Synertone Communication Corporation

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, you should at once hand this circular together with the enclosed form of proxy to the purchaser or the transferee or to the bank, licensed securities dealer or registered institution in securities or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

This circular appears for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for securities of the Company.

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(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1613)

VERY SUBSTANTIAL ACQUISITION AND NOTICE OF EXTRAORDINARY GENERAL MEETING

Financial Adviser to Synertone Communication Corporation

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Capitalised terms used in this cover page shall have the same meanings as those defined in the section headed ‘‘Definitions’’ in this circular. A letter from the Board is set out on pages 8 to 30 of this circular.

A notice convening the EGM to be held at the Conference Room, 3/F, Nexxus Building, 77 Des Voeux Road Central, Hong Kong on Tuesday, 15 October 2013 at 2:00 p.m. is set out on pages EN-1 to EN-3 of this circular. Whether or not you propose to attend the meeting, you are advised to read the notice and to complete the form of proxy attached to the notice of the EGM in accordance with the instructions printed thereon and return the same to the Company’s Hong Kong branch share registrar and transfer office, Tricor Investor Services Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, as soon as possible and in any event not later than 48 hours before the time appointed for holding of the EGM or any adjournment thereof. Completion and return of the proxy form shall not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish.

26 September 2013

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Glossary of technical terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Risk factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31
Industry overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	36
Regulatory overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	44
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	58
Directors, senior management and staff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	71
Appendix I — Financial Information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-1
Appendix II — Unaudited Financial Information of the Assets . . . . . . . . . . . . . . . .	II-1
Appendix III — Valuation Report on the Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	III-1
Appendix IV — Unaudited Pro Forma Financial Information of
the Enlarged Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	IV-1
Appendix V — General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	V-1
Notice of EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	EN-1

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DEFINITIONS

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

‘‘Acquisition’’
the acquisition of the Assets by VAST from the Vendor pursuant to the Definitive Agreement
‘‘Approved Company’’
a company that is duly authorised and approved by the relevant PRC government authority to conduct satellite communication business and leasing service of satellite transponders
‘‘Assets’’
the Bandwidth Capacity, the Bandwidth Capacity Service and the Right To Use
‘‘Assignment’’
the assignment by the Vendor to VAST of all its rights and obligations under the ICA Documents
‘‘Assignment Agreement’’
the tri-parties assignment agreement dated 30 December 2012 entered into between CTS, the Vendor and VAST in relation to the Assignment
‘‘Assignment Date’’
the date of the Service Commencement
‘‘Bandwidth Capacity’’
the total and all bandwidth capacity on the Satellite for serving the Territory from time to time, which is 7,598.5 MHz in total, as provided by and through the relevant transponder equipment and any shared redundant equipment for transmitting and/or receiving the frequency bands in the spot, augment, shaped, and broadcast beams of the Satellite in the Territory
‘‘Bandwidth Capacity Service’’
the service of providing and the exclusive right to use the Bandwidth Capacity for the purpose of VAST’s signal transmission, which may be transmitted by VAST or its subcontractor or the like, or its customers/partners
‘‘Board’’
the board of Directors
‘‘Commencement Date’’
the date on which Service Commencement takes place
‘‘Company’’
Synertone Communication Corporation, a company incorporated in the Cayman Islands with limited liability, the issued shares of which are listed on the Main Board of the Stock Exchange (stock code: 1613)
‘‘Consideration’’
the aggregate consideration payable by VAST to the Vendor for the acquisition of the Assets, which consists of cash and the Consideration Shares

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DEFINITIONS

‘‘Consideration Shares’’
64,000,000 new Shares of the Company to be allotted and issued by the Company pursuant to the specific mandate to the Vendor under the terms set out in the Definitive Agreement
‘‘CT’’
中國電信集團公司 ( C h i n a T e l e c o m m u n i c a t i o n s Corporation), a company established under the laws of PRC
‘‘CTS’’
中國電信集團衛星通信有限公司 (China Telecom Satellite Communications Limited), a company established under the laws of PRC and a wholly-owned subsidiary of CT
‘‘Definitive Agreement’’
the definitive agreement dated 29 March 2013 as amended and supplemented by a supplemental agreement dated 10 April 2013 and the DA Supplemental Agreement entered into between VAST and the Vendor to set out the terms and conditions with respect to the Acquisition
‘‘DA Supplemental Agreement’’
the supplemental agreement to the Definitive Agreement dated 13 September 2013 entered into between VAST and the Vendor to vary certain terms of and incorporate certain new terms to the Definitive Agreement, details of which have been disclosed in the announcement of the Company dated 13 September 2013
‘‘Director(s)’’ the director(s) of the Company
‘‘EGM’’
the extraordinary general meeting of the Company to be convened and held for the Shareholders to consider and, if thought fit, approve, among other things, the transactions contemplated under the Definitive Agreement and the Revenue Sharing Agreement
‘‘Enlarged Group’’
the Group as enlarged by the Acquisition upon the Service Commencement
‘‘Framework Agreement’’
the framework agreement dated 30 December 2012 entered into by VAST and the Vendor in relation to the Acquisition, details of which has been referred to the announcement of the Company dated 30 December 2012
‘‘Gateways’’
existing IPSTAR gateways in Beijing, Shanghai and Guangzhou used to access the Territory Payload
‘‘Group’’
the Company and its subsidiaries
‘‘Hong Kong’’
the Hong Kong Special Administrative Region of the PRC

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DEFINITIONS

‘‘ICA Documents’’ a series of documents or agreements entered into between Thaicom, the Vendor, China Satellite Communications Corporation and/or CTS in 2009, 2010 and 2012 in relation to IPSTAR service provided in the Territory, pursuant to which CTS and the Vendor have confirmed a series of rights and obligations
‘‘Independent Valuer’’ Castores Magi Asia Limited, a professional firm of Registered Business Valuers
‘‘IPSTAR’’ or ‘‘Satellite’’
THAICOM-4 satellite, commercially known as IPSTAR-1 located at 119.5 degree east orbital position
‘‘IPSTAR Business’’
the operation of the Satellite ground system for providing broadband Internet access services and other applications
‘‘Issue Price’’
the issue price of HK$0.5034 per Consideration Share
‘‘Last Trading Day’’
28 March 2013, being the last trading day of the Shares prior to entering into of the Definitive Agreement
‘‘Latest Practicable Date’’
24 September 2013, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained in this circular
‘‘Listing Rules’’ the Rules Governing the Listing of Securities on the Stock Exchange
‘‘MIIT’’
The Ministry of Industry and Information Technology of the PRC (中國工業和信息化部)
‘‘PRC’’ the People’s Republic of China which, for the purpose of this circular and for geographical reference only, excludes Hong Kong, Macau Special Administration Region and Taiwan
‘‘Revenue Sharing Agreement’’
a revenue sharing agreement dated 29 March 2013 as amended and supplemented by the RS Supplemental Agreement entered into between VAST and the Vendor to set out the revenue sharing arrangement derived by VAST from the provision of the Bandwidth Capacity and the Right To Use
‘‘Right To Use’’
exclusive right to use the Gateways

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DEFINITIONS

‘‘RS Supplemental Agreement’’ the supplemental agreement to the Revenue Sharing Agreement dated 13 September 2013 entered into between VAST and the Vendor to vary certain terms of the Revenue Sharing Agreement, details of which have been disclosed in the announcement of the Company dated 13 September 2013
‘‘S&P Consulting’’ Beijing Shangpu Information Consult Co., Ltd, a company which is principally engaged in the provision of market research and investigation, an independent third parties
‘‘Service Commencement’’ the commencement of the provision of the Bandwidth Capacity, the Bandwidth Capacity Service and the Right To Use under the Definitive Agreement
‘‘Service Period’’ the period of at least nine and a half years commencing from the Commencement Date
‘‘SFO’’ the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong)
‘‘Share(s)’’ ordinary share(s) of HK$0.01 each in the share capital of the Company
‘‘Shareholder(s)’’ holder(s) of Shares
‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited
‘‘Territory’’ the PRC’s geographic territory (including Hong Kong and Macau Special Administration Region but excluding Taiwan region)
‘‘Territory Payload’’ all the capacity operated by the Vendor on the Satellite which covered locations within the Territory
‘‘Thaicom’’ Thaicom Public Company Limited, the issued shares of which are listed on The Stock Exchange of Thailand
‘‘VAST’’ Vastsuccess Holdings Limited, a company established under the laws of British Virgin Islands and a wholly-owned subsidiary of the Company
‘‘Vendor’’ IPSTAR Company Limited, a company established under the laws of British Virgin Islands and a subsidiary of Thaicom
‘‘RMB’’ Renminbi, the lawful currency of the PRC

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DEFINITIONS

‘‘HK$’’ Hong Kong dollar(s), the lawful currency of Hong Kong ‘‘US$’’ United States dollars, the lawful currency of the United States of America ‘‘%’’ per cent

Note: The exchange rate between United States dollars and Hong Kong dollars in this circular and between United State dollars and Renminbi, save for otherwise specified in this circular, are US$1 = HK$7.75/US$1 = RMB6.15. The provision of such exchange rate does not mean that Hong Kong dollars could be converted into United States dollars and United States dollars could be converted into Renminbi based on such exchange rate.

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GLOSSARY OF TECHNICAL TERMS

This glossary contains explanations of certain terms used in this circular in connection with the Group and its business. The terminologies and their meanings may not correspond to standard industry meanings or usage of those terms.

‘‘beam’’ a directional projection of energy radiating from a light source
‘‘broadcast link’’ the link connects two or more nodes and support broadcast transmission, where one node transmit broadcast signal and all the other nodes receive the same broadcast signal
‘‘downward link’’ the link from a satellite to a ground station
‘‘forward link’’ the link from earth station to the remote site. In IPSTAR system, it is the link from Gateway to the remote user terminal
‘‘Ka Band’’ part of the microwave band of the electromagnetic spectrum and it covers the frequencies of 26.5–40 GHz
‘‘Ku Band’’ a portion of the electromagnetic spectrum in the microwave range of frequencies. In radar applications, it covers the frequencies of 12–18 GHz according to the formal definition of radar frequency band nomenclature in IEEE Standard 521-2002
‘‘MHz’’ the abbreviation for the word ‘‘megahertz’’, which is a unit of measurement for frequency in science. One cycle per second is measured as one hertz (Hz), and 1 MHz is equal to 1 million Hz per second
‘‘return link’’ the link from the remote site to the earth station. In IPSTAR system, it is the link from the remote user terminal to the Gateway
‘‘shape beam’’ a satellite beam covering a large area compare with normal spot beam and has an abnormal beam shape
‘‘spot beam’’ a satellite signal that is specially concentrated in power so that it will cover only a limited geographic area on Earth. Spot beams are used so that only earth stations in a particular intended reception area can properly receive the satellite signal

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GLOSSARY OF TECHNICAL TERMS

‘‘transponder’’ a device gathers signals over a range of upward link frequencies and re-transmits them on a different set of downward link frequencies to receivers on Earth, often without changing the content of the received signal or signals

‘‘upward link’’ the portion of a communications link used for the transmission of signals from an Earth terminal to a satellite

‘‘VSAT’’

Very Small Aperture Terminal, is a two-way satellite ground station with a dish antenna, which is commonly used to transmit narrowband data or broadband data for transportable and on-the-move communications

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LETTER FROM THE BOARD

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SYNERTONE COMMUNICATION CORPORATION

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1613)

Executive Directors: Registered office: Mr. Wong Chit On (Chairman) Cricket Square Mr. Lu Zhijie Hutchins Drive Mr. Han Weining P.O. Box 2681 Mr. Zhang Jinbing Grand Cayman KY1-1111 Cayman Islands Independent Non-Executive Directors: Mr. Lam Ying Hung Andy Headquarter and principal place of Mr. Hu Yunlin business in the PRC: Mr. Cai Youliang Block B, Teng Bang Building 1st Qingshuihe Road Luohu District Shenzhen China

Principal place of business in Hong Kong: Room 1301, 13th Floor Henan Building 90 Jaffe Road Wanchai Hong Kong

26 September 2013

To the Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION

INTRODUCTION

As stated in the Company’s announcements dated 15 April 2013 and 13 September 2013 in relation to the Acquisition and the entering into of the DA Supplemental Agreement and the RS Supplemental Agreement respectively, on 29 March 2013, VAST entered into the Definitive Agreement (as amended and supplemented by a supplemental agreement dated 10 April 2013 and the DA Supplemental Agreement) with the Vendor, pursuant to which VAST conditionally agreed to acquire from the Vendor and the Vendor conditionally agreed to

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LETTER FROM THE BOARD

provide to VAST (i) the Bandwidth Capacity and the Bandwidth Capacity Service and (ii) the Right To Use for the transmission of broadband Internet access and other applications throughout the Service Period.

DEFINITIVE AGREEMENT

Date:

29 March 2013 (as amended and supplemented by a supplemental agreement dated 10 April 2013 and the DA Supplemental Agreement)

Parties:

(1) VAST, a wholly-owned subsidiary of the Company, as the purchaser; and
(2) the Vendor, a subsidiary of Thaicom, as the vendor.

The Vendor is a company established under the laws of British Virgin Islands and a subsidiary of Thaicom, the issued shares of which are listed on The Stock Exchange of Thailand. The Vendor has been granted the exclusive right to use and operate the Satellite, and has operation of the IPSTAR Business throughout the Asia-Pacific region.

To the best of the knowledge, information and belief of the Directors having made all reasonable enquiries, the Vendor and its associates are independent of and not connected with the Company and its connected persons as defined in the Listing Rules as at the Latest Practicable Date.

Assets to be acquired:

Pursuant to the Definitive Agreement, VAST has conditionally agreed to acquire from the Vendor and the Vendor has conditionally agreed to provide to VAST (i) the Bandwidth Capacity and the Bandwidth Capacity Service and (ii) the Right To Use for the transmission of broadband Internet access and other applications throughout the Service Period.

The Vendor gives the exclusive right for the Service Period to VAST in the Territory to acquire the Bandwidth Capacity from the Vendor and the Right To Use in order to use, offer, sub-lease and manage the provision of Bandwidth Capacity to other service providers and its end-user customers in the Territory, including all the Vendor’s existing service providers as at the Commencement Date.

Details of the Assets are set out under the paragraph headed ‘‘Information of the Assets’’ in this section.

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LETTER FROM THE BOARD

Consideration:

The aggregate Consideration amounts to US$80.0 million (equivalent to approximately HK$620.0 million), which shall be paid by ten installments as follows:

(i) The first installment of US$8.0 million (equivalent to approximately HK$62.0 million), will be settled in the following manner:
(a) as to US$1.85 million (equivalent to approximately HK$14.3 million) will be settled within 15 days after the Commencement Date, of which US$600,000 (equivalent to approximately HK$4.7 million) will be offset by the deposit of US$600,000 paid by VAST to the Vendor under the Framework Agreement and the balance of US$1.25 million (equivalent to approximately HK$9.7 million) will be settled by cash;
(b) as to US$4.15 million (equivalent to approximately HK$32.2 million) will be settled within 17 days after the Commencement Date by the allotment and issue of 64,000,000 Consideration Shares at the Issue Price of HK$0.5034 per Consideration Share; and
(c) as to US$2.0 million (equivalent to approximately HK$15.5 million) will be settled within 180 days after the Commencement Date by cash.
(ii) The second installment of US$5.0 million (equivalent to approximately HK$38.8 million), the third installment of US$7.0 million (equivalent to approximately HK$54.3 million), the fourth up to the ninth installment of US$9.0 million each (equivalent to approximately HK$69.8 million) and the tenth installment of US$6.0 million (equivalent to approximately HK$46.5 million), shall be paid on 30 September of each subsequent calendar year after the Commencement Date. Accordingly, the second installment shall be paid on 30 September 2014 and the last installment shall be paid on 30 September 2022.

The cash portion of the Consideration will be funded by internal resources and/or bank borrowings of the Group. The net proceeds from the issuance of the new Shares as stated in the Company’s prospectus dated 30 March 2012 will not be used to finance the Acquisition.

The Consideration was determined based on normal commercial terms after arm’s length negotiations between VAST and the Vendor taking into account primarily the following factors:

(i) the Group’s business plan for the operation of the IPSTAR Business in the Territory based on the Group’s business model (as detailed under the section headed ‘‘Business’’ in this circular);
(ii) the revenue sharing arrangement under the Revenue Sharing Agreement particularly described below in the paragraph headed ‘‘Revenue Sharing Agreement’’ under this section; and

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LETTER FROM THE BOARD

(iii) the Group’s business risks resulting from the under-performance of the Assets in the past and the relatively long Service Period.

The Directors (including the independent non-executive Directors) consider that the terms of Acquisition (including the Consideration), are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Consideration Shares

The 64,000,000 Consideration Shares represent (i) approximately 5.33% of the existing issued share capital of the Company as at the Latest Practicable Date; and (ii) approximately 5.06% of the issued share capital of the Company as enlarged by the allotment and issue of the Consideration Shares.

The Issue Price

The Issue Price of HK$0.5034 per Consideration Share was determined after arm’s length negotiation between VAST and the Vendor taking into account the prevailing market price of the Shares and with reference to the volume weighted average price of the Shares of the last sixty days prior to the date of the Framework Agreement. The Issue Price represents:

(i) a discount of approximately 67.3% to the closing price per Share of HK$1.54 as quoted on the Stock Exchange as at the Latest Practicable Date;
(ii) a premium of approximately 4.9% to the closing price per Share of HK$0.480 as quoted on the Stock Exchange on the Last Trading Day;
(iii) a premium of approximately 6.0% to the average closing price per Share of approximately HK$0.475 as quoted on the Stock Exchange for the last five consecutive trading days prior to the Last Trading Day;
(iv) a premium of approximately 6.4% to the average closing price per Share of approximately HK$0.473 as quote on the Stock Exchange for the last ten consecutive trading days prior to the Last Trading Day; and
(v) a premium of approximately 176.6% to the consolidated net assets value of the Group of approximately HK$0.182 per Share as at 31 March 2013 (based on the audited consolidated net assets value of the Group of approximately HK$218,190,000 as at 31 March 2013 and 1,200,000,000 Shares in issue as at the Latest Practicable Date).

Mandate to allot and issue the Consideration Shares and their ranking

The Consideration Shares will be allotted and issued to the Vendor pursuant to the specific mandate to be obtained from and approved by the Shareholders at the EGM and will rank pari passu with the Shares in issue as at the date of the issue of the Consideration Shares.

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LETTER FROM THE BOARD

Restriction on transfer

The Consideration Shares to be allotted and issued shall be subject to a lock-up period of one year from the date of allotment and issue of the Consideration Shares.

Application for listing approval to the Consideration Shares

An application will be made by the Company to the Stock Exchange for the listing of, and permission to deal in, the Consideration Shares.

Service Period:

The terms of the Definitive Agreement shall be nine and a half years commencing from the Commencement Date.

In the event that the remaining service life of the Satellite extends beyond the Service Period (the ‘‘Extended Period’’), the Vendor agrees that VAST shall still have the exclusive right to utilise and receive the Bandwidth Capacity and the Bandwidth Capacity Service on an as-is basis without any payment, except for the Gateway operation expense during the Extended Period, until the end of the operational life of the Satellite as determined by the remaining fuel life on the Satellite, provided always that the utilisation shall be in compliance with the technical requirements as specified in the Definitive Agreement and/or any other technical guidelines and additional reasonable technical or operational requirements as VAST and the Vendor may agree in writing.

Pursuant to the Definitive Agreement, at any time after first three service years, if VAST fails to make payment based on the payment schedule set out in the Definitive Agreement as detailed above in the paragraph headed ‘‘Definitive Agreement — Consideration’’ under this section and the cooperation model under the Definitive Agreement needs to be adjusted due to the market or other reasons, the Vendor agrees that VAST shall have the right to modify the cooperation model. If such modification occurs, (i) VAST agrees to give up the exclusive right in the Bandwidth Capacity, (ii) the Vendor shall have the right to resell the bandwidth of the Bandwidth Capacity that has not been utilised (the ‘‘Remaining Bandwidth’’), and (iii) VAST shall have the right to continue to use the Bandwidth Capacity that has been utilised (the ‘‘Utilised Bandwidth’’) for the remaining years of the Service Period.

In the event that the remaining service life of the Satellite following the date of the Definitive Agreement shall be shorter than the Service Period, the Vendor shall (i) refund free of interest the remaining unutilised service fee paid by VAST; and (ii) subject to the limitation set out in the Definitive Agreement, be liable to and indemnify VAST for and against, among others, losses and damages as a result of or arising therefrom.

Besides, if (i) there is a loss of signal transmission within the Satellite network on a confirmed basis and/or (ii) the Bandwidth Capacity Service fails to meet the service specification set out in the Definitive Agreement for a continuous period of at least 60 consecutive minutes or cumulative period of 60 minutes in a particular day, VAST shall be entitled to credit for the outage (the ‘‘Creditable Outage’’). If for any particular month during the Service Period there is a Credible Outage of one or more of the user beams that comprise

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LETTER FROM THE BOARD

the Bandwidth Capacity, the Vendor shall credit to VAST’s next payment of the service fee an outage credit computed on a monthly basis for each Credible Outage on each user beam. Subject to the percentage of Satellite network system availability per month of an affected user beam, the service fee of the affected user beam will be reduced in accordance with the Definitive Agreement.

If (i) a Creditable Outage continues for a period of 10 consecutive days; or (ii) the loss of signal transmission from the Satellite due to a malfunction of Satellite equipment on a confirmed basis continues for a period of 10 consecutive days, space segment failure shall be deemed to have occurred. If the Vendor fails to provide an alternative bandwidth capacity on other satellites which is technically equivalent or better than the Bandwidth Capacity within 10 calendar days after the occurrence of space segment failure, VAST may terminate the Definitive Agreement. In such event, the Vendor shall (i) pay VAST an amount equal to all unutilised service fee paid by VAST and all outage credits; and (ii) subject to the limitation set out in the Definitive Agreement, be liable to and shall indemnify VAST for and against, among others, all losses and damages as a result of or arising from such termination.

Furthermore, the Vendor (by itself or by its affiliate) shall obtain sufficient insurance coverage for the Satellite (including but not limited to the Territory Payload) in accordance with industrial standard and practice and be responsible to pay the full cost of any premiums. In the event the Vendor (by itself or by its affiliate) receives any insurance proceeds as a result of a claim arising from damage or destruction to the failure of the Satellite or the Territory Payload under its insurance policy, the Vendor agrees to provide a credit equivalent to 18% of the total insurance proceeds to VAST for offsetting payment under any new satellite transaction as may be agreed by and between the Vendor and VAST.

Except otherwise specified in the Definitive Agreement, VAST shall, by itself or through its partners, be responsible for handling all regulatory matters in the Territory (if any) related to the provision and use of the Bandwidth Capacity and the Bandwidth Capacity Service and Right To Use, and the frequency band to be used by the Satellite, including but not limited to relevant permit, necessary and required license approvals, excluding other matters which should be handled by satellite operator such as satellite frequency coordination with adjacent satellites in order to facilitate the utilisation of the Bandwidth Capacity and the Bandwidth Capacity Service in the Territory.

Conditions to Service Commencement:

The Service Commencement shall be conditional on the fulfilment of all of the following conditions:

(a) the Acquisition and the issue by the Company of the Consideration Shares being approved by the Shareholders in EGM;
(b) the listing of, and permission to deal in, the Consideration Shares having been granted by the Stock Exchange and not having been revoked prior to the Service Commencement;

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LETTER FROM THE BOARD

(c) the Vendor, VAST and CTS have entered into a binding agreement in relation to the time schedule of the relocation of the gateways in Guangzhou and Shanghai, work division, and specifications and performance of the gateways in Guangzhou and Shanghai after the relocation, provided that the Vendor shall be responsible for all costs incurred for the relocation;
(d) there being no event existing or having occurred and no condition being in existence which would constitute a material breach of any of the representations and warranties set out in the Definitive Agreement;
(e) there shall not have occurred any material adverse effect or any event, change, effect or development (including without limitation change in any relevant laws, regulations or policies in any of the jurisdictions in which the IPSTAR Business is carried out (whether coming into effect prior to, on or before the Commencement Date) that could or reasonably be expected to have a material adverse effect on the IPSTAR Business; and
(f) no order or law restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transactions contemplated by the Definitive Agreement has come into effect prior to the Commencement Date.

VAST and the Vendor undertake to use commercially reasonable efforts to cause each of the conditions to be fulfilled. VAST shall use commercially reasonable efforts to procure the Company to comply in all material respects with the applicable notification, publication and/or Shareholders’ approval requirements under Chapters 13 and 14 of the Listing Rules in relation to Acquisition and the issue of the Consideration Shares. The Vendor shall use commercially reasonable efforts to provide the information, materials and assistance as required to comply with the foregoing requirements.

VAST shall be entitled at its absolute discretion at any time on or before the Commencement Date by notice in writing to the Vendor waive any of the conditions (save and except the conditions set out in (a) and (b) above which cannot be waived) either in whole or in part. If any of the conditions that are not waived either in whole or in part by VAST have not been fulfilled on or before 15 October 2013, the Definitive Agreement shall automatically terminate, and no party shall have any claim under the Definitive Agreement of any nature whatsoever against the other party.

In the event the Definitive Agreement is terminated in accordance with terms set out above, within seven business days of such termination, with respect to the deposit of US$600,000 (equivalent to approximately HK$4.7 million) previously paid by VAST to the Vendor:

(a) the Vendor shall be entitled to forfeit 100% of the deposit if the relevant nonfulfillment of the conditions is attributable to VAST, or the Company (including the Shareholders);
(b) the Vendor shall refund to VAST 90% of the deposit if the relevant non-fulfillment of the conditions is attributable to CTS or the Stock Exchange; and

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LETTER FROM THE BOARD

(c) the Vendor shall refund to VAST 100% of the deposit if the relevant non-fulfillment of the conditions is not attributable to VAST, the Company (including the Shareholders), CTS or the Stock Exchange.

As at the Latest Practicable Date, none of the conditions above had been fulfilled, and neither the Company nor VAST had any intention to waive any of the conditions.

Reason for certain condition to the Service Commencement

Pursuant to the Definitive Agreement, the Assets to be acquired by VAST include, among others, the exclusive right to use the Gateways. However, among the Gateways, only the gateway in Beijing is located in CT’s earth station, while the gateways in Shanghai and Guangzhou are located in the earth stations of another company. In order to facilitate better operation and management of the Gateways by CTS, VAST and CTS request to relocate these two gateways to CT’s earth stations. As such, the relocation of such gateways is one of the conditions to the Service Commencement. However, without such relocation, CTS can still fulfill its obligations under the Assignment Agreement, and VAST can still carry out the IPSTAR Business in the PRC through its cooperation with CTS. For such reason, the aforementioned condition to the Service Commencement is waivable.

Service Commencement:

Service Commencement shall take place on the first business days (or such other date the Vendor and VAST may agree in writing) following the fulfillment and waiver (as the case may be) of the conditions to Service Commencement.

First right of refusal

VAST shall have the first right of refusal to co-invest in and/or co-own any multiple spot beam satellite or payload for serving the Territory.

In the event that the Vendor has a right in a successor satellite and/or payload with coverage of the Territory, or in the event that the Vendor contracts to own or owns a satellite and/or payload with coverage of the Territory at an orbital position other than the orbital position currently located by the Satellite, the Vendor shall make a written offer to VAST to co-invest in such satellite and/or payload upon certain terms and conditions, including price.

Subject to the relevant laws and/or regulations, if successor territory capacity or other territory capacity is accounted for 67% or more of the total bandwidth capacity of the successor satellite or other satellite and/or payload at an orbital position other than the orbital position currently located by the Satellite, respectively, and VAST will enter into a written commitment to purchase from the Vendor the successor territory capacity or other territory capacity (as the case may be) at a reasonable price agreed by the Vendor and VAST, the Vendor and VAST agree that the decision in relation to all aspect of the successor satellite or other satellite and/or payload at an orbital position other than the orbital position currently located by the Satellite, including without limitation to satellite design, technologies, research, development, launch, and the design and construction of the satellite control stations and gateways shall mutually be agreed and made by the Vendor and VAST.

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LETTER FROM THE BOARD

During the negotiation between the Vendor and VAST regarding the grant to VAST of the decision rights in relation to all aspect of the successor satellite or other satellite and/or payload as mentioned above, both the Vendor and VAST agreed that VAST should at least acquire from the Vendor more than two-third of the total bandwidth capacity of the successor satellite or other satellite and/or payload. As such, pursuant to the Definitive Agreement, VAST shall acquire from the Vendor at least 67% or more of the total bandwidth capacity of the successor satellite or other satellite and/or payload in order to have the right of decision making.

Corporate guarantee

In relation to the Definitive Agreement, (i) the Company has guaranteed to the Vendor the due and punctual performance by VAST of all its obligations under the Definitive Agreement, and has further undertaken to indemnify the Vendor against losses and/or damages arising out of or in connection with any breach of or failure to perform by VAST of any of VAST’s obligations or the terms under the Definitive Agreement; and (ii) Thaicom has guaranteed to VAST the due and punctual performance by the Vendor of all its obligations under the Definitive Agreement, and has further undertaken to indemnify VAST against losses and/or damages arising out of or in connection with any breach of or failure to perform by the Vendor of any of the Vendor’s obligations or the terms under the Definitive Agreement.

Other major terms:

Gateways Operation

Pursuant to the Definitive Agreement, the Vendor agrees to be responsible for the Gateways operation expense throughout the Service Period. During the Service Period, VAST will have the exclusive right to use the Gateways while the title of the Gateways will still belong to the Vendor. Therefore, the Vendor will bear the Gateways operation expense throughout the Service Period.

Furthermore, pursuant to the Definitive Agreement, the Vendor agrees to absolutely and irrevocably transfer, assign, set over and convey unto VAST any and all of its rights, title and interest in, to and under the Gateways free from all encumbrances on the date on which VAST make payment in full as mentioned in above the paragraph headed ‘‘Definitive Agreement — Consideration’’ under this section. Upon completion of the aforementioned assignment, the title of the Gateways will belong to VAST and VAST will bear the Gateways operation expense.

Non-IPSTAR ground system

Pursuant to the Definitive Agreement, VAST is entitled to use non-IPSTAR ground system, including user terminals and/or antennas at its own cost to access the Bandwidth Capacity, provided that (i) such use shall comply with the provision as specified in the Definitive Agreement; or (ii) if the specific technical specifications of non-IPSTAR ground system used by VAST varies from the technical requirements as specified in the Definitive Agreement, VAST shall take full responsibility to coordinate with necessary administrative and/or government authorities for such variation of technical requirements.

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LETTER FROM THE BOARD

Both VAST and the Vendor shall establish practices and/or procedures, including but not limited to, test and product verification, to ensure the compatibility with the Satellite before the launch of the non-IPSTAR ground system service in the Territory.

In the event that the non-IPSTAR ground system service provided by VAST causes interference to the Satellite or other satellites, the Vendor shall send a written report containing details and evidence of such interference as soon as reasonably practicable and VAST shall take full responsibility at its own cost to resolve such interference caused to all affected third party(s) within forty-eight (48) hours of VAST receives the written report from the Vendor. If VAST fails to resolve such interference within such forty-eight (48) hours period, the Vendor has the right to immediately preempt or interrupt VAST’s utilisation of the Bandwidth Capacity Service for such non-IPSTAR ground system service. Regardless of such forty-eight (48) hours period, in case of emergency event, the Vendor reserves its right to immediately cease any transmission of the Bandwidth Capacity in accordance with terms as set out in the Definitive Agreement.

In the event that VAST is in the process of resolving any issue related to the compliance and/or necessary administrative and/or government authorities as specified in the Definitive Agreement, the Vendor shall not be entitled to exercise its termination rights under the Definitive Agreement if VAST provides evidence as reasonably requested by the Vendor that it is actively coordinating to resolve such issue.

The Directors consider that such arrangement can provide the Group and its existing and/ or new customers the flexibility in choosing the ground systems to access the Bandwidth Capacity. Furthermore in the event of emergency rescue operation, the flexibility in utilisation of the ground systems can further facilitate the rescue action.

Cooperation

After the entering into of the Definitive Agreement, the parties to the Definitive Agreement shall negotiate the bandwidth sales deal for beams covering Democratic People’s Republic of Korea and Taiwan Region.

Furthermore, if the cooperation is successful in the Territory, VAST and the Vendor agree to cooperate to explore communication products or application in other markets, and the Vendor should treat VAST as a preferred partner.

Indemnity

The Vendor shall defend and indemnify VAST, its affiliates and their respective directors, officers, employees, agents, successors and assigns (collectively, the ‘‘Indemnified Parties’’) against and agrees to hold each of them harmless from any and all claim, cost and damage (including incidental and consequential damages), loss, liability, obligation, expense (including without limitation expenses of investigation and attorneys’ fees and expenses in connection with any action, suit or proceeding), custom duty, taxation, levy, government fee, fine, penalty or monetary claim, whether or not involving a third party claim, incurred or suffered by an Indemnified Party arising out of or in connection with the import, transship, use or installation

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LETTER FROM THE BOARD

of, or the breach or non-compliance of any laws regarding, the equipment located at the Gateways or any equipment or instrument in relation to the Gateways prior to the Commencement Date.

REVENUE SHARING AGREEMENT

As disclosed previously in the announcement of the Company dated 30 December 2012, a revenue sharing agreement will be entered into by VAST and the Vendor at or before the Service Commencement. On 29 March 2013, VAST and the Vendor entered into the Revenue Sharing Agreement (as amended and supplemented by the RS Supplemental Agreement) pursuant to which VAST will share its revenue derived from the service provision of the Bandwidth Capacity and Right To Use to its customers with the Vendor.

Parties:

(1) VAST; and
(2) the Vendor

Revenue share arrangement

Pursuant to the Revenue Sharing Agreement, VAST and the Vendor agreed that during the agreement term, revenue entitled to be received by VAST shall be shared with the Vendor at 8% of the sum of revenue derived from (i) the revenue entitled to be received by VAST through CTS’s service providers or customers; and (ii) the revenue entitled to be received by VAST through VAST’s customers.

In the event that VAST offers bandwidth tariffs to its customers lower than the agreed tariff set out in the Revenue Sharing Agreement, VAST shall seek consent from the Vendor for the offered tariff. In this case, the revenue share to the Vendor shall be at 8% of the offered tariff netted off withholding tax.

The 8% of the revenue share was determined after the arm’s length negotiation between VAST and the Vendor and taking into account that the revenue to be shared pursuant to the Revenue Sharing Agreement is considered as part of the total consideration paid to the Vendor by VAST for acquiring the Assets. The aforementioned revenue share arrangement allows the Group to share the business risk with the Vendor, and lessen the pressure on the cash flow of the Group by lowering the final amount of the Consideration.

Agreement term

The Revenue Sharing Agreement provides that the term of the agreement commences on the Commencement Date and shall be continue for a period of nine and a half years, unless further extended or earlier terminated according to the terms specified in the Revenue Sharing Agreement.

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LETTER FROM THE BOARD

The term of the Revenue Sharing Agreement will automatically extend according to the period of which the Bandwidth Capacity under the Definitive Agreement can still be utilised during Extended Period.

There are no conditions precedent under the Revenue Sharing Agreement. The Company will still seek approval from the Shareholders for the Revenue Sharing Agreement and the transactions contemplated thereunder at the EGM.

In the event that the Definitive Agreement is terminated for reason that VAST fails to make payment in accordance with the payment schedule set out in the Definitive Agreement and the cooperation model under the Definitive Agreement needs to be adjusted due to the market or other reasons, the agreement term of the Revenue Sharing Agreement shall still continue and be valid until the termination of the new agreement that VAST and the Vendor will enter into pursuant to the terms set out in the Definitive Agreement.

ASSIGNMENT AGREEMENT

Date:

30 December 2012

Parties:

the Company;
the Vendor; and
CTS

Background

The IPSTAR Business is a restricted business in the PRC. Therefore, the Vendor had to engage an Approved Company, in order to carry out the IPSTAR Business in the PRC. As such, the Vendor has chosen CTS, which is delegated by CT (one of the Approved Companies) to conduct the IPSTAR Business in the PRC, as its business partner. Accordingly, the Vendor had signed the ICA Documents with CTS, pursuant to which CTS and the Vendor have confirmed a series of rights and obligations in relation to the business cooperation to develop IPSTAR service in the PRC.

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LETTER FROM THE BOARD

For the aforementioned reason, VAST will continuously engage CTS as its business partner to carry out the IPSTAR Business in the PRC after the Service Commencement. Hence, VAST and CTS have entered into the Assignment Agreement on 30 December 2012 to re-define each party’s roles and responsibilities in providing IPSTAR service in the PRC in the event the Definitive Agreement is entered into by VAST and the Vendor.

The Assignment

Pursuant to the Assignment Agreement, from the Assignment Date, (i) the Vendor shall assign to VAST all its rights and obligations under the ICA Documents relating to the IPSTAR Business in the PRC; (ii) VAST agrees to undertake the assignment, and to perform the obligations of the Vendor and to enjoy the rights of the Vendor under the ICA Documents as from the Assignment Date, thereby replacing the Vendor to continue the cooperation with CTS in conducting the IPSTAR Business in the PRC in accordance with the terms set out in the ICA Documents.

Furthermore, pursuant to the Assignment Agreement, CTS consented with such assignment from the Vendor to VAST of the entire rights and obligations under the ICA Documents provided that the existing cooperation model between CTS and the Vendor and CTS’ position as an IPSTAR Business operator in the PRC remain unchanged.

Pursuant to the Assignment Agreement and ICA Documents, the major rights and obligations of CTS are as follows:

(i) operating and managing the Gateways;
(ii) acting on behalf of CT as the Approved Company to conduct the IPSTAR Business in the PRC and receiving relating service fee;
(iii) paying the agreed tariff to VAST relating to CTS’s utilisation of the Satellite for its own customers; and
(iv) collecting the Gateways operation expense from VAST (Note).

Pursuant to the Assignment Agreement and ICA Documents, the major rights and obligations of VAST are as follows:

(i) providing Bandwidth Capacity and Bandwidth Capacity Service to CTS in the PRC;
(ii) collecting revenue derived from the IPSTAR Business in the PRC from CTS based on the agreed tariff;
(iii) paying service fee to CTS (at a fixed percentage of the contract sum of the Satellite bandwidth sold to VAST’s customers) in return for CTS’s acting on behalf of CT as the Approved Company to conduct the IPSTAR Business in the PRC; and
(iv) paying the Gateways operation expense to CTS (Note).
Note: Pursuant to the Definitive Agreement, the Vendor will bear the Gateways operation expense, and it will pay VAST the amount of the Gateways operation expense based on the supporting documents received from CTS and VAST. VAST will then make the payment to CTS.

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LETTER FROM THE BOARD

Term of the cooperation with CTS upon Assignment

Upon the Assignment Date, VAST shall replace the Vendor to cooperate with CTS, and cooperation shall be valid throughout the service life of the Satellite in accordance with the terms set out in the ICA Documents.

Termination of Assignment Agreement

As disclosed above in the paragraph headed ‘‘Definitive Agreement — Conditions to Service Commencement’’ under this section, if any of the conditions under the Definitive Agreement that are not waived either in whole or in part by VAST have not been fulfilled on or before 15 October 2013, the Definitive Agreement shall automatically terminate. If, after the Definitive Agreement has been entered into, the Definitive Agreement terminates for whatsoever reason, the Assignment Agreement shall be automatically terminated. In this event, CTS and the Vendor shall perform their rights and obligations under the ICA Documents. The pending rights and obligations between VAST and CTS before such restoring activity, shall be discussed and settled in good faith by CTS, the Vendor and VAST. No matter in what situation, the normal operation of CTS shall not be affected, nor the obligations of CTS shall be increased except for performing the roles set out in the ICA Documents.

As advised by the Company’s PRC legal advisers, (i) CTS has been duly approved by the relevant PRC government authority to conduct the IPSTAR Business in the PRC; (ii) VAST replacing the Vendor to cooperate with CTS to perform the rights and obligation under the ICA Documents in accordance with the Assignment Agreement does not affect CTS’s qualification to conduct the IPSTAR Business in the PRC; and (iii) the cooperation between VAST and CTS does not violate the relevant laws and regulations of the PRC.

INFORMATION OF THE ASSETS

The Vendor is a subsidiary of Thaicom and is principally engaged in providing IPSTAR transponder services. It is one of the broadband satellite operators in Asia-Pacific region serving broadband satellite connectivity in 13 countries. The Vendor has been granted the exclusive right to use, and has operation of the IPSTAR Business.

The Satellite was designed and manufactured by a US satellite manufacturing company. The Satellite was launched on 11 August 2005 by Ariane 5 launch vehicle and was placed into geostationary orbit at 119.5°E on 14 October 2005. When launched in 2005, it was the heaviest commercial communication satellite launched to date weighing 6,505 kg. It is a high powered geostationary satellite for the use of broadband communications applications. It was the first commercial high throughput satellite (‘‘HTS’’) launched. The main application for HTS is fast connectivity. The satellite antenna of HTS is characterised by very small beams (up to about 200) with high gain which allows for closing the link to relatively small user terminals. The service life of the Satellite is expected to last till June 2022.

The Satellite is a three-axis stabilised and geostationary orbit satellite utilizing Ku-band spectrum for user applications and Ka-band to communicate with the gateways. The Satellite was designed for two-way communications over an Internet Protocol platform and has a maximum throughput of 45 Gbps. The Satellite has 87 downward link Ku-band spot beams.

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LETTER FROM THE BOARD

The Satellite also carries 10 Ka-band upward link transponders. The Satellite has in total 84 spot beams, 8 augmented beams and 3 shaped beams for two-way communications purpose and 7 wide-coverage beams for broadcasting purpose. The service area covers Asia-Pacific region. The Satellite payload consists of three service links: forward link, return link and broadcast link. The forward link provides connectivity between the gateways to the users for narrow-cast service. The return link provides connectivity between the users to the gateways. The broadcast link provides broadcast service from gateway uplinks to regional broadcast areas. The Bandwidth Capacity serving the Territory comprises 22 spot beams, 2 augmented beams, 1 shaped beam and 1 broadcast beam. The total Satellite bandwidth of the Satellite (including the upward link, downward link and the broadcast link) amounted to 7,598.5 MHz.

The IPSTAR service has a download speed up to 5 Mbps and an upload speed up to 4 Mbps and therefore is only a second generation broadband VSAT system. IPSTAR now has frequency licenses in 14 countries in Asia-Pacific region, allowing operators and service providers to provide broadband Internet access via satellite.

According to the Interim Measures effective on 1 July 2013 as detailed under the paragraph headed ‘‘The Interim Measures on the Administration of the Setup and Use of Mobile Earth Station within a Fixed Satellite Service Communication Network’’ under the section headed ‘‘Regulatory Review’’ of this circular, only the lower range of Ku-band spectrum (the frequency range between 14.0–14.25 GHz) is permitted for the signal transmission for automobile-borne, aircraft-borne, moveable and portable types of mobile earth stations. As such, 8 out of 22 spot beams and 1 shaped beam with frequency range above 14.25 GHz can only be utilised for satellite signal transmission under stationary mode, on which no restriction of frequency range has been implemented.

The Assets comprise of (i) the total bandwidth capacity of the Satellite of 7,598.5 MHz serving the Territory and (ii) the Right to Use. The aggregate valuation of the Assets was not less than US$543 million (equivalent to approximately HK$4,208.3 million) as at 31 August 2013 based on the valuation report prepared by the Independent Valuer as set out in Appendix III to this circular. The Independent Valuer has adopted cost approach as the most appropriate approach and has employed replacement cost method to value the Assets. Replacement cost method reflects the cost of creating/repurchasing an asset of a like kind and quality to that of the Assets. The key assumption of the valuation is that the Assets should work with adequate auxiliary communication infra-structures including equipment. Further investment in the said infra-structure might be required.

When negotiating the Consideration, the Company and the Vendor did not take into account the aforementioned valuation of the Assets. The Directors are of the view that the reason for the Consideration of US$80.0 million (equivalent to approximately HK$620.0 million) to be substantially lower than the valuation of the Assets is that the replacement cost method was adopted to value the Assets, which does not take into account the discounting factors to the Consideration including (i) the revenue sharing arrangement as described above in the paragraph head ‘‘Revenue Sharing Agreement’’ under this section; (ii) bulk purchase of the Satellite bandwidth; and (iii) the Group’s business risks resulting from the under-performance of the Assets in the past and the relatively long Service Period.

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LETTER FROM THE BOARD

After completion of the Acquisition, the Assets will be classified as a finance lease in the Group’s accounts. In accordance with HKAS 17 Leases, finance leases shall be recognised as assets at amounts equal to the fair value of the leased property or, if lower, the present value of the minimum lease payments, each determined at the inception of the lease. In accordance with HKAS 17 Leases and pursuant to the terms set out in the Definitive Agreement, the Assets will be recognised at the present value of the Consideration of US$80.0 million instead of the valuation of the Assets of not less than US$543 million.

Financial information of the Asset

Set out below is the financial information of the Assets for the three years ended 31 December 2012 and the three months ended 31 March 2013 as extracted from the review report on the Assets as set out in Appendix II to this circular based on the information provided by the Vendor using the accounting policies materially consistent with those of the Group:

Operating revenue Operating expense including the Gateway operation expense Operating (losses)/profit	For the year ended 31 December 2010 2011 2012 HK$’000 HK$’000 HK$’000 (unaudited) (unaudited) (unaudited) (Note) (Note) (Note) 7,739 3,927 4,052 (120,858) (125,964) (153,782) (113,119) (122,037) (149,730)	For the three months ended 31 March 2013 HK$’000 (unaudited) (Note) 1,565 (35,139) (33,574)

Note: the exchange rates adopted for the three years ended 31 December 2012 and the three months ended 31 March 2013 are Thai Baht$4.055: HK$1, Thai Baht$3.8913: HK$1, Thai Baht$3.9844: HK$1 and Thai Baht$3.8323: HK$1 respectively.

As far as the Directors are aware, the under-performance of the Assets in the past three years ended 31 December 2012 and the three months ended 31 March 2013 was mainly attributable to the Vendor’s marketing and positioning strategy of IPSTAR Business. Since the Vendor was not familiar with the satellite communication market in the PRC, it took a considerable time for the Vendor to work with its local partners in developing a business model for the PRC market. However, such attempt had not been successful, which led to the low sales volume of the satellite bandwidth capacity in the PRC during the same period. In the meantime, the Vendor still had to incur, among others, the Gateways operation expenses regardless of the sales volume and the depreciation expenses of the Satellite allocated to the Territory and the Gateways. As a result, the Assets had substantial operating losses in the past three years.

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As such, the Company will adopt a different business model to operate the IPSTAR Business in the PRC, details of which are set out in the paragraph headed ‘‘Business model after completion of the acquisition’’ in this section.

FINANCIAL EFFECT OF THE ACQUISITION AND THE ISSUANCE OF THE CONSIDERATION SHARES

The financial impacts of the Acquisition and the issue of the Consideration Shares, together with the basis of preparation of such information, are set out in Appendix IV — ‘‘Unaudited Pro Forma Financial Information of the Enlarged Group’’ in this circular.

The financial impacts are stated as if the Acquisition and the issue of the Consideration Shares had taken place on 31 March 2013 for the unaudited pro forma consolidated statement of financial position; and on 1 April 2012 for the unaudited pro forma consolidated statement of comprehensive income.

Impact on total assets and total liabilities of the Enlarged Group

Based on the unaudited pro forma consolidated statement of financial position of the Enlarged Group as set out in Appendix IV in this circular and assuming the Commencement Date and the issue of Consideration Shares had taken place on 31 March 2013, the total assets would be increased by approximately 144.5% from approximately HK$332.7 million to approximately HK$813.6 million; and the total liabilities would be increased by approximately 826.1% from approximately HK$54.5 million to approximately HK$504.7 million. The increase in total assets is mainly attributable to the recognition of intangible assets of approximately HK$497.4 million and partially offset by the payment of the 1st instalment of the cash Consideration of US$1.85 million (equivalent to approximately HK$14.4 million) and legal and professional fees of approximately HK$2.1 million. The increase in total liabilities is mainly attributable to the recognition of the financial liabilities of approximately HK$450.2 million arising from the remaining payment of the first installment of US$2.0 million and the 2nd and remaining instalments of the cash Consideration, which represents the present value of the remaining payment of the first instalment and remaining instalments of the cash Consideration.

Impact on earnings of the Enlarged Group

Based on the unaudited pro forma consolidated statement of comprehensive income of the Enlarged Group as set out in Appendix IV in this circular and assuming the Commencement Date and the issue of Consideration Shares had taken place on 1 April 2012, (i) the total turnover would be increased by approximately 3.5% from approximately HK$115.7 million to approximately HK$119.7 million; and (ii) the net profit attributable to the Shareholders would be decreased from approximately HK$36.0 million to a net loss of approximately HK$48.8 million. Such deterioration from net profit to net loss is mainly attributable to (i) inclusion in the administrative expenses of the other operating expenses of the Assets (i.e. the selling and administrative expenses allocated by Thaicom) of approximately HK$14.8 million and the amortisation expenses of the Assets of approximately HK$52.4 million; and (ii) increase in finance costs of approximately HK$21.4 million, and partially offset by the inclusion in the turnover of the operating revenue of the Assets of approximately HK$4.1 million.

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SHAREHOLDING STRUCTURE

The shareholding structure of the Company (i) as at the Latest Practicable Date; and (ii) immediately after the allotment and issue of the Consideration Shares are as follows:

Shareholders Non public shareholders Mr. Wong Chit On and Excel Time Investments Limited (Note 1) Mr. Zhang Jinbing Mr. Lu Zhijie and Jumbo Harbour Group Limited (Note 2) Mr. Han Weining Sub-total: Public shareholders The Vendor (Note 3) Other public Shareholders Sub-total: Total (Note 4)	As at the Latest Practicable Date Number of Shares % 810,000,000 67.50 40,000,000 3.33 30,000,000 2.50 12,000,000 1.00 892,000,000 74.33 — — 308,000,000 25.67 308,000,000 25.67 1,200,000,000 100.00	Immediately after the allotment and issue of the Consideration Shares Number of Shares % 810,000,000 64.08 40,000,000 3.16 30,000,000 2.37 12,000,000 0.95 892,000,000 70.56 64,000,000 5.06 308,000,000 24.38 372,000,000 29.44 1,264,000,000 100.00	Immediately after the allotment and issue of the Consideration Shares Number of Shares % 810,000,000 64.08 40,000,000 3.16 30,000,000 2.37 12,000,000 0.95 892,000,000 70.56 64,000,000 5.06 308,000,000 24.38 372,000,000 29.44 1,264,000,000 100.00
			70.56
			5.06 24.38
			29.44
			100.00

Notes:

Mr. Wong Chit On is an executive Director. Mr. Wong Chit On is the beneficial owner of all the issued share capital of Excel Time Investments Limited (‘‘Excel Time’’) which holds 810,000,000 Shares. Therefore, Mr. Wong Chit On is deemed, or taken to be, interested in all the Shares which are beneficially owned by Excel Time for the purposes of the SFO. Being the spouse of Mr. Wong Chit On, Ms. Ni Yun Zi is also deemed to be interested in all the Shares which are beneficially owned by Excel Time for the purposes of the SFO. The shareholding interests of Mr. Wong Chit On and Excel Time in the Company as presented in the table above is based on the assumption that each of Mr. Wong Chit On and Excel Time will not dispose of nor acquire any Shares during the relevant period.
Mr. Lu Zhijie is a director of Jumbo Harbour Group Limited (‘‘Jumbo’’) and the beneficial owner of 94.2% of the issued share capital of Jumbo which holds 30,000,000 Shares. Therefore, Mr. Lu Zhijie is deemed, or taken to be, interested in all the Shares which are beneficially owned by Jumbo for the purposes of the SFO.
Assuming that the Vendor will not dispose nor acquire any Shares during the relevant period save for the Consideration Shares allotted and issued pursuant to the Definitive Agreement.

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Assuming that there will not be any changes in the issued share capital of the Company save for the allotment and issue of the Consideration Shares during the relevant period.

BUSINESS MODEL AFTER COMPLETION OF THE ACQUISITION

After completion of the Acquisition, the Group will continuously operate its existing business based on its business model as set out in the prospectus of the Company dated 30 March 2012. In addition to the operation of the Group’s existing business, the Group will adopt the following business model to operate the IPSTAR Business in the Territory. Further details of the Group’s business model of the IPSTAR Business in the Territory are set out in the paragraph headed ‘‘Business Model’’ under the section headed ‘‘Business’’ in this circular.

The Group has been a provider of core components of specialised communication system. It has designed and developed products relating to digital trucking and satellite communication systems, and has provided specialised communication network design and implementation that can be customarily devised according to the specific needs of client. Depending on the nature, scale and geographic coverage of the communication network or systems, the networks or systems designed and developed by the Group need to be connected by various communication links including, among others, satellite. Upon the Service Commencement, the Group can lease the Satellite bandwidth to the Group’s customers of its existing business, who can connect the Group’s communication products to the IPSTAR without sourcing satellite bandwidth from other satellite service providers in the Territory. In addition, the Group can offer the Satellite bandwidth together with the communication network designed by it to its customers as a collaborative communication solution to provide one-stop services to its customers. Accordingly, the Directors are of the view that the IPSTAR Business is complementary and has synergy with the Group’s existing business.

After completion of the Acquisition, the Group will modify the Gateways system to enhance the compatibility of the IPSTAR. First, the Group will modify the Gateways system by using the Group’s products to support communication under in-motion mode (‘‘On-the-move Communication’’). Subsequent to such modification, the IPSTAR will be able to connect to most of the On-the-move Communication systems, which will broaden the application of the Satellite bandwidth. Secondly, as the IPSTAR is currently compatible only to the modems and terminals of Thaicom, which limits the base of the potential customers, the Group will modify the Gateways system to enable the IPSTAR be compatible to most of the modems and terminals that commonly use in the market. As a result, the aforementioned modification of the Gateways system by the Group shall allow it to market the Satellite bandwidth to an expanded and diversified base of customers such as (i) satellite system integrated companies which offer satellite communication solutions in remote areas where the communication infrastructure is not fully in place, and (ii) shipping companies which require satellite communication during its maritime navigation; (iii) government sectors including governmental departments, police, national defense and public security which may require to establish a satellite communication network for their operation, control and emergency command during urgent rescue; (iv) natural resources companies as the exploitation and exploration of oil and gas are usually situated in remote areas; (v) aviation companies as satellite communication may be required to be established between the aircraft and the control center; and (vi) television broadcast companies which may require the live program broadcast in the Territory. The Group plans to promote the IPSTAR Business in the Territory through, among others, participating in exhibitions and

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advertising on different media. Further details of the Group’s business strategies, including but not limited to its target customers, with respect to the IPSTAR Business in the Territory are set out in the paragraph headed ‘‘Business Strategies’’ under the section headed ‘‘Business’’ in this circular.

In addition, the Group will receive revenue from CTS in the event that CTS utilises the Satellite bandwidth for its own customers.

Accordingly, the Group plans to market the IPSTAR Business in the Territory and derive revenue from such business mainly through the following channels:

(i) leasing the Satellite bandwidth to the Group’s existing and potential customers of its existing business as mentioned above;
(ii) leasing the Satellite bandwidth to an expanded and diversified base of customers by modifying the Gateways system to enhance the compatibility of the IPSTAR; and
(iii) receiving the agreed tariff from CTS relating to its utilisation of the Satellite bandwidth for CTS’s own customers.

Further details of the Group’s revenue model with respect to the IPSTAR Business in the Territory are set out in the paragraph headed ‘‘Revenue Model’’ under the section headed ‘‘Business’’ in this circular.

As explained above in the paragraph headed ‘‘Assignment Agreement’’ under this section, under the section headed ‘‘Regulatory Overview’’ and in the paragraph headed ‘‘Business Model — Cooperation arrangement with the Vendor and CTS for the IPSTAR Business in the Territory’’ under the section headed ‘‘Business’’ in this circular, the IPSTAR Business is a restricted business in the PRC. Therefore, pursuant to the Assignment Agreement and the ICA Documents, the Group will engage CTS, which is delegated by CT (one of the Approved Companies) to conduct the IPSTAR Business in the PRC, and cooperate with CTS to carry out the IPSTAR Business in the PRC. Regardless of the Group’s marketing channels as mentioned above, all PRC customers solicited by the Group for the IPSTAR Business must enter into agreements with CTS to lease the Satellite bandwidth through CTS.

The principal costs to be incurred for operating the IPSTAR Business in the Territory are the Gateways operation expenses in the PRC which shall be borne by the Vendor pursuant to the Definitive Agreement. The Vendor also has to bear the depreciation expenses of the Satellite allocated to the Territory and the Gateways. After the completion of the Acquisition, the Group does not need to bear the aforementioned expenses whereas the major cost to be borne by the Group will be the amortisation expense of the Assets throughout the Service Period.

The Directors consider that in the past three full financial years and the three months ended 31 March 2013, the under-performance of the IPSTAR Business in the PRC is mainly attributable to the Vendor’s unfamiliarity with the satellite communication market in the PRC, its reliance on local partners to develop the IPSTAR Business in the PRC market, the limited application of the Satellite bandwidth due to the current design of the Gateways system and the

– 27 –

LETTER FROM THE BOARD

substantial amount of the Gateways operation expense and the depreciation expenses of the Satellite allocated to the Territory and the Gateways. However, given the Group’s expertise in the specialised communication system and its experience and extensive knowledge in the PRC communication industry, the Directors are of the view that, by adopting the aforementioned business model, the IPSTAR Business in the Territory will be beneficial to the Group and will enhance the Group’s overall business performance.

REASON FOR THE ACQUISITION

VAST is an investment holding company. The principal operating activities of the Group include design and development of products relating to digital trucking and satellite communication systems. The Group also provides specialised communication network design and implementation that can be customarily devised according to the specific needs of client. Depending on the nature, scale and geographic coverage of the communication network or systems, the network or system designed and developed by the Group needs to be connected by various communication links such as fibers, microwave, satellite and phone lines.

The development of communication channel is shifting from wired network to wireless network, and from narrowband to broadband. The satellite communication, particularly specialised communication systems and network, becomes more and more important. However, satellite network is currently a scarce resource, which largely limits the development of satellite communication business.

The Directors believe that the Acquisition enables the Group to explore new source of revenue and expand its customer base. Upon the Service Commencement, the Group is able to increase the sales of its existing specialised communication products as the Group can lease the Satellite bandwidth to customers who can connect the Group’s communication products to the IPSTAR without sourcing satellite bandwidth from other satellite service providers in the PRC. Moreover, the Directors believe that the high performance and competitive pricing that the Group can offer will attract new customers such as telecommunication operators and governmental bodies so that the Group can increase its revenue and profit by leasing the Satellite bandwidth. As a result, the Acquisition is not only beneficial to the development of the Group’s current business but also allowing the Group to diversify its business risk through new source of revenue and expanding base of customers. Further details of the Group’s business model after completion of the Acquisition are set out above in the paragraph headed ‘‘Business model after completion of the Acquisition’’ under this section and in the paragraph headed ‘‘Business Model’’ under the section headed ‘‘Business’’ in this circular. In addition, the Directors believe that Acquisition would bring in the contribution of technology and international market access, and VAST would be able to materialise the business opportunities through its market base in the Territory. The Directors, therefore, believe that VAST and the Vendor together would create a strategic partnership which is beneficial to the development of the satellite business in the Territory as a potential market. Accordingly, the Directors are of the opinion that the Acquisition is in the interest of the Group and the Shareholders as a whole.

LISTING RULES IMPLICATIONS

The Acquisition constitutes a very substantial acquisition for the Company under Chapter 14 of the Listing Rules and is subject to approval by the Shareholders.

– 28 –

LETTER FROM THE BOARD

The EGM will be convened to seek approval from the Shareholders for the transactions contemplated under the Definitive Agreement and the Revenue Sharing Agreement. To the best of the knowledge, information and belief of the Directors having made all reasonable enquiries, no Shareholder is required to abstain from voting on the resolutions to be proposed at the EGM regarding the transactions contemplated under the Definitive Agreement and the Revenue Sharing Agreement.

EGM

The EGM will be convened and held at the Conference Room, 3/F, Nexxus Building, 77 Des Voeux Road Central, Hong Kong on Tuesday, 15 October 2013 at 2:00 p.m. for the purpose of considering and, if thought fit, approving the Acquisition and the transactions contemplated under the Definitive Agreement and the Revenue Sharing Agreement.

A notice convening the EGM is out in pages EN-1 to EN-3 of this circular. A form of proxy for use at the EGM is enclosed in this circular. Whether or not you propose to attend the meeting, you are advised to read the notice and to complete the form of proxy attached to the notice of the EGM in accordance with the instructions printed thereon and return the same to the Company’s Hong Kong branch share registrar and transfer office, Tricor Investor Services Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, as soon as possible and in any event not later than 48 hours before the time appointed for holding of the EGM or any adjournment thereof. Completion and return of the proxy form will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish.

Pursuant to Rule 13.39(4) of the Listing Rules, any vote of Shareholders at a general meeting must be taken by poll. Accordingly, the resolutions proposed at the EGM will be taken by way of poll. An announcement on the poll results will be made by the Company after the EGM in the manner prescribed under Rule 13.39(5) of the Listing Rules.

RECOMMENDATION

The Directors consider that the terms of the Definitive Agreement and the Revenue Sharing Agreement are on normal commercial terms, fair and reasonable are in the interests of the Company and Shareholders as a whole. Accordingly, the Directors recommend that the Shareholders vote in favour of the ordinary resolutions to approve the transactions contemplated under the Definitive Agreement and the Revenue Sharing Agreement at the EGM.

– 29 –

LETTER FROM THE BOARD

ADDITIONAL INFORMATION

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

Yours faithfully, By order of the Board Synertone Communication Corporation Wong Chit On

Chairman and Executive Director

– 30 –

RISK FACTORS

You should consider carefully all of the information in this circular and, in particular, the following risks in connection with the Group and the IPSTAR Business described below, before making voting decision(s) at the EGM. The Enlarged Group’s business, financial condition or results of operations could be materially and adversely affected by any of these risks.

The Directors have identified the following risks associated with the Acquisition, the Group’s IPSTAR Business in the Territory and the satellite communication industry.

A. RISKS ASSOCIATED WITH THE ACQUISITION

The completion of the Acquisition is subject to the fulfilment or waiver (as the case may be) of a number of conditions precedent as set out in the Definitive Agreement and there is no assurance that all of conditions precedent will be fulfilled or waived (as the case may be)

The completion of the Acquisition is conditional upon fulfilment or waiver (as the case may be) of a number of conditions precedent, details of which are set out in the paragraph headed ‘‘Definitive Agreement — Conditions to Service Commencement’’ under the section headed ‘‘Letter from the Board’’ in this circular. As certain conditions precedent involve decisions of third parties, and the fulfilment of which is not under the control of the parties involved in the Acquisition. Such conditions precedent includes, among other things, obtaining approval from the Shareholders in the EGM and approval from the Stock Exchange for the listing of, and permission to deal in, the Consideration Shares. Since fulfilment of these conditions precedent is beyond the control of the parties involved in the Acquisition, there is no assurance that the Acquisition will be completed as intended.

The Group’s indebtedness may limit the Group’s ability to obtain additional financing in the future

As disclosed in the paragraph headed ‘‘Definitive Agreement — Consideration’’ under the section headed ‘‘Letter from the Board’’ in this circular, the cash portion of the Consideration amounts to approximately US$75.9 million (equivalent to approximately HK$588.2 million) which will be funded by internal resources and/or bank borrowings of the Group. As the Group has committed a significant amount of financial resources for the Acquisition, the Group’s indebtedness and related obligations could have important future consequences for the Group, such as potentially limiting the Group’s ability to obtain additional financing, exposing the Group to the risk of increased interest costs as a result of any interest rate rise, and potentially restricting the Group’s ability to make distributions to the Shareholders.

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RISK FACTORS

B. RISKS ASSOCIATED WITH THE GROUP’S IPSTAR BUSINESS IN THE TERRITORY

The Group’s financial results may fluctuate due to varied utilisation level of the Bandwidth Capacity

According to the Group’s business plan, apart from leasing Satellite bandwidth to customers of its existing business, the Group plans to market the Satellite bandwidth to expanded and diversified base of customers such as (i) satellite system integrated companies which offer satellite communication solutions in remote areas where the communication infrastructure is not fully in place; (ii) shipping companies which require satellite communication during its maritime navigation; (iii) government sectors including governmental departments, police, national defense and public security which may require to establish a satellite communication network for their operation, control and emergency command during urgent rescue; (iv) natural resources companies as the exploitation and exploration of oil and gas are usually situated in remote areas; (v) aviation companies as satellite communication may be required to be established between the aircraft and the control center; and (vi) television broadcast companies which may require the live program broadcast in the Territory. Although the Group will not bear the substantial amount of the Gateways operation expense and the depreciation expenses of the Satellite allocated to the Territory and the Gateways, the Group will still incur certain fixed costs such as the amortisation expense of the Assets. As a result, the Group’s financial performance relating to the IPSTAR Business in the Territory will mainly depend on the level of revenue to be generated from lease of the Satellite bandwidth, i.e. the utilisation level of the Bandwidth Capacity. However, there is no assurance that the Group can successfully lease all of the Bandwidth Capacity to customers. As such, the Group’s financial results relating to the IPSTAR Business in the Territory will fluctuate due to varied utilisation level of the Bandwidth Capacity. In the event that the Group fails to lease a certain amount of the Satellite bandwidth to customers to cover the relevant costs, the Group’s financial performance relating to the IPSTAR Business in the Territory would be adversely affected.

The Group may experience operating losses for the IPSTAR Business in the Territory as such business has underperformed in the past years

The IPSTAR Business in the Territory had underperformed in the past years. It had recorded operating losses of approximately HK$113.1 million, HK$122.0 million, HK$149.7 million and HK$33.6 million respectively for the year ended 31 December 2010, 2011 and 2012 and for the three months ended 31 March 2013. As mentioned above, the Group’s financial performance relating to the IPSTAR Business in the Territory will mainly depend on the level of revenue to be generated from lease of the Satellite bandwidth, i.e. the utilisation level of the Bandwidth Capacity, thus the Group’s financial results relating to the IPSTAR Business in the Territory will fluctuate due to varied utilisation level of the Bandwidth Capacity. There is no assurance that the Group will not experience operating losses for the IPSTAR Business in the Territory due to low sales amount as a result of low utilisation level of the Bandwidth Capacity. In such event, the results of operation, profitability and financial condition of the Group may be adversely affected.

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RISK FACTORS

The Group will rely on the cooperation with CTS to operate the IPSTAR Business in the PRC and cessation of such cooperation may adversely affect the Group’s financial condition and its operation results relating to such business

The IPSTAR Business is a restricted business in the PRC. Therefore, pursuant to the Assignment Agreement and the ICA Documents, the Group will engage CTS, which is delegated by CT (one of the Approved Companies) to conduct the IPSTAR Business in the PRC, and cooperate with CTS to carry out the IPSTAR Business in the PRC. For further details of the Group’s cooperation with CTS, please refer to the paragraph headed ‘‘Cooperation arrangement with the Vendor and CTS for the IPSTAR Business in the Territory’’ under the section headed ‘‘Business’’ in this circular. As a result, the Group will rely on the cooperation with CTS to carry out the IPSTAR Business in the PRC. However, there is no assurance that CTS will continue to cooperate with the Group in the future. In the event that CTS ceases to cooperate with the Group and the Group fails to engage alternative Approved Company in the PRC, the Group would not be able to conduct the IPSTAR Business in the PRC, which could have a material adverse impact on the Group’s financial condition and its operation results relating to the IPSTAR Business in the PRC.

Failure of the Satellite and Gateways and interruption of the IPSTAR Business may harm the reputation and the Group’s IPSTAR Business of the Group

There may be technical failures relating to the Satellite and/or Gateways such as damage to or failure of the infrastructure and/or systems, data processing errors by the systems and the loss or corruption of data. Furthermore, as the Satellite is placed in orbit where space environment is harsh and unreachable. Regular maintenance works are not able to be performed on the Satellite as those are usually done on the ground-based communication systems. Certain failures are therefore out of control of the Satellite operator. Furthermore, pursuant to the Definitive Agreement, VAST is entitled to use non-IPSTAR ground systems, including user terminals and/or antennas at its own cost to access the Bandwidth Capacity, details of which can be referred to the paragraph headed ‘‘Non-IPSTAR ground system’’ under the section headed ‘‘Letter from the Board’’ in this circular. The Definitive Agreement provides that if the non-IPSTAR ground systems causes interference to the Satellite or other satellites, and VAST fails to resolve such interference within such forty-eight (48) hours period, the Vendor has the right to immediately preempt or interrupt VAST’s utilisation of the Bandwidth Capacity Service for such non-IPSTAR ground system service. Regardless of such forty-eight (48) hours period, in case of emergency event, the Vendor also reserves its right to immediately cease any transmission of the Bandwidth Capacity in accordance with terms as set out in the Definitive Agreement. In view of the above, the Group may experience failure or interruption to its provision of the Satellite bandwidth to its customers. If the Group cannot ensure the consistent provision and quality of the Satellite communication system and service to its customers or if the Group consistently fails to meet its customers’ expectations on the Satellite communication service or if the non-IPSTAR ground systems cause interference to the Satellite and other satellites and VAST is unable to resolve such issues in due course, the Group’s reputation may be damaged; its operating expenses or capital expenditure may increase as a result of remedial action which it is required to be

– 33 –

RISK FACTORS

taken; and/or its customers may reduce their use of the Satellite communication service and seek an alternative service provider. These consequences would adversely affect the revenue and results of operations of the Group’s IPSTAR Business in the Territory.

Improvement of the communication infrastructure such as phone lines and fibers in remote areas in the PRC may erode the satellite communication market focused by the Group, which may adversely affect the Group’s financial condition and the results of operation of the Group’s IPSTAR Business in the PRC

One of the market focuses of the Group’s IPSTAR Business is to lease the Satellite bandwidth to customers requiring satellite communication in remote areas in the PRC where the communication infrastructure such as phone lines and fibers is not wellequipped. Such poor communication infrastructure in remotes areas in the PRC creates business opportunities for the Group’s IPSTAR Business, and the Group can lease the Satellite bandwidth and/or provide collaborative communication solutions to customers in such areas, which generates revenue to the Group. However, given the rapid urbanisation/ development in the PRC and the long Service Period of the Assets, the Group cannot assure that the communication infrastructure in such remote areas will not be improved within the Service Period. In the event that there is substantial improvement of the communication infrastructure such as phone lines and fibres in remotes areas in the PRC, the satellite communication market focused by the Group may be eroded as the demand of the satellite communication may be reduced and replaced by more economical medium of communication such as phone lines and fibers, which may adversely affect the Group’s financial condition and the results of operation of the Group’s IPSTAR Business in the PRC.

The operating results of the Group’s IPSTAR Business in the PRC may be adversely affected by the competition from other satellite communication operators and satellite communication service providers in the PRC

As mentioned in the paragraph headed ‘‘Market analysis on the satellite communication industry in the PRC — Market supply of Ku-band satellite bandwidth in the PRC from 2008 to 2012’’ under the section headed ‘‘Industry Overview’’ in this circular, the supply of Ku-band Satellite bandwidth through IPSTAR represented approximately 28.5% of the total supply of Ku-band satellite bandwidth in the PRC in 2012 (being the aggregate supply of satellite bandwidth of IPSTAR (including the average upward link and broadcast link) of 3,899 MHz divided by the total supply of Ku-band satellite bandwidth in the PRC in 2012 of approximately 13,697 MHz), whereas the largest Ku-band satellite bandwidth supplier in the market is China Satellite Communications Co. Ltd (中國衛通集團有限公司), and its subsidiaries, including but not limited to, Sino Satellite Communication Co., Ltd. (鑫諾衛星通信有限公司); China Orient Telecommunications Satellite Co., Ltd (中國東方通信衛星有限責任公司); and APT Satellite Holdings Limited (亞太衛星控股有限公司)), according to the research report conducted by S&P Consulting, the aggregate supply of Ku-band Satellite bandwidth by which accounted for over 40% of the total Ku-band satellite bandwidth supply in the PRC in 2012. Given the size of other major market participants, if other satellite communication operators and satellite communication service providers offer the satellite bandwidth with competitive pricing, the market share and the utilisation rate of the Satellite bandwidth offered by the Group may be deteriorated.

– 34 –

RISK FACTORS

In addition, the rapid technological changes in the satellite industry may give rise to a new series of satellites with enhanced characteristics, improved stability, and competitive pricing. In the event that there is any introduction of new technological advanced satellite with the aforementioned enhancement, such introduction may render the Satellite bandwidth offered by the Group uncompetitive. In such event, the customers of the IPSTAR Business utilising the Satellite bandwidth may shift to other satellite operators and satellite communication service providers which can offer more advanced, efficient and/or economical satellite bandwidth, the utilisation rate of the Bandwidth Capacity may also be deteriorated.

If the Group fails to cope with the aforementioned market changes in a timely manner by, including but not limited to, adjusting the marketing strategies and achieving volume sales of the Satellite bandwidth, the operating results of the Group’s IPSTAR Business in the PRC may be adversely affected.

The Group relies on the Vendor in monitoring and controlling the Satellite and CTS in operating the Gateways, the failure of either the Vendor or CTS in monitoring the Satellite and operating the Gateways respectively may adversely affect the operations of the IPSTAR Business in the PRC

As discussed under the paragraph headed ‘‘Business model — Cooperation arrangement with the Vendor and CTS for the IPSTAR Business in the Territory’’ under the section headed ‘‘Business’’ in this circular, upon completion of the Acquisition, the Satellite will continue to be monitored and controlled by the Vendor and the Gateways will continue to be operated by the CTS. In the event that either the Vendor or the CTS fails to perform their roles to monitor and control the Satellite or operating the Gateways respectively, the provision of the Satellite bandwidth will be interrupted and thus the IPSTAR Business would not be able to be conducted in the PRC, the Group’s operation and the financial positions will be adversely affected.

C. RISKS ASSOCIATED WITH THE SATELLITE COMMUNICATION INDUSTRY

Regulatory changes of the PRC legal and regulatory requirements relating to the satellite communication industry may adversely affect the Group’s financial results and operation of the IPSTAR Business in the PRC

The PRC is a country that experiences constant changes in legal and regulatory requirements as well as government policies. Changes in the PRC legal and regulatory requirements as well as government policies may impose significant risk to the business operation of the Group. The Group cannot assure you that there will not be any unfavourable changes in the PRC legal and regulatory requirements relation to satellite communication industry in the PRC. In the event that there is any related PRC regulatory change, the Group may have to incur further expenses to comply with such regulatory change, which may adversely affect the Group’s financial condition and its results of operation. In addition, in the event that the Group fails to comply with any new or change in PRC regulations, the Group may not be able to carry out the IPSTAR Business in the PRC.

– 35 –

INDUSTRY OVERVIEW

CHARACTERISTICS OF SATELLITE COMMUNICATION INDUSTRY

Satellite communications are two-way satellite wireless communications between earth stations or between an earth station and a spacecraft with the use of satellite transponders in orbit. The satellite communications are primarily categorised into four major modes including satellite communications under stationary mode, satellite communications under in-motion mode, satellite live broadcasting and satellite relay communications.

Satellite communications are featured with various advantages including but not limited to seamless and wide geographic coverage, stable communications and extensive bandwidth capacity. However, the drawback of the satellite communications is the time delay during twoway communications. Satellite communications are generally utilised as an extension, a supplement and a backup of the existing terrestrial mobile communications. It is especially suitable for remote regions that are out of reach of terrestrial mobile telecommunications, such as villages, mountainous areas and islands as well as during maritime navigation, aviation and rescue operation. The simple and quick installation of base stations for establishing satellite communications links further facilitates the wide applications of satellite communications.

Satellite communications industry is under rapid development especially in the aspect of satellite broadband Internet services. The production value of satellite communications industry increased from approximately RMB15.8 billion in 2009 to approximately RMB22.7 billion in 2010 and further to approximately RMB45.0 billion in 2012, representing a compound annual growth of approximately 41.7% during the period from 2009 to 2012. Hence, the potential demand for the satellite communication networks in the PRC is enormous.

T H E U P S T R E A M A N D D O W N S T R E A M I N D U S T R Y O F S A T E L L I T E COMMUNICATION

In general, the satellite industry has comprehensive industry chains, which are mainly classified into four segments including satellite manufacturing, satellite launching, satellite ground equipment and the satellite applications and operations, the functions of which are set out below:

Satellite manufacturing : principally engaged in manufacturing of satellites and the respective components and subsystems;

Satellite launching : principally engaged in provision of the services related to the satellite launching;

Satellite ground equipment : principally engaged in manufacturing and sales of satellite network equipment including but not limited to (i) equipments utilised in gateway stations and control stations, and VSAT systems; and (ii) consumer devices such as satellite dish antennas, mobile satellite terminals including satellite phones, digital audio radio services devices and global satellite navigation and positioning system (commonly known as ‘‘GPS’’) devices; and

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INDUSTRY OVERVIEW

Satellite applications and : principally engaged in provision of (i) consumer services, operations such as satellite television services, satellite audio broadcasting services, satellite broadband Internet access services, etc.; and (ii) stationary satellite services, such as transponder leasing services and network management services.

A RESTRICTED INDUSTRY IN THE PRC

The satellite communications is a restricted industry in the PRC. MIIT is the competent authority in the PRC responsible for the centralised management and administration of satellite communications industry in the PRC, and the subordinated bureaus/departments of MIIT also take up several duties in managing and monitoring the satellite communications industry in the PRC. The following table and diagram illustrated the managerial structure, roles and responsibilities of MIIT and their respective subordinated bureaus and departments:

==> picture [385 x 139] intentionally omitted <==

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

MIIT
Telecommunications
Radio Management State Radio
Management Bureau
Bureau of MIIT Monitoring Centre
of MIIT
----- End of picture text -----

Source: MIIT

Name of Authority

Roles and responsibilities

MIIT Its major duties are to, including but not limited to, (i) formulate the development plans for the industry and information technology sector; (ii) monitor the development of the industry and information technology sector, (iii) advise on the policies for optimisation of industry structure; (iv) participate in the formulation of laws, rules and regulations; (v) set out the industrial specifications and standards for the sector and the respective implementation; and (vi) provide guidelines on the management of industry quality.

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INDUSTRY OVERVIEW

Name of Authority	Name of Authority	Roles and responsibilities	Roles and responsibilities
	Name of Authority	Roles and responsibilities
	Radio Management Bureau of MIIT (‘‘工業和信息化部無線電管理局’’)	Its major duties are to, including but not limited to, (i) formulate radio spectrum plan; (ii) allocate, distribute and assign radio frequency; (iii) regulate and administer the transmitter receivers of radio stations according to relevant laws, rules and regulations; (iv) coordinate and manage the satellite orbital positions; (v) coordinate and deal with radio management and related matters among military; (vi) perform radio surveillance, detection, interference investigation; (vii) coordinate and handle matters relating to electromagnetic interference; (viii) maintain the orderly operation of radio transmission; and (ix) organise and implement radio control according to law.
	Telecommunications Management Bureau of MIIT (‘‘工業和信息化部電信管理局’’)	Its major duties are to, including but not limited to, (i) regulate and monitor telecommunications and information services according to relevant laws, rules and regulations; (ii) propose market supervision and opening policies; (iii) manage the market access; (iv) regulate and monitor the quality of services; (v) protect the interests and benefits of the State and the users; and (vi) formulate the interconnection and interoperability as well as s e t t l e m e n t m e t h o d s a m o n g v a r i o u s telecommunications networks and the respective supervision and implementation thereof. It is also responsible for management of resource such as communications network coding, Internet domain names and addresses and international coordination. It also takes up the duties of the management of national communications gateway, as well as the command and coordination of disaster emergency c o m m u n i c a t i o n s a n d o t h e r i m p o r t a n t communications.
	State Radio Monitoring Centre (‘‘國家無線電監測中心’’)	It takes up a number of business and technical tasks, including but not limited to, national radio spectrum management, radio station management, radio monitoring, wireless electrical equipment management, radio management information.

Source: MIIT

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INDUSTRY OVERVIEW

In accordance with the provisions of the ‘‘Telecommunications Regulations of the PRC’’ 《( 中華人民共和國電信條例》), the State implements an approval regime for the operation of telecommunications business according to the classification of the telecommunications services provided. The telecommunications operator must obtain a telecommunications operating approval issued by a competent authority of MIIT or a telecommunications administration authority of provincial level, an autonomous level or a directly-governed municipality pursuant to the Regulations. No entity or individual may engage in any telecommunications business without obtaining an telecommunications operating approval. According to the information from MIIT, as at 31 March 2013, CT and CITIC Networks are the only Approved Companies that are granted with the approval for operating satellite transponder leasing businesses in the PRC.

Details of the regulatory requirements can be referred to the section headed ‘‘Regulatory Overview’’ in this circular.

MARKET ANALYSIS ON THE SATELLITE COMMUNICATIONS INDUSTRY IN THE PRC

1. Market supply of satellite bandwidth (both C-band and Ku-band) in the PRC from 2008 to 2012

The ranges of frequencies commonly used for satellite communication are C-band and Kuband. In recent years, the PRC has become one of the major countries that launch communications satellites. As at 31 December 2012, the supply of C-band and Ku-band satellite bandwidth in the PRC recorded a gradual upward trend, the aggregate supply increased from 18,161MHz in 2008 to 28,745MHz in 2012, representing an increase of approximately 10,584 MHz or 58.3% in five years.

The following charts show the market supply of C-band and Ku-band satellite bandwidth from 2008 to 2012 (Unit: expressed in MHz):

==> picture [319 x 228] intentionally omitted <==

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

(MHz)
35,000 20%
18.0%
18%
30,000 15.5% 28,745
16%
24,353
25,000 14%
21,077
19,925 12%
20,000 18,161
10%
9.7%
15,000
8%
10,000 6%
5.8%
4%
5,000
2%
0 0%
2008 2009 2010 2011 2012
Total supply volume Growth rate
----- End of picture text -----

Source: S&P Consulting

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INDUSTRY OVERVIEW

Note: IPSTAR is a broadband satellite, in which there are 26 beams serving the Territory and the capacity for each of the beam is approximately 150MHz. Save for IPSTAR, in general, the total satellite bandwidth of the other satellites for the beam’s upward link and downward link are identical. However, due to the design of IPSTAR, the total satellite bandwidth for the beam’s upward link and downward link are not identical. For illustration and comparison purpose to compare the supply of satellite bandwidth of IPSTAR with other satellites in the PRC, an average of the satellite bandwidth for IPSTAR’s upward link and downward link is taken, and the average amounted to 3,699 MHz. Having considered the satellite bandwidth capacity for broadcast link of 200 MHz, the aggregate supply of Satellite bandwidth of IPSTAR including the average upward link and broadcast link therefore amounted to 3,899 MHz. The total Satellite bandwidth of IPSTAR (including the upward link, downward link and the broadcast link) amounted to 7,598.5 MHz.

2. Market supply of Ku-band satellite bandwidth in the PRC from 2008 to 2012

Ku-band is the preferred range of frequencies for satellite broadcasting, and is also the principal range of frequencies commonly used for satellite broadcasting in the PRC, which is mainly attributable to its favourable features of high frequency, wide frequency range and high transmission capacity. Ku-band spectrum is capable of producing high quality image with the use of dish antennas with relatively smaller diameters ranging from 0.5 to 1.2m.

The following chart illustrates the supply of Ku-band satellite bandwidth in the PRC from 2008 to 2012 (Unit expressed in MHz):

==> picture [319 x 228] intentionally omitted <==

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

(MHz)
16,000 25%
22.5%
14,000 13,697
20%
12,000 11,177
9,989
9,701
10,000
8,945 11.9% 15%
8,000
8.5% 10%
6,000
4,000
3.0% 5%
2,000
0 0%
2008 2009 2010 2011 2012
Supply volume Growth rate
----- End of picture text -----

Source: S&P Consulting

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INDUSTRY OVERVIEW

3. Major market suppliers of the Ku-band satellite bandwidth in the PRC

The major suppliers for the Ku-band satellite bandwidth in the PRC include (i) Sino Satellite Communications Co., Ltd. (鑫諾衛星通信有限公司) (‘‘Sino Satellite’’) which provides satellite bandwidth through SinoSat 5 and SinoSat 6 satellites; (ii) China Orient Telecommunications Satellite Co., Ltd. (中國東方通信衛星有限責任公司) which provides satellite bandwidth through ChinaSat 5A, ChinaSat 9, ChinaSat 2A and ChinaSat 12 satellite; (iii) APT Satellite Holdings Limited (亞太衛星控股有限公司), the shares of which are listed on the Stock Exchange with Stock code 1045, which provides satellite bandwidth through APSTAR 5, APSTAR 6 and APSTAR 7 communications satellites; (iv) Asia Satellite Telecommunications Co., Ltd. (亞洲衛星有限公司) which provides satellite bandwidth through AsiaSat 3S, AsiaSat 4, AsiaSat 5 and AsiaSat 7 satellites; and (v) Thaicom Public Company Limited[(Note1)] , a foreign satellite developer, which provides Satellite bandwidth in the PRC through IPSTAR[(Note2)] ; and it leases Satellite bandwidth in the PRC through CTS.

The controlling shareholder of (i) Sino Satellite Communications Co., Ltd.; (ii) China Orient Telecommunications Satellite Co., Ltd; and (iii) APT Satellite Holdings Limited is China Satellite Communications Co. Ltd, which is a core subsidiary of China Aerospace Science and Technology Corporation (中國航天科技集團公司), a stated-owned entity. Whereas the holding company of Asia Satellite Telecommunications Co., Ltd. is Asia Satellite Telecommunications Holding Limited, the shares of which are listed on the Stock Exchange with stock code 1135.

However, according to the regulations as discussed above and as further detailed in the section headed ‘‘Regulatory Overview’’ in this circular, the aforesaid companies can only operate satellite bandwidth leasing business in the PRC through cooperation with the Approved Companies that are qualified to be engaged in transponder leasing business. As at 31 March 2013, according to the report issued by MIIT, CT and CITIC Networks are the only Approved Companies with such qualification.

4. Market demand of Ku-band satellite bandwidth resources in the PRC from 2008 to 2012

Ku-band satellite bandwidth resources in the PRC are mainly applied in four major sectors, including but not limited to satellite TV broadcasting, mobile satellite communications services, satellite broadband Internet access services and distance education, which, in aggregate, account for over 60% of the demand for Ku-band satellite bandwidth resources in the PRC in 2012.

Notes:

1 Thaicom Public Company Limited is the IPSTAR owner, it granted an exclusive right to IPSTAR Company Limited to use and operate the IPSTAR in Asia-pacific region.

2 IPSTAR is a broadband satellite, in which there are 26 beams serving the Territory and the capacity for each of the beam is approximately 150MHz. Save for IPSTAR, in general, the total satellite bandwidth of the other satellites for the beam’s upward link and downward link are identical. However, due to the design of IPSTAR, the total satellite bandwidth for the beam’s upward link and downward link are not identical. For illustration and comparison purpose to compare the supply of satellite bandwidth of IPSTAR with other satellites in the PRC, an average of the satellite bandwidth for IPSTAR’s upward link and downward link is taken, and the average amounted to 3,699 MHz. Having considered the Satellite bandwidth capacity for broadcast link of 200 MHz, the aggregate supply of Satellite bandwidth of IPSTAR including the average upward link and broadcast link therefore amounted to 3,899 MHz. The total Satellite bandwidth of IPSTAR (including the upward link, downward link and the broadcast link) amounted to 7,598.5 MHz.

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INDUSTRY OVERVIEW

The following chart illustrates the demand for Ku-band satellite bandwidth resources in the PRC from 2008 to 2012 (Unit expressed in MHz):

==> picture [319 x 227] intentionally omitted <==

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

(MHz)
10,000 30%
9,040
9,000
26.3% 25%
8,000
6,992 7,155
7,000 6,597
20%
5,815
6,000
5,000 13.4% 15%
4,000
10%
3,000
2,000
6.0% 5%
2.3%
1,000
0 0%
2008 2009 2010 2011 2012
Demand volume Growth rate
----- End of picture text -----

Source: S&P Consulting

The following table illustrates the demand for Ku-band satellite bandwidth resources in various sectors in the PRC from 2008 to 2012 (Unit expressed in MHz):

Industry 1 Satellite mobile communications services 2 Distance education services 3 Satellite TV broadcasting services 4 Satellite broadband Internet access services 5 Others Total	Demand for Ku-band satellite bandwidth (MHz) 2008 2009 2010 2011 2012 640 726 699 787 1,085 872 1,055 1,189 1,073 1,356 1,047 1,187 1,189 1,288 1,537 1,221 1,385 1,468 1,502 1,898 2,035 2,244 2,447 2,505 3,164 5,815 6,597 6,992 7,155 9,040	Demand for Ku-band satellite bandwidth (MHz) 2008 2009 2010 2011 2012 640 726 699 787 1,085 872 1,055 1,189 1,073 1,356 1,047 1,187 1,189 1,288 1,537 1,221 1,385 1,468 1,502 1,898 2,035 2,244 2,447 2,505 3,164 5,815 6,597 6,992 7,155 9,040
		9,040

Source: S&P Consulting

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INDUSTRY OVERVIEW

5. Existing prices trend of the Ku-band satellite bandwidth in the PRC from 2008 to 2012

According to S&P Consulting, based on its researches, the price for the Ku-band satellite bandwidth in the PRC from 2008 to 2012 is on upward trend, the increase is mainly attributable to the increase in demand for satellite bandwidth from domestic consumers. The following charts illustrate the price trend per MHz of Ku-band satellite bandwidth in the PRC from 2008 to 2012 (Unit: expressed in RMB’000/MHz/Year):

==> picture [309 x 227] intentionally omitted <==

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

(RMB’000)
190 8%
185
7%
180 6.9%
6%
173
5.0%
5%
170 168
4%
160
160
156 3.0% 3%
2.6%
2%
150
1%
140 0%
2008 2009 2010 2011 2012
Price Growth rate
----- End of picture text -----

Source: S&P Consulting

The price trend of Ku-band satellite bandwidth in the PRC are mainly derived from market price researches carried out by CTS, and by taking into account a number of price factors from other satellite broadband agencies.

FUTURE OPPORTUNITIES

Having considered (i) the demand for Ku-band satellite bandwidth resources recorded an upward trend for the past five years as disclosed above; (ii) the Group’s acquisition cost per MHz of the Satellite bandwidth is very competitive as compared with the market average; and (iii) the limited availability of Satellite bandwidth capacity, it is expected that the Group can gain certain market share in the satellite communication market in the PRC. As confirmed by the Directors, the Group will from time to time evaluate potential customers and capture business opportunities should they arise.

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REGULATORY OVERVIEW

SUMMARY

The principal activity of the IPSTAR Business is leasing the satellite transponder and providing satellite communication services in the Territory. CTS is responsible for the operation of IPSTAR Business in the PRC. The Vendor and VAST are not permitted to commence the IPSTAR Business directly in the PRC. With regard to the Acquisition and the operation of IPSTAR Business in the PRC, the Vendor, VAST, CT and CTS are subject to the following PRC laws, rules and regulations:

. The ‘‘Telecommunications Regulations of the PRC’’ 《( 中華人民共和國電信條例》) promulgated by the State Council (中華人民共和國國務院) with effect from 25 September 2000;
. The ‘‘Measures on Administration of Telecommunications Services Operating Approval’’ 《( 電信業務經營許可證管理辦法》) implemented by MIIT on 1 March 2009;
. The ‘‘Interim Measures on the Administration of the Setup and Use of Mobile Earth Station within a Fixed Satellite Service Communication Network’’ (Gong Xin Bu Wu [2013] No. 29) 《( 衛星固定業務通信網內設置使用移動平台地球站管理暫行辨法》) (工信部無[2013]29) with effect from 1 July 2013;
. The ‘‘Notice on Further Regulating the Market of Satellite Communications Services’’ (Xin Dian Han [2001] No. 123) 《( 關於進一步規範衛星通信業務市場的通知》(信電函[2001]123號)) promulgated by the MIIT (which superseded the Ministry of Information Industry of the PRC (中華人民共和國工業資訊產業部) in 2008) with effect from 6 June 2001; and
. The ‘‘Decision of the State Council on Setting Up Administrative Permission for All Retained Administrative Examination and Approval’’ (State Council Decree No.412) 《( 國務院對確需保留的行政審批專案設定行政許可的決定》(國務院令第412號)) promulgated by the State Council with effect from 1 July 2004.

With regard to the Acquisition and the operation of IPSTAR Business in Hong Kong, the Vendor, VAST, CT and CTS are subject to the following Hong Kong law and regulations:

. The ‘‘Telecommunications Ordinance’’ (Chapter 106 of the Laws of Hong Kong) and its subsidiary legislations

With regard to the Acquisition and the operation of IPSTAR Business in Macau, the Vendor, VAST, CT and CTS are subject to the following Macau law and regulations:

. The ‘‘Basic Telecommunications Law’’ (Macau Law No. 14/2001) regulates the bases of the telecommunications policy of the Macau, as well as the general frame which regulates the establishment, management and exploration of telecommunications networks and the telecommunications services rendered;

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REGULATORY OVERVIEW

. The ‘‘Regulation on the Installation and Operation of External Telecommunication Infrastructures’’ (Macau Administrative Regulation No. 16/2012) establishes the legal regime for the installation and operation of external telecommunications infrastructure, licensing and respective disciplinary measure;
. The ‘‘Regulation of Internet Service Providers’’ (Macau Administrative Regulation No. 24/2002) which regulates the providing of Internet Services System; and
. The ‘‘Regulation of the creation of the Bureau responsible for regulation, supervision, promotion and coordination of all activities related to the telecommunications sector’’ (Macau Administrative Regulation No. 5/2006).

LAWS, RULES AND REGULATIONS IN RELATION TO THE OPERATION OF SATELLITE COMMUNICATION BUSINESS (INCLUDING THE SALE AND MARKETING OF SATELLITE BANDWIDTH) IN THE PRC

The operation of telecommunications business within the PRC is subject to strict supervision and examination by government authorities. MIIT is responsible for the administration of domestic satellite communications business and formulation of relevant policies, the promulgation of rules and regulations for satellite communications business, and examination and supervision of operating approval related to satellite communications business.

CT had applied to MIIT and obtained the ‘‘Basic Telecommunications Service Operating Approval’’. Pursuant to the ‘‘Notice on Relevant Matters Relating to the Undertaking of IPSTAR Business’’ ([2009] No.714) 《( 關於承接IPSTAR業務有關事項的通知》[2009]714號), CTS has been delegated by CT to conduct the IPSTAR business in the PRC. As such, both CT and CTS are liable to be overseen and supervised by MIIT, and is subject to laws, rules and regulations promulgated by the State Council and MIIT.

The following summarised the major laws, regulations and rules of PRC in relation to the IPSTAR Business:

THE TELECOMMUNICATIONS REGULATIONS OF THE PRC AND ITS ANNEX ‘‘THE CATALOG FOR THE CLASSIFICATION OF TELECOM BUSINESSES’’ IN THE PRC

On 25 September, 2000, the State Council promulgated the ‘‘Telecommunications Regulations of the PRC’’ (the ‘‘Regulations’’) and its Annex ‘‘Catalog for the Classification of Telecom businesses in the PRC’’ (the ‘‘Catalog’’). The promulgation of the Regulations is to regulate the order of the telecommunications market, to maintain the legal interests of telecommunications users and telecommunications business operators, to safeguard the telecommunications network and information and facilitate the development of the telecommunications industry.

The State implements an approval regime for the operation of telecommunications business according to the classification of the telecommunications service provided. The telecommunications operator must obtain a telecommunications service operating approval (電信業務經營許可證) issued by a competent authority of the MIIT or a telecommunications

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REGULATORY OVERVIEW

administration authority of provincial level, an autonomous level or a directly-governed municipality pursuant to the Regulations. No entity or individual may engage in telecommunications business without obtaining an telecommunications service operating approval.

According to the Regulations, the telecommunications business was classified into (i) basic telecommunications services; and (ii) valued-added telecommunications services. Basic telecommunications services mean the service of providing public network infrastructures, public data transmission and voice communications services. Value-added telecommunications services mean the service of providing telecommunications and information services through public network infrastructure. The detailed classification of the telecommunications business segments is set out in the Catalog. MIIT is entitled to amend the telecommunications business segments classifications as set out under the Catalog according to the actual circumstances, and revised Catalog will be published accordingly.

The Regulations provide that the operator engaging in operation of basic telecommunications services shall be subject to the examination and approval of the competent authority of the MIIT and the obtain of ‘‘Basic Telecommunications Service Operating Approval’’ 《( 基礎電信業務經營許可證》). The operator of value-added telecommunications service with business coverage of two or more provinces, autonomous regions and directlygoverned municipalities shall be subject to the obtain of ‘‘Cross-regional Value-added Telecommunications Service Operating Approval’’ 《( 跨地區增值電信業務經營許可證》) upon examination and approval by the competent authority of the MIIT. The operator of value-added telecommunications service with business coverage of one province, autonomous region or a directly-governed municipality shall be subject to the obtain of ‘‘Value-added Telecommunications Service Operating Approval’’ 《( 增值電信業務經營許可證》) upon examination and approval by telecommunications administration authority of the said province, the autonomous region and the directly-governed municipality.

Pursuant to the Regulations, an operator engaging in basic telecommunications services shall satisfy the following requirements:

(1) The operator shall be a company established under the laws of PRC specializing in basic telecommunications services, and not less than 51% of its equity or shares shall be owned by the State;
(2) The operator shall prepare the feasibility report and network formation technology proposal;
(3) The operator shall have adequate funds and professionals for business operation;
(4) The operator shall have a site and the relevant resources for business operation;
(5) The operator shall possess creditability or capability to provide long term services to users; and
(6) The operator shall fulfill other conditions as stipulated under other PRC government laws and regulations.

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REGULATORY OVERVIEW

The Regulations also provide that the application for operating the basic telecommunications services shall be filed to the competent authority of MIIT, with the relevant documents stated in the above paragraph. The competent authority of MIIT shall complete its examination within 180 days from the date of acceptance of the application, and shall make decision on whether to approve the application thereafter. A ‘‘Basic Telecommunications Service Operating Approval’’ will be issued to the approved applicant. For a rejected applicant, a written notice stating the reasons in connection therewith shall be issued to the applicant.

To cater for the development of telecommunications business in the PRC, in accordance with the Regulations, MIIT has revised the classification of telecommunication business as set out under the Catalog on 21 February 2003, and has published the revised Catalog with effect from 1 April 2003. Under the revised classification of the Catalog, basic telecommunications services include:

Leasing of satellite transponders under the IPSTAR Business is classified as business of leasing and selling satellite transponders under satellite communication services (Class 2) of Item3 of Category 2 Basic Telecom Services in the Catalog while the satellite communication business of the IPSTAR Business is classified as satellite communication services (Class 1) of Item3 of Basic Telecom Services (Category 1) in the Catalog. Therefore, IPSTAR Business is classified as the basic telecommunications services. CT obtained the ‘‘Basic Telecommunications Service Operating Approval’’ on 6 January 2009. Pursuant to the ‘‘Notice on Relevant Matters Relating to the Undertaking of IPSTAR Business’’ ([2009] No.714) 《( 關

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REGULATORY OVERVIEW

於承接IPSTAR業務有關事項的通知》[2009]714號) issued by CT, CTS has been delegated by CT to conduct the IPSTAR Business in the PRC. As confirmed by the PRC legal advisers, according to relevant rules under the Measures, such delegation to CTS by CT is permitted and acceptable by the rules and regulations in the PRC.

MEASURES ON ADMINISTRATION OF TELECOMMUNICATIONS SERVICE OPERATING APPROVAL 《( 電信業務經營許可證管理辦法》)

To enhance the administration of the approval regime for telecommunications service operating approval, pursuant to the Regulations and other laws and administrative regulations, MIIT further implemented the ‘‘Measures on Administration of Telecommunications Service Operating Approval’’ 《( 電信業務經營許可證管理辦法》) on 1 March 2009 (the ‘‘Measures’’).

The Measures are applicable to the application, approval and administration of telecommunications services operating approvals in the PRC. MIIT and the administration authorities of provincial level, an autonomous level or a directly-governed municipality are the authorities for the grant of telecommunications service operating approval. The operators engaging in telecommunications services shall obtain the telecommunications service operating approval. Pursuant to the Measures, the operators engaged in telecommunications businesses shall comply with the relevant rules, laws and regulations applicable to the telecommunications business; and (ii) accept the administration and supervision by relevant telecommunications authorities. The operators engaged in telecommunications businesses performed their business in accordance with the requirements of the telecommunications service operating approval shall be protected by the PRC law.

Pursuant to the Measures, it provided that an applicant for the operation of basic telecommunications service should satisfy the following requirements:

(1) The applicant shall be a company established under the laws of PRC specializing in basic telecommunications services, and not less than 51% of its equity or shares shall be owned by the State;
(2) The applicant shall prepare the feasibility report and network formation technology proposal;
(3) The applicant shall have adequate funds and professionals for business operation;
(4) The applicant shall have a site, equipment and the relevant resources for business operation;
(5) The applicant shall possess creditability or capability to provide long term services to users;
(6) For the applicant whose proposed business operation is carried out within provinces, autonomous regions and directly-governed municipalities, their respective registered capital should be no less than RMB100 million. For the applicant whose proposed

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REGULATORY OVERVIEW

business operations is carried out throughout the country or across various provinces, autonomous regions and directly-governed municipalities, their respective registered capital should be at least RMB1 billion;

(7) The applicant itself as well as its major capital contributors and key management personnel should have no offense records on the infringement and violation of the telecommunications regulatory regime within three years prior to the filing of the application; and
(8) Other requirements as required by the State.

It is further stipulated that the relevant administration authorities have implemented an annual review measures on telecommunications service approval. Each of the operators engaged in telecommunications business shall submit an annual review materials to the administration authorities in the first quarter of each year following the reporting year, the annual review materials are as follows:

(1) operating results of telecommunications business; the status of the network and business development, as well as personnel and corporate changes; quality of services provided; and the implementation of the relevant requirements imposed by the State and relevant administration authorities;
(2) copies of the business license of the operator; and
(3) other materials as requested by relevant administration authorities.

The Interim Measures on the Administration of the Setup and Use of Mobile Earth Station within a Fixed Satellite Service Communication Network

On 1 July 2013, MIIT implemented the ‘‘Interim Measures on the Administration of the Setup and Use of Mobile Earth Station within a Fixed Satellite Service Communication Network’’ (衛星固定業務通信網內設置使用移動平台地球站管理暫行辦法) (the ‘‘Interim Measures’’). The promulgation of the Interim Measures is to enhance and regulate the administrative measures on the use of mobile earth station within fixed satellite service communication network, and to prevent and reduce the interferences from mobile earth station against the satellites and other earth radio stations. The Interim Measures are promulgated in accordance with the ‘‘Regulations on the Management of Radio Operation of the PRC’’ (中華人民共和國無線電管理條例), the ‘‘Regulations on the Administration of the Establishment of Satellite Communication Networks and Setup and Use of Earth Stations’’ (建立衛星通信網和設置使用地球站管理規定) and relevant administrative regulations.

Pursuant to Interim Measures, mobile earth station referred to any earth station that is installed on a motor vehicle, train, ship, aircraft or other motion platforms and is capable of creating communication link with the stationary satellite under both in motion and stationary mode using C-band or Ku-band spectrum. Mobile earth station can be classified into automobile-borne type, ship-borne type, aircraft-borne type, moveable type and portable type, etc.

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REGULATORY OVERVIEW

According to the Interim Measures, the operators, upon establishment of a satellite communication network that includes a mobile earth station and setup and use of mobile earth station, should complete all relevant procedures for establishment of satellite communication networks and for setup and use of earth stations in compliance with the ‘‘Regulations on the Administrative of the Establishment of Satellite Communication Networks and Setup and Use of Earth Stations’’ (建立衛星通信網和設置使用地球站管理規定) and obtained the radio station approval (無線電台執照). The technical specifications of mobile earth station shall satisfy the requirements as stipulated in the Interim Measures, which include but not limited to:

(1) For automobile-borne, aircraft-borne, moveable and portable types of mobile earth stations, only the lower range of Ku-band spectrum (the frequency range between 14.0–14.25 GHz) is permitted for the signal transmission.

Dish antenna used in automobile-borne, moveable and portable types of mobile earth station shall be of a diameter not shorter than 0.8 metre (non-dish antenna shall be of an electrical performance-equivalent diameter of not shorter than 0.6 metre). The mode of polarisation is linear polarisation.

(2) Ship-borne type of mobile earth stations that are set up and utilised in inland water zone within 125 km off from the coastline is only be permitted to transmit signals using lower range Ku band spectrum (as defined above). The ship-borne type of mobile earth stations that are set up and utilised in water zone within 125 km to 300 km off from the coastline is permitted to transmit signals using full range of all Ku-band spectrum (with frequency range between 14.0–14.5 GHz), but restricted to transmit signals using C-band bandwidth (with frequency range between 5,925–6,425 MHz). The ship-borne type of mobile earth stations that are set up and utilised in water zone beyond 300 km off from the coastline is permitted to transmit signals either by C-band or Ku-band spectrum.

For Ku-band signal transmission, the diameter of parabolic antenna used by shipborne types of mobile earth stations shall not be shorter than 0.8 metre (the equivalent electrical diameter of non-parabolic antenna shall not be less than 0.6 metre). For the C band signal transmission, the diameter of antenna shall not be less than 2.4 metre.

Pursuant to the Interim Measures, the satellite operator refers to the provider of satellite transponder resources, the satellite operated by the satellite operator should be granted with an approval from MIIT or a space radio station approval (空間電台執照). A satellite operator may only commence the provision of satellite transponder resources to users after completing frequency harmonisation exercise with relevant domestic satellite network space radio stations and earth radio stations. Specific requirements and limits for the setup and use of mobile earth stations and for establishment of satellite communication network shall be expressly stated in the contract or agreement entered into with its users.

A satellite operator shall file with MIIT an annual statement on the status of usage of satellite transponder frequency and providing specific information about the users by the end of January each year.

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REGULATORY OVERVIEW

The satellite being used by network construction unit to establish a satellite communication network which includes mobile earth station shall be separated with the neighbour satellite with overlapping frequency band and overlapping coverage areas for more than 3 degrees in the orbit location, or shall comply with the contract or agreement that entered into amongst the satellite operator in respect of the specific requirements and restrictions for the setup and use of mobile earth station. The network construction unit shall implement effective management of the mobile earth station in the satellite communication networks. Once the network satellite unit observes any illegal use of the mobile earth station, the network construction unit should send a reminder and warning to the user of the mobile earth station until the transmission signal is off.

Control centers established in the PRC by the network construction unit should be able to record parameters of carrier signal of the mobile earth station, such as location, satellite utilised, orbit, frequency and bandwidth of information channels. The data shall be recorded once every 20 minutes or less and stored for at least a year. In accordance with the requirements of the authority of regulation and administration of radio services, network construction unit should be able to provide relevant data within 24 hours.

The users of the mobile earth station shall strive to enhance self-discipline, and should properly control and utilise the mobile earth station in accordance with relevant measure and technical requirements. Once there is adverse interference, the party involved in the setup and use of mobile earth station shall take immediate measures to eliminate the interference and, if necessary, shut down the signal transmission.

THE NOTICE ON FURTHER REGULATING THE MARKET OF SATELLITE COMMUNICATIONS SERVICES

As the relevant government authorities have noticed that certain entities carry out satellite communication business in the PRC without obtaining prior approval. To safeguard the security of national communication and interests, regulate the satellite communication markets in the PRC and protect the interests of operators and users in the PRC, MIIT promulgated the ‘‘Notice on Further Regulating the Market of Satellite Communications Services’’ (the ‘‘Notice’’) on 6 June 2001.

Pursuant to the Notice, the operators engaging in the lease of satellite transponders and VSAT communication business in the PRC shall obtain relevant operating approvals issued by MIIT, and carry out respective business according to the relevant laws and regulations. No entities, organisations and individuals are allowed to carry out satellite communication business in the PRC without prior operating approval.

The Notice further provides that the operators, upon commencement of satellite communications business in the PRC, should (i) be in strict compliance with the relevant rules, laws and regulations applicable to the satellite communications business; (ii) accept the administration and supervision by relevant telecommunications authorities; (iii) regulate the business activities; (iv) commence their business in a proper manner; and (v) safeguard the State and the users’ interest.

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REGULATORY OVERVIEW

The Notice provides that operators engaging in leasing the satellite transponders should examine the purpose and the qualification of the users sourcing the satellite transponders. For the users engaging in telecommunications business activities through the utilisation of the transponders capacity, the users should hold relevant approvals for conducting relevant telecommunications business. For PRC users leasing the transponders bandwidth, such users should source the satellite transponders from entities with the relevant operating approvals for leasing the satellite transponders. Without prior approval from the State’s telecommunications authority, no users are allowed to lease the satellite transponders directly from entities without relevant operating approvals for leasing the satellite transponders.

The Notice provides that for a foreign satellite company engaging in leasing of satellite transponders in the PRC, the foreign satellite company should completed the satellite network coordination with the State prior to the provision of services. The foreign satellite company shall first lease the satellite transponders to a PRC’s satellite company with relevant operating approval or any entities permitted by a competent telecommunications authority to use satellite transponders. The approved satellite company in the PRC will the lease the satellite transponders to domestic users, and will be responsible for technical support, marketing, user service and user supervision. Without prior approval from a competent telecommunications authority, the foreign satellite companies shall not directly lease satellite transponders to any domestic user.

The Notice requires that any unauthorised operation of a satellite communications business without prior approval shall be subject to severe punishment in accordance with the Regulations.

For any illegal operation of an international telecommunications via a sub-station established outside China by using any satellite communication resources either provided by domestic or foreign satellite companies in order to avoid obtaining operating approval from a competent telecommunications authority, severe punishment may be imposed according to the relevant provisions of the criminal laws under the ‘‘Interpretation by the Supreme People’s Court of certain Issues on Concrete Applications of Laws relating to the Hearings of Cases about the Disturbance of the Management Order of the Telecommunications Market’’ (Fa Shi [2000] No. 12) 《( 最高人民法院關於審理擾亂電信市場管理秩序案件具體應用法律若干問題的解釋》(法釋[2000]12號)).

THE DECISION OF THE STATE COUNCIL ON SETTING UP ADMINISTRATIVE PERMISSION FOR ALL RETAINED ADMINISTRATIVE EXAMINATION AND APPROVAL ITEMS

In 2004, according to ‘‘Administrative Approval Law of the People’s Republic of China’’ 《( 中華人民共和國行政許可法》) and relevant requirements of reform of administrative examination and approval system, the State Council conducted comprehensive review on all the administrative examination and approval of all respective departments. Administrative permission approved in accordance with the law and administrative regulations will continue to be implemented, whereas the regulatory profile without setting up by the law and administrative regulations, which are necessarily required to be retained and be compliance to the regulated matters of administrative examination and approval items of Article 12 under

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REGULATORY OVERVIEW

‘‘Administrative Approval Law of the People’s Republic of China’’. Pursuant to Clause 2 in Article 14 under ‘‘Administrative Approval Law of the People’s Republic of China’’, there is an aggregate of 500 items retained, and administrative permission are set up thereafter. Regarding this, on 1 July 2004, the State Council promulgated ‘‘Decision of the State Council on Putting in Place Administrative Permission for Administrative Examination and Approval Items that are Necessarily Required to be Retained’’ (the ‘‘Decision’’). Clause 147 of this decision is to retain the authority of the Ministry of Industry on granting the administrative permission for the ‘‘approval of the leasing of foreign satellite transponder resources by domestic entities’’ 《( 境內單位租用境外衛星資源核准》).

According to Decision, MIIT explicitly sets out the conditions for administrative permission relating to the leasing of foreign satellite transponders resources by domestic entities, the major terms of which are specified as follow:

The domestic entities leasing the foreign satellite transponders resources shall be conditional upon the followings:

(a) The leasing party should obtain an operating approval for leasing and selling the satellite transponders;
(b) The existing satellite transponder resources are not capable to fulfill users’ demand for satellite transponders resources in terms of volume, frequency and coverage;
(c) The satellite transponder resources from foreign satellite companies shall fulfill the following conditions:
The completion of frequency coordination with PRC’s satellite network and terrestrial ground station; and
The compliance of the satellite performance index and technology parameters with the relevant requirements in the PRC.

THE LEGALITY OF CTS OPERATES IPSTAR BUSINESS IN PRC

The leasing of satellite transponders under the IPSTAR business is classified as satellite communication service (Class 2) of Item 3 of Basic Telecom Services (Category 2) in the ‘‘Catalog for the Classification of Telecom businesses in the PRC’’, while the satellite communication business of the IPSTAR business is classified as satellite communication services (Class 1) of Item 3 of Basic Telecom Services (Category 1) under the ‘‘Catalog for the Classification of Telecom businesses in the PRC’’. Therefore, IPSTAR business is classified as the basic communication services. Pursuant to the requirements of the Regulations and the Measures, operator engaging in basic communication services should obtain the ‘‘Basic Telecommunications Service Operating Approval’’ and subject to the examination, approval and review by the competent authority of MIIT.

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REGULATORY OVERVIEW

IPSTAR Business to MIIT. According to the consent dated 20 April 2006 given by the MIIT relating to the provision of the relevant telecommunications service through IPSTAR satellite communications system by China Satellite Communications Corporation (Xin Bu Dian Han [2006] No.186) 《( 關於同意中國衛星通信集團公司使用IPSTAR衛星通信系統提供相關電信業務的批覆》(信部電函[2006]186號), China Satellite Communications Corporation was granted the approval to carry out the IPSTAR Business in the PRC.

According to the ‘‘Notice on Deepening the Reform of the Structure of the Telecommunications Sector’’ 《( 關於深化電信體制改革的通告》) jointly issued by MIIT, the National Development and Reform Commission and the Ministry of Finance and Correspondence on 24 May 2008, and pursuant to the ‘‘Consent to the Implementation Proposal Relating to the Incorporation of the Basic Telecommunications Service of China Satellite Communications Corporation into China Telecommunications Corporation (Guo Zi Gai Ge [2009] No. 100) 《( 關於中國衛星通信集團基礎電信業務併入中國電信集團公司實施方案的批覆》(國資改革[2009]100號)) given by State-owned Assets Supervision and Administration Commission of the State Council in 2009, the basic telecommunications services of China Satellite Communications Corporation was incorporated into CT. In this connection, IPSTAR business was undertaken by CT. CT had applied to MIIT and obtained the ‘‘Basic Telecommunications Service Operating Approval’’ on 6 January 2009. Subsequently, CT is entitled to engage in leasing and sales business of satellite transponders. The approval is subject to an annual review by MIIT according to the Measures and according to the information published by MIIT, CT has fulfilled the annual review requirements for 2012. Pursuant to the ‘‘Approval on the Use of Frequency Regarding the Incorporation of Basic Telecommunications Business of China Satellite Communications Corporation into China Telecommunications Corporation’’ (Gong Xin Bu Wu Han [2009] No. 596) 《( 關於中國衛通基礎電信業務併入中國電信有關頻率資源使用問題之批覆》(工信部無函[2009]596號)) dated 19 November 2009 issued by MIIT, CT will continue to use the ranges of frequency of IPSTAR. CT thereby undertakes the IPSTAR Business from China Satellite Communications Corporation.

Pursuant to the ‘‘Notice on Relevant Matters Relating to the Undertaking of IPSTAR Business’’ ([2009] No.714) 《( 關於承接IPSTAR業務有關事項的通知》[2009]714號) issued by CT, CTS has been delegated by CT to conduct the IPSTAR business in the PRC. As confirmed by the PRC legal advisers, according to relevant rules under the Measures, such delegation to CTS by CT is permitted and acceptable by the rules and regulations in the PRC. CTS is entitled to carry out the IPSTAR business in the PRC.

To comply with the abovementioned requirements, VAST, a foreign satellite company engaging in leasing of satellite transponders in the PRC, has therefore entered into the Assignment Agreement with the Vendor and CTS to continue to engage CTS, which is delegated by CT (one of the Approved Companies) to conduct the IPSTAR Business in the PRC, to carry out the IPSTAR Business in the PRC upon completion of the Acquisition.

The Assignment Agreement was entered into among three parties including CTS, the Vendor and VAST in respect of the operation of IPSTAR Business within the PRC through amicable negotiation, whereby VAST will take up the roles of the Vendor and continue to perform the rights and obligations under ICA documents in favour of CTS. The Assignment

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Agreement is in compliance with the relevant provisions under the ‘‘Contract Law of the PRC’’, and is legal and valid. Meanwhile, the continued performance of the obligations under ICA documents in favour of CTS by VAST will have no impacts on the rights and qualification of CTS to carry out IPSTAR Business within the PRC. The implementation of the Assignment arrangement by VAST and CTS in the PRC shall not constitute a breach of the PRC laws and rules that are currently in force. Furthermore, the cooperation between VAST and CTS is a contractual form of cooperation, rather than constituting a foreign investment in the PRC. This cooperation is thus free from any norms and constraints as set out in the ‘‘Foreign Investment Industrial Guidance Catalogue’’ 《( 外商投資產業指導目錄》).

LAWS AND REGULATIONS IN RELATION TO THE OPERATION OF SATELLITE COMMUNICATION BUSINESS IN HONG KONG

Under the Telecommunications Ordinance (Chapter 106 of the Laws of Hong Kong), a licence is required to establish or maintain any means of telecommunications or offer in the course of provision of telecommunications service in Hong Kong. Since the operation of telecommunications business within Hong Kong involves the establishment, possession, maintenance, use and operation of a space station (a radio-communications station that is located on a space object) and an earth station (a station that is located on the Earth’s surface or within the major portion of the Earth’s atmosphere and is intended for radio-communications with a space station) for space radio-communications, such space radio-communication requires a unified carrier licence and is subject to licensing and regulations of the Communication Authority of Hong Kong (which superseded the Telecommunications Authority on 1 April 2012).

Under the ‘‘Telecommunications (Carrier Licences) Regulation’’ (Chapter 106V of the Laws of Hong Kong), any space radio-communications must be approved by the Communication Authority for a unified carrier licence. The Communication Authority would consider each application on its own merits by considering a non-exhaustive list of factors including the applicant’s shareholding, financial, organisation and management structure, board of directors and its key officers experiences, detailed financial, business, implementation plan and market study for the first 10 years of operations, technical details of facilities, including configurations, network infrastructure, components, expansion plan and contingency plan in response to a major breakdown of services.

LAWS AND REGULATIONS IN RELATION TO THE OPERATION OF SATELLITE COMMUNICATION BUSINESS IN MACAU

According to the ‘‘Basic Telecommunications Law’’ (Macau Law No. 14/2001) that regulates the bases of the telecommunications policy of the Macau, as well as the general frame which regulates the establishment, management and exploration of telecommunications networks and the telecommunications services rendered, telecommunications are classified into (i) Public telecommunications — those reserved for the public in general; and (ii) Private telecommunications — those reserved for particular use or for a restricted number of users. Accordingly, the telecommunications services are classified into (i) Public networks — those that support, totally or partially, public telecommunications services; and (ii) Private networks — those that support, exclusively, private telecommunications services.

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On the other hand, the telecommunication networks are classified into: (i) Public networks — those that support, totally or partially, public telecommunications services; and (ii) Private networks — those that support, exclusively, private telecommunications services.

Moreover, the establishment, management and operation of telecommunications networks and the provision of telecommunications services are of public interest can only be pursued by public or private entities enough for that purpose in accordance with applicable regulations.

The ‘‘Regulation on the Installation and Operation of External Telecommunication Infrastructures’’ (Macau Administrative Regulation No. 16/2002) establishes the legal regime for the installation and operation of external telecommunications infrastructure, licensing and respective disciplinary measures, hereinafter also referred to in short as the infrastructure.

For the purposes of this regulation the infrastructure is considered the telecommunications infrastructure based telecommunications cables, fiber optics, radio electricity or other electromagnetic systems linking the Macao Special Administrative Region abroad. Their installation and operation are subject to licensing under this Administrative Regulation.

The Bureau of Telecommunications Regulation (‘‘DSRT’’) was established according to Administrative Regulation no. 5/2006, and started to function on 15 May 2006.

DSRT is in charge for the regulation, supervision, promotion and coordination of all activities related to the telecommunications sector. Their duties among others are: (i) to ensure appropriate regulation, supervision, and promoting fair competition in the telecommunications sector; (ii) to promote the implementation of the conventions, agreements and other international instruments in the telecommunications sector and represent the sector; (iii) to promote, participate and monitor the relationships of cooperation at regional and international levels in the fields of telecommunications and information technology; (iv) to promote the competitiveness and healthy development of the telecommunications market; (v) to safeguard the rights and interests of users of telecommunications services; and (vi) to ensure the implementation and enforcement of the laws and regulations applicable in the context of its duties, including access, in legal terms, to databases of subscribers of telecommunications services for public use.

The activity of providing Internet services is subject to licensing under the Administrative Regulation no. 26/2012. In order to be licensed as an Internet service provider, they shall comply with the following requirements: (i) the entity is required to be a commercial company established in Macau and under Macau laws whose scope of services includes the provision of Internet services; (ii) it shall hold expertise and experience appropriate to the fulfillment of obligations and other specifications of the license that propose to obtain, providing, inter alia, of a body of qualified personnel for the activity; (iii) have adequate economic and financial capacity; (iv) have adequate accounting date and the analyzes required for the project which they intend to develop; (v) have proposed development plan for the analysis of the latest required and appropriate accounting data.

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REGULATORY OVERVIEW

The application for license allocation is formulated through an application addressed to the Chief Executive, signed by a person with authority to bind the applicant, with a notary signature and the decision on the grant of the license rests with the Secretary for Transport and Public Works, and is made within 90 days from the date of application or provision of clarifications and additional elements, if such is required.

The license is valid for a maximum period of 5 years and may be renewed for periods not exceeding five years, upon request of the provider with a minimum of 90 days of the expiry of its validity period.

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BUSINESS

BUSINESS MODEL

Existing Business

The Group has been a provider of core components of specialised communication system. The Group has designed and developed its products relating to digital trunking system and satellite communication systems through research and development and acquisition of relevant intellectual property rights and technology know-how from third parties. The Group has also provided specialised communication network design and implementation that can be customarily devised pursuant to the specific needs of clients. The products of the Group are mainly utilised by end-users for public safety and emergency communication purposes. The Group has developed its own standard of specialised communication network. The core components for specialised communication systems provided by the Group can be utilised to form digital trunking system and VSAT satellite system, which can be installed onto vehicles as operation integrated system.

The Group’s major products comprise mainly five types of business segment including (i) the core components forming the digital trunking system; (ii) the core components forming the VSAT satellite system; (iii) operation integrated system; (iv) systems technologies; and (v) other accessory parts and components. Depending on the nature, scale and geographic coverage of the communication network or systems, the network or systems designed and developed by the Group needs to be connected with various communication links such as fibers, micro wave, satellite and phone lines. Further details of the Group’s existing products and business can be found in the section headed ‘‘Business’’ in the prospectus of the Company dated 30 March 2012.

The key elements of the Group’s business strategies to achieve the business objective of its existing business include the followings:

Focus on expansion of sales network and market share in the specialised communication industry in the PRC;
Penetrate overseas market;
Continue to strengthen research and development capability, and enhance products quality and functionality and network design and to develop new products which cater for the needs of the market; and
Promote better awareness of the products and services offered by the Group.

Details of the aforementioned business strategies are set out in the paragraphs headed ‘‘Business Strategies’’ and ‘‘Future Plans’’ under the sections headed ‘‘Business’’ and ‘‘Future Plans and Use of Proceeds’’ respectively in the prospectus of the Company dated 30 March 2012.

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As confirmed by the Directors, the Group’s business strategies and future plans regarding its existing business have not been changed since the listing of the Company on the Stock Exchange. The Group will continue to strive to improve the performance and expand the market share and customer base of the Group’s existing business by focusing on the abovementioned strategies.

IPSTAR Business in the Territory

On 29 March 2013, VAST entered into the Definitive Agreement with the Vendor to acquire from the Vendor (i) the Bandwidth Capacity and the Bandwidth Capacity Service; and (ii) the Right To Use. Furthermore, as the IPSTAR Business in the PRC is a restricted business in the PRC, in order to carry out the IPSTAR Business, VAST is required to cooperate and engage an Approved Company to carry out the IPSTAR Business in the PRC. As such, VAST has entered into the Assignment Agreement with the Vendor and CTS with a view to assigning all rights and obligations under the ICA Documents previously entitled to the Vendor to VAST in order to engage CTS to continue to carry out the IPSTAR Business in the PRC and operate and manage the Gateways. Details of terms of the Definitive Agreement and the Assignment Agreement can be referred to the paragraph headed ‘‘Definitive Agreement’’ and ‘‘Assignment Agreement’’ under the section headed ‘‘Letter from the Board’’ in this circular.

Prior to the Acquisition, the Group mainly provides the specialised communication systems such as digital trunking system and VSAT satellite systems to its customers while the customers have to source satellite bandwidth from other satellite service providers. Upon completion of the Acquisition, the Group will be further engaged in the provision of the Satellite bandwidth. A total Bandwidth Capacity of 7,598.5 MHz serving the Territory will be provided by the Group. As a result, upon completion of the Acquisition, the Group will then offer vertically integrated satellite communication services from the provision of specialised satellite communication systems to the provision of the Satellite bandwidth while the Satellite will continue to be monitored and controlled by the Vendor and the Gateways systems will continue to be operated and managed by CTS.

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BUSINESS

To better illustrate how the linkage is established between the end-users through the satellite communication services, the following diagram demonstrates the involvement of each of the Group (through its products and the Satellite bandwidth), the Vendor (through the Satellite) and CTS (through the Gateways) in the IPSTAR Business in the PRC:

==> picture [417 x 378] intentionally omitted <==

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

IPSTAR
(Note 1)
Ka Band
satellite communications
vehicle
Earth Station
On-the-move VSAT On-the-move
IP
Trunking Station Wireless Video Video
Internet Access Collection Conferencing
Service Service Terrestrial Satellite Gateways
Antenna
(Note 3)
Dispatch and
Internet Command
Wireless Trunking Network Video Collection
(Note 2)
NetWork
Management
control center
Public Network
Database
Encryption
(Note 3)
Ku Band
----- End of picture text -----

Notes:

The Satellite will be monitored and controlled by Thaicom through Thaicom Satellite Station. The Group will sell and market the Satellite bandwidth to its target customers in the Territory upon completion of the Acquisition.
The major specialised communication systems provided by the Group including but not limited to the digital trunking systems, VSAT satellite system and operation integrated systems. The specialised communication systems can be devised according to the specific needs of each customer and connected with various communication links such as satellite. Prior to the Acquisition, the Group’s customers have to source satellite bandwidth from other satellite service providers. Upon completion of the Acquisition, the Group can thereafter provide Satellite bandwidth to its customers.
The Gateways and transmission of data between the Gateways and the control center for data processing has been and will be managed and operated by CTS pursuant to the Assignment Agreement and the ICA Documents.

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The management of the Company expected that in addition to the sales and marketing of the Satellite bandwidth, the Group can further cross selling the Group’s communication systems with the Satellite bandwidth. The Directors believe that the Group’s customers can not only purchase its specialised communication systems but also the Satellite bandwidth to be marketed or vice versa. This is expected to create significant synergy effect to the Group’s existing business. The Directors are optimistic that additional revenue can be brought into the Group from both the sales of the satellite communication systems and the Satellite bandwidth. The Directors considered that the Acquisition is not only a new revenue stream to the Company but also a complement to the Group’s existing business.

For the operation of the IPSTAR Business in the Territory, the Group plans to set up a satellite operating center which will consist of a sales and marketing department, a business management department and an operation and maintenance department. The sales and marketing department will comprise 12 staffs and will be mainly responsible for (i) selling and marketing the Satellite bandwidth; (ii) providing pre-sales and after-sales services; (iii) gathering market information; and (iv) maintaining customer relationship. The business management department will comprise 3 staffs and will be responsible for (i) customers’ profile management; (ii) intra-Group communication; (iii) implementation and management of working plans; and (iv) communication and coordination with the Vendor and CTS. The operation and maintenance department will comprise 6 staffs and will be responsible for (i) monitoring the Gateways operation and maintenance; (ii) testing the compatibility of the Group’s products with the Satellite and Gateways systems; and (iii) providing installation services. A staff from the operation and maintenance department will be assigned to each Gateway to monitor the daily operation conducted by CTS and the maintenance services provided by the Vendor for the respective Gateway to ensure the proper operation of such Gateway. In light of the above arrangements, the Group can keep an eye on the daily operation of the Gateways. In the event there is any technical failure of the Gateways, the Group can respond in a timely manner. Furthermore, through the regular communication with the Vendor, the Group can collect updated information on the Satellite operation, in case there is a technical failure of the Satellite, the Group will be noticed as soon as possible. In addition, as discussed under paragraph headed ‘‘Service Period’’ under the section headed ‘‘Letter from the Board’’ in this circular, in the event that there is any malfunction of the Satellite, the Group will be indemnified for and against any lost arising therefrom or the service fee will be deducted accordingly.

Based on the Directors’ estimation, the budgeted expenditure for the next twelve months from the date of this circular for setting up a satellite operating center is expected to be approximately HK$23.4 million, including but not limited to (i) rental and renovation expenses; (ii) office equipment expenses; (iii) research and development expenses; and (iv) staff costs.

Depending on the negotiations with its customers, the term of the sales contract for the Satellite bandwidth is generally one year and renewed annually. The selling price of the Satellite bandwidth will be determined and negotiated on a contract by contract basis after considering various factors including but not limited to the amounts of the Satellite bandwidth to be sold, the term of the contract and the historical relationship with the customers. In

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general, save for CTS which settles the payments quarterly, the Group will not offer any credit terms to its customers, and the customers have to make full payments before utilisation of the Satellite bandwidth.

Cooperation arrangement with the Vendor and CTS for the IPSTAR Business in the PRC

According to the Definitive Agreement, the Group acquires the Satellite bandwidth but not the Satellite. Upon completion of the Acquisition, the Satellite will continue to be monitored and controlled by the Vendor through Thaicom Satellite Station, located in Nonthaburi, Thailand. The expenses incurred by the Thaicom Satellite Station will be borne by Thaicom. The operation of the Gateways will continue to be responsible by CTS, the Gateways operation expenses in the PRC will be borne by the Vendor pursuant to the Definitive Agreement. After the completion of the Acquisition, the major cost to be borne by the Group will be the amortisation expense of the Assets throughout the Service Period. In view of the above, save for the consideration for the Acquisition, the amortisation expense of the Assets and certain administrative expense and staff costs to be incurred by the Group in selling and marketing the Satellite bandwidth, there is no other material costs which will be incurred by the Group arising from the Acquisition.

Due to the regulatory environment in the PRC as detailed under the section headed ‘‘Regulatory Overview’’ in this circular, the IPSTAR Business is a restricted business in the PRC, the Group is required to cooperate with and engage an Approved Company to conduct such business in the PRC. As such, VAST entered into the Assignment Agreement with the Vendor and CTS with a view to assigning all rights and obligations under the ICA Documents previously entitled to the Vendor to VAST in order to carry out the IPSTAR Business in the PRC and engage CTS to continue to operate and manage the Gateways. Under the Assignment Agreement and the ICA Documents, to comply with the relevant PRC regulations as mentioned above, all PRC customers solicited by the Group for the IPSTAR Business in the PRC must enter into agreements with CTS to lease the Satellite bandwidth through CTS.

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Upon completion of the Acquisition, pursuant to the Definitive Agreement, the Assignment Agreement and the ICA Documents, the major responsibilities of the Group, the Vendor and CTS are summarised as follows:

The	Group							The	Vendor	CTS
(i)	P r o v i d i n g		B a n d w i d t h					(i)	Monitoring and controlling	(i)	Operating and managing the
	Capacity	and		Bandwidth					t h e S a t e l l i t e t h r o u g h		Gateways;
	Capacity Service				to		CTS in		Thaicom Satellite Station.
	the PRC;								The technical issues relating	(ii)	Acting on	behalf of CT as
									to the operation of the		the Approved Company to
(ii)	Selling and marketing the								Satellite has been and will		c o n d u c t	t h e I P S T A R
	Satellite bandwidth;								be handled by Thaicom;		Business in the PRC and
											entering into the agreement
(iii)	Receiving	the		agreed tariff				(ii)	P a y i n g t h e G a t e w a y s		with clients secured by the
	from CTS relating						to the		operation expenses to VAST		Group to lease the Satellite
	utilisation	of		the		Satellite			which will be used for the		bandwidth	through CTS, no
	bandwidth. CTS				is		entitled		settlement of the Gateways		company,	save for the
	to enter	into		agreements					operation expenses from		Approved	Company, can
	with its	own			customers				VAST to CTS (Note);		carry out	satellite related
	relating	to the			lease of						business in	the PRC;
	Satellite	bandwidth					under	(iii)	E n s u r i n g t h e p r o p e r
	the ICA Documents;								operation of the Gateways	(iii)	Receiving	the services fee
									by (a) providing system and		from VAST in relation to
(iv)	Paying the service						fee to		equipment maintenance,		the CTS’s	acting on behalf
	CTS in	return			for		CTS’s		s o f t w a r e u p g r a d e a n d		of CT as	the Approved
	acting on	behalf			of		CT as		technical problems solving		Company	for VAST, the
	the Approved			Company to					relating to the Gateways;		services fee represented a
	c o n d u c t	t h	e		I P		S T A R		and (b) ensuring sufficient		fixed percentage of the
	Business in the			PRC, which					spare components of the		contract sum of the Satellite
	r e p r e s e	n t e d			a		f i x e d		Gateways available in the		bandwidth	sold to VAST’s
	percentage of			the		contract			Gateway stations to support		customers;
	s u m o f	t h e			S a t e l l i t e				normal operation of the
	bandwidth sold				to	VAST’s			G a t e w a y s a n d s y s t e m	(iv)	Paying the	agreed tariff to
	customers; and								repairing in a timely manner		VAST relating to CTS’s
									in the event of system		utilisation	of the Satellite
(v)	P a y i n g	t h e		G a t			e w a y s		failure;		bandwidth for its own
	operation	expense				to CTS					customers,	CTS is entitled
	(Note).							(iv)	Providing technical support		to seek customers for the
									to VAST for its monitoring		utilisation	of the Satellite
									of the Gateways operation		bandwidth	according to the
									such as provision of training		ICA Documents; and
									courses, operation and
									maintenance manuals, and	(v)	Collecting	the Gateways
									technical guidelines and		operation	expenses from
									documents relating to		VAST (Note).
									operation of the Gateways;
									and
								(v)	Providing technical support
									to and working together
									w i t h V A S T f o r i t s
									m o d i f i c a t i o n o f t h e
									G a t e w a y s s y s t e m s a s
									discussed in the paragraph
									h e a d e d ‘ ‘B u s i n e s s
									Strategies’’ in this section.

Note: Pursuant to the Definitive Agreement, the Vendor will bear the Gateways operation expense, and it will pay VAST the amount of the Gateways operation expense based on the supporting documents received from CTS and VAST. VAST will then make the payment to CTS.

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BUSINESS

Based on the Directors’ enquiries with the Vendor and CTS, the Directors confirmed that the service fee as agreed under the ICA Documents was determined between the Vendor and CTS after mainly taking into account of (i) CTS, acting on behalf of CT as one of the Approved Companies, in conducting satellite communication business and leasing service of satellite transponders in the PRC; (ii) the ground network access services including the Internet and telephone network access services provided by CTS; (iii) the reputation of CTS; and (iv) the applicable tax CTS is subject to in carrying out the IPSTAR Business in the PRC. In addition, the tariff as agreed under the ICA Documents was determined after mainly taking into account of (i) the demand of Ku-band satellite bandwidth in the PRC; (ii) the PRC satellite communication markets which were new and not familiarised by the Vendor; and (iii) the long term business relationship with CTS that the Vendor expects in carrying out the IPSTAR Business in the PRC.

As mentioned above, due to the regulatory environment of satellite communication industry in the PRC, the Group must engage CTS, which is delegated by CT (one of the Approved Companies) to conduct the IPSTAR Business in the PRC, to carry out the IPSTAR Business in the PRC. In other words, the Group relies on the cooperation with CTS to operate the IPSTAR Business in the PRC as the Group is not permitted to conduct the IPSTAR Business in the PRC without the cooperation with one of the Approved Companies. The Company’s PRC legal advisers have confirmed that the proposed business model of the Group for carrying out the IPSTAR Business in the PRC as described under this section is in compliance with the applicable PRC laws and regulations that are currently in force. The Directors have also confirmed that the Group will consult its PRC legal advisers before the Group executes any change in such proposed business model for carrying out the IPSTAR Business in the PRC.

Regardless of the Group’s marketing channels to sell Satellite bandwidth, all PRC customers solicited by the Group for the IPSTAR Business must enter into agreements with CTS to lease the Satellite bandwidth through CTS. However, the Group is responsible for selling and marketing of the Satellite bandwidth. The Group will solicit its own customers to lease the Satellite bandwidth and not rely on CTS for marketing the Satellite bandwidth. Therefore, it is expected that most of the customers utilising the Satellite bandwidth will be secured by the Group and that only a minimal amount of the Satellite bandwidth will be utilised by customers secured by CTS. In view of the above, the Directors are of the opinion that the risk associated with the prioritisation in customer allocation to VAST and other satellite bandwidth operators by CTS is not significant to the Group.

In the event that (i) the qualification of CT, being one of the Approved Companies, is revoked or undermined as a result of the PRC regulatory changes or for other reasons; or (ii) CTS terminates its business cooperation with the Group, the Group will execute the following procedures to engage another Approved Company to carry out the IPSTAR Business in the PRC.

As advised by the Company’s PRC legal advisers, pursuant to the applicable laws and regulations in the PRC, the Group can engage another Approved Company as the business operator to conduct the IPSTAR Business in the PRC as long as such proposed Approved Company obtains relevant approval from MIIT to carry out IPSTAR Business in the PRC. As

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such, such company should first file an application to MIIT for its approval to the proposed Approved Company for operating the IPSTAR Business in the PRC. Once the proposed Approved Company successfully obtain the approval from MIIT, the Group can then engage such Approved Company to operate the IPSTAR Business in the PRC.

As at the Latest Practicable Date, as advised by Company’s PRC legal advisers, there were no PRC regulatory changes that may impact the satellite communication business in the PRC as well as the qualification of CT as one of the Approved Companies, which would affect the operation of the IPSTAR Business in the PRC.

As at the Latest Practicable Date, the Directors considered that the possibility for CTS to terminate the cooperation with the Group as stipulated under the Assignment Agreement and the ICA Documents is very remote on the basis of the following factors:

CTS receives service fee from the Group for CTS’s acting on behalf of CT as an Approved Company to conduct the IPSTAR Business in the PRC;
For customers utilising the Satellite bandwidth through CTS, terminating the cooperation with the Group will affect the satellite service provided by CTS to such customers, which may trigger lots of complaints from such customers and affect the reputation of CTS; and
For CTS’s operation of the Gateways, the relevant operation expenses are ultimately borne by the Vendor, CTS is free from incurring any of the Gateways operation expenses to conduct the IPSTAR Business in the PRC.

IPSTAR Business in Hong Kong and Macau

In view of the size of the satellite communication market in the PRC and the Group’s target customers, even though the geographic coverage of the Satellite bandwidth covers the PRC, Hong Kong and Macau, the Group will generally focus on developing the market in the PRC and place less focus and resource on exploring the market in both Hong Kong and Macau which are new to the Group. Yet, as confirmed by the Directors, in the event that there are potential business opportunities approached by potential customers in Hong Kong and Macau in relation to the lease of the Satellite Bandwidth, the Group will apply the business model similar to that in the PRC by leasing the Satellite Bandwidth through the cooperation with local telecommunication operators in Hong Kong and Macau. The relevant regulatory requirement in Hong Kong and Macau can be referred to the paragraphs headed ‘‘Laws and Regulations in relation to the Operation of Satellite Communication Business in Hong Kong’’ and ‘‘Laws and Regulations in relation to the Operation of Satellite Communication Business in Macau’’ under the section head ‘‘Regulatory Overview’’ in this circular.

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BUSINESS STRATEGIES

To develop the IPSTAR Business in the Territory, the Group will implement the following business strategies:

1. Modify the Gateways systems to enhance the compatibility of the Satellite

To further enhance the revenue generating ability of the IPSTAR Business in the Territory, upon the Service Commencement, the Group will modify the Gateways systems to enhance the compatibility of the IPSTAR. First, the Group will modify the Gateways systems by using the Group’s products to support communication under in-motion mode (‘‘On-the-move Communication’’). Subsequent to such modification, IPSTAR will be able to connect to most of the On-the-move Communication systems, which will broaden the application of the Satellite bandwidth. Secondly, as IPSTAR is currently compatible only to the modems and terminals of Thaicom, which limits the base of the potential customers, the Group will modify the Gateways systems to enable IPSTAR to be compatible to most of the modems and terminals that commonly use in the market. By the modification, IPSTAR can then be compatible to the most of the satellite communication systems in the market including but not limited to the specialised communication systems manufactured by the Group. As confirmed by the Directors, the costs incurred for the modifications are immaterial, which is expected to be approximately US$1.0 million and the costs will be financed by internal resources. It is expected that the modification will be completed in two months upon the Service Commencement.

Serve the Satellite bandwidth in well developed areas as a supplement and extension to the existing communication network and in remote areas for the establishment of communication network

The Group intends to serve the Satellite bandwidth as a supplement and extension to the existing communication network in well developed areas as in such areas the Satellite bandwidth can be utilised to supplement the signal transmission in certain regions where the existing wired or wireless communication networks cannot be covered. For remote areas where the communication infrastructure is not fully in place, the Satellite bandwidth will be served to create intermediate links between the core communication network such that signal transmission can be established between the remote areas and the core communication network. The Satellite bandwidth can also be applied to where the communication network connection is terminated during any natural disasters for rescue purpose and utilised by television broadcast companies for live program broadcasting. The Group’s target customers for the IPSTAR Business in the Territory therefore include, but not limited to, (i) satellite system integrated companies which offer satellite communication solutions in remote areas; (ii) shipping companies which require satellite communication during maritime navigation; (iii) government sectors including governmental departments, police, national defense and public security which may require to establish a satellite communication network for their operation, control and emergency command during urgent rescue; (iv) natural resources companies as the exploitation and exploration of oil and gas are usually situated in remote areas; (v) aviation companies as satellite communication may be required to be established between the aircraft and the

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control center; and (vi) television broadcast companies which may require the live program broadcasting in the Territory. The Directors considered that in view of the Group’s targeted customers for the utilisation of the Satellite bandwidth as discussed above, the Group will focus mainly on promoting the Satellite bandwidth to corporate users or government authorities, which are expected to be the major users of the Satellite bandwidth.

As discussed above, the Satellite bandwidth can be utilised by different types of customers in a variety of ways and areas. Although the rapid urbanisation and/or development in the PRC may result in improvement of the communication infrastructure in some remote areas in the PRC, the Directors considered that it is unlikely that the demand for the Satellite communication service in the PRC will be significantly deteriorated in the foreseeable future after taking into account of (i) the extensive and varied application of the Satellite communication service as discussed above; and (ii) the considerable time required to improve the communication infrastructure in all remote areas in the PRC given the massive size of such areas in the PRC.

3. Enhance the market awareness of the Satellite bandwidth

To market and promote the sales of the Satellite bandwidth in the PRC. As mentioned above, the Group plans to set up a new sales and marketing department which will comprise 12 staffs and be responsible for the selling and marketing the Satellite bandwidth, providing pre-sales and after-sales services, gathering market information, and maintaining customer relationship.

In order to promote and market the Satellite bandwidth in the Territory, the Group will participate in industry exhibitions and conferences regularly in the Territory and place advertisement on different media to enhance the market awareness of the Group, its products and the Satellite bandwidth. Furthermore, given established brand name and extensive operation of CT and CTS in the PRC, the Group plans to conduct some marketing activities together with CT and/or CTS in the PRC to promote the IPSTAR Business in the PRC. For such purpose, as confirmed by the management of the Company, the Group has allied with CTS to participate in certain forthcoming exhibitions such as ‘‘2013中國衛星應用產業技術交流暨成果展覽’’ (The exhibition of the China satellite technology exchange and application for the year 2013) and ‘‘中國衛星應用大會’’ (the application of the China satellite). Through such cooperated marketing activities, the Directors expected that the market awareness of the IPSTAR Business can be further enhanced and that the utilisation rate of the Satellite bandwidth will therefore be further improved.

4. Provision of the Satellite bandwidth in a competitive price to gain market share

The Directors considered the consideration for the Acquisition of US$80.0 million (equivalent to approximately HK$620.0 million) and the acquisition cost per MHz of the Satellite bandwidth of approximately US$92.4 per MHz per month (equivalent to approximately RMB568.3 per MHz per month), as compared with the market average of RMB15,418.1 (equivalent to approximately US$2,507.0 per MHz per month), offered the Group a larger room to price its Satellite bandwidth to its customers depending on the

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terms of the contracts to be entered into with its customers. In general, it is expected the Group can offer a competitive pricing of the Satellite bandwidth, which is expected to be priced at no more than 50% discount to the market average. In view of the Group’s competitive pricing policy as discussed above, the Directors believe that the Group can significantly gain the market share in the provision of the satellite bandwidth in the Territory.

REVENUE MODEL

Through the aforementioned business strategies, it is expected that the revenue from the IPSTAR Business in the Territory will be generated mainly from the following channels:

1. Leasing the Satellite bandwidth to the Group’s existing or potential customers of the existing business

The Group will solicit the existing or potential customers of its existing business to lease the Satellite bandwidth as discussed above. For the reason mentioned above in the paragraph headed ‘‘Business Model — Cooperation arrangement with the Vendor and CTS for the IPSTAR Business in the PRC’’ under this section, all customers solicited by the Group to utilise the Satellite bandwidth must enter into the service contracts with CTS to lease the Satellite bandwidth through CTS at the price determined by the Group. As agreed under the ICA Documents and the Assignment Agreement, a service fee will be paid by the Group to CTS relating to its acting on behalf of CT as the Approved Company for the Group. The service fee will represent a fixed percentage of the contract sum of the Satellite bandwidth sold to the customers solicited by the Group. As confirmed by the Directors, the revenue from leasing the Satellite bandwidth to such customers will be paid by CTS to the Group after deducting the respective service fee on a quarterly basis.

2. Leasing the Satellite bandwidth to an expanded and diversified base of customers

As discussed above in the paragraph headed ‘‘Business Strategies’’ under this section regarding the modification of the Gateways systems, the IPSTAR can be compatible to most of the satellite communication systems upon completion of such modification. It is therefore expected that the customer base for the IPSTAR Business in the Territory shall be diversified and enlarged. For all of these new customers who are solicited by the Group and would like to utilise the Satellite bandwidth, they must enter into the service contracts with CTS to lease the Satellite bandwidth through CTS at the price determined by the Group. A service fee, representing a fixed percentage of the contract sum of the Satellite bandwidth sold to such customers, will be paid by the Group to CTS relating to its acting on behalf of CT as the Approved Company for the Group. As confirmed by the Directors, the revenue from leasing the Satellite bandwidth to such customers will be paid by CTS to the Group after deducting the respective service fee on a quarterly basis.

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3. Receiving the tariffs from CTS

Under the business model of the IPSTAR Business in the Territory as discussed in the paragraph headed ‘‘Business Model — Cooperation arrangement with the Vendor and CTS for the IPSTAR Business in the Territory’’ under this section, CTS can also utilise the Satellite bandwidth for its own customers and it will then pay the agreed tariff to the Group for such utilisation. The tariff will be paid by CTS to the Group on a quarterly basis.

With respect to the revenue or tariffs to be received from the Group’s customers or CTS as mentioned above, pursuant to the Revenue Sharing Agreement, the Vendor is entitled to receive the revenue share amounted to 8% of the sum of (i) the revenue entitled to be received by VAST through VAST’s own customers as discussed under item 1 and 2 above; and (ii) the tariff entitled to be received by VAST from CTS as discussed under item 3 above. Details of the Revenue Sharing Agreement are set out in the paragraph headed ‘‘Revenue Sharing Agreement’’ under the section headed ‘‘Letter from the Board’’ in this circular. Pursuant to the Assignment Agreement, VAST and CTS may negotiate to adjust and amend the service fee and the tariff based on the actual business development.

CAPITAL COMMITMENT

As mentioned above, the major costs to be borne by the Group will be the amortisation expense of the Assets, administrative expense and staff costs for the operation of the IPSTAR Business in the Territory. As such, save for payments of the Consideration according to the payment schedules as detailed in the paragraph headed ‘‘Consideration’’ under the section headed ‘‘Letter from the Board’’ in this circular, there will be no other material capital expenditure commitment to be incurred by the Group arising from the Acquisition.

COMPETITIVE ADVANTAGES

1. Vertically integrated operation

As discussed above, upon completion of the Acquisition, the Group can offer vertically integrated satellite communication services from the provision of specialised satellite communication systems to the provision of Satellite bandwidth. As such, the Group will be able to offer the Satellite bandwidth together with the specialised communication systems designed by it to its customers as a collaborative communication solution to provide one-stop service to its customers. In view of the above, the Directors believe that the synergy effect between the Group’s existing business and its provision of Satellite bandwidth will not only diversify and expand the Group’s revenue base but also increase the revenue from its existing business.

2. Competitive price of the Satellite bandwidth

As mentioned in the paragraph headed ‘‘Business Strategies’’ under this section, the acquisition cost per MHz of the Satellite bandwidth of approximately US$92.4 per MHz per month as compared with the market average of US$2,506.7 per MHz per month offered the Group a larger room to price its Satellite bandwidth to its customers depending on the terms of

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the contracts to be entered into with its customers and it is also expected that the Satellite bandwidth will be priced at no more than 50% discount to the market average. The Directors believe that by offering the Satellite bandwidth at a competitive price, the Group can attract both existing customers or new customers to utilise the Satellite bandwidth and the Group may cross selling its satellite communication systems to its customers. As such, the Directors consider that, with such competitive price of the Satellite bandwidth, the sales of both the satellite communication systems and the Satellite bandwidth will be increased and bring in additional revenue to our Group.

3. Cooperation with the Vendor and CTS

Pursuant to the arrangements under the Definite Agreement, the Assignment Agreement and the ICA Documents and under the business model of the IPSTAR Business in the Territory upon completion of the Acquisition as discussed above, (i) the Vendor will continue to be responsible for, among others, monitoring and controlling the Satellite and CTS will continue to be responsible for, among others, operating and managing of the Gateways. As such, the Group will only be responsible for the selling and marketing of the Satellite bandwidth. The technical issues regarding monitoring and controlling the Satellite and operating and managing the Gateways will be handled by the Vendor and the CTS respectively; (ii) the substantial amount of the amortisation expenses of the Satellite and the Gateways and the Gateways operation expenses will continue to be borne by the Vendor. As such, save for the consideration for the Acquisition, the amortisation expense of the Assets and certain administrative expense and staff costs to be incurred by the Group in selling and marketing the Satellite bandwidth, there is no other material costs which will be incurred by the Group arising from the Acquisition; and (iii) CTS can utilise the Satellite bandwidth for its own customers by paying the agreed tariff to the Group for such utilisation. As such, the Group can derive additional revenue from such utilisation of the Satellite bandwidth by CTS and the utilisation rate of the Satellite bandwidth can be further secured.

In addition, given the established brand name and extensive operation of CT and CTS in the PRC, the Group plans to conduct some marketing activities together with CT and/or CTS in the PRC to promote the IPSTAR Business in the PRC. For such purpose, as confirmed by the management of the Company, the Group has allied with CTS to participate in certain forthcoming exhibitions such as ‘‘2013中國衛星應用產業技術交流暨成果展覽’’ (The exhibition of the China satellite technology exchange and application for the year 2013) and ‘‘中國衛星應用大會’’ (the application of the China satellite) to promote the IPSTAR Business. Through such cooperated marketing activities, the Directors expected that the market awareness of the IPSTAR Business can be further enhanced and that the utilisation rate of the Satellite bandwidth will therefore be further improved.

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The biographical details of the Directors and senior management of the Group as at the Latest Practicable Date are set out below:

1. DIRECTORS

		Position in the	Date of	Time of joining
Name	Age	Group	appointment	the Group
Wong Chit On	54	Chairman and	11 October 2006	April 2002
(王浙安)		Executive Director
(formerly known as
Wang Gang Jun
(王鋼軍))
Lu Zhijie (律智杰)	54	Executive Director	28 February 2011	December 2010
Han Weining (韓衛寧)	51	Executive Director	28 February 2011	January 2010
Zhang Jinbing	42	Executive Director	23 August 2012	August 2012
(張金兵)
Lam Ying Hung Andy	48	Independent non-	28 February 2011	February 2011
(林英鴻)		executive Director
Hu Yunlin (胡雲林)	51	Independent non-	28 February 2011	February 2011
		executive Director
Cai Youliang (蔡友良)	49	Independent non-	28 June 2013	June 2013
		executive Director

Executive Directors

Wong Chit On (王浙安), (formerly known as Wang Gang Jun (王鋼軍)) aged 54, is an executive Director, the chairman and the chief executive officer of the Group. He is the founder of the Group and was appointed as a Director in October 2006. He is primarily responsible for overall corporate strategy, management and operation of the Group. Mr. Wong founded the Group in 2001 and has over 12 years of experience in the specialised communication industry. He was an executive director and the chairman of China Public Healthcare (Holding) Limited (中國公共醫療(控股)有限公司) (formerly known as Neolink Cyber Technology (Holding) Limited and Global Resources Development (Holding) Limited (大地資源發展(控股)有限公司)) from 1999 to 2001, a company listed on the Growth Enterprise Market board of the Stock Exchange (Stock Code: 8116). In 2004, Mr. Wong was appointed as an adjunct professor of Harbin Institute of Technology Shenzhen Graduate School (哈爾濱工業大學深圳研究生院). From 2005 to 2009, he served as a committee member of electronics and communications specialist working committee of Shenzhen City Specialist Working Association (深圳市專家工作聯合會). In 2009, Mr. Wong was recognised as one of the ‘‘2009 Outstanding and Innovation

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Entrepreneur in China’’ (2009中國優秀創新企業家). Mr. Wong was nominated as the standing supervisor of the China Users Association for Communications Broadcasting & Television in December 2010. Save as disclosed herein, Mr. Wong did not hold any directorship in any listed companies in the past three years.

Lu Zhijie (律智杰), aged 54, was appointed as an executive Director in February 2011. Mr. Lu has been the legal representative of Guangzhou You Yang Golf Management Consultant Co., Ltd (廣州優揚高爾夫管理顧問有限公司) from 2003 to 2009. He was also the legal representative and director of Bonson Technology Co., Ltd (廣州市邦訊科技有限公司) from 1994 to 2001, and 1998 to 2002, respectively. He graduated from Guilin University of Electronic Technology (formerly known as Guilin Institute of Electronics) (桂林電子科技大學, 前稱桂林電子工業學院中專部) in 1981, major in communication machine manufacturing. He further received education at Guangxi Radio and TV University (廣西廣播電視大學), specialised in engineering management in 1987. Save as disclosed herein, Mr. Lu did not hold any directorship in any listed companies in the past three years.

Han Weining (韓衛寧), aged 51, was appointed as an executive Director in February 2011. From 1989 to 2006, Mr. Han worked at Citect Corporation Limited, later acquired by Schneider Electric and his last position was the director of Asia pacific region. Since 2006, Mr. Han has been an executive director of MOX Group in Australia. He graduated from Zhejiang University (浙江大學) with major in wireless electronic technology and Master Degree in Engineering in 1983 and 1986, respectively. He was elected as a member of the Institution of Engineers in Australia in 1994. Save as disclosed herein, Mr. Han did not hold any directorship in any listed companies in the past three years.

Zhang Jinbing (張金兵), aged 42, was appointed as an executive Director in August 2012. Mr. Zhang obtained a Bachelor Degree of Arts from Guangzhou Foreign Language Institute (廣州外國語學院) in 1994. Mr. Zhang has 9 years of experience in business management. He worked as the general manager for Guangdong Copper Alloy Material Company Limited (廣東銅合金屬材料有限公司) from 2004, and has been the chairman of the board of China Golden Holdings Limited (中光集團有限公司) since May 2006. Mr. Zhang did not hold any directorship in any listed companies in the past three years.

Independent non-executive Directors

Lam Ying Hung Andy (林英鴻), aged 48, was appointed as an independent nonexecutive Director in February 2011. Mr. Lam has over 20 years of experience in logistics, accounting, banking and finance industry. He is a fellow of the Association of Chartered Certified Accountants (United Kingdom), a member of the Hong Kong Institute of Company Secretaries, the Institute of Chartered Secretaries and Administrators (United Kingdom) and the Chartered Institute of Bankers. Mr. Lam obtained his postgraduate diploma in corporate administration, master degree of professional accounting and master degree in E-commerce for executives from the Hong Kong Polytechnic University in 1997, 1999 and 2004 respectively. Mr. Lam is currently the managing consultant of Lontreprise Consulting Limited, and has been the finance director and administrative accountant in two logistics companies. Mr. Lam is currently an independent non-executive

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director of Xingfa Aluminum Holdings Limited (Stock Code: 0098), and Brilliant Circle Holdings International Limited (Stock Code: 1008), both are companies listed on the Main Board of the Stock Exchange. Save as disclosed above, Mr. Lam did not hold any directorship in any listed companies in the past three years.

Hu Yunlin (胡雲林), aged 51, was appointed as an independent non-executive Director in February 2011. He graduated from People’s Liberation Army Air Force Electronic Communication Engineering Institute (中國人民解放軍空軍電訊工程學院) in 1986, major in wireless electronic engineering. He has served as chief manager in Zhuhai Ji Di Te Communication Utilities Company Limited (珠海吉迪特通信器材有限公司) since 1995. He has also served as director in Zhuhai Gao Ling Information Technology Company Limited (珠海高凌信息科技有限公司) since 2000. Save as disclosed herein, Mr. Hu does not hold any directorship in any listed companies in the past three years.

Cai Youliang (蔡友良), aged 49, was appointed as an independent non-executive Director on 28 June 2013 with effect on 2 July 2013. Mr. Cai has over 15 years of experience in the investment management field. He was an independent director of SZZT Electronics Co., Ltd. (深圳市證通電子股份有限公司), a company listed on the Shenzhen Stock Exchange (Stock Code: 002197) from December 2007 to June 2011. He has also served in various managerial positions in various private companies since 1995. He was the general manager of Shenzhen Eagle Computer Technology Network Co., Ltd. (深圳市依格計算機網絡有限公司) from 1995 to 2002 and was an executive director of Shenzhen Chips Information S&T Co., Ltd. (深圳市齊普生資訊技術有限公司) from 2002 to 2011. Mr. Cai has also been an executive director of Shenzhen Eagle Computer Technology Co., Ltd. (深圳市依格欣電腦技術有限公司) since 1998, an executive director of Shenzhen Careland Technology Co., Ltd. (深圳市凱立德科技股份有限公司) since 1999 and an executive director of Apexone Microelectronics (Shanghai) Co., Ltd. (埃派克森微電子（上海）有限公司) since 2002. Prior to the above positions, Mr. Cai worked as a software engineer and sales engineer in Shenzhen Jiankang Electromechanical Co., Ltd. (深圳市建康機電有限公司) from 1989 to 1992 and subsequently engaged in his own trading business from 1993 to 1994. Mr. Cai obtained a bachelor degree in engineering from Huazhong University of Science and Technology (華中科技大學) in 1986. He obtained a master degree in computer from WuHan University (武漢大學) in 1989. He also obtained a master degree in senior managers of industrial and commercial management from Cheang Kong Commercial College (長江商學院) in 2009.

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2. SENIOR MANAGEMENT

			Time of joining the
Name	Age	Position in the Group	Group
Fan Zhiwen (范志文)	44	Vice-president	April 2004
Tian Hua Chen (田華臣)	42	Vice-president/general	July 2007
		manager of the
		chairman’s office
Wu Xiaowen (吳曉文)	46	Vice-president	August 2012
Huang Guangxin (黃光欣)	39	Marketing and sales deputy	April 2004
		general manager
He Jiafu (何家富)	42	Chief Engineer, CTO	May 2012
		(Satellite Communication
		team)
Zhou Qingqing (周清慶)	36	Production general	October 2012
		manager
Chen Zhiyong (陳志勇)	42	Finance and accounts	November 2012
		deputy general manager
Xu Qing (許清)	47	Research and development	June 2010
		general manager (VSAT
		satellite products
		research team)

Fan Zhiwen (范志文), aged 44, has served as the vice-president of the Group since 2008. He is responsible for overseeing the finance department and the satellite communication operation of the Group. Mr. Fan has more than 10 years of experience in business management, with extensive experience in marketing, production and sales. Prior to joining the Group, Mr. Fan worked at Shenzhen Tai Feng Electronic Co., Ltd. (深圳泰豐電子有限公司) as a quality control and assurance manager from 1992 to 2000. He also served as vice general manager at Shenzhen Jia Yu Shun Technology Limited (深圳市嘉宇順科技有限公司) in 2001 and QA analyst at Viva Magnetic (Canada) Ltd. from 2003 to 2004. Mr. Fan obtained a Bachelor Degree of Information Engineering from Xidian University (西安電子科技大學) in 1992. He also obtained a post-graduate certificate of telecommunications management from Sheridan College Institute of Technology and Advanced Learning in 2003.

Tian Hua Chen (田華臣), aged 42, has served as the general manager of finance and accounts department of the Group since 2007. In April 2013, he was promoted to the Group’s vice president, with the duty of overseeing human resources sector, finance department and chairman’s office. Mr. Tian has over 15 years of experience in financial planning and management. Prior to joining the Group, he worked as the chief finance officer and secretary to

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the board of directors of Guangdong East Power Co., Ltd. (廣東易事特電源股份有限公司) from 2005 to 2007. He graduated from Hubei College of Finance, later renamed as Hubei University of Economic (湖北經濟學院, 前稱湖北金融專科學校) with major in accounting in 1991. He also obtained a Master Degree in Chinese ethnic minority economics from SouthCentral University for Nationalities (中南民族學院) in 2000 and a Doctoral Degree in Economics in Western Countries in Huazhong University of Science and Technology (華中科技大學) in 2005.

Wu Xiaowen (吳曉文), aged 46, was appointed as an independent non-executive Director from August 2012 to May 2013. Subsequent to his resignation as an independent Director of the Group in mid-May 2013, Mr. Wu has been acting as the Group’s vice president, with the responsibility for overseeing digital truncking product and satellite communication products development. He obtained a master’s degree of Engineering from the University of Electronic Science and Technology (電子科技大學) in 1995, and a doctoral degree of Engineering from the University of Electronic Science and Technology of China in 1997, majoring in communications and electronic systems. From 1998 to 2011, Mr. Wu served in various companies, he served as the general manager for 3G BSS products of ZTE Corporation of Shenzhen City (深圳市中興通訊股份有限公司), the director of UTStarcom, Shenzhen Branch (UT斯達康通訊有限公司深圳分公司), the department manager of Siemens Ltd., China Shenzhen Branch, as well as the Research & Development Line 2 Manager of Nokia Siemens Networks Technology (Beijing) Company Limited (諾基亞西門子通信系統技術（北京）有限公司).

Huang Guangxin (黃光欣), aged 39, has joined the Group since 2004. She has been appointed as the deputy general manager of the financial vice president, the deputy director of the chairman’s office and the deputy general manager of the marketing and sales department successively. She obtained a Bachelor Degree of Economics from Changsha University of Electric Power (長沙電力學院) majoring in accounting in 1996, and obtained a Master Degree of Business Administration from Changsha University of Science and Technology (長沙理工大學) in 2005. Prior to joining the Group, she worked in the financial management team of Rainbow Venture Capital Corporation (彩虹創業投資集團有限公司) in 2002. Ms. Wong holds a mid-level accountant certificate, and has several years of experience in financial management and corporate management.

He Jiafu (何家富), aged 42, joined the Group in May 2012. He has been appointed as the chief engineer of the satellite communication team of the Group overseeing the satellite communication operation of the Group. He graduated from the College of Engineering of the People’s Liberation Army University of Science and Engineering (解放軍理工大學工程學院) with a profession in microwave communication engineering in 1995. He obtained a Master Degree of electromagnetic field and micro technology expertise from the college in 1998. After receiving a doctoral degree of communication from the college. He has developed a set of constellation design and simulation software program, and has become a key research member of the national ‘‘863 Project’’ relating to satellite mobile communication program and design. As a software engineer for wired network of ZTE, as well as a senior engineer and a chief engineer for the R&D of softswitch software of Softswitch, he was involved in software

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development such as ZTE’s switches, Softswitch’s softswitches, access gateways, media gateways, trunk gateways, media servers and NAS devices. He has also provided the related technical support for the relevant market.

Zhou Qingqing (周清慶), aged 36, joined the Group in October 2012. He acted as the general manager of production department of the Group. Mr. Zhou obtained a Bachelor Degree of Economics from the International College of Business Administration of Xiangtan University (湘潭大學(國際經貿管理學院)) in 2001. Prior to joining the Group, he served as the deputy general manager of the supply chain of Hytera Communications Corporation Limited (海能達通信股份有限公司) and the deputy general manager of Shenzhen SEG Communication Co., Ltd. (深圳市賽格通信有限公司) under Hytera Communications Corporation Limited (海能達通信股份有限公司). Mr. Zhou has over 10 years of experience in the supply chain management.

Chen Zhiyong (陳志勇), aged 42, joined the Group in November 2012 as the deputy general manager of finance and accounts department. Prior to joining the Group, Mr. Chen served as the chief financial officer of Shenzhen Baoxing Wire and Cable Manufacturing Co., Ltd. (深圳寶興電線電纜製造有限公司), and the senior project manager of Asia-Pacific (Group) Certified Public Accountants Co., Ltd. (亞太集團會計師事務所有限公司). Mr. Chen is also a CPA (Certified Public Accountant) of the Institute of Certified Public Accountants of China and a Certified Tax Agent of China.

Xu Qing (許清), aged 47, has served as the general manager of research and development department and responsible for VSAT satellite products since 2010. Mr. Xu has over 10 years’ experience in technological design and research and development. He worked at No. 607 of China Astronautics Industry Laboratory (中航第六零七研究所) from 1989 to 2005. From 2005 to 2007, he worked in research and development management team of the Shenzhen People Communication Co., Ltd (深圳國人通信有限公司). He also worked as research and development manager of RFS Radio Frequency Systems (Shanghai) Co., Ltd. (安弗施無線射頻系統(上海)有限公司), and was responsible for research team management in antenna products from 2007 to 2008. He worked as senior engineer of Scientific-Atlanta (Shanghai) Co., Ltd (上海科學亞特蘭大有限公司) from 2008 to 2009 and Cisco Systems (China) Research and Development Co., Ltd (思科系統(中國)研究有限公司) as technical leader from 2009 to 2010. Mr. Xu obtained a bachelor degree in microwave technology from the People’s Liberation Army National University of Defense Technology (中國人民解放軍國防科學技術大學) in 1986, a Master Degree in Engineering from China Electronic Science and Technology University (中國電子科技大學) in 1989 and diploma in senior engineering technology in No. 607 of China Astronautics Industry Laboratory (中航第六零七研究所) in 1995. He was awarded National Security Science Technology Award for his JYL-6D weather radar in 2001 and GPS demonstration pod machine in 2003.

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3. STAFF

As at the Latest Practicable Date, the Group has 227 employees. The table below set forth the number of the Group’s employees by department.

Department Management Research and Development Marketing and sales Production Finance and accounts Administration and human resources TOTAL	Number of employees 16 63 26 79 10 33
	227

The Directors are of the view that the Group has maintained a good relationship with its staff. The Group has not, in the past, experienced any disruption of its operations due to labour dispute.

EXPERIENCE OF DIRECTORS AND SENIOR MANAGEMENT IN SATELLITE COMMUNICATION INDUSTRY

As set out in the paragraphs headed ‘‘Business Model’’ under the section headed ‘‘Business’’ in this circular, upon completion of the Acquisition, pursuant to the Definitive Agreement, the Assignment Agreement and the ICA Documents, the major responsibilities of the Group, the Vendor and CTS are, among others, as follows:

A. The Vendor — The Vendor is responsible for (i) monitoring and controlling the Satellite through Thaicom’s Satellite Station located in Nonthaburi, Thailand; and (ii) providing technical support to VAST and/or CTS for the Gateways operations and system modification.
B. CTS — CTS is responsible for (i) operating and managing the Gateways; and (ii) acting on behalf of CT as the Approved Company to conduct the IPSTAR Business in the PRC and entering into the agreement with clients secured by the Group to lease the satellite bandwidth.
C. The Group — The Group is mainly responsible for sales and marketing of the Satellite bandwidth in the Territory.

Having considered the Vendor, being the developer of the Satellite and the Gateways, is responsible for monitoring and controlling of the Satellite and providing technical support for the Gateways operation, the Directors believe that the Group and the Vendor are capable of dealing with any technical issues to ensure the proper operation of the Satellite and the Gateways systems. In addition, having considered the qualification and industry experience of

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DIRECTORS, SENIOR MANAGEMENT AND STAFF

CTS as demonstrated below, the Directors believe that CTS possesses adequate technical knowledge and industry experience to operate the Gateways and conduct the IPSTAR Business in the PRC.

As mentioned above, the Group principally performs the sales and marketing function of the IPSTAR business in the Territory; whereas the rest of the major functions relating to such business, including (i) monitor and control of the Satellite and (ii) operation of the Gateways and the IPSTAR Business in the PRC, will be performed by the Vendor and CTS respectively. The Group has been a provider of core components of specialised communication systems. It has designed and developed products relating to digital trucking and satellite communication systems as well as providing specialised communication network design and implementation that can be customarily devised according to the specific needs of clients. With regard to the nature of the Group’s existing business, the Directors believe that the management of the Group have gained adequate technical knowledge for the operational mechanism of the satellite communication business and how it functions with the Group’s products such as satellite antenna and/or the specialised communication network.

As such, the Directors are of the opinion that the management of the Group, by cooperating with the Vendor and CTS, are capable of carrying out the IPSTAR Business in the Territory and properly performing its sales and marketing role for leasing the Satellite Bandwidth under the business model of the Group’s IPSTAR Business in the Territory as set out in the paragraphs headed ‘‘Business Model’’ under the section headed ‘‘’’Business’’ in this circular.

QUALIFICATION AND INDUSTRY EXPERIENCE OF CTS

Qualification of CTS

China Satellite Communications Corporation entered into an agreement dated 23 February 2006 with the Vendor with respect to IPSTAR Business. Subsequently, China Satellite Communications Corporation files an application for the grant of an approval to operate the IPSTAR Business to MIIT. According to the consent dated 20 April 2006 given by the MIIT relating to the provision of the relevant telecommunications service through IPSTAR satellite communications system by China Satellite Communications Corporation (Xin Bu Dian Han [2006] No.186) 《( 關於同意中國衛星通信集團公司使用IPSTAR衛星通信系統提供相關電信業務的批覆》(信部電函[2006]186號), China Satellite Communications Corporation was granted the approval to carry out the IPSTAR Business in the PRC.

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DIRECTORS, SENIOR MANAGEMENT AND STAFF

CT. CT had applied to MIIT and obtained the ‘‘Basic Telecommunications Service Operating Approval’’ on 6 January 2009. Subsequently, CT is entitled to engage in leasing and sales business of satellite transponders. The approval is subject to an annual review by MIIT according to the Measures and according to the information published by MIIT, CT has fulfilled the annual review requirements for 2012. Pursuant to the ‘‘Approval on the Use of Frequency Regarding the Incorporation of Basic Telecommunications Business of China Satellite Communications Corporation into China Telecommunications Corporation’’ (Gong Xin Bu Wu Han [2009] No. 596) 《( 關於中國衛通基礎電信業務併入中國電信有關頻率資源使用問題之批覆》(工信部無函[2009]596號)) dated 19 November 2009 issued by MIIT, CT will continue to use the ranges of frequency of IPSTAR. CT thereby undertakes the IPSTAR Business from China Satellite Communications Corporation.

Industry experience of CTS

CTS is principally engaged in satellite communication business in the PRC. As advised by CTS, it specialises in satellite communication business and providing communication solutions for emergency purpose. CTS serves as a resources centre, product integration centre and technical support centre for satellite communication in the PRC. Apart from acting as a business partner of IPSTARCO to operate and manage the IPSTAR Business (including the Gateways operation) in the PRC, CTS also manages the business operation, assets and personnel for other CT Group’s members engaged in satellite communication business.

CTS currently has employed more than 150 employees, more than 90% of which has more than 10 years’ experience in the satellite communication industry. They are technical experts possessing adequate technical knowledge for satellite communication operation, and are very familiar with the satellite communication technology commonly used in the PRC. The Directors are of the opinion that the industry experience of CTS adequately and effectively supports the operation of the IPSTAR Business in the PRC.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL STATEMENTS OF THE GROUP

The financial information of the Group for the each of the year ended 31 March 2011, including the notes thereto, are disclosed in the ‘‘Accountants’ Report’’ in Appendix I of the prospectus of the Company dated 30 March 2012, and the financial information of the Group for each of the year ended 31 March 2012 and 31 March 2013 are disclosed in the annual reports of the Company dated 23 July 2012 and 24 July 2013 respectively, which are incorporated by reference into this circular. The aforementioned prospectus and annual reports of the Company are available on the respective website of the Stock Exchange and the Company as follows:

(A) in respect of the prospectus of the Company dated 30 March 2012 incorporating the audited consolidated financial statement for each of the year ended 31 March 2011 (pages I-4 to I-93 of Appendix I):

http://www.hkexnews.hk/listedco/listconews/SEHK/2012/0330/LTN20120330354.pdf

http://www.synertone.net/wwwroot/cn/En/admin/Mytouzi/uploadfile/product_big/ 201205021413081407

(B) in respect of the annual report of the Company for the year ended 31 March 2012 dated 23 July 2012 (pages 28 to 89):

http://www.hkexnews.hk/listedco/listconews/SEHK/2012/0723/LTN20120723159.pdf

http://www.synertone.net/wwwroot/cn/En/admin/Mytouzi/uploadfile/product_big/ 201207231738252856

http://www.hkexnews.hk/listedco/listconews/SEHK/2013/0724/LTN20130724259.pdf

http://www.synertone.net/UploadFile/Download/201307251339566276.pdf

2. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 March 2013, being the date to which the latest published audited consolidated financial statements of the Group were made up.

3. WORKING CAPITAL

The Directors, after due and careful enquiry, are of the opinion that taking into account of the budgeted expenditure for setting up the satellite operating center as discussed under the paragraph headed ‘‘IPSTAR Business in the Territory’’ under the section headed ‘‘Business’’ in

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

this circular and its present available financial resources, and in the absence of unforeseen circumstances, the Enlarged Group has sufficient working capital for its present requirements for the next twelve months from the date of this circular.

4. INDEBTEDNESS STATEMENT

As at the close of business on 31 July 2013, being the latest practicable date for the purpose of this indebtedness statement, apart from normal trade payables, the Enlarged Group did not have any debt securities, any outstanding bank loans and overdrafts, mortgages, charges, debentures or other loan capital or other similar indebtedness, or any finance lease commitments, hire purchase commitments, liabilities under acceptances or acceptance credits, or any guarantees or other material contingent liabilities.

As at the Latest Practicable Date, the Directors were not aware of any material change in respect of the indebtedness or other contingent liabilities of the Enlarged Group.

5. MANAGEMENT DISCUSSION AND ANALYSIS ON THE GROUP

Set out below is the management discussion and analysis of the performance of the Group for each of the three years ended 31 March 2013 based on the prospectus of the Company dated 30 March 2012 and the annual reports of the Company for the year ended 31 March 2012 and 31 March 2013 respectively . Please also refer to the prospectus of the Company dated 30 March 2012, the annual reports of the Company for year ended 31 March 2012 and 31 March 2013 respectively for more information.

(a) For the year ended 31 March 2011

Turnover

The Group’s turnover increased slightly by approximately 2.0% from approximately HK$214.4 million for the year ended 31 March 2010 to approximately HK$218.8 million for the year ended 31 March 2011, primarily due to the increase in sales volume as a result of increase in sales of core components for the digital trunking system as a result of increased orders from system integrators and distributors due to system upgrade demand from their respective customers, which was substantially offset by the decrease in the sales of core components for the VSAT satellite system.

Digital trunking system: The turnover generated from the sales of core components for the digital trunking system increased significantly by approximately 66.7% from approximately HK$104.7 million for the year ended 31 March 2010 to approximately HK$174.5 million for the year ended 31 March 2011. The fluctuation of the turnover was due to the sales of core components for the DITONE digital trunking mobile communication system which generated turnover of approximately HK$28.7 million, and the increase of sales of core components for the WITONE digital trunking mobile communication systems as a result of increased need of the

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

existing end-user(s) to upgrade system contributing approximately HK$16.6 million to the total turnover and the sales to a new direct customer, representing approximately HK$41.9 million to the total turnover.

VSAT satellite system: Sales of core components for the VSAT satellite system decreased by approximately 61.7% from approximately HK$100.1 million for the year ended 31 March 2010 to approximately HK$38.3 million for the year ended 31 March 2011, primarily as a result of no sales of VSAT low speed satellite transmission system and the decrease in the sales of core components for the VSAT high speed dynamic digital satellite system.

Operation integrated system: No sales of operation integrated system was recorded for the year ended 31 March 2011 as a result of adjustment of sales strategy. The Group did not proceed with certain orders for operation integrated system as the profit to be derived from sales of operation integrated system would be low as a result of a combination of the lowered selling price of core components for the VSAT satellite system due to increased competition and the increasing costs for provision of after sale services and maintenance for the operation integrated system.

Systems technologies: The sales of systems technologies decreased by approximately 20.8% from approximately HK$7.3 million for the year ended 31 March 2010 to approximately HK$5.8 million for the year ended 31 March 2011, primarily as a result of three technologies being licensed to the Group’s customers for the year ended 31 March 2010, as compared to one technology being licensed for the year ended 31 March 2011.

Other accessory parts and components: The other accessory parts and components accounted for an immaterial portion of the Group’s sales.

Cost of sales

The Group’s cost of sales decreased by approximately 13.4% from approximately HK$87.5 million for the year ended 31 March 2010 to approximately HK$75.7 million for the year ended 31 March 2011. As a percentage of sales, the cost of sales decreased from approximately 40.8% for the year ended 31 March 2010 to approximately 34.6% for the year ended 31 March 2011. The decrease in the cost of sales and the percentage to sales was mainly attributable to the decrease in sales of core components for the VSAT satellite system, the production costs of which was higher.

Gross profit and gross profit margin

The Group’s gross profit increased by approximately 12.7% from approximately HK$127.0 million for the year ended 31 March 2010 to approximately HK$143.1 million for the year ended 31 March 2011 as a result of increase in sales of core components for the digital trunking system which has a higher profit margin

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

compared to other products of the Group. The gross profit margin correspondingly increased from approximately 59.2% for the year ended 31 March 2010 to approximately 65.4% for the year ended 31 March 2011.

Digital trunking system: The gross profit margin for digital trunking system increased from approximately 67.0% for the year ended 31 March 2010 to approximately 71.8% for the year ended 31 March 2011. The increase in gross profit margin was mainly due to (i) increase in selling price of the core components for the digital trunking system; (ii) the commencement of sales of the core components for the DITONE digital trunking mobile communication system which has a higher profit margin; and (iii) the economies of scale enjoyed by the Group for the sales of the core components for the digital trunking system in 2011. The gross profit margin of the core components for the DITONE digital trunking mobile communication system is generally higher mainly because new product at the beginning of the product cycle generally is sold at a higher price. The Group enjoyed the economies of scale for the sales of the core components for the digital trunking system mainly due to the fact that (i) approximately 79.7% of such sales concentrated in the year ended 31 March 2011 and (ii) the economies of scale resulting from the increase in sales.

VSAT satellite system: The gross profit margin decreased from approximately 50.4% for the year ended 31 March 2010 to approximately 33.4% for the year ended 31 March 2011. The gross profit margin of the VSAT satellite system decreased substantially because there was no sales of the core components for the VSAT low speed satellite transmission system which is the product with higher profit margin. Approximately all of the sales was from the core components for the VSAT high speed dynamic digital satellite system which has a lower profit margin.

Operation integrated system: There was no sales recorded for operation integrated system for the year ended 31 March 2011.

Other revenue

Other revenue significantly increased by approximately 208.9% from approximately HK$4.9 million for the year ended 31 March 2010 to approximately HK$15.2 million for the year ended 31 March 2011 primarily as a result of the business and value-added tax refund of approximately HK$14.7 million mainly due to (i) the increase in tax refund for the sales of registered softwares alongside with the increase in sales of core components for the digital trunking system and (ii) delay in the governmental authority granting the tax refund approval.

Selling and distribution expenses

The selling and distribution expenses as compared to the revenue of the Group has increased from approximately 3.8% for the year ended 31 March 2010 to approximately 6.7% for the year ended 31 March 2011. Selling and distribution expenses significantly increased by approximately 79.6% from approximately HK$8.1 million for the year ended 31 March 2010 to approximately HK$14.6 million for the year ended 31 March 2011 as the combined result of (i) the increase

– I-4 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

in the staff costs from approximately HK$2.3 million for the year ended 31 March 2010 to approximately HK$4.4 million for the year ended 31 March 2011 mainly due to expansion of the sales team; (ii) the increase in the travelling and promotional expenses from approximately HK$2.6 million for the year ended 31 March 2010 to approximately HK$4.7 million for the year ended 31 March 2011 for the business promotion of DITONE digital trunking mobile communication system; (iii) decrease in transportation and insurance expense attributable to decrease in sales of the VSAT satellite system and increase in use of shipping and (iv) the significant increase in costs incurred in the installation, repair and maintenance attributable to the repair services provided to a customer who purchased VSAT satellite antenna.

Administrative expenses

Administrative expenses increased by approximately 2.2% from approximately HK$26.2 million for the year ended 31 March 2010 to approximately HK$26.8 million for the year ended 31 March 2011. The staff cost in the administrative expenses decreased by approximately 26.4% from the year ended 31 March 2010 to the year ended 31 March 2011 mainly due to the decrease of managerial staff by reducing the management structure in Synertone Wireless and SCL from 13 to six as of 31 March 2011.

Research and development expenditure

The research and development cost was approximately HK$10.7 million for the year ended 31 March 2010 and HK$17.4 million for the year ended 31 March 2011, representing an increase of approximately 61.8%. The increase was mainly attributable to (i) the increase in number of staff and thus increase in staff costs from approximately HK$7.7 million to HK$13.8 million; and (ii) increase in travelling expenses from approximately HK$0.4 million to HK$0.9 million.

Finance costs

Finance costs increased by approximately 68.3% from approximately HK$0.8 million for the year ended 31 March 2010 to approximately HK$1.4 million for the year ended 31 March 2011 as a result of increase in interest expenses on bank borrowings due to the increase in the aggregate bank borrowing and bank overdraft to approximately HK$24.7 million as at 31 March 2011.

Income tax expenses

Income tax expenses increased by approximately 41.3% from approximately HK$17.9 million for the year ended 31 March 2010 to approximately HK$25.3 million for the year ended 31 March 2011 as the combined result of (i) the decrease in the Hong Kong Profits Tax from approximately HK$4.6 million for the year ended 31 March 2010 to approximately HK$0.9 million for the year ended 31 March 2011 mainly due to the decrease in the sales of core components for the VSAT satellite system which was the business focus of SCL and Synertone Wireless; (ii) the increase in the EIT from approximately HK$13.5 million for the year ended 31

– I-5 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

March 2010 to approximately HK$17.1 million (including the withholding tax incurred of approximately HK$1.7 million) for the year ended 31 March 2011 mainly due to the increased sales orders for core components for the digital trunking system and the increase in profits; (iii) the increase in the deferred tax liabilities of withholding tax on dividend to be paid out of earnings not yet distributed by the Company’s PRC subsidiaries from approximately HK$0.1 million credited for the year ended 31 March 2010 to approximately HK$7.4 million charged for the year ended 31 March 2011.

Profits for the year attributable to owners of the Company

Due to the factors described above, the Group’s profits attributable to shareholders increased by approximately 6.9% from approximately HK$68.1 million for the year ended 31 March 2010 to approximately HK$72.9 million for the year ended 31 March 2011.

Liquidity and financial resources

The Group historically financed its operations through a combination of shareholders’ loan, internally generated cash flows and bank borrowings. Going forward the Group expects its capital and operating requirements will be funded principally through internally generated cash flows, the net proceeds from the Global Offering, cash and bank deposits on hand. However, the Group’s ability to fund the working capital needs, repay any indebtedness and finance other obligations depend on the future operating performance and cash flow, which are in turn subject to prevailing economic conditions, the level of spending by the customers and other factors, many of which are beyond the control of the Group. Any future significant acquisition or expansion may require additional capital, and the Group cannot assure you that such capital will be available to the Group on acceptable terms, if at all. The Directors believe that in the long term, the Group’s operations will be funded by internally generated cash flows and, if necessary, additional equity financing or bank borrowings. The Group has not experienced and do not expect to experience any difficulties meeting the obligations as they become due. The Group will use part of the proceeds from the Global Offering to fulfill its capital commitments for future expansion.

The following table sets forth a condensed summary of the Group’s consolidated statements of cash flow statements for the Track Record Period.

				2011	2010
				HK$	HK$
Net	cash	(used	in)/from operating activities	185,091	(3,932)
Net	cash	used	in investing activities	(8,109)	(8,046)
Net	cash	(used	in)/from financing activities	(126,932)	5,419

– I-6 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Operating activities

For the year ended 31 March 2010, net cash used in operating activities amounted to approximately HK$3.9 million with operating profits before changes in working capital amounted to approximately HK$99.8 million. The cash generated from operating profits before changes in working capital, the decrease in amounts due from directors of approximately HK$1.5 million and the increase in trade and other payables of approximately HK$22.0 million were partially offset by the increase in inventories of approximately HK$1.0 million, increase in trade and other receivables of approximately HK$119.7 million.

For the year ended 31 March 2011, net cash generated from operating activities amounted to approximately HK$185.1 million which was mainly attributable to the operating profits before changes in working capital of approximately HK$110.4 million and the decrease in trade and other receivables of approximately HK$84.0 million which was mainly due to the settlement of account receivable from the Group’s major customers, and offset by the increase in amounts due to directors of approximately HK$10.7 million, the decrease in trade and other payables of approximately HK$6.1 million and the decrease in inventories of approximately HK$4.6 million.

Investing activities

For the year ended 31 March 2010, the Group had net cash used in investing activities of approximately HK$8.0 million, which was primarily due to its payment for acquisition of equipment relating to the Group’s existing production facilities of approximately HK$1.1 million, acquisition of intangible assets of HK$5.4 million for error reporting, analyzing and correction system (故障報告, 分析與糾正措施系統) and prepayment for purchase of intangible assets including ANM-MC assessment software (ANM-MC評估軟件) of approximately HK$1.6 million, both relating to application in and further enhancement of the Group’s products including digital trunking system and VSAT satellite system. The cash outflow partially offset by interest received of HK$0.009 million and the proceeds from disposal of property, plant and equipment of HK$0.03 million.

For the year ended 31 March 2011, the Group had net cash used in investing activities of HK$8.1 million, which was primarily due to its payment for acquisition of equipment relating to the Group’s existing production facilities of approximately HK$2.8 million, prepayment for purchase of intangible assets of approximately HK$3.3 million and payment for acquisition of intangible assets of approximately HK$2.1 million, all relating to application in and further enhancement of the digital trunking system and VSAT satellite system.

Financing activities

The net cash generated from financing activities was approximately HK$5.4 million for the year ended 31 March 2010 was primarily contributed by the capital contribution from the owners of the Company of approximately HK$20.0 million and

– I-7 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

proceeds from new bank borrowings of approximately HK$6.0 million. These cash inflows were partially offset by decrease in amount due to ultimate holding company for the dividend payment to Excel Time of approximately HK$19.0 million, the repayment of bank borrowings of approximately HK$0.8 million and the payment of interest of approximately HK$0.8 million for the bank overdraft facilities and bank borrowings.

The net cash used in financing activities was approximately HK$126.9 million for the year ended 31 March 2011, which was primarily contributed by the decrease in amount due to ultimate holding company for the dividend payment of approximately HK$129.0 million, repayment of bank borrowings of approximately HK$8.1 million and the payment of interest for bank overdrafts and bank borrowings of approximately HK$1.4 million. These cash outflows were partially offset by proceeds from new bank borrowings and bank overdrafts of approximately HK$11.6 million.

Bank overdrafts and borrowings

The following table sets forth the bank overdrafts and borrowings as of 31 March 2010 and 2011:

Bank overdraft Secured bank loans Unsecured bank loans Total	2011 HK$ 16,022 — 8,682 8,682 24,704	2010 HK$ 16,076 — 5,243
		5,243
		21,319

The bank overdrafts of the Group amounted to approximately HK$16.1 million and HK$16.0 million as at 31 March 2010 and 2011, respectively. The bank overdrafts were borrowed by Synertone Communication Limited and Synertone Wireless Limited, both are indirect wholly-owned subsidiary of the Company. Synertone Communication Limited and Synertone Wireless Limited provided mutual guarantee and both supported by the personal guarantee provided by Mr. Wong Chit On.

As at 31 March 2010 and 2011, the Group has undrawn banking facilities in relation to bank overdrafts of approximately HK$6.9 million and HK$7.0 million, respectively.

– I-8 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As at 31 March 2010 and 2011, all bank borrowings are denominated in Hong Kong dollars. As at 31 March 2010 and 2011, all bank borrowings are variable-rate borrowings which carry prevailing interest rates ranging from 5.06% to 6.88% respectively, per annum.

As at 31 March 2010 and 2011, the gearing ratio of the Group was 25.4% and 15.2% respectively.

Banking facilities

As at 31 March 2010 and 2011, the Group had total banking facilities available of HK$26.0 million and HK$32.3 million respectively, of which approximately HK$21.3 million and HK$24.7 million had been drawn down and utilised for bank overdrafts and bank loans.

Pledge of assets

As at 31 March 2010 and 2011, the Group did not have any assets pledged to secure the bank borrowings and overdrafts of the Group.

Contingent liabilities

As at 31 March 2010 and 2011, the Group did not have any material contingent liabilities.

Capital commitment

As at 31 March 2010 and 2011, the Group had capital commitment of approximately HK$4.7 million and HK$3.1 million, respectively, in respect of acquisition of intangible assets, which was contracted but not provided for.

Employee and remuneration policy

As at 31 March 2010 and 2011, the Group had 292 and 378 employees respectively. For the year ended 31 March 2010 and 2011, the staff cost of the Group was approximately HK$34.3 million and HK$49.4 million respectively.

The remuneration payable to the Group’s employees includes salaries and allowances, social insurance as well as housing fund. The Group determines its employees’ remuneration based on factors including qualifications, contributions and years of experience.

Foreign exchange exposure

The Group was was not exposed to any significant foreign currency risk as majority of its transactions were denominated in Renminbi during each of the years ended 31 March 2010 and 2011. No hedging against foreign exchange risk was carried out by the Group during these periods.

– I-9 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Significant investments

The Group had no significant investment during the years ended 31 March 2010 and 2011.

Acquisition and disposal

The Group had no material acquisition or disposal during the years ended 31 March 2010 and 2011.

(b) For the year ended 31 March 2012

Turnover

During the year ended 31 March 2012, the Group derived its revenue substantially from digital trunking system. The revenue of the Group remained relatively stable for the year ended 31 March 2012 at approximately HK$218.3 million, as compared to that for the year ended 31 March 2011 at approximately HK$218.8 million. The following table sets forth a breakdown of revenue by product category for the years indicated:

Digital trunking system VSAT satellite system Systems technologies Other accessory parts and components	2012 HK$’000 182,899 20,127 13,424 1,814 218,264	% 83.8 9.2 6.2 0.8 100.0	2011 HK$’000 174,503 38,329 5,818 174 218,824	% 79.7 17.5 2.7 0.1
				100.0

The sales of digital trunking system increased by approximately HK$8.4 million or 4.8% from approximately HK$174.5 million for the year ended 31 March 2011 to approximately HK$182.9 million for the year ended 31 March 2012 mainly due to greater demand from the customers. The sales of VSAT satellite system decreased significantly by approximately HK$18.2 million or 47.5% from approximately HK$38.3 million for the year ended 31 March 2011 to approximately HK$20.1 million for the year ended 31 March 2012, primarily as a result of the decrease in sales of core components for the VSAT high speed dynamic digital satellite system due to competition in the satellite market. Revenue derived from system technologies increased significantly by approximately HK$7.6 million or 131.0% from approximately HK$5.8 million for the year ended 31 March 2011 to approximately HK$13.4 million for the year ended 31 March 2012, primarily as a result of two technologies being licensed to the Group’s customers for the year ended 31 March 2012, as compared to one technology being licensed for the year ended 31 March 2011. The sales of other accessory parts and components increased by approximately HK$1.6 million or 800.0% from approximately HK$0.2 million for the year ended 31

– I-10 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

March 2011 to approximately HK$1.8 million for the year ended 31 March 2012 mainly due to the design fee of approximately HK$1.5 million for designing specialised communication system for system integrators.

Cost of sales

Cost of sales of the Group comprises costs of raw materials, labour costs, manufacturing overheads and amortisation of intangible assets. Cost of sales of the Group decreased by approximately HK$6.1 million or 8.1% from approximately HK$75.7 million for the year ended 31 March 2011 to approximately HK$69.6 million for the year ended 31 March 2012, primarily due to greater sales of digital trunking system and system technologies, as reflected by the approximately 4.8% increase and the 131.0% increase in their respective revenues for the year, which generally have a higher profit margin than the other products, and the decrease in the proportion of revenue derived from VSAT satellite system, as reflected by the approximately 47.5% decrease in its revenue for the year, which generally have a lower profit margin.

Gross profit and gross profit margin

As a result of the foregoing factors, gross profit of the Group increased by approximately HK$5.6 million or 3.9% from approximately HK$143.1 million for the year ended 31 March 2011 to approximately HK$148.7 million for the year ended 31 March 2012, with gross profit margin increasing from approximately 65.4% for the year ended 31 March 2011 to approximately 68.1% for the year ended 31 March 2012.

Other revenue

The other revenue of the Group decreased by approximately HK$11.4 million or 75.0% from approximately HK$15.2 million for the year ended 31 March 2011 to approximately HK$3.8 million for the year ended 31 March 2012. The decrease was primarily due to a delay of the PRC governmental authority in granting the tax refund approval of value-added tax refund of approximately HK$15.0 million as a financial support to the business of specialised communication system in which the Group is operating. Such tax refund was subsequently obtained by two installments in May and June 2012.

Selling and distribution expenses

The selling and distribution expenses of the Group decreased by approximately HK$3.6 million or 24.7% from approximately HK$14.6 million for the year ended 31 March 2011 to approximately HK$11.0 million for the year ended 31 March 2012, primarily due to a reduction of marketing and promotion expenses and entertainment expenses in relation to the marketing and promotion of VSAT satellite system as the group considered that the profit margin of such products was so low compared to the Group’s other products and thus less sales effort was put in its promotion.

– I-11 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Administrative expenses

The administrative expenses of the Group increased by approximately HK$8.5 million or 31.7% from approximately HK$26.8 million for the year ended 31 March 2011 to approximately HK$35.3 million for the year ended 31 March 2012, primarily due to the expenses directly attributable to the Listing amounted to approximately HK$9.3 million.

Research and development expenditure

The research and development expenditure of the Group decreased by approximately HK$2.2 million or 12.6% from approximately HK$17.4 million for the year ended 31 March 2011 to approximately HK$15.2 million for the year ended 31 March 2012. The decrease was mainly attributable to the decrease in staff costs from approximately HK$13.8 million to approximately HK$11.6 million as a result of decrease in number of staff in research and development department with higher salary.

Finance costs

The finance costs of the Group decreased by approximately HK$0.2 million or 14.3% from approximately HK$1.4 million for the year ended 31 March 2011 to approximately HK$1.2 million for the year ended 31 March 2012 mainly due to the repayment of the majority of bank loans in December 2011 and the remaining bank loans in January 2012. The Group had no outstanding bank borrowings as at 31 March 2012.

Tax expense

The tax expense of the Group increased by approximately HK$0.9 million or 3.6% from approximately HK$25.3 million for the year ended 31 March 2011 to approximately HK$26.2 million for the year ended 31 March 2012 mainly due to the combined effect of (i) the increase in the EIT by approximately HK$6.4 million from approximately HK$17.1 million for the year ended 31 March 2011 to approximately HK$23.5 million for the year ended 31 March 2012 was attributable to the distribution of dividend of the Company’s PRC subsidiaries and (ii) the decrease in deferred tax expense by approximately HK$4.6 million from approximately HK$7.4 million for the year ended 31 March 2011 to approximately HK$2.8 million for the year ended 31 March 2012 in relation to the deferred tax liabilities of withholding tax on dividends to be paid out of the retained earnings not yet distributed by the Company’s PRC subsidiaries.

Profit for the year

The Group’s profits for the year decreased by approximately HK$9.3 million or 12.8% from approximately HK$72.9 million for the year ended 31 March 2011 to approximately HK$63.6 million for the year ended 31 March 2012 as a result of the factors described above.

– I-12 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Liquidity and capital resources

The operations of the Group are capital intensive, and its liquidity requirements arise principally from the need for working capital to finance its operations and expansions. The Group has historically met its working capital and other capital requirements principally from cash generated from its operations, bank borrowings and capital contributions by its shareholders. In the long term, the operation of the Group will be funded by internally generated cash flow and, if necessary, additional equity financing and bank borrowings. The following table summarises the cash flows for the two years ended 31 March 2011 and 2012:

			2012	2011
			HK$’000	HK$’000
Net	cash	generated from operating activities	36,334	185,091
Net	cash	used in investing activities	(4,685)	(8,109)
Net	cash	used in financing activities	(41,362)	(126,932)

Operating activities

Net cash generated from operating activities amounted to approximately HK$36.3 million for the year ended 31 March 2012 compared to approximately HK$185.1 million for the year ended 31 March 2011. The decrease in net cash generated from operating activities was primarily attributable to the decrease in cash generated from operations from approximately HK$203.6 million for the year ended 31 March 2011 to HK$57.2 million for the year ended 31 March 2012. The significant decrease in cash generated from operations was primarily attributable to the changes in working capital including the increase in trade and other receivables of approximately HK$31.6 million and the decrease in amounts due to directors of approximately HK$11.6 million as at 31 March 2012; while the trade and other receivables decreased by approximately HK$84.0 million and the amounts due to directors increased by approximately HK$10.7 million as at 31 March 2011. The net changes in these two components contributed to the significant change in the net cash generated from operating activities.

Investing activities

Net cash used in investing activities amounted to approximately HK$4.7 million for the year ended 31 March 2012 compared to approximately HK$8.1 million for the year ended 31 March 2011. The decrease in the net cash used in investing activities was mainly attributable to the absence of prepayment for acquisition of intangible assets of approximately HK$3.3 million which incurred for the year ended 31 March 2011.

– I-13 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Financing activities

Net cash used in financing activities amounted to approximately HK$41.4 million for the year ended 31 March 2012 compared to approximately HK$126.9 million for the year ended 31 March 2011. The significant decrease was primarily attributable to the decrease in dividend paid of approximately HK$102.0 million for the year ended 31 March 2012, and partially offset by the increase in repayment of bank borrowings and payment of transaction costs attributable to issue of new shares of approximately HK$15.6 million and HK$4.5 million respectively for the year ended 31 March 2012.

Bank overdrafts and borrowings

As of 31 March 2012, the Group had no outstanding bank overdrafts and bank borrowings. And the gearing ratio of the Group was nil.

Bank facilities

As at 31 March 2012, the Group had no bank facilities available.

Pledge of assets

As of 31 March 2012, the Group had no assets pledged for securing any credit facilities.

Contingent liabilities

As at 31 March 2012, the Group had no material contingent liabilities.

Capital commitment

As at 31 March 2012, the Group had capital commitment of approximately HK$3.6 million in respect of acquisition of intangible assets and renovation of new office, which were contracted but not provided for.

Employee and remuneration policy

As at 31 March 2012, the Group had 228 employees. For the year ended 31 March 2012, the staff cost of the Group was approximately HK$49.3 million.

The Group’s employee remuneration policy is determined based on a number of factors such as their performance, experience and prevailing industry practices. Compensation policies and packages of employees are being reviewed on a yearly basis. In addition to basic salary, performance related salary such as bonus may also be awarded to employees based on internal performance evaluation.

– I-14 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

of the Group and external courses provided by professional trainers. They range from technical training for production staff to financial and administrative trainings for management staff.

Capital structure

There was no change in the Company’s capital structure during the period. The Company’s issued share capital was HK$9,000,000 and the number of its issued ordinary shares was 900,000,000 shares of HK$0.01 each Share.

As at 31 March 2012, the total issued share capital is 900,000,000 Shares.

Foreign exchange exposure

The Group was not exposed to any significant foreign currency risk as majority of its transactions were denominated in Renminbi during the year ended 31 March 2012. No hedging against foreign exchange risk was carried out by the Group during these periods.

Significant investments

The Group had no significant investment during the year ended 31 March 2012.

Acquisition and disposal

The Group had no material acquisition or disposal during the year ended 31 March 2012.

Prospects

The overall economy in the People’s Republic of China (‘‘PRC’’) continues to enjoy a robust and steady growth against a backdrop of macro-economic weakness and turbulence across many other parts of the world. There is an increasing awareness of the importance of emergency and specialised communication network primarily driven by the need of disaster relief and counter-terrorism activities. It is expected that the market size of PRC’s specialised communications network will enjoy a growth by approximately 20% annually, which will mean opportunities for the Group further expand the business and market share. After years of dedicated research and development, the Group has developed a number of core technologies relating to digital trunking and satellite communication systems and become one of the few enterprises in the PRC with exclusive intellectual property rights in the market. Possessing such technology knowhow reassures the leading position of the Company in the specialised communication market. The Group will continue focusing on developing and upgrading our portfolio of communication network products and technologies to enhance the market position and reputation.

– I-15 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) For the year ended 31 March 2013

Turnover

The Group recorded a revenue of approximately HK$115.7 million for the year ended 31 March 2013, representing a decline of approximately HK$102.6 million or 47.0% from approximately HK$218.3 million for the year ended 31 March 2012, mainly resulting from the economic and political uncertainties surrounding the domestic and foreign territories, the slow global economic recovery and weaker demand of the Group’s products and systems in the PRC.

During the year ended 31 March 2013, the Group derived its revenue substantially from digital trunking system. The following table sets forth a breakdown of revenue by product category for the years indicated:

Digital trunking system VSAT satellite system Systems technologies Other accessory parts and components	2013 HK$’000 % 106,768 92.3 8,863 7.6 — — 59 0.1 115,690 100.0	2012 HK$’000 % 182,899 83.8 20,127 9.2 13,424 6.2 1,814 0.8 218,264 100.0	2012 HK$’000 % 182,899 83.8 20,127 9.2 13,424 6.2 1,814 0.8 218,264 100.0
			100.0

The sales of digital trunking system decreased significantly by approximately HK$76.1 million or 41.6% from approximately HK$182.9 million for the year ended 31 March 2012 to approximately HK$106.8 million for the year ended 31 March 2013. The decrease was mainly due to the decrease in sales of CITONE digital trunking mobile communication systems as a result of decrease in sales orders from some of its major customers because of the economic and political uncertainties. The sales of VSAT satellite system experienced a decrease of approximately HK$11.2 million or 56.0% from approximately HK$20.1 million for the year ended 31 March 2012 to approximately HK$8.9 million for the year ended 31 March 2013. The decrease in sales of the VSAT satellite system was mainly attributable to the slow global economic recovery which weaken the demand of VSAT satellite system. Revenue derived from system technologies was nil for the year ended 31 March 2013, primarily as a result of no technology being licensed to the Group’s customers for the year ended 31 March 2013, as compared to two technologies being licensed for the year ended 31 March 2012 which contributed approximately HK$13.4 million or 6.2% of the total sales last year. The sales of other accessory parts and components amounted to approximately HK$59,000 for the year ended 31 March 2013.

– I-16 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Cost of sales

Cost of sales of the Group comprises costs of raw materials, labour costs, manufacturing overheads and amortisation of intangible assets. It decreased by approximately HK$28.0 million or 40.2% from approximately HK$69.6 million for the year ended 31 March 2012 to approximately HK$41.6 million for the year ended 31 March 2013, the decrease was in line with the decrease in turnover.

Gross profit and gross profit margin

As a result of the foregoing factors, the gross profit of the Group decreased by approximately HK$74.6 million or 50.2% from approximately HK$148.7 million for the year ended 31 March 2012 to approximately HK$74.1 million for the year ended 31 March 2013. The gross profit margin of the Group decreased from approximately 68.1% for the year ended 31 March 2012 to approximately 64.1% for the year ended 31 March 2013, primarily because of certain fixed costs such as manufacturing overheads and labour costs maintaining relatively stable as compared to the last year despite the decrease in sales.

Other revenue

The other revenue of the Group amounted to approximately HK$33.9 million for the year ended 31 March 2013, representing an increase of approximately HK$30.0 million or 780.7% from approximately HK$3.9 million for the year ended 31 March 2012, mainly contributed by a grant of the value-added tax refund by the relevant government authority of approximately HK$30.9 million as a financial support to the business of specialised communication system in which the Group is operating, and government grants of approximately HK$2.2 million from relevant government bodies for the purpose of giving incentive to hi-tech enterprise.

Selling and distribution expenses

The selling and distribution expenses of the Group increased by approximately HK$1.0 million or 9.1% from approximately HK$11.0 million for the year ended 31 March 2012 to approximately HK$12.0 million for the year ended 31 March 2013, primarily due to the increase in travelling expense of the sales staff for marketing the Group’s products in light of the sales drop and for the promotion of the newly developed satellite antenna, and the increase in repair cost for products sold under warranty as demanded by the customers.

Administrative expenses

The administrative expenses of the Group decreased by approximately HK$3.8 million or 10.8% from approximately HK$35.3 million for the year ended 31 March 2012 to approximately HK$31.5 million for the year ended 31 March 2013, primarily due to a smaller amount of legal and professional expenses amounting to

– I-17 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

approximately HK$4.3 million charged for the year, as compared to approximately HK$11.0 million including the listing expense of approximately HK$9.3 million charged last year.

Research and development expenditure

The research and development expenditure of the Group increased by approximately HK$1.4 million or 9.2% from approximately HK$15.2 million for the year ended 31 March 2012 to approximately HK$16.6 million for the year ended 31 March 2013. The increase was mainly attributable to the combined effect of the increase in materials costs and other expenditures in relation to the development of the satellite antenna, and the decrease in staff costs for the research and development of CITONE digital trunking mobile communication systems as the associated technologies have already been well developed.

Finance costs

The finance costs of the Group was nil for the year ended 31 March 2013, as compared to approximately HK$1.2 million for the year ended 31 March 2012, since the Group had no bank borrowings during the year under review.

Tax expense

The tax expense of the Group decreased by approximately HK$14.3 million or 54.6% from approximately HK$26.2 million for the year ended 31 March 2012 to approximately HK$11.9 million for the year ended 31 March 2013 mainly due to the decline of the Group’s revenue.

Profit for the year

The Group’s profits for the year decreased by approximately HK$27.6 million or 43.4% from approximately HK$63.6 million for the year ended 31 March 2012 to approximately HK$36.0 million for the year ended 31 March 2013 as a result of the factors described above.

Liquidity and capital resources

The liquidity requirements arise principally from the need for working capital to finance its operations and expansions. The Group has historically met its working capital and other capital requirements principally from cash generated from its operations, bank borrowings and capital contributions by its shareholders. In the long

– I-18 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

term, the operation of the Group will be funded by internally generated cash flow and, if necessary, additional equity financing and bank borrowings. The following table summarises the cash flows for the two years ended 31 March 2012 and 2013:

			2013	2012
			HK$’000	HK$’000
Net	cash	generated from operating activities	105,985	36,334
Net	cash	used in investing activities	(56,553)	(4,685)
Net	cash	generated from/(used in) financing activities	36,095	(41,362)

Operating activities

Net cash generated from operating activities amounted to approximately HK$106.0 million for the year ended 31 March 2013 compared to approximately HK$36.3 million for the year ended 31 March 2012. The increase was due to the combined effect of the decrease in trade and other receivables of approximately HK$70.4 million for the year ended 31 March 2013 as compared with the increase in trade and other receivables of approximately HK$31.6 million for the previous year, the increase in amounts due to directors of approximately HK$241,000 for the year ended 31 March 2013 as compared with the decrease in amounts due to directors of approximately HK$11.6 million for the previous year, the decrease in income tax payment of approximately HK$4.4 million, and the decrease in profit before taxation of approximately HK$41.9 million.

Investing activities

Net cash used in investing activities amounted to approximately HK$56.6 million for the year ended 31 March 2013 compared to approximately HK$4.7 million for the year ended 31 March 2012. The increase in the net cash used in investing activities was mainly attributable to the payment for the acquisition of property, plant and equipment which amounted to HK$44.4 million.

Financing activities

Net cash generated from financing activities amounted to approximately HK$36.1 million for the year ended 31 March 2013 compared to net cash used in financing activities amounting to approximately HK$41.4 million for the year ended 31 March 2012. The significant increase was primarily due to the combined effect of the proceeds from the Listing of approximately HK$99.0 million, the increase in dividend paid by approximately HK$21.0 million for the year ended 31 March 2013 from approximately HK$27.0 million for the year ended 31 March 2012 to approximately HK$48.0 million for the year ended 31 March 2013 and the increase in payment of transaction costs attributable to the Listing of approximately HK$10.4 million.

– I-19 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Material transaction

During the period under review, the Group entered into the following material transactions:

On 29 March 2013, Vastsuccess Holdings Limited (‘‘VAST’’), being the wholly owned subsidiary of the Company, entered into a definitive agreement (subsequently amended by an amendment agreement dated 10 April 2013) with IPSTAR Company Limited (the ‘‘Vendor’’), a subsidiary of Thaicom Public Company Limited, the issued shares of which are listed on The Stock Exchange of Thailand. Pursuant to the definitive agreement, VAST conditionally agreed to acquire from the Vendor and the Vendor conditionally agreed to provide to VAST (i) the bandwidth capacity and the bandwidth capacity service and (ii) the right to use of the gateways located in Guangzhou, Beijing and Shanghai (collectively, the ‘‘Assets’’) for the transmission of broadband Internet access and other applications throughout the service period of 9.5 years.

The total consideration for the transaction amounts to US$80.0 million, based on normal commercial terms after arm’s length negotiations, which consists of (i) cash installments in aggregate of approximately US$75.9 million; and (ii) the 64,000,000 consideration shares amounting to approximately US$4.1 million to be allotted and issued at the issue price of HK$0.5034 per consideration share on the date on which service commencement takes place. The transaction under the definitive agreement constituted a very substantial acquisition of the Company under Chapter 14 of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the ‘‘Listing Rules’’) and is subject to approval by the shareholders.

On 29 March 2013, VAST and the Vendor entered into a revenue sharing agreement pursuant to which VAST will share its revenue derived from the service provision of the bandwidth capacity and right to use of the gateways located in Guangzhou, Beijing and Shanghai to its customers with the Vendor. VAST and the Vendor agreed that during the agreement term, revenue entitled to receive by VAST shall be shared with the Vendor at 8% of the sum of revenue derived from (i) the revenue entitled to receive by VAST through China Telecom Satellite Communications Limited’s service providers or customers; and (ii) the revenue entitled to receive by VAST through VAST’s customers.

An extraordinary general meeting will be convened to seek approval from the shareholders for the transactions contemplated under the definitive agreement and the revenue sharing agreement. Please refer to the announcements of the Company dated 30 December 2012, 15 April 2013 and 13 September 2013 for further details. The circular of the transactions has been despatched to the shareholders of the Company on 26 September 2013.

– I-20 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Bank borrowings

As of 31 March 2013, the Group had no outstanding bank borrowings. The gearing ratio of the Group as at 31 March 2013 was nil.

Pledge of assets

As of 31 March 2013, the Group had no assets pledged for securing any credit facilities.

Contingent liabilities

As at 31 March 2013, the Group had no material contingent liabilities.

Significant capital expenditure for the year

The Group’s capital expenditures for the year under review was approximately HK$57.1 million which was mainly used for office decoration and leasehold improvement of HK$44.4 million for the relocation of the office in the PRC, purchase of intangible assets of HK$8.0 million; and deposit payment of HK$4.7 million in respect of material transaction as disclosed under the paragraph headed ‘‘Material transaction’’ above.

Future plans for material investments and capital assets

Save for the proposed acquisition as disclosed under the paragraph headed ‘‘Material transaction’’ above, the Group did not have other future plans for material investments and capital assets.

Employee and remuneration policy

As at 31 March 2013, the Group had 227 employees. For the year ended 31 March 2013, the staff cost of the Group was approximately HK$40.4 million.

The Group invests in continuing education and training programmes for management staff and other employees in order to upgrade their skills and knowledge. These training courses include internal courses run by the management of the Group and external courses provided by professional trainers. They range from technical training for production staff to financial and administrative trainings for management staff.

– I-21 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Capital structure

On 18 April 2012, the Company’s issued 300,000,000 Share at HK$0.33 per offer share by way of a global offering during the period. The Company’s issued share capital was HK$12,000,000 and the number of its issued ordinary shares was 1,200,000,000 shares of HK$0.01 each Share.

As at 31 March 2013, the total issued share capital is 1,200,000,000 Shares.

Foreign exchange exposure

The Group was not exposed to any significant foreign currency risk as majority of its transactions were denominated in Renminbi for the year ended 31 March 2013. No hedging against foreign exchange risk was carried out by the Group during these periods.

Significant investments

The Group had no significant investment for the year ended 31 March 2013.

Acquisition and disposal

Save for the proposed acquisition as disclosed under the paragraph headed ‘‘Material transaction’’ above, the Group had no material acquisition or disposal for the year ended 31 March 2013.

Prospects

Despite numerous uncertainties being faced by major economies around the globe, the PRC government will maintain the stability and continuity of its macro economy policies, and actively advance adjustments to the underlying economic structure and facilitate a faster transformation of its economic development mode. This will certainly be beneficial to the development of satellite communication industry. The management of the Group will continue to explore potential business opportunities which may generate greater return to the shareholders.

Apart from the changes of economic policies, the PRC government does maintain its support to and emphasis on the development of spacecraft engineering and exploration, communications technology, satellite communications and other high-tech industries and the development of disaster relief and environmental protection, as well as the development of various economic activities in remotes areas, these developments are expected to stimulate the demand of specialised communication products and networks, and in turn, create enormous business opportunities to the Group. Even though the specialised communication market was affected by short-term economic fluctuation, yet, as the economy has stabilised, we believe the industry outlook remains favorable.

– I-22 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In March 2013, Vastsuccess Holdings Limited (‘‘VAST’’), being the wholly owned subsidiary of the Company, entered into a definitive agreement with IPSTAR Company Limited (the ‘‘Vendor’’), a subsidiary of Thaicom Public Company Limited, the issued shares of which are listed on The Stock Exchange of Thailand. Pursuant to the definitive agreement, VAST conditionally agreed to acquire from the Vendor (i) the bandwidth capacity and the bandwidth capacity service and (ii) the right to use of the gateways located in Guangzhou, Beijing and Shanghai (collectively, the ‘‘Assets’’) for the transmission of broadband Internet access and other applications throughout the service period of 9.5 years at a total consideration of US$80.0 million. The transaction under the definitive agreement constituted a very substantial acquisition of the Company under Chapter 14 of the Listing Rules and is subject to approval by the shareholders. Details of the proposed acquisition can be referred to the announcement of the Company dated 15 April 2013. The circular relating to the proposed acquisition has been despatched to the shareholders of the Company on 26 September 2013.

Upon completion of the transaction, the Group can offer the satellite bandwidth together with the communication network designed by it to its customers as a collaborative communication solution to provide one-stop services to its customers. By doing so, the Group can diversify the source of revenue and enhance the profitability of the Group to create values for all shareholders in the future.

– I-23 –

UNAUDITED FINANCIAL INFORMATION OF THE ASSETS

APPENDIX II

PROFIT AND LOSS STATEMENTS OF THE ASSETS

Set out below are the unaudited profit and loss statements of the Assets for the years ended 31 December 2010, 2011 and 2012 and the three months period ended 31 March 2013 (the ‘‘Relevant Periods’’) prepared by the Directors based on the relevant information provided by the Vendor using the accounting policies materially consistent with those of the Group.

Operating revenue (Note 1) Operating expenses Gateways operation expenses (Note 2) Depreciation and amortisation (Note 3) Others (Note 4) Operating losses	For the year ended 31 December 2010 2011 2012 HK$’000 HK$’000 HK$’000 (unaudited) (unaudited) (unaudited) 7,739 3,927 4,052 (24,041) (25,058) (30,591) (85,208) (88,813) (108,426) (11,609) (12,093) (14,765) (113,119) (122,037) (149,730)	For the three months ended 31 March 2013 HK$’000 (unaudited) 1,565 (2,440) (28,258) (4,441) (33,574)

Notes:

The operating revenue represented the revenue derived from the IPSTAR Business in the PRC including leasing of bandwidth capacity and sales of user terminal.
The Gateways operation expenses represented the operating expenses charged by CTS for existing IPSTAR gateways in Beijing, Guangzhou and Shanghai.
The depreciation and amortisation represented depreciation of the Satellite allocated by Thaicom to the Territory and the Gateways.
Others expenses represented selling and administrative expenses allocated by Thaicom, mainly include in-orbit insurance cost, staff expense, marketing expense and concession fee.
The exchange rates adopted for the three years ended 31 December 2010, 2011 and 2012 and the three months ended 31 March 2013 are Thai Baht$4.055: HK$1, Thai Baht$3.8913: HK$1, Thai Baht$3.9844: HK$1 and Thai Baht$3.8323: HK$1 respectively.

In accordance with rule 14.69(4)(b)(i) of the Listing Rules, the Directors have engaged HLB Hodgson Impey Cheng Limited, the reporting accountants of the Company, to perform certain factual finding procedures on the compilation of the unaudited profit and loss statements for each of the Relevant Periods in relation to the Assets in accordance with Hong Kong Standard on Related Services 4400 ‘‘Engagements to Perform Agreed Upon Procedures Regarding Financial Information’’ issued by Hong Kong Institute of Certified Public

– II-1 –

UNAUDITED FINANCIAL INFORMATION OF THE ASSETS

APPENDIX II

Accountants. The procedures have been determined by and are the responsibility of the Directors. The reporting accountants of the Company have performed the following procedures to ensure that the financial information has been properly compiled and derived from the underlying books and records of the Vendor:

(i) The reporting accountants obtained the schedule of profit and loss items of the Assets setting out the operating revenue, gateways operation expenses, depreciation and amortisation expenses and others expenses for the Relevant Periods from the Directors (the ‘‘Schedule of Profit and Loss Items’’) and compared to the unaudited profit and loss statements of the Assets. The Schedule of Profit and Loss Items was prepared by and the sole responsibility of the Directors.
(ii) The reporting accountants checked the arithmetic accuracy of the Schedule of Profit and Loss Items for each of the Relevant Periods.
(iii) The reporting accountants compared the Schedule of Profit and Loss Items to the corresponding amounts in the accounting records and sales invoices and receipts and payment invoices of the Vendor on a haphazard basis.

Based on the information and documents made available to the reporting accountants of the Company, their findings are:

(1) With respect to item (i), the reporting accountants of the Company obtained from the Directors the Schedule of Profit and Loss Items and compared to the unaudited profit and loss statements of the Assets and found them to be in agreement.
(2) With respect to item (ii), the reporting accountants checked the Schedule of Profit and Loss Items and found the amounts to be arithmetically accurate.
(3) With respect to item (iii), the reporting accountants compared the operating revenue, gateways operation expenses, depreciation and amortisation expenses and others expenses amounts set out in the Schedule of Profit and Loss Items to the corresponding amounts in the accounting records and sales invoices and receipts and payment invoices of the Vendor on a haphazard basis and found them to be in agreement.

Pursuant to the terms of the relevant engagement letter between the Company and the reporting accountants, the reported factual findings should not be used or relied upon by any other parties for any purposes, save for the purpose of disclosure in this circular. The Directors confirmed that the unaudited profit and loss statements have been properly compiled and derived from the underlying books and records of the Vendor. The reporting accountants have reviewed the unaudited profit and loss statements in accordance with the agreed-upon procedures set out in the relevant engagement letter between the Company and the reporting accountants and reported its factual findings based on the agreed-upon procedures to the Directors.

– II-2 –

UNAUDITED FINANCIAL INFORMATION OF THE ASSETS

APPENDIX II

The above procedures performed by the reporting accountants do not constitute an assurance engagement performed in accordance with Hong Kong Standards on Auditing, Hong Kong Standards on Review Engagements, Hong Kong Standards on Assurance Engagements, or Hong Kong Standards on Investment Circular Reporting Engagements issued by the HKICPA. Consequently, no assurance is provided by the reporting accountants on the unaudited profit and loss statements set out above.

Had the reporting accountants performed additional procedures or had the reporting accountants performed an assurance engagement on the unaudited profit and loss statements set out above in accordance with Hong Kong Standards on Auditing, Hong Kong Standards on Review Engagements, Hong Kong Standards on Assurance Engagements, or Hong Kong Standards on Investment Circular Reporting Engagements issued by the HKICPA, other matters might have come to the reporting accountants’ attention that would have been reported to the Company.

– II-3 –

VALUATION REPORT ON THE ASSETS

APPENDIX III

The following is the text of valuation report prepared for the purpose of incorporation in this circular received from Castores Magi Asia Limited, an independent valuer, in connection with its valuation as at 31 August 2013 of the Assets.

==> picture [202 x 58] intentionally omitted <==

Suite 211

China Insurance Group Building 141 Des Voeux Road Central Hong Kong

26 September 2013

The Directors Synertone Communication Corporation Room 1301 13th Floor Henan Building, 90 Jaffe Road, Wanchai Hong Kong

Dear Sirs,

In accordance with the instructions from Synertone Communication Corporation (hereinafter known as ‘‘your Company’’), we have made an appraisal of the Market Value of the satellite bandwidth capacity, its related service and the exclusive right to use the gateways (hereinafter altogether known as the ‘‘subject assets’’) held by IPSTAR Company Limited (hereinafter known as the ‘‘the Company’’), as at 31 August 2013 (hereinafter known as ‘‘the Valuation Date’’).

The purpose of this appraisal is to formulate and express an independent opinion on the Market Value of the subject assets as at the Valuation Date on the premise of continued use. The term ‘‘Market Value’’ as used herein is defined as ‘‘the estimated amount for which an asset or liability should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.’’ Market Value is understood as the value of an asset or liability estimated without regard to costs of sale or purchase (or transaction) and without offset for associated taxes or potential taxes. We understand that the use of our work product will not supplant other due diligence which you should conduct in reaching business decisions for the Company. Our work is designed solely for possible acquisition purpose. There are no other purposes are intended or should be inferred.

– III-1 –

VALUATION REPORT ON THE ASSETS

APPENDIX III

INTRODUCTION

The Company, which is headquartered in Bangkok, was incorporated in British Virgin Islands and is a wholly-owned subsidiary of Thaicom Public Company Limited (hereinafter known as ‘‘Thaicom’’). The Company is one of the leading broadband satellite operators in Asia. Thaicom currently owns and operates two satellites, namely, THAICOM-4 (hereinafter known as ‘‘IPSTAR’’) and THAICOM-5. Two new satellites, namely THAICOM-6 and THAICOM-7, will be launched in late 2013 and 2014, respectively.

IPSTAR

IPSTAR was launched on 11th August, 2005 by Ariane 5 launch vehicle and was placed into geostationary orbit (hereinafter known as ‘‘GEO’’) at 119.5°E on 14 October 2005. It is a high powered geostationary satellite for the use of broadband communications applications. It is the first commercial high throughput satellite (hereinafter known as ‘‘HTS’’) launched. The main application for HTS is fast connectivity. The satellite antenna of HTS is characterised by very small beams (up to about 200) with high gain which allows for closing the link to relatively small user terminals. The satellite was designed for two-way communications over an Internet Protocol platform and has a maximum throughput of 45 Gbps. The satellite has 87 downward link Ku-band spot beams. The satellite also carries 10 Ka-band upward link transponders. When launched in 2005, it was the heaviest commercial communication satellite launched to date weighing 6,505 kg.

The IPSTAR service has a download speed up to 5 Mbps and an upload speed up to 4 Mbps and therefore is only a second generation broadband Very Small Aperture Terminal (‘‘VSAT’’) system. IPSTAR now has frequency licenses in 14 countries in Asia-Pacific area, allowing operators and service providers to provide broadband Internet access via satellite. With its many gateway stations (presently 18), IPSTAR can provide access to high-capacity ground networks with affordable bandwidth. A wide-band data link from the gateway to the user terminal employs an Orthogonal Frequency Division Multiplexing (‘‘OFDM’’) with a Time Division Multiplex (‘‘TDM’’) overlay. These forward channels employ highly efficient transmission methods, including Turbo Product Code (‘‘TPC’’) and higher order modulation (L-codes) for increased system performance.

The IPSTAR utilises Ku-band spectrum for user application and Ka-band to communicate with the gateways. The satellite payload of IPSTAR consists of three service links: Forward link, Return link and Broadcast link.

– III-2 –

VALUATION REPORT ON THE ASSETS

APPENDIX III

The specifications of IPSTAR is set out as follows:

Design LS-1300 SX

Manufacturer Space Systems/Loral (Palo Alto, USA)

Power System At least 14,400 Watts at the end Launch Weight 6,505 Kg.

Beams Ku Beams, 84 Spot beams, 3 Shaped beams, 7 Regional Broadcast beams

Transponder Capacity 45 Gbps equivalent to 1,000+ Transponders of 36 MHz of conventional coding and modulation
Satellite Location 119.5 degrees East

Launch Agency Arianespace of France

Orbit GEO

Expected Service Life >16 years

Footprint of IPSTAR

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Source: Thaicom

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GATEWAY

The existing IPSTAR gateways are located at Beijing, Guangzhou and Shanghai, the People’s Republic of China (hereinafter known as the ‘‘PRC’’). The role of each gateway is to provide access to the satellite and, in turn, to interface with public and private data networks including the Internet.

(A) Guangzhou Gateway

Guangzhou gateway is located at Second Horizontal Road, Jiangnan Industrial Second Zone, Nancun Town, Panyu District, Guangzhou, Guangdong Province, the PRC. The details of the gateway are set out as follows:

Year Built: About 2005 Coordinates: N 23° 00’ 7.9’’ (Latitude), E 113° 21’ 32.6’’ (Longitude)

Diameter of Dish Antenna: 8.1 metres (for spot beam)

Satellite Photo of Dish Antenna at Guangzhou Gateway

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Source: Google Maps

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Dish Antenna at Guangzhou Gateway

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(B) Beijing Gateway

Beijing gateway is located at Beijing Earth Station, No.59 Houchangcun Road, Haidian District, Beijing, the PRC. The details of the gateway are set out as follows:

Year Built: About 2006 Coordinates: N 40° 02’ 59.0 (Latitude), E 116° 16’ 21.4 (Longitude)

Diameter of Dish Antenna:

7.6 metres (for broadcast beam) 8.1 metres (for spot beam)

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Satellite Photo of Dish Antenna at Beijing Gateway

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Source: Google Maps

Dish Antenna at Beijing Gateway

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(C) Shanghai Gateway

Shanghai gateway is located at No.3800 Jindu Road, Minhang District, Shanghai, the PRC. The details of the gateway are set out as follows:

Year Built: About 2007 Coordinates: N 31° 04’ 48.3 (Latitude), E 121° 22’ 32.8 (Longitude)

Diameter of Dish Antenna: 8.1 metres (for spot beam)

Satellite Photo of Dish Antenna at Shanghai Gateway

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Source: Google Maps

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Dish Antenna at Shanghai Gateway

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GROUND COMMUNICATION TECHNOLOGY

The IPSTAR system is comprised of a gateway earth station communicating over the IPSTAR to provide broadband packet-switched communications to a large number of small terminals with network satellite topology configuration.

A wide-band data link from the gateway to the user terminal utilises an OFDM with a TDM overlay. These forward channels employ highly efficient transmission methods including TPC and higher order modulation (L-codes) for increased system performance.

In the terminal-to-gateway direction or return link, the narrow-band channels employ the same efficient transmission methods. These narrow-band channels operate in different multipleaccess modes based on bandwidth usage behavior, including ALOHA and Time Division Multiple Access (‘‘TDMA’’) on the star return link waveform.

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IPSTAR GATEWAY SYSTEM

The IPSTAR air interface is designed for mass broadband applications. The IPSTAR gateway provides packet-switched broadband communications to a large number of small terminals or Customer Terminal Equipment (‘‘CTE’’). IPSTAR terminals work in conjunction with the satellite and gateway. The air interface employs advanced waveforms on the forward and return channels, and is optimised for overall system efficiency.

The IPSTAR gateway incorporates proprietary Adaptive Coding and Modulation (‘‘ACM’’) for an efficient use of radio frequency power and bandwidth allowing high transmission rates in conjunction with small antennas (84-120 cm.) and transmitters. The interface between the IPSTAR gateway to any device or network is based on the industry standard Internet Protocol (‘‘IP’’) to ensure seamless integration of existing applications, hardware, and systems. The IPSTAR gateway and terminals can interface with any device or network that is based on the industry standard IP, which ensures seamless integration of applications, hardware and software. Network configuration is based on gateway star topology: a user terminal receives/transmits signals from/to a beam, which connects to the IPSTAR gateway that is linked to other networks, such as the Internet backbone or telephone networks.

A wide-band data link from the gateway to the user terminal utilises an OFDM with TDM overlay. The forward channel employs highly efficient transmission methods, including TPC and higher order of modulation (L codes) for increased performance. The waveform of the forward channel is based on TDM-OFDM technology that utilises bandwidth and power more efficiently. The forward channel is optimised to accommodate multiple data rates and forward error correction coding. The return channel is based on MF-TDMA technology to offset bursty traffic and to accommodate applications that require higher bandwidths. The waveform is fixed to a more robust modulation to ensure high link availability at low transmission power. The narrow-band channel operates in multiple access modes based on bandwidth usage behavior, such as ALOHA and TDMA.

IPSTAR Satellite System

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THE SUBJECT ASSETS

The subject assets comprises the satellite bandwidth capacity of IPSTAR, its related service and the exclusive right to use the gateways.

(A) Satellite Bandwidth Capacity of IPSTAR and Its Related Service

The bandwidth capacity is the total and all bandwidth capacity on IPSTAR for serving the PRC’s geographic territory (including Hong Kong and Macau Special Administration Regions but excluding Taiwan region) (hereinafter known as the ‘‘Territory’’) from time to time, which is 7,598.5 MHz in total, as provided by and through the relevant transponder equipment and any shared redundant equipment for transmitting and/or receiving the frequency bands in the spot, augment, shaped and broadcast beams of IPSTAR in the Territory.

The bandwidth capacity service is the service of providing and the exclusive right to use the aforesaid bandwidth capacity for the purpose of Vastsuccess Holdings Limited (hereinafter known as ‘‘VAST’’)’s signal transmission, which may be transmitted by VAST or its subcontractor or the like, or its customers/partners. VAST is a subsidiary of your Company.

VAST shall have the sole and exclusive right to use and/or sub-lease the aforesaid bandwidth capacity on the IPSTAR to other service providers and/or its customers for a term of 9.5 years commencing from the commencement date of the provision of bandwidth capacity service and the exclusive right to use the gateways.

(B) Exclusive Right to Use the Gateways

The gateways are located at Guangzhou, Shanghai and Beijing. VAST shall have the exclusive right to use the gateways for the purpose of providing broadband Internet access services and other application (hereinafter known as ‘‘IPSTAR Business’’) within the Territory for a term of 9.5 years commencing from the commencement date of the provision of bandwidth capacity service and the exclusive right to use the gateways.

BASIC ORBITAL PATTERNS

There are three basic orbital patterns used by communications satellites:

(A) Low earth orbit (‘‘LEO’’)
(B) Medium earth orbit (‘‘MEO’’)
(C) Geostationary earth orbit (‘‘GEO’’)

LEO and MEO satellites orbit the earth in less than 24 hours so they appear to move relative to a fixed point on the ground.

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At about 1,000 km altitude, a LEO satellite circles the earth in just 90 minutes. Each ground location will only see a particular LEO satellite for about ten minutes, as at rises from one point on the horizon and sets at the opposite point. To provide continuous communications service, there must be at least 48 satellites in coordinated operation — this is called a constellation.

MEO satellites orbit at an altitude of about 10,000 km so they have a much longer orbit period than LEO satellites. A MEO satellite moves slowly across the sky, and only 10 are needed to assure continual service.

Finally, a GEO satellite appears to remain fixed with respect to the ground. As a result, antennas can be fixed as well if desired. Because it is not moving, one satellite can serve an entire region. Multiple satellites can be used to provide added capacity and an alternate path to achieve the highest availability possible. GEO satellites, provide the only means currently available to provide broadband communications. GEO satellites are the proven means of consistent and reliable communications in the inhabited portions of the earth. Over 250 GEO communications satellites are currently in operation. Only the North and South Poles are left uncovered, because of the lack of line-of-sight to latitudes greater than 81.3 degrees (North or South) from geostationary orbit. Demand for services in these areas, however, is extremely small. The links between the ground and GEO are very stable because it is easy to obtain a line of sight path.

The great majority of commercial communications satellite networks are geostationary satellite orbit (‘‘GSO’’) networks. One disadvantage of a non-GSO satellite network is that all satellite in the constellation must be launched in order to provide continuous service. The number of satellites needed to provide continuous coverage depends on the altitude of the satellites — the lower the altitude the more satellites are required to provide continuous service. Therefore, the capital costs of launching a non-GSO constellation is usually very large. Since it takes time to build up a customer base, it is likely that for many years there may not be enough income to even service the debt. In addition, the environment for LEO satellites is very harsh and the lifespan of a LEO satellite is typically only around 7 years as compared with around 15 years for a GEO or GSO satellite. Therefore, LEO satellites require a more frequent replacement.

Satellite Orbits

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Source: Telecommunications Essentials

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Satellites on Geostationary Orbit

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Source: Boeing

IPSTAR on Geostationary Orbit

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Source: Boeing

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Most fixed satellite service satellites operate in geostationary orbit more than 22,000 miles above the equator. From this position, a satellite appears stationary over a location on the earth and can theoretically provide coverage to about one-third of the earth’s surface. Fixed satellite service satellites communicate with ground infrastructure by receiving signals from earth stations or antennas and retransmitting the signals to other locations on the earth’s surface through transponders on the satellite. The transponders on a fixed satellite service satellite transmit radio signals to the earth using radio spectrum, in assigned frequency bands.

FREQUENCIES

Four frequency bands — C, Ku, Ka and X, are most commonly associated with fixed satellite services.

(A) Ku-band

Ku-band provides the best overall combination of available bandwidth, high-power transponders, and lack of terrestrial interference to support broadband applications into small antennas. While susceptible to rain fade (interference from rain), reliability can remain strong with proper engineering. The Ku-band is also used for satellite news gathering, television network distribution, and corporation enterprise networks, including those used for point-ofsale retail transactions, through what are known as VSAT networks. Portions of this band are used exclusively for satellite television to provide service through designated broadcast satellites.

(B) C-band

C-band services are among the most reliable because the frequency is less susceptible to rain attenuation. C-band, however, is susceptible to terrestrial interference which can often be mitigated with proper engineering and planning.

(C) Ka-band

Ka-band is useful for medium data rate service to small terminals; however, availability is generally lower than at Ku band due to greater effects from rain.

(D) X-band

In the United States (‘‘U.S.’’), the X-band is specifically designated for use by the U.S. Government and the North Atlantic Treaty Organisation.

IPSTAR is a three-axis stabilised and geostationary orbit satellite utilizing Ku-band spectrum for user applications whilst IPSTAR uses Ka-band to communicate with the gateways.

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INTERNATIONAL TELECOMMUNICATION UNION

Geostationary satellites are operated in particular orbital locations in the geostationary arc. The use of the geostationary arc is coordinated by International Telecommunication Union (hereinafter known as ‘‘ITU’’) members using a process overseen by ITU. That is, for the location of a satellite to obtain international recognition, its orbital location and frequency assignment must be registered with ITU. ITU is the United Nations’ specialised agency for information and communication technologies and has 192 member administration (countries).

MARKET PARTICIPANTS OF FIXED SATELLITE SERVICES

Once a satellite has been launched into orbit, users of fixed satellite services acquire bandwidth capacity either directly from a satellite operator or indirectly through a satellite service provider. Satellite operators own and operate satellites and lease bandwidth capacity to customers on a wholesale basis. Satellite operators also occasionally provide other services, such as access to teleports, which connect terrestrial networks with satellite transponders in orbit, or other infrastructure, to customers, as requested. Other users may acquire needed bandwidth capacity through a third-party satellite services provider. For example, a customer may obtain its capacity through a reseller, which purchases the capacity from the satellite operator and then resells the capacity to the end customer. Alternatively, integrators purchase satellite capacity from satellite operators and then resell this capacity to the end customer along with other value-added services.

Market Participants

Satellite operators

Own and operate satellites
• Lease bandwidth capacity to customers • Occasionally provide other services, such as
- access to ground-based infrastructure
Resellers Integrators
• Purchase bandwidth capacity from • Purchase bandwidth capacity from satellite operators satellite operators
• Resell capacity to end customers • Resell capacity to end customers along with other value-added retail services
Customers

Source: United States Government Accountability Office

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GLOBAL SATELLITE CAPACITY

Current fixed satellite capacity is sufficient to meet existing demand on a global basis. According to estimates by Futron Corporation (hereinafter known as ‘‘Futron’’), which is a service provider in decision management solutions for aerospace, telecommunications and technology enterprises, global demand for fixed satellite services is expected to be about 79% of available capacity in 2011.

A variety of factors are contributing to increasing demand for fixed satellite services. Four factors are expected to increase demand and two that are expected to decrease demand for fixed satellite services, with demand increasing overall. The factors expected to increase demand now in the future include:

(A) Increasing use of satellites for broadband Internet access;
(B) Growth in corporate enterprise network;
(C) Increase in satellite television and high-definition television (‘‘HDTV’’) channels; and
(D) Increase in satellite support for military operations.

While the preceding factors increase demand, the following factors can lead to a decrease in fixed satellite services demand:

(A) Growth in fiber optic cable capacity; and
(B) Improvements in video compression technologies

Pursuant to an estimate by Futron, global demand for satellite services will continue to grow, increasing at an average rate of about 4% annually from 2010 through 2019 (from about 7,000 to nearly 10,000 transponder equivalents (‘‘TPE’’). Futron projects that enterprise networks, satellite television and military satellite services will grow faster than the projected industry-wide average demand growth rate of 4% per year. Specifically, demand is forecasted to grow at rates ranging from 4.7% for military satellite services to 10.8% for direct satellitebased Internet access services.

MARKET BARRIER

(A) Limited Orbital Locations

The number of fixed satellite service satellites operating in geostationary orbit is limited by the availability of orbital locations and the frequencies in which the satellites operate. Although satellites operating at different frequency bands can occupy nearly the same orbital location, roughly 2 degrees of separation is needed between satellites providing coverage in the same geographic area and operating in the same frequency band to avoid interference from neighboring satellites. Certain portions of the geostationary arc are crowded, particularly in the C- and Ku-frequency bands serving certain regions, limiting the potential for new satellites to

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be launched to serve those regions. Furthermore, once a satellite operator has access to an orbital location, it is unlikely to relinquish that location for use by another operator unless the orbital location is no longer needed to meet demand.

The largest constraint for new entry in the fixed satellite services industry is the limited number of satellites that can exist in orbit. Many orbital locations are already taken by existing operators, making it unlikely that other large global satellite operators will enter the industry. In addition to space and frequency limitations, fixed satellite service satellites are often designed to serve a particular market, service application, or region, which limits their ability to provide service to some customer market. That is, although a particular satellite may be capable of serving multiple regions or operating in multiple frequencies, the satellite may direct its signals to serve only a portion of the satellite’s overall footprint or the satellite may be operating in only one of its frequency bands. Besides, although a new entrant could technically launch a satellite in the same orbital location as an existing satellite to provide coverage in an area or frequency that is not currently being provided, it is unlikely to do so given the high cost of launching a new satellite that could potentially interfere with another operator’s satellite in the future.

(B) Regulation and Enforcement

ITU coordinates the use of orbital resources — both orbital locations and frequency assignments — and its Radio Regulations were established and agreed to by member administrations (countries) to ensure equitable and efficient access to these limited resources. As defined in the Radio Regulations, administrations have 7 years from filing an advanced publication to bring a satellite into use. During the 7-year period, administrations must complete a three-stage process as follows:

Advanced Publication Information;
Coordination;
Notification

According to ITU, the 7-year frame and coordination procedures were established to ensure that satellite networks are brought into use in a reasonable amount of time, to prevent harmful interference, and to discourage administrations are satellite operators from filing for assignments that they are unlikely to use. However, even with these efforts, government officials and industry stakeholders identified several factors that may limit entry into the fixed satellite services industry and result in the inefficient use of orbital resources.

1. Excessive filings

According to ITU and other satellite stakeholders, some administrations file numerous applications for various orbital locations and frequency assignments in order to reserve their place in the queue ahead of other administrations. As a result, other administrations filing for the same orbital location and frequency assignment are required top coordinate with the administrations that have previously filed to avoid interference between the eventual satellite networks. According to ITU, meeting the coordination

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requirements is timing-consuming, costly, and sometimes unsuccessful. About 20% of filings in the advance publication stage reach the notification stage in the 7-year period. The requirement to coordinate frequency assignments can act as a deterrent to new entry for both incumbent satellite operators and would-be-entrants.

2. Difficulties in interpreting rules

The definition of ‘‘bring into use’’ required in the notification stage is unclear and is not consistently interpreted by administrations, according to ITU and other satellite stakeholders. The satellite operators might turn on satellite for only a short period of time instead of providing consistent operations or move a satellite in inclined orbit into an orbital location as a way to assert ownership over a particular orbital location.

3. ITU’s lack of enforcement authority

Once an administration notifies ITU that a satellite has been brought into use and the satellite is recorded in the master register, ITU takes the word of the administration that an operational satellite exists in that orbital location and frequency. ITU has no independent way of verifying that a satellite has been launched and is operational. In addition, once a satellite has been launched, ITU does not have a direct way of determining whether the satellite is operating in all of the frequencies in which it was intended to operate or whether the operation has subsequently been suspended.

(C) High Costs of Entry

On average, fixed satellite service satellites cost US$200 million to US$500 million to manufacture, launch and insure. These high fixed costs make it difficult for new operators to enter the fixed satellite services industry.

(D) Foreign Ownership Restrictions

Various foreign markets have restrictions on foreign ownership that could limit the ability of other companies to provide satellite services in those markets. For example, in the PRC, domestically owned satellite operators receive preferential treatment over foreign satellite operators. In addition, some countries launch satellites for reasons of national pride and do not allow non-domestic operators to use the satellites to provide service.

MARKET FOR SATELLITE SERVICES IN THE PRC

The PRC is a restrictive market for satellite services. Apart from the domestic licensed satellite operators including China Telecommunications Corporation (hereinafter known as ‘‘CT’’), CITIC Networks Co. Ltd. and China Satellite Communications Co. Ltd., Asia Satellite Telecommunications Company Limited and APT Satellite Holdings Limited are the only international satellite companies allowed to provide satellite services directly to end-users in the PRC.

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APPENDIX III

IPSTAR BUSINESS

Pursuant to the ‘‘Approval for the Implementation Proposal Relating to the Incorporation of the Basic Telecommunications Business of China Satellite Communications Corporation (hereinafter known as ‘‘CSC’’) into China Telecommunications Corporation (hereinafter known as ‘‘CT’’)’’ — Guo Zi Gai Ge [2009] No.100 《( 關於中國電信衛星通信集團公司基礎電信業務併入中國電信集團公司實施方案的批覆》— 國資改革[2009]100號) issued by the State-owned Assets Supervision and Administration Commission of the PRC (中國國有資產管理委員會) in 2009, the basic telecommunication business (including IPSTAR Business) of CSC was incorporated into CT. In this connection, IPSTAR Business was undertaken by CT. Pursuant to the ‘‘Notice on Relevant Issues Relating to the Undertaking of IPSTAR Business’’ — CT[2009] No.714 《( 關於承接IPSTAR業務有關事項的通知》 — 中國電信[2009]714號), as directed by CT, IPSTAR Business would be undertaken by China Telecom Satellite Communications Limited (hereinafter known as ‘‘CTS’’), a wholly-owned subsidiary of CT, CTS has obtained the ‘‘Basic Telecommunications Service Operating Approval’’ and is qualified to carry out IPSTAR Business in the PRC. In accordance with an agreement dated 5 June 2009 made between CTS and IPSTAR Co. Ltd., CTS is entitled to carry out IPSTAR Business in the PRC.

The Basis of Valuation

The subject assets are valued on the basis of ‘‘Market Value’’ on a continued use premise. The continued use premise assumes that the subject assets will be used for the purpose for which the subject assets was conceived or is currently used. Implicit in this definition is the fact that the willing buyer would not pay more to acquire the subject assets appraised than he could reasonably expect to earn in the future from an investment in the subject assets.

The valuation of the subject assets required consideration of all pertinent factors affecting the operations of the business and its ability to generate future investment returns. The factors considered in the appraisal including, but were not limited to the followings:

the nature of the subject assets;
the commencement date of the provision of bandwidth capacity service and the exclusive right to use the gateways;
the contract life of the subject assets;
the prospects of the subject assets in the market;
the replacement cost of the subject assets;
the fixed satellite service coverage of the subject assets;
the legal protection of the intellectual property rights of the subject assets;
the technical specifications of the satellite and gateways’ equipment; and
the availability of similar fixed satellite services covering Asian region in the world.

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APPENDIX III

In view of the ever-changing business environment in which the Company is operating, we have made a number of reasonable assumptions in the course of our appraisal, which are set out as follows:

the Company will operate its business on continuous basis to the best of its ability and will allocate sufficient resources for the planned expansion;
there will be no material changes from political, legal, economic or financial aspects in the jurisdictions or states in which the Company currently runs or intends to run its business which will materially affect its operation;
there will be no substantial market fluctuation in the industry in the jurisdictions or states in which the Company currently runs or intends to run its business which will materially affect its operations and the revenues attributed to shareholders;
there will be no substantial fluctuation in current tax rates, interest rates and foreign currency exchange rates in the jurisdictions or states in which the Company currently runs or intends to run its business which will materially affect its operations and the revenues attributed to shareholders;
the Company has taken sufficient legal measures to protect the intellectual property rights of the subject assets;
the management of the Company will not make any decision which is harmful to the intellectual property rights of the subject assets;
the commencement date of the provision of bandwidth capacity service and the exclusive right to use the gateway will be before the end of 2013; and
the subject assets should work with adequate auxiliary telecommunications infrastructures including equipment and further investment in the said infra-structures might be required.

Approach to Value

In the process of valuing the subject assets of the Company, we considered the classical appraisal approaches to value, namely, the Market Approach, Cost Approach and Income Approach. The Market Approach is basically a comparison method, which estimates market value from analyzing sales and purchases of comparable assets. Since intangible assets are typically highly specialised, finding good market comparables is often difficult. Even though the market comparables would have been identified, the financial details of the purchases and sales are rarely disclosed. To the best of our understanding, there have not been any purchases and sales of similar assets in the marketplace of the PRC. Under such circumstances, we have not relied on the Market Approach in our estimate of the Market Value of the subject assets.

The Cost Approach seeks to estimate the Market Value of the subject assets by quantifying the amount of money that would be required to replace or reproduce the subject assets. In other words, this approach assumes that the intangible asset’s value is indicated by

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APPENDIX III

the cost of reproducing or replacing. We consider this approach can truly reflect the value of the subject assets while there are difficulties in searching for market comparable sales and making financial projection. The inputs that are considered when applying the cost approach include the following:

(a) the cost of developing or purchasing an identical asset;
(b) the cost of developing or purchasing an asset offering the same utility or service potential;
(c) any adjustments required to the cost of developing or purchasing to reflect the specific characteristics of the subject assets, such as economic or functional obsolescence; and
(d) any opportunity cost incurred by the developer of the asset (if any).

The Income Approach focuses on the income-producing capability of the subject assets. This approach’s underlying theory is that the value of the subject assets can be measured by the present worth of the net economic benefit to be received. Since the subject assets currently are not income-producing and the Company is not able to make a relatively reliable financial projection, we reckon that income approach methods are not the preferred methods in our valuation.

Valuation Approach and Methodology

We have concluded the Cost Approach as the most appropriate approach and we have considered employing either reproduction cost method or replacement cost method for valuing the subject assets in this appraisal.

Reproduction cost represents the construction of an intellectual property asset which is identical to the subject intellectual property asset. Replacement cost, on the other hand, reflects the cost of creating/repurchasing an intellectual property asset of a like kind and quality to that of the subject intellectual property asset. Both of these definitions underscore the notion that a reasonable investor would never pay more than it would cost him today to create a duplicate of the subject intellectual property asset or a comparable intellectual property asset.

A valuation analysis may be based on reproduction cost, replacement cost, or, where appropriate, other definitions of cost, as they merely provide the baseline of the analysis. The value indication achieved should be similar regardless of the type of cost used. Cost components involved in most cost approach analysis are material cost, labor cost, overhead cost, and developer’s return. These cost components are calculated or estimated based on the actual historical cost of creating the subject intellectual property asset. Proper adjustments for inflation and other relevant economic factors might be taken into account.

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The resulting cost indication is then adjusted by relevant obsolescence factors. This is a very important step in which the cost indication is turned into a value indication. Obsolescence factors include physical deterioration, functional obsolescence, technological obsolescence and economic obsolescence. The relevant measures of obsolescence are subtracted from the cost indication in order to estimate the current value of the subject intellectual property asset.

In the course of our valuation, we have searched for the recent pricelists from various satellite service providers in the United States of America which are set out as follows:

Pricelist Date Satellite Service Provider Frequency Satellite Coverage Region (see Note 1) 1 20/2/2013 CapRock Government Solutions, Inc. Ku-band Asia-Pacific 2 8/2/2013 Astrium Services Government, Inc. Ku-band Asia 3 13/11/2012 Artel, LLC Ku-band Intra-Asia 4 1/11/2012 Intelsat General Corporation Ku-band Asia-Pacific 5 5/9/2012 MTN Government Services, Inc. Ku-band Intra-Asia Median:	Unit Price (US$) (per MHz per month) (see Note 2) 419.83 618.91 626.48 816.88 1,080.48
	626.48

In selecting the suitable satellite service providers, we have considered certain criteria including time proximity of the pricelists to the valuation date, the same type of frequency and the similar satellite coverage region.

In assessing the value of the subject assets, we have derived the unit price, the remaining period of the subject assets, which have been multiplied by the total bandwidth capacity of the subject assets. In our valuation, the anticipated service extension period beyond the contract period has been disregarded.

				Satellite			Remaining Period
				Coverage			As of the
Reseller			Band	Region	Quantity	Duration	Valuation Date
					(MHz)	(year)	(month)
IPSTAR	Company	Limited	Ku-band	Asia	7,598.50	9.5	114

The median unit price fairly represents the cost of repurchasing the similar fixed satellite service under the Cost Approach.

Note 1: Source: US General Service Administration

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Note 2:

	Customer’s
	Unit Price from	Profit	Reseller’s
Satellite Service Provider	the Pricelist	Margin#	Unit Price
			(US$)
	(per MHz		(per MHz
	per month)		per month)
CapRock Government Solutions, Inc.	1,679.31	75%	419.83
Astrium Services Government, Inc.	2,475.63	75%	618.91
Artel, LLC	2,505.92	75%	626.48
Intelsat General Corporation	3,267.50	75%	816.88
MTN Government Services, Inc.	4,321.92	75%	1,080.48

The figure of profit margin is sourced from Euroconsult which is the leading global consulting firm specializing in space markets.

General Comments

We understand that your Company will use our appraisal as part of the due diligence and we have not been engaged to make specific purchases or sales recommendations. We further understand that the use of our work product will not supplant other due diligence, which you should conduct in reaching business decisions regarding the subject assets.

For the purpose of this appraisal and in arriving at our opinion of value, we have relied to a very considerable extent on the information, statements, opinion and representations provided to us by your Company and the Company. We were furnished with the various contracts pertaining to the subject assets, and relevant publicly available information. These data have been utilised without further verification.

To the best of our knowledge, all data set forth in this report are true and accurate. Although gathered from reliable sources, no guarantee is made nor liability assumed for the accuracy of any data, opinions, or estimates identified as being furnished by others, which have been used in formulating this analysis.

We are unable to accept any responsibilities for the operation and financial information that have not been supplied to us by the Company and your Company. We have had no reason to doubt the truthfulness and accuracy of the information provided or the reasonableness of the opinions expressed by your Company and the directors of the Company, which have been provided to us. We also sought and received confirmation from your Company that no material factors have been omitted from the information provided.

In arriving at our opinion, we have assumed that the Company has adopted necessary security measures and has considered several contingency plans against intellectual property rights infringement and commercial spying affecting its business.

In the course of our valuation, we have visited the gateways in Beijing, Guangzhou and Shanghai, the PRC from 24th April, 2013 to 26th April, 2013 and the satellite base of IPSTAR in Bangkok, Thailand on 13th May, 2013 and 14th May, 2013.

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We have assumed that the appraised subject assets are freely disposable and transferable for its existing or alternative uses in the open market without payment of any tax to the government upon disposal.

In the course of our valuation, we have adopted the basis of valuation and made the valuation assumptions in accordance with the International Valuation Standards 2011 published by The International Valuation Standards Council and The HKIS Valuation Standards (2012 Edition) published by the Hong Kong Institute of Surveyors.

We have made no investigation of the legal title or any liabilities attached to the subject asset. All legal documents disclosed (if any) are for reference only and no responsibility is assumed for any legal matters concerning the legal title and the rights (if any) to the subject asset. We have not verified the original documents furnished to us, any responsibility for our misinterpretation of the legal documents, therefore, cannot be accepted. Besides, we are not in a position to advise and comment on the title and encumbrances to the subject asset.

No allowance has been made in our valuation for any charges or amounts owing neither on the subject asset nor for any expenses or taxation, which may be incurred in effecting a sale. It is assumed that the subject assets will be rendered free from encumbrances, restrictions and outgoings of any onerous nature, which could affect its value.

Unless otherwise stated, the base currency of this report is the United States Dollar.

Opinion of Value

Based on the analysis, reasoning and data outlined as above, and on the appraisal method employed, it is our opinion that as at the Valuation Date, the Market Value of the subject assets is reasonably stated by the amount of US$543,000,000 (UNITED STATES DOLLARS FIVE HUNDRED AND FORTY-THREE MILLION ONLY).

The conclusion of value is based on generally accepted appraisal procedures and practices that rely extensively on assumptions and considerations, not all of which can be easily quantified or ascertained exactly. While we have exercised our professional judgment in arriving at the appraisal, you are urged to consider carefully the nature of such assumptions which are disclosed in this report and should exercise caution when interpreting this report.

We hereby certify that we have neither present nor prospective interest in the subject assets and the Company or the value reported.

Yours faithfully, For and on behalf of

CASTORES MAGI ASIA LIMITED

Deret Au Chi Chung

Member of China Institute of Real Estate Appraisers Registered Business Valuer of The Hong Kong Business Valuation Forum

BSc., MRICS, MHKIS, RPS, MCIArb, AHKIArb, MCIM Director

– III-23 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

The following is the text of a report received from the independent reporting accountants, HLB Hodgson Impey Cheng Limited, Certified Public Accountants, Hong Kong, prepared for the purpose of incorporation in this circular in respect of the unaudited pro forma financial information of the Enlarged Group.

A. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Introduction

The following is an illustrative and unaudited pro forma financial information of the Enlarged Group (the ‘‘Unaudited Pro Forma Financial Information’’) comprising the unaudited pro forma consolidated statement of financial position and the unaudited pro forma consolidated statement of comprehensive income, which have been prepared by the Directors in accordance with the Rule 4.29 of the Listing Rules and on the basis of the notes set out below for the purpose of illustrating the effects of the Acquisition.

For this unaudited pro forma consolidated statement of financial position, it has been prepared based on (i) the consolidated statement of financial position of the Group as at 31 March 2013 as extracted from the published annual report of the Company for the year ended 31 March 2013 and (ii) after incorporating the pro forma adjustments as described in the accompanying notes, as if the Acquisition had taken place on 31 March 2013.

For this unaudited pro forma consolidated statement of comprehensive income, it has been prepared based on (i) the consolidated income statement and consolidated statement of comprehensive income of the Group as extracted from the published annual report of the Company for the year ended 31 March 2013, (ii) the unaudited profit and loss statement of the Assets for the year ended 31 December 2012 as extracted from the unaudited financial information set out in Appendix II to this circular and (iii) after incorporating the pro forma adjustments as described in the accompanying notes, as if the Acquisition had taken place on 1 April 2012.

Upon completion of the Acquisition, the Vendor gives the exclusive right for the Service Period to VAST in the Territory to acquire the Bandwidth Capacity from the Vendor and the Right To Use in order to use, offer, sub-lease and manage the provision of Bandwidth Capacity to other service providers and its end-user customers in the Territory, including all the Vendor’s existing service providers as at the Commencement Date.

The Unaudited Pro Forma Financial Information has been prepared using the accounting policies consistent with those of the Group as set out in the published annual report of the Group for the year ended 31 March 2013.

– IV-1 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

The Unaudited Pro Forma Financial Information has been prepared for illustrative purposes only, based on the judgements and assumptions of the Directors, and, because of its hypothetical nature, it may not give a true picture of the financial position and financial results of the Group had the Acquisition been completed as at 31 March 2013 or 1 April 2012, where applicable, or any future dates.

The Unaudited Pro Forma Financial Information should be read in conjunction with the historical financial information of the Group as set out in its published annual report for the year ended 31 March 2013, and other financial information included elsewhere in this circular.

Unaudited pro forma consolidated statement of financial position of the Enlarged Group

Non-current assets Property, plant and equipment Intangible assets Deposits paid for acquisition of intangible assets Current assets Inventories Trade and other receivables Tax recoverable Cash and cash equivalents Current liabilities Trade and other payables Amount due to a director Other financial liabilities Tax payable	The Group as at 31 March 2013 Pro forma adjustments Notes HK$’000 HK$’000 (Audited) (Unaudited) (Note 1.1) 51,766 12,231 497,410 1.2 4,680 (4,680) 1.3(ii) 68,677 19,590 119,919 — 124,549 (9,750) 1.3(ii) (2,070) 1.4 264,058 24,223 241 — 15,242 1.3(ii) 20,214 44,678	Pro forma Enlarged Group as at 31 March 2013 HK$’000 (Unaudited) 51,766 509,641 —
		561,407
		19,590 119,919 — 112,729
		252,238
		24,223 241 15,242 20,214
		59,920

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Net current assets Total assets less current liabilities Non-current liabilities Deferred tax liabilities Other financial liabilities Net assets Capital and reserves Equity attributable to owners of the Company Share capital Reserves Total equity	The Group as at 31 March 2013 Pro forma adjustments Notes HK$’000 HK$’000 (Audited) (Unaudited) (Note 1.1) 219,380 288,057 9,871 — 434,948 1.3(ii) 9,871 278,186 12,000 640 1.3(i) 266,186 30,080 1.3(i) 278,186	Pro forma Enlarged Group as at 31 March 2013 HK$’000 (Unaudited) 192,318
		753,725
		9,871 434,948
		444,819
		308,906
		12,640 296,266
		308,906

Notes to the Unaudited Pro Forma Consolidated Statement of Financial Position:

1.1. The balances and amounts are extracted from the audited consolidated statement of financial position of the Group as at 31 Mach 2013, as set out in the published annual report of the Company for the year ended 31 March 2013.
1.2 The adjustments reflect the recognition and settlement of the cost of the Assets of approximately HK$497,410,000 arising from the Acquisition by the Enlarged Group, as if the Acquisition had been completed as at 31 March 2013. The cost of the Assets comprises (i) the present value of the Cash Consideration of the Assets of approximately HK$464,620,000 for the Acquisition; (ii) the fair value of the Consideration Shares of approximately HK$30,720,000 and (iii) the legal fee and other transaction costs of approximately HK$2,070,000 directly attributable to the Acquisition.

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UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

1.3 Pursuant to the terms of the Definitive Agreement (as amended by the DA Supplemental Agreement), the aggregate Consideration amounts to US$80,000,000, which shall be paid by ten installments as follows:
(i) The first installment of US$8,000,000, will be settled in the following manner:
- (a) as to US$4,150,000 by the allotment and issue of 64,000,000 Consideration Shares at the Issue Price of HK$0.5034 per Share within 17 days after the Commencement Date;
- (b) as to US$600,000 by offsetting the deposit of US$600,000 paid by VAST to the Vendor under the Framework Agreement;
- (c) as to the balance of US$1,250,000 by cash within 15 days after the Commencement Date; and
- (d) as to the balance of US$2,000,000 within 180 days after the Commencement Date.
(ii) The second installment of US$5,000,000, the third installment of US$7,000,000, the fourth up to the ninth installment of US$9,000,000 each and the tenth installment of US$6,000,000, shall be paid on 30 September of each subsequent calendar year after the Commencement Date. Accordingly, the second installment shall be paid on 30 September 2014 and the last installment shall be paid on 30 September 2022.

For the purpose of the preparation of the unaudited pro forma consolidated statement of financial position, the components of the Consideration are accounted for as follows:

(i) The fair value of Consideration Shares is assumed to be approximately HK$30,720,000 by reference to the published closing price of HK$0.48 per Share quoted on the Stock Exchange on 28 March 2013 (being the last trading day of the month) as if the Acquisition had been completed on 31 March 2013, of which approximately HK$640,000 is credited to share capital (represent the par value of 64,000,000 new Shares at HK$0.01 each) and the balance of approximately HK$30,080,000 is credited to share premium account.
(ii) The estimated present value of the Cash Consideration with an aggregate notional amount of US$75,850,000 was approximately HK$464,620,000, as if the deposits paid for the Acquisition and first installment amounting to US$600,000 and US$1,250,000 (or equivalent to approximately HK$4,680,000 and HK$9,750,000) respectively were settled on 31 March 2013. The remaining balance of the first installment of US$2,000,000 (or equivalent to approximately HK$15,600,000) is repayable on the 180th day after the Commencement Date (i.e. 27 September 2013), approximately US$1,954,000 or equivalent to approximately HK$15,242,000 (representing the present value of the notional amount of US$2,000,000) is classified as current financial liabilities.

The subsequent installments of the Cash Consideration are repayable annually beginning on 30 September of the succeeding calendar year after the Commencement Date (i.e. 30 September 2014), approximately US$55,763,000 or equivalent to approximately HK$434,948,000 (representing the present value of the notional amount of US$72,000,000) is classified as noncurrent financial liabilities.

The present value of the Cash Consideration has been arrived using the effective interest method by discounting future estimated payments at discount rate of 4.75% per annum.

1.4 The adjustment reflects the payment of the estimated legal and professional fees of approximately HK$2,070,000 attributable to the preparation and issue of this circular.
1.5 For the purpose of preparing the unaudited pro forma consolidated statement of financial position of the Enlarged Group, the exchange rate as stipulated above is HK$7.80 to US$1.00.
1.6 No adjustment has been made to the unaudited pro forma consolidated statement of financial position to reflect any trading result or other transaction of the Group entered into subsequent to 31 March 2013 for the unaudited pro forma consolidated statement of financial position.

– IV-4 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Unaudited pro forma consolidated statement of comprehensive income of the Enlarged Group

Turnover Cost of sales Gross Profit Other revenue Selling and distribution expenses Administrative expenses Research and development expenditure Profit/(loss) from operations Finance costs Profit/(loss) before taxation Income tax Profit/(loss) for the year attributable to owners of the Company Other comprehensive income for the year: Exchange differences on translation of financial statements of PRC subsidiaries Total comprehensive income/(loss) for the year (net of tax) attributable to owners of the Company	The Group for the year ended 31 March 2013 Pro forma adjustments Notes HK$’000 HK$’000 (Audited) (Unaudited) (Note 2.1) 115,690 4,052 2.2 (41,574) (324) 2.3 74,116 33,856 (12,007) (31,499) (14,765) 2.2 (52,359) 2.4 (16,576) 47,890 — (21,384) 2.5 47,890 (11,883) 36,007 2,004 38,011	Pro forma Enlarged Group for the year ended 31 March 2013 HK$’000 (Unaudited) 119,742 (41,898) 77,844 33,856 (12,007) (98,623) (16,576) (15,506) (21,384) (36,890) (11,883) (48,773) 2,004 (46,769)

– IV-5 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Notes to the Unaudited Pro Forma Consolidated Statement of Comprehensive Income:

2.1 The balances and amounts have been extracted from the audited consolidated income statement and consolidated statement of comprehensive income of the Group for the year ended 31 March 2013, as set out in the published annual report of the Company for the year ended 31 March 2013.
2.2 The adjustment represents the inclusion of operating revenue and other operating expenses of the Assets as if the Acquisition had taken place at the commencement of the period being reported on (i.e. 1 April 2012). The amounts have been extracted from the unaudited profit and loss statement of the Assets for the year ended 31 December 2012 as set out in Appendix II to this circular.
2.3 The adjustment represents the amount payable to the Vendor pursuant to the Revenue Sharing Agreement calculated at 8% of the sum of revenue derived from (i) the revenue entitled to receive by VAST through CTS’s service providers or customers, and (ii) the revenue entitled to be received by VAST through VAST’s customers. This adjustment is expected to have a continuing effect on the Enlarged Group.
2.4 The adjustment represents the amortisation expenses of approximately HK$52,359,000, based on the Service Period of nine and a half years of the Assets as set out in the Definitive Agreement (as amended by the DA Supplemental Agreement) as if the Service Period commenced at 1 April 2012. This adjustment is expected to have a continuing effect on the Enlarged Group.
2.5 The adjustment represents the effective interest expense of approximately HK$21,384,000 for the other financial liabilities as if the first installment of US$1,850,000 and US$2,000,000 were respectively settled on 1 April 2012 and 27 September 2012 (i.e. the 180th day after the Commencement Date), and subsequent installments would be settled on 30 September of each subsequent calendar year thereafter. The interest expenses have been arrived using the effective interest method at discounted rate of 4.75% per annum. This adjustment is expected to have a continuing effect on the Enlarged Group.
2.6 For the purpose of preparing the unaudited pro forma consolidated statement of comprehensive income of the Enlarged Group, the exchange rate as stipulated above is HK$7.80 to US$1.00.
2.7 No adjustment has been made to the unaudited pro forma consolidated statement of comprehensive income to reflect any trading result or other transaction of the Group entered into subsequent to 31 March 2013 for the unaudited pro forma consolidated statement of comprehensive income.

– IV-6 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

B. REPORT ON THE UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following is the text of a report, prepared for the sole purpose of inclusion in this circular, received from the reporting accountants of the Company, HLB Hodgson Impey Cheng Limited, Certified Public Accountants, Hong Kong.

==> picture [230 x 47] intentionally omitted <==

31/F, Gloucester Tower The Landmark 11 Pedder Street Central Hong Kong

26 September 2013

The Board of Directors Synertone Communication Corporation

INDEPENDENT REPORTING ACCOUNTANTS’ ASSURANCE REPORT ON THE COMPILATION OF PRO FORMA FINANCIAL INFORMATION INCLUDED IN AN INVESTMENT CIRCULAR

Dear Sirs,

Introduction

We have completed our assurance engagement to report on the compilation of pro forma financial information of Synertone Communication Corporation (the ‘‘Company’’) and its subsidiaries (collectively referred to as the ‘‘Group’’) by the directors for illustrative purposes only. The unaudited pro forma financial information consists of the unaudited pro forma consolidated statement of financial position and the unaudited pro forma consolidated statement of comprehensive income (the ‘‘Unaudited Pro Forma Financial Information’’) and related notes as set out in Section A of Appendix IV of the circular issued by the Company dated 26 September 2013 (the ‘‘Circular’’). The applicable criteria on the basis of which the directors have compiled the Unaudited Pro Forma Financial Information are described in Section A of Appendix IV of the Circular.

The Unaudited Pro Forma Financial Information has been compiled by the directors to illustrate the impact on the Group’s financial position as at 31 March 2013 and its financial performance for the year ended 31 March 2013 as if the transaction had taken place at 31 March 2013 and 1 April 2012 respectively, in connection with the Definitive Agreement dated 29 March 2013 entered into between Vastsuccess Holdings Limited, a wholly-owned subsidiary of the Company and IPSTAR Company Limited (the ‘‘Vendor’’) for the acquisition of (i) the Bandwidth Capacity and the Bandwidth Capacity Service and (ii) the Right To Use for the transmission of broadband Internet access and other applications throughout the Service Period (collectively, the ‘‘Asset’’) from the Vendor (the ‘‘Acquisition’’). As part of this process,

– IV-7 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

information about the Group’s financial position and financial performance has been extracted by the directors from the Group’s financial statements for the year ended 31 March 2013, on which an auditors’ report issued by CCIF CPA Limited has been published.

Directors’ responsibility for the Unaudited Pro Forma Financial Information

The directors are responsible for compiling the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Rules Governing the Listing of the 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’’).

Reporting accountants’ responsibilities

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

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements 3420 ‘‘Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus’’ issued by the HKICPA. This standard requires that the reporting accountants comply with ethical requirements and plan and perform procedures to obtain reasonable assurance about whether the directors have compiled the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Listing Rules and with reference to AG 7 issued by the HKICPA.

For the 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 Unaudited Pro Forma Financial Information, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the Unaudited Pro Forma Financial Information.

The purpose of Unaudited Pro Forma Financial Information included in 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 purpose of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the event or transaction at 31 March 2013 and for the year ended 31 March 2013 would have been as presented.

A reasonable assurance engagement to report on whether the Unaudited Pro Forma Financial Information has been properly compiled on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used by the directors

– IV-8 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

in the compilation of the Unaudited Pro Forma Financial Information provide a reasonable basis for presenting the significant effects directly attributable to the event or transaction, and to obtain sufficient appropriate evidence about whether:

. The related pro forma adjustments give appropriate effect to those criteria; and
. The Unaudited Pro Forma Financial Information reflects the proper application of those adjustments to the unadjusted financial information.

The procedures selected depend on the reporting accountants’ judgement, having regard to the reporting accountants’ understanding of the nature of the Group, the event or transaction in respect of which the Unaudited Pro Forma Financial Information has been compiled, and other relevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the Unaudited Pro Forma Financial Information.

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

Opinion

In our opinion:

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

Yours faithfully,

HLB Hodgson Impey Cheng Limited Certified Public Accountants

Jonathan T.S. Lai

Practising Certificate Number: P04165 Hong Kong

– IV-9 –

GENERAL INFORMATION

APPENDIX V

1. RESPONSIBILITY STATEMENT

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

2. SHARE CAPITAL

The authorised and issued share capital of the Company (i) as at the Latest Practicable Date and (ii) immediately after the Service Commencement and upon allotment and issue of the Consideration Shares will be as follows:

As at the Latest Practicable Date

Authorised: 2,000,000,000 Shares of a nominal value of HK$0.01 each Issued and fully paid: 1,200,000,000 Shares of a nominal value of HK$0.01 each	HK$ 20,000,000
	12,000,000

Immediately after the Service Commencement and upon allotment and issue of the Consideration Shares

Authorised: 2,000,000,000 Shares of a nominal value of HK$0.01 each Issued and fully paid: 1,264,000,000 Shares of a nominal value of HK$0.01 each	HK$ 20,000,000
	12,640,000

– V-1 –

GENERAL INFORMATION

APPENDIX V

3. DIRECTORS’, CHIEF EXECUTIVE’S INTEREST AND SHORT POSITION IN SHARES, UNDERLYING SHARES AND DEBENTURES

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executive of the Company in the Shares, underlying shares and debentures of the Company and any of its associated corporations (within the meaning of Part XV of the SFO), which had been 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 in which they were taken or deemed to have under such provisions of the SFO), or which were required, pursuant to Section 352 of the SFO, to be entered in the register kept by the Company, or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (‘‘Model Code’’) contained in Appendix 10 to the Listing Rules were as follows:

(i) Long positions in Shares

		Number and	Approximate
	Capacity/	class of	percentage of
Name of Director	Nature of interest	securities held	shareholding
Mr. Wong Chit On	Interest in a controlled	810,000,000	67.5%
(Note 1)	corporation
Mr. Zhang Jinbing	Beneficial owner	40,000,000	3.3%
Mr. Lu Zhijie	Interest in a controlled	30,000,000	2.5%
(Note 2)	corporation
Mr. Han Weining	Beneficial owner	12,000,000	1%

Notes:

Mr. Wong Chit On is the beneficial owner of all the issued share capital of Excel Time Investment Limited (‘‘Excel Time’’) which holds 810,000,000 Shares. Therefore, Mr. Wong Chit On is deemed, or taken to be, interested in all the Shares which are beneficially owned by Excel Time for the purposes of the SFO.
Mr. Lu Zhijie is a director of Jumbo Harbour Group Limited (‘‘Jumbo’’) and the beneficial owner of 94.2% of the issued share capital of Jumbo which holds 30,000,000 Shares. Therefore, Mr. Lu Zhijie is deemed, or taken to be, interested in all the Shares which are beneficially owned by Jumbo for the purposes of the SFO.

– V-2 –

GENERAL INFORMATION

APPENDIX V

(ii) Long positions in the shares of associated corporations

			Number and	Approximate
	Name of associated	Capacity/	class of	percentage of
Name of Director	corporations	Nature of interest	securities held	shareholding
Mr. Wong Chit On	Excel Time	Beneficial owner	78,000	100%
			ordinary shares
Mr. Lu Zhijie	Jumbo	Beneficial owner	28,260,000	94.2%
			ordinary shares

Save as disclosed above, as at Latest Practicable Date, none of the Directors or chief executives of the Company had any interests or short positions in the Shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which would be required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO, or which would be required, pursuant to Section 352 of the SFO, to be entered in the register kept by the Company, or otherwise notified to the Company and the Stock Exchange pursuant to the Model Code.

Interests and Short Positions of Shareholders

As at Latest Practicable Date, the interests and short positions of the shareholders of the Company (other than a Director or chief executive of the Company) in the Shares or underlying shares of the Company as recorded in the register kept by the Company under Section 336 of the SFO were as follows:

		Number and	Approximate
	Capacity/	class of	percentage of
Name of Shareholder	Nature of interest	securities held	shareholding
Excel Time (Note 1)	Beneficial owner	810,000,000	67.5%
Ms. Ni Yun Zi	Interest of spouse	810,000,000	67.5%
(Note 1)

Note:

All the issued share capital of Excel Time is owned by Mr. Wong Chit On. Being the spouse of Mr. Wong Chit On, Ms. Ni Yun Zi is also deemed to be interested in all the Shares which are beneficially owned by Excel Time for the purposes of the SFO.

Save as disclosed in this circular, as at the Latest Practicable Date, no person (other than a Director or chief executive of the Company) had an interest or short position in the Shares or the underlying shares of the Company that were recorded in the register kept by the Company under Section 336 of the SFO.

– V-3 –

GENERAL INFORMATION

APPENDIX V

4. DIRECTORS’ SERVICE AGREEMENT

As at the Latest Practicable Date, none of the Directors had entered into or proposed to enter into a service contract with any member of the Enlarged Group which was not determinable by the employer within one year without payment of compensation (other than statutory compensation).

5. DIRECTORS’ INTERESTS IN CONTRACTS

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

6. COMPETING INTERESTS

As at the Latest Practicable Date, so far as the Directors are aware, none of the Directors or their respective associates (as defined in the Listing Rules) has any interest in any business which competes or is likely to compete directly or indirectly, with the business of the Enlarged Group.

7. INTEREST IN THE ASSETS

As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any assets which had been acquired or disposed of or leased to any member of the Group or were proposed to be acquired, disposed of or leased since 31 March 2013, being the date to which the latest published audited accounts of the Group were made up, and up to the Latest Practicable Date.

8. LITIGATION

As at the Latest Practicable Date, so far as the Directors are aware, the Enlarged Group was not engaged in any litigation or claims of material importance, and so far as the Directors are aware, no litigation or claims of material importance is pending or threatened against the Enlarged Group.

9. EXPERTS AND CONSENTS

(i) The following is the qualification of the experts which have given their opinions or advice which is contained in this circular:

Name	Qualification
HLB Hodgson Impey Cheng Limited	Certified Public Accountants
(‘‘HLB’’)
Castores Magi Asia Limited	Independent Registered Business Valuers
Alpha Law Firm (‘‘Alpha’’)	Registered law firm in the PRC

– V-4 –

GENERAL INFORMATION

APPENDIX V

As at the Latest Practicable Date, none of the experts named above has (i) any direct or indirect interests in the Assets to be acquired; and (ii) any shareholding in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

HLB, the Independent Valuer and Alpha have given and have not withdrawn its written consent to the issue of this circular with the inclusion herein of its letter, valuation, opinion and/or advice (as the case may be) and references to its name in the form and context in which it is respectively included.

As at the Latest Practicable Date, HLB, the Independent Valuer and Alpha do not have any direct or indirect interests in any assets which had been 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, since 31 March 2013 (being the date to which the latest published audited consolidated financial statements of the Group were made up) up to the Latest Practicable Date.

10. MATERIAL CONTRACTS

The following material contracts (not being contracts entered into in the ordinary course of business) have been entered into by the members of the Group within the two years immediately preceding the Latest Practicable Date:

(a) a letter dated 22 December 2011 from the Company to Victory Investment China Group Limited (a company incorporated in the British Virgin Island with limited liability on 11 February 2004, the entire shareholding of which is owned by Mr. Wan Ruiyun, an independent third party) (‘‘Victory Investment’’), whereby the Company gave consent to the transfer of 180,000,000 Shares at a consideration of HK$0.50 per Share, being a total sum of HK$90,000,000, from Victory Investment to Excel Time Investments Limited (a company incorporated in the British Virgin Island on 8 October 2001 with its issued share capital wholly-owned by Mr. Wong Chit On, being the controlling Shareholder) (‘‘Excel Time’’) and released each of Victory Investment and Wang Ruiyun from their respective undertakings and obligations under the deed of undertaking dated 13 May 2011, whereby Victory Investment undertook not to dispose of its interest in the 180,000,000 Shares and Wang Ruiyun undertook not to dispose of his interest in the share capital of Victory Investment within six months from the date of listing of the Shares on the Stock Exchange;
(b) a deed of indemnity dated 25 March 2012 executed by Excel Time and Mr. Wong Chit On jointly and severally in favour of the Company and its subsidiaries containing indemnities in respect of the estate duty and taxation as referred to in paragraph 12 of Appendix V to the prospectus of the Company dated 30 March 2012;
(c) a deed of non-competition dated 25 March 2012 executed by Excel Time and Mr. Wong Chit On in favour of the Company and its subsidiaries containing undertakings not to be involved in competition with the business of the Group;

– V-5 –

GENERAL INFORMATION

APPENDIX V

(d) the conditional underwriting agreement dated 29 March 2012 entered into between, among others, the Company and various underwriters relating to the conditional offer of initially 30,000,000 new Shares for subscription by the members of the public in Hong Kong; particulars of which are summarised in the section headed ‘‘Underwriting Arrangements and Expenses’’ in the prospectus of the Company dated 30 March 2012;
(e) the conditional international placing underwriting agreement dated 12 April 2012 entered into between, among others, the Company and various underwriters relating to the conditional placing of initially 270,000,000 new Shares to professional, institutional and other private investors, particulars of which are summarized in the section headed ‘‘Underwriting — Underwriting Arrangements and Expenses’’ in the prospectus of the Company dated 30 March 2012;
(f) the Framework Agreement;
(g) the Definitive Agreement;
(h) the supplemental agreement to the Definitive Agreement dated 10 April 2013 entered into between VAST and the Vendor to amend certain terms of the Definitive Agreement;
(i) the DA Supplemental Agreement;
(j) the Revenue Sharing Agreement;
(k) the RS Supplemental Agreement; and
(l) the Assignment Agreement.

11. MISCELLANEOUS

(i) The head office and principal place of business of the Company in Hong Kong is at Room 1301, 13th Floor, Henan Building, 90 Jaffe Road, Wanchai, Hong Kong.
(ii) The Company’s branch share registrar and transfer office in Hong Kong is Tricor Investor Services Limited of 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.
(iii) The company secretary of the Company is Ms. Lam Mei Shan, being a member of the Hong Kong Institute of Certified Public Accountants. Ms. Lam has more than 18 years of experience in the business advisory, accounting and auditing fields.
(iv) In the event of inconsistency, the English text of this circular shall prevail over the Chinese text.

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GENERAL INFORMATION

APPENDIX V

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the office of the Company at Room 1301, 13th Floor, Henan Building, 90 Jaffe Road, Wanchai, Hong Kong, during normal business hours from the date of this circular up to and including the date of the EGM:

(i) memorandum and articles of association of the Company;
(ii) the letter from the Board, the text of which is set out on pages 8 to 30 of this circular;
(iii) the annual reports of the Company for each of the two financial years ended 31 March 2013;
(iv) the unaudited financial information of the Assets as set out in the Appendix II of this circular;
(v) the valuation report on the Assets as set out in Appendix III of this circular;
(vi) the accountants’ report on the unaudited pro forma financial information of the Enlarged Group as set out in the Appendix IV of this circular;
(vii) the PRC legal opinion on the legality of the Group to carry out the IPSTAR Business in the PRC;
(viii) the material contracts as referred under the section headed ‘‘Material Contracts’’ in this Appendix;
(ix) the written consents from the experts as referred under the section headed ‘‘Experts and Consents’’ in this Appendix; and
(x) this circular.

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NOTICE OF EGM

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SYNERTONE COMMUNICATION CORPORATION

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1613)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT an extraordinary general meeting (the ‘‘EGM’’) of Synertone Communication Corporation (the ‘‘Company’’) will be held at the Conference Room, 3/F, Nexxus Building, 77 Des Voeux Road Central, Wanchai, Hong Kong on Tuesday, 15 October 2013 at 2:00 p.m. for the purpose of considering and, if thought fit, passing the following resolutions as ordinary resolutions:

ORDINARY RESOLUTIONS

‘‘THAT subject to the passing of resolution 2 below:
(a) the definitive agreement dated 29 March 2013 (as amended and supplemented by two supplemental agreements dated 10 April 2013 and 13 September 2013 respectively) (the ‘‘Definitive Agreement’’) (a copy of which has been produced to the Meeting, marked ‘‘A’’ and initialed by the Chairman of the Meeting for the purpose of identification) entered into among Vastsuccess Holdings Limited (‘‘VAST’’) and IPSTAR Company Limited (the ‘‘Vendor’’) in relation to the acquisition of the Asset (as defined in the circular of the Company dated 26 September 2013 (the ‘‘Circular’’)) at a total consideration of US$80 million, which will be satisfied partly by cash and by the allotment and issue of 64,000,000 ordinary shares of par value of HK$0.01 each of the Company (the ‘‘Consideration Shares’’) as set out in the Circular, and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified;
(b) conditional upon the listing committee of The Stock Exchange of Hong Kong Limited granting the listing of, and permission to deal in, the Consideration Shares, the allotment and issue of the Consideration Shares at a price of HK$0.5034 per Consideration Share to the Vendor on and subject to the terms of the Definitive Agreement be and is hereby approved and confirmed;
(c) the directors of the Company be and are hereby granted a specific mandate to exercise the powers of the Company to allot, issue and deal with the Consideration Shares; and

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NOTICE OF EGM

(d) any director of the Company be and is hereby authorised to do such acts and things, to sign and execute all such further documents (in case of execution of documents under seal, to affix the common seal of the Company) and to take such steps as he/she may consider necessary, appropriate, desirable or expedient to give effect to or in connection with the Definitive Agreement or any transactions contemplated thereunder.’’
‘‘THAT subject to the passing of resolution 1 above:
(a) the revenue sharing agreement dated 29 March 2013 (as amended and supplemented by the supplemental agreement dated 13 September 2013) (the ‘‘Revenue Sharing Agreement’’) (a copy of which has been produced to the Meeting, marked ‘‘B’’ and initialed by the Chairman of the Meeting for the purpose of identification) entered into among VAST and the Vendor in relation to the revenue sharing arrangement derived by VAST from the provision of the Bandwidth Capacity (as defined in the Circular) and the Right to Use (as defined in the Circular), and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified; and
(b) any director of the Company be and is hereby authorised to do such acts and things, to sign and execute all such further documents (in case of execution of documents under seal, to affix the common seal of the Company) and to take such steps as he/she may consider necessary, appropriate, desirable or expedient to give effect to or in connection with the Revenue Sharing Agreement or any transactions contemplated thereunder.’’

By order of the Board Synertone Communication Corporation Wong Chit On Chief Executive Officer and Executive Director

Hong Kong, 26 September 2013

Notes:

Any shareholder of the Company (the ‘‘Shareholder’’) entitled to attend and vote at the EGM is entitled to appoint another person as his proxy to attend and, on poll, vote on his behalf. A proxy needs not be a Shareholder.
In the case of joint holders of shares of the Company (the ‘‘Share(s)’’), any one of such holders may vote at the EGM, either in person or by proxy, in respect of such Share as if he/she was solely entitled thereto, but if more than one of such joint holders are present at the EGM, either in person or by proxy, that one of the said persons so present whose name stands first on the register of members of the Company in respect of such Shares shall alone be entitled to vote in respect thereof.
A form of proxy for use at the EGM is enclosed. Whether or not you intend to attend the EGM in person, you are urged to complete and return the form of proxy in accordance with the instructions printed thereon as soon as possible. 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 thereof if you so wish. In the event that you attend the EGM after having returned the completed form of proxy, your form of proxy will be deemed to have been revoked.

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NOTICE OF EGM

In order to be valid, the form of proxy, together with a power of attorney or other authority, if any, under which it is signed, or a certified copy of such power or authority must be deposited with the Hong Kong branch share registrar and transfer office of the Company, Tricor Investor Services Limited (the ‘‘Hong Kong Share Registrar’’) at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong (together with the power of attorney or other authority, if any, under which it is signed or a notarially certified copy thereof) not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof.
For the purpose of determining members who are qualified for attending the EGM, the register of members of the Company will be closed from 11 October 2013 to 15 October 2013 (both days inclusive), during which period no transfer of the Shares will be effected. In order to eligible to attend the EGM or any adjournment thereof, all transfers of Shares accompanied by the relevant share certificates must be lodged with the Hong Kong Share Registrar at the above address no later than 4:00 p.m. on 10 October 2013.
Unless otherwise specified herein, capitalized terms used in this notice shall have the same meaning as those defined in the circular of the Company dated 26 September 2013.
This notice has been printed in English and Chinese. In the event of any inconsistency, the English text of this notice shall prevail over its Chinese text.

As at the Latest Practicable Date, the executive directors were Mr. Wong Chit On, Mr. Lu Zhijie, Mr. Han Weining and Mr. Zhang Jinbing, and the independent non-executive directors were Mr. Lam Ying Hung Andy, Mr. Hu Yunlin and Mr. Cai Youliang.

– EN-3 –

AI assistant

Synertone Communication Corporation — Proxy Solicitation & Information Statement 2013

50038_rns_2013-09-26_67730f83-645b-4dff-a7b6-d50733954c01.pdf

SYNERTONE COMMUNICATION CORPORATION

VERY SUBSTANTIAL ACQUISITION AND NOTICE OF EXTRAORDINARY GENERAL MEETING

CONTENTS

DEFINITIONS

DEFINITIONS

SYNERTONE COMMUNICATION CORPORATION

VERY SUBSTANTIAL ACQUISITION

INTRODUCTION

DEFINITIVE AGREEMENT

Date:

Parties:

Assets to be acquired:

Consideration:

Consideration Shares

The Issue Price

Mandate to allot and issue the Consideration Shares and their ranking

LETTER FROM THE BOARD

Restriction on transfer

Application for listing approval to the Consideration Shares

Service Period:

LETTER FROM THE BOARD

Conditions to Service Commencement:

Reason for certain condition to the Service Commencement

Service Commencement:

First right of refusal

LETTER FROM THE BOARD

Corporate guarantee

Other major terms:

Gateways Operation

Non-IPSTAR ground system

LETTER FROM THE BOARD

Cooperation

Indemnity

LETTER FROM THE BOARD

REVENUE SHARING AGREEMENT

Parties:

Revenue share arrangement

Agreement term

ASSIGNMENT AGREEMENT

Date:

Parties:

Background

LETTER FROM THE BOARD

The Assignment

Term of the cooperation with CTS upon Assignment

Termination of Assignment Agreement

INFORMATION OF THE ASSETS

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Financial information of the Asset

FINANCIAL EFFECT OF THE ACQUISITION AND THE ISSUANCE OF THE CONSIDERATION SHARES

Impact on total assets and total liabilities of the Enlarged Group

Impact on earnings of the Enlarged Group

LETTER FROM THE BOARD

SHAREHOLDING STRUCTURE

BUSINESS MODEL AFTER COMPLETION OF THE ACQUISITION

LETTER FROM THE BOARD

REASON FOR THE ACQUISITION

LISTING RULES IMPLICATIONS

LETTER FROM THE BOARD

EGM

RECOMMENDATION

ADDITIONAL INFORMATION

A. RISKS ASSOCIATED WITH THE ACQUISITION

The Group’s indebtedness may limit the Group’s ability to obtain additional financing in the future

B. RISKS ASSOCIATED WITH THE GROUP’S IPSTAR BUSINESS IN THE TERRITORY

The Group’s financial results may fluctuate due to varied utilisation level of the Bandwidth Capacity

The Group may experience operating losses for the IPSTAR Business in the Territory as such business has underperformed in the past years

The Group will rely on the cooperation with CTS to operate the IPSTAR Business in the PRC and cessation of such cooperation may adversely affect the Group’s financial condition and its operation results relating to such business

Failure of the Satellite and Gateways and interruption of the IPSTAR Business may harm the reputation and the Group’s IPSTAR Business of the Group

The operating results of the Group’s IPSTAR Business in the PRC may be adversely affected by the competition from other satellite communication operators and satellite communication service providers in the PRC

C. RISKS ASSOCIATED WITH THE SATELLITE COMMUNICATION INDUSTRY

Regulatory changes of the PRC legal and regulatory requirements relating to the satellite communication industry may adversely affect the Group’s financial results and operation of the IPSTAR Business in the PRC

CHARACTERISTICS OF SATELLITE COMMUNICATION INDUSTRY

T H E U P S T R E A M A N D D O W N S T R E A M I N D U S T R Y O F S A T E L L I T E COMMUNICATION

INDUSTRY OVERVIEW

A RESTRICTED INDUSTRY IN THE PRC

Synertone Communication Corporation Proxy Solicitation & Information Statement 2013