i-Cable Communications Limited

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

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

==> picture [97 x 50] intentionally omitted <==

(Incorporated in Hong Kong with limited liability)

(Stock Code: 1097)

(1) PROPOSED OPEN OFFER OF 3,352,520,666 OFFER SHARES AT HK$0.21 PER OFFER SHARE ON THE BASIS OF FIVE OFFER SHARES FOR EVERY THREE EXISTING SHARES HELD ON THE RECORD DATE

(2) APPLICATION FOR WHITEWASH WAIVER

(3) LOAN CAPITALISATION AND EXTENSION OF WHARF FACILITY

(4) PROPERTY AGREEMENTS

(5) SPECIAL DEALS

(6) PROPOSED CHANGE IN BOARD LOT SIZE

(7) NOTICE OF CLOSURE OF REGISTER OF MEMBERS

(8) FURTHER EXTENSION OF DEADLINE FOR RENEWAL OF PAY TV LICENCE AND

(9) NOTICE OF EGM

Financial Consultant to the Company

Ernst & Young Transactions Limited

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

Lego Corporate Finance Limited

Underwriter of the Open Offer Forever Top (Asia) Limited

Capitalised terms used in this cover page shall have the same meanings as those defined in this circular.

A letter from the Board is set out on pages 17 to 79 of this circular. A letter from the Independent Board Committee is set out on pages 80 to 81 of this circular. A letter from Lego containing its advice and recommendation to the Independent Board Committee and the Independent Shareholders is set out on pages 82 to 132 of this circular.

A notice convening the EGM to be held in the Centenary Room, Ground Floor, The Marco Polo Hongkong Hotel, 3 Canton Road, Kowloon, Hong Kong at 10:45 a.m. on Monday, 29 May 2017 is set out on pages EGM-1 to EGM-4 of this circular. A form of proxy for use by the Shareholders at theformEGMof proxyis enclosedin accordanceherein. Whetherwith theor instructionsnot you intendprintedto attendthereonand tovotetheat Companythe EGM’sinregisteredperson, youofficeare requestedat 16th Floor,to completeOcean andCentre,returnHarbourthe enclosedCity, Canton Road, Kowloon, Hong Kong not later than 10:45 a.m. on Friday, 26 May 2017, or in case of any adjournment thereof, not later than 48 hours (exclusive of any part of a day that is a public holiday) before the time appointed for holding such adjourned meeting. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjourned meeting should you so wish.

theTheparagraphUnderwritingOpen headedOffer is‘‘AgreementconditionalThe Underwriting(seeuponthefulfilmentAgreementsection orheaded’’ waiverin the ‘‘‘‘TerminationofLetterall conditionsfrom theof Boardtheset Underwritingout’’ herein.under theIn particular,Agreementsub-paragraphit’’ isherein)subjectheadedonto‘‘Conditionsorthe beforeUnderwriterprecedentthe Latestnot ’’terminatingunderTime thefor Termination. Accordingly, the Open Offer may or may not become unconditional and may or may not proceed. Shareholders and potential investors are advised to exercise caution when dealing in the Shares, and if they are in any doubt about their position, they should consult their professional advisers.

12 May 2017

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Expected timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Termination of the Underwriting Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	80
Letter from Lego . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	82
Appendix I – Financial information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-1
Appendix II – Unaudited pro forma financial information of the Group . . . .	II-1
Appendix III – General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	III-1
Notice of the EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	EGM-1

– i –

DEFINITIONS

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

‘‘Announcement’’

the announcement of the Company dated 20 April 2017 in relation to the Open Offer, which is to be read together with the April 24 Announcement as a whole

‘‘April 24 Announcement’’

the announcement of the Company dated 24 April 2017

‘‘acting in concert’’

has the meaning ascribed to it under the Takeovers Code

‘‘Application Form(s)’’ the application form(s) to be used by the Qualifying Shareholders to apply for the Offer Shares in the agreed form
‘‘Board’’ the board of Directors
‘‘Business Day(s)’’
for the purpose of the Underwriting Agreement, a day (excluding Saturdays) on which banks are generally open for business in Hong Kong; and for all other purposes, a day on which the Stock Exchange is open for transaction of business
‘‘CCASS’’
the Central Clearing and Settlement System established and operated by HKSCC
‘‘CCASS Beneficial Owner(s)’’

beneficial owners of the Shares who hold pecuniary interests and voting rights in the Company with respect to the Shares deposited into CCASS and registered in the name of HKSCC Nominees

‘‘Closing Date’’

the first day of dealings in Offer Shares on the Stock Exchange, which is expected to be 9:00 a.m. on Thursday, 14 September 2017 (or such other date as the Company and the Underwriter will agree in writing)

‘‘Companies (WUMP) Ordinance’’
the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32 of the Laws of Hong Kong), as amended from time to time
‘‘Company’’
i-CABLE Communications Limited (Stock Code: 1097), a company incorporated under the laws of Hong Kong and the shares of which are listed on the Main Board

– 1 –

DEFINITIONS

‘‘Conditions Fulfilment Date’’
14 October 2017, or such later date or dates as the Company and the Underwriter may agree in writing, which is the last day permissible under the Underwriting Agreement for the fulfilment (or waiver, if applicable) of all conditions precedent of the Underwriting Agreement
‘‘controlling shareholder(s)’’
shall have the meaning as ascribed to it under the Listing Rules
‘‘Controlling Shareholder Companies’’
WF Investment Partners Limited, Wharf Limited, Wheelock Corporate Services Limited, Wheelock Nominees Limited, Wharf Communications Limited, Corrington Securities & Investment Limited and Instinet Pacific Limited
‘‘Director(s)’’ director(s) of the Company
‘‘EGM’’
the extraordinary general meeting of the Company to be convened at 10:45 a.m. on Monday, 29 May 2017 (or any adjournment thereof) for the Independent Shareholders to consider and, if thought fit, approve, among other things, the Open Offer, the Whitewash Waiver and the Special Deals
‘‘Excluded Event’’

In respect of the right of the Underwriter to terminate the Underwriter Agreement on the ground of Material Adverse Change, any event, circumstance, matter or thing that is resulted from:

(a) general economic or political conditions or changes in those conditions (including financial market fluctuations, changes in currency or exchange markets, changes in interest rates and changes in tax, securities or other applicable laws);
(b) the execution, performance or announcement of the Underwriting Agreement (including as a result of the change of control of the Company);
(c) conditions affecting any or all of the free or pay domestic television broadcasting services generally on account of changes in law, regulation or the policies of the Communications Authority; or
(d) any matters disclosed in the Rule 13.09 Announcement

– 2 –

DEFINITIONS

‘‘Executive’’
‘‘Facility Term Extension’’
‘‘Facility Term Extension Agreement’’
‘‘FANhub set top box’’
‘‘Final Acceptance Date’’
‘‘Free TV Licence’’
‘‘FTV’’
‘‘FTV Waiver Approval’’
‘‘Further Distribution(s) in Specie’’

The Executive Director of the Corporate Finance Division of the SFC or any of his delegate

the extension of the term of the Wharf Facility to 31 December 2019, which such extension will become effective immediately after completion of the Loan Capitalisation Agreement

the facility term extension agreement dated 14 April 2017 entered into among the Company, HKCTV and Wharf Finance in relation to the Facility Term Extension

a full featured, ‘‘video-on-demand’’, interactive HD (high definition) set top box launched by the Group in early 2016 to enrich customer experience

the last date for acceptance and payment in respect of the Offer Shares, which is currently scheduled to be on 4 September 2017 or such later date as the Company and the Underwriter may agree

domestic free television programme service licence issued to FTV

Fantastic Television Limited, a private company incorporated in Hong Kong, which is a consolidated structured entity of the Group and the Company holds 14.9% of its voting rights

a notice of waiver from FTV’s compliance with its current shareholding structure under condition 10.2 of its domestic free television programme service licence in respect of the revised shareholding structure on account of the Open Offer, the Underwriting Agreement and the Loan Capitalisation

one or more further distribution(s) in specie of certain number of Shares, out of the Shares to be held by the Wharf Group pursuant to the Loan Capitalisation, which such distribution(s) may take place in various tranches to the shareholders of Wharf

– 3 –

DEFINITIONS

‘‘GPON’’ Gigabit-capable Passive Optical Networks ‘‘Group’’ the Company and its subsidiaries and, for the purpose of the Underwriting Agreement, FTV and FTV’s subsidiaries

‘‘HKCTV’’ Hong Kong Cable Television Limited, a private company incorporated in Hong Kong and a wholly owned subsidiary of the Company

‘‘HKCTV Waiver Approval’’ a notice of waiver from HKCTV’s compliance with its current shareholding structure under its domestic pay television programme service licence in respect of the revised shareholding structure on account of the Open Offer, the Underwriting Agreement and the Loan Capitalisation ‘‘HK$’’ Hong Kong dollar, the lawful currency of Hong Kong ‘‘HKSCC’’ Hong Kong Securities Clearing Company Limited

‘‘Hong Kong’’

the Hong Kong Special Administrative Region of the People’s Republic of China

‘‘HSBC’’

The Hongkong and Shanghai Banking Corporation Limited

‘‘Independent Board Committee’’

the independent committee of the Board comprising all independent non-executive Directors (except Mr. Sherman S. M. Tang), namely Mr. Herman S. M. Hu, Mr. Roger K. H. Luk and Mr. Patrick Y. W. Wu, which is established to give recommendations to the Independent Shareholders on, among others, the Open Offer, the Whitewash Waiver and the Special Deals. Mr. Sherman S. M. Tang is familially related to one of the shareholders of the Underwriter

‘‘Independent Financial Adviser’’or ‘‘Lego’’

Lego Corporate Finance Limited, the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Open Offer, the Whitewash Waiver and the Special Deals

‘‘Independent Shareholders’’

Shareholders other than Wharf Communications Limited and parties acting in concert with it, and persons who are involved or interested in the Open Offer, the Underwriting Agreement, the Whitewash Waiver and/or the Special Deals

– 4 –

DEFINITIONS

‘‘Independent Third Party(ies)’’
‘‘Initial Distribution in Specie’’
‘‘Key Conditions’’
‘‘Key Conditions Fulfilment Date’’
‘‘Last Closing Price’’
‘‘Last Day for Transfer’’
‘‘Last Trading Day’’
‘‘Latest Practicable Date’’
‘‘Latest Time for Acceptance’’
‘‘Latest Time for Termination’’
‘‘Listing Committee’’
any person or company and their respective shareholders, ultimate beneficial owners (if applicable) and associates which, to the best of the Directors’ knowledge, information and belief, are third parties independent of the Company and its connected persons
a distribution in specie of all Shares currently held by the Controlling Shareholder Companies to the shareholders of Wharf
the conditions precedent set out in sub-paragraphs (1), (2), (3)(a), (3)(b), (4), (5), (6) and (7) in the paragraph headed ‘‘Conditions precedent’’ in this circular
the date on which all of the Key Conditions are fulfilled (or waived, if applicable)
the closing price of HK$0.61 per Share as quoted on the Stock Exchange on the Last Trading Day
the last date for lodging transfer of Shares prior to the closure of register of members of the Company for ascertaining the rights to attend and vote at the EGM, which is currently scheduled to be on 22 May 2017 or such later date as the Company and the Underwriter may agree
13 April 2017, being the last full trading day for the Shares before the release of the Announcement
9 May 2017, being the latest practicable date prior to the printing of this circular for inclusion of certain information herein
a time which is currently expected to be 4:00 p.m. on the Final Acceptance Date
4:00 p.m. (Hong Kong time) on the business day immediately after the Latest Time for Acceptance or such later time or date as may be agreed between the Underwriter and the Company, being the latest time to terminate the Underwriting Agreement

has the meaning ascribed thereto in the Listing Rules

– 5 –

DEFINITIONS

‘‘Listing Rules’’
‘‘Loan Capitalisation’’
‘‘Loan Capitalisation Agreement’’
‘‘Loan Capitalisation Amount’’
‘‘Loan Capitalisation Shares’’
‘‘Main Board’’
‘‘Management Services Agreement’’

the Rules Governing the Listing of Securities on the Stock Exchange

the conversion of the Loan Capitalisation Amount to the Loan Capitalisation Shares in accordance with the Loan Capitalisation Agreement

the conditional loan capitalisation agreement dated 14 April 2017 among Wharf Finance, HKCTV and the Company in relation to the Loan Capitalisation

the sum of HK$300 million, being part of the outstanding principal loan currently owing by HKCTV to Wharf Finance under the Wharf Facility

a total of 841,987,090 new Shares to be issued to Wharf Finance or its nominee, at the issue price of one Share for approximately HK$0.3563, pursuant to the Loan Capitalisation Agreement
the main board of the Stock Exchange

the management services agreement dated 1 November 1999 (as supplemented by the supplemental agreement dated 2 March 2006, second supplemental agreement dated 11 July 2007, third supplemental agreement dated 24 November 2009, fourth supplemental agreement dated 14 December 2012 and fifth supplemental agreement dated 19 December 2014 between the Company and Wharf Limited) (and all supplemental agreements thereto), in relation to the provisions of management and administrative services from the Wharf Group to the Group

– 6 –

DEFINITIONS

‘‘Material Adverse Change’’
‘‘Non-Qualifying Shareholder(s)’’
‘‘Offer Price’’
‘‘Offer Shares’’
‘‘Open Offer’’
‘‘Overseas Letter’’

any matter, event, condition or change in circumstances or thing (including any breach of warranty of the Company or the obligations of the Company under the Underwriting Agreement) which, individually or when aggregated with all such other matters, events, conditions, changes in circumstances or things, occurs or becomes known before the Latest Time for Termination, and which is not an Excluded Event or which does not result from an Excluded Event, and which materially adversely affects or impacts upon the continuation of the regulatory licences of the Group or the conditions to which they are issued, the continuation of the business and/or operations of the Group in the manner substantially the same as they are currently being conducted as at the date of the Underwriting Agreement, including the right to own, operate or deploy the assets (tangible and intangible) of the Group for the purpose of its existing business and operations

Overseas Shareholder(s) in respect of whom the Directors, based on legal advice provided by legal advisers in the relevant jurisdictions, consider it necessary or expedient to exclude from the Open Offer, on account either of the legal restrictions under the laws of the relevant place or the requirements of the relevant regulatory body or stock exchange in that place
the Offer Price of HK$0.21 per Offer Share
3,352,520,666 new Shares proposed to be offered to the Qualifying Shareholders at the Offer Price pursuant to the Open Offer
the proposed offer of the Offer Shares to the Qualifying Shareholders at the Offer Price, on the basis of five (5) Offer Shares for every three (3) existing Shares held by each Qualifying Shareholder on the Record Date
a letter from the Company to the Non-Qualifying Shareholders explaining the circumstances in which the Non-Qualifying Shareholders are not permitted to participate in the Open Offer

– 7 –

DEFINITIONS

‘‘Overseas Shareholder(s)’’

Shareholder(s) whose names appear on the register of members of the Company as at the close of business on the Record Date and whose address(es) as shown on such register is/are outside Hong Kong

‘‘Pay TV Licence’’
the domestic pay television programme service licence issued to HKCTV
‘‘Posting Date’’

currently expected to be 21 August 2017 or such other date as the Underwriter may agree in writing with the Company as the date of despatch of the Prospectus Documents to the Qualifying Shareholders or the Overseas Letter and the Prospectus, for information only, to the Non-Qualifying Shareholders (as the case may be)

‘‘PRC’’

the People’s Republic of China, excluding for the purposes of this circular only, Hong Kong, the Macau Special Administrative Region of the People’s Republic of China and Taiwan

‘‘Property Agreements’’
the three legally-binding memoranda of understanding dated 14 April 2017 and entered into by the relevant members/associated companies of the Wharf Group (as landlord/licensor) on the one hand and the relevant members of the Group (as tenant/licensee) on the other hand (or any subsequent formal lease agreement(s)/licence agreement(s) which supersedes the relevant memorandum of understanding) in relation to the Relevant Key Properties
‘‘Prospectus’’
the prospectus to be issued by the Company in relation to the Open Offer
‘‘Prospectus Documents’’ the Prospectus and Application Forms
‘‘Public Float Requirement’’

the requirement to maintain not less than 25% public float of the Company according to Rule 8.08(1)(a) of the Listing Rules

‘‘Qualifying Shareholder(s)’’
Shareholder(s), other than the Non-Qualifying Shareholder(s), whose name(s) appear on the register of members of the Company as at the close of business on the Record Date

– 8 –

DEFINITIONS

‘‘Record Date’’

the date by reference to which entitlements to the Open Offer are expected to be determined, which is currently scheduled to be on 18 August 2017 or such later date as the Company and the Underwriter may agree

‘‘Registrar’’

the share registrar of the Company in Hong Kong, being Tricor Tengis Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong

‘‘Relevant Key Properties’’ the Relevant Properties (7) (except (e)), (10) and (11) set out under the paragraph headed ‘‘Property Agreements’’ in the “Letter from the Board” in this circular
‘‘Relevant Period’’
between the closing date of the Open Offer and the completion date of the Loan Capitalisation
‘‘Relevant Offer Period’’ the six calendar months during the period commencing six months preceding the Last Trading Day and ending on the Latest Practicable Date
‘‘Relevant Properties’’ those properties currently owned by the Wharf Group and used by the Group, which are set out under the paragraph headed ‘‘Property Agreements’’ in the “Letter from the Board” in this circular
‘‘Rule 13.09 Announcement’’ the announcement issued by the Company on 9 March 2017 pursuant to Rule 13.09 of the Listing Rules
‘‘SCED’’
the Secretary for Commerce & Economic Development
‘‘SFC’’
the Securities and Futures Commission of Hong Kong
‘‘SFO’’ the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
‘‘Share(s)’’ ordinary share(s) of the Company
‘‘Shareholder(s)’’ holder(s) of the Shares ‘‘Special Deals’’ the (i) Loan Capitalisation; (ii) Facility Term Extension; and (iii) Property Agreements
‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited

– 9 –

DEFINITIONS

‘‘substantial shareholder’’

shall have the meaning as ascribed to it under the Listing Rules

‘‘Takeovers Code’’ the Hong Kong Code on Takeovers and Mergers and Share Buy-backs
‘‘Undertaking’’ the Undertaking provided by Wharf to the Underwriter dated 14 April 2017
‘‘Underwriter’’

Forever Top (Asia) Limited, a company incorporated in Hong Kong with limited liability on 9 January 2015, the ultimate beneficial owners of which are the Underwriter Guarantors, which is an Independent Third Party as at the Latest Practicable Date

‘‘Underwriter Guarantors’’

Mr. David Chiu, Dr. Cheng Kar-Shun Henry, Chow Tai Fook Enterprises Limited, Expand Ocean L.P. and Mr. Li Sze Lim, each of them is an Independent Third Party as at the Latest Practicable Date

‘‘Underwriting Agreement’’
the underwriting agreement dated 14 April 2017 entered into between the Company, the Underwriter and the Underwriter Guarantors in relation to the Open Offer
‘‘Underwritten Share(s)’’
the Offer Shares underwritten by the Underwriter pursuant to the terms of the Underwriting Agreement, being all 3,352,520,666 Offer Shares
‘‘Waiver Approval Application(s)’’
application(s) to the Communications Authority seeking the HKCTV Waiver Approval and/or the FTV Waiver Approval
‘‘Wharf’’
The Wharf (Holdings) Limited, a company incorporated in Hong Kong whose shares are listed on the Main Board (Stock Code: 4)
‘‘Wharf Facility’’

a revolving loan facility granted by Wharf Finance to HKCTV, a subsidiary of the Company, of up to the principal amount of HK$400 million pursuant to the Wharf Facility Agreement, which based on the existing terms will expire on 31 December 2017

– 10 –

DEFINITIONS

‘‘Wharf Facility Agreement’’
‘‘Wharf Finance’’
‘‘Wharf Group’’
‘‘Wheelock’’
‘‘Wheelock Group’’
‘‘Wheelock Distribution in Specie’’
"Wheelock Waiver’’
‘‘Whitewash Waiver’’
‘‘%’’

the facility agreement dated 12 December 2016 made between HKCTV and Wharf Finance

Wharf Finance Limited, a wholly owned subsidiary of Wharf, and the provider of the Wharf Facility

Wharf and its subsidiaries
Wheelock and Company Limited, a company incorporated in Hong Kong whose shares are listed on the Main Board (Stock Code: 20). Wheelock is a controlling shareholder of Wharf

Wheelock and its subsidiaries, and for the purpose of information presentation under ‘‘Shareholding Structure of the Group’’ in this circular, excludes Wharf Group

a distribution in specie of all Shares to be held by Wheelock through the Initial Distribution in Specie, to the shareholders of Wheelock

where applicable, the waiver to be granted by the Executive under Note 6(a)(i) to Rule 26.1 of the Takeovers Code dispensing Wheelock from the obligation to make a mandatory general offer for all the Shares in issue and not already owned or agreed to be acquired by them arising as a result of the Initial Distribution in Specie

the whitewash waiver to be granted by the SFC and approved by the Independent Shareholders dispensing the Underwriter from the obligation to make a mandatory general offer for all the Shares currently in issue and not already owned or agreed to be acquired by them, respectively, arising under Rule 26 of the Takeovers Code as a result of the Underwriter performing its obligations under the Underwriting Agreement

per cent

– 11 –

EXPECTED TIMETABLE

The implementation of the Open Offer is subject to a number of approvals, which include the approval of the Communications Authority, the SFC and the Independent Shareholders. It is a term of the Underwriting Agreement that all conditions must be fulfilled (or waived, if applicable) by the Conditions Fulfilment Date, which is currently set on 14 October 2017 (or such later date as the Company and the Underwriter may agree in writing). Currently there are uncertainties if and when all the relevant approvals stipulated in the conditions precedent will be obtained, so the below expected timetable is only an estimation of the Board based on the current information, and is subject to changes according to circumstances and developments. The Company will issue announcement(s) to update the Shareholders and investors on the expected timetable from time to time, when appropriate.

The current expected timetable for the Open Offer is set out below:

2017

Despatch of this circular in relation to, among others,
the Open Offer, the Whitewash Waiver and Special Deals	. . . . . . . . . Friday, 12 May
Latest time for lodging transfer of Shares in order
to qualify for attendance and voting at the EGM . . . . . .	. . . . . 4:30 p.m. on Monday,
	22 May
Register of members closes (both days inclusive) . . . . . . .	. . . . . . Tuesday, 23 May to
	Monday, 29 May
Latest time to submit the form of proxy . . . . . . . . . . . . .	. . . . . 10:45 a.m. on Friday,
	26 May
Record date for attendance and voting at the EGM . . . . . .	. . . . . . . . Monday, 29 May
Date of EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . 10:45 a.m. on Monday,
	29 May
Announcement of poll results of the EGM . . . . . . . . . . . .	. . . . . . . . Monday, 29 May
Key Conditions Fulfilment Date (the date on which all of
the conditions precedent set out in sub-paragraphs (1), (2),
(3)(a), (3)(b), (4), (5), (6) and (7) in the paragraph
headed ‘‘Conditions precedent’’ under the paragraph
headed ‘‘The Underwriting Agreement’’ in the ‘‘Letter of the Board’’
in this circular are fulfilled (or waived, if applicable) . . .	. . . . . . . . Monday, 31 July
Announcement of the Record Date for the Open Offer entitlement . . . . . Monday, 31 July
Last date of dealings in Shares on cum-entitlement basis . . .	. . . . . Wednesday, 9 August

– 12 –

EXPECTED TIMETABLE

2017

First day of dealings in Shares on ex-entitlement basis . . . . . . . . . . Thursday, 10 August
Latest time for lodging transfers of Shares in order to
qualify for the Open Offer . . . . . . . . . . . . . . . . . . . . . . . . . . 4:30 p.m. on Friday,
11 August
Register of members of the Company closes
(both dates inclusive) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 14 August to
Friday, 18 August
Record Date of Open Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 18 August
Register of members re-opens . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 21 August
Despatch of Prospectus Documents . . . . . . . . . . . . . . . . . . . . . . Monday, 21 August
Effective date and time of change in board lot size
from 1,000 Shares to 10,000 Shares . . . . . . . . . . . . . . . . . . . . Monday, 21 August
Designated broker starts to stand in the market to
provide matching services for sale and purchase of
odd lots of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 21 August
Latest time for Acceptance of, and payment for, the Offer Shares . . 4:00 p.m. on Monday,
4 September
Latest time for Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on Tuesday,
5 September*
Designated broker ceases to stand in the market to
provide matching services for sale and purchase of
odd lots of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 11 September
Announcement of results of the Open Offer . . . . . . . . . . . . . . . Monday, 11 September
Open Offer and Underwriting Agreement expected to
become unconditional on or before . . . . . . . . . . . . . . . . . . . Tuesday, 12 September
Despatch of certificates for Offer Shares
and refund cheques . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 13 September
Expected first day of dealings in Offer Shares . . . . . . . . . . . . . 9:00 a.m. on Thursday,
14 September

– 13 –

EXPECTED TIMETABLE

if the Latest Time for Termination falls on a Business Day on which a tropical cyclone warning signal no. 8 or above or a black rainstorm warning signal is or remains hoisted in Hong Kong between 9:00 a.m. and 4:00 p.m. on that day, the date of the Latest Time for Termination shall be the next Business Day on which no tropical cyclone warning signal no. 8 or above or no black rainstorm warning signal is or remains hoisted in Hong Kong between 9:00 a.m. and 4:00 p.m. on that day

If the Key Conditions are not fulfilled on or before 31 July 2017, the dates thereafter mentioned in the expected timetable above will be affected. In such event, the Company will notify the Shareholders by way of announcement on any change to the expected timetable as soon as practicable.

All times and dates stated above refer to Hong Kong local times and dates. Dates stated in the timetable are indicative only and may be extended or varied. Any change to the expected timetable for the Open Offer will be announced by the Company as appropriate.

EFFECT OF BAD WEATHER ON LATEST TIME FOR ACCEPTANCE OF AND PAYMENT FOR THE OFFER SHARES

The Latest Time for Acceptance will not take place if there is a tropical cyclone warning signal number 8 or above or a ‘‘black’’ rainstorm warning:

(i) in force in Hong Kong at any local time before 12:00 noon and no longer in force after 12:00 noon on 4 September 2017. Instead the Latest Time for Acceptance will be extended to 5:00 p.m. on the same Business Day; or
(ii) in force in Hong Kong at any local time between 12:00 noon and 4:00 p.m. on 4 September 2017. Instead the Latest Time for Acceptance will be rescheduled to 4:00 p.m. on the following Business Day which does not have either of those warnings in force at any time between 9:00 a.m. and 4:00 p.m.

If the Latest Time for Acceptance does not take place on 4 September 2017, the dates mentioned in the section headed ‘‘Expected timetable’’ above in this circular may be affected. In such event, the Company will notify the Shareholders by way of announcement on any change to the expected timetable as soon as practicable.

– 14 –

TERMINATION OF THE UNDERWRITING AGREEMENT

The Open Offer is conditional upon the Underwriting Agreement becoming unconditional and not being terminated by the Underwriter in accordance with its terms.

The Underwriter may terminate the Underwriting Agreement if at any time prior to the Latest Time for Termination:

(a) a Material Adverse Change occurs or becomes known;
(b) any statement contained in the Prospectus is untrue, incorrect, incomplete or misleading in any material respect, or matters have arisen or have been discovered which would, at the time when the Prospectus was issued, constitute a material omission therefrom; or
(c) permission to deal in and listing of all the Offer Shares has been withdrawn by the Stock Exchange;
(d) the Company withdraws this circular or the Prospectus (and/or any other documents issued or used in connection with the Open Offer) or the Open Offer;
(e) any suspension of dealings in the Shares (other than pending publication of announcements in respect of the Open Offer or where such suspension is temporary or routine in nature for not more than 10 trading days);
(f) order or petition (not withdrawn on or before the Latest Time for Termination) for the winding up being levied upon any of the Company, HKCTV, FTV, Hong Kong Cable News Express Limited and Hong Kong Cable Enterprises Limited being material members of the Group or the appointment of a provisional liquidator, receiver or manager over all or part of the material assets or undertaking of these companies or anything analogous thereto occurring in respect of these companies;
(g) the revolving loan facility up to HK$400 million granted by HSBC to HKCTV is terminated pursuant to the term in the relevant Facility agreement restricting a change of control of the Company; or
(h) any of the (i) unified carrier license, (ii) domestic free television programme service licence or (iii) domestic pay television programme service licence granted to the Group by the Communications Authority is revoked,

then and in any such case, the Underwriter may terminate the Underwriting Agreement by giving notice in writing to the Company, served prior to the Latest Time for Termination.

– 15 –

TERMINATION OF THE UNDERWRITING AGREEMENT

In relation to item (g) mentioned above, the Company has provided, and will continue to provide, the relevant requested information to HSBC. Subject to provision of evidence satisfactory to HSBC that the Underwriter has become a majority shareholder of the Company (which is construed by HSBC to mean a Shareholder with more than 35% shareholding in the Company), HSBC agrees to waive a breach of the covenant in relation to restrictions against the change of control of the Company arising as a result of the Underwriter becoming a new majority shareholder of the Company. The waiver will only take effect on the date that such satisfactory evidence is received by HSBC. Depending on the results of the Open Offer, evidence that the Underwriter has become the majority shareholder of the Company is expected to be provided to HSBC on the expected first day of dealings in the Offer Shares.

If the Underwriter exercises such right of termination, the Underwriting Agreement will not become unconditional and the Open Offer will not proceed. Further announcement will be made if the Underwriting Agreement is terminated by the Underwriter.

– 16 –

LETTER FROM THE BOARD

==> picture [97 x 50] intentionally omitted <==

i-CABLE COMMUNICATIONS LIMITED

(Incorporated in Hong Kong with limited liability)

(Stock Code: 1097)

Executive Directors: Mr. Stephen T. H. Ng Mr. William J. H. Kwan

Non-executive Director: Mr. Paul Y. C. Tsui

Independent non-executive Directors: Mr. Herman S. M. Hu Mr. Roger K. H. Luk Mr. Sherman S. M. Tang Mr. Patrick Y. W. Wu

Registered office: 16th Floor, Ocean Centre, Harbour City, Canton Road, Kowloon, Hong Kong

Principal business address in Hong Kong: Cable TV Tower, 9 Hoi Shing Road, Tsuen Wan, Hong Kong

12 May 2017

To the Shareholders

Dear Sir or Madam,

(1) PROPOSED OPEN OFFER OF 3,352,520,666 OFFER SHARES AT HK$0.21 PER OFFER SHARE ON THE BASIS OF FIVE OFFER SHARES FOR EVERY THREE EXISTING SHARES HELD ON THE RECORD DATE

(2) APPLICATION FOR WHITEWASH WAIVER

(3) LOAN CAPITALISATION AND EXTENSION OF WHARF FACILITY (4) PROPERTY AGREEMENTS

(5) SPECIAL DEALS

(6) PROPOSED CHANGE IN BOARD LOT SIZE

(7) NOTICE OF CLOSURE OF REGISTER OF MEMBERS

(8) FURTHER EXTENSION OF DEADLINE FOR RENEWAL OF PAY TV LICENCE AND

(9) NOTICE OF EGM

I. INTRODUCTION

Reference is made to the Announcement.

– 17 –

LETTER FROM THE BOARD

The purpose of this circular is to provide you with (i) further information regarding, among other things, the Open Offer, the Whitewash Waiver, the Special Deals, the proposed change in board lot size, the notice of closure of register of members, and the further extension of deadline for renewal of the Pay TV Licence; (ii) a letter from the Independent Board Committee to the Independent Shareholders in respect of the Open Offer, the Whitewash Waiver and the Special Deals; (iii) a letter from Lego to the Independent Board Committee and the Independent Shareholders in respect of the Open Offer, the Whitewash Waiver and the Special Deals; and (iv) notice of the EGM.

(1) PROPOSED OPEN OFFER

Issue Statistics

Basis of the Open Offer : Five (5) Offer Shares for every three (3) existing Shares held on the Record Date Offer Price : HK$0.21 per Offer Share Number of existing Shares in : 2,011,512,400 Shares issue as at the Latest Practicable Date Number of Offer Shares : 3,352,520,666 Offer Shares Underwriter : Forever Top (Asia) Limited Total number of Shares in issue : 5,364,033,066 Shares upon the close of the Open Offer

The Shares proposed to be issued under the Open Offer represent:

(a) approximately 166.67% of the issued share capital of the Company as at the Latest Practicable Date assuming that no further Shares will be issued or bought back by the Company prior to the close of the Open Offer; and
(b) approximately 62.50% of the issued share capital of the Company as enlarged by the allotment and issue of the Offer Shares, assuming that no further Shares will be issued or bought back by the Company prior to the close of the Open Offer.

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LETTER FROM THE BOARD

As at the Latest Practicable Date, the Company has no outstanding option, convertible securities, options, warrants or derivatives in issue which confer any right to subscribe for, convert or exchange into Shares.

The Open Offer is conditional upon fulfilment (or waiver, if applicable) of all conditions set out under the sub-paragraph headed ‘‘Conditions precedent’’ below. The Open Offer is also subject to the Underwriter not terminating the Underwriting Agreement in accordance with the terms thereof. Please see the section headed ‘‘Termination of the Underwriting Agreement’’ above. Accordingly, the Open Offer may or may not proceed. Shareholders and potential investors’ attention is drawn to the paragraph headed ‘‘Warning of the risks of dealings in the Shares’’ below.

Qualifying Shareholders

The Open Offer is only available to the Qualifying Shareholders, and the invitation to subscribe for the Offer Shares to be made to the Qualifying Shareholders will not be transferable. The Company will despatch (i) the Prospectus Documents to the Qualifying Shareholders and (ii) to the extent reasonably practicable, the Overseas Letter together with the Prospectus, for information only, to the Non-Qualifying Shareholders. The Application Forms will be sent to the Qualifying Shareholders only.

To qualify for the Open Offer, Shareholders must at the close of business on the Record Date be registered as a member of the Company. In order to be registered as members of the Company in its register of members in Hong Kong on the Record Date, Qualifying Shareholders must lodge any transfer of Shares (with the relevant title documents) for registration with the Registrar, Tricor Tengis Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, by 4:30 p.m. on 11 August 2017. Shareholders having an address in Hong Kong on the register of members of the Company at the close of business on the Record Date are qualified for the Open Offer. Shareholders having addresses outside Hong Kong on the register of members of the Company at the close of business on the Record Date are qualified for the Open Offer only if the Board, after making relevant enquiry with lawyers in the relevant jurisdictions, considers that the offer to these Shareholders would not contravene any legal restriction under the laws of the relevant place or any requirement of the relevant regulatory body or stock exchange in that place and such offer will not require any relevant registration.

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LETTER FROM THE BOARD

Rights of the Overseas Shareholders

As at the Latest Practicable Date, according to the register of members of the Company, the Company had 20 Overseas Shareholders with registered addresses in nine jurisdictions, who collectively held 108,686 Shares in aggregate (representing 0.0054% of the total number of Shares in issue). The table below further sets out the number of Overseas Shareholders in each of the nine jurisdictions and their aggregate shareholding as at the Latest Practicable Date:

			Approximate
			percentage of
			shareholding
	Number of	Number of	in the
Jurisdiction of the registered address	Overseas	Shares held in	Company
of the Overseas Shareholder(s)	Shareholder(s)	aggregate	(Note 1)
Included in Open Offer:
PRC	1	350	0.000017%
Macau Special Administrative Region
of the PRC (‘‘Macau’’)	2	100,200	0.004981%
Singapore	2	2,250	0.000112%
United Kingdom	2	28	0.000001%
Sub-total (Overseas
Shareholders included
in Open Offer):	7	102,828	0.005112%
Excluded from Open Offer:
Australia	2	172	0.000009%
Barbados	4	1,420	0.000071%
Canada	2	2,162	0.000108%
New Zealand	1	136	0.000007%
United States	4	1,968	0.000098%
Sub-total (Overseas
Shareholders excluded
from Open Offer):	13	5,858	0.000291%
Total (all Overseas
Shareholders):	20	108,686	0.005403%

– 20 –

LETTER FROM THE BOARD

Pursuant to Rule 13.36(2)(a) of the Listing Rules, the Board has made enquiries regarding the legal restrictions under the applicable securities legislation of the relevant jurisdictions and the requirements of the relevant regulatory body or stock exchange with respect to the offer of the Offer Shares to such Overseas Shareholders.

Based on the advice of the legal advisers in the PRC, Macau, Singapore and the United Kingdom, under the applicable legislations of these jurisdictions, either (i) there is no regulatory restriction or requirement of any regulatory body or stock exchange with respect to extending the Open Offer to the Overseas Shareholders in the relevant jurisdiction; or (ii) the Open Offer meets the relevant exemption requirements under the relevant jurisdictions so that it would be exempt from obtaining approval or recognition from and/or registration of the Prospectus Documents with the relevant regulatory authorities under the applicable laws and regulations of the relevant jurisdictions. Accordingly, the Board is of the view that it is expedient to extend the Open Offer to the Overseas Shareholders having registered addresses in Macau, the PRC, Singapore and the United Kingdom, and such Overseas Shareholders are considered as Qualifying Shareholders. It is the responsibility of the Shareholders (including the Overseas Shareholders) to observe the local legal and regulatory requirements applicable to them for taking up and onward sale (if applicable) of the Offer Shares.

The Company has also obtained the required advice from the legal advisers in Barbados, Australia, Canada, New Zealand and the United States (collectively, the ‘‘Specified Territories’’). The Directors have formed the view that, it is necessary or expedient to restrict the ability of Overseas Shareholders in the Specified Territories to take up their rights under the Open Offer in view of the time and costs required for (i) ascertaining the exact aggregate shareholding interests in the Company held by Shareholders and CCASS Beneficial Owners in the Specified Territories and/or the trading volume in the Company’s securities that occurred in the Specified Territory in the last financial year, for the purpose of determining the applicable threshold of compliance with relevant local legal or regulatory requirements in the Specified Territories, and/or (ii) complying with the onerous due diligence, Prospectus disclosure, Prospectus registration, financial reporting and/or other relevant legal and regulatory requirements in extending the Open Offer to Overseas Shareholders in certain Specified Territories. Taking into account the aggregate shareholding of less than 0.0003% in the Company held by the Overseas Shareholders in the Specified Territories as at the Latest Practicable Date, the expected timetable for the Open Offer and the Company’s current trading and financial position, the Board considered the time and costs required to extend the Open Offer to such Overseas Shareholders (i) to be outweighing the potential benefit that would have been made available to the Overseas Shareholders in the Specified Territories if the Open Offer is extended to them and (ii) not in the interests of the Company and the Shareholders as a whole. The Company will, to the extent reasonably practicable, send the Overseas Letter and the Prospectus to the NonQualifying Shareholders for their information only but will not send any Application Forms in respect of the Open Offer to the Non-Qualifying Shareholders.

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LETTER FROM THE BOARD

Fractional entitlements

The Company shall not allot any fractions of Offer Shares which, individually, is a fraction of one Offer Share, to the Qualifying Shareholders, and fractional entitlements will be rounded down to the nearest whole number of Offer Shares. Such fractional entitlements shall be aggregated and will be dealt with as Offer Shares not taken up and will be underwritten by the Underwriter.

Offer Price

The Offer Price of HK$0.21 per Offer Share is payable in full by a Qualifying Shareholder upon acceptance of the Offer Shares under the Open Offer. The Offer Price represents:

(i) a discount of approximately 65.57% to the Last Closing Price;
(ii) a discount of approximately 64.65% to the average closing price of approximately HK$0.594 per Offer Share as quoted on the Stock Exchange for the 5 consecutive trading days ending on and including the Last Trading Day;
(iii) a discount of approximately 64.94% to the average closing price of approximately HK$0.599 per Offer Share as quoted on the Stock Exchange for the 10 consecutive trading days ending on and including the Last Trading Day;
(iv) a discount of approximately 41.67% to the theoretical ex-entitlement price (calculated by dividing the aggregate of (i) the market value of the Shares at the closing price as quoted on the Stock Exchange on the Last Trading Day; and (ii) the gross proceeds from the Open Offer, by the number of Shares then in issue immediately after the close of the Open Offer) of approximately HK$0.36 based on the Last Closing Price;
(v) a discount of approximately 16.00% to the audited consolidated net asset value per Share attributable to equity holders of the Company of approximately HK$0.25 as at 31 December 2016; and
(vi) a discount of approximately 62.50% to the closing price of HK$0.56 per Offer Share as quoted on the Stock Exchange on the Latest Practicable Date.

The Directors consider that under the Open Offer, each Qualifying Shareholder is entitled to subscribe for the Offer Shares at the same price in proportion to his/her/its existing shareholding in the Company and that the discount of the Offer Price will lower the further investment cost of the Qualifying Shareholders, and encourages them to participate in the Open Offer. The Directors consider that the Offer Price is fair and reasonable and in the interests of the Company and the Shareholders as a whole.

– 22 –

LETTER FROM THE BOARD

Basis of price and ratio

The Offer Price and ratio were arrived at after arm’s length negotiations between the Company and the Underwriter primarily with reference to the financial and business conditions of the Company, as disclosed in the Rule 13.09 Announcement.

The Directors have taken into account the following factors:

(i) the amount of new equity investment needed by the Company to put its financial position on a more stable footing. Given that the Group had net current liabilities of HK$892 million for the year ended 31 December 2016, which is the 6th consecutive year in which a net current liabilities position has subsisted, and in view of the Group’s net asset value of HK$505,398,000 as at 31 December 2016 (which has significantly declined from HK$818,973,000 and HK$1,052,532,000 as at 31 December 2015 and 2014 respectively, representing an overall decline of approximately 50% in 2 years), the Company considered the amount of new equity of approximately HK$704 million which is expected to be introduced upon completion of the Open Offer, together with the new equity to be introduced from the Loan Capitalisation, will satisfy the Group’s expected funding needs for the next 12 months and provide sufficient capital in a mediumterm future to support the continuation of the Group’s communication, media and entertainment businesses, and to allow the Group to effect a restructuring for sustainable development in the long term. The Board further considers that it is important for the Group to have committed funding to finance the Group’s business operations, preferably in the form of equity which will not require repayment in compliance with the financial covenants, or increase the Group’s financing costs. For more details, please refer to the paragraph headed ‘‘Reasons for the Open Offer and Use of Proceeds’’ in this section;
(ii) the need to develop proposal which stands the highest probability of approval by Independent Shareholders, the Communications Authority, the SFC and the Stock Exchange (all of which being key conditions precedent to the new equity investment). As stated in the paragraph headed ‘‘General’’ in this section below, the Company has through its financial consultant solicited for investment proposals from over 50 parties since the issue of the Rule 13.09 Announcement and assessed various fund-raising proposals available to the Company. The Directors had considered the placing of new Shares as an alternative fund-raising proposal provided to the Company, which unlike the Open Offer, will inevitably dilute the shareholding interest of the Qualifying Shareholders without providing them with the opportunity to maintain their respective pro-rata shareholding interest in the Company;

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LETTER FROM THE BOARD

(iii) the uncertainties in the competition environment in the Hong Kong media and communication industry, as well as sentiment of the financial market in Hong Kong. Throughout the year ended 31 December 2016 to the first quarter of 2017, the Company has been presented with a considerably uncertain operating environment in the television segment, with fast-changing user behaviour and intensifying competition given rise by the increasingly abundant supply of contents made available via a wider choice of media, which has continued to weaken market demand for the Group’s subscription content and contract our customer base throughout 2016 and in the first quarter of 2017. As a result of a moderate increase in various subscription price points despite contraction of our customer base, our broadband revenue stabilised towards the end of 2016, and we continued to observe such stabilising trend in the first quarter of 2017. Nevertheless, the downward trend in local retail sales in 2016 extended to the first quarter of 2017 and has continued to discourage advertising spending and depressed our airtime sales performance. As disclosed in the Company’s annual report for the year ended 31 December 2016, during the year ended 31 December 2016, the Group incurred a net loss of HK$313 million (2015: HK$233 million) and, as of that date, the Group had net current liabilities of HK$892 million (2015: HK$561 million);
(iv) the current range of prevailing market discount to the theoretical ex-entitlement price in the context of Share price and trading volume history for the Shares;
(v) the Open Offer is conducted on the basis that all Qualifying Shareholders have been offered the same opportunity to maintain their proportional interests in the Company and allows the Qualifying Shareholders to participate in the continuing business of the Company; and
(vi) the Directors’ consideration that it could be difficult to attract the Qualifying Shareholders to reinvest in the Company through the Open Offer if the Offer Price was not set at an appropriate discount to the historical trading prices of the Shares. The Directors considered that the discount ranging from 60% to 70% to the historical trading prices of the Shares represented by the Offer Price will lower the further investment cost of the Qualifying Shareholders, and encourages them to participate in the Open Offer and maintain their respective pro-rata shareholding interest in the Company.

– 24 –

LETTER FROM THE BOARD

Subsequent to the publication of the Rule 13.09 Announcement on 9 March 2017, which announced Wharf’s intention to cease all its funding commitment to the Group for its business operations, the Board had engaged a financial consultant to explore alternative sources of funding on an urgent basis to support HKCTV’s fulfilment of the six-year investment plan of HK$3,447 million from 2017 to 2023 under the terms of the Pay TV Licence so as to support its decision to accept the renewal of its Pay TV Licence by the prescribed deadline of 26 April 2017 (before the SCED approved the further extension of the deadline for accepting the offer of renewal of the Pay TV Licence to 31 May 2017), and to prevent cessation of the of Pay TV service immediately after 31 May 2017, which will lead to an immediate loss of an important source of the Group’s revenue (which accounted for over 70% of the Group’s total revenue for each of the three years ended 31 December 2014, 31 December 2015 and 31 December 2016).

The Company, has through its financial consultant, solicited more than 7 investment/ funding proposals from over 50 parties over a 2 to 3 week time period. Among the proposals that were made available to the Board for consideration within the tight timeframe, the Directors considered the terms of the Open Offer, including the Offer Price and the discount to the historical trading prices of the Shares represented by the Offer Price, to be the best available optimal investment/funding proposal.

Moreover, as persons who are involved or interested in the Open Offer, the Underwriting Agreement, the Whitewash Waiver and/or the Special Deals will abstain from voting on the resolutions to be proposed at the EGM, each of the Independent Shareholders (including the minority Shareholders) will be given a meaningful opportunity to consider the terms of the Open Offer and to cast an influential vote on whether to approve the Open Offer (including the basis of the Open Offer, the Offer Price and other terms of the Open Offer) and authorise the Board to allot and issue Offer Shares notwithstanding it may be offered, allotted or issued otherwise than pro-rata to the Qualifying Shareholders.

On the basis of the above, the Directors consider that the Offer Price and other terms of the Open Offer are fair and reasonable and in the interests of the Company and Shareholders as a whole.

Basis of the assured allotment of the Offer Shares

Five (5) Offer Shares will be issued for every three (3) Shares held by a Qualifying Shareholder on the Record Date. Acceptance of all or any part of a Qualifying Shareholder’s assured allotment should be made by completing the Application Form.

– 25 –

LETTER FROM THE BOARD

Potential Dilutive Impact of the Open Offer

Taking into account (i) the time constraints the Company is under, there is significant risk that if the proposed investment is not executed, the Company would not have any basis to renew its Pay TV Licence, which will lead to cessation of Pay TV service immediately after 31 May 2017 and therefore immediate loss of the Company’s monthly revenue; (ii) the Open Offer would provide the fund for the Group to accept renewal of its Pay TV Licence for a period of 12 years and to continue to pursue its business operations and restructuring plans; (iii) the Open Offer would strengthen the capital base of the Group; (iv) the Open Offer is conducted on the basis that all Qualifying Shareholders have been offered the same opportunity to maintain their proportional interests in the Company and allows the Qualifying Shareholders to participate in the continuing business of the Company; (v) the inherent dilutive nature of Open Offer in general if the existing Shareholder did not take up his/her/its entitlements under the Open Offer, the Board considered that raising funds by way of the Open Offer is more cost effective, efficient and beneficial to the Company and its Shareholders as a whole despite the potential dilution impact on existing Shareholders who do not participate in the Open Offer.

Status of the Offer Shares

When issued and fully paid, the Offer Shares will rank pari passu in all respects with the Shares then in issue. Holders of the Offer Shares will be entitled to receive all dividends and distributions which are declared, made or paid after the date of allotment of the Offer Shares in their fully-paid form.

Share certificates and refund cheques

Subject to the fulfilment of the conditions of the Open Offer, share certificates for all Offer Shares are currently expected to be posted to those entitled thereto by ordinary post at their own risk on 13 September 2017. If the Open Offer is terminated, refund cheques are expected to be posted to the respective Qualifying Shareholders by ordinary post at their own risk on 13 September 2017.

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LETTER FROM THE BOARD

No excess application

No Qualifying Shareholder is entitled to apply for any Offer Shares which are in excess to his/her/its entitlement. Any Offer Shares not taken up by the Qualifying Shareholders and (if any) the Offer Shares to which the Non-Qualifying Shareholders would otherwise have been entitled under the Open Offer, will not be available for subscription by other Qualifying Shareholders by way of excess application and will be taken up by the Underwriter pursuant to the terms and conditions of the Underwriting Agreement.

The Directors hold the view that the Open Offer allows the Qualifying Shareholders to maintain their respective pro-rata shareholding in the Company and to participate in the future growth and development of the Group. It is estimated that additional costs ranging from HK$500,000 to HK$1 million will be incurred to administer the excess application procedures, including the preparation, printing, posting of excess application form for the Offer Shares, and the handling of any excess application for the Offer Shares, including arrangements required to ensure fair allocation of excess Offer Shares to Shareholders. While the administration of excess applications may not necessarily delay the current expected timetable (as set out in the section headed “Expected Timetable” in this circular”), these excess application procedures are expected to divert limited time resources and effort from the core preparation and arrangement for the Open Offer under its tight transaction timetable. It is not practicable to quantify the time resources that are expected to be diverted to administer the excess application procedures, as this largely depends on the volume of application for excess Offer Shares, which could not be determined with sufficient basis as at the Latest Practicable Date. Nevertheless, given the current circumstances of the Company, including the cessation of the Company’s source of funding pursuant to the Rule 13.09 Announcement, the diversion of time and monetary resources for handling excess application is not cost effective from the viewpoint of the Company.

After arm’s length negotiations with the Underwriter, and taking into account that the related time and administration costs would be lowered in the absence of excess applications, the Directors consider that it is fair and reasonable and in the interests of the Company and the Shareholders as a whole not to offer any excess application to the Qualifying Shareholders.

Investors whose Shares are held by a nominee company (or which are deposited in CCASS) should note that the Board will regard the nominee company (including HKSCC Nominees Limited) as a single Shareholder according to the register of members of the Company.

Investor whose Shares are held by their nominee(s) (or which are deposited in CCASS) and who would like to have their names registered on the register of members of the Company on the Record Date, must lodge all necessary documents with the Registrar for completion of the relevant registration by 4:30 p.m. on Friday, 11 August 2017.

– 27 –

LETTER FROM THE BOARD

Application for listing

The Company will apply to the Stock Exchange for the listing of, and permission to deal in, the Offer Shares. The Offer Shares shall have a board lot size of 10,000 at the time when they will be issued. For details, please see the paragraph headed ‘‘Proposed Change in Board Lot Size and Odd Lot Matching’’ in this circular. No part of the share capital of the Company is listed or dealt in or on which listing or permission to deal is being or is proposed to be sought on any other stock exchange.

Subject to the grant of the approval for the listing of, and permission to deal in, the Offer Shares on the Stock Exchange, the Offer Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the respective commencement date of dealings in the Offer Shares on the Stock Exchange or such other date as determined by HKSCC. Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.

Stamp duty

Dealings in the Offer Shares on the Stock Exchange will be subject to the payment of stamp duty in Hong Kong, Stock Exchange trading fees, SFC transaction levy and other applicable fees and charges in Hong Kong.

The Undertaking From Wharf

As at the Latest Practicable Date, the Controlling Shareholder Companies together hold 1,485,259,171 Shares, representing approximately 73.84% of the issued share capital of the Company.

As a support to the Company on its proposal to raise capital through the Open Offer, Wharf, being the controlling shareholder of the Company, has irrevocably undertaken to the Company and the Underwriter that:

(a) it will, and will procure the Shares held by the Controlling Shareholder Companies to, remain legally and beneficially owned by them from the date of the Undertaking to the close of business on the Record Date (or such other later date as the Company may agree in writing);
(b) it will not, and will procure the Controlling Shareholder Companies not to, subscribe for any of the Offer Shares to which they will be entitled to under the Open Offer;

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LETTER FROM THE BOARD

(c) it will not, and will procure the Controlling Shareholder Companies not to, deal in the Shares, outstanding options, derivatives, warrants or other securities convertible or exchangeable into Shares until the Record Date (other than pursuant to the Loan Capitalisation or otherwise contemplated in the Undertaking);
(d) it will use its best endeavours to provide such information (to the extent within its power) as required by the Communications Authority for the purpose of the Waiver Approval Applications;
(e) it will procure the Loan Capitalisation according to the terms of the Loan Capitalisation Agreement, to be effected as soon as practicable immediately following completion of the Open Offer subject to the Company being able to comply with Rule 8.08(1)(a) of the Listing Rules;
(f) it will procure the Facility Term Extension in accordance with the Facility Term Extension Agreement to be effected;
(g) it will procure, subject to (i) none of the Underwriter and the directors of the Group (or their respective associates) increasing its/his/her shareholding interests in the Company during the Relevant Period; (ii) no buy-back of Shares by the Company during the Relevant Period, the maintenance of the Public Float Requirement at all times during the Relevant Period, by procuring:
(i) the Initial Distribution in Specie as soon as practicable after the date the Open Offer has become unconditional and before the completion of the Open Offer;
(ii) one or more Further Distribution in Specie to the shareholders of Wharf, as are sufficient to maintain the Public Float Requirement, and (if required) to undertake to the Stock Exchange to the same effect;
(h) it will procure, in the event that, the Initial Distribution in Specie and the Further Distribution(s) in Specie are not sufficient to ensure the Public Float Requirement, Wheelock to facilitate the maintenance of the Company’s public float by disposing of an appropriate number of Shares held by Wheelock or any of its subsidiaries, through one or more distribution(s) in specie by Wheelock to its shareholders, or by on-market/off-market disposals, or a combination of them;

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LETTER FROM THE BOARD

(i) it will procure with effect from the completion date of the Open Offer, the termination of the Management Services Agreement without penalty or other compensation for termination (if any);
(j) it will procure the relevant member(s) of the Wharf Group to enter into the Property Agreements;
(k) it will procure, the resignation of Mr. Stephen T. H. Ng and Mr. Paul Y. C. Tsui as directors of the Company and its subsidiaries with effect from the closing date of the Open Offer with no claims of any kind against the Company or its subsidiaries; and
(l) it will procure, the directors on the Board nominated by the Controlling Shareholder Companies to propose to the nomination committee of the Company, its subsidiaries and FTV the appointment of those persons nominated by the Underwriter not less than 10 Business Days prior to the closing date of the Open Offer as new directors of the Company, its subsidiaries and FTV with effect from the closing date of the Open Offer.

The Undertaking is conditional upon:

(a) the despatch of the Prospectus on or before 16 August 2017 (or such other later date as may be agreed between the Company and the Underwriter in writing) upon the approval from the Stock Exchange; and
(b) the Underwriting Agreement not having been terminated.

For further details regarding the Initial Distribution in Specie, the Wheelock Distribution in Specie and Further Distribution(s) in Specie, please see the joint announcement issued by Wharf and Wheelock on 20 April 2017.

Save for the Undertaking, the Company has not received any information or irrevocable commitment from any Shareholders of their intention in relation to the Offer Shares to be allotted to them under the Open Offer as at the Latest Practicable Date.

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LETTER FROM THE BOARD

The Underwriting Agreement

Principal Terms of the Underwriting Agreement:

Date

Issuer Underwriter

: 14 April 2017 : The Company

: Forever Top (Asia) Limited

Underwriter Guarantors (on a several basis based on and not exceeding their respective direct/indirect shareholdings in the Underwriter as shown opposite their names)

: Mr. David Chiu (as to 24.5%) Dr. Cheng Kar-Shun Henry (as to 31.5%) Chow Tai Fook Enterprises Limited (as to 14%) Expand Ocean L.P. (as to 14%) Mr. Li Sze Lim (as to 16%)

Total number of Offer

: 3,352,520,666 Offer Shares

Shares being underwritten

Commission

: 2% of the total proceeds raised in the Open Offer (approximately HK$704 million) is payable to the Underwriter. Such commission shall be deducted from the proceeds raised in the Open Offer.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquires, the Underwriter, the Underwriter Guarantors and their respective ultimate beneficial owners are Independent Third Parties. As at the Latest Practicable Date, according to the Underwriter, none of the Underwriter, the Underwriter Guarantors and their respective parties acting in concert holds any Shares.

Pursuant to the Underwriting Agreement, the Underwriter has agreed to fully underwrite the issue of Offer Shares, and the Underwriter Guarantors have agreed to severally guarantee the payment obligations of the Underwriter in the Underwriting Agreement, on the terms and subject to the conditions in the Underwriting Agreement. The guarantee obligations of each Underwriter Guarantor under the Underwriting Agreement are on a several basis, based on and not exceeding his/its direct or indirect shareholding in the Underwriter.

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LETTER FROM THE BOARD

Conditions precedent

The obligations of the Underwriter under the Underwriting Agreement are conditional on the fulfilment (or waiver, if applicable, by the Underwriter and subject as mentioned below) of the following conditions:

(1) the Communications Authority granting: (i) to HKCTV, an HKCTV Waiver Approval; and (ii) to FTV, an FTV Waiver Approval, and if any of these waivers are granted with conditions upon the Company, such conditions having been fulfilled;
(2) the grant by the Executive (and such grant not having been withdrawn or revoked) of the Whitewash Waiver, the Wheelock Waiver and the consent to Special Deals, and the fulfilment of all conditions, if any, attached to it;
(3) (a) the approval by the Independent Shareholders of (i) the Open Offer, (ii) the Whitewash Waiver, (iii) all Special Deals (other than the Special Deal relating to the Property Agreements and referred to in 3(b) below), in each case by way of poll at the EGM in accordance with the Listing Rules and the Takeovers Code by no later than the Posting Date; and
(b) the approval by the Independent Shareholders of the Property Agreements as a special deal under the Takeovers Code by way of poll at the EGM in accordance with the Listing Rules and the Takeovers Code by no later than the Posting Date;
(4) the renewal of the Pay TV Licence of HKCTV on the terms of the existing offer set out in a letter from the SCED to HKCTV dated 13 December 2016 or on terms which are not materially different than those in such existing offer to HKCTV;
(5) delivery by the Company to the Underwriter of the Property Agreements duly executed by the relevant member(s) of Wharf Group;
(6) delivery by the Company to the Underwriter of the Undertaking duly executed by Wharf and having been complied with by Wharf;
(7) the filing and registration of all documents relating to the Open Offer, which are required to be filed or registered with the Registrar of Companies in Hong Kong in accordance with the Companies (WUMP) Ordinance not later than the Posting Date;

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LETTER FROM THE BOARD

(8) the posting of the Prospectus Documents to Qualifying Shareholders and the posting of the Prospectus for information only to the Non-Qualifying Shareholders, if any, on the Posting Date;
(9) compliance by the Company with all its obligations in relation to publication of the Announcement and despatch of this circular and the Prospectus Documents, the making of the Open Offer and the allotment and offer of Offer Shares under the Underwriting Agreement having taken place by the times specified;
(10) the Listing Committee of the Stock Exchange granting or agreeing to grant (subject to allotment) and not having withdrawn or revoked the listing of, and permission to deal in, all the Offer Shares by no later than the first day of their dealings as stated in the Prospectus Documents;
(11) receipt by the Underwriter (in a form and substance satisfactory to it) of all the relevant documents on or before such time as specified in the Underwriting Agreement;
(12) the Company having appointed, or procured the appointment of, such persons nominated by the Underwriter at least 10 Business Days prior to the Latest Time for Termination, as Directors and/or directors of members of the Group conditional upon and with effect from the Closing Date; and
(13) the obligations of the Underwriter under the Underwriting Agreement not being terminated by the Underwriter in accordance with the terms of the Underwriting Agreement.

All the above conditions precedent are required to be satisfied (or waived, if applicable) by the Conditions Fulfilment Date. None of the Company and the Underwriter may waive the conditions precedent in (1), (2), (3)(a), (7), (8), (9) and (10) set out in the above. The Underwriter may waive the Conditions precedent in (3)(b), (4), (5), (6), (11), (12) and (13) set out in the above in whole or in part by written notice to the Company. As at the Latest Practicable Date, conditions precedent (5) and (6) (in respect of the delivery of the Undertaking) have been fulfilled and the Underwriter has no current intention to waive the conditions precedent in 3(b), (4), (11), (12) and (13) set out in the above. In the event that the above conditions have not been satisfied (or waived in whole or in part by the Underwriter, if applicable) by the Conditions Fulfilment Date, all obligations and liabilities of the parties under the Underwriting Agreement shall terminate and (save in respect of any rights or obligations which may accrue under the Underwriting Agreement prior to such termination) none of the parties shall have any claim against the other. In such case, the Open Offer will not proceed.

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LETTER FROM THE BOARD

In relation to condition precedent (4) in respect of the renewal of the Pay TV Licence of HKCTV, please see the paragraph headed ‘‘(8) Further Extension of Deadline for Renewal of Pay TV Licence’’ below for further information.

Termination of the Underwriting Agreement

The Open Offer is conditional upon the Underwriting Agreement becoming unconditional and not being terminated by the Underwriter in accordance with its terms.

The Underwriter may terminate the Underwriting Agreement if at any time prior to the Latest Time for Termination:

(a) a Material Adverse Change occurs or becomes known;
(b) any statement contained in the Prospectus is untrue, incorrect, incomplete or misleading in any material respect, or matters have arisen or have been discovered which would, at the time when the Prospectus was issued, constitute a material omission therefrom;
(c) permission to deal in and listing of all the Offer Shares has been withdrawn by the Stock Exchange;
(d) the Company withdraws this circular or the Prospectus (and/or any other documents issued or used in connection with the Open Offer) or the Open Offer;
(e) any suspension of dealings in the Shares (other than pending publication of announcements in respect of the Open Offer or where such suspension is temporary or routine in nature for not more than 10 trading days);
(f) order or petition (not withdrawn on or before the Latest Time for Termination) for the winding up being levied upon any of the Company, HKCTV, FTV, Hong Kong Cable News Express Limited and Hong Kong Cable Enterprises Limited being material members of the Group or the appointment of a provisional liquidator, receiver or manager over all or part of the material assets or undertaking of these companies or anything analogous thereto occurring in respect of these companies;
(g) the revolving loan facility up to HK$400 million granted by HSBC to HKCTV is terminated pursuant to the term in the relevant Facility agreement restricting a change of control of the Company; or
(h) any of the (i) unified carrier license, (ii) domestic free television programme service licence or (iii) domestic pay television programme service licence granted to the Group by the Communications Authority is revoked,

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LETTER FROM THE BOARD

then and in any such case, the Underwriter may terminate the Underwriting Agreement by giving notice in writing to the Company, served prior to the Latest Time for Termination.

Information on the Underwriter and the Underwriter Guarantors

The Underwriter is a private company limited by shares incorporated in Hong Kong on 9 January 2015 whose principal business is investment holding and its ordinary course of business does not include underwriting. The ultimate beneficial owners of the Underwriter are the Underwriter Guarantors.

A corporate structure chart showing the shareholding of the Underwriter is set out below:

==> picture [411 x 183] intentionally omitted <==

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

David Chiu Cheng Kar-Shun Chow Tai Fook John Huan Zhao Li Sze Lim
Henny Enterprises Limited
100% 100% 100% 100%
Celestial Pioneer Celestial Channel Hony Communications Profit Surge
Limited Limited Limited Investments Limited
Sole General
Partner
Expand Ocean
L.P.
24.5% 31.5% 14% 14% 16%
Underwriter
----- End of picture text -----

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LETTER FROM THE BOARD

The Underwriter Guarantors are Mr. David Chiu, Dr. Cheng Kar-Shun Henry, Chow Tai Fook Enterprises Limited, Expand Ocean L.P. and Mr. Li Sze Lim.

Mr. David Chiu is the chairman, an executive director and the chief executive officer of Far East Consortium International Limited, a company listed on the Main Board (Stock Code: 35).

Dr. Cheng Kar-Shun Henry is the chairman and a director of Chow Tai Fook Enterprises Limited. He is also the chairman and an executive director of New World Development Company Limited (Stock Code: 17), NWS Holdings Limited (Stock Code: 659), Chow Tai Fook Jewellery Group Limited (Stock Code: 1929) and International Entertainment Corporation (Stock Code: 1009), the chairman and non-executive director of New World Department Store China Limited (Stock Code: 825), Newton Resources Ltd (Stock Code: 1231) and FSE Engineering Holdings Limited (Stock Code: 331), an independent non-executive director of HKR International Limited (Stock Code: 480) and Hang Seng Bank Limited (Stock Code: 11), and a non-executive director of SJM Holdings Limited (Stock Code: 880), all of which are companies listed on the Main Board.

Celestial Pioneer Limited is a company incorporated in the British Virgin Islands whose principal business is investment holding and is wholly owned by Dr. Cheng KarShun Henry.

Chow Tai Fook Enterprises Limited is a company incorporated in Hong Kong and a wholly-owned subsidiary of Chow Tai Fook (Holding) Limited. Chow Tai Fook (Holding) Limited is the controlling shareholder of Chow Tai Fook Jewellery Group Limited and a 81.03% owned subsidiary of Chow Tai Fook Capital Limited. Chow Tai Fook Capital Limited is owned as to 48.98% and 46.65% by Cheng Yu Tung Family (Holdings) Limited and Cheng Yu Tung Family (Holdings II) Limited, respectively. Chow Tai Fook Enterprises Limited is a Hong Kong based conglomerate with a diversified global business portfolio and its principal activities include property holding and development, hotel investment and management, energy investment, transportation and infrastructure investment.

Celestial Channel Limited is a company incorporated in the British Virgin Islands whose principal business is investment holding and is wholly owned by Chow Tai Fook Enterprises Limited.

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LETTER FROM THE BOARD

Expand Ocean L.P. is an exempted limited partnership registered in the Cayman Islands on 14 March 2016 whose principal business is investment holding. The general partner of Expand Ocean L.P. is Hony Communications Limited, a company incorporated in the Cayman Islands with limited liability on 14 March 2016 wholly owned by Mr. John Huan Zhao whose principal business is investment holding. Mr. John Huan Zhao is the president and founder of Hony Capital, a leading private equity firm established in 2003 that focuses on China market. Mr. John Huan Zhao is also an executive director of Legend Holdings Corporation (Stock Code: 3396), a non-executive director of Lenovo Group Limited (Stock Code: 992), a non-executive director of China Glass Holdings Limited (Stock Code: 3300), the chairman, executive director and chief executive officer of Best Food Holding Company Limited (Stock Code: 1488), the chairman and non-executive director of Hospital Corporation of China Limited (Stock Code: 3869) and a non-executive director of Zoomlion Heavy Industry Science & Technology Development Co., Ltd. (Stock Code: 1157), all of which are companies listed on the Main Board.

Mr. Li Sze Lim is the co-founder, the chairman and an executive director of Guangzhou R&F Properties Co., Ltd., a company listed on the Main Board (Stock Code: 2777).

Profit Surge Investments Limited is a company incorporated in the British Virgin Islands whose principal business is investment holding and is wholly owned by Mr. Li Sze Lim.

According to the Underwriter, none of the Underwriter, the Underwriter Guarantors and their respective parties acting in concert holds any Shares, and to the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, they are Independent Third Parties as the Latest Practicable Date.

Warning of the Risks of Dealings in the Shares

The Open Offer is conditional upon fulfilment (or waiver, if applicable) of the conditions set out under the sub-paragraph headed ‘‘Conditions precedent’’ above. The Open Offer is also subject to the Underwriter not terminating the Underwriting Agreement in accordance with the terms thereof. Accordingly, the Open Offer may or may not proceed.

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LETTER FROM THE BOARD

Shareholding Structure of the Company

The Company will, upon completion of the Open Offer and the completion of the Loan Capitalisation, issue the Offer Shares and the Loan Capitalisation Shares respectively. Prior to the completion of the Open Offer, as a measure to ensure full compliance by the Company of the Public Float Requirement at the time before and upon completion of the Open Offer, Wharf will effect the Initial Distribution in Specie, and will procure Wheelock to effect the Wheelock Distribution in Specie as soon as practicable after the completion of the Initial Distribution in Specie. Shareholders who are the registered members of the Company as at the Record Date will be entitled to receive Offer Shares pursuant to the Open Offer in respect of the Shares they hold as at the Record Date. However, as the Initial Distribution in Specie and the Wheelock Distribution in Specie will only take place after the Record Date, holders of any Shares distributed through the Initial Distribution in Specie and the Wheelock Distribution in Specie (‘‘Distributed Shares’’) will not be entitled to receive any Offer Shares in respect of these Distributed Shares.

Set out below is the shareholding structure of the Company immediately before and after the completion of the Initial Distribution in Specie (assuming that no Shares will be issued or bought back by the Company after the Latest Practicable Date and prior to the completion of the Initial Distribution in Specie):

Underwriter Wharf Group Wheelock Group Directors Mr. Ng Tin Hoi Stephen Public Shareholders TOTAL	As at the Latest Practicable Date No. of Shares Approximate % Nil Nil 1,485,259,171 73.84 Nil Nil 1,265,005 0.06 524,988,224 26.10 2,011,512,400 100.00	Upon completion of the Initial Distribution in Specie No. of Shares Approximate % Nil Nil Nil Nil 915,648,549 45.52 1,396,942 0.07 1,094,466,909 54.41 2,011,512,400 100.00	Upon completion of the Initial Distribution in Specie No. of Shares Approximate % Nil Nil Nil Nil 915,648,549 45.52 1,396,942 0.07 1,094,466,909 54.41 2,011,512,400 100.00
			100.00

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LETTER FROM THE BOARD

In absence of the Initial Distribution in Specie, and as Wharf has undertaken under the Undertaking that it will not, and will procure the Controlling Shareholder Companies not to, subscribe for any of the Offer Shares to which they will be entitled to under the Open Offer, Wharf Group will continue to hold 1,485,259,171 Shares in the Company upon the close of the Open Offer (being the same number of Shares that it held as at the Latest Practicable Date), representing approximately 27.69% of the then issued Shares. Under this scenario, assuming (i) no Offer Shares are taken up by the Qualifying Shareholders and the Underwriter is required to take up the untaken Underwritten Shares and (ii) no Shares will be issued or bought back by the Company after the Latest Practicable Date and prior to the close of the Open Offer, the public would hold 524,988,224 Shares upon the close of the Open Offer, representing approximately 9.79% of the then issued Shares of the Company. Accordingly, if the Initial Distribution in Specie is not carried out before the close of the Open Offer, the Company may be unable to fulfil the Public Float Requirement upon the close of the Open Offer. Set out below is the shareholding structure of the Company immediately before and after the close of Open Offer (assuming that the Initial Distribution in Specie will not be carried out):

Underwriter Wharf Group Wheelock Group Directors Mr. Ng Tin Hoi Stephen Public Shareholders TOTAL	As at the Latest Practicable Date No. of Shares Approximate % Nil Nil 1,485,259,171 73.84 Nil Nil 1,265,005 0.06 524,988,224 26.10 2,011,512,400 100.00	Upon Close of Open Offer Assuming all Offer Shares are taken up by the Qualifying Shareholders (other than the Controlling Shareholder Companies) and the Underwriter is required to take up the untaken Underwritten Shares No. of Shares Approximate % 2,475,431,952 46.15 1,485,259,171 27.69 Nil Nil 3,373,346 0.06 1,399,968,597 26.10 5,364,033,066 100.00	Upon the Close of the Open Offer Assuming no Offer Shares are taken up by the Qualifying Shareholders and the Underwriter is required to take up the untaken Underwritten Shares No. of Shares Approximate % 3,352,520,666 62.50 1,485,259,171 27.69 Nil Nil 1,265,005 0.06 524,988,224 9.79 5,364,033,066 100.00	Upon the Close of the Open Offer Assuming no Offer Shares are taken up by the Qualifying Shareholders and the Underwriter is required to take up the untaken Underwritten Shares No. of Shares Approximate % 3,352,520,666 62.50 1,485,259,171 27.69 Nil Nil 1,265,005 0.06 524,988,224 9.79 5,364,033,066 100.00
				100.00

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LETTER FROM THE BOARD

Set out below is the shareholding structure of the Company immediately before and after the completion of the Wheelock Distribution in Specie (assuming that no Shares will be issued or bought back by the Company after the Latest Practicable Date and prior to the completion of the Wheelock Distribution in Specie):

Underwriter Wharf Group Wheelock Group Directors Mr. Ng Tin Hoi Stephen HSBC Trustee (C.I.) Limited (Note 1) Mr. Peter Woo and spouse (Note 2) Public Shareholders TOTAL	Prior to the completion of the Wheelock Distribution in Specie No. of Shares Approximate % Nil Nil Nil Nil 915,648,549 45.52 1,396,942 0.07 Nil Nil Nil Nil 1,094,466,909 54.41 2,011,512,400 100.00	Upon completion of the Wheelock Distribution in Specie No. of Shares Approximate % Nil Nil Nil Nil Nil Nil 1,475,988 0.07 446,976,630 22.22 117,875,685 5.86 1,445,184,097 71.85 2,011,512,400 100.00	Upon completion of the Wheelock Distribution in Specie No. of Shares Approximate % Nil Nil Nil Nil Nil Nil 1,475,988 0.07 446,976,630 22.22 117,875,685 5.86 1,445,184,097 71.85 2,011,512,400 100.00
			100.00

Notes:

(1) HSBC Trustee (C.I.) Limited is currently the controlling shareholder of Wheelock.
(2) As at the Latest Practicable Date, Mr. Peter Woo is a substantial shareholder of Wheelock, a controlling shareholder of Wharf. Mr. Peter Woo’s spouse is taken to be interested in the shares in Wheelock in which Mr. Peter Woo is interested by virtue of Part XV of the SFO. Out of prudence, the Directors had considered Mr. Peter Woo and his spouse as non-public Shareholders for the purpose of ascertaining the impact of the Wheelock Distribution in Specie on the Company’s public float.

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LETTER FROM THE BOARD

Set out below is the shareholding structure of the Company immediately before and after the close of the Open Offer, assuming that no Shares will be issued or bought back by the Company after the Latest Practicable Date and prior to the close of the Open Offer:

Underwriter Wharf Group Wheelock Group Directors Mr. Ng Tin Hoi Stephen HSBC Trustee (C.I.) Limited (Note 1) Mr. Peter Woo and spouse (Note 2) Public Shareholders TOTAL	Immediately prior to the close of the Open Offer No. of Shares Approximate % Nil Nil Nil Nil Nil Nil 1,475,988 0.07 446,976,630 22.22 117,875,685 5.86 1,445,184,097 71.85 2,011,512,400 100.00	Upon the Close of the Open Offer Assuming all Offer Shares are taken up by the Qualifying Shareholders (other than the Controlling Shareholder Companies) and the Underwriter is required to take up the untaken Underwritten Shares Assuming no Offer Shares are taken up by the Qualifying Shareholders and the Underwriter is required to take up the untaken Underwritten Shares No. of Shares Approximate % No. of Shares Approximate % 2,475,431,952 46.15 3,352,520,666 62.50 Nil Nil Nil Nil Nil Nil Nil Nil 3,584,329 0.07 1,475,988 0.03 446,976,630 8.33 446,976,630 8.33 117,875,685 2.20 117,875,685 2.20 2,320,164,470 43.25 1,445,184,097 26.94 5,364,033,066 100.00 5,364,033,066 100.00	Upon the Close of the Open Offer Assuming all Offer Shares are taken up by the Qualifying Shareholders (other than the Controlling Shareholder Companies) and the Underwriter is required to take up the untaken Underwritten Shares Assuming no Offer Shares are taken up by the Qualifying Shareholders and the Underwriter is required to take up the untaken Underwritten Shares No. of Shares Approximate % No. of Shares Approximate % 2,475,431,952 46.15 3,352,520,666 62.50 Nil Nil Nil Nil Nil Nil Nil Nil 3,584,329 0.07 1,475,988 0.03 446,976,630 8.33 446,976,630 8.33 117,875,685 2.20 117,875,685 2.20 2,320,164,470 43.25 1,445,184,097 26.94 5,364,033,066 100.00 5,364,033,066 100.00
			100.00

Notes:

(1) HSBC Trustee (C.I.) Limited is currently the controlling shareholder of Wheelock.
(2) As at the Latest Practicable Date, Mr. Peter Woo is a substantial shareholder of Wheelock, a controlling shareholder of Wharf. Mr. Peter Woo’s spouse is taken to be interested in the shares in Wheelock in which Mr. Peter Woo is interested by virtue of Part XV of the SFO. Out of prudence, the Directors had considered Mr. Peter Woo and his spouse as non-public Shareholders for the purpose of ascertaining the impact of the Open Offer on the Company’s public float.

Assuming all Offer Shares are taken up by the Qualifying Shareholders (other than the Controlling Shareholder Companies) and the Underwriter is required to take up the untaken Underwritten Shares, upon completion of the Loan Capitalisation (i.e. full conversion of the Loan Capitalisation Amount), the public would hold 2,323,748,799 Shares, representing approximately 37.44% of the then issued Shares of the Company (assuming no Shares will be issued or bought back by the Company after the Latest Practicable Date and prior to the completion of the Loan Capitalisation). As such, no further actions will be required to be conducted by Wharf or Wheelock for the purpose of maintaining the Public Float Requirement, subject to Wharf’s intention to dispose of its entire shareholding interest in the Company (by way of Further Distribution in Specie of its entire Loan Capitalisation Shares, or through other means Wharf considers appropriate) in order to exit the Communications, Media and Entertainment sector as soon as practicable, as described below. The following table sets out the shareholding structure of the Company should Wharf dispose of its entire shareholding interest in the Company by way of a Further Distribution

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LETTER FROM THE BOARD

in Specie following the full conversion of the Loan Capitalisation Amount, assuming (i) all Offer Shares are taken up by the Qualifying Shareholders (other than the Controlling Shareholder Companies) and the Underwriter is required to take up the untaken Underwritten Shares and (ii) no Shares will be issued or bought back by the Company after the Latest Practicable Date and prior to the completion of such Further Distribution in Specie:

Underwriter Wharf Group Wheelock Group HSBC Trustee (C.I.) Limited (Note 1) Mr. Peter Woo and spouse (Note 2) Public Shareholders (Note 3) Mr. Ng Tin Hoi Stephen Other Public Shareholders TOTAL	Upon the completion of the Loan Capitalisation Assuming all Offer Shares are taken up by the Qualifying Shareholders (other than the Controlling Shareholder Companies) and the Underwriter is required to take up the untaken Underwritten Shares No. of Shares Approximate % 2,475,431,952 39.89 841,987,090 13.57 Nil Nil 446,976,630 7.20 117,875,685 1.90 3,584,329 0.06 2,320,164,470 37.38 6,206,020,156 100.00	Upon the completion of Further Distribution in Specie after the completion of the Loan Capitalisation Assuming all Offer Shares are taken up by the Qualifying Shareholders (other than the Controlling Shareholder Companies) and the Underwriter is required to take up the untaken Underwritten Shares No. of Shares Approximate % 2,475,431,952 39.89 Nil Nil 519,077,257 8.36% 446,976,630 7.20 117,875,685 1.90 3,659,124 0.06 2,642,999,508 42.59 6,206,020,156 100.00	Upon the completion of Further Distribution in Specie after the completion of the Loan Capitalisation Assuming all Offer Shares are taken up by the Qualifying Shareholders (other than the Controlling Shareholder Companies) and the Underwriter is required to take up the untaken Underwritten Shares No. of Shares Approximate % 2,475,431,952 39.89 Nil Nil 519,077,257 8.36% 446,976,630 7.20 117,875,685 1.90 3,659,124 0.06 2,642,999,508 42.59 6,206,020,156 100.00
			100.00

Notes:

(1) HSBC Trustee (C.I.) Limited is currently the controlling shareholder of Wheelock.
(2) As at the Latest Practicable Date, Mr. Peter Woo is a substantial shareholder of Wheelock, a controlling shareholder of Wharf. Mr. Peter Woo’s spouse is taken to be interested in the shares in Wheelock in which Mr. Peter Woo is interested by virtue of Part XV of the SFO. Out of prudence, the Directors had considered Mr. Peter Woo and his spouse as non-public Shareholders for the purpose of ascertaining the impact of the Loan Capitalisation and the Further Distribution in Specie on the Company’s public float.
(3) Upon the completion of the Open Offer and resignation of Mr. Ng Tin Hoi Stephen as the Director of the Company, his shareholding shall be counted as part of public float.

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LETTER FROM THE BOARD

However, where no Offer Shares are taken up by the Qualifying Shareholders and the Underwriter is required to take up the untaken Underwritten Shares, the full conversion of the Loan Capitalisation Amount would render the public float of the Company to fall to 23.31%, and therefore unable to maintain the Public Float Requirement (assuming no Shares will be issued or bought back by the Company after the Latest Practicable Date and prior to the completion of the Loan Capitalisation). As such, the Loan Capitalisation will have to be carried out in different tranches (‘‘Partial Conversion’’) to ensure that the Company will be able to fulfil the Public Float Requirement at all times during the Relevant Period. In such case, it is expected that 422,607,275 Shares will be allotted and issued under the first tranche of the Loan Capitalisation.

Set out below is the shareholding structure of the Company illustrating the scenarios mentioned immediately above:

Underwriter Wharf Group Wheelock Group HSBC Trustee (C.I.) Limited (Note 1) Mr. Peter Woo and spouse (Note 2) Public Shareholders (Note 3) Mr. Ng Tin Hoi Stephen Other Public Shareholders TOTAL	Upon the completion of the Loan Capitalisation Assuming all Offer Shares are taken up by the Qualifying Shareholders (other than the Controlling Shareholder Companies) and the Underwriter is required to take up the untaken Underwritten Shares No. of Shares Approximate % 2,475,431,952 39.89 841,987,090 13.57 Nil Nil 446,976,630 7.20 117,875,685 1.90 3,584,329 0.06 2,320,164,470 37.38 6,206,020,156 100.00	Upon the completion of the Loan Capitalisation Assuming no Offer Shares are taken up by the Qualifying Shareholders and the Underwriter is required to take up the untaken Underwritten Shares No. of Shares Approximate % 3,352,520,666 54.02 841,987,090 13.57 Nil Nil 446,976,630 7.20 117,875,685 1.90 1,475,988 0.02 1,445,184,097 23.29 6,206,020,156 100.00	Upon the completion of the first tranche of Loan Capitalisation Assuming no Offer Shares are taken up by the Qualifying Shareholders and the Underwriter is required to take up the untaken Underwritten Shares No. of Shares Approximate % 3,352,520,666 57.94 422,607,275 7.30 Nil Nil 446,976,630 7.72 117,875,685 2.04 1,475,988 0.03 1,445,184,097 24.97 5,786,640,341 100.00	Upon the completion of the first tranche of Loan Capitalisation Assuming no Offer Shares are taken up by the Qualifying Shareholders and the Underwriter is required to take up the untaken Underwritten Shares No. of Shares Approximate % 3,352,520,666 57.94 422,607,275 7.30 Nil Nil 446,976,630 7.72 117,875,685 2.04 1,475,988 0.03 1,445,184,097 24.97 5,786,640,341 100.00
				100.00

Notes:

(1) HSBC Trustee (C.I.) Limited is currently the controlling shareholder of Wheelock.
(2) As at the Latest Practicable Date, Mr. Peter Woo is a substantial shareholder of Wheelock, a controlling shareholder of Wharf. Mr. Peter Woo’s spouse is taken to be interested in the shares in Wheelock in which Mr. Peter Woo is interested by virtue of Part XV of the SFO. Out of prudence, the Directors had considered Mr. Peter Woo and his spouse as non-public Shareholders for the purpose of ascertaining the impact of the Loan Capitalisation on the Company’s public float.
(3) Upon the completion of the Open Offer and resignation of Mr. Ng Tin Hoi Stephen as the Director of the Company, his shareholding shall be counted as part of public float.

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LETTER FROM THE BOARD

A further announcement will be issued when the number of Shares to be issued under the first tranche of the Loan Capitalisation is ascertained and finalised.

Following the completion of Partial Conversion of the first tranche of Loan Capitalisation, Further Distribution in Specie may be effected. A further announcement on the arrangements in relation to such Further Distribution in Specie will be issued once its details, including but not limited to the number of Shares to be distributed and the timetable of the distribution, are ascertained and finalised. The following table sets out the shareholding structure of the Company should a Further Distribution in Specie be effected after the Partial Conversion of the first tranche of Loan Capitalisation (assuming no Shares will be issued or bought back by the Company after the Latest Practicable Date and prior to the completion of the Partial Conversion of the first tranche of Loan Capitalisation):

Underwriter Wharf Group Wheelock Group HSBC Trustee (C.I.) Limited (Note 1) Mr. Peter Woo and spouse (Note 2) Public Shareholders (Note 3) Mr. Ng Tin Hoi Stephen Other Public Shareholders TOTAL	Upon the completion of the first tranche of Loan Capitalisation Assuming no Offer Shares are taken up by the Qualifying Shareholders and the Underwriter is required to take up the untaken Underwritten Shares No. of Shares Approximate % 3,352,520,666 57.94 422,607,275 7.30 Nil Nil 446,976,630 7.72 117,875,685 2.04 1,475,988 0.03 1,445,184,097 24.97 5,786,640,341 100.00	Upon the completion of Further Distribution in Specie after the first tranche of Loan Capitalisation Assuming no Offer Shares are taken up by the Qualifying Shareholders and the Underwriter is required to take up the untaken Underwritten Shares No. of Shares Approximate % 3,352,520,666 57.94 Nil Nil 260,533,478 4.50 446,976,630 7.72 117,875,685 2.04 1,513,529 0.03 1,607,220,353 27.77 5,786,640,341 100.00	Upon the completion of Further Distribution in Specie after the first tranche of Loan Capitalisation Assuming no Offer Shares are taken up by the Qualifying Shareholders and the Underwriter is required to take up the untaken Underwritten Shares No. of Shares Approximate % 3,352,520,666 57.94 Nil Nil 260,533,478 4.50 446,976,630 7.72 117,875,685 2.04 1,513,529 0.03 1,607,220,353 27.77 5,786,640,341 100.00
			100.00

Notes:

(1) HSBC Trustee (C.I.) Limited is currently the controlling shareholder of Wheelock.
(2) As at the Latest Practicable Date, Mr. Peter Woo is a substantial shareholder of Wheelock, a controlling shareholder of Wharf. Mr. Peter Woo’s spouse is taken to be interested in the shares in Wheelock in which Mr. Peter Woo is interested by virtue of Part XV of the SFO. Out of prudence, the Directors had considered Mr. Peter Woo and his spouse as non-public Shareholders for the purpose of ascertaining the impact of the Loan Capitalisation and the Further Distribution in Specie on the Company’s public float.
(3) Upon the completion of the Open Offer and resignation of Mr. Ng Tin Hoi Stephen as the Director of the Company, his shareholding shall be counted as public float.

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LETTER FROM THE BOARD

Following such Further Distribution in Specie, the second tranche of Loan Capitalisation will be effected. The following table sets out the shareholding structure of the Company following the conversion of the second tranche of Loan Capitalisation (assuming no Shares will be issued or bought back by the Company after the Latest Practicable Date and prior to the completion of the conversion of the second tranche of Loan Capitalisation):

Underwriter Wharf Group Wheelock Group HSBC Trustee (C.I.) Limited (Note 1) Mr. Peter Woo and Spouse (Note 2) Public Shareholders (Note 3) Mr. Ng Tin Hoi Stephen Other Public Shareholders TOTAL	Upon the completion of Further Distribution in Specie after the first tranche of Loan Capitalisation Assuming no Offer Shares are taken up by the Qualifying Shareholders and the Underwriter is required to take up the untaken Underwritten Shares No. of Shares Approximate % 3,352,520,666 57.94 Nil Nil 260,533,478 4.50 446,976,630 7.72 117,875,685 2.04 1,513,529 0.03 1,607,220,353 27.77 5,786,640,341 100.00	Upon the completion of the second tranche of Loan Capitalisation Assuming no Offer Shares are taken up by the Qualifying Shareholders and the Underwriter is required to take up the untaken Underwritten Shares No. of Shares Approximate % 3,352,520,666 54.02 419,379,815 6.76 260,533,478 4.20 446,976,630 7.20 117,875,685 1.90 1,513,529 0.02 1,607,220,353 25.90 6,206,020,156 100.00	Upon the completion of the second tranche of Loan Capitalisation Assuming no Offer Shares are taken up by the Qualifying Shareholders and the Underwriter is required to take up the untaken Underwritten Shares No. of Shares Approximate % 3,352,520,666 54.02 419,379,815 6.76 260,533,478 4.20 446,976,630 7.20 117,875,685 1.90 1,513,529 0.02 1,607,220,353 25.90 6,206,020,156 100.00
			100.00

Notes:

(1) HSBC Trustee (C.I.) Limited is currently the controlling shareholder of Wheelock.
(2) As at the Latest Practicable Date, Mr. Peter Woo is a substantial shareholder of Wheelock, a controlling shareholder of Wharf. Mr. Peter Woo’s spouse is taken to be interested in the shares in Wheelock in which Mr. Peter Woo is interested by virtue of Part XV of the SFO. Out of prudence, the Directors had considered Mr. Peter Woo and his spouse as non-public Shareholders for the purpose of ascertaining the impact of the Loan Capitalisation on the Company’s public float.
(3) Upon the completion of the Open Offer and resignation of Mr. Ng Tin Hoi Stephen as the Director of the Company, his shareholding shall be counted as public float.

– 45 –

LETTER FROM THE BOARD

As announced in the April 24 Announcement, Wharf informed the Company that Wharf intends to dispose of its entire shareholding interest in the Company (by way of Further Distribution in Specie of its entire Loan Capitalisation Shares, or through other means Wharf considers appropriate) in order to exit the Communications, Media and Entertainment sector as soon as practicable. The following table sets out the shareholding structure of the Company should Wharf dispose of its entire shareholding interest in the Company by way of a Further Distribution in Specie following the completion of conversion of the second tranche of Loan Capitalisation (assuming no Shares will be issued or bought back by the Company after the Latest Practicable Date and prior to the completion of such Further Distribution in Specie):

Underwriter Wharf Group Wheelock Group HSBC Trustee (C.I.) Limited (Note 1) Mr. Peter Woo and spouse (Note 2) Public Shareholders (Note 3) Mr. Ng Tin Hoi Stephen Other Public Shareholders TOTAL	Upon the completion of the second tranche of Loan Capitalisation Assuming no Offer Shares are taken up by the Qualifying Shareholders and the Underwriter is required to take up the untaken Underwritten Shares No. of Shares Approximate % 3,352,520,666 54.02 419,379,815 6.76 260,533,478 4.20 446,976,630 7.20 117,875,685 1.90 1,513,529 0.02 1,607,220,353 25.90 6,206,020,156 100.00	Upon the completion of Further Distribution in Specie after the second tranche of Loan Capitalisation Assuming no Offer Shares are taken up by the Qualifying Shareholders and the Underwriter is required to take up the untaken Underwritten Shares No. of Shares Approximate % 3,352,520,666 54.02 Nil Nil 519,077,257 8.36 446,976,630 7.20 117,875,685 1.90 1,550,782 0.03 1,768,019,136 28.49 6,206,020,156 100.00	Upon the completion of Further Distribution in Specie after the second tranche of Loan Capitalisation Assuming no Offer Shares are taken up by the Qualifying Shareholders and the Underwriter is required to take up the untaken Underwritten Shares No. of Shares Approximate % 3,352,520,666 54.02 Nil Nil 519,077,257 8.36 446,976,630 7.20 117,875,685 1.90 1,550,782 0.03 1,768,019,136 28.49 6,206,020,156 100.00
			100.00

Notes:

(1) HSBC Trustee (C.I) Limited is currently the controlling shareholder of Wheelock.
(2) As at the Latest Practicable Date, Mr. Peter Woo is a substantial shareholder of Wheelock, a controlling shareholder of Wharf. Mr. Peter Woo’s spouse is taken to be interested in the shares in Wheelock in which Mr. Peter Woo is interested by virtue of Part XV of the SFO. Out of prudence, the Directors had considered Mr. Peter Woo and his spouse as non-public Shareholders for the purpose of ascertaining the impact of the Further Distribution in Specie on the Company’s public float.
(3) Upon the completion of the Open Offer and resignation of Mr. Ng Tin Hoi Stephen as the director of the Company, his shareholding shall be counted as public float.

– 46 –

LETTER FROM THE BOARD

As at the Latest Practicable Date, the Company has not received any information or commitment from Wheelock of its intention or contemplation to dispose of its entire shareholding interest in the Company subsequent to the Initial Distribution in Specie or the Further Distribution(s) in Specie (by way of distribution in specie or through other means).

Maintenance of Public Float

The public float of the Shares will expected to be affected by the issue of the Offer Shares under the Open Offer, and the further issue of the Loan Capitalisation Shares under the Loan Capitalisation Agreement.

In order to ensure that the Company will be able to fulfil the Public Float Requirement at all times up to the completion of the Loan Capitalisation, the Company has taken the following measures.

The Company has obtained the Undertaking from Wharf. Pursuant to the Undertaking, subject to (i) none of the Underwriter and the directors of the Group (or their respective associates) increasing its/his/her shareholding interests in the Company during the Relevant Period; (ii) no buy-back of Shares by the Company during the Relevant Period, to maintain the Public Float Requirement at all times during the Relevant Period, Wharf has undertaken that it will procure:

(i) the Initial Distribution in Specie as soon as practicable after the date the Open Offer has become unconditional and before the completion of the Open Offer;
(ii) one or more Further Distribution in Specie to the shareholders of Wharf, as are sufficient to maintain the Public Float Requirement, and (if required) to undertake to the Stock Exchange to the same effect.

Further, in the event that, the Initial Distribution in Specie and the Further Distribution(s) in Specie are not sufficient to ensure the Public Float Requirement, Wharf will request Wheelock, to facilitate the maintenance of the Company’s public float by disposing of an appropriate number of Shares held by Wheelock or any of its subsidiaries, through one or more distribution(s) in specie by Wheelock to its shareholders, or by onmarket/off-market disposals, or a combination of them.

As a result of the Initial Distribution in Specie, Wheelock (and parties acting in concert with it) will become interested in more than 30% of the issued Shares. In this connection, Wheelock will seek the Wheelock Waiver from the Executive that, in light that Wheelock and Wharf have all along been parties acting in concert, Wheelock will not be required to make any mandatory general offer for the Shares under Rule 26.1 of the Takeovers Code.

– 47 –

LETTER FROM THE BOARD

It is currently expected that as soon as practicable after the Latest Time for Termination and prior to the completion of the Open Offer, Wharf will effect the Initial Distribution in Specie, and will procure Wheelock to effect the Wheelock Distribution in Specie as soon as practicable after the completion of the Initial Distribution in Specie. Once (i) the expected completion periods of the Initial Distribution in Specie and the Wheelock Distribution in Specie, (ii) the number of Shares to be distributed under both distributions in specie and (iii) the relevant timetable and arrangements of both distributions in specie are ascertained and finalised, a further announcement will be issued.

As set out in the section ‘‘Shareholding Structure of the Company’’ above:-

Initial Distribution in Specie

(i) assuming that no Shares will be issued or bought back by the Company after the Latest Practicable Date and prior to the completion of the Initial Distribution in Specie, upon the completion of Initial Distribution in Specie, Wharf Group will cease to have any interest in the Company and Wheelock Group (excluding Wharf Group) will hold 915,648,549 Shares in the Company, representing approximately 45.52% of the then issued Shares. The public Shareholders will hold 1,094,466,909 Shares, representing approximately 54.41% of the then issued Shares;

Wheelock Distribution in Specie

(ii) soon following (i) set out immediately above, the Wheelock Distribution in Specie will be effected. Assuming that no Shares will be issued or bought back by the Company after the Latest Practicable Date and prior to the completion of the Wheelock Distribution in Specie, upon the completion of the Wheelock Distribution in Specie, Wheelock Group will cease to have any interest in the Company and HSBC Trustee (C.I.) Limited, the current controlling shareholder of Wheelock, in 446,976,630 Shares, representing approximately 22.22 % of the then issued Shares. The public Shareholders will hold 1,445,184,097 Shares, representing approximately 71.85% of the then issued Shares;

Close of Open Offer

(iii) upon the close of the Open Offer, and assuming that all Offer Shares are taken up by the Qualifying Shareholders and the Underwriter is required to take up the untaken Underwritten Shares, the Underwriter will become interested in 2,475,431,952 Shares, representing approximately 46.15% of the then issued Shares. The public Shareholders will hold 2,320,164,470 Shares, representing approximately 43.25% of the then issued Shares;

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LETTER FROM THE BOARD

(iv) upon the close of the Open Offer, and assuming that no Offer Shares are taken up by the Qualifying Shareholders and the Underwriter is required to take up the untaken Underwritten Shares, the Underwriter will become interested in 3,352,520,666 Shares, representing approximately 62.50% of the then issued Shares. The public Shareholders will hold 1,445,184,097 Shares, representing approximately 26.94% of the then issued Shares;

Loan Capitalisation

(v) Assuming all Offer Shares are taken up by the Qualifying Shareholders (other than the Controlling Shareholder Companies) and the Underwriter is required to take up the untaken Underwritten Shares, upon completion of the Loan Capitalisation (i.e. full conversion of the Loan Capitalisation Amount), the public would hold 2,323,748,799 Shares, representing approximately 37.44% of the then issued Shares. As such, no further actions will be required to by conducted at Wharf or Wheelock for the purpose of maintaining the Public Float Requirement. However, where no Offer Shares are taken up by the Qualifying Shareholders and the Underwriter is required to take up the untaken Underwritten Shares, the full conversion of the Loan Capitalisation Amount would render the public float of the Company to fall to 23.31%, and the Company would therefore be unable to fulfil the Public Float Requirement. As such, Partial Conversion will have to be carried out to ensure that the Company will be able to fulfil the Public Float Requirement at all times during the Relevant Period.

Partial Conversion of First Tranche of Loan Capitalisation

(vi) As mentioned above, following where no Offer Shares are taken up by the Qualifying Shareholders and the Underwriter is required to take up the untaken Underwritten Shares, upon completion the first tranche of Loan Capitalisation, Wharf would hold 422,607,275 Shares, representing approximately 7.30% of the then issued Shares. The public would hold 1,446,660,085 Shares, representing approximately 25.00% of the then issued Shares.

– 49 –

LETTER FROM THE BOARD

Further Distribution in Specie

(vii) A Further Distribution in Specie will be effected by Wharf upon the completion of the first tranche of Loan Capitalisation, upon which, Wharf will cease to hold any Shares and Wheelock will hold 260,533,478 Shares, representing approximately 4.50% of the then issued Shares. The public would hold 1,608,733,882 Shares, representing approximately 27.80% of the then issued Shares.

Partial Conversion of Second Tranche of Loan Capitalisation

(viii) Following the above, the Partial Conversion of the second tranche of Loan Capitalisation shall take place, upon completion of which, Wharf would hold 419,379,815 Shares, representing 6.76% and Wheelock would hold 260,533,478 Shares, representing approximately 4.20% of the then issued Shares. The public would hold 1,608,733,882 Shares, representing approximately 25.92% of the then issued Shares.

It is currently expected that, the Loan Capitalisation would be completed within 30 days after the close of the Open Offer.

Following the mechanism as set out above, the Company will be able to fulfil the Public Float Requirement at all times during the Relevant Period.

Nevertheless, as announced in the April 24 Announcement, Wharf informed the Company that Wharf intends to dispose of its entire shareholding interest in the Company in order to exit the Communications, Media and Entertainment sector as soon as practicable. This will be effected by way of the Further Distribution in Specie of its entire Loan Capitalisation Shares, or through other means Wharf considers appropriate. If Wharf disposes of its entire shareholding interest by way of a Further Distribution in Specie following the completion of Partial Conversion of the second tranche of Loan Capitalisation, Wharf will cease to hold any Shares and Wheelock will hold 519,077,257 Shares, representing approximately 8.36% of the then issued Shares. The public would hold 1,769,569,918 Shares, representing approximately 28.51% of the then issued Shares.

Equity Fund Raising Activities of the Company in the Past Twelve-month Period Immediately Before The Latest Practicable Date

The Company had not conducted any equity fund raising activities in the past twelve months immediately preceding the Latest Practicable Date.

– 50 –

LETTER FROM THE BOARD

Reasons For the Open Offer and Use of Proceeds

The Group is principally engaged in the communications, media and entertainment business market in Hong Kong.

Consequently, the Board had engaged professional external adviser(s) to explore alternative sources of funding and/or advise on any business reorganisation and the continuance, directions and/or discontinuance of the Company’s business operations. For more details, please refer to the paragraph headed “General” below in this section.

Furthermore, as announced in the April 24 Announcement, Wharf has further informed the Company that Wharf intends to dispose of its entire shareholding interest in the Company in order to exit the Communications, Media and Entertainment sector as soon as practicable. As at the Latest Practicable Date, it remains Wharf’s intention to dispose of all its Shares in the Company after completion of the Loan Capitalisation as soon as practicable.

The proposed Open Offer coupled with the Loan Capitalisation and Facility Term Extension is one funding proposal for the Group in order for our business to continue as usual. As set out in the sub-paragraphs headed ‘‘Use of proceeds’’ and ‘‘Future funding commitment and requirements’’ below, upon acceptance of the renewal of the Pay TV Licence, HKCTV will be subject to a commitment of a six-year investment plan of HK$3,447 million from 2017 to 2023. In addition, FTV is required to incur at least HK$336 million as cumulative capital and programming expenditure for providing the domestic free television programme service within 30 months from commencement date of the Free TV Licence (being 31 May 2016). It is estimated that the Group would require approximately HK$249 million out of the proceeds from the Open Offer (representing 37.2% of the total estimated net proceeds from the Open Offer) as funding to satisfy the Group’s operation requirements and for it to continue its operations in the coming 2 years. The Group also expects to utilise HK$330 million out of the proceeds from the Open Offer (representing 49.3% of the total estimated net proceeds from the Open Offer) for investments in network related capital expenditure and TV capital expenditure, including without limitation to the roll out of GPON high speed internet broadband services and our recently launched FANhub set top box, which the Board considered to be critical in rebuilding and strengthening the Group’s competitiveness in the market.

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LETTER FROM THE BOARD

In the event that the Open Offer does not materialise and if the Company is unable to obtain alternative funding in time, HKCTV would unlikely be able to fulfil the six-year investment plan of HK$3,447 million from 2017 to 2023 and will not have any basis to renew its Pay TV Licence, which will lead to cessation of Pay TV service immediately after 31 May 2017 and therefore immediate loss of the Group’s monthly revenue. The revenue generated from the television business accounted for over 70% of the Group’s total revenue for each of the three years ended 31 December 2014, 31 December 2015 and 31 December 2016. The loss of the Pay TV Licence and the revenue in respect thereof would have a material adverse impact on the Group and cast uncertainty on the sustainability of the Group’s business. Given the capital intensive nature of the Group’s business, the unavailability of funding to satisfy the Group’s upcoming capital expenditure demands and to continue to implement the Group’s GPON and FANhub roll out would also inhibit the Group’s ability to continue to pursue its operations and to turnaround its trading and financial position.

Moreover, the business of the Group as a going concern will be at issue if the Open Offer does not proceed and will depend on whether the Group is able to seek alternative fund and/or scale down its business. If such risk materialises, announcements will be made as and when appropriate.

Use of proceeds

The estimated net proceeds from the Open Offer (after deducting the relevant expense including professional fees, printing charges and sundry expenses) will amount to approximately HK$669 million. It is intended that the net proceeds will be used to fund the Company’s operating and capital requirements as well as to turnaround the Company and continue its business as a going concern. The proceeds of the equity injection and the improvement in the capital structure through the Loan Capitalisation will be used to meet the Company’s cash flow needs and Pay TV and Free TV license investment requirements in the coming years while the business undergoes a restructuring and turnaround of the operations. Apart from carrying out organisational restructuring targeting to achieve substantial savings in annual operating expenses, we intend to apply such estimated net proceeds in the following manner:

(i) approximately HK$170 million for investments in network related capital expenditure, which includes enhancement of the Group’s telecommunications network and focuses on the roll out of GPON high speed internet broadband services in the coming 3 years;

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LETTER FROM THE BOARD

(ii) approximately HK$160 million for investments in TV capital expenditure, which includes investments in:
upgrading the existing Pay TV set top box to FANhub set top box, a full featured, ‘‘video-on-demand’’, interactive HD (high definition) set top box launched in early 2016 to enrich customer experience. The investment in FANhub set top box is a major focus of TV capital expenditure, and the allocated proceeds from the Open Offer is expected to support our upgrade service in the coming 3 years;
completing the upgrade of our news platform with HD (high definition) capabilities, including but not limited to equipping our newsroom facilities with virtual reality and graphics application. We have been upgrading our news platform since the end of 2015 and expect to complete the upgrade in the coming 2 years;
setting up FTV, which is expected to launch in May 2017, in the coming year; and
purchase of other equipment to support our television services, including production and broadcasting, the spending of which is expected to be even in the next 3 years;
(iii) approximately HK$90 million for investments in other capital expenditure, which includes investments in the following areas that are to be expended on an average basis in the coming 3 years:
the materials and related manpower required for installation and connection services in support of our Pay TV, internet and telephone services;
cable modems for our internet services customers;
data processing equipment for our system development; and
leasehold improvement and other office equipment; and

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LETTER FROM THE BOARD

(iv) approximately HK$249 million as funding required net of cash received from operations (including subscription, service and related fees for television, internet and telephone services, advertising income, channel service and distribution fees, programme licensing income, film exhibition and distribution income and network maintenance income) for the Company’s operating requirements (including the fulfilment of the relevant funding commitments to the Pay TV Licence and Free TV Licence as described below) in the coming 2 years, including funding of:
approximately 60% to cover programming costs, which mainly includes costs to maintain our programming library (which consists of presentation rights for commissioned and acquired programmes for broadcasting on the Group’s television channels, and commissioned programmes and films for licencing purpose), to develop our in-house developed programmes and to generate our Group’s film rights. For more details on our programming costs, please refer to Note 1(g) to the consolidated financial statements of the Company for the year ended 31 December 2016, which is extracted from the Company’s annual report for the year ended 31 December 2016 and reproduced under the paragraph headed ‘‘2. Audited Consolidated Financial Statements for the year ended 31 December 2016’’ in Appendix I to this circular);
approximately 15% to cover network expenses, which mainly includes expenses associated with the provision of our network services (being television, internet and telephone services), including the maintenance of our network infrastructure and equipment; and
approximately 25% to cover (i) selling expenses, which mainly includes employee benefit expenses for our selling and marketing staff, and operating lease payments and utility expense attributable to our sales functions, (ii) general and administrative expenses, which mainly includes administrative staff expenses and office related expenses, and (iii) other operative expenses, which mainly includes customer services expenses such as running cost for the Company’s call centre in the PRC, billing and collection cost.

– 54 –

LETTER FROM THE BOARD

Future funding commitment and requirements

Reference is made to the Company’s announcement dated 15 March 2017. The Pay TV Licence issued to HKCTV is expiring on 31 May 2017. On 13 December 2016, the Chief Executive-in-Council approved HKCTV’s application for renewal of its Pay TV Licence for a period of 12 years from 1 June 2017. Upon acceptance of the renewal of the Pay TV Licence of HKCTV for the period of 12 years from 1 June 2017 to 31 May 2029, HKCTV will be subject to a commitment of a six-year investment plan of HK$3,447 million from 2017 to 2023, comprising HK$251 million of capital investment and HK$3,196 million of programming investment in content including in-house channels containing self-produced and/or acquired programs as well as in acquired channels.

In accordance with the terms of the Free TV Licence, FTV has issued a performance bond in favour of the Hong Kong Government in the sum of HK$20 million. Under the terms of the performance bond, unless the Communications Authority otherwise approves or determines:

within 18 months from the commencement date of the Free TV Licence (being 31 May 2016) (the ‘‘Free TV Commencement Date’’), FTV shall incur not less than HK$168 million as the capital and programming expenditure for providing the domestic free television programme service;
within 30 months from the Free TV Commencement Date, FTV shall incur not less than HK$336 million as the cumulative capital and programming expenditure for providing the domestic free television programme service; and
within 42 months from the Free TV Commencement Date, FTV shall incur not less than HK$504 million as the cumulative capital and programming expenditure for providing the domestic free television programme service.

There is no funding commitment in respect of the unified carrier licence held by HKCTV.

As at the Latest Practicable Date, assuming (i) that the Group’s revenue and operating expenditure will remain at more or less the current level and (ii) the continuous investment in the Group’s major capital expenditure such as the roll out of FANhub (as described in this paragraph above) and GPON high speed internet broadband services:

the Company’s expected funding needs for the next 12 months amounts to HK$227 million; and

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LETTER FROM THE BOARD

the Company expects to utilise approximately HK$249 million out of the proceeds from the Open Offer, together with proceeds from the Loan Capitalisation and income from the Group’s operations, to fund its operations (including the fulfilment of its relevant funding commitments for the Pay TV Licence and the Free TV Licence) in the coming 2 years, after which the Company expects to receive adequate income from its operations to fund its operations (including the fulfilment of its relevant funding commitments for the Pay TV Licence and the Free TV Licence).

The Board considers that the Open Offer and the Loan Capitalisation, which together will amount to an aggregate of new equity capital of approximately HK$1,004 million, will satisfy the Group’s expected funding needs for the next 12 months and provide sufficient capital in a medium-term future to support the continuation of the Group’s communication, media and entertainment business and allows the Group to effect a restructuring for sustainable development in the long term. The Board further considers that it is important for the Group to have committed funding to finance the Group’s business operations, preferably in the form of equity which will not require repayment in compliance with the financial covenants, or increase the Group’s financing costs.

The Board considers that the Open Offer will give the Qualifying Shareholders the opportunity to maintain their respective pro-rata shareholding interest in the Company. The Directors (including the members of the Independent Board Committee, whose view is disclosed in the section headed “Letter from the Independent Board Committee” in this circular after taking into account the advice from the Independent Financial Adviser) are of the view that fund raising through the Open Offer is in the interests of the Company and the Shareholders as a whole. However, those Qualifying Shareholders who do not take up the Offer Shares to which they are entitled should note that their shareholdings in the Company will be diluted.

At the same time, the Company and the Underwriter have been working together to formulate an organisational restructuring targeting to achieve substantial savings of HK$200 million in annual operating expenses. Such restructuring, after it is formulated and finalised, is currently expected to be implemented as soon as practicable after the completion of the Open Offer. As at the Latest Practicable Date, the Company and the Underwriter have no current intention to conduct any equity fund raising activities in the next 12 months.

Listing Rules Implications

As the Open Offer will increase the number of the issued Shares by more than 50%, in compliance with Rule 7.24(5)(a) of the Listing Rules, the Open Offer must be made conditional on approval of the Independent Shareholders by way of poll at the EGM and any controlling shareholders of the Company and their associates shall abstain from voting in favour of the resolution relating to the Open Offer.

– 56 –

LETTER FROM THE BOARD

(2) APPLICATION FOR WHITEWASH WAIVER

Assuming no further Shares will be issued or bought back by the Company prior to the close of the Open Offer and all of the Qualifying Shareholders (except the Controlling Shareholder Companies) have taken up their respective entitlements under the Open Offer, the Underwriter will be required to take up the untaken Underwritten Shares and the total shareholding of the Underwriter immediately upon completion of the Open Offer would amount to approximately 46.15% of the issued share capital of the Company as enlarged by the allotment and issue of the Offer Shares.

Assuming no further Shares will be issued or bought back by the Company prior to the close of the Open Offer and none of the Qualifying Shareholders (including the Controlling Shareholder Companies) have taken up their respective entitlements under the Open Offer, the Underwriter will be required to take up the Underwritten Shares and the total shareholding of the Underwriter immediately upon completion of the Open Offer would amount to approximately 62.50% of the issued share capital of the Company as enlarged by the allotment and issue of the Offer Shares.

Under both circumstances, the Underwriter would be required to make a mandatory general offer for all the issued Shares (other than those already owned or agreed to be acquired by the Underwriter and parties acting in concert with it) under Rule 26.1 of the Takeovers Code, unless a Whitewash Waiver is granted by the Executive. Immediately following completion of the Loan Capitalisation, the interest in the Company held by the Underwriter (assuming none of the Qualifying Shareholders have taken up their respective entitlements under the Open Offer) is expected to decrease from approximately 62.50% to approximately 54.02%.

If the Open Offer, the Underwriting Agreement, the Whitewash Waiver and the transactions contemplated thereunder would give rise to any concerns in relation to compliance with other applicable rules or regulations (including the Listing Rules) by the Company, the Company will endeavor to address the concerns to the satisfaction of the relevant authority as soon as practicable. The Company notes that the Executive may not grant the Whitewash Waiver if the Open Offer and the transaction contemplated thereunder will result in the Company not being able to comply with applicable rules and regulations.

– 57 –

LETTER FROM THE BOARD

Intentions of the Underwriter

Upon the completion of the Open Offer and becoming the controlling shareholder of the Company, the Underwriter will continue to work with the Company to review the businesses of the Group from time to time, including among others, the Group’s relationships with its customers, suppliers and contractors, portfolio of products and services, assets, corporate and organisational structure, capitalisation, operations, policies, management and personnel to consider and determine what changes, if any, would be necessary, appropriate or desirable, long term and short term, in order to best organise and optimise the businesses and operations of the Group. In particular, the Underwriter intends to work with the Company, upon the completion of the Open Offer, to:

(a) explore all possibility of cooperation with content providers including talented individuals;
(b) strengthen the scope of financial news to cover the region to meet the needs of the business community;
(c) strengthen the OTT (over-the-top) service to enable easy access by a greater base of audience; and
(d) roll out GPON high speed internet broadband services and to explore opportunities to utilise the Company’s extensive optical fibre network in Hong Kong to broaden its business.

As disclosed in the section headed ‘‘Reasons for the Open Offer and Use of Proceeds’’ above, the Group will be carrying out organisational restructuring targeting to achieve substantial savings in annual operating expenses. The Underwriter intends to work closely with the Company in this regard.

The Underwriter is working with the Company to conduct a review of the Group’s human resources strategy with the view to optimising the human resources structure of the Group. The measures may involve streamlining and the reallocation of human resources within different divisions of the Group. Such measures, once agreed, will likely be implemented upon completion of the Open Offer. Save as to the foregoing and the organisational restructuring which the Company and the Underwriter are working together, there is no other intention that might affect the continued employment of the employees of the Group.

As at the Latest Practicable Date, the Board comprises two executive Directors, namely Mr. Stephen T. H. Ng and Mr. William J. H. Kwan, one non-executive Director, namely Mr. Paul Y. C. Tsui, and four independent non-executive Directors, namely Mr. Herman S. M. Hu, Mr. Roger K. H. Luk, Mr. Sherman S. M. Tang and Mr. Patrick Y. W. Wu.

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Pursuant to the Undertaking, it is intended that the resignations of Mr. Stephen T. H. Ng as executive Director and Mr. Paul Y. C. Tsui as non-executive Director would take effect from the Closing Date.

Pursuant to the Underwriting Agreement, it is intended that the Company will appoint, or procure the appointment of, such persons nominated by the Underwriter as Directors and/ or directors of members of the Group conditional upon and with effect from the Closing Date. As of the Latest Practicable Date, such persons have not yet been determined by the Underwriter.

Saved as disclosed above, the Underwriter intends to continue the existing businesses of the Group following the completion of the Open Offer, and has no current intention to introduce any material change to the existing businesses of the Group via any material acquisition, disposal, termination or scaling down, or to re-deploy the fixed assets of the Group other than in its ordinary course of business. Nevertheless, the Underwriter retains the flexibility at any time to consider any options or opportunities which may present themselves and which it regards to be in the interests of the Group and/or the Underwriter.

(3) LOAN CAPITALISATION AND FACILITY TERM EXTENSION

Wharf Facility

Currently, Wharf Finance, a wholly owned subsidiary of Wharf, has provided the Wharf Facility, being a revolving loan facility of up to the principal amount of HK$400 million to HKCTV, a subsidiary of the Company. The Wharf Facility, according to its existing terms, will expire on 31 December 2017.

Loan Capitalisation Agreement

The Company, HKCTV and Wharf Finance entered into the Loan Capitalisation Agreement on 14 April 2017 pursuant to which Wharf Finance has agreed to effect the Loan Capitalisation, whereby the Loan Capitalisation Amount in the sum of HK$300 million under the Wharf Facility will be capitalised into 841,987,090 Loan Capitalisation Shares, at the issue price of one Share for approximately HK$0.3563, to be issued to Wharf Finance (or its nominee).

The issue price of approximately HK$0.3563 per Loan Capitalisation Share was agreed among the parties to the Loan Capitalisation Agreement by reference to the theoretical exrights price per Share based on the price of HK$0.21 for each Offer Share. The issue price of approximately HK$0.3563 per Loan Capitalisation Share represents:

(i) a discount of approximately 41.59% to the Last Closing Price;

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(ii) a premium of approximately 42.52% over the audited consolidated net asset value per Share attributable to equity holders of the Company of approximately HK$0.25 as at 31 December 2016; and
(iii) a discount of approximately 36.38% to the closing price of HK$0.56 per Offer Share as quoted on the Stock Exchange on the Latest Practicable Date.

The Loan Capitalisation Agreement is conditional upon:

(a) the approval thereof by the Independent Shareholders at the EGM by way of poll;
(b) the grant by the Executive of its consent to the Loan Capitalisation as a special deal under Rule 25 of the Takeovers Code, and not having withdrawn or revoked such grant, of the transaction contemplated in the Open Offer, and the fulfilment of all conditions, if any, attached to it;
(c) the Open Offer having been completed in accordance with its terms;
(d) the Listing Committee of the Stock Exchange agreeing to grant (subject to allotment) the listing of, and permission to deal in, the Loan Capitalisation Shares (and such permission an listing not subsequently being revoked prior to the delivery of definitive share certificate(s) representing the Loan Capitalisation Shares); and
(e) the Public Float Requirement not being breached at any time.

(collectively, the ‘‘Conditions of the Loan Capitalisation Agreement’’).

The Loan Capitalisation can be effected in tranches, in order for the Company to fulfil the Public Float Requirement at all times during the Relevant Period, provided that:

(a) the Company shall be entitled to give notice in writing to the Wharf Finance, and Wharf Finance shall upon receipt of such notice effect and complete the Loan Capitalisation in tranches (if necessary) as soon as reasonably practicable, following satisfaction of conditions (a) to (d) of the Conditions of the Loan Capitalisation Agreement above, to ensure compliance with the Public Float Requirement;
(b) Wharf Finance shall, and shall procure its controlling shareholders (as defined in the Listing Rules, excluding any shareholders of Wheelock) to, distribute as many as possible the Loan Capitalisation Shares issued, distributed or otherwise transferred to them to their respective shareholders in order to ensure and facilitate completion of the Loan Capitalisation in accordance with paragraph (a) set out immediately above and subject to the Public Float Requirement; and

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(c) notwithstanding that the Loan Capitalisation may take place in different tranches, commencing from the date of the first tranche of the Loan Capitalisation until completion of the Loan Capitalisation: (i) no interest shall accrue on any of the Loan Capitalisation Amount; and (ii) Wharf Finance shall not be entitled to exercise any of its rights in respect of any Loan Capitalisation Amount not capitalised in accordance with the Loan Capitalisation Agreement save and except for the right to capitalise the Loan Capitalisation Amount into the corresponding Loan Capitalisation Shares under the Loan Capitalisation Agreement.

Assuming that (i) no further Shares will be issued or bought back by the Company prior to the close of the Open Offer and completion of the Loan Capitalisation and (ii) no Offer Shares are taken up by the Qualifying Shareholders and the Underwriter is required to take up the untaken Underwritten Shares, the Loan Capitalisation Shares would be approximately 41.86% of the issued share capital of the Company as at the Latest Practicable Date, and approximately 15.70% of the enlarged issued share capital upon the completion of the Open Offer of the Company.

Facility Term Extension Agreement

The Company, HKCTV and Wharf Finance entered into the Facility Term Extension Agreement on 14 April 2017 pursuant to which Wharf Finance has agreed to revise the terms of the Wharf Facility as follows:

(I) with effect from the completion of the Open Offer:
(i) the term of the Wharf Facility shall be revised from ‘‘1-year from 1 January 2017 to 31 December 2017’’ to ‘‘3-years from 1 January 2017 to 31 December 2019’’; and
(ii) the Final Maturity as defined in the Wharf Facility Agreement shall be revised from ‘‘31 December 2017’’ to ‘‘31 December 2019’’.
(II) with effect from the completion date of the Loan Capitalisation Agreement, the principal loan amount under the Wharf Facility shall be revised from a ‘‘ Revolving Loan of HKD400,000,000 ’’ to ‘‘ Revolving Loan of ’’
HKD100,000,000 .

The Facility Term Extension Agreement is conditional upon:

(a) the approval thereof by the Independent Shareholders at the EGM by way of poll;

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(b) the grant by the Executive of its consent to the Facility Term Extension as a special deal under Rule 25 of the Takeovers Code, and not having withdrawn or revoked such grant, of the transaction contemplated in the Open Offer, and the fulfilment of all conditions, if any, attached to it; and
(c) the Open Offer having been completed in accordance with its terms.

Implications under the Listing Rules and the Takeovers Code

Wharf is an indirect controlling shareholder of the Company. The Loan Capitalisation and the Facility Term Extension are arrangement with Wharf Group which could not be extended to all other Shareholders given that the Group did not enter into any lending arrangement with any other Shareholders. As such, the Loan Capitalisation and the Facility Term Extension shall constitute special deals under Rule 25 of the Takeovers Code and connected transactions (for so long as Wharf is a connected person of the Company) under Chapter 14A of the Listing Rules, and require the consent of the Executive and the approval by the Independent Shareholders on a vote taken by way of poll at the EGM.

It is currently expected that Wharf will cease to have any interest in the Company after the Initial Distribution in Specie and upon the completion of the Open Offer. Upon receipt of Loan Capitalisation Shares by Wharf (or its associates), Wharf will once again become interested in the Shares, but such interests are expected to be temporary given the obligations to effect Further Distribution(s) in Specie by Wharf pursuant to the terms of the Loan Capitalisation Agreement and the Undertaking for the purpose of complying with the Public Float Requirement. Once Wharf ceases to have any interest in the Company or ceases to be a connected person of the Company, the Loan Capitalisation and the Facility Term Extension (if they have not been consummated) will no longer be connected transactions for the Company. In any event, the Company will seek the approval of the Independent Shareholders on a vote taken by way of poll at the EGM in relation to these transactions pursuant to Chapter 14A of the Listing Rules.

Reasons for and benefits of the Loan Capitalisation and Facility Term Extension

As discussed in the section ‘‘Reasons for the Open Offer and Use of Proceeds’’ above, the Loan Capitalisation will provide the Company with HK$300 million new equity capital. The Facility Term Extension will also offer the Company with higher certainty on the length of available facility which it can deploy for its operational needs. Hence, the Loan Capitalisation and the Facility Term Extension would enhance the Company’s financial position, fund the Company’s operational and capital requirements as well as help turn around the Company and continue its business as a going concern. The Directors are of the view that both the Loan Capitalisation and the Facility Term Extension are in the interests of the Company and the Shareholders as a whole.

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(4) PROPERTY AGREEMENTS

The Relevant Properties currently used by the Group are either leased or licensed from members of the Wharf Group or its associated companies.

Relevant Properties

The follow table sets out the list of Relevant Properties:-

(1) Room 304, Wheelock House, 20 Pedder Street, Central, Hong Kong
(2) Room 305-6, Wheelock House, 20 Pedder Street, Central, Hong Kong
(3) Room B, Roof Viewing Deck, Central Pier 7, Star Ferry
(4) Roof top of Marco Polo Hongkong Hotel, Harbour City, Tsim Sha Tsui, Kowloon, Hong Kong
(5) Portion of TBE Room B, Gateway II, Harbour City, Tsim Sha Tsui, Kowloon, Hong Kong
(6) 40/F, Cable TV Tower, 9 Hoi Shing Road, Tsuen Wan
(7) (a) Factory Unit 3 on ground floor, Cable TV Tower, 9 Hoi Shing Road, Tsuen Wan
(b) Factory Units 1,2 & 4 on ground floor, Cable TV Tower, 9 Hoi Shing Road, Tsuen Wan
(c) Floor 4-8, 10-11 Cable TV Tower, 9 Hoi Shing Road, Tsuen Wan
(d) Portion of 12/F, Cable TV Tower, 9 Hoi Shing Road, Tsuen Wan
(e) Unit 1312 on 13/F, Cable TV Tower, 9 Hoi Shing Road, Tsuen Wan
(f) Unit 4001 – 4007, 40/F Cable TV Tower, 9 Hoi Shing Road, Tsuen Wan
(g) Store room 3 on top roof, Cable TV Tower, 9 Hoi Shing Road, Tsuen Wan
(8) Hoisting Platforms on 6/F & 10/F, Cable TV Tower, 9 Hoi Shing Road, Tsuen Wan
(9) Lorry Space L1 on 2/F, Cable TV Tower, 9 Hoi Shing Road, Tsuen Wan
(10) Lorry Space L1, L2 & L3 – L16 on 3/F, Cable TV Tower, 9 Hoi Shing Road, Tsuen Wan

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(11) Parking Space P54-P64, P67-P75, P77- P93 and P94-P96 on 3/F, Cable TV Tower, 9 Hoi Shing Road, Tsuen Wan
(12) Flat E 13, 11/F, Block E, Tsing Yi Industrial Centre Phase II, Nos. 1-33 Cheung Tat Road, Tsing Yi

All Relevant Properties are currently under leasing or licensing arrangements with the Wharf Group or its associated companies. In light of the possible change of control of the Company as a result of the Open Offer, the Board has conducted a review of the current lease/licence arrangements with Wharf Group, and has identified the key premises among the Relevant Properties (namely the Relevant Properties (7) (except (e)), (10) and (11)) which the Board considers, from the operational stability perspective, is beneficial to the Company to have renewal options in place.

As a term of the Undertaking, Wharf has procured the relevant member(s)/associated companies of the Wharf Group to enter into new formal lease agreements in respect of the Relevant Key Properties according to which the Group has been granted with options to renew the leases/licences to use the Relevant Key Properties according to the terms of the Property Agreements. The parties’ rights and obligations under the Property Agreements are conditional upon the completion of the Open Offer in accordance with the terms of the Underwriting Agreement.

Key Terms of the Property Agreements

The relevant parties (as described in the tables below) have entered into the Property Agreements on 14 April 2017, in respect of the Relevant Key Properties.

Relevant Properties (7)(a), (7)(b), 5/F of 7(c) and 7(d)

Parties (1) New Tech Centre Limited (a wholly owned subsidiary of Wharf)
(2) Cable Network Communications Limited (a wholly owned subsidiary of the Company)

Term 1 January 2018 to 31 December 2020 with two options to renew, each for a three-year term, exercisable at the option of Cable Network Communications Limited no less than six months before commencement of their respective three-year term

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If the first option to renew is not exercised at its relevant exercise time, the second option to renew will automatically lapse

Monthly Rent 1 January 2018 to 31 December 2020:

The monthly rent under the existing tenancy agreement as set out below, which is calculated with reference to the total gross floor area:

Relevant Property (7)(a): HK$130,792 Relevant Property (7)(b): HK$320,112 Relevant Property (7)(c) (5/F only): HK$306,024 Relevant Property (7)(d): HK$140,048

1 January 2021 to 31 December 2023:

Based on the prevailing open market rent to be mutually agreed between the parties

1 January 2024 to 31 December 2026:

Based on the prevailing open market rent to be mutually agreed between the parties which shall not be less 100% nor more than 120% of the monthly rent for the period from 1 January 2021 to 31 December 2023

Early termination

Early termination notice(s) could only be served by Cable Network Communications Limited on or before 31 December 2020 (‘‘Specified Period’’)

Early termination could be effected by the service of a six months advanced written notice by the Cable Network Communications Limited within the Specified Period

Partial termination will only be acceptable if (i) for G/F to 11/ F of Cable TV Tower, the premises surrendered is a whole multiple of an entire floor; (ii) for the other floors of Cable TV Tower, the premises surrendered may be a half floor or an entire floor

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Property (7)(c)(excluding 5/F), (7)(f) and (7)(g)

Parties (1) New Tech Centre Limited (a wholly owned subsidiary of Wharf)
(2) Cable Network Communications Limited (a wholly owned subsidiary of the Company)

If the first option to renew is not exercised at its relevant exercise time, the second option to renew will automatically lapse

Monthly Rent 1 January 2018 to 31 December 2018:

The monthly rent under the existing tenancy agreement as set out below, which is calculated with reference to the total gross floor area:

Property (7)(c) (excluding 5/F): HK$1,836,144 Property (7)(f): HK$297,056 Property (7)(g): HK$4,160

1 January 2019 to 31 December 2020:

Based on prevailing open market rent to be mutually agreed between the parties

1 January 2021 to 31 December 2023:

Based on the prevailing open market rent to be mutually agreed between the parties which shall not be less than 100% nor more than 120% of the monthly rent for the period from 1 January 2019 to 31 December 2020

1 January 2024 to 31 December 2026:

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Early termination

Early termination notice(s) could only be served by Cable Network Communications Limited on or before 31 December 2020 (‘‘Specified Period’’)

Early termination could be effected by the service of a six months advanced written notice from the Cable Network Communications Limited within the Specified Period

Property (10)

Parties

(1) New Tech Centre Limited (a wholly owned subsidiary of Wharf)
(2) Cable Network Communications Limited (a wholly owned subsidiary of the Company)

Term

1 August 2019 to 31 December 2026 and automatically renewed on a monthly basis unless terminated by 1 month’s advanced written notice by either party

Monthly License Fee HK$65,380 (subject to the discretion of New Tech Centre Limited to adjust such license fee), subject to any adjustment made in proportion of aggregate gross floor area of unit or units (excluding any carpark) in the said premises occupied by the licensee.

In the event where the licensee shall have surrendered any part(s) of the main premises, the number of car parking space licensed to the licensee shall be adjusted with reference to the aggregate gross floor area in the premises occupied by the licensee at the end of the previous month and the gross floor area of the premises occupied by the licensee at the time of entering into the licence agreement.

The license fee payable by the licensee shall be adjusted in proportion to the adjusted car parking space in accordance with the abovementioned term.

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Property (11)

Parties

(1) New Tech Centre Limited (a wholly owned subsidiary of Wharf)
(2) Cable Network Communications Limited (a wholly owned subsidiary of the Company)

Term

1 August 2019 to 31 December 2026 and automatically renewed on a monthly basis unless terminated by 1 month’s advanced written notice by either party

Monthly License Fee

HK$ 126,170 (subject to the discretion of New Tech Centre Limited to adjust such license fee), subject to any adjustment made in proportion of aggregate gross floor area of unit or units (excluding any carpark) in the said premises occupied by the licensee.

The license fee payable by the licensee shall be adjusted in proportion to the adjusted car parking space in accordance with the abovementioned term.

Reasons for and benefits of the Property Agreements

The Relevant Key Properties are considered by the Group to be material operation premises and supporting facilities necessary or critical for the operation of the Group. By entering into the Property Agreements, the Directors are of the view that the Group will have the options to extend the lease on favourable terms according to the provisions of the Property Agreements, which will provide stability as to the premises availability to continue the business operation of the Group.

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Implications under the Listing Rules and the Takeovers Code

Wharf is an indirect controlling shareholder of the Company, and as a result the Property Agreements constitute special deals under Rule 25 of the Takeovers Code and continuing connected transactions (for so long as Wharf is a connected person of the Company) under Chapter 14A of the Listing Rules, and require the consent of the Executive and the approval by the Independent Shareholders on a vote taken by way of poll at the EGM.

It is currently expected that Wharf will cease to have any interest in the Company after the Initial Distribution in Specie and upon the completion of the Open Offer. Upon receipt of Loan Capitalisation Shares by Wharf (or its associates), Wharf will once again become interested in the Shares, but such interests are expected to be temporary given the obligations to effect Further Distribution(s) in Specie by Wharf pursuant to the terms of the Loan Capitalisation Agreement and the Undertaking. If Wharf ceases to be a connected person of the Company before the respective commencement dates of the Property Agreements, the Property Agreements (if they have not been consummated) will no longer be continuing connected transactions for the Company. In any event, the Company will seek the approval of the Independent Shareholders on a vote take by way of poll at the EGM in relation to these transactions pursuant to Chapter 14A of the Listing Rules.

In any event, if the Independent Shareholders voted against the Special Deal and connected transaction in relation to the Property Agreements, the existing lease or license agreements of the Relevant Properties will continue to be in place. Normal commercial negotiations between the relevant parties will take place at a time nearer to expiry in relation to the renewal or termination of the leasing/licencing arrangement of these Relevant Properties.

(5) SPECIAL DEALS

As Wharf is the indirect controlling shareholder of the Company and in light that the Open Offer is conditional upon the granting of the Whitewash Waiver, each of the Loan Capitalisation, the Facility Term Extension and the Property Agreements constitutes a special deal under the Takeovers Code. The Special Deals require the Executive’s consent pursuant to Rule 25 of the Takeovers Code, the approval of Independent Shareholders on a vote taken by way of poll at the EGM and an Independent Financial Adviser publicly opines that the Special Deals are arm’s length transactions on normal commercial terms and the terms of the Special Deals are fair and reasonable. An application has been made for the consent of the Executive in respect of the Special Deals.

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Dealings and Interest of Underwriter And Parties Acting in Concert With It in the Securities of The Company and Additional Disclosures

As confirmed by the Underwriter, as at the Latest Practicable Date:

(a) the directors of the Underwriter are Mr. David Chiu, Dr. Cheng Kar-Shun Henry and Mr. Hoong Cheong Thard, and the directors of Celestial Pioneer Limited are Dr. Cheng Kar-Shun Henry, Mr. Cheng Kam Biu Wilson and Mr. Tsang On Yip Patrick;
(b) none of the directors of the Underwriter was interested in or had during the Relevant Offer Period dealt for value in any Shares, convertible securities, warrants, options, derivatives or similar rights which were convertible or exchangeable into Shares;
(c) neither the Underwriter nor parties acting in concert with it owns, controls or has direction over any Shares and right over Shares, outstanding options, warrants, or any securities that are convertible into Shares or any derivatives in respect of securities in the Company, or hold any relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) in the Company;
(d) neither the Underwriter nor parties acting in concert with it has received an irrevocable commitment to vote for the Open Offer, the Underwriting Agreement and the Whitewash Waiver;
(e) neither the Underwriter nor parties acting in concert with it has borrowed or lent any shareholding in the Company;
(f) save for the Underwriting Agreement and the Undertaking, no person has any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with the Underwriter or parties acting in concert with it;
(g) neither the Underwriter nor parties acting in concert with it has any agreement or arrangement to which it is a party which relates to the circumstances in which it may or may not invoke or seek to invoke a pre-condition or a condition to the Open Offer, the Underwriting Agreement and the Whitewash Waiver;
(h) neither the Underwriter nor parties acting in concert with it had dealt in Shares, outstanding options, derivatives, warrants or other securities convertible or exchangeable into Shares, during the six months prior to the date of the Underwriting Agreement;

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(i) there was no agreement, arrangement or understanding between the Underwriter or parties acting in concert with it and any other persons whereby the Offer Shares subscribed and acquired under the Open Offer would be transferred, charged or pledged to any persons; and
(j) there was no agreement, arrangement or understanding (including any compensation arrangement) between the Underwriter or parties acting in concert with it and any Director, recent Director, Shareholder or recent Shareholder which had any connection with or dependence upon the Open Offer, the Underwriting Agreement and/or the Whitewash Waiver.

General

Subsequent to the publication of the Rule 13.09 Announcement, the Board had engaged professional external adviser(s) to explore alternative sources of funding and/or advise on any business reorganisation and the continuance, directions and/or discontinuance of the Company’s business operations.

Through the financial consultant of the Company, interests in investing in or otherwise funding the Company were solicited from a range of potential investors/financial institutions. Potential interested parties were allowed to submit their initial proposals without any restriction on deal type or structure thereby allowing the Board to consider all options that interested parties proposed. Over 50 parties were contacted to ascertain interest including, (i) banks/specialized lenders; (ii) strategic investors (those currently within the technology, media and telecommunications industry or have an interest in the industry); and (iii) private equity investors.

The key considerations for the Board in selecting the best available optimal investment/funding proposal (including open offer proposals) based on the Company’s circumstances included but were not limited to the following:

The type of deal structure, i.e. equity injection, business/asset sale or debt financing
Funding available to execute the deal in a short timeframe
Execution timing and risk
Potential deal value
Regulatory approval requirements

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Given the capital structure of the Company and the funding need of the Company in the short term, the Board formed the view, based on the interests received from different proposers, that the optimal option was for the Company to seek an equity investor who would be prepared to work with the Company’s management to restructure the business operations and address the Group’s long term capital and funding needs. The Company, has through its financial consultant, solicited 5 initial proposals from 5 private equity/strategic investors, and the Board considered the following factors in selecting the Underwriter as the appropriate private equity investor to invest in the Company:

the Underwriter’s intention to continue the existing businesses of the Group following the completion of the Open Offer, and the Underwriter has no current intention to introduce any material change to the existing businesses of the Group via any material acquisition, disposal, termination or scaling down, or to redeploy the fixed assets of the Group other than in its ordinary course of business and save as disclosed in the paragraph headed ‘‘Intentions of the Underwriter’’ in this section;
the Underwriter’s intention to explore possibilities to strengthen and continue the Group’s businesses. For instance, as disclosed in the paragraph headed ‘‘Intentions of the Underwriter’’ in this section, the Underwriter expressed its intention to work with the Company to, among others, explore all possibility of cooperation with content providers, strengthen the OTT (over-the-top) service to enable easy access by a greater base of audience and roll out GPON high speed internet broadband services and to explore opportunities to utilise the Company’s extensive optical fibre network in Hong Kong to broaden its business;
the Underwriter’s readiness to work with the Company in reviewing the business model of the Group with a view to optimise the Group’s business operations. For instance, as disclosed in the paragraph headed ‘‘Intentions of the Underwriter’’ in this section, the Underwriter is working with the Company to conduct a review of the Group’s human resources strategy and intends to work closely with the Company in carrying out an organisational restructuring targeting to achieve substantial savings in annual operating expenses; and
the Underwriter’s readiness to pool in resources to restructure and strengthen the Group’s businesses and also seek opportunities to cross sell the Group’s services to other parts of the Underwriter’s related businesses.

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The Board considers that it is prudent to finance the Group’s long term growth by long term financing, preferably in the form of equity which will not increase the Group’s finance costs. The Board has considered other fund raising alternatives before resolving to the Open Offer, including but not limited to debt financing and rights issue. Debt financing will result in additional interest burden, higher gearing ratio of the Group and subject the Group to repayment obligations. In addition, debt financing may not be achievable on favourable terms in a timely manner.

Although rights issue can provide a way out to those Shareholders who do not wish to take up the entitlements by selling nil-paid rights, rights issue will expose the Company to longer market uncertainty, as well as involve additional time and administrative work and cost for the trading arrangements in relation to the nil-paid rights. In addition, in view of the general downward trend of the historical trading price of the Shares, there is uncertainty of the existence of a market to trade the nil-paid rights. While the adoption of a rights issue instead of the Open Offer may not necessarily delay the current expected timetable (as set out in the section headed “Expected Timetable” in this circular), if a rights issue is to be adopted, additional time would have to be allocated by the Company within the already tight transaction timetable for arrangements that would not have been required under the Open Offer, including arranging the nil-paid rights trading and free splitting service for provisional allotment letters, and reviewing related documents such as provisional allotment letters, and liaison with the parties involved such as the Registrar, the Underwriter and other professional advisers in this regard, and it is expected that the estimated additional cost would be approximately HK$600,000. It is not practicable to quantify the time resources that are expected to be allocated to adopt a rights issue instead of the Open Offer, but given the current circumstances of the Company, including the cessation of the Company’s source of funding pursuant to the Rule 13.09 Announcement, the diversion of time and monetary resources for arrangements that would not have been required under the Open Offer is not cost-effective from the viewpoint of the Company.

Moreover, as disclosed in the Rule 13.09 Announcement, Wharf has informed the Company that it would not provide any further funding commitments to any members of the Group for its business operations and as a result of, such cessation of funding support casts doubt on the financial stability of the Group. The Board considers it critical to improve the financial condition as soon as possible, and the Open Offer would be a relatively more expedient way to achieve such purpose.

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(6) PROPOSED CHANGE IN BOARD LOT SIZE AND ODD LOT MATCHING

It was announced in the Announcement that the board lot size for trading in the Shares on the Stock Exchange will be changed from 1,000 Shares to 10,000 Shares with effect from 9:00 a.m. on 21 August 2017. The Shares are currently traded in board lots of 1,000 Shares each and the market value of each board lot was HK$610 (based on the closing price of HK$0.61 per Share as quoted on the Stock Exchange on the Last Trading Day). In order to increase the value of each board lot of the Shares so that the value of each board lot of the Shares will not be less than HK$2,000, as well as to reduce transaction and registration costs incurred by the Shareholders and investors of the Company, the Board proposed to change the board lot size for trading of the Shares from 1,000 to 10,000 with effect from 9:00 a.m. on 21 August 2017. Upon the change in board lot size becoming effective, the Shares will be traded in board lot of 10,000 Shares and the estimated market value per board lot of the Shares will be HK$6,100 (based on the closing price of HK$0.61 per Share as quoted on the Stock Exchange on the Last Trading Day).

Based on the theoretical ex-rights price of HK$0.36 per Share, the value of each board lot of 10,000 Shares would be HK$3,600. The Offer Shares will be traded in the board lot of 10,000 Shares. In absence of the change in board lot size, the value of each board lot of 1,000 Shares would be HK$360, which is lower than the expected board lot value of greater than HK$2,000 as recommended by the Stock Exchange taking into account the minimum transaction costs for a securities trade, and hence not in the interests of the Shareholders, in particular minority Shareholders.

The Board considers that the change in board lot size will maintain the trading value for each board lot at a reasonable level to attract investors. The Board has considered other possible size of new board lot, including the consolidation of every 10 issued and unissued shares in the Company into 1 consolidated share in the Company and concluded that such consolidation will produce more odd lots of Shares for those Qualifying Shareholders taken up the Offer Shares than the change in board lot size to 10,000 Shares. The change in board lot size will not result in any change in the relative rights of the Shareholders. The Directors consider that the change in board lot size and the ratio of the Open Offer are in the interest of the Company and the Shareholders as a whole, including minority Shareholders.

To alleviate the difficulties in trading odd lots of the Shares arising from the change in board lot size of the Shares, the Company will appoint an agent to provide matching services to the Shareholders who wish to top up or sell their holdings of odd lots of the Shares during the period from 9:00 a.m. on 21 August 2017 to 4:00 p.m. on 11 September 2017 (both dates inclusive). Holders of the Shares in odd lots represented by the existing share certificates for the Shares who wish to take advantage of this facility either to dispose of their odd lots of the Shares or to top up their odd lots to a full new board lot may directly or through their broker during such period. Holders of the Shares in odd lots should note that successful matching of the sale and purchase of odd lots of the Shares is not guaranteed. The Shareholders are recommended to consult their professional advisers if they are in doubt about the above facility.

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LETTER FROM THE BOARD

(7) NOTICE OF CLOSURE OF REGISTER OF MEMBERS

The register of members of the Company will be closed from Tuesday, 23 May 2017 to Monday, 29 May 2017 (both days inclusive) to determine the eligibility of Shareholders to attend and vote at the EGM. No transfer of Shares will be registered during this period. In order to ascertain Shareholders’ rights for the purpose of attending and voting at the EGM, all transfers, accompanied by the relevant share certificates, must be lodged with the Registrar, Tricor Tengis Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, not later than 4:30 p.m. on Monday, 22 May 2017.

The dates of closure of the register of members of the Company to determine the eligibility of Qualifying Shareholders to the Open Offer will be announced by the Company.

(8) FURTHER EXTENSION OF DEADLINE FOR RENEWAL OF PAY TV LICENCE

Reference is made to the announcement issued by the Company on 15 March 2017 in which the Board announced that HKCTV has, on 3 March 2017, requested the SCED for, and the SCED has granted, an extension of the deadline for returning signed copies of the renewed Pay TV Licence from 15 March 2017 to 26 April 2017. The existing Pay TV Licence is expiring on 31 May 2017, and on 13 December 2016, the Chief Executive-in-Council approved HKCTV’s application for renewal of its Pay TV Licence for a period of 12 years from 1 June 2017.

As set out in the Announcement, HKCTV has, on 18 April 2017, requested the SCED for a further extension of deadline for returning signed copies of the renewed Pay TV Licence (the ‘‘Deadline’’) from 26 April 2017 to 31 May 2017. As announced in the Company’s announcement dated 25 April 2017, the SCED has approved the extension of the Deadline to 31 May 2017.

INDEPENDENT BOARD COMMITTEE

The Independent Board Committee comprises the independent non-executive Directors, namely Mr. Herman S. M. Hu, Mr. Roger K. H. Luk and Mr. Patrick Y. W. Wu, except Mr. Sherman S. M. Tang as he is familially related to one of the shareholders of the Underwriter. The Independent Board Committee has been established by the Company to advise the Independent Shareholders on whether the terms of the Open Offer, the Whitewash Waiver and the Special Deals are fair and reasonable and in the interests of the Company and the Shareholders as a whole as a whole as far as the Independent Shareholders are concerned, and to advise the Independent Shareholders on how to vote at the EGM.

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LETTER FROM THE BOARD

INDEPENDENT FINANCIAL ADVISER

Lego has been appointed as independent financial adviser to advise the Independent Board Committee and the Independent Shareholders on whether the terms of the Open Offer, the Whitewash Waiver and the Special Deals are fair and reasonable, and to advise the Independent Shareholders on how to vote at the EGM. Such appointment has been approved by the Independent Board Committee.

EGM

Under the Listing Rules, the Open Offer, the Loan Capitalisation and the Property Agreements are required to be approved by the Independent Shareholders at the EGM, whereas under the Takeovers Code, the Whitewash Waiver and the Special Deals are conditional on, among other matters, approval by the Independent Shareholders at the EGM, in each case taken by way of poll.

The resolutions proposed to be voted by the Independent Shareholders at the EGM will therefore include the approval by the Independent Shareholders of (i) the Open Offer, (ii) the Whitewash Waiver and (iii) Special Deals at the EGM in accordance with the Listing Rules and the Takeovers Code, and such resolutions to be voted at the EGM will be conducted by way of poll. Persons who are involved or interested in the Open Offer, the Underwriting Agreement, the Whitewash Waiver and/or the Special Deals, namely (i) the controlling shareholders of the Company and their associates, including the Controlling Shareholder Companies, and (ii) Mr. Stephen T. H. Ng, who is a common director of each of the Company, Wharf and Wheelock, and may thus have conflict of interests in the Open Offer and the Special Deals, are required under the Takeovers Code to abstain from voting on the resolutions to be proposed at the EGM to approve the Open Offer, the Whitewash Waiver and the Special Deals.

As at the Latest Practicable Date, the Controlling Shareholder Companies held 1,485,259,171 Shares (representing 73.84% of the total number of Shares in issue). For more details on the shareholding structure of the Company, please refer to the paragraph headed ‘‘4. Disclosure of Interests – Interests of Substantial Shareholders’’ in Appendix III to this circular.

A notice convening the EGM in the Centenary Room, Ground Floor, The Marco Polo Hongkong Hotel, 3 Canton Road, Kowloon, Hong Kong on Monday, 29 May 2017 at 10:45 a.m. is set out on pages EGM-1 to EGM-4 of this circular. Whether or not you are able to attend the EGM in person, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon to the Company’s registered office at 16th Floor, Ocean Centre, Harbour City, Canton Road, Kowloon, Hong Kong not later than 10:45 a.m. on Friday, 26 May 2017, or in case of any adjournment thereof, not later than 48 hours (exclusive of any part of a day that is a public holiday) before the time appointed for holding such adjourned meeting. Completion and return of the form of proxy will not preclude you from attending and voting at the EGM or any adjourned meeting thereof (as the case may be) should you so desire.

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LETTER FROM THE BOARD

To the best knowledge, information and belief of the Directors after having made all reasonable enquiries, there is (i) no voting trust or other agreement or arrangement or understanding entered into by or binding upon such Shareholders; and (ii) no obligation or entitlement of such Shareholders as at the Latest Practicable Date, whereby any one of them has or may have temporarily or permanently passed control over the exercise of the voting right in respect of their respective interest in the Company to a third party, either generally or on a caseby-case basis.

RECOMMENDATIONS

The Directors wish to reach out to all Shareholders who are eligible to vote at the EGM and urge them to attend the EGM either in person or by proxy and recommend them to cast their vote to support the resolutions to be proposed at the EGM.

The Group has been providing pay television programme and communications services to Hong Kong customers since 1993. Free television programme services open up a new horizon for the Group, when FTV becomes one of the only three free television operators in Hong Kong. The Open Offer and the Loan Capitalisation would bring approximately HK$1,004 million new equity to the Company. It will provide an important basis for (i) the Directors to accept the renewal of the Pay TV Licence; and (ii) the Group to continue its other businesses.

The proposed transactions as set out in this circular and the resolutions to be proposed at the EGM are thus critical to the Group’s continuation as a going concern. In the event they are not approved, it is very likely that the Group will cease to trade in the foreseeable future. The value of your Shares may be affected. Since persons who are involved or interested in the Open Offer, the Underwriting Agreement, the Whitewash Waiver and/or the Special Deals will abstain from voting at the EGM, Independent Shareholders alone will decide on the Group’s future.

The Directors (excluding Mr. Stephen T. H. Ng and Mr. Paul Y C Tsui) believe that the terms of the Open Offer, the Whitewash Waiver and the Special Deals are fair and reasonable and are in the interests of the Company and the Shareholders as a whole, and thus, recommend the Independent Shareholders to vote in favour of all resolutions to approve the Open Offer, the Whitewash Waiver and the Special Deals at the EGM. Mr. Stephen T. H. Ng and Mr. Paul Y C Tsui, who are common directors of each of the Company, Wharf and Wheelock, and may thus have conflict of interests in the Open Offer and the Special Deals, have abstained from voting on the resolutions in connection with the Open Offer and the Special Deals and have voluntarily abstained from voting on the resolution in connection with the Whitewash Waiver at the relevant Board meeting.

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LETTER FROM THE BOARD

Shareholders are advised to read carefully the letter from the Independent Board Committee and the letter from the Independent Financial Adviser regarding the Open Offer, the Whitewash Waiver and the Special Deals on pages 80 to 81 and pages 82 to 132 of this circular respectively. The Independent Board Committee, having taken into account the advice of the Independent Financial Adviser, the text of which is set out on pages 82 to 132 of this circular, considers that the terms of the Open Offer, the Whitewash Waiver and the Special Deals are fair and reasonable insofar as the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the resolutions to approve the Open Offer, the Whitewash Waiver and the Special Deals at the EGM.

On record, no single Shareholder holds enough votes to carry the voting singlehandedly. The Directors therefore urge all Shareholders to vote in favour of the resolutions to be proposed at the EGM. To ensure more supporting votes are cast than dissenting votes, the Directors urge all supporting Shareholders to actively participate in the voting.

If any supporting Shareholder is unable or does not wish to attend the EGM in person, the Directors recommend he/she to appoint the chairman of the EGM as proxy to vote his/ her support.

If your Shares are registered in the name of HKSCC, and you are unable to attend the EGM in person, please ascertain with CCASS the latest time by which you are required to provide them with your voting instructions and instruct CCASS to vote your Shares in time.

If your broker, bank or custodian (the ‘‘Intermediary’’) holds your Shares through CCASS or registered your Shares in the name of the Intermediary’s own name acting as a nominee (the ‘‘Nominee’’), please request your Intermediary to instruct CCASS or the Nominee to appoint you to attend the EGM if you wish to attend the EGM in person. Otherwise, please ascertain with your Intermediary the latest time by which you are required to provide them with your voting instructions and instruct your Intermediary to instruct CCASS or the Nominee to vote your Shares in time.

The Directors stress that whether to vote in favour of these resolutions and whether to eventually accept and pay for any of the Offer Shares are independent decisions and actions. The former have to occur prior to or at the EGM (on 29 May 2017), the latter much later and only prior to the Record Date of the Open Offer or the last day for payment for the Offer Shares (respectively on 18 August and 4 September 2017 according to the current expected timetable as set out in the section headed ‘‘Expected Timetable’’ in this circular).

In the event these resolutions are approved at the EGM, depending on market conditions, Shareholders can also elect to sell part or all of the Shares they own in the market.

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LETTER FROM THE BOARD

We would like to take this opportunity to express our gratitude to our workforce comprising more than 2,000 employees who, albeit the difficult time we are facing, continue to work diligently to serve our customers. We would also like to thank our Shareholders and customers for their patience, support and appreciation over the years.

WARNING OF THE RISKS OF DEALING IN THE SHARES

The Open Offer is conditional upon the obligations of the Underwriter under the Underwriting Agreement having become unconditional and the Underwriter not having terminated the Underwriting Agreement in accordance with the terms thereof. Shareholders and potential investors should therefore exercise caution when dealing in Shares, and if they are in any doubt about their positions, they should consult their professional advisers.

Shareholders should note that Shares will be dealt in on an ex-entitlement basis commencing from Thursday, 10 August 2017 and that dealings in Shares will take place while the conditions to which the Open Offer is subject remain unfulfilled. Any Shareholder or other person dealing in Shares up to the date on which all conditions to which the Open Offer is subject are fulfilled, will accordingly bear the risk that the Open Offer cannot become unconditional and may not proceed. Any Shareholder or other person contemplating selling or purchasing Shares who is in any doubt about his/her/its position is recommended to consult his/her/its own professional adviser.

FURTHER INFORMATION

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

By Order of the Board

i-CABLE COMMUNICATIONS LIMITED Kevin C. Y. Hui Company Secretary

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the text of the letter from the Independent Board Committee setting out its recommendation to the Independent Shareholders in relation to the Open Offer, the Whitewash Waiver and the Special Deals:

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i-CABLE COMMUNICATIONS LIMITED

(Incorporated in Hong Kong with limited liability)

(Stock Code: 1097)

12 May 2017

To the Independent Shareholders

Dear Sir or Madam,

(1) PROPOSED OPEN OFFER OF 3,352,520,666 OFFER SHARES AT HK$0.21 PER OFFER SHARE ON THE BASIS OF FIVE OFFER SHARES FOR EVERY THREE EXISTING SHARES HELD ON THE RECORD DATE

(2) APPLICATION FOR WHITEWASH WAIVER

(3) LOAN CAPITALISATION AND EXTENSION OF WHARF FACILITY (4) PROPERTY AGREEMENTS (5) SPECIAL DEALS

We refer to the circular of the Company dated 12 May 2017 (the ‘‘Circular’’) of which this letter forms part. Unless the context specifies otherwise, capitalised terms used herein have the same meanings as defined in the Circular.

We have been appointed by the Board to advise the Independent Shareholders as to whether the terms of the Open Offer, the Whitewash Waiver and the Special Deals are fair and reasonable insofar as the Independent Shareholders are concerned. Lego has been appointed with the approval of the Independent Board Committee as the Independent Financial Adviser to advise you and us in this respect.

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having taken into account the principal reasons and factors considered by, and the advice of, the Independent Financial Adviser as set out in its letter of advice to you and us on pages 82 to 132 of the Circular, we are of the opinion that the Open Offer, the Whitewash Waiver and the Special Deals are on normal commercial terms, are in the interests of the Company and the Shareholders as a whole, and the terms of which are fair and reasonable insofar as the Company and the Independent Shareholders are concerned. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the EGM to approve the Open Offer, the Whitewash Waiver and the Special Deals.

Yours faithfully, For and on behalf of the Independent Board Committee

Mr. Herman S. M. Hu Independent non-executive Director

Mr. Roger K. H. Luk Independent non-executive Director

Mr. Patrick Y. W. Wu Independent non-executive Director

– 81 –

LETTER FROM LEGO

The following is the full text of the letter of advice from Lego Corporate Finance Limited, the independent financial adviser to the Independent Board Committee and the Independent Shareholders, which has been prepared for the purpose of incorporation into this circular, setting out its advice to the Independent Board Committee and the Independent Shareholders in respect of the Open Offer, the Whitewash Waiver and the Special Deals.

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12 May 2017

To the Independent Board Committee and the Independent Shareholders

Dear Sirs or Madams,

(1) PROPOSED OPEN OFFER OF 3,352,520,666 OFFER SHARES AT HK$0.21 PER OFFER SHARE ON THE BASIS OF FIVE OFFER SHARES FOR EVERY THREE EXISTING SHARES HELD ON THE RECORD DATE;

(2) APPLICATION FOR WHITEWASH WAIVER; (3) LOAN CAPITALISATION; (4) EXTENSION OF WHARF FACILITY; AND (5) PROPERTY AGREEMENTS

INTRODUCTION

We refer to our appointment as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Open Offer, the Whitewash Waiver and the Special Deals, details of which are set out in the ‘‘Letter from the Board’’ (the ‘‘Letter from the Board’’) contained in the circular of the Company dated 12 May 2017 (the ‘‘Circular’’), of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as those defined in the Circular unless the context otherwise requires.

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LETTER FROM LEGO

1. The Open Offer

On 20 April 2017, the Company announced that it proposes, subject to fulfilment (or waiver, if applicable) of the conditions set out in the Underwriting Agreement, to raise approximately HK$704 million, before expenses, by issuing 3,352,520,666 Offer Shares to the Qualifying Shareholders at the Offer Price of HK$0.21 per Offer Share, on the basis of five (5) Offer Shares for every three (3) existing Shares held by each Qualifying Shareholder on the Record Date. No excess application for Offer Shares will be available to the Qualifying Shareholders under the Open Offer.

On 14 April 2017, the Company entered into the Underwriting Agreement with, among others, the Underwriter in relation to the underwriting and other related arrangements in respect of the Open Offer. The Open Offer will be fully underwritten by the Underwriter, subject to the terms and conditions of the Underwriting Agreement, details of which are set out in the paragraph headed ‘‘The Underwriting Agreement’’ in the Letter from the Board.

Wharf, being an indirect controlling shareholder of the Company, who through the Controlling Shareholder Companies is interested in 1,485,259,171 Shares (representing approximately 73.8% of the issued share capital of the Company), has irrevocably undertaken to the Company and the Underwriter that, among other matters: (i) it will, and will procure the Shares held by the Controlling Shareholder Companies to, remain legally and beneficially owned by them from the date of the Undertaking to the close of business on the Record Date (or such other later date as the Company may agree in writing); and (ii) it will not, and will procure the Controlling Shareholder Companies not to, subscribe for any of the Offer Shares to which they will be entitled to under the Open Offer.

2. The Whitewash Waiver

Assuming no further Shares will be issued or bought back by the Company prior to the close of the Open Offer and all of the Qualifying Shareholders (except the Controlling Shareholder Companies) take up their respective entitlements under the Open Offer, the Underwriter will be required to take up the untaken Underwritten Shares and the total shareholding of the Underwriter immediately upon completion of the Open Offer would amount to approximately 46.1% of the issued share capital of the Company as enlarged by the allotment and issue of the Offer Shares.

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LETTER FROM LEGO

Assuming no further Shares will be issued or bought back by the Company prior to the close of the Open Offer and none of the Qualifying Shareholders (including the Controlling Shareholder Companies) takes up their respective entitlements under the Open Offer, the Underwriter will be required to take up the Underwritten Shares and the total shareholding of the Underwriter immediately upon completion of the Open Offer would amount to approximately 62.5% of the issued share capital of the Company as enlarged by the allotment and issue of the Offer Shares.

Under both circumstances, the Underwriter would be required to make a mandatory general offer for all the issued Shares (other than those already owned or agreed to be acquired by the Underwriter) under Rule 26.1 of the Takeovers Code, unless a Whitewash Waiver is granted by the Executive. Immediately following completion of the Loan Capitalisation, the interest in the Company held by the Underwriter (assuming none of the Qualifying Shareholders takes up their respective entitlements under the Open Offer) is expected to decrease from approximately 62.5% to approximately 54.0%.

3. Special Deals

3.1 The Loan Capitalisation

Currently, Wharf Finance, a wholly-owned subsidiary of Wharf, has provided the Wharf Facility, being a revolving loan facility of up to the principal amount of HK$400 million to HKCTV, a subsidiary of the Company. The Wharf Facility, according to its existing terms, will expire on 31 December 2017.

The Company, HKCTV and Wharf Finance entered into the Loan Capitalisation Agreement on 14 April 2017, pursuant to which Wharf Finance has agreed to effect the Loan Capitalisation, whereby the Loan Capitalisation Amount in the sum of HK$300 million under the Wharf Facility will be capitalised into 841,987,090 Loan Capitalisation Shares, at the issue price of approximately HK$0.3563 per Loan Capitalisation Share, to be issued to Wharf Finance (or its nominee).

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LETTER FROM LEGO

3.2 The Facility Term Extension

The Company, HKCTV and Wharf Finance further entered into the Facility Term Extension Agreement on 14 April 2017, pursuant to which Wharf Finance has agreed to revise the terms of the Wharf Facility as follows:

(i) with effect from the completion of the Open Offer: (a) the term of the Wharf Facility shall be revised from ‘‘1-year from 1 January 2017 to 31 December 2017’’ to ‘‘3-years from 1 January 2017 to 31 December 2019’’; and (b) the Final Maturity as defined in the Wharf Facility Agreement shall be revised from ‘‘31 December 2017’’ to ‘‘31 December 2019’’;
(ii) with effect from the completion date of the Loan Capitalisation Agreement, the principal loan amount under the Wharf Facility shall be revised from a ‘‘ Revolving Loan of HKD400,000,000 ’’ to ‘‘ Revolving Loan of ’’
HKD100,000,000 .

Wharf is an indirect controlling shareholder of the Company. The Loan Capitalisation and the Facility Term Extension are arrangements with the Wharf Group which could not be extended to all other Shareholders given that the Group did not enter into any lending arrangement with any other Shareholders. As such, each of the Loan Capitalisation and the Facility Term Extension shall constitute a special deal under Rule 25 of the Takeovers Code and connected transactions (for so long as Wharf is a connected person of the Company) under Chapter 14A of the Listing Rules, and require the consent of the Executive and the approval by the Independent Shareholders on a vote taken by way of poll at the EGM.

3.3 Property Agreements

The Relevant Properties currently used by the Group are leased from the Wharf Group or its associated companies. As a term of the Undertaking, Wharf has procured the relevant member(s)/associated companies of the Wharf Group to enter into new formal lease agreements in respect of the Relevant Key Properties according to which the Group has been granted with options to renew the leases/licences to use the Relevant Key Properties according to the terms of the Property Agreements. The parties’ rights and obligations under the Property Agreements are conditional upon the completion of the Open Offer in accordance with the terms of the Underwriting Agreement.

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LETTER FROM LEGO

Wharf is an indirect controlling shareholder of the Company, and as a result, the Property Agreements constitute special deals under Rule 25 of the Takeovers Code and continuing connected transactions (for so long as Wharf is a connected person of the Company) under Chapter 14A of the Listing Rules, and require the consent of the Executive and the approval by the Independent Shareholders on a vote taken by way of poll at the EGM.

4. The Independent Board Committee

The Independent Board Committee comprises the independent non-executive Directors (except Mr. Sherman S. M. Tang, who is familially related to one of the shareholders of the Underwriter), namely Mr. Herman S. M. Hu, Mr. Roger K. H. Luk and Mr. Patrick Y. W. Wu, has been established to advise the Independent Shareholders on (i) whether the terms of the Open Offer, the Whitewash Waiver and the Special Deals are fair and reasonable so far as the Independent Shareholders are concerned; (ii) whether the Open Offer, the Whitewash Waiver and the Special Deals are in the interests of the Company and the Shareholders as a whole; and (iii) how to vote at the EGM. The Independent Board Committee has approved our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in the same regard.

As at the Latest Practicable Date, we, Lego, are not associated with or connected to the Company, the Underwriter, the Underwriter Guarantors, Wharf or any of their respective substantial shareholders, directors or chief executives, or any of their respective associates, or any party acting, or presumed to be acting, in concert with any of them. Apart from normal professional fees payable to us in connection with this engagement, no other arrangement exists whereby we will receive any fees or benefits from the Company, the Underwriter, the Underwriter Guarantors, Wharf, or any of their respective substantial shareholders, directors or chief executives, or any of their respective associates, or any party acting, or presumed to be acting, in concert with any of them. Accordingly, we are considered eligible to give an independent advice to the Independent Board Committee and the Independent Shareholders on the Open Offer, the Whitewash Waiver and the Special Deals.

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LETTER FROM LEGO

BASIS OF OUR OPINION

In formulating our opinion and advice, we have relied on (i) the information and facts contained or referred to in the Circular; (ii) the information and facts supplied by the Group and its advisers; (iii) the opinions expressed by and the representations of the Directors and the management of the Group; and (iv) our review of the relevant public information. We have assumed that all the information provided and representations and opinions expressed to us or contained or referred to in the Circular were true, accurate and complete in all material respects at the time they were made and up to the Latest Practicable Date and may be relied upon. We have also sought and received confirmation from the Directors that no material facts have been withheld or omitted from the information provided and referred to in the Circular and opinions expressed to us by them, and that all information or representations provided to us by the Group, the Directors, the management of the Group and the advisers of the Group are true, accurate, complete and not misleading in all material respects at the time they were made and up to the Latest Practicable Date. Shareholders will be informed by the Company as soon as possible if there is any material change to such information. We have also relied on the responsibility statement made by the Directors contained in the Circular. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Group, the Directors, the management of the Group and the advisers of the Group.

We consider that we have reviewed sufficient information currently available to reach an informed view and to justify our reliance on the accuracy of the information contained in the Circular so as to provide a reasonable basis for our recommendation. We have not, however, carried out any independent verification of the information provided, representations made or opinions expressed by the Group, the Directors, the management of the Group and the advisers of the Group, nor have we conducted any form of in-depth investigation into the business, affairs, operations, financial position or prospects of the Group, the Underwriter, the Underwriter Guarantors and Wharf or their respective subsidiaries or associates.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinion and recommendation regarding the Open Offer, the Whitewash Waiver and the Special Deals, we have considered the following principal factors and reasons set out below:

1. Information and historical financial performance of the Group

The Group is principally engaged in the communications, media and entertainment (the ‘‘CME’’) business in Hong Kong.

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LETTER FROM LEGO

Set out below is certain key financial information of the Group as extracted from the consolidated statement of profit or loss of the Company for the three years ended 31 December 2014, 2015 and 2016 (‘‘FY2014’’, ‘‘FY2015’’ and ‘‘FY2016’’, respectively) set out in the annual reports of the Company for each of the years ended 31 December 2015 and 2016 (the ‘‘2015 Annual Report’’ and ‘‘2016 Annual Report’’, respectively):

Revenue Programming costs Network expenses Selling, general and administrative and other operating expenses Cost of sales (Loss)/profit from operations before depreciation Depreciation Loss from operations Interest income Financial costs, net Non-operating expenses Loss before taxation Income tax Loss for the year attributable to equity shareholders of the Company	FY2016 HK$’000 1,406,368 (869,949) (209,392) (339,869) (84,697) (97,539) (214,324) (311,863) 40 (5,489) (556) (317,868) 5,078 (312,790)	FY2015 HK$’000 1,509,678 (900,761) (200,970) (342,452) (84,760) (19,265) (223,007) (242,272) 5 (2,998) (1,373) (246,638) 13,540 (233,098)	FY2014 HK$’000 1,665,658 (925,324) (220,557) (333,540) (98,506) 87,731 (226,514) (138,783) 69 (519) (66) (139,299) (191) (139,490)

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LETTER FROM LEGO

The Group’s revenue is mainly derived from two segments, namely (a) television and (b) internet and multimedia. The television segment includes operations related to the television subscription business, advertising, channel carriage, television relay service, programme licensing, network maintenance, and miscellaneous television related businesses. The internet and multimedia segment includes operations related to broadband internet access services, portal operation, mobile content licensing, voice over internet protocol telephony services as well as other internet access related businesses. The table below sets out the revenue breakdown by segment:

Revenue by segment Television Internet and multimedia Unallocated Inter-segment elimination Total	FY2016 HK$’000 1,042,830 335,653 52,015 (24,130) 1,406,368	FY2015 HK$’000 1,129,969 348,136 56,605 (25,032) 1,509,678	FY2014 HK$’000 1,266,388 364,595 69,769 (35,094) 1,665,658

The Group’s revenue decreased by approximately 9.4% from approximately HK$1,665.7 million for FY2014 to approximately HK$1,509.7 million for FY2015. It recorded decrease in revenue of both television and internet and multimedia segments in FY2015. As set out in the 2015 Annual Report, the decrease in revenue of the television segment was primarily due to lower subscription and advertising income as a result of the dipped economic environment and intensified competition in Hong Kong. The revenue from the internet and multimedia segment decreased as the Group was unable to contain the contraction of customer base which resulted in lower overall revenue and operating margin, despite a growth in broadband revenue from mid-range price plans and a moderate increase in various subscription price points.

The Group’s revenue further decreased by approximately 6.8% from approximately HK$1,509.7 million for FY2015 to approximately HK$1,406.4 million for FY2016, with the revenue of television and internet and multimedia segments both declining. As set out in the 2016 Annual Report, the decrease in revenue from the television segment was primarily due to the decline of advertising and subscription revenue as a result of the weak advertising market as well as the challenges of the subscription business. Advertisers were more prudent in campaigns as a result of the downtrend in local retail sales which had a material impact on the Group’s airtime sales. The decrease in revenue of the internet and multimedia segment was mainly due to the contraction of customer base although broadband revenue stabilised towards the end of 2016 as a result of the moderate increase in various subscription price points.

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LETTER FROM LEGO

For the three years ended 31 December 2016, the operating costs and expenses of the Group remained at a relatively stable level, and hence, the widening trend in loss attributable to equity shareholder of the Company was generally in line with the decreasing trend in the Group’s revenue.

Set out below is the summary of the consolidated statements of financial position of the Group as at 31 December 2014, 2015 and 2016, respectively as extracted from the 2015 Annual Report and the 2016 Annual Report:

Total assets – Non-current assets – Current assets Total liabilities – Non-current liabilities – Current liabilities Net current liabilities Net assets	As at 31 December 2016 2015 2014 HK$’000 HK$’000 HK$’000 1,415,129 1,405,573 1,426,242 210,405 193,553 242,429 1,625,534 1,599,126 1,668,671 17,951 26,019 34,224 1,102,185 754,134 581,915 1,120,136 780,153 616,139 (891,780) (560,581) (339,486) 505,398 818,973 1,052,532

The Group’s assets, mainly including property, plant and equipment, deferred tax assets, programming library, and bank deposits and cash, remained stable as at 31 December 2014, 2015 and 2016, respectively. The Group’s current liabilities as at 31 December 2016 mainly include interest bearing borrowings of approximately HK$590.0 million, accrued expenses and other payables of approximately HK$239.8 million and receipts in advance and customers’ deposits of approximately HK$183.8 million. The Group’s increasing trend in current liabilities over the past three financial year-ends was mainly due to the increase in short-term interest bearing borrowings from bank and Wharf Finance. The Group’s noncurrent liabilities comprise deferred tax liabilities and other non-current liabilities. The decreasing trend of the non-current liabilities over the past three financial year-ends was mainly attributable to the decrease in deferred tax liabilities. As a result of the foregoing, the Group recorded an increasing trend in net current liabilities and a decreasing trend in net assets over the past three financial year-ends. As at 31 December 2016, the Group had net debt of approximately HK$484.2 million and the ratio of net debt to total equity was approximately 95.8%.

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LETTER FROM LEGO

The Directors advised that the reason for the net current liabilities position as at 31 December 2014, 2015 and 2016 was mainly due to the use of short-term borrowings to finance the Group’s operation due to the loss of its operations for the past three years.

As at 31 December 2016, the Group had a banking facility of HK$400 million and a revolving loan facility of HK$400 million given by Wharf Finance, of which a total of HK$590 million had been utilised. As disclosed in the 2016 Annual Report, the Group’s ongoing capital expenditure and new business development will be funded by internal cash flows generated from operation and credit facilities. Recurrent losses have significantly weakened the liquidity position and increased the dependency on external financing, currently short-term in tenor.

As disclosed in the Rule 13.09 Announcement, Wharf informed the Board that it has resolved:

(i) not to provide any further funding commitment to any member of the Group for its business operations, other than the current funding commitments (including the existing facility by Wharf Finance of up to HK$400 million pursuant to the Wharf Facility);
(ii) not to renew any of the current funding commitment when they expire; and
(iii) Wharf has no intention to increase its shareholding interest in the Company.

As further disclosed in the April 24 Announcement, Wharf informed the Company that it intends to dispose of its entire shareholding interest in the Company (by way of Further Distribution in Specie of its entire Loan Capitalisation Shares, or through other means Wharf considers appropriate) in order to exit the CME sector as soon as practicable.

In view of the loss-making performance and net current liabilities position of the Group and the aforesaid decision of Wharf, the Company’s auditor expressed that a material uncertainty exists that may cast significant doubt on the Group’s ability to continue as a going concern in its report contained in the 2016 Annual Report.

2. Industry outlook

2.1 Fixed broadband market in Hong Kong

According to the website of the Communications Authority, in May 2016, there were 217 internet service providers licensed to provide broadband services. In January 2017, there were about 2.62 million registered customers using broadband services in Hong Kong, and over 93.1% of the households were using broadband services.

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The below graph sets out the number of subscribers of fixed broadband services in Hong Kong, which is extracted from the 2015/16 annual report of the Communications Authority:

==> picture [366 x 134] intentionally omitted <==

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

2.50
2.00
1.50
1.00
0.50
0.00
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Residential Commercial
Number of Subscribers (Million)
----- End of picture text -----

Source: Communications Authority

As demonstrated in the graph above, after the increase in number of subscribers of fixed broadband services up to 2012, the number of subscribers has remained relatively stable since 2013. Despite the fact that Hong Kong’s fixed broadband penetration rate and average broadband speed are among the highest in the world, given the matured market and the number of players in the fixed broadband market, competition is fierce.

2.2 Television broadcasting market in Hong Kong

According to the website of the Communications Authority, there are four categories of television programme services, namely (i) domestic pay, (ii) domestic free, (iii) non-domestic (mainly satellite television services targeting the Asia Pacific region) and (iv) other licensable (mainly television services for hotel rooms) television programme services. As at 31 March 2017, there were three domestic pay television programme service licensees, namely HKCTV (a wholly-owned subsidiary of the Company), PCCW Media Limited and TVB Network Vision Limited. As disclosed in the 2016 Annual Report, the viewing share of pay television programme service of HKCTV, PCCW Media Limited and TVB Network Vision Limited was approximately 50%, 28% and 22% for the year ended 31 December 2016, respectively, according to Nielsen, a marketing research agent.

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The below graph sets out the number of subscribers of domestic pay television in Hong Kong, which is extracted from the 2015/16 annual report of the Communications Authority:

==> picture [370 x 125] intentionally omitted <==

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

26000002400000 2310000 2390000 2440000 2431000 2448000 2421000 2338000
2140000
2200000 2040000
2000000 1840000
1800000
1600000
1400000
1200000
1000000
800000
600000
400000
200000
0
Aug 2007 Aug 2008 Aug 2009 Aug 2010 Aug 2011 Mar 2012 Mar 2013 Mar 2014 Mar 2015 Mar 2016
No. of aggregate subscribers
----- End of picture text -----

Source: Communications Authority

As at 31 December 2016, there were approximately 2.26 million subscribers for pay TV services. As demonstrated in the graph above, the number of subscribers of pay TV services recorded a stable drop since 2014 from approximately 2,448,000 subscribers in 2014 to 2,338,000 subscribers in 2016, representing a compound annual decrease of approximately (2.3)%. Despite that the household penetration rate of domestic pay television is over 90%, given the maturing market and the decreasing number of subscribers, the competition is growing and the pressure on the pricing of the pay television services is significant.

As at 31 December 2016, there were three domestic free television programme service (free TV) licensees, namely FTV (an affiliate of the Company), HK Television Entertainment Company Limited (HKTVE) and Television Broadcasts Limited (TVB), of which FTV will start providing free TV service in Hong Kong of an integrated Chinese channel and an integrated English channel by 30 May 2017 and 30 May 2018, respectively. As at 31 March 2017, there were 15 and 24 non-domestic television programme service licensees and other licensable television programme services, respectively.

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3. Prospects of the Group

In recent years, the Group has been facing challenging industry environment, that is the weak advertising market and intensifying market competition. Airtime sales is declining since advertisers are spending less as a result of the downtrend in local retail sales. A wider range of contents is available on new platforms and various mobile devices for users to select and view anytime and anywhere, which leads to the decrease in subscribers of pay TV services in Hong Kong since 2014. An abundant supply of contents intensified competition, which weakened the demand for the Group’s subscription content. Internet and multi-media segment is faced with fast changing technology and customers are constantly demanding for better quality and higher-speed internet services. The Group’s operations depend on its ability to innovate and the successful deployment of new technologies.

As stated in the paragraph headed ‘‘Intentions of the Underwriter’’ in the Letter from the Board, the Underwriter intends to work with the Company, upon the completion of the Open Offer, to (i) explore all possibility of cooperation with content providers including talented individuals; (ii) strengthen the scope of financial news to cover the region to meet the needs of the business community; (iii) strengthen the OTT (over-the-top) service to enable easy access by a greater base of audience; and (iv) roll out GPON high speed internet broadband services and to explore opportunities to utilise the Company’s extensive optical fibre network in Hong Kong to broaden its business, in order to best organise and optimise the businesses and operations of the Group. As disclosed in the 2016 Annual Report, the Group’s affiliate, FTV is preparing for the launch of its integrated Cantonese channel in May 2017. The Directors expect the above measures will supplement the Group’s existing services and enhance its overall competitiveness.

4. Reasons for and benefits of the Open Offer and the use of proceeds

4.1 Reasons for and benefits of the Open Offer

Reference is made to the Rule 13.09 Announcement, in which the Board announced that, among other matters, Wharf would not provide any further funding commitments to any member of the Group for its business operations, other than the current funding commitments (including the existing facility by Wharf Finance of up to HK$400 million pursuant to the Wharf Facility). As further disclosed in the April 24 Announcement, Wharf informed the Company that it intends to dispose of its entire shareholding interest in the Company (by way of Further Distribution in Specie of its entire Loan Capitalisation Shares, or through other means Wharf considers appropriate) in order to exit the CME sector as soon as practicable. As at the Latest Practicable Date, it remains Wharf’s intention to dispose of all its Shares in the Company after completion of the Loan Capitalisation as soon as practicable.

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As stated in the Letter from the Board, subsequent to the publication of the Rule 13.09 Announcement, the Board had engaged professional external adviser(s) to explore alternative sources of funding and/or advice on any business reorganisation and the continuance, directions and/or discontinuance of the Company’s business operations. We have discussed with the management of the Group and are advised that the proposed Open Offer coupled with the Loan Capitalisation and the Facility Term Extension is the best funding proposal received by the Group in order for the Group’s business to continue as usual given the current financial position of the Group.

It is further noted that (i) the Group incurred widening net losses attributable to equity shareholders of the Company of approximately HK$139.5 million, HK$233.1 million and HK$312.8 million for the three years ended 31 December 2014, 2015 and 2016, respectively; (ii) the decreasing trend of the Group’s net asset value of approximately HK$1,052.5 million, HK$819.0 million and HK$505.4 million as at 31 December 2014, 2015 and 2016, respectively; and (iii) the Group recorded increasing net current liabilities of approximately HK$339.5 million, HK$560.6 million and HK$891.8 million as at 31 December 2014, 2015 and 2016, respectively.

As stated in the 2016 Annual Report, the financial performance and position of the Group together with the event described in the Rule 13.09 Announcement, casts doubt on the Company’s ability to continue as a going concern, and therefore the Company’s ability to realise its assets and discharge its liabilities in the ordinary course of business for the foreseeable future has become materially uncertain.

Given the current financial situation of the Group as discussed above, the Directors considered the amount of new equity of approximately HK$704 million which is expected to be introduced upon completion of the Open Offer, together with the new equity to be introduced from the Loan Capitalisation, will satisfy the Group’s expected funding needs for the next 12 months and provide sufficient capital in a medium-term future to support the continuation of the Group’s CME business and allow the Group to effect a restructuring for sustainable development in the long term. The Directors further considers that it is important for the Group to have committed funding to finance the Group’s business operations, preferably in the form of equity which will not require repayment in compliance with the financial covenants, or increase the Group’s financing costs.

In light of the above, the proposed Open Offer, coupled with the Loan Capitalisation and the Facility Term Extension, would improve the Group’s current financial position and provide funding needs of the Group to continue its operations as usual.

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It is also noted that the current Pay TV Licence issued to HKCTV is expiring on 31 May 2017. On 13 December 2016, the Chief Executive-in-Council approved HKCTV’s application for renewal of its Pay TV Licence for a period of 12 years from 1 June 2017. Upon acceptance of the renewal of the Pay TV Licence of HKCTV for the period of 12 years from 1 June 2017 to 31 May 2029, HKCTV will be subject to a commitment of a six-year investment plan of HK$3,447 million from 2017 to 2023, comprising HK$251 million of capital investment and HK$3,196 million of programming investment in content including in-house channels containing selfproduced and/or acquired programmes as well as in acquired channels.

The investment plan that amounted to approximately HK$3,447 million will be invested by the Group over a period of six years, representing an average annual investment amount of approximately HK$574.5 million. In addition, FTV is required to incur at least HK$336 million as cumulative capital and programming expenditure for providing the domestic free television programme service within 30 months from commencement date of the Free TV Licence (being 31 May 2016). It is estimated that the Group would require approximately HK$249 million out of the proceeds from the Open Offer (representing 37.2% of the total estimated net proceeds from the Open Offer) as funding to satisfy the Group’s operation requirements and for it to continue its operations in the coming two years. The Group also expects to utilise HK$330 million out of the proceeds from the Open Offer (representing 49.3% of the total estimated net proceeds from the Open Offer) for investments in network related capital expenditure and TV capital expenditure, including without limitation to the roll out of GPON high speed internet broadband services and the Group’s recently launched FANhub set top box, which the Board considered to be critical in rebuilding and strengthening the Group’s competitiveness in the market.

The Open Offer and the Loan Capitalisation, if materialised, will provide the Group new equity capital in the amount of approximately HK$1,004 million, which, in the view of the Board, can provide sufficient capital in a medium-term to support the continuation of the Group’s CME business. In addition to the above, the Company intends to finance the investment plan in respect of the Pay TV Licence also by cash to be generated by operations. As stated in the Letter from the Board, as at the Latest Practicable Date, the Company and the Underwriter have no intention to conduct further fund raising activities in the next 12 months.

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LETTER FROM LEGO

We would like to stress that in the event that the Open Offer does not materialise, there is significant risk that further fund-raising activity will not be executed in time, and the Company would not have any basis to renew its Pay TV Licence, which will lead to cessation of the Group’s pay TV service immediately after 31 May 2017 and therefore immediate loss of the Group’s core business and the corresponding income stream. The revenue generated from the television business accounted for over 70% of the Group’s total revenue for each of the three years ended 31 December 2014, 2015 and 2016. The loss of the Pay TV Licence and the revenue of the pay TV business would have a material adverse impact on the Group and cast uncertainty on the sustainability of the Group’s business. Therefore, it is critical that the Group can secure external funding in order for its business to continue as usual. The Open Offer is aimed to provide funding for the Group to accept renewal of its Pay TV Licence for a period of 12 years and to continue to pursue its business operations as well as to strengthen the Group’s equity base.

The Directors consider that the Open Offer, coupled with the Loan Capitalisation and the Facility Term Extension, provide the Group with the required funds and liquidity to continue its business and meet its cash flow needs as well as the investment requirements for the Pay TV Licence and the Free TV Licence in the medium-term future given the current financial performance and position of the Group.

In addition to the above, we also note that the board of directors of Wharf had been looking for new investors and/or other methods to improve the Group’s business since early 2016. According to the annual report of Wharf for the year ended 31 December 2015 and a joint announcement published by the Company and Wharf dated 5 July 2016 pursuant to Rule 3.7 of the Takeovers Code and Rule 13.09 of the Listing Rules, considering that the market has changed drastically since the CME business started over 20 years ago and the pace of change has accelerated, Wharf has commenced a strategic review (the ‘‘Strategic Review’’) to evaluate different options to enhance Wharf’s CME business, which is operated under the Group and Wharf T&T Limited. Pursuant to the Strategic Review, Wharf has received a number of preliminary proposals in relation to its CME business, some of which include possibility of acquisition of interest in the Company. However, as disclosed in the joint announcement published by the Company and Wharf dated 9 March 2017, no agreement in respect of the disposal of interests in the Company has been entered into by Wharf.

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LETTER FROM LEGO

As stated in the Letter from the Board, subsequent to the publication of the Rule 13.09 Announcement, over 50 potential investors/financial institutions were contacted to ascertain their interest in investing in or otherwise funding the Company. After considering the capital structure of the Company and the funding need of the Company in the short term, the Board formed the view, based on the interests received from different proposers, that the optimal option was for the Company to seek an equity investor who would be prepared to work with the Company’s management to restructure the business operations and address the Group’s long term capital and funding needs. Among all the proposals, the Board is of the view that the current proposal, which is Open Offer coupled with the Loan Capitalisation and the Facility Term Extension, is the best funding proposal received by the Group in order for the Group’s business to continue as usual given the current financial position of the Group.

4.2 Intended use of proceeds

As stated in the Letter from the Board, the estimated net proceeds from the Open Offer (after deducting the relevant expense including professional fees, printing charges and sundry expenses) will amount to approximately HK$669 million. It is intended by the Group that the net proceeds from the Open Offer will be used to fund the Company’s operating and capital requirements as well as to turnaround the Company and continue its business as a going concern. The proceeds of the equity injection and the improvement in the capital structure through the Loan Capitalisation will be used to meet the Company’s cash flow needs under Pay TV and Free TV license investment requirements in the coming years while the business undergoes a restructuring and turnaround of the operations. Apart from carrying out organisational restructuring targeting to achieve substantial savings in annual operating expenses, the Group intends to apply such estimated net proceeds in the following manner:

(i) approximately HK$170 million for investments in network related capital expenditur e, which includes enhancement of the Gr oup ’s telecommunications network and focuses on the roll out of GPON high speed internet broadband services in the coming three years;

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(ii) approximately HK$160 million for investments in TV capital expenditure, which includes investments in:
upgrading the existing pay TV set top box to FANhub set top box, a full featured, ‘‘video-on-demand’’, interactive HD (high definition) set top box launched in early 2016 to enrich customer experience. The investment in FANhub set top box is a major focus of TV capital expenditure, and the allocated proceeds from the Open Offer is expected to support the Group’s upgrade service in the coming three years;
completing the upgrade of the Group’s news platform with HD (high definition) capabilities, including but not limited to equipping its newsroom facilities with virtual reality and graphics application. The Group has been upgrading its news platform since the end of 2015 and expect to complete the upgrade in the coming two years;
setting up FTV, which is expected to launch in May 2017, in the coming year; and
purchase of other equipment to support the Group’s television services, including production and broadcasting, the spending of which is expected to be even in the next three years;
(iii) approximately HK$90 million for investments in other capital expenditure, which includes investments in the following areas that are to be expended on an average basis in the coming three years:
the materials and related manpower required for installation and connection services in support of the Group’s pay TV, internet and telephone services;
cable modems for the Group’s internet services customers;
data processing equipment for the Group’s system development; and
leasehold improvement and other office equipment; and

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(iv) approximately HK$249 million as funding required net of cash received from operations (including subscription, service and related fees for television, internet and telephone services, advertising income, channel service and distribution fees, programme licensing income, film exhibition and distribution income and network maintenance income) for the Group’s operating requirements (including the fulfilment of the relevant funding commitments to the Pay TV Licence and Free TV Licence as described below) in the coming two years, including funding of:
approximately 60% to cover programming costs, which mainly includes costs to maintain the Group’s programming library (which consists of presentation rights for commissioned and acquired programmes for broadcasting on the Group’s television channels, and commissioned programmes and films for licensing purpose), to develop the Group’s in-house developed programmes and to generate the Group’s film rights. For more details on the Group’s programming costs, please refer to Note 1(g) to the consolidated financial statements of the Company for the year ended 31 December 2016, which is extracted from the 2016 Annual Report and reproduced under the paragraph headed ‘‘2. Audited Consolidated Financial Statements for the year ended 31 December 2016’’ in Appendix I to the Circular);
approximately 15% to cover network expenses, which mainly includes expenses associated with the provision of the Group’s network services (being television, internet and telephone services), including the maintenance of the network infrastructure and equipment; and
approximately 25% to cover (i) selling expenses, which mainly includes employee benefit expenses for the Group’s selling and marketing staff, and operating lease payments and utility expense attributable to the Group’s sales functions; (ii) general and administrative expenses, which mainly includes administrative staff expenses and office related expenses); and (iii) other operative expenses, which mainly includes customer services expenses such as running cost for the Company’s call centre in the PRC, billing and collection cost.

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As stated in the Letter from the Board, the Board considers that the Open Offer and the Loan Capitalisation, which together will amount to an aggregate new equity capital of approximately HK$1,004 million, will satisfy the Group’s expected funding needs for the next 12 months and provide sufficient capital in a medium-term future to support the continuation of the Group’s CME business and allows the Group to effect a restructuring for sustainable development in the long term. The Board further considers that it is important for the Group to have committed funding to finance the Group’s business operations, preferably in the form of equity which will not require repayment of compliance with the financial covenants, or increase the Group’s finance costs.

4.3 Fund raising alternatives

In the past 12 months immediately preceding the date of the Announcement, the Company had not conducted any equity fund raising activities. As stated in the 2016 Annual Report, during the year ended 31 December 2016, the Group’s funding sources are mainly from a banking facility of HK$400 million and a revolving loan facility of HK$400 million given by Wharf Finance under the Wharf Facility.

Through the financial consultant of the Company, interests in investing in or otherwise funding the Company were solicited from a range of potential investors/ financial institutions. Potential interested parties were allowed to submit their initial proposals without any restriction on deal type or structure thereby allowing the Board to consider all options that interested parties proposed. Over 50 parties were contacted to ascertain interest including, (i) banks/specialised lenders; (ii) strategic investors (those currently within the technology, media and telecommunications industry or have an interest in the industry); and (iii) private equity investors.

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The type of deal structure, i.e. equity injection, business/asset sale or debt financing
Funding available to execute the deal in a short timeframe
Execution timing and risk
Potential deal value
Regulatory approval requirements

As disclosed in the Letter from the Board, although rights issue can provide a way out to those Shareholders who do not wish to take up the entitlements by selling nil-paid rights, rights issue will expose the Company to longer market uncertainty, as well as involve additional time and administrative work and cost for the trading arrangements in relation to the nil-paid rights. In addition, in view of the general downward trend of the historical trading price of the Shares, there is uncertainty of the existence of a market to trade the nil-paid rights. While the adoption of a rights issue instead of the Open Offer may not necessarily delay the current expected timetable (as set out in the section headed ‘‘Expected Timetable’’ in the Circular), if a rights issue is to be adopted, additional time would have to be allocated by the Company within the already tight transaction timetable for arrangements that would not have been required under the Open Offer, including arranging the nil-paid rights trading and free splitting service for provisional allotment letters, reviewing relevant documents such as provisional allotment letters, and liaison with the parties involved such as the

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Registrar, the Underwriter and other professional advisers in this regard, and it is expected that the estimated additional cost would be approximately HK$600,000. It is not practicable to quantify the time resources that are expected to be allocated to adopt a rights issue instead of the Open Offer, but given the current circumstances of the Group, including the cessation of the Group’s source of funding from Wharf pursuant to the Rule 13.09 Announcement, the diversion of time and monetary resources for arrangements that would not have been required under the Open Offer is not costeffective from the viewpoint of the Company.

Moreover, as disclosed in the Rule 13.09 Announcement, Wharf has informed the Company that it would not provide any further funding commitments to any members of the Group for its business operations and as a result thereof, such cessation of funding support casts doubt on the financial stability of the Group. The Board considers it critical to improve the financial condition as soon as possible, and the Open Offer would be a relatively more expedient way to achieve such purpose.

In view of (i) the unsatisfactory financial performance of the Group for the past three years ended 31 December 2016 as a result of the weak advertising market and the intense market competition; (ii) the net current liabilities position of the Group as at 31 December 2016; (iii) Wharf’s decision not to provide any further funding commitments to the Group for its business operation; (iv) the net proceeds raised from the Open Offer would be used to meet the funding requirements of the Group’s Pay TV Licence and Free TV Licence in the medium-term future if the Group accepts the renewal of its Pay TV Licence prior to its expiry at the end of May 2017; (v) the failure to materialise the Open Offer will lead to HKCTV unable to meet the capital commitment of HK$3,447 million from 2017 to 2023 for the renewal of the Pay TV Licence solely based on its operating activities without further external financing; therefore HKCTV will have no basis to accept the renewal of the Pay TV Licence, the business of which made up over 70% of the Group’s revenue for each of the three years ended 31 December 2014, 2015 and 2016, and will in turn cast uncertainty on the sustainability of the Group’s business; (vi) the net proceeds raised from the Open Offer would strengthen the Company’s capital base and enhance its financial and liquidity position; (vii) the Open Offer enables all Qualifying Shareholders to have an equal opportunity to participate in the enlargement of the Company’s capital base and the Company’s future growth; (viii) the Open Offer provides additional funds for the Group at a reasonable cost as compared to bank borrowings; and (ix) the Open Offer is simpler, more timely and cost-effective than a rights issue, we are of the view that the Open Offer is fair and reasonable and in the interests of the Group and the Shareholders as a whole.

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5. Principal terms of the Open Offer

5.1 Issue statistics

The Company proposes, subject to fulfilment (or waiver, if applicable) of the conditions set out in the Underwriting Agreement, to raise approximately HK$704 million (before expenses) and approximately HK$669 million (after deducting the relevant expense including professional fees, printing charges and sundry expenses) by issuing 3,352,520,666 Offer Shares to the Qualifying Shareholders at the Offer Price of HK$0.21 per Offer Share, on the basis of five (5) Offer Shares for every three (3) existing Shares held by each Qualifying Shareholder on the Record Date.

Set out below are the principal terms of the Open Offer:

Basis of the Open Offer : Five (5) Offer Shares for every three (3) existing Shares held on the Record Date Offer Price : HK$0.21 per Offer Share Number of Shares in issue : 2,011,512,400 Shares as at the Latest Practicable Date Number of Offer Shares : 3,352,520,666 Offer Shares Underwriter : Forever Top (Asia) Limited, a company incorporated in Hong Kong with limited liability on 9 January 2015, the ultimate beneficial owners of which are the Underwriter Guarantors, which is an Independent Third Party as at the Latest Practicable Date Total number of Shares in issue : 5,364,033,066 Shares upon the close of the Open Offer

The Shares proposed to be issued under the Open Offer represent:

(a) approximately 166.7% of the issued share capital of the Company as at the date of the Announcement assuming that no further Shares will be issued or bought back by the Company prior to the close of the Open Offer; and

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(b) approximately 62.5% of the issued share capital of the Company as enlarged by the allotment and issue of the Offer Shares, assuming that no further Shares will be issued or bought back by the Company prior to the close of the Open Offer.

5.2 The Offer Price

The Offer Price of HK$0.21 per Offer Share is payable in full by a Qualifying Shareholder upon acceptance of the Offer Shares under the Open Offer. The Offer Price represents:

(i) a discount of approximately 65.6% to the Last Closing Price;
(ii) a discount of approximately 64.6% to the average closing price of approximately HK$0.594 per Share as quoted on the Stock Exchange for the five consecutive trading days up to and including the Last Trading Day;
(iii) a discount of approximately 64.9% to the average closing price of approximately HK$0.599 per Share as quoted on the Stock Exchange for the ten consecutive trading days up to and including the Last Trading Day;
(iv) a discount of approximately 41.7% to the theoretical ex-entitlement price of approximately HK$0.36 per Share based on the Last Closing Price;
(v) a discount of approximately 62.5% to the closing price of HK$0.56 per Share as quoted on the Stock Exchange on the Latest Practicable Date; and
(vi) a discount of approximately 16.0% to the audited consolidated net asset value per Share attributable to equity holders of the Company of approximately HK$0.25 as at 31 December 2016.

As stated in the Letter from the Board, the Offer Price was arrived at after arm’s length negotiation between the Company and the Underwriter primarily with reference to the financial and business conditions of the Company, as disclosed in the Rule 13.09 Announcement. Please refer to the paragraph headed ‘‘Proposed Open Offer – Basis of price and ratio’’ in the Letter from the Board for details.

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(a) Historical price performance of the Shares

The following graph sets forth the daily closing prices of the Shares as quoted on the Stock Exchange for the period from 14 April 2016 (being the first trading day of the 12-month period prior to the Last Trading Day) up to and including the Latest Practicable Date (the ‘‘Review Period’’), being approximately one year, against the Offer Price:

==> picture [353 x 200] intentionally omitted <==

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

Share price during the Review Period
HK$
1.2
1.0
0.8
0.6
0.4 Offer Price: HK$0.21
0.2
0.0
Closing price Offer Price
----- End of picture text -----

Source: The website of the Stock Exchange

As shown in the graph above, the closing prices of the Shares during the Review Period ranged from HK$0.54 to HK$1.01, with an average closing price of HK$0.78. The Offer Price is at a discount to the closing price of the Shares at all times throughout the Review Period. The Offer Price of HK$0.21 represents a discount of approximately 61.1%, 73.1% and 79.2% to the lowest, average and highest closing price of the Shares, respectively, during the Review Period.

On 9 March 2017 (after trading hours), the Company published the Rule 13.09 Announcement, which stated, among others, that Wharf resolved not to provide any further funding commitments to any of the Company and its subsidiaries for its business operations, not to renew any of the current funding commitments when they expire and Wharf has no intention to increase its shareholding interest in the Company. On 10 March 2017, being the date immediately following the date of the Rule 13.09 Announcement, the Shares closed at HK$0.61 per Share, representing a decrease of approximately 34.4% from the closing price of the previous trading day.

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On 21 April 2017, being the trading day immediately after the release of the Announcement, the closing price of the Shares was HK$0.71 per Share, representing an increase of approximately 16.4% from the closing price of HK$0.61 per Share on the Last Trading Day. For the period from 21 April 2017 to the Latest Practicable Date, the highest and lowest closing price of the Shares was HK$0.71 and HK$0.54 per Share, respectively. The closing price of the Share was HK$0.56 per Share as at the Latest Practicable Date.

(b) Market comparison on open offers

We have identified from the website of the Stock Exchange an exhaustive list of open offer transactions (the ‘‘Comparable Offers’’) announced by companies listed on the Stock Exchange involving open offer of shares of listed companies for the period from 14 January 2017 (being the first trading day of the 3-month period prior to the Last Trading Day) up to and including the Latest Practicable Date. We consider that a review period of three months prior to the Last Trading Day and up to the Latest Practicable Date is appropriate to capture the recent market conditions because the Comparable Offers are considered for the purpose of taking a general reference for the recent market environment in relation to the offer price under other proposed open offers as compared to the relevant prevailing market share prices under the recent market conditions and sentiments.

Despite the fact that the Comparable Offers which we have identified are with different bases of entitlement that might not be exactly the same as the Open Offer, we consider that the statistics of the Comparable Offers as set out below can provide the Independent Shareholders or potential investors of the Company, a general trend and data of open offer exercises in the market for their further information to make decision with respect to the Open Offer for their illustrative purpose. In addition, Independent Shareholders should note that the business, operations, financial positions and prospects of the Company are not the same as the companies which made the Comparable Offers. We have not conducted any independent investigation with regards to the business, operations and financial position of the companies which made the Comparable Offers, which shall not affect our analysis as we are comparing the general trend of open offer exercises in the market with the Open Offer.

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				Premium/	Premium/
				(discount) of	(discount) of
				offer price	offer price
				over/(to) the	over/(to) the
				closing price	theoretical
Date of			Basic of	on the last	ex-entitlement	Underwriting
announcement	Company name	Stock code	entitlement	trading day	price	commission
				%	%	%
5 May 2017	Greater China Financial	431	1 for 2	(58.7)	(48.7)	2.3
	Holdings Limited
26 April 2017	China Investment Fund	612	1 for 10	(17.6)	(16.4)	Fixed
	International Holdings Limited					commission of
						HK$750,000,
						(representing
						approximately
						1.1% to 1.2% of
						the underwritten
						amount)
10 April 2017	Chinese Strategic Holdings Limited	8089	1 for 2	(32.9)	(24.8)	4.5
20 March 2017	Flyke International Holdings Ltd.	1998	3 for 5	(74.1)	(64.1)	No information
(Note 1)						available
						(Note 2)
20 March 2017	Sandmartin International	482	3 for 2	(41.5)	(22.1)	3.5
	Holdings Limited
24 February 2017	Grand T G Gold Holdings Limited	8299	1 for 2	(72.2)	(63.6)	Nil or 3.5
(Note 1)						(Note 3)
16 February 2017	China Lumena New Materials Corp.	67	1 for 1	(99.4)	(98.7)	No information
(Note 1)						available
						(Note 2)
13 February 2017	New Times Energy	166	1 for 2	Nil	Nil	0.8
	Corporation Limited
			Minimum:	Nil	Nil	Nil
			Maximum:	(99.4)	(98.7)	4.5
			Average:	(49.6)	(42.3)	2.0 to 2.6
20 April 2017	The Company	1097	5 for 3	(65.6)	(41.7)	2.0

Source: the website of the Stock Exchange

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Note 1: The trading of the shares of China Lumena New Materials Corp. (‘‘Lumena NewMat’’), Grand T G Gold Holdings Limited (‘‘Grand TG’’) and Flyke International Holdings Ltd. (‘‘Flyke’’) were on the list of long suspended companies published on the website of the Stock Exchange and was suspended since 25 March 2014, 11 November 2010 and 31 March 2014, respectively. Lumena NewMat, Grand TG and Flyke published an announcement regarding a proposed restructuring, in which the open offer forms part of their resumption proposal seeking the resumption of trading in their shares on 16 February 2017, 24 February 2017 and 20 March 2017, respectively. In view that the open offers of Lumena NewMat, Grand TG, Flyke and the Open Offer of the Company are all part of the respective company’s restructuring plan to introduce new investors, restructure the group’s business and obtain long term financing, we consider the fund-raising exercises of Lumena NewMat, Grand TG, Flyke and the Company are similar in nature and the discount of the offer price on the trading price on their last trading day in respect of the open offers of Lumena NewMat, Grant TG and Flyke are comparable to that of the Open Offer and should not be considered as outliers.

Note 2: Subsequent to the publication of their respective announcements in connection with, inter alia, the open offer by Flyke and Lumena NewMat and up to the Latest Practicable Date, no further details in connection with their respective underwriting agreements (including the underwriting commission) has been announced by Flyke or Lumena NewMat.
Note 3: Two underwriters will underwrite Grand TG’s open offer, one underwriter who is a connected person to Grand TG will not receive any underwriting commission while the other underwriter who is an independent third party to Grand TG is subject to an underwriting commission of 3.5%.

As demonstrated by the table above, it is noted that the subscription prices of the Comparable Offers represented an even price or discount to their respective prevailing market price of the relevant shares.

Despite that we have used the above Comparable Offers as reference only, we noted that the offer prices of the Comparable Offers generally represented a discount to their respective closing prices prior to the publication of the relevant announcements. The offer prices of the Comparable Offers were in the range from a discount of approximately 99.4% to nil discount with an average discount of approximately 49.6% to their respective closing prices prior to the publication of the relevant announcements. The discount of approximately 65.6% of the Offer Price to the Last Closing Price falls within the range of those of the Comparable Offers but larger than the average discount rate of the Comparable Offers.

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The offer prices of the Comparable Offers generally represented a discount to their respective theoretical ex-entitlement prices prior to the publication of the relevant announcements. The offer prices of the Comparable Offers were in the range from a discount of approximately 98.7% to nil discount with an average discount of approximately 42.3% to their respective theoretical ex-entitlement prices prior to the publication of the relevant announcements. The discount of approximately 41.7% of the Offer Price to the theoretical ex-entitlement price of the Shares falls within the range of those of the Comparable Offers but slightly smaller than the average discount rate of the Comparable Offers.

As stated in the Letter from the Board, the Directors consider that it could be difficult to attract the Qualifying Shareholders to reinvest in the Company through the Open Offer if the Offer Price was not set at an appropriate discount to the historical trading prices of the Shares. The Directors considered that the discount ranging from 60% to 70% to the historical trading prices of the Shares represented by the Offer Price will lower the further investment cost of the Qualifying Shareholders, and encourages them to participate in the Open Offer and maintain their respective pro-rata shareholding interest in the Company. Subsequent to the publication of the Rule 13.09 Announcement, which announced Wharf’s intention to cease all its funding commitment to the Group for its business operations, the Board had engaged a financial consultant to explore alternative sources of funding on an urgent basis to support HKCTV’s fulfilment of the six-year investment plan of HK$3,447 million from 2017 to 2023 under the terms of the Pay TV Licence so as to support its decision to accept the renewal of its Pay TV Licence by the prescribed deadline of 26 April 2017 (before the SCED approved the further extension of the deadline for accepting the offer of renewal of the Pay TV Licence to 31 May 2017), to prevent cessation of the of pay TV service immediately after 31 May 2017 which will lead to an immediate loss of an important source of the Group’s revenue (which accounted for over 70% of the Group’s total revenue for each of the three years ended 31 December 2014, 2015 and 2016).

The Company, has through its financial consultant, solicited more than seven investment/funding proposals from over 50 parties over a two to three weeks time period. Among the proposals that are made available to the Board for consideration within the tight timeframe, the Directors considered the terms of the Open Offer, including the Offer Price and the discount to the historical trading prices of the Shares represented by the Offer Price, to be the best available optimal investment/funding proposal.

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Moreover, as persons who are involved or interested in the Open Offer, the Underwriting Agreements, the Whitewash Waiver and/or the Special Deals will abstain from voting on the resolutions to be proposed at the EGM, each of the Independent Shareholders (including the minority Shareholders) will be given an opportunity to consider the terms of the Open Offer and to cast a vote on whether to approve the Open Offer (including the basis of the Open Offer, the Offer Price and other terms of the Open Offer) and authorise the Board to allot and issue Offer Shares, notwithstanding it may be offered, allotted or issued otherwise than pro-rata to the Qualifying Shareholders.

Considering that (i) the Wharf’s decision of not providing any further funding commitments to the Group for its business operations as disclosed in the Rule 13.09 Announcement; (ii) it took a long time for Wharf and the Company to consider and confirm this fund-raising activity, while if the Open Offer is not materialised, there may not be enough time for the Group to look for another funding source which give the Group basis to renew its Pay TV Licence; (iii) despite the Offer Price represents a discount to the Last Closing Price, having considered the financial and business conditions of the Group, as well as the Group’s funding needs to accept the renewal of its Pay TV License by 31 May 2017 without which the Group will immediately lose its pay TV business and the corresponding revenue from which accounted for over 70% of the Group’s total revenue for each of the three years ended 31 December 2016, and would have a material adverse impact on the Group and cast uncertainty on the sustainability of the Group’s business, it is necessary to offer a relatively deep discount for the Offer Price in order to encourage Qualifying Shareholders to participate in the Open Offer by taking up their respective entitlements and to maintain their shareholdings in the Company; (iv) Qualifying Shareholders are given the opportunity to maintain their proportional shareholding interest in the Company; and (v) the financial and business conditions of the Group as discussed above in this letter, we are of the view that the Offer Price is fair and reasonable so far as the Independent Shareholders are concerned and is in the interests of the Company and the Shareholders as a whole.

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5.3 Potential dilutive impact of the Open Offer

The Open Offer is offered to all Qualifying Shareholders on the same basis, the Qualifying Shareholders will be able to maintain their proportional interests in the Company if they take up their allotments in full under the Open Offer.

Qualifying Shareholders who do not elect to subscribe for their respective entitlements to the Offer Shares under the Open Offer in full will have their shareholding interests in the Company being diluted for a maximum of approximately 62.5% upon completion of the Open Offer, and approximately 67.6% upon completion of the Open Offer and the Loan Capitalisation. The changes in shareholding structure of the Company arising from the Open Offer are set out in the section headed ‘‘Shareholding structure of the Company’’ in the Letter from the Board.

Taking into account (i) all Qualifying Shareholders are offered an equal opportunity to participate in the Open Offer; (ii) the inherent dilutive nature of open offers in general if the existing shareholders do not subscribe for in full their assured entitlements; and (iii) the net proceeds from the Open Offer would give the Group basis to renew its Pay TV Licence which is critical to the Group’s business as well as strengthen the Group’s capital base and liquidity, we are of the view that the potential dilution effect of the Open Offer is justifiable.

5.4 No application for excess Offer Shares

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The Directors hold the view that the Open Offer allows the Qualifying Shareholders to maintain their respective pro-rata shareholding in the Company and to participate in the future growth and development of the Group. It is estimated that additional costs ranging from HK$0.5 million to HK$1 million will be incurred to administer the excess application procedures, including the preparation, printing, posting of excess application form for the Offer Shares, and the handling of any excess application for the Offer Shares, including arrangements required to ensure fair allocation of excess Offer Shares to Shareholders. While the administration of excess applications may not necessarily delay the current expected timetable (as set out in the section ‘‘Expected Timetable’’ in the Circular), these excess application procedures are expected to divert limited time resources and effort from the core preparation and arrangement for the Open Offer under its tight transaction timetable. It is not practicable to quantify the time resources that are expected to be diverted to administer the excess application procedures, as this largely depends on the volume of application for excess Offer Shares, which could not be determined with sufficient basis as at the Latest Practicable Date. Nevertheless, given the current circumstances of the Company, including the cessation of the Group’s source of funding from Wharf pursuant to the Rule 13.09 Announcement, the diversion of time and monetary resources for handling excess application is not cost effective from the viewpoint of the Company. After arm’s length negotiations with the Underwriter, and taking into account that the related time and administration costs would be lowered in the absence of excess applications, the Directors consider that it is fair and reasonable and in the interests of the Company and the Shareholders as a whole not to offer any excess application to the Qualifying Shareholders.

Taking into account (i) all Qualifying Shareholders are offered an equal opportunity to participate in the Open Offer; and (ii) the Group is under time pressure to complete the Open Offer as soon as possible while the absence of excess applications will shorten the time required and lower the administration costs to complete the Open Offer, we are of the view that the absence of excess application of the Open Offer is justifiable.

5.5 Proposed change in board lot size and odd lot matching

As disclosed in the Letter from the Board, subject to approval of the Open Offer by the Shareholders, the first day of dealings in Shares on ex-entitlement basis will be 10 August 2017 and the first day of dealings in the Offer Shares will be 14 September 2017. It is expected that the change in board lot size from 1,000 Shares to 10,000 Shares will become effective from 9:00 a.m. on 21 August 2017.

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The Shares are currently traded in board lots of 1,000 Shares each and the market value of each board lot was HK$610 (based on the Last Closing Price of HK$0.61 per Share). In order to increase the value of each board lot of the Shares so that the value of each board lot of the Shares will not be less than HK$2,000, as well as to reduce transaction and registration costs incurred by the Shareholders and investors of the Company, the Board proposed to change the board lot size for trading of the Shares from 1,000 to 10,000 with effect from 9:00 a.m. on 21 August 2017. Upon the change in board lot size becoming effective, the Shares will be traded in board lot of 10,000 Shares and the estimated market value per board lot of the Shares will be HK$6,100 (based on the Last Closing Price of HK$0.61 per Share).

As disclosed in the Letter from the Board, based on the theoretical ex-rights price of HK$0.36 per Share, the value of each new board lot of 10,000 Shares would be HK$3,600. The Offer Shares will be traded in the new board lot of 10,000 Shares. In the absence of the change in board lot size, the value of each board lot of 1,000 Shares would be HK$360, which is lower than the expected board lot value of greater than HK$2,000 as recommended by the Stock Exchange taking into account the minimum transaction costs for a securities trade, and hence not in the interests of the Shareholders, in particular minority Shareholders.

As further disclosed in the Letter from the Board, to alleviate the difficulties in trading odd lots of the Shares arising from the change in board lot size of the Shares, the Company will appoint an agent to provide matching services to the Shareholders who wish to top up or sell their holdings of odd lots of the Shares during the period from 9:00 a.m. on 21 August 2017 to 4:00 p.m. on 11 September 2017 (both dates inclusive). Holders of the Shares in odd lots represented by the existing share certificates for the Shares who wish to take advantage of this facility either to dispose of their odd lots of the Shares or to top up their odd lots to a full new board lot may directly or through their broker

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during such period. Holders of the Shares in odd lots should note that successful matching of the sale and purchase of odd lots of the Shares is not guaranteed. The Shareholders are recommended to consult their professional advisers if they are in doubt about the above facility.

Given that (i) the change in the board lot size will increase the value of each board lot of the Shares so that the value of each board lot of the Shares will not be less than HK$2,000 as recommended by the Stock Exchange; (ii) the change in board lot size will not result in any change in the relative rights of the Shareholders; and (iii) the Company will appoint an agent to provide matching services to the Shareholders who wish to top up or sell their holdings of odd lots of the Shares to minimise the impact of the change of board lot size to the Shareholders, we are of the view that the change in board lot size is in the interest of the Company and the Shareholders as a whole, including the minority Shareholders.

6. Principal terms of the Undertaking from Wharf

As at the Latest Practicable Date, the Controlling Shareholder Companies together hold 1,485,259,171 Shares, representing approximately 73.8% of the issued share capital of the Company. In relation to the Open Offer, Wharf, being the controlling Shareholder of the Company, as at the Latest Practicable Date, has irrevocably undertaken to the Company and the Underwriter, among other things, that:

(a) it will, and will procure the Shares held by the Controlling Shareholder Companies to remain legally and beneficially owned by them from the date of the Undertaking to the close of business on the Record Date (or such other later date as the Company may agree in writing);
(b) it will not, and will procure the Controlling Shareholder Companies not to subscribe for any of the Offer Shares to which they will be entitled to under the Open Offer;
(c) it will not, and will procure the Controlling Shareholder Companies not to, deal in the Shares, outstanding options, derivatives, warrants or other securities convertible or exchangeable into shares until the Record Date (other than pursuant to the Loan Capitalisation or otherwise contemplated in the Undertaking);
(d) it will procure the Loan Capitalisation and the Facility Term Extension to be effected according to the terms of the Loan Capitalisation Agreement and the Facility Term Extension Agreement, respectively, following completion of the Open Offer, subject to the Company being able to comply with the Public Float Requirement; and

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(e) it will procure the relevant member(s) of the Wharf Group to enter into the Property Agreements.

The Undertaking is conditional upon (a) the despatch of the Prospectus on or before 16 August 2017 (or such other later date as may be agreed between the Company and the Underwriter in writing) upon the approval from the Stock Exchange; and (b) the Underwriting Agreement not having been terminated.

Further details of the terms of the Undertaking are set out in the section headed ‘‘The Undertaking from Wharf’’ in the Letter from the Board.

7. The Underwriting Agreement

Set out below are the principal terms of the Underwriting Agreement:

Date : 14 April 2017 Issuer : The Company Underwriter : Forever Top (Asia) Limited Underwriter Guarantors (on a : Mr. David Chiu (as to 24.5%) several basis based on and not Dr. Cheng Kar-Shun Henry (as to 31.5%) exceeding his/its direct/indirect Chow Tai Fook Enterprises Limited (as to shareholding in the Underwriter) 14%) Expand Ocean L.P. (as to 14%) Mr. Li Sze Lim (as to 16%) Total number of Offer Shares being : 3,352,520,666 Offer Shares fully underwritten by the Underwriter Commission payable to the : 2.0% of the total proceeds raised in the Underwriter Open Offer Condition precedent : The obligation of the Underwriter under the Underwriting Agreement is conditional upon the fulfilment (or waiver, if applicable, by the Underwriter) of, among other things, the following conditions:

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(a) the Communications Authority granting: (1) to HKCTV, an HKCTV Waiver Approval; and (2) to FTV, an FTV Waiver Approval, and if any of these waivers are granted with conditions upon the Company, such conditions having been fulfilled;
(b) the grant by the Executive (and such grant not having been withdrawn or revoked) of the Whitewash Waiver, the Wheelock Waiver and the consent to the Special Deals, and the fulfilment of all conditions, if any, attached to it;
(c) the approval by the Independent Shareholders of the Open Offer, the Whitewash Waiver and the Special Deals by way of poll at the EGM; and
(d) the renewal of the domestic Pay TV Licence of HKCTV on the terms of the existing offer set out in a letter from SCED to HKCTV dated 13 December 2016 or on terms which are not materially different than those in such existing offer to HKCTV.

Further details of the terms of the Undertaking Agreement are set out in the paragraph headed ‘‘The Underwriting Agreement’’ in the Letter from the Board.

We noted that the commissions payable by the respective issuers to the respective underwriters for the Comparable Offers ranged from nil to 4.5%. Accordingly, the underwriting commission of 2.0% under the Underwriting Agreement is within the range of the commission rates of the Comparable Offers. We have also reviewed the other major terms of the Underwriting Agreement and are not aware of any unusual terms. Accordingly, we consider the terms of the Underwriting Agreement are on normal commercial terms, fair and reasonable so far as the Independent Shareholders are concerned, and the underwriting arrangement is in the interest of the Company and the Shareholders as a whole.

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8. Whitewash Waiver

As stated in the Letter from the Board, assuming no further Shares will be issued or bought back by the Company prior to the close of the Open Offer and all of the Qualifying Shareholders (except the Controlling Shareholder Companies) have taken up their respective entitlements under the Open Offer, the Underwriter will be required to take up the untaken Underwritten Shares and the total shareholding of the Underwriter immediately upon completion of the Open Offer would amount to approximately 46.1% of the issued share capital of the Company as enlarged by the allotment and issue of the Offer Shares.

Assuming no further Shares will be issued or bought back by the Company prior to the close of the Open Offer and none of the Qualifying Shareholders (including the Controlling Shareholder Companies) has taken up their respective entitlements under the Open Offer, the Underwriter will be required to take up the Underwritten Shares and the total shareholding of the Underwriter immediately upon completion of the Open Offer would amount to approximately 62.5% of the issued share capital of the Company as enlarged by the allotment and issue of the Offer Shares.

An application has been made by the Underwriter to the Executive for the granting of the Whitewash Waiver pursuant to Note 1 on dispensations from Rule 26 of the Takeovers Code. The Whitewash Waiver, if granted, will be conditional upon, among other things, the approval of the Independent Shareholders at the EGM by way of poll. If the Whitewash Waiver is not granted or not approved by the Independent Shareholders, the Underwriting Agreement will not become unconditional and the Open Offer will not proceed. Accordingly, the Company will lose all the benefits that are expected to be brought about by the Open Offer, including but not limited to the availability of funds to be raised from the Open Offer. Based on our analysis on the reasons for and benefit of the Open Offer as discussed in the above section ‘‘Reasons for and benefits of the Open Offer and the use of proceeds’’, we are of the view that the grant of the Whitewash Waiver, which is a prerequisite for the completion of the Open Offer, is fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole.

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9. The Loan Capitalisation Agreement and the Facility Term Extension Agreement

9.1 The Wharf Facility

9.2 Principal terms of the Loan Capitalisation Agreement

On 14 April 2017, the Company, HKCTV and Wharf Finance entered into the Loan Capitalisation Agreement, pursuant to which Wharf Finance has agreed to effect the Loan Capitalisation, whereby the Loan Capitalisation Amount in the sum of HK$300 million under the Wharf Facility will be capitalised into 841,987,090 Loan Capitalisation Shares to be issued to Wharf Finance (or its nominee) at the issue price of approximately HK$0.3563 per Loan Capitalisation Share which was agreed among the parties to the Loan Capitalisation Agreement by reference to the theoretical exentitlement price per Share based on the Offer Price of HK$0.21 per Offer Share. The Loan Capitalisation can be effected in tranches in order for the Company to fulfil the Public Float Requirement at all times prior to its completion.

The issue price of approximately HK$0.3563 per Loan Capitalisation Share was arrived at after arm’s length negotiation and agreed upon among the parties to the Loan Capitalisation Agreement with reference to the theoretical ex-rights price per Share based on the Offer Price of HK$0.21 per Offer Share and the basis of entitlement of the Open Offer. The issue price of approximately HK$0.3563 per Loan Capitalisation Share represents:

(i) a discount of approximately 41.6% to the Last Closing Price;
(ii) a premium of approximately 42.5% over the audited consolidated net asset value per Share attributable to equity holders of the Company of approximately HK$0.25 as at 31 December 2016; and
(iii) a discount of approximately 36.4% to the closing price of HK$0.56 per Offer Share as quoted on the Stock Exchange on the Latest Practicable Date.

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After considering that (i) the issue price of the Loan Capitalisation Shares was calculated with reference to the theoretical ex-entitlement Share price of HK$0.36, which is calculated based on the Last Closing Price, the Offer Price and the basis of entitlement of the Open Offer; and (ii) such issue price represents a premium of approximately 42.5% over the audited consolidated net assets value per Share attributable to equity holder of the Company of approximately HK$0.25 per Share as at 31 December 2016, we are of the view that the issue price of approximately HK$0.3563 per Loan Capitalisation Share is fair and reasonable and in the interest of the Company and the Shareholders as a whole.

Assuming that (i) no further Shares will be issued or bought back by the Company prior to the close of the Open Offer and completion of the Loan Capitalisation and (ii) no Offer Shares are taken up by the Qualifying Shareholders and the Underwriter is required to take up the untaken Underwritten Shares, the Loan Capitalisation Shares would be approximately 41.9% of the issued share capital of the Company as at the Latest Practicable Date, and approximately 15.7% of the enlarged issued share capital of the Company upon the completion of the Open Offer.

Completion of the Loan Capitalisation Agreement is conditional upon (a) the approval by the Independent Shareholders by way of poll at the EGM; (b) the grant by the Executive of its consent to the Loan Capitalisation as a special deal under Rule 25 of the Takeovers Code, and not having withdrawn or revoked such grant, and the fulfilment of all conditions, if any, attached to it; (c) the Open Offer having been completed in accordance with its terms; (d) the Listing Committee of the Stock Exchange agreeing to grant the listing of, and permission to deal in, the Loan Capitalisation Shares (and such permission and listing not subsequently being revoked prior to the delivery of definitive share certificate(s) representing the Loan Capitalisation Shares); and (e) the Public Float Requirement not being breached at any time.

9.3 Principal terms of the Facility Term Extension Agreement

On 14 April 2017, the Company, HKCTV and Wharf Finance also entered into the Facility Term Extension Agreement, pursuant to which Wharf Finance has agreed to revise the terms of the Wharf Facility as follows:

(a) with effect from the completion of the Open Offer: (1) the term of the Wharf Facility shall be revised from ‘‘1-year from 1 January 2017 to 31 December 2017’’ to ‘‘3-years from 1 January 2017 to 31 December 2019’’; and (ii) the Final Maturity as defined in the Wharf Facility shall be revised from ‘‘31 December 2017’’ to ‘‘31 December 2019’’; and

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(b) with effect from the completion date of the Loan Capitalisation Agreement, the principal loan amount under the Wharf Facility shall be revised from a ‘‘Revolving Loan of HKD400,000,000’’ to ‘‘Revolving Loan of ’’
HKD100,000,000 .

Completion of the Facility Term Extension Agreement is conditional upon (a) the approval by the Independent Shareholder by way of poll at the EGM; (b) the grant by the Executive of its consent to the Facility Term Extension as a special deal under Rule 25 of the Takeovers Code, and not having withdrawn or revoked such grant, and the fulfilment of all conditions, if any, attached to it; and (c) the Open Offer having been completed in accordance with its terms.

Wharf is an indirect controlling shareholder of the Company. The Loan Capitalisation and the Facility Term Extension are arrangements with the Wharf Group which could not be extended to all other Shareholders given that the Group did not enter into any lending arrangement with any other Shareholders. As such, the Loan Capitalisation and the Facility Term Extension shall constitute special deals under Rule 25 of the Takeovers Code and connected transactions (for so long as Wharf is a connected person of the Company) under Chapter 14A of the Listing Rules, and require the consent of the Executive and the approval by the Independent Shareholders on a vote taken by way of poll at the EGM.

9.4 Reasons for and benefits of the Loan Capitalisation and the Facility Term Extension

As at 31 December 2016, the Group had a net current liabilities position of approximately HK$891.8 million with bank deposits and cash of approximately HK$105.8 million and short-term interest-bearing borrowings of approximately HK$590.0 million. The Loan Capitalisation would provide the Group with HK$300 million new equity capital, and allow the Group to ease its debt burden and improve the financial position immediately.

Given the Wharf Facility will be due for repayment by 31 December 2017, the Facility Term Extension serves to extend the maturity of the Wharf Facility for an additional two years and therefore, (i) relieve the Group’s current liquidity pressure in the short run; and (ii) improves the indebtedness of the Group to increase its chance to secure new borrowings at better terms to support its business development and meet the Company’s cash flow needs.

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Considering that (i) the issue price of approximately HK$0.3563 per Loan Capitalisation Share is approximate to the theoretical ex-entitlement Share price of HK$0.36, which is calculated based on the Last Closing Price, the Offer Price and the basis of entitlement of the Open Offer; and (ii) the Loan Capitalisation and the Facility Term Extension can relieve the Group’s current liquidity pressure and strengthen its capital base as well as to support its business development and future cash flow needs, we are of the view that the terms of the Loan Capitalisation Agreement and Facility Term Extension Agreement are fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole.

10. Property Agreements

10.1 Background information of the Property Agreement

As stated in the Letter from the Board, currently the Group are leasing and licensing the Relevant Properties from members of the Wharf Group or is associated companies. Due to the possible change of control of the Company as a result of the Open Offer, the Board has identified the key premises among the Relevant Properties (namely the Relevant Properties (7) (except (e)), (10) and (11)) which the Board considers, from the operational stability perspective, is beneficial to the Group to have renewal options in place.

As a term of the Undertaking, Wharf has procured the relevant member(s)/ associated companies of the Wharf Group to enter into the new formal lease agreements in respect of the Relevant Key Properties according to which the Group has been granted with options to renew the leases/licences to use the Relevant Key Properties according to the terms of the Property Agreements. The parties’ rights and obligations under the Property Agreements are conditional upon the completion of the Open Offer in accordance with the terms of the Underwriting Agreement.

10.2 Key terms of the Property Agreements

The relevant parties (as described in the tables below) have entered into the Property Agreements on 14 April 2017, in respect of the Relevant Key Properties.

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Relevant Properties (7)(a), (7)(b), 5/F of 7(c) and 7(d)

Relevant Properties (7)(a) - Factory Unit 3 on ground floor, Cable TV Tower, 9 Hoi Shing Road, Tsuen Wan

(7)(b) - Factory Units 1,2 & 4 on ground floor, Cable TV Tower, 9 Hoi Shing Road, Tsuen Wan

5/F of (7)(c) - Floor 5, Cable TV Tower, 9 Hoi Shing Road, Tsuen Wan

(7)(d) - Portion of 12/F, Cable TV Tower, 9 Hoi Shing Road, Tsuen Wan

Parties

(1) New Tech Centre Limited (a wholly-owned subsidiary of Wharf)
(2) Cable Network Communications Limited (a wholly-owned subsidiary of the Company)

Term

1 January 2018 to 31 December 2020 with two options to renew, each for a three-year term, exercisable at the option of Cable Network Communications Limited no less than six months before commencement of their respective three-year term.

If the first option to renew is not exercised at its relevant exercise time, the second option to renew will automatically lapse.

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Monthly Rent

1 January 2018 to 31 December 2020:

The monthly rent under the existing tenancy agreement as set out below which is calculated with reference to the total gross floor area, represents a unit rent of HK$8 per sq.ft.

Relevant Property (7)(a): HK$130,792 Relevant Property (7)(b): HK$320,112 Relevant Property (7)(c) (5/F only): HK$306,024 Relevant Property (7)(d): HK$140,048

1 January 2021 to 31 December 2023:

Based on the prevailing open market rent to be mutually agreed between the parties

1 January 2024 to 31 December 2026:

Early termination

Early termination notice(s) could only be served by Cable Network Communications Limited on or before 31 December 2020 (‘‘Specified Period’’).

Early termination could be effected by the service of a six months advanced written notice by Cable Network Communications Limited within the Specified Period.

Partial termination will only be acceptable if (i) for G/F to 11/F of Cable TV Tower, the premises surrendered is a whole multiple of an entire floor; (ii) for the other floors of Cable TV Tower, the premises surrendered may be a half floor or an entire floor.

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Relevant Properties(7)(c) (excluding 5/F), (7)(f) and (7)(g)

Relevant Properties (7)(c) - Floor 4, 6-8, 10-11 Cable TV Tower, 9 Hoi Shing Road, Tsuen Wan
(7)(f) - Unit 4001 – 4007, 40/F Cable TV Tower, 9 Hoi Shing Road, Tsuen Wan

(7)(g) - Store room 3 on top roof, Cable TV Tower, 9 Hoi Shing Road, Tsuen Wan

Parties

(1) New Tech Centre Limited (a wholly-owned subsidiary of Wharf)
(2) Cable Network Communications Limited (a wholly-owned subsidiary of the Company)

Term

1 January 2018 to 31 December 2020 with two options to renew, each for a three-year term, exercisable at the option of Cable Network Communications Limited no less than six months before commencement of their respective three-year term.

If the first option to renew is not exercised at its relevant exercise time, the second option to renew will automatically lapse.

Monthly Rent

1 January 2018 to 31 December 2018:

The monthly rent under the existing tenancy agreement as set out below which is calculated with reference to the total gross floor area, represents a unit rent of HK$8 per sq.ft.

Relevant Property (7)(c) (excluding 5/F): HK$1,836,144 Relevant Property (7)(f): HK$297,056 Relevant Property (7)(g): HK$4,160

1 January 2019 to 31 December 2020:

Based on prevailing open market rent to be mutually agreed between the parties.

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1 January 2021 to 31 December 2023:

1 January 2024 to 31 December 2026:

Early termination

Early termination notice(s) could only be served by Cable Network Communications Limited on or before 31 December 2020.

Early termination could be effected by the service of a six months advanced written notice from Cable Network Communications Limited within the Specified Period.

Partial termination will only be acceptable if (i) for G/F to 11/F of Cable TV Tower, the premises surrendered is a whole multiple of an entire floor; (ii) for the other floors of Cable TV Tower, the premises surrendered may be a half floor or an entire floor.

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LETTER FROM LEGO

Relevant Property (10)

Relevant Property

(10) - Lorry Space L1, L2 & L3 – L16 on 3/F, Cable TV Tower, 9 Hoi Shing Road, Tsuen Wan

Parties

(1) New Tech Centre Limited (a wholly-owned subsidiary of Wharf)
(2) Cable Network Communications Limited (a wholly-owned subsidiary of the Company)

Term

1 August 2019 to 31 December 2026 and automatically renewed on a monthly basis unless terminated by one month’s advanced written notice by either party.

The license fee payable by the licensee shall be adjusted in proportion to the adjusted car parking space in accordance with the abovementioned term.

– 127 –

LETTER FROM LEGO

Relevant Property (11)

Relevant Property
(11) - Parking Space P54-P64, P67-P75, P77-P93 and P94-P96 on 3/F, Cable TV Tower, 9 Hoi Shing Road, Tsuen Wan
Parties (1) New Tech Centre Limited (a wholly-owned subsidiary of Wharf)
(2) Cable Network Communications Limited (a wholly-owned subsidiary of the Company)
Term 1 August 2019 to 31 December 2026 and automatically renewed on a monthly basis unless terminated by one month’s advanced written notice by either party.
Monthly License Fee HK$126,170 (subject to the discretion of New Tech Centre Limited to adjust such license fee), subject to any adjustment made in proportion of aggregate gross floor area of unit or units (excluding any carpark) in the said premises occupied by the licensee.

The license fee payable by the licensee shall be adjusted in proportion to the adjusted car parking space in accordance with the abovementioned term.

– 128 –

LETTER FROM LEGO

10.3 Reasons for and benefits of the Property Agreements

As stated in the Letter from the Board, the Directors considered that the Relevant Key Properties are material operation premises and supporting facilities necessary or critical for the business operation of the Group. As advised by the Directors, currently, the Relevant Properties 7(a), 7(b), 7(c), 7(d), 7(f) and 7(g) are used by the Group as office, warehouse, production and broadcasting and network operations centres, and the Relevant Properties 10 and 11 are used by the Group as car parks. The Directors considered that the entering into of the Property Agreements secures the premises for the continuation of the Group’s business and allows the Group to extend the leases on favourable terms according to the provisions of the Property Agreements.

We have reviewed the opinion letter (the ‘‘Letter’’) dated 12 May 2017 prepared by Knight Frank Petty Limited (the ‘‘Valuer’’), an independent firm engaged by the Group and have among their staff as fellow members of the Hong Kong Institute of Surveyors. The Letter is prepared to comment on the salient terms of the Property Agreements. The Valuer was of the view that the proposed rents and licence fees under the Property Agreements are at current market levels and the other major terms of the Property Agreements, such as the tenures and deposits are on normal commercial terms under the prevailing market condition and are considered fair and reasonable.

In formulating our opinion and advice, we have relied on the information and opinion provided by the Valuer. Although we have not performed any independent research on the available rental market on properties similar to the nature of the Relevant Key Properties, we have conducted interview with the Valuer to understand their independence and experience as well as the basis and assumptions of their work done to issue the Letter. We have been advised by the Valuer that they have adopted the direct comparison approach by making reference to comparable market rents in reviewing the market rents of the tenancies of the Relevant Key Properties. In the course of reviewing the rental/licence fee and the terms of the Relevant Key Properties, the Valuer has assumed that the documents, including the area of the Relevant Key Properties as provided by the Company are correct and the Relevant Key Properties were free from encumbrances, restrictions, title defects and outgoings of an onerous nature that may affect their respective rental value. The Valuer has also assumed that the comparable properties have been let subject to the usual terms and conditions unless otherwise stated, as well as there will be no material change in the macro environment during the future rental/licence period. We are of the view that it is fair and reasonable for the Valuer to (i) make the above-mentioned assumptions when conducting their work and forming their opinion; and (ii) arrive the opinion in the Letter by comparing the Relevant Key Properties with the prevailing market rents of comparable properties.

– 129 –

LETTER FROM LEGO

For our due diligence purpose, we have reviewed and/or enquired with the Valuer into (i) the terms of engagement of the Valuer with the Company in respect of the Letter; (ii) the Valuer’s qualification and experience in relation to the preparation of the Letter; and (iii) the steps and due diligence measures taken by the Valuer for preparation of the Letter. From the engagement letter and other relevant information provided by the Valuer and based on our interview with them, we are satisfied with the terms of engagement of the Valuer as well as its qualification and experience for preparation of the Letter. The Valuer has also confirmed that it is independent to the Company, Wharf, the Underwriter and the Underwriter Guarantors.

Considering that (i) the Group has been granted with options but not obligations to renew the leases/licences to use the Relevant Key Properties according to the terms of the Property Agreements; and (ii) the proposed rents and licence fees under the Property Agreements are at current market levels and the other major terms of the proposed leases/licences are on normal commercial terms under the prevailing market condition according to the Valuer’s opinion report, we are of the view that the terms of the Property Agreements are fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole.

11. Financial effects of the Open Offer, the Loan Capitalisation and the Facility Term Extension

11.1 Net tangible assets

According to the section headed ‘‘Unaudited pro forma financial information of the Group’’ set out in Appendix II to the Circular, the consolidated net tangible assets of the Group attributable to Shareholders as at 31 December 2016 was approximately HK$334.0 million. Based on the estimated net proceeds to be raised from the Open Offer in the amount of approximately HK$669.0 million and the Loan Capitalisation in the amount of HK$300.0 million, the unaudited pro forma adjusted consolidated net tangible assets of the Group attributable to Shareholders upon completion of the Open Offer and the Loan Capitalisation would amount to approximately HK$1,303.0 million. The unaudited adjusted consolidated net tangible assets per Share would increase from approximately HK$0.17 as at 31 December 2016 (based on 2,011,512,400 Shares in issue as at 31 December 2016) to approximately HK$0.21 (based on 6,206,020,156 Shares in issue) upon completion of the Open Offer and the Loan Capitalisation. Accordingly, the Open Offer and the Loan Capitalisation are expected to increase the net tangible asset value of the Group.

– 130 –

LETTER FROM LEGO

11.2 Liquidity

According to the 2016 Annual Report, the bank deposits and cash of the Group as at 31 December 2016 were approximately HK$105.8 million. The Group had current assets of approximately HK$210.4 million and current liabilities of approximately HK$1,102.2 million, representing a current ratio of approximately 19.1%, as at 31 December 2016. Immediately upon completion of the Open Offer, the Loan Capitalisation and the Facility Term Extension, the bank deposits and cash of the Group is expected to increase by an amount equivalent to the estimated net proceeds of the Open Offer while the current liabilities of the Group is expected to decrease due to the Loan Capitalisation and the Facility Term Extension. As such, the current ratio of the Group will be improved, thereby enhancing the liquidity of the Group.

11.3 Gearing ratio

Based on the 2016 Annual Report, as at 31 December 2016, the current ratio (being current assets divided by current liabilities) and gearing ratio (being interest bearing borrowings less bank deposits and cash and divided by total equity) of the Group were approximately 19.1% and 95.8%, respectively. Upon completion of the Open Offer and the Loan Capitalisation, the capital base of the Group would be enlarged whereas interest bearing borrowings of the Group is expected to decrease due to the Loan Capitalisation. As a result, the current ratio of the Group is expected to increase from approximately 19.1% to approximately 109.6%, and the Group is expected to have an improvement in gearing ratio from approximately 95.8% to net cash position.

Shareholders should note that the aforesaid analyses are for illustrative purpose only and do not purport to represent the financial position of the Group upon completion of the Open Offer, the Loan Capitalisation and the Facility Term Extension.

– 131 –

LETTER FROM LEGO

RECOMMENDATION

In respect of the Open Offer, the Whitewash Waiver and the Special Deals, based on the abovementioned principal factors and reasons for and benefits of the Open Offer, the Whitewash Waiver and the Special Deals, we are of the view that, the Open Offer, the Whitewash Waiver and the Special Deals are on normal commercial terms, fair and reasonable so far as the Independent Shareholders are concerned, and are in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders, as well as the Independent Board Committee to advise the Independent Shareholders, to vote in favour of the relevant resolutions to be proposed at the EGM to approve the Open Offer, the Whitewash Waiver and the Special Deals.

Yours faithfully, For and on behalf of Lego Corporate Finance Limited

Kristie Ho Anthony Fong Managing Director Executive Director

Ms. Kristie Ho is a licensed person registered with the Securities and Futures Commission and a responsible officer of Lego Corporate Finance Limited to carry out Type 6 (advising on corporate finance) regulated activity under the Securities and Futures Ordinance (Chapter 571 of the laws of Hong Kong). She has over 12 years of experience in the finance and investment banking industry.

Mr. Anthony Fong is a licensed person registered with the Securities and Futures Commission and a responsible officer of Lego Corporate Finance Limited to carry out Type 6 (advising on corporate finance) regulated activity under the Securities and Futures Ordinance (Chapter 571 of the laws of Hong Kong). He has over 11 years of experience in the finance and investment banking industry.

– 132 –

FINANCIAL INFORMATION

APPENDIX I

1. THREE YEARS FINANCIAL SUMMARY

Set out below is a summary of the consolidated financial results and assets and liabilities of the Company and its subsidiaries for the years ended 31 December 2014, 2015 and 2016, as extracted from the 2014, 2015 and 2016 annual reports of the Company respectively.

Results
Revenue
Operating expenses
Loss from operations
Interest income
Finance costs, net
Non-operating expenses
Loss before taxation
Income tax
Loss for the year
Attributable to:
Equity shareholders of the Company
Loss per share
– Basic
– Diluted
Dividend per share
Assets and Liabilities
Property, plant and equipment
Programming library
Intangible assets
Interest in associate
Deferred tax assets
Other non-current assets
Current assets
Total assets

For the year ended 31 December
2014
2015
2016
HK$ Million
HK$ Million
HK$ Million
1,666
1,510
1,406
(1,804)
(1,752)
(1,718)
(138)
(242)
(312)
–
–
–
(1)
(3)
(5)
–
(1)
(1)
(139)
(246)
(318)
–
13
5
(139)
(233)
(313)
(139)
(233)
(313)
(6.9) cents
(11.6) cents
(15.5) cents
(6.9) cents
(11.6) cents
(15.5) cents
–
–
–
893
874
894
168
156
169
4
4
2
–
–
–
303
309
306
58
63
43
243
193
211
1,669
1,599
1,625

I – 1

APPENDIX I

FINANCIAL INFORMATION

Current liabilities Deferred tax liabilities Other non-current liabilities Total liabilities Share capital and other statutory capital reserves Other reserves Total equity attributable to equity shareholders of the Company Total liabilities and equity	For the year ended 31 December 2014 2015 2016 HK$ Million HK$ Million HK$ Million 582 754 1,102 25 17 9 9 9 9 616 780 1,120 6,858 6,858 6,858 (5,805) (6,039) (6,353) 1,053 819 505 1,669 1,599 1,625

I – 2

FINANCIAL INFORMATION

APPENDIX I

The full text of the Company’s financial statements are contained in the Company’s annual reports, which can be accessed on the websites of the Company (www.i-cablecomm.com) and the Stock Exchange (http://www.hkexnews.hk). The hyperlinks to the documents are set out below:

2014 annual report published on 1 April 2015:

http://www.hkexnews.hk/listedco/listconews/SEHK/2015/0401/LTN20150401857.pdf

2015 annual report published on 22 March 2016:

http://www.hkexnews.hk/listedco/listconews/SEHK/2016/0322/LTN20160322178.pdf

2016 annual report published on 22 March 2017: http://www.hkexnews.hk/listedco/listconews/SEHK/2017/0322/LTN20170322225.pdf

The consolidated financial statements of the Company for the three years ended 31 December 2014, 2015 and 2016 were audited by KPMG, the independent auditors of the Company. There is no qualification in the auditors’ report in respect of the consolidated financial statements for each of the three years ended 31 December 2014, 2015 and 2016. The auditor’s report dated 15 March 2017 issued by KPMG in respect of the consolidated financial statements of the Company for the year ended 31 December 2016 (‘‘FY2016 Financial Statements’’) included a section headed ‘‘Material Uncertainty Related to Going Concern’’ to draw attention to certain events disclosed in note 1(b) to the FY2016 Financial Statements (which is extracted from the Company’s annual report for the year ended 31 December 2016 and reproduced under the paragraph headed ‘‘2. Audited Consolidated Financial Statements for the year ended 31 December 2016’’ in this appendix) which indicated a material uncertainty existed that may cast significant doubt on the Group’s ability to continue as a going concern. KPMG’s audit opinion in respect of the FY2016 Financial Statements was neither qualified nor modified in respect of this matter.

The Group did not have any items which are exceptional because of size, nature or incidence for each of the three financial years ended 31 December 2014, 2015 and 2016 in its financial statements for those periods.

I – 3

FINANCIAL INFORMATION

APPENDIX I

2. AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016

Set out below is an extract of the audited consolidated financial statements of the Company for the year ended 31 December 2016 together with the accompanying notes from the annual report of the Company for the year ended 31 December 2016.

The financial information contained in this circular does not constitute the Company’s statutory annual consolidated financial statements for the year ended 31 December 2016 but is derived from those financial statements set out in the Company’s annual report for the year ended 31 December 2016.

The Company has delivered the financial statements for the years ended 31 December 2015 and 31 December 2016 to the Registrar of Companies as required by section 662(3) of, and Part 3 of Schedule 6 to, the Companies Ordinance (Chapter 622 of the Laws of Hong Kong). The Company’s auditor has reported on these financial statements for both years. The auditor’s reports were unqualified; did not include a reference to any matters to which the auditor drew attention by way of emphasis; and did not contain a statement under either sections 406(2), 407(2) or (3) of the Companies Ordinance (Chapter 622 of the Laws of Hong Kong), except that the auditor’s report dated 15 March 2017 issued by KPMG in respect of the consolidated financial statements of the Company for the year ended 31 December 2016 (‘‘FY2016 Financial Statements’’) included a section headed ‘‘Material Uncertainty Related to Going Concern’’ to draw attention to certain events disclosed in note 1(b) to the FY2016 Financial Statements. Such section is extracted from the Company’s annual report for the year ended 31 December 2016 and reproduced under the paragraph headed ‘‘2. Audited Consolidated Financial Statements for the year ended 31 December 2016’’ in this appendix which indicated a material uncertainty existed that may cast significant doubt on the Group’s ability to continue as a going concern.

I – 4

FINANCIAL INFORMATION

APPENDIX I

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

For the year ended December 31, 2016

Note Revenue 3,4 Programming costs Network expenses Selling, general and administrative and other operating expenses Cost of sales Loss from operations before depreciation Depreciation 5 Loss from operations 4 Interest income 5 Finance costs, net 5 Non-operating expenses 5 Loss before taxation 5 Income tax 6(a) Loss for the year Attributable to: Equity shareholders of the Company Loss per share 9 Basic Diluted	2016 HK$’000 1,406,368 (869,949) (209,392) (339,869) (84,697) (97,539) (214,324) (311,863) 40 (5,489) (556) (317,868) 5,078 (312,790) (312,790) (15.5) cents (15.5) cents	2015 HK$’000 1,509,678 (900,761) (200,970) (342,452) (84,760) (19,265) (223,007) (242,272) 5 (2,998) (1,373) (246,638) 13,540 (233,098) (233,098) (11.6) cents (11.6) cents

I – 5

FINANCIAL INFORMATION

APPENDIX I

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For the year ended December 31, 2016

2016 2015 HK$’000 HK$’000 Loss for the year (312,790) (233,098)

Other comprehensive income for the year (after reclassification adjustment) Item that may be reclassified subsequently to profit or loss: Exchange differences on translation of financial statements of overseas subsidiaries (785) (461) Total comprehensive income for the year (313,575) (233,559)

Total comprehensive income for the year Attributable to: Equity shareholders of the Company

(313,575) (233,559)

I – 6

FINANCIAL INFORMATION

APPENDIX I

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At December 31, 2016

Note Non-current assets Property, plant and equipment 10 Programming library 11 Intangible assets 12 Interest in associate 13 Deferred tax assets 26(b) Other non-current assets 14 Current assets Inventories 16 Accounts receivable from trade debtors 17 Deposits, prepayments and other receivables 17 Amounts due from fellow subsidiaries 18 Bank deposits and cash 19 Current liabilities Amounts due to trade creditors 20 Accrued expenses and other payables 20 Receipts in advance and customers’ deposits 20 Interest bearing borrowings 21 Current taxation 26(a) Amounts due to fellow subsidiaries 22 Amount due to immediate holding company 23 Net current liabilities Total assets less current liabilities	2016 HK$’000 894,039 169,307 2,062 – 306,467 43,254 1,415,129 18,076 51,385 34,926 204 105,814 210,405 59,135 239,758 183,821 590,000 113 26,129 3,229 1,102,185 (891,780) 523,349	2015 HK$’000 873,803 156,531 3,767 – 308,884 62,588 1,405,573 14,891 68,096 28,060 79 82,427 193,553 33,138 214,532 170,392 300,000 150 34,308 1,614 754,134 (560,581) 844,992

I – 7

FINANCIAL INFORMATION

APPENDIX I

Note Non-current liabilities Deferred tax liabilities 26(b) Other non-current liabilities 24 NET ASSETS CAPITAL AND RESERVES 25 Share capital Reserves TOTAL EQUITY	2016 HK$’000 9,210 8,741 17,951 505,398 6,857,599 (6,352,201) 505,398	2015 HK$’000 17,247 8,772 26,019 818,973 6,857,599 (6,038,626) 818,973

I – 8

FINANCIAL INFORMATION

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended December 31, 2016

Note Balance at January 1, 2015 Changes in equity for 2015: Loss for the year Other comprehensive income Total comprehensive income Transfer to special capital reserve 25(d)(i) Balance at December 31, 2015 and January 1, 2016 Changes in equity for 2016: Loss for the year Other comprehensive income Total comprehensive income Transfer to special capital reserve 25(d)(i) Balance at December 31, 2016	Attributable to equity shareholders of the Company Share capital Special capital reserve Exchange reserve Revenue reserve Total reserves Total equity HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 6,857,599 13,984 4,104 (5,823,155) (5,805,067) 1,052,532 – – – (233,098) (233,098) (233,098) – – (461) – (461) (461) – – (461) (233,098) (233,559) (233,559) – 1 – (1) – – 6,857,599 13,985 3,643 (6,056,254) (6,038,626) 818,973 – – – (312,790) (312,790) (312,790) – – (785) – (785) (785) – – (785) (312,790) (313,575) (313,575) – – – – – – 6,857,599 13,985 2,858 (6,369,044) (6,352,201) 505,398	Attributable to equity shareholders of the Company Share capital Special capital reserve Exchange reserve Revenue reserve Total reserves Total equity HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 6,857,599 13,984 4,104 (5,823,155) (5,805,067) 1,052,532 – – – (233,098) (233,098) (233,098) – – (461) – (461) (461) – – (461) (233,098) (233,559) (233,559) – 1 – (1) – – 6,857,599 13,985 3,643 (6,056,254) (6,038,626) 818,973 – – – (312,790) (312,790) (312,790) – – (785) – (785) (785) – – (785) (312,790) (313,575) (313,575) – – – – – – 6,857,599 13,985 2,858 (6,369,044) (6,352,201) 505,398
		(233,559)
		–
		818,973 (312,790) (785)
		(313,575)
		–
		505,398

I – 9

FINANCIAL INFORMATION

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT

For the year ended December 31, 2016

Note Operating activities Loss before taxation Adjustments for: Finance costs, net Interest income Depreciation Amortisation of programming library Impairment losses on programming library Impairment losses on property, plant and equipment Net loss on disposal of property, plant and equipment Operating profit before changes in working capital (Increase)/decrease in inventories Decrease in accounts receivable from trade debtors Decrease in deposits, prepayments and other receivables Decrease in amounts due from fellow subsidiaries Increase/(decrease) in amounts due to trade creditors Increase/(decrease) in accrued expenses and other payables Increase in receipts in advance and customers’ deposits Decrease in amounts due to fellow subsidiaries Net change in amount due to immediate holding company Cash generated from operations Interest received Overseas tax paid Net cash generated from operating activities	2016 HK$’000 (317,868) 5,489 (40) 214,324 109,579 209 892 556 13,141 (3,035) 17,596 6,137 711 24,693 19,537 12,516 (8,180) 1,614 84,730 14 (571) 84,173	2015 HK$’000 (246,638) 2,998 (5) 223,007 123,540 4,117 867 1,373 109,259 3,682 9,397 47,880 1,259 (37,413) (5,649) 12,226 (3,813) 678 137,506 5 (701) 136,810

I – 10

APPENDIX I

FINANCIAL INFORMATION

Note Investing activities Purchase of property, plant and equipment Additions to programming library Proceeds from disposal of club debenture Proceeds from disposal of property, plant and equipment Placement of security deposits with bank Net cash used in investing activities Financing activities Drawdown of interest bearing borrowings Net cash generated from financing activities Net increase in cash and cash equivalents Effect of foreign exchange rates changes Cash and cash equivalents at January 1 Cash and cash equivalents at December 31 19	2016 HK$’000 (233,646) (119,421) 1,705 680 (20,000) (370,682) 290,000 290,000 3,491 (104) 82,427 85,814	2015 HK$’000 (196,954) (120,064) – 340 – (316,678) 200,000 200,000 20,132 (87) 62,382 82,427

I – 11

FINANCIAL INFORMATION

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS

1. Significant Accounting Policies

(a) Statement of compliance

These financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (‘‘HKFRSs’’), which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (‘‘HKASs’’) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (‘‘HKICPA’’), accounting principles generally accepted in Hong Kong and the requirements of the CO. These financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. A summary of the significant accounting policies adopted by the Group is set out below.

The HKICPA has issued certain new and revised HKFRSs that are first effective or available for early adoption for the current accounting period of the Group. Note 2 provides information on any changes in accounting policies resulting from initial application of these developments to the extent that they are relevant to the Group for the current and prior accounting periods reflected in these financial statements.

(b) Basis of preparation of the financial statements

The consolidated financial statements for the year ended December 31, 2016, comprise the Company and its subsidiaries (together referred to as the ‘‘Group’’) and the Group’s interest in an associate. The measurement basis used in the preparation of the financial statements is the historical cost basis.

During the year ended December 31, 2016, the Group incurred a net loss of HK$313 million (2015: HK$233 million) and, as of that date, the Group had net current liabilities of HK$892 million (2015: HK$561 million).

The directors of the Company have taken steps to improve the Group’s liquidity and solvency position. Based on management estimation of the future cash flows of the Group, after taking into account (i) cash balance of HK$106 million and continuous net cash inflows from operating activities; and (ii) the banking facility of HK$400 million and a revolving loan facility of HK$400 million given by Wharf Finance Limited, a fellow subsidiary, of which a total of HK$590 million had been utilised at the end of the reporting period, the directors were of the opinion at the time of the Board’s approval and announcement of the Group’s preliminary 2016 results on February 23, 2017 that the Group would have sufficient working capital to finance its operations and remain as a going concern for the foreseeable future.

I – 12

FINANCIAL INFORMATION

APPENDIX I

Subsequent to the Board’s approval and announcement of the Group’s preliminary 2016 results on February 23, 2017 and as described in the announcement issued by the Company on March 9, 2017, the Company received a notice from The Wharf (Holdings) Limited (‘‘Wharf’’) on March 9, 2017, the intermediate holding company and controlling shareholder of the Company, indicating that the board of Wharf had resolved:

(i) not to provide any further funding commitments to any of the Company and its subsidiaries for its business operations, other than the current funding commitments (which include the existing facility by Wharf Finance Limited of up to HK$400 million pursuant to the facility agreement dated December 12, 2016);
(ii) not to renew any of the current funding commitments when they expire; and
(iii) Wharf has no intention to increase its shareholding interest in the Company.

This subsequent event casts doubt on the Company’s ability to continue as a going concern, and therefore the Company’s ability to realise its assets and discharge its liabilities in the ordinary course of business for the foreseeable future has become materially uncertain.

In the light of the above, the Company has subsequently formed an executive committee and engaged professional external advisors to explore alternative sources of funding and/or advise on any business reorganisation and the continuance, directions and/or discontinuance of the Group’s business operations. As the Company is continuing to explore alternative sources of funding and other options open to the Company, the financial statements continue to be prepared on a going concern basis in accordance with Hong Kong Accounting Standard 1, Presentation of Financial Statements.

If in the future the Company ceases to be a going concern or the going concern assumption is no longer appropriate, adjustments may have to be made to the consolidated financial statements to reflect the situation that assets may need to be realised at amounts other than those at which they are currently recorded in the consolidated statement of financial position. In addition, the Group may have to provide for further liabilities that may arise, and to reclassify non-current assets and non-current liabilities as current assets and current liabilities respectively.

I – 13

FINANCIAL INFORMATION

APPENDIX I

The preparation of financial statements in conformity with HKFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Judgements made by management in the application of HKFRSs that have significant effect on the financial statements and major sources of estimation uncertainty are discussed in Note 33.

(c) Subsidiaries

Subsidiaries are entities (including consolidated structured entities) controlled by the Group. The Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. When assessing whether the Group has power, only substantive rights (held by the Group and other parties) are considered.

An investment in a subsidiary is consolidated into the consolidated financial statements from the date that control commences until the date that control ceases. Intra-group balances, transactions and cash flows and any unrealised profits arising from intra-group transactions are eliminated in full in preparing the consolidated financial statements. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment.

Changes in the Group’s interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions, whereby adjustments are made to the amounts of controlling and non-controlling interests within consolidated equity to reflect the change in relative interests, but no gain or loss is recognised.

I – 14

FINANCIAL INFORMATION

APPENDIX I

When the Group loses control of a subsidiary, it is accounted for as a disposal of the entire interest in that subsidiary, with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former subsidiary at the date when control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset or, when appropriate, the cost on initial recognition of an investment in an associate (see Note 1(d)).

In the Company’s statement of financial position, an investment in a subsidiary is stated at cost less impairment losses (see Note 1(q)(ii)).

(d) Associates

An associate is an entity in which the Group or Company has significant influence, but not control or joint control, over its management, including participation in the financial and operating policy decisions.

An investment in an associate is accounted for in the consolidated financial statements under the equity method and is initially recorded at cost, adjusted for any excess of the Group’s share of the acquisition-date fair values of the investee’s identifiable net assets over the cost of the investment (if any). Thereafter, the investment is adjusted for the post acquisition change in the Group’s share of the investee’s net assets and any impairment loss relating to the investment (see Note 1(q)(ii)). Any acquisition-date excess over cost, the Group’s share of the postacquisition, post-tax results of the investees and any impairment losses for the year are recognised in the consolidated statement of profit or loss, whereas the Group’s share of the post-acquisition post-tax items of the investees’ other comprehensive income is recognised in the consolidated statement of profit or loss and other comprehensive income.

When the Group’s share of losses exceeds its interest in the associate, the Group’s interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the investee. For this purpose, the Group’s interest is the carrying amount of the investment under the equity method together with the Group’s long-term interests that in substance form part of the Group’s net investment in the associate.

Unrealised profits and losses resulting from transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the investee, except where unrealised losses provide evidence of an impairment of the asset transferred, in which case they are recognised immediately in profit or loss.

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When the Group ceases to have significant influence over an associate, it is accounted for as a disposal of the entire interest in that investee, with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former investee at the date when significant influence is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset.

In the Company’s statement of financial position, investment in an associate is stated at cost less impairment losses (see Note 1(q)(ii)).

(e) Property, plant and equipment and depreciation

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses (see Note 1(q)(ii)). The cost of self-constructed items of property, plant and equipment includes the cost of materials, labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, and an appropriate proportion of production overheads and borrowing costs (see Note 1(m)).

Gains or losses arising from the retirement or disposal of an item of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised in profit or loss on the date of retirement or disposal.

Depreciation is calculated to write off the cost or valuation of items of property, plant and equipment, less their estimated residual value, if any, using the straight line method over their estimated useful lives as follows:

Network, decoders, cable modems and	5% to 25%
television production systems
Furniture, fixtures, other equipment	10% to 33.33%
and motor vehicles
Buildings situated on leasehold land*	Higher of 2.5% or percentage to
	amortise the asset cost over the
	unexpired term of land leases
Leasehold improvements	8.33%

Where parts of an item of property, plant and equipment have different useful lives, the cost of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset and its residual value, if any, are reviewed annually.

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Under certain circumstances, the Group may have an obligation to dismantle part of its network upon request by concerned parties. Owing to the absence of such history, no reliable estimate can be reasonably made in respect of such potential obligation.

This represents units in industrial and commercial buildings which the Directors consider impracticable to split the cost into land and buildings.

(f) Leased assets

An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Group determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease.

(i) Classification of assets leased to the Group

Assets that are held by the Group under leases which transfer to the Group substantially all the risks and rewards of ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the Group are classified as operating leases.

(ii) Assets acquired under finance leases

Where the Group acquires the use of assets under finance leases, the amounts representing the fair value of the leased asset, or, if lower, the present value of the minimum lease payments, of such assets are recognised as property, plant and equipment and the corresponding liabilities, net of finance charges, are recorded as obligations under finance leases. Depreciation is provided at rates which write off the cost or valuation of the assets over the term of the relevant lease or, where it is likely the Group will obtain ownership of the asset, the life of the asset, as set out in Note 1(e). Impairment losses are accounted for in accordance with the accounting policy as set out in Note 1(q)(ii). Finance charges implicit in the lease payments are charged to profit or loss over the period of the leases so as to produce an approximately constant periodic rate of charge on the remaining balance of the obligations for each accounting period. Contingent rentals are charged to profit or loss in the accounting period in which they are incurred.

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(iii) Operating lease charges

Where the Group has the use of assets held under operating leases, payments made under the leases are charged to profit or loss in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognised in profit or loss as an integral part of the aggregate net lease payments made. Contingent rentals are charged to profit or loss in the accounting period in which they are incurred.

(g) Programming costs

(i) Programming library

Programming library consists of presentation rights for commissioned programmes and acquired programmes for showing on the Group’s television channels, and commissioned programmes and films for licensing purposes.

Presentation rights are stated in the statement of financial position at cost less accumulated amortisation (where the estimated useful life is other than indefinite) and impairment losses (see Note 1(q)(ii)). Amortisation is charged to profit or loss on an accelerated basis over the licence period or over the estimated number of future showings. Subsequent expenditure on programmes after initial acquisition is recognised as an expense when incurred.

Commissioned programmes and films for licensing purposes comprise direct production costs and production overheads, and are stated at the lower of amortised cost or net realisable value. Costs are amortised on an individual programme/film basis in the ratio of the current year’s gross revenues to management’s forecast of the total ultimate gross revenues from all sources.

(ii) Live programmes

Live programmes consist of third party feed programmes and are charged to profit or loss upon telecast of the programmes. Payments made in advance or in arrears of programme cost recognition are recorded as prepayments or accruals, as appropriate.

(iii) In-house developed programmes

In-house developed programmes consist primarily of news, documentary and general entertainment programmes with short lead-time from production to telecast. The costs of in-house developed programmes are accordingly recognised as expenses in the period in which they are incurred.

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(iv) Film rights and perpetual film rights

Film rights generated by the Group or perpetual film rights acquired by the Group are stated at cost less accumulated amortisation (where the estimated useful life is other than indefinite) and impairment losses (see Note 1(q)(ii)). Costs represent the carrying value transferred from films in progress upon completion or the purchase price of the perpetual film rights, and are amortised at rates calculated to write off the costs in proportion to the estimated revenues from exhibition, the reproduction and distribution of audio visual products, the licensing of video rights and other broadcast rights following their release. Such rates are subject to annual review by the Directors.

(v) Films in progress

Films in progress are stated at cost less impairment losses (see Note 1(q)(ii)). Costs include all direct costs associated with the production of films. Impairment losses are made for costs which are in excess of the expected future revenue generated by these films. Costs of films are transferred to film rights upon completion.

(h) Intangible assets

The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period.

Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash-generating unit level. Such intangible assets are not amortised. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is accounted for on a prospective basis.

(i) Club debentures

The Group’s club debentures are stated in the statement of financial position at cost less impairment losses (see Note 1(q)(ii)), on an individual basis.

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(i) Inventories

Inventories are carried at the lower of cost and net realisable value. Cost is calculated on the weighted average basis and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

(j) Financial instruments

(i) Recognition and initial measurement

The Group initially recognises trade and other receivables, trade and other payables, deposits and borrowings on the date on which they are originated. All other financial instruments are recognised on the trade date, which is the date on which the Group becomes a party to the contractual provisions of the instrument.

A financial asset or financial liability (unless it is trade and other receivables without a significant financing component) is measured initially at fair value plus, for an item not at fair value through profit or loss (‘‘FVTPL’’), transaction costs that are directly attributable to its acquisition or issue. Trade and other receivables without a significant financing component are initially measured at transaction price.

(ii) Classification and subsequent measurement

Policy applicable from January 1, 2016

On initial recognition, a financial asset is classified as measured at: amortised cost, fair value through other comprehensive income (‘‘FVOCI’’) or FVTPL. Financial assets are not reclassified subsequent to their initial recognition, except if and in the period the Group changes its business model for managing financial assets.

A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:

the asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

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Trade and other receivables, including balances due from group companies are classified as financial assets at amortised cost. All other financial assets are classified and measured at fair value.

Financial assets at amortised cost are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss. Financial assets at FVTPL and FVOCI are subsequently measured at fair value.

Financial liabilities are classified as measured at amortised cost or FVTPL. Financial liabilities at amortised cost are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in profit or loss. Any gain or loss on derecognition is also recognised in profit or loss. Trade and other payables, including balances due to group companies and interest bearing borrowings are classified as financial liabilities at amortised cost. The Group does not have financial liability measured at FVTPL.

Policy applicable before January 1, 2016

Trade and other receivables

Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost using the effective interest method, less allowance for impairment of doubtful debts (see Note 1(q)(i)), except where the receivables are interest-free loans made to related parties without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less allowance for impairment of doubtful debts.

Trade and other payables

Trade and other payables are initially recognised at fair value. Except for financial guarantee liabilities measured in accordance with Note 1(s)(i), trade and other payables are subsequently stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

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Interest bearing borrowings

Interest bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest bearing borrowings are stated at amortised cost with any difference between the amount initially recognised and redemption value being recognised in profit or loss over the period of the borrowings, together with any interest and fees payable, using the effective interest method.

(iii) Derecognition

Financial assets

The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset. The Group enters into transactions whereby it transfers assets recognised on its statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets. In such cases, the transferred assets are not derecognised.

Financial liabilities

The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire. The Group also derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different. In this case, a new financial liability based on the modified terms is recognised at fair value. The difference between the carrying amount of the financial liability extinguished and the new financial liability with modified terms is recognised in profit or loss.

(iv) Offsetting

Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted under HKFRS, or for gains and losses arising from a group of similar transactions such as in the Group’s trading activity.

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(k) Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are also included as a component of cash and cash equivalents for the purpose of the consolidated cash flows statement.

(l) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Revenue is recognised in profit or loss provided it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably as follows:

(i) Income from the provision of subscription Television services, Internet access services, and Voice Over Internet Protocol telephony services is recognised at the time when the services are provided.
(ii) Installation fees are recognised upon completion of the related installation work to the extent of direct selling costs.
(iii) Where packaged service fees comprise a number of elements and the fees can be allocated on a reasonable basis into elements of subscription service and installation service, revenue is recognised in accordance with the accounting policies set out in Notes 1(l)(i) and (ii). Where packaged service fees cannot be allocated into individual elements, the fees are deferred and recognised evenly over the term of the service period.
(iv) Advertising income net of agency deductions is recognised on telecast of the advertisement. When an advertising contract covers a specified period, the related income is recognised evenly over the contract period.
(v) Revenue from theatrical distribution is recognised when the films are exhibited.
(vi) Revenue from distribution of films is recognised upon delivery of the master tapes to the customers.

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(vii) Income from licensing of television rights is recognised in full upon delivery of the programmes concerned in accordance with the terms of the licence contracts and is stated net of withholding tax.
(viii) Income from network maintenance and operation is recognised at the time when services are provided.
(ix) Rental income receivable under operating leases is recognised in profit or loss in equal installments over the periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the use of the leased asset. Lease incentives granted are recognised in profit or loss as integral part of the aggregate net lease payments receivables. Contingent rentals are recognised as income in the accounting period in which they are earned.
(x) Interest income is recognised as it accrues using the effective interest method.

(m) Borrowing costs

Borrowing costs that are directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of that asset. Other borrowing costs are expensed in the period in which they are incurred.

The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when expenditure for the asset is being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation of borrowing costs is suspended or ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or complete.

(n) Income tax

Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognised in profit or loss except to the extent that they relate to items recognised in other comprehensive income or directly in equity, in which case the relevant amounts of tax are recognised in other comprehensive income or directly in equity, respectively. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the end of the reporting period, and any adjustment to tax payable in respect of previous years.

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Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits.

Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilised.

The limited exceptions to recognition of deferred tax assets and liabilities are those temporary differences arising from the initial recognition of assets or liabilities that affect neither accounting nor taxable profit (provided they are not part of a business combination), and temporary differences relating to investments in subsidiaries to the extent that, in the case of taxable differences, the Group controls the timing of the reversal and it is probable that the differences will not reverse in the foreseeable future, or in the case of deductible differences, unless it is probable that they will reverse in the future.

The amount of deferred tax recognised is measured based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the end of the reporting period. Deferred tax assets and liabilities are not discounted. The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and is reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow the related tax benefit to be utilised. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profits will be available. Additional income taxes that arise from the distribution of dividends are recognised when the liability to pay the related dividends is recognised.

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Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets against deferred tax liabilities, if the Company or the Group has the legally enforceable right to set off current tax assets against current tax liabilities and the following additional conditions are met:

(a) In the case of current tax assets and liabilities, the Company or the Group intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously; or
(b) In the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on either:
(i) the same taxable entity; or
(ii) different taxable entities, which, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered, intend to realise the current tax assets and settle the current tax liabilities on a net basis or realise and settle simultaneously.

(o) Translation of foreign currency

Foreign currency transactions during the year are translated at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the end of the reporting period. Exchange gains and losses are recognised in profit or loss.

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the foreign exchange rates ruling at the transaction dates. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated using the foreign exchange rates ruling at the dates the fair value was measured.

The results of foreign operations are translated into Hong Kong dollars at the exchange rates approximating the foreign exchange rates ruling at the dates of the transactions. Statement of financial position items are translated into Hong Kong dollars at the closing foreign exchange rates at the end of the reporting period. The resulting exchange differences are recognised in other comprehensive income and accumulated separately in equity in the exchange reserve.

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On disposal of a foreign operation, the cumulative amount of the exchange differences relating to that foreign operation is reclassified from equity to profit or loss when the profit or loss on disposal is recognised.

(p) Related parties

(a) A person, or a close member of that person’s family, is related to the Group if that person:
(i) has control or joint control over the Group;
(ii) has significant influence over the Group; or
(iii) is a member of the key management personnel of the Group or the Group’s parent.
(b) An entity is related to the Group if any of the following conditions applies:
(i) The entity and the Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).
(ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).
(iii) Both entities are joint ventures of the same third party.
(iv) One entity is a joint venture of a third entity and the other entity is an associate of the third parties.
(v) The entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group.
(vi) The entity is controlled or jointly controlled by a person identified in (a).
(vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).
(viii) The entity, or any member of a group of which it is a part, provides key management personnel services to the Group or to the Group’s parent.

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Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity.

(q) Impairment of assets

(i) Impairment of financial asset

Policy applicable from January 1, 2016

The Group recognises loss allowances for lifetime expected credit loss (‘‘ECL’’) on trade and other receivables. For bank balances for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition, the loss allowances are measured as 12-month ECL. Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument. 12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months). In all cases, the maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECL, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the group’s historical experience and informed credit assessment and including forward-looking information. In all cases, the maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.

Measurement of ECLs and presentation of ECLs in the statement of financial position

ECLs are a probability-weighted estimate of credit losses. They are measured as follows:

financial assets that are not credit-impaired at the reporting date: as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive);

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financial assets that are credit-impaired at the reporting date: as the difference between the gross carrying amount and the present value of estimated future cash flows;
undrawn loan commitments: as the present value of the difference between the contractual cash flows that are due to the Group if the commitment is drawn down and the cash flows that the Group expects to receive; and
financial guarantee contracts: the expected payments to reimburse the holder less any amounts that the Group expects to recover.

Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets. For debt securities at FVOCI, the loss allowance is charged to profit or loss and is recognised in other comprehensive income.

Write-off

The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Group determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Group’s procedures for recovery of amounts due.

Policy applicable before January 1, 2016

Investments in equity securities and receivables that are stated at cost or amortised cost are reviewed at the end of each reporting period to determine whether there is objective evidence of impairment.

If any objective evidence exists, any impairment loss is determined and recognised as follows:

For unquoted equity securities carried at cost, the impairment loss is measured as the difference between the carrying amount of the financial asset and the estimated future cash flows, discounted at the current market rate of return for a similar financial asset where the effect of discounting is material. Impairment losses for equity securities carried at cost are not reversed.

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For trade and other current receivables carried at amortised cost, the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition of these assets), where the effect of discounting is material. This assessment is made collectively where these assets share similar risk characteristics, such as similar past due status, and have not been individually assessed as impaired. Future cash flows for financial assets which are assessed for impairment collectively are based on historical loss experience for assets with credit risk characteristics similar to the collective group. If in a subsequent period the amount of an impairment loss decreases and the decrease can be linked objectively to an event occurring after the impairment loss was recognised, the impairment loss is reversed through profit or loss. A reversal of an impairment loss shall not result in the asset’s carrying amount exceeding that which would have been determined had no impairment loss been recognised in prior years.

Impairment losses are written off against the corresponding assets directly, except for impairment losses recognised in respect of trade debtors included within trade and other receivables, whose recovery is considered doubtful but not remote. In this case, the impairment losses for doubtful debts are recorded using an allowance account. When the Group is satisfied that recovery is remote, the amount considered irrecoverable is written off against trade debtors directly and any amounts held in the allowance account relating to that debt are reversed. Subsequent recoveries of amounts previously charged to the allowance account are reversed against the allowance account. Other changes in the allowance account and subsequent recoveries of amounts previously written off directly are recognised in profit or loss.

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(ii) Impairment of other assets

Internal and external sources of information are reviewed at the end of each reporting period to identify indications that the following assets may be impaired or, an impairment loss previously recognised no longer exists or may have decreased:

property, plant and equipment (other than properties carried at revalued amounts);
programming library (including film rights, perpetual film rights and films in progress);
intangible assets; and
Investments in subsidiaries and associates in the Company’s statement of financial position.

If any such indication exists, the asset’s recoverable amount is estimated. In addition, for intangible assets that are not yet available for use and intangible assets that have indefinite useful lives, the recoverable amount is estimated annually whether or not there is any indication of impairment.

Calculation of recoverable amount

The recoverable amount of an asset is the greater of its fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cashgenerating unit).

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Recognition of impairment losses

An impairment loss is recognised in profit or loss if the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated to reduce the carrying amount of the assets in the unit (or group of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs of disposal (if measurable) or value in use (if determinable).

Reversals of impairment losses

In respect of assets, an impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount.

A reversal of an impairment loss is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognised.

(iii) Interim financial reporting and impairment

Under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, the Group is required to prepare an interim financial report in compliance with HKAS 34, Interim financial reporting, in respect of the first six months of the financial year. At the end of the interim period, the Group applies the same impairment testing, recognition, and reversal criteria as it would at the end of the financial year (see Notes 1(q)(i) and (ii)).

(r) Segment reporting

Operating segments, and the amounts of each segment item reported in the financial statements, are identified from the financial information provided regularly to the Group’s most senior executive management for the purposes of allocating resources to, and assessing the performance of, the Group’s various lines of business and geographical locations.

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Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of the nature of products and services, the nature of production processes, the type or class of customers, the methods used to distribute the products or provide the services, and the nature of the regulatory environment. Operating segments which are not individually material may be aggregated if they share a majority of these criteria.

(s) Financial guarantees issued, provisions and contingent liabilities

(i) Financial guarantees issued

Financial guarantees are contracts that require the issuer (i.e. the guarantor) to make specified payments to reimburse the beneficiary of the guarantee (the ‘‘holder’’) for a loss the holder incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument.

Where the Group issues a financial guarantee, the fair value of the guarantee is initially recognised as deferred income within trade and other payables. Where consideration is received or receivable for the issuance of the guarantee, the consideration is recognised in accordance with the Group’s policies applicable to that category of asset. Where no such consideration is received or receivable, an immediate expense is recognised in profit or loss on initial recognition of any deferred income.

The amount of the guarantee initially recognised as deferred income is amortised in profit or loss over the term of the guarantee as income from financial guarantees issued. In addition, provisions are recognised if and when (i) it becomes probable that the holder of the guarantee will call upon the Group under the guarantee, and (ii) the amount of that claim on the Group is expected to exceed the amount currently carried in trade and other payables in respect of that guarantee i.e. the amount initially recognised, less accumulated amortisation.

(ii) Provisions and contingent liabilities

Provisions are recognised for other liabilities of uncertain timing or amount when the Group or the Company has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation.

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FINANCIAL INFORMATION

APPENDIX I

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

(t) Employee benefits

Short term employee benefits and contributions to defined contribution retirement plans.

Salaries, annual bonuses, paid annual leave, contributions to defined contribution retirement plans and the cost of non-monetary benefits are accrued in the year in which the associated services are rendered by employees of the Group, except to the extent that they are included in the cost of property, plant and equipment and programming library not yet recognised as an expense.

2. Changes in Accounting Policies

The HKICPA has issued a number of amendments to HKFRSs that are first effective for the current accounting period of the Group. None of these developments have had a material effect on how the Group’s results and financial position for the current or prior periods have been prepared or presented.

The Group has early adopted HKFRS 9, Financial Instruments, (2014) with a date of initial application of January 1, 2016 in the consolidated financial statements for the year ending December 31, 2016. Except for the foregoing, the Group has not adopted any new standard or interpretation that is not yet effective for the current accounting period.

HKFRS 9 is early adopted to replace the current standard on accounting for financial instruments, HKAS 39, Financial Instruments: Recognition and Measurement. HKFRS 9 introduces new requirements for classification and measurement of financial assets, calculation of impairment of financial assets and hedge accounting. On the other hand, HKFRS 9 incorporates without substantive changes the requirements of HKAS 39 for recognition and derecognition of financial instruments and the classification of financial liabilities.

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FINANCIAL INFORMATION

APPENDIX I

As at January 1, 2016, the Directors of the Group have reviewed and reassessed the Group’s financial assets on that date and the results for the period. Upon adoption of the standard, the Group:

(1) Classified and measured its financial assets, including trade and other receivables and bank deposits and cash, previously designated as ‘‘loans and receivables’’ to ‘‘financial assets at amortised costs’’, with carrying amount being determined as unchanged;
(2) Adopted the new impairment model of trade and other receivables. The new impairment model in HKFRS 9 replaces the ‘‘incurred loss’’ model in HKAS 39 with an ‘‘expected credit loss’’ model. Under the expected credit loss model, it will no longer be necessary for a loss event to occur before an impairment loss is recognised. Instead, an entity is required to recognise the measure expected credit losses as either 12-month expected credit losses or lifetime expected credit losses, depending on the assets and the facts and circumstances. This new impairment model may result in an earlier recognition of credit losses on the Group’s accounts receivables. However, the Group has assessed that it is unlikely to have a significant impact on the Group’s financial statements.

There was no impact on the Group’s accounting for financial liabilities, as the new standard only affects the subsequent measurement of those designated as FVTPL, while the Group does not have any such liability. Given the changes in accounting policy have no material financial impact on the amounts as previously reported, no prior period restatement is made.

3. Revenue

The principal activity of the Company is investment holding. The principal activities of the subsidiaries are set out in Note 15 to the financial statements.

Revenue comprises principally subscription, service and related fees for Television and Internet (including Telephony) services. It also includes advertising income net of agency deductions, channel service and distribution fees, programme licensing income, film exhibition and distribution income, network maintenance income and other related income.

The Group’s customer base is diversified and no single customer with whom transactions have exceeded 10% of the Group’s revenues. The Group has no significant concentrations of credit risk from customers.

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FINANCIAL INFORMATION

APPENDIX I

4. Segment Information

The Group manages its businesses according to the nature of services provided. Management has determined two reportable operating segments for measuring performance and allocating resources. The segments are Television and Internet and Multimedia.

The Television segment includes operations related to the Television subscription business, advertising, channel carriage, Television relay service, programme licensing, network maintenance, and miscellaneous Television related businesses.

The Internet and Multimedia segment includes operations related to Broadband Internet access services, portal operation, mobile content licensing, Voice Over Internet Protocol telephony services as well as other Internet access related businesses.

Management evaluates performance primarily based on earnings before interest, taxation, depreciation and amortisation (‘‘EBITDA’’) and earnings before interest and taxation (‘‘EBIT’’). Management defines EBITDA to mean earnings before interest income, finance costs, impairment losses on investment, non-operating income/expenses, provision for income tax, depreciation of property, plant and equipment but after amortisation of programming rights.

Inter-segment pricing is generally determined at arm’s length basis.

Segment assets principally comprise all tangible assets, intangible assets and current assets with the exception of interest in associate, investments in equity securities and deferred tax assets. Segment liabilities include all liabilities and borrowings directly attributable to and managed by each segment with the exception of current taxation and deferred tax liabilities.

In addition to receiving segment information concerning EBITDA and EBIT, management is provided with segment information concerning revenue (including intersegment revenue).

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FINANCIAL INFORMATION

APPENDIX I

Information regarding the Group’s reportable segments as provided to the Group’s Senior Management for the purposes of resource allocation and assessment of segment performance for the years ended December 31, 2016 and 2015 is set out below:

Business segments

Revenue from external customers Inter-segment revenue Reportable segment revenue Reportable segment results (‘‘EBITDA’’) Reportable segment results (‘‘EBIT’’) Inter-segment elimination Loss from operations Interest income Finance costs, net Non-operating expenses Income tax Loss for the year	Television 2016 2015 HK$’000 HK$’000 1,028,390 1,114,646 14,440 15,323 1,042,830 1,129,969 (142,321) (45,775) (277,215) (183,114)	Internet and Multimedia 2016 2015 HK$’000 HK$’000 335,449 347,889 204 247 335,653 348,136 138,457 143,228 61,506 60,048	Unallocated 2016 2015 HK$’000 HK$’000 42,529 47,143 9,486 9,462 52,015 56,605 (87,117) (111,129) (89,596) (113,617)	Total 2016 2015 HK$’000 HK$’000 1,406,368 1,509,678 24,130 25,032 1,430,498 1,534,710 (90,981) (13,676) (305,305) (236,683) (6,558) (5,589) (311,863) (242,272) 40 5 (5,489) (2,998) (556) (1,373) 5,078 13,540 (312,790) (233,098)	Total 2016 2015 HK$’000 HK$’000 1,406,368 1,509,678 24,130 25,032 1,430,498 1,534,710 (90,981) (13,676) (305,305) (236,683) (6,558) (5,589) (311,863) (242,272) 40 5 (5,489) (2,998) (556) (1,373) 5,078 13,540 (312,790) (233,098)
					1,534,710
					(13,676)
					(236,683)
					(5,589)
					(242,272) 5 (2,998) (1,373) 13,540
					(233,098)

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FINANCIAL INFORMATION

APPENDIX I

A reconciliation of reportable segment EBITDA to loss before taxation is provided as follows:

Total segment EBITDA Depreciation Total segment EBIT Inter-segment elimination Interest income Finance costs, net Non-operating expenses Loss before taxation Segment assets Television Internet and Multimedia Unallocated assets Interest in associate Deferred tax assets	2016 HK$’000 (90,981) (214,324) (305,305) (6,558) 40 (5,489) (556) (317,868) 2016 HK$’000 847,929 351,290 119,848 1,319,067 – 306,467 1,625,534	2015 HK$’000 (13,676) (223,007) (236,683) (5,589) 5 (2,998) (1,373) (246,638) 2015 HK$’000 817,610 333,743 138,889 1,290,242 – 308,884 1,599,126

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FINANCIAL INFORMATION

APPENDIX I

Segment liabilities Television Internet and Multimedia Unallocated liabilities Current taxation Deferred tax liabilities	2016 HK$’000 766,132 241,915 102,766 1,110,813 113 9,210 1,120,136	2015 HK$’000 519,589 153,056 90,111
		762,756 150 17,247
		780,153

Geographical segments

No geographical segment information is shown as, during the periods presented, less than 10% of the Group’s segment revenue, segment results and segment assets are derived from activities conducted outside Hong Kong.

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FINANCIAL INFORMATION

APPENDIX I

5. Loss Before Taxation

Loss before taxation is stated after charging/(crediting):

Interest income Interest income from deposits with bank Finance costs, net Interest expenses on borrowings Staff costs Salaries, wages and other benefits Contributions to defined contribution retirement plans Other items Depreciation – assets held for use under operating leases – other assets Amortisation of programming library Impairment losses – trade and other receivables – property, plant and equipment – programming library Reversal of impairment losses on trade and other receivables Cost of inventories Rentals payable under operating leases in respect of land and buildings Auditor’s remuneration – audit service – charge for the year – under-provision in respect of prior years Net foreign exchange gain* Rentals receivable under operating leases in respect of – subleased land and buildings – owned plant and machinery Net loss on disposal of property, plant and equipment	2016 HK$’000 (40) 5,489 627,746 35,181 27,247 187,077 109,579 2,800 892 209 (248) 7,440 61,631 3,141 80 (726) (7,842) (34,046) 556	2015 HK$’000 (5) 2,998 626,831 34,249 31,900 191,107 123,540 2,906 867 4,117 (403) 8,161 67,806 3,044 64 (1,492) (9,161) (16,453) 1,373

Amortisation of programming library is included within programming costs in the consolidated results of the Group.

** Net foreign exchange gain of approximately HK$60,000 and HK$666,000 are included within programming costs and selling, general and administrative and other operating expenses in the consolidated results of the Group, respectively.

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FINANCIAL INFORMATION

APPENDIX I

Income Tax in the Consolidated Statement of Profit or Loss

(a) Income tax in the consolidated statement of profit or loss represents:

Current tax – Overseas Provision for the year Deferred tax Utilisation of prior years’ tax losses recognised Benefit of previously unrecognised tax losses now recognised Origination and reversal of temporary differences Income tax	2016 HK$’000 542 542 3,953 (10,070) 497 (5,620) (5,078)	2015 HK$’000 678 678 7,274 (16,221) (5,271) (14,218) (13,540)

The provision for Hong Kong Profits Tax is calculated at 16.5% (2015: 16.5%) of the estimated assessable profits for the year ended December 31, 2016. Taxation for overseas subsidiaries is charged at the appropriate current rates of taxation ruling in the relevant countries.

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FINANCIAL INFORMATION

APPENDIX I

(b) Reconciliation between the effective income tax rate and the applicable tax rate:

Statutory income tax rate Tax effect of non-deductible expenses Tax effect of unused tax losses not recognised Tax effect of previously recognised tax losses utilised Tax effect of previously unrecognised tax losses now recognised Differential tax rate on subsidiaries’ income Effective income tax rate	2016 % (16.5) – 16.8 1.2 (3.2) 0.1 (1.6)	2015 % (16.5) 0.1 23.6 – (12.7) 0.1 (5.4)

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FINANCIAL INFORMATION

APPENDIX I

7. Directors’ Emoluments

Directors’ emoluments disclosed pursuant to section 383(1) of the CO and Part 2 of the Companies (Disclosure of Information about Benefits of Directors) Regulation are as follow:

Name of directors 2016 Independent Non-executive Directors: Roger K H Luk Patrick Y W Wu Herman S M Hu Sherman S M Tang Non-executive Director: Paul Y C Tsui Executive Directors: Stephen T H Ng William J H Kwan Total for 2016 2015 Independent Non-executive Directors: Roger K H Luk Patrick Y W Wu Herman S M Hu Sherman S M Tang Non-executive Director: Paul Y C Tsui Executive Directors: Stephen T H Ng William J H Kwan Total for 2015	Directors’ fees HK$’000 80 80 60 60 80 60 60 480 80 80 60 60 80 60 60 480	Basic salaries, housing and other allowances, and benefits in kind HK$’000 – – – – – 1,947 2,234 4,181 – – – – – 1,802 2,172 3,974	Retirement scheme contributions HK$’000 – – – – – 5 223 228 – – – – – 5 217 222	Discretionary bonuses and/or performance related bonuses HK$’000 – – – – – 2,875 930 3,805 – – – – – 3,000 860 3,860	Total emoluments HK$’000 80 80 60 60 80 4,887 3,447
					8,694
					80 80 60 60 80 4,867 3,309
					8,536

There was no compensation for loss of office and/or inducement for joining the Group paid/payable to the Company’s Directors in respect of the years ended December 31, 2016 and December 31, 2015.

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FINANCIAL INFORMATION

APPENDIX I

Except for Directors’ fees of HK$480,000 (2015: HK$480,000), certain Directors’ emoluments disclosed above were paid directly by the Company’s intermediate holding company, The Wharf (Holdings) Limited (‘‘Wharf’’), (or its wholly owned subsidiaries) to the relevant Directors. Wharf recovered such costs from the Group by charging a management fee (see Note 30(iv)).

8. Individuals with Highest Emoluments and Emoluments of Senior Management

(a) Five highest paid individuals

Of the five individuals with the highest emoluments, two (2015: two) are Directors whose emoluments are disclosed in Note 7. The aggregate of the emoluments in respect of the other three (2015: three) individuals are as follows:

Basic salaries, housing and other allowances, and benefits in kind Retirement scheme contributions Discretionary bonuses and/or performance related bonuses	2016 HK$’000 6,354 234 2,109 8,697	2015 HK$’000 6,144 197 2,029
		8,370

The emoluments of the three (2015: three) individuals with the highest emoluments are within the following bands:

HK$ 2,000,001-2,500,000 2,500,001-3,000,000 3,000,001-3,500,000	2016 Number of individuals 1 – 2 3	2015 Number of individuals 1 – 2
		3

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FINANCIAL INFORMATION

APPENDIX I

(b) Emoluments of Senior Management

Of the seven (2015: seven) senior managers’ emoluments, two (2015: two) are Directors whose emoluments are disclosed in Note 7. The aggregate of the emoluments in respect of the other five (2015: five) senior managers are as follows:

HK$ 1,500,001-2,000,000 2,000,001-2,500,000 2,500,001-3,000,000 3,000,001-3,500,000	2016 Number of senior managers 2 1 – 2 5	2015 Number of senior managers 2 1 – 2
		5

9. Loss per Share

(a) Basic loss per share

The calculation of basic loss per share is based on the loss attributable to ordinary equity shareholders of the Company of HK$312,790,000 (2015: HK$233,098,000) and the weighted average number of ordinary shares outstanding during the year of 2,011,512,400 (2015: 2,011,512,400).

(b) Diluted loss per share

The calculation of diluted loss per share is based on the loss attributable to ordinary equity shareholders of the Company of HK$312,790,000 (2015: HK$233,098,000) and the weighted average number of ordinary shares of 2,011,512,400 (2015: 2,011,512,400) after adjusting for the effects of all dilutive potential ordinary shares.

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APPENDIX I

FINANCIAL INFORMATION

10. Property, Plant and Equipment

Cost At January 1, 2015 Additions Disposals Reclassification to inventories Exchange reserve At December 31, 2015 At January 1, 2016 Additions Disposals Reclassification to inventories Exchange reserve At December 31, 2016 Accumulated depreciation At January 1, 2015 Charge for the year Impairment loss Written back on disposals Reclassification to inventories Exchange reserve At December 31, 2015 At January 1, 2016 Charge for the year Impairment loss Written back on disposals Reclassification to inventories Exchange reserve At December 31, 2016 Net book value At December 31, 2016 At December 31, 2015	Network, decoders, cable modems and television production systems HK$’000 5,729,792 196,739 (32,334) (831) – 5,893,366 5,893,366 227,697 (99,199) (537) – 6,021,327 4,942,003 200,740 867 (30,649) (409) – 5,112,552 5,112,552 194,665 892 (97,995) (388) – 5,209,726 811,601 780,814	Furniture, fixtures, other equipment and motor vehicles HK$’000 651,977 8,861 (2,631) – (592) 657,615 657,615 7,747 (3,904) – (1,212) 660,246 617,368 14,724 – (2,602) – (564) 628,926 628,926 12,805 – (3,872) – (1,184) 636,675 23,571 28,689	Leasehold land and buildings in Hong Kong and PRC Long leases Medium leases HK$’000 HK$’000 8,119 47,480 – – – – – – – (949) 8,119 46,531 8,119 46,531 – – – – – – – (1,984) 8,119 44,547 1,795 12,887 203 1,585 – – – – – – – (315) 1,998 14,157 1,998 14,157 203 1,521 – – – – – – – (723) 2,201 14,955 5,918 29,592 6,121 32,374	Leasehold improvements HK$’000 336,826 1,900 (870) – (274) 337,582 337,582 2,839 (1,078) – (579) 338,764 307,075 5,755 – (870) – (183) 311,777 311,777 5,130 – (1,078) – (422) 315,407 23,357 25,805	Total HK$’000 6,774,194 207,500 (35,835) (831) (1,815)
					6,943,213
					6,943,213 238,283 (104,181) (537) (3,775)
					7,073,003
					5,881,128 223,007 867 (34,121) (409) (1,062)
					6,069,410
					6,069,410 214,324 892 (102,945) (388) (2,329)
					6,178,964
					894,039
					873,803

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FINANCIAL INFORMATION

APPENDIX I

Impairment loss results from loss recognised on abandonment of lost or damaged property, plant and equipment. In 2016, an impairment loss of HK$892,000 (2015: HK$867,000) was recorded for decoders and cable modems which had become obsolete during normal usage or were leased to subscribers in the ordinary course of the Television Subscription and Broadband Internet access business, and had not been returned after the services were terminated.

As at December 31, 2016, the gross carrying amounts of property, plant and equipment of the Group held for use in operating leases were HK$236,953,000 (2015: HK$246,450,000) and the related accumulated depreciation was HK$191,292,000 (2015: HK$196,088,000).

11. Programming Library

Cost At January 1 Additions Written off At December 31 Accumulated amortisation At January 1 Charge for the year Impairment loss Written off At December 31 Net book value At December 31	2016 HK$’000 694,998 122,564 (68,587) 748,975 538,467 109,579 209 (68,587) 579,668 169,307	2015 HK$’000 667,250 116,207 (88,459) 694,998 499,269 123,540 4,117 (88,459) 538,467 156,531

The management of the Group undertook a review of its programming library to assess the recoverability of film rights. As a result of the assessment, an impairment loss of HK$209,000 (2015: HK$4,117,000) was made.

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APPENDIX I

FINANCIAL INFORMATION

12. Intangible Assets

Cost less impairment losses At January 1, 2015 and December 31, 2015 At January 1, 2016 Disposal At December 31, 2016	Club Debentures HK$’000 3,767
	3,767 (1,705)
	2,062

13. Interest in Associate

Details of the Group’s interest in associate are as follows:

					Particulars of
		Form of	Place of		issued and	Proportion of
		business	incorporation/	Principal	paid up	ownership
Name	of associate	structure	operation	activities	capital	interest
FRM	Film InvestCo LLC	Incorporated	State of	Investment	Capital	30%
			Delaware, USA	holding	contribution
					US$25,000,000

In respect of the year ended December 31, 2016, the Group has not taken into account the effect of transactions or events of the associate as the associate was inactive during the current year. Since the Group’s share of losses exceeds its interest in the associate, the Group’s interest is recorded at HK$Nil (2015: HK$Nil) and no recognition of future losses is expected as the Group has no legal or constructive obligation in respect of such losses.

14. Other Non-current Assets

Deposits, prepayments and other receivables Amounts due from fellow subsidiaries	2016 HK$’000 29,465 13,789 43,254	2015 HK$’000 47,962 14,626
		62,588

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APPENDIX I

FINANCIAL INFORMATION

15. Investments in Subsidiaries

The following list contains only the particulars of subsidiaries and consolidated structured entities which principally affected the results, assets or liabilities of the Group.

	Place of			Proportion of	Proportion of
	incorporation/		Particulars of issued	ownership	interest
Name of company	operation	Principal activities	capital, all fully paid	Directly	Indirectly
Hong Kong Cable	Hong Kong	Advertising airtime and	HK$2 divided into	–		100
Enterprises Limited		programme licensing	2 ordinary shares
Hong Kong Cable News	Hong Kong	Advertising airtime	HK$20 divided into	–		100
Express Limited			2 ordinary shares
Hong Kong Cable	Hong Kong	Television and Internet	HK$750,000,000	–		100
Television Limited		and Multimedia	divided into
			750,000,000 ordinary shares
i-CABLE Entertainment	Hong Kong	Programme production	HK$10,000,000 divided into	–		100
Limited		and channel operation	10,000,000 ordinary shares
i-CABLE Network Limited	Hong Kong	Network operation	HK$102 divided into	–		100
			100 ordinary shares
			and 2 non-voting	–		–
			deferred shares
i-CABLE Network	Hong Kong	Network operation	HK$500,000 divided into	–		100
Operations Limited			500,000 ordinary shares
i-CABLE News Limited	Hong Kong	Programme production	HK$10,000,000 divided into	–		100
		and channel operation	10,000,000 ordinary shares
i-CABLE Sports Limited	Hong Kong	Programme production	HK$10,000,000 divided into	–		100
		and channel operation	10,000,000 ordinary shares
i-CABLE Telecom Limited	Hong Kong	Telephony	HK$1 divided into	–		100
			1 ordinary share
廣州市寬訊技術服務	The People’s	Technical services	HK$34,600,000	–		100
有限公司*	Republic of
	China
Fantastic Television	Hong Kong	Free television	HK$10,000 divided into	14.9		–
Limited **		broadcasting	9,999 ordinary shares and
			1 non-voting preference share

This entity is registered as a wholly foreign owned enterprise under PRC law and is not audited by KPMG.
** The Company holds 1 non-voting preference share and 1,489 class ‘‘A’’ ordinary shares, while the remaining 4,255 class ‘‘B’’ ordinary shares and 4,255 class ‘‘C’’ ordinary shares are held by two independent trustees respectively. The entity is consolidated by the Group as the Group has control over the entity as defined in Note 1(c). During the year, no non-controlling interest is recognised as the entity’s distributable profits do not surpass the threshold for the external ordinary shareholders.

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FINANCIAL INFORMATION

APPENDIX I

Inventories

Spare parts and consumables 17. Trade and Other Receivables	2016 HK$’000 18,076	2015 HK$’000 14,891

Trade and other receivables comprise:

Accounts receivable from trade debtors Deposits, prepayments and other receivables	2016 HK$’000 51,385 34,926 86,311	2015 HK$’000 68,096 28,060
		96,156

(a) Included in trade and other receivables are trade debtors (net of allowance for doubtful debts) with the following ageing analysis, based on the invoice date as of the end of the reporting period:

0 to 30 days 31 to 60 days 61 to 90 days Over 90 days	2016 HK$’000 16,530 15,421 8,524 10,910 51,385	2015 HK$’000 18,178 19,661 12,701 17,556
		68,096

The Group’s credit policy is set out in Note 27(a).

(b) Impairment losses in respect of accounts receivable from trade debtors are recorded using an allowance account unless the Group is satisfied that recovery of the amount is remote, in which case the impairment loss is written off against accounts receivable from trade debtors directly (see Note 1(q)(i)).

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FINANCIAL INFORMATION

APPENDIX I

The movement in the allowance for doubtful debts during the year, including both specific and collective loss components, is as follows:

Balance at beginning of year Impairment loss for the year Reversal of impairment losses in prior year Written off Balance at end of year	2016 HK$’000 5,450 2,800 (248) (2,701) 5,301	2015 HK$’000 6,000 2,906 (403) (3,053)
		5,450

(c) (i) 11% (2015: 14%) of the gross trade receivables relate to the Television and Internet and Multimedia access subscription businesses. There is no significant concentration of credit risk with respect to these trade receivables as the customer bases are widely dispersed in different sectors. The Group has given a credit term of 30 days to these customers. Impairment losses in respect of receivables arising from these subscription businesses are recognised once the receivable is more than 90 days overdue.
(ii) The ageing analysis of trade receivable that are neither individually nor collectively considered to be impaired are as follows:

Not yet due Less than 1 month past due 1 to 3 months past due 3 to 6 months past due Over 6 months past due	2016 HK$’000 9,552 15,684 17,463 3,945 449 37,541 47,093	2015 HK$’000 8,969
		20,194 21,713 7,266 1,611
		50,784
		59,753

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APPENDIX I

FINANCIAL INFORMATION

Receivables that were past due but not impaired relate to accounts receivables from advertising and programme distribution businesses that the Group had continuing business relationship and have a good track record with the Group. Impairment losses are recognised based on the credit history of the customers, and are made on balances overdue for a period of 90 to 270 days. Based on past experience, management believes that no impairment allowance is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable. The Group does not hold any collateral over these balances.

18. Amounts due from Fellow Subsidiaries

The amounts due from fellow subsidiaries are unsecured, interest free and repayable on demand, and are arisen in the ordinary course of business (see Note 30).

19. Bank Deposits and Cash

Cash and cash equivalent Security deposits with bank	2016 HK$’000 85,814 20,000 105,814	2015 HK$’000 82,427 –
		82,427

The security deposit represents deposit made by a subsidiary to secure a banking facility granted to the subsidiary.

20. Trade and Other Payables

Trade and other payables comprise:

Amounts due to trade creditors Accrued expenses and other payables Receipts in advance and customers’ deposits	2016 HK$’000 59,135 239,758 183,821 482,714	2015 HK$’000 33,138 214,532 170,392
		418,062

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APPENDIX I

FINANCIAL INFORMATION

An ageing analysis of amounts due to trade creditors, based on the invoice date is set out as follows:

0 to 30 days 31 to 60 days 61 to 90 days Over 90 days	2016 HK$’000 17,012 21,945 12,271 7,907 59,135	2015 HK$’000 3,476 13,874 10,773 5,015
		33,138

21. Interest Bearing Borrowings

The analysis of the carrying amount of interest bearing borrowings is as follows:

Within 1 year or on demand Bank loan Loan from a fellow subsidiary	2016 HK$’000 295,000 295,000 590,000	2015 HK$’000 125,000 175,000
		300,000

22. Amounts due to Fellow Subsidiaries

The amounts due to fellow subsidiaries are unsecured, interest free and repayable on demand, and are arisen in the ordinary course of business (see Note 30).

23. Amount due to Immediate Holding Company

The amount due to immediate holding company is unsecured, interest free and has no fixed terms of repayment, and is arisen in the ordinary course of business (see Note 30).

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APPENDIX I

FINANCIAL INFORMATION

24. Other Non-current Liabilities

Accrued expenses and other payables Receipts in advance and customers’ deposits	2016 HK$’000 8,068 673 8,741	2015 HK$’000 8,068 704
		8,772

25. Capital, Reserves and Dividends

(a) Movements in components of equity

The reconciliation between the opening and closing balances of each component of the Group’s consolidated equity is set out in the consolidated statement of changes in equity. Details of the changes in the Company’s individual components of equity between the beginning and the end of the year are set out below:

Company Balance at January 1, 2015 Changes in equity for 2015: Loss and total comprehensive income for the year Balance at December 31, 2015 and at January 1, 2016 Changes in equity for 2016: Loss and total comprehensive income for the year Balance at December 31, 2016	Capital and Reserves Share Capital Revenue Reserves Total Equity HK$’000 HK$’000 HK$’000 6,857,599 20,806 6,878,405 – (2,799,827) (2,799,827) 6,857,599 (2,779,021) 4,078,578 – (1,100,357) (1,100,357) 6,857,599 (3,879,378) 2,978,221	Capital and Reserves Share Capital Revenue Reserves Total Equity HK$’000 HK$’000 HK$’000 6,857,599 20,806 6,878,405 – (2,799,827) (2,799,827) 6,857,599 (2,779,021) 4,078,578 – (1,100,357) (1,100,357) 6,857,599 (3,879,378) 2,978,221
		4,078,578 (1,100,357)
		2,978,221

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(b) Dividends

No dividend will be paid for the year ended December 31, 2016 (2015: Nil).

(c) Share capital

Issued share capital

Ordinary shares, issued and fully paid: At January 1 and December 31	At December 31, 2016 No. of shares (’000) HK$’000 2,011,512 6,857,599	At December 31, 2015 No. of shares (’000) HK$’000 2,011,512 6,857,599

In accordance with section 135 of the CO, the ordinary shares of the Company do not have a par value.

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All ordinary shares rank equally with regard to the Company’s residual assets.

(d) Nature and purpose of reserves

(i) Special capital reserve

The special capital reserve is non-distributable. In 2004, the issued share capital of a subsidiary under the Group was reduced (‘‘Capital Reduction’’) and the credit arising from the Capital Reduction was applied to eliminate the accumulated losses standing in the statement of profit or loss of that subsidiary as at September 30, 2004. An undertaking was given to the Court by the subsidiary in connection with the Capital Reduction (the ‘‘Undertaking’’). Pursuant to the Undertaking, any future recoveries or reversals of provisions and depreciation made by the subsidiary in respect of certain assets (‘‘relevant assets’’) held by the subsidiary as at September 30, 2004 to the extent that such recoveries exceed the written down amounts of the relevant assets, up to an aggregate amount of HK$1,958,524,266 (‘‘Limit’’), will be credited to a special capital reserve. While any debt or liability of, or claim against, the subsidiary at the date of the Capital Reduction remains outstanding and the person entitled to the benefit thereof has not agreed, the special capital reserve shall not be treated as realised profits.

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The Limit may be reduced by the amount of any increase in the issued share capital of the subsidiary or upon a capitalisation of distributable reserves. The Limit may also be reduced after the disposal or other realisation of the relevant assets by the amount of the charge to provision or depreciation made in relation to such asset as at September 30, 2004 less reversal as a result of such disposal or realisation. In the event that the amount standing to the credit of the special capital reserve exceeds the Limit, the subsidiary shall be at liberty to transfer the amount of any such excess to the general reserves of the subsidiary, which shall become available for distribution. As at December 31, 2016, the Limit of the special capital reserve, as reduced by HK$1,488,247 (2015: HK$992,881) related to recoveries and reversals of provisions of the relevant assets, was HK$834,947,831 (2015: HK$836,436,178), and the amount standing to the credit of the special capital reserve was HK$13,984,483 (2015: HK$13,984,083).

(ii) Exchange reserve

The exchange reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations. The reserve is dealt with in accordance with the accounting policies set out in Note 1(o).

(e) Distributability of reserves

At December 31, 2016, the aggregate amount of reserves of the Company available for distribution to equity shareholders of the Company, as calculated under the provisions of Part 6 of the CO, was HK$Nil (2015: revenue reserve HK$Nil).

(f) Capital management

The Group’s primary objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, and to support the Group’s stability and growth, by pricing products and services commensurately with the level of risk. The Group actively and regularly reviews and manages its capital structure to ensure optimal capital structure and shareholders return, taking into consideration the future of the Group and capital efficiency, prevailing and projected profitability, projected operating cash flows, projected capital expenditures and projected strategic investment opportunities.

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The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Group made no changes to its capital management objectives, policies or processes during the years ended December 31, 2016 and December 31, 2015. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.

26. Income Tax in the Consolidated Statement of Financial Position

(a) Current taxation in the consolidated statement of financial position represents:

		2016	2015
		HK$’000	HK$’000
Overseas	taxation	113	150

(b) Deferred tax assets and liabilities recognised:

The components of deferred tax (assets)/liabilities recognised in the consolidated statement of financial position and the movements during the year are as follows:

Deferred tax arising from: At January 1, 2015 Credited to the consolidated statement of profit or loss (Note 6(a)) At December 31, 2015 At January 1, 2016 Charged/(credited) to the consolidated statement of profit or loss (Note 6(a)) At December 31, 2016	Depreciation allowances in excess of related depreciation HK$’000 59,149 (5,271) 53,878 53,878 497 54,375	Tax losses HK$’000 (336,568) (8,947) (345,515) (345,515) (6,117) (351,632)	Total HK$’000 (277,419) (14,218)
			(291,637)
			(291,637) (5,620)
			(297,257)

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Net deferred tax assets recognised in the consolidated statement of financial position Net deferred tax liabilities recognised in the consolidated statement of financial position	2016 HK$’000 (306,467) 9,210 (297,257)	2015 HK$’000 (308,884) 17,247
		(291,637)

(c) Deferred tax assets not recognised:

The Group has not recognised deferred tax assets in respect of the following:

Future benefit of tax losses Impairment loss for bad and doubtful accounts	2016 HK$’000 470,059 28 470,087	2015 HK$’000 422,310 50
		422,360

27. Financial Risk Management and Fair Values

Exposure to credit, liquidity, interest rate and currency risks arises in the normal course of the Group’s businesses. The Group’s exposure to these risks and the financial risk management policies and practices used by the Group to manage these risks are described below.

(a) Credit risk

The Group’s credit risk is primarily attributable to trade and other receivables. Management has a defined credit policy in place with general credit terms ranging from 0 to 90 days. The exposure to credit risks is monitored on an ongoing basis. The Group has no significant concentrations of credit risk from customers. Subscription revenue from customers is settled mainly in cash or via major credit cards.

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(b) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities and its compliance with lending covenants. The Group’s objective is to maintain a balance between the continuity of funding and the flexibility through use of bank overdrafts and bank loans. In addition, banking facilities have been put in place for contingency purposes.

The following table show the remaining contractual maturities at the end of the reporting period of the Group’s non-derivative financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the end of the reporting period) and the earliest date the Group can be required to pay:

Amounts due to trade creditors Accrued expenses and other payables Receipts in advance and customers’ deposits Interest bearing borrowings Amounts due to fellow subsidiaries Amount due to immediate holding company	2016 Contractual undiscounted cash outflow Within 1 year or on demand More than 1 year but less than 2 years Total contractual undiscounted cash flow Carrying amount in the consolidated statement of financial position HK$’000 HK$’000 HK$’000 HK$’000 59,135 – 59,135 59,135 239,758 8,068 247,826 247,826 183,821 673 184,494 184,494 590,000 – 590,000 590,000 26,129 – 26,129 26,129 3,229 – 3,229 3,229 1,102,072 8,741 1,110,813 1,110,813	2015 Contractual undiscounted cash outflow Within 1 year or on demand More than 1 year but less than 2 years Total contractual undiscounted cash flow Carrying amount in the consolidated statement of financial position HK$’000 HK$’000 HK$’000 HK$’000 33,138 – 33,138 33,138 214,532 8,068 222,600 222,600 170,392 704 171,096 171,096 300,000 – 300,000 300,000 34,308 – 34,308 34,308 1,614 – 1,614 1,614 753,984 8,772 762,756 762,756	2015 Contractual undiscounted cash outflow Within 1 year or on demand More than 1 year but less than 2 years Total contractual undiscounted cash flow Carrying amount in the consolidated statement of financial position HK$’000 HK$’000 HK$’000 HK$’000 33,138 – 33,138 33,138 214,532 8,068 222,600 222,600 170,392 704 171,096 171,096 300,000 – 300,000 300,000 34,308 – 34,308 34,308 1,614 – 1,614 1,614 753,984 8,772 762,756 762,756
			762,756

(c) Interest rate risk

At December 31, 2016, the Group’s interest rate risk arises primarily from the revolving loan of HK$295,000,000 from a fellow subsidiary and HK$295,000,000 from a banking facility. The loans at variable rates expose the Group to cash flow interest rate risk. At December 31, 2016, the Group’s had short-term deposits with bank amounting to HK$20,000,000 with original maturities of 36 to 273 days. Apart from the foregoing, the Group has no other significant income-generating financial assets or interest-bearing financial liabilities. The Group’s revenue, expenses and cash flows are substantially independent of changes in market interest rates.

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Effective interest rates and repricing analysis

In respect of income-earning financial assets and interest-bearing financial liabilities, the following table indicates their effective interest rates at the end of the reporting period and the periods in which they reprice:

Interest rate risk Floating rate: Cash at bank and in hand Interest bearing borrowings Fixed rate: Bank deposits and cash	Total Effective interest rate 2016 2015 2016 2015 HK$’000 HK$’000 % % 85,814 82,427 – 0.01 (590,000) (300,000) 1.35 1.29 (504,186) (217,573) 20,000 – 0.63 –

At December 31, 2016, it is estimated that a general increase/decrease of 100 basis points in interest rates, with all other variables held constant, would have decreased/increased the Group’s loss after tax and increased/decreased the revenue reserve by approximately HK$5,041,860 (2015: HK$2,175,730).

The sensitivity analysis above indicates the instantaneous change in the Group’s loss after tax (and revenue reserve) and other components of consolidated equity that would arise assuming that the change in interest rates had occurred at the end of the reporting period and had been applied to remeasure those financial instruments held by the Group which expose the Group to fair value interest rate risk at the end of the reporting period. In respect of the exposure to cash flow interest rate risk arising from floating rate non-derivative instruments held by the Group at the end of the reporting period, the impact on the Group’s loss after tax (and revenue reserve) and other components of consolidated equity is estimated as an annualised impact on interest expense or income of such a change in interest rates. The analysis is performed on the same basis for 2015.

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(d) Currency risk

The Group is exposed to currency risk primarily through trade and other receivables, bank deposits and trade and other payables that are denominated in a foreign currency, i.e. currency other than the functional currency of the operations to which the transactions relate. The currencies giving rise to this risk are primarily Renminbi, Euros and United States dollars. The Group manages this risk as follows:

(i) Forecast transactions

The Group is exposed to currency risk primarily through programmes acquisition activities whereby a substantial portion of our programming costs on overseas content is settled in United States dollars. In view of the continued support from the Hong Kong SAR Government to maintain the peg of the Hong Kong dollars to the United States dollars, management does not expect that there will be any significant currency risk associated with programming cost commitments denominated in United States dollars.

(ii) Recognised assets and liabilities

In respect of trade and other receivables and payables denominated in foreign currencies, the Group manages the net exposure by buying or selling foreign currencies at spot rates where necessary to address short-term imbalances.

(iii) Exposure to currency risk

The following table details the Group’s exposure at the end of the reporting period to currency risk arising from forecast transactions and recognised assets or liabilities denominated in currencies other than the functional currency of the entity to which they relate.

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FINANCIAL INFORMATION

Trade and other receivables Bank deposits and cash Trade and other payables Exposure arising from recognised assets and liabilities Highly probable forecast purchases Overall net exposure	Renminbi ’000 – 526 (1,223) (697) – (697)	2016 Euros ’000 3 1 – 4 (152) (148)	United States Dollars ’000 2,519 1,404 (3,785) 138 (52,702) (52,564)	Renminbi ’000 – 802 – 802 – 802	2015 Euros ’000 11 1 (25) (13) (248) (261)	United States Dollars ’000 4,316 578 (3,903)
						991 (81,746)
						(80,755)

(iv) Sensitivity analysis

The following table indicates the instantaneous change in the Group’s loss after tax (and revenue reserve) that would arise if foreign exchange rates to which the Group has significant exposure at the end of the reporting period had changed at that date, assuming all other risk variables remained constant. In this respect, it is assumed that the pegged rate between the Hong Kong dollar and the United States dollar would be materially unaffected by any changes in movement in value of the United States dollar against other currencies.

	2016		2015
	Increase/	Effect on	Increase/	Effect on
	(decrease)	loss after	(decrease)	loss after
	in foreign	tax and	in foreign	tax and
	exchange	revenue	exchange	revenue
	rates	reserve	rates	reserve
		HK$’000		HK$’000
Renminbi	5%	37	5%	41
Euros	5%	51	5%	89

Results of the analysis as presented in the above table represent an aggregation of the instantaneous effects on each of the Group’s loss after tax and revenue reserve measured in the respective functional currencies, translated into Hong Kong dollars at the exchange rate ruling at the end of the reporting period for presentation purposes.

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The sensitivity analysis assumes that the change in foreign exchange rates had been applied to re-measure those financial instruments held by the Group which expose the Group to foreign currency risk at the end of the reporting period, including inter-company payables and receivables within the Group which are denominated in a currency other than the functional currencies of the lender or the borrower. The analysis excludes differences that would result from the translation of the financial statements of foreign operations into the Group’s presentation currency. The analysis is performed on the same basis for 2015.

(e) Fair values of financial instruments

All financial instruments are carried at amounts not materially different from their fair values as at December 31, 2016 and 2015.

28. Commitments

Commitments outstanding as at December 31, 2016 not provided for in the financial statements were as follows:

Capital commitments (i) Property, plant and equipment – Authorised and contracted for – Authorised but not contracted for (ii) Programming and other commitments – Authorised and contracted for – Authorised but not contracted for (iii) Operating lease commitments – Within one year – After one year but within five years – After five years	2016 HK$’000 17,595 210,733 228,328 423,009 61,531 484,540 44,254 25,385 7,246 76,885 789,753	2015 HK$’000 24,744 245,098
		269,842
		669,934 64,608
		734,542
		53,880 68,635 13,014
		135,529
		1,139,913

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(a) Operating lease commitments

The Group leases a number of premises under operating leases for use as office premises, car parks, warehouses, district centres, remote camera sites, multipoint microwave distribution system transmission sites and hub sites. The terms of the leases vary and may be renewable on a monthly basis or run for an initial period of two to fifteen years, with an option to renew the lease after that date at which time all terms are renegotiated. Lease payments are usually adjusted every two to three years to reflect market rentals. None of the leases includes contingent rentals.

Some of the leased properties have been sublet by the Group under operating leases. The terms of the subleases vary and may be renewable on a monthly basis or run for an initial period of three years, with an option to renew the lease after that date at which time all terms are renegotiated.

The Group leases out decoders to subscribers under operating leases which are renewable on a monthly basis. None of the leases includes contingent rentals.

(b) Future operating lease income

The total future minimum sublease payments receivable under non-cancellable subleases at December 31, 2016 amounted to HK$3,436,000 (2015: HK$21,130,000). The total future minimum lease payments receivable in respect of decoders and other equipment under non-cancellable operating leases are as follows:

Within one year	2016 HK$’000 3,505	2015 HK$’000 2,146

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29. Contingent Liabilities

As at December 31, 2016, there were contingent liabilities in respect of the following:

(i) The Company has undertaken to provide financial support to certain of its subsidiaries in order to enable them to continue to operate as going concerns.
(ii) Guarantees, indemnities and letters of awareness to a bank and a fellow subsidiary totally of HK$806,000,000 (2015: HK$606,000,000) in respect of overdraft and guarantee facilities to the subsidiaries. Of this amount, at December 31, 2016, HK$590,000,000 (2015: HK$300,000,000) was utilised by the subsidiaries.

As at the end of the reporting period, the Company has issued three separate guarantees to a bank and one guarantee to a fellow subsidiary in respect of loan facilities granted to two wholly owned subsidiaries. As at December 31, 2016, the directors do not consider it probable that a claim will be made against the Company under any of the guarantee. The maximum liability of the Company at the end of the reporting period under the guarantees issued is the facilities drawn down by the wholly owned subsidiaries of HK$590,000,000 (2015: HK$300,000,000).

30. Material Related Party Transactions

In addition to the transactions and balances disclosed elsewhere in these financial statements, the Group entered into the following material related party transactions during the year ended December 31, 2016:

Rentals payable and related management fees on land and buildings (Note (i)) Rentals receivable on land and buildings (Note (ii)) Network repairs and maintenance services charges (Note (iii)) Management fees (Note (iv)) Computer services (Note (v)) Leased line and Public Non-Exclusive Telecommunications Service(‘‘PNETS’’) charges and international bandwidth access charges (Note (vi)) Telephony services fees (Note (vii))	2016 HK$’000 55,486 (6,424) (7,069) 8,960 523 5,132 8,081	2015 HK$’000 57,062 (7,535) (4,966) 9,050 393 5,662 9,598

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Notes:

(i) These represent rentals and related management fees paid to fellow subsidiaries in respect of office premises, car parks, warehouses, district centres and hub sites. As at December 31, 2016, related rental deposits amounted to HK$12,507,509 (2015: HK$12,734,651).
(ii) This represents rentals received from fellow subsidiaries in respect of the lease of office premises.
(iii) This represents service charges to a fellow subsidiary in relation to the operation, repair and maintenance of ducts, cables and ancillary equipment.
(iv) This represents costs incurred by a fellow subsidiary on the Group’s behalf which were recharged to the Group.
(v) This represents service charges paid to fellow subsidiaries for computer system maintenance and consulting services provided.
(vi) These represent service fees paid to a fellow subsidiary in respect of the leasing of datalines, PNETS charges and international bandwidth access charges incurred.
(vii) This represents service charges paid to a fellow subsidiary in relation to the telephony services.

On November 9, 2016, Wharf T&T Limited (‘‘WT&T’’) has been disposed the entire equity interests by The Wharf (Holdings) Limited. Accordingly, the income and expenses which come from WT&T will no longer be included into the material related party transactions since the disposal.

On December 12, 2016, Wharf Finance Limited, a fellow subsidiary has granted a revolving loan facility of HK$400,000,000 to a subsidiary of the Group on January 1, 2017 and which will be mature on December 31, 2017 (2016: HK$400,000,000 revolving loan facility, with an original maturity date of December 31, 2016).

The above material related party transactions include amounts which also constitute connected transactions as defined in Chapter 14A of the Listing Rules. The disclosures required by Chapter 14A of the Listing Rules are provided in the Section ‘‘Disclosure of Connected Transactions’’ of the Report of the Directors.

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Key management personnel remuneration

Remuneration for key management personnel, including amounts paid to the Company’s directors as disclosed in Note 7 and certain of the highest paid employees as disclosed in Note 8, is as follows:

Short-term employee benefits Post-employment benefits	2016 HK$’000 20,318 586 20,904	2015 HK$’000 19,343 599
		19,942

Total remuneration is included in ‘‘staff costs’’ (See Note 5).

31. Non-adjusting Events after the Reporting Period

After the end of the reporting period, the Group has entered into three sale and purchase agreements with third parties to sell two property holding companies and one real property, at a consideration of HK$81,850,000 in aggregate.

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FINANCIAL INFORMATION

32. Company Level Statement of Financial Position

Note Non-current assets Investments in subsidiaries Amounts due from subsidiaries Current assets Prepayments and other receivables Cash and cash equivalents Current liabilities Accrued expenses and other payables Amounts due to subsidiaries Amounts due to fellow subsidiaries Net current liabilities NET ASSETS Capital and reserves 25(a) Share capital Reserves TOTAL EQUITY	2016 HK$’000 9 4,317,828 4,317,837 1 16,355 16,356 1,196 1,349,637 5,139 1,355,972 (1,339,616) 2,978,221 6,857,599 (3,879,378) 2,978,221	2015 HK$’000 8 5,053,216 5,053,224 1 48,851 48,852 1,433 1,017,465 4,600 1,023,498 (974,646) 4,078,578 6,857,599 (2,779,021) 4,078,578

Approved and authorised for issue by the Board of Directors on March 15, 2017.

Stephen T H Ng William J H Kwan and Chief Executive Officer Director and Chief Financial Officer

Chairman and Chief Executive Officer

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33. Accounting Estimates and Judgements

Management considers the key source of estimation uncertainty lies in the recognition of deferred tax assets from unused tax losses. As explained in Note 1(n), all deferred tax assets to the extent that it is probable that future taxable profits will be available against which they can be utilised, are recognised. It is possible that adverse changes to the operating environment or the Group’s organisation structure could cause a future write-down of the deferred tax assets recognised.

Apart from deferred tax assets, management also makes estimates and assumptions that affect the reported amounts of other assets, liabilities, revenue and expenses as well as the disclosure of contingent assets and liabilities. Notes 1(c), 1(e), 1(g)(i), 1(g)(iv) and 1(g)(v), 1(h), 1(i), 1(j), 1(q), and Note 27(e) contain information about the assumptions and risk factors relating to useful lives of property, plant and equipment, net realisable value of commissioned programmes, films rights and perpetual film rights and films in progress, impairment of property, plant and equipment, intangible assets, inventories, financial assets at amortised cost and amounts due from subsidiaries on company level statement of financial position.

The useful lives of property, plant and equipment are estimated at the time such assets are acquired and are based on historical experience with similar assets, also taking into account the anticipated technological or industrial changes in order to determine the amount of depreciation expense to be recorded during any reporting period. If these changes were to occur more rapidly than anticipated or in a different form than anticipated, the useful lives assigned to these assets may need to be shortened, resulting in the recognition of increased depreciation expense in future periods.

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FINANCIAL INFORMATION

Net realisable values of commissioned programmes, films rights and perpetual film rights and films in progress are estimated based on the projected future revenue to be derived from all applicable territories and windows less cost to sell, taking into account historical performances of films and programmes with comparable budgets, casts, or other relevant qualities. Impairment is made for carrying costs that are in excess of the expected future revenue to be generated by these programmes and films. Films in progress are stated at cost less any impairment, taking into account the project status and estimated realisable value. If revenue actually generated were to fall short of forecasts, or there are changes in total projected ultimate gross revenues, amortisation may need to be increased, or impairment may need to be made to reduce the carrying value of individual programme or film to its realisable amount.

Property, plant and equipment, inventories, and amounts due from subsidiaries on company level statement of financial position, intangible assets, various financial assets at amortised cost are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may exceed the realisable value. If any such indication exists, the asset’s realisable value is estimated and an impairment loss is recognised.

The value in use of property, plant and equipment, inventories, intangible assets and amounts due from subsidiaries on company level statement of financial position represent the amount that these assets are expected to generate based on reasonable and supportable assumptions. The value of financial assets at amortised cost are calculated based on estimated future cash flows considering reasonable and supportable information that is relevant and available without undue cost or effort, including historical experience, informed credit assessment and forward-looking information.

Actual results may differ from these estimates under different assumptions or conditions.

34. Possible Impact of Amendments, New Standards and Interpretations Issued but not yet Effective for the Year Ended December 31, 2016

Up to the date of issue of these financial statements, the HKICPA has issued a number of amendments and new standards which are not yet effective for the year ended December 31, 2016 and which have not been adopted in these financial statements. These include the following which may be relevant to the Group.

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Effective for

	Effective for
	accounting periods
	beginning on or after
Amendments to HKAS 7, Statement of cash flows:	January 1, 2017
Disclosure initiative
Amendments to HKAS 12, Income taxes: Recognition of	January 1, 2017
deferred tax assets for unrealised losses
HKFRS 15, Revenue from contracts with customers	January 1, 2018
Amendments to HKFRS 2, Share-based payment:
Classification and measurement of share-based payment	January 1, 2018
transactions
HKFRS 16, Leases	January 1, 2019

The Group is in the process of making an assessment of what the impact of these amendments and new standards is expected to be in the period of initial application. So far the Group has identified some aspects of the new standards which may have a significant impact on the consolidated financial statements. Further details of the expected impacts are discussed below. As the Group has not completed its assessment, further impacts may be identified in due course and will be taken into consideration when determining whether to adopt any of these new requirements before their effective date and which transitional approach to take, where there are alternative approaches allowed under the new standards.

HKFRS 15, Revenue from contracts with customers

HKFRS 15 establishes a comprehensive framework for recognising revenue from contracts with customers. HKFRS 15 will replace the existing revenue standards, HKAS 18, Revenue, which covers revenue arising from sale of goods and rendering of services, and HKAS 11, Construction contracts, which specifies the accounting for revenue from construction contracts. The Group is currently assessing the impacts of adopting HKFRS 15 on its financial statements. Based on the preliminary assessment, the Group has identified that the timing of revenue recognition is likely to be affected. The Group’s revenue recognition policies are disclosed in note 1(l). Currently, revenue arising from the installation services are generally recognised upon completion of the related installation works whereas revenue from licensing of television rights is recognised in full upon delivery of the programmes.

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Under HKFRS 15, revenue is recognised when the customer obtains control of the promised good or service in the contract. HKFRS 15 identifies 3 situations in which control of the promised good or service is regarded as being transferred over time:

(i) When the customer simultaneously receives and consumes the benefits provided by the entity’s performance, as the entity performs;
(ii) When the entity’s performance creates or enhances an asset (for example work in progress) that the customer controls as the asset is created or enhanced;
(iii) When the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date.

If the contract terms and the entity’s activities do not fall into any of these 3 situations, then under HKFRS 15 the entity recognises revenue for the sale of that good or service at a single point in time, being when control has passed. Transfer of risks and rewards of ownership is only one of the indicators that will be considered in determining when the transfer of control occurs.

As a result of this change from the risk-and-reward approach to the contract-bycontract transfer-of-control approach, it is possible that once the Group adopts HKFRS 15 some of the Group’s installation fees and income from licensing that are currently recognised at a point in time may meet the HKFRS 15 criteria for revenue recognition over time. This will depend on the terms of the sales contract and the enforceability of any specific performance clauses in that contract, which may vary depending on the jurisdiction in which the contract would be enforced. It is also possible that for the remainder of the Group’s contracts the point in time when revenue is recognised may be earlier or later than under the current accounting policy. However, further analysis is required to determine whether this change in accounting policy may have a material impact on the amounts reported in any given financial reporting period.

HKFRS 16, Leases

As disclosed in Note 1(f), currently the Group classifies leases into finance leases and operating leases and accounts for the lease arrangements differently, depending on the classification of the lease. The Group enters into some leases as the lessor and others as the lessee.

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FINANCIAL INFORMATION

APPENDIX I

HKFRS 16 is not expected to impact significantly on the way that lessors account for their rights and obligations under a lease. However, once HKFRS 16 is adopted, lessees will no longer distinguish between finance leases and operating leases. Instead, subject to practical expedients, lessees will account for all leases in a similar way to current finance lease accounting, i.e. at the commencement date of the lease the lessee will recognise and measure a lease liability at the present value of the minimum future lease payments and will recognise a corresponding ‘‘right-of-use’’ asset. After initial recognition of this asset and liability, the lessee will recognise interest expense accrued on the outstanding balance of the lease liability, and the depreciation of the right-of-use asset, instead of the current policy of recognising rental expenses incurred under operating leases on a systematic basis over the lease term. As a practical expedient, the lessee can elect not to apply this accounting model to short-term leases (i.e. where the lease term is 12 months or less) and to leases of low-value assets, in which case the rental expenses would continue to be recognised on a systematic basis over the lease term.

HKFRS 16 will primarily affect the Group’s accounting as a lessee of leases for properties, plant and equipment which are currently classified as operating leases. The application of the new accounting model is expected to lead to an increase in both assets and liabilities and to impact on the timing of the expense recognition in the statement of profit or loss over the period of the lease.

35. Immediate and Ultimate Controlling Parties

The Directors consider the immediate and the ultimate controlling parties at December 31, 2016 to be Wharf Communications Limited and Wheelock and Company Limited, respectively, both of which are incorporated in Hong Kong. Wheelock and Company Limited produces financial statements available for public use.

36. Approval of Financial Statements

The financial statements were approved and authorised for issue by the Directors on March 15, 2017.

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FINANCIAL INFORMATION

APPENDIX I

3. STATEMENT OF INDEBTEDNESS

(a) Borrowings

As at the close of business on 31 March 2017, being the most recent practicable date for the purpose of this statement of indebtedness prior to the printing of this circular, the Group had total borrowings of approximately HK$705 million, comprising HK$395 million unsecured bank borrowings from HSBC and HK$310 million unsecured borrowings from Wharf Finance under the Wharf Facility Agreement.

(b) Contingent Liabilities

As at the close of business on 31 March 2017, the Group did not have any material contingent liabilities.

Save as aforesaid and apart from intra-group liabilities and normal trade payables in the ordinary course of business, as at the close of business on 31 March 2017, the Group did not have any debt securities issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptances (other than normal trade bills) or acceptance credits, mortgages, charges, finance lease or hire purchase commitments, guarantees or other material contingent liabilities. The Directors confirmed that there had been no material changes in the indebtedness and contingent liabilities of the Group since 31 March 2017 up to and including the Latest Practicable Date.

4. WORKING CAPITAL STATEMENT

The Directors, after due and careful consideration, are in the opinion that in the absence of unforeseen circumstances and taking into account of the net proceeds from the Open Offer, the Loan Capitalisation and the internal resources of the Group, the Group has sufficient working capital for its present requirements and for at least the next 12 months from the date of this circular.

5. STATEMENT ON MATERIAL CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material change in the financial or trading position or outlook of the Group since 31 December 2016, being the date to which the latest published audited consolidated financial statements of the Group were made up.

For details on the Group’s business trend and financial and trading prospects, please refer to the paragraph headed ‘‘6. Business Trend and Financial and Trading Prospects’’ in this appendix below.

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APPENDIX I

FINANCIAL INFORMATION

6. BUSINESS TREND AND FINANCIAL AND TRADING PROSPECTS

Throughout the year ended 31 December 2016 to the first quarter of 2017, the Company has been presented with a considerably uncertain operating environment in the television segment, with fast-changing user behaviour and intensifying competition given rise by the increasingly abundant supply of contents made available via a wider choice of media, which has continued to weaken market demand for the Group’s subscription content and contract our customer base throughout 2016 and in the first quarter of 2017. As a result of a moderate increase in various subscription price points despite contraction of our customer base, our broadband revenue stabilised towards the end of 2016, and we continued to observe such stabilising trend in the first quarter of 2017. Nevertheless, the downward trend in local retail sales in 2016 extended to the first quarter of 2017 and has continued to discourage advertising spending and depressed our airtime sales performance.

As announced in the Company’s preliminary 2016 results on 23 February 2017 (and as subsequently disclosed in the Company’s annual report for the year ended 31 December 2016 issued on 22 March 2017), during the year ended 31 December 2016, the Group incurred a net loss of HK$313 million (2015: HK$233 million) and, as of that date, the Group had net current liabilities of HK$892 million (2015: HK$561 million). The Directors had taken steps to improve the Group’s liquidity and solvency position. Based on management estimation of the future cash flows of the Group, after taking into account (i) cash balance of HK$106 million and continuous net cash inflows from operating activities; and (ii) the banking facility of HK$400 million and the facility under the Wharf Facility Agreement, of which a total of HK$590 million had been utilised at the end of the year ended 31 December 2016, the Directors were of the opinion at the time of the Board’s approval and announcement of the Group’s preliminary 2016 results on 23 February 2017 that the Group would have sufficient working capital to finance its operations and remain as a going concern for the foreseeable future.

However, subsequent to the Board’s approval and announcement of the Group’s preliminary 2016 results on 23 February 2017 and as described in the announcement issued by the Company on 9 March 2017, the Company received a notice from Wharf on 9 March 2017 indicating that the board of Wharf had resolved (i) not to provide any further funding commitments to any member of the Group for its business operations, other than the current funding commitments (which include the existing facility made available to the Group under the Wharf Facility Agreement); (ii) not to renew any of the current funding commitments when they expire; and (iii) Wharf has no intention to increase its shareholding interest in the Company. As announced by the Company on 21 March 2017, this subsequent event casts doubt on the Company’s ability to continue as a going concern, and therefore the Company’s ability to realise its assets and discharge its liabilities in the ordinary course of business for the foreseeable future has become materially uncertain.

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FINANCIAL INFORMATION

APPENDIX I

Reference is also made to the announcement issued by the Company on 15 March 2017 in which the Board announced that HKCTV has, on 3 March 2017, requested the SCED for, and the SCED has granted, an extension of the deadline for returning signed copies of the renewed Pay TV Licence from 15 March 2017 to 26 April 2017. The existing Pay TV Licence is expiring on 31 May 2017, and the Chief Executive-in-Council has, on 13 December 2016, approved HKCTV’s application for renewal of its Pay TV Licence for a period of 12 years from 1 June 2017. In light of the recent developments set out in the Announcement, including the proposed Open Offer, HKCTV has, on 18 April 2017, requested the SCED for a further extension of deadline for returning signed copies of the renewed Pay TV Licence from (the ‘‘Deadline’’) 26 April 2017 to 31 May 2017. As announced in the Company’s announcement dated 25 April 2017, the SCED has approved the extension of the Deadline to 31 May 2017. However, if the Company is unable to obtain adequate funding for the Group to accept renewal of its Pay TV Licence for a period of 12 years and to continue to pursue its business operations in case the proposed Open Offer is not materialised, the Pay TV service will cease immediately after 31 May 2017 and therefore lead to an immediate loss of the Company’s important source of revenue.

I – 76

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

UNAUDITED PRO FORMA STATEMENT OF ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS OF THE GROUP
A. INTRODUCTION TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

The accompanying unaudited pro forma statement of adjusted consolidated net tangible assets (collectively the ‘‘Unaudited Pro Forma Financial Information’’) of the Group has been prepared in accordance with Rule 4.29 of the Listing Rules to illustrate the effect of the Open Offer and the Loan Capitalisation on the consolidated net tangible assets of the Group attributable to owners of the Company on 31 December 2016 as if they had taken place on 31 December 2016. Capitalised terms used herein shall have the same meaning as those defined in this circular unless the context otherwise requires.

The Unaudited Pro Forma Financial Information of the Group has been prepared for illustrative purpose only and because of its hypothetical nature, it may not give a true picture of the actual financial position of the Group had the Open Offer and the Loan Capitalisation been completed as at 31 December 2016 or at any future date.

The Unaudited Pro Forma Financial Information of the Group is prepared based on the published audited consolidated statements of the Group as of and for the year ended 31 December 2016, as extracted from the annual report of the Company for the year ended 31 December 2016, with adjustments described below.

The Company has delivered the financial statements for the years ended 31 December 2015 and 31 December 2016 to the Registrar of Companies as required by section 662(3) of, and Part 3 of Schedule 6 to, the Companies Ordinance (Chapter 622 of the Laws of Hong Kong). The Company’s auditor has reported on these financial statements for both years. The auditor’s reports were unqualified; did not include a reference to any matters to which the auditor drew attention by way of emphasis; and did not contain a statement under either sections 406(2), 407(2) or (3) of the Companies Ordinance (Chapter 622 of the Laws of Hong Kong), except that the auditor’s report dated 15 March 2017 issued by KPMG in respect of the consolidated financial statements of the Company for the year ended 31 December 2016 (‘‘FY2016 Financial Statements’’) included a section headed ‘‘Material Uncertainty Related to Going Concern’’ to draw attention to certain events disclosed in note 1(b) to the FY2016 Financial Statements. Such section is extracted from the Company’s annual report for the year ended 31 December 2016 and reproduced under the paragraph headed ‘‘2. Audited Consolidated Financial Statements for the year ended 31 December 2016’’ in Appendix I to this circular which indicated a material uncertainty existed that may cast significant doubt on the Group’s ability to continue as a going concern.

II – 1

APPENDIX II

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

B. UNAUDITED PRO FORMA STATEMENT OF ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS OF THE GROUP

Consolidated net assets of the Group attributable to owners of the Company as at 31 December 2016 (Note 1) Adjustments: Programming library (Note 2) Intangible assets (Note 3) Consolidated net tangible assets of the Group attributable to owners of the Company as at 31 December 2016 Add: Estimated net proceeds from the Open Offer (Note 4) Loan Capitalisation (Note 5) Pro forma adjusted consolidated net tangible assets of the Group attributable to owners of the Company as at 31 December 2016 Adjusted consolidated net tangible assets of the Group attributable to the owners of the Company per share as at 31 December 2016 (Note 6)	HK$’000 505,398 (169,307) (2,062)
	334,029 669,000 300,000
	1,303,029
	HK$0.21

C. NOTES TO THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

The consolidated net assets of the Group attributable to owners of the Company as at 31 December 2016 of HK$505,398,000 is extracted from the audited consolidated financial statements of the Group as of and for the year ended 31 December 2016 included in the Group’s published annual report.

II – 2

APPENDIX II

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

The programming library of the Group as at 31 December 2016 of HK$169,307,000 represents intangible assets which consists of presentation rights for commissioned and acquired programmes for broadcasting on the Group’s television channels, commissioned programmes, films for licensing purposes, live programmes, in-house developed programmes, film rights and perpetual film rights and films in progress. It is extracted from the audited consolidated financial statements of the Group as of and for the year ended 31 December 2016 included in the Group’s published annual report and is excluded from the calculation of the consolidated net tangible assets for the purpose of the unaudited pro forma statement of adjusted consolidated net tangible assets as at 31 December 2016 of the Group as set out in Part 1B in this appendix.
Intangible assets of the Group as at 31 December 2016 of HK$2,062,000 represents club debentures for the right to use facilities in the Hong Kong Cricket Club and the Pacific Club Kowloon. It is extracted from the audited consolidated financial statements of the Group as of and for the year ended 31 December 2016 included in the Group’s published annual report and is excluded from the calculation of the consolidated net tangible assets for the purpose of the unaudited pro forma statement of adjusted consolidated net tangible assets as at 31 December 2016 of the Group as set out in Part 1B in this appendix.
The amount of estimated net proceeds from the Open Offer is based on a total of 3,352,520,666 Offer Shares to be issued at the Subscription Price of HK$0.21 per Offer Share assuming all Offer Shares would be accepted and after deducting estimated related expenses of approximately HK$35,200,000.
Under the Loan Capitalisation Agreement entered into among the Company, HKCTV and Wharf Finance on 14 April 2017, HK$300 million under the Wharf Facility will be capitalised into 841,987,090 new shares to be issued to Wharf Finance or its nominee. For pro forma purpose, the Loan Capitalisation amount of HK$300 million is assumed as if the Loan Capitalisation Agreement was completely executed on 31 December 2016. The amount due to Wharf Finance by the Group under the Wharf Facility as at 31 December 2016 and 31 March 2017 were HK$295 million and HK$310 million respectively.

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APPENDIX II

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

The pro forma adjusted consolidated net tangible assets of the Group attributable to the owners of the Company per share as at 31 December 2016 is calculated by having the pro forma adjusted consolidated net tangible assets of the Group attributable to owners of the Company as at 31 December 2016 divided by the number of shares of 6,206,020,156 as if the Open Offer of 3,352,520,666 shares and the Loan Capitalisation of 841,987,090 shares were completed on 31 December 2016 in addition to the 2,011,512,400 ordinary shares in issue.
Except for the Open Offer and Loan Capitalisation, no adjustment has been made to reflect any trading results or other transactions of the Group entered into subsequent to 31 December 2016.

II – 4

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

2. INDEPENDENT REPORTING ACCOUNTANTS’ ASSURANCE REPORT ON THE COMPILATION OF PRO FORMA FINANCIAL INFORMATION

The following is the text of a report received from the reporting accountants, KPMG, Certified Public Accountants, Hong Kong, in respect of the Group’s pro forma financial information for the purpose in this circular.

INDEPENDENT REPORTING ACCOUNTANTS’ ASSURANCE REPORT ON THE COMPILATION OF PRO FORMA FINANCIAL INFORMATION

TO THE DIRECTORS OF i-CABLE COMMUNICATIONS LIMITED

We have completed our assurance engagement to report on the compilation of pro forma financial information of i-CABLE Communications Limited (the ‘‘Company’’) and its subsidiaries (collectively the ‘‘Group’’) by the directors of the Company (the ‘‘Directors’’) for illustrative purposes only. The unaudited pro forma financial information consists of the unaudited pro forma statement of adjusted consolidated net tangible assets as at 31 December 2016 and related notes as set out in Part 1B and Part 1C of Appendix II respectively to the circular dated 12 May 2017 (the ‘‘Circular’’) issued by the Company. The applicable criteria on the basis of which the Directors have compiled the pro forma financial information are described in Part 1A of Appendix II to the Circular.

The pro forma financial information has been compiled by the Directors to illustrate the impact of the proposed open offer of 3,352,520,666 offer shares at HK$0.21 per offer share on the basis of five offer shares for every three existing shares (the ‘‘Open Offer’’) and the proposed conversion of HK$300,000,000 outstanding principal loan of the Group to a total of 841,987,090 new shares (the ‘‘Loan Capitalisation’’) on the Group’s financial position as at 31 December 2016 as if the Open Offer and Loan Capitalisation had taken place at 31 December 2016. As part of this process, information about the Group’s financial position as at 31 December 2016 has been extracted by the Directors from the consolidated financial statements of the Company for the year then ended, on which an audit report has been published.

Directors’ Responsibilities for the Pro Forma Financial Information

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

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX II

Our Independence and Quality Control

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

The firm applies Hong Kong Standard on Quality Control 1 ‘‘Quality Control for Firms That Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements’’ issued by the HKICPA and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.

Reporting Accountants’ Responsibilities

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

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements (‘‘HKSAE’’) 3420 ‘‘Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus’’ issued by the HKICPA. This standard requires that the reporting accountants plan and perform procedures to obtain reasonable assurance about whether the Directors have compiled the pro forma financial information in accordance with paragraph 4.29 of the Listing Rules, and with reference to AG 7 issued by the HKICPA.

For purpose of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the pro forma financial information, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the pro forma financial information.

The purpose of pro forma financial information included in an investment circular is solely to illustrate the impact of a significant event or transaction on unadjusted financial information of the Group as if the event had occurred or the transaction had been undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of events or transactions as at 31 December 2016 would have been as presented.

II – 6

APPENDIX II

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

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

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

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

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

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

We make no comments regarding the reasonableness of the amount of net proceeds from the issuance of the Company’s shares, the application of those net proceeds, or whether such use will actually take place as described in the section headed ‘‘Reasons for the Open Offer and Use of Proceeds’’ in the Circular.

Opinion

In our opinion:

a) the pro forma financial information has been properly compiled on the basis stated;
b) such basis is consistent with the accounting policies of the Group, and
c) the adjustments are appropriate for the purposes of the pro forma financial information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Certified Public Accountants Hong Kong

12 May 2017

II – 7

GENERAL INFORMATION

APPENDIX III

1. RESPONSIBILITY STATEMENT

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

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

The directors of the Underwriter jointly and severally accept full responsibility for the accuracy of the information contained in this circular (other than those relating to the Group, the Wharf Group and the Wheelock Group) and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed by the directors of the Underwriter in this circular have been arrived at after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any statement in this circular misleading.

The directors of Celestial Pioneer Limited jointly and severally accept full responsibility for the accuracy of information contained in this circular (other than those relating to the Group, the Wharf Group and the Wheelock Group) and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed by the directors of the Underwriter in this circular have been arrived at after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any statement in this circular misleading.

III – 1

GENERAL INFORMATION

APPENDIX III

2. SHARE CAPITAL

The issued share capital of the Company as at the Latest Practicable Date and following completion of the Open Offer are as follows:

(i) As at the Latest Practicable Date

Issued and fully paid up:

2,011,512,400 Shares

HK$6,857,598,956

(ii) Upon completion of the Open Offer assuming that no further Shares will be issued or bought back by the Company prior to the close of the Open Offer

Issued and fully paid up:

2,011,512,400 Shares as at the Latest Practicable Date HK$6,857,598,956 3,352,520,666 Number of Offer Shares to be issued HK$704,029,340 5,364,033,066 Shares upon completion of the Open Offer HK$7,561,628,296

All of the Offer Shares to be issued will rank pari passu in all respects with all the Shares in issue as at the date of allotment and issue of the Offer Shares. The Offer Shares to be issued will be listed on the Stock Exchange.

As at the Latest Practicable Date, the Company had no outstanding options, convertible securities, options, warrants or derivatives in issue which confer any right to subscribe for, convert or exchange into Shares and no capital of any member of the Group is under option, or agreed conditionally or unconditionally to be put under option as at the Latest Practicable Date.

No Shares had been issued by the Company since 31 December 2016, being the date on which the latest audited financial statements of the Group were made up, up to the Latest Practicable Date.

No part of the share capital or any other securities of the Company is listed or dealt in on any stock exchange other than the Stock Exchange and no application is being made or is currently proposed or sought for the Shares or Offer Shares or any other securities of the Company to be listed or dealt in on any other stock exchange.

There is no arrangement under which future dividends are/will be waived or agreed to be waived.

III – 2

GENERAL INFORMATION

APPENDIX III

3. MARKET PRICES

The table below shows the closing price per Share as quoted on the Stock Exchange (i) on the last day on which trading took place in each of the six calendar months during the Relevant Offer Period; (ii) on 13 April 2017, being the Last Trading Day; and (iii) as at the Latest Practicable Date:

	Closing price
Date	per Share
	HK$
31 October 2016	0.83
30 November 2016	0.80
30 December 2016	0.78
27 January 2017	0.97
28 February 2017	0.93
31 March 2017	0.62
13 April 2017 (Last Trading Day)	0.61
28 April 2017	0.59
Latest Practicable Date	0.56

The lowest and highest closing prices of the Shares recorded on the Stock Exchange during the Relevant Offer Period were HK$0.54 on 27 April 2017 and HK$1.00 on 19 January 2017, 8 February 2017, 9 February 2017 and 10 February 2017 respectively.

III – 3

GENERAL INFORMATION

APPENDIX III

4. DISCLOSURE OF INTERESTS

(i) Interests of Directors

(a) Interests in Shares and Debt Securities

As at the Latest Practicable Date, the interests and short positions of the Directors or the chief executive of the Company in the Shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO), which were required (i) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO); or (ii) pursuant to section 352 of the SFO, to be entered into the register referred to therein; or (iii) are otherwise required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies as set out in Appendix 10 to the Listing Rules; or (iv) to be disclosed in this circular pursuant to the requirements of the Takeovers Code were as follows:

Quantity held (percentage based on number of shares in issue (Note 3), where applicable) The Company 1,265,005 (0.0629%) – Ordinary Shares Mr. Stephen T H Ng Wheelock 176,000 (0.0086%) – Ordinary Shares (Note 1) Mr. Stephen T H Ng Wharf 269,445 (0.0089%) – Ordinary Shares (Note 1) Mr. Stephen T H Ng Wharf Finance (No. 1) Limited HK$4,000,000 – HKD Fixed Rate Notes due 2020 Mr. Roger K H Luk (Note 2) Wheelock Finance Limited HK$2,000,000 – HKD Guaranteed Notes due 2017 Mr. Roger K H Luk (Note 2)

III – 4

GENERAL INFORMATION

APPENDIX III

Notes:

(1) The interests in shares disclosed above do not include interests in share options of the Company’s associated corporations held by Directors as at the Latest Practicable Date. Details of such interests in share options are separately set out below under the sub-sections headed ‘‘(b) Interests in Share Options of Wheelock’’ and ‘‘(c) Interests in Share Options of Wharf’’.
(2) These represent interests held jointly with another person.
(3) The total number of Shares of the Company in issue as at the Latest Practicable Date was 2,011,512,400.

(b) Interests in Share Options of Wheelock

Set out below are particulars of all interests (all being personal interests) in options held as at the Latest Practicable Date by the Directors to subscribe for ordinary shares of Wheelock granted/exercisable under a share option scheme of Wheelock:

	Total number
	as at the Latest
	Practicable Date				Number of
	(percentage based				Wheelock’s
Name of	on number of	Date of grant	Vesting/	Subscription	shares under
Director	shares in issue)	(Day/Month/Year)	Exercise period	price per share	option
				(HK$)
Mr. Paul Y C	2,100,000	14/06/2013	15/06/2013 –	39.98	900,000
Tsui	(0.103%)		14/06/2018
			(Note 1)
		07/07/2016	08/07/2016 –	36.60	1,200,000
			07/07/2021
			(Note 2)

Notes:

(1) The share options of Wheelock granted on 14 June 2013 outstanding as at the Latest Practicable Date were/will be vested in three tranches within a period of 3 years, with each tranche covering one-third of the relevant Wheelock’s share options, i.e. exercisable to the extent of one-third of the relevant total number of Wheelock’s shares and with each tranche covering options for 300,000 Wheelock’s shares being exercisable from 15th of June in the years 2015, 2016 and 2017 respectively.
(2) The share options of Wheelock granted on 7 July 2016 outstanding as at the Latest Practicable Date will be vested in four tranches within a period of 4 years, with each tranche covering onefourth of the relevant Wheelock’s share options, i.e. exercisable to the extent of one-fourth of the relevant total number of Wheelock’s shares and with each tranche covering options for 300,000 Wheelock’s shares being exercisable from 8th of July in the years 2017, 2018, 2019 and 2020 respectively.

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GENERAL INFORMATION

APPENDIX III

(c) Interests in Share Options of Wharf

Set out below are particulars of all interests (all being personal interests) in options held as at the Latest Practicable Date by the Directors to subscribe for ordinary shares of Wharf granted/exercisable under a share option scheme of Wharf:

	Total number
	as at the Latest
	Practicable Date
	(percentage based				Number of
Name of	on number of	Date of grant	Vesting/	Subscription	Wharf’s shares
Director	shares in issue)	(Day/Month/Year)	Exercise period	price per share	under option
				(HK$)
Mr. Stephen	6,400,000	05/06/2013	06/06/2013 –	70.20	2,000,000
T H Ng	(0.211%)		05/06/2018
			(Note 1)
		07/07/2016	08/07/2016 –	46.90	4,400,000
			07/07/2021
			(Note 2)
Mr. Paul Y C	2,200,000	05/06/2013	06/06/2013 –	70.20	1,000,000
Tsui	(0.0726%)		05/06/2018
			(Note 1)
		07/07/2016	08/07/2016 –	46.90	1,200,000
			07/07/2021
			(Note 2)

Notes:

(1) The share options of Wharf granted on 5 June 2013 outstanding as at the Latest Practicable Date were/will be vested in five tranches within a period of 5 years, with each tranche covering one-fifth of the relevant Wharf’s share options, i.e. exercisable to the extent of one-fifth of the relevant total number of Wharf’s shares and with the 1st, 2nd, 3rd, 4th and 5th tranche being exercisable from 6th of June in the years 2013, 2014, 2015, 2016 and 2017 respectively.
(2) The share options of Wharf as at the Latest Practicable Date held by Mr. Stephen T H Ng, granted on 7 July 2016, were/will be vested in five tranches, with the first tranche covering options for 400,000 Wharf’s shares being exercisable from 8 July 2016, and the remaining 4 tranches each covering 1,000,000 Wharf’s shares exercisable from 8 of July in the years 2017, 2018, 2019 and 2020 respectively. The share options of Wharf as at the Latest Practicable Date held by Mr. Paul Y C Tsui, granted on 7 July 2016, were/will be vested in four tranches, with each tranche covering options for 300,000 Wharf’s shares being exercisable from 8th of July in the years 2017, 2018, 2019 and 2020 respectively.

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GENERAL INFORMATION

APPENDIX III

(ii) Interests of Substantial Shareholders

As at the Latest Practicable Date, according to the register kept by the Company pursuant to section 336 of SFO, and so far as is known to the Directors or chief executive of the Company, the following persons (other than a Director or a chief executive of the Company) had, or was deemed or taken to have, an interest or short position in the Shares which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO or who were directly or indirectly interested in 5% or more of the nominal value of any class of share capital, including options in respect of such capital, carrying voting rights to vote in all circumstances at general meeting of any member of the Group:

Number of Shares (percentage based on number of Shares in issue (Note 1)) (i) Wharf Finance 841,987,090 (41.86%) (Note 2) (ii) Wharf 2,327,246,261 (115.70%) (Notes 3 & 6) (iii) Wheelock 2,327,246,261 (115.70%) (Notes 3 & 5) (iv) HSBC Trustee (C.I.) Limited (‘‘HSBC CI’’) 2,327,246,261 (115.70%) (Notes 3 & 4) (v) Forever Top (Asia) Limited 3,352,520,666 (166.67%) (Note 7)

Notes:

(1) The total number of Shares of the Company in issue as at the Latest Practicable Date was 2,011,512,400.
(2) Wharf Finance is deemed to be interested in the 841,987,090 Loan Capitalisation Shares to be issued to Wharf Finance or its nominee pursuant to the Loan Capitalisation Agreement by virtue of the SFO.
(3) Duplication occurs in respect of the shareholdings stated against parties (ii) to (iv) above to the extent that they represented the same block of Shares.
(4) HSBC CI’s deemed shareholding interests stated above were held by virtue of its 48.98% shareholding interest in Wheelock. HSBC CI held the interest in Wheelock as trustee of a trust.

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GENERAL INFORMATION

(5) Wheelock’s deemed shareholding interests stated above were held by virtue of its 61.03% shareholding interest in Wharf which were held through, inter alia, its two wholly-owned subsidiaries, namely, Wheelock Investments Limited and WF Investment Partners Limited.
(6) Wharf’s deemed shareholding interests stated above were held through its wholly-owned subsidiary, namely, Wharf Communications Limited. As Wharf Finance is an indirect wholly owned subsidiary of Wharf, Wharf is also deemed to be interested in the Shares in which Wharf Finance is interested in by virtue of the SFO.
(7) Forever Top (Asia) Limited, the Underwriter, is deemed to be interested in the 3,352,520,666 Offer Shares agreed to be fully underwritten by it pursuant to the Underwriting Agreement by virtue of the SFO.

(iii) Additional disclosures

(a) As at the Latest Practicable Date, no benefit had been or would be given to any Director as compensation for loss of office or otherwise in connection with the Open Offer, the Underwriting Agreement and/or the Whitewash Waiver.
(b) As at the Latest Practicable Date, save for the Underwriting Agreement, there was no agreement or arrangement between any Director and any other person which was conditional on or dependent upon the outcome of the Open Offer, the Underwriting Agreement and/or the Whitewash Waiver or otherwise connected with the Open Offer, the Underwriting Agreement and/or the Whitewash Waiver.
(c) As at the Latest Practicable Date, no material contracts had been entered into by the Underwriter in which any Director had a material personal interest.
(d) As at the Latest Practicable Date, none of the Company and the Directors had borrowed or lent any shares, convertible securities, warrants, options or derivatives of the Company.
(e) No fund managers (other than exempt fund managers) connected with the Company managed on a discretionary basis any Shares, convertible securities, warrants, options or derivatives of the Company as at the Latest Practicable Date and had dealt for value in any Shares, convertible securities, warrants, options or derivatives of the Company during the Relevant Offer Period.
(f) As at the Latest Practicable Date, save for Wharf (which has given the Undertaking), no person had irrevocably committed themselves to accept or reject their entitlements under the Open Offer.
(g) As at the Latest Practicable Date, no person had any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with the Company or any person who was an associate of the Company by virtue of classes (1), (2), (3) and (4) of the definition of associate in the Takeovers Code.

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(h) As at the Latest Practicable Date, none of (i) the subsidiaries of the Company, (ii) the pension fund of the Company or of any of its subsidiaries, nor (iii) any advisers to the Company as specified in class (2) of the definition of ‘‘associate’’ under the Takeovers Code (other than persons enjoying exempt principal trader status under the Takeovers Code), owned or controlled any shareholdings in the Company.
(i) As at the Latest Practicable Date, save as disclosed in the sub-paragraph headed ‘‘4. Disclosure of Interests – (i) Interests of Directors’’ in this appendix, none of the Directors was interested in or had during the Relevant Offer Period dealt for value in any Shares, convertible securities, warrants, options, derivatives or similar rights which were convertible or exchangeable into Shares.
(j) As at the Latest Practicable Date, none of the Company and the Directors held any shares, convertible securities, warrants, options, derivatives or similar rights which were convertible or exchangeable into shares of the Underwriter, and none of them had dealt for value in any shares, convertible securities, warrants, options, derivatives or similar rights which were convertible or exchangeable into shares of the Underwriter during the Relevant Offer Period.

5. EXPERTS AND CONSENTS

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

Name	Qualification
Lego	A licensed corporation to carry out Type 6 (advising on
	corporate finance) regulated activity under the SFO
KPMG	Certified Public Accountants

Knight Frank Petty Limited Property valuer (the ‘‘Valuer’’)

Each of Lego, KPMG and the Valuer has given and has not withdrawn their respective written consents to the issue of this circular with the inclusion herein of their respective letter/ report (as the case may be) or their respective names in the form and context in which they respective appear.

As at the Latest Practicable Date, each of Lego, KPMG and the Valuer did not have any shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

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GENERAL INFORMATION

APPENDIX III

As at the Latest Practicable Date, each of Lego, KPMG and the Valuer did not have any direct or indirect interests in any assets which have been, since 31 December 2016 (being the date to which the latest published audited consolidated accounts of the Group were made up), acquired or disposed of by or leased to, any member of the Group, or which are proposed to be acquired or disposed of by or leased to, any member of the Group.

6. MATERIAL LITIGATION

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

7. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had service contract with the Company or any of its subsidiaries or associated companies (i) which (including both continuous and fixed term contract) had been entered into or amended within six months before the date of the Announcement; (ii) which were continuous contracts with a notice period of 12 months or more; (iii) which were fixed term contracts with more than 12 months to run irrespective of the notice period; or (iv) which were not expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation).

8. DIRECTORS’ INTERESTS IN CONTRACTS OF SIGNIFICANCE AND ASSETS

As at the Latest Practicable Date, save for Mr. Stephen T H Ng and Mr. Paul Y C Tsui’s interests in (i) the Loan Capitalisation Agreement, (ii) the Facility Term Extension Agreement and (iii) the Property Agreements by virtue of their common directorships in each of the Company, Wharf (which is the holding company of the Wharf Group and wholly owns Wharf Finance) and Wheelock (a controlling shareholder of Wharf) and their respective interests in the underlying shares of Wheelock and/or Wharf as disclosed in the sub-paragraph headed “4. Disclosure of Interests – (i) Interests of Directors” in this appendix, there was no contract or arrangement subsisting in which any Director was materially interested and which was significant in relation to any business of the Group.

As at the Latest Practicable Date, save for Mr. Stephen T H Ng and Mr. Paul Y C Tsui’s common directorships in each of the Company, Wharf and Wheelock and their respective interests in the underlying shares of Wheelock and/or Wharf as disclosed in the sub-paragraph headed ‘‘4. Disclosure of Interests – (i) Interests of Directors’’ in this appendix, none of the Directors had any direct or indirect interest in any assets which had been since 31 December 2016 (being the date to which the latest published audited financial statements of the Group were made up) acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group.

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GENERAL INFORMATION

APPENDIX III

9. MATERIAL CONTRACTS

The following contracts (not being contracts in the ordinary course of business) have been entered into by the Company or any of its subsidiaries within the two years immediately preceding the date of the Announcement and up to the Latest Practicable Date and are or may be material:

(a) the Underwriting Agreement;
(b) the Loan Capitalisation Agreement;
(c) the Facility Term Extension Agreement; and
(d) the Property Agreements.

10. EXPENSES

The expenses in connection with the Open Offer are estimated to amount approximately to HK$35 million and are payable by the Company.

11. PARTICULARS OF DIRECTORS AND SENIOR MANAGEMENT

(i) Particulars of Directors and Senior Management

		Length of Service
Name	Address	as Director
Executive Directors:
Mr. Stephen T H Ng	16th Floor, Ocean Centre	17 years
(Chairman and Chief	Harbour City, Canton Road
Executive Officer)	Kowloon, Hong Kong
Mr. William J H Kwan	16th Floor, Ocean Centre	10 years
(Chief Financial Officer)	Harbour City, Canton Road
	Kowloon, Hong Kong
Non-executive Director:
Mr. Paul Y C Tsui	16th Floor, Ocean Centre	7 years
	Harbour City, Canton Road
	Kowloon, Hong Kong

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GENERAL INFORMATION

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Independent non-executive Directors:

Mr. Herman S M Hu	16th Floor, Ocean Centre	5 years
	Harbour City, Canton Road
	Kowloon, Hong Kong
Mr. Roger K H Luk	16th Floor, Ocean Centre	6 years
	Harbour City, Canton Road
	Kowloon, Hong Kong
Mr. Sherman S M Tang	16th Floor, Ocean Centre	3 years
	Harbour City, Canton Road
	Kowloon, Hong Kong
Mr. Patrick Y W Wu	16th Floor, Ocean Centre	9 years
	Harbour City, Canton Road
	Kowloon, Hong Kong
Senior management:
		Length of Service
Name	Address	since joining the Group
Mr. Stephen T H Ng	16th Floor, Ocean Centre	25 years
(Chairman and Chief	Harbour City, Canton Road
Executive Officer)	Kowloon, Hong Kong
Mr. William J H Kwan	16th Floor, Ocean Centre	23 years
(Chief Financial Officer)	Harbour City, Canton Road
	Kowloon, Hong Kong
Mr. Ronald Y C Chiu	16th Floor, Ocean Centre	25 years
	Harbour City, Canton Road
	Kowloon, Hong Kong
Mr. Samuel C C Tsang	16th Floor, Ocean Centre	21 years
	Harbour City, Canton Road
	Kowloon, Hong Kong
Mr. Raymond W M Chan	16th Floor, Ocean Centre	23 years
	Harbour City, Canton Road
	Kowloon, Hong Kong
Ms. Yvonne Yung	16th Floor, Ocean Centre	17 years
	Harbour City, Canton Road
	Kowloon, Hong Kong

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GENERAL INFORMATION

APPENDIX III

(ii) Biographical details of Directors and Senior Management

Executive Directors

Mr. Stephen Tin Hoi NG (‘‘Mr. Ng’’), aged 64, has been Director and Chief Executive Officer of the Company since 1999 and became its Chairman in August 2001. He also serves as a member and the chairman of the Company’s Nomination Committee. Among other listed companies in Hong Kong and Singapore, he is the deputy chairman of Wheelock, the ultimate holding company of the Company, and the chairman and managing director of Wharf, of which the Company is a subsidiary, the chairman of Harbour Centre Development Limited (‘‘HCDL’’) and Wheelock Properties (Singapore) Limited (‘‘WPSL’’), subsidiaries of Wharf and Wheelock respectively, and the non-executive chairman of Joyce Boutique Holdings Limited (‘‘Joyce’’), as well as a non-executive/non-independent director of Hotel Properties Limited, an associate of Wheelock. He was formerly a non-executive director of publicly listed Greentown China Holdings Limited (‘‘Greentown’’) until his resignation in March 2015. Mr. Ng was born in Hong Kong in 1952, and grew up in Hong Kong. He attended Ripon College in Ripon, Wisconsin, USA and the University of Bonn, Germany, from 1971 to 1975, and graduated with a major in mathematics. He is the chairman of Project WeCan Committee and Hong Kong General Chamber of Commerce, and a council member of the Employers’ Federation of Hong Kong (‘‘EFHK’’) and Hong Kong Trade Development Council.

Mr. William Jut Ho KWAN (‘‘Mr. Kwan’’), aged 53, was appointed Chief Financial Officer in January 2006 and a Director of the Company in February 2007. He is responsible for finance, accounting, planning, corporate development, investor relations, broadcasting and engineering operations, commercial dealings with acquired channels, human resources, administration, legal and regulatory affairs. He is also a director of certain subsidiaries of the Company.

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GENERAL INFORMATION

APPENDIX III

Non-executive Director

Mr. Paul Yiu Cheung TSUI (‘‘Mr. Tsui’’), FCCA, FCPA, FCMA, CGMA, CPA, CGA, aged 70, has been a Director of the Company since 2009. He also serves as a member of the Company’s Audit Committee. He is an executive director and group chief financial officer of Wheelock and a vice chairman and group chief financial officer of Wharf. Mr. Tsui joined Wheelock/Wharf group in 1996 and became Wheelock’s director in 1998. Furthermore, he is the vice chairman of Wheelock Properties Limited (‘‘WPL’’, formerly a listed public company until it became a wholly-owned subsidiary of Wheelock in July 2010) as well as a director of certain subsidiaries of the Company. He is also a director of Joyce. He is a general committee member of EFHK and chairman of the functional group ‘‘Property & Construction’’. Mr. Tsui was formerly a non-executive director of Greentown until his resignation in July 2015 as well as a director of both HCDL and WPSL until his resignation in August 2015.

Independent Non-executive Directors

Mr. Herman Shao Ming HU (“Mr. Hu”), BBS, JP, aged 63, has been an Independent Non-executive Director of the Company since 2012. He is the chairman of Ryoden Development Limited. Mr. Hu has been elected to be a Deputy of the 12th National People’s Congress. He is also the Council Chairman of City University of Hong Kong, a general committee member, executive committee member and chairman of Mainland China Committee of EFHK, the Vice-President of the Sports Federation & Olympic Committee of Hong Kong, China, a member of Council on Human Reproductive Technology, an Honorary Court Member of Hong Kong University of Science & Technology, a member of the Election Committee of the Government of the HKSAR and the Vice Patron of The Community Chest of Hong Kong.

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APPENDIX III

GENERAL INFORMATION

Mr. Roger Koon Hoo LUK (‘‘Mr. Luk’’), BBS, JP, aged 65, has been an Independent Non-executive Director of the Company since 2010. He also serves as the chairman of the Company’s Audit Committee and a member of each of the Company’s Compensation Committee and Nomination Committee. He has over 30 years of comprehensive experience in accounting and financial management. He joined Hang Seng Bank in 1975, became the bank’s director and deputy chief executive in 1994 and then became managing director and deputy chief executive of the bank in 1996 until his retirement in May 2005. Mr. Luk is an independent non-executive director of three companies publicly listed in Hong Kong, namely, China Properties Group Limited, Computime Group Limited and Hung Hing Printing Group Limited, and also an independent non-executive director of AXA General Insurance Hong Kong Limited and Octopus Cards Limited. Mr. Luk was formerly an independent non-executive director of WPL from February 2008 to July 2010. He also serves as a council member and the treasurer of The Chinese University of Hong Kong, and a non-executive director (non-official) of Urban Renewal Authority. Mr. Luk also served in the past on the Court and Council of Hong Kong Baptist University, the Advisory Committee on New Broad-based Taxes, the Personal Data (Privacy) Advisory Committee, the Central Policy Unit of the Hong Kong Government, the Statistics Advisory Board, the Broadcasting Authority, the Advisory Committee and the Investor Education Advisory Committee of the Securities and Futures Commission, the Barristers Disciplinary Tribunal Panel and the Town Planning Board. He was an appointed member of the Hong Kong Legislative Council from 1992 to 1995, and also a member of the first Election Committee of the Legislative Council. Mr. Luk graduated with a Bachelor of Social Sciences Degree in Statistics from The University of Hong Kong and also holds a Master of Business Administration Degree granted by The Chinese University of Hong Kong. He is also a Non-official Justice of the Peace and was awarded the honour of Bronze Bauhinia Star in 2004 in recognition of his contributions to public services.

Mr. Sherman Sing Ming TANG (‘‘Mr. Tang’’), aged 60, has been appointed an Independent Non-executive Director of the Company since 2014. He holds a Master degree in Electrical Engineering and a degree of Doctor in Medicine from the University of Southern California, the United States of America. Mr. Tang is a seasoned entrepreneur in the hospitality industry and has over 20 years of experience in investment and operation of restaurants, cafes and bars. He is the founder and owner of the Epicurean Group and also served as the chairman and chief executive officer of Epicurean and Company, Limited, a company listed on the Stock Exchange, until his resignation in November 2016.

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APPENDIX III

GENERAL INFORMATION

Mr. Patrick Yung Wei WU (‘‘Mr. Wu’’), aged 64, has been an Independent Non-executive Director of the Company since 2007. He also serves as the chairman of the Company’s Compensation Committee and a member of each of the Company’s Audit Committee and Nomination Committee. Mr. Wu is the managing director and Greater China Region leader of Duff & Phelps. Mr. Wu has worked both in industry as a senior executive with extensive management experience and in private practice as a lawyer. He was a partner of an international law firm with particular responsibility for China trade advice. Mr. Wu was educated in Hong Kong and the United Kingdom. He graduated from the University of London in 1974 with a Bachelor’s Degree in Science, and obtained his Master of Business Administration Degree from the Cass Business School, City University in London in 1976. Mr. Wu was admitted as a solicitor of the Supreme Court in the UK in 1982 and in Hong Kong also in 1982 and is a member (non-practising) of The Law Society of Hong Kong. He is also an active member of various professional organisations, chambers of commerce and the business community in Hong Kong.

Senior management

Mr. Ronald Y C CHIU (‘‘Mr. Chiu’’), aged 64, was appointed Assistant News Controller in June 1993 and was instrumental in the launch of the first 24-hour Cantonese language News Channel in the world. Mr. Chiu was promoted to News Controller in 1994 and appointed as Vice President, News & Sports in 2002. He became an executive director of i-CABLE News Limited and i-CABLE Sports Limited in September 2005 responsible for operating channels of the Sports and News platform. Prior to joining the Company, Mr. Chiu held various senior news positions in the television industry. His experience spans from reporting, editing, news anchoring; to planning and execution of news coverage as well as management of news operation. He was made Honorary University Fellow of the Hong Kong Baptist University in 2012 in recognition of his contributions to broadcasting news.

Mr. Samuel C C TSANG (‘‘Mr. Tsang’’), aged 60, was appointed Enterprises Director in 1995 to take charge of international programme licensing and advertising sales for the station. He became Chief Operating Officer of Hong Kong Cable Enterprises Limited (‘‘HKCE’’) when it was set up in 2000 to take over advertising sales of Hong Kong Cable Television Limited. He became General Manager of both HKCE and Hong Kong Cable News Express Limited on 1 March 2005. Mr. Tsang has extensive experience in media and marketing, specialising in new business establishment in Mainland China and Hong Kong. He assumed the additional position of executive director, i-CABLE Entertainment Limited, in March 2011, and is also responsible for the operation and development of the Group’s entertainment platform.

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APPENDIX III

GENERAL INFORMATION

Mr. Raymond W M CHAN (‘‘Mr. Chan’’), aged 51, Mr. Chan joined the Company in September 1993 and was responsible for the operations and technical support of broadcasting headend. Throughout his career with the Company, he gained extensive experience in TV broadcasting, telecommunication and data communication engineering. He was appointed Vice President, Network Operations in July 2014, responsible for service operation, as well as the development and operation of the Company’s pay TV and broadband distribution networks. Mr. Chan holds a Bachelor of Engineering degree (First Class Honours) and a Master of Science degree in Electronic Engineering.

Ms. Yvonne YUNG (‘‘Ms. Yung’’), aged 50, first worked for the Access Department of the Company from November 1993 to December 1997. She rejoined the Company in September 2003 and was responsible for managing the corporate sales team. She was appointed Assistant Vice President, Subscription Marketing and Sales in December 2016 to oversee the sales business of Pay TV, Broadband and Telephony services. She has over 20 years of experience in various sectors of the telecommunications field. Ms. Yung holds a Bachelor of Arts Degree in Economics from the University of Alberta, Canada.

Save as disclosed above, as at the Latest Practicable Date, each of the Directors and senior management (i) did not hold any other directorships in any public companies the securities of which are listed on any securities market in Hong Kong or overseas in the past three years; (ii) did not hold any other positions in the Company and its subsidiaries; (iii) did not have any relationship with any directors, senior management, substantial shareholders or controlling shareholders of the Company; and (iv) did not have other major appointments or professional qualifications.

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GENERAL INFORMATION

APPENDIX III

12. PARTIES INVOLVED IN THE OPEN OFFER AND CORPORATE INFORMATION

Registered office of the 16th Floor, Ocean Centre Company: Harbour City, Canton Road Kowloon, Hong Kong Principal business address Cable TV Tower of the Company: 9 Hoi Shing Road Tsuen Wan, Hong Kong Authorised representatives Mr. NG, Tin Hoi Stephen of the Company: 16th Floor, Ocean Centre Harbour City, Canton Road Kowloon, Hong Kong

Mr. HUI, Chung Ying Kevin 16th Floor, Ocean Centre Harbour City, Canton Road Kowloon, Hong Kong
Company secretary of the Mr. HUI, Chung Ying Kevin Company: a fellow of the Association of Chartered Certified Accountants and an associate of the Hong Kong Institute of Certified Public Accountants

Auditors and reporting KPMG accountant of 8th Floor Prince’s Building the Company: 10 Chater Road Hong Kong

Underwriter: Forever Top (Asia) Limited 16th Floor Far East Consortium Building 121 Des Voeux Road Central Hong Kong

Financial consultant to the Ernst & Young Transactions Limited Company in relation to the 22nd Floor Open Offer, the Whitewash CITIC Tower Waiver and the Special 1 Tim Mei Avenue Deals: Central, Hong Kong

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GENERAL INFORMATION

APPENDIX III

Independent Financial Lego Corporate Finance Limited Adviser: Room 1601, 16/F China Building 29 Queen’s Road Central Central, Hong Kong Legal advisers to the Deacons Company: 5th Floor Alexandra House 18 Chater Road Central, Hong Kong Principal bankers of the The Hongkong and Shanghai Banking Company: Corporation Limited 1 Queen’s Road Central Hong Kong Share registrar: Tricor Tengis Limited Level 22, Hopewell Centre 183 Queen’s Road East, Hong Kong

13. MISCELLANEOUS

(a) As at the Latest Practicable Date, there was no restriction affecting the remittance of profits or repatriation of capital of the Company into Hong Kong from outside of Hong Kong.
(b) The English text of this circular shall prevail over the Chinese text in the case of inconsistency.

14. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors or their respective associates had any interests in businesses which compete or are likely to compete, either directly or indirectly, with the businesses of the Group, other than those businesses where the Directors were appointed as directors to represent the interests of the Company and/or the Group.

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GENERAL INFORMATION

15. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection (i) during normal business hours (i.e. from 9:30 a.m. to 5:00 p.m. on Monday to Friday except public holidays) on any Business Day at the Company’s principal business address at Cable TV Tower, 9 Hoi Shing Road, Tsuen Wan, Hong Kong; (ii) on the website of the Company (http://www.i-cablecomm.com/); and (iii) on the website of the SFC (www.sfc.hk) from the date of this circular up to and including the date of completion of the Open Offer:

(a) the articles of association of the Company;
(b) the articles of association of the Underwriter;
(c) the annual reports of the Company for the years ended 31 December 2014, 2015 and 2016;
(d) the material contracts as referred to in the paragraph headed ‘‘Material contracts’’ in this Appendix;
(e) the written consents referred to in the paragraph headed ‘‘Experts and consents’’ in this Appendix;
(f) the reporting accountant’s assurance report on the unaudited pro forma financial information of the Group issued by KPMG, the text of which is set out in Appendix II to this circular;
(g) the opinion letter prepared by Knight Frank Petty Limited;
(h) the letter from the Board to the Shareholders, the text of which is set out in the section headed ‘‘Letter from the Board’’ in this circular;
(i) the letter of recommendation from the Independent Board Committee to the Independent Shareholders, the text of which is set out in the section headed ‘‘Letter from the Independent Board Committee’’ in this circular;
(j) the letter of advice from Lego to the Independent Board Committee and the Independent Shareholders, the text of which is set out in the section headed ‘‘Letter from Lego’’ in this circular;
(k) the Undertaking; and
(l) this circular.

III – 20

NOTICE OF THE EGM

==> picture [97 x 50] intentionally omitted <==

i-CABLE COMMUNICATIONS LIMITED

(Incorporated in Hong Kong with limited liability) (Stock Code: 1097)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT an extraordinary general meeting (the ‘‘EGM’’) of i-CABLE Communications Limited (the ‘‘Company’’) will be held at 10:45 a.m. on Monday, 29 May 2017 at Centenary Room, Ground Floor, The Marco Polo Hongkong Hotel, 3 Canton Road, Kowloon, Hong Kong for the purpose of considering and, if thought fit, passing with or without amendments, the following ordinary resolutions of the Company (unless otherwise indicated, capitalised terms used in this notice shall have the same meanings as those defined in the circular of the Company dated 12 May 2017 (the ‘‘Circular’’)):

ORDINARY RESOLUTIONS

‘‘THAT subject to and conditional upon the fulfillment or waiver (where applicable) of the conditions set out in the underwriting agreement (the ‘‘Underwriting Agreement’’) dated 14 April 2017 made among (i) the Company, (ii) Forever Top (Asia) Limited as underwriter and (iii) Mr. David Chiu, Dr. Cheng Kar-Shun Henry, Chow Tai Fook Enterprises Limited, Expand Ocean L.P. and Mr. Li Sze Lim, each as an underwriter guarantor (a copy of which has been produced to this meeting marked ‘‘A’’ and signed by the chairman of this meeting for the purpose of identification):
(a) the allotment and issue of 3,352,520,666 Offer Shares by way of open offer (the ‘‘Open Offer’’) at the Offer Price of HK$0.21 per Offer Share on the basis of five (5) Offer Shares for every three (3) Shares held by the shareholders (the ‘‘Qualifying Shareholders’’) of the Company whose names appear on the register of members of the Company as at the close of business on Friday, 18 August 2017 (or such other date as the Company may agree with the Underwriter) (the ‘‘Record Date’’) other than those shareholders (the ‘‘NonQualifying Shareholders’’) of the Company whose names appear on the register of members of the Company as at the close of business on the Record Date and whose addresses as shown on the register of members of the Company are outside Hong Kong, whom the Directors of the Company, based on legal advice provided by legal advisers in the relevant jurisdictions, consider it necessary or expedient to exclude from the Open Offer, on account either of the legal restrictions under the laws of the relevant place or the requirements of the relevant regulatory body or stock exchange in that place, and the transactions contemplated thereunder, be and are hereby approved;

EGM – 1

NOTICE OF THE EGM

(b) the board of Directors of the Company (the ‘‘Board’’) or a committee thereof be and is/are hereby authorised to allot and issue the Offer Shares pursuant to or in connection with the Open Offer notwithstanding that the same may be offered, allotted or issued otherwise than pro-rata to the Qualifying Shareholders and, in particular, the Board may make such exclusions or other arrangements in relation to the Non-Qualifying Shareholders as it may deem necessary or expedient having regard to the legal restrictions under the laws of, or the requirements of the relevant regulatory body or stock exchange in, any territory outside Hong Kong;
(c) the entering into of the Underwriting Agreement by the Company be and is hereby approved, confirmed and ratified in all respects and the performance of the transactions contemplated thereunder by the Company (including but not limited to the arrangements for taking up of the underwritten Offer Shares, if any, by the Underwriter) be and are hereby approved, confirmed and ratified;
(d) any Directors be and are hereby authorised to sign or execute such documents and do all such acts and things in connection with the allotment and issue of the Offer Shares, the implementation of the Open Offer in accordance with all terms and conditions of the Open Offer as set out in the “Letter from the Board” in the Circular and the Underwriting Agreement, the exercise or enforcement of any of the Company’s rights under the Underwriting Agreement and to make and agree to make such variations of the terms of the Underwriting Agreement as they may in their discretion consider to be appropriate, necessary or desirable and in the interests of the Company and its shareholders as a whole; and
(e) subject to the consent of the Executive pursuant to Rule 25 of the Takeovers Code and any conditions that may be imposed thereon, the Loan Capitalisation Agreement (a copy of which has been produced to this meeting marked ‘‘B’’ and signed by the chairman of this meeting for the purpose of identification) and the Facility Term Extension Agreement (a copy of which has been produced to this meeting marked ‘‘C’’ and signed by the chairman of this meeting for the purpose of identification), and the transactions contemplated thereunder, be and are hereby approved and the Directors be and are hereby authorised to do all such things and acts and execute all documents which they consider necessary, desirable or expedient to implement or to give effect to any matters relating to the Loan Capitalisation Agreement and the Facility Term Extension Agreement.’’

EGM – 2

NOTICE OF THE EGM

‘‘THAT subject to the Executive granting the Whitewash Waiver to the Underwriter, and the satisfaction of any condition(s) attached to the Whitewash Waiver granted and such other necessary waiver or consent of the Executive for the transactions contemplated under the Open Offer, the waiver pursuant to Note 1 on the dispensations from Rule 26 of the Takeovers Code waiving any obligation on the part of the Underwriter and parties acting in concert with it to make a mandatory general offer for all the issued securities of the Company not already owned or agreed to be acquired by the Underwriter, which would be triggered as a result of the fulfillment of its underwriting obligation under the Underwriting Agreement be and is hereby approved, and the Directors be and are hereby authorised to do all such things and acts and execute all documents which they consider necessary, desirable or expedient to implement or to give effect to any matters relating to the Whitewash Waiver.’’
‘‘THAT subject to (i) the consent of the Executive pursuant to Rule 25 of the Takeovers Code and any conditions that may be imposed thereon and (ii) the fulfillment or waiver (where applicable) of all conditions set out in the Underwriting Agreement, the Property Agreements (copies of which have been produced to this meeting marked ‘‘D’’ and signed by the chairman of this meeting for the purpose of identification) and the transactions contemplated thereunder be and are hereby approved and the Directors be and are hereby authorised to do all such things and acts and execute all documents which they consider necessary, desirable or expedient to implement or to give effect to any matters relating to the Property Agreements.’’

By Order of the Board

i-CABLE COMMUNICATIONS LIMITED Kevin C. Y. Hui

Company Secretary

Hong Kong, 12 May 2017

Registered Office:

16th Floor, Ocean Centre Harbour City, Canton Road Kowloon, Hong Kong

Principal business place:

Cable TV Tower 9 Hoi Shing Road Tsuen Wan, Hong Kong

EGM – 3

NOTICE OF THE EGM

Notes:

(a) A member entitled to attend and vote at the meeting convened by the above notice is entitled to appoint, at his/her own choice, another person as his/her proxy to attend and to speak, and in the event of a poll, to vote in his stead. A proxy need not be a member of the Company. He/she may appoint separate proxies to represent respectively such number of shares in the Company registered under his/her name.
(b) In order to be valid, the form of proxy together with the power of attorney or other authority, if any, under which it is signed (or a notarially certified copy of that power of attorney or authority) must be deposited at the Company’s registered office at 16th Floor, Ocean Centre, Harbour City, Canton Road, Kowloon, Hong Kong, not later than 10:45 a.m. on Friday, 26 May 2017, or in case of any adjournment thereof, not less than 48 hours (exclusive of any part of a day that is a public holiday) before the time appointed for holding such adjourned meeting. Forms of proxy sent electronically or by any other data transmission will not be accepted.
(c) Completion and delivery of the form of proxy will not preclude a Shareholder from attending and voting in person at the EGM if the Shareholder so desires and in such event, the instrument appointing a proxy shall be deemed to be revoked.
(d) Where there are joint registered holders of any Shares, any one of such holders may vote at the EGM, either personally or by proxy, in respect of such Share as if he was solely entitled thereto, but if more than one of such holders be present at the EGM personally or by proxy, that one of such holders so present whose name stands first on the register of members of the Company in respect of such Shares shall alone be entitled to vote in respect thereof.
(e) The register of members of the Company will be closed from Tuesday, 23 May 2017 to Monday, 29 May 2017, both days inclusive, during which period no transfer of shares of the Company can be registered. In order to ascertain shareholders’ rights for the purpose of attending and voting at the EGM, all transfers, accompanied by the relevant share certificates, must be lodged with the Registrar, Tricor Tengis Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, not later than 4:30 p.m. on Monday, 22 May 2017.

As at the date of this notice, the board of Directors of the Company comprise Mr. Stephen T. H. Ng, Mr. William J. H. Kwan and Mr. Paul Y. C. Tsui, together with four Independent Nonexecutive Directors, namely, Mr. Herman S. M. Hu, Mr. Roger K. H. Luk, Mr. Sherman S. M. Tang and Mr. Patrick Y. W. Wu.

EGM – 4

AI assistant

i-Cable Communications Limited — Proxy Solicitation & Information Statement 2017

49682_rns_2017-05-11_f9290a87-ca51-427e-83a7-c48f13a66f5d.pdf

i-CABLE COMMUNICATIONS LIMITED

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

EXPECTED TIMETABLE

EXPECTED TIMETABLE

EXPECTED TIMETABLE

EFFECT OF BAD WEATHER ON LATEST TIME FOR ACCEPTANCE OF AND PAYMENT FOR THE OFFER SHARES

TERMINATION OF THE UNDERWRITING AGREEMENT

TERMINATION OF THE UNDERWRITING AGREEMENT

i-CABLE COMMUNICATIONS LIMITED

I. INTRODUCTION

LETTER FROM THE BOARD

(1) PROPOSED OPEN OFFER

Issue Statistics

LETTER FROM THE BOARD

Qualifying Shareholders

Rights of the Overseas Shareholders

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Fractional entitlements

Offer Price

LETTER FROM THE BOARD

Basis of price and ratio

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Basis of the assured allotment of the Offer Shares

LETTER FROM THE BOARD

Potential Dilutive Impact of the Open Offer

Status of the Offer Shares

Share certificates and refund cheques

No excess application

LETTER FROM THE BOARD

Application for listing

Stamp duty

The Undertaking From Wharf

LETTER FROM THE BOARD

The Underwriting Agreement

Conditions precedent

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Termination of the Underwriting Agreement

LETTER FROM THE BOARD

Information on the Underwriter and the Underwriter Guarantors

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Warning of the Risks of Dealings in the Shares

LETTER FROM THE BOARD

Shareholding Structure of the Company

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Maintenance of Public Float

LETTER FROM THE BOARD

Initial Distribution in Specie

Wheelock Distribution in Specie

Close of Open Offer

LETTER FROM THE BOARD

Loan Capitalisation

Partial Conversion of First Tranche of Loan Capitalisation

Further Distribution in Specie

Partial Conversion of Second Tranche of Loan Capitalisation

i-Cable Communications Limited Proxy Solicitation & Information Statement 2017