Television Broadcasts : Discloseable Transaction – Formation of a Joint Venture with Imagine in the US

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

(Incorporated in Hong Kong with limited liability) Stock Code: 00511

The Board is pleased to announce that on 26 July 2017, TVB Venture (an indirect wholly-owned subsidiary of the Company) and Imagine entered into the LLC Agreement in relation to the formation of a joint venture company, ITT, on a 50:50 basis between TVB Venture and Imagine. The purpose of ITT is to finance the development and production of a slate of television projects which meet the prescribed criteria as more particularly set out in the LLC Agreement, whether developed and/or produced by Imagine alone or with third-party co-financiers/co- production partners. TVB Venture has contributed to the capital of ITT in an amount of US$33,333,333 as to 50% of the equity interests in ITT and has provided a loan to ITT in an amount of US$66,666,667 in the form of the Promissory Note.

This joint venture will provide a new opportunity for collaboration in television projects between Imagine and the Company.

With the formation of ITT, subject to the terms of the co-finance agreements/co- production agreements with relevant third-party co-financiers/co-production partners, the Company shall be granted the rights to release, reproduce, distribute, broadcast and use the television programmes developed and/or produced by Imagine alone or with third-party co-financiers/co-production partners in any manner in the PRC, Taiwan, Hong Kong and Macao.

As one or more of the applicable percentage ratios in respect of the Transaction are more than 5% but less than 25%, the Transaction constitutes a discloseable transaction for the Company and is subject to the notification and announcement requirements but exempted from the shareholders' approval requirement under Chapter 14 of the Listing Rules.

The Board is pleased to announce that on 26 July 2017, TVB Venture (an indirect wholly-owned subsidiary of the Company) and Imagine entered into the LLC Agreement in relation to the formation of a joint venture company, ITT, on a 50:50 basis between TVB Venture and Imagine.

26 July 2017

1. TVB Venture

2. Imagine

Pursuant to the LLC Agreement, TVB Venture and Imagine agreed to regulate the business, governance and other related matters concerning ITT, which was formed to finance the development and production of a slate of television projects which meet the prescribed criteria as more particularly set out in the LLC Agreement, whether developed and/or produced by Imagine alone or with third-party co-financiers/co- production partners.

A television project meets the prescribed criteria if such television project (a) has been ordered to production by a television network, and (b) is qualified or is otherwise approved by the directors designated by TVB Venture or the board of directors of ITT for being financed by ITT.

ITT shall be committed to finance the development and production of a slate of television projects during the period of four years from 26 July 2017, being the date of the LLC Agreement, unless extended by the approval of the board of directors of ITT or terminated earlier due to certain events as specified in the LLC Agreement.

TVB Venture has contributed to the capital of ITT in an amount of US$33,333,333 as to 50% of the equity interests in ITT. Imagine shall not be making any capital contribution to ITT but shall contribute in-kind in the form of production expertise as it has the duty to manage and control the business and affairs of ITT and all creative and production decisions with respect to the television projects financed by ITT. The capital contribution of US$33,333,333 from TVB Venture has been funded by internal cash resources of the Group.

Unless approved by the board of directors of ITT, no additional capital contribution shall be required from any of TVB Venture or Imagine.

The capital contribution of TVB Venture in ITT and the loan under the Promissory Note (as mentioned below) were determined after arm's length negotiations between the Company and Imagine with reference to the estimated funding requirement for the development and production of television projects during the initial term of four years.

TVB Venture and Imagine shall not transfer their respective equity interests in ITT without the consent of the other except as permitted under the LLC Agreement. TVB Venture has the right to dispose its interest in ITT after the 7th anniversary of the date of LLC Agreement, unless extended by the approval of the board of directors of ITT.

The board of directors of ITT comprises five members, two of whom are designated by TVB Venture and three of whom are designated by Imagine. The decision of the board of directors shall require the approval of at least one director designated by each of TVB Venture and Imagine. Save for certain matters that require the approval of the board of directors of ITT as specified in the LLC Agreement, the business and affairs of ITT shall be managed by Imagine.

TVB Venture and Imagine hold an equal amount of equity interests in ITT, designated as Class A Units and Class B Units respectively, with no voting right as to the business and affairs of ITT. They are entitled to receive cash distribution in accordance with the order of priority in the distribution waterfall mechanism more particularly set out in the LLC Agreement.

The distribution waterfall mechanism provides for TVB Venture or Imagine taking a higher percentage of the distribution at different junctures (depending on whether the anticipated return for Class A Units or Class B Units would be met at the relevant time). In summary, (a) first, each member of ITT can receive cash distribution to satisfy its US tax liability, (b) second, no other cash distribution can be paid before

the Promissory Note (including interest) has been repaid in full, (c) third, TVB Venture can receive cash distribution until all its equity contribution plus agreed returns as set out in the LLC Agreement have been recovered and received, (d) fourth, if ITT does not meet certain performance targets, TVB Venture can receive cash distribution until TVB Venture has received the agreed amount of payment for underperformance as set out in the LLC Agreement in full, (e) fifth, Imagine can receive cash distribution until it has recovered all its producer fees, (f) sixth, each of TVB Venture and Imagine can receive cash distribution according to a return-tied waterfall provision as set out in the LLC Agreement, and (g) lastly, TVB Venture and Imagine can receive cash distribution on a 50:50 basis.

With the formation of ITT, subject to the terms of the co-finance agreements/co- production agreements with relevant third-party co-financiers/co-production partners, the Company shall be granted the rights to release, reproduce, distribute, broadcast and use the television programmes developed and/or produced by Imagine alone or with third-party co-financiers/co-production partners in any manner in the PRC, Taiwan, Hong Kong and Macao.

On the same date as the LLC Agreement, Imagine and ITT entered into a services agreement, pursuant to which Imagine agreed to provide services to ITT including development services relating to television projects and other overhead and administrative services with reimbursement of applicable costs.

On the same date as the LLC Agreement, ITT issued the Promissory Note in the aggregate principal amount of US$66,666,667 to TVB Venture with respect to TVB Venture's provision of a loan to ITT. The Promissory Note is unsecured and bears an interest rate of 12% per annum payable annually. The Promissory Note shall mature on the 15th anniversary from the date of issue. ITT may repay the outstanding principal under the Promissory Note in whole or in part from time to time, provided that any repayment during the period of four years from the date of the LLC Agreement shall be subject to the prior approval of the board of directors of ITT. The Promissory Note is subordinated to all debts incurred by ITT from time to time. The Promissory Note of US$66,666,667 has been funded by internal cash resources of the Group.

Imagine is principally engaged in the production of films and television programmes in the US founded by Brian Grazer and Ron Howard. Grazer and Howard's early collaborations included "Splash" which earned Grazer an Oscar nomination for Best Original Screenplay and "A Beautiful Mind" for which the film won the Oscar for Best

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