APT Satellite Holdings Limited — Proxy Solicitation & Information Statement 2013

Mar 8, 2013

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 GOME Electrical Appliances Holding Limited , you should at once hand this circular, together with the enclosed form of proxy, to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

Hong Kong Exchange 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.

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GOME ELECTRICAL APPLIANCES HOLDING LIMITED 國美電器控股有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 493)

CONTINUING CONNECTED TRANSACTIONS

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

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A letter from the Board is set out on pages 6 to 25 of this circular and a letter from the Independent Board Committee containing its recommendations to the Independent Shareholders is set out on page 26 of this circular. A letter from Platinum, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 27 to 53 of this circular.

A notice convening the SGM of the Company to be held at Kellett Room III, 3/F, The Excelsior, Hong Kong on Tuesday, 2 April 2013 at 3:00 p.m. is set out on pages 61 to 63 of this circular. A form of proxy for use at the SGM is also enclosed. Such form of proxy is also published on the websites of Hong Kong Exchanges and Clearing Limited (www.hkexnews.hk) and the Company (www.gome.com.hk). Whether or not you are able to attend the SGM, please complete and sign the enclosed form of proxy in accordance with the instructions printed thereon and return it to the Company’s branch share registrar in Hong Kong, Tricor Abacus Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong, as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the SGM or any adjournment thereof. Completion and return of the form of proxy will not preclude shareholders from attending and voting in person at the SGM or any adjournment if they so wish.

• For identification purpose only

8 March 2013

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Letter from the Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . . . . . .	26
Letter from Platinum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	27
Appendix – General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	54
Notice of SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	61

– i –

DEFINITIONS

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

• “2012 Master Purchase Agreement”

• the agreement dated 17 December 2012 between GOME Appliance and GOME Retail in relation to the supply of electrical appliances and consumer electronics products by the Parent Group to the Group;

• “2012 Master Supply Agreement”

• the agreement dated 17 December 2012 between GOME Appliance and GOME Retail in relation to the supply of electrical appliances and consumer electronics products by the Group to the Parent Group;

• “associate”

• has the meaning ascribed to it under Chapter 14A of the Listing Rules;

• “Beijing GOME”

• 北京國美電器有限公司 (Beijing GOME Electrical Appliance Co., Ltd.*), a company incorporated with limited liability under the laws of the PRC and a member of the Parent Group;

• “Board”

• the board of Directors;

• “Company”

GOME Electrical Appliances Holding Limited, a company incorporated in Bermuda and whose shares are listed on the main board of the Stock Exchange (stock code: 493);

• “Controlling Shareholder” Mr. Wong Kwong Yu (黃光裕先生), the controlling shareholder of the Company, who as at the Latest Practicable Date was interested in approximately 32.10% of the issued share capital of the Company;

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

• “First Master Agreement” the agreement dated 25 May 2012 between GOME Appliance, Kuba and GOME-on-line;

• “GOME Appliance”

• 國美電器有限公司 (GOME Appliance Company Limited*), a wholly-owned subsidiary of the Company;

– 1 –

DEFINITIONS

• “GOME-on-line”

• 國美在線電子商務有限公司 (GOME-on-line e-Commerce Co., Ltd.) (together with its subsidiaries (if any)), formerly known as 新銳美電子商務有限公司 (Xinruimei e-Commerce Co., Ltd.), a company established in the PRC and a 60% non-wholly-owned subsidiary of the Group;

• “GOME Retail”

• 國美電器零售有限公司 (GOME Electrical Appliances Retail Co., Ltd.*), a company incorporated in the PRC and a member of the Parent Group;

• “GOME Ruidong”

• 北京國美銳動電子商務有限公司 (Beijing GOME Ruidong e-Commerce Co., Ltd.*) (together with its subsidiary (if any)), a company established under the laws of the PRC and owned by the Controlling Shareholder and his associates;

• “Group” the Company and its subsidiaries;

• “Hong Kong”

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

• “Independent Board Committee”

• an independent committee of the Board, comprising all the independent non-executive Directors, established to advise the Independent Shareholders in relation to the Master Merchandise Purchase Agreement and the Master Merchandise Supply Agreement and the relevant annual caps in relation to the continuing connected transactions thereunder;

• “Independent Financial Adviser” or “Platinum”

• Platinum Securities Company Limited, a corporation licensed to carry on Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), and the independent financial adviser appointed to advise the Independent Board Committee and the Independent Shareholders in respect of the Master Merchandise Purchaser Agreement and the Master Merchandise Supply Agreement and the relevant annual caps in relation thereto;

• “Independent Shareholders”

• Shareholders other than the Controlling Shareholder and his associates;

– 2 –

DEFINITIONS

• “Kuba”

• “Latest Practicable Date”

• “Listing Rules”

• “Master Merchandise Purchase Agreement”

• “Master Merchandise Supply Agreement”

• “Master Purchase Agreement”

• “Master Supply Agreement”

庫巴科技(北京)有限公司 (Kuba Technology (Beijing) Co., Ltd.*) (together with its subsidiaries (if any)), a company established under the laws of the PRC and a 60% non-wholly-owned subsidiary of the Group;

• 5 March 2013, being the latest practicable date prior to the printing of this circular for ascertaining certain information for inclusion in this circular;

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

• the agreement dated 5 March 2013 between GOME Appliance, Kuba, GOME-on-line, GOME Retail and GOME Ruidong in relation to the supply of merchandise (including but not limited to electrical appliances and consumer electronics products) by the Parent Group and GOME Ruidong to Kuba, GOME-on-line and the Group;

• the agreement dated 5 March 2013 between GOME Appliance, Kuba, GOME-on-line and GOME Retail in relation to the supply of merchandise (including but not limited to electrical appliances and consumer electronics products) by the Group to Kuba, GOME-on-line and the Parent Group;

• the agreement dated 17 March 2005 between GOME Appliance and Beijing GOME in relation to the supply of electrical appliances and consumer electronics products by Beijing GOME to GOME Appliance for the three financial years ended 31 December 2007;

• the agreement dated 17 March 2005 between GOME Appliance and Beijing GOME in relation to the supply of electrical appliances and consumer electronics products by GOME Appliance to Beijing GOME for the three financial years ended 31 December 2007;

– 3 –

DEFINITIONS

• “Non-Competition Undertakings”

• the non-competition undertakings dated 29 July 2004 between the Group and the Controlling Shareholder as detailed in the section headed “1. Non-competition Undertaking” in the Company’s circular dated 5 July 2004 and the deed dated 28 February 2006 by the Controlling Shareholder in favour of the Company as disclosed in the Company’s announcement dated 2 February 2006;

• “Parent Group”

• a group of companies (other than the Group) controlled or owned by the Controlling Shareholder and principally engaged in the retail sale of electrical appliances and consumer electronics products under the “GOME Electrical Appliances” trademark, and for the purpose of the Master Merchandise Purchase Agreement and the Master Merchandise Supply Agreement, a group of companies (other than the Group) controlled or more than 50% owned by the Controlling Shareholder and principally engaged in retail business;

• “percentage ratio”

• has the meaning ascribed to it under Chapter 14A of the Listing Rules;

• “PRC”

• the People’s Republic of China (for the purposes of this circular, excludes Hong Kong, the Macao Special Administrative Region and Taiwan);

• “Second Master Agreement”

• the agreement dated 25 May 2012 between GOME Ruidong, Kuba and GOME-on-line;

• “SFO”

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

• “SGM”

• the special general meeting of the Company to be convened to approve the Master Merchandise Supply Agreement and the Master Merchandise Purchase Agreement;

• “Shareholders” shareholders of the Company;

• “Stock Exchange”

The Stock Exchange of Hong Kong Limited;

– 4 –

DEFINITIONS

“Termination Agreement for the the agreement dated 5 March 2013 between GOME 2012 Master Purchase Appliance and GOME Retail in relation to the Agreement” termination of the 2012 Master Purchase Agreement; “Termination Agreement for the the agreement dated 5 March 2013 between GOME 2012 Master Supply Appliance and GOME Retail in relation to the Agreement” termination of the 2012 Master Supply Agreement; and “%” per cent.

Translations of RMB into HK$ are made in this circular for illustration purpose at the rate of RMB1.00 to HK$1.233. No representation is made that any amounts in RMB or HK$ could have been or could be converted at that rate or at any other rate or at all.

• For identification purpose only

– 5 –

LETTER FROM THE BOARD

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GOME ELECTRICAL APPLIANCES HOLDING LIMITED 國美電器控股有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 493)

Executive Directors: NG Kin Wah ZOU Xiao Chun

Non-executive Directors: ZHANG Da Zhong (Chairman) ZHU Jia WANG Li Hong CHEUNG Leong

Independent non-executive Directors: SZE Tsai Ping, Michael CHAN Yuk Sang LEE Kong Wai, Conway NG Wai Hung

Registered Office: Canon’s Court 22 Victoria Street Hamilton HM12 Bermuda

Principal Place of Business in Hong Kong: Unit 6101, 61st Floor The Center 99 Queen’s Road Central Hong Kong

8 March 2013

To: the Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

Reference is made to the announcement of the Company dated 5 March 2013 in relation to the reorganisation of certain continuing connected transactions of the Company. The purposes of this circular are:

• (a) to provide you with further information relating to the Master Merchandise Purchase Agreement and the Master Merchandise Supply Agreement and the relevant annual caps in relation to the continuing connected transactions thereunder;

* For identification purpose only

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LETTER FROM THE BOARD

• (b) to set out the recommendations of the Independent Board Committee relating to the Master Merchandise Purchase Agreement and the Master Merchandise Supply Agreement and the relevant annual caps in relation to the continuing connected transactions thereunder;

• (c) to set out the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders relating to the Master Merchandise Purchase Agreement and the Master Merchandise Supply Agreement and the relevant annual caps in relation to the continuing connected transactions thereunder; and

• (d) to give you notice of the SGM to consider and, if thought fit, to approve the Master Merchandise Purchase Agreement and the Master Merchandise Supply Agreement and the relevant annual caps in relation to the continuing connected transactions thereunder.

Background

On 17 March 2005, GOME Appliance and Beijing GOME entered into (a) the Master Purchase Agreement, pursuant to which Beijing GOME agreed, at the request of GOME Appliance from time to time, to supply electrical appliances and consumer electronics products to GOME Appliance on an at-cost basis, and (b) the Master Supply Agreement, pursuant to which GOME Appliance agreed, at the request of Beijing GOME from time to time, to supply electrical appliances and consumer electronics products to Beijing GOME on an at-cost basis, in each case for the three financial years ended 31 December 2007. The Master Purchase Agreement and the Master Supply Agreement were supplemented and the terms were renewed on 21 December 2007 and renewed again on 31 December 2010.

On 17 December 2012, GOME Appliance and GOME Retail entered into the 2012 Master Purchase Agreement, pursuant to which the Parent Group agreed to supply electrical appliances and consumer electronics products to the Group for a period of three years from 1 January 2013 to 31 December 2015. On the same date, GOME Appliance and GOME Retail entered into the 2012 Master Supply Agreement, pursuant to which the Group agreed to supply electrical appliances and consumer electronics products to the Parent Group for a period of three years from 1 January 2013 to 31 December 2015.

In May 2012, pursuant to the subscription of a 40% interest in each of Kuba and GOME-on-line by GOME Ruidong, a company owned by the Controlling Shareholder and his associates, each of Kuba and GOME-on-line became an associate of the Controlling Shareholder and a connected person of the Company. In order to regulate the continuing connected transactions in relation to Kuba and GOME-on-line arisen as a result of the said subscription, two master agreements were entered into in May 2012. Under the First Master Agreement, GOME Appliance will, or will procure its nominee (being a member of the Group) to, supply merchandise including electrical appliances and consumer electronic products as well as provide logistics and warehousing services and after-sales services to Kuba and

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LETTER FROM THE BOARD

GOME-on-line from time to time. The Second Master Agreement has similar terms, pursuant to which GOME Ruidong will or will procure its nominee (being a member of the Parent Group) to, supply merchandise including electrical appliances and consumer electronics products as well as provide logistics and warehousing services and after-sales services to Kuba and GOME-on-line from time to time. The First Master Agreement and the Second Master Agreement comprise of three limbs of (a) supply of products, (b) provision of logistics services and (c) provision of after-sales services.

Each of the First Master Agreement and the Second Master Agreement has an annual cap of RMB800,000,000 for the period from the date of the agreement up to 31 December 2012 and for each of the two years ending 31 December 2014. Such annual cap covers all the three limbs of supply of merchandise, provision of logistics services and provision of after-sales services. Notwithstanding that the First Master Agreement and the Second Master Agreement were entered into on 25 May 2012, completion of the subscription by GOME Ruidong in Kuba and GOME-on-line did not take place until August 2012. Accordingly, it was only from August 2012 that transactions between the Group and its two e-commerce platforms (i.e. Kuba and GOME-on-line) and between GOME Ruidong and the Group’s two e-commerce platforms became continuing connected transactions of the Group. Given the short transaction histories and the fact that the e-commerce platforms of the Group were only at its early start-up stage of full operation, the historical transaction amounts under each of the First Master Agreement and the Second Master Agreement do not necessarily reflect the full potential of the e-commerce business of the Group. In accordance with the management accounts of the Company, the actual transaction amounts for each of the said three limbs of transactions under the First Master Agreement and the Second Master Agreement between August 2012 and December 2012 were as follows:

		Actual Transaction
	Annual Caps	Amounts
	RMB’000	RMB’000 (Note)
First Master Agreement	800,000
-Supply of products		654,343
-Provision of logistics services		6,251
-Provision of after-sales services		1,308
Total		661,902
Second Master Agreement	800,000
-Supply of products		244,331
-Provision of logistics services		2,281
-Provision of after-sales services		278
Total		246,890

Note: Between August 2012 and December 2012.

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LETTER FROM THE BOARD

In order to better administer the continuing connected transactions in relation to the e-commerce platforms and the physical stores of the Group, the Group has decided to segregate the three limbs of transactions under the First Master Agreement and the Second Master Agreement, and entered into separate agreements for the provision of logistics services, the provision of after-sales services and the supply of general merchandise to Kuba and GOME-on-line, respectively. At the same time, to maximize the benefits and costs efficiency in the mutual supply of products between the Group and the Parent Group, the Group has decided to combine the supply chains of its e-commerce platforms and physical stores. Given the development of the e-commerce business of the Group where merchandises of all kinds including, without limitation, sport apparels, foot wears, fashion products, watches, kitchen wares, DIY tools and materials, bed linens, baby products, kids and teens products, toys, luggage and accessories, cosmetic products, domestic cleaning products, vehicle accessories as well as electrical and electronics consumer products are being sold, and in view of the narrow scope of the 2012 Master Purchase Agreement and the 2012 Master Supply Agreement which restricts the mutual supply of products to only electrical appliances and consumer electronics products, the Company considers that the 2012 Master Purchase Agreement and the 2012 Master Supply Agreement would not be able to serve the operational needs of the Group in the long run. In this connection, GOME Appliance, Kuba, GOME-on-line, GOME Retail and GOME Ruidong have entered into the Master Merchandise Purchase Agreement, and GOME Appliance, Kuba, GOME-on-line and GOME Retail have entered into the Master Merchandise Supply Agreement, to cater for the supply and purchase of general merchandise for the Group’s physical stores and e-commerce platforms.

Under the terms of the Non-Competition Undertakings between the Group and the Controlling Shareholder:

• (i) the Group is restricted from carrying on retail business of electrical appliances and consumer electronics products by whatever means (whether through conventional retail stores or non-conventional modes of business (including online sales)) in areas where the Parent Group operated the retail business of electrical appliances and consumer electronics products under the “GOME” brand name as at 3 June 2004; and

• (ii) reciprocally, the Parent Group is restricted from carrying on the retail business of electrical appliances and consumer electronics products by whatever means (whether through conventional retail stores or non-conventional modes of business (including online sales) in areas where the Group operated the retail business of electrical appliances and consumer electronics products under the “GOME” brand name as at 3 June 2004.

Pursuant to the subscription of a 40% interest in each of Kuba and GOME-on-line by GOME Ruidong in May 2012, the Controlling Shareholder has granted to Kuba and GOME-on-line and their respective associates a waiver from compliance with the restriction set out in sub-paragraph (i) above (excluding conventional mode of business). The effect is that the Group is able to operate its non-conventional modes of business via Kuba and

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LETTER FROM THE BOARD

GOME-on-line with no geographical restriction. Accordingly, pursuant to the waiver from the Controlling Shareholder, the e-commerce business of the Group under the Master Merchandise Purchase Agreement would not contravene with the terms of the Non-Competition Undertakings.

At the same time of entering into the Master Merchandise Purchase Agreement and the Master Merchandise Supply Agreement, GOME Appliance and GOME Retail have entered into the Termination Agreement for the 2012 Master Purchase Agreement and the Termination Agreement for the 2012 Master Supply Agreement to terminate the respective transactions under the 2012 Master Purchase Agreement and the 2012 Master Supply Agreement as well as the termination agreements to terminate the First Master Agreement and the Second Master Agreement, each with effect from the day immediately after the date of the SGM.

(1) Master Merchandise Purchase Agreement

Date of the Master Merchandise Purchase Agreement:

5 March 2013

Parties to the Master Merchandise Purchase Agreement:

• (a) GOME Appliance, a wholly-owned subsidiary of the Company, which is principally engaged in the retailing of electrical appliances and consumer electronics products;

• (b) Kuba, a 60% non-wholly-owned subsidiary of the Group, which is principally engaged in the operation of the on-line shopping platform of the Group at www.coo8.com. The remaining 40% equity interest in Kuba is held by GOME Ruidong, a company owned by the Controlling Shareholder and his associates. Kuba is therefore an associate of the Controlling Shareholder and a connected person of the Company for the purpose of the Listing Rules;

• (c) GOME-on-line, a 60% non-wholly-owned subsidiary of the Group, which is principally engaged in the operation of the on-line shopping platform of the Group at www.gome.com.cn. The remaining 40% equity interest in GOME-on-line is held by GOME Ruidong, a company owned by the Controlling Shareholder and his associates. GOME-on-line is therefore an associate of the Controlling Shareholder and a connected person of the Company for the purpose of the Listing Rules;

• (d) GOME Retail, a company established in the PRC, which is principally engaged in the retailing of electrical appliances and consumer electronics products. GOME Retail is indirectly owned by the Controlling Shareholder and his associates and hence a connected person of the Company for the purpose of the Listing Rules; and

• (e) GOME Ruidong, a company established in the PRC, which is principally engaged in the investment holding business. GOME Ruidong is owned by the Controlling Shareholder and his associates and hence a connected person of the Company for the purpose of the Listing Rules.

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LETTER FROM THE BOARD

Terms of the Master Merchandise Purchase Agreement

Pursuant to the terms of the Master Merchandise Purchase Agreement, GOME Ruidong and the Parent Group agreed to, at the request of the Group (including Kuba and GOME-on-line) from time to time, supply general merchandise (including but not limited to electrical appliances and consumer electronics products) to the Group (including Kuba and GOME-on-line) on an at-cost basis for a period of three years from 1 January 2013 to 31 December 2015, subject to the annual caps of the transaction amounts (excluding value added tax) under the Master Merchandise Purchase Agreement for the three years ending 31 December 2013, 2014 and 2015 not exceeding RMB5 billion (equivalent to HK$6.17 billion), RMB6.5 billion (equivalent to HK$8.01 billion) and RMB8 billion (equivalent to HK$9.86 billion), respectively.

Business Plan of the Group

China’s economy is expected to maintain steady growth in the coming years while these exist a huge growth potential for the retail industry. At the same time, the increase in per capita income has led to rapid development in the second-tier market (i.e. third-tier and fourth-tier cities in the PRC) and raised the average consumption power of individuals in the PRC. With the growth in per capita income, the huge population base and continuous technological developments and innovation, it is expected that the retail market for electrical appliances and consumer electronics products in China will exhibit a strong growth in the coming years.

The current business plan of the Company is to continue to boost sales of its physical stores in the first-tier market (i.e. first-tier and second-tier cities in the PRC) through store refinement and to expand the Group’s physical stores footprint in the PRC, with particular focus on the development of the Group’s physical stores network in the second-tier market. According to official sources in the PRC, China would double its 2010 gross domestic products and per capita income for both urban and rural residents by 2020. Coupled with the urbanization policies being or to be implemented by the PRC central government in 2013 and the fact that the penetration rate of electrical appliances and consumer electronic products in the second-tier market is still relatively low, it is expected that the Group will resume a positive revenue growth momentum in the Group’s off-line business similar to that in the years prior to Year 2012.

Given that the first-tier retail market is already well developed, the Company expects that the number of stores of the Group in the first-tier market between 2013 and 2015 will remain largely stable and growth would mainly derive from same-store growth rather than from an expanded network in the first-tier market. While the Company expects to maintain a stable presence in the first-tier market, the Company plans for significant growth in the Group’s physical stores network in the second-tier market. The Group plans to increase the number of physical stores in the second-tier market at the average rate of 21% per annum over the three years ending 31 December 2015, which is slightly higher than the average rate of increase in the number of stores of the Group in the second-tier market of 16.4% over the three years ended 31 December 2012.

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LETTER FROM THE BOARD

The increase has taken into consideration the growth in the per capita income of the population in the second-tier market where consumers are demanding more diversified and high-end products and better retail services. The plan is to gradually change the ratio of stores located in the first-tier market versus the second-tier market in the PRC from the current 63:37 to 50:50 by the end of 2015.

In addition to the continuous expansion of the Group’s physical stores footprint, the Group will continue with its effort to promote the on-line services of the Group. The products now being offered for on-line sale by the Group include all kinds of general merchandise. The Group is now placing equal emphasis on the marketing and sales of electrical appliances and consumer electronics products as well as other general merchandise products on its e-commerce platforms as one of the Group’s major business strategies in order to boost sales and hence to maximize the benefits of economy of scale. In order to provide better services, the Group has gradually consolidated its two e-commerce platform’s back-office functions, logistical services, after-sales services and procurements with that of the physical stores in late 2012 so as to enable both the physical stores and the e-commerce platforms to share and enjoy the economy of scale and to provide better and quicker services to the customers.

Annual caps of the Master Merchandise Purchase Agreement

With the business plan of the Company in mind, the proposed annual cap amounts of the Master Merchandise Purchase Agreement were determined after taking into consideration:

• (a) the historical transaction amounts

The historical transaction amounts for the supply of electrical appliances and consumer electronics products by the Parent Group to the Group are set out in the paragraph headed “Historical transaction amounts” below, and the historical transaction amounts for procurement of products under the Second Master Agreement are set out in the paragraph headed “Background” above.

• (b) the estimated growth in demand for general merchandise (including electrical appliances and consumer electronics products)

The Group has traditionally been a retailer for electrical appliances and consumer electronics products. With the development of the Group’s e-commerce platforms, the products range being offered for on-line sale by the Group now include all kinds of general merchandise. Given that most of general merchandise are more consumer or even daily necessity products (such as baby products, cosmetics products, foot wears) and the continuous enormous domestic market demands for such products supported by the huge population in the PRC, it is expected to create more turnovers and demands. Therefore, the said product mix and nature changes are expected to bring about considerable growth in demand for general merchandise from the Group’s e-commerce platforms.

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LETTER FROM THE BOARD

By the same token, the Group has now placed equal emphasis on the marketing and sales of electrical appliances and consumer electronics products as well as other general merchandise products on its e-commerce platforms as one of the Group’s major business strategies in order to boost sales and hence to maximize the benefits of economy of scale. The implementation of such business strategy is also expected to bring about considerable growth in demand for general merchandise from the Group’s e-commerce platforms.

In 2012, on-line shopping in the PRC has reached RMB1 trillion and on-line shopping in the PRC is predicted to grow rapidly in the next few years. Moreover, the experience of other e-commerce operators in the PRC is that there would be exponential growth during the first few years after the roll-out of the e-commerce platform. Therefore, the Group expects that the growth of the Group’s e-commerce business will also be rapid, which in turn will drive growth in the coming years, resulting in a rapid growth in demand for general merchandise from the Group’s e-commerce platforms.

Besides, since the completion of subscription by the GOME Ruidong in the Group’s e-commerce platforms in August 2012, the operation of the Group’s e-commerce platforms are no longer restricted to the Group’s business areas as designated under the Non-Competition Undertakings between the Group and the Parent Group and are now permitted to reach the Parent Group’s business areas as well, making it nationwide in the PRC. The current nationwide coverage and reach of the Group’s e-commerce business is expected to bring about a substantial growth in demand for general merchandise on the Group’s e-commerce platforms.

The procurement by the Group’s off-line business from the Parent Group for the three years ended 31 December 2012 as a percentage of the Group’s total procurement (the “ Off-line Business Procurement Rate ”) were approximately 0.28%, 0.13% and 1.34%, respectively, which only accounted for the Group’s procurement of electrical appliances and consumer electronics products. Based on the products to be procured will include general merchandise, the abovementioned business plan of additional physical stores network in the second-tier market and centralized procurement, it is expected that the Off-line Business Procurement Rate will be increased to 2% for the three years ending 31 December 2015.

(c) the progress of the planned store expansion of the Group during the period

As discussed above, one of the Group’s business strategies is to continue to develop life style flagship stores in the first-tier market and to expand and develop at speed the Group’s physical store network in the second-tier market in the PRC. With this strategy as well as the great potential in fast and high growth of the retail industry in the second-tier market in the PRC in mind, it is expected that the Group’s store expansion will reach an average of 21% per annum for the three years ending 31 December 2015, which follows largely the historical development trend of an

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LETTER FROM THE BOARD

average of 16.4% for the three years ended 31 December 2012. Such an increase in the number of physical stores of the Group will drive the demand for additional products and hence bring about an increase in the transaction amounts under the Master Merchandise Purchase Agreement as compared with the historical transaction amounts.

(d) the anticipated growth in the e-commerce business of the Group

As mentioned above, the Group’s e-commerce business is still in its initial stage of development but has already experienced significant year-on-year growth in revenue of over 100% for 2012. Given that most other e-commerce platforms in the PRC have recorded a year-on-year growth of more than 100% during their first few years of development, it is assumed that the revenue of the e-commerce business of the Group will also follow such trend and develop rapidly at the estimated rate of 106%, 80% and 60% for the three years ending 31 December 2015. Along with the industry trend, the Company expects its e-commerce business will grow rapidly during the initial few years after introduction, with the growth rate becoming less rapid during 2014 and 2015. Based on the expected fast and high growth in the e-commerce business of the Group, it is expected that the growth in the e-commerce business will greatly increase the transaction amounts under the Master Merchandise Purchase Agreement in all dimensions in the coming years.

The Group’s on-line business had procured products from the Parent Group under the Second Master Agreement since the completion of the subscription for a 40% interest in each of Kuba and GOME-on-line by GOME Ruidong in August 2012. Given the short procurement history, the annual procurement of the Group’s e-commerce platforms from the Parent Group as a percentage of the Group’s total procurement for the e-commerce business (the “ e-Commerce Procurement Rate ”) was only approximately 6% between August 2012 and December 2012. Based on the rapid development in the e-commerce business and that the geographical coverage of the e-commerce business is no longer limited to the Group’s territory, it is expected that the e-Commerce Procurement Rate will be increased to 40% for 2013 in order for the e-commerce business of the Group to enjoy the benefits of the bulk purchase thereby increasing its gross margin. As the Group expects that the e-commerce platforms will gradually be less dependent on the Parent Group’s support on bulk purchase and the product mix of the e-commerce business will comprise a higher proportion of general merchandise, the e-Commerce Procurement Rate is expected to decrease from 40% in 2013 to 35% and 30% for 2014 and 2015, respectively.

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LETTER FROM THE BOARD

• (e) the estimated sales proportion of the stores and e-commerce transactions to be involved in the transactions contemplated under the Master Merchandise Purchase Agreement

The Group assumes that the revenue of the physical stores of the Group will resume positive growth along the growth rate of the Group before 2012. During the two years ended 31 December 2011, the growth rate of the Group’s physical stores were approximately 19% and 14%, respectively. With the improvement in the market environment, it is assumed that the revenue of the physical stores of the Group will continue to grow at an average rate of over 10% for the three years ending 31 December 2015. Such increases are comparable to the historical growth rate of the Group’s physical stores before 2012.

It is also expected that the Group’s e-commerce business will display positive growth similar to its peers and the industry average, in each case, with the procurement matching that of the growth in revenue. Coupled with the rapid store expansion of the Group and the Parent Group in the high-potential second-tier market, it is envisaged that there will be a substantial increase in the estimated sales proportion of the stores and e-commerce transactions to be involved in the transactions contemplated under the Master Merchandise Purchase Agreement and hence in the transaction amounts thereunder. In particular, since the Group’s e-commerce platforms do not have its own logistics and storage facilities and rely on that of the Parent Group in most of the Parent Group’s business areas, they would tend to purchase products from the Parent Group for its on-line retail business operation in the Parent Group’s business areas (which is not open to other members of the Group) in order to enjoy the cost efficiency of combined bulk purchases by the Parent Group from the mutual suppliers, thus giving rise to a substantial increase in the estimated sales proportion of the e-commerce transactions to be involved in the transactions under the Master Merchandise Purchase Agreement and hence the transaction amounts thereunder.

In conclusion, the proposed annual cap amounts under the Master Merchandise Purchase Agreement would need to be significantly higher than the historical transaction amounts for the supply of electrical appliances and consumer electronic products under the 2012 Master Purchase Agreement in order to cater for the above expected substantial increase in the transaction amounts under the Master Merchandise Purchase Agreement as a result of the inclusion of the e-commerce business and general merchandise into the Master Merchandise Purchase Agreement (as compared to the 2012 Master Purchase Agreement which only covered supply of electrical appliances and consumer electronics products to the Group’s physical stores) as well as the implementation of the Group’s business strategies for rapid expansion in the second-tier market and more emphasis in the on-line sales of general merchandise, essentially based on the assumptions that the revenue of the physical stores of the Group will resume positive growth along the growth rate of the Group before 2012 and that the Group’s e-commerce business will display positive growth similar to its peers and the industry average, in each case, with the procurement matching that of the growth in revenue.

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LETTER FROM THE BOARD

Historical transaction amounts

The historical transaction amounts for electrical appliances and consumer electronics products supplied by the Parent Group to the Group for the two financial years ended 31 December 2011 and the nine months ended 30 September 2012 are as follows:

			For the nine
	For the year ended	For the year ended	months ended
	31 December 2010	31 December 2011	30 September 2012
	RMB	RMB	RMB
	(HK$)’ million	(HK$)’ million	(HK$)’ million
Annual caps for the supply	600(739.80)	800(986.40)	1,000(1,233.0)
of electrical appliances			(Note)
and consumer electronics
products by the Parent
Group to the Group
Actual transaction amounts	125.06(154.20)	67.0(82.61)	376.15(463.79)

Note: Annual cap for the entire year ended 31 December 2012.

Payments for products supplied under the Master Merchandise Purchase Agreement will be made within 30 business days from the receipt of the products.

(2) Master Merchandise Supply Agreement

Date of the Master Merchandise Supply Agreement:

5 March 2013

Parties to the Master Merchandise Supply Agreement:

• (a) GOME Appliance, a wholly-owned subsidiary of the Company, which is principally engaged in the retailing of electrical appliances and consumer electronics products;

• (b) Kuba, a 60% non wholly-owned subsidiary of the Group, which is principally engaged in the operation of the on-line shopping platform of the Group at www.coo8.com. The remaining 40% equity interest in Kuba is held by GOME Ruidong, a company owned by the Controlling Shareholder and his associates. Kuba is therefore an associate of the Controlling Shareholder and a connected person of the Company for the purpose of the Listing Rules;

• (c) GOME-on-line, a 60% non wholly-owned subsidiary of the Group, which is principally engaged in the operation of the on-line shopping platform of the Group at www.gome.com.cn. The remaining 40% equity interest in GOME-on-line is held

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LETTER FROM THE BOARD

by GOME Ruidong, a company owned by the Controlling Shareholder and his associates. GOME-on-line is therefore an associate of the Controlling Shareholder and a connected person of the Company for the purpose of the Listing Rules; and

• (d) GOME Retail, a company established in the PRC, which is principally engaged in the retailing of electrical appliances and consumer electronics products. GOME Retail is indirectly owned by the Controlling Shareholder and his associates and hence a connected person of the Company for the purpose of the Listing Rules.

Terms of the Master Merchandise Supply Agreement

Pursuant to the terms of the Master Merchandise Supply Agreement, the Group agreed to, at the request of Kuba, GOME-on-line or the Parent Group from time to time, supply general merchandise (including but not limited to electrical appliances and consumer electronics products) to Kuba, GOME-on-line and the Parent Group on an at-cost basis for a period of three years from 1 January 2013 to 31 December 2015, subject to the annual caps of the transaction amounts (excluding value added tax) under the Master Merchandise Supply Agreement for the three years ending 31 December 2013, 2014 and 2015 not exceeding RMB5 billion (equivalent to HK$6.17 billion), RMB6.5 billion (equivalent to HK$8.01 billion) and RMB8 billion (equivalent to HK$9.86 billion), respectively.

Annual caps of the Master Merchandise Supply Agreement

The proposed annual cap amounts of the Master Merchandise Supply Agreement were determined after taking into consideration:

• (a) the historical transaction amounts

The historical transaction amounts for the supply of electrical appliances and consumer electronics products by the Group to the Parent Group are set out in the paragraph headed “Historical transaction amounts” below, and the historical transaction amounts for procurement of products under the First Master Agreement are set out in the paragraph headed “Background” above.

• (b) the estimated growth in demand for general merchandise (including electrical appliances and consumer electronics products)

Each of Kuba and GOME-on-line is an associate of the Controlling Shareholder and transactions between the Group and Kuba and GOME-on-line would constitute continuing connected transactions of the Company. With the development of the Group’s e-commerce platforms, the products range being offered for on-line sale by the Group now include all kinds of general merchandise. Given that most of general merchandise are more consumer or even daily necessity products (such as baby products, cosmetics products, foot wears) and the continuous enormous domestic market demands for such products supported by the huge population in the PRC, it is expected to create more turnovers and demands. Therefore, the said product mix and nature changes are expected to bring about considerable growth in demand for general merchandise from the Group’s e-commerce platforms.

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LETTER FROM THE BOARD

By the same token, the Group has now placed equal emphasis on the marketing and sales of electrical appliances and consumer electronics products as well as other general merchandise products on its e-commerce platforms as one of the Group’s major business strategies in order to boost sales and hence to maximize the benefits of economy of scale. The implementation of such business strategy is also expected to bring about considerable growth in demand for general merchandise from the Group’s e-commerce platforms.

In 2012, on-line shopping in the PRC has reached RMB1 trillion and on-line shopping in the PRC is predicted to grow rapidly in the next few years. Moreover, the experience of other e-commerce operators in the PRC is that there would be exponential growth during the first few years after the roll-out of the e-commerce platform. Therefore, the Group expects that the growth of the Group’s e-commerce business will also be rapid, which in turn will drive growth in the coming years, resulting in a rapid growth in demand for general merchandise from the Group’s e-commerce platforms.

Besides, since the completion of subscription by the GOME Ruidong in the Group’s e-commerce platforms in August 2012, the operation of the Group’s e-commerce platforms are no longer restricted to the Group’s business areas as designated under the Non-Competition Undertakings between the Group and the Parent Group and are now permitted to reach the Parent Group’s business areas as well, making it nationwide in the PRC. The current nationwide coverage and reach of the Group’s e-commerce business is expected to bring about a substantial growth in demand for general merchandise on the Group’s e-commerce platforms.

The Group understands that it is also the Parent Group’s business strategies to continue to boost sales of its physical stores in the first-tier market and to expand its physical store network at speed in the second-tier market. According to official sources in the PRC, China would double its 2010 gross domestic products and per capita income for both urban and rural residents by 2020. Coupled with the urbanization policies being or to be implemented by the PRC central government in 2013, and that the penetration rate of electrical appliances and consumer electronic products in the second-tier market is still relatively low, it is expected that the Parent Group will resume a positive revenue growth momentum in the Parent Group’s off-line business similar to that in the years prior to Year 2012. On that basis, the implementation of these business strategies is expected to bring about considerable growth in demand for electrical appliances and consumer electronics products from its off-line business.

The procurement by the Parent Group’s off-line business from the Group for the three years ended 31 December 2012 as a percentage of the Parent Group’s total procurement were approximately 3.3%, 4.1% and 1.4%, respectively, which only accounted for the Parent Group’s procurement of electrical appliances and consumer electronics products. Based on the products to be procured will include general merchandise, the expected additional physical stores network in the second-tier market and centralized procurement, it is expected that such procurement rate will be increased to 4% for the three years ending 31 December 2015.

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LETTER FROM THE BOARD

• (c) the progress of the planned store expansion of the Parent Group during the period

The Parent Group’s strategy is to continue to expand and develop at speed its network in the second-tier market covered by the Parent Group’s territories in the PRC. With this strategy as well as the great potential in fast and high growth of the retail industry in the second-tier market in the PRC in mind, it is expected that the Parent Group’s store expansion will reach an average of 22.8% per annum for the three years ending 31 December 2015, which follows largely the historical development trend of an average of 23.5% for the three years ended 31 December 2012. Such an increase in the number of physical stores of the Parent Group will drive the demand for products and hence bring about a substantial increase in the transaction amounts under the Master Merchandise Supply Agreement as compared with the historical transaction amounts.

• (d) the anticipated growth in the e-commerce business of the Group

As mentioned above, the Group’s e-commerce business is still in its initial stage of development but has already experienced significant year-on-year growth in revenue of over 100% for 2012. Given that most other e-commerce platforms in the PRC have recorded a year-on-year growth of more than 100% during their first few years of development, it is assumed that the revenue of the e-commerce business of the Group will also follow such trend and develop rapidly at the rate of 106%, 80% and 60% for the three years ending 31 December 2015. Along with the industry trend, the Company expects its e-commerce business will grow rapidly during the initial few years after introduction, with the growth rate becoming less rapid during 2014 and 2015. Based on the expected fast and high growth in the e-commerce business of the Group, it is expected that the growth in the e-commerce business will greatly increase the transaction amounts under the Master Merchandise Supply Agreement in all dimensions in the coming years.

Each of Kuba and GOME-on-line only became an associate of the Controlling Shareholder upon completion of the subscription for a 40% interest in each of Kuba and GOME-on-line by GOME Ruidong in August 2012. Given the short connected transaction history of the Group’s e-commerce platforms, the annual procurement of the Group’s e-commerce platforms from the Group as a percentage of the e-commerce business’s total procurement was approximately 16% between August 2012 and December 2012. Based on the rapid development in the e-commerce business and that the geographical coverage of the e-commerce business is no longer limited to the Group’s territory, it is expected that such rate will be increased to 40% for 2013 in order for the e-commerce business of the Group to enjoy the benefits of the bulk purchase thereby increasing its gross margin. As the Group expects that the e-commerce platforms will gradually be less dependent on the Group’s support on bulk purchase and the product mix of the e-commerce business will comprise a higher proportion of general merchandise, the procurement rate is expected to decrease from 40% in 2013 to 35% and 30% for 2014 and 2015, respectively.

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LETTER FROM THE BOARD

• (e) the estimated sales proportion of the stores and e-commerce transactions to be involved in the transactions contemplated under the Master Merchandise Supply Agreement

During the two years ended 31 December 2011, the growth rate of the Parent Group’s physical stores were over 10% for each of the year concerned. With the improvement in the market environment, the Group assumes that the revenue of the physical stores of the Parent Group will continue to grow at an average rate of over 10% for the three years ending 31 December 2015. Such increases are comparable to the historical growth rate of the Parent Group’s physical stores before 2012.

In addition, it is expected that the Group’s e-commerce business will display positive growth similar to its peers and the industry average, in each case, with the procurement matching that of the growth in revenue. Coupled with the rapid store expansion in of both the Parent Group and the Group in the high-potential second-tier market, it is envisaged that there will be a substantial increase in the estimated sales proportion of the stores and e-commerce transactions to be involved in the transactions contemplated under the Master Merchandise Supply Agreement and hence in the transaction amounts thereunder.

In conclusion, the proposed annual cap amounts under the Master Merchandise Supply Agreement would need to be significantly higher than the historical transaction amounts for the supply of electrical appliances and consumer electronic products under the 2012 Master Supply Agreement in order to cater for the above expected substantial increase in the transaction amounts under the Master Merchandise Supply Agreement as a result of the inclusion of the e-commerce business and general merchandise into the Master Merchandise Supply Agreement (as compared to the 2012 Master Supply Agreement which only covered supply of electrical appliances and consumer electronics products to the Parent Group’s physical stores), the Parent Group’s rapid expansion in the second-tier market as well as the implementation of the Group’s business strategy for more emphasis in the on-line sales of general merchandise, essentially based on the assumptions that the revenue of the physical stores of the Parent Group will resume positive growth along the growth rate of the Parent Group before 2012 and that the Group’s e-commerce business will display positive growth similar to its peers and the industry average, in each case, with the procurement matching that of the growth in revenue.

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LETTER FROM THE BOARD

Historical transaction amounts

The historical transaction amounts for electrical appliances and consumer electronics products supplied by the Group to the Parent Group for the two financial years ended 31 December 2011 and the nine months ended 30 September 2012 are as follows:

			For the nine
	For the year ended	For the year ended	months ended
	31 December 2010	31 December 2011	30 September 2012
	RMB	RMB	RMB
	(HK$)’ million	(HK$)’ million	(HK$)’ million
Annual caps for the supply	600(739.80)	800(986.40)	1,000(1,233.0)
of electrical appliances			(Note)
and consumer electronics
products by the Group to
the Parent Group
Actual transaction amounts	595.36(734.08)	793.0(977.77)	267.0(329.21)

Note: Annual cap for the entire year ended 31 December 2012.

Payments for products supplied under the Master Merchandise Supply Agreement will be made within 30 business days from the receipt of the products.

Reasons for the transactions

Both the Group and the Parent Group are engaged in the retailing of electrical appliances and consumer electronics products in the PRC. In order to enhance the operational efficiency of the Group and the Parent Group, the Master Purchase Agreement and the Master Supply Agreement were entered into in 2005 to enable respective members of the Group and the Parent Group to make bulk purchase of products from some of their mutual suppliers. Members of one group would from time to time sell part of the purchased products to members of the other group as principals on at-cost basis. Under such an arrangement, procurement of products by the Group and the Parent Group could be better co-ordinated and transacted in a more efficient manner. In particular, continuous supply of products could be ensured and temporary shortage of goods can be avoided. Without such an arrangement, the ultimate costs of securing products for both the Group and the Parent Group may increase, in particular, in cases where certain products from local branches of suppliers may not be readily available.

Where a supplier’s delivery network cannot reach or cover any specific retail location of any member of the Group but can reach any other retail location of any other member of the Group or the Parent Group instead, any reachable member of the Group or the Parent Group would be able to source the products from the supplier at lower cost more efficiently than the unreachable member of the Group. Therefore, in such case, the unreachable member of the Group would have to or tend to source the products from other reachable members of the Group

– 21 –

LETTER FROM THE BOARD

or the Parent Group in order to secure supply of goods in a cost efficient manner. This situation is expected to become more common and frequent, driving a substantial increase in the inter-group supplies of general merchandise between the Group (including its e-commerce platforms) and the Parent Group as well as the intra-group supplies of general merchandise between the Group’s e-commerce platforms and other members of the Group when the Group’s e-commerce platforms now require supplies of a much wider product range than before with higher probabilities that suppliers of each different type of general merchandise products may not be big suppliers and may have only relatively less extensive delivery network coverage than that of the Group’s e-commerce platforms, and also when the Group and the Parent Group expand their respective physical store networks in the second or third-tier cities which currently may not be accessible to the delivery network of some suppliers.

In line with the global and national trends in the retail industry, the Group has been expanding its sales channels through actively developing its e-commerce business in recent years. The Board considers that developing e-commerce business and other non-conventional modes of business (including sales via television, catalogue and cell phone) is essential for the Group to maintain its leading position in the retail industry in the long run. To succeed in the e-commerce business, it is critical for the Group to establish a customer-friendly platform to cultivate non-conventional shopping habits and deliver convenience to customers ahead of the Group’s direct competitors and other e-commerce business. In this connection, among other business strategies, the Group commenced its e-commerce business in 2011 and has since then expanded the product range by offering for retail sale on its on-line platforms general merchandise in addition to domestic electrical appliances and consumer electronics products.

To maximize the above said benefits and costs efficiency in order to maintain its competitiveness in the retail industry, the Group combines the supply chains of its e-commerce platforms and physical stores by restructuring and extending the current mutual supply arrangements between the Group and the Parent Group with respect to electrical appliances and consumer electronics products to cover the mutual supply arrangements between the Group and the Parent Group with respect to general merchandise.

To keep up with the fast growing e-commerce market, the Group would have to develop its e-commerce business more quickly. With the speedy development of the Group’s e-commerce business overtime, it is envisaged that the current mix of general merchandise being actually sold by the Group on-line will increase sharply and will soon become an important part of the Company’s future business. At the same time, as part of the Group’s medium and long term business strategies, the Group will continue to expand its store network in the second-tier market and to boost its sales in the first-tier market. Therefore, it is envisaged that there will be an increase in demand for the mutual supply of general merchandise (including electrical appliances and consumer electronics products) between the Group and the Parent Group.

In addition, in areas which are not subject to or caught by the Non-Competition Undertakings and geographically cover the business operations of both the Parent Group and the Group, where the geographical coverage of the Group’s off-line and on-line business network has close proximities to the physical store network of the Parent Group, the Group

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LETTER FROM THE BOARD

would tend to secure continuous supply of products and to avoid temporary shortage of goods (which is very common in the course of the Company’s usual business) by purchasing products in relatively smaller quantities from the nearby stores of the Parent Group. These areas include most of the second-tier and third-tier cities in the PRC in which neither the Parent Group nor the Group had any business operation at the time of the Non-Competition Undertakings and hence are not subject to the Non-Competition Undertakings, all locations of “Yong Le” stores acquired by the Group years ago and at the same time waived by the Controlling Shareholder from the compliance of the Non-Competition Undertakings, areas in which the Parent Group has business operations other than retailing of electrical appliances and consumer electronics products which are not caught by the Non-competition Undertakings, and the Parent Group’s designated business areas under the Non-Competition Undertakings in which the Group’s e-commerce platforms have been permitted by the Controlling Shareholder to carry on its business.

With the rapid expansion of store network of the Group’s and the Parent Group’s in the second-tier market, the nationwide reach of the Group’s e-commerce business, in particular, in the Parent Group’s business areas and the increasing focus of the Group’s e-commerce business in general merchandise, it is envisaged that there would be a substantial increase in areas which are not subject to or caught by the Non-competition Undertakings and in which both the Group and the Parent Group have business operations with closer proximities to each other, giving rise to a considerable increase in the transactions under the mutual agreements for maintaining continuous supply of products and avoiding temporary shortage of goods.

Based on the above, the Company is of the view that the scope of the 2012 Master Purchase Agreement and the 2012 Master Supply Agreement is too narrow to meet the requirements of the Group’s medium and long-term business strategies, and that the Master Merchandise Purchase Agreement and the Master Merchandise Supply Agreement are entered into to cater for the development and operational needs of the Group.

Given that the products are being sold to each other on an at-cost basis and the reciprocal nature of the arrangement are solely for the purpose of enhancing the operational efficiency of the Group and the Parent Group, the Directors (including the independent non-executive Directors) consider that the transactions under each of the Master Merchandise Purchase Agreement and the Master Merchandise Supply Agreement were negotiated on an arm’s length basis, on normal commercial terms and that the respective terms and conditions of the Master Merchandise Purchase Agreement and the Master Merchandise Supply Agreement, including the annual caps, are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

LISTING RULES IMPLICATIONS

The applicable percentage ratios (other than profits ratio) in respect of the transactions under each of the Master Merchandise Purchase Agreement and the Master Merchandise Supply Agreement are respectively expected to be more than 5% on an annual basis, the transactions contemplated thereunder will be subject to the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

– 23 –

LETTER FROM THE BOARD

The Independent Board Committee has been established to advise the Independent Shareholders in relation to the Master Merchandise Purchase Agreement and the Master Merchandise Supply Agreement and the relevant annual caps in relation to the continuing connected transactions thereunder. The Independent Financial Adviser has been appointed to advise the Independent Board Committee and the Independent Shareholders in relation to the Master Merchandise Purchase Agreement and the Master Merchandise Supply Agreement and the relevant annual caps in relation to the continuing connected transactions thereunder.

Mr. Ng Kin Wah, who is a director of Shinning Crown Holdings Inc. (“ Shinning Crown ”), a company wholly-owned by the Controlling Shareholder, and Mr. Zou Xiao Chun, who is nominated by Shinning Crown as a Director, are considered to be interested in the transactions contemplated in this circular and have abstained from voting at the Board meeting in respect of the resolutions proposed to approve the Master Merchandise Purchase Agreement and the Master Merchandise Supply Agreement and the relevant annual caps in relation to the continuing connected transactions thereunder.

SGM AND PROXY ARRANGEMENT

The notice of the SGM is set out on pages 61 to 63 of this circular.

Pursuant to the Listing Rules, any vote of shareholders at a general meeting must be taken by poll. An announcement on the poll vote results will be published by the Company after the SGM in the manner prescribed under Rule 13.39(5) of the Listing Rules.

The Controlling Shareholder is considered to be interested in the transactions contemplated under the Master Merchandise Purchase Agreement and the Master Merchandise Supply Agreement. Accordingly, the Controlling Shareholder and his associates will abstain from voting for the resolutions proposed at the SGM to approve the Master Merchandise Purchase Agreement and the Master Merchandise Supply Agreement.

A form of proxy for use at the SGM is enclosed with this circular and such form of proxy is also published on the websites of the Stock Exchange (www.hkexnews.hk) and the Company (www.gome.com.hk). Whether or not you are able to attend the SGM, please complete and sign the enclosed form of proxy in accordance with the instructions printed thereon and deposited, together with the power of attorney or other authority (if any) under which it is signed or a notarially certified copy of that power of attorney or authority at the Company’s branch share registrar in Hong Kong, Tricor Abacus Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong, as soon as possible but in any event not less than 48 hours before the time appointed for holding the SGM or any adjournment thereof. Completion and delivery of the form of proxy will not preclude you from attending and voting at the SGM if you so wish.

– 24 –

LETTER FROM THE BOARD

CLOSURE OF THE SHAREHOLDERS’ REGISTER

For the purpose of determining the list of shareholders who are entitled to attend and vote at the Special General Meeting, the shareholders’ register of the Company will be closed on Tuesday, 2 April 2013. No transfer of shares of the Company will be registered during that day. In order to qualify to attend and vote at the Special General Meeting, all instruments of transfer together with the relevant share certificate(s) must be lodged with the Company’s branch share registrar in Hong Kong, Tricor Abacus Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong for registration no later than 4:30 p.m. on Thursday, 28 March 2013.

GENERAL INFORMATION

Your attention is drawn to the appendix headed “General Information” to this circular.

RECOMMENDATIONS

Your attention is drawn to (i) the letter from the Independent Board Committee set out on page 26 of this circular, which contains the recommendations of the Independent Board Committee to the Independent Shareholders regarding the proposed resolutions to approve the Master Merchandise Purchase Agreement and the Master Merchandise Supply Agreement, and (ii) the letter from Platinum set out on pages 27 to 53 of this circular, which contains its advice to the Independent Board Committee and the Independent Shareholders in respect of the fairness and reasonableness of the terms of the Master Merchandise Purchase Agreement and the Master Merchandise Supply Agreement.

The Independent Board Committee, having taken into account the advice of Platinum, the Independent Financial Adviser, considers that the terms of the Master Merchandise Purchase Agreement and the Master Merchandise Supply Agreement and the relevant annual caps in relation to the continuing connected transactions 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, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the SGM in respect of the approval of the Master Merchandise Purchase Agreement and the Master Merchandise Supply Agreement.

Yours faithfully,

By order of the Board of

GOME ELECTRICAL APPLIANCES HOLDING LIMITED

Zhang Da Zhong

Chairman

– 25 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the text of the letter of recommendations, prepared for the purpose of incorporation in the circular, from the Independent Board Committee to the Independent Shareholders regarding the Master Merchandise Supply Agreement and the Master Merchandise Purchase Agreement.

==> picture [140 x 58] intentionally omitted <==

GOME ELECTRICAL APPLIANCES HOLDING LIMITED 國美電器控股有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 493)

8 March 2013

To the Independent Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

We refer to the circular of the Company to the Shareholders dated 8 March 2013 (the “ Circular ”), in which this letter forms part. Unless the context requires otherwise, capitalized terms used in this letter will have the same meanings as defined in the Circular unless the context otherwise requires.

We have been appointed by the Board as the Independent Board Committee to advise the Independent Shareholders on whether the terms of the Master Merchandise Purchase Agreement and the Master Merchandise Supply Agreement and the relevant annual caps in relation to the continuing connected transactions are fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Group and the Shareholders as a whole.

We wish to draw your attention to the letter of advice from Platinum as set out on pages 27 to 53 of the Circular and the letter from the Board as set out on pages 6 to 25 of the Circular.

Having considered the terms of the Master Merchandise Purchase Agreement and the Master Merchandise Supply Agreement, the situation of the Company, the factors and reasons considered by Platinum and its opinion as stated in its letter of advice, we consider that the terms of the Master Merchandise Purchase Agreement and the Master Merchandise Supply Agreement and the relevant annual caps in relation to the continuing connected transactions thereunder are fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Group and the Shareholders as a whole, and accordingly recommend the Independent Shareholders to vote in favour of the ordinary resolutions proposed to approve the Master Merchandise Purchase Agreement and the Master Merchandise Supply Agreement.

Yours faithfully, For and on behalf of the

Independent Board Committee

Mr. Sze Tsai Ping, Michael Independent Non-executive Director

Mr. Chan Yuk Sang Independent Non-executive Director

Mr. Lee Kong Wai, Conway Independent Non-executive Director

Mr. Ng Wai Hung Independent Non-executive Director

• For identification purpose only

– 26 –

LETTER FROM PLATINUM

The following is the text of the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders for the purpose of incorporation into this circular.

==> picture [68 x 66] intentionally omitted <==

8 March 2013

To the Independent Board Committee and the Independent Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our engagement as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the terms of the Master Merchandise Purchase Agreement and the Master Merchandise Supply Agreement (together, the “ Master Merchandise Agreements ”), and the annual caps in relation to the continuing connected transactions contemplated under the Master Merchandise Agreements (the “ Transactions ”). Details of the Transactions are contained in the letter from the Board as set out in the circular of the Company dated 8 March 2013 (the “ Circular ”). Terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

In our capacity as the Independent Financial Adviser, our role is to advise the Independent Board Committee and the Independent Shareholders as to whether the terms of the Master Merchandise Agreements and the relevant annual caps in relation to the Transactions are entered into in the ordinary and usual course of business of the Company, on normal commercial terms, fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Group and the Shareholders as a whole; and to give independent advice to the Independent Board Committee.

In formulating our opinion, we have relied on the information and facts supplied to us by the Directors and/or management of the Company. We have reviewed, among other things: (i) the Master Merchandise Agreements; (ii) the announcement of the Company dated 5 March 2013 in relation to the reorganization of certain continuing connected transactions; (iii) the announcement of the Company dated 17 December 2012 in relation to the renewal of the

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mutual supply and purchase of electrical appliances and consumer electronics products between the Group and the Parent Group; (iv) the announcement of the Company dated 25 May 2012 in relation to, among others, certain continuing connected transactions of the Group involving GOME Appliance, GOME Ruidong, Kuba and GOME-on-line; (v) the 2012 Master Purchase Agreement and the 2012 Master Supply Agreement (together, the “ 2012 Master Agreements ”); (vi) the First Master Agreement; (vii) the Second Master Agreement; (viii) the Termination Agreement for the 2012 Master Purchase Agreement, the Termination Agreement for the 2012 Master Supply Agreement, and the respective termination agreements to terminate the First Master Agreement and the Second Master Agreement (together, the “ Termination Agreements ”); (ix) the announcement of the Company dated 17 March 2005; (x) the circular of the Company dated 30 March 2005; (xi) the Master Purchase Agreement; (xii) the Master Supply Agreement; (xiii) the Master Purchase Agreement as supplemented and renewed on 31 December 2010 (the “ Renewed Master Purchase Agreement ”); (xiv) the Master Supply Agreement as supplemented and renewed on 31 December 2010 (the “ Renewed Master Supply Agreement ”); (xv) the audited 2011 annual report of the Company; (xvi) the unaudited 2012 interim report of the Company; (xvii) the Company’s circular dated 5 July 2004; and (xviii) the Company’s announcement dated 2 February 2006.

We have assumed that all information, facts, opinions and representations contained in the Circular are true, complete and accurate in all material respects and we have relied on the same. The Directors have confirmed that they take full responsibility for the contents of the Circular and have made all reasonable inquiries that no material facts have been omitted from the information supplied to us.

We have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy or completeness of the information of all facts as set out in the Circular and of the information and representations provided to us by the Directors and/or management of the Company. Furthermore, we have no reason to suspect the reasonableness of the opinions and representations expressed by the Directors and/or management of the Company which have been provided to us. In line with normal practice, we have not, however, conducted a verification process of the information supplied to us, nor have we conducted any independent in-depth investigation into the business and affairs of the Company. We consider that we have reviewed sufficient information to enable us to reach an informed view and to provide a reasonable basis for our opinion regarding the Transactions.

We are independent from, and are not associated with the Company or any other party to the Transactions, or their respective substantial shareholder(s) or connected person(s), as defined under the Listing Rules and accordingly, are considered eligible to give independent advice on the Transactions. We will receive a fee from the Company for our role as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in relation to the Transactions. Apart from this normal professional fee payable to us in connection with this appointment, no arrangements exist whereby we will receive any fees or benefits from the Company or any other party to the Transactions or their respective substantial shareholder(s) or connected person(s), as defined under the Listing Rules.

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The Independent Board Committee, comprising Mr. Sze Tsai Ping, Michael, Mr. Chan Yuk Sang, Mr. Lee Kong Wai, Conway and Mr. Ng Wai Hung, has been established to advise the Independent Shareholders as to whether the terms of the Master Merchandise Agreements and the relevant annual caps in relation to the Transactions are fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Group and the Shareholders as a whole.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating and giving our independent financial advice to the Independent Board Committee and the Independent Shareholders, we have taken into account the following principal factors:

1. Background of the Transactions

On 17 March 2005, GOME Appliance (being a wholly-owned subsidiary of the Company) and Beijing GOME (being a member of the Parent Group) entered into (a) the Master Purchase Agreement, pursuant to which Beijing GOME agreed, at the request of GOME Appliance from time to time, to supply electrical appliances and consumer electronics products to GOME Appliance on an at-cost basis, and (b) the Master Supply Agreement, pursuant to which GOME Appliance agreed, at the request of Beijing GOME from time to time, to supply electrical appliances and consumer electronics products to Beijing GOME on an at-cost basis, in each case for the three financial years ended 31 December 2007. The Master Purchase Agreement and the Master Supply Agreement were supplemented and the terms were renewed on 21 December 2007 and renewed again on 31 December 2010.

On 17 December 2012, GOME Appliance and GOME Retail (being a member of the Parent Group) entered into the 2012 Master Purchase Agreement, pursuant to which the Parent Group agreed to supply electrical appliances and consumer electronics products to the Group for a period of three years from 1 January 2013 to 31 December 2015. On the same date, GOME Appliance and GOME Retail entered into the 2012 Master Supply Agreement, pursuant to which the Group agreed to supply electrical appliances and consumer electronics products to the Parent Group for a period of three years from 1 January 2013 to 31 December 2015.

In May 2012, pursuant to the subscription of a 40% interest in each of Kuba and GOME-on-line by GOME Ruidong, a company owned by the Controlling Shareholder and his associates, each of Kuba and GOME-on-line became an associate of the Controlling Shareholder and a connected person of the Company. Both Kuba and GOME-on-line are companies established under the laws of the PRC, principally engaged in the operations of the on-line shopping platforms at www.coo8.com and www.gome.com.cn respectively. In order to regulate the continuing connected transactions in relation to Kuba and GOME-on-line arisen as a result of the said subscription, two master agreements were entered into in May 2012. Under the First Master Agreement, GOME Appliance will, or will procure its nominee (being a member of the Group) to, supply merchandise including electrical appliances and consumer electronics products as well as provide logistics and warehousing services and after-sales

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services to Kuba and GOME-on-line from time to time. The Second Master Agreement has similar terms, pursuant to which GOME Ruidong will, or will procure its nominee (being a member of the Parent Group) to, supply merchandise including electrical appliances and consumer electronics products as well as provide logistics and warehousing services and after-sales services to Kuba and GOME-on-line from time to time. The First Master Agreement and the Second Master Agreement comprise of three limbs of (a) supply of products, (b) provision of logistics services and (c) provision of after-sales services.

In order to better administer the continuing connected transactions in relation to the e-commerce platforms and the physical stores of the Group, the Group has decided to segregate the three limbs of transactions under the First Master Agreement and the Second Master Agreement, and entered into separate agreements for the provision of logistics services, the provision of after-sales services, and the supply of general merchandise to Kuba and GOME-on-line, respectively. At the same time, to maximize the benefits and cost efficiency in the mutual supply of products between the Group and the Parent Group, the Group has decided to combine the supply chains of its e-commerce platforms and physical stores. Given the development of the e-commerce business of the Group where merchandises of all kinds including, without limitation, sport apparels, foot wears, fashion products, watches, kitchen wares, DIY tools and materials, bed linens, baby products, kids and teens products, toys, luggage and accessories, cosmetic products, domestic cleaning products, vehicle accessories as well as electrical and electronics consumer products are being sold, and in view of the narrow scope of the 2012 Master Agreements which restricts the mutual supply of products to only electrical appliances and consumer electronics products, the Company considers that the 2012 Master Agreements would not be able to serve the operational needs of the Group in the long run. In this connection, GOME Appliance, Kuba, GOME-on-line, GOME Retail and GOME Ruidong have entered into the Master Merchandise Purchase Agreement, and GOME Appliance, Kuba, GOME-on-line and GOME Retail have entered into the Master Merchandise Supply Agreement, to cater for the supply and purchase of general merchandise for the Group’s physical stores and e-commerce platforms.

At the same time of entering into the Master Merchandise Agreements, GOME Appliance, GOME Retail, Kuba, GOME-on-line and GOME Ruidong have entered into the Termination Agreements to terminate the respective transactions under the 2012 Master Agreements, the First Master Agreement and the Second Master Agreement, each with effect from the day immediately after the date of the SGM.

2. Reasons for and benefits of the Transactions

• A. The entering into of the Termination Agreements to terminate the 2012 Master Agreements, the First Master Agreement and the Second Master Agreement

a. The Group’s increasing focus on the e-commerce business

During the past few years, the scale of on-line business in China has been developing rapidly and it is expected to keep a fast growing pace in the future. Comparing with the developed countries, there is a huge room for development in the e-commerce market in China both in terms of scale and penetration rate. In line with this trend in the retail industry, the Group has been expanding its sales channels through actively developing its e-commerce business in recent years.

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As we understand from the management of the Company and as stated in the letter from the Board in the Circular, the Group commenced its e-commerce business in 2011. The Board considers that developing e-commerce business and other non-conventional modes of business (including sales via television, catalogue and cell phone) is essential for the Group to maintain its leading position in the retail industry in the long run and expects the e-commerce business to grow to account for a significant portion of the Group’s total revenue by the end of FY2015.

b. Restriction of the 2012 Master Agreements

As stated in the letter from the Board in the Circular, the e-commerce business of the Group includes merchandises of all kinds, including, without limitation, sport apparels, foot wears, fashion products, watches, kitchen wares, DIY tools and materials, bed linens, baby products, kids and teens products, toys, luggage and accessories, cosmetic products, domestic cleaning products, vehicle accessories as well as electrical and electronics consumer products. With the speedy development of the Group’s e-commerce business over time, it is envisaged that the current mix of general merchandise being sold by the Group on-line will continue to increase sharply.

Given that the 2012 Master Agreements restrict the mutual supply of the products to only electrical appliances and consumer electronics products between the Group and the Parent Group, we agree with the Directors that the scope of the 2012 Master Agreements is too narrow to meet the requirements of the Group’s medium and long-term business strategies.

c. Integration of the supply chains of on-line and off-line platforms

We understand from the management of the Company that the Group wants to combine the supply chain of its e-commerce platforms and physical stores by restructuring and extending the current mutual supply arrangements between the Group and the Parent Group with respect to electrical appliances and consumer electronics products to cover the mutual supply arrangements between the Group and the Parent Group with respect to general merchandise.

Given that the First Master Agreement and the Second Master Agreement cover the supply of products from the Group and the Parent Group to the Group’s e-commerce platforms (as operated by Kuba and GOME-on-line) and that the Group has included such supply of products as contemplated under the First Master Agreement and the Second Master Agreement into the new extended mutual supply arrangements, i.e. the Master Merchandise Agreements, we agree that it is reasonable to terminate the First Master Agreement and the Second Master Agreement upon entering into the new Master Merchandise Agreements.

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Given that:

• (i) the Group will continue to increase its focus on e-commerce business;

• (ii) the scope of the 2012 Master Agreements is too narrow to meet the requirements of the Group’s medium and long-term business strategies; and

• (iii) the Group has included the supply of products to Kuba and GOME-online from the Group and the Parent Group as contemplated under the First Master Agreement and the Second Master Agreement into the Master Merchandise Agreements,

we are of the view that the entering into of the Termination Agreements to terminate the respective transactions under the 2012 Master Agreements, the First Master Agreement and the Second Master Agreement, is in the interests of the Group and the Shareholders as a whole.

B. The entering into of the Master Merchandise Agreements

a. Mutual supply of products with respect to general merchandise

We understand from the management of the Company that the Group is principally engaged in the retailing of electrical appliances and consumer electronics products in the PRC. The Group commenced its e-commerce business in 2011 and has since then expanded the product range by offering for retail sale on its on-line platforms general merchandise in addition to domestic electrical appliances and consumer electronics products.

Given that the Master Merchandise Agreements integrate the Group’s e-commerce platforms and physical stores and cover the supply and purchase between the Group and the Parent Group with respect to such general merchandise, we are of the view that the transactions as contemplated under the Master Merchandise Agreements are in the usual and ordinary course of business of the Group.

b. Enhancement of operational efficiency of the Group and the Parent Group

As stated in the letter from the Board in the Circular, the Master Purchase Agreement and the Master Supply Agreement were entered into in 2005 to enhance the operational efficiency of the Group and the Parent Group. Under such mutual supply arrangements, respective members of the Group and the Parent Group could make bulk purchase of products from some of their mutual suppliers. Members of one group could from time to time sell part of the purchased products to members of the other group as principals on at-cost basis. Pursuant to the terms of the respective purchase and supply agreements, the mutual supply of products between the Group and the Parent Group is conducted on an at-cost basis at the request of each other, thus there will be no financial disadvantage to the Group and the Parent Group.

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In addition, as we understand from the management of the Company, the suppliers of the Group and the Parent Group may not all have delivery network with specific geographical coverage which can efficiently match or correspond to the specific retail locations of the Group and the Parent Group. Under the Master Merchandise Agreements, members of the Group or the Parent Group with their retail locations reached by the suppliers would have to supply the products to the other unreachable members of the Parent Group or the Group at their requests. Without such arrangements, the unreachable members of the Group or the Parent Group would have to source products from other independent parties and are not guaranteed that the products could be readily available and supplied on an at-cost basis. In this connection, we concur with the management of the Company that the arrangements under the Master Merchandise Agreements allow the procurement of products by the Group and the Parent Group to be better coordinated and transacted in a more efficient manner. In particular, continuous supply of products could be ensured and temporary shortage of goods could be avoided. Such arrangements also avoid any potential increase in the ultimate costs of securing products for both the Group and the Parent Group, in particular, in cases where certain products from local branches of suppliers may not be readily available.

We understand from the management of the Company that, as part of the Group’s medium and long term business strategies, the Group will continue to expand its store network in the second-tier market and to boost its sales in the first-tier market. Therefore, it is envisaged that there will be an increase in demand for the mutual supply of general merchandise between the Group and the Parent Group. In this connection, we are of the view that the mutual supply arrangements between the Group and the Parent Group are reasonable.

c. Integration of e-commerce business and off-line business

As discussed above and as stated in the letter from the Board in the Circular, the Board considers that developing e-commerce business and other nonconventional modes of business (including sales via television, catalogue and cell phone) is essential for the Group to maintain its leading position in the retail industry in the long-run.

The Group commenced its e-commerce business in 2011. Being a capitalintensive business, however, the new e-commerce business is expected to affect the Group’s overall profitability at its early stage of development. As such, it is the Group’s intention to continually integrate its e-commerce business and off-line business by sharing their procurement, logistics, after-sales and information to increase its gross profit, reduce costs and improve its profitability.

In this regard, we agree with the Directors that the combination of the supply chains of the Group’s e-commerce platforms and physical stores by restructuring and extending the current mutual supply arrangements between the Group and the Parent Group with respect to electrical appliances and consumer electronics

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products to cover the mutual supply arrangements between the Group and the Parent Group with respect to general merchandise is in line with the Group’s intention to integrate its e-commerce business and off-line business and maximise the above said benefits and cost efficiency in order to maintain its competitiveness in the retail industry.

d. Waiver from compliance with the Non-Competition Undertakings

We understand from the management of the Company that the Group and the Controlling Shareholder had entered into a non-competition deed in July 2004, under the terms of which the Group is restricted from carrying on retail business of electrical appliances and consumer electronics products by whatever means (whether through conventional retail stores or non-conventional modes of business (including online sales)) in areas where the Parent Group (a group of companies (other than the Group) as controlled or owned by the Controlling Shareholder) operated the retail business of electrical appliances and consumer electronics products under the “GOME” brand as at 3 June 2004; and reciprocally for the Parent Group.

The Controlling Shareholder had further undertaken in February 2006 that he would procure the Parent Group to strictly comply with such non-competition deed.

However, as stated in the letter from the Board in the Circular, pursuant to the subscription of a 40% interest in each of Kuba and GOME-on-line by GOME Ruidong in May 2012, the Controlling Shareholder has granted to Kuba and GOME-on-line and their respective associates a waiver from compliance with certain restrictions as set out in the Non-Competition Undertakings such that the Group is able to operate its non-conventional modes of business via Kuba and GOME-on-line with no geographical restriction. Given such waiver, the operation of the Group’s e-commerce platforms is no longer restricted to the Group’s business areas and is now permitted to reach the Parent Group’s business areas as well. In this connection, in the areas where the Group’s e-commerce business network has close proximity to the physical store network of the Parent Group, the Group’s e-commerce business would tend to source products from the nearby stores of the Parent Group.

In addition, we understand from the management of the Company that there are certain other business areas which are not subject to or caught by the NonCompetition Undertakings and geographically cover the business operations of both the Parent Group and the Group. The off-line stores of the Group and the Parent Group in these areas with close proximities to each other are able to make bulk purchase of products from some of their mutual suppliers as enabled under the Master Merchandise Agreements for the abovementioned benefits of operational efficiency enhancement. As such, we are of the view that such waiver from the Non-Competition Undertakings benefits the Company and is in the interests of the Group and the Shareholders as a whole.

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Given that:

• (i) the transactions complemented under the Master Merchandise Agreements are in the usual and ordinary course of business of the Group;

• (ii) the mutual supply arrangements between the Group and the Parent Group could bring potential benefits to the Group from an improvement of operational efficiency;

• (iii) the combination of the supply chains of the Group’s e-commerce platforms and physical stores by restructuring and extending the current mutual supply arrangements is in line with the Group’s intention to integrate its e-commerce business and off-line business and maximise the above said benefits and cost efficiency to maintain its competitiveness in the retail industry; and

• (iv) the Group’s e-commerce business and certain of the off-line business networks of both the Group and the Parent Group are not subject to the Non-Competition Undertakings,

we are of the view that the entering into of the Master Merchandise Agreements is in the usual and ordinary course of business of the Group and in the interests of the Group and the Shareholders as a whole.

3. Principal terms of the Master Merchandise Agreements

A. Master Merchandise Purchase Agreement

Date of the Master Merchandise Purchase Agreement:

5 March 2013

Parties to the Master Merchandise Purchase Agreement:

• (a) GOME Appliance, a wholly-owned subsidiary of the Company, which is principally engaged in the retailing of electrical appliances and consumer electronics products;

• (b) Kuba, a 60% non-wholly owned subsidiary of the Group, which is principally engaged in the operation of the on-line shopping platform of the Group at www.coo8.com. The remaining 40% equity interest in Kuba is held by GOME Ruidong, a company owned by the Controlling Shareholder and his associates. Kuba is therefore an associate of the Controlling Shareholder and a connected person of the Company for the purpose of the Listing Rules;

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• (c) GOME-on-line, a 60% non-wholly owned subsidiary of the Group, which is principally engaged in the operation of the on-line shopping platform of the Group at www.gome.com.cn. The remaining 40% equity interest in GOMEon-line is held by GOME Ruidong, a company owned by the Controlling Shareholder and his associates. GOME-on-line is therefore an associate of the Controlling Shareholder and a connected person of the Company for the purpose of the Listing Rules;

• (d) GOME Retail, a company established in the PRC, which is principally engaged in the retailing of electrical appliances and consumer electronics products. GOME Retail is indirectly owned by the Controlling Shareholder and his associates and hence a connected person of the Company for the purpose of the Listing Rules; and

• (e) GOME Ruidong, a company established in the PRC, which is principally engaged in the investment holding business. GOME Ruidong is owned by the Controlling Shareholder and his associates and hence a connected person of the Company for the purpose of the Listing Rules.

Terms of the Master Merchandise Purchase Agreement and annual caps

Pursuant to the terms of the Master Merchandise Purchase Agreement, GOME Ruidong and the Parent Group agreed to, at the request of the Group (including Kuba and GOME-on-line) from time to time, supply general merchandise (including but not limited to electrical appliances and consumer electronics products) to the Group (including Kuba and GOME-on-line) on an at-cost basis for a period of three years from 1 January 2013 to 31 December 2015, subject to the annual caps of the transaction amounts (excluding value added tax) under the Master Merchandise Purchase Agreement for the three years ending 31 December 2013, 2014 and 2015 (“FY2013”, “FY2014”, “FY2015”, respectively) not exceeding RMB5 billion (equivalent to HK$6.17 billion), RMB6.5 billion (equivalent to HK$8.01 billion) and RMB8 billion (equivalent to HK$9.86 billion), respectively.

Payments for products supplied under the Master Merchandise Purchase Agreement will be made within 30 business days from the receipt of the products.

We note that the payment term for the Group under the Master Merchandise Purchase Agreement and the payment term for the Parent Group under the Master Merchandise Supply Agreement are the same.

In addition, based on our discussion with the management of the Company and we have also reviewed samples of the Company’s credit terms granted by other independent suppliers, we note that the payment term of 30 business days is within the normal range of payment terms offered by the other independent suppliers to the Group.

As such, we are of the view that the payment term under the Master Merchandise Purchase Agreement of 30 business days is fair and reasonable.

In addition, as discussed above, the products will be supplied to GOME Appliance on an at-cost basis under the Master Merchandise Purchase Agreement. Therefore, there will be no financial disadvantage to the Group, in terms of the purchasing cost of the products for entering into the Master Merchandise Purchase Agreement.

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B. Master Merchandise Supply Agreement

Date of the Master Merchandise Supply Agreement:

5 March 2013

Parties to the Master Merchandise Supply Agreement:

• (a) GOME Appliance, a wholly-owned subsidiary of the Company, which is principally engaged in the retailing of electrical appliances and consumer electronics products;

• (b) Kuba, a 60% non wholly-owned subsidiary of the Group, which is principally engaged in the operation of the on-line shopping platform of the Group at www.coo8.com. The remaining 40% equity interest in Kuba is held by GOME Ruidong, a company owned by the Controlling Shareholder and his associates. Kuba is therefore an associate of the Controlling Shareholder and a connected person of the Company for the purpose of the Listing Rules;

• (c) GOME-on-line, a 60% non wholly-owned subsidiary of the Group, which is principally engaged in the operation of the on-line shopping platform of the Group at www.gome.com.cn. The remaining 40% equity interest in GOMEon-line is held by GOME Ruidong, a company owned by the Controlling Shareholder and his associates. GOME-on-line is therefore an associate of the Controlling Shareholder and a connected person of the Company for the purpose of the Listing Rules; and

• (d) GOME Retail, a company established in the PRC, which is principally engaged in the retailing of electrical appliances and consumer electronics products. GOME Retail is indirectly owned by the Controlling Shareholder and his associates and hence a connected person of the Company for the purpose of the Listing Rules.

Terms of the Master Merchandise Supply Agreement and annual caps

Pursuant to the terms of the Master Merchandise Supply Agreement, the Group agreed to, at the request of Kuba, GOME-on-line or the Parent Group from time to time, supply general merchandise (including but not limited to electrical appliances and consumer electronics products) to Kuba, GOME-on-line and the Parent Group on an at-cost basis for a period of three years from 1 January 2013 to 31 December 2015, subject to the annual caps of the transaction amounts (excluding value added tax) under the Master Merchandise Supply Agreement for FY2013, FY2014 and FY2015 not exceeding RMB5 billion (equivalent to HK$6.17 billion), RMB6.5 billion (equivalent to HK$8.01 billion) and RMB8 billion (equivalent to HK$9.86 billion), respectively.

Payments for products supplied under the Master Merchandise Supply Agreement will be made within 30 business days from the receipt of the products.

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As mentioned above, the payment term for the Parent Group under the Master Merchandise Supply Agreement and the payment term for the Group under the Master Merchandise Purchase Agreement are the same. As such, we are of the view that the payment term under the Master Merchandise Supply Agreement of 30 business days is fair and reasonable.

Moreover, as discussed above, GOME Appliance will sell the products on an at-cost basis under the Master Merchandise Supply Agreement. Therefore, there will be no financial disadvantage to the Group, in terms of the selling price of the products for entering into the Master Merchandise Supply Agreement.

In light of the above, in particular:

• (i) the payment term under the Master Merchandise Purchase Agreement is within the normal range of payment terms offered by other independent suppliers to the Group;

• (ii) the payment term for the Group under the Master Merchandise Purchase Agreement and the payment term for the Parent Group under the Master Merchandise Supply Agreement are both fair and reasonable; and

• (iii) there will be no financial disadvantage to the Group for entering into the Master Merchandise Agreements;

we are of the view that the terms of the Master Merchandise Agreements are on normal commercial terms, fair and reasonable and in the interests of the Group and the Shareholders as a whole.

4. Basis of the annual caps

A. Master Merchandise Purchase Agreement

Historical transaction amounts

The historical transaction amounts for electrical appliances and consumer electronics products supplied by the Parent Group to the Group for each financial year ended 31 December 2010 (“ FY2010 ”) and 31 December 2011 (“ FY2011 ”) respectively and the nine months ended 30 September 2012 are shown in Table 1 below.

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Table 1: Historical transaction amounts under the Renewed Master Purchase Agreement

			For the nine months
			ended 30 September
	FY2010	FY2011	2012
	RMB	RMB	RMB
	(HK$)’ million	(HK$)’ million	(HK$)’ million
Annual caps for the	600(739.80)	800(986.40)	1,000(1,233.0) (Note)
supply of electrical
appliances and
consumer electronics
products by the Parent
Group to the Group
Actual transaction	125.06(154.20)	67.0(82.61)	376.15(463.79)
amounts

Note: Annual cap for the entire financial year ended 31 December 2012 (“FY2012”).

Source: the Circular.

The historical transaction amount for each of the three limbs of transactions under the Second Master Agreement between August 2012 and December 2012 is shown in Table 2 below.

Table 2: Historical transaction amounts under the Second Master Agreement

	RMB’000
Annual cap	800,000
Actual transaction amounts
– Supply of products	244,331
– Provision of logistics services	2,281
– Provision of after-sales services	278

Source: the Circular.

Annual caps

As stated in the Circular, pursuant to the terms of the Master Merchandise Purchase Agreement, GOME Ruidong and the Parent Group agreed to, at the request of the Group (including Kuba and GOME-on-line) from time to time, supply general merchandise (including but not limited to electrical appliances and consumer electronics products) to the Group (including Kuba and GOME-on-line) on an at-cost basis for a period of three years from 1 January 2013 to 31 December 2015, subject to the annual caps of the transaction amounts (excluding value added tax) under the Master Merchandise Purchase Agreement for FY2013, FY2014 and FY2015 respectively as shown in Table 3 below.

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Table 3 – Proposed annual caps under the Master Merchandise Purchase Agreement – (FY2013 FY2015)

	FY2013	FY2014	FY2015
	RMB	RMB	RMB
	(HK$)’ billion	(HK$)’ billion	(HK$)’ billion
Projected transaction
amounts for the supply
of general merchandise
(including but not
limited to electrical
appliances and
consumer electronics
products) by the Parent
Group to the Group	4.0(4.94)	5.90(7.27)	7.73(9.54)
Annual caps for the
supply of general
merchandise (including
but not limited to
electrical appliances
and consumer
electronics products)
by the Parent Group to
the Group	5(6.17)	6.5(8.01)	8(9.86)

Source: the Circular, the Company’s data.

As stated in the letter from the Board in the Circular, the proposed annual cap amounts of the Master Merchandise Purchase Agreement were determined after taking into consideration: (a) the historical transaction amounts, (b) the estimated growth in demand for general merchandise (including electrical appliances and consumer electronics products), (c) the progress of the planned store expansion of the Group during the period, (d) the anticipated growth in the e-commerce business of the Group and (e) the estimated sales proportion of the stores and e-commerce transactions to be involved in the transactions contemplated under the Master Merchandise Purchase Agreement;

a. The historical transaction amounts

The historical transaction amounts for the supply of electrical appliances and consumer electronics products by the Parent Group to the Group are set out in Table 1, and the historical transaction amounts for procurement of products under the Second Master Agreement are set out in Table 2 above.

We note that the proposed annual cap amount under the Master Merchandise Purchase Agreement for FY2013 will increase by approximately 400.0% from the annual cap amount for FY2012 under the Renewed Master Purchase Agreement.

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According to our discussion with the management of the Company, we understand that the preceding Renewed Master Purchase Agreement, which only covered electrical appliance and consumer electronics products, is not directly comparable to the Master Merchandise Purchase Agreement, which covers all kinds of general merchandise.

As for the Second Master Agreement, due to its short transaction history and the fact that the e-commerce platforms of the Group were only at the early start-up stage of full operation, the historical transaction amounts under the Second Master Agreement do not necessarily reflect the full potential of the e-commerce business of the Group.

We understand that the management of the Company has taken into account the historical transaction amounts for the supply of electrical appliances and consumer electronics products by the Parent Group to the Group under the Renewed Master Purchase Agreement and the historical transaction amounts for procurement of products under the Second Master Agreement in determining the proposed annual cap amounts under the Master Merchandise Purchase Agreement. However, in light of the reasons stated above, we agree with them that these historical transactions amounts are not strictly representative.

b. The estimated growth in demand for general merchandise (including electrical appliances and consumer electronics products)

As stated in the letter from the Board of the Circular, the Group has traditionally been a retailer for electrical appliances and consumer electronics products. With the development of the Group’s e-commerce platforms, the products range being offered for on-line sale by the Group now include all kinds of general merchandise. Given that most of general merchandise are more consumer or even daily necessity products (such as baby products, cosmetics products, foot wears) and the continuous enormous domestic market demands for such products supported by the huge population in the PRC, it is expected to create more turnovers and demands. Therefore, the said product mix and nature changes are expected to bring about considerable growth in demand for general merchandise from the Group’s e-commerce platforms.

By the same token, the Group has now placed equal emphasis on the marketing and sales of electrical appliances and consumer electronics products as well as other general merchandise products on its e-commerce platforms as one of the Group’s major business strategies in order to boost sales and hence to maximize the benefits of economy of scale.

According to the 12th Five-year Development Plan for the Domestic Trade released by the State Council (the “ 12th Five-year Plan ”), the total volume of retail sales of social consumer goods should reach RMB32 trillion by 2015 with an annual average growth rate of about 15%. We also note that according to official sources in the PRC, China would double its 2010 GDP and per capita income for both urban and rural residents by 2020. Coupled with the urbanisation policies being or to be implemented by the PRC central government in 2013, we agree with the management of the Company that the general merchandise industry will continue to see enormous demand.

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LETTER FROM PLATINUM

The implementation of such business strategy is also expected to bring about considerable growth in demand for general merchandise from the Group’s e-commerce platforms.

The procurement by the Group’s off-line business from the Parent Group for the three years ended 31 December 2012 as a percentage of the Group’s total procurement (the “ Off-line Business Procurement Rate ”) were approximately 0.28%, 0.13% and 1.34%, respectively, which only accounted for the Group’s procurement of electrical appliances and consumer electronics products. Based on the products to be procured will include general merchandise, the abovementioned business plan of additional physical stores network in the second-tier market and centralized procurement, it is expected that the Off-line Business Procurement Rate will be increased to 2% for the three years ending 31 December 2015.

As discussed above, the Group’s suppliers may not all have delivery network with specific geographical coverage which can efficiently match or correspond to the Group’s specific retail locations, in particular, in the case of the second-tier market. Where a supplier’s delivery network can reach only some of the retail locations of the Group or the Parent Group, any reachable member of the Group or the Parent Group would be able to source the products from the supplier at lower cost more efficiently than the unreachable member of the Group. In such case, the unreachable member of the Group would have to or tend to source the products from other reachable members of the Group or the Parent Group in order to secure supply of goods in a cost efficient manner. Given that the Group continues to expand its physical store network in the second-tier market which currently may not be accessible to the delivery network of some of the suppliers, we concur with the Board that the inter-group supplies of products between the Group and the Parent Group will become more common and frequent and that the rate of the Group’s procurement from the Parent Group will gradually increase. As such, we are of the view that it is fair and reasonable to expect that the Off-line Business Procurement Rate will be increased to 2% for the three years ending 31 December 2015.

c. The progress of the planned store expansion of the Group during the period

As stated in the letter from the Board in the Circular, one of the Group’s business strategies is to continue to develop life style flagship stores in the first-tier market and to expand and develop at speed the Group’s physical store network in the second-tier market in the PRC. The Board has also carried in mind that there is a fast and high growth potential in the retail industry in the second-tier market in the PRC. In this regard, we are of the view that it is reasonable to expect the Group’s store network to expand at a slightly higher pace over the three years from FY2013 to FY2015 as compared to the previous three-year period from FY2010 to FY2012.

According to the letter from the Board in the Circular, the Group’s store expansion in second-tier market is expected to reach an average of 21% per annum for the three years ending 31 December 2015, which follows largely the historical development trend of an average of 16.4% for the three years ended 31 December 2012. In this connection, we are of the view that this assumption is fair and reasonable.

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LETTER FROM PLATINUM

d. The anticipated growth in the e-commerce business of the Group

As mentioned above, the Group’s e-commerce business is still in its initial stage of development but has already experienced significant year-on-year growth in revenue of over 100% for 2012. Given that most other e-commerce platforms in the PRC have recorded a year-on-year growth of more than 100% during their first few years of development, it is assumed that the revenue of the e-commerce business of the Group will also follow such trend and develop rapidly at the estimated rate of 106%, 80% and 60% for the three years ending 31 December 2015. Along with the industry trend, the Company expects its e-commerce business will grow rapidly during the initial few years after introduction, with the growth rate becoming less rapid during 2014 and 2015. Based on the expected fast and high growth in the e-commerce business of the Group, it is expected that the growth in the e-commerce business will greatly increase the transaction amounts under the Master Merchandise Purchase Agreement in all dimensions in the coming years.

According to a research by eMarketer (an independent market research company that publishes data, analysis and insights on digital marketing, media and commerce) as shown in Figure 1 below, China’s business-to-consumer (the “ B2C ”) e-commerce grew by approximately 103.7% in 2011, and is estimated to increase by approximately 94.0% in 2012, followed by a compound annual growth rate (“ CAGR ”) of approximately 51.4% over the three years ending 31 December 2015, all in terms of revenue.

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LETTER FROM PLATINUM

Figure 1: B2C e-commerce revenue in China from 2010 to 2015

==> picture [331 x 229] intentionally omitted <==

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

400
(US$billion) 372.7
350
300 284.8
250
200
177.4
150
107.5
100
55.4
50 27.2
0
2010 2011 2012 2013 2014 2015
Forecast
----- End of picture text -----*

==> picture [76 x 6] intentionally omitted <==

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

Source: eMarketer.
----- End of picture text -----

As mentioned above, we note that the Group commenced its e-commerce business in 2011, and the development of the Group’s e-commerce business remains at a very early stage.

We have attempted to identify comparable companies (the “ Comparable Companies ”) that (i) are B2C retailers of mainly home appliances and (ii) have gross revenue of more than RMB5 billion in 2012. 360buy Jingdong Mall, Suning Yigou and 51Buy.com are identified as the Comparable Companies of the Company, which have been selected exhaustively based on the criteria to the best of our endeavors in our research through public information. We note that the Comparable Companies all recorded a growth rates of over 100% in revenue from e-commerce business during their early years of development.

In addition, as stated in the letter from the Board, the products range being offered for on-line sale by the Group now include all kinds of general merchandise, most of which are more consumer or even necessity products with a continuous enormous domestic market demand as supported by the huge population in the PRC. Moreover, the Group has now placed equal emphasis on the marketing and sales of electrical appliances and consumer electronics products as well as other general merchandise products on its e-commerce platforms as one of the Group’s major business strategies.

Besides, as discussed above, since the completion of subscription by GOME Ruidong in the Group’s e-commerce platforms in August 2012, the operation of the Group’s e-commerce platforms is no longer restricted to the Group’s business areas as designated under the Non-Competition Undertakings and is now permitted to reach the Parent Group’s business areas as well, making it nationwide in the PRC.

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LETTER FROM PLATINUM

Taking into consideration the continuing strong performance of the B2C e-commerce market in China, the said product mix, the implementation of the Group’s business strategies, and the current nationwide coverage and reach of the Group’s e-commerce business, we agree with the Board that there will be a potentially substantial growth in demand for the general merchandise from the Group’s e-commerce platforms. As such, we are of the view we are of the view that it is reasonable for the management of the Company to assume a positive revenue growth trend for its e-commerce business similar to that of its peers and the industry average for the three years from FY2013 to FY2015.

Furthermore, as stated in the letter from the Board in the Circular, the Group’s on-line business had procured products from the Parent Group under the Second Master Agreement since the completion of the subscription for a 40% interest in each of Kuba and GOME-on-line by GOME Ruidong in August 2012. Given the short procurement history, the annual procurement of the Group’s e-commerce platforms from the Parent Group as a percentage of the Group’s total procurement for the e-commerce business (the “ e-Commerce Procurement Rate ”) was only approximately 6% between August 2012 and December 2012. Based on the rapid development in the e-commerce business and that the geographical coverage of the e-commerce business is no longer limited to the Group’s territory, it is expected that the e-Commerce Procurement Rate will be increased to 40% for 2013 in order for the e-commerce business of the Group to enjoy the benefits of the bulk purchase thereby increasing its gross margin. As the Group expects that the e-commerce platforms will gradually be less dependent on the Parent Group’s support on bulk purchase and the product mix of the e-commerce business will comprise a higher proportion of general merchandise, the e-Commerce Procurement Rate is expected to decrease from 40% in 2013 to 35% and 30% for 2014 and 2015, respectively.

According to our discussion with the management of the Company, the e-commerce business would require stronger support from both the Parent Group and the Group at its early stage, due to its relatively weaker bargaining power over the suppliers. As the e-commerce business grows, its bargaining power will gradually increase, and thus will require less support from the Group and the Parent Group. As such, we are of the view that this decreasing trend of the e-Commerce Procurement Rate from the Parent Group is reasonable.

e. The estimated sales proportion of the stores and e-commerce transactions to be involved in the transactions contemplated under the Master Merchandise Purchase Agreement

As stated in the letter from the Board in the Circular, the Group assumes that the revenue of the physical stores of the Group will resume positive growth along the growth rate of the Group before 2012. During the two years ended 31 December 2011, the growth rate of the Group’s physical stores were approximately 19% and 14%, respectively. With the improvement in the market environment, it is assumed that the revenue of the physical stores of the Group will continue to grow at an average rate of over 10% for the three years ending 31 December 2015. Such increases are comparable to the historical growth rate of the Group’s physical stores before 2012.

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LETTER FROM PLATINUM

As discussed above, according to the 12th Five-year Plan, the total volume of retail sales of social consumer goods should reach RMB32 trillion by 2015 with an annual average growth rate of about 15%. As such, we are of the view that the assumption of the revenue of the physical stores of the Group to grow at an average rate of over 10% for the three years ending 31 December 2015, is in line with the 12th Five-year Plan, and that such assumption is fair and reasonable.

In addition, as stated in the letter from the Board in the Circular and as discussed above, it is expected that the Group’s e-commerce business will display positive growth similar to its peers and the industry average, in each case, with the procurement matching that of the growth in revenue. Coupled with the rapid store expansion of the Group and the Parent Group in the high-potential second-tier market, it is envisaged that there will be a substantial increase in the estimated sales proportion of the stores and e-commerce transactions to be involved in the transactions contemplated under the Master Merchandise Purchase Agreement and hence in the transaction amounts thereunder.

Further to our discussion with the management of the Company, the current business plan of the Company is continuous expansion of the Group’s physical stores footprint and to promote the on-line services of the Group. Given the integration between the supply chains of on-line and off-line platforms and the Company’s business plan to promote both the on-line and off-line platforms, we are of the view that there will be a substantial increase in the estimated sales proportion of the stores and e-commerce transactions to be involved in the transactions contemplated under the Master Merchandise Purchase Agreement and hence in the transaction amounts thereunder.

We also understand from the management of the Company that since the Group’s e-commerce platforms do not have its own logistics and storage facilities and rely on that of the Parent Group in most of the Parent Group’s business areas, they would tend to purchase products from the Parent Group for its on-line retail business operation in the Parent Group’s business areas (which is not open to other members of the Group) in order to enjoy the cost efficiency of combined bulk purchases by the Parent Group from the mutual suppliers, thus giving rise to a substantial increase in the estimated sales proportion of the e-commerce transactions to be involved in the transactions under the Master Merchandise Purchase Agreement and hence the transaction amounts thereunder.

We have reviewed the financial model provided by the management of the Company for projecting the transaction amounts for the supply of general merchandise (including but not limited to electrical appliances and consumer electronics products) by the Parent Group to the Group, and note that the financial model is based on the factors (b), (c), (d) and (e) as listed in this section above. Since the assumptions in such factors are fair and reasonable, we are of the view that the projected transaction amounts for the transactions contemplated under the Master Merchandise Purchase Agreement are reasonable.

Given that the proposed annual caps under the Master Merchandise Purchase Agreement are just slightly higher than the corresponding projected transaction amounts, we are of the view that the proposed annual caps under the Master Merchandise Purchase Agreement are fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Group and the Shareholders as a whole.

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LETTER FROM PLATINUM

B. Master Merchandise Supply Agreement

Historical transaction amounts

The historical transaction amounts for electrical appliances and consumer electronics products supplied by the Group to the Parent Group for FY2010, FY2011 and the nine months ended 30 September 2012 are shown in Table 4 below:

Table 4: Historical transaction amounts under the Renewed Master Supply Agreement

			For the nine months
			ended 30 September
	FY2010	FY2011	2012
	RMB	RMB	RMB
	(HK$)’ million	(HK$)’ million	(HK$)’ million
Annual caps for the	600(739.80)	800(986.40)	1,000(1,233.0) (Note)
supply of electrical
appliances and
consumer electronics
products by the Group
to the Parent Group
Actual transaction	595.36(734.08)	793.0(977.77)	267.0(329.21)
amounts

Note: Annual cap for FY2012.

Source: the Circular.

The historical transaction amount for each of the three limbs of transactions under the First Master Agreement between August 2012 and December 2012 is shown in Table 5 below.

Table 5: Historical transaction amounts under the First Master Agreement

	RMB’000
Annual cap	800,000
Actual transaction amounts
– Supply of products	654,343
– Provision of logistics services	6,251
– Provision of after-sales services	1,308

Source: the Circular.

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LETTER FROM PLATINUM

Annual caps

As stated in the Circular, pursuant to the terms of the Master Merchandise Supply Agreement, the Group agreed to, at the request of Kuba, GOME-on-line or the Parent Group from time to time, supply general merchandise (including but not limited to electrical appliances and consumer electronics products) to Kuba, GOME-on-line and the Parent Group on an at-cost basis for a period of three years from 1 January 2013 to 31 December 2015, subject to the annual caps of the transaction amounts (excluding value added tax) under the Master Merchandise Supply Agreement for FY2013, FY2014 and FY2015 respectively as shown in Table 6 below.

Table 6: Proposed annual caps under the Master Merchandise Supply Agreement (FY2013 – FY2015)

	FY2013	FY2014	FY2015
	RMB	RMB	RMB
	(HK$)’ billion	(HK$)’ billion	(HK$)’ billion
Projected transaction
amounts for the supply
of general merchandise
(including but not
limited to electrical
appliances and
consumer electronics
products) by the Group
to the Parent Group	4.18(5.15)	6.10(7.52)	7.96(9.82)
Annual caps for the
supply of general
merchandise (including
but not limited to
electrical appliances
and consumer
electronics products)
by the Group to the
Parent Group	5(6.17)	6.5(8.01)	8(9.86)

Source: the Circular, the Company’s data.

The proposed annual cap amounts of the Master Merchandise Supply Agreement were determined after taking into consideration: (a) the historical transaction amounts, (b) the estimated growth in demand for general merchandise (including electrical appliances and consumer electronics products), (c) the progress of the planned store expansion of the Parent Group during the period, (d) the anticipated growth in the e-commerce business of

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LETTER FROM PLATINUM

the Group and (e) the estimated sales proportion of the stores and e-commerce transactions to be involved in the transactions contemplated under the Master Merchandise Supply Agreement.

a. The historical transaction amounts

The historical transaction amounts for the supply of electrical appliances and consumer electronics products by the Group to the Parent Group are set out in Table 4, and the historical transaction amounts for procurement of products under the First Master Agreement are set out in Table 5 above.

We note that the proposed annual cap amount under the Master Merchandise Supply Agreement for FY2013 will increase by approximately 400.0% from the annual cap amount for FY2012 under the Renewed Master Supply Agreement.

According to our discussion with the management of the Company, we understand that the preceding Renewed Master Supply Agreement, which only covered electrical appliance and consumer electronics products, is not directly comparable to the Master Merchandise Supply Agreement, which covers all kinds of general merchandise.

As for the First Master Agreement, due to its short transaction history and the fact that the e-commerce platforms of the Group were only at the early start-up stage of full operation, the historical transaction amounts under the First Master Agreement do not necessarily reflect the full potential of the e-commerce business of the Group.

We understand that the management of the Company has taken into account the historical transaction amounts for the supply of electrical appliances and consumer electronics products by the Group to the Parent Group under the Renewed Master Supply Agreement and the historical transaction amounts for procurement of products under the First Master Agreement in determining the proposed annual cap amounts under the Master Merchandise Supply Agreement. However, in light of the reasons stated above, we agree with them that these historical transactions amounts are not strictly representative.

b. The estimated growth in demand for general merchandise (including electrical appliances and consumer electronics products)

As discussed above, we agree with the management of the Company that the general merchandise industry will continue to see enormous demand.

We also understand from the management of the Company that it is also the Parent Group’s business strategies to continue to boost sales of its physical stores in the first-tier market and to expand its physical store network at speed in the second-tier market. The implementation of such business strategy is also expected to bring about considerable growth in demand for electrical appliances and consumer electronics products from the Parent Group’s off-line business.

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LETTER FROM PLATINUM

The procurement by the Parent Group’s off-line business from the Group for the three years ended 31 December 2012 as a percentage of the Parent Group’s total procurement were approximately 3.3%, 4.1% and 1.4%, respectively, which only accounted for the Parent Group’s procurement of electrical appliances and consumer electronics products. Based on the products to be procured will include general merchandise, the abovementioned business plan of additional physical stores network in the second-tier market and centralized procurement, it is expected that such procurement rate will be increased to 4% for the three years ending 31 December 2015.

Also as discussed above, the Parent Group’s suppliers may not all have delivery network with specific geographical coverage which can efficiently match or correspond to the Parent Group’s specific retail locations, in particular, in the case of the second-tier market. In such case, the unreachable member of the Parent Group would have to or tend to source the products from other reachable members of the Group or the Parent Group in order to secure supply of goods in a cost efficient manner.

Given that the Parent Group continues to expand its physical store network in the second-tier market which currently may not be accessible to the delivery network of some of the suppliers, we concur with the Board that the inter-group supplies of products between the Group and the Parent Group will become more common and frequent and that the rate of the Parent Group’s procurement from the Group will gradually increase. As such, we are of the view that it is fair and reasonable to expect that such procurement rate will be increased to 4% for the three years ending 31 December 2015.

c. The progress of the planned store expansion of the Parent Group during the period

As stated in the letter from the Board in the Circular, the Parent Group’s strategy is to continue to expand and develop at speed its physical store network in the second-tier market covered by the Parent Group’s territories in the PRC. The Board has also carried in mind that there remains a fast and high growth potential in the retail industry in the second-tier market in the PRC. In this regard, we are of the view that it is reasonable to expect the Parent Group’s store network to continue to expand in the second-tier market at a similar pace over the three years from FY2013 to FY2015 as that of the previous three-year period from FY2010 to FY2012.

According to the letter from the Board in the Circular, the Parent Group’s store expansion in the second-tier market is expected to be at an average rate of 22.8% per annum for the three years ending 31 December 2015, which follows largely the historical development trend of an average of 23.5% for the three years ended 31 December 2012. In this connection, we are of the view that this assumption is fair and reasonable.

d. The anticipated growth in the e-commerce business of the Group

As mentioned in Section 4A(d) above, we are of the view the it is reasonable for the management of the Company to assume that the revenue growth of its e-commerce business will display a positive trend similar to that of its peers and the industry average for the three years from FY2013 to FY2015.

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LETTER FROM PLATINUM

Moreover, as stated in the letter from the Board in the Circular, each of Kuba and GOME-on-line only became an associate of the Controlling Shareholder upon completion of the subscription for a 40% interest in each of Kuba and GOME-on-line by GOME Ruidong in August 2012. Given the short connected transaction history of the Group’s e-commerce platforms, the annual procurement of the Group’s e-commerce platforms from the Group as a percentage of the e-commerce business’s total procurement was approximately 16% between August 2012 and December 2012. Based on the rapid development in the e-commerce business and that the geographical coverage of the e-commerce business is no longer limited to the Group’s territory, it is expected that such rate will be increased to 40% for 2013 in order for the e-commerce business of the Group to enjoy the benefits of the bulk purchase thereby increasing its gross margin. As the Group expects that the e-commerce platforms will gradually be less dependent on the Group’s support on bulk purchase and the product mix of the e-commerce business will comprise a higher proportion of general merchandise, the procurement rate is expected to decrease from 40% in 2013 to 35% and 30% for 2014 and 2015, respectively.

According to our discussion with the management of the Company as stated above, the e-commerce business would require stronger support from both the Parent Group and the Group at its early stage, due to its relatively weaker bargaining power over the suppliers. As the e-commerce business grows, its bargaining power will gradually increase, and thus will require less support from the Group and the Parent Group. As such, we are of the view that the decreasing trend of such procurement rate from the Group is reasonable.

• e. The estimated sales proportion of the stores and e-commerce transactions to be involved in the transactions contemplated under the Master Merchandise Supply Agreement

As stated in the letter from the Board in the Circular, during the two years ended 31 December 2011, the growth rate of the Parent Group’s physical stores were over 10% for each of the year concerned. With the improvement in the market environment, the Group assumes that the revenue of the physical stores of the Parent Group will continue to grow at an average rate of over 10% for the three years ending 31 December 2015. Such increases are comparable to the historical growth rate of the Parent Group’s physical stores before 2012.

As discussed above, according to the 12th Five-year Plan, the total volume of retail sales of social consumer goods should reach RMB32 trillion by 2015 with an annual average growth rate of about 15%. As such, we are of the view that the assumption of the revenue of the physical stores of the Parent Group to grow at an average rate of over 10% for the three years ending 31 December 2015, is in line with the 12th Five-year Plan, and that such assumption is fair and reasonable.

In addition, as stated in the letter from the Board in the Circular and as discussed above, it is expected that the Group’s e-commerce business will display positive growth similar to its peers and the industry average, in each case, with the procurement matching

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LETTER FROM PLATINUM

that of the growth in revenue. Coupled with the rapid store expansion of both the Parent Group and the Group in the high-potential second-tier market, it is envisaged that there will be a substantial increase in the estimated sales proportion of the stores and e-commerce transactions to be involved in the transactions contemplated under the Master Merchandise Supply Agreement and hence in the transaction amounts thereunder.

We have reviewed the financial model provided by the management of the Company for projecting the transaction amounts for the supply of general merchandise (including but not limited to electrical appliances and consumer electronics products) by the Group to the Parent Group, and note that the financial model is based on the factors (b), (c), (d) and (e) as listed in this section above. Since the assumptions in such factors are fair and reasonable, we are of the view that the projected transaction amounts for the transactions contemplated under the Master Merchandise Supply Agreement are reasonable.

Given that the proposed annual caps under the Master Merchandise Supply Agreement are just slightly higher than the corresponding projected transaction amounts, we are of the view that the proposed annual caps under the Master Merchandise Supply Agreement are fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Group and the Shareholders as a whole.

In light of that,

• (i) the proposed annual caps under the Master Merchandise Purchase Agreement are fair and reasonable, and in the interests of the Company and the Shareholders as a whole; and

• (ii) the proposed annual caps under the Master Merchandise Supply Agreement are fair and reasonable, and in the interests of the Company and the Shareholders as a whole,

we are of the view that the annual caps under the Master Merchandise Agreements are fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Group and the Shareholders as a whole.

RECOMMENDATIONS

We have considered the above principal factors and reasons and, in particular, having taken into account the following in arriving at our opinions:

• (i) the entering into of the Termination Agreements to terminate the respective transactions under the 2012 Master Agreements, the First Master Agreement and the Second Master, is in the interests of the Group and the Shareholders as a whole;

• (ii) the entering into of the Master Merchandise Agreements is in the usual and ordinary course of business of the Group and in the interests of the Group and the Shareholders as a whole;

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LETTER FROM PLATINUM

• (iii) the terms of the Master Merchandise Agreements are on normal commercial terms, fair and reasonable and in the interests of the Group and the Shareholders as a whole; and

• (iv) the annual caps under the Master Merchandise Agreements are fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Group and the Shareholders as a whole.

Having considered the above, we are of the view that the terms of the Master Merchandise Agreements and the relevant annual caps in relation to the Transactions are entered into in the ordinary and usual course of business of the Group, on normal commercial terms, fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Group and the Shareholders as a whole.

Yours faithfully, For and on behalf of

Platinum Securities Company Limited

Lenny Li Director

– 53 –

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 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 Executive

As at the Latest Practicable Date, the interests and short positions, if any, of each Director and chief executive of the Company 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) 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 the Directors and chief executive were deemed or taken to have under provisions of the SFO), or which were required to be and are recorded in the register required to be kept by the Company pursuant to Section 352 of the SFO, or as otherwise required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies adopted by the Company (the “ Model Code ”) were as follows:

(i) Long positions in shares and underlying shares of the Company

				Total interests as to
				percentage of the
				Company’s issued
			Total number	share capital
Names of Directors/	Capacity in which	Personal	of Shares	as at the Latest
Chief Executive	interests are held	interest	interested	Practicable Date
Ng Kin Wah	Beneficial owner	9,200,000	9,200,000	0.05%
		(Note 1)
Zhu Jia	Beneficial owner	1,168,920	1,168,920	0.01%
Wang Jun Zhou	Beneficial owner	11,263,000	11,263,000	0.07%
		(Note 2)

Notes:

1. The relevant interests included 1,200,000 Shares of the Company issuable upon exercise of the options (the “ Option(s) ”) granted to the Director pursuant to the share option scheme adopted by the Company on 15 April 2005 (the “ Share Option Scheme ”) as was particularly described in the section headed “Long positions in underlying shares of equity derivatives of the Company” below. These Options were held by the Director beneficially.

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GENERAL INFORMATION

APPENDIX

1. The relevant interest included 11,263,000 Shares of the Company issuable upon exercise of the Options granted to Mr. Wang Jun Zhou pursuant to the Share Option Scheme. These Options were held by Mr. Wang Jun Zhou beneficially.

(ii) Long positions in underlying shares of equity derivatives of the Company

As at the Latest Practicable Date, Options to subscribe for an aggregate of 131,496,700 Shares granted pursuant to the Share Option Scheme were outstanding.

										**Number of **	**Number of **	**Number of **	Options
																		Price of
																		Shares for
Names of													Cancelled/					Options
Directors/		Exercise		**As at **	1		Granted			Exercised			lapsed		As at Latest			exercised
Chief	Date of	price per		January			during the			during the			during the		Practicable			during the
Executive	grant	Share		2013			period			period			period			Date		period
		HK$														(Note 1)		(Note 5)
Ng Kin Wah	7 July 2009	1.90		1,200,000				–			–			–		1,200,000		–
Wang Jun	7 July 2009	1.90		11,263,000				–			–			–		11,263,000		–
Zhou
Other	7 July 2009	1.90		120,804,700				–			–		(1,771,000)		119,033,700			–
employees													(Note 4)
				133,267,700				–			–		(1,771,000)		131,496,700

Notes:

1. On 5 December 2011, a resolution was passed by the shareholders of the Company to amend the terms of the Options granted and the terms of the Share Option Scheme. On 31 August 2012, another resolution was passed by the Board to further amend the terms of the options granted. As at the Latest Practicable Date, the revised terms would have the following effects:

2. a. 79,428,700 vested Options will become lapsed and ceased to have any further effect after 15 November 2015.

3. b. Up to 22,779,750 Options may be exercised commencing from 15 May 2013 and will become lapsed and ceased to have any further effect after 15 November 2015.

4. c. Up to 19,525,500 Options may be exercised commencing from 15 May 2014 and will become lapsed and ceased to have any further effect after 15 November 2015.

5. d. Up to 9,762,750 Options may be exercised commencing from 15 May 2015 and will become lapsed and ceased to have any further effect after 15 November 2015.

6. e. In addition to the changing of the exercise periods of the Options, performance targets were added as a new condition for the exercise of the unvested Options above. Such performance targets are to be determined based on the weighted average of revenue and profits generated, new stores opened, special projects and other administrative work undertaken by the grantee, the compliance of the relevant internal and external law and regulations by the grantee and by reference to his/her seniority and job functions within the Group. Any grantee whose performance is assessed to be short of the performance target will have his/her number of unvested Options for vesting in the forthcoming exercise period adjusted downward and cancelled in proportion to the shortfall of his performance assessment to the performance target when such Options are vested.

– 55 –

GENERAL INFORMATION

APPENDIX

1. The fair value of Options granted on 7 July 2009 under the Share Option Scheme, determined by using the Binomial Model value model, was approximately RMB296.45 million. The significant inputs into the model were the exercise price of HK$1.90, expected volatility and historical volatility of 63%, expected dividend yield rate of 1.2% and annual risk-free interest rate is 2.565%. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.

2. The vesting period of these Options is from the date of grant until the commencement of the exercise period mentioned above.

3. 1,771,000 Options were cancelled during the period from 1 January 2013 to the Latest Practicable Date.

4. The price of Shares disclosed for the Options exercised during the period from 1 January 2013 to the Latest Practicable Date is the weighted average of the closing price, quoted on the Stock Exchange immediately before the date of exercise of Options.

(b) Substantial Shareholders

So far as is known to any Director or the chief executive of the Company, as at the Latest Practicable Date, Shareholders who had interests or short positions in the shares and 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, or which were recorded in the register required to be kept by the Company pursuant to Section 336 of the SFO were as follows:

Long positions/short positions in shares and underlying shares of the Company

		Number of	Approximate
		ordinary	percentage of
Names of Shareholders	Nature	Shares held	shareholding
Mr. Wong Kwong Yu	Long position	5,417,539,490	32.10%
(“Mr. Wong”) (Note 1)
Ms. Du Juan (Note 2)	Long position	5,417,539,490	32.10%
Shinning Crown Holdings Inc.	Long position	4,550,100,000	29.96%
(Note 3)
Bain Capital Asia Integral	Long position	1,665,549,935	9.87%
Investors, LP. (Note 4)
Bain Capital Investors, LLC	Long position	1,665,549,935	9.87%
(Note 5)
Morgan Stanley (Note 6)	Long position	1,003,863,049	5.94%
	Short position	1,006,358,445	5.96%
Carmignac Gestion	Long position	848,009,394	5.03%

– 56 –

GENERAL INFORMATION

APPENDIX

Notes:

1. Of these 5,417,539,490 Shares, 4,550,100,000 Shares were held by Shinning Crown Holdings Inc. and 624,453,890 Shares were held by Shine Group Limited (both companies are 100% beneficially owned by Mr. Wong), and 237,321,600 Shares were held by Smart Captain Holdings Limited and 5,664,000 Shares were held by Wan Sheng Yuan Asset Management Company Limited (both companies are 100% beneficially owned by Ms. Du Juan, the spouse of Mr. Wong).

2. Ms. Du Juan is the spouse of Mr. Wong. The aforesaid Shares that Mr. Wong and Ms. Du Juan were deemed to be interested in refer to the same parcel of Shares.

3. Shinning Crown Holdings Inc. was 100% beneficially owned by Mr. Wong.

4. Bain Capital Asia Integral Investors, LP. was interested in these Shares through its interests in its controlled corporations.

5. Bain Capital Investors, LLC was interested in these Shares through its interests in its controlled corporations. These interests are duplicated by the interests disclosed in Note 4 above.

6. Morgan Stanley was interested in these shares through its interests in its controlled corporations. Of these shares, long position in 169,033,300 shares and short position in 86,115,000 shares were unlisted derivatives which will be cash settled, short position in 864,000 shares were unlisted derivatives which will be physically settled.

Save as disclosed above, so far as is known to the Directors and the chief executive of the Company, as at the Latest Practicable Date, no other person (other than a Director 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 which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group or held any option in respect of such capital.

3. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contracts with any member of the Group or any associated company of the Company (excluding contracts expiring or determinable within one year without payment of compensation, other than statutory compensation).

4. COMPETING BUSINESS INTEREST OF DIRECTORS

As at the Latest Practicable Date, none of the Directors or their respective associates was interested in any business which competes or is likely to compete, either directly or indirectly, with the business of the Group as required to be disclosed pursuant to the Listing Rules.

However, Mr. Wong, Ms. Du Juan being the spouse of Mr. Wong and Ms. Huang Xiu Hong being a sister of Mr. Wong, who remained as directors of certain subsidiaries of the Company had beneficial interest or held directorship or otherwise had control in companies which operate an electrical appliances and consumer electronics products retail network under the brand name “GOME” in different cities in China (the “ Non-listed GOME Group ”) separate from the Group.

– 57 –

GENERAL INFORMATION

APPENDIX

Mr. Wong and the Company entered into the Non-competition Undertaking on 29 July 2004. Pursuant to the Non-competition Undertaking, Mr. Wong undertook to the Company that he would not and would procure that the Non-listed GOME Group would not, amongst other things, engage in retail sales of electrical appliances and/or consumer electronics products in places in China where the Company as at 3 June 2004 had established any retail outlet for the sale of electrical appliances and consumer electronics products under the “GOME Electrical Appliances” trademark, whereas the Company undertook to Mr. Wong not to directly or indirectly engage in the retail sales of electrical appliances or consumer electronics products in any of the locations in China in which any member of the Non-listed GOME Group as at 3 June 2004 had established or was in the course of establishing any retail outlet for the sale of electrical appliances and consumer electronics products under the “GOME Electrical Appliances” trademark. The Non-competition Undertaking would be valid until and unless Mr. Wong ceases to be the controlling shareholder of the Company.

5. LITIGATION

So far as the Company is aware, as at the Latest Practicable Date, no member of the Group was engaged in any litigation or arbitration of material importance and there is no litigation or claim of material importance known to the Directors pending or threatened by or against any member of the Group.

6. MATERIAL ADVERSE CHANGE

Save for the profit warning announcements of the Company dated 30 April 2012, 24 July 2012, 22 October 2012 and 28 January 2013, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2011, being the date to which the latest published audited financial statements of the Group were made up.

7. EXPERT’S QUALIFICATIONS AND CONSENTS

Platinum has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name in the form and context in which it appears.

The following is the qualification of the expert or professional adviser who has given its opinion or advice contained in this circular:

Name				Qualification
Platinum	Securities	Company	Limited	A licensed corporation to conduct Type 1
				(dealing in securities) and Type 6
				(advising on corporate finance) regulated
				activities under the SFO

– 58 –

APPENDIX

GENERAL INFORMATION

As at the Latest Practicable Date, Platinum did not have any direct or indirect interest in any assets which had been acquired, disposed of by, or leased to any member of the Group, or was proposed to be acquired, or disposed of by, or leased to any member of the Group, since 31 December 2011, the date to which the latest audited financial statements of the Group was made up; and was not beneficially interested in the share capital of any member of the Group and did not have any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

8. GENERAL

• (a) None of the Directors had any direct or indirect interest in any assets which had been acquired or disposed of by or leased to any member of the Group or proposed to be so acquired, disposed of by or leased to any member of the Group since 31 December 2011, being the date to which the latest published audited accounts of the Company were made up, and up to the Latest Practicable Date.

• (b) Save as disclosed in this circular, as at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement entered into by any member of the Group, which was subsisting and was significant in relation to the business of the Group.

• (c) The company secretary of the Company is Mr. Szeto King Pui, Albert. Mr. Szeto is a Hong Kong solicitor.

• (d) The registered office of the Company is Canon’s Court, 22 Victoria Street, Hamilton HM12, Bermuda.

• (e) The principal place of business of the Company in Hong Kong is Unit 6101, 61st Floor, The Center, 99 Queen’s Road Central, Hong Kong.

• (f) The share registrars of the Company in Hong Kong is Tricor Abacus Limited.

• (g) The principal share registrars of the Company is Butterfield Fulcrum Group (Bermuda) Limited.

• (h) The English text of this circular shall prevail over their respective Chinese text for the purpose of interpretation.

– 59 –

GENERAL INFORMATION

APPENDIX

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the Company’s principal place of business in Hong Kong at Hong Kong is Unit 6101, 61st Floor, The Center, 99 Queen’s Road Central, Hong Kong during normal business hours on any weekdays, except public holidays, from the date of this circular up to and including the date of the SGM:

• (a) the Master Merchandise Purchase Agreement;

• (b) the Master Merchandise Supply Agreement;

• (c) the letter from the Independent Board Committee, the text of which is set out on page 26 of this circular;

• (d) the letter from the Independent Financial Adviser, the text of which is set out on pages 27 to 53 of this circular;

• (e) the consent letter of the Independent Financial Adviser referred to in the section headed “Expert’s Qualifications and Consents” in this appendix;

• (f) the circular of the Company dated 16 November 2012; and

• (g) this circular.

– 60 –

NOTICE OF SGM

==> picture [140 x 58] intentionally omitted <==

GOME ELECTRICAL APPLIANCES HOLDING LIMITED 國美電器控股有限公司[*]

(Incorporated in Bermuda with limited liability)

(Stock Code: 493)

NOTICE IS HEREBY GIVEN that a special general meeting of GOME Electrical Appliances Holding Limited (the “ Company ” ) will be held at Kellett Room III, 3/F, The Excelsior, Hong Kong on Tuesday, 2 April 2013 at 3:00 p.m. for the purpose of considering and, if thought fit, passing the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

1. “ THAT :

2. (a) the agreement dated 5 March 2013 (the “ Master Merchandise Purchase Agreement ”) between 國美電器有限公司 (GOME Appliance Company Limited), 庫巴科技(北京)有限公司 (Kuba Technology (Beijing) Co., Ltd.), 國美在線電子商務有限公司 (GOME-on-line e-Commerce Co., Ltd.) (formerly known as 新銳美電子商務有限公司 (Xinruimei e-Commerce Co., Ltd.)), 國美電器零售有限公司 (GOME Electrical Appliances Retail Co., Ltd.) and 北京國美銳動電子商務有限公司 (Beijing GOME Ruidong e-Commerce Co., Ltd.) (“ GOME Ruidong ”) in relation to the supply of general merchandise (including electrical appliances and consumer electronics products) by GOME Ruidong and the Parent Group (as defined in the circular of the Company dated 8 March 2013, the “ Circular ”) to the Group, be and is hereby approved and confirmed;

3. (b) the annual caps under the Master Merchandise Purchase Agreement as set out in the Circular for each of the three financial years ending 31 December 2015 be and are hereby approved and confirmed; and

4. (c) any one director of the Company be and is hereby authorised to do all such acts or things and sign all documents deemed necessary by him/her to be incidental to, ancillary to or in connection with the matters contemplated in the Master Merchandise Purchase Agreement.”

* For identification purpose only

– 61 –

NOTICE OF SGM

1. “ THAT :

2. (a) the agreement dated 5 March 2013 (the “ Master Merchandise Supply Agreement ”) between 國美電器有限公司 (GOME Appliance Company Limited), 庫巴科技(北京)有限公司 (Kuba Technology (Beijing) Co., Ltd.) (“ Kuba ”), 國美在線電子商務有限公司 (GOME-on-line e-Commerce Co., Ltd.) (formerly known as 新銳美電子商務有限公司 (Xinruimei e-Commerce Co., Ltd.)) (“ GOME-on-line ”) and 國美電器零售有限公司 (GOME Electrical Appliances Retail Co., Ltd.) in relation to the supply of general merchandise (including electrical appliances and consumer electronics products) by the Group to Kuba, GOME-on-line and the Parent Group (as defined in the circular of the Company dated 8 March 2013, the “ Circular* ”), be and is hereby approved and confirmed;

3. (b) the annual caps under the Master Merchandise Supply Agreement as set out in the Circular for each of the three financial years ending 31 December 2015 be and are hereby approved and confirmed; and

4. (c) any one director of the Company be and is/are hereby authorised to do all such acts or things and sign all documents deemed necessary by him/her to be incidental to, ancillary to or in connection with the matters contemplated in the Master Merchandise Supply Agreement.”

By Order of the Board GOME ELECTRICAL APPLIANCES HOLDING LIMITED Zhang Da Zhong

Chairman

Hong Kong, 8 March 2013

Notes:

1. A form of proxy for use at the meeting is enclosed herewith.

2. The instrument appointing a proxy shall be in writing under the hand of the appointer or his/her attorney duly authorised in writing or, if the appointer is a corporation, either under its seal or under the hand of any officer, attorney or other person authorised to sign the same.

3. Any shareholder entitled to attend and vote at the meeting is entitled to appoint one or more proxies to attend and vote instead of him. A proxy need not be a shareholder of the Company.

4. In order to be valid, a form of proxy in the prescribed form together with the power of attorney or other authority (if any) under which it is signed must be deposited at the Company’s branch registrar in Hong Kong, Tricor Abacus Limited, 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong not less than 48 hours before the time fixed for holding the meeting.

5. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or at any adjourned meeting thereof (as the case may be) should you so wish, and in such an event, the form of proxy shall be deemed to be revoked.

6. Where there are joint registered holders of any share, any one of such joint holders may vote, either in person or by proxy, in respect of such shares as if he/she was solely entitled thereto, but if more than one of such joint holders are present at the meeting, whether in person or by proxy, the joint registered holder present whose name stands first on the register of members in respect of the shares shall be accepted to the exclusion of the votes of the other registered holders.

– 62 –

NOTICE OF SGM

As at the date of this notice, the Board comprises Mr. Ng Kin Wah and Mr. Zou Xiao Chun as executive directors; Mr. Zhang Da Zhong, Mr. Zhu Jia, Ms. Wang Li Hong and Mr. Cheung Leong as non-executive directors; and Mr. Sze Tsai Ping, Michael, Mr. Chan Yuk Sang, Mr. Lee Kong Wai, Conway and Mr. Ng Wai Hung as independent non-executive directors.

– 63 –