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CONFIDENTIAL
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8.
9.
Any dividend received by the parent company on the shares owned in the subsidiary company will be specifically excluded from the Scheme of Control of the said parent company. This is based on the assumption that the subsidiary company will not pay for any assets purchased from the parent company by means of an issue of shares.
The assets will be purchased by a subsidiary company of the Hong Kong Telephone Co. and the treatment of the subsidiary company in the financial books of the parent company will
· be in accordance with generally accepted accounting practice.
The above principles will apply to all transfers in and out of the Telephone Company and its subsidiaries as agreed
However should with the Government from time to time. transfers be effected to partly-owned subsidiaries such as property joint venture operations etc., then once an asset or service is transferred to a partly-owned subsidiary then any agreement concerning the transfer of such activities back to the Scheme of Control would require the agreement
In the of the joint venture parties and the Government. event of agreement not being reached with regard to transfers to or from wholly or partly owned subsidiaries the decision of the Governor-in-Council shall be final.
10. Land and buildings will not be transferred to a subsidiary
company until such time that there is a proposed development plan for a particular site. Before being transferred the land and buildings will be revalued at current market prices and the transfer will be made at the revised value.
It is not intended to include the full value of the capital surplus arising on revaluation of the assets, i.e. capital reserve, in Shareholders' Funds for Scheme of Control purposes. Instead it is agreed that one third of the capital surplus arising from the revaluation shall be included in the Shareholders' Funds each year for three years. At the end of the three year period such capital surpluses will be an integral part of Shareholders' Funds for Scheme of Control purposes.
This method of dealing with the transfer of land and buildings is agreed both to satisfy the shareholders of parent company and also the subscribers to the telephone service.
For land and buildings it is accepted that these assets will be transferred to the subsidiary at market value or book value, whichever is the greater.
11. It is understood that the subsidiary company will maintain adequate statutory books of account prepared in accordance with normal standard accounting principles.
12. In accordance with Governor-in-Council's ruling all
transfers of activities or services to the subsidiary company will be confirmed with the Postmaster General and will be subject to the conditions outlined in Secretary for Economic Services' letter dated 3rd December 1992.
CONFIDENTIAL