Hang Lung Group Limited — M&A Activity 2000

Mar 1, 2000

Listed Company Information

PAC CENT CYBER<1186> - Announcement & Resumption Not for release, publication or distribution in whole or in part in or into the United States, Canada, Australia or Japan. The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this announcement, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement. This announcement is not an offer for sale or subscription of any securities of Pacific Century CyberWorks Limited nor a solicitation of an offer to buy or subscribe for any securities of Pacific Century CyberWorks Limited. PACIFIC CENTURY CYBERWORKS LIMITED (a company incorporated in Hong Kong with limited liability) (`PCCW') DONCASTER GROUP LIMITED (a company incorporated in Hong Kong with limited liability) (the `Offeror') VOLUNTARY CONDITIONAL SECURITIES EXCHANGE OFFER (the `Offer') BY WARBURG DILLON READ (ASIA) LIMITED (`WDR') AND BOCI ASIA LIMITED (`BOCI') ON BEHALF OF THE OFFEROR, A WHOLLY-OWNED SUBSIDIARY OF PCCW TO ACQUIRE ALL THE ISSUED SHARE CAPITAL OF CABLE & WIRELESS HKT LIMITED (`C&W HKT') WITHDRAWAL OF THE LISTING OF C&W HKT SHARES ON THE STOCK EXCHANGE OF HONG KONG LIMITED A MAJOR TRANSACTION FOR PCCW AND SEPARATE CONDITIONAL OFFER BY MERRILL LYNCH (ASIA PACIFIC) LIMITED ON BEHALF OF CABLE AND WIRELESS (FAR EAST) LIMITED (`C&W FE') TO EXCHANGE SHARES IN PCCW FOR PART OF THE CONSIDERATION RECEIVABLE BY SHAREHOLDERS IN C&W HKT UNDER THE TERMS OF THE OFFER SUMMARY The Offeror, a wholly-owned subsidiary of PCCW, announces its intention to make a voluntary conditional securities exchange offer to acquire the entire issued share capital of C&W HKT. It is the intention of the Offeror to seek the recommendation of the terms of the Offer from the Board of C&W HKT. In the event that such recommendation is obtained and if the Boards of C&W and C&W HKT so agree, the Acquisition may be implemented by way of a scheme of arrangement between C&W HKT and the shareholders of C&W HKT. The Offer will be made on the following basis: either: for each C&W HKT Share 1.10 New PCCW Shares (the `Share Alternative') valuing each C&W HKT Share at HK$24.36 or: for each C&W HKT Share US$0.9290 (equivalent to HK$7.23 at the current exchange rate) in cash and 0.7116 New PCCW Shares (the `Combination Alternative') valuing each C&W HKT Share at HK$22.99. The Share Alternative values the entire issued share capital of C&W HKT at HK$296.3 billion (US$38.1 billion). The Combination Alternative values the entire issued share capital of C&W HKT at HK$279.6 billion (US$35.9 billion). The Offer will include an Increased Cash Election facility. The C&W HKT shareholders will be entitled to receive a second interim or final dividend of not more than HK$0.45 per C&W HKT Share in aggregate up to a maximum of HK$5,448 million (US$700 million). Subject, inter alia, to the approval of the ordinary shareholders of C&W and to the approval of the holder of the special share in C&W, C&W FE has irrevocably undertaken to accept the Offer; to elect for the Combination Alternative and for US Dollars in respect of the cash element thereof; and to elect for the maximum amount of cash available under the Increased Cash Election, in respect of its entire shareholding of approximately 54% in C&W HKT. The Board of PCCW believes that the Acquisition has compelling logic and is in the best interests of the shareholders of both C&W HKT and PCCW. As a result of the Acquisition, shareholders of C&W HKT will obtain a shareholding in one of Asia's most highly-rated convergent broadband internet businesses and hence benefit from the value created by the merger of PCCW and C&W HKT. The Offer will be conditional, inter alia, upon approval by the independent shareholders of C&W HKT of a voluntary withdrawal of listing of the C&W HKT Shares on the Stock Exchange being obtained. If the condition as to acceptances is satisfied in full the Offeror will waive this approval condition. In the event that the Acquisition is implemented by way of a scheme of arrangement, all the C&W HKT shares will be cancelled and thereby delisted upon the Scheme becoming effective. The shares of PCCW were suspended from trading on the Stock Exchange at PCCW's request on 25 February 2000, 28 February 2000 and 29 February 2000. Application has been made for trading in PCCW Shares on the Stock Exchange to resume at 10.00 a.m. on 1 March 2000. Appendix 3 of this announcement contains definitions of certain expression used herein. 1. INTRODUCTION The Offeror announces that it intends to make a voluntary conditional securities exchange offer which is to be made by WDR and BOCI on its behalf to acquire the entire share capital of C&W HKT which is in issue and which may be issued before the close of the Offer. Recommendation and implementation It is the intention of the Offeror to seek a recommendation of the terms of the Offer from the Board of C&W HKT. In the event that such recommendation is obtained and if the Boards of C&W and C&W HKT so agree, the Acquisition may be implemented by way of a scheme of arrangement between C&W HKT and the shareholders of C&W HKT under Section 166 of the Companies Ordinance. If the C&W HKT Board agrees to proceed with a Scheme, the Offer will not be made. Otherwise, the Offeror will proceed with the Offer. In addition to setting out the terms and conditions of the Offer, this announcement refers, in paragraph 4 and Appendix 1, to the variations in the terms and conditions which would apply if the Acquisition were to be implemented by a Scheme. Undertakings of C&W FE Subject, inter alia, to the approval of the ordinary shareholders of C&W and the approval of the holder of the special share in C&W, C&W FE has irrevocably undertaken to accept the Offer and to elect for the Combination Alternative described in paragraph 2 below, for US Dollars in respect of the cash element thereof, and for the maximum amount of cash available under the Increased Cash Election described in paragraph 2 below, in respect of its entire shareholding of approximately 54% in C&W HKT. C&W FE has also undertaken, subject to certain conditions and qualifications set out in Appendix 2, not to solicit any other offers for C&W HKT for a maximum period of 135 days from the date of this announcement. The circumstances in which the obligations of each of C&W and C&W FE may lapse are set out in Appendix 2. If all C&W HKT Shareholders, except C&W FE, elect for the Share Alternative, C&W FE would receive an approximate 11.2% interest in the enlarged fully diluted share capital of PCCW and if all C&W HKT Shareholders, including C&W FE, elect for the Combination Alternative, C&W FE would receive an approximate 20.9% interest in the enlarged fully diluted issued share capital of PCCW. 2. THE OFFER The Offer, which is subject to the conditions and further terms set out below and in Appendix 1 and to be set out in the Offer Document when issued, will be made on the following basis (based on the closing share price of PCCW of HK$22.15 on 25 February 2000): either: for each C&W HKT Share 1.10 New PCCW Shares (the `Share Alternative') valuing each C&W HKT Share at HK$24.36 or: for each C&W HKT Share US$0.9290 (equivalent to HK$7.23 at the current exchange rate) in cash and 0.7116 New PCCW Shares (the `Combination Alternative') valuing each C&W HKT Share at HK$22.99. The Share Alternative values the entire issued share capital of C&W HKT at HK$296.3 billion (US$38.1 billion).(*) The Combination Alternative values the entire issued share capital of C&W HKT at HK$279.6 billion (US$35.9 billion).(*) The Offer will include an Increased Cash Election facility. In electing for cash under the Combination Alternative or the Increased Cash Election facility, C&W HKT shareholders may specify payment in US Dollars or in Hong Kong Dollars. Fractions Fractions of New PCCW Shares will not be issued to accepting C&W HKT shareholders. Fractional entitlements to New PCCW Shares will be aggregated and sold in the market with the proceeds distributed pro rata to the C&W HKT shareholders entitled to them. However, individual entitlements of less than HK$100 will not be paid to C&W HKT shareholders but will be retained for the benefit of the enlarged PCCW Group. Financial Resources WDR and BOCI are satisfied that sufficient financial resources are available to the Offeror to satisfy implementation in full of the Combination Alternative. The Offeror has entered into an agreement dated 29 February 2000 to finance the cash element of the Offer through a debt facility arranged by BOCI Capital Limited, HSBC Investment Bank Asia Limited, Banque Nationale de Paris, Hong Kong Branch and Barclays Capital Asia Limited. Comparisons of value The Share Alternative, valued at HK$24.36 per C&W HKT Share, represents a premium of approximately 38.0% compared with the closing price of C&W HKT Shares on the Stock Exchange of HK$17.65 on 10 February 2000, being the last trading day for C&W HKT Shares prior to the announcement of PCCW possibly acquiring an interest in C&W HKT. The Share Alternative represents a discount of approximately 5.95% compared with the closing price of C&W HKT Shares on the Stock Exchange of HK$25.90 on 25 February 2000. The Combination Alternative, valued at HK$22.99 per C&W HKT Share, represents a premium of approximately 30.2% over the closing price of C&W HKT Shares on the Stock Exchange of HK$17.65 on 10 February 2000. The Combination Alternative represents a discount of approximately 11.2% compared with the closing price of C&W HKT Shares on the Stock Exchange of HK$25.90 on 25 February 2000. The closing prices of PCCW Shares were HK$23.40 and HK$22.15 on 10 February 2000 and 25 February 2000, respectively, prior to their suspension on 25 February 2000. (*) Exchange rate of US$1 - HK$7.7824 on 25 February 2000. Highest and lowest prices During the six month period preceding the date of this announcement, the highest closing price of C&W HKT Shares as quoted on the Stock Exchange was HK$26.40 each on 14 February 2000 and the lowest closing price of C&W HKT Shares as quoted on the Stock Exchange was HK$15.65 each on 19 October 1999. During the same six month period, the highest and lowest closing prices of PCCW Shares were HK$26.35 and HK$4.50 on 15 February 2000 and 30 August 1999, respectively. Dividend The C&W HKT shareholders will be entitled to receive and retain a second interim or final dividend in respect of the year ending 31 March 2000 of not more than HK$0.45 per C&W HKT Share (in aggregate up to a maximum of HK$5,448 million (US$700 million)) to be paid to C&W HKT shareholders prior to the Offer becoming or being declared unconditional in all respects. New PCCW Shares The New PCCW Shares will be issued credited as fully paid and rank pari passu in all respects with the existing issued PCCW Shares. Application is to be made to the Stock Exchange for the listing of and permission to deal in the new PCCW Shares to be issued pursuant to the Offer. Full acceptance of the Offer, assuming no elections for the Combination Alternative (except by C&W FE) and that C&W FE takes full advantage of the Increased Cash Election detailed below and without taking into account exercise of Options under the Share Option Scheme while the Offer remains open for acceptance, will result in the issue of approximately 8,654 million New PCCW Shares representing approximately 38.5% of the enlarged and fully diluted (taking into account conversion of all outstanding convertible bonds and the exercise of employee and other share options) issued PCCW share capital. Increased Cash Election facility The maximum aggregate amount of cash to be paid out under the Combination Alternative is US$11.3 billion (HK$87.9 billion). C&W HKT shareholders who validly elect for the Combination Alternative may elect, subject to availability, to increase the amount of cash receivable pursuant to the Combination Alternative in respect of their holdings of C&W HKT Shares. However, the maximum aggregate amount of cash to be paid out under the Combination Alternative will not be varied as a result of any such election. The amount of cash receivable will therefore depend on the elections of other C&W HKT shareholders. Any cash delivered under the Increased Cash Election facility will be allocated on a pro rata basis. The Increased Cash Election facility will remain open until 4.00 p.m. on the second day after the satisfaction of all the conditions to the Offer other than the condition as to acceptances and (if not then satisfied) the condition as to C&W HKT shareholder approval of a voluntary withdrawal of listing of the C&W HKT Shares. If the Offer is not then unconditional as to acceptances, the Offeror may extend the Increased Cash Election facility to a later date. If the Increased Cash Election facility has been closed, the Offeror reserves the right to reintroduce a comparable facility, subject to the rules of the Takeovers Code. As a result of the operation of the Increased Cash Election facility, C&W HKT shareholders who make an election therefor, will not know the exact number of New PCCW Shares or the amount of cash which they will receive until settlement of the consideration, although an announcement will be made when the Acquisition becomes effective of the approximate extent to which the Increased Cash Election will be satisfied. C&W HKT shareholders electing for additional cash under the Increased Cash Election facility will be deemed to have done so at a rate of US$2.392 (equivalent to HK$18.62 at the current exchange rate) per New PCCW Share. The C&W FE Offer As well as irrevocably undertaking to accept the Offer, to elect for the Combination Alternative, for US Dollars in respect of the cash element thereof and for the maximum amount of cash available under the Increased Cash Election, C&W FE has agreed that (subject to compliance with all necessary approvals and conditions) it will procure that Merrill Lynch (Asia Pacific) Limited will make an independent offer to C&W HKT shareholders (other than C&W FE and certain overseas shareholders) who elect to accept the Combination Alternative in respect of the cash element under the Combination Alternative or the Increased Cash Election facility. Under the C&W FE Offer, Merrill Lynch (Asia Pacific) Limited, acting on behalf of C&W FE, will offer to exchange one New PCCW Share, receivable by C&W FE pursuant to its election for the Combination Alternative, for US$2.392 (equivalent to HK$18.62 at the current exchange rate) in cash receivable by other C&W HKT shareholders who elect to accept the Combination Alternative. The maximum possible number of New PCCW Shares available under the C&W FE Offer will be 2,163 million New PCCW Shares. The C&W FE Offer is independent of the Offer and is conditional upon the Offer becoming unconditional in all respects. PCCW makes no recommendation to C&W HKT shareholders as to whether they should accept or reject the C&W FE Offer. C&W HKT shareholders should consult their own financial adviser if they are in any doubt as to any aspect of the C&W FE Offer. If the Acquisition is implemented by the Scheme, C&W FE reserves the right to replicate the terms of the C&W FE Offer described in this paragraph 2 in the Scheme documentation to the extent practicable. Lock-up C&W FE has agreed, save with the consent of PCCW, to retain its entire resultant holding following the Offer and C&W FE Offer in PCCW for a period of six months following completion of the Offer and to retain 50% of such holding for a further period of six months. In such circumstances, upon completion of the Offer, C&W FE would become a substantial shareholder, within the meaning of the Listing Rules, of PCCW. C&W FE's agreement is on the basis that PCCW has given its consent to, and will fully co-operate with, a placing by C&W FE of approximately 4% of the enlarged issued share capital of PCCW, as soon as practical following completion of the Offer. The precise size and timing of the placing will take into account available market demand, market conditions and the desire for an orderly after-market. Other arrangements C&W FE has agreed with CMGI, an existing 4.4% shareholder of PCCW that, conditional upon the Offer becoming unconditional in all respects, C&W FE will transfer to CMGI US$500 million (HK$3,891 million) worth of New PCCW Shares received by it under the Offer in consideration for CMGI issuing to C&W FE US$500 million worth of newly issued CMGI shares. HMTF PCCW Investors, LLC, an affiliate of Hicks Muse, an independent third party not connected with a director, chief executive or substantial shareholder of PCCW, or any of its subsidiaries or an associate of any of them, have agreed subject to the Offer becoming unconditional in all respects and to the exchange of Shares between CMGI and C&W FE referred to above, to subscribe for US$500 million (HK$3,891 million) in new PCCW convertible securities (`PCCW convertible securities'). The PCCW convertible securities will be subordinated, have a 10 year maturity and a dividend yield of 7.5% per annum (which will be paid in kind for at least the first 5 years) and will be convertible at a 10% premium to the average closing price of PCCW Shares for the 15 trading days prior to the Offer becoming unconditional in all respects. Subject to the Offer being unconditional in all respects and to the exchange of Shares between CMGI and C&W FE referred to above, in the event of any subscription for such PCCW convertible securities by Hicks Muse, PCCW will make a further announcement containing details of the PCCW convertible securities. 3. BACKGROUND TO AND RATIONALE FOR THE ACQUISITION Background to and reasons for the Acquisition The Board of PCCW believes that the Acquisition has compelling logic and is in the best interests of the shareholders of both C&W HKT and PCCW. As a result of the Acquisition, shareholders of C&W HKT will obtain a shareholding in one of Asia's most highly-rated convergent broadband Internet businesses and hence benefit from the value created by the merger of these two successful companies. Strategic and commercial rationale Strengthens PCCW's Position as the Pre-eminent Internet Play in Asia The Acquisition will reinforce PCCW's position as the leading Internet company in Asia. It will have: - A multi-disciplinary management team expert in all facets of the broadband market - The largest, low-cost multimedia content creation team in Asia - World class partners which further enhance the merged company's position in the Internet space - Market leadership in Hong Kong, a pre-eminent early adopter market in Asia - Strong scaleable content and distribution assets for rapid deployment in China, Asia, and the Middle East - Compelling single-brand content delivered across multiple languages, geographies, and delivery platforms - A multi-access portal The combination of PCCW and C&W HKT is driven, in part, by the Board's view that it is critical to have leading market share in a given market space in order to generate long-term value. The key convergence themes driving the Acquisition include the following: - Positions the Combined Group as the owner of a pervasive brand from which to maximize the networking effects and economics of expanding the model from Hong Kong across the region and ultimately globally - Adds over 6 million addressable customers across multiple platforms to PCCW's target market of 130 million cable-enabled homes and 12 million easily upgradable homes. Improves the speed, breadth, and scalability of the PCCW services rollout by acquiring a large, multi-platform customer base and a leverageable infrastructure of assets and human resources - Maximizes the benefits of existing customer relationships through the provision of value-added broadband services and content under development by both entities - Enhances and expands relationships and intellectual property across multiple distribution vehicles The Combined Group unites the value of Internet content, communication and community that will be created by PCCW's locally customized, multi-language Web `portals,' with the benefits of a multi-platform multi-access broadband infrastructure in the pre-eminent established market in Asia. Expands Near-Term Customer Base for PCCW's Branded Internet Services The Acquisition adds approximately 3.3 million telephony customers, 1.0 million wireless customers, 400,000 Internet users, 90,000 interactive television users and 22,000 broadband customers to PCCW's existing target market of 130 million cable customers across the region. C&W HKT is the leading Internet service provider in Hong Kong, and the Board of PCCW believe that its subscribers represent an attractive market for PCCW's broadband access and content offering and the cross-selling of new and existing interactive services. In addition, C&W HKT's broadband optical fiber and DSL network reaches 80% of households in Hong Kong which are therefore capable of accessing its broadband service. The Board of PCCW believes that PCCW's unique interactive and multimedia content offerings will significantly improve customer retention, growth and profitability at C&W HKT. Accelerates the Creation of Platform Independent, Bundled Services and Content The Board of PCCW believes that speed to market with bundled services and content is a key strategic objective, and represents the primary barrier to entry for creating sustainable value. The Combined Group will allow the bundling of proprietary content across multiple narrowband and broadband online services. It is PCCW's intention to expand this across China, Asia, the Middle East, and the rest of the world. It is expected that as bundling evolves, online entertainment and applications, and mobile communications will emerge as high-end, proprietary products, and that local voice services and raw bandwidth will become commoditized as stand-alone offerings. As a result, pure conduits will need to lower their costs and/or align with content suppliers to compete, and the strongest content brands will need to gain access to multiple platforms. Merges Powerful Content with Pervasive and Broad Distribution The Board of PCCW believes that highly personalized content and applications have emerged as the key drivers of Internet subscriber growth. AOL, Yahoo! and Excite have created captive `communities' of users through such programming in the U.S. market. The next stage for these companies is to merge the new media companies that drive brand development and the usage of content with the leading and emerging information delivery platforms. C&W HKT's Multiple Broadband Platforms Position the Combined Group for Rapid Penetration Across Asia The Board of PCCW believe that over time, to deliver long-term shareholder value, it is important to adopt a technology neutral approach towards content distribution. The merged entity will deliver broadband content using various technologies such as cable or DSL to the consumer or enterprise and WAP to mobile customers. The Board of PCCW intend to ensure service can be provided over future technologies such as GPRS, 3G, fixed wireless, etc., as they become available. - In Asia, where the penetration of varied broadband technologies is low and fragmented, a single brand may distribute content and services through different platforms in some markets (such as PCCW's NOW TV via AsiaSat III and cable across Asia), and through a different, more pervasive platform in other markets (such as C&W HKT's iTV services through fiber and DSL in Hong Kong) - In order to achieve scale across markets, companies are expected to attempt to develop a single brand of Internet content and service (with multiple channels) across different delivery platforms, simultaneously - C&W HKT's leading position in the market in Hong Kong makes it the ideal base in Asia from which to roll-out an extensive range of services across multiple platforms. Hong Kong has one of the largest media-rich customer bases in Asia, has high penetration rates across the various narrowband and broadband technologies (HFC, DSL, fixed line, fixed wireless and mobile wireless), and will serve as the ideal launching point for the provision of localized and customized content across China and the rest of Asia, through multiple distribution infrastructures Ability to Further Internationalize Existing and Planned C&W HKT Businesses As part of the total package of service offerings which PCCW can deliver to customers in its target markets, it would have the opportunity to further internationalize C&W HKT lines of business such as: - Corporate services (e.g., virtual private network services to multinational companies) - Voice over IP and videoconferencing - Mobile voice and data services - Cross marketing of C&W HKT and PCCW value-added services - C&W HKT's regional connectivity assets: 44 Gbps of total capacity, with direct links to all countries in the region, including 425 Mbps of dedicated internet backbone into the U.S. and 71 Mbps into China Opportunities to Leverage Existing C&W HKT Operational Infrastructure - Acquire existing skilled staff base with expertise in networking, IT and telecommunications and support functions such as billing, and customer relationship management - Opportunity to improve time-to-market for PCCW services in surrounding regions as support functions currently in place at C&W HKT can be extended and repurposed for additional PCCW services, as an alternative to building new operational infrastructure units (e.g., call centers and data centers) - Improve ability to scale PCCW's business rapidly by utilizing the operating infrastructure and human resources of C&W HKT - Possible savings in capital expenditures - C&W HKT operates two of the largest commercial satellite earth stations in Asia, potentially eliminating the need for PCCW to develop its own uplinking for the provision of its satellite-based services Synergies in Partners and Portfolio Companies - C&W HKT has a portfolio of Internet investments that will add incremental scale to CyberWorks Ventures - PCCW increases the size of its positions in at least one investment in which C&W HKT is also an investor (e.g. Asia Java Fund) - The combination of the Internet business partners of PCCW (including Intel Corporation, CMGI, Hikari Tsushin, and IMG/TWI), and C&W HKT help the combined entity achieve scale and effectively pursue new business opportunities - Increasing the size of the PCCW network of partners and portfolio companies increases the number of relationships and opportunities in which these parties can participate with each other 4. CONDITIONS OF THE ACQUISITION Terms and conditions of the Offer The C&W HKT Shares will be acquired by the Offeror fully paid and free from all liens, equities, charges, encumbrances and other interests and together with all rights now or hereafter attaching thereto, including the right to receive and retain all dividends and other distributions declared, made or paid hereafter save that the C&W HKT shareholders will be entitled to receive and retain a second interim or final dividend in respect of the year ending 31 March 2000 of not more than HK$0.45 per C&W HKT Share (in aggregate up to a maximum of HK$5,448 million (US$700 million)) to be paid to C&W HKT shareholders prior to the Offer becoming or being declared unconditional in all respects. PCCW will discuss with the Board of C&W HKT an appropriate book closing date for this dividend in due course. The New PCCW Shares to be issued under the Offer will be issued credited as fully paid and rank pari passu in all respects with the existing issued PCCW Shares as at the date of this announcement. PCCW will not, prior to the Offer becoming or being declared unconditional in all respects, issue for cash any shares or securities which are convertible into or exchangeable for or carry rights to acquire any shares in PCCW save pursuant to PCCW's existing mandate from its shareholders in respect of approximately 1.18 billion PCCW Shares (11.5% of the existing issued share capital of PCCW) at a price of not less than HK$23.50 per share. This mandate expires on the date of the next annual general meeting and it is the intention of PCCW's board to renew it at that meeting. The terms and conditions of the Offer are set out or referred to in Appendix 1. The conditions include the approval at shareholders meetings by the shareholders of each of PCCW, PCCW Holdings and C&W and the approval of the holder of the special share in C&W. Pacific Century Diversified Limited, Pacific Century Group Holdings Limited and PCCW Holdings, which between them control 59.3% of the issued share capital of PCCW, have stated that they will vote in favour of the resolutions at the PCCW shareholders meeting. Pacific Century Group (Cayman Islands) Limited and Anglang Investments Limited which between them control 75.8% of the issued share capital of PCCW Holdings, have stated that they will vote in favour of the resolution at the PCCW Holdings shareholders meeting. C&W has irrevocably undertaken, subject to certain conditions and qualifications, to recommend to all C&W shareholders that they vote in favour of the resolutions to be proposed at the C&W shareholders meeting to approve the disposal by C&W FE of all its C&W HKT Shares. A termination fee of US$100 million will be payable by C&W to PCCW in the event that C&W does not recommend or its shareholders do not vote in favour of the resolutions to be proposed at the C&W shareholders meeting referred to above, or, in the event that a higher competing offer becomes wholly unconditional. A termination fee of US$100 million will be payable by PCCW to C&W in the event that PCCW or PCCW Holdings do not recommend or their respective shareholders do not vote in favour of the other resolutions referred to above. Withdrawal of listing It is a condition of the Offer that approval by shareholders of C&W HKT (other than C&W FE) of a voluntary withdrawal of listing of the C&W HKT Shares on the Stock Exchange be obtained, in which case an announcement will be made. If the condition as to acceptance is satisfied the Offeror will waive this approval condition. In the event that the Acquisition is implemented by the Scheme, all the C&W HKT shares will be cancelled and thereby delisted upon the Scheme becoming effective. No application will be made to the Stock Exchange for the withdrawal of the listing until the Offer becomes unconditional in all respects in which case an announcement will be made. In the event that the Offeror declares the Offer to be unconditional, shareholders of C&W HKT who decide not to accept the Offer, and whose C&W HKT Shares are not otherwise acquired by the Offeror, may hold an illiquid investment for which no recognised market will exist. Waiver of Offer Conditions Save for the conditions as to acceptances and as to the admission to trading of the New PCCW Shares, which are not waivable, and to the conditions relating to consent under C&W HKT's articles of association and the approval by the C&W shareholders, which are waivable only with the consent of C&W, the Offeror reserves the right to waive all or any of the conditions of the Offer in whole or in part. Save as described above, the Offeror is under no obligation to waive or treat as fulfilled any of the Offer Conditions or to declare the Offer unconditional in all respects by a date earlier than the Long Stop Date, notwithstanding that other Offer Conditions may have been fulfilled at such earlier date and that there are at such earlier date no circumstances indicating that any of such conditions may not be capable of fulfilment. Completion of the Offer If the Offer Conditions are not satisfied or not waived on or before the first closing date of the Offer, the Offer will be extended by the Offeror and the Offeror will issue a press announcement as soon as practicable thereafter in accordance with the Takeovers Code. The latest date on which the Offeror can declare the Offer unconditional is the Long Stop Date. If the Offer Conditions are satisfied or waived on or before the Long Stop Date, C&W HKT shareholders will be notified by press announcement as soon as practicable thereafter in accordance with the Takeovers Code. Scheme conditions In the event that the Acquisition is effected by way of a Scheme the following conditions will apply in the place of the acceptance condition in paragraph 1(A) of Appendix 1: (a) the approval by a majority in number representing three-fourths in value of the holders of the C&W HKT Shares or any class thereof present and voting, either in person or by proxy, at a meeting or meetings convened by the Court; (b) the necessary special resolutions required to implement the Scheme, including a proposed reduction of share capital of C&W HKT being duly passed by a majority of three-fourths of the votes cast by holders of C&W HKT Shares present and voting, either in person or by proxy, at an extraordinary general meeting of C&W HKT; and (c) the sanction (with or without modification) of the Scheme and confirmation of any reduction in capital included in the Scheme by the Court, and a copy of the order of the Court being delivered for registration to the Registrar of Companies in Hong Kong. In the event that the Acquisition is effected by way of a Scheme, all of the existing C&W HKT Shares will be cancelled and thereby delisted upon the Scheme becoming effective and the delisting condition in paragraph 1(F) of Appendix 1 will be waived. 5. OPTIONHOLDERS It is the intention of the Offeror to put appropriate proposals to participants in the Share Option Scheme in connection with the Offer. Details of such offer will be announced in accordance with the Takeovers Code when PCCW receives the details of the Share Option Scheme. 6. INFORMATION ON THE OFFEROR The Offeror is a company newly incorporated in Hong Kong for the purposes of the Acquisition and is a wholly-owned subsidiary of PCCW. The Offeror has not traded. 7. INFORMATION ON PCCW Business of PCCW PCCW is involved primarily in technology businesses related to the Internet and the delivery of broadband Internet service through an innovative satellite to broadband ground distribution system that includes HFC cable systems, broadband telecom infrastructure and wireless transmission networks. Its aim is to build on its expertise and knowledge of digital technology and new media to become a leader in Internet infrastructure, content, and services. PCCW is in the process of launching a highly complementary combination of businesses that together form an interactive broadband platform for offering and enabling a wide variety of consumer and enterprise services through the Internet and television. PCCW's investment division, CyberWorks Ventures, provides valuable funding and management advice to young companies that have synergies with its core businesses. The Cyber-Port will be PCCW's base in Hong Kong where other leading high technology and Internet related companies will also be located. This confluence of technology companies will provide a fertile environment for the generation of new ideas, innovations and businesses. PCCW's businesses are currently based in Hong Kong, where they have their executive offices. PCCW is in an early stage of development and in the past year has undergone significant changes in ownership, management and asset base. 8. Industry Background Internet penetration in Asia While worldwide Internet growth has been rapid, Internet use in Asia has lagged behind that of the United States and Europe due to the absence of a well-developed wireline infrastructure and a relatively lower PC penetration rate. According to Baskerville Communications, a market research firm, in 1998, Asia Pacific countries had an average of 8.5 fixed wirelines per 100 people. According to IDC, Asia had a PC penetration rate of 2.2% in 1998, projected to increase to 4.2% in 2003. While traditional dial-up access and localised content may be lacking, use of the Internet is growing in Asia. IDC estimates that there were approximately 23 million Internet users in Asia at the end of 1998, and that this number will grow to 98 million by the end of 2002. Internet growth in Asia will be dependent upon, among other things, the availability of connectivity and access to the Internet, as well as compelling content. Broadband access The overall rapid growth of the Internet has driven the demand for faster connectivity and continuous access. Higher bandwidth, or broadband, Internet access provides users with rapid transmission of data as well as connectivity that is `always on'. In addition, greater bandwidth facilitates more complex applications and enriched content, such as streaming video and audio, which can congest most dial-up Internet access networks. Currently, Internet broadband access in the United States and Europe is provided through the existing wireline infrastructure with integrated services digital network (ISDN) and digital subscriber line (DSL) services, through the cable TV infrastructure with cable modem services, and through satellite and wireless services. Internet broadband access in Asia has been very limited due to the lack of both well-developed wireline infrastructures (apart from advanced markets such as Hong Kong and Singapore) and cable TV-based Internet access services, and the early stage of development of the wireless broadband market. Cable TV, DSL, and Wireless Broadband in Asia According to Baskerville Communications, the approximately 110 million cable TV subscribers in the Asia Pacific region will grow to 144 million by the end of 2003. PCCW believes that cable subscribers as a subset of the Asia Pacific region population represent one of the most attractive demographic groups for the services it plans to provide. The majority of the existing cable infrastructure in Asia has been constructed in the past eight years. Due to the relatively recent rollout of cable services to the region, a significant part of the cable infrastructure has been built with HFC cable technology, which is highly suitable for rapid upgrade to interactive broadband service. According to IDC, there were approximately 62,000 DSL subscribers in the Asia-Pacific region excluding Japan in 1999, and the number of DSL customers is growing rapidly. DSL technology enables broadband Internet access over existing fixed line networks, and avoids some of the congestion difficulties inherent to cable broadband systems. There were approximately 157 million digital wireless subscribers in the Asia-Pacific region at the end of 1999 and that the number of subscribers is expected to grow to 481 million by the end of 2003. WAP, GPRS, and other wireless data technologies will enable a multitude of mobile network appliances to connect to the Internet, creating an environment conducive to a variety of cross-platform interactive services. The CyberWorks Solution PCCW intends to deploy broadband infrastructure and the services that it makes possible throughout the Asia-Pacific region and ultimately globally. PCCW intends to accomplish this buildout through three main vehicles: PCCW's unique services and applications, CyberWorks Ventures portfolio companies, and regional and international partnerships. PCCW's Pacific Convergence Corporation (`PCC') subsidiary forms the cornerstone of this strategy, leading the rollout of ISP-enabling services and technologies to local access operators, and creating a branded service that takes full advantage of its broadband infrastructure and unique customer base. These services will offer consumers and enterprises broadband Internet connectivity, specific broadband content and service offerings in a number of languages combined with a supporting infrastructure which enables electronic transactions and commerce. PCCW's services will be accessible through any type of Internet access device, including personal computers, digital Internet access devices that display on TVs, and wireless devices. PCCW's own Internet service offer its customers a comprehensive range of content, entertainment, and consumer and business applications. PCCW's investment division, CyberWorks Ventures, has made a number of investments in young companies that can benefit from co-operation with PCCW. Many are engaged in `e-infrastructure' businesses that consist of services or technologies that enable value-added services to be delivered over the Internet. These are a source of content, software, hardware, and service solutions to PCCW and are often positioned to take advantage of its planned broadband platform and large potential captive customer base. The Cyber-Port, a project being undertaken in conjunction with the Hong Kong Government, is an IT-centric development project for leading information technology and service companies, which will be PCCW's base in Hong Kong. This confluence of technology companies will provide a `critical mass' and fertile environment for the generation for new ideas, innovations and businesses. Pacific Convergence PCCW believes that interactive broadband access through the existing cable TV infrastructure will enable it to provide consumers with high-quality access, even in locations where traditional dial-up connectivity is unavailable due to the limited amount or even total absence of wireline infrastructure, and a highly competitive service offering in regions where connectivity is better developed. PCCW is engaged in this business segment with its strategic partners which include Intel Corporation, SoftNet Systems, CMGI and IMG/TWI. By deploying a satellite to cable head-end or telecoms earth station infrastructure, PCCW will be able to rapidly establish contact and connectivity with local access operators across the AsiaSat III footprint. PCCW will enable operators who adopt PCCW's system to provide full broadband Internet access to their consumer and enterprise customers. Once the access network operator is connected, consumers and businesses will be able to access PCCW's interactive service offering through the use of Internet access devices such as set-top boxes or personal computers. PCCW and the network operator would share in the subscription fee collected from the subscriber. PCCW's network delivery architecture comprises open standard Internet protocols and ubiquitous PC, TV and audio components. It is PCCW's intention to provide its services through any type of broadband network (including telecoms plant upgraded with DSL technology), digital interface or Internet access device that may be available or emerge in the future. PCCW is developing a global brand for its services. This brand, NOW (Network of the World), is expected to become a powerhouse of the Internet. The NOW offering will be a truly converged digital media network, delivering a compelling customer experience that PCCW expects to drive adoption and usage. The NOW service will also be available through the Internet to users outside the PCCW ISP footprint and on a variety of access platforms (e.g., wireless), allowing PCCW to maintain constant contact with the customer and leverage the proprietary services it develops over the maximum number of users. The initial rollout of this service will be in English and content production facilities are being developed in London in partnership with the IMG/TWI Group. Over 200 professionals in London and Asia are at work developing PCCW content. Both the branded portal and its associated vertical applications/content areas (`vortals') will over time be produced in a number of appropriate local languages, including Chinese and Japanese. The sequence and timing of local language services rollout will be dictated by advertiser and customer demand. The content within each vortal will provide a basis for PCCW's television services as described below. NOW TV will integrate television programming with simultaneous multimedia content available on the Internet. The level of tight integration is unique to PCCW. The simultaneous transmission of TV and web portal content will allow advertisers to create fully integrated campaigns across both media with messages that reinforce each other. PCCW believes that the general availability of Internet content co-ordinated with its television offerings will help drive the conversion of current dial-up subscribers to its broadband access service. Conversely, the use of the familiar medium of television will help the company introduce cable viewers to the array of interactive service offerings available with a subscription to its broadband access service. CyberWorks Ventures CyberWorks Ventures is PCCW's investment division, investing in Internet companies that can effectively leverage PCCW's broadband platform and provide infrastructure services, content, context, commerce, connectivity and community, or have other compelling investment rationales. PCCW's investment takes the form of a combination of cash, advertising inventory or equity in PCCW. CyberWorks Ventures has already developed a portfolio of over 30 Internet investments. Some of these investments are very significant. For example, CMGI Asia is a 50:50 joint venture which will see PCCW bringing CMGI's 18 owned Internet businesses (including AltaVista) to the whole of Asia (including Japan). PCCW intends to foster collaboration among these companies, encouraging cross-selling and marketing opportunities and supporting business growth and the sharing of information and expertise, as well as assisting them with its unique experience in and knowledge of Asian markets. In addition, CyberWorks Ventures' portfolio companies are positioned to offer investees an array of infrastructure services, including web hosting and co-location, web consulting and design, systems integration, and information technology management. These services are expected to help each of CyberWorks Ventures' portfolio companies and partners to focus on their respective core competencies and accelerate the time-to-market of their products and services. Through 24 February 2000, PCCW has paid or committed to pay, in cash or otherwise, a total of approximately US$550 million for the acquisition of portfolio companies. Among CyberWorks Ventures' investments are: Action Ace.com Asia Java Fund Bowman Capital CMGI Creditland.com DigiScents Divine interVentures ELetter Equinix Hikari Tsushin International Ltd Horizon.com iAsiaWorks iLink.net Korea Thrunet Intelligenesis Magically MediaRing NetCel Orama Partners Outblaze Pets.com Point Property Satyam Infoway SilkRoute Holdings Sina.com SoftNet Systems Spike Networks Stareastnet.com TCM Vicus Weave Innovations Ugo.com Cyber-Port The Cyber-Port Project consists of specially designed commercial space dedicated to high technology industries with related residential and other facilities intended to create a nurturing business environment in which Hong Kong can attract and retain promising technology businesses. The Cyber-Port project is expected to comprise a variety of features, including an underlying infrastructure optimised for technology uses. PCCW will be a primary tenant of the Cyber-Port. Membership in the Cyber-Port community will benefit PCCW as it is both a user and supplier of high technology services. In addition, resident companies would benefit from direct access to PCCW's broadband Internet platform. PCCW intends to develop the Cyber-Port Project in partnership with the Hong Kong Government to provide a working and living environment that will attract companies and technology professionals to Hong Kong, and retain them as well. PCCW's vision is that this project will allow the concentration of talent and resources that will help drive Asia's technology transformation by providing affordable office space that will be fully connected to the Internet. Technology-based businesses will want to be close to their customers in Asia and technology workers will want to be in an environment where they can be close to other technology workers. At this point the Cyber-Port Project is documented only by a non-binding letter of intent between the Hong Kong Government and PCCW's controlling shareholder, the Pacific Century Group. The development of the Cyber-Port Project has commenced; the first phase is to be completed by the end of 2001 and the whole project is expected to be completed by 2007. PCCW has already succeeded in attracting 15 leaders of the Internet (including Microsoft, HP, IBM, Cisco, Oracle and CMGI) to become tenants of the Cyber-Port. Property development and customer premises equipment businesses PCCW is currently engaged in the development of and investment in commercial and residential real estate in the PRC and Hong Kong. It is also engaged in a customer premises equipment business, in which it acts principally as a systems integrator for office telecommunications systems. These businesses provide PCCW with positive cash flows, and may continue to serve that purpose or be divested in the future to help PCCW finance its capital requirements. Elements of the PCCW Business Strategy Take advantage of scale and establish a position as the leading Internet company in non-Japan Asia; establish a position as the preferred partner for companies, both regional and international, who wish to participate in Internet and technology-related businesses in Asia. PCCW has established partnerships with leading global companies in media, Internet and technology, and telecommunications. Major partnerships include: Partner Description CMGI CMGI Asia joint venture to establish Asia-Pacific operations for the 18 CMGI majority-owned operating companies, beginning with AltaVista, Engage Technologies, iCast, and 1ClickCharge, augmenting the existing large cross-shareholding between PCCW and CMGI Intel Corporation Originally the joint venture partner with PCC, Intel is now a shareholder of PCCW, after PCC became part of PCCW as its broadband Internet services arm Trans World International TWI contributes its unique access to world class sports events & content to the PCC product and produces the full spectrum of English language content in cooperation with PCC Hikari Tsushin Hikari Tsushin is one of Japan's leading companies, and a successful internet investor. PCCW and Hikari Tsushin announced a large share exchange on 11 February 2000. The companies plan to cooperate to manage Internet investments through Hikari Tsushin International Limited. Through PCCW's investment portfolio, management team, and current partners, PCCW intends to expand its presence and reputation as the preferred partner for Internet business in Asia, enhancing the quality and quantity of its business and investment opportunities. Leverage existing and planned infrastructure to provide a continuous network of coverage to customers and leverage PCCW's content, applications, and marketing. PCCW intends to leverage the assets, energy, and customers of existing and planned distribution networks which are capable of providing access to the Internet. PCCW plans to distribute its proprietary broadband content, services, and applications over these systems. While it is PCCW's intent to use multiple networks to reach its customer base, the cable infrastructure in its target markets is likely to be a major contributor to subscriber growth in the future. Leverage existing cable infrastructure and cable operator experience by providing a fully integrated broadband solution Cable is one of the key local distribution technologies, in addition to DSL and Wireless Application Protocol (`WAP') based platforms, which PCCW intends to utilise in making its services available to end users. PCCW's goal is to convert existing cable TV and telephony subscribers in Asia and the Middle East into users of its interactive broadband Internet services. In less developed markets, PCCW's strategy is to use the existing satellite to cable infrastructure in the region to provide broadband Internet access with higher quality and dependability than is currently available though dial-up services. While PCCW intends to offer its broadband access services at affordable prices for the local consumer, the Board of PCCW believe PCCW's services will command premium prices due to their compelling content, value-added services and broadband speed. PCCW's enabling services allow existing network operators to rapidly and cost-effectively transform themselves into fully integrated broadband Internet service providers. The Board of PCCW believe that PCCW will be able to attract a large subscriber base by mobilising the network operators throughout a target region to sell its services, essentially turning cable and other network operators into Internet service providers. Develop a compelling convergent digital media offering, beginning with the use of co-ordinated television and web programming PCCW believes that its unique digital content production approach, current and future content acquisitions and partnerships, and expertise will make the stand-alone television programming compelling, that it will help drive adoption of the broadband service, and that it will be carried by cable operators who are eager to sell interactive services. PCCW's Internet portal will be co-ordinated with NOW TV to provide parallel, contemporaneous content and programming that is intended to drive cable viewers to convert to broadband service so that they can take full advantage of PCCW's interactive Internet offerings. PCCW intends to develop the NOW broadband content service into a fully converged digital media network which will provide consumers access to interactive content, online communities and e-commerce. The NOW service will enable consumers to customise the information and services they receive. In conjunction with automated profiling and demographic analysis, this personalization will allow PCCW to offer targeted information to enhance customer satisfaction, usage, and retention and maximise value for PCCW's advertising and e-commerce partners. Relationship with Pacific Century Matrix In April 1999, Pacific Century Group Inc. and DaimlerChrysler Aerospace formed a joint venture, Pacific Century Matrix Limited (`PCM'), which holds the exclusive right to use 20 geo-stationary orbit positions owned by Pacific Century Group Inc.. In connection therewith, PCM has entered into a lease agreement dated 9 July 1999 with Asia Satellite Telecommunications Company Limited to secure capacity of up to six C-band transponders on the AsiaSat III satellite. Facilities PCCW's corporate headquarters are located at 38/F, Citibank Tower, Citibank Plaza, 3 Garden Road, Central, Hong Kong. PCCW also leases a temporary production facility currently located at the City University of Hong Kong. PCCW has constructed a 20,000 square foot office and production and technical facilities located in Chai Wan, Hong Kong, which currently comprise the headquarters of PCC. 9. INFORMATION ON C&W HKT Business of C&W HKT C&W HKT, a principal subsidiary of C&W, is a world-leading integrated communications company, and Hong Kong's major full-service communications provider, marketing a full array of quality voice and data telecommunications services backed by a state-of-the-art, fully digital fibre-optic network. C&W HKT's services include basic telephony; Interactive TV (iTV); international calls; narrow and broadband Internet access; mobile telephony; multimedia services; satellite links; specialised fax and data products; telecommunications equipment and services; teleservices, including customised solutions; and value-added services. With over 3.6 million lines in operation, the Company has more than one line for every two people in Hong Kong. A key foundation of C&W HKT's strategy has been to transform itself from a best-in-class provider of basic voice and fax services to a fully integrated and competitive broadband communications provider. C&W HKT has faced an increasingly liberalised market for providing fixed, mobile, and ISP services to which C&W HKT has responded. C&W HKT, from an early stage, adopted a deliberate strategy to move beyond fixed and mobile voice / data services in to new areas of communications. This has seen the introduction of broadband and narrowband ISP services to residences and businesses; the introduction of interactive TV services (iTV); the transformation of the NETVIGATOR ISP site into a fully fledged portal and one of Hong Kong's most popular and awarded sites; and more efficient content delivery with upgraded international and regional links. In this area, C&W HKT is a leader in terms of transformation from an efficient PTT into a comprehensive and competitive broadband communications provider. C&W HKT has transformed the pricing and flexibility of its products and services in order to be competitive in the market. C&W HKT maintains some of the world's best operating parameters in terms of high revenue and customers per employee and low operating cost per customer. Network Infrastructure C&W HKT has invested more than HK$36 billion (US$4.7 billion) in its network infrastructure in the last 10 years and has plans to make Hong Kong the Asia-Pacific region's first super-intelligent city, as well as an information superhighway and Internet hub. C&W HKT operates one of the most modern telecommunications networks in the world, including a comprehensive optical fiber network with over 444,000 kilometers of fiber contained in approximately 6,120 kilometres of cable, generating one of the highest such installed densities in the world. All transmission links for exchange junctions are digital and all exchange equipment incorporates digital technology. C&W HKT operates 20 satellite antennae from two earth stations on the south side of Hong Kong Island. Together, these comprise the largest teleport in Asia and work with the Indian and Pacific Ocean satellite systems, covering two-thirds of the earth's surface. Eight international fiber-optic cables - 6 submarine and 2 overland - link Hong Kong to other major financial and commercial centres worldwide. C&W HKT has invested in the world's largest asynchronous transfer mode (ATM) broadband network and launched the first ATM service in Hong Kong. Through optical fibre-to-the-building and digital subscriber line (DSL) technology, as of 30 September 1999, its broadband network coverage reached more than 80% of Hong Kong's homes and all the major business areas in Hong Kong. This broadband packet-switched network supports transmission of voice, high speed data and video services and is already configured for the delivery of new high-speed multimedia services and e-commerce applications. International Telecommunications Services C&W HKT provides international telecommunications exchange and transmission facilities and international telephone, data and video communications services, international private leased circuits, virtual private network services, satellite broadcast uplinking and downlinking services and telegram and telex services. It also provides wholesale networking services to other telecommunications operators and service providers, offering both leased network capacity and switched services. C&W HKT positions Hong Kong as the communications hub of Asia, with an investment of more than HK$2,750 million in its international network infrastructure in the past five years alone. The global telecommunications market is undergoing rapid change driven by new technology and increasing liberalisation and competition. Following C&W HKT's agreement with the Hong Kong SAR Government to surrender its exclusive international license on 31 March 1998 and the introduction of international services competition with effect from 1 January 1999, Hong Kong has become one of the most liberalised and competitive telecommunications markets in the world. Local Telecommunications Services C&W HKT provides direct exchange lines for business and residential customers, wholesale interconnection services for other local operators, and public and private data network services. C&W HKT enjoys a leading competitive position in the local market underpinned by its services with advanced features, focus on customer service and well established position in the provision of such services. As of 31 March 1999 the three other local fixed-line carriers had secured less than seven per cent of the total directly-connected business lines in service and less than 1% of residential lines. Mobile Services C&W HKT operates advanced digital GSM and D-AMPS mobile systems and serves all local market segments through its three mobile brands, 1010, One2Free and 1+1. It provides packages of post-paid mobile services and pre-paid rechargeable stored value mobile SIM cards. It also supplies mobile handsets. C&W HKT's GSM network now comprises over 1,400 base stations providing comprehensive coverage across Hong Kong. It has pioneered many mobile technology innovations, including the world's first mobile phone service in an underground railway, the Hong Kong Mass Transit Railway. With its intelligent dual-band 900/1800 megahertz GSM services, C&W HKT's customers enjoy virtually uninterrupted service on its networks with GSM call-drop rates below 1 per cent, which is among the lowest in the world. As of 30 September 1999, C&W HKT's mobile customer base was 925,000. With the introduction of General Packet Radio Switching technology later this year, C&W HKT customers will enjoy a ten-fold increase in wireless data transmission capacity from current levels. Internet C&W HKT's Internet services include access services through dial-up, broadband DSL and dedicated leased line connections, on-line content and applications through Internet portals and total Internet solutions for businesses such as website hosting, e-mail, corporate Intranet and Extranet development and on-line security services. Its NETPLUS business is Hong Kong's leading wholesale provider of local and international Internet connectivity for other Internet service providers, with 425 Mbps of transmission capacity to the US alone. The Hong Kong market continues to show strong growth in customer numbers and Internet traffic. C&W HKT's NETVIGATOR ISP service was elected as Hong Kong's 'Best Internet Service Provider' by readers of PC World Magazine (Hong Kong) in 1997, 1998 and 1999. NETVIGATOR is currently the Hong Kong ISP market leader with some 389,000 dial-up customers and 22,000 broadband customers, representing approximately 40 per cent of the post-paid dial-up access market. C&W HKT's ISP service generated Internet traffic of 1.1 billion minutes in December 1999. C&W HKT's www.netvigator.com portal provides Internet users in Hong Kong, Taiwan and Canada with access to a broad range of content and applications in Chinese and English. As of 30 September 1999, total average daily traffic through this site was over 4 million daily page views. Interactive Multimedia Services The strength of its advanced broadband network allowed C&W HKT to launch one of the world's first broadband interactive television (iTV) services in March 1998. These services include a broad range of on-demand entertainment and information services such as movies (video-on-demand), home shopping, music videos, radio, news, karaoke, home banking offered in conjunction with the Bank of China Group and educational content. C&W HKT's iTV customer base was approximately 90,000 as at 30 September 1999. In March 1999, C&W HKT and Microsoft Corporation announced a strategic co-operation to develop a range of multimedia applications to be delivered to personal computers and televisions via C&W HKT's broadband network utilizing Microsoft software. In October 1999, the iZENE.NETVIGATOR broadband portal powered by Microsoft software and delivered on C&W HKT's broadband network was launched. Technical and Other Services C&W HKT also provide technical, computer and engineering services, principally to the Hong Kong SAR Government, telephone directory advertising services and call center services. Regional Expansion C&W HKT is a regional and international entity and has eight offices in the Asia Pacific region and two in Canada. C&W HKT is continuing to diversify its telecommunications activities outside Hong Kong with a focus on Internet and advanced network services. Recent examples include its involvement in mobile consulting projects in the mainland China and recent further investments in Taiwan through Taiwan Telecommunications Network Services, a value-added network services business, and in FIC Network Service, an Internet service provider. C&W HKT also has an investment in MobileOne, the second mobile operator in Singapore, with 320,000 customers as of 31 March 1999. C&W HKT Management and Staff The management and staff of C&W HKT have created a telephone company in Hong Kong which is the envy of Asia in terms of quality and cost efficiency. PCCW is delighted that this transaction with C&W HKT offers significant growth opportunities for the new merged business and all who work in it. With the expansionary possibilities available to the new merged business in both Internet and the growth of PCCW's business across Asia, the directors of PCCW believe that there will be broader opportunities for career potential and personal development. The directors of PCCW hope all members of the C&W HKT management team and all employees will share their excitement and enthusiasm. The directors of PCCW have also decided that upon completion of the Acquisition three members of C&W HKT's senior management team will be invited to become executive directors of PCCW. 10. COMPULSORY ACQUISITION Level of Acceptance If the Offeror acquires not less than 90% of the C&W HKT Shares to which the Offer relates, it is the intention of the Offeror to apply the provisions of Section 168 of the Companies Ordinance relating to the compulsory acquisition of those C&W HKT Shares not acquired by the Offeror pursuant to the Offer (the `Compulsory Acquisition') in order to acquire all the C&W HKT Shares. Right to Compulsory Acquisition In accordance with the requirements of the Companies Ordinance, the Offeror may proceed with the Compulsory Acquisition if it acquires not less than 90% of the C&W HKT Shares to which the Offer relates within a period of four months beginning from the date of the Offer. If the Compulsory Acquisition proceeds, the Offeror will be required to make available (subject to any arrangements made in respect of shareholders of C&W HKT not resident in Hong Kong) the Share Alternative and the Combination Alternative to the C&W HKT Shareholders whose C&W HKT Shares are the subject of the Compulsory Acquisition (the `Outstanding Shareholders'). Terms of Compulsory Acquisition The Outstanding Shareholders will (subject to any arrangements made in respect of shareholders of C&W HKT not resident in Hong Kong) be afforded the opportunity to choose between the Share Alternative and the Combination Alternative for a minimum period of two months after the notice of Compulsory Acquisition (the `Acquisition Notice') is given to them. Timing of Compulsory Acquisition Under the Companies Ordinance, the Acquisition Notice must be given to the Outstanding Shareholders not later than five months after the date of the Offer. As the Outstanding Shareholders must be given a minimum of two months from the date of the Acquisition Notice to exercise their election (subject to any arrangements made in respect of shareholders of C&W HKT not resident in Hong Kong) for the Share Alternative or the Combination Alternative, the final date for the issue of New PCCW Shares and payment of cash to the Outstanding Shareholders is expected to be no later than seven months and 14 days after the date of the Offer. 11. SETTLEMENT OF CONSIDERATION In the event that the Acquisition is implemented by the Offer, the applicable consideration will be despatched to shareholders who validly accept the Offer within 10 days (or such longer period as may be agreed with the Executive) of the later of: (a) the date on which the Offer becomes (or is declared) unconditional in all respects; and (b) the date on which the relevant C&W HKT Shares are tendered for acceptance of the Offer. In the event that the Acquisition is implemented by the Scheme, the applicable consideration will be settled within 5 days of the effective date of the Scheme which is expected to be not later than 14 days after the Court sanction of the Scheme. The Offeror has undertaken for the benefit of all C&W HKT shareholders that simultaneously with declaring the Offer unconditional in all respects, or if the Acquisition is implemented by the Scheme, upon the effective date of the Scheme, to irrevocably direct its bankers that sums drawn under the facilities being provided by those bankers to pay the cash consideration will be held in bank accounts on trust for those C&W HKT shareholders who have validly elected or will validly elect to receive shares and cash under the Combination Alternative pending settlement of that consideration within 10 days from the date of the Offer becoming or being declared unconditional in all respects or if the Acquisition is implemented by the Scheme, within 5 days of the effective date of the Scheme (as applicable). 12. OFFEROR'S INTENTIONS Maintaining a listing If the Delisting Approval is not obtained but the Offeror waives that condition, the Offer will still be subject to the other conditions, including the condition in respect of receiving sufficient acceptances for Compulsory Acquisition. In the event that the Offeror is unable to achieve the level of acceptances for Compulsory Acquisition and Delisting Approval is not obtained but the Offeror chooses to waive both of these conditions and to declare the Offer unconditional as to acceptances, it is the Offeror's intention for C&W HKT to maintain the listing of the C&W HKT Shares on the Stock Exchange. The Offeror and PCCW understand that Rule 8.08 of the Listing Rules relating to the minimum prescribed percentage of C&W HKT Shares to be held by the public has to be complied with. In these circumstances, each of the existing directors of the Offeror and PCCW will jointly and severally undertake to the Stock Exchange, prior to the despatch of the Offer Document containing further details of the Offer to take or procure the taking of appropriate steps to ensure that Rule 8.08 of the Listing Rules is complied with. If the Acquisition is implemented by the Scheme, the C&W HKT Shares will be cancelled and thereby delisted upon the Scheme becoming effective. To the extent applicable and in pursuance of the compulsory acquisition power under the Companies Ordinance, if the Offeror acquires not less than the relevant number of C&W HKT Shares, it is the intention that rights will be exercised under the relevant provisions of the Companies Ordinance relating to the compulsory acquisition of those C&W HKT Shares not acquired by the Offeror pursuant to the Offer in order to acquire all the C&W HKT Shares (see `Compulsory Acquisition' above). Management operations It is the intention of PCCW that the management and daily operations of C&W HKT will be carried out by the existing management of C&W HKT and to invite three of the directors of C&W HKT to join the PCCW Board. Relationship with C&W C&W will be invited to appoint and retain two directors on the board of PCCW during the period in which C&W FE's holding of PCCW Shares exceeds 15% of PCCW's issued share capital and one director during the period in which its holding exceeds 7.5%. C&W and PCCW intend to explore opportunities for commercial co-operation on arm's length market terms. 13. OVERSEAS SHAREHOLDERS The making of the Offer and/or the C&W FE Offer to persons not resident in Hong Kong may be affected by the laws of relevant jurisdictions. Such persons should inform themselves about and observe any applicable legal or regulatory requirements. The Offer will extend, to the extent required by law, to those persons not resident in Hong Kong to whom the Offer document and any related documents may not be despatched or by whom such documents may not be received under the laws of relevant jurisdictions. The Offeror and C&W FE reserve the right to make arrangements in respect of shareholders of C&W HKT not resident in Hong Kong in relation to the terms of the Offer and, as applicable, the C&W FE Offer. It is the responsibility of any overseas persons wishing to accept the Offer (whether or not they elect for the Combination Alternative) and, if applicable, for the C&W FE Offer to satisfy themselves as to the full observance of the laws of the relevant jurisdiction in connection therewith, including the obtaining of any governmental, exchange control or other consents which may be required, or the compliance with other necessary formalities and the payment of any issue, transfer or other taxes due in such jurisdiction. The Offer and the C&W FE Offer are not being made, directly or indirectly, in or into, or by use of the mails, or by any means or instrumentality (including, without limitation, facsimile transmission, telex or telephone) of interstate or foreign commerce of, or any facilities of a national securities exchange of, the United States, nor are they being made in Canada, Australia or Japan. Accordingly, copies of this announcement are not being and must not be mailed or otherwise distributed or sent in or from the United States, Canada, Australia or Japan. Persons receiving this announcement (including, without limitation, nominees, custodians and trustees) should observe these restrictions and not send or distribute this announcement in or into the United States, Canada, Australia or Japan. The New PCCW Shares to be issued in connection with the Acquisition and the C&W FE Offer have not been registered under the U.S. Securities Act of 1933, as amended, or under the securities laws of any state of the United States. The relevant clearances have not been obtained from the securities commission of any province or territory of Canada. No prospectus in relation to the Offer, the C&W FE Offer or the New PCCW Shares has been lodged with, or registered by the Australian Securities Commission, nor have any steps been taken to enable the New PCCW Shares to be offered in compliance with applicable securities laws in Japan. Accordingly, unless an exemption under applicable securities laws is available, or such steps are subsequently taken, the New PCCW Shares may not be offered, sold, re-sold, transferred or delivered, directly or indirectly, in or into or from, the United States, Canada, Australia or Japan or any other jurisdiction in which the offer of the New PCCW Shares would constitute a violation of relevant laws or require registration thereof, or to or for the account or benefit of any US Person or any person in Canada, Australia or Japan. Notwithstanding the restrictions in the previous two paragraphs, the Offeror and C&W FE will retain the right to permit the Offer and the C&W FE Offer respectively to be accepted and the Offeror and C&W FE respectively will retain rights to permit any exchange or sale of securities to be completed if, in their respective discretion, they are satisfied that the transaction in question is exempt from or not subject to the legislation or regulation giving rise to the restrictions in question. The attention of the shareholders of C&W HKT not resident in Hong Kong is drawn to the relevant provisions of the formal Offer Document which will be despatched on behalf of the Offeror in due course. The Offeror reserves the right to notify any matter, including the making of the Offer, to the shareholders of C&W HKT not resident in Hong Kong by announcement or by advertisement in a newspaper which may not be circulated in the jurisdictions of which such shareholders of C&W HKT are resident. The notice will be deemed to have been sufficiently given, despite any failure by such shareholders to receive or see that notice. 14. FURTHER TERMS OF AND GENERAL MATTERS RELATING TO THE OFFER Offer Document The Offer Document (which will contain details of the Offer, the C&W FE Offer and information in relation to C&W HKT and PCCW) and the Forms of Acceptance or, in the event that the Acquisition is to be effected by the Scheme, the necessary forms of election and proxy will be sent to shareholders of C&W HKT as soon as practicable. Subject to the approval of the Executive and the consent of C&W HKT, the Offer Document may be combined with C&W HKT's circular to the shareholders of C&W HKT containing the response of the Board of C&W HKT to the Offer. Stamp Duty In the event the Acquisition is effected by the Offer, one-half of the amount of Hong Kong stamp duty payable will be deducted, at the rate of HK$1.25 for every HK$1,000 (or part of HK$1,000) of the consideration, from the amount payable to the shareholders of C&W HKT who accept the Offer and who validly elect for the Combination Alternative. All stamp duty payable in connection with the Share Alternative and the balance of the stamp duty payable in connection with the Combination Alternative will be borne by the Offeror. Interests in C&W HKT Shares Neither PCCW, the Offeror nor WDR or any person acting in concert with them, save for:- (a) Mr Mico Cho Yee CHUNG, a director of PCCW, who owns together with his wife a total of 181,445 shares in C&W HKT; and (b) BOCI, a financial adviser to PCCW, and their respective affiliates who are presumed to be acting in concert with PCCW under the Takeovers Code, who own 142 shares in C&W HKT; and (c) CSFB, a financial adviser to PCCW, and their respective affiliates who are presumed to be acting in concert with PCCW under the Takeovers Code, who own 60,669 shares and 42,822 American Depositary Receipts in C&W HKT, owns or controls any C&W HKT Shares or has Options to acquire (or other outstanding derivatives in respect of) any C&W HKT Shares. Financial Advisers WDR and BOCI have been appointed to advise PCCW and the Offeror in respect of the Offer and are satisfied that sufficient financial resources are available to the Offeror for the implementation of the Offer. PCCW is also being provided with strategic and general advice by CSFB. Merrill Lynch and Greenhill & Co. have been appointed to advise C&W and Merrill Lynch (Asia Pacfic) Limited has been appointed to advise C&W FE in respect of the C&W FE Offer and Jardine Fleming has been appointed to advise C&W HKT in respect of the Offer. Trading of PCCW Shares Trading in the securities of PCCW on the Stock Exchange was suspended on 25, 28 and 29 February 2000. PCCW has made an application to the Stock Exchange for the resumption of trading in the shares of PCCW on the Stock Exchange as of 10.00 a.m. on 1 March 2000. Shareholders of PCCW and potential investors should be aware that the Offer is subject to certain conditions being fulfilled as referred to above and as such may not become unconditional. Accordingly, shareholders of PCCW and potential investors are advised to exercise caution when dealing in PCCW securities. PCCW Offer Document An Offer Document containing further details of the Offer and the notice convening an extraordinary general meeting of PCCW shareholders in connection with the Offer in accordance with the Takeovers Code and the Listing Rules will be despatched to PCCW shareholders as soon as practicable. By Order of the Board Pacific Century CyberWorks Limited Chu Mee Lai, Helen Company Secretary By Order of the Board Doncaster Group Limited Chu Mee Lai, Helen Company Secretary Hong Kong, 29 February 2000 The Boards of PCCW and the Offeror jointly and severally accept full responsibility for the accuracy of the information contained in this announcement, save that the only responsibility of the Board of PCCW and the Offeror in respect of information contained in this announcement relating to the C&W HKT Group which has been compiled and reproduced from public sources, is to ensure that such information is correctly and fairly reproduced and presented. Subject as aforesaid, they confirm having made all reasonable enquiries, that to the best of their knowledge, their opinions expressed in this announcement have been arrived at after due and careful consideration and there are no other facts not contained in this announcement, the omission of which would make any statement in this announcement misleading. Appendix 1 Conditions to the Acquisition 1. Conditions to the Offer The Offer The Offer (which is deemed to include, where relevant, references to the Share Alternative and/or Combination Alternative) will be made in compliance with the Takeovers Code, will be governed by the laws of Hong Kong and will be subject to the jurisdiction of the Court and to the terms and conditions set out below, in the Offer Document and in the Form of Acceptance. The Acquisition will be subject to the following conditions: (A) Valid acceptances being received (and not, where permitted, withdrawn) by not later than 4.00 p.m. on the first closing date of the Offer (or such later time(s) and/or date(s) as the Offeror may, subject to the rules of the Takeovers Code, decide) in respect of not less than 90 per cent. (or such lesser percentage as the Offeror may decide) in nominal value of C&W HKT Shares to which the Offer relates, provided that this condition will not be satisfied unless PCCW (and/or any of its wholly-owned subsidiaries) shall have acquired, or agreed to acquire, whether pursuant to the Offer or otherwise, C&W HKT Shares carrying, in aggregate, more than 50% of the voting rights then normally exercisable at general meetings of C&W HKT. For the purposes of this condition: (i) C&W HKT Shares which have been unconditionally allotted shall be deemed to carry the voting rights they will carry upon being entered in the register of members of C&W HKT; and (ii) the expression `C&W HKT Shares to which the Offer relates' means (i) C&W HKT Shares unconditionally allotted or issued on or before the date the Offer is made and (ii) C&W HKT Shares unconditionally allotted or issued after that date but before the time at which the Offer ceases to be open for acceptance (or such earlier date, not being earlier than the date on which the Offer becomes unconditional as to acceptances or, if later, the first closing date of the Offer, as PCCW may, subject to the Takeovers Code, decide) but excluding any C&W HKT Shares which, on the date the Offer is made, are held or contracted to be acquired by C&W HKT and/or its associates; (B) C&W HKT's board of directors resolving to consent to PCCW and its associates becoming holders of more than 10% of the shares in C&W HKT as required under C&W HKT's articles of association (The Executive has indicated that any disagreement to give such consent is not allowed under General Principle 9 and Rule 4 of the Takeovers Code.) (C) The shareholders of PCCW passing, at the extraordinary general meeting convened for that purpose (or at any adjournment thereof), such resolutions as may be necessary to implement the Acquisition; (D) The shareholders of PCCW Holdings approving, at the extraordinary general meeting of such shareholders convened for that purpose (or at any adjournment thereof), such resolutions as may be necessary to implement the Acquisition; (E) The shareholders of C&W approving, at the extraordinary general meeting convened for that purpose (or at any adjournment thereof), such resolutions as are necessary to implement the Acquisition, and the approval of the holder of the special share in the capital of C&W being obtained; (F) The passing at a duly convened meeting of the C&W HKT shareholders of a resolution to approve the voluntary withdrawal of listing of the C&W HKT Shares on the Stock Exchange by a majority in number representing three-fourths in value of the C&W HKT Shares held by shareholders of C&W HKT present and voting either in person or by proxy (other than, pursuant to the Listing Rules and Rule 2.2 of the Takeovers Code, those C&W HKT shareholders who are controlling shareholders, directors or the chief executive of C&W HKT or their respective associates and the Offeror and any person acting in concert with the Offeror); (G) an approval in principle being given by the Stock Exchange for the listing and quotation of the New PCCW Shares; (H) if applicable, the European Commission having issued a decision, under Article 6(1)(b) of Council Regulation (EEC) 4064/89 as amended by Council Regulation (EC) 1310197 (the `Merger Regulation') (or being deemed to have done so under Article 10(6) of the Merger Regulation); (I) if applicable, the expiry or termination of all applicable waiting periods (including any extensions thereof) under the United States Hart-Scott- Rodino Anti-trust Improvements Act 1976 and the regulations made thereunder; (J) the obtaining of all other consents, clearances, authorisations and approvals which are necessary for the implementation of the Acquisition and the resulting change of control of C&W HKT, or which would prohibit or prevent the implementation of the Acquisition or make the Acquisition illegal, void or unenforceable under the laws of any relevant jurisdiction or would, directly or indirectly, restrain, restrict or delay the Acquisition or its implementation, where the absence of any such consents, clearances, authorisations or approvals would have a material adverse effect on the C&W HKT Group taken as a whole; (K) no government or governmental, quasi-governmental, statutory or regulatory body or court or any other person or body (each a `Relevant Authority') (including, without limitation, the Telecommunications Authority) having decided to take, institute or implement any action or steps or enacted, made or proposed any statute, regulation or order or otherwise taken any steps that does or would upon taking effect to an extent which would be material to the C&W HKT Group taken as a whole: (i) make the Acquisition or its implementation illegal, void or unenforceable under the laws of any relevant jurisdiction; (ii) require the divestiture by either the PCCW Group or the C&W HKT Group or any of their respective subsidiaries of all or any material portion of their respective businesses, assets or properties or impose any material limitation on the ability of any of them to conduct their respective businesses or own their respective assets or properties; (iii) require any member of the PCCW Group to make an offer to acquire any shares or other securities in any member of the C&W HKT Group owned by any third party; or (iv) impose any material limitation on the ability of any member of the PCCW Group to hold or exercise effectively, directly or indirectly, any rights of ownership over securities in C&W HKT or to exercise, directly or indirectly, management control over C&W HKT or any other member of the C&W HKT Group; (L) all necessary filings or applications in connection with the Acquisition or its implementation having been made, all appropriate waiting periods (including extensions thereof) in respect of the Acquisition under any applicable legislation or regulations of any jurisdiction having expired, lapsed or been terminated and all authorisations, orders, recognitions, grants, consents, licences, confirmations, clearances, permissions and approvals (`Authorisations') deemed necessary or appropriate for or in respect of the Acquisition, or which are necessary for C&W HKT to carry on its business, having been obtained in terms and in a form reasonably satisfactory to the Offeror from all appropriate Relevant Authorities to the extent that such authorisations are material in the context of the Offer, or other bodies with whom any member of the PCCW Group or the C&W HKT Group has entered into contractual arrangements and all such Authorisations remaining in full force and effect and there being no intimation or notice of an intention to revoke or not to renew any of the same having been received, in each case as may be necessary in connection with the Acquisition under the laws or regulations of any jurisdiction and all necessary statutory or regulatory obligations in connection with the Acquisition and their implementation in any relevant jurisdiction having been complied with; (M) there being no provision of any arrangement, agreement, licence or other instrument to which any member of the C&W HKT Group is a party or by or to which any such member is or are or may be bound, entitled or subject which as a consequence of the implementation of the Acquisition or the acquisition or proposed acquisition by any member of the PCCW Group of some or all of the share capital or other securities in C&W HKT or because of a change in control or management of C&W HKT could or might reasonably result in, to an extent which is material in the context of the C&W HKT Group, taken as a whole: (i) any monies borrowed by or other indebtedness (actual or contingent) of any member of the C&W HKT Group being repayable or being capable of being declared repayable prior to their stated maturity; (ii) the creation of any mortgage, charge or other security interest over the whole or any material part of the business, property or assets of any member of the C&W HKT Group or any such security (whether arising or having arisen) becoming enforceable; (iii) any such arrangement, agreement, licence (including, without limitation, the C&W HKT Group's licences under the Telecommunication Ordinance), permit, franchise or other instrument being terminated or adversely modified or any material action being taken or any material obligation arising thereunder; or (iv) the interest or business of any member of the C&W HKT Group in or with any person, firm, company or body (or any arrangement or arrangements relating to such interest or business) being terminated or adversely modified or affected, in each case in consequence of the Acquisition; (N) save as publicly announced prior to 28 February 2000, no member of the C&W HKT Group having since 31 March 1999 (being the date to which the latest annual report and accounts of C&W HKT Group were made up): (i) issued, agreed or authorised or proposed the issue of additional shares of any class, or securities convertible into, or rights, warrants or options to subscribe for or acquire, any such shares or convertible securities (save as between C&W HKT and its wholly-owned subsidiaries or for options granted, and any shares in C&W HKT issued upon exercise of options granted, prior to 28 February 2000, under or pursuant to the Share Option Scheme); (ii) save for the second interim or final dividend in respect of the year ending 31 March 2000 of up to a maximum of HK$0.45 per C&W HKT Share, recommended, declared, paid or made any bonus, dividend or other distribution other than between members of the C&W HKT Group; (iii) to an extent which is material in the context of the C&W HKT Group as a whole, merged with any body corporate or acquired or disposed of any assets or authorised, proposed or announced any intention to propose any merger, demerger, acquisition or disposal; (iv) issued, authorised or proposed the issue of any debentures or, save in the ordinary course of business, incurred or increased any indebtedness or contingent liability in each case to an extent which is material in the context of the C&W HKT Group, taken as a whole; (v) purchased, redeemed or repaid or announced any proposal to purchase, redeem or repay any of its own shares or other securities or redeemed or reduced or made any other change to any part of its share capital to an extent which is material in the context of the C&W HKT Group, taken as a whole; (vi) entered into any contract, transaction, arrangement or commitment (whether in respect of capital expenditure or otherwise) which is of a long-term, onerous or unusual nature or magnitude, and which involves or is likely to involve an obligation of a nature or magnitude which, in any case, is material in the context of the C&W HKT Group, taken as a whole; and (vii) made or authorised or proposed or announced an intention to propose any change in its loan capital to an extent which is material in the context of the C&W HKT Group, taken as a whole; (O) save as publicly announced or otherwise disclosed by C&W HKT or its advisers to PCCW or its advisers prior to 28 February 2000, since 31 March 1999, being the date to which the latest audited report and accounts of C&W HKT were made up: (i) there having been no material adverse change in the business, financial or trading position or prospects of any member of the C&W HKT Group to an extent which is material in the context of the C&W HKT Group, taken as a whole; (ii) there not having been instituted or remaining outstanding any litigation, arbitration proceedings, prosecution or other legal proceedings to which any member of the C&W HKT Group is a party (whether as plaintiff or defendant or otherwise) and no such proceedings having been threatened in writing against any such member and no investigation by any government or quasi- governmental, supranational, regulatory or investigative body or court against or in respect of any such member or the business carried on by any such member having been threatened in writing, announced, instituted or remaining outstanding by, against or in respect of any such member in each case which is material and adverse in the context of the C&W HKT Group, taken as a whole; and (P) the Commission having approved in writing pursuant to Section 26A of the SFC Ordinance that the Offeror and any other person who, as a result of the acquisition of C&W HKT Shares pursuant to the Acquisition, will become a substantial shareholder of any company in the C&W HKT Group which is a registered person, becoming a substantial shareholder of such company in the C&W HKT Group. 2. Conditions of the Scheme In the event that the Acquisition is effected by the Scheme the condition in paragraph 1(F) of this Appendix I will be waived by the Offeror and the following condition will apply in the place of the condition in paragraph 1(A) of this Appendix 1: (A) the approval by a majority in number representing three-fourths in value of the holders of the C&W HKT Shares or any class thereof present and voting, either in person or by proxy, at a meeting or meetings convened by the Court; (B) the necessary special resolutions required to implement the Scheme, including a proposed reduction of share capital of C&W HKT being duly passed by a majority of three-fourths of the votes cast by holders of C&W HKT Shares present and voting, either in person or by proxy at an extraordinary general meeting of C&W HKT; and (C) the sanction (with or without modification) of the Scheme and confirmation of any reduction in capital included in the Scheme by the Court, and a copy of the order of the Court being delivered for registration to the Registrar of Companies in Hong Kong. 3. Delisting under the Scheme In the event that the Acquisition is effected by the Scheme, all of the C&W HKT Shares will be cancelled and thereby delisted upon the Scheme becoming effective. 4. Waiver of conditions The Offeror reserves the right to waive all or any of the conditions set out in paragraph 1 of this Appendix 1, in whole or in part, for the purposes of the Acquisition, except for conditions (A) and (G) with the proviso that it will not waive conditions (B) and (E) except with the consent of C&W. Appendix 2 Irrevocable Undertaking The circumstances in which the irrevocable undertaking may lapse are as follows: (A) the Offer Document or the Scheme Document, as the case may be, not having been despatched on or before the date 35 days after the date hereof unless the SFC shall have consented to later despatch and delay has not been caused by default of PCCW or the Offeror; or (B) any condition of the Offer having been invoked; or (C) the Offer lapsing or being withdrawn; or (D) the conditions of the Offer, other than the condition as to acceptances, not having been satisfied or (if waivable by the Offeror without C&W's consent) waived on or before the date 135 days after the date hereof; or (E) the obligations of either of C&W or C&W FE under this undertaking having become inconsistent with the fiduciary duties of the directors of the relevant one of them and C&W or C&W FE, as the case may be, having notified PCCW in writing to such effect; or (F) any specified events relating to the PCCW Group having occurred in circumstances where the occurrence of such event would permit an offeror to lapse an offer subject to the Takeovers Code were it to be the case that PCCW was an offeree the subject of such offer. Appendix 3 Definitions The following definitions apply throughout this announcement, unless the context requires otherwise: `Acquisition' the proposed acquisition of C&W HKT by PCCW whether implemented and effected by the Offer or the Scheme; `Board' the Board of Directors of any of C&W, C&W HKT, PCCW or the Offeror, as applicable; `BOCI' BOCI Asia Limited; `C&W' Cable and Wireless plc, a company incorporated in England and Wales with limited liability; `C&W FE' Cable and Wireless (Far East) Limited, a company incorporated in Hong Kong with limited liability and a wholly-owned subsidiary of C&W `C&W FE Offer' the independent conditional offer by C&W FE to C&W HKT shareholders (other than C&W FE and certain overseas shareholders) who elect to accept the Combination Alternative; `CMGI' CMGI Inc.; `Combined Group' PCCW and its subsidiaries (as such term is defined in the Companies Ordinance) as enlarged following the implementation of the Acquisition; `Combination Alternative' the proposed combination alternative under which holders of C&W HKT Shares who validly accept the Offer may elect to receive a combination of New PCCW Shares and cash (in HK$ or US$) in exchange for their C&W HKT Shares; `Companies Ordinance' the Companies Ordinance (Chapter 32 of the Laws of Hong Kong); `C&W HKT Group' C&W HKT and each of its subsidiaries (as such term is defined in the Companies Ordinance); `C&W HKT Shares' the existing issued shares of HK$0.50 each in C&W HKT at the date hereof and any such further shares which are unconditionally allotted or issued after the date hereof and before the date on which the Offer closes (or such earlier date or dates as PCCW and the Offeror may decide) pursuant to the exercise of options under the Share Option Scheme; `Court' the High Court of the Hong Kong Special Administrative Region of the People's Republic of China; `Court Meeting(s)' the meeting(s) of the shareholders of C&W HKT, or any class thereof, convened by direction of the Court in connection with the Scheme; `CSFB' Credit Suisse First Boston (Hong Kong) Securities Limited; `Delisting Approval' approval by the independent shareholders of C&W HKT of a voluntary withdrawal of listing of the C&W HKT Shares on the Stock Exchange; `Executive' the Executive Director of the Corporate Finance Division of the Securities and Futures Commission; `Extraordinary General the extraordinary general Meeting' meeting of C&W HKT, or any class thereof, to consider and if thought fit, approve the reduction of capital included in the Scheme; `Form of Acceptance' the form of acceptance, election and authority relating to the Offer to accompany the Offer Document; `Hicks Muse' Hicks Muse Tate and Furst Inc.; `Hong Kong' the Hong Kong Special Administrative Region of the People's Republic of China; `Increased Cash Election' the facility for shareholders to elect to increase the amount of cash receivable pursuant to a valid election under the Combination Alternative; `Listing Rules' the Rules Governing the Listing of Securities on the Stock Exchange; `Long Stop Date' the last date when the Offeror can declare the Offer unconditional, being 60 days after the date of making the Offer or such later date as the Executive may consent to (being not later than 135 days after the date of this announcement); `Merrill Lynch (Asia Pacific) Merrill Lynch (Asia Pacific) Limited' Limited, a dealer and investment adviser registered under the Securities Ordinance (Chapter 333 of the Laws of Hong Kong) `New PCCW Shares' the new PCCW Shares proposed to be issued, credited as fully paid, pursuant to the Offer; `Offer' the voluntary conditional securities exchange offer by WDR and BOCI on behalf of the Offeror to acquire the C&W HKT Shares; `Offer Conditions' the conditions to the Offer set out in paragraph 1 of Appendix 1; `Offer Document' the formal document proposed to be sent to shareholders of C&W HKT containing, inter alia, details of the Acquisition; `Offeror' Doncaster Group Limited, a company incorporated in Hong Kong and a wholly owned subsidiary of PCCW; `Option' or `Options' an option or options over C&W HKT Shares granted as at 28 February 2000; `PCCW' Pacific Century CyberWorks Limited, a company incorporated in Hong Kong with limited liability, the shares of which are listed on the Stock Exchange; `PCCW Group' PCCW and each of its subsidiaries (as such term is defined in the Companies Ordinance); `PCCW Holdings' Pacific Century Regional Developments Limited, the holding company of PCCW whose securities are listed on the Singapore Stock Exchange; `PCCW Shares' shares of HK$0.05 each in the capital of PCCW; `SFC Ordinance' The Securities and Futures Commission Ordinance (Chapter 24 of the Laws of Hong Kong); `Scheme' a scheme of arrangement between C&W HKT and the C&W HKT shareholders under Section 166 of the Companies Ordinance to cancel all the existing C&W HKT Shares; `Share Alternative' the proposed share alternative under which holders of C&W HKT Shares who validly accept the Offer may elect to receive New PCCW Shares in exchange for their shares in C&W HKT; `Share Option Scheme' the share option scheme adopted by C&W HKT; `Stock Exchange' The Stock Exchange of Hong Kong Limited; `substantial shareholder' has the meaning given in section 2 of the SFC Ordinance; `Takeovers Code' The Hong Kong Code on Takeovers and Mergers as in force from time to time; `Telecommunications The Telecommunications Authority' Authority of Hong Kong; `Telecommunication Ordinance' The Telecommunication Ordinance (Chapter 106 of the Laws of Hong Kong); `United States' The United States of America its territories and possessions, any State of the United States of America and the District of Columbia; `US Person' a US person as defined in Regulation S of the US Securities Act 1933 (as amended); and `WDR' Warburg Dillon Read (Asia) Limited.