Chiho Tiande : 【Documents available for inspection 009】Letter from Somerley Capital

e78cef25-72f8-4384-92ee-001ab9221841.pdf SOMERLEY CAPITAL LIMITED

20/F., China Building, 29 Queen's Road Central, Hong Kong

Telephone: [phone] Fax: [phone] E-Mail: [e-mail] .hk

25 January 2016

To: the Independent Board Committee

Dear Sirs,

UNCONDITIONAL MANDATORY GENERAL CASH OFFERS BY CHINA GALAXY INTERNATIONAL SECURITIES (HONG KONG) CO., LIMITED ON BEHALF OF THE OFFEROR TO ACQUIRE ALL OF THE ISSUED SHARES, ALL OUTSTANDING CONVERTIBLE BONDS AND IN EXCHANGE FOR CASH, TO CANCEL ALL OUTSTANDING SHARE OPTIONS OF THE COMPANY (OTHER THAN THOSE ALREADY OWNED OR AGREED TO BE ACQUIRED BY THE OFFEROR AND ITS CONCERT PARTIES)

INTRODUCTION

We refer to our appointment to advise the Independ ent Board Committee in connection with the u nconditional mandatory general cash offers by China Galaxy on behalf of the Offeror to acquire all the issued Shares, all outstanding Convertible Bonds and i n exchange for cash to cancel all the outstanding Share Options of the Company (other than those already owned or agreed to be acqu ired by the Offeror and its Concert Parties). Details of the Offers are set out in the Composite Document dated 25 January 2016, of which this letter forms part. Terms used in this letter shall have the same meanings as those defined in the Composi te Document unless the context otherwise requires.

On 17 December 2015, the Offeror exercised the Option pursuant to the Deed, requ iring HWH to transfer to it all but not part of the Option Shares at the price of HK$3.50 per Share, totalling HK$1,364,255,396. The Option Shares represent approximately 24.54% of the issued share capital of the Company as at the Latest Practicable Date. In accordance with the terms of the Deed, Completion took place on 22 December 2015.

Immediately prior to the transfer of the Option Shares, the Offeror and its Concert Parties (other than HWH) collectively held a total of 509,608,000 Shares, representing approximately 32.08% of the issued share capital of the Company. Upon Completion and as at the Latest Practicable Date, the Offeror and its Concert Parties collectively held approximately 56.62% of the issued share capital of the Company. Pursuant to Rule 26 .1 of the Code, the Offeror was required to make an uncondition al mandatory general cash offer

to purchase a total of 689, 119,450 Shares, representing all the issued Shares which are not already owned or agreed to be acquired by the Offeror and its Concert Parties (assumi ng no further Shares are issued or repurchased by the Company up to close of the Offers, whether pursuant to the exercise of the Share Options or the conversion rights attaching to the Convertible Bonds or otherwise). The Share Offer Price of HK$3.50 per Share is the same as the price per Share paid by the Offeror for the Option Shares. The Offeror was also required to make the Option Offer and the Convertible Bond Offer pursuant to Rule 13 of the Code. As the Offeror and its Concert Parties are holding more than 50% of the issued share capital of the Company upon Completion , the Share Offer, the Option Offer and the Convertible Bond Offer are unconditional in all respects.

In accordance with the Code, an Independent Board Committee, which comprises all the independent non-executive Directors, namely Dr. Loke Yu, Ms. Zhang Jingdong and Mr. Zhu Dajian has been established to make recommendations to the Independent Shareholders as to whether the Share Offer is, or is not, fair and reasonable and as to acceptance of the Share Offer, and to the Convertible Bondholders and Optionholders as to its views on the Convertible Bond Offer and Option Offer, respectively. The Independent Board Committee has approved our appointment as the Independent Financial Adviser to advise it in this regard.

We are not associated with the Company, the Offeror or any party acting, or presumed to be acting, in concert with any of them and, accordingly, are considered eligible to give independent advice on the Offers. Apart from normal professional fees payable to us i n connection with this appoi ntment, no arrangement exists whereby we will receive any fees or benefits from the Company, the Offeror or any party acting, or presumed to be acting, in concert with any of them.

In formulating our advice and recommendation, we have relied on the information and facts supplied, and the opinions expressed, by the Directors and management of the Group , which we have assu med to be true, accurate and complete in all material respects. We have reviewed the published informati on on the Company, including the Interim Report, its annual report for the year ended 31 December 20 14 (the "2014 Annual Report") and its circular dated 28 April 2015 in relation to , amongst others, the subscription of new Shares and the application for whitewash waiver (the "Whitewash Circular"), and we have discussed with the Directors their statements set out in Appendix II to the Composite Document that, save as d isclosed therein, there has been no material change in the financial or trading position or outlook of the Group since the date of the last published audited accounts of the Group up to and including the Latest Practicable Date. We have also reviewed the trading performance of the Shares on the Stock Exchange. We have sought and received confirmation from the Directors that no material facts have been omitted from the inform ation supplied and opin ions expressed by them. We consider that the information we have received is sufficient for us to reach our opinion and advice as set out in this letter. We have no reason to doubt the truth and accuracy of the information provided to us or to believe that any material facts have been omitted or withheld. We have, however, not conducted any independent investigation in to the busi ness and affairs of the Group, nor have we carried out any independent verification of the information supplied. We have also assu med that all

representations contained or referred to in the Composite Docu ment are true as at the Latest Practicable Date, and that Shareholders will be notified of any material changes to such representations as soon as reasonably practicable i n accordance with Rule 9.1 of the Code.

We have not considered the tax and regulatory implications on the Independent Shareholders, Convertible Bondholders and Optionholder s of acceptance or non-acceptan ce of the Offers (as the case may be) since these depend on thei r individual circumstances. In particular, Independent Shareholders, Convertible Bondholders and Optionholders who are resident overseas or subject to overseas taxes or Hong Kong taxation on securities dealings should consider their own Lax position s and, if in any doubt, consult thei r own professional advisers .

PRINCIPAL TERMS OF THE OFFERS

Upon Completion, as the Offeror and its Concert Parties are holding more than 50% of the voting rights of the Company, the Offers will not be subject to any acceptance or other conditions. China Galaxy, for and on behalf of the Offeror, is making the Offers in accordance with Rule 26.1 and Rule 1 3 of the Code on the following basis:

The Share Offer

For each Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HK$3.50 in cash

The Share Offer Price of HK$3.50 per Share is the same as the price per Share paid by the Offeror for the transfer of the Option Shares and represents the highest price paid by the Offeror and its Concert Parties for Shares within six months prior to the date of the Holding Announcement.

The Share Offer is extended to all Shareholders other than the Offeror and its Concert Parties in accordance with the Code. The Shares to be acquired under the Share Offer shall be acquired free from all liens, charges, encumbrances, rights of pre-emption and any other third party rights of any nature and together wi th all rights attaching to them as at the date of the Composite Docu ment or subsequently becoming attached to them, includin g the right to receive in full all dividends and other distribution s, if any, declared , made or paid on or after the date of the Composite Document.

The Convertible Bond Offer

For every HK$100,000 face value of the Convertible Bonds . . . HK$58,333.33 in cash As at the Latest Practicable Date, the Company had outstanding Con vertible Bonds

with principal amount of HK$380,200,000 conferring rights to the Convertible Bondholders

to con vert into appro ximately 63,366,667 Shares. The offer price for the Convertible Bonds is HK$58,333.33 for every HK$100,000 face value of the Convertible Bonds, determined in accordance with Practice Note 6 to the Code as the "see-through" consideration for each

Convertible Bonds, being the number of Shares into which the Convertible Bonds is convertible (being approximately 63,366,667 Shares) multiplied by the Share Offer Price (HK$3.50 per Share).

The Convertible Bonds will be acquired fully paid and free from all liens, charges, options, equities, encumbran ces or other third party rights of any nature and together with all rights now or hereafter attach ing or accruing to them , including the right to all dividends and other distributions (if any) declared, made or paid after the date of the Composite Document.

The Convertible Bond Offer is un conditional in all respects and will apply to all outstanding Convertible Bonds in issue on the date on wh ich the Convertible Bond Offer is made and will not apply to any Convertible Bonds which are or have been con verted into Shares prior to the close of the Offers.

The Option Offer

For cancellation of each Share Option . . . . . . . . . . . . . . . . . . . . . . . . HK$0.0l in cash

As at the Latest Practicable Date, the Company had 2,188,000 outstanding Share Options conferring rights on the Optionholder s to subscribe for an aggregate of 2, 188,000 Shares. Under the Option Offer, since the exercise price of the outstanding Share Options (i.e. HK$4.186) is above the Share Offer Price, the outstanding Share Options are ou t of the money and the offer price for the cancellation of each Share Option is set at a nominal value

of HK$0.0l.

The Option Offer is uncondition al in all respects. Following acceptance of the Option Offer, the relevant Share Options together with all rights attaching thereto will be entirely cancelled and renou nced on the Closing Date. For any Optionholders who do not accept the Option Offer, the relevant Share Options will remain valid and exercisable until the expiry or end of the exercisable period of the Share Options in accordance with its terms and with the terms of the Share Option Scheme.

Further details of the Offers, including the expected timetable and the terms and procedu res of acceptance of the Offers, are set out i n the section s headed "Expected timetable", "Letter from China Galaxy", "Letter from the Board", Appendix I to the Composite Document and the Forms of Acceptance. Independent Shareholders, Optionholders and Convertible Bondholders are urged to read the relevant sections in the Composite Document in full.