OUR CONTROLLING SHAREHOLDERS Immediately after completion of the Share Offer and the Capitalisation Issue (without taking into account of any Shares which may be allotted and issued pursuant to the exercise of any options which may be granted under the Share Option Scheme), our Controlling Shareholders will hold/be interested in 360,000,000 Shares, representing 75% in aggregate of the total issued share capital of our Company. Mr. Yau and Ms. Sz (through Legend Investments) will each hold 60% and 15% attributable interest of our Company s share capital and in aggregate control 75% of the Shares in issue. As such, Mr. Yau and Ms. Sz will continue to remain as the dominating group of Shareholders which would continue to hold a controlling interest in our Company upon completion of the Share Offer and the Capitalisation Issue. Further, Mr. Yau and Ms. Sz have confirmed that during the Track Record Period and up to the date of the Listing, they have been and will be acting in concert and voted and will vote in unanimous manner on any resolution in respect of the management, development and operations of our Group s operations. INTEREST OF CONTROLLING SHAREHOLDER IN OTHER BUSINESS Other Business of our Controlling Shareholders As at the Latest Practicable Date, apart from their respective interests in our Group, Mr. Yau and Ms. Sz, each being a Controlling Shareholder and an executive Director, held 80% and 20% of the issued capital of Legend Contracting and 50% and 50% of the issued capital of Legend Enterprise (HK) Limited, respectively. Legend Contracting Legend Contracting was incorporated on 20 February 2006 in Hong Kong. Legend Contracting is principally engaged in the business of property investment holding. During the Track Record Period, Legend Contracting was involved in a one-off fit out project to accommodate a customer s requirement that a different or separate legal entity to provide its proposal on each of the following services: (i) design and (ii) fit out management. Our Directors confirm that Legend Contracting did not engage in any other business operations or design and/or fit out transactions other than this foregoing one-off transaction and it has no intention to engage in design and/or fit out projects. Our Directors have determined that the financial performance of Legend Contracting had no material impact to the results and financial position of our Group during the Track Record Period. 118
The following table sets out the financial performance of Legend Contracting for the years ended 31 March 2014 and 2015 and as at the dates indicated based on the statutory financial statements of Legend Contracting audited by Harrison CPA Limited: For the year ended 31 March 2014 2015 Revenue 167 2,162 Net (loss)/profit (57) 41 Net cash from operation before working capital changes 136 245 Net cash (used in)/generated from operating activities (458) 259 As at 31 March 2014 2015 Net liabilities (97) (56) Legend Contracting has adopted a financial year-end date of 31 March with consideration of its incorporation anniversary on 20 February. Legend Enterprise (HK) Limited Legend Enterprise (HK) Limited ( Legend Enterprise ) was incorporated on 16 December 2005 in Hong Kong. Legend Enterprise is principally engaged in the business of investment holding and during the Track Record Period, Legend Enterprise leased certain premise which our Group used for our operations and recharged the related rental expenses to our Group based on 3,115 sq.ft. used by our Group. Our Directors confirm that Legend Enterprise did not engage in any other business operations or design and/or fit out transactions other than this rental transaction and it has no intention to engage in design and/or fit out projects. Our Directors have determined that the financial performance of Legend Enterprise had no material impact to the results and financial position of our Group during the Track Record Period. 119
The following table sets out the financial performance of Legend Enterprise for the year ended 31 March 2015 based on the statutory financial statements of Legend Enterprise audited by Harrison CPA Limited: For the year ended 31 March 2015 Revenue 937 Net loss (274) Net cash generated from operating activities 647 As at 31 March 2015 Net assets 1,232 Based on the above, our Directors consider that in view of the size, the operational differences in terms of the business nature, target client which is a one-off transaction and the rental transaction which is not the principal business of our Group, the extent of competition is very limited. Save as disclosed in this section, our Directors have confirmed that Legend Contracting and Legend Enterprise did not provide any other services to other customer of our Group during the Track Record Period. None of our Controlling Shareholders or our Directors has any interests in a business, other than our Group s business, which competes or is likely to compete, either directly or indirectly, with our Group s business. In addition, each of our Controlling Shareholders has given a noncompetition undertaking in favour of our Company. For details, please refer to the paragraph headed Non-competition Undertaking of this section below. REASONS FOR NON-INCLUSION OF LEGEND CONTRACTING AND LEGEND ENTERPRISE IN OUR GROUP Our Directors confirm that (i) Legend Contracting was only involved in a one-off fit out project as required by a customer; (ii) Legend Contracting and Legend Enterprise are principally engaged in property investment holding and investment holding respectively; (iii) Legend Enterprise was only involved in renting certain premise for the operations of our Group during the Track Record Period; and (iv) Legend Contracting and Legend Enterprise would not and are not expected to compete, directly or indirectly, with our business. In light of the foregoing, our Directors consider not to include Legend Contracting and Legend Enterprise as part of our Group and our Controlling Shareholders do not intend to inject Legend Contracting or Legend Enterprise into our Group in the future. Furthermore, the incorporation of Legend One as part of the Reorganisation allows our Group to fulfill our customers special requirement of having a different services or separate legal entity to provide its proposal on each of (i) design and (ii) fit out management. Our Directors believe that the incorporation of Legend One enables our Group to 120
cater for such special requirement, which during the Track Record Period was requested by one of our customers, in the future and enables our Group to participate in both design and fit out works in such events. The advice of our Hong Kong Legal Counsel on such arrangement is set out in the paragraph head Business Operating Procedures Quotation and Design stage Request for proposals followed by a meeting in this prospectus. In the event that our Group is to agree with such special requirement from our customers in the future, we will further seek appropriate legal advice, if necessary, and ensure any such arrangement, if agreed by our Group, will be conducted in full compliance with the applicable laws, regulations, codes and guidelines. As for renting premise for the operations of our Group, the tenancy agreement with Legend Enterprise was novated to AL Design on 27 January 2016. As a result of the above, both Legend Contracting and Legend Enterprise are not included into our Group. INDEPENDENCE FROM OUR CONTROLLING SHAREHOLDERS Management independence Although our Controlling Shareholders will maintain controlling interests in our Company upon completion of the Share Offer, the day-to-day management and operations of our Group will be the responsibility of all our executive Directors and senior management of our Company. The Board has six Directors comprising three executive Directors and three independent non-executive Directors. The Board and senior management operate as a matter of fact independently of our Controlling Shareholders and they are in a position to fully discharge their duties to the Shareholders as a whole after the Listing without reference to our Controlling Shareholders. Each of our Directors is aware of his or her fiduciary duties as a Director which require, among other things, that he/she acts for the benefitofandinthebestinterestsofourcompanyand does not allow any conflict between his or her duties as a Director and his or her personal interest. In the event that there is a potential conflict of interest arising out of any transaction to be entered into between our Group and our Directors or their respective close associates, the interested Director(s) will abstain from voting at the relevant board meetings of our Company in respect of such transactions and will not be counted in the quorum. In addition, our Company has an independent senior management team to carry out the business decisions of our Group independently. Having considered the above factors, our Directors are satisfied that they are able to perform their roles in our Company independently, and our Directors are of the view that our Company is capable of managing our Group s business independently from our Controlling Shareholders. Operational independence Our Group has established our own organisational structure made up of individual departments, each with specific areas of responsibilities. Our Group had not shared any operational resources, such as office premises, sales and marketing and general administration resources with 121
our Controlling Shareholders and their close associates, during the Track Record Period. Our Group has also established a set of internal controls procedures to facilitate the effective operation of our business. Our suppliers are all independent from our Controlling Shareholders. We do not rely on our Controlling Shareholders or their close associates and have our independent access to our suppliers for the provision of services and materials. Financial independence We have our own accounting and finance department and independent financial system and make financial decisions according to our own business needs. We also have our own treasury function and independent access to third party financing. During the Track Record Period, (i) Mr. Yau, our executive Director and a Controlling Shareholder, pledged certain fixed deposits and provided indemnity in favour of a bank, and (ii) Ms. Sz, our executive Director and a Controlling Shareholder, provided indemnity in favour of the same bank, for surety bonds issued by the bank in favour of our customers. Please refer to the paragraph headed Financial Information Indebtedness in this prospectus and note 26 to the Accountant s Report set out in Appendix I to this prospectus for further details. As at the Latest Practicable Date, all the surety bonds taken out by our Group during the Track Record Period had expired and ceased to have effect, and therefore, the said pledges and indemnities had also been released and expired. In view of our Group s internal resources and the estimated net proceeds from the Share Offer, our Directors believe that our Group will have sufficient capital for our financial needs without dependence on our Controlling Shareholders. Our Directors further believe that, upon the Listing, our Group is capable of obtaining financing from external sources independently without the support of our Controlling Shareholders. NON-COMPETITION UNDERTAKING Our Controlling Shareholders (each a Covenantor and collectively, the Covenantors ) have entered into the Deed of Non-Competition in favour of our Company, under which each of the Covenantors has irrevocably and unconditionally, jointly and severally, warranted and undertook to our Company (for ourselves and as trustee for each of our subsidiaries) that: (a) he/she/it will not, and will procure any Covenantor and his/her/its close associates (each a Controlled Person and collectively, the Controlled Persons ) and any company directly or indirectly controlled by the Covenantor (which for the purpose of the Deed of Non-Competition, shall not include any member of our Group) (the Controlled Company ) not to, except through any member of our Group, directly or indirectly (whether on our own account or with each other or in conjunction with or on behalf of any person or company, or as principal or agent, through any body corporate, partnership, joint venture or other contractual arrangement and whether for profit or otherwise), carry on, engage in, invest or acquire or hold any rights or be interested or otherwise involved in any business that is similar to or in competition directly or 122
indirectly (in each case whether as a shareholder, director, partner, agent or otherwise and whether for profit, reward or otherwise) with any business currently and from time to time engaged by our Group in Hong Kong and any other country or jurisdiction to which our Group carries on our business from time to time (the Restricted Business ); (b) if each of the Covenantors is offered or becomes aware of any project or business opportunity relating to the Restricted Business (the New Business Opportunity ) whether directly or indirectly, he/she/it (i) shall promptly notify our Company of such New Business Opportunity in writing, refer the same to our Company for consideration first and provide such information as may be reasonably required by our Company to make an informed assessment of such New Business Opportunity; and (ii) shall not, and shall procure that the Controlled Persons or Controlled Company shall not, invest or participate in any such New Business Opportunity unless such New Business Opportunity shall have been declined by our Company and the principal terms of which he/she/it and/or his/her/its close associates invest or participate in are no more favourable than those made available to our Company. Our independent non-executive Directors will review the New Business Opportunity and decide whether to invest in the New Business Opportunity. If our Group has not given written notice of our desire to invest in such New Business Opportunity or has given written notice denying the New Business Opportunity within thirty (30) business days (the 30-day Offering Period ) of receipt of notice from our Controlling Shareholders, our Controlling Shareholders and/ or his/her/its associates shall be permitted to invest in or participate in the New Business Opportunity on his/her/its own accord. With respect to the 30-day Offering Period, our Directors consider that such period is adequate for our Company to assess any New Business Opportunity. In the event that our Company requires additional time to assess the New Business Opportunity, our Company may give a written notice to our Controlling Shareholders during the 30-day Offering Period and our Controlling Shareholders agree to extend the period to a maximum of 60 business days. The Non-competition Undertaking does not apply to the holding of or interests in shares or other securities by any of the Covenantors and/or his/her/its close associates in any company which conducts or is engaged in any Restricted Business, provided that, in the case of such shares, they are listed on a recognised stock exchange as specified under the SFO and either: (a) the relevant Restricted Business (and assets relating thereto) accounts for less than 10% of the relevant consolidated turnover or consolidated assets of the company in question, as shown in the latest audited accounts of the company in question; or (b) the total number of the shares held by any of the Covenantors and his/her/its close associates or in which they are together interested does not amount to more than 5% of the issued shares of that class of the company in question, provided that any of the Covenantors and his/her/its close associates, whether acting singly or jointly, are not entitled to appoint a majority of the directors of that company and that at all times there 123
is a holder of such shares holding (together, where appropriate, with its close associates) a larger percentage of the shares in question than the Covenantors and his/her/its close associates together hold. The Non-competition Undertaking will take effect from the date on which dealings in the Shares first commence on GEM and will cease to have any effect upon the earliest of the date on which (i) such Covenantor, being a Controlling Shareholder, individually or collectively with any other Covenantor(s) ceases to be interested, directly or indirectly, in 30% or more of the issued Shares, or otherwise ceased to be regarded as controlling shareholder (as defined under the GEM Listing Rules from time to time) of our Company; or (ii) the Shares cease to be listed and traded on GEM or other recognised stock exchange. CORPORATE GOVERNANCE MEASURES Our Company will adopt the following measures to strengthen its corporate governance practice and to safeguard the interests of the Shareholders: (a) (b) (c) (d) (e) (f) (g) the Articles provide that a Director shall absent himself/herself from participating in Board meetings (nor shall he/she be counted in the quorum) and voting on any resolution of the Board approving any contract or arrangement or other proposal in which he/she or any of his/her close associates is materially interested unless a majority of our independent non-executive Directors expressly requested him/her to attend; our independent non-executive Directors will review and will disclose decisions with basis, on an annual basis, the compliance with the non-competition undertaking by our Controlling Shareholders; our Controlling Shareholders undertake to provide all information requested by our Company which is necessary for the annual review by our independent non-executive Directors and the enforcement of the Non-competition Undertaking; our Company will disclose decisions with basis on matters reviewed by our independent non-executive Directors relating to compliance and enforcement of the non-competition undertaking of our Controlling Shareholders in the annual reports of our Company; our Controlling Shareholders will make an annual declaration on compliance with their Non-competition Undertaking in the annual report of our Company; our Company has appointed VBG Capital Limited as our compliance adviser to advise on compliance matters in accordance with the GEM Listing Rules; our independent non-executive Directors will be responsible for deciding whether or not to allow our Controlling Shareholders and/or their respective close associates to involve or participate in a Restricted Business and if so, any condition to be imposed; and 124
(h) our independent non-executive Directors may appoint independent financial adviser and other professional advisers as they consider appropriate to advise them on any matter relating to the Non-competition Undertaking or connected transaction(s) at the cost of our Company. Further, any transaction that is proposed between our Group and our Controlling Shareholders and their respective close associates will be requiredtocomplywiththerequirementsofthegem Listing Rules, including, where appropriate, the reporting, annual review, announcement and independent shareholders approval requirements. None of the members of our Group has experienced any dispute with its shareholders or among its shareholders themselves and our Directors believe that each member of our Group has maintained positive relationship with its shareholders. With the corporate governance measures including the measures set out above, our Directors believe that the interest of the Shareholders will be protected. 125