Joy Spreader Group Inc. - Proxy Solicitation & Information Statement 2017

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

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

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**AGTech Holdings Limited 亞博科技控股有限公司[*]**

(incorporated in Bermuda with limited liability)

(Stock Code: 8279)

(1) CONTINUING CONNECTED TRANSACTIONS AND

(2) NOTICE OF SPECIAL GENERAL MEETING

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

SOMERLEY CAPITAL LIMITED

A letter from the Board is set out on pages 4 to 15 of this circular.

A letter from the Independent Board Committee containing its recommendation to the Independent Shareholders is set out on pages IBC-1 to IBC-2 of this circular.

A letter from Somerley Capital Limited, the Independent Financial Adviser, containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages IFA-1 to IFA-15 of this circular.

A notice convening the SGM to be held at 11:00 a.m. on Wednesday, 8 March 2017 at Units 2302-2305, 23/F. Tower One, Times Square, 1 Matheson Street, Causeway Bay, Hong Kong is set out on pages SGM-1 to SGM-2 of this circular. Whether or not shareholders of the Company are able to attend the SGM, they are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and deposit it with the Company’s Hong Kong branch share registrar, Tricor Abacus Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, as soon as possible and in any event not less than 48 hours before the time appointed for holding the SGM. Completion and return of the form of proxy will not preclude shareholders of the Company from attending and voting in person at the SGM (or any adjournment thereof) should they so desire.

This circular will remain at www.hkgem.com on the “Latest Company Announcements” page of the GEM website for at least 7 days from the date of its posting and will be published on the website of the Company at http://www.agtech.com.

20 February 2017

* For identification purpose only

CHARACTERISTICS OF GEM

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

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

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		Page
Definitions	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from	the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Letter from	the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	IBC-1
Letter from	the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	IFA-1
Appendix	— General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	A-1
Notice of Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .SGM-1

– ii –

DEFINITIONS

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

“Ali Fortune”
Ali Fortune Investment Holding Limited, a company incorporated under the laws of the British Virgin Islands
“Alibaba Group”
a group of companies comprising Alibaba Holding and its subsidiaries (excluding the Group)
“Alibaba Holding”

Alibaba Group Holding Limited, a company incorporated in the Cayman Islands and its American depositary shares are listed on the New York Stock Exchange

“Announcement”
the announcement of the Company dated 25 January 2017 in respect of the Transactions
“associate(s)”,
“connected person(s)”, “controlling shareholder(s)” and “subsidiary(ies)”
each has the meaning ascribed to it under the GEM Listing Rules
“Board” the board of Directors
“Business Cooperation Agreement”

the business cooperation framework agreement dated 10 August 2016 entered into between Taobao (China) Software Co., Ltd. (淘寶（中國）軟件有限公司), Alipay.com Co., Ltd. (支付寶（中國）網絡技術有限公司) and the Company, details of which are set out in the circular of the Company dated 25 May 2016

“Cap(s)”

the maximum amounts in respect of the Transactions for each period/year (as the case may be)

“Company”

AGTech Holdings Limited, a company incorporated in Bermuda with limited liability, the shares of which are listed on the GEM of the Stock Exchange

“Director(s)” the director(s) of the Company
“Effective Date”

the date on which all conditions precedent under the Framework Agreement, details of which are set out in the paragraph headed “Terms and Conditions Precedent” in the section headed “Letter from the Board” in this circular, having been satisfied

* For identification purpose only

– 1 –

DEFINITIONS

“Framework Agreement”
“GEM”
“GEM Listing Rules”
“Group”
“Hong Kong”
“Independent Board Committee”
“Independent Financial Adviser”
“Independent Shareholders”
“Latest Practicable Date”
“Lottery Agencies”
“Lottery Channel”
“Lottery Products”

the business cooperation agreement entered into between the Company and Alibaba Holding on 25 January 2017

the Growth Enterprise Market of the Stock Exchange
the Rules Governing the Listing of Securities on GEM
the Company and each of its subsidiaries from time to time
the Hong Kong Special Administrative Region of the PRC
an independent board committee of the Board (comprising all the independent non-executive Directors, namely Ms. Monica Maria Nunes, Mr. Feng Qing and Dr. Gao Jack Qunyao) to advise the Independent Shareholders as to the fairness and reasonableness of the Transactions and as to voting
Somerley Capital Limited, a licensed corporation to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO, and the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Transactions are, or are not, fair and reasonable and as to voting
Shareholders other than Alibaba Holding and its associates
15 February 2017, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein
the China Welfare Lottery Issuance and Administration Centre and the China Sports Lottery Administration Centre, and the lottery sales offices established by the civil affairs departments and sports administration departments of the PRC government at the provincial level
lottery channel(s) on the online platform(s) of the Alibaba Group
lottery products that the Group has developed or is authorised to operate

– 2 –

DEFINITIONS

“Other Services” online activities which are not subject to the applicable PRC lottery laws and regulations, including advertising, information subscription and other content on the Lottery Channel

“PRC” the People’s Republic of China, and for the purpose of this circular, excluding Hong Kong, the Macao Special Administrative Region of the PRC and Taiwan
“SFO”
The Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong)
“SGM”
the special general meeting of the Company to be held to consider and, if thought fit, approve, among other things, the Framework Agreement, the Transactions and the Caps
“Share(s)” ordinary shares with a par value of HK$0.002 each in the capital of the Company
“Shareholder(s)” holder(s) of the Share(s)
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“Transactions”
the Group’s utilisation of certain channels and networks of the Alibaba Group for sales and distribution of the Lottery Products and Other Services on a revenue-sharing basis and purchase of technology services from Alibaba Group under the Framework Agreement, details of which are set out in the paragraphs headed “Sales and Distribution of Lottery Products and Other Services” and “Technology Services” in the section headed “Letter from the Board” in this circular
“RMB” Renminbi, the lawful currency of the PRC “%” per cent

For the purposes of illustration only, any amount denominated in RMB in this circular is translated into HK$ at the rate of RMB0.88093 = HK$1. Such translation should not be construed as a representation that the amounts in question have been, could have been or could be, converted at any particular rate at all.

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LETTER FROM THE BOARD

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**AGTech Holdings Limited 亞博科技控股有限公司[*]**

(incorporated in Bermuda with limited liability)

(Stock Code: 8279)

Executive Directors: Mr. Sun Ho (Chairman & CEO) Mr. Zhou Haijing (Chief Financial Officer)

Non-executive Directors:

Mr. Zhang Qin Mr. Yang Guang Mr. Ji Gang Mr. Zhang Wei

Independent non-executive Directors: Ms. Monica Maria Nunes Mr. Feng Qing Dr. Gao Jack Qunyao

Registered office: Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Head office and principal place of business: Unit 3912, 39th Floor, Tower Two Times Square Causeway Bay Hong Kong

20 February 2017

To the Shareholders and, for information only, the holder of the convertible bonds of the Company

Dear Sir or Madam,

(1) CONTINUING CONNECTED TRANSACTIONS AND

(2) NOTICE OF SPECIAL GENERAL MEETING

INTRODUCTION

Reference is made to the Announcement in which it was disclosed that on 25 January 2017, the Company and Alibaba Holding entered into the Framework Agreement, pursuant to which the Group shall (i) utilise certain channels and networks of the Alibaba Group for sales and distribution of the Lottery Products and Other Services on a revenue-sharing basis; and (ii) purchase technology services from Alibaba Group, subject to the Caps for a term commencing from the Effective Date and ending on 31 December 2019.

* For identification purpose only

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LETTER FROM THE BOARD

The purpose of this circular is to provide you with, among other things, (i) further information on the Framework Agreement, the Caps and the Transactions; (ii) the recommendations from the Independent Board Committee to the Independent Shareholders; (iii) the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders; and (iv) the notice for convening the SGM.

On 25 January 2017, the Company and Alibaba Holding entered into the Framework Agreement, pursuant to which the Group shall (i) utilise certain channels and networks of the Alibaba Group for sales and distribution of the Lottery Products and Other Services on a revenue-sharing basis; and (ii) purchase technology services from Alibaba Group, subject to the Caps for a term commencing from the Effective Date and ending on 31 December 2019.

THE FRAMEWORK AGREEMENT

Date

25 January 2017

Parties

The Company; and
Alibaba Holding.

Terms and Conditions Precedent

Subject to the satisfaction of the conditions precedent under the Framework Agreement as set out below, the term of the Framework Agreement shall commence on the Effective Date and end on 31 December 2019:

(a) the Company having obtained the approval of the Board and the Independent Shareholders at the SGM by way of poll in relation to the Framework Agreement and the Transactions in accordance with the GEM Listing Rules and the Company’s bye-laws; and
(b) the Company and Alibaba Holding having complied with all requirements as may be imposed by the relevant regulatory authorities (including the Stock Exchange) in relation to the Framework Agreement and the Transactions, if any, and having obtained all approvals and permits necessary for the performance of its respective obligations under the Framework Agreement and the Transactions in accordance with all applicable legal and regulatory requirements (including the GEM Listing Rules).

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LETTER FROM THE BOARD

Sales and Distribution of Lottery Products and Other Services

The Group shall utilise certain channels and networks of the Alibaba Group to reach retail points of sales and consumers for sales and distribution of the Lottery Products and Other Services on a revenue-sharing basis. In this connection, the parties to the Framework Agreement agreed that:

(a) the Group shall sell and distribute the Lottery Products (in physical form) through certain channels and networks of the Alibaba Group, including (i) physical stores managed, co-managed or controlled by Alibaba Group which are located at both the urban, as well as rural and village areas of the PRC; and (ii) retail points of sales or merchants registered with the platforms of Alibaba Group, and in conjunction with the sale and distribution of Lottery Products (in physical form) to the above physical stores and entities, the Group shall also be responsible for the development, maintenance and operation of the underlying systems and hardware for such Lottery Products;
(b) the Group is responsible for the marketing and operation of the Lottery Products (in physical form), and is also responsible for the management and analysis of subscriber data and transaction data generated by the Lottery Channel and the operation of the sales and distribution of Lottery Products; and
(c) the commission income generated from the sales and distribution of the Lottery Products (in physical form), after deduction of taxes and commission or expenses payable to third party service providers or partners, will be shared among the Group and Alibaba Group on a 50:50 basis.

Furthermore, pursuant to the Business Cooperation Agreement, the Group shall be authorised to operate the Lottery Channel (i.e. lottery channel(s) on the online platform of the Alibaba Group). The parties to the Framework Agreement agree that, through the Lottery Channel:

(i) the Group shall generate income by the sales and distribution of Other Services, namely online activities which are not subject to the applicable PRC lottery laws and regulations, including advertising, information subscription and other content on the Lottery Channel. It is expected that in general, amount of fees to be charged to advertisers on the Lottery Channel will be determined based on factors including traffic volume reached by such advertisements, and to content users on the Lottery Channel based on factors including actual usage, such as a fee per access to content or a periodic fee, etc.. The fee income generated through the sales and distribution of Other Services will be shared among the Group and Alibaba Group using the revenue-sharing basis in sub-paragraph (c) above;
(ii) in the event that and so long as it is allowed under applicable laws and regulations in the PRC, the Group shall distribute and sell the Lottery Products (in online form) on the Lottery Channel. Any commission income so generated will be shared among the Group and Alibaba Group using the revenue-sharing basis in sub-paragraph (c) above. However, there is uncertainty as to the timing of the potential re-opening of the online distribution market of Lottery Products under the applicable PRC laws and regulations.

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LETTER FROM THE BOARD

Payment Terms

Upon reconciliation and receipt of the relevant commission income generated from the sales and distribution of Lottery Products from the Lottery Agencies or the relevant income generated from the sales and distribution of Other Services, the Group and Alibaba Group will jointly calculate the amount of the sharing of the relevant commission income or income (as the case may be) on a periodic basis (e.g. monthly or quarterly basis) and the Group or Alibaba Group (as the case may be) will issue an invoice to the other party for payment of the sharing of the commission income or income (as the case may be) and the credit period shall be the same as those offered by/to other independent parties, subject to the detailed terms in the specific agreements to be entered into between the parties.

Basis of Determination of the Revenue-sharing model

The pre-determined revenue-sharing on a 50:50 basis under the Framework Agreement is determined with reference to (i) the revenue-sharing model that was used between a lottery sales platform of the Alibaba Group (where Alibaba Group used to conduct its lottery sales prior to the prohibition of unauthorised online sale of lottery products imposed by the PRC regulatory authority in 2015) and its other partners who were independent third parties; (ii) the scale of potential customers that can be reached by utilising the channels and networks of the Alibaba Group and its expected traffic volume.

Depending on the specific business model or payment arrangement to be agreed between the relevant members of the Group and the members of the Alibaba Group, the Group may recognise the sharing of commission as expenses payable to the Alibaba Group, or the Group may recognise the sharing of commission as revenue receivable from the Alibaba Group.

Where Lottery Products are sold in their physical form, particular hardware and systems such as lottery terminals and verification devices are generally required to facilitate the sale of the Lottery Products. Through these hardware and systems, information about the sale will be transmitted to the central lottery information system of the Lottery Agencies, which will then disseminate information regarding the sale of the Lottery Products attributable to the Group and hence the Group will be able to calculate the sharing of the relevant commission income and reconcile that with the Lottery Agencies.

Technology Services

In conjunction with the operation of the Lottery Channel, and other technology requirements of the Group for its business development, the parties to the Framework Agreement agreed that Alibaba Group shall provide technology services and resources to the Group including authorisation of the use of cloud computing technologies, e-commerce technologies and provide other technology services and support based on the business needs and operation requirements of the Group, including provision of information technology infrastructure and hardware such as servers and data rooms to the Group.

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LETTER FROM THE BOARD

Payment Terms

Periodic settlement (e.g. monthly or quarterly settlement in accordance with the settlement policy of the Alibaba Group offered to other independent customers for purchase of technology services) shall be made by the Group to the Alibaba Group based on the actual usage of the technology services for such period and the relevant per unit service rate, subject to the detailed terms in the specific agreements to be entered into between the parties.

Basis of Determination of the Services Fees

The fees for general technology services shall be calculated based on the actual usage of those services and the relevant per unit service rate published by the relevant members of the Alibaba Group on their official website(s) from time to time for such services. The Group will also enjoy the same discount rates, if any, offered by Alibaba Group to their independent customers for similar technology services from time to time. As the rates and discounts to be paid/enjoyed by the Group are those paid/enjoy by independent customers of Alibaba Group, the Directors consider that these fee terms are normal commercial terms and are terms no less favourable than terms available to independent parties, and hence would not be prejudicial to the interest of the Company and its Shareholders as a whole.

It is anticipated that the service rate of certain custom-made or other technology services required by the Group may not always be published or fixed by the relevant members of the Alibaba Group and therefore reference price or related information as to such service rates may not be publicly available. In such cases, the management will follow the mechanism and procedures below to ensure that such services are provided on normal commercial terms or terms no less favourable than terms available to independent parties:

(i) the Group shall obtain quotations for such services from members of the Alibaba Group and from at least two other technology services providers independent of Alibaba Group;
(ii) in cases where an individual technology service contract value is less than RMB500,000, the Group’s management shall review, analyse and choose the technology services providers based on the following factors including:
(a) relevant technical and management capabilities of such independent technology services providers and members of the Alibaba Group;
(b) relevant technical and management experiences of such independent technology services providers and members of the Alibaba Group;
(c) historical relationship between such independent technology services providers and members of the Alibaba Group on one hand and the Group on the other;
(d) track records of such independent technology services providers and members of the Alibaba Group; and
(e) the price and terms offered by such independent technology services providers and members of the Alibaba Group;

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LETTER FROM THE BOARD

(iii) in cases where an individual technology service contract value is RMB500,000 or more, the Group’s management together with the independent non-executive Directors shall review and choose the technology services providers based on the factors mentioned under (ii) above.

As the above mechanism and procedures would ensure that the Group can analyse and determine the capabilities, price and terms offered by members of the Alibaba Group in similar services are fair and reasonable and comparable to those offered by independent services providers based on objective assessment criteria and, in case of more significant contractual sum, with independent opinion from the independent non-executive Directors, the Directors consider that these procedures can ensure that the technology services are provided on normal commercial terms or terms no less favourable than terms available to independent parties, and hence would not be prejudicial to the interest of the Company and its Shareholders as a whole.

Specific Agreements

The Group and Alibaba Group may from time to time enter into specific agreements which set out the detailed terms in relation to the Transactions (including payment terms) in accordance with the terms under the Framework Agreement. The terms of the specific agreements will be negotiated on an arm’s length basis between the parties. In the event the Transactions exceed the relevant Caps which results in the Group being unable to perform any of the obligations under the Framework Agreement, the parties agree that this shall not constitute a breach of any provision under the Framework Agreement and the Group will suspend its obligations under the Framework Agreement until it complies with the GEM Listing Rules to obtain a new cap amount.

Caps and Basis of Determination of Caps

The Caps for the period commencing from the Effective Date and ending on 31 December 2017 and the two years ending 31 December 2018 and 2019 are as follows:

	For the period
	commencing from
	the Effective Date	For the year	For the year
	and ending on	ending	ending
	31 December 2017	31 December 2018	31 December 2019
Caps	RMB41,500,000	RMB63,500,000	RMB69,850,000
	(equivalent to	(equivalent to	(equivalent to
	approximately	approximately	approximately
	HK$47,109,305)	HK$72,082,912)	HK$79,291,204)

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LETTER FROM THE BOARD

For illustration purposes, the breakdown of the Caps are as follows:

	For the period
	commencing from
	the Effective Date	For the year	For the year
	and ending on	ending	ending
	31 December 2017	31 December 2018	31 December 2019
Sales and	RMB31,500,000	RMB42,500,000	RMB46,750,000
distribution of	(equivalent to	(equivalent to	(equivalent to
Lottery	approximately	approximately	approximately
Products and	HK$35,757,665)	HK$48,244,469)	HK$53,068,916)
Other Services
Technology	RMB10,000,000	RMB21,000,000	RMB23,100,000
services	(equivalent to	(equivalent to	(equivalent to
	approximately	approximately	approximately
	HK$11,351,640)	HK$23,838,443)	HK$26,222,288)
Total (i.e. the	RMB41,500,000	RMB63,500,000	RMB69,850,000
Caps)	(equivalent to	(equivalent to	(equivalent to
	approximately	approximately	approximately
	HK$47,109,305)	HK$72,082,912)	HK$79,291,204)

Note: For the avoidance of doubt, the above breakdown of the Caps are disclosed for illustration purposes only, and the Group shall seek for Independent Shareholders’ approval on the total Caps for the period commencing from the Effective Date and ending on 31 December 2017 and the two years ending 31 December 2018 and 2019 but not the above individual breakdown of such Caps.

The Caps are calculated with reference to the following:

(i) the projected income in respect of the sales and distribution of Lottery Products through the physical stores managed, co-managed or controlled by Alibaba Group and retail points of sales or merchants registered with the platforms of Alibaba Group during the term of the Framework Agreement and a percentage of buffer based on such projected sales and distribution income; and
(ii) expected rate of usage and demand for the technology services during the term of the Framework Agreement, which is estimated based on the current business need and future business plan of the Group, the applicable rates of services currently published by the relevant members of the Alibaba Group on their respective official website(s), and a percentage of buffer.

Potential transaction amounts for the sale and distribution of Other Services and the sale and distribution of Lottery Products (in online form) on the Lottery Channel under the Caps have not been separately set out in the above breakdown or basis of determination of the Caps as:

(a) the potential transaction amount for the sale and distribution of Other Services is expected to be relatively insubstantial given the sale and distribution of Other Services through the operation of the Lottery Channel by the Group will be newly launched initiative for the Group;

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LETTER FROM THE BOARD

(b) there is uncertainty as to when sale and distribution of Lottery Products (in online form) will be approved under the applicable PRC laws and regulations and whether the Group will obtain the required licenses for such online sale and distribution.

In case of any increase in the potential transaction amount for the sale and distribution of Other Services due to business expansion reasons, and/or in case of the re-opening of the online lottery distribution market in the PRC and the Group can obtain the required licences under the applicable PRC laws and regulations for the sales and distribution of Lottery Products (in online form), the Group will comply with the relevant GEM Listing Rules as and when appropriate, including compliance with the announcement, circular and Independent Shareholders’ approval requirements under the GEM Listing Rules for the revision of the Caps if necessary.

REASONS FOR AND BENEFITS OF THE TRANSACTIONS

Alibaba Holding is a company incorporated in the Cayman Islands and its American depositary shares are listed on the New York Stock Exchange. Alibaba Holding is the largest retail commerce company in the world in terms of Gross Merchandise Value (GMV) in the twelve months ended March 31, 2016, compared with others on the basis of publicly available comparable transaction value data for the most recent fiscal year.

Alibaba Holding provides the fundamental technology infrastructure and marketing reach to help merchants, brands and other businesses that provide products, services and digital content to leverage the power of the Internet to engage with their users and customers. Alibaba Holding’s businesses are comprised of core commerce, cloud computing, mobile media and entertainment, and other innovation initiatives. Through investee affiliates, Alibaba Holding participates in the logistics and local services sectors.

The Group is an integrated lottery technology and services company in the PRC lottery market. As at the Latest Practicable Date, the Group has a team of over 300 employees, and the footprint of the Group’s lottery business covers multiple provinces and municipalities across the PRC. The Group’s vision and strategy is to be a fully integrated service provider for the PRC lottery industry.

The Group has consistently been following its long term strategy and vision to be offering a range of products and services along the entire value chain of the PRC lottery industry. By employing the channels and networks of the Alibaba Group for sales and distribution of the Lottery Products (in physical form), the Group can substantially extend its sales channel and distribution network of the Lottery Products (in physical form) and expand its existing offline lottery business. This can enable the Group to develop its capabilities in its existing business segments with a view to achieving a balanced development of the Group’s business along the entire value chain of the PRC lottery industry. It is believed that the cooperation with Alibaba Group, the largest online and mobile commerce company in the world in terms of gross merchandise volume, can provide the Group with an immediate advantage to significantly extend its reach of retail points of sales and consumers of Lottery Products and to further enhance value for its Shareholders.

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LETTER FROM THE BOARD

The Lottery Channel and the purchase of technology services from the Alibaba Group can strengthen the Group’s online presence and its online customer-base, and develop technology that will enable the Group to offer a scalable online distribution network. The Group believes that this can prepare itself for the potential re-opening of the online lottery distribution market and is in line with the Group’s long term strategy and vision to tap into the online lottery market.

The Directors (including the independent non-executive Directors whose opinion have been set out in this circular together with the advice of the Independent Financial Adviser) consider that the Transactions contemplated under the Framework Agreement are expected to be entered into in the ordinary and usual course of business of the Group, on normal commercial terms after arm’s length negotiations between the parties, and the terms of the Transactions together with the Caps are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Further, the Company is of the view that the Transactions would not give rise to the Company’s undue reliance on Alibaba Group that would render the Company not suitable for listing on the following grounds:

Diverse income sources

The Group is an integrated lottery technology and service provider which offers a range of products and services along the entire value chain of the PRC lottery industry in the following four business segments: (i) development and supply of lottery games, related software and underlying supporting systems; (ii) development, sales and maintenance of lottery hardware; (iii) sales and distribution of lottery games; and (iv) provision of ancillary services to lottery sales agencies. The Company will continue developing its capabilities in all of its existing business segments and continue to be an integrated lottery technology and services provider.

The sales and distribution of Lottery Products through networks and channels of Alibaba Group is only one form of the Group’s effort in increasing revenue from the one of the four business segments of the Group (i.e. (iii) sales and distribution of lottery games). Also, there is no intention for the Group to focus on sales and distribution of lottery games only and downsize any of its other business segments. The Company further reiterates that it presently has no plans to implement any major downsizing measures in respect of its existing business segments.

As such, with a balanced development of all of its business segments along the entire value chain of the PRC lottery industry, the Group will continue operating all its business segments and achieving a diverse sources of income instead of relying on the business cooperation with Alibaba Group as its only source of income.

Free to substitute the channels/ services of Alibaba Group and availability of third-party channels/ services providers

(i) Sales and Distribution of Lottery Products and Other Services

The sales and distribution of Lottery Products and Other Services is a business cooperation between the Group and the Alibaba Group, but not a service provided by the Group to the Alibaba Group or vice versa. The role of Alibaba Group’s is to provide its channels and networks for the Group to get access to the retail points of sales/consumers for the sales and distribution of the Group’s Lottery Products and Other Services, and hence Alibaba Group are not the consumer of the Group but its business partners in pursuit of business opportunities together.

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LETTER FROM THE BOARD

The channels and networks offered by Alibaba Group under the sales and distribution of Lottery Products and Other Services are normal business networks comprising physical stores, contacts of retail points of sales and/or website/ mobile application (when applicable). There are other alternative business partners the Group can cooperate with as long as such partners own or manage networks of physical stores, contacts of retail points of sales and/or website/ mobile application (when applicable), given the non-exclusive nature of the sales and distribution of Lottery Products and Other Services from the Group’s perspective and the status of the Group as a licensed distributor in the PRC. The Group is recently cooperating with a third-party logistics company for the sales and distribution of its Lottery Products. Currently, the Group also operates its own sales and distribution channels. Although such channels are in a small scale at this moment, it is expected that they will be expanded in the coming future, and the Group is taking concrete action step in establishing and handling its own distribution network to minimise reliance, if any, on Alibaba Group’s sales and distribution network. Therefore, the Group considers that the Group is not relying on Alibaba Group in respect of the channels and networks offered by the Alibaba Group.

(ii) Technology Services

The Group has identified several third-party service providers other than Alibaba Group that provides comparable technology services in the market. It is expected that the potential future transaction amount with Alibaba Group for technology services will only represent an insignificant proportion of the potential future total cost of sales and services of the Group for the years ending 31 December 2017, 2018 and 2019. Given the availability of substitute service providers and that the service fees are not a significant amount of the cost of sales and services of the Group, the Group considers there is no reliance of the Group on Alibaba Group.

The Company is capable of maintaining its revenue in the future and does not derive a significant portion of its turnover from Alibaba Group nor incur a significant portion of its expenses on Alibaba Group

It is expected that the Group is able to maintain its revenue having considered its business cooperation with its new business partner and the potential roll-out of the new lottery products currently pending approval by the PRC government. The Group also considers that the PRC lottery business is a market with high business potential considering that it is relatively new and is confident in maintaining its revenue in the future. Further, as mentioned above, the Group will continue to develop and generate revenue from all its business segments and the Company is confident in maintaining its revenue level in (i) development and supply of lottery games, related software and underlying supporting systems and (ii) development, sales and maintenance of lottery hardware.

It is also expected that the potential future transaction amount with Alibaba Group for both the sales and distribution of Lottery Products and Other Services and technology services will only represent an low proportion of the potential future total revenue and total cost of sales and services of the Group (as the case may be) for the years ending 31 December 2017, 2018 and 2019, respectively. Hence, the Company does not consider that the Group derive a significant portion of its turnover from its transactions with Alibaba Group nor incur a significant portion of its expenses on Alibaba Group, and is not reliant on Alibaba Group in terms of revenue nor technology functions.

– 13 –

LETTER FROM THE BOARD

The Company would review the reliance issue again at the time when the Group is allowed to in the event that and when the Group is allowed to distribute and sell the Lottery Products in online form on the Lottery Channel under the applicable laws and regulations in the PRC.

GEM LISTING RULES IMPLICATIONS

Ali Fortune, the controlling shareholder of the Company, is indirectly held as to 60% by Alibaba Holding. Accordingly, Alibaba Holding is an associate of Ali Fortune and hence a connected person of the Company. The Transactions contemplated under the Framework Agreement constitute continuing connected transactions under Chapter 20 of the GEM Listing Rules.

Since one or more of the applicable percentage ratios as defined in the GEM Listing Rules in respect of the highest Cap exceeds 5%, the Transactions contemplated under the Framework Agreement are subject to the annual review, reporting, announcement and independent shareholders’ approval requirements under Chapter 20 of the GEM Listing Rules.

As Mr. Zhang Qin and Mr. Yang Guang are employees of Alibaba Holding or its subsidiaries, each of these Directors is deemed or may be perceived to have a material interest in the Framework Agreement, the Caps and the Transactions. Accordingly, they abstained from voting on the resolutions passed by the Board in relation to the Framework Agreement, the Caps and the Transactions. Save as the aforesaid Directors, none of the other Directors are employees of Alibaba Holding or its subsidiaries (excluding the Group) or had a material interest in the Framework Agreement, the Caps and the Transactions, and therefore none of them abstained from voting on the resolutions passed by the Board in relation to the Framework Agreement, the Caps and the Transactions.

As at the Latest Practicable Date, Ali Fortune, together with its associates, held 5,502,723,993 Shares, representing approximately 52.34% of the issued share capital of the Company. Ali Fortune will, together with its associates, abstain from voting on the resolution to be proposed at the SGM to approve the Framework Agreement, the Caps and the Transactions. Save for the aforesaid and to the best knowledge, information and belief of the Company, as at the Latest Practicable Date, no other Shareholder has a material interest in the Framework Agreement, the Caps and the Transactions and therefore no other Shareholder is required to abstain from voting on the proposed resolution(s) approving the Framework Agreement, the Caps and the Transactions at the SGM.

INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

The Independent Board Committee comprising Ms. Monica Maria Nunes, Mr. Feng Qing and Dr. Gao Jack Qunyao, being all the independent non-executive Directors, has been formed to advise the Independent Shareholders in respect of the Framework Agreement, the Caps and the Transactions. The Independent Financial Adviser has been appointed to advise the Independent Board Committee and the Independent Shareholders in this connection.

– 14 –

LETTER FROM THE BOARD

THE SGM

The SGM will be convened and held at 11:00 a.m. on Wednesday, 8 March 2017 at Units 2302-2305, 23/F, Tower One, Times Square, 1 Matheson Street, Causeway Bay, Hong Kong for the Shareholders to consider and, if thought fit, pass the resolution to approve the Framework Agreement, the Caps and the Transactions.

The SGM Notice is set out on pages SGM-1 to SGM-2 of this circular. A form of proxy for the SGM is enclosed with this circular. Whether or not you intend to attend the SGM, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and deposit it with the Company’s share registrar, Tricor Abacus Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, as soon as possible and in any event not less than 48 hours before the time appointed for holding the SGM (or any adjournment thereof). Completion and return of a form of proxy will not preclude you from attending and voting in person at the SGM (or any adjournment thereof) should you so desire. The voting in respect of the resolution contained in the SGM Notice will be conducted by way of a poll at the SGM prescribed under the GEM Listing Rules. An announcement on the poll results will be made by the Company after the SGM.

RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee which contains the recommendation of the Independent Board Committee to the Independent Shareholders regarding the resolution to approve the Framework Agreement, the Caps and the Transactions, and the letter of advice from the Independent Financial Adviser which contains its advice to the Independent Board Committee and the Independent Shareholders regarding the Framework Agreement, the Caps and the Transactions.

The Directors (including the independent non-executive Directors whose opinion has been set out in this circular after taking into consideration the advice of the Independent Financial Adviser) are of the view that the Transactions contemplated under the Framework Agreement are expected to be entered into in the ordinary and usual course of business of the Group, on normal commercial terms after arm’s length negotiations between the parties, and the terms of the Transactions together with the Caps are fair and reasonable and in the interests of the Company and the Shareholders as a whole, and recommend that the Independent Shareholders to vote in favour of the resolution relating thereto at the SGM.

ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the appendix to this circular and the SGM Notice.

Yours faithfully, By order of the Board AGTech Holdings Limited Sun Ho

Chairman & CEO

– 15 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the text of a letter of advice from the Independent Board Committee setting out its recommendation to the Independent Shareholders for the purpose of inclusion in this circular.

==> picture [101 x 31] intentionally omitted <==

**AGTech Holdings Limited 亞博科技控股有限公司[*]**

(incorporated in Bermuda with limited liability)

(Stock Code: 8279)

20 February 2017

To the Independent Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

We refer to the circular dated 20 February 2017 of the Company (the “ Circular ”) of which this letter forms part.

Capitalised terms used in the Circular shall have the same meanings in this letter unless the context otherwise requires.

We have been appointed to form the Independent Board Committee to advise you in connection with the Framework Agreement, the Caps and the Transactions, details of which are set out in the letter from the Board in the Circular.

We wish to draw your attention to the letter from the Board, as set out on pages 4 to 15 of the Circular, and the letter of advice from the Independent Financial Adviser, as set out on pages IFA-1 to IFA-15 of the Circular. Having considered the terms of the Framework Agreement, the Caps and the Transactions and the advice given by the Independent Financial Adviser and the principal factors and reasons taken into consideration by it in arriving at its advice, we are of the opinion that the Transactions contemplated under the Framework Agreement are expected to be entered into in the ordinary and usual course of business of the Group, on normal commercial terms after arm’s length negotiations between the parties, and the terms of the Transactions together with the Caps are fair and reasonable and in the interests of the Company and the Shareholders as a whole as far as the Independent Shareholders are concerned.

* For identification purpose only

– IBC-1 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Accordingly, we recommend the Independent Shareholders to vote in favour of the resolution to be proposed at the SGM to approve, among other things, the Framework Agreement, the Caps and the Transactions.

Ms. Monica Maria Nunes Independent non-executive Director

Yours faithfully Independent Board Committee Mr. Feng Qing Independent non-executive Director

Dr. Gao Jack Qunyao Independent non-executive Director

– IBC-2 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the letter of advice from Somerley Capital Limited to the Independent Board Committee and the Independent Shareholders, which has been prepared for the purpose of inclusion in this circular.

==> picture [32 x 33] intentionally omitted <==

SOMERLEY CAPITAL LIMITED

20th Floor China Building 29 Queen’s Road Central Hong Kong

20 February 2017

To: the Independent Board Committee and the Independent Shareholders

Dear Sirs,

CONTINUING CONNECTED TRANSACTIONS – (I) SALES AND DISTRIBUTION OF LOTTERY PRODUCTS AND OTHER SERVICES; AND (II) PURCHASE OF TECHNOLOGY SERVICES

INTRODUCTION

We refer to our appointment to advise the Independent Board Committee and the Independent Shareholders in connection with the Framework Agreement and the transactions contemplated under (the “ Continuing Connected Transactions ”) together with the proposed caps. Details of the Framework Agreement and the Continuing Connected Transactions are set out in the circular of the Company dated 20 February 2017 (the “ Circular ”), of which this letter forms part. Unless otherwise defined, capitalised terms used in this letter shall have the same meaning as those defined in the Circular.

On 25 January 2017, the Company entered into the Framework Agreement with Alibaba Holding, regarding (i) sales and distribution of the Lottery Products and Other Services through certain channels and networks of the Alibaba Group on a revenue-sharing basis; and (ii) purchasing technology services from Alibaba Group in accordance with the terms and conditions of the Framework Agreement. As Ali Fortune, the controlling shareholder of the Company, is indirectly held as to 60% by Alibaba Holding. Accordingly, Alibaba Holding is an associate of Ali Fortune and hence a connected person of the Company.

As a result, the transactions contemplated under the Framework Agreement constitute continuing connected transactions for the Company. As the highest of the percentage ratios in respect of the Caps will be more than 5%, the transactions contemplated under the Framework Agreement are subject to the reporting, announcement and the Independent Shareholders’ approval requirements under Chapter 20 of the GEM Listing Rules.

The Independent Board Committee comprising all of the independent non-executive Directors, namely Ms. Monica Maria Nunes, Mr. Feng Qing and Dr. Gao Jack Qunyao, has been

– IFA-1 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

established to advise the Independent Shareholders in respect of the Continuing Connected Transactions and on how they should vote at the SGM. We, Somerley Capital Limited, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in the same regard.

In formulating our advice, we have reviewed, among other things, the Framework Agreement, the calculation of the Caps, the annual report of the Company for the financial year ended 31 December 2015 (the “ 2015 Annual Report ”), interim report for the six months ended 30 June 2016 (the “ 2016 Interim Report ”) and the third quarterly report for the nine months ended 30 September 2016 (the “ 2016 Q3 Report ”), and the information contained in the Circular. We have relied on the information and facts supplied, and the opinions expressed, by the Directors and the management of the Group, and have assumed that they are true, accurate and complete in all material aspects at the time they were made and will remain so up to the time of the SGM. We have also sought and received confirmation from the Directors, that all material relevant information has been supplied to us and that no material facts have been omitted or withheld from the information supplied and opinions expressed to us. We have no reason to doubt the truth or accuracy of the information provided to us, or to believe that any material information has been omitted or withheld. We have relied on such information and consider that the information we have received is sufficient for us to reach our opinion and recommendation as set out in this letter. However, we have not conducted any independent investigation into the business and affairs of the Group and the Alibaba Group.

As at the Latest Practicable Date, Somerley Capital Limited does not have any relationships or interests with the Company that could reasonably be regarded as relevant to the independence of Somerley Capital Limited. In the last two years, except for independent financial adviser engagements (in relation to (i) the proposed subscription of subscription shares and convertible bonds and application for the whitewash wavier; and (ii) special deal and connected transaction in relation to the settlement of the PRC tax liability, details of which were set out in the circular and supplemental circular of the Company dated 25 May 2016 and 14 July 2016 respectively), there has been no other engagement between the Group and Somerley Capital Limited. We do not consider that the past and existing engagements as independent financial adviser give rise to any conflict for Somerley Capital Limited acting as the independent financial adviser in respect of the Continuing Connected Transactions. Apart from normal professional fees paid or payable to us in connection with this appointment as the independent financial adviser, no arrangement exists whereby we will receive any fees or benefits from the Company.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion and recommendation, we have taken into account the following principal factors and reasons:

1. Background of the Group and the Alibaba Holding

(a) background of the Group

– IFA-2 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

provinces and municipalities across the PRC. The Group is an associate member of each of the World Lottery Association and the Asia Pacific Lottery Association.

The Group’s principal business activities comprise all major segments of lottery services.

(i) Games and systems: development and supply of lottery games, related software and underlying supporting systems to Lottery Agencies;
(ii) Hardware: development, sales and maintenance of lottery hardware (including terminals and other lottery-related equipment);
(iii) Distribution: sales and distribution of lottery games; and
(iv) Ancillary services: provision of ancillary services to Lottery Agencies.

(b) background of Alibaba Holding

Alibaba Holding is a company incorporated in the Cayman Islands and its American depositary shares are listed on the New York Stock Exchange. It is the largest retail commerce company in the world in terms of gross merchandise volume. Founded in 1999, Alibaba Holding provides the fundamental technology infrastructure and marketing reach to help businesses leverage the power of the Internet to establish an online presence and conduct commerce with hundreds of millions of consumers and other businesses. Major businesses of Alibaba Holding include Taobao Marketplace, Tmall.com, Juhuasuan, Alitrip, AliExpress, Alibaba.com, 1688.com and AliCloud.com.

2. Reasons for and benefits of the Framework Agreement

As set out in the “Letter from the Board” contained in the Circular, the Group’s vision and strategy is to be a fully integrated service provider for the PRC lottery industry.

The Group has consistently been following its long-term strategy and vision to offer a range of products and services along the entire value chain of the PRC lottery industry. By employing the channels and networks of the Alibaba Group for sales and distribution of the Lottery Products (in physical form), the Group can substantially extend its sales channel and distribution network of the Lottery Products (in physical form) and expand its existing offline lottery business. This can enable the Group to develop its capabilities in its existing business segments with a view to achieve a balanced development of the Group’s business along the entire value chain of the PRC lottery industry.

The Lottery Channel and the purchase of technology services from the Alibaba Group can (i) strengthen the Group’s online presence and its online customer-base; and (ii) develop technology that will enable the Group to offer a scalable online distribution network. The Group believes that this can prepare itself for the potential re-opening of the online lottery distribution market and is in line with the Group’s long-term strategy and vision to tap into the online lottery market.

– IFA-3 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3. Principal terms of the Framework Agreement

Set out below is a summary of principal terms of the Framework Agreement. Further details of the Framework Agreement are set out in the “Letter from the Board” contained in the Circular.

Date: 25 January 2017 Parties: The Company and Alibaba Holding Term: Subject to approval by the Independent Shareholders at the SGM and the Caps and commencing on the Effective Date and ending on 31 December 2019

(a) sales and distribution of Lottery Products and Other Services

The Group shall utilise certain channels and networks of the Alibaba Group to reach retail points of sales and consumers for sales and distribution of the Lottery Products and Other Services on a revenue-sharing basis. Furthermore, pursuant to the Framework Agreement, the Group shall be authorised to operate Lottery Channel. In this connection, the parties to the Framework Agreement agreed that:

(i) the Group shall sell and distribute the Lottery Products (in physical form) through certain channels and networks of the Alibaba Group, including (i) physical stores managed, co-managed or controlled by Alibaba Group which are located at both the urban, as well as rural and village areas of the PRC; and (ii) retail points of sales or merchants registered with the platforms of Alibaba Group, and in conjunction with the sale and distribution of Lottery Products (in physical form) to the above physical stores and entities; the Group shall also be responsible for the development, maintenance and operation of the underlying systems and hardware for such Lottery Products;
(ii) the Group is responsible for the marketing and operation of the Lottery Products (in physical form), and is also responsible for the management and analysis of subscriber data and transaction data generated by the Lottery Channel and the operation of the sales and distribution of Lottery Products; and
(iii) the commission income generated from the sales and distribution of the Lottery Products (in physical form), after deduction of taxes and commission or expenses payable to third party service providers or partners, will be shared among the Group and Alibaba Group on a 50:50 basis.

The Group shall be authorised to operate the Lottery Channel and, through the Lottery Channel, the Group shall generate income by sales and distribution of Other Services, namely online activities which are not subject to the applicable PRC lottery laws and regulations, including advertising, information subscription and other

– IFA-4 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

content on the Lottery Channel. The fee income generated through the sales and distribution of Other Services will be shared among the Group and Alibaba Group using the revenue-sharing basis stated in sub-paragraph (iii) above.

(b) technology services

4. Evaluation of the terms of the Framework Agreement

(a) sales and distribution of Lottery Products and Other Services

basis of determination of the revenue-sharing model

Pursuant to the Framework Agreement, the pre-determined revenue-sharing on a 50:50 basis (the “ Revenue-Sharing Proportion ”) under the Framework Agreement is determined by reference to (i) the revenue-sharing model that was used between Taobao Caipiao, the lottery sales platform of the Alibaba Group, and its other partners who were independent third parties; (ii) the scale of potential customers that can be reached by utilising the channels and networks of the Alibaba Group and its expected traffic volume.

Where Lottery Products are sold in their physical form, particular hardware such as lottery terminals and verification devices are generally required to facilitate the sale of the Lottery Products. Through these hardware and systems, the Group will be able to track the sale of the Lottery Products and hence calculate the sharing of the relevant commission income.

assessment of the Revenue-Sharing Proportion for sales and distribution of Lottery Products
(i) comparable revenue-sharing proportion

To assess the fairness and reasonableness of the Revenue-Sharing Proportion, we have conducted research, on a best effort basis, on

– IFA-5 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

similar revenue-sharing model of lottery sales in the PRC in public domain. We understand that certain PRC lottery products distribution companies, for example, 500.com Ltd, one of the online sports lottery products distributors in China listed on the stock exchange in the United States, also pays a fee to external traffic providers based on the lottery sales generated by these external traffic providers.

However, we are not able to identify the revenue sharing proportion of these comparable revenue-sharing model given the fact that the fees charged by these companies are usually commercially confidential, such information would not normally be disclosed to the public.

As such, further analysis on reasonableness and fairness of the Revenue-Sharing Proportion has been conducted as below.

(ii) revenue-sharing model adopted by Alibaba Group

We understand that Alibaba Group used to conduct its lottery sales through Alibaba Group’s Taobao marketplace (i.e. Taobao Caipiao) and had engaged other partners (the “ External Traffic Providers ”) to acquire traffic to facilitate its lottery sales based on a revenue sharing model prior to the ban of the PRC online lottery sales in March 2015. We consider these revenue sharing models with independent third parties in the lottery sales similar to the revenue-sharing model between Alibaba Group and the Group and the revenue sharing proportion by Taobao Caipiao with the External Traffic Providers (the “ Comparable Revenue-Sharing Proportion ”) are the most relevant benchmarks in assessing the fairness and reasonableness of the Revenue-Sharing Proportion.

In this regard, we have reviewed the following information provided by Alibaba Group on a best effort basis, including (i) all of the agency agreements signed by Taobao Caipiao with China Sports Lottery Administration Center and China Welfare Lottery Issuance and Administration Center (i.e. the Lottery Issuance Agencies) in respect of the commission of the lottery sales (the “ Agency Contracts ”); and (ii) all of the contracts signed between Taobao Caipiao and other partners in acquiring traffic (the “ Traffic Acquisition Contracts ”).

Based on our review of the Agency Contracts and the Traffic Acquisition Contracts, we understand that Taobao Caipiao received commission calculated based on a percentage of the lottery sales generated by Taobao Caipiao (the “ Commission Rates ”). Furthermore, the External Traffic Providers of Taobao Caipiao charge a fee, i.e. a fixed percentage out of the Commission Rates (the “ Traffic Acquisition Rates ”), for the provision of traffic to Taobao Caipiao.

Such Traffic Acquisition Rates were determined based on a ranking policy adopted by Taobao Caipiao (the “ Ranking Policy ”)

– IFA-6 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

depending on the expected traffic volume that can be acquired from the External Traffic Providers to facilitate the lottery sales of Taobao Caipiao. The more expected traffic volume provided to Taobao Caipiao, the higher the Traffic Acquisition Rate would be, given that these External Traffic Providers were in better positions to negotiate a higher revenue sharing proportion with Taobao Caipiao.

Based on (i) the Commission Rate noted in majority of the Agency Contracts for revenue generated by Taobao Caipiao from the Lottery Issuance Agencies; and (ii) the range of Traffic Acquisition Rates paid by Taobao Caipiao, a range of implied revenue-sharing proportions can be calculated by using the Traffic Acquisition Rates divided by the Commission Rates. It is noted that the Revenue-Sharing Proportion (i.e. 50%) under the Framework Agreement is within the range and is in the high end of the Comparable Revenue-Sharing Proportion derived from the above.

For considering the reasonableness of the Revenue-Sharing Proportion, it should be noted that the traffic volume of the External Traffic Providers are not comparable to the expected traffic volume to be provided by Alibaba Group (i.e. Taobao, Tmall marketplace and developing physical distribution channel such as Cuntao stores) pursuant to the Framework Agreement, given (i) there were over 420 million active buyers for the year ended 31 March 2016 on Alibaba Group’s PRC retail marketplaces (including Taobao, Tmall and Juhausuan); (ii) Taobao Marketplace is the PRC’s largest online shopping destination, according to the website of Alibaba Group; and (iii) the existing number of physical stores managed, co-managed or controlled by the Alibaba Group in the PRC, it is reasonable to expect that Alibaba Group can provide huge traffic volume from its online/physical platforms or channels to the Group.

Having considered the above, we are of the view that the Revenue-Sharing Proportion is reasonable.

– assessment of the Revenue-Sharing Proportion for Other Services

In respect of the Revenue-Sharing Proportion for Other Services, revenue will be generated from online activities through the Lottery Channel. In other words, level of such revenue mainly relies on the traffic volume provided by Alibaba Group and therefore the Revenue-Sharing Proportion represents the implied traffic acquisition rate. As demonstrated above, the Revenue-Sharing Proportion is reasonable in light of the huge traffic volume expected from Alibaba Group and the revenue-sharing model adopted by Alibaba Group. As such, given Other Services are to be offered through the Lottery Channel with traffic driven by Alibaba Group, the Revenue-Sharing Proportion for Other Services is considered to be reasonable.

– IFA-7 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(b) Technology Services

basis of determination of the services fees of the Technology Services (the “ Services Fees ”)

Pursuant to the Framework Agreement, the fees for the Technology Services shall be calculated based on the actual usage of those services and the relevant per unit service rate published by the relevant members of the Alibaba Group on their official website(s) or other public channel(s) from time to time for such services. The Group will also enjoy the same discount rates, if any, offered by Alibaba Group to their independent customers for similar Technology Services from time to time.

For those Technology Services required by the Group where the fees may not always be published or fixed by the relevant members of the Alibaba Group and therefore reference price or related information as to such service rates may not be publicly available, the Group shall obtain quotations from at least two independent technology services providers, and the Group’s management (and, in cases where an individual technology service contract value is RMB500,000 or more, the independent non-executive Directors) shall review and choose the technology services providers based on factors including relevant technical and management capabilities, experiences, historical relationship and track records of the technology services providers and the price and terms offered by such independent technology services providers and members of the Alibaba Group.

assessment of the basis of determination of the Services Fees

We understand the Services Fees are principally based on the rates published by the relevant members of the Alibaba Group (the “ Market Rates ”). The price for the Technology Services by the Alibaba Group to the Group shall not be higher than the price of the same type of the services offered by the Alibaba Group to the independent third parties.

Having considered (a) the rate of the Services Fees is charged principally based on the Market Rates; (b) the discount rates to be offered by the Alibaba Group to the Group are same as those offered by Alibaba Group to the independent third parties; and (c) the review and approval procedures to be conducted by the independent non-executive Directors in case of absence of the Market Rates in respect of the Technology Services required by the Group, we are of the view that the basis of the Services Fees is reasonable.

– IFA-8 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

5. The Caps

The Caps under the Framework Agreement for the period commencing from the Effective Date and ending on 31 December 2017, and the two years ending 31 December 2018 and 2019 are as follows:

Nature of the Caps Sales and distribution of Lottery Products and Other Services Technology services Total (i.e. the Caps)	For the period commencing from the Effective Date and ending on 31 December 2017 (RMB’000) 31,500 10,000 41,500	For the year ending 31 December 2018 (RMB’000) 42,500 21,000 63,500	For the year ending 31 December 2019 (RMB’000) 46,750 23,100
			69,850

basis of determination of the caps for the sales and distribution of Lottery Products and Other Services (the “ Sales and Distribution Caps ”)

The Sales and Distribution Caps are principally derived from (i) the projected income in respect of the sales and distribution of Lottery Products through the physical stores managed, co-managed or controlled by Alibaba Group and merchants or vendors registered with the platforms of Alibaba Group during the term of the Framework Agreement (the “ Projected Sales and Distribution Income ”); and (ii) a percentage of buffer based on the Projected Sales and Distribution Income (the “ Sales and Distribution Buffer ”).

With reference to calculation of the Caps provided, the Projected Sales and Distribution Income is arrived principally based on (a) existing number of the physical distribution channel managed, co-managed or controlled by Alibaba Group (the “ Physical Channel ”) as at 30 September 2016 (i.e. Cuntao stores) and the growth rates of Cuntao stores from 31 March 2016 to 30 September 2016; (b) average commission income generated from other similar physical stores or lottery terminals located in the vicinity of the urban, rural areas and villages in the PRC conducting lottery sales based on the latest available historical information; and (c) commission income derived from the lottery sales of Taobao Caipiao for the year ended 31 December 2014 (i.e. the last full operating financial year in respect of the lottery sales through registered merchants or vendors registered with the platforms of Alibaba Group) (the “ Merchant Channel ”) and historical compound annual growth rate of the gross merchandise volume of Alibaba Group over the past three

– IFA-9 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

financial years (i.e. from the financial year ended 31 March 2013 to 2016) (the “ Historical GMV Growth Rate ”).

basis of calculation of the Projected Sales and Distribution Income

To further elaborate, the Projected Sales and Distribution Income has taken into account the projected income from sales of the Lottery Products through the Physical Channel and the Merchant Channel.

In respect of the projected income derived from the Physical Channel, it is computed based on (i) the estimated commission income per Cuntao store by referencing to the average commission income generated from other similar physical stores or lottery terminals in the PRC conducting lottery sales; and (ii) the estimated number of the Cuntao stores during the term of the Framework Agreement by referencing the number of the Cuntao stores as at 30 September 2016 and its historical monthly increment of the Cuntao stores from 31 March 2016 to 30 September 2016.

For the projected income derived from the Merchant Channel, it is computed based on the commission income derived from the lottery sales of Taobao Caipiao for the year ended 31 March 2014 and the Historical GMV Growth Rate.

As such, we are of the view that the basis of determination of Projected Sales and Distribution Income is appropriate.

rationale and assessment of the Sales and Distribution Buffer

In assessing fairness and reasonableness of the Sales and Distribution Buffer, we have considered the following factors:

(i) development plan of physical channels of Alibaba Group

As discussed above, the Projected Sales and Distribution Income is arrived based on, among other things, the existing number Cuntao stores and its projected growth rates based on the latest historical growth rates.

It should be noted that Cuntao stores is only one of the major physical distribution channels that Alibaba Group is currently developing. Pursuant to the Framework Agreement, the Group is allowed to utilise all physical networks and channels managed, co-managed or controlled by Alibaba Group.

Meanwhile, the development of Cuntao stores is still at its early stage. According to the latest development plan of Cuntao stores published by Alibaba Group in June 2016, Alibaba Group plans to establish Cuntao stores in 100,000 rural villages from 1,000 counties in the next three to five years.

– IFA-10 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on the latest development plan of Alibaba Group, Cuntao stores is expected to grow at a rate higher than the projected growth rate adopted in the Projected Sales and Distribution Income.

(ii) recent growth and potential expansion of Lottery Products sales

In accordance with the Ministry of Finance (“ MOF ”) of the PRC, the lottery sales in the PRC have increased at a compound annual growth rate of approximately 23% between 2009 and 2014.

The following chart illustrates the regulated lottery sales in the PRC from 2009 to 2014:

Total Lottery Sales 2009-2014 (RMB billion)

==> picture [255 x 172] intentionally omitted <==

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

390 CAGR: 23% 382
309
340
262
290
222
240 165
190
140
2010 2011 2012 2013 2014
----- End of picture text -----

Source: MOF

As demonstrated above, the compounded annual growth rate of the total lottery sales were approximately 23% from 2009 and 2014, prior to the ban of the online lottery sales in February 2015.

The lottery sales in the PRC decreased in 2015 by approximately 3.8% as compared with those in 2014, however, it should be noted that such decrease might have been significantly affected by the ban of online lottery sales in 2015 while the proposed business model of sales and distribution of Lottery Products of the Group pursuant to the Framework Agreement will be unaffected.

In 2016, the online lottery sales is still being suspended, the lottery sales in the PRC, however, recovered and increased by approximately 12.6% for the nine months ended 30 September 2016 as compared with the corresponding period of 2015 according to the latest published data by MOF whereas the Projected Sales and Distribution Income has not accounted for any further potential growth in the lottery sales of the PRC during the term of the Framework Agreement.

– IFA-11 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

On top of the recent growth in lottery sales in the PRC, the PRC’s lottery market has started to activate the trial sale of new types of mobile phone lottery games in various provinces. A notable example of such is a sports lottery game in Jiangsu province which obtained MOF’s approval in April 2015 to launch its trial sales on mobile phones.

Such expected but yet occurred expansion of sales of the Lottery Products via online network, if realise, will boost up sales of the Lottery Products in the PRC in the future and potentially increase the sales and distribution of Lottery Products of the Group. Before then, sales of the Lottery Products are still expected to increase through allowable Physical Channel and Merchant Channel during the term of the Framework Agreement.

Besides, it is important to note that the PRC authorities intend to channel the existing vast underground gaming revenues away from the illegal market and into the legal and regulated lottery network. It is therefore expected that more Lottery Products will obtain approvals for sales through various channels in the PRC in the near future. The Group is likely to benefit from this by utilising certain channels and networks of the Alibaba Group for sales and distribution of the Lottery Products. It is therefore reasonable for the Group to have sufficient buffer to accommodate such potential growth in sales and distribution of the Lottery Products in the PRC during the term of the Framework Agreement.

assessment of the caps for sales and distribution of Other Services

Potential amount for sale and distribution of Other Services relating to online activities including advertising, information subscription and other content on the Lottery Channel have not been separately set out in the above breakdown of the Caps as such amount is expected to be relatively insubstantial given the sale and distribution of Other Services through the operation of the Lottery Channel by the Group will be newly launched initiative for the Group. Given the above, it is acceptable for the Company to include such amount in the Sales and Distribution Buffer, which is considered to be reasonable according to the sub-section above.

Having considered the above, we are of the view that the Sales and Distribution Caps are reasonable.

– basis of determination of the caps for the Technology Services

The proposed caps in respect of the Technology Services during the term of the Framework Agreement are principally derived from (i) the expected rate of usage and demand for the Technology Services during the term of the Framework Agreement, which is estimated based on the current business need and future business plan of the Group; (ii) the applicable rates of services

– IFA-12 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

currently published by the relevant members of the Alibaba Group on their respective official website(s); and (iii) a percentage of buffer (the “ Technology Services Buffer ”).

To further elaborate, the expected rate of usage and demand for the technology services during the term of the Framework Agreement is estimated based on the technical departments of the Group including the project technology services department and lottery business department based on their experience of establishing similar platforms in the past.

With reference to the computation of the caps, we understand that the Market Rates can be located on the website(s) of the relevant members of the Alibaba Group such as Aliyun.com.

As such, we are of the view that the basis of determination of the caps in respect of the Technology Services is appropriate.

For the fairness and reasonableness of the Technology Services Buffer, we have considered the following factors:

(i) potential significant change in the Market Rates

Given the caps for the Technology Services is determined principally by the Market Rates which may change over the term of the Framework Agreement depending on the market conditions such as demand and supply of the equipment or the services, certain buffer should be allowed for potential increase of the Market Rates during the term of the Framework Agreement.

(ii) unforeseeable expansion of sales of the Lottery Products and increase of the distribution channels of Alibaba Group

As mentioned in the section headed “rationale and assessment of the Sales and Distribution Buffer”, potential expansion of sales of the Lottery Products might be affected by certain unforeseeable factors as illustrated above, such unforeseeable changes will potentially increase the need for technology services and support and result in a higher rate of usage and demand for the Technology Services during the term of the Framework Agreement.

Having considered the above, we are of the view that the caps for the Technology Services are reasonable.

– IFA-13 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

6. Annual review of the Continuing Connected Transactions

Pursuant to Rules 20.53 to 20.57 of the GEM Listing Rules, the transactions to be carried out pursuant to the Framework Agreement are subject to the following annual review requirements:

a) each year, the independent non-executive Directors must review the transactions to be carried out pursuant to the Framework Agreement and confirm in the annual report whether the transactions to be carried out pursuant to the Framework Agreement have been entered into:
(i) in the ordinary and usual course of business of the Group;
(ii) on normal commercial terms or better; and
(iii) according to the agreement governing them on terms that are fair and reasonable and in the interests of the Shareholders as a whole;
b) each year, the auditors of the Company must provide a letter to the Board (with a copy provided to the Stock Exchange at least 10 business days before the bulk printing of the Company’s annual report), confirming whether anything has come to their attention that causes them to believe that the transactions to be carried out pursuant to the Framework Agreement:
(i) have not been approved by the Board;
(ii) were not, in all material aspects, in accordance with the pricing policies of the Group if the transactions involve the provision of goods or services by the Group;
(iii) were not entered into, in all material aspects, in accordance with the relevant agreement governing the transactions to be carried out pursuant to the Framework Agreement; and
(iv) have exceeded the Caps;
c) the Company shall allow, and shall ensure that the counterparties to the transactions to be carried out pursuant to the Framework Agreement allow, the Company’s auditors sufficient access to their records for the purpose of reporting on the transactions to be carried out pursuant to the Framework Agreement as set out in paragraph (b). The Board must state in the annual report whether the Company’s auditors have confirmed the matters stated in GEM Listing Rule 20.54; and
d) the Company shall promptly notify the Stock Exchange and publish an announcement if the independent non-executive Directors and/or the auditors of the Company cannot confirm the matters set out in paragraphs (a) and/or (b) respectively.

– IFA-14 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In light of the reporting requirements for the transactions to be carried out pursuant to the Framework Agreement, in particular, (a) the restriction of the values of the transactions to be carried out pursuant to the Framework Agreements by way of the Caps; and (b) the requirements under the GEM Listing Rules for ongoing review by the independent non-executive Directors and the auditors of the Company of the terms of the transactions to be carried out pursuant to the Framework Agreement and the Caps, we are of the view that there exist appropriate measures to govern the conduct of the transactions to be carried out pursuant to the Framework Agreements and to safeguard the interests of the Independent Shareholders.

OPINION AND RECOMMENDATION

Having taken into account the above principal factors, we consider that the transactions contemplated under the Framework Agreement are on normal commercial terms, in the ordinary and usual course of business of the Group and are in the interests of the Company and the Shareholders as a whole. We also consider that the terms of the Framework Agreement and the Caps are fair and reasonable. Accordingly, we advise the Independent Board Committee to recommend, and we ourselves recommend, the Independent Shareholders to vote in favour of the relevant ordinary resolution to be proposed at the SGM.

Yours faithfully, for and on behalf of SOMERLEY CAPITAL LIMITED David Ching Director

Mr. David Ching is a licensed person registered with the Securities and Futures Commission and a responsible officer of Somerley Capital Limited, which is licensed under the SFO to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities. He has over ten years of experience in the corporate finance industry.

– IFA-15 –

GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the GEM Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief 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. DISCLOSURE OF DIRECTORS’ INTERESTS

As at the Latest Practicable Date, the interests and short positions of the Directors or 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 (a) 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 (b) were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or (c) were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the “ Model Code ”) adopted by the Company, to be notified to the Company and the Stock Exchange, were as follows:

(i) Long positions in the Shares

		Number of Shares	Number of Shares
				Approximate
	Personal	Corporate		percentage
Name of Director	interest	interest	Total	held (Note 1)
Mr. Sun Ho	27,078,000	2,006,250,000	2,033,328,000	19.34%
		(Note 2)
Ms. Monica Maria	1,375,000	–	1,375,000	0.013%
Nunes

Notes:

Based on a total of 10,513,758,770 Shares in issue as at the Latest Practicable Date.
These 2,006,250,000 Shares were held in the name of MAXPROFIT GLOBAL INC. As MAXPROFIT GLOBAL INC is beneficially and wholly-owned by Mr. Sun Ho, the chairman, executive Director and chief executive officer of the Company, Mr. Sun Ho was deemed to be interested in such Shares. Mr. Sun Ho is also a director of MAXPROFIT GLOBAL INC.

– A-1 –

GENERAL INFORMATION

APPENDIX

(ii) Long positions in the underlying Shares in respect of the share options of the Company (which were regarded as unlisted physically settled equity derivatives)

		Exercise		Number of	Approximate
		price per	Exercisable	underlying	percentage
Name of Director	Date of grant	Share	period (Note 2)	Shares	held (Note 1)
		(HK$)
Ms. Monica Maria Nunes	20 June 2013	0.4740	20 June 2015 –	375,000	0.004%
			19 June 2018
	21 January 2014	1.3100	21 January 2015 –	250,000	0.002%
			20 January 2019
Mr. Feng Qing	1 June 2015	0.8580	1 June 2016 –	1,500,000	0.014%
			31 May 2020
Dr. Gao Jack Qunyao	1 June 2015	0.8580	1 June 2016 –	1,500,000	0.014%
			31 May 2020

Notes:

Based on a total of 10,513,758,770 Shares in issue as at the Latest Practicable Date.
A portion of the option representing 25% of the total underlying Shares entitled under such option when it was initially granted shall be vested in the grantee of the option in each year during the exercisable period. If the grantee does not exercise such portion of the option within one year after it has been vested in him/her, such portion of the option will lapse.

(iii) Long positions in shares and underlying shares of Alibaba Holding, an associated corporation of the Company within the meaning of Part XV of the SFO

		Number of	Percentage of
		shares/	issued shares
		underlying	of Alibaba
Name of Director	Nature of interests	shares held	Holding
Mr. Zhou Haijing	Beneficial and equity	31,200 (Note 1)	0.001%
	derivative interests
Mr. Zhang Qin	Beneficial and equity	50,000 (Note 2)	0.002%
	derivative interests
Mr. Yang Guang	Beneficial and equity	36,045 (Note 3)	0.001%
	derivative interests
Mr. Ji Gang	Beneficial and equity	67,269 (Note 4)	0.003%
	derivative interests

– A-2 –

GENERAL INFORMATION

APPENDIX

Notes:

It represents 20,000 ordinary shares and 11,200 restricted share units beneficially held by Mr. Zhou Haijing.
It represents 20,000 ordinary shares and 30,000 restricted share units beneficially held by Mr. Zhang Qin.
It represents 8,920 ordinary shares and 27,125 restricted share units beneficially held by Mr. Yang Guang.
It represents 12,219 ordinary shares and 55,050 restricted share units beneficially held by Mr. Ji Gang.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executive of the Company had any interests or short positions in the Shares, underlying Shares (in respect of share options of the Company which were regarded as unlisted physically settled equity derivatives) and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO), which (a) 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 (b) were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein; or (c) were required, pursuant to Rules 5.46 to 5.67 of the GEM Listing Rules relating to securities transactions by Directors, to be notified to the Company and the Stock Exchange.

3. SUBSTANTIAL SHAREHOLDERS’ INTERESTS IN SHARE, UNDERLYING SHARE AND DEBENTURES

As at the Latest Practicable Date, so far as was known to the Directors or chief executive of the Company, the following persons (not being Directors or chief executive of the Company) had, or were deemed to have, interests or short positions in the Shares, underlying Shares and debentures of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or, were directly or indirectly interested in 5% or more of the issued voting shares of any other member of the Group or held any option in respect of such shares and recorded in the register kept by the Company pursuant to section 336 of the SFO:

Long position in the Shares

					Approximate
			Number of		percentage of
			underlying	Total	issued share
		Number of	Shares	(number of	capital of the
Name of Shareholder	Capacity	Shares held	entitled	Shares)	Company (Note 1)
Ali Fortune	Beneficial owner	5,502,723,993	1,740,018,239	7,242,742,232	68.89%
Investment Holding

Limited [(Notes][2][and][8)]

– A-3 –

GENERAL INFORMATION

APPENDIX

					Approximate
			Number of		percentage of
			underlying	Total	issued share
		Number of	Shares	(number of	capital of the
Name of Shareholder	Capacity	Shares held	entitled	Shares)	Company (Note 1)
Alibaba Investment	Interest of	5,502,723,993	1,740,018,239	7,242,742,232	68.89%
Limited (Note 2)	controlled			(Note 9)
	corporation
API Holdings	Interest of	5,502,723,993	1,740,018,239	7,242,742,232	68.89%
Limited (Note 2)	controlled			(Note 9)
	corporation
Alibaba Group Holding	Interest of	5,502,723,993	1,740,018,239	7,242,742,232	68.89%
Limited (Note 3)	controlled			(Note 9)
	corporation
API (Hong Kong)	Interest of	5,502,723,993	1,740,018,239	7,242,742,232	68.89%
Investment	controlled			(Note 9)
Limited (Note 4)	corporation
Shanghai Yunju Venture	Interest of	5,502,723,993	1,740,018,239	7,242,742,232	68.89%
Capital Investment	controlled			(Note 9)
Co., Ltd. (formerly	corporation
known as Shanghai
Yunju Investment
Management
Co., Ltd.) (Note 5)
Ant Small and Micro	Interest of	5,502,723,993	1,740,018,239	7,242,742,232	68.89%
Financial Services	controlled			(Note 9)
Group	corporation
Co., Ltd. (Note 6)
Hangzhou Yunbo	Interest of	5,502,723,993	1,740,018,239	7,242,742,232	68.89%
Investment	controlled			(Note 9)
Consultancy	corporation
Co., Ltd. (Note 7)
Mr. Ma Yun (Note 7)	Interest of	5,502,723,993	1,740,018,239	7,242,742,232	68.89%
	controlled			(Note 9)
	corporation
MAXPROFIT GLOBAL	Beneficial owner	2,006,250,000	–	2,006,250,000	19.08%
INC (Note 10)

– A-4 –

GENERAL INFORMATION

APPENDIX

Notes:

Based on a total of 10,513,758,770 Shares in issue as at the Latest Practicable Date.
Alibaba Investment Limited (“ AIL ”) and API Holdings Limited (“ API Holdings ”) hold 60% and 40% of the issued share capital of Ali Fortune Investment Holding Limited (“ Ali Fortune ”), respectively.
Alibaba Group Holding Limited (“ Alibaba Holding ”) holds 100% of the issued share capital of AIL. Mr. Zhang Qin and Mr. Yang Guang, each a non-executive Director, are the employees of Alibaba Holding.
API (Hong Kong) Investment Limited holds 100% of the issued share capital of API Holdings.
Shanghai Yunju Venture Capital Investment Co., Ltd. (formerly known as Shanghai Yunju Investment Management Co., Ltd.) (“ Shanghai Yunju ”) holds 100% of the issued share capital of API (Hong Kong) Investment Limited.
Ant Small and Micro Financial Services Group Co., Ltd. (“ Ant Financial ”) holds 100% of the equity interests in Shanghai Yunju. Hangzhou Junhan Equity Investment Partnership (Limited Partnership) (“ Junhan ”) and Hangzhou Junao Equity Investment Partnership (Limited Partnership) (“ Junao ”) hold approximately 42.28% and 34.15% of the equity interests in Ant Financial, respectively. Mr. Ji Gang and Mr. Zhang Wei, each a non-executive Director, are the employees of Ant Financial.
Hangzhou Yunbo Investment Consultancy Co., Ltd. (“ Yunbo ”) is the general partner of both Junhan and Junao, and is wholly-owned by Mr. Ma Yun.
Ali Fortune holds outstanding convertible bonds of the Company in the aggregate principal amount of HK$507,234,928 and the maximum number of conversion shares that would be issued upon full conversion of such outstanding convertible bonds at the then adjusted conversion price of HK$0.2915 per conversion share as at the Latest Practicable Date was 1,740,018,239.
Each of AIL, Alibaba Group Holding Limited, API Holdings, API (Hong Kong) Investment Limited, Shanghai Yunju, Ant Financial, Junhan, Junao, Yunbo, and Mr. Ma Yun are taken to be interested in an aggregate of 7,242,742,232 Shares by virtue of Part XV of the SFO.
As disclosed in the section headed “DISCLOSURE OF DIRECTORS’ INTERESTS” above, Mr. Sun Ho was deemed to be interested in these 2,006,250,000 Shares by virtue of his interest in MAXPROFIT GLOBAL INC. Mr. Sun Ho is also a director of MAXPROFIT GLOBAL INC.

Save as disclosed above, as at the Latest Practicable Date, the Directors or chief executive of the Company were not aware of any other persons (not being a Director or chief executive of the Company) who had, or was deemed to have, interests or short positions in the Shares, underlying Shares and debentures of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or was directly or indirectly interested in 5% or more of the issued voting shares of any other member of the Group or held any option in respect of such shares and recorded in the register kept by the Company pursuant to section 336 of the SFO.

4. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had a service contract or a proposed service contract with any member of the Group which is not expiring or determinable by the employer within one year without the payment of compensation (other than statutory compensation).

– A-5 –

GENERAL INFORMATION

APPENDIX

5. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2015, being the date to which the latest published audited accounts of the Company were made up.

6. COMPETING BUSINESS

As at the Latest Practicable Date, none of the Directors, controlling Shareholder or their respective close associates had interest in any business which competes or is likely to compete, either directly or indirectly, with the businesses of the Group.

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

As at the Latest Practicable Date, none of the Directors had any interest, either direct or indirect, in any assets which have been, since 31 December 2015 (the date to which the latest published audited accounts of the Group were made up), acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group.

As at the Latest Practicable Date, none of the Directors had material interest in any subsisting contract or arrangement which is significant in relation to the business of the Group.

8. QUALIFICATIONS AND CONSENT OF EXPERT

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

Name Qualification Somerley Capital Limited A licensed corporation to carry out Type 1 (dealing in (“ Somerley ”) securities) and Type 6 (advising on corporate finance) regulated activities under the SFO

As at the Latest Practicable Date, Somerley did not have: (a) 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; and (b) any interest, either direct or indirect, in any assets acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2015 (the date to which the latest published audited accounts of the Group were made up).

Somerley has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and/or references to its name in the form and context in which they respectively appear.

– A-6 –

GENERAL INFORMATION

APPENDIX

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at Unit 3912, 39th Floor, Tower Two, Times Square, Causeway Bay, Hong Kong during normal business hours on any business day from the date of this circular up to and including 6 March 2017 (except Saturdays, Sundays and public holidays) and will be available for inspection at the SGM.

(a) the Framework Agreement; and
(b) the Business Cooperation Agreement.

– A-7 –

NOTICE OF SPECIAL GENERAL MEETING

==> picture [101 x 32] intentionally omitted <==

AGTech Holdings Limited 亞博科技控股有限公司[*] (incorporated in Bermuda with limited liability) (Stock Code: 8279)

NOTICE IS HEREBY GIVEN THAT a special general meeting (the “ SGM ”) of AGTech Holdings Limited (the “ Company ”) will be held at 11:00 a.m. on Wednesday, 8 March 2017 at Units 2302-2305, 23/F, Tower One, Times Square, 1 Matheson Street, Causeway Bay, Hong Kong for the purpose of considering and, if thought fit, passing with or without amendment, the following resolution of the Company as ordinary resolution:

ORDINARY RESOLUTION

“ THAT :

(A) (i) the Framework Agreement (as defined in the circular of the Company dated 20 February 2017 of which this notice forms part (the “ Circular ”)) (a copy of which is tabled at the meeting and marked “A” and initialled by the chairman of the meeting for identification purpose) and the transactions contemplated thereunder and the implementation thereof be and are hereby approved, confirmed and ratified;
(ii) the Caps (as defined in the Circular) for the period commencing from the Effective Date (as defined in the Circular) and ending on 31 December 2017 and for the two years ending 31 December 2018 and 2019 be and are hereby approved; and
(B) any one director of the Company (or any two directors of the Company or one director and the secretary of the Company, in the case of execution of documents under seal) be and is hereby authorised for and on behalf of the Company to execute all such other documents, instruments and agreements and to do all such acts or things deemed by him/her to be incidental to, ancillary to or in connection with the matters contemplated in the Framework Agreement and the transactions contemplated thereunder and the implementation thereof including the affixing of seal thereon.”

By order of the board of directors of the Company AGTech Holdings Limited Sun Ho

Chairman & CEO

The Hong Kong Special Administrative Region of the People’s Republic of China, 20 February 2017

For identification purpose only

– SGM-1 –

NOTICE OF SPECIAL GENERAL MEETING

Registered office: Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Head office and principal place of business: Unit 3912, 39th Floor, Tower Two Times Square Causeway Bay Hong Kong

Notes:

Any member entitled to attend and vote at the SGM is entitled to appoint one or more proxies to attend and vote in his/her stead in accordance with the bye-laws of the Company. A proxy need not be a member of the Company.
Where there are joint registered holders of any share, any one of such persons may vote at any meeting, either personally or by proxy, in respect of such share as if he were solely entitled thereto; but if more than one of such joint holders shall be present at the meeting personally or by proxy, that one of the holders so present whose name stands first on the register of members of the Company in respect of such share shall alone be entitled to vote in respect thereof.
The form of proxy and the power of attorney or other authority, if any, under which it is signed or a certified copy of such power of attorney or authority must be deposited at the Company’s Hong Kong branch share registrar, Tricor Abacus Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong, not less than 48 hours before the time for holding the SGM, and in default the form of proxy shall not be treated as valid. The completion and return of the form of proxy shall not preclude members from attending and voting in person at the SGM (or any adjournment thereof) should they so desire.

As at the date of this notice, the Board comprises (i) Mr. Sun Ho and Mr. Zhou Haijing as executive Directors; (ii) Mr. Zhang Qin, Mr. Yang Guang, Mr. Ji Gang and Mr. Zhang Wei as non-executive Directors; and (iii) Ms. Monica Maria Nunes, Mr. Feng Qing and Dr. Gao Jack Qunyao as independent non-executive Directors.

– SGM-2 –

AI assistant

Joy Spreader Group Inc. — Proxy Solicitation & Information Statement 2017

51106_rns_2017-02-17_23c0078c-01c1-4026-ae00-6f23491131df.pdf

AGTech Holdings Limited 亞博科技控股有限公司[*]

(Stock Code: 8279)

(1) CONTINUING CONNECTED TRANSACTIONS AND

(2) NOTICE OF SPECIAL GENERAL MEETING

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

SOMERLEY CAPITAL LIMITED

CONTENTS

DEFINITIONS

DEFINITIONS

AGTech Holdings Limited 亞博科技控股有限公司[*]

(Stock Code: 8279)

(1) CONTINUING CONNECTED TRANSACTIONS AND

(2) NOTICE OF SPECIAL GENERAL MEETING

INTRODUCTION

LETTER FROM THE BOARD

THE FRAMEWORK AGREEMENT

Date

Parties

Terms and Conditions Precedent

Sales and Distribution of Lottery Products and Other Services

Payment Terms

Basis of Determination of the Revenue-sharing model

Technology Services

Payment Terms

Basis of Determination of the Services Fees

LETTER FROM THE BOARD

Specific Agreements

Caps and Basis of Determination of Caps

LETTER FROM THE BOARD

REASONS FOR AND BENEFITS OF THE TRANSACTIONS

Diverse income sources

Free to substitute the channels/ services of Alibaba Group and availability of third-party channels/ services providers

(ii) Technology Services

The Company is capable of maintaining its revenue in the future and does not derive a significant portion of its turnover from Alibaba Group nor incur a significant portion of its expenses on Alibaba Group

GEM LISTING RULES IMPLICATIONS

INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISER

THE SGM

RECOMMENDATION

ADDITIONAL INFORMATION

AGTech Holdings Limited 亞博科技控股有限公司[*]

CONTINUING CONNECTED TRANSACTIONS

SOMERLEY CAPITAL LIMITED

CONTINUING CONNECTED TRANSACTIONS – (I) SALES AND DISTRIBUTION OF LOTTERY PRODUCTS AND OTHER SERVICES; AND (II) PURCHASE OF TECHNOLOGY SERVICES

INTRODUCTION

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Background of the Group and the Alibaba Holding

(a) background of the Group

(b) background of Alibaba Holding

2. Reasons for and benefits of the Framework Agreement

3. Principal terms of the Framework Agreement

(a) sales and distribution of Lottery Products and Other Services

(b) technology services

4. Evaluation of the terms of the Framework Agreement

(a) sales and distribution of Lottery Products and Other Services

(ii) revenue-sharing model adopted by Alibaba Group

– assessment of the Revenue-Sharing Proportion for Other Services

(b) Technology Services

5. The Caps

Total Lottery Sales 2009-2014 (RMB billion)

assessment of the caps for sales and distribution of Other Services

– basis of determination of the caps for the Technology Services

6. Annual review of the Continuing Connected Transactions

OPINION AND RECOMMENDATION

1. RESPONSIBILITY STATEMENT

2. DISCLOSURE OF DIRECTORS’ INTERESTS

(i) Long positions in the Shares

(iii) Long positions in shares and underlying shares of Alibaba Holding, an associated corporation of the Company within the meaning of Part XV of the SFO

3. SUBSTANTIAL SHAREHOLDERS’ INTERESTS IN SHARE, UNDERLYING SHARE AND DEBENTURES

Long position in the Shares

4. SERVICE CONTRACTS

5. MATERIAL ADVERSE CHANGE

6. COMPETING BUSINESS

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

8. QUALIFICATIONS AND CONSENT OF EXPERT

9. DOCUMENTS AVAILABLE FOR INSPECTION

ORDINARY RESOLUTION

“ THAT :

Joy Spreader Group Inc. Proxy Solicitation & Information Statement 2017

**AGTech Holdings Limited 亞博科技控股有限公司[*]**

**AGTech Holdings Limited 亞博科技控股有限公司[*]**

**AGTech Holdings Limited 亞博科技控股有限公司[*]**