Sinopharm Tech Holdings Limited - 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 your licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in China Vanguard Group Limited (the “ Company ”), you should at once hand this circular and the accompanying form of proxy to the purchaser or 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 the 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.

(Incorporated in the Cayman Islands with limited liability) Stock Code: 8156

1) CONNECTED TRANSACTION IN RELATION TO PROPOSED AMENDMENTS TO THE TERMS OF THE CONVERTIBLE BONDS;

2) PROPOSED GRANT OF SPECIFIC MANDATE TO ISSUE OF CONVERSION SHARES;

AND 3) NOTICE OF EXTRAORDINARY GENERAL MEETING

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

Capitalized terms used in this cover page shall have the same meanings as those defined in this circular.

A letter from the Board is set out on pages 4 to 11 of this circular. A letter from the Independent Board Committee is set out on pages 12 to 13 of this circular. A letter from Gram Capital, being the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, is set out on pages 14 to 26 of this circular.

A notice convening the EGM of the Company to be held at Units 307-313, 3/F, Wireless Centre, Phase One Hong Kong Science Park, Pak Shek Kok, New Territories, Hong Kong on Wednesday, 29 March 2017 at 10:30 a.m. is set out on pages 33 to 34 of this circular. A form of proxy for use at the EGM is enclosed with this circular.

Whether or not you are able to attend the EGM, you are requested to complete the accompanying form of proxy, in accordance with the instructions printed thereon and deposit the same at the Hong Kong branch share registrar and transfer office of the Company, Tricor Standard Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish and in such event, the proxy shall be deemed to be revoked.

This circular will remain on the “Latest Company Announcements” page of the GEM website at http://www.hkgem.com for a minimum period of 7 days from the date of its posting and on the website of the Company at http://www.cvg.com.hk.

10 March 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 of the Stock Exchange and no assurance is given that there will be a liquid market in the securities traded on GEM.

– i –

	Page
Characteristics of GEM.............................................................................................................	i
Defnitions...................................................................................................................................	1
Letter from the Board................................................................................................................	4
Letter from the Independent Board Committee.....................................................................	12
Letter from Gram Capital.........................................................................................................	14
Appendix — General Information.....................................................................................	27
Notice of EGM............................................................................................................................	33

– ii –

DEFINITIONS

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

“Amendment Agreement”
the amendment agreement dated 18 January 2017 entered into between the Company and the Bondholder in relation to the Proposed Amendments
“Announcement” the announcement of the Company dated 18 January 2017 relating to, among others, the Proposed Amendments
“Best Frontier”
Best Frontier Investments Limited, a limited company incorporated in the British Virgin Islands
“Board”
the board of Directors
“Bondholder(s)” holder(s) of the Convertible Bonds from time to time
“Business Day”
any day (excluding a Saturday, a Sunday and any public holiday and any day on which a tropical cyclone warning no.8 or above or a “black” rainstorm warning signal is hoisted or remains hoisted in Hong Kong at any time between 9:00 a.m. and 12:00 noon and is not lowered or discontinued at or before 12:00 noon) on which licensed banks are generally open for business in Hong Kong throughout their normal business hours
“Company”
China Vanguard Group Limited, an exempted company incorporated in the Cayman Islands with limited liability and the Shares of which are listed on the GEM
“connected person(s)”
has the meaning ascribed to it under the GEM Listing Rules
“Conversion Price”
the conversion price of the Convertible Bonds, initially being HK$2.39 per Conversion Share (subject to adjustment); As result of Share Subdivision became effective on 17 December 2014, the conversion price of the Convertible Bonds was adjusted to HK$0.598 per Conversion Share
“Conversion Share(s)”
249,651,810 new Share(s) fall to be alloted and issued upon the exercise of the conversion rights attaching to the Convertible Bonds
“Convertible Bonds”
the 2% coupon convertible bonds due 2017 in the aggregate amount of HK$89,625,000 to be issued by the Company to the Subscriber pursuant to the Subscription Agreement
“Director(s)”

the director(s) of the Company

– 1 –

DEFINITIONS

“EGM” the extraordinary general meeting of the Company to be convened and held to consider, and if thought fit, to approve the Amendment Agreement, Proposed Amendments and the transactions contemplated thereunder, including the grant of the Specific Mandate to issue the Conversion Shares
“GEM” The Growth Enterprise Market of the Stock Exchange
“GEM Listing Rules” The Rules Governing the Listing of Securities on GEM
“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 PRC
“Independent Board Committee” an independent committee of the Board comprising all the independent non-executive Directors, formed for the purpose of advising the Independent Shareholders as to the terms of Amendment Agreement, Proposed Amendments and the transactions contemplated thereunder, including the grant of the Specific Mandate to issue the Conversion Shares
“Independent Financial Adviser” or “Gram Capital”
Gram Capital Limited, a licensed corporation to carry out Type 6 (advising on corporate finance) regulated activity under the SFO, being the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Amendment Agreement, Proposed Amendments and the transactions contemplated thereunder
“Independent Shareholder(s)”
Shareholder(s) other than those who do not have a material interest in the relevant resolutions to be proposed at the EGM
“Integrated Asset Management”
Integrated Asset Management (Asia) Limited, a limited company incorporated in the British Virgin Islands
“Latest Practicable Date”
3 March 2017, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained in this circular
“Maturity Date”
on 17 January 2017
“PRC”

The People’s Republic of China excluding Hong Kong, Macau Special Administrative Region of the PRC and Taiwan for the purpose of this circular

– 2 –

DEFINITIONS

“Proposed Amendments”

the proposed amendments to the Convertible Bonds pursuant to the terms of the Amendments Agreement

“SFO” Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong), as amended, supplemented and modified from time to time
“Share(s)” ordinary share(s) of HK$0.0125 each in the share capital of the Company
“Shareholder(s)” holder(s) of the Share(s)
“Share Subdivision” On 16 December 2014, the Company has obtained from the shareholders’ approval at the extraordinary general meeting in relation to the proposed share subdivision. Pursuant to which, with effect from 17 December 2014, each existing issued and unissued share of HK$0.05 each in the share capital of the Company was divided into four subdivided shares of HK$0.0125 each
“Specific Mandate” the specific mandate to be granted to the Directors at the EGM for the allotment and issuance of the Conversion Shares to the Bondholder upon an exercise of the conversion rights.
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“Subscription Agreement” the conditional subscription agreement dated 13 January 2014 and entered into between the Company and the Subscriber in relation to the subscription of the Convertible Bonds
“Subscriber” Integrated Asset Management (Asia) Limited
“substantial Shareholder(s)” has the meaning ascribed thereto under the GEM Listing Rules “%” per cent.

If there is any inconsistency in this circular between the Chinese and English versions, then English version shall prevail.

– 3 –

LETTER FROM THE BOARD

(Incorporated in the Cayman Islands with limited liability) Stock Code: 8156

Executive Directors:

Madam CHEUNG Kwai Lan (Chairperson) Mr. CHAN Ting (Deputy Chairperson and Chief Executive Officer)

Non-executive Director: Mr. CHAN Tung Mei

Independent Non-executive Directors: Mr. TO Yan Ming Edmond Mr. YANG Qing Cai Dr. LIU Ta-pei

Registered office: P.O. Box 10008, Willow House, Cricket Square, Grand Cayman KY1-1001, Cayman Islands

Head office and principal place of business in Hong Kong: Units 307-313, 3/F Wireless Centre Phase One Hong Kong Science Park Pak Shek Kok, New Territories Hong Kong

10 March 2017

To the Shareholders

Dear Sir/Madam,

1) CONNECTED TRANSACTION IN RELATION TO PROPOSED AMENDMENTS TO THE TERMS OF THE CONVERTIBLE BONDS; 2) PROPOSED GRANT OF SPECIFIC MANDATE TO ISSUE OF CONVERSION SHARES; AND

3) NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

Reference is made to the Announcement of the Company dated 18 January 2017, in relation to, among others, the Proposed Amendments involving the issuance of the Conversion Shares, which constitutes a connected transaction of the Company under Chapter 20 of the GEM Listing Rules. The Board proposes to seek the approval of the Independent Shareholders for the Amendment Agreement and the transactions contemplated thereunder, including Proposed Amendments involving the issuance of Conversion Shares falling to be issued upon the exercise of the conversion rights attaching to the Convertible Bonds under the Specific Mandate.

* for identification purpose only

– 4 –

LETTER FROM THE BOARD

As at the Latest Practicable Date, the Bondholder is interested in 536,733,000 Shares, representing approximately 16.63% of the issued Share capital of the Company, being a substantial Shareholder and a connected person of the Company under Rule 20.07(1) of the GEM Listing Rules. Pursuant to the Subscription Agreement, if all conversion rights attaching to the Convertible Bonds in the principal amount of HK$89,625,000 are exercised by the Bondholder in full, for a maximum number of originally 150,000,000 Shares to be allotted and issued to the Bondholder and thereafter Bondholder will be interested in 686,733,000 Shares, representing approximately 21.28% of the current issued Share capital of the Company and approximately 20.33% of the enlarged issued Share capital of the Company.

As at the Latest Practicable Date, the issued Share capital of the Company was 3,227,565,068 Shares. None of the Convertible Bonds have been redeemed nor converted.

The purpose of this circular is to provide you with, among others things:

details of the Amendment Agreement and the transactions contemplated thereunder;
the recommendations of the Independent Board Committee in relation to the Amendment Agreement, the Proposed Amendments and the transactions contemplated thereunder;
the recommendations of Gram Capital in relation to the Amendment Agreement, the Proposed Amendments and the transactions contemplated thereunder;
the notice of the EGM.

AMENDMENT AGREEMENT

On 18 January 2017 (after trading hours), the Company entered into the Amendment Agreement with Integrated Asset Management as the Bondholder, pursuant to which the Company and the Bondholder agreed to amend certain terms and conditions of the Convertible Bonds as follows:

(a) The Conversion Price of the Convertible Bonds shall be amended from HK$0.598 per Share to HK$0.359 per Share, which can be converted into for the maximum number of 249,651,810 Shares.
(b) The Maturity Date of the Convertible Bonds issued under the Subscription Agreement shall be extended for six months from 17 January 2017 to 17 July 2017. Further extended maturity date upon a prior written consent from the Bondholder shall be 17 January 2018.
(c) Clause 5 of Schedule 2 set in the Subscription Agreement regarding the bearing interest rate of the Convertible Bonds shall be increased from the rate of 2% per annum to 8% per annum and interest shall be paid semi-annually from the date of Amendment Agreement.
(d) Clause 6(a)(iv) of Schedule 2 set in the Subscription Agreement in respect of the par value in the share capital of the Company shall be adjusted to HK$0.0125.

– 5 –

LETTER FROM THE BOARD

(e) Clause 14(a)(xii) of Schedule 2 originally set in the Subscription Agreement that the shareholding interest of the existing controlling shareholder of the Company, Best Frontier, in the Company remains less than 30% as one of the Events of Default. Pursuant to the Amendment Agreement, Clause 14 (a) (xii) of Schedule 2 shall be amended as that the shareholding interest of existing controlling shareholder of the Company, Best Frontier, remains less than 30% and having not been obtained the written consent from the Bondholder, be deemed as one of the Events of Default.

As at the date of Amendment Agreement, the Company has received the relevant consent letter from the Bondholder.

Save and except for the Proposed Amendments, there are no other amendments to the terms of the Convertible Bonds.

Pursuant to the Amendment Agreement, the Proposed Amendments shall be subjected to the following conditions precedent:

i) all necessary consents and approvals required to be obtained on part of the Company in respect of the Proposed Amendments having been obtained;
ii) the Stock Exchange approving the Proposed Amendments including the listing on the Stock Exchange of Conversion Shares arising from the Convertible Bonds during the extended conversion period as mentioned above; and
iii) passing by the Independent Shareholders of the Company at the EGM of all necessary resolutions to approve the Amendment Agreement and the Proposed Amendments.

None of the above conditions could be waived by the parties to the Amendment Agreement. As at the Latest Practicable Date, the condition i) above has been satisfied. Saved as disclosed, none of the above conditions have been fulfilled.

Adjusted Conversion Price per Conversion Share

The adjusted Conversion Price of HK$0.359 per Conversion Share represents:

i) a discount of approximately 11.36% to the closing price per Share of HK$0.405 as quoted on the Stock Exchange on 18 January 2017 (the date of the Amendment Agreement);
ii) a discount of approximately 13.08% to the average closing price per Share of approximately HK$0.413 as quoted on the Stock Exchange for the last five consecutive trading dates up to and including 18 January 2017 (the date of the Amendment Agreement); and
iii) a premium of approximately 1.41% to the average closing price per Share of approximately HK$0.354 as quoted on the Stock Exchange for the last twenty consecutive trading dates up to and including 18 January 2017 (the date of the Amendment Agreement).

– 6 –

LETTER FROM THE BOARD

The Conversion Price was determined based on arm’s length negotiations between the parties with reference to the prevailing market prices of the Shares as quoted on the Stock Exchange.

The original Conversion Price was referred to the average closing price per share as quoted on the Stock Exchange for the last twenty consecutive trading days up to and including the last trading day under the Subscription Agreement. Therefore, at the time of negotiation with the Bondholder, the adjusted Conversion Price was determined with reference more to the average closing price per share as quoted on the Stock Exchange for the last twenty consecutive trading days and including the date of the Amendment Agreement under the same circumstance.

Specific Mandate for the Issuance of the Conversion Shares

Under the Proposed Amendments, the Conversion Price, which originally HK$0.598 per Share is adjusted to HK$0.359 per Share, which can be converted into the maximum number of 249,651,810 Shares from originally 150,000,000 Shares upon conversion of the Convertible Bonds in full. As result of the Proposed Amendments, the conversion shares of 249,651,810 at the adjusted Conversion Price of HK$0.359 will be allotted and issued by the Company. In view that the Proposed Amendments are effectively a new arrangement that involves issue of new shares, issuance of all of 249,651,810 Conversion Shares shall be subject to shareholders’ approval. The Application will be made to the Listing Committee of the Stock Exchange for the granting of the listing of, and permission of deal in, the proposed issuance of the Conversion Shares falling to be allotted and issued under the Proposed Amendments.

Ranking of Conversion Shares

The Conversion Shares, when fully paid, issued and allotted, will rank pari passu in all respects with all Shares in issue as at the date of issuance of the Conversion Shares.

GEM LISTING RULES IMPLICATION

Pursuant to Rule 34.05 of the GEM Listing Rules, any alterations in the terms of convertible debt securities after issue must be approved by the Stock Exchange, except where the alterations take effect automatically under the existing terms of such convertible debt securities. The Company will apply to the Stock Exchange for its approval of the Proposed Amendments contemplated under the Amendment Agreement pursuant to Rule 34.05 of the GEM Listing Rules.

As at the Latest Practicable Date, the Bondholder is interested in 536,733,000 Shares, representing approximately 16.63% of the issued Share capital of the Company. Accordingly, the Bondholder is a substantial Shareholder and a connected person of the Company under Rule 20.07(1) of the GEM Listing Rules. Accordingly, the Proposed Amendments as contemplated under the Amendment Agreement constitutes a connected transaction of the Company under the GEM Listing Rules.

– 7 –

LETTER FROM THE BOARD

As the Proposed Amendments does not fall into any exemption under Rule 20.71 of the GEM Listing Rules, the Proposed Amendments is subject to the reporting, announcement and the shareholders’ approval requirements under Chapter 20 of the GEM Listing Rules. The Bondholder and its associates will abstain from voting in the EGM for approval of the Amendment Agreement, the Proposed Amendments and the transactions contemplated thereunder.

REASONS FOR THE PROPOSED AMENDMENTS

The Group’s principal business activities are i) the provision of lottery-related services; ii) land and property development, trading & consulting services; and iii) others.

The Bondholder is principally engaged in investment holding, which is wholly owned by Mr. YAM Tak Cheung.

The Proposed Amendments were arrived at after arm’s length negotiation between the Company and the Bondholder. The Board considers that the extended time for the repayment to the Bondholder will be beneficial to the Company and its operations by mitigating the pressure on its cashflows. The basis of the increased in interest rate was determined with reference to the prevailing market interest rates, and to the recent subscription/placing of the Convertible Bonds which were announced by the companies listed on the Stock Exchange, the 8% adjusted interest rate was within the market range.

Furthermore, with reference to the maximum closing price of approximately HK$0.435 for the last 126 consecutive trading days up to and including the date of the Amendment Agreement, there was no incentive for the Bondholder to convert the Convertible Bonds in the last half year as the maximum closing price is still lower than the original Conversion Price of HK$0.598. As requested by the Bondholder, the extension in time should make an adjustment on the Conversion Price which makes it closer to the prevailing market price, it will incentivize the Bondholder to convert all or part of the Convertible Bonds not previously converted. It will be beneficial to the Company by mitigating the pressure on its cashflows. In addition, after taking into account of (i) the reasons for and possible benefits of the Proposed Amendments; and (ii) the terms of the Amendment Agreement being fair and reasonable, we are of the view that the dilution effect of approximately 1.48% is acceptable to the public Shareholders.

Based on the above, the Board is of the view that the terms of the Amendment Agreement and the Convertible Bonds (as amended by the Amendment Agreement) are fair and reasonable and are in the interest of the Company and its Shareholders as a whole.

– 8 –

LETTER FROM THE BOARD

CHANGES IN SHAREHOLDING STRUCTURE

The shareholding structure of the Company (i) as at the Latest Practicable Date; (ii) for illustration purpose only, immediately after all the allotment and issuance of the Conversion Shares in full upon exercise of the conversion rights under the Convertible Bonds at HK$0.359 per Share, and there is no further allotment of Shares from the Latest Practicable Date other than the Conversion Shares is as follows:

Best Frontier and its concert parties (Note 1) Integrated Asset Management and its concert parties_(Note 2)_ Public Shareholders – Other public Shareholders Total	As at the Latest Practicable Date Number of Approximate Shares % 950,481,856 29.45% 536,733,000 16.63% 1,740,350,212 53.92% 3,227,565,068 100.00%	Immediately after all allotment and issuance of the Conversion Shares in full upon exercise of the conversion rights under the Convertible Bonds Number of Approximate Shares % 950,481,856 27.33% 786,384,810 22.62% 1,740,350,212 50.05% 3,477,216,878 100.00%	Immediately after all allotment and issuance of the Conversion Shares in full upon exercise of the conversion rights under the Convertible Bonds Number of Approximate Shares % 950,481,856 27.33% 786,384,810 22.62% 1,740,350,212 50.05% 3,477,216,878 100.00%
			100.00%

Notes:

948,565,856 Shares are owned by Best Frontier which is owned as to 99.89% and 0.11% by Madam CHEUNG Kwai Lan and Mr. CHAN Tung Mei who are spouses to each other. In addition, Madam CHEUNG and Mr. CHAN directly beneficially holds 1,656,000 and 260,000 Shares respectively. Madam CHEUNG is the spouse of Mr. CHAN and so both of them are deemed to have interests in the Shares.
536,733,000 Shares are owned by Integrated Asset Management which is wholly owned by Mr. YAM Tak Cheung. A 2% coupon convertible bonds in aggregate amount of HK$89,625,000 for a term of three years was issued to Integrated Asset Management pursuant to the Subscription Agreement. A maximum number of 150,000,000 Shares will be allotted and issued to Integrated Asset Management upon conversion of the Convertible Bonds in full and thereafter the shareholding of Integrated Asset Management will be increased to approximately 21.28% of the current issued Share capital of the Company and approximately 20.33% of the enlarged issued Share capital of the Company. The initial Conversion Price is HK$0.598 per Conversion Share subject to adjustment.

– 9 –

LETTER FROM THE BOARD

Upon completion of Amendment Agreement, a maximum number of 249,651,810 Shares will be allotted and issued to Integrated Asset Management upon conversion of the Convertible Bonds in full and thereafter the shareholding of Integrated Asset Management will be increase to approximately 24.36% of the current issued Share capital of the Company and approximately 22.62% of the enlarged issued Share capital of the Company. The adjusted Conversion Price is HK$0.359 per Conversion Share subject to adjustment.

GENERAL

The Amendment Agreement and the transactions contemplated thereunder, including the issue and allotment of Conversion Shares, are subject to, inter alia, the approval of Independent Shareholders at the EGM. A Specific Mandate for the issuance of new 249,651,810 Shares will be sought in the EGM to cater for the issuance of these Conversion Shares.

An Independent Board Committee (comprising all Independent Non-executive Directors) has been formed to advise the Independent Shareholders and the Company has also appointed Gram Capital to advise the Independent Board Committee and the Independent Shareholders regarding the Proposed Amendments.

None of the Directors and their respective associates have material interest in the Amendment Agreement, the Proposed Amendments and the transactions contemplated thereunder and none were required to abstain from voting on the Board resolutions in relation to the Amendment Agreement, the Proposed Amendments and the transactions contemplated thereunder.

EXTRAORDINARY GENERAL MEETING

The resolutions to be proposed at the forthcoming EGM are set out in full in the notice of the EGM on pages 33 to 34 of this circular. A form of proxy for use at the EGM is enclosed with this circular.

If you intend to appoint a proxy to attend the EGM, you are requested to complete the proxy form and return it to the Company’s Hong Kong branch share registrar and transfer office, Tricor Standard Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the EGM or adjourned meeting (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting at the EGM or any adjournments thereof if you so wish.

Pursuant to Rule 17.47(4) of the GEM Listing Rules, any vote of the Shareholders at a general meeting must be taken by poll except where the chairman, in good faith, decides to allow a resolution which relates purely to a procedural or administrative matter to be voted on by a show of hands. Therefore, all resolutions set out in the notice of EGM will be voted by way of poll at the EGM. The Company will announce the results of poll in the manner prescribed under Rule 17.47(5) of the GEM Listing Rules.

– 10 –

LETTER FROM THE BOARD

RECOMMENDATIONS

Having considered the above-mentioned benefits to the Group, the Directors (including the Independent Non-executive Directors) consider that the Amendment Agreement are on normal commercial terms and the transactions contemplated under the Amendment Agreement (including the issuance of the Conversion Shares) is in the interests of the Company and the Shareholders as a whole and are fair and reasonable to the Company. Accordingly, the Directors (including the Independent Non-executive Directors) recommend the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the EGM to approve the Amendment Agreement and the transactions contemplated thereunder, including the Specific Mandate for the allotment and issuance of the Conversion Shares falling to be issued upon the exercise of the conversion rights attaching to the Convertible Bonds.

ADDITIONAL INFORMATION

Your attention is drawn to the (i) letter from the Independent Board Committee set out in this circular and (ii) letter from Gram Capital set out in this circular, which contains among other matters, its advice to the Independent Board Committee and the Independent Shareholders in connection with the Amendment Agreement and the transactions contemplated thereunder and the principal factors considered by it in arriving at its recommendation.

Your attention is also drawn to the additional information contained in the appendix to this circular.

Yours faithfully, By Order of the Board CHINA VANGUARD GROUP LIMITED 眾彩科技股份有限公司 * CHAN Ting Executive Director and Chief Executive Officer

Hong Kong, 10 March 2017

– 11 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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(Incorporated in the Cayman Islands with limited liability)
Stock Code: 8156
----- End of picture text -----

10 March 2017

To the Independent Shareholders

Dear Sir or Madam,

1) CONNECTED TRANSACTION IN RELATION TO PROPOSED AMENDMENTS TO THE TERMS OF THE CONVERTIBLE BONDS; AND 2) PROPOSED GRANT OF SPECIFIC MANDATE TO ISSUE OF CONVERSION SHARES

INTRODUCTION

We refer to the circular of the Company dated 10 March 2017 to (the “ Circular ”), of which this letter forms part. Capitalized terms used herein shall have the same meaning as those defined in the Circular unless the context otherwise requires.

We have been appointed by the Board to advise you on the terms of the Amendment Agreement, Proposed Amendments and the transaction contemplated thereunder, and the Specific Mandate are fair and reasonable so far as the Independent Shareholder are concerned.

Details of the advice of Gram Capital, together with the principal factors and reasons taken into consideration in arriving at such advice, are set out on pages 14 to 26 of the Circular. Your attention is also drawn to the letter from the Board set out on pages 4 to 11 of the Circular and the additional information set out in the appendix of the Circular.

* for identification purpose only

– 12 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

RECOMMENDATION

Having considered the terms and conditions of the Amendment Agreement, the principal factors and reasons considered by, and the advice of Gram Capital, we are of the view that the Amendment Agreement and the transactions contemplated thereunder are in the interests of the Company and the Shareholders as a whole and are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we recommend the Independent Shareholders to vote in favour of the resolution to be proposed at the EGM to approve the Amendment Agreement and the transactions contemplated thereunder, and the Specific Mandate.

Yours faithfully, For and on behalf of Independent Board Committee Mr. TO Yan Ming Edmond Mr. YANG Qing Cai

Dr. LIU Ta-pei

– 13 –

LETTER FROM GRAM CAPITAL

Set out below is the text of a letter received from Gram Capital, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Proposed Amendments for the purpose of inclusion in this circular.

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Room 1209, 12/F. Nan Fung Tower 88 Connaught Road Central/ 173 Des Voeux Road Central Hong Kong

10 March 2017

To: The independent board committee and the independent shareholders

of China Vanguard Group Limited

Dear Sir/Madam,

CONNECTED TRANSACTION PROPOSED AMENDMENTS TO THE TERMS OF THE CONVERTIBLE BONDS

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Proposed Amendments, details of which are set out in the letter from the Board (the “ Board Letter ”) contained in the circular dated 10 March 2017 issued by the Company to the Shareholders (the “ Circular ”), of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

On 13 January 2014, the Company entered into the Subscription Agreement with the Subscriber, as the Bondholder pursuant to which the Company conditionally agreed to issue the Convertible Bonds, in the aggregate principal amount of HK$89,625,000, to the Bondholder. On 17 January 2014, the Company completed to issue the Convertible Bonds to the Bondholder pursuant to the Subscription Agreement.

On 18 January 2017 (after trading hours), the Company and the Bondholder entered into the Amendment Agreement. Pursuant to the Amendment Agreement, the Company and the Bondholder agreed to amend certain terms and conditions of the Convertible Bonds.

With reference to the Board Letter, the Proposed Amendments are subject to the reporting, announcement and the shareholders’ approval requirements under Chapter 20 of the GEM Listing Rules.

– 14 –

LETTER FROM GRAM CAPITAL

The Independent Board Committee comprising Mr. Yang Qing Cai, Mr. To Yan Ming Edmond and Dr. Liu Ta-pei (all being independent non-executive Directors) has been established to advise the Independent Shareholders on (i) whether the terms of the Amendment Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned; (ii) whether the Proposed Amendments are in the interests of the Company and the Shareholders as a whole; and (iii) how the Independent Shareholders should vote in respect of the resolution(s) to approve the Proposed Amendments at the EGM. We, Gram Capital Limited, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this respect.

OUR INDEPENDENCE

As at the Latest Practicable Date, we were not aware of any relationships or interests between Gram Capital and the Company during the past two years immediately preceding the Latest Practicable Date, or any other parties that could be reasonably regarded as hindrance to Gram Capital’s independence to act as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders.

Besides that, apart from the advisory fee and expenses payable to us in connection with our appointment as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, no arrangement exists whereby we shall receive any other fees or benefits from the Company.

BASIS OF OUR OPINION

In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have relied on the statements, information, opinions and representations contained or referred to in the Circular and the information and representations as provided to us by the Directors. We have assumed that all information and representations that have been provided by the Directors, for which they are solely and wholly responsible, are true and accurate at the time when they were made and continue to be so as at the Latest Practicable Date. We have also assumed that all statements of belief, opinion, expectation and intention made by the Directors in the Circular were reasonably made after due enquiry and careful consideration. We have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy and completeness of the information and facts contained in the Circular, or the reasonableness of the opinions expressed by the Company, its advisers and/or the Directors, which have been provided to us. Our opinion is based on the Directors’ representation and confirmation that there are no undisclosed private agreements/ arrangements or implied understanding with anyone concerning the Proposed Amendments. We consider that we have taken sufficient and necessary steps on which to form a reasonable basis and an informed view for our opinion in compliance with Rule 17.92 of the GEM Listing Rules.

– 15 –

LETTER FROM GRAM CAPITAL

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

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

Lastly, where information in this letter has been extracted from published or otherwise publicly available sources, it is the responsibility of Gram Capital to ensure that such information has been correctly extracted from the relevant sources while we are not obligated to conduct any independent in-depth investigation into the accuracy and completeness of those information.

PRINCIPAL FACTORS AND REASONS CONSIDERED

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

1. Background of and reasons for the Proposed Amendments

Business overview of the Group

With reference to the Board Letter, the Group’s principal business activities are (i) the provision of lottery-related services; (ii) land and property development, trading & consulting services; and (iii) others.

– 16 –

LETTER FROM GRAM CAPITAL

Set out below are the consolidated financial information of the Group for the six months ended 31 December 2016 and the two years ended 30 June 2016 as extracted from interim report of the Company for the six months ended 31 December 2016 (the “ 2016 Interim Report ”) and annual report of the Company for the year ended 30 June 2016 (the “ 2016 Annual Report ”):

	For the
	six months	For the	For the
	ended	year ended	year ended	Year
	31 December	30 June	30 June	on year
	2016	2016	2015	change
	HK$’000	HK$’000	HK$’000	%
	(unaudited)	(audited)	(audited)
Revenue	15,333	34,657	123,736	(71.99)
Proft/ (loss) for the year	(44,979)	(213,842)	17,844	N/A
	As at	As at	As at	Year
	31 December	30 June	30 June	on year
	2016	2016	2015	change
	HK$’000	HK$’000	HK$’000	%
	(unaudited)	(audited)	(audited)
Bank balances and cash	13,910	32,999	92,942	(64.50)
Trade and other receivables
and prepayments	65,128	76,111	151,478	(49.75)
Net assets	104,532	149,481	357,951	(58.24)

According to the above table, the Group recorded revenue of approximately HK$34.66 million for the year ended 30 June 2016 (“ FY2016 ”), representing a decrease of approximately 71.99% as compared to that for the year ended 30 June 2015 (“ FY2015 ”). The Group also recorded a loss of approximately HK$213.84 million for FY2016 as compared to a profit for FY2015. With reference to the 2016 Annual Report, the primary reason for the loss for FY2016 was that the sales of lottery industry slightly decreased in the PRC’s lottery market and regulatory authorities’ stance on the enforcement of the internet lottery had been stronger. The Group also recorded impairment losses on goodwill of approximately HK$84.97 million and provision for doubtful receivables of approximately HK$46.47 million for FY2016.

With reference to the 2016 Interim Report, the Group recorded a loss of approximately HK$44.98 million for the six months ended 31 December 2016, representing an increase of approximately 54.41% as compared to that for the corresponding period in 2015.

As at 31 December 2016, the Group recorded bank balances and cash and trade and other receivables and prepayments of approximately HK$13.91 million (30 June 2016: approximately HK$33.00 million) and HK$65.13 million (30 June 2016: approximately HK$76.11 million) respectively.

– 17 –

LETTER FROM GRAM CAPITAL

Information on the Bondholder

With reference to the Board Letter, the Bondholder, which is wholly owned by Mr. Yam Tak Cheung, is a company established in the British Virgin Islands and is principally engaged in investment holding. As at the Latest Practicable Date, the Bondholder is interested in 536,733,000 Shares, representing approximately 16.63% of the issued Share capital of the Company.

Reasons for the Proposed Amendments

We understood from the Directors that if the Convertible Bonds were not extended and converted, the Convertible Bonds would expire on 17 January 2017 and the Company would be obligated to repay the outstanding principal amount of the Convertible Bonds (being HK$89,625,000) together with all unpaid interests accrued immediately. With reference to the Board Letter, the Board considers that the extended time for the repayment to the Bondholder will be beneficial to the Company and its operations by mitigating the pressure on its cashflows. Furthermore, the adjustment of Conversion Price will incentivize the Bondholder to convert all or part of the Convertible Bonds not previously converted by bringing it closer to the prevailing market level of the Share price of the Company.

As mentioned above, the Group had bank balances and cash of approximately HK$13.91 million as at 31 December 2016, which shall be insufficient to repay the outstanding principal amount of the Convertible Bonds (being HK$89,625,000) together with all unpaid interests accrued. Upon our further enquiry, the Directors also confirmed that the Group should have insufficient internal resources as at the Latest Practicable Date for repayment of the Convertible Bonds.

In addition, in view of the significant reduction in revenue and loss making position of the Group for FY2016 as mentioned above, the Directors advised us that (i) it has been difficult for the Group to obtain bank borrowings at favourable terms; and (ii) it is difficult for the Company to procure underwriters or placing agents to raise fund through equity fund raising methods. We also understood from the Directors that the Group attempted but failed to obtain bank borrowings during FY2016 due to lack of available assets for collateral. Accordingly, the Directors did not consider the aforesaid debt financing or equity financing to be feasible financing alternatives in order to repay the outstanding principal amount of the Convertible Bonds.

In addition, we also understand that the Group is in negotiating the possibility of equity fund raising activities with potential investors. The Directors proposed to utilize the proceeds from the aforesaid equity fund raising activities to repay the Convertible Bonds should the Bondholder decide not to convert the Convertible Bonds before the revised expiry date.

– 18 –

LETTER FROM GRAM CAPITAL

Having considered the above factors, in particular that (i) the financial performance of the Group for FY2016, in particular the substantial decrease in revenue and loss position as compared to those for FY2015, made it difficult for the Group to obtain favorable terms for other financing means; (ii) the Group did not have sufficient cash to repay the Convertible Bonds on the Maturity Date; and (iii) the Proposed Amendments would alleviate the Group’s immediate cashflow burden, we are of the view that the Proposed Amendments are in the interest of the Company and the Shareholders as a whole.

2. Principal terms of the Amendment Agreement

Date: 18 January 2017

Parties: The Company and the Bondholder

Pursuant to the Amendment Agreement, the Company and the Bondholder agreed to amend certain terms and conditions of the Convertible Bonds as follows:

i. The Conversion Price of the Convertible Bonds shall be amended from HK$0.598 per Share (the “ Original Conversion Price ”) to HK$0.359 per Share, which can be converted into for the maximum number of 249,651,810 Shares.
ii. The Maturity Date of the Convertible Bonds issued under the Subscription Agreement shall be extended for six months from 17 January 2017 to 17 July 2017 with a further six months extension upon a prior written consent from the Bondholder.
iii. Clause 5 of Schedule 2 set in the Subscription Agreement regarding the bearing interest rate of the Convertible Bonds shall be increased from the rate of 2% per annum to 8% per annum and interest shall be paid semi-annually from the date of the Amendment Agreement.
iv. Clause 6(a)(iv) of Schedule 2 set in the Subscription Agreement in respect of the par value in the share capital of the Company shall be adjusted to HK$0.0125.
v. Clause 14(a)(xii) of Schedule 2 originally set in the Subscription Agreement that the shareholding interest of the existing controlling shareholder of the Company, Best Frontier, in the Company remains less than 30% as one of the Events of Default. Pursuant to the Amendment Agreement, Clause 14 (a) (xii) of Schedule 2 shall be amended as that the shareholding interest of existing controlling shareholder of the Company, Best Frontier, remains less than 30% and having not been obtained the written consent from the Bondholder, be deemed as one of the Events of Default.

Save and except for the aforesaid, there are no other amendments to the terms of the Convertible Bonds.

– 19 –

LETTER FROM GRAM CAPITAL

Analysis on the adjusted Conversion Price

The adjusted Conversion Price of HK$0.359 per Conversion Share (the “ Adjusted Conversion Price ”) represents:

(a) a discount of approximately 45.61% to the closing price per Share of HK$0.66 as quoted on the Stock Exchange on the Latest Practicable Date;
(b) a discount of approximately 11.36% to the closing price per Share of HK$0.405 as quoted on the Stock Exchange on 18 January 2017, being the date of the Amendment Agreement (the “ Last Trading Day ”);
(c) a discount of approximately 13.08% to the average closing price per Share of approximately HK$0.413 as quoted on the Stock Exchange for the last five consecutive trading dates up to and including the Last Trading Day;
(d) a premium of approximately 1.41% over the average closing price per Share of approximately HK$0.354 as quoted on the Stock Exchange for the last twenty consecutive trading dates up to and including 18 January 2017 (the date of the Amendment Agreement); and
(e) a discount of approximately 39.97% to the Original Conversion Price of HK$0.598.

With reference to the Board Letter, the Adjusted Conversion Price was determined based on arm’s length negotiations between the parties with reference to the prevailing market prices of the Shares as quoted on the Stock Exchange.

– 20 –

LETTER FROM GRAM CAPITAL

In order to assess the fairness and reasonableness of the Adjusted Conversion Price, we have reviewed the daily closing price of the Shares as quoted on the Stock Exchange from 1 January 2016 up to and including 18 January 2017 (the “ Review Period ”), being a period of approximately one year prior to the date of the Amendment Agreement. The comparison of daily closing prices of the Shares, the Original Conversion Price and the Adjusted Conversion Price is illustrated as follows:

==> picture [426 x 236] intentionally omitted <==

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

HK$ Historical daily closing price per Share
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2017
Closing Price Adjusted Conversion Price Original Convesion Price
----- End of picture text -----

Note: Trading of Shares was halted from 10:11 a.m. on 18 January 2016 to 19 January 2016.

Source: the Stock Exchange’s website

During the Review Period, the lowest and highest closing prices of the Shares as quoted on the Stock Exchange were HK$0.185 recorded on 29 July 2016 and HK$0.95 per Share recorded on 25 January 2016 and 29 January 2016 respectively. The average closing price of Shares during the Review Period is approximately HK$0.431 (the “ Closing Price Average ”). The Adjusted Conversion Price of HK$0.359 is (i) within the range of the lowest and highest closing prices of the Shares as quoted on the Stock Exchange during the Review Period and (ii) below the Closing Price Average. The closing prices of the Shares showed a general sliding trend after reaching the peak in January 2016. The closing prices of Shares dropped below the Original Conversion Price of HK$0.598 in April 2016 and reached the bottom at HK$0.185 on 29 July 2016. After that, the closing prices of Shares fluctuated between HK$0.19 and HK$0.44.

– 21 –

LETTER FROM GRAM CAPITAL

As part of our analysis, we have further identified subscription/placing of convertible bonds/ notes (the “ Comparables ”) which were announced by companies listed on the Stock Exchange from 18 November 2016 up to the Last Trading Day, being an approximate two month period immediately before the Last Trading Day. To the best of our knowledge and as far as we are aware of, we found 22 transactions which met the said criteria. Shareholders should note that the businesses, operations and prospects of the Company are not the same as the Comparables.

							Premium/
							(discount) of
							the initial
							conversion
							price over/to
							closing price
							per share on
							the last trading
							day prior to/
							the date of
							announcement/
							agreement
							in relation to
			Market				the respective
			capitalization of				subscription/
			the issuer			Interest	placing
	Stock	Date of	as at the date	Principal		rate per	of convertible
Company name	code	announcement	of announcement	amount	Maturity	annum	bonds/notes
			(approx.	(approx.	(Years)	(%)
			HK$ million)	HK$ million)
China U-Ton Holdings Limited	6168	18 January 2017	2,775.28	78.00	2	8	16.30
Tesson Holdings Limited	1201	17 January 2017	1,139.95	300.00	19	3	45.45
					(Note 1)
China Huarong Energy Company Limited	1101	16 January 2017	933.78	751.00	2	7	16.28
Automated Systems Holdings Limited	771	12 January 2017	666.50	350.00	3	Nil	(36.84)
Standard Chartered PLC	2888	12 January 2017	231,408.39	7,754.60	perpetual	7.75	(9.84)
			(Note 2)	(Note 3)			(Note 4)
Ernest Borel Holdings Limited	1856	5 January 2017	611.49	100.00	2	10	13.64
China Trends Holdings Limited	8171	30 December 2016	726.07	1,560.00	3	1	117.65
Dingyi Group Investment Limited	508	23 December 2016	3,960.03	850.00	3	7	14.86
Silverman Holdings Limited	1616	22 December 2016	1,233.98	300.00	2	5	4.31
Sino Energy International Holdings	1096	16 December 2016	795.22	150.00	1.83	7.5	(3.03)
Group Limited
Beijing Gas Blue Sky Holdings Limited
(formerly known as Blue Sky Power
Holdings Limited)	6828	16 December 2016	5,579.02	200.00	3	4.8	8.06
China Public Procurement Limited	1094	16 December 2016	980.34	30.00	2	7	4.45
Pa Shun Pharmaceutical International	574	15 December 2016	510.00	72.00	2	4	17.65
Holdings Limited					(Note 5)		(Note 6)
				48.00	2	4	135.29
					(Note 5)		(Note 6)
Longrun Tea Group Company Limited	2898	11 December 2016	449.35	64.80	2	5.5	(12.90)
North Mining Shares Company Limited	433	8 December 2016	3,522.76	348.84	2	10	(15.25)
China Railway Construction Corporation	1186	8 December 2016	142,585.19	3,894.71	5	1.5	25.00
Limited				(Note 7)	(Note 8)
China Ocean Industry Group Limited	651	6 December 2016	2,831.52	400.00	2	2	(23.73)
							(Note 9)

– 22 –

LETTER FROM GRAM CAPITAL

							Premium/
							(discount) of
							the initial
							conversion
							price over/to
							closing price
							per share on
							the last trading
							day prior to/
							the date of
							announcement/
							agreement
							in relation to
			Market				the respective
			capitalization of				subscription/
			the issuer			Interest	placing
	Stock	Date of	as at the date	Principal		rate per	of convertible
Company name	code	announcement	of announcement	amount	Maturity	annum	bonds/notes
			(approx.	(approx.	(Years)	(%)
			HK$ million)	HK$ million)
Viva China Holdings Limited	8032	5 December 2016	6,135.05	778.00	5	5	20.00
C&D International Investment	1908	4 December 2016	1,782.00	500.00	perpetual	4	(7.07)
Group Limited
Beijing Capital Juda Limited	1329	25 November 2016	2,786.25	1,077.70	perpetual	0.01	(23.91)
The United Laboratories International	3933	21 November 2016	7,581.24	1,008.40	5	4.5	14.81
Holdings Limited				(Note 10)	(Note 11)
Lamtex Holdings Limited	1041	21 November 2016	198.77	200.00	2	2	0.00
Maximum					Perpetual	10	135.29
Minimum					1.83	Nil	(36.84)
Average					N/A	4.84	13.96/3.25
					(Note 12)(the “Interests		(excluding
						Average”)	outliers) (the
							“Comparable
							Average”)
The Company	8156	18 January 2017			0.5	8	(11.36)
(pursuant to the Proposed					(Note 13)		(Note 14)
Amendments)

– 23 –

LETTER FROM GRAM CAPITAL

Notes:

The maturity date is 30 June 2036.
Based on the total issued share (including both ordinary and preference shares) of the issuer as at 11 January 2017, being the last trading day immediately before its announcement.
Based on the principal amount of US$1 billion and the US$/HK$ exchange rate of 7.7546 as at 12 January 2017.
Based on the conversion price of US$7.732, US$/HK$ exchange rate of 7.7546 as at 12 January 2017 and closing price of the issuer of HK$66.5 as quoted on the Stock Exchange as at 12 January 2017.
The issuer may seek the bondholders’ prior written approval to extend the maturity date by one year.
The issuer has two series of convertible bonds with different conversion price, i.e. HK$72,000,000 4% secured guaranteed convertible bonds due 2018 with initial conversion price of HK$0.6 (the “ Series I CB and HK$48,000,000 4% secured guaranteed convertible bonds due 2018 with initial conversion price of HK$1.2 (the “ Series II CB ”).
The principal amount of the convertible bonds is RMB3,450 million (equivalent to approximately HK$3,894.71 million based on the RMB/HK$ exchange rate of 1.1289 as at 8 December 2016)
The maturity date is on or about 21 December 2021.
Based on the minimum conversion price.
Based on the principal amount of US$130 million and the US$/HK$ exchange rate of 7.7569 as at 21 November 2016.
The maturity date is 5 December 2021.
Since certain convertible bonds of the Comparables are perpetual, the average maturity is undetermined.
The maturity date is extended to 6 months from the date of Amendment Agreement.
Based on the closing price as quoted on the date of Amendment Agreement.
The above information was based on the relevant announcement of the Comparables.

We noted from the above table that the conversion prices of the Comparables ranged from a discount of approximately 36.84% to a premium of approximately 135.29% or a discount of approximately 36.84% to a premium of approximately 45.45% (excluding outliers [(Note)] ) to/ over the respective closing prices of their shares on the last trading day prior to the release of announcement/date of agreement in relation to the respective subscription/placing of convertible bonds/notes (the “ Market Range ”). As such, the Adjusted Conversion Price, which represents a discount of approximately 11.36% to the closing price of the Shares on the Date of Amendment Agreement (the “ Discount ”), falls within the Market Range. Therefore, we are of the opinion that the Adjusted Conversion Price is in line with the recent market practice.

In addition, we consider the fact that the Discount is below than the Comparable Average does not indicate that the Discount is exceptional in the market, given that the Discount is within the Market Range. As such, we have consider the fact that the Discount is within the Market Range to be one of the factors in our analysis of the Adjusted Conversion Price.

Note: The conversion prices of (i) Series II CB issued by Pa Shun Pharmaceutical International Holdings Limited (574) and (ii) convertible bonds issued by China Trends Holdings Limited (8171) represent exceptional premium over each of its closing price per share on the last trading day prior to the date of agreement/the date of announcement/agreement as compared with those of the other Comparables.

– 24 –

LETTER FROM GRAM CAPITAL

Having also taken into account that (i) the Adjusted Conversion Price falls within the range of the lowest and highest closing prices of the Shares as quoted on the Stock Exchange during the Review Period; (ii) the Adjusted Conversion Price is in line with the recent market practice; and (iii) despite that the Adjusted Conversion Price is below the Closing Price Average, if the closing prices of the Shares represent deeper discount to the Adjusted Conversion Price, it would be more difficult for the Bondholder to convert the Convertible Bonds into Shares and therefore it is of greater uncertainty for the Company to alleviate its cashflow burden, we consider the Adjusted Conversion Price to be fair and reasonable.

Analysis on the interest rate

As presented by the table above, the Comparables had an annual interest rate of nil to 10% (the “ Interest Range ”). Pursuant to the Proposed Amendments, the Convertible Bonds would bear interest of 8% per annum (the “ Adjusted Interest Rate ”), which is within the Interest Range.

We understood from the Directors that as at the Latest Practicable Date, save for the Convertible Bonds, the Company did not have any other borrowings/loans from independent third parties or any available facilities. Accordingly, we consider that it is impracticable for us to assess the Adjusted Interest Rate with reference to the cost of Group’s existing borrowings/ loans, which were granted by independent third parties, or available facilities.

In addition, we consider the fact that the Adjusted Interest Rate is higher than the Interests Average does not indicate that the Adjusted Interest Rate is exceptional in the market, given that the Adjusted Interest Rate of the Convertible Bonds is within the market ranges as aforesaid. As such, we have consider the fact that the Adjusted Interest Rate is within the Interest Range to be the factor in our analysis of the Adjusted Interest Rate. Accordingly, we consider the Adjusted Interest Rate to be fair and reasonable.

Taking into account the principal terms of the Amendment Agreement as highlighted above, we are of the view that the terms of the Amendment Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned.

3. Possible dilution effect on the shareholding interests of the public Shareholders

With reference to the shareholding table in the section headed “Changes in shareholding structure” of the Board Letter, the shareholding interests of the existing public Shareholders (i.e. 51.53% of the total issued share capital of the Company as at the Latest Practicable Date assuming the Convertible Bonds being fully converted) would be further diluted by approximately 1.48 percent point as a result of the Proposed Amendments (the “ Dilution ”). In this regard, taking into account (i) the reasons for and possible benefits of the Proposed Amendments; and (ii) the terms of the Amendment Agreement being fair and reasonable, we are of the view that the Dilution is acceptable.

– 25 –

LETTER FROM GRAM CAPITAL

RECOMMENDATION

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

Yours faithfully, For and on behalf of Gram Capital Limited Graham Lam Managing Director

Note: Mr. Graham Lam is a licensed person registered with the Securities and Futures Commission and a responsible officer of Gram Capital Limited to carry out Type 6 (advising on corporate finance) regulated activity under the SFO. He has over 20 years of experience in investment banking industry.

– 26 –

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 INTERESTS

(a) Directors’ and Chief Executive’s Interests and Short Positions in the Shares of the Company and its associated corporations

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executive in the Shares, underlying Shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO), which were notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which were taken or deemed to have under such provisions of the SFO), or which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or which were required, pursuant to Rules 5.46 to 5.67 of the GEM Listing Rules to be notified to the Company and the Stock Exchange, were as follows:

– 27 –

GENERAL INFORMATION

APPENDIX

Long position in the Shares and underlying Shares of the Company or any of its associates corporation

The Company/
Name of
Associated
Name of Directors
Corporation
Madam CHEUNG Kwai Lan
The Company
(“Madam CHEUNG”)
(Note 1 & 2)
Mr. CHAN Tung Mei
The Company
(“Mr. CHAN”)
(Notes 1 & 3)
Madam CHEUNG
Best Frontier
(Note 1)
Mr. CHAN
Best Frontier
(Note 1)
Mr. CHAN Ting_(Note 4)
The Company
Mr. YANG Qing Cai
The Company
(Note 5)
Dr. LIU Ta-pei
The Company
(Note 6)_

Number of Shares Held
Interest in
Approximate
Controlled
Personal
Family
Percentage of
Corporation
Interest
Interest
Total Interest
Shareholding
948,565,856
4,656,000
3,020,000
956,241,856
29.63%
—
3,020,000
953,221,856
956,241,856
29.63%
—
909
1
910
—
—
1
909
910
—
—
3,000,000
—
3,000,000
0.09%
—
2,000,000
—
2,000,000
0.06%
—
3,000,000
—
3,000,000
0.09%

Notes:

948,565,856 Shares are owned by Best Frontier which is owned as to 99.89% and 0.11% by Madam CHEUNG and Mr. CHAN who are spouses to each other. In addition, Madam CHEUNG and Mr. CHAN have each direct personal interest in the Shares and underlying Shares in respect of the share options granted by the Company on 10 December 2013. Madam CHEUNG is the spouse of Mr. CHAN and so both of them are deemed to have interests in the Shares and underlying Shares.
The personal interests of Madam CHEUNG represent the interest in 1,656,000 Shares and interest in 3,000,000 underlying Shares in respect of the share options granted by the Company on 10 December 2013.

– 28 –

GENERAL INFORMATION

APPENDIX

The personal interests of Mr. CHAN represent the interest in 260,000 Shares and interest in 2,760,000 underlying Shares in respect of the share options granted by the Company on 10 December 2013.
The personal interest of Mr. CHAN Ting represents the interest in 3,000,000 underlying Shares in respect of the share options granted by the Company on 10 December 2013.
The personal interests of Mr. YANG Qing Cai represents the interest in 475,000 Shares and interest in 1,525,000 underlying Shares in respect of the share options granted by the Company on 10 December 2013.
The personal interest of Dr. LIU Ta-pei represents the interests in 3,000,000 Shares.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors and chief executive of the Company had or was deemed to have any interests or short positions in any Shares, debentures or underlying Shares of the Company and its associated corporations (within the meaning of Part XV of the SFO) that are required to be notified to the Company and the Stock Exchange pursuant to Division 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 which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein or which were required, pursuant to Rules 5.46 to 5.67 of the GEM Listing Rules relating to securities transactions by the Directors, to be notified to the Company and the Stock Exchange.

(b) Substantial Shareholders’ Interests and Short Positions in the Shares, Underlying Shares and Debentures of the Company

As at the Latest Practicable Date, according to the register kept by the Company pursuant to section 336 of SFO, and so far as is known to any Directors or chief executive of the Company, the following persons (other than the Directors or chief executive of the Company) had, or was deemed or taken to have, an interest or short position in the Shares or underlying Shares 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, were as follow:

– 29 –

GENERAL INFORMATION

APPENDIX

Long Positions in the Shares

Name of Shareholders Best Frontier & its concert parties (Note 1) Integrated Asset Management & its concert parties_(Note 2)_ GAM Hong Kong Limited Tarascon Asia Absolute Fund (Cayman) Ltd.	Capacity Benefcial Owner Benefcial Owner Investment Manager Benefcial Owner	Number of issued Shares Held 950,481,856 536,733,000 240,950,000 172,894,960	Approximate Percentage of the Shareholding
			29.45% 16.63% 7.47% 5.36%

Notes:

948,565,856 Shares are owned by Best Frontier which is owned as to 99.89% and 0.11% by Madam CHEUNG Kwai Lan and Mr. CHAN Tung Mei who are spouses to each other. In addition, Madam CHEUNG and Mr. CHAN directly beneficially holds 1,656,000 and 260,000 Shares respectively. Madam CHEUNG is the spouse of Mr. CHAN and so both of them are deemed to have interests in the Shares.
536,733,000 Shares are owned by Integrated Asset Management which is wholly owned by Mr. YAM Tak Cheung. A 2% coupon convertible bonds in aggregate amount of HK$89,625,000 for a term of three years was issued to Integrated Asset Management pursuant to the Subscription Agreement. A maximum number of 150,000,000 Shares will be allotted and issued to Integrated Asset Management upon conversion of the Convertible Bonds in full and thereafter the shareholding of Integrated Asset Management will be increased to approximately 21.28% of the current issued Share capital of the Company and approximately 20.33% of the enlarged issued Share capital of the Company. The initial Conversion Price is HK$0.598 per Conversion Share subject to adjustment.

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GENERAL INFORMATION

APPENDIX

Save as disclosed above, as at the Latest Practicable Date, the Directors or chief executive of the Company were not aware of any person (other than a Director or chief executive of the Company) who had an interest or short position in the Shares or underlying Shares of the Company which would fall to be disclosed to the Company under the provisions of Division 2 an 3 of Part XV of the SFO, or which recorded in the register required to be kept by the Company under section 336 of the SFO.

3. COMPETING INTERESTS

As at the Latest Practicable Date, none of Directors, the substantial shareholders nor the controlling shareholders of the Company or any of their respective close associates (as defined the GEM Listing Rules) have any interest in any business which competes or is likely to compete, directly or indirectly, with the business of the Group.

4. DIRECTORS’ SERVICE CONTRACTS

All the Executive Directors and Non-executive Director have entered into a service contract with the Company with effect from the date of appointment and will continue thereafter unless and until terminated by either party by giving not less than six months’ notice in writing served by either party on the other. All the Independent Non-executive Directors have not entered into any service contracts with the Company but are subject to retirement by rotation and reelection in accordance with the articles of association of the Company.

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

5. DIRECTORS’ INTERESTS IN CONTRACT OR ARRANGEMENT

As at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement subsisting which was significant in relation to the business of the Group, nor has any Director had any direct or indirect interest in any assets which have been acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Group since 30 June 2016, being the date to which the latest published audited financial statements of the Group were made up.

6. 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 or prospects of the Group since 30 June 2016, being the date to which the latest published audited financial statements of the Group were made up.

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GENERAL INFORMATION

APPENDIX

7. QUALIFICATION AND CONSENT OF EXPERT

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

Name

Name Qualifications

Gram Capital Limited A licensed corporation to carry out Type 6 (advising on corporate finance) regulated activity under the SFO

Gram Capital has given and has not withdrawn its written consent to the issue of this circular with the inclusion therein of its letter and/or reference to its name, in the form and context in which they appear.

As at the Latest Practicable Date, Gram Capital was not beneficially interested in the share capital of any member of the Group nor had any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group, nor did it have any interest, directly or indirectly, in any asset which had been, since 30 June 2016, being the date to which the latest published audited financial statements of the Group were made up, acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group.

8. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be made available for inspection at the office of the Company at Units 307-313, 3/F, Phase One Hong Kong Science Park, Wireless Centre, Pak Shek Kok, New Territories, Hong Kong, during 10:00 a.m. to 4:00 p.m. on any Business Day from the date of this circular up to and including the date of the EGM:

(a) Subscription Agreement.
(b) Amendment Agreement;
(c) the written consent of the expert referred to in the paragraph headed “Qualification and Consent of Expert” in this Appendix;
(d) the letter from the Independent Board Committee, the text of which is set out on pages 12 to 13 in this circular;
(e) the letter of advice from Gram Capital to the Independent Board Committee and the Independent Shareholders, the text of which is set out on pages 14 to 26 in this circular; and
(f) this circular.

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NOTICE OF EGM

(Incorporated in the Cayman Islands with limited liability) Stock Code: 8156

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “ EGM ”) of the China Vanguard Group Limited (the “ Company ”) will be held at Units 307-313, 3/F, Wireless Centre, Phase One Hong Kong Science Park, Pak Shek Kok, New Territories, Hong Kong on Wednesday, 29 March, 2017 at 10:30 a.m., for the purpose of considering and, if thought fit, passing the following resolution:

ORDINARY RESOLUTION

“ THAT ”

(a) the amendment agreement dated 18 January 2017 (the “ Amendment Agreement ”) entered into between the Company and a holder of the convertible bonds issued by, in relation to the proposed amendment of certain terms and conditions of the 2% coupon convertible bonds due 17 January 2017 in the aggregate amount of HK$89,625,000 (the “ Convertible Bonds ”) (details relating to the Amendment Agreement are set out in the circular of the Company dated 10 March 2017, and a copy of the Amendment Agreement has been produced to the EGM and marked “A” and initialed by the chairman of the EGM for the purpose of identification), be and are hereby approved, confirmed and ratified;
(b) subject to The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) consenting to the alteration to the terms and conditions of the Convertible Bonds and the Stock Exchange granting approval for the listing of, and permission to deal in, the shares of the Company that may be issued pursuant to the alteration to the terms and conditions of the Convertible Bonds (the “ Conversion Shares ” and each a “ Conversion Share ”), the directors of the Company (the “ Directors ”) be and are hereby granted a specific mandate (the “ Specific Mandate ”) to allot, issue and otherwise deal with the Conversion Shares which may be allotted and issued by the Company upon the exercise of the conversion right attaching to the Convertible Bonds in the principal amount of HK$89,625,000 at the adjusted conversion price of HK$0.359 per Conversion Share in accordance with the terms and conditions of the Convertible Bonds under the Amendment Agreement, provided that the Specific Mandate shall be in addition to and shall not prejudice nor revoke the existing general mandate granted to the Directors by the shareholders of the Company in the annual general meeting of the Company held on 23 November 2016, and to do all such things and acts and execute all such documents in connection with the issue and allotment of the Conversion Shares; and

* for identification purpose only

– 33 –

NOTICE OF EGM

(c) any one Director be and is hereby authorised to do all such further acts and things and to sign and execute all such other or further documents and to take all such steps which, in the opinion of such Director, may be necessary, appropriate, desirable or expedient to implement and/or give effect to the terms of, or the transactions contemplated by, the Amendment Agreement and to agree to such variation, amendments or waiver of matters relating thereto as are, in the opinion of such Director, in the interests of the Company.”

By order of the Board CHINA VANGUARD GROUP LIMITED

**眾彩科技股份有限公司 * CHAN Ting**

Executive Director and Chief Executive Officer

Hong Kong, 10 March 2017

Registered Office: P.O. Box 10008, Willow House, Cricket Square, Grand Cayman KY1-1001, Cayman Islands

Head office and principal place of business in Hong Kong: Units 307-313, 3/F, Wireless Centre Phase One Hong Kong Science Park Pak Shek Kok, New Territories Hong Kong

Notes:

A shareholder of the Company entitled to attend and vote at the EGM (or at any adjournment thereof) is entitled to appoint another person as his/her/its proxy to attend and vote in his/her/its stead in accordance with the articles of association of the Company. A proxy need not be a shareholder of the Company. A form of proxy for use at the EGM is enclosed.
In order to be valid, this 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, at the Hong Kong branch share registrar and transfer office of the Company, Tricor Standard Limited at Level 22, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof. Completion and return a form of proxy will not preclude a shareholder of the Company from attending in person and voting at the EGM or any adjournment thereof, should he/she/it so wish and in such event, the proxy shall be deemed to be revoked.
In the case of joint holders, the vote of the senior who tenders a vote, whether in person or by proxy, will be accepted to the exclusion of the vote(s) of other joint holder(s), and for this purpose, seniority will be determined by the order in which the names stand in the register of members of the Company in respect of such shares.
for identification purpose only

– 34 –

AI assistant

Sinopharm Tech Holdings Limited — Proxy Solicitation & Information Statement 2017

51300_rns_2017-03-10_7052dca1-8b17-4c2f-8093-0c0fb7e834c9.pdf

1) CONNECTED TRANSACTION IN RELATION TO PROPOSED AMENDMENTS TO THE TERMS OF THE CONVERTIBLE BONDS;

2) PROPOSED GRANT OF SPECIFIC MANDATE TO ISSUE OF CONVERSION SHARES;

AND 3) NOTICE OF EXTRAORDINARY GENERAL MEETING

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

1) CONNECTED TRANSACTION IN RELATION TO PROPOSED AMENDMENTS TO THE TERMS OF THE CONVERTIBLE BONDS; 2) PROPOSED GRANT OF SPECIFIC MANDATE TO ISSUE OF CONVERSION SHARES; AND

3) NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

LETTER FROM THE BOARD

AMENDMENT AGREEMENT

Adjusted Conversion Price per Conversion Share

LETTER FROM THE BOARD

Specific Mandate for the Issuance of the Conversion Shares

Ranking of Conversion Shares

GEM LISTING RULES IMPLICATION

REASONS FOR THE PROPOSED AMENDMENTS

CHANGES IN SHAREHOLDING STRUCTURE

LETTER FROM THE BOARD

GENERAL

EXTRAORDINARY GENERAL MEETING

RECOMMENDATIONS

ADDITIONAL INFORMATION

1) CONNECTED TRANSACTION IN RELATION TO PROPOSED AMENDMENTS TO THE TERMS OF THE CONVERTIBLE BONDS; AND 2) PROPOSED GRANT OF SPECIFIC MANDATE TO ISSUE OF CONVERSION SHARES

INTRODUCTION

RECOMMENDATION

CONNECTED TRANSACTION PROPOSED AMENDMENTS TO THE TERMS OF THE CONVERTIBLE BONDS

INTRODUCTION

OUR INDEPENDENCE

BASIS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Background of and reasons for the Proposed Amendments

Information on the Bondholder

Reasons for the Proposed Amendments

2. Principal terms of the Amendment Agreement

LETTER FROM GRAM CAPITAL

Notes:

Analysis on the interest rate

3. Possible dilution effect on the shareholding interests of the public Shareholders

RECOMMENDATION

1. RESPONSIBILITY STATEMENT

2. DISCLOSURE OF INTERESTS

(a) Directors’ and Chief Executive’s Interests and Short Positions in the Shares of the Company and its associated corporations

APPENDIX

APPENDIX

(b) Substantial Shareholders’ Interests and Short Positions in the Shares, Underlying Shares and Debentures of the Company

APPENDIX

Long Positions in the Shares

APPENDIX

3. COMPETING INTERESTS

4. DIRECTORS’ SERVICE CONTRACTS

5. DIRECTORS’ INTERESTS IN CONTRACT OR ARRANGEMENT

6. MATERIAL ADVERSE CHANGE

7. QUALIFICATION AND CONSENT OF EXPERT

Name

Name Qualifications

8. DOCUMENTS AVAILABLE FOR INSPECTION

NOTICE OF EGM

ORDINARY RESOLUTION

“ THAT ”

眾彩科技股份有限公司 * CHAN Ting

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Sinopharm Tech Holdings Limited Proxy Solicitation & Information Statement 2017

**眾彩科技股份有限公司 * CHAN Ting**