FDB Holdings Limited — Proxy Solicitation & Information Statement 2019

Aug 21, 2019

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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 independent adviser.

If you have sold or transferred all your Shares in Dafy Holdings Limited, you should at once hand this circular with the accompanying form of proxy to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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Dafy Holdings Limited 達 飛 控 股 有 限 公 司

(incorporated in the Cayman Islands with limited liability)

(Stock Code: 1826)

THE ENTERING INTO OF THE VIE AGREEMENTS CONSTITUTING DISCLOSEABLE TRANSACTION, CONNECTED TRANSACTION AND CONTINUING CONNECTED TRANSACTIONS

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

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Capitalised terms used in the lower portion of the front and inside cover pages have the same respective meanings as those defined in the section headed ‘‘Definitions’’ of this circular.

A letter from the Board is set out on pages 6 to 33 of this circular. A letter from the Independent Board Committee containing its advice to the Independent Shareholders is set out on pages 34 to 35 of this circular. A letter from VBG Capital Limited, the Independent Financial Adviser, containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 36 to 57 of this circular.

A notice convening the EGM of the Company to be held at Room 2101, 21/F, The Sun’s Group Centre, 200 Gloucester Road, Wan Chai, Hong Kong on Monday, 9 September 2019 at 10:30 a.m. is set out on pages EGM-1 to EGM-2 of this circular. A form of proxy for use at the EGM is also enclosed.

A form of proxy for use by the Shareholders at the EGM is enclosed with this circular for despatch to the Shareholders. Whether or not you intend to attend and/or vote at the EGM in person, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the Company’s branch share registrar and transfer office in Hong Kong, Tricor Investor Services Limited, Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as practicable but in any event not later than 48 hours before the time for holding 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 should you so wish.

21 August 2019

CONTENTS

	Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . .	34
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER . . . . . . . . . . . . . . . .	36
APPENDIX I — GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-1
APPENDIX II — ASSET VALUATION REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-1
NOTICE OF EXTRAORDINARY GENERAL MEETING . . . . . . . . . . . . . . . . . . . . . . .	EGM-1

– i –

DEFINITIONS

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

• ‘‘Acquisition’’ the acquisition by Shanghai Faye Yu of 51% of the equity interest in Shangrao Dafy from Mr. Gao as contemplated under the Sale and Purchase Agreement

• ‘‘Asset Valuation Report’’ the valuation report on the valuation of the Management Systems dated 14 August 2019, which was prepared and issued by the Independent Valuer

• ‘‘associate’’ has the meaning ascribed to it under the Listing Rules

• ‘‘Board’’ the board of Directors

• ‘‘Company’’ Dafy Holdings Limited 達飛控股有限公司, a company incorporated in the Cayman Islands with limited liability, whose Shares are listed on the main board of the Stock Exchange (stock code: 1826)

• ‘‘connected person(s)’’ has the meaning ascribed to it under the Listing Rules

• ‘‘connected transaction(s)’’ has the meaning ascribed to it under the Listing Rules

• ‘‘continuing connected has the meaning ascribed to it under the Listing Rules transaction(s)’’

• ‘‘controlling shareholder(s)’’

has the meaning ascribed to it under the Listing Rules

• ‘‘Dafy Yundai’’ 達飛雲貸科技(北京)有限公司 (Dafy Yundai Technology (Beijing) Co., Ltd.*), a company established in the PRC with limited liability, which is beneficially interested as to 71.3% by Mr. Gao and 1.2% by Mr. Lu Xin

• ‘‘Director(s)’’ director(s) of the Company

• ‘‘EGM’’

• the extraordinary general meeting to be convened by the Company to approve the VIE Agreements and the transactions contemplated thereunder

‘‘Equity Pledge Agreement’’ the equity pledge agreement (股權質押協議) dated 31 May 2019 (as amended by the Memorandum) entered into between Shangrao Dafy, the PRC Equity Owners and the OPCO, details of which are set out in the section headed ‘‘Letter from the Board — The entering into of the VIE Agreements constituting discloseable transaction, connected transaction and continuing connected transactions — VIE Agreements’’ in this circular

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DEFINITIONS

• ‘‘Exclusive Business Cooperation Agreement’’

• the exclusive business Cooperation agreement (獨家業務合 作協議) dated 31 May 2019 (as amended by the Memorandum) entered into between Shangrao Dafy and the OPCO, details of which are set out in the section headed ‘‘Letter from the Board — The entering into of the VIE Agreements constituting discloseable transaction, connected transaction and continuing connected transactions — VIE Agreements’’ in this circular

• ‘‘Exclusive Purchase Right Agreement’’

• the exclusive purchase right agreement (獨家購買權協議) dated 31 May 2019 (as amended by the Memorandum) entered into among Shangrao Dafy, the PRC Equity Owners and the OPCO, details of which are set out in the section headed ‘‘Letter from the Board — The entering into of the VIE Agreements constituting discloseable transaction, connected transaction and continuing connected transactions — VIE Agreements’’ in this circular

• ‘‘fintech’’

• an abbreviation of ‘‘financial technology’’, an industry composed of companies that use new technology and innovation to leverage available resources in order to compete in the marketplace of traditional financial institutions and intermediaries in the delivery of financial services

• ‘‘Gentle Soar’’

• Gentle Soar Limited, a company incorporated in the British Virgin Islands with limited liability and wholly and beneficially owned by Mr. Gao

• ‘‘Group’’ the Company and its subsidiaries

• ‘‘Hong Kong’’

• the Hong Kong Special Administrative Region of the People’s Republic of China

• ‘‘ICP Licence’’

• a value-added telecommunications business operation licence (互聯網信息服務增值電信業務經營許可證) with a service scope of information services of Category 2 valueadded telecommunication services by the relevant PRC government authorities

• ‘‘Independent Board Committee’’

• an independent board committee, comprising only the independent non-executive Directors, namely, Mr. Chan Yuk Sang, Mr. Wan Chi Wai Anthony and Mr. Lau Kwok Fai Patrick, established for the purpose of advising the Independent Shareholders on the terms of the VIE Agreements

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DEFINITIONS

• ‘‘Independent Financial Adviser’’

• ‘‘Independent Shareholder(s)’’

• ‘‘Independent Valuer’’

• ‘‘Jet Speed’’

• ‘‘Land Ease’’

• ‘‘Latest Practicable Date’’

• ‘‘Listing Rules’’

• ‘‘Management Systems’’

• ‘‘Memorandum’’

• ‘‘MOFCOM’’

• ‘‘Mr. Gao’’

• VBG Capital Limited, a corporation licensed to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO, which has been appointed as the independent financial adviser to advise the Independent Board Committee and Independent Shareholders on the terms of the VIE Agreements

• Shareholder(s) other than Gentle Soar and its associates

• 福建聯合中和資產評估土地房地產估價有限公司深圳分公 司 (Fujian United Assets Evaluation & Land and Real Estate Appraisals Co., Ltd., Shenzhen branch*), a qualified valuer in the PRC, which has been appointed to provide a valuation on the Management Systems

• Jet Speed Asia Pacific Limited (創捷亞太有限公司), a company incorporated under the laws of Hong Kong and an indirect wholly-owned subsidiary of the Company

• Land Ease Limited, a company incorporated in Hong Kong with limited liability wholly owned by Mr. Ng Kin Siu, an executive Director

• 16 August 2019, being the latest practicable date prior to the printing of this circular for ascertaining certain information referred to in this circular

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

• the risk management and operations management systems in connection with financial information and technology services

• the memorandum dated 8 July 2019 entered into among Shangrao Dafy, the OPCO and the PRC Equity Owners, pursuant to which the parties have confirmed that the VIE Agreements shall be subject to the condition precedent that all necessary approval and consent (including Independent Shareholders’ approval) having been obtained

• the Ministry of Commerce of the PRC (中華人民共和國商 務部)

• Mr. Gao Yunhong (高雲紅先生), the chairman of the Board, an executive Director and a controlling Shareholder, and is one of the PRC Equity Owners

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DEFINITIONS

‘‘OPCO’’

• 深 圳 前 海 微 遠 至 誠 運 營 管 理 科 技 有 限 公 司 (Shenzhen Qianhai Weiyuan Zhicheng Operation Management Technology Co., Ltd.*), a company established in the PRC with limited liability, which is legally owned as to 99% and 1% by Mr. Gao and Shangrao Yaxin, respectively

• ‘‘Powers of Attorney’’ collectively, the two powers of attorney (授權委託書) both dated 31 May 2019 (as amended by the Memorandum) executed by each of the PRC Equity Owners, details of which are set out in the section headed ‘‘Letter from the Board — The entering into of the VIE Agreements constituting discloseable transaction, connected transaction and continuing connected transactions — VIE Agreements’’ in this circular

• ‘‘PRC’’

• the People’s Republic of China, which for the purpose of this circular does not include Hong Kong, the Macao Special Administrative Region of the People’s Republic of China and Taiwan

• ‘‘PRC Equity Owners’’

• the legal owners of the equity interest of the OPCO, namely Mr. Gao and Shangrao Yaxin

• ‘‘PRC Legal Advisers’’ AllBright Law Offices (上海市錦天城律師事務所), the legal advisers to the Company as to PRC laws

• ‘‘Rhythm Hope’’ Rhythm Hope Limited (韻祈有限公司), a company incorporated under the laws of the British Virgin Islands and a direct wholly-owned subsidiary of the Company

‘‘RMB’’

• Renminbi, the lawful currency of the PRC

• ‘‘Sale and Purchase Agreement’’

• the sale and purchase agreement dated 3 August 2018 entered into between Shanghai Faye Yu and Mr. Gao, pursuant to which Mr. Gao agreed to sell and Shanghai Faye Yu agreed to acquire 51% of the equity interest in Shangrao Dafy at a consideration of RMB1.00

• ‘‘Secured Obligations’’

• the obligations to be performed and fulfilled by the PRC Equity Owners and the OPCO under the VIE Agreements

• ‘‘SFO’’

• the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) as amended, supplemented or otherwise modified from time to time

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DEFINITIONS

• ‘‘Shanghai Faye Yu’’

• 上海飛毓科技有限公司 (Shanghai Faye Yu Technology Co., Ltd.*), a company established under the laws of the PRC and an indirect wholly-owned subsidiary of the Company

• ‘‘Shangrao Dafy’’ 上 饒 市 達 飛 金 融 信 息 服 務 有 限 公 司 (Shangrao Dafy Financial Data Service Co., Ltd.*), a company established under the laws of the PRC, which is an indirect non-whollyowned subsidiary of the Company owned as to 51% by Shanghai Faye Yu and 49% by Mr. Gao

• ‘‘Shangrao Yaxin’’

• 上饒市亞鑫科技有限公司 (Shangrao Yaxin Technology Co., Ltd.*), a company established in the PRC with limited liability, which is legally and wholly owned by Mr. Gao and is one of the PRC Equity Owners

• ‘‘Shenzhen Dafy’’

• 深圳達飛科技控股有限公司 (Shenzhen Dafy Technology Holdings Co., Ltd.*), a company established in the PRC with limited liability, which is beneficially owned by Mr. Gao as to 94.8%

• ‘‘Share(s)’’

• the ordinary share(s) of HK$0.01 each in the share capital of the Company

• ‘‘Shareholder(s)’’ the holder(s) of the Share(s)

• ‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited

• ‘‘subsidiary(ies)’’

• has the meaning ascribed to it under the Listing Rules

• ‘‘VIE’’

• variable interest entity, being an entity (the investee) in which the investor holds a controlling interest that is not based on the majority of voting rights

• ‘‘VIE Agreements’’

• collectively, the Exclusive Business Cooperation Agreement, the Exclusive Purchase Right Agreement, the Equity Pledge Agreement and the Powers of Attorney, details of which are set out in the section headed ‘‘Letter from the Board — The entering into of the VIE Agreements constituting discloseable transaction, connected transaction and continuing connected transactions — VIE Agreements’’ in this circular

• ‘‘VIE Structure’’

• the structure established through the entering into of the VIE Agreements, which enables the Group to effectively hold and control the OPCO

• ‘‘%’’

per cent.

• For identification purpose only

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LETTER FROM THE BOARD

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Dafy Holdings Limited 達 飛 控 股 有 限 公 司

(incorporated in the Cayman Islands with limited liability)

(Stock Code: 1826)

Executive Directors: Mr. Gao Yunhong (Chairman) Mr. Lu Xin Ms. Feng Xuelian Mr. Ng Kin Siu

Registered Office: Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman, KY1-1111 Cayman Islands

Independent non-executive Directors: Mr. Chan Yuk Sang Mr. Wan Chi Wai Anthony Mr. Lau Kwok Fai Patrick

Head office and principal place of business in Hong Kong: 6th Floor, The Sun’s Group Centre 200 Gloucester Road Wan Chai Hong Kong

21 August 2019

To the Shareholders

Dear Sir or Madam,

THE ENTERING INTO OF THE VIE AGREEMENTS CONSTITUTING DISCLOSEABLE TRANSACTION, CONNECTED TRANSACTION AND CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

Reference is made to the announcements of the Company dated 31 May 2019, 8 July 2019 and 24 July 2019 in relation to the VIE Agreements. The transactions contemplated under the VIE Agreements constitute discloseable transaction, as well as connected transaction and continuing connected transactions for the Company, and therefore shall be subject to the announcement, Independent Shareholders’ approval, annual reporting and annual review requirements under Chapter 14A of the Listing Rules.

The purpose of this circular is to provide you, among other things, (i) further information on the details of the VIE Agreements and the transactions contemplated thereunder; (ii) a letter from the Independent Board Committee containing its recommendations to the Independent

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LETTER FROM THE BOARD

Shareholders; (iii) a letter from the Independent Financial Adviser containing its advice to the Independent Board Committee and the Independent Shareholders; and (iv) the notice of the EGM.

THE ENTERING INTO OF THE VIE AGREEMENTS CONSTITUTING DISCLOSEABLE TRANSACTION, CONNECTED TRANSACTION AND CONTINUING CONNECTED TRANSACTIONS

On 31 May 2019 (after trading hours), Shangrao Dafy entered into the VIE Agreements with the OPCO and/or the PRC Equity Owners. Through the VIE Agreements, Shangrao Dafy would have effective control over the finance, operation and assets of the OPCO and would enjoy the entire economic interests and benefits generated by the OPCO. After entering into of the VIE Agreements, the OPCO will become a non-wholly-owned subsidiary of the Company and the financial results of the OPCO will be consolidated into the consolidated financial statements of the Group.

The VIE Structure

The following diagram sets out the VIE Structure:

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

The Company
(Cayman Islands)
100%
Rhythm Hope
(British Virgin Islands)
100%
Jet Speed
(Hong Kong)
Offshore
100% Onshore
Shanghai Faye Yu Shangrao Yaxin
Mr. Gao
(PRC) (PRC)
99% 1%
51%
49%
Shangrao Dafy The OPCO
(PRC) (PRC)
----- End of picture text -----

Denotes direct legal ownership in the equity interest

Denotes contractual relationship under the VIE Agreements

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LETTER FROM THE BOARD

VIE Agreements

A summary of the terms of the VIE Agreements is set out below:

• (1) Exclusive Business Cooperation Agreement

Parties: (i) Shangrao Dafy

(ii) the OPCO

Term:

Effective upon execution (subject to all necessary approval and consent (including Independent Shareholders’ approval) having been obtained) and shall remain in effect unless terminated according to the provisions of the agreement or by mutual agreement or (i) upon Shangrao Dafy being permitted by the laws of the PRC to carry out the business in which the OPCO is engaged, or Shangrao Dafy holding all the equity interests in the OPCO or all the assets of the OPCO; or (ii) pursuant to applicable laws and regulations of the PRC. The OPCO shall have no right to terminate the agreement unless Shangrao Dafy is in a material default or has committed a fraudulent act under the agreement.

Subject matter: The OPCO shall engage Shangrao Dafy on an exclusive basis to provide technical support, business support and related consulting services, the actual scope of which to be determined by Shangrao Dafy as it deems necessary with reference to the principal business activities of the OPCO, including but not limited to business management, financial consultation and marketing consultation.

Fee:

For the services provided by Shangrao Dafy under the Exclusive Business Cooperation Agreement, the OPCO shall pay Shangrao Dafy an annual service fee to be determined at the sole discretion of Shangrao Dafy, having taken into account the following considerations:

• (i) the complexity and difficulty of the services provided by Shangrao Dafy;

• (ii) the time spent by Shangrao Dafy for the provision of the services;

• (iii) the actual services and the commercial value of the services provided by Shangrao Dafy;

• (iv) the prevailing market rates for the same type of services; and

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LETTER FROM THE BOARD

(v) the operating condition of the OPCO (such that the OPCO would not be in financial difficulty after the payment of the service fee).

• (2) Exclusive Purchase Right Agreement

Parties: (i) Shangrao Dafy

(ii) the PRC Equity Owners

(iii) the OPCO

Term:

Effective upon execution (subject to all necessary approval and consent (including Independent Shareholders’ approval) having been obtained) and shall remain in effect unless terminated (i) upon Shangrao Dafy or such entity as designated by Shangrao Dafy holding all the equity interests in the OPCO or all the assets of the OPCO; or (ii) pursuant to applicable laws and regulations of the PRC. The OPCO and the PRC Equity Owners shall have no right to terminate the agreement.

Subject matter:

The PRC Equity Owners have irrevocably granted Shangrao Dafy an exclusive right, at any time and from time to time, to purchase or nominate any individuals/entities to purchase all or part of their equity interests in the OPCO at the lowest price permissible under the PRC laws.

The OPCO has irrevocably granted Shangrao Dafy an exclusive right, at any time and from time to time, to purchase or nominate any individuals/entities to purchase all or part of its assets at the lowest price permissible under the PRC laws.

The PRC Equity Owners shall be prohibited from selling, transferring, pledging or otherwise disposing of all or part of their equity interests in the OPCO, or granting others a right to purchase such equity interests (save as provided in the Equity Pledge Agreement), without the prior written consent from Shangrao Dafy.

The OPCO shall be prohibited from selling, transferring, pledging or otherwise disposing of all or part of its assets, or granting others a right to purchase such assets without the prior written consent from Shangrao Dafy.

Where the purchase price is required by the relevant PRC laws to be an amount other than a nil consideration, the PRC Equity Owners and/or the OPCO (as the case may be) shall return to Shangrao Dafy the amount of purchase price they have received from it.

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LETTER FROM THE BOARD

Consideration:

The consideration for the grant of the exclusive right to purchase shall be RMB5,775,000, which shall be paid to the PRC Equity Owners in cash within 180 days of the date of the Exclusive Purchase Right Agreement. The Group will satisfy the consideration through internal resources.

The consideration was arrived at after arm’s length negotiations between Shangrao Dafy and the PRC Equity Owners after taking into account, among others, (i) the amount of RMB6.0321 million (approximately HK$6.9647 million) payable by the OPCO to Shenzhen Dafy in respect of the acquisition of the Management Systems, which has taken reference and is equivalent to the appraised value of the Management Systems determined by the Independent Valuer by adopting the cost approach (details of which are set out in the Asset Valuation Report included to this circular as Appendix II); and (ii) the net liabilities value of the OPCO as at 30 April 2019.

The Asset Valuation Report, titled ‘‘Assets Valuation Report on the Value of Software and Hardware in Relation to the Proposed Lease of Management Systems by Shenzhen Dafy’’, was prepared for the purpose of determining the leasing fee payable by Shangrao Dafy to Shenzhen Dafy, the then owner of the Management Systems to be followed upon the expiration of the lease on 30 June 2019 under the lease agreement dated 17 December 2018. As the Management Systems were subsequently transferred by Shenzhen Dafy to the OPCO on 31 May 2019, the lease of the Management Systems had not been renewed between Shangrao Dafy and Shenzhen Dafy. Notwithstanding that the Asset Valuation Report was commissioned by Shenzhen Dafy, the Directors consider that, given the Asset Valuation Report was prepared by an independent valuer and is valid for one year from the valuation date on 28 February 2019, it is fair and reasonable for the Company to rely on the Asset Valuation Report in determining the value of the Management Systems, thus the consideration under the Exclusive Purchase Right Agreement.

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LETTER FROM THE BOARD

As advised by the Independent Valuer, among the bases of valuation set out in the Asset Valuation Report, (i) the minutes of general manager office meeting of Shenzhen Dafy provides the basis of authorisation in respect of the engagement of the Independent Valuer to carry out the valuation of the Management Systems; and (ii) the materials including but not limited to relevant technical specifications and drawings refers to the factory manuals and the technical specification worksheets of the hardware comprising the Management Systems, which set out particulars such as resolutions of display screen, speed, capacity, dimensions and weight.

• Undertakings and The PRC Equity Owners and the OPCO have jointly and covenants: severally undertaken to Shangrao Dafy, including but not limited to:

• (i) without the prior written consent of Shangrao Dafy, not to amend or modify the articles of the OPCO, and not to increase or reduce the registered capital or otherwise change the registered capital structure of the OPCO;

• (ii) maintain the OPCO’s corporate existence in accordance with good financial and business standard and practice by prudently and effectively operating its business and handling its affairs;

• (iii) conducting the OPCO’s business in the ordinary course of business to maintain the asset value of the OPCO and refraining from any act or omission that may adversely affect the OPCO’s operation and asset value;

• (iv) without the prior written consent of Shangrao Dafy, not to enter into any material contract, i.e. a contract with transaction value exceeding RMB100,000;

• (v) without the prior written consent of Shangrao Dafy, not to provide any loan facility to any third party;

• (vi) to provide to Shangrao Dafy at its request all operational and financial information of the OPCO;

• (vii) if requested by Shangrao Dafy, purchase and maintain insurance in respect of the OPCO’s assets and business from an insurer acceptable to Shangrao Dafy, at an amount and type of coverage which are typical for companies that operate similar business;

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LETTER FROM THE BOARD

• (viii) without the prior written consent of Shangrao Dafy, not to conduct any merger, consolidation, acquisition or investment;

• (ix) immediately notify Shangrao Dafy of the occurrence or possible occurrence of any litigation, arbitration or administrative proceedings relating to the OPCO’s assets, business or revenue;

• (x) to execute all necessary or appropriate documents, taking all necessary or appropriate actions, and filing all necessary or appropriate complaints or raising necessary and appropriate defences against all claims so as to maintain the OPCO’s ownership of all its assets;

• (xi) without the prior written consent of Shangrao Dafy, not to distribute dividends of any kind;

• (xii) at the request of Shangrao Dafy, to appoint any person nominated by Shangrao Dafy to be the legal representative, director, supervisor, manager, senior management or personnel of other positions in the OPCO; and

• (xiii) to inject the consideration received under the Exclusive Purchase Right Agreement to the OPCO for purpose of settling part of the consideration payable by the OPCO to Shenzhen Dafy for the acquisition of the Management Systems.

• (3) Equity Pledge Agreement

Parties: (i) Shangrao Dafy

(ii) the PRC Equity Owners

• (iii) the OPCO

Term: Effective upon execution (subject to all necessary approval and consent (including Independent Shareholders’ approval) having been obtained) and shall remain binding until the Secured Obligations are discharged in full.

Subject matter: The PRC Equity Owners have pledged all of their equity interests in the OPCO to Shangrao Dafy to secure the performance of all their obligations and the obligations of the OPCO under the VIE Agreements. Shangrao Dafy shall be entitled to the distribution generated by the pledged equity interests during the term of the pledge.

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LETTER FROM THE BOARD

(4) Powers of Attorney

Parties:

Each of the PRC Equity Owners

Term:

Effective upon execution (subject to all necessary approval and consent (including Independent Shareholders’ approval) having been obtained) and shall remain in effect until all the equity interests in the OPCO held by the PRC Equity Owners or all the assets of the OPCO have been legally transferred to Shangrao Dafy or such individuals/entities as designated by Shangrao Dafy.

Subject matter:

Each of the PRC Equity Owners has unconditionally and irrevocably authorised Shangrao Dafy or its successor (who may further delegate such rights to other individuals or entities) to exercise all of their rights as shareholders of the OPCO under PRC laws, including but not limited to:

• (i) convening, attending and participating shareholders’ meetings of the OPCO, receiving relevant notice or document relating to the shareholders’ meetings;

• (ii) discussing and voting in shareholders’ meetings of the OPCO;

• (iii) signing and delivering any written resolutions and minutes of shareholders’ meetings of the OPCO and any other documents required to be signed by the shareholders of the OPCO, and submitting documents with relevant companies registry for filing purpose;

• (iv) selling, transferring, securing or disposing of the shares in the OPCO;

• (v) managing or disposing of the assets of the OPCO;

• (vi) exercising full rights to control and manage the finance, accounting and daily operation of the OPCO;

• (vii) approving any documents that have to be submitted to the relevant government departments or supervising authorities for filing purpose; and

• (viii) exercising all other shareholders’ rights under the PRC laws and regulations and the articles of association of the OPCO.

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LETTER FROM THE BOARD

Each of the PRC Equity Owners has irrevocably undertaken that:

• (i) unless with written consent from Shangrao Dafy, they will neither, directly or indirectly, participate or engage in any business which is or may be in competition with the business of the OPCO or its associated company, or acquire or hold any such business, nor carry on any activities which may lead to any conflict of interests between themselves and Shangrao Dafy;

• (ii) none of their actions or omissions will give rise to conflict of interests between themselves and Shangrao Dafy (including the shareholders of Shangrao Dafy); and

• (iii) in the event of any conflict of interests between them and Shangrao Dafy, which shall be decided at the sole discretion of Shangrao Dafy, they will take any actions as instructed by Shangrao Dafy to eliminate such conflict provided that such action is compliant with PRC laws.

Mr. Gao has further irrevocably undertaken that in the event of his death, bankruptcy or divorce or any event that would affect his equity interests in the OPCO, he would procure that his successor in title or the assignee to execute another power of attorney to grant the same rights and obligations under the power of attorney from Mr. Gao.

Shangrao Yaxin has further irrevocably undertaken that in the event of its winding up or any event that would affect its equity interests in the OPCO, it would procure that its successor in title or the assignee to execute another power of attorney to grant the same rights and obligations under the power of attorney from Shangrao Yaxin.

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LETTER FROM THE BOARD

GENERAL INFORMATION

Information about Shangrao Dafy

Shangrao Dafy is a limited liability company established in the PRC owned as to 51% by Shanghai Faye Yu (an indirect wholly-owned subsidiary of the Company) and 49% by Mr. Gao. It is principally engaged in the provision of financial information and technology services in the PRC.

Information about Shangrao Yaxin

Shangrao Yaxin is a limited liability company established in the PRC wholly owned by Mr. Gao. It is principally engaged in the provision of, among others, information technology service, computer technology development, technology consulting and technology transfer services, data processing and software development.

Information about the OPCO

The OPCO is a limited liability company established in the PRC held as to 99% by Mr. Gao and 1% by Shangrao Yaxin (which in turn is wholly owned by Mr. Gao), respectively. It is principally engaged in, among others, online data processing business, provision of valueadded telecommunication service* (增值電信業務) and internet information service, and is in possession of the Management Systems. As advised by the PRC Legal Advisers, the OPCO has obtained the ICP Licence under applicable laws and regulations in the PRC to hold the Management Systems and to operate its business.

Set out below is a summary of the key financial information of the OPCO extracted from its unaudited financial statements for the two years ended 31 December 2017 and 2018 and for the four months ended 30 April 2019:

			For the four
	For the year	ended	months ended
	31 December		30 April
	2017	2018	2019
	(unaudited)	(unaudited)	(unaudited)
	(RMB’000)	(RMB’000)	(RMB’000)
Revenue	87	685	7
Net loss before tax	(4,230)	(4,089)	(265)
Net loss after tax	(4,230)	(4,089)	(265)
Net asset/(liabilities)	4,097	8	(257)

The Directors have discussed with the auditors of the Company who have confirmed that the financial results of the OPCO will be consolidated into the accounts of the Group.

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LETTER FROM THE BOARD

While the VIE Agreements do not contain any provision that specifically requires Mr. Gao to abstain from making decisions in relation to the operations of the OPCO, the Directors consider that Mr. Gao’s power to make operational decisions of the OPCO has been limited to an appropriate extent based on the following grounds:

• (i) pursuant to the articles of the OPCO and as advised by the PRC Legal Advisers, the shareholder(s) of the OPCO shall have the power to make operational decisions and the executive director of the OPCO shall report to and execute the decisions made by the shareholder(s);

• (ii) however, except for the amendments of the company’s articles, increase in or reduction of registered capital, and merger, division, dissolution or change in corporate form of the company, resolutions proposed in general meetings of the OPCO shall be approved by a simple majority;

• (iii) the Directors consider that the Group has acquired effective control over the management and at the general meetings of the OPCO under the VIE Structure since, (i) under the Exclusive Purchase Right Agreement, Shangrao Dafy shall be entitled to appoint any person nominated by it to be the legal representative, director, supervisor and other management positions in the OPCO; (ii) under the Powers of Attorney, the PRC Equity Owners have unconditionally and irrevocably authorised Shangrao Dafy or its successors (who may further delegate such rights to other individuals or entities) to exercise all of their rights as shareholders of the OPCO under PRC laws; and (iii) under the Powers of Attorney, the PRC Equity Owners have irrevocably undertaken that in the event of any conflict of interest between any of them and Shangrao Dafy (which shall be decided at the sole discretion of Shangrao Dafy), they will take any actions as instructed by Shangrao Dafy to eliminate such conflict provided that such action is compliant with PRC laws; and

• (iv) there might be circumstances where the Company shall make decisions in respect of the operations of the OPCO (being a subsidiary of the Company). In such case, Mr. Gao, as a Director and a controlling Shareholder (through Gentle Soar, his controlled entity), shall abstain from voting on the relevant resolutions of the Board and/or at the general meetings of the Company if he has a material interest in the contemplated transaction(s) in accordance with the articles of association of the Company.

BACKGROUND AND REASONS FOR USE OF THE VIE STRUCTURE

The Group is principally engaged in (i) contracting services for alteration and addition works, maintenance, specialist works and new development; (ii) consulting services for alteration and addition works, new development, licensing, building services, and architectural design for buildings in Hong Kong; and (iii) financial information and technology services to the individuals in the PRC.

The Board has been actively exploring other business opportunities in order to diversify the existing business of the Group and to explore new markets with significant growth potential. Through Shangrao Dafy, the Group has commenced the financial information and

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LETTER FROM THE BOARD

technology services in the PRC, which linked up individuals in the PRC with various financial institutions or credit service providers. The Directors believe that the OPCO, which possesses the Management Systems, will provide the Group with actual and fundamental resources in further expanding the Group’s financial information and technology services in the PRC.

However, as advised by the PRC Legal Advisers, according to the Catalogue of Telecommunications Business (2015) 《( 電信業務分類目錄(2015年版)》), the online data processing business falls under the category of ‘‘value-added telecommunications business’’ and an ICP Licence is required for carrying out such business activity. Further, pursuant to the Regulations on the Administration of Foreign-invested Telecommunication Enterprises (2016 Amended) 《( 外商投資電信企業管理規定(2016年修訂)》), the Catalogue of Industries for Guiding Foreign Investment (2017 revised version) 《( 外商投資產業指導目錄(2017年修訂)》) (the ‘‘Catalogue’’) promulgated by the Ministry of Commerce and the Special Administrative Measures for Access of Foreign Investment (Negative List) (2018 Edition) 《( 外商投資准入特 別管理措施(負面清單)(2018年版)》) (the ‘‘Negative List’’), ‘‘value-added telecommunications business’’, which is the principal business of the OPCO, falls within the restricted industries for foreign investment. The ratio of investment by a foreign investor in a company providing value-added telecommunications services shall not exceed 50%. Accordingly, Shangrao Dafy is not eligible to apply for the ICP Licence or acquire any equity interests in the OPCO for purpose of engaging in the value-added telecommunications business. Moreover, a foreign investor who invests in a value-added telecommunications services company shall have a good track record and experience in providing value-added telecommunications business (the ‘‘Qualification Requirement’’). Currently, no clear guidance or interpretation of the Qualification Requirement has been issued. Thus it would be difficult and uncertain for the Group to obtain the ICP Licence through holding equity interests (whether directly or indirectly) in a foreign-invested enterprise in the PRC, and the prolonged process of application with unknown results would incur extra costs for the Group.

In light of the foreign ownership restriction and ambiguity in the Qualification Requirement mentioned above, in order to comply with applicable PRC laws and regulations and obtain the entire economic benefits attributable to the OPCO, the VIE Agreements were entered into among Shangrao Dafy, the OPCO and/or the PRC Equity Owners, pursuant to which Shangrao Dafy would have effective control over the finance, operation and assets of the OPCO and will enjoy the entire economic interests and benefits generated by the OPCO.

Compliance of VIE Agreements with PRC Laws, Rules and Regulations

As advised by the PRC Legal Advisers, the VIE Agreements do not violate any PRC laws, rules and regulations applicable to the business of the OPCO and would not be deemed as ‘‘concealing illegal intentions with a lawful form’’ and void under the PRC Contract Law* (中 華人民共和國合同法). The VIE Agreements entered into by Shangrao Dafy, the OPCO and/or the PRC Equity Owners are legally binding on each party in accordance with their terms and provisions under the PRC laws except certain terms of the VIE Agreements as set out in the sub-paragraph headed ‘‘Risk Factors in Relation to the VIE Agreements — Certain terms of the VIE Agreements may not be enforceable under PRC laws’’ below.

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LETTER FROM THE BOARD

Disputes Resolutions

The VIE Agreements are governed by and will be constructed in accordance with the PRC laws. Any dispute arising from the VIE Agreements between the parties should first be resolved through negotiation. In case the dispute cannot be resolved within 30 days, any party may submit the said dispute to China International Economic and Trade Arbitration Commission (中國國際經濟貿易仲裁委員會) in accordance with its arbitration rules. The arbitrators may award remedies over the equity interest or assets of the OPCO, injunctive relief (e.g. for the conduct of business or to compel the transfer of assets) and/or winding up of the OPCO. The results of the arbitration shall be final and binding. In addition, the VIE Agreements contain provisions to the effect that parties may seek interim remedies from any courts of competent jurisdiction. When the arbitral award is granted, any party can apply for its enforcement in any courts of competent jurisdiction such as courts in Hong Kong, the Cayman Islands, the PRC and other jurisdictions where the principal assets of the Company or the OPCO are located.

Succession

The provisions set out in the VIE Agreements are also binding on the successors of the PRC Equity Owners, as if the successor were a signing party to the VIE Agreements. Any breach by the successors would be deemed to be a breach of the VIE Agreements. Under the succession law of the PRC, the statutory successors of a PRC individual include the spouse, children, parents, brothers, sisters, paternal grandparents and the maternal grandparents. Under the PRC Companies Law* 《( 中華人民共和國公司法》), the liabilities of a company shall be assumed by, in the case of merger, the surviving company or the newly established company, and in the case of split, the parties to the split on a joint and several basis (unless otherwise agreed in writing with the creditors prior to such split).

Liquidation

All equity interest owned by the PRC Equity Owners in the OPCO has been pledged to Shangrao Dafy under the Equity Pledge Agreement to secure the performance of obligations by the OPCO and the PRC Equity Owners under the VIE Agreements and in case of any breach of such obligations, Shangrao Dafy is entitled to enforce such pledge. Accordingly, in the event of a dissolution or liquidation of the OPCO, a liquidator may seize and deal with the assets which are attributable to the PRC Equity Owners based on the VIE Agreements for the benefit of Shangrao Dafy.

Conflict of Interests

The Company confirms that appropriate arrangements have been made to address the potential conflict of interests between the PRC Equity Owners and the Group. Each of the PRC Equity Owners has made certain undertakings, details of which are set out in the subparagraph headed ‘‘VIE Agreements — (4) Powers of Attorney’’ in this section above.

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LETTER FROM THE BOARD

Loss Sharing

As advised by the PRC Legal Advisers, none of the VIE Agreements provides that the Group is obligated to share the losses of the OPCO or provide financial support to the OPCO. Further, the OPCO is a limited liability company and shall be solely liable for its own debts and losses with assets and properties owned by it. Under the PRC laws and regulations, the Group, as the primary beneficiary of the OPCO under the VIE Agreements, is not required to share the losses of the OPCO or provide financial support to the OPCO. However, since the Group will be conducting business through the OPCO and the financial results of the OPCO are consolidated into the financial statements of the Group, any losses suffered by the OPCO would be reflected in the Group’s consolidated financial statements and therefore the Group’s consolidated financial position such as the consolidated earnings and profits will be adversely affected.

Internal Control Measures to be Implemented by the Group

The VIE Agreements contained certain provisions in order to exercise effective control over and to safeguard the assets of the OPCO.

In addition to the internal control measures as provided in the VIE Agreements, it is the intention of the Company to adopt additional internal control measures against the OPCO as appropriate, which may include but not limited to the following:

Management controls

• (a) the Group will appoint one or more board representative (the ‘‘Representative’’) to the board of the OPCO mainly responsible for exercising all management controls of the OPCO. The Representative is required to conduct monthly reviews on the operations of the OPCO and shall submit the monthly reviews to the Board. The Representative is also required to check the authenticity of the monthly management accounts of the OPCO;

• (b) the Representative shall station at the OPCO and shall be actively involved in various aspects of the daily managerial and operational activities of the OPCO;

• (c) the Representative shall report any major events of the OPCO to any executive Director or the chief financial officer of the Company (the ‘‘CFO’’) (who must in turn report to the Board);

• (d) the financial team of the Company shall conduct regular site visits to the OPCO and conduct personnel interviews on a half-yearly basis and submit reports to the Board;

• (e) all seals, chops, incorporation documents and all other legal documents, to the extent permitted by the PRC law, of the OPCO must be kept at the office of Shangrao Dafy;

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LETTER FROM THE BOARD

Financial controls

• (a) the finance team of the Company shall collect monthly management accounts, bank statements and cash balances and major operational data of the OPCO for review. Upon discovery of any suspicious matters, the financial team of the Company must report to the Board;

• (b) if the payment of the service fees by the OPCO to Shangrao Dafy is delayed, the finance team led by the CFO must meet with the PRC Equity Owners of the OPCO to investigate, and should report any suspicious matters to the Board;

• (c) the OPCO must submit copies of latest bank statements for every bank accounts of the OPCO within 15 days after the end of each month;

• (d) the OPCO must assist and facilitate the Company to conduct all on-site internal audits if required by the Company;

Legal review

• (a) the Representative will consult the Company’s PRC legal advisers from time to time to check if there are any legal developments in the PRC affecting the arrangement contemplated under the VIE Agreements, and should immediately report to the Board so as to allow the Board to determine if any modification or amendment is required to be made; and

• (b) the Company shall comply with the conditions prescribed under the waiver granted by the Stock Exchange in connection with the continuing connected transactions contemplated under the VIE Agreements.

Directors’ View on the VIE Structure

Under the VIE Structure, Shangrao Dafy will enjoy the entire economic interests and benefits generated by the OPCO, since:

• (i) the amount of annual service fee payable by the OPCO to Shangrao Dafy under the Exclusive Business Cooperation Agreement shall be determined at the sole discretion of Shangrao Dafy having taken into account, among others, the actual services and the commercial value of the services provided by Shangrao Dafy and the financial results of the OPCO;

• (ii) in practice, following the entering into of the VIE Agreements, Shangrao Dafy will be responsible for the overall business operation, thus the financial performance, of the OPCO, therefore, the net profits of the OPCO shall translate to the commercial value of the services provided by Shangrao Dafy;

• (iii) in the event that any profits are reserved for distribution, (a) under the Equity Pledge Agreement, Shangrao Dafy shall be entitled to the distribution generated by the pledged equity interests in the OPCO; and (b) under the Exclusive Purchase Right

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LETTER FROM THE BOARD

Agreement, the PRC Equity Owners and the OPCO have jointly and severally undertaken to Shangrao Dafy that without the prior written consent of Shangrao Dafy, they shall not distribute dividends of any kind; and

• (iv) pursuant to the Powers of Attorney, each of the PRC Equity Owners has unconditionally and irrevocably authorised Shangrao Dafy to exercise all of their rights as shareholders of the OPCO, including but not limited to exercising full rights to control and manage the finance, accounting and daily operation of the OPCO.

Based on the above, the Board is of the view that the VIE Agreements, when viewed in totality, are narrowly tailored to achieve the OPCO’s business purpose and to minimise the potential conflicts with and are enforceable under the relevant PRC laws. The VIE Agreements enable Shangrao Dafy to gain control over the OPCO and to be entitled to the economic interests and benefits of the OPCO. Pursuant to the relevant provisions of the VIE Agreements, Shangrao Dafy has the right to unwind the VIE Agreements as soon as the relevant PRC laws allow Shangrao Dafy to register itself as the shareholder of the OPCO. The Directors further believe that save for disclosed in the sub-paragraph headed ‘‘Risk Factors in Relation to The VIE Agreements — Certain terms of the VIE Agreements may not be enforceable under PRC laws’’ in this section, the VIE Agreements are enforceable under the relevant PRC laws, and that the VIE Agreements will provide a mechanism that enables Shangrao Dafy to exercise effective control over the OPCO. To the best of the knowledge, information and belief of the Directors, having made all reasonable enquiries, as at the Latest Practicable Date, the Group has not encountered any interference or encumbrance from any governing bodies in operating its business through the OPCO under the VIE Structure.

Risk Factors in Relation to the VIE Agreements

• (i) The PRC government may determine that the VIE Agreements do not comply with the applicable laws and regulations

There can be no assurance that the VIE Agreements will be deemed by the relevant governmental or judicial authorities to be in compliance with the existing or future applicable PRC laws and regulations, or the relevant governmental or judicial authorities may in the future interpret the existing laws or regulations with the result that the VIE Agreements will be deemed to be in compliance of the PRC laws and regulations.

On 15 March 2019, the Standing Committee of the National People’s Congress promulgated the Foreign Investment Law of the PRC 《( 中華人民共和國外商投資法》, the ‘‘Foreign Investment Law’’), which will come into effect on 1 January 2020. The Foreign Investment Law will replace the Law on Sino-Foreign Equity Joint Ventures, the Law on SinoForeign Contractual Joint Ventures and the Law on Foreign-Capital Enterprises to become the legal foundation for foreign investment in the PRC. As advised by the PRC Legal Advisers, the Foreign Investment Law stipulates three forms of foreign investment but does not explicitly stipulate the VIE structure as a form of foreign investment, and the treatments of VIE structure as proposed in the draft Foreign Investment Law of the PRC (Draft for Comment) and the Explanation on the draft PRC Foreign Investment Law circulated by the MOFCOM on 19 January 2015 no longer exists.

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LETTER FROM THE BOARD

The Foreign Investment Law provides in general that a negative list for foreign investments is adopted by government authorities; however, it does not amend the Catalogue nor the Negative List, both of which governs the foreign investment activities in the PRC and the grant of the ICP Licence. Whether or not a foreign investment is prohibited or restricted is still determined according to the Catalogue and the Negative List. Under the Catalogue, the principal business of the OPCO is still a restricted business. The PRC Legal Advisers are of the view that the adoption of the VIE Structure is unlikely to be deemed in violation of the Foreign Investment Law, and the VIE Structure as a whole and each of the VIE Agreements will not be materially affected and will continue to be legal, valid and binding on the parties.

Considering that a number of existing entities engaged in the information service business, some of which have obtained listing status in Hong Kong or abroad, are operating under contractual arrangement, our Directors are of the view that it is unlikely, if any interpretation or implementation regulations, rules or measures of the Foreign Investment Law is subsequently promulgated, that the relevant authorities will apply it retrospectively to require relevant enterprises to remove or otherwise unwind their contractual arrangement.

The Board is monitoring and will monitor the development of the Foreign Investment Law and discuss with the PRC Legal Advisers on a regular basis in order to assess its possible impact on the VIE Agreements and the business of the Company. In case there would be material impact on the OPCO’s business, the Company will timely publish announcements in relation to material developments of and arising from the Foreign Investment Law.

• (ii) The VIE Agreements may not be as effective as direct ownership in providing control the OPCO

The Group will not have equity ownership interests in the OPCO. The VIE Agreements may not be as effective as direct ownership in providing the Group with control over the OPCO. Direct ownership would allow the Group, for example, to directly exercise its rights as a shareholder to effect changes in the board of directors of the OPCO, which, in turn, could effect changes, subject to any applicable fiduciary obligations, at the management level.

• (iii) The PRC Equity Owners may potentially have a conflict of interests with the Group

The Group’s control over the OPCO is based on the contractual arrangement under the VIE Agreements. Therefore, conflict of interests of the PRC Equity Owners will adversely affect the interests of the Company. Pursuant to the Powers of Attorney, the PRC Equity Owners has irrevocably appointed Shangrao Dafy as its representative to exercise the voting rights of the shareholders of the OPCO. Therefore, it is unlikely that there will be potential conflict of interests between the Company and the PRC Equity Owners. However, in the unlikely event that conflict of interests arises and cannot be resolved, the Company will consider removing and replacing the PRC Equity Owners.

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LETTER FROM THE BOARD

• (iv) The contractual arrangements may be subject to scrutiny of the PRC tax authorities and transfer pricing adjustments and additional tax may be imposed

The Group could face material adverse tax consequences if the PRC tax authorities determine that the arrangements under the VIE Agreements were not entered into based on arm’s length negotiations. If the PRC tax authorities determine that these agreements were not entered into on an arm’s length basis, they may adjust income and expenses of Shangrao Dafy and/or the OPCO for PRC tax purposes, which could result in higher tax liabilities on Shangrao Dafy and/or the OPCO.

The operating and financial results of the Group may be materially and adversely affected if the tax liabilities of the OPCO or those of Shangrao Dafy increase significantly or if they are required to pay interest on late payments and other penalties.

• (v) Certain terms of the VIE Agreements may not be enforceable under PRC laws

The VIE Agreements provide that the arbitration tribunal of the PRC may award remedies over the equity interests or assets of the OPCO or injunctive relief (e.g. for the conduct of business or to compel the transfer of assets) or order the winding up of the OPCO. The VIE Agreements also include a clause in relation to dispute resolutions among the parties where, pending the formation of the arbitration tribunal or otherwise under appropriate conditions, the parties thereto may seek temporary injunctive relief or other temporary remedies from the courts in Hong Kong, the Cayman Islands, the PRC and other jurisdictions where the principal assets of the Company or the OPCO are located.

However, the PRC Legal Advisers are of the view that pursuant to the PRC laws, only the people’s courts* (人民法院) have the power to order the winding up of the OPCO. In addition, even though the VIE Agreements provide that overseas courts (e.g. courts in Hong Kong and the Cayman Islands) shall have the power to grant certain relief or remedies, such relief or remedies may not be recognised or enforced under the PRC laws. As a result, in the event that the OPCO or any of the PRC Equity Owners breaches the terms of the VIE Agreements, the Company may not be able to obtain sufficient remedies in a timely manner, and its ability to exert effective control over the OPCO could be materially and adversely affected.

Furthermore, notwithstanding the relevant contractual provisions contained in the VIE Agreements, courts of competent jurisdiction may grant interim remedies only to the extent as permitted under the PRC laws. Therefore, such interim remedies may not be available under the PRC laws.

• (vi) A substantial amount of costs and time may be involved in transferring the ownership of the OPCO to the Group under the Exclusive Purchase Right Agreement

In case Shangrao Dafy exercises its option to acquire all or part of the equity interests in the OPCO under the Exclusive Purchase Right Agreement, such acquisition may only be conducted to the extent as permitted by the applicable PRC laws and will be subject to necessary approvals and relevant procedures under the applicable PRC laws. In addition, the abovementioned acquisitions may be subject to a minimum price limitation (such as an appraised value for the equity interests in the OPCO) or other limitations as imposed by the

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applicable PRC laws. Further, a substantial amount of taxes, other necessary costs (if any), expenses and time may be involved in transferring the ownership of the OPCO, which may have a material adverse impact on the Group’s business, prospects and results of operation.

• (vii) The Company does not have any insurance which covers the risks relating to the VIE Agreements and the transactions contemplated thereunder

The insurance of the Group does not cover the risks relating to the VIE Agreements and the transactions contemplated thereunder and the Company has no intention to purchase any new insurance in this regard. If any risk arises from the VIE Agreements in the future, such as those affecting the enforceability of the VIE Agreements and the relevant agreements for the transactions contemplated thereunder and the operation of VIE Agreements, the results of the Group may be adversely affected. However, the Group will monitor the relevant legal and operational environment from time to time to comply with the applicable laws and regulations. The Company will continue evaluating the feasibility, the cost and the benefit of insuring the transactions contemplated under the VIE Agreements.

Commercial Benefits of the Transactions

The Group is principally engaged in the provision of building consultancy services, contracting business, project management and financial information and technology services. As disclosed in its annual report for the year ended 31 December 2018, the Group has entered into a new business through a non-wholly-owned subsidiary, Shangrao Dafy, for the provision of financial information and technology services, which links up individuals in the PRC with various financial institutions or credit service providers.

The Company has been actively exploring opportunities to diversify its revenue stream in order to add momentum to the growth of the Group and to explore new markets with significant growth potential. However, as set out in the sub-paragraph headed ‘‘Background and Reasons for Use of the VIE Structure’’ in this section above, due to foreign ownership restriction and ambiguity in the Qualification Requirement, Shangrao Dafy is not eligible to apply for the ICP Licence or acquire any equity interests in the OPCO for purpose of engaging in the value-added telecommunication business, and the VIE Structure is adopted for Shangrao Dafy to have effective control over the finance, operation and assets of the OPCO and enjoy the entire economic interests and benefits generated by the OPCO’s value-added telecommunication business.

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LETTER FROM THE BOARD

Set out below are the respective business and revenue model, major cost components and source of customers of Shangrao Dafy and the OPCO before and after the execution of the VIE Agreements:

	Shangrao Dafy	Shangrao Dafy	The OPCO
	Before execution of the	After execution of the	Before execution of the	After execution of the
	VIE Agreements	VIE Agreements	VIE Agreements	VIE Agreements
(i) Business and	Provision of financial	Same as before execution	Online data processing	In addition to the original
revenue model	information and technology	of the VIE Agreements	business, provision of	business model, the OPCO
	services to individuals and		value-added	has leased to Shangrao
	institutional customers in		telecommunication service	Dafy the Management
	the PRC, with an aim to		and internet information	Systems, which is capable
	provide a range of high		service	to assess individuals’ data
	integrity and user-friendly			and match individuals with
	platforms for the financial			financial needs with
	services users in the PRC			various financial
	in order to link up the PRC			institutions and credit
	individual users with			service providers that offer
	various financial			appropriate financial
	institutions or credit			products to such
	service providers			individuals
(ii) Major cost	(1) agency fee payable to	Same as before execution	Administrative expenses for	Same as before execution
components	agents for introducing	of the VIE Agreements	maintenance of the	of the VIE Agreements
	or referring customers		Management Systems and
	to Shangrao Dafy		holding the ICP Licence
	(2) costs payable to
	telecommunication
	service providers for
	the provision of
	telecommunication
	service
	(3) staff costs
	(4) rental expenses
(iii) Source of	(1) Individuals in the PRC	Same as before execution	Nil	Shangrao Dafy is the only
customers	with financial need	of the VIE Agreements		customer, who leases the
	(2) Financial institutions or			Management Systems from
	credit service providers			the OPCO
	in the PRC that offer
	loan facilities to
	individuals with
	financial need

With the Management Systems, Shangrao Dafy is able to analyse and assess the creditworthiness of individuals with financial needs with reference to, among others, their occupation, gross income, banking and financing information. The Management Systems will process the data of these individuals with its embedded database, and a credit rating of each individual and the credit limit to such individual will be indicated. Shangrao Dafy will then provide certain data of the individual to the financial institutions or credit service providers under the individual’s consent to facilitate their assessment and approval process of the individual’s loan applications.

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LETTER FROM THE BOARD

Set out below are the respective revenue stream, type of financial services/products offers, target customers and competitive advantage of Shangrao Dafy and the OPCO:

	Shangrao Dafy	Shangrao Dafy	The OPCO
Revenue stream	(1)	Financial institutions customers	Save for the leasing fee in respect of
		would pay referral fee to	the lease of the Management Systems
		Shangrao Dafy for the provision	to Shangrao Dafy, the OPCO does not
		of certain processed data of	and will not have any revenue.
		individuals with financial needs	Pursuant to the VIE Agreements, the
		who seek loan facilities to such	OPCO would assist Shangrao Dafy to
		financial institutions	develop the financial information and
			technology services by licensing to
	(2)	Individual customers who seek	Shangrao Dafy the Management
		financial products from credit	Systems of which the OPCO is the
		service providers other than	registered owner
		financial institutions shall pay
		service fee to Shangrao Dafy for
		the matching service
Type of financial	Processing and analysing credit rating		Licensing the Management Systems
services/products	information of individuals with		for Shangrao Dafy’s operation
offers	financial needs and providing
	processed data under the individuals’
	consents to financial institutions or
	credit	service providers to facilitate
	their assessment and approval process
	of the loan applications by individual
	customers
Target customers and	(1)	Individuals in PRC with a	Not applicable since the OPCO will
how they are		financial need of loan amounts	not have any actual business
identified		in the range from RMB500 to	operation other than leasing the
		RMB50,000, which are referred	Management Systems to Shangrao
		to by various agents throughout	Dafy
		the PRC. These agents have
		strong sales networks in
		different regions of the country
		and effectively solicit eligible
		individual customers to
		Shangrao Dafy.

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Shangrao Dafy The OPCO

• (2) Financial institutions and credit service providers in the PRC, to which the marketing team of Shangrao Dafy would carry out marketing initiatives to identify and solicit potential business opportunities, such as paying visit to such financial institutions and credit service providers, distribution of company brochure, organising seminars and workshop on development of financial technology, offering preferential package to first-time customers, organising on-line promotion program, etc.

• Competitive (1) Nationwide networks and strong Not applicable since the OPCO will advantage customers’ bases with various not have any actual business financial institutions and credit operation service providers located in different parts of China, such as Beijing, Guangdong, Hubei, Zhejiang, Shanxi and Shandong provinces etc.

• (2) Long-term business relationships with agents based in different parts of the PRC

• (3) Experienced management team headed by senior executives with over 10 years of experience and knowledge in fintech industry in the PRC

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LETTER FROM THE BOARD

The Directors consider that given the fintech industry in the PRC is booming and there are abundant potential business opportunities, the transactions contemplated under the VIE Agreements will enable the Group to conduct the online data processing and information service business that is in mounting demands in the PRC. In particular, the Group will be able to, through effectively controlling the management and operation of the OPCO, possess and fully utilise the Management Systems held by the OPCO, as well as other assets and resources that the OPCO may obtain or acquire, for Shangrao Dafy’s business operation. This will further widen the Group’s customer base to cover the customers of the online data processing business, and other financial services business, including but not limited to mortgage loan facilitation and micro financing services in the future can be exploited and developed, enhancing the Group’s competitiveness, adaptability and profitability. In the long run, the Group will be able to develop a range of high integrity and user friendly platforms for the financial services users in the PRC and to steadily transform into a nationwide enterprise with diverse products in the financial related service industry thereby creating more value to the shareholders.

Having considered the commercial benefits of the transactions contemplated under the VIE Agreements outlined above, the Directors (including the independent non-executive Directors) are of the opinion that:

• (i) the terms of the VIE Agreements are fair and reasonable and on normal commercial terms; and

• (ii) the continuing connected transactions contemplated under the VIE Agreements are and have been entered into in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole.

In view of Mr. Gao’s equity interests in the OPCO, Mr. Gao has material interests in the transactions contemplated under the VIE Agreements and has abstained from voting at the meeting of the Board in respect of the entering into of the VIE Agreements. Save for Mr. Gao, none of the Directors has a material interest in the VIE Agreements and the transactions contemplated thereunder and none of them has abstained from voting on the relevant board resolutions of the Company.

As at the Latest Practicable Date, the Company has not entered, or proposes to enter, into any agreement, arrangement, understanding or undertaking, whether formal or informal and whether express or implied, or negotiation (whether concluded or not), with an intention to dispose of, downsize or cease any of the Group’s existing businesses and/or acquire other companies/business.

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LETTER FROM THE BOARD

LISTING RULES IMPLICATIONS

Reference is made to the Company’s announcement dated 6 August 2018 in respect of the Company’s acquisition of 51% equity interests in Shangrao Dafy which constituted a connected transaction for the Company. As at the date of the Sale and Purchase Agreement, Shangrao Dafy had a registered capital of RMB100,000,000 (approximately HK$115,460,000), and Shanghai Faye Yu and Mr. Gao have undertaken to reduce the registered capital of Shangrao Dafy to RMB70,000,000 (approximately HK$80,822,000) within one year of completion of the Acquisition. Thus, the capital commitment on part of Shanghai Faye Yu in paying up its share of the registered capital of Shangrao Dafy would be RMB35,700,000 (approximately HK$41,219,220).

After completion of the Acquisition, Shangrao Dafy, together with its two wholly-owned subsidiaries established in Shenzhen and Beijing in the PRC, have been engaging in the provision of financial information and technology services, which links up individuals in the PRC with various financial institutions or credit service providers. Shangrao Dafy also provides post loan management service to the individuals during the loan period. Having considered the rapid development and positive prospects of the business of Shangrao Dafy, Shanghai Faye Yu and Mr. Gao have agreed that the registered capital of Shangrao Dafy shall maintain at RMB100,000,000 (approximately HK$115,460,000), which shall be paid up by Shanghai Faye Yu and Mr. Gao in proportion to their respective share. Therefore, the capital commitment on part of Shanghai Faye Yu in paying up its share of the registered capital of Shangrao Dafy shall be RMB51,000,000 (approximately HK$58,884,600).

Pursuant to Rule 14.22 of the Listing Rules, the transactions contemplated under the VIE Agreements were aggregated with the Acquisition and shall be treated as if they were one transaction.

As the highest of all the applicable percentage ratios as defined under Rule 14.07 of the Listing Rules (other than the profits ratio) in respect of the Acquisition and the transactions contemplated under the VIE Agreements, when aggregated, exceeds 5% and is less than 25%, the transactions contemplated under the VIE Agreements constitute discloseable transaction for the Company under Chapter 14 of the Listing Rules.

As at the Latest Practicable Date, Gentle Soar is beneficially interested in 862,400,000 Shares (representing 70% of the total issued Shares) and is a controlling Shareholder. Mr. Gao beneficially owns the entire issued shares of Gentle Soar and is therefore a controlling Shareholder. Mr. Gao is also an executive Director. As such, Mr. Gao is a connected person of the Company under Chapter 14A of the Listing Rules. As the OPCO is legally owned as to 99% by Mr. Gao and 1% by Shangrao Yaxin (which in turn is wholly owned by Mr. Gao), the OPCO is an associate of Mr. Gao and therefore a connected person of the Company under Chapter 14A of the Listing Rules. Accordingly, the transactions contemplated under the VIE Agreements constitute connected transactions and continuing connected transactions for the Company pursuant to Chapter 14A of the Listing Rules and shall be subject to the announcement, Independent Shareholders’ approval, annual reporting and annual review requirements under Chapter 14A of the Listing Rules.

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LETTER FROM THE BOARD

The Company has applied for and the Stock Exchange has granted a waiver pursuant to Rule 14A.102 of the Listing Rules from (i) fixing the term of the VIE Agreements pursuant to Rule 14A.52 of the Listing Rules; and (ii) setting a maximum aggregate annual cap pursuant to Rule 14A.53 of the Listing Rules for the services fees payable by the OPCO to Shangrao Dafy subject to the following conditions.

(i) No changes without independent non-executive Directors’ approval

Except as described below, no changes to the terms of the VIE Agreements will be made without the approval of the independent non-executive Directors.

(ii) No changes without independent Shareholders’ approval

No changes to the terms of the VIE Agreements will be made without the approval of Independent Shareholders.

(iii) Economic benefits flexibility

The VIE Structure shall continue to enable the Group to receive the relevant economic benefits derived by the OPCO through: (i) the Company’s option at any time (if and when permitted under PRC laws) to acquire all or part of the equity interest in and/or assets of the OPCO at the lowest price permissible under the applicable PRC laws; (ii) the business structure under which the revenue generated by the cooperation between the Group and the OPCO is substantially retained by the Group; and (iii) the right to govern the financial and operating policies as well as, in substance, the voting rights sufficient to control the OPCO.

(iv) Renewal and cloning

On the basis that the VIE Structure provides an acceptable framework for the relationship between the Group on one hand and the OPCO on the other hand, the framework of the VIE Structure may be renewed and/or cloned upon the expiry of the existing arrangements or, in relation to any existing or new wholly foreign-owned enterprise or operating company engaging in the same business as that of the Group which the Group might wish to establish when justified by business expediency, without obtaining the approval of the Shareholders, on substantially the same terms and conditions under the VIE Structure. Such new wholly foreignowned enterprise or operating company may be established by the Group for expansion into the market due to potential business growth. If and when the term of operation of the OPCO as set out in its business licence comes to an end in future, the Group may also establish new companies as and when considered necessary. The directors, chief executive or substantial shareholders (as defined in the Listing Rules) of any existing or new wholly foreign-owned enterprise or operating company that the Group may establish upon renewal and/or cloning of the VIE Structure will be treated as connected persons of the Company and transactions between these connected persons and the Company other than those under the same VIE Structure shall comply with Chapter 14A of the Listing Rules. This condition is subject to relevant PRC laws, regulations and approvals.

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LETTER FROM THE BOARD

(v) Ongoing reporting and approvals

The Company will disclose details relating to the VIE Structure on an ongoing basis as follows:

• (a) details of the VIE Structure will be disclosed in the Company’s annual reports and accounts in accordance with the relevant provisions of the Listing Rules;

• (b) the independent non-executive Directors will review the VIE Structure annually, and confirm in the Company’s annual reports and accounts for the relevant year that: (i) the transactions carried out during such year have been entered into in accordance with the relevant provisions of the VIE Agreements; (ii) no dividends or other distributions have been made by the OPCO to the PRC Equity Owners which are not retained by or assigned or transferred to the Group; and (iii) any new agreement relating to the VIE Structure entered into, renewed or reproduced between the OPCO and the Group during the relevant financial period are fair and reasonable, or advantageous, so far as the Group is concerned and in the interests of the Company and the Shareholders as a whole;

• (c) the Company’s auditors will carry out review procedures annually on the transactions contemplated under the VIE Agreements and will provide a letter to the Directors with a copy to the Stock Exchange confirming that the transactions have received the approval of the Directors, have been entered into in accordance with the relevant VIE Agreements and that no dividends or other distributions have been made by the OPCO to the PRC Equity Owners which are not retained by or assigned or transferred to the Group;

• (d) for the purposes of Chapter 14A of the Listing Rules, the OPCO will be treated as the Company’s subsidiary, and its directors, chief executives or substantial shareholders of and their respective associates will be connected persons of the Company, and transactions between these connected persons and the Group, other than those under the VIE Structure, will be subject to requirements under Chapter 14A of the Listing Rules; and

• (e) the OPCO will undertake to provide the Company’s management and auditors full access to their relevant records for the purpose of the auditors’ review of the continuing connected transactions.

In addition, it is foreseeable that agreements, other than the VIE Agreements, will be entered into between the OPCO and Shangrao Dafy. Given that the financial results of the OPCO will be consolidated into the Group’s financial statements, the OPCO, being effectively controlled by Shangrao Dafy, will be treated as a connected subsidiary of the Company by virtue of the VIE Agreements and therefore the transactions between the OPCO and Shangrao Dafy will not be treated as connected transactions pursuant to Rule 14A.17 of the Listing Rules.

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LETTER FROM THE BOARD

INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

An Independent Board Committee has been established to make recommendation to the Independent Shareholders regarding the terms of the VIE Agreements and the transactions contemplated thereunder. VBG Capital Limited has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders on the fairness and reasonableness of the terms of the VIE Agreements and the transactions contemplated thereunder.

EGM

The Company will convene the EGM at Room 2101, 21/F, The Sun’s Group Centre, 200 Gloucester Road, Wan Chai, Hong Kong on Monday, 9 September 2019 at 10:30 a.m. to consider and, if thought fit, approve the VIE Agreements and the transactions contemplated thereunder. The notice of EGM is set out on pages EGM-1 to EGM-2 of this circular. The voting on such resolutions will be conducted by way of poll in accordance with Rule 13.39(4) of the Listing Rules.

In view of Mr. Gao’s equity interests in the Company (through Gentle Soar), Shangrao Dafy and the OPCO, Mr. Gao and his associates (which in aggregate are interested in 862,400,000 Shares, representing 70% of the total issued share capital of the Company as at the Latest Practicable Date) have material interests in the VIE Agreements and are required to abstain from voting on the ordinary resolutions for approving the VIE Agreements and the transactions contemplated thereunder at the EGM.

A proxy form is enclosed with this circular for Shareholder’s use at the EGM. Whether or not you are able to attend the EGM, you are requested to complete the enclosed proxy form in accordance with the instructions printed thereon, and return it to the office of Tricor Investor Services Limited, the branch share registrar of the Company in Hong Kong, at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof. Completion and return of the proxy form will not preclude you from attending and voting at the EGM or any adjournment thereof in person should you so wish.

CLOSURE OF REGISTER OF MEMBERS

For determining the qualification as members of the Company to attend and vote at the EGM, the register of members of the Company will be closed from Wednesday, 4 September 2019 to Monday, 9 September 2019, both days inclusive, during which period no transfer of shares will be registered. In order to be eligible to attend and vote at the EGM, all transfers of shares accompanied by the relevant share certificates and transfer forms must be lodged with the Company’s branch share registrar in Hong Kong, Tricor Investor Services Limited, at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong for registration not later than 4:30 p.m. on Tuesday, 3 September 2019.

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LETTER FROM THE BOARD

RECOMMENDATIONS

Your attention is drawn to (i) the letter from the Independent Board Committee dated 21 August 2019 set out on pages 34 to 35 of this circular which contains the recommendation from the Independent Board Committee to the Independent Shareholders in relation to the VIE Agreements and the transactions contemplated thereunder; and (ii) the letter from the Independent Financial Adviser dated 21 August 2019 as set out on pages 36 to 57 of this circular which contains the recommendation from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in relation to the terms of the VIE Agreements, the transactions contemplated thereunder and the principal factors and reasons considered by the Independent Financial Adviser in arriving at its recommendation.

Having taken into account the factors and reasons considered, and the opinion of the Independent Financial Adviser as stated in its letter, the Directors consider the terms of the VIE Agreements and the transactions contemplated thereunder are fair and reasonable, on normal commercial terms in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole and recommend the Independent Shareholders to vote in favour of the resolutions to be proposed at the EGM to approve the VIE Agreements and the transactions contemplated thereunder.

As the VIE Agreements (as amended by the Memorandum) and the transactions contemplated thereunder are subject to fulfillment of the conditions precedent that all necessary approval and consent (including Independent Shareholders’ approval) having been obtained, the transactions contemplated under the VIE Agreements may or may not proceed. Shareholders and potential investors should exercise caution when dealing in the Shares.

ADDITIONAL INFORMATION

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

Yours faithfully, By order of the Board Dafy Holdings Limited 達飛控股有限公司 Feng Xuelian Executive Director

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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Dafy Holdings Limited 達 飛 控 股 有 限 公 司

(incorporated in the Cayman Islands with limited liability)

(Stock Code: 1826)

21 August 2019

To the Independent Shareholders

Dear Sir or Madam,

THE ENTERING INTO OF THE VIE AGREEMENTS CONSTITUTING DISCLOSEABLE TRANSACTION, CONNECTED TRANSACTION AND CONTINUING CONNECTED TRANSACTIONS

We refer to the circular of the Company dated 21 August 2019 (the ‘‘Circular’’) despatched to the Shareholders of which this letter forms part. Unless the context otherwise requires, terms and expressions defined in the Circular shall have the same meanings in this letter.

We have been appointed as members of the Independent Board Committee to advise the Independent Shareholders on whether the terms of the VIE Agreements and the transactions contemplated thereunder are fair and reasonable, on normal commercial terms in the ordinary and usual course of business of the Group and in the interests of the Company and its Shareholders as a whole. VBG Capital Limited has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the terms of the VIE Agreements and the transactions contemplated thereunder.

We wish to draw your attention to the letter from the Board set out on pages 6 to 33 of the Circular and the letter from the Independent Financial Adviser containing its advice to us and the Independent Shareholders regarding the terms of the VIE Agreements and the transactions contemplated thereunder set out on pages 36 to 57 of the Circular.

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having considered, among other matters, the advice given by the Independent Financial Adviser, we are of the opinion that the terms of the VIE Agreements and the transactions contemplated thereunder are fair and reasonable, on normal commercial terms in the ordinary and usual course of business of the Group and in the interests of the Company and its Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the resolutions to be proposed at the EGM to approve the VIE Agreements and the transactions contemplated thereunder.

Yours faithfully, For and on behalf of

Independent Board Committee Mr. Chan Yuk Sang Mr. Wan Chi Wai Anthony Mr. Lau Kwok Fai Patrick Independent non-executive Directors

– 35 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Set out below is the text of a letter received from VBG Capital Limited, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the VIE Agreements for the purpose of inclusion in the Circular.

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18/F., Prosperity Tower 39 Queen’s Road Central Hong Kong 21 August 2019

• To: The independent board committee and the independent shareholders of Dafy Holdings Limited

Dear Sirs,

THE ENTERING INTO OF THE VIE AGREEMENTS CONSTITUTING DISCLOSEABLE TRANSACTION, CONNECTED TRANSACTION AND CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to make recommendation to the Independent Board Committee and the Independent Shareholders in respect of the VIE Agreements, details of which are set out in the letter from the Board (the ‘‘Letter from the Board’’) contained in the circular dated 21 August 2019 issued by the Company to the Shareholders (the ‘‘Circular’’), of which this letter of advice forms part. Capitalised terms used in this letter of advice shall have the same meanings as ascribed to them under the section headed ‘‘Definitions’’ in the Circular unless the context requires otherwise.

On 31 May 2019, Shangrao Dafy (an indirect non-wholly owned subsidiary of the Company) entered into the VIE Agreements, which comprise the Exclusive Business Cooperation Agreement, the Exclusive Purchase Right Agreement, the Equity Pledge Agreement and the Powers of Attorney, with the OPCO and/or the PRC Equity Owners (as the case may be). Through the VIE Agreements, Shangrao Dafy would have effective control over the finance, operation and assets of the OPCO and would enjoy the entire economic interests and benefits generated by the OPCO. The OPCO will also become a non-wholly owned subsidiary of the Company, the financial results of which will be consolidated into the financial statements of the Group.

According to the Letter from the Board, pursuant to Rule 14.22 of the Listing Rules, the transactions contemplated under the VIE Agreements were aggregated with the Acquisition and shall be treated as if they were one transaction. The transactions contemplated under the VIE Agreements constitute discloseable transaction, as well as connected transaction and continuing connected transactions for the Company, and are subject to the announcement, Independent Shareholders’ approval, annual reporting and annual review requirements under Chapter 14A of the Listing Rules.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Independent Board Committee comprising Mr. Chan Yuk Sang, Mr. Wan Chi Wai Anthony and Mr. Lau Kwok Fai Patrick (all being independent non-executive Directors) has been established to advise the Independent Shareholders on (i) whether the terms of the VIE Agreements are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; (ii) whether the entering into of the VIE Agreements is in the interests of the Company and the Shareholders as a whole and is conducted in the ordinary and usual course of business of the Group; and (iii) how the Independent Shareholders should vote in respect of the resolution(s) to approve the VIE Agreements at the EGM. We, VBG Capital Limited, have been appointed as the Independent Financial Adviser to make recommendation to the Independent Board Committee and the Independent Shareholders in this regard.

OUR INDEPENDENCE

As at the Latest Practicable Date, apart from having acted as the independent financial adviser of the Company relating to (i) a mandatory unconditional cash offer to acquire all the issued shares of the Company in respect of which a composite document dated 15 December 2017 was published; (ii) a non-exempt continuing connected transaction in respect of which a circular dated 27 June 2018 was published; (iii) a possible connected transaction in respect of which an announcement dated 29 May 2018 was published; and (iv) the existing appointment in relation to the VIE Agreements, we did not have any business relationship with the Company within the past two years. Save for the fees payable to us in connection with this appointment, no arrangement exists whereby we shall receive any fees or benefits from the Company, its subsidiaries or the Directors, chief executive or substantial shareholders (as defined in the Listing Rules) of the Company or any of their associates. We consider ourselves independent to form our opinion in respect of the VIE Agreements.

BASIS OF OUR OPINION

In formulating our opinion with regard to the VIE Agreements, we have relied on the information and facts supplied, opinions expressed and representations made to us by the management of the Group (including but not limited to those contained or referred to in the announcements of the Company dated 31 May 2019, 8 July 2019 and 24 July 2019 and the Circular). We have assumed that the information and facts supplied, opinions expressed and representations made to us by the management of the Group were true, accurate and complete at the time they were made and continue to be true, accurate and complete in all material aspects until the date of the EGM. We have also assumed that all statements of belief, opinions, expectation and intention made by the management of the Group in the Circular were reasonably made after due enquiry and careful consideration. We have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy and completeness of the information and facts contained in the Circular, or the reasonableness of the opinions expressed by the Group, its management and/or advisers, which have been provided to us.

The Directors have collectively and individually accepted full responsibility for the accuracy of the information contained in the Circular and have confirmed, having made all reasonable enquiries, which to the best of their knowledge and belief, that the information

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

contained in the Circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement in the Circular or the Circular misleading. We, as the Independent Financial Adviser, take no responsibility for the contents of any part of the Circular, save and except for this letter of advice.

We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, conducted any independent investigation into the business and affairs or future prospects of the Group, each member of the VIE Structure, the PRC Equity Owners or their respective subsidiaries or associates, nor have we considered the taxation implication on the Group or the Shareholders as a result of the VIE Agreements. Our opinion is necessarily based on the market, financial, economic and other conditions in effect and the information made available to us as at the Latest Practicable Date. Shareholders should note that subsequent developments (including change in market and economic conditions) may affect and/or change our opinion and we have no obligation to update this opinion to take into account events occurring after the Latest Practicable Date or to update, revise or reaffirm our opinion. Nothing contained in this letter of advice should be construed as a recommendation to hold, sell or buy any Shares or any other securities of the Company.

We have not made any independent evaluation or appraisal of the assets and liabilities of the Group or the OPCO, and we have not been furnished with any such evaluation or appraisal, save and except for the Asset Valuation Report prepared by the Independent Valuer in respect of the appraised value of the Management Systems. Since we are not experts in the valuation of assets, land and properties, we have relied solely upon the Asset Valuation Report for the appraised value of the Management Systems as at 28 February 2019.

Where information in this letter of advice has been extracted from published or otherwise publicly available sources, we have ensured that such information has been correctly and fairly extracted, reproduced or presented from the relevant sources while we did not conduct any independent investigation into the accuracy and completeness of such information.

PRINCIPAL FACTORS AND REASONS CONSIDERED

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

1. Background of and reasons for the entering into of the VIE Agreements

Information on the Group

The Group is principally engaged in the provision of (i) contracting services for alteration and addition works, maintenance, specialist works and new development; (ii) consulting services for alteration and addition works, new development, licencing, building services, and architectural design for buildings in Hong Kong; and (iii) financial information and technology services to individuals in the PRC.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Set out below is the audited consolidated financial information on the Group for the two years ended 31 December 2018 as extracted from the Company’s annual report for the year ended 31 December 2018 (the ‘‘2018 Annual Report’’):

	For the	For the
	year ended	year ended
	31 December	31 December
	2018	2017
	HK$’000	HK$’000
Total revenue	648,541	744,755
— Contracting services	519,693	686,196
— Consultancy services	57,053	58,559
— Financial information and
technology services	71,795	Not applicable
Profit for the year	51,296	31,183

As depicted by the above table, although the construction segment (comprising the contracting services and consultancy services) has contributed to a majority of the Group’s revenue, the total revenue from the construction segment decreased by approximately 22.6% from approximately HK$744.8 million in 2017 to approximately HK$576.7 million in 2018, resulting in an overall reduction in the Group’s revenue of approximately 12.9% from approximately HK$744.8 million to HK$648.5 million during the said years under review. In April 2018, the Group established an indirect whollyowned subsidiary, Shanghai Faye Yu, in the PRC to engage in the provision of computer information, network and electronic technology development, consulting and advertising services in the PRC. This new financial information and technology services segment generated total revenue of approximately HK$71.8 million to the Group in 2018. In addition, as referred to in the 2018 Annual Report, the gross profit margin of the contracting services and consultancy services were approximately 6.3% and 30.5%, respectively, for the year ended 31 December 2018; while that of the financial information and technology services was approximately 82.3% for the year ended 31 December 2018. As supported by the increase in gross profit from the financial information and technology services segment, the Group’s net profit in 2018 increased substantially by approximately 64.5% as compared to 2017 notwithstanding the decrease in total revenue and gross profit from the construction segment as well as the increase in administrative expenses and finance costs incurred by the Group.

Information on Shanghai Faye Yu

As aforementioned, Shanghai Faye Yu is a company established under the laws of the PRC and an indirect wholly-owned subsidiary of the Company.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Information on Shangrao Dafy

As extracted from the Letter from the Board, Shangrao Dafy is a limited liability company established in the PRC which is owned as to 51% by Shanghai Faye Yu and 49% by Mr. Gao. It is principally engaged in the provision of financial information and technology services in the PRC.

Information on the VIE Structure

Information on Mr. Gao

As extracted from the Letter from the Board, Mr. Gao, as one of the PRC Equity Owners, is the chairman of the Board, an executive Director and a controlling shareholder of the Company.

Information on Shangrao Yaxin

As extracted from the Letter from the Board, Shangrao Yaxin, as the other PRC Equity Owner, is a limited liability company established in the PRC which is wholly owned by Mr. Gao. It is principally engaged in the provision of, amongst others, information technology services, computer technology development, technology consulting and technology transfer services, data processing and software development.

Information on the OPCO

As extracted from the Letter from the Board, the OPCO is a limited liability company established in the PRC which is owned as to 99% by Mr. Gao and 1% by Shangrao Yaxin. It is principally engaged in, amongst others, online data processing business, provision of value-added telecommunications services* (增值電信業務) and internet information services, and is in possession of the Management Systems. As also confirmed by the PRC Legal Advisers, the OPCO has obtained an ICP Licence under applicable laws and regulations in the PRC to operate its business.

As extracted from the Letter from the Board, the OPCO has leased the Management Systems to Shangrao Dafy. The Management Systems are capable to assess individuals’ data and match individuals with financing needs with various financial institutions and credit service providers that offer appropriate financial products to such individuals. With the Management Systems, Shangrao Dafy will be able to analyse and assess the creditworthiness of individuals with financing needs with reference to, amongst others, their occupation, gross income, banking and financing information. The Management Systems will process the data of these individuals using their embedded database, and a credit rating of each individual and the credit limit to such individual will be indicated. Shangrao Dafy will then provide certain data of the individual to the financial institutions or credit service providers with prior consent from such individual to facilitate their assessment and approval process of the individual’s loan applications.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Independent Shareholders may refer to the sub-sections headed ‘‘The VIE Structure’’ and ‘‘Commercial Benefits of the Transactions’’ of the Letter from the Board for further information regarding the VIE Structure, the respective business and revenue model, major cost components and source of customers of Shangrao Dafy and the OPCO before and after the execution of the VIE Agreements, and the respective revenue stream, type of financial services/ products offered, target customers and competitive advantages of Shangrao Dafy and the OPCO.

Reasons for and possible benefits of the entering into of the VIE Agreements

As advised by the Directors, the Board has been actively exploring other business opportunities in order to diversify the existing business of the Group and to explore new markets with significant growth potential. Through Shanghai Faye Yu and Shangrao Dafy, the Group has commenced the financial information and technology services in the PRC in 2018, which have effectively linked up individuals in the PRC with various financial institutions or credit service providers.

Nevertheless, as advised by the PRC Legal Advisers, in accordance with the Catalogue of Telecommunications Business (2015) 《( 電信業務分類目錄(2015年版)》), the online data processing business falls under the category of ‘‘value-added telecommunications business’’ and an ICP Licence is required for carrying out such business activity. Furthermore, pursuant to the Regulations on the Administration of Foreign-invested Telecommunication Enterprises (2016 Amended) 《( 外商投資電信企業 管理規定(2016年修訂)》), the Catalogue of Industries for Guiding Foreign Investment (2017 revised version) 《( 外商投資產業指導目錄(2017年修訂)》) (the ‘‘Catalogue’’) promulgated by MOFCOM and the Special Administrative Measures for Access of Foreign Investment (Negative List) (2018 Edition) 《( 外商投資准入特別管理措施（負面 清單）(2018年版)》) (the ‘‘Negative List’’), ‘‘value-added telecommunications business’’, which is the principal business of the OPCO, falls within the restricted industries for foreign investment. The ratio of investment by a foreign investor in a company providing value-added telecommunications services shall not exceed 50%. Accordingly, Shangrao Dafy is not eligible to apply for an ICP Licence or acquire any equity interests in the OPCO for the purpose of engaging in the value-added telecommunications business. Moreover, a foreign investor who invests in a value-added telecommunications services company shall have a good track record and experience in providing value-added telecommunications business (the ‘‘Qualification Requirement’’). Currently, no clear guidance or interpretation of the Qualification Requirement has been issued. Therefore, it would be difficult and uncertain for the Group to obtain an ICP Licence through holding equity interests (whether directly or indirectly) in a foreign-invested enterprise in the PRC, and the possible prolonged process of application with unknown results would incur extra costs for the Group.

In light of the aforesaid foreign ownership restriction and ambiguity in the Qualification Requirement, in order to comply with the applicable PRC laws and regulations, the VIE Agreements were entered into among Shangrao Dafy, the OPCO and/

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

or the PRC Equity Owners, pursuant to which Shangrao Dafy would have effective control over the finance, operation and assets of the OPCO and will enjoy the entire economic interests and benefits generated by the OPCO.

The Directors consider that, given that the fintech related industry in the PRC is booming and there are abundant potential business opportunities, the transactions contemplated under the VIE Agreements will enable the Group to conduct the online data processing and other financial services business that is in mounting demands in the PRC. In particular, the Group will be able to, through effectively controlling the management and operation of the OPCO, possess and fully utilise the Management Systems held by the OPCO, as well as other assets and resources that the OPCO may obtain or acquire, for Shangrao Dafy’s business operation. This will further widen the Group’s customer base to cover customers of the online data processing and other financial services business, including but not limited to mortgage loan facilitation and micro financing services, in the future, and enhance the Group’s competitiveness, adaptability and profitability. In the long run, the Group will be able to develop a range of high integrity and user-friendly platforms for the financial services users in the PRC and steadily transform into a nationwide enterprise with diverse products in the financial service industry thereby creating more value to the Shareholders.

Industry overview

We have conducted an independent research regarding the fintech related industry in the PRC. According to the 13th Five-Year National Science and Technology Innovation Plan 《( ‘‘十三五’’國家科技創新規劃》) promulgated by the State Council in July 2016, the focus of fintech lies in technology, which is intended to empower financial services with technology. The plan proposed to give play to the important role of financial innovation in innovation and entrepreneurship, to develop financial products and services that meet the needs of innovation, to vigorously develop venture capital and multi-level capital markets, and to improve the combination of technology and finance. In October 2017, the 19th National Congress Report proposed to focus on accelerating the construction of an industrial system of solid economy, technological innovation, modern finance and human resources. The above supportive policies create a favourable environment for the fintech related industry in the PRC to develop. With reference to a report named ‘‘The Current Situation and Trend of China’s Fintech Industry Market Development in 2019: the scale of financial consumption increased, which spawned emerging financial formats’’ 《( 2019年中國金融科技行業市場發展現狀及趨勢：金融消 費規模提升，催生新興金融業態》) released by China Industrial Information Network* (中國產業資訊網) (https://www.chyxx.com/) in May 2019, the global fintech investment amount doubled in 2018, reaching approximately United States Dollars (US$) 55.3 billion. Among them, China’s investment amounted to approximately US$25.5 billion, representing a year-on-year growth of nine times. On the 2018 Fintech100 list, among the top ten companies, four were Chinese companies, and nine Chinese companies were selected on the top 50 list, proving the rapid development of China’s fintech related industry on a global scale. As stated in the ‘‘2018 China Fintech Survey Report’’ published by PricewaterhouseCoopers, traditional financial institutions have increased their investment in fintech in recent years. For example, China Merchants Bank

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

established a fintech innovation project fund in 2017; the annual research and development funds invested by the Bank of China are not less than 1% of its operating income of the year; whilst Ping An Group invests 1% of its operating income in fintech annually.

In addition, as it is expected that the transactions contemplated under the VIE Agreements will enable the Group to conduct the online data processing and other financial services business, we have further conducted an independent research regarding the information technology and internet finance industry in the PRC. In accordance with the Administrative Measures on Internet Information Services 《( 互聯網信息服務管理辦 法》) promulgated by the State Council in September 2000, internet information services are classified into two categories: operational internet information services and nonoperational internet information services. Operational internet information services refer to paid services such as providing information or web page creation to the internet users through the internet. Non-operational internet information services refer to services that provide open and shared information to internet users free of charge through the internet. According to the latest data released by the China Academy of Information and Communications Technology, as of the end of May 2019, there were 68,906 licenced national value-added telecommunications business companies (increasing by over 10% as compared to the end of December 2018), participating in a total of 83,761 licenced projects. Among them, 40,859 projects were related to information services businesses (internet information services only). According to the latest data released by the Ministry of Industry and Information Technology, the total profit of the national software and information technology services industry in 2018 was approximately RMB807.9 billion, representing an increase of approximately 9.7% as compared to the previous year. The total industry revenue was approximately RMB6,306.1 billion, representing an increase of approximately 14.2% as compared to the previous year, of which the revenue from information technology services was approximately RMB3,475.6 billion, representing an increase of approximately 17.6% as compared to the previous year. From January to May 2019, the total profit of the national software and information technology services industry was approximately RMB322.8 billion, representing a year-on-year increase of approximately 10.5%. The total industry revenue was approximately RMB2,629.8 billion, representing a year-on-year increase of approximately 14.7%, of which the revenue from information technology services was approximately RMB1,542.1 billion, representing a year-on-year increase of approximately 16.4%. On the other hand, as referred to in the ‘‘2018 China Internet Lending Industry Annual Report’’ 《( 2018年中國網絡借貸行業年 報》) released by Online Loan Home (網貸之家) (www.wdzj.com), as of the end of 2018, the total turnover of the internet finance industry reached approximately RMB1,794.8 billion, and its accumulated historical turnover exceeded RMB8 trillion. In 2018, the rate of return on the internet finance industry stayed high at approximately 9.8%. As also referred to in the ‘‘2019 Internet Finance Industry First Quarter Research Report’’ 《( 互聯 網金融行業2019年1季度研究報告》) issued by Suning Institute of Finance (https:// sif.suning.com/), the investment amount of the internet finance industry in 2018 was approximately RMB150.5 billion, representing a substantial increase of approximately 183.4% as compared with approximately RMB53.1 billion in 2017.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We understand that the Group has begun to penetrate into the financial information and technology services segment since 2018 and recorded total segment revenue of approximately HK$71.8 million shortly after the commencement of business in 2018. As compared with the gross profit margin of the contracting services and consultancy services (being approximately 6.3% and 30.5% respectively in 2018), the gross profit margin of the financial information and technology services (being approximately 82.3% in 2018) is far much higher and attributable to such high profit margin, the Group’s profitability in 2018 grew despite the overall reduction in its revenue as a result of the decrease in total revenue from the construction segment. Taking also into account the positive prospects of the fintech related industry as well as the information technology and internet finance industry in the PRC as revealed by our independent research, we concur with the Directors that the further expansion of the Group’s financial information and technology services in the PRC to include the online data processing and other financial services would likely to be beneficial to the Group.

For our due diligence purpose, we have independently searched for information regarding the Catalogue of Telecommunications Business (2015) 《( 電信業務分類目 錄(2015年版)》), the Regulations on the Administration of Foreign-invested Telecommunication Enterprises (2016 Amended) 《( 外商投資電信企業管理規定(2016年 修訂)》), the Catalogue and the Negative List. Based on our search result together with the legal opinion from the PRC Legal Advisers, we noted that in accordance with the Catalogue of Telecommunications Business (2015) 《( 電信業務分類目錄(2015年版)》), the online data processing business falls under the category of ‘‘value-added telecommunications business’’ and an ICP Licence is required for carrying out such business activity. Furthermore, pursuant to the Regulations on the Administration of Foreign-invested Telecommunication Enterprises (2016 Amended) 《( 外商投資電信企業 管理規定(2016年修訂)》), the Catalogue and the Negative List, ‘‘value-added telecommunications business’’ falls within the restricted industries for foreign investment and the ratio of investment by a foreign investor in a company providing value-added telecommunications services shall not exceed 50%. Accordingly, Shangrao Dafy is not eligible to apply for an ICP Licence or acquire any equity interests in the OPCO for the purpose of engaging in the value-added telecommunications business. Moreover, no clear guidance or interpretation of the Qualification Requirement has currently been issued. Thus, it would be difficult and uncertain for the Group to obtain an ICP Licence through holding equity interests (whether directly or indirectly) in a foreign-invested enterprise in the PRC.

Having considered the above, we are of the view that the OPCO aligns with the Group’s strategy to further deepen the reach of its financial information and technology services segment. Leveraging on the Management Systems which are possessed by the OPCO, the Group may also be equipped with the fundamental assets and resources to provide the online data processing and other financial services and widen its customer base in the PRC. In light of the foreign ownership restriction and ambiguity in the Qualification Requirement, in order to comply with the applicable PRC laws and regulations, the VIE Agreements were entered into among Shangrao Dafy, the OPCO and/ or the PRC Equity Owners, pursuant to which Shangrao Dafy would have effective control over the finance, operation and assets of the OPCO and will enjoy the entire

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economic interests and benefits generated by the OPCO. Judging from all the aforesaid factors, we concur with the Directors that the entering into of the VIE Agreements is in the interests of the Company and the Shareholders as a whole and is in the ordinary and usual course of business of the Group.

2. Principal terms of the VIE Agreements

On 31 May 2019, the Group proposed to adopt the VIE Structure by entering into the VIE Agreements, which comprise the Exclusive Business Cooperation Agreement, the Exclusive Purchase Right Agreement, the Equity Pledge Agreement and the Powers of Attorney. The table below sets out a brief summary for each of the VIE Agreements. Independent Shareholders may also refer to the section headed ‘‘VIE Agreements’’ of the Letter from the Board for the relevant details.

The Exclusive Business Cooperation Agreement

Parties: Shangrao Dafy and the OPCO Term: Effective upon execution (subject to all necessary approval and consent (including Independent Shareholders’ approval) having been obtained) and shall remain in effect unless terminated in accordance with the provisions of the agreement or by mutual agreement or (i) upon Shangrao Dafy being permitted by the laws of the PRC to carry out the business in which the OPCO is engaged, or Shangrao Dafy holding all the equity interests in the OPCO or all the assets of the OPCO; or (ii) pursuant to applicable laws and regulations of the PRC. The OPCO shall have no right to terminate the agreement unless Shangrao Dafy is in a material default or has committed a fraudulent act under the agreement. Subject matter: The OPCO shall engage Shangrao Dafy on an exclusive basis to provide technical support, business support and related consulting services, the actual scope of which to be determined by Shangrao Dafy as it deems necessary with reference to the principal business activities of the OPCO, including but not limited to business management, financial consultation and marketing consultation. Fee: For the services provided by Shangrao Dafy under the Exclusive Business Cooperation Agreement, the OPCO shall pay Shangrao Dafy an annual service fee to be determined at the sole discretion of Shangrao Dafy, having taken into account various factors as highlighted in the relevant section of the Letter from the Board.

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The Exclusive Purchase Right Agreement

Parties: Shangrao Dafy, the PRC Equity Owners and the OPCO

Term: Effective upon execution (subject to all necessary approval and consent (including Independent Shareholders’ approval) having been obtained) and shall remain in effect unless terminated (i) upon Shangrao Dafy or such entity as designated by Shangrao Dafy holding all the equity interests in the OPCO or all the assets of the OPCO; or (ii) pursuant to applicable laws and regulations of the PRC. The OPCO and the PRC Equity Owners shall have no right to terminate the agreement.

Subject matter: The PRC Equity Owners have irrevocably granted Shangrao Dafy an exclusive right, at any time and from time to time, to purchase or nominate any individuals/entities to purchase all or part of their equity interests in the OPCO at the lowest price permissible under the PRC laws and regulations.

The OPCO has irrevocably granted Shangrao Dafy an exclusive right, at any time and from time to time, to purchase or nominate any individuals/entities to purchase all or part of its assets at the lowest price permissible under the PRC laws and regulations.

The PRC Equity Owners shall be prohibited from selling, transferring, pledging or otherwise disposing of all or part of their equity interests in the OPCO, or granting others a right to purchase such equity interests (save as provided in the Equity Pledge Agreement), without the prior written consent from Shangrao Dafy.

The OPCO shall be prohibited from selling, transferring, pledging or otherwise disposing of all or part of its assets, or granting others a right to purchase such assets without the prior written consent from Shangrao Dafy.

Where the purchase price is required by the relevant PRC laws and regulations to be an amount other than a nil consideration, the PRC Equity Owners and/or the OPCO (as the case may be) shall return to Shangrao Dafy the amount of purchase price they have received from it.

Consideration:

The consideration for the grant of the exclusive right to purchase shall be RMB5,775,000 (the ‘‘Exclusive Purchase Right Consideration’’), which shall be paid to the PRC Equity Owners in cash within 180 days of the date of the Exclusive Purchase Right Agreement.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Exclusive Purchase Right Consideration was arrived at after arm’s length negotiations between Shangrao Dafy and the PRC Equity Owners after taking into account, amongst others, (i) the amount of RMB6,032,100 payable by the OPCO to Shenzhen Dafy in respect of the acquisition of the Management Systems, which has taken reference and is equivalent to the appraised value of the Management Systems estimated by the Independent Valuer by adopting the cost approach (details of which are set out in the Asset Valuation Report as contained in Appendix II to the Circular); and (ii) the net liabilities of the OPCO as at 30 April 2019.

For the undertakings and covenants jointly and severally provided by the PRC Equity Owners and the OPCO to Shangrao Dafy pursuant to the Exclusive Purchase Right Agreement, please refer to the relevant section of the Letter from the Board.

The Equity Pledge Agreement

Parties:		Shangrao Dafy, the PRC Equity Owners and the OPCO
Term:		Effective upon execution (subject to all necessary approval and
		consent (including Independent Shareholders’ approval) having been
		obtained) and shall remain binding until the Secured Obligations are
		discharged in full.
Subject	matter:	The PRC Equity Owners have pledged all of their equity interests in
		the OPCO to Shangrao Dafy to secure the performance of all their
		obligations and the obligations of the OPCO under the VIE
		Agreements. Shangrao Dafy shall be entitled to the distribution
		generated by the pledged equity interests during the term of the
		pledge.

The Powers of Attorney

Parties: Each of the PRC Equity Owners Term: Effective upon execution (subject to all necessary approval and consent (including Independent Shareholders’ approval) having been obtained) and shall remain in effect until all the equity interests in the OPCO held by the PRC Equity Owners or all the assets of the OPCO have been legally transferred to Shangrao Dafy or such individuals/entities as designated by Shangrao Dafy.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Subject matter:

Each of the PRC Equity Owners has unconditionally and irrevocably authorised Shangrao Dafy or its successor (who may further delegate such rights to other individuals or entities) to exercise all of their rights as shareholders of the OPCO under the PRC laws and regulations, including but not limited to:

• (i) convening, attending and participating shareholders’ meetings of the OPCO, receiving relevant notice or document relating to the shareholders’ meetings;

• (ii) discussing and voting in shareholders’ meetings of the OPCO;

• (iii) signing and delivering any written resolutions and minutes of shareholders’ meetings of the OPCO and any other documents required to be signed by the shareholders of the OPCO, and submitting documents with relevant companies registry for filing purpose;

• (iv) selling, transferring, securing or disposing of the shares in the OPCO;

• (v) managing or disposing of the assets of the OPCO;

• (vi) exercising full rights to control and manage the finance, accounting and daily operation of the OPCO;

• (vii) approving any documents that have to be submitted to the relevant government departments or supervising authorities for filing purpose; and

• (viii) exercising all other shareholders’ rights under the PRC laws and regulations and the articles of association of the OPCO.

Each of the PRC Equity Owners has irrevocably undertaken that:

• (i) unless with written consent from Shangrao Dafy, they will neither, directly or indirectly, participate or engage in any business which is or may be in competition with the business of the OPCO or its associated company, or acquire or hold any such business, nor carry on any activities which may lead to any conflict of interests between themselves and Shangrao Dafy;

• (ii) none of their actions or omissions will give rise to conflict of interests between themselves and Shangrao Dafy (including the shareholders of Shangrao Dafy); and

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

• (iii) in the event of any conflict of interests between themselves and Shangrao Dafy, which shall be decided at the sole discretion of Shangrao Dafy, they will take any actions as instructed by Shangrao Dafy to eliminate such conflict provided that such action is compliant with the PRC laws and regulations.

Mr. Gao has further irrevocably undertaken that in the event of his death, bankruptcy or divorce or any event that would affect his equity interests in the OPCO, he would procure that his successor in title or the assignee to execute another power of attorney to grant the same rights and obligations under the power of attorney from Mr. Gao.

Shangrao Yaxin has further irrevocably undertaken that in the event of its winding up or any event that would affect its equity interests in the OPCO, it would procure that its successor in title or the assignee to execute another power of attorney to grant the same rights and obligations under the power of attorney from Shangrao Yaxin.

We have reviewed the VIE Agreements and the legal opinion from the PRC Legal Advisers. Based on the legal opinion from the PRC Legal Advisers, the VIE Agreements do not violate any PRC laws, rules and regulations applicable to the business of the OPCO and would not be deemed as ‘‘concealing illegal intentions with a lawful form’’ and void under the PRC Contract Law* 《( 中華人民共和國合同法》). The VIE Agreements entered into by Shangrao Dafy, the OPCO and/or the PRC Equity Owners are legally binding on each party in accordance with their terms and provisions under the PRC laws and regulations. Any dispute arising from the VIE Agreements among the parties should first be resolved through negotiation. In the event that the dispute cannot be resolved within 30 days, any party may submit the said dispute to the China International Economic and Trade Arbitration Commission (中國國際經濟貿易仲裁委員會) in accordance with its arbitration rules. The arbitrators may award remedies over the equity interests or assets of the OPCO, injunctive relief (e.g. for the conduct of business or to compel the transfer of assets) and/or winding up of the OPCO. The results of the arbitration shall be final and binding. In addition, the VIE Agreements contain provisions to the effect that the parties may seek interim remedies from any courts of competent jurisdiction. When the arbitral award is granted, any party can apply for its enforcement in any courts of competent jurisdiction such as courts in Hong Kong, the Cayman Islands, the PRC and other jurisdictions where the principal assets of the Company or the OPCO are located. The provisions as stipulated in the VIE Agreements are also binding on the successors of the PRC Equity Owners, as if the successor were a signing party to the VIE Agreements. Any breach by the successors would be deemed to be a breach of the VIE Agreements.

Moreover, we understand from the PRC Legal Advisers that all equity interests owned by the PRC Equity Owners in the OPCO have been pledged to Shangrao Dafy under the Equity Pledge Agreement to secure the performance of obligations by the

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

OPCO and the PRC Equity Owners under the VIE Agreements; and in the event of any breach of such obligations, Shangrao Dafy is entitled to enforce such pledge. As such, if a dissolution or liquidation of the OPCO occurs, a liquidator may seize and deal with the assets which are attributable to the PRC Equity Owners based on the VIE Agreements for the benefit of Shangrao Dafy.

As also advised by the PRC Legal Advisers, none of the VIE Agreements provides that the Group is obligated to share the losses of the OPCO or to provide financial support to the OPCO. Furthermore, the OPCO is a limited liability company and shall be solely liable for its own debts and losses with assets and properties owned by it. Under the PRC laws and regulations, the Group, as the primary beneficiary of the OPCO under the VIE Agreements, is not required to share the losses of the OPCO or to provide financial support to the OPCO.

As confirmed by the Directors, appropriate arrangements and undertakings have been made to address the potential conflict of interests between the PRC Equity Owners and Shangrao Dafy. On top of the provisions and measures as contained in the VIE Agreements which aim at allowing the Group to exercise effective control over and safeguarding the assets of the OPCO, the Directors advised us that the Company intends to adopt additional internal control measures against the OPCO, details of which are included in the sub-section headed ‘‘Internal Control Measures to be Implemented by the Group’’ of the Letter from the Board.

Based on the terms of the VIE Agreements, (i) Shangrao Dafy shall unwind the VIE Structure as soon as the PRC laws and regulations permit Shangrao Dafy to register itself as shareholder of the OPCO; (ii) the Group is not required to share the losses of the OPCO or provide financial support to the OPCO though the financial results of the OPCO will be consolidated into the Group’s financial statements and hence any possible profits and losses from the OPCO will be reflected in the Group’s consolidated financial statements; (iii) the Powers of Attorney (a) empower Shangrao Dafy to exercise all of its rights as shareholder of the OPCO under the PRC laws and regulations; (b) grant the power and authorisation to Shangrao Dafy to effectively control the finance, operation and assets of the OPCO; (c) restrict the PRC Equity Owners from any actions or omissions which will give rise to conflict of interests between themselves and Shangrao Dafy (including the shareholder(s) of Shangrao Dafy), and in the event of any conflict of interests between themselves and Shangrao Dafy, the PRC Equity Owners shall take any actions as instructed by Shangrao Dafy to eliminate such conflict; and (iv) dispute resolutions are included which allow each party to submit any dispute to the China International Economic and Trade Arbitration Commission (中國國際經濟貿易仲裁委員 會) and the VIE Agreements contain provisions to the effect that the parties may seek interim remedies and apply for their enforcement from any courts of competent jurisdiction such as courts in Hong Kong, the Cayman Islands, the PRC and other jurisdictions where the principal assets of the Company or the OPCO are located. As further represented by the Directors, in circumstances where the Company shall make decisions in respect of the operation of Shangrao Dafy and/or the OPCO, Mr. Gao shall abstain from voting on the relevant resolution(s) of the Board and/or at the general meeting(s) of the Company if he has a material interest in the contemplated transaction(s).

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

With the above being the case, we consider that the VIE Agreements and the VIE Structure have taken into account of the principles as set out in the listing decision HKLD-43-3 and the guidance letter HKEx-GL-77-14.

As regards the Exclusive Purchase Right Consideration of RMB5,775,000, we noted that it is equivalent to the sum of the appraised value of the Management Systems of approximately RMB6,032,100 as at 28 February 2019 (the ‘‘Valuation’’) based on the Asset Valuation Report and the unaudited net liabilities of the OPCO as at 30 April 2019 of RMB257,108. We are of the opinion that this is an appropriate basis for determination of the Exclusive Purchase Right Consideration and have carried out the following due diligence work on the Valuation:

The Valuation

We have reviewed the Asset Valuation Report, sent an information request list and held a telephone interview with the Independent Valuer to enquire into the methodology adopted for and the basis and assumptions used in the Valuation. As stated in the Asset Valuation Report, the Independent Valuer have assessed the value of the Management Systems by adopting the cost approach. The market approach is not chosen since the Management Systems are non-patented and consequently no comparable market transactions could be verified. The income approach is not chosen since the corresponding relationship between the Management Systems and income is uncertain and consequently the future income and risks are unpredictable and not quantifiable. The cost approach is considered to be the most appropriate valuation methodology given that there are sufficient data and information as the basis of the economic and technical parameters involving in the Management Systems. According to the Independent Valuer, the Valuation takes into account the function, advanced level, technology update and status of technological upgrade of each asset of the Management Systems. After conducting thorough market inquiry, the Independent Valuer notice that the original carrying values of those assets do not deviate much from their current market prices; therefore, they have determined the appraised values of those assets primarily based on their market prices on the valuation date after adjusting for the remaining economic life factor. The appraised value of the Management Systems is arrived at by summing up the appraised values of all the assets of the Management Systems. We have studied the relevant calculations provided by the Independent Valuer.

For our due diligence purpose, we have also reviewed and enquired into (i) the terms of engagement of the Independent Valuer with the Company; (ii) the Independent Valuer’s qualification and experience in relation to the preparation of the Asset Valuation Report; and (iii) the steps and due diligence measures taken by the Independent Valuer to arrive at the Valuation. From the mandate letter and other relevant information provided by the Independent Valuer and based on our telephone interview with them, we are satisfied with the terms of engagement of the Independent Valuer as well as their qualification and experience for preparation of the Asset Valuation Report. The Independent Valuer also confirmed that they are independent to the Group, each member of the VIE Structure and their respective associates.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Further details of the basis and assumptions of the Valuation are included in the Asset Valuation Report as contained in Appendix II to the Circular. During our discussion with the Valuer regarding the methodology, basis and assumptions of the Valuation, we have not found any material facts which may lead us to doubt the fairness and reasonableness of the methodology, principal basis and assumptions adopted for or the information used in the Valuation. Nevertheless, Shareholders should note that valuation of assets usually involves assumptions and therefore the Valuation may or may not reflect the true value of the Management Systems accurately.

In view of the foregoing, we consider that the terms of the VIE Agreements are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned.

3. Waivers from strict compliance with the Listing Rules

The Company has applied for, and the Stock Exchange has granted the following waivers:

Waiver from fixing the term of the VIE Agreements pursuant to Rule 14A.52 of the Listing Rules for a period of not exceeding three years

The VIE Structure is set up to enable the Group to engage in the value-added telecommunications business in the PRC indirectly through the OPCO. Since the VIE Agreements will allow the Group to have effective control over the finance, operation and assets of the OPCO, the Directors are of the opinion that the VIE Structure will be a long term arrangement for the Group, and it would be unduly burdensome and the Group would incur unnecessary administrative costs for a renewal of the VIE Agreements every three years or less. Furthermore, given that it is the intention of the Group to deepen the reach of its financial information and technology services in the PRC by utilising the Management Systems which are possessed by the OPCO amidst the fact that Shangrao Dafy is ineligible to obtain an ICP Licence for conducting the value-added telecommunications business due to legal restrictions, the Directors are of the view that the long term contractual arrangement under the VIE Structure is vital to the stability of the future business operation of the Group related to the value-added telecommunications business of the OPCO and the financial performance of the Group in the long run. It is commercially desirable for Shangrao Dafy to enter into the VIE Agreements with a duration of more than three years in order to secure the potential revenue stream from the value-added telecommunications business of the OPCO for the Group in the long term until registration of Shangrao Dafy as shareholder of the OPCO is permitted under the relevant PRC laws and regulations.

In assessing the fairness and reasonableness of the duration of the VIE Agreements, we have conducted an independent research on VIE structures adopted by companies listed on the Stock Exchange (the ‘‘Comparable Company(ies)’’) which enable the relevant listed companies to obtain control over the operating businesses of the PRC companies in which foreign investment is restricted by the relevant PRC laws and regulations (the ‘‘Comparable Transactions’’). We have searched for Comparable Companies which (i) are listed on the Stock Exchange; and (ii) announced revision, acquisition or establishment of VIE structures during the period from July 2018 to June

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2019 due to restriction under the relevant PRC laws and regulations. To the best of our knowledge and as far as we are aware of, we identified eight such Comparable Transactions. The table below illustrates the relevant information of the Comparable Transactions:

		Businesses
Date of	Company name	contemplated under	Duration of	Reasons to establish
announcement	(stock code)	the VIE agreements	the VIE agreements	the VIE structure
21 May 2019	Hi Sun	Value-added	The relevant equity	The group would not be
	Technology	telecommunications	interest pledge	able to engage in the
	(China) Limited	business	agreements: 50	value-added
	(818)		years;	telecommunications
				business in the PRC
			Others: no fixed term	directly without first
				adopting a VIE structure
				due to related regulations.
12 April 2019	Changhong Jiahua	E-commerce business	The relevant loan	In order to comply with the
	Holdings	of the business-to-	agreement,	PRC laws and regulations.
	Limited (8016)	business online e-	exclusive
		commerce platform	consultancy and
			services agreement
			and intellectual
			property rights
			authorisation
			agreement: Ten
			years;
			Others: no fixed term
28 December	IGG INC (799)	Operation of	No fixed term	The existing PRC laws and
2018		licencing and		regulations restrict foreign
		publishing of self-		investment in value-added
		developed browser		telecommunication,
		games and client-		internet content and
		based games in the		information services, and
		PRC		online games in the PRC.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

		Businesses
Date of	Company name	contemplated under	Duration of	Reasons to establish
announcement	(stock code)	the VIE agreements	the VIE agreements	the VIE structure
28 December	A8 New Media	Mobile online game	The relevant	Due to the foreign
2018	Group Limited	research and	exclusive business	ownership restrictions
	(800)	development and	cooperation	under the PRC laws and
		operation in the	agreement,	regulations and in order
		PRC and overseas	exclusive call	to comply with the PRC
			option agreement:	laws and regulations.
			Ten years;
			Others: no fixed term
13 November	Meituan Dianping	Operation of online	No fixed term	Due to regulatory
2018	(3690)	culture business		restrictions on foreign
		and radio and		ownership in the PRC,
		television program		the company conducts a
		services and value-		substantial portion of its
		added		business through
		telecommunications		consolidated affiliated
		services businesses		entities in the PRC.
10 October 2018	China Parenting	Operation of online	No fixed term	Business is considered to be
	Network	platform focusing		value-added
	Holdings	on the children,		telecommunications
	Limited (1736)	babies and		services, a sector where
		maternity market		foreign investment is
				subject to significant
				restrictions under the PRC
				laws and regulations.
4 October 2018	Hua Long Jin	P2P financing	No fixed term	The relevant business is
	Kong Company	information		classified as restricted
	Limited (1682)	business		foreign investment under
				the applicable PRC laws
				and regulations and there
				is no clear guidance on
				or interpretation of any
				applicable qualification
				requirements.

– 54 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Businesses Date of Company name contemplated under Duration of Reasons to establish announcement (stock code) the VIE agreements the VIE agreements the VIE structure 30 July 2018 V1 Group Limited Operation of online The relevant Foreign investors are (82) and/or mobile exclusive call prohibited from holding games option agreement: equity interest in an Ten years; entity conducting mobile game business and online Others: no fixed term audio-visual programmes business and are restricted to conduct value-added telecommunications services.

As shown by the above table, a series of VIE agreements were entered into by the Comparable Companies with the relevant PRC companies and/or their respective shareholders such that those Comparable Companies can effectively control the VIE and are consequently able to consolidate the financial results of the VIE into their consolidated financial statements. The durations of VIE agreements as contemplated under the Comparable Transactions ranged from ten years to 50 years or are mostly of an indefinite term. For this reason, we consider that it is a normal business practice for contracts of similar nature to the VIE Agreements to have a duration of more than three years.

Waiver from the setting a maximum aggregate annual cap pursuant to Rule 14A.53 of the Listing Rules for the service fees payable by the OPCO to Shangrao Dafy under the Exclusive Business Cooperation Agreement

Pursuant to the Exclusive Business Cooperation Agreement, the OPCO shall pay Shangrao Dafy an annual service fee to be determined at the sole discretion of Shangrao Dafy for the services provided by Shangrao Dafy. In addition, following the entering into of the VIE Agreements, Shangrao Dafy shall be able to exercise all of its rights as shareholder of the OPCO under the PRC laws and regulations and effectively control the finance, operation and assets of the OPCO. Therefore, the net profits of the OPCO shall translate to the commercial value of the services provided by Shangrao Dafy; while both the PRC Equity Owners and the OPCO shall not receive any economic interests and benefits. Such arrangement is thus as good as the Group operating the OPCO as its own subsidiary and the Group can fully enjoy the economic interests and benefits generated by the OPCO. Thus, setting a maximum annual cap for such service fee will limit the flow of economic interests and benefits generated by the OPCO to the Group.

– 55 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

4. Conditions of the Stock Exchange’s waivers

The Stock Exchange has granted the waivers to the Company subject to the following conditions (for details, please refer to the section headed ‘‘Listing Rules Implications’’ of the Letter from the Board): (i) no changes to the terms of any of the VIE Agreements without the approval from the independent non-executive Directors and the Independent Shareholders; (ii) the VIE Agreements will enable the Group to receive the economic interests and benefits generated by the OPCO on a continuing basis; (iii) the VIE Agreements may be renewed and/ or cloned upon expiry of the existing arrangements, without obtaining the approval of the Shareholders, on substantially the same terms and conditions under the VIE Structure; and (iv) there will be ongoing reporting and approval procedures as disclosed in the Letter from the Board. We consider that the aforementioned conditions may safeguard the interests of the Company and the Shareholders, in particular that any changes to the terms of any of the VIE Agreements will require the approval from the independent non-executive Directors and the Independent Shareholders.

5. Possible financial effects of the VIE Structure

Through the VIE Agreements, Shangrao Dafy will have effective control over the finance, operation and assets of the OPCO. As confirmed by the Directors after consulting the auditors of the Company, the financial results of the OPCO will be consolidated into the Group’s financial statements. Hence, the Group will have an additional revenue stream and any possible profits and losses from the OPCO will be reflected in the Group’s consolidated financial statements.

RECOMMENDATION

With respect to the waiver from fixing the term of the VIE Agreements pursuant to Rule 14A.52 of the Listing Rules for a period of not exceeding three years, we consider that, given the Comparable Transactions, it is a normal business practice for agreements of similar nature to the VIE Agreements to have a duration of more than three years. With respect to the waiver from setting a maximum aggregate annual cap pursuant to Rule 14A.53 of the Listing Rules for the service fees payable by the OPCO to Shangrao Dafy under the Exclusive Business Cooperation Agreement, we consider setting a maximum aggregate annual cap will limit the flow of economic interests and benefits generated by the OPCO to the Group.

– 56 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Having taken into consideration the factors and reasons as stated above, we are of the opinion that (i) the terms of the VIE Agreements are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; and (ii) the entering into of the VIE Agreements is in the interests of the Company and the Shareholders as a whole and is conducted in the ordinary and usual course of business of the Group. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the resolution(s) to be proposed at the EGM to approve the VIE Agreements, and we recommend the Independent Shareholders to vote in favour of the resolution(s) in this regard.

Yours faithfully, For and on behalf of VBG Capital Limited Doris Sing Deputy Managing Director

Ms. Doris Sing is a licenced person and responsible officer of VBG Capital Limited registered with the Securities and Futures Commission to carry on Type 6 (advising on corporate finance) regulated activity under the SFO and has over 14 years of experience in corporate finance.

• for identification purpose only

– 57 –

GENERAL INFORMATION

APPENDIX I

1. RESPONSIBILITY STATEMENT

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

2. INTEREST IN SECURITIES

Directors’ and chief executives’ interests and short positions in Shares, underlying Shares and debentures

As at the Latest Practicable Date, the interests and short positions of the Directors and the chief executive of the Company in the Shares, underlying Shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which (i) 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 they were taken or deemed to have under such provisions of the SFO); or (ii) were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the ‘‘Model Code’’) contained in the Listing Rules, were as follows:

• (i) Long positions in the Shares or underlying Shares

		Number of	Percentage of
		issued	the issued share
Name of Director/		ordinary	capital of
chief executive	Capacity	shares held	the Company
Mr. Gao (Note 1)	Interest in controlled	862,400,000	70%
	corporation
Mr. Ng Kin Siu	Interest in controlled	61,600,000	5%
(‘‘Mr. Ng’’)	corporation
(Note 2)

Notes:

1. Mr. Gao beneficially owns the entire issued share capital of Gentle Soar and is deemed, or taken to be, interested in all the shares of the Company held by Gentle Soar for the purposes of the SFO. Mr. Gao is the chairman of the Board and an executive Director.

2. Mr. Ng beneficially owns the entire issued share capital of Masterveyor Holdings Limited (‘‘Masterveyor’’) and is deemed, or taken to be, interested in all the shares of the Company held by Masterveyor for the purposes of the SFO. Mr. Ng is the chief executive officer of the Company and an executive Director.

– I-1 –

GENERAL INFORMATION

APPENDIX I

• (ii) Long positions in the shares of the Company’s associated corporation

Name of
Director/	Name of		Number of	Percentage
chief	associated		shares held/	of
executive	corporation	Capacity/Nature	interested in	shareholding
Mr. Gao	Gentle Soar	Beneficial owner	1	100%
Mr. Ng	Masterveyor	Beneficial owner	2	100%

Save as disclosed above, none of the Directors or chief executives of the Company had any interests or short positions in the Shares, underlying Shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO or as recorded in the register maintained by the Company pursuant to Section 352 of the SFO, or as otherwise to be notified to the Company and the Stock Exchange pursuant to the Model Code as at the Latest Practicable Date.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors was a director or employee of a company which had an interest or short position in the shares or underlying shares of the Company which disclosure to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO is required.

– I-2 –

GENERAL INFORMATION

APPENDIX I

Substantial shareholders’ and other persons’ interests and short positions in Shares, underlying Shares and debentures

So far as is known to the Directors and the chief executive of the Company, as at the Latest Practicable Date, the following persons (other than a Director or chief executive of the Company) had an interest or a short position in the Shares or underlying Shares of the Company as recorded in the register required to be kept under section 336 of the SFO:

(i) Long positions in the Shares or underlying Shares

				Percentage of
				total issued
			Long/short	share capital
Name of	Capacity/	Number of	interested	of
Shareholder	Nature of interest	Shares held	in position	the Company
CMBC Capital	Person having a	603,680,000	Long	49%
Finance	security interest in
Limited	shares (Note 1)
CMBC Capital	Interest in a	603,680,000	Long	49%
Holdings	controlled
Limited	corporation (Note 1)
CMBC	Interest in a	603,680,000	Long	49%
International	controlled
Investment	corporation (Note 1)
Limited
CMBC	Interest in a	603,680,000	Long	49%
International	controlled
Investment	corporation (Note 1)
(HK)
Limited
CMBC	Interest in a	603,680,000	Long	49%
International	controlled
Holdings	corporation (Note 1)
Limited
China	Interest in a	603,680,000	Long	49%
Minsheng	controlled
Banking	corporation (Note 1)
Corp., Ltd.
Gentle Soar	Beneficial owner	862,400,000	Long	70%

– I-3 –

GENERAL INFORMATION

APPENDIX I

				Percentage of
				total issued
			Long/short	share capital
Name of	Capacity/	Number of	interested	of
Shareholder	Nature of interest	Shares held	in position	the Company
Masterveyor	Beneficial owner	61,600,000	Long	5%
Ms. Wong	Interest of spouse	61,600,000	Long	5%
Chai Lin
(Note 2)

Notes:

1. CMBC Capital Finance Limited is a wholly-owned subsidiary of CMBC Capital Holdings Limited, which is beneficially owned by CMBC International Investment Limited as to 60.62%. CMBC International Investment Limited is a wholly-owned subsidiary of CMBC International Investment (HK) Limited, which is a wholly-owned subsidiary of CMBC International Holdings Limited, which is a wholly-owned subsidiary of China Minsheng Banking Corp. Ltd.. By virtue of the SFO, CMBC Capital Holdings Limited, CMBC International Investment Limited, CMBC International Investment (HK) Limited, CMBC International Holdings Limited and China Minsheng Banking Corp., Ltd. are therefore deemed to be interested in the security interest held by CMBC Capital Finance Limited.

2. Ms. Wong Chai Lin is the spouse of Mr. Ng, the chief executive officer of the Company, an executive Director and the beneficial owner of Masterveyor. By virtue of the SFO, Ms. Wong Chai Lin is deemed, or taken to be, interested in all the Shares in which Mr. Ng is interested.

Save as disclosed above, no other person (other than a Director or chief executive of the Company) had any interests or short positions in the Shares or underlying Shares of the Company as recorded in the register required to be kept under section 336 of the SFO as at the Latest Practicable Date.

3. COMPETING BUSINESS

As at the Latest Practicable Date, none of the Directors and their respective close associates were materially interested in any business, apart from the business of the Group, which competed or was likely to compete, either directly or indirectly, with that of the Group and which require disclosure under Rule 8.10 of the Listing Rules.

4. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contracts with the Company or any member of the Group which does not expire or is not determinable by the Group within one year without payment of compensation, other than statutory compensation.

– I-4 –

GENERAL INFORMATION

APPENDIX I

5. DIRECTORS’ INTEREST IN ASSETS OR CONTRACTS OR ARRANGEMENTS

Since 31 December 2018 up to the Latest Practicable Date, the Group had been a party to the following lease agreements in respect of the lease of certain assets in which the Directors are interested:

• (i) a lease agreement dated 17 December 2018 entered into between Shenzhen Dafy as lessor and Shangrao Dafy as lessee in respect of the lease of the Management Systems for a period from 1 January 2019 to 30 June 2019 (both days inclusive) for a leasing fee of RMB980,000, of which RMB162,000 had been refunded to Shangrao Dafy following the termination of the lease agreement on 31 May 2019;

• (ii) a lease agreement dated 17 December 2018 entered into between Dafy Yundai as lessor and Shangrao Dafy as lessee in respect of the lease of hardware and software system in connection with the online credit facilitation business on the mobile application ‘‘達飛雲貸’’ (the ‘‘Hardware and Software System’’) for a period from 1 January 2019 to 30 June 2019 (both days inclusive) for a leasing fee of RMB970,000;

• (iii) a lease agreement dated 31 May 2019 entered into between Dafy Yundai as lessor and Shangrao Dafy as lessee in respect of the lease of the Hardware and Software System for a period from 1 July 2019 to 31 December 2019 (both days inclusive) for a leasing fee of RMB920,000; and

• (iv) a lease agreement dated 8 July 2019 entered into between the OPCO as lessor and Shangrao Dafy as lessee in respect of the lease of the Management Systems for a period from 1 June 2019 to the earlier of (i) 31 December 2019 and (ii) the day on which the VIE Agreements have been approved by the Independent Shareholders at the EGM for a leasing fee of RMB1,134,000.

As at the Latest Practicable Date, the total consideration passing from the Group to Shenzhen Dafy, Dafy Yundai and the OPCO pursuant to the above leases was RMB3,842,000.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any asset which had been, since 31 December 2018 being the date to which the latest published audited consolidated financial statements of the Company were made up and up to the Latest Practicable Date, acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Group.

As at the Latest Practicable Date, Fruit Design & Build Limited, a wholly owned subsidiary of the Company, was a party to a design and construction agreement dated 8 June 2018 entered into between Fruit Design & Build Limited as service provider and Land Ease in respect of the provision of design and construction services for a fee of HK$182,000,000. Save as the said design and construction agreement, none of the Directors were materially interested, directly or indirectly, in any subsisting contract or arrangement entered into by any member of the Group which was significant in relation to the business of the Group.

– I-5 –

GENERAL INFORMATION

APPENDIX I

6. MATERIAL ADVERSE CHANGES

As at the Latest Practicable Date, the Directors were not aware of any material adverse changes in the financial or trading position of the Group since 31 December 2018, being the date to which the latest published audited consolidated financial statements of the Group were made up.

7. LITIGATION

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

8. QUALIFICATIONS AND CONSENTS OF EXPERTS

• (a) The following are the qualifications of the experts who gave opinion or advice contained in this circular:

Name

Qualifications

VBG Capital Limited

a corporation licensed to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO

• 福建聯合中和資產評估土地房 independent valuer 地產估價有限公司深圳分公 司 (Fujian United Assets Evaluation & Land and Real Estate Appraisals Co., Ltd., Shenzhen branch*)

AllBright Law Offices

PRC legal advisers to the Company

• (b) As at the Latest Practicable Date, none of the experts referred to in paragraph (a) above had any shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group, nor did any of them had any direct and indirect interests in any assets which have since 31 December 2018 (being the date to which the latest published audited consolidated financial statements of the Group were made up) been acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group.

• (c) Each of the experts referred to in paragraph (a) above has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter(s), report(s) and/or opinion(s) (as the case may be) and references to its name in the form and context in which it appears respectively included.

– I-6 –

GENERAL INFORMATION

APPENDIX I

9. MISCELLANEOUS

The English text of this circular shall prevail over the Chinese text, in case of any inconsistency. Nevertheless, the English names of the PRC laws, rules, regulations, nationals, entities, governmental authorities, institutions, facilities, certificates and titles etc. mentioned in this circular, including those marked with ‘‘*’’, are translations from their Chinese names and are for identification purpose only. If there is any inconsistency between the Chinese names and their English translations, the Chinese names shall prevail.

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours at the principal place of business of the Company in Hong Kong at Room 2101, 21/F, The Sun’s Group Centre, 200 Gloucester Road, Wan Chai, Hong Kong on weekdays (Saturdays and public holidays excepted) for 14 days from the date of this circular:

• (i) the VIE Agreements and the Memorandum;

• (ii) the letter from the Board, the text of which is set out in this circular;

• (iii) the letter from the Independent Board Committee, the text of which is set out in this circular;

• (iv) the letter from the Independent Financial Adviser, the text of which is set out in this circular;

• (v) the Asset Valuation Report, which is set out in Appendix II to this circular;

• (vi) the PRC legal opinion from the PRC Legal Advisers in respect of the VIE Agreements;

• (vii) the written consents referred to in the paragraph headed ‘‘8. Qualifications and consents of experts’’ in this appendix;

(viii)the Sale and Purchase Agreement;

• (ix) the lease agreements referred to in the paragraph headed ‘‘5. Directors’ interest in assets or contracts or arrangements’’ in this appendix;

• (x) the design and construction agreement dated 8 June 2018 entered into between Fruit Design & Build Limited as service provider and Land Ease in respect of the provision of design and construction services for a fee of HK$182,000,000;

• (xi) the memorandum and articles of association of the Company; and

• (xii) this circular.

– I-7 –

ASSET VALUATION REPORT

APPENDIX II

The following is the asset valuation report prepared by Independent Valuer in relation to the valuation of the Management Systems as at 28 February 2019.

The English version of this document is for reference only. Should there be any inconsistency between the Chinese and English versions, the Chinese version shall prevail.

Assets Valuation Report On

The Value of Software and Hardware in relation to The Proposed Lease of Management Systems By Shenzhen Dafy

United Shen Ping Bao Zi (2019) No.002 (Volume 1 of 1)

Fujian United Assets Evaluation & Land and Real Estate Appraisal Co., Ltd., Shenzhen Branch 14 August 2019

– II-1 –

ASSET VALUATION REPORT

APPENDIX II

CONTENTS

STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-3
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-5
ASSET VALUATION REPORT . . . . . . . . . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-6
I.	THE ENTRUSTING PARTY, PROPERTY OWNER AND USERS
	OF THE VALUATION REPORT	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-6
II.	PURPOSE OF VALUATION . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-7
III.	SUBJECT AND SCOPE OF VALUATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		II-8
IV.	TYPE AND DEFINITION OF VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		II-9
V.	VALUATION DATE . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-9
VI.	BASIS OF VALUATION . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-10
VII.	VALUATION METHODOLOGIES	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-12
VIII.	IMPLEMENTATION AND PARTICULARS OF VALUATION
	PROCEDURES . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-13
IX.	VALUATION ASSUMPTIONS . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-14
X.	CONCLUSION OF VALUATION	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-15
XI.	SPECIAL NOTES . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-17
XII.	RESTRICTIONS ON THE USE OF
	THE ASSET VALUATION REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		II-18
XIII.	DATE OF THE VALUATION REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		II-19

– II-2 –

ASSET VALUATION REPORT

APPENDIX II

STATEMENT

• I. This asset valuation report was prepared in accordance with the Basic Rules for Asset Appraisal issued by the Ministry of Finance and the Practice Guidelines and Code of Ethics for Asset Valuation issued by China Appraisal Society.

• II. The entrusting party or other users of the asset valuation report should use the asset valuation report within the scopes as specified in it in accordance with the laws and administrative regulations. We, as the asset appraisal institution and its asset appraisers, take no responsibility for any non-compliance of above-mentioned requirements for the use of the asset valuation report by the entrusting party or other users of the asset valuation report.

• III. This asset valuation report shall only be used by the entrusting party, other users of the asset valuation report stipulated in the asset valuation commission contract, and users of the asset valuation report as required by laws and administrative regulations. Save for the above, any other institutions or individuals shall not be regarded as the users of the asset valuation report.

• IV. We, as the asset appraisal institution and its asset appraisers, advise that the users of the asset valuation report should correctly interpret conclusion of valuation, which is not equivalent to the realizable value of the subject of valuation and should not be considered as a guarantee for the realizable value of the subject of valuation.

• V. We, as the asset appraisal institution and its asset appraisers, comply with the laws, administrative regulations and asset valuation standards, adhere to the principles of independence, objectivity and impartiality, and assume the responsibility for the issued asset valuation report in accordance with the laws.

• VI. The list of assets and liabilities of the subject of valuation has been reported and confirmed with signatures, seals or other ways as permitted under the laws by the entrusting party and property owner; the entrusting party and property owner are responsible for the truth, completeness and legality of the information provided in accordance with the laws.

• VII. We, the asset appraisal institution and its asset appraisers have no existing or expected relationship of interests with the subject of valuation in the asset valuation report nor with the relevant parties and have no prejudice against the relevant parties.

• VIII. The asset appraisers have carried out on-site inspection on the subject of valuation in the asset valuation report and its assets involved ; given necessary attention to the legal titles of the subject of valuation and its assets involved, verified the information related to the legal titles of the subject of valuation and its assets involved, made faithful disclosure in respect of the identified issues, and requested the entrusting party and other relevant parties to consummate the titles in order to fulfil the requirements for the issuance of an asset valuation report.

– II-3 –

ASSET VALUATION REPORT

APPENDIX II

• IX. The analyses, judgements and results in the asset valuation report issued by us, the asset appraisal institution are subject to the assumptions and limiting conditions in the asset valuation report. The users of the asset valuation report shall take into full account of the assumptions, limiting conditions and special notes specified in the asset valuation report and their impact on the valuation conclusion.

• X. The use of valuation conclusion is valid during the validity period specified in the asset assessment report. The user of the asset valuation report shall reasonably determine the use period of the asset valuation report based on the asset status and market changes after the valuation date.

– II-4 –

ASSET VALUATION REPORT

APPENDIX II

ASSET VALUATION REPORT On

the Value of Software and Hardware in relation to the Proposed Lease of Management Systems by Shenzhen Dafy

United Shen Ping Bao Zi (2019) No.002

We, Fujian United Assets Evaluation & Land and Real Estate Appraisal Co., Ltd., Shenzhen Branch accepted an engagement from Shenzhen Dafy to appraise the values of software and hardware in relation to the proposed lease of Management Systems by Shenzhen Dafy in accordance with the relevant laws and regulations of China and asset valuation standards in the principles of independence, objectivity and impartiality.

Subject of the Valuation: Software and hardware related to Management Systems held by Shenzhen Dafy.

Scope of the Valuation: Software and hardware related to Management Systems held by Shenzhen Dafy, subject to the list of assets provided by the entrusting party and the appraised entities

Type of value: Market value

Valuation date: 28 February 2019 (‘‘Valuation Date’’)

Based on the premise of continuous use of assets and open market, the appraisers performed the necessary evaluation procedures, and adopted the cost approach to conduct the assessment and estimation.

Conclusion of valuation: The total value of the software and hardware related to Management systems owned by Shenzhen Dafy on the Valuation Date is RMB6,032,100.

The conclusion of valuation in this valuation report is valid for one year from the Valuation Date, namely from the Valuation Date of 28 February 2019 to 27 February 2020.

This report is only used as a reference for the market value of software and hardware related to Management Systems owned by Shenzhen Dafy. It shall not be used for purposes of asset-backed loans and other purpose not expressly stated in this report.

Date of this valuation report is 14 August 2019.

– II-5 –

ASSET VALUATION REPORT

APPENDIX II

ASSET VALUATION REPORT ON THE VALUE OF SOFTWARE AND HARDWARE IN RELATION TO THE PROPOSED LEASE OF MANAGEMENT SYSTEMS BY SHENZHEN DAFY

Lian He Zhong He Shen Ping Bao Zi (2019) No. 002

Shenzhen Dafy:

We, Fujian United Assets Evaluation & Land and Real Estate Appraisal Co., Ltd., Shenzhen Branch, accepted the engagement of Shenzhen Dafy to appraise the market value of the software and hardware in relation to the proposed lease of Management Systems as at 28 February 2019 in accordance with relevant laws, regulations, asset valuation standards and asset valuation principles by adopting the cost approach and according to necessary valuation procedures. Details of the asset valuation are reported as follows:

I. THE ENTRUSTING PARTY, PROPERTY OWNER AND USERS OF THE VALUATION REPORT

The entrusting party and property owner of this valuation is Shenzhen Dafy. The users of the valuation report are the entrusting party as well as other users of the valuation report as stipulated under the laws and regulations of the PRC.

(I) Profile of the entrusting party and the property owner

Registration no. : 440301111552781 Enterprise Credit Code: 91440300319635251Q Legal representative: Gao Yunhong Registered capital: RMB1,600,000,000 Date of establishment: 2014-10-29 Business operation period: from 2014-10-29 — indefinite duration Type of enterprise: limited liability company

– II-6 –

ASSET VALUATION REPORT

APPENDIX II

Scope of business:

investment in industrial operations (specific projects shall be separately reported); investment management; investment consultation; equity investment; entrusted assets management; entrusted management in equity investment fund; lease of self-owned properties; financial agency service; entrusted by financial institutions to engage in outsourced financial services; economic information consultation; business information consultation; engagement in advertising business; technical development of computer software and hardware; domestic trading; internet data services; call center services (excluding restricted items). (Except for projects prohibited by laws, administrative regulations and the State Council; restricted projects shall be operated after acquiring relevant licenses).

II. PURPOSE OF VALUATION

The purpose of this valuation is to evaluate the software and hardware in relation to the Management Systems held by Shenzhen Dafy as at the Valuation Date and provide its market value as at the Valuation Date, so as to provide a value reference for the proposed lease by Shenzhen Dafy.

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ASSET VALUATION REPORT

APPENDIX II

III. SUBJECT AND SCOPE OF VALUATION

The subject of this valuation is the software and hardware in relation to the Management Systems held by Shenzhen Dafy; and the scope of valuation is the software and hardware in relation to the Management Systems held by Shenzhen Dafy, the details of which are as presented in the table below:

					Unit of amount: RMB	Unit of amount: RMB
					Value at Initial
				Line item	Recognition
			Date of	in financial	(Original book	Net carrying
No.	Name of asset	Supplier	purchase	statement	value)	amount
1	Server	Shenzhen Weixun Digital Co., Ltd.*	2015/7/27	Fixed assets	263,000.00	26,300.00
		(深圳市巍訊數碼有限公司)
2	Inspur storage	Shenzhen Weixun Digital Co., Ltd.*	2015/12/2	Fixed assets	173,400.00	20,230.00
		(深圳市巍訊數碼有限公司)
3	Inspur storage	Shenzhen Weixun Digital Co., Ltd.*	2015/12/25	Fixed assets	72,000.00	7,200.00
		(深圳市巍訊數碼有限公司)
4	Call center server	FUND (Guangdong) Technology Co., Ltd.*	2015/8/12	Intangible assets	890,000.00	615,583.23
		(廣東豐德科技有限公司)
5	Call center customer service	Zhongke Software Technology Co., Ltd.*	2015/8/18	Intangible assets	3,391,333.69	2,402,194.84
	project	(中科軟件科技有限公司)
6	Call center customer service	Zhongke Software Technology Co., Ltd.*	2016/6/30	Intangible assets	622,778.63	466,750.68
	project	(中科軟件科技有限公司)
7	Auto-call by call center	Zhongke Software Technology Co., Ltd.*	2017/2/9	Intangible assets	198,290.60	161,937.36
		(中科軟件科技有限公司)
8	Call center Aspect capacity	Zhongke Software Technology Co., Ltd.*	2017/2/9	Intangible assets	1,068,908.55	872,942.01
	upgrade	(中科軟件科技有限公司)
9	Sinosoft order payment	Sinosoft Company Limited	2018/7/19	Intangible assets	65,981.14	60,482.74
	application (data collection	(中科軟科技股份有限公司)
	synchronization and IVR
	button settings)
10	Decision engine project	Experian Information Technology (Beijing)	2016/8/10	Intangible assets	626,028.07	469,521.07
		Co., Ltd.*
		(益博睿信息技術(北京)有限公司)
11	Hardware resources of credit	Shenzhen M&O Consultant Technology	2017/3/23	Fixed assets	82,863.26	35,216.94
	review and anti-fraud	Co., Ltd.*
	system	(深圳市邁歐資訊科技有限公司)
12	Advance prepayment for the	Shenzhen Rise & Better Technology	2017/12/21	Fixed assets	31,453.04	22,017.19
	purchase of server	Co., Ltd.*
	accessories	(深圳瑞思貝特科技有限公司)
13	Payment for the purchase of	Shenzhen Sane Tao Origin Information	2017/12/21	Expenses
	big data platform server	Technology Co., Ltd.*
	accessories	(深圳市商道元信息技術有限公司)
14	System capacity upgrade cost	Shenzhen Fangge Information Technology	2017/2/28	Intangible assets	70,811.97	55,469.37
		Co., Ltd.*
		(深圳市方格信息技術有限公司)
15	Call center staff management	Shenzhen Singhead Tech Co., Ltd.	2017/1/5	Intangible assets	449,464.96	378,299.70
	system, dual-server hot
	backup software and
	multimedia gateway cost
16	Tianzhi large screen display	Beijing Tianzhi Interactive Technology	2017/11/17	Intangible assets	42,735.04	36,680.83
	system (C9 system V1.0)	Co., Ltd*
		(北京天智互動科技有限公司)

– II-8 –

ASSET VALUATION REPORT

APPENDIX II

Unit of amount: RMB

No. Name of asset Supplier Date of purchase Line item in financial statement 17 Tianzhi C9 system V1.0 Beijing Tianzhi Interactive Technology Co., Ltd (北京天智互動科技有限公司) 2018/9/20 Intangible assets 18 500 Tianzhi BI purchase user license plus 650 sites Beijing Tianzhi Interactive Technology Co., Ltd (北京天智互動科技有限公司) 2017/3/7 Intangible assets 19 Application for the payment of purchasing Sangfor (深信服) equipment maintenance Shenzhen Zhihe Chuangwei Information Technology Co., Ltd. (深圳市志合創偉信息技術有限公司) 2017/5/24 Fixed assets 20 Server and storage capacity expansion Shenzhen Fangge Information Technology Co., Ltd. (深圳市方格信息技術有限公司) 2018/8/21 Fixed assets 21 Fiber optic exchange device and transfer service Shenzhen Information Dacheng Network Co., Ltd. (深圳市信息大成網絡有限公司) 2018/9/10 Fixed assets 22 Alibaba cloud Alibaba Cloud Computing Co. Ltd. (阿里雲計算有限公司) 2018/2/6 Intangible assets 23 COP number resources of Beijing Zhaowei Boan Technology Co., Ltd. (北京兆維博安科技 有限公司) and SBC network equipment of Ehang (毅航) Beijing Zhaowei Boan Technology Co., Ltd. (北京兆維博安科技有限公司) 2018/11/30 Intangible assets Total	Value at Initial Recognition (Original book value) 151,196.59 174,786.32 32,688.68 473,332.81 70,157.27 2,607,640.71 168,103.44 11,726,954.77	Net carrying amount 128,517.13 157,307.72 15,527.36 425,999.25 63,141.51 439,662.77 162,500.00
		7,023,481.70

The subject and scope of this valuation is in line with the subject and scope of valuation determined by the entrusting party.

IV. TYPE AND DEFINITION OF VALUE

Based on relevant conditions including but not limited to economic activity and purpose of valuation, the type of value in this valuation is market value, namely the estimated value of the valuation subject in an arm’s length transaction in the ordinary course of business on the Valuation Date between a willing purchaser and a willing seller acting rationally without any compulsion.

V. VALUATION DATE

The valuation date of this project is 28 February 2019.

The Valuation Date is determined by the entrusting party. Factors including but not limited to the end of accounting period and facilitating the realisation of this economic activity were taken into consideration in the determination of the Valuation Date.

The standards of price selection in this valuation are all based on the effective prices as at the Valuation Date.

– II-9 –

ASSET VALUATION REPORT

APPENDIX II

VI. BASIS OF VALUATION

• (I) Economic activity basis

Minutes of General Manager Office Meeting of Shenzhen Dafy

(II) Legal and regulatory basis

1. Company Law of the People’s Republic of China (Amendments adopted at the 6th Session of the Standing Committee of the Twelfth National People’s Congress on 28 December 2013);

2. The Patent Law of the People’s Republic of China;

3. The Asset Appraisal Law of the People’s Republic of China (passed at the 21st Session of the 12th National People’s Congress Standing Committee on 2 July 2016);

4. Other laws, regulations and rules related to the valuation.

(III) Valuation standards basis

1. Assets Appraisal Standards — Basic Standards (Cai Qi (2004) No. 20 of Ministry of Finance) ;

2. Practice Guidelines for Asset Valuation — Basic Standards (Cai Qi (2017) No. 43);

3. Code of Ethics for Assets Valuation (Zhong Ping Xie (2017) No. 30);

4. Practice Guidelines for Asset Valuation — Asset Valuation Procedures (Zhong Ping Xie [2017] No. 31);

5. Practice Guidelines for Asset Valuation — Asset Valuation Report (Zhong Ping Xie [2017] No. 32);

6. Practice Guidelines for Asset Valuation — Asset Valuation Entrustment Contract (Zhong Ping Xie [2017] No. 33);

7. Practice Guidelines for Asset Valuation — Asset Valuation File (Zhong Ping Xie [2017] No. 34);

8. Quality Control Guidance on the Business of Asset Valuation Agency (Zhong Ping Xie [2017] No. 46);

9. Guiding Opinions on Types of Value under Asset Valuation (Zhong Ping Xie [2017] No. 47);

– II-10 –

ASSET VALUATION REPORT

APPENDIX II

1. Code of Ethics for Asset Valuation — Independence (Zhong Ping Xie[2012]) No. 248;

2. Guidance on Legal Titles of Assessment Objects Concerned by CPV (Zhong Zhu Xie Hui Xie [2003] No. 18);

3. Practice Guidelines for Asset Valuation — Intangible Assets (Zhong Ping Xie [2017] No. 37);

4. Guiding Opinions on Valuation of Patent Assets (Zhong Ping Xie [2017] No. 49);

5. Guidelines for Valuation of Intellectual Property Rights (Zhong Ping Xie [2017] No. 44);

(IV) Basis of assets ownership

1. Materials including but not limited to relevant technical specifications and drawings.

(V) Basis of price selection in the valuation

1. Electromechanical Products Quotations Manual in 2018 《( 2018年機電產品報價 手冊) (China Machinery Press);

2. Information on Price of National Import and Foreign Electromechanical Products 《( 全國進口及國外機電產品價格信息》);

3. The Commonly Used Data and Coefficient Handbook in Asset Appraisal 《( 資產 評估常用數據與參數手冊》) (China Science and Technology Press);

4. The benchmark lending rates announced by the financial institutions of People’s Bank of China;

5. Information of financial accounting and operation provided by the property owner;

6. List of assets and other information provided by the property owner;

7. Relevant information collected from on-site surveys and investigations by the appraisal staff;

8. Choice finance terminal of Eastmoney;

9. Other reference materials.

– II-11 –

ASSET VALUATION REPORT

APPENDIX II

VII. VALUATION METHODOLOGIES

Asset valuation approaches mainly comprise the cost approach, market approach and income approach. This evaluation adopts the cost approach.

Cost approach is based on the reasonable evaluation of the replacement value of intangible assets and fixed assets combined with the assets’ depreciation characteristics of each stage within their life.

This evaluation considers the function, advanced level, technology update and technology upgrade status of each software. Through the market inquiry, the original carrying value is not much different from the market price on the Valuation Date, therefore the appraised value is determined according to the remaining economic life based on the market price on the Valuation Date. In the process of applying cost approach for this report, the choice of economic parameters involved in evaluating various assets has sufficient data as its foundation and basis, therefore it is feasible to adopt the cost approach. The market approach is a valuation methodology which determines the value of the valuation subject by comparing the valuation subject with the existing transaction cases in the market. Since the valuation subject is a non-patented technology, there are no transaction cases to be verified around the Valuation Date. Therefore it is difficult to acquire the relevant comparable cases which are reliable and accurate. As such, market approach is not adopted in the evaluation.

The income approach refers to the valuation methodology which determines the value of the valuation subject by capitalizing or discounting the expected revenue. As the property owner in this report has the basis and conditions for continuous operation, but the corresponding relationship between such intangible assets and income is uncertain, the future income and risks are unpredictable and not quantifiable; therefore the income approach cannot be adopted for this evaluation. The specific valuation methods for each asset are as follows:

1. Intangible assets

The evaluation is based on of the replacement value of intangible assets (outsourcing cost, labor cost of the agency fee, cost of materials, cost of the creation of environment supporting, reasonable cost of site use or occupation, expert fee) and the registration cost (inquiry fee, fee for software copyright registration, fee for registration certificate, fee for sealed storage, fee for exception storage and stamp duty) as well as the reasonable profits and relevant taxes, combined with the intangible assets’ depreciation characteristics in each stage of their life.

Appraised value of intangible assets = Replacement cost of intangible assets × (1-depreciation ratio)

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ASSET VALUATION REPORT

APPENDIX II

2. Fixed assets — Equipment

According to the purpose of this valuation and the principle of continuous use, the replacement cost method is adopted for the valuation of equipment used for production and operation in the ordinary course on the basis of the market price, with consideration given to the characteristics of the equipment and the information collected.

Appraised value = replacement full cost × integrated residue ratio

XIII. IMPLEMENTATION AND PARTICULARS OF VALUATION PROCEDURES

Fujian United Assets Evaluation & Land and Real Estate Appraisal Co., Ltd., Shenzhen Branch accepted an engagement of Shenzhen Dafy to appraise the market price of the related software and hardware in Management Systems owned by Shenzhen Dafy. Upon negotiation, the valuation date was on 28 February 2019. The valuation plan was proposed and the valuation scheme was determined on 20 February 2019. The valuation commenced officially on 1 March 2019 and the onsite work was completed on 3 March 2019. The formal valuation report was issued on 14 August 2019.

The main valuation process is as follows:

(I) Preparation before the valuation

1. We negotiated and reached consensus on the basic matters of the valuation such as valuation purpose, scope and valuation date with the entrusting party and the non-patented technological implementation entity, and singed the engagement letter with the entrusting party and formulated the work plan for valuation;

2. We cooperated with the entrusting party to check the assets and fill in the detailed statement of assets valuation form. The personnel of valuation team went onsite to have a preliminary understanding of the assets to be appraised, assist in declaration of the assets to be appraised and collect the documents and information required for the assets valuation.

(II) Onsite verification and valuation

1. We listened to the introduction on the history and current situation of the assets to be appraised from the entrusting party and the relevant personnel of the nonpatented technological implementation entity, understood the introduction of the financial system, operation condition, technical status of the intangible assets, historical preformance and cost expenses of the enterprise in detail;

2. We verified the technological assets entrusted for valuation item by item on the basis of the detailed statement of assets valuation provided by the entrusting party under the requirements of the assets valuation principles;

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ASSET VALUATION REPORT

APPENDIX II

1. We referred to and collected the certification documents with respect to the ownership certificates of the assets entrusted for valuation, and identified, analyzed, and organized the primary data provided by the entrusting party;

2. We determined the specific valuation approaches according to the actual situation and characteristics of the assets entrusted for valuation;

3. We referred to and collected technical information and acceptance information of related assets; and collected price data through market investigation and queries about the related information.

(III) Summary of valuation

We analyzed and summarized the preliminary results of valuation of all kinds of assets and made necessary adjustments, modifications and improvements to the valuation results.

(IV) Preparation and submission of the valuation report

We prepared the assets valuation report, exchanged opinions with the entrusting party on the first draft of the valuation. After having a comprehensive consideration of the relevant opinions, we made corrections and amendments to the report in accordance with the internal three-level examination and verification system and procedures of valuation institutions and finally issued the official asset valuation report.

IX. VALUATION ASSUMPTIONS

• (I) Transaction assumption;

• (II) Open market assumption;

• (III) Continuous use of assets assumption;

• (IV) Going concern assumption;

• (V) There are no material changes in the current national macroeconomic conditions;

• (VI) There are no material changes in the social-economic environment where the technical enterprise operates, as well as in its taxation policy enforced, including tax rates;

• (VII) The future management members of the technical enterprises will duly perform their duties, continue to carry out the operation and management in the same manner as currently adopted, and the business plan can be successfully implemented after the Valuation Date;

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ASSET VALUATION REPORT

APPENDIX II

• (VIII) The technical connotation and comparative information on relevant economic and technical indexes in this valuation report are provided by the technology owner while our responsibility is to review such information and issue professional opinions based on the evaluation practices;

• (IX) This valuation does not consider the impact of inflation factors;

Based on the requirements of the asset valuation, the appraiser believes that these assumptions are valid on the Valuation Date. When the future economic environment changes significantly and the preconditions change, the appraiser will not assume responsibility for the different valuation results deriving from changes in preconditions.

X. CONCLUSION OF VALUATION

The cost approach has been adopted for the assessment and the estimation during this valuation.

Conclusion of valuation: The total value of the software and hardware related to Management Systems owned by Shenzhen Dafy on the Valuation Date is RMB6,032,100. Details are presented in the Statement of Asset Valuation as follows:

						Asset Valuation Results	Asset Valuation Results
							Unit: RMB
					Value at
					Initial
					Recognition
			Date of	Financial	(Original	Net Book	Appraised
No.	Item	Supplier	Purchase	Category	Book Value)	Value	Value
1	Server	Shenzhen Weixun Digital Co., Ltd.*	2015/7/27	Fixed Asset	263,000.00	26,300.00	23,100.00
		(深圳市巍訊數碼有限公司)
2	Inspur storage	Shenzhen Weixun Digital Co., Ltd.*	2015/12/2	Fixed Asset	173,400.00	20,230.00	19,700.00
		(深圳市巍訊數碼有限公司)
3	Inspur storage	Shenzhen Weixun Digital Co., Ltd.*	2015/12/25	Fixed Asset	72,000.00	7,200.00	7,040.00
		(深圳市巍訊數碼有限公司)
4	Call center server	Fund (Guangdong) Technology Co., Ltd.*	2015/8/12	Intangible Asset	890,000.00	615,583.23	497,700.00
		(廣東豐德科技有限公司)
5	Call center customer	Zhongke Software Technique Co., Ltd.*	2015/8/18	Intangible Asset	3,391,333.69	2,402,194.84	1,855,800.00
	service project	(中科軟件科技有限公司)
6	Call center customer	Zhongke Software Technique Co., Ltd.*	2016/6/30	Intangible Asset	622,778.63	466,750.68	395,900.00
	service project	(中科軟件科技有限公司)
7	Auto-call by call center	Zhongke Software Technique Co., Ltd.*	2017/2/9	Intangible Asset	198,290.60	161,937.36	148,200.00
		(中科軟件科技有限公司)
8	Call center Aspect	Zhongke Software Technique Co., Ltd.*	2017/2/9	Intangible Asset	1,068,908.55	872,942.01	798,400.00
	capacity upgrade	(中科軟件科技有限公司)
9	Sinosoft order payment	Sinosoft Co., Ltd.	2018/7/19	Intangible Asset	65,981.14	60,482.74	60,200.00
	application (data
	collection
	synchronization and
	IVR button
	ssettings)
10	Decision engine project	Experian Information Technology	2016/8/10	Intangible Asset	626,028.07	469,521.07	413,700.00
		(Beijing) Co., Ltd.*
		(益博睿信息技術(北京)有限公司)
11	Hardware resources,	Shenzhen M&O Consultant Technology	2017/3/23	Fixed Asset	82,863.26	35,216.94	31,900.00
	credit review and	Co., Ltd.*
	anti-fraud system	(深圳市邁歐資訊科技有限公司)

– II-15 –

APPENDIX II

ASSET VALUATION REPORT

No. Item Supplier Date of Purchase Financial Category 12 Advance prepayments for purchase of server accessories Shenzhen Ruisi Beite Technology Co., Ltd. (深圳瑞思貝特科技有限公司) 2017/12/21 Fixed Asset 13 Payments for purchase of big data platform server accessories Shenzhen Shangdaoyuan Information Technology Co., Ltd. (深圳市商道元信息技術有限公司) 2017/12/21 Payable 14 System capacity upgrade cost Shenzhen Fangge Information Technology Co., Ltd. (深圳市方格信息技術有限公司) 2017/2/28 Intangible Asset 15 Call center staff management system, dual-server hot backup software and multimedia gateway cost Shenzhen SingHead Tech Co., Ltd. 2017/1/5 Intangible Asset 16 Tianzhi large screen display system (c9 system v1.0) Beijing TalentBi Technology Co., Ltd. (北京天智互動科技有限公司) 2017/11/17 Intangible Asset 17 Tianzhi C9 system V1.0 BeiJing TalentBi Technology Co., Ltd. (北京天智互動科技有限公司) 2018/9/20 Intangible Asset 18 500 Tianzhi BI purchase user license plus 650 sites BeiJing TalentBi Technology Co., Ltd. (北京天智互動科技有限公司) 2017/3/7 Intangible Asset 19 Application for the payment of purchasing Sangfor (深信服) equipment maintenance Shenzhen Zhihe Chuangwei Information Technology Co., Ltd. (深圳市志合創偉信息技術有限公司) 2017/5/24 Fixed Asset 20 Server and storage capacity expansion Shenzhen Fangge Information Technology Co., Ltd. (深圳市方格信息技術有限公司) 2018/8/21 Fixed Asset 21 Fiber optic exchange device and transfer service Shenzhen Information Dacheng Network Co., Ltd. (深圳市信息大成網絡有限公司) 2018/9/10 Fixed Asset 22 Alibaba cloud Alibaba Cloud Computing Co. Ltd. (阿 里雲計算有限公司) 2018/2/6 Intangible Asset 23 COP number resources of Beijing Zhaowei Boan Technology Co., Ltd. (北京兆維博安科技 有限公司) and SBC network equipment of Ehang (毅航) Beijing Zhaowei Bo’an Technology Co., Ltd. (北京兆維博安科技有限公司) 2018/11/30 Intangible Asset Total	Value at Initial Recognition (Original Book Value) 31,453.04 — 70,811.97 449,464.96 42,735.04 151,196.59 174,786.32 32,688.68 473,332.81 70,157.27 2,607,640.71 168,103.44 11,726,954.77	Asset Valuation Results Unit: RMB Net Book Value Appraised Value 22,017.19 19,400.00 55,469.37 47,300.00 378,299.70 357,500.00 36,680.83 35,800.00 128,517.13 122,300.00 157,307.72 156,600.00 15,527.36 15,000.00 425,999.25 384,500.00 63,141.51 57,000.00 439,662.77 431,000.00 162,500.00 154,100.00 7,023,481.70 6,032,140.00	Asset Valuation Results Unit: RMB Net Book Value Appraised Value 22,017.19 19,400.00 55,469.37 47,300.00 378,299.70 357,500.00 36,680.83 35,800.00 128,517.13 122,300.00 157,307.72 156,600.00 15,527.36 15,000.00 425,999.25 384,500.00 63,141.51 57,000.00 439,662.77 431,000.00 162,500.00 154,100.00 7,023,481.70 6,032,140.00
			6,032,140.00

• for identification purpose only

– II-16 –

ASSET VALUATION REPORT

APPENDIX II

XI. SPECIAL NOTES

• (I) Restrictions on the valuation procedures

• Instead of making technical assessments to the advancement and implementation effects of non-patent technology as at the Valuation Date, the appraiser has made its judgements through on-site inspection based on the premises that the related technical information and implementation records provided by the non-patent technological implementation entity are assumed to be true and effective and without the support of any testing equipment.

• The appraiser defined the property rights of the technology based on the technical certificate issued by the property owner. Entrusting party and the property owner are responsible for the authenticity, legality and completeness of the information provided of the property rights.

• The relevant legal certification documents and relevant data information involved in this report are provided by the entrusting party and the property owner. The entrusting party and the property owner shall assume responsibility for their authenticity and reliability and bear the corresponding legal responsibilities.

• Based on the confidentiality of the project, a more detailed description of the technology could not be included in this valuation report.

• Because the technology has not been widely used, and the on-site evaluation did not have the conditions for on-site demonstration, the investigations and verification of the technology is limited to the investigation and understanding of the relevant engineering officers of the entrusting party and the property owner and the verification of written technical materials provided by the entrusting party and the property owner.

(II) Significant events after the Valuation Date

After conduction of a due diligence, the appraiser is not aware of any significant events which have occurred between the Valuation Date and the valuation report date and may affect the conclusion of the valuation. After the Valuation Date and during the effective period of the conclusion of the valuation, if there are changes in relation to the asset quantity and the consideration level, the following principles will apply:

1. The amount of the assets should be correspondingly adjusted based on the original valuation method when there is a change in relation to the asset quantity;

2. The entrusting party should engage a qualified valuation institution to make a valuation again on a timely basis when there is a change in relation to the asset price level which has significant effect on the appraised asset value;

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ASSET VALUATION REPORT

APPENDIX II

1. The entrusting party should give full consideration to the changes in relation to the asset quantity and the price level after the Valuation Date when it determines the final asset price and make corresponding adjustments.

2. (III) For the defects which may have an impact on the asset valuation, the valuation institution and the appraiser accepts no related responsibility for the unknown defects which are not specified when the appraiser is engaged and are not still unknown even the appraiser has carried out the valuation procedures.

The above special matters need to be brought to the attention of the users of the valuation report.

XII. RESTRICTIONS ON THE USE OF THE ASSET VALUATION REPORT

• (I) This valuation report shall only be used for the purpose and function specified in the valuation report. It shall not be used for any other purpose and function. The appraiser and the related asset appraisal company accept no responsibility for the consequences due to inappropriate use;

• (II) The results of this valuation report are provided as a reference opinion for the proposed leasing values of Shenzhen Dafy, and shall not be used for the purpose of mortgage of the appraised assets, the purpose of the accounting of the appraised assets, the purpose for determining the ownership of the appraised assets, and other purposes not specified in this report;

• (III) Without the agreement of the appraiser, any part or all of the contents of the valuation report shall not be extracted, quoted or disclosed to the public media;

• (IV) Since the Valuation Date, the valuation conclusions is effective for use for a year from the Valuation Date provided that the market conditions or the asset condition do not experience material changes, namely for a period from 28 February 2019, the Valuation Date, to 27 February 2020;

• (V) If the policy changes have a significant effect on the valuation conclusion, the valuation date should be set again for valuation.

– II-18 –

ASSET VALUATION REPORT

APPENDIX II

XIII. DATE OF THE VALUATION REPORT

The date of the valuation report and on which this professional opinion is formed is 14 August 2019.

Fujian United Assets Evaluation & Land and Real Estate Appraisal Co., Ltd., Shenzhen Branch Asset appraiser: Liu Xinmin

Asset appraiser: Yu Hanlong

14 August 2019

– II-19 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

==> picture [74 x 36] intentionally omitted <==

==> picture [46 x 35] intentionally omitted <==

Dafy Holdings Limited 達 飛 控 股 有 限 公 司

(incorporated in the Cayman Islands with limited liability)

(Stock Code: 1826)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the ‘‘EGM’’) of Dafy Holdings Limited (the ‘‘Company’’) to be held at Room 2101, 21/F, The Sun’s Group Centre, 200 Gloucester Road, Wan Chai, Hong Kong on Monday, 9 September 2019 at 10:30 a.m., for the purpose of considering and, if thought fit, passing the following ordinary resolutions:

ORDINARY RESOLUTIONS

‘‘THAT:

1. the VIE Agreements (as defined in the Company’s circular dated 21 August 2019 (the ‘‘Circular’’)), a copy of which is tabled at the meeting marked ‘‘A’’ and initialled by the chairman of the meeting for identification purpose, and the transactions contemplated thereunder be and are hereby confirmed, approved and ratified; and

2. any one director of the Company be and is hereby authorised, for and on behalf of the Company, to execute all documents (including the affixation of the Company’s common seal, if required) and to do all such acts and things and take all such other steps which, in his/her opinion, may be necessary, desirable or expedient for the purpose of, or in connection with, the implementation of and giving effect to the VIE Agreements (as defined in the Circular) and the transactions contemplated thereunder.’’

Yours faithfully, By order of the Board Dafy Holdings Limited 達飛控股有限公司 Feng Xuelian

Executive Director

Hong Kong, 21 August 2019

– EGM-1 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

Registered Office: Head office and principal place of Cricket Square business in Hong Kong: Hutchins Drive 6th Floor, The Sun’s Group Centre P.O. Box 2681 200 Gloucester Road Grand Cayman, KY1-1111 Wan Chai Cayman Islands Hong Kong

Notes:

1. A member of the Company entitled to attend and vote at the EGM is entitled to appoint another person as his proxy to attend and vote instead of him. A member of the Company who is the holder of two or more shares of the Company may appoint more than one proxy to represent him and vote on his behalf. A proxy need not be a member of the Company. If more than one proxy is appointed, the appointment shall specify the number of shares in respect of which each such proxy is so appointed.

2. To be valid, the form of proxy and the power of attorney or other authority, if any, under which it is signed, or a certified copy thereof must be lodged with the Company’s branch share registrar in Hong Kong, Tricor Investor Services Limited, at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong not less than 48 hours before the time appointed for holding the EGM or at any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the Meeting or at any adjournment thereof if you so wish. In such event, the form of proxy shall be deemed to be revoked.

3. For determining the qualification as members of the Company to attend and vote at the EGM, the register of members of the Company will be closed from Wednesday, 4 September 2019 to Monday, 9 September 2019, both days inclusive, during which period no transfer of shares will be registered. In order to be eligible to attend and vote at the EGM, all transfers of shares accompanied by the relevant share certificates and transfer forms must be lodged with the Company’s branch share registrar in Hong Kong, Tricor Investor Services Limited, at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong for registration not later than 4:30 p.m. on Tuesday, 3 September 2019.

4. The Chinese translation of this notice is for reference only. In case of any inconsistency, the English version shall prevail.

5. If Typhoon Signal No. 8 or above, or a ‘‘black’’ rainstorm warning is in effect any time after 8:00 a.m. on the date of the EGM, the EGM will be postponed. The Company will post an announcement on the website of the Company at www.dafy.com.hk and on the website of the Stock Exchange at www.hkexnews.hk to notify members of the Company of the date, time and place of the rescheduled EGM.

As at the date of this notice, the executive Directors are Mr. Gao Yunhong, Mr. Lu Xin, Ms. Feng Xuelian and Mr. Ng Kin Siu; and the independent non-executive Directors are Mr. Chan Yuk Sang, Mr. Wan Chi Wai Anthony and Mr. Lau Kwok Fai Patrick.

– EGM-2 –