HK$7,126.7 million as at 31 December 2008. The total liabilities of the Group increased from approximately HK$1,972.6 million as at 31 December 2007 to approximately HK$2,480.6 million as at 31 December 2008. The increase in total liabilities of the Group was mainly attributable to the increase in the current and non-current portion of trade payables from approximately HK$162.5 million as at 31 December 2007 to approximately HK$391.3 million as at 31 December 2008 and the additional bank borrowings (due after one year) amounting approximately HK$216.6 million during the year ended 31 December 2008.

Comparison between 30 June 2009 and 31 December 2008

The increase in current assets as at 30 June 2009 comparing with 31 December 2008 was mainly attributable to the increase in bank deposits with original maturity over three months from approximately HK$164.9 million as at 31 December 2008 to approximately HK$465.7 million as at 30 June 2009 while the decrease in non-current assets was mainly attributable to the reduction of interests in associates from approximately HK$7,126.7 million as at 31 December 2008 to approximately HK$6,455.6 million as at 30 June 2009 and the decrease in pledged bank deposits from approximately HK$972.5 million as at 31 December 2008 to approximately HK$295.6 million as at 30 June 2009.

We note that the unaudited cash and cash equivalents of the Group only amounted approximately HK$116.8 million and the unaudited net current assets of the Group only amounted approximately HK$365.3 million as at 30 June 2009. Given the Convertible Loan Notes amounted to HK$1,175 million, the Group may need to raise additional funds to repay the Convertible Loan Notes due in September 2010 in the event that the conversion rights attached thereto are not exercised and no amendment is made to the terms of the Convertible Loan Notes. As such, we are of the view that it is in the interests of the Group to restructure the terms of the Convertible Loan Notes and/or identify alternative source(s) of funding to repay the Convertible Loan Notes.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3. Financial performance of the Group

The following sets out the financial performance of the Group for the three years ended 31 December 2008 and the six months ended 30 June 2009 based on the 2009 Interim Report, 2008 Annual Report and 2007 Annual Report.

	For the six	For	For	For
	months	the year	the year	the year
	ended 30	ended 31	ended 31	ended 31
	June	December	December	December
	2009	2008	2007	2006
	HK$’000	HK$’000	HK$’000	HK$’000
	(Unaudited)	(Audited)	(Audited)	(Audited)
Revenue	498,527	690,862	1,015,521	800,609
Profit/(loss) for the period/year	(811,363)	(2,353,214)	2,668,663	2,759,981
Attributable to:
Equity holders of the Company	(811,890)	(2,356,819)	2,690,639	2,836,755
Minority interests	527	3,605	(21,976)	(76,774)

For the year ended 31 December 2006

The audited revenue of the Group for the year ended 31 December 2006 was approximately HK$800.6 million. The audited profit attributable to the equity holders of the Company for the year ended 31 December 2006 amounted to approximately HK$2,836.8 million. The profit was mainly attributable to gain on deemed disposal of interests in jointly controlled entities amounting approximately HK$3,102.3 million. At the end of year 2006, Melco PBL Entertainment (Macau) Limited (which was later renamed and now known as Melco Crown Entertainment Limited) (“Melco Crown Entertainment”) has been listed on the NASDAQ through the issuance of the American Depositary Shares (“ADS”) resulting in a deemed disposal of jointly controlled entities of the Group. As a result of this deemed disposal, Melco Crown Entertainment became an associate and the Group recognised a gain of approximately HK$3,102.3 million with reference to the Group’s share of net assets of Melco Crown Entertainment immediately before and after the listing of the ADS.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

For the year ended 31 December 2007

The audited revenue of the Group for the year ended 31 December 2007 was approximately HK$1,015.5 million. The audited profit attributable to the equity holders of the Company for the year ended 31 December 2007 amounted to approximately HK$2,690.6 million. The profit was mainly attributable to (i) gain on deemed disposal of partial interests in associates amounting to approximately HK$1,549.4 million due to the underwriters of the global offering of ADS of Melco Crown Entertainment fully exercised the over allotment option granted to them in January 2007 and Melco Crown Entertainment completed a second offering of ADS in November 2007; (ii) the receipt of the agency fee amounting approximately HK$1,232.1 million under a Products Participation Agreement (“PPA”) entered into between the Group and US-listed VendingData Corporation (which was later renamed and now known as Elixir Gaming Technologies Inc.) (“EGT”) in June 2007. According to the terms of the PPA, the Group will provide agency services to source and refer gaming operators in certain specific countries to EGT for the entering into of the electronic gaming machine (“EGM”) leases on a revenue sharing basis directly with EGT and to supply, at market prices, the necessary EGM to EGT for the fulfillment of its obligations under such leases. In consideration of the Group’s services, EGT, after obtaining its shareholders approval for the transaction in September 2007, has allotted and issued securities (including shares and warrants) to the Group. As a result, an agency fee income of HK$1,232.1 million is recognised; (iii) an one-off gain on disposal of interests in jointly controlled entities amounting to approximately HK$532.6 million; and (iv) an increase in fair value of derivative financial instruments amounting to approximately HK$190.1 million regarding the warrants of EGT was recognised in the consolidated income statement.

For the year ended 31 December 2008

The audited revenue of the Group for the year ended 31 December 2008 was approximately HK$690.9 million. The audited loss attributable to the equity holders of the Company for the year ended 31 December 2008 amounted to approximately HK$2,356.8 million. The loss was mainly attributable to (i) impairment loss recognized in respect of interests in two associates, namely, EGT and Melco China Resorts (Holding) Limited (“MCR”), amounting approximately HK$1,160.8 million with reference to the recoverable amount. The recoverable amounts of EGT and MCR have been determined based on the respective closing share prices of EGT and MCR as at 31 December 2008; (ii) the share of losses of associates amounting to approximately HK$387.2 million. One of the associates, namely Power Way Group Limited, reported loss attributable to the Group of approximately HK$260.3 million, which was mainly due to a write-down of the fair value amounting to approximately HK$248 million in respect of MelcoLot Limited’s convertible loan note; (iii) a decrease in fair value of derivative financial instruments of approximately HK$227.7 million, which was made up of a decrease in fair value of the warrants of EGT amounting to approximately HK$223.6 million and a decrease in fair value of warrants of MCR amounting to approximately HK$4.1 million; (iv) a decrease in fair value of the Group’s investment in convertible loan note of MelcoLot Limited amounting to approximately HK$206.4 million; and (v) the impairment loss recognized in respect of available-for-sale investments amounting to approximately HK$147.9 million, representing an impairment loss on listed equity securities and unlisted equity securities of approximately HK$139.5 million and HK$8.4 million respectively.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

For the six months ended 30 June 2009

The unaudited revenue of the Group for the six months ended 30 June 2009 was approximately HK$498.5 million with over HK$400 million contributed from its technology related business. The unaudited loss attributable to the equity holders of the Company for the six months ended 30 June 2009 was approximately HK$811.9 million which was attributable to (i) the loss on changes in interests in associates amounting to approximately HK$176.4 million due to the Group’s ownership interest in Melco Crown Entertainment, decreased from 37.8% to 34.1%, as a result of a follow-on public offering of shares of Melco Crown Entertainment and the vesting of certain restricted shares issued by Melco Crown Entertainment, (ii) the share of loss of a jointly controlled entity amounting to approximately HK$155.4 million, and (iii) the share of losses of associates amounting to approximately HK$511.7 million. The Group’s share of losses of associates resulting from Melco Crown Entertainment reported approximately HK$475.0 million. The year-over-year decrease in net revenue of Melco Crown Entertainment was primarily driven by lower rolling chip volume at Altira Macau in the first six months of 2009 as compared to the same period in 2008 and lower rolling chip hold percentage in the first six months of 2009 as compared to the same period in 2008.

We discussed with the management of the Company for the financing alternatives to repay the outstanding Convertible Loan Notes and noted that the Company conducted preliminary discussions with certain financial institutions regarding medium to long term debt financing for the purpose of repayment of the outstanding Convertible Loan Notes but the terms discussed are less favourable comparing with the terms under the Deed of Amendment.

Given the recent financial performance of the Group, in particular, the losses recorded by the Group for the year ended 31 December 2008 and the six months ended 30 June 2009 and the terms of long term debt financing discussed between the Company and certain financial institutions, we concur with the Board’s view that the cost of obtaining alternative sources of medium to long term debt funding to repay the amount due to Great Respect when the Convertible Loan Notes mature this year would have been very high which is not in the interests of the Company and the Shareholders. As such, we consider the amendment of the terms of the Convertible Loan Notes is a feasible way to resolve the funding need when the Convertible Loan Notes become due.

4. Overview of the gaming industry in Macau

According to the latest figures released by the Gaming Inspection and Coordination Bureau of Macau SAR, despite the global financial crisis, the gross revenue from gaming activities of Macau has recorded approximately MOP109,826 million in 2008, showing a growth of 30.98% compared with the previous year. For the first three quarters ended 30 September 2009, the gross revenue from gaming activities of Macau amounted to approximately MOP83,907 million, representing a decrease of 1.83% as compared to the corresponding period in 2008.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

According to the statistics from the Statistics and Census Service of the Macao SAR Government, in 2008, the number of visitor arrivals decreased by 15.07% to 22,933,300. The number of visitor arrivals in the first eleven months ended 30 November 2009 fell by 6.2% year-onyear to 19,716,894.

In May and July 2008, the Chinese Government readjusted its visa policy toward Macau and limited the number of visits that some mainland Chinese citizens may make to Macau in a given time period. In addition, in May 2009, the PRC also began to restrict the operation of “below-cost” tour groups involving low up-front payments and compulsory shopping which affected the tours to Macau.

Based on (i) the gross gaming revenue and visitor fluctuation in 2008 and 2009; and (ii) the current restrictions imposed by the Chinese Government which affect the gaming industry in Macau, we are of the view that the gaming industry outlook in Macau is uncertain.

5. Reasons for and benefits of the Deed of Amendment

The terms of the Deed of Amendment were agreed following arm’s length negotiations between the Company and Great Respect.

Without the extension, the Convertible Loan Notes will be repayable on 4 September 2010. The Board has concluded that the cost of obtaining alternative sources of medium to long term debt funding to repay the amount due to Great Respect when the Convertible Loan Notes mature this year would have been very high, and hence would not be in the best interests of the Company and its Shareholders. Further, if the maturity date of the Convertible Loan Notes is not extended before the Company publishes its 2009 accounts, the Company will have a going concern issue (since its current liabilities will exceed its current assets) and its accounts may be qualified by its auditors. Accordingly, the Directors consider that it would be in the best interests of the Company and its Shareholders as a whole to extend the maturity date of the Convertible Loan Notes. The extended maturity date also has the benefit of relieving the immediate funding needs of the Company.

The Company and its Directors acknowledge that, following recent volatility in the financial markets, the Shares have been trading at prices substantially lower than the Initial Conversion Price under the Convertible Loan Notes. In order to achieve the benefits of an extended maturity date under the Convertible Loan Notes, the Company considers that it would be reasonable to agree to reduce the conversion price under the Convertible Loan Notes, to one that is more in line with the current traded prices of the Company’s Shares; and that this would be consistent with the commercial rationale underlying the determination of the Initial Conversion Price when the Convertible Loan Notes were originally issued. A future conversion of the Convertible Loan Notes at the Revised Conversion Price would have the benefit of further strengthening the equity capital reserves of the Company and reducing debt levels and the Company’s gearing ratio. In connection with the proposed reduction of the conversion price, it is also proposed that the terms of the Convertible Loan Notes will be amended by giving the Company a right to redeem all or part of the Convertible Loan Notes at any time prior to their maturity date, at 100% of the principal amount of the Convertible Loan Notes outstanding together with any interest accrued thereon up to the date

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

of redemption. The early redemption right would be exercisable by the Company at its discretion. This implies when the market price of the Shares is higher than the Revised Conversion Price and the Company has sufficient financial resources, the Company may exercise its discretion to redeem all or part of the Convertible Loan Notes so as to reduce the shareholding dilution arisen from the possible conversion of the rights attached to the Convertible Loan Notes which we consider is in the interests of the Company and the Shareholders as a whole.

Based on the aforesaid and taking into account that, in particular, (i) the cost of obtaining alternative sources of medium to long term debt funding to repay the amount due to Great Respect when the Convertible Loan Notes mature this year would have been very high; (ii) the Company will have a going concern issue in the event that the maturity date of the Convertible Loan Notes is not extended before the issue of the Group’s 2009 audited accounts; (iii) the conversion of the Convertible Loan Notes at the Revised Conversion Price would have the benefit of further strengthening the equity capital reserves of the Company and reducing debt levels and the Company’s gearing ratio; (iv) the Company may exercise its discretion to redeem all or part of the Convertible Loan Notes so as to reduce the shareholding dilution as appropriate; and (v) the uncertainty of the gaming industry outlook in Macau as stated in the paragraph headed “Overview of the gaming industry in Macau” above, we concur with the Directors that the entering into of the Deed of Amendment is fair and reasonable and is in the interests of the Company and the Independent Shareholders as a whole.

6. Terms of the Deed of Amendment

As set out in the Letter from the Board, the proposed amendments of the terms of the Convertible Loan Notes which were issued by the Company of HK$1,175 million in principal amount to Great Respect as consideration for the Acquisition in 2005 are summarized below:

Revised maturity date : To extend the maturity date, so that it is eight years from the date of issue of the Convertible Loan Notes. The revised maturity date, therefore, would be 4 September 2013. Revised Conversion Price : To reduce the conversion price, to HK$3.93 per Share to be issued by the Company upon exercise of the conversion rights under the amended Convertible Loan Notes, subject to customary adjustments in, amongst others, the following circumstances:

(a) share consolidation and share subdivision; (b) issue of shares by way of capitalization of profits or reserves other than shares issued in lieu of the whole or a part of a cash dividend;
(c) capital distribution;
(d) issue of shares or options, warrants or other rights to subscribe for shares, by way of rights at less than 95% of the then current market price per share;

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(e) issue of other securities by way of rights;
(f) issue of shares other than by way or rights; (g) issue of shares upon conversion or exchange at less than 95% of the then current market price per share;
(h) modification of rights of conversion, exchange or subscription so that the consideration receivable by the Company is less than 95% of the then current market price per share;
(i) offer for shares; and
(j) other events, where the Company or the noteholders holding not less than 75% in value of the outstanding principal amount of the Convertible Loan Notes determine that an adjustment should be made to the conversion price and an independent accountant certifies that the adjustment proposed to be made would be fair and reasonable. In the event that any adjustment is made to the conversion price pursuant to this item (j), the Company will comply with the applicable requirements of the Listing Rules, as and when appropriate.

Early redemption at the option : of the Company

To permit the Company to redeem all or part of the outstanding Convertible Loan Notes in the Company’s absolute discretion, at any time prior to the maturity date of the Convertible Loan Notes, at 100% of their principal amount outstanding.

Early redemption at the option : of the Noteholder

To permit the holder of the Convertible Loan Notes to require the Convertible Loan Notes to be redeemed prior to their maturity in any of the following circumstances:

(i) the Lawrence Ho Concert Party ceases to be interested (in aggregate) in at least 30% of the issued shares of the Company, except as a result of disposals of shares by members of the Lawrence Ho Concert Party;

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) a general offer by way of takeover (other than one proposed by a member of the Lawrence Ho Concert Party or such member’s associate or a scheme of arrangement contemplated by (iii) below) is made to all or substantially all the holders of shares in the Company (or all or substantially all such holders other than the offeror and persons acting in concert with the offeror) and such offer becomes or is declared unconditional; or
(iii) a privatisation proposal by way of scheme of arrangement (other than one proposed by a member of the Lawrence Ho Concert Party or such member’s associate) is made and approved by the necessary numbers of shareholders of the Company at the requisite meetings.

As stated in the Letter from the Board, the Revised Conversion Price of HK$3.93 per New Conversion Share was determined after arm’s length negotiations between the Company and Great Respect with reference to the recent traded prices of the Shares. The Revised Conversion Price represents:

(i) a premium of approximately 1.81% over the closing price of HK$3.86 per Share as quoted on the Stock Exchange on the Last Trading Date;
(ii) a premium of approximately 0.77% over the average of the closing prices of approximately HK$3.90 per Share as quoted on the Stock Exchange for the five consecutive trading days up to and including the Last Trading Date;
(iii) a discount of approximately 2.00% to the average of the closing prices of approximately HK$4.01 per Share as quoted on the Stock Exchange for the ten consecutive trading days up to and including the Last Trading Date;
(iv) a discount of approximately 60.56% to the Initial Conversion Price; and
(v) a discount of approximately 38.79% to the audited net assets value per Share (calculated based on the net assets attributable to equity holders of the Company as at 31 December 2008 of approximately HK$7,899,505,000 divided by 1,230,258,939 Shares in issue as at the Latest Practicable Date) of approximately HK$6.42 per Share.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

7. Evaluation of the terms of the Deed of Amendment

(a) The Revised Conversion Price

To assess the fairness and reasonableness of the Revised Conversion Price, we set out the following informative analysis for illustrative purpose:

(i) Review on Share price performance

The following diagram illustrates the daily historical closing prices of the Shares traded on the Stock Exchange from 1 December 2008 up to and including the Latest Practicable Date (the “ Review Period ”):

==> picture [369 x 211] intentionally omitted <==

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

7.00
6.00
5.00
4.00
3.00
Closing Price
2.00
Conversion price
1.00
0.00
Closing price (HK$)
1/12/2008 1/1/2009 1/2/2009 1/3/2009 1/4/2009 1/5/2009 1/6/2009 1/7/2009 1/8/2009 1/9/2009 1/10/2009 1/11/2009 1/12/2009 1/1/2010
----- End of picture text -----

Source: http://www.hkex.com.hk

As shown in the chart above, the closing price of the Shares was in general on an increasing trend from the lowest point of HK$1.76 on 2 December 2008 to the highest point of HK$6.35 on 18 May 2009 during the Review Period. The trading of the Shares was suspended from 3:34 p.m. on 28 April 2009, pending the publication of an announcement regarding a follow-on public offering of Melco Crown Entertainment. Trading in the Shares was resumed at 9:30 a.m. on 29 April 2009. On 13 May 2009, the Company published an overseas regulatory announcement in relation to the release date of the Melco Crown Entertainment’s first quarter results for 2009. After the highest point recorded on 18 May 2009, the closing price of the Shares declined to a low point of HK$3.93 on 3 July 2009 and reached a high point of HK$5.92 on 14 September 2009 and declined gradually thereafter. We note that the average of the closing price of the Shares during the Review Period was approximately HK$3.83, which is slightly below the Revised Conversion Price. We also note that the

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Shares have closed on or above the Revised Conversion Price on 152 trading days, representing approximately 54.29% of the 280 trading days during the Review Period.

(ii) Review on trading liquidity of the Shares

The table below set out the trading volume of the Shares during the Review Period:

				Percentage of
			Percentage of	average daily
			average daily	trading volume to
			trading volume to	total number of
		Average	total number of	Shares held by
	Total trading	daily trading	Shares in issue as	public Shareholders
volume for the		volume for the	at the Latest	as at the Latest
	month/period	month/period	Practicable Date	Practicable Date
		(Note 1)	(Note 2)	(Note 3)
2008
December	261,714,280	12,462,585	1.01%	1.59%
2009
January	198,816,611	11,045,367	0.90%	1.41%
February	148,472,712	7,423,636	0.60%	0.95%
March	127,185,230	5,781,147	0.47%	0.74%
April	396,686,298	19,834,315	1.61%	2.53%
May	362,517,175	19,079,851	1.55%	2.43%
June	347,579,448	15,799,066	1.28%	2.01%
July	279,746,685	12,715,758	1.03%	1.62%
August	276,611,428	13,171,973	1.07%	1.68%
September	316,187,862	14,372,176	1.17%	1.83%
October	235,884,557	11,794,228	0.96%	1.50%
November	181,908,349	8,662,302	0.70%	1.10%
December (up to and
including the Last
Trading Date)	86,203,382	7,836,671	0.64%	1.00%
December (after the Last
Trading Date)	52,174,999	4,743,182	0.39%	0.60%
2010
January (up to and including
the Latest Practicable Date)	73,971,000	9,246,375	0.75%	1.18%

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Notes:

Average daily trading volume is calculated by dividing the total trading volume for the month/period by the number of trading days during the relevant month/period which exclude any trading day on which trading of Shares on the Stock Exchange was suspended for the whole trading days.
Based on 1,230,258,939 Shares in issue as at the Latest Practicable Date.
Based on 784,980,693 Shares held by the public Shareholders as at the Latest Practicable Date.

As illustrated in the table above, we noted that the liquidity of the Shares was generally thin during the Review Period. The average daily trading volume of the Shares in each month from December 2008 to November 2009 ranged from 5,781,147 Shares to approximately 19,834,315 Shares, representing approximately 0.47% and 1.61% respectively of the total number of Shares in issue as at the Latest Practicable Date, and approximately 0.74% and 2.53% respectively of the total number of Shares held by the public Shareholders as at the Latest Practicable Date.

(iii) Comparable analysis

We have reviewed the reference of the conversion price to the various closing prices of all issuance of convertible notes or bonds announced by other gaming sector companies listed on the Stock Exchange (the “Comparables”) during the last 12 months preceding the Last Trading Date. We believe that the Comparables may reflect the recent trend of the terms of convertible notes or bonds in the market. To the best of our knowledge and as far as we are aware of, we found an exhaustive list of 2 Comparables which met the said criteria. The table below summarises our findings:

						Premium/
					Premium/	(discount) of
					(discount) of	conversion
					conversion	price over/to
					price over/to	the five-day
					the closing	average
					price of the	closing prices
					shares as	of the shares
					at the last	as at the
					trading day	last trading
					prior to the	day prior to
Company					release of	the release of
name	Date of		Interest	Redemption	the relevant	the relevant
(stock code)	announcement	Maturity	rate	premium	announcement	announcement
		year	%	%	%	%
Neptune Group	17 Jul 2009 and	3	0	0	(5.65)	(7.87)
Limited (70)	8 Sep 2009
SJM Holdings	24 Sep 2009	6	0	12.68	20.00	17.40
Limited (880)
The Company	16 Dec 2009	8	0	0	1.81	0.77

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We note from the table above that the Revised Conversion Price represented a premium of approximately 1.81% over the closing price of the Shares on the Last Trading Date and a premium of approximately 0.77% over the five-day average closing prices of the Shares up to and including the Last Trading Date, which are higher than those of Neptune Group Limited. We also note that the premiums implied by the Revised Conversion Price over the closing price of the Shares on the Last Trading Date and the five-day average closing prices of the Shares up to and including the Last Trading Date are lower than those of SJM Holdings Limited (“SJM”). Nevertheless, as set out in the relevant announcement of SJM, unless previously redeemed, converted or purchased and cancelled as provided therein, the SJM and/or its subsidiary will redeem each convertible bond at 112.68% of its principal amount on the maturity date. Given there is no redemption premium under the Convertible Loan Notes, we are of the view that the Revised Conversion Price, which is with reference to the market price of the Shares, is acceptable.

We discussed with the management of the Company regarding the Revised Conversion Price and were given the understanding that the Revised Conversion Price was determined after arm’s length negotiations between the Company and Great Respect with reference to the recent traded prices of the Shares prior to the entering into the Deed of Amendment. We understand the holder of the Convertible Loan Notes would be unlikely to exercise its conversion rights given that the prevailing market price is substantially lower than the Initial Conversion Price of HK$9.965 per Share and the Company is unable to redeem the Convertible Loan Notes considering its current financial position. Therefore, lowering the conversion price of the Convertible Loan Notes would be beneficial to both the Company and the Convertible Loan Notes holder. We consider that the holder of the Convertible Loan Notes will only exercise its conversion rights when the market price of the Shares is similar or higher than the Revised Conversion Price. However, if the revised conversion price sets below the market price of the Shares, although the chance of the holder of the Convertible Loan Notes to exercise its conversion rights of the Convertible Loan Notes will be increased, the dilution effect to the existing Shareholders will increase with lowering the revised conversion price which is not in the interests of the Shareholders. To strike the balance between the financial position of the Company and the interests of the Shareholders, we consider that the determination of the Revised Conversion Price with reference to the recent market price prior to the entering into the Deed of Amendment would be fair and reasonable so far as the Company and its Shareholders are concerned.

Despite the Revised Conversion Price of HK$3.93 per New Conversion Share represents a discount of approximately 38.79% to the latest published audited net assets per Share of approximately HK$6.42 as at 31 December 2008, having considered that (i) it is unlikely that the holder of the Convertible Loan Notes would exercise its conversion rights given that the prevailing market price is substantially lower than the Initial Conversion Price of HK$9.965 per Share and the Company is unable to redeem the Convertible Loan Notes considering its current financial position; (ii) the reduction in proposed conversion price of the Convertible Loan Notes from HK$9.965 per Share to HK$3.93 per Share under the Convertible Loan Notes will enhance the possibility of the holder of the Convertible Loan Notes to exercise the conversion rights so as to reduce the liability level of the Company;

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iii) the slight premium represented by the Revised Conversion Price over the closing price of the Shares on the Last Trading Date and the average closing price of the Shares for the last five trading days up to and including the Last Trading Date; (iv) the Revised Conversion Price is comparable to all issuance of convertible notes or bonds announced by other gaming sector companies listed on the Stock Exchange during the last 12 months preceding the Last Trading Date; (v) the determination of the Revised Conversion Price with reference to the recent market price prior to the entering into the Deed of Amendment strikes the balance between the chance of exercise of conversion rights and shareholding dilution effect; (vi) the Shares have been traded below (at least 1.09% based on the highest closing price of the Shares of HK$6.35 as at 18 May 2009) the audited net asset value per Share as at 31 December 2008 during the Review Period; (vii) the Group recorded losses in the year ended 31 December 2008 and the six months ended 30 June 2009 as stated in the paragraph headed “Financial performance of the Group” above; and (viii) the uncertainty of the gaming industry outlook in Macau as stated in the paragraph headed “Overview of the gaming industry in Macau” above, we consider that the Revised Conversion Price is fair and reasonable so far as the Company and the Independent Shareholders are concerned.

(b) The Revised maturity date

Pursuant to the Deed of Amendment, the maturity date has been extended to 4 September 2013. Given that the Convertible Loan Notes do not bear any interest and the early redemption option of the Convertible Loan Notes available to the Company, we consider the extension of maturity of the Convertible Loan Notes provides more flexibility for the Company in order to relieve the immediate funding needs and hence loosen the current financial position of the Company which is in the interests of the Company and the Independent Shareholders.

Given (i) the slight premium presented by the Revised Conversion Price over the closing prices of the Shares on the Last Trading Date, and the five consecutive trading days up to and including the Last Trading Date; (ii) the Revised Conversion Price is comparable to all issuance of convertible notes or bonds announced by other gaming sector companies listed on the Stock Exchange during the last 12 months preceding the Last Trading Date; (iii) the revised maturity provides more flexibility for the Company in order to relieve the immediate funding needs; (iv) when the market price of the Shares is higher than the Revised Conversion Price and the Company has sufficient financial resources, the Company may exercise its discretion to redeem all or part of the Convertible Loan Notes so as to reduce the shareholding dilution arisen from the possible conversion of the rights attached to the Convertible Loan Notes; and (v) the interest rate of the Convertible Loan Note will remain as zero, we are of the view that the terms of the Deed of Amendment are on normal commercial terms, fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

8. Dilution of the shareholding interests in the Company

The table below shows the issued share capital of the Company (1) as at the Latest Practicable Date; and (2) assuming conversion of the amended Convertible Loan Notes in full (but no other changes to the Company’s issued share capital):

Name of shareholder Mr. Lawrence Ho and entities controlled by him Mr. Lawrence Ho Better Joy Overseas Ltd. Lasting Legend Ltd. The L3G Capital Trust Mr. Lawrence Ho Group sub-total Dr. Ho Hung Sun, Stanley Lanceford Company Limited Madam Lucina Laam King Ying STDM Ms. Ho Daisy Chiu Fung Great Respect Lawrence Ho Concert Party sub-total Additional Class 6 Presumed Concert Parties Shares held by the trustee on behalf of The Melco Share Purchase Scheme Trust and The Melco Share Award Scheme Trust Total of (1) Lawrence Ho Concert Party, (2) Additional Class 6 Presumed Concert Parties and (3) Shares held by the trustee on behalf of The Melco Share Purchase Scheme Trust and The Melco Share Award Scheme Trust Public Total	Existing shareholding as at the Latest Practicable Date number of percentage shares shareholding 7,793,951 0.63% 288,532,606 23.45% 115,509,024 9.39% 7,294,000 0.59% 419,129,581 34.07% 18,587,789 1.51% 3,127,107 0.25% 444,574 0.04% 222 0.00002% 67,500 0.005% – – 441,356,773 35.88% 2,319,988 0.19% 1,601,485 0.13% 445,278,246 36.19% 784,980,693 63.81% 1,230,258,939 100.00%	Assuming full conversion of the amended Convertible Loan Notes number of percentage shares shareholding 7,793,951 0.51% 288,532,606 18.87% 115,509,024 7.55% 7,294,000 0.48% 419,129,581 27.41% 18,587,789 1.22% 3,127,107 0.20% 444,574 0.03% 222 0.00001% 67,500 0.004% 298,982,188 19.55% 740,338,961 48.41% 2,319,988 0.15% 1,601,485 0.10% 744,260,434 48.66% 784,980,693 51.33% 1,529,241,127 100.00%	Assuming full conversion of the amended Convertible Loan Notes number of percentage shares shareholding 7,793,951 0.51% 288,532,606 18.87% 115,509,024 7.55% 7,294,000 0.48% 419,129,581 27.41% 18,587,789 1.22% 3,127,107 0.20% 444,574 0.03% 222 0.00001% 67,500 0.004% 298,982,188 19.55% 740,338,961 48.41% 2,319,988 0.15% 1,601,485 0.10% 744,260,434 48.66% 784,980,693 51.33% 1,529,241,127 100.00%
			27.41% 1.22% 0.20% 0.03% 0.00001% 0.004% 19.55%
			48.41% 0.15% 0.10%
			48.66% 51.33%
			100.00%

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As shown in the above table, the shareholding interests of the public Shareholders will be diluted from approximately 63.81% as at the Latest Practicable Date to 51.33% after the full exercise of the conversion rights under the amended Convertible Loan Notes. Pursuant to the Deed of Amendment, a maximum of 298,982,188 Shares may be issued for the exercise of the conversion rights under the Convertible Loan Notes comparing with 117,912,694 Shares under the original terms of the Convertible Loan Notes which represents additional 181,069,494 Shares (equivalent to approximately 14.7% of the existing issued share capital of the Company). Having considered that (i) the Company may exercise its discretion to redeem all or part of the Convertible Loan Notes so as to reduce the shareholding dilution as appropriate pursuant to the Deed of Amendment; (ii) the Deed of Amendment would enable the Group to resolve the problems arisen from the repayment of the Convertible Loan Notes in September 2010; and (iii) the Board has concluded that the cost of obtaining alternative sources of medium to long term debt funding to repay the amount due to Great Respect when the Convertible Loan Notes mature this year would have been very high, we are of the opinion that the shareholding dilution effect arising from the exercise of the conversion rights attached to the Convertible Loan Notes is acceptable.

9. The Whitewash Waiver

Assuming the full conversion of the amended Convertible Loan Notes, the interests held by Great Respect and Mr. Lawrence Ho and the parties respectively acting or presumed to be acting in concert with them (including the Lawrence Ho Concert Party, the Additional Class 6 Presumed Concerted Parties, the trustee of The Melco Share Purchase Scheme Trust and The Melco Share Award Scheme Trust) will increase from approximately 36.19% to approximately 48.66% of the issued share capital of the Company as enlarged by the exercise in full of the conversion rights under the amended Convertible Loan Notes. An application has been made to the SFC under Note 1 of the Dispensations from Rule 26 of the Takeovers Code, for a waiver of the general offer obligation of Great Respect and Mr. Lawrence Ho and the parties acting in concert or presumed to be acting in concert with Great Respect and Mr. Lawrence Ho which would otherwise arise on exercise of the conversion rights under the amended Convertible Loan Notes in full. Any such Whitewash Waiver would only be granted by the SFC subject to it first being approved by a resolution of the Independent Shareholders in the EGM. The Deed of Amendment and the proposed amendments thereunder are conditional on, among other conditions, the grant in terms satisfactory to Great Respect (acting reasonably) by the SFC of a whitewash waiver. However, if the Whitewash Waiver is not granted, Great Respect would be entitled (but not required) to waive that condition under the Deed of Amendment. If it did so, Great Respect would only exercise the conversion rights under the amended Convertible Loan Notes in a manner that would not result in Great Respect incurring an obligation to make a mandatory general offer under the Takeovers Code to acquire all of the shares of the Company other than those already owned by Great Respect and persons acting in concert with it. The Executive has indicated that the Whitewash Waiver is likely to be granted but subject to, among others, approval by the Independent Shareholders at the EGM by way of poll.

Although Great Respect would be entitled (but not required) to waive the condition regarding the obtaining of the Whitewash Waiver, we consider the grant of the Whitewash Waiver would encourage Great Respect to exercise its conversion rights under the Convertible Loan Notes so as to reduce the financial burden of the Group which is in the interests of the Company and the Independent Shareholders as a whole.

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

RECOMMENDATION

Having taken into account the principal factors and reasons referred to the above, in particular:

the recent financial performance and position of the Group;
the uncertainty of the gaming industry outlook in Macau;
the Group’s cost in obtaining alternative sources of funding to repay the amount due to Great Respect when the Convertible Loan Notes mature this year would have been very high;
the Company may have a going concern issue and its accounts may be qualified by its auditors if the maturity date of the Convertible Loan Notes cannot be extended;
when the market price of the Shares is higher than the Revised Conversion Price and the Company has sufficient financial resources, the Company may exercise its discretion to redeem all or part of the Convertible Loan Notes so as to reduce the shareholding dilution arisen from the possible conversion of the rights attached to the Convertible Loan Notes;
the slight premium presented by the Revised Conversion Price over the closing price of the Shares on the Last Trading Date, and the five consecutive trading days up to and including the Last Trading Date;
the Revised Conversion Price is comparable to all issuance of convertible notes or bonds announced by other gaming sector companies listed on the Stock Exchange during the last 12 months preceding the Last Trading Date;
the revised maturity provides more flexibility for the Company in order to relieve the immediate funding needs;
the Revised Conversion Price enhances the possibility of Great Respect to exercise its conversion rights attached to the Convertible Loan Notes so as to reduce the liabilities of the Group; and
the grant of the Whitewash Waiver would encourage Great Respect to exercise its conversion rights under the Convertible Loan Notes so as to reduce the financial burden of the Group which is in the interests of the Company and the Independent Shareholders as a whole,

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

we are of the opinion that the Deed of Amendment and the Whitewash Waiver are on normal commercial terms, in the ordinary and usual course of business of the Group, fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Independent Shareholders as a whole. We therefore advise the Independent Shareholders and advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the EGM to approve the Deed of Amendment and the Whitewash Waiver.

Yours faithfully, For and on behalf of Cinda International Capital Limited Thomas Lai Robert Siu Executive Director Executive Director

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

I. THREE YEARS FINANCIAL SUMMARY

Set out below is a summary of the audited consolidated income statements of the Group for each of the three years ended 31 December 2006, 2007 and 2008 and the unaudited consolidated income statement of the Group for the six months ended 30 June 2009 and the audited consolidated balance sheets of the Group as at 31 December 2006, 31 December 2007 and 31 December 2008 and the unaudited consolidated balance sheet of the Group as at 30 June 2009, which are extracted from the audited consolidated financial statements of the Group for the years then ended and the unaudited condensed consolidated interim financial information of the Group for the six months ended 30 June 2009. The auditor’s reports in respect of the Group’s audited consolidated financial statements for each of the three years ended 31 December 2006, 2007 and 2008 did not contain any qualifications.

Consolidated Income Statement

	Six months ended	Six months ended		Year ended 31 December
		30 June 2009	2008	2007	2006
		HK$’000	HK$’000	HK$’000	HK$’000
		(Unaudited)	(Audited)	(Audited)	(Audited)
Continuing operations
Revenue		498,527	690,862	804,895	618,572
Agency fee		–	–	1,232,057	–
Other income		33,079	68,696	34,139	18,100
Investment income (loss)		2,643	(244)	2,840	3,674
Purchases and changes in inventories of
finished goods		(406,023)	(677,532)	(531,867)	(237,116)
Employee benefits expense		(68,294)	(169,465)	(180,983)	(180,810)
Depreciation of property, plant and equipment		(8,459)	(21,738)	(19,252)	(55,089)
Amortisation of service agreements
intangible assets and trading rights		–	–	–	(9,983)
Loss on disposal of a subsidiary		(1,804)	–	–	–
Loss on deemed disposal of subsidiaries		–	–	(143,368)	(12,140)
Loss on deemed disposal of partial interests
in subsidiaries		–	–	(76,948)	–
Impairment loss recognised in respect of
interests in associates		–	(1,160,838)	–	–
Impairment loss recognised in respect of
available-for-sale investments		–	(147,861)	–	–
Gain on disposal of interests in jointly
controlled entities		–	–	532,604	–
Gain on formation of a jointly controlled	entity	–	–	–	20,000
Gain on deemed disposal of interests in
jointly controlled entities		–	–	–	3,102,253
(Loss) gain on changes in interests in associates		(176,421)	48,466	1,549,361	–
Increase in fair value of investment properties		–	14,000	10,060	–
Fair value changes on derivative financial
instruments		(30)	(227,691)	190,126	–
		43

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Six months ended 30 June 2009 HK$’000 (Unaudited) Fair value change on investment in convertible loan note 77,629 Loss on disposal of available-for-sale investment (1,172) Other expenses (38,269) Finance costs (55,103) Share of (losses) profits of jointly controlled entities (155,351) Share of losses of associates (511,713) Write-down of service agreements intangible asset – Gain on extension of long term payable – Gain on early redemption of convertible loan notes – (Loss) profit before tax (810,761) Income tax (expense) credit (602) (Loss) profit for the period/year from continuing operations (811,363) Discontinued operation Profit for the period/year from discontinued operation – (Loss) profit for the period/year (811,363) Attributable to: Equity holders of the Company (811,890) Minority interests 527 (811,363) Dividends –	2008 HK$’000 (Audited) (206,428) – (179,605) (107,401) 109,108 (387,175) – 2,517 – (2,352,329) (885) (2,353,214) – (2,353,214) (2,356,819) 3,605 (2,353,214) 12,271	Year ended 31 December 2007 2006 HK$’000 HK$’000 (Audited) (Audited) – – – – (155,142) (202,757) (76,235) (64,053) (157,713) (191,835) (519,538) – – (90,390) 9,656 – 8,827 – 2,513,519 2,718,426 69 4,736 2,513,588 2,723,162 155,075 36,819 2,668,663 2,759,981 2,690,639 2,836,755 (21,976) (76,774) 2,668,663 2,759,981 12,282 41,825

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Six months ended 30 June 2009 HK$’000 (Unaudited) (Loss) earnings per share For continuing and discontinued operations Basic (HK66.14 cents) Diluted (HK66.14 cents) For continuing operations Basic (HK66.14 cents) Diluted (HK66.14 cents) Dividend per share Proposed: Interim/final dividend per share – Dividend in specie_(note 1) – Special dividend per share(note 1) – Paid: 2007 final dividend paid per share – 2006 final dividend paid per share – Dividend in specie(note 1) – Special dividend paid per share(note 1)_ – 2005 final dividend paid per share –	2008 HK$’000 (Audited) (HK192.08 cents) (HK192.09 cents) (HK192.08 cents) (HK192.09 cents) – – – HK1 cent – – – –	Year ended 31 December 2007 2006 HK$’000 HK$’000 (Audited) (Audited) HK219.06 cents HK238.13 cents HK198.38 cents HK208.84 cents HK207.56 cents HK235.55 cents HK188.23 cents HK206.65 cents HK1 cent HK1 cent – 1 ADS of Melco Crown Entertainment Limited for every whole multiple of 4,000 shares held on 19 December 2006 – HK3.7 cents – – HK1 cent – – 1 ADS of Melco Crown Entertainment Limited for every whole multiple of 4,000 shares held on 19 December 2006 – HK3.7 cents – HK1 cent

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Note 1:

In respect of the listing of American Depositary Share (“ADS”) of Melco Crown Entertainment Limited (formerly known as Melco PBL Entertainment (Macau) Limited) (“Melco Crown Entertainment”) on the NASDAQ Stock market in the United States of America (“NASDAQ”) on 19 December 2006, a distribution in specie was offered to the shareholders of the Company. Under the distribution in specie, qualifying shareholders holding not less than 4,000 shares in the Company whose names appeared in the register of members of the Company on the record date for the distribution in specie, which was on 19 December 2006, would be entitled to receive 1 ADS for every whole multiple of 4,000 shares in the Company held on the record date. The final offer price of US$19 per ADS was translated into Hong Kong dollars of HK$147.8. A total of 60,392 ADSs amounting to approximately HK$8,925,000 were issued to the shareholders of the Company.

Qualifying shareholders holding not less than 4,000 shares in the Company whose names appeared in the register of members of the Company on the record date for the distribution in specie and who elected to receive a cash payment in lieu of all the ADSs to which they would otherwise have been entitled were entitled to receive an amount of approximately HK$0.037 for every share in the Company held by them on the record date for the distribution in specie. Qualifying shareholders holding less than 4,000 shares in the Company whose names appeared in the register of members of the Company on the record date for the distribution in specie were entitled to receive a cash payment of approximately HK$0.037 for every share held by them on the record date for the distribution in specie.

Consolidated Balance Sheet

Non-current assets Investment properties Property, plant and equipment Other intangible assets Interests in jointly controlled entities Interests in associates Amounts due from associates Amount due from a jointly controlled entity Available-for-sale investments Trading rights Investment in convertible loan note Goodwill Long term deposits Pledged bank deposits Long term receivable Deferred tax assets	As at 30 June 2009 HK$’000 (Unaudited) 166,000 39,060 2,000 78,639 6,455,648 602,938 350,100 11,404 – 246,202 4,113 – 295,640 4,000 – 8,255,744	2008 HK$’000 (Audited) 166,000 42,977 2,000 190,227 7,126,710 800,673 – 39,093 – 168,573 8,555 – 972,500 – 719 9,518,027	As at 31 December 2007 2006 HK$’000 HK$’000 (Audited) (Audited) 152,000 141,940 59,636 39,945 2,000 2,547 81,119 87,901 8,689,271 5,802,612 578,578 578,578 – – 156,337 19,837 – 1,773 – – 8,555 16,878 – 3,236 972,500 – – – 1,592 2,781 10,701,588 6,698,028	As at 31 December 2007 2006 HK$’000 HK$’000 (Audited) (Audited) 152,000 141,940 59,636 39,945 2,000 2,547 81,119 87,901 8,689,271 5,802,612 578,578 578,578 – – 156,337 19,837 – 1,773 – – 8,555 16,878 – 3,236 972,500 – – – 1,592 2,781 10,701,588 6,698,028
				6,698,028

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Current assets Inventories Trade receivables Prepayments, deposits and other receivables Held-for-trading investments Derivative financial instruments Amounts due from jointly controlled entities Amounts due from associates Taxation recoverable Pledged bank deposits Bank deposits with original maturity over three months Bank balances and cash Current liabilities Trade payables Other payables Shareholder’s loan Dividend payable Taxation payable Financial guarantee liability Bank borrowings – due within one year Net current assets Total assets less liabilities	As at 30 June 2009 HK$’000 (Unaudited) 28,235 109,062 102,836 217 34 – 256,092 – 13,470 465,738 116,775 1,092,459 92,249 172,755 250,000 133 418 45,217 166,400 727,172 365,287 8,621,031	2008 HK$’000 (Audited) 57,652 55,690 232,534 150 64 – 130,555 – 6,738 164,896 239,875 888,154 309,664 124,095 250,000 133 689 45,217 96,400 826,198 61,956 9,579,983	As at 31 December 2007 2006 HK$’000 HK$’000 (Audited) (Audited) 25,764 61,476 259,705 662,954 110,497 82,831 430 14,503 223,626 – – 855 682,757 611,862 – 1,345 947 947 – – 308,865 1,209,826 1,612,591 2,646,599 162,529 270,733 96,480 91,598 250,000 – 118 1,444 3,726 6,378 45,217 – 80,000 49,000 638,070 419,153 974,521 2,227,446 11,676,109 8,925,474	As at 31 December 2007 2006 HK$’000 HK$’000 (Audited) (Audited) 25,764 61,476 259,705 662,954 110,497 82,831 430 14,503 223,626 – – 855 682,757 611,862 – 1,345 947 947 – – 308,865 1,209,826 1,612,591 2,646,599 162,529 270,733 96,480 91,598 250,000 – 118 1,444 3,726 6,378 45,217 – 80,000 49,000 638,070 419,153 974,521 2,227,446 11,676,109 8,925,474
				2,646,599
				270,733 91,598 – 1,444 6,378 – 49,000
				419,153
				2,227,446
				8,925,474

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Non-current liabilities Trade payables – due after one year Financial guarantee liability Bank borrowings – due after one year Long term payable Convertible loan note – due after one year Capital and reserves Share capital Reserves Equity attributable to equity holders of the Company Share options reserve of a subsidiary Minority interests	As at 30 June 2009 HK$’000 (Unaudited) 5,435 99,200 58,400 170,537 1,095,044 1,428,616 7,192,415 615,052 6,550,801 7,165,853 – 26,562 7,192,415	2008 HK$’000 (Audited) 81,678 121,808 216,600 172,496 1,061,861 1,654,443 7,925,540 614,666 7,284,839 7,899,505 – 26,035 7,925,540	As at 31 December 2007 2006 HK$’000 HK$’000 (Audited) (Audited) – – 167,025 – – – 168,142 170,537 999,399 1,093,459 1,334,566 1,263,996 10,341,543 7,661,478 614,238 614,075 9,704,875 6,953,032 10,319,113 7,567,107 – 265 22,430 94,106 10,341,543 7,661,478	As at 31 December 2007 2006 HK$’000 HK$’000 (Audited) (Audited) – – 167,025 – – – 168,142 170,537 999,399 1,093,459 1,334,566 1,263,996 10,341,543 7,661,478 614,238 614,075 9,704,875 6,953,032 10,319,113 7,567,107 – 265 22,430 94,106 10,341,543 7,661,478
				1,263,996
				7,661,478

				614,075 6,953,032
				7,567,107 265 94,106
				7,661,478

Extraordinary and exceptional items

There were no extraordinary or exceptional items recorded in the Group’s consolidated financial statements in respect of the reporting periods specified above.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

II. AUDITED FINANCIAL INFORMATION

Set out below is the full text of the audited consolidated financial statements of the Group for the year ended 31 December 2008 extracted from the annual report of the Company for the year ended 31 December 2008.

Consolidated Income Statement

For the year ended 31 December 2008

Notes Continuing operations Revenue 7 Agency fee 12 Other income 9 Investment (loss) income 10 Purchases and changes in inventories of finished goods Employee benefits expense 11 Depreciation of property, plant and equipment Loss on deemed disposal of subsidiaries 12 Loss on deemed disposal of partial interests in subsidiaries 13 Impairment loss recognised in respect of interests in associates 14 Impairment loss recognised in respect of available-for-sale investments Gain on disposal of interests in jointly controlled entities 26 Gain on changes in interests in associates 27 Increase in fair value of investment properties 23 Fair value changes on derivative financial instruments 36 Fair value change on investment in convertible loan note 30 Other expenses Finance costs 15 Share of profits (losses) of jointly controlled entities 26 Share of losses of associates 27 Gain on extension of long term payable 46 Gain on early redemption of convertible loan notes (Loss) profit before tax 16 Income tax (expense) credit 17 (Loss) profit for the year from continuing operations Discontinued operation Profit for the year from discontinued operation 18 (Loss) profit for the year	2008 HK$’000 690,862 – 68,696 (244) (677,532) (169,465) (21,738) – – (1,160,838) (147,861) – 48,466 14,000 (227,691) (206,428) (179,605) (107,401) 109,108 (387,175) 2,517 – (2,352,329) (885) (2,353,214) – (2,353,214)	2007 HK$’000 804,895 1,232,057 34,139 2,840 (531,867) (180,983) (19,252) (143,368) (76,948) – – 532,604 1,549,361 10,060 190,126 – (155,142) (76,235) (157,713) (519,538) 9,656 8,827 2,513,519 69 2,513,588 155,075 2,668,663

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes Attributable to: Equity holders of the Company Minority interests Dividends 21 (Loss) earnings per share 22 For continuing and discontinued operations Basic Diluted For continuing operations Basic Diluted	2008 HK$’000 (2,356,819) 3,605 (2,353,214) 12,271 (HK192.08 cents) (HK192.09 cents) (HK192.08 cents) (HK192.09 cents)	2007 HK$’000 2,690,639 (21,976) 2,668,663 12,282 HK219.06 cents HK198.38 cents HK207.56 cents HK188.23 cents

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Consolidated Balance Sheet

At 31 December 2008

Notes Non-current assets Investment properties 23 Property, plant and equipment 24 Other intangible assets 25 Interests in jointly controlled entities 26 Interests in associates 27 Amounts due from associates 37 Available-for-sale investments 29 Investment in convertible loan note 30 Goodwill 31 Pledged bank deposits 39 Deferred tax assets 47 Current assets Inventories 33 Trade receivables 34 Prepayments, deposits and other receivables Held-for-trading investments 35 Derivative financial instruments 36 Amounts due from associates 37 Pledged bank deposits 39 Bank deposits with original maturity over three months 40 Bank balances and cash 40 Current liabilities Trade payables 41 Other payables Shareholder’s loan 42 Dividend payable Taxation payable Financial guarantee liability 43 Bank borrowings – due within one year 44 Net current assets Total assets less liabilities	2008 HK$’000 166,000 42,977 2,000 190,227 7,126,710 800,673 39,093 168,573 8,555 972,500 719 9,518,027 57,652 55,690 232,534 150 64 130,555 6,738 164,896 239,875 888,154 309,664 124,095 250,000 133 689 45,217 96,400 826,198 61,956 9,579,983	2007 HK$’000 152,000 59,636 2,000 81,119 8,689,271 578,578 156,337 – 8,555 972,500 1,592
		10,701,588
		25,764 259,705 110,497 430 223,626 682,757 947 – 308,865
		1,612,591
		162,529 96,480 250,000 118 3,726 45,217 80,000
		638,070
		974,521
		11,676,109

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes Non-current liabilities Trade payables – due after one year 41 Financial guarantee liability 43 Bank borrowings – due after one year 44 Long term payable 46 Convertible loan note – due after one year 45 Capital and reserves Share capital 48 Reserves Equity attributable to equity holders of the Company Minority interests	2008 HK$’000 81,678 121,808 216,600 172,496 1,061,861 1,654,443 7,925,540 614,666 7,284,839 7,899,505 26,035 7,925,540	2007 HK$’000 – 167,025 – 168,142 999,399
		1,334,566
		10,341,543

		614,238 9,704,875
		10,319,113 22,430
		10,341,543

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Balance Sheet

At 31 December 2008

Notes Non-current assets Investment in subsidiaries 28 Other intangible asset 25 Amounts due from subsidiaries 38 Pledged bank deposits 39 Current assets Prepayments, deposits and other receivables Amounts due from associates 37 Amounts due from subsidiaries 38 Bank deposits with original maturity of over three months 40 Bank balances and cash 40 Current liabilities Other payables Amounts due to associates 37 Amounts due to subsidiaries 38 Shareholder’s loan 42 Dividend payable Financial guarantee liability 43 Bank borrowings – due within one year 44 Net current assets Total assets less current liabilities	2008 HK$’000 1,040,712 2,000 3,382,194 972,500 5,397,406 14,631 41,996 55,327 164,896 116,136 392,986 7,026 421 6,926 250,000 133 45,217 80,000 389,723 3,263 5,400,669	2007 HK$’000 966,495 2,000 3,435,586 972,500
		5,376,581
		6,190 255,856 – – 149,018
		411,064
		5,656 2,163 129 250,000 118 45,217 80,000
		383,283
		27,781
		5,404,362

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes Non-current liabilities Financial guarantee liability 43 Amount due to a subsidiary 38 Bank borrowings – due after one year 44 Convertible loan note – due after one year 45 Capital and reserves Share capital 48 Reserves 49	2008 HK$’000 121,808 46,600 150,000 1,061,861 1,380,269 4,020,400 614,666 3,405,734 4,020,400	2007 HK$’000 167,025 – – 999,399
		1,166,424
		4,237,938

		614,238 3,623,700
		4,237,938

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended 31 December 2008

						Attributable to the	Attributable to the	equity holders	of the Company	of the Company
											Shares held
					Convertible						under					Share
					loan	Property	Other			Share	share	Share				options
	Share	Share	Capital	Special	note equity	revaluation	revaluation	Exchange	Legal	options	award	awards	Other	Accumulated		reserve of a	Minority
	capital	premium	reserve	reserve	reserve	reserve	reserve	reserve	reserve	reserve	schemes	reserve	reserve	profits	Total	subsidiary	interests	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
			(Note 1)	(Note 2)					(Note 3)				(Note 4)
At 1 January 2007	614,075	3,124,940	296,016	(78,243)	327,677	5,796	32,380	(2)	254	12,726	–	–	–	3,231,488	7,567,107	265	94,106	7,661,478
Exchange difference arising
on translation of foreign
operations	–	–	–	–	–	–	–	392	–	–	–	–	–	–	392	–	(51)	341
Share of reserves
of associates	–	–	–	–	–	–	–	2,347	–	–	–	–	(31,674)	–	(29,327)	–	–	(29,327)
Loss on fair value change
of available-for-sale
investments	–	–	–	–	–	–	(30,617)	–	–	–	–	–	–	–	(30,617)	–	–	(30,617)
Net income (expense) directly
recognised in equity	–	–	–	–	–	–	(30,617)	2,739	–	–	–	–	(31,674)	–	(59,552)	–	(51)	(59,603)
Profit for the year	–	–	–	–	–	–	–	–	–	–	–	–	–	2,690,639	2,690,639	–	(21,976)	2,668,663
Total recognised income
for the year	–	–	–	–	–	–	(30,617)	2,739	–	–	–	–	(31,674)	2,690,639	2,631,087	–	(22,027)	2,609,060
Exercise of share options	163	432	–	–	–	–	–	–	–	–	–	–	–	–	595	–	–	595
Capital contribution from
minority shareholders	–	–	–	–	–	–	–	–	–	–	–	–	–	–	–	–	500,212	500,212
Realisation of special reserve
and other revaluation reserve
upon deemed disposal of
partial interest in an associate	–	–	–	8,293	–	–	(3,432)	–	–	–	–	–	–	(4,861)	–	–	–	–
Decease in minority interests
on acquisition of additional
interest in a subsidiary	–	–	–	–	–	–	–	–	–	–	–	–	–	–	–	–	(1,028)	(1,028)
Decrease in minority interests
on deemed disposal of partial
interest in subsidiaries	–	–	–	–	–	–	–	–	–	–	–	–	–	–	–	–	(208,765)	(208,765)
Recognition of equity
– settled share based payments	–	–	–	–	–	–	–	–	–	9,393	–	–	–	–	9,393	194	70	9,657
Transfer to share premium upon
exercise of share options	–	113	–	–	–	–	–	–	–	(113)	–	–	–	–	–	–	–	–
Transfer of share option reserve
upon expiry of share options	–	–	–	–	–	–	–	–	–	(48)	–	–	–	48	–	–	–	–
Early redemption of convertible
loan notes	–	–	–	–	(20,424)	–	–	–	–	–	–	–	–	8,946	(11,478)	–	–	(11,478)
Increase in reserves and
decrease in minority
interests upon deemed
disposal of subsidiaries	–	–	–	–	–	–	–	(138)	–	–	–	–	–	134,829	134,691	(459)	(339,942)	(205,710)
Dividend paid	–	–	(12,282)	–	–	–	–	–	–	–	–	–	–	–	(12,282)	–	(196)	(12,478)
At 31 December 2007	614,238	3,125,485	283,734	(69,950)	307,253	5,796	(1,669)	2,599	254	21,958	–	–	(31,674)	6,061,089	10,319,113	–	22,430	10,341,543

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Exchange difference arising
on translation of foreign
operations
Share of reserves of associates
Loss on fair value change of
available-for-sale
investments
Expense directly recognised
in equity
Loss for the year
Impairment loss recognised in
respect of available-for-sale
investments
Total recognised income
(expense) for the year
Exercise of share options
Recognition of equity
– settled share based
payments
Transfer to share premium
upon exercise
of share options
Transfer of share option
reserve upon expiry
of share options
Shares vested under the
share award schemes
Purchase of shares for
unvested shares under
the share award schemes
Dividend paid
At 31 December 2008

Attributable to the equity holders of the Company
Shares held
Convertible
under
Share
loan
Property
Other
Share
share
Share
options
Share
Share
Capital
Special note equity revaluation revaluation
Exchange
Legal
options
award
awards
Other Accumulated
reserve of a
Minority
capital
premium
reserve
reserve
reserve
reserve
reserve
reserve
reserve
reserve
schemes
reserve
reserve
profits
Total
subsidiary
interests
Total
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
HK$’000
(Note 1)
(Note 2)
(Note 3)
(Note 4)
–
–
–
–
–
–
–
(313)
–
–
–
–
–
–
(313)
–
–
(313)
–
–
–
–
–
–
–
(10,469)
–
–
–
–
(72,120)
–
(82,589)
–
–
(82,589)
–
–
–
–
–
–
(117,244)
–
–
–
–
–
–
–
(117,244)
–
–
(117,244)
–
–
–
–
–
–
(117,244)
(10,782)
–
–
–
–
(72,120)
–
(200,146)
–
–
(200,146)
–
–
–
–
–
–
–
–
–
–
–
–
–
(2,356,819)
(2,356,819)
–
3,605
(2,353,214)
–
–
–
–
–
–
147,861
–
–
–
–
–
–
–
147,861
–
–
147,861
–
–
–
–
–
–
30,617
(10,782)
–
–
–
–
(72,120)
(2,356,819)
(2,409,104)
–
3,605
(2,405,499)
428
4,703
–
–
–
–
–
–
–
–
–
–
–
–
5,131
–
–
5,131
–
–
–
–
–
–
–
–
–
13,271
–
7,365
–
–
20,636
–
–
20,636
–
1,254
–
–
–
–
–
–
–
(1,254)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1,337)
–
–
–
1,337
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,912
(3,227)
–
315
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(24,000)
–
–
–
(24,000)
–
–
(24,000)
–
–
(12,271)
–
–
–
–
–
–
–
–
–
–
–
(12,271)
–
–
(12,271)
614,666
3,131,442
271,463
(69,950)
307,253
5,796
28,948
(8,183)
254
32,638
(21,088)
4,138
(103,794)
3,705,922
7,899,505
–
26,035
7,925,540

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Note 1 : Pursuant to a scheme of capital reduction, which became effective on 29 June 1993, the Supreme Court of Hong Kong approved the cancellation of the Company’s share premium account which, on that date, was stated at HK$127,274,212. By virtue of the same court’s sanction, the issued and fully paid share capital of the Company was also reduced by HK$230,510,521 through a reduction in the nominal value of the share capital of the Company. The credits arising from the cancellation of the share premium account and the reduction of the share capital account, in the aggregate amount of HK$357,784,733 were transferred to a capital reserve account. The capital reserve account is distributable to the shareholders of the Company if there is no outstanding debt or claim against the Company which was in existence on the effective date of the capital reduction. In view of the fact that the Company receives no claim, demand, action or proceedings in respect of any such debt or claim since June 1993 and in view of the fact that any such debt or claim has been statute-barred under Hong Kong law and irrecoverable against the Company, the Company is of the view that the reserve is distributable to the Company’s shareholders.
Note 2 : The special reserve represents the difference between the consideration paid and the goodwill and the carrying values of the underlying assets and liabilities attributable to the additional interest in a subsidiary acquired in previous years.
Note 3 : All entities incorporated in Macau are required to set aside a minimum of 10% of the entity’s profit after taxation to the legal reserve until the balance of the legal reserve reaches a level equivalent to 50% of the entity’s share capital in accordance with the provisions of the Macau Commercial Code. Such legal reserve represents an amount set aside from the income statement and is not available for distribution to the shareholders of the entity. The appropriation of legal reserve is recorded in financial statements in the period in which it is approved by the board.
Note 4 : The other reserve represents the share of an associate’s hedging reserve.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Cash Flow Statement

For the year ended 31 December 2008

OPERATING ACTIVITIES (Loss) profit before tax Adjustments for: Agency fee Gain on extension of long term payable Gain on early redemption of convertible loan notes Loss (gain) from fair value change of held-for-trading investments Financial guarantee income Dividend income Depreciation of property, plant and equipment Amortisation of trading rights Loss on deemed disposal of partial interests in subsidiaries Loss on deemed disposal of subsidiaries Gain on disposal of interests in jointly controlled entity Impairment loss recognised in respect of interests in associates Impairment loss recognised in respect of available-for-sale investments Gain on changes in interests in associates Increase in fair value of investment properties Fair value changes on derivative financial instruments Fair value change on investment in convertible loan note Allowance for doubtful debts Allowance on other receivables Allowance for inventories Share-based payment expense (Gain) loss on disposal of property, plant and equipment Share of (profits) losses of jointly controlled entities Share of losses of associates Finance costs Operating cash flows before movements in working capital (Increase) decrease in inventories Decrease (increase) in trade receivables Increase in prepayments, deposits and other receivables Decrease in held-for-trading investments Decrease in amounts due from joint controlled entities Decrease in amounts due from associates Increase in trade payables Increase in other payables Net cash from (used in) operations Income tax paid NET CASH FROM (USED IN) OPERATING ACTIVITIES	2008 HK$’000 (2,352,329) – (2,517) – 280 (45,217) (36) 21,738 – – – – 1,160,838 147,861 (48,466) (14,000) 227,691 206,428 6,222 19,540 220,030 20,636 (81) (109,108) 387,175 107,401 (45,914) (240,826) 197,671 (143,512) – – 161,010 228,813 27,615 184,857 (1,114) 183,743	2007 HK$’000 2,677,471 (1,232,057) (9,656) (8,827) (1,194) (13,464) (2,739) 20,381 364 39,754 65,288 (532,604) – – (1,549,361) (10,060) (190,126) – 2,395 – – 9,657 322 157,713 519,538 96,097 38,892 33,395 (1,461,663) (29,497) 1,703 855 203,440 93,625 39,683 (1,079,567) (2,742) (1,082,309)

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes INVESTING ACTIVITIES Advances to associates Increase in bank deposits with original maturity over three months Investments in associates Purchase of property, plant and equipment Increase in pledged bank deposits Subscription of warrants of an associate Proceeds from disposal of property, plant and equipment Dividend received Cash inflow from acquisition of subsidiaries 51 Decrease in long term deposits Net cash outflow on deemed disposal of subsidiaries 52 Purchase of available-for-sale investments Investment in jointly controlled entities NET CASH USED IN INVESTING ACTIVITIES FINANCING ACTIVITIES Bank borrowings raised Proceeds from exercise of share options Repayments of bank borrowings Interest paid Purchase of shares for unvested shares under the share award schemes Dividend paid Capital contribution from minority shareholders Advance from a shareholder Redemption of convertible loan notes NET CASH FROM FINANCING ACTIVITIES NET DECREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR, represented by bank balances and cash	2008 HK$’000 (128,197) (164,896) (98,854) (19,771) (5,791) (4,527) 5,460 36 – – – – – (416,540) 313,000 5,131 (80,000) (38,068) (24,000) (12,256) – – – 163,807 (68,990) 308,865 239,875	2007 HK$’000 – – – (179,176) (972,500) – – 2,739 8,439 179 (170,441) (191,492) (30,000) (1,532,252) 1,162,146 595 – (29,549) – (13,804) 500,212 250,000 (156,000) 1,713,600 (900,961) 1,209,826 308,865

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements

For the year ended 31 December 2008

1. GENERAL

The Company is a public limited company incorporated in Hong Kong and its shares are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). The address of the registered office and principal place of business of the Company are disclosed in the “Corporate Information” section to the annual report.

The consolidated financial statements are presented in Hong Kong dollars, which is the same as the functional currency of the Company.

The principal activities of the Company and its subsidiaries (the “Group”) are divided into three divisions, namely (i) Leisure, Gaming and Entertainment division; (ii) Technology division; and (iii) Property and Other Investments division. In prior years, the Group was also engaged in the Investment and Financial Services. That operation was discontinued in year 2007 (see note 18).

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

In the current year, the Company and the Group have applied the following amendments and interpretations (“new HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) which are or have become effective.

HKAS 39 & HKFRS 7 (Amendments) Reclassification of Financial Assets HK(IFRIC) – Int 11 HKFRS 2: Group and Treasury Share Transactions HK(IFRIC) – Int 12 Service Concession Arrangements HK(IFRIC) – Int 14 HKAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction

The adoption of the new HKFRSs had no material effect on how the results and financial position for the current or prior accounting periods have been prepared and presented. Accordingly, no prior period adjustment has been required.

The Company and the Group have not early applied the following new and revised standards, amendments or interpretations that have been issued but are not yet effective.

HKFRSs (Amendments) Improvements to HKFRSs[1] HKAS 1 (Revised) Presentation of Financial Statements[2] HKAS 23 (Revised) Borrowing Costs[2] HKAS 27 (Revised) Consolidated and Separate Financial Statements[3] HKAS 32 & 1 (Amendments) Puttable Financial Instruments and Obligations Arising on Liquidation[2] HKAS 39 (Amendment) Eligible hedged items[3] HKFRS 1 & HKAS 27 (Amendments) Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate[2] HKFRS 2 (Amendment) Vesting Conditions and Cancellations[2] HKFRS 3 (Revised) Business Combinations[3] HKFRS 7 (Amendment) Improving Disclosures about Financial Instruments[2] HKFRS 8 Operating Segments[2] HK(IFRIC) – Int 9 & HKAS 39 Embedded Derivatives[4] (Amendments) HK(IFRIC) – Int 13 Customer Loyalty Programmes[5] HK(IFRIC) – Int 15 Agreements for the Construction of Real Estate[2] HK(IFRIC) – Int 16 Hedges of a Net Investment in a Foreign Operation[6] HK(IFRIC) – Int 17 Distributions of Non-cash Assets to Owners[3] HK(IFRIC) – Int 18 Transfers of Assets from Customers[7]

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1 Effective for annual periods beginning on or after 1 January 2009 except the amendments to HKFRS 5, effective for annual periods beginning on or after 1 July 2009
2 Effective for annual periods beginning on or after 1 January 2009
3 Effective for annual periods beginning on or after 1 July 2009
4 Effective for annual periods ending on or after 30 June 2009
5 Effective for annual periods beginning on or after 1 July 2008
6 Effective for annual periods beginning on or after 1 October 2008
7 Effective for transfers on or after 1 July 2009

The application of HKFRS 3 (Revised) may affect the accounting for business combination for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009. HKAS 27 (Revised) will affect the accounting treatment for changes in a parent’s ownership interest in a subsidiary. The directors of the Company anticipate that the application of the other new and revised standards, amendments or interpretations will have no material impact on the results and the financial position of the Company and the Group.

3. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared on the historical cost convention as modified for investment properties and certain financial instruments, which are measured at fair values.

The consolidated financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards issued by HKICPA. In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange and by the Hong Kong Companies Ordinance.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities (including special purpose entities) controlled by the Company (its subsidiaries). Control is achieved where the Company has a power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

On acquisition of additional interest in a subsidiary, the difference between the consideration paid and the goodwill and the carrying values of the underlying assets and liabilities attributable to the additional interest in the subsidiary is debited to special reserve. On subsequent disposal of the subsidiary, the attributable special reserve is realised in the consolidated income statement.

Minority interests in the net assets of consolidated subsidiaries are presented separately from the Group’s equity therein. Minority interests in the net assets consist of the amount of those interests at the date of the original business combination and the minority’s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority interests in the subsidiary’s equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Business combinations

The acquisition of businesses is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under HKFRS 3 Business Combinations are recognised at their fair values at the acquisition date.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.

The interest of minority shareholders in the acquiree is initially measured at the minority’s proportion of the net fair value of the assets, liabilities and contingent liabilities recognised.

Goodwill

Goodwill arising on an acquisition of a business represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of the relevant business at the date of acquisition. Such goodwill is carried at cost less any accumulated impairment losses.

Capitalised goodwill arising on an acquisition of a business is presented separately in the consolidated balance sheet.

For the purposes of impairment testing, goodwill arising from an acquisition is allocated to each of the relevant cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the acquisition. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, and whenever there is an indication that the unit may be impaired. For goodwill arising on an acquisition in a financial year, the cash-generating unit to which goodwill has been allocated is tested for impairment before the end of that financial year. When the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated to reduce the carrying amount of any goodwill allocated to the unit first, and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in the consolidated income statement. An impairment loss for goodwill is not reversed in subsequent periods.

On subsequent disposal of a subsidiary, the attributable amount of goodwill capitalised is included in the determination of the amount of profit or loss on disposal.

Investment in subsidiaries

Investment in subsidiaries are included in the Company’s balance sheet at cost, less any identified impairment loss.

Jointly controlled entities

Joint venture arrangements that involve the establishment of a separate entity in which venturers have joint control over the economic activity of the entity are referred to as jointly controlled entities.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The results and assets and liabilities of jointly controlled entities are incorporated in the consolidated financial statements of the Group using the equity method of accounting. Under the equity method, investments in jointly controlled entities are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the jointly controlled entities, less any identified impairment loss. When the Group’s share of losses of a jointly controlled entity equals or exceeds its interest in that jointly controlled entity (which includes any long-term interests that, in substance, form part of the Group’s net investment in the jointly controlled entity), the Group discontinues recognising its share of further losses. An additional share of losses is provided for and a liability is recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of that jointly controlled entity.

Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss.

When a group entity transacts with a jointly controlled entity of the Group, unrealised profits or losses are eliminated to the extent of the Group’s interest in the jointly controlled entity, except to the extent that unrealised losses provide evidence of an impairment of the asset transferred, in which case, the full amount of losses is recognised.

Investments in associates

An associate is an entity over which the investor has significant influence and that is neither a subsidiary nor an interest in a joint venture.

The results and assets and liabilities of associates are incorporated in the consolidated financial statements of the Group using the equity method of accounting. Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the associates, less any identified impairment loss. When the Group’s share of losses of an associate equals or exceeds its interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognising its share of further losses. An additional share of losses is provided for and a liability is recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of that associate.

Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associates recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment.

Where a group entity transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group’s interest in the relevant associate.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods sold or services provided in the normal course of business, net of discounts and sales related tax.

Agency fee is recognised when the required services is rendered in accordance with the milestones included in respective agreement.

Revenue from the provision of catering services, management services, investment banking and financial services are recognised when the services are provided.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Revenue from implementation of technology solution systems are recognised when the systems have been implemented and the customers have agreed and accepted the systems.

Revenue from sales of other products is recognised when goods are delivered and titles have passed.

Interest income from a financial asset is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.

Rental income is recognised on a straight-line basis over the relevant lease terms.

Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and impairment loss.

Depreciation is provided to write off the cost of items of property, plant and equipment over their estimated useful lives and after taking into account of their estimated residual value, using the straight-line method.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated income statement in the year in which the asset is derecognised.

Investment properties

Investment properties are properties held to earn rentals and/or for capital appreciation.

On initial recognition, investment properties are measured at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment properties are measured using the fair value model. Gains or losses arising from changes in the fair value of investment properties are included in the consolidated income statement for the period in which they arise.

An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use or no future economic benefits are expected from its disposals. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated income statement in the year in which the asset is derecognised.

Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Group as lessor

Rental income from operating leases is recognised in the consolidated income statement on a straight-line basis over the term of the relevant lease.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group as lessee

Rentals payable under operating leases are charged to the consolidated income statement on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are recognised as a reduction of rental expense over the lease term on a straight-line basis.

Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in its functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in foreign currencies are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in the consolidated income statement in the period in which they arise. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in the consolidated income statement for the period except for differences arising on the retranslation of non-monetary items in respect of which gains or losses are recognised directly in equity, in which cases, the exchange differences are also recognised directly in equity.

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into the presentation currency of the Group (i.e. Hong Kong dollars) at the rate of exchange prevailing at the balance sheet date, and their income and expenses are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during the period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised as a separate component of equity (the exchange reserve). Such exchange differences are recognised in the consolidated income statement in the period in which the foreign operation is disposed of.

Goodwill and fair value adjustments on identifiable assets and liabilities acquired arising on an acquisition of a foreign operation are treated as assets and liabilities of that foreign operation and translated at the rate of exchange prevailing at the balance sheet date. Exchange differences arising are recognised in the exchange reserve.

Retirement benefits costs

Payments to defined contribution schemes and Mandatory Provident Fund Schemes are charged when employees have rendered service entitling them to the contributions.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated income statement because it excludes items of income or expense that are taxable or deductible in other years, and it further excludes income statement items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited to the consolidated income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the first-in, first-out method.

Share-based payment transactions

Equity settled share-based payment transactions

The fair value of services received determined by reference to the fair value of share options granted at the grant date is expensed on a straight-line basis over the vesting period, with a corresponding increase in share options reserve. At the time when the share options are exercised, the amount previously recognised in share options reserve will be transferred to share premium. When the share options are forfeited after the vesting date or are still not exercised at the expiry date, the amount previously recognised in share options reserve will be transferred to accumulated profits.

The fair value of services received, determined by reference to the fair value of awarded shares granted at the grant date, in exchange for the grant of the awarded shares is expensed on a straight-line basis over the vesting period, with a corresponding increase in share awards reserve. At the time when the awarded shares are vested, the amount previously recognised in share awards reserve and the amount of the relevant treasury shares will be transferred to accumulated profits. When the awarded shares are not vested or are forfeited during the vesting period, the amount previously recognised in share awards reserve will be recognised as income immediately in the consolidated income statement.

At each balance sheet date, the Company and the Group revises its estimates of the number of options and awarded shares that are expected to ultimately vest. The impact of the revision of the estimates during the vesting period, if any, is recognised in the consolidated income statement, with a corresponding adjustment to share options reserve or share awards reserve, respectively.

Prior to the application of HKFRS 2 Share-based Payment, the Company and the Group did not recognise the financial effect of share options until they were exercised. In relation to share options granted before 1 January 2005, the Company and the Group chooses not to apply HKFRS 2 with respect to share options granted on or before 7 November 2002 and vested before 1 January 2005.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Intangible assets

Intangible assets with indefinite useful lives are carried at cost less any subsequent accumulated impairment losses (see the accounting policy in respect of impairment losses on tangible and intangible assets below).

Gains or losses arising from derecognition of an intangible asset are measured at the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the consolidated income statement when the asset is derecognised.

Financial instruments

Financial assets and financial liabilities are recognised on the balance sheet when a group entity becomes a party to the contractual provisions of the instruments. Financial assets and financial liabilities are initially measured at fair value. Transaction costs directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in the consolidated income statement.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period.

Income is recognised on an effective interest basis for debt instruments.

Financial assets

Financial assets of the Company and the Group are classified into one of the three categories, including financial assets at fair value through profit or loss, loans and receivables and available-for-sale financial assets. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. The accounting policies adopted in respect of each category of financial assets are set out below.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss has two subcategories, including financial assets held for trading and those designated as at fair value through profit or loss on initial recognition.

A financial asset is classified as held for trading if:

it has been acquired principally for the purpose of selling in the near future; or
it is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or
it is a derivative that is not designated and effective as a hedging instrument.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

A financial asset other than a financial asset held for trading may be designated as at fair value through profit or loss upon initial recognition if:

such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or
it forms part of a contract containing one or more embedded derivatives, and HKAS 39 permits the entire combined contract (asset or liability) to be designated as at fair value through profit or loss.

At each balance sheet date subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value, with changes in fair value recognised directly in profit or loss in the period in which they arise. The net gain or loss recognised in profit or loss includes any dividend or interest earned on the financial assets.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each balance sheet date subsequent to initial recognition, loans and receivables (including trade and other receivables, amounts due from subsidiaries, and associates, pledged bank deposits and bank balances and cash) are carried at amortised cost using the effective interest method, less any identified impairment losses (see accounting policy on impairment loss on financial assets below).

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated or not classified as financial assets at fair value through profit or loss, loans and receivables or held-to-maturity investments. At each balance sheet date subsequent to initial recognition, available-for-sale financial assets are measured at fair value. Changes in fair value are recognised in equity, until the financial asset is disposed of or is determined to be impaired, at which time, the cumulative gain or loss previously recognised in equity is removed from equity and recognised in profit or loss (see accounting policy on impairment loss on financial assets below).

Impairment of financial assets

Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial assets have been impacted.

For an available-for-sale equity investment, a significant or prolonged decline in the fair value of that investment below its cost is considered to be objective evidence of impairment.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

For all other financial assets, objective evidence of impairment could include:

significant financial difficulty of the issuer or counterparty; or
default or delinquency in interest or principal payments; or
it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the credit period, observable changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortised cost, an impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade and other receivables and amounts due from associates, where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. When a trade and other receivable and amounts due from associates is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profit or loss.

For financial assets measured at amortised cost, if, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment losses was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Impairment losses on available-for-sale equity investments will not be reversed in profit or loss in subsequent periods. Any increase in fair value subsequent to impairment loss is recognised directly in equity.

Financial liabilities and equity

Financial liabilities and equity instruments issued by a group entity are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.

An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. The Company’s and the Group’s financial liabilities are generally classified as other financial liabilities.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.

Interest expense is recognised on an effective interest basis.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Convertible loan notes

Convertible loan notes issued by the Company that contain both financial liability and equity components are classified separately into respective liability and equity components on initial recognition.

On initial recognition, the fair value of the liability component is determined using the prevailing market interest rate of similar non-convertible debts. The difference between the proceeds of the issue of the convertible loan notes and the fair value assigned to the liability component, representing the embedded call option for the holder to convert the loan notes into equity, is included in equity (convertible loan note equity reserve).

In subsequent periods, the liability component of the convertible loan notes is carried at amortised cost using the effective interest method. The equity component, represented by the option to convert the liability component into ordinary shares of the Company, will remain in convertible loan note equity reserve until the embedded option is exercised (in which case the balance stated in convertible loan note equity reserve will be transferred to share premium). Where the option remains unexercised at the expiry date, the balance stated in convertible loan note equity reserve will be released to the accumulated profits. No gain or loss is recognised in the consolidated income statement upon conversion or expiration of the option.

Transaction costs that relate to the issue of the convertible loan notes are allocated to the liability and equity components in proportion to the allocation of the proceeds. Transaction costs relating to the equity component are charged directly to equity. Transaction costs relating to the liability component are included in the carrying amount of the liability portion and amortised over the period of the convertible loan notes using the effective interest method.

Other financial liabilities

Other financial liabilities except for financial guarantee liability, including trade and other payables, amounts due to subsidiaries and associates, dividend payable, bank borrowings, shareholder’s loan and long term payable are subsequently measured at amortised cost, using the effective interest method.

Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Derivative financial instruments

Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each balance sheet date. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.

Financial guarantee contracts

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. A financial guarantee contract issued by the Company and the Group and not designated as fair value through profit or loss is recognised initially at its fair value less transaction costs that are directly attributable to the issue of the financial guarantee contract. Subsequent to initial recognition, the Group measures the financial guarantee contract at the higher of: (i) the amount determined in accordance with HKAS 37 Provisions, Contingent Liabilities and Contingent Assets ; and (ii) the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with HKAS 18 Revenue .

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Derecognition

Financial assets are derecognised when the rights to receive cash flows from the assets expire or, the financial assets are transferred and the Company or the Group has transferred substantially all the risks and rewards of ownership of the financial assets. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised directly in equity is recognised in profit or loss.

Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires. The difference between the carrying amount of the financial liability derecognised and the consideration paid or payable is recognised in the consolidated income statement.

Impairment losses on tangible and intangible assets other than goodwill (see the accounting policies in respect of goodwill above)

At each balance sheet date, the Company and Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. In addition, intangible assets with indefinite useful lives are tested for impairment annually and whenever there is indication that they may be impaired. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as an income immediately.

Borrowing costs

All borrowing costs are recognised in the consolidated income statement in the period in which they are incurred.

4. KEY SOURCES OF ESTIMATION UNCERTAINTY

The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

Estimated impairment of trade receivables and amounts due from associates

When there is an objective evidence of impairment loss, the Company and the Group would determine the amount of the impairment loss which is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). Where the actual future cash flows are less than expected, a material impairment loss may arise.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Fair value of investment in convertible loan note and derivatives

As described in notes 30 and 36, the directors of the Company use their judgement in selecting an appropriate valuation technique for financial instruments not quoted in an active market. Valuation techniques commonly used by market practitioners are applied. For derivative financial instruments, assumptions are made based on quoted market rates adjusted for specific features of the instrument.

Estimated impairment of interests in associates

Determining the impairment loss in respect of interests in associates requires an estimation of the recoverable amount of the interests in associates. The recoverable amount requires the Group to estimate the future cash flows expected to arise from the associates and a suitable discount rate in order to calculate the present value. Where the actual future cash flows are less than expected, a material impairment loss may arise. As at 31 December 2008, the interests in associates amounting to approximately HK$7,126,710,000 (net of accumulated impairment loss of HK$1,160,838,000).

5. CAPITAL RISK MANAGEMENT

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. The Company’s and the Group’s overall strategy remains unchanged from prior year.

The capital structure of the Group consists of net debt, which includes the shareholder’s loan, bank borrowings, convertible loan note and long term payable disclosed in notes 42, 44, 45 and 46, respectively, net of cash and cash equivalents and equity attributable to equity holders of the Company, comprising issued share capital, reserves and accumulated profits.

The capital structure of the Company consists of net debt, which includes the shareholder’s loan, bank borrowings and convertible loan note disclosed in notes 42, 44 and 45, respectively, net of cash and cash equivalents and equity attributable to equity holders of the Company, comprising issued share capital, reserves and accumulated losses.

The directors of the Company review the capital structure on an annual basis. As part of this review, the directors consider the cost of capital and the risks associates with each class of capital. The Company and the Group will balance its overall capital structure through the payment of dividends, new share issues and share buy-backs as well as the issue of new debt or the redemption of existing debt.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. FINANCIAL INSTRUMENTS

6a. Categories of financial instruments

Financial assets
Fair value through profit or loss
– Held for trading
– Designated as fair value through profit or loss
Loans and receivables (including cash and cash equivalents)
Available-for-sale financial assets
Financial liabilities
Amortised cost
Financial guarantee liability
Financial assets
Loans and receivables (including cash and cash equivalents)
Financial liabilities
Amortised cost
Financial guarantee liability

THE GROUP
2008
2007
HK$’000
HK$’000
214
224,056
168,573
–
2,399,317
2,897,991
39,093
156,337
2,290,897
1,730,470
167,025
212,242
THE COMPANY
2008
2007
HK$’000
HK$’000
4,733,049
4,812,952
1,598,874
1,331,809
167,025
212,242

6b. Financial risk management objectives and policies

The Company’s and the Group’s major financial instruments include available-for-sale investments, investment in convertible loan note, derivative financial instruments, trade and other receivables, trade and other payables, amounts due from (to) subsidiaries and associates, pledged bank deposits, financial guarantee liability, bank borrowings, shareholder’s loan, long term payable and convertible loan note. Details of the financial instruments are disclosed in respective note. The risks associated with these financial instruments include market risk (currency risk, interest rate risk and other price risk), credit risk and liquidity risk. The policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

There has been no change to the Group’s exposure to the financial risk or the manner in which it manages and measure the risk.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Market risk

(i) Currency risk

Several subsidiaries of the Company have foreign currency sales and purchases, which expose the Group to foreign currency risk. The Company and the Group have certain bank deposits, amounts due from associates, trade and other receivables and trade and other payables denominated in currency other than the functional currency of the relevant group entities.

The Group currently does not implement hedging activity to hedge against foreign currency exposure but the directors of the Company closely monitor the foreign currency exposure of the Company and the Group.

The carrying amounts of the Company’s and the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows:

United States dollar (“USD”) Macau Patacas (“MOP”) USD MOP	THE GROUP Liabilities Assets 2008 2007 2008 2007 HK$’000 HK$’000 HK$’000 HK$’000 (242,220) (190,934) 1,295,186 1,615,596 (21,933) (11,313) 9,278 189,013 THE COMPANY Liabilities Assets 2008 2007 2008 2007 HK$’000 HK$’000 HK$’000 HK$’000 (1,072) (45,438) 1,322,559 1,203,399 (161) – – 106,509

Sensitivity analysis

The Company and the Group are mainly exposed to the USD and MOP against Hong Kong dollar, the functional currency of relevant group entities.

The following table details the Company’s and the Group’s sensitivity to a 1% increase or decrease in Hong Kong dollars against the relevant foreign currencies. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the year end for a 1% change in foreign currency rates. A negative number below indicates an increase in loss/decrease in profit where Hong Kong dollars strengthen 1% against the relevant currency. For a 1% weakening of Hong Kong dollars against the relevant foreign currency, there would be an equal and opposite impact on the loss/profit.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

==> picture [340 x 145] intentionally omitted <==

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

THE GROUP
USD Impact MOP Impact
2008 2007 2008 2007
HK$’000 HK$’000 HK$’000 HK$’000
Profit or loss (10,530) (14,247) (i) 126 (1,778) (ii)
THE COMPANY
USD Impact MOP Impact
2008 2007 2008 2007
HK$’000 HK$’000 HK$’000 HK$’000
Profit or loss (13,215) (11,598) (i) 2 (1,065) (ii)
----- End of picture text -----

(i) This is mainly attributable to the exposure on outstanding USD receivables, bank deposits and payables at year end in the Company and the Group.
(ii) This is mainly attributable to the exposure on outstanding MOP receivables and payables at the year end in the Company and the Group.

(ii) Interest rate risk

The Company and the Group are exposed to fair value interest rate risk in relation to amount due from an associate, pledged bank deposits, bank deposits with original maturity over three months, bank balances, trade payable by installments, convertible loan note and long term payable which carried at fixed rate (see Notes 37, 39, 40, 41, 45 and 46 for details of these borrowings). The Company and the Group currently do not enter into any hedging instrument for fair value interest rate risk.

The Company and the Group are exposed to cash flow interest rate risk in relation to variable-rate amounts due from associates and subsidiaries, shareholder’s loan and bank borrowings (see Notes 37, 38, 42 and 44 for details of these borrowings). It is the Company’s and Group’s policy to keep its borrowings at floating rate of interests so as to minimise the fair value interest rate risk.

The Company’s and the Group’s exposures to interest rates on financial liabilities are detailed in the liquidity risk management section of this note. The Company’s and the Group’s cash flow interest rate risk is mainly concentrated on the fluctuation of prime rate and Hong Kong Interbank Offer Rate (“HIBOR”) arising from the Company’s and the Group’s Hong Kong dollars borrowings.

Sensitivity analysis

The sensitivity analyses below have been determined based on the exposure to interest rates for non-derivative instruments at the balance sheet date. For variable-rate amounts due from associates and subsidiaries, bank borrowings and shareholder’s loan, the analysis is prepared assuming the amount of assets and liabilities outstanding at the balance sheet date was outstanding for the whole year. A 50 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Group’s loss for the year ended 31 December 2008 would decrease/increase by approximately HK$756,000 and (2007: profit for the year increase/decrease by HK$3,021,000). This is mainly attributable to the Group’s exposure to interest rates on its variable-rate amounts due from associates, bank borrowings and shareholder’s loan (2007: Amounts due from associates, bank balances, bank borrowings and shareholder’s loan).

If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Company’s loss for the year ended 31 December 2008 would decrease/increase by approximately HK$14,720,000 and (2007: profit for the year decrease/increase by HK$441,000). This is mainly attributable to the Company’s exposure to interest rates on its variable-rate amounts due from an associate and subsidiaries, bank borrowings and shareholder’s loan (2007: Amounts due from associate and subsidiaries, bank balances, bank borrowings and shareholder’s loan).

The Group’s sensitivity to interest rates has decreased during the current year mainly due to the decrease in variable rate net financial assets.

The Company’s sensitivity to interest rates has increased during the current year mainly due to the increase in variable rate net financial assets.

(iii) Other price risk

The Group is exposed to equity price risk through its investment in convertible loan note, investments in listed and unlisted equity securities and derivative financial instruments if there is an adverse change in prices. the Group will consider hedging the risk exposure should the need arise.

Sensitivity analysis

The sensitivity analyses below have been determined based on the exposure to fluctuation on equity price underlying the investment in convertible loan note, available-for-sale investments, held-fortrading investments and derivative instruments measured at fair value at the balance sheet date.

If the respective equity price underlying the investment in convertible loan note, equity securities and derivative financial instruments relate had been 5% higher/lower:

loss for the year ended 31 December 2008 would decrease/increase by HK$10,394,000 (2007: profit for the year increase/decrease by HK$11,175,000) as a result of the changes in fair value of investment in convertible loan note, available-for-sale investments, held-fortrading investments and warrants (2007: held-for-trading investments and warrants); and
other revaluation reserve would increase/decrease by nil (2007: increase/decrease by HK$6,825,000) for the Group as a result of the changes in fair value of available-for-sale investments (excluding available-for-sale investment carried at cost less impairment).

The Group’s sensitivity to equity price risk has decreased as a result of the decrease in carrying amounts available-for-sale investments and warrants.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Credit risk

As at 31 December 2008, the Company’s and the Group’s maximum exposure to credit risk which will cause a financial loss to the Company and the Group due to failure to discharge an obligation by the counterparties and financial guarantees provided by the Company and the Group is arising from

the carrying amount of the respective recognised financial assets as stated in the respective balance sheets; and
the amount of contingent liabilities and financial guarantee liability in relation to guarantee issued by the Company and the Group as disclosed in notes 55 and 43, respectively.

In order to minimise the credit risk, the management of the Company and the Group has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Company and the Group reviews the recoverable amount of each individual trade debt and advances to associates at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Company consider that the Company’s and the Group’s credit risk is significantly reduced.

The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies.

The Group’s concentration of credit risk by geographical location is mainly in Hong Kong and Macau. The Group’s significant concentration of credit risk is mainly on the investment in convertible loan note, amounts due from associates of Melco Crown Entertainment Limited (“Melco Crown Entertainment”), Melco China Resorts (Holding) Limited (“MCR BC”), Elixir Gaming Technologies, Inc. (“EGT”) and the Group consider the credit risk is minimal after considering the financial position of these associates. In addition, the credit risk on liquid funds is minimised as they are deposited with several banks with high credit ratings. Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas.

The Group and the Company also expose to concentration of credit risk in respect of guarantee given to a jointly controlled entity (note 43). This jointly controlled entity issued exchangeable bonds of HK$1,950 million (US$250 million) which are jointly and severally guaranteed by the Company and another shareholder of the jointly controlled entity.

Liquidity risk

In the management of the liquidity risk, the Company and the Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Company’s and the Group’s operations and mitigate the effects of fluctuations in cash flows. The management monitors the utilisation of bank borrowings and shareholder’s loan and ensures compliance with loan covenants.

The Company and the Group relies on shareholder’s loan and bank borrowings as a significant source of liquidity. Details of which are set out in notes 42 and 44, respectively. As at 31 December 2008, the Company and the Group has available bank loan facilities of HK$313,000,000 (2007: HK$129,800,000).

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The following table details the Company’s and the Group’s remaining contractual maturity for its financial liabilities. For non-derivative financial liabilities, the table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Company and the Group can be required to pay. The table includes both interest and principal cash flows.

Liquidity and interest risk tables

THE GROUP

THE GROUP
Weighted average interest rate 2008 Non-derivative financial liabilities Trade and other payables 0.8% Dividend payable – Shareholder’s loan 8.3% Bank borrowings 2.5% Trade payables – due after one year 5.0% Long term payable 3.1% Convertible loan note 6.3% Weighted average interest rate 2007 Non-derivative financial liabilities Trade and other payables – Dividend payable – Shareholder’s loan 9.3% Bank borrowings 4.4% Long term payable 5.0% Convertible loan note 6.3%	Less than 1 month HK$’000 306,490 133 – 80,060 – – – 386,683 Less than 1 month HK$’000 232,811 118 – 136 – – 233,065	1-3 months HK$’000 11,190 – 253,724 4,460 – – – 269,374 1-3 months HK$’000 – – 7,491 384 – – 7,875	3 months to 1 year HK$’000 95,705 – – 16,753 – – – 112,458 3 months to 1 year HK$’000 – – 266,059 82,671 – – 348,730	1-2 years HK$’000 – – – 168,933 87,584 180,000 1,175,000 1,611,517 1-2 years HK$’000 – – – – 180,000 – 180,000	Total Carrying undiscounted amount cash at 2-5 years flows 31.12.2008 HK$’000 HK$’000 HK$’000 – 413,385 411,729 – 133 133 – 253,724 250,000 51,156 321,362 313,000 – 87,584 81,678 – 180,000 172,496 – 1,175,000 1,061,861 51,156 2,431,188 2,290,897 Total Carrying undiscounted amount cash at 2-5 years flows 31.12.2007 HK$’000 HK$’000 HK$’000 – 232,811 232,811 – 118 118 – 273,550 250,000 – 83,191 80,000 – 180,000 168,142 1,175,000 1,175,000 999,399 1,175,000 1,944,670 1,730,470
						1,730,470

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

THE COMPANY

Weighted average interest rate 2008 Non-derivative financial liabilities Other payables – Amounts due to associates – Amounts due to subsidiaries 2.3% Dividend payable – Shareholder’s loan 8.3% Bank borrowings 2.1% Convertible loan note 6.3% Weighted average interest rate 2007 Non-derivative financial liabilities Amounts due to associates – Amounts due to subsidiaries – Dividend payable – Shareholder’s loan 9.3% Bank borrowings 4.4% Convertible loan note 6.3%	Less than 1 month HK$’000 2,933 421 526 133 – 80,060 – 84,073 Less than 1 month HK$’000 2,163 129 118 – 136 – 2,546	1-3 months HK$’000 – – 3,511 – 253,724 562 – 257,797 1-3 months HK$’000 – – – 7,451 384 – 7,835	3 months to 1 year HK$’000 – – 4,073 – – 1,717 – 5,790 3 months to 1 year HK$’000 – – – 266,059 82,671 – 348,730	1-2 years HK$’000 – – 48,291 – – 150,481 1,175,000 1,373,772 1-2 years HK$’000 – – – – – – –	Total Carrying undiscounted amount cash at 2-5 years flows 31.12.2008 HK$’000 HK$’000 HK$’000 – 2,933 2,933 – 421 421 – 56,401 53,526 – 133 133 – 253,724 250,000 – 232,820 230,000 – 1,175,000 1,061,861 – 1,721,432 1,598,874 Total Carrying undiscounted amount cash at 2-5 years flows 31.12.2007 HK$’000 HK$’000 HK$’000 – 2,163 2,163 – 129 129 – 118 118 – 273,510 250,000 – 83,191 80,000 1,175,000 1,175,000 999,399 1,175,000 1,534,111 1,331,809	Total Carrying undiscounted amount cash at 2-5 years flows 31.12.2008 HK$’000 HK$’000 HK$’000 – 2,933 2,933 – 421 421 – 56,401 53,526 – 133 133 – 253,724 250,000 – 232,820 230,000 – 1,175,000 1,061,861 – 1,721,432 1,598,874 Total Carrying undiscounted amount cash at 2-5 years flows 31.12.2007 HK$’000 HK$’000 HK$’000 – 2,163 2,163 – 129 129 – 118 118 – 273,510 250,000 – 83,191 80,000 1,175,000 1,175,000 999,399 1,175,000 1,534,111 1,331,809
						1,331,809

At 31 December 2008 and 2007, it was not probable that the counterparty to the financial guarantee contract will claim under the contract. Consequently, the amounts which the Group and the Company may be required to pay under outstanding financial guarantee contracts with carrying amounts of approximately HK$167,025,000 (2007: HK$212,242,000) have not been presented above. The holders of the convertible loan note issued by a jointly controlled entity of the Group (note 43) can require settlement of financial guarantee issued by the Company in year 2012.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6c. Fair value

The fair value of financial assets and financial liabilities are determined as follows:

the fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market bid prices respectively;
the fair value of other financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices or rates from observable current market transactions as input; and
the fair value of derivative instruments is calculated using quoted prices. Where such prices are not available, fair value is determined by discounted cash flow analysis using the applicable yield curve for the duration of the instruments for non-optional derivatives, and option pricing models for optional derivatives. The fair value of investment in convertible loan note is determined using Binomial Model.

Except as detailed in the following table, the directors consider that the carrying amounts of financial assets and liabilities recorded at amortised cost in the consolidated financial statements approximate their fair values:

		THE GROUP AND THE COMPANY	THE GROUP AND THE COMPANY
	2008		2007
	Carrying		Carrying
	amount	Fair value	amount	Fair value
	HK$’000	HK$’000	HK$’000	HK$’000
		(Note)		(Note)
Financial liabilities
Convertible loan note	1,061,861	1,027,959	999,399	885,461

Note: The fair value of the liability component of the convertible loan note issued by the Company is determined with reference to the present value of the convertible loan notes using borrowing rate of 8.3% (2007: 6.25%) determined by reference to the rate of interest on the shareholder’s loan of the Group of similar terms at respective balance sheet dates.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

7. REVENUE

An analysis of the Group’s revenue is as follows:

Implementation of technology solution systems Sales of electronic gaming machines Sales of leisure and gaming products Catering service income Brokerage commission from dealing in securities and futures and options contracts Interest income from clients Interest income from authorised institutions and associates Underwriting, sub-underwriting, placing and sub-placing commission Arrangement, management, advisory and other fee income Property rental income Management fee income	Continuing operation 2008 2007 HK$’000 HK$’000 247,173 261,940 265,659 311,556 – 28,828 103,260 90,725 – – – – 68,129 100,227 – – – – 5,441 10,419 1,200 1,200 690,862 804,895	Discontinued operation 2008 2007 HK$’000 HK$’000 – – – – – – – – – 140,953 – 55,427 – – – 7,423 – 6,823 – – – – – 210,626	Consolidated 2008 2007 HK$’000 HK$’000 247,173 261,940 265,659 311,556 – 28,828 103,260 90,725 – 140,953 – 55,427 68,129 100,227 – 7,423 – 6,823 5,441 10,419 1,200 1,200 690,862 1,015,521	Consolidated 2008 2007 HK$’000 HK$’000 247,173 261,940 265,659 311,556 – 28,828 103,260 90,725 – 140,953 – 55,427 68,129 100,227 – 7,423 – 6,823 5,441 10,419 1,200 1,200 690,862 1,015,521
				1,015,521

8. BUSINESS AND GEOGRAPHICAL SEGMENTS

(a) Business segments

For management purposes, the Group is currently organised into three operating divisions including Leisure, Gaming and Entertainment, Technology, and Property and Other Investments.

The Leisure, Gaming and Entertainment segment mainly comprises provision of catering, entertainment, gaming and related services.

The Technology segment mainly comprises (a) designs, development and supply of gaming technologies, including surveillance equipment and other gaming products used in casinos and (b) development and sale of financial trading and settlement systems in other Asian regions.

The Property and Other Investments segment mainly comprises property investments and other investments.

The investment and financial services segment was operated through a non-wholly owned subsidiary of the Company, Value Convergence Holdings Limited (“VC”),which mainly comprised (a) provision of corporate finance advisory service, initial public offerings and mergers and acquisition advisory services and (b) broking and dealing for clients in securities, futures and options contracts. As disclosed in note 18, VC was deemed disposed of during 2007. The Investment and Financial Services segment was thus discontinued during the year ended 31 December 2007.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2008

Leisure,
Gaming
and
Entertainment
HK$’000
External sales
103,260
Inter-segment sales
1,342
Total revenue
104,602
Segment result
2,879
Gain on changes in interests
in associates
Fair value changes on derivative
financial instruments
Fair value change on investment in
convertible loan note
Finance costs
Share of profits of jointly
controlled entities
109,108
Share of losses of associates
– Allocated
(390,465)
– Unallocated
Impairment loss recognised in
respect of interests in associates
(1,160,838)
Impairment loss recognised in
respect of available-for-sale
investments
Gain on extension of
long term payable
Unallocated corporate income
Unallocated corporate expenses
Loss before tax
Income tax expense
Loss for the year

Property
and Other
Technology Investments Elimination Consolidated
HK$’000
HK$’000
HK$’000
HK$’000
512,832
74,770
–
690,862
189
1,811
(3,342)
–
513,021
76,581
(3,342)
690,862
(251,869)
88,065
(7)
(160,932)
48,466
(227,691)
(206,428)
(107,401)
–
–
–
109,108
–
–
–
(390,465)
3,290
–
–
–
(1,160,838)
(147,861)
2,517
45,217
(159,311)
(2,352,329)
(885)
(2,353,214)

Inter-segment sales are charged at terms agreed by both parties.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

2008

2008
	Leisure,
	Gaming		Property
	and		and Other
	Entertainment	Technology	Investments	Unallocated Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
BALANCE SHEET
Assets
Segment assets	44,559	417,886	617,184	–	1,079,629
Interests in jointly controlled
entities	190,227	–	–	–	190,227
Interests in associates	6,860,831	–	–	265,879	7,126,710
Unallocated corporate assets					2,009,615
Consolidated total assets					10,406,181

Liabilities
Segment liabilities	14,424	484,948	690	–	500,062
Unallocated corporate liabilities					1,980,579
Consolidated total liabilities					2,480,641

OTHER INFORMATION
Capital additions	2,232	14,307	–	3,232	19,771
Depreciation	5,395	3,654	–	12,689	21,738
Loss (gain) on disposal of
property, plant and equipment	14	(137)	42	–	(81)
Allowance for doubtful debts	–	6,222	–	–	6,222
Allowance for inventories	–	220,030	–	–	220,030

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

2007

Continuing operations	Continuing operations	Continuing operations	Discontinued operation Investment and Financial Services Elimination Total Consolidated HK$’000 HK$’000 HK$’000 HK$’000 210,626 – 210,626 1,015,521 483 (483) – – 211,109 (483) 210,626 1,015,521 69,023 (483) 68,540 136,181 – 1,232,057 37,194 (39,754) 78,080 (65,288) – 532,604 – 1,549,361 – 190,126 (19,862) (96,097) – (157,713) – (527,468) – 7,930 – 9,656 – 8,827 – (14,551) – 13,562 – (101,962) 163,952 2,677,471 (8,877) (8,808) 155,075 2,668,663	Discontinued operation Investment and Financial Services Elimination Total Consolidated HK$’000 HK$’000 HK$’000 HK$’000 210,626 – 210,626 1,015,521 483 (483) – – 211,109 (483) 210,626 1,015,521 69,023 (483) 68,540 136,181 – 1,232,057 37,194 (39,754) 78,080 (65,288) – 532,604 – 1,549,361 – 190,126 (19,862) (96,097) – (157,713) – (527,468) – 7,930 – 9,656 – 8,827 – (14,551) – 13,562 – (101,962) 163,952 2,677,471 (8,877) (8,808) 155,075 2,668,663	Discontinued operation Investment and Financial Services Elimination Total Consolidated HK$’000 HK$’000 HK$’000 HK$’000 210,626 – 210,626 1,015,521 483 (483) – – 211,109 (483) 210,626 1,015,521 69,023 (483) 68,540 136,181 – 1,232,057 37,194 (39,754) 78,080 (65,288) – 532,604 – 1,549,361 – 190,126 (19,862) (96,097) – (157,713) – (527,468) – 7,930 – 9,656 – 8,827 – (14,551) – 13,562 – (101,962) 163,952 2,677,471 (8,877) (8,808) 155,075 2,668,663
Technology HK$’000 573,496 2,178 575,674 23,282 – –	Property and Other Investments HK$’000 105,826 10,946 116,772 118,884 – –	Elimination HK$’000 – (14,274) (14,274) (296) – –	Investment and Financial Services HK$’000 210,626 483 211,109 69,023	Elimination HK$’000 – (483) (483) (483)
					1,015,521

					136,181 1,232,057 (39,754) (65,288) 532,604 1,549,361 190,126 (96,097) (157,713) (527,468) 7,930 9,656 8,827 (14,551) 13,562 (101,962)
					2,677,471 (8,808)
					2,668,663

Inter-segment sales are charged at terms agreed by both parties.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2007

	Leisure,
	Gaming		Property
	and		and Other
	Entertainment	Technology	Investments	Unallocated Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
BALANCE SHEET
Assets
Segment assets	47,340	396,698	842,322	–	1,286,360
Interests in jointly controlled
entities	81,119	–	–	–	81,119
Interests in associates	8,426,030	–	–	263,241	8,689,271
Unallocated corporate assets					2,257,429
Consolidated total assets					12,314,179

Liabilities
Segment liabilities	15,974	227,203	404	–	243,581
Unallocated corporate liabilities					1,729,055
Consolidated total liabilities					1,972,636

2007

Continuing operations
Leisure,
Gaming
Property
and
and Other
Entertainment
Technology
Investments
Total
HK$’000
HK$’000
HK$’000
HK$’000
OTHER INFORMATION
Capital additions_(Note)_
151,359
5,816
20,284
177,459
Depreciation
11,039
2,364
5,849
19,252
Amortisation of trading rights
–
–
–
–
Loss on disposal of property,
plant and equipment
140
9
172
321
Allowance for doubtful debts
1,095
1,212
–
2,307

Discontinued
operation
Investment
and
Financial
Services
Consolidated
HK$’000
HK$’000
1,715
179,174
1,129
20,381
364
364
1
322
88
2,395

Note: Apart from the capital additions disclosed above, the Group acquired a subsidiary, EGT, with goodwill of approximately HK$1,464,150,000, intangible assets of approximately HK$43,787,000 and property, plant and equipment of approximately HK$199,584,000 during 2007 (see note 51).

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Geographical segments

The Leisure, Gaming and Entertainment, Technology and Property and Other Investments divisions are operated in Hong Kong and Macau.

The following is an analysis of the Group’s revenue by geographical market based on geographical location of customers, irrespective of the origin of the goods or services.

Hong Kong Macau Other Asian countries	2008 HK$’000 224,059 466,780 23 690,862	2007 HK$’000 460,432 483,814 71,275
		1,015,521

Revenue from the Group’s discontinued operation for 2007 was derived from Hong Kong.

The following is an analysis of the carrying amount of segment assets, and additions to property, plant and equipment analysed by the geographical area in which the assets are located:

Hong Kong Macau Other Asian countries	Carrying amount of segment assets 2008 2007 HK$’000 HK$’000 629,468 961,695 429,497 300,628 20,664 24,037 1,079,629 1,286,360	Additions to property, plant and equipment, 2008 2007 HK$’000 HK$’000 7,464 33,319 11,768 1,349 539 144,506 19,771 179,174	Additions to property, plant and equipment, 2008 2007 HK$’000 HK$’000 7,464 33,319 11,768 1,349 539 144,506 19,771 179,174
			179,174

9. OTHER INCOME

Service fees from associates Exchange gain, net Imputed financial guarantee income Others	Continuing operations 2008 2007 HK$’000 HK$’000 19,768 12,581 – 1,861 45,217 13,464 3,711 6,233 68,696 34,139	Discontinued operation 2008 2007 HK$’000 HK$’000 – – – 247 – – – 131 – 378	Consolidated 2008 2007 HK$’000 HK$’000 19,768 12,581 – 2,108 45,217 13,464 3,711 6,364 68,696 34,517	Consolidated 2008 2007 HK$’000 HK$’000 19,768 12,581 – 2,108 45,217 13,464 3,711 6,364 68,696 34,517
				34,517

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

10. INVESTMENT (LOSS) INCOME

Loss on disposal of held-for-trading investments (Loss) gain from fair value change of held-for-trading investments Dividend income from unlisted investments Dividend income from listed investments	Continuing operations 2008 2007 HK$’000 HK$’000 – – (280) 101 36 2,219 – 520 (244) 2,840	Discontinued operation 2008 2007 HK$’000 HK$’000 – (137) – 1,093 – – – – – 956	Consolidated 2008 2007 HK$’000 HK$’000 – (137) (280) 1,194 36 2,219 – 520 (244) 3,796

11. EMPLOYEE BENEFITS EXPENSE

Wages, salaries and staff welfare Sales commission Unutilised annual leave Termination benefits Social security costs Provision for long service payment Retirement benefit scheme contributions Forfeiture of retirement benefit scheme contributions Share-based payment employee expense Others Total employee benefits expense including directors’ emoluments	Continuing operations 2008 2007 HK$’000 HK$’000 139,989 165,753 564 394 621 143 1,460 146 26 473 1,882 (177) 2,988 3,015 – – 20,636 9,393 1,299 1,843 169,465 180,983	Discontinued operation 2008 2007 HK$’000 HK$’000 – 27,840 – 77,501 – – – – – – – – – 815 – (25) – 264 – 592 – 106,987	Consolidated 2008 2007 HK$’000 HK$’000 139,989 193,593 564 77,895 621 143 1,460 146 26 473 1,882 (177) 2,988 3,830 – (25) 20,636 9,657 1,299 2,435 169,465 287,970

12. LOSS ON DEEMED DISPOSAL OF SUBSIDIARIES

During the year ended 31 December 2007, the Group subscribed 1,000,000 shares (“First Shares”) and 16,000,000 warrants (“First Warrants”) of EGT, pursuant to a securities purchase agreement. The First Shares of EGT subscribed are accounted for as available-for-sales investments and the First Warrants subscribed are recognised as derivative financial instruments upon initial recognition. EGT is a company having its shares listed on the American Stock Exchange. The First Warrants subscribed originally have exercise price ranged from US$2.65 to US$5.50 and are exercisable during the period from 31 December 2007 to 31 December 2010.

On 13 June 2007, the Group entered into a Products Participation Agreement (“PPA”) with EGT. Pursuant to the PPA, during a term of six years from the date of the entering the PPA, a subsidiary of the Company, Elixir Group Limited (“Elixir”), will provide agency services to source and refer gaming operators in certain specific countries to EGT for the entering into of the electronic gaming machine (“EGM”) leases on a revenue sharing basis directly with EGT and to supply, at market prices, the necessary EGM to EGT for the fulfillment of its obligations under such leases.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In consideration of the services to be provided by Elixir and upon achievement of various milestones under the PPA, EGT will allot and issue a maximum of 55,000,000 shares, 88,000,000 warrants and amend the terms of the existing warrants previously issued to Elixir. In September 2007, the Group had achieved certain milestones under the PPA resulting in i) the issuance of 40,000,000 shares (“Second Shares”) and 22,000,000 warrants (“Second Warrants”) to Elixir; ii) the First Warrants became immediately exercisable and iii) the exercise price of 10,000,000 warrants included in the First Warrants is reduced by US$2.00 where the adjusted exercise price ranged from US$1.00 to US$3.50. The exercise price of the remaining 6,000,000 First Warrants remained at US$2.65. As a result of the issuance of Second Shares and Second Warrants, an agency fee income of HK$1,232,057,000 was thus recognised, which represent the fair values of the Second Shares based on the market price of EGT and the Second Warrants determined using binomial model, and EGT then became a subsidiary of the Company (see note 51 for details).

In October 2007, EGT completed a placement of shares to parties other than the Company. EGT remained as a subsidiary of the Company after the completion of EGT placement of shares and the loss on deemed disposal of partial interests in subsidiaries was included in the amount disclosed in note 13.

In December 2007, the Group entered into an agreement (“Disposal Agreement”) to dispose of 6,000,000 First Warrants with an exercise price of US$1.00 to US$3.50 plus 10,000,000 Second Warrants to an independent third party (“Purchaser”) at a consideration of approximately HK$102,960,000. According to the Disposal Agreement, the First Warrants and Second Warrants are disposed of by the Group subject to the exercise of the First Warrants and Second Warrants by the Purchaser. After the completion of the disposal and exercise of warrants, EGT became an associate of the Company. Thereafter, upon exercise of the warrants by the Purchaser, the Group therefore recognised a loss on deemed disposal of subsidiaries of approximately HK$143,368,000 during the year ended 31 December 2007 being the excess of the goodwill attributable to the decrease in interest over the increase in the net assets of EGT attributable to the Group’s interest arising from the deemed disposal. After the completion of the Disposal Agreement, the Group had 1,000,000 First Shares, 40,000,000 Second Shares and 10,000,000 First Warrants and 12,000,000 Second Warrants.

Subsequent to the deemed disposal, the Group entered into another agreement with EGT to convert 12,000,000 Second Warrants to 4,800,000 shares of EGT as additional interest in this associate during the year ended 31 December 2007.

As EGT has already established its market presence and connection in the gaming industry, the Group therefore entered into a termination agreement (“Termination Agreement”) with EGT to terminate the PPA in November 2008. According to the Termination Agreement, Elixir will cease to provide agency service to source and refer gaming operators to EGT and therefore terminate the rights for additional shares and warrants to be issued by EGT upon achieving the remaining milestones.

After the Termination Agreement, the Group agreed with EGT to settle the receivable from EGT relating to the EGM transactions of approximately HK$93,898,000 by twenty-four installments which are interest bearing at 5% per annum (note 37). The whole amount of approximately HK$93,898,000 would have been past due should there be no renegotiation of the term.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

13. LOSS ON DEEMED DISPOSAL OF PARTIAL INTERESTS IN SUBSIDIARIES

During the year ended 31 December 2007, the Group’s interest in EGT, a subsidiary acquired during the year 2007, decreased resulting from a placement of shares by EGT in October 2007 (see note 12 for details of the transactions with EGT).

As a result of the above decrease in interest in EGT, the Group then recognised a loss on deemed disposal of partial interests in subsidiaries of approximately HK$76,948,000 during the year ended 31 December 2007, being the excess of the goodwill attributable to the decrease in interests over the increase in the net assets of EGT attributable to the Group’s interest arising from the deemed disposal.

14. IMPAIRMENT LOSS RECOGNISED IN RESPECT OF INTERESTS IN ASSOCIATES

During the year ended 31 December 2008, the Group performed an impairment assessment on its interests in associates with reference to the recoverable amount and recognised an impairment loss of approximately HK$1,160,838,000 in relation to its interests in associates – EGT and MCR BC. MCR BC is a company having its shares listed on TSX Venture Exchange in Toronto, Canada (“TSX”) and the recoverable amounts of EGT and MCR BC have been determined based on the quoted bid prices of the shares of EGT and MCR BC as at 31 December 2008. The recoverable amount of interests in EGT and MCR BC was approximately HK$57,268,000 in aggregate.

15. FINANCE COSTS

Interest on: Bank borrowings wholly repayable within five years Shareholder’s loan Effective interest expense on convertible loan notes Imputed interest expense on long term payable Interest expenses to suppliers and others	Continuing operations 2008 2007 HK$’000 HK$’000 8,104 937 22,682 1,780 62,462 62,382 6,871 7,261 7,282 3,875 107,401 76,235	Discontinued operation 2008 2007 HK$’000 HK$’000 – 19,862 – – – – – – – – – 19,862	Consolidated 2008 2007 HK$’000 HK$’000 8,104 20,799 22,682 1,780 62,462 62,382 6,871 7,261 7,282 3,875 107,401 96,097	Consolidated 2008 2007 HK$’000 HK$’000 8,104 20,799 22,682 1,780 62,462 62,382 6,871 7,261 7,282 3,875 107,401 96,097
				96,097

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

16. (LOSS) PROFIT BEFORE TAX

(Loss) profit before tax has been arrived at after charging: Auditor’s remuneration Allowance for doubtful debts Allowance on other receivables_(note a) Allowance for inventories(note b)_ Loss on disposal of property, plant and equipment Cost of agency service and after crediting: Gross rental income Less: direct operating expenses from investment properties that generated rental income during the year Net rental income Gain on disposal of property, plant and equipment	Continuing operations 2008 2007 HK$’000 HK$’000 1,845 2,400 6,222 2,307 19,540 – 220,030 – – 321 – 14,551 5,441 10,419 (3,980) (5,772) 1,461 4,647 81 –	Discontinued operation 2008 2007 HK$’000 HK$’000 – 589 – 88 – – – – – 1 – – – – – – – – – –	Consolidated 2008 2007 HK$’000 HK$’000 1,845 2,989 6,222 2,395 19,540 – 220,030 – – 322 – 14,551 5,441 10,419 (3,980) (5,772) 1,461 4,647 81 –

Notes:

(a) Amount represents advance to a shareholder of an associate and impairment is recognised during the year ended 31 December 2008 due to the financial difficulty of this shareholder of an associate.

(b) Allowance for inventories is recognised in view of the decrease in demand on the related merchandise and the amount is determined based on the merchandise’s net realisable value.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

17. INCOME TAX (EXPENSE) CREDIT

Current tax: – Hong Kong – Other jurisdictions Underprovision in prior years: – Hong Kong – Other jurisdictions Deferred taxation_(note 47)_: – Current year – Attributable to a change in tax rate	Continuing operations 2008 2007 HK$’000 HK$’000 – – – (1,473) – (1,473) – (50) (12) – (782) 1,592 (91) – (885) 69	Discontinued operation 2008 2007 HK$’000 HK$’000 – (7,196) – – – (7,196) – – – – – (1,681) – – – (8,877)	Consolidated 2008 2007 HK$’000 HK$’000 – (7,196) – (1,473) – (8,669) – (50) (12) – (782) (89) (91) – (885) (8,808)

On 26 June 2008, the Hong Kong Legislative Council passed the Revenue Bill 2008 which reduced corporate profits tax rate from 17.5% to 16.5% effective from the year of assessment 2008/2009. Therefore, Hong Kong Profits Tax is calculated at 16.5% (2007: 17.5%) on the estimated assessable profit for the year. The opening balance deferred tax assets and liabilities are adjusted to account for the decrease in the tax rate.

No provision for Hong Kong Profits Tax for the year ended 31 December 2008 is made as there is no estimated assessable profit derived from Hong Kong. Taxation arising in other jurisdictions are calculated at the rate prevailing in the respective jurisdictions.

The charge for the year can be reconciled to the (loss) profit before tax per consolidated income statement as follows:

(Loss) profit before tax: Continuing operations Discontinued operation Tax at Hong Kong Profits Tax rate of 16.5% (2007: 17.5%) Tax effect of share of results of associates and jointly controlled entities Tax effect of expenses not deductible for tax purposes Tax effect of income not taxable for tax purposes Underprovision in respect of prior years, net Tax effect of different tax rates of the subsidiaries operating in other jurisdictions Tax effect of unrecognised deferred tax assets Utilisation of tax losses previously not recognised Decrease in opening deferred tax balance resulting from a decrease in applicable tax rate Others Tax charge for the year	2008 HK$’000 (2,352,329) – (2,352,329) (388,134) 45,881 353,294 (29,140) 12 – 22,849 (3,968) 91 – 885	2007 HK$’000 2,513,519 163,952 2,677,471 468,557 118,519 63,280 (650,285) 50 (1,574) 14,388 (4,008) – (119) 8,808

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

18. DISCONTINUED OPERATION

During the year ended 31 December 2007, the Group’s interest in VC decreased resulting from i) the exercise of certain VC share options by the share option holders, who are minority shareholders of VC, and ii) the two placements of shares by VC.

The first placement was completed in July 2007 where 50,680,000 shares were issued at HK$2.2 per share and the Company’s shareholding in VC decreased to about 52.22%. VC remained a subsidiary of the Company after the first placement and the resulting gain on deemed disposal of partial interests in subsidiaries of approximately HK$37,194,000 during the year ended 31 December 2007, which represent the increase in the net assets of VC attributable to the Group’s interest arising from the deemed disposal, was recognised during the year ended 31 December 2007.

The second placement was completed in September 2007 where 61,000,000 shares were issued at HK$4.2 per share and the Company’s shareholding in VC decreased to about 43.57%. VC therefore becomes an associate of the Company after the second placement.

VC was therefore deemed disposed of and the Investment and Financial Services segment was therefore discontinued and a gain on deemed disposal of subsidiaries of approximately HK$78,080,000 was recognised during the year ended 31 December 2007.

The results and cash flows of this discontinued operation included in the consolidated income statement and the consolidated cash flow statement are set out below.

Profit for the year from discontinued operation Revenue Other and investment income Gain on deemed disposal of partial interests in subsidiaries Finance costs Expenses Profit before tax Income tax expense Profit for the year Gain on deemed disposal of subsidiaries Profit for the year from discontinued operation Cash flows from discontinued operation Net cash flows used in operating activities Net cash flows from investing activities Net cash flows from financing activities Net cash outflows	2008 HK$’000 – – – – – – – – – – – – – –	2007 HK$’000 210,626 1,334 37,194 (19,862) (143,420) 85,872 (8,877) 76,995 78,080 155,075 (1,452,462) 612 1,442,633 (9,217)

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

19. DIRECTORS’ EMOLUMENTS

The emoluments paid or payable to each of the seven (2007: seven) directors were as follows:

2008

Mr. Ho, Lawrence Yau Lung HK$’000 Fees – Other emoluments Salaries and other benefits 3,940 Retirement benefit scheme contributions 10 Share-based compensation 3,905 Total emoluments 7,855 2007 Mr. Ho, Lawrence Yau Lung HK$’000 (Note 1) Fees – Other emoluments Salaries and other benefits 6,672 Retirement benefit scheme contributions 21 Share-based compensation – Total emoluments 6,693	Mr. Frank Tsui HK$’000 – 3,206 12 1,370 4,588 Mr. Frank Tsui HK$’000 – 3,307 12 – 3,319	Mr. Mr. Clarence Ng Ching Chung Wo HK$’000 HK$’000 – 380 3,206 – 12 – 1,680 847 4,898 1,227 Mr. Mr. Clarence Ng Ching Chung Wo HK$’000 HK$’000 – 380 2,800 – 12 – 627 660 3,439 1,040	Sir Roger Lobo HK$’000 417 – – 847 1,264 Sir Roger Lobo HK$’000 380 – – 660 1,040	Dr. Mr. Sham Lo Ka Sui Shui Leung HK$’000 HK$’000 280 300 – – – – 847 586 1,127 886 Dr. Mr. Sham Lo Ka Sui Shui Leung HK$’000 HK$’000 (Note 1) 280 440 – – – – 660 660 940 1,100	Total HK$’000 1,377 10,352 34 10,082
					21,845

					Total HK$’000 1,480 12,779 45 3,267
					17,571

Note 1: Mr. Ho, Lawrence Yau Lung and Mr. Sham Sui Leung were also the directors of VC, who received total emoluments of HK$432,000 and HK$140,000 thereof, respectively, and included in above.

A director waived emoluments of approximately HK$202,000 in the year ended 31 December 2008. No director waived or agreed to waive any emoluments in the year ended 31 December 2007. No emoluments have been paid to the directors as an inducement to join or upon joining the Group, or as compensation for loss of office.

During the year, 3,148,520 share options and 1,379,320 awarded shares (2007: Nil) were granted to directors of the Company in respect of their services provided to the Group, further details are set out in note 50.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

20. EMPLOYEES’ EMOLUMENTS

Of five individuals with the highest emoluments in the Group, three are directors (2007: one director) of the Company whose emoluments are included in note 19 above. The emoluments of the remaining two (2007: four) individuals were as follows:

Basic salaries, housing allowances, other allowances and benefits in kind Retirement benefit scheme contributions Share-based compensation Their emoluments were within the following bands: HK$3,500,001 to HK$4,000,000 HK$4,500,001 to HK$5,000,000 HK$7,500,001 to HK$8,000,000 HK$8,000,001 to HK$8,500,000 HK$11,000,001 to HK$11,500,000 21. DIVIDENDS Dividends recognised as distribution during the year: 2007 final dividend: HK1 cent (2007: 2006 final dividend of HK1 cent) per share	2008 2007 HK$’000 HK$’000 6,042 28,587 24 36 5,332 100 11,398 28,723 Number of employees 2008 2007 1 – – 2 1 – – 1 – 1 2 4 2008 2007 HK$’000 HK$’000 12,271 12,282	2007 HK$’000 28,587 36 100
		28,723

		4

		2007 HK$’000 12,282

The dividends for shares held under the share purchase scheme are eliminated from the final dividend for 2007.

Note: The directors of the Company do not recommend the payment of a final dividend for the year ended 31 December 2008.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

22. (LOSS) EARNINGS PER SHARE

The calculation of the basic and diluted (loss) earnings per share is based on the following data:

(Loss) earnings (Loss) earnings for the purpose of basic (loss) earnings per share ((loss) profit for the year attributable to equity holders of the Company) Effect of dilutive potential ordinary shares: Interest on convertible loan notes Adjustment to the share of results of associates (2007: a subsidiary) based on potential dilution of their (loss) earnings per share (Loss) earnings for the purpose of diluted (loss) earnings per share Number of shares Weighted average number of ordinary shares for the purpose of basic (loss) earnings per share Effect of dilutive potential ordinary shares: Share options Convertible loan notes Weighted average number of ordinary shares for the purpose of diluted (loss) earnings per share	Continuing and discontinued operations 2008 2007 HK$’000 HK$’000 (2,356,819) 2,690,639 – 62,382 (111) (475) (2,356,930) 2,752,546 2008 2007 ’000 ’000 1,226,994 1,228,241 – 9,978 – 149,306 1,226,994 1,387,525	Continuing operations 2008 2007 HK$’000 HK$’000 (2,356,819) 2,549,313 – 62,382 (111) – (2,356,930) 2,611,695 2008 2007 ’000 ’000 1,226,994 1,228,241 – 9,978 – 149,306 1,226,994 1,387,525	Continuing operations 2008 2007 HK$’000 HK$’000 (2,356,819) 2,549,313 – 62,382 (111) – (2,356,930) 2,611,695 2008 2007 ’000 ’000 1,226,994 1,228,241 – 9,978 – 149,306 1,226,994 1,387,525
			2,611,695

			2007 ’000 1,228,241 9,978 149,306
			1,387,525

The number of shares adopted in the calculation of the basic (loss) earnings per share has been arrived at after eliminating the shares of the Company held under the Company’s share award schemes. The computation of diluted loss per share for the year ended 31 December 2008 does not assume the conversion of the Company’s outstanding convertible loan notes, the effect of share option, unvested awarded shares under the Company’s long-term incentive schemes (see note 50) since their exercise would result in a decrease in loss per share.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

From discontinued operation

Basic earnings per share for the discontinued operation is HK$0.115 per share and diluted earnings per share for the discontinued operation is HK$0.102 per share for the year ended 31 December 2007, based on the profit for the year from the discontinued operation attributable to equity holders of the Company of HK$141,326,000 adjusted by share of result of a subsidiary based on potential dilution of its earnings per share of HK$475,000 and the denominators detailed above for both basic and diluted earnings per share.

23. INVESTMENT PROPERTIES

FAIR VALUE At 1 January 2007 Net increase in fair value recognised in the consolidated income statement At 31 December 2007 and 1 January 2008 Net increase in fair value recognised in the consolidated income statement At 31 December 2008	THE GROUP HK$’000 141,940 10,060
	152,000 14,000
	166,000

The carrying value of investment properties shown above comprises: Properties in Hong Kong Properties in Macau	2008 HK’000 106,000 60,000 166,000	2007 HK’000 85,000 67,000
		152,000

The Group’s investment properties comprise leasehold land in Hong Kong and Macau held under long term lease and short term lease respectively.

The fair value of the Group’s investment properties at 31 December 2008 and 31 December 2007 have been arrived at on the basis of a valuation carried out on that date by Savills (Macau) Limited, an independent qualified professional valuer not connected with the Group. The valuation was arrived at by reference to market evidence of transaction prices for similar properties in similar location.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

24. PROPERTY, PLANT AND EQUIPMENT

THE GROUP COST At 1 January 2007 Exchange adjustments Additions Acquisition of subsidiaries Disposal of subsidiaries Disposals At 31 December 2007 Exchange adjustments Additions Disposals Transferred to inventories At 31 December 2008 ACCUMULATED DEPRECIATION At 1 January 2007 Exchange adjustments Provided for the year Disposal of subsidiaries Disposals At 31 December 2007 Exchange adjustments Provided for the year Disposals Transferred to inventories At 31 December 2008 CARRYING VALUES At 31 December 2008 At 31 December 2007	Restaurant vessels, ferries and pontoons HK$’000 63,724 – 8,761 – – – 72,485 – 1,730 (60) – 74,155 43,000 – 3,688 – – 46,688 – 3,949 – – 50,637 23,518 25,797	Leasehold Buildings improvements HK$’000 HK$’000 140 13,550 – 8 – 13,640 – 3,321 – (9,196) – (1,797) 140 19,526 – 108 – 983 (140) (4,706) – – – 15,911 57 9,944 – 5 3 4,174 – (4,688) – (1,733) 60 7,702 – – 3 8,900 (63) (2,759) – – – 13,843 – 2,068 80 11,824	Furniture, fixtures and equipment HK$’000 83,306 24 18,394 22,869 (42,182) (3,040) 79,371 53 8,086 (3,872) – 83,638 69,670 19 7,744 (14,868) (2,807) 59,758 6 8,334 (1,153) – 66,945 16,693 19,613	Gaming machine HK$’000 683 – 137,338 171,940 (309,080) – 881 – 8,972 – (9,853) – 34 – 4,310 (4,151) – 193 – 140 – (333) – – 688	Motor vehicles HK$’000 1,895 26 1,041 1,454 (1,666) (60) 2,690 71 – (700) – 2,061 648 14 462 (33) (35) 1,056 19 412 (124) – 1,363 698 1,634	Total HK$’000 163,298 58 179,174 199,584 (362,124) (4,897)
						175,093 232 19,771 (9,478) (9,853)
						175,765
						123,353 38 20,381 (23,740) (4,575)
						115,457 25 21,738 (4,099) (333)
						132,788
						42,977

						59,636

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The above items of property, plant and equipment are depreciated on a straight-line basis at the following rates per annum:

Restaurant vessels, ferries and pontoons	5% to 10%
Buildings	2.5% to 4%
Leasehold improvements	20% or over the lease terms, whichever is shorter
Furniture, fixtures and equipment	10% to 331/3%
Gaming machine	20%
Motor vehicles	10% to 20%

At 31 December 2007, the Group’s building of approximately HK$80,000 was located in Hong Kong under long term lease.

25. OTHER INTANGIBLE ASSETS

		THE GROUP
		HK$’000
COST
At 1 January 2007		3,839
Acquired on acquisition of subsidiaries		43,787
Disposal of subsidiaries		(45,626)
At 31 December 2007, 1 January 2008 and 31 December 2008		2,000
IMPAIRMENT
At 1 January 2007		1,292
Disposal of subsidiaries		(1,292)
At 31 December 2007, 1 January 2008 and 31 December 2008		–
CARRYING VALUE
At 31 December 2008		2,000

At 31 December 2007		2,000

	THE COMPANY
		HK$’000
COST
At 1 January 2007, 1 January 2008 and 31 December 2008		2,000

Other intangible assets represent club memberships with indefinite useful lives and are tested for impairment annually by comparing their carrying amounts with their recoverable amounts.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

26. INTERESTS IN JOINTLY CONTROLLED ENTITIES

Cost of unlisted investments in jointly controlled entities Share of post-acquisition losses	THE GROUP 2008 2007 HK$’000 HK$’000 225,706 225,706 (35,479) (144,587) 190,227 81,119	THE GROUP 2008 2007 HK$’000 HK$’000 225,706 225,706 (35,479) (144,587) 190,227 81,119
		81,119

As at 31 December 2008 and 2007, the Group had interest in the following principal jointly controlled entity:

	Place of		Percentage
	incorporation/		of interest
Name	operation	Class shares held	in ownership	Principal activities
Melco Crown SPV Limited	Cayman Islands/	Ordinary shares	50%	Issuer of exchangeable
(“Melco Crown SPV” and	Hong Kong			bonds which are convertible
formerly known as Melco				into shares of an associate
PBL SPV Limited)				of the Group

The above table list out the jointly controlled entity of the Group which in the opinion of the directors of the Company, principally affected the results of the year or form a substantial portion of the net assets of the Group. To give details of other jointly controlled entities would, in the opinion of directors of the Company, result in particulars of excessive length.

As at 31 December 2008 and 2007, the Group’s interests in jointly controlled entities are principally represented by interest in Melco Crown SPV. As disclosed in note 43, Melco Crown SPV is a joint venture for the issuance of exchangeable bonds (“Exchangeable Bonds”) which can be convertible to shares of Melco Crown Entertainment, an associate of the Group. The income of this jointly controlled entity attributable to the Group’s interests includes an amount of approximately HK$270,115,000 representing fair value gain on these Exchangeable Bonds, which are designated as financial liability at fair value through profit or loss.

During the year ended 31 December 2007, the Group disposed of its interest in a jointly controlled entity, PAL Development Limited (“PAL”), to Power Way Group Limited (“Power Way”), which is formed by the Group and certain independent third parties (collectively referred as “Shareholders”). On the same date, after the transfer of the interest in PAL and certain subsidiaries (collectively the “Assets”) from the Shareholders to Power Way, Power Way then disposed of the Assets to MelcoLot Limited (formerly known as Melco LottVentures Limited and Wafer Systems Limited), a company independent from the Shareholders, in exchange for MelcoLot Limited’s certain shares and convertible loan note. Power Way then becomes an associate of the Company. As a result of the disposal, the difference between carrying amount of the Group’s interest in PAL of approximately HK$104,775,000 and the Group’s relevant interest in the aggregate fair value of the assets held by Power Way of approximately HK$637,379,000 amounting to approximately HK$532,604,000 was recognised as a gain on disposal of interests in jointly controlled entities during the year ended 31 December 2007 (subsequent change in shareholding of MelcoLot Limited’s shares during the year ended 31 December 2008 are disclosed in notes 27 and 30). The fair value of the MelcoLot Limited’s shares and convertible loan note held by Power Way were determined with reference to the market price of MelcoLot Limited’s shares and by using binomial model, respectively.

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The summarised unaudited financial information in respect of the Group’s jointly controlled entities attributable to the Group’s interests therein is set out below:

Current assets Non-current assets Current liabilities Non-current liabilities Income Expense 27. INTERESTS IN ASSOCIATES Cost of investment in associates Listed in the United States of America (“US”) Listed in Canada Listed in Hong Kong Unlisted Gain on changes in interests in associates Impairment losses recognised Share of exchange and hedging reserves Share of post-acquisition results Fair value of listed investments_(note a)_ Carrying amount of interests in associates with shares listed on respective stock exchanges	2008 HK$’000 856,156 121,809 (13) (787,725) 295,353 186,245 2008 HK$’000 6,794,183 339,601 279,698 294,868 1,597,827 (1,160,838) (111,916) (906,713) 7,126,710 4,249,846 7,078,723	2007 HK$’000 971,770 167,025 (83) (1,057,593) 16,228 173,941 2007 HK$’000 6,795,754 – 255,641 637,380 1,549,361 – (29,327) (519,538) 8,689,271 16,521,660 8,051,353

100

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

As at the balance sheet date, the Group had interests in the following principal associates:

	Place of		Percentage	Percentage
	incorporation/		of interest
Name	operation	Class shares held	in ownership		Principal activities
			2008	2007
Melco Crown Entertainment	Cayman Islands/	Ordinary shares	37.83%	37.85%	Operating of electronic gaming
(Note b)	Macau				machine lounges, casino
					games of chance and other
					casino games and hotel
					business
VC_(Note b)_	Hong Kong/	Ordinary shares	43.36%	43.50%	Provision of financial and
	Hong Kong				investment services
Melco China Resort Investment	Cayman Islands/	Ordinary shares	–	45%	Operating of ski resorts
Limited (“MCR”)	People’s Republic
	of China (“PRC”)
MCR BC_(Note b)_	Canada/PRC	Ordinary shares	49.30%	–	Operating of ski resorts
		and convertible
		preference shares
MelcoLot Limited_(Note b and d)_	Cayman Islands/	Ordinary shares	10.41%	–	Lottery business management
	PRC				services and provision of
					network system integration
					solutions
Power Way_(Note c)_	British Virgin	Ordinary shares	58.70%	54.79%	Inactive after distribution as
	Islands/Hong Kong				disclosed in note 30
EGT_(Note b)_	US/Philippines	Ordinary shares	39.84%	39.86%	Provision of electronic gaming
	and Cambodia				machines to gaming operators

Notes:

(a) Fair values of listed investments are determined at the market price of listed shares as of year end on respective stock exchange.
(b) The American Depositary Shares of Melco Crown Entertainment are listed on the National Association of Securities Dealers Automated Quotations (“NASDAQ”). The shares of MCR BC are listed on TSX. The shares of VC are listed on the Stock Exchange. The shares of MelcoLot Limited are listed on the Growth Enterprise Market of the Stock Exchange. The shares of EGT are listed on American Stock Exchange.
(c) The Group holds 58.7% (2007: 54.79%) interest in Power Way. Pursuant to certain terms and conditions in the shareholders agreement, the financial and operating policies of Power Way require approval of the Group together with certain other shareholders of Power Way, as such, it is accounted for as an associate.

101

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(d) In addition to the ordinary shares of MelcoLot Limited held by the Group, the Group also holds investment in the convertible loan note issued by MelcoLot Limited (see note 30). The Group’s effective interest in MelcoLot Limited would be increased to 31.5% on a fully-dilute basis if all outstanding convertible loan notes issued by MelcoLot Limited were fully converted. The Group is the single largest shareholder of MelcoLot Limited and one of the key management personnel of a subsidiary of the Company is also a director of MelcoLot Limited. As such, the directors of the Company believe that the Group has significant influence over MelcoLot Limited after taking into account the potential voting right from the Group’s investment in MelcoLot Limited’s convertible loan note.

The above table lists the associates of the Group which, in the opinion of the directors of the Company, principally affected the results of the year or form a substantial portion of the net assets of the group. To give details of other associates would, in the opinion of the directors of the Company, result in particulars of excessive length.

As at 31 December 2007, included in the cost of investment in associates is goodwill of approximately HK$738,099,000 arising on acquisition of a subsidiary, EGT, which became an associate of the Group. During the year ended 31 December 2008, the goodwill related to EGT of approximately HK$738,099,000 was fully impaired.

During the year ended 31 December 2008, the Group’s interests in certain associates have been changed with details disclosed below. A gain on changes in interests in associates amounted to approximately HK$48,466,000 (2007: HK$1,549,361,000) has been recognised in profit or loss.

(a) During the year ended 31 December 2008, the Group and its associate, MCR, entered into a series of transactions for the purpose of the amalgamation of MCR with Virtual China Travel Services, Co., Ltd. (“VCTS”), a company listed on the TSX Venture Exchange, including:
i) In March 2008, the Group and the other two shareholders of MCR agreed to amend the Memorandum and Articles of Association of MCR such that it has three classes of shares with different economic interest. The original MCR shares held by the Group and the amount of HK$291 million which have been advanced by the Group to MCR, were exchanged for new shares so that the Group’s economic interest in MCR increased from 45% to 70.1% while the voting power remained at 45%;
ii) MCR BC issued shares in May 2008 in exchange for the shares of MCR held by all MCR shareholders, including the Group (“Share Swap”). Under the terms of the Share Swap, MCR BC issued 411,091,347 common shares and 84,375,653 convertible preference shares in exchange for the Group’s interest in MCR. MCR became the wholly-owned subsidiary of MCR BC, which then became an associate of the Group. Each of the convertible preference share can be converted into one common share of MCR BC at any time after six months from date of issuance of 27 May 2008 without expiry date and entitle the holder a cumulative dividend of CAD0.001 per share;
iii) The Group and certain independent investors subscribed for common shares and warrants in MCR BC (“Subscription”). Under the subscription agreement entered into by the Group, the Group subscribed for 20,000,000 common shares and 10,000,000 warrants issued by MCR BC at a consideration of approximately HK$46,834,000 (CAD6,000,000). The cost of common shares of approximately HK$42,307,000 forms part of the Group’s initial cost of investment in MCR BC while the remaining HK$4,527,000 represents the initial carrying amount of the warrants held by the Group, which are accounted for as derivative financial instruments. In addition, the independent investors subscribed for 220,436,358 common shares and 110,218,179 warrants issued by MCR BC at a consideration of approximately HK$516,196,000 (CAD66,131,000); and

102

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

iv) MCR BC then completed the amalgamation (“Amalgamation”) with VCTS and MCR BC’s common shares and warrants then commenced trading on the TSX Venture Exchange. Upon the completion of the Amalgamation, the common shares, convertible preference shares and warrants issued by MCR BC were also consolidated on a 10 to 1 basis.

The Share Swap, Subscription and Amalgamation were completed on or about the same date in May 2008. As a result, the Group’s interest in the associate has been changed to 49.3% but the net assets of MCR BC attributable to the Group increases and a gain of approximately HK$54,370,000 was thus recognised.

(b) During the year ended 31 December 2008, the Group’s ownership interest in Melco Crown Entertainment decreased from 37.85% to 37.83% resulting from the vesting of certain restricted shares issued by Melco Crown Entertainment. As a result, the Group therefore recognised a loss of approximately HK$3,136,000 which represents the decrease in net assets attributable to the Group.
(c) During the year ended 31 December 2008, the Group’s ownership interest in VC decreased from 43.50% to 43.36% resulting from the exercise of certain share options of VC by the option holders. As a result, the Group recognised a loss of approximately HK$514,000 which represents the decrease in net assets of VC attributable to the Group during the year ended 31 December 2008.
(d) As disclosed in note 30, MelcoLot Limited became the Group’s associate after the distribution by Power Way. During the year ended 31 December 2008, the Group’s ownership interest in MelcoLot Limited decreased from 11.03% to 10.41% resulting from the issuance of shares by MelcoLot Limited. As a result, the Group therefore recognised a loss of approximately HK$2,254,000 which represents the decrease in net assets attributable to the Group.
(e) In January 2007, the underwriters of the global offering of American Depositary Shares (“ADSs”) of the associate, Melco Crown Entertainment, fully exercised the over allotment option granted to them. The exercise in full of the over allotment option resulted in the issuance by Melco Crown Entertainment of an additional 9,037,500 ADSs, representing 27,112,500 ordinary shares. In addition, Melco Crown Entertainment completed a second offering of 37,500,000 ADSs, representing 112,500,000 ordinary shares in November 2007. The Group’s interest in Melco Crown Entertainment is therefore decreased from 42.34% to 37.85% and a gain on deemed disposal of partial interests in associates of approximately HK$1,549,361,000 was therefore recognised during the year ended 31 December 2007 which represents the increase in net assets attributable to the Group.

103

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The summarised financial information in respect of the Group’s associate is set out below:

Total assets Total liabilities Net assets Group’s share of net assets of associates Less: Impairment loss Revenue Loss for the year Group’s share of losses of associates for the year 28. INVESTMENT IN SUBSIDIARIES Unlisted shares, at cost	2008 2007 HK$’000 HK$’000 38,356,518 31,090,150 (18,599,332) (10,736,463) 19,757,186 20,353,687 7,549,449 7,951,172 (422,739) – 7,126,710 7,951,172 11,501,320 3,119,618 (1,009,928) (1,244,840) (387,175) (519,538) THE COMPANY 2008 2007 HK$’000 HK$’000 1,040,712 966,495	2007 HK$’000 31,090,150 (10,736,463)
		20,353,687

		7,951,172 –
		7,951,172

		3,119,618

		(1,244,840)

		(519,538)

Details of the Company’s principal subsidiaries at 31 December 2008 are set out in note 59.

29. AVAILABLE-FOR-SALE INVESTMENTS

Unlisted equity security_(Note)_ Equity securities listed in Hong Kong	THE GROUP 2008 2007 HK$’000 HK$’000 11,403 19,837 27,690 136,500 39,093 156,337	THE GROUP 2008 2007 HK$’000 HK$’000 11,403 19,837 27,690 136,500 39,093 156,337
		156,337

Note: Unlisted equity security which represents unlisted equity investment held by a subsidiary of the Company in an investment holding company is stated at fair value. The investee is engaged in investment in listed and unlisted equity and debt investment. An impairment loss of approximately HK$8,434,000 (2007: Nil) is recognised with reference to the estimated fair value of underlying listed and unlisted equity and debt investment held by this investment holding company.

104

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

30. INVESTMENT IN CONVERTIBLE LOAN NOTE

The investment in convertible loan note is designated as fair value through profit or loss as the convertible loan note contains embedded derivative. As discussed in note 26, the Group’s associate, Power Way, held certain MelcoLot Limited’s shares and convertible loan note as at 31 December 2007. In September 2008, Power Way distributed all MelcoLot Limited’s shares and convertible loan note to its shareholders in proportion to the shareholding of each shareholder. MelcoLot Limited then becomes a direct associate of the Group and the fair value of MelcoLot Limited’s convertible loan note at the date of distribution of approximately HK$375,001,000, which is determined using binomial model, is recognised as the deemed cost of Group’s investment in convertible loan note of MelcoLot Limited.

During the year ended 31 December 2008, a decrease in fair value of approximately HK$206,428,000 regarding the MelcoLot Limited’s convertible loan note was recognised in the consolidated income statement, which represents the fair value change of the MelcoLot Limited’s convertible loan note from the date that MelcoLot Limited becomes an associate to 31 December 2008. The significant decrease in fair value of the MelcoLot Limited’s convertible loan note is as a result of the decrease in share price of MelcoLot Limited. As at 31 December 2008, the fair value of the MelcoLot Limited’s convertible loan note of approximately HK$168,573,000 is determined using binomial model and the inputs into the model by an independent valuer not connected to the Group were as follows:

	At date
	of distribution	2008
Expected volatility	78.99%	87.22%
Risk free interest rate	2.41%	1.05%
Dividend	Nil	Nil
Borrowing rate	18.25%	31.36%

The MelcoLot Limited’s convertible loan note with a principal amount of HK$356.2 million can be converted into ordinary shares of MelcoLot Limited at a conversion price of HK$0.85 per ordinary share, subject to anti-dilutive adjustment, any time for a period of five years from date of issuance. The MelcoLot Limited’s convertible loan note carries interest of 0.1% per annum and is subject to certain limitations on conversion and is redeemable at par at maturity date.

31. GOODWILL

At 1 January 2007 Acquired on acquisition of a subsidiary Deemed disposal of partial interests in subsidiaries Deemed disposal of subsidiaries_(note 52)_ At 1 January 2008 and 31 December 2008	THE GROUP HK$’000 16,878 1,464,150 (248,518) (1,223,955)
	8,555

Particulars regarding impairment testing on goodwill are disclosed in note 32.

105

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

32. IMPAIRMENT TESTING ON GOODWILL

The Group

As explained in note 8, the Group uses business segments as its primary segment for reporting segment information. For the purposes of impairment testing, goodwill with indefinite useful lives set out in note 31 have been allocated to the individual cash generating units (CGU). The carrying amount of goodwill as at 31 December 2008 allocated to these units are as follows:

	Goodwill
	2008	2007
	HK$’000	HK$’000
Technology business	8,555	8,555

During the year ended 31 December 2008, management of the Group determines that there are no impairment of any of its CGUs containing goodwill.

The recoverable amounts of the above CGUs have been determined on the basis of value in use calculations. All value in use calculations use cash flow projections based on financial budgets approved by management covering a 3-years period, which represents the management’s best estimate of future cash flow from the CGUs, and a discount rate of approximately 16% (2007: 16%). The cash flows beyond the 3-year period are extrapolated using a zero growth rate for an indefinite period. Another key assumption is the budgeted revenue which is determined based on the CGUs’ past performance and management’s expectations for the market development. Management believes that any reasonably possible change in any of these assumptions would not cause the aggregate carrying amounts of the above CGUs to exceed the aggregate recoverable amounts of the above CGUs.

33. INVENTORIES

Food and beverages Consumables Merchandise	THE GROUP 2008 2007 HK$’000 HK$’000 1,085 1,002 639 3,262 55,928 21,500 57,652 25,764	THE GROUP 2008 2007 HK$’000 HK$’000 1,085 1,002 639 3,262 55,928 21,500 57,652 25,764
		25,764

Included in the inventories are merchandise of HK$52,875,000 carried at net realisable value.

106

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

34. TRADE RECEIVABLES

Trade receivables_(Notes a & b)_ Allowance for doubtful receivables	THE GROUP 2008 2007 HK$’000 HK$’000 63,192 263,015 (7,502) (3,310) 55,690 259,705	THE GROUP 2008 2007 HK$’000 HK$’000 63,192 263,015 (7,502) (3,310) 55,690 259,705
		259,705

The aged analysis of trade receivables net of allowance for doubtful debts is as follows:

Within 30 days 31 – 90 days Over 90 days	THE GROUP 2008 2007 HK$’000 HK$’000 15,901 200,792 12,299 7,665 27,490 51,248 55,690 259,705	THE GROUP 2008 2007 HK$’000 HK$’000 15,901 200,792 12,299 7,665 27,490 51,248 55,690 259,705
		259,705

Notes:

(a) The Group’s Leisure, Gaming and Entertainment segment and Property and Other Investments segment are largely operated on cash on delivery or payment in advance terms, except for those well-established customers to whom credit terms of 30 to 120 days would be granted.
(b) Trade receivables on the Group’s Technology segment are due immediately from date of billing but the Group will generally grant a normal credit period of 30 days to 90 days on average to its customers.

Before accepting any new customer, the Group assesses the potential customer’s credit quality by respective sales team and defines credit limit by customer. All trade receivables that are neither past due nor impaired have the best credit quality attributable to the credit assessment system used by the Group. Included in the Group’s trade receivables balance are debtors with a carrying amount of HK$43,595,000 (2007: HK$66,491,000) which are past due over their credit terms for which the Group has not provided for impairment loss. The Group does not hold any collateral over these balances.

Ageing of trade receivables which are past due but not impaired:

Within 30 days 31-90 days Over 90 days Total	2008 HK$’000 3,806 12,299 27,490 43,595	2007 HK$’000 8,786 7,540 50,165
		66,491

The Group performed assessment on individual trade receivable balance and recognised allowance on specific balance.

107

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Movement in the allowance for doubtful debts

Balance at the beginning of the year Impairment recognised Amounts written off as uncollectible Disposal of a subsidiary Balance at the end of the year	2008 HK$’000 3,310 6,222 (2,030) – 7,502	2007 HK$’000 9,700 2,395 – (8,785) 3,310

35. HELD-FOR-TRADING INVESTMENTS

The Group

Held-for-trading investments as at 31 December 2008 represents equity securities listed in Hong Kong of approximately HK$150,000 (2007: HK$430,000).

36. DERIVATIVE FINANCIAL INSTRUMENTS

The Group

As a result of a series of transactions with EGT (note 12), the Group subscribed certain warrants issued by EGT which are recognised as derivative financial instruments. As at 31 December 2008, the Group had 10,000,000 (2007: 10,000,000) First Warrants outstanding issued by EGT. These outstanding warrants have exercise price ranged from US$1.00 to US$3.50 which are exercisable until 31 December 2010. As at 31 December 2008, fair value of the EGT warrants amounted to approximately Nil (2007: HK$223,626,000 was recognised as derivative asset in the consolidated balance sheet).

In addition, the Group subscribed 1,000,000 warrants, after consolidation on a 10 to 1 basis, issued by MCR BC (note 27(a)). These warrants have exercise price of CAD4 which are exercisable until May 2010. As at 31 December 2008, the fair value of the MCR BC warrants amounted to approximately HK$64,000 (2007: Nil) and was recognised as derivative financial assets in the consolidated balance sheet. The fair value of the MCR BC warrants was determined with reference to the quoted bid price at 31 December 2008.

The fair value of the EGT warrants at 31 December 2008 and 2007 were calculated using the binominal model carried out on that date by Sallmanns (Far East) Limited, independent qualified professional valuers not connected with the Group. The inputs into the model were as follows:

	2008	2007
Share price	HK$1.01 (US$0.13)	HK$33.45 (US$4.30)
Expected volatility	76.72%	53%
Risk-free rate	0.77%	3.29%
Dividend yield	Nil	Nil

During the year ended 31 December 2008, a decrease in fair value of approximately HK$227,691,000 regarding the derivative financial instruments represents the decrease in fair value of the EGT First Warrants of HK$223,626,000 and decrease in fair value of MCR BC warrants of approximately HK$4,065,000.

During the year ended 31 December 2007, an increase in fair value of approximately HK$190,126,000 regarding the EGT First Warrants and Second Warrants was recognised in the consolidated income statement, which represented the fair value change of the First Warrants from date of purchase to the date that EGT became subsidiary plus the fair value change of First Warrants from the date that EGT became an associate to the year ended 31 December 2007.

108

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

37. AMOUNTS DUE FROM (TO) ASSOCIATES

The Group

Included in amounts due from associates are:

i) amount due from an associate of approximately HK$578,578,000 (2007: HK$578,578,000) which is unsecured, interest bearing at HIBOR plus 1.5% (2007: HIBOR rate) per annum and not repayable within twelve months from the balance sheet date. This associate continues to expand its gaming business in Macau and the Group considers no impairment on the amount due from this associate;
ii) amount due from an associate of approximately HK$173,976,000 (2007: Nil) which is unsecured and repayable on 31 March 2010. Approximately HK$93,773,000 out of the HK$173,976,000 is interest bearing at 3-month London Interbank Offered Rate (“LIBOR”) plus 3% per annum and the remaining HK$80,203,000 is non-interest bearing such that a deemed capital contribution of approximately HK$5,770,000 has been recognised using interest rate at LIBOR plus 3% per annum. The Group has reviewed the financial position and the bank facilities available to this associate and considers no impairment on the amount due from this associate;
iii) amount due from an associate of approximately HK$93,898,000 (2007: Nil) (note 12) which is unsecured and interest bearing at 5% per annum. Approximately HK$45,779,000 out of the HK$93,898,000 is repayable within twelve months from the balance sheet date and the remaining HK$48,119,000 is repayable after twelve months from the balance sheet date. This associate has continued to settle the balance by installments and the Group considers no impairment on the amounts due from this associate; and
iv) amount of approximately HK$41,900,000 (2007: HK$241,900,000) which is unsecured, interest bearing at HIBOR plus 1.25% to 2% per annum and repayable upon written notice given from the Company. Continuous settlement from this associate has been received and the Group considers no impairment on the amount due from this associate.

The remaining amounts due from associates are unsecured, non-interest bearing and repayable on demand.

The Company

Included in amounts due from associates are amounts of approximately HK$41,900,000 (2007: HK$241,900,000) which are unsecured, interest bearing at HIBOR plus 1.25% to 2% per annum and repayable upon written notice given from the Company. The remaining amounts due from (to) associates are unsecured, non-interest bearing and repayable on demand.

38. AMOUNTS DUE FROM (TO) SUBSIDIARIES

The Company

As at 31 December 2008, amounts due from subsidiaries are unsecured and interest free. Except for amounts due from subsidiaries of approximately HK$55,327,000 (2007: Nil) which is repayable within one year, the remaining amounts due from subsidiaries are repayable after one year. Deemed interest income from amounts due from subsidiaries repayable after one year is derived from interest rate of HIBOR plus 1.5% (2007: HIBOR plus 1.5%) per annum, which is the Group’s borrowing rate of similar term.

As at 31 December 2008, amounts due to subsidiaries includes i) approximately HK$526,000 (2007: HK$129,000) which are unsecured, interest free and repayable on demand; ii) HK$6,400,000 (2007: Nil) which are unsecured, interest bearing at HIBOR plus 2% per annum; and repayable within one year; and iii) HK$46,600,000 (2007: Nil) which is unsecured, interest bearing at HIBOR plus 2% and repayable after one year, and the remaining amounts due to subsidiaries are unsecured, interest fee and repayable on demand.

109

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

39. PLEDGE OF ASSETS

The Group and the Company

At 31 December 2008, the Group and the Company pledged certain of its investment properties and bank deposits for the following purposes:

(a) The Group’s bank deposit and investment properties amounting to approximately HK$947,000 and HK$166,000,000 were pledged for obtaining the banking facilities for certain subsidiaries of the Group (2007: HK$947,000 and HK$85,000,000).
(b) The Group’s bank deposits of approximately HK$5,791,000 (2007: Nil) were pledged to a bank for the completion of a sale agreement with a customer.
(c) The Group and the Company placed a bank deposit of HK$972,500,000 (equivalent to US$125,000,000) (2007: HK$972,500,000, equivalent to US$125,000,000) for an undertaking in connection with the loan facilities obtained by Melco Crown Entertainment (see note 55).

The deposits carry fixed interest rate of about 3.0% (2007: 3.2%) per annum.

40. BANK DEPOSITS WITH ORIGINAL MATURITY OVER THREE MONTHS/BANK BALANCES AND CASH

The Group and the Company

Bank deposits with original maturity over three months carry fixed interest rate at about 2.9% (2007: Nil) per annum.

Bank balances and cash comprises cash held by the Group and the Company and short-term bank deposits with an original maturity of three months or less and carries prevailing market interest rate at about 2.8% (2007: 2.0%) per annum.

41. TRADE PAYABLES

An aged analysis of trade payables as at the balance sheet date, based on payment due date, is as follows:

Within 30 days 31-90 days Over 90 days Trade payable by instalment_(note) Analysed as: Current liabilities Non-current liabilities(note)_	THE GROUP 2008 2007 HK$’000 HK$’000 132,973 125,781 19,857 3,406 40,356 33,342 193,186 162,529 198,156 – 391,342 162,529 309,664 162,529 81,678 – 391,342 162,529	THE GROUP 2008 2007 HK$’000 HK$’000 132,973 125,781 19,857 3,406 40,356 33,342 193,186 162,529 198,156 – 391,342 162,529 309,664 162,529 81,678 – 391,342 162,529
		162,529 –
		162,529

		162,529 –
		162,529

Note: The amount represents trade payable to vendors by instalment for one to two years, which bearing interest at 2.5% to 12% per annum and not repayable within twelve months from the balance sheet date.

110

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

42. SHAREHOLDER’S LOAN

The Group and the Company

The amount is unsecured, interest bearing at prime rate plus 3% per annum and repayable within twelve months from the balance sheet date.

43. FINANCIAL GUARANTEE LIABILITY

The Group and the Company

On 30 July 2007, the Company and Crown Limited, a major shareholder of Melco Crown Entertainment, formed a 50:50 joint venture, Melco Crown SPV, for the purpose of issuing Exchangeable Bonds with an aggregate principal amount of HK$1,950 million (US$250 million), to fund a share purchase program for acquiring ADS of Melco Crown Entertainment. In September 2007, the Exchangeable Bonds with an aggregate principal amount of HK$1,950 million (US$250 million) were issued which will mature in September 2012 and have been listed on the Singapore Stock Exchange Limited. The Exchangeable Bonds are jointly and severally guaranteed by the Company and Crown Limited. The financial guarantee liability is recognised initially at its fair value of approximately HK$225,706,000 with a respective increase in interest in Melco Crown SPV.

During the year ended 31 December 2008, approximately HK$45,217,000 (2007: HK$45,217,000) is amortised as financial guarantee income included in other income of the consolidated income statement. As at 31 December 2008, the carrying amount of the financial guarantee liability is approximately HK$167,025,000 (2007: HK$212,242,000) of which approximately HK$45,217,000 (2007: HK$45,217,000) is shown as current liability and the remaining amount of approximately HK$121,808,000 (2007: HK$167,025,000) is shown as non-current liability. As at 31 December 2008, the directors of the Company consider that there is no event that leads to the recognition of additional provision in respect of the guarantee granted.

The fair value of the financial guarantee at initial recognition is calculated using the binominal model and the inputs into the model were as follows:

Expected volatility 37% Interest rate 3.9% – 4.3% Dividend yield Nil

111

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

44. BANK BORROWINGS

Secured Unsecured Carrying amount repayable: Within one year More than one year, but not exceeding two years More than two years, but not exceeding five years Less: Amounts due within one year shown under current liabilities	THE GROUP 2008 2007 HK$’000 HK$’000 83,000 – 230,000 80,000 313,000 80,000 96,400 80,000 166,400 – 50,200 – 313,000 80,000 (96,400) (80,000) 216,600 –	THE COMPANY 2008 2007 HK$’000 HK$’000 – – 230,000 80,000 230,000 80,000 80,000 80,000 150,000 – – – 230,000 80,000 (80,000) (80,000) 150,000 –

All the bank borrowings are denominated at HK$, the functional currency of relevant group entities, with interest rates of HIBOR plus 1.2% to 3.0% (2007: HIBOR plus 0.75%) per annum.

45. CONVERTIBLE LOAN NOTE

The Group and the Company

On 5 September 2005, the Company issued a convertible loan note due on 4 September 2010 with principal amount of HK$1,175,000,000, which is non-interest bearing. This convertible loan note was issued for the acquisition of additional interest of a piece of land at Cotai, Macau. This convertible loan note is convertible into fully paid ordinary shares of HK$0.5 each of the Company at a conversion price of HK$9.965 per share (subject to antidilutive adjustment) and is convertible any time for a period of 5 years from the date of issuance until, and including, the maturity date which is 4 September 2010.

The convertible loan note contains two components, liability and equity elements. The equity element is presented in equity heading “convertible loan note equity reserve”. At 31 December 2008, the effective interest rate of the liability component is 6.25% (2007: 4.5% – 6.25%) per annum.

The movement of the liability component of the convertible loan notes for the year is set out below:

Carrying amounts at the beginning of the year Redemption of convertible loan notes Interest on convertible loan notes_(Note 15)_ Interest paid Carrying amount at the end of the year shown as non-current liabilities	2008 HK$’000 999,399 – 62,462 – 1,061,861	2007 HK$’000 1,093,459 (153,349) 62,382 (3,093) 999,399

112

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

46. LONG TERM PAYABLE

The amount represents payable to Crown Limited arising from an arrangement to dispose of certain subsidiaries of the Company to Melco Crown Entertainment during the year ended 31 December 2006. The principal amount of HK$180,000,000 is stated at amortised cost and is unsecured, non-interest bearing and not repayable within twelve months from the balance sheet date.

During the year ended 31 December 2008, the repayment date of the long term payable of HK$180,000,000 has been extended from May 2009 to May 2010 (2007: from May 2008 to May 2009) such that a gain of approximately HK$2,517,000 (2007: HK$9,656,000) was recognised. As at 31 December 2008, the effective interest rate of the long term payable is 3.1% (2007: 5.0%).

47. DEFERRED TAX ASSETS

The Group

The followings are the major deferred tax (liabilities) assets recognised by the Group and movements thereon during the year and prior reporting period:

At 1 January 2007 Disposal of subsidiaries_(Note 52)_ (Charge) credit to consolidated income statement for the year At 1 January 2008 (Charge) credit to consolidated income statement for the year Effect of change in tax rate At 31 December 2008	Accelerated tax depreciation HK$’000 (10,262) – (1,325) (11,587) (2,217) 664 (13,140)	THE GROUP Tax losses HK$’000 13,043 (1,100) 1,236 13,179 1,435 (755) 13,859	Total HK$’000 2,781 (1,100) (89) 1,592 (782) (91) 719

As at the balance sheet date, the Group has unused tax losses of approximately HK$402,679,000 (2007: HK$279,550,000). A deferred tax asset has been recognised in respect of HK$84,004,000 (2007: HK$75,306,000) tax losses to the extent that realisation of the related tax benefit through future taxable profit is probable. A deferred tax asset is recognised on the consolidated balance sheet in view that the relevant subsidiary in the Technology segment (2007: Technology segment) has been profit making in recent years. No deferred tax asset has been recognised in respect of the remaining tax loss due to the unpredictability of future profit streams. Included in unrecognised tax losses are losses of HK$2,826,000, HK$5,996,000 and HK$1,438,000 that will expire in 2009, 2010 and 2011 respectively. All other losses may be carried forward indefinitely.

The Company

As at 31 December 2008, the Company has approximately HK$67,098,000 (2007: HK$1,109,000) unused tax loss. No deferred tax asset has been recognised in respect of the tax loss due to the unpredictability of future profit streams. Tax loss may be carried forward indefinitely.

113

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

48. SHARE CAPITAL

Authorised: At the beginning of the year of HK$0.5 each Increase in authorised ordinary share capital_(note)_ At the end of the year of HK$0.5 each Issued and fully paid: At the beginning of the year of HK$0.5 each Exercise of shares options At the end of the year of HK$0.5 each	Number of ordinary shares 2008 2007 2,000,000,000 1,400,000,000 – 600,000,000 2,000,000,000 2,000,000,000 1,228,475,716 1,228,150,716 855,400 325,000 1,229,331,116 1,228,475,716	Amount 2008 2007 HK$’000 HK$’000 1,000,000 700,000 – 300,000 1,000,000 1,000,000 614,238 614,075 428 163 614,666 614,238	Amount 2008 2007 HK$’000 HK$’000 1,000,000 700,000 – 300,000 1,000,000 1,000,000 614,238 614,075 428 163 614,666 614,238
			1,000,000

			614,075 163
			614,238

Note: On 10 May 2007, an ordinary resolution was passed by the shareholders of the Company to approve the increase in authorised ordinary share capital of the Company from HK$700,000,000 to HK$1,000,000,000 by the creation of 600,000,000 new shares of HK$0.5 each.

As at 31 December 2008, the Company’s 2,151,890 (2007: Nil) issued shares with an aggregate nominal value of approximately HK$1,076,000 (2007: Nil) were held by the Company’s share purchase scheme.

114

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

49. RESERVES

Share premium HK$’000 THE COMPANY At 1 January 2007 3,124,940 Profit for the year – Exercise of share options 432 Recognition of equity – settled share based payment – Transfer to share premium upon exercise of share options 113 Transfer of share option reserve upon expiry of share options – Early redemption of convertible loan notes – Dividend paid – At 31 December 2007 3,125,485 Loss for the year – Exercise of share options 4,703 Recognition of equity – settled share based payment – Transfer to share premium upon exercise of share options 1,254 Transfer of share option reserve upon expiry of share options – Purchase of shares for unvested shares under the share award schemes – Share vested under the share award schemes – Dividend paid – At 31 December 2008 3,131,442	Convertible loan notes Capital equity reserve reserve HK$’000 HK$’000 (Note) 296,016 327,677 – – – – – – – – – – – (20,424) (12,282) – 283,734 307,253 – – – – – – – – – – – – – – (12,271) – 271,463 307,253	Shares Share held under options share award reserve scheme HK$’000 HK$’000 12,726 – – – – – 9,393 – (113) – (48) – – – – – 21,958 – – – – – 13,271 – (1,254) – (1,337) – – (24,000) – 2,912 – – 32,638 (21,088)	Share award Accumulated reserve losses HK$’000 HK$’000 – (223,760) – 100,036 – – – – – – – 48 – 8,946 – – – (114,730) – (207,034) – – 7,365 – – – – 1,337 – – (3,227) 315 – – 4,138 (320,112)	Total HK$’000 3,537,599 100,036 432 9,393 – – (11,478) (12,282)
				3,623,700 (207,034) 4,703 20,636 – – (24,000) – (12,271)
				3,405,734

Note: Pursuant to a scheme of capital reduction, which became effective on 29 June 1993, the Supreme Court of Hong Kong approved the cancellation of the Company’s share premium account which, on that date, was stated at HK$127,274,212. By virtue of the same court’s sanction, the issued and fully paid share capital of the Company was also reduced by HK$230,510,521 through a reduction in the nominal value of the share capital of the Company. The credits arising from the cancellation of the share premium account and the reduction of the share capital account, in the aggregate amount of HK$357,784,733 were transferred to a capital reserve account. The capital reserve account is distributable to the shareholders of the Company if there is no outstanding debt or claim against the Company which was in existence on the effective date of the capital reduction. In view of the fact that the Company receives no claim, demand, action or proceedings in respect of any such debt or claim since June 1993 and in view of the fact that any such debt or claim has been statute-barred under Hong Kong law and irrecoverable against the Company, the Company is of the view that the reserve is distributable to the Company’s shareholders.

115

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

50. LONG-TERM INCENTIVE SCHEMES

Share option scheme

The Company operates a share option scheme (the “Scheme”) for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. Eligible participants of the Scheme include the Company’s executive or non-executive directors, executives, employees, consultants, professionals and other advisers of the Group. The Scheme became effective on 8 March 2002 following its approval by the Company’s shareholders at an extraordinary general meeting on the same date and, unless otherwise cancelled or amended, will remain in force for 10 years from that date.

The maximum number of shares of the Company which may be issued upon the exercise of all outstanding options granted and yet to be exercised under the Scheme must not exceed 30% of the total issued share capital of the Company from time to time. The total number of shares which may be issued upon the exercise of all options to be granted under the Scheme shall not in aggregate exceed 10% of the total number of the Company’s shares in issue as at 18 May 2005, which was the date when scheme mandate limit of the Scheme was last refreshed, i.e. 49,101,927 shares of HK$1.00 each (adjusted to 98,203,854 shares of HK$0.5 each after capital reorganization of the Company which became effective from 19 May 2005). The Company may seek approval of the Company’s shareholders in a general meeting for refreshing the 10% limit under the Scheme save that the total number of shares of the Company which may be issued upon the exercise of all options to be granted under the Scheme under the limit as “refreshed” may not exceed 10% of the total number of the shares of the Company in issue as at the date of approval of the limit. The maximum number of shares issuable under share options to each eligible participant in the Scheme within any 12-month period, is limited to 1% of the shares of the Company in issue at any time. Any further grant of share options in excess of this limit is subject to shareholders’ approval in a general meeting.

As at 31 December 2008, a total of 86,102,334 shares of the Company (representing approximately 7.00% of the existing issued share capital of the Company) are available for issue under the Scheme.

Share options granted to directors, chief executive or substantial shareholders of the Company, or to any of their associates, are subject to approval in advance by the independent non-executive directors. In addition, any share options granted to a substantial shareholder or an independent non-executive director of the Company, or to any of their associates, which would result in the shares issued and to be issued upon the exercise of all options granted to such person within any 12-month period being more than 0.1% of the shares of the Company in issue at any time and with an aggregate value (based on the price of the Company’s shares at the date of grant) in excess of HK$5 million, are subject to shareholders’ approval in advance in a general meeting.

The offer of a grant of share options may be accepted within 14 days from the date of offer, upon payment of a nominal consideration of HK$1 in total by the grantee. The exercise period of the share options granted is determinable by the directors, and commences after a certain vesting period and ends on a date which is not later than 10 years from the date of grant.

The exercise price in relation to each option shall be determined by the Board of Directors of the Company (the “Board”) in its absolute discretion, but in any event shall be at least the highest of: (i) the closing price of the Company’s shares as stated in the Stock Exchange’s daily quotations sheet on the date when an option is offered; (ii) a price being the average of the closing prices of the Company’s shares as stated in the Stock Exchange’s daily quotations sheets for the five business days immediately preceding the date on which an option is offered; and (iii) the nominal value of a share of the Company on the date of the offer of an option.

Share options do not confer rights on the holders to dividends or to vote at shareholders’ meetings.

116

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

The following share options were outstanding under the Scheme during the year ended 31 December 2008:

				Number of s	hare options
Outstanding at 1.1.2007 140,000 200,000 400,000 900,000 – – –	Reclassified during the year – – – – – – –	Exercised during the year – – – – – – –	Lapsed during the year – – – – – – –	Outstanding at 31.12.2007 140,000 200,000 400,000 900,000 – – –	Reclassified during the year – – – – – – –	Granted during the year – – – – 204,000 1,316,520 1,628,000	Exercised Lapsed during during the year the year (140,000) – – – – – – – – – – – – –
1,640,000	–	–	–	1,640,000	–	3,148,520	(140,000) –
1,020,000 585,400 3,400,000 – –	(400,000) – – 620,000 380,000 (25,000) (35,000) 905,400 650,000 – – 4,050,000 – – – – – – – –				– – – – (1,470,000) – (39,000) 1,163,100 – 1,844,000
5,005,400	630,000	(25,000) (35,000) 5,575,400			(1,509,000) 3,007,100
200,000 9,600,000 400,000 1,200,000 –	– (200,000) – 400,000 (100,000) – (380,000) – – (650,000) – – – – –			– 9,900,000 20,000 550,000 –	– – – 1,470,000 39,000	– – – – 45,900
11,400,000	(630,000) (300,000) –			10,470,000	1,509,000	45,900
18,045,400	–	(325,000) (35,000) 17,685,400			–	6,201,520
10,700,00				10,375,000

117

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes:

The vesting period of the options is from the date of grant until the commencement of the exercisable period.
The number of share granted and the exercise price of the options were adjusted after the completion of the rights issue in 24 September 2003 and share subdivision on 19 May 2005.
As at 31 December 2008, the Company had 22,631,520 options outstanding under the Scheme. The exercise in full of the outstanding options would, under the present capital structure of the Company, result in the issue of 22,631,520 additional ordinary shares of the Company and additional share capital of approximately HK$11,316,000 and share premium of approximately HK$115,299,000 before issuance expenses.
In respect of the share options exercised during the year, the weighted average closing price of the shares of the Company immediately before the dates on which the options were exercised and the date of exercise was HK$10.74.
The 200,000 share options may be exercised during the period from 17 September 2009 to 7 March 2012.
Among the 400,000 share options, 130,000 share options may be exercised during the period from 1 April 2008 to 31 January 2016, 130,000 share options may be exercised during the period from 1 April 2010 to 31 January 2016 and 140,000 share options may be exercised during the period from 1 April 2012 to 31 January 2016.
Among the 900,000 share options, 300,000 share options may be exercised during the period from 3 April 2008 to 2 April 2016, 300,000 share options may be exercised during the period from 3 April 2010 to 2 April 2016 and 300,000 share options may be exercised during the period from 3 April 2012 to 2 April 2016.
Among 204,000 share options, 68,000 share options may be exercised during the period from 1 April 2009 to 27 February 2018, 68,000 share options may be exercised during the period from 1 April 2010 to 27 February 2018 and 68,000 share options may be exercised during the period from 1 April 2011 to 27 February 2018.
Among 1,316,520 share options, 438,840 share options may be exercised during the period from 1 April 2009 to 31 March 2018, 438,840 share options may be exercised during the period from 1 April 2010 to 31 March 2018 and 438,840 share options may be exercised during the period from 1 April 2011 to 31 March 2018.
Among 1,628,000 share options, 271,333 share options may be exercised during the period from 1 February 2009 to 16 December 2018, 271,333 share options may be exercised during the period from 1 May 2009 to 16 December 2018, 271,333 share options may be exercised during the period from 1 August 2009 to 16 December 2018, 271,333 share options may be exercised during the period from 1 November 2009 to 16 December 2018, 271,333 share options may be exercised during the period from 1 February 2010 to 16 December 2018 and 271,335 share options maybe exercised during the period from 1 May 2010 to 16 December 2018.

118

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Among the 550,000 options, 170,000 share options may be exercised during the period from 17 March 2005 to 7 March 2012, 250,000 share options may be exercised during the period from 17 September 2005 to 7 March 2012, 110,000 share options may be exercised during the period from 17 September 2006 to 7 March 2012 and 20,000 share options may be exercised during the period from 17 March 2008 to 7 March 2012.
As at 31 December 2008, 230,000 share options may be exercised during the period from 17 March 2008 to 7 March 2012.
Among the 2,530,000 share options, 882,000 share options may be exercised during the period from 1 April 2008 to 31 January 2016, 842,000 share options may be exercised during the period from 1 April 2010 to 31 January 2016, 596,000 share options may be exercised during the period from 1 April 2012 to 31 January 2016, 68,000 share options may be exercised during the period from 3 April 2008 to 31 January 2016, 68,000 share options may be exercised during the period from 3 April 2010 to 31 January 2016 and 74,000 share options may be exercised during the period from 3 April 2012 to 31 January 2016.
Among the 1,124,100 share options, 374,700 share options may be exercised during the period from 1 April 2009 to 31 March 2018, 374,700 share options may be exercised during the period from 1 April 2010 to 31 March 2018 and 374,700 share options may be exercised during the period from 1 April 2011 to 31 March 2018.
Among 1,844,000 share options, 307,329 share options may be exercised during the period from 1 February 2009 to 16 December 2018, 307,329 share options may be exercised during the period from 1 May 2009 to 16 December 2018, 307,329 share options may be exercised during the period from 1 August 2009 to 16 December 2018, 307,329 share options may be exercised during the period from 1 November 2009 to 16 December 2018, 307,329 share options may be exercised during the period from 1 February 2010 to 16 December 2018 and 307,355 share options may be exercised during the period from 1 May 2010 to 16 December 2018.
Among the 9,900,000 share options, 4,800,000 share options may be exercised during the period from 17 March 2005 to 7 March 2012, 4,900,000 share options may be exercised during the period from 17 September 2005 to 7 March 2012, 100,000 share options may be exercised during the period from 17 September 2006 to 7 March 2012 and 100,000 share options may be exercised during the period from 17 March 2008 to 7 March 2012.
Among the 1,720,000 share options, 430,500 share options may be exercised during the period from 1 April 2008 to 31 January 2016, 467,000 share options may be exercised during the period from 1 April 2010 to 31 January 2016, 732,500 share options may be exercised during the period from 1 April 2012 to 31 January 2016, 29,000 share options may be exercised during the period from 3 April 2008 to 31 January 2016, 29,000 share options may be exercised during the period from 3 April 2010 to 31 January 2016 and 32,000 share options may be exercised during the period from 3 April 2012 to 31 January 2016.
Among the 84,900 share options, 28,300 share options may be exercised during the period from 1 April 2009 to 31 March 2018, 28,300 share options may be exercised during the period from 1 April 2010 to 31 March 2018 and 28,300 share options may be exercised during the period from 1 April 2011 to 31 March 2018.
During both years, no share options were cancelled under the Scheme.
Others represent share options granted to former directors and former employees of the Group granted as when have employment within the group.

119

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

During the year ended 31 December 2008, share options were granted on 28 February 2008, 1 April 2008 and 17 December 2008. The estimated fair values of the options granted on those dates are approximately HK$1,199,000, HK$13,614,000 and HK$3,994,000 respectively. The weighted average fair value of options granted during the year ended 31 December 2008 is HK$3.0.

These fair values were calculated using the Black-Scholes option pricing model. The inputs into the model were as follows:

		Shares options grant	date
	28 February 2008	1 April 2008	17	December 2008
Exercise price	HK$11.5	HK$10.804		HK$2.02
Expected volatility	51.84%	53.34%		68.94%
Expected life	6.0 years	5.5 – 6.0 years		5.4 years
Risk-free rate	2.571%	2.132% – 2.220%		1.290%

Expected volatility was determined by using the historical volatility of the Company’s share price over the previous 4 years. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non transferability, exercise restrictions and behavioural considerations.

The Company and the Group recognised the total expenses of approximately HK$13,271,000 and HK$13,271,000, respectively, for the year ended 31 December 2008 (2007: HK$9,393,000 and HK$9,657,000, respectively, in relation to the share options granted by the Company and the Group) in relation to the share options granted by the Company.

The Black-Scholes option pricing model has been used to estimate the fair value of the options. The variables and assumptions used in computing the fair value of the share options are based on the directors’ best estimate. The value of an option varies with different variables of certain subjective assumptions.

Share award schemes

On 18 October 2007, the Company adopted two share incentive award schemes, namely The Melco Share Purchase Scheme Trust (the “Share Purchase Scheme”) and The Melco Share Award Scheme Trust (the “Share Subscription Scheme”).

The purpose of each of the Share Purchase Scheme and the Share Subscription Scheme is to encourage and facilitate the acquisition and holding of shares in the Company, by and for the benefit of such employees of the Company and any subsidiary of the Company (the “Subsidiary”). The shares of the Company (the “Shares”) to be awarded pursuant to the Share Purchase Scheme and/or the Share Subscription Scheme may be awarded in such manner as the Board may determine from time to time in order to recognise the contribution of certain employees, to seek to retain them for the continued operation and development of the Group, and to attract suitable personnel for the further development of the Group.

120

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

A summary of the principal terms of the Share Purchase Scheme and Share Subscription Scheme and movements of the awarded shares under these schemes are set out below:

Share Purchase Scheme

The Share Purchase Scheme has a term of 20 years from the date of its adoption until 17 October 2027. The scheme limit of this scheme is 2% of the ordinary issued share capital of the Company from time to time (excluding shares which have already been transferred to employees on vesting).

The Board may, subject to the rules relating to the Share Purchase Scheme, from time to time at its absolute discretion select any employee (including any director of the Company or the Subsidiary) to be a participant in the Share Purchase Scheme. The Board or the trustee of this scheme (as the case may be) shall either (1) set aside a sum of money or (2) determine a number of Shares which it wishes to be the subject of a bonus or award under the Share Purchase Scheme. Where a sum of money has been set aside (or a number of Shares has been determined), it shall pay (or cause to be paid) that amount or an amount sufficient to purchase that number of Shares to the trustee (or as it shall direct) from the Group’s resources as soon as practicable following such funds being set aside. Within 15 business days of receiving the amount sufficient to purchase that number of Shares, the trustee shall apply the same towards the purchase of Shares on the Stock Exchange.

Vesting of the Shares will be conditional on the selected employee remaining an employee of the Company or a Subsidiary until the vesting date. The Board also has the discretion to stipulate such other conditions in respect of a particular employee which will apply to the vesting of the Shares. An award will lapse where the company or the business division by which the selected employee is employed ceases to be part of the Group or in the event the selected employee does not deliver the notice of exercise within the prescribed time limit to the trustee for the purpose of exercising his rights to receive the vested Shares.

Where Shares which are referable to a selected employee do not vest or are not acquired by selected employees in accordance with the above procedures, the trustee shall hold such Shares or any income deriving therefrom exclusively for the benefit of all selected employees of the Group as the trustee determines in its absolute discretion, after having taken into consideration recommendations of the Board.

The Board may by resolution terminate the operation of the Share Purchase Scheme at any time provided that such termination shall not affect any subsisting rights of any selected employee. If, at the date of such termination, the trustee holds Shares which have not vested, then the trustee shall within 21 business days of receiving notice of such termination sell such Shares and remit the proceeds of sale (after deductions) to the Company.

121

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

During the year ended 31 December 2008, the following Shares were awarded to the directors and selected employees of the Company and/or its subsidiaries pursuant to the terms of the rules and trust deed of the Share Purchase Scheme:

Category of participant Directors Directors Directors Directors Directors Directors Directors Directors Directors Directors Directors Directors Directors Directors Directors Sub-total Employees Employees Employees Sub-total Total	Number of awarded shares Share price Outstanding Awarded Vested Outstanding at at during during at date of Date of 01.01.2008 the year the year 31.12.2008 award award Vesting date – 60,000 (60,000) – HK$11.50 28.02.2008 31.03.2008 – 60,000 – 60,000 HK$11.50 28.02.2008 31.03.2009 – 60,000 – 60,000 HK$11.50 28.02.2008 31.03.2010 – 16,000 – 16,000 HK$11.50 28.02.2008 01.04.2009 – 16,000 – 16,000 HK$11.50 28.02.2008 01.04.2010 – 16,000 – 16,000 HK$11.50 28.02.2008 01.04.2011 – 131,790 (131,790) – HK$10.70 01.04.2008 01.04.2008 – 131,765 – 131,765 HK$10.70 01.04.2008 01.04.2009 – 131,765 – 131,765 HK$10.70 01.04.2008 01.04.2010 – 125,998 – 125,998 HK$2.02 17.12.2008 01.02.2009 – 125,998 – 125,998 HK$2.02 17.12.2008 01.05.2009 – 125,998 – 125,998 HK$2.02 17.12.2008 01.08.2009 – 125,998 – 125,998 HK$2.02 17.12.2008 01.11.2009 – 125,998 – 125,998 HK$2.02 17.12.2008 01.02.2010 – 126,010 – 126,010 HK$2.02 17.12.2008 01.05.2010 – 1,379,320 (191,790) 1,187,530 – 105,320 (105,320) – HK$10.70 01.04.2008 01.04.2008 – 105,320 – 105,320 HK$10.70 01.04.2008 01.04.2009 – 105,320 – 105,320 HK$10.70 01.04.2008 01.04.2010 – 315,960 (105,320) 210,640 – 1,695,280 (297,110) 1,398,170	Number of awarded shares Share price Outstanding Awarded Vested Outstanding at at during during at date of Date of 01.01.2008 the year the year 31.12.2008 award award Vesting date – 60,000 (60,000) – HK$11.50 28.02.2008 31.03.2008 – 60,000 – 60,000 HK$11.50 28.02.2008 31.03.2009 – 60,000 – 60,000 HK$11.50 28.02.2008 31.03.2010 – 16,000 – 16,000 HK$11.50 28.02.2008 01.04.2009 – 16,000 – 16,000 HK$11.50 28.02.2008 01.04.2010 – 16,000 – 16,000 HK$11.50 28.02.2008 01.04.2011 – 131,790 (131,790) – HK$10.70 01.04.2008 01.04.2008 – 131,765 – 131,765 HK$10.70 01.04.2008 01.04.2009 – 131,765 – 131,765 HK$10.70 01.04.2008 01.04.2010 – 125,998 – 125,998 HK$2.02 17.12.2008 01.02.2009 – 125,998 – 125,998 HK$2.02 17.12.2008 01.05.2009 – 125,998 – 125,998 HK$2.02 17.12.2008 01.08.2009 – 125,998 – 125,998 HK$2.02 17.12.2008 01.11.2009 – 125,998 – 125,998 HK$2.02 17.12.2008 01.02.2010 – 126,010 – 126,010 HK$2.02 17.12.2008 01.05.2010 – 1,379,320 (191,790) 1,187,530 – 105,320 (105,320) – HK$10.70 01.04.2008 01.04.2008 – 105,320 – 105,320 HK$10.70 01.04.2008 01.04.2009 – 105,320 – 105,320 HK$10.70 01.04.2008 01.04.2010 – 315,960 (105,320) 210,640 – 1,695,280 (297,110) 1,398,170
	Outstanding at 01.01.2008 – – – – – – – – – – – – – – – – – – – – –	Awarded during the year 60,000 60,000 60,000 16,000 16,000 16,000 131,790 131,765 131,765 125,998 125,998 125,998 125,998 125,998 126,010 1,379,320 105,320 105,320 105,320 315,960 1,695,280

122

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Share Subscription Scheme

The Share Subscription Scheme has a term of 20 years from the date of its adoption until 17 October 2027. The scheme limit of this scheme is 2% of the ordinary issued share capital of the Company from time to time (excluding Shares which have already been transferred to employees on vesting).

The Board may, from time to time at its absolute discretion select any employee (excluding any director of the Company or any Subsidiary) to be a participant of the Share Subscription Scheme. The Board or the trustee of this scheme (as the case may be) shall at its discretion either (i) determine a notional cash amount or (ii) determine a number of Shares (the “Number of Awarded Shares”) which it wishes to be the subject of an award under the Share Subscription Scheme. Where a notional cash amount has been determined by the Board, the Board shall determine the maximum number of Shares (the “Relevant Number of Shares”), rounded down to the nearest whole number which could be purchased with such notional cash amount on the Stock Exchange at the market price prevailing on the date of the award. The Company shall pay (or cause to be paid) an amount or an amount equal to the par value of either (i) the Relevant Number of Shares (where the Board has determined a notional cash amount) or (ii) the Number of Awarded Shares (where the Board has determined such number) to the trustee (or as it shall direct) from the Group’s resources as soon as practicable in accordance with the rules relating to the Share Subscription Scheme.

Where Shares which are referable to a selected employee do not vest or are not acquired by selected employees in accordance with the above procedures, the trustee shall hold such Shares or any income deriving therefrom exclusively for the benefit of all selected employees of the Group as the trustee determines in its absolute discretion after having taken into consideration recommendations of the Board.

The Board may by resolution terminate the operation of the Share Subscription Scheme at any time provided that such termination shall not affect any subsisting rights of any employee selected thereunder and provided further that if, at the date of such termination, the trustee holds any Shares which it has not vested, then the trustee shall within 21 business days of receiving notice of such termination sell such Shares and remit the proceeds of sale (after deductions) to the Company.

During the year ended 31 December 2008, the following Shares were awarded to selected employees of the Company and/or its subsidiaries pursuant to the terms of the rules and trust deed of the Share Subscription Scheme:

Category of participant Employees Employees Employees Employees Employees Employees Total	Number of awarded shares Share price Outstanding Awarded Vested Outstanding at at during during at date of Date of 01.01.2008 the year the year 31.12.2008 award award Vesting date – 49,665 – 49,665 HK$2.02 17.12.2008 01.02.2009 – 49,665 – 49,665 HK$2.02 17.12.2008 01.05.2009 – 49,665 – 49,665 HK$2.02 17.12.2008 01.08.2009 – 49,665 – 49,665 HK$2.02 17.12.2008 01.11.2009 – 49,665 – 49,665 HK$2.02 17.12.2008 01.02.2010 – 49,675 – 49,675 HK$2.02 17.12.2008 01.05.2010 – 298,000 – 298,000	Number of awarded shares Share price Outstanding Awarded Vested Outstanding at at during during at date of Date of 01.01.2008 the year the year 31.12.2008 award award Vesting date – 49,665 – 49,665 HK$2.02 17.12.2008 01.02.2009 – 49,665 – 49,665 HK$2.02 17.12.2008 01.05.2009 – 49,665 – 49,665 HK$2.02 17.12.2008 01.08.2009 – 49,665 – 49,665 HK$2.02 17.12.2008 01.11.2009 – 49,665 – 49,665 HK$2.02 17.12.2008 01.02.2010 – 49,675 – 49,675 HK$2.02 17.12.2008 01.05.2010 – 298,000 – 298,000
	Outstanding at 01.01.2008 – – – – – – –	Awarded during the year 49,665 49,665 49,665 49,665 49,665 49,675 298,000

The fair value of awarded shares are measured at the market price of the Company’s share at date of grant. The Company and the Group recognised the total expenses of approximately HK$7,365,000 (2007: Nil) for the year ended 31 December 2008 in relation to the share award schemes.

123

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

51. ACQUISITION OF SUBSIDIARIES

During the year ended 31 December 2007, the Company acquired 53% interests in EGT in accordance to the PPA as disclosed in note 12.

The net assets acquired and the goodwill arising are as follows:

	Acquiree’s
	carrying value
	HK$’000
Property, plant and equipment	199,584
Intangible assets	43,787
Trade and other receivables	47,716
Inventories	10,805
Bank balances and cash	8,439
Trade and other payables	(313,173)
	(2,842)
Minority interest	1,028
Interest attributable to warrant holders	(417,331)
Net liabilities attributable to interest acquired	(419,145)
Goodwill	1,464,150
	1,045,005
Represented by:
Settlement of receivable from providing agency services through
issuance of shares by EGT	1,020,630
Available-for-sale investments	24,375
	1,045,005
Cash inflow arising on acquisition
Bank balances and cash acquired	8,439

Goodwill arising on acquisition of EGT was in relation to the anticipated profit generated from the EGM business referred by the Group as disclosed in note 12.

EGT contributed HK$28 million to the Group’s revenue and HK$33 million loss to the Group’s profit for the period from date of acquisition to the date of becoming an associate.

If the acquisition had been completed on 1 January 2007, total group revenue for the year would have been HK$1,079 million, and profit for the year would have been HK$2,558 million. The pro forma information is for illustrative purposes only and is not necessarily an indication of revenue and results of operations of the Group that actually would have been achieved had the acquisition been completed on 1 January 2007, nor is it intended to be a projection of future results.

Note: Subsequently in December 2007, as described in note 12, EGT became an associate of the Group.

124

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

52. DEEMED DISPOSAL OF SUBSIDIARIES

As disclosed in notes 12 and 18, EGT and VC were deemed disposed of during the year ended 31 December 2007. The net assets of EGT and VC at the date of disposal were as follows:

NET ASSETS DISPOSED OF:
Property, plant and equipment
Other intangible assets
Long term deposits
Trading rights
Deferred tax assets
Trade and other receivables
Inventories
Held-for-trading investments
Bank balances and cash
Trade and other payable
Taxation payable
Bank borrowings
Amounts due to group companies
Loan from the Company
Minority interests
Interest attributable to warrant holders
Net assets attributable to interests disposed of
Attributable goodwill
Loss on deemed disposal
Total consideration
Satisfied by:
Interests in associates
Cash received
Net cash outflow arising on disposal:
Bank balances and cash disposed of
Less: Cash received

HK$’000
338,384
44,334
3,057
1,409
1,100
1,922,117
13,122
13,564
273,401
(549,804)
(9,219)
(1,131,146)
(32,435)
(241,900)
645,984
(339,942)
(258,079)
47,963
1,223,955
1,271,918
(65,288)
1,206,630
1,103,670
102,960
1,206,630
(273,401)
102,960
(170,441)

The impact of VC disposed of on the Group’s results and cash flows in the current and prior year are disclosed in note 18.

During the year ended 31 December 2007, EGT contributed revenue of approximately HK$28,828,000, loss for the year of approximately HK$32,951,000 and net cash inflow of approximately HK$206,263,000 to the Group.

125

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

53. MAJOR NON-CASH TRANSACTIONS

During the year ended 31 December 2008, other than the i) capitalisation of amount due from an associate of approximately HK$291 million (note 27); ii) deemed capital contribution of approximately HK$5,770,000 on noninterest bearing amount due from an associate (note 37 (ii)); and iii) investment in convertible loan note and interest in MelcoLot Limited distributed by Power Way (note 30), the Group transferred gaming machine of approximately HK$9,520,000 from property, plant and equipment to inventories.

During the year ended 31 December 2007, the interest in EGT was acquired through the provision of agency services as disclosed in notes 12 and 51, respectively.

54. OPERATING LEASES

(a) The Group as lessee

Minimum lease payments under operating leases during the year in respect of office premises were approximately HK$23,484,000 (2007: HK$20,709,000).

At the balance sheet date, the Group had commitments for future minimum lease payments under noncancellable operating leases which fall due as follows:

Within one year In the second to fifth year inclusive Over five years	THE GROUP 2008 2007 HK$’000 HK$’000 10,461 21,002 21,969 18,114 – 3,396 32,430 42,512	THE GROUP 2008 2007 HK$’000 HK$’000 10,461 21,002 21,969 18,114 – 3,396 32,430 42,512
		42,512

The Group leases certain of its properties under operating lease arrangements. Leases for properties are negotiated for a term ranging from 2 to 6 years.

(b) The Group as lessor

At 31 December 2008, the Group has entered into lease arrangements with certain tenants for its investment properties. Certain of the properties held have committed tenants for the next one to five years. At the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments.

Within one year In the second to fifth year inclusive Over five years	THE GROUP 2008 2007 HK$’000 HK$’000 8,334 8,616 20,192 8,780 – 1,751 28,526 19,147	THE GROUP 2008 2007 HK$’000 HK$’000 8,334 8,616 20,192 8,780 – 1,751 28,526 19,147
		19,147

The Company had no significant operating leases at the balance sheet date.

126

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

55. CONTINGENT LIABILITIES

The Group and the Company

On 5 September 2007, the Company has given an undertaking in connection with the HK$13.65 billion (US$1.75 billion) loan facilities obtained by Melco Crown Gaming (Macau) Limited (“Melco Crown Gaming”, formerly known as Melco PBL Gaming (Macau) Limited), a subsidiary of Melco Crown Entertainment. The undertaking given by the Company is to ensure that a contingent contribution of up to a maximum amount of HK$972,500,000 (US$125,000,000) will be provided, upon request of the facility agent acting on behalf of the lenders, to pay contingencies (if any) associated with the construction of the City of Dreams project of Melco Crown Gaming in the absence of other available funding for completion of the project. The Company maintains a standby letter of credit for the said maximum amount to support its contingent obligation. Crown Limited has given a similar undertaking and entered into a similar arrangement in connection with the said loan facilities.

The Group and the Company recognised financial guarantee liabilities in respect of the Exchangeable Bonds issued by Melco Crown SPV which are jointly and severally guaranteed by the Company and Crown Limited. Details of the guarantee are disclosed in note 43.

The Company

At 31 December 2007, the Company provides a total guarantee of approximately HK$8,453,000 to an insurance company and a bank in respect of the goods purchased and service provided by its subsidiaries and the amount utilised is Nil. Such guarantee was released during the year ended 31 December 2008.

56. RETIREMENT BENEFIT SCHEMES

The Group participates in both a defined contribution scheme which is registered under the Occupational Retirement Scheme Ordinance (the “ORSO Scheme”) and Mandatory Provident Fund Schemes (the “MPF Schemes”) established under the Mandatory Provident Fund Schemes Ordinance in December 2000. The assets of the schemes are held separately from those of the Group, in funds under the control of trustees. Employees who were members of the ORSO Scheme prior to the establishment of the MPF Schemes are switched to the MPF Schemes and all new eligible employees joining the Group on or after December 2000 are under the MPF Schemes. No more contribution was made to the ORSO Scheme after the switch.

Both the Group and the employees contribute a fixed percentage of the relevant payroll, subject to a maximum contribution of HK$1,000, to the MPF Scheme.

57. RELATED PARTY TRANSACTIONS

(a) The trade receivables include amounts due from related companies in relation to sales of computer hardware and software of approximately HK$27,616,000 (2007: HK$9,782,000).

The trade receivables include amount due from an associate, in relation to the sale of electronic gaming machines of approximately HK$882,000 (2007: HK$224,011,000).

As at 31 December 2007, the prepayments, deposits and other receivables include approximately HK$194,000 due from related companies.

(b) The accruals and other payables include deposits received from related companies and associates in relation to sales of technology solution system of approximately HK$4,611,000 (2007: HK$9,268,000) and HK$49,139,000 (2007: Nil) respectively.
(c) As at 31 December 2008 and 2007, the Group and the Company has a convertible loan note with principal amount of HK$1,175,000,000 issued to a related company.

127

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(d) The Group has entered into the following related parties transactions:

	THE GROUP
	2008	2007
	HK$’000	HK$’000
Catering income earned from directors of the Company
and related companies	6,058	4,390
Consultancy fee received from an associate	724	927
Insurance premiums charged by a related company	923	1,010
Interest income received from associates	29,494	27,908
Rental income received from an associate	3,770	3,430
Overseas travels, entertainment and gifts expenses charged
by an associate	353	246
Interest expense on shareholder’s loan	22,682	1,780
Interest expense on convertible loan notes to related companies	62,462	62,382
Sales of technology solution system to related companies	53,832	59,105
Sales of technology solution system to associates	100,791	79,308
Sales of electronic gaming machines to associates	265,659	–
Purchase of electronic gaming machines from associates	129,992	–
Service income received from associates	19,768	12,581
Souvenirs sold to related companies	593	572

Related companies in notes (a) to (d) are companies in which close family members of a director, Mr. Ho, Lawrence Yau Lung, has direct beneficial interests.

(e) As at 31 December 2008, the Company placed a bank deposit of HK$972,500,000 (equivalent to US$125,000,000) (2007: HK$972,500,000) which has been pledged under an undertaking in connection with the loan facilities obtained by Melco Crown Entertainment (note 55).
(f) As disclosed in note 12, the Group provided certain agency services to EGT during the year ended 31 December 2007. In return, EGT issued 40,000,000 Second Shares and 22,000,000 Second Warrants such that it became a subsidiary of the Company. The fair value of such agency services provided was recognised with reference to the fair value of the 40,000,000 Second Shares and 22,000,000 Second Warrants received by the Group.
(g) Compensation of key management personnel

The remuneration of directors and other members of key management during the year was as follows:

Short-term benefits Post-employment benefits Share-based payments	THE GROUP 2008 2007 HK$’000 HK$’000 23,856 30,425 101 118 15,558 7,103 39,515 37,646	THE GROUP 2008 2007 HK$’000 HK$’000 23,856 30,425 101 118 15,558 7,103 39,515 37,646
		37,646

The remuneration of directors and key executives is determined by the remuneration committee having regard to the performance of individuals, the Company’s operating results and market standards.

128

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

58. POST BALANCE SHEET EVENTS

(a) On 29 January 2009, Melco Leisure and Entertainment Group Limited, a wholly-owned subsidiary of the Company, entered into a loan agreement with MCR BC. The loan, which is unsecured, has a principal amount of approximately HK$11,700,000 (US$1.5 million) and interest bearing at 3-month LIBOR plus 3% per annum. It has a term of 365 days and is expiring on 28 January 2010.
(b) In February 2009, the Group entered into a sale and purchase agreement (“Agreement”) with a purchaser (“Purchaser”) to dispose of 80% of the issued share capital of a wholly-owned subsidiary, which is included in the Technology segment, at a consideration of HK$12,000,000 (“Consideration”) payable to the Group by three installments within two years from date of completion of Agreement (“Completion Date”). The estimated gain on disposal of this subsidiary amounted to approximately HK$95,000. Pursuant to the Agreement, there is a put option and a call option granted therein to the Group and the Purchaser, respectively, and if either of such options is exercised, the Group shall be bound to sell and the Purchaser shall be bound to purchase the remaining 20% interest of the wholly-owned subsidiary at an additional consideration of HK$3,000,000. The completion of the sale and purchase of the Agreement is conditional upon the satisfaction of certain conditions precedent.

59. PARTICULARS OF PRINCIPAL SUBSIDIARIES OF THE COMPANY

		Principal	Particulars			Proportion	Proportion
	Place of	activities and	of issued		ownership interest
Name of subsidiary	incorporation	place of operation	share capital		held	by the	Company
				Directly			Indirectly
				2008	2007		2008	2007
Melco Leisure and	British Virgin	Investment holding in	1 ordinary share	100%	100%		–	–
Entertainment Group	Islands	Hong Kong	of US$1 each
Limited
Aberdeen Restaurant	Hong Kong	Restaurant operations and	8,060 A shares of	–		–	86.68%	86.68%
Enterprises Limited		property investment in	HK$1,000 each and
		Hong Kong	33,930 B shares of
			HK$500 each
Tai Pak Sea-Food	Hong Kong	Catering, restaurant vessel	5 founders’ shares of	–		–	84.76%	84.76%
Restaurant Limited		holding and letting in	HK$100 each and
		Hong Kong	13,495 ordinary shares
			of HK$100 each
Jumbo Catering	Hong Kong	Provision of management	220 ordinary shares of	–		–	86.68%	86.68%
Management Limited		services in Hong Kong	HK$5,000
Melco Technology Group	Hong Kong	Investment holding in	2 ordinary shares of	100%	100%		–	–
Limited		Hong Kong	HK$1 each
iAsia Online Systems	British Virgin	Provision of online trading	1 ordinary share of	–		–	100%	100%
Limited	Islands	software in Hong Kong	US$1
Elixir Group Limited	Hong Kong	Provision of hardware and	833,333 ordinary shares	–		–	100%	100%
		software in Hong Kong	of HK$1 each
Elixir International Limited	Macau	Provision of hardware and	2 quota shares of	–		–	100%	100%
		software in Macau	MOP450,000 and
			MOP50,000 each
Elixir Group Philippines,	Philippines	Provision of hardware and	10,000 common shares	–		–	100%	100%
Inc.		software in Philippines	of 100 pesos each

129

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

		Principal	Particulars			Proportion	Proportion
	Place of	activities and	of issued		ownership		interest
Name of subsidiary	incorporation	place of operation	share capital		held	by the	Company
				Directly			Indirectly
				2008	2007		2008	2007
Melco Financial Group	British Virgin	Investment holding in	1 ordinary share of US$1	100%	100%		–	–
Limited	Islands	Hong Kong
Melco Services Limited	British Virgin	Investment holding in	1 ordinary share of US$1	100%	100%		–	–
	Islands	Hong Kong
Melco Investment Holdings	British Virgin	Investment holding in	1 ordinary share of US$1	100%	100%		–	–
Limited	Islands	Macau
Zonic Technology Limited	British Virgin	Investment holding in	1 ordinary share of US$1	–		–	100%	100%
	Islands	Hong Kong
Melco LottVentures	British Virgin	Investment holding in	1 ordinary share of US$1	–		–	100%	100%
Holdings Limited	Islands	Hong Kong

The above table lists the principal subsidiaries of the Company which, in the opinion of the directors, principally affect the results or assets of the Group. To give full details of subsidiaries would, in the opinion of the directors, result in particulars of excessive length.

None of the subsidiaries had issued any debt securities during the year or at the end of the year.

130

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

III. UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION

Set out below is the full text of the unaudited condensed consolidated financial information of the Group for the six months ended 30 June 2009 extracted from the interim report of the Company for the six months ended 30 June 2009.

Condensed Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2009

Notes
Revenue
3
Other income
Investment income (loss)
Purchase and changes in inventories of finished goods
Employee benefits expense
Depreciation of property, plant and equipment
Loss on disposal of a subsidiary
23
(Loss) gain on changes in interests in associates
4
Fair value changes on derivative financial instruments
5
Fair value change on investment
in convertible loan note
15
Loss on disposal of available-for-sale investment
Share of (loss) profit of a jointly controlled entity
Share of losses of associates
13
Impairment loss recognised in respect of interests
in associates
6
Other expenses
Finance costs
Loss before tax
7
Income tax expense
8
Loss for the period

Six months ended 30 June
2009
2008
HK$’000
HK$’000
(unaudited)
(unaudited)
498,527
325,357
33,079
28,273
2,643
(103)
(406,023)
(210,284)
(68,294)
(89,191)
(8,459)
(10,850)
(1,804)
–
(176,421)
53,856
(30)
(191,420)
77,629
–
(1,172)
–
(155,351)
39,895
(511,713)
(122,395)
–
(313,000)
(38,269)
(70,083)
(55,103)
(53,907)
(810,761)
(613,852)
(602)
(11)
(811,363)
(613,863)

131

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Note
Other comprehensive income
Exchange differences arising on translation of
foreign operations
Share of other comprehensive income of associates
Share of other comprehensive income of a jointly
controlled entity
Loss on fair value change of
available-for-sale investments
Total comprehensive income for the period
Loss for the period attributable to:
Owners of the Company
Minority interests
Total comprehensive income for the period
attributable to:
Owners of the Company
Minority interests
Loss per share
10
Basic
Diluted

Six months ended 30 June
2009
2008
HK$’000
HK$’000
(unaudited)
(unaudited)
88
72
14,941
6,250
43,763
–
–
(68,900)
(752,571)
(676,441)
(811,890)
(614,400)
527
537
(811,363)
(613,863)
(753,098)
(676,978)
527
537
(752,571)
(676,441)
(HK66.14 cents) (HK50.08 cents)
(HK66.14 cents) (HK50.10 cents)

132

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Statement of Financial Position

At 30 June 2009

Notes Non-current assets Investment properties 11 & 12 Property, plant and equipment 11 Other intangible assets Interests in jointly controlled entities Interests in associates 13 Amounts due from associates 14 Amount due from a jointly controlled entity 17 Available-for-sale investments Investment in convertible loan note 15 Goodwill Pledged bank deposits 12 Long term receivable 23 Deferred tax assets Current assets Inventories Trade receivables 16 Prepayments, deposits and other receivables Held-for-trading investments Derivative financial instruments Amounts due from associates 14 Pledged bank deposits 12 Bank deposits with original maturity over three months Bank balances and cash Current liabilities Trade payables 18 Other payables Shareholder’s loan Dividend payable Taxation payables Financial guarantee liability Bank borrowings – due within one year 19 Net current assets Total assets less current liabilities	30 June 31 December 2009 2008 HK$’000 HK$’000 (unaudited) 166,000 166,000 39,060 42,977 2,000 2,000 78,639 190,227 6,455,648 7,126,710 602,938 800,673 350,100 – 11,404 39,093 246,202 168,573 4,113 8,555 295,640 972,500 4,000 – – 719 8,255,744 9,518,027 28,235 57,652 109,062 55,690 102,836 232,534 217 150 34 64 256,092 130,555 13,470 6,738 465,738 164,896 116,775 239,875 1,092,459 888,154 92,249 309,664 172,755 124,095 250,000 250,000 133 133 418 689 45,217 45,217 166,400 96,400 727,172 826,198 365,287 61,956 8,621,031 9,579,983	30 June 31 December 2009 2008 HK$’000 HK$’000 (unaudited) 166,000 166,000 39,060 42,977 2,000 2,000 78,639 190,227 6,455,648 7,126,710 602,938 800,673 350,100 – 11,404 39,093 246,202 168,573 4,113 8,555 295,640 972,500 4,000 – – 719 8,255,744 9,518,027 28,235 57,652 109,062 55,690 102,836 232,534 217 150 34 64 256,092 130,555 13,470 6,738 465,738 164,896 116,775 239,875 1,092,459 888,154 92,249 309,664 172,755 124,095 250,000 250,000 133 133 418 689 45,217 45,217 166,400 96,400 727,172 826,198 365,287 61,956 8,621,031 9,579,983
		9,518,027
		57,652 55,690 232,534 150 64 130,555 6,738 164,896 239,875
		888,154
		309,664 124,095 250,000 133 689 45,217 96,400
		826,198
		61,956
		9,579,983

133

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Notes Non-current liabilities Trade payables – due after one year 18 Financial guarantee liability Bank borrowings – due after one year 19 Long term payable 20 Convertible loan notes – due after one year 21 Capital and reserves Share capital 22 Reserves Equity attributable to owners of the Company Minority interests	30 June 31 December 2009 2008 HK$’000 HK$’000 (unaudited) 5,435 81,678 99,200 121,808 58,400 216,600 170,537 172,496 1,095,044 1,061,861 1,428,616 1,654,443 7,192,415 7,925,540 615,052 614,666 6,550,801 7,284,839 7,165,853 7,899,505 26,562 26,035 7,192,415 7,925,540	30 June 31 December 2009 2008 HK$’000 HK$’000 (unaudited) 5,435 81,678 99,200 121,808 58,400 216,600 170,537 172,496 1,095,044 1,061,861 1,428,616 1,654,443 7,192,415 7,925,540 615,052 614,666 6,550,801 7,284,839 7,165,853 7,899,505 26,562 26,035 7,192,415 7,925,540
		1,654,443
		7,925,540

		614,666 7,284,839
		7,899,505 26,035
		7,925,540

134

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

			Total	HK$’000	10,341,543	(613,863)		72		6,250		(68,900)		(676,441)	5,130		10,289		–		–		–			(24,000)	(12,271)	9,644,250
		Minority	interests	HK$’000	22,430	537		–		–		–		537	–		–		–		–		–			–	–	22,967
Shares held	under share Attributable	purchase Share award Accumulated to owners of	scheme reserve profits the Company	HK$’000 HK$’000 HK$’000 HK$’000	– – 6,061,089 10,319,113	– – (614,400) (614,400)		– – – 72		– – – 6,250		– – – (68,900)		– – (614,400) (676,978)	– – – 5,130		– 4,597 – 10,289		– – – –		– – 158 –		2,882 (3,195) 313 –			(24,000) – – (24,000)	– – – (12,271)	(21,118) 1,402 5,447,160 9,621,283
Shares held	Share under share	options subscription	reserve scheme	HK$’000 HK$’000	21,958 –	– –		– –		– –		– –		– –	– –		5,692 –		(1,227) –		(158) –		– –			– –	– –	26,265 –
		Legal	reserve	HK$’000	254	–		–		–		–		–	–		–		–		–		–			–	–	254
		Exchange	reserve	HK$’000	2,599	–		72		4,878		–		4,950	–		–		–		–		–			–	–	7,549
		Other	reserve	HK$’000	(31,674)	–		–		1,372		–		1,372	–		–		–		–		–			–	–	(30,302)
	Other	revaluation	reserve	HK$’000	(1,669)	–		–		–		(68,900)		(68,900)	–		–		–		–		–			–	–	(70,569)
	Property	revaluation	reserve	HK$’000	5,796	–		–		–		–		–	–		–		–		–		–			–	–	5,796
Convertible	loan notes	equity	reserve	HK$’000	307,253	–		–		–		–		–	–		–		–		–		–			–	–	307,253
		Special	reserve	HK$’000	(69,950)	–		–		–		–		–	–		–		–		–		–			–	–	(69,950)
		Capital	reserve	HK$’000	283,734	–		–		–		–		–	–		–		–		–		–			–	(12,271)	271,463
		Share	premium	HK$’000	3,125,485	–		–		–		–		–	4,702		–		1,227		–		–			–	–	3,131,414
		Share	capital	HK$’000	614,238	–		–		–		–		–	428		–		–		–		–			–	–	614,666
					At 1 January 2008 (audited)	(Loss) profit for the period	Exchange differences arising on	translation of foreign operations	Share of other comprehensive	income of associates	Loss on fair value change of	available-for-sale investments	Total comprehensive income for	the period	Exercise of share options	Recognition of equity-settled	share based payments	Transfer to share premium upon	exercise of share option	Transfer of share option reserve	upon expiry of share options	Shares vested under the share	award scheme	Purchase of shares for unvested	shares under the share award	scheme	Dividend paid_(Note 9)_	At 30 June 2008 (unaudited)

135

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

			Total	HK$’000	7,925,540	(811,363)		88		14,941			43,763		(752,571)	673				6,933		11,840		–		–			–		–	7,192,415
		Minority	interests	HK$’000	26,035	527		–		–			–		527	–				–		–		–		–			–		–	26,562
Shares held	under share Attributable	purchase Share award Accumulated to owners of	scheme reserve profits the Company	HK$’000 HK$’000 HK$’000 HK$’000	(21,088) 4,138 3,705,922 7,899,505	– – (811,890) (811,890)		– – – 88		– – – 14,941			– – – 43,763		– – (811,890) (753,098)	– – – 673				– – 2,869 6,933		– 3,226 – 11,840		– – – –		– – 56 –			– – – –		5,498 (4,174) (1,374) –	(15,590) 3,190 2,895,583 7,165,853
Shares held	Share under share	options subscription	reserve scheme	HK$’000 HK$’000	32,638 –	– –		– –		– –			– –		– –	– –				– –		8,614 –		(383) –		(56) –			– (220)		– 50	40,813 (170)
		Legal	reserve	HK$’000	254	–		–		–			–		–	–				–		–		–		–			–		–	254
		Exchange	reserve	HK$’000	(8,183)	–		88		7,394			–		7,482	–				–		–		–		–			–		–	(701)
		Other	reserve	HK$’000	(103,794)	–		–		7,547			–		7,547	–				–		–		–		–			–		–	(96,247)
	Other	revaluation	reserve	HK$’000	28,948	–		–		–			43,763		43,763	–				(2,869)		–		–		–			–		–	69,842
	Property	revaluation	reserve	HK$’000	5,796	–		–		–			–		–	–				–		–		–		–			–		–	5,796
Convertible	loan notes	equity	reserve	HK$’000	307,253	–		–		–			–		–	–				–		–		–		–			–		–	307,253
		Special	reserve	HK$’000	(69,950)	–		–		–			–		–	–				6,933		–		–		–			–		–	(63,017)
		Capital	reserve	HK$’000	271,463	–		–		–			–		–	–				–		–		–		–			–		–	271,463
		Share	premium	HK$’000	3,131,442	–		–		–			–		–	507				–		–		383		–			–		–	3,132,332
		Share	capital	HK$’000	614,666	–		–		–			–		–	166				–		–		–		–			220		–	615,052
					At 1 January 2009 (audited)	(Loss) profit for the period	Exchange differences arising on	translation of foreign operations	Share of other comprehensive	income of associates	Share of other comprehensive	income of a jointly controlled	entity	Total comprehensive income for	the period	Exercise of share options	Realisation of special reserve and	other revaluation reserve upon	deemed disposal of partial	interest in an associate	Recognition of equity-settled	share based payments	Transfer to share premium upon	exercise of share option	Transfer of share option reserve	upon expiry of share options	Issue of shares for unvested shares	under the share subscription	scheme	Shares vested under the share	award scheme	At 30 June 2009 (unaudited)

136

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Statement of Cash Flows

For the six months ended 30 June 2009

Note
Net cash (used in) from operating activities
Net cash from (used in) investing activities:
Decrease in pledged bank deposits
Proceeds from disposal of available-for-sale
investments
Repayment from an associate
Advance to a jointly controlled entity
Increase in bank deposits with original maturity
over three months
Net cash outflow from disposal of a subsidiary
23
Advance to an associate
Investments in associates
Other investing cash flows
Net cash (used in) from financing activities:
Advance from a shareholder
Repayment to a shareholder
Repayments of bank borrowings
Bank borrowings raised
Other financing cash flows
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period,
represented by bank balances and cash

Six months ended 30 June
2009
2008
HK$’000
HK$’000
(unaudited)
(unaudited)
(69,218)
85,690
670,128
–
26,517
–
23,693
9,030
(350,100)
–
(300,842)
–
(12,819)
–
–
(116,700)
–
(42,307)
(3,704)
(6,527)
52,873
(156,504)
300,000
–
(300,000)
–
(88,200)
(80,000)
–
199,800
(18,555)
(47,939)
(106,755)
71,861
(123,100)
1,047
239,875
308,865
116,775
309,912

137

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Condensed Consolidated Financial Statements

For the six months ended 30 June 2009

1. BASIS OF PREPARATION

The condensed consolidated financial statements have been prepared in accordance with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and with Hong Kong Accounting Standard (“HKAS”) 34, “Interim Financial Reporting” issued by Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

2. PRINCIPAL ACCOUNTING POLICIES

The condensed consolidated financial statements have been prepared on the historical cost basis except for investment properties and certain financial instruments, which are measured at fair values.

The accounting policies used in the condensed consolidated financial statements are consistent with those followed in the preparation of the Group’s annual financial statements for the year ended 31 December 2008.

In the current interim period, the Group has applied, for the first time, a number of new and revised standards, amendments and interpretations (“new or revised HKFRSs”) issued by the HKICPA, which are effective for the Group’s financial year beginning on 1 January 2009.

HKAS 1 (Revised 2007) has introduced a number of terminology changes, including revised titles for the condensed consolidated financial statements, and has resulted in a number of changes in presentation and disclosure. HKFRS 8 is a disclosure Standard that requires the identification of operating segments to be performed on the same basis as financial information that is reported internally for the purpose of allocating resources between segments and assessing their performance. The predecessor Standard, HKAS 14 Segment Reporting , required the identification of two sets of segments (business and geographical) using a risks and returns approach. In the past, the Group’s primary reporting format was business segments. The application of HKFRS 8 has not resulted in a redesignation of the Group’s reportable segments as compared with the primary reportable segments determined in accordance with HKAS 14 (see note 3). The adoption of the new and revised HKFRSs has had no material effect on the reported results and financial position of the Group for the current or prior accounting periods. Accordingly, no prior period adjustment has been recognised.

In previous years, the Group expensed all borrowing costs that were directly attributable to the acquisition, construction or production of a qualifying asset when they were incurred. HKAS 23 (Revised 2007) removes the option available under the previous version of the standard to recognise all borrowing costs as expenses immediately and requires all such borrowing costs to be capitalised as part of the cost of the qualifying asset. The Group has applied the transitional requirements in HKAS 23 (Revised 2007) and applied the revised accounting policy to borrowing costs relating to qualifying assets for which the commencement date for capitalisation is on or after 1 January 2009. The revised accounting policy has been applied prospectively since 1 January 2009.

The Group has not early applied new and revised standards, amendments or interpretations that have been issued but are not yet effective. The adoption of HKFRS 3 (Revised 2008) may affect the Group’s accounting for business combination for which the acquisition dates are on or after 1 January 2010. HKAS 27 (Revised 2008) will affect the accounting treatment for changes in the Group’s ownership interest in a subsidiary. The directors of the Company anticipate that the application of other new and revised standards, amendments or interpretations will have no material impact on the results and the financial position of the Group.

3. REVENUE AND SEGMENT INFORMATION

The Group has adopted HKFRS 8 Operating Segments with effect from 1 January 2009. HKFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to segments and to assess their performance. In contrast, the predecessor Standard (HKAS 14, Segment Reporting ) required an entity to identify two sets of segments (business and geographical) using a risks and returns approach, with the entity’s “system of internal financial reporting to key management personnel” serving only as the starting point for the identification of such segments. In the past, the Group’s primary reporting format was business segments. The application of HKFRS 8 has not resulted in a redesignation of the Group’s reportable segments as compared with the primary reportable segments determined in accordance with HKAS 14.

138

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In prior years, primary segment information was analysed on the basis of the types of goods and services supplied by the Group’s operating divisions. However, information reported to the Chief Executive Officer for the purposes of resource allocation and performance assessment focuses more specifically on the category of customer for the technology business segment, with the result that under HKFRS 8 there are two operating segments included in this business segment. The Group’s reportable segments under HKFRS 8 are therefore as follows:

(1) Leisure, Gaming and Entertainment Segment: It mainly comprises provision of catering, entertainment, gaming and related services.
(2) Technology Segment – Elixir: It mainly comprises design, development and supply of gaming technology, including surveillance equipment and other gaming products used in casino.
(3) Technology Segment – iAsia: It mainly comprises development and sale of financial trading and settlement systems in other Asian regions.
(4) Property and Other Investments Segment: It mainly comprises property investments and other investments.

Information regarding the above segments is reported below. Amounts reported for the prior period have been restated to conform to the requirements of HKFRS 8.

The following is an analysis of the Group’s revenue and results by operating segment for the period under review:

Six months ended 30 June 2009 (unaudited):

Leisure, gaming and entertainment HK$’000 External sales 42,710 Inter-segment sales 402 Total revenue 43,112 Segment result (1,332) Central administrative costs and other unallocated corporate expenses Unallocated corporate income Finance costs Loss on changes in interests in associates Loss on disposal of a subsidiary Fair value changes on derivative financial instruments Fair value change on investment in convertible loan note Share of loss of a jointly controlled entity Share of losses of associates Loss on disposal of available-for-sale investment Loss before tax	Property Technology and other Elixir iAsia investments Elimination Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 409,111 20,244 26,462 – 498,527 9 5 2,727 (3,143) – 409,120 20,249 29,189 (3,143) 498,527 4,616 3,972 27,772 12 35,040 (49,095) 27,259 (55,103) (176,421) (1,804) (30) 77,629 (155,351) (511,713) (1,172) (810,761)	Property Technology and other Elixir iAsia investments Elimination Consolidated HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 409,111 20,244 26,462 – 498,527 9 5 2,727 (3,143) – 409,120 20,249 29,189 (3,143) 498,527 4,616 3,972 27,772 12 35,040 (49,095) 27,259 (55,103) (176,421) (1,804) (30) 77,629 (155,351) (511,713) (1,172) (810,761)
		498,527

		35,040 (49,095) 27,259 (55,103) (176,421) (1,804) (30) 77,629 (155,351) (511,713) (1,172)
		(810,761)

Inter-segment sales are charged at terms agreed by both parties.

139

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Six months ended 30 June 2008 (unaudited):

	Leisure,			Property
gaming and		Technology		and other
entertainment		Elixir	iAsia	investments	Elimination	Consolidated
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000		HK$’000
	(Restated)	(Restated)	(Restated)	(Restated)	(Restated)		(Restated)
External sales	54,065	209,821	26,647	34,824	–		325,357
Inter-segment sales	523	19	32	919	(1,493)		–
Total revenue	54,588	209,840	26,679	35,743	(1,493)		325,357

Segment result	921	(6,655)	3,387	34,596	(994)		31,255

Central administrative costs
and other unallocated
corporate expenses							(83,261)
Unallocated corporate
income							25,125
Finance costs							(53,907)
Gain on changes in interests
in associates							53,856
Fair value changes on
derivative financial
instruments							(191,420)
Share of profit of a jointly
controlled entity							39,895
Share of losses of associates							(122,395)
Impairment loss recognised
in respect of interests in
associates							(313,000)
Loss before tax							(613,852)

Inter-segment sales are charged at terms agreed by both parties.

Segment result represents the profit earned or loss incurred by each segment without allocation of central administration costs and other unallocated corporate expenses, unallocated corporate income, finance costs, (loss) gain on changes in interests in associates, loss on disposal of a subsidiary, fair value changes on derivative financial instruments, fair value change on investment in convertible loan note, share of (loss) profit of a jointly controlled entity, share of losses of associates, loss on disposal of available-for-sale investment and impairment loss recognised in respect of interests in associates. This is the measure reported to Group’s Chief Executive Officer for the purposes of resource allocation and performance assessment.

4. (LOSS) GAIN ON CHANGES IN INTERESTS IN ASSOCIATES

(i) During the period ended 30 June 2009, the Group’s ownership interest in its associate, Melco Crown Entertainment Limited (“Melco Crown Entertainment”), decreased from 37.83% to 34.10%, as a result of (i) a follow-on public offering of shares of Melco Crown Entertainment and (ii) the vesting of certain restricted shares issued by Melco Crown Entertainment. The Group therefore recognised a loss of approximately HK$176,421,000 which represents the decrease in net assets attributable to the Group during the period ended 30 June 2009.

140

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) During the period ended 30 June 2008, the Group and its associate, Melco China Resort Investment Limited (“MCR”), entered into a series of transactions for the purpose of the amalgamation of MCR with Virtual China Travel Services, Co., Ltd. (“VCTS”), a company listed on the Toronto Stock Exchange (“TSX”) Venture Exchange, including:
a) In March 2008, the Group and the other two shareholders of MCR agreed to amend the Memorandum and Articles of Association of MCR such that it has three classes of shares with different economic interest. The original MCR shares held by the Group and the amount of HK$291 million which have been advanced by the Group to MCR, were exchanged for new shares so that the Group’s economic interest in MCR increased from 45% to 70.1% while the voting power remained at 45%;
b) Melco China Resorts (Holding) Limited (“MCR BC”) issued shares in May 2008 in exchange for the shares of MCR held by all MCR shareholders, including the Group (“Share Swap”). Under the terms of the Share Swap, MCR BC issued 411,091,347 common shares and 84,375,653 convertible preference shares in exchange for the Group’s interest in MCR. MCR became the wholly-owned subsidiary of MCR BC, which then became an associate of the Group. Each of the convertible preference share can be converted into one common share of MCR BC at any time after six months from date of issuance of 27 May 2008 without expiry date and entitle the holder a cumulative dividend of CAD0.001 per share;
c) The Group and certain independent investors subscribed for common shares and warrants in MCR BC (“Subscription”). Under the subscription agreement entered into by the Group, the Group subscribed for 20,000,000 common shares and 10,000,000 warrants issued by MCR BC at a consideration of approximately HK$46,834,000 (CAD6,000,000). The cost of common shares of approximately HK$42,307,000 forms part of the Group’s initial cost of investment in MCR BC while the remaining HK$4,527,000 represents the initial carrying amount of the warrants held by the Group, which are accounted for as derivative financial instruments. In addition, the independent investors subscribed for 220,436,358 common shares and 110,218,179 warrants issued by MCR BC at a consideration of approximately HK$516,196,000 (CAD66,131,000); and
d) MCR BC then completed the reverse take-over of VCTS by way of an amalgamation (“Amalgamation”) and its common shares and warrants then commenced trading on the TSX Venture Exchange. Upon the completion of the Amalgamation, the common shares, convertible preference shares and warrants issued by MCR BC were also consolidated on a 10 to 1 basis.

The Share Swap, Subscription and Amalgamation were completed on or about the same date in May 2008. As a result, the Group’s interest in the associate has been changed to 49.3% but the net assets of MCR BC attributable to the Group increased and a gain of approximately HK$54,370,000 was thus recognised.

(iii) During the period ended 30 June 2008, the interest in an associate, Value Convergence Holdings Limited (“VC”), attributable to the Group decreased by approximately HK$514,000 resulting from the exercise of certain share options of VC by the option holders. The Group’s ownership interest in VC decreased from 43.5% to 43.4% during the period.

As a result of the above notes (ii) and (iii), the Group therefore recognised a gain of approximately HK$53,856,000 for the above change in interests in associates during the period ended 30 June 2008.

5. FAIR VALUE CHANGES ON DERIVATIVE FINANCIAL INSTRUMENTS

During the period ended 30 June 2009, a decrease in fair value regarding the warrants of an associate, Elixir Gaming Technologies, Inc. (“EGT”) and MCR BC (see note 4) held by the Group of Nil (six months ended 30 June 2008: HK$189,000,000) and HK$30,000 (six months ended 30 June 2008: HK$2,420,000), respectively, was recognised in the condensed consolidated statement of comprehensive income.

141

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. IMPAIRMENT LOSS RECOGNISED IN RESPECT OF INTERESTS IN ASSOCIATES

During the period ended 30 June 2008, there was an indicator of impairment as a result of the decreases in share price of an associate, EGT. The Group then performed an impairment assessment and recognised an impairment loss of approximately HK$313,000,000 in relation to its interests in associate – EGT. The recoverable amount of EGT has been determined based on a value in use calculation. That calculation uses cash flow projections based on financial budgets approved by management of EGT covering a 5 years period, and discount rate of 14%. EGT’s cash flows beyond the 5 year period are extrapolated using a steady 4% growth rate, management of the Group believes that a 4% growth rate is reasonable. Other key assumptions for the value in use calculations relate to the estimation of cash inflows/outflows which include budgeted sales and gross margin, such estimation is based on the unit’s past performance and management’s expectations for the market development. The recoverable amount of EGT was approximately HK$610,563,000 while the aggregate market price of the shares held by the Group was approximately HK$427,589,000 as at 30 June 2008.

7. LOSS BEFORE TAX

	Six months ended 30 June	Six months ended 30 June
	2009	2008
	HK$’000	HK$’000
	(unaudited)	(unaudited)
Loss before tax has been arrived at after charging:
Allowance for inventories	20,423	–
Loss from fair value adjustment of held-for-trading investments	–	140
and after crediting:
Dividend income from unlisted investments	648	37
Dividend income from listed investments	1,928	–
Gain from fair value change of held-for-trading investments	68	–

8. INCOME TAX EXPENSE

Hong Kong Profits Tax is recognised based on management’s best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual tax rate used is 16.5% for the six months ended 30 June 2009. Taxation arising in other jurisdiction is calculated at the rates prevailing in the relevant jurisdiction.

No provision for Hong Kong Profits Tax is made during the period ended 30 June 2009 as there was no estimated assessable profit.

The income tax expense comprises: Current tax – other jurisdictions Deferred taxation Income tax expense	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) (unaudited) – 11 602 – 602 11	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) (unaudited) – 11 602 – 602 11
		11

142

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9. DIVIDEND

During the period ended 30 June 2009, no dividend was paid to shareholders as the final dividend for 2008 (six months ended 30 June 2008: HK$0.01 per share amounting to approximately HK$12,271,000 as the final dividend for 2007).

The directors do not recommend the payment of an interim dividend for the six months ended 30 June 2009 (six months ended 30 June 2008: Nil).

10. LOSS PER SHARE

The calculation of the basic and diluted loss per share attributable to the owners of the Company is based on the following data:

	Six months ended 30 June	Six months ended 30 June	Six months ended 30 June
	2009		2008
	HK$’000		HK$’000
	(unaudited)		(unaudited)
Loss
Loss for the purpose of basic loss per share (loss for the period
attributable to owners of the Company)	(811,890)		(614,400)
Effect of dilutive potential ordinary shares:
Adjustments to the share of results of associates based on
potential dilution of their earnings per share	–		(262)
Loss for the purpose of diluted loss per share	(811,890)		(614,662)

	Six months ended 30 June
	2009		2008
	(unaudited)		(unaudited)
Number of shares
Weighted average number of ordinary shares for the purposes
of basic and diluted loss per share	1,227,556,496	1,226,807,669

Note: The number of shares adopted in the calculation of the basic loss per share has been arrived at after eliminating the shares in the Company held by the Company’s share award schemes. During the periods ended 30 June 2009 and 2008, the computation of diluted loss per share does not assume the conversion of the Company’s outstanding convertible loan notes and the effect of share options and unvested awarded shares under the Company’s long-term incentive schemes since their exercise would result in a decrease in loss per share.

11. MOVEMENTS IN INVESTMENT PROPERTIES, PROPERTY, PLANT AND EQUIPMENT

During the current period, the Group spent approximately HK$6,322,000 mainly on leasehold improvement, furniture, fixtures and equipment for the Group’s office premises.

All of the Group’s property interests held under operating leases to earn rentals and/or for capital appreciation purposes are measured using the fair value model and are classified and accounted for as investment properties. As at 30 June 2009, the carrying amount of such property interests amounted to approximately HK$166,000,000 (31 December 2008: HK$166,000,000).

The fair values of the Group’s investment properties as at 30 June 2009 have been determined by the directors of the Company. No valuation has been performed by independent qualified professional valuers. The valuation performed by the directors of the Company was arrived at by reference to recent market prices for similar properties.

143

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

12. PLEDGE OF ASSETS

At 30 June 2009, the Group pledged certain of its assets for the following purposes:
(a) The Group’s bank deposit and investment properties which amounted to approximately HK$947,000 and HK$166,000,000, respectively, were pledged for obtaining the banking facilities for certain subsidiaries of the Group (31 December 2008: bank deposit of approximately HK$947,000 and investment properties of approximately HK$166,000,000).
(b) The Group’s bank deposit of approximately HK$5,791,000 (31 December 2008: HK$5,791,000) were pledged to a bank for the completion of a sale agreement with a customer.
(c) The Group’s bank deposit of approximately HK$6,732,000 (31 December 2008: Nil) were pledged to a bank for obtaining the banking facilities for a subsidiary of the Group in respect of goods purchased from a supplier.
(d) The Company placed a bank deposit of HK$295,640,000 (equivalent to US$38,000,000) (31 December 2008: HK$972,500,000 (equivalent to US$125,000,000)) for an undertaking in connection with a long term loan facilities obtained by Melco Crown Entertainment, and was therefore classified as non-current asset.

13. INTERESTS IN ASSOCIATES

As at 30 June 2009, the Group holds approximately 34.1% interests in Melco Crown Entertainment, 43.4% interests in VC, 49.3% interests in MCR BC, 58.7% interests in Power Way Group Limited (“Power Way”), 10.4% interests in MelcoLot Limited, 20.0% interests in iAsia Online Systems Limited and 39.8% interests in EGT. During the period ended 30 June 2009, the Group recognised share of losses of these associates of approximately HK$511,713,000 (six months ended 30 June 2008: HK$122,395,000).

14. AMOUNTS DUE FROM ASSOCIATES

Included in amounts due from associates are:

(i) amount due from an associate of approximately HK$578,578,000 (31 December 2008: HK$578,578,000) which is unsecured, interest bearing at Hong Kong Interbank Offered Rates (“HIBOR”) per annum (31 December 2008: HIBOR plus 1.5% per annum) and not repayable within twelve months from the end of the reporting period. This associate continues to expand its gaming business in Macau and the Group considers no impairment on the amount due from this associate;
(ii) amount due from an associate of approximately HK$200,693,000 (31 December 2008: HK$173,976,000) which is unsecured and approximately HK$12,968,000 is repayable on demand, HK$11,750,000 is repayable on 28 January 2010 and HK$175,975,000 is repayable on 31 March 2010. Approximately HK$105,413,000 out of the HK$200,693,000 (31 December 2008: HK$93,773,000 out of the HK$173,976,000) is interest bearing at 3-month London Interbank Offered Rate (“LIBOR”) plus 3% per annum and the remaining HK$95,280,000 (31 December 2008: HK$80,203,000) is non-interest bearing such that a deemed capital contribution of approximately HK$5,770,000 has been recognised as at 31 December 2008 using interest rate at LIBOR plus 3% per annum. The Group has reviewed the financial position and the bank facilities available to this associate and considers no impairment on the amount due from this associate;
(iii) amount due from an associate of approximately HK$71,294,000 which is unsecured and interest bearing at 5% per annum. Approximately HK$46,934,000 out of the HK$71,294,000 (31 December 2008: HK$45,779,000 out of the HK$93,898,000) was repayable within twelve months from the end of the reporting period and the remaining HK$24,360,000 (31 December 2008: HK$48,119,000) was repayable after twelve months from the end of the reporting period ended 30 June 2009. This associate has continued to settle the balance by installments and the Group considers no impairment on the amounts due from this associate; and
(iv) amount due from an associate of approximately HK$41,900,000 which was unsecured, interest bearing at HIBOR plus 1.25% to 2% per annum and repayable upon written notice given from the Company at 31 December 2008. Full settlement has been received from this associate during the period ended 30 June 2009.

The remaining amounts due from associates are unsecured, non-interest bearing and repayable on demand.

144

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

15. INVESTMENT IN CONVERTIBLE LOAN NOTE

During the period ended 30 June 2009, an increase in fair value of approximately HK$77,629,000 (six months ended 30 June 2008: Nil) regarding the MelcoLot Limited’s convertible loan note was recognised in the condensed consolidated statement of comprehensive income. The significant increase in fair value of the MelcoLot Limited’s convertible loan note is as a result of the increase in share price of MelcoLot Limited. As at 30 June 2009, the fair value of the investment in MelcoLot Limited’s convertible loan note of approximately HK$246,202,000 (31 December 2008: HK$168,573,000) is determined using binomial model and discounted cash flow approach for different components.

16. TRADE RECEIVABLES

		As at	As at
		30 June	31 December
		2009	2008
		HK$’000	HK$’000
	(unaudited)
Trade receivables_(Notes a & b)_		115,635	63,192
Less: allowance for doubtful debts		(6,573)	(7,502)
		109,062	55,690

The aged analysis of trade receivables at the end of the reporting period is as follows:
		As at	As at
		30 June	31 December
		2009	2008
		HK$’000	HK$’000
	(unaudited)
Within 30 days		74,073	15,901
31 – 90 days		9,559	12,299
Over 90 days		25,430	27,490
		109,062	55,690

Notes:

(a) The Group’s Leisure, Gaming and Entertainment and Property and Other Investments Segments are largely operated on cash on delivery or payment in advance terms, except for those well-established customers to whom credit terms of 30 to 120 days would be granted.

(b) Trade receivables on the Group’s Technology Segment are due immediately from date of billing but the Group will generally grant a normal credit period of 30 days to 90 days on average to its customers.

17. AMOUNT DUE FROM A JOINTLY CONTROLLED ENTITY

Amount due from a jointly controlled entity is unsecured, non-interest bearing and not repayable within twelve months from the end of the reporting period.

145

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

18. TRADE PAYABLES

An aged analysis of the trade payables at the end of the reporting period is as follows:

Within 30 days 31 – 90 days Over 90 days Trade payable by instalment_(note) Analysed as: Current liabilities Non-current liabilities(note)_	As at As at 30 June 31 December 2009 2008 HK$’000 HK$’000 (unaudited) 34,909 132,973 3,095 19,857 11,329 40,356 49,333 193,186 48,351 198,156 97,684 391,342 92,249 309,664 5,435 81,678 97,684 391,342	As at As at 30 June 31 December 2009 2008 HK$’000 HK$’000 (unaudited) 34,909 132,973 3,095 19,857 11,329 40,356 49,333 193,186 48,351 198,156 97,684 391,342 92,249 309,664 5,435 81,678 97,684 391,342
		193,186 198,156
		391,342

		309,664 81,678
		391,342

Note: The amount represents trade payable to vendors by instalment for one to two years, which bear interest at 5% per annum (31 December 2008: 2.5% to 12% per annum). Appromixately HK$5,435,000 out of the HK$48,351,000 (31 December 2008: HK$81,678,000 out of the HK$198,156,000) is not repayable within twelve months from the end of the reporting period.

19. BANK BORROWINGS – DUE WITHIN ONE YEAR AND DUE AFTER ONE YEAR

Secured Unsecured Carrying amount repayable: Within one year More than one year, but not exceeding two years More than two years, but not exceeding five years Less: Amounts due within one year shown under current liabilities	As at As at 30 June 31 December 2009 2008 HK$’000 HK$’000 (unaudited) 74,800 83,000 150,000 230,000 224,800 313,000 166,400 96,400 16,400 166,400 42,000 50,200 224,800 313,000 (166,400) (96,400) 58,400 216,600	As at As at 30 June 31 December 2009 2008 HK$’000 HK$’000 (unaudited) 74,800 83,000 150,000 230,000 224,800 313,000 166,400 96,400 16,400 166,400 42,000 50,200 224,800 313,000 (166,400) (96,400) 58,400 216,600
		313,000

		96,400 166,400 50,200
		313,000 (96,400)
		216,600

All the bank borrowings are denominated in HK$, the functional currency of relevant group entities, with interest rates of HIBOR plus 1.2% to 1.5% (31 December 2008: HIBOR plus 1.2% to 3.0%) per annum.

146

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

20. LONG TERM PAYABLE

The amount represents payable to Crown Limited, a major shareholder of Melco Crown Entertainment, arising from an arrangement to dispose of certain subsidiaries of the Company to Melco Crown Entertainment during the year ended 31 December 2006. The principal amount of HK$180,000,000 is stated at amortised cost and is unsecured, non-interest bearing and not repayable within twelve months from the end of the reporting period.

During the period ended 30 June 2009, the repayment date of the long term payable of HK$180,000,000 has been extended from May 2010 to November 2010 (31 December 2008: from May 2009 to May 2010) such that a gain of approximately HK$4,650,000 (six months ended 30 June 2008: a gain of HK$2,517,000) was recognised. As at 30 June 2009, the effective interest rate of the long term payable is 3.9%.

21. CONVERTIBLE LOAN NOTES

22. SHARE CAPITAL

Authorised: At the beginning and end of the period/year of HK$0.5 each Issued and fully paid: At the beginning of the period/year of HK$0.5 each Exercise of share options Issue of new shares for vested shares under the share subscription scheme At the end of the period/year of HK$0.5 each	Number of ordinary shares 30 June 31 December 2009 2008 (unaudited) 2,000,000,000 2,000,000,000 1,229,331,116 1,228,475,716 333,660 855,400 440,000 – 1,230,104,776 1,229,331,116	Amount 30 June 31 December 2009 2008 HK$’000 HK$’000 (unaudited) 1,000,000 1,000,000 614,666 614,238 166 428 220 – 615,052 614,666	Amount 30 June 31 December 2009 2008 HK$’000 HK$’000 (unaudited) 1,000,000 1,000,000 614,666 614,238 166 428 220 – 615,052 614,666

			614,238 428 –
			614,666

The shares issued during the period/year rank pari passu in all respects with the then existing shares. As at 30 June 2009, the Company’s 1,590,809 (31 December 2008: 2,151,890) issued shares with aggregate nominal value of approximately HK$795,000 (31 December 2008: HK$1,076,000) were held by the Company’s share purchase scheme.

147

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

23. DISPOSAL OF A SUBSIDIARY

In June 2009, the Group disposed of 80% of the issued share capital of a wholly-owned subsidiary, iAsia Online Systems Limited and its subsidiary (“iAsia”), at a consideration of HK$12,000,000. The net assets of iAsia at the date of disposal were as follows:

NET ASSETS DISPOSED OF:
Property, plant and equipment
Deferred tax assets
Trade and other receivables
Amounts due from group companies
Amounts due from associates
Bank balances and cash
Trade and other payables
Amounts due to group companies
Net assets attributable to interests disposed of
Attributable goodwill
Loss on disposal
Total consideration
Satisfied by:
Interests in associates
Consideration receivables
Net cash outflow arising on disposal:
Bank balances and cash disposed of

HK$’000
1,312
117
6,833
100
3,822
12,819
(12,903)
(116)
11,984
4,442
16,426
(1,804)
14,622
2,622
12,000
14,622
(12,819)

The consideration receivable of HK$8,000,000 will be settled within twelve months from the date of disposal and is included in prepayments, deposits and other receivables of the Group as at 30 June 2009. The remaining consideration receivable of HK$4,000,000 will be settled after twelve months from the date of disposal and is included in long term receivables of the Group as at 30 June 2009.

During the period ended 30 June 2009, iAsia contributed revenue of approximately HK$20,244,000, profit for the period of approximately HK$3,365,000 and net cash outflow of approximately HK$7,417,000 to the Group.

24. RELATED PARTY TRANSACTIONS

(a) The trade receivables include amounts due from related companies in relation to sales of technology solution system of approximately HK$18,935,000 (31 December 2008: HK$27,616,000).

The trade receivables include amounts due from associates in relation to the sales of technology solution system of approximately HK$68,195,000 (31 December 2008: HK$882,000).

The prepayments, deposits and other receivables include retention receivables from associates in relation to sales of technology solution system of approximately HK$22,136,000 (31 December 2008: Nil).

(b) The other payables include deposits received from related companies and associates in relation to sales of technology solution system of approximately HK$3,118,000 and HK$28,699,000, respectively (31 December 2008: HK$4,611,000 and HK$49,139,000, respectively).

148

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

(c) Significant related party transactions, which were carried out in the normal course of the Group’s business, are as follows:

	Six months ended 30 June	Six months ended 30 June
	2009	2008
	HK$’000	HK$’000
	(unaudited)	(unaudited)
Catering income earned from directors and related companies	3,765	3,931
Sales of technology solution system to related companies	10,226	26,054
Sales of technology solution system to associates	340,014	155,195
Interest expense on shareholder’s loan	12,077	11,865
Effective interest expense on convertible loan notes issued
to a related company	33,183	31,231
Service income from related companies	4,599	4,324
Service income from associates	7,659	3,442
Loan interest income received from associates	12,940	11,295
Rental income received from an associate	1,885	1,973

The above transactions/balances are made with related companies in which a close family member of a substantial shareholder of the Company has beneficial interests.

25. CONTINGENT LIABILITIES

(i) On 5 September 2007, the Company has given an undertaking in connection with the HK$13.65 billion (US$1.75 billion) loan facilities obtained by Melco Crown Gaming (Macau) Limited (“Melco Crown Gaming” formerly known as Melco PBL Gaming (Macau) Limited), a subsidiary of Melco Crown Entertainment. The undertaking given by the Company is to ensure that a contingent contribution of up to a maximum amount of HK$972,500,000 (US$125,000,00) will be provided, upon request of the facility agent acting on behalf of the lenders, to pay contingencies (if any) associated with the construction of the City of Dreams project of Melco Crown Gaming in the absence of other available funding for completion of the project. The Company’s obligation to provide contingent contribution has, with effect from 4 May 2009, been reduced from HK$972,500,000 (US$125,000,000) to HK$295,640,000 (US$38,000,000). The Company maintain a standby letter of credit for the said reduced amount to support its contingent obligation. Crown Limited, a major shareholder of Melco Crown Entertainment, has given a similar undertaking and entered into a similar arrangement in connection with the said loan facilities.
(ii) The Group recognised financial guarantee liabilities of HK$144,417,000 in respect of the Exchangeable Bonds issued by Melco Crown SPV Limited, the jointly controlled entity of the Group, which are jointly and severally guaranteed by the Company and Crown Limited.

26. EVENTS AFTER THE END OF THE INTERIM PERIOD

On 18 August 2009, Melco Crown Entertainment completed a follow-on public offering of shares of Melco Crown Entertainment. On the completion of the follow-on public offering, the Group’s ownership interest in Melco Crown Entertainment was decreased from 34.10% to 31.36%.

On 20 August, 2009, MCR BC entered into a definitive agreement with an independent third party, China Entertainment Globe Ltd. (“CEG”), in which CEG will subscribe for 95,000,000 common shares in MCR BC at a subscription price of approximately HK$1 (equivalent to CAD0.15) for a total subscription price of approximately HK$96,178,000 (equivalent to CAD14,250,000) (the “Private Placement”). On completion of the Private Placement which is expected to occur by the end of September 2009, upon satisfaction of all closing conditions, CEG will be holding approximately 49.8% of the equity interest of MCR BC and the Group’s shareholding in MCR BC will be decreased to 27.0%. The financial impact of this event is not known until the completion of definitive agreement.

On 8 September 2009, VC entered into a placing agreement (“Placing Agreement”) with China Everbright Securities (HK) Limited (the “Placing Agent”), pursuant to which VC has appointed the Placing Agent to procure independent subscribers for convertible bonds with a principal amount of HK$300 million (“First Convertible Bonds”) at the conversion price of HK$1 per share. Under the terms of the First Convertible Bonds, the bondholders who convert the First Convertible Bonds within one year from the date of issue of the First Convertible Bonds will be granted options which will entitle them to subscribe for further convertible bonds equal to the principal amount of the First Convertible Bonds. Accordingly, further convertible bonds with a principal amount of HK$300 million may be issued.

149

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

IV. STATEMENT OF INDEBTEDNESS

(a) Borrowings

As at the close of business on 30 November 2009, being the latest practicable date for the purpose of ascertaining certain information relating to this indebtedness statement, the Group had total outstanding borrowings of approximately HK$1,634.9 million, comprising secured bank borrowings of approximately HK$66.6 million, unsecured bank borrowings of approximately HK$150.0 million, convertible loan note of approximately HK$1,122.7 million, long term payable of approximately HK$170.0 million and financial guarantee liability of approximately HK$125.6 million. Among the secured and unsecured bank borrowings, amounts of approximately HK$166.4 million and HK$50.2 million were due within one year and due after one year, respectively. The convertible loan note with a principal amount of HK$1,175 million was due within one year. Long term payable with a principal amount of HK$180 million was stated at amortised cost and represented payable to Crown Limited arising from an arrangement to dispose of certain subsidiaries of the Company to Melco Crown Entertainment Limited (“Melco Crown Entertainment”) during the year ended 31 December 2006. The repayment date of the long term payable of HK$180 million has been extended from November 2010 to May 2011 with effect from 13 November 2009 such that it would be due after one year. The financial guarantee liability was related to the Exchangeable Bonds issued by Melco Crown SPV Limited (“Melco Crown SPV”), a jointly controlled entity of the Group and Crown Limited. The carrying amount of the financial guarantee liability was approximately HK$125.6 million, of which approximately HK$45.2 million was shown as current liability and the remaining amount of approximately HK$80.4 million was shown as non-current liability.

As at 30 November 2009, the Group’s bank deposit and investment properties amounting to approximately HK$0.9 million and HK$166 million, respectively, were pledged for obtaining the banking facilities for certain subsidiaries of the Group. The Group’s bank deposits of approximately HK$5.8 million and approximately HK$4.1 million were pledged to a bank for the completion of a sale agreement with a customer and pledged to a bank for obtaining the banking facilities for a subsidiary of the Group in respect of goods purchased from a supplier, respectively.

(b) Contingent liabilities

The Group recognized financial guarantee liabilities of approximately HK$125.6 million as at 30 November 2009 in respect of the Exchangeable Bonds issued by Melco Crown SPV, the jointly controlled entity of the Group, which are jointly and severally guaranteed by the Company and Crown Limited.

Saved as disclosed in the above paragraphs, and apart from intra-group liabilities and normal trade payables, the Group did not have any mortgages, debentures, loan capital, bank loans and overdrafts, debt securities or other similar indebtedness, finance lease or hire purchase commitment, liabilities under acceptances or acceptance credit, or any guarantee or other contingent liabilities outstanding at the close of business on 30 November 2009.

150

GENERAL INFORMATION

APPENDIX II

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules and the Takeovers Code for the purpose of giving information with regard to the Group. The information contained herein relating to the Group has been supplied by the Directors, who jointly and severally accept full responsibility for the accuracy of the information contained in this circular (other than those relating to Great Respect) and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this circular have been arrived at after due and careful consideration and there are no other facts not contained in this circular the omission of which would make any statement contained herein misleading.

The sole director of Great Respect accepts full responsibility for the accuracy of the information contained in this circular relating to Great Respect and confirms, having made all reasonable enquiries, that to the best of its knowledge, opinions expressed in this circular have been arrived at after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any statement in this circular misleading.

2. SHARE CAPITAL

The authorised and issued share capital of the Company as at the Latest Practicable Date were as follows:

HK$ Authorised capital: 2,000,000,000 ordinary Shares of HK$0.5 each 1,000,000,000.00 Issued capital: 1,230,258,939 ordinary Shares of HK$0.5 each 615,129,469.50

All issued Shares rank pari passu with each other in terms of capital, dividend and voting. Since 31 December 2008 (being the date to which the latest published audited financial statements of the Company were made up), the Company has issued a total of 927,823 Shares.

As at the Latest Practicable Date, other than the Convertible Loan Notes, the options granted under the share option scheme of the Company adopted on 8 March 2002 and Shares awarded under The Melco Share Purchase Scheme Trust and The Melco Share Award Scheme Trust (both are share award plans of the Company adopted on 18 October 2007), the Company had no convertible securities, options, derivatives or warrants outstanding and had not entered into any agreement for the issue of any convertible securities, options, warrants or derivatives of the Company.

151

GENERAL INFORMATION

APPENDIX II

3. MARKET PRICES

(a) The highest and lowest closing prices of the Shares as quoted on the Stock Exchange during the Relevant Period were HK$5.92 per Share on 14 September 2009 and HK$3.30 per Share on the Latest Practicable Date, respectively.
(b) The table below sets out the closing prices of the Shares on the Stock Exchange on the last Business Day on which trading of the Shares took place in each of the calendar months during the Relevant Period:

Date	Closing price
	(HK$)
30 June 2009	4.26
31 July 2009	5.03
31 August 2009	4.63
30 September 2009	4.96
30 October 2009	4.31
30 November 2009	3.81
31 December 2009	3.58

(c) The closing price of the Shares on the Stock Exchange on the Last Trading Date was HK$3.86.
(d) The closing price of the Shares on the Stock Exchange on the Latest Practicable Date was HK$3.30.

4. DISCLOSURE OF INTERESTS UNDER THE SFO

(a) Directors’ interests and short positions in the Shares and the shares of the Company’s associated corporations

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executive of the Company in the Shares, underlying Shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which: (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provisions of the SFO); or (b) were required pursuant to Section 352 of the SFO to be entered in the register referred to therein; or (c) were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers of the Listing Rules, to be notified to the Company and the Stock Exchange were as follows:

152

GENERAL INFORMATION

APPENDIX II

(I) Long positions in Shares and underlying Shares

(i) Ordinary Shares of HK$0.50 each of the Company

			Approximate %
		Number of	of the total issued
		ordinary	share capital
Name	Capacity	Shares held	of the Company
Mr. Lawrence Ho	Held by controlled	411,335,630	33.43%
	corporations	(Note 2)
	Beneficial owner	7,793,951	0.63%
Mr. Tsui Che Yin, Frank	Beneficial owner	103,104	0.01%
Mr. Chung Yuk Man,	Beneficial owner	80,884	0.01%
Clarence
Dr. Lo Ka Shui	Beneficial owner	2,034,000	0.17%
Sir Roger Lobo	Beneficial owner	34,000	0.00%
Mr. Sham Sui Leung,	Beneficial owner	34,000	0.00%
Daniel
Mr. Ng Ching Wo	Beneficial owner	34,000	0.00%

153

APPENDIX II

GENERAL INFORMATION

(ii) Share options granted to the Directors pursuant to the share option scheme adopted by the Company on 8 March 2002

	Number of
	share options
	outstanding	Approximate
	as at the Latest	% of issued
	Practicable	share capital of		Exercisable	Exercise
Name of Director	Date	the Company	Date of grant	period	price
					(HK$)
Mr. Lawrence Ho	230,840	0.02%	01.04.2008	01.04.2009 –	10.804
				31.03.2018
	230,840	0.02%	01.04.2008	01.04.2010 –	10.804
				31.03.2018
	230,840	0.02%	01.04.2008	01.04.2011 –	10.804
				31.03.2018
	89,333	0.01%	17.12.2008	01.02.2009 –	2.02
				16.12.2018
	89,333	0.01%	17.12.2008	01.05.2009 –	2.02
				16.12.2018
	89,333	0.01%	17.12.2008	01.08.2009 –	2.02
				16.12.2018
	89,333	0.01%	17.12.2008	01.11.2009 –	2.02
				16.12.2018
	89,333	0.01%	17.12.2008	01.02.2010 –	2.02
				16.12.2018
	89,335	0.01%	17.12.2008	01.05.2010 –	2.02
				16.12.2018
	76,500	0.01%	03.04.2009	03.04.2010 –	2.99
				02.04.2019
	76,500	0.01%	03.04.2009	03.04.2011 –	2.99
				02.04.2019
	77,000	0.01%	03.04.2009	03.04.2012 –	2.99
				02.04.2019
	1,458,520	0.15%

154

GENERAL INFORMATION

APPENDIX II

	Number of
	share options
	outstanding	Approximate
	as at the Latest	% of issued
	Practicable	share capital of		Exercisable	Exercise
Name of Director	Date	the Company	Date of grant	period	price
					(HK$)
Mr. Tsui Che Yin,	104,000	0.01%	01.04.2008	01.04.2009 –	10.804
Frank				31.03.2018
	104,000	0.01%	01.04.2008	01.04.2010 –	10.804
				31.03.2018
	104,000	0.01%	01.04.2008	01.04.2011 –	10.804
				31.03.2018
	91,000	0.01%	17.12.2008	01.02.2009 –	2.02
				16.12.2018
	91,000	0.01%	17.12.2008	01.05.2009 –	2.02
				16.12.2018
	91,000	0.01%	17.12.2008	01.08.2009 –	2.02
				16.12.2018
	91,000	0.01%	17.12.2008	01.11.2009 –	2.02
				16.12.2018
	91,000	0.01%	17.12.2008	01.02.2010 –	2.02
				16.12.2018
	91,000	0.01%	17.12.2008	01.05.2010 –	2.02
				16.12.2018
	50,000	0.00%	03.04.2009	03.04.2010 –	2.99
				02.04.2019
	50,000	0.00%	03.04.2009	03.04.2011 –	2.99
				02.04.2019
	60,000	0.00%	03.04.2009	03.04.2012 –	2.99
				02.04.2019
	1,018,000	0.09%

155

GENERAL INFORMATION

APPENDIX II

	Number of
	share options
	outstanding	Approximate
	as at the Latest	% of issued
	Practicable	share capital of		Exercisable	Exercise
Name of Director	Date	the Company	Date of grant	period	price
					(HK$)
Mr. Chung Yuk	200,000	0.02%	01.02.2005	17.09.2009 –	7.4
Man, Clarence				07.03.2012
	130,000	0.01%	13.02.2006	01.04.2008 –	11.8
				31.01.2016
	130,000	0.01%	13.02.2006	01.04.2010 –	11.8
				31.01.2016
	140,000	0.01%	13.02.2006	01.04.2012 –	11.8
				31.01.2016
	104,000	0.01%	01.04.2008	01.04.2009 –	10.804
				31.03.2018
	104,000	0.01%	01.04.2008	01.04.2010 –	10.804
				31.03.2018
	104,000	0.01%	01.04.2008	01.04.2011 –	10.804
				31.03.2018
	91,000	0.01%	17.12.2008	01.02.2009 –	2.02
				16.12.2018
	91,000	0.01%	17.12.2008	01.05.2009 –	2.02
				16.12.2018
	91,000	0.01%	17.12.2008	01.08.2009 –	2.02
				16.12.2018
	91,000	0.01%	17.12.2008	01.11.2009 –	2.02
				16.12.2018
	91,000	0.01%	17.12.2008	01.02.2010 –	2.02
				16.12.2018
	91,000	0.01%	17.12.2008	01.05.2010 –	2.02
				16.12.2018
	50,000	0.00%	03.04.2009	03.04.2010 –	2.99
				02.04.2019
	50,000	0.00%	03.04.2009	03.04.2011 –	2.99
				02.04.2019
	60,000	0.00%	03.04.2009	03.04.2012 –	2.99
				02.04.2019
	1,618,000	0.14%

156

APPENDIX II

GENERAL INFORMATION

	Number of
	share options
	outstanding	Approximate
	as at the Latest	% of issued
	Practicable	share capital of		Exercisable	Exercise
Name of Director	Date	the Company	Date of grant	period	price
					(HK$)
Dr. Lo Ka Shui	100,000	0.01%	03.04.2006	03.04.2008 –	15.87
				02.04.2016
	100,000	0.01%	03.04.2006	03.04.2010 –	15.87
				02.04.2016
	100,000	0.01%	03.04.2006	03.04.2012 –	15.87
				02.04.2016
	17,000	0.00%	28.02.2008	01.04.2009 –	11.5
				27.02.2018
	17,000	0.00%	28.02.2008	01.04.2010 –	11.5
				27.02.2018
	17,000	0.00%	28.02.2008	01.04.2011 –	11.5
				27.02.2018
	30,000	0.00%	03.04.2009	03.04.2010 –	2.99
				02.04.2019
	30,000	0.00%	03.04.2009	03.04.2011 –	2.99
				02.04.2019
	31,000	0.00%	03.04.2009	03.04.2012 –	2.99
				02.04.2019
	442,000	0.03%
Sir Roger Lobo	100,000	0.01%	03.04.2006	03.04.2008 –	15.87
				02.04.2016
	100,000	0.01%	03.04.2006	03.04.2010 –	15.87
				02.04.2016
	100,000	0.01%	03.04.2006	03.04.2012 –	15.87
				02.04.2016
	17,000	0.00%	28.02.2008	01.04.2009 –	11.5
				27.02.2018
	17,000	0.00%	28.02.2008	01.04.2010 –	11.5
				27.02.2018
	17,000	0.00%	28.02.2008	01.04.2011 –	11.5
				27.02.2018
	30,000	0.00%	03.04.2009	03.04.2010 –	2.99
				02.04.2019
	30,000	0.00%	03.04.2009	03.04.2011 –	2.99
				02.04.2019
	31,000	0.00%	03.04.2009	03.04.2012 –	2.99
				02.04.2019
	442,000	0.03%

157

GENERAL INFORMATION

APPENDIX II

	Number of
	share options
	outstanding	Approximate
as	at the Latest	% of issued
	Practicable	share capital of		Exercisable	Exercise
Name of Director	Date	the Company	Date of grant	period	price
					(HK$)
Mr. Sham Sui Leung,	17,000	0.00%	28.02.2008	01.04.2009 –	11.5
Daniel				27.02.2018
	17,000	0.00%	28.02.2008	01.04.2010 –	11.5
				27.02.2018
	17,000	0.00%	28.02.2008	01.04.2011 –	11.5
				27.02.2018
	30,000	0.00%	03.04.2009	03.04.2010 –	2.99
				02.04.2019
	30,000	0.00%	03.04.2009	03.04.2011 –	2.99
				02.04.2019
	31,000	0.00%	03.04.2009	03.04.2012 –	2.99
				02.04.2019
	142,000	0.00%
Mr. Ng Ching Wo	100,000	0.01%	03.04.2006	03.04.2008 –	15.87
				02.04.2016
	100,000	0.01%	03.04.2006	03.04.2010 –	15.87
				02.04.2016
	100,000	0.01%	03.04.2006	03.04.2012 –	15.87
				02.04.2016
	17,000	0.00%	28.02.2008	01.04.2009 –	11.5
				27.02.2018
	17,000	0.00%	28.02.2008	01.04.2010 –	11.5
				27.02.2018
	17,000	0.00%	28.02.2008	01.04.2011 –	11.5
				27.02.2018
	30,000	0.00%	03.04.2009	03.04.2010 –	2.99
				02.04.2019
	30,000	0.00%	03.04.2009	03.04.2011 –	2.99
				02.04.2019
	31,000	0.00%	03.04.2009	03.04.2012 –	2.99
				02.04.2019
	442,000	0.03%
	5,562,520	0.47%

158

APPENDIX II

GENERAL INFORMATION

(iii) Shares awarded to the Directors pursuant to The Melco Share Purchase Scheme Trust (share incentive award scheme) adopted by the Company on 18 October 2007

		Number of
	unvested awarded		Approximate
	Shares as at the		% of issued
		Latest	share capital of
Name of Director	Practicable Date		the Company	Date of award	Vesting date
Mr. Lawrence Ho		87,325	0.01%	01.04.2008	01.04.2010
		96,666	0.01%	17.12.2008	01.02.2010
		96,670	0.01%	17.12.2008	01.05.2010
		12,500	0.00%	03.04.2009	03.04.2010
		12,500	0.00%	03.04.2009	03.04.2011
		13,000	0.00%	03.04.2009	03.04.2012
		318,661	0.03%
Mr. Tsui Che Yin,	Frank	22,220	0.00%	01.04.2008	01.04.2010
		14,666	0.00%	17.12.2008	01.02.2010
		14,670	0.00%	17.12.2008	01.05.2010
		9,000	0.00%	03.04.2009	03.04.2010
		9,000	0.00%	03.04.2009	03.04.2011
		9,000	0.00%	03.04.2009	03.04.2012
		78,556	0.00%
Mr. Chung Yuk Man,		22,220	0.00%	01.04.2008	01.04.2010
Clarence		14,666	0.00%	17.12.2008	01.02.2010
		14,670	0.00%	17.12.2008	01.05.2010
		9,000	0.00%	03.04.2009	03.04.2010
		9,000	0.00%	03.04.2009	03.04.2011
		9,000	0.00%	03.04.2009	03.04.2012
		78,556	0.00%
Dr. Lo Ka Shui		15,000	0.00%	28.02.2008	31.03.2010
		4,000	0.00%	28.02.2008	01.04.2010
		4,000	0.00%	28.02.2008	01.04.2011
		5,000	0.00%	03.04.2009	03.04.2010
		5,000	0.00%	03.04.2009	03.04.2011
		5,000	0.00%	03.04.2009	03.04.2012
		38,000	0.00%

159

GENERAL INFORMATION

APPENDIX II

	Number of
unvested awarded		Approximate
	Shares as at the	% of issued
	Latest	share capital of
Name of Director	Practicable Date	the Company	Date of award	Vesting date
Sir Roger Lobo	15,000	0.00%	28.02.2008	31.03.2010
	4,000	0.00%	28.02.2008	01.04.2010
	4,000	0.00%	28.02.2008	01.04.2011
	5,000	0.00%	03.04.2009	03.04.2010
	5,000	0.00%	03.04.2009	03.04.2011
	5,000	0.00%	03.04.2009	03.04.2012
	38,000	0.00%
Mr. Sham Sui Leung,	15,000	0.00%	28.02.2008	31.03.2010
Daniel	4,000	0.00%	28.02.2008	01.04.2010
	4,000	0.00%	28.02.2008	01.04.2011
	5,000	0.00%	03.04.2009	03.04.2010
	5,000	0.00%	03.04.2009	03.04.2011
	5,000	0.00%	03.04.2009	03.04.2012
	38,000	0.00%
Mr. Ng Ching Wo	15,000	0.00%	28.02.2008	31.03.2010
	4,000	0.00%	28.02.2008	01.04.2010
	4,000	0.00%	28.02.2008	01.04.2011
	5,000	0.00%	03.04.2009	03.04.2010
	5,000	0.00%	03.04.2009	03.04.2011
	5,000	0.00%	03.04.2009	03.04.2012
	38,000	0.00%
	627,773	0.03%

(iv) Convertible Loan Notes issued by the Company

			Approximate
		Number of	% of the issued
		ordinary	share capital of
Name of Director	Capacity	Shares held	the Company
Mr. Lawrence Ho	Held by trust	117,912,694	9.58%
		(Note 3)

160

GENERAL INFORMATION

APPENDIX II

Notes:

  1. As at the Latest Practicable Date, the total number of issued Shares was 1,230,258,939.

  2. The 115,509,024 Shares are held by Lasting Legend, representing approximately 9.39% of the issued share capital of the Company, 288,532,606 Shares are held by Better Joy, representing approximately 23.45% of the issued share capital of the Company and 7,294,000 Shares are held by The L3G Capital Trust, representing approximately 0.59% of the issued share capital of the Company. Lasting Legend, Better Joy and The L3G Capital Trust are owned by companies, persons and/or trusts associated with Mr. Lawrence Ho.

  3. Pursuant to an agreement dated 11 May 2005 entered into between Great Respect, Melco PBL Entertainment (Greater China) Limited (now known as MPEL (Greater China) Limited) and the Company, the Convertible Loan Notes of the Company in the total principal amount of HK$1,175,000,000 were issued to Great Respect on 5 September 2005 on the terms set out in the agreement. Upon exercise in full of such Convertible Loan Notes, a total of 117,912,694 Shares, representing 8.75% of the enlarged issued share capital of the Company, would be issued by the Company. Great Respect is a company controlled by a discretionary family trust, the beneficiaries of which include Mr. Lawrence Ho and his family members. SG Trust (Asia) Ltd. is the trustee of the aforesaid discretionary family trust. The Shareholders approved the issue of the Convertible Loan Notes without the necessity to make an offer under Rule 26 of the Takeovers Code on conversion of the Convertible Loan Notes. Hence, no offer under Rule 26 of the Takeovers Code would be made on full conversion. The Convertible Loan Notes are now proposed to be amended pursuant to the Deed of Amendment and a new Whitewash Waiver in respect of the Shares to be issued on conversion of the amended Convertible Loan Notes has been applied for, in each case as described in this circular.

(II) Long positions in the shares and underlying shares of associated corporations of the Company
(A) Melco Crown Entertainment Limited (“Melco Crown Entertainment”)
(i) Ordinary shares of US$0.01 each of Melco Crown Entertainment

		Number of	Approximate
		ordinary shares	% of issued share
		of Melco Crown	capital of Melco
		Entertainment	Crown
Name of Director	Capacity	held	Entertainment
Mr. Lawrence Ho	Held by controlled	544,496,156	34.12%
	corporations	(Note 2)
	Beneficial owner	2,373,480	0.15%
Mr. Tsui Che Yin, Frank	Beneficial owner	11,850	0.00%
Mr. Chung Yuk Man,	Beneficial owner	31,600	0.00%
Clarence

161

APPENDIX II

GENERAL INFORMATION

(ii) Restricted shares awarded by Melco Crown Entertainment

		Number of	Approximate
		restricted shares	% of issued share
		of Melco Crown	capital of Melco
		Entertainment	Crown
Name of Director	Capacity	held	Entertainment
Mr. Lawrence Ho	Beneficial owner	124,584	0.01%
		(Note 3)
	Beneficial owner	483,129	0.03%
		(Note 4)
Mr. Chung Yuk Man,	Beneficial owner	6,228	0.00%
Clarence		(Note 3)
	Beneficial owner	23,007	0.00%
		(Note 4)

(iii) Stock options granted by Melco Crown Entertainment

		Number of stock	Approximate
		options of Melco	% of issued share
		Crown	capital of Melco
		Entertainment	Crown
Name of Director	Capacity	held	Entertainment
Mr. Lawrence Ho	Beneficial owner	1,132,587	0.08%
		(Note 5)
	Beneficial owner	2,898,774	0.20%
		(Note 6)
Mr. Chung Yuk Man,	Beneficial owner	56,628	0.00%
Clarence		(Note 5)
	Beneficial owner	138,036	0.01%
		(Note 6)

162

GENERAL INFORMATION

APPENDIX II

Notes:

As at the Latest Practicable Date, the total number of issued shares of Melco Crown Entertainment was 1,595,617,550.
Mr. Lawrence Ho is deemed to be interested in (i) 533,750,000 shares of Melco Crown Entertainment which are being held by Melco Leisure and Entertainment Group Limited (“Melco Leisure”), a wholly owned subsidiary of the Company; and (ii) 10,746,156 shares of Melco Crown Entertainment which are being held by Melco Crown SPV Limited, a company which is owned by Melco Leisure as to 50%; as a result of him being beneficially interested in approximately 34.07% of the issued share capital of the Company which in turn holds approximately 34.12% of the issued share capital of Melco Crown Entertainment.
The personal interests of these directors represent their interests in Melco Crown Entertainment comprising the restricted shares which were granted to them by Melco Crown Entertainment on 18 March 2008.

Among the 124,584 restricted shares held by Mr. Lawrence Ho, 62,292 shares shall vest on 18 March 2010 and 62,292 shares shall vest on 18 March 2012. Among the 6,228 restricted shares held by Mr. Chung Yuk Man, Clarence, 3,114 shares shall vest on 18 March 2010 and 3,114 shares shall vest on 18 March 2012.

The personal interests of these directors represent their interests in Melco Crown Entertainment comprising the restricted shares which were granted to them by Melco Crown Entertainment on 17 March 2009.

Among the 483,129 restricted shares held by Mr. Lawrence Ho, 241,563 shares shall vest on 17 March 2011 and 241,566 shares shall vest on 17 March 2013. Among the 23,007 restricted shares held by Mr. Chung Yuk Man, Clarence, 11,502 shares shall vest on 17 March 2011 and 11,505 shares shall vest on 17 March 2013.

The personal interests of these directors represent their derivative interests in Melco Crown Entertainment comprising the stock options granted to them by Melco Crown Entertainment on 18 March 2008 at an exercise price of US$4.01333 per share (US$12.04 per American Depositary Share (“ADS”)) of Melco Crown Entertainment (Note: each ADS represents 3 shares of Melco Crown Entertainment).

Among the 1,132,587 stock options held by Mr. Lawrence Ho, 283,146.75 options may be exercised during the period from 18 March 2009 to 17 March 2018, 283,146.75 options may be exercised during the period from 18 March 2010 to 17 March 2018, 283,146.75 options may be exercised during the period from 18 March 2011 to 17 March 2018 and 283,146.75 options may be exercised during the period from 18 March 2012 to 17 March 2018.

Among the 56,628 stock options held by Mr. Chung Yuk Man, Clarence, 14,157 options may be exercised during the period from 18 March 2009 to 17 March 2018, 14,157 options may be exercised during the period from 18 March 2010 to 17 March 2018, 14,157 options may be exercised during the period from 18 March 2011 to 17 March 2018 and 14,157 options may be exercised during the period from 18 March 2012 to 17 March 2018.

The personal interests of these directors represent their derivative interests in Melco Crown Entertainment comprising the stock options granted to them by Melco Crown Entertainment on 17 March 2009 at an exercise price of US$1.0867 per share (US$3.26 per ADS) of Melco Crown Entertainment.

Among the 2,898,774 stock options held by Mr. Lawrence Ho, 724,692 options may be exercised during the period from 17 March 2010 to 16 March 2019, 724,692 options may be exercised during the period from 17 March 2011 to 16 March 2019, 724,692 options may be exercised during the period from 17 March 2012 to 16 March 2019, 724,698 options may be exercised during the period from 17 March 2013 to 16 March 2019.

Among the 138,036 stock options held by Mr. Chung Yuk Man, Clarence, 34,509 options may be exercised during the period from 17 March 2010 to 16 March 2019, 34,509 options may be exercised during the period from 17 March 2011 to 16 March 2019, 34,509 options may be exercised during the period from 17 March 2012 to 16 March 2019, 34,509 options may be exercised during the period from 17 March 2013 to 16 March 2019.

163

GENERAL INFORMATION

APPENDIX II

(B) Melco China Resorts (Holding) Limited (“MCR”)

(a) Common shares (without par value) of MCR

			Approximate %
		Number of	of the total
		common shares	issued common
Name of Director	Capacity	of MCR held	shares of MCR
Mr. Lawrence Ho	Held by controlled	43,109,134	49.30%
	corporations	(Note 2)

(b) Class B non-voting shares (without par value) of MCR

				Approximate %
			Number of	of issued Class B
			Class B non-voting	non-voting shares
Name of Director	Capacity	shares of MCR held		of MCR
Mr. Lawrence Ho	Held by controlled		8,437,565	100%
	corporations		(Note 2)
Warrants issued by MCR
				Approximate %
			Number of	of issued
			underlying shares	common
Name of Director	Capacity		of MCR held	shares of MCR
Mr. Lawrence Ho	Held by controlled		1,000,000	1.14%
	corporations		(Note 3)
Stock options granted by	MCR
				Approximate %
			Number of	of issued
			stock options	common shares
Name of Director	Capacity		of MCR held	of MCR
Mr. Chung Yuk Man,	Beneficial owner		300,000	0.34%
Clarence			(Note 4)

(c) Warrants issued by MCR
(d) Stock options granted by MCR

164

GENERAL INFORMATION

APPENDIX II

Notes:

As at the Latest Practicable Date, the total number of issued common shares of MCR was 87,439,344 and the total number of issued Class B non-voting shares was 8,437,565.
Mr. Lawrence Ho is taken to be interested in 43,109,134 common shares and 8,437,565 Class B non-voting shares of MCR, which are being held by Melco (Luxembourg) S.à.r.l., a wholly-owned subsidiary of Melco Leisure, as a result of him being beneficially interested in approximately 34.07% of the issued share capital of the Company which in turn holds approximately 49.30% of the issued common shares of MCR and 100% of the issued Class B non-voting shares of MCR.
The 1,000,000 underlying shares relate to the 1,000,000 warrants issued by MCR to Melco (Luxembourg) S.à.r.l. on 28 May 2008. Each warrant entitling warrant holder to subscribe for one common share of MCR at an exercise price of CAD$4.00 per common share at any time on or before 27 May 2010.
The personal interest of Mr. Chung Yuk Man, Clarence represents his derivative interests in MCR comprising the stock options to acquire common shares of MCR granted by MCR on 28 May 2008 at an exercise price of CAD$3.00 per common share pursuant to the Stock Option Plan adopted by MCR in 2008.

Among the 300,000 stock options held by Mr. Chung, 100,000 options may be exercised during the period from 28 May 2009 to 27 May 2018, 100,000 options may be exercised during the period from 28 May 2010 to 27 May 2018 and 100,000 options may be exercised during the period from 28 May 2011 to 27 May 2018.

(C) Elixir Gaming Technologies, Inc. (“EGT”)

(a) Shares of Common Stock of US$0.001 each of EGT

		Number of shares	Approximate %
		of common stock	of issued share
Name of Director	Capacity	of EGT held	capital of EGT
Mr. Lawrence Ho	Held by controlled	45,800,000	39.84%
	corporations	(Note 2)
Mr. Chung Yuk Man,	Beneficial owner	175,000	0.15%
Clarence

(b) Warrants issued by EGT

		Number of	Approximate %
		underlying shares	of issued share
Name of Director	Capacity	of EGT held	capital of EGT
Mr. Lawrence Ho	Held by controlled	10,000,000	8.70%
	corporations	(Notes 2 & 3)

165

APPENDIX II

GENERAL INFORMATION

(c) Stock options granted by EGT

				Approximate
			Number of	% of issued
		stock options		share capital
Name of Director	Capacity	of EGT held		of EGT
Mr. Tsui Che Yin, Frank	Beneficial owner		1,000,000	0.87%
			(Note 4)
Mr. Chung Yuk Man,	Beneficial owner		200,000	0.17%
Clarence			(Note 4)
	Beneficial owner		30,000	0.03%
			(Note 5)
	Beneficial owner		100,000	0.09%
			(Note 6)
	Beneficial owner		2,000,000	1.74%
			(Note 7)
	Beneficial owner		50,000	0.04%
			(Note 8)
	Beneficial owner		50,000	0.04%
			(Note 10)
Mr. Sham Sui Leung,	Beneficial owner		100,000	0.09%
Daniel			(Note 9)
	Beneficial owner		50,000	0.04%
			(Note 8)

Notes:

As at the Latest Practicable Date, the total number of issued shares of common stock of EGT was 114,956,667.
Mr. Lawrence Ho is deemed to be interested in 45,800,000 shares of common stock of EGT and 10,000,000 underlying shares of EGT (which relate to certain EGT warrants as described in Note 3) as a result of him being beneficially interested in approximately 34.07% of the issued share capital of the Company which in turn holds approximately 39.84% of the issued share capital of EGT.
The 10,000,000 underlying shares relate to the 10,000,000 warrants issued by EGT to Elixir Group Limited (“Elixir”), a wholly-owned subsidiary of the Company, pursuant to the Securities Purchase Agreement entered into between Elixir and EGT dated 11 October 2006. Each warrant entitles the warrant holder to subscribe for one share of common stock of EGT at exercise prices ranging from US$1.00 to US$3.50 per share during the period from 31 December 2007 to 31 December 2010.

166

GENERAL INFORMATION

APPENDIX II

The personal interests of Mr. Tsui Che Yin, Frank and Mr. Chung Yuk Man, Clarence represent their derivative interests in EGT comprising the stock options granted to them by EGT on 10 September 2007 at an exercise price of US$2.90 per EGT’s share.

Among the 1,000,000 stock options granted to Mr. Tsui, 333,334 options may be exercised during the period from 17 May 2008 to 17 May 2012, 333,333 options may be exercised during the period from 17 May 2009 to 17 May 2012 and 333,333 options may be exercised during the period from 17 May 2010 to 17 May 2012.

Among the 200,000 stock options granted to Mr. Chung, 66,666 options may be exercised during the period from 17 May 2008 to 17 May 2012, 66,666 options may be exercised during the period from 17 May 2009 to 17 May 2012 and 66,668 options may be exercised during the period from 17 May 2010 to 17 May 2012.

The personal interest of Mr. Chung Yuk Man, Clarence represents his derivative interests in EGT comprising the stock options granted to him by EGT on 22 January 2008 at an exercise price of US$3.62 per EGT’s share. These stock options may be exercised during the period from 23 July 2008 to 22 January 2018.
The personal interest of Mr. Chung Yuk Man, Clarence represents his derivative interests in EGT comprising the stock options granted to him by EGT on 12 February 2008 at an exercise price of US$4.59 per EGT’s share. These stock options may be exercised during the period from 15 May 2008 to 14 November 2017.
The personal interest of Mr. Chung Yuk Man, Clarence represents his derivative interests in EGT comprising the stock options granted to him by EGT on 29 December 2008 at an exercise price of US$0.17 per EGT’s share. These stock options may be exercised during the period from 29 December 2009 to 29 December 2013.
The personal interests of Mr. Chung Yuk Man, Clarence and Mr. Sham Sui Leung, Daniel represent their derivative interests in EGT comprising the stock options granted to them by EGT on 13 February 2009 at an exercise price of US$0.13 per EGT’s share. These stock options may be exercised during the period from 13 August 2009 to 12 February 2019.
The personal interest of Mr. Sham Sui Leung, Daniel represents his derivative interests in EGT comprising the stock options granted to him by EGT on 11 December 2008 at an exercise price of US$0.08 per EGT’s share. These stock options may be exercised during the period from 12 June 2009 to 11 December 2018.
The personal interest of Mr. Chung Yuk Man, Clarence represents his derivative interests in EGT comprising the stock options granted to him by EGT on 7 January 2010 at an exercise price of US$0.29 per EGT’s share. These stock options may be exercised during the period from 8 July 2010 to 7 January 2020.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or the chief executive of the Company had any interests or short positions in the Shares, underlying Shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provisions of the SFO) or the Model Code for Securities Transactions by Directors of Listed Issuers of the Listing Rules or which were required to be entered into the register required to be kept under Section 352 of the SFO.

167

GENERAL INFORMATION

APPENDIX II

(b) Interests and short positions of substantial Shareholders and other persons required to be disclosed under the SFO

As at the Latest Practicable Date, so far as is known to the Directors and chief executive of the Company, the following persons (other than any Directors or chief executive of the Company) were substantial Shareholders of the Company (as defined in the Listing Rules) and had interests or short positions in the Shares and underlying Shares which fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or which were required to be entered into the register required to be kept under Section 336 of the SFO:

(i) Ordinary Shares of HK$0.50 each of the Company

Name Capacity Better Joy Beneficial owner Lasting Legend Beneficial owner Mr. Lawrence Ho Held by controlled corporations Beneficial owner Ms. Lo Sau Yan, Family interest Sharen Janus Capital Beneficial owner Management LLC	Number of ordinary Shares held/ approximate % of issued share capital
	Long Short Positions % Positions % Note 288,532,606 23.45% – – 2 115,509,024 9.39% – – 2 411,335,630 33.43% – – 3 7,793,951 0.63% – – – 419,129,581 34.07% – – 4 123,792,000 10.06% – – –

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(ii) Convertible Loan Notes issued by the Company

		Number of	Approximate
		underlying	% of issued
Name	Capacity	Shares held	share capital	Note
Great Respect	Beneficial owner	117,912,694	9.58%	5
Mr. Lawrence Ho	Held by trust	117,912,694	9.58%	5
Ms. Lo Sau Yan, Sharen	Held by trust	117,912,694	9.58%	5
Dr. Stanley Ho	Held by trust	117,912,694	9.58%	5 & 6
SG Trust (Asia) Ltd.	Held by controlled	117,912,694	9.58%	5
	corporations

Notes:

As at the Latest Practicable Date, the total number of issued Shares was 1,230,258,939.
The Shares held by Better Joy and Lasting Legend also represent the corporate interests of Mr. Lawrence Ho in the Company.
3 The 411,335,630 Shares relate to the 115,509,024 Shares, 288,532,606 Shares and 7,294,000 Shares held by Lasting Legend, Better Joy and The L3G Capital Trust respectively, representing approximately 9.39%, 23.45% and 0.59% of the issued share capital of the Company. Lasting Legend, Better Joy and The L3G Capital Trust are owned by persons and/or trusts associated with Mr. Lawrence Ho.
Ms. Lo Sau Yan, Sharen is the spouse of Mr. Lawrence Ho and is deemed to be interested in the Shares in which Mr. Lawrence Ho is interested under the SFO.
Pursuant to an agreement dated 11 May 2005 entered into between Great Respect, MPEL (Greater China) Limited (formerly known as Melco PBL Entertainment (Greater China) Limited) and the Company, the Convertible Loan Notes of the Company in the total principal amount of HK$1,175,000,000 were issued to Great Respect on 5 September 2005 on the terms set out in the agreement. Upon exercise in full of such Convertible Loan Notes, a total of 117,912,694 Shares, representing 8.75% of the enlarged issued share capital of the Company, would be issued by the Company. Great Respect is a company controlled by a discretionary family trust, the beneficiaries of which include Mr. Lawrence Ho and his family members. SG Trust (Asia) Ltd. is the trustee of the aforesaid discretionary family trust. The shareholders approved the issue of the Convertible Loan Notes without the necessity to make an offer under Rule 26 of the Takeovers Code on conversion of the Convertible Loan Notes. Hence, no offer under Rule 26 of the Takeovers Code would be required to be made on full conversion. The Convertible Loan Notes are now proposed to be amended pursuant to the Deed of Amendment and a new Whitewash Waiver in respect of the Shares to be issued on conversion of the amended Convertible Loan Notes has been applied for, in each case as described in this circular.
Dr. Stanley Ho also holds 3,127,107 shares and 18,587,789 Shares through a controlled corporation, Lanceford Company Limited and in person respectively.
Regarding the interests of Mr. Lawrence Ho in other underlying Shares (in respect of the share options and awarded shares granted by the Company), please refer to the section “Directors’ interests and short positions in the Shares and the shares of the Company’s associated corporations” in this circular.

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Save as disclosed above, as at the Latest Practicable Date, the Company has not been notified of any other interests or short positions in the Shares and underlying Shares which had been recorded in the register required to be kept under Section 336 of the SFO.

5. DISCLOSURE OF INTERESTS UNDER THE TAKEOVERS CODE

5.1 Interests discloseable under Schedule I to the Takeovers Code

(a) Mr. Lawrence Ho’s shareholding in the Company as at the Latest Practicable Date is set out on page 153 of this circular. Other than the Convertible Loan Notes, Great Respect does not have any shareholding in the Company as at the Latest Practicable Date.
(b) As at the Latest Practicable Date, no director of Great Respect was interested in any Shares, convertible securities, warrants, options or derivatives of the Company.
(c) As at the Latest Practicable Date, save as disclosed in the Letter from the Board under the section headed “Implications under the Takeovers Code”, and in section 4 of this Appendix II headed “DISCLOSURE OF INTERESTS UNDER THE SFO” and (in respect of The Melco Share Purchase Scheme Trust and The Melco Share Award Scheme Trust) in section 5.2(c) of this Appendix II headed “Interests discloseable under Schedule II to the Takeovers Code”, none of the parties acting in concert with Mr. Lawrence Ho or Great Respect owned or controlled any Shares, convertible securities, warrants, options or derivatives of the Company.
(d) As at the Latest Practicable Date, no one has irrevocably committed to vote in favour of or against the Whitewash Waiver.
(e) As at the Latest Practicable Date, no person that had an arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with Mr. Lawrence Ho or Great Respect or any person acting in concert with any of them owned or controlled any Shares, convertible securities, warrants, options or derivatives of the Company.
(f) As at the Latest Practicable Date, none of Mr. Lawrence Ho or Great Respect or any person acting in concert with any of them had borrowed or lent any Shares, convertible securities, warrants, options or derivatives of the Company.

5.2 Interests discloseable under Schedule II to the Takeovers Code

(a) As at the Latest Practicable Date, the Company had no holding of shares, convertible securities, warrants, options or derivatives of Great Respect.
(b) As at the Latest Practicable Date, save as disclosed in section 4 of this Appendix II headed “DISCLOSURE OF INTERESTS UNDER THE SFO”, no Director was interested in any Shares, convertible securities, warrants, options or derivatives of the Company or Great Respect.

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GENERAL INFORMATION

(c) As at the Latest Practicable Date, save as disclosed below in this sub-paragraph (c), none of the subsidiaries of the Company, any pension funds of the Company or any pension funds of the subsidiaries of the Company or any adviser to the Company as specified in class (2) of the definition of associate (excluding exempt principal traders) under the Takeovers Code owned or controlled any Shares, convertible securities, warrants, options or derivatives of the Company.

As at the Latest Practicable Date, BOCI-Prudential Trustee Limited, the trustee of the two share incentive award schemes of the Company, namely The Melco Share Purchase Scheme Trust and The Melco Share Award Scheme Trust, held:

(i) 1,339,813 Shares, being the unvested Shares previously awarded by the Company and the Shares held by the trustee to facilitate the Company’s future grant of awarded shares under The Melco Share Purchase Scheme Trust; and
(ii) 261,672 Shares, being the unvested Shares previously awarded by the Company under The Melco Share Award Scheme Trust.
(d) As at the Latest Practicable Date, no person that had an arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with the Company or any person who is an associate of the Company under classes (1), (2), (3) and (4) of the definition of associate under the Takeovers Code owned or controlled any Shares, convertible securities, warrants, options or derivatives of the Company.
(e) As at the Latest Practicable Date, no fund manager connected with the Company (other than exempt fund managers) owned or controlled any Shares, convertible securities, warrants, options or derivatives of the Company which were managed on a discretionary basis by such fund manager.
(f) As at the Latest Practicable Date, none of the Directors who hold Shares have indicated whether or not they will vote in favour of or against the resolution in respect of the Whitewash Waiver to be proposed at the EGM.
(g) As at the Latest Practicable Date, none of the Company nor any Directors had borrowed or lent any shares in the Company, convertible securities, warrants, options or derivatives.

171

GENERAL INFORMATION

APPENDIX II

6. DEALINGS IN SHARES

6.1 Dealings in Shares during the Relevant Period discloseable under Schedule I to the Takeovers Code
(a) As at the Latest Practicable Date, save for the vesting of Shares awarded under The Melco Share Purchase Scheme Trust to the three relevant Directors as disclosed on page 16 of this circular, none of Mr. Lawrence Ho, Great Respect nor parties acting, or presumed to be acting, in concert with either of them under the Takeovers Code (including the members of the Lawrence Ho Concert Party, the Additional Class 6 Presumed Concert Parties, The Melco Share Purchase Scheme Trust and The Melco Share Award Scheme Trust) have dealt for value in the Shares, convertible securities, warrants, options or derivatives of the Company during the Relevant Period.
(b) As at the Latest Practicable Date, no director of Great Respect has dealt for value in the Shares, convertible securities, warrants, options or derivatives of the Company during the Relevant Period.
(c) As at the Latest Practicable Date, no person that had an arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with Mr. Lawrence Ho or Great Respect or any person acting in concert with either of them has dealt for value in any Shares, convertible securities, warrants, options or derivatives of the Company.

6.2 Dealings in Shares discloseable under Schedule II to the Takeovers Code

(a) As at the Latest Practicable Date, the Company has not dealt for value in the shares, convertible securities, warrants, options or derivatives of Great Respect during the Relevant Period.
(b) As at the Latest Practicable Date, save for the vesting of Shares awarded under The Melco Share Purchase Scheme Trust to the three relevant Directors as disclosed on page 16 of this circular, no Directors have dealt for value in the shares, convertible securities, warrants, options or derivatives of either the Company or Great Respect during the Relevant Period.

7. MATERIAL CHANGE

Saved as disclosed below, as at the Latest Practicable Date, there was no material change in the financial or trading position or outlook of the Group since 31 December 2008, being the date to which the latest published audited financial statements of the Group were made up.

(a) The Company announced on 23 February 2009 that Melco Technology Group Limited (“ Melco Technology ”), a wholly-owned subsidiary of the Company, had on that date entered into a sale and purchase agreement for shares with Glory Stand Investments Limited (“ Glory Stand ”) and other party under which Melco Technology agreed to sell and Glory Stand agreed to purchase 80% of the issued share capital of the Company’s wholly-owned subsidiary, iAsia Online Systems Limited (“ iAsia Online ”), at a consideration of HK$12 million. The said transaction was completed on 4 June 2009, whereupon iAsia Online and its subsidiaries ceased to be subsidiaries of the Group.

172

GENERAL INFORMATION

APPENDIX II

(b) The Company announced on 18 September 2009 and 21 September 2009 that Melco Financial Group Limited (“ Melco Financial ”), a wholly-owned subsidiary of the Company, as vendor and the Company as guarantor entered into a placing agreement with Kim Eng Securities (Hong Kong) Limited (“ Kim Eng ”) as placing agent on 18 September 2009, pursuant to which Melco Financial agreed to appoint Kim Eng to dispose, by way of placing, of all the 160,930,380 shares (“ VC Shares ”) of Value Convergence Holdings Limited (“ Value Convergence ”) beneficially held by the Group at the price of HK$1.92 per VC Share to not less than 6 placees. All the 160,930,380 VC Shares were successfully placed to not less than 6 placees by Kim Eng after close of trading on 21 September 2009. Completion took place on 24 September 2009, whereupon Value Convergence ceased to be an associated company of the Company.
(c) During the period ended 30 June 2009, the Group’s ownership interest in its associate, Melco Crown Entertainment Limited (“ Melco Crown Entertainment ”), decreased from 37.83% to 34.10%, as a result of (i) a follow-on public offering of shares of Melco Crown Entertainment and (ii) the vesting of certain restricted shares issued by Melco Crown Entertainment. The Group therefore recognised a loss of approximately HK$176 million which represents the decrease in net assets attributable to the Group during the period ended 30 June 2009. On 18 August 2009, Melco Crown Entertainment completed a follow-on public offering of shares of Melco Crown Entertainment. On the completion of the follow-on public offering, the Group’s ownership interest in Melco Crown Entertainment was decreased from 34.10% to 31.36%. This transaction was announced on 28 April 2009, 4 May 2009, 13 August 2009 and 18 August 2009.
(d) The Company announced on 28 April 2009 that, in April 2009, Melco Crown Entertainment Asia Holdings Limited (“ MCEAH ”), an existing special purpose vehicle that is indirectly owned as to 50% by the Company and as to 50% by Crown Limited, committed to subscribe 67,500,000 ordinary shares of Melco Crown Entertainment at a subscription price of US$90 million (approximately HK$700.2 million). The subscription of shares of Melco Crown Entertainment was completed on 1 May 2009. The Group and Crown Limited agreed to provide MCEAH with the subscription money equally in the form of shareholders loans. In October 2009, MCEAH distributed the 67,500,000 shares of Melco Crown Entertainment to the Group and Crown Limited equally. Thereafter, the Group’s ownership interest in Melco Crown Entertainment increased from 31.36% to 33.48%.
(e) The Company announced on 3 June 2009 and 9 September 2009 that, on 5 September 2007, the Company had given an undertaking in connection with the HK$13.65 billion (US$1.75 billion) loan facilities obtained by Melco Crown Gaming (Macau) Limited (“ Melco Crown Gaming ”), a subsidiary of Melco Crown Entertainment. The undertaking given by the Company is to ensure that a contingent contribution of up to a maximum amount of HK$972.5 million (US$125 million) will be provided, upon request of the facility agent acting on behalf of the lenders, to pay contingencies (if any) associated with the construction of the City of Dreams project of Melco Crown Gaming in the absence of other available funding for completion of the project. In order to meet the obligations under the contingent contribution undertaking, the Company has maintained a standby letter of credit for the amount of HK$972.5 million (US$125 million) until the date of final completion of the City of Dreams. The Company’s obligation to provide contingent contribution has, in

173

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May 2009, been reduced from HK$972.5 million (US$125 million) to HK$295.6 million (US$38 million) and, in September 2009, reduced from HK$295.6 million (US$38 million) to zero. As a result, the standby letter of credit which is required to be maintained under the contingent contribution undertaking has been returned to the Company’s banker and cancelled.

(f) The Convertible Loan Notes with principal amount of HK$1,175 million was reclassified from non-current liabilities as stated in the latest published audited consolidated financial statements of the Group for the year ended 31 December 2008 to current liabilities as stated in the latest unaudited consolidated management accounts of the Group for the ten months ended 31 October 2009.

Except as disclosed above, as at the Latest Practicable Date, the Directors were not aware of any other material change (including any material adverse change) in the financial or trading position of the Group since 31 December 2008, being the date to which the latest published audited financial statements of the Group were made up.

8. QUALIFICATION AND CONSENT OF EXPERT

The following are the qualifications of the expert which has given its opinion which is contained in this circular.

Expert Qualification Cinda International Capital Limited a corporation licensed to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO

Cinda International Capital Limited has given and has not withdrawn its written consent to the issue of this circular with the inclusion of and references to its name and letter in the form and context in which they respectively appear.

As at the Latest Practicable Date, Cinda International Capital Limited did not have any shareholding in any member of the Group or the right to subscribe for or to nominate persons to subscribe for securities in any member of the Group. As at the Latest Practicable Date, Cinda International Capital Limited did not have any direct or indirect interest in any assets which have been, since 31 December 2008 (being the date to which the latest published audited financial statements of the Company were made up), acquired or disposed of by or leased to any member of the Group, or which are proposed to be acquired or disposed of by or leased to any member of the Group.

9. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors or their respective associates had an interest in a business which competes or is likely to compete with the business of the Group.

174

GENERAL INFORMATION

APPENDIX II

10. SERVICE CONTRACTS

As at the Latest Practicable Date, save as disclosed below in section 10, none of the Directors had any existing or proposed service contracts with the Company or any member of the Group or any associated company which has more than 12 months to run and which does not expire or is not determinable within one year without payment of compensation (other than statutory compensation) and no service contract has been entered into or amended within 6 months before the date of the Announcement.

As at the Latest Practicable Date, save as disclosed below in this section 10, none of the Directors had any existing or proposed service contract with the Company or any of its subsidiaries or associated companies which is in force and which:

(a) (including both continuous and fixed term contracts) has been entered into or amended within 6 months before 16 December 2009;
(b) is a continuous contract with a notice period of 12 months or more; or
(c) is a fixed term contract with more than 12 months to run irrespective of the notice period.
(i) Mr. Chung Yuk Man, Clarence has entered into an employment agreement with EGT, an associated company of the Company, on 10 November 2009, which contract is a fixed term contract expiring on 31 December 2012. The agreement provides for a base salary of US$1.00 per annum (subject to any increase as may be determined by EGT with the approval of its compensation committee), a discretionary performance bonus or bonuses (based on guidelines set by the compensation committee) and participation in EGT’s 2008 stock incentive plan as determined by the compensation committee.
(ii) Mr. Chung Yuk Man, Clarence has also entered into an employment agreement with Melco Crown Gaming (Macau) Limited, a subsidiary of Melco Crown Entertainment Limited (which is itself an associated company of the Company) on 28 October 2009. This agreement, however, only comes into effect upon Mr. Chung receiving his work permit which has not happened yet as at the Latest Practicable Date. The agreement provides for a monthly salary of MOP$83,000 (equivalent to HK$80,585) and a monthly housing allowance of MOP$7,000 (equivalent to HK$6,796).
(iii) Mr. Tsui Che Yin, Frank has an employment agreement with Altira Developments Limited, a subsidiary of Melco Crown Entertainment Limited, which is an associated company of the Company. The said contract was amended on 1 January 2009. The contract period is 4 years from 10 July 2009 and will be automatically renewed for a period of 4 years. The notice period is less than 12 months. The amended agreement provides for a base salary of MOP$1,080,000 (equivalent to HK$1,048,572) per annum.

175

GENERAL INFORMATION

APPENDIX II

11. LITIGATION

As at the Latest Practicable Date, neither the Company nor any of its subsidiaries is engaged in any litigation or claims of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened by or against any member of the Group.

12. MATERIAL CONTRACTS

The following contracts, not being contracts in the ordinary course of business, were entered into by the Company or its subsidiaries within the two years immediately preceding the date of the Announcement up to the Latest Practicable Date which are or may be material:

(i) the Deed of Amendment, details of which are set out in the “Letter from the Board” contained in this circular, under the heading “Convertible Loan Notes”;
(ii) a placing agreement entered into between Melco Financial Group Limited as vendor and the Company as guarantor and Kim Eng Securities (Hong Kong) Limited as placing agent dated 18 September 2009 in relation to the placing of a total of 160,930,380 shares in Value Convergence Holdings Limited, details of which are set out in the Company’s announcement dated 18 September 2009;
(iii) an agreement for sale and purchase of shares entered into between Melco Technology Group Limited (“ Melco Technology ”) as vendor, Glory Stand Investments Limited (“ Glory Stand ”) as purchaser and Chan Sek Keung Ringo as guarantor dated 23 February 2009 under which Melco Technology agreed to sell and Glory Stand agreed to purchase 80% of the issued share capital of the Company’s wholly-owned subsidiary, iAsia Online Systems Limited (“ iAsia Online ”), at a consideration of HK$12 million;
(iv) a shareholders’ agreement entered into between Melco Technology, Glory Stand and iAsia Online dated 4 June 2009 for the purpose of regulating the relationship of Melco Technology and Glory Stand, being shareholders of iAsia Online, and certain aspects of the affairs of iAsia Online and its group companies; and
(v) the loan agreement in respect of the loan amounting to US$45 million as referred to in item 7(d) of section 7 of this Appendix II.

13. DIRECTORS’ INTERESTS IN ASSETS/CONTRACTS AND OTHER INTERESTS

None of the Directors was materially interested in any contract or arrangement entered into by Mr. Lawrence Ho or Great Respect subsisting at the Latest Practicable Date.

Save and except the Convertible Loan Notes and the Deed of Amendment, none of the Directors was materially interested in any contract or arrangement entered into by any member of the Group subsisting at the Latest Practicable Date, which was significant in relation to the business of the Group.

176

APPENDIX II

GENERAL INFORMATION

None of the Directors has any direct or indirect interests in any assets which have been acquired or disposed of by or leased to any member of the Group, or which are proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2008, being the date to which the latest published audited consolidated accounts of the Group were made up.

14. MISCELLANEOUS

(i) As at the Latest Practicable Date, no agreement, arrangement or understanding (including any compensation arrangement) exists between Mr. Lawrence Ho, Great Respect or any person acting in concert with either of them on the one part and any of the Directors, recent Directors, Shareholders or recent Shareholders of the Company on the other part having any connection with or dependent upon the Deed of Amendment and/or the Whitewash Waiver.
(ii) As at the Latest Practicable Date, there is no agreement or arrangement between any of the Directors and any other person which is conditional on or dependent upon the outcome of the Deed of Amendment and/or the Whitewash Waiver or otherwise connected therewith.
(iii) As at the Latest Practicable Date, there is no benefit to be given to any Director as compensation for loss of office or otherwise in connection with the Deed of Amendment and/ or the Whitewash Waiver.
(iv) The registered office of the Company is 38th Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong.
(v) The secretary of the Company is Mr. Tsang Yuen Wai, Samuel, a solicitor admitted in Hong Kong, England and Wales and Australia.
(vi) The finance director of the Company is Mr. Tam Chi Wai, Dennis, a Member of CPA Australia and a Member of the Institute of Certified Management Accountants, Australia.
(vii) The registered office of Great Respect is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands.
(viii) The correspondence address of Great Respect is 38th Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong.
(ix) The correspondence address of Mr. Lawrence Ho is c/o 38th Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong.
(x) In the event of inconsistency, the English text of this circular shall prevail over the Chinese text.

15. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection on the website of the Company at http://www.melco-group.com and on the website of the SFC at http://www.sfc.hk/dod/jsp/EN/DoDmain.jsp from the date of this circular up to and including the date of the EGM:

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APPENDIX II

(i) the memorandum and articles of association of the Company;
(ii) the memorandum and articles of association of Great Respect;
(iii) the material contracts referred to in the section headed “Material Contracts” in this Appendix II;
(iv) the annual reports of the Company for the two years ended 31 December 2008 and 31 December 2007;
(v) the letter from the board set out in this circular;
(vi) the letter from the Independent Board Committee;
(vii) the letter from the Independent Financial Adviser;
(viii) the written consent of the Independent Financial Adviser;
(ix) the service contracts referred to in section 10 of this Appendix II; and
(x) the Deed of Amendment.

178

NOTICE OF EGM

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Melco International Development Limited

(Incorporated in Hong Kong with limited liability) Website: http://www.melco-group.com (Stock Code: 200)

NOTICE IS HEREBY GIVEN (the “Notice”) that an extraordinary general meeting (the “Meeting”) of Melco International Development Limited (the “Company”) will be held at 38th Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong at 10:30 a.m. on Monday, 8 February 2010 for the purpose of considering and, if thought fit, passing (with or without amendments) the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

“ THAT :
(a) the deed of amendment (the “Deed of Amendment”) entered into between Great Respect Limited (“Great Respect”) and Melco International Development Limited (the “Company”) on 16 December 2009 to amend the terms of the HK$1,175 million in principal amount of convertible loan notes due 2010 issued by the Company to Great Respect (the “Convertible Loan Notes”), and the amendments to the terms of the convertible loan notes contemplated under the Deed of Amendment, be and are hereby approved, ratified and confirmed, including (but not limited to) as a connected transaction for the Company under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited;
(b) the allotment and issue of new shares of the Company up to the maximum number which may be required to be issued on conversion in full of the amended Convertible Loan Notes, in accordance with the terms of the amended Convertible Loan Notes, be and is hereby approved; and
(c) the directors of the Company be and are hereby authorized to take all steps necessary or expedient in their opinion to implement and/or give effect to the terms of the Deed of Amendment including without limitation the issue of new shares on exercise in full of the conversion rights under the Convertible Loan Notes as amended by the Deed of Amendment.”
“ THAT the whitewash waiver (the “Whitewash Waiver”) waiving any obligation on the part of Great Respect Limited (“Great Respect”) and Mr. Lawrence Ho and the parties acting in concert or presumed to be acting in concert with Great Respect and/or Mr. Lawrence Ho to make a mandatory general offer for the entire issued share capital of Melco International Development Limited (the “Company”) not already owned by Great Respect or Mr. Lawrence Ho and persons respectively acting in concert with them, which would otherwise arise under Rule 26.1 of the Hong Kong Code on Takeovers and Mergers as a result of any and all future exercises of the conversion rights conferred by the HK$1,175 million in principal amount of convertible loan notes due 2010 issued

179

NOTICE OF EGM

by the Company to Great Respect (the “Convertible Loan Notes”), as amended by the deed of amendment entered into between Great Respect and the Company on 16 December 2009 (the “Deed of Amendment”), be and is hereby approved and that the directors of the Company be and are hereby authorized to do all things and acts and sign all documents which they consider necessary or expedient to implement and/or give effect to any matters relating to or in connection with the Whitewash Waiver.”

By order of the Board of Melco International Development Limited Tsang Yuen Wai, Samuel Company Secretary

Hong Kong, 20 January 2010

Registered Office: 38th Floor The Centrium 60 Wyndham Street Central Hong Kong

Notes:

Any member of the Company entitled to attend and vote at the Meeting may appoint one or more than one proxy to attend and vote in his stead. A proxy need not be a member of the Company.
Where there are joint registered holders of any share, any one of such persons may vote at the Meeting, either personally or by proxy, in respect of such share of the Company as if he were 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.
In order to be valid, the proxy form duly completed and signed in accordance with the instructions printed thereon together with the power of attorney or other authority, if any, under which it is signed or a notarially certified copy thereof must be delivered to the registered office of the Company at 38th Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong, not less than 48 hours before the time appointed for holding the Meeting or any adjournment thereof.
Whether or not you propose to attend the Meeting in person, you are strongly urged to complete and return the proxy form in accordance with the instructions printed thereon. Completion and return of the proxy form will not preclude you from attending the Meeting and voting in person if you so wish. In the event that you attend the Meeting after having lodged the proxy form, it will be deemed to have been revoked.
In accordance with the Listing Rules, voting on the above resolutions will be taken by poll.

As at the date of this notice, the board of directors of the Company comprises three Executive Directors, namely Mr. Ho, Lawrence Yau Lung (Chairman and Chief Executive Officer), Mr. Tsui Che Yin, Frank and Mr. Chung Yuk Man, Clarence; one Non-executive Director, namely Mr. Ng Ching Wo; and three Independent Non-executive Directors, namely Sir Roger Lobo, Dr. Lo Ka Shui and Mr. Sham Sui Leung, Daniel.

180

AI assistant

Chinasoft International Limited — Proxy Solicitation & Information Statement 2010

49152_rns_2010-01-19_744feb73-3ea7-4472-8772-662c83c9e138.pdf

Melco International Development Limited

CONNECTED TRANSACTION – MATERIAL AMENDMENTS TO TERMS OF THE HK$1,175 MILLION CONVERTIBLE LOAN NOTES DUE 2010 UNDER RULE 28.05 OF THE LISTING RULES

APPLICATION FOR A WHITEWASH WAIVER

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

Melco International Development Limited

CONNECTED TRANSACTION – MATERIAL AMENDMENTS TO TERMS OF THE HK$1,175 MILLION CONVERTIBLE LOAN NOTES DUE 2010 UNDER RULE 28.05 OF THE LISTING RULES

APPLICATION FOR A WHITEWASH WAIVER

1. INTRODUCTION

LETTER FROM THE BOARD

2. BACKGROUND

LETTER FROM THE BOARD

The issue of the Convertible Loan Notes was approved as a connected transaction under the Listing Rules

Whitewash Waiver

LETTER FROM THE BOARD

Shareholding structure of the Company as at the Latest Practicable Date and upon full conversion of the Convertible Loan Notes (in accordance with their existing terms, prior to the amendments proposed to be made by the Deed of Amendment)

LETTER FROM THE BOARD

LETTER FROM THE BOARD

CONVERTIBLE LOAN NOTES

Proposed amendments of the terms of the Convertible Loan Notes

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Conditions of the Deed of Amendment

The Revised Conversion Price

Reasons for the proposed amendments of the Convertible Loan Notes

LETTER FROM THE BOARD

IMPLICATIONS UNDER THE TAKEOVERS CODE

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LISTING RULES IMPLICATIONS

LETTER FROM THE BOARD

ONLY INDEPENDENT SHAREHOLDERS WILL VOTE ON THE RESOLUTIONS TO APPROVE THE DEED OF AMENDMENT AND THE WHITEWASH WAIVER

APPOINTMENT OF INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

VIEWS OF THE DIRECTORS

RECOMMENDATIONS

LETTER FROM THE BOARD

GENERAL

Melco International Development Limited

CONNECTED TRANSACTION – MATERIAL AMENDMENTS TO TERMS OF THE HK$1,175 MILLION CONVERTIBLE LOAN NOTES DUE 2010 UNDER RULE 28.05 OF THE LISTING RULES

APPLICATION FOR A WHITEWASH WAIVER

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

CONNECTED TRANSACTION – MATERIAL AMENDMENTS TO TERMS OF THE HK$1,175 MILLION CONVERTIBLE LOAN NOTES DUE 2010 UNDER RULE 28.05 OF THE LISTING RULES

APPLICATION FOR A WHITEWASH WAIVER

INTRODUCTION

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

BASIS OF OUR ADVICE

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS TAKEN INTO ACCOUNT

1. Background of the Deed of Amendment

2. Financial position of the Group

Comparison between 31 December 2007 and 31 December 2006

Comparison between 31 December 2008 and 31 December 2007

3. Financial performance of the Group

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

4. Overview of the gaming industry in Macau

5. Reasons for and benefits of the Deed of Amendment

6. Terms of the Deed of Amendment

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

7. Evaluation of the terms of the Deed of Amendment

(a) The Revised Conversion Price

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iii) Comparable analysis

(b) The Revised maturity date

8. Dilution of the shareholding interests in the Company

9. The Whitewash Waiver

RECOMMENDATION

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

I. THREE YEARS FINANCIAL SUMMARY

Consolidated Income Statement

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

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