Crypto Flow Technology Limited - Proxy Solicitation & Information Statement 2009

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or otherwise transferred all your shares in MelcoLot Limited (the “ Company ”), you should at once hand this circular and the accompanying form of proxy to the purchaser(s) or transferee(s) or to the bank, licensed securities dealer or another agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

==> picture [52 x 53] intentionally omitted <==

==> picture [51 x 32] intentionally omitted <==

MelcoLot Limited

(incorporated in the Cayman Islands with limited liability) website: http://www.melcolot.com

(Stock Code: 8198)

MAJOR REALISATION AND CONNECTED TRANSACTION

AND NOTICE OF EXTRAORDINARY GENERAL MEETING

Independent Financial Adviser to the Independent Board Committee and Independent Shareholders

The notice convening the extraordinary general meeting of the Company to be held at Units 3101-2A, 31/F, The Centrium, 60 Wyndham Street, Central, Hong Kong on 28 December 2009 at 4:00 p.m. or any adjournment thereof (the “ EGM ”) is set out on pages 37 to 38 of this circular. Whether or not you propose to attend the EGM, you are requested to complete the form of proxy and return the same to the Company’s branch share registrar in Hong Kong, Computershare Hong Kong Investor Services Limited at Rooms 1806-7, 18th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong in accordance with the instructions printed thereon not less than 48 hours before the time appointed for the EGM. Completion and delivery of the form of proxy will not preclude you from attending and voting at the EGM if you so wish.

A letter from the independent board committee of the Company containing its recommendation to the Independent Shareholders in relation to the Realisation is set out on pages 14 to 15 of this circular. A letter of advice from Menlo Capital to the Independent Board Committee and the Independent Shareholders in relation to the Realisation is set out on pages 16 to 25 of this circular.

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

8 December 2009

CHARACTERISTICS OF GEM

GEM has been positioned as a market designed to accommodate companies to which a higher investment risk may be attached than other companies listed on the Stock Exchange. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration. The greater risk profile and other characteristics of GEM mean that it is a market more suited to professional and other sophisticated investors.

Given the emerging nature of companies listed on GEM, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities traded on the Main Board of the Stock Exchange and no assurance is given that there will be a liquid market in the securities traded on GEM.

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Letter from the Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Letter from Menlo Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Appendix I – Financial information of the Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
Appendix II – General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	28
Notice of EGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	37

DEFINITIONS

In this circular, unless the context otherwise requires, the following expressions have the following meanings:

“Board”	the board of Directors
“associates”	has the meaning ascribed to it under the GEM Listing Rules
“Business Day”	a day (other than a Saturday, a Sunday or a public holiday) on
	which licensed banks are generally open for business in Hong
	Kong throughout their normal business hours
“Company”	MelcoLot Limited, a company incorporated in the Cayman Islands
	with limited liability and the issued Shares of which are listed on
	GEM
“Completion”	completion of the sale and purchase of the Sale Shares in
	accordance with the terms and conditions of the Sale and Purchase
	Agreement
“connected persons”	has the meaning ascribed to this term under the GEM Listing
	Rules
“Consideration”	HK$30,000,000, being the consideration of the Sale Shares
	payable by the Purchaser to the Company, which shall be satisfied
	by the Purchaser in cash and by way of the Obligor executing the
	Promissory Notes upon Completion
“Directors”	the directors of the Company
“EGM”	the extraordinary general meeting of the Company to be held
	and convened for the purpose of considering and, if thought fit,
	approving the Sale and Purchase Agreement and the transactions
	contemplated thereunder
“GEM”	the Growth Enterprise Market of the Stock Exchange
“GEM Listing Rules”	the Rules Governing the Listing of Securities on the GEM
“Group”	the Company and its subsidiaries
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“Independent Board Committee”	the independent board committee comprising all independent
	non-executive Directors, namely Mr. David Tsoi, Mr. Pang Hing
	Chung, Alfred and Mr. So Lie Mo, Raymond

DEFINITIONS

“Independent Shareholders” Shareholders other than the Purchaser and its associates “Independent Third Party” any person or company and their respective ultimate beneficial owner(s), to the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, are third parties independent of the Company and its connected persons
“Latest Practicable Date” 3 December 2009, being the latest practicable date prior to the printing of this circular for inclusion of certain information in this circular
“Menlo Capital” Menlo Capital Limited, a corporation licensed to carry on type 6 (advising on corporate finance) regulated activities under the SFO and the independent financial adviser appointed to advise the Independent Board Committee and the Independent Shareholders in relation to the Realisation
“Obligor” Mr. Chan Sek Keung, Ringo, the chairman of the Board and an executive Director
“PRC” the People’s Republic of China, for the purpose of this circular, excluding Hong Kong, Macau Special Administrative Region and Taiwan
“Promissory Note(s)” the First Promissory Note and/or the Second Promissory Note “Purchaser” Fortune Grace Management Limited, a company incorporated in the British Virgin Islands with limited liability, which is owned as to 70% by the Obligor and as to 30% by two other shareholders who are directors of certain subsidiaries of the Target
“Realisation” the realisation of the Sale Shares by the Company as contemplated under the Sale and Purchase Agreement
“Sale and Purchase Agreement” the conditional sale and purchase agreement dated 5 November 2009 entered into among the Purchaser, the Obligor and the Company in relation to the sale and purchase of the Sale Shares
“Sale Shares” 67,269,905 ordinary shares of HK$1.00 in the issued share capital of the Target, representing the entire issued share capital of the Target
“Share(s)” ordinary issued share(s) of HK$0.01 each in the capital of the Company

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

DEFINITIONS

“Shareholder(s)” holder(s) of the Share(s) “Stock Exchange” The Stock Exchange of Hong Kong Limited “Target” Wafer Systems Limited, a company incorporated in Hong Kong, whose entire issued share capital is beneficially owned by the Company “Target Group” the Target and its subsidiaries “HK$” Hong Kong dollars, the lawful currency of Hong Kong “%” per cent.

LETTER FROM THE BOARD

==> picture [52 x 53] intentionally omitted <==

==> picture [51 x 32] intentionally omitted <==

MelcoLot Limited

(incorporated in the Cayman Islands with limited liability) website: http://www.melcolot.com (Stock Code: 8198)

Executive Directors: Mr. Chan Sek Keung, Ringo (Chairman) Mr. Ko Chun Fung, Henry (Chief Executive Officer) Mr. Christos Moumouris Mr. Georgios Derempeoglou

Registered office: 4th Floor, Scotia Centre P.O. Box 2804, George Town Grand Cayman KY1-1112 Cayman Islands

Non-executive Director:

Mr. John Peter Ben Wang

Independent non-executive Directors: Mr. David Tsoi Mr. Pang Hing Chung, Alfred Mr. So Lie Mo, Raymond

Head office and principal place of business: Units 3101-2A, 31st Floor, The Centrium 60 Wyndham Street Central, Hong Kong

8 December 2009

To the Shareholders

Dear Sir or Madam,

MAJOR REALISATION AND CONNECTED TRANSACTION

INTRODUCTION

Reference is made to the announcement of the Company dated 11 November 2009 in relation to, among other things, the entering into of the Sale and Purchase Agreement by the Company, the Purchaser and the Obligor pursuant to which the Purchaser has agreed to acquire and the Company has agreed to sell the Sale Shares, representing the entire issued share capital of the Target as at 5 November 2009, being the date of the Sale and Purchase Agreement. The Consideration for the sale and purchase of the Sale Shares is HK$30,000,000.

The Realisation constitutes a major transaction on the part of the Company under the GEM Listing Rules. The Purchaser and its associates, hold in aggregate approximately 12.98% of the entire issued share capital of the Company as at the Latest Practicable Date. As the ultimate beneficial owners of the Purchaser are connected persons of the Company, the Realisation also constitutes a connected transaction on the part of the Company and will be subject to the approval of the Independent Shareholders at the EGM by way of poll.

LETTER FROM THE BOARD

The purpose of this circular is to provide the Shareholders with, among other things, (i) further details of the Realisation; (ii) recommendation from the Independent Board Committee in respect of the Realisation; and (iii) advice from Menlo Capital in respect of the Realisation, together with the notice of EGM.

THE SALE AND PURCHASE AGREEMENT

Date: 5 November 2009

Parties:	(1)	Vendor	:	the Company
	(2)	Purchaser	:	Fortune Grace Management Limited
	(3)	Obligor	:	Chan Sek Keung, Ringo

The Purchaser is a company owned as to (i) 70% by the Obligor who is the chairman of the Board, an executive Director and a substantial Shareholder holding (both in person and through his wholly-owned corporation) 53,276,000 Shares in aggregate, representing approximately 10.64% of the issued share capital of the Company as at the Latest Practicable Date; and (ii) as to 30% by two other shareholders who are directors of certain subsidiaries of the Target and holding in aggregate of 11,743,000 Shares, representing approximately 2.34% of the issued share capital of the Company as at the Latest Practicable Date. The Purchaser and its ultimate beneficial owners are connected persons of the Company and the Purchaser is an investment holding company.

The Obligor joined as a party to the Sale and Purchase Agreement to give undertaking in favour of the Company. Details of such undertaking are set out in the paragraph headline “Undertaking given by the Obligor in the Sale and Purchase Agreement” and “Other undertakings” below.

Assets to be disposed

The Sale Shares, being an aggregate of 67,269,905 shares, represent the entire issued share capital of the Target as at the Latest Practicable Date.

Consideration

The Consideration of HK$30,000,000 shall be satisfied by the Purchaser and the Obligor jointly and severally in the following manners:

(a) HK$10,000,000 will be payable by the Purchaser to the Company in cash within three weeks immediately after the date of Completion;
(b) HK$10,000,000 will be payable by the Purchaser to the Company within three months immediately after the date of Completion by way of the Obligor issuing the First Promissory Note in favour of the Company or its nominee(s) upon Completion and also subsequently redeeming the same in full, in accordance with the terms thereof; and

LETTER FROM THE BOARD

(c) the remaining balance of HK$10,000,000 will be payable by the Purchaser to the Company within 15 months immediately after the date of Completion by way of the Obligor issuing the Second Promissory Note in favour of the Company or its nominee(s) upon Completion and also subsequently redeeming the same in full, in accordance with the terms thereof.

The consideration was determined through arm’s length negotiations between the parties to the Sale and Purchase Agreement and on a commercial basis with reference to an agreeable discount to the net asset value of the Target Group as at 31 October 2009 given that (i) competition in the network system integration is extremely keen, in particular, Target Group needs to compete with both local and international system integration service providers, some of which are also subsidiaries of large network hardware/software manufacturers; (ii) the market for the network system integration in the PRC and Hong Kong is relatively mature and thus, together with keen competition, the Target Group has been loss making since 2008; and (iii) the Company can focus its resources and future investment in its lottery business to generate better return to the Shareholders.

As such, the Directors (including the independent non-executive Directors) consider that the terms and conditions of the Realisation are fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

Conditions precedent

Completion shall be conditional upon and subject to:

(1) the Independent Shareholders passing at the EGM an ordinary resolution to approve the Sale and Purchase Agreement and the transactions contemplated thereunder in accordance with the GEM Listing Rules;
(2) all necessary consents and approvals required to be obtained on the part of the Purchaser and the Company in respect of the Sale and Purchase Agreement and the transactions contemplated thereby have been obtained; and
(3) the warranties given by the Company, the Purchaser and the Obligor in the Sale and Purchaser Agreement respectively remaining true and accurate in all material respects up to and including Completion.

If the conditions have not been satisfied on or before 29 December 2009, or such later date as the Company and the Purchaser may agree, the Sale and Purchase Agreement shall cease and determine, and thereafter neither party shall have any obligations and liabilities towards each other thereunder save for any antecedent breaches of the terms thereof. As at the Latest Practicable Date, none of the above conditions has been satisfied.

LETTER FROM THE BOARD

Undertaking given by the Obligor in the Sale and Purchase Agreement

The Obligor beneficially holds 70% of the issued share capital of the Purchaser. The Obligor has unconditionally and irrevocably undertaken to the Company the due and punctual performance by the Purchaser of all the payment obligations and/or any other obligations expressed to be imposed on or assumed by the Purchaser under the Sale and Purchase Agreement and has further undertaken to indemnify the Company against all liabilities, losses, costs and expenses suffered by the Company in connection with any default of the Purchaser in the performance of such obligations.

Completion

Completion shall take place at 4:00 p.m. on the date falling on the second Business Day after the fulfilment of the conditions or such later date as may be agreed between the Company and the Purchaser.

Upon Completion, the Target Group will cease to be subsidiaries of the Company.

The Share Charge

Upon Completion, the Purchaser shall execute a share charge in favour of the Company to charge the Sale Shares to the Company as security for the payment obligations and liabilities of the Purchaser arising from or under the Sale and Purchase Agreement and the payment obligations of the Obligor under the Promissory Notes. The said share charge shall be released upon full settlement of all the payment obligations and liabilities arising from or under the Sale and Purchase Agreement and the Promissory Notes.

Pursuant to the Sale and Purchase Agreement, the Purchaser shall assume the primary liability to the payment obligations thereunder which shall only be discharged unless and until the Obligor has duly and punctually performed all the payment obligations pursuant to the terms of the Promissory Note.

Other Undertakings

Pursuant to the Sale and Purchase Agreement, upon Completion, each of the Obligor and the other two shareholders of the Purchaser shall execute an undertaking in favour of the Company.

Pursuant to the undertaking to be entered into by the Obligor upon Completion, the Obligor undertakes:

1) not to sell, transfer, assign, charge, pledge or otherwise dispose of or create any encumbrance whatsoever (including without limitation, not to enter into agreement to do any of such acts) over any of the issued shares in the Purchaser beneficially owned by the Obligor;
2) to remain as the sole director of the Purchaser to the extent permitted by laws;

LETTER FROM THE BOARD

3) to procure to maintain the shareholding structure of the Purchaser, as such, the Obligor shall beneficially hold seven issued shares in the Purchaser representing 70% of the entire issued share capital of the Purchaser, and each of the other two shareholders (“ Other Shareholders ”) of the Purchaser shall beneficially hold one and two issued share(s) in the Purchaser representing 10% and 20% of the entire issued share capital of the Purchaser respectively; and
4) to procure the board of directors of the Purchaser not to approve or register any transfer of the issued shares of the Purchaser nor to register any new member(s) in its register of members as new shareholder(s) of the Purchaser without the prior written consent of the Company.

Pursuant to the undertakings to be entered into by each of the other two shareholders of the Purchaser upon Completion, each of them shall beneficially hold one and two issued share(s) in the Purchaser representing 10% and 20% of the entire issued share capital of the Purchaser respectively, and shall not sell, transfer, assign, charge, pledge or otherwise dispose of or create any encumbrance whatsoever (including without limitation, not to enter into agreement to do any of such acts) over any of the issued shares in the Purchaser beneficially owned by each of the other two shareholders of the Purchaser unless with the prior written consents of the Company.

Promissory Notes

Each of the First Promissory Note and the Second Promissory Note has the principal amount of HK$10,000,000. Save for the maturity date, each of them has identical principal terms as follows:

Issuer: the Obligor Principal amount: The First Promissory Note – HK$10,000,000 The Second Promissory Note – HK$10,000,000 Maturity date: The First Promissory Note The last date falls on the third month after the date of the First Promissory Note or within ten Business Days after the occurrence of the event of default The Second Promissory Note The last date falls on the fifteenth month after the date of the Second Promissory Note or within ten Business Days after the occurrence of the event of default Redemption: The Obligor may at any time before the maturity date of the Promissory Note, by serving at least ten (10) days’ prior written notice on the holder of the Promissory Note with the total amount proposed to be redeemed from such holder specified therein, redeem the Promissory Note (in whole or in part in amounts of not less than HK$1,000,000 or such other amounts as agreed between the Obligor and the Company).

LETTER FROM THE BOARD

If the outstanding principal amount of the Promissory Note is less than HK$1,000,000, the whole (but not part only) of the Promissory Note may be redeemed.

Interest: 5% per annum. Transferability: The Promissory Note may be assigned or transferred to any transferee in whole or in part (in whole multiples of HK$1,000,000) of its outstanding principal amount.

Redesignation of directorship

Pursuant to the Sale and Purchase Agreement, the Obligor, being the executive Director, chairman and authorised representative of the Company, shall resign from the position of the chairman and authorised representative of the Company and be redesignated as non-executive Director upon Completion. The Obligor has also agreed to the termination of the service contract dated 18 December 2008 signed between him and the Company upon Completion. Further announcement in relation to the redesignation of the directorship of the Obligor shall be made in accordance to the GEM Listing Rules.

INFORMATION ON THE TARGET GROUP

The Target Group is engaged in the network system integration and provision of network infrastructure solutions, including the sales of network equipment and software and the provision of related network infrastructure services, provision of network professional services, and sales of its proprietary network software.

Set out below are the consolidated financial results of the Target Group for the two years ended 31 December 2007 and 31 December 2008 respectively:

	For the year ended	For the year ended
	31 December 2007	31 December 2008
	HK$’000	HK$’000
	(unaudited)	(audited)
Profit/(Loss) before taxation	6,754	(5,659)
Profit/(Loss) after taxation	5,077	(7,486)

The unaudited consolidated net assets of the Target Group as at 31 October 2009 were approximately HK$55.2 million, comprising mainly of trade and other receivables, and trade and other payables. Owing to the global economic downturn, capital expenditure and upgrading plans about the network system for the customers have been partially cancelled or postponed. This macro economic environment in conjunction with the highly competitive nature of the system integration business have adversely impacted the results in this segment which has been loss making since 2008.

LETTER FROM THE BOARD

FINANCIAL EFFECT OF THE REALISATION

It is estimated that the loss on realisation of the Target Group is approximately HK$25.2 million, which is calculated with reference to the deficit of the Consideration under the unaudited net asset value of the Target Group. Accordingly, the net assets of the Group will be reduced by approximately HK$25.2 million, with the decrease in total assets exceeding the decrease in total liabilities.

The Board intends to retain the proceeds deriving from the Realisation for future business development and as general working capital of the Group.

LOAN CAPITALISATION

Before the entering into of the Sale and Purchase Agreement, the unsecured and non-interest bearing amount of approximately HK$67.3 million due to the Company by the Target has been capitalised in full into the investment costs of the Company and the share capital of the Target respectively, which represented the working capital provided by the Company to the Target Group in previous years. The Board considers that the capitalisation properly presents the Company’s costs of investment in the Target Group.

REASONS FOR AND BENEFITS OF THE REALISATION

The Group is principally engaged in lottery business management services and network system integration. During the past two years, the Group had acquired substantial assets which are in connection with and subsidiaries engaging 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.

The Board considers that the network system integration 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 providers, some of which are also subsidiaries of large network hardware/software manufacturers. All of the large orders of the Target Group come indirectly from the giant telecom companies in the PRC and the Target Group is not capable of directly bidding for any tender from these end-user customers. The Target Group has to rely on its major international suppliers to bid and win the tenders from the giant telecom companies in the PRC. Upon winning the tenders, it is at the discretion of the Target Group suppliers to outsource the project or a part thereof to system integration service providers like the Target Group’s. In addition, because of the long payment terms of these projects, supplier financing is always required. Thus the Target Group itself can hardly stand alone without the outsourcing contract from its suppliers. The Target Group has seldom entered into any long term contracts with any of its end-user customers or major suppliers. This creates uncertainties for the business development in the coming years. Given the high operation costs including the employment of high caliber system engineers and other expertise, and the unguaranteed tendering business of the Target Group, the profit margin of the Target Group is showing no sign of improvement.

LETTER FROM THE BOARD

Despite the fact that for the six months ended 30 June 2009, the segment loss from network system integration business, excluding unallocated corporate income and expenses, share of losses of jointly controlled entities and finance costs, was approximately HK$2.4 million while that from lottery business was approximately HK$23 million, the Board considers the Company’s lottery business was still in the investment stage and that the lottery industry in the PRC is an emerging industry with great potential to generate high profitability and growth in the long run. Through the Realisation, the Company can streamline its businesses and focus on its lottery business which has an improving result and a higher potential for future growth. In light of the recent development of the lottery industry in the PRC, and further given that system integration business is a mature industry and highly competitive in nature, the Board believes that it is in the best interest of the Company to focus its resources and future investment in its lottery business. Accordingly, the Board is of the view that the Realisation represents a good opportunity for the Company to dispose of the Target and focus the resources in its lottery business in order to maintain its competitiveness and achieve the greatest returns for the Shareholders.

The Directors (including the independent non-executive Directors) are of the view that the terms of the Sale and Purchase Agreement are on normal commercial terms, fair and reasonable and that the entering into of the Sale and Purchase Agreement is in the interests of the Company and the Shareholders as a whole.

INDEPENDENT BOARD COMMITTEE

The Independent Board Committee which comprises Mr. David Tsoi, Mr. Pang Hing Chung, Alfred and Mr. So Lie Mo, Raymond, all being independent non-executive Directors, has been established to advise the Independent Shareholders in respect of the Realisation.

Menlo Capital has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Realisation.

The Independent Board Committee, having taken into account the advice of Menlo Capital, consider that the Realisation was entered into on normal commercial terms and that the terms of the Sale and Purchase Agreement are fair and reasonable and in the interests of the Group so far as the Independent Shareholders are concerned and accordingly recommend the Independent Shareholders to vote in favour of the ordinary resolution which will be proposed at the EGM for approving the Realisation.

LETTER FROM THE BOARD

The text of the letter from the Independent Board Committee is set out on pages 14 to 15 of this circular and the text of the letter from Menlo Capital containing its advice is set out on pages 16 to 25 of this circular.

GEM LISTING RULES IMPLICATIONS

The Realisation constitutes a major transaction on the part of the Company under the GEM Listing Rules. As the ultimate beneficial owners of the Purchaser are connected persons of the Company, the Realisation also constitutes a connected transaction on the part of the Company and will be subject to the approval of the Independent Shareholders at the EGM by way of poll.

The Realisation is subject to, among others, the approval by the Independent Shareholders at the EGM to be taken by way of a poll. The Purchaser and its associates, holding in aggregate approximately 12.98% of the entire issued share capital of the Company as at the Latest Practicable Date, will abstain from voting for the relevant resolution at the EGM to approve the Realisation and the transactions contemplated thereunder due to their interests in the Realisation.

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, other than the Purchaser and its respective associates, no Shareholder has a material interest in the Realisation. Accordingly, other than the Purchaser and its respective associates, no Shareholder is required to abstain from voting for the Realisation at the EGM.

GENERAL

The EGM will be held at Units 3101-2A, 31/F, The Centrium, 60 Wyndham Street, Central, Hong Kong on 28 December 2009 at 4:00 p.m. to consider, if thought fit, approve, among other things, the terms of the Sale and Purchase Agreement by the Independent Shareholders by way of poll.

A notice convening the EGM is set out on pages 37 to 38 of this circular. A form of proxy for use at the EGM is enclosed. Whether or not you are able to attend the EGM in person, you are requested to complete and return the form of proxy in accordance with the instructions printed thereon to the share registrar of the Company, Computershare Hong Kong Investor Services Limited at Rooms 1806-7, 18th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong in accordance with the instructions printed thereon not less than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof (as the case may be) should you so desire.

LETTER FROM THE BOARD

RECOMMENDATION

The Board, having taken into account the advice of Menlo Capital and the Independent Board Committee, considers that the terms of the Sale and Purchase Agreement are fair and reasonable and are beneficial to and in the best interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the relevant resolution at the EGM.

ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the appendices to this circular.

By order of the Board of MelcoLot Limited Ko Chun Fung, Henry Executive Director and Chief Executive Officer

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [52 x 53] intentionally omitted <==

==> picture [51 x 32] intentionally omitted <==

MelcoLot Limited

(incorporated in the Cayman Islands with limited liability) website: http://www.melcolot.com

(Stock Code: 8198)

8 December 2009

To the Independent Shareholders

Dear Sir/Madam,

MAJOR REALISATION AND CONNECTED TRANSACTION

We refer to the circular of the Company dated 8 December 2009 (the “Circular”) to the Shareholders, of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as defined in the Circular unless the context otherwise requires.

We have been appointed by the Board as members to form the Independent Board Committee and to advise you whether the terms of the Sale and Purchase Agreement are fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole and how to vote on resolution regarding the Realisation.

Menlo Capital has been appointed to advise the Independent Board Committee and the Independent Shareholders as to whether the terms of the Sale and Purchase Agreement are fair and reasonable so far as the Independent Shareholders are concerned, whether such terms are in the interests of the Company and the Independent Shareholders as a whole and how to vote on resolution regarding the Realisation. Details of its advice, together with the principal factors taken into consideration in arriving at such advice, is set out on pages 16 to 25 of the Circular.

Your attention is also drawn to the letter from the Board set out on pages 4 to 13 of the Circular and the additional information set out in the appendices to the Circular.

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having considered the terms of the Sale and Purchase Agreement and the advice of Menlo Capital, we are of the opinion that the terms of the Sale and Purchase Agreement are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and the Independent Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the resolution to be proposed at the EGM to approve the Realisation.

Yours faithfully, Independent Board Committee of MelcoLot Limited

Mr. David Tsoi

Independent non-executive

Director

Mr. Pang Hing Chung, Alfred Independent non-executive Director

Mr. So Lie Mo, Raymond Independent non-executive Director

LETTER FROM MENLO CAPITAL

The following is the letter of advice from Menlo Capital to advise the Independent Board Committee and the Independent Shareholders in connection with the major realization and connected transaction, which has been prepared for the purpose of inclusion in this circular:

17/F., Asia Standard Tower 59-65 Queen’s Road Central, Hong Kong

8 December 2009

To the Independent Board Committee and the Independent Shareholders of MelcoLot Limited

Dear Sirs,

MAJOR REALISATION AND CONNECTED TRANSACTION

We refer to our appointment as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders whether the Realisation is in the interests of the Company and the Independent Shareholders as a whole and the terms of which are fair and reasonable insofar as the Company and the Independent Shareholders are concerned, details of which are set out in the letter from the Board (the “Board Letter”) contained in this circular of the Company dated 8 December 2009 (the “Circular”) of which this letter forms part. Terms defined in the Circular shall have the same meanings in this letter unless the context of this letter otherwise requires.

On 5 November 2009, the Company entered into the Sale and Purchase Agreement with the Purchaser and the Obligor pursuant to which the Purchaser has agreed to acquire and the Company has agreed to sell the Sale Shares, representing the entire issued share capital of the Target. The Consideration for the sale and purchase of the Sale Shares is HK$30,000,000.

The Realisation constitutes a major transaction on the part of the Company under the GEM Listing Rules. As the beneficial owners of the Purchaser are connected persons of the Company, the Realisation constitutes a connected transaction on the part of the Company and will be subject to the approval of the Independent Shareholders at the EGM by way of poll.

The Purchaser and its associates, which hold in aggregate approximately 12.98% of the entire issued share capital of the Company as at the Latest Practicable Date, will abstain from voting for the relevant ordinary resolution at the EGM to approve the Sale and Purchase Agreement and the transactions contemplated thereunder due to their interests in the Realisation.

LETTER FROM MENLO CAPITAL

The Independent Board Committee comprising all the independent non-executive Directors, namely, Mr. David Tsoi, Mr. Pang Hing Chung, Alfred and Mr. So Lie Mo, Raymond, has been formed to advise the Independent Shareholders as to whether the Realisation is in the interests of the Company and Independent Shareholders as a whole and whether the terms of the Realisation are fair and reasonable.

We consider that we have received sufficient information to enable us to reach an informed view and to justify our reliance on the accuracy of the information and representations contained in the Circular and to provide a reasonable basis for our view and recommendation. We have taken all reasonable steps pursuant to rule 17.92 (including notes) of the GEM Listing Rules which include the following:

(a) obtaining all the information and documents relevant to an assessment of the fairness and reasonableness of the terms of the Realisation, including but not limited to, the announcement of the Company dated 11 November 2009, the Board Letter, the terms of the Realisation and the annual report of the Company for the year ended 31 December 2008 and interim reports for the six months ended 30 June 2008 and 30 June 2009;
(b) researching the relevant market and the other conditions relevant to the Realisation;
(c) reviewing the fairness, reasonableness and completeness of any assumptions or projections relevant to the Realisation, the performance and financial situation of the Company as well as the reasons and background of the Realisation; and
(d) confirming we have not relied on any third party expert opinion or advise in forming our opinion.

LETTER FROM MENLO CAPITAL

PRINCIPAL FACTORS AND REASONS CONSIDERED

In assessing the Realisation and in giving our recommendation to the Independent Board Committee and the Independent Shareholders, we have taken into account the following principal factors and reasons:

I. Financial highlights of the Group

The following table shows the segmental performance of the Group for the last two years ended 31 December 2008 and the six months ended 30 June 2008 and 2009.

Revenue SI Business Lottery Business Sub-total EBITDA_(note)_ SI Business Lottery Business Sub-total Segment results SI Business Lottery Business Sub-total Net profit/(loss) from the SI Business Net profit/(loss) attributable to owners of the Company	Year ended 31 December 31 December 2007 2008 (audited) (audited) HK$’000 HK$’000 361,645 426,300 291 180,016 361,936 607,016 18,052 5,708 (1,656) (7,857) 16,396 (2,149) 11,889 1,441 (480,247) (403,817) (468,358) (402,376) 5,077 (7,486) (unaudited) (475,448) (442,141)	Six months ended 30 June 30 June 2008 2009 (unaudited) (unaudited) HK$’000 HK$’000 194,032 127,614 41,190 35,270 235,222 162,884 10,567 (2,798) (21,508) (17,895) (10,941) (20,693) 8,433 (4,217) (38,604) (23,116) (30,171) (27,333) 4,752 (14,093) (55,596) (63,935)

Note: According to the 2008 annual report of the Company, the substantial losses from the Lottery Business in 2007 and 2008 were mainly attributable to the provisions in relation to the acquisition of the Lottery Business in 2007, including deemed non-cash expenses on convertible bonds, impairment loss on intangible assets, impairment loss on goodwill, and share of losses of jointly controlled entities, which have been excluded from calculation of EBITDA here.

LETTER FROM MENLO CAPITAL

As shown in the above table, although the audited revenue of the Network Systems Integration (the “SI Business”) increased to approximately HK$426 million in 2008 (2007: approximately HK$362 million), the earnings before interest, taxes, depreciation and amortization (“EBITDA”) of this business decreased to approximately HK$5.71 million (2007: approximately HK$18.05 million) and the segment profit of this business (excluding unallocated corporate income and expenses, share of losses of jointly controlled entities and finance costs) decreased substantially to approximately HK$1.44 million (2007: approximately HK$11.89 million). As stated in the Board Letter, the SI Business recorded an unaudited net profit of approximately HK$5.08 million in 2007 but an audited net loss of HK$7.49 million in 2008. The EBITDA-to-revenue ratio of the SI Business decreased to approximately 1.34% in 2008 (2007: approximately 5%). Since the Lottery Business was acquired in December 2007, its performance can only be reflected in 2008 on a full yearly basis. We noted that the Lottery Business recorded substantial segmental losses in 2007 and 2008 which, according to the 2008 annual report of the Company, was mainly attributable to the provisions in relation to the acquisition of the Lottery Business in 2007, including deemed non-cash expenses on convertible bonds, impairment loss on intangible assets and impairment loss on goodwill.

The economic setback after the financial turmoil in late 2008 further affected the performance of the SI Business. For the six months ended 30 June 2009, the SI Business recorded a decrease in unaudited revenue of approximately 34.23% to approximately HK$128 million and a segmental loss of approximately HK$4.22 million, as opposed to a segmental profit of HK$8.43 million during the corresponding in 2008. During the six months ended 30 June 2009, the unaudited revenue of the Lottery Business only decreased by approximately 14.37% to approximately HK$35.27 million in 2009 and the segmental loss of this business improved to approximately HK$23.12 million in 2009 from approximately HK$38.60 million in 2008.

According to the third quarterly results of the Group, for the three months ended 30 September 2009, the unaudited revenue of the SI Business decreased substantially by approximately 50.68% in the third quarter of 2009, resulting in an overall decrease in unaudited revenue of the SI Business for the nine months ended 30 September 2009 by approximately 39.97% to approximately HK$179 million. For the three months ended 30 September 2009, the unaudited revenue of the Lottery Business increased by approximately 31.22% to approximately HK$21.36 million and the unaudited revenue of the Lottery Business for the nine months ended 30 September 2009 was maintained at HK$56.63 million as compared to the corresponding figure of approximately HK$57.47 million in 2008.

As such, although the revenue generated from the SI Business was higher than that of the Lottery Business in an absolute term during the period under review, it decreased substantially for the nine months ended 30 September 2009 and showed no sign of improvement while the revenue generated from the Lottery Business for the three months ended 30 September 2009 recorded a turnaround improvement after the decrease for the first six months ended 30 June 2009, indicating the income generating capability of the SI Business is weakening while the Lottery Business is recovering. It is also shown that although the Lottery Business incurred a higher amount of loss during the period under review, the profitability of the SI Business is weakening as compared to that of the Lottery Business, as indicated from the reduction of loss before interest, tax, depreciation and amortization of the Lottery Business to approximately HK$17.90 million for the six months ended 30 June 2009 from approximately HK$21.51 million for the corresponding period in 2008 while the SI Business recorded a turnaround loss before interest, tax,

LETTER FROM MENLO CAPITAL

depreciation and amortization of approximately HK$2.80 million for the six months ended 30 June 2009 from an EBITDA of approximately HK$10.57 million for the corresponding period in 2008. Therefore, notwithstanding that the historical figures showed that the SI Business incurred less loss during the period under review, it did not show any sign of improvement in income generating capability and profitability. Together with (i) the reasons of the Realisation as discussed in the below section headed “Reasons of the Realisation” and (ii) the intention of the Group to focus on the development of the Lottery Business, we are of the view that it is reasonable to dispose of the SI Business in order to get rid of a legacy business.

II. Reasons for the Realisation

The Group is principally engaged in the Lottery Business and the SI Business. During the past two years, the Group had acquired substantial assets which are in connection with and subsidiaries which are engaging 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.

The Directors consider that the SI Business is a relatively mature industry and competition in the SI Business is extremely keen as the Group needs to compete with both local and international system integration providers, some of which are also subsidiaries of large network hardware/software manufacturers. All of the large orders of the Target Group come indirectly from the giant telecom companies in the PRC and the Target Group is not capable of directly bidding for any tender from these end-user customers. The Target Group has to rely on its major international suppliers to bid and win the tenders from the giant telecom companies in the PRC. Upon winning the tenders, it is at the discretion of the Target Group suppliers to outsource the project or a part thereof to system integration service providers like the Target Group. In addition, because of the long payment terms of these projects, supplier financing is always required. Thus the Target Group itself can hardly stand alone without the outsourcing contract from its suppliers. The Target Group has seldom entered into any long terms contracts with any of its enduser customers or major suppliers. This creates uncertainties for the business development in the coming years. Given the high operation costs including the employment of high caliber system engineers and other expertise, and the unguaranteed tendering business of the Target Group, the profit margin of the Target Group is showing no sign of improvement.

Under such a business model, the Target Group does not have any competitive edge except the relationship with its suppliers. The relationship with the suppliers is the crucial factor to run the business. In view of the deteriorating performance for both revenue and results, the executive Directors are of the view that it is difficult to procure a potential purchaser other than the Purchaser and/or the Obligor which has built up a long term relationship with the suppliers of the Target Group and thus do not try finding a purchaser in the open market for the SI Business in order to save the Company’s resources. The executive Directors also take the view that the Realisation should be done as soon as possible or otherwise the net asset value of the Target Group will decrease, resulting in a possibly lower consideration that might be payable by another potential purchaser, if any, for the SI Business. To this end, we consider that it is a sensible business decision to dispose of the SI Business to the Purchaser.

LETTER FROM MENLO CAPITAL

As disclosed in the 2009 interim report of the Group, other than the welfare lottery and the sports lottery which are operated by the government, all forms of gambling are illegal in the PRC. This creates an encouraging environment for the authorized service providers to develop lottery business in the PRC. The Lottery Business is involved in various lottery industry verticals in the PRC including provision of management consultancy services to a leading retain chain of lottery vending outlets, distribution of scratch cards, manufacture and distribution of point of sales machines and provision of marketing and technical services. In view of the huge development potential of the lottery business in the PRC, the executive Directors consider that the Lottery Business is still in the investment stage. Through the Realisation, the Company can focus on the development of the Lottery Business in order to strive for the highest return to the Shareholders. In this regard, we consider that it is a reasonable strategic decision of the Company to dispose of the SI Business.

III. Terms of the Realisation

The terms of the Sale and Purchase Agreement are stated in the Board Letter contained in this circular. We have reviewed the principal terms of Sale and Purchase Agreement to assess whether they are fair and reasonable and in the interests of the Company and the Independent Shareholders as follows:

(i) Consideration

The Consideration of HK$30,000,000 shall be satisfied by the Purchaser and the Obligor jointly and severally in the following manners:

(a) HK$10,000,000 will be payable by the Purchaser to the Company in cash within three weeks immediately after the date of Completion;
(b) HK$10,000,000 will be payable by the Purchaser to the Company within three months immediately after the date of Completion by way of the Obligor issuing the First Promissory Note in favour of the Company or its nominee(s) upon Completion and also subsequently redeeming the same in full, in accordance with the terms thereof; and
(c) the remaining balance of HK$10,000,000 will be payable by the Purchaser to the Company within 15 months immediately after the date of Completion by way of the Obligor issuing the Second Promissory Note in favour of the Company or its nominee(s) upon Completion and also subsequently redeeming the same in full, in accordance with the terms thereof.

The consideration was determined through arm’s length negotiations between the parties to the Sale and Purchase Agreement and on a commercial basis with reference to an agreeable discount to the net asset value of the Target Group as at 31 October 2009 given that (i) competition in the network system integration is extremely keen, in particular, Group needs to compete with both local and international system integration providers, some of which are mostly also subsidiaries of large hardware/software manufacturers; (ii) the market for the network system integration in the PRC and Hong Kong is relatively mature and thus, together with keen competition, the Target Group has been loss making since 2008; and (iii) the Company can focus its resources and future investment in its lottery business to generate better return to the Shareholders.

LETTER FROM MENLO CAPITAL

The Consideration of HK$30 million represents 45.65% discount to the unaudited consolidated net asset value of the Target Group as at 31 October 2009.

To assess whether the determination of the Consideration is fair and reasonable, we have adopted the following approaches to assess the value of the Target Group, namely price-to-earnings approach, dividend approach, net asset value approach and price to book approach.

Price-earnings approach and dividends approach

Given that (i) the segmental profit (excluding unallocated corporate income and expenses, share of losses of jointly controlled entities and finance costs) of the SI Business of Company decreased substantially to approximately HK$1.44 million in 2008 from approximately HK$11.89 million in 2007; (ii) the Target Group incurred an audited net loss of HK$7.49 million for the year ended 31 December 2008 and unaudited net loss of HK$14.09 million for the six months ended 30 June 2009; (iii) no dividend was distributed by the Target Group for such financial year; (iv) the SI Business further recorded an unaudited segment loss of approximately HK$4.22 million for the six months ended 30 June 2009 and continues making a loss for the four months ended 31 October 2009, as reflected in the unaudited management accounts of the Target Group for the ten months ended 31 October 2009 and noted that the Target Group incurred a loss for the four months ended 31 October 2009; and (v) the Directors are of the view that the performance of the SI Business and the profit margin of the Target Group are showing no sign of improvement; we consider neither price-to-earnings nor dividends approach is meaningful to assess the value of the Target Group.

Net asset value approach

We noted that the Consideration of HK$30 million represents approximately 45.65% discount to the unaudited consolidated net asset value of the Target Group of HK$55.2 million as at 31 October 2009. On a standalone basis, the discount represented by the Consideration to the unaudited net asset value of the Target Group is not beneficial to the Company and its Shareholders. Nevertheless, Independent Shareholders should note that poor operating environment and the weakening performance of the Target Group as discussed in the sections headed “Reasons for the Realisation” and the “Financial highlights of the Group” above. The unaudited management accounts of the Target Group for the ten months ended 31 October 2009 reflected that the Consideration of HK$30 million represents 80.75% of the total cash balance of the Target Group of approximately HK$37.15 million, of which approximately HK$5.55 million was pledged to secure the Target Group’s borrowings, or approximately 94.94% of the free cash balance of HK$31.60 million, being HK$37.15 million minus HK$5.55 million, of the Target Group. With the substantial decrease in income and the gloomy prospect of the SI Business, the executive Directors expect that performance of the SI Business is showing no sign of improvement. We have also discussed with the executive Directors if the Group could get a higher proceed by closing down the SI Business itself and are informed that it will require substantial management time and efforts to deal with the stakeholders of the Target Group in order to dissolve this business. In view of the

LETTER FROM MENLO CAPITAL

weakening performance of the Target Group, it is uncertain that closing down the SI Business by the Group itself would get a higher proceed than the Realisation. In this regards, this is sensible to dispose of the SI Business sooner rather than later in order to maximize the return for the Group.

To this end, we consider that the determination of the Consideration is fair and reasonable as (i) the Consideration represents approximately 94.94% of the free cash balance of the Target Group as at 31 October 2009; (ii) the Realisation could help the Group get rid of the business as soon as possible to avoid further deterioration in value of the Target Group that affects the overall financial performance of the Group; and (iii) the Realisation helps saving the management time and efforts in order to focus on the development of the Lottery Business.

Price to book ratio approach

In order to establish the comparables for the price to book approach (or the price to net asset value approach), at our best endeavor, we have tried to locate the sales and purchase transactions related to the network system integration business at the similar size with the SI Business. However, we find that no suitable comparable is available in the last six months, the most recent period under a relatively stable economic business environment after the happening of the worldwide financial turmoil in September 2008.

(ii) Payment terms

As disclosed in the paragraph headed “Consideration” above, we noted that the Consideration will be paid by the Purchaser by three installments. The Obligor will issue the Promissory Notes to the Company to settle part of the Consideration. Details of the Promissory Notes have been stated in the section headed “Promissory Notes” in the Board Letter.

We are advised by the executive Directors that although this is not the most common way of settling the consideration of a transaction in full upon its completion, the settlement of the Consideration by installments under the Realisation is one of the commercial terms agreed upon between the Company and the Purchaser. Given (i) the Group could dispose of the SI Business as soon as possible; (ii) the Group does not have imminent funding requirements; (iii) the tenor of the Promissory Notes is not excessive; and (iii) the Promissory Notes will yield a five percentage interest income to the Group on a yearly basis, the executive Directors consider that the payment terms under the Realisation is acceptable and we concur with their view.

(iii) Share charge and undertakings

We have reviewed the terms of the share charge and undertakings under the Sale and Purchase Agreement and consider that they are normal and reasonable to protect the interest of the Company. Details of the share charge and undertakings have been disclosed in the sections headed “Share Charge” and “Other Undertakings” in the Board Letter.

LETTER FROM MENLO CAPITAL

(I) Redesignation of directorship

Pursuant to the Sale and Purchase Agreement, the Obligor, being the executive Director and chairman and authorized representative of the Company, shall resign from the position of the chairman and authorized representative of the Company and re-designated as non-executive Director upon Completion. The Obligor has also agreed to the termination of the service contract dated 18 December 2008 signed between him and the Company upon Completion.

The Company currently has four executive Directors, one non-executive Director, and three independent non-executive Directors. Besides the Obligor, there are three other executive Directors, namely Mr. Ko Chun Fung, Henry, Mr. Christos Moumouris, and Mr. Georgios Derempeoglou, who were invited to the Board to manage and develop the Lottery Business. In this regard, the executive Directors are of the view that the re-designation of the Obligor as a non-executive Director upon Completion will not affect the normal management and operation of the Group and we concur with the Directors’ view.

IV. Financial effects of the Realisation

(i) Revenue

The revenue of the SI Business represented approximately 70.23% and 75.96% of the Group’s total revenue for the year ended 31 December 2008 and the nine months ended 30 September 2009. After the Realisation, the revenue of the Group will be reduced in the future if this is not caught up by the increase in revenue of the Lottery Business. Nevertheless, we consider that the reduction in the revenue of the Group by virtue of the Realisation would not adversely affect the Group’s overall financial performance.

(ii) Earnings

If the Completion takes place on 31 October 2009, it is estimated that the Group will make a one off loss of approximately HK$25.2 million, which is calculated with reference to the difference between Consideration and the unaudited net asset value of the Target Group. Before the entering into of the Sale and Purchase Agreement, the unsecured and non-interest bearing amount of approximately HK$67.3 million due to the Company by the Target has been capitalized in full into the investment costs of the Company and the share capital of the Target respectively, which represented the working capital provided by the Company to the Target Group in previous years. The Directors consider that the capitalisation properly presents the Company’s costs of investment in the Target Group.

As discussed in the section headed “Financial highlights of the Group” and paragraph headed “Consideration” above, given the weakening performance of the SI Business, it is reasonable to dispose of the SI Business to maximize the return of the Company from the Realisation. Despite it would incur a one off loss to the Group, the Realisation will stop the weakening performance of the SI Business affecting the overall financial performance of the Group in the future. To this end, we consider that the loss incurred from the Realisation is justifiable.

LETTER FROM MENLO CAPITAL

(iii) Net asset value

The Realisation will reduce the total assets and liabilities, as well as the net asset value of the Group. Nevertheless, we consider that it will enhance the financial strength of the Group by splitting off the non-performing assets from the consolidated balance sheet of the Group through the Realisation.

(iv) Cash flow and uses of proceeds

Since the Consideration will be paid by installments, the Group’s cash flow will not be improved immediately through the Realisation. Nevertheless, since there is no imminent funding requirement of the Group, it will not affect the normal business operation of the Group. The Group will apply the proceeds from the Realisation for future business development and as general working capital of the Group.

RECOMMENDATION

Having considered the above-mentioned principal factors and reasons, we consider that although the Realisation is not conducted in the ordinary and usual course of business of the Group, it is in line with the development strategy of the Group. We also consider that the Realisation is conducted on normal commercial terms as a whole and the terms of the Sale and Purchase Agreement are fair and reasonable so far as the Independent Shareholders are concerned and that they are in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend in the Independent Board Committee to advise the Independent Shareholders to vote in favour of the relevant resolution to be proposed at the EGM to approve the Realisation and the transactions contemplated thereunder.

Yours faithfully, For and on behalf of Menlo Capital Limited

Michael Leung

Director

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. INDEBTEDNESS STATEMENT

(a) Borrowings

As at 31 October 2009, being the latest practicable date for the purpose of the statement of indebtedness prior to the printing of this circular, the Group had aggregate outstanding unsecured borrowings of approximately HK$118.6 million, comprising (i) a bank loan of approximately HK$17.1 million guaranteed by a wholly owned subsidiary of the Company; (ii) loan from a Shareholder of HK$80 million; and (iii) other loan repayable more than one year but less than two years of approximately HK$21.5 million granted by suppliers to subsidiaries of the Company and guaranteed by the Company.

The Group’s bank deposits of approximately HK$4.1 million were pledged to banks for general banking facilities of the Group.

(b) Debt securities

As at 31 October 2009, the Group had convertible bonds with outstanding principal amount of approximately HK$884 million. The carrying amount of the debt component of the convertible bonds on the unaudited consolidated statement of financial position at 31 October 2009 was approximately HK$555.5 million.

(c) Disclaimer

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities, as at 31 October 2009, the Group did not have any loan capital issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptances (other than normal trade bills) or acceptance credits, debentures, mortgages, charges, hire purchases commitments, guarantees or other material contingent liabilities.

2. WORKING CAPITAL

The Directors are of the opinion that, after taking into account its internally generated funds, its currently available facilities and financial resources and the estimated net proceeds from the Realisation, the Group has sufficient working capital for its requirements in the next 12 months from the date of this circular in the absence of unforeseeable circumstances.

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. FINANCIAL PROSPECT OF THE GROUP

The Group is principally engaged in lottery business management services and network system integration. During the past two years, the Group had acquired substantial assets which are in connection with and 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.

Through the Realisation, the Company can streamline its businesses and focus on its lottery business which has an improving result and a higher potential for future growth. In light of the recent development of the lottery industry in the PRC, and further given that system integration business is highly competitive in nature, the Board believes that it is in the best interest of the Company to focus its resources and future investment in its lottery business.

4. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2008, being the date to which the Group’s latest published audited accounts were made up.

GENERAL INFORMATION

APPENDIX II

1. RESPONSIBILITY STATEMENT

This circular, 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:

(i) the information contained in this circular is accurate and complete in all material respects and not misleading;
(ii) there are no other matters the omission of which would make any statement in this circular misleading; and
(iii) all opinions expressed in this circular have been arrived at after due and careful consideration and are founded on bases and assumptions that are fair and reasonable.

2. INTERESTS OF DIRECTORS

As at the Latest Practicable Date, the interests or short positions of each director and chief executive of the Company in the shares, debentures or underlying shares of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he or she was taken or deemed to have under such provisions of the SFO), or which were required, pursuant to Section 352 of the SFO, to be entered in the register maintained by the Company referred to therein, or which were required, pursuant to Rules 5.46 to 5.47 of the GEM Listing Rules or the Model Code for Securities Transactions by Directors of Listed Companies contained in the GEM Listing Rules, to be notified to the Company and the Stock Exchange, were as follows:

Long position in the Shares

	Nature of	Number of issued	Approximate %
Name of Director	Interests	Shares held	of shareholding
Mr. Chan Sek Keung, Ringo	Personal	18,876,000	3.77%
(Note 2)	Corporate	34,400,000	6.87%
Mr. David Tsoi	Personal	601,000	0.12%
Mr. Pang Hing Chung, Alfred	Personal	1,500,000	0.30%

Notes:

(1) As at the Latest Practicable Date, the total number of issued shares of the Company was 500,813,433.
(2) Mr. Chan Sek Keung, Ringo is deemed, by virtue of the SFO, to be interested in the 34,400,000 Shares beneficially held by Woodstock Management Limited, a company wholly owned by Mr. Chan.

GENERAL INFORMATION

APPENDIX II

Long positions in the underlying shares in the Company

Name of Director	Number of Underlying	Approximate %
	Shares held	of shareholding
Chan Sek Keung, Ringo	7,200,000	1.44%
Mr. Ko Chun Fung, Henry	8,354,000	1.67%
Mr. Wang John Peter Ben	6,846,000	1.37%
Mr. Christos Moumouris	4,620,000	0.92%
Mr. Georgios Derempeoglou	3,000,000	0.60%
Mr. So Lie Mo, Raymond	950,000	0.19%
Mr. David Tsoi	775,000	0.15%
Mr. Pang Hing Chung, Alfred	400,000	0.08%

Note:

Each of the above Directors is the personal beneficial owner of the share options granted to him.

Save as disclosed above, as at the Latest Practicable Date, none of the directors and chief executive of the Company or their respective associates (within the meaning of the GEM Listing Rules) had any interests and short positions in the shares, debentures or underlying shares of the Company or any of its associated corporations (within the meaning of Part XV of the SFO), which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he or she was taken or deem to have under such provisions of the SFO), or which were required, pursuant to section 352 of the SFO, to be entered in the registered maintained by the Company referred to therein, or which were required, pursuant to Rules 5.46 to 5.47 of the GEM Listing Rules or the Model Code for Securities Transactions by Directors of Listed Companies contained in the GEM Listing Rules to be notified to the Company and the Stock Exchange.

GENERAL INFORMATION

APPENDIX II

3. INTERESTS OF SUBSTANTIAL SHAREHOLDERS

So far as is known to any director or chief executive of the Company, as at the Latest Practicable Date, the following persons (not being directors or chief executive of the Company) had, or were deemed to have, interests or short positions in the shares, debentures or underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO and section 336 of the SFO or, who were or were expected, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Company were as follows:

Long position in the Shares and underlying shares of the Company

			Number of	Approximate
Name of substantial		Number of	underlying	percentage of
shareholders	Capacity	Shares held	shares held	Shareholding
				(Note 1)
Melco LottVentures Holdings	Beneficial owner	55,551,619	470,006,744	104.94%
Limited (“Melco LV”)			(Note 5)
Melco Leisure and Entertainment	Interest through a controlled	55,551,619	470,006,744	104.94%
Group Limited (“Melco Leisure”)	corporation	(Note 2)	(Note 2)
Melco International Development Limited	Interest through controlled	55,551,619	470,006,744	104.94%
(“Melco International”)	corporations	(Note 3)	(Note 3)
Mr. Ho, Lawrence Yau Lung (“Mr. Ho”)	Interest through controlled	55,551,619	470,006,744	104.94%
	corporations	(Note 4)	(Note 4)
	Beneficial owner	–	8,354,000	1.67%
			(Note 6)
Intralot International Limited	Beneficial owner	50,908,779	366,376,270	83.32%
(“Intralot International”)(Note 7)		(Note 7)	(Note 7)
Intralot S.A. Integrated Lottery Systems	Interest through a controlled	50,908,779	366,376,270	83.32%
and Services (“Intralot S.A.”)(Note 7)	corporation	(Note 7)	(Note 7)
Global Crossing Holdings Limited	Beneficial owner	20,787,042	206,104,195	45.30%
(“Global Crossing”)(Note 8)			(Note 5)
Toprich Company Limited (“Toprich”)	Beneficial owner	9,712,000	–	1.94%
(Note 8)

APPENDIX II

GENERAL INFORMATION

			Number of	Approximate
Name of substantial		Number of	underlying	percentage of
shareholders	Capacity	Shares held	shares held	Shareholding
				(Note 1)
Firich Enterprises Co., Ltd. (“Firich”)	Beneficial owner	2,097,498	20,796,765	4.57%
(Note 8)
	Interest through controlled	30,499,042	206,104,195	47.24%
	corporations		(Note 5)
Legg Mason, Inc.	Interest through controlled	27,304,000	–	5.45%
	corporations

Notes:

(1) As at the Latest Practicable Date, the total number of issued shares of the Company was 500,813,433.
(2) Melco Leisure is deemed to be interested in the 55,551,619 Shares and the underlying 470,006,744 Shares from convertible bonds in the Company as described in (5) below by virtue of its controlling interests in its wholly owned subsidiary, Melco LV.
(3) Melco International is deemed to be interested in the 55,551,619 Shares and the underlying 470,006,744 Shares from convertible bonds in the Company as described in (5) below by virtue of its controlling interests in its wholly owned subsidiary, Melco Leisure.
(4) Mr. Ho is deemed to be interested in the 55,551,619 Shares and the underlying 470,006,744 Shares from convertible bonds in the Company as described in (5) below by virtue of his controlling interests in Melco International together with Melco LV, which are held by his controlled corporations.
(5) Convertible bonds in the principal amount of HK$606,800,000 carrying the rights to subscribe for Shares at an initial conversion price of HK$0.85 per Share was issued by the Company to Power Way Group Limited (“ Power Way ”) on 13 December 2007 (“ CB2012 ”) to satisfy part of the consideration for the acquisition of the entire issued share capital of Precious Success Holdings Limited and 60% of the entire issued share capital of Oasis Rich International Limited (“ Oasis Rich ”), under the agreement dated 8 October 2007 entered into among the Company, Rising Move International Limited (a wholly owned subsidiary of the Company), Power Way, LottVision Limited, Melco International Ltd. and Firich Enterprises Co., Ltd. If Power Way exercises the conversion rights attaching to the said convertible bonds in full at the initial conversion price, a total of 713,882,352 Shares will be issued to Power Way. However, no conversion of the CB2012 shall be made, if immediately upon such conversion, (1) Power Way and its parties acting in concert (as defined under the Hong Kong code on Takeovers and Mergers (the “ Code ”)) with it will be under an obligation to make a general offer under the Code; (2) each of (i) any of the existing Shareholders holding more than 20% or more of the voting rights of the Company as at the date of such conversion; and (ii) Power Way and its parties acting in concert (as defined under the Code) will hold 20% or more of the voting rights of the Company respectively; or (3) the public float of the Shares falls below 25% (or any given percentage as required by the GEM Listing Rules) of the issued Shares.

Power Way had subsequently distributed the entire principal amount of HK$606,800,000 of CB2012 to its shareholders. The CB2012 is held, as at the Latest Practicable Date, HK$399,585,732 by Melco LV, HK$192,865,817 by Firich and its associates and the balance HK$14,428,451 by Intralot International Limited.

(6) Mr. Ho is an adviser of the Company and the Group without receiving any compensation. He was granted the share options in recognition of his contributions in the past and for the future for the benefits of the Company and the Group.

GENERAL INFORMATION

APPENDIX II

(7) Pursuant to an agreement dated 7 September 2008 (as amended by a supplemental agreement dated 26 September 2008) entered into between the Company and Intralot International Limited (the “ Assets Transfer Agreement ”), the Company has agreed to acquire the Assets (as defined in the Assets Transfer Agreement) at the consideration of HK$305,130,367.558, as disclosed in the announcement of the Company on 28 September 2008. The consideration will be satisfied by the Company by allotting and issuing 28,208,938 Shares and issuing the convertible bonds I in the principal amount of HK$277,175,310 which is convertible into 279,692,542 new Shares at the conversion price I of HK$0.991 per Share.

In addition, upon obtaining two agreements in connection with the projects envisaged by China Sports Lottery Administration and/or China Welfare Lottery Issuance in the PRC, the Company shall pay the success payment to Intralot International Limited. The success payment will be satisfied by way of the convertible bonds II, which are convertible into 69,709,080 new Shares in the Company at the conversion price II of HK$1.0759. As at the Latest Practicable Date, such convertible bonds II have not been issued.

Intralot S.A. is deemed interested in the Shares and underlining Shares held by Intralot International Limited, a wholly owned subsidiary of Intralot S.A.
(8) Firich is deemed to be interested in the 30,499,042 Shares and the underlying 206,104,195 Shares from convertible bonds in the Company as described in (5) above by virtue of its controlling interests in its wholly owned subsidiaries, Global Crossing and Toprich.

Save as disclosed above, as at the Latest Practicable Date, the directors and chief executive of the Company were not aware of any other person (other than the directors and the chief executive of the Company) who had, or was deemed to have, interests or short positions in the shares, debentures or underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO and section 336 of the SFO, or who was directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other members of the Company or had any options in respect of such shares.

4. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered or proposed to enter into any service agreements with any members of the Group, excluding contracts expiring or determinable by the Group within one year without payment of compensation (other than statutory compensation).

5. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors and their respective associates was considered to have interests in any business, apart from the Group’s businesses, which competes or is likely to compete, directly or indirectly, with the businesses in which the Group is engaged in.

6. DIRECTORS’ INTERESTS IN THE GROUP’S ASSETS OR CONTRACTS OR ARRANGEMENTS SIGNIFICANT TO THE GROUP

As at the Latest Practicable Date, none of the Directors had any interests, either directly or indirectly, in any assets which have been, since 30 September 2009 (being the date to which the latest published unaudited financial statements of the Company were made up), acquired or disposed of or leased to any members of the Group, or are proposed to be acquired or disposed of or leased to any members of the Group.

GENERAL INFORMATION

APPENDIX II

As at the Latest Practicable Date, none of the Directors were materially interested in any contracts or arrangements, subsisting at the date of this circular, which are significant to the business of the Group.

7. EXPERT AND CONSENT

The following is the qualification of the expert who has given opinions or advices, which are contained in this circular.

Qualification

Name Qualification Menlo Capital a licensed corporation to carry on type 6 regulated activity (advising on corporate finance) under the SFO

As of the Latest Practicable Date, Menlo Capital has given and has not withdrawn its written consent to the issue of this circular with the inclusion therein of its letter and/or references to its name, in the form and context in which it appears.

As of the Latest Practicable Date, Menlo Capital did not have any shareholding in any member of the Group and did not have the right to subscribe for or to nominate persons to subscribe for shares in any member of the Group.

Menlo Capital did not have any interests, either directly or indirectly, in any assets which have been, since 31 December 2008 (being the date to which the latest published audited financial statements of the Company were made up), acquired or disposed of or leased to any members of the Group, or are proposed to be acquired or disposed of or leased to any members of the Group.

8. MATERIAL CONTRACTS

The Group had entered into the following contracts within two years immediately preceding the date of this circular and up to the Latest Practicable Date which are contracts not being in the ordinary course of business of the Company or may be material:

the Sale and Purchase Agreement;
a loan agreement dated 28 July 2009 signed between the Company, as lender, and PAL Development Ltd., a 80% owned subsidiary of the Company, as borrower, for a HK$20.0 million, 5% interest bearing, term loan of two years;
a deed of set off dated 20 October 2009 entered into between the Company and the Target for the set off of HK$67,259,905 due to the Company in exchange for 67,259,905 fully paid-up shares in the Target of HK$1.00 each in the share capital of the Target;

APPENDIX II

GENERAL INFORMATION

an agreement dated 7 September 2008 (as amended by a supplemental agreement dated 26 September 2008) entered into between the Company and Intralot International Limited (the “ Assets Transfer Agreement ”), where the Company has agreed to acquire the Assets (as defined in the Assets Transfer Agreement) at the consideration of HK$305,130,367.558;
a purchase agreement and a supply agreement dated 9 January 2008 signed between Wu Sheng Computer Technology (Shanghai) Co., Ltd., an indirect non-wholly owned subsidiary of the Company incorporated in the PRC, and Firich Enterprises Co., Ltd. a connected party, for the purchase and sale of parts and machinery for the manufacturing of lottery terminals, etc. for a term of three years. These agreements constitute continuing connected transactions under the GEM Listing Rules. Please refer to the Company’s announcement dated 9 January 2008 for further details;
an agreement dated 28 February 2008 and entered into between Gain Advance Group Limited., a wholly owned subsidiary of the Company, as purchaser and the then shareholders of KTeMS Co. Ltd. as vendors and Mr. Nam Ho Sung as guarantor in relation to the sale and purchase of the entire issued share capital of KTeMS Co. Ltd. at a consideration of US$12 million;
two agreements both dated 28 February 2008 and entered into between Gain Advance Group Limited, as purchaser, PAL Development Ltd.,a non wholly owned subsidiary of the Company, as vendor in relation to the acquisition of certain loans due from KTeMS Co. Ltd. and Mr. Nam Ho Sung to PAL Development Ltd. for the consideration of HK$31,960,000 and HK$7,400,000, respectively;
two agreements both dated 28 February 2008 and entered into between Gain Advance Group Limited, as purchaser, LottVision Limited as vendor in relation to the acquisition of certain loans due from KTeMS and Mr. Nam Ho Sung to LottVision Limited for the consideration of HK$31,200,000 and HK$8,160,000, respectively;
a loan agreement dated 12 March 2008 signed between the Company, as lender, and PAL Development Ltd., as borrower, for a HK$96.8 million, 5% interest bearing, term loan of two years; and
a loan agreement dated 14 July 2008 signed between the Company and Power Way Group Ltd, for a HK$80.0 million, 5% interest bearing, term loan of two years advanced by Power Way Group Ltd to the Company. The loan was subsequently extended for 1 more year to 14 July 2011 during which the new interest rate of 1% will apply.

9. LITIGATION

As at the Latest Practicable Date, no member of the Group was engaged in any litigation or claims of material importance known to the Directors to be pending or threatened against any members of the Group.

GENERAL INFORMATION

APPENDIX II

10. DOCUMENTS FOR INSPECTION

Copies of the following documents will be available for inspection at Units 3101-2A, 31st Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong during the normal business hours from the date of this circular up to and including the date of the EGM:

(i) the memorandum and articles of association of the Company;
(ii) the annual reports of the Company for the year ended 31 December 2007 and 2008, the interim report of the Company for the six months ended 30 June 2009 and the third quarterly report of the Company for the nine months ended 30 September 2009;
(iii) the letter from the Board, the text of which is set out on pages 4 to 13 of this circular;
(iv) the letter from the Independent Board Committee, the text of which is set out on pages 14 to 15 of this circular;
(v) the letter from Menlo Capital to the Independent Board Committee and the Independent Shareholders as set out on pages 16 to 25 of this circular;
(vi) the written consent from Menlo Capital as referred to in the paragraph headed “Expert and consent” in this appendix;
(vii) all the agreements as referred to in the paragraph headed “Material contracts” in this appendix;
(viii) the Sale and Purchase Agreement; and
(ix) this circular.

11. GENERAL

(i) The compliance officer of the Company is Mr. Ko Chun Fung, Henry (“ Mr. Ko ”), who is an executive Director and chief executive officer of the Company. Mr. Ko obtained a Bachelor of Engineering degree (first class honours) in 1982. In 1990 he received an Australian Postgraduate Course Award to study at the Australian Graduate School of Management, where he obtained his Master of Business Administration degree.
(ii) The company secretary of the Company is Mr. Pang Kin Man, Edmond, who holds a Master of Science degree in corporate governance and directorship from the Baptist University of Hong Kong. He is a fellow member of the Institute of Chartered Secretaries in Hong Kong and the Hong Kong Institute of Directors.

GENERAL INFORMATION

APPENDIX II

(iii) The head office and principal place of business of the Company in Hong Kong is situated at Units 3101-2A, 31st Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong.
(iv) The registered office of the Company is situated at 4th Floor, Scotia Centre, P.O. Box 2804, George Town, Grand Cayman KY1-1112, Cayman Islands.
(v) The principal share register and transfer office of the Company in the Cayman Islands is situated at Butterfield Fulcrum Group (Cayman) Limited, Butterfield House, 68 Fort Street, P.O. Box 705, George Town, Grand Cayman KY1-1107, Cayman Islands.
(vi) The audit committee of the Company comprises of Mr. David Tsoi (the chairman of the audit committee), Mr. Pang Hing Chung, Alfred and Mr. So Lei Mo, Raymond.

Mr. David Tsoi (“Mr. Tsoi”) , aged 62, is an independent non-executive director and chairman of both the audit committee and remuneration committee of the Board. Mr. Tsoi is a Certified Public Accountant by profession and currently practises as managing director of Alliott, Tsoi CPA Limited. He is a Fellow Member of the Chartered Association of Certified Accountants, the Hong Kong Institute of Certified Public Accountants and an Associate Member of the Association of Certified General Accountants of Canada and Institute of Chartered Accountants of England & Wales. He is also a Fellow Member of the Hong Kong Institute of Directors. Mr. Tsoi holds a Master of Business Administration degree from the University of East Asia, Macau. Mr. Tsoi is currently also an independent non-executive director of China South Locomotive & Rolling Stock Corporation Limited (Stock Code: 1766) & Enviro Energy International Holdings Limited (Stock Code: 8182), both listed companies on the Stock Exchange of Hong Kong.

Mr. Pang Hing Chung, Alfred (“Mr. Pang”) , aged 48, is an independent non-executive director and a member of both the audit committee and nomination committee of the Board. Mr. Pang is a director of Standard Bank Asia Limited where he joined as Vice Chairman of Asia Coverage & Banking in May 2009. Prior to that he was managing director and vice chairman of the Investment Banking Division of BOC International. Mr. Pang holds a Bachelor of Arts degree in economics from Cornell University and also an MBA degree from the Stanford Graduate School of Business.

Mr. So Lie Mo, Raymond (“Mr. So”) , aged 60, is an independent non-executive director. He is the chairman of the nomination committee and a member of both the audit and remuneration committee of the Board. Mr. So is an all round businessman with a wealth of experience and connections in the information technology (“ IT ”) industry in Asia, and particularly in greater China. He has a long and successful track record especially in the IT services industry. Mr. So has over 30 years experience in the IT industry and served in senior executive positions in Asia at various multinational corporations. Mr. So holds a Bachelor of Business Administration degree from The Chinese University of Hong Kong.

(vii) In case of inconsistency, the English text of this circular and the accompanying form of proxy shall prevail over its Chinese text.

NOTICE OF EGM

==> picture [52 x 53] intentionally omitted <==

==> picture [51 x 32] intentionally omitted <==

MelcoLot Limited

(incorporated in the Cayman Islands with limited liability) website: http://www.melcolot.com

(Stock Code: 8198)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “ EGM ”) of the shareholders of MelcoLot Limited (the “ Company ”) will be held at Units 3101-2A, 31st Floor, The Centrium, 60 Wyndham Street, Central, Hong Kong on Monday, 28 December 2009 at 4:00 p.m., for the purpose of considering and, if thought fit, passing with or without amendments, the following resolution as an ordinary resolution taken by way of poll:

ORDINARY RESOLUTION

“ THAT ,

(a) the sale and purchase agreement dated 5 November 2009 (“ Sale and Purchase Agreement ”) and entered into among Fortune Grace Management Limited as purchaser, Mr. Chan Sek Keung, Ringo as obligor and the Company as vendor in relation to the sale and purchase of 67,269,905 ordinary shares of Wafer Systems Limited at the consideration of HK$30,000,000 (a copy of which having been produced to the EGM marked “ A ” and initialled by the chairman of the EGM for the purpose of identification), and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified; and
(b) any one or more directors (the “ Directors ”) of the Company be and is/are hereby authorised to do all such acts and things and execute all such documents which he/she/they consider necessary, desirable or expedient to give effect to the Sale and Purchase Agreement and transactions contemplated thereunder.”

By order of the Board of MelcoLot Limited Pang Kin Man, Edmond Company Secretary

Hong Kong, 8 December 2009

NOTICE OF EGM

Registered office: 4th Floor, Scotia Centre P.O. Box 2804, George Town Grand Cayman KY1-1112 Cayman Islands

Head office and principal place of business in Hong Kong: Units 3101-2A, 31st Floor, The Centrium

60 Wyndham Street Central, Hong Kong

Notes:

i. A shareholder of the Company entitled to attend and vote at the above meeting is entitled to appoint another person as his proxy to attend and vote instead of him. A shareholder of the Company who is holder of two or more shares of the Company may appoint more than one proxy to attend and vote instead of him. A proxy need not be a shareholder of the Company.
ii. In order to be valid, a form of proxy together with the power of attorney or other authority (if any) under which it is signed, or a certified copy thereof, must be deposited at the Company’s branch share registrar in Hong Kong, Computershare Hong Kong Investor Services Limited at Rooms 1806-7, 18th Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong no later than 48 hours before the time appointed for the meeting (or any adjournment thereof).
iii. Completion and return of the form of proxy will not preclude shareholders of the Company from attending and voting in person at the meeting or any adjournment thereof should they so desire.
iv. Article 66 of the Company’s articles of association sets out the procedure by which shareholders of the Company may demand a poll at general meetings.

According to Rule 17.47(4) of the Rules Governing the Listing of Securities on the Growth Enterprise Market of the Stock Exchange, any voting of the shareholders of the Company at a general meeting will be taken by way of a poll and an announcement of the voting results will be made after the general meeting. Accordingly, the resolution will be taken by way of a poll at the EGM.

AI assistant

Crypto Flow Technology Limited — Proxy Solicitation & Information Statement 2009

51323_rns_2009-12-07_fccac746-ef6b-4146-8679-b826abaccf32.pdf

MelcoLot Limited

MAJOR REALISATION AND CONNECTED TRANSACTION

AND NOTICE OF EXTRAORDINARY GENERAL MEETING

CHARACTERISTICS OF GEM

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

MelcoLot Limited

MAJOR REALISATION AND CONNECTED TRANSACTION

INTRODUCTION

THE SALE AND PURCHASE AGREEMENT

Assets to be disposed

Consideration

LETTER FROM THE BOARD

Conditions precedent

LETTER FROM THE BOARD

Undertaking given by the Obligor in the Sale and Purchase Agreement

Completion

The Share Charge

Other Undertakings

LETTER FROM THE BOARD

Promissory Notes

LETTER FROM THE BOARD

Redesignation of directorship

INFORMATION ON THE TARGET GROUP

LETTER FROM THE BOARD

FINANCIAL EFFECT OF THE REALISATION

LOAN CAPITALISATION

REASONS FOR AND BENEFITS OF THE REALISATION

LETTER FROM THE BOARD

INDEPENDENT BOARD COMMITTEE

LETTER FROM THE BOARD

GEM LISTING RULES IMPLICATIONS

GENERAL

LETTER FROM THE BOARD

RECOMMENDATION

ADDITIONAL INFORMATION

MelcoLot Limited

MAJOR REALISATION AND CONNECTED TRANSACTION

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Yours faithfully, Independent Board Committee of MelcoLot Limited

Mr. David Tsoi

MAJOR REALISATION AND CONNECTED TRANSACTION

LETTER FROM MENLO CAPITAL

PRINCIPAL FACTORS AND REASONS CONSIDERED

I. Financial highlights of the Group

LETTER FROM MENLO CAPITAL

LETTER FROM MENLO CAPITAL

II. Reasons for the Realisation

LETTER FROM MENLO CAPITAL

III. Terms of the Realisation

(i) Consideration

LETTER FROM MENLO CAPITAL

Price-earnings approach and dividends approach

Net asset value approach

LETTER FROM MENLO CAPITAL

Price to book ratio approach

(ii) Payment terms

(iii) Share charge and undertakings

LETTER FROM MENLO CAPITAL

(I) Redesignation of directorship

IV. Financial effects of the Realisation

(i) Revenue

(ii) Earnings

LETTER FROM MENLO CAPITAL

RECOMMENDATION

Michael Leung

1. INDEBTEDNESS STATEMENT

(a) Borrowings

(b) Debt securities

(c) Disclaimer

2. WORKING CAPITAL

3. FINANCIAL PROSPECT OF THE GROUP

4. MATERIAL ADVERSE CHANGE

1. RESPONSIBILITY STATEMENT

2. INTERESTS OF DIRECTORS

Crypto Flow Technology Limited Proxy Solicitation & Information Statement 2009