Television Broadcasts Limited — Proxy Solicitation & Information Statement 2011

Oct 13, 2011

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 stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional advisers.

If you have sold or transferred all your shares in China Fortune Financial Group Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee or to the bank, stockbroker 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.

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

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China Fortune Financial Group Limited

(Incorporated in the Cayman Islands with limited liability) (Stock code: 290) Website: http://www.290.com.hk

CONNECTED TRANSACTION SECOND SUPPLEMENTAL AGREEMENT AND

NOTICE OF EXTRAORDINARY GENERAL MEETING

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

A letter from the Independent Board Committee is set out on pages 16 to 17 of this circular.

A letter from Nuada containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 18 to 25 of this circular.

A notice convening the EGM to be held at 35th Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wan Chai, Hong Kong on 31 October 2011 at 3: 30 p.m. is set out on pages 30 to 31 of this circular. A form of proxy for the EGM is enclosed with this circular. Whether or not you are able to attend the meeting, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon to the Company’s branch registrar and transfer office in Hong Kong, Union Registrars Limited, at 18th Floor, Fook Lee Commercial Centre, Town Place, 33 Lockhart Road, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the EGM or any adjournment thereof (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM if you so wish.

14 October 2011

CONTENTS

		Page
Definitions	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from	the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Letter from	the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Letter from	Nuada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Appendix	— General Information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
Notice of Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		30

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DEFINITIONS

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

• ‘‘Announcement’’ announcement of the Company dated 6 September 2011 in respect of the Second Supplemental Agreement and the Proposed Amendment

• ‘‘associate(s)’’ has the meaning ascribed to it under the Listing Rules ‘‘Board’’ the board of Directors ‘‘Business Day’’ A day (excluding Saturday, Sunday and public or statutory holiday) on which licensed banks in Hong Kong are generally open for business throughout their normal business hours

• ‘‘Company’’ China Fortune Financial Group Limited, a company incorporated in the Cayman Islands with limited liability and the Shares are listed on the Stock Exchange

• ‘‘connected person(s)’’ has the meaning ascribed to it under the Listing Rules ‘‘Conversion Share(s)’’ the Share(s) which will be allotted and issued by the Company upon exercise of the conversion rights attached to the Optional Bonds

• ‘‘Director(s)’’ the director(s) of the Company ‘‘Disinterested Mr. Wong Kam Fat, Tony, the vice-chairman of the Company Directors’’ and a non-executive Director and Mr. Xia Yingyan, an executive Director

• ‘‘EGM’’ the extraordinary general meeting of the Company to be convened and held on 31 October 2011 at 3: 30 p.m. for the purpose of considering, and if thought fit, approving the entering into of the Second Supplemental Agreement and the Proposed Amendment

• ‘‘Group’’ the Company and its subsidiaries ‘‘Hong Kong’’ the Hong Kong Special Administrative Region of the PRC ‘‘Independent Board A committee of the Board comprising all the independent nonCommittee’’ executive Directors established for the purpose of advising and giving recommendations to the Independent Shareholders regarding the terms of the Second Supplemental Agreement and the Proposed Amendment

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DEFINITIONS

• ‘‘Independent Financial Nuada Limited, a licensed corporation authorised to conduct Adviser’’ or ‘‘Nuada’’ type 6 (advising on corporate finance) regulated activities under the SFO, the independent financial adviser to the Independent Board Committee and the Independent Shareholders in relation to the terms of the Second Supplemental Agreement and the Proposed Amendment

• ‘‘Independent the Shareholders who are not required to abstain from voting on Shareholders’’ the resolution approving the entering into of the Second Supplemental Agreement and the Proposed Amendment at the EGM

• ‘‘Latest Practicable 11 October 2011, being the latest practicable date prior to the Date’’ printing of this circular for ascertaining certain information contained herein

• ‘‘Listing Rules’’ the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited

• ‘‘Option’’ the option granted to the Subscriber to subscribe for the Optional Bonds which is exercisable within the Option Period pursuant to the Subscription Agreement

• ‘‘Option Period’’ the period within which the Option is exercisable, being the 12month period commencing on the date of the Subscription Agreement becoming unconditional, i.e. 7 September 2009, pursuant to the Subscription Agreement and such exercise period had been extended to a 24-month period commencing on 7 September 2009 pursuant to the Supplemental Agreement

• ‘‘Optional Bonds’’ the zero coupon convertible bonds in a principal sum of HK$128 million which will be issued by the Company upon full exercise of the Option by the Subscriber, and is convertible into a maximum of 800 million Conversion Shares, pursuant to the Subscription Agreement

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

• ‘‘Proposed to further extend the Option Period to thirty-six (36) months Amendment’’ commencing on the date of the Subscription Agreement becoming unconditional, i.e. 7 September 2009

• ‘‘Second Supplemental the conditional second supplemental agreement dated 6 Agreement’’ September 2011 entered into between the Company and the Subscriber in respect of the Proposed Amendment

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DEFINITIONS

‘‘SFO’’ the Securities and Futures Ordinance (Chapter 571 of the laws of Hong Kong) ‘‘Share(s)’’ ordinary share(s) of HK$0.10 each in the share capital of the Company ‘‘Shareholder(s)’’ holder(s) of the Shares ‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited ‘‘Subscriber’’ Jadehero Limited, a private company incorporated in the British Virgin Islands with limited liability and a connected person of the Company ‘‘Supplemental the conditional supplemental agreement dated 6 September 2010 Agreement’’ entered into between the Company and the Subscriber in respect of the first extension of the Option Period ‘‘HK$’’ Hong Kong dollar(s), the lawful currency of Hong Kong ‘‘%’’ per cent.

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LETTER FROM THE BOARD

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China Fortune Financial Group Limited

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 290)

Website: http://www.290.com.hk

Executive Directors:

Mr. Zhang Min (Chairman)

• Mr. Ng Cheuk Fan, Keith (Managing Director)

• Mr. Yeung Kwok Leung

Registered office: P.O. Box 309, Ugland House Grand Cayman, KY1-1104 Cayman Islands

• Mr. Hon Chun Yu

• Mr. Xia Yingyan

Non-executive Director:

Mr. Wong Kam Fat, Tony (Vice-chairman)

Independent Non-executive Directors:

Mr. Tam B Ray Billy

Head office and Principal Place of Business in Hong Kong 35th Floor, Office Tower Convention Plaza 1 Harbour Road Wan Chai Hong Kong

Mr. Ng Kay Kwok

• Mr. Lam Ka Wai, Graham

14 October 2011

• To the Shareholders, and for information purpose only, the holders of warrants and convertible securities of the Company

Dear Sir or Madam,

CONNECTED TRANSACTION SECOND SUPPLEMENTAL AGREEMENT

INTRODUCTION

Reference is made to the announcement of the Company dated 27 May 2009 and the circular of the Company dated 12 June 2009 both in relation to the Subscription Agreement, pursuant to which the Subscriber was granted the Option to subscribe for the Optional Bonds within the Option Period, and the announcement of the Company dated 7 September 2010 and the circular of the Company dated 4 October 2010 both in relation to the Supplemental Agreement.

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LETTER FROM THE BOARD

Reference is also made to the Announcement in relation to the Second Supplemental Agreement, pursuant to which the Company and the Subscriber conditionally agreed to effect the Proposed Amendment.

The purpose of this circular is to set out (i) more details regarding the Second Supplemental Agreement and the Proposed Amendment; (ii) the recommendation of the Independent Board Committee in relation to the terms of the Second Supplemental Agreement and the Proposed Amendment; (iii) the advice from Nuada to the Independent Board Committee and the Independent Shareholders in relation to the terms of the Second Supplemental Agreement and the Proposed Amendment; and (iv) the notice to convene the EGM.

THE SECOND SUPPLEMENTAL AGREEMENT

On 6 September 2011, the Company and the Subscriber entered into the Second Supplemental Agreement pursuant to which the Company and the Subscriber conditionally agreed to effect the Proposed Amendment. It is proposed that the Option Period be further extended to thirty-six (36) months commencing on the date of the Subscription Agreement becoming unconditional i.e. 7 September 2009.

Date

6 September 2011

Parties

• (a) the Company; and

• (b) the Subscriber.

The Subscriber is a private company incorporated in the British Virgin Islands with limited liability and is primarily engaged in the investment of local stocks. To the best of the Directors’ knowledge, information and belief, and having made all reasonable enquiries, as at the Latest Practicable Date, the Subscriber is legally and beneficially interested in 800,000,000 Shares, representing approximately 26.02% of the issued share capital of the Company (and is deemed to be interested in 1,600,000,000 Shares under the SFO, representing approximately 52.05% of the issued share capital of the Company) and is thus a substantial Shareholder. The Subscriber is owned as to 20% by Marvel Steed Limited and 80% by Southlead Limited. Mr. Wong Kam Fat, Tony, the vice-chairman of the Company and a non-executive Director, is the sole beneficial owner of Marvel Steed Limited, while Mr. Xia Yingyan, an executive Director, is the sole beneficial owner of Southlead Limited. Accordingly, the Subscriber, Marvel Steed Limited, Southlead Limited, Mr. Wong Kam Fat, Tony and Mr. Xia Yingyan are all connected persons of the Company.

The Company was informed by the Subscriber that it did not exercise the Option within the Option Period due to its own financial and commercial considerations. It is the current intention of the Subscriber to exercise the Option within the extended Option Period. The Directors are of the view that the Proposed Amendment is beneficial to the

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LETTER FROM THE BOARD

Company and Shareholders as a whole as it allows the Company to have access to possible non-interest bearing funding of up to HK$128 million for its daily operations and future investments in financial services-related and other businesses in Hong Kong and/or the PRC when opportunities arise. Upon the expiry of the extended Option Period pursuant to the Second Supplemental Agreement, the Company will not further extend the term of the Option.

CONDITION PRECEDENT TO THE SECOND SUPPLEMENTAL AGREEMENT

The Second Supplemental Agreement is conditional upon the passing by the Independent Shareholders of an ordinary resolution to approve the entering into of the Second Supplemental Agreement and the Proposed Amendment.

THE OPTION AND THE OPTIONAL BONDS

The Subscriber is granted the Option to subscribe for the Optional Bonds to be issued by the Company in a principal sum of HK$128 million convertible into a maximum of 800 million Conversion Shares pursuant to the Subscription Agreement. The Option and the Optional Bonds shall be governed by and shall benefit from the same terms and conditions as the convertible bonds issued pursuant to the Subscription Agreement.

The principal terms of the Option and the Optional Bonds are set out as follows:

Principal amount: HK$128,000,000 Issue price: 100% of the principal amount of the Optional Bonds Conversion price: HK$0.16 per Conversion Share. The major events which occurrence would result in adjustments for the conversion price include the following:

• (a) an alternation of the par value of the Share by reason of any consolidation or subdivision;

• (b) an issue (other than in lieu of cash dividend) by the Company of Shares credited as fully-paid by way of capitalisation of profits and reserves (including any share premium account or capital redemption reserve fund);

• (c) a capital distribution being made by the Company, whether on a reduction or otherwise, to Shareholders (in their capacity as such);

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LETTER FROM THE BOARD

• (d) an issue of Shares to all or substantially all Shareholders as a class by way of rights, or a grant of options or warrants to subscribe for or purchase any Shares, in each case at less than 90% of market price in the last dealing day preceding the date of announcement of the terms of the issue or grant; and

• (e) an issue wholly for cash being made by the Company of securities convertible into or exchangeable for or carrying rights of subscription for new Shares and the total effective consideration per Share receivable for such securities is less than 90% of the market price on the date of announcement of the terms of the issue of such securities.

As at the Latest Practicable Date, the Company has not identified occurrence of any event which may result in the adjustment for the conversion price under the Optional Bonds. Further announcement will be made by the Company in accordance with the Listing Rules if any event which will result in the adjustment for the conversion price occurs.

Interest rate: 0%

Number of 800,000,000 Conversion Shares:

Option Period:

The period within which the Option is exercisable, being the 12-month period commencing on the date of the Subscription Agreement becoming unconditional, i.e. 7 September 2009, pursuant to the Subscription Agreement and such exercise period had been extended to a 24-month period commencing on 7 September 2009 pursuant to the Supplemental Agreement. It is proposed to further extend the Option Period to thirty-six (36) months under the Second Supplemental Agreement.

Maturity date: 31 December 2012

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LETTER FROM THE BOARD

Status and Transfer:

• (a) The obligations of the Company arising under the Optional Bonds constitute general, unconditional, unsecured and unsubordinated obligations of the Company, and rank and shall rank equally among themselves and pari passu with all other present and future unsecured and unsubordinated obligations of the Company except for obligations accorded preference by mandatory provisions of applicable laws. No application shall be made for a listing of the Optional Bond in any jurisdiction.

• (b) Save with the prior written consent of the Company and prior written notice in relation to such transfer or assignment has been given to the Company, no assignment or transfer of the Optional Bonds may be made. The Optional Bonds may only be transferred, if and only if, the transfer is made in accordance with any applicable requirements of the Stock Exchange, the Listing Rules, applicable laws and regulations and the provisions as set out in the Subscription Agreement. In the event of a transfer to a connected person of the Company, prior approval from the Company and the Stock Exchange should be obtained.

• (c) Any assignment or transfer of the Optional Bonds shall be in respect of the whole or any part (in multiples of HK$500,000) of the outstanding principal amount of the Optional Bonds. Title to the Optional Bonds passes only upon the cancellation of the existing certificate and the issue of a new certificate in accordance with conditions set out in the Subscription Agreement. The Optional Bonds holder will (except as otherwise required by law) be treated as the absolute owner of the Optional Bonds for all purposes (whether or not overdue and regardless of any notice of ownership, trust or any interest in it or any writing on, or the theft or loss of, the certificates issued in respect of them) and no person will be liable for so treating the Optional Bonds holder.

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LETTER FROM THE BOARD

• (d) The Optional Bonds may be transferred by delivery to the Company of a duly executed transfer form together with the certificate(s) for the Optional Bonds being transferred. The Company shall, within five (5) Business Days of receipt of such documents from the Optional Bonds holder, cancel the existing Optional Bonds, issue a new Optional Bonds and certificate in respect thereof under the seal of the Company in favour of the transferee or assignee as applicable and (if applicable) endorse the certificate of the transferor with the amount of the Optional Bonds so transferred.

• (e) Any legal and other costs and expenses which may be incurred by the Company in connection with any transfer or assignment of the Optional Bonds or any request thereof shall be borne by the transferee alone.

• (f) The Company shall maintain and give a full and complete register of the Optional Bonds holder, the conversion, cancellation and destruction of the Optional Bonds, replacement Optional Bonds issued in substitution for any defaced, lost, stolen or destroyed Optional Bonds and of details and addresses of the Optional Bonds holder from time to time. The Company shall make available such register to the Optional Bonds holder for inspection at all reasonable times and will permit the Optional Bonds holder to copy the same.

Redemption:

Conversion:

Unless previously converted, upon presentation the original certificate of the Optional Bonds on its maturity date to the Company at its address specified in the Subscription Agreement, the Optional Bonds shall be redeemed by the Company at its principal amount outstanding.

• (a) The Optional Bonds can be converted from time-to-time after its issuance and prior to the expiry of its maturity date in strict accordance with the terms of the Optional Bonds.

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LETTER FROM THE BOARD

• (b) No fraction of a Share shall be issued on conversion of the Optional Bonds. Fractional entitlements shall be ignored and any sum paid in respect thereof shall be retained by the Company for its own benefit. Shares issued upon conversion shall rank pari passu in all respects with all other existing Shares outstanding as at the exercise date and be entitled to all dividends and other distributions, the record date of which falls on a date on or after the date of the conversion notice.

• (c) The Optional Bonds holder shall exercise the right of conversion to the extent that the public float of the Company will not be less than 25% of the issued share capital of the Company immediately after such conversion.

• (d) The Optional Bonds holder shall not convert the Optional Bonds and the Company shall not issue any Conversion Shares if, upon such issue, the Optional Bonds holder and the parties acting in concert with it, shall be interested in 30% (or such amount as may from time to time that may trigger a mandatory general offer or considered by the SFC as a change in control of the Company) or more of the then enlarged issued share capital of the Company at the date of the relevant conversion. No Conversion Shares will be allotted and issued in respect of any breach of the provisions under this condition.

Events of default:

If any of the following events occurs, the Optional Bonds holder may give notice to the Company that the Optional Bonds, on the giving of such notice, are immediately due and payable at its principal amount then outstanding.

• (a) the listing of the Shares (as a class) on the Stock Exchange:

• (i) ceases; or

• (ii) is suspended for a continuous period of twenty one (21) Business Days, on each of which the Stock Exchange is generally open for trading, due to the default of the Company or Directors;

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LETTER FROM THE BOARD

• (b) the Company defaults in performance or compliance with any of its obligations contained in the conditions, which breach or default is incapable of remedy or, if capable of remedy, is not remedied within fourteen (14) Business Days after notice of such breach or default is sent from the Optional Bonds holder to the Company;

• (c) an encumbrancer takes possession or a receiver, manager or other similar officer is appointed of the whole or any material part of the undertaking, property, assets or revenues of the Company or any of its subsidiaries;

• (d) the Company becomes insolvent or is unable to pay its debts as they mature or applies for or consents to the appointment of any administrator, liquidator or receiver of the whole or any material part of its undertaking, property, assets or revenues or enters into a general assignment or compromise with or for the benefit of its creditors;

• (e) an order is made or an effective resolution passed for winding-up of the Company or any of its material subsidiaries;

• (f) the Company defaults in the payment of the principal in respect of the Optional Bonds when and as the same ought to be paid and such default is not remedied by the Company within seven (7) Business Days of the due date thereof;

• (g) any other debentures, bonds, notes, Optional Bonds or other instruments of indebtedness or any other loan indebtedness (‘‘Indebtedness’’) of the Company or any securities convertible into or exchangeable for shares (‘‘Equity Linked Securities’’) of the Company become prematurely repayable following a default in respect of the terms thereof which shall not have been remedied, or the Company or any of its subsidiaries defaults in the repayment of the Indebtedness or Equity Linked Securities at the maturity thereof or at the expiration of any applicable grace period thereof, or any guarantee of or indemnity in respect of any Indebtedness or Equity Linked Securities of others given by the Company or any of its material subsidiaries shall not be honored when due and called upon;

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LETTER FROM THE BOARD

provided that notwithstanding the foregoing, if the Company shall fail to issue the Conversion Shares in accordance with the conditions, any Optional Bonds holder shall be entitled to bring an action against the Company for either specific performance or damage. The Company shall forthwith on becoming aware of any such event as is mentioned in this condition give notice in writing thereof to the Optional Bonds holder. At any time after the principal amount of the Optional Bonds has become payable, any of the Optional Bonds holder may without further notice institute such proceedings as it may think fit to enforce payment of the monies due.

Voting: The Optional Bonds holder shall not be entitled to receive notices of, attend or vote at any meetings of the Company by reason only of it being the Optional Bonds holder.

The Conversion Shares shall rank pari passu in all respects with the Shares in issue as at the date of allotment and issue of the Conversion Shares. There will not be any restrictions for the subsequent sale of the Conversion Shares by the Subscriber.

A maximum number of 800 million Conversion Shares will be allotted and issued upon exercise of the conversion rights attaching to the Optional Bonds in full, which represent: (i) approximately 26.02% of the issued share capital of the Company as at the Latest Practicable Date; and (ii) approximately 20.65% of the issued share capital of the Company to be enlarged by the allotment and issue of the Conversion Shares.

In the event that the Subscriber notifies the Company in writing of its intention to exercise the Option, the Subscriber must subscribe for Optional Bond(s) in the minimum principal amount of HK$10 million, which shall be satisfied by the Subscriber in cash upon the issuance of such Optional Bonds. Completion of the subscription of the Optional Bonds shall be take place on or before two (2) Business Days after written notice is received by the Company.

Save for the Option Period which is proposed to be further extended to thirty-six (36) months, the above terms of the Option and the Optional Bonds will remain unchanged. Please refer to the circular issued by the Company on 12 June 2009 for further information regarding the Option and the Optional Bonds.

REASONS FOR ENTERING INTO OF THE SECOND SUPPLEMENTAL AGREEMENT

The Group is principally engaged in the provision of brokerage services for securities and insurance and margin financing.

The terms of the Second Supplemental Agreement were arrived at after arm’s-length negotiations between the Company and the Subscriber.

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LETTER FROM THE BOARD

Pursuant to the terms of the Subscription Agreement and the Supplemental Agreement, the Option Period will end on 6 September 2011. As the Group will have access to possible non-interest bearing funding of up to HK$128 million for its future daily operations and investments in financial services-related and other businesses in Hong Kong and/or the PRC when opportunities arise, and the terms of the Option and the Optional Bonds (other than the Option Period) will remain unchanged as a result of the Proposed Amendment, the Directors (including the independent non-executive Directors but excluding Disinterested Directors) are of the view that the Second Supplemental Agreement and the Proposed Amendment are on normal commercial terms; and terms of the Second Supplemental Agreement and the Proposed Amendment are fair, reasonable and in the interests of the Company and the Shareholders as a whole.

LISTING RULES IMPLICATIONS

As at the Latest Practicable Date, to the best of the Directors’ knowledge, information and belief, and having made all reasonable enquiries, the Subscriber is legally and beneficially interested in 800,000,000 Shares, representing approximately 26.02% of the issued share capital of the Company (and is deemed to be interested in 1,600,000,000 Shares under the SFO, representing approximately 52.05% of the issued share capital of the Company) and thus a substantial Shareholder. The Subscriber is owned as to 20% by Marvel Steed Limited and 80% by Southlead Limited. Mr. Wong Kam Fat, Tony, the vicechairman of the Company and a non-executive Director, is the sole beneficial owner of Marvel Steed Limited, while Mr. Xia Yingyan, an executive Director, is the sole beneficial owner of Southlead Limited. Accordingly, the Subscriber, Marvel Steed Limited, Southlead Limited, Mr. Wong Kam Fat, Tony and Mr. Xia Yingyan are all connected persons of the Company.

As the entering into of the Second Supplemental Agreement and the Proposed Amendment will result in a material change in the terms of the Subscription Agreement and the entering into of the Second Supplemental Agreement constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules, it is subject to the reporting, announcement and independent shareholders’ approval requirements under the Listing Rules.

The resolution approving the entering into of the Second Supplemental Agreement and the Proposed Amendment will be taken by way of poll at the EGM and any Shareholder having a material will be required to abstain from voting on such resolution. The Subscriber and its associates (to the extent that they hold any Share at the time of the EGM) are required to abstain from voting at the EGM.

The Subscriber and its associates, Marvel Steed Limited, Southlead Limited, Mr. Wong Kam Fat, Tony and Mr. Xia Yingyan (to the extent that they hold any Share at the time of the EGM), who are connected persons of the Company and have material interests in the Second Supplemental Agreement and the Proposed Amendment, are required to abstain from voting on the relevant resolution at the EGM. As at the Latest Practicable Date, the Subscriber and its associates were interested in 800,000,000 Shares in aggregate,

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LETTER FROM THE BOARD

representing approximately 26.02% of the issued share capital of the Company (and are deemed to be interested in 1,600,000,000 Shares under the SFO, representing approximately 52.05% of the issued share capital of the Company).

Save as disclosed above, to the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, as at the Latest Practicable Date, no Shareholder (other than the Subscriber and its associates) has any material interest in the Second Supplemental Agreement and the Proposed Amendment and are required to abstain from voting on the proposed resolution at the EGM.

EGM

A notice convening an extraordinary general meeting of the Company to be held at 35th Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wan Chai, Hong Kong on 31 October 2011 at 3: 30 p.m. is set out on pages 30 to 31 of this circular. An ordinary resolution will be proposed at the EGM to consider and, if thought fit, to approve the Second Supplemental Agreement and the Proposed Amendment.

A form of proxy for the EGM is enclosed with this circular. Whether or not you are able to attend the EGM, you are requested to complete and return the form of proxy in accordance with the instructions printed thereon to the Company’s branch registrar and transfer office in Hong Kong, Union Registrars Limited, at 18th Floor, Fook Lee Commercial Centre, Town Place, 33 Lockhart Road, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the EGM or any adjournment thereof (as the case may be). 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 if you so wish.

All votes of the Shareholders at the EGM shall be taken by poll pursuant to Rule 13.39(4) of the Listing Rules. The Company will announce the results of the poll in the manner prescribed under Rule 13.39(5) of the Listing Rules.

INDEPENDENT BOARD COMMITTEE

The Independent Board Committee which comprises Mr. Tam B Ray Billy, Mr. Ng Kay Kwok and Mr. Lam Ka Wai, Graham, all being the independent non-executive Directors, has been established to advise the Independent Shareholders as to whether the Second Supplemental Agreement and the Proposed Amendment are on normal commercial terms, the terms of the Second Supplemental Agreement and the Proposed Amendment are fair and reasonable and whether they are in the interests of the Company and the Shareholders as a whole and to advise the Independent Shareholders on how to vote after taking into account the recommendations of the Independent Financial Adviser. The letter of advice from the Independent Board Committee is set out on pages 16 to 17 of this circular.

Nuada has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders as to whether the Second Supplemental Agreement and the Proposed Amendment are on normal commercial terms,

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LETTER FROM THE BOARD

the terms of the Second Supplemental Agreement and the Proposed Amendment are fair and reasonable and whether they are in the interests of the Company and the Shareholders as a whole and to advise the Independent Shareholders on how to vote. The letter of advice from Nuada is set out on pages 18 to 25 of this circular.

The Independent Board Committee, having taken into account the advice of the Independent Financial Adviser, considers that the Second Supplemental Agreement and the Proposed Amendment are on normal commercial terms, the terms of the Second Supplemental Agreement are fair and reasonable so far as the Independent Shareholders are concerned and the entering into the Second Supplemental Agreement and the Proposed Amendment are in the interests of the Company and the Shareholders as a whole, and accordingly recommends the Independent Shareholders to vote in favour of the ordinary resolution which will be proposed at the EGM for approving the entering into of the Second Supplemental Agreement and the Proposed Amendment.

RECOMMENDATION

Save for the Disinterested Directors who have material interests in the Second Supplemental Agreement and the Proposed Amendment and have abstained from voting on the resolution(s) of the Board in relation to the same, none of the Directors has a material interest in the Second Supplemental Agreement and the Proposed Amendment and are not, therefore, required to abstain from voting on such resolution(s) of the Board.

The Directors (including the independent non-executive Directors but excluding the Disinterested Directors), having taken into account the advice of the Independent Financial Adviser and the Independent Board Committee, consider that the Second Supplemental Agreement and the Proposed Amendment are on normal commercial terms, the terms of the Second Supplemental Agreement and the Proposed Amendment are fair and reasonable so far as the Independent Shareholders are concerned and the entering into of the Second Supplemental Agreement and the Proposed Amendment are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors (including the independent non-executive Directors but excluding the Disinterested Directors) recommend the Independent Shareholders to vote in favor of the resolution as set out in the enclosed notice of the EGM.

FURTHER INFORMATION

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

Yours faithfully, For and on behalf of the Board China Fortune Financial Group Limited Ng Cheuk Fan, Keith Managing Director

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the full text of a letter from the Independent Board Committee setting out its recommendation to the Independent Shareholders in relation to the terms of the Second Supplemental Agreement and the Proposed Amendment:

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China Fortune Financial Group Limited

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 290)

Website: http://www.290.com.hk

CONNECTED TRANSACTION SECOND SUPPLEMENTAL AGREEMENT

14 October 2011

To the Independent Shareholders

Dear Sir or Madam,

We refer to the circular of the Company dated 14 October 2011 (the ‘‘Circular’’), of which this letter forms part. Capitalised terms used herein shall have the same meanings as defined in the Circular unless the context otherwise requires.

Pursuant to the Listing Rules, the entering into of the Second Supplemental Agreement and the Proposed Amendment are required to be approved by the Independent Shareholders at the EGM. We have been appointed to form the Independent Board Committee to advise you as to whether the Second Supplemental Agreement and the Proposed Amendment are on normal commercial terms, the terms of the Second Supplemental Agreement and the Proposed Amendment are fair and reasonable, and are in the interests of the Company and the Shareholders as a whole. Nuada has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in this respect. Details of its independent advice, together with the principal factors and reasons taken into consideration in arriving at such advice, are set out on pages 18 to 25 of the Circular. Your attention is also drawn to the ‘‘Letter from the Board’’ set out on pages 4 to 15 of the Circular and the additional information set out in the appendix thereto.

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having taken into account the principal factors and reasons considered by, and the independent advice of Nuada, we are of the opinion that the Second Supplemental Agreement and the Proposed Amendment are on normal commercial terms, the terms of the Second Supplemental Agreement and the Proposed Amendment are fair and reasonable so far as the Independent Shareholders are concerned and the entering into of the Second Supplemental Agreement and the Proposed Amendment are in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the resolution to be proposed at the EGM to approve the entering into of the Second Supplemental Agreement and the Proposed Amendment.

Yours faithfully, Independent Board Committee of China Fortune Financial Group Limited

Tam B Ray Billy Independent Non-executive Director

Ng Kay Kwok Lam Ka Wai, Graham Independent Non-executive Director Independent Non-executive Director

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LETTER FROM NUADA

Nuada Limited

Corporate Finance Advisory

17th Floor, BLINK, 111 Bonham Strand Sheung Wan, Hong Kong 香港上環文咸東街111號BLINK 17字樓

14 October 2011

• To the Independent Board Committee and the Independent Shareholders of China Fortune Financial Group Limited

Dear Sirs,

CONNECTED TRANSACTION SECOND SUPPLEMENTAL AGREEMENT

INTRODUCTION

We refer to the circular dated 14 October 2011 (the ‘‘Circular’’) issued by the Company to its Shareholders of which this letter forms part and to our appointment to advise the Independent Board Committee and the Independent Shareholders in relation to the Second Supplemental Agreement, details of which are set out in the ‘‘Letter from the Board’’ (the ‘‘Letter’’) contained in the Circular and in which this letter is reproduced. Capitalised terms used in this letter shall have the same meanings ascribed to them in the Circular of which this letter forms part unless the context otherwise requires.

According to the announcement dated 6 September 2011, the Company and the Subscriber entered into the Second Supplemental Agreement on 6 September 2011 pursuant to which they conditionally agreed, to effect the Proposed Amendment. Pursuant to the Second Supplemental Agreement, the Option Period is proposed to be further extended to 36 months, commencing from the date of the Subscription Agreement became unconditional, that is 7 September 2009 and as such, the expiry date shall be 6 September 2012. Save for the Proposed Amendment, other terms and conditions of the Optional Bonds shall remain unaltered.

As at the Latest Practicable Date, to the best of the Directors’ knowledge, information and belief, and having made all reasonable enquiries, the Subscriber is legally and beneficially interested in 800,000,000 Shares, representing approximately 26.02% of the issued share capital of the Company (and is deemed to be interested in 1,600,000,000 Shares under the SFO, representing approximately 52.05% of the issued share capital of the Company) and thus is a substantial Shareholder. The Subscriber is owned as to 20% by Marvel Steed Limited and 80% by Southlead Limited. Mr. Wong Kam Fat, Tony, the vicechairman of the Company and a non-executive Director, is the sole beneficial owner of Marvel Steed Limited, while Mr. Xia Yingyan, an executive Director, is the sole beneficial owner of Southlead Limited. Accordingly, the Subscriber, Marvel Steed Limited, Southlead Limited, Mr. Wong Kam Fat, Tony and Mr. Xia Yingyan are all connected persons of the Company. Given that the Proposed Amendment will result in a material change in the terms of the Subscription Agreement and the entering into of the Second Supplemental

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LETTER FROM NUADA

Agreement constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules, it is subject to the reporting, announcement and independent shareholders’ approval requirements under the Listing Rules.

Save as disclosed above, to the best of the Directors’ knowledge, information and belief and having made all reasonable enquiries, as at the Latest Practicable Date, no Shareholder other than the Subscriber and its associates have any material interest in the Second Supplemental Agreement and the transactions contemplated thereunder and are required to abstain from voting on the relevant resolution(s).

The Independent Board Committee which comprises Mr. Tam B Ray Billy, Mr. Ng Kay Kwok and Mr. Lam Ka Wai, Graham, all being the independent non-executive Directors, has been established to advise the Independent Shareholders as to whether the Second Supplemental Agreement and the Proposed Amendment are (i) on normal commercial terms; and (ii) the terms of the Second Supplemental Agreement are fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole.

Our role as the independent financial adviser is to (1) give our independent opinion to the Independent Board Committee and the Independent Shareholders as to whether the Second Supplemental Agreement and the Proposed Amendment are (i) on normal commercial terms; and (ii) the terms of the Second Supplemental Agreement are fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole; and (2) advise the Independent Shareholders on how to vote in respect of the Second Supplemental Agreement at the EGM.

BASIS OF OUR OPINION

In formulating our opinion, we have relied on the information, opinion and representations contained or referred to in the Circular and the information, opinion and representations provided to us by the management of the Company and the Directors. We have assumed that all information, opinion and representations contained or referred to in the Circular and all information, opinion and representations which have been provided by the management of the Company and the Directors, for which they are solely and wholly responsible, were true, accurate and complete at the time when they were made and continue to be so at the date hereof.

Accordingly, 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, opinion and representations contained in the Circular, or the reasonableness of the opinions expressed by the management of the Company and the Directors provided to us. The Directors collectively and individually accept full responsibility for the accuracy of the information in the Circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, opinions expressed in the Circular have been arrived at after due and careful consideration and there are no other facts the omission of which would make any statement in the Circular misleading. Furthermore, we relied on the Company that it has provided us sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have relied on such information and

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LETTER FROM NUADA

opinions but have not, however, conducted any independent in-depth investigation into the business, financial conditions and affairs or the future prospects of the Group nor have we considered the taxation implication on the Group or the Shareholders as a result of the entering of the Second Supplemental Agreement.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinion on the entering into of the Second Supplemental Agreement, we have considered the following factors and reasons:

1. Reasons and benefits of entering into of the Second Supplemental Agreement

(i) Background

Pursuant to the Company’s announcement dated 27 May 2009 and circular dated 12 June 2009 (‘‘2009 Circular’’), on 22 May 2009, the Company and the Subscriber entered into the Subscription Agreement in respect of the issuance of convertible bonds (the ‘‘Convertible Bonds’’) in the principal amount of HK$128 million at an exercise price of HK$0.16 per conversion share and due on 31 December 2012 with the Option for the Subscriber to further subscribe the Optional Bonds up to a maximum principal amount of HK$128 million convertible into a maximum of 800 million Shares.

In accordance with the Subscription Agreement, the Option Period would lapse on 6 September 2010 originally. In order to cope with the expansion of business, the Company and the Subscriber entered into the Supplemental Agreement on 6 September 2010 and agreed to extend the Option Period from 12 months to 24 months, commencing from the date of the Subscription Agreement became unconditional, that is, 7 September 2009. The Option Period would lapse on 6 September 2011 pursuant to the Supplemental Agreement.

In order to maintain a possible non-interest bearing funding for future expansion purpose, the Company proposes to further extend the Option Period from 24 months to 36 months, commencing from the date of the Subscription Agreement became unconditional, that is, 7 September 2009. The Option Period would lapse on 6 September 2012 pursuant to the Second Supplemental Agreement.

(ii) Background of the Group

The Company is incorporated in the Cayman Islands with limited liability. Its securities are listed on the Main Board of the Stock Exchange of Hong Kong Limited. The Group is principally engaged in the provision of brokerage services for securities and insurance and margin financing. According to the annual report 2011 of the Group (‘‘Annual Report’’), as at 31 March 2011, the Group’s total current assets and current liabilities were approximately HK$778.0 million and HK$405.1 million respectively. The working capital is HK$372.9 million and the current ratio was about 1.92 times. As at 31 March 2011, the Group’s aggregate bank balances and cash amounted to approximately HK$44.7

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LETTER FROM NUADA

million, representing approximately 5.75% of total current assets. The gearing ratio as at 31 March 2011, measured on the basis of total borrowing as a percentage of total Shareholders’ equity, was approximately 104.48%. The debt ratio, defined as total debts over total assets, was approximately 60.64%.

(iii) Reasons for entering into the Second Supplemental Agreement

After the financial turmoil in 2008, the rapid growth of China’s economy and capital market has brought immense opportunities to Hong Kong’s financial market. As stated in the Annual Report, the Group has beefed up presence in China by adding a representative office in Beijing in 2010 after the opening of the Shenzhen office in 2009. The Group is geared up for growth and actively seeks business opportunities in the mainland. The Company will continue to further develop its existing business in both the PRC and Hong Kong and explore further opportunities to invest in financial services-related businesses that could maximise the returns to the Shareholders.

As stated in the above, according to the Annual Report, the Group has cash on hand of approximately HK$44.7 million as at 31 March 2011. According to the Letter from the Board, the proceeds from the Optional Bond will be for the Group’s future daily operations and investments in financial services-related and other businesses in Hong Kong and/or the PRC when opportunities arise. We have enquired the Company and it has confirmed that the Group has no specific plan in the meantime.

According to the Annual Report, the Company’s turnover has increased approximately 37.49% from approximately HK$80.5 million for the year ended 31 March 2010 to approximately HK$110.7 million for the year ended 31 March 2011. Income generated from futures broking business and interest income generated from securities margin loan portfolio are two of the most important sources of income of the Company for the year ended 31 March 2011 and recorded an increase of approximately 38.46% and 93.53% respectively. To leverage the growth opportunity, the Group has injected more resources into the securities financing business and deepened its coverage of the customers’ need for capital. The significant increase in the interest income generated from securities margin loan portfolio is a result of the further investments in margin financing business. Other than the securities financing business, as mentioned above, the Company will continue to further develop its existing business in both the PRC and Hong Kong and explore further opportunities to invest in financial servicesrelated businesses that could maximise the returns to the Shareholders. Despite the current volatility in the stock market, we are of the view that investment opportunities may still arise since variety of financial products have been developed in the financial market. More working capital may be needed in the future for the Company’s future investments in financial services-related businesses and/or to generate interest income from the margin financing business.

By entering into the Second Supplemental Agreement, if the Option is exercised, a maximum of HK$128 million will be further obtained by the Company on or before 6 September 2012 and this zero interest borrowing can help to support the Company’s expansion.

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LETTER FROM NUADA

Taking into account that (i) the Company’s corporate strategy to become an integrated financial services provider in the Great China Region and its intention to continue the expansion of its financial services-related businesses in both the PRC and Hong Kong; and (ii) there is no certainty or guarantee that the current financial resource of the Group will be adequate for any appropriate investments that may be identified and materialised in the future, we consider the extension in the Option Period is in the interests of the Company and the Shareholders as a whole.

2. Optional Bonds

(i) Advantages of issuing the Optional Bonds

In the Option Period, the Subscriber can further subscribe Optional Bonds up to a maximum principal amount of HK$128 million convertible into a maximum of 800 million Shares. The Company was informed by the Subscriber that it currently intends to exercise the Option within the extended Option Period and we have also enquired the Subscriber. Suppose the Subscriber does not exercise the Option in the extended Option Period, no further fund will be obtained by the Company from the Optional Bonds. On the other hand, suppose the Subscriber does exercise the Option during the extended Option Period, then a maximum of HK$128 million will be further obtained by the Company on or before 6 September 2012 without interest cost and this zero interest borrowing can help to support the Company’s expansion when investment opportunities arise. The Company will have to (i) repay the principal amount of the Optional Bonds to the Subscriber when the Optional Bonds due, if the Subscriber does not convert the Optional Bonds into Shares; or (ii) issue additional Shares due to the conversion of the Optional bonds, if the Subscriber does convert the Optional Bonds into Shares.

We consider that the extension in Option Period is in the interest of the Shareholders and the Company as a whole. Given the uncertainty and volatility of the market, we concur with the Board that it is important to maintain and/or enhance its cash position in order to prepare itself for possible investment opportunities. By entering into the Second Supplemental Agreement, if the Option is exercised, the Company can further obtain a maximum of HK$128 million on or before 6 September 2012. This zero interest borrowing can help to support the Company’s further expansions and investments in financial services-related businesses.

The Optional Bonds is of zero interest. If the Subscriber does not convert the Optional Bonds into Shares, the Company can obtain a zero interest borrowing of at most HK$128 million, which will be repaid at the maturity date of the Optional Bonds, i.e. 31 December 2012. According to the Annual Report, the Company had fixed-rate borrowings of approximately HK$99,000,000 as at 31 March 2011 and the effective interest rate was in the range from 7% to 10% (7% to 8.25% for the year ended 31 March 2010). We have reviewed the HKAB HKD Interest Settlement Rates quoted on the website of the Hong Kong Association of Banks. The HKAB HKD Interest Settlement Rates with maturity of 3 months has increased from 0.26% at the end of April 2011 to 0.28% at the end of September 2011. We concur with the Directors that

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LETTER FROM NUADA

the interest rate, and also the cost of borrowing from banks will further increase in near future. We consider the Proposed Amendment as a cost-effective fund raising method as the zero interest Optional Bonds save the cost of borrowing from banks. If the Subscriber converts the Optional Bonds into Shares, this dilution can be delayed by the issuance of Optional Bonds when compared with other fund raising activities such as new issue of Shares, rights issue or open offer.

(ii) Conversion price

In order to assess the fairness of the conversion price of the Optional Bonds (the ‘‘Conversion Price’’), we compare the Conversion Price with the market price of the Shares. We have reviewed the movements in the trading price of the Shares during the period from 8 September 2010 to 7 September 2011 (the ‘‘Review Period’’). The closing prices of the Shares during the Review Period are set out below:

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

0.5
0.45
0.4
0.35 Closing price
0.3
0.25
0.2
0.15
Conversion Price
0.1
0.05
0
Source: The website of the Stock Exchange (www.hkex.com.hk)
7/9/2010 7/10/2010 7/11/2010 7/12/2010 7/1/2011 7/2/2011 7/3/2011 7/4/2011 7/5/2011 7/6/2011 7/7/2011 7/8/2011 7/9/2011
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Note: Trading in the Shares was suspended from 7 December 2010 to 8 December 2010.

During the Review Period, the lowest closing price was HK$0.193 per share (recorded on 7 September 2011), the highest closing price was HK$0.455 per share (recorded on 3 November 2010 and 14 January 2011) and the average closing price per Share during the Review Period was approximately HK$0.342. As such, the Conversion Price represents (i) a discount of approximately 17.10% over the aforesaid lowest closing price; (ii) a discount of approximately 64.84% over the aforesaid highest closing price; and (iii) a discount of approximately 53.22% over the aforesaid average closing price.

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LETTER FROM NUADA

The Conversion Price represents:

• (1) a discount of approximately 20.00% over the closing price of HK$0.2 per Share as quoted on the Stock Exchange on 6 September 2011 (‘‘Last Trading Day’’);

• (2) a discount of approximately 22.56% over the average of the closing prices of HK$0.2066 per Share as quoted on the Stock Exchange for the last five consecutive trading days up to and including the Last Trading Day;

• (3) a discount of approximately 23.85% over the average of the closing prices of HK$0.2101 per Share as quoted on the Stock Exchange for the last ten consecutive trading days up to and including the Last Trading Day; and

• (4) a premium of approximately 1.27% over the closing price of HK$0.158 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

In order to further assess the fairness and reasonableness of the Conversion Price, we have also reviewed the circulars from the website of the Stock Exchange dated in the month prior to the date of the Second Supplemental Agreement by companies that are listed on the Main Board of the Stock Exchange in relation to issuance of convertible bonds. The companies are Smart Union Group (Holdings) Limited (Stock code: 2700), Tack Hsin Holdings Limited (Stock code: 611), China Timber Resources Group Limited (Stock code: 269) and China Water Industry Group Limited (Stock code: 1129). The premiums or discounts of the conversion prices of those convertible bonds to the average closing prices of the five consecutive trading days up to and including the respective last trading day are summarised in the table below:

	Approximate premiums/
	discounts to the average
	closing prices of the five
	consecutive trading days up
	to and including the
Company name	respective last trading day
Smart Union Group (Holdings) Limited	Discount: 77.63%
Tack Hsin Holdings Limited	Discount: 64.09%
China Timber Resources Group Limited	Premium: 11.1%
China Water Industry Group Limited	Premium: 3.73%

We consider that deep discount of conversion price to share price is not rare in the market especially in a volatile market situation. Taking into account the current volatile market situation, we consider fund raising has become more difficult and greater incentives or deeper discounts may be needed for subscribers. As mentioned in (1), (2) and (3) above, the Conversion Price represents discounts of around 20% to 24% to the closing prices of the Shares, which is within the range of those of the comparable conversion prices in the market as shown in the above table. Moreover, the Conversion Price represents a premium of approximately 1.27% over the closing price

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LETTER FROM NUADA

of HK$0.158 per Share as quoted on the Stock Exchange on the Latest Practicable Date. Also taking into account the benefits of the Proposed Amendment to the Company that a maximum of HK$128 million can be further obtained by the Company on or before 6 September 2012 and this zero interest borrowing can help to support the Company’s expansion, we consider the Conversion Price to be fair and reasonable.

3. Potential dilution to shareholding of the Company

For illustrative purpose and assuming that no Shares are issued and/or repurchased by the Company, the Directors have advised that the shareholding of the existing Independent Shareholders will decrease from approximately 73.98% to approximately 58.70% after the full conversion of the unconverted Convertible Bonds and the Optional Bonds.

Taking into account that (i) the funds to be raised from the Proposed Amendment is interest free; (ii) cost of borrowing from banks is significant; (iii) the Conversion Price is fair and reasonable; and (iv) the Company intends to raise funds for its future daily operations and investments in financial services-related and other businesses in Hong Kong and/or the PRC when opportunities arise, we consider that the potential dilution to the shareholding of the existing Independent Shareholders is acceptable.

RECOMMENDATION

Having considered the above principal factors, we are of the opinion that the Proposed Amendment is fair and reasonable so far as the Independent Shareholders are concerned and to be in the interests of the Company and the Shareholders as a whole. Accordingly, we advise the Independent Shareholders, and also recommend the Independent Board Committee to advise the Independent Shareholders, to vote in favour of the resolution approving the Proposed Amendment at the EGM.

Yours faithfully, For and on behalf of Nuada Limited Kevin Chan Director

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APPENDIX

GENERAL INFORMATION OF THE GROUP

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. 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 executives’ interests and short positions in shares, underlying shares and debentures

So far as is known to the Directors, as at the Latest Practicable Date, the interests and short positions of each of the Directors or chief executive of the Company 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 required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he is 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 to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the ‘‘Model Code’’) were as follows:

Long Position in Shares and underlying Shares

					Approximately
			Interest in		percentage of the
		Interest in	underlying	Total interest	Company’s issued
Name of Directors	Capacity	Shares	Shares	in Shares	share capital
WONG Kam Fat, Tony	Through controlled	800,000,000	800,000,000	1,600,000,000	52.05%
(‘‘Mr. Wong’’)	corporations			(Note 2)
(Note 1)
XIA Yingyan	Through controlled	800,000,000	800,000,000	1,600,000,000	52.05%
(‘‘Mr. Xia’’)	corporations			(Note 2)
(Note 1)

Notes:

• (1) Mr. Wong is the vice-chairman and a non-executive Director whereas Mr. Xia is an executive Director.

• (2) These Shares are directly held by Jadehero Limited and comprise (i) 800,000,000 Shares and (ii) 800,000,000 underlying Shares.

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APPENDIX

GENERAL INFORMATION OF THE GROUP

Jadehero Limited (the ‘‘Jadehero’’), a company incorporated in the British Virgin Islands with limited liability, was interested in 800,000,000 shares of the Company as at the Latest Practicable Date. It is owned as to 20% by Marvel Steed Limited and as to 80% by Southlead Limited. Mr. Wong is the sole beneficial owner of the entire equity interest in Marvel Steed Limited whereas Mr. Xia is the sole beneficial owner of the entire equity interest in Southlead Limited. Accordingly, Mr. Wong and Mr. Xia are deemed to be interested in these Shares.

The underlying shares are Shares falling to be issued upon full exercise of option entitling Jadehero to subscribe for convertible bonds of the Company in the maximum principal sum of HK$128 million with an initial conversion price of HK$0.16 per conversion share.

The 800,000,000 underlying Shares may fall to be issued upon full exercise of the Option (pursuant to the Subscription Agreement, the Supplemental Agreement and the Second Supplement Agreement) which is convertible into a maximum of 800 million Conversion Shares. The Second Supplemental Agreement is conditional upon the passing by the Independent Shareholders of an ordinary resolution to approve the entering into of the Second Supplemental Agreement and the Proposed Amendment.

Save as disclosed above, as at the Latest Practicable Date, so far as known to the Directors and the chief executive of the Company, none of the Directors and chief executive of the Company had nor was deemed to have any interests or short positions in the Shares, underlying shares and debentures of the Company and any of its associated corporations (within the meaning of Part XV of the SFO) (i) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have taken under such provisions of the SFO); or (ii) which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code.

(b) Competing interest

As at the Latest Practicable Date, none of the Directors and his/her respective associates had any interests which competes or was likely to compete, either directly or indirectly, with the Company’s business.

(c) Service contracts

As at the Latest Practicable Date, no Director had a service contract with the Company which is not determinable by the Company within one year without payment of compensation other than statutory compensation.

(d) Directors’ interest in assets

None of the Directors had any direct or indirect interest in any asset which had been, since 31 March 2011 (being the date to which the latest published audited consolidated financial statements of the Group were made up) and up to the Latest Practicable Date, acquired or disposed of by or leased to or were proposed to be acquired or disposed of by or leased to any member of the Group.

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APPENDIX

GENERAL INFORMATION OF THE GROUP

(e) Directors’ interest in contracts

There was no contract or arrangement of significance in relation to the Group’s business to which the Company or its subsidiaries was a party and in which a Director had a material interest, whether directly or indirectly, subsisting as at the Latest Practicable Date.

3. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading positions of the Group since 31 March 2011, being the date to which the latest published audited financial statements of the Group were made up.

4. EXPERT AND CONSENT

The following is the qualification of the expert who has given its opinions and advice which are included in this circular:

Name Qualification

Nuada Limited Nuada Limited, a licensed corporation authorised to conduct type 6 (advising on corporate finance) regulated activities under the SFO

As at the Latest Practicable Date, Nuada did not hold any share, directly or indirectly, in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

As at the Latest Practicable Date, Nuada did not possess any direct or indirect interest in any assets which have been acquired or disposed of by or leased to any member of the Group or are proposed to be acquired or disposed of by or leased to any member of the Group, since 31 March 2011, being the date to which the latest published audited consolidated accounts of the Group were made up.

Nuada has given and has not withdrawn its written consent to the issue of this circular, with inclusion of its letter and/or its opinion and/or the references to its name in the form and context in which it is included.

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APPENDIX

GENERAL INFORMATION OF THE GROUP

5. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the office of the Company at 35/F, Office Tower, Convention Plaza, 1 Harbour Road, Wan Chai, Hong Kong from 9 a.m. to 1 p.m. and from 2 p.m. to 5 p.m. of any Business Day from the date of this circular up to and including the date of the EGM:

• i. the Subscription Agreement;

• ii. the Supplemental Agreement;

• iii. the Second Supplemental Agreement; and

• iv. this circular.

6. MISCELLANEOUS

• (a) The company secretary of the Company is Mr. Yeung Kwok Leung who is a fellow member of the Association of Chartered Certified Accountants and an associate member of the Hong Kong Institute of Certified Public Accountants.

• (b) The English text of this circular shall prevail over the Chinese text in the event of inconsistency.

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NOTICE OF EXTRAORDINARY GENERAL MEETING

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China Fortune Financial Group Limited

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 290) Website: http://www.290.com.hk

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the ‘‘Meeting’’) of China Fortune Financial Group Limited (the ‘‘Company’’) will be held at 35/F, Office Tower, Convention Plaza, 1 Harbour Road, Wan Chai, Hong Kong on 31 October 2011 at 3: 30 p.m. for the purpose of considering and, if thought fit, passing the following resolution with or without amendments as an ordinary resolution:

ORDINARY RESOLUTION

‘‘THAT the entering into of the conditional supplemental agreement dated 6 September 2011 (the ‘‘Second Supplemental Agreement’’) between the Company and Jadehero Limited in relation to the Proposed Amendment (as defined in the circular of the Company dated 14 October 2011), a copy of which is marked ‘‘A’’ and produced to the Meeting and signed by the chairman of the Meeting for identification purpose, be and is hereby ratified, confirmed and approved, and any director of the Company be and is hereby authorised to do all such acts and things, and to execute all such documents as he/she may, in his/her absolute discretion, deem necessary, desirable or appropriate for the implementation of and giving effect to the Second Supplemental Agreement and the Proposed Amendment.’’

By Order of the Board China Fortune Financial Group Limited Ng Cheuk Fan, Keith Managing Director

Hong Kong, 14 October 2011

Principal Place of Business in Hong Kong: 35/F, Office Tower Convention Plaza 1 Harbour Road Wan Chai Hong Kong

Registered Office: P.O. Box 309 Ugland House Grand Cayman KY1-1104 Cayman Islands

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NOTICE OF EXTRAORDINARY GENERAL MEETING

Notes:

1. Any registered shareholders of the Company entitled to attend and vote at the Meeting may appoint one or more than one proxy to attend and to vote in his stead. A proxy need not be a registered shareholder of the Company.

2. Where there are joint registered holders of any share, any one of such persons may vote at the 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 be present at the Meeting personally or by proxy, that one of the said persons so present being the most or, as the case may be, the more senior shall alone be entitled to vote in respect of the relevant joint holding and, for this purpose, seniority shall be determined by reference to the order in which the names of the joint holders stand on the register in respect of the relevant joint holding.

3. In order to be valid, this form of proxy and any power of attorney or other authority (if any) under which it is signed or a notarially certified copy of such power or authority must be delivered at the Company’s branch share registrar and transfer office in Hong Kong, Union Registrars Limited, 18/F, Fook Lee Commercial Centre, Town Place, 33 Lockhart Road, Wanchai, Hong Kong, not less than 48 hours before the time appointed for the commencement of the Meeting or adjourned meeting. No instrument appointing a proxy shall be valid after the expiration of 12 months from the date named in it as the date of its execution.

4. Whether or not you are able to attend the Meeting in person, you are strongly urged to complete and return the proxy form in accordance with the instructions printed thereon. Completion and delivery of this form of proxy will not preclude you from attending in person and voting at the Meeting if you so wish and, in such event, this form of proxy shall be deemed to be revoked.

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