Paradise Entertainment Limited — Proxy Solicitation & Information Statement 2009

Jan 21, 2009

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

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.

PARADISE ENTERTAINMENT LIMITED

---

(Incorporated in Bermuda with limited liability) (Stock Code: 1180)

ISSUE OF NEW CONVERTIBLE SECURITIES, CHANGE OF AUDITORS, RE-ELECTION OF DIRECTOR

AND

NOTICE OF SPECIAL GENERAL MEETING

A notice convening the special general meeting of the Company to be held at Unit C, 19th Floor, Entertainment Building, 30 Queen’s Road Central, Hong Kong on Friday, 13 February 2009 at 2:30 p.m. (the “Special General Meeting”) is set out on pages 14 to 15 of this circular. Whether or not you are able to attend the Special General Meeting, please complete and return the enclosed form of proxy in accordance with the instructions printed thereon and return it to the branch share registrars of the Company in Hong Kong, Tricor Secretaries Limited at 26th Floor, Tesbury Centre, 28 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 Special General Meeting or any adjourned meeting. Completion and return of the form of proxy will not preclude you from attending and voting in person at the Special General Meeting or any adjourned meeting should you so wish.

22 January 2009

* For identification purposes only

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Subscription Agreement I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Subscription Agreement II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Shareholding structure of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Information on the Group and reasons for entering into the
Subscription Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Use of proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Summary of fund raising activities of the Company in the past twelve months. . .	11
Trading limits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Change of auditors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Re-election of Director. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Responsibility Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Notice of Special General Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14

– i –

DEFINITION

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

• “5% Limit” has the meaning ascribed to it under the paragraph headed “Restrictions on conversion” of this circular

• “Announcement” the announcement of the Company dated 27 November 2008 in relation to the proposed issue of the New Convertible Debentures

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

• “Board” the board of Directors

• “Business Day” any day other than a Saturday or Sunday on which banks in Hong Kong are open for business

• “Bye-laws” the bye-laws of the Company

• “Companies Act” the Companies Act 1981 of Bermuda (as amended)

• “Company” Paradise Entertainment Limited, an exempt company incorporated in Bermuda with limited liability, the shares of which are listed on the Stock Exchange

• “Concert Party or Parties” in relation to a Debenture Holder, any party or parties acting in concert with it within the meaning of the Hong Kong Code on Takeovers and Mergers

• “connected person(s)” has the same meaning ascribed to it under the Listing Rules

• “Conversion Price” the conversion price of HK$0.032 per Share

• “Conversion Shares”

• new Shares which may fall to be issued by the Company upon the full exercise of the conversion rights attaching to the New Convertible Debentures

• “Debenture Holder(s)” holder(s) of the New Convertible Debentures

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

• “Existing Convertible Debenture(s)”

• 7% convertible debentures with an aggregate principal amount of HK$76,000,000 issued by the Company on 7 November 2007, particulars of which were announced by the Company on 23 October 2007 and which are all held by Profit Peak

– 1 –

DEFINITION

• “Group” the Company and its subsidiaries

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

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

• “Kelton Capital” Kelton Capital Group Limited, a company incorporated in the British Virgin Islands with limited liability, being the subscriber under the Subscription Agreement I

• “Last Trading Day” 25 November 2008, being the last day of trading of the Shares on the Stock Exchange before the release of the Announcement

• “Latest Practicable Date”

• 19 January 2009, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained herein

• “Listing Rules”

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

• “Maturity Date” 31 December 2013 or, if that is not a Business Day, the first Business Day thereafter

• “New Convertible Debenture(s)”

• 8% convertible debentures with an aggregate principal amount of HK$112,000,000 to be issued by the Company to the Subscribers pursuant to the terms of the Subscription Agreements

• “Profit Peak”

• Profit Peak Holdings Limited, a company incorporated in the British Virgin Islands with limited liability, being the subscriber of the Existing Convertible Debentures and the subscriber under the Subscription Agreement II

• “RSM”

• RSM Nelson Wheeler, Certified Public Accountants, the outgoing auditors of the Group

• “Share(s)”

• ordinary share(s) of HK$0.01 each in the capital of the Company and all other (if any) shares or stock resulting from any sub-division, consolidation or re-classification thereof

• “Shareholder(s)”

• holder(s) of the Shares

• “SHINEWING”

• SHINEWING (HK) CPA Limited, the proposed new auditors of the Group

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DEFINITION

• “Special General Meeting”

the special general meeting of the Company to be held at Unit C, 19th Floor, Entertainment Building, 30 Queen’s Road Central, Hong Kong on Friday, 13 February 2009 at 2:30 p.m., notice of which is set out on pages 14 to 15 of this circular, or any adjourned meeting

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

• “Subscribers”

• collectively, Kelton Capital and Profit Peak, being the subscribers under the Subscription Agreements

• “Subscription Agreement I”

• the subscription agreement dated 25 November 2008 entered into between the Company and Kelton Capital in relation to the subscription of the New Convertible Debentures in the aggregate principal amount of HK$16,000,000

• “Subscription Agreement II”

• the subscription agreement dated 25 November 2008 entered into between the Company and Profit Peak in relation to the subscription of the New Convertible Debentures in the aggregate principal amount of HK$96,000,000

• “Subscription Agreements” collectively, the Subscription Agreement I and the Subscription Agreement II

• “Supplemental Instrument”

• “Trading Day”

• the supplemental instrument dated 5 January 2009 executed by the Company and acknowledged by Profit Peak in relation to the variation of the terms and conditions of the Existing Convertible Debentures a day on which the Shares can be freely traded on the Stock Exchange during the whole of the normal trading hours of the Stock Exchange

• “%”

per cent

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LETTER FROM THE BOARD

PARADISE ENTERTAINMENT LIMITED

*

(Incorporated in Bermuda with limited liability)

(Stock Code: 1180)

Executive Directors:

Mr. Jay Chun (Chairman and Managing Director)

Mr. Shan Shiyong, alias, Sin Sai Yung Dr. Ma Xianming, alias, Ma Yin Ming

Independent Non-executive Directors:

Mr. Frank Hu Mr. Li John Zongyang Mr. Hu Wenxiang

Head Office and Principal Place of Business: Unit C 19th Floor Entertainment Building 30 Queen’s Road Central Hong Kong

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

22 January 2009

To the Shareholders

Dear Sir or Madam,

ISSUE OF NEW CONVERTIBLE DEBENTURES, CHANGE OF AUDITORS, RE-ELECTION OF DIRECTOR AND NOTICE OF SPECIAL GENERAL MEETING

INTRODUCTION

The Directors wish to seek the approval of the Shareholders at the Special General Meeting for the approval of the terms of the Subscription Agreement II, the creation of the New Convertible Debentures in the principal sum of HK$96,000,000 and the issue and allotment of 3,000,000,000 Conversion Shares and for the change of auditors and re-election of Director. The purpose of this circular is to provide you with details in relation thereof.

SUBSCRIPTION AGREEMENT I

On 25 November 2008, the Company entered into the Subscription Agreement I with Kelton Capital whereby Kelton Capital would, subject to the fulfilment of the conditions precedent set out therein, subscribe for the New Convertible Debentures in an aggregate principal amount of HK$16,000,000 to be issued by the Company, carrying the rights to

* For identification purposes only

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LETTER FROM THE BOARD

convert into new Shares at the Conversion Price, and subject to the terms and conditions provided in the Subscription Agreement I. The 500,000,000 new Shares falling to be issued under the Subscription Agreement I will be issued and allotted by the Company pursuant to the general mandate granted to the Directors at the annual general meeting held on 26 May 2008.

As at the Latest Practicable Date, all the conditions precedent under the Subscription Agreement I have been fulfilled and the New Convertible Debentures in an aggregate principal amount of HK$16,000,000 was issued to Kelton Capital on 22 December 2008.

SUBSCRIPTION AGREEMENT II

Date

25 November 2008

Parties

Issuer: The Company Subscriber: Profit Peak

Save that Profit Peak was the subscriber of the Existing Convertible Debentures, to the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, Profit Peak is an investment holding company and its ultimate beneficial owners are third parties independent of the Company and connected persons of the Company.

Principal amount

HK$96,000,000

Maturity Date

31 December 2013, or if that is not a Business Day, the first Business Day thereafter. The New Convertible Debentures outstanding by 4:00 p.m. (Hong Kong time) on the Maturity Date shall be redeemed by the Company at a redemption amount equal to the principal amount of such New Convertible Debentures with accrued but unpaid interest and such sum shall be payable to the Debenture Holder on the Business Day immediately following the Maturity Date.

Interest

8% per annum payable quarterly on or before the fifth Business Day of January, April, July and October in each year.

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LETTER FROM THE BOARD

Conditions of the Subscription Agreement II

Completion of the Subscription Agreement II is conditional upon:

• (i) the passing of the resolution(s) by the Shareholders (or, if so required by the Listing Rules or the Stock Exchange, independent Shareholders) at the Special General Meeting approving the terms of the Subscription Agreement II, the creation of the New Convertible Debentures in the principal sum of HK$96,000,000 and the issue and allotment of 3,000,000,000 Conversion Shares;

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

• (iii) (if applicable) the obtaining of all consents from government or regulatory authorities or third parties which are necessary in connection with the execution and performance of the Subscription Agreement II and any of the transactions contemplated under the Subscription Agreement II;

• (iv) (if required) the approval of the Bermuda Monetary Authority of the issue of the New Convertible Debentures and the Conversion Shares; and

• (v) none of the warranties under the Subscription Agreement II having been breached in any material respect (or, if capable of being remedied, has not been remedied), or is misleading or untrue in any material respect.

As at the Latest Practicable Date, none of the above conditions has been fulfilled and/ or waived.

Conversion period under the Subscription Agreement II

Subject to the 5% Limit, the Debenture Holder shall have the right to convert the New Convertible Debentures in the principal sum of HK$96,000,000 issued under the Subscription Agreement II in whole or in part in multiples of HK$1,000,000 into the Conversion Shares at the Conversion Price on any Business Day commencing on and including 1 June 2009 up to and including the Maturity Date.

Completion of the Subscription Agreement II

Completion of the Subscription Agreement II shall take place one Business Day after the date on which the conditions specified above are fulfilled or, as the case may be, waived by Profit Peak. There is no long stop date for the Subscription Agreement II.

Neither Profit Peak nor the Debenture Holders are entitled to nominate any person to the Board upon completion of the Subscription Agreement II.

Kelton Capital and Profit Peak are independent of and not connected with each other and the Subscription Agreement I and the Subscription Agreement II are not inter-conditional with each other.

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LETTER FROM THE BOARD

Conversion Price

The Conversion Price of HK$0.032 per Share represents:

• (i) a premium of approximately 10.34% over the closing price of HK$0.029 per Share as quoted on the Stock Exchange on the Latest Practicable Date;

• (ii) a premium of approximately 14.29% over the closing price of HK$0.028 per Share as quoted on the Stock Exchange on the Last Trading Day;

• (iii) a premium of approximately 13.48% over the average closing price of HK$0.0282 per Share as quoted on the Stock Exchange over the five consecutive Trading Days immediately prior to and including the Last Trading Day;

• (iv) a premium of approximately 9.97% over the average closing price of HK$0.0291 per Share as quoted on the Stock Exchange for ten consecutive Trading Days immediately prior to and preceding the Last Trading Day; and

• (v) a discount of approximately 47.54% to the unaudited net asset value per Share of approximately HK$0.061 as at 30 June 2008.

The Conversion Price was determined after arm’s length negotiation between the Subscribers and the Company with reference to the prevailing market prices of the Shares. The total gross proceeds from the subscription of the New Convertible Debentures amount to HK$112,000,000. After deducting related expenses of approximately HK$2,100,000, the net proceeds from the subscription of the New Convertible Debentures amount to approximately HK$109,900,000 and the net Conversion Price per Conversion Share is approximately HK$0.0314.

Restrictions on conversion

No conversion right attaching to the New Convertible Debentures may be exercised if and to the extent that following such exercise, a Debenture Holder and its Concert Parties, taken together, will control or be interested in more than 5% of the relevant share capital of the Company then issued and outstanding (the “5% Limit”).

No Debenture Holder may exercise any conversion rights attaching to the New Convertible Debentures unless either:

• (i) it is confirmed by the Company in writing that the allotment and issue of the Conversion Shares to such Debenture Holder pursuant to an exercise of such conversion rights will not cause the aggregate shareholding of a Debenture Holder, together with its Concert Parties, in the Company to exceed the 5% Limit; or

• (ii) it has undertaken to the Company to dispose or procure to dispose of such number of Shares in the market or to parties who are independent of, not connected or acting in concert with such Debenture Holder and any of its Concert Parties to

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LETTER FROM THE BOARD

ensure that the aggregate shareholding of a Debenture Holder, together with its Concert Parties, in the Company immediately after the disposal and allotment and issue of the Conversion Shares will not exceed the 5% Limit.

Conversion Shares

The 500,000,000 new Shares to be issued under the Subscription Agreement I will be issued and allotted by the Company pursuant to the general mandate granted to the Directors at the annual general meeting held on 26 May 2008 which permits the issue and allotment of up to 773,179,583 Shares. No part of such general mandate has been utilized prior to the date of the Subscription Agreement I. The 3,000,000,000 Shares falling to be issued upon exercise of the conversion rights attaching to the New Convertible Debentures to be issued under the Subscription Agreement II will be issued and allotted by the Company pursuant to a special mandate to be sought at the Special General Meeting.

Upon full conversion of the New Convertible Debentures at the Conversion Price, an aggregate of 3,500,000,000 Conversion Shares will be issued by the Company, representing approximately 90.53% of the existing issued share capital of the Company as of the date of the Subscription Agreements and approximately 47.52% of the issued Shares as enlarged by the issue and allotment of the Conversion Shares.

Ranking

The New Convertible Debentures constitute direct, unconditional, unsubordinated and unsecured obligations of the Company and each Debenture Holder will at all times rank senior to other holders of subsequently issued debt instruments, including but not limited to debentures, bonds, notes and other securities.

The Conversion Shares to be issued upon exercise of the conversion rights attaching to the New Convertible Debenture will rank pari passu in all respects with the existing Shares in issue as at the date on which the relevant conversion rights are exercised.

Listing

No application will be made for the listing of the New Convertible Debentures on the Stock Exchange or any other stock exchange. An application has been made to the Stock Exchange for the listing of, and permission to deal in, the Conversion Shares to be allotted and issued upon the exercise of the conversion rights attaching to the New Convertible Debentures.

Voting Rights of Debenture Holders

Each of the Debenture Holders does not have any voting rights at the general meetings of the Company by reason of it being a Debenture Holder.

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LETTER FROM THE BOARD

Transferability of New Convertible Debentures

The New Convertible Debentures will be freely transferable but may not be assigned or transferred to a connected person of the Company without the prior written consent of the Company.

SHAREHOLDING STRUCTURE OF THE COMPANY

Set out below is the shareholding structure of the Company showing the effects following the conversion of the Existing Convertible Debentures and the New Convertible Debentures:

Mr. Jay Chun August Profit Investments Limited (Note 1) Best Top Offshore Limited (Note 2) Dr. Ma Xianming, alias, Ma Yin Ming (Note 3) Mr. Park Aaron Changmin (Note 3) Profit Peak Kelton Capital Debenture Holder(s) (other than the Subscribers) Other public Shareholders Total	As at the Latest Practicable Date % 12,416,000 0.32 418,072,000 10.82 360,758,000 9.33 6,722,000 0.17 1,666,000 0.04 – – – – – – 3,066,263,919 79.32	Solely upon conversion of the Existing Convertible Debentures at HK$0.20 per Share by Profit Peak, subject to the 5% Limit % 12,416,000 0.30 418,072,000 10.27 360,758,000 8.87 6,722,000 0.17 1,666,000 0.04 203,468,311 5.00 – – – – 3,066,263,919 75.35	Solely upon conversion of the New Convertible Debentures at HK$0.032 per Share by the Subscribers, subject to the 5% Limit % 12,416,000 0.29 418,072,000 9.73 360,758,000 8.40 6,722,000 0.16 1,666,000 0.04 214,772,106 5.00 214,772,106 5.00 – – 3,066,263,919 71.38	Solely upon conversion of the Existing Convertible Debentures at HK$0.20 per Share and the New Convertible Debentures at HK$0.032 per Share by the Subscribers, subject to the respective 5% Limit (Note 4) % 12,416,000 0.27 418,072,000 9.19 360,758,000 7.93 6,722,000 0.15 1,666,000 0.04 454,811,520 10.00 227,405,760 5.00 – – 3,066,263,919 67.42	Assuming no conversion of the Existing Convertible Debentures, upon full conversion of the New Convertible Debentures at HK$0.032 per Share, subject to the 5% Limit on the Subscribers % 12,416,000 0.17 418,072,000 5.67 360,758,000 4.90 6,722,000 0.09 1,666,000 0.02 368,294,895 5.00 368,294,895 5.00 2,763,410,210 37.52 (Note 5) 3,066,263,919 41.63	Immediately upon full conversion of the Existing Convertible Debentures at HK$0.20 per Share and the New Convertible Debentures at HK$0.032 per Share, subject to the 5% Limit on the Subscribers (Note 4) % 12,416,000 0.16 418,072,000 5.40 360,758,000 4.66 6,722,000 0.09 1,666,000 0.02 767,294,895 (Note 6) 9.90 387,294,895 5.00 2,725,410,210 35.18 (Note 5) 3,066,263,919 39.59
	3,865,897,919 100.00	4,069,366,230 100.00	4,295,442,131 100.00	4,548,115,199 100.00	7,365,897,919 100.00	7,745,897,919 100.00

Notes:

• (1) August Profit Investments Limited is a company wholly owned by Mr. Jay Chun, the Chairman and Managing Director of the Company.

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LETTER FROM THE BOARD

• (2) Best Top Offshore Limited is a company wholly owned by Mr. Shan Shiyong, alias, Sin Sai Yung, an executive Director.

• (3) Dr. Ma Xianming, alias, Ma Yin Ming is an executive Director. Mr. Park Aaron Changmin ceased to be an executive Director with effect from 1 December 2008.

• (4) These shareholdings are calculated on the assumption that there is no early redemption of the Existing Convertible Debentures.

• (5) The 5% Limit applies to all Debentures Holders and accordingly, none of the Debenture Holders will become a substantial shareholder (as defined under the Listing Rules) of the Company by reason only of the full conversion of the New Convertible Debentures.

• (6) The total number of Shares falling to be issued upon full conversion of the Existing Convertible Debentures will be 380,000,000 Shares which is less than 5% of the issued share capital of the Company as enlarged by the Shares to be issued upon full conversion of both the Existing Convertible Debentures and the New Convertible Debentures.

INFORMATION ON THE GROUP AND REASONS FOR ENTERING INTO THE SUBSCRIPTION AGREEMENTS

The Group is principally engaged in the research, development and sales of biopharmaceutical products. The Group is also engaged in the development, provision and sales of electronic gaming system and related repair, maintenance, consulting and/or marketing services.

The Directors consider that issue of the New Convertible Debentures will strengthen the financial position and capital base of the Group, in particular, the indebtedness position of the Group will improve and more working capital will be available for expansion and development of the business of the Group, details of which are described in the section headed “Use of proceeds” below.

In view of the reasons above, the Directors are of the view that the entering into of the Subscription Agreements is in the best interests of the Company and the Shareholders as a whole and that the terms are fair and reasonable.

USE OF PROCEEDS

The aggregate gross amount to be raised under the Subscription Agreements will be approximately HK$112,000,000. After deduction of the relevant cost for the transactions contemplated under the Subscription Agreements of approximately HK$2,100,000, the net proceeds are expected to be approximately HK$109,900,000. The Directors intend to apply all the net proceeds from the transactions contemplated under the Subscription Agreements as follows: (i) if there is an early redemption of the Existing Convertible Debentures, as to approximately HK$77,330,000 to early redeem the Existing Convertible Debentures and the balance of approximately HK$32,570,000, as general working capital for the Group, including funding its strategic investment activities, before the Company identifies any suitable investment opportunity and (ii) if there is no early redemption of the Existing Convertible Debentures, as general working capital of the Group.

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LETTER FROM THE BOARD

As announced by the Company on 5 January 2009, the Company executed the Supplemental Instrument to vary and amend the terms and conditions of the Existing Convertible Debentures by providing for early redemption of the Existing Convertible Debentures and to redeem the Existing Convertible Debentures concurrently at the completion of the Subscription Agreement II.

As the terms of the Supplemental Instrument constitute a variation of the terms and conditions of the Existing Convertible Debentures which requires the prior approval from the Stock Exchange, application has been made to the Stock Exchange in this regard. In the event that (i) the Supplemental Instrument shall not be approved by the Stock Exchange and/ or other regulatory bodies having jurisdiction over the subject matter contemplated under the Supplemental Instrument or (ii) the subscription and issuance of the New Convertible Debentures in an aggregate principal amount of HK$96,000,000 pursuant to the terms of the Subscription Agreement II are not consummated, the Supplemental Instrument shall be null and void ab initio, and all terms and conditions of the Existing Convertible Debentures shall remain the same in full force and effect.

As at the Latest Practicable Date, the approval from the Stock Exchange in respect of the variation of the terms and conditions of the Existing Convertible Debentures has been obtained.

SUMMARY OF FUND RAISING ACTIVITIES OF THE COMPANY IN THE PAST TWELVE MONTHS

Save for the proposed placing of unlisted warrants announced by the Company on 10 March 2008 which had since been cancelled as announced in the Company’s interim report for the six months ended 30 June 2008, there were no fund raising activities of the Company in the twelve months immediately preceding the Latest Practicable Date.

TRADING LIMITS

The Company notes the requirements under Rule 13.64 of the Listing Rules that the Stock Exchange reserves its right to require the Company to either change its trading method or to proceed with a consolidation of its Shares where the market price of the Shares approached the extremity of HK$0.01. The Directors will closely monitor the trading price of the Shares and if the trading price of the Shares approaches the extremity of HK$0.01 in the future, the Company will consider a consolidation of the Shares.

CHANGE OF AUDITORS

As disclosed in the announcement of the Company dated 8 January 2009, RSM have resigned as auditors of the Group with effect from 7 January 2009 due to the fact that the Company and RSM could not reach an agreement on the audit fees for the financial year ended 31 December 2008. RSM confirmed in their letter of resignation dated 7 January 2009 that there were no circumstances connected with their resignation which they consider should be brought to the attention to the holders of securities of the Company.

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LETTER FROM THE BOARD

The Board also confirms that there is no disagreement between the Company and RSM and there are no circumstances in respect of the change of auditors which it considers should be brought to the attention of the holders of securities of the Company.

RSM had not commenced any audit work on the Group for the financial year ended 31 December 2008. It is anticipated that the change of auditors would not affect the audit and will not cause any delay in the release of the annual results of the Company for the year ended 31 December 2008.

The Board proposes to appoint SHINEWING as auditors of the Group to fill the casual vacancy arising from the resignation of RSM until the conclusion of the Company’s next annual general meeting. The appointment of SHINEWING as auditors of the Group is subject to the approval of the Shareholders at the Special General Meeting.

RE-ELECTION OF DIRECTOR

Pursuant to the bye-law 86(2) of the Bye-laws, Mr. Hu Wenxiang (“Mr. Hu”), who was appointed as an independent non-executive director with effect from 21 November 2008 to fill a casual vacancy, shall hold office only until the next following general meeting of the Company. Mr. Hu, who being eligible, offers himself for re-election at the Special General Meeting. Biographical details of Mr. Hu who is proposed to be re-elected at the Special General Meeting are set out as follows:

Mr. Hu, aged 52, has been appointed as an independent non-executive director of the Company and a member of the Company’s audit committee and remuneration committee with effect from 21 November 2008. He graduated from Qingdao University in the People’s Republic of China. Mr. Hu has over 20 years of experience in management and investment.

Mr. Hu had not held any directorships in any other listed public companies during the three years preceding his appointment and other than being an independent non-executive director of the Company, Mr. Hu does not hold any positions with the Company and other members of the Group.

Mr. Hu has entered into a service agreement with the Company for an initial term of one year commencing on 21 November 2008 subject to renewal and he is also subject to retirement by rotation and re-election in accordance with the Bye-laws. Mr. Hu is entitled to receive an annual director’s fee of HK$120,000, which was determined by the Company’s remuneration committee with reference to his qualifications, experience, time commitment and responsibilities towards the Company as well as the prevailing market conditions.

As at the Latest Practicable Date, Mr. Hu did not have any interests or short positions in the shares or underlying shares of the Company or its associated corporations within the meaning of Part XV of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong). As far as the Board is aware, save as being an independent non-executive director of the Company, Mr. Hu does not have any relationships with any other directors, senior management, substantial shareholders or controlling shareholders (as defined in the Listing Rules) of the Company.

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LETTER FROM THE BOARD

In relation to the re-election of Mr. Hu as an independent non-executive Director, save as disclosed herein, there is no information to be disclosed pursuant to any of the requirements under Rules 13.51(2)(h) to 13.51(2)(v) of the Listing Rules, nor are there other matters concerning him that need to be brought to the attention of the holders of the securities of the Company.

SPECIAL GENERAL MEETING

A notice convening the Special General Meeting to be held at Unit C, 19th Floor, Entertainment Building, 30 Queen’s Road Central, Hong Kong on Friday, 13 February 2009 at 2:30 p.m. is set out on pages 14 to 15 of this circular for the purpose of considering and, if thought fit, passing with or without amendments the resolutions as set out therein.

A form of proxy for use by the Shareholders at the Special General Meeting is enclosed. Whether or not you are able to attend the Special General Meeting, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon to the branch share registrars of the Company in Hong Kong, Tricor Secretaries Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for holding the Special General Meeting or any adjourned meeting. Completion and return of the form of proxy will not preclude you from attending and voting in person at the Special General Meeting or any adjourned meeting thereof should you so wish.

To the best of the Directors’ knowledge, information and belief having made reasonable enquiries, no Shareholder would be required to abstain from voting at the Special General Meeting pursuant to the Listing Rules and/or the Bye-laws.

RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts the omission of which would make any statement herein misleading.

RECOMMENDATION

The Directors consider that the resolutions as set out in the notice of the Special General Meeting are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend you to vote in favour of such resolutions.

Yours faithfully, For and on behalf of Paradise Entertainment Limited Jay Chun Chairman

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NOTICE OF SPECIAL GENERAL MEETING

PARADISE ENTERTAINMENT LIMITED

*

(Incorporated in Bermuda with limited liability)

(Stock Code: 1180)

NOTICE IS HEREBY GIVEN that a special general meeting of the shareholders of Paradise Entertainment Limited (the “ Company ”) will be held at Unit C, 19th Floor, Entertainment Building, 30 Queen’s Road Central, Hong Kong on Friday, 13 February 2009 at 2:30 p.m. for the purpose of considering and, if thought fit, passing with or without amendments the following resolutions as ordinary resolutions:

ORDINARY RESOLUTIONS

1. “ THAT the Subscription Agreement II (as defined and described in the circular of the Company dated 22 January 2009 (the “ Circular ”)), a copy of which is produced to this meeting and marked “A” and signed by the chairman of this meeting for identification purpose, and the transactions contemplated under or incidental to the Subscription Agreement II be and are hereby approved, confirmed and ratified and that the directors of the Company be and are hereby authorized on behalf of the Company:

2. (A) to sign, seal, execute, perfect and deliver all such documents and do all such deeds, acts, matters and things as they may in their discretion consider necessary or desirable for the purpose of or in connection with the implementation of the Subscription Agreement II and all transactions contemplated thereunder including, without limitation, (i) the creation and issue by the Company of the New Convertible Debentures (as defined in the Circular) pursuant to the terms of the Subscription Agreement II and (ii) the allotment and issue of the Conversion Shares (as defined in the Circular) upon the exercise of the conversion rights attaching to the New Convertible Debentures, such Conversion Shares to rank pari passu in all respects with all Shares (as defined in the Circular) then in issue; and

3. (B) to exercise or enforce all of the rights of the Company under the Subscription Agreement II and to complete the Subscription Agreement II in accordance with its terms.”

4. “ THAT SHINEWING (HK) CPA Limited be and is hereby appointed as auditors of the Company and its subsidiaries to fill the causal vacancy arising from the resignation of RSM Nelson Wheeler, Certified Public Accountants, and to hold office until the conclusion of the next annual general meeting of the Company and that the board of directors of the Company be and is hereby authorised to fix their remuneration and to execute such documents and to do such acts incidental thereto and thereof.”

* For identification purposes only

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NOTICE OF SPECIAL GENERAL MEETING

1. “ THAT Mr. Hu Wenxiang be re-elected as an independent non-executive director of the Company.”

By Order of the Board Paradise Entertainment Limited Jay Chun Chairman

Hong Kong, 22 January 2009

Head Office and Principal Place of Business:

Unit C 19th Floor Entertainment Building 30 Queen’s Road Central Hong Kong

Registered Office:

Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Notes:

• (1) A shareholder entitled to attend and vote at the meeting may appoint one or more than one proxy to attend and to vote instead of him. A proxy need not be a shareholder of the Company.

• (2) In the case of joint holders of any share, any one of such persons may vote at the said meeting, either personally or by proxy, in respect of such share as if he was solely entitled thereto, but if more than one of such joint holders is present at the said meeting, personally or by proxy, that one of the said persons so present whose name stands first on the register of members in respect of such share shall alone be entitled to vote in respect thereof.

• (3) In order to be valid, the form of proxy together with the power of attorney or other authority (if any) under which it is signed or a notarially certified copy of that power or authority, must be deposited at the branch share registrars of the Company in Hong Kong, Tricor Secretaries Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the meeting. Completion and return of a form or proxy will not preclude the shareholders from attending and voting in person should they so desire.

• (4) A form of proxy for use at the meeting is enclosed herewith.

• (5) As at the date of this notice, the executive directors of the Company are Mr. Jay Chun (Chairman and Managing Director), Mr. Shan Shiyong, alias, Sin Sai Yung and Dr. Ma Xianming, alias, Ma Yin Ming, and the independent non-executive directors of the Company are Mr. Frank Hu, Mr. Li John Zongyang and Mr. Hu Wenxiang.

– 15 –