FOSHAN ELECTRICAL AND LIGHTING CO., LTD - M&A Activity 2006

TAKEOVER REPORT IN RESPECT OF FOSHAN ELECTRICAL AND LIGHTING COMPANY LIMITED

Name of Listed Company: Foshan Electrical and Lighting Company Limited Listed Market: Shenzhen Stock Exchange Stock Short Name: Foshan Electrical & Lighting (A Shares) Yue Electrical & Lighting (B Shares) Stock Code: 000541 (A Shares) 200541 (B Shares) Name of Acquirer: OSRAM PROSPERITY Holding Company Limited Registered Address: Room 4007-09, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong Telephone of Acquirer: (852) 2511 2268 Contact Address: Room 4007-09, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong Date of Execution: 17 February 2006

(This Report is prepared both in Chinese and English. If there is a conflict between the two versions, the Chinese version shall prevail.)

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Takeover Report in respect of Foshan Electrical and Lighting Company Limited

Special Notice

In connection with this Acquisition the Acquirer hereby declares as follows:

I. This Report is prepared by the Acquirer in accordance with the Securities Law of the People’s Republic of China , the Measures for the Administration of the Takeover of Listed Companies , and the Rules of Contents and Format of Information Disclosure of Public Companies No. 16 for Reports on the Takeover of Listed Companies and other related laws and regulations and has fully disclosed the shares of FELCO held or controlled by the Acquirer.
II. Pursuant to the Securities Law of the People’s Republic of China and the Measures for the Administration of the Takeover of Listed Companies , this Report fully discloses the shares of FELCO held or controlled by the Acquirer, by persons in control of the Acquirer, by affiliates of the Acquirer and by persons acting in concert with the Acquirer.

The Acquirer is a limited liability company incorporated in Hong Kong, with OSRAM and Prosperity respectively holding 60.14% and 39.86% of the shares. It is a holding company without any substantial operations.

By acquiring 13.47% of FELCO shares through the Acquirer, OSRAM and Prosperity do not intend to exercise common control of such shares. Prosperity invested in the Acquirer at the request of both OSRAM and FELCO to coordinate their cooperation and enhance the long-term development of FELCO.

OSRAM is the controller of the 13.47% FELCO shares which the Acquirer expects to acquire in this Acquisition. In the Joint Venture Contract for the establishment of the Acquirer, OSRAM and Prosperity confirmed that, for the decisions of the Acquirer in respect of the matters specified in Articles 94 and 42 of FELCO’s Articles of Association, the resolutions shall be determined by OSRAM through its 60.14% voting rights at the shareholders’ meeting of the Acquirer.

OSRAM and Prosperity, as shareholders of the Acquirer, do not intend to exercise common control in FELCO. In the Joint Venture Contract for the establishment of the Acquirer, OSRAM and Prosperity confirmed that there is no common voting agreement or arrangement whatsoever between them, either at the board of director level or shareholders’ meeting level of FELCO. In FELCO’s Board, the respective OSRAM and Prosperity representatives will be free to vote separately and according to their own discretion. At the shareholders’ meetings of FELCO, if either OSRAM or Prosperity holds any shares in FELCO, it may exercise its voting power for such shares separately and according to its own discretion. They further confirmed that they are not concert parties in respect of any shareholdings in FELCO that each of them may from time to time separately hold by itself, its share controller or its concert parties.

Upon completion of this Acquisition, the Acquirer will nominate two directors to FELCO’s Board. OSRAM will control the voting of these two directors at FELCO. In addition, the Acquirer will agree to re-nominate one director of FELCO representing Prosperity. The Acquirer will also agree that FELCO’s Board shall

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Takeover Report in respect of Foshan Electrical and Lighting Company Limited

include one director from another shareholder of FELCO, two directors from the management of FELCO, and three independent directors. Under the Share Purchase Contract, the Acquirer undertook to the Vendor that FELCO’s existing management will by and large remain the same, provided that the performance of the existing management does not deteriorate and thereby adversely affecting the performance of FELCO. Under the Share Reform Memorandum (as defined below), the Acquirer further undertook that it will exercise its voting powers in Board meetings and shareholders’ meetings of FELCO to continue to support Mr. ZHONG Xincai to act as FELCO’s chairman for three years.

Except for the information of shareholdings disclosed herein, the Acquirer does not hold or control any shares of FELCO by any other means as of the date on which this Report is signed.

III. The Acquirer has obtained all requisite authorizations and approvals to sign this Report, and its performance of this Report will not contravene or conflict with any provisions of the Acquirer’s Articles of Association or internal regulations.
IV. The following approvals have been obtained in respect of this Acquisition:
the approval of SASAC with respect to the transfer of State-owned shares involved in this Acquisition;
the approval of the MOFCOM with respect to the approval of the transfer of shares by a foreign-invested joint stock limited liability company as involved in this Acquisition.
V. The CSRC had issued a no-objection letter in respect of the submission draft of this Report on 28 July 2005.
VI. This Acquisition is carried out based on the information and materials covered herein. Except for the Acquirer and the professional organizations qualified to engage in securities-related practice which it has engaged, nobody is entrusted or authorized to provide any information other than that disclosed herein or to interpret or explain this Report.

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Definitions.................................................................................................................................1	Definitions.................................................................................................................................1
CHAPTER I.	INTRODUCTION TO THE ACQUIRER.................................................4
1.	Basic Information of the Acquirer.....................................................................4
2.	The Equity Structure and Controlling Relationship of the Acquirer.................5
3.	Related Penalties and Significant Litigations or Arbitrations............................8
4.	Basic Information of the Acquirer’s and Its Shareholders’
	Directors and Senior Officers ............................................................................8
5.	Brief Information of the Acquirer’s and its Shareholders’ Holdings
	of More Than 5% of Issued Shares in Other Listed Companies........................9
CHAPTER II. INFORMATION ON SHAREHOLDINGS BY THE
ACQUIRER AND ITS SHAREHOLDERS ............................................................11
1.	The Shareholdings of the Acquirer and Its Shareholders in FELCO...............11
2.	Authorizations and Approvals of this Acquisition...........................................12
3.	Share Transfer by Agreement..........................................................................13
CHAPTER III. THE ACQUIRER’S TRADING OF FELCO’S LISTED
SHARES WITHIN SIX MONTHS PRIOR TO SUBMISSION OF
THIS REPORT ..........................................................................................................17
CHAPTER IV. MATERIAL TRANSACTIONS BETWEEN ACQUIRER
AND FELCO OR FELCO’S RELATED PARTIES..............................................20
1.	Material Transactions between OSRAM and FELCO.....................................20
2.	Material Transactions between Prosperity and FELCO ..................................20
3.	Others...............................................................................................................21
CHAPTER V. FUNDING SOURCE OF THE ACQUISITION AND
PAYMENT METHOD..............................................................................................22
1.	Source of the Acquisition Fund .......................................................................22
2.	Method of Payment..........................................................................................22
3.	Capability of the Acquirer to Complete this Acquisition ................................22
CHAPTER VI. FUTURE PLANS OF THE ACQUIRER FOR FELCO....................24
1.	Objective of Acquisition of Sales Shares.........................................................24
2.	Continual Acquisition or Disposal...................................................................24
3.	Share Segmentation Reform ............................................................................24
4.	Adjustment of Principal Business....................................................................25
5.	Decisions Concerning the Disposal of Substantial Assets and Debts
	of FELCO or Similar Significant Decisions....................................................26
6.	Change of FELCO’s Directors, Supervisors or Senior Management
	Personnel..........................................................................................................26
7.	Adjustment to the Organization or Corporate Governance of
	FELCO.............................................................................................................27
8.	Amendment to the Articles of Association of FELCO....................................27
9.	Contracts or Other Arrangements with Other Shareholders of
	FELCO.............................................................................................................27
10.	Other Plans That May Have Significant Impact on FELCO ...........................28
CHAPTER VII. ANALYSIS OF IMPACT ON THE LISTED COMPANY................29

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1.	Independence of FELCO .................................................................................29
2.	Connected Transactions...................................................................................30
3.	Affiliate Competition.......................................................................................33
4.	Special Risk Warning ......................................................................................35
CHAPTER	VIII. ANTI-TRUST EFFECT OF THIS ACQUISITION ON
THE	INDUSTRY .......................................................................................................36
1.	PRC’s Lighting Product Market ......................................................................36
2.	Anti-trust Legislation.......................................................................................36
CHAPTER	IX. LEGAL COMPLIANCE OF THIS ACQUISITION AND
DISCLOSURE OF INFORMATION ......................................................................38
1.	Legal Compliance of this Acquisition .............................................................38
2.	Legal Compliance of the Disclosure of Information of this
	Acquisition.......................................................................................................38
CHAPTER	X. FINANCIAL INFORMATION RELATING TO THE
ACQUIRER................................................................................................................39
CHAPTER	XI. OTHER MATERIAL ISSUES .............................................................46
CHAPTER	XII. DOCUMENTS AVAILABLE FOR INSPECTION ...........................47

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Takeover Report in respect of Foshan Electrical and Lighting Company Limited

DEFINITIONS

Unless otherwise stipulated in the context, the terms herein shall have the meanings defined as follows:

“Acquirer” OSRAM PROSPERITY Holding Company Limited, a company established and existing under the laws of Hong Kong;
this “Acquisition” the purchase of the Sale Shares by the Acquirer from the Vendor in accordance with the terms and conditions of the Share Purchase Contract;

“Board” Board of Directors of FELCO;

“CSRC” the China Securities Regulatory Commission of the PRC;

“Financial Advisor” Guotai Junan Securities Co. Ltd.;
“Financial Advisor’s the Independent Financial Advisor’s Report issued by the Report” Financial Advisor on 6 July 2005 in respect of this Acquisition;

“FELCO” Foshan Electrical and Lighting Company Limited, a company limited by shares listed on the Shenzhen Stock Exchange, with a Stock Code of 000541 (A Shares) and 200541 (B Shares);

“Joint Venture Contract” the Amended Joint Venture Contract dated 3 February 2005 between OSRAM and Prosperity regarding the establishment of the Acquirer;
“Lamps Purchase Contract” the Framework Purchase Contract entered into between OSRAM and FELCO for the purchase of lighting products by OSRAM from FELCO;
“Legal Opinion” the Legal Opinion and the Supplementary Legal Opinion issued by Beijing Commerce & Finance Law Office on 24 June 2005 on the relevant issues concerning this Acquisition;
“MOF”

the Ministry of Finance of the PRC;

“MOFCOM” the Ministry of Commerce of the PRC;
“MOFTEC”

the Ministry of Foreign Trade and Economic Cooperation, which was merged with SETC into MOFCOM on March 2003;

“OSRAM” OSRAM Gesellschaft mit beschränkter Haftung, a corporation organized and existing under the laws of

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Germany and having its registered place of business in Munich, Germany;

“OSRAM China”
OSRAM China Lighting Ltd., a wholly foreign-owned enterprise established under the laws of the PRC with its registered address at 1 Gongye North Road, Foshan Municipality, Guangdong Province, the PRC, which is owned as to 90% by OSRAM and 10% by Prosperity;
“PRC” the People’s Republic of China, and for the purpose of this Report, excluding the Hong Kong Special Administrative Region, the Macao Special Administrative Region and Taiwan;
“Prosperity” Prosperity Lamps and Components Limited, a company organized and existing under the laws of the Hong Kong Special Administrative Region and having its registered office at Room 4001-06, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong;
“Revised Articles” shall have the meaning ascribed to it in Section 2(1) of Chapter II;
this “Report” the Takeover Report in respect of Foshan Electrical and Lighting Company Limited executed on 17 February 2006;
“SAFE” the State Administration of Foreign Exchange of the PRC and / or its relevant local counterpart;
“SAIC” the State Administration for Industry and Commerce of the PRC;
“Sale Shares” 48,284,134 non-listed State-owned shares in the share capital of FELCO, representing 13.47% of the total issued shares of FELCO;
“SASAC” the State-owned Assets Supervision and Administration Commission of the State Council of the PRC and / or the relevant local counterpart;
“SETC”
the State Economic and Trade Commission, which was merged with MOFTEC into MOFCOM in March 2003;
“Share Purchase Contract” the Contract for the Sale and Purchase of Shares entered into by and between the Vendor and the Acquirer on 31 August 2004, including any amendments thereto;

“Share Reform the Memorandum on Matters relating to the Transfer of StateMemorandum” Owned Shares and The Share Segmentation Reform of Foshan Electrical and Lighting Co., Ltd. entered into by and

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between the Vendor and the Acquirer on 16 February 2006, including any amendments thereto;

“Siemens” Siemens Aktiengesellschaft, a corporation organized and existing under the laws of Germany whose shares are traded on the New York Stock Exchange;

“Subsidiaries” Chansheng Electronic Ballast Co., Ltd., QL Lamps and Components Co., Ltd. and Foshan Electrical and Lighting Modern Lighting Equipment Co., Ltd.;

“Vendor” State-owned Assets Supervision and Administration Commission of Foshan City People’s Government of 20th Floor, Chuangye Building, No. 162 Fengjiang South Road, Foshan Municipality, Guangdong Province, PRC.

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CHAPTER I. INTRODUCTION TO THE ACQUIRER

1. Basic Information of the Acquirer

Name: OSRAM PROSPERITY Holding Company Limited
Registered Address: Room 4007-09, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong
Company Registration Number: 909380
Type of Enterprise: company limited by shares incorporated in Hong Kong
Scope of Business: an enterprise with legal personality chiefly established for purposes of this Acquisition
Shareholders: OSRAM (currently holding 60.14% of the shares) Prosperity (currently holding 39.86% of the shares)
Contact Address: Room 4007-09, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong
Contact Person: Mr. Chong Kin Ngai / Ms. Annie Yang
Contact Tel: (852) 2511 2268
Email: [email protected]
Fax: (852) 2511 2038

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2. The Equity Structure and Controlling Relationship of the Acquirer

The Acquirer’s Equity Structure

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

Mr. Chong Kin Ngai
100% 100%
Prosperity Leigh Mr. Sam Mr. Chong
Electric Company Wai Yu Ka
Corporation Limited Keung
Siemens
20% 45% 30% 5%
100%
OSRAM Prosperity
60.14% 39.86%
Acquirer
----- End of picture text -----

2. The Acquirer’s Shareholders

The present shareholders of the Acquirer are OSRAM and Prosperity, owning 60.14% and 30.86% of the shares, respectively. The Acquirer is a holding company without any material business operations. All of its present funds are derived from the subscription monies paid in by its shareholders.

(1) OSRAM is the controlling shareholder of the Acquirer. Upon the completion of this Acquisition, OSRAM will be the share controller of the 13.47% of FELCO shares involved in this Acquisition. Through its power to control 60.14% of the shares of the Acquirer, OSRAM will be able to control the voting rights in respect of matters to be resolved by FELCO’s shareholders’ general meeting and board of directors, as specified in FELCO’s Articles of Association, which attach to the 13.47% of FELCO shares to be held by it. This exercise of control by OSRAM is in compliance with the law of the place of registration of the Acquirer.

OSRAM, established in 1919, is a 100% subsidiary of Siemens and is a corporation organized and existing under the laws of Germany. Siemens is a corporation organized and existing under the laws of Germany, and its securities are listed on the New York Stock Exchange. As of 14 November 2003, Siemens has about 1 million shareholders. Siemens’ global lighting business is concentrated in the hands of OSRAM and its subsidiaries and affiliates, which handle the said business independently.

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Basic Information of OSRAM

(i) Name: OSRAM Gesellschaft mit beschränkter Haftung
(ii) Registered address: Munich, Germany
(iii) Company Registration Number: HRB4151
(iv) Type of Enterprise: company limited by shares incorporated in Germany
(v) Scope of Business: research, development, production and sale of electric lamps and of electrical products based on optical semiconductors; research, development, production and sale of operating equipment, semi-finished products, components, and spare parts and accessories for such products, as well as of machines and other means of production required in the course of producing such products.
(vi) Shareholder: Siemens
(vii) Contact Method: through the Acquirer

OSRAM manufactures and sells complete sets of lighting products, electronic ballasts and LEDs all over the world (including the PRC). OSRAM has factories in 18 countries and its products are sold in over 140 countries around the world. In 2004, OSRAM achieved a global turnover of €4.24 billion and employed 36,644 people.

(2) Prosperity is engaged in the manufacturing and trading of lighting products, lamps and lighting materials. . The shareholders of Prosperity are:
(a) Prosperity Electric Corporation, owning 20% of the shares;
(b) Leigh Company Limited, owning 45% of the shares;
(c) Mr. Sam Wai Keung, owning 30% of the shares; and
(d) Mr. Chong Yu Ka, owning 5% of the shares.

Prosperity Electric Corporation and Leigh Company Limited are both companies incorporated in the British Virgin Islands and are 100%-owned by Mr. Chong Kin Ngai. Mr. Sam Wai Keung and Mr. Chong Yu Ka are the beneficial owners of their respective shares in Prosperity. Mr. Chong Kin Ngai, Mr. Sam Wai Keung and Mr. Chong Yu Ka are all permanent residents of Hong Kong.

Since its establishment in 1978, Prosperity has developed to become an international lighting product, lighting fixtures and materials manufacturing and trading group. Prosperity and its affiliates currently have sales offices and representatives in Shanghai, Beijing, Guangzhou, Xi'an, Chengdu, Guiyang, Zhengzhou, Zhongshan, Fuzhou for the sale of Prosperity’s products.

3. Basic Information on the Other Affiliate of the Acquirer and OSRAM

The Acquirer and OSRAM have the following affiliates in the China:

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(1) OSRAM China. OSRAM holds 90% of the equity of OSRAM China (a lamp manufacturer in Foshan Municipality, Guangdong Province) and Prosperity holds the other 10%. OSRAM China is controlled by OSRAM and is principally engaged in the production, processing, development and sale of electric light sources, all kinds of lamps and related equipment and materials.
(2) Chung Tak Lighting Control Systems (Panyu) Ltd. (“ Panyu Chungtak ”). A Sinoforeign cooperative enterprise established in Panyu, Guangzhou Municipality. The Share Controller holds 58.5% of the equity interest of Panyu Chungtak, General Electronics (Overseas) Co., Ltd., a Hong Kong company owns 31.5% of the equity of Panyu Chungtak and Panyu Erqing Industrial Group Corporation, a PRC enterprise, owns 10% of the equity interest of Panyu Chungtak. Panyu Chungtak is principally engaged in the manufacturing of electronic lighting control system and the assembly of printed circuit boards for energy saving lamps and the sale of these products.
(3) Apart from OSRAM China and Panyu Chungtak, OSRAM has not established any other enterprises in the PRC.
(4) The Acquirer has not established any enterprises in the PRC.
Basic Information on the Affiliates of Prosperity

Prosperity has the following affiliates in China;

(1) Prosperity (Hangzhou) Lighting Electrical Co., Ltd. (“ Prosperity Hangzhou ”). Prosperity Hangzhou is a wholly foreign-owned enterprise established in Hangzhou, Zhejiang Province and is 100%-owned by Prosperity. It is principally engaged in the manufacturing of lamps products.
(2) Prosperity (Nanjing) Lamps and Components Co., Ltd. (“ Prosperity Nanjing ”). Prosperity Nanjing is a wholly foreign-owned enterprise established in Nanjing, Jiangsu Province and 100%-owned by Prosperity. It is principally engaged in the manufacturing of fluorescent lamps.
(3) Prosperity Electric (China) Co., Ltd. (“ Prosperity China ”). Prosperity China is a wholly foreign-owned enterprise established in Langfang, Hebei Province and is 100%-owned by Prosperity. It is principally engaged in the manufacturing of lighting fixtures.
(4) SiTECO Prosperity Lighting (Langfang) Co., Ltd. (“ SiTECO Prosperity ”). SiTECO Prosperity is a Sino-foreign equity joint venture established in Langfang, Hubei Province and is 90%-owned by Prosperity. It is principally engaged in the manufacturing of lighting fixtures.
(5) Swanki (Nanjing) Electrical Co., Ltd. (“ Swanki ”). Swanki is a Sino-foreign equity joint venture established in Nanjing, Jiangsu Province and is 90%-owned by Prosperity. It is principally engaged in the manufacturing of lighting components and accessories.

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(6) Hangzhou Times Lighting Components Co., Ltd. (“ Hangzhou Times ”). Hangzhou Times is a Sino-foreign equity joint venture established in Nanjing, Jiangsu Province and is 75%-owned by Prosperity. It is principally engaged in the manufacturing of HID lamps.
(7) QL Lamps and Components Co., Ltd. (“ QL Lamps ”). Prosperity and FELCO respectively holds 60% and 40% of the equity interests in QL Lamps, a Sino-foreign equity joint venture established in Foshan City, Guangdong Province. QL Lamps is principally engaged in the manufacturing of halogen lamps.
(8) OSRAM China is 10%-owned by Prosperity and 90%-owned and controlled by OSRAM. It is principally engaged in the production, processing, development and sale of electric light sources, all kinds of lamps and related equipment and materials.

3. Related Penalties and Significant Litigations or Arbitrations

Since its establishment, the Acquirer has not been subjected to any administrative penalties or criminal punishment or been involved in any significant civil litigations or arbitrations related to economic disputes.

Neither OSRAM nor Prosperity has been subjected to any administrative penalties or criminal punishment related to the securities market in China or been involved in significant civil litigations or arbitrations related to economic disputes within the past five (5) years.

4. Basic Information of the Acquirer’s and Its Shareholders’ Directors and Senior Officers

Brief Information of the Acquirer’s Directors and Senior Officers (or persons-in-charge)

Name	Position	Nationality	Residence Permit in Other Country or Region
Martin GOETZELER	Director	German	Germany
CHONG Kin Ngai	Director	British	Hong Kong
Johannes NÄRGER	Director and General Manager	German	Germany
Annie YANG	Director and Financial Controller	British	Hong Kong

Other than the above directors and senior management personnel, the Acquirer has no other high level officers.

The above persons have not been subjected to any administrative penalties (except for those clearly unrelated to securities transactions or market) or criminal punishment or significant civil litigations or arbitrations related to economic disputes within the past five (5) years.

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Brief Information of OSRAM’s Directors and Senior Management Personnel (or persons-in-charge)

Name	Position	Nationality	Residence Permit in Other Country or Region
Goetzeler, Martin	CEO / President	German	Germany
Dr. Schaefer, Joerg	Executive VP Production and Engineering	German	Germany
Närger, Johannes	Executive VP Controlling	German	Germany
Dr. Gerl, Kurt	Executive VP Sales, Human Resources	German	Germany
Pokorny, Gerd	Senior VP General Counsel	German	Germany
Dr. Heidemann, Albert	Senior VP	German	Germany
Dr. Schurig, Matthias	Senior VP	German	Germany
Frauenknecht, Peter Alexander	Senior VP	German	Germany

Other than the above directors and senior management personnel, OSRAM has no other high level officers who participate in its daily management and operation.

3. Brief Information of Prosperity’s Directors and Senior Management Personnel (or persons-in-charge)

Name	Position	Nationality	Residence Permit in Other Country or Region
CHONG Kin Ngai	Director	British	Hong Kong
SAM Wai Keung	Director and General Manager	Chinese	Hong Kong
CHONG Yu Ka	Director	Chinese	Hong Kong

5. Brief Information of the Acquirer’s and its Shareholders’ Holdings of More Than 5% of Issued Shares in Other Listed Companies

The Acquirer and OSRAM do not hold any shares of any company listed on any securities exchange market within the PRC as of the date of this Report.

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Prosperity holds 143,700 B shares, representing 0.04% of the shares, in FELCO, as of the date of this Report. Other than this, Prosperity does not hold any shares of any company listed on any securities exchange market within the PRC as of the date of this Report.

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CHAPTER II. INFORMATION ON SHAREHOLDINGS BY THE ACQUIRER AND ITS SHAREHOLDERS

1. The Shareholdings of the Acquirer and Its Shareholders in FELCO

1. The Acquirer’s and OSRAM’s Current Shareholdings in FELCO

Based on the Shareholders Registry issued on 31 August 2004 by the Shenzhen Branch of China Securities Depository & Clearing Corporation, none of the Acquirer, OSRAM or Siemens held any shares in FELCO.

2. The Acquirer’s and OSRAM’s Shareholdings in FELCO upon Completion of This Acquisition

When this Acquisition is approved by the relevant authorities and completed in accordance with the Share Purchase Contract, the Acquirer will hold 48,284,134 shares in FELCO transferred by the Vendor, representing 13.47% of the total issued shares of FELCO. The voting rights in respect of matters to be resolved by FELCO’s shareholders’ general meeting and board of directors, as specified in FELCO’s Articles of Association, which attach to the said portion of shares will be actually controlled by OSRAM by means of its control over the Acquirer.

The following chart shows the shareholdings of the Acquirer and OSRAM in FELCO after the completion of this Acquisition:

==> picture [458 x 326] intentionally omitted <==

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3. Prosperity’s Shareholding in FELCO

Prosperity holds 143,700 B shares, representing 0.04% of the shares in FELCO as of the date of this Report. On 31 August 2004, Prosperity entered into a Contract for the Sale and Purchase of Shares with the Vendor for the purchase of 37,637,966 non-tradable state-owned shares in FELCO, representing 10.5% of the total share capital of FELCO. That transaction is separate from this Acquisition. Completion of that transaction is subject to approval by the relevant authorities.

The chart below shows the shareholdings of Prosperity in FELCO after that transaction:

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

Mr. Chong Kin Ngai
65% 100%
(Note 1) (Note 2)
Asia Lamp
Prosperity Industry (HK)
Limited
10.54% 0.62% 1.0756%
FELCO
----- End of picture text -----

Note 1: Prosperity Electric Corporation and Leigh Company Limited respectively owns 20% and 45% of the shares in Prosperity. Mr. Chong Kin Ngai beneficially owns 100% of Prosperity Electric Corporation and Leigh Company Limited.
Note 2: Mr. Chong Kin Ngai and Prosperity Electric Corporation respectively owns 1% and 99% of the shares in Asia Lamp Industry (HK) Limited. Mr. Chong Kin Ngai beneficially owns 100% of Prosperity Electric Corporation.

2. Authorizations and Approvals of this Acquisition

Authorizations
(1) The People’s Government of Foshan Municipality issued the Reply Concerning the Transfer of State-owned Shares in Foshan Electrical and Lighting Company Limited ( Fo Fu Ban Han [2004] No. 224) to the Vendor on 24 August 2004 and authorized the transfer of 48,284,134 shares in FELCO from the Vendor to the Acquirer;
(2) the Board of Directors of the Acquirer passed the resolutions approving this Acquisition on 31 August 2004;
(3) representatives of the Vendor and the Acquirer signed the Shares Purchase Contract in respect of this Acquisition on 31 August 2004;
(4) FELCO’s Board convened a meeting on 13 September 2004 and approved:

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(i) the revisions to the Articles of Association of FELCO (“ Revised Articles reflecting the changes in the number of non-listed State-owned shares and the number of foreign legal person shares of the FELCO consequent to this Acquisition;
(ii) the convening of a shareholders’ meeting of the FELCO to approve the Revised Articles;
(5) FELCO’s shareholders convened a meeting on 20 October 2004 and approved the Revised Articles according to the voting procedures for connected transactions.

2. Approvals

(1) Pursuant to the Notice of MOFCOM and SASAC Office Concerning the Application Procedures for the Transfer of State-owned Shares of Listed Companies to Foreign Investors and Foreign-invested Enterprises (Shang Zi Zi (2004) No. 1), issued by the Office of MOFCOM and SASAC on 21 January 2004 and other relevant statutes, the Vendor shall apply to the SASAC and FELCO shall apply to MOFCOM for the approval of the transfer of the Sale Shares from the Vendor to the Acquirer and the Revised Articles.

The People’s Government of Guangdong Province and national SASAC had respectively approved this Acquisition pursuant to the Official Reply ( Yue Fu Han [2005] No. 37 dated 21 March 2005 and the Official Reply ( Guo Zi Chan Quan [2005] No. 508). Furthermore, MOFCOM approved this Acquisition, the Share Purchase Contract and the Revised Articles pursuant to the Official Reply ( Shang Zi Pi [2005] No. 1165) dated 23 June 2005.

(2) Pursuant to the Measures for the Administration of the Takeover of Listed Companies , the CSRC had issued a no-objection letter in respect of the submission draft of this Report on 28 July 2005.

3. Share Transfer by Agreement

1. Background of the Execution of the Share Purchase Contract

In November 2003, representatives of OSRAM and Prosperity started to discuss with the Foshan Industrial Investment & Management Co., Ltd. (now renamed as Foshan Gongying Investment Holding Co., Ltd.) regarding the feasibility of acquiring the Sale Shares. OSRAM and Prosperity conducted business, legal and financial due diligence on FELCO in January 2004. In February 2004, OSRAM and Prosperity started to discuss and negotiate with Foshan Industrial Investment & Management Co., Ltd. the terms of the Share Purchase Contract. On 30 June 2004 the Acquirer was incorporated in Hong Kong, its shareholders being OSRAM (holding 60% of the shares) and Prosperity (holding 40% of the shares). On 31 August 2004 the Acquirer and the Vendor entered into the Share Purchase Contract.

2. Basic Information of the Share Purchase Contract

(1) Parties: Vendor and Acquirer

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(2) Number of shares to be transferred: 48,284,134 shares
(3) Ratio of shares to be transferred: 13.47%; the Vendor’s shareholding will be reduced to 10.5% upon the transfer
(4) Nature of shares to be transferred: non-listed State-owned shares; to become public legal person shares (foreign investment) upon the transfer
(5) Price of shares to be transferred, and method of payment thereof: RMB7.90 per share; RMB381,444,658.60 in total, to be paid entirely in cash in the equivalent amount in United States dollars. The Vendor and the Acquirer will determine the adjusted net asset value after FELCO’s accounts as of the completion date (the 10[th] business day after the pre-conditions to completion of this Acquisition have been satisfied – “ Completion Date ”) have been audited and the paid-out dividends for the year 2003 have been reversed. If the adjusted net asset value exceeds FELCO’s audited net asset value as of 31 December 2003, the Acquirer shall pay to the Vendor an amount equal to the excess multiplied by 13.47%. If the adjusted net asset value is less than FELCO’s audited net asset value as of 31 December 2003, the Vendor shall pay to the Acquirer an amount equal to the shortfall multiplied by 13.47%.
(6) Date of signing: 31 August 2004
(7) Pre-conditions to completion of this Acquisition:
7.1 the Vendor’s warranties in the Share Purchase Contract remaining true and accurate and not misleading;
7.2 the Vendor having complied fully with the following, among others, obligations:
- 7.2.1 The Vendor shall use its best endeavours to procure that the business of FELCO and the Subsidiaries is operated until completion of this Acquisition in the same manner as it was operated prior to the signing of the Share Purchase Contract;
- 7.2.2 as from the date of signing of the Share Purchase Contract, the Vendor will use its best endeavors to procure that the Acquirer and/or any persons authorized by it will be given such access to the premises and the right to review all books, title deeds, records and accounts of FELCO and the Subsidiaries as the Acquirer may reasonably request and will use its best endeavors to procure that the Directors and employees of FELCO and the Subsidiaries give all the aforesaid information and explanations to any such persons as aforesaid promptly upon their request;
7.3 the approvals set out in Section 2(2) of Chapter II;
7.4 the approval by FELCO’s Shareholders’ First Extraordinary General Meeting of the Lamps Purchase Contract in accordance with the voting procedure for connected transactions (Note: FELCO’s shareholders convened a meeting on

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20 October 2004 and approved the Lamps Purchase Contract according to the voting procedures for connected transactions).

(8) Special Provisions:
8.1 The Acquirer has undertaken to the Vendor that following completion of this Acquisition, it will exercise its voting powers in Board meetings and shareholders’ general meetings of FELCO to procure that:
- 8.1.1 FELCO will not change its registered address to a location outside of Foshan City;
- 8.1.2 the continuity of FELCO’s existing management will by and large be maintained provided that the performance of the existing management does not deteriorate and thereby adversely affecting the performance of FELCO;
- 8.1.3 FELCO will continue to market relevant products under the brands “Fenjiang”, “FSL” and “QL”; and
- 8.1.4 the employment issues of FELCO are handled in accordance with law and that the relative stability of FELCO’s labor force will be maintained except for good cause.
8.2 Following completion of this Acquisition, the Acquirer will undertake to handle any non-competition issues concerning the Acquirer and FELCO in accordance with law.
8.3 Within three (3) years of the completion of this Acquisition, the Acquirer will not transfer the Sale Shares to any third party. However, it shall not be barred from transferring the Sale Shares after the expiration of one year from the completion of this Acquisition to (i) an affiliate of the Acquirer; (ii) OSRAM (including its affiliate); and (iii) Prosperity (including its affiliate), provided that the ultimately attributable shareholding of OSRAM (including its affiliates) in FELCO shall not fall below 8.1%.
8.4 The Acquirer undertakes to and with the Vendor that, after completion of this Acquisition and upon request by FELCO, the Acquirer shall procure that OSRAM will consider providing appropriate technical assistance and knowhow to FELCO and the Subsidiaries on terms and conditions to be agreed among FELCO, the Subsidiaries and OSRAM.
In accordance with MOFCOM’s opinion, the Vendor and the Acquirer amended certain provisions of the Share Purchase Contract and re-executed the same on 20 June 2005. On the same date, the parties also executed a Memorandum of Understanding Concerning the Transfer of Shares in Foshan Electrical and Lighting Company Limited to document these amendments. The amendments and the Memorandum of Understanding do not materially change the key terms of the Share Purchase Contract disclosed in this Report.

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Save as set forth above and in Section 3 of Chapter VI of this Report, the Vendor and the Acquirer have not entered into any other supplementary agreement concerning this share transfer and have not made any arrangements for the exercise of share rights, nor have they made any other arrangements for other FELCO shares that will still be held by the Vendor following the completion of this share transfer.

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CHAPTER III. THE ACQUIRER’S TRADING OF FELCO’S LISTED SHARES WITHIN SIX MONTHS PRIOR TO SUBMISSION OF THIS REPORT

As of the date of the submission of this Report and save as the acquisition and control of FELCO’s listed shares by Mr. Chong Kin Ngai himself and Asia Lamps Industry (HK) Limited controlled by him as disclosed below:

(1) the Acquirer (including its shareholders, share controllers, and “concert parties”) has not traded in FELCO’s listed shares within 6 month prior to the signing of the Share Purchase Contract;
(2) the Acquirer’s directors and high level officers (or major responsible persons) and the lineal relatives of the aforesaid persons have not traded in FELCO’s listed shares within 6 month prior to the signing of the Share Purchase Contract;

The information on FELCO’s listed shares held by Mr. Chong Kin Ngai and his trading of FELCO’s listed shares within 6 months prior to the date of the signing of the Share Purchase Contract and within 6 months prior to the publication of this Report is as follow:

Mr. CHONG Kin Ngai, director of the Acquirer:

Account (1)

Date	Shares (Bought)	Share Price (Bought)	Shares Held in Aggregate
March 2004	1,000	9.29	1,075,273
	9,000	9.3	1,084,273
	2,800	9.6	1,087,073
	20,000	9.7	1,107,073
	50,000	9.55	1,157,073
	50,000	9.5	1,207,073
April 2004	50,000	9.5	1,257,073
	23,900	9.55	1,280,973
May2004	0	0	1,280,973
June2004	0	0	1,280,973
July2004	0	0	1,280,973
August2004	0	0	1,280,973
August2005	0	0	1,280,973
September 2005	0	0	1,280,973
October 2005	0	0	1,280,973
November 2005	0	0	1,280,973
December 2005	0	0	1,280,973
January2006	0	0	1,280,973
Total	206,700		1,280,973

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Account (2)

Date	Shares (Bought)	Share Price (Bought)	Shares Held in Aggregate
March 2004	0	0	2,415,500
April 2004	0	0	2,415,500
May2004	0	0	2,415,500
June2004	0	0	2,415,500
July2004	0	0	2,415,500
August2004	0	0	2,415,500
August2005	0	0	2,415,500
September 2005	0	0	2,415,500
October 2005	0	0	2,415,500
November 2005	20000	6.95	2,435,500
	20000	6.88	2,455,500
	10000	6.85	2,465,500
	30000	6.80	2,495,500
	10000	6.82	2,505,500
	10000	6.65	2,515,500
	10000	6.95	2,525,500
	10000	6.82	2,535,500
	10000	6.85	2,545,500
	10000	6.82	2,555,500
December 2005	5,000	6.75	2,560,500
	5,000	6.75	2,565,500
	9,000	6.62	2,574,500
January2006	0	0	2,574,500
Total	159,000		2,574,500

Asia Lamp Industry (HK) Limited controlled by Mr. CHONG Kin Ngai, director of the Acquirer

Date	Shares (Bought)	Share Price (Bought)	Shares Held in Aggregate
March 2004	0	0	2,047,478
April 2004	20000	9.17	2,067,478
	20000	8.85	2,087,478
May2004	0	0	2,087,478
June2004	20000	8.65	2,107,478
	10000	8.56	2,117,478
	20000	8.52	2,137,478
	20000	8.55	2,157,478
	4700	8.45	2,162,178
	20000	8.48	2,182,178
	20000	8.45	2,202,178
	10000	8.42	2,212,178
July2004	0	0	2,212,178
August2004	0	0	2,212,178

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Date	Shares (Bought)	Share Price (Bought)	Shares Held in Aggregate
August2005	0	0	2,212,178
September 2005	0	0	2,212,178
October 2005	0	0	2,212,178
November 2005	0	0	2,212,178
December 2005	0	0	2,212,178
January2006	0	0	2,212,178
Total	164,700		2,212,178

The shareholdings of Mr. Chong Kin Ngai, director of the Acquirer, and his related parties in FELCO as of 31 January 2006 are summarized below:

(i) Mr. Chong Kin Ngai, in his own name and via his client account opened with a securities firm, respectively holds 2,574,500 B shares and 1,280,973 B shares, representing in aggregate 1.0756% of the shares in FELCO;
(ii) Asia Lamp Industry (HK) Limited, whose shareholders are Mr. Chong Kin Ngai (1%) and Prosperity Electric Corporation (99%)(a company 100% owned by Mr. Chong Kin Ngai) holds 2,212,178 B shares, representing 0.62% of the shares in FELCO, via its client account opened with a securities firm;
(iii) Prosperity, a company 65%-owned by Mr. Chong Kin Ngai, held 143,700 B shares, representing 0.04% of the shares in FELCO;
(iv) The above-mentioned individuals and related parties did not sell any of their FELCO shares during the 6 months prior to this Acquisition.

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CHAPTER IV. MATERIAL TRANSACTIONS BETWEEN ACQUIRER AND FELCO OR FELCO’S RELATED PARTIES

1. Material Transactions between OSRAM and FELCO

On 31 August 2004, OSRAM and FELCO executed the Lamps Purchase Contract. The contract will be effective for a term of 60 months. If this Acquisition is not completed in accordance with the Share Purchase Contract, OSRAM and FELCO each has the right to terminate the Lamps Purchase Contract upon 30 days’ notice.

The Lamps Purchase Contract is a framework agreement. Under this contract, FELCO shall manufacture lamp products pursuant to specifications from OSRAM and sell the same to OSRAM and/or its affiliates for export and domestic sale. The prices for the lamp products sold to OSRAM, to be agreed in May of each year, will be fixed for consecutive twelve (12) month periods beginning on 1 October of a calendar year and ending on 30 September of the following calendar year. FELCO warrants that these prices so fixed will always be equal to the lowest selling price (including any bonus and other reduction arrangements if any) which FELCO agreed to in its sales to its other customers, for both exports and domestic PRC sales.

FELCO and OSRAM estimate that during the first year of the contract, OSRAM will purchase the value of not less than US$10 million and will increase such amount in subsequent years. FELCO guarantees that it is capable of supplying such annual quantities based on OSRAM’s delivery schedule.

The Acquirer expects that the Lamp Purchase Contract will consolidate FELCO’s position in the market. The extremely large quantity purchased by OSRAM will further optimise FELCO’s cost advantage and make FELCO even more competitive in China’s lighting industry.

The Lamps Purchase Contract was approved by the Board and Shareholders’ Meeting of FELCO respectively on 30 August and 20 October 2004 in accordance with the voting requirements for connected transactions. FELCO respectively made public announcements on the Lamps Purchase Contract on 15 September and 21 October 2004.

Please also refer to Section 2 of Chapter VII of this Report for information on the connected transactions between OSRAM (and its affiliates) and FELCO for the past three years prior to this Acquisition.

2. Material Transactions between Prosperity and FELCO

Based on Prosperity’s audited accounts, it has the following material transactions with FELCO for the 36-month period prior to date of the signing of the Share Purchase Contract (i.e., 1 September 2001 to 31 August 2004):

(1) Prosperity purchased from FELCO products worth about RMB110 million in the aggregate;
(2) Prosperity sold to FELCO raw materials worth about RMB16.24 million in the aggregate; and

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(3) Prosperity received commission fees of about RMB7.226 million in the aggregate in return for providing intermediary services for overseas procurement of equipment and machinery to FELCO.

Please also refer to Section 2 of Chapter VII of this Report for information on the connected transactions between Prosperity (and its affiliates) and FELCO for the past three years prior to the date of the signing of the Share Purchase Contract.

3. Others

Other than as disclosed above:

(1) during the 24 months immediately preceding the signature of this Report, there was no transaction whose aggregate amount was more than RMB 30 million or 5% of the net asset value listed on the latest audited consolidated financial report of FELCO between the Acquirer, OSRAM, their directors and high level officers (or main responsible persons) on the one hand, and FELCO, or other related parties, on the other hand;
(2) during the 24 months immediately preceding the signature of this Report, there was no transaction whose aggregate amount was more than RMB 50,000 between the Acquirer, OSRAM, their directors and high level officers (or main responsible persons) on the one hand, and FELCO’s directors, supervisors, or high level officers, on the other hand;
(3) during the 24 months immediately preceding the signature of this Report, there was no transaction that will involve any compensation or similar arrangements concerning FELCO’s directors, supervisors or high level officers who will are proposed to be replaced; and
(4) as at the date of this Report, there is no transaction or any other contract, understanding or arrangement signed or negotiated between the Acquirer and OSRAM on the one hand and any third party on the other hand which would be expected to have material impact on FELCO within 24 months from the date this Report is signed.

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CHAPTER V. FUNDING SOURCE OF THE ACQUISITION AND PAYMENT METHOD

1. Source of the Acquisition Fund

The Acquirer will fund the entire consideration for this Acquisition from its internal financial resources, which will be contributed by its shareholders as equity capital. No loans or any similar third party financing will be raised for this Acquisition.

On 15 July 2002, the Acquirer allotted 10 shares at the price of HK$1 per share, of which, OSRAM acquired 6 shares, with a shareholding ratio of 60% and Prosperity acquired 4 shares, with a shareholding ratio of 40%. On 25 September 2004, the Acquirer further allotted 14,990 shares, of which OSRAM acquired 9,015 shares for the price of US$4,170,709 and thereby holding 9,021 shares in aggregate and with a shareholding ratio of 60.14%; Prosperity acquired 5,979 shares for the price of US$2,764,291 and thereby holding 5,979 shares in aggregate and with a shareholding ratio of 39.86%. The injected funds were used to pay the goodwill money of US$6,900,000 under the Share Purchase Contract (amount to 15% of the share acquisition price). Following the completion date under the Share Purchase Contract, the goodwill money will form part of the payment of the share acquisition price; at the same time, the Acquirer will pay the remainder of the acquisition price to the Vendor. The Acquirer then will allot 85,000 shares, of which OSRAM will acquire 51,119 shares and will continue to hold 60.14% of the total shares; Prosperity will acquire 33,881 shares and will continue to hold 39.86% of the total shares.

2. Method of Payment

Within 10 business days after the signing of the Share Purchase Contract, the Acquirer has paid US$ 6,900,000 as goodwill money to an escrow agent jointly appointed by the Vendor and the Acquirer. The escrow agent is holding the money on the Acquirer’s behalf in an interest bearing account in Hong Kong and shall release it (together with interest accrued thereon), as part of the payment of the purchase price of the Sale Shares, to the Vendor on the Completion Date. The Acquirer will pay the remaining portion of the purchase price to the Vendor on the Completion Date.

3. Capability of the Acquirer to Complete this Acquisition

This Acquisition will be funded with the Acquirer’s own share capital: OSRAM and Prosperity will each inject capital into, and subscribe for shares of, the Acquirer at an agreedupon ratio. The share capital injected will be used by the Acquirer to pay the goodwill money and the remaining portion of the purchase price for this Acquisition. Upon completion of this Acquisition, OSRAM and Prosperity will respectively continue to hold 60.14% and 39.86% of the shares of the Acquirer.

Pursuant to the Share Purchase Contract, the price for the acquisition by the Acquirer is RMB381,444,658.60, of which funds amounting to 60.14% thereof (i.e. RMB229,400,817.68) are to be injected into the Acquirer by OSRAM. According to OSRAM’s audited financial report, as at 30 September 2004, its total assets were €4.03 billion, its net assets were €1.717 billion, and the amount of its short-term receivables and miscellaneous assets was €1.61

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billion. OSRAM’s financial statements show that it is fully capable of injecting the said funds into the Acquirer.

Pursuant to the Share Purchase Contract, the price for the acquisition by the Acquirer is RMB381,444,658.60, of which funds amounting 39.86% thereof (i.e. RMB152,043,840.92) are to be injected into the Acquirer by Prosperity. Based on the financial report of Prosperity, as at 31 December 2003, its total assets were HK$407,489,944.08, its net assets were HK$173,605,090.24 and the balance of its cash and bank deposits were HK$33,252,879.84. According to the reference letters issued respectively by Hang Seng Bank, KBC Bank (Hong Kong Branch) and ABN AMRO Bank, as of 31 December 2004, Prosperity’s total bank deposits amount to HK$464.54 million and Prosperity has been granted banking facilities for a total amount of HK$370 million. Based on the financial position of Prosperity as mentioned above, the Financial Advisor is of the opinion that Prosperity has the financial resources to completion the Acquisition through the Acquirer.

By a letter of guarantee dated 31 August 2004, OSRAM and Prosperity have jointly and severally guaranteed that they will pay the consideration for the Sales Shares to the Vendor if the Acquirer fails to do so.

The Financial Advisor concludes in the Financial Advisor’s Report that given the price of this Acquisition, the financial positions of the Acquirer and its shareholders and the guarantee from the Acquirer’s shareholders, the Acquirer has the ability to effect this Acquisition.

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CHAPTER VI. FUTURE PLANS OF THE ACQUIRER FOR FELCO

1. Objective of Acquisition of Sales Shares

(1) Through this Acquistion, OSRAM intends to forge a close and fair cooperation with FELCO. Through the Lamps Purchase Contract, OSRAM intends to start sourcing a variety of products from FELCO under OSRAM’s and other brand names and to distribute them through OSRAM’s international sales organization. This will help FELCO to increase its production capacity, lower costs and increase profitability. This will enhance the competitiveness of FELCO and OSRAM.
(2) After the completion of this Acquisition and upon request by FELCO, the Acquirer will procure that OSRAM will consider providing appropriate technical assistance and know-how to FELCO to enhance efficiency in production and to improve product quality on terms and conditions to be agreed between them.
(3) Currently, OSRAM has no plans to increase its shareholding in FELCO. However, if appropriate, OSRAM may acquire, directly or indirectly, through the Acquirer, additional shares in FELCO in the future. Thus, this Acquisition is an important first step towards the possible increase of shareholding in FELCO by OSRAM.

2. Continual Acquisition or Disposal

As of the date of signature of this Report, the Acquirer and OSRAM have no plan to acquire further shares in FELCO or to dispose of the shares to be held by it.

3. Share Segmentation Reform

The Acquirer has agreed to the FELCO share segmentation reform plan proposed by the Vendor in February 2006 and such plan will be announced simultaneously with this Report. The Acquirer and the Vendor also executed a memorandum in connection with the FELCO share segmentation reform on 16 February 2006 (“ Share Reform Memorandum ”).

The main contents of the Share Reform Memorandum are follows:

(1) The Acquirer undertakes not to trade on the exchange or transfer the Sale Shares (i) within a period expiring on the 60th month from the date when the Acquirer obtains the right to float the Sale Shares, or (ii) 31 December 2011 (whichever date in (i) or (ii) is earlier). The Acquirer undertakes to apply to the Shenzhen Stock Exchange to lockup the Sale Shares for the above restriction period that it has undertaken once the Sale Shares are registered under its name.
(2) The Acquirer undertakes that, within four years after the completion of the share segmentation reform and transfer of the Sale Shares, the Acquirer will present to the Shareholders’ Annual Meeting of FELCO a dividend distribution proposal and cast an affirmative vote for it to support a dividend distribution not lower than 65% of the realized distributable profits. “Distributable profits” in the preceding sentence means the net after-tax profit after deducting the reserves for the statutory funds and reasonable operating funds for the company.

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(3) The Acquirer undertakes that, within five years after the completion of the share segmentation reform and the share transfer, OSRAM will purchase lamp products in accordance with the provisions of the Lamps Purchase Contract.
(4) The Acquirer undertakes that, after completion of the share transfer and upon FELCO’s request, the Acquirer will cause OSRAM to consider providing FELCO with appropriate technical assistance and know-how in accordance with the terms and conditions to be agreed upon by FELCO and OSRAM.
(5) The Purchaser undertakes that, after the transfer of the Sale Shares, it will exercise its voting powers in Board meetings and shareholders’ meetings of FELCO to continue to appoint Mr. Zhong Xincai to act as the Chairman of FELCO at the election of the next term of board of directors in order to maintain the stability of the management team of FELCO and procure that the existing management of FELCO will by and large remain the same for three years, provided that the performance of the existing management does not deteriorate and thereby adversely affecting the performance of FELCO.
(6) For the purposes of motivating the management of FELCO and aligning the interests between them and the shareholders of FELCO, the Acquirer will actively push forward the shareholding incentive program for FELCO’s management.
(7) The Vendor and the Acquirer agree that, circumstances permitting, both parties shall jointly participate in the communications with the holders of A shares and other nonfloating shares.
(8) Subject to the conditions stipulated in the Share Reform Memorandum, the Vendor and the Acquirer shall faithfully perform their undertakings under the Share Reform Memorandum. If either party fails to perform or completely perform, it shall be liable to compensate the other shareholders of FELCO for the losses incurred by them as a result in accordance with Chinese law.
(9) The contents of the share segmentation reform plan (and the subsequent revisions thereto (if any) shall be agreed upon by both parties.

The above arrangement set forth in the Share Reform Memorandum and the Share Reform Proposal still need to be adopted at the relevant Shareholders’ Meetings of FELCO and require the approval the relevant government authorities. If either is not adopted or approved, the Vendor and the Acquirer agree to conduct consultations and make further arrangements in good faith with regard to the share reform and the share transfer.

4. Adjustment of Principal Business

The Acquirer and OSRAM currently have no plan to change the principal business of FELCO. Under the Share Purchase Contract, the Acquirer has undertaken to the Vendor that it will exercise its voting powers in Board meetings and shareholders’ general meetings of FELCO to procure that FELCO will not change its registered address to a location outside of Foshan City; and that FELCO will continue to market relevant products under the brands “Fenjiang”, “FSL” and “QL”.

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The Acquirer believes that with the respective experience of OSRAM and Prosperity in the lighting industry, it can bring the following advantages to FELCO upon the completion of this Acquisition:

(1) The Acquirer intends to help FELCO increase its exports sales. The Acquirer anticipates that the Lamps Purchase Contract will fully utilize the idle production capacity of FELCO and thereby strengthen its market position. The large volume purchases made by OSRAM will further optimize the cost advantage of FELCO and make it more competitive in the lighting industry in the PRC.
(2) At the request by FELCO, the Acquirer will procure OSRAM to consider providing appropriate technical assistance and know-how to FELCO on terms and conditions to be agreed between them.

5. Decisions Concerning the Disposal of Substantial Assets and Debts of FELCO or Similar Significant Decisions

The Acquirer and OSRAM currently have no plan to dispose of the substantial assets or debts of FELCO and other material similar plan upon completion of this Acquisition.

6. Change of FELCO’s Directors, Supervisors or Senior Management Personnel

Upon completion of this Acquisition, the Acquirer shall use its nomination and voting rights for the nomination and the election of members of FELCO’s Board which shall consist of at least 3 representatives from the Acquirer and 2 representatives from the current management of FELCO.

The Acquirer will nominate the following persons as candidates for directors of FELCO:

(1) Martin Goetzeler, German, 43 years old, had university education. He joined OSRAM in 1999 as CFO in OSRAM's subsidiary in Italy, was CEO of OSRAM UK and has been CFO of OSRAM Sylvania Inc., USA before becoming with effect from May 1, 2005 CEO of OSRAM.
(2) Mr. Chong Kin Ngai, British national, 56 years old, had university education. He is the President of Prosperity and has 30 years’ experience in the manufacturing and trading of lighting products. He is currently the Vice-chairman of FELCO’s Board.
(3) Johannes Närger, 45 years old, had university education. He joined OSRAM in 1995 and has been working in various functions as Controller for subsidiaries in Munich, and Vice President Corp. Finance at OSRAM Sylvania. Before he was appointed with effect from January 1, 2006 as CFO of OSRAM, he has been working as CFO for Siemens Medical Solutions Inc., USA.

Amongst them, Martin Goetzeler and Johannes Närger represent OSRAM, which will control their voting, and Mr. Chong Kin Ngai represents Prosperity.

Other than the above nominations, the Acquirer currently does not have any plan to adjust the Board, the board of supervisors and the management personnel of FELCO. Under the Share

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Purchase Contract, the Acquirer has undertaken to the Vendor that it will exercise its voting powers in Board meetings and shareholders’ general meetings of FELCO to procure that the continuity of FELCO’s existing management will be maintained provided that the performance of the existing management does not deteriorate and thereby adversely affecting the performance of FELCO.

Except for the above, the Acquirer currently has no other arrangement with respect to the exercising of voting rights for the election of directors relating to shares in FELCO.

7. Adjustment to the Organization or Corporate Governance of FELCO

The Acquirer currently has no plan to significantly adjust the organization of FELCO for the time being.

8. Amendment to the Articles of Association of FELCO

In connection with this Acquisition, FELCO has obtained approval from MOFCOM in respect of the Revised Articles. The Revised Articles reflect the changes in the number of non-listed State-owned shares and the number of foreign legal person shares of FELCO consequent to this Acquisition.

9. Contracts or Other Arrangements with Other Shareholders of FELCO

1. Agreement between OSRAM and Prosperity

Pursuant to the Joint Venture Contract, OSRAM and Prosperity agree that they will exercise their respective voting rights in the Acquirer in relation to matters concerning FELCO as set out below.

For matters to be decided by the shareholders’ general meetings and Board meetings of FELCO (as set out in Articles 42 and 94 of FELCO’s Articles of Association as may be amended from time to time), OSRAM and Prosperity agree that the exercise of the Acquirer’s voting rights in FELCO (at both shareholders’ meeting and Board meeting levels) shall be determined at the Acquirer’s shareholders’ meeting by a majority vote of 60.14% of the Acquirer’s share capital.

In addition, OSRAM and Prosperity further agree that their respective representatives in FELCO’s Board may exercise their voting rights independently in Board meetings according to their own discretion. If OSRAM or Prosperity holds any other shares in FELCO, each of them shall exercise its voting rights with respect to the shares held by it independently in shareholders’ general meetings according to its own discretion. They further confirm that they are not “parties acting in concert” within the meaning of the Measures for Administration of Acquisition of Listed Companies in respect of any other shares which may be independently held by each of them (by itself, its share controller or concert party) from time to time.

Except for the above agreement, the Acquirer and the other shareholders of FELCO have not entered into any agreement relating to the shares, assets, debts and business of FELCO.

2. Legal Opinion

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The Legal Opinion concludes that, upon the completion of this Acquisition, OSRAM will control the voting rights in shareholders’ general meetings and Board meetings in respect of the 13.47% shares in FELCO held by the Acquirer, and there is no acting in concert in respect of the voting rights held or controlled by Prosperity and OSRAM.

10. Other Plans That May Have Significant Impact on FELCO

On 31 August 2004, OSRAM and FELCO executed the Lamps Purchase Contract. Principal terms of this Contract are summarized in Section 1 of Chapter IV of this Report.

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CHAPTER VII. ANALYSIS OF IMPACT ON THE LISTED COMPANY

1. Independence of FELCO

Upon the completion of this Acquisition, FELCO’s related assets are independent from the Acquirer and OSRAM.
FELCO is a manufacturing enterprise, which has independently entered into agreements relating to procurement, manufacturing, sales and intellectual property with other companies or enterprises in accordance with laws and has its own and independent systems relating to operations, procurement, manufacturing and sales and intellectual property.
FELCO’s personnel are independent from the Acquirer and OSRAM. FELCO has executed labor contracts with its employees. The employees are subject to the administration of FELCO and FELCO pays the salary of its employees.
FELCO’s corporate organizations are independent. According to the Company Law and FELCO’s Articles of Association, FELCO has its shareholders’ meeting, the Board of Directors, the Board of Supervisors, and general managers. It has a sound corporate governance structure which is independent from the Acquirer and OSRAM.
FELCO’s has an independent accounting system. It has independent financial department, financial control system, and accounting system. It opens and maintains independent bank accounts and does not hold any joint bank account with the Acquirer and OSRAM. In addition, FELCO can make independent financial decisions and pay the taxes independently according to laws.
Pursuant to the Share Purchase Contract, the Acquirer has undertaken to the Vendor that following completion of this Acquisition, it will exercise its voting powers in Board meetings and shareholders’ general meetings of FELCO to procure that:
(1) FELCO will not change its registered address to a location outside of Foshan City;
(2) the continuity of FELCO’s existing management will by and large be maintained provided that the performance of the existing management does not deteriorate and thereby adversely affecting the performance of FELCO;
(3) FELCO will continue to market relevant products under the brands “Fenjiang”, “FSL” and “QL”; and
(4) the employment issues of FELCO are handled in accordance with law and that the relative stability of FELCO’s labor force will be maintained except for good cause.
As concluded in the Legal Opinion, the post-completion structure of FELCO’s corporate governance bodies also ensures the independence of FELCO as follows:

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(1) At the shareholders’ general meeting, the Acquirer will become the singlelargest shareholder by virtue of its 13.47% shareholding in FELCO. In the event that Prosperity completed its separate acquisition of the remaining 10.5% shares in FELCO from the Vendor, Mr. Chong Kin Ngai will control in aggregate 12.19% shareholding in FELCO and become the second largest shareholder. However, neither the Acquirer nor Prosperity will be able to control the decisions at the shareholders’ general meeting of FELCO by exercising the voting rights respectively held by each of them.
(2) At the Board level, the Acquirer will be able to exercise its nomination and voting rights to appoint three directors of FELCO. The one-third minority of the Acquirer on FELCO’s board of directors upon completion of the Acquisition will not give the Acquirer the ability to control the decisionmaking of FELCO. In particular, the Acquirer has undertaken under the Share Purchase Contract that the Board shall have at least two members from FELCO’s management. The Acquirer also understands that the institutional shareholder of FELCO will continue to have one representative on FELCO’s Board. These three directors and the three independent directors will ensure that the Board will safeguard the interest of FELCO and all its shareholders in formulating the development plan and strategy of FELCO.
(3) The Acquirer and Prosperity are not parties acting in concert within the meaning of the Measures for the Administration of the Disclosure of Information Relating to Changes in the Shareholdings of Shareholders of Listed Companies . Each of them will be able to vote, through their respective representatives, at the shareholders’ general meetings and Board meetings of FELCO according to its own discretion and free will.
(4) The senior management personnel of FELCO are appointed by the Board. Prior to and after this Acquisition, none of FELCO’s senior management personnel is affiliated to the Acquirer, OSRAM or Prosperity or subject to the control of the Acquirer, OSRAM or Prosperity, save for those instructions or order given through the board of directors of FELCO upon completion of this Acquisition.

2. Connected Transactions

Below is the information on the connected transactions between OSRAM and Prosperity (and their respective affiliates) on one hand and FELCO on the other hand during the three-year period prior to the date of the signing of the Share Purchase Contract (i.e., 1 September 2001 to 31 August 2004):

1. Connected Transaction between OSRAM (and its affiliates) and FELCO

1.1 Prior to the signing of the Share Purchase Contract, OSRAM and its affiliates (including the Acquirer) were not connected parties to FELCO as defined in the Listing Rules of the Shenzhen Stock Exchange (2001 Revision) .

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1.2 On 31 August 2004, OSRAM and FELCO executed the Lamps Purchase Contract. Principal terms of the Lamps Purchase Contract are summarized in Section 1 of Chapter IV above.
1.3 Apart from the above, there were no other connected transactions between OSRAM (and its affiliates) and FELCO.

As concluded in the Financial Advisor’s Report, the proposed transactions under the Lamps Purchase Contract will be conducted on the basis of market prices, and are conducive to increasing the sales revenue as well as strengthening the costs advantage of FELCO.

2. Connected Transaction between Prosperity (and its affiliates) and FELCO

Mr. Chong Kin Ngai has been a director of FELCO since 12 June 2001 and the companies controlled by him were deemed to be connected parties of FELCO pursuant to the Listing Rules of the Shenzhen Stock Exchange (2001 Revision) .

There is no framework agreement between Prosperity (including its affiliates) and FELCO in relation to the connected transactions between them. Such transactions are conducted based on the actual needs of the parties at irregular intervals and for irregular amounts.

2.1 Prosperity has the following connected transactions with FELCO within the 3-year period prior to signing of the Share Purchase Contract:
(a) Prosperity purchased products from FELCO. There were more than 500 such transactions and the amounts involved were about RMB110 million in the aggregate.
(b) Prosperity sold raw materials to FELCO. There were 98 such transactions and the total amounts involved were about RMB16.25 million in the aggregate.
(c) Prosperity provided intermediary services to FELCO in relation to its procurement of equipment and machinery from overseas. Under such arrangements, Prosperity provided procurement services, including making advance payments to overseas equipment suppliers on behalf of FELCO, in return for a commission. There were 64 such transactions and the commission fees received by Prosperity were about RMB7.226 million in the aggregate.
(d) Prosperity has entered into Agreements for the Contract Management of QL Lamps with FELCO, pursuant to which FELCO is responsible for the operation and management of QL Lamps. These are in fact shareholders’ agreements between Prosperity and FELCO concerning the operation and management of QL Lamps. They have been approved by the board of directors of QL Lamps and are valid and legal. In the three-year period prior to signing of the Share Purchase Contract, neither FELCO nor Prosperity has paid any amounts to each other pursuant to the aforementioned agreements. Further, FELCO is not liable to make any payments to Prosperity under these agreements.

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2.2 Prosperity’s affiliates have the following connected transactions with FELCO within the 3-year period prior to the date of the signing of the Share Purchase Contract:
(a) Since its establishment in late 2002, Prosperity Hangzhou purchased from FELCO products worth about RMB12.53 million over more than 110 transactions.
(b) In 2003 and 2004, Hangzhou Times sold products to FELCO worth about RMB110,000. During the same period, Hangzhou Times bought products from FELCO worth about RMB5.53 million over about 80 transactions.
(c) Prosperity China bought from FELCO products worth about 23.04 million over more than 100 transactions. RMB910,000 in 2004 only.
Conclusions in the Financial Advisor’s Report and Legal Opinion in respect of Connected Transactions

According to the conclusion in the Financial Advisor’s Report, the connected transactions between Prosperity and its affiliates on one hand and FELCO on the other are based on market prices and do not prejudice the interest of FELCO. According to the Legal Opinion, such connected transactions with Prosperity (and its affiliates) occur in the ordinary course of FELCO’s business and do not prejudice the interest of FELCO. As such transactions will continue to occur in the future, FELCO shall, if necessary, submit them for approval by its board of directors or shareholders’ general meeting based on the estimated transaction amount of the continuing connected transactions that occur during its ordinary course of business, obtain its independent directors’ opinion and make relevant disclosures.

4. Measures Adopted by OSRAM and Prosperity in respect of Connected Transactions

OSRAM and Prosperity have respectively issued written undertakings on 18 October 2004 and 1 February 2005 to undertake that, in respect of connected transactions which occur reasonably, OSRAM and Prosperity will sign agreements in accordance with law, comply with legal procedures and disclosure obligations and complete the application for approval procedures in accordance with relevant laws, regulations and the Listing Rules of the Shenzhen Stock Exchange , and not to harm the lawful interest of FELCO and its other shareholders.

Furthermore, FELCO has adopted a prudent corporate governance structure. This structure guarantees the fairness of connected transactions and upholds the interest of all the shareholders. FELCO’s Articles of Association require a connected shareholder to abstain from voting on connected transactions and that a connected director must forthwith disclose to the Board the nature and extent of any affiliation of which he (or companies in which he is employed) is involved.

The Financial Advisor is of the opinion that the requirement for abstention of connected shareholders and the respective undertakings from OSRAM and Prosperity will guarantee the fairness, equity and reasonableness of the connected transactions that may occur after the completion of this Acquisition.

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3. Affiliate Competition

The lighting industry in China is highly competitive. According to data of the China Association of Lighting Industry, there are more than 5,000 lighting product manufacturing enterprises in China. These enterprises compete with each other in different lighting products.

1. Competition between the Acquirer and its Parent Company

The Acquirer was incorporated in Hong Kong in June 2004 and is a holding company specifically established by OSRAM and Prosperity for this Acquisition. The Acquirer does not have any investment, has not established any enterprise or engaged in any business in China. As such, there is no issue of competition between the Acquirer and its parent company and other shareholder (OSRAM and Prosperity).

2. Businesses of OSRAM (and its affiliates) and FELCO

The businesses of OSRAM and FELCO (including their respective affiliates) in both the PRC and the international markets are briefly set out below.

2.1 Overlapping of Businesses between the PRC Enterprises Invested by OSRAM and FELCO
(a) FELCO’s lighting products consist of three main categories: lighting products, fixtures and accessories. OSRAM’s PRC investees principally produce lighting products. The small quantities of fixtures produced by them are mainly bundled with their own products, and neither the fixtures nor the components that they produce are sold individually. Accordingly, there is no competition between OSRAM’s fixtures and accessories and those of FELCO.
(b) OSRAM’s only PRC investees are OSRAM China and Panyu Chungtak. Please refer to Section 2(3) of Chapter I of this Report for a brief introduction of these entities.

Panyu Chungtak is controlled by OSRAM, which has a 58.15% equity interest in it. Panyu Chungtak is principally engaged in the production of electronic lighting control system and the assembly of printed circuit boards for energy saving lamps and the sale of these products. In 2003, Panyu Chungtak’s sales revenue from electronic lighting control systems was about RMB1.2 billion, which exceeded FELCO’s total sales revenue in the same year. Also, Panyu Chungtak exports 100% of its products as prescribed in its business license. The only identical or similar product produced by both Panyu Chungtak and FELCO are electronic ballasts. However, FELCO’s electronic ballasts are for domestic sale only and the sales revenue from it was RMB495,600 in 2003, accounting for only about 0.049% of FELCO’s total sales revenue in that year. Therefore, there is no competition between Panyu Chungtak and FELCO.

(c) OSRAM China is controlled by OSRAM, which has a 90% equity interest in it. Based on the details of the product types and models provided by OSRAM China and FELCO, the two companies produce products of identical models with identical functions. Even though there are differences in the respective target markets and distribution channels of the two companies, some of their

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products partly overlap in terms of end-markets and end-users. Moreover, given that lighting products of different types are to some extent interchangeable in terms of function (e.g. incandescent lamps and energysaving lamps), different types of products might be interchangeable for particular function(s). Accordingly, OSRAM China and FELCO produce products of the same or similar types.

2.2 Overlapping of Businesses between OSRAM and FELCO in Domestic Market

OSRAM imports products manufactured overseas into China for sale. As OSRAM’s prices are on average about 110% higher than those of FELCO, the prices of the two companies’ products in the domestic market are markedly different.

2.3 Overlapping of Businesses between OSRAM and FELCO in International Market

In the international markets, FELCO mainly provides traders with lighting products in the capacity of an original equipment manufacturer. Export sales under its “FSL” brand only accounts for about 10% of its total sales. OSRAM sells all its products in international markets under the brand name of “OSRAM”. In 2003, FELCO exported RMB323 million worth of products, whereas OSRAM’s global sales (most of which were conducted outside China) amounted to €4.2 billion in the same year, which shows there is a huge gap between their market shares in the international markets.

3. Businesses of Prosperity and FELCO

As of the end of 2004, Prosperity has established eight affiliates in China which also engage in the manufacture of lighting products, fixtures and accessories. Please refer to Section 2(4) of Chapter 1 of this Report for a brief introduction of these entities.

The products sold under the brand names of Prosperity are either procured from FELCO as an original equipment manufacturer or manufactured by Prosperity and its affiliates. The products of Prosperity and are relatively similar to those of FELCO in terms of types, models, functions and prices.

4. Conclusions in the Financial Advisor’s Report and Legal Opinion in respect of Affiliate Competition

According to the conclusions in the Financial Advisor’s Report, OSRAM and FELCO are engaged in similar or identical businesses; however, there are considerable differences between the prices and market shares of their products in both the domestic and international markets. On the other hand, there are affiliate competition between Prosperity and FELCO in respect of GLS lamps, fluorescent lamps and halogen lamps. The Financial Advisor’s Report further concludes that, because neither OSRAM nor Prosperity will have actual control of FELCO, the aforementioned situation will not constitute a violation of relevant laws and regulations, and FELCO will not be in a disadvantageous position in respect of its competition with OSRAM and Prosperity.

According to the conclusion in the Legal Opinion, neither OSRAM nor Prosperity will, upon this Acquisition, become a “controlling shareholder” of FELCO as defined in the Guide for Articles of Association of Listed Companies issued by the CSRC on 16 December 1997 or

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FELCO’s Articles of Association, both of which provide that a controlling shareholder is a shareholder holding 30% or above of the issued shares of a listed company. There is also no evidence that either OSRAM or FELCO may actually control FELCO at the different levels of its shareholders meeting, Board or management. The Legal Opinion also concurs that neither the similarity / overlapping of the business between OSRAM and FELCO nor the competition between Prosperity and FELCO is in violation of relevant laws and regulations.

5. Measures Adopted by OSRAM and Prosperity in respect of Overlapping of Businesses

OSRAM and the Acquirer have respectively issued undertakings on 18 October 2004 stating its support for the independent development of FELCO and that it will not inappropriately hinder the production and operation of FELCO. In accordance with the provisions of the Share Purchase Contract, OSRAM and the Acquirer agree to procure that FELCO’s existing management will by and large remain the same and that FELCO will continue to market relevant products under the brands “Fenjiang”, “FSL” and “QL”. Subject to the approval of the respective corporate organs of FELCO (which OSRAM and the Acquirer cannot and will not control), OSRAM and FELCO will try to develop each party’s strength in business and use one’s reasonable efforts to create synergies in production and sales for the benefits of all parties through the formulation of appropriate development strategy and diversifying the strategic positioning.

Prosperity issued an undertaking on 1 February 2005 on substantially the same terms of that issued by OSRAM and the Acquirer described in the preceding paragraph. In respect of its existing competition with FELCO, Prosperity has further undertaken that in the foreseeable future, it will not expand the existing production scale of lamps products and, if the sales of these or other products expand in the future, it will, on the condition that FELCO has sufficient capacity, procure the products from FELCO on a priority basis. If for any reason FELCO cannot supply the products, Prosperity may source the products from other suppliers or manufacture them itself.

4. Special Risk Warning

The Financial Advisor’s Report notes that, upon the completion of this Acquisition, there will be connected transactions and affiliate competition between FELCO and each of OSRAM and Prosperity to a certain extent. The interest of FELCO may be affected to a certain extent in the event the measures adopted by the Acquirer (or its affiliates) are inappropriate.

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CHAPTER VIII. ANTI-TRUST EFFECT OF THIS ACQUISITION ON THE INDUSTRY

1. PRC’s Lighting Product Market

The Acquirer understands the PRC lamp market to be characterised by heavy competition among thousands of lamp manufacturers and as a result of this, a permanent price decline has existed for many years. In all categories of lamp (General Lighting, Automotive, Electronic Ballasts, Halogen, etc.) there are numerous players that it usually is the customer side (i.e. the demand side) and not the manufacturer side that drives the competition in terms of quality and price.

According to the Survey Report on China’s Lighting Industry published by the China Association of Lighting Industry in July 2004, the shares of the PRC market as a whole held by each of OSRAM, Prosperity and FELCO are as follows:

OSRAM: about 4.47% Prosperity: less than 1% FELCO: about 6.25%

As FELCO is an independent company and OSRAM and Prosperity are bound by law and by the undertakings given in the Share Purchase Contract not to interfere or control the daily operation of FELCO, it is not possible to consolidate the market shares of FELCO, OSRAM and Prosperity.

2. Anti-trust Legislation

Article 19 of the Provisional Regulations for the Acquisition of Domestic Enterprises by Foreign Investors promulgated by MOFTEC, the State Administration of Taxation, SAIC and SAFE provides that, when a foreign investor’s acquisition of a domestic enterprise involves any of the following circumstances, the investors shall report the same to MOFTEC and the SAIC: (1) any of the parties to the acquisition had a turnover in the Chinese market during the current year exceeding RMB1.5 billion; (2) the foreign investor acquired more than 10 enterprises in related industries in China in one year; (3) any of the parties to the acquisition already controls not less than 20 percent of the Chinese market; or (4) the acquisition will cause the Chinese market share of any of the parties thereto to reach 25 percent.

This Acquisition does not involve any of the above circumstances because of the following reasons:

None of OSRAM, Prosperity and FELCO has an annual turnover in the PRC lighting product market of RMB1.5 billion.
Neither OSRAM nor Prosperity has acquired more than 10 enterprises in the PRC in the last year.
None of OSRAM, Prosperity or FELCO already controls more than 20% of the Chinese lighting products market.

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This Acquisition will not result in the market share of OSRAM, Prosperity or FELCO in the Chinese lighting products market reaching 25%.
On a more general basis, the Acquirer believes that the PRC antitrust rules should not apply to this Acquisition, because neither OSRAM nor Prosperity will control FELCO as a result of this Acquisition. As stated in the Legal Opinion, OSRAM only controls the 13.47 % FELCO shares held by the Acquirer.

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CHAPTER IX. LEGAL COMPLIANCE OF THIS ACQUISITION AND DISCLOSURE OF INFORMATION

1. Legal Compliance of this Acquisition

The Legal Opinion and Financial Advisor’s Report conclude that this Acquisition by the Acquirer does not violate Chinese laws and regulations. Pursuant to the Share Purchase Contract, it will be effective upon approvals by SASAC and MOFCOM, no objection from the CSRC being raised, completion of the foreign exchange registration by the Acquirer and the approval of the Lamps Purchase Contract and the Revised Articles by the FELCO’s shareholders’ general meeting. Furthermore, in accordance with Chinese laws, upon the satisfaction of the said conditions, the Acquirer may complete the share registration procedures to complete this Acquisition.

2. Legal Compliance of the Disclosure of Information of this Acquisition

The Legal Opinion concludes that the Acquirer has fulfilled its information disclosure obligations in respect of this Acquisition in accordance with the relevant laws and regulations.

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CHAPTER X. FINANCIAL INFORMATION RELATING TO THE ACQUIRER

Financial Information of OSRAM, the Share Controller of the Acquirer

Profit and Loss Account of OSRAM For the Years Ended 30[th] September, 2003, 2002 and 2001 in EUR’000

	2002/03	2001/02	2001/02
Sales Turnover costs Gross result from the turnover Research and development costs Distribution costs General administrative costs Other operational income Other operational expenses Result from investments Result from interest Other financial result Result from the usual business activities Income tax on the result from the usual business activities	1,469,843 -1,079,811 390,032 -76,146 -166,217 -33,178 5,640 0 69,697 2,101 100 192,029 -36,797	1,435,128 -1,065,009 370,119 -77,263 -155,546 -31,100 5,18 -8 32,028 1,76 -202 144,904 -7,754


Surplus for the year before extraordinaryresults	155,232		137,150

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BALANCE SHEET OF OSRAM as at 30[th] September 2003, 2002 and 2001 in EUR’000

ASSETS	30.09.03	30.09.02	30.09.01
A. Property, plant and equipment
Intangible property	5,808	2,893	3,857
Property, plant and equipment
Acquisition and manufacturing
costs	1,132,766	1,096,788	1,054,477
Accumulated depreciation	-902,227	-879,630	-853,817
	230,539	217,158	200,660
	926,903	923,963	918,839
Financial assets	1,163,250	1,144,014	1,123,356
B. Revolving Assets
Inventories	1,774,821	95,369	224,320
Accounts receivable and
other asset items
Trade accounts receivable	73,076	68,434	52,767
Accounts receivable from
Associates	48,750	81,191	86,684
Other receivables and other
asset items	6,719	9,151	9,462
	128,545	158,776	148,913
Securities	1,530	900	0
Liquid funds	399	1,563	246
	307,956	356,608	373,479
C. Prepaid expenses	539	830	0
Total ASSETS	1,471,745	1,501,452	1,496,835
LIABILITIES
A. Net worth
Subscribed capital	562,940	562,940	562,933
Capital contribution for
an increase in capital		0	7
Capital reserve	62,824	62,824	62,824
Profit reserves	233,536	233,536	233,536
	859,300	859,300	859,300
B. Special reserves, not taxable
until liquidation	22,119	23,336	24,960
C. Accruals
Pensions and similar obligations	267,968	262,171	245,727
Other accruals	177,810	165,816	165,233
	445,778	427,987	410,960
D. Financial debts	0	2	0
E. Other accounts payable
Trade accounts payable	71,965	62,188	82,773
Accounts payable to associates	7,553	41,046	18,046
Other liabilities	65,030	87,593	100,796
	14,454	8,190,827	201,615
Total LIABILITIES	1,471,745	1,501,452	1,496,835

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The audited reports of OSRAM were qualified by the following statements:

(1) The financial statements of the last three years audited by KPMG Deutsche TreuhandGesellschaft Aktiengesellschaft (“ KPMG ”) were prepared in accordance with Art. 317, Commercial Code of Germany, taking into account the German principles of proper auditing as determined by Institut der Wirtschaftsprüfer (Institute of Auditors).
(2) KPMG had audited the annual accounts, taking into account the accounting and director’s reports of OSRAM for the financial years from 1 October 2001 to 30 September 2003.
(3) The maintaining of business accounts, the preparation of the annual accounts and the directors’ report in accordance with the provisions of the Commercial Code of Germany are the responsibility of the management of the Company. KPMG’s duty is to give an assessment of the annual accounts based on the audit carried out by it, that takes into account the accounting and directors’ report.

KPMG gave the following opinions regarding the financial statements of the last three (3) years in such audited reports:

(1) KPMG’s audits contain the assessment of the applied accounting principles and the major evaluations by the management as well as the assessment of the overall presentation of the annual accounts and the directors’ report.
(2) KPMG’s audits form a sufficiently secure basis for its assessment.
(3) KPMG’s audits have not given rise to any objections.
(4) The financial statements, taking into account the compliance with the principles of proper accounting, effectively illustrate the actual assets, financial and earnings position of OSRAM. The directors’ report on the whole gives an accurate representation of the situation of OSRAM and accurately outlines the risks of the future development.

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Financial Information of Prosperity, a Shareholder of the Acquirer

Profit and Loss Account For the Years Ended 31 December 2003, 2002 and 2001

(Expressed in Hong Kong Dollars)

TURNOVER Cost of sales GROSS PROFIT Other revenue Selling and distribution expenses Administrative expenses Other operating expenses PROFIT FROM OPERATIONS Finance cost PROFIT BEFORE TAXATION (Note 11) Taxation NET PROFIT FOR THE YEAR	2003 2002 2001 $ 342,380,189.04 $ 346,279,417.63 $ 319,467,264.02 (284,958,338.07) 280,070,284.94 246,150,843.60
	$ 57,421,850.97 $ 66,209,132.69 $ 73,316,420.42 18,752,566.84 12,991,230.13 19,678,999.02 (7,986,893.40) (9,301,698.34) (9,413,761.00) (32,152,664.66) (38,615,013.68) (32,902,845.69) (6,854,187.74) (4,596,027.15) (8,513,761.13)
	$ 29,180,672.01 $ 26,687,623.65 $ 42,165,051.62 (1,813,016.25) (1,638,711.42) (2,567,154.81)
	$ 27,367,655.76 $ 25,048,912.23 $ 39,597,896.81 (3,220,704.00) (3,420,846.00) (3,687,260.00)
	$ 24,146,951.76 $ 21,628,066.23 $ 35,910,636.81

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Prosperity

Balance Sheet at 31 December 2003, 2002 and 2001

(Expressed in Hong Kong Dollars)

ASSETS NON-CURRENT ASSETS Fixed assets Interest in subsidiary companies Interest in associated company Other investment CURRENT ASSETS Stocks Accounts receivable Other debtors Amount due from related companies Sundry receivable Trade and other deposits Temporary payment Utility deposits and prepayments Cash and bank balances Tax refundable LESS: CURRENT LIABILITIES Bank overdraft Bills payable Accounts payable Amount due to a director Other payable Amount due to related company Temporary receipts Accrued expenses Short term bank loan NET CURRENT ASSETS NON-CURRENT LIABILITIES Deferred taxation	2003 2002 2001 $ 9,564,927.26 $ 9,886,547.65 $ 10,103,379.36 122,216,549.24 86,162,808.88 39,000,000.00 1,015,438.74 1,008,893.51 1,008,893.53 35,081,323.17 - 7,813,703.00 $ 22,367,312.37 $ 29,249,605.48 $ 34,694,596.46 85,149,037.32 83,161,013.18 67,102,673.97 2,872,562.64 12,475,403.52 4,140,875.86 82,931,745.95 79,366,446.42 92,553,347.34 3,172,757.50 8,939,612.17 8,939,612.17 772,377.33 499,142.04 1,018,376.74 - 280,397.33 - 7,795,325.55 7,816,775.55 8,559,529.70 33,251,879.84 34,213,051.65 30,863,360.62 1,141,559.00 406,412.00 1,230,862.00
	$ 239,454,557.50 $ 256,407,859.34 $ 249,103,234.86 $ - $ 12,867,633.04 $ 9,275,054.40 31,552,859.43 45,765,382.98 53,692,020.45 40,933,090.74 56,633,757.80 45,423,040.85 50,896,056.15 31,537,937.12 - 1,960,657.00 2,013,364.60 2,871,553.19 20,025,047.99 13,778,797.31 15,588,597.29 - - 278,732.96 8,123,938.36 118,552.57 1,066,205.88 80,120,056.00 37,190,056.00 33,901,444.00
	$ 233,611,705.67 $ 199,905,481.42 $ 162,096,649.02 $ 5,842,851.83 $ 56,502,377.92 $ 87,006,585.84 (116,000.00) (170,000.00) (170,000.00)
	$ 173,605,090.24 $ 153,390,627.96 $144,762,561.73

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Prosperity

Balance Sheet at 31 December 2003, 2002 and 2001 (Cont’d)

(Expressed in Hong Kong Dollars)

CAPITAL AND RESERVES SHARE CAPITAL Authorized, issued and fully paid :- 2,000,000 shares of $1.00 each RETAINED PROFITS	2003 2002 2001 $ 2,000,000.00 $ 2,000,000.00 $ 2,000,000.00 171,605,090.24 151,390,627.96 142,762,561.73
	$ 173,605,090.24 $ 153,390,627.96 $144,762,561.73

The audited reports of Prosperity were qualified by the following statements:

(1) The financial statements of the last three years audited by Thomas So & Partners CPA Limited (“ Thomas So Auditors ”) were prepared in accordance with all applicable Statements of Standard Accounting Practice and Interpretations issued by the Hong Kong Society of Accountants, accounting principles generally accepted in Hong Kong and the requirements of the Hong Kong Companies Ordinance. Thomas So Auditors had conducted its audit in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the accounts. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the accounts, and of whether the accounting policies are appropriate to the company’s circumstances, consistently applied and adequately disclosed.
(2) Thomas So Auditors had planned and performed its audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the accounts are free from material misstatement. In forming its opinion it also evaluated the overall adequacy of the presentation of information in the accounts.

Thomas So Auditors gave the following opinions regarding the financial statements of the last three (3) years in such audited reports:

(1) The Prosperity Group’s accounts have not been prepared to incorporate the results of the subsidiary company. This is not in accordance with the requirement of the Statement of Standard Accounting Practice No. 32 (“ SSAP 32 ”) issued by the Hong Kong Society of Accountants.
(2) Results of the associated company have not been incorporated in the accounts using the equity methods of accounting as required by the Statement of Standard Accounting Practice No. 10 (“ SSAP 10 ”) issued by the Hong Kong Society of

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Takeover Report in respect of Foshan Electrical and Lighting Company Limited

Accountants as the associated company’s accounts year end date is not co-terminus with that of the company.

(3) Except for the failure to account for the subsidiary company referred to above as required by SSAP 32, and to incorporate the results of the associated company as required by SSAP 10, in Thomas So Auditors’ opinion, the accounts give a true and fair view of the state of the company’s affairs as at 31 December 2003 and of its profit and cash flows for the year then ended and have been properly prepared in accordance with the Hong Kong Companies Ordinance.

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CHAPTER XI. OTHER MATERIAL ISSUES

The Acquirer has no other information that must be disclosed in order not to cause the content of this Report to become misleading.

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Takeover Report in respect of Foshan Electrical and Lighting Company Limited

CHAPTER XII. DOCUMENTS AVAILABLE FOR INSPECTION

(1)
The registration documents of the Acquirer, OSRAM and Prosperity.
(2) List and ID cards / passport copies of the directors and senior management personnel of the Acquirer and OSRAM.
(3) Resolutions of the Board of Directors of the Acquirer regarding this Acquisition (originals and Chinese translations).
(4) The audited financial reports for 2001-2003 of OSRAM and of Prosperity and reference letters issued by ABN-AMRO and Hang Seng Bank in respect of Prosperity’s credit situation (originals and Chinese translations).
(5) Agreement(s) between OSRAM and Prosperity concerning capital contributions and OSRAM’s exercise of the power attaching to its controlling shareholding: Joint Venture Contract and between OSRAM and Prosperity, Supplemental Contracts and Articles of Association (original texts and Chinese translation(s)).
(6) The Share Purchase Contract between the State-owned Assets Supervision and Administration Commission of Foshan City People’s Government and the Acquirer.
(7)
A description of the share transfer.
(8) A description of the issue concerning the right of control of the Acquirer between OSRAM and Prosperity.
(9) Agreement between OSRAM and Prosperity concerning the source of funding of this Acquisition (other than the agreement relating to capital contribution): Letter of Guarantee and Escrow Contract.
(10) A document issued by the Acquirer’s auditors confirming the transactions between the Acquirer and listed companies that were completed between 1 August 2002 and 31 July 2004.
(11) Other legal documents relating to this Acquisition: Revised Articles.
(12) The list of the directors and senior management personnel (or other major responsible persons) of the Acquirer and the lineal relatives of the above persons and the statements and evidence on the Acquirer’s and the above persons’ shareholdings or trading of FELCO’s shares within 6 months before the documents are submitted.
(13) Contract signed by OSRAM and FELCO but which has not yet been implemented: Lamp Purchase Contract.
(14) Undertakings relating to connected transactions and competition issued by OSRAM, the Acquirer and Prosperity.
(15) The Legal Opinion.

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(16) The Financial Advisor’s Report.
(17) The Share Reform Memorandum

This Report and the above documents are available for inspection at the following locations:

Foshan Electrical and Lighting Company Limited: No. 15 Fenjiang North Road, Foshan Municipality, Guangdong Province, the People’s Republic of China

The Shenzhen Stock Exchange: Shen Ye Plaza, 5045 Shennan East Road, Shenzhen Municipality, Guangdong Province, the PRC.

A summary of this Acquisition Report is published in the Hong Kong Ta Kung Pao, China Securities Journal, Securities Times and Foshan Daily.

This Report is disclosed at the website: www.cninfo.com.cn

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Acquirer’s Statement

We, as well as the company that we represent, OSRAM PROSPERITY Holding Company Limited, undertake that this Report and its summary do not contain any fraudulent or misleading statement or material omission, and we will be responsible, jointly and severally, for the truthfulness, accuracy and completeness of this Report.

By:

Name: Annie Yang Title: Director Dated: 17 February 2006

By: Name: Chong Kin Ngai Title: Director Dated: 17 February 2006

Takeover Report in respect of Foshan Electrical and Lighting Company Limited

Share Controller’s Statement

We, as well as the company that we represent, OSRAM Gesellschaft mit beschränkter Haftung, undertake that this Report and its summary do not contain any fraudulent or misleading statement or material omission, and we will be responsible, jointly and severally, for the truthfulness, accuracy and completeness of this Report.

By:

Name: Peter Alexander FRAUENKNECHT

Title: Authorized Representative

By:

Name: Gerd POKORNY Title: Authorized Representative

Takeover Report in respect of Foshan Electrical and Lighting Company Limited

Statement of Law Firm

We, as well as the firm that we represent, after exercising due diligence in accordance with the procedures of the practice rules in the examination and verification of the content of this Report, do not discover any fraudulent or misleading statement or material omission, and we assume the corresponding responsibility.

Handling lawyers:

Lu Xiaoguang

Liu Wen

Person in-charge of law firm:

Han Xiaojing

Beijing Commerce and Finance Law Office

Takeover Report in respect of Foshan Electrical and Lighting Company Limited

Statement of Financial Advisor

We, as well as the firm that we represent, after exercising due diligence in the examination and verification of the content of this Report, do not discover any fraudulent or misleading statement or material omission, and we assume the corresponding responsibility.

Guotai Junan Securities Co., Ltd. (Company Chop)

Authorized Representative: Hua Yi Feng

Responsible persons: Yuan Tong Zhou / Zhang Lei

AI assistant

FOSHAN ELECTRICAL AND LIGHTING CO., LTD — M&A Activity 2006

53661_rns_2006-02-19_e1fceb03-d75e-4271-9271-4e96ab1d3b7e.PDF

TAKEOVER REPORT IN RESPECT OF FOSHAN ELECTRICAL AND LIGHTING COMPANY LIMITED

Special Notice

Contents

DEFINITIONS

CHAPTER I. INTRODUCTION TO THE ACQUIRER

2. The Equity Structure and Controlling Relationship of the Acquirer

2. The Acquirer’s Shareholders

Basic Information of OSRAM

3. Basic Information on the Other Affiliate of the Acquirer and OSRAM

3. Related Penalties and Significant Litigations or Arbitrations

3. Brief Information of Prosperity’s Directors and Senior Management Personnel (or persons-in-charge)

5. Brief Information of the Acquirer’s and its Shareholders’ Holdings of More Than 5% of Issued Shares in Other Listed Companies

CHAPTER II. INFORMATION ON SHAREHOLDINGS BY THE ACQUIRER AND ITS SHAREHOLDERS

1. The Shareholdings of the Acquirer and Its Shareholders in FELCO

1. The Acquirer’s and OSRAM’s Current Shareholdings in FELCO

2. The Acquirer’s and OSRAM’s Shareholdings in FELCO upon Completion of This Acquisition

3. Prosperity’s Shareholding in FELCO

2. Authorizations and Approvals of this Acquisition

2.

Approvals

3. Share Transfer by Agreement

1. Background of the Execution of the Share Purchase Contract

2. Basic Information of the Share Purchase Contract

CHAPTER III. THE ACQUIRER’S TRADING OF FELCO’S LISTED SHARES WITHIN SIX MONTHS PRIOR TO SUBMISSION OF THIS REPORT

Mr. CHONG Kin Ngai, director of the Acquirer:

Account (1)

Account (2)

Asia Lamp Industry (HK) Limited controlled by Mr. CHONG Kin Ngai, director of the Acquirer

CHAPTER IV. MATERIAL TRANSACTIONS BETWEEN ACQUIRER AND FELCO OR FELCO’S RELATED PARTIES

1. Material Transactions between OSRAM and FELCO

2. Material Transactions between Prosperity and FELCO

3. Others

CHAPTER V. FUNDING SOURCE OF THE ACQUISITION AND PAYMENT METHOD

1. Source of the Acquisition Fund

2. Method of Payment

3. Capability of the Acquirer to Complete this Acquisition

CHAPTER VI. FUTURE PLANS OF THE ACQUIRER FOR FELCO

1. Objective of Acquisition of Sales Shares

2. Continual Acquisition or Disposal

3. Share Segmentation Reform

4. Adjustment of Principal Business

5. Decisions Concerning the Disposal of Substantial Assets and Debts of FELCO or Similar Significant Decisions

6. Change of FELCO’s Directors, Supervisors or Senior Management Personnel

7. Adjustment to the Organization or Corporate Governance of FELCO

8. Amendment to the Articles of Association of FELCO

9. Contracts or Other Arrangements with Other Shareholders of FELCO

1. Agreement between OSRAM and Prosperity

2. Legal Opinion

10. Other Plans That May Have Significant Impact on FELCO

CHAPTER VII. ANALYSIS OF IMPACT ON THE LISTED COMPANY

1. Independence of FELCO

2. Connected Transactions

1. Connected Transaction between OSRAM (and its affiliates) and FELCO

2. Connected Transaction between Prosperity (and its affiliates) and FELCO

4. Measures Adopted by OSRAM and Prosperity in respect of Connected Transactions

3. Affiliate Competition

1. Competition between the Acquirer and its Parent Company

2. Businesses of OSRAM (and its affiliates) and FELCO

3. Businesses of Prosperity and FELCO

4. Conclusions in the Financial Advisor’s Report and Legal Opinion in respect of Affiliate Competition

5. Measures Adopted by OSRAM and Prosperity in respect of Overlapping of Businesses

4. Special Risk Warning

CHAPTER VIII. ANTI-TRUST EFFECT OF THIS ACQUISITION ON THE INDUSTRY

1. PRC’s Lighting Product Market

2. Anti-trust Legislation

CHAPTER IX. LEGAL COMPLIANCE OF THIS ACQUISITION AND DISCLOSURE OF INFORMATION

1. Legal Compliance of this Acquisition

2. Legal Compliance of the Disclosure of Information of this Acquisition

CHAPTER X. FINANCIAL INFORMATION RELATING TO THE ACQUIRER

Financial Information of OSRAM, the Share Controller of the Acquirer

BALANCE SHEET OF OSRAM as at 30[th] September 2003, 2002 and 2001 in EUR’000

Financial Information of Prosperity, a Shareholder of the Acquirer

Profit and Loss Account For the Years Ended 31 December 2003, 2002 and 2001

Prosperity

Balance Sheet at 31 December 2003, 2002 and 2001

(Expressed in Hong Kong Dollars)

Prosperity

FOSHAN ELECTRICAL AND LIGHTING CO., LTD M&A Activity 2006