Crypto Flow Technology Limited - Capital/Financing Update 2008

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

This announcement is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for the securities mentioned herein.

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Melco LottVentures Limited

(Incorporated in the Cayman Islands with limited liability) website: http://www.melcolottventures.com.hk

(Stock Code: 8198)

VERY SUBSTANTIAL ACQUISITION INVOLVING THE ISSUE OF CONSIDERATION SHARES AND CONVERTIBLE BONDS AND RESUMPTION OF TRADING

Financial adviser to the Company

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The Board is pleased to announce that on 7 September 2008, the Company entered into the Asset Transfer Agreement (as amended by a supplemental agreement dated 26 September 2008) with the Vendor, pursuant to which the Company has conditionally agreed to acquire the Assets at the Consideration of HK$305,130,367.558.

The Consideration will be satisfied by the Company as to (i) HK$27,955,057.558 by allotting and issuing 28,208,938 Consideration Shares credited as fully paid at the Issue Price of HK$0.991 per Consideration Share and (ii) HK$277,175,310 by issuing the Convertible Bonds in the aggregate principal amount of HK$277,175,310 to the Vendor on Completion.

The Vendor is a wholly-owned subsidiary of Intralot which is a public listed company on the Athens Exchange S.A., engaging in the supply of integrated gaming and transaction processing systems, innovative game content and sports betting management to state licensed lottery organizations worldwide.

After Completion, the Vendor shall provide reasonable assistance to the Company to secure two agreements in connection with CSLA Projects and CWL Projects in the PRC. Upon obtaining such agreements, the Vendor shall be entitled to the Success Payment of a total sum of HK$75,000,000 from the Company to be satisfied by way of the Convertible Bonds II.

The Acquisition constitutes a very substantial acquisition for the Company under the GEM Listing Rules and is subject to the approval of the Shareholders at the EGM.

The Company will seek the approval of its Shareholders at the EGM to be convened and held by the Company to approve the Asset Transfer Agreement and the Transactions (including but not limited to the issues of the Convertible Bonds and the Convertible Bonds II and the allotments and issues of the Consideration Shares, the Conversion Shares and the Conversion Shares II). As (i) Power Way will be involved in the Power Way Restructuring and (ii) each of the Power Way Undertaking, Melco LV Undertaking, Firich Undertaking and LottVision Undertaking has to be duly executed, which is one of the Conditions, each of Power Way and its shareholders, namely, Melco LV, Global Crossing and LottVision is considered to have a material interest in the Acquisition which is different from other Shareholders. To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiry, save for Power Way, Melco LV, Global Crossing and LottVision, no Shareholder has a material interest in the Acquisition which is different from other Shareholders, and accordingly Power Way, Melco LV, Global Crossing and LottVision and any of their respective associates are required to abstain from voting at the EGM, which will be taken by way of poll.

A circular containing, amongst other things, (i) further details of the Acquisition and other disclosures in connection with the Acquisition as required pursuant to the GEM Listing Rules; (ii) information on the Assets; (iii) the pro forma financial information on the Enlarged Group; and (iv) a notice of the EGM, will be despatched to the Shareholders as soon as practicable and in accordance with the GEM Listing Rules.

Shareholders and potential investors should note that the Acquisition, which is subject to various conditions as stated in the section headed “Conditions precedent for the Asset Transfer Agreement”, may or may not complete. Shareholders and potential investors are reminded to exercise caution when dealing in the securities of the Company. Shareholders and potential investors should also refer to the section headed “risk factors” for the potential risk factors which are faced by the Group in connection with the Acquisition.

At the request of the Company, dealings in the Shares on the Stock Exchange were suspended with effect from 9:30 a.m. on 8 September 2008 pending the release of this announcement. Application has been made for the resumption of trading in the Shares on the Stock Exchange with effect from 9:30 a.m. on 29 September 2008.

THE ASSET TRANSFER AGREEMENT

Date of the Asset Transfer Agreement

7 September 2008 (as amended by a supplemental agreement dated 26 September 2008)

Parties to the Asset Transfer Agreement

(a) The Company (as purchaser); and
(b) The Vendor (as vendor)

To the best knowledge, information and belief of the Directors, having made all reasonable enquiries, each of the Vendor, its ultimate holding company and substantial shareholders of its ultimate holding company, is an Independent Third Party. Save for entering into of the Asset Transfer Agreement and both the Group and Intralot, the ultimate holding company of the Vendor, being substantial shareholders of Nanum Lotto following the completion of the Group’s acquisition of KTeMS on 17 September 2008, the Vendor and its associates does not have any business relationship with the Group and did not have any transaction with the Group in the past 24 months.

Assets to be acquired

(a) (i) perpetual, exclusive license right, terminable only in extraordinary circumstances (as described in the section headed “Software Licence Agreement” below in this announcement) to use and sublicense the Software (including any updates released by the Vendor) in connection with CSLA Projects in the PRC commencing from the Completion Date. While the term of the licence is perpetual, the exclusivity arrangement is for an initial period of three years. This exclusivity arrangement may be indefinitely extended in blocks of two years upon satisfaction of certain conditions (as described in the section headed “Software Licence Agreement” below in this announcement); and

(ii) perpetual, non-exclusive license right, terminable only in extraordinary circumstances (as described in the section headed “Software Licence Agreement” below in this announcement) to use and sublicense the Software (including any updates released by the Vendor) in connection with CWL Projects in the PRC commencing from the Completion Date,

valued in the aggregate at HK$255,130,367.558; and

(b) HK$50,000,000 cash.

Success Payment

After Completion, the Vendor shall provide reasonable assistance to the Company to secure two service agreements in connection with CSLA Projects and CWL Projects in the PRC. Upon the Company obtaining such agreements, the Vendor shall be entitled to the Success Payment of a total sum of HK$75,000,000 from the Company.

Consideration and payment terms

The total Consideration of HK$305,130,367.558 was on normal commercial terms and arrived at after arms’ length negotiations between the parties to the Asset Transfer Agreement. HK$50,000,000 of the Consideration is on a dollar-for-dollar basis for the HK$50,000,000 cash whereas the balance of HK$255,130,367.558 is for the perpetual license right to use and sublicense the Software. On the other hand, the Success Payment of HK$75,000,000 is an incentive payment to the Vendor should it be able to secure two service agreements in connection with CSLA Projects and CWL Projects for the Company.

The Consideration and the Success Payment were determined with reference to, among other things,

(i) the historical growth and prospects of the lottery market of the PRC. According to the Company’s 2007 annual report, lottery sales in PRC grew 15-fold from 1997 to 2006, to reach RMB82 billion and in 2007, total lottery sales reached RMB100 billion, a year-on-year growth of 22%;
(ii) the intangible value of the cooperation with Intralot, being an international leading provider of integrated gaming systems, as a strategic Shareholder upon Completion and the Company can benefit from Intralot’s extensive know-how, advanced product development standards and substantial experience in operating lottery games;
(iii) the immediate access to the leading complete technology solution, including but not limited to a readily available and extensive game library allowing instant offer of new lottery games to the market;

(iv) the payment mechanism of the Success Payment giving significant incentive for the Vendor to assist the Company to obtain new projects;
(v) the potential competition to the Group if the license rights to use and sublicense the CSLA Software were granted to other lottery service providers in the market;
(vi) the fact that the Software is not a newly developed lottery software and in fact the Software has been developed by Intralot throughout the years in various languages so that the Company has made references to previous transactions (“ Comparable Transactions ”) of Intralot regarding similar versions of the Software in different languages with various independent lottery operators worldwide since 2002. The Consideration for the perpetual licence right of the Software and the Success Payment were arrived at after arm’s length negotiation between the parties by referencing to the Comparable Transactions taking into various considerations including but not limited to, scale of operations, amount of support and extent of services given by Intralot along with the sale of the licence right of the Software, potential of the relevant lottery markets and terms of exclusivity of the Comparable Transactions; and
(vii) the internally estimated revenue to be generated from two Projects is expected to be more than the amount of the Success Payment.

The Company has taken into account of the matters above and the reasons and benefits as stated in the paragraph below headed “Reasons for and benefits of the Acquisition” and given that the Company has already been an existing industry player in the lottery business, it has the expertise to perform relevant financial analysis on the Acquisition so that the Company has not engaged an external valuer to value the Software. The Directors (including the independent non-executive Directors) consider the Consideration to be fair and reasonable and in the interests of the Company and the Shareholders as a whole.

The Consideration of HK$305,130,367.558 will be settled in the following manner:

(a) as to HK$27,955,057.558 to be satisfied by the allotment and issue of the Consideration Shares credited as fully paid at the Issue Price to the Vendor on Completion; and
(b) as to HK$277,175,310 to be satisfied by the issue of the Convertible Bonds to the Vendor on Completion.

The Success Payment shall be paid by way of the Convertible Bonds II issued by the Company in the following manner:

(a) 30% of the total Success Payment shall be paid when the first Project is procured and the agreement with respect thereto executed; and

(b) the remaining 70% shall be paid when the second Project is procured and the agreement with respect thereto executed.

Consideration Shares

The 28,208,938 Consideration Shares represent (i) approximately 5.99% of the existing issued share capital of the Company; (ii) approximately 5.65% of the issued share capital of the Company as enlarged by allotment and issue of the Consideration Shares; (iii) approximately 3.62% of the issued share capital of the Company as enlarged by the allotments and issues of both the Consideration Shares and the Conversion Shares; (iv) approximately 3.32% of the issued share capital of the Company as enlarged by the allotments and issues of the Consideration Shares, the Conversion Shares and the Conversion Shares II, assuming, for illustration purpose only, full conversions of the Convertible Bonds and the Convertible Bonds II and the Conversion Shares and the Conversion Shares II were to be issued at the Conversion Price and the Conversion Price II respectively (as the case may be); and (v) approximately 1.81% of the issued share capital of the Company as enlarged by the allotments and issues of the Consideration Shares, the Conversion Shares and the Conversion Shares II, assuming, for illustration purpose only, full conversions of the Convertible Bonds and the Convertible Bonds II and the Conversion Shares and the Conversion Shares II were to be issued at the Conversion Price and the Conversion Price II respectively (as the case may be) and each of the Melco LV CB, Firich CB and the LottVision CB has been converted into Shares in full.

The Issue Price of HK$0.991 per Consideration Share is equivalent to the Conversion Price and represents:

(a) a premium of approximately 27.05% over the closing price of HK$0.78 per Share as quoted on the Stock Exchange on the Last Trading Day;
(b) a premium of approximately 25.13% over the average closing prices of HK$0.792 per Share as quoted on the Stock Exchange for the last five consecutive trading days up to and including the Last Trading Day; and
(c) a premium of approximately 28.04% over the average closing price of HK$0.774 per Share as quoted on the Stock Exchange for the last ten consecutive trading days up to and including the Last Trading Day.

The Consideration Shares will be allotted and issued pursuant to a specific mandate to be sought at the EGM and will be allotted and issued on the Completion Date. The Consideration Shares, when, allotted and issued, will rank pari passu in all respects with the then Shares in issue on their date of allotment and issue.

Applications for Listing

Application will be made by the Company to the GEM Listing Committee for the listing of, and permission to deal in, the Consideration Shares.

Convertible Bonds

The principal terms of the Convertible Bonds are summarised as follows:

Issuer the Company Initial subscriber the Vendor Amount HK$277,175,310 Bonds issue price 100 % of the principal amount of the Convertible Bonds Coupon 0.1% interest, payable semi-annually in arrears Security secured by the Security and Security II

For Security: the acquisition cost of the Company for the entire issued share capital of KTeMS is US$12 million (equivalent to approximately HK$93.6 million). Therefore, 50% of the entire issued share capital of KTeMS equals approximately HK$46.8 million. However, the amount of any future dividends and any other cash receivables arising therefrom are not available at present.

For Security II: the amount of all rights and gross income of the Company or its Subsidiaries arising from any sublicence agreement, services agreement, project agreement or otherwise arising from any or all projects are also not available at present.

The Directors believe that the security arrangement can align the interests of the Company and the Vendor since it will provide incentive to Intralot or the Vendor to assist the Company to secure Projects as it will in turn secure the value of security of the Convertible Bonds. It is due to the fact that the income stream represents cash, so the more it is, the more the financial resources of the Company will have, and the less the chance that the Company will default and have to deliver the Vendor the security. It is very unlikely that the Company has to default on the Convertible Bonds if the Security II carries a very high value.

Maturity Date 5 years from the date of issue of the Convertible Bonds Issue of the on Completion Convertible Bonds

Conversion Price

initial conversion price of HK$0.991 per Conversion Share but subject to standard adjustments clauses, including but not limited to, consolidation or subdivision of Shares, capitalization of profits or reserves, capital distribution, issue of Shares by way of rights, issues of new Shares or securities convertible for new Shares at a discount of more than 20% to the then market price of the Shares.

The Conversion Price of HK$0.991 per Conversion Share is equivalent to the Issue Price and represents:

(a) a premium of approximately 27.05% over the closing price of HK$0.78 per Share as quoted on the Stock Exchange on the Last Trading Day;
(b) a premium of approximately 25.13% over the average closing price of HK$0.792 per Share as quoted on the Stock Exchange for the last five consecutive trading days up to and including the Last Trading Day; and
(c) a premium of approximately 28.04% over the average closing price of HK$0.774 per Share as quoted on the Stock Exchange for the last ten consecutive trading days up to and including the Last Trading Day.

Conversion period

Ranking of the Conversion Shares

Limitation on

conversion

the Convertible Bonds may be converted at any time from the date of issue of the Convertible Bonds up to and including the close of business on the day immediately prior to the Maturity Date subject to the limitation on conversion set out below.

the Conversion Shares, when allotted and issued, will rank pari passu in all respects with all Shares in issue at the date of allotment and issue of such Conversion Shares.

No conversion of the Convertible Bonds shall be made, if immediately upon such conversion,

(1) the Bondholder together with parties acting in concert with it (within the meaning of the Code) control 30% (or such other percentage as stated in the Code in effect from time to time) or more of the voting rights in the Company so that it shall trigger a mandatory offer obligation under Rule 26 of the Code on the part of the Bondholder which exercised the Conversion Rights; and/or

(2) the public float of the Shares falls below 25% (being the current minimum public float of the Company or any given percentage as required by the GEM Listing Rules) of the issued shares of the Company. As the Company is required to maintain the minimum public float of the Shares, the Company will not issue any Conversion Shares if upon such issuance, the minimum public float requirement of the Company cannot be maintained.

The Convertible Bonds not so converted will be redeemed at maturity at 100% of the principal amount of the unconverted Convertible Bonds plus accrued interest.

Redemption

Unless previously redeemed, converted or purchased and cancelled, the Company will redeem each Convertible Bond at 100% of its principal amount on the Maturity Date.

Following the occurrence of a Relevant Event, each Bondholder will have the right at such holder’s option, to require the Company to redeem all or only some of that holder’s Convertible Bonds on the Redemption Date at 100% of their principal amount together with any outstanding interest.

Transferability

Listing

Voting

The Bondholder(s) shall be permitted at any time to assign or transfer the Convertible Bonds, or part of the Convertible Bonds to any transferee as nominated by the Bondholder(s) provided that any such assignment or transfer shall be made in whole or in part (in whole multiples of HK$1,000,000) of its outstanding principal amount. A Bondholder may not require the transfer of the Bonds to be registered (i) after a Conversion Notice has been delivered with respect to a Convertible Bond or (ii) during the period of 7 business days ending on (and including) any Interest Record Date.

No application will be made by the Company to the GEM Listing Committee for the listing of the Convertible Bonds. Application will be made by the Company to the GEM Listing Committee for the listing of, and permission to deal in, the Conversion Shares on the GEM.

Holder(s) of the Convertible Bonds shall not be entitled to attend or vote at any general meetings of the Company by reason only of it being the holder of the Convertible Bonds.

Events of default

Events of default shall include the following:

(i) a default is made in the payment of principal or interest in respect of any of the Convertible Bonds and such default continues for a period of seven days in the case of principal or 14 days in the case of interest;
(ii) appointment of receivership, declaration of insolvency or a winding up order made against the Company;
(iii) the Group as a whole ceases to carry on its ordinary course of business;
(iv) material change in the business nature of the Group from the business nature as of the issue date of the Convertible Bonds;
(v) material adverse change in the financial condition of the Company as determined by the Bondholders;
(vi) any material default made by the Company in the performance or observance of any undertaking, warranty or representation given by it under the conditions of the Convertible Bond or the Deed Poll (other than the covenant to pay the principal and interest in respect of the Convertible Bonds) and such default is incapable of remedy (in which event no such notice as is referred to below shall be required), or if capable of remedy is not remedied within thirty days of service by any Bondholder on the Company of notice requiring such default to be remedied; or
(vii) it is or becomes unlawful for the Company to perform or comply with any of its obligations under the Deed Poll or any Convertible Bonds, or due to no fault on the part of any Bondholder any such obligation is not or ceases to be enforceable or is claimed by the Company not to be enforceable.

Governing Law

The Convertible Bonds shall be governed by and construed in accordance with the laws of Hong Kong.

Further to case (1) under the paragraph headed “Limitation on conversion” above, there may be scenario that a Shareholder owns or controls 20% or more of the voting rights of the Company and the Bondholder shall control 20% or more of the voting rights in the Company so that they will presumably be parties acting in concert under the Code for the purpose of restriction on conversion of the Convertible Bonds as stated above or the relevant parties will need to comply with the relevant provisions of the Code.

For illustration purpose only, the 279,692,542 Conversion Shares to be issued under the Convertible Bonds represents (i) approximately 59.35% of the existing issued share capital of the Company; (ii) approximately 37.25% of the issued share capital of the Company as enlarged by the allotment and issue of the Conversion Shares, assuming full conversion of the Convertible Bonds and the Conversion Shares were to be issued at the Conversion Price; (iii) approximately 35.90% of the issued share capital of the Company as enlarged by the allotments and issues of both the Consideration Shares and the Conversion Shares, assuming full conversion of the Convertible Bonds and the Conversion Shares were to be issued at the Conversion Price; (iv) approximately 32.95% of the issued share capital of the Company as enlarged by the allotments and issues of the Consideration Shares, the Conversion Shares and the Conversion Shares II, assuming full conversions of the Convertible Bonds and the Convertible Bonds II and the Conversion Shares and the Conversion Shares II were to be issued at the Conversion Price and the Conversion Price II respectively (as the case may be); and (v) approximately 17.90% of the issued share capital of the Company as enlarged by the allotments and issues of the Consideration Shares, the Conversion Shares and the Conversion Shares II, assuming full conversions of the Convertible Bonds and the Convertible Bonds II and the Conversion Shares and the Conversion Shares II were to be issued at the Conversion Price and the Conversion Price II respectively (as the case may be) and each of the Melco LV CB, Firich CB and the LottVision CB are converted into Shares in full.

If at any time on or after the date of the Asset Transfer Agreement and pending Completion, the Company consolidates, sub-divides or reorganises its share capital, declares any distribution, makes any issue by way of capitalisation or rights to holders of its ordinary Shares, makes any further issue of shares or rights to subscribe for Shares (or similar) or performs any other act which has the effect of diluting the economic or percentage interest represented by the Consideration Shares or the Conversion Shares as at the date of the Asset Transfer Agreement, during or by reference to any period before the allotment of the Consideration Shares, the number of the Consideration Shares or the Issue Price will be adjusted as the accountants (jointly approved by the Company and the Vendor) for the time being (acting as experts and not as arbitrators) consider to be fair and reasonable and such adjustments shall, in the absence of manifest error be final and binding on the parties thereto.

In view of the extent of the dilution effect of the Convertible Bonds and the Convertible Bonds II, the Company will disclose by way of an announcement all relevant details of the conversions of the Convertible Bonds and the Convertible Bonds II in the following manner:

(i) the Company will make a monthly announcement (the “ Monthly Announcement ”) on or before the tenth business day following the end of each calendar month and will include the following details in a table form:

a. whether there is any conversion of the Convertible Bonds and/or the Convertible Bonds II during the previous calendar month. If there is a conversion, details thereof including the conversion date, number of the Conversion Shares and the Conversion Shares II issued and the Conversion Price and Conversion Price II for each conversion. If there is no conversion during the previous calendar month, a negative statement to that effect;
b. the amount of outstanding Convertible Bonds and Convertible Bonds II after the conversion, if any;
c. the total number of new Shares issued pursuant to other transactions during the previous calendar month, including the new Shares issued pursuant to exercise of options under any share option scheme(s) of the Company; and
d. the total issued share capital of the Company as at the commencement and the last day of the previous calendar months;
(ii) in addition to the Monthly Announcement, if the cumulative amount of the Conversion Shares and the Conversion Shares II issued pursuant to the conversion of the Convertible Bonds and the Convertible Bonds II reaches 5% of the issued share capital of the Company as disclosed in the last Monthly Announcement or any subsequent announcement made by the Company in respect of the Convertible Bonds and the Convertible Bonds II (as the case may be) (and thereafter in a multiple of such 5% threshold), the Company will make an announcement including details as stated in (i) above for the period commencing from the date of the last Monthly Announcement or any subsequent announcement made by the Company in respect of the Convertible Bonds and the Convertible Bonds II (as the case may be) up to the date on which the total amount of the Conversion Shares and the Conversion Shares II issued pursuant to the conversion amounted to 5% of the issued share capital of the Company as disclosed in the last Monthly Announcement or any subsequent announcement made by the Company in respect of the Convertible Bonds and the Convertible Bonds II (as the case may be); and
(iii) if the Company forms the view that any issue of the Conversion Shares and the Conversion Shares II will trigger the disclosure requirements under GEM Listing Rule 17.10(1), then the Company will make such disclosures regardless of the issue of any announcements in relation to the Convertible Bonds and the Convertible Bonds II as mentioned in (i) and (ii) above.

Conditions precedent for the Asset Transfer Agreement

The Acquisition is conditional upon the satisfaction of the followings on or before the Long Stop Date, or such other date as the Vendor and the Purchaser may otherwise agree:

(a) the Asset Transfer Agreement and the Transactions, including but not limited to, the entering into of the Software Licence Agreement, the allotment and issue of the Consideration Shares, the issue of the Convertible Bonds and Convertible Bonds II, the granting of the Security and Security II and the appointment of nominees of the Vendor as Directors having been approved by the Shareholders at the EGM in accordance with the requirements of the GEM Listing Rules and applicable corporate law;
(b) the GEM Listing Committee of the Stock Exchange granting an approval for the listing of, and permission to deal in, all the Consideration Shares, the Conversion Shares and the Conversion Shares II;
(c) the continuous listing of the Shares on the GEM Board of the Stock Exchange save for any temporary suspension of trading arising out of or in connection with the Transactions or any temporary suspension of trading imposed by the GEM Listing Rules arising out of or in connection with the normal and usual course of business of the Company;
(d) the warranties given by the Company in the Asset Transfer Agreement remaining true and accurate and not misleading at Completion as if repeated at all times between the date of the Asset Transfer Agreement and as at Completion and there having been compliance in all respects with the covenants and obligations on the part of the Company contained in the Asset Transfer Agreement which are to be complied with at or prior to the time of Completion;
(e) all licences, permissions, authorisations, approvals, consents and waivers required to be obtained on part of the Vendor from third parties (including governmental, regulatory or other official authorities) in respect of the Asset Transfer Agreement and the Transactions (including in particular for transferring the Assets) having been obtained by the Vendor and shall remain in full force and effect;
(f) all licences, permissions, authorisations, approvals, consents and waivers required to be obtained on part of the Company from third parties (including governmental, regulatory or other official authorities) in respect of the Asset Transfer Agreement and the Transactions (including in particular for the allotment and issue of the Consideration Shares, the issue of the Convertible Bonds and the Convertible Bonds II, the allotment and issue of the Conversion Shares and the Conversion Shares II) having been obtained by the Company and shall remain in full force and effect;

(g) there not having occurred any event or series of events since the date of the Asset Transfer Agreement which, individually or collectively, would have a material adverse effect on the condition (financial or otherwise), prospects, business, operations, earnings, or properties of the Group, taken as a whole, whether or not arising from transactions in the ordinary course of business or which would materially affect the Company’s ability to perform its obligations under the Asset Transfer Agreement or the Transactions;
(h) the Vendor notifying the Company not later than 30 days after the date of the Asset Transfer Agreement that it is satisfied with the results of the due diligence review on the legal, financial, contractual, taxation and trading position of the companies within the Group and Power Way;
(i) the Company notifying the Vendor not later than 30 days after the date of the Asset Transfer Agreement that it is satisfied with the results of the due diligence review on the title of the Assets and the functionality of the CSLA Software and CWL Software as described in the Software Licence Agreement;
(j) no indication being given by the Stock Exchange that the Transactions will be treated as a “reverse takeover” under the GEM Listing Rules;
(k) each of the Power Way Undertaking, Melco LV Undertaking, Firich Undertaking and LottVision Undertaking having been duly executed and delivered to the Vendor and remaining binding and in full force and effect; and
(l) the warranties given by the Vendor in the Asset Transfer Agreement remaining true and accurate and not misleading at Completion as if repeated at all times between the date of the Asset Transfer Agreement and as at Completion and there having been compliance in all respects with the covenants and obligations on the part of the Vendor contained in the Asset Transfer Agreement which are to be complied with at or prior to the time of Completion,

provided that the Vendor may waive any of Conditions (c), (d), (f), (g), (h) and (k) above (either in whole or in part) at any time by notice in writing to the Company and the Company may waive any of Conditions (i) and (l) above (either in whole or in part) at any time by notice to the Vendor.

Power Way Restructuring

In the Asset Transfer Agreement, both the Company and the Vendor acknowledge that the transfer of the Assets by the Vendor to the Company has been agreed on the expectation that the Power Way Restructuring shall be completed within 6 months of the date of the Asset Transfer Agreement and in the event that the Power Way Restructuring fails to complete within the above mentioned time period or fails to be implemented in the manner as described in the Asset Transfer Agreement, the following shall occur:

(a) the exclusive nature of the licence to use the CSLA Software shall be suspended until the Power Way Restructuring has been completed in the manner as described in the Asset Transfer Agreement;
(b) the undertakings and covenants given by the Vendor as mentioned in the first paragraph under the section headed “Non-Competition” below in this announcement shall be suspended and of no force or effect until the Power Way Restructuring has been completed; and
(c) the Vendor’s obligations to discuss and negotiate in good faith with the Company concerning the Potential Wu Sheng Transfer shall be suspended and of no force and effect until the Power Way Restructuring has been completed.

Power Way is owned as to approximately 58.70% by Melco LV, as to approximately 12.43% by LottVision and as to approximately 28.87% by Global Crossing. Melco LV is wholly-owned by Melco (stock code: 200). LottVision is a listed company in Singapore Exchange Limited. Global Crossing is wholly owned by Firich Enterprise Co. Ltd. which is listed on Taiwan Gre Tai Securities Market.

The instrument constituting the Power Way CB provides that such Power Way CB is transferable. The Company considers that Melco LV, Global Crossing and LottVision are the defacto beneficial owners of the Power Way CB and the fact that the distribution of the Power Way CB to its shareholders in proportion to their respective effective interests in Power Way pursuant to the Power Way Restructuring, as advised by the legal adviser to the Company, shall not constitute a breach of the terms of the Power Way CB.

Save for the fact that Firich Enterprise Co., Ltd. has formed a joint venture with Intralot and an independent third party in Taiwan for a welfare lottery project and does contract manufacturing for the Vendor, Power Way, Melco, Melco LV, LottVision, Global Crossing and their respective substantial shareholders are not connected to the Vendor or parties acting in concert with the Vendor.

The Vendor has entered into the Asset Transfer Agreement to contribute the Assets in consideration of a strategic stake based on its own financial and strategic considerations. These strategic considerations would be based on an understanding of the Company, its strengths and weaknesses, its potential in the region, its shareholders and their support for the Company, the Vendor’s own standing within the Company vis a vis other Shareholders. Given that the Power Way Restructuring forms a part of this understanding, it is related to the overall Asset Transfer Agreement and the terms thereof.

With reference to the announcement of the Company dated 18 October 2007, HK$18 million out of the total amount of HK$556.8 million of the Power Way CB has been held escrow as security for a profit guarantee given by Firich Enterprise Co., Ltd. in favour of the Group. On the other hand, pursuant to the Power Way Restructuring, Power Way will transfer or distribute to its shareholders of all the Shares and Power Way CB held by Power Way such that, among other things, Global Crossing (a shareholder of Power Way and a wholly-owned subsidiary of Firich Enterprise Co., Ltd.) will become the owner of 20,787,042 Shares and the Firich CB (with the HK$18 million worth of Power Way CB forming part of it). The Firich CB (including the HK$18 million worth of Power Way CB) has not yet been transferred to Global Crossing as at the date of this announcement. The Company considered that as long as the Board’s consent has been obtained and the new holder of the HK$18 million worth of Power Way CB, being Global Crossing, shall immediately upon the transfer to effect the deposit of HK$18 million worth of the Firich CB to the escrow agent of the Company to secure the profit guarantee, it shall not be deemed as a breach of the terms of the HK$18 million worth of Power Way CB.

Lock Up Undertaking

The Vendor undertakes to the Company that:

(a) it will not, in respect of the Consideration Shares, for a period of six months from Completion, offer, lend, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of (either conditionally or unconditionally, or directly or indirectly, or otherwise) any of the Consideration Shares, or any interests in such Consideration Shares beneficially owned or held by it or enter into any swap, derivatives or similar agreement that transfers, in whole or in part, the economic consequences of ownership of such Consideration Shares; and
(b) in relation to any disposal after such lock up period, reasonable steps will be taken by the Vendor to ensure that the disposal will not create a false or disorderly market for the Shares.

For the avoidance of doubt, the Vendor shall at all times be entitled to all the rights attaching to the Consideration Shares and the Conversion Shares including, without limitation, all dividends and other distributions in respect of the Consideration Shares and the Conversion Shares and may exercise all voting and other rights which they may have in respect of the Consideration Shares and the Conversion Shares.

Non-Competition

The Vendor undertakes and covenants that for so long as the exclusive nature of the CSLA Software licence is in force and not suspended in accordance with the Asset Transfer Agreement and/or the terms of the Software Licence Agreement, it shall not and shall procure all of its subsidiaries not to be, directly or indirectly, concerned in any business carrying on business in the PRC which is competitive or likely to be competitive with the lottery and betting businesses carried on from time to time during the exclusivity term (please refer to the section headed “Software Licence Agreement” below in this announcement) of the CSLA Software licence by the Group in the PRC in relation to CSLA Projects, except for (a) management and consulting services and maintenance and support services in relation to lottery and betting businesses; and (b) any business that the Vendor may be concerned in which is existing or which the Vendor is required to undertake as at the time the exclusive nature of such licence ceases to be suspended in accordance with the terms of the Asset Transfer Agreement and/or the terms of the Software Licence Agreement.

The Company shall use its best endeavours to procure each of Power Way, Melco LV, Firich and LottVision to provide a written undertaking to the Vendor that it shall not, for so long as it remains a member of the Company and/or a member of the Group and during the exclusivity term of the CSLA Software licence (whether such exclusivity is suspended or not in accordance with the terms of the Asset Transfer Agreement and/ or the terms of the Software Licence Agreement), directly or indirectly, be concerned in any business carrying on business in the PRC which is competitive or likely to be competitive with the lottery and betting businesses carried on by the Group in the PRC.

The Vendor further undertakes and covenants not to offer, sell, transfer or dispose of (either conditionally or unconditionally, or directly or indirectly, or otherwise) any of the Consideration Shares or the Conversion Shares to any Existing Shareholders’ Competitors.

The Company shall use its best endeavours to procure each of Power Way, Melco LV, Firich and LottVision to provide written undertakings to the Vendor that it or he (as the case may be) shall not, directly or indirectly, offer, sell, transfer or dispose of (either conditionally or unconditionally, or directly or indirectly, or otherwise) any Shares or shares in any companies of the Group held by them to any of Intralot’s Competitors.

Subject to any restrictions binding on it, the Vendor shall discuss and negotiate in good faith with the Company concerning the Potential Wu Sheng Transfer.

Completion

Completion of the Acquisition will take place on the third Business Days after the date on which the last of the Conditions are satisfied or, where permitted, waived or on such other date as the Vendor and the Company may agree.

Corporate Governance

The Company represents, warrants and undertakes that after Completion:

(a) the Vendor shall be entitled to nominate one Director to the Board;
(b) the Company shall establish a nomination committee in accordance with the GEM Listing Rules whose membership shall include the Director(s) nominated by the Vendor;
(c) the Company shall establish the senior management position of chief operating officer and the Vendor shall be entitled to nominate the person holding such position;
(d) the Vendor and Melco LV shall be entitled to jointly nominate the chief financial officer of the Company; and
(e) to recognise the Vendor’s substantial investment in the Company and the use of its software, the company name and logo of the Company shall be changed within 6 months after Completion to a name mutually acceptable to the Vendor and Melco LV.

The Vendor’s rights as stated in paragraphs (a) to (e) shall terminate when its MLV Interests represents less than 7.5% of the Company’s total issued share capital, provided however that if the Vendor’s MLV Interests fall below such percentage, the Vendor shall have 21 days to rectify the situation and failing such rectification, its rights under paragraphs (a) to (e) above shall terminate after expiry of the foregoing rectification period.

The holding company of the Vendor, i.e. Intralot, has profound knowledge and experience in the lottery industry and a Director or senior management to be nominated by the Vendor will enable the Board and the Company to leverage on Intralot’s expertise to explore business opportunites in lottery industry. Further, the Vendor is only entitled to nominate a candidate, the Board and the Shareholders (in the EGM) have to approve the appointment of the candidate nominated by the Vendor as a Director. The Board also has the intention to maintain cooperation with the Vendor as the Company needs to rely on the expertise of and assistance from the Vendor to secure Projects. The Board believes that the foregoing will result in better understanding between the Company and the Vendor and will give the Vendor more confidence to cooperate with the Company in the future to win more Projects. As a result, the Directors consider that the Vendor’s rights as stated in paragraphs (a) to (e) above are fair and reasonable to other Shareholders.

Post-Completion Commitment

Pursuant to the Asset Transfer Agreement, after Completion, the Vendor shall provide reasonable assistance to the Company to secure two service agreements in connection with CSLA Projects and CWL Projects in the PRC. Upon the Company obtaining such agreements, the Vendor shall be entitled to the Success Payment of a total sum of HK$75,000,000 from the Company.

Unless otherwise agreed by the parties, the above Success Payment shall be paid by way of the Convertible Bonds II issued by the Company at the conversion price of HK$1.0759 per Conversion Share II. Payment of the Success Payment due shall be made by the Company to the Vendor within 7 Business Days of each project being procured and the agreement with respect thereto being executed.

The conversion price of HK$1.0759 per Conversion Share II represents:

(a) a premium of approximately 37.94% over the closing price of HK$0.78 per Share as quoted on the Stock Exchange on the Last Trading Day;
(b) a premium of approximately 35.85% over the average closing price of HK$0.792 per Share as quoted on the Stock Exchange for the last five consecutive trading days up to and including the Last Trading Day; and
(c) a premium of approximately 39.01% over the average closing price of HK$0.774 per Share as quoted on the Stock Exchange for the last ten consecutive trading days up to and including the Last Trading Day.

If two Projects are not secured, the Vendor will not be entitled to the Success Payment. In addition, the Vendor has an implied opportunity cost due to the exclusivity arrangements for the CSLA market. To prevent losing access to half of the lottery market in the PRC (CSLA and CWL are the only two lottery providers in the PRC and CSLA presently has a larger market share) it is expected that every effort will be made to secure Projects by the Vendor. In effect the Success Payment along with the exclusivity arrangement is a mechanism devised to align interests of both the Company and the Vendor and incentivise them to work together and secure Projects.

With the acquisition of the licence, the Company is adding a new line of business to its existing lottery operations. The Company recognises that it will require the assistance from the Vendor initially as it builds up its own expertise in securing contracts under this new line of business. Accordingly, it has devised the Success Payment as a mechanism to incentivise the Vendor to work with and support the Company in securing Projects. Both parties will be keen to work together as each can expect some benefit from securing Projects i.e. Company will be keen to start utilizing the Software, while Vendor will be keen to receive its Success Payment. The Company expects that it will build up its own business development abilities with regard to the the Software during the course of working with Vendor for the first two Projects, and will be able to secure service agreements on its own thereafter. Accordingly, it does not consider the need to provide such incentive after the first two service agreements.

The Success Payment will only be paid once for the first two Projects but not on a recurring basis for any extension of the exclusivity period of the CSLA Projects.

For the avoidance of doubt, the Success Payment will not be payable in respect of up to four trials or demonstration Projects. CSLA or CWL authorities may demand a trial or demonstration project to assess the work and operations of software in a practical but small scale environment before making decision on the choice of software. Such a trial or demonstration project does not justify the Success Payment which should be for projects of commercial scale. In order to ensure that all parties take a considered decision before opting to incur time expense and effort of a trial or demonstration project, an initial cap of four trials or demonstration projects has been mutually agreed as the number for which there will be no Success Payment.

Currently, there is no agreement relating to the CSLA Projects and CWL Projects under

negotiation.

Other principal terms of the Convertible Bonds II are still subject to further negotiations between the Company and the Vendor. Further announcement in relation thereto will be made by the Company in accordance to the GEM Listing Rules when appropriate.

No application will be made by the Company to the GEM Listing Committee for the listing of the Convertible Bonds II. Application will be made by the Company to the GEM Listing Committee for the listing of, and permission to deal in, the Conversion Shares II on the GEM. Holder(s) of the Convertible Bonds II shall not be entitled to attend or vote at any general meetings of the Company by reason only of it being the holder of the Convertible Bonds II.

For illustration purpose only, the 69,709,080 Conversion Shares II to be issued under the Convertible Bonds II represents (i) approximately 14.79% of the existing issued share capital of the Company; (ii) approximately 12.89% of the issued share capital of the Company as enlarged by the allotment and issue of the Conversion Shares II, assuming full conversion of the Convertible Bonds II and the Conversion Shares II were to be issued at the Conversion Price II; (iii) approximately 8.21% of the issued share capital of the Company as enlarged by the allotment and issue of the Consideration Shares, the Conversion Shares and the Conversion Shares II, assuming full conversion of the Convertible Bonds and Convertible Bonds II and the Conversion Shares and Conversion Shares II were to be issued at the Conversion Price II; and (iv) approximately 4.46% of the issued share capital of the Company as enlarged by the allotments and issues of the Consideration Shares, the Conversion Shares and the Conversion Shares II, assuming, for illustration purpose only, full conversions of the Convertible Bonds and the Convertible Bonds II and the Conversion Shares and the Conversion Shares II were to be issued at the Conversion Price and the Conversion Price II respectively (as the case may be) and each of the Melco LV CB, Firich CB and the LottVision CB are converted into Shares in full.

Intralot has a long standing experience in the development and support of integrated gaming and transaction processing systems, while its footprint straddles five continents, with presence in 45 countries. Thus it has significant amount of in-house expertise in not only providing services but also vital business development activities that are necessary to secure projects. For example, Intralot has the distinction of having secured over 60% of projects it bid for between year 2005 and 2008 for which is an impressive achievement in this highly competitive field. The Company has secured the Software in order to gain access to a new and important line of business within the lottery industry, and it will take some time before it can build up the in-house expertise necessary to effectively market and promote the Software and thus secure Projects. Accordingly, Intralot has been given an incentive of the Success Payment to provide the Company with access to the considerable business development expertise built up by Intralot over the years and to work hand in hand and provide all the services required by the Company in its business development activities with the objective of securing projects. Accordingly, the Success Payment is a mechanism devised to align the interests of the Company and the Vendor during the initial stage of the Company’s entry into this new and important line of business within the lottery industry.

The Board considers that the commitment to pay the HK$75 million should two service agreements in connection with the CSLA Projects and the CWL Projects are secured is fair and reasonable because:

this arrangement has been negotiated at arms’ length between unrelated parties;
this is the amount both parties agreed upon as being commensurate to the important assistance that Vendor will provide to the Company to secure the Projects;
the Success Payment provide significant incentive for Intralot to assist the Company to obtain Projects;
the internally estimated revenue to be generated from two Projects will be larger than the Success Payment in the amount of HK$75 million; and
the conversion price of HK$1.0759 for the Convertible Bonds II represents significant premium to the prevailing market price of the Shares.

Balance Of Interests in the Company

The Vendor and Melco LV have agreed to maintain at all times after Completion (i) the Vendor’s MLV Interests shall be no more than 10.30% lower than that of Melco LV’s MLV Interests but in any case not exceeding Melco LV’s MLV Interests; and (ii) the Vendor’s direct and indirect holdings of Shares shall be no more than 2.85% lower than that of Melco LV’s direct and indirect holdings of Shares but in any case not exceeding Melco LV’s direct and indirect holdings of Shares (the “Balance of Interests”), provided however that in calculating the Vendor’s and Melco LV’s MLV Interests and Shares:

(a) the Vendor’s interests in the Convertible Bonds II and the Shares which may be acquired under such bonds shall not be counted and shall be disregarded;
(b) if the Vendor or Melco LV has voluntarily disposed of MLV Interests after Completion (whether through the disposal of the Shares (such as Consideration Shares or Conversion Shares), convertible bonds (such as the Convertible Bonds, the Convertible Bonds II and/or the Melco LV CB) or otherwise, or as a result of a pledge of MLV Interests specifically permitted in Melco LV Undertaking, as the case may be), then the MLV Interests so disposed of shall be added back to and be counted in that party’s MLV Interests and Shares;
(c) if any holder of MLV Interests wishes to sell MLV Interests and is either subject to a right of first refusal which requires that holder to make an offer to both the Vendor and Melco LV or it otherwise offers its MLV Interests to both the Vendor and Melco LV, and if one of the Vendor or Melco LV decides not to exercise such right or acquire such MLV Interests pro-rata based on their respective MLV Interests, then the number of MLV Interests so purchased by the Vendor or Melco LV (as the case may be) shall not be counted in that party’s MLV Interests and Shares and shall be disregarded;
(d) if the Company requires further contribution of capital by the Shareholders and the Vendor and Melco LV are given the opportunity to contribute based on their respective pro-rata MLV Interests, and if one of the Vendor or Melco LV fails to make their pro-rata contribution to the Company, then the MLV Interests so acquired by the Vendor or Melco LV (as the case may be) shall not be counted in that party’s MLV Interests and Shares and shall be disregarded; and
(e) if the Vendor or Melco LV acquires MLV Interests in accordance with its rights of first refusal under the Melco LV Undertaking or the Power Way Undertaking, the MLV Interests so acquired shall not be counted in that party’s MLV Interests and shall be disregarded.

The Company considers that it is to its benefit to have this arrangement for the Balance Of Interests in the Company because it considers that it is in the interest of the Company to have two important but not controlling Shareholders so that they can be drawn on for their respective expertise and experiences.

INFORMATION ON THE VENDOR

The Vendor is a wholly-owned subsidiary of Intralot, a public listed company on the Athens Exchange, engaging in the supply of integrated gaming and transaction processing systems, innovative game content and sports betting management to state licensed gaming organizations worldwide. Based on its extensive know how, advanced product development standards and substantial experience in operating lottery games, the Vendor offers custom-made integrated solutions, which ensure maximum efficiency and absolute security. Its games library includes more than 400 types of games: numerical lotteries, television lottery games, sports lotteries, fixed odds betting, instant lotteries, pari-mutuel, video lottery and monitor games. With presence in 45 countries, with approximately 4,400 people and revenues of €835.5 million for 2007, the Vendor has established its presence on all 5 continents.

INFORMATION ON THE SOFTWARE

The Software is the most current version of:

(i) Chinese version of LOTOS Central system comprising of the following specific components:
LOTOS O/S Operating System;
LOTOS Gameware comprising
- numerical games management system (NGMS)
- Keno games management system (KGMS)
- pool (score) games management system (SGMS)
- Bingo games management system (BGMS)
- instant ticket games management system (IGMS)
- Monitor Games Management System (MGMS)
- video games management system (VGMS)
- Fixed Odds Sports Betting Module (FlexBet)
LOTOS Sales Plus suite of applications
LOTO Value Plus suite of applications
LOTOS Integrity
LOTOS Horizon; and
I Gate connectivity and access system
(ii) CORONIS family terminal application software

The operating system platform offers a fully integrated gaming environment that can be adapted to any terminal over any communication network. The Vendor and third party terminals are fully supported, including clerk-operated terminals, self-service terminals, mobile or portable terminals, vending machines, automatic-teller-machines and cash registers. All other sales channels are also supported, such as the internet, mobile and fixed telephony, interactive voice response, call centres and interactive television.

The operating system platform presents a technologically superior solution by comparison to its competition and is designed on an open multiple tier architecture ensuring extensive interconnectivity with third-party systems as well as expandability, reliability and operational safety. Furthermore, the operating system platform includes middleware that supports the connection of the platform to all external systems and networks. It also has lottery games processing system, which provides an integrated and flexible environment that enables the operation and support of any type and variation of over 400 lottery games.

SOFTWARE LICENCE AGREEMENT

Pursuant to the terms of the Asset Transfer Agreement, the Vendor and the Company will enter into the Software Licence Agreement at Completion. The salient terms of the Software Licence Agreement are summarized as follows:

Subject matter:

The Vendor agreed to grant to the Company:

(a) royalty-bearing, non-transferable, non-assignable, exclusive licence to use and sublicense the Software and the documentation of the Software to the Company’s customers in connection with CSLA Projects; and
(b) a royalty-bearing, non-transferable, non-assignable, non-exclusive, licence to use and sublicense the Software and the documentation of the Software to the Company’s customers in connection with CWL Projects.

Terms:

the CSLA Software: Perpetual license right commencing from the Completion Date until terminated by either party to the Software Licence Agreement in writing (the perpetual licence right can only be terminated under extraordinary circumstances, such as material breach of obligations, liquidation and winding up as outlined in the Software Licence Agreement). The exclusive nature of the license shall be for an initial period of 3 years commencing from the Completion Date. If during the initial 3-year exclusivity period no less than 2 Projects are awarded to the Company, the exclusivity period shall be extended 2 years from the end of the 3-year initial exclusivity period. If during any extended 2-year exclusivity period no less than 2 Projects are awarded to the Company, the exclusivity period shall be extended by a further period of 2 years from the end of any such extended exclusivity period. Notwithstanding the foregoing or anything in the Software Licence Agreement

in the event that the Power Way Restructuring fails to complete within 6 months of the date of the Asset Transfer Agreement or fails to be implemented in accordance with the Asset Transfer Agreement, the exclusive nature of the licence to use the Software shall be suspended and such licence and the Software Licence Agreement shall be construed in all respects as a non-exclusive licence until the Power Way Restructuring has been completed in accordance to the Asset Transfer Agreement (“ Suspension Period ”). For the avoidance of doubt, the exclusivity period shall not be extended by any Suspension Period and the Vendor shall be entitled to continue any licences granted to other parties during the Suspension Period after the expiry of the Suspension Period.

the CWL Software: non-exclusive perpetual license right commencing from the Completion Date until terminated by either party to the Software Licence Agreement in writing (the perpetual licence right can only be terminated under extraordinary circumstances, such as material breach of obligations, liquidation and winding up as outlined in the Software Licence Agreement).

It is common practice of multinational companies to grant right and exclusivity for certain markets based on, amongst other things, geographical and industry sector. In the present case, the Company has been able to secure exclusivity for a certain market sector i.e. CSLA Projects. The Company expects to gain success in the CSLA market by utilising the competitive advantages brought by its exclusive rights in CSLA Projects, the Company’s track record, credibility and experience gained in the CSLA Projects will facilitate its business development in the CWL market and will give it competitive advantage over competitors without obtaining exclusivity in the CWL Projects.

Territory:

the PRC

Licence fee:

Projects:

Protective covenant:

The Company shall pay the Vendor a one-off fixed licence fee of HK$255,130,367.558 as set out in the Asset Transfer Agreement for the right to use the Software licence and sublicence of the Software. In the event of termination of the agreement, if the Group has on-going projects and has sublicensed the Software Licence to any customers, the Company shall pay additional licence fees for the continuation of such sublicence with the customers after termination of the licence of the Software. The additional fees for each project as agreed by the parties with regards to the amount of royalties for the grant of a license to the use of the software by a potential customer for any period which extends beyond the terms of the Software Licence Agreement. At present moment, parties thereto have not determined the additional fees since it is a remote possibility with many permutations and combinations. The Vendor is not required to perform any additional service to be entitled to the additional licence fees and such additional fees are irrelevant to the licence fees paid by the Company to the Vendor. Additional licence fees are only payable when the Software Licence is terminated and the Group has sublicensed the Software Licence to any customers. The Company is required to pay additional licence fees for the continuation of such sublicence with the customers.

The Vendor shall provide reasonable assistance to the Company to secure agreements in connection with CSLA Projects and CWL Projects in the PRC.

The Company covenants that during the term of the Software Licence Agreement, it shall not and shall procure its affiliate shall not market, sell, licence or otherwise grant any licence to use any software which is similar or competitive to, or likely to be competitive to the Software to either the CSLA or the CWL or their respective successor entities.

The Vendor covenants that during the exclusivity terms:

(a) it shall not and shall procure that any such affiliate shall not market, sell, licence or otherwise grant any licence to use the Software, or any software which is similar or competitive to, or likely to be competitive to the Software to either the CSLA or any successor entity; and

(b) it shall grant to the Company a right of first refusal to participate in one CWL Project which is identified by the Vendor and in which the Vendor intends to participate.

Pursuant to the Asset Transfer Agreement, the Vendor agrees to grant the Company the licence to use the Software and to sublicense the Software upon certain conditions. If those conditions are satisfied, the Software licence will be granted by the Vendor to the Company pursuant to the Software Licence Agreement. The Software Licence Agreement is a completion document that perfects the grant of the Software licence by the Vendor to the Company.

The licence of the Software is perpetual and for use throughout the PRC (i.e. both CSLA Projects and CWL Projects). In addition, there are exclusivity arrangements for CSLA Projects. The Company has the right to use the licence after the exclusivity arrangements have ended. Accordingly, the exclusivity arrangement will continue to be extended as long as the Projects are secured. On the other hand, if for a certain period, the Projects are not secured and the exclusivity ends, the Company still retains the right to use the licence.

INFORMATION ON THE LOTTERY MARKET IN THE PRC

Lotteries in the PRC are highly regulated and totally directed by the Ministry of Finance under two different administrations – the CWL and the CSLA. Both bodies aim to raise funds for the public agenda. The CWL was established in 1987, and was commissioned to raise fund for social welfare purposes. The CSLA was established in 1995, and was commissioned to raise funds for sports development, including financing the construction of sports stadiums for mass public, as well as funding the salaries of national sports teams.

With reference to a recent research report from an independent European securities house, in 2007, the CWL recorded about RMB63 billion in lottery receipts, accounting for about 63% market share; while the CSLA recorded about RMB36 billion in lottery sales receipts, accounting for about 37% market share.

Both CWL and CSLA market lotteries throughout the PRC, and the lottery playing public may choose to patronise either one based on their personal preference for the lottery products offered for sale by the CWL and CSLA.

UNDERTAKINGS

Power Way and each of its shareholders, including Melco LV, Global Crossing (together with its ultimate beneficial owner, Firich Enterprises Co. Ltd.) and LottVision have agreed to enter into their respective undertakings in favour of the Vendor, i.e. Power Way Undertaking, Melco LV Undertaking, Firich Undertaking and LottVision Undertaking. Each of the undertakings contains the following major terms:

save for the Power Way Restructuring, each of Power Way, Melco LV, Firich and LottVision shall not, in respect of any Shares held by them as at the date of their respectively undertakings, for a period of 6 months from Completion, effect disposal of any Shares beneficially owned or held by them respectively;
each of Power Way, Melco LV, Firich and LottVision shall not, directly or indirectly, offer, sell transfer or dispose of (either conditionally or unconditionally, or directly or indirectly, or otherwise) any of their respective Shares or shares in the Company or any of its Subsidiaries held by them to Intralot’s Competitors;
save the Power Way Restructuring, Power Way, Firich and LottVision shall grant the Vendor and Melco LV first right of refusal in respect of the MLV Interests held by them respectively if any of them wishes to dispose of their respective MLV Interests;
each of Power Way, Melco LV, Firich and LottVision shall not and shall procure all of their respective subsidiaries not to, for so long as they remains a member of the Company and/or a member of any Subsidiary and/or a member of Power Way and during the exclusivity term of the CSLA Software licence, directly or indirectly, be concerned in the lottery and betting businesses as is or may be carried on by the Company or its Subsidiaries in the PRC; and
each of Power Way, Melco LV, Firich and LottVision undertakes that, without the prior written consent of Intralot, it shall not give consent to any amendment to the terms of their respective convertible bonds nor give consent to any indebtedness owed to Power Way, Melco LV, Firich or LottVision to be converted or reorganised into MLV Interests.

Pursuant to the Melco LV Undertaking, the Vendor also undertakes to Melco LV that it shall grant first right of refusal to Melco LV in respect of the MLV Interests held by them respectively of it wishes to dispose of its MLV Interests.

Each parties to the Melco LV Undertaking undertakes to the other party that: (i) it shall not (and it shall procure that its subsidiaries shall not) take any action (or avoid taking any action) which would, or is likely to, cause the Balance Of Interests to be breached; and (ii) it shall not acquire or offer to acquire, or cause another person to acquire or to offer to acquire, any direct or indirect interest in any MLV Interests or other securities or assets of the Company or any other member of the Group or do or omit to do any act as a result of which it or any person acting in concert with it may acquire any direct or indirect interest in any MLV Interests or other securities or assets of the Company or any other member of the Group. For the avoidance of doubt, the foregoing applies to any exercise of Melco’s conversion rights under the Melco LV CB and any exercise of Vendor’s conversion rights under the Convertible Bonds. Furthermore, each party to the Melco LV Undertaking undertakes to the other party that if one party (the “First Party”) nominates (or has appointed) a candidate to be a Director then it shall support the nomination or appointment of a candidate of the other party (the “Second Party”) to be a Director so that each of the First Party and the Second Party will have the same number of candidates appointed to the Board. Each party will also support the other party’s nominations to the offices and positions set out in the section headed “Corporate Governance” in this announcement.

REASONS FOR AND BENEFITS OF THE ACQUISITION

The Group had, toward the end of 2007, acquired certain Subsidiaries which are engaged in various lottery-related businesses and ventures in the PRC and Asian countries, and in the manufacturing of point of sale and lottery terminals for the sports and welfare lottery businesses in the PRC. Other Subsidiaries are engaged in the business of network system integration. These include provision of network infrastructure solutions, including network infrastructure, network management services and network software, in the PRC and Hong Kong. It is the intension of the Group to keep its existing business in network system integration.

The Board considers that the Acquisition is in the interest of the Company for the following reasons:

the intangible value of the cooperation with the Vendor, being an international leading provider of integrated gaming systems, as a strategic Shareholder upon Completion;
the growth prospects and earnings capability which may be brought to the Group upon the Acquisition, including the potential revenue generated from CSLA projects and/or CWL projects; and
the immediate access to the leading complete technology solution, including but not limited to a readily available and extensive game library allowing instant offer of new lottery games to the market.

Interim report of the Company shows profit of approximately HK$8.43 million for the network system integration but loss of approximately HK$38.64 million for the lottery business, of which approximately HK$28.64 million was from non-cash payments, i.e. by excluding the non-cash payments, the lottery business incurred loss of approximately HK$10.3 million.

The Board considers that the network system integration business is a relatively mature industry and competition in the network system integration is extremely keen as the Group needs to compete with both local and international system integration companies which are mostly also network hardware/software manufacturers. Growth is both slow and difficult.

For the purpose of enhancing the long-term growth potential of the Group, the Company identified lottery business as a diversification business for the Company in October 2007. Growth potential and profitability return to Shareholders are the main considerations of the Company. Given that it is always difficult to start a new business the Company is prepared to bear the losses in the short term. Furthermore, the losses are derived from the Company’s existing businesses of venue management consultancy, scratch and retail terminal distribution, and terminal manufacturing. The loss on lottery business as shown in the 2008 interim report was due to the fact that the Company’s lottery business was still in the investment stage. However, the Company takes the view that lottery industry in the PRC has great potential and will generate great return in the long run. The new investment also provides access to a new source of revenues, i.e. from provision of software systems and technical services. The acquisition of the Software is in line with the Company’s business plan to fetch the business opportunities in the PRC lottery industry.

Finally, partnering with Intralot is another step forward in the chosen direction to add technical and international expertise to its existing operations in the PRC. Having Intralot (an experienced lottery operator in several jurisdictions and rank number 2 in the lottery industry by revenues in 2007) as a Shareholder will provide access to world class lottery industry expertise not only related to the software licence but also all aspects of the Company’s lottery business.

The Directors, including the independent non-executive Directors, consider the terms and conditions of the Asset Transfer Agreement to be fair and reasonable and on normal commercial terms and are in the interests of the Company and the Shareholders as a whole.

EFFECT ON SHAREHOLDING STRUCTURE AFTER COMPLETION

The existing shareholding structure of the Company and, for illustration purpose only, the shareholding structure of the Company upon completion of the Power Way Restructuring the allotments and issues of the Consideration Shares, the Conversion Shares and Conversion Shares II under different scenarios are as follows:

Shareholders Mr. Chan Sek Keung, Ringo (Note 1) Power Way_(Note 2)_ Melco LV LottVision Global Crossing The Vendor Public Shareholders Total	As at the date of this announcement No. of Shares % 74,992,000 15.91 72,000,000 15.28 – – – – – – – – 324,229,495 68.81 471,221,495 100.00	Upon allotment and issue of the Consideration Shares only and completion of the Power Way Restructuring at Completion No. of Shares % 74,992,000 15.02 – – 42,265,024 8.46 8,947,934 1.79 20,787,042 4.16 28,208,938 5.65 324,229,495 64.92 499,430,433 100.00	Upon allotment and issue of the Consideration Shares, completion of the Power Way Restructuring at Completion and partial conversions of the Convertible Bonds and Melco LV CB (Note 3) No. of Shares % 74,992,000 13.15 – – 70,645,024 12.39 8,947,934 1.57 20,787,042 3.64 70,645,024 12.39 324,229,495 56.86 570,246,519 100.00	Upon allotment and issue of the Consideration Shares, the Conversion Shares upon full conversion of the Convertible Bonds and completion of the Power Way Restructuring at Completion (Note 4) No. of Shares % 74,992,000 9.63 – – 42,265,024 5.42 8,947,934 1.15 20,787,042 2.67 307,901,480 39.52 324,229,495 41.61 779,122,975 100.00	Upon allotment and issue of the Consideration Shares, the Conversion Shares and Conversion Shares II upon full conversion of the Convertible Bonds and Convertible Bonds II and completion of the Power Way Restructuring (Note 4) No. of Shares % 74,992,000 8.83 – – 42,265,024 4.98 8,947,934 1.05 20,787,042 2.45 377,610,560 44.49 324,229,495 38.20 848,832,055 100.00	Upon allotment and issue of the Consideration Shares, the Conversion Shares and Conversion Shares II upon full conversion of the Convertible Bonds and Convertible Bonds II and completion of the Power Way Restructuring (including the conversion in full of the Melco LV CB, Firich CB and LottVision CB) (Note 4) No. of Shares % 74,992,000 4.80 – – 461,324,119 29.52 55,314,055 3.54 226,891,237 14.52 377,610,560 24.16 366,582,436 23.46 1,562,714,407 100.00

Notes:

Mr. Chan Sek Keung, Ringo, chairman and executive Director of the Company, is deemed, by virtue of the SFO, to be interested in the 56,400,000 Shares held by Woodstock Management Limited, a company wholly-owned by him, in addition to 18,352,000 Shares held by him personally.
Power Way is held as to 58.70% by Melco LV, 28.87% by Global Crossing and 12.43% by LottVision upon completion of the Power Way Restructuring.

This column shows the case of maximum conversions of the Convertible Bonds and Melco LV CB to maintain (i) the Balance Of Interests by keeping the same percentage of voting rights for Melco LV and the Vendor; and (ii) the aggregate voting rights of the Vendor, Melco LV, LottVision and Global Crossing remaining below 30% (as regards to the paragraph headed “Limitation on conversion” under the section headed “Convertible Bonds” in this announcement. However, there may be a scenario that if any one of Melco LV, LottVision and Global Crossing controls 20% of the voting rights of the Company and the Vendor controls 20% or more of the voting rights of the Company, they will presumably be parties acting in concert) while assuming there is no conversion for the Firich CB and the LottVision CB.
These columns show the maximum dilution effects from the various convertible bonds of the Company assuming no any limitation for conversions. Given the conversion terms of the various convertible bonds, these scenarios would not happen and are shown for illustration purpose only.

RISK FACTORS

Potential risk factors which are faced by the Group are as follows:

The Group’s revenue generated from the use of the Software relies on the CSLA Projects and CWL Projects only. There is little diversification of the sources of income. Moreover, given the highly regulated nature of the lottery market in the PRC, the number of Projects available for the Group to bid for depends on the Projects offered by the government authorities.
The Group largely relies on the Vendor in maintaining and customizing the Software, as only the Vendor has the relevant personnel and expertise in these respects.
The Group may not be able to protect the intellectual property rights of the Software from being infringed given the ground realities of operating in the PRC. Though the Group will use its best endeavours to protect the Software, there is no assurance that the Software’s intellectual property rights will never be infringed. The Group’s competitive edge in bidding for the CSLA Projects and CWL Projects may be materially and adversely affected. Also, the Vendor may claim against the Group for failing to protect the Software, which may constitute a breach under the Software Licence Agreement.
There may be future uncertainties on the growth potential of the lottery business in the PRC, as the PRC Government may impose new laws and regulations in restricting the development of such businesses. The Group is exposed to the economic risks of the PRC, as the PRC is the only place which the Group can use the Software. The lottery business of the Group may be adversely affected if the economic development in the PRC slows down.

The Software may lose its competitive edge over time. As the software industry is famous for its rapid development, it is possible that other lottery manufacturers are able to develop a newer, better and more powerful software than the one which will be granted to the Group under the Software Licence Agreement.
The exclusivity arrangements for the CSLA Projects may end, if the Group is unable to obtain the required number of projects within the specified period. The Group may face extra competition for the CSLA Projects in future if such exclusivity is lost since the Software may be used by the competitors of the Group.

IMPLICATIONS UNDER THE GEM LISTING RULES

The Acquisition constitutes a very substantial acquisition for the Company under the GEM Listing Rules and is subject to the approval of Shareholders at the EGM. The Company intends to maintain its existing businesses after the Completion.

The Company will seek the approval of its Shareholders at the EGM to be convened and held by the Company to approve the Asset Transfer Agreement and the Transactions (including but not limited to the issues of the Convertible Bonds and the Convertible Bonds II and the allotments and issues of the Consideration Shares, the Conversion Shares and the Conversion Shares II). As Power Way will be involved in the Power Way Restructuring and each of the Power Way Undertaking, Melco LV Undertaking, Firich Undertaking and LottVision Undertaking have to be executed, which is one of the Conditions, each of Power Way and its shareholders namely, Melco LV, Global Crossing and LottVision is considered to have a material interest in the Acquisition which is different from other Shareholders. To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiry, save for Power Way, Melco LV, Global Crossing and LottVision, no Shareholder has a material interest in the Acquisition with is different from other Shareholders, and accordingly Power Way, Melco LV, Global Crossing and LottVision and their respective associates are required to abstain from voting at the EGM, which will be taken by way of poll.

A circular containing, amongst other things, further details of (i) the Acquisition and other disclosures in connection with the Acquisition as required pursuant to the GEM Listing Rules; (ii) information on the Assets; (iii) the pro forma financial information of the Enlarged Group; (iv) a notice of the EGM, will be dispatched to the Shareholders as soon as practicable and in accordance with the GEM Listing Rules.

RESUMPTION OF TRADING

DEFINITIONS

In this announcement, unless the context otherwise requires, the following expressions shall have the following meaning:

“Acquisition”
the acquisition of the Assets under the Asset Transfer Agreement and the Transactions
“Assets”

(a) (i) exclusive license right to use and sublicense the CSLA Software, including any updates of the CSLA Software released by the Vendor. Exclusivity period of the license is for an initial period of 3 years commencing from the Completion Date, such exclusivity period shall be conditionally extended by 2 years from the end of the 3-year exclusivity period and shall be conditionally extended by a further period of 2 years from the end of any such extended exclusivity period in the PRC; (ii) non-exclusive license right to use and sublicense the CWL Software, including any updates of the CWL Software released by the Vendor commencing from the Completion Date in the PRC; and (b) HK$50 million cash

“Asset Transfer Agreement”
an agreement dated 7 September 2008 (as amended by a supplemental agreement dated 26 September 2008) and entered into between the Company and the Vendor for the sale and purchase of the Assets
“associates”
has the meaning ascribed to it under the GEM Listing Rules
“Balance Of Interests”
has the meaning ascribed to it under the section headed “Balance Of Interests in the Company” in this announcement
“Board”

the board of Directors

“Bondholder(s)”
a holder or holder(s) in whose name the Convertible Bonds is registered in the register of Bondholders, and “holder” in relation to the Convertible Bonds shall have the corresponding meaning
“Business Day” a day (other than a Saturday and a Sunday) on which licensed banks are generally open in Hong Kong for normal business
“BVI”
British Virgin Islands
“Change of Control”
(i) a change in the Company’s shareholdings such that a person who is Intralot’s Competitor possesses, directly or indirectly a holding, or aggregate holdings, of 30% or more of the voting rights of a company, irrespective of whether that holding or holdings gives de facto control, or (ii) Melco disposing more than 2/3 of its MLV Interests as it stands on Completion
“Code”
the Hong Kong Code on Takeovers and Mergers
“Company” Melco LottVentures Limited, a company incorporated in the Cayman Islands and the Shares are listed on GEM
“Completion” completion of the Transactions in accordance with the terms thereof
“Completion Date” date of Completion
“Conditions” conditions precedent to the Completion
“Connected Persons”
has the meaning ascribed to it in the GEM Listing Rules
“Consideration”
HK$305,130,367.558, the total consideration payable in respect of the Assets under the Asset Transfer Agreement
“Consideration Shares” 28,208,938 new Shares to be allotted and issued to the Vendor at the Issue Price, credited as fully paid, to satisfy part of the Consideration
“Conversion Notice” a notice of conversion in the form (for the time being current) set out in the Deed Poll

“Conversion Price”
initial conversion price of HK$0.991 per Conversion Share
“Conversion Price II” initial conversion price of HK$1.0759 per Conversion Share II
“Conversion Rights” the rights of the Bondholder to convert the principal amount outstanding under the Convertible Bonds registered in its name into Shares subject to the provisions of the Deed Poll and the terms and conditions of the Convertible Bonds
“Conversion Shares”
279,692,542 new Shares to be allotted and issued to the Vendor upon exercise of the conversion rights attaching to the Convertible Bonds in full
“Conversion Shares II”
69,709,080 new Shares to be allotted and issued to the Vendor upon exercise of the conversion rights attaching to the Convertible Bonds II in full
“Convertible Bonds”
the convertible bonds in the principal amount of HK$277,175,310 to be issued by the Company in favour of the Vendor to satisfy part of the Consideration
“Convertible Bonds II”
the convertible bonds in the principal amount of HK$75,000,000 which may be issued by the Company in favour of the Vendor to settle the Success Payment
“CSLA”
the organization known as China Sports Lottery Administration or any successor to CSLA from time to time
“CSLA Projects”
any projects which affords a reasonable opportunity to grant a licence to use the Software and associated services as envisaged by the Software Licence Agreement initially by CSLA
“CSLA Software”
the Software for CSLA Projects
“CWL”
the organization known as China Welfare Lottery Issuance or any successor to the CWL from time to time

“CWL Projects” any projects which affords a reasonable opportunity to grant a licence to use the Software and associated services as envisaged by the Software Licence Agreement initially by CWL
“CWL Software” the Software for CWL Projects
“Deed Poll” the deed poll regarding the terms of the Convertible Bonds to be executed by the Company
“Directors” the directors of the Company from time to time
“Disposal” offer, lend, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of (either conditionally or unconditionally, or directly or indirectly, or otherwise) any of the Shares, or any interests in the Shares beneficially owned or held or enter into any swap, derivatives or similar agreement that transfers, in whole or in part, the economic consequences of ownership of such Shares
“EGM” an extraordinary general meeting of the Company to be convened and held to approve the Asset Transfer Agreement and the Transactions
“Enlarged Group” the Group upon completion of the Transactions
“Existing Shareholders’ Competitors”
any person concerned in any business carrying on business which is competitive or likely to be competitive with businesses carried on by Melco LV, Firich or LottVision
“Firich” Firich Enterprises Co., Ltd., a company incorporated in Taiwan and the issued shares of which are listed on the Taiwan Gre Tai Securities Market, and Global Crossing
“Firich CB”
the convertible bonds in the principal amount of HK$175,188,566 to be issued by the Company and registered in the name of Global Crossing as part of the Power Way Restructuring, which convertible bonds shall have the same terms and conditions as the Power Way CB

“Firich Undertaking”
an undertaking letter to be given by Firich in favour of the Vendor and Melco LV
“GEM”
the Growth Enterprise Market of the Stock Exchange
“GEM Listing Committee”
the listing sub-committee of the board of directors of the Stock Exchange with responsibility for GEM
“GEM Listing Rules”
the Rules Governing the Listing of Securities on GEM
“Global Crossing”
Global Crossing Holdings Limited, a company incorporated in Samoa, which is a wholly-owned subsidiary of Firich Enterprises Co., Ltd. (a company incorporated in Taiwan the issued shares of which are listed on the Taiwan Gre Tai Securities Market) and an existing shareholder of Power Way
“Group”
the Company and its Subsidiaries
“Hong Kong”
the Hong Kong Special Administrative Region of the PRC
“Independent Third Party”
a third party independent of the Company and the Connected Persons of the Company and is not a Connected Person of the Company
“Interest Record Date” fifteenth day before the due date of the payment of interest
“Intralot”
Intralot S.A. Integrated Lottery Systems and Services, a public listed company on the Athens Exchange S.A.
“Intralot’s Competitors”
any person concerned in any business carrying on business which is competitive or likely to be competitive with businesses carried on by Intralot
“Issue Price”
the initial issue price of HK$0.991 per Consideration Share
“KTeMS”
KTeMS Co., Ltd., a company incorporated in Korea with limited liability
“Last Trading Day”
5 September 2008, being the last trading day immediately before the publication of this announcement

“Long Stop Date”
90 days from the date of the Asset Transfer Agreement
“LottVision”
LottVision Limited, an existing shareholder of Power Way, a company incorporated in Bermuda and the issued shares of which are listed on the Singapore Exchange Limited
“LottVision CB”
the convertible bonds in the principal amount of HK$50,000,000 issued by the Company and registered in the name of LottVision by virtue of the distribution advancement made on 12 August 2008 by Power Way to LottVision incidental to the Power Way Restructuring and the convertible bonds in the principal amount of HK$25,411,203 to be issued by the Company and registered in the name of LottVision as part of the Power Way Restructuring, which convertible bonds shall have the same terms and conditions as the Power Way CB
“LottVision Undertaking” an undertaking letter to be given by LottVision in favour of the Vendor and Melco LV
“Maturity Date” five years from the date of issue of the Convertible Bonds
“Melco”
Melco International together with Melco LV
“Melco International”
Melco International Development Limited, a company incorporated in Hong Kong and the issued shares of which are listed on the Main Board of the Stock Exchange
“Melco LV” Melco LottVentures Holdings Limited, a company incorporated in the BVI, which is a wholly owned subsidiary of Melco and the holding company of Power Way
“Melco LV CB”
the convertible bonds in the principal amount of HK$356,200,231 to be issued by the Company and registered in the name of Melco LV as part of the Power Way Restructuring, which convertible bonds shall have the same terms and conditions as the Power Way CB
“Melco LV Undertaking”
an undertaking letter to be entered into between Melco LV, the Vendor and Melco International

“MLV Interests”
in respect of a person, that person’s direct and indirect holdings of (a) Shares, and (b) convertible bonds and other securities convertible or exchangeable into Shares in which case that person’s MLV Interests shall include the number of Shares which are the subject of the convertible bonds or other securities convertible or exchangeable into Shares
“Nanum Lotto”
Nanum Lotto Inc., a company incorporated in Korea with limited liability and is engaged in holding and/ or operating and/or investing in the lottery businesses within the Asian region
“Oasis Rich”
Oasis Rich International Ltd., a company incorporated in the Republic of Mauritius with limited liability and a non-wholly owned subsidiary of the Company
“Potential Wu Sheng Transfer” the potential partial transfer of the Vendor’s current
original equipment manufacturing (“OEM”) business and potential new OEM business to Wu Sheng provided that Wu Sheng fulfils the required quality standards, has the manufacturing capacity, is competitive with respect to pricing, and meets such other criteria as the Vendor believes relevant
“Power Way” Power Way Group Limited, a company incorporated in the BVI and a substantial shareholder of the Company prior to the Power Way Restructuring
“Power Way CB”
the convertible bonds in the principal amount of HK$556,800,000 issued by the Company and registered in the name as Power Way
“Power Way Restructuring” the proposed restructuring of the interests of Power Way in the Company by the transfer or distribution to its shareholders, namely Melco LV, Global Crossing and LottVision, of all the Shares and Power Way CB held by Power Way such that Melco LV will become the owner of 42,265,024 Shares and the Melco LV CB, Global Crossing will become the owner of 20,787,042 Shares and the Firich CB and LottVision will become the owner of 8,947,934 Shares and the LottVision CB
“Power Way Undertaking”
an undertaking letter to be entered into between Power Way and the Vendor

“PRC” the People’s Republic of China, which, for the purpose of this announcement, shall exclude Hong Kong, the Macau Special Administration Region of the PRC and Taiwan

“Project”

any CSLA Project or CWL Project

“Relevant Event” occurs when there is a Change of Control

“Relevant Event 60th day after the expiry of 30 days following the Redemption Date” occurrence of a Relevant Event, or if later, 30 days following the date upon which notice thereof is given to the Bondholders by the Company in accordance with the terms and conditions of the Convertible Bonds

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

a first priority fixed pledge/charge/mortgage, governed by the laws of Korea, granted by the Company or its Subsidiary which is the direct holder of the entire issued capital of KTeMS in favour of the security trustee for the benefit of the Bondholder(s), over 50% of the entire issued share capital of KTeMS including any future dividends and any other cash receivables arising therefrom to secure the payment obligations and the performance of all of the obligations of the Company under the Convertible Bonds and the Deed Poll

“Security II”
a first ranking assignment by way of security and floating charge, governed by the laws of Hong Kong, the PRC or such other jurisdiction as determined by the Bondholders, granted by the Company and its relevant Subsidiaries in favour of the security trustee for the benefit of the Bondholders, over all rights and gross income (net of direct costs and direct taxes related to the projects to be deducted in a manner as agreed between the Company and the Bondholders) of the Company or its Subsidiaries arising from any sublicence agreement, services agreement, project agreement or otherwise arising from any or all projects to secure the payment obligations and the performance of all of the obligations of the Company under the Convertible Bonds and the Deed Poll

“Shareholders”

shareholders of the Company

“Shares”

ordinary shares of HK$0.01 each in the issued share capital of the Company

“Software”

the most current version of:

(i) Chinese version of LOTOS Central system comprising of the following specific components: – LOTOS O/S Operating System;
- LOTOS Gameware comprising
  - numerical games management system (NGMS)
  - Keno games management system (KGMS)
  - pool (score) games management system (SGMS)
  - Bingo games management system (BGMS)
  - instant ticket games management system (IGMS)
  - Monitor Games Management System (MGMS)
  - video games management system (VGMS)
  - Fixed Odds Sports Betting Module (FlexBet)
- LOTOS Sales Plus suite of applications
- LOTO Value Plus suite of applications
- LOTOS Integrity
- LOTOS Horizon; and
- I Gate connectivity and access system
(ii) CORONIS family terminal application software
“Software Licence Agreement” the licence agreement to be executed by the Vendor and the Company on Completion pursuant to which the Vendor grants to the Company the exclusive licence right to use and sublicence the Software in connection with the CSLA Projects and the non-exclusive licence right to use and sublicense the Software in connection with the CWL Projects

“Stock Exchange”

The Stock Exchange of Hong Kong Limited

“Subsidiary(ies)”
with respect to the Company, any corporation, association or other business entity of which more than 50 per cent. of the voting power of the outstanding issued share capital is owned or controlled, directly or indirectly, by the Company and one or more other Subsidiaries of the Company and any corporation or other business entity which at any time has its accounts consolidated with those of the Company or which, under the Cayman law or regulations or international financial accounting standards from time to time, should have its accounts consolidated with those of the Company
“Success Payment” HK$75,000,000, the entitlement of the Vendor upon obtaining two agreements in connection with the CSLA Projects and/or CWL Projects in the PRC from the Company to be satisfied by way of the Convertible Bonds II
“Transactions” the transactions contemplated under the Asset Transfer Agreement including the Software Licence Agreement
“Vendor”
Intralot International Limited, a company incorporated in Cyprus and is the wholly owned subsidiary of Intralot
“Vendor Group”
Vendor and its subsidiaries
“Wu Sheng”
Wu Sheng Computer Technology (Shanghai) Co., Ltd, a wholly-owned foreign enterprise established in Shanghai, PRC by Oasis Rich
“€”
Euro, the lawful currency of the European Monetary Union
“HK$”
Hong Kong dollars, the lawful currency of Hong Kong
“%”
per cent.

By order of the Board Melco LottVentures Limited Chan Sek Keung, Ringo Chairman

Hong Kong, 28 September 2008

As at the date of this announcement, the Board consists of two executive Directors, namely Mr. CHAN Sek Keung, Ringo and Mr. KO Chun Fung, Henry; and three independent non-executive directors, namely Mr. David Tsoi, Mr. PANG Hing Chung, Alfred and Mr. So Lie Mo, Raymond.

This announcement, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the GEM 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: (1) the information contained in this announcement is accurate and complete in all material respects and not misleading; (2) there are no other matters the omission of which would make any statement in this announcement misleading; and (3) all opinions expressed in this announcement have been arrived at after due and careful consideration and are founded on bases and assumptions that are fair and reasonable.

This announcement will remain on the “Latest Company Announcement” page of the GEM website www.hkgem.com for at least 7 days from its date of publication and on the Company’s website at www.melcolottventures.com.hk.