CR Construction Group Holdings Limited — Proxy Solicitation & Information Statement 2013

Jul 5, 2013

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 licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Chinese People Holdings Company Limited (the “ Company ”), you should at once hand this circular together with the accompanying form of proxy to the purchaser or the transferee or to the bank, stockbroker 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.

This circular is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for any securities of the Company.

CHINESE PEOPLE HOLDINGS COMPANY LIMITED 中民控股有限公司

(Incorporated in Bermuda with limited liability)

(Stock Code: 681)

(1) CONNECTED TRANSACTIONS IN RELATION TO THE ENTERING INTO OF THE SETTLEMENT DEED,

(2) CONNECTED TRANSACTIONS IN RELATION TO WARRANTS SUBSCRIPTION, (3) CONTINUING CONNECTED TRANSACTIONS IN RELATION TO THE NATURAL GAS SUPPLY AGREEMENT AND

(4) NOTICE OF SPECIAL GENERAL MEETING

Joint Financial Advisers to the Company

Astrum Capital Management Limited

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

==> picture [31 x 29] intentionally omitted <==

==> picture [125 x 9] intentionally omitted <==

A letter from the Board is set out on pages 11 to 50 of this circular.

A notice dated 8 July 2013 convening the SGM to be held at the head office of Chinese People Holdings Company Limited, Conference Room, 1st Floor, No. 36 BDA International Business Park, No. 2 Jingyuan North Street, Economic Technological Development Area, Beijing, 100176, China on 24 July 2013 at 1:30 p.m. is set out on pages 124 to 127 of this circular. Whether or not you are able to attend the SGM in person, please complete the enclosed form of proxy in accordance with the instructions printed thereon and return it to the Company’s branch share registrar and transfer office in Hong Kong, Tricor Tengis Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for the holding of the SGM or any adjourned meeting thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or at any adjourned meeting thereof if you so wish and, in such event, the relevant form of proxy shall be deemed to be revoked.

8 July 2013

CONTENTS

	Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
LETTER FROM THE INDEPENDENT BOARD COMMITTEE. . . . . . . . . . . . . . . . . . . . .	51
LETTER FROM NEW SPRING CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	53
APPENDIX – GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	118
NOTICE OF THE SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	124

– i –

DEFINITIONS

In this circular, unless the context otherwise requires, the following terms or expressions shall have the meanings set out below:

• “2011 Announcement”

the announcement of the Company dated 15 June 2011 in relation to the Acquisition

• “2011 Circular”

• the circular of the Company dated 12 August 2011 in relation to the Acquisition

• “2013 Valuation”

• the value of the Target Group (including, for the avoidance of doubt, the new genre of games and new market that have been granted to, or secured or developed by, the Target Group since the Completion Date and subsisting and held by the Target Group as at 31 March 2013) as at 31 March 2013 and expressed in RMB, such valuation shall be prepared in compliance with all applicable laws, rules and regulation, and on a discounted cashflow methodology and such bases and assumptions that may be agreed by the Company and the Vendor

• “2013/14 Valuation Difference”

• the difference by subtracting the amount of the 2013 Valuation from the 2014 Valuation, expressed in RMB

• “2013/16 Valuation Difference”

• the difference by subtracting the amount of the 2013 Valuation from the 2016 Valuation, expressed in RMB

• “2014 Valuation”

• the value of the Target Group (including, for the avoidance of doubt, the new genre of games and new market that have been granted to, or secured or developed by, the Target Group since the Completion Date and subsisting and held by the Target Group as at 31 March 2014) as at 31 March 2014 and expressed in RMB, such valuation shall be prepared in compliance with all applicable laws, rules and regulation, and on a discounted cashflow methodology and such bases and assumptions that may be agreed by the Company and the Vendor

• “2014 Valuation Report”

the valuation report to be prepared and issued in respect of the 2014 Valuation in accordance with the provision of item 1(a) of the settlement arrangement as set out in the sub-section headed “ Settlement arrangement ” under the section headed “ DETAILS OF THE SETTLEMENT DEED AND THE SUPPLEMENTAL SETTLEMENT DEED ” in this circular

• “2014/15 Valuation Difference”

the difference by subtracting the amount of the 2014 Valuation from the 2015 Valuation, expressed in RMB

– 1 –

DEFINITIONS

• “2015 Valuation”

• “2015 Valuation Report”

• “2016 Issue Price”

• “2016 Valuation”

• “2016 Valuation Report”

• “Acquisition”

• “Additional Shares”

• the value of the Target Group (including, for the avoidance of doubt, the new genre of games and new market that have been granted to, or secured or developed by, the Target Group since the Completion Date and subsisting and held by the Target Group as at 31 March 2015) as at 31 March 2015 and expressed in RMB, such valuation shall be prepared in compliance with all applicable laws, rules and regulation, and on a discounted cashflow methodology and such bases and assumptions that may be agreed by the Company and the Vendor

• the valuation report to be prepared and issued in respect of the 2015 Valuation in accordance with the provision of item 2(a) of the settlement arrangement as set out in the sub-section headed “ Settlement arrangement ” under the section headed “ DETAILS OF THE SETTLEMENT DEED AND THE SUPPLEMENTAL SETTLEMENT DEED ” in this circular

• the average of the closing prices of the Shares as quoted on the Stock Exchange for the five consecutive trading days immediately before and including the date of issue of the 2016 Settlement Certificate

• the value of the Target Group (including, for the avoidance of doubt, the new genre of games and new market that have been granted to, or secured or developed by, the Target Group since the Completion Date and subsisting and held by the Target Group as at 31 March 2016) as at 31 March 2016 and expressed in RMB, such valuation shall be prepared in compliance with all applicable laws, rules and regulation, and on a discounted cashflow methodology and such bases and assumptions that may be agreed by the Company and the Vendor

• the valuation report to be prepared and issued in respect of the 2016 Valuation in accordance with the provision of item 3(a) of the settlement arrangement as set out in the sub-section headed “ Settlement arrangement ” under the section headed “ DETAILS OF THE SETTLEMENT DEED AND THE SUPPLEMENTAL SETTLEMENT DEED ” in this circular

• the acquisition of the Sale Share by the Company from the Vendor pursuant to the terms and conditions of the Agreement

new Shares to be allotted and issued by the Company to the Vendor pursuant to the Settlement Deed

– 2 –

DEFINITIONS

• “Agreement” the agreement dated 13 June 2011 and entered into between the Company (as the purchaser) and the Vendor (as the vendor) in respect of the Acquisition

• “approved merchant bank” an independent merchant bank or other financial institution of repute and having a place of business in Hong Kong selected by the Company for the purpose of item 5 of the settlement arrangement as set out in the sub-section headed “ Settlement arrangement ” under the section headed “ DETAILS OF THE SETTLEMENT DEED AND THE SUPPLEMENTAL SETTLEMENT DEED ” in this circular

• “Assets Capital” the double track gas pipeline project from Yihe to Yangliang in the valuation of RMB54,902,000 (equivalent to approximately HK$68,847,000, calculated at the approximate exchange rate of RMB1.000 to HK$1.254 as at 31 March 2013), performed by independent valuer in the PRC

• “associates” has the meaning ascribed thereto in the Listing Rules

• “Auditors” the auditors of the Company from time to time

• “Beijing Civigas” 北京中民燃氣有限公司 (Beijing Civigas Co., Ltd., formerly transliterated as Beijing Zhongmin Gas Co., Ltd.), a company established in the PRC with limited liability and a wholly owned subsidiary of the Company

• “Board” the board of Directors

• “Business Day” any day (other than Saturday and any day on which a tropical cyclone warning signal no.8 or above is hoisted or remains hoisted between 9:00 a.m. and 12:00 noon and is not lowered at or before 12:00 noon or on which a “black” rainstorm warning signal is hoisted or remains in effect between 9:00 a.m. and 12:00 noon and is not discontinued at or before 12:00 noon) on which licensed banks in Hong Kong are open for general business

• “Company”

Chinese People Holdings Company Limited, a company incorporated in Bermuda with limited liability and the issued Shares of which are listed on the main board of the Stock Exchange

– 3 –

DEFINITIONS

• “Company’s Warranties”

• the representations and warranties given by the Company in relation to the Settlement Deed

• “Completion”

completion of the Acquisition

• “Completion Date” 1 September 2011, being the date on which Completion took place

• “connected person(s)” has the meaning ascribed thereto in the Listing Rules

• “Consideration” HK$465,226,560, being the consideration for the Acquisition

• “Consideration Shares”

• the 1,727,729,582 Shares allotted and issued by the Company to the Vendor and credited as fully paid at the Issue Price on Completion to satisfy part of the Consideration, and any Shares as may be issued from time to time, including all dividends paid or payable thereon and stocks and shares, rights, monies and property accruing or offered at any time by way of substitution, redemption, bonus, preference, option, exchange, dividend, distribution, scheme of arrangement or organisation or otherwise the same or in respect thereof

• “Debt” the debt in the total amount of HK$45,388,271.50 and owed by the Vendor to the Company prior to Completion

• “Director(s)” the director(s) of the Company

• “Escrow Agent”

• the escrow agent to be nominated by the Company and appointed jointly by the Vendor and the Company in relation to the holding, deposit and escrow of the Consideration Shares in accordance with the terms and conditions of the Escrow Letter

• “Escrow Letter”

• the escrow letter (in the agreed form) to be executed by the Vendor, the Company and the Escrow Agent in relation to the holding, deposit and escrow of the Consideration Shares and incorporate the relevant terms and conditions as set out in the Settlement Deed

• “Group” the Company and its subsidiaries

• “Hong Kong” the Hong Kong Special Administrative Region of the PRC

– 4 –

DEFINITIONS

• “Independent Board Committee”

• “Independent Financial Adviser” or “New Spring Capital”

• “Independent Shareholders”

• “Independent Third Party(ies)”

• “Issue Price”

• an independent committee of the Board comprising all the independent non-executive Directors to advise the Independent Shareholders in respect of (i) the Settlement Deed and the transactions contemplated thereunder and the grant of the Settlement Specific Mandate to allot and issue the Additional Shares; (ii) the Warrants Subscription Agreement and the transactions contemplated thereunder and the grant of the Warrants Specific Mandate to allot and issue the Subscription Shares; and (iii) the Natural Gas Supply Agreement and the transactions contemplated thereunder

• New Spring Capital Limited, a licensed corporation permitted to carry out type 6 (advising on corporate finance) regulated activity under the SFO, being the independent financial adviser appointed to advise the Independent Board Committee and the Independent Shareholders in respect of (i) the Settlement Deed, and the transactions contemplated thereunder and the grant of the Settlement Specific Mandate to allot and issue the Additional Shares; (ii) the Warrants Subscription Agreement and the transactions contemplated thereunder and the grant of the Warrants Specific Mandate to allot and issue the Subscription Shares; and (iii) the Natural Gas Supply Agreement and the transactions contemplated thereunder

• as to the transactions contemplated under the Settlement Deed, Shareholders other than the Vendor and its associates (including but not limited to Mr. Yeung and Mr. Yang) who are required to abstain from voting at the SGM; as to the transactions contemplated under the Warrants Subscription Agreement, Shareholders other than Dr. Mo Shikang and his associates who are required to abstain from voting at the SGM; as to the transactions contemplated under the Natural Gas Supply Agreement, Shareholders other than Shaanxi Natural Gas and its associates who are required to abstain from voting at the SGM

• person(s) or company(ies) and whose ultimate beneficial owner who/which is/are independent of the Directors, chief executive and substantial shareholders of the Company and its subsidiaries and any of their respective associates as defined in the Listing Rules

• the issue price of HK$0.243 per Consideration Share

– 5 –

DEFINITIONS

• “Last Trading Day”

• 5 April 2013, being the last trading day before the entering into of the Warrants Subscription Agreement

• “Latest Practicable Date” 4 July 2013, being the latest practicable date prior to the printing of this circular for ascertaining certain information for inclusion in this circular

• “Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange

• “Natural Gas” a flammable gaseous fuel and an energy source

• “Natural Gas Supply Agreement” the natural gas supply agreement dated 22 May 2013 and entered into between Xi’an Zhongmin and Shaanxi Natural Gas in relation to the purchase of Natural Gas from Shaanxi Natural Gas by Xi’an Zhongmin

• “Placing Agent” the licensed securities dealer authorized to carry on type 1 (dealing in securities) regulated activity under the SFO as may be nominated by the Company to dispose of such number of Consideration Shares

• “PRC” the People’s Republic of China, which for the purpose of this circular, excluding Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan

• “Profit Guarantee” the guarantee made by the Vendor in favour of the Company that the net profits after tax of the Target Group as shown in the audited consolidated financial statement of the Target Group for the period from the Completion Date to 31 March 2013 should not be less than RMB60,000,000 (equivalent to approximately HK$72,330,000)

• “Release” the deed of release (in the agreed form) to be executed by the Company in favour of the Vendor pursuant to which: (i) the security created by the Share Charge shall be released and discharged; and (ii) the compliance by the Vendor of its obligations under the Agreement in relation to the Profit Guarantee shall be waived by the Company

“Sale Share” one ordinary share of US$1.00 in the issued share capital of the Target Company, representing the entire issued share capital of the Target Company

– 6 –

DEFINITIONS

• “Settlement Completion”

completion of the Settlement Deed

• “Settlement Completion Date”

• the date falling the third Business Day after all Settlement Conditions Precedent have been fulfilled or, as the case may be, waived

• “Settlement Conditions Precedent” the conditions precedent to which Settlement Completion is subject as set out in the sub-section headed “ Settlement Conditions Precedent ” under the section named “ DETAILS OF THE SETTLEMENT DEED AND THE SUPPLEMENTAL SETTLEMENT DEED ” in this circular

• “Settlement Deed”

• the settlement deed dated 8 April 2013 (as supplemented by the Supplemental Settlement Deed dated 16 May 2013) entered into between the Company and the Vendor in relation to various settlement arrangements and release of obligations of the Vendor in relation to the Profit Guarantee under the Agreement

• “Settlement Specific Mandate” a specific mandate to allot, issue or otherwise deal in the additional Shares to be sought from the Independent Shareholders at the SGM to satisfy the allotment and issue of the Additional Shares by the Company to the Vendor pursuant to the Settlement Deed

• “SFC” the Securities and Futures Commission of Hong Kong

• “SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

• “SGM”

the special general meeting of the Company to be convened at the head office of Chinese People Holdings Company Limited, Conference Room, 1st Floor, No. 36 BDA International Business Park, No. 2 Jingyuan North Street, Economic Technological Development Area, Beijing, 100176, China at 1:30 p.m. on 24 July 2013 to consider and, if thought fit, approve, (i) the Settlement Deed, the transactions contemplated thereunder and the grant of the Settlement Specific Mandate to allot and issue the Additional Shares; (ii) the Warrants Subscription Agreement and the transactions contemplated thereunder and the grant of the Warrants Specific Mandate to allot and issue the Subscription Shares; and (iii) the Natural Gas Supply Agreement and the transactions contemplated thereunder

– 7 –

DEFINITIONS

• “Shaanxi Natural Gas”

• 陝西省天然氣股份有限公司 (Shaanxi Provincial Natural Gas Co., Ltd.), a company established in the PRC with limited liability, the shares of which are listed on the Shenzhen Stock Exchange

• “Share(s)” existing ordinary share(s) of HK$0.07 each in the share capital of the Company

• “Share Options” options which confer the holder(s) of which the right to subscribe for the Shares at the exercise price (subject to adjustment in the case of rights or bonus issues, or other similar changes in the issued share capital of the Company) determined on the grant date for a fixed period of time

• “Share Charge” the share charge dated the Completion Date and executed by the Vendor in favour of the Company pursuant to which the Vendor had created a first fixed charge over the 297,654,321 Consideration Shares registered in the name of and beneficially owned by the Vendor, in favour of the Company

• “Shareholder(s)” holder(s) of the Shares

• “Shenzhen Cai Cai Le” 深圳彩彩樂電子娛樂科技開發有限公司 (Shenzhen Cai Cai Le Electronic Entertainment Technology Development Limited[*] ), a company established in the PRC with limited liability

• “Shenzhen Jin Cai” 深圳市永恒進彩科技開發有限公司 (Shenzhen Yongheng Jin Cai Technology Development Co., Ltd.[*] ), a company established in the PRC with limited liability

• “Shenzhen Le Cai” 深圳市永恒樂彩科技開發有限公司 (Shenzhen Yongheng Le Cai Technology Development Co., Limited[*] ), a company established in the PRC with limited liability

• “Stock Exchange” The Stock Exchange of Hong Kong Limited

• “Subscriber” Ping Da Development Limited, a company incorporated in the British Virgin Islands with limited liability and is wholly-owned by Dr. Mo Shikang, an executive Director

• “Subscription Shares” up to 1,135,000,000 new Shares (subject to adjustment) to be allotted and issued by the Company upon the exercise by the holder(s) of the Warrants of the subscription rights attaching to the Warrants

– 8 –

DEFINITIONS

• “Subscription Price” HK$0.205 (subject to adjustment), being the subscription price per Subscription Share at which the holder of each Warrant may subscribe for the Subscription Shares

• “Supplemental Settlement Deed” the supplemental settlement deed dated 16 May 2013 entered into between the Company and the Vendor to amend certain terms of the Settlement Deed

• “Takeovers Code” The Code on Takeovers and Mergers and Share Repurchases

• “Target Company” Grand Destiny Group Limited, a company incorporated in the British Virgin Islands with limited liability

• “Target Group” together the Target Company, Zhongmin Yongheng, Shenzhen Le Cai and Shenzhen Jin Cai

• “Vendor” Yongheng Development Corporation Limited, a company incorporated in Hong Kong with limited liability

• “Vendor’s Warranties” the representations and warranties given by the Vendor in relation to the Settlement Deed

• “Warrant(s)” the 1,135,000,000 unlisted warrants conferring rights to subscribe up to HK$232,675,000 for Shares, on the basis of an initial subscription price of HK$0.205 per Subscription Share (subject to adjustment), during a period of 36 months commencing from the date of issue in accordance with the terms of the Warrants Subscription Agreement

• “Warrants Completion” completion of the Warrants Subscription Agreement

• “Warrants Completion Date”

• within three Business Days following the date on which the Warrants Conditions Precedent are fulfilled or such later date as the Subscriber and the Company may agree

• “Warrants Conditions Precedent”

• the conditions precedent to which Warrants Completion is subject as set out in the sub-section headed “ Warrants Conditions Precedent ” under the section named “ DETAILS OF THE WARRANTS SUBSCRIPTION AGREEMENT ” in this circular

• “Warrants Issue Price”

• HK$0.01, being the warrants issue price per Warrant

– 9 –

DEFINITIONS

• “Warrants Specific Mandate”

• a specific mandate to allot, issue or otherwise deal in additional Shares to be sought from the Independent Shareholders at the SGM to satisfy the allotment and issue of the Subscription Shares upon the exercise of the subscription rights attaching to the Warrants after Warrants Completion

• “Warrants Subscription”

• the subscription of 1,135,000,000 Warrants pursuant to the terms of the Warrants Subscription Agreement

• “Warrants Subscription Agreement” the conditional warrants subscription agreement dated 8 April 2013 entered into between the Company and the Subscriber in relation to the Warrants Subscription

• “Xi’an Yanliang Government” 西安市閻良區人民政府 (Xi’an Yanliang District People’s Government[*] )

• “Xi’an Zhongmin” 西安中民燃氣有限公司 (Xi’an Zhongmin Gas Co., Ltd.[*] ), a company established in the PRC with limited liability and principally engaged in sales and distribution of gas fuel, design of gas fuel pipeline and related maintenance in Xi’an city, Shaanxi Province, the PRC and 51% owned subsidiary of the Company

• “Zhongmin Yongheng” 北京中民永恒投資諮詢有限公司 (Beijing Zhongmin Yongheng Investment Consultant Co., Ltd.[*] ), a company established in the PRC with limited liability

• “HK$” Hong Kong dollars, the lawful currency of Hong Kong

• “m[3] ” cubic metre(s)

• “RMB” Renminbi, the lawful currency of the PRC

• “%” per cent.

• the English translations of Chinese names or words in this circular, where indicated, are included for information purpose only, and should not be regarded as the official English translation of such Chinese names or words.

For the purpose of this circular, unless otherwise indicated, conversion of RMB into HK$ is calculated at the historical exchange rate of RMB1.0000 to HK$1.2055. This exchange rate is for illustration purpose only and does not constitute a representation that any amounts have been, could have been, or may be exchanged at this or any other rate at all.

– 10 –

LETTER FROM THE BOARD

CHINESE PEOPLE HOLDINGS COMPANY LIMITED 中民控股有限公司

(Incorporated in Bermuda with limited liability)

(Stock Code: 681)

Executive Directors:

Mr. Xu Ruixin (Honourable Chairman)

Mr. Yang Songsheng (Chairman)

Dr. Mo Shikang (Deputy Chairman)

Mr. Zhang Hesheng (Deputy Chairman)

Registered office: Canon’s Court, 22 Victoria Street, Hamilton HM 12, Bermuda

Mr. Yeung Paak Ching (Co-managing Director)

Mr. Jin Song (Co-managing Director)

Mr. Chu Kin Wang Peleus

Independent non-executive Directors:

Dr. Liu Junmin Mr. Tan Qinglian

Principal place of business in Hong Kong: Unit 1101, 11th Floor, Tung Ning Building, 2 Hillier Street, Central, Hong Kong

Mr. Li Jialin

Mr. Sin Ka Man

8 July 2013

To the Shareholders

Dear Sir/Madam,

(1) CONNECTED TRANSACTIONS IN RELATION TO THE ENTERING INTO OF THE SETTLEMENT DEED,

(2) CONNECTED TRANSACTIONS IN RELATION TO WARRANTS SUBSCRIPTION, AND

(3) CONTINUING CONNECTED TRANSACTIONS IN RELATION TO THE NATURAL GAS SUPPLY AGREEMENT

INTRODUCTION

Reference is made to (i) the announcement of the Company dated 16 May 2013 in relation to the Settlement Deed and the Warrants Subscription; and (ii) the announcement of the Company dated 23 May 2013 in relation to the Natural Gas Supply Agreement.

– 11 –

LETTER FROM THE BOARD

On 8 April 2013, the Company and the Vendor entered into the Settlement Deed (as supplemented by the Supplemental Settlement Deed on 16 May 2013) pursuant to which, among others, (i) the security created by the Share Charge shall be discharged and released in the manner provided in the Release; and (ii) the Company shall waive the compliance by the Vendor of its obligations under the Agreement in relation to the Profit Guarantee in the manner provided in the Release; (iii) the Vendor and the Company shall jointly appoint the Escrow Agent to hold and deal with the Consideration Shares in accordance with the terms of the Escrow Letter; (iv) the Vendor shall deposit the Consideration Shares and other related title and other documents as provided in the Escrow Letter with the Escrow Agent immediately after the signing of the Release and the Escrow Letter; and (v) the Consideration Shares shall be held and dealt with by the Escrow Agent in accordance with the settlement arrangement as stipulated in the Settlement Deed.

On 8 April 2013, the Company and the Subscriber entered into the Warrants Subscription Agreement pursuant to which the Company has conditionally agreed to issue and allot to the Subscriber, and the Subscriber has conditionally agreed to subscribe for, an aggregate of 1,135,000,000 Warrants conferring the rights to subscribe for an aggregate of 1,135,000,000 Subscription Shares at the initial Subscription Price of HK$0.205 per Subscription Share (subject to adjustment). The Warrants Issue Price is HK$0.01 per Warrant and the gross proceeds from the Warrants Subscription of HK$11,350,000 will be payable by the Subscriber in cash upon Warrants Completion.

On 22 May 2013, Xi’an Zhongmin entered into the Natural Gas Supply Agreement with Shaanxi Natural Gas, pursuant to which Xi’an Zhongmin has agreed to purchase the Natural Gas from Shaanxi Natural Gas for a term commencing from 30 June 2013 until 31 December 2013. Having considered that (i) the Natural Gas Supply Agreement is conditional upon approval of the Independent Shareholders at the SGM; and (ii) the SGM would not be able to be held on or before 30 June 2013, on 25 June 2013, Xi’an Zhongmin and Shaanxi Natural Gas mutually agreed in writing that the purchase of the Natural Gas from Shaanxi Natural Gas contemplated under the Natural Gas Supply Agreement may commence at a later date upon obtaining the approval from the Independent Shareholders at the SGM.

The purpose of this circular is to provide you with the information, among other things, (i) further details in respect of the Settlement Deed, the Warrants Subscription Agreement and the Natural Gas Supply Agreement; (ii) a letter from the Independent Board Committee to the Independent Shareholders in respect of the terms of the Settlement Deed, the Warrants Subscription Agreement and the Natural Gas Supply Agreement and the transactions contemplated thereunder; (iii) a letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the terms of the Settlement Deed, the Warrants Subscription Agreement and the Natural Gas Supply Agreement and the transactions contemplated thereunder; and (iv) the notice of the SGM, and other information as required under the Listing Rules.

– 12 –

LETTER FROM THE BOARD

(1) THE ENTERING INTO OF THE SETTLEMENT DEED

BACKGROUND OF THE SETTLEMENT DEED

Reference is made to the 2011 Announcement and the 2011 Circular in relation to, among other things, the Acquisition and the Profit Guarantee.

On 13 June 2011, the Company, as the purchaser, entered into the Agreement with the Vendor, as the vendor, pursuant to which the Company has conditionally agreed to purchase, and the Vendor has conditionally agreed to sell, the Sale Share at the Consideration of HK$465,226,560, which shall be satisfied by the Company as to (i) HK$419,838,288.50 by the Company to allot and issue the Consideration Shares to the Vendor credited as fully paid at the Issue Price upon Completion; and (ii) HK$45,388,271.50 by setting off against the Debt. The Consideration was determined through arm’s length negotiations between the Vendor and the Company and on a commercial basis with reference to (i) the aggregate combined net asset value of the Target Group as at 31 March 2011 of HK$141,336,000; and (ii) the preliminary valuation of Shenzhen Le Cai of RMB645,000,000 (equivalent to approximately HK$777,548,000) performed by Asset Appraisal Limited, an independent valuer, on 31 May 2011. Compared to the fair value of 60% equity interests in Shenzhen Le Cai in the amount of RMB387,000,000 (equivalent to approximately HK$466,529,000) as at 31 May 2011, as appraised by such independent valuer, using the income approach with discounted cashflow modeling, the Consideration represented a discount of approximately 0.28% to the appraised value of 60% equity interests in Shenzhen Le Cai.

In addition, the Vendor guaranteed to the Company that the net profits after tax of the Target Group as shown in the audited consolidated financial statement of the Target Group for the period from the Completion Date to 31 March 2013 should not be less than RMB60,000,000 (equivalent to approximately HK$72,330,000) (i.e. the Profit Guarantee) and will compensate the Company for any shortfall between the Profit Guarantee and the actual profits after tax as shown in the audited consolidated financial statement of the Target Group. As a security for the performance of the Profit Guarantee by the Vendor, upon Completion, the Company and the Vendor agreed to charge the 297,654,321 Consideration Shares (representing approximately 5.12% of the entire issued share capital of the Company as at the Latest Practicable Date) held by the Vendor in favour of the Company (i.e. the Share Charge). Such Share Charge shall be released (i) upon the fulfillment of the Profit Guarantee; or (ii) in the event that the Target Group has successfully applied for a new genre of game or developed a new market during the period of Profit Guarantee and a valuation report (in form and substance satisfactory to the Company) prepared by an independent valuer appointed by the Company in relation to the value of such new genre of game or new market of not less than RMB193,000,000 (equivalent to approximately HK$232,662,000). Details of the Acquisition were set out in the 2011 Circular. The Agreement and the transactions contemplated thereunder were approved by the then independent Shareholders at the special general meeting of the Company held on 29 August 2011.

– 13 –

LETTER FROM THE BOARD

Completion took place on 1 September 2011 and the 1,727,729,582 Consideration Shares (representing approximately 29.74% of the entire issued share capital of the Company as at the Latest Practicable Date) were duly allotted and issued by the Company to the Vendor as part of the Consideration on 1 September 2011. Accordingly, the Vendor became a substantial Shareholder and a connected person of the Company pursuant to Rule 14A.11 of the Listing Rules. The corporate structure of the Target Group as at the Completion Date was as follow:

==> picture [401 x 274] intentionally omitted <==

----- Start of picture text -----

Company
100%
Target Company
100% 100%
Zhongmin Yongheng Beijing Civigas
60% 40%
Shenzhen Le Cai
100%
Shenzhen Jin Cai
the Target Group
----- End of picture text -----

The Target Group is principally engaged in lottery agency business in the PRC, the major assets of which is Shenzhen Le Cai, a company invested and established in Shenzhen, the PRC. Shenzhen Le Cai is exclusively engaged in the lottery related businesses, in particular, the commissioned sales of Keno Games Lottery (快樂彩) and China Welfare Lotteries (including but not limited to “Shenzhen Feng Cai”(深圳風采), “Shuang Se Qiu”(雙色球), “Qi Le Cai”(七 樂彩) and “3D” etc.). As at the Latest Practicable Date, the corporate structure of the Target Group was set out as below:

– 14 –

LETTER FROM THE BOARD

==> picture [298 x 221] intentionally omitted <==

----- Start of picture text -----

Company
100%
Target Company
100%
Zhongmin Yongheng
45%
100%
Shenzhen Le Cai
100%
55%
Shenzhen Jin Cai Shenzhen Cai Cai Le (Note)
----- End of picture text -----

Note: As at the Latest Practicable Date, Shenzhen Cai Cai Le was inactive.

Based on the unaudited consolidated management accounts of the Target Group made up to 31 March 2013, the net loss after tax of the Target Group was approximately RMB68.91 million (equivalent to approximately HK$85.17 million, calculated at the exchange rate of RMB1.0000 to HK$1.2359 as at 31 March 2013), which was mainly attributable to the amortisation charge from the intangible assets – exclusive rights of operation of lottery sales of approximately RMB45.35 million (equivalent to approximately HK$56.05 million, calculated at the exchange rate of RMB1.0000 to HK$1.2359 as at 31 March 2013). Accordingly, the Profit Guarantee would not be achieved. Also, no valuation report in relation to the new genre of game and new market that have been granted to, or secured or developed by, the Target Group since the Completion Date has been prepared and issued as at the date of the Settlement Deed. Further, according to the estimation of the management of the Company based on the financial and other information currently made available, there would be a substantial impairment on the intangibles of the Company in the Target Group in the consolidated financial statements of the Group for the year ended 31 March 2013.

In view of the foregoing, the Company and the Vendor have negotiated in good faith towards each other with a view to settling the matter amicably. As a result of such negotiation, on 8 April 2013, the Company and the Vendor entered into the Settlement Deed (as supplemented by the Supplemental Settlement Deed dated 16 May 2013), details of which are set out below.

DETAILS OF THE SETTLEMENT DEED AND THE SUPPLEMENTAL SETTLEMENT DEED

Date: 8 April 2013, date of the Settlement Deed

16 May 2013, date of the Supplemental Settlement Deed

– 15 –

LETTER FROM THE BOARD

• Parties: (i) the Vendor, as the vendor under the Acquisition; and

• (ii) the Company, as the purchaser under the Acquisition

The Vendor is an investment holding company duly incorporated in Hong Kong with limited liability. As at the Latest Practicable Date, the Vendor was interested in 1,727,729,582 Shares, representing approximately 29.74% of the entire issued share capital of the Company, and was, thus, a connected person of the Company. As at the Latest Practicable Date, Messrs. Yang Songsheng (“ Mr. Yang ”) and Yeung Paak Ching (“ Mr. Yeung ”), being the directors and shareholders of the Vendor and brothers, held 7,500,000 Share Options and 5,000,000 Share Options, respectively. Mr. Yeung also held 600,000 Shares as at the Latest Practicable Date.

Release:

Each of the Vendor and the Company agreed with each other that, among others: (i) the security created by the Share Charge shall be discharged and released in the manner provided in the Release; and (ii) the Company shall waive the compliance by the Vendor of its obligations under the Agreement in relation to the Profit Guarantee in the manner provided in the Release.

Appointment of the Escrow Agent:

Each of the Vendor and the Company agreed with each other that, among others, it shall jointly appoint the Escrow Agent to hold and deal with the Consideration Shares in accordance with the terms of the Escrow Letter.

The Vendor represented, warranted and undertook in favour of the Company that it shall deposit the Consideration Shares and other related title and other documents as provided in the Escrow Letter with the Escrow Agent immediately after the signing of the Release and the Escrow Letter.

The Consideration Shares will remain beneficially owned by the Vendor, but the Vendor shall refrain from exercising any of the voting rights attached to the Consideration Shares, for so long as the Consideration Shares are held in escrow by the Escrow Agent (including during the period when the Vendor and the Company have jointly procured the Placing Agent to dispose of the Consideration Shares held in escrow by the Escrow Agent but before the Consideration Shares have actually been sold and transferred to the placee(s) to be procured by the Placing Agent or, if remain unsold after the 2014 Placing Period or the 2015 Placing Period or the 2016 Placing Period (as defined below), distributed to the then Shareholders (other than the Vendor) on a pro-rata basis). The beneficial ownership of the Consideration Shares shall change only until they are either disposed of by the Placing Agent or, if remain unsold after the 2014 Placing Period or the 2015 Placing Period or the 2016 Placing Period (as defined below), distributed to the then Shareholders (other than the Vendor) on a pro-rata basis, and accordingly, shall transfer from the Vendor to the placee(s) or, as the case may be, the then Shareholders (other than the Vendor).

– 16 –

LETTER FROM THE BOARD

Settlement arrangement:

Pursuant to the Settlement Deed, the Consideration Shares shall be held and dealt with by the Escrow Agent in accordance with the following terms:

1. THE 2014 VALUATION

2. (a) The Vendor and the Company shall jointly appoint an independent valuer as nominated by the Company to conduct the 2014 Valuation after 31 March 2014, and procure that the 2014 Valuation Report shall be prepared and delivered to the Vendor and the Company on or before 30 June 2014. Within 14 Business Days following the delivery by such valuer to the Vendor and the Company of the 2014 Valuation Report and having duly taken into account the opinion stated in the certification obtained under item 5 below, the Company shall issue to and serve on, the Vendor a written certificate (the “ 2014 Settlement Certificate ”): (i) showing the calculation and amount of the 2013/14 Valuation Difference; and (ii) certifying the retention or release of the Consideration Shares in accordance with item 1(b) below, and in the event of any release under item 1(b) below, the number of the Consideration Shares to be released.

3. (b) In the event that the 2013/14 Valuation Difference shall show a positive sum, the Vendor and the Company shall jointly procure the Escrow Agent not to release any of the Consideration Shares held in escrow by the Escrow Agent. In the event that the 2013/14 Valuation Difference shall be zero or show a negative sum, the Vendor and the Company shall jointly procure the Placing Agent, on the best effort basis, to dispose of 1,727,729,582 Consideration Shares within six months after the date of the 2014 Settlement Certificate (the “ 2014 Placing Period ”) at the then best price reasonably obtainable by the Placing Agent. The Escrow Agent shall then release and transfer such number of Consideration Shares successfully placed by the Placing Agent which are held in the escrow of the Escrow Agent to the placee(s). The Placing Agent shall pay the net proceeds from such sale to the Company promptly after completion of such sale. Should the Placing Agent fail to place all of the 1,727,729,582 Consideration Shares during the 2014 Placing Period, the Escrow Agent shall release and transfer the remaining Consideration Shares which are held in the escrow of the Escrow Agent to Shareholders whose names appear on the register of members of the Company at the close of business on the last day of the 2014 Placing Period (other than the Vendor) on a pro-rata basis. In the event that the Consideration Shares are released pursuant to this item 1(b), the provisions of items 2 and 3 below shall, with effect from the date of such release, cease to have effect.

– 17 –

LETTER FROM THE BOARD

2. THE 2015 VALUATION

• (a) The Vendor and the Company shall jointly appoint an independent valuer as nominated by the Company to conduct the 2015 Valuation after 31 March 2015, and procure that the 2015 Valuation Report shall be prepared and delivered to the Vendor and the Company on or before 30 June 2015. Within 14 Business Days following the delivery by such valuer to the Vendor and the Company of the 2015 Valuation Report and having duly taken into account the opinion stated in the certification obtained under item 5 below, the Company shall issue to and serve on, the Vendor a written certificate (the “ 2015 Settlement Certificate ”): (i) showing the calculation and amount of the 2014/15 Valuation Difference; and (ii) certifying the retention or release of the Consideration Shares in accordance with item 2(b) below and in the event of any release under item 2(b) below, the number of the Consideration Shares to be released.

• (b) In the event that the 2014/15 Valuation Difference shall show a positive sum, the Vendor and the Company shall jointly procure the Escrow Agent not to release any of the Consideration Shares held in escrow by the Escrow Agent. In the event that the 2014/15 Valuation Difference shall be zero or show a negative sum, the Vendor and the Company shall jointly procure the Placing Agent, on the best effort basis, to dispose of 1,727,729,582 Consideration Shares within six months after the date of the 2015 Settlement Certificate (the “ 2015 Placing Period ”) at the then best price reasonably obtainable by the Placing Agent. The Escrow Agent shall then release and transfer such number of Consideration Shares successfully placed by the Placing Agent which are held in the escrow of the Escrow Agent to the placee(s). The Placing Agent shall pay the net proceeds from such sale to the Company promptly after completion of such sale. Should the Placing Agent fail to place all of the 1,727,729,582 Consideration Shares during the 2015 Placing Period, the Escrow Agent shall release and transfer the remaining Consideration Shares which are held in the escrow of the Escrow Agent to Shareholders whose names appear on the register of members of the Company at the close of business on the last day of the 2015 Placing Period (other than the Vendor) on a pro-rata basis. In the event that the Consideration Shares are released pursuant to this item 2(b), the provisions of item 3 below shall, with effect from the date of such release, cease to have effect.

– 18 –

LETTER FROM THE BOARD

1. THE 2016 VALUATION

2. (a) The Vendor and the Company shall jointly appoint an independent valuer as nominated by the Company to conduct the 2016 Valuation after 31 March 2016, and procure that the 2016 Valuation Report shall be prepared and delivered to the Vendor and the Company on or before 30 June 2016. Within 14 Business Days following the delivery by such valuer to the Vendor and the Company of the 2016 Valuation Report and having duly taken into account the opinion stated in the certification obtained under item 5 below, the Company shall issue to and serve on, the Vendor a written certificate (the “ 2016 Settlement Certificate ”): (i) showing the calculation and amount of the 2013/16 Valuation Difference; (ii) N1 (as defined in item 3(b) below), the number of the Consideration Shares to be released to the Vendor, as appropriate; and (iii) N2 (as defined in item 3(c) below), the number of the Additional Shares to be allotted and issued by the Company to the Vendor and the 2016 Issue Price, as appropriate.

3. (b) In the event that: (i) the 2013/16 Valuation Difference shall show a positive sum; and (ii) the product of 1.2055, 0.6 and the 2013/16 Valuation Difference shall not be more than HK$419,838,288.5 (being part of the Consideration paid by the Company to the Vendor in relation to the Acquisition by way of allotment and issue of the Consideration Shares), the Vendor and the Company shall jointly procure the Escrow Agent to release to the Vendor within five (5) Business Days following the date of issue by the Company of the 2016 Settlement Certificate such number of the Consideration Shares which are held in escrow under the terms of the Escrow Letter and calculated in accordance with the following formula:

==> picture [146 x 28] intentionally omitted <==

where

• N1 = such number of the Consideration Shares to be released by the Escrow Agent from escrow under the Escrow Letter to the Vendor pursuant to this item 3(b) provided where N1 is not a whole number, it shall be rounded down to the nearest whole number

• A = the 2013/16 Valuation Difference, expressed in RMB

• B = 1.2055, being the exchange rate adopted in the 2011 Circular

• C = the Issue Price

– 19 –

LETTER FROM THE BOARD

• Note: The Consideration Shares were issued to the Vendor in 2011 as part of the Consideration for the sale of the Sale Share by the Vendor to the Group, where the then principal assets of the Target Company includes 60% equity interests of Shenzhen Le Cai. For the calculation of such number of the Consideration Shares to be released by the Escrow Agent from escrow under the Escrow Letter to the Vendor (i.e. N1), the 2013/16 Valuation Difference (i.e. A) represents the difference between 2016 Valuation and 2013 Valuation on the entire value of the Target Group and therefore the multiple of 0.6 is incorporated to reflect the 60% equity interests of Shenzhen Le Cai (which is the major asset of the Target Group) acquired by the Company in 2011.

In addition, the Vendor and the Company shall jointly procure the Placing Agent, on the best effort basis, to dispose of such number of Consideration Shares (being 1,727,729,582 Consideration Shares less N1) within six months after the date of the 2016 Settlement Certificate (the “ 2016 Placing Period ”) at the then best price reasonably obtainable by the Placing Agent. The Escrow Agent shall then release and transfer such number of Consideration Shares successfully placed by the Placing Agent which are held in the escrow of the Escrow Agent to the placee(s). The Placing Agent shall pay the net proceeds from such sale to the Company promptly after completion of such sale. Should the Placing Agent fail to place such number of Consideration Shares (being 1,727,729,582 Consideration Shares less N1) during the 2016 Placing Period, the Escrow Agent shall release and transfer the remaining Consideration Shares which are held in the escrow of the Escrow Agent to Shareholders whose names appear on the register of members of the Company at the close of business on the last day of the 2016 Placing Period (other than the Vendor) on a pro-rata basis.

• (c) In the event that: (i) the 2013/16 Valuation Difference shall show a positive sum; and (ii) the product of 1.2055, 0.6 and the 2013/16 Valuation Difference shall be more than HK$419,838,288.5 (being part of the Consideration paid by the Company to the Vendor in relation to the Acquisition by way of allotment and issue of the Consideration Shares); (a) the Vendor and the Company shall jointly procure the Escrow Agent to release to the Vendor all of the 1,727,729,582 Consideration Shares which are held in escrow under the terms of the Escrow Letter; and (b) the Company shall, within five (5) Business Days following the date of issue by the Company of the 2016 Settlement Certificate, allot and issue such number of new Shares to the Vendor credited as fully paid at the 2016 Issue Price as calculated in accordance with the following formula:

==> picture [84 x 10] intentionally omitted <==

==> picture [22 x 12] intentionally omitted <==

==> picture [6 x 8] intentionally omitted <==

– 20 –

LETTER FROM THE BOARD

where

• N2 = such number of the Additional Shares to be allotted and issued by the Company to the Vendor pursuant to this item 3(c) provided that: (i) if immediately after the allotment and issue of such Additional Shares, the aggregate of the Consideration Shares, the Additional Shares and any issued Shares held by the Vendor and parties acting in concert with it as at the date of such allotment and issue shall exceed 29.74% of the entire issued share capital of the Company as enlarged by the allotment and issue of such Additional Shares: (a) the Company shall be under no obligation to allot and issue such Additional Shares to the Vendor to the extent and only to the extent that the aggregate of the Consideration Shares, the Additional Shares and the issued Shares held by the Vendor and parties acting in concert with it as at such date, shall exceed 29.74% of the issued share capital of the Company as enlarged by the allotment and issue of such Additional Shares; and (b) in such event, N2 shall be equivalent to such number of new Shares so that immediately after such allotment and issue of such Additional Shares, the aggregate of the Consideration Shares, the Additional Shares and the issued Shares held by the Vendor and parties acting in concert with it as at such date shall be equivalent to 29.74% of the issued share capital of the Company as enlarged by the allotment and issue of such Additional Shares; and (ii) in the event that N2 is not a whole number, it shall be rounded down to the nearest whole number

• A = the 2013/16 Valuation Difference, expressed in RMB

• B = 1.2055, being the exchange rate adopted in the 2011 Circular

• E = HK$419,838,288.5, being part of the Consideration paid by the Company to the Vendor in relation to the Acquisition by way of allotment and issue of the Consideration Shares

• F = the 2016 Issue Price

• Note: The Consideration Shares were issued to the Vendor in 2011 as part of the Consideration for the sale of the Sale Share by the Vendor to the Group, where the then principal assets of the Target Company includes 60% equity interests of Shenzhen Le Cai. For the calculation of such number of Additional Shares to be allotted and issued by the Company to the Vendor (i.e. N2), the 2013/16 Valuation Difference (i.e. A) represents the difference between 2016 Valuation and 2013 V aluation on the entire value of the Target Group and therefore the multiple of 0.6 is incorporated to reflect the 60% equity interests of Shenzhen Le Cai (which is the major asset of the Target Group) acquired by the Company in 2011.

– 21 –

LETTER FROM THE BOARD

• (d) In the event that the 2013/16 Valuation Difference shall be zero or show a negative sum, the Vendor and the Company shall jointly procure the Placing Agent, on the best effort basis, to dispose of 1,727,729,582 Consideration Shares within the 2016 Placing Period at the then best price reasonably obtainable by the Placing Agent. The Escrow Agent shall then release and transfer such number of Consideration Shares successfully placed by the Placing Agent which are held in the escrow of the Escrow Agent to the placee(s). The Placing Agent shall pay the net proceeds from such sale to the Company promptly after completion of such sale. Should the Placing Agent fail to place all of the 1,727,729,582 Consideration Shares during the 2016 Placing Period, the Escrow Agent shall release and transfer the remaining Consideration Shares which are held in the escrow of the Escrow Agent to Shareholders whose names appear on the register of members of the Company at the close of business on the last day of the 2016 Placing Period (other than the Vendor) on a pro-rata basis.

• The Vendor represented, warranted and undertook in favour of the Company that for so long as the Consideration Shares are held in escrow by the Escrow Agent, it shall unconditionally and irrevocably refrain from exercising any of the voting rights attached to such Consideration Shares.

• Notwithstanding any other provisions in the Settlement Deed, in any circumstances where the Company shall consider that the number of the Consideration Shares to be released, or the number of the Additional Shares to be allotted and issued should be calculated on a different basis to that provided in the Settlement Deed or that an adjustment to the number of the Consideration Shares to be released, or the number of the Additional Shares to be allotted and issued should be made, the Company may appoint either an approved merchant bank or the Auditors to consider the above scenarios on the basis that any adjustment to be made would not or might not fairly and appropriately reflect the relative interests of the persons affected thereby and, if such approved merchant bank or the Auditors shall consider that an adjustment shall be made, it shall be adjusted in such manner as shall be certified by such approved merchant bank or the Auditors (as the case may be) to be in its opinion appropriate. The Company shall procure that any certification by the approved merchant bank or the Auditors under this item 5 shall be completed before the issue of the 2014 Settlement Certificate, the 2015 Settlement Certificate or, as appropriate, the 2016 Settlement Certificate.

– 22 –

LETTER FROM THE BOARD

The following basis, assumptions and methodology will be consistently applied to all of the 2013 Valuation, 2014 Valuation, 2015 Valuation and 2016 Valuation.

The relevant valuation will be arrived at on the basis of fair value using a discounted cashflow methodology:

• i. there will be no major change in the existing political, legal and economic conditions in which the Target Group is being operated;

• ii. save for those proposed changes on taxation policies announced by the Tax Bureau, there will be no major change in the current taxation law and tax rates as prevailing and that all applicable laws and regulations on taxation will be complied with by the Target Group;

• iii. the interest rates and exchange rates will not differ materially from those presently prevailing;

• iv. the availability of finance will not be a constraint on the forecast growth of the Target Group operations in accordance with the business plans and the projection;

• v. the Target Group shall have uninterrupted rights to operate its existing business during the unexpired term of its authorised enterprise operating period;

• vi. the production facilities, systems and the technology utilised by the Target Group in carrying out its existing businesses do not infringe any relevant regulations and law;

• vii. the Target Group has obtained all necessary business licenses to carry out its business and its ancillary services and shall be entitled to renew those business licenses for further terms of not less than 15 years expiring in 2031 subject to no legal impediment and costs of substantial amount;

• viii. except those stated in the financial statements of the Target Group, the Target Group is free and clear of any lien, charge, option, pre-emption rights or other encumbrances or rights whatsoever that would adversely affect its Business Enterprise Value;

• ix. the Target Group shall secure and retain competent management, key personnel, marketing and technical staff to carry out and support their business operations;

• x. the estimated fair value does not include consideration of any extraordinary financing or income guarantees, special tax considerations or any other atypical benefits which may influence the ordinary Business Enterprise Value of the Target Group;

– 23 –

LETTER FROM THE BOARD

• xi. the Target Group should have the license to sell lottery tickets or with rights to deal with lottery business;

• xii. the Target Group will conduct the lottery business and without any impediment to operate the business; and

• xiii. there will be no material changes in the Company’s business strategy and Government lottery policies.

In the event of any material changes in any of the above major assumptions, the assumptions may be amended as appropriate, based on circumstances at the time of the respective valuations, by the independent valuer and the valuations may be affected. However, to the best of the Directors’ knowledge, information and belief and having made all reasonable enquiries, the Directors consider that there is no difficulty to apply these major assumptions to the 2013 Valuation and also there is no foreseeable difficulty to consistently apply these major assumptions to any of the 2014 Valuation, the 2015 Valuation and the 2016 Valuation.

The key concept underlying the Settlement Deed is that the performance of the Target Group shall achieve a certain satisfactory level in 2016 in order for the Company and the Vendor to determine how many Consideration Shares are to be recovered by the Company and how many are to be released back to the Vendor. As such, the Company could have simply set a target for the 2016 Valuation (without comparing it to any valuation in any other year) in order for the mechanism to work just as it is currently contemplated. However, the Directors consider that merely considering the 2016 Valuation in the new mechanism may not be sufficient. Instead, the Directors consider that it is in the interest of the Company for the performance of the Target Group to start to improve from now on year by year up to at least 2016. In this connection, the Company needs to first come up with a present objective indicator reflecting the current performance of the Target Group. Therefore, the 2013 Valuation is chosen as such objective indicator and is agreed to be used by the parties to the Settlement Deed as a basis of comparison.

The 2013 Valuation, 2014 Valuation, 2015 Valuation and 2016 Valuation are valuations of the Target Group, which includes the Target Company, Zhongmin Yongheng, Shenzhen Le Cai and Shenzhen Jin Cai, while the valuation done in 2011 was valuation of Shenzhen Le Cai only. Since 2011 and up to the Latest Practicable Date, the Target Company, Zhongmin Yongheng and Shenzhen Jin Cai have not had any material business. In addition, Shenzhen Le Cai has commenced its lottery business in Guizhou Province since May 2013, the performance forecast of which will be included in the 2013 Valuation, 2014 Valuation, 2015 Valuation and 2016 Valuation but not the valuation done in 2011 given that the business in Guizhou was not planned at the time in 2011. Save as the aforesaid, there is essentially no difference in the valuation subject between the 2013 valuation/2014 Valuation/2015 Valuation/2016 Valuation and the valuation done in 2011. Further, the Valuer confirmed that the valuation methodology basis and assumptions of the 2013 Valuation/2014 Valuation/2015 Valuation/2016 Valuation will be consistent with those used in the valuation conducted for the Agreement in 2011. The Directors consider that such consistent valuation subject and approach are fair and reasonable.

– 24 –

LETTER FROM THE BOARD

Without prejudice to other applicable Listing Rule requirements, the Company will promptly inform the Shareholders by way of announcement of the results of the release and/or placing of Consideration Shares and/or the issue and allotment of Additional Shares according to the 2014 Settlement Certificate, 2015 Settlement Certificate and 2016 Settlement Certificate, respectively.

Settlement Conditions Precedent:

Settlement Completion shall be conditional upon:

• (a) all necessary governmental and other consents and approvals required to be obtained on the part of the Vendor in respect of the Settlement Deed and the transactions contemplated thereunder having been obtained;

• (b) all necessary governmental and other consents and approvals required to be obtained on the part of the Company in respect of the Settlement Deed and the transactions contemplated thereunder having been obtained;

• (c) the passing by the Independent Shareholders at the SGM to be convened and held in accordance with the requirements of the Listing Rules, of resolutions to approve the Settlement Deed and the transactions contemplated thereunder, including but not limited to the Settlement Specific Mandate for the allotment and issue of the Additional Shares;

• (d) the Vendor’s Warranties remaining true and accurate in all material respects;

• (e) the Listing Committee of the Stock Exchange granting the listing of and permission to deal in the Additional Shares;

• (f) (if applicable) the approval of the Bermuda Monetary Authority in respect of the allotment and issue of the Additional Shares by the Company;

• (g) the obtaining of a valuation report (in form and substance satisfactory to the Company) in relation to the 2013 Valuation from an independent valuer appointed by the Company;

• (h) the issue of a circular by the Company in relation to the entering of the Settlement Deed and the transactions contemplated thereunder as required under the Listing Rules; and

• (i) the Company’s Warranties remaining true and accurate in all material respects.

– 25 –

LETTER FROM THE BOARD

The Vendor shall use its reasonable endeavours to procure satisfaction of the conditions (a) and (d). In particular, the Vendor shall procure that all information and documents relating to the Vendor required pursuant to the Listing Rules and other applicable rules, codes and regulations whether in connection with the preparation of all circulars, reports, documents, independent advice or otherwise are duly given promptly to the Company, the Stock Exchange, the SFC and other relevant regulatory authorities. The Company shall use its reasonable endeavours to procure satisfaction of the conditions (b), (c), (e), (f), (g), (h) and (i). The Company may waive in whole or in part the condition (d). The Vendor may waive in whole or in part the condition (i). The conditions (a), (b), (c), (e), (f), (g) and (h) are incapable of being waived by any parties to the Settlement Deed.

If the Settlement Conditions Precedent are not satisfied or, where applicable, waived, on or before 4:00 p.m. on 30 June 2013 or such later date as the parties to the Settlement Deed may agree (the “ Settlement Long Stop Date ”), all rights, obligations and liabilities of the parties under the Settlement Deed shall cease and determine and neither party shall have any claim against the other, save for any antecedent breaches thereof. Having considered that additional time is required for the fulfillment of the conditions (c) and (h), on 25 June 2013, the Company and the Vendor mutually agreed in writing to extend the Settlement Long Stop Date to 31 July 2013. As at the Latest Practicable Date, none of the Settlement Conditions Precedent had been satisfied or waived.

Settlement Completion:

Upon compliance with or fulfillment of all the Settlement Conditions Precedent, Settlement Completion shall take place on the Settlement Completion Date during which one party to the Settlement Deed shall deliver to the other party, among others, the duly executed Release and Escrow Letter and vice versa pursuant to the terms of the Settlement Deed.

Application for listing:

The Company will apply to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Additional Shares which may be allotted and issued by the Company to the Vendor pursuant to the Settlement Deed.

Settlement Specific Mandate:

The Company will seek the Settlement Specific Mandate from the Independent Shareholders for the allotment and issue of the Additional Shares. In this regard, the SGM will be convened and held to pass the necessary resolution to approve the Settlement Deed and the transactions contemplated thereunder and the grant of the Settlement Specific Mandate.

– 26 –

LETTER FROM THE BOARD

REASONS FOR THE ENTERING INTO OF THE SETTLEMENT DEED

Subsequent to Completion, it was the expectation of the Board that the lottery business would be an important revenue source of the Group. However, the Group’s lottery business is not performed as planned. Based on the unaudited consolidated management accounts of the Target Group made up to 31 March 2013, the net loss after tax of the Target Group was approximately RMB68.91 million (equivalent to approximately HK$85.17 million, calculated at the exchange rate of RMB1.0000 to HK$1.2359 as at 31 March 2013), which was mainly attributable to the amortisation charge from the intangible assets – exclusive rights of operation of lottery sales of approximately RMB45.35 million (equivalent to approximately HK$56.05 million, calculated at the exchange rate of RMB1.0000 to HK$1.2359 as at 31 March 2013). Accordingly, the Profit Guarantee would not be achieved.

Notwithstanding the historical unsatisfactory performance of the Target Group, the Board is optimistic about the future growth potential in the PRC lottery market which is considered to be regulated extensively and the operation of lottery distribution is subject to various PRC laws, rules and regulations. Indeed, the Target Group has successfully entered into, among others, a few material cooperation agreements with provincial lottery issuing centres in the PRC which are summarised as below:

• on 1 August 2011, Shenzhen Le Cai and Shenzhen Welfare Lottery Issuing Centre entered into a framework agreement in relation to the appointment of Shenzhen Le Cai by Shenzhen Welfare Lottery Issuing Centre as (i) one of the authorised agents to distribute welfare lotteries in Shenzhen; and (ii) the sole agent to distribute Keno Games Lottery in Shenzhen for a term of 20 years commencing from 1 August 2011 and ending on 31 July 2031; and

• on 10 December 2012, Shenzhen Le Cai and Guizhou Province Welfare Lottery Issuing Centre entered into an agency agreement pursuant to which Shenzhen Le Cai shall set up 200 welfare lottery outlets to distribute computer-based welfare lotteries and paper-based instant lottery “刮刮樂” (Gua Gua Le[*] ) in Guizhou Province, the PRC and, in return, Shenzhen Le Cai shall receive commission from Guizhou Province Welfare Lottery Issuing Centre.

– 27 –

LETTER FROM THE BOARD

As at the Latest Practicable Date, the Target Group was operating 87 lottery betting branches in Shenzhen and 5 welfare lottery outlets in Guizhou Province; and was contemplating to continuously expand its distribution points in Shenzhen and Guizhou Province. In addition to the existing lottery business, the Target Group is proactively exploring new distribution markets and is currently under negotiation with few provincial lottery issuing centres in the PRC for potential cooperation. Further, in early 2013, Shenzhen Le Cai has acquired a parcel of industrial land located in Pingshan New District, Shenzhen to construct an industrial park for the development of prize lottery electronic engineering software, research and development and production of high-end lottery equipment in the PRC. The Board believes that the establishment of the industrial park would improve lottery varieties and promote Shenzhen Le Cai becoming one of the famous lottery products, lottery machine terminal and software services developers in the PRC. In view of the above, the Directors consider that the Target Group is still in an advantageous position in the PRC lottery market. As such, the Board is of the view that it is commercially viable to spend more time and effort on this business segment.

The Settlement Deed, on one hand, involves the discharge and release of the Share Charge and the waiving of the Vendor’s obligations under the Profit Guarantee, and on the other hand, allows the Company to recover all of the 1,727,729,582 Consideration Shares from the Vendor if (a) the 2014 Valuation is lower than or equal to the 2013 Valuation; or (b) the 2015 Valuation is lower than or equal to the 2014 Valuation; or (c) the 2016 Valuation is lower than or equal to the 2013 Valuation. If the 2016 Valuation is higher than the 2013 Valuation, the Settlement Deed further provides a formula which is essentially a tool in determining whether the then performance of the Target Group is satisfactory enough and the number of Consideration Shares could be recovered by the Company and released back to the Vendor from the Escrow Agent. In the event that the performance of the Target Group is to continue to be unsatisfactory in the future, the Group will only be able to recover RMB60,000,000 from the Vendor if the Company is to simply enforce the Profit Guarantee now, and the Vendor will have no further obligation to the Company. The Directors consider that it is in the interest of the Company for a new mechanism to be adopted so as to allow the Company to recover more than RMB60,000,000 and up to all of the 1,727,729,582 Consideration Shares from the Vendor. In order for such new mechanism to be accepted by both the Company and the Vendor, the Directors consider that enforcing the Profit Guarantee will, despite the immediate compensation of RMB60,000,000 from the Vendor, release and waive the obligation of the Vendor under the Profit Guarantee, and the Company will lose the opportunity to secure a new deal with the Vendor for the Company to recover anything beyond RMB60,000,000. Therefore, the Directors consider that releasing the Vendor’s obligation under the Profit Guarantee and entering into the Settlement Deed (which allows the Company to recover up to all of the 1,727,729,582 Consideration Shares from the Vendor in the event that the performance of the Target Group is to continue to be unsatisfactory in the future) is in the interest of the Company. The Directors also consider that it is fair and reasonable to take more time and effort to improve the Target Group’s performance, given its future is still optimistic with the progressive development of the Target Group, its advantageous position in the PRC lottery market and the prospect of the PRC lottery market.

– 28 –

LETTER FROM THE BOARD

In the event that the performance of the Target Group is to turn around in the future, the Settlement Deed still allows the Company to recover such number of Consideration Shares from the Vendor that could be worth less than, equal to, or more than RMB60,000,000 depending on the actual performance of the Target Group in the coming years and the relevant formula as stipulated in the Settlement Deed. While it appears that the Company could have first enforced the Profit Guarantee and recovered RMB60,000,000 from the Vendor and still be able to enjoy the future turnaround of the Target Group, the Directors consider that the solid background of Mr. Yang and Mr. Yeung in the PRC lottery business is essential for the development of the Target Group, and that if the Company is to enforce the Profit Guarantee now which may in turn release the future obligation and commitment of Mr. Yang and Mr. Yeung, it may increase the uncertainties on the future growth of the Target Group. Therefore, the Directors consider that it is fair and reasonable for the Company to enter into the Settlement Deed.

In addition, the Settlement Deed can serve as incentive to Mr. Yang and Mr. Yeung as the greater the 2013/16 Valuation Difference, the more Consideration Shares can be released back to the Vendor and Additional Shares may be issued. The Directors consider that this form of incentive is specific to the settlement arrangement and the future performance of the Target Group which is not feasible to be replaced by other usual remuneration package such as grant of share options, profit sharing scheme or bonus distribution.

Pursuant to B.1 of Appendix 14 to the Listing Rules, it is required that “remuneration levels should be sufficient to attract and retain directors to run the company successfully without paying more than necessary.” If the Company was to enforce the Profit Guarantee without entering into the Settlement Deed, it would release the future obligation of Mr. Yang and Mr. Yeung and the Company may not be able to retain their services and to secure their future commitment and contribution to the development of the Target Group. Based on the foregoing, the Board considers that such incentive provided to Mr. Yang and Mr. Yeung in the form of the Settlement Deed would not be more than necessary pursuant to B.1 of Appendix 14 to the Listing Rules.

– 29 –

LETTER FROM THE BOARD

The following table illustrates the number of Consideration Shares that the Company could recover from the Vendor assuming different levels of performance of the Target Group:

Equivalent amount of the 2016 Valuation (assuming the 2013 Valuation is Approximate value of RMB65 million, the Consideration which was determined Shares recoverable by by the Company Number of the Company based based on the Consideration on the latest available Amount of the 2013/16 preliminary 2013 Shares recoverable closing price of Valuation Difference valuation report) by the Company HK$0.162 per Share Below or equal to RMB0 RMB65,000,000 or All 1,727,729,582 HK$279,892,192 below Consideration Shares Between RMB0 and Between Between 446,481,482 Between RMB430,448,345.7 (note 1) RMB65,000,000 and and 1,727,729,582 HK$72,330,000 and RMB495,448,345.7 Consideration HK$279,892,192 Shares Between RMB430,448,345.7 and Between Between nil and Between nil and RMB580,448,345.7 (note 2) RMB495,448,345.7 446,481,482 HK$72,330,000 and Consideration RMB645,448,345.7 Shares Above RMB580,448,345.7 Above Nil, and Additional Nil RMB645,448,345.7 Shares will be allotted and issued to the Vendor (subject to a maximum shareholding of the Vendor of 29.74% of the then issued share capital of the Company)

Notes:

1. RMB430,448,345.7 (or below) is such amount of 2013/16 Valuation Difference that will enable the Company to recover RMB60 million (equivalent to approximately HK$72.33 million) (or more) worth of Consideration Shares from the Vendor (based on the latest available closing price of HK$0.162 per Share).

2. RMB580,448,345.7 (or above) is such amount of 2013/16 Valuation Difference that will enable the Vendor to retrieve all of the 1,727,729,582 Consideration Shares from the Escrow Agent. Please note that based on the possible amount of 2013 Valuation preliminarily expected by the Company, the 2016 Valuation will have to achieve approximately RMB645 million or above in order for the 2013/16 Valuation Difference to be RMB580,448,345.7. RMB645 million was the valuation of Shenzhen Le Cai (the principal operating subsidiary in the Target Group) used by the Company as a basis in determining the Consideration in 2011.

– 30 –

LETTER FROM THE BOARD

The Directors had evaluated the sum of (i) the net asset value of Shenzhen Le Cai (the principal operating subsidiary in the Target Group) as at 28 February 2013 of approximately RMB88 million (being the latest management account available before the entering into of the Settlement Deed); and (ii) the 2013/16 Valuation Difference of RMB580 million would be no less than the valuation of Shenzhen Le Cai under the Acquisition in 2011 (the “ 2011 Valuation ”) of RMB645 million. Therefore, the Directors considered that it is fair and reasonable to release all the Consideration Shares to the Vendor if the 2013/16 Valuation Difference is RMB580 million given that the sum of the net asset value of the Target Group and the 2013/16 Valuation Difference is estimated to be no less than the 2011 Valuation.

Notwithstanding that the Target Group did not perform that satisfactorily in the past two years in both operational and financial aspects, during the same period, the Target Group attained certain solid business status to operate the lottery business including being (i) one of the authorised agents to distribute welfare lotteries and the sole agent to distribute Keno Games Lottery in Shenzhen for a term of 20 years commencing from 1 August 2011 and ending on 31 July 2031; (ii) an authorised distributor of computer-based welfare lotteries and paper-based instant lottery “刮刮樂” (Gua Gua Le) in Guizhou Province, the PRC for a term of three years commencing from 10 December 2012. Taking into account the fact that additional time is required for (i) the expansion plan of the lottery betting stores and stations; and (ii) the acceptance of the Keno Games Lottery (which is a relatively new type of welfare lottery in Shenzhen), both the Company and the Vendor agreed that sufficient time shall be given for the development of the Target Group before evaluating the performance of its lottery business, and that 2016 is believed to be an appropriate time.

For any Consideration Shares recovered by the Company, they will be placed in the secondary market through the Placing Agent and the net proceeds from such placing will become the financial resources of the Company. In the event that such number of Consideration Shares cannot be fully placed by the Placing Agent during the relevant placing period, those remaining Consideration Shares will be distributed to the then Shareholders (other than the Vendor) on a pro-rata basis. The Board considers that the arrangement under the Settlement Deed is a better alternative to maximise the Shareholders’ value on the basis that the Company will either benefit from the growth of the lottery business, or recover a maximum of 1,727,729,582 Consideration Shares which will be placed out for cash, or, if any, directly distributed to the then Shareholders (other than the Vendor) on a pro-rata basis.

The Company will make appropriate announcements pursuant to the Listing Rules in respect of the details of such placing and the intended use of net proceeds after reaching a placing agreement with the Placing Agent and the details and arrangement of the distribution of such remaining number of Consideration Shares to the then Shareholders.

For illustration of the shareholding structure of the Company with the effect of the distribution of 1,727,729,582 Consideration Shares to the then Shareholders (other than the Vendor) on a pro-rata basis, please refer to the section headed “ (2) WARRANTS SUBSCRIPTION – CHANGES IN THE SHAREHOLDING STRUCTURE OF THE COMPANY ”.

– 31 –

LETTER FROM THE BOARD

The Directors (excluding the independent non-executive Directors whose views are set out in the letter from the Independent Board Committee in this circular) consider that the terms of the Settlement Deed (as supplemented by the Supplemental Settlement Deed) are fair and reasonable and the entering into of the Settlement Deed is in the interests of the Company and the Shareholders as a whole.

LISTING RULES IMPLICATION

As at the Latest Practicable Date, the Vendor was interested in 1,727,729,582 Shares, representing approximately 29.74% of the entire issued share capital of the Company. By virtue of the Vendor’s interests in the Company, the transactions contemplated under the Settlement Deed constitute non-exempt connected transactions on the part of the Company and are subject to, among other things, reporting, announcement and independent shareholders’ approval requirement under Chapter 14A of the Listing Rules. Mr. Yeung and Mr. Yang, who have a material interest in the Settlement Deed and the transactions contemplated thereunder, have abstained from voting on the board resolution approving the Settlement Deed and the transaction contemplated thereunder. Pursuant to Chapter 14A of the Listing Rules, the Vendor and its associates (including but not limited to Mr. Yeung and Mr. Yang) are required to abstain from voting in respect of the relevant resolution approving the Settlement Deed and the transactions contemplated thereunder (including but not limited to the grant of the Settlement Specific Mandate) at the SGM.

(2) WARRANTS SUBSCRIPTION

DETAILS OF THE WARRANTS SUBSCRIPTION AGREEMENT

Date: 8 April 2013

Issuer: the Company

Subscriber: Ping Da Development Limited, a company incorporated in the British Virgin Islands with limited liability, is wholly-owned by Dr. Mo Shikang, an executive Director and a Shareholder holding (i) 427,841,375 Shares, representing approximately 7.36% of the entire issued share capital of the Company as at the Latest Practicable Date; and (ii) 750,000 Share Options. Thus, Ping Da Development Limited is a connected person of the Company pursuant to the Listing Rules.

– 32 –

LETTER FROM THE BOARD

The Warrants Subscription:

Pursuant to the Warrants Subscription Agreement, the Company has conditionally agreed to issue and allot to the Subscriber and the Subscriber has conditionally agreed to subscribe for an aggregate of 1,135,000,000 Warrants conferring the rights to subscribe for an aggregate of 1,135,000,000 Subscription Shares at the initial Subscription Price of HK$0.205 per Subscription Share (subject to adjustment).

Number of Warrants:

A total of 1,135,000,000 Warrants conferring the rights to subscribe for 1,135,000,000 Subscription Shares, subject to adjustment upon the occurrence of any of the adjustment events.

Upon exercise in full of the subscription rights attaching to the 1,135,000,000 Warrants at the Subscription Price of HK$0.205, a maximum of 1,135,000,000 Subscription Shares will be allotted and issued, representing approximately 19.54% of the issued share capital of the Company as at the Latest Practicable Date, and approximately 16.34% of the issued share capital of the Company as enlarged by the allotment and issue of the Subscription Shares (without taking into account the allotment and issue of Additional Shares under the Settlement Deed and the exercise of the outstanding Share Options).

Warrants Issue Price and Subscription Price:

When determining the Warrants Issue Price and the Subscription Price, the Directors first focused on the aggregate of the Warrants Issue Price and the Subscription Price (the “ Aggregate Price ”) of HK$0.215, which represents:

• (i) a premium of approximately 17.49% over the closing price of HK$0.183 per Share as quoted on the Stock Exchange on the Last Trading Day;

• (ii) a premium of approximately 0.09% over the average closing price of HK$0.2148 per Share as quoted on the Stock Exchange for the last five consecutive trading days for the Shares up to and including the Last Trading Day; and

• (iii) a discount of approximately 12.57% to the average closing price of HK$0.2459 per Share as quoted on the Stock Exchange for the last ten consecutive trading days for the Shares up to and including the Last Trading Day.

The Aggregate Price was determined after arm’s length negotiations between the Company and the Subscriber, after considering the Group’s existing financial position, liquidity of the Shares in the market, and the prevailing market price of the Shares. The Directors consider that the Aggregate Price is fair and reasonable in consideration of the prevailing market price of the Shares shortly before the entering into of the Warrants Subscription Agreement.

– 33 –

LETTER FROM THE BOARD

The Warrants Issue Price is HK$0.01 per Warrant. The gross proceeds from the Warrants Subscription of HK$11,350,000 will be payable by the Subscriber in cash upon Warrants Completion. The Warrants Issue Price was determined with reference to the issue prices of warrants of ten recent cases of issue of unlisted warrants with subscription period ranging from one to five years by listed companies on the Stock Exchange since January 2013 (the “ Recent Cases ”). Details of the Recent Cases are set out in the following table:

Date of			Warrant issue
announcement	Company name	Stock code	price
			(HK$)
12/03/2013	China Zenith Chemical Group	362	0.002
	Limited
05/03/2013	Seamless Green China (Holdings)	8150	0.01
	Limited
28/02/2013	Fintronics Holdings Company	706	0.01
	Limited
25/02/2013	Convoy Financial Services Holdings	1019
	Limited
	Warrant I		0.01
	Warrant II		0.01
08/02/2013	Sino Resources Group Limited	223	0.01
25/01/2013	Huili Resources (Group) Limited	1303	nil
23/01/2013	Victory City International Holdings	539	0.01
	Limited
21/01/2013	Genvon Group Limited	2389	0.001
18/01/2013	Jiangchen International Holdings	1069	0.01
	Limited
15/01/2013	Mobile Telecom Network	8266	0.01
	(Holdings) Limited

The Directors consider that the Recent Cases, which are of similar length of subscription period and share the common feature of issue of unlisted warrants by listed companies on the Stock Exchange, are comparable to the Warrant Subscription. Having reviewed the Recent Cases, the issue prices of unlisted warrants of seven Recent Cases were HK$0.01 and that of the remaining Recent Cases were HK$0.002, HK$0.001 and nil, respectively. Therefore, the Directors consider that the Warrants Issue Price of HK$0.01 per Warrant is in line with the market price for issue of unlisted warrants.

– 34 –

LETTER FROM THE BOARD

The Subscription Price is HK$0.205 per Subscription Share (subject to adjustment). Assuming the full exercise of the subscription rights attaching to the Warrants at the Subscription Price, an aggregate of HK$232,675,000 will be raised, which is expected to be satisfied by payment of cash by the Subscriber. Having determined the Aggregate Price and the Warrants Issue Price, the Subscription Price is the difference between the Aggregate Price and the Warrants Issue Price.

On the above basis of determination of each of the Warrants Issue Price and the Subscription Price, the Directors did not take into account the fair value of the Warrants. The Directors consider that the estimation of fair value of the Warrants by relying on the financial modeling might not be fully reliable, as each of the models has its own assumptions and limitations.

Based on the foregoing, the Directors (excluding the independent non-executive Directors whose views are set out in the letter from the Independent Board Committee in this circular) hold the view that the terms of the Warrants Subscription are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Subscription Period:

The subscription rights attaching to the Warrants may be exercised during a period of 36 months commencing from the date of issue of Warrants in accordance with the terms of the Warrants Subscription Agreement.

Warrants Conditions Precedent:

Warrants Completion of the Warrants Subscription Agreement is conditional upon, among the other matters, the fulfillment of the following conditions on or before 5:00 p.m. on 30 June 2013 or such later date as may be agreed between the Subscriber and the Company (the “ Warrants Long Stop Date ”):

• (i) the passing by the Independent Shareholders at the SGM to be convened and held, of the necessary resolutions to approve the Warrants Subscription Agreement and the transactions contemplated thereunder (including but not limited to the allotment and issue of the Subscription Shares to the holder(s) of the Warrants);

• (ii) (if required) the Listing Committee of the Stock Exchange shall have approved the issue of the Warrants either unconditionally or subject to conditions to which neither the Company nor the Subscriber shall reasonably object and the satisfaction of such conditions;

– 35 –

LETTER FROM THE BOARD

• (iii) the Listing Committee of the Stock Exchange shall have granted (either unconditionally or subject to conditions to which neither the Company nor the Subscriber shall reasonably object) the listing of, and permission to deal in, the Subscription Shares which may fall to be allotted and issued upon the exercise of the subscription rights attached to the Warrants;

• (iv) the representations, warranties and undertakings given by the Company in the Warrants Subscription Agreement remaining true and accurate in all respects; and

• (v) the representations, warranties and undertakings given by the Subscriber in the Warrants Subscription Agreement remaining true and accurate in all respects.

If the Warrants Conditions Precedent are not fulfilled (or as the case may be, waived) on or before the Warrants Long Stop Date, the Warrants Subscription Agreement will lapse and become null and void and the parties shall be released from all obligations under the Warrants Subscription Agreement, save for any liabilities for any antecedent breaches of the Warrants Subscription Agreement. Having considered that additional time is required for the fulfillment of the condition (i), on 25 June 2013, the Company and the Subscriber mutually agreed in writing to extend the Warrants Long Stop Date to 31 July 2013. As at the Latest Practicable Date, none of the Warrants Conditions Precedent had been satisfied or waived.

Warrants Completion:

Subject to the fulfillment of the Warrants Conditions Precedent, Warrants Completion shall take place on the Warrants Completion Date.

PRINCIPAL TERMS OF THE WARRANTS

Information of the Warrants:

The Warrants will be constituted by way of deed poll to be executed by the Company. The Warrants will rank pari passu in all respects among themselves.

The Warrants will be issued upon Warrants Completion in registered form. A Warrants certificate will be issued to the Subscriber.

– 36 –

LETTER FROM THE BOARD

Subject to the provisions in the instrument to be executed by way of deed poll by the Company in relation to the issue of the Warrants and to compliance with all applicable regulations, exchange control, fiscal and other laws and regulations applicable thereto and provided that any exercise of the subscription rights attaching to the Warrants (i) does not trigger a mandatory offer obligation under Rule 26 of the Takeovers Code on the part of the holder(s) of the Warrants who has/have exercised its subscription rights attaching to the Warrants and parties acting in concert (as defined under the Takeovers Code); (ii) will not cause the public float of the Company to be unable to meet the relevant requirements under the Listing Rules; and (iii) will be in compliance with applicable laws and regulations including but not limited to the Takeovers Code and the Listing Rules, holder(s) of the Warrants is/are entitled at any time during a period of 36 months commencing on the date of issue of Warrants in accordance with the terms of the Warrants Subscription Agreement to subscribe in Hong Kong dollars the whole or part, in integral multiple of 1,000,000 Warrants for fully paid Shares at the Subscription Price (subject to adjustment).

The Subscription Shares to be allotted and issued upon the exercise of the subscription rights attaching to the Warrants will rank pari passu in all respects with the Shares in issue.

Adjustment of Subscription Price:

The Subscription Price shall be adjusted in each of the following cases:

• (i) an alteration of the nominal amount of each Share by reason of any consolidation or subdivision;

• (ii) an issue (other than pursuant to a scrip dividend scheme in lieu of a cash dividend) by the Company of Shares credited as fully paid by way of capitalisation of profits or reserves (including any share premium account or capital redemption reserve fund);

• (iii) a capital distribution being made by the Company, whether on a reduction of capital or otherwise, to the Shareholders (in their capacity as such) (including, but not limited to, such a distribution pursuant to a reduction or redemption of share capital, share premium account or capital redemption reserve fund or otherwise);

• (iv) a grant by the Company to the Shareholders (in their capacity as such) of rights to acquire for cash assets of the Company or any of its subsidiaries; or

• (v) an offer of new Shares for subscription by way of rights, or a grant of options or warrants to subscribe new Shares, at a price which is less than 80% of the market price being made by the Company to the Shareholders (in their capacity as such).

– 37 –

LETTER FROM THE BOARD

Transferability:

Subject to transfer(s) being made to Independent Third Party(ies) with the prior written consent of the Company, the Warrants are transferable in integral multiples of 1,000,000 Warrants (or if at the time of transfer, the outstanding number of Warrants are less than 1,000,000, the whole but not in part of the outstanding Warrants) by instrument of transfer in the usual or common form or in any other form which may be approved by the Directors.

Purchase and cancellation:

The Company or any of its subsidiaries may at any time purchase Warrants:

• (i) in the open market or by tender (available to all alike holders of the Warrants) at any price; or

• (ii) by private treaty at a price, exclusive of expenses, not exceeding 110%. of the Warrants Issue Price

but not otherwise. All Warrants purchased as aforesaid shall be cancelled forthwith and may not be reissued or re-sold.

Call:

If at any time the aggregate of the Warrants which have not been exercised carry rights to subscribe for the Subscription Shares which is less than 10% of the total number of Warrants issued, the Company may, on giving not less than one month’s notice, require holder(s) of the Warrants either to exercise their subscription rights attaching to the Warrants or to allow them to lapse. On expiry of such notice, all unexercised Warrants will be automatically cancelled without compensation to the holder(s) of the Warrants.

Voting rights for the holders of the Warrants:

The holder(s) of the Warrants shall not be entitled to attend or vote at any general meetings of the Company by virtue of them being the holder(s) of the Warrants. The holder(s) of the Warrants shall not have the right to participate in any distributions and/or offers of further securities made by the Company by virtue of them being the holder(s) of the Warrants.

– 38 –

LETTER FROM THE BOARD

Rights of holder(s) of the Warrants on the liquidation of the Company:

If the Company is wound up during the subscription period of the Warrants, all subscription rights attaching to the Warrants which have not been exercised at the date of the passing of such resolution approving the winding-up shall lapse and Warrants certificate shall cease to be valid for any purpose, save for (i) if such winding-up is for the purpose of reconstruction or amalgamation pursuant to a scheme of arrangement to which the holder(s) of the Warrants, or some person designated by them for such purpose by special resolution, shall be a party or in conjunction with which a proposal is made to the holder(s) of the Warrants and is approved by special resolution, the terms of such scheme of arrangement or (as the case may be) proposal shall be binding on the holder(s) of the Warrants; and (ii) in the event of a voluntary windingup of the Company, the holders of the Warrants shall be entitled within six weeks after the passing of such resolution approving the winding-up of the Company to exercise the subscription rights attaching to the Warrants in accordance with the terms and conditions of the Warrants Subscription Agreement.

Application for listing:

The Company will apply to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Subscription Shares which may fall to be allotted and issued upon exercise of the subscription rights attaching to the Warrants. No listing of the Warrants will be sought on the Stock Exchange or any other stock exchanges.

Warrants Specific Mandate:

The Company will seek the Warrants Specific Mandate from the Independent Shareholders for the allotment and issue of the Subscription Shares. In this regard, the SGM will be convened and held to pass the necessary resolution to approve the Warrants Subscription Agreement and the transactions contemplated thereunder the grant of the Warrants Specific Mandate.

REASONS FOR THE WARRANTS SUBSCRIPTION

The Company is an investment holding company. Its subsidiaries principally engage in (i) gas businesses (the “ Gas Businesses ”) including the sale of liquefied petroleum gas (the “ LPG ”) in bulk and in cylinders, the provision of piped gas fuel, construction of gas pipelines, the operation of city gas pipeline network; and (ii) lottery agency in the PRC (the “ Lottery Business ”).

– 39 –

LETTER FROM THE BOARD

The Group commenced its Gas Businesses in October 2004. Under the management of Dr. Mo Shikang in the past decade, the Group successfully secured 39 piped gas fuel projects and 20 LPG projects with 511,448 accumulated connected customers as at 30 September 2012. For the three years ended 31 March 2012, (i) the turnover derived from the Gas Businesses amounted to approximately HK$706.3 million, approximately HK$853.9 million and approximately HK$1,118.6 million, respectively; (ii) the sale of piped gas fuel amounted to approximately 174,860,000 m[3] , approximately 213,670,000 m[3] and approximately 265,900,000 m[3] , respectively; and (iii) the sale of LPG amounted to approximately 49,626 tons, approximately 36,228 tons and approximately 36,993 tons, respectively. In view of the strong demand for energy resources driven by the steady acceleration of industrialisation and urbanisation in the PRC and the advantages from the nation’s support to the development of urban gas industry in the territory, the Group intends to continue its focus on the Gas Businesses.

The Board considers that the Group’s historical business and financial performance in Gas Businesses were significantly contributed by Dr. Mo Shikang and the senior management team (under Dr. Mo Shikang’s leadership), and the experience and management expertise of Dr. Mo Shikang in the gas industry is valuable and crucial to the Group’s existing business and future development. Therefore, the Board wishes to incentivise Dr. Mo Shikang to continue serving and devoting to the Company in the future through the Warrants Subscription.

For the purpose of incentivising Dr. Mo Shikang, apart from the Warrants Subscription, the Board has considered other alternative methods such as salary increment and granting share option. The Board, however, considers that the Warrants Subscription is the most feasible method after taking into account the facts that (i) the likelihood of the exercise of the subscription rights attaching to the Warrants by Dr. Mo Shikang is linked with the share price performance of the Company which, to a large extent, reflects the business performance of the Group, and thus, the Warrants Subscription can serve as incentive for Dr. Mo Shikang to further devote and contribute effort to the Group (in particular, the Gas Businesses); and (ii) the Warrants Subscription can strengthen the financial resources of the Group with an initial upfront of HK$11,350,000.

Pursuant to B.1 of Appendix 14 to the Listing Rules, it is required that “remuneration levels should be sufficient to attract and retain directors to run the company successfully without paying more than necessary.” With respect to the incentive provided to Dr. Mo Shikang in the form of the Warrants Subscription, the Warrants are not provided to the Subscriber free of charge, but instead, the payment of the Warrants Issue Price by the Subscriber to the Company upon Warrants Completion is required regardless of whether the subscription rights attaching to the Warrants will be eventually exercised. The incentive is merely an opportunity for Dr. Mo Shikang to increase the shareholding of him and his concert parties in the Company after the payment of both of the Warrants Issue Price and the Subscription Price, both of which were determined after arm’s length negotiations between the Company and the Subscriber. Based on the foregoing, the Board considers that such incentive provided to Dr. Mo Shikang in the form of the Warrants Subscription would not be more than necessary pursuant to B.1 of Appendix 14 to the Listing Rules.

– 40 –

LETTER FROM THE BOARD

Although the Group has no immediate funding need for its current operation and the Company currently has sufficient capital to carry on its principal business activities, the Board holds the view that the Warrants Subscription and the issue of the Subscription Shares provide opportunities for the Group to strengthen the Group’s capital base and financial position which in turn better equip the Group with the financial flexibility for development of the existing business or any other new business of the Group should opportunities arise.

Before entering into the Warrants Subscription Agreement, the Board has also considered other alternative fund raising methods such as debt financing, rights issue or open offer. The Board holds the view that the Warrants Subscription is a more appropriate means of fund raising for the Company as it does not have any immediate dilution effect on the shareholding of the existing Shareholders and the cost and expenses for Warrants Subscription is minimal.

Having considered that (i) the Warrants Subscription can serve as incentive for Dr. Mo Shikang to further devote and contribute effort to the Group (in particular, the Gas Businesses) as his economic benefit, through Warrants Subscription by the Subscriber, will be linked to the performance of the Group; (ii) the Warrants Subscription can further strengthen the financial resources of the Group with an initial upfront of HK$11,350,000 (representing approximately 3.0% of the bank balances and cash of the Group as at 30 September 2012) and, if the conversion rights attaching to the Warrants are fully exercised, an additional gross amount of HK$232,675,000 (representing approximately 61.9% of the bank balances and cash of the Group as at 30 September 2012); and (iii) the Group has not conducted any fund raising activities in the past twelve months, the Directors (excluding the independent non-executive Directors whose views are set out in the letter from the Independent Board Committee in this circular) hold the view that the terms of the Warrants Subscription Agreement are fair and reasonable and the Warrants Subscription is in the interests of the Company and the Shareholders as a whole.

USE OF PROCEEDS

The gross proceeds from the Warrants Subscription will be HK$11,350,000 (without taking into account of the exercise of the subscription rights attaching to the Warrants). The net proceeds from the Warrants Subscription, after taking into account the legal fee, printing expenses and other related expenses in relation to the Warrants Subscription, will be approximately HK$11,250,000 (with a net Warrants Issue Price of approximately HK$0.0099 per Warrant). The Directors intend to apply the net proceeds as general working capital of the Group.

Assuming the full exercise of the subscription rights attaching to the Warrants at the Subscription Price, it is expected that an additional gross amount of HK$232,675,000 will be raised. The net proceeds (after deduction of all related expenses) of approximately HK$232,575,000 (with a net subscription price of approximately HK$0.2049 per Subscription Share) will be applied as general working capital of the Group.

– 41 –

LETTER FROM THE BOARD

FUND RAISING ACTIVITIES DURING THE PAST TWELVE MONTHS

The Group has not conducted any fund raising activity in the past twelve months immediately preceding the Latest Practicable Date.

CHANGES IN THE SHAREHOLDING STRUCTURE OF THE COMPANY

As at the Latest Practicable Date, the Company had an authorised share capital of HK$560,000,000 divided into 7,999,999,999 Shares and an issued share capital of HK$406,696,790 divided into 5,809,954,136 Shares.

For illustration purpose only, the shareholding structure of the Company (i) as at the Latest Practicable Date (“ Scenario 1 ”); (ii) immediately after the full exercise of the subscription rights attaching to the Warrants but before the distribution of any of the Consideration Shares to the then Shareholders (other than the Vendor) on pro-rata basis pursuant to the Settlement Deed (“ Scenario 2 ”); and (iii) immediately after the full exercise of the subscription rights attaching to the Warrants and the distribution of 1,727,729,582 Consideration Shares to the then Shareholders (other than the Vendor) on pro-rata basis pursuant to the Settlement Deed (“ Scenario 3 ”) are as follows:

Shareholders Dr. Mo Shikang_Note 1_ Subscriber Sub-total for the Subscriber and its concert parties Vendor_Note 2_ Mr. Yeung_Note 1_ Mr. Zhang Hesheng_Note 1_ Mr. Chu Kin Wang Peleus_Note1, 3_ Public Shareholders Total	Scenario 1 No. of Shares Approximate% 427,841,375 7.36 – – 427,841,375 7.36 1,727,729,582 29.74 600,000 0.01 227,788,793 3.92 9,840,000 0.17 3,416,154,386 58.80 5,809,954,136 100.00	Scenario 2 No. of Shares Approximate% 427,841,375 6.16 1,135,000,000 16.34 1,562,841,375 22.50 1,727,729,582 24.88 600,000 0.01 227,788,793 3.28 9,840,000 0.14 3,416,154,386 49.19 6,944,954,136 100.00	Scenario 3 No. of Shares Approximate% 569,524,792 8.20 1,510,865,186 21.75 2,080,389,978 29.96 – – 798,695 0.01 303,223,046 4.37 13,098,602 0.19 4,547,443,815 65.48 6,944,954,136 100.00	Scenario 3 No. of Shares Approximate% 569,524,792 8.20 1,510,865,186 21.75 2,080,389,978 29.96 – – 798,695 0.01 303,223,046 4.37 13,098,602 0.19 4,547,443,815 65.48 6,944,954,136 100.00
				100.00

Notes:

1. Dr. Mo Shikang, Mr. Yeung, Mr. Zhang Hesheng and Mr. Chu Kin Wang Peleus are Directors.

2. The Vendor is legally, beneficially and equally held by Mr. Yang and Mr. Yeung. Mr. Yang and Mr. Yeung are brothers and directors of the Vendor.

3. This represents interests legally and beneficially held by Ms. Woo Sau Kuen. She is the spouse of Mr. Chu Kin Wang Peleus.

– 42 –

LETTER FROM THE BOARD

1. As at the Latest Practicable Date, the Company had outstanding 174,600,000 Share Options.

2. Both Scenario 2 and Scenario 3 have not taken into account the effect of (i) the possible allotment and issue of Additional Shares under the Settlement Deed; and (ii) the exercise of the outstanding Share Options.

ISSUE OF WARRANTS

Pursuant to Rule 15.02(1) of the Listing Rules, the Subscription Shares to be issued upon exercise the subscription rights attaching to the Warrants must not, when aggregated with all other equity securities which remain to be issued on exercise of any other subscription rights, if all such rights were immediately exercised, whether or not such exercise is permissible, exceed 20% of the issued share capital of the Company at the time the Warrants are issued. Options granted under employee or executive share schemes which comply with Chapter 17 of the Listing Rules are excluded for the purpose of such limit.

As at the Latest Practicable Date and except for the outstanding Share Options granted by the Company pursuant to the share option scheme currently in force and adopted by the Company on 3 October 2006, the Company did not have other securities with subscription rights outstanding and not yet exercised.

Assuming full exercise of the subscription rights attaching to the Warrants, 1,135,000,000 Subscription Shares (representing approximately 19.54% of the issued share capital of the Company as at the Latest Practicable Date) will be issued. Accordingly, the issue of the Warrants will be in compliance with Rule 15.02(1) of the Listing Rules.

LISTING RULES IMPLICATION

As at the Latest Practicable Date, Dr. Mo Shikang, an executive Director, was interested in (i) 427,841,375 Shares, representing approximately 7.36% of the existing share capital of the Company; and (ii) 750,000 Share Options. Dr. Mo Shikang is also the sole beneficial owner of the Subscriber. Thus, the Subscriber is a connected person of the Company and the Warrants Subscription constitutes a non-exempt connected transaction on the part of the Company under Chapter 14A of the Listing Rules. Accordingly, the Warrants Subscription is subject to, among other things, reporting, announcement and independent shareholders’ approval requirement under Chapter 14A of the Listing Rules.

Dr. Mo Shikang, who has a material interest in the Warrants Subscription, has abstained from voting on the board resolution approving the Warrants Subscription and the transactions contemplated thereunder.

– 43 –

LETTER FROM THE BOARD

Pursuant to Chapter 14A of the Listing Rules, Dr. Mo Shikang, being the sole beneficial owner of the Subscriber, and his associates are required to abstain from voting in respect of the relevant resolution approving the Warrants Subscription and the transactions contemplated thereunder (including but not limited to the grant of the Warrants Specific Mandate) at the SGM.

(3) CONTINUING CONNECTED TRANSACTIONS IN RELATION TO THE NATURAL GAS SUPPLY AGREEMENT

BACKGROUND OF THE ENTERING INTO OF THE NATURAL GAS SUPPLY AGREEMENT

Shaanxi Natural Gas is principally engaged in the distribution and pipeline transportation of natural gas, the sale of city gas, as well as the operation of gasification projects. It is one of the leading Natural Gas providers in Shaanxi Province, the PRC. Since 2006, Xi’an Zhongmin has begun to source Natural Gas from Shaanxi Natural Gas from time to time.

On 3 April 2013, Xi’an Yanliang Government entered into equity transfer agreements with Beijing Civigas (a wholly-owned subsidiary of the Company) and Shaanxi Natural Gas, separately, and pursuant to which Xi’an Yanliang Government agreed to transfer 9.15% and 6.88% equity interests in Xi’an Zhongmin to Beijing Civigas and Shaanxi Natural Gas, respectively. On the same date, Beijing Civigas, Shaanxi Natural Gas and Xi’an Yanliang Government entered into an capital injection agreement pursuant to which Shaanxi Natural Gas will subscribe the registered capital of RMB22,080,000 (equivalent to approximately HK$27,688,000, calculated at the exchange rate RMB1.000 to HK$1.254 as at 31 March 2013) by injecting the Assets Capital into Xi’an Zhongmin, increasing its equity interests in Xi’an Zhongmin from 6.88% to 40.00%. Details of the said capital reorganisation were disclosed in the announcement of the Company dated 5 April 2013.

Upon completion of the equity transfer agreements and the capital injection agreement, Xi’an Zhongmin will be held by Beijing Civigas as to 51%, Shaanxi Natural Gas as to 40%, and Xi’an Yanliang Government as to 9%. Accordingly, Shaanxi Natural Gas will become a connected person of the Company by virtue of holding 40% equity interests in Xi’an Zhongmin.

On 22 May 2013, Xi’an Zhongmin and Shaanxi Natural Gas entered into the Natural Gas Supply Agreement, pursuant to which Xi’an Zhongmin agreed to purchase the Natural Gas from Shaanxi Natural Gas for a term commencing from 8:00 a.m. on 30 June 2013 until 8:00 a.m. on 31 December 2013. Having considered that (i) the Natural Gas Supply Agreement is conditional upon approval of the Independent Shareholders at the SGM; and (ii) the SGM would not be able to be held on or before 30 June 2013, on 25 June 2013, Xi’an Zhongmin and Shaanxi Natural Gas mutually agreed in writing that the purchase of the Natural Gas from Shaanxi Natural Gas contemplated under the Natural Gas Supply Agreement may commence at a later date upon obtaining the approval from the Independent Shareholders at the SGM. Since Shaanxi Natural Gas is the connected person of the Company, the entering into of the Natural Gas Supply Agreement constitutes continuing connected transactions on the part of the Company under Chapter 14A of the Listing Rules.

– 44 –

LETTER FROM THE BOARD

DETAILS OF THE NATURAL GAS SUPPLY AGREEMENT

Date : 22 May 2013

Parties : Xi’an Zhongmin; and Shaanxi Natural Gas

Shaanxi Natural Gas is a shareholder of Xi’an Zhongmin holding 40% equity interests in Xi’an Zhongmin as at the Latest Practicable Date and hence a connected person of the Company. Accordingly, the entering into of the Natural Gas Supply Agreement between Xi’an Zhongmin and Shaanxi Natural Gas constitutes continuing connected transactions for the Company under Chapter 14A of the Listing Rules.

Subject : Pursuant to the Natural Gas Supply Agreement, Xi’an Zhongmin has agreed to purchase the Natural Gas from Shaanxi Natural Gas for a term commencing from 8:00 a.m. on the following Business Day upon obtaining the approval from the Independent Shareholders at the SGM until 8:00 a.m. on 31 December 2013.

Price : The basis of determining the prices of the Natural Gas to be purchased by Xi’an Zhongmin under the Natural Gas Supply Agreement will be in accordance with the price set by the Shaanxi Provincial Price Bureau.

Volume and The parties have agreed that the transaction amount under the Natural Gas Amount of Supply Agreement will not exceed the volume of 35,000,000 m[3] and the Natural Gas : amount of RMB58,150,000 (equivalent to approximately HK$73,635,000, calculated at the approximate exchange rate of RMB1.0000 to HK$1.2663 as at 20 May 2013).

Annual cap

During the period from 8:00 a.m. on 31 March 2013 to 8:00 a.m. on 30 June 2013 (the “ Period ”), the purchase of Natural Gas from Shaanxi Natural Gas by Xi’an Zhongmin will not exceed the volume of 5,500,000 m[3] and the amount of RMB8,395,000 (equivalent to approximately HK$10,631,000, calculated at the approximate exchange rate of RMB1.0000 to HK$1.2663 as at 20 May 2013). Since all applicable percentage ratios (other than the profits ratio) for the purchase of Natural Gas within the Period under the Listing Rules exceed 0.1% but are less than 1%, the purchase of the Natural Gas for the Period is exempt from the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

– 45 –

LETTER FROM THE BOARD

The annual cap for the transactions during the Period and under the Natural Gas Supply Agreement is in the volume of 40,500,000 m[3] and the amount of RMB66,545,000 (equivalent to approximately HK$84,266,000, calculated at the approximate exchange rate of RMB1.0000 to HK$1.2663 as at 20 May 2013).

The cap amount for the procurement from Shaanxi Natural Gas by Xi’an Zhongmin was determined with reference to the historical transaction amount and the projected demand for the Natural Gas for the second half of 2013.

Xi’an Zhongmin and Shaanxi Natural Gas had business transactions in previous years. The historical transaction amounts between Xi’an Zhongmin and Shaanxi Natural Gas were as follows:

Purchase of Natural Gas from Shaanxi Natural Gas

			*Equivalent to
For the year ended 31 March	Volume	Amount	approximately
	(’000 m3)	RMB’000	HK$’000
2011 (audited)	45,334	64,334	81,466
2012 (audited)	50,032	78,243	99,079
2013 (unaudited)	54,242	85,860	108,725

• calculated at the approximate exchange rate of RMB1.0000 to HK$1.2663 as at 20 May 2013

Note:

Transactions between Xi’an Zhongmin and Shaanxi Natural Gas in the financial year ended 31 March 2013 were attributable to contracts entered into between Xi’an Zhongmin and Shaanxi Natural Gas before Shaanxi Natural Gas became a connected person of the Company.

Payment terms

Advance payment of RMB2,400,000 (equivalent to approximately HK$3,039,000 calculated at the approximate exchange rate of RMB1.0000 to HK$1.2663 as at 20 May 2013) will be paid to Shaanxi Natural Gas as deposit within one week after the entering into of the Natural Gas Supply Agreement. This deposit amount will be used to set-off part of the payable upon the expiry of the Natural Gas Supply Agreement. Payment for the purchase of the Natural Gas will be settled on every 10th, 20th, and the last day of each month, provided that the terms of sale offered to the other party will be no more favourable to those offered to independent third party purchasers of such Natural Gas.

– 46 –

LETTER FROM THE BOARD

Condition Precedent

The Natural Gas Supply Agreement is conditional upon approval of the Independent Shareholders.

REASONS FOR THE ENTERING INTO OF THE NATURAL GAS SUPPLY AGREEMENT

The Group is principally engaged in the sale and distribution of natural gas and LPG in the PRC, including the sales of LPG in bulk and cylinders, the provision of piped gas fuel, construction of gas pipelines, the operation of city gas pipeline network and lottery agency.

Shaanxi Natural Gas is principally engaged in the distribution and pipeline transportation of natural gas, the sale of city gas, as well as the operation of gasification projects. It is one of the leading Natural Gas providers in Shaanxi Province, PRC. Through purchasing the Natural Gas from Shaanxi Natural Gas, it can stable our supply in the region we serve.

Xi’an Zhongmin is a company established in the PRC with limited liability and principally engaged in sales and distribution of gas fuel, design of gas fuel pipeline and related maintenance in Xi’an City, Shaanxi Province, PRC.

In view of the above advantages and that the purchase of the Natural Gas from Shaanxi Natural Gas by Xi’an Zhongmin carried out in the ordinary course of business of each party, the parties consider that it is reasonable and beneficial to enter into the Natural Gas Supply Agreement to govern the continuing transactions.

Given that the Natural Gas Supply Agreement was entered into in the usual and ordinary course of business of the Group and the transactions contemplated under the Natural Gas Supply Agreement will be conducted on an arm’s length basis and on normal commercial terms, the Directors (excluding the independent non-executive Directors whose views are set out in the letter from the Independent Board Committee in this circular) consider that the terms of the Natural Gas Supply Agreement are fair and reasonable and the entering into of the Natural Gas Supply Agreement is in the interests of the Company and the Shareholders as a whole.

LISTING RULES IMPLICATIONS

Shaanxi Natural Gas is a shareholder of Xi’an Zhongmin holding 40% equity interests in Xi’an Zhongmin as at the Latest Practicable Date and hence a connected person of the Company. Accordingly, the entering into of the Natural Gas Supply Agreement between Xi’an Zhongmin and Shaanxi Natural Gas constitutes continuing connected transactions on the part of the Company under Chapter 14A of the Listing Rules.

– 47 –

LETTER FROM THE BOARD

As each or all of the percentage ratios (other than the profits ratio) for the transactions under the Natural Gas Supply Agreement and the purchase of the Natural Gas during the Period is or are on an annual basis more than 5%, the Natural Gas Supply Agreement will be subject to the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules. None of the Directors has a material interest in the Natural Gas Supply Agreement and therefore none of the Directors has abstained from voting on the relevant board resolution. Shaanxi Natural Gas and its associates are required to abstain from voting in respect of the relevant resolution approving the Natural Gas Supply Agreement and the transactions contemplated thereunder at the SGM. To the best knowledge, information and belief of the Directors, none of the Shareholders who are required to abstain from voting in respect of the relevant resolution approving the Natural Gas Supply Agreement and the transactions contemplated thereunder at the SGM (including but not limited to Shaanxi Natural Gas) held any Shares as at the Latest Practicable Date.

GENERAL

Apart from being Directors of the Company, the Subscriber and Dr. Mo Shikang on the one hand and the Vendor and Mr. Yang and Mr. Yeung on the other hand are independent from each other, and there is no voting agreement between them or otherwise binding upon any of them in respect of the exercise of the voting right attaching to the Shares existing or to be issued upon the exercise of the subscription rights attaching to the Warrants held by any of them.

Shareholders and potential investors should be aware of and take note that (i) the Settlement Completion is conditional upon satisfaction of the Settlement Conditions Precedent and may or may not proceed; (ii) the Warrants Completion is conditional upon satisfaction of the Warrants Conditions Precedent and may or may not proceed; and (iii) the Settlement Deed and the Warrants Subscription are, however, not inter-conditional to each other. Shareholders and potential investors are advised to exercise caution when dealing in the Shares, and if they are in any doubt about their position, they should consult their professional advisers.

SGM

The notice convening the SGM to be held at the head office of Chinese People Holdings Company Limited, Conference Room, 1st Floor, No. 36 BDA International Business Park, No. 2 Jingyuan North Street, Economic Technological Development Area, Beijing, 100176, China on 24 July 2013 at 1:30 p.m. is set out on pages 124 to 127 of this circular. An ordinary resolution will be proposed at the SGM to approve, among other things, (i) the Settlement Deed and the transactions contemplated thereunder and the grant of the Settlement Specific Mandate to allot and issue the Additional Shares; (ii) the Warrants Subscription Agreement and the transactions contemplated thereunder and the grant of the Warrants Specific Mandate to allot and issue the Subscription Shares; and (iii) the Natural Gas Supply Agreement and the transactions contemplated thereunder. The resolutions proposed to be approved at the SGM will be taken by poll and an announcement will be made by the Company after the SGM on the result of the SGM.

– 48 –

LETTER FROM THE BOARD

A form of proxy for use at the SGM is enclosed with this circular. Whether or not you are able to attend the SGM in person, you are requested to complete the form of proxy enclosed and return it to the Company’s branch share registrar and transfer office in Hong Kong, Tricor Tengis Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, in accordance with the instructions printed thereon as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the SGM or any adjournment meeting thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or at any adjourned meeting thereof if you so wish and, in such event, the relevant form of proxy shall be deemed to be revoked.

To the best of the Directors’ knowledge, information and belief and having made all reasonable enquiries, as at the Latest Practicable Date, (i) the Vendor and its associates (including but not limited to Mr. Yeung) will abstain from voting in respect of the relevant resolution approving the Settlement Deed and the transactions contemplated thereunder (including but not limited to the grant of the Settlement Specific Mandate) at the SGM; (ii) Dr. Mo Shikang, being the sole beneficial owner of the Subscriber, and his associates will abstain from voting in respect of the relevant resolution approving the Warrants Subscription Agreement and the transactions contemplated thereunder (including but not limited to the grant of the Warrants Specific Mandate) at the SGM; and (iii) Shaanxi Natural Gas and its associates will abstain from voting in respect of the relevant resolution approving the Natural Gas Supply Agreement and the transactions contemplated thereunder. To the best knowledge, information and belief of the Directors, Shaanxi Natural Gas and its associates who are required to abstain from voting in respect of the relevant resolution approving the Natural Gas Supply Agreement and the transactions contemplated thereunder at the SGM (including but not limited to Shaanxi Natural Gas) did not hold any Shares as at the Latest Practicable Date.

RECOMMENDATIONS

Taking into consideration of the reasons set out in the paragraphs headed “REASONS FOR THE ENTERING INTO OF THE SETTLEMENT DEED”, “REASONS FOR THE WARRANTS SUBSCRIPTION” and “REASONS FOR THE ENTERING INTO OF THE NATURAL GAS SUPPLY AGREEMENT” above, the Directors (including the independent non-executive Directors) consider that (i) the terms of the Settlement Deed, the Warrants Subscription Agreement and the Natural Gas Supply Agreement are fair and reasonable and on normal commercial terms; and (ii) the entering into of the Settlement Deed, the Warrants Subscription and the entering into of the Natural Gas Supply Agreement are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors (including the independent non-executive Directors) recommend the Independent Shareholders to vote in favour of the ordinary resolutions as set out in the notice of the SGM to approve (i) the Settlement Deed and the transactions contemplated thereunder and the grant of the Settlement Specific Mandate to allot and issue the Additional Shares; (ii) the Warrants Subscription Agreement and the transactions contemplated thereunder and the grant of the Warrants Specific Mandate to allot and issue the Subscription Shares; and (iii) the Natural Gas Supply Agreement and the transactions contemplated thereunder.

– 49 –

LETTER FROM THE BOARD

Your attention is drawn to the letter from the Independent Board Committee set out on pages 51 to 52 of this circular, the letter of advice from New Spring Capital to the Independent Board Committee and the Independent Shareholders set out on pages 53 to 117 of this circular and the information set out in the appendix to this circular.

Yours faithfully,

By Order of the Board Chinese People Holdings Company Limited Mr. Yang Songsheng Chairman

– 50 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

CHINESE PEOPLE HOLDINGS COMPANY LIMITED 中民控股有限公司

(Incorporated in Bermuda with limited liability)

(Stock Code: 681)

8 July 2013

To the Independent Shareholders

Dear Sir/Madam,

(1) CONNECTED TRANSACTIONS IN RELATION TO THE ENTERING INTO OF THE SETTLEMENT DEED,

(2) CONNECTED TRANSACTIONS IN RELATION TO WARRANTS SUBSCRIPTION, AND

(3) CONTINUING CONNECTED TRANSACTIONS IN RELATION TO THE NATURAL GAS SUPPLY AGREEMENT

We refer to the circular (the “ Circular ”) dated 8 July 2013 issued by the Company of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as those defined in the Circular unless specified otherwise.

We have been formed to advise the Independent Shareholders in relation to the terms of the Settlement Deed, the Warrants Subscription Agreement and the Natural Gas Supply Agreement, and the transactions contemplated thereunder. New Spring Capital has been appointed by the Company as the Independent Financial Adviser to advise us in this regard. Details of its advice, together with the principal factors and reasons it has taken into consideration in giving its advice, are contained in its letter set out on pages 53 to 117 of the Circular. Your attention is also drawn to the letter from the Board set out on pages 11 to 50 of the Circular and the additional information set out in the appendix to the Circular.

After taking into account the factors and reasons considered by New Spring Capital and its conclusion and advice, we concur with its view and consider that (i) the terms of the Settlement Deed, the Warrants Subscription Agreement and the Natural Gas Supply Agreement are fair and reasonable and on normal commercial terms; and (ii) the entering into of the Settlement Deed, the Warrants Subscription and the entering into of the Natural Gas Supply Agreement are in the interests of the

– 51 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favor of the ordinary resolutions to be proposed at the SGM to approve (i) the Settlement Deed and the transactions contemplated thereunder and the grant of the Settlement Specific Mandate to allot and issue the Additional Shares; (ii) the Warrants Subscription Agreement and the transactions contemplated thereunder and the grant of the Warrants Specific Mandate to allot and issue the Subscription Shares; and (iii) the Natural Gas Supply Agreement and the transactions contemplated thereunder

Yours faithfully

Dr. Liu Junmin

For and on behalf of the Independent Board Committee Mr. Tan Qinglian Mr. Li Jialin Independent non-executive Directors

Mr. Sin Ka Man

– 52 –

LETTER FROM NEW SPRING CAPITAL

The following is the text of the letter of advice from New Spring Capital Limited, the Independent Financial Adviser, to the Independent Board Committee and the Independent Shareholders in respect of the terms of the Settlement Deed, the Warrants Subscription Agreement and the Natural Gas Supply Agreement and the transactions contemplated thereunder, which has been prepared for the purpose of inclusion in this circular.

==> picture [37 x 35] intentionally omitted <==

==> picture [153 x 12] intentionally omitted <==

10th Floor Hip Shing Hong Centre 55 Des Voeux Road Central Central Hong Kong

8 July 2013

To: the Independent Board Committee and

the Independent Shareholders of Chinese People Holdings Company Limited

Dear Sirs,

(1) CONNECTED TRANSACTIONS IN RELATION TO THE ENTERING INTO OF THE SETTLEMENT DEED,

(2) CONNECTED TRANSACTIONS IN RELATION TO WARRANTS SUBSCRIPTION, AND

(3) CONTINUING CONNECTED TRANSACTIONS IN RELATION TO THE NATURAL GAS SUPPLY AGREEMENT

INTRODUCTION

We refer to our engagement as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the terms of the Settlement Deed, the Warrants Subscription Agreement and the Natural Gas Supply Agreement, and the transactions contemplated thereunder, details of which are set out in the letter from the Board (the “ Letter from the Board ”) contained in the circular of the Company dated 8 July 2013 (the “ Circular ”) to the Shareholders, of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as those defined in the Circular unless the context requires otherwise.

– 53 –

LETTER FROM NEW SPRING CAPITAL

According to the announcement of the Company dated 16 May 2013, in respect of (i) the connected transactions in relation to the entering into of the Settlement Deed and (ii) the Warrants Subscription (the “ First Announcement ”), the Board announced that, on 8 April 2013, the Company and the Vendor entered into the Settlement Deed (as supplemented by the Supplemental Settlement Deed on 16 May 2013) pursuant to which, among other matters, (i) the security created by the Share Charge shall be discharged and released in the manner provided in the Release; (ii) the Company shall waive the compliance by the Vendor of its obligations under the agreement dated 13 June 2011, entered into between the Company and the Vendor, in respect of the Acquisition (the “ Acquisition Agreement ”) in relation to the Profit Guarantee in the manner provided in the Release; (iii) the Vendor and the Company shall jointly appoint the Escrow Agent to hold and deal with the Consideration Shares in accordance with the terms of the Escrow Letter; (iv) the Vendor shall deposit the Consideration Shares and other related title and other documents as provided in the Escrow Letter with the Escrow Agent immediately after the signing of the Release and the Escrow Letter; and (v) the Consideration Shares shall be held and dealt with by the Escrow Agent in accordance with the settlement arrangement as stipulated in the Settlement Deed.

As at the Latest Practicable Date, the Vendor was interested in 1,727,729,582 Shares, representing approximately 29.74% of the entire issued share capital of the Company. By virtue of the Vendor’s interests in the Company, the transactions contemplated under the Settlement Deed constitute nonexempt connected transactions on the part of the Company and are subject to, among other things, reporting, announcement and Independent Shareholders’ approval requirement under Chapter 14A of the Listing Rules. Pursuant to Chapter 14A of the Listing Rules, the Vendor and its associates (including but not limited to Mr. Yeung Paak Ching (“ Mr. Yeung ”) and Mr. Yang Songsheng (“ Mr. Yang ”)) are required to abstain from voting in respect of the relevant resolution approving the Settlement Deed and the transactions contemplated thereunder (including but not limited to the grant of the Settlement Specific Mandate) at the SGM.

Further, on 8 April 2013, the Company and the Subscriber entered into the Warrants Subscription Agreement pursuant to which the Company has conditionally agreed to allot and issue to the Subscriber, and the Subscriber has conditionally agreed to subscribe for, an aggregate of 1,135,000,000 Warrants conferring the rights to subscribe for an aggregate of 1,135,000,000 Subscription Shares at the initial Subscription Price of HK$0.205 per Subscription Share (subject to adjustment). The Warrants Issue Price is HK$0.01 per Warrant and the gross proceeds from the Warrants Subscription of HK$11,350,000 will be payable by the Subscriber in cash upon Warrants Completion.

As at the Latest Practicable Date, Dr. Mo Shikang (“ Dr. Mo ”), an executive Director, was interested in (i) 427,841,375 Shares, representing approximately 7.36% of the existing share capital of the Company; and (ii) 750,000 Share Options. Dr. Mo is also the sole beneficial owner of the Subscriber. Thus, the Subscriber is a connected person of the Company and the Warrants Subscription constitutes a non-exempt connected transaction on the part of the Company under Chapter 14A of the Listing Rules. Accordingly, the Warrants Subscription is subject to, among other things, reporting, announcement and Independent Shareholders’ approval requirement under Chapter 14A of the Listing Rules.

– 54 –

LETTER FROM NEW SPRING CAPITAL

Pursuant to Chapter 14A of the Listing Rules, Dr. Mo, being the sole beneficial owner of the Subscriber, and his associates are required to abstain from voting in respect of the relevant resolution approving the Warrants Subscription and the transactions contemplated thereunder (including but not limited to the grant of the Warrants Specific Mandate) at the SGM.

According to the announcement of the Company dated 23 May 2013, in respect of the continuing connected transactions in relation to the entering into of the Natural Gas Supply Agreement (the “ Second Announcement ”), the Board announced that, on 22 May 2013, Xi’an Zhongmin entered into the Natural Gas Supply Agreement with Shaanxi Natural Gas, pursuant to which Xi’an Zhongmin has agreed to purchase the Natural Gas from Shaanxi Natural Gas for a term commencing from 30 June 2013 until 31 December 2013. As disclosed in the Company’s announcement dated 25 June 2013, Xi’an Zhongmin and Shaanxi Natural Gas mutually agreed in writing on the same day that the purchase of the Natural Gas from Shaanxi Natural Gas contemplated under the Natural Gas Supply Agreement may commence at a later date upon obtaining the approval from the Independent Shareholders at the SGM.

As at the Latest Practicable Date, Xi’an Zhongmin is 51% indirectly owned subsidiary of the Company. By virtue that Shaanxi Natural Gas is a substantial shareholder of Xi’an Zhongmin holding 40% equity interests in Xi’an Zhongmin and hence a connected person of the Company. Accordingly, the entering into of the Natural Gas Supply Agreement between Xi’an Zhongmin and Shaanxi Natural Gas constitutes continuing connected transactions for the Company under Chapter 14A of the Listing Rules.

As each or all of the percentage ratios (other than the profits ratio) for the transactions under the Natural Gas Supply Agreement and the purchase of Natural Gas during the Period is or are on an annual basis more than 5%, the Natural Gas Supply Agreement will be subject to the reporting, announcement and Independent Shareholders’ approval requirements under Rule 14A.35 of the Listing Rules.

Accordingly, the Independent Board Committee comprising all the independence non-executive Directors (namely Dr. Liu Junmin, Mr. Tan Qinglian, Mr. Sin Ka Man and Mr. Li Jialin) has been established to advise the Independent Shareholders as to (i) whether the terms of the Settlement Deed (as supplemented by the Supplemental Settlement Deed), the Warrants Subscription Agreement and the Natural Gas Supply Agreement, and the transactions contemplated thereunder are fair and reasonable and in the interests of the Company and the Shareholders as a whole; and (ii) how to vote at the SGM, after taking into account the factors and reasons considered by the Independent Financial Adviser, appointed by the Company, and its conclusion and advice.

We, New Spring Capital Limited, have been appointed to advise the Independent Board Committee and the Independent Shareholder as to whether the terms of the Settlement Deed, the Warrants Subscription Agreement and the Natural Gas Supply Agreement and the transactions contemplated thereunder are fair and reasonable and in the interests of the Company and the Shareholders as a whole and as to how the Independent Shareholders should vote at the SGM. We do not, by this letter, warrant the merits of the transactions contemplated thereunder, other than to form an opinion, for the purpose of the Listing Rules.

– 55 –

LETTER FROM NEW SPRING CAPITAL

We are not associated with the Company, the Vendor, the Subscriber, Dr. Mo, Shaanxi Natural Gas, and their respective associates (as defined under the Listing Rules), including but not limited to, Mr. Yeung and parties acting in concert (as defined under the Takeovers Code) with any of them, and other Shareholders who are interested or involved in the Settlement Deed and the Supplemental Settlement Deed, the Warrants Subscription and the Natural Gas Supply Agreement, and accordingly, are considered eligible to give independent advice on the terms of the Settlement Deed, the Warrants Subscription Agreement and the Natural Gas Supply Agreement and the transactions contemplated thereunder. Apart from normal professional fees payable to us in connection with this appointment, no arrangement exists whereby we will receive any fees or benefits from any parties above.

BASIS OF OUR OPINION

In formulating our opinion and recommendation to the Independent Board Committee and the Independent Shareholders, we have relied on the accuracy of the information, opinions and representations provided to us by the Directors and management of the Company, and have assumed that all information, opinions and representations contained or referred to in this Circular were true and accurate at the time when they were made and will continue to be accurate as at the Latest Practicable Date. We have also assumed that all statements of belief, opinion and intention made by the Directors in this Circular were reasonably made after due enquiry. We have no reasons to doubt that any relevant information has been withheld, nor are we aware of any fact or circumstance which would render the information provided and representations and opinions made to us untrue, inaccurate or misleading.

We consider that we have received sufficient information to enable us to reach an informed view and to justify reliance on the accuracy of the information contained in this Circular to provide a reasonable basis for our opinion and recommendation. We consider that we have performed all the necessary steps as required under Rule 13.80 of the Listing Rules to enable us to reach an informed view and to justify our reliance on the information provided and representations made to us so as to form a reasonable basis for our opinion which include, among others:

• (i) as to the entering into of the Settlement Deed:

• (a) obtaining and reviewing the First Announcement, the Letter from the Board, the annual reports of the Company for the years ended 31 March 2011 and 2012 (the “ 2011 Annual Report ” and “ 2012 Annual Report ” respectively, collectively as the “ Annual Reports ”), the interim report of the Company for the six months ended 30 September 2012 (the “ Interim Report ”) and relevant announcements and/ or circulars of the Company in relation to the Settlement Deed;

• (b) obtaining and reviewing the information, documents and/or agreements in relation to the Settlement Deed and the Supplemental Settlement Deed;

– 56 –

LETTER FROM NEW SPRING CAPITAL

• (c) conducting market research to provide references for the industry performance; and

• (d) interviewing the Directors and the management of the Group regarding the reasons and background of the entering into the Settlement Deed and the Supplemental Settlement Deed and the basis of determining such agreement terms, the historical financial results and the future plan of the Group’s lottery business, the industry growth and prospects of the lottery industry, the contribution of Mr. Yang and Mr. Yeung to the Group and the Target Group;

• (ii) as to the entering into of the Warrants Subscription Agreement:

• (a) obtaining and reviewing the First Announcement, the Letter from the Board, the annual reports of the Company for the preceding ten financial years from 2003 to 2012, the Interim Report and relevant announcements and/or circulars of the Company in relation to the Warrants Subscription Agreement;

• (b) obtaining and reviewing the information, documents and/or agreements in relation to the Warrants Subscription Agreement;

• (c) reviewing the historical trading performance of the Shares;

• (d) conducting market and comparable researches to provide references for the major terms of the Warrants Subscription Agreement and the industry performance; and

• (e) interviewing the Directors and the management of the Group regarding the reasons and background of the entering into the Warrants Subscription Agreement and the basis of determining such agreement terms, the historical financial results, the financial position and the future business plan of the Group, the role and historical contribution of Dr. Mo to the Group the industry growth and prospects of which the Group engaged and the fund raising arrangement under the Warrants Subscription Agreement; and

• (iii) as to the entering into of the Natural Gas Supply Agreement:

• (a) obtaining and reviewing the Second Announcement, the Letter from the Board, the Annual Reports, the Interim Report and relevant announcements and/or circulars of the Company in relation to the Natural Gas Supply Agreement;

• (b) obtaining and reviewing the audited and/or management accounts of Xi’an Zhongmin for the three financial years from 2011 to 2013;

• (c) obtaining and reviewing the information, documents and/or agreements in relation to the historical business transactions between Xi’an Zhongmin and Shaanxi Natural Gas and the Natural Gas Supply Agreement;

– 57 –

LETTER FROM NEW SPRING CAPITAL

• (d) reviewing public documents published by Shaanxi Natural Gas;

• (e) reviewing industry guidance released by relevant regulatory bodies;

• (f) conducting market research to provide references for the major terms of the Natural Gas Supply Agreement and the industry performance; and

• (g) interviewing the Directors and the management of the Group regarding the reasons and background of the entering into the Natural Gas Supply Agreement and the basis of determining such agreement terms, the historical financial results of Xi’an Zhongmin and the future plan of the Group’s Natural Gas business, the business relationship and transaction details with Shaanxi Natural Gas, the industry growth and prospects of Natural Gas industry and so forth.

PART I – PRINCIPAL FACTORS AND REASONS CONSIDERED IN RELATION TO THE SETTLEMENT DEED

In arriving at our opinion and recommendation to the Independent Board Committee and the Independent Shareholders with regard to the Settlement Deed, and the transactions contemplated thereunder and the grant of the Settlement Specific Mandate to allot and issue the Additional Shares, we have considered the following principal factors and reasons:

I. Background of the Settlement Deed

(i) The Acquisition, the Profit Guarantee and the Share Charge

On 13 June 2011, the Company, as the purchaser, entered into the Acquisition Agreement with the Vendor, as the vendor, pursuant to which the Company has conditionally agreed to purchase and the Vendor has conditionally agreed to sell, the Sale Share at the Consideration of HK$465,226,560, which shall be satisfied by the Company as to (i) HK$419,838,288.50 by the Company to allot and issue the Consideration Shares to the Vendor credited as fully paid at the Issue Price upon completion of the Acquisition (the “ Acquisition Completion ”); and (ii) HK$45,388,271.50 by setting off against the Debt.

It is noted from the 2011 Circular that the Consideration was determined through arm’s length negotiations between the Vendor and the Company and on a commercial basis with reference to (i) the aggregate combined net asset value of the Target Group as at 31 March 2011 of HK$141,336,000; and (ii) the preliminary valuation of Shenzhen Le Cai of RMB645,000,000 (equivalent to approximately HK$777,548,000) performed by Asset Appraisal Limited, an independent valuer, on 31 May 2011. Compared to the fair value of 60% equity interests in Shenzhen Le Cai in the amount of RMB387,000,000 (equivalent to approximately HK$466,529,000) as at 31 May 2011, as appraised by such independent valuer, using the income approach with discount cash flow modeling, the Consideration represented a discount of approximately 0.28% to the appraised value of 60% equity interests in Shenzhen Le Cai.

– 58 –

LETTER FROM NEW SPRING CAPITAL

Pursuant to the Acquisition Agreement, the Vendor guaranteed to the Company that the net profits after tax of the Target Group as shown in the audited consolidated financial statement of the Target Group for the period from 1 September 2011, being the date on which the Acquisition Completion took place (the “ Acquisition Completion Date ”) to 31 March 2013 (the “ Guarantee Period ”) should not be less than RMB60,000,000 (equivalent to approximately HK$72,330,000) (the “ Profit Guarantee ”) and will compensate the Company for any shortfall between the Profit Guarantee and the actual profits after tax as shown in the audited consolidated financial statement of the Target Group. It is also noted that if the Target Group records a loss during the Guarantee Period, the actual profit after tax of the Target Group will be deemed zero for the purpose of calculating the shortfall, and hence, the compensation (if any) shall not exceed the amount of the Profit Guarantee, being RMB60 million.

Upon the Acquisition Completion, the Company and the Vendor agreed to charge the 297,654,321 Consideration Shares (representing approximately 5.12% of the entire issued share capital of the Company as at the Latest Practicable Date) held by the Vendor in favour of the Company (the “ Share Charge ”). It is also noted that the value of such number of the Consideration Shares under the Share Charge was approximately RMB60 million based on the Issue Price (i.e. HK$0.243 per Consideration Share), and hence, it served as a security for the performance of the Profit Guarantee by the Vendor.

It is further noted from the Acquisition Agreement that the Share Charge shall be released (i) upon the fulfillment of the Profit Guarantee; or (ii) in the event that the Target Group has successfully applied for a new genre of game or developed a new market during the period of Profit Guarantee and a valuation report (in form and substance satisfactory to the Company) prepared by an independent valuer appointed by the Company in relation to the value of such new genre of game or new market of not less than RMB193 million (equivalent to approximately HK$232,662,000).

On 29 August 2011, the Acquisition Agreement and the transactions contemplated thereunder were approved by the then Shareholders at the special general meeting of the Company held on the same day.

The Acquisition Completion took place on 1 September 2011 and the 1,727,729,582 Consideration Shares (representing approximately 29.74% of the entire issued share capital of the Company as at the Latest Practicable Date) were duly allotted and issued by the Company to the Vendor as part of the Consideration on 1 September 2011. The Share Charge has been executed subsequently by the Vendor over the 297,654,321 Consideration Shares (registered in the name of and beneficially owned by the Vendor), in favour of the Company.

– 59 –

LETTER FROM NEW SPRING CAPITAL

Details in relation to, among other things, the Acquisition, the Profit Guarantee and the Share Charge were set out in the 2011 Announcement and the 2011 Circular. The corporate structure of the Target Group as at the Acquisition Completion Date was set out in the Letter from the Board.

(ii) The Release and the Settlement Deed

Based on the unaudited consolidated management accounts of the Target Group made up to 31 March 2013, the net loss after tax of the Target Group was approximately RMB68.91 million (equivalent to approximately HK$85.17 million, calculated at the exchange rate of RMB1.0000 to HK$1.2359 as at 31 March 2013). Therefore, the Profit Guarantee would not be achieved. Also, no valuation report in relation to the new genre of game and new market that have been granted to, or secured or developed by, the Target Group since the Acquisition Completion Date has been prepared and issued as at the date of the Settlement Deed.

Furthermore, the Group is expected to record a significant loss for the year ended 31 March 2013 as compared to the profit recorded in the last corresponding year, according to the announcement of the Company dated 8 May 2013. It was mainly attributable to, among others, the substantial impairment loss in respect of intangible assets – exclusive rights of operation of lottery sales of the Group, as a result of the longer than expected time required for the development of Keno Games Lottery (快樂彩) business in the PRC, based on the preliminary assessment by the Group’s management according to the figures and information currently available.

In view of the foregoing, we note that the Company and the Vendor have negotiated in good faith towards each other with a view of settling the matter amicably and entered into the Settlement Deed on 8 April 2013 (as supplemented by the Supplemental Settlement Deed on 16 May 2013), pursuant to which, among others, (i) the security created by the Share Charge shall be discharged and released in the manner provided in the Release, in accordance with the Letter from the Board; (ii) the Company shall waive the compliance by the Vendor of its obligations under the Acquisition Agreement in relation to the Profit Guarantee in the manner provided in the Release; (iii) the Vendor and the Company shall jointly appoint the Escrow Agent to hold and deal with the Consideration Shares in accordance with the terms of the Escrow Letter; (iv) the Vendor shall deposit the Consideration Shares and other related title and other documents as provided in the Escrow Letter with the Escrow Agent immediately after the signing of the Release and the Escrow Letter; and (v) the Consideration Shares shall be held and dealt with by the Escrow Agent in accordance with the settlement arrangement as stipulated in the Settlement Deed.

– 60 –

LETTER FROM NEW SPRING CAPITAL

II. The Vendor and the Target Group

(i) Background of the Vendor

It is noted from the Letter from the Board that the Vendor is an investment holding company duly incorporated in Hong Kong with limited liability. As at the Latest Practicable Date, the Vendor was interested in 1,727,729,582 Shares, representing approximately 29.74% of the entire issued share capital of the Company, and was, thus, a connected person of the Company. As at the Latest Practicable Date, Mr. Yang and Mr. Yeung, being the directors and shareholders of the Vendor and brothers, held 7,500,000 Share Options and 5,000,000 Share Options, respectively. Mr. Yeung also held 600,000 Shares as at the Latest Practicable Date.

Aside from being directors and shareholders of the Vendor and substantial Shareholders, Mr. Yang has been appointed as the executive chairman of the Board (redesignated to the chairman on 5 September 2012) and an executive Director and Mr. Yeung has been appointed as an executive Director and a co-managing Director together with Mr. Jin Song, an executive Director, in accordance with the announcements of the Company dated 19 December 2011 and 5 September 2012, respectively.

We are advised by the Directors that the Company has been benefiting from the extensive experiences and expertise of Mr. Yang and Mr. Yeung in the lottery business. Referring to the 2012 Annual Report, Mr. Yang is the chief executive officer of 中華永 恒慈善基金 (The Chinese Yongheng Charitable Foundation[#] ), the deputy chief secretary of the China Association of Social Workers, the president of magazine《社會與公益》 (Society and Public Welfare[#] ) and a member of Standing Executive Committee of Lottery of the China Association of Social Workers. ([#] the English translations are for illustration purpose only). Mr. Yeung also has extensive knowledge in lottery business as well as rich experiences in business management of a large corporation.

We refer to the 2011 Circular and note that the success of Shenzhen Le Cai, to a significant extent, is attributable to the business connection and solid experience in lottery sales channel service and operation service of its management personnel. Since the lottery business is still at an infant stage, the Company considers that Shenzhen Le Cai’s business may be adversely affected, if any of its senior management of Shenzhen Le Cai leaves Shenzhen Le Cai and the Group fails to identify suitable replacement in a short timeframe. We are advised by the Directors that Mr. Yang, being the executive chairman of the Company (re-designated to the chairman on 5 September 2012) and an executive Director since December 2011, is mainly responsible for the formulation of corporate strategies and the overall direction for the Group’s management team in lottery business. The Directors considered that the efforts devoted by and the management expertise of Mr. Yang and Mr. Yeung (together with other senior management of the Group) had contributed to the development of the Target Group and are valuable assets to the Group.

– 61 –

LETTER FROM NEW SPRING CAPITAL

(ii) Business and financial information of the Target Group

The Target Group is principally engaged in lottery agency sales business in the PRC, the major assets of which is Shenzhen Le Cai, a company invested and established in Shenzhen, the PRC. Shenzhen Le Cai is exclusively engaged in the lottery related businesses, in particular, the commissioned sales of Keno Games Lottery (快樂彩) and China welfare lotteries (including but not limited to “Shenzhen Feng Cai”(深圳風采), “Shuang Se Qiu”(雙色球), “Qi Le Cai”(七樂彩) and “3D” etc.).

The following table sets out the number of lottery betting stores/stations operated by the Target Group as at the relevant dates:

Number of lottery betting stores/stations operated by the Target Group

City/Province Type of lottery betting outlet Shenzhen Stores (投注站) Stations (銷售廳) Guizhou Stores (投注站) Total	30 September 2011 5 – – 5	31 March 2012 18 3 – 21	At as 30 September 2012 33 4 – 37	31 March 2013 76 3 – 79	31 May 2013 84 1 3
					88

As at the date of the 2011 Circular, the Target Group has established three (3) lottery stores for distribution of welfare lotteries in Shenzhen. It is noted from the above table that the number of lottery betting outlets has been increased significantly since the Acquisition Completion. As at the Latest Practicable Date, the Target Group was operating 87 lottery betting stores/stations in Shenzhen and 5 welfare lottery stores in Guizhou Province and was contemplating to continuously expand its distribution points in Shenzhen and Guizhou Province.

– 62 –

LETTER FROM NEW SPRING CAPITAL

The following table sets out the revenue generated from the lottery agency sales segment of the Group for the relevant periods:

Revenue generated from the lottery agency sales segment of the Group

Segment revenue: Lottery agency sales The Group’s revenue	For the year ended 31 March 2011 2012 HK$’000 Approximate % HK$’000 Approximate % – – 432 0.04 853,868 100.0 1,119,002 100.0	For the six months ended 30 September 2011 2012 HK$’000 Approximate % HK$’000 Approximate % 12 0.002 701 0.1 501,317 100.0 602,832 100.0	For the six months ended 30 September 2011 2012 HK$’000 Approximate % HK$’000 Approximate % 12 0.002 701 0.1 501,317 100.0 602,832 100.0
			100.0

As illustrated from the above table, the lottery agency sales segment of the Group started to generate revenue from the six months ended 30 September 2011 with approximately HK$12,000. It grew to approximately HK$432,000 for the year ended 31 March 2012 and continually increased to approximately HK$701,000 for the six months ended 30 September 2012. It is also noted that there is an increasing trend of the contribution from such segment as compared with the total revenue of the Group during the above periods. We understood from the Company that the lottery agency sales segment recorded loss (excluding the amortisation charge on the intangible assets and related deferred tax) of approximately HK$14.2 million for the year ended 31 March 2012, which were approximately HK$0.9 million and HK$13.9 million for the six months ended 30 September 2011 and 2012, respectively. It is advised that such losses were mainly due to the Target Group’s initial investments during the early development stage of the lottery agency sales business.

However, as aforementioned that the Target Group recorded net loss after tax with approximately RMB68.91 million (equivalent to approximately HK$85.17 million, calculated at the exchange rate of RMB1.0000 to HK$1.2359 as at 31 March 2013), based on the unaudited consolidated management accounts of the Target Group from the Acquisition Completion Date to 31 March 2013. We are advised by the Directors that the loss of the Target Group was mainly attributable to the amortisation charge from the intangible assets – exclusive rights of operation of lottery sales of approximately RMB45.35 million (equivalent to approximately HK$56.05 million, calculated at the exchange rate of RMB1.0000 to HK$1.2359 as at 31 March 2013). Therefore, it resulted in a decrease of approximately 13.6% on the unaudited aggregate combined net asset value of the Target Group as at 31 March 2013, as compared with the aggregate combined net asset value of the Target Group as at the Acquisition Completion Date of approximately HK$627.0 million.

– 63 –

LETTER FROM NEW SPRING CAPITAL

Excluding the impact from the aforementioned amortisation charge, the Directors still consider that the performance of the lottery business was not satisfactory enough, which was mainly due to, including among others, (i) the growth rate of the nationwide welfare lottery sales in 2012 has slowed down from approximately 32% in 2011 to approximately 18% in 2012, while the average growth rate during the period from 2008 to 2012 was approximately 26%, according to the statistics published by the Ministry of Finance of China; and (ii) the Target Group expected that the lottery betting stores (投 注站) (relatively smaller in size) would be consolidated by The Central People’s Government of the PRC (the “ PRC Government ”) gradually into lottery betting stations (銷售廳), where the Target Group will deploy Keno Games Lottery betting machines for selling Keno Games Lottery. However, the sales of lottery tickets through lottery stations were much less than expected and the lottery betting stores remain as the major revenue originator for the lottery agency sales business of the Target Group in 2012. Therefore, the management of the Target Group is adjusting the number of new lottery betting outlets (including stores and/or stations) to be opened in the future years.

We refer to the 2012 Annual Report and note that Keno Games Lottery is a new kind of computer-based lotteries of China welfare lotteries, the official launch of which was only commenced in Shenzhen, on 27 November 2011. We are advised by the Company that as a brand-new type of lottery, Keno Games Lottery requires the Company to devote time and resources to develop its customer base. In response to this, the management of Shenzhen Le Cai has adopted a rather prudent operating approach during the initial stage, by slowing down its investment in the establishment of new stations. Currently, the Company has also adopted a complex lottery distributing approach, through which, the distribution of Keno Games Lottery, China welfare lotteries and paper-based instant lotteries (such as Gua Gua Le) have been available in every lottery betting station/store, so as to help increase sales and enhance the popularity of Keno Games Lottery.

We are further advised by the Directors that, once the lottery betters become more familiar with rules of Keno Games Lottery, it is expected that Keno Games Lottery will be a popular lottery game and the Company will then scale up the progress in opening stores. As further referring to the 2011 Circular, it is note that Keno Games Lottery is a kind of high frequency lottery. The first of this kind of lottery is known as Hainan Kuai 2 (海南快2), which was introduced in October 2009 in Hainan Province. According to the Hainan Welfare Lottery Issuing Centre, the accumulative betting of Hainan Kuai 2 up to September 2010 amounted to approximately RMB398 million, which accounted for approximately 65% of the total betting of welfare lottery of the province. It may imply a large room for the potential growth of the Company’s distribution of Keno Games Lottery in Shenzhen.

– 64 –

LETTER FROM NEW SPRING CAPITAL

Having considered that above factors, in particular, (i) net loss after tax of the Target Group with approximately RMB68.91 million, based on the unaudited consolidated management accounts of the Target Group from the Acquisition Completion Date to 31 March 2013, was mainly due to the amortisation charge from the intangible assets; (ii) the revenue generated from the lottery business and number of lottery betting stores/ stations has been growing progressively since the Acquisition Completion; (iii) Keno Games Lottery is a new kind of computer-based lotteries and requires the Company to devote time and recourses for the establishment of customer base; and (iv) the market potential of Keno Games Lottery is large, with reference to other province, we concur with the Directors’ view that it is fair and reasonable to give the Target Group a longer time to turn around its performance and commercially viable for the Company to spend more time and effort on the lottery business segment.

(iii) Business development and prospects of the Target Group

• Business development of the Target Group

Despite the fact that performance of the Target Group was considered as unsatisfactory by the Directors, the Board is still optimistic about the future potential growth in the PRC lottery market, which is considered to be regulated extensively and the operation of lottery distribution is subject to various PRC laws, rules and regulations. It is advised by the Company that, through the extensive network of Mr. Yang and Mr. Yeung, the Target Group has successfully entered into, among others, a few material cooperation agreements with provincial lottery issuing centres in the PRC which are summarised as below:

• (a) On 1 August 2011, Shenzhen Le Cai and Shenzhen Welfare Lottery Issuing Centre entered into a framework agreement in relation to the appointment of Shenzhen Le Cai by Shenzhen Welfare Lottery Issuing Centre as (i) one of the authorised agents to distribute welfare lotteries in Shenzhen; and (ii) the sole agent to distribute Keno Games Lottery in Shenzhen for a term of 20 years commencing from 1 August 2011 and ending on 31 July 2031 (the “ Shenzhen Lottery Agreement ”). On 19 December 2012, the Company announced that Shenzhen Le Cai entered into a supplemental agreement with Shenzhen Lottery Issuing Centre on 18 December 2012, pursuant to which, the commission rate for the Company’s distribution of Keno Games Lottery will be increased from 7% to 8% and the maximum number of betting branches for the Keno Games Lottery shall not exceed 15% of the total number of welfare lottery betting branches in Shenzhen, with effect from 1 January 2013 (the “ Shenzhen Lottery Supplemental Agreement ”).

– 65 –

LETTER FROM NEW SPRING CAPITAL

• (b) On 10 December 2012, Shenzhen Le Cai and Guizhou Province Welfare Lottery Issuing Centre entered into an agency agreement pursuant to which Shenzhen Le Cai shall set up 200 welfare lottery outlets to distribute computerbased welfare lotteries and paper-based instant lottery “刮刮樂” (Gua Gua Le) in Guizhou Province, the PRC for a term of three years commencing from 10 December 2012 and, in return, Shenzhen Le Cai shall receive commission from Guizhou Province Welfare Lottery Issuing Centre (the “ Guizhou Lottery Agreement ”).

Based on the above material lottery contracts (i.e. the Shenzhen Lottery Agreement and the Guizhou Lottery Agreement) and the management extensive operational experiences in lottery industry, the management of the Target Group expects that the number of lottery betting stores/stations operated by the Target Group will reach around 330 in Shenzhen and 200 in Guizhou by the end of 2016. The Directors consider that such number of lottery stores are reasonably estimated, after considering (i) large market potential for China welfare lottery with relatively high growth; (ii) chain-store basis operated by Shenzhen Le Cai is in line with the current distribution model of China welfare lottery and will result in positive effects on brand building and economics of scales; (iii) relevant preparation progress is currently satisfactory, such as selecting suitable locations, applications of relevant permits, renovation planning, staff trainings and installation of lottery sales system; and (iv) there will be sufficient funds and human resources of the Target Group for setting up new lottery betting stores/stations.

In view of the above and having taking into account the factors that (i) our discussion with the management on the business development plan of Shenzhen Le Cai and the basis and assumptions for such business plan; (ii) the distribution model of China welfare lotteries is mainly via vast coverage of stores in cities/provinces; (iii) referring to the above estimated number of lottery stores by the end of 2016, it is noted that an average number of around 60 outlets will be set up in Shenzhen each year from 2013 to 2016, which is in line with the historical expansion progress with 58 outlets opened during the financial year ended 31 March 2013 and major terms of the Shenzhen Lottery Agreement with a term of 20 years from 2011 to 2031; (iv) it is noted that the Guizhou Lottery Agreement is with a term of 3 years from 2012 to 2015 and requires Shenzhen Le Cai to set up 200 welfare lottery stores during the agreement terms. Accordingly, there will be an average number of around 66 outlets open in Guizhou each year from 2013 to 2015, which aligns with the above historical expansion progress of the Target Group since the Acquisition Completion and management’s proven capabilities and experiences in running the lottery business; (v) the following analysis under the sub-section headed “Industry

– 66 –

LETTER FROM NEW SPRING CAPITAL

overview of the lottery market” have indicated market potentials of lottery business in Shenzhen and Guizhou Province; and (vi) after studying the latest available unaudited financial statements of the Target Group as at 31 March 2013, the capital requirements for setting up lottery stores and our discussion with the Directors regarding the funding source, we agree with the Directors’ view that the availability of finance will not be a constraint on the Target Group’s growth, we therefore concur with the Directors’ view that the aforementioned number of lottery betting stores/stations by the end of 2016 is reasonably estimated.

In addition to the existing lottery business, we are advised by the Company that the senior management team of Shenzhen Le Cai, being led by Mr. Yang and Mr. Yeung, is proactively exploring new distribution markets and is currently under negotiations with few provincial lottery issuing centres in the PRC for potential cooperation, which are summarised as below:

• (a) Referring to the Interim Report, in August 2012, the Group set up Shenzhen Cai Cai Le in Shenzhen with registered capital of RMB18,000,000 (equivalent to approximately HK$22,036,000). Shenzhen Cai Cai Le will be engaged in the development of intelligent electronic game software technology and equipment.

• (b) On 9 January 2013, the Company announced that Shenzhen Le Cai has acquired a parcel of industrial land located in Pingshan New District, Shenzhen on 8 January 2013, to construct an industrial park (the “ Industrial Park ”) for the development of prize lottery electronic engineering software, research and development and production of high-end lottery equipment in the PRC. We are advised by the Directors that the Industrial Park is expected to commence operation in 2014 and it is believed that the establishment of the Industrial Park would improve lottery varieties and promote Shenzhen Le Cai becoming one of the famous lottery products, lottery machine terminal and software service developers in the PRC.

• (c) In late 2012, Shenzhen Le Cai has entered into a letter of intent with a province in the Southern China, pursuant to which Shenzhen Lei Cai is conditionally granted the rights to distribute the welfare lottery tickets in such province.

• (d) In early 2013, Shenzhen Le Cai has also entered into a letter of intent with a province in the Northern China, pursuant to which Shenzhen Le Cai is conditionally granted the rights to distribute the sports lottery tickets in such province.

– 67 –

LETTER FROM NEW SPRING CAPITAL

In light of the above business developments of the Target Group, in particular, (i) two material contracts entered into by Shenzhen Le Cai for the distribution of lottery tickets in Shenzhen and Guizhou, for terms of 20 years and 3 years, respectively; (ii) increased commission rate for the distribution of Keno Games Lottery from 7% to 8%; (iii) the Target Group’s existing lottery betting network with 87 outlets in Shenzhen and 5 outlets in Guizhou, as at the Latest Practicable Date; (iv) the continuing expansion plan of the distribution networks in Shenzhen and Guizhou; and (v) the potential development plans of new markets/business, such as the Industrial Park and the possible lottery agency sales in the Southern and Northern China, we concur with the view of the Directors that the prospect of the Target Group is optimistic and it is fair and reasonable to spend more time and effort on the lottery business segment, which is in the interest of the Company and the Shareholders as a whole.

We are further advised by the Directors that Shenzhen Le Cai’s success is, to a significant extent, attributable to the business connection and solid experience in lottery sales channel service and operation service of its management personnel, in particular, (i) Mr. Yang, who has profound industry experiences and extensive network in the PRC lottery industry, which is crucial to the business development of the Target Group; and (ii) Mr. Yeung, who also has extensive knowledge in the lottery business as well as rich experiences in business management of a large corporation. The Directors considered that Mr. Yang and Mr. Yeung are two major contributors for the past development of Shenzhen Lei Cai since its establishment in 2008. In view of (i) the recent development of the Target Group listed above are the achievements under the leadership of Mr. Yang and Mr. Yeung; (ii) their past contribution on the development of the Target Group since its establishment in 2008; and (iii) their solid experience and network in the lottery business, we concur with the Directors that both of Mr. Yang and Mr. Yeung are crucial members to the future development of the Target Group and it is commercially reasonable to retain their services in the management level of the Group and the Target Group.

• Industry overview of the lottery market

The lottery market in China is operated by the government organisations for welfare purposes. Currently, there are two types of lotteries in China which are (i) welfare lottery and (ii) sports lottery. Welfare lottery is run by China Welfare Lottery Issuance Centre of Ministry of Civil Affairs of China, which has been established since June 1987 that raises funds for social welfare purposes. Sports lottery is run by China Sports Lottery Administrative Center which is jointly operated by Ministry of Finance and General Administration of Sport of China and it was established in 1994 that raises funds for the development of sporting activities in China. Although the lottery in China is operated by the government, the private sector can participate through the operation of point of sales, or the provision of software, hardware, networks and technical support to the government organisations or agencies.

– 68 –

LETTER FROM NEW SPRING CAPITAL

2008 - 2012 Annual Lottery Sales in China

==> picture [341 x 253] intentionally omitted <==

----- Start of picture text -----

160.00
140.00
120.00
100.00
80.00
60.00
40.00
20.00
0.00
2008 2009 2010 2011 2012
Welfare lottery Sports lottery
RMB billion
----- End of picture text -----

Source: Ministry of Finance of the PRC

China’s lottery market grew by a compound annual growth rate of approximately 35.1% for the five years’ period between 2008 to 2012 and the annual lottery sales, including both welfare lottery and sports lottery, increased from approximately RMB106.0 billion in 2008 to approximately RMB261.5 billion in 2012. The significant growth of the China’s lottery market is due to the economic growth and strong demand for the lottery in China. The annual lottery sales in the PRC has reached a new record to approximately RMB261.5 billion in 2012 as both of the welfare lottery sales and sports lottery sales has made a new record high to approximately RMB151.0 billion and approximately RMB110.5 billion respectively.

We note that the Target Group’s lottery agency sales business is mainly located in Guangdong (including Shenzhen) and Guizhou currently. According to the Ministry of Finance of the PRC, it is noted that sales of welfare lotteries in the PRC was approximately RMB151.0 billion in 2012, which represented an increase of approximately 18.2% compared to the results of last year. Out of the 31 provinces in the PRC, welfare lottery sales driven by Guangdong Province in 2012 ranked first, which amounted to approximately RMB17.0 billion and represented more than one-tenth of the sales of welfare lotteries in the nation. It is noted that the welfare lottery sales in Shenzhen had been reached to almost RMB3.0 billion, representing a year-on-year growth of approximately 10.3% and accounting for approximately 17.5% of the sales in Guangdong Province in 2012.

– 69 –

LETTER FROM NEW SPRING CAPITAL

During the same year, sales of welfare lotteries in Guizhou Province amounted to approximately RMB1.8 billion, ranking at the 27th among the 31 provinces in the PRC. It is noted that the welfare lottery sales in Guizhou Province also recorded double-digit growth with approximately 13.2% in 2012, compared to the results of last year.

In the view of (i) the substantial national growth of the welfare lottery industry in the PRC; (ii) the leading position of Guangdong Province (including Shenzhen) in the welfare lottery industry; and (iii) the welfare lottery markets in Shenzhen and Guizhou Province both recorded double-digit growths, we consider that the prospect of the welfare lottery business in the PRC and the Target Group is optimistic.

III. Terms of the Settlement Deed and the Supplemental Settlement Deed

(i) The Release and the escrow arrangement

Pursuant to the Settlement Agreement, each of the Vendor and the Company agreed with each other that, among others: (i) the security created by the Share Charge shall be discharged and released in the manner provided in the Release; and (ii) the Company shall waive the compliance by the Vendor of its obligations under the Acquisition Agreement in relation to the Profit Guarantee in the manner provided in the Release.

Furthermore, each of the Vendor and the Company agreed with each other that, among others, it shall jointly appoint the Escrow Agent to hold and deal with the Consideration Shares in accordance with the terms of the Escrow Letter. The Vendor represented, warranted and undertook in favour of the Company that it shall deposit the Consideration Shares and other related title and other documents as provided in the Escrow Letter with the Escrow Agent immediately after the signing of the Release and the Escrow Letter. The Consideration Shares will remain beneficially owned by the Vendor, but the Vendor shall refrain from exercising any of the voting rights attached to the Consideration Shares, for so long as the Consideration Shares are held in escrow by the Escrow Agent (including during the period when the Vendor and the Company have jointly procured the Placing Agent to dispose of the Consideration Shares held in escrow by the Escrow Agent but before the Consideration Shares have actually been sold and transferred to the placee(s) to be procured by the Placing Agent or, if remain unsold after the 2014 Placing Period or the 2015 Placing Period or the 2016 Placing Period (as defined below), distributed to the then Shareholders (other than the Vendor) on a pro-rata basis). The beneficial ownership of the Consideration Shares shall change only until they are either disposed of by the Placing Agent or, if remain unsold after the 2014 Placing Period or the 2015 Placing Period or the 2016 Placing Period (as defined below), distributed to the then Shareholders (other than the Vendor) on a pro-rata basis, and accordingly, shall transfer from the Vendor to the placee(s) or, as the case may be, the then Shareholders (other than the Vendor).

– 70 –

LETTER FROM NEW SPRING CAPITAL

We are advised by the Directors that the escrow fees and related expenses pursuant to the Settlement Deed will be borne by both the Company and the Vendor in equal portion. Although the Release will involve the 297,654,321 Consideration Shares charged under the Share Charge, it is noted that the number of the Consideration Shares to be deposited by the Vendor with the Escrow Agent is 1,727,729,582, being all the Consideration Shares previously allotted and issued to the Vendor upon the Acquisition Completion, which were credited as fully paid with the value of HK$419,838,288.50 at the Issue Price and served as part of the Consideration of HK$465,226,560, after setting off against the Debt with an amount of HK$45,388,271.50.

(ii) The settlement arrangement

Pursuant to the Settlement Deed, the Consideration Shares shall be held and dealt with by the Escrow Agent in accordance with the arrangement set out in the Settlement Deed, the major terms of which have been disclosed in the Letter from the Board and summarised as below:

• (a) In the event that 2013/14 Valuation Difference shall: (i) show a positive sum, the Vendor and the Company shall jointly procure the Escrow Agent not to release any of the Consideration Shares held in escrow by the Escrow Agent; or (ii) be zero or show a negative sum, the Vendor and the Company shall jointly procure the Placing Agent, on the best effort basis, to dispose of 1,727,729,582 Consideration Shares within six months after the date of the 2014 Settlement Certificate (the “ 2014 Placing Period ”) at the then best price reasonably obtainable by the Placing Agent. The Placing Agent shall pay the net proceeds from such sale to the Company promptly after completion of such sale. Should there be any remaining Consideration Shares that the Placing Agent fails to place, the Escrow Agent shall release and transfer them to the then Shareholders (other than the Vendor) on a pro-rata basis.

• (b) In the event that the Consideration Shares are not released under the item (a) above and subsequently the 2014/15 Valuation Difference shall: (i) show a positive sum, the Vendor and the Company shall jointly procure the Escrow Agent not to release any of the Consideration Shares held in escrow by the Escrow Agent; or (ii) be zero or show a negative sum, the Vendor and the Company shall jointly procure the Placing Agent, on the best effort basis, to dispose of 1,727,729,582 Consideration Shares within six months after the date of the 2015 Settlement Certificate (the “ 2015 Placing Period ”) at the then best price reasonably obtainable by the Placing Agent. The Placing Agent shall pay the net proceeds from such sale to the Company promptly after completion of such sale. Should there be any remaining Consideration Shares that the Placing Agent fails to place, the Escrow Agent shall release and transfer them to the then Shareholders (other than the Vendor) on a pro-rata basis.

– 71 –

LETTER FROM NEW SPRING CAPITAL

• (c) In the event that the Consideration Shares are not released under the item (b) above and subsequently the 2013/16 Valuation Difference shall:

• (i) be zero or show a negative sum, the Vendor and the Company shall jointly procure the Placing Agent, on the best effort basis, to dispose of 1,727,729,582 Consideration Shares within six months after the date of the 2016 Settlement Certificate (the “ 2016 Placing Period ”) at the then best price reasonably obtainable by the Placing Agent. The Placing Agent shall pay the net proceeds from such sale to the Company promptly after completion of such sale. Should there be any remaining Consideration Shares that the Placing Agent fails to place, the Escrow Agent shall release and transfer them to the then Shareholders (other than the Vendor) on a pro-rata basis; or

• (ii) show a positive sum and the product of 1.2055, 0.6 and the 2013/16 Valuation Difference shall not be more than HK$419,838,288.5 (being part of the Consideration paid by the Company to the Vendor in relation to the Acquisition by way of allotment and issue of the Consideration Shares), the Vendor and the Company shall jointly procure the Escrow Agent to release to the Vendor such number of Consideration Shares (i.e. N1) which are held in escrow and calculated in accordance with the formula set out in the Letter from the Board. For the remaining number of Consideration Shares (being 1,727,729,582 Consideration Shares less N1), the Vendor and the Company shall jointly procure the Placing Agent, on the best effort basis, to dispose of within the 2016 Placing Period at the then best price reasonably obtainable by the Placing Agent. The Placing Agent shall pay the net proceeds from such sale to the Company promptly after completion of such sale. Should there be any remaining Consideration Shares that the Placing Agent fails to place, the Escrow Agent shall release and transfer them to the then Shareholders (other than the Vendor) on a pro-rata basis; or

• (iii) show a positive sum and the product of 1.2055, 0.6 and the 2013/16 Valuation Difference shall be more than HK$419,838,288.5 (being part of the Consideration paid by the Company to the Vendor in relation to the Acquisition by way of allotment and issue of the Consideration Shares), the Vendor and the Company shall jointly procure the Escrow Agent to release to the Vendor all of the 1,727,729,582 Consideration Shares which are held in escrow under the terms of the Escrow Letter and the Company shall issue such number of new Shares to the Vendor credited as fully paid at the 2016 Issue Price (i.e. the Additional Shares) as calculated in accordance with the formula set out in the Letter from the Board (subject to a maximum shareholding of the Vendor of 29.74% of the then issued share capital of the Company).

– 72 –

LETTER FROM NEW SPRING CAPITAL

• (d) For each of the 2014 Valuation, 2015 Valuation and 2016 Valuation, the Vendor and the Company shall jointly appoint an independent valuer as nominated by the Company to conduct valuation analysis on the Target Group (including, for the avoidance of doubt, the new genre of games and new market that have been granted to, or secured or developed by, the Target Group since the Acquisition Completion Date and subsisting and held by the Target Group) as at 31 March 2014, 2015 and 2016, respectively. Each of the 2014 Valuation Report, 2015 Valuation Report and 2016 Valuation Report shall be expressed in RMB, prepared in compliance with all applicable laws, rules and regulation, and on a discounted cashflow methodology and such bases and assumptions that may be agreed by the Company and the Vendor and delivered to the Vendor and the Company on or before 30 June 2014, 2015 and 2016, respectively (the “ Valuation Reports ”). Within 14 Business Days following the delivery of the Valuation Reports by such valuer and having duly taken into account the opinion stated in the certification obtained from either an approved merchant bank or the Auditors pursuant to the arrangements of the Settlement Deed, the Company shall issue to and serve on, the Vendor, the 2014 Settlement Certificate, the 2015 Settlement Certificate or, as appropriate, the 2016 Settlement Certificate (the “ Settlement Certificates ”).

We have separately conducted scenario analysis in the following section on the mechanism of the settlement arrangement, in accordance with the major terms as set out in items (a), (b) and (c) above.

Based on the above major terms of the Settlement Deed, it is noted that the settlement arrangement depends on the amounts of the 2013 Valuation, 2014 Valuation, 2015 Valuation and 2016 Valuation (the “ Valuations ”), which are/will be subject to various assumptions to be adopted by the then independent valuer. In this regard, the Directors confirmed that the relevant valuation will be arrived at on the basis of fair value using a discounted cash flow method with major assumptions being consistently applied to all of the 2013 Valuation, 2014 Valuation, 2015 Valuation and 2016 Valuation. We refer to the Letter from the Board and summarised those major assumptions as below,

• (i) there will be no major change in the existing political, legal and economic conditions in which the Target Group is being operated;

• (ii) save for those proposed changes on taxation policies announced by the Tax Bureau, there will be no major change in the current taxation law and tax rates as prevailing and that all applicable laws and regulations on taxation will be complied with by the Target Group;

• (iii) the interest rates and exchange rates will not differ materially from those presently prevailing;

– 73 –

LETTER FROM NEW SPRING CAPITAL

• (iv) the availability of finance will not be a constraint on the forecast growth of the Target Group operations in accordance with the business plans and the projection;

• (v) the Target Group shall have uninterrupted rights to operate its existing business during the unexpired term of its authorised enterprise operating period;

• (vi) the production facilities, systems and the technology utilised by the Target Group in carrying out its existing businesses do not infringe any relevant regulations and law;

• (vii) the Target Group has obtained all necessary business licenses to carry out its business and its ancillary services and shall be entitled to renew those business licenses for further terms of not less than 15 years expiring in 2031 subject to no legal impediment and costs of substantial amount;

• (viii) except those stated in the financial statements of the Target Group, the Target Group is free and clear of any lien, charge, option, pre-emption rights or other encumbrances or rights whatsoever that would adversely affect its Business Enterprise Value;

• (ix) the Target Group shall secure and retain competent management, key personnel, marketing and technical staff to carry out and support their business operations;

• (x) the estimated fair value does not include consideration of any extraordinary financing or income guarantees, special tax considerations or any other atypical benefits which may influence the ordinary Business Enterprise Value of the Target Group;

• (xi) the Target Group should have the license to sell lottery tickets or with rights to deal with lottery business;

• (xii) the Target Group will conduct the lottery business and without any impediment to operate the business; and

• (xiii) there will be no material changes in the Company’s business strategy and Government lottery policies.

In the event of any material changes in any of the above major assumptions, it is advised by the Company that the assumptions may be amended as appropriate, based on circumstances at the time of the respective Valuations, by the independent valuer and the Valuations may be affected. However, to the best of the Directors’ knowledge, information and belief and having made all reasonable enquiries, the Directors considered that there is no difficulty to apply these major assumptions to the 2013 Valuation and also there is no foreseeable difficulty to consistently apply these major assumptions to any of 2014 Valuation, 2015 Valuation and 2016 Valuation. In view of this and having considered that (i) the above major assumptions are consistent with those used in the valuation conducted for the Acquisition Agreement in 2011, which have been disclosed in the 2011 Circular; (ii) the above major assumptions are based on the major terms of the Shenzhen Lottery Agreement and the Guizhou Lottery Agreement; (iii) they are in line with the Company’s

– 74 –

LETTER FROM NEW SPRING CAPITAL

business plan in respect of the lottery business under the sub-section headed “Business development of the Target Group” under “II. The Vendor and the Target Group”; and (iv) it is advised by the Valuer (defined below), the above assumptions are commonly adopted in valuations of companies engaging in similar business nature as that of the Target Group, except for some specific facts relating to the particular situation in which the Target Group is operating, we agree with the Directors that the aforementioned major assumptions, which will be consistently applied to all of the Valuations, are fair.

It is further noted that the 2013 Valuation, 2014 Valuation, 2015 Valuation and 2016 Valuation are valuations of the Target Group, which includes the Target Company, Zhongmin Yongheng, Shenzhen Le Cai and Shenzhen Jin Cai, while the valuation done in 2011 was valuation of Shenzhen Le Cai only. Since 2011 and up to the Latest Practicable Date, the Target Company, Zhongmin Yongheng and Shenzhen Jin Cai have not had any material business. In addition, Shenzhen Le Cai has commenced its lottery business in Guizhou Province since May 2013, the performance forecast of which, making reference from the estimated number of 200 lottery betting stores to be set up during the agreement terms of the Guizhou Lottery Agreement from 2012 to 2015, will be included in the 2013 Valuation, 2014 Valuation, 2015 Valuation and 2016 Valuation but not the valuation in 2011 given that the business in Guizhou was not planned at the time in 2011. Save as the aforesaid, there is essentially no difference in the valuation subject between the 2013 Valuation/2014 Valuation/2015 Valuation/2016 Valuation and the valuation done in 2011. Further, the Valuer confirmed that the valuation methodology basis and assumptions of the 2013 Valuation/2014 Valuation/2015 Valuation/2016 Valuation will be consistent with those used in the valuation conducted for the Acquisition Agreement in 2011. The Directors consider that such consistent valuation subject and approach are fair and reasonable.

Having considered that (i) the Valuations is/will be performed by a valuer, who is independent from the Company, the Vendor and any of their associates, and is/will be nominated by the Company and jointly appointed by the Company and the Vendor; (ii) it is advised by the Directors that the fees and relevant expenses in relation to the appointment of the independent valuer is/will be borne by both of the Company and the Vendor in equal portion; (iii) the bases and major assumptions of the Valuations, being summarised as above, have been agreed by both of the Company and the Vendor and are/ will be consistently applied to all of the 2013 Valuation, 2014 Valuation, 2015 Valuation and 2016 Valuation, as confirmed by the Directors, in regardless of different independent valuer to be appointed; and (iv) aside from the Valuation Reports from the independent valuer, opinions from either the approved merchant bank or the Auditors on the fairness and appropriateness of the number of the Consideration Shares to be released, or the number of the Additional Shares to be allotted and issued, may be made available to the Company for consideration before the issue of Settlement Certificates, we agree with the Directors’ view that the valuation mechanism pursuant to the settlement arrangement can fairly present the fair value of the Target Group as at the respective valuation dates and effectively prevent any party, who has a material interest in the Settlement Deed and the transaction contemplated thereunder, influencing the valuation results for its own goods. We therefore concur with Directors’ view that the major terms as set out in item (d) above are fair and reasonable so far as the Independent Shareholders are concerned.

– 75 –

LETTER FROM NEW SPRING CAPITAL

(iii) Scenario analysis on the settlement arrangement

As aforementioned in the section headed “I. Background of the Settlement Deed”, it is advised by the Directors that none of the condition precedents to the release of the Share Charge has been fulfilled by the Vendor, as at 31 March 2013. Pursuant to the Acquisition Agreement, the Company is entitled for any shortfall between the Profit Guarantee and the actual profits after tax as shown in the audited consolidated financial statement of the Target Group.

In order to assess the fairness and reasonableness on the major terms of the Settlement Deed and to opine on whether the entering into the Settlement Deed is in the best interest of the Company and the Independent Shareholders, we have performed a scenario analysis on the value of the Consideration Shares recoverable by the Company and the potential increase of value of the Target Group. Comparing the scenario in which the Company enforces the Vendor’s obligation under the Profit Guarantee and receives the immediate compensation of RMB60 million from the Vendor, we study whether the settlement arrangement is able to increase the recovery value of the RMB60 million and/ or secure the future enhancement of the Target Group’s value, pursuant to the terms of the Settlement Deed as below:

							Value of the
						Value of the	Target Group as
					Value of the	Consideration	compared to the
					Consideration	Shares recoverable	2013 Valuation or
		Valuation	Number of the	Number of the	Shares recoverable	by the Company	prior year
		Difference	Consideration	Consideration	by the Company	(greater, equal to	(increased,
		(approximately	Shares retrievable	Shares recoverable	(approximately in	or less than	unchanged or
Scenario		in million)	by the Vendor	by the Company	million)(Note 1)	RMB60 million)	decreased)
2013/14	(a)	< = RMB0	0	1,727,729,582	HK$316	Greater	(Decreased)
	(b)	> RMB0	0	0	0	(Less)	Increased
2014/15	(a)	< = RMB0	0	1,727,729,582	HK$316	Greater	(Decreased)
	(b)	> RMB0	0	0	0	(Less)	Increased
2013/16	(a)	< = RMB0	0	1,727,729,582	HK$316	Greater	(Decreased)
	(b)	RMB448	1,332,483,680	395,245,902	HK$72_(Note 2)_	Equal	Increased
	(c)	RMB580_(Note 3)_	1,727,729,582	0	0	(Less)	Increased
	(d)	> RMB580	1,727,729,582_(Note 4)_	0_(Note 4)_	0	(Less)	Increased

Notes:

1. The value of the Consideration Shares is based on the latest available closing price of the Shares at HK$0.183 per Share.

2. Equivalent to approximate RMB60 million.

– 76 –

LETTER FROM NEW SPRING CAPITAL

1. RMB580,448,345.7 (or above) is such amount of 2013/16 Valuation Difference that will enable the Vendor to retrieve all of the 1,727,729,582 Consideration Shares from the Escrow Agent.

2. Additional Shares will be allotted and issued to the Vendor (subject to a maximum shareholding of the Vendor of 29.74% of the then issued share capital of the Company as enlarged by the allotment and issue of such Additional Shares).

3. 2013/14 (a), 2014/15 (a) and 2013/16 (a)

In the captioned events, the 2014 Valuation is lower than or equal to the 2013 Valuation; or the 2015 Valuation is lower than or equal to the 2014 Valuation; or the 2016 Valuation is lower than or equal to the 2013 Valuation, and hence, the Company is able to recover all of the 1,727,729,582 Consideration Shares from the Vendor, the value of which is approximately HK$316 million based on the latest available closing price of the Shares at HK$0.183 per Share. Although there is no enhancement of the Target Group’s value, the recoverable value by the Company is much greater than RMB60 million, therefore, we agree with the Directors that this arrangement is in the interest of the Company and the Shareholders as a whole.

• 2013/14 (b) and 2014/15 (b)

In the captioned events, the 2014 Valuation is higher than the 2013 Valuation and the 2015 Valuation is higher than the 2014 Valuation. The Vendor and the Company shall jointly procure the Escrow Agent not to release any of the Consideration Shares held in escrow by the Escrow Agent and hence, neither the Company nor the Vendor recovers any of the Consideration Shares under such arrangement. In view that the value of the Target Group maintains growth, we agree with the Directors that this arrangement is in the interest of the Company and the Shareholders as a whole.

• 2013/16 (b)

If the 2013/16 Valuation Difference is higher than zero, the number of the Consideration Shares that the Escrow Agent will release back to the Vendor is proportional (being 60% to reflect the equity interest of Shenzhen Le Cai acquired by the Company in 2011) to the 2013/16 Valuation Difference in accordance with the formula stipulated in the Settlement Deed. It implies that the better the Target Group performs and the higher the Target Group’s value increases, the more the number of the Consideration Shares will be released to the Vendor, up to 1,727,729,582. Under this mechanism, the Company can on one hand, secure the value enhancement of the Target Group and on the other hand, motivate Mr. Yang and Mr. Yeung to improve the Target Group’s performance with their best endeavors. We therefore agree with the Directors that this approach effectively links with the Target Group’s growth and the benefits of Mr. Yang and Mr. Yeung, which is commercially reasonable and in the interest of the Company and the Shareholders as a whole.

– 77 –

LETTER FROM NEW SPRING CAPITAL

In the captioned event, the 2013/16 Valuation Difference is equal to approximately RMB448 million, which enables the company to recover approximately HK$72 million (equivalent to RMB60 million, being the amount of the Profit Guarantee) worth of Consideration Shares from the Vendor, with 395,245,902 Consideration Shares based on the latest available closing price of the Shares at HK$0.183 per Share. Accordingly, the recoverable value of such number of the Consideration Shares by the Company is equal to RMB60 million, while the value of the Target Group will be increased with RMB448 million (being the 2013/16 Valuation Difference), which we agree with the Directors that this arrangement is in the interest of the Company and the Shareholders as a whole.

As illustrated in the rows 2013/16 (a) and (b), if the 2013/16 Valuation Difference is between zero and RMB448 million, the number of recoverable Consideration Shares by the Company will be less than 1,727,729,582 and more than 395,245,902, the value of which ranges from approximately HK$316 million to approximately HK$72 million. Therefore, the recoverable value of such number of the Consideration Shares by the Company will be greater than RMB60 million and the enhancement of the Target Group’s value will be up to approximately RMB448 million, which we agree with the Directors that this arrangement is in the interest of the Company and the Shareholders as a whole.

• 2013/16 (c) and (d)

In the event of 2013/16 (c), the 2013/16 Valuation Difference is equal to approximately RMB580 million (the product of 1.2055, 0.6 and such 2013/16 Valuation Difference equals to approximately HK$419,838,288.50, as part of the Consideration paid by the Company to the Vendor in relation to the Acquisition by way of allotment and issue of the Consideration Shares), which enables the Vendor to retrieve all of the 1,727,729,582 Consideration Shares from the Escrow Agent. Therefore, the Company will not be able to recover any of the Consideration Shares, but enhancement of the Target Group’s value will reach to approximately RMB580 million.

As illustrated in the rows 2013/16 (b) and (c), if the 2013/2016 Valuation Difference is between RMB448 million and RMB580 million, the number of recoverable Consideration Shares by the Company will be less than 395,245,902 and more than zero, the value of which ranges from approximately HK$72 million to zero. Therefore, the recoverable value of such number of the Consideration Shares by the Company will be less than RMB60 million, but enhancement of the Target Group’s value will reach between RMB448 million and RMB580 million.

– 78 –

LETTER FROM NEW SPRING CAPITAL

In the event of 2013/16 (d), the 2013/16 Valuation Difference is above approximately RMB580 million, Additional Shares will be allotted and issued to the Vendor (subject to a maximum shareholding of the Vendor of 29.74% of the then issued share capital of the Company). Therefore, the Company will not be able to recover any of the Consideration Shares, but enhancement of the Target Group’s value will be above RMB580 million.

Under the above three events, even though the recoverable value of such number of the Consideration Shares by the Company is less than RMB60 million or none, we are advised by the Directors that the enhancement of the Target Group’s value will be more than RMB448 million or up to RMB580 million and above, which are considered by the Directors as a satisfactory level for the enhancement of the Target Group’s value. Having considered the Directors’ advise and the following factors, we agree with the views of the Directors that the settlement arrangements in relation to the above three events are commercially reasonable and in the interest of the Company and the Shareholders as a whole:

(a) The 2013 Valuation as comparison basis

Referring to the Letter from the Board, the key concept underlying the Settlement Deed is that the performance of the Target Group shall achieve a certain satisfactory level in 2016 in order for the Company and the Vendor to determine how many Consideration Shares are to be recovered by the Company and how many are to be released back to the Vendor. As such, the Company could have simply set a target for the 2016 Valuation (without comparing it to any valuation in any other year) in order for the mechanism to work just as it is currently contemplated. However, the Directors consider that merely considering the 2016 Valuation in the new mechanism may not be sufficient. Instead, the Directors consider that it is in the interest of the Company for the performance of the Target Group to start to improve from now on year by year up to at least 2016. In this connection, the Company needs to first come up with a present objective indicator reflecting the current performance of the Target Group. Therefore, the 2013 Valuation is chosen as such objective indicator and is agreed to be used by the parties of the Settlement Deed as a basis of comparison.

We have discussed with the Directors for the above reasons on choosing the 2013 Valuation as comparison basis under the Settlement Deed and noted that (i) it is an objective indicator reflecting the current performance of the Target Group, which has been agreed by the parties of the Settlement Deed as a basis of comparison after arm’s length negotiation; and (ii) it is a method that allows the Company to effectively monitor the improvement of the Target Group’s performance starting from 2013 and up to 2016.

– 79 –

LETTER FROM NEW SPRING CAPITAL

We are further advised by the Directors that, based on the preliminary valuation of Shenzhen Le Cai as appraised by an independent valuer, using the income approach with discount cash flow modeling, on 31 March 2013, the amount of the 2013 Valuation is approximately RMB65 million.

In order to understand the methodology used in arriving the 2013 Valuation and also assess the fairness and reasonableness regarding the valuation methodology and the bases and assumptions adopted, we have performed due diligence on the aspects, including but not limited to, (i) reviewed the valuation report as disclosed in the 2011 Circular under the section headed “Appendix I – Valuation report on Shenzhen Le Cai” (the “ 2011 Valuation Report ”), which was served as one of the references considered by the Company in determining the Consideration; and (ii) compared the 2011 Valuation Report with preliminary report on the 2013 Valuation and have discussed with the Directors and the independent valuer (Asset Appraisal Limited, being the same valuer appointed for both valuations, the “ Valuer ”) regarding the valuation subject, the basis, the methodology, assumptions and limitations on both valuations. As advised by the Directors and the Valuer, the valuation method employed for both valuations are income approach with discounted cash flow method, which reflects the present worth of the future income and economic benefits of ownership and is regarded as the most appropriate method for valuing a growth stage business with rapid growth in the future. Based on our discussion with the Directors and the Valuer on the preliminary valuation of the 2013 Valuation and subject to further amendments which may be made by the Valuer as appropriate, we have not identified any major factors which may cause our doubt on its fairness, reasonableness and completeness.

In view of the above mentioned under the sub-section headed “(a) The 2013 Valuation as comparison basis”, even though the preliminary amount of the 2013 Valuation at approximate RMB65 million is substantially lower than the valuation of Shenzhen Le Cai under the Acquisition in 2011 (the “ 2011 Valuation ”) of approximately RMB645 million, we agree with the Directors’ view that the use of the 2013 Valuation as a basis of relevant comparison in the Settlement Deed is commercially justifiable, after considering the factors that (i) the 2013 Valuation can serve as a basic indicator reflecting the current value of the Target Group, based on which, the Company is able to monitor the improvement of the Target Group’s value from now on year by year and up to at least 2016, through recovery of all the 1,727,729,582 Consideration Shares from the Vendor under the events that the 2014 Valuation is lower than or equal to the 2013 Valuation, or the 2015 Valuation is lower than or equal to the 2014 Valuation, or the 2016 Valuation is lower than or equal to the 2013 Valuation; (ii) based on the 2013 Valuation, the Company and the Vendor are able to determine whether the then performance of the Target Group is satisfactory enough in 2016 and the number of Consideration

– 80 –

LETTER FROM NEW SPRING CAPITAL

Shares are to be recovered by the Company and be retrieved by the Vendor; (iii) it is also noted that the Directors had evaluated the sum of the net asset value of Shenzhen Le Cai as at 28 February 2013 of approximately RMB88 million (being the latest management account available before the entering into of the Settlement Deed) and the 2013/16 Valuation Difference of RMB580 million (being the trigger point to release all the Consideration Shares to the Vendor) would be no less than the 2011 Valuation; (iv) the 2013 Valuation has been agreed by the parties of the Settlement Deed as a basis of comparison after arm’s length negotiation; and (v) the 2013 Valuation will be conducted by an independent valuer with appropriate valuation methodology, bases and assumptions adopted.

(b) The trigger point for the release of all the Consideration Shares to the Vendor

As illustrated above for the event of 2013/16 (c), if the product of 1.2055, 0.6 and the 2013/16 Valuation Difference equals to HK$419,838,288.5 (being the 2013/2016 Valuation Difference equals to approximately RMB580 million), the Vendor and the Company shall jointly procure the Escrow Agent to release to the Vendor all of the 1,727,729,582 Consideration Shares which are held in escrow under the terms of the Escrow Letter.

We are advised by the Directors that in order to determine the trigger point for the release of all the Consideration Shares to the Vendor, the Company has mainly taken into consideration that (i) HK$419,838,288.50 is the value of all the 1,727,729,582 Consideration Shares at the Issue Price in the Acquisition; and (ii) the amount of the 2013 Valuation, being approximately RMB65 million, according to the preliminary valuation of Shenzhen Le Cai conducted by the independent valuer as at 31 March 2013. Based on the preliminary 2013 Valuation at approximately RMB65 million, it is noted that the 2016 Valuation will be approximately RMB645 million, in order for the 2013/16 Valuation Difference to be approximately RMB580 million, where the product of 1.2055, 0.6 and the 2013/16 Valuation Difference equals to HK$419,838,288.5.

– 81 –

LETTER FROM NEW SPRING CAPITAL

In view of the above, we agree with the Directors that it is fair and reasonable to release of all the Consideration Shares to the Vendor, if the product of 1.2055, 0.6 and the 2013/16 Valuation Difference equals to HK$419,838,288.5, for the reasons that (i) HK$419,838,288.50, being part of the Consideration paid by the Company to the Vendor in relation to the Acquisition by way of allotment and issue of the Consideration Shares, is the value of all the 1,727,729,582 Consideration Shares at the Issue Price; (ii) based on the preliminary amount of the 2013 Valuation at approximately RMB65 million, the 2016 Valuation will be approximately RMB645 million, in order for the product of 1.2055, 0.6 and the 2013/16 Valuation Difference equals to HK$419,838,288.5; and (iii) RMB645 million was the valuation of Shenzhen Le Cai (the principal operating subsidiary in the Target Group) used by the Company as a basis in determining the Consideration of the Acquisition in 2011, which implies that the Company may release all the Consideration Shares to the Vendor only if the 2016 Valuation reaches the valuation of Shenzhen Le Cai (the principal operating subsidiary in the Target Group) at the Acquisition in 2011.

(c) The issuance and allotment of Additional Shares to the Vendor

As illustrated above for the event of 2013/16 (d), if the product of 1.2055, 0.6 and the 2013/16 Valuation Difference is more than HK$419,838,288.5, Additional Shares will be issued and allotted to the Vendor, subject to a maximum shareholding of the Vendor of 29.74% of the then issued share capital of the Company as enlarged by the allotment and issue of such Additional Shares. Therefore, it indicates that if the 2016 Valuation is more than RMB645 million, Additional Shares will be allotted and issued to the Vendor at the 2016 Issue Price, referring to the calculation of the above section.

After considering the factors (i) RMB645 million was the valuation of Shenzhen Le Cai (the principal operating subsidiary in the Target Group) used by the Company as a basis in determining the Consideration of the Acquisition in 2011; (ii) the issuance and allotment of Additional Shares to the Vendor, depending on the future growth of the Target Group, will further motivate Mr. Yang and Mr. Yeung to contribute to the operation and future development of the Target Group, which in return benefits the Company and the Shareholders; and (iii) the maximum shareholding of the Vendor is capped at 29.74% of the then issued share capital of the Company as enlarged by the allotment and issue of such Additional Shares, which is the Vendor’s original shareholding as at the Latest Practicable Date, we agree with the Directors that the issuance and allotment of Additional Shares to the Vendor pursuant to the Settlement Deed is fair and reasonable and in the interest of the Company and Shareholders as a whole.

– 82 –

LETTER FROM NEW SPRING CAPITAL

(iv) The possible changes of the shareholding structure of the Company

Pursuant to the Settlement Agreement, it is noted that for any Consideration Shares recovered by the Company, the Vendor and the Company shall jointly procure the Placing Agent, on the best effort basis, to dispose of such number of Consideration Shares within six months after the date of the respective Settlement Certificate at the then best price reasonably obtainable by the Placing Agent. They will be placed in the secondary market through the Placing Agent and the net proceeds from such placing will become the financial resources of the Company.

In the event that such number of Consideration Shares cannot be fully placed by the Placing Agent during the relevant placing period, being the 2014 Placing Period, 2015 Placing Period and 2016 Placing Period, those remaining Consideration Shares will be distributed to the then Shareholders (other than the Vendor) on a pro-rata basis.

Without taking into account the effect of the possible allotment and issue of Additional Shares under the Settlement Deed, we would like to illustrate below the shareholding structure of the Company (i) as at the Latest Practicable Date; and (ii) immediately after the distribution of 1,727,729,582 Consideration Shares to the then Shareholders (other than the Vendor) on pro-rata basis but before the full exercise of the subscription rights attaching to the Warrants (assuming there being no other change in the share capital of the Company) (for illustration purpose only):

Shareholders Dr. Mo_(Note 1) Vendor(Note 2) Mr. Yeung(Note 1) Mr. Zhang Hesheng(Note 1) Mr. Chu Kin Wang Peleus (Note 1, 3)_ Public Shareholders Total	At the Latest Practicable Date No. of Shares Approximate% 427,841,375 7.36 1,727,729,582 29.74 600,000 0.01 227,788,793 3.92 9,840,000 0.17 3,416,154,386 58.80 5,809,954,136 100.00	Immediately after the distribution of 1,727,729,582 Consideration Shares to the then Shareholders (other than the Vendor) on pro-rata basis No. of Shares Approximate% 608,917,695 10.48 – – 853,939 0.02 324,196,384 5.58 14,004,607 0.24 4,861,981,511 83.68 5,809,954,136 100.00	Immediately after the distribution of 1,727,729,582 Consideration Shares to the then Shareholders (other than the Vendor) on pro-rata basis No. of Shares Approximate% 608,917,695 10.48 – – 853,939 0.02 324,196,384 5.58 14,004,607 0.24 4,861,981,511 83.68 5,809,954,136 100.00
			100.00

– 83 –

LETTER FROM NEW SPRING CAPITAL

Notes:

1. Dr. Mo, Mr. Yeung, Mr. Zhang Hesheng and Mr. Chu Kin Wang Peleus are Directors.

2. The Vendor is legally, beneficially and equally held by Mr. Yang and Mr. Yeung. Mr. Yang and Mr. Yeung are brothers and directors of the Vendor.

3. This represents interests legally and beneficially held by Ms. Woo Sau Kuen. She is the spouse of Mr. Chu Kin Wang Peleus.

4. As at the Latest Practicable Date, the Company had outstanding 174,600,000 Share Options.

Although the expenses in relation to the placing of the Consideration Shares recovered by the Company will be borne by the Company, we concur with the Directors that the arrangement under the Settlement Deed is a better alternative to maximise the Shareholders’ value on the basis that the Company will (i) secure the growth of the lottery business and/or; (ii) recover a maximum of 1,727,729,582 Consideration Shares, which will be placed out for cash and be used as internal resources for future development of the Group or if any, directly distributed to the then Shareholders (other than the Vendor) on a pro-rata basis, which results in the increase of shareholding and number of Shares for the then Shareholders (other than the Vendor).

(v) Conclusion on the terms of the Settlement Deed

Under the scenario in which the Company enforces the Vendor’s obligation under the Profit Guarantee, it is advised that the Company will receive the immediate compensation of RMB60 million from the Vendor, but may not be able to retain the services of Mr. Yang and Mr. Yeung for their future contribution on the Target Group’s growth. Given that the Directors consider that the solid background of Mr. Yang and Mr. Yeung in the PRC lottery business is essential for the development of the Target Group, it may increase the uncertainties on the future growth of the Target Group under such scenario.

Comparing to the immediate enforcement, we agree with the Company that it is in the interest of the Company for a new mechanism, being the Settlement Deed, to be adopted, so as to allow the Company to recover more than RMB60 million and/or increase the certainties on the future growth of the Target Group. Having considered the principal factors under the section headed “III. Terms of the Settlement Deed and the Supplemental Settlement Deed”, and comparing with the immediate enforcement of the Vendor’s obligation under the Profit Guarantee, we concur with the view of the Directors that the major terms of the Settlement Deed are on normal commercial terms and fair and reasonable, and the entering into of the Settlement Deed is in interest of the Company and the Shareholders as a whole, in particular, (i) in the event that the performance of the Target Group is to continue to be unsatisfactory in the future, the Settlement Deed allows the Company to recover more than RMB60 million and up to all of the 1,727,729,582 Consideration Shares from the Vendor; (ii) in the event that the performance of the Target

– 84 –

LETTER FROM NEW SPRING CAPITAL

Group is to turn around in the future, the Settlement Deed still allows the Company to recover such number of the Consideration Shares from the Vendor that could be worth more than or equal to RMB60 million, subject to the then actual increased value of the Target Group, according to a formula as stipulated; (iii) even it is possible for the Company to be unable to recover or recover the value of such number of the Consideration Shares from the Vendor being less than RMB60 million, the then valuation of the Target Group will be secured at a certain high level that the Company will be benefited from; and (iv) the settlement arrangement allows the Company to bind the Vendor’s beneficial interests in the Company with the Company’s risk and benefits of holding the Target Group and effectively retain the services of Mr. Yang and Mr. Yeung, which can better secure the future growth of the Target Group with the continuous contribution from Mr. Yang and Mr. Yeung.

As advised by the Company, one of the Company’s objectives is to provide incentive in form of the Settlement Deed to retain the services of Mr. Yang and Mr. Yeung and improve the Target Group’s performance. Although the performance of the Target Group is considered not satisfactory at the current stage, we refer to our analyses in the section headed “II – The Vendor and the Target Group” and are of the view that (i) the unsatisfactory performance of the Target Group is mainly due to the amortisation charges over the intangible assets, the slowed down annual nationwide welfare lottery sales in general and the longer than expected time required for the development of Keno Games Lottery, but not caused by any failure or mistakes of the Target Group’s management; (ii) the solid knowledge, management expertise and past contribution of Mr. Yang and Mr. Yeung have been considered crucial to the future business development of the Target Group by the Directors; (iii) the Settlement Deed can serve as an incentive mechanism for Mr. Yang and Mr. Yeung, if the 2013/16 Valuation Difference is higher than zero, where the better the Target Group performs and the higher the Target Group’s value increases, the more the number of the Consideration Shares will be released to the Vendor proportionally (up to 1,727,729,582, being beneficially owned by the Vendor as at the Latest Practicable Date); and (iv) however, the Settlement Deed can also serve as a penalty mechanism for Mr. Yang and Mr. Yeung, if the performance of the Target Group is to continue to be unsatisfactory in the future, where the Company forfeits the number of the Consideration Shares originally owned by the Vendor, up to all of the 1,727,729,582 Consideration Shares (being beneficially owned by the Vendor as at the Latest Practicable Date). Therefore, we agree with the Directors that the mentioned objective of the Company is reasonable. In view of the above and having further considered that (i) the settlement arrangement can effectively retain the services of Mr. Yang and Mr. Yeung for their future contributions to the performance and future value of the Target Group, whose expertise and contributions on the lottery business are considered to be crucial to the Target Group; and (ii) the Settlement Deed allows the Company to increase the recovery value of RMB60 million and/or secure the future enhancement of the Target Group’s value to reach a satisfactory level, we also agree with the Directors’ view that this form of incentive is specific to the settlement arrangement and the future performance of the Target Group,

– 85 –

LETTER FROM NEW SPRING CAPITAL

which is not feasible to be replaced by other usual remuneration package (such as grant of share options, profit sharing scheme or bonus distribution). Hence, we concur with the Directors that the Company’s incentive provided to Mr. Yang/Mr. Yeung in the form of the Settlement Deed would not be more than necessary, as regard to B.1 of Appendix 14 to the Listing Rules.

In addition, having considered our discussion with the Directors on the future development of the Target Group and factors mentioned in the section headed “II – The Vendor and the Target Group”, we agree with the Directors that it is commercially reasonable to allow additional time (i.e. three years) for the Target Group to grow, mainly due to, (i) both the Company and the Vendor agreed that sufficient time shall be given for the development of the Target Group before evaluating the performance of its lottery business and that 2016 is considered by both parties an appropriate time, after arm’s length negotiation; (ii) the past unsatisfactory performance of the Target Group is partly due to the longer than expected time required for the development of Keno Games Lottery (which is a relatively new type of welfare lottery in Shenzhen) during the early stage. However, the market potential of Keno Games Lottery is optimistic and the management of the Target Group has adjusted their business strategies over the market development and expected that the distribution networks will reach a total of 530 outlets by 2016; (iii) Shenzhen Le Cai has entered into two material contracts for the distribution of lottery tickets in Shenzhen and Guizhou, for terms of 20 years and 3 years, respectively, of which commission rate for the distribution of Keno Games Lottery has been increased to 8%; and (iv) the potential development plans of the Industrial Park and the possible lottery agency sales in Southern and Northern China will further contribute to the future results of Target Group.

IV. Reasons for the entering of the Settlement Deed

Referring to the Letter from the Board, it is noted that the Directors have considered the following reasons for the entering into of the Settlement Deed, which are summarised as below:

• (i) the Board expected that the lottery business would be an important revenue source of the Group, subsequent to the Acquisition Completion. However, the Target Group is performed unsatisfactorily with unaudited net loss after tax of approximately RMB68.91 million from the Acquisition Completion Date to 31 March 2013 and the Profit Guarantee would not be achieved;

• (ii) however, the Board is optimistic about the future growth potential in the PRC lottery market, in particular, the Target Group has successfully entered into, among others, a few material cooperation agreements with provincial lottery issuing centres in the PRC, being Shenzhen Lottery Agreement and Guizhou Lottery Agreement;

– 86 –

LETTER FROM NEW SPRING CAPITAL

• (iii) the Board considers that the Target Group is still in an advantageous position in the PRC lottery market and it is commercially viable to spend more time and effort on the lottery business segment, given its existing vast lottery betting outlets networks in Shenzhen and Guizhou, continuing expansion plan of the distribution networks and business plan of the Industrial Park; and

• (iv) the Board considers that the arrangement under the Settlement Deed is a better alternative to maximise the Shareholders’ value on the basis that the Company will either benefit from the growth of the lottery business, or recover a maximum of 1,727,729,582 Consideration Shares which will be placed out for cash, or, if any, directly distributed to the then Shareholders (other than the Vendor) on a pro-rata basis.

Comparing to the enforcement of the Profit Guarantee, through which the Company will be compensated with RMB60 million by the Vendor, it should be noted that the entering into of the Settlement Deed will release and waive the obligation of the Vendor under the Profit Guarantee. However, having considered the above reasons mentioned in the Letter from the Board and our analysis throughout the previous sections of this letter, we therefore agree with the Directors’ reasons for the entering into of the Settlement Deed, due to, in particular:

• (i) under the current unsatisfactory performance of the Target Group, it is noted that a substantial impairment will be made on the Company for the year ended 31 March 2013. The future performance of the Target Group will be continually consolidated into the financial statements of the Group, however, there might be uncertainties on whether the result of the Target Group is able to turnaround in the coming years, which may continuously adversely affect the overall financial result of the Group. However, as discussed in the section headed “II – The Vendor and the Target Group”, it is fair and reasonable to take more time and effort to improve the Target Group’s performance, given its future is still optimistic under the progressive development of the Target Group, the large room of its business potential and the prospect of the lottery industry;

• (ii) given the fact that (a) the material contracts entered into by Shenzhen Le Cai and the Target Group’s development since 2008 are brought by the execution team under the leadership and solid experience of Mr. Yang and Mr. Yeung; and (b) as discussed in the section headed “II – The Vendor and the Target Group”, it is considered that their extensive network and experience in lottery industry is crucial for the continuous development of the Target Group, the immediate enforcement of the Profit Guarantee may only benefit the Company in the recovery of RMB60 million from the Vendor, but may not be able to retain the services of Mr. Yang and Mr. Yeung for their future contribution on the performance and future value of the Target Group, which may increase the uncertainties on the future growth of the Target Group; and

– 87 –

LETTER FROM NEW SPRING CAPITAL

• (iii) comparing to immediate enforcement of the Profit Guarantee with recovery value of RMB60 million, the Settlement Deed, as a better alternative, allows the Company to increase the recovery value of RMB60 million and/or secure the future enhancement of the Target Group’s value to reach a satisfactory level, on the basis as discussed under the section headed “III – Terms of the Settlement Deed and the Supplemental Settlement Deed”, which is in interest of the Company and the Shareholders as a whole.

V. Opinion and recommendation in relation to the Settlement Deed

Having considered the abovementioned principal factors and reasons, we consider that the terms of the Settlement Deed (as supplemented by the Supplemental Settlement Deed), are fair and reasonable and on normal commercial terms and the entering into of the Settlement Deed (as supplemented by the Supplemental Settlement Deed), is the interests of the Company and the Shareholders as a whole. We therefore advise the Independent Board Committee to recommend the Independent Shareholders to vote in favor of the ordinary resolutions to be proposed at the SGM to approve the Settlement Deed and the transactions contemplated thereunder and the grant of the Settlement Specific Mandate to allot and issue the Additional Shares.

PART II – PRINCIPAL FACTORS AND REASONS CONSIDERED IN RELATION TO THE WARRANTS SUBSCRIPTION

In arriving at our opinion and recommendation to the Independent Board Committee and the Independent Shareholders with regard to the Warrants Subscription Agreement and the transactions contemplated thereunder, we have considered the following principal factors and reasons:

I. Background of the Warrants Subscription

(i) Background of and financial information of the Group

As referred to the Letter from the Board, the Group is principally engage in the sale and distribution of Natural Gas and liquefied petroleum gas (“ LPG ”) including the sale of LPG in bulk and in cylinders, the provision of piped gas fuel, construction of gas pipelines, the operation of city gas pipeline network (the “ Gas Businesses ”) and lottery agency in the PRC.

– 88 –

LETTER FROM NEW SPRING CAPITAL

The table below summarised the consolidated financial information of the Group as extracted from the Annual Reports and the Interim Report:

			For the
			six months
			ended
			30 September/
	For the year	ended	As at
	31 March/As at	31 March	30 September
	2011	2012	2012
	HK$’000	HK$’000	HK$’000
	(audited)	(audited)	(unaudited)
Revenue	853,868	1,119,002	602,832
Profit for the year/period	47,643	305,428	23,072
Net asset value	1,154,555	1,830,273	1,847,190
Cash and cash equivalents
at end of the year/
period	262,763	349,734	375,846

As illustrated in the above table, the Group’s revenue increased by approximately 31.1%, from approximately HK$853.9 million for the year ended 31 March 2011 to approximately HK$1,119.0 million for the year ended 31 March 2012. As revealed in the 2012 Annual Report, such growth was mainly driven by the Group’s ongoing effort to expand its customer base and increase its service coverage of piped gas fuel business and the synergy effects brought to the expansion in market shares by active acquisitions and investment in respect of transportation, distribution and bottled retail of LPG business. The Group’s net profit for the year ended 31 March 2012 were about six times than that for the year 31 March 2011, which was mainly resulted from the re-measurement gain of approximately HK$235.7 million on the Company’s interest in an associate to fair value on business combination in 2012. As at 30 September 2012, the net asset value and the cash balance of the Group were approximately HK$1,847.2 million and HK$375.8 million respectively.

As confirmed by the Directors, the Group will continue focusing on its Gas Businesses in the PRC to capture the strong demand for energy resources driven by the steady acceleration of industrialisation and urbanisation in the PRC and the advantages from the nation’s support to the development of urban gas industry.

– 89 –

LETTER FROM NEW SPRING CAPITAL

(ii) Fund raising activities during the past twelve months

According to the Letter from the Board, the Group has not conducted any fund raising activity in the past twelve months immediately preceding the Latest Practicable Date.

(iii) Reasons for entering into the Warrants Subscription Agreement and the use of proceeds

• Reasons for entering into the Warrants Subscription Agreement

In order to understand the reasons for entering into the Warrants Subscription, we noted that, for the past ten financial years of the Company from 2003 to 2012, the Group had suffered net losses or relatively thin net profits ranged from loss of approximately HK$55.1 million to profit of approximately HK$15.3 million during the financial years from 2003 to 2006.

Since 25 October 2004, the Group commenced its businesses of supply of natural gas and gas pipeline connection in the PRC, which has been the Group’s major source of income. In 2007, the Group further expanded its business to the transportation, distribution, and bottled retail of LPG in the PRC. Spanning the financial years from 2005 to 2012, the Group recognised substantial growth in revenue from approximately HK$78.8 million for the year ended 31 March 2005 to approximately HK$1,119.0 million for the year ended 31 March 2012, in which revenue generated from the Gas Businesses significantly increased from around HK$70.4 million in the financial year of 2005 to over HK$1.1 billion in the financial year of 2012.

Save for the financial year of 2008 during which the financial performance of the Group was affected by the substantial amount of impairment loss recognised in respect of earthquake in Wenchuan area of Sichuan Province, the PRC, the Group has been profit-making during the past six financial years. For the year ended 31 March 2012, the Group’s net profit peaked at approximately HK$305.4 million. Save for the re-measurement gain on the Company’s interest in an associate to fair value on business combination, the net profit was principally contributed by the Gas Businesses of the Group during the year. As abovementioned, it is advised that the Group will continue focusing on the Gas Businesses to capture the future demand for energy resources and the increasing energy consumption needs in the PRC.

– 90 –

LETTER FROM NEW SPRING CAPITAL

We note that Dr. Mo, being an executive Director and a Shareholder and the ultimate beneficial owner of the Subscriber, joined the Company on 30 April 2004 and has been appointed as the chairman of the Board from December 2007 and acted as director posts in certain principal subsidiaries of the Group. As advised by the Company, Dr. Mo possesses extensive experiences in development and management of gas projects in the PRC and is the one who firstly introduced the Gas Businesses to the Group. Dr. Mo is responsible for the overall corporate strategic planning and business development of the Gas Businesses for the Group. Since the commencement of the Natural Gas business in 2004, the Group had entered into various gas projects covering different provinces in the PRC, including Sichuan Province, Chongqing, Shaanxi Province and Fujian Province. The Gas Business of the Group has been growing significantly with an enlarging connected customer ( 接駁用戶) base throughout the years. As at 31 March 2012, the accumulated number of connected customers, including urban households and commercial and industrial users, of the Group’s Gas Businesses has been reached to more than 468,000 units, which represented a year-on-year growth of approximately 23.5%, covering 8 different provinces across the nation.

The Company, having considered the substantial improvement of the Company’s financial position brought by the Gas Businesses to the Group and the sustained growth of the Company in recent years, is of the view that the efforts devoted by Dr. Mo and the senior management team (under Dr. Mo’s leadership) had contributed significantly to the Group’s historical business and financial performance. The Directors are of the view that the experiences and management expertise of Dr. Mo in the gas industry is valuable and crucial to the Group’s existing business and future development.

In view of Dr. Mo’s continuous contribution to the development and sustained growth of the Group and to incentivise Dr. Mo to continue serving and devoting to the Company in the future, the Directors considered it is fair and reasonable to enter into the Warrants Subscription with the Subscriber, of which Dr. Mo is the ultimate beneficial owner. We are advised by the Board that the Company has considered alternative methods, such as share options and salary increment, however, after considering the major factors, (i) both of the economic benefits of the Warrants and share options rely on and closely relate to the trading performance of Shares, which in turn will be driven by the Group’s business performance and results of operation in the future. However, Dr. Mo shall pay at a cost of HK$11,350,000 for the Warrants Subscription, in contrary, it would be usually at nil or nominal consideration for any share options granted by the Company. It implies that if Dr. Mo does not exercise the subscription rights attaching to the Warrants, he will suffer a loss of HK$11,350,000; (ii) thus, the Warrants Subscription effectively links Dr. Mo’s economic benefit through the Warrants Subscription by the Subscriber, to the performance of the Group, which can also serve as an incentive for Dr. Mo

– 91 –

LETTER FROM NEW SPRING CAPITAL

to further devote and contribute to the Group (in particular, the Gas Businesses); (iii) furthermore, the economic benefits of the Warrants to the Subscriber will therefore only be realised when all the Shareholders are also in a position to benefit; (iv) the Directors are then of the view that the Warrants Subscription signifies the confidence of the Group’s senior management in the existing and sustainable development of the Company to the Shareholders and the Company’s potential investors; and (v) net proceeds from the Warrants Subscription will further strengthen the Group’s capital base and financial position, and if the conversion rights attaching to the Warrants are fully exercised, an additional gross amount of HK$232,675,000 will be raised, which in turn better equip the Group with financial flexibility for development of its existing business or any other new business, we concur with the Directors that the Warrants Subscription is the most feasible method, comparing to other remuneration packages. It is further noted that the terms of the Warrants Subscription Agreement were entered into upon normal commercial terms following arm’s length negotiations between the Company and the Subscriber.

In addition, it is noted from the Letter from the Board that the Company has considered other alternative fund raising methods such as debt financing, rights issue or open offers. The Board holds the view that the Warrants Subscription is a more appropriate means of fund raising for the Company as it does not have any immediate dilution effect on the shareholding of the existing Shareholders and the cost and expenses for Warrants Subscription is minimal. In addition to the net proceeds that would be raised upon Warrant Completion, further capital would be raised upon exercise of the subscription rights attaching to the Warrants. The Board holds the view that the Warrants Subscription and the issue of the Subscription Shares provide opportunities for the Group to strengthen the Group’s capital base and financial position which in turn better equip the Group with the financial flexibility for development of the existing business or any other new business of the Group.

– 92 –

LETTER FROM NEW SPRING CAPITAL

In conclusion, we agree with the Directors that the incentive provided to Dr. Mo in the form of the Warrants Subscription would not be more than necessary, as regard to B.1 of Appendix 14 to the Listing Rules, due to the reasons, in particular, (i) as discussed previously, the Warrants Subscription not only provides incentive to Dr. Mo for his continuous contribution to the development and sustained growth of the Group, but also closely links with his economic benefit with the growth of the Group. Such objectives of the Company are hardly able to be served by other alternative methods (i.e. share options and salary increment); (ii) the substantial improvement of the Company’s historical financial position brought by the Gas Businesses and the sustained growth of the Company in recent years are mainly attributable to the significant dedication and contribution of Dr. Mo and the senior management team (under Dr. Mo’s leadership) in development and management of the Gas Businesses; and (iii) the Warrants Subscription is subject to approval by the Independent Shareholders, which differs from other remuneration packages that could be approved by the remuneration committees of the Company. Hence, we concur with the Directors that it is reasonable for entering into the Warrants Subscription Agreement, after considering all the factors mentioned under this subsection headed “Reasons for entering into the Warrants Subscription Agreement”.

• The use of proceeds from the Warrants Subscription

As noted from the Letter from the Board, the gross proceeds from the Warrants Subscription will be HK$11,350,000 (without taking into account of the exercise of the subscription rights attaching to the Warrants). The net proceeds from the Warrants Subscription, after taking into account the legal fees, printing expenses and other related expenses in relation to the Warrants Subscription, will be approximately HK$11,250,000 (with a net Warrants Issue Price of approximately HK$0.0099 per Warrant). The Directors intend to apply the net proceeds as general working capital of the Group.

As revealed in the Interim Report, we noted that the balance of cash and cash equivalents of the Group as at 30 September 2012 was approximately HK$375.8 million. We understand from the Directors that the Group has no immediate funding need for its current operations and the Company currently has sufficient capital to carry on its principal business activities. However, the Directors considered that, other than the benefits for the Warrants Subscription as abovementioned, a solid financial position (after taking consideration of the net proceeds from the Warrants Subscription) could also allow the Company to capture future business opportunities in a timely manner and withstand or lessen adverse changes in economic conditions.

– 93 –

LETTER FROM NEW SPRING CAPITAL

Assuming the full exercise of the subscription rights attaching to the Warrants at the Subscription Price, it is expected that an additional gross amount of HK$232,675,000 will be raised. The net proceeds (after deduction of all related expenses) of approximately HK$232,575,000 (with a net subscription price of approximately HK$0.2049 per Subscription Share) will be applied as general working capital of the Group. As advised by the Company, the Subscriber would take into consideration various factors including, among others, the market price of the Shares, the economic environment and market sentiment of the stock market in Hong Kong, the dilution impact on the Subscriber under future fund raising activities to be conducted by the Company and the financial position of the Company for making decision on whether to exercise the subscription rights attaching to the Warrants. However, as at the Latest Practicable Date, the Subscriber has no plan for the timing of the exercise.

In the view that (i) the contribution and management expertise of Dr. Mo is crucial and beneficial to the future and continuous development of the Group, in particular, the Gas Businesses; (ii) the economic benefits of the Warrants closely rely on the increase in Share price, which is driven by improving fundamentals of the Company, and therefore the economic benefits of the Warrants to the Subscriber will only be realised when all the Shareholders are also in a position to benefit. It implies that the Warrants Subscription would align the interest of Dr. Mo (through the Subscriber) with the interests of the Shareholders, and thereby serve as incentive to Dr. Mo for his further contribution to the business of the Group; (iii) the Warrants Subscription will not create immediate dilution effect on the shareholding of the existing Shareholders; and (iv) the proceeds from the Warrant Subscription would further strengthen the Group’s capital base and financial position to better equip the Company with financial flexibility for future development, we therefore concur with the Directors’ view that the Warrants Subscription is in the interests of the Company so far as the Independent Shareholders are concerned.

II. Principal terms of the Warrants Subscription Agreement

(i) The Warrants Subscription Agreement

On 8 April 2013, the Company and the Subscriber entered into the Warrants Subscription Agreement pursuant to which the Company has conditionally agreed to issue and allot to the Subscriber, and the Subscriber has conditionally agreed to subscribe for, an aggregate of 1,135,000,000 Warrants conferring the rights to subscribe for an aggregate of 1,135,000,000 Subscription Shares at the initial Subscription Price of HK$0.205 per Subscription Share (subject to adjustment). The Warrants Issue Price is HK$0.01 per Warrant and the gross proceeds from the Warrants Subscription of HK$11,350,000 will be payable by the Subscriber in cash upon Warrants Completion.

– 94 –

LETTER FROM NEW SPRING CAPITAL

Details of principal terms the Warrants Subscription Agreement are set out in the section headed “Warrants Subscription” of the Letter from the Board.

(ii) The Warrants Issue Price and the Subscription Price

The aggregate of the Warrants Issue Price of HK$0.01 per Warrant and the Subscription Price of HK$0.205 per Subscription Share (the “ Aggregate Price ”), i.e. HK$0.215, represents:

• (a) a premium of approximately 17.49% over the closing price of HK$0.183 per Share as quoted on the Stock Exchange on the Last Trading Day (the “ LTD Premium of Aggregate Price ”);

• (b) a premium of approximately 0.09% over the average closing price of HK$0.2148 per Share as quoted on the Stock Exchange for the last five consecutive trading days for the Shares up to and including the Last Trading Day (the “ Five-Day Premium of Aggregate Price ”); and

• (c) a discount of approximately 12.57% to the average closing price of HK$0.2459 per Share as quoted on the Stock Exchange for the last ten consecutive trading days for the Shares up to and including the Last Trading Day.

As advised by the Directors, both the Warrants Issue Price and the Subscription Price were determined after arm’s length negotiations between the Company and the Subscriber, after considering the Group’s existing financial position, liquidity of the Shares in the market, and the prevailing market price of the Shares. The Directors (excluding the independent non-executive Directors whose views are set out in the letter from the Independent Board Committee in this circular) hold the view that terms of the Warrants Subscription are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

– 95 –

LETTER FROM NEW SPRING CAPITAL

• Historical trading performance of the Shares

The chart below set forth the movements in historical closing prices of the Shares on the Stock Exchange from 5 April 2012 up to and including the date of the Last Trading Day (the “ Review Period ”, representing one full calendar year immediately prior to and up to the last trading day before the entering into of the Warrants Subscription Agreement):

Closing price of the Shares on the Stock Exchange

==> picture [340 x 174] intentionally omitted <==

----- Start of picture text -----

0.35
0.30
0.25
0.20
0.15
The Aggregate Price
0.10 (i.e. HK$0.215)
The average closing price of the
0.05
Shares (i.e. HK$0.20 per Share)
0.00
5/4/2012 5/5/2012 5/6/2012 5/7/2012 5/8/2012 5/9/2012 5/10/20125/11/20125/12/20125/1/2013 5/2/2013 5/3/2013 5/4/2013
Closing Price per Share (HK$)
----- End of picture text -----

Source: the website of the Stock Exchange

During the Review Period, the Shares closed on the Stock Exchange were between a low of HK$0.15 per Share on 11 September 2012, 13 November 2012, 16 to 26 November 2012 and 28 November to 4 December 2012 and a high of HK$0.33 per Share on from 10 to 16 January 2013. The Aggregate Price of HK$0.215 represents a premium of approximately 45.3% over the lowest closing price of the Shares and a discount of approximately 34.8% to the highest closing price of the Shares accordingly. We noted that the Aggregate Price of HK$0.215 is within the said range of the closing prices of the Shares and is above the average closing price of the Shares of approximately HK$0.20 per Share during the Review Period, of which the Aggregate Price represents a premium of approximately 5.6% over it.

To further examine the fairness and reasonableness of the Aggregate Price, we have reviewed the historical trading performance of the Shares by each month during the Review Period. The table below set forth the highest, the lowest, and the average daily closing price of the Shares in each month during the Review Period:

– 96 –

LETTER FROM NEW SPRING CAPITAL

					Premium/
					(discount) of
					the Aggregate
					Price to the
		Highest daily	Lowest daily	Average daily	average daily
	No. of	closing price	closing price	closing price	closing price
Month	trading days	of the Shares	of the Shares	of the Shares	of the Shares
	days	HK$ per Share	HK$ per Share	HK$ per Share	(approximately)
2012
April	16	0.21	0.20	0.20	5.1%
May	22	0.20	0.17	0.18	18.3%
June	21	0.18	0.16	0.17	26.3%
July	21	0.19	0.17	0.18	20.9%
August	23	0.18	0.16	0.17	27.0%
September	20	0.17	0.15	0.16	34.5%
October	20	0.16	0.16	0.16	35.9%
November	22	0.16	0.15	0.15	39.2%
December	19	0.27	0.15	0.20	7.7%
2013
January	22	0.33	0.25	0.30	(28.9)%
February	17	0.32	0.28	0.30	(28.8)%
March	20	0.32	0.25	0.29	(24.8)%
April	3	0.20	0.18	0.19	13.4%
The Review
Period	246	0.33	0.15	0.20	5.6%

Source: the website of the Stock Exchange

– 97 –

LETTER FROM NEW SPRING CAPITAL

As illustrated above, during the Review Period, the average daily closing price of the Shares in each month ranged from the lowest of approximately HK$0.15 per Share in November 2012 to the highest of approximately HK$0.30 per Shares in the months of February and March 2013. Save for the months of January, February and March 2013, the Aggregate Price of HK$0.215 represents a range of premium from approximately 5.1% to 39.2% over the average daily closing price of the Shares in each month during the Review Period.

• Comparison with other subscription of warrants

Other than studying the historical trading performance of the Shares, in order to assess the fairness and reasonableness of the Aggregate Price, we have reviewed a number of comparable transactions which involved the placing or subscription of unlisted warrants (the “ Comparable Transactions ”). We have set out the following criteria to screen the Comparable Transactions, including: (i) the Comparable Transactions are conducted by issuers who are listed on the Stock Exchange (the “ Comparable Companies ”) and are publicly disclosed by way of announcement and/or circular; and (ii) the Comparable Transactions involved the placing or subscription of unlisted warrants, excluding those involved subscription of bonus warrants or issue of warrants attached to other fund raising activity at nil consideration, in the six months’ period immediately prior to and including the date of the Warrants Subscription Agreement (the “ Comparison Period ”). We consider that the following list is exhaustive based on the aforesaid selection criteria and details of the Comparable Transactions are summarised below:

						Premium/(discount)
					Premium/(discount)	of the aggregate of
					of the aggregate of	the issue price and
					the issue price and	subscription price
					subscription price	over average closing
					over closing price of	price of the shares
					the shares on the	on the last five
					last trading day	consecutive trading	Subscription
	Date of			Issue price of	prior to the	days prior to the	period of
#	**announcement **	Company name	Stock code	the warrants	announcement	announcement	the warrants
				HK$ per warrant	(approximately)	(approximately)	year
1	12-Mar-13	China Zenith Chemical Group	362.HK	0.002	1.1%	1.6%	1.3
		Limited
2	5-Mar-13	Seamless Green China	8150.HK	0.010	–16.9%	–7.9%	3.0
		(Holdings) Limited
3	28-Feb-13	Fintronics Holdings Company	706.HK	0.010	–10.5%	–8.6%	2.0
		Limited
4	25-Feb-13	Convoy Financial Services	1019.HK
		Holdings Limited

– 98 –

LETTER FROM NEW SPRING CAPITAL

						Premium/(discount)
					Premium/(discount)	of the aggregate of
					of the aggregate of	the issue price and
					the issue price and	subscription price
					subscription price	over average closing
					over closing price of	price of the shares
					the shares on the	on the last five
					last trading day	consecutive trading	Subscription
	Date of			Issue price of	prior to the	days prior to the	period of
#	**announcement **	Company name	Stock code	the warrants	announcement	announcement	the warrants
				HK$ per warrant	(approximately)	(approximately)	year
		Warrant I		0.010	0.7%	7.4%	5.0
		Warrant II		0.010	0.7%	7.4%	5.0
5	8-Feb-13	Sino Resources Group Limited	223.HK	0.010	7.9%	8.7%	3.0
6	25-Jan-13	Huili Resources (Group) Limited	1303.HK	0.000	–5.5%	–3.6%	2.0
7	23-Jan-13	Victory City International	539.HK	0.010	1.1%	5.4%	1.0
		Holdings Limited
8	21-Jan-13	Genvon Group Limited	2389.HK	0.001	13.3%	11.7%	1.0
9	18-Jan-13	Jiangchen International Holdings	1069.HK	0.010	–13.8%	–6.5%	3.0
		Limited
10	15-Jan-13	Mobile Telecom Network	8266.HK	0.010	6.0%	6.0%	3.0
		(Holdings) Limited
11	28-Dec-12	Tai Shing International	8103.HK	0.010	–2.6%	–0.7%	1.0
		(Holdings) Limited
12	27-Dec-12	Hao Tian Resources Group	474.HK	0.010	9.9%	11.4%	2.0
		Limited
13	20-Dec-12	China Resources and	269.HK	0.000	75.0%	76.0%	3.0
		Transportation Group Limited		(Note)
14	3-Dec-12	Neo Telemedia Limited	8167.HK	0.050	–7.8%	–7.8%	2.0
15	30-Nov-12	Focus Media Network Limited	8112.HK	0.0125	19.5%	2.9%	3.0
16	5-Nov-12	Neo Telemedia Limited	8167.HK	0.010	0.0%	9.6%	2.0
17	18-Oct-12	Perception Digital Holdings	1822.HK	0.000	8.0%	5.1%	5.0
		Limited		(Note)
			Maximum	0.050	75.0%	76.0%	5.0
			Minimum	0.000	-16.9%	-8.6%	1.0
			Average	0.011	4.8%	6.6%	2.6
	16-May-13	The Company	681.HK	0.010	17.5%	0.1%	3.0

Note: Warrants were issued at nominal consideration of HK$1.000.

Source: the website of the Stock Exchange

– 99 –

LETTER FROM NEW SPRING CAPITAL

As shown in the above table, the premium/discount of the aggregate of the issue price and subscription price of the Comparable Transactions over the closing price of shares of the Comparable Companies on the last trading day prior to the respective announcement ranged from a discount of approximately 16.9% to a premium of approximately 75.0% (the “ LTD Comparable Range ”), with an average of a premium of approximately 4.8% (the “ LTD Comparable Average ”). In addition, the premium/discount of the aggregate of the issue price and subscription price of the Comparable Transactions over the average closing price of shares of the Comparable Companies on the last five consecutive trading day prior to the respective announcement ranged from a discount of approximately 8.6% to a premium of approximately 76.0% (the “ Five-Day Comparable Range ”), with an average of premium of approximately 6.6% (the “ Five-Day Comparable Average ”). It is noted that the LTD Premium of Aggregate Price, which represents approximately 17.5%, falls within the LTD Comparable Range and is higher than the LTD Comparable Average. The Five-Day Premium of Aggregate Price, which represents approximately 0.1%, also falls within the Five-Day Comparable Range but is lower than the FiveDay Comparable Average.

Other than studies on the Aggregate Price, we have also assessed the fairness and reasonableness of the Warrants Issue Price by making reference from the BlackScholes Option Pricing Model and comparing the theoretical value of the Warrants (C) to the Warrants Issue Price. Details of our calculation are as follows (for reference purpose only):

Black-Scholes formula: C(S, t) = N(d1)S – N(d2)Ke[–r(T – t)]

Black-Scholes Option Pricing Model:

Parameters	(Approximately)
Number of issued Shares outstanding as at the Last	5,809,954,136 Shares
Trading Day
Enterprise value (EV) of the Company as at the Last	HK$1,069,000,000
Trading Day_(Note 1)_
EV per Share_(Note 2)_	HK$0.184 per Share
Adjusted Share price (S)(Note 3)	HK$0.187 per Share
Subscription Price (K)	HK$0.205 per
	Subscription Share
Subscription Period (defined below) (T)	36 months
Risk free rate (r)(Note 4)	4.83%
Standard deviation in Share price_(Note 5)_	0.055
Annualised dividend yield	0.00%
Dividend adjusted interest rate (i.e. risk free rate minus	4.83%
annualised dividend yield)
– 100 –

LETTER FROM NEW SPRING CAPITAL

Parameters	(Approximately)
N(d1)(Note 6)	0.735
N(d2)(Note 6)	0.702
Theoretical Value of the Warrants (C)	HK$0.013 per Warrant
The Warrants Subscription:
Warrants Issue Price	HK$0.010 per Warrant
Result:
Discount to the theoretical value of the Warrants	23.08%

Notes:

1. The Company’s enterprise value is derived from the market capitalisation of the Company as quoted on the Last Trading Day after deduction of cash and cash equivalents and plus the outstanding debts and minority interest of the Group.

2. Enterprise value per Share equals to the enterprise value of the Company divided by the number of issued Shares outstanding as at the Last Trading Day.

3. Adjusted by the number of the Warrants to be issued under the Warrants Subscription Agreement.

4. Referred to Hong Kong Monetary Authority’s Three-year Exchange Fund Notes 2016/6.

5. Calculated based on the closing price of Shares during the Review Period (i.e. one full calendar year immediately prior to and up to the Last Trading Day before the entering into of the Warrants Subscription Agreement).

6. N(d1) and N(d2) are the cumulative distribution function of standard normal distribution.

– 101 –

LETTER FROM NEW SPRING CAPITAL

By applying the Black-Scholes Option Pricing Model, we note that the theoretical value of the Warrants was approximately HK$0.013 per Warrant, which implied that the Warrants Issue Price has a discount of approximately 23.08% to the theoretical value of the Warrants. As advised by the Directors, the Warrants Issue Price was determined after arm’s length negotiations between the Company and the Subscriber, after taking into account the Group’s existing financial position, liquidity of the Shares in the market and the prevailing market price of the Shares. However, due to each of the models has its own assumptions and limitations, we on the other hand agree with the Directors that the estimation of fair value of the Warrants by applying the financial modeling might not be fully reliable.

In the view of this, we have also made reference from the Comparable Transactions and compared the Warrants Issue Price to the issue prices of warrants of the Comparable Transactions, considering the Comparable Companies were trading under a similar trading environment (such as stability of stock market, economic environment and the cost of borrowing) as that of the Company during the Comparison Period. As illustrated in the above table, we note that, among the Comparable Transactions, the issue price of the respective warrants ranged from a high of HK$0.050 per warrant to a low of nil per warrant. The average issue price of warrants of the Comparable Transactions is approximately HK$0.011 per warrant. It is noted that the Warrants Issue Price of HK$0.010 per Warrant falls within the range and is very close to the average of issue price of warrants of the Comparable Transactions.

Among the Comparable Transactions, we consider 2 Comparable Transactions (the “ Selected Comparable Transactions ”) are most comparative to the Warrants Subscription (i.e. Sino Resources Group Limited (223.HK) and Mobile Telecom Network (Holdings) Limited (8266.HK)), after reviewing the major factors which may affect the fair value of warrants, being (i) the closing prices of the underlying shares of the Comparable Companies (the “ Selected Comparable Companies ”) as quoted on the Stock Exchange on the respective last trading day were most comparative to a range from HK$0.183 per share to HK$0.246 per share (reference from the closing price of Shares as quoted on the Stock Exchange on the Last Trading Day and up to the last ten consecutive trading days); and (ii) the respective subscription period of the Comparable Transactions was three years, which is the same as that of the Company. We note that the issue prices of warrants of the Selected Comparable Transactions were both at HK$0.010 per warrant and equal to the Warrants Issue Price. As for the Selected Comparable Companies (i.e. Sino Resources Group Limited (223.HK) and Mobile Telecom Network (Holdings) Limited (8266.HK)), it is further noted that (i) their historical annual volatilities of the underlying shares were around 60% and 50%; (ii) their estimated fair values of warrants were both at approximately HK$0.03 per warrant; and (iii) hence, the

– 102 –

LETTER FROM NEW SPRING CAPITAL

respective discount of issue prices per warrant to the estimated fair values per warrant were both at approximately 70%. Comparing to the above and a discount of the Warrants Issue Price at only approximately 23.08% to the theoretical value of the Warrants, we consider that the Warrants Issue Price at HK$0.010 per Warrant is justifiable.

In the view that (i) the Aggregate Price is more favourable to the average closing price per Share during the Review Period, which represents a premium of approximately 5.6%; (ii) the Aggregate Price is more favourable to the average daily closing price of the Shares in the majority months of the Review Period, which ranges from premiums of approximately 5.1% to 39.2%; (iii) the LTD Premium of Aggregate Price and the Five-Day Premium of Aggregate Price both fall within the LTD Comparable Range and the Five-Day Comparable Range respectively; and (iv) the Warrants Issue Price falls within the range of the Comparable Transactions and equals to the issue prices of warrants of the Selected Comparable Transactions, we therefore consider that the Aggregate Price, including the Warrants Issue Price, is fair and reasonable and is in the interests of the Company and the Shareholders as a whole.

(iii) Subscription Period

We note from the Letter from the Board that the subscription rights attaching to the Warrants may be exercised during a period of 36 months commencing from the date of issue in accordance with terms of the Warrants Subscription Agreement (the “ Subscription Period ”). As illustrated in the table under the paragraph headed “Comparison with other subscription of warrants”, it is noted that the Comparable Transactions have subscription periods ranged from 1 year to 5 years, with an average subscription period of approximately 2.6 years. As the Subscription Period falls within the range and is close to those of the Comparable Transactions, we are of the view that the length of the Subscription Period is fair and reasonable and is in the interests of the Company and the Shareholders as a whole.

– 103 –

LETTER FROM NEW SPRING CAPITAL

III. Dilution effect on the shareholding interests of the existing Shareholders

As referred to the Letter from the Board, the following table demonstrates the possible shareholding structure of the Company (i) as at the Latest Practicable Date (“ Scenario 1 ”); and (ii) immediately after the full exercise of the subscription rights attaching to the Warrants but before the distribution of any of the Consideration Shares to the then Shareholders (other than the Vendor) on pro-rata basis pursuant to the Settlement Deed (“ Scenario 2 ”), for illustration purpose only:

Shareholders Dr. Mo_(Note 1) Subscriber Sub-total for the Subscriber and its concert parties Vendor (Note 2) Mr. Yeung (Note 1) Mr. Zhang Hesheng(Note 1) Mr. Chu Kin Wang Peleus(Note 1, 3)_ Public Shareholders Total	Scenario No. of Shares 427,841,375 – 427,841,375 1,727,729,582 600,000 227,788,793 9,840,000 3,416,154,386 5,809,954,136	1(Note 4) Approximate% 7.36 – 7.36 29.74 0.01 3.92 0.17 58.80 100.00	Scenario No. of Shares 427,841,375 1,135,000,000 1,562,841,375 1,727,729,582 600,000 227,788,793 9,840,000 3,416,154,386 6,944,954,136	2 (Note 5) Approximate% 6.16 16.34
				22.50
				24.88 0.01 3.28 0.14 49.19
				100.00

Notes:

1. Dr. Mo, Mr. Yeung, Mr. Zhang Hesheng and Mr. Chu Kin Wang Peleus are Directors.

2. The Vendor is legally, beneficially and equally held by Mr. Yang and Mr. Yeung. Mr. Yang and Mr. Yeung are brothers and directors of the Vendor.

3. This represents interests legally and beneficially held by Ms. Woo Sau Kuen. She is the spouse of Mr. Chu Kin Wang Peleus.

4. As at the Latest Practicable Date, the Company had outstanding 174,600,000 Share Options.

5. Scenario 2 has not taken into account the effect of (i) the possible allotment and issue of Additional Shares under the Settlement Deed; and (ii) the exercise of outstanding Share Options.

– 104 –

LETTER FROM NEW SPRING CAPITAL

As illustrated in the table above, the shareholding interests of the existing public Shareholders would be diluted by approximately 9.61%, from approximately 58.80% in Scenario 1 to approximately 49.19% in Scenario 2. Taking into account (i) the reasons for the Warrants Subscription; (ii) the Warrants Subscription together with the exercise of the subscription rights attaching to the Warrants would further strengthen the Company’s capital base with financial flexibility for future business development; and (iii) the terms of the Warrants Subscription Agreement were determined after arm’s length negotiations between the Company and the Subscriber and are fair and reasonable so far as the Independent Shareholders are concerned, we are of the view that the aforementioned extent of dilution to the shareholding interests of the existing public Shareholders would be acceptable.

IV. Possible financial effects of the Warrants Subscription

(i) Net asset value and gearing ratio

As referred to the Interim Report, the unaudited consolidated net asset value of the Group was approximately HK$1,847.2 million, whilst the gearing ratio of the Group, which is calculated as net debt divided by the sum of net debt and total equity, was negative as at 30 September 2012 due to the excess of cash and cash equivalents over total debt. As advised by the Directors, the Group’s net asset value and the gearing ratio would not be materially affected by the Warrants Subscription. Further, in the event that the subscription rights attaching to the Warrants are fully exercised, the Group’s net asset value will be increased and the Group’s net debt will be decreased, both by the net proceeds with a maximum amount of approximately HK$232,575,000. Further, the fully exercise of the subscription rights attaching to the Warrants will constitute an increase in the Group’s total equity by the same amount. The gearing ratio of the Group is therefore expected to decrease.

(ii) Working capital

As stated in the Interim Report, the Group’s cash and cash equivalents were approximately HK$375.8 million as at 30 September 2012. As advised by the Directors, both the net proceeds from the issue and the exercise of the Warrants will be applied as additional general working capital of the Group. The Group’s working capital is therefore expected to be strengthened as a result of the cash inflow from the Warrants Subscription and the Group’s working capital position would be further enhanced upon the subscription rights attaching to the Warrants have been exercised in full.

It should be noted that the above-mentioned analyses are for illustrative purpose only and does not purport to represent how the financial positions of the Group will be upon the completion of the Warrants Subscription Agreement and the transactions contemplated thereunder.

– 105 –

LETTER FROM NEW SPRING CAPITAL

V. Opinion and recommendation in relation to the Warrants Subscription Agreement

Having considered the abovementioned principal factors and reasons, we consider that the terms of the Warrants Subscription Agreement are fair and reasonable and on normal commercial terms and the entering into of the Warrants Subscription Agreement is in the interests of the Company and the Shareholders as a whole. We therefore advise the Independent Board Committee to recommend the Independent Shareholders to vote in favor of the ordinary resolutions to be proposed at the SGM to approve the Warrants Subscription Agreement and the transactions contemplated thereunder.

PART III – PRINCIPAL FACTORS AND REASONS CONSIDERED IN RELATION TO CONTINUING CONNECTED TRANSACTIONS IN RESPECT OF THE ENTERING INTO THE NATURAL GAS SUPPLY AGREEMENT

In arriving at our opinion and recommendation to the Independent Board Committee and the Independent Shareholders with regard to the Natural Gas Supply Agreement and the transactions contemplated thereunder, we have considered the following principal factors and reasons:

I. Background and reasons for the entering into of the Natural Gas Supply Agreement

(i) The Group’s business performance and development of Natural Gas business

The Group currently has three operating segments, namely (i) provision of piped gas fuel; (ii) transportation, distribution and bottled retail of LPG; and (iii) lottery agency. As revealed in the Company’s annual report for the year ended 31 March 2005, the Company commenced its business of distribution, supply and installation of piped gas fuel since 2004. We understand from the Directors that revenue generated from the provision of piped gas fuel has been growing substantially, which comprises a major source of income of the Group. As referred to the 2012 Annual Report, revenue generated from such segment accounted for approximately 70.4% of the Group’s revenue for the year ended 31 March 2012 and has grown by more than 30% compared to the segment revenue for the year ended 31 March 2011.

– 106 –

LETTER FROM NEW SPRING CAPITAL

Xi’an Zhongmin, an indirect subsidiary of the Company, is principally engaged in sales and distribution of gas fuel, design of gas fuel pipeline and related maintenance in Xi’an city, Shaanxi Province, PRC. As advised by the Directors, Natural Gas supplied by Xi’an Zhongmin is delivered to two major groups of customers, being (i) urban households and (ii) commercial and industrial users. The following table summarised the results of operation of Xi’an Zhongmin for the three years ended 31 March 2013 extracted from the audited and/or management accounts of Xi’an Zhongmin for the respective financial years:

	Year	ended 31 March
	2011	2012	2013
	HK$’000	HK$’000	HK$’000
	(audited)	(audited)	(unaudited)
Revenue	85,443	111,707	125,830
Net profit before taxation	6,576	11,780	13,601
Net profit after taxation	5,405	9,605	12,299

As illustrated from the table above, we note that revenue of Xi’an Zhongmin increased from approximately HK$85.4 million for the year ended 31 March 2011 to approximately HK$125.8 million for the year ended 31 March 2013, which represented an increase of approximately 47.3% over the two years. As advised by the Directors, the favourable financial performance of Xi’an Zhongmin was primarily benefited from (i) the continual investment in Natural Gas infrastructure by the PRC Government, where Shaanxi Province is one of the targeted regions; (ii) the increasing consumption needs of Natural Gas driven by the increasing coverage of pipeline construction and gas supply in the province; and (iii) the efforts placed by the management of Xi’an Zhongmin to strengthen its customer base and connections with potential customers. It is advised that, by the end of the financial year of 2013, the number of accumulated connected customers (接駁用 戶) of Xi’an Zhongmin has been reached to over 45,000 units, which represented about one-tenth of the Group’s total number of connected customers.

According to the National Bureau of Statistics of China, it revealed on 22 February 2013 that the national energy consumption was increased by approximately 3.9%, compared to the consumption amount in 2012, among which, the annual Natural Gas consumption in the PRC was substantially increased by approximately 10.2% in 2012. In addition, we noted from the public information released by the PRC Government, particularly the “Twelfth Five-Year” Plan of National City Gas Development (the “ Twelfth Five-Year Plan ”), that the nation has been emphasising the popularity of the use of Natural Gas and the development of Natural Gas infrastructure across provinces.

– 107 –

LETTER FROM NEW SPRING CAPITAL

Advantaged to the great support in promoting use of Natural Gas by the PRC Government and the increasing demand for Natural Gas in the PRC, the Directors are of the view that the business of Natural Gas in the PRC will consistently and significantly contribute to the Group’s operating results and consider that Shaanxi Province will be one of the strategic regions to the Group’s business development of gas fuel in the future.

(ii) Business relationship with Shaanxi Natural Gas and transaction details under the Natural Gas Supply Agreement

Shaanxi Natural Gas, the connected person of the Company, is principally engaged in the distribution and pipeline transportation of Natural Gas, the sales of city gas, and the operation of gasification projects in the PRC. We note from the public documents released by Shaanxi Natural Gas and understand from the Directors that Shaanxi Natural Gas is one of the leading Natural Gas providers in Shaanxi Province, the PRC and has a dominated position in the Natural Gas industry of the province. It is advised that, since 2006, Xi’an Zhongmin engaged Shaanxi Natural Gas for the supply of Natural Gas. Sales and purchase agreements were entered into between both parties in accordance with relevant laws and regulations for the supply of Natural Gas in the PRC. As at the Latest Practicable Date, Shaanxi Natural Gas is the sole Natural Gas supplier of Xi’an Zhongmin.

We have reviewed the historical transaction amounts between Xi’an Zhongmin and Shaanxi Natural Gas for the preceding three financial years from 2011 to 2013, and noted that the amounts of Natural Gas purchased from Shaanxi Natural Gas grew substantially by more than 30% from approximately RMB64.3 million for the year ended 31 March 2011 to approximately RMB85.9 million for the year ended 31 March 2013.

We also note from the Company’s announcement dated 5 April 2013 in respect of connected transactions regarding equity transfer agreement and deemed disposal of partial interest in a subsidiary of the Company (the “ Equity Transfer and Capital Injection Announcement ”), on 3 April 2013, Xi’an Yanliang Government, being a shareholder of Xi’an Zhongmin, entered into equity transfer agreements with Beijing Civigas, being a wholly owned subsidiary of the Company, and Shaanxi Natural Gas, separately, pursuant to which Xi’an Yanliang Government agreed to transfer 9.15% and 6.88% equity interests in Xi’an Zhongmin to Beijing Civigas and Shaanxi Natural Gas, respectively. On the same day, Beijing Civigas, Shaanxi Natural Gas and Xi’an Yanliang Government entered into a capital injection agreement pursuant to which Shaanxi Natural Gas would subscribe the registered capital of Xi’an Zhongmin, by injecting a double track gas pipeline project to Yanliang District (the “ Yanliang Gas Pipeline Project ”), increasing its equity interests in Xi’an Zhongmin from 6.88% to 40.00%. Upon completion of the equity transfer agreements and the capital injection agreement, Xi’an Zhongmin will be held by Beijing Civigas as to 51%, Shaanxi Natural Gas as to 40% and Xi’an Yanliang Government as to 9%. Shaanxi Natural Gas will therefore become a connected person of the Company by virtual of its 40% equity interests in Xi’an Zhongmin. We are advised by the Directors that such project would bring synergy effect to both parties in the way that (i) to further

– 108 –

LETTER FROM NEW SPRING CAPITAL

strengthen the business collaboration between Xi’an Zhongmin and Shaanxi Natural Gas; and (ii) the enlarged gas pipeline connection brought by the project would effectively enhance the capabilities of gas supply from Shaanxi Natural Gas to Xi’an Zhongmin so as to capture the increasing energy consumption demand in the market.

The Directors expect that the Group will continue to carry out business transactions with Shaanxi Natural Gas with a similar practice in the future, mainly taking into account (i) the smooth collaboration in years of business relationship since 2006; (ii) the stable and timely supply of Natural Gas in normal commercial terms; (iii) the dominated role of Shaanxi Natural Gas in the Natural Gas market of Shaanxi Province which indicated the difficulty or higher cost likely to be incurred in finding replacement; and (iv) the synergy effect to be brought by the Yanliang Gas Pipeline Project to strengthen the local market shares. Meanwhile, in the view of the potential industry growth and demand for Natural Gas stipulated by national policies, Xi’an Zhongmin therefore, on 22 May 2013, entered into the Natural Gas Supply Agreement with Shaanxi Natural Gas, pursuant to which Xi’an Zhongmin has agreed to purchase the Natural Gas from Shaanxi Natural Gas for a term commencing from 30 June 2013 until 31 December 2013. As disclosed in the Company’s announcement dated 25 June 2013, Xi’an Zhongmin and Shaanxi Natural Gas mutually agreed in writing on the same day that the purchase of the Natural Gas from Shaanxi Natural Gas contemplated under the Natural Gas Supply Agreement may commence at a later date upon obtaining the approval from the Independent Shareholders at the SGM. Shaanxi Natural Gas is a connected person of the Company. Accordingly, the entering into of the Natural Gas Supply Agreement constitutes continuing connected transactions for the Company under Chapter 14A of the Listing Rules.

Having considered (i) the historical performance of Xi’an Zhongmin and the significant role of Natural Gas business to the Group; (ii) the potential development of and increasing demand in the Natural Gas industry of the PRC; (iii) the favourable national policies and strong investment in Natural Gas infrastructure by the PRC Government; (iv) the long-term business relationship of Xi’an Zhongmin with Shaanxi Natural Gas, which is the dominated market leader; and (v) the secured supply of Natural Gas under the Natural Gas Supply Agreement and the high delivery cost to be incurred in replacement of the sole supplier, we concur with the Director’s view that the entering into of the Natural Gas Supply Agreement is commercially conducted in the ordinary and usual course of business of the Group and is in the interests of the Company and the Shareholders as a whole.

– 109 –

LETTER FROM NEW SPRING CAPITAL

II. Terms of the Natural Gas Supply Agreement

Pursuant to the Natural Gas Supply Agreement and the announcement of the Company dated 25 June 2013, Xi’an Zhongmin has agreed to purchase Natural Gas from Shaanxi Natural Gas for a term commencing from the following Business Day upon obtaining the approval from the Independent Shareholders at the SGM to 31 December 2013 with a transaction amount of being not exceed the volume of 35,000,000 m[3] and the amount of RMB58,150,000 (equivalent to approximately HK$73,635,000), as agreed by both parties.

(i) Purchase price of Natural Gas

We have reviewed the Natural Gas Supply Agreement and note that the basis of determining the price of Natural Gas to be purchased from Shaanxi Natural Gas will be in accordance with the price (subject to adjustments from time to time) set by the Shaanxi Provincial Price Bureau, a governmental body in the PRC who is responsible for developing and implementing pricing policies within the province. The Directors confirm that such pricing policy will be applied to all future transactions under the Natural Gas Supply Agreement between Xi’an Zhongmin and Shaanxi Natural Gas. In case that there is an adjustment to pricing policies on Natural Gas stipulated by the regulatory authority, the price of Natural Gas offered to Xi’an Zhongmin by Shaanxi Natural Gas will be adjusted accordingly.

In order to assess the fairness and reasonableness of the price of Natural Gas set under the Natural Gas Supply Agreement, we have reviewed the relevant pricing guidance (namely《陝西省物價局關於調整我省天然氣價格的通知》) issued by the Shaanxi Provincial Price Bureau and note that the agreed price under the Natural Gas Supply Agreement is in compliance with the said pricing guidance. We have also reviewed the historical agreements, in respect of sales and purchase of Natural Gas, entered into between Xi’an Zhongmin and Shaanxi Natural Gas and note that the historical pricing policies agreed between both parties were also in compliance with the pricing guidance issued by the regulatory body and the same as those under the Natural Gas Supply Agreement. It is noted that the basis of the price determination of Natural Gas under the Natural Gas Supply Agreement is in line with their historical transactions and business practice with Shaanxi Natural Gas.

– 110 –

LETTER FROM NEW SPRING CAPITAL

Given the reasons that Shaanxi Natural Gas is the sole supplier of Natural Gas of Xi’an Zhongmin and possesses a dominated market position in the Shaanxi Natural Gas industry as mentioned earlier, no information is available for a comparison between the price of Natural Gas offered by Shaanxi Natural Gas and that by other Independent Third Parties. In order to further assess the fairness and reasonableness of the price of Natural Gas offered by Shaanxi Natural Gas, we have reviewed the latest annual report of Shaanxi Natural Gas for the year ended 31 December 2012 and note that the pricing policies of Shaanxi Natural Gas for the sales of Natural Gas was in accordance with the aforesaid pricing guidance released by the Shaanxi Provincial Price Bureau and therefore that agreed under the Natural Gas Supply Agreement. Though, it is suggested by the regulatory guidance that entities are allowed to adjust the price of Natural Gas set by the Shaanxi Provincial Price Bureau upwards or downwards within a range of 10%, subject to commercial decision agreed between the relevant parties in the transaction. However, as referred to the aforesaid annual report of Shaanxi Natural Gas, we note that the price of Natural Gas offered to Xi’an Zhongmin was no less favourable than that Shaanxi Natural Gas offered to its connected parties in the same province within the same time.

In the view that (i) the price of Natural Gas under the Natural Gas Supply Agreement will be set in accordance with the pricing guidance set by the Shaanxi Provincial Price Bureau, which represents a governed benchmark for the price of Natural Gas in Shaanxi Province; (ii) the future transactions under the Natural Gas Supply Agreement follows the same pricing basis for the sales and purchase of Natural Gas as the historical transactions between both parties; (iii) Shaanxi Natural Gas will consistently apply such pricing policy for all future supply of Natural Gas to Xi’an Zhongmin under such agreement; (iv) the latest annual report of Shaanxi Natural Gas indicated that the price of Natural Gas offered to Xi’an Zhongmin was comparable to and no less favourable than that Shaanxi Natural Gas offered to others; and (v) the terms under the Natural Gas Supply Agreement were agreed between both parties on normal commercial basis and under arm’s length negotiation, we therefore concur with the Directors’ view that the price of Natural Gas to be purchased under the Natural Gas Supply Agreement is fair and reasonable so far as the Independent Shareholders are concerned and is in the interests of the Company and the Shareholders as a whole.

(ii) Basis of the Annual Cap

As noted from the Letter from the Board, Xi’an Zhongmin and Shaanxi Natural Gas have agreed that the transaction amount under the Natural Gas Supply Agreement will not exceed the volume of 35,000,000 m[3] and the amount of RMB58,150,000 (equivalent to approximately HK$73,635,000, calculated at the approximate exchange rate of RMB1.0000 to HK$1.2663 as at 20 May 2013). Further, during the period from 31 March 2013 to 30 June 2013 (the “ Period ”), the purchase of Natural Gas from Shaanxi Natural Gas will not exceed the volume of 5,500,000 m[3] and the amount of RMB8,395,000 (equivalent to approximately HK$10,631,000, calculated at the approximate exchange rate of RMB1.0000 to HK$1.2663 as at 20 May 2013).

– 111 –

LETTER FROM NEW SPRING CAPITAL

We note from the Equity Transfer and Capital Injection Announcement that, following the equity transfer of and capital injection to Xi’an Zhongmin, Shaanxi Natural Gas will be a connected person of the Company by virtual of its 40% equity interests in Xi’an Zhongmin. It is advised that the transactions during the Period and the period under the Natural Gas Supply Agreement shall be aggregated, covering the nine months’ period from 31 March 2013 to 31 December 2013 are in the volume of 40,500,000 m[3] and the amount of RMB66,545,000 (equivalent to approximately HK$84,266,000, calculated at the approximate exchange rate of RMB1.0000 to HK$1.2663 as at 20 May 2013) (the “ Annual Cap ”).

The following table summarised the details of the Annual Cap:

Transactions Transactions The Annual Cap during the under the Period Natural Gas Supply Agreement Period covered from 31 March 2013 The following 31 March 2013 Business Day upon obtaining the approval from the Independent Shareholders at the SGM to 30 June 2013 31 December 2013 31 December 2013 Purchase of Natural 5,500,000 m[3] 35,000,000 m[3] 40,500,000 m[3] Gas, not exceeding (in volume) Purchase of Natural RMB8,395,000 RMB58,150,000 RMB66,545,000 Gas, not exceeding (in monetary value)

We are advised by the Directors that the Annual Caps were determined after taking into account, mainly in the aspects of (i) the historical transaction amounts between Xi’an Zhongmin and Shaanxi Natural Gas in respect of the sales and purchase of Natural Gas; and (ii) the projected demand for Natural Gas from Xi’an Zhongmin in the market by the end of 2013.

– 112 –

LETTER FROM NEW SPRING CAPITAL

• Historical transaction amounts for the purchase of Natural Gas

We understand from the Directors that Natural Gas purchased by Xi’an Zhongmin from Shaanxi Natural Gas is delivered to two types of end users, the urban households and the commercial and industrial users, in Shaanxi Province, under different sales price subject to different cost of delivery of Natural Gas incurred.

The historical transaction volumes and amounts in respect of purchase of Natural Gas from Shaanxi Natural Gas by Xi’an Zhongmin are summarised as follows:

	For the year ended 31 March	For the year ended 31 March
	2011	2012	2013
	‘000 m3	‘000 m3	‘000 m3
Purchase of Natural
Gas (in volume)	45,334	50,032	54,242_(Note)_
	RMB’000	RMB’000	RMB’000
	(audited)	(audited)	(unaudited)
Purchase of Natural
Gas (in monetary
value)	64,334	78,243	85,860_(Note)_

• Note: Transactions between Xi’an Zhongmin and Shaanxi Natural Gas in financial year ended 31 March 2013 were attributable to contracts entered into between Xi’an Zhongmin and Shaanxi Natural Gas before Shaanxi Natural Gas became a connected person of the Company.

As illustrated above, we note that the volumes of Natural Gas purchased by Xi’an Zhongmin from Shaanxi Natural Gas increased by about 20% from the financial year of 2011 to the financial year of 2013. In terms of the monetary value of Natural Gas purchased, the transaction amounts increased from approximately RMB64.3 million (equivalent to approximately HK$81.5 million) for the year ended 31 March 2011 to approximately RMB85.9 million (equivalent to approximately HK$108.7 million) for the year ended 31 March 2013, representing an increase of approximately 33.5% in amount of Natural Gas purchased spanning the years.

– 113 –

LETTER FROM NEW SPRING CAPITAL

We have reviewed the governmental documents (《陝西省物價局關於調整 我省天然氣價格的通知》)issued by the Shaanxi Provincial Price Bureau in February 2006 and October 2010 respectively, which provide guidance on pricing of Natural Gas in Shaanxi Province with effective dates on 15 March 2006 and 20 October 2010 respectively. It is noted that the cost of Natural Gas incurred by Xi’an Zhongmin had been increased by approximately 18.3% and 24.3% for that delivered to urban households and commercial and industrial users respectively after the release of the regulatory pricing guidance of Natural Gas in October 2010. The Directors advised that, other that the upraised price in the late 2010, the strong historical growth of the purchase was mainly attributable to (i) the national policies to encourage and promote the use of Natural Gas in the PRC as an environment concern; (ii) the continual investment and support for the development of Natural Gas infrastructure by the PRC Government; (iii) the increasing demand for Natural Gas and energy resources in the PRC driven by the enhanced pipeline construction in cities and the steady acceleration of industrialisation; and (iv) the enlarged customer base resulted from the efforts placed by the management of Xi’an Zhongmin in development connection with customers. The Directors expect that, given the favourable historical growth in Xi’an Zhongmin’s results of operations and leveraging with the great support from the nation to the Natural Gas industry, such growth will likely to continue and in a stronger way in the second half of 2013.

• Demand for Natural Gas from Xi’an Zhongmin in the market

We understand from the Directors that, in determination of the Annual Cap, the Company expected that the pricing policies set by the regulatory authority in Shaanxi Province would remain in the same manner within a short timeframe (i.e. by the end of 2013). The Directors, by taking into account (i) the increased historical transaction volumes and amounts of Natural Gas purchased from Shaanxi Natural Gas and the underlying reasons for such growth as abovementioned; (ii) the synergy effect to be brought by the Yanliang Gas Pipeline Project in the distribution and supply of gas fuel; and (iii) their discussion with the management of Shaanxi Natural Gas regarding the expected demand for Natural Gas within the province and the projected volumes of Natural Gas to be purchased for the period covered under the Natural Gas Supply Agreement, consider that the future transaction amount could be generated stronger than the corresponding period of previous years.

– 114 –

LETTER FROM NEW SPRING CAPITAL

In order to assess the reasonableness of the growth of the Annual Cap, we have reviewed the historical monthly purchase of Natural Gas by Xi’an Zhongmin from Shaanxi Natural Gas and compared the transaction volume and amount of the corresponding period of last year with the Annual Cap. It is noted that the purchase volume and amount for the nine months’ period from 31 March 2012 to 31 December 2012 were approximately 34,700,000 m[3] and RMB55.6 million respectively. The Annual Cap, which represents the transaction volume of 40,500,000 m[3] and transaction amount of RMB66,545,000, accounted for estimated growths in transaction volume and amount of approximately 16.7% and 19.7%, respectively, of Natural Gas to be purchased for the nine months’ period from 31 March 2013 to 31 December 2013.

We note from the Twelfth Five-Year Plan announced by the PRC Government in June 2012 that the PRC Government would vigorously promote the development and use of Natural Gas as primary consumption of urban gas in the PRC, including the use of Natural Gas vehicles in cities, aiming at developing a healthier urban gas industry and improving in energy utilisation in cities. It is suggested in the Twelfth Five-Year Plan that the proportion of non-fossil energy consumption will be increased to 11.4% of primary energy consumption in the PRC by 2015, with Natural Gas accounting for 7.5%. Further, according to People’s Daily (or namely Renmin Ribao), a renowned daily newspaper in the PRC, it is expected that Natural Gas consumption would be reached to around 9% of the national energy consumption, from the current of approximately 6%, by 2020, covering 31 provinces in the PRC. As for the future development of Natural Gas infrastructure, according to the Twelfth Five-Year Plan, the PRC Government plans to build 44,000 kilometers of Natural Gas pipelines across provinces during the Twelfth Five-Year Plan period and it is expected that approximately 250 million of the PRC citizens will have access to Natural Gas by the end of 2015.

We are advised by the Directors that the Group, leveraging with the great opportunities from the national support and the potential growth of Natural Gas industry in the PRC, will continue to aggressively develop its business of the sales and distribution of Natural Gas across the country including Shaanxi Province. In particular, benefited from the nation’s encouragement to the use of Natural Gas vehicles and the steady acceleration of industrialisation, it is expected that the consumption needs for Natural Gas by, particularly, the commercial and industrial users including the users of Natural Gas vehicles will likely to rise even stronger. Advantaged to the enlargement of gas pipeline connection under the Yanliang Gas Pipeline Project, the Directors are confident that the Company will be able to secure the stronger supply of Natural Gas from Shaanxi Natural Gas and to capture the increasing consumption demand in the region.

– 115 –

LETTER FROM NEW SPRING CAPITAL

Having considered (i) the significant growth in the historical financial performance of Xi’an Zhongmin for the three years ended 31 March 2013; (ii) the PRC Government’s great support to the development of Natural Gas industry and the strong investment in Natural Gas infrastructure across provinces and cities, including Shaanxi Province; (iii) the PRC Government’s intention to consistently promote the use of Natural Gas in cities and the use of Natural Gas vehicles as indicated by the Twelfth Five-Year Plan; (iv) the increasing demand and consumption needs for Natural Gas in the PRC; and (v) the Group’s intention to aggressively develop its Natural Gas business and Xi’an Zhongmin’s capability to catch up the future market demand in the distribution and supply of gas fuel, we are of the opinion that the projected purchase volume and amount of Natural Gas proposed under the Annual Cap are reasonably estimated and fair and reasonable.

III. Annual review of the continuing connected transactions

The Company confirms that it will comply with Rule 14A.37 to Rule 14A.40 of the Listing Rules during the Period and the terms of the Natural Gas Supply Agreement, in particular:

• (a) the Annual Cap shall not be exceeded;

• (b) each year the independent non-executive Directors must review the continuing connected transactions and confirm in the annual report and accounts of the Company that such transactions have been entered into:

• (i) in the ordinary and usual course of business of the Company;

• (ii) either on normal commercial terms or, if there are not sufficient comparable transactions to judge whether they are on normal commercial terms, on terms no less favourable to the Company than terms available to or from (as appropriate) Independent Third Parties; and

• (iii) in accordance with the Natural Gas Supply Agreement governing them on terms that are fair and reasonable and in the interests of the Shareholders as a whole;

• (c) each year the auditors of the Company must provide a letter to the Board (with a copy provided to the Stock Exchange at least 10 Business Days prior to the bulk printing of the Company’s annual report), confirming that the continuing connected transactions:

• (i) have received the approval of the Board;

• (ii) are in accordance with the pricing policies of the Company;

• (iii) have been entered into in accordance with the Natural Gas Supply Agreement governing the transactions; and

– 116 –

LETTER FROM NEW SPRING CAPITAL

• (iv) have not exceeded the Annual Cap disclosed;

• (d) the Board must state in the annual report of the Company whether its auditor have confirmed the matters stated in paragraph (c) above; and

• (e) upon any variation of renewal of the Natural Gas Supply Agreement, the Company will comply in full with all applicable reporting, annual review, disclosure and Independent Shareholders’ approval requirements of Chapter 14A of the Listing Rules.

Given the above, we are of the view that the interests of the Company and the Independent Shareholders under the continuing connected transactions will be properly safeguarded.

IV. Opinion and recommendation in relation to the Natural Gas Supply Agreement

Having considered the abovementioned principal factors and reasons, we consider that the terms of the Natural Gas Supply Agreement are fair and reasonable and on normal commercial terms and the entering into of the Natural Gas Supply Agreement is the interest of the Company and the Shareholders as a whole. We therefore advise the Independent Board Committee to recommend the Independent Shareholders to vote in favor of the ordinary resolutions to be proposed at the SGM to approve the Natural Gas Supply Agreement and the transactions contemplated thereunder.

OPINION AND RECOMMENDATION

Having considered the abovementioned principal factors and reasons, we consider that (i) the terms of the Settlement Deed, the Warrants Subscription Agreement and the Natural Gas Supply Agreement are fair and reasonable and on normal commercial terms; and (ii) the entering into of the Settlement Deed, the Warrants Subscription and the entering into of the Natural Gas Supply Agreement are in the interests of the Company and the Shareholders as a whole. We therefore advise the Independent Board Committee to recommend the Independent Shareholders to vote in favor of the ordinary resolutions to be proposed at the SGM to approve (i) the Settlement Deed and the transactions contemplated thereunder and the grant of the Settlement Specific Mandate to allot and issue the Additional Shares; (ii) the Warrants Subscription Agreement and the transactions contemplated thereunder and the grant of the Warrants Specific Mandate to allot and issue the Subscription Shares; and (iii) the Natural Gas Supply Agreement and the transactions contemplated thereunder.

Yours faithfully,

For and on behalf of

NEW SPRING CAPITAL LIMITED Paul Lui

Managing Director

– 117 –

GENERAL INFORMATION

APPENDIX

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. SHARE CAPITAL

The authorised and issued share capital of the Company as at the Latest Practicable Date and immediately after the issue of the Shares upon the exercise of the Warrants are set out as follow:

Authorised 7,999,999,999 Shares Issued and fully paid 5,809,954,136 Shares To be issued upon the exercise of the Warrants 1,135,000,000 Shares 6,944,954,136 Total	HK$’000 560,000
	406,697 79,450
	486,147

– 118 –

GENERAL INFORMATION

APPENDIX

3. DISCLOSURE OF INTERESTS

(a) Directors’ interests and short positions in the securities of the Company and its associated corporations

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executives of the Company in the Shares, underlying Shares and debentures of the Company and any of its associated corporations (within the meaning of Part XV of the SFO) which (a) are 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 and short positions which they are taken or deemed to have under such provisions of the SFO); or (b) are required to be entered in the register pursuant to section 352 of the SFO; or (c) are required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies (the “ Model Code ”), were as follows:

Long position in the shares of the Company

				Number of		Approximate
	Personal	Family	Corporate	underlying of		% of
Name of Director	interests(1)	interests(2)	interests(3)	shares held(4)	Total	shareholding
Mr. Yang Songsheng
(“Mr. Yang”)	–	–	1,727,729,582	7,500,000	1,735,229,582	29.87
Dr. Mo Shikang	427,841,375	–	–	750,000	428,591,375	7.38
Mr. Zhang Hesheng	227,788,793	–	–	7,500,000	235,288,793	4.05
Mr. Yeung Paak Ching
(“Mr. Yeung”)	600,000	–	1,727,729,582	5,000,000	1,733,329,582	29.83
Mr. Jin Song	–	–	–	7,500,000	7,500,000	0.13
Mr. Chu Kin Wang Peleus	–	9,840,000	–	9,000,000	18,840,000	0.32
Dr. Liu Junmin	–	–	–	2,700,000	2,700,000	0.05
Mr. Sin Ka Man	–	–	–	2,700,000	2,700,000	0.05

Notes:

• (1) This represents interests held by the relevant Directors as beneficial owner.

• (2) This represents interests legally and beneficially held by Ms. Woo Sau Kuen. She is the spouse of Mr. Chu Kin Wang Peleus.

• (3) This represents interests legally, beneficially and equally held by Mr. Yang and Mr. Yeung through the Vendor (i.e. Yongheng Development Corporation Limited) in which 297,654,321 Shares were charged to the Company as a security for the performance of the Profit Guarantee by the Vendor, details of which may refer to the 2011 Circular. Mr. Yang and Mr. Yeung are brother and directors of the Vendor.

• (4) This represents the options held by the respective Directors to subscribe for Shares.

– 119 –

GENERAL INFORMATION

APPENDIX

Save as disclosed above, as at the Latest Practicable Date, none of the Directors 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 (a) are required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including any interest and short position which they are taken or deemed to have under such provisions of the SFO); or (b) are required to be entered in the register pursuant to section 352 of the SFO; or (c) as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code.

(b) Persons who have an interest or short position which is discloseable under Divisions 2 and 3 of Part XV of the SFO and substantial Shareholders

So far as was known to the Directors, as at the Latest Practicable Date, the following persons (not being a Director or the chief executive of the Company) had an interest or short position, if any, in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Division 2 and 3 of Part XV of the SFO, or who/which was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other members of the Group:

				Approximate
				percentage of the
				total issued
		Nature of	Number of	share capital
Name	Capacity	Interest	Shares held	of the Company
Yongheng Development	Beneficial owner	Corporate	1,727,729,582 (L)	29.74%
Corporation Limited
(i.e. the Vendor)

• (L) = long position

Notes:

1. The entire issued share capital of the Vendor is legally, beneficially and equally owned by Mr. Yang and Mr. Yeung. They are brother and directors of the Vendor.

2. 297,654,321 Shares were charged to the Company as a security for the performance of the Profit Guarantee by the Vendor, details of which may refer to the 2011 Circular.

3. The percentage has been adjusted based on the total number of the issued Shares as at the Latest Practicable Date (i.e. 5,809,954,136 Shares).

– 120 –

GENERAL INFORMATION

APPENDIX

Save as disclosed above, the Company had not been notified of any other interests or short positions in the shares and underlying shares of the Company representing 10% or more of the issued share capital of the Company as at the Latest Practicable Date.

4. DIRECTORS’ INTERESTS IN CONTRACTS OR ARRANGEMENTS

As at the Latest Practicable Date, none of the Directors has any interest, either direct or indirect, in any assets which have been acquired or disposed of by or leased to or are proposed to acquired or disposed of by or leased to any members of the Group since 31 March 2012, being the date to which the latest published audited financial statements of the Group were made up.

Save for the Settlement Deed and the Warrants Subscription Agreement, as at the Latest Practicable Date, none of the Directors were materially interested in any contract or arrangement subsisting, and which was significant in relation to the business of the Group.

5. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors and their respective associates were considered to have an interest in a business which competes or is likely to compete, either directly or indirectly, with the businesses of the Group, other than those businesses to which the Directors were nominated and appointed as directors and/or senior management to represent the interests of the Company and/or the Group.

6. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service agreement with any member of the Group (excluding contracts expiring or determinable by the Company within one year without payment of compensation (other than statutory compensation)).

7. LITIGATION

As at the Latest Practicable Date, no member of the Group was engaged in any litigation or arbitration or claims which would materially and adversely affect the operations of the Company and no litigation, arbitration or claims which would materially and adversely affect the operations of the Company is known to the Directors to be pending or threatened by or against any members of the Group.

– 121 –

GENERAL INFORMATION

APPENDIX

8. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 March 2012, being the date to which the latest published audited financial statements of the Company were made up.

9. EXPERT’S QUALIFICATION AND CONSENT

The following is the qualification of the expert who has given opinion or advice which is contained in this circular:

Name

Qualification

New Spring Capital A licensed corporation permitted to carry out type 6 (advising on corporate finance) regulated activity under the SFO

New Spring Capital has given and confirmed that it has not withdrawn its written consent to the issue of this circular with the inclusion herein of its letter, advice, opinion and/or reports and references to its name in the form and context in which they respectively appear.

As at the Latest Practicable Date, New Spring Capital was not beneficially interested in the share capital of any member of the Group nor did it have any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for any Shares, convertible securities, warrants, options or derivatives which carry voting rights in any member of the Group nor did it have any interests, either direct or indirect, in any assets which have been, since the date to which the latest published audited consolidated financial statements of the Company were made up (i.e. 31 March 2012), acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Group.

10. MISCELLANEOUS

• (i) The registered office of the Company is located at Canon’s Court, 22 Victoria Street, Hamilton HM 12, Bermuda.

• (ii) The principal place of business of the Company in Hong Kong is located at Unit 1101, 11th Floor, Tung Ning Building, 2 Hillier Street, Central, Hong Kong.

• (iii) The company secretary of the Company is Ms. Li Fun Replen, who is an associate member of both The Institute of Chartered Secretaries and Administrators and The Hong Kong Institute of Company Secretaries.

– 122 –

GENERAL INFORMATION

APPENDIX

• (iv) The Company’s branch share registrar and transfer office in Hong Kong is Tricor Tengis Limited, whose address is 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.

• (v) The English text of this circular shall prevail over the Chinese text in case of any inconsistency.

• (vi) As at the Latest Practicable Date, save for the Settlement Deed and the Warrants Subscription Agreement, there was no contract or arrangement entered into by any members of the Group subsisting in which any Director was materially interested and which was significant in relation to the business of the Group.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the Company’s office in Hong Kong at Unit 1101, 11th Floor, Tung Ning Building, 2 Hillier Street, Central, Hong Kong during normal business hours on any Business Day from the date of this circular up to and including the date of the SGM:

• (a) the Settlement Deed;

• (b) the Supplemental Settlement Deed;

• (c) the Warrants Subscription Agreement;

• (d) the Natural Gas Supply Agreement;

• (e) the letter from the Independent Board Committee, the text of which is set out on pages 51 to 52 of this circular;

• (f) the letter from New Spring Capital to the Independent Board Committee and the Independent Shareholders, the text of which is set out on pages 53 to 117 of this circular;

• (g) the memorandum of association and the bye-laws of the Company;

• (h) the annual report of the Company for the year ended 31 March 2012;

• (i) the written consent referred to in the paragraph headed “Expert and Consent” in this appendix; and

• (j) this circular.

– 123 –

NOTICE OF THE SGM

CHINESE PEOPLE HOLDINGS COMPANY LIMITED 中民控股有限公司

(Incorporated in Bermuda with limited liability)

(Stock Code: 681)

NOTICE IS HEREBY GIVEN that a special general meeting (the “ SGM ”) of Chinese People Holdings Company Limited (the “ Company ”) will be held at the head office of Chinese People Holdings Company Limited, Conference Room, 1st Floor, No. 36 BDA International Business Park, No. 2 Jingyuan North Street, Economic Technological Development Area, Beijing, 100176, China on 24 July 2013 at 1:30 p.m. for the purpose of considering and, if thought fit, passing, with or without modifications, the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

1. “ THAT

2. (a) the settlement deed (the “ Settlement Deed ”) dated 8 April 2013 (as supplemented by the supplemental settlement deed dated 16 May 2013) entered into between the Company and Yongheng Development Corporation Limited (the “ Vendor ”) in relation to various settlement arrangements and release of obligations of the Vendor in relation to the profit guarantee made by the Vendor in favour of the Company under the agreement dated 13 June 2011 and entered into between the Company and the Vendor in relation to the acquisition of the entire issued share capital of Grand Destiny Group Limited, a copy of which has been produced to this meeting marked “A” and signed by the Chairman of the meeting for the purpose of identification, and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified;

3. (b) conditional upon, among other matters, the Listing Committee of The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) granting the listing of, and permission to deal in, the number of shares of the Company (the “ Shares ” and each a “ Share ”) to be allotted and issued by the Company to the Vendor pursuant to the Settlement Deed (the “ Additional Shares ”), the allotment and issue of the Additional Shares by the Company to the Vendor pursuant to the Settlement Deed be and is hereby approved; and

– 124 –

NOTICE OF THE SGM

• (c) any one director of the Company be and is hereby authorised to do all such things and acts of administrative nature as he may in his discretion consider necessary, expedient or desirable for the purpose of or in connection with the implementation of the Settlement Deed and the transactions contemplated thereunder, including but not limited to the execution of all such documents under seal where applicable, as he considers necessary or expedient in his opinion to implement and/or give effect to the allotment and issue of the Additional Shares.”

• “ THAT

• (a) the subscription agreement (the “ Warrant Subscription Agreement ”) dated 8 April 2013 entered into between the Company and Ping Da Development Limited in relation to the subscription of 1,135,000,000 unlisted warrants (the “ Warrants ”) conferring rights to subscribe up to HK$232,675,000 for Shares (the “ Subscription Shares ”), on the basis of an initial subscription price of HK$0.205 per Subscription Share (subject to adjustment), during a period of 36 months commencing from the date of the issue in accordance with the terms of the Warrants Subscription Agreement, a copy of which has been produced to this meeting marked “B” and signed by the Chairman of the meeting for the purpose of identification, and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified;

• (b) the issue of the Warrants in accordance with the terms and conditions of the Warrant Subscription Agreement and the transactions contemplated thereunder be and are hereby approved;

• (c) conditional upon, among other matters, the Listing Committee of the Stock Exchange granting the listing of, and permission to deal in, the Subscription Shares, the allotment and issue of the Subscription Shares to the relevant holder(s) of the Warrant(s) be and is hereby approved; and

• (d) any one director of the Company be and is hereby authorised to do all such things and acts of administrative nature as he may in his discretion consider necessary, expedient or desirable for the purpose of or in connection with the implementation of the Warrant Subscription Agreement and the transactions contemplated thereunder, including but not limited to the execution of all such documents under seal where applicable, as he considers necessary or expedient in his opinion to implement and/ or give effect to the issue of the Warrants and the allotment and issue of the Subscription Shares.”

– 125 –

NOTICE OF THE SGM

1. “ THAT

2. (a) the natural gas supply agreement (the “ Natural Gas Supply Agreement ”) dated 22 May 2013 entered into between 西安中民燃氣有限公司 (for identification purpose only, Xi’an Zhongmin Gas Co., Ltd.) (“ Xi’an Zhongmin ”) and 陝西省天 然氣股份有限公司 (for identification purpose only, Shaanxi Provincial Natural Gas Co., Ltd.) (“ Shaanxi Natural Gas ”) in relation to the purchase of natural gas from Shaanxi Natural Gas by Xi’an Zhongmin for a term commencing from 8:00 a.m. on the following business day upon obtaining the approval from the independent shareholders of the Company at the SGM until 8:00 a.m. on 31 December 2013, a copy of which has been produced to this meeting marked “C” and signed by the Chairman of the meeting for the purpose of identification, and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified; and

3. (b) any one director of the Company be and is hereby authorised to do all such things and acts of administrative nature as he may in his discretion consider necessary, expedient or desirable for the purpose of or in connection with the implementation of the Natural Gas Supply Agreement and the transactions contemplated thereunder, including but not limited to the execution of all such documents under seal where applicable, as he considers necessary or expedient in his opinion to implement and/ or give effect to the Natural Gas Supply Agreement.”

By Order of the Board Chinese People Holdings Company Limited Mr. Yang Songsheng Chairman

Hong Kong, 8 July 2013

Registered Office: Head Office:

Canon’s Court No. 36 BDA International Business Park 22 Victoria Street No. 2 Jingyuan North Street Hamilton HM 12 Economic Technological Development Area Bermuda Beijing, 100176, China

Principal Place of Business in Hong Kong: Unit 1101, 11th Floor, Tung Ning Building, 2 Hillier Street, Central, Hong Kong

– 126 –

NOTICE OF THE SGM

Notes:

1. A member of the Company entitled to attend and vote at the SGM is entitled to appoint one or, if he is the holder of two or more shares, more proxies to attend and vote instead of him. A proxy need not be a member of the Company.

2. In the case of joint holders of shares in the Company, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the vote(s) of the other joint holder(s), seniority being determined by the order in which names stand in the register of members.

3. In order to be valid, the form of proxy must be in writing under the hand of the appointor or of his attorney duly authorized in writing, or if the appointor is a corporation, either under seal, or under the hand of an officer or attorney or other person duly authorized, and must be deposited with the Company’s branch share registrar and transfer office in Hong Kong, Tricor Tengis Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong (together with the power of attorney or other authority, if any, under which it is signed or a certified copy thereof) not less than 48 hours before the time fixed for holding of the SGM.

4. Completion and return of the form of proxy will not preclude members from attending and voting at the SGM.

– 127 –