Paradise Entertainment Limited — Proxy Solicitation & Information Statement 2010

Dec 6, 2010

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 滙彩控股有限公司[*] (Incorporated in Bermuda with limited liability)

(Stock Code: 1180)

SUPPLEMENTAL AGREEMENT IN RELATION TO THE EXTENSION OF TIME FOR COMPLETION OF SUBSCRIPTION OF CONVERTIBLE DEBENTURES BY PIONEER LINK ASSOCIATES LIMITED AND

RE-ELECTION OF DIRECTORS AND NOTICE OF SPECIAL GENERAL MEETING

A notice convening the special general meeting of the Company to be held at Unit C, 19/F., Entertainment Building, 30 Queen’s Road Central, Hong Kong on Thursday, 23 December 2010 at 10:00 a.m. (the “ SGM ”) is set out on pages 19 to 21 of this circular. A form of proxy for use by the Shareholders at the SGM is enclosed. Whether or not you are able to attend the SGM, 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, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for holding the SGM or any adjourned meeting. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjourned meeting (as the case may be) should you so wish.

* For identification purposes only

7 December 2010

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Notice of Special General Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19

– i –

DEFINITIONS

In this circular, unless the context otherwise requires, the following expressions 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 issued by the Company on 19 November 2010 in relation to the issue of the Pioneer Convertible Debentures

• “Board”

the board of Directors

• “Business Day”

• any day other than a Saturday or Sunday on which banks in Hong Kong is open for business

• “Bye-laws”

• the bye-laws of the Company as amended from time to time

• “Company”

• Paradise Entertainment Limited, a company incorporated in Bermuda with limited liability, the Shares of which are listed on the Stock Exchange

• “Concert Party or Parties”

• in relation to Pioneer Link, 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 meaning ascribed to it in the Listing Rules

• “Conversion Price”

• the conversion price of the Pioneer Convertible Debentures as described under the paragraph headed “Conversion Price” of this circular

• “Conversion Share(s)”

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

• “Director(s)”

• director(s) of the Company

• “Edison International”

Edison International Inc., the subscriber under the Subscription Agreement I and the holder of Existing Convertible Debentures of HK$84,000,000

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DEFINITIONS

• “Existing Convertible Debenture(s)”

collectively, (i) the HK$116,000,000 8% convertible debentures due 2014 issued by the Company to Edison International on 14 April 2010, of which a principal amount of HK$54,000,000 remained outstanding as at the Latest Practicable Date, (ii) the US$1,000,000 (or approximately HK$7,750,000) 8% convertible debentures due 2014 issued by the Company to Trueworthy on 20 April 2010, of which a principal amount of US$1,000,000 (or approximately HK$7,750,000) remained outstanding as at the Latest Practicable Date, and (iii) the HK$153,500,000 8% convertible debentures due 2014 issued by the Company to Pioneer Link, of which a principal amount of HK$70,800,000 remained outstanding as at the Latest Practicable Date. Pioneer Link had transferred the Existing Convertible Debentures of HK$36,000,000 to Edison International in October 2010, of which a principal amount of HK$30,000,000 remained outstanding as of the Latest Practicable Date

• “Extension”

• the extension of the completion date of the Subscription Agreement II to a date on or before 21 October 2011 contemplated under the Supplemental Agreement

• “Group”

• the Company and its subsidiaries

• “HK$”

• Hong Kong dollars

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

• “Issue Date”

• the date of first issue of the Pioneer Convertible Debentures

• “Last Trading Day” 20 January 2010, being the last Trading Day before trading in the Shares was suspended pending the release of the announcement dated 21 January 2010

• “Latest Practicable Date” 3 December 2010, being the latest practicable date for ascertaining certain information contained in this circular

• “Listing Approval” the approval letter issued by the Stock Exchange to the Company on 23 March 2010 relating to the approval for the listing of, and permission to deal in, the conversion shares to be allotted and issued on the exercise of the conversion rights attached to the Existing Convertible Debentures

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DEFINITIONS

• “Listing Rules”

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

• “Maturity Date”

• 31 December 2014, or if that is not a Business Day, the first Business Day thereafter

• “Parties”

• collectively, the Company and Pioneer Link

• “Pioneer Convertible Debenture(s)”

• the HK$509,125,000 8% convertible debentures due 2014 to be issued by the Company to Pioneer Link, pursuant to the terms of the Subscription Agreement II as amended by the Supplemental Agreement

• “Pioneer Link” Pioneer Link Associates Limited, the subscriber under the Subscription Agreement II and the holder of the Existing Convertible Debentures of HK$40,800,000

• “Promissory Note”

• the promissory note in the principal amount of HK$250,000,000 to be issued by Natural Noble Limited (a wholly-owned subsidiary of the Company) to Mr. Jay Chun (or to his nominee as he may direct) as part of the consideration for the acquisition of a patent from Mr. Jay Chun by Natural Noble Limited

• “SFO”

• Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

• “SGM” the special general meeting of the Company to be convened and held to consider and, if thought fit, approve, among other things, the Supplemental Agreement and the transactions contemplated thereunder and the re-election of Directors

• “Share(s)” ordinary share(s) of HK$0.10 each in the share capital of the Company

• “Shareholder(s)” holder(s) of the Share(s)

• “Specific Mandate”

• a specific mandate to allot and issue the Conversion Shares to be sought from the Shareholders at the SGM to satisfy the Conversion Shares

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

“Subscribers” collectively, Edison International, Pioneer Link and Trueworthy, being the subscribers under the Subscription Agreements

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DEFINITIONS

• “Subscription Agreement I”

• the subscription agreement dated 20 January 2010 entered into between the Company and Edison International in relation to the subscription of the Existing Convertible Debentures in the aggregate principal amount of HK$116,000,000

• “Subscription Agreement II”

• the subscription agreement dated 20 January 2010 entered into between the Company and Pioneer Link in relation to the subscription of the Existing Convertible Debentures in the aggregate principal amount of US$85,500,000 (or approximately HK$662,625,000)

• “Subscription Agreement III” the subscription agreement dated 20 January 2010 entered into between the Company and Trueworthy in relation to the subscription of the Existing Convertible Debentures in the aggregate principal amount of US$1,000,000 (or approximately HK$7,750,000)

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

• “Supplemental Agreement”

• the supplemental agreement dated 21 October 2010 entered into between the Company and Pioneer Link in relation to the Extension

• “Trading Day”

• 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

• “Trueworthy”

• Trueworthy Group Limited, the subscriber under the Subscription Agreement III and the holder of the Existing Convertible Debentures of US$1,000,000

• “US$” United States dollars, the lawful currency of the United States of America

• “%”

• per cent

For reference purposes only and unless otherwise specified, US$ have been translated into HK$ using the rate of US$1.00 to HK$7.75 in this circular.

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LETTER FROM THE BOARD

PARADISE ENTERTAINMENT LIMITED 滙彩控股有限公司[*]

(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 Mr. Hu Liming

Independent Non-executive Directors: Mr. Frank Hu Mr. Li John Zongyang Mr. Kuan Hin Meng

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

7 December 2010

• To the Shareholders, and for information only, holders of the Existing Convertible Debentures

Dear Sir or Madam,

SUPPLEMENTAL AGREEMENT IN RELATION TO THE EXTENSION OF TIME FOR COMPLETION OF SUBSCRIPTION OF CONVERTIBLE DEBENTURES BY PIONEER LINK ASSOCIATES LIMITED AND

RE-ELECTION OF DIRECTORS AND

NOTICE OF SPECIAL GENERAL MEETING

INTRODUCTION

The Directors wish to seek the approval of the Shareholders at the SGM for approving (i) the Supplemental Agreement and the Extension and the grant of the Specific Mandate to cover the allotment and issue of the Conversion Shares; and (ii) the-relection of Directors. The purpose of this circular is to provide you with further details in relation thereto.

* For identification purposes only

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LETTER FROM THE BOARD

SUBSCRIPTION OF THE PIONEER CONVERTIBLE DEBENTURES AND THE EXTENSION OF TIME FOR COMPLETION OF SUBSCRIPTION AGREEMENT II

On 20 January 2010, the Company entered into the Subscription Agreement II with Pioneer Link for the subscription of the convertible debentures in an aggregate principal amount of US$85,500,000 (or approximately HK$662,625,000) by Pioneer Link. Completion of the Subscription Agreement II was originally expected to take place on or before 21 April 2010 and then postponed to a date on or before 21 October 2010 pursuant to a supplemental agreement entered into between the Parties on 21 April 2010.

Despite that the Company had continuously urged Pioneer Link to complete the transaction on or before 21 October 2010, the Company was informed by Pioneer Link that it would not be able to fully complete the transaction on 21 October 2010 due to the unexpected internal circumstances and asked for an extension of twelve months to 21 October 2011. Given the Company’s capital needs, the Company has entered into the Supplemental Agreement with Pioneer Link with details as follows:

The Supplemental Agreement

Date

21 October 2010

Parties

The Company, as issuer

Pioneer Link, as subscriber

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, Pioneer Link is an investment holding company. Save that Pioneer Link is the holder of the Existing Convertible Debentures of HK$40,800,000, its ultimate beneficial owners are third parties independent of the Company and the connected persons of the Company.

Subject

The Parties have agreed that the completion of the Subscription Agreement II shall take place on or before 21 October 2011, being the date falling twelve months after the intended completion date (i.e. 21 October 2010).

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LETTER FROM THE BOARD

PRINCIPAL TERMS OF THE PIONEER CONVERTIBLE DEBENTURES

Save for the Extension, all the provisions of the Subscription Agreement II shall continue to remain in full force and effect and be binding on the Parties, details of which are summarised as below:

Conditions

Pursuant to the Subscription Agreement II, completion of the Subscription Agreement II (including the issue of the Pioneer Convertible Debentures) is conditional upon, inter alia:

• (i) the passing of the resolution(s) by the Shareholders (or, if so required by the Listing Rules or the Stock Exchange, the independent Shareholders) at the SGM approving the terms of the Subscription Agreement II as amended by the Supplemental Agreement, the creation of the Pioneer Convertible Debentures and the issue and allotment of the Conversion Shares;

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

• (iii) (if applicable) all necessary governmental or regulatory consents, authorizations and approvals that may be required by the Company or Pioneer Link in connection with the issue or the subscription of the Pioneer Convertible Debentures having been obtained; and

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

Conversion Price

Pursuant to the Subscription Agreement II, the Conversion Price shall be the higher of (i) the average closing price of the Shares of any three consecutive Trading Days (as selected by Pioneer Link) within the sixty Trading Days immediately prior to the conversion date or (ii) the par value for the time being of the Shares, which is HK$0.10.

For illustrative purpose only:

• (A) on the basis that the Conversion Price is HK$0.273 per Share, being the average closing price of the three consecutive Trading Days immediately prior to and including the date of the Subscription Agreement II, the Conversion Price represents:

• (i) a premium of approximately 1.11% over the closing price of HK$0.27 per Share as quoted on the Stock Exchange on the Last Trading Day;

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LETTER FROM THE BOARD

• (ii) a premium of approximately 0.37% over the average closing price of HK$0.272 per Share as quoted on the Stock Exchange for the five consecutive Trading Days immediately prior to and including the Last Trading Day;

• (iii) a premium of approximately 0.37% over the average closing price of HK$0.272 per Share as quoted on the Stock Exchange for the ten consecutive Trading Days immediately prior to and including the Last Trading Day; and

• (iv) a discount of approximately 33.41% to the unaudited net asset value per Share of approximately HK$0.41 (adjusted) as at 30 June 2009;

• (B) on the basis that the Conversion Price is HK$0.103 per Share, being the average closing price of the three consecutive Trading Days immediately prior to 19 November 2010, being the date of the Announcement, the Conversion Price represents:

• (i) a discount of approximately 1.9% to the closing price of HK$0.105 per Share as quoted on the Stock Exchange on 19 November 2010;

• (ii) a discount of approximately 0.58% to the average closing price of HK$0.1036 per Share as quoted on the Stock Exchange for the five consecutive Trading Days immediately prior to and including 19 November 2010;

• (iii) a discount of approximately 1.9% to the closing price of HK$0.105 per Share as quoted on the Stock Exchange for the ten consecutive Trading Days immediately prior to and including 19 November 2010; and

• (iv) a premium of approximately 21.18% over the unaudited net asset value per Share of approximately HK$0.085 (adjusted) as at 30 June 2010;

• (C) on the basis that the Conversion Price is HK$0.096 per Share, being the average closing price of the three consecutive Trading Days immediately prior to the Latest Practicable Date, the Conversion Price represents:

• (i) a premium of approximately 1.04% over the closing price of HK$0.095 per Share as quoted on the Stock Exchange on 2 December 2010, being a date immediately prior to the Latest Practicable Date;

• (ii) a discount of approximately 1.03% to the average closing price of HK$0.097 per Share as quoted on the Stock Exchange for the five consecutive Trading Days immediately prior to the Latest Practicable Date;

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LETTER FROM THE BOARD

• (iii) a discount of approximately 4.19% to the average closing price of HK$0.1002 per Share as quoted on the Stock Exchange for the ten consecutive Trading Days immediately prior to the Latest Practicable Date; and

• (iv) a premium of approximately 11.46% over the unaudited net asset value per Share of approximately HK$0.085 (adjusted) as at 30 June 2010;

• (D) on the basis that the Conversion Price is HK$0.10 per Share, being the par value for the time being of the Shares, the Conversion Price represents:

• (i) a premium of 5% over the closing price of HK$0.095 per Share as quoted on the Stock Exchange on 2 December 2010, being a date immediately prior to the Latest Practicable Date;

• (ii) a premium of 3% over the average closing price of HK$0.097 per Share as quoted on the Stock Exchange over the five consecutive Trading Days immediately prior to the Latest Practicable Date;

• (iii) a discount of approximately 0.20% to the average closing price of HK$0.1002 per Share as quoted on the Stock Exchange for the ten consecutive Trading Days immediately prior to the Latest Practicable Date; and

• (iv) a premium of approximately 17.65% over the unaudited net asset value per Share of approximately HK$0.085 (adjusted) as at 30 June 2010.

Shareholders and potential investors of the Company should, however, note that the Conversion Price has not been fixed at the date of the Subscription Agreement II or the Latest Practicable Date. The Conversion Prices adopted in this circular have been selected by the Company for illustrative and disclosure compliance purposes only and should not in any way be read or construed as the Company’s or the Board’s view of the likely price levels of the Shares in the future.

As disclosed in the announcement of the Company dated 21 January 2010, the Conversion Price was determined after arm’s length negotiation between Pioneer Link and the Company. The total gross proceeds from the subscription of the Pioneer Convertible Debentures amounts to approximately HK$509,125,000, after deducting related expenses of approximately HK$400,000, the net proceeds from the subscription of the Pioneer Convertible Debentures amounts to approximately HK$508,725,000 and the net Conversion Price per Conversion Share is (i) on the basis that the Conversion Price is HK$0.096 per Share, approximately HK$0.096 and (ii) on the basis that the Conversion Price is HK$0.10 per Share, approximately HK$0.10.

Conversion Shares

As at the Latest Practicable Date, the issued share capital of the Company comprised 1,863,444,778 Shares.

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LETTER FROM THE BOARD

For illustrative purpose only and assuming there is no conversion of any of the Existing Convertible Debentures:

• (A) on the basis that the Conversion Price is HK$0.103 per Share, being the average closing price of the three consecutive Trading Days immediately prior to the date of the Announcement, the maximum number of new Shares to be issued upon the exercise of the conversion rights under the Pioneer Convertible Debentures will be 4,942,961,165 Shares, representing approximately 265.26% of the issued share capital of the Company as at the Latest Practicable Date and approximately 72.62% of the issued Shares as enlarged by the issue of the Conversion Shares; and

• (B) on the basis that the Conversion Price is HK$0.10 per Share, being the par value for the time being of the Shares, the maximum number of new Shares to be issued upon the exercise of the conversion rights under the Pioneer Convertible Debentures will be 5,091,250,000 Shares, representing approximately 273.22% of the issued share capital of the Company as at the Latest Practicable Date and approximately 73.21% of the issued Shares as enlarged by the issue of the Conversion Shares.

Maturity Date

31 December 2014, or if that is not a Business Day, the first Business Day thereafter. Notwithstanding that the Pioneer Convertible Debentures shall mature on the Maturity Date, the Company shall be bound to repay the outstanding principal amount of the Pioneer Convertible Debentures together with interests accrued thereon (if any) on the 14th Business Day after 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.

Ranking

The Pioneer Convertible Debentures constitute direct, unconditional, unsubordinated and unsecured obligations of the Company and Pioneer Link 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 Pioneer Convertible Debentures 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.

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LETTER FROM THE BOARD

Listing

As disclosed in the announcement of the Company on 2 November 2010, the Listing Approval will no longer be valid for the Conversion Shares which may be issued on the exercise of the conversion rights attached to the unissued convertible debentures of HK$509,125,000 contemplated under the Subscription Agreement II. As such, a new application will be made to the Stock Exchange for the approval 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 Pioneer Convertible Debentures of HK$509,125,000. No application will be made for the listing of the Pioneer Convertible Debentures on the Stock Exchange or any other stock exchange.

Voting rights of Pioneer Link

Pioneer Link, as the debenture holder of the Pioneer Convertible Debentures, does not have any voting rights at the general meetings of the Company by reason of it being a debenture holder.

Transferability of Pioneer Convertible Debentures

The Pioneer 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.

Early redemption

The Company may, at any time between the Issue Date and the date falling fourteen days before (and excluding) the Maturity Date by giving notice in writing to Pioneer Link, elect to redeem the whole or any part of the Pioneer Convertible Debentures at 112% of the outstanding principal amount thereof.

Restrictions on conversion

No conversion rights to the Pioneer Convertible Debentures may be exercised by Pioneer Link if and to the extent that following such exercise, that Pioneer Link and its Concert Parties, taken together, will, directly or indirectly, control or be interested in more than 5% of the issued share capital of the Company (the “ 5% Limit ”).

No conversion rights to the Pioneer Convertible Debentures may be exercised by Pioneer Link if and to the extent that following such exercise, the Company will be in breach of the minimum public float requirement stipulated under Rule 8.08 of the Listing Rules.

Subject to the foregoing, Pioneer Link shall have the right to convert the Pioneer Convertible Debentures into the Conversion Shares at the Conversion Price on any Business Day commencing on and including the Issue Date up to and including the Maturity Date.

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LETTER FROM THE BOARD

INFORMATION ON THE GROUP AND REASONS FOR ENTERING INTO THE SUPPLEMENTAL AGREEMENT

The Group is principally engaged in the research, development and sales of biopharmaceutical products as well as the development, provision and sales of electronic gaming system and provision of management services.

Despite that the Company had taken various actions (such as various reminder/ follow-up calls and letters to Pioneer Link) to procure and/or urge Pioneer Link to complete the transaction on or before 21 October 2010, the Company was informed by Pioneer Link that it would not be able to fully complete the transaction on 21 October 2010 due to the unexpected internal circumstances and asked for an extension of twelve months to 21 October 2011. Given the Company’s capital needs, the Company has entered into the Supplemental Agreement with Pioneer Link to extend the completion date of the Subscription Agreement II. The relationship with Pioneer Link, as a key investor, who is willing to invest a substantial amount of funds into the Company, is important to the Company. Despite the continued delay in the timing of the completion, Pioneer Link did have, from time to time, subscribed for the convertible debentures pursuant to the Subscription Agreement II, whenever its funding was available. The Company has not taken any legal action against Pioneer Link regarding the delay and intends to continue to resort to commercial negotiations with Pioneer Link to ensure that Pioneer Link timely fulfils its obligations under the Subscription Agreement II, and maintain a good relationship with Pioneer Link, being the holder of the Existing Convertible Debentures.

Despite that the delay in completion of Subscription Agreement II will result in the delay in settling the outstanding liabilities of the Group and affect the plan of the expansion of Group’s gaming business at San Kin Yip Commercial Centre, the Board believes that such delay will not have a material adverse effect on the financial position and operation of the Group. The Directors still consider that the issue of the Pioneer Convertible Debentures represents a good opportunity to raise additional and substantial funds to finance its business expansion for the Group without any immediate dilutive effect on the shareholding of the existing Shareholders, which would in turn generate benefits and returns to the Shareholders. It is an essential term of the Subscription Agreement II that the Conversion Price is floating to provide greater flexibility and incentive for Pioneer Link to convert the Pioneer Convertible Debentures having regard to the latest Share price performance and to save the Company’s expenses in appointing independent professionals to certify adjustments to such fixed Conversion Price in the event of any capital reorganizations of the Company.

The Directors are of the view that the entering into the Supplemental Agreement is in the best interests of the Company and the Shareholders as a whole and that the terms of the Supplemental Agreement and the issue of the Pioneer Convertible Debentures (including but not limited to the floating Conversion Price) are and remain to be fair and reasonable.

USE OF PROCEEDS

As disclosed in the circular of the Company dated 16 March 2010, the Board originally planned to apply the proceeds raised from the issue of the Existing Convertible Debentures, inter alia, on the expansion of the Group’s gaming business including the launch of a casino

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LETTER FROM THE BOARD

catering to high rollers at San Kin Yip Commercial Center in Macau of which the estimated capital expenditure for renovation, furniture and fixtures and equipment of HK$70 million, marketing and promotional expense of HK$23 million and working capital of HK$375 million amount to HK$468 million. The original proposed working capital for casino purpose in the amount of HK$375 million was estimated with reference to the then proposed combination of the VIP betting tables and live table games machines to be placed in the casino in March 2010. As there was a change in circumstances recently which led to the inevitable change of combination of the VIP betting tables and live table games machines to be placed in the casino in late September 2010, the estimated working capital required for casino purpose decreases from HK$375 million to HK$125 million, creating a surplus of HK$250 million, which prompted the Board’s decision to change the intended use of the proceeds of HK$250 million to early redeem the Promissory Note and to further develop the Group’s business in the gambling industry in order to take advantage of the discount offered for the early redemption of the Promissory Notes.

The Promissory Note was issued by Natural Noble Limited (a wholly-owned subsidiary of the Company) to Mr. Jay Chun (or to his nominee as he may direct) as part of the consideration for the acquisition of a patent from Mr. Jay Chun, who has obtained the grant of the patent on 9 April 2010. After the grant of the patent, the Company commenced negotiation of the acquisition of the patent from Mr Jay Chun since mid May 2010 and entered into an acquisition agreement with Mr Jay Chun on 30 July 2010. For details, please refer to the announcement of the Company dated 6 August 2010.

Save as disclosed above, the Board intends to use the proceeds raised from the issue of the Pioneer Convertible Debentures in the following manner:

• as to HK$50 million for the repayment of liabilities;

• as to HK$60 million for the renovation, furniture and fixtures and equipment and as to an aggregate of HK$140 million for the general working capital of, a club house (HK$10 million) and a casino catering to high rollers at the San Kin Yip Commercial Center in Macau for the rolling chips for the live table gaming machines and the VIP tables (HK$120 million) and its general working capital (HK$10 million);

• as to HK$40 million for the marketing and promotional expenses;

• as to HK$189 million for the early redemption of the Promissory Note; and

• as to HK$29.725 million for the general working capital of the Group.

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LETTER FROM THE BOARD

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 Pioneer Convertible Debentures:

Mr. Jay Chun August Profit Investments Limited (Note 1) Best Top Offshore Limited (Note 2) Edison International Pioneer Link Trueworthy Debenture holder(s) (Note 3) Other public Shareholders Total	As at the Latest Practicable Date % 1,241,600 0.07 196,967,200 10.57 180,975,800 9.71 40,000,000 2.15 – – – – – – 1,444,260,178 77.50 1,863,444,778 100.00	Solely upon full conversion of the Existing Convertible Debentures at HK$0.103, subject to the 5% Limit % 1,241,600 0.04 196,967,200 6.25 180,975,800 5.74 157,516,899 5.00 157,516,899 5.00 75,242,718 2.39 936,616,688 29.73 1,444,260,178 45.85 3,150,337,982 100.00	Solely upon full conversion of the Pioneer Convertible Debentures at HK$0.103, subject to the 5% Limit % 1,241,600 0.02 196,967,200 2.89 180,975,800 2.66 40,000,000 0.59 340,320,297 5.00 – – 4,602,640,868 67.62 1,444,260,178 21.22 6,806,405,943 100.00	Upon full conversion of the Existing Convertible Debentures and the Pioneer Convertible Debentures at HK$0.103, subject to the respective 5% Limit % 1,241,600 0.02 196,967,200 2.43 180,975,800 2.24 404,664,957 5.00 404,664,957 5.00 75,242,718 0.93 5,385,281,737 66.54 1,444,260,178 17.84 8,093,299,147 100.00	Solely upon full conversion of the Existing Convertible Debentures at HK$0.10, subject to the 5% Limit % 1,241,600 0.04 196,967,200 6.18 180,975,800 5.68 159,447,239 5.00 159,447,239 5.00 77,500,000 2.43 969,105,522 30.39 1,444,260,178 45.28 3,188,944,778 100.00	Upon full conversion of the Existing Convertible Debentures and the Pioneer Convertible Debentures at HK$0.10, subject to the respective 5% Limit % 1,241,600 0.01 196,967,200 2.38 180,975,800 2.19 414,009,739 5.00 414,009,739 5.00 77,500,000 0.94 5,551,230,522 67.04 1,444,260,178 17.44 8,280,194,778 100.00

Notes:

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

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

• (3) These Debenture Holders refer to the holders of the portion of the Existing Convertible Debentures and the Pioneer Convertible Debentures, which have not been exercised and remain outstanding. The 5% Limit applies to all the holders of the Existing Convertible Debentures (including the Pioneer Convertible Debentures). Accordingly, none of the holders of the Existing Convertible Debentures and Pioneer Convertible Debentures will become a substantial shareholder of the Company (as defined under the Listing Rules) by reason only of the conversion of the Existing Convertible Debentures or the Pioneer Convertible Debentures. The maximum additional shareholdings to be held by these Debenture Holders is calculated (i) based on the assumption that these Debenture Holders are not subject to the 5% Limit and (ii) there is no early redemption of the Existing Convertible Debentures, which is for illustration purpose only.

• (4) As the average closing price of the three consecutive Trading Days immediately prior to the Latest Practicable Date is below HK$0.1, the Company has made reference to the Conversion Price of HK$0.103, being the average closing price of the three consecutive Trading Days immediately prior to the date of the Announcement for illustration purpose.

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LETTER FROM THE BOARD

• (5) The insufficiency of minimum public float is for illustration purpose only and the Company will ensure the maintenance of the minimum public float prescribed by the Listing Rules from time to time.

The market prices of the Shares were slightly below HK$0.10 since 26 November 2010. Pursuant to Rule 13.64 of the Listing Rules, where the market price of the securities of the issuer approaches the extremities of HK$0.01 or HK$9,995.00, the Stock Exchange reserves the right to require the issue either to change the trading method or to proceed with a consolidation or splitting of its securities.

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

Save for (i) the completion of the issue of convertible debentures of HK$116,000,000 to Edison International on 14 April 2010 under the Subscription Agreement I; (ii) the completion of the issue of convertible debentures of US$1,000,000 to Trueworthy on 20 April 2010 under the Subscription Agreement III; and (iii) the partial issue of convertible debentures of an aggregate of HK$153,500,000 to Pioneer Link under the Subscription Agreement II in April, September, October and November 2010, there were no fund raising activities carried out by the Company during the twelve months immediately preceding the Latest Practicable Date. The Company raised approximately HK$277.25 million gross proceeds from the issue of the convertible debentures and the net proceeds of approximately HK$275.95 million were applied in the following manner:

• as to approximately HK$127.75 million for the repayment of liabilities;

• as to approximately HK$26 million for the renovation, furniture and fixtures and equipment of a club house and a casino catering to high rollers at the San Kin Yip Commercial Center in Macau;

• as to approximately HK$51 million for the early redemption of the Promissory Note; and

• as to approximately HK$71.2 million remained unused, which is intended to be applied for repayment of liabilities and renovation, furniture and fixtures and equipment purpose.

RE-ELECTION OF DIRECTORS

Pursuant to the bye-law 86(2) of the Bye-laws, Mr. Kuan Hin Meng (“Mr. Kuan”) and Mr. Hu Liming (“Mr. Hu”), who were appointed as an independent non-executive Director and as an executive Director on 28 June 2010 and 30 November 2010, respectively to fill casual vacancies, shall hold office only until the next following general meeting of the Company. Mr. Hu and Mr. Kuan, who being eligible, offer themselves for re-election at the SGM. Biographical details of Mr. Hu and Mr. Kuan who are proposed to be re-elected at the SGM are set out as follows:

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LETTER FROM THE BOARD

Mr. Kuan Hin Meng

Mr. Kuan, aged 51, has been appointed as an independent non-executive Director and a member of the Company’s audit committee and remuneration committee since 28 June 2010. He is currently engaged in trading of jewellery, pawn-broking and investment and has over 30 years of experience in investment and management.

Mr. Kuan had not held any directorships in any other listed public companies during the three years preceding the Latest Practicable Date and save as disclosed above, Mr. Kuan did not hold any positions with the Company and other members of the Group.

Mr. Kuan has not entered into any service agreement with the Company but he is subject to retirement by rotation and re-election in accordance with the bye-laws of the Company. Mr. Kuan 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. Kuan 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 SFO. As far as the Board was aware, save as, Mr. Kuan did not have any relationships with any other Directors, senior management, substantial shareholders or controlling shareholders (as defined in the Listing Rules) disclosed of the Company as at the Latest Practicable Date.

Mr. Hu Liming

Mr. Hu, aged 45, has been appointed as an executive Director since 30 November 2010. He is currently the Managing Director of Standind (Shanghai) Co. Ltd. and has over 20 years of experiences in corporate management, business development as well as sales and marketing. Mr. Hu obtained his Bachelor degree in engineering from Shanghai University of Science and Technology.

Mr. Hu had not held any directorships in any other listed public companies during the three years preceding the Latest Practicable Date and save as disclosed, Mr. Hu did not hold any positions with the Company and other members of the Group. Mr. Hu has not entered into any service agreement with the Company but he is subject to retirement by rotation and re-election in accordance with the bye-laws of the Company. Mr. Hu is entitled to receive an annual salary 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 SFO. As far as the Board was aware, save as disclosed, Mr. Hu did not have any relationships with any other Directors, senior management, substantial shareholders or controlling shareholders (as defined in the Listing Rules) of the Company as at the Latest Practicable Date.

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LETTER FROM THE BOARD

In relation to the re-election of Mr. Kuan and Mr. Hu as an independent non-executive Director and an executive Director, save as disclosed herein, the Board is not aware of any other matters in relation to any 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 than that need to be brought to the attention of the shareholders of the Company.

SGM

A notice convening the SGM to be held at Unit C, 19/F., Entertainment Building, 30 Queen’s Road Central, Hong Kong on Thursday, 23 December 2010 at 10:00 a.m. is set out on pages 19 to 21 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 SGM is enclosed. Whether or not you are able to attend the SGM, please 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 SGM or any adjourned meeting. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjourned meeting should you so wish.

To clarify, as part of the proceeds raised from the issue of the Pioneer Convertible Debentures will be used to redeem the Promissory Note issued by Natural Noble Limited (a wholly-owned subsidiary of the Company) to Mr. Jay Chun (or to his nominee as he may direct) as part of the consideration for the acquisition of a patent from Mr Jay Chun by Natural Noble Limited, Mr. Jay Chun and his associates (holding an aggregate of 198,208,800 Shares, representing approximately 10.64% of the issued share capital of the Company as at the Latest Practicable Date) are required to abstain from voting at the SGM in relation to the approval of the Supplemental Agreement and the transactions contemplated thereunder. Save as disclosed, no other Shareholders would be required to abstain from voting at the SGM pursuant to the Listing Rules and/or the Bye-laws.

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the Supplemental Agreement and Subscription Agreement II will be available for inspection during normal business hours on any week days (except public holidays) at the principal place of business of the Company in Hong Kong at Unit C, 19th Floor, Entertainment Building, 30 Queen’s Road Central, Hong Kong from the date of this circular up to and including the date of the SGM and will be available for inspection at the SGM.

RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. The Directors, having made all reasonable inquiries confirm, to the best of their knowledge and belief the information

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LETTER FROM THE BOARD

contained in this circular is accurate and complete in all material aspect and not misleading or deceptive, and there are no other facts the omission of which would make any statement herein or this circular misleading.

RECOMMENDATION

The Directors consider that the resolutions as set out in the notice of the SGM is in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of such resolutions.

Yours faithfully, For and on behalf of Paradise Entertainment Limited Stella Ho

Company Secretary

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NOTICE OF SPECIAL GENERAL MEETING

PARADISE ENTERTAINMENT LIMITED 滙彩控股有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 1180)

NOTICE IS HEREBY GIVEN that a special general meeting of Paradise Entertainment Limited (the “ Company ”) will be held at Unit C, 19/F., Entertainment Building, 30 Queen’s Road Central, Hong Kong on Thursday, 23 December 2010 at 10:00 a.m. for the purpose of considering and, if thought fit, passing with or without amendments the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

1. “ THAT the entering into the Supplemental Agreement (as defined and described in the circular dated 7 December 2010 (the “ Circular ”)), a copy of which is produced to this meeting and marked “A” and initialled by the chairman of this meeting for identification purpose, and the Extension (as defined in the Circular) contemplated under the Supplemental Agreement be and are hereby approved, confirmed and ratified and that the Directors 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 (as amended by the Supplemental Agreement) and all transactions contemplated thereunder including, without limitation, (i) the creation and issue by the Company of the Pioneer Convertible Debentures (as defined in the Circular) pursuant to the terms of the Subscription Agreement II (as amended by the Supplemental Agreement) 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 Pioneer Convertible Debentures, such Conversion Shares to rank pari passu in all respects with all Shares then in issue; and

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

4. “ THAT Mr. Kuan Hin Meng be re-elected as an independent non-executive director of the Company.”

5. “ THAT Mr. Hu Liming be re-elected as an executive director of the Company.”

* For identification purposes only

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NOTICE OF SPECIAL GENERAL MEETING

As part of the proceeds raised from the issue of the Pioneer Convertible Debentures will be used to redeem the Promissory Note issued by Natural Noble Limited (a wholly-owned subsidiary of the Company) to Mr. Jay Chun (or to his nominee as he may direct) as part of the consideration for the acquisition of a patent from Mr Jay Chun by Natural Noble Limited, Mr. Jay Chun and his associates (holding an aggregate of 198,208,800 Shares, representing approximately 10.64% of the issued share capital of the Company as at the date of this notice) are required to abstain from voting in relation to resolution 1 above at the SGM. Save as disclosed above, no other Shareholders would be required to abstain from voting at the SGM pursuant to the Listing Rules and/or the bye-laws of the Company.

By Order of the Board Paradise Entertainment Limited Stella Ho Company Secretary

Hong Kong, 7 December 2010

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) 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.

• (2) 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. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his/her attorney duly authorized in writing or, if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person authorized to sign the same.

• (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.

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NOTICE OF SPECIAL GENERAL MEETING

• (4) A form of proxy for use at the meeting is enclosed with the circular of the Company despatched to the shareholders of the Company on 7 December 2010.

• (5) If a “black” rainstorm warning signal or a tropical cyclone warning signal number 8 or above is in force in Hong Kong at any time between 9:00 a.m. and 12:00 noon on Thursday, 23 December 2010, the SGM will not be held on that day. An announcement will be made in such event.

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 Mr. Hu Liming, and the independent non-executive directors of the Company are Mr. Frank Hu, Mr. Li John Zongyang and Mr. Kuan Hin Meng.

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