Poly Culture : RENEWAL OF CONTINUING CONNECTED TRANSACTIONS FOR 2020 TO 2022 AND NOTICE OF THE 2019 FIRST EXTRAORDINARY GENERAL MEETING

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your stockbroker or other licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Poly Culture Group Corporation Limited (保利文化集團 股份有限公司), you should at once hand this circular to the purchaser or transferee or to the bank or

stockbroker or other licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

(A joint stock limited company incorporated in the People's Republic of China with limited liability)

(Stock Code: 3636)

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS

FOR 2020 TO 2022

AND

NOTICE OF THE 2019 FIRST EXTRAORDINARY GENERAL MEETING

Independent Financial Adviser to the Independent Board Committee

and the Independent Shareholders

The Extraordinary General Meeting will be held at 2:30 p.m. on Friday, 20 December 2019 at the Meeting Room, 29/F, New Poly Plaza, 1 North Street of Chaoyangmen, Dongcheng District, Beijing, PRC.

A form of proxy (the "Proxy Form") for use at the Extraordinary General Meeting is published on the website of the Stock Exchange (http://www.hkexnews.hk) and the website of the Company (http:// polyculture.com.cn) on 5 November 2019. If you intend to appoint a proxy to attend the Extraordinary General Meeting, you are requested to complete and return the enclosed Proxy Form in accordance with the instructions printed thereon not less than 24 hours before the time fixed for holding the Extraordinary General Meeting or any adjournment thereof (as the case may be). Completion and return of the Proxy Form will not preclude you from attending the Extraordinary General Meeting and voting in person if you so wish. Shareholders who intend to attend the Extraordinary General Meeting in person or by proxy should complete and return the reply slip in accordance with the instructions printed thereon on or before Saturday, 30 November 2019.

25 November 2019

CONTENTS
	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Renewal of Continuing Connected Transactions under the
New Cinema Box Office Income Sharing Framework Agreement . . . . . . . . . . . . . .	6
Renewal of Continuing Connected Transactions under the
Property Lease Framework Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
Procedures for Voting at the Extraordinary General Meeting . . . . . . . . . . . . . . . . . . .	21
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
Letter from Gram Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
Appendix I - General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	40
Notice of the 2019 First Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . .	44

- i -

DEFINITIONS

Unless the context otherwise requires, the following expressions in this circular shall have the following meanings:

"Articles of Association"	the Articles of Association adopted by the Company on 14
	February 2014 (as amended, supplemented or otherwise modified
	from time to time)
"associate(s)"	has the meaning ascribed to it under the Listing Rules
"Board" or "Board of Directors"	the board of directors of the Company
"Cinema Box Office Income	the cinema box office income sharing framework agreement entered
Sharing Framework Agreement"	into between the Company and Poly Group on 17 October 2016
"Company"	Poly Culture Group Corporation Limited (保利文化集團股份有限
	公司), a joint stock limited liability company incorporated in the
	PRC on 14 December 2010 and its H Shares are listed on the Stock
	Exchange and the stock code is 03636
"connected person(s)"	has the meaning ascribed to it under the Listing Rules
"connected transaction(s)"	has the meaning ascribed to it under the Listing Rules
"continuing connected	has the meaning ascribed to it under the Listing Rules
transaction(s)"
"controlling shareholder(s)"	has the meaning ascribed to it under the Listing Rules
"Director(s)"	director(s) of the Company
"Domestic Share(s)"	ordinary shares in the Company's share capital, with a nominal
	value of RMB1.00 each, which are subscribed for and paid up in
	Renminbi
"Extraordinary General Meeting"	the 2019 first extraordinary general meeting of the Company to be
	held at 2:30 p.m. on Friday, 20 December 2019 at the Meeting
	Room, 29/F, New Poly Plaza, 1 North Street of Chaoyangmen,
	Dongcheng District, Beijing, PRC

- 1 -

	DEFINITIONS
"Gram Capital"	Gram Capital Limited, a corporation licensed under the SFO to
or "Independent Financial	carry out Type 6 (advising on corporate finance) regulated activity,
Adviser"	who has been appointed as the independent financial adviser to give
	advice to the Independent Board Committee and the Independent
	Shareholders in respect of the New Cinema Box Office Income
	Sharing Framework Agreement and the proposed annual caps for
	2020, 2021 and 2022 as well as the proposed annual caps under the
	Property Lease Framework Agreement for 2020, 2021 and 2022
"Group"	the Company and its subsidiaries
"H Share(s)"	overseas listed foreign share(s) contained in the share capital of the
	Company, with a nominal value of RMB1.00 each, which are listed
	on the Stock Exchange and traded in Hong Kong dollars
"Hong Kong"	the Hong Kong Special Administrative Region of the PRC
"IFRS"	International Financial Reporting Standards issued by the
	International Accounting Standards Board
"IFRS 16"	No. 16 of International Financial Reporting Standards issued by the
	International Accounting Standards Board, which sets out the
	recognition, measurement, presentation and disclosure of leases.
"Independent Board Committee"	the independent committee of the Board, comprising of all the
	independent non-executive Directors of the Company, namely Mr.
	Li Boqian, Ms. Li Xiaohui and Mr. Yip Wai Ming. The purpose of
	setting up the committee is to provide advice to the Independent
	Shareholders in respect of the New Cinema Box Office Income
	Sharing Framework Agreement and the proposed annual caps for
	2020, 2021 and 2022 as well as the proposed annual caps under
	Property Lease Framework Agreement for 2020, 2021 and 2022
"Independent Shareholder(s)"	the Shareholders who are not required to abstain from voting in
	respect of the New Cinema Box Office Income Sharing Framework
	Agreement and the proposed annual caps for 2020, 2021 and 2022
	as well as the proposed annual caps under the Property Lease
	Framework Agreement for 2020, 2021 and 2022
"Latest Practicable Date"	18 November 2019, being the latest practicable date prior to the
	printing of this circular for ascertaining certain information
	contained herein
"Listing Rules"	the Rules Governing the Listing of Securities on The Stock
	Exchange of Hong Kong Limited

- 2 -

	DEFINITIONS
"New Cinema Box Office Income	the new cinema box office income sharing framework agreement
Sharing Framework Agreement"	entered into between the Company and Poly Group on 21 October
	2019
"Poly Film"	Poly Film Investment Co., Ltd., a wholly-owned subsidiary of the
	Company
"Poly Group"	China Poly Group Corporation (中國保利集團公司), a state-owned
	company incorporated in the PRC and the controlling shareholder
	of the Company, and (when the context requires) including its
	subsidiaries
"Poly International"	Poly International Holdings Company Limited (保利國際控股有限
	公司), a state-owned company incorporated in the PRC, a wholly-
	owned subsidiary of Poly Group and a substantial Shareholder of
	the Company
"Poly Wanhe Cinema Circuit"	Chongqing Poly Wanhe Cinema Circuit Co., Ltd. (重慶保利萬和電
	影院線有限公司), a company incorporated on 26 July 2005 in the
	PRC and a then subsidiary of the Company before being disposed
	to Poly Group in 2013, 51% and 49% of its equity interest are
	currently respectively held by Poly Group and Chongqing Wanhe
	Film Co., Ltd. (重慶萬和影業有限責任公司, an independent third
	party). It is currently a subsidiary of Poly Group, and thus
	constitutes a connected person of the Company
"PRC" or "China"	the People's Republic of China
"Property Lease Framework	the property lease framework agreement entered into between the
Agreement"	Company and Poly Group on 14 February 2014
"Prospectus"	the Company's prospectus dated 24 February 2014
"RMB" or "Renminbi"	the lawful currency of the PRC
"SFO"	the Securities and Futures Ordinance (Chapter 571 of the Laws of
	Hong Kong) as amended, supplemented or otherwise modified from
	time to time
"Share(s)"	share(s) in the share capital of the Company, with a nominal value
	of RMB1.00 each
"Shareholder(s)"	holder(s) of the Share(s)
"Stock Exchange"	The Stock Exchange of Hong Kong Limited

- 3 -

DEFINITIONS

"subsidiary" or "subsidiaries"	has the meaning ascribed to it under the Listing Rules
"Supervisor(s)"	supervisor(s) of the Company
"%"	percentage

- 4 -

LETTER FROM THE BOARD

(A joint stock limited company incorporated in the People's Republic of China with limited liability)

	(Stock Code: 3636)
Executive Directors:	Registered Office:
Mr. Xu Niansha	District A, 20/F,
Mr. Zhang Xi	1 North Street of Chaoyangmen,
Mr. Jiang Yingchun	Dongcheng District,
Mr. Li Weiqiang	Beijing, PRC
	Postal Code: 100010
Non-executive Directors:
Mr. Huang Geming	Principal Place of Business in Hong Kong:
Mr. Wang Keling	31st Floor, Tower 2, Times Square,
	1 Matheson Street,
Independent Non-executive Directors:	Causeway Bay, Hong Kong
Mr. Li Boqian
Ms. Li Xiaohui
Mr. Yip Wai Ming
	25 November 2019
To the Shareholders
Dear Sir or Madam,

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS

FOR 2020 TO 2022

AND

NOTICE OF THE 2019 FIRST EXTRAORDINARY GENERAL MEETING

INTRODUCTION

The purpose of this circular is to give you notice of the Extraordinary General Meeting and to provide you with information reasonably necessary to enable you to make an informed decision on whether to vote for or against the resolution to be proposed at the Extraordinary General Meeting as described below.

At the Extraordinary General Meeting, ordinary resolutions will be proposed to consider and approve:

1. renewal of continuing connected transactions contemplated under the New Cinema Box Office Income Sharing Framework Agreement and the proposed annual caps for 2020, 2021 and 2022; and (ii) continuing connected transactions contemplated under the Property Lease Framework Agreement and the proposed annual caps for 2020, 2021 and 2022.

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LETTER FROM THE BOARD

Regarding the resolution on the renewal of continuing connected transactions contemplated under the New Cinema Box Office Income Sharing Framework Agreement and the proposed annual caps for 2020, 2021 and 2022, the Board announced on 21 October 2019 that the Company and Poly Group entered into the New Cinema Box Office Income Sharing Framework Agreement, pursuant to which Poly Group and/or its associates will provide new film prints and encryption keys to the Group and the Group will then arrange movie screening in cinemas of the Group. Both parties agree to split the net cinema box office income (i.e. the box office income net of special fund for national film development and value-added tax and additional tax) generated from the movie screening based on the pre-agreed sharing percentage. Poly Group and/or its associates may then further share the revenue generated from such split with movie distributors and producers pursuant to separate agreements among themselves.

Regarding the resolution on the renewal of continuing connected transactions contemplated under the Property Lease Framework Agreement and the proposed annual caps for 2020, 2021 and 2022, reference is made to the Property Lease Framework Agreement entered into between the Company and Poly Group on 14 February 2014, pursuant to which the Company leases properties from Poly Group and/or its associates for the purpose of office premises, cinema operation, theatre operation, auction business operation and ancillary service.

Under the Listing Rules, the transactions contemplated under the New Cinema Box Office Income Sharing Framework Agreement and the Property Lease Framework Agreement constitute continuing connected transactions of the Company and are subject to reporting, annual review, announcement and Independent Shareholders' approval requirements as set out in Chapter 14A of the Listing Rules.

The Independent Board Committee (comprising of all the independent non-executive Directors, namely Mr. Li Boqian, Ms. Li Xiaohui and Mr. Yip Wai Ming) has been appointed by the Board to advise the Independent Shareholders in respect of the New Cinema Box Office Income Sharing Framework Agreement and the proposed annual caps for 2020, 2021 and 2022 as well as the proposed annual caps for 2020, 2021 and 2022 under the Property Lease Framework Agreement. Gram Capital has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders regarding the same matters.

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS UNDER THE NEW CINEMA BOX

OFFICE INCOME SHARING FRAMEWORK AGREEMENT

Reference is made to the announcement of the Company dated 21 October 2019 in respect of, among others, the renewal of the continuing connected transactions under the New Cinema Box Office Income Sharing Framework Agreement between the Company and Poly Group, details of which are set out below:

1. New Cinema Box Office Income Sharing Framework Agreement

1. Background

Reference is made to the announcement of the Company dated 17 October 2016, containing, among others, the non-exempt continuing connected transactions and their annual caps under the Cinema Box Office Income Sharing Framework Agreement entered into between the Company and Poly Group. As disclosed in the announcement, pursuant to the Cinema Box Office Income Sharing

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LETTER FROM THE BOARD

Framework Agreement, Poly Group and/or its associates may provide new film prints and encryption keys to the Group and the Group will then arrange movie screening in cinemas of the Group. Both parties agree to split the net cinema box office income (i.e., the box office income after deducting the National Film Development Special Fund and VAT and surcharges) generated from the movie screening based on the pre-agreed sharing percentage. Poly Group and/or its associates may then further share the revenue generated from such split with movie distributors and producers pursuant to separate agreements among themselves. Such net cinema box office income sharing arrangement is in line with the current film industry practice in the PRC.

As the Cinema Box Office Income Sharing Framework Agreement and the corresponding annual caps will expire on 31 December 2019, and the Company will continue the aforesaid transactions under the Cinema Box Office Income Sharing Framework Agreement subsequent to 31 December 2019, therefore, the Company entered into the New Cinema Box Office Income Sharing Framework Agreement with Poly Group on 21 October 2019 (after trading hours). Pursuant to such agreement, Poly Group and/or its associates will provide new film prints and encryption keys to the Group and the Group will then arrange movie screening in cinemas of the Group. Both parties agree to split the net cinema box office income (i.e., box office income after deducting the National Film Development Special Fund and VAT and surcharges) generated from the movie screening based on the pre-agreed sharing percentage. Poly Group and/or its associates may then further share the revenue generated from such split with movie distributors and producers pursuant to separate agreements among themselves. The New Cinema Box Office Income Sharing Framework Agreement is valid for a term of three years commencing from 1 January 2020 and expiring on 31 December 2022. The Company shall comply with reporting, annual review, announcement and the Independent Shareholders' approval requirements as set out in Chapter 14A of the Listing Rules in respect of the continuing connected transactions for the next three years (i.e. from 1 January 2020 to 31 December 2022).

1. New Cinema Box Office Income Sharing Framework Agreement

Date:	21 October 2019
Parties:	Poly Group
	The Company
Principal Terms:

The principal terms of the New Cinema Box Office Income Sharing Framework Agreement are as follows:

• the New Cinema Box Office Income Sharing Framework Agreement is valid for a term of three years commencing on 1 January 2020, and can be renewed for another three years upon its expiry, subject to the further approval by Independent Shareholders according to the Listing Rules;

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LETTER FROM THE BOARD

• Based on the number of cinemas, relevant subsidiaries of both parties, namely Poly Wanhe Cinema Circuit will enter into a new specific contract with Poly Film (representing itself and its more than 70 existing subordinate cinemas) to renew the existing specific contracts, and Poly Wanhe Cinema Circuit will enter into new specific contracts with the newly established cinemas when they are established. Such specific contracts will be entered into according to the pricing policies, the main terms and conditions provided in the New Cinema Box Office Income Sharing Framework Agreement, including but not limited to the sharing percentage (no less than 50% to 55% of the net cinema box office income to be shared by the Group), service contents and term. The term for each specific agreement term is three years, and the specific terms and conditions are same with the New Cinema Box Office Income Sharing Framework Agreement; and
• Poly Group and/or its associates will provide new film prints and encryption keys to the Group and the Group will then arrange movie screening in cinemas of the Group. The Group will first receive the net cinema box office income (i.e., the box office income after deducting the National Film Development Special Fund and VAT and surcharges) generated from the film screening and then split a portion of such revenue with Poly Group and/or its associates in accordance with the respective sharing percentage as set out in the specific agreements (no less than 50% to 55% of the net cinema box office income to be shared by the Group) and pricing policies as agreed by both parties after arm-length negotiations; the Group will pay the net cinema box office income to Poly Group in cash on a monthly basis.

Pricing Policy:

After the Group and Poly Group's arm's length commercial negotiations according to the principles of fairness and reasonableness, the sharing of box office income is determined pursuant to the followings: (i) the requirements of the Guiding Opinions on Adjusting Income Sharing Percentage of Domestic Films ((2008) Ying Zi No.866) and Guiding Opinions on Promoting the Coordinated Development of Film Production, Distribution and Screening ((2011) Ying Zi No.992) issued by State Administration of Press, Publication, Radio, Film and Television, which stipulates the percentage of film screening income sharing for the cinema shall not be more than 50% in principle (the "SARFT Guiding Opinions") and set a principle of sharing the net cinema box office income between the cinema circuit and cinemas under the cinema circuit system in China; and (ii) the income sharing standard of the industry during the same period, which is currently at 40% to 45% for the comparable average net cinema box office income sharing of the market. The relevant transactions will be conducted on normal commercial terms and on terms and consideration no less favourable than those offered to independent third parties.

During the implementation of the New Cinema Box Office Income Sharing Framework Agreement, the Group has the right to negotiate with Poly Group pursuant to the New Cinema Box Office Income Sharing Framework Agreement, according to the market changes in the net cinema box office income sharing in the PRC and the changes of the net cinema box office

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LETTER FROM THE BOARD

income sharing policy of the PRC. Meanwhile, the Group will conduct research on the income sharing policy of at least two independent cinemas with similar size based on the similar services provided by Poly Group every half year, and report to the Directors at once. If the Group finds the sharing percentage offered by Poly Group is less favorable than any other independent third party based on similar terms and conditions, the Group has the right to negotiate with Poly Group at arm's length, and Poly Group agrees to adjust the net cinema box office income sharing percentage in connection with the Group and/or its subsidiaries, to make sure that the Group implements the New Cinema Box Office Income Sharing Framework Agreement with the income sharing percentage no less favorable than any independent third party in the market.

1. Historical amounts

The number of films provided by Poly Group to the Group for screening, the cinema box office income generated by the Group under the existing framework agreement, the actual transaction amount between the Group and Poly Wanhe Cinema Circuit for the years ended 31 December 2017 and 2018 and for the six months ended 30 June 2019 under the Cinema Box Office Income Sharing Framework Agreement, and the historical annual caps for the years ended 31 December 2017, 2018 and 2019 are set out below:

	Unit: RMB million (unless otherwise stated)
			For the
			six months
	For the year ended	ended
	31 December		30 June
	2017	2018	2019
The number of films provided by Poly Group	552 films	535 films	283 films
to the Group for screening
The cinema box office income generated by	515.51	574.76	293.35
the Group under the existing framework
agreement (Note 1)
The average cinema box office income sharing	56.65%	55.32%	56.46%
percentage by the Company (Note 1)
The average cinema box office income sharing	43.35%	44.68%	43.54%
percentage by Poly Group (Note 1)
The actual transaction amount (Note 2)	223.47	256.82	127.74
	For the year ended 31 December
	2017	2018	2019
Annual cap (Note 3)	405.95	516.50	619.47

* Notes:

1. The National Film Development Special Fund and VAT and surcharges have been deducted.

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LETTER FROM THE BOARD

1. The actual transaction amount refers to the cinema box office income shared by Poly Group.
2. The actual transaction amount in 2019 has not exceeded and is not expected to exceed the annual cap for the year 2019.

Once Poly Wanhe Cinema Circuit receives the shared income from the Company, it will further split such income with movie distributors and producers pursuant to separate agreements among themselves.

Depending on the types and popularity of new movies to be screened such as Hollywood films and domestically produced movies, for the years ended 31 December 2017 and 2018 and for the six months ended 30 June 2019, the Group usually retained no less than 50%-55% of the net cinema box office income and shared the remaining income with Poly Wanhe Cinema Circuit based on the underlying agreements between both parties. The higher net cinema box office income sharing percentage adopted by the Company under the New Cinema Box Office Income Sharing Framework Agreement is in compliance with the SARFT Guiding Opinions and PRC laws, and is in the interests of the Company and its Shareholders as a whole.

1. Proposed annual caps and basis of determination

Proposed annual Caps:

The maximum aggregate annual amount of the net cinema box office income shared by Poly Group for the years ending 31 December 2020, 2021 and 2022 shall not exceed the proposed caps set out below:

Unit: RMB million

For the year ending 31 December

2020 2021 2022

Proposed annual cap

346.04

388.96

417.45

Basis of determination:

In determining the above proposed annual caps, the Directors have considered: (i) the industry standard of sharing the net cinema box office income (the current comparable average net cinema box office income sharing in the market is 40% to 45%) between cinema circuit and cinemas according to the SARFT Guiding Opinions, as well as the features of the cinema circuit system in China; (ii) the historical figures and the growing trend of income sharing between the Group and Poly Wanhe Cinema Circuit from 1 January 2017 to 30 June 2019; (iii) the scale and growth of the Group's investment and construction on new cinemas continue to grow. As at the Latest Practicable Date, there are more than 70 cinemas under the operation of the Group. The Group expects to open 5 new cinemas in 2019, of which 1 cinema has already been opened. According to our strategic plan, 5, 4 and 5 new cinemas will be opened from 2020 to 2022 respectively and the net cinema box office income will continue to grow correspondingly. The Company optimistically estimates that the future audience attendance rate of the cinemas will further rise with the maturity of the surrounding properties and businesses;

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LETTER FROM THE BOARD

1. 1. the existing agreement entered into between Poly Wanhe Cinema Circuit and Poly Film; and (v) the Company expects that the ticket prices will increase in the future with the rise of the price index. The price of movie tickets will maintain its increasing trend due to the rapid development of the film industry in China, the increasing audience and films with more production of 3D films, as such, the net cinema box office income of the Group is expected to increase as well in the future.
2. Reasons for and benefits of entering into the New Cinema Box Office Income Sharing Framework Agreement
3. 
   At present, the current comparable average net cinema box office income sharing percentage of

the Chinese film screening industry is 40% to 45%. The Group usually retained no less than 50% to 55% of the net cinema box office income based on the long-term cooperation relationship between the Group and Poly Group. With the increasing bargainning power of the movie producers, the income sharing percentage for the cinema circuits may decrease in the future. During the implementation of the New Cinema Box Office Income Sharing Framework Agreement, the Group has the right to negotiate with Poly Group pursuant to the New Cinema Box Office Income Sharing Framework Agreement, according to the market changes in the net cinema box office income sharing in the PRC and the changes of the net cinema box office income sharing policy of the PRC. Meanwhile, the Group will conduct research on the income sharing policy of at least two independent cinemas with similar size based on the similar services provided by Poly Group every half year, and report to the Directors at once. If the Group finds the sharing percentage offered by Poly Group is less favorable than any other independent third party based on similar terms and conditions, the Group has the right to negotiate with Poly Group at arm's length, and Poly Group agrees to adjust the net cinema box office income sharing percentage in connection with the Group and/or its subsidiaries, to make sure that the Group implements the New Cinema Box Office Income Sharing Framework Agreement with the income sharing percentage no less favorable than any independent third party in the market. Pursuant to such agreements, Poly Wanhe Cinema Circuit will provide the Group with new film prints and encryption keys, which the Group will then arrange to be screened in cinemas of the Group. After the signing of the New Cinema Box Office Income Sharing Framework Agreement, the Directors expect that, taking into consideration the long-term business relationship between Poly Wanhe Cinema Circuit and cinemas of the Group since the date of formal commencement of business, as well as the sharing percentage offered by Poly Wanhe Cinema Circuit which is more favorable than the average market sharing percentage, it is in the Company's long-term interests that the Company continue to maintain relationship with Poly Wanhe Cinema Circuit. Any cessation of such cooperation will cause unnecessary disruption to the movie screening operation of cinemas of the Group, incurring significant business losses to the Company.

1. Listing Rules implications

As at the Latest Practicable Date, Poly Group directly holds 43.3% equity interest of the Company and indirectly holds 20.4% equity interest of the Company through Poly International, a subsidiary of Poly Group, hence Poly Group is a connected person of the Company pursuant to Chapter 14A of the Listing Rules. Therefore, the transactions contemplated under the New Cinema Box Office Income Sharing Framework Agreement entered into between the Company and Poly Group constitute the continuing connected transactions of the Company pursuant to the Listing Rules.

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LETTER FROM THE BOARD

As the highest of the applicable percentage ratio calculated in accordance with the Listing Rules in respect of the proposed annual caps for the New Cinema Box Office Income Sharing Framework Agreement entered into between the Company and Poly Group is more than 5%, the continuing connected transactions under the New Cinema Box Office Income Sharing Framework Agreement are subject to reporting, annual review, announcement and the Independent Shareholders' approval requirements under Chapter 14A of the Listing Rules.

As the chairman Mr. Xu Niansha, vice chairman Mr. Zhang Xi, Director Mr. Huang Geming and Director Mr. Wang Keling of the Company all serve at Poly Group, they are considered to be connected with the transactions contemplated under the New Cinema Box Office Income Sharing Framework Agreement, and they have abstained from voting on the Board resolution for approving the New Cinema Box Office Income Sharing Framework Agreement and the proposed annual caps. Save as disclosed above, there are no other Directors who have any material interest in the New Cinema Box Office Income Sharing Framework Agreement and no other Directors need to abstain from voting on the Board resolution for considering and approving the New Cinema Box Office Income Sharing Framework Agreement and the proposed annual caps.

Having considered the above pricing policies, bases of determination of the proposed annual caps and reasons and benefits, the Directors (including independent non-executive Directors) are of the view that the terms of the New Cinema Box Office Income Sharing Framework Agreement and the proposed annual caps thereunder have been entered into in the ordinary and usual course of business of the Company and on normal commercial terms, are fair and reasonable, and in the interests of the Company and its Shareholders as a whole. When the Board approved the resolution in relation to the New Cinema Box Office Income Sharing Framework Agreement and the proposed annual caps in the Board meeting, the said Directors who have material interests in the New Cinema Box Office Income Sharing Framework Agreement have abstained from voting.

2. Internal Control Procedure and Corporate Governance Measures

The Company will endeavour to carry out adequate supervision over the transaction amount under the New Cinema Box Office Income Sharing Framework Agreement entered into between the Company and Poly Group against the annual caps, with a view of ensuring that necessary measures and appropriate actions for the compliance with applicable requirements under the Listing Rules will be promptly taken. The Company has formulated a series of measures and policies, including contract policies, projects management policies, connected transaction management measures, to ensure the continuing connected transactions be implemented in accordance with the New Cinema Box Office Income Sharing Framework Agreement and its pricing policies. The New Cinema Box Office Income Sharing Framework Agreement and the transactions thereunder will be examined and approved by the Audit Committee of the Board, the Board and/or various internal departments of the Company, including but not limited to, finance department and audit and inspection department of the Company, thus to ensure the terms of such agreement be complied with the SARFT Guiding Opinions and market practice, and will not deviate from the terms of the New Cinema Box Office Income Sharing Framework Agreement as disclosed in this circular. The Audit Committee of the Board, the chief accountant and various internal departments of the Company will also supervise the implementation of the agreement and the process of the transactions on a regular basis.

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LETTER FROM THE BOARD

During the implementation of the New Cinema Box Office Income Sharing Framework Agreement, the Group has the right to negotiate with Poly Group pursuant to the New Cinema Box Office Income Sharing Framework Agreement, according to the market changes in the net cinema income sharing in the PRC and the changes of the net cinema box office income sharing policy of the PRC. Meanwhile, the Group will conduct research on the income sharing policy of at least two independent cinemas with similar size based on the similar services provided by Poly Group every half year, and report to the Directors at once. If the Group finds the sharing percentage offered by Poly Group is less favorable than any other independent third party based on similar terms and conditions, the Group has the right to negotiate with Poly Group at arm's length, and Poly Group agrees to adjust the net cinema box office income sharing percentage in connection with the Group and/or its subsidiaries, to make sure that the Group implements the New Cinema Box Office Income Sharing Framework Agreement with the income sharing percentage no less favorable than any independent third party in the market.

In addition, the management of the Company will review its pricing policies every half year; the independent non-executive Directors of the Company will conduct an annual review of the implementation and enforcement of the continuing connected transactions (including the relevant pricing mechanism); the auditors of the Company will perform evaluation and review on the above internal control measures of the Company annually and review the continuing connected transactions under the New Cinema Box Office Income Sharing Framework Agreement annually in accordance with the requirements of Listing Rules, to ensure, among which, such transactions are conducted under the pricing policies of the Company and relevant contracts that govern the transactions.

Having considered the above pricing policies, bases of determination of the proposed annual caps, reasons and benefits, and internal control procedures, the Directors (including independent non-executive Directors) are of the view that the terms of the New Cinema Box Office Income Sharing Framework Agreement and the proposed annual caps thereunder have been entered into in the ordinary and usual course of business of the Company and on normal commercial terms, are fair and reasonable, and in the interests of the Company and Shareholders as a whole. Meanwhile, the Company is of the view that it has adequate mechanism, internal control procedures and external supervision measures to ensure the continuing connected transactions be complied with and strictly in accordance with the SARFT Guiding Opinions and the terms of the New Cinema Box Office Income Sharing Framework Agreement.

3. The Independent Board Committee

The Independent Board Committee (comprising of all the independent non-executive Directors, namely Mr. Li Boqian, Ms. Li Xiaohui and Mr. Yip Wai Ming) has been appointed by the Board to advise the Independent Shareholders in respect of the New Cinema Box Office Income Sharing Framework Agreement and the proposed annual caps for 2020, 2021 and 2022. Gram Capital has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders regarding the same matters.

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LETTER FROM THE BOARD

4. Information on Parties to the Transactions

1. Information about the Company

The Company is a joint stock limited company incorporated in the PRC on 14 December 2010, and is a leading diversified cultural arts company in China. The Company is mainly engaged in art business and auction, performance and theatre management, and cinema investment and management.

1. Information about Poly Group

Poly Group was established in 1992 as a large state-owned enterprise under direct supervision and administration of the State-owned Assets Supervision and Administration Commission of the State Council of the PRC. Apart from the culture and art business conducted through the Company, Poly Group is primarily engaged in international trade, real estate development, development and engineering service in light industry field, operation and service of raw materials and products for crafts, production and sale and service of explosives for civilian uses, and financial business.

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS UNDER THE PROPERTY LEASE

FRAMEWORK AGREEMENT

Reference is made to the announcement of the Company dated 21 October 2019 in relation to, among others, the renewal of the continuing connected transactions under the Property Lease Framework Agreement entered into between the Company and Poly Group, details of which are set out below:

1. Property Lease Framework Agreement

1. Background

References are made to the Prospectus and the announcement of the Company dated 17 October 2016, containing, among others, the non-exempt continuing connected transactions and their annual caps stated in the Property Lease Framework Agreement entered into between the Company and Poly Group. As disclosed in the Prospectus and the announcement, pursuant to the Property Lease Framework Agreement, the Company may lease properties from Poly Group and/or its associates for the purpose of office premises, cinema operation, theatre operation, auction business operation and ancillary services.

As the corresponding annual caps under the Property Lease Framework Agreement will expire on 31 December 2019, and the Company will continue the aforesaid transactions under the Property Lease Framework Agreement subsequent to 31 December 2019, therefore, pursuant to the Property Lease Framework Agreement, the Company will lease properties from Poly Group and/or its associates for the purposes of office premises, cinema operation, theatre operation, auction business operation and ancillary services. The Company will comply with reporting, annual review, announcement and the Independent Shareholders' approval requirements as set out in Chapter 14A of the Listing Rules in respect of the continuing connected transactions for the next three years (i.e. from 1 January 2020 to 31 December 2022).

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LETTER FROM THE BOARD

1. Property Lease Framework Agreement

Date:	14 February 2014
Parties:	Poly Group, as the lessor
	The Company, as the lessee
Principal terms:

The principal terms of the Property Lease Framework Agreement are as follows:

• the Property Lease Framework Agreement is valid for a term of 20 years commencing on the Listing Date (i.e. 6 March 2014);
• relevant subsidiaries or associates of both parties will enter into separate lease agreements which will set out the specific terms and conditions according to the principles provided in the Property Lease Framework Agreement;
• basis of determination of rentals: the rentals shall be determined by reference to the then market price or as agreed by both parties after arm-length negotiations;
• the property management fee shall be determined by reference to the then market price or as agreed by both parties after arm-length negotiations;
• the energy charge and other facilities fee shall follow the government prescribed price or where no such government-prescribed price is applicable, it shall then be determined by reference to the then market price or as agreed by both parties after arm-length negotiations; and
• the term of the separate underlying lease agreements entered into under the Property Lease Framework Agreement shall be for a maximum of 20 years. The Company may request to renew the term of the lease by issuing a written notice to relevant members of Poly Group at least one month before expiry of the lease. Relevant members of Poly Group shall, upon receipt of the said notice, consent to the request for renewal and shall renew the lease with members of the Group before its expiration.

Pricing policies:

The rent payable by the Group pursuant to the Property Lease Framework Agreement shall be determined between the parties at arm's length commercial negotiations according to the principles of fairness and reasonableness with reference to the rent of the properties at similar locations leased by Poly Group to independent third parties during the same period. The relevant transactions will be conducted on normal commercial terms and on terms and consideration no less favourable than those offered to independent third parties.

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LETTER FROM THE BOARD

1. Existing leases

Based on the Property Lease Framework Agreement entered into between the Group and Poly Group, the Group leased several properties from Poly Group and/or its associates with a total gross floor area of approximately 52,907.58 sq.m. as of 30 June 2019. Such properties are located in Beijing, Guangzhou, Shenzhen and Foshan and are mainly used for office premises, cinema operation, theatre operation, art business operation and ancillary services.

1. Historical amounts

The actual rental expense incurred under the Property Lease Framework Agreement for the years ended 31 December 2017 and 2018 and the six months ended 30 June 2019 and the annual caps for the years ended 31 December 2017, 2018 and 2019 are set forth below:

	Unit: RMB million (unless otherwise stated)
			For the
			six months
	For the year ended	ended
	31 December		30 June
	2017	2018	2019
Actual transaction amount	37.96	36.64	23.34
	For the year ended 31 December
	2017	2018	2019
Annual cap (Note 1)	58.91	78.37	86.71

*Note:

1. 1. The actual transaction amount in 2019 has not exceeded and is not expected to exceed the annual cap for the year 2019.

2. Proposed annual caps and basis of determination
   Proposed annual caps:

The maximum total annual fee under the Property Lease Framework Agreement for the years ending 31 December 2020, 2021 and 2022 shall not exceed the caps set out below:

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LETTER FROM THE BOARD

		Unit: RMB million
	For the year ending 31 December
	2020	2021	2022
Property Lease Framework Agreement
- Floating rental (Note 1)	13.27	15.41	20.32
- Right-of-use assets	235.39	281.04	308.64
Total proposed annual cap (Note 2)	248.66	296.45	328.97

*Notes:

1. Floating rental arising from Poly Film and its subsidiaries (the "Poly Film Group") is subject to the Poly Film Group's box office income.
2. The discrepancy between the sum of the figures in the list and the subtotal/aggregate figures is caused by rounding.

Basis of determination:

In determining the above proposed annual caps, the Directors have considered: (i) the Company has applied IFRS 16 since 1 January 2019. As lease properties of the Company were mainly used for the office premises, cinema operation, theatre operation, and auction business operation, the Company will account for the expenses under the Property Lease Framework Agreement as the finance lease instead of the original operating lease, that is, recognise and measure a lease liability at the present value of the minimum future lease payments and recognise a corresponding right-of-use asset. The subsidiaries of the Company will recognise interest expense accrued on the outstanding balance of the lease liability and the depreciation of the right-of-use asset, instead of the original rental expenses incurred on the operating lease;

1. the floating rental is directly linked to Poly Film Group's box office income and Poly Film Group expects to record a substantial increase in box office income and may commence operating more projects from 2020 to 2022. Poly Film Group recorded an average increase in box office income of approximately 20% from 2015 to 2018. During the next three years ending 31 December 2022, the Company assumed that there would be seven new projects in total, for which the Poly Film Group would enter into leasing agreement with Poly Group. The floating rental of the new projects are directly linked to the expected box office of such projects for the three years ending 31 December 2022; (iii) the right-of-use assets are based on the fixed monthly rental fees and estimated monthly rental fees between the Group (other than the Poly Film Group) and Poly Group. The Company has taken into account of office expansion and with reference to the office size in similar area when calculating the right-of-use assets; (iv) as at 30 June 2019, the Group leased 17 pieces of properties from Poly Group and/ or its associates; (v) the rentals of the existing property leases (for the six months ended 30 June 2019, according to the Company's unaudited interim report for the six months ended 30 June 2019, the rental expense incurred was approximately RMB23.34 million); (vi) having considered the historical transaction amount and the Company's future development plan, the total annual rental payable by the Company under the Property Lease Framework Agreement for the years ending 31 December 2020, 2021 and 2022 shall not exceed RMB84.28 million per year (estimated amounts before taking into account IFRS 16); (vii) the steady and

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LETTER FROM THE BOARD

continuous increase in rentals of properties in the vicinity of the relevant properties and the overall future development of the property market in the PRC; (viii) the Group plans to expand office premises and the premises for art business and auction; and (ix) the Group's future plan to expand its cinema and theatre management business from 2020 to 2022 may require the Group to lease properties from Poly Group and/or its associates.

1. Reasons for and benefits of the transactions under the Property Lease Framework Agreement

The Group has been leasing and using the above properties for its business operation for a long period. Any relocation may cause unnecessary disruption to our business operation and incur unnecessary costs.

The Directors are of the view that maintaining long term and stable property lease is of great importance to the operation of the cinema investment and theatre management business of the Group as well as the stability of the art business and auction and the secure storage of art works, and the long term nature of the property lease agreement would enable the Group to secure locations for its business operation at fair market price and to prevent unnecessary cost, time and interruption of business caused by relocation in the case of short term lease. As such, the Directors are of the view that the lease term of 20 years is appropriate for the Property Lease Framework Agreement and is the normal business practice for lease agreements of this type to be of such duration.

1. Listing Rules implications

As at the Latest Practicable Date, Poly Group directly holds 43.3% equity interest of the Company and indirectly holds 20.4% equity interest of the Company through Poly International, a subsidiary of Poly Group, hence Poly Group is a connected person of the Company pursuant to Chapter 14A of the Listing Rules. Therefore, the transactions contemplated under the Property Lease Framework Agreement entered into between the Company and Poly Group constitute continuing connected transactions of the Company pursuant to the Listing Rules.

As the highest of the applicable percentage ratio calculated in accordance with the Listing Rules in respect of the proposed annual caps for the Property Lease Framework Agreement entered into between the Company and Poly Group is more than 5%, the continuing connected transactions under the Property Lease Framework Agreement are subject to reporting, annual review, announcement and the Independent Shareholders' approval requirements under Chapter 14A of the Listing Rules.

As the chairman Mr. Xu Niansha, vice chairman Mr. Zhang Xi, Director Mr. Huang Geming and Director Mr. Wang Keling of the Company all serve at Poly Group, they are considered to be connected with the transactions contemplated under the Property Lease Framework Agreement, and they have abstained from voting on the Board resolution for approving the proposed annual caps under the Property Lease Framework Agreement. Save as disclosed above, there are no other Directors who have any material interest in the Property Lease Framework Agreement and no other Directors need to abstain from voting on the Board resolution for considering and approving the proposed annual caps under the Property Lease Framework Agreement.

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LETTER FROM THE BOARD

Having considered the above pricing policies, basis of determination of the proposed annual caps and reasons and benefits, the Directors (including independent non-executive Directors) are of the view that the proposed annual caps under the Property Lease Framework Agreement have been entered into in the ordinary and usual course of business of the Company and on normal commercial terms, are fair and reasonable, and in the interests of the Company and its Shareholders as a whole. When the Board approved the resolution in relation to the proposed annual caps under the Property Lease Framework Agreement in the Board meeting, the said Directors who have material interests in the Property Lease Framework Agreement have abstained from voting.

2. Internal Control Procedure and Corporate Governance Measures

The Company will endeavour to carry out adequate supervision over the transaction amount under the Property Lease Framework Agreement entered into between the Company and Poly Group against the corresponding annual caps, with a view of ensuring that necessary measures and appropriate actions for the compliance with applicable requirements under the Listing Rules will be promptly taken. The Company has formulated a series of measures and policies, including contract policies, projects management policies, connected transaction management measures, to ensure the continuing connected transactions be implemented in accordance with the Property Lease Framework Agreement and its pricing policies. The transactions under the Property Lease Framework Agreement will be examined and approved by the Audit Committee of the Board, the Board and/or various internal departments of the Company, including but not limited to, finance department and audit and inspection department of the Company, thus to ensure the terms of such agreement be complied with the Property Lease Framework Agreement and market practice, and will not deviate from the terms of the Property Lease Framework Agreement as disclosed in this circular. The Audit Committee of the Board, the chief accountant and various internal departments of the Company will also supervise the implementation of the agreement and the process of the transactions on a regular basis.

During the implementation of the Property Lease Framework Agreement, the Group will conduct research on rental policies of properties in similar locations in the same period prior to entering into each individual lease agreement with Poly Group, and report to the Directors timely. If the Group finds the rents offered by Poly Group are less favorable than that offered to any other independent third party based on similar terms and conditions, the Group has the right to negotiate with Poly Group at arm's length, and Poly Group agrees to adjust the property rents in connection with the Group and/or its subsidiaries, to make sure that the Group implements the Property Lease Framework Agreement with the rents of properties no less favorable than any independent third party in the market.

In addition, the management of the Company will review its pricing policies every half year; the independent non-executive Directors of the Company will conduct an annual review of the implementation and enforcement of the continuing connected transactions (including the relevant pricing mechanism); the auditors of the Company will perform evaluation and review on the above internal control measures of the Company annually and review the continuing connected transactions under the Property Lease Framework Agreement annually in accordance with the requirements of Listing Rules, to ensure, among which, such transactions are conducted under the pricing policies of the Company and relevant contracts that govern the transactions.

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LETTER FROM THE BOARD

Having considered the above pricing policies, basis of determination of the proposed annual caps, reasons and benefits, and internal control procedures, the Directors (including independent non-executive Directors) are of the view that the proposed annual caps under the Property Lease Framework Agreement have been entered into in the ordinary and usual course of business of the Company and on normal commercial terms, are fair and reasonable, and in the interests of the Company and Shareholders as a whole. Meanwhile, the Company is of the view that it has adequate mechanism, internal control procedures and external supervision measures to ensure the continuing connected transactions be complied with and strictly in accordance with the terms of the Property Lease Framework Agreement.

3. The Independent Board Committee

The Independent Board Committee (comprising of all the independent non-executive Directors, namely Mr. Li Boqian, Ms. Li Xiaohui and Mr. Yip Wai Ming) has been appointed by the Board to advise the Independent Shareholders in respect of the proposed annual caps for 2020, 2021 and 2022 under the Property Lease Framework Agreement. Gram Capital has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders regarding the same matters.

4. Information on Parties to the Transactions

1. Information about the Company
   For information about the Company, see page 13 hereof.
2. Information about Poly Group
   For information about the Poly Group, see page 13 hereof.

EXTRAORDINARY GENERAL MEETING

A notice of the 2019 First Extraordinary General Meeting to be held at 2:30 p.m. on Friday, 20 December 2019 at the Meeting Room, 29/F, New Poly Plaza, 1 North Street of Chaoyangmen, Dongcheng District, Beijing, PRC has been published on the website of the Stock Exchange by the Company on 5 November 2019 and also set out in this circular.

Any Shareholder who has material interest in the New Cinema Box Office Income Sharing Framework Agreement and the Property Lease Framework Agreement and the transactions contemplated thereunder will be required to abstain from voting at the Extraordinary General Meeting. Poly Group, a substantial Shareholder and together with its associates, Poly International, holding approximately 64% directly and indirectly of the total issued share capital of the Company as at the Latest Practicable Date, had material interests in the New Cinema Box Office Income Sharing Framework Agreement and the Property Lease Framework Agreement and the transactions contemplated thereunder. Accordingly, Poly Group and its associates, Poly International, will abstain from voting in respect of the relevant resolutions at the Extraordinary General Meeting. The number of abstained voting Shares held by Poly Group and its associates, Poly International, is 156,868,400 in aggregate. To the best of the knowledge, information and belief of the Directors and having made all reasonable enquiries, save for Poly Group and its associates,

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LETTER FROM THE BOARD

Poly International, no Shareholder has any interest in the New Cinema Box Office Income Sharing Framework Agreement and the Property Lease Framework Agreement and the transactions contemplated thereunder.

In order to determine the Shareholders who are entitled to attend the Extraordinary General Meeting, the Company's register of H Share Shareholders will be closed from Wednesday, 20 November 2019 to Friday, 20 December 2019 (both days inclusive). The Shareholders whose names appear on the register of members of the Company on Friday, 20 December 2019 are entitled to attend and vote at the Extraordinary General Meeting. Holders of H Shares who wish to attend the Extraordinary General Meeting but have not registered the transfer documents are required to deposit the transfer documents together with the relevant share certificates at the H Share registrar of the Company in Hong Kong, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong no later than 4:30 p.m. on Tuesday, 19 November 2019.

A form of proxy for use at the Extraordinary General Meeting is also published on the website of the Stock Exchange (http://www.hkexnews.hk) and the website of the Company (http://polyculture.com.cn). If you intend to appoint a proxy to attend the Extraordinary General Meeting, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon not less than 24 hours before the time fixed for holding the Extraordinary General Meeting or any adjournment thereof (as the case may be). Completion and return of the form of proxy will not preclude you from attending the Extraordinary General Meeting and voting in person if you so wish. Holders of H Shares who intend to attend the Extraordinary General Meeting in person or by proxy should return the reply slip to the H Share registrar of the Company in Hong Kong, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong on or before Saturday, 30 November 2019.

PROCEDURES FOR VOTING AT THE EXTRAORDINARY GENERAL MEETING

According to Rule 13.39(4) of the Listing Rules, the vote of Shareholders at the Extraordinary General Meeting will be taken by poll.

RECOMMENDATION

The Independent Board Committee (comprising of all the independent non-executive Directors, namely Mr. Li Boqian, Ms. Li Xiaohui and Mr. Yip Wai Ming) has been appointed by the Board to advise the Independent Shareholders in respect of the New Cinema Box Office Income Sharing Framework Agreement and the proposed annual caps for 2020, 2021 and 2022 as well as the proposed annual caps under the Property Lease Framework Agreement for 2020, 2021 and 2022. Gram Capital has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders regarding the same matters.

Your attention is drawn to the letter from the Independent Board Committee set out on page 21 of this circular. The Independent Board Committee, having taken into account the advice of Gram Capital, the text of which is set out on pages 24 to 39 of this circular, is of the view that the terms of the New Cinema Box Office Income Sharing Framework Agreement and the proposed annual caps thereunder for 2020, 2021 and 2022 as well as the proposed annual caps under the Property Lease Framework Agreement for 2020,

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LETTER FROM THE BOARD

2021 and 2022 have been entered into in the ordinary and usual course of business of the Company and on normal commercial terms, are fair and reasonable, and in the interests of the Company and its Shareholders as a whole. The Independent Board Committee, as stated in its letter, recommend the Independent Shareholders to vote in favour of the resolutions to approve the New Cinema Box Office Income Sharing Framework Agreement and proposed annual caps thereunder for 2020, 2021 and 2022 as well as the proposed annual caps under the Property Lease Framework Agreement for 2020, 2021 and 2022.

The Directors (including the independent non-executive Directors having considered the advice of Gram Capital) believe that the proposals mentioned above are in the best interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the resolutions to be proposed at the Extraordinary General Meeting as set out in the enclosed Notice of the 2019 First Extraordinary General Meeting.

ADDITIONAL INFORMATION

Your attention is drawn to the letter from the Independent Board Committee to the Independent Shareholders and the letter from Gram Capital to the Independent Board Committee and the Independent Shareholders set out in this circular.

By order of the Board of Directors

Poly Culture Group Corporation Limited

Xu Niansha

Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

(A joint stock limited company incorporated in the People's Republic of China with limited liability)

(Stock Code: 3636)

25 November 2019

To the Independent Shareholders

Dear Sir or Madam,

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS

FOR 2020 TO 2022

We have been appointed by the Board as members of the Independent Board Committee to advise the Independent Shareholders in respect of the fairness and reasonableness of the New Cinema Box Office Income Sharing Framework Agreement and the proposed annual caps thereunder as well as the proposed annual caps under the Property Lease Framework Agreement, details of which are set out in the "Letter from the Board" in the circular dated 25 November 2019 (the "Circular") to the Shareholders. Unless the context otherwise requires, terms defined in the Circular shall have the same meanings when used in this letter.

Your attention is drawn to the advice of Gram Capital to the Independent Board Committee and the Independent Shareholders in respect of the the New Cinema Box Office Income Sharing Framework Agreement and proposed annual caps thereunder for 2020, 2021 and 2022 as well as the proposed annual caps under the Property Lease Framework Agreement for 2020, 2021 and 2022 as set out in the "Letter From Gram Capital" in the Circular. Having taken into account the advice of Gram Capital, we are of the view that the terms of the New Cinema Box Office Income Sharing Framework Agreement and the proposed annual caps thereunder for 2020, 2021 and 2022 as well as the proposed annual caps under the Property Lease Framework Agreement for 2020, 2021 and 2022 have been entered into in the ordinary and usual course of business of the Company and on normal commercial terms, are fair and reasonable, and in the interests of the Company and its Shareholders as a whole.

Accordingly, we recommend the Independent Shareholders to vote in favour of the resolution to approve the New Cinema Box Office Income Sharing Framework Agreement and the proposed annual caps for 2020, 2021 and 2022 as well as the proposed annual caps under the Property Lease Framework Agreement for 2020, 2021 and 2022 at the Extraordinary General Meeting.

Yours faithfully,

For and on behalf of the Independent Board Committee

Li Boqian	Li Xiaohui	Yip Wai Ming
Independent non-executive	Independent non-executive	Independent non-executive
Director	Director	Director

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LETTER FROM GRAM CAPITAL

Set out below is the text of a letter received from Gram Capital, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Transactions for the purpose of inclusion in this circular.

Room 1209, 12/F.

Nan Fung Tower

88 Connaught Road Central/

173 Des Voeux Road Central

Hong Kong

25 November 2019

To: The Independent Board Committee and the Independent Shareholders of Poly Culture Group Corporation Limited

Dear Sir/ Madam,,

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS

FOR 2020 TO 2022

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of (i) the New Cinema Box Office Income Sharing Framework Agreement and the transactions contemplated thereunder (the "Box Office Sharing"); and (ii) the renewal of annual caps in respect of transactions contemplated under the Property Lease Framework Agreement (the "Properties Leasing", together with the Box Office Sharing, the "Transactions"), details of which are set out in the letter from the Board (the "Board Letter") contained in the circular dated 25 November 2019 issued by the Company to the Shareholders (the "Circular"), of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

On 21 October 2019 (after trading hours), the Company entered into the New Cinema Box Office Income Sharing Framework Agreement with Poly Group. Pursuant to the New Cinema Box Office Income Sharing Framework Agreement, Poly Group and/or its associates will provide new film prints and encryption keys to the Group and the Group will then arrange movie screening in cinemas of the Group. Both parties agree to split the net cinema box office income generated from the movie screening based on the pre-agreed sharing percentage. Poly Group and/or its associates may then further share the revenue generated from such split with movie distributors and producers pursuant to separate agreements among themselves. The New Cinema Box Office Income Sharing Framework Agreement is valid for a term of three years commencing from 1 January 2020 and expiring on 31 December 2022.

Pursuant to the Property Lease Framework Agreement (which was entered into between the Company and Poly Group on 14 February 2014), the Company may lease properties from Poly Group and/or its associates for the purpose of office premises, cinema operation, theatre operation, auction business operation and ancillary services. As the corresponding annual caps under the Property Lease Framework Agreement

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LETTER FROM GRAM CAPITAL

will expire on 31 December 2019 and the Company will continue the aforesaid transactions under the Property Lease Framework Agreement subsequent to 31 December 2019, the Company proposed to renew annual caps under the Property Lease Framework Agreement for the three years ending 31 December 2022.

According to the Board Letter, the Transactions constitute non-exempt continuing connected transactions of the Company pursuant to the Listing Rules. Accordingly, the Transactions are subject to reporting, announcement and the Independent Shareholders' approval requirements under Chapter 14A of the Listing Rules.

The Independent Board Committee comprising Mr. Li Boqian, Ms. Li Xiaohui and Mr. Yip Wai Ming (all being independent non-executive Directors) has been established to advise the Independent Shareholders on (i) whether the terms of the New Cinema Box Office Income Sharing Framework Agreement and the Property Lease Framework Agreement are on normal commercial terms and are fair and reasonable; (ii) whether the Transactions are in the interests of the Company and the Shareholders as a whole and are conducted in the ordinary and usual course of business of the Group; and (iii) how the Independent Shareholders should vote in respect of the resolution(s) to approve (i) the New Cinema Box Office Income Sharing Framework Agreement and transactions contemplated thereunder; and (ii) proposed annual caps under the Property Lease Framework Agreement for 2020, 2021 and 2022 at the Extraordinary General Meeting. We, Gram Capital Limited, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this respect.

BASIS OF OUR OPINION

In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have relied on the statements, information, opinions and representations contained or referred to in the Circular and the information and representations as provided to us by the Directors. We have assumed that all information and representations that have been provided by the Directors, for which they are solely and wholly responsible, are true and accurate at the time when they were made and continue to be so as at the Latest Practicable Date. We have also assumed that all statements of belief, opinion, expectation and intention made by the Directors in the Circular were reasonably made after due enquiry and careful consideration. We have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy and completeness of the information and facts contained in the Circular, or the reasonableness of the opinions expressed by the Company, its advisers and/or the Directors, which have been provided to us. Our opinion is based on the Directors' representation and confirmation that there are no undisclosed private agreements/arrangements or implied understanding with anyone concerning the New Cinema Box Office Income Sharing Framework Agreement and/or the Property Lease Framework Agreement. We consider that we have taken sufficient and necessary steps on which to form a reasonable basis and an informed view for our opinion in compliance with Rule 13.80 of the Listing Rules.

The Directors have collectively and individually accepted full responsibility for the accuracy of the information contained in the Circular and have confirmed, having made all reasonable enquiries, which to the best of their knowledge and belief, that the information contained in the Circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement in the Circular or the Circular misleading. We, as the Independent Financial Adviser, take no responsibility for the contents of any part of the Circular, save and except for this letter of advice.

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LETTER FROM GRAM CAPITAL

We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, conducted any independent in-depth investigation into the business and affairs of the Company, Poly Group or their respective subsidiaries or associates, nor have we considered the taxation implication on the Group or the Shareholders as a result of the entering into of the New Cinema Box Office Income Sharing Framework Agreement and/or the Property Lease Framework Agreement. Our opinion is necessarily based on the financial, economic, market and other conditions in effect and the information made available to us as at the Latest Practicable Date. Shareholders should note that subsequent developments (including any material change in market and economic conditions) may affect and/or change our opinion and we have no obligation to update this opinion to take into account events occurring after the Latest Practicable Date or to update, revise or reaffirm our opinion. In addition, nothing contained in this letter should be construed as a recommendation to hold, sell or buy any Shares or any other securities of the Company.

Lastly, where information in this letter has been extracted from published or otherwise publicly available sources, it is the responsibility of Gram Capital to ensure that such information has been correctly extracted from the relevant sources while we are not obligated to conduct any independent in-depth investigation into the accuracy and completeness of those information.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion in respect of the Transactions, we have taken into consideration the following principal factors and reasons:

Background of and reasons for the Transactions

Information on the Company

With reference to the Board Letter, the Company is a joint stock limited company incorporated in the PRC on 14 December 2010, and is a leading diversified cultural arts company in China. The Company is mainly engaged in art business and auction, performance and theatre management, and cinema investment and management.

- 26 -

LETTER FROM GRAM CAPITAL

Set out below are the consolidated financial information of the Group for the six months ended 30 June 2019 and the two years ended 31 December 2018 as extracted from the interim report of the Company for the six months ended 30 June 2019 (the "2019 Interim Report") and the annual report of the Company for the year ended 31 December 2018 (the "2018 Annual Report"):

	For the six	For the year	For the year
	months ended	ended 31	ended 31	Change from
	30 June 2019	December 2018	December 2017	2017 to 2018
	(unaudited)	(audited)	(audited)
	RMB'000	RMB'000	RMB'000	%
Revenue	1,749,946	3,713,785	3,480,415	6.71
- Art business and auction	496,070	1,151,444	1,301,530	(11.53)
- Performance and theatre
management	820,702	1,657,497	1,372,824	20.74
- Cinema investment and management	419,487	876,595	786,486	11.46
- Other services	13,687	28,249	19,575	44.31
Gross profit	616,432	1,295,329	1,229,255	5.38
Profit for the period/year attributable
to the Shareholders	81,799	241,992	256,171	(5.53)

As illustrated in the above table, revenue of the Group amounted to approximately RMB3.71 billion for the year ended 31 December 2018 ("FY2018"), representing an increase of approximately 6.71% as compared to that for the year ended 31 December 2017 ("FY2017"). During FY2018, revenue derived from cinema investment and management amounted to approximately RMB876.6 million, representing an increase of approximately 11.46% as compared to that for FY2017. With reference to the 2018 Annual Report, the increase in revenue of the Group was primarily due to the increase in revenue from the performance and theatre management segment and the cinema investment and management segment, which was primarily due to the expansion of the Group's theatre and cinema networks. The growth in China's box office also contributed to the increase of the revenue from cinema investment and management segment.

Information on Poly Group

With reference to the Board Letter, Poly Group was established in 1992 as a large state-owned enterprise under direct supervision and administration of the State-owned Assets Supervision and Administration Commission of the State Council of the PRC. Apart from the culture and art business conducted through the Company, Poly Group is primarily engaged in international trade, real estate development, development and engineering service in light industry field coperation and service of raw materials and products for crafts, production and save and some of explosives for civilian uses, and financial business.

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LETTER FROM GRAM CAPITAL

1. THE NEW CINEMA BOX OFFICE INCOME SHARING FRAMEWORK AGREEMENT

1. Reasons for the Box Office Sharing

With reference to the Board Letter, the Group usually retained no less than 50% to 55% of the net cinema box office income based on the long-term cooperation relationship between the Group and Poly Group.

Pursuant to the New Cinema Box Office Income Sharing Framework Agreement, Poly Wanhe Cinema Circuit will provide the Group with new film prints and encryption keys, which the Group will then arrange to be screened in cinemas of the Group. After the signing of the New Cinema Box Office Income Sharing Framework Agreement, the Directors expect that, taking into consideration the long-term business relationship between Poly Wanhe Cinema Circuit and cinemas of the Group since the date of formal commencement of business, as well as the sharing percentage offered by Poly Wanhe Cinema Circuit which is more favorable than the average market sharing percentage, it is in the Company's long term interests that the Company continue to maintain relationship with Poly Wanhe Cinema Circuit. Any cessation of such cooperation will cause unnecessary disruption to the movie screening operation of cinemas of the Group, incurring significant business losses to the Company.

In view of (i) the contribution from cinema investment and management segment to the Group's revenue; (ii) the background of Poly Group; and (iii) that transactions contemplated under the New Cinema Box Office Income Sharing Framework Agreement may allow the Group to have a stable source of new film prints and encryption keys, we consider that the transactions contemplated under the New Cinema Box Office Income Sharing Framework Agreement are in the interests of the Company and the Shareholders as a whole and are conducted in the ordinary and usual course of business of the Group.

2. The New Cinema Box Office Income Sharing Framework Agreement

Date:	21 October 2019
Parties:	Poly Group
	The Company
Principal Terms:	•	The New Cinema Box Office Income Sharing
		Framework Agreement is valid for a term of three
		years commencing on the 1 January 2020, and can be

renewed for another three years upon its expiry, subject to the further approval by Independent Shareholders according to the Listing Rules.

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LETTER FROM GRAM CAPITAL

• Based on the number of cinemas, relevant subsidiaries of both parties, namely Poly Wanhe Cinema Circuit and Poly Film, will enter into a new specific contract (representing itself and its more than 70 existing subordinate cinemas) to renew the existing specific contracts, and Poly Wanhe Cinema Circuit will enter into new specific contracts with the newly established cinemas when they are established. Such specific contracts will be entered into according to the pricing policies, the main terms and conditions provided in the New Cinema Box Office Income Sharing Framework Agreement, including but not limited to the sharing percentage (no less than 50% to 55% of the net cinema box office income to be shared by the Group), service contents and term. The term for each specific agreement term is three years, and the specific terms and conditions are the same with the New Cinema Box Office Income Sharing Framework Agreement.
• Poly Group and/or its associates will provide new film prints and encryption keys to the Group and the Group will then arrange movie screening in cinemas of the Group. The Group will first receive the net cinema box office income (i.e., the box office income net of the special fund for national film development and value-added tax and additional tax) generated from the film screening and then split a portion of such revenue with Poly Group and/or its associates in accordance with the respective sharing percentage as set out in the separate underlying contracts (no less than 50% to 55% of the net cinema box office income to be shared by the Group) and pricing policies as agreed by both parties after arm's length negotiations.
• The Group will pay the net cinema box office income to Poly Group in cash on a monthly basis.

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	LETTER FROM GRAM CAPITAL
Pricing Policy:	After the Group and Poly Group's arm's length commercial
	negotiations according to the principles of fairness and
	reasonableness, the sharing of box office income is
	determined pursuant to the followings: (i) the requirements
	of the Guiding Opinions on Adjusting Income Sharing
	Percentage of Domestic Films ((2008) Ying Zi No.866) and
	Guiding Opinions on Promoting the Coordinated
	Development of Film Production, Distribution and
	Screening ((2011) Ying Zi No.992) issued by State
	Administration of Press, Publication, Radio, Film and
	Television, which stipulates the percentage of film
	screening income sharing for the cinema shall not be more
	than 50% in principle (the "SARFT Guiding Opinions")
	and set a principle of sharing the net cinema box office
	income between the cinema circuit and cinemas under the
	cinema circuit system in China; and (ii) the income sharing
	standard of the industry during the same period, which is
	currently at 40% to 45% for the comparable average net
	cinema box office income sharing of the market. The
	relevant transactions will be conducted on normal
	commercial terms and on terms and consideration no less
	favourable than those offered to independent third parties.

As confirmed by the Directors, other than the box office income sharing arrangement between the Group's subsidiary(ies) and independent third party cinema circuit already existed before such subsidiary(ies) was/were acquired by the Group, the Group has not entered into any agreements, which are of similar nature with the New Cinema Box Office Income Sharing Framework Agreement, with independent third parties.

For our due diligence purpose, we obtained box office income sharing agreements (the "Individual Agreements"), which are of similar nature with the New Cinema Box Office Income Sharing Framework Agreement, entered into between (i) Poly Group and the Group; and (ii) Poly Group with independent third parties. We noted that (a) the terms (e. g. formula to calculate box office income to be received by each party, the Special Fund and Taxes (as defined below)) of Individual Agreements offered by Poly Group to the Group are comparable to those offered by Poly Group to independent third parties; (b) the box office income sharing ratio offered by Poly Group to the independent third parties are no more favourable than those offered to the Group; and (c) the box office income sharing ratio under the Individual Agreements, ranging from 50% to 60% for the cinemas.

With reference to the Board Letter, the Company has formulated a series of measures and policies to ensure the transactions contemplated under the New Cinema Box Office Income Sharing Framework Agreement be implemented in accordance with the New Cinema Box Office Income Sharing Framework Agreement and its pricing policy, details of which are set out under the section headed "Internal Control Procedure and Corporate Governance Measures" of the Board Letter. We consider that the effective implementation of the Measures and Policies would help to ensure fair pricing of the Box Office Sharing according to the pricing policies.

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LETTER FROM GRAM CAPITAL

In light of the above, we are of the view that the terms of the New Cinema Box Office Income Sharing Framework Agreement are on normal commercial terms and are fair and reasonable.

3. The proposed annual caps

Set out below are (i) the historical amount of the box office net income shared by Poly Group for the two years ended 31 December 2018 and the six months ended 30 June 2019 with the existing annual caps; and (ii) the proposed annual caps (i.e. the box office net income to be shared by Poly Group, the "Proposed Annual Caps") for the three years ending 31 December 2022:

	For the year	For the year	For the year
	ended 31	ended 31	ending 31
	December 2017	December 2018	December 2019
	RMB million	RMB million	RMB million
Historical amounts of the box office net income shared by
Poly Group	223.47	256.82	127.74(Note)
Existing annual caps	405.95	516.50	619.47
Utilisation rate	55.0%	49.7%	N/A
	For the year	For the year	For the year
	ended 31	ended 31	ending 31
	December 2020	December 2021	December 2022
	RMB million	RMB million	RMB million
Proposed Annual Caps (i.e. the box office net income to be
shared by Poly Group)	346.04	388.96	417.45

Note: the figure was for the six months ended 30 June 2019

The basis for determining Proposed Annual Caps for the three years ending 31 December 2022 are set out under sub-section headed "Proposed annual caps and basis of determination" under the section headed "New Cinema Box Office Income Sharing Framework Agreement" of the Board Letter.

We noted that the utilisation rates of the transactions for the two years ended 31 December 2018 were not at high levels. Therefore, the Directors downward adjusted the Proposed Annual Caps for the three years ending 31 December 2022.

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LETTER FROM GRAM CAPITAL

To assess the fairness and reasonableness of the Proposed Annual Caps for the three years ending 31 December 2022, we extracted historical amounts of the box office net income shared by Poly Group from the Company's previous annual reports as follows:

	For the year	For the year	For the year
	ended 31	ended 31	ended 31
	December 2016	December 2017	December 2018
	RMB million	RMB million	RMB million
Historical amounts of the box office net income shared by
Poly Group	206.40	223.47	256.82
Change from previous year		17.07	33.35

Upon our request, we obtained a cinema investment plan (the "Investment Plan") from the Group, showing the development schedule of Group's cinema. According to the Investment Plan and as we understood from the Directors, the Group expected to open 5, 4, 5 new cinemas during 2020, 2021 and 2022 respectively.

According to the 2018 Annual Report, Poly Film directly operated 71 cinemas with box office income of RMB806 million. Based on the aforesaid figures, the average box office income for each of cinema amounted to approximately RMB11.4 million.

As advised by the Directors, the box office net income to be shared by Poly Group directly links to the box office net income. It is not practicable to simply annualized box office net income for the first half year of 2019 to estimate the box office net income for full year 2019 due to the fact that there would be various factors to affect the second half year box office net income, such as festivals implication, popularity of newly release movies during the second half year, etc. Therefore, the Directors took into account the full year change of historical amounts of the box office net income shared by Poly Group and the Investment Plan when estimating the Proposed Annual Caps for the three years ending 31 December 2022.

Having considered (i) the new cinemas pursuant to the Investment Plan; (ii) the average box office income for each of cinema during FY2018; (iii) no less than 50% to 55% of the net cinema box office income to be shared by the Group; and (iv) the increase in box office net income shared by Poly Group for FY2018 as compared to that for FY2017, we consider that the proposed increase in box office net income shared by Poly Group for the three years ending 31 December 2022 to be justifiable.

Accordingly, we consider the Proposed Annual Caps for the three years ending 31 December 2022 to be fair and reasonable.

Shareholders should note that as the Proposed Annual Caps are relating to future events and were estimated based on assumptions which may or may not remain valid for the entire period up to 31 December 2022, and they do not represent forecasts of revenue/cost to be incurred from the Box Office Sharing. Consequently, we express no opinion as to how closely the actual revenue/cost to be incurred from the Box Office Sharing will correspond with the Proposed Annual Caps.

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LETTER FROM GRAM CAPITAL

4. Listing Rules implication

The Directors confirmed that the Company shall comply with the requirements of Rules 14A.53 to 14A.59 of the Listing Rules pursuant to which (i) the values of the transactions contemplated under the New Cinema Box Office Income Sharing Framework Agreement must be restricted by the Proposed Annual Caps for the period concerned under the New Cinema Box Office Income Sharing Framework Agreement; (ii) the terms of the transactions contemplated under the New Cinema Box Office Income Sharing Framework Agreement (including the Proposed Annual Caps) must be reviewed by the independent non-executive Directors annually; (iii) details of independent non-executive Directors' annual review on the terms of the New Cinema Box Office Income Sharing Framework Agreement must be included in the Company's subsequent published annual reports and financial accounts.

Furthermore, it is also required by the Listing Rules that the auditors of the Company must provide a letter to the Board confirming, among other things, whether anything has come to their attention that causes them to believe that the transactions contemplated the New Cinema Box Office Income Sharing Framework Agreement (i) have not been approved by the Board; (ii) were not entered into, in all material respects, in accordance with the relevant agreement governing the transactions; and (iii) have exceeded the Proposed Annual Caps.

In the event that the total amounts of the transactions contemplated under the New Cinema Box Office Income Sharing Framework Agreement are anticipated to exceed the Proposed Annual Caps, or that there is any proposed material amendment to the terms of the New Cinema Box Office Income Sharing Framework Agreement, as confirmed by the Directors, the Company shall comply with the applicable provisions of the Listing Rules governing continuing connected transaction.

Given the above stipulated requirements for continuing connected transactions pursuant to the Listing Rules, we are of the view that there are adequate measures in place to monitor the Transactions and thus the interest of the Independent Shareholders would be safeguarded.

Recommendation on the Box Office Sharing

Having taken into consideration the factors and reasons as stated above, we are of the opinion that (i) the terms of the New Cinema Box Office Income Sharing Framework Agreement are on normal commercial terms and are fair and reasonable; and (ii) the transactions contemplated under the New Cinema Box Office Income Sharing Framework Agreement are in the interests of the Company and the Shareholders as a whole and are conducted in the ordinary and usual course of business of the Group. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the resolution(s) to be proposed at the Extraordinary General Meeting to approve the New Cinema Box Office Income Sharing Framework Agreement and transactions contemplated thereunder and we recommend the Independent Shareholders to vote in favour of the resolution(s) in this regard.

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LETTER FROM GRAM CAPITAL

1. THE PROPERTY LEASE FRAMEWORK AGREEMENT

1. Reasons for entering into the Property Lease Framework Agreement

With reference to the Board Letter, the Group has been leasing and using the Poly Group's properties for its business operation for a long period. Any relocation may cause unnecessary disruption to the Group's business operation and incur unnecessary costs.

We noted from the Property Lease Framework Agreement is valid for a term of 20 years commencing on the Listing Date (i.e. 6 March 2014).

The Directors are of the view that maintaining long term and stable property lease is of great importance to the operation of the cinema investment and theatre management business of the Group as well as the stability of the art business and auction and the secure storage of art works, and the long term nature of the property lease agreement would enable the Group to secure locations for its business operation at fair market price and to prevent unnecessary cost, time and interruption of business caused by relocation in the case of short term lease. As such, the Directors are of the view that the lease term of 20 years is appropriate for the Property Lease Framework Agreement and is the normal business practice for lease agreements of this type to be of such duration.

In view of (i) the Group has been leasing and using the above properties for its business operation for a long period; (ii) the Property Lease Framework Agreement is valid for a term of 20 years commencing on the listing date (i.e. 6 March 2014), we consider that renewal of annual caps for Property Lease Framework Agreement are in the interests of the Company and the Shareholders as a whole and the Properties Leasing are conducted in the ordinary and usual course of business of the Group.

2. The Property Lease Framework Agreement

Date:	14 February 2014
Parties:	Poly Group as the lessor
	The Company as the lessee
Principal Terms:	The principal terms of the Property Lease Framework
	Agreement are as follows:
	•	the Property Lease Framework Agreement is valid for
		a term of 20 years commencing on the Listing Date
		(i.e. 6 March 2014);
	•	relevant subsidiaries or associates of both parties will
		enter into separate lease agreements which will set out
		the specific terms and conditions according to the
		principles provided in the Property Lease Framework
		Agreement;

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LETTER FROM GRAM CAPITAL

	•	basis of determination of rentals: the rentals shall be
		determined by reference to the then market price or as
		agreed by both parties after arm-length negotiations;
	•	the property management fee shall be determined by
		reference to the then market price or as agreed by
		both parties after arm-length negotiations;
	•	the energy charge and other facilities fee shall follow
		the government prescribed price or where no such
		government-prescribed price is applicable, it shall
		then be determined by reference to the then market
		price or as agreed by both parties after arm-length
		negotiations; and
	•	the term of the separate underlying lease agreements
		entered into under the Property Lease Framework
		Agreement shall be for a maximum of 20 years. The
		Company may request to renew the term of the lease
		by issuing a written notice to relevant members of
		Poly Group at least one month before expiry of the
		lease. Relevant members of Poly Group shall, upon
		receipt of the said notice, consent to the request for
		renewal and shall renew the lease with members of
		the Group before its expiration.
Pricing Policy:	The rent payable by the Group pursuant to the Property
	Lease Framework Agreement shall be determined between
	the parties at arm's length commercial negotiations
	according to the principles of fairness and reasonableness

with reference to the rent of the properties at similar locations leased by Poly Group to independent third parties during the same period. The relevant transactions will be conducted on normal commercial terms and on terms and consideration no less favourable than those offered to independent third parties.

With reference to the Board Letter, the Company has formulated a series of measures and policies to ensure the Properties Leasing be implemented in accordance with the Property Lease Framework Agreement and its pricing policy. Having considered that (i) the Group will conduct research on rental policies of properties in similar locations in the same period prior to entering into each individual lease agreement with Poly Group; and (ii) the Group has the right to negotiate with Poly Group at arm's length basis, and Poly Group agrees to adjust the property rents in connection with the Group and/or its subsidiaries, to make sure that the Group implements the Property Lease Framework Agreement with the rents of properties which are

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LETTER FROM GRAM CAPITAL

no less favorable than any independent third party in the market, we consider that the effective implementation of the measures and policies would help to ensure fair pricing of the Properties Leasing according to the pricing policies.

In light of the above, we are of the view that the terms of the Property Lease Framework Agreement are on normal commercial terms and are fair and reasonable.

3. The proposed annual caps

Set out below are the proposed annual caps for the Properties Leasing (the "Leasing Cap(s)") for the three years ending 31 December 2022:

	For the year ending	For the year ending	For the year ending
	31 December 2020	31 December 2021	31 December 2022
	RMB million	RMB million	RMB million
- Floating rental (the "Floating Rental")	13.27	15.41	20.32
- Right-of-use assets	235.39	281.04	308.64
The Leasing Caps	248.66	296.45	328.97

Note: the discrepancy between the sum of the figures in the list and the subtotal/aggregate figures is caused by

rounding.

The basis for determining Leasing Caps for the three years ending 31 December 2022 are set out under sub-section headed. "Basis of determination" under the section headed "Property Lease Framework Agreement" of the Board Letter.

We noted that the basis for the determining of Leasing Caps for the three years ending 31 December 2022 were different from those of the existing leasing caps for the three years ending 31 December 2019. As advised by the Directors, such differences were mainly due to the change of accounting policy for leases. As lease properties of the Company were mainly used for the office premises, cinema operation, theatre operation, and auction business operation, the Company will account for the expenses under the Property Lease Framework Agreement as the finance lease instead of the original operating lease, that is, recognise and measure a lease liability at the present value of the minimum future lease payments and recognise a corresponding right-of-use asset. The subsidiaries of the Company will recognise interest expense accrued on the outstanding balance of the lease liability and the depreciation of the right-of-use asset, instead of the original rental expenses incurred on the operating lease.

To assess the fairness and reasonableness of the Leasing Caps for the three years ending 31 December 2022, we obtained the calculation for the Leasing Caps for the three years ending 31 December 2022 (the "Leasing Calculation").

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LETTER FROM GRAM CAPITAL

The Leasing Caps were calculated by (i) estimated amounts arising from Poly Film and its subsidiaries (the "Poly Film Group"), which were subject to the Poly Film Group's box office income (i.e. Floating Rental); (ii) estimated amounts arising from Poly Film Group, which were the fixed monthly rental fees/estimated monthly rental fees; and; (iii) estimated amounts arising from the Group (other than the Poly Film Group), which were based on fixed monthly rental fees / estimated monthly rental fees.

In respect of the Floating Rental, we noted from the Leasing Calculation that the estimated amounts arising from Poly Film Group's existing leasing arrangements (which were subject to the Poly Film Group's box office income) represented increases ranged from 8% to 17% for the three years ending 31 December 2022 as compared to that of previous years. Having considered that (i) the floating rental is directly linked to Poly Film Group's box office income; and (ii) the Poly Film Group recorded an average increase in box office income of approximately 20% from 2015 to 2018, we consider the Floating Rental of Poly Film Group's existing leasing arrangements to be justifiable. During the three years ending 31 December 2022, the Directors assumed there would be seven new projects in total, which the Poly Film Group would enter into leasing agreement with Poly Group. We noted the estimated Floating Rental of the new projects were directly linked to the expected box office of such projects for the three years ending 31 December 2022.

In addition, when determining the Floating Rental (i.e. RMB13.27 million, RMB15.41 million and RMB20.32 million for the three years ending 31 December 2022), an additional buffer of 10% was applied on total estimated amounts arising from Poly Film Group's existing and proposed leasing arrangements for the three years ending 31 December 2022. Having considered that Poly Film Group may record a substantial increase in box office income and may commence operating more projects from 2020 to 2022, we consider that the buffer of 10% to be acceptable.

Based on the above factors, we consider that the Floating Rental for the three years ending 31 December 2022 to be fair and reasonable.

In respect of estimated amounts arising from Poly Film Group, which were the fixed monthly rental fees/estimated monthly rental fees, we noted from the Leasing Calculation that amounts of right-of-use assets was calculated based on each existing and proposed projects' (i) monthly rental fees; (ii) duration of individual agreements of existing and proposed projects; and (iii) a discount rate of 5%.

For our due diligence purpose, we randomly selected three existing individual agreements and noted that the monthly rental fees and duration as shown in the individual agreements represented monthly rental fees for such project as shown in the Leasing Calculation.

As further advised by the Directors, the discount rate of 5% was based on the PRC market lending rate. According to loan prime rate (over 5 years) as published by The People's Bank of China, the current loan prime rate (over 5 years) was 4.85% per annum. Accordingly, we consider the discount rate of 5% to be justifiable.

Based on the above factors, we consider the estimated amounts arising from Poly Film Group, which were based on the fixed monthly rental fees/estimated monthly rental fees, for the three years ending 31 December 2022 to be fair and reasonable.

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LETTER FROM GRAM CAPITAL

In respect of estimated amounts arising from the Group (other than the Poly Film Group), which were based on fixed monthly rental fees / estimated monthly rental fees, the Directors took into account the existing individual rental arrangements between the Group (other than the Poly Film Group) and Poly Group. In addition, the Directors also took into account of factors such as office expansion with reference to the office size in similar area when calculating the right-of-use assets. We consider that the estimated amounts arising from the Group (other than the Poly Film Group), which were based on fixed monthly rental fees / estimated monthly rental fees, for the three years ending 31 December 2022 to be fair and reasonable.

Having considered the above factors and that as advised by the Directors when determining the Floating Rental and the right-of-use assets, they also discussed the calculation with the Company's auditor, we consider the Leasing Caps for the three years ending 31 December 2022 to be fair and reasonable.

Shareholders should note that as the Leasing Caps are relating to future events and were estimated based on assumptions which may or may not remain valid for the entire period up to 31 December 2022, and they do not represent forecasts of revenue/cost to be incurred from the Transactions. Consequently, we express no opinion as to how closely the actual revenue/cost to be incurred from the Properties Leasing will correspond with the Leasing Caps.

4. Listing Rules implications

The Directors confirmed that the Company shall comply with the requirements of Rules 14A.53 to 14A.59 of the Listing Rules pursuant to which (i) the values of the Properties Leasing must be restricted by the Leasing Caps for the period concerned under the Property Lease Framework Agreement; (ii) the terms of the Properties Leasing (including the Lease Caps) must be reviewed by the independent non-executive Directors annually; (iii) details of independent non-executive Directors' annual review on the terms of the Properties Leasing must be included in the Company's subsequent published annual reports and financial accounts.

Furthermore, it is also required by the Listing Rules that the auditors of the Company must provide a letter to the Board confirming, among other things, whether anything has come to their attention that causes them to believe that the Properties Leasing (i) have not been approved by the Board; (ii) were not entered into, in all material respects, in accordance with the relevant agreement governing the transactions; and (iii) have exceeded the Leasing Caps.

In the event that the total amounts of the transactions contemplated under the Property Lease Framework Agreement are anticipated to exceed the Leasing Caps, or that there is any proposed material amendment to the terms of the Property Lease Framework Agreement, as confirmed by the Directors, the Company shall comply with the applicable provisions of the Listing Rules governing continuing connected transaction.

Given the above stipulated requirements for continuing connected transactions pursuant to the Listing Rules, we are of the view that there are adequate measures in place to monitor the Properties Leasing and thus the interest of the Independent Shareholders would be safeguarded.

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LETTER FROM GRAM CAPITAL

Recommendation on the Properties Leasing

Having taken into consideration the factors and reasons as stated above, we are of the opinion that (i) the terms of the Properties Leasing are on normal commercial terms and are fair and reasonable; and (ii) the Properties Leasing are in the interests of the Company and the Shareholders as a whole and are conducted in the ordinary and usual course of business of the Group. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the resolution(s) to be proposed at the Extraordinary General Meeting to approve the proposed annual caps under the Property Lease Framework Agreement for 2020, 2021 and 2022 and we recommend the Independent Shareholders to vote in favour of the resolution(s) in this regard.

Yours faithfully,

For and on behalf of

Gram Capital Limited

Graham Lam

Managing Director

- 39 -

APPENDIX I

GENERAL INFORMATION

1. RESPONSIBILITY STATEMENT

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

2. DIRECTORS' INTERESTS

1. As at the Latest Practicable Date, none of the Directors, Supervisors or chief executives of the Company had any interests or short positions in the Shares, underlying Shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which any such Directors, Supervisors or chief executives or their respective associates were deemed or taken to have under such provisions of the SFO), or which were required to be entered in the register required to be kept by the Company pursuant to section 352 of the SFO, or which were otherwise required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies under the Listing Rules.
2. As at the Latest Practicable Date, none of the Directors had any direct or indirect interests in any assets which have since 31 December 2018 (being the date on which the latest published audited consolidated accounts of the Company were prepared) been acquired or disposed of by or leased to or by the Company or any of its subsidiaries, or are proposed to be acquired or disposed of by or leased to or by the Company or any of its subsidiaries.
3. As at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement entered into by the Company or any of its subsidiaries, which was subsisting and was significant in relation to the business of the Group.
4. As at the Latest Practicable Date, the following Directors are directors or employees of a company having an interest or short position in the Shares and underlying Shares which would fall to be disclosed under the provisions of Divisions 2 and 3 of Part XV of the SFO.

Name	Position in the entity disclosed under the provisions of
	Divisions 2 and 3 of Part XV of the SFO
Xu Niansha	Chairman of Poly Group
Zhang Xi	Vice general manager of Poly Group
Huang Geming	Assistant to general manager of Poly Group
Wang Keling	Deputy party secretary of Sinolight Corporation

- 40 -

APPENDIX I

GENERAL INFORMATION

3. COMPETING INTERESTS

As at the Latest Practicable Date, so far as the Directors were aware of, none of the Directors and Directors candidates and their respective associates had any interest in a business which competes or is likely to compete with the business of the Group.

4. SUBSTANTIAL SHAREHOLDERS' INTERESTS

So far as was known to any Directors, as at the Latest Practicable Date, the following persons (not being a Director, chief executive of the Company nor any member of the Group) had an interest or short position in the Shares or underlying Shares which would fall to be disclosed under the provisions of Divisions 2 and 3 of Part XV of the SFO (including interests and short positions which they were deemed or taken to have under such provisions of the SFO) or were directly or indirectly interested in 5% or more of the nominal value of any class of Shares carrying rights to vote in all circumstances at general meetings of any member of the Group.

				Percentage
				of the
			Number of	relevant	Percentage
			Shares/	class of	of the total
			underlying	share capital	share capital
			Shares held	(%)	(%)
Shareholder	Type of Shares	Capacity	(Note 1)	(Note 2)	(Note 2)
Poly Group	Domestic Shares	Beneficial owner	156,868,400	100.00	63.69
(Note 3)		and interest of	(L)
		controlled
		corporation
Poly International	Domestic Shares	Beneficial owner	50,197,900	32.00	20.38
			(L)

Notes:

1. "L" stands for long positions.
2. The percentage is calculated as the number of the relevant class of Shares of the Company in issue as at 30 June 2019/the total number of Shares.
3. Poly Group directly holds 106,670,500 Shares of the Company, and holds 100% of the equity interest of Poly International, which in turn holds 50,197,900 Shares of the Company. Accordingly, Poly Group is deemed to be interested in the 50,197,900 Shares held by Poly International under the SFO.

Saved as disclosed above, as at the Latest Practicable Date, to the best knowledge of the Directors, there were no other persons who had interests or short positions in the Shares or underlying Shares of the Company, which were required to be notified to the Company pursuant to Divisions 2 and 3 of Part XV of the SFO and recorded in the register required to be kept by the Company pursuant to section 336 of the SFO.

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APPENDIX I

GENERAL INFORMATION

5. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered into or was proposing to enter into any service contracts with the Company or any of its subsidiaries, excluding service contracts expiring or terminable within one year without payment of compensation other than statutory compensation.

6. MATERIAL CONTRACT

Within the two years immediately preceding the date of this circular and up to the Latest Practicable Date, no contract (not being contract entered into in the ordinary course of business) was entered into by the Group which are or may be material.

7. MATERIAL LITIGATION

As at the Latest Practicable Date, so far as the Directors are aware, the Company was not involved in any material litigation or arbitration. So far as the Directors are aware, there is no material litigation or claim which are pending or threatened against the Company.

8. EXPERT'S DISCLOSURE OF INTERESTS AND CONSENTS

1. As at the Latest Practicable Date, Gram Capital, a licensed corporation to carry out Type 6 (advising on corporate finance) regulated activity under the SFO, did not have any direct or indirect shareholding in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.
2. As at the Latest Practicable Date, Gram Capital did not have any direct or indirect interests in any assets which have been acquired or disposed of or leased to or which were proposed to be acquired or disposed of by or leased to by any member of the Group since 31 December 2018, being the date to which the latest published audited consolidated accounts of the Company were made up.
3. Gram Capital issued a letter dated 25 November 2019 for the purpose of incorporation in this circular in connection with its recommendation to the Independent Board Committee and the Independent Shareholders.
4. Gram Capital has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter of recommendation and reference to its name in the form and context in which they appear.

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APPENDIX I

GENERAL INFORMATION

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours on any working day (public holidays excepted) at the Company's principal place of business in Hong Kong at 31st Floor, Tower 2, Times Square, 1 Matheson Street, Causeway Bay, Hong Kong from the date of this circular up to and including the date of the Extraordinary General Meeting:

1. the New Cinema Box Office Income Sharing Framework Agreement and the Cinema Box Office Income Sharing Framework Agreement;
2. the Property Lease Framework Agreement;
3. the letter from the Independent Board Committee to the Independent Shareholders as set out on page 23 of this circular;
4. the letter from Gram Capital to the Independent Board Committee and the Independent Shareholders as set out on pages 24 to 39 of this circular;
5. the written consent of Gram Capital referred to in paragraph 6 of this appendix;
6. the Articles of Association;
7. the Company's 2017 Annual Report and 2018 Annual Report; and
8. this circular.

10. GENERAL

1. As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the Group's financial or trading position since 31 December 2018, being the date on which the latest published audited consolidated accounts of the Company were prepared.
2. The registered office of the Company is District A, 20/F, 1 North Street of Chaoyangmen, Dongcheng District, Beijing, PRC and the postal code is 100010.
3. The share registrar and transfer office of the Company is Computershare Hong Kong Investor Services Limited of Shops 1712-1716, Hopewell Centre, 183 Queen's Road East, Hong Kong.
4. The company secretaries of the Company are Ms. Wang Wei and Ms. Leung Suet Lun. Ms. Leung Suet Lun is a member of the Hong Kong Institute of Certified Public Accountants and a Hong Kong lawyer.
5. If there is any discrepancy between the English text and Chinese text of this circular, the English text shall prevail.

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NOTICE OF THE 2019 FIRST EXTRAORDINARY GENERAL MEETING

(A joint stock limited company incorporated in the People's Republic of China with limited liability)

(Stock Code: 3636)

NOTICE OF THE 2019 FIRST EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that the 2019 first extraordinary general meeting (the "Extraordinary General Meeting") of Poly Culture Group Corporation Limited (the "Company") will be held at 2:30 p.m. on Friday, 20 December 2019 at the Meeting Room, 29/F, New Poly Plaza, 1 North Street of Chaoyangmen, Dongcheng District, Beijing, PRC to consider and, if thought fit, to pass the following ordinary resolutions:

Ordinary Resolutions

1. To consider and approve the renewal of continuing connected transactions contemplated under the New Cinema Box Office Income Sharing Framework Agreement and the proposed annual caps for 2020, 2021 and 2022
2. To consider and approve the continuing connected transactions contemplated under the Property Lease Framework Agreement and the proposed annual caps for 2020, 2021 and 2022

By order of the Board of Directors

Poly Culture Group Corporation Limited

Xu Niansha

Chairman

Beijing, the PRC

5 November 2019

Notes:

1. CLOSURE OF REGISTER OF MEMBERS, ELIGIBILITY FOR ATTENDING THE EXTRAORDINARY GENERAL MEETING
   Holders of H shares of the Company are advised that the register of members for H shares will be closed from Wednesday, 20 November 2019 to Friday, 20 December 2019 (both days inclusive). Shareholders whose names appear on the register of members of the Company on Friday, 20 December 2019 are entitled to attend and vote at the Extraordinary General Meeting. Holders of H shares of the Company who wish to attend the Extraordinary General Meeting but have not registered the transfer documents are required to deposit the transfer documents together with the relevant share certificates at the H share registrar of the Company in Hong Kong, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong no later than 4:30 p.m. on Tuesday, 19 November 2019.
2. PROXY
   Shareholders entitled to attend and vote at the Extraordinary General Meeting may appoint one or more proxies to attend and vote in their stand. A proxy need not be a shareholder of the Company.

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NOTICE OF THE 2019 FIRST EXTRAORDINARY GENERAL MEETING

The instrument appointing a proxy must be in writing under the hand of a shareholder or his/her attorney duly authorized in writing. If the shareholder is a corporate body, the proxy form dispatched thereto by the Company on 5 November 2019 (the "Proxy Form") must be either executed under its common seal or under the hand of its legal representative(s) or director(s) or duly authorized attorney(s). If the Proxy Form is signed by an attorney of the shareholder, the power of attorney authorizing that attorney to sign or other authorizations document must be notarized.

For holders of H shares, the Proxy Form together with the power of attorney or other authorization document (if any) must be lodged at the H share registrar of the Company in Hong Kong, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong in person or by post not less than 24 hours before the time fixed for holding the Extraordinary General Meeting or any adjournment thereof (as the case may be). Shareholders can still attend and vote in person at the Extraordinary General Meeting upon completion and return of the Proxy Form if so wish.

1. REPLY SLIP
   Holders of H shares who intend to attend the Extraordinary General Meeting in person or by proxy should return the reply slip to the H share registrar of the Company in Hong Kong, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong on or before Saturday, 30 November 2019.
2. CONTACT DETAILS OF THE COMPANY
   Contact Address: District A, 20/F, 1 North Street of Chaoyangmen, Dongcheng District, Beijing, PRC
   Postal code: 100010
   Contact Person: Wang Wei
   Contact Telephone: [phone]
   Contact Fax: [phone]
3. PROCEDURES FOR VOTING AT THE EXTRAORDINARY GENERAL MEETING
   According to Rule 13.39(4) of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, any vote of shareholders at the Extraordinary General Meeting must be taken by poll.
4. OTHER BUSINESS
   The Extraordinary General Meeting is expected to last for approximately half a day. Shareholders (in person or by proxy) attending the Extraordinary General Meeting are responsible for their own transportation and accommodation expenses.
   Shareholders or their proxies attending the Extraordinary General Meeting shall produce their identity documents.

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