Filed Pursuant to Rule 424(b)(5)
Registration Number 333-164786
Prospectus
Supplement
(To prospectus
dated April 8, 2010)
3,500,000
American Depositary Shares
Representing
70,000,000 Ordinary Shares
We are offering 3,500,000 American Depositary Shares, or
ADSs. Each ADS represents twenty ordinary shares, par value
HK$0.10 per share.
Our ADSs are quoted on the Nasdaq Global Market under the symbol
CTEL. The last reported sale price for our ADSs on
the Nasdaq Global Market on April 22, 2010, was
$13.91 per ADS.
Investing in our ADSs involves risks. See
Risk Factors beginning on
page S-9 of
this prospectus supplement.
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Per ADS
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Total
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Price to the public
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$
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13.00
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$
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45,500,000
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Underwriting discount(1)
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$
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0.65
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$
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2,275,000
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Proceeds to us, before expenses
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$
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12.35
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$
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43,225,000
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(1)
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All items of compensation to the
underwriters in connection with this offering are disclosed in
Underwriting beginning on
page S-29
of this prospectus supplement.
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We have granted the underwriters a
30-day
option to purchase up to an additional 525,000 ADSs solely
to cover over-allotments, if any. If the underwriters exercise
this option in full, the total underwriting discount will be
$2,616,250, and our total proceeds, before expenses, will be
$49,708,750.
We expect to deliver the ADSs to purchasers on or about
April 28, 2010. On April 22, 2010, we filed with the
Hong Kong Stock Exchange an application to trade with respect to
the ordinary shares underlying the ADSs that we are offering
hereby. Approval of that application by the Hong Kong Stock
Exchange is required to be obtained before such ordinary shares
can trade.
None of the United States Securities and Exchange Commission or
any United States state securities commission have approved or
disapproved of these securities or passed upon the adequacy,
completeness or accuracy of this prospectus. Any representation
to the contrary is a criminal offense.
Oppenheimer &
Co.
Roth
Capital Partners
The date of this prospectus supplement is April 23,
2010
Table of
Contents
Prospectus
Supplement
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Page
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S-1
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S-9
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S-21
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S-22
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S-22
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S-23
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S-24
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S-25
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S-29
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S-32
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S-36
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S-36
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S-36
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Prospectus
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35
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S-i
About
This Prospectus Supplement
This document comprises two parts. The first part is this
prospectus supplement, which describes the specific terms of
this offering and also adds to and updates information contained
in the accompanying prospectus and the documents incorporated by
reference into the prospectus. The second part, the accompanying
prospectus, gives more general information, some of which does
not apply to this offering.
If there is a conflict between the information contained in this
prospectus supplement and the accompanying prospectus or any
document incorporated by reference herein or therein, you should
rely on the information contained in this prospectus supplement.
However, if any statement in one of these documents is
inconsistent with a statement in another document having a later
date for example, a document incorporated by
reference in this prospectus supplement and the accompanying
prospectus the statement in the document having the
later date modifies or supersedes the earlier statement.
You should rely only on the information contained in this
prospectus supplement, the accompanying prospectus, any free
writing prospectus that we have authorized to be distributed to
you or information incorporated by reference herein or in the
accompanying prospectus. Neither we nor the underwriters have
authorized anyone to provide you with additional or different
information. We are offering to sell, and seeking offers to buy,
ADSs only in jurisdictions where offers and sales are permitted.
The information contained in this prospectus supplement and the
accompanying prospectus is accurate only as of the date on the
front of those documents and any document incorporated by
reference is accurate only as of its filing date.
Use of
Defined and Technical Terms
In this prospectus supplement, unless otherwise indicated,
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City Telecom, the Company,
we, us and our or similar
terms refer to City Telecom (H.K.) Limited and its subsidiaries;
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FTNS business refers to our business segment that
provides fixed telecommunications network services, including
dial up and broadband Internet access services, local VoIP
services, IP-TV services and corporate data services;
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HKBN refers to Hong Kong Broadband Network Limited,
a wholly-owned subsidiary of the Company;
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ADSs refer to our American depositary shares, each
of which represents twenty ordinary shares, and ADRs
refer to the American depositary receipts that evidence our ADSs;
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$, dollars, US$ or
U.S. dollars refers to the legal currency of
the United States; and HK$ refers to the legal
currency of Hong Kong;
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shares or ordinary shares refer to our
ordinary shares;
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IDD business refers to our business segment that
provides international telecommunications services, including
international long distance call services;
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IFRS refers to International Financial Reporting
Standards, as issued by the International Accounting Standards
Board; and
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Mbps refers to mega-bytes per second.
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Currency
Translation
We publish our consolidated financial statements in Hong Kong
dollars. This prospectus supplement and the accompanying
prospectus contain translations of Hong Kong dollar amounts into
U.S. dollar amounts, solely for your convenience. Unless
otherwise indicated, the translations have been made at US$1.00
= HK$7.7505, which was the exchange rate set forth in the H.10
statistical release of the Federal Reserve Board at
August 31, 2009. On April 16, 2010, the exchange rate
was US$1.00 = HK$7.7621. You should not construe these
translations as representations that the Hong Kong dollar
amounts actually represent such U.S. dollar amounts or
could have been or could be converted into U.S. dollars at
the rates indicated or at any other rates.
S-ii
Summary
This summary highlights certain information about us, this
offering and information appearing elsewhere in this prospectus
supplement, the accompanying prospectus and the documents
incorporated by reference. This summary is not complete and does
not contain all of the information that you should consider
before investing. After you read this summary, to fully
understand this offering and its consequences to you, you should
read and carefully consider the more detailed information and
financial statements and related notes that we include in
and/or
incorporate by reference into this prospectus supplement and the
accompanying prospectus, including the information set forth
under the heading Risk Factors in this prospectus
supplement.
City
Telecom (H.K.) Limited
We are a Hong Kong-based provider of residential and corporate
fixed telecommunications network and international
telecommunications services. We specialize in the residential
mass market and small-to-medium corporate and enterprise market
segments. The majority of our revenues are derived from business
conducted in Hong Kong.
We derive our revenues from two business segments: FTNS and IDD.
A breakdown of our revenues is as follows:
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For the year ended August 31,
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2008
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2008
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2009
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2009
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HK$
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US$
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HK$
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US$
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(Amounts in thousands)
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Revenue
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FTNS business
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1,011,038
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129,561
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1,230,880
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158,813
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IDD business
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291,943
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37,411
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247,359
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31,915
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Total operating revenue
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1,302,981
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166,972
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1,478,239
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190,728
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FTNS business.
Our FTNS business involves the
provision of fixed telecommunications network services through
our self-owned Next Generation Network. Such services include
the following:
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high-speed broadband Internet access services at symmetric
upstream and downstream access speeds of 25 Mbps to
1000 Mbps;
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fixed line local telephony services using voice over Internet
protocol, or VoIP, technology;
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pay television services consisting of more than 80 channels,
including self-produced news, childrens programming,
international drama, movies and documentary and local interest
programming, using our Internet protocol, or IP, platform, which
services we refer to as
IP-TV; and
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corporate data services, including the provision of dedicated
bandwidth to corporate customers.
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As of August 31, 2009, we had a total of approximately
943,000 subscriptions for our fixed telecommunications network
services, consisting of 391,000 broadband Internet access,
382,000 local VoIP and 170,000
IP-TV
services subscriptions.
IDD business.
Our IDD business involves the
provision of international telecommunications services. Such
services include direct dial services, international calling
cards and mobile call forwarding services in Hong Kong and
Canada. As of August 31, 2009, the customer base for our
total international telecommunications services consisted of
approximately 2.4 million registered accounts.
Strategy
and Competitive Strengths
Our strategy is to market multiple fixed telecommunications
network services by capitalizing on the new in-building
blockwiring we have done on a mass scale for our Next Generation
Network and will focus on growing our market share, increasing
our network coverage and introducing new services through our IP
S-1
platform. We believe that our success will continue to depend on
our ability to capitalize on our focus on the residential mass
and small-to-medium corporate and enterprise market segments,
our leading-edge Next Generation Network, and our first mover
advantage in the fixed line telecommunications market, which
have a high entry barrier.
We believe that our demonstrated success is primarily due to our
ability to capitalize on the following key strengths:
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Focus on the Residential Mass and Small-To-Medium Corporate
and Enterprise Market Segments
. We focus on offering
high-bandwidth services to the residential mass and
small-to-medium enterprise markets in Hong Kong, which we
believe have significant growth potential. We price our services
attractively on a value-for-bandwidth basis and at the same time
offer bandwidth advantages over comparable service offerings by
our competitors. Our
IP-TV
services focus on the residential mass market by providing
Chinese-language
content that targets the Chinese-speaking population of Hong
Kong. We have also strengthened our English language content
over the past year to increase our competitiveness by adding
National Geographic, AXN, Bloomberg and other channels. Our
focus on the residential mass and small-to-medium corporate and
enterprise markets has enabled us to quickly grow our
subscription base, and we believe this will help us to increase
sales of our services.
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Leading-Edge Next Generation Network.
We believe our
self-owned Next Generation Network, a fiber-based backbone,
gives us an inherent cost and performance advantage over our
competitors. The high capacity of this network has enabled us to
offer a suite of services on a single IP network platform. This
IP platform is highly scalable, enabling us to offer broadband
Internet access, local VoIP,
IP-TV
and
corporate data services over a single network. It is also
capable of providing up to 1,000 Mbps symmetric broadband
Internet access.
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First Mover Advantage and High Barriers to
Entry.
Despite the intense competition in the Hong Kong
telecommunications industry, the inherent characteristics of the
fixed line telecommunications market create a high entry
barrier. Accordingly, we believe that our Next Generation
Networks current coverage of 1.6 million residential
homes pass, substantially all in densely populated areas, gives
us a first mover advantage over our competitors. Competitors who
want to replicate our business model to provide a full coverage
network that includes remote and difficult-to-reach areas of
Hong Kong may encounter technological difficulties. Attempting
to deploy Metro Ethernet technology in such locations would
significantly increase costs and completion time of such a
network. While other telecommunications operators may lay their
own fiber-based cable to buildings, we believe some would
encounter significant in-building bottlenecks when attempting to
complete an end-to-end network. This is because a majority of
Hong Kongs residential properties have limited space for
in-building wiring leading to subscribers residences,
making it difficult for new entrants to replicate our end-to-end
network build. We can increase or decrease the capacity of our
Next Generation Network between 100Mbps to 1,000Mbps
logarithmically and without adding to the networks
physical infrastructure, something our competitors using legacy
telephone lines cannot accomplish with existing technology.
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Corporate
Information
We were incorporated on May 19, 1992 under the Hong Kong
Companies Ordinance and are a limited liability company. Our
registered office is located at Level 39, Tower 1,
Metroplaza, No. 223 Hing Fong Road, Kwai Chung, New
Territories, Hong Kong, telephone
(852) 3145-6888.
Our agent for U.S. federal securities laws purposes is CT
Corporation System, 111 Eighth Avenue, New York, NY 10011.
Investor inquiries should be directed to us at the address and
telephone number of our registered office set forth above. Our
website is
http://www.ctigroup.com
.
hk
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The information contained on our website does not form a part of
this prospectus supplement or the accompanying prospectus.
S-2
Recent
Developments
Domestic
Free Television Program Service License Application
On December 31, 2009, we submitted to the Hong Kong
Broadcasting Authority an application for the domestic free
television program service license to provide domestic free
television program services in Hong Kong. We currently estimate
a maximum cumulative investment at HK$210 million will be
required before reaching positive free cash flow.
Update on
Fixed Mobile Interconnection Charge
On November 25, 2009, the Hong Kong Telecommunications
Authority (TA) issued a preliminary analysis (the
2009 PA) in relation to our request for
determination of certain mobile interconnection charges that
were owed by various mobile operators to us. TA invited HKBN and
the mobile operators covered by our request to make
representations in relation to the 2009 PA on or before
December 25, 2009. As of April 13, 2010, TA had not
made a final ruling on our request. For more information, see
note 2(c) to our consolidated financial statements for the
fiscal year ended August 31, 2009, which are incorporated
by reference into this prospectus supplement and the
accompanying prospectus.
If TA issues a final ruling that sets interconnection charges at
levels lower than the levels we used in recording revenues from
interconnection charges in prior years, the difference will be
charged to the income statement for the fiscal year in which the
final ruling is issued.
Buyback of
10-year
Senior Notes
Between September 1, 2009 and December 15, 2009, we
repurchased certain of our outstanding senior notes, which we
refer to as the Notes, with a cumulative principal value of
US$1.5 million (equivalent to HK$11.6 million) in the
open market. The total consideration paid including accrued
interest was approximately US$1.6 million (equivalent to
HK$12.1 million). The loss on extinguishment was
approximately US$41,000 (equivalent to HK$318,000) which is
expected to be recorded in the consolidated income statement for
the year ending August 31, 2010. The principal value of the
Notes outstanding after the repurchases was US$19,863,000
(equivalent to HK$153,948,000).
Redemption
of Notes
On December 30, 2009, we gave a notice of redemption to the
holders of the Notes. Pursuant to that notice, we redeemed on
February 1, 2010 all of the then-outstanding Notes at a
redemption price equal to 104.375% of the principal amount plus
accrued and unpaid interest. After redemption, no Notes remain
outstanding.
New
Credit Facilities
In July and December 2009, we obtained two banking facilities
with credit lines of up to HK$365.0 million in the
aggregate. As of February 28, 2010, HK$165.0 million
was drawn down under these facilities, of which
HK$40.0 million bears interest at a floating rate, is
payable in May 2010 and may be rolled over on a monthly basis
until the facility expires in July 2011. The remaining
HK$125.0 million bears interest at a floating rate and is
repayable in December 2014. To hedge our interest rate exposure,
we have entered into a swap agreement such that any interest
accrued under the $125.0 million borrowing will be payable
by us at a fixed rate. The borrowings under each facility could
become repayable immediately upon demand if we fail to comply
with certain covenants stipulated under the facilities,
including the requirement to satisfy certain financial ratios
commonly found in lending arrangements of this kind.
Preliminary
First Half Results
Since the launch of our Member-Get-Member program on
November 1, 2009, which offers residential 100 Mbps
broadband services at HK$99 per month, we have seen a
significant increase in our broadband subscriptions. During the
six months ended February 28, 2010, we added 73,000 net
broadband subscriptions compared to 34,000 net additions for the
six months ended February 28, 2009.
Compared with the corresponding period in the prior year, as
disclosed in our 2009 interim report, for the six months period
ended February 28, 2010, we expect revenue to have
increased by more than 8%, EBITDA to have increased by more than
5% and profit attributable to shareholders to have increased by
more than 50%.
S-3
The
Offering
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ADSs offered by City Telecom
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3,500,000 ADSs
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ADSs to be outstanding
immediately after this offering
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9,308,159 ADSs (9,833,159 ADSs if the
underwriters over-allotment option is exercised in full),
based on the number of ADSs outstanding as of April 14,
2010 together with ADSs offered in this offering
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Ordinary shares to be outstanding immediately after this
offering
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754,497,344 ordinary shares (764,997,344 ordinary
shares if the underwriters over-allotment option is
exercised in full)
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Over-Allotment Option
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We have granted the underwriters an option, exercisable within
30 days from the date of this prospectus supplement, to
purchase up to an additional 525,000 ADSs, at the public
offering price listed on the cover page of this prospectus
supplement for the purpose of covering over-allotments, if any.
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The ADSs
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Each ADS represents twenty ordinary shares, par value HK$0.10
per share.
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The depositary will be the holder of the ordinary shares
underlying your ADSs and you will have rights as provided in the
deposit agreement. You may surrender your ADSs to the depositary
to withdraw the ordinary shares underlying your ADSs. The
depositary will charge you a fee for such exchange.
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We may amend or terminate the deposit agreement for any reason
without your consent. If an amendment becomes effective, you
will be bound by the deposit agreement, as amended, if you
continue to hold your ADSs.
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To better understand the terms of the ADSs, you should carefully
read the section entitled Description of American
Depositary Shares which is incorporated by reference
herein from our prospectus dated October 14, 1999 with
respect to our Registration Statement on
Form F-1
(File
No. 333-11012).
You should also read the deposit agreement, which is attached as
an exhibit to the registration statement on
Form F-6
dated October 18, 1999 (File
No. 333-11028).
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Depositary
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The Bank of New York Mellon
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Timing and Settlement of ADSs
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The ADSs are expected to be delivered against payment on
April 28, 2010.
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The ADRs evidencing the ADSs will be deposited with a custodian
for, and registered in the name of Cede & Co., a
nominee of the Depository Trust Company, or DTC, in New
York, New York. DTC and its direct and indirect participants
will maintain records that will show the beneficial interests in
the ADSs and facilitate any transfers of beneficial interests.
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Listing
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Our ADSs are listed for quotation on the Nasdaq Global Market.
Our ordinary shares are listed on the Hong Kong Stock Exchange.
On April 22, 2010, we filed with the Hong Kong Stock
Exchange an application to trade with respect to the ordinary
shares
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S-4
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underlying the ADSs that we are offering hereby. Approval of
that application by the Hong Kong Stock Exchange is required to
be obtained before such ordinary shares can trade.
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Nasdaq Global Market symbol
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CTEL
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Use of Proceeds
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We estimate that the net proceeds from the sale of the ADSs will
be approximately $42,525,000, after deducting the
underwriters fees and estimated aggregate offering
expenses payable by us. We currently intend to use a portion of
the net proceeds of this offering to launch our new domestic
free television program service in Hong Kong. We will use the
remainder of the proceeds for general corporate purposes. If we
are not awarded a Hong Kong domestic free television program
service license, all of the net proceeds will be used for
general corporate purposes. Please see Use of
Proceeds and Risk Factors Our management
has broad discretion over the use of proceeds from this offering
and we may not be awarded a domestic free television program
service license, in which case all of the net proceeds of this
offering would be used for general corporate purposes. Even if
we are awarded such a license, we cannot assure you that we will
successfully launch and upgrade a domestic free television
service. We also plan to fully repay the
HK$40 million outstanding under one of our banking
facilities on or about the completion of this offering using a
portion of our available cash. Credit lines in the aggregate of
HK$190 million are available under this banking facility, and
any amount outstanding bears interest at a floating rate, is
repayable in full and may be rolled over on a monthly basis
until the facility expires in July 2011. The amount previously
drawn down from this banking facility was used for general
corporate purposes.
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Risk Factors
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See Risk Factors beginning on
page S-9 of
this prospectus supplement and the other information included or
incorporated by reference in this prospectus supplement and the
accompanying prospectus for a discussion of factors you should
carefully consider before deciding to invest in our ADSs.
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S-5
Summary
Consolidated Financial Information
The following table presents the selected consolidated financial
data and operating data of City Telecom as of and for the years
ended August 31, 2008 and 2009. The selected financial data
should be read in conjunction with, and is qualified in its
entirety by reference to, the consolidated financial statements
and Item 5 Operating and financial review and
prospects contained in our Annual Report on
Form 20-F
for the year ended August 31, 2009 as amended, which is
incorporated by reference into this prospectus supplement. Our
consolidated financial statements as of and for the years ended
August 31, 2008 and 2009 have been prepared and presented
in accordance with IFRSs.
Selected consolidated statement of operations data:
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As of and for the year ended August 31,
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2008
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2008
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2009
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2009
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HK$
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US$
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HK$
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US$
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(Amounts in thousands except per share data)
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Revenue:
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FTNS business
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1,011,038
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129,561
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1,230,880
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158,813
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IDD business
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291,943
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37,411
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247,359
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31,915
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Total operating revenue
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1,302,981
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166,972
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1,478,239
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190,728
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Network costs:
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FTNS business
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(103,524
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(13,266
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)
|
|
|
(107,670
|
)
|
|
|
(13,892
|
)
|
IDD business
|
|
|
(74,843
|
)
|
|
|
(9,591
|
)
|
|
|
(67,459
|
)
|
|
|
(8,704
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total network costs
|
|
|
(178,367
|
)
|
|
|
(22,857
|
)
|
|
|
(175,129
|
)
|
|
|
(22,596
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating expenses
|
|
|
(966,094
|
)
|
|
|
(123,801
|
)
|
|
|
(1,037,964
|
)
|
|
|
(133,922
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(59,541
|
)
|
|
|
(7,630
|
)
|
|
|
(50,258
|
)
|
|
|
(6,484
|
)
|
Other income, net
|
|
|
9,393
|
|
|
|
1,204
|
|
|
|
36,671
|
|
|
|
4,731
|
|
Income taxes benefit/(expense)
|
|
|
16,818
|
|
|
|
2,155
|
|
|
|
(38,730
|
)
|
|
|
(4,997
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
125,190
|
|
|
|
16,043
|
|
|
|
212,829
|
|
|
|
27,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share (HK cents)
|
|
|
19.7
|
|
|
|
2.5
|
|
|
|
32.4
|
|
|
|
4.2
|
|
Diluted earnings per share (HK cents) (1)
|
|
|
19.0
|
|
|
|
2.4
|
|
|
|
31.8
|
|
|
|
4.1
|
|
Dividends per share attributable to the year (HK cents)
|
|
|
6.0
|
|
|
|
0.8
|
|
|
|
19.0
|
|
|
|
2.5
|
|
Weighted average number of ordinary shares
|
|
|
634,015
|
|
|
|
634,015
|
|
|
|
657,201
|
|
|
|
657,201
|
|
Diluted weighted average number of ordinary shares (2)
|
|
|
657,997
|
|
|
|
657,997
|
|
|
|
668,384
|
|
|
|
668,384
|
|
|
|
|
(1)
|
|
Diluted earnings per share is
computed by dividing the net income by the diluted weighted
average number of ordinary shares during the year.
|
|
(2)
|
|
For fiscal 2008 and 2009, the
diluted weighted average number of ordinary shares was the
weighted average number of ordinary shares outstanding during
the respective years, plus the weighted average number of
additional ordinary shares which would have been outstanding
assuming all the outstanding share options have been exercised
at the beginning of the respective years or on the date of
issue, whichever is earlier.
|
S-6
Selected consolidated balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the year ended August 31,
|
|
|
2008
|
|
2008
|
|
2009
|
|
2009
|
|
|
HK$
|
|
US$
|
|
HK$
|
|
US$
|
|
|
(Amounts in thousands)
|
|
Total assets
|
|
|
2,080,416
|
|
|
|
266,597
|
|
|
|
1,785,044
|
|
|
|
230,313
|
|
Long-term debt and other liabilities
|
|
|
(683,242
|
)
|
|
|
(87,555
|
)
|
|
|
(162,586
|
)
|
|
|
(20,977
|
)
|
Finance lease obligations
|
|
|
(376
|
)
|
|
|
(48
|
)
|
|
|
(732
|
)
|
|
|
(94
|
)
|
Other liabilities
|
|
|
(364,191
|
)
|
|
|
(46,670
|
)
|
|
|
(393,199
|
)
|
|
|
(50,733
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
(1,047,809
|
)
|
|
|
(134,273
|
)
|
|
|
(556,517
|
)
|
|
|
(71,804
|
)
|
Net assets
|
|
|
1,032,607
|
|
|
|
132,324
|
|
|
|
1,228,527
|
|
|
|
158,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital
|
|
|
65,062
|
|
|
|
8,337
|
|
|
|
66,418
|
|
|
|
8,570
|
|
Share premium
|
|
|
670,717
|
|
|
|
85,950
|
|
|
|
681,208
|
|
|
|
87,892
|
|
Reserves
|
|
|
296,828
|
|
|
|
38,037
|
|
|
|
480,901
|
|
|
|
62,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
1,032,607
|
|
|
|
132,324
|
|
|
|
1,228,527
|
|
|
|
158,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended August 31,
|
|
|
2008
|
|
2008
|
|
2009
|
|
2009
|
|
|
HK$
|
|
US$
|
|
HK$
|
|
US$
|
|
|
(Amounts in thousands)
|
|
EBITDA (1)
|
|
|
377,964
|
|
|
|
48,435
|
|
|
|
508,058
|
|
|
|
65,551
|
|
Net cash inflow from operating activities
|
|
|
378,563
|
|
|
|
48,507
|
|
|
|
535,886
|
|
|
|
69,142
|
|
Net cash outflow from investing activities
|
|
|
(147,750
|
)
|
|
|
(18,934
|
)
|
|
|
(176,488
|
)
|
|
|
(22,771
|
)
|
Net cash outflow from financing activities
|
|
|
(342,550
|
)
|
|
|
(43,892
|
)
|
|
|
(560,407
|
)
|
|
|
(72,306
|
)
|
Capital expenditures (2)
|
|
|
211,684
|
|
|
|
27,126
|
|
|
|
286,734
|
|
|
|
36,996
|
|
|
|
|
(1)
|
|
EBITDA for any period means,
without duplication, net income for such period, plus the
following to the extent deducted in calculating such net income:
interest expense, income taxes, depreciation and amortization
expense (excluding any such non-cash charge to the extent it
represents an accrual of or reserve for cash charges in any
future period or amortization of a prepaid cash expense that was
paid in a prior period not included in the calculation), less
interest income. EBITDA is not a measure of performance under
IFRSs. We believe that EBITDA is an additional measure utilized
by investors in determining a borrowers ability to meet
debt service requirements. However, EBITDA does not represent,
and should not be used as a substitute for, net earnings or cash
flows from operations as determined in accordance with IFRSs,
and EBITDA is not necessarily an indication of whether cash flow
will be sufficient to fund our cash requirements. In addition,
our definition of EBITDA may differ from that of other companies.
|
|
(2)
|
|
Capital expenditures represent
additions to fixed assets and include non-cash transactions.
|
S-7
The following table reconciles our net cash inflow from
operating activities, the most directly comparable financial
measure calculated and presented in accordance with IFRSs, to
our definition of EBITDA on a consolidated basis for each of
fiscal 2008 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended August 31,
|
|
|
2008
|
|
2008
|
|
2009
|
|
2009
|
|
|
HK$
|
|
US$
|
|
HK$
|
|
US$
|
|
|
(Amounts in thousands)
|
|
EBITDA
|
|
|
377,964
|
|
|
|
48,435
|
|
|
|
508,058
|
|
|
|
65,551
|
|
Depreciation and amortization
|
|
|
(210,051
|
)
|
|
|
(26,917
|
)
|
|
|
(206,241
|
)
|
|
|
(26,610
|
)
|
Interest expense, net
|
|
|
(59,541
|
)
|
|
|
(7,630
|
)
|
|
|
(50,258
|
)
|
|
|
(6,484
|
)
|
Income taxes benefit/(expense)
|
|
|
16,818
|
|
|
|
2,155
|
|
|
|
(38,730
|
)
|
|
|
(4,997
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
125,190
|
|
|
|
16,043
|
|
|
|
212,829
|
|
|
|
27,460
|
|
Depreciation and amortization
|
|
|
210,051
|
|
|
|
26,917
|
|
|
|
206,241
|
|
|
|
26,610
|
|
Amortization of deferred expenditure
|
|
|
33,777
|
|
|
|
4,329
|
|
|
|
53,160
|
|
|
|
6,859
|
|
Income taxes (benefit)/expense
|
|
|
(16,818
|
)
|
|
|
(2,155
|
)
|
|
|
38,730
|
|
|
|
4,997
|
|
Interest income
|
|
|
(15,596
|
)
|
|
|
(1,999
|
)
|
|
|
(4,869
|
)
|
|
|
(628
|
)
|
Interest element of finance lease
|
|
|
34
|
|
|
|
4
|
|
|
|
27
|
|
|
|
3
|
|
Interest, amortization and exchange difference on senior notes
|
|
|
72,640
|
|
|
|
9,309
|
|
|
|
49,214
|
|
|
|
6,350
|
|
Realized gain on long term bank deposit
|
|
|
(1,185
|
)
|
|
|
(152
|
)
|
|
|
|
|
|
|
|
|
Loss on disposal of fixed assets
|
|
|
1,431
|
|
|
|
183
|
|
|
|
1,016
|
|
|
|
131
|
|
Equity settled share-based transaction
|
|
|
4,204
|
|
|
|
539
|
|
|
|
4,768
|
|
|
|
615
|
|
Realized loss on derivatives financial instruments
|
|
|
1,039
|
|
|
|
133
|
|
|
|
|
|
|
|
|
|
Realized and unrealized gain on other financial assets
|
|
|
(3,284
|
)
|
|
|
(421
|
)
|
|
|
(189
|
)
|
|
|
(24
|
)
|
Gain on extinguishment of senior notes
|
|
|
(2,582
|
)
|
|
|
(331
|
)
|
|
|
(31,371
|
)
|
|
|
(4,048
|
)
|
Taxation paid
|
|
|
(4,250
|
)
|
|
|
(545
|
)
|
|
|
(1,732
|
)
|
|
|
(223
|
)
|
Change in long term receivable and prepayments
|
|
|
1,346
|
|
|
|
173
|
|
|
|
(505
|
)
|
|
|
(65
|
)
|
Change in working capital, net
|
|
|
(27,434
|
)
|
|
|
(3,516
|
)
|
|
|
8,567
|
|
|
|
1,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash inflow from operating activities
|
|
|
378,563
|
|
|
|
48,511
|
|
|
|
535,886
|
|
|
|
69,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the year ended August 31,
|
|
|
2007
|
|
2008
|
|
2009
|
|
FTNS subscriptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadband Internet access
|
|
|
247,000
|
|
|
|
316,000
|
|
|
|
391,000
|
|
Local VoIP
|
|
|
308,000
|
|
|
|
329,000
|
|
|
|
382,000
|
|
IP-TV
|
|
|
128,000
|
|
|
|
156,000
|
|
|
|
170,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
683,000
|
|
|
|
801,000
|
|
|
|
943,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered international telecommunications accounts (1)
|
|
|
2,331,000
|
|
|
|
2,336,000
|
|
|
|
2,383,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IDD outgoing minutes (in thousands)
|
|
|
659,000
|
|
|
|
574,000
|
|
|
|
487,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Registered accounts refer to
international telecommunications customers that have a valid
account. Account holders may or may not be active users of our
services.
|
S-8
Risk
Factors
You should carefully consider the following risk factors and
all other information contained in this prospectus supplement
and the accompanying prospectus and incorporated by reference
into this prospectus supplement and the accompanying prospectus.
The risks and uncertainties described below are not the only
ones facing us. Additional risks and uncertainties that we are
unaware of, or that we currently deem immaterial, also may
become important factors that affect us. If any of such risks or
the risks described below occur, our business, financial
condition or results of operations could be materially and
adversely affected. In that case, you may lose some or all of
your investment.
Risks
Relating to our Business and Operations
We may not be awarded a domestic free television program
service license.
A significant aspect of our future growth strategy is the launch
of a new domestic free television program service in Hong Kong,
which requires us to obtain from the Hong Kong Broadcasting
Authority a domestic free television program service license to
provide free television program service in Hong Kong. On
December 31, 2009, we submitted to the Hong Kong
Broadcasting Authority an application for such a license.
However, we cannot assure you that we will be awarded this
license. If we are not awarded the requisite license, we will
not be able to capitalize on our strategy to expand into the
free television market and the price of our ADSs could decline.
In light of the intense competition in our target markets, we
cannot assure you that our revenues and net profit will continue
to grow.
We derive our total revenues from our FTNS business and our IDD
business. Our FTNS business primarily consists of broadband
Internet access, local VoIP,
IP-TV
and
corporate data services, while our IDD business primarily
consists of direct dial, international calling cards and mobile
call forwarding services. Our total revenues increased by 13.4%
to HK$1,478.2 million in fiscal 2009 from
HK$1,303.0 million in fiscal 2008, and our net profit
increased by 70.0% to HK$212.8 million in fiscal 2009 from
HK$125.2 million in fiscal 2008. The increase in net profit
in fiscal 2009 was mainly due to increased contribution from our
FTNS business, which carries higher incremental margins than our
IDD business, and a gain of HK$31.4 million on
extinguishment of a portion of our outstanding senior notes.
Although revenue from our FTNS business increased by 21.8% in
fiscal 2009, we cannot assure you that we will be able to
maintain such revenue and profit growth. The increase in revenue
of our FTNS business was primarily due to an increase in our
subscription base of 17.7%, driven by growing demand for high
bandwidth broadband Internet access service. Any further
increase in such subscription base will highly depend on our
ability to continue to expand our network coverage and compete
successfully in an intensely competitive market.
On November 1, 2009, we launched our
Member-Get-Member series of marketing programs.
Under this series of programs, our existing customers may refer
a new customer to use our broadband Internet access services and
both will enjoy access to our 100 Mbps broadband services for
HK$99 per month under a
24-month
contract. In addition, new customers are also entitled to this
new discounted rate. As the results of such programs will highly
depend on the response from the markets and our competitors, we
cannot assure you that our revenues and net profit will continue
to grow due to more intense competition and uncertain price
elasticity.
Further, revenue from our IDD business decreased by 15.3% in
fiscal 2009. The decrease was primarily due to a decrease in the
total number of airtime minutes by 15.2%, which reflected a
reduction in the scale of operations. On our IDD service, our
strategy is to focus on cash flow and profitability rather than
market share. Due to increasing competition, we expect our IDD
business will continue to experience pressure on tariff rates
and to contribute to a smaller portion of our revenue and net
profit over time.
Our ability to continue to grow our total revenues and net
profit in the rapidly evolving telecommunications industry
depends on many factors, including our ability to accurately
identify and respond to demand for new
S-9
services, success in developing new services on a timely basis,
quality and cost competitiveness of our services, effectiveness
of our sales and marketing efforts, and the number and nature of
competitors in a given market segment. The global economic
downturn has resulted in decreased consumer confidence and
overall slower economic activity, which may dampen the demand
for broadband services or affect our customers ability to
continue with existing services.
We cannot assure you that we can maintain the current level of
revenue growth and profitability.
Given the pace of change in the telecommunications industry
and the characteristics of our target markets, we cannot assure
you that our FTNS business will continue to be profitable.
The main target market for our FTNS business is Hong Kong. The
Hong Kong telecommunications industry is intensely competitive.
The intense competition could result in price reductions,
reduced gross margins or loss of market share, any of which
could adversely affect our future growth and profitability. We
expect competition to continue to increase for the following
reasons:
|
|
|
|
|
Increasing liberalization of the telecommunications industry in
Hong Kong may continue to attract new local and foreign entrants
and broaden the variety of telecommunications services available
in the market, thereby increasing the overall level of
competition in our industry.
|
|
|
|
The Hong Kong government may continue to issue new wireless and
wire-line FTNS Licenses. For instance, 261 PNETS Licenses had
been issued in Hong Kong as of October 31, 2009 for the
provision of external telecommunications services
(as defined in the Telecommunications Authoritys
Determination as of December 30, 1998). Some of these
licenses are held by subsidiaries of major foreign
telecommunications providers, which have competitive advantages
over us due to their global presence and size.
|
|
|
|
Around December 31, 2007, Television Broadcasts Limited and
Asia Television Limited, commonly known as TVB and ATV,
respectively, the only two licensed domestic territorial
broadcasters in Hong Kong, launched their digital terrestrial
television services and have since broadened such services to
cover an increasingly large percentage of the viewing public in
Hong Kong. As of December 15, 2009, their services offered
a total of 11 free channels in both standard and high
definition. This improvement in the quality of free television
may result in a reduction in the number of subscribers for
pay-television services.
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As some of our main competitors have longer operating histories
and others are subsidiaries of large business conglomerates,
they may have greater financial, technical, marketing and other
resources; a more sophisticated infrastructure; better brand
recognition; and a larger subscription base and may be able to
devote more human and financial resources to research and
development, network improvement and marketing than we can. Our
competitive position varies significantly by service type
because each service is characterized by a different market. If
we cannot compete effectively in a major market, our business,
operating results and financial condition could be adversely
affected.
Our services may become obsolete if we cannot address the
changing needs of our customers.
The telecommunications industry is characterized by rapidly
changing technology and industry standards, evolving subscriber
needs and the changing nature of services with increasingly
short life cycles. We cannot assure you that we will be able to
respond successfully to technological advances and stay ahead of
the evolving industry standards, for the following reasons:
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To compete successfully, we must constantly increase the
diversity and sophistication of the services we offer and
upgrade our telecommunications technologies. We may be required
to make substantial capital expenditures and may not be
successful in modifying our network infrastructure in a timely
and cost-effective manner in response to these changes.
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New technology, such as the possible development of 4G wireless
data networks as a substitute for a fiber-based services, or
other trends in the telecommunications industry, could have an
adverse effect on the services we currently offer. For example,
traditional fixed line home telephones are being replaced by
mobile telephones
and/or
VoIP
services. Technology substitution from global VoIP providers,
some of
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which offer free PC-to-PC based international calls, is also
becoming more prevalent. Increased adoption of such competing
technology may lead to a decline in our revenues.
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Changing our services in response to market demand may require
the adoption of new technologies that could render many of the
technologies that we are currently implementing less competitive
or obsolete. We may also need to gain access to related or
enabling technologies in order to integrate the new technology
with our existing technology. Our new services may contain
design flaws or other defects when first introduced to the
market.
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If we cannot offer the new services demanded by our customers in
a timely manner, our business, operating results or financial
condition could be adversely affected.
The development of our Next Generation Network requires
significant capital expenditures, which may not be available on
terms satisfactory to us or may impose a burden on our other
business activities.
Our business is capital intensive. We need to continue to devote
substantial resources to infrastructure construction and upgrade
to provide consistent and high quality services. In particular,
because we deliver our fixed telecommunications network services
through our self-owned Next Generation Network, we have made,
and will continue to make, capital investments in the expansion
and upgrade of this network and the development of various
telecommunications services. We incurred total capital
expenditures of approximately HK$286.7 million in fiscal
2009.
We expect to incur capital expenditures of approximately
HK$300 million to HK$350 million per year in fiscal
2010 and 2011, a large majority of which will be spent on the
continued expansion and upgrade of our network. While we intend
to fund such expenditures by using our currently available cash
as well as cash flow from operations, we may not have adequate
capital to fund our projected capital expenditures. Our ability
to fund operating and capital expenditures depends significantly
on our ability to generate cash from operations. In fiscal 2009,
we generated cash from operations of HK$535.9 million.
However, we cannot assure you that we will be able to sustain
our operations in order to generate sufficient cash flows to
meet our future requirements. Our ability to generate cash from
operations is subject to general economic, financial, industry,
legal and other factors and conditions, many of which are
outside our control. In particular, our operations are subject
to price and demand volatility in the telecommunications
industry.
If we cannot finance our operations and capital expenditure
using cash generated from operations, we may be required to,
among other things, incur additional debt, reduce capital
expenditures, sell assets, or raise equity. The recent global
economic crisis has caused a general tightening in the credit
markets, lower levels of liquidity, increases in the rates of
default and bankruptcy, and volatility in the capital markets.
Although we have sufficient cash to meet our anticipated cash
needs for at least the next 12 months, the current market
conditions may affect our ability to obtain further financing to
support our network expansion in the future. Any failure to do
so will negatively impact our business and slow down our network
deployment, in that we may not be able to continue expanding our
network infrastructure to cover substantial areas of the Hong
Kong territory. Additional debt or equity financing may not be
available, and debt financing, if available, may involve
restrictions on our investing, financing and operating
activities.
If any of our new services are not successful, our operating
results could be adversely affected.
New telecommunications services are introduced by our
competitors from time to time. If we do not anticipate these
changes and rapidly adopt new and innovative services in
response, we may not be able to fully capture the opportunities
in the market. Development of new services, however, exposes us
to the following risks:
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Developing new telecommunications services can be complex. We
may not be able to adapt the new services effectively and
economically to meet customer demand.
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In developing new services, we are required to continue to make
significant investments in our network infrastructure in order
to support these services. If we exceed our budgeted capital
expenditure and cannot meet the additional capital requirements
in time through operating cash flow and planned financings, we
may have to delay the project.
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Any of our new services may not be commercially successful. The
failure of any of our services to achieve commercial acceptance
could result in additional capital expenditures or, to the
extent that we are required under the applicable accounting
standard we can recognize a charge for the impairment of assets.
Any impairment charges could materially and adversely affect our
financial condition and the results of our operations.
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Specifically, we cannot assure you that any services enabled by
upgrading and expanding our Next Generation Network will provide
us with an acceptable rate of return. This would depend on our
ability to accurately identify and respond to emerging consumer
trends and demand. We cannot assure you that we can generate
satisfactory investment returns on any new service.
We may need to improve our internal controls over financial
reporting and our independent auditors may not be able to attest
to their effectiveness.
The United States Securities and Exchange Commission, or the
SEC, as required by Section 404 of the Sarbanes-Oxley Act
of 2002, adopted rules requiring every public company to include
a management report on such companys internal controls
over financial reporting in its annual report, which contains
managements assessment of the effectiveness of the
companys internal controls over financial reporting. In
addition, an independent registered public accounting firm must
attest to and report on the effectiveness of the Companys
internal controls over financial reporting. As a non-accelerated
filer, we are required to file managements report on
internal controls over financial reporting for fiscal 2009 and
our first auditors report on the effectiveness of our
internal controls over financial reporting for fiscal 2010.
We have evaluated our internal controls surrounding the
financial reporting process for the current fiscal period so
that management can attest to the effectiveness of these
controls, as required by Section 404 of the Sarbanes-Oxley
Act of 2002. We have implemented appropriate steps to strengthen
the internal controls. However, we may identify conditions that
could result in significant deficiencies or material weaknesses
in the future. As a result, we could experience a negative
reaction in the financial markets and incur additional costs in
improving the condition of our internal controls. For a detailed
discussion of controls and procedures, see Item 15
Controls and procedures.
Notwithstanding our efforts, our management may subsequently
conclude that our internal controls over financial reporting are
not effective. Further, for fiscal 2010, even if our management
concludes that our internal controls over our financial
reporting are effective, our independent registered public
accounting firm may conclude that our internal control over
financial reporting is not effective.
If we do not successfully design and implement changes to our
internal controls and management systems, or if we fail to
maintain the adequacy of these controls as such standards are
modified or amended from time to time, we may not be able to
comply with Section 404 of the Sarbanes-Oxley Act of 2002.
This could subject us to regulatory scrutiny and penalties that
may result in a loss of public confidence in our management,
which could, among other things, adversely affect our customer
and vendor confidence, stock price and our ability to raise
additional capital and operate our business as projected.
If we cannot manage the growth in our FTNS business, the
quality of our services and our operating results could be
adversely affected.
We have been pursuing an aggressive strategy in growing our FTNS
business. As part of this strategy, we intend to continue to
expand and invest in our Next Generation Network infrastructure
to support our range of broadband Internet access, local VoIP,
IP-TV
and
corporate data services. The deployment of these projects has
resulted and will result in significant demands on our systems
and controls and may impact our administrative, operational and
financial resources. These projects will also place significant
demands on us to maintain the quality of our services to ensure
that our brand does not suffer as a result of any deviations,
whether actual or perceived, in the quality of our services.
Our ability to manage the growth in our FTNS business will
depend upon our ability to:
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improve our existing operational, administrative and
technological systems and our financial and management controls;
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enhance our infrastructure to support the expansion;
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develop effective marketing plans;
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control operational costs and maintain effective quality
controls; and
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offer competitive prices to customers for our services.
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Our failure to achieve any of the above in an efficient manner
and at a pace consistent with the growth of our FTNS business
could have an adverse effect on the quality of our services and
increase our costs of operation.
We depend on certain key personnel, and our business and
growth prospects may be disrupted by the loss of their
services.
Our future success is dependent upon the continued service of
our key executives and employees. While we have employment
agreements with members of our senior management staff, we
cannot assure you that we will be able to retain these
executives and employees. If one or more of our key personnel
were unable or unwilling to continue in their present positions,
or if they joined a competitor or formed a competing company, or
if they shifted their focus away from Hong Kong operations, we
may not be able to replace them easily, our business may be
significantly disrupted and our financial condition and results
of operations may be materially and adversely affected.
Furthermore, as our industry is characterized by high demand and
increased competition for talent, we may need to offer higher
compensation and other benefits in order to attract and retain
key personnel in the future. We cannot assure you that we will
be able to attract and retain the key personnel that we will
need to achieve our business objectives.
Our ability to further expand the coverage of our Next
Generation Network may be limited by the physical limitations or
our ability to obtain access rights in certain buildings
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Our Next Generation Network has the capability of providing
value-added broadband services and content that combine voice,
data and images with increased efficiency and flexibility. As
part of our strategy to grow our FTNS business, we plan to
increase the coverage of our Next Generation Network from the
current number of 1.6 million residential homes pass as of
August 31, 2009 to our target of 2.0 million
residential homes pass by the end of 2011. To connect our Next
Generation Network to a new physical site, we need to install
fiber-to-the-home or fiber-to-the-building with Category-5e
copper wiring, which we refer to as in-building
wiring. Our expansion plan may be hindered because the
installation of in-building wiring is subject to the following
constraints:
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Because at least one of our competitors has already installed
in-building wiring in virtually all buildings and many buildings
have limited physical space for additional in-building wiring,
other FTNS providers, including us, may encounter a bottleneck
when installing our own in-building wiring.
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Some single-owner commercial buildings may grant rights of
access to our competitors while barring us from installing our
own in-building wiring.
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Certain developers may have affiliations with our competitors
and may attempt to delay our wiring installations.
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We may be unable to capitalize on any economy of scale benefits
if we fail to expand our network coverage in our projected rate.
Our growth opportunities will also be limited as a result.
Internet security concerns could adversely affect our
Internet access services.
To remain competitive, we must continue to upgrade our broadband
Internet access, local VoIP,
IP-TV
and
corporate data services. Computer viruses, break-ins and other
inappropriate or unauthorized uses of our Next Generation
Network could affect the provision of our full suite of IP
services and have the following effects on our FTNS business:
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interruption, delays or cessation in services to our customers;
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a threat to the security of confidential information stored in
the computer system of our customers; and
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illegal viewing or download of our contents.
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S-13
To protect our business from computer viruses and other harmful
attacks, we may need to incur significant costs to protect us
against the threat of security breaches or to alleviate problems
caused by such breaches. We intend to continue to strengthen our
network security to alleviate these problems. Our efforts,
however, may cause interruptions, delays or cessations of our
services, and our customers may stop using our service or assert
claims against us as a result.
We may be unable to further expand the scope of our Internet
access services unless we obtain additional network capacity.
Our ability to transition from time to time to more advanced
technologies for faster Internet access is critical to our
sustained competitiveness. Because our Next Generation Network
has limited capacity, our ability to expand the network
bandwidth on a timely basis is subject to the following factors:
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the expansion and development of our own international
telecommunications facilities;
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the availability of leased capacity from third party carriers at
favorable rates; and
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the possible termination or cancellation of our existing
contracts.
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If we fail to increase the capacity of our international
bandwidth, our ability to increase our market share and revenue
in the Internet access market segment will be limited.
Natural disasters and other disruptive regional events could
damage our network and adversely affect our business and
operating results.
Our network is vulnerable to damage or cessation of operations
from fire, earthquakes, severe storms, heavy rainfall, power
loss, telecommunications failures, network software flaws,
vandalism, transmission cable cuts and other catastrophic
events. We may experience failures or shut downs relating to
individual points of presence or even catastrophic failure of
our entire network. Any sustained failure of our network, our
servers, or any link in the delivery chain, whether from
operational disruption, natural disaster or otherwise, could
have a material adverse effect on our business, financial
condition and results of operations.
The loss of key suppliers or their failure to deliver
equipment on a timely basis could negatively impact our
business.
We rely on third parties for the supply of network equipment.
Further, because an IP set-top-box must be installed in order to
access our
IP-TV
services, we must have an adequate supply of such installation
equipment on hand for delivery to our customers in a timely
manner.
We purchase all of our IP set-top boxes and other equipment from
our suppliers on a purchase order basis and have no long-term
contracts. If our suppliers are unable to supply us with these
products in a timely manner or the costs of these products
increase due to unforeseen causes, this could negatively impact
our operating results, especially if we are unable to spread the
costs over a larger subscription base or effectively pass the
additional costs on to our subscribers.
Because we rely on third parties in delivering services
through our Next Generation Network, our operating results could
be adversely affected if their services are not timely or do not
meet our standards.
We depend on third parties for the ongoing maintenance and
repair of our Next Generation Network. Further, although our
Next Generation Network is operated essentially as an
independent network, a small portion of it is connected to the
network of other providers under interconnection agreements. We
are also dependent on certain Hong Kong rail transport providers
to maintain and provide us with access to their infrastructure
to support the proper functioning of our equipment and
fiber-based backbone. If these third parties fail to respond or
are untimely in their response to our maintenance and repair
needs, our customers may experience interruptions or variations
in the quality of our fixed telecommunications network services.
Any service interruptions or variations could adversely affect
our operating results and our ability to retain or add new
customers.
S-14
Risks
Relating to the Regulatory, Political and Economic
Environment
Regulatory reforms and currently contemplated regulatory
initiatives in the telecommunications industry may adversely
affect us.
The Hong Kong telecommunications industry is undergoing
continuous regulatory reform. Our business and results of
operations may be adversely affected by changes in the
telecommunications regulations, especially in the following
areas:
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In July 2004, a new provision of the Telecommunications
Ordinance came into force. This anti-competition provision
specifically regulates the conduct of all carrier licensees (in
particular merger and acquisition transactions) in the Hong Kong
telecommunications industry by giving the Telecommunications
Authority the power to review the conducts and transactions
concerning carrier licensees and to take appropriate actions if
it determines that the transaction would, or is likely to,
prevent or substantially lessen competition in a
telecommunications market. The Telecommunications Authority has
the power under this provision to conduct an investigation into
any questionable transaction. It might consent to the
transaction (unconditionally or subject to any conditions it
deems appropriate) or reject the transaction outright. The
decision of the Telecommunications Authority will take into
account of whether the transaction will adversely affect the
public interest and benefit. This provision may have an adverse
effect on our ability to grow our business through mergers and
acquisitions.
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We offer local VoIP services through our Next Generation Network
under HKBNs FTNS License. Following the conclusion of a
public consultation on the regulation of Internet Protocol
Telephony Services, the Telecommunications Authority issued a
statement on June 20, 2005, setting out its views and
decisions on the regulatory and licensing framework for the
provision of VoIP services, including the creation of a
licensing framework, conformance to the existing system of
assigning telephone numbers, imposition of interconnection
charges and establishing guidelines with respect to the quality
of services.
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We offer fixed but not mobile telecommunications network
services. The Telecommunications Authority has implemented a new
fixed-mobile convergence licensing practice by way of the UC
License. The UC License regime, which began on August 1,
2008, seeks to replace the existing four classes of carrier
licenses for the provision of fixed and mobile services with a
simple license. Going forward the UC License will be the only
carrier license to be issued for the provision of fixed, mobile
and/or
converged services. Existing carrier licenses will remain
effective until their expiry date. Licensees can choose to apply
to convert their existing licenses to UC Licenses before then or
apply for a UC License upon expiry. This regulatory change,
together with the development of new technologies, may further
accelerate the convergence of fixed and mobile
telecommunications services, resulting in more structural
competition between fixed-line and mobile telecommunications
operators. As we do not have a mobile license, and are not
currently authorized to provide mobile services, our ability to
compete may be hindered by our inability to offer such services
independently.
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We provide our
IP-TV
services over our Next Generation Network under HKBNs FTNS
License. The Hong Kong government has indicated that because our
IP-TV
services are carried over the Internet, we are exempted under
the Broadcasting Ordinance from the requirement to obtain a
domestic pay-television program service license. However, the
governments Communications and Technology Branch has
informed us that the government is considering a review of the
broadcasting regulatory regime and may introduce changes to the
existing regulatory framework, including the existing exemption
in the Broadcasting Ordinance. However, we cannot predict
whether the government may require us to obtain a pay-television
program service license in the future.
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S-15
We require licenses from the Telecommunications Authority to
provide our services. If one of these licenses is revoked or not
renewed or there are substantial changes in its terms and
conditions, we may be unable to deliver the services authorized
by that license.
We require licenses from the Telecommunications Authority to
provide our fixed telecommunications network and international
telecommunications services. Our business operations therefore
are susceptible to the following changes in the regulatory
environment in particular:
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Our ability to adjust the tariffs for different services are
governed by the terms and conditions of the relevant licenses.
The licenses, however, are issued under different regulatory
frameworks. The differences in regulatory structure for these
licenses may constrain our flexibility to respond to market
conditions, competition or cost structure.
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We have been granted a waiver by the Telecommunications
Authority to comply with the tariff restrictions contained in
HKBNs FTNS License. If the waiver is revoked, our ability
to adjust the tariffs for our fixed telecommunication network
services, including our offer of discounts to subscribers from
time to time, will be restricted.
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Our PNETS License is subject to the Telecommunications
Authoritys annual renewal. On October 19, 2009, the
Telecommunications Authority announced the replacement of the
PNETS License by a new class of Services-Based Operator License,
Class 3 Modified Services-Based Operator License. On
December 1, 2009, the PNETS License of City Telecom was
replaced by a Class 3 Modified Services-Based Operator
License. It is expected that the PNETS License of HKBN would
also be replaced by a Class 3 Modified Services-Based Operator
License on January 1, 2010 through the renewal procedure.
HKBNs FTNS License was initially granted in 2000 for a
term of 15 years and may be renewed for such further period
not exceeding 15 years at the discretion of the
Telecommunications Authority.
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The Telecommunications Authoritys failure to renew or its
revocation of any of these licenses or its amendment of any of
the terms and conditions contained in such licenses for any
reason would prohibit us from continuing to offer the services
authorized by those licenses, which would have a significant
adverse impact on our revenues and profitability. In addition,
there may be future changes in Hong Kongs
telecommunications regulations or policies that would require us
to obtain additional licenses, which could have an adverse
impact on our operations.
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Our international telecommunications revenues may be
adversely affected by increases in carrier charges in China.
In China, tariffs for all domestic and international long
distance services offered through public switched telephone
networks, leased lines and data services are jointly set by the
Ministry of Information Industry and the State Development
Planning Commission. Certain tariffs payable by us to our
carrier partners are based, among other things, on the tariffs
set by these agencies with respect to the calls our subscribers
make to persons in China. In fiscal 2009, approximately 78% of
our international call traffic volume was to China. We cannot
predict the timing, likelihood or magnitude of any tariff
adjustments that may be imposed by the Ministry of Information
Industry and the State Development Planning Commission, nor can
we predict the extent or potential impact upon our business of
any future tariff increases. Such increases may lead to a
decrease in traffic, reduce our revenues and adversely affect
our business and results of operations. In addition, if we are
unable to effectively manage the increased network costs, the
profit margins of our IDD business could be adversely affected.
As approximately 48% of our staff located in Guangzhou,
China, changes in Chinese labor or business laws may
significantly affect our operations and our ability to serve our
Hong Kong based customers.
Our call center in Guangzhou employs over 1,500 employees
and is an important resource to us. We are therefore
significantly affected by the laws and regulations governing
foreign companies with operations in China. As the Chinese legal
system develops, changes in such laws and regulations, their
interpretation or their enforcement may lead to restrictions on
our ability to hire and retain our employees in China, which
could impact our ability to provide services to our Hong
Kong-based customers.
S-16
Currency fluctuations of the Hong Kong dollar, our functional
currency, may increase our operating costs and long term
liability.
We are exposed to a certain amount of foreign exchange risk
because our revenues are predominantly denominated in Hong Kong
dollars, while a major portion of our operating costs are
denominated in U.S. dollars, Renminbi or other foreign
currencies. Our foreign currency-denominated expenses primarily
consist of the following:
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A major portion of our operating costs of interconnection
charges payable to overseas carriers for the delivery of our
international calls. Substantially all of these interconnection
charges are denominated in U.S. dollars or other foreign
currencies.
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The equipment and hardware we purchase for the expansion of our
Next Generation Network constitutes a large portion of our
capital expenditures and is also denominated in
U.S. dollars.
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Payment of interest, principal and any other amounts due under
the
10-year
senior notes due 2015 are made in U.S. dollars.
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Expenses incurred for the operation of our call center located
in Guangzhou, China are denominated exclusively in Renminbi, the
official currency of the Peoples Republic of China. These
include salaries paid to our personnel as well as various
operating expenses that we incur to maintain our operations.
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Since October 17, 1983, the Hong Kong dollar has been
linked to the U.S. dollar at the rate of HK$7.80 per
US$1.00. We, however, cannot assure you the link will be
maintained in future. Any depreciation of the Hong Kong dollar
against the U.S. dollar, Renminbi or other currencies would
increase our operating costs, including our debt servicing
costs, make our capital expenditure plans more expensive, and
adversely affect our profitability.
The Renminbi is presently pegged to a basket of currencies, and
there remains significant international pressure on the PRC
government to further liberalize its currency policy. This could
result in a further and more significant appreciation in the
value of the Renminbi against the Hong Kong dollar, which would
increase the cost of operating our call center.
Our Chairman and Vice Chairman have significant ownership
interest in the company. We cannot assure you that our Chairman
and Vice Chairman will not engage in any transactions that lead
to conflicts of interest resulting from their ownership
interests
Our Chairman and Vice Chairman each have an indirect ownership
interest in the Company through Top Group International Limited
(Top Group), which, as of December 18, 2009,
held approximately 51.05% of the Companys shares, of which
42.12% and 27.06% was owned by our Chairman and Vice Chairman,
respectively. Top Group is a holding company which is
incorporated in the British Virgin Islands but has no active
operations. We cannot make assurances that our Chairman or Vice
Chairman will not take actions that may not be in the best
interests of our other shareholders.
Risks
Relating to this Offering
The trading price of our ADSs has been volatile and may
continue to be volatile regardless of our operating
performance.
The trading price of our ADSs has been and may continue to be
subject to wide fluctuations. Our ADSs were first quoted on the
Nasdaq Global Market (formerly the Nasdaq Stock Market)
beginning on November 3, 1999. During the period from
November 3, 1999 until March 30, 2010, the trading
prices of our ADSs ranged from US$0.85 to US$18.61 per ADS and
the closing sale price on April 22, 2010 was
US$13.91 per ADS. The market price for our ADSs may
continue to be volatile and subject to wide fluctuations in
response to factors including the following:
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uncertainties or delays relating to the financing, completion
and successful operation of our projects;
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regulatory developments affecting us or our competitors;
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S-17
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actual or anticipated fluctuations in our quarterly operating
results;
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changes in financial estimates by securities research analysts;
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addition or departure of our executive officers and key
personnel;
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fluctuations in the exchange rates between the U.S. dollar
and the Hong Kong dollar;
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release or expiration of
lock-up
or
other transfer restrictions on our outstanding ordinary shares
or ADSs; and
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sales or perceived likelihood of sales of additional ordinary
shares or ADSs.
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In addition, the securities market has from time to time
experienced significant price and volume fluctuations that are
not related to the operating performance of particular
companies. These market fluctuations may also have an adverse
impact on the trading price of our ADSs.
We may issue additional ADSs, other equity, equity-linked or
debt securities, which may materially and adversely affect the
price of our ADSs.
We may issue additional equity, equity-linked or debt securities
for a number of reasons, including to finance our operations and
business strategy, to satisfy our obligations for the repayment
of existing indebtedness, or for other reasons. Any future
issuances of equity securities or equity-linked securities could
substantially dilute your interests. Any future issuances of
equity, equity-linked or debt securities may materially
adversely affect the trading price of our ADSs. We cannot
predict the timing or size of any future issuances or sales of
equity, equity-linked or debt securities, or the effect, if any,
that such issuances or sales, including the sale of the ADSs in
this offering, may have on the market price of our ADSs. Market
conditions could require us to accept less favorable terms for
the issuance of our securities in the future.
Holders of ADSs have fewer rights than shareholders and must
act through the depositary to exercise those rights.
Holders of ADSs do not have the same rights of our shareholders
and may only exercise the voting rights with respect to the
underlying ordinary shares of the depositary and in accordance
with the provisions of the deposit agreement. When a general
meeting is convened, you may not receive sufficient notice of a
shareholders meeting to permit you to withdraw your
ordinary shares to allow you to cast your vote with respect to
any specific matter. In addition, the depositary and its agents
may not be able to send voting instructions to you or carry out
your voting instructions in a timely manner. We will make all
reasonable efforts to cause the depositary to extend voting
rights to you in a timely manner, but we cannot assure you that
you will receive the voting materials in time to ensure that you
can instruct the depositary to vote your ADSs. Furthermore, the
depositary and its agents will not be responsible for any
failure to carry out any instructions to vote, for the manner in
which any vote is cast or for the effect of any such vote. As a
result, you may not be able to exercise your right to vote and
you may lack recourse if your ADSs are not voted as you
requested. In addition, in your capacity as an ADS holder, you
will not be able to convene a shareholder meeting.
You may be subject to limitations on transfers of your
ADSs.
Your ADSs are transferable on the books of the depositary.
However, the depositary may close its transfer books at any time
or from time to time when it deems expedient in connection with
the performance of its duties. In addition, the depositary may
refuse to deliver, transfer or register transfers of ADSs
generally when our books or the books of the depositary are
closed, or at any time if we or the depositary deem it advisable
to do so because of any requirement of law or of any government
or governmental body, or under any provision of the deposit
agreement, or for any other reason.
Your right to participate in any future rights offerings may
be limited, which may cause dilution to your holdings and you
may not receive cash dividends if it is unlawful or impractical
to make them available to you.
We may from time to time distribute rights to our shareholders,
including rights to acquire our securities. However, we cannot
make rights available to you in the United States unless we
register the rights and the
S-18
securities to which the rights relate under the Securities Act
or an exemption from the registration requirements is available.
Also, under the deposit agreement, the depositary bank will not
make rights available to you unless the distribution to ADS
holders of both the rights and any related securities are either
registered under the Securities Act, or exempted from
registration under the Securities Act. We are under no
obligation to file a registration statement with respect to any
such rights or securities or to endeavor to cause such a
registration statement to be declared effective. Moreover, we
may not be able to establish an exemption from registration
under the Securities Act. Accordingly, you may be unable to
participate in our rights offerings and may experience dilution
in your holdings.
In addition, the depositary of our ADSs has agreed to pay to you
the cash dividends or other distributions it or the custodian
receives on our ordinary shares or other deposited securities
after deducting its fees and expenses. You will receive these
distributions in proportion to the number of ordinary shares
your ADSs represent. However, the depositary may, at its
discretion, decide that it is unlawful, inequitable or
impractical to make a distribution available to any holders of
ADSs. For example, the depositary may determine that it is not
practicable to distribute certain property through the mail, or
that the value of certain distributions may be less than the
cost of mailing them. In these cases, the depositary may decide
not to distribute such property and you will not receive such
distribution.
You may have difficulty enforcing judgments obtained against
us.
We are a Hong Kong company incorporated under the Companies
Ordinance, and substantially all of our assets are located
outside of the United States. All of our current operations, and
administrative and corporate functions are conducted in Hong
Kong. In addition, substantially all of our directors and
officers are nationals and residents of countries other than the
United States. A substantial portion of the assets of these
persons are located outside the United States. As a result, it
may be difficult for you to effect service of process within the
United States upon these persons. It may also be difficult for
you to enforce in Hong Kong court judgments obtained in
U.S. courts based on the civil liability provisions of the
U.S. federal securities laws against us and our officers
and directors, most of whom are not residents in the United
States and the substantial majority of whose assets are located
outside of the United States. In addition, there is uncertainty
as to whether the courts of Hong Kong would recognize or enforce
judgments of U.S. courts against us or such persons
predicated upon the civil liability provisions of the securities
laws of the United States or any state. In addition, it is
uncertain whether such Hong Kong courts would be competent to
hear original actions brought in Hong Kong against us or such
persons predicated upon the securities laws of the United States
or any state.
We may be treated as a passive foreign investment company,
which could result in adverse United States federal income tax
consequences to U.S. Holders.
Although the applicable rules are not clear, we believe that we
were not in 2009, and we do not currently expect to be in 2010,
a passive foreign investment company, or PFIC, for
U.S. federal income tax purposes. This determination is
made annually at the end of each taxable year and is dependent
upon a number of factors, some of which are beyond our control,
including the nature and value of our assets (including
goodwill) and the amount and type of our income. Accordingly,
there can be no assurance that we will not become a PFIC or that
the Internal Revenue Service of the United States will agree
with our conclusion regarding our PFIC status for 2009 or any
taxable year thereafter. If we are a PFIC in any year,
U.S. Holders of the ADSs or ordinary shares could suffer
certain adverse United States federal income tax consequences.
See Taxation below.
Our management has broad discretion over the use of proceeds
from this offering and we may not be awarded a domestic free
television program service license, in which case all of the net
proceeds of this offering would be used for general corporate
purposes. Even if we are awarded such a license, we cannot
assure you that we will successfully launch and upgrade a
domestic free television service.
Our management has significant flexibility in applying the
proceeds that we receive from this offering. While we currently
intend to use a portion of the proceeds to launch a new domestic
free television program service in Hong Kong, there can be no
assurance that we will do so. While we have submitted an
application for a domestic free television program service
license to provide free television program services in Hong
Kong, we
S-19
cannot assure you that we will be awarded such a license. If we
are not awarded the license, or if the receipt of such license
is extensively delayed, the entire amount of the net proceeds of
this offering will be used for general corporate purposes. The
proceeds of this offering may be used in a manner that does not
generate favorable returns.
If we are awarded a domestic free television program service
license, we expect that we will incur significant capital
expenditures in order to develop such a service. Our current
estimate is that an investment of up to HK$210 million
(approximately US$27 million) would be required before
reaching positive free cash flow. However, we have not
previously operated a domestic free television service and
launching and operating such a service is highly complex. We
cannot assure that we will be able to successfully launch or
operate such a service or that a significantly higher investment
will not be required to do so. Further, any domestic free
television service that we operate will have to compete with
more established stations in the Hong Kong market with much more
established operating histories and viewer and advertiser bases.
We can not assure you that we will be able to successfully
compete against such operators.
S-20
Cautionary
Note Regarding Forward-Looking Statements
This prospectus supplement, the accompanying prospectus and the
documents incorporated herein and therein by reference contain
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended. Any statements that do not relate to historical or
current facts or matters are forward-looking statements. You can
identify some of the forward-looking statements by the use of
forward-looking words, such as may,
will, could, project,
believe, anticipate, expect,
estimate, continue,
potential, plan, forecasts,
and the like, the negatives of such expressions, or the use of
future tense. Statements concerning current conditions may also
be forward-looking if they imply a continuation of current
conditions.
Forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ
materially from those expressed in the forward-looking
statements. You are urged to carefully review the disclosures we
make concerning risks and other factors that may affect our
business and operating results, including, but not limited to,
those factors set forth in the Risk Factors section
and in other sections of this prospectus supplement and in our
most recent Annual Report on
Form 20-F
under the captions Risk Factors,
Business, Legal and Regulatory
Proceedings, Managements Discussion and
Analysis of Financial Condition and Results of Operations,
and Quantitative and Qualitative Disclosures About Market
Risk, our subsequent Current Reports on
Form 6-K
and our other reports filed with the SEC. Please consider our
forward-looking statements in light of those risks as you read
this prospectus supplement and the accompanying prospectus. You
are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of
this document. Additional risks relating to our business, the
industries in which we operate or any securities we may offer
and sell under this prospectus may be described from time to
time in our filings with the SEC. We do not intend, and
undertake no obligation, to publish revised forward-looking
statements to reflect events or circumstances after the date of
this document or to reflect the occurrence of unanticipated
events.
S-21
Use of
Proceeds
We estimate that the net proceeds from the sale of the ADSs will
be approximately $42,525,000, after deducting the
underwriters fees and estimated aggregate offering
expenses payable by us. We intend to use a portion of the net
proceeds of this offering to launch our new domestic free
television program services in Hong Kong. We will use the
remainder of the proceeds for general corporate purposes. We
also plan to fully repay the HK$40 million outstanding
under one of our banking facilities on or about the completion
of this offering using a portion of our available cash. Credit
lines in the aggregate of HK$190 million are available under
this banking facility, and any amount outstanding bears interest
at a floating rate, is repayable in full and may be rolled over
on a monthly basis until the facility expires in July 2011. The
amount previously drawn down from this banking facility was used
for general corporate purposes.
Capitalization
The following table sets forth the capitalization as of
August 31, 2009 on an actual basis and as adjusted to give
effect to the sale by us of 3,500,000 ADSs in this offering
at a public offering price of US$13.00 per ADS, after
deducting the estimated aggregate offering expenses of
US$700,000 payable by us, which excludes the underwriting
discount and financial advisory fee, assuming no exercise of the
underwriters over-allotment option.
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Actual
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As adjusted
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HK$
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US$
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HK$
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US$
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(in thousands)
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8.75% senior notes due 2015(1)
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165,563
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21,363
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165,563
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21,363
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Shareholders equity
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Common stock(2) (2,000,000,000 ordinary shares authorized;
664,179,970 ordinary shares issued and outstanding)
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66,418
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8,570
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73,418
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9,473
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Share Premium
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681,208
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87,892
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1,021,430
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131,789
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Reserves
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480,901
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62,047
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480,901
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62,047
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Total shareholders equity
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1,228,527
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158,509
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1,575,749
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203,309
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Total Capitalization
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1,394,090
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179,872
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1,741,312
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224,672
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(1)
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Subsequent to August 31, 2009,
we have either repurchased or redeemed these senior notes such
that none of the senior notes are outstanding. In addition, we
have obtained banking facilities with credit lines of up to
HK$365.0 million in the aggregate. We also plan to fully
repay the HK$40 million outstanding under one of our
banking facilities on or about the completion of this offering
using a portion of our available cash. Credit lines in the
aggregate of HK$190 million are available under this
banking facility, and any amount outstanding bears interest at a
floating rate, is repayable in full and may be rolled over on a
monthly basis until the facility expires in July 2011. The
amount previously drawn down from this banking facility was used
for general corporate purposes. See Summary
Recent Developments.
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(2)
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As of April 14, 2010,
684,497,344 ordinary shares were issued and outstanding.
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S-22
Exchange
Rate Information
Our business is primarily conducted in Hong Kong and
substantially all of our revenues are denominated in Hong Kong
dollars. However, this prospectus supplement, the accompanying
prospectus and the documents incorporated by reference contain
current period amounts translated into U.S. dollars using
the then current exchange rates, for the convenience of readers.
For all periods prior to January 1, 2009, the exchange rate
refers to noon buying rate as reported by the Federal Reserve
Bank of New York. For periods beginning on or after
January 1, 2009, the exchange rate refers to the exchange
rate as set forth in the H.10 statistical release of the Federal
Reserve Board. We make no representation that any Hong Kong
dollars or U.S. dollar amounts could have been, or could
be, converted into U.S. dollars or Hong Kong dollars, as
the case may be, at any particular rate, or at all. On
April 16, 2010, the noon buying rate was 7.7621 Hong Kong
dollars to US$1.00.
The following table sets forth information concerning exchange
rates between the Hong Kong dollar and the U.S. dollar for
the periods indicated.
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Noon Buying Rate
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Period
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Period
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End
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Average(1)
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Low
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High
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2005
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7.7718
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|
|
|
7.7869
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|
|
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7.7684
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|
|
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7.8002
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2006
|
|
|
7.7767
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|
|
|
7.7601
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|
|
|
7.7506
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|
|
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7.7796
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2007
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|
|
7.7968
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|
|
|
7.8029
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|
|
|
7.7665
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|
|
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7.8289
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2008
|
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|
7.8036
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|
|
|
7.7915
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|
|
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7.7497
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|
|
|
7.8159
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2009
|
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7.7505
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|
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7.7550
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|
|
|
7.7495
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|
|
|
7.8094
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2010
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January
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7.7665
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|
|
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7.7624
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|
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7.7539
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7.7752
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February
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7.7619
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7.7670
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|
|
|
7.7619
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|
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7.7716
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March
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7.7647
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|
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7.7612
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|
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7.7574
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7.7648
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April (through April 16)
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7.7621
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7.7620
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|
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7.7565
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7.7672
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(1)
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Annual averages are calculated from
month-end rates. Monthly averages are calculated using the
average of the daily rates during the relevant period.
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S-23
Description
of American Depositary Shares
For a description of our American Depositary Shares, see
Description of the American Depositary Shares in our
final prospectus filed pursuant to Rule 424(b)(4) of the
Securities Act on November 4, 1999 with respect to the
Registration Statement on
Form F-1
(File
No. 333-11012).
In addition to such disclosure and the disclosure contained or
incorporated by reference into this prospectus supplement or the
accompanying prospectus, it is important to note that prior
approval of the HKSE must be obtained before the ordinary shares
represented by the ADSs offered hereby may trade on the HKSE.
Depositary
Reimbursement
The Bank of New York Mellon, as depositary, has agreed to
reimburse us for expenses we incur that are related to the
establishment and maintenance of the ADR program, including
investor relations expenses and the Nasdaq Global Market
application and listing fees. There are limits on the amount of
expenses for which the depositary will reimburse us, but the
amount of reimbursement available to us is not related to the
amounts of fees the depositary collects from investors under the
ADS program.
The depositary collects its fees for issuance and cancellation
of ADSs directly from investors depositing ordinary shares or
surrendering ADSs or from intermediaries acting for them. The
depositary collects fees for making distributions to investors
by deducting those fees from the amounts distributed or by
selling a portion of distributable property to pay the fees. The
depositary may collect its annual fee for depositary services by
deducting from cash distributions or by directly billing
investors or by charging the book-entry system accounts of
participants acting for them. The depositary may generally
refuse to provide fee-attracting services until its fees for
those services are paid.
S-24
Taxation
Certain
U.S. Federal Income Tax Considerations
The following is a summary of certain United States federal
income tax considerations that are anticipated to be material to
the purchase, ownership, and disposition of our shares or
American Depositary Shares (ADSs) (ADSs)
by U.S. Holders, as defined below. This summary is based on
the U.S. Internal Revenue Code of 1986, as amended (the
Code), its legislative history, existing and
proposed U.S. Treasury regulations, published rulings and
court decisions, all as in effect on the date hereof. These laws
are all subject to change or different interpretation, possibly
on a retroactive basis. This summary does not discuss all
aspects of United States federal income taxation which may be
important to particular investors in light of their individual
investment circumstances, such as investors subject to special
tax rules including: partnerships, financial institutions,
insurance companies, regulated investment companies, real estate
investment trusts, broker-dealers, tax-exempt organisations,
and, except as described below,
non-U.S. Holders,
or to persons that will hold our shares or ADSs as part of a
straddle, hedge, conversion, or constructive sale transaction
for United States federal income tax purposes or that have a
functional currency other than the United States dollar, or
persons who own, directly or indirectly, 5% or more of our
shares or ADSs, all of whom may be subject to tax rules that
differ significantly from those summarised below. In addition,
this summary does not discuss any foreign, state, or local tax
considerations. This summary assumes that investors will hold
our shares or ADSs as capital assets (generally,
property held for investment) under the Code.
Each prospective investor is urged to consult its own tax
advisor regarding the United States federal, state, local, and
foreign income and other tax considerations of the purchase,
ownership, and disposition of our shares or ADSs.
For purposes of this summary, a U.S. Holder is a beneficial
owner of shares or ADSs that is for United States federal income
tax purposes:
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an individual who is a citizen or resident of the United States;
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a corporation, or other entity that is taxable as a corporation,
created in or organised under the laws of the United States or
any State or political subdivision thereof;
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an estate the income of which is includible in gross income for
United States federal income tax purposes regardless of its
source;
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a trust the administration of which is subject to the primary
supervision of a United States court and which has one or more
United States persons who have the authority to control all
substantial decisions of the trust; or
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a trust that was in existence on 20 August 1996, was
treated as a United States person, for United States federal
income tax purposes, on the previous day, and elected to
continue to be so treated.
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If a partnership or other entity or arrangement treated as a
partnership for United States federal income tax purposes holds
our shares or ADSs, the tax treatment of a partner will
generally depend on the status of the partner and the activities
of the partnership. A U.S. Holder that is a partner in a
partnership holding our shares or ADS is urged to consult its
own tax advisor concerning the United States federal income tax
consequences of purchasing, owning and disposing of our shares
or ADSs by the partnership.
A beneficial owner of our shares or ADSs that is not a
U.S. Holder is referred to herein as a
Non-U.S. Holder.
A foreign corporation will be treated as a passive foreign
investment company or PFIC, for United States
federal income tax purposes, if 75% or more of its gross income
consists of certain types of passive income or 50%
or more of the fair market value of its assets are
passive for any taxable year. Based on our current
and projected income, assets, and activities, we presently
believe that we will not be treated as a PFIC for the current
taxable year and do not anticipate becoming a PFIC in a future
taxable year. However, the PFIC determination is made annually
at the end of each taxable year and is dependent on a number of
factors, some
S-25
of which are beyond our control, including the nature and value
of our assets (including goodwill) and the amount and type of
our income. Accordingly, there can be no assurance that we will
not become a PFIC or that the U.S. Internal Revenue Service
will agree with our conclusion regarding our PFIC status for
2010 or any taxable year thereafter. The discussion below under
U.S. Holders-Dividends and
U.S. Holders-Sale or Other Disposition of Shares or
ADSs, assumes that we will not be subject to treatment as
a PFIC for United States federal income tax purposes. If we were
currently or were to become a PFIC, U.S. Holders would be
subject to special rules and a variety of potentially adverse
tax consequences under the Code. See PFIC
Considerations below.
U.S.
Holders
For United States federal income tax purposes, a
U.S. Holder of an ADS will be treated as the owner of the
proportionate interest of the shares held by the depositary that
is represented by an ADS and evidenced by such ADS. Accordingly,
no gain or loss will be recognized on the exchange of an ADS for
the holders proportionate interest in the shares. A
U.S. Holders tax basis in the withdrawn shares will
be the same as the tax basis in the ADS surrendered therefore,
and the holding period in the withdrawn shares will include the
period during which the holder held the surrendered ADS.
Dividends.
Any cash distributions paid by us out of
our earnings and profits, as determined under United States
federal income tax rules, will be subject to tax as ordinary
dividend income and will be includible in the gross income of a
U.S. Holder on actual or constructive receipt. Cash
distributions paid by us in excess of our earnings and profits
will be treated first as a tax-free return of capital to the
extent of the U.S. Holders adjusted tax basis in our
shares or ADSs, and thereafter as gain from the sale or exchange
of a capital asset. Dividends paid in Hong Kong dollars will be
includible in income in a United States dollar amount based on
the United States dollar to Hong Kong dollar spot
exchange rate prevailing at the time of receipt of such
dividends by the depositary, in the case of ADSs, or by the
U.S. Holder, in the case of shares held directly by such
U.S. Holder. U.S. Holders should consult their own tax
advisors regarding the United States federal income tax
treatment of any foreign currency gain or loss recognised on the
subsequent conversion of Hong Kong dollars received as dividends
to United States dollars. Dividends received on shares or ADSs
will not be eligible for the dividends received deduction
allowed to corporations.
Under current law, qualified dividend income
received by an individual prior to January 1, 2011 is
subject to United States federal income tax rates lower than
those applicable to ordinary income. The maximum federal income
tax rate on such qualifying dividends received by an individual
is 15%, or 5% for those individuals whose incomes fall in the
10% or 15% tax brackets. Based on our existing and anticipated
future operations and current assets, and the anticipation that
our American depository shares are and will be listed on the
NASDAQ, we believe that we are a qualified foreign
corporation and that our dividends paid to
U.S. Holders who are individuals will be eligible to be
treated as qualified dividend income, provided that
such Holders satisfy applicable holding period requirements with
respect to the ADSs and other application requirements.
Dividends paid by foreign corporations that are classified as
PFICs are not qualified dividend income. See
PFIC Considerations below.
Dividends received on shares or ADSs generally will be treated,
for United States federal income tax purposes, as income from
non-U.S. sources.
Such
non-U.S. source
income generally will be passive category income, or
in certain cases general category income, which is
treated separately from other types of income for purposes of
computing the U.S. foreign tax credit. A U.S. Holder
may be eligible, subject to a number of complex limitations, to
claim a U.S. foreign tax credit in respect of any foreign
withholding taxes imposed on dividends received on shares or
ADSs. U.S. Holders who do not elect to claim a
U.S. foreign tax credit for foreign income tax withheld may
instead claim a deduction, for United States federal income tax
purposes, in respect of such withholdings, but only for a year
in which the U.S. Holder elects to do so for all creditable
foreign income taxes.
In addition, the United States Treasury has expressed concerns
that parties to whom depositary shares are pre-released may be
taking actions that are inconsistent with the claiming of
U.S. foreign tax credits by the holders of ADSs. The
analysis of the creditability of foreign withholding taxes could
be affected by future actions that may be taken by the United
States Treasury.
S-26
Sale or Other Disposition of Shares or ADSs.
A
U.S. Holder will recognise capital gain or loss on the sale
or other disposition of shares or ADSs in an amount equal to the
difference between the amount realised on the disposition and
the U.S. Holders adjusted tax basis in such shares or
ADSs, as each is determined in U.S. dollars. Any such
capital gain or loss will be long-term if the shares or ADSs
have been held for more than one year and will generally be
United States source gain or loss. Certain non-corporate
U.S. Holders (including individuals) may qualify for
preferential rates of United States federal income taxation in
respect of long-term capital gains for taxable years beginning
before January 1, 2011. The claim of a deduction in respect
of a capital loss, for United States federal income tax
purposes, may be subject to limitations. If a U.S. Holder
receives Hong Kong dollars for any such disposition, such
U.S. Holder should consult its own tax advisor regarding
the United States federal income tax treatment of any foreign
currency gain or loss recognised on the subsequent conversion of
the Hong Kong dollars to United States dollars.
PFIC
Considerations
If we were to be classified as a PFIC for any taxable year, a
U.S. Holder would be subject to special rules generally
intended to reduce or eliminate any benefits from the deferral
of United States federal income tax that a U.S. Holder
could derive from investing in a foreign company that does not
distribute all of its earnings on a current basis. In such
event, a U.S. Holder of the shares or ADSs may be subject
to tax at ordinary income tax rates on (i) any gain
recognised on the sales of the shares or ADSs and (ii) any
excess distribution paid on the shares or ADSs
(generally, a distribution in excess of 125% of the average
annual distributions paid by us in the three preceding taxable
years). In addition, a U.S. Holder may be subject to an
interest charge on such gain or excess distribution. Prospective
investors are urged to consult their own tax advisors regarding
the potential tax consequences to them if we are or do become a
PFIC, as well as certain elections that may be available to them
to mitigate such consequences.
Non-U.S.
Holders
An investment in shares or ADSs by a
Non-U.S. Holder
will not give rise to any United States federal income tax
consequences unless:
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the dividends received or gain recognised on the sale of the
shares or ADSs by such person is treated as effectively
connected with the conduct of a trade or business by such person
in the United States as determined under United States federal
income tax law, and the dividends are attributable to a
permanent establishment (or in the case of an individual, a
fixed place of business) that you maintain in the United States
if that is required by an applicable income tax treaty as a
condition for subjecting you to U.S. taxation on a net
income basis. In such cases you generally will be taxed in the
same manner as a U.S. holder. If you are a corporate
non-U.S. Holder,
effectively connected dividends may, under certain
circumstances, be subject to an additional branch profits
tax at a 30% rate or a lower rate if you are eligible for
the benefits of an income tax treaty that provides for a lower
rate, or
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in the case of gains recognised on a sale of shares or ADSs by
an individual, such individual is present in the United States
for 183 days or more and certain other conditions are met.
The
non-U.S. Holder
will be subject to United States federal income tax at a rate of
30% on the amount by which the U.S.-source capital gains exceed
non-U.S.-source
capital losses.
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Backup
Withholding and Information Reporting
In general, information reporting requirements will apply to
dividends on or the proceeds received on the sale, exchange or
redemption of shares or ADSs paid within the United States (and,
in certain cases, outside the United States) to
U.S. Holders other than certain exempt recipients, such as
corporations, and backup withholding tax may apply to such
amounts if the U.S. Holder fails to provide an accurate
taxpayer identification number (or otherwise establishes, in the
manner provided by law, an exemption from backup withholding) or
to report dividends required to be shown on the
U.S. Holders United States federal income tax returns.
S-27
Backup withholding is not an additional income tax, and the
amount of any backup withholding from a payment to a
U.S. Holder will be allowed as credit against the
U.S. Holders United States federal income tax
liability provided that the appropriate returns are filed.
A
non-U.S. Holder
generally may eliminate the requirement for information
reporting and backup withholding by providing certification of
its foreign status to the payor, under penalties of perjury, on
IRS
Form W-8BEN.
THE ABOVE DISCUSSION OF CERTAIN UNITED STATES FEDERAL INCOME
TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY, DOES NOT
PURPORT TO BE A COMPLETE DESCRIPTION OF THE POTENTIAL TAX
CONSIDERATIONS RELATING TO OUR SHARES OR AMERICAN DEPOSITARY
SHARES AND IS NOT INTENDED TO BE CONSTRUED AS TAX ADVICE.
ACCORDINGLY, PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX
ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF
PURCHASING, OWNING AND DISPOSING OF OUR SHARES OR AMERICAN
DEPOSITARY SHARES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY
UNITED STATES FEDERAL, STATE, LOCAL OR
NON-UNITED
STATES TAX LAWS, AND OF ANY PROPOSED CHANGES IN APPLICABLE
LAW.
S-28
Underwriting
We have entered into an underwriting agreement with the
underwriters named below. Oppenheimer & Co. Inc. is
acting as representative of the underwriters. Oppenheimer &
Co. Inc.s address is 300 Madison Avenue, New York,
New York 10017.
The underwriting agreement provides for the purchase of a
specific number of ADSs by each of the underwriters. The
underwriters obligations are several, which means that
each underwriter is required to purchase a specified number of
ADSs, but is not responsible for the commitment of any other
underwriter to purchase ADSs. Subject to the terms and
conditions of the underwriting agreement, each underwriter has
severally agreed to purchase the number of shares of common
stock set forth opposite its name below:
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Underwriter
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Number of ADSs
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Oppenheimer & Co. Inc.
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2,916,550
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Roth Capital Partners, LLC
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583,450
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Total
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3,500,000
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The underwriters have agreed to purchase all of the ADSs offered
by this prospectus (other than those covered by the
over-allotment option described below) if any are purchased.
Under the underwriting agreement, if an underwriter defaults in
its commitment to purchase ADSs, the commitments of
non-defaulting underwriters may be increased or the underwriting
agreement may be terminated, depending on the circumstances.
The ADSs should be ready for delivery on or about April 28,
2010 against payment in immediately available funds. The
underwriters are offering the ADSs subject to various conditions
and may reject all or part of any order. The representative has
advised us that the underwriters propose to offer the ADSs
directly to the public at the public offering price that appears
on the cover page of this prospectus. In addition, the
representative may offer some of the ADSs to other securities
dealers at such price less a concession of $0.39 per ADS. After
the ADSs are released for sale to the public, the
representatives may change the offering price and other selling
terms at various times.
We have granted the underwriters an over-allotment option. This
option, which is exercisable for up to 30 days after the
date of this prospectus, permits the underwriters to purchase a
maximum of 525,000 additional ADSs from us to cover
overallotments. If the underwriters exercise all or part of this
option, they will purchase ADSs covered by the option at the
initial public offering price that appears on the cover page of
this prospectus, less the underwriting discount. If this option
is exercised in full, the total price to public will be
US$52,325,000 and the total proceeds to us will be
US$49,708,750. The underwriters have severally agreed that, to
the extent the over-allotment option is exercised, they will
each purchase a number of additional ADSs proportionate to the
underwriters initial amount reflected in the foregoing
table.
The following table provides information regarding the amount of
the discount to be paid to the underwriters by us:
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Total Without Exercise
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Total With Full
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of Over-Allotment
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Exercise of Over-
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Per ADS
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Option
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Allotment Option
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(US$)
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(US$)
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(US$)
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Underwriting discount
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0.65
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2,275,000
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2,616,250
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We estimate that our total expenses of the offering, excluding
the underwriting discount and financial advisory fee, will be
approximately US$700,000. Pursuant to the underwriting
agreement, upon the closing of the offering, the underwriters
have agreed to pay an aggregate of up to US$450,000 of our
out-of-pocket accountable costs and expenses actually incurred
in connection with the offering. However, if the underwriting
agreement is terminated by the representative or the
underwriters because of any failure, refusal or inability on the
part of the Company to comply with the terms or to fulfill any
of the conditions of the underwriting agreement, we will pay, or
reimburse if paid by the underwriters, all of the
underwriters out-of-pocket accountable expenses (including
the reasonable fees and disbursements of their counsel) actually
incurred by
S-29
them in connection with the proposed purchase and sale of the
ADSs offered hereby, provided that such costs and expenses may
not exceed US$150,000.
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of
1933.
Pursuant to a separate financial adviser agreement, we have
agreed to pay to CIMB up to US$450,000 in consideration for its
services to us as a financial adviser.
We, as well as Wong Wai Kay, Ricky, Cheung Chi Kin, Paul, Yeung
Chu Kwong, William, and Lai Ni Quiaque, representing
approximately 58.72% of the Companys outstanding shares as
of the date of this prospectus supplement, have agreed to a
90-day
lock up covering our ordinary shares and ADSs,
including securities that are convertible into ordinary shares
or ADSs and securities that are exchangeable or exercisable for
ordinary shares or ADSs. This means that, for a period of
90 days following the date of this prospectus, we and such
persons may not offer, sell, pledge or otherwise dispose of
these securities without the prior written consent of
Oppenheimer & Co. Inc.
Rules of the Securities and Exchange Commission may limit the
ability of the underwriters to bid for or purchase ADSs before
the distribution of the ADSs is completed. However, the
underwriters may engage in the following activities in
accordance with the rules:
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Stabilizing transactions The representatives may
make bids or purchases for the purpose of pegging, fixing or
maintaining the price of the ADSs, so long as stabilizing bids
do not exceed a specified maximum.
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Over-allotments and syndicate covering transactions
The underwriters may sell more ADSs in connection with this
offering than the number of shares than they have committed to
purchase. This overallotment creates a short position for the
underwriters. This short sales position may involve either
covered short sales or naked short
sales. Covered short sales are short sales made in an amount not
greater than the underwriters over-allotment option to
purchase additional ADSs in this offering described above. The
underwriters may close out any covered short position either by
exercising their over-allotment option or by purchasing ADSs in
the open market. To determine how they will close the covered
short position, the underwriters will consider, among other
things, the price of ADSs available for purchase in the open
market, as compared to the price at which they may purchase ADSs
through the over-allotment option. Naked short sales are short
sales in excess of the over-allotment option. The underwriters
must close out any naked short position by purchasing ADSs in
the open market. A naked short position is more likely to be
created if the underwriters are concerned that, in the open
market after pricing, there may be downward pressure on the
price of the ADSs that could adversely affect investors who
purchase ADSs in this offering.
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Penalty bids If the representative purchases ADSs in
the open market in a stabilizing transaction or syndicate
covering transaction, it may reclaim a selling concession from
the underwriters and selling group members who sold those ADSs
as part of this offering.
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Passive market making Market makers in the ADSs who
are underwriters or prospective underwriters may make bids for
or purchases of ADSs, subject to limitations, until the time, if
ever, at which a stabilizing bid is made.
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Similar to other purchase transactions, the underwriters
purchases to cover the syndicate short sales or to stabilize the
market price of our ADSs may have the effect of raising or
maintaining the market price of our ADSs or preventing or
mitigating a decline in the market price of our ADSs. As a
result, the price of the ADSs may be higher than the price that
might otherwise exist in the open market. The imposition of a
penalty bid might also have an effect on the price of the ADSs
if it discourages resales of the ADSs.
Neither we nor the underwriters makes any representation or
prediction as to the effect that the transactions described
above may have on the price of the ADSs. These transactions may
occur on the Nasdaq Global Market or otherwise. If such
transactions are commenced, they may be discontinued without
notice at any time.
S-30
Electronic Delivery of Preliminary Prospectus:
A
prospectus in electronic format may be delivered to potential
investors by one or more of the underwriters participating in
this offering. The prospectus in electronic format will be
identical to the paper version of such preliminary prospectus.
Other than the prospectus in electronic format, the information
on any underwriters web site and any information contained
in any other web site maintained by an underwriter is not part
of the prospectus or the registration statement of which this
prospectus forms a part.
S-31
Notices
to
Non-United
States Investors
Investors
in the United Kingdom, Germany, Norway and The
Netherlands
In relation to each Member State of the European Economic Area
which has implemented the Prospectus directive (each, a
Relevant Member State) an offer to the public of any
ADSs which are the subject of the offering contemplated by this
prospectus supplement may not be made in that Relevant Member
State other than the offers contemplated in this prospectus
supplement in the United Kingdom, Germany, Norway and The
Netherlands once this prospectus supplement has been approved by
the competent authority in such Member State and published and
passported in accordance with the Prospectus Directive as
implemented in the United Kingdom, Germany, Norway and The
Netherlands, except that an offer to the public in that Relevant
Member State of ADSs may be made at any time under the following
exemptions under the Prospectus Directive, if they have been
implemented in that Relevant Member State:
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(a)
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to legal entities which are authorised or regulated to operate
in the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
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(b)
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to any legal entity which has two or more of (1) an average
of at least 250 employees during the last financial year;
(2) a total balance sheet of more than 43,000,000 and
(3) an annual net turnover of more than 50,000,000,
as shown in its last annual or consolidated accounts;
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(c)
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by the underwriters to fewer than 100 natural or legal persons
(other than qualified investors as defined in the Prospectus
Directive) subject to obtaining the prior consent of the
underwriters for any such offer; or
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(d)
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in any other circumstances falling within Article 3(2) of
the Prospectus Directive, provided that no such offer of ADSs
shall result in a requirement for the publication by the Company
or any underwriter of a prospectus pursuant to Article 3 of
the Prospectus Directive.
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For the purposes of this provision, the expression an
offer to the public in relation to any ADSs in any
Relevant Member State means the communication in any form and by
any means of sufficient information on the terms of the offer
and any ADSs to be offered so as to enable an investor to decide
to purchase any ADSs, as the same may be varied in that Member
State by any measure implementing the Prospectus Directive in
that Member State and the expression Prospectus
Directive means Directive 2003/71/EC and includes any
relevant implementing measure in each Relevant Member State.
Each underwriter has represented, warranted and agreed that:
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(a)
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it has only communicated or caused to be communicated and will
only communicate or cause to be communicated any invitation or
inducement to engage in investment activity (within the meaning
of section 21 of the Financial Services and Markets Act
2000 (the FSMA)) received by it in connection with
the issue or sale of any ADSs in circumstances in which
section 21(1) of the FSMA does not apply to the
Company; and
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(b)
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it has complied with and will comply with all applicable
provisions of the FSMA with respect to anything done by it in
relation to the ADSs in, from or otherwise involving the United
Kingdom.
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Investors
in Belgium
The offering is exclusively conducted under applicable private
placement exemptions and therefore it has not been and will not
be notified to, and this document or any other offering material
relating to the ADSs has not been and will not be approved by,
the Belgian Banking, Finance and Insurance Commission
(Commission bancaire, financière et des
assurances/Commissie voor het Bank-, Financie- en
Assurantiewezen). Any representation to the contrary is
unlawful. Each underwriter has undertaken not to offer sell,
resell, transfer or deliver directly or indirectly, any ADSs, or
to take any steps relating/ancillary thereto, and not to
distribute or publish this document or any other material
relating to the ADSs or to the offering in a manner which would
be construed as: (a) a public offering of ADSs to the
public under Directive 2003/71/EC which triggers an
S-32
obligation to publish a prospectus in Belgium. Any action
contrary to these restrictions will cause the recipient and the
Company to be in violation of the Belgian securities laws.
Investors
in France
Neither this prospectus supplement nor any other offering
material relating to the ADSs offered hereby has been submitted
to the clearance procedures of the
Autorité des
marchés financiers
in France. The ADSs have not been
offered or sold and will not be offered or sold, directly or
indirectly, to the public in France. Neither this prospectus
supplement nor any other offering material relating to the ADSs
offered hereby has been or will be: (a) released, issued,
distributed or caused to be released, issued or distributed to
the public in France; or (b) used in connection with any
offer for subscription or sale of the ADSs to the public in
France. Such offers, sales and distributions will be made in
France only: (i) to qualified investors (
investisseurs
qualifiés
)
and/or
to a
restricted circle of investors (
cercle restreint
dinvestisseurs
), in each case investing for their own
account, all as defined in and in accordance with
Articles L.411-2,
D.411-1, D.411-2, D.734-1, D.744-1, D.754-1 and D.764-1 of the
French
Code monétaire et financier
; (ii) to
investment services providers authorised to engage in portfolio
management on behalf of third parties; or (iii) in a
transaction that, in accordance with
article L.411-2-II-1°-or-2°-or
3° of the French
Code monétaire et financier
and
article 211-2
of the General Regulations (
Règlement
Général
) of the
Autorité des marchés
financiers
, does not constitute a public offer (
appel
public à lépargne
). Such ADSs may be resold
only in compliance with
Articles L.411-1,
L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the French
Code monétaire et financier
.
Investors
in Italy
The offering of the ADSs offered hereby in Italy has not been
registered with the Commissione Nazionale perla Società e
la Borsa (CONSOB) pursuant to Italian securities
legislation and, accordingly, the ADSs offered hereby cannot be
offered, sold or delivered in the Republic of Italy
(Italy) nor may any copy of this prospectus
supplement or any other document relating to the ADSs offered
hereby be distributed in Italy other than to professional
investors (
operatori qualificati
) as defined in
Article 31, second paragraph, of CONSOB
Regulation No. 11522 of 1 July, 1998 as
subsequently amended. Any offer, sale or delivery of the ADSs
offered hereby or distribution of copies of this prospectus
supplement or any other document relating to the ADSs offered
hereby in Italy must be made:
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(a)
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by an investment firm, bank or intermediary permitted to conduct
such activities in Italy in accordance with Legislative Decree
No. 58 of 24 February 1998 and Legislative Decree
No. 385 of 1 September 1993 (the Banking
Act);
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(b)
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in compliance with Article 129 of the Banking Act and the
implementing guidelines of the Bank of Italy; and
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(c)
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in compliance with any other applicable laws and regulations and
other possible requirements or limitations which may be imposed
by Italian authorities.
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Investors
in Sweden
This prospectus supplement has not been nor will it be
registered with or approved by Finansinspektionen (the Swedish
Financial Supervisory Authority). Accordingly, this prospectus
supplement may not be made available, nor may the ADSs offered
hereunder be marketed and offered for sale in Sweden, other than
under circumstances which are deemed not to require a prospectus
under the Financial Instruments Trading Act (1991: 980). This
offering will be made to no more than 100 persons or
entities in Sweden.
Investors
in Switzerland
The ADSs offered pursuant to this prospectus supplement will not
be offered, directly or indirectly, to the public in Switzerland
and this prospectus supplement does not constitute a public
offering prospectus as that term is understood pursuant to art.
652a or art. 1156 of the Swiss Federal Code of Obligations. The
Company has not applied for a listing of the ADSs being offered
pursuant to this prospectus supplement on the SWX
S-33
Swiss Exchange or on any other regulated securities market, and
consequently, the information presented in this prospectus
supplement does not necessarily comply with the information
standards set out in the relevant listing rules. The ADSs being
offered pursuant to this prospectus supplement have not been
registered with the Swiss Federal Banking Commission as foreign
investment funds, and the investor protection afforded to
acquirers of investment fund certificates does not extend to
acquirers of the ADSs.
Investors are advised to contact their legal, financial or tax
advisers to obtain an independent assessment of the financial
and tax consequences of an investment in the Companys ADSs.
Investors
in Israel
In the State of Israel, the ADSs offered hereby may not be
offered to any person or entity other than the following:
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(a)
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a fund for joint investments in trust (i.e., mutual fund), as
such term is defined in the Law for Joint Investments in Trust,
5754-1994,
or a management company of such a fund;
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(b)
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a provident fund as defined in Section 47(a)(2) of the
Income Tax Ordinance of the State of Israel, or a management
company of such a fund;
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(c)
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an insurer, as defined in the Law for Oversight of Insurance
Transactions,
5741-1981,
(d) a banking entity or satellite entity, as such terms are
defined in the Banking Law (Licensing),
5741-1981,
other than a joint services company, acting for their own
account or for the account of investors of the type listed in
Section 15A(b) of the Securities Law 1968;
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(d)
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a company that is licensed as a portfolio manager, as such term
is defined in Section 8(b) of the Law for the Regulation of
Investment Advisors and Portfolio Managers,
5755-1995,
acting on its own account or for the account of investors of the
type listed in Section 15A(b) of the Securities Law 1968;
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(e)
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a company that is licensed as an investment advisor, as such
term is defined in Section 7(c) of the Law for the
Regulation of Investment Advisors and Portfolio Managers,
5755-1995,
acting on its own account;
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(f)
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a company that is a member of the Tel Aviv Stock Exchange,
acting on its own account or for the account of investors of the
type listed in Section 15A(b) of the Securities Law 1968;
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(g)
|
an underwriter fulfilling the conditions of Section 56(c)
of the Securities Law,
5728-1968;
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(h)
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a venture capital fund (defined as an entity primarily involved
in investments in companies which, at the time of investment,
(i) are primarily engaged in research and development or
manufacture of new technological products or processes and
(ii) involve above-average risk);
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(i)
|
an entity primarily engaged in capital markets activities in
which all of the equity owners meet one or more of the above
criteria; and
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(j)
|
an entity, other than an entity formed for the purpose of
purchasing ADSs in this offering, in which the shareholders
equity (including pursuant to foreign accounting rules,
international accounting regulations and U.S. generally
accepted accounting rules, as defined in the Securities Law
Regulations (Preparation of Annual Financial Statements),
1993) is in excess of NIS 250 million.
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Any offeree of the ADSs offered hereby in the State of Israel
shall be required to submit written confirmation that it falls
within the scope of one of the above criteria. This prospectus
supplement will not be distributed or directed to investors in
the State of Israel who do not fall within one of the above
criteria.
Investors
in Hong Kong
The ADSs may not be offered or sold in Hong Kong, by means of
any document, other than (a) to professional
investors as defined in the Securities and Futures
Ordinance (Cap. 571) of Hong Kong and any rules made under
that Ordinance, or (b) in other circumstances which do not
result in the document being a prospectus as defined
in the Companies Ordinance (Cap. 32) of Hong Kong or which
do not constitute an
S-34
offer to the public within the meaning of that Ordinance. No
advertisement, invitation or document relating to the ADSs may
be issued, whether in Hong Kong or elsewhere, which is directed
at, or the contents of which are likely to be accessed or read
by, the public of Hong Kong (except if permitted to do so under
the securities laws of Hong Kong) other than with respect to
ADSs which are or are intended to be disposed of only to persons
outside of Hong Kong or only to professional
investors as defined in the Securities and Futures
Ordinance and any rules made under that Ordinance.
Investors
in Singapore
This prospectus has not been registered with the Monetary
Authority of Singapore. Accordingly, the underwriters have not
offered or sold any ADSs or caused the ADSs to be made the
subject of an invitation for subscription or purchase and may
not offer or sell any ADSs or cause the ADSs to be made the
subject of an invitation for subscription or purchase, and has
not circulated or distributed, nor will it circulate or
distribute, the prospectus or any other document or material in
connection with the offer or sale, or invitation for
subscription or purchase, of the ADSs, whether directly or
indirectly, to persons in Singapore other than (i) to an
institutional investor under Section 274 of the SFA,
(ii) to a relevant person, or any person pursuant to
Section 257(1A), and in accordance with the conditions,
specified in Section 275 of the SFA, or
(iii) otherwise pursuant to, and in accordance with the
conditions of, any other applicable provision of the SFA.
The underwriters will notify (whether through the distribution
of the prospectus or otherwise) each of the following relevant
persons specified in Section 275 of the SFA which has
subscribed or purchased ADSs from or through that underwriter,
namely a person which is:
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a corporation (which is not an accredited investor) the sole
business of which is to hold investments and the entire share
capital of which is owned by one or more individuals, each of
whom is an accredited investor; or
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a trust (where the trustee is not an accredited investor) whose
sole purpose is to hold investments and each beneficiary is an
accredited investor.
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Shares, debentures and units of shares and debentures of that
corporation or the beneficiaries rights and interest in
that trust shall not be transferable for six months after that
corporation or that trust has acquired the common stock under
Section 275 except:
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to an institutional investor under Section 274 of the SFA
or to a relevant person, or any person pursuant to
Section 275(1A), and in accordance with the conditions,
specified in Section 275 of the SFA;
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where no consideration is given for the transfer; or
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by operation of law.
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S-35
Legal
Matters
The validity of the ordinary shares represented by the ADSs
offered in this offering will be passed upon for us by Jones
Day. DLA Piper is acting as counsel to the underwriters in
connection with certain legal matters relating to the offering.
Experts
The consolidated financial statements of City Telecom (H.K.)
Limited and its subsidiaries as of August 31, 2008 and
2009, and for each of the years in the two-year period ended
August 31, 2009, have been incorporated by reference herein
in reliance upon the report of KPMG, an independent registered
public accounting firm, incorporated by reference herein, and
upon authority of said firm as experts in accounting and
auditing.
The offices of KPMG are located at
8
th
Floor, Princes Building, 10 Chater Road, Central,
Hong Kong, Peoples Republic of China.
Where You
Can Find More Information
We are subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended, and file annual and current
reports, proxy statements and other information with the SEC.
You may read and copy any document that we file with the SEC at
the SECs Public Reference Room at 100 F Street,
N.E., Room 1580, Washington, D.C. 20549. You can
request copies of these documents by writing to the SEC and
paying a fee for the copying cost. Please call the SEC at
1-800-SEC-0330
for more information about the operation of the Public Reference
Room. The SEC also maintains a website at
http://www.sec.gov
that contains reports, proxy statements, information statements
and other information filed electronically with the SEC.
This prospectus supplement and the accompanying prospectus are
only part of a registration statement on
Form F-3
that we have filed with the SEC under the Securities Act of
1933, as amended, and therefore omit certain information
contained in the registration statement. We have also filed
exhibits and schedules with the registration statement that are
excluded from this prospectus supplement and the accompanying
prospectus, and you should refer to the applicable exhibit or
schedule for a complete description of any statement referring
to any contract or other document. Statements relating to such
documents are qualified in all aspects by such reference. You
may inspect a copy of the registration statement, including the
exhibits and schedules, without charge, at the Public Reference
Room or obtain a copy from the SEC upon payment of the fees
prescribed by the SEC.
S-36
PROSPECTUS
US$100,000,000
Ordinary Shares
Debt Securities
Warrants
Rights to Purchase Ordinary Shares
Units
We may offer under this prospectus from time to time, at
amounts, prices and on terms to be determined by market
conditions at the time we make the offer, our:
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ordinary shares;
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debt securities (including convertible debt securities);
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warrants to purchase debt or equity securities;
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rights to purchase ordinary shares; or
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any combination of the above, separately or as units.
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This prospectus may not be used to sell our securities unless
accompanied by a prospectus supplement. Before you invest in our
securities, you should carefully read both this prospectus and
the prospectus supplement related to the offering of the
securities.
Our American depositary shares are listed on The Nasdaq Global
Market (Nasdaq) under the symbol CTEL.
Our ordinary shares are listed on The Stock Exchange of Hong
Kong Limited (HKSE) under the number
1137. On March 31, 2010, the last reported sale
price of our American depositary shares on Nasdaq was US$16.07
per share and the last reported sale price of our ordinary
shares on the HKSE was HK$6.21 per share. We have not yet
determined whether any of the other securities that may be
offered by this prospectus will be listed on any exchange,
inter-dealer quotation system or over-the-counter market. If we
decide to seek listing of any such securities, a prospectus
supplement relating to those securities will disclose the
exchange, quotation system or market on which the securities
will be listed.
If we sell securities through agents or underwriters, we will
include their names and the fees, commissions and discounts they
will receive, as well as the net proceeds to us, in the
applicable prospectus supplement.
The securities offered hereby involve a high degree of risk.
See Risk Factors on page 6.
None of the U.S. Securities and Exchange Commission, the
Hong Kong Securities and Futures Commission or any state
securities commission have approved or disapproved of these
securities or passed upon the adequacy, completeness or accuracy
of this prospectus. Any representation to the contrary is a
criminal offense under the laws of the United States and the
laws of Hong Kong.
The date of this prospectus is April 8, 2010
TABLE OF
CONTENTS
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Page
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1
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5
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6
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34
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34
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35
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i
Prospectus
Summary
This is a summary of our business and this offering. For a more
complete understanding of our business and this offering, you
should read the entire prospectus and the documents incorporated
by reference.
Company
Overview
Principal
Activities
We are a Hong Kong-based provider of residential and corporate
fixed telecommunications network and international
telecommunications services. We specialize in the residential
mass market and small-to-medium corporate and enterprise market
segments. The majority of our revenues are derived from business
conducted in Hong Kong.
We derive our revenues from two business segments: FTNS and IDD.
A breakdown of our revenues is as follows:
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For the year ended August 31,
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2008
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2009
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HK$
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HK$
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(Amounts in thousands)
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Revenue
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FTNS business
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1,011,038
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1,230,880
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IDD business
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291,943
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247,359
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Total operating revenue
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1,302,981
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1,478,239
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FTNS business.
Our FTNS business involves the
provision of fixed telecommunications network services through
our self-owned Next Generation Network. Such services include
the following:
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high-speed broadband Internet access services at symmetric
upstream and downstream access speeds of 25 Mbps to
1000 Mbps;
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fixed line local telephony services using VoIP technology;
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pay television services consisting of more than 80 channels,
including self-produced news, childrens programming,
international drama, movies and documentary and local interest
programming, using our IP platform; and
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corporate data services, including the provision of dedicated
bandwidth to corporate customers.
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As of August 31, 2009, we had a total of approximately
943,000 subscriptions for our fixed telecommunications network
services, consisting of 391,000 broadband Internet access,
382,000 local VoIP and 170,000
IP-TV
services subscriptions.
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IDD business.
Our IDD business involves the
provision of international telecommunications services. Such
services include direct dial services, international calling
cards and mobile call forwarding services in Hong Kong and
Canada. As of August 31, 2009, the customer base for our
total international telecommunications services consisted of
approximately 2.4 million registered accounts.
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Strategy
and Competitive Strengths
Our strategy is to market multiple fixed telecommunications
network services by capitalizing on the new in-building
blockwiring we have done on a mass scale for our Next Generation
Network, which is described below, and will focus on growing our
market share, increasing our network coverage and introducing
new services through our IP platform. We believe that our
success will continue to depend on our ability to capitalize on
our focus on the residential mass and small-to-medium corporate
and enterprise market segments, our leading-edge Next Generation
Network, and our first mover advantage in the fixed line
telecommunications market, which have a high entry barrier.
1
We believe that our demonstrated success is primarily due to our
ability to capitalize on the following key strengths:
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Focus on the Residential Mass and Small-To-Medium Corporate
and Enterprise Market Segments
. We focus on
offering high-bandwidth services to the residential mass and
small-to-medium enterprise markets in Hong Kong, which we
believe have significant growth potential. We price our services
attractively on a value-for-bandwidth basis and at the same time
offer bandwidth advantages over comparable service offerings by
our competitors. Our
IP-TV
services focus on the residential mass market by providing
Chinese-language
content that targets the Chinese-speaking population of Hong
Kong. We have also strengthened our English language content
over the past year to increase our competitiveness by adding
National Geographic, AXN, Bloomberg and other channels. Our
focus on the residential mass and small-to-medium corporate and
enterprise markets has enabled us to quickly grow our
subscription base, and we believe this will help us to increase
sales of our services.
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Leading-Edge Next Generation Network.
We
believe our self-owned Next Generation Network, a fiber-based
backbone, gives us an inherent cost and performance advantage
over our competitors. The high capacity of this network has
enabled us to offer a suite of services on a single IP network
platform. This IP platform is highly scalable, enabling us to
offer broadband Internet access, local VoIP,
IP-TV
and
corporate data services over a single network. It is also
capable of providing up to 1,000 Mbps symmetric broadband
Internet access.
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First Mover Advantage and High Barriers to
Entry.
Despite the intense competition in the
Hong Kong telecommunications industry, the inherent
characteristics of the fixed line telecommunications market
create a high entry barrier. Accordingly, we believe that our
Next Generation Networks current coverage of
1.6 million residential homes pass, substantially all in
densely populated areas, gives us a first mover advantage over
our competitors. Competitors who want to replicate our business
model to provide a full coverage network that includes remote
and difficult-to-reach areas of Hong Kong may encounter
technological difficulties. Attempting to deploy Metro Ethernet
technology in such locations would significantly increase costs
and completion time of such a network. While other
telecommunications operators may lay their own fiber, we believe
some would encounter significant in-building bottlenecks when
attempting to complete an end-to-end network. This is because a
majority of Hong Kongs residential properties have limited
space for in-building wiring leading to subscribers
residences, making it difficult for new entrants to replicate
our end-to-end network build. We can increase or decrease the
capacity of our Next Generation Network between 100Mbps to
1,000Mbps logarithmically and without adding to the
networks physical infrastructure, something our
competitors using legacy telephone lines cannot accomplish with
existing technology.
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Recent
Developments
Update on
Fixed Mobile Interconnection Charge
On November 25, 2009, the Hong Kong Telecommunications
Authority (TA) issued a Preliminary Analysis (the
2009 PA) in relation to the 2008 Determination (see
note 2(c) to our consolidated financial statements) for
mobile interconnection charges. TA invited HKBN and the mobile
operators covered by the 2008 Determination to make
representations in relation to the 2009 PA on or before
December 25, 2009. As of March 29, 2010, the 2008
Determination is still in process.
Buyback
of
10-year
Senior Notes (the Notes)
Between September 1, 2009 and December 15, 2009, we
repurchased Notes with a cumulative principal value of
US$1.5 million (equivalent to HK$11.6 million) in the
open market. The total consideration paid including accrued
interest was approximately US$1.6 million (equivalent to
HK$12.1 million). The loss on extinguishment was
approximately US$41,000 (equivalent to HK$318,000) which is
expected to be recorded in the consolidated income statement for
the year ending August 31, 2010. The principal value of the
Notes outstanding after the repurchases was US$19,863,000
(equivalent to HK$153,948,000).
2
Redemption
of Notes
On December 30, 2009, we gave a notice of redemption to the
holders of the Notes. Pursuant to the relevant notice, we
redeemed on February 1, 2010 all of the then-outstanding
Notes at a redemption price equal to 104.375% of the principal
amount plus accrued and unpaid interest. After these
redemptions, no Notes remain outstanding.
Domestic
Free Television Program Service Licence application
On December 31, 2009, we submitted to the Hong Kong
Broadcasting Authority an application for the Domestic Free
Television Program Service Licence to provide free television
programme services in Hong Kong. We currently estimate a maximum
cumulative investment at HK$210 million will be required
before reaching positive free cash flow.
The
Offering
This prospectus is part of a registration statement on
Form F-3
that we filed with the Securities and Exchange Commission
utilizing a shelf registration process. Under this
process, we may sell any combination of the securities described
in this prospectus in one or more offerings in amounts, at
prices and on other terms to be determined at the time of the
offering. This prospectus provides you with a general
description of the securities we may offer. Each time we offer
to sell securities under this prospectus, we will provide a
prospectus supplement containing specific information about the
terms of that offering. The prospectus supplement may also add,
update or change information contained in this prospectus. To
the extent that any information we provide in a prospectus
supplement is inconsistent with information in this prospectus,
the information in the prospectus supplement will modify or
supersede this prospectus. You should read both this prospectus
and any prospectus supplement together with the additional
information described under the headings Where You Can
Find More Information and Incorporation of
Information by Reference.
Use of
Defined and Technical Terms
Except as otherwise indicated by the context, references in this
Form F-3
to:
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Hong Kong Companies Ordinance are to Chapter 32
of the laws of Hong Kong;
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City Telecom, the Company,
we, US or our are to City
Telecom (H.K.) Limited;
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fiscal year or fiscal are to the
Companys fiscal year ended August 31 for the year
referenced;
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FTNS business are to our business segment in which
we provide fixed telecommunications network services, including
dial up and broadband Internet access services, local VoIP
services,
IP-TV
services and corporate data services;
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Group are to the Company and its subsidiaries;
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HKBN are to Hong Kong Broadband Network Limited, a
wholly owned subsidiary of the Company;
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HKFRSs are to Hong Kong Financial Reporting
Standards issued by the Hong Kong Institute of Certified Public
Accountants;
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IDD business are to our business segment in which we
provide international telecommunications services, including
international long distance call services;
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IFRSs are to International Financial Reporting
Standards, as issued by the International Accounting Standards
Board;
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IP-TV
services are to pay-television services through Internet
Protocol; and
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Mbps are mega-bytes per second
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VoIP are to Voice over Internet Protocol.
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3
Currency
Translation
We publish our consolidated financial statements in Hong Kong
dollars. In this
Form F-3,
references to Hong Kong dollars or HK$
are to the currency of Hong Kong, and references to
U.S. dollars or US$ are to the
currency of the United States. This
Form F-3
contains translations of Hong Kong dollar amounts into
U.S. dollar amounts, solely for your convenience. Unless
otherwise indicated, the translations have been made at US$1.00
= HK$7.7505, which was the exchange rate set forth in the H.10
statistical release of the Federal Reserve Board on
August 31, 2009. On March 26, 2010 the exchange rate
was US$1.00 = HK$7.7620. You should not construe these
translations as representations that the Hong Kong dollar
amounts actually represent such U.S. dollar amounts or
could have been or could be converted into U.S. dollars at
the rates indicated or at any other rates.
Corporate
Information
We were incorporated on May 19, 1992 under the Hong Kong
Companies Ordinance and are a limited liability company. Our
registered office is located at Level 39, Tower 1,
Metroplaza, No. 223 Hing Fong Road, Kwai Chung, New
Territories, Hong Kong, telephone
(852) 3145-6888.
Our agent for U.S. federal securities laws purposes is CT
Corporation System, 111 Eighth Avenue, New York, NY 10011.
Investor inquiries should be directed to us at the address and
telephone number of our registered office set forth above. Our
website is
http://www.ctihk.com
.
The information contained on our website does not form a part of
this prospectus.
4
Cautionary
Note Concerning Forward-Looking Statements
Various statements incorporated by reference or contained in
this prospectus discuss our future expectations, contain
projections of our results of operations or financial condition,
and include other forward-looking information within the meaning
of Section 27A of the Securities Act of 1933, as amended.
You should not unduly rely on forward-looking statements
contained or incorporated by reference in this prospectus. Our
actual results and performance may differ materially from those
expressed in such forward-looking statements. Forward-looking
statements that express our beliefs, plans, objectives,
assumptions, future events or performance may involve estimates,
assumptions, risks and uncertainties. Such risks and
uncertainties are discussed in this prospectus under the heading
Risk Factors, and in our other filings with the
Securities and Exchange Commission. You should read and
interpret any forward-looking statements together with these
documents. Forward-looking statements often, although not
always, include words or phrases such as the following:
will likely result, are expected to,
will continue, is anticipated,
estimate, expect, intends,
plans, projection and
outlook. These statements are based on
managements assumptions and beliefs in light of the
information currently available to us.
Any forward-looking statement speaks only as of the date on
which that statement is made. We will not update, and expressly
disclaim any obligation to update, any forward-looking statement
to reflect events or circumstances that occur after the date on
which such statement is made.
5
Risk
Factors
An investment in our securities is speculative and involves a
high degree of risk. Therefore, you should not invest in our
securities unless you are able to bear a loss of your entire
investment. You should carefully consider the factors set forth
under the heading Item 3. Key Information
D. Risk Factors in our most recently filed annual report
on
Form 20-F,
as amended, which is incorporated in this prospectus by
reference, as updated by our subsequent filings under the
Securities Exchange Act of 1934, as amended, or the Exchange
Act, and, if applicable, in any accompanying prospectus
supplement before investing in any securities that may be
offered pursuant to this prospectus.
6
Ratio of
Earnings to Fixed Charges
Our ratio of earnings to fixed charges for the three fiscal
years ended August 31, 2005, 2006 and 2007 in accordance
with HKFRS, and for the two fiscal years ended August 31,
2008 and 2009 in accordance with IFRS, were as follows:
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Fiscal Year Ended August 31,
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2005
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2006
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2007
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2008
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2009
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*
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*
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1.35
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2.44
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5.56
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* Earnings for the fiscal years ended August 31, 2005 and
2006 were inadequate to cover fixed charges by HK$170,221,000
and HK$149,306,000 respectively.
Capitalization
The following table sets forth our capitalization as of
August 31, 2009 on an actual basis.
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Actual
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HK$
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US$
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(In thousands)
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8.75% senior notes due 2015
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165,563
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21,363
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Shareholders equity
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Common stock (2,000,000,000 ordinary shares authorized;
664,179,970 ordinary shares issued; 1,335,820,030 ordinary
shares outstanding)
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66,418
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8,570
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Share Premium
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681,208
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87,892
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Reserves
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480,901
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62,047
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Total shareholders equity
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1,228,527
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158,509
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Total Capitalization
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1,394,090
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179,872
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7
Price
Range of Ordinary Shares
Our American depositary shares are listed on Nasdaq under the
symbol CTEL and our ordinary shares are listed on
the HKSE under the number 1137.
The following table sets forth, for the periods indicated, the
high and low reported closing prices of our American depositary
shares listed on Nasdaq and our ordinary shares listed on the
HKSE:
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Nasdaq
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HKSE
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Period
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High (US$)
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Low (US$)
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High (HK$)
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Low (HK$)
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March 2010 (through March 31, 2010)
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16.07
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11.35
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6.21
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4.61
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February 2010
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12.58
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10.39
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4.88
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4.11
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January 2010
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13.03
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10.15
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5.03
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3.80
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December 2009
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10.30
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8.80
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3.95
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3.35
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November 2009
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10.00
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6.61
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3.92
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2.50
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October 2009
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7.75
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6.75
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2.88
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2.55
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Second quarter 2010
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13.03
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8.80
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5.03
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3.35
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First quarter 2010
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10.00
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5.29
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3.92
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2.03
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Fourth quarter 2009
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5.24
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4.01
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2.07
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1.60
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Third quarter 2009
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4.44
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2.00
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1.72
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0.85
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Second quarter 2009
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2.85
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2.22
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1.16
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0.84
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First quarter 2009
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4.72
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1.92
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|
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1.75
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0.75
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Fourth quarter 2008
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5.24
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4.37
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2.03
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1.65
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Third quarter 2008
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5.75
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4.25
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2.08
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1.62
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Second quarter 2008
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6.47
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4.36
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2.43
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|
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1.67
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First quarter 2008
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10.75
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4.75
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3.66
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1.90
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Fiscal 2009
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5.24
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1.92
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2.07
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0.75
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Fiscal 2008
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10.75
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4.25
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3.66
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1.62
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Fiscal 2007
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|
5.83
|
|
|
|
1.40
|
|
|
|
2.20
|
|
|
|
0.60
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|
Fiscal 2006
|
|
|
2.44
|
|
|
|
1.37
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|
|
|
0.92
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|
|
|
0.55
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|
Fiscal 2005
|
|
|
4.75
|
|
|
|
1.97
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|
|
|
1.83
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|
|
|
0.79
|
|
On March 31, 2010, the last reported closing price of our
American depositary shares on Nasdaq was US$15.87 per share and
the last reported closing price of our ordinary shares on the
HKSE was HK$6.21 per share.
8
Use of
Proceeds
Unless we state otherwise in a prospectus supplement, we will
use the net proceeds from the sale of securities under this
prospectus for general corporate purposes. From time to time, we
may evaluate the possibility of acquiring businesses, products,
equipment, tools and technologies, and we may use a portion of
the proceeds as consideration for acquisitions. Until we use net
proceeds for these purposes, we may invest them in
interest-bearing securities.
9
Dilution
We will set forth in a prospectus supplement the following
information regarding any material dilution of the equity
interests of investors purchasing securities in an offering
under this prospectus:
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the net tangible book value per share of our equity securities
before and after the offering;
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the amount of the increase in such net tangible book value per
share attributable to the cash payments made by purchasers in
the offering; and
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the amount of the immediate dilution from the public offering
price which will be absorbed by such purchasers.
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10
Description
of Share Capital
Ordinary
Shares
Described below is a summary of certain information relating to
our ordinary shares. This includes brief summaries of certain
provisions of our Memorandum and Articles of Association, as
currently in effect, and where relevant to the description of
our ordinary shares, the Companies Ordinance (Chapter 32 of
the laws of Hong Kong) (the Companies Ordinance). As
this is a summary, it does not contain all the information that
may be important to you. You should therefore read our full
Memorandum and Articles of Association, filed as
exhibit 3.1 to this
Form F-3,
if you would like additional or more detailed information.
General
City Telecom was incorporated in Hong Kong on May 19, 1992
under the Companies Ordinance. Clause 3 of the Memorandum
of Association states that the Companys objects are to
carry on the business of telecommunications services in addition
to various other related and unrelated business activities.
Our ordinary shares have been listed under the number
1137 on The Stock Exchange of Hong Kong Limited, or
the HKSE, since August 4, 1997. Our American depositary
shares, each representing 20 ordinary shares, have been listed
under the symbol CTEL on Nasdaq since
November 3, 1999. Our
10-year
senior notes were listed under the ISIN codes of US178677AA87
and USY16599AA30 on the Singapore Exchange Securities Trading
Limited, or SGX-ST, on January 24, 2005. The
10-year
senior notes were subsequently exchanged for registered notes
with ISIN code US178677AB60 pursuant to a registration statement
under the U.S. Securities Act of 1933 on June 24, 2005.
As of March 29, 2010, we had an authorized share capital of
HK$200,000,000 consisting of 2,000,000,000 ordinary shares each
with a par value of HK$0.10 per share and
684,059,650 shares issued as of March 29, 2010.
As of March 29, 2010, there were 13 registered holders of
3,701,933 American depositary shares in the United States,
consisting of 10.85% of our outstanding shares.
Dividends
Unless the relevant provisions of the Companies Ordinance
require otherwise, we may by ordinary resolution (being a
resolution passed by a majority of our shareholders who attend
and vote at a meeting of shareholders) from time to time declare
dividends, but no dividend shall exceed the amount recommended
by our board of directors. Our Articles contain provisions on
apportioning dividends where ordinary shares are not or were not
fully paid for during the period covered by the dividend.
Unless the relevant provisions of the Companies Ordinance
require otherwise, our board of directors may pay such interim
dividends as appears to them to be justified by our financial
position and pay any dividend payable at a fixed rate at
intervals decided upon by our board of directors, whatever our
financial position, if the board of directors feels that this
payment is justified.
In respect of any dividend proposed to be paid or declared by
our board of directors or by us in a general meeting, our board
of directors may further propose and announce prior to or at the
same time as the payment or declaration of such dividend either
that:
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1)
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Such dividend be made in whole or in part in the form of an
allotment of shares to the shareholders, credited as being fully
paid. However, all the shareholders entitled to receive these
new ordinary shares will also be entitled to choose to receive
the dividend (or a part of it) in cash and not shares; or
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2)
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The shareholders entitled to such dividend are entitled to elect
to receive an allotment of shares, credited as fully paid in
stead of the whole or that part of the cash dividend as the
board of directors may decide upon.
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11
Any general meeting declaring a dividend may, upon the
recommendation of our board of directors, by ordinary
resolutions, direct that the dividend shall be met, wholly or
partly, by the distribution of our assets.
Any dividend not claimed by a shareholder after a period of six
years from the date when it was first due to be paid shall be
forfeited and shall revert to us. The payment by our board of
directors of any unclaimed dividend, interest or other sum
payable on or in respect of an ordinary share into a separate
account shall not make us responsible as a trustee for such sums.
Annual
and extraordinary general meeting of shareholders
The Companies Ordinance requires our board of directors to hold
an annual general meeting of our shareholders once every year
and not more than 15 months after our previous annual
general meeting. The annual general meeting and any other
general meeting of our shareholder held for the passing of a
special resolution (being a resolution passed by not less than
75% of those votes cast by the shareholders who attend and vote
at a general meeting) should be convened by not less than 21
clear days notice in writing. The notice shall specify the
place, date and time of meeting and the general nature of the
business to be transacted. An annual general meeting may be
called by not less than 20 clear business days notice if
it is agreed by all shareholders entitled to attend and vote at
the meeting. The business of the annual general meeting will
include:
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(a)
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the declaration and sanctioning of dividends;
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(b)
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the consideration and adoption of the accounts, balance sheet
and reports of the directors and auditors and other documents
required to be attached to the financial statements;
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(c)
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the appointment of directors in place of those retiring (by
rotation or otherwise);
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(d)
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the appointment of auditors; and
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(e)
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the fixing of, or the determining of the method of fixing, the
remuneration of the directors and of the auditors.
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Our board of directors may convene an extraordinary general
meeting (which is any general meeting of the shareholders other
than the annual general meeting) whenever it thinks fit and must
do so upon the request in writing of shareholders holding not
less than one-twentieth of our
paid-up
capital carrying the right to vote at a general meeting. All
extraordinary general meetings (other than those convened for
the passing of a special resolution referred to above) should be
convened by not less than 10 clear business days notice in
writing. Extraordinary general meetings may be called by less
than 10 clear business days notice by a majority in number
of the shareholders having the right to attend and vote at the
meeting, being a majority together holding not less than 95% in
nominal value of the shares giving that right.
Except as otherwise provided by our Articles, two shareholders
present in person or by proxy and entitled to vote shall be a
quorum for all purposes. Whilst no business shall be transacted
at any general meeting unless a quorum is present when the
meeting proceeds to business, the absence of a quorum shall not
preclude the choice or appointment of a chairman which shall not
be treated as part of the business of the meeting.
The Nasdaq marketplace rules also provide that a foreign private
issuer such as ourselves may be granted an exemption from such
requirements under such rules to have an annual meeting if it
follows the practice of its home country.
Restrictions
on ownership of shares
There are no restrictions, either pursuant to our Articles or to
the laws of Hong Kong, on the rights of non-residents of Hong
Kong or foreign persons to hold or exercise voting rights with
respect to our ordinary shares.
12
Voting
rights
Any decisions that are made by the shareholders in a general
meeting require the passing of either an ordinary or a special
resolution at such meeting. The type of resolution required to
be passed depends upon the provisions of the Companies Ordinance
and our Articles as certain matters may only be decided by the
passing of a special resolution.
Unless any shares have special terms as to voting, on a show of
hands every shareholder who is present in person at a general
meeting, shall have one vote irrespective of the number of
shares he holds and on a poll every shareholder who is present
in person or by proxy shall have one vote for every share of
which he is the holder. Our Articles set out the circumstances
in which a poll can be demanded.
Pursuant to Rule 13.39(4) of the Listing Rules of the HKSE
which became effective on January 1, 2009, any votes of the
shareholders at a general meeting must be taken by poll.
Any shareholder that is a recognized clearing house within the
meaning of the Securities and Futures Ordinance of Hong Kong may
authorize such person or persons as it thinks fit to act as its
representative (or representatives) at any general meeting or at
any separate meeting of any class of shareholders (if relevant).
However, if more than one person is authorized, the
authorization must specify the number and class of shares in
respect of which each person is in fact authorized. The
authorized person will be entitled to exercise the same power on
behalf of the recognized clearing house as that clearing house
(or its nominees) could exercise if it were an individual
shareholder of the Company.
Issue
/ Transfer of shares
Under the Companies Ordinance, our board of directors may,
without the prior approval of the shareholders, offer to issue
new shares to existing shareholders in proportion to their
current shareholdings. Our board of directors may not issue new
shares in any other way without the prior approval of the
shareholders. Any such approval given in a general meeting shall
continue in force until the earlier of: (1) the conclusion
of the next annual general meeting; or (2) the expiration
of the period within which the next annual general meeting is
required by law to be held; or (3) when revoked or varied
by an ordinary resolution of the shareholders in a general
meeting. Where such shareholders approval is given,
subject to the Listing Rules and any conditions attached to such
approval, our unissued shares may be at the disposal of our
board of directors, which may offer, allot, grant options over
or otherwise dispose of them to such persons, at such times and
for such consideration and upon such terms and conditions as the
directors may decide.
Subject to the provisions of our Articles, any shareholder may
transfer all or any of his shares by an instrument of transfer
in the usual or common form or in such other form as our board
of directors may accept and may approve. Such instrument may be
signed by hand or, if the buyer or seller is a clearing house or
its nominee(s), signed by hand or by a machine imprinted
signature or by such other manner as our board of directors may
approve from time to time.
The instrument of transfer of a share shall be executed by or on
behalf of both the buyer and the seller of that share provided
that our board of directors may dispense with the signing of the
instrument of transfer by the buyer in any case which it thinks
fit in its discretion to do so. Except as provided in the
paragraph above, our board of directors may also decide, either
generally or in any particular case, upon request by either the
buyer or seller of shares to accept mechanically signed
transfers. The seller shall be deemed to remain the holder of
the share until the name of the buyer is entered into our
register in respect of that share. All instruments of transfer,
when registered, may be retained by us. Nothing in our Articles
prevents our board of directors from recognizing a renunciation
of the allotment or provisional allotment of any share by the
person to whom the shares were to be allotted in favor of some
other person.
Our board of directors may in its absolute discretion and
without giving any reason, decline to register any transfer of
any share which is not a fully paid share.
13
Our board of directors may also decline to register any transfer
unless:
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(a)
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the instrument of transfer, duly stamped, is lodged with us
accompanied by the certificate for the shares to which it
relates and such other evidence as our board of directors may
reasonably require to show the right of the seller to make the
transfer;
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(b)
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such fee, not more than the maximum amount allowed by The Stock
Exchange of Hong Kong Limited from time to time, as our board of
directors may from time to time require is paid to us in respect
of it;
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(c)
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the instrument of transfer is in respect of only one class of
share;
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(d)
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in the case of a transfer of a share jointly held by two or more
holders, the number of joint holders to whom the share is to be
transferred does not exceed four; and
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(e)
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the shares concerned are free of any lien in favor of us.
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If our board of directors declines to register a transfer of any
share, it shall, within two months after the date on which the
instrument of transfer was lodged, send to the buyer notice of
the refusal.
Shareholders
In accordance with our Articles, only persons who are registered
in our register of members are recognized by us as shareholders
and absolute owners of the shares. The register of members may
be closed by our board of directors at such times and for such
periods as it may from time to time decide by giving notice by
advertisement in a newspaper circulating generally in Hong Kong,
but the register shall be closed in any year for more than
30 days (excluding Sundays and public holidays) unless
extended by ordinary resolution.
American
Depositary Shares
The Bank of New York Mellon, as depositary, will execute and
deliver the American Depositary Receipts, or ADRs. Each ADR is a
certificate evidencing a specific number of American Depositary
Shares, also referred to as ADSs. Each ADS represents 20
ordinary shares (or a right to receive 20 ordinary shares)
deposited with The Hongkong and Shanghai Banking Corporation
Limited, as the custodian for the depositary. Each ADS will also
represent any other securities, cash or other property which may
be held by the depositary. The depositarys office at which
the ADRs will be administered is located at 101 Barclay Street,
New York, New York 10286.
Our ADSs may be held either directly (by having an ADR
registered in the holders name) or indirectly through a
broker or other financial institution. If our ADSs are held
directly, the holder of the ADS is an ADR holder. This
description assumes you hold our ADSs directly. If you hold our
ADSs indirectly, you must rely on the procedures of your broker
or other financial institution to assert the rights of ADR
holders described in this section and should consult with your
broker or financial institution to find out what those
procedures are.
Holders of our ADRs will have certain rights. A deposit
agreement among us, the depositary and our ADR holders sets out
ADR holder rights as well as the rights and obligations of the
depositary. New York law governs the deposit agreement and the
ADRs. We will not treat our ADR holders as shareholders, and our
ADR holders will not have shareholder rights. (For a description
of our shareholders rights, see Description of Share
Capital Ordinary Shares). The depositary will
be the holder of the shares underlying our ADRs.
The following is a summary of the material provisions of the
deposit agreement. Because it is a summary, it does not contain
all the information that may be important to you. For more
complete information, our ADR holders should read the entire
deposit agreement and the form of ADR.
14
Dividends
and Other Distributions
How will our ADR holders receive dividends and other
distributions on the ordinary shares?
The depositary has agreed to pay to our ADR holders the cash
dividends or other distributions it or the custodian receives on
shares or other deposited securities, after deducting its fees
and expenses. Our ADR holders will receive these distributions
in proportion to the number of ordinary shares their ADSs
represent.
Cash.
The depositary will convert any cash
dividend or other cash distribution we pay on the ordinary
shares into U.S. dollars, if it can do so on a reasonable
basis and can transfer the U.S. dollars to the United
States. If that is not possible or if any government approval is
needed and cannot be obtained, the deposit agreement allows the
depositary to distribute the foreign currency only to those ADR
holders to whom it is possible to do so. It will hold the
foreign currency it cannot convert for the account of the ADR
holders who have not been paid. It will not invest the foreign
currency and it will not be liable for any interest.
Before making a distribution, the depositary will deduct any
withholding taxes that must be paid. It will distribute only
whole U.S. dollars and cents and will round fractional
cents to the nearest whole cent.
If the exchange rates
fluctuate during a time when the depositary cannot convert the
foreign currency, our ADR holders may lose some of the value of
the distribution.
Ordinary Shares.
The depositary may distribute
additional ADSs representing any ordinary shares we distribute
as a dividend or free distribution in proportion to the number
of ADSs representing the underlying ordinary shares. The
depositary will only distribute whole ADSs. It will sell shares
which would require it to deliver a fractional ADS and
distribute the net proceeds in the same way as it does with
cash. If the depositary does not distribute additional ADSs, the
outstanding ADSs will also represent the new shares. Before
making a distribution, the depositary will deduct any
withholding taxes and fees that must be paid.
After consultation with us, if the depositary makes rights
available to our ADR holders, upon instruction from our ADR
holders, it will exercise the rights and purchase the shares on
behalf of our ADR holders. The depositary will then deposit the
shares and issue American depositary shares to our ADR holders.
It will exercise rights if our ADR holders pay it the exercise
price and any other charges the rights require ADR holders to
pay.
U.S. securities laws may restrict the sale, deposit,
cancellation, and transfer of the American depositary shares
issued after exercise of rights. For example, ADR holders may
not be able to trade the American depositary shares freely in
the United States. In this case, the depositary may issue the
American depositary shares under a separate deposit agreement
which will contain the same provisions as the deposit agreement,
except for changes needed to put the restrictions in place.
Rights to receive additional shares.
If we offer
holders of our securities any rights to subscribe for additional
shares or any other rights, the depositary, after consulting
with us, may make these rights available to our ADR holders. If
the depositary decides it is not legal and practical to make the
rights available but that it is practical to sell the rights,
the depositary will use reasonable efforts to sell the rights
and distribute the proceeds in the same way as it does with
cash. The depositary will allow rights that are not distributed
or sold to lapse.
In that case, our ADR holders will receive
no value for them.
The depositary will not offer the rights unless both the rights
and the securities to which the rights relate are exempt from
registration under the Securities Act or are registered under
the Securities Act. If the depositary makes rights available to
our ADR holders, it will exercise the rights and purchase the
ordinary shares at the request of and on each ADR holders
behalf if our ADR holders pay it the exercise price and any
other charges the rights require our ADR holders to pay. The
depositary will then deposit the ordinary shares and deliver
ADSs to our ADR holders.
United States securities laws may restrict transfers and
cancellation of the ADSs represented by shares purchased upon
exercise of rights. For example, our ADR holders may not be able
to trade these ADSs freely in the United States. In this case,
the depositary may deliver restricted depositary shares that
have the same terms as the ADRs described in this section except
for changes needed to put the necessary restrictions in place.
15
Other Distributions.
The depositary will send
to our ADR holders anything else we distribute on deposited
securities by any means it thinks is legal, fair and practical.
If it cannot make the distribution in that way, the depositary
has a choice. It may decide to sell what we distributed and
distribute the net proceeds, in the same way as it does with
cash. Or, it may decide to hold what we distributed, in which
case ADSs will also represent the newly distributed property.
However, the depositary is not required to distribute any
securities (other than ADSs) to our ADR holders unless it
receives satisfactory evidence from us that it is legal to make
that distribution.
The depositary is not responsible if it decides that it is
unlawful or impractical to make a distribution available to any
ADR holders. We have no obligation to register ADSs, ordinary
shares, rights or other securities under the Securities Act. We
also have no obligation to take any other action to permit the
distribution of ADRs, shares, rights or anything else to ADR
holders.
(See Risk Factors).
This
means that our ADR holders may not receive the distributions we
make on our shares or any value for them if it is illegal or
impractical for us to make them available to them.
Deposit,
Withdrawal and Cancellation
How are ADRs issued?
The depositary will deliver ADRs if ordinary shares or evidence
of rights to receive ordinary shares are deposited with the
custodian. Upon payment of its fees and expenses and of any
taxes or charges, such as stamp taxes or stock transfer taxes or
fees, the depositary will register the appropriate number of
ADSs in the names requested and will deliver the ADRs at its
office to the persons requested.
How do ADR holders cancel ADRs and obtain ordinary shares?
Our ADR holders may turn in their ADRs at the depositarys
office in order to withdraw the securities represented by the
ADR. Upon payment of its fees and expenses and of any taxes or
charges, such as stamp taxes or stock transfer taxes or fees,
the depositary will deliver the ordinary shares and any other
deposited securities underlying the ADR to the ADR holder or a
person he, she or it designates at the office of the custodian.
Or, at the ADR holders request, risk and expense, the
depositary will deliver the deposited securities at its office,
if feasible.
Voting
Rights
How do our ADR holders vote?
Our ADR holders may instruct the depositary to vote the ordinary
shares underlying their ADRs.
Otherwise, our ADR holders will
not be able to exercise their right to vote
unless
they
withdraw the
ordinary shares.
However, our ADR holders
may not know about the meeting enough in advance to withdraw the
ordinary shares.
If we ask for our ADR holders instructions, the depositary
will notify our ADR holders of the upcoming vote and arrange to
deliver our voting materials and form of notice to them. The
materials will (1) describe the matters to be voted on and
contain such information as is contained in the notice from us,
(2) include a statement that the ADR holders on a specified
record date will be entitled to direct the depositary to vote
the shares or other deposited securities underlying the ADRs,
subject to applicable law and our Constitution, and
(3) explain how our ADR holders may instruct the depositary
to vote the ordinary shares or other deposited securities
underlying their ADSs as they direct. For instructions to be
valid, the depositary must receive them on or before the date
specified. The depositary will try, as far as practical, subject
to applicable law and the provisions of the depositary agreement
and the depositarys operating documents, to vote or to
have its agents vote the ordinary shares or other deposited
securities as our ADR holders instruct. The depositary shall not
vote or attempt to exercise the right to vote other than in
accordance with the instructions of the ADR holders. We cannot
assure our ADR holders that they will receive the voting
materials in time to ensure that they can instruct the
depositary to vote their ordinary shares. In addition, the
depositary and its agents are not responsible for failing to
carry out voting instructions or for the manner of carrying out
voting instructions.
16
This means that our ADR holders may not be able to exercise
their right to vote and there may be nothing they can do if
their ordinary shares are not voted as they requested.
Fees and
Expenses
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Persons depositing ordinary shares or ADR holders must
pay:
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For:
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US$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)
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Issuance of ADSs, including issuances resulting from
a distribution of shares or rights or other property
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US$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)
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Cancellation of ADSs for the purpose of withdrawal,
including if the deposit agreement terminates
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US$0.02 (or less) per ADS
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Any cash distribution to our ADR holders
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A fee equivalent to the fee that would be payable if securities
distributed to our ADR holders had been ordinary shares and the
ordinary shares had been deposited for issuance of ADSs
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Distribution of securities distributed to holders of
deposited securities which are distributed by the depositary to
ADR holders
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Registration or transfer fees
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Transfer and registration of ordinary shares on our
ordinary share register to or from the name of the depositary or
its agent when our ADR holders deposit or withdraw ordinary
shares
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Expenses of the depositary in converting foreign currency to
U.S. dollars
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Whenever the depositary or the custodian receives
foreign currency, by way of dividends or other distributions or
the net proceeds from the sale of securities, property or
rights, and if at the time of the receipt thereof the foreign
currency so received can in the judgment of the depositary be
converted on a reasonable basis into U.S. dollars and the
resulting U.S. dollars transferred to the United dollars States
Expenses of the
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Expenses of the depositary
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Cable, telex and facsimile transmissions (when
expressly provided in the deposit agreement)
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Taxes and other governmental charges the depositary or the
custodian have to pay on any ADR or ordinary share underlying an
ADR, for example, stock transfer taxes, stamp duty or
withholding taxes
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Any charges incurred by the depositary or its agents for
servicing the deposited securities
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If we:
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Then:
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Reclassify, split up or consolidate any of the
deposited securities
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The cash, ordinary shares or other securities received by the
depositary will become deposited securities. Each ADS will
automatically represent its equal share of the new deposited
securities.
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Distribute securities on the ordinary shares that
are not distributed to our ADR holders
Recapitalize, reorganize, merge, liquidate, sell all
or substantially all of our assets, or take any similar action
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The depositary may, and will if we ask it to, distribute some or
all of the cash, ordinary shares or other securities it
received. It may also deliver new ADRs or ask our ADR holders to
surrender their outstanding ADRs in exchange for new ADRs
identifying new deposited securities.
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Payment
of Taxes
The ADR holder is required to pay all taxes and other
governmental charges that may be payable in respect of any their
ADSs, or the shares or other securities underlying their ADSs.
The depositary may refuse to effect a
17
transfer of any ADRs or refuse to effect the withdrawal of any
securities underlying the ADRs while any such taxes and charges
are outstanding. The depositary may deduct the amount of any
taxes owed from any payments to our ADR holders. It may also
sell deposited securities, by public or private sale, to pay any
taxes owed. Our ADR holders will remain liable if the proceeds
of the sale are not enough to pay the taxes. If the depositary
sells deposited securities, it will, if appropriate, reduce the
number of ADSs to reflect the sale and pay to our ADR holders
any proceeds, or send to our ADR holders any property, remaining
after it has paid the taxes.
Reclassifications,
Recapitalizations and Mergers
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If we:
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Then:
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Change the nominal or par value of our shares;
Reclassify, split up or consolidate any of the deposited securities;
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The cash, shares or other securities received by the depositary
will become deposited securities. Each ADS will automatically
represent its equal share of the new deposited securities; and
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Distribute securities on the shares that are not distributed to you; or
Recapitalize, reorganize, merge, liquidate, implement the mandatory exchange, sell all or substantially all of its assets, or take any similar action
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The depositary may, and will if we ask it to, distribute some or
all of the cash, shares or other securities it received. It may
also issue new ADSs or ask you to surrender your outstanding
ADSs in exchange for new ADSs, identifying the new deposited
securities.
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Amendment
and Termination
How
may the deposit agreement be amended?
We may agree with the depositary to amend the deposit agreement
and the ADRs without the consent of our ADR holders for any
reason which we deem desirable. If an amendment adds or
increases fees or charges, except for taxes and other
governmental charges or expenses of the depositary for
registration fees, facsimile costs, delivery charges or similar
items, or prejudices a substantial right of ADR holders, it will
not become effective for outstanding ADRs until 30 days
after the depositary notifies ADR holders of the amendment.
At the time an amendment becomes effective, our ADR holders
are considered, by continuing to hold their ADRs, to agree to
the amendment and to be bound by the ADRs and the deposit
agreement as amended. In no event will an amendment impair the
right of ADR holders to surrender and withdraw the underlying
securities, except in order to comply with the applicable
law.
How
may the deposit agreement be terminated?
The depositary will terminate the deposit agreement if we ask it
to do so by notifying our ADR holders at least 90 days
before termination. The depositary may also terminate the
deposit agreement if the depositary has notified us that it
would like to resign and we have not appointed a successor
depositary within 90 days.
After termination, the depositary and its agents will do the
following under the deposit agreement but nothing else: collect
distributions on the deposited securities, sell rights and other
property, and deliver shares and other deposited securities upon
cancellation of ADRs. At any time after the expiration of one
year from the date of termination, the depositary may sell any
remaining deposited securities by public or private sale. After
that, the depositary will hold the money it received on the
sale, as well as any other cash it is holding under the deposit
agreement for the pro rata benefit of the ADR holders that have
not surrendered their ADRs. It will not invest the money and has
no liability for interest. The depositarys only
obligations after the sale of the deposited securities will be
to account for the money and other cash. After termination our
only obligations will be to indemnify the depositary and to pay
fees and expenses of the depositary that we agreed to pay.
18
Limitations
on Obligations and Liability
Limits
on our Obligations and the Obligations of the Depositary; Limits
on Liability to Holders of ADRs
The deposit agreement expressly limits our obligations and the
obligations of the depositary. It also limits our liability and
the liability of the depositary. We and the depositary:
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are only obligated to take the actions specifically set forth in
the deposit agreement without negligence or bad faith;
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are not liable if either of us is prevented or delayed by law or
circumstances beyond our control from performing our obligations
under the deposit agreement;
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are not liable if either of us exercises discretion permitted
under the deposit agreement;
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have no obligation to become involved in a lawsuit or other
proceeding related to the ADRs or the deposit agreement on
behalf any of our ADR holders or on behalf of any other party;
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are not liable for any action or non-action in reliance on the
advice of or information from legal counsel, accountants, any
person presenting shares for deposit, any ADR holders or any
other person believed in good faith to be competent to give such
information;
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are not liable for any acts or omissions made by a successor
depositary; and
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are not responsible for a failure to carry out any instructions
for the depositary to vote the ADSs.
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In the deposit agreement, we agree to indemnify the depositary
for acting as depositary, except for losses caused by the
depositarys own negligence or bad faith, and the
depositary agrees to indemnify us for losses resulting from its
negligence or bad faith.
Requirements
for Depositary Actions
Before the depositary will deliver or register a transfer of an
ADR, make a distribution on an ADR, or permit withdrawal of
ordinary shares, the depositary may require:
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payment of stock transfer or other taxes or other governmental
charges and transfer or registration fees charged by third
parties for the transfer of any ordinary shares or other
deposited securities;
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satisfactory proof of the identity and genuineness of any
signature or other information it deems necessary;
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delivery of the certificates that we may specify to the
depositary to assure compliance with the Securities Act; and
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compliance with laws and regulations, from time to time,
consistent with the deposit agreement, including presentation of
transfer documents.
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The depositary may refuse to deliver ADRs or register transfers
of ADRs generally when the transfer books of the depositary or
our transfer books are closed or at any time if the depositary
or we think it advisable to do so.
Right
of our ADR holders to Receive the Ordinary Shares Underlying
their ADRs
Our ADR holders have the right to cancel their ADRs and withdraw
the underlying ordinary shares at any time except:
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When temporary delays arise because: (i) the depositary has
closed its transfer books or we have closed our transfer books;
(ii) the transfer of ordinary shares is blocked to permit
voting at a shareholders meeting; or (iii) we are
paying a dividend on our shares.
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When ADR holders seeking to withdraw ordinary shares owe money
to pay fees, taxes and similar charges.
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When it is necessary to prohibit withdrawals in order to comply
with any laws or governmental regulations that apply to ADRs or
to the withdrawal of ordinary shares or other deposited
securities.
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This right of withdrawal may not be limited by any other
provision of the deposit agreement.
Pre-release
of ADRs
The deposit agreement permits the depositary to deliver ADRs
before deposit of the underlying ordinary shares. This is called
a pre-release of the ADR. The depositary may also deliver shares
upon cancellation of pre-released ADRs (even if the ADRs are
cancelled before the pre-release transaction has been closed
out). A pre-release is closed out as soon as the underlying
shares are delivered to the depositary. The depositary may
receive ADRs instead of ordinary shares to close out a
pre-release. The depositary may pre-release ADRs only under the
following conditions: (1) before or at the time of the
pre-release, the person to whom the pre-release is being made
represents to the depositary in writing that it or its customer
owns the ordinary shares or ADRs to be deposited; (2) the
pre-release is fully collateralized with cash or other
collateral that the depositary considers appropriate; and
(3) the depositary must be able to close out the
pre-release on not more than five business days notice. In
addition, the depositary will limit the number of ADSs that may
be outstanding at any time as a result of pre-release, although
the depositary may disregard the limit from time to time, if it
thinks it is appropriate to do so.
Inspection
Rights of ADR Holders
The depositary will make available for inspection by holders of
ADRs at its Corporate Trust Office any reports, notices and
other communications, including any proxy soliciting material,
received from the Company which are received by the depositary
as the holder of the underlying ordinary shares and made
generally available to the holders of ordinary shares by the
Company. The depositary will keep books, at its Corporate
Trust Office, for the registration of ADRs and transfers of
ADRs which shall at all reasonable times be open for inspection
by the ADR holders, provided that such inspection shall not be
for the purpose of communicating with other ADR holders for
purposes other than the business of the Company or a matter
related to the Deposit Agreement or the ADRs.
20
Description
of Debt Securities
This prospectus describes the general terms and provisions of
the debt securities we may offer and sell by this prospectus.
When we offer to sell a particular series of debt securities, we
will describe the specific terms of the series in a prospectus
supplement. We will also indicate in the prospectus supplement
whether the general terms and provisions described in this
prospectus apply to a particular series of debt securities.
We may offer under this prospectus an indeterminate aggregate
principal amount of debt securities. We may offer debt
securities in the form of either senior debt securities or
subordinated debt securities. The senior debt securities and the
subordinated debt securities are together referred to in this
prospectus as the debt securities. Unless otherwise
specified in a prospectus supplement, the senior debt securities
will be our direct, unsecured obligations and will rank equally
with all of our other unsecured and unsubordinated indebtedness.
The subordinated debt securities generally will be entitled to
payment only after payment of our senior debt.
Certain of our subsidiaries may guarantee the debt securities we
offer. Those guarantees may or may not be secured by liens,
mortgages, and security interests in the assets of those
subsidiaries. The terms and conditions of any such subsidiary
guarantees, and a description of any such liens, mortgages or
security interests, will be set forth in the prospectus
supplement that will accompany this prospectus.
The debt securities will be issued under an indenture between us
and a trustee, the form of which is filed as an exhibit to the
registration statement of which this prospectus forms a part. We
have summarized the general features of the debt securities to
be governed by the indenture. The summary is not complete. The
executed indenture will be incorporated by reference from a
report on
Form 6-K.
We encourage you to read the indenture, because the indenture,
and not this summary, will govern your rights as a holder of
debt securities. Capitalized terms used in this summary will
have the meanings specified in the indenture. References to
we, us and our in this
section, unless the context otherwise requires or as otherwise
expressly stated, refer to City Telecom (H.K.) Limited,
excluding its subsidiaries.
Our statements below relating to the debt securities and the
indentures are also qualified in their entirety by reference to
all of the provisions of the applicable indenture and any
applicable United States federal income tax considerations as
well as any applicable modifications of or additions to the
general terms described below in the applicable prospectus
supplement or supplemental indenture. For a description of the
terms of a particular issue of debt securities, reference must
be made to both the related prospectus supplement and to the
following description.
Additional
Information
The terms of each series of debt securities will be established
by or pursuant to a resolution of our board of directors, or a
committee thereof, and set forth or determined in the manner
provided in an officers certificate or by a supplemental
indenture. The particular terms of each series of debt
securities will be described in a prospectus supplement relating
to such series, including any pricing supplement.
We may issue an unlimited amount of debt securities under the
indenture, and the debt securities may be in one or more series
with the same or various maturities, at par, at a premium or at
a discount. Except as set forth in any prospectus supplement, we
will also have the right to reopen a previous series
of debt securities by issuing additional debt securities of such
series without the consent of the holders of debt securities of
the series being reopened or any other series. Any additional
debt securities of the series being reopened will have the same
ranking, interest rate, maturity and other terms as the
previously issued debt securities of that series. These
additional debt securities, together with the previously issued
debt securities of that series, will constitute a single series
of debt securities under the terms of the applicable indenture.
We will set forth in a prospectus supplement, including any
pricing supplement, relating to any series of debt securities
being offered, the aggregate principal amount and other terms of
the debt securities, which will include some or all of the
following:
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the title;
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any limit on the amount that may be issued;
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whether or not we will issue the series of debt securities in
global form, and, if so, the terms and the name of the
depository;
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the maturity date;
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the interest rate, which may be fixed or variable, or the method
for determining the rate and the date interest will begin to
accrue, the dates interest will be payable and the regular
record dates for interest payment dates or the method for
determining such dates;
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whether or not the debt securities will be secured or unsecured,
and the terms of any securities;
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classification as senior or subordinated debt securities;
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in the case of subordinated debt securities, the degree, if any,
to which the subordinated debt securities of the series will be
senior to or be subordinated to other indebtedness of our in
right of payment, whether the other indebtedness is outstanding
or not, the aggregate amount of outstanding indebtedness as of
the most recent practicable date that is senior to the
subordinated debt and a description of any limitations on the
issuance of additional senior indebtedness, if any;
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if the securities are guaranteed, the name of the guarantor and
a brief outline of the contract of guarantee;
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information about other classes of securities issued by us that
may limit holders rights under the securities that
theyve purchased;
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the terms on which any series of debt securities may be
convertible into or exchangeable for our ordinary shares or
other of our securities, including (a) provisions as to
whether conversion or exchange is mandatory, at the option of
the holder or at our option and (b) provisions pursuant to
which the number of ordinary shares or other securities of ours
that the holders of the series of debt securities receive would
be subject to adjustment;
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if any principal or interest is to be amortized, the
amortization schedule by which any principal
and/or
interest will be paid;
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a schedule listing the premium at which we will repay principal
in order to retire the debt securities early, if we choose to do
so;
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the kind and priority of any lien securing the issue, as well as
a brief identification of the principal properties subject to
each lien;
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the tax effects of any original issue discount as
that term is defined in Section 1232 of the Internal
Revenue Code (26 U.S.C. 1232);
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the name and address of the trustee and the nature of any
material relationship between the trustee and us or any of our
affiliates, the percentage of the class of securities that is
needed to require the trustee to take action, and what
indemnification the trustee may require before proceeding to
enforce any lien;
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the place where payments will be payable and the name and
address of the paying agent;
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our right, if any, to defer payment of interest and the maximum
length of any such deferral period;
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the date, if any, after which, and the price at which, we may,
at our option, redeem the series of debt securities pursuant to
any optional redemption provisions;
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the date, if any, on which, and the price at which we are
obligated, pursuant to any mandatory sinking fund provisions or
otherwise, to redeem, or at the holders option to
purchase, the series of debt securities;
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whether the indenture will restrict our ability to pay
dividends, or will require us to maintain any asset ratios or
reserves;
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whether we will be restricted from incurring any additional
indebtedness;
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any listing of a series of debt securities on a securities
exchange or market;
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the denominations in which we will issue the series of debt
securities, if other than denominations of US$1,000 and any
integral multiple thereof;
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the consequences of any failure to pay principal, interest, or
any sinking or amortization installment; and
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any other specific terms, preferences, rights or limitations of,
or restrictions on, the debt securities.
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We will provide information on the applicable United States and
Hong Kong income tax considerations and other special
considerations applicable to any of these debt securities in the
applicable prospectus supplement.
If we denominate the purchase price of any of the debt
securities in a foreign currency or currencies or a foreign
currency unit or units, or if the principal of, and premium and
interest on, any series of debt securities is payable in a
foreign currency or currencies or a foreign currency unit or
units, we will provide you with information on the restrictions,
elections, general tax considerations, specific terms and other
information with respect to that issue of debt securities and
such foreign currency or currencies or foreign currency unit or
units in the applicable prospectus supplement.
Transfer
and Exchange
Each debt security will be represented by either one or more
global securities registered in the name of The Depositary
Trust Company, as depositary, or a nominee (we will refer
to any debt security represented by a global debt security as a
book-entry debt security), or a certificate issued
in definitive registered form (we will refer to any debt
security represented by a certificated security as a
certificated debt security) as set forth in the
applicable prospectus supplement.
You may transfer or exchange certificated debt securities at any
office we maintain for this purpose in accordance with the terms
of the indenture. No service charge will be made for any
transfer or exchange of certificated debt securities, but we may
require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection with a transfer or
exchange.
You may effect the transfer of certificated debt securities and
the right to receive the principal of, and any premium and
interest on, certificated debt securities only by surrendering
the certificate representing those certificated debt securities
and either reissuance by us or the trustee of the certificate to
the new holder or the issuance by us or the trustee of a new
certificate to the new holder.
No
Protection in the Event of a Change of Control
Unless we state otherwise in the applicable prospectus
supplement, the debt securities will not contain any provisions
which may afford holders of the debt securities protection in
the event we undergo a change in control or in the event of a
highly leveraged transaction (whether or not such transaction
results in a change in control) which could adversely affect
holders of debt securities.
Covenants
We will set forth in the applicable prospectus supplement any
restrictive covenants applicable to any issue of debt securities.
Consolidation,
Merger and Sale of Assets
We may not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all of our properties and
assets to, any person, which we refer to as a successor person,
unless:
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we are the surviving corporation or the successor person (if
other than us) expressly assumes our obligations on the debt
securities and under the indenture;
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immediately after giving effect to the transaction, no event of
default, and no event which, after notice or lapse of time, or
both, would become an event of default, shall have occurred and
be continuing under the indenture; and
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certain other conditions are met, including any additional
conditions described in the applicable prospectus supplement.
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Events of
Default
Event of default means, with respect to any series of debt
securities, any of the following:
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default in the payment of any interest upon any debt security of
that series when it becomes due and payable, and continuance of
that default for a period of 30 days (unless the entire
amount of the payment is deposited by us with the trustee or
with a paying agent prior to the expiration of the
30-day
period);
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default in the payment of principal of or premium on any debt
security of that series when due and payable;
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default in the performance or breach of any other covenant or
warranty by us in the indenture (other than a covenant or
warranty that has been included in the indenture solely for the
benefit of a series of debt securities other than that series),
which default continues uncured for a period of 90 days
after we receive written notice from the trustee or we and the
trustee receive written notice from the holders of not less than
a majority in principal amount of the outstanding debt
securities of that series as provided in the indenture;
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certain events of bankruptcy, insolvency or reorganization of
our company; and
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any other event of default provided with respect to debt
securities of that series that is described in the applicable
prospectus supplement.
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No event of default with respect to a particular series of debt
securities (except as to certain events of bankruptcy,
insolvency or reorganization) necessarily constitutes an event
of default with respect to any other series of debt securities.
The occurrence of an event of default may constitute an event of
default under our bank credit agreements in existence from time
to time. In addition, the occurrence of certain events of
default or an acceleration under the indenture may constitute an
event of default under certain of our other indebtedness
outstanding from time to time.
If an event of default with respect to debt securities of any
series at the time outstanding occurs and is continuing, then
the trustee or the holders of not less than a majority in
principal amount of the outstanding debt securities of that
series may, by a notice in writing to us (and to the trustee if
given by the holders), declare to be due and payable immediately
the principal (or, if the debt securities of that series are
discount securities, that portion of the principal amount as may
be specified in the terms of that series) of, and accrued and
unpaid interest, if any, on all debt securities of that series.
In the case of an event of default resulting from certain events
of bankruptcy, insolvency or reorganization, the principal (or
such specified amount) of and accrued and unpaid interest, if
any, on all outstanding debt securities will become and be
immediately due and payable without any declaration or other act
on the part of the trustee or any holder of outstanding debt
securities. At any time after a declaration of acceleration with
respect to debt securities of any series has been made, but
before a judgment or decree for payment of the money due has
been obtained by the trustee, the holders of a majority in
principal amount of the outstanding debt securities of that
series may rescind and annul the acceleration if all events of
default, other than the non-payment of accelerated principal and
interest, if any, with respect to debt securities of that
series, have been cured or waived as provided in the indenture.
We refer you to the prospectus supplement relating to any series
of debt securities that are discount securities for the
particular provisions relating to acceleration of a portion of
the principal amount of such discount securities upon the
occurrence of an event of default.
The indenture provides that the trustee will be under no
obligation to exercise any of its rights or powers under the
indenture at the request of any holder of outstanding debt
securities, unless the trustee receives indemnity satisfactory
to it against any loss, liability or expense. Subject to certain
rights of the trustee, the holders of a majority in principal
amount of the outstanding debt securities of any series will
have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the
trustee or exercising any trust or power conferred on the
trustee with respect to the debt securities of that series.
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No holder of any debt security of any series will have any right
to institute any proceeding, judicial or otherwise, with respect
to the indenture or for the appointment of a receiver or
trustee, or for any remedy under the indenture, unless:
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that holder has previously given to the trustee written notice
of a continuing event of default with respect to debt securities
of that series; and
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the holders of at least a majority in principal amount of the
outstanding debt securities of that series have made written
request, and offered reasonable indemnity, to the trustee to
institute the proceeding as trustee, and the trustee has not
received from the holders of a majority in principal amount of
the outstanding debt securities of that series a direction
inconsistent with that request and has failed to institute the
proceeding within 60 days.
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Notwithstanding the foregoing, the holder of any debt security
will have an absolute and unconditional right to receive payment
of the principal of, and any premium and interest on, that debt
security on or after the due dates expressed in that debt
security and to institute suit for the enforcement of payment.
If any securities are outstanding under the indenture, the
indenture requires us, within 120 days after the end of our
fiscal year, to furnish to the trustee a statement as to
compliance with the indenture. The indenture provides that the
trustee may withhold notice to the holders of debt securities of
any series of any default or event of default (except in payment
on any debt securities of that series) with respect to debt
securities of that series if it in good faith determines that
withholding notice is in the interest of the holders of those
debt securities.
Modification
and Waiver
We may modify and amend the indenture with the consent of the
holders of at least a majority in principal amount of the
outstanding debt securities of each series affected by the
modifications or amendments. We may not make any modification or
amendment without the consent of the holders of each affected
debt security then outstanding if that amendment will:
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reduce the amount of debt securities whose holders must consent
to an amendment or waiver;
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reduce the rate of or extend the time for payment of interest
(including default interest) on any debt security;
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reduce the principal of, or premium on, or change the fixed
maturity of, any debt security or reduce the amount of, or
postpone the date fixed for, the payment of any sinking fund or
analogous obligation with respect to any series of debt
securities;
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reduce the principal amount of discount securities payable upon
acceleration of maturity;
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waive a default in the payment of the principal of, or premium
or interest on, any debt security (except a rescission of
acceleration of the debt securities of any series by the holders
of at least a majority in aggregate principal amount of the then
outstanding debt securities of that series and a waiver of the
payment default that resulted from such acceleration);
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make the principal of, or premium or interest on, any debt
security payable in currency other than that stated in the debt
security;
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make any change to certain provisions of the indenture relating
to, among other things, the right of holders of debt securities
to receive payment of the principal of, and premium and interest
on, those debt securities and to institute suit for the
enforcement of any such payment and to waivers or
amendments; or
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waive a redemption payment with respect to any debt security.
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Except for certain specified provisions, the holders of at least
a majority in principal amount of the outstanding debt
securities of any series may on behalf of the holders of all
debt securities of that series waive our compliance with
provisions of the indenture. The holders of a majority in
principal amount of the outstanding debt securities of any
series may on behalf of the holders of all the debt securities
of such series waive any
25
past default under the indenture with respect to that series and
its consequences, except a default in the payment of the
principal of, or any premium or interest on, any debt security
of that series or in respect of a covenant or provision, which
cannot be modified or amended without the consent of the holder
of each outstanding debt security of the series affected;
provided, however, that the holders of a majority in principal
amount of the outstanding debt securities of any series may
rescind an acceleration of the debt securities of such series
and its consequences, including any related payment default that
resulted from the acceleration.
Discharging
Our Obligations
We may choose to either discharge our obligations on the debt
securities of any series in a legal defeasance, or to release
ourselves from our covenant restrictions on the debt securities
of any series in a covenant defeasance. We may do so at any time
after we deposit with the trustee sufficient cash or government
securities to pay the principal, interest, any premium and any
other sums due to the stated maturity date or a redemption date
of the debt securities of the series. If we choose the legal
defeasance option, the holders of the debt securities of the
series will not be entitled to the benefits of the indenture
except for registration of transfer and exchange of debt
securities, replacement of lost, stolen, destroyed or mutilated
debt securities, conversion or exchange of debt securities,
sinking fund payments and receipt of principal and interest on
the original stated due dates or specified redemption dates.
We may discharge our obligations under the indenture or release
ourselves from covenant restrictions only if, in addition to
making the deposit with the trustee, we meet some specific
requirements. Among other things:
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we must deliver an opinion of our legal counsel that the
discharge will not result in holders having to recognize taxable
income or loss or subject them to different tax treatment. In
the case of legal defeasance, this opinion must be based on
either an IRS letter ruling or change in federal tax law;
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we may not have a default on the debt securities discharged on
the date of deposit;
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the discharge may not violate any of our agreements; and
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the discharge may not result in our becoming an investment
company in violation of the Investment Company Act of 1940.
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Governing
Law
The indenture and the debt securities will be governed by, and
construed in accordance with, the internal laws of the State of
New York, without regard to conflict of law principles that
would result in the application of any law other than the laws
of the State of New York.
Subsequent filings may include additional terms not listed
above. Unless otherwise indicated in subsequent filings with the
Commission relating to the indenture, principal, premium and
interest will be payable and the debt securities will be
transferable at the corporate trust office of the applicable
trustee. Unless other arrangements are made or set forth in
subsequent filings or a supplemental indenture, principal,
premium and interest will be paid by checks mailed to the
holders at their registered addresses.
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Description
of Warrants
We may issue warrants to purchase debt or equity securities or
securities of third parties or other rights, including rights to
receive payment in cash or securities based on the value, rate
or price of one or more specified securities or indices, or any
combination of the foregoing. Warrants may be issued
independently or together with any other securities and may be
attached to, or separate from, such securities. Each series of
warrants will be issued under a separate warrant agreement to be
entered into between us and a warrant agent. The terms of any
warrants to be issued and a description of the material
provisions of the applicable warrant agreement will be set forth
in the applicable prospectus supplement.
The applicable prospectus supplement will describe the following
terms of any warrants in respect of which the prospectus is
being delivered:
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the title of such warrants;
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the aggregate number of such warrants;
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the price or prices at which such warrants will be issued;
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the currency or currencies, in which the price of such warrants
will be payable;
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the securities or other rights, including rights to receive
payment in cash or securities based on the value, rate or price
of one or more specified commodities, currencies, securities or
indices, or any combination of the foregoing, purchasable upon
exercise of such warrants;
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the date on which the right to exercise such warrants shall
commence and the date on which such right shall expire;
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if applicable, the minimum or maximum amount of such warrants
which may be exercised at any one time;
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if applicable, the designation and terms of the securities with
which such warrants are issued and the number of such warrants
issued with each such security;
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if applicable, the date on and after which such warrants and the
related securities will be separately transferable;
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provisions for changes or adjustments in the exercise price;
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the amount of warrants outstanding;
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information with respect to book-entry procedures, if any;
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any material Hong Kong and U.S. federal income tax
consequences;
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the anti-dilution provisions of the warrants; and
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any other terms of such warrants, including terms, procedures
and limitations relating to the exchange and exercise of such
warrants.
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27
Description
of Rights to Purchase Ordinary Shares
We may issue subscription rights to purchase ordinary shares. We
may issue these rights independently or together with any other
offered security.
The applicable prospectus supplement will describe the specific
terms of any subscription rights offering, including:
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the title of the subscription rights;
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the securities for which the subscription rights are exercisable;
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the exercise price for the subscription rights;
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the number of subscription rights issued;
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if applicable, a discussion of the material US federal or income
tax considerations applicable to the issuance or exercise of the
subscription rights;
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any other terms of the subscription rights, including terms,
procedures and limitations relating to the exchange and exercise
of the subscription rights;
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if applicable, the record date to determine who is entitled to
the subscription rights and the ex-rights date;
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the date on which the rights to exercise the subscription rights
will commence, and the date on which the rights will expire;
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the extent to which the offering includes an over-subscription
privilege with respect to unsubscribed securities; and
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if applicable, the material terms of any standby underwriting
arrangement we enter into in connection with the offering.
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Each subscription right will entitle its holder to purchase for
cash a number of ordinary shares, ADSs or any combination
thereof at an exercise price described in the prospectus
supplement. Subscription rights may be exercised at any time up
to the close of business on the expiration date set forth in the
prospectus supplement. Ant the close of business on the
expiration date, all unexercised subscription rights will become
void.
Upon receipt of payment and the subscription form properly
completed and executed at the subscription rights agents
office or another office indicated in the prospectus supplement,
we will, as soon as practicable, forward the ordinary shares or
ADSs purchasable with this exercise. Rights to purchase ordinary
shares in the form of ADSs will be represented by certificates
issued by the ADS depositary upon receipt of the rights to
purchase ordinary shares registered hereby. The prospectus
supplement may offer more details on how to exercise the
subscription rights.
Depending on the nature of the offering, we may enter into a
standby underwriting arrangement with one or more underwriters
under which the underwriter(s) will purchase any offered
securities remaining unsubscribed for after the offering, as
described in the prospectus supplement.
28
Description
of Units
We may, from time to time, issue units comprised of one or more
of the other securities that may be offered under this
prospectus, in any combination. Each unit will be issued so that
the holder of the unit is also the holder of each security
included in the unit. Thus, the holder of a unit will have the
rights and obligations of a holder of each included security.
The unit agreement under which a unit is issued may provide that
the securities included in the unit may not be held or
transferred separately at any time, or at any time before a
specified date.
Any applicable prospectus supplement will describe:
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the material terms of the units and of the securities comprising
the units, including whether and under what circumstances those
securities may be held or transferred separately;
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any material provisions relating to the issuance, payment,
settlement, transfer or exchange of the units or of the
securities comprising the units; and
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any material provisions of the governing unit agreement that
differ from those described above.
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29
Plan of
Distribution
We may sell securities under this prospectus in offerings:
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through one or more underwriters or dealers;
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through agents;
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directly to investors;
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in at the market offerings, within the meaning of
Rule 415(a)(4) of the Securities Act of 1933, to or through
a market maker or into an existing trading market, on an
exchange or otherwise; or
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through a combination of any of these methods of sale.
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In addition, we may issue the securities as a dividend or
distribution or in a subscription rights offering to our
existing security holders. In some cases, we or dealers acting
for us or on our behalf may also repurchase securities and
reoffer them to the public by one or more of the methods
described above. This prospectus may be used in connection with
any offering of our securities through any of these methods or
other methods described in the applicable prospectus supplement.
We may price the securities we sell under this prospectus:
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at a fixed public offering price or prices, which we may change
from time to time;
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at market prices prevailing at the times of sale;
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at prices calculated by a formula based on prevailing market
prices;
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at negotiated prices; or
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in a combination of any of the above pricing methods.
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If we use underwriters for an offering, they will acquire
securities for their own account and may resell them from time
to time in one or more transactions at a fixed public offering
price or at varying prices determined at the time of sale. The
obligations of the underwriters to purchase the securities will
be subject to the conditions set forth in the applicable
underwriting agreement. We may offer the securities to the
public through underwriting syndicates represented by managing
underwriters or by underwriters without a syndicate. Subject to
certain conditions and except as otherwise set forth in the
applicable prospectus supplement, the underwriters will be
obligated to purchase all the securities of the series offered
by the prospectus supplement. The public offering price and any
discounts or concessions allowed or re-allowed or paid to
dealers may change from time to time. Only underwriters named in
a prospectus supplement are underwriters of the securities
offered by that prospectus supplement.
The aggregate value of all compensation received or to be
received by any members of FINRA participating in an offering
will not exceed 8% of the offering proceeds.
We may grant to the underwriters options to purchase additional
securities to cover over-allotments, if any, at the public
offering price with additional underwriting discounts or
commissions. If we grant any over-allotment option, the terms of
any over-allotment option will be set forth in the prospectus
supplement relating to those securities.
If we use dealers for an offering, they will acquire securities
for their own account and may resell them from time to time to
the public at varying prices determined by the dealers at the
time of resale. The applicable prospectus supplement will
include the names of the dealers and the terms of the
transaction.
We may also sell securities directly or through agents. We will
name any agent involved in an offering and we will describe any
commissions we will pay the agent in the prospectus supplement.
Unless the prospectus supplement states otherwise, our agents
will act on a best-efforts basis.
We may authorize agents, underwriters or dealers to solicit
offers by certain types of institutional investors to purchase
securities from us at the public offering price set forth in the
prospectus supplement pursuant to
30
delayed delivery contracts providing for payment and delivery on
a specified date in the future. We will describe the conditions
of these contracts and the commissions we must pay for
solicitation of these contracts in the prospectus supplement.
We may provide agents and underwriters with indemnification
against certain civil liabilities, including liabilities under
the Securities Act of 1933, or contribution with respect to
payments that the agents or underwriters may make with respect
to such liabilities. Underwriters or agents may engage in
transactions with us, or perform services for us, in the
ordinary course of business. We may also use underwriters or
agents with whom we have a material relationship. We will
describe the nature of any such relationship in the prospectus
supplement.
An underwriter may engage in overallotment, stabilizing
transactions, short covering transactions and penalty bids in
accordance with Regulation M under the Securities Exchange
Act of 1934. Overallotment involves sales in excess of the
offering size, which create a short position. Stabilizing
transactions permit bids to purchase the underlying security so
long as the stabilizing bids do not exceed a specified maximum.
Short covering transactions involve purchases of the securities
in the open market after the distribution is completed to cover
short positions. Penalty bids permit the underwriter to reclaim
a selling concession from a dealer when the securities
originally sold by the dealer are purchased in a covering
transaction to cover short positions. These activities may cause
the price of our securities to be higher than it would otherwise
be on the open market. The underwriter may discontinue any of
these activities at any time.
All securities we offer, other than ordinary shares, will be new
issues of securities, with no established trading market.
Underwriters may make a market in these securities, but will not
be obligated to do so and may discontinue market making at any
time without notice. We cannot guarantee the liquidity of the
trading markets for any securities.
31
Dividend
Policy
Unless the relevant provisions of the Companies Ordinance
require otherwise, we may by ordinary resolution (being a
resolution passed by a majority of our shareholders who attend
and vote at a meeting of shareholders) from time to time declare
dividends, but no dividend shall exceed the amount recommended
by our board of directors. Our Articles contain provisions on
apportioning dividends where shares are not or were not fully
paid for during the period covered by the dividend.
Unless the relevant provisions of the Companies Ordinance
require otherwise, our board of directors may pay such interim
dividends as appears to them to be justified by our financial
position and pay any dividend payable at a fixed rate at
intervals decided upon by our board of directors, whatever our
financial position, if the board of directors feels that this
payment is justified.
In respect of any dividend proposed to be paid or declared by
our board of directors or by us in a general meeting, our board
of directors may further propose and announce prior to or at the
same time as the payment or declaration of such dividend either
that:
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1)
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Such dividend be made in whole or in part in the form of an
allotment of shares to the shareholders, credited as being fully
paid. However, all the shareholders entitled to receive these
new shares will also be entitled to choose to receive the
dividend (or a part of it) in cash and not shares; or
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2)
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The shareholders entitled to such dividend are entitled to elect
to receive an allotment of shares, credited as fully paid in
stead of the whole or that part of the cash dividend as the
board of directors may decide upon.
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Any general meeting declaring a dividend may, upon the
recommendation of our board of directors, by ordinary
resolutions, direct that the dividend shall be met, wholly or
partly, by the distribution of our assets.
Any dividend not claimed by a shareholder after a period of six
years from the date when it was first due to be paid shall be
forfeited and shall revert to us. The payment by our board of
directors of any unclaimed dividend, interest or other sum
payable on or in respect of a share into a separate account
shall not make us responsible as a trustee for such sums.
32
Offering
Expenses
The following is a statement of expenses in connection with the
distribution of the securities registered. All amounts shown are
estimates except the SEC registration fee. The estimates do not
include expenses related to offerings of particular securities.
Each prospectus supplement describing an offering of securities
will reflect the estimated expenses related to the offering of
securities under that prospectus supplement.
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SEC registration fee
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US$7,130
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Legal fees and expenses
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US$50,000
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Accounting fees and expenses
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US$20,000
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Printing and engraving expenses
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US$20,000
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Miscellaneous expenses
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US$1,000
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Total
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US$98,130
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33
Material
Changes
There have not been any material changes in our affairs that
have occurred since the end of the latest fiscal year for which
certified financial statements are included in this prospectus
and that have not been described in a report filed under the
Exchange Act and incorporated by reference.
Legal
Matters
The validity of the securities offered in this prospectus will
be passed upon for us by Jones Day, our Hong Kong and
U.S. counsel. Any underwriters will be advised with respect
to other issues relating to any offering by their own legal
counsel.
Experts
The consolidated financial statements of City Telecom (H.K.)
Limited and its subsidiaries as of August 31, 2008 and
2009, and for each of the years in the two-year period ended
August 31, 2009, have been incorporated by reference herein
and in this Registration Statement in reliance upon the report
of KPMG, an independent registered public accounting firm,
incorporated by reference herein, and upon authority of said
firm as experts in accounting and auditing.
The offices of KPMG are located at 8th Floor, Princes
Building, 10 Chater Road, Central, Hong Kong, Peoples
Republic of China.
Where You
Can Find More Information
We have filed a registration statement on
Form F-3
with the Securities and Exchange Commission in connection with
this offering. In addition, we file reports with, and furnish
information to, the Securities and Exchange Commission. You may
read and copy the registration statement and any other documents
we have filed at the Securities and Exchange Commission,
including any exhibits and schedules, at the Securities and
Exchange Commissions public reference room at
100 F Street N.E., Washington, D.C. 20549. You
may call the Securities and Exchange Commission at
1-800-SEC-0330
for further information on this public reference room. As a
foreign private issuer, all documents which were filed after
November 4, 2002 on the Securities and Exchange
Commissions EDGAR system are available for retrieval on
the Securities and Exchange Commissions website at
www.sec.gov.
This prospectus is part of the registration statement and does
not contain all of the information included in the registration
statement. Whenever a reference is made in this prospectus to
any of our contracts or other documents, the reference may not
be complete and, for a copy of the contract or document, you
should refer to the exhibits that are a part of the registration
statement.
34
Incorporation
of Information by Reference
The Securities and Exchange Commission allows us to
incorporate by reference into this prospectus the
information we file with it, which means that we can disclose
important information to you by referring you to those
documents. Information incorporated by reference is part of this
prospectus. The following documents filed with the Securities
and Exchange Commission by our company are incorporated by
reference in this registration statement:
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1)
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our Annual Report on
Form 20-F
for the year ended August 31, 2009, filed on
December 18, 2009, as amended by the
Form 20-F/A
filed on March 24, 2010, which contains audited
consolidated financial statements as of August 31, 2008 and
2009 and for each of the years in the two-year period ended
August 31, 2009; and
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2)
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our Current Reports on
Form 6-K
furnished on December 30 and 31, 2009 and February 5, 2010.
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All subsequent annual reports filed by our company pursuant to
the Securities Exchange Act of 1934 on
Form 20-F
prior to the termination of the offering shall be deemed to be
incorporated by reference in this prospectus and to be a part
hereof from the date of filing of such documents. We may also
incorporate any
Form 6-K
subsequently submitted by us to the Commission prior to the
termination of the offering by identifying in such
Forms 6-K
that they are being incorporated by reference herein, and any
Forms 6-K
so identified shall be deemed to be incorporated by reference in
this prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of
this prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is
incorporated or deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this prospectus.
Copies of reports and other information, when so filed, may be
inspected without charge and may be obtained at prescribed rates
at the SECs Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549, and
at the regional office of the SEC located at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois
60661. The public may obtain information regarding the
Washington, D.C. Public Reference Room by calling the SEC
at
1-800-SEC-0330.
The SEC also maintains an Internet website at www.sec.gov that
contains information regarding registrants that make electronic
filings with the SEC using its EDGAR system.
We will provide to each person, including any beneficial owner,
to whom this prospectus is delivered, a copy of these filings,
at no cost, upon written or oral request to us at:
City Telecom (H.K.) Limited
Level 39, Tower 1, Metroplaza
No. 223 Hing Fong Road,
Kwai Chung, New Territories,
Hong Kong
Attn: Mr. Lai Ni Quiaque
Telephone number: (852) 3145 6068
Copies of these filings may also be accessed at our website,
www.ctigroup.com.hk.
As a foreign private issuer, we are exempt from the rules under
Section 14 of the Exchange Act prescribing the furnishing
and content of proxy statements and our officers, directors and
principal shareholders are exempt from the reporting and other
provisions in Section 16 of the Exchange Act.
35
3,500,000 American
Depositary Shares
Representing
70,000,000 Ordinary Shares
PROSPECTUS SUPPLEMENT
April 23,
2010
Oppenheimer &
Co.
Roth Capital Partners
You should rely only on the information contained in this
prospectus. No dealer, salesperson or other person is authorized
to give information that is not contained in this prospectus.
This prospectus is not an offer to sell nor is it seeking an
offer to buy these securities in any jurisdiction where the
offer or sale is not permitted. The information contained in
this prospectus is correct only as of the date of this
prospectus, regardless of the time of the delivery of this
prospectus or any sale of these securities.
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