Medlive Technology Co., Ltd. - AGM Information 2010

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt about this circular, you should obtain independent professional advice.

If you have sold or transferred all your Shares in HISENSE KELON ELECTRICAL HOLDINGS COMPANY LIMITED , you should at once hand this circular to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

HISENSE KELON ELECTRICAL HOLDINGS COMPANY LIMITED 海信科龍電器股份有限公司

(a joint stock limited company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 00921)

CONTINUING CONNECTED TRANSACTIONS

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

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A letter from the Board is set out on pages 6 to 46 of this circular. A letter from the Independent Board Committee is set out on pages 47 to 48 of this circular. A letter from Access Capital Limited containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 49 to 88 of this circular.

A supplemental proxy form for use at the AGM is enclosed with this circular. If you are not able to attend the meeting in person, you are requested to complete and return the enclosed supplemental proxy form in accordance with the instructions printed thereon and to lodge the same with the Company’s branch share registrar in Hong Kong, Hong Kong Registrars Limited, at 17M/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, not less than 24 hours before the time fixed for holding the AGM or any adjournment thereof. Completion and delivery of the supplemental proxy form will not preclude you from attending and voting at the meeting or any adjournment thereof if you so wish.

18 May 2010

	Page
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Letter from the Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . . . . .	47
Letter from Access Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	49
Appendix I — General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	89
Supplemental and further notice of Annual General Meeting. . . . . . . . . . . . . . .	96

— i —

DEFINITIONS

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

“AGM”

the annual general meeting of the Company to be held on 4 June 2010 at 9:30 a.m. for the approval of, among other things, the transactions under the Compressors Purchase Framework Agreement, the Compressors Purchase and Supply Framework Agreement 2, the Business Co-operation Framework Agreement 2 and the relevant annual caps

“A Shares”

domestic ordinary shares of the Company with a nominal value of RMB1.00 each and are listed on the Shenzhen Stock Exchange

“Access Capital”

Access Capital Limited, a corporation licensed under the SFO for carrying on type 1 (dealing in securities), type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities under the SFO, being the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Compressors Purchase Framework Agreement, the Compressors Purchase and Supply Framework Agreement 2, the Business Co-operation Framework Agreement 2, and the relevant annual caps

“Articles”

the articles of association of the Company from time to time

“Associate” has the meaning ascribed to it in the Hong Kong Listing Rules

— 1 —

DEFINITIONS

“Beijing Embraco Snowflake Compressor”
“Beijing Snowflake Group”

“Board”

“Business Co-operation Framework Agreement 2”

“Company”

“Compressor Purchase Framework Agreement”

Beijing Embraco Snowflake Compressor Company Li m it e d , (北京恩布拉科雪花壓縮機有限公司), a limited company incorporated in the PRC, which is held as to 30.82% by Beijing Snowflake Group, a substantial shareholder which holds 45% of the equity interests in the Company’s non wholly owned subsidiary Hisense Beijing

Beijing Snowf lake Electrical Appliance Group Cor poration (北京雪花電器集團公司), a limited company incorporated in the PRC

the board of Directors

the agreement (業務合作框架協議（二）) entered into between the Company, Hisense Group and Hisense Electric dated 5 May 2010 in relation to the sale and purchase of raw materials, parts and components, parts for equipment, air-conditioners, refrigerators, home appliances, sale and export of moulds, spare parts for refrigerators, equipment, parts for refrigerators and air-conditioners and the provision of property management service, medical service, material processing services, installation and maintenance, management consultancy and agency services for import and export, leasing, design, equipment management, advertising and information system maintenance

Hisense Kelon Electrical Holdings Company Limited, a company incorporated in the PRC with limited liability and listed on the main board of the Stock Exchange and Shenzhen Stock Exchange

the agreement (壓縮機採購框架協議) entered into between the Company and Beijing Embraco Snowflake Compressor dated 5 May 2010 in connection with the purchase and supply of compressors

— 2 —

DEFINITIONS

“Compressors Purchase and	the agreement (壓縮機採購供應框架協議(二)) entered
Supply Framework	into between the Company and Huayi Compressor
Agreement 2”	dated 5 May 2010 in connection with the purchase and
	supply of compressors
“Director(s)”	the director(s) of the Company
“Group”	the Company and the Subsidiaries of the Company
“H Shares”	overseas listed foreign shares of the Company with a
	nominal value of RMB1.00 each and are listed on the
	Stock Exchange
“Hisense Air-conditioning”	Qingdao Hisense Air-conditioning Company Limited
	(青島海信空調有限公司), a Subsidiary of Hisense
	Group
“Hisense (Beijing)”	Hisense (Beijing) Electric Company Limited (海信（北
	京）電器有限公司), a limited company incorporated in
	the PRC
“Hisense Electric”	Qingdao Hisense Electric Co., Ltd. (青島海信電器股份
	有限公司), a limited company incorporated in the PRC
“Hisense Group”	Hisense Company Limited (海信集團有限公司), a
	limited company incorporated in the PRC
“Hong Kong”	the Hong Kong Special Administrative Region of the
	PRC
“Hong Kong Listing Rules”	Rules Governing the Listing of Securities on the
	Stock Exchange
“HK$”	Hong Kong dollar(s), the lawful currency of Hong
	Kong

— 3 —

DEFINITIONS

“Huayi Compressor” Huayi Compressor Company Limited (華意壓縮機股份有限公司) (stock code: 000404), a limited company incorporated in the PRC and whose A shares are listed on the Shenzhen Stock Exchange, which principally engaged in the production and sale of flourine-free compressors, refrigerators and their components “Independent Board Committee” an independent board committee of the Company comprising all the independent non-executive Directors, namely Mr. Zhang Sheng Ping, Mr. Lu Qing and Mr. Cheung Yui Kai, Warren “Independent Shareholders” Shareholders other than those who are required under the Listing Rules to abstain from voting on the resolutions to be proposed at the AGM to approve the Compressors Purchase Framework Agreement, the Compressors Purchase and Supply Framework Agreement 2, the Business Co-operation Framework Agreement 2 and the relevant annual caps and the transactions contemplated thereunder

“Independent Third Parties” third parties independent of and not connected with the Company and its connected persons, as defined in the Hong Kong Listing Rules, of the Company

“Latest Practicable Date” 14 May 2010, being the latest practicable date prior to the printing of this circular for ascertaining certain information in this circular
“MOFTEC” Ministry of Foreign Trade and Economic Corporation “PRC” the People’s Republic of China
“RMB” Renminbi yuan, the lawful currency of the PRC “SFO” Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong)

— 4 —

DEFINITIONS

“Share(s)” share(s) of RMB1.00 each in the capital of the Company, comprising the A Shares and the H Shares “Shareholder(s)” holder(s) of the Shares “Shenzhen Stock Exchange” The Shenzhen Stock Exchange “Stock Exchange” The Stock Exchange of Hong Kong Limited “Subsidiary” or “Subsidiaries” has the meaning defined in sections 2 and 2B of the Companies Ordinance (Cap. 32 of the Laws of Hong Kong) “%” per cent.

— 5 —

LETTER FROM THE BOARD

HISENSE KELON ELECTRICAL HOLDINGS COMPANY LIMITED 海信科龍電器股份有限公司

(a joint stock limited company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 00921)

Executive Directors: Registered Office: Mr. Tang Ye Guo No. 8 Ronggang Road Mr. Zhou Xiao Tian Ronggui Street Ms. Yu Shu Min Shunde District Mr. Lin Lan Foshan City Ms. Liu Chun Xin Guangdong Province Mr. Zhang Ming The PRC

Independent non-executive Directors: Principal place of business in Mr. Zhang Sheng Ping Hong Kong: Mr. Lu Qing Room 3104-06 Mr. Cheung Yui Kai, Warren Singga Commercial Centre No. 148 Connaught Road West Hong Kong

18 May 2010

To the Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

The purpose of this circular is to provide you with:

Details of the Compressors Purchase Framework Agreement, the Compressors Purchase and Supply Framework Agreement 2, the Business Co-operation Framework Agreement 2 and the related annual caps, the recommendation of the Independent Board Committee and the letter of advice from Access Capital to the Independent Board Committee and the Independent Shareholders in respect of the terms of the Compressors Purchase Framework Agreement, the Compressors Purchase and Supply Framework Agreement 2, the Business Co-operation Framework Agreement 2.

— 6 —

LETTER FROM THE BOARD

Reference is made to the announcement of the Company dated 16 July 2009 and the circular of the Company dated 31 July 2009 in relation to the acquisition from Qingdao Hisense Air-Conditioning Company Limited of the interest in the Target Group (as defined in the circular of the Company dated 31 July 2009), which operates the White Goods Business (as defined in the circular of the Company dated 31 July 2009).

Reference is also made to the announcement of the Company dated 6 November 2009 and the circular of the Company dated 26 November 2009 in relation to the Business Cooperation Framework Agreement dated 6 November 2009 entered into between the Company and Qingdao Hisense Air-Conditioning Company Limited and five subsidiaries of the Hisense Group.

Following completion of the acquisition of the Target Group, the Company will hold, among other things, 55% of the equity interests in Hisense Beijing, 60% of the equity interests in Hisense Nanjing through Hisense Beijing, 100% equity interests in Hisense Shandong, 51% of the equity interests in Hisense Zhejiang and 78.7% of the equity interests in Hisense Mould (as defined in the circular of the Company dated 31 July 2009).

Based on information available to the Company, these companies will cease to be connected persons of the Company as defined under Rule 14A.11 of the Hong Kong Listing Rules. Therefore, the Company’s non-exempt continuing connected transactions with some of the members of Target Group as announced on 6 November 2009 and approved by the Independent Shareholders on 15 January 2010 will no longer constitute continuing connected transactions of the Company after completion of the acquisition of the Target Group. The Company expects that RMB4.259 billion out of RMB5.324 billion of such aggregated amount as announced on 6 November 2009 will not be applicable thereafter. However, the Company has identified certain transactions between some of the members of the Target Group and connected persons of the Company that will constitute nonexempt continuing connected transactions after completion of the acquisition of the Target Group. Accordingly, the Company entered into the Compressors Purchase Framework Agreement, Compressors Purchase and Supply Framework Agreement 2 and Business Cooperation Framework Agreement 2 in compliance with the Hong Kong Listing Rules.

— 7 —

LETTER FROM THE BOARD

NEW NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

(A) Compressors Purchase Framework Agreement

Date and Parties

Date

5 May 2010

Parties

(i) The Company; and
(ii) Beijing Embraco Snowflake Compressor

Term

The Compressors Purchase Framework Agreement shall commence from the date of approval of the agreement by the Independent Shareholders, which is expected to be on 4 June 2010, until 31 December 2010, which can be terminated before its expiration by mutual agreement of the parties.

The parties are entitled to terminate the Compressors Purchase Framework Agreement before its expiration upon mutual agreement or in the event of occurrence of any breaches of the Compressors Purchase Framework Agreement, which include any non-compliance with the relevant Hong Kong Listing Rules in respect of the connected transactions. In the event of any breaches of any declaration, warranty and undertaking and non-fulfilment of its obligations by any party under the Compressors Purchase Framework Agreement, the other party(ies) is(are) entitled to claim damages and compensation from such party.

Condition

The continuing connected transactions contemplated under the Compressors Purchase Framework Agreement are subject to the approval of the Independent Shareholders at the AGM.

— 8 —

LETTER FROM THE BOARD

Purchase of Compressors

Pursuant to the terms of the Compressors Purchase Framework Agreement, the Company and/or its relevant Subsidiaries shall purchase on a non-exclusive basis such quantities of compressors as they may require from time to time from Beijing Embraco Snowflake Compressor and/or its Subsidiaries (as the case may be) for the purpose of manufacturing home electrical appliances, including but not limited to refrigerators and air-conditioners, by the Group. The transactions contemplated under the Compressors Purchase Framework Agreement are in the ordinary and usual course of business of the Company.

The parties will enter into individual compressors purchase and supply orders setting out specific terms including the price, payment terms and schedules, technological services and other terms of delivery, but such terms shall be consistent with the principles and the terms of the Compressors Purchase Framework Agreement, including the pricing, operation and trading policies set out therein.

The Company and/or its Subsidiaries have the right to purchase compressors from suppliers other than Beijing Embraco Snowflake Compressor and/or its Subsidiaries from time to time according to their own needs.

The Compressors Purchase Framework Agreement does not restrict the rights of Beijing Embraco Snowflake Compressor and/or its Subsidiaries (as the case may be) to sell its compressors to any other third parties.

Pricing

Pricing for the purchase of compressors is determined principally by commercial negotiation between the parties according to the principles of fairness and reasonableness with reference to the market price of compressors from time to time. Such transactions will be conducted in the ordinary and usual course of business of the company, on normal commercial terms and on terms not less favourable to the Company than terms available to or from (as appropriate) Independent Third Parties.

Payment Term

Payment term(s) for the purchase of compressors shall be in accordance with the payment term(s) as stipulated in the detailed contract(s) to be signed by relevant parties thereto.

— 9 —

LETTER FROM THE BOARD

Historical Figures

The Group and the relevant companies which have become Subsidiaries of the Company after completion of the acquisition of the Target Group have conducted similar transactions with Beijing Embraco Snowflake Compressor and/or its Subsidiaries in the past. Details of such historical transactions are set out below:

Transaction amount for the purchase of compressors from RMB179,305,190 Beijing Embraco Snowflake Compressor and/or its (inclusive of valueSubsidiaries for the year ended 31 December 2009 added tax) Transaction amount for the purchase of compressors from RMB26,414,797 Beijing Embraco Snowflake Compressor and/or its (inclusive of valuesubsidiaries for the three months ended 31 March 2010 added tax)

Proposed Annual Cap

The transactions contemplated by the Compressors Purchase Framework Agreement from the date of approval of the agreement by the Independent Shareholders, which is expected to be 4 June 2010, to 31 December 2010 are subject to the annual cap set out below:

From 4 June 2010 to 31 December 2010

RMB252,000,000 (inclusive of valueadded tax)

The above annual cap was determined with reference to (a) similar transactions between Hisense (Beijing) and/or its Subsidiaries with Beijing Embraco Snowflake Compressor and/or its Subsidiaries in the past; (b) the prevailing market conditions relating to the demand for electrical appliances in the PRC; and (c) the business development plan of the Company relating to the production and sales level of refrigerators and air-conditioners in 2010.

— 10 —

LETTER FROM THE BOARD

R EASONS FOR A ND BENEFITS OF THE COMPR ESSORS PURCH ASE FRAMEWORK AGREEMENT

The Group is engaged in the manufacture of home electrical appliances, including but not limited to refrigerators and air-conditioners, which requires compressors as a component for its products. After considering a range of factors including the quality, the price and the compatibility of the compressors manufactured by Beijing Embraco Snowflake Compressor and/or its Subsidiaries with the current facilities used by and the refrigerators and air-conditioners manufactured by the Group as well as the level of services provided by Beijing Embraco Snowflake Compressor and/or its Subsidiaries, the Group considers that Beijing Embraco Snowflake Compressor and/or its Subsidiaries are in a good position to supply compressors to the Group.

In light of the above, the Directors are of the view that the terms of the Compressors Purchase Framework Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

(B) Compressors Purchase and Supply Framework Agreement 2

Date and Parties

Date

5 May 2010

Parties

(i) The Company; and
(ii) Huayi Compressor

Term

The Compressors Purchase and Supply Framework Agreement 2 shall commence from the date of the approval of the agreement by the Independent Shareholders, which is expected to be on 4 June 2010, until 31 December 2010, which can be terminated before its expiration by mutual agreement of the parties.

— 11 —

LETTER FROM THE BOARD

The parties are entitled to terminate the Compressors Purchase and Supply Framework Agreement 2 before its expiration upon mutual agreement or in the event of occurrence of any breaches of the Compressors Purchase and Supply Framework Agreement 2, which include any non-compliance with the relevant Hong Kong Listing Rules in respect of the connected transactions. In the event of any breaches of any declaration, warranty and undertaking and non-fulfilment of its obligations by any party under the Compressors Purchase and Supply Framework Agreement 2, the other party(ies) is(are) entitled to claim damages and compensation from such party.

Condition

The continuing connected transactions contemplated under the Compressors Purchase and Supply Framework Agreement 2 are subject to approval of the Independent Shareholders at the AGM.

Purchase of Compressors

Pursuant to the terms of the Compressors Purchase and Supply Framework Agreement 2, the Company and/or its relevant Subsidiaries shall purchase on a nonexclusive basis such quantities of compressors as they may require from time to time from Huayi Compressor and/or its Subsidiaries (as the case may be) for the purpose of manufacturing home electrical appliances, including but not limited to refrigerators and air-conditioners, by the Group. The transactions contemplated under the Compressors Purchase and Supply Framework Agreement 2 are in the ordinary and usual course of business of the Company.

The parties will enter into individual compressors purchase and supply orders setting out specific terms including the price, payment terms and schedules, technological services and other terms of delivery, but such terms shall be consistent with the principles and the terms of the Compressors Purchase and Supply Framework Agreement 2, including the pricing, operation and trading policies set out therein.

The Company and/or its relevant Subsidiaries has (have) the right to purchase compressors from suppliers other than Huayi Compressor and/or its Subsidiaries from time to time according to their own needs.

— 12 —

LETTER FROM THE BOARD

The Compressors Purchase and Supply Framework Agreement 2 does not restrict the rights of Huayi Compressor and/or its Subsidiaries (as the case may be) to sell its compressors to any other third parties.

Pricing

Payment Term

Payment for the purchase of compressors should be made by telegraphic transfer or bank-issued bills by the Company and/or its Subsidiaries within 90 days from the first day of the following month after the compressors had passed the inspection tests and the relevant receipt(s) have been accounted for in the accounts

Historical Figures

The Group and the relevant companies which have become Subsidiaries of the Company after completion of the acquisition of the Target Group have conducted similar transactions with Huayi Compressor and/or its Subsidiaries in the past. Details of such historical transaction amount are set out below:

Transaction amount for the purchase of compressors from RMB472,423,200 Huayi Compressor and/or its Subsidiaries for the year (inclusive of valueended 31 December 2009 added tax) Transaction amount for the purchase of compressors from RMB173,282,408 Huayi Compressor and/or its subsidiaries for the three (inclusive of valuemonths ended 31 March 2010 added tax)

— 13 —

LETTER FROM THE BOARD

Proposed Annual Cap

The transactions contemplated by the Compressors Purchase and Supply Framework Agreement 2 from the date of the approval of the agreement by Independent Shareholders, which is expected to be 4 June 2010, until 31 December 2010 are subject to the annual cap set out in the table below:

From 4 June 2010 to 31 December 2010

RMB330,050,000 (inclusive of valueadded tax)

The above annual cap was determined with reference to (a) similar transactions between the Group and Huayi Compressor and/or its Subsidiaries in the past; (b) the prevailing market conditions relating to the demand for home electrical appliances in the PRC; and (c) the business development plan of the Company relating to the production and sales level of refrigerators and air-conditioners in 2010.

The transactions contemplated under the Compressors Purchase and Framework Agreement 2 will constitute continuing connected transactions for the Company under the Hong Kong Listing Rules and should be aggregated with the transactions contemplated under the Compressors Purchase and Supply Framework Agreement 1 dated 6 November 2009 for the purpose of Rules 14A.25 to 14A.27 of the Hong Kong Listing Rules. As such, upon approval by the Independent Shareholders, the annual cap for all similar continuing connected transactions with Huayi Compressor shall be as follows:

Annual Cap from 1 January 2010 to 31 December 2010 pursuant to the Compressors Purchase and Supply Framework Agreement 1 dated 6 November 2009

RMB580,000,000 (inclusive of valueadded tax)

Annual Cap for the year ending 31 December 2010 pursuant to the Compressors Purchase Framework Agreement dated 4 June 2010 and the Compressors Purchase and Supply Framework Agreement 1 dated 6 November 2009

RMB910,050,000 (inclusive of valueadded tax)

— 14 —

LETTER FROM THE BOARD

REASONS FOR AND BENEFITS OF THE COMPRESSORS PURCHASE AND SUPPLY FRAMEWORK AGREEMENT 2

In addition to the members of the Group prior to completion of the acquisition of the Target Group, the Group is engaged in the manufacture of home electrical appliances, including but not limited to refrigerators and air-conditioners, which requires compressors as a component for its products. After considering a range of factors including the quality, the price and the compatibility of the compressors manufactured by Huayi Compressor and/or its Subsidiaries with the current facilities used by and the refrigerators and airconditioners manufactured by the Group as well as the level of services provided by Huayi Compressor and/or its Subsidiaries, the Company considers that Huayi Compressor and/or its Subsidiaries are in a good position to supply compressors to the Group. The Company’s demand for the purchase of compressors from Huayi Compressor has further increased as a result of a projected increase in the demand for home electrical appliances such as refrigerators and air-conditioners from the Group due to, among other things, prolonged heatwaves and global warming. In light of the above, the Directors are of the view that the terms of the Compressors Purchase and Supply Framework Agreement 2 are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

(C) Business Co-operation Framework Agreement 2

Date and parties

Date

5 May 2010

Parties

(i) The Company;
(ii) Hisense Group; and
(iii) Hisense Electric

Term

The Business Co-operation Framework Agreement 2 shall commence from the date of approval of the agreement by Independent shareholders which is expected to be on 4 June 2010 to 31 December 2010, which can be terminated before its expiration by mutual agreement of the parties.

— 15 —

LETTER FROM THE BOARD

The parties are entitled to terminate the Business Co-operation Framework Agreement 2 before its expiration upon mutual agreement or in the event of occurrence of any breaches of the Business Co-operation Framework Agreement 2, which include any non-compliance with the relevant Hong Kong Listing Rules in respect of the connected transactions. In the event of any breaches of any declaration, warranty and undertaking and non-fulfilment of its obligations by any party under the Business Co-operation Framework Agreement 2, the other party(ies) is (are) entitled to claim damages and compensation from such party.

Condition

The continuing connected transactions contemplated under the Business Cooperation Framework Agreement 2 are subject to the approval of the Independent Shareholders at the AGM.

The transactions contemplated under the Business Co-operation Framework Agreement 2 are in the ordinary and usual course of business of the Company and are in connection with the following aspects of business co-operation between the parties:

(1) Purchase of home electrical appliances

Pursuant to the Business Co-operation Framework Agreement 2, the Company has agreed that the Group shall purchase from Hisense Group and Hisense Electric and/or their respective Subsidiaries other than the Target Group (collectively, the “H and HE Group”) on a non-exclusive basis home electrical appliances such as cellular phones and television sets. The parties agreed to enter into individual purchase orders setting out specific terms including the price, payment terms and schedules, technological services and other terms of delivery, but such terms shall be consistent with the principles and the terms of the Business Co-operation Framework Agreement 2, including the pricing, operation and trading policies set out therein.

The Group has the right to purchase from suppliers other than the H and HE Group from time to time according to its own needs. The Business Cooperation Framework Agreement 2 does not restrict the rights of H and HE Group to sell their home electrical appliances to any other third parties.

— 16 —

LETTER FROM THE BOARD

Pricing

Pricing for the purchase of home electrical appliances is determined principally by arm’s length commercial negotiation between the relevant purchaser of the Group and the relevant vendor of H and HE Group according to the principles of fairness and reasonableness with reference to the market price of home electrical appliances from time to time.

Payment Term

Payment for the fees for the purchase of home electrical appliances should be made by telegraphic transfer or bank-issued bills by the relevant purchaser of the Group within 60 days after receipt of the home electrical appliances.

Reasons for and Benefits of the Purchase of Home Electrical Appliances

The sales and overall image of the Company can be enhanced by purchasing cellular phones and television sets from the H and HE Group as gifts for the Group’s marketing and promotion activities which aimed at boosting the sales of the Group’s home electrical appliances such as refrigerators.

In light of the above, the Directors are of the view that the terms of the purchase of home electrical appliances under the Business Co-operation Framework Agreement 2 are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Historical Figures

The relevant companies which have become Subsidiaries of the Company after completion of the acquisition of the Target Group started to conduct similar transactions with the H and HE Group since the beginning of 2010. Details of such historical transaction amount are set out below:

Transaction amount for the purchase of home RMB0 electrical appliances from the H and HE Group for (inclusive of valuethe year ended 31 December 2009 added tax) Transaction amount for the purchase of home RMB24,120 electrical appliances from the H and HE Group for (inclusive of valuethe three months ended 31 March 2010 added tax)

— 17 —

LETTER FROM THE BOARD

Proposed Annual Cap

The transactions contemplated by the Business Co-operation Framework Agreement 2 regarding the purchase of home electrical appliances from the date of the approval of the agreement by the Independent Shareholders, which is expected to be on 4 June 2010, to 31 December 2010 are subject to the annual cap set out below:

From 4 June 2010 to 31 December 2010

RMB2,200,000 (inclusive of valueadded tax)

The above annual cap was determined with reference to (a) the prevailing market conditions about the demand for electrical appliances; (b) the Group’s plan to boost the sales of the Group’s home electrical appliances through marketing and promotion activities and (c) the projected need of the relevant companies which will become Subsidiaries of the Company after completion of the acquisition of the Target Group to purchase cellular phones and television sets from the H and HE Group for the year ending 31 December 2010 as gifts for the Group’s marketing and promotion activities which aimed at boosting the sales of the Group’s home electrical appliances such as refrigerators.

(2) Purchase of Raw Materials, Equipment, Parts and Components

Pursuant to the Business Co-operation Framework Agreement 2, the Company has agreed that the relevant Subsidiaries of the Company shall purchase from the Hisense Group and/or Hisense Electric on a non-exclusive basis such quantities of raw materials such as copper tubes and parts and components such as electronic components and parts for equipment for refrigerators as the relevant Subsidiaries of the Company may require from time to time for the purpose of the manufacture of air-conditioners and refrigerators. The parties agreed to enter into individual raw materials purchase and supply orders setting out specific terms including the price, payment terms and schedules, technological services and other terms of delivery, but such terms shall be consistent with the principles and the terms of the Business Co-operation Framework Agreement 2, including the pricing, operation and trading policies set out therein.

— 18 —

LETTER FROM THE BOARD

The relevant Subsidiaries of the Company have the right to purchase raw materials, parts and components and parts for equipment for refrigerators from suppliers other than Hisense Group and/or Hisense Electric from time to time according to its own needs. The Business Co-operation Framework Agreement 2 does not restrict the rights of Hisense Group and/or Hisense Electric to sell its raw materials, parts and components and parts for equipment for refrigerators and air-conditioners to any other third parties.

Pricing

Pricing for the purchase of raw materials and refrigerators’ and airconditioners’ parts and components and parts for equipment for refrigerators is determined principally by arm’s length commercial negotiation between the relevant Subsidiaries of the Company and the relevant Subsidiaries of Hisense Group according to the principles of fairness and reasonableness with reference to the market price of raw materials and parts and components of refrigerators and air-conditioners from time to time.

Payment Term

Payment for the fees for the purchase of raw materials, parts and components and parts for equipment for refrigerators should be made by the Group within 60 days after receipt of the raw materials, equipment and parts and components.

Reasons for and Benefits of the Purchase of Raw Materials, Equipment, Parts and Components

The relevant companies which have become Subsidiaries of the Company after completion of the acquisition of the Target Group and the Company are principally engaged in the design and manufacture of air-conditioners and refrigerators. The relevant Subsidiaries of Hisense Group are principally engaged in the manufacture of electrical appliances, including airconditioners.

Pursuant to the Business Co-operation Framework Agreement 2, the Group shall manufacture and supply refrigerators and air-conditioners to Hisense Group and/or Hisense Electric (which is set out in the following parts of this circular). In such circumstances, the Group shall purchase compatible raw materials and refrigerators’ and air-conditioners’ parts and components for its sale to Hisense Group and/or Hisense Electric.

— 19 —

LETTER FROM THE BOARD

The purchase of raw materials and refrigerators’ and air-conditioners’ parts and components and equipment by the Group from Hisense Group and/or Hisense Electric will improve the control of reserve fund by the relevant Subsidiaries of the Company and reduce purchase costs, and at the same time, can reduce the limitation of the bottleneck in the production of upstream raw materials during peak season, achieving full utilisation of resources. It can also facilitate the Group’s production of refrigerators and air-conditioners for its sale to Hisense Group and/or Hisense Electric.

In light of the above, the Directors are of the view that the terms of the purchase of raw materials, equipment, parts and components of refrigerators and air-conditioners under the Business Co-operation Framework Agreement 2 are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Historical Figures

The relevant companies which have become Subsidiaries of the Company after completion of the acquisition of the Target Group have conducted similar transactions with the relevant Subsidiary of Hisense Group in the past. Details of such historical transaction amount are set out below:

Transaction amount for the purchase of raw materials, equipment, refrigerators’ and air-conditioners’ parts and components from the Hisense Group and/or Hisense Electric for the year ended 31 December 2009
RMB101,130,400
(inclusive of valueadded tax)
Transaction amount for the purchase of raw materials, equipment, refrigerators’ and air-conditioners’ parts and components from the Hisense Group and/or Hisense Electric for the three months ended 31 March 2010
RMB41,534,400
(inclusive of valueadded tax)

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LETTER FROM THE BOARD

Proposed Annual Cap

The transactions contemplated by the Business Co-operation Framework Agreement 2 regarding the purchase of raw materials, equipment and refrigerators’ and air-conditioners’ parts and components from the date of the approval of the agreement by the Independent Shareholders, which is expected to be on 4 June 2010, to 31 December 2010 are subject to the annual cap set out below:

From 4 June 2010 to 31 December 2010

RMB107,800,000 (inclusive of valueadded tax)

The above annual cap was determined with reference to (a) the prevailing market conditions about the demand for electrical appliances, including airconditioners and refrigerators, in the PRC; and (b) the projected increase in the sale and production of refrigerators by the relevant companies which will become Subsidiaries of the Company after completion of the acquisition of the Target Group to Hisense Group and/or Hisense Electric for the year ending 31 December 2010 and their projected purchases of raw materials, equipment, and refrigerators’ and air-conditioners’ parts and components and parts for equipment from Hisense Group and/or Hisense Electric to enable such production and sale.

The transactions contemplated under the Business Co-operation Framework Agreement 2 will constitute continuing connected transactions for the Company under the Hong Kong Listing Rules and should be aggregated with the similar transactions contemplated under the Business Cooperation Framework Agreement 1 dated 6 November 2009 for the purpose of Rules 14A.25 to 14A.27 of the Hong Kong Listing Rules. As such, upon approval by the Independent Shareholders, the annual cap for all similar continuing connected transactions with Hisense Group and/or Hisense Electric in this regard shall be as follows:

Annual Cap from 1 January 2010 to 31 December RMB3,780,000 2010 pursuant to Business Co-operation Framework (inclusive of valueAgreement 1 dated 6 November 2009 added tax)
Annual Cap for the year ending 31 December 2010 RMB111,580,000 pursuant to the Business Co-operation Framework (inclusive of valueAgreement 1 dated 6 November 2009 and the added tax) Business Co-operation Framework Agreement 2 dated5 May 2010

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LETTER FROM THE BOARD

(3) Provision of Services

Pursuant to the Business Co-operation Framework Agreement 2, the Company has agreed that the Group shall engage Hi sense Group and/or Hi sense Electric for the provision of property management service, medical service, material processing services, installation and maintenance, management consultancy and agency services for import and export, leasing, design, equipment management, advertising and information system maintenance. The parties agreed to enter into individual service provision orders setting out specific terms for the provision of services including fees, scope of the services, payment terms and schedules, but such terms shall be consistent with the principles and the terms of the Business Co-operation Framework Agreement 2, including the pricing, operation and trading policies set out therein.

The Group has the right to engage from time to time according to its own needs service providers other than Hisense Group and/or Hisense Electric to provide the aforesaid services to the Group. The Business Co-operation Framework Agreement 2 also does not restrict the rights of Hisense Group and/or Hisense Electric to provide such services to any other third parties.

Pricing

The fees payable by the relevant member of the Group for the provision of the aforesaid services is determined principally by arm’s length commercial negotiations according to the principles of fairness and reasonableness between the parties with reference to the market price for the provision of such services from time to time. Such transactions will be conducted in the ordinary and usual course of business of the Company, on normal commercial terms and on terms not less favourable to the Company than terms available to or from (as appropriate) Independent Third Parties.

Payment Term

The fees for the provision of services will be calculated on a monthly basis and such monthly fee should be made by telegraphic transfer or bank-issued bills by the Group within 15 days from the following month.

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LETTER FROM THE BOARD

Reasons for and Benefits of the Engagement for the Services Provision

The relevant companies which will become Subsidiaries of the Company after completion of the acquisition of the Target Group and the Company are principally engaged in the manufacture and sales of refrigerators and airconditioners.

Even though the Group will continue to engage other third parties service providers for the provision of such services to its customers, the engagement of Hisense Group and/or Hisense Electric for the provision of property management service, medical service, material processing services, installation and maintenance, management consultancy and agency services for import and export, leasing, design, equipment management, advertising and information system maintenance can help the relevant companies which will become Subsidiaries of the Company after completion of the acquisition of the Target Group to reduce reliance on a single service provider, foster its control on its services network, enhance its supervision on the maintenance and repair service teams and enable the Group to make long term planning on maintenance services provision. Further, Hisense Group and/or Hisense Electric possess the expertise and experience for the provision and maintenance of services of such nature which can enable the Group to carry out its daily operation smoothly.

In light of the above, the Directors are of the view that the terms of the services engagement under the Business Co-operation Framework Agreement 2 are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE BOARD

Historical Figures

The relevant companies which will become Subsidiary of the Company after completion of the acquisition of the Target Group have conducted similar transactions with Hisense Group and/or Hisense Electric in the past. Details of such historical transaction amount are set out below:

Transaction amount for the provision of property management service, medical service, material processing services, installation and maintenance, management consultancy and agency services for import and export, leasing, design, equipment management, advertising and information system maintenance by Hisense Group and/or Hisense Electric for the year ended 31 December 2009

RMB42,561,500 (inclusive of valueadded tax)

RMB12,858,700 (inclusive of valueadded tax)

Proposed Annual Cap

The transactions contemplated by the Business Co-operation Framework Agreement 2 regarding the service provision from the date of approval of the agreement by the Independent Shareholders, which is expected to be on 4 June 2010, to 31 December 2010 are subject to the annual cap set out below:

From 4 June 2010 to 31 December 2010

RMB67,570,000 (inclusive of valueadded tax)

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LETTER FROM THE BOARD

The above annual cap was determined with reference to (a) similar transactions between the Group with Hisense Group and/or Hisense Electric in the past; (b) the projected level of production and sale of electrical appliances of the relevant companies which will become Subsidiaries of the Company after completion of the acquisition of the Target Group and the Company from 4 June 2010 to 31 December 2010.

The transactions contemplated under the Business Co-operation Framework Agreement 2 will constitute continuing connected transactions for the Company under the Hong Kong Listing Rules and should be aggregated with the similar transactions contemplated under the Business Cooperation Framework Agreement 1 dated 6 November 2009 for the purpose of Rules 14A.25 to 14A.27 of the Hong Kong Listing Rules. As such, upon approval by the Independent Shareholders, the annual cap for all similar continuing connected transactions including after sales services with Hisense Group and/ or Hisense Electric in this regard shall be as follows:

Annual Cap from 1 January 2010 to 31 December RMB47,041,600 2010 pursuant to Business Co-operation Framework (inclusive of valueAgreement 1 dated 6 November 2009 added tax) Annual Cap for the year ending 31 December 2010 RMB114,611,600 pursuant to the Business Co-operation Framework (inclusive of valueAgreement 1 dated 6 November 2009 and the added tax) Business Co-operation Framework Agreement 2 dated 5 May 2010

(4) Sale and Supply of home electrical appliances

Pursuant to the Business Co-operation Framework Agreement 2, the Company has agreed that the Group shall manufacture and supply on a non-exclusive basis such quantities of air-conditioners, refrigerators and other home electrical appliances such as washing machines as the H and HE Group may require from time to time for its sale to its customers.

The relevant parties agreed to enter into individual air-conditioners production and supply orders setting out specific terms including the price, payment terms and schedules, technological services and other terms of delivery, but such terms shall be consistent with the principles and the terms of the Business Co-operation Framework Agreement 2, including the pricing, operation and trading policies set out therein.

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LETTER FROM THE BOARD

The H and HE Group has the right to purchase air-conditioners, refrigerators and other home electrical appliances such as washing machines from suppliers other than the Group from time to time according to its own needs. The Business Co-operation Framework Agreement 2 does not restrict the rights of the Group to sell air-conditioners, refrigerators and home appliances to any other third parties.

Pricing

The pricing for the supply of air-conditioners, refrigerators and other home electrical appliances such as washing machines is determined principally by arm’s length commercial negotiations according to the principles of fairness and reasonableness between the relevant parties with reference to the market price of the air-conditioners, refrigerators and home appliances from time to time. Such transactions will be conducted in the ordinary and usual course of business of the Company, on normal commercial terms and on terms not less favourable to the Company than terms available to or from (as appropriate) Independent Third Parties.

The prices offered by the Group to the H and HE Group for the sale and supply of air-conditioners, refrigerators and home appliances shall be on terms no more favourable than other third parties.

Payment Term

Payment for the purchase of air-conditioners, refrigerators and home electrical appliances should be made by telegraphic transfer or bank-issued bills by the relevant Subsidiary of Hisense Group within 60 days after receipt of the airconditioners, refrigerators and home appliances.

Reasons for and Benefits of the Sale and Supply of Home Electrical Appliances

The relevant companies which will become Subsidiaries of the Company after completion of the acquisition of the Target Group and the Company are principally engaged in the design and manufacture of air-conditioners and refrigerators. The relevant member of the H and HE Group is principally engaged in the production and sales of air-conditioners and refrigerators. Pursuant to the Business Co-operation Framework Agreement 2, the Group shall manufacture and supply air-conditioners and refrigerators to the Group for its sale to its customers. The manufacture and provision of air-conditioners and refrigerators by the Group to the H and HE Group will increase the sales and revenues of the Group.

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LETTER FROM THE BOARD

The competition in the air-conditioners’ and refrigerators’ market in the PRC is very keen at present with substantial increase in raw materials prices, the production and supply of air-conditioners and refrigerators by the Group to the H and HE Electric Group can help to lower the fixed costs per unit of product incurred by the Group for the production of air-conditioners and refrigerators.

Since the Group possesses excess production capacity for air-conditioners and refrigerators and washing machines and fixed costs (e.g. depreciation of machinery and rent) will be incurred by the Group for the production of airconditioners and refrigerators in any event, the production of air-conditioners and refrigerators for the H and HE Group can help make the best use of the idle machinery and lower the fixed costs per unit of product incurred by the Group as a result of the increase in production level. Therefore, the competitiveness of the products of the Group will increase.

Further, since the Company has no means to access the sales channel of the H and HE Group and in view of the above-mentioned benefits of selling and supplying air-conditioners and refrigerators and other home electrical appliances such as washing machines to the H and HE Group, it is in the interests of the Company to enter into the Business Co-operation Framework Agreement 2.

The sales of home electrical appliances to the H and HE Group for sale purpose can increase the revenue of the Group, globalize its sales networks, improve its profit margins and enhance its publicity.

In light of the above, the Directors are of the view that the terms of the sale and supply of air-conditioners, refrigerators and home electrical appliances under the Business Co-operation Framework Agreement 2 are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE BOARD

Historical Figures

The relevant companies which will become Subsidiaries of the Company after completion of the acquisition of the Target Group have conducted similar transactions with the H and HE Group in the past. Details of such historical transaction amount are set out below:

Transaction amount for sale and supply of airRMB144,642,600 conditioners, refrigerators and washing machines (inclusive of valueto the H and HE Group for the year ended 31 added tax) December 2009 Transaction amount for sale and supply of RMB85,690,800 airconditioners, refrigerators and washing machines (inclusive of valueto the H and HE Group for the three months ended added tax) 31 March 2010

Proposed Annual Cap

The transactions contemplated by the Business Co-operation Framework Agreement 2 regarding sale and supply of air-conditioners, refrigerators and home appliances from the date of approval of the agreement by the Independent Shareholders, which is expected to be on 4 June 2010, to 31 December 2010 are subject to the annual cap set out below:

From 4 June 2010 to 31 December 2010

RMB294,420,000 (inclusive of valueadded tax)

The above annual cap was determined with reference to (a) similar transactions between the relevant companies which will become Subsidiary of the Company after completion of the acquisition of the Target Group with the H and HE Group in the past; (b) the prevailing market conditions about the demand for electrical appliances, including air-conditioners, refrigerators and home appliances, in the PRC; and (c) the projected level of production and sale of air-conditioners, refrigerators and home appliances, of the relevant Subsidiary of Hisense Group for the year ending 31 December 2010.

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LETTER FROM THE BOARD

Annual Cap from 1 January 2010 to 31 December RMB931,269,300 2010 pursuant to Business Co-operation Framework Agreement 1 dated 6 November 2009 (inclusive of valueadded tax) Annual Cap for the year ending 31 December 2010 RMB1,225,689,300 pursuant to the Business Co-operation Framework Agreement 1 dated 6 November 2009 and the (inclusive of valueBusiness Co-operation Framework Agreement 2 added tax) dated 5 May 2010

(5) Sale and Supply of Moulds

Pursuant to the Business Co-operation Framework Agreement 2, the Company has agreed that the Group shall manufacture and supply on a non-exclusive basis such quantities of moulds as the H and HE Group may require from time to time. The relevant parties agreed to enter into individual mould purchase orders setting out specific terms including the price, payment terms and schedules, technological services and other terms of delivery, but such terms shall be consistent with the principles and the terms of the Business Co-operation Framework Agreement 2, including the pricing, operation and trading policies set out therein.

The H and HE Group has the right to purchase moulds from suppliers other than the relevant Subsidiary of the Company from time to time according to its own needs. The Business Co-operation Framework Agreement 2 does not restrict the rights of the Group to sell its moulds to any other third parties.

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LETTER FROM THE BOARD

Pricing

In response to the invitations to tender from the H and HE Group (which are also extended to various Independent Third Parties) from time to time, the Group may submit such tenders or bids to manufacture the moulds for such products requested by the H and HE Group in its invitation to tender. Pricing for the manufacture of moulds is determined predominantly by the open bidding process. However, the prices offered by the Group to the H and HE Group for the sale and supply of moulds shall be on terms no more favourable than other third parties.

Payment Term

Payment for the sale and supply of moulds is determined according to the payment terms agreed between the parties as set out in the individual mould purchase orders and in accordance with public tenders.

Reasons for and Benefits of the Sale and Supply of Moulds

The relevant companies which will become Subsidiaries of the Company after completion of the acquisition of the Target Group are principally engaged in the design and manufacture of large and medium size moulds for home electrical appliances. The relevant members of the H and HE Group are principally engaged in the manufacture of home electrical appliances. The manufacture and provision of moulds to the H and HE Group therefore form an integral part of the business of the relevant companies which will become Subsidiaries of the Company after completion of the acquisition of the Target Group. The sale of moulds under the Business Co-operation Agreement will facilitate the Company to maintain an important existing relationship with the relevant members of the H and HE Group so that they may become stable customers of the Company thereby further expanding the sales of the Company.

In light of the above, the Directors are of the view that the terms of the sale and supply the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE BOARD

Historical Figures

Transaction amount for the sale and supply of moulds RMB126,382,300 to the H and HE Group for the year ended 31 (inclusive of valueDecember 2009 added tax) Transaction amount for the sale and supply of moulds RMB33,158,700 to the H and HE Group for the three months ended (inclusive of value31 March 2010 added tax)

Proposed Annual Cap

The transactions contemplated by the Business Co-operation Framework Agreement 2 from the date of approval of the agreement by the Independent Shareholders, which is expected to be on4 June 2010, to 31 December 2010 regarding the sale and supply of moulds are subject to the annual cap set out below:

From 4 June 2010 to 31 December 2010

RMB138,300,000 (inclusive of valueadded tax)

The above annual cap was determined with reference to (a) similar transactions between the relevant companies which will become the subsidiaries of the Company after completion of the acquisition of the Target Group and the relevant Subsidiaries of the H and HE Group in the past; (b) the prevailing market conditions relating to the demand for electrical appliances in the PRC.

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LETTER FROM THE BOARD

(6) Sale and Supply of Raw Materials and Parts

Pursuant to the Business Co-operation Framework Agreement 2, the Company has agreed that the Group shall manufacture and supply to the H and HE Group on a non-exclusive basis such quantities of raw materials and parts for refrigerators and air-conditioners as the relevant Subsidiaries of Hisense Group may require from time to time for the purpose of the manufacture of refrigerators and air-conditioners pursuant to the Business Co-operation Framework Agreement 2. The relevant parties agreed to enter into individual raw materials production and supply orders setting out specific terms including the price, payment terms and schedules, technological services and other terms of delivery, but such terms shall be consistent with the principles and the terms of the Business Co-operation Framework Agreement 2, including the pricing, operation and trading policies set out therein.

The H and HE Group has the right to purchase raw materials and parts from suppliers other than the relevant Subsidiaries of the Company from time to time according to its own needs. The Business Co-operation Framework Agreement 2 does not restrict the rights of the Group to sell raw materials and parts to any other third parties.

Pricing

Pricing for the sale and supply of raw materials and parts is determined principally by arm’s length commercial negotiation between the parties according to the principles of fairness and reasonableness with reference to the market price of raw materials and parts from time to time. Such transactions will be conducted in the ordinary and usual course of business of the Company, on normal commercial terms and on terms not less favourable to the Company than terms available to or from (as appropriate) Independent Third Parties.

The prices to be offered by the Group to the H and HE Group for the sale and supply of such raw materials and parts shall be on terms no more favourable than other third parties.

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LETTER FROM THE BOARD

Payment Term

Payment for the sale and supply of raw materials and parts should be made within 60 days after receipt of the parts.

Reasons for and Benefits of the Sale and Supply of Raw Materials and Parts

The provision of raw materials and parts for refrigerators and air-conditioners by the relevant companies which will become Subsidiaries of the Company after completion of the acquisition of the Target Group to the H and HE Group facilitates the Group to distribute and sell its products. Further, the Company considers that the relevant members of the H and HE Group are reliable business co-operation partners and such co-operation is beneficial to the business of the Group. The sale and supply of raw materials and parts for refrigerators and air-conditioners between the parties under the Business Cooperation Framework Agreement 2 is in compliance with the relevant laws and regulations of the PRC. They will not jeopardise the interest of the Group and the Shareholders and will not affect the independence of the Group.

Further, the provision of raw materials and parts for refrigerators and airconditioners to the relevant members of the H and HE Group can increase the revenues of the Company.

In light of the above, the Directors are of the view that the terms of the sale and supply of raw materials and parts for refrigerators and air-conditioners under the Business Co-operation Framework Agreement 2 are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE BOARD

Historical Figures

Transaction amount for the sale and supply of raw RMB7,923,800 materials and parts for refrigerators and air(inclusive of valueconditioners to the H and HE Group for the year added tax) ended 31 December 2009 Transaction amount for the sale and supply of raw RMB1,739,600 materials and parts for refrigerators and air(inclusive of valueconditioners to the H and HE Group for the three added tax) months ended 31 March 2010

Proposed Annual Cap

The transactions contemplated by the Business Co-operation Framework Agreement 2 from the date of approval of the agreement by the Independent Shareholders, which is expected to be on 4 June 2010 to 31 December 2010 regarding the sale and supply of raw materials and parts for refrigerators and air-conditioners are subject to the annual cap set out below:

From 4 June 2010 to 31 December 2010 RMB18,760,000 (inclusive of valueadded tax)

The above annual cap was determined with reference to (a) similar transactions between the relevant companies which have become Subsidiaries of the Company after completion of the acquisition of the Target Group and the relevant Subsidiaries of Hisense Group in the past; and (b) the prevailing market conditions relating to the demand for electrical appliances, including air-conditioners and refrigerators, in the PRC.

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LETTER FROM THE BOARD

Annual Cap from 1 January 2010 to 31 December RMB82,685,700 2010 pursuant to Business Co-operation Framework (inclusive of valueAgreement 1 dated 6 November 2009 added tax) Annual Cap for the year ending 31 December 2010 RMB101,445,700 pursuant to the Business Co-operation Framework (inclusive of valueAgreement 1 dated 6 November 2009 and the added tax) Business Co-operation Framework Agreement 2 dated 5 May 2010

(7) Provision of loading and unloading services and equipment rental services

Pursuant to the Business Co-operation Framework Agreement 2, the Company has agreed that the Group shall provide services for loading and unloading of goods and equipment rental services to Hisense Group pursuant to the Business Co-operation Framework Agreement 2. The relevant parties agreed to enter into individual orders setting out specific terms including the price, payment terms and schedules, technological services and other terms of delivery, but such terms shall be consistent with the principles and the terms of the Business Co-operation Framework Agreement 2, including the pricing, operation and trading policies set out therein.

The H and HE Group have the right to engage suppliers other than the relevant Subsidiaries of the Company for such services from time to time according to its own needs.

The amount of connected transactions to be incurred in the provision of such services from 4 June 2010 for the year ending 31 December 2010 was minimal, with each applicable percentage ratios (as defined in the Hong Kong Listing Rules other than the profit ratio) is less than 0.1%.

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LETTER FROM THE BOARD

Historical Figures

Transaction amount for the provision of loading and RMB356,200 unloading of goods and equipment rental services to (inclusive of valuethe Hisense Group for the year ended 31 December added tax) 2009 Transaction amount for the provision of loading and RMB183,400 unloading of goods and equipment rental services (inclusive of valueto the Hisense Group for the three months ended 31 added tax) March 2010

Proposed Annual Cap

The transactions contemplated by the Business Co-operation Framework Agreement 2 from the date of approval of the agreement by the Independent Shareholders, which is expected to be on 4 June 2010, to 31 December 2010 regarding the provision of services of loading and unloading of goods and equipment rental services are subject to the annual cap set out below:

For 4 June 2010 to 31 December 2010

RMB420,000 (inclusive of valueadded tax)

The above annual cap was determined with reference to (a) similar transactions between the relevant companies which have become Subsidiaries of the Company after completion of the acquisition of the Target Group and the Hisense Group in the past; and (b) the prevailing market conditions relating to the provision of such services.

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LETTER FROM THE BOARD

Annual Cap from 1 January 2010 to 31 December RMB360,000 2010 pursuant to Business Co-operation Framework (inclusive of valueAgreement 1 dated 6 November 2009 added tax)
Annual Cap for the year ending 31 December 2010 RMB780,000 pursuant to the Business Co-operation Framework (inclusive of valueAgreement 1 dated 6 November 2009 and the added tax) Business Co-operation Framework Agreement 2 dated 5 May 2010

In the light of the above, the Directors are of the view that the terms of the Business co-operation Framework Agreement 2 are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

(D) INFORMATION RELATING TO THE COMPANY, BEIJING EMBRACO SNOWFLAKE COMPRESSOR, HISENSE ELECTRIC, HISENSE GROUP AND HUAYI COMPRESSOR

Information relating to the Company

The Company is principally engaged in the manufacture and sales of refrigerators and air-conditioners.

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LETTER FROM THE BOARD

Information relating to Beijing Embraco Snowflake Compressor

Beijing Embraco Snowflake Compressor was established on 30 April 1995 with a registered capital of US$94.15 million. Its authorised representative is Sun Yan Chang (孫燕昌) and registered address at No. 29 Yu Hua Road, Zone B, Beijing Tianzhu Airport Economic Development Zone, Shunyi District, Beijing City. It is primarily engaged into the production and repairing of self-manufactured refrigeration and hermetically sealed compressors and their parts and components; and sale of self-manufactured products.

Information relating to Hisense Electric

Qingdao Hisense Electric Co., Ltd. was established on 17 April 1997 with a registered capital of RMB577,767,800. Its authorised representative is Ms. Yu Shu Min and registered address at 218 Qian Wan Gang Road, Qingdao Economic and Technological Development Zone. It is primarily engaged into the manufacture and sale of television, refrigerators, washing machines, radio and television equipment, communication products, information technology products, home and commercial appliances and electronic products and provision of the related services.

Information on Hisense Group

Hisense Group was incorporated in August 1979 with its registered address at No. 17 Donghai West Road, Shinan, Qingdao. Zhou Houjian is the legal representative of Hisense Group, a wholly state-owned enterprise with the registered capital of RMB806,170,000. The scope of business includes: the entrusted operation of state-owned assets; the manufacture and sales of TV sets, refrigerators, freezers, washing machines, small home electrical appliances, VCD and DVD players, audio sets, broadcasting appliances, air-conditioners, electronic computers, telephones, communication products, internet products and electronic products and the provision of related services; the development of software and the provision of internet services; the technological development and the provision of consultation services; the self-operated import and export business (with its operation subject to the list of projects as approved by the MOFTEC); the foreign economic and technical cooperation (with its operation subject to the list of projects as approved by the MOFTEC); operation of property rights transaction, provision of brokerage and information services; provision of industrial travel agency services; and provision of relevant business trainings. (Permit/licence shall be obtained for the operation of the businesses above if they fall into the requirements of licensure).

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LETTER FROM THE BOARD

Information relating to Huayi Compressor

Huayi Compressor was incorporated in the PRC on 13 June 1996 with a registered capital of RMB324,581,200. Its authorised representative is Mr. Liu Ti Bin and registered address at Hi-Tech Development Zone, No. 1 Changhong Avenue, Jingde Town, Jiangxi Province, China. It is primarily engaged in the production and sale of fluorine-free compressors, refrigerators and related accessories, processing of refrigerating equipment with supplied materials and supplied samples, assembly of supplied components, compensation trade, processing and sale of hardware accessories and export and trading business.

(E) IMPLICATIONS UNDER THE HONG KONG LISTING RULES

Continuing Connected Transactions

Compressors Purchase Framework Agreement

As at the Latest Practicable Date, Beijing Embraco Snowflake Compressor is held as to 30.82% by Beijing Snowflake Group, a substantial shareholder which holds 45% of the equity interests in the Company’s non wholly owned subsidiary Hisense Beijing and therefore Beijing Embraco Snowflake Compressor is a connected person of the Company according to the Hong Kong Listing Rules. Accordingly, the transactions contemplated under the Compressors Purchase Framework Agreement will constitute continuing connected transactions for the Company under the Hong Kong Listing Rules. As each of the applicable percentage ratios (other than the profit ratio) is more than 2.5%, the continuing connected transactions contemplated under the Compressors Purchase Framework Agreement are subject to reporting, announcement and independent shareholders’ approval requirements under Rule 14A.35 of the Hong Kong Listing Rules.

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LETTER FROM THE BOARD

Compressors Purchase and Supply Framework Agreement 2

As at the Latest Practicable Date, Huayi Compressor is a substantial shareholder holding 29.95% of the Company’s subsidiary Shunde Ronshen Plastic Products Co., Ltd. (佛山市順德區容声塑胶有限公司) and 29.89% of the Company’s subsidiary Guangdong Kelon Mould Co., Ltd (廣東科龍模具有限公司) and therefore Huayi Compressor is a connected person of the Company according to the Hong Kong Listing Rules. As each of the applicable percentage ratios (other than the profit ratio) for the aggregated amount of the transactions contemplated under the Compressors Purchase and Supply Framework Agreement 2 dated 5 May 2010 and the Compressors Purchase and Supply Framework Agreement 1 dated 6 November 2009 is more than 2.5%, the continuing connected transactions under the Compressors Purchase and Supply Framework Agreement are subject to the reporting, announcement and independent shareholders’ approval requirements under Rule 14A.35 of the Hong Kong Listing Rules.

Business Co-operation Framework Agreement 2

As at the Latest Practicable Date, Hisense Air-conditioning is a substantial shareholder of the Company, holding 25.22% of the issued shares of the Company. Each of Hisense Group and its Subsidiaries are Associates of Hisense AirConditioning and therefore connected persons of the Company according to the Hong Kong Listing Rules. As such, the transactions contemplated under the Business Co-operation Framework Agreement 2 will constitute continuing connected transactions of the Company under the Hong Kong Listing Rules and should be aggregated (in terms of the revenue and expenditure nature of such transactions) for the purpose of Rules 14A.25 to 14A.27 of the Hong Kong Listing Rules. Given that the applicable percentage ratios (other than the profit ratio) for the aggregated amount of the transactions contemplated under the Business Co-operation Framework Agreement 2 is more than 2.5%, the continuing connected transactions under the Business Co-operation Framework Agreement 2 are subject to reporting, announcement and independent shareholders’ approval requirements under Rule 14A.35 of the Hong Kong Listing Rules.

The Compressors Purchase Framework Agreement, the Compressors Purchase and Supply Framework Agreement 2 and the Business Co-operation Framework Agreement 2 are not inter-conditional on each other.

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LETTER FROM THE BOARD

(F) INDEPENDENT BOARD COMMITTEE

An independent board committee (which shall consist only of independent nonexecutive Directors) will be established to advise Shareholders as to whether the terms of the Compressors Purchase Framework Agreement 1, Compressors Purchase and Supply Framework Agreement 2 and the Business Co-operation Framework Agreement 2 and the related annual caps are fair and reasonable and to advise Shareholders on how to vote, taking into account the recommendations of the independent financial adviser appointed under Rule 13.39(6)(b) of the Hong Kong Listing Rules.

(G) MANDATE FOR THE BOARD TO DISPOSE OF NOT MORE THAN 50,000,000 SHARES OF HUAYI COMPRESSOR COMPANY LIMITED HELD BY THE COMPANY

Reference is made to the announcement dated 11 May 2010 in relation to approval by way of a written resolution on 11 May 2010 of the “Resolution on the Authorisation of the Company’s Board of Directors to Dispose of Not More Than 50,000,000 Shares of Huayi Compressor Company Limited Held By the Company at the General Meeting” at the seventh extraordinary meeting of 2010 of the seventh session of the Board. Nine out of nine Directors attended the Board meeting and voted in favour of the resolution. The convening of and the voting at the meeting were in compliance with the relevant requirements of the Company Law of the People’s Republic of China (the “PRC”) and the Articles of Association of the Company.

The seventh session of the Board of the Company convened its third extraordinary meeting of 2010 on 23 March 2010, and agreed to authorise the management of the Company to dispose of not more than six million shares of Huayi Compressor Company Limited (“Huayi Compressor”) held by the Company.

In order to better leverage on the shares of Huayi Compressor held by the Company, to supplement the Company’s need for cash flow during the course of its normal operating activities and to generate better returns for the Company, a resolution will be proposed at the general meeting in relation to the authorisation of the Board to dispose of not more than 50,000,000 shares of Huayi Compressor held by the Company at the General Meeting.

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LETTER FROM THE BOARD

Details of the proposed authorisation are set out as follows:

Period of disposal: within 12 months after approval at the general meeting;
Range of disposal price: a reasonable price range to be determined in accordance with the market conditions;
Number of shares to be disposed: not more than 50 million shares to be disposed in tranches or on a one-off basis.

In disposing the shares of Huayi Compressor, the Company will strictly comply with the relevant provisions and requirements of the Guiding Opinions on the Listed Companies’ Transfer of Original Shares Released from Trading Restrictions, the Rules Governing the Listing of Stocks on the Shenzhen Stock Exchange and the Hong Kong Listing Rules on the Stock Exchange, and perform its obligations for information disclosure on a timely basis. Should any of the applicable percentage ratios of the Company’s disposal of its equity interests in Huayi Compressor (whether in a single transaction or a series of transactions aggregated under rules 14.22 and 14.23) amount to 5% or more, but less than 25%, the transactions will be subject to the reporting and announcement requirements but will be exempt from the independent shareholders’ approval requirement under the Hong Kong Listing Rules. Should any of the applicable percentage ratios of the Company’s disposal of its equity interests in Huayi Compressor (whether in a single transaction or a series of transactions aggregated under rules 14.22 and 14.23) amount to 25% or more, but less than 75%, the transactions will be subject to the reporting, announcement, circular, shareholders’ approval requirements. The company will comply with such requirements in the future.

— 42 —

LETTER FROM THE BOARD

(H) INDEPENDENT OPINION OF THE INDEPENDENT NON-EXECUTIVE DIRECTORS

Pursuant to the requirements of the Guiding Opinions on Establishing an Independent Director System in Listed Companies issued by the China Securities Regulatory Commission and the Articles of Association of the Company, the independent non-executive Directors issued their independent opinion, based on their independent judgment, on the Resolution on the Authorisation of the Company’s Board of Directors to Dispose of Not More Than 50,000,000 Shares of Huayi Compressor held by the Company at the General Meeting, which was considered at the seventh extraordinary meeting of 2010 of the seventh session of the Board, as follows:

The proposal to be presented at the general meeting by the Board in relation to the authorisation of the Board to dispose of the abovementioned shares of Huayi Compressor at a suitable time and at a reasonable price range in strict compliance with the relevant provisions and requirements of the Guiding Opinions on the Listed Companies’ Transfer of Original Shares Released from Trading Restrictions, the Rules Governing the Listing of Stocks on the Shenzhen Stock Exchange and the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited will supplement the Company’s need for cash flow during the course of its normal operating activities and to generate better returns for the Company. The move is beneficial to the development of the Company.

The independent non-executive Directors concur with the voting results of the Board, and recommend the shareholders to vote for such resolution at the general meeting.

(I) AGM

The Company will convene the AGM on, among other things, to:

(A) consider and approve the Compressors Purchase Framework Agreement and the related caps;
(B) consider and approve the Compressors and Purchase Framework Agreement 2 and the related caps;

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LETTER FROM THE BOARD

(C) consider and approve the Business Co-operation Framework Agreement 2 and the related caps; and
(D) consider and approve the Resolution on the Authorisation of the Company’s Board of Directors to Dispose of Not More than 50,000,000 Shares of Huayi Compressor Company Limited held by the Company.

A supplemental and further notice of the AGM to be held on 4 June 2010 at 9:30 a.m. at the conference room of the Company’s head office, Shunde District, Foshan City, Guangdong Province, the PRC, at which relevant resolutions will be proposed to approve, among other things, the Compressors Purchase Framework Agreement, the Compressors Purchase Framework Agreement 2, the Business Co-operation Framework Agreement 2 and the related annual caps is set out on pages 96 to 97 of this circular.

In accordance with article 8.27 of the articles of association of the Company, a poll may be demanded in any general meeting of the Company by:

(A) the chairman of the meeting; or
(B) at least two Shareholders with voting rights or their proxies; or
(C) one or more Shareholder(s) (including their proxies) representing, individually or in aggregate, 10% or more of all shares carrying the voting rights at the general meeting.

Pursuant to Rule 13.39(4) of the Listing Rules, the votes of Independent Shareholders taken at the AGM for the approval of the Compressors Purchase Framework Agreement, the Compressors Purchase and Supply Framework Agreement 2, the Business Co-operation Framework Agreement 2 and the respective related annual caps must be taken on poll and it is contemplated that the chairman of the meeting will make such demand at the AGM and will announce the results of the poll in the manner prescribed under Rule 13.39(5) of the Hong Kong Listing Rules.

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LETTER FROM THE BOARD

Huayi Compressor and its respective Associates are required under the Hong Kong Listing Rules to abstain from voting in relation to the continuing connected transactions under the Compressors Purchase and Supply Framework Agreement and so far as the Company is aware, none of them holds any shares of the Company. Should Huayi Compressor or its Associates become interested as registered or beneficial owner(s) of the shares of the Company from the date of this circular to the date of the AGM, they would have to be abstained from voting in the AGM in relation to the continuing connected transactions entered between the relevant Subsidiaries of the Company and Huayi Compressor.

Beijing Embraco Snowflake Compressor and its respective Associates are required under the Hong Kong Listing Rules to abstain from voting in relation to the continuing connected transactions under the Compressors Purchase Framework Agreement and so far as the Company is aware, none of them holds any Shares of the Company. Should Beijing Embraco Snowflake Compressor or its Associates become interested as registered or beneficial owner(s) of the Shares of the Company from the date of this announcement to the date of the AGM, they would have to be abstained from voting in the AGM in relation to the continuing connected transactions entered into between the relevant Subsidiaries of the Company and Beijing Embraco Snowflake Compressor.

Since Hisense Air-Conditioning is a Shareholder of the Company holding 25.22% of the issued share capital of the Company as at the Latest Practicable Date, it and its Associates have to be abstained from voting in the AGM in relation to the continuing connected transactions contemplated under the Business Co-operation Framework Agreement 2. None of the associates of Hisense Air-Conditioning hold any shares of the Company other than those held indirectly through Hisense Air-Conditioning as at the Latest Practicable Date.

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LETTER FROM THE BOARD

(J) RECOMMENDATIONS

Your attention is drawn to the advice of the Independent Board Committee set out in its letter on pages 47 to 48 of this circular which contains its recommendation to the Independent Shareholders on the terms of the Compressors Purchase Framework Agreement, the Compressors Purchase and Supply Framework Agreement 2, the Business Co-operation Framework Agreement 2 and the related annual caps.

Your attention is also drawn to the letter of advice from Access Capital, which is set out on pages 49 to 88 of this circular, to the Independent Board Committee and the Independent Shareholders in respect of the terms of and the annual caps for the continuing connected transactions contemplated under the Compressors Purchase Framework Agreement, the Compressors Purchase and Supply Framework Agreement 2, the Business Co-operation Framework Agreement 2 and the respective related annual caps.

Your attention is drawn to the independent opinion of the independent non-executive Directors set out on page 43 of this circular which contains its recommendation to the shareholders in respect of the “Resolution on the Authorisation of the Company’s Board of Directors to Dispose of Not More than 50,000,000 Shares of Huayi Compressor Company Limited Held by the Company at the General Meeting”.

(K) ADDITIONAL INFORMATION

Your attention is drawn to the general information of the Group as well as other information contained in the Appendix I to this circular before considering whether to vote for or against the resolutions to be proposed at the AGM for approving the Compressors Purchase Framework Agreement, the Compressors Purchase and Supply Framework Agreement 2, the Business Co-operation Framework Agreement 2 and the related annual caps as set out in the supplemental and further notice of the AGM.

Yours faithfully,

By Order of the Board of

Hisense Kelon Electrical Holdings Company Limited

Tang Ye Guo

Chairman

— 46 —

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

HISENSE KELON ELECTRICAL HOLDINGS COMPANY LIMITED 海信科龍電器股份有限公司 (a joint stock limited company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 00921)

18 May 2010

To the Independent Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

We refer to the circular issued by the Company to the Shareholders dated 18 May 2010 (the “Circular”) of which this letter forms part. Terms defined in the Circular shall have the same meanings in this letter unless the context otherwise requires.

Under the Hong Kong Listing Rules, the entering into of the Compressors Purchase Framework Agreement, the Compressors Purchase and Supply Framework Agreement 2, the Business Co-operation Framework Agreement 2 constitutes non-exempt continuing connected transactions for the Company and is thus subject to the approval of the Independent Shareholders at the AGM.

We have been appointed by the Board to consider the terms of the Compressors Purchase Framework Agreement, the Compressors Purchase and Supply Framework Agreement 2, and the Business Co-operation Framework Agreement 2 and to advise the Independent Shareholders in connection with the Compressors Purchase Framework Agreement, the Compressors Purchase and Supply Framework Agreement 2, the Business Cooperation Framework Agreement 2 and the respective related annual caps as to whether, in our opinion, its terms and its related annual cap are fair and reasonable so far as the Independent Shareholders are concerned. Access Capital has been appointed as the independent financial adviser to advise us in this respect.

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

We wish to draw your attention to the letter from the Board and the letter from Access Capital as set out in the Circular. Having considered the principal factors and reasons considered by, and the advice of Access Capital as set out in its letter of advice, we consider that the Compressors Purchase Framework Agreement, the Compressors Purchase and Supply Framework Agreement 2 and the Business Co-operation Framework Agreement 2 and the related annual caps are on normal commercial terms and in the interests of the Company and the Shareholders as a whole.

We also consider that the Compressors Purchase Framework Agreement, the Compressors Purchase and Supply Framework Agreement 2 and the Business Co-operation Framework Agreement 2 and the respective related annual caps are fair and reasonable so far as the Independent Shareholders are concerned.

Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions to approve the Compressors Purchase Framework Agreement, the Compressors Purchase and Supply Framework Agreement 2 and the Business Co-operation Framework Agreement 2 and the respective related annual caps and the continuing connected transactions contemplated thereunder at the AGM.

Yours faithfully,

For and on behalf of the Independent Board Committee

Zhang Sheng Ping Lu Qing Cheung Yui Kai, Warren Independent non-executive Directors Hisense Kelon Electrical Holdings Company Limited

— 48 —

LETTER FROM ACCESS CAPITAL

Set out below is the text of the letter of advice from Access Capital Limited to the Independent Board Committee and the Independent Shareholders prepared for inclusion in this Circular.

==> picture [100 x 46] intentionally omitted <==

Suite 606, 6th Floor Bank of America Tower 12 Harcourt Road Central Hong Kong

18 May 2010

To the Independent Board Committee and

the Independent Shareholders of Hisense Kelon Electrical Holdings Company Limited

Dear Sirs,

CONTINUING CONNECTED TRANACTIONS

INTRODUCTION

We refer to our appointment as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Compressors Purchase Framework Agreement, the Compressors Purchase and Supply Framework Agreement 2 and the Business Co-operation Framework Agreement 2 (collectively the “Agreements”), details of which are set out in the circular to the Shareholders dated 18 May 2010 (the “Circular”), of which this letter forms part. This letter contains our advice to the Independent Board Committee and the Independent Shareholders in respect of the Agreements. Unless otherwise stated, terms defined in the Circular have the same meanings in this letter.

On 5 May 2010, the Company announced that it had on the same day entered into (i) the Compressors Purchase Framework Agreement with Beijing Embraco Snowflake Compressor, (ii) the Compressors Purchase and Supply Framework Agreement 2 with Huayi Compressor and (iii) the Business Co-operation Framework Agreement 2 with Hisense Group and Hisense Electric, all for a term commencing from the date of approval of the Agreements by the Independent Shareholders (which is currently expected to be on 4 June 2010) until 31 December 2010.

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LETTER FROM ACCESS CAPITAL

As Huayi Compressor and Hisense Air-conditioning are connected persons of the Company and Beijing Embraco Snowflake Compressor will become connected person of the Company after the completion of acquisition of the Target Group according to the Hong Kong Listing Rules, the transactions contemplated under the Agreements will constitute continuing connected transactions for the Company under the Hong Kong Listing Rules. Given that the applicable percentage ratios (other than the profit ratio) for the aggregated amount of the transactions contemplated under the Agreements is more than 2.5%, the continuing connected transactions under the Agreements are subject to reporting, announcement and independent shareholders’ approval requirements under Rule 14A.35 of the Hong Kong Listing Rules.

The Independent Board Committee, comprising all the independent non-executive Directors, has been formed to advise the Independent Shareholders as to whether the transactions contemplated under the Agreements are in the interests of the Company and the Shareholders as a whole, and the terms of the Agreements including the proposed annual caps are fair and reasonable. As the independent financial adviser to the Independent Board Committee and the Independent Shareholders, our role is to give an independent opinion to the Independent Board Committee and the Independent Shareholders as to (i) whether or not the transactions contemplated under each of the Agreements are in the interests of the Company and the Shareholders as a whole; (ii) whether or not the respective terms of the Agreements, including the maximum value of the transactions contemplated thereunder, are fair and reasonable; and (iii) how the Independent Shareholders should vote in respect of the resolutions to approve each of the Agreements and the transactions contemplated thereunder at the AGM.

BASIS OF OUR OPINION

In formulating our advice, we have relied solely on the statements, information, opinions and representations contained in the Circular and the information and representations provided to us by the Company and/or the Directors. We have assumed that all such statements, information, opinions and representations contained or referred to in the Circular or otherwise provided or made or given by the Company and/or its senior management staff and/or the Directors and for which it is/they are solely responsible were true and accurate and valid at the time they were made and given and continue to be true and valid as at the date of the Circular. We have assumed that all the opinions and representations made or provided by the Directors and/or the senior management staff of the Company contained in the Circular have been reasonably made after due and careful enquiry. We have also sought and obtained confirmation from the Company and/or its senior management staff and/or the Directors that no material facts have been omitted from the information provided and referred to in the Circular.

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LETTER FROM ACCESS CAPITAL

We consider that we have reviewed all information and documents which are made available to us to enable us to reach an informed view and to justify our reliance on the information provided so as to provide a reasonable basis for our advice. We have no reason to doubt the truth, accuracy and completeness of the statements, information, opinions and representations provided to us by the Company and/or its senior management staff and/or the Directors and their respective advisers or to believe that material information has been withheld or omitted from the information provided to us or referred to in the aforesaid documents. We have not, however, carried out any independent verification of the information provided, nor have we conducted any independent investigation into the respective business and affairs of the Group or each relevant party to the Agreements.

PRINCIPAL FACTORS CONSIDERED

In formulating our opinion regarding the Agreements, we have taken into consideration the following principal factors:

I. Background information and reasons for the Agreements

1. Information on the Group

The Company was incorporated in the PRC on 16 December 1992 and, together with its Subsidiaries, is principally engaged in the manufacture and sale of refrigerators and air-conditioners. As stated in the Company’s annual reports for the year ended 31 December 2008 (the “2008 Annual Report”) and 31 December 2009 (the “2009 Annual Report”), the Group’s operations were carried out in the PRC and almost all of its production facilities were located in the PRC. For each of the years ended 31 December 2008 and 2009, approximately 65.4% and 69.1%, respectively, of the Group’s turnover was derived from the PRC market (including Hong Kong) with the rest derived from European, American and other overseas markets.

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LETTER FROM ACCESS CAPITAL

Set out below is a summary of the Group’s operating results and financial position extracted from the 2008 Annual Report and 2009 Annual Report:

Turnover
— Sales of refrigerators
— Sales of air-conditioners
— Sales of freezers
— Sales of product components
Gross profit
Distribution costs
Administrative expenses
Finance costs
Profit/(Loss) before income tax
expense
Profit/(Loss) for the year
Non-current assets
Current assets
Current liabilities
Net current liabilities
Total net liabilities

For the year ended 31 December
2007
2008
2009
RMB’000
RMB’000
RMB’000
(Audited)
(Audited)
(Audited)
4,324,808
4,189,049
5,208,614
3,214,875
3,024,028
2,497,832
324,821
397,572
594,816
455,456
442,260
372,499
8,319,960
8,052,909
8,673,761
1,377,171
1,236,300
1,703,215
(1,126,269)
(1,081,498)
(1,254,513)
(397,500)
(352,733)
(351,022)
(78,530)
(89,771)
(68,621)
214,524
(233,435)
139,201
203,657
(237,520)
135,009
As at 31 December
2007
2008
2009
RMB’000
RMB’000
RMB’000
(Audited)
(Audited)
(Audited)
1,990,117
1,991,145
1,958,671
2,404,085
1,696,361
2,263,654
(5,044,345)
(4,546,134)
(4,922,784)
(2,640,260)
(2,849,773)
(2,690,044)
(629,774)
(858,628)
(731,373)

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LETTER FROM ACCESS CAPITAL

We have noted from the 2009 Annual Report that the Company’s auditors (the “Auditors”), BDO McCabe Lo Limited, had expressed a qualified opinion on the financial statements of the Company and its Subsidiaries for the year ended 31 December 2009 arising from limitation of audit scope. In particular, due to the limitation of information available on and the irregularity of a series of activities/transactions entered into by Guangdong Greencool Enterprise Development Company Limited (“Greencool Enterprise”), which is the previous controlling shareholder of the Company, its affiliates and/or companies suspected to be connected with Mr. Gu Chu Jun (“Mr. Gu”), who is a former executive Director and the former chairman of the Company, during the period from 2001 to 2005 including but not limited to unauthorised use of the Group’s funds, fictitious sales of goods and scrap materials, unreasonable prepayments and purchases of raw materials and property, plant and equipment at unreasonable quantities and prices, the Auditors were unable to satisfy themselves concerning the validity of the aforesaid transactions and the appropriateness of the accumulated impairment and the recoverability of the carrying amounts of the receivables and payables due from/to the suspected companies at approximately RMB285 million (net of an accumulated impairment loss of approximately RMB365 million). Any adjustments found to be necessary would affect the opening accumulated losses as at 1 January 2009, the net liabilities as at 31 December 2009 and the profit for the year then ended. Except for the effects of such adjustments (if any), the Auditors opined that the financial statements give a true and fair view of the state of the Group’s affairs as at 31 December 2009 and of its profit and cash flows for the year then ended.

For the year ended 31 December 2008, the Group recorded an audited turnover of approximately RMB8,052.9 million (representing a slight decrease of approximately 3.2% from the turnover of approximately RMB8,320.0 million for the preceding year) and a net loss of approximately RMB237.5 million, compared to a net profit of approximately RMB203.7 million for the year ended 31 December 2007. As explained in the 2008 Annual Report, the significant deterioration of the Group’s financial performance with substantial loss for the year was due to (i) the absence of significant revenue from the disposal of idle assets for the year resulting in a decrease in the non-recurring revenue for 2008 by RMB315,000,000 as compared to 2007; (ii) in light of the global financial crisis, the consumption and demand in overseas markets shrank remarkably and the Company recorded a significant decrease in its export business; (iii) as a result of the appreciation of RMB as well as the significant fluctuation of exchange rates, the Company recorded a larger

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LETTER FROM ACCESS CAPITAL

amount of exchange loss for 2008 of approximately RMB65.8 million; and (iv) due to the slowdown of both domestic and overseas markets resulted from industrial depression and lower temperature during the summer time, the sales size and gross profit margin of the Company fell below the expected targets and in particular, the air-conditioner business recorded remarkable decrease in both production and sales volume as compared to 2007.

For the year ended 31 December 2009, the Group recorded an audited turnover of approximately RMB8,673.8 million (representing an increase of approximately 7.7% from the turnover of approximately RMB8,052.9 million for the preceding year) and a net profit of approximately RMB135.0 million, compared to a net loss of approximately RMB237.5 million for the year ended 31 December 2008. As stated in the 2009 Annual Report, the Group successfully overcame difficulties from the global financial crisis with its proactive responsive actions. The Group has been persistent in its efforts in upholding its operational strategies of “reshaping its edge in quality, focusing on market-orientation, strictly controlling operational risks and reinforcing project management” to capitalise on the PRC government policies of “Electrical Home Appliances Subsidy Policy for Rural Areas and Villages”, “Energy-saving Products Benefiting People Project” and “Subsidised Tradein of Electrical Home Appliances”. Through a number of effective measures, various business segments remained on the track of stable growth and attained improved performance in terms of different operating indices.

As at 31 December 2009, the Group had audited total current assets of approximately RMB2,263.7 million and audited total current liabilities of approximately RMB4,953.7 million, representing net current liabilities of approximately RMB2,690.0 million. As at 31 December 2009, the Group had outstanding borrowings of approximately RMB1,330.9 million and its audited total net liabilities amounted to approximately RMB731.4 million.

As stated in the Company’s quarterly report for the three months ended 31 March 2010, the Group recorded total unaudited operating income of approximately RMB2,815.9 million, representing an increase of approximately 56.8% over the corresponding period of 2009. During the same period, the net profit attributable to Shareholders was approximately RMB45.3 million, an over seven fold increase over the net profit generated for the three months ended 31 March 2009.

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LETTER FROM ACCESS CAPITAL

For further details of the Auditors’ opinion on the Company’s financial statements and its latest financial position, Shareholders are advised to read the respective annual reports.

2. Information on Huayi Compressor

Huayi Compressor has been listed on the Shenzhen Stock Exchange of the PRC since 1996 (stock code: 000404) and is located in Jingdezhen City, Jiangxi Province, the PRC. Based on the information available from the website of Huayi Compressor, Huayi Compressor is one of the major fluorinefree compressor producers in the PRC. As disclosed in the annual report of Huayi Compressor for the year ended 31 December 2009, its largest shareholder was 四川長虹電器股份有限公司 (Sichuan Changhong Electric Company Limited), a PRC national enterprise holding approximately 29.92% of the issued share capital of Huayi Compressor as at 31 December 2009. We also note that the Company held approximately 18.26% of the issued share capital of Huayi Compressor as at 31 December 2009 and was the second largest shareholder. Set out below is the consolidated financial information of Huayi Compressor for each of the two years ended 31 December 2009 which is extracted from its annual report for the year ended 2009.

	For the year ended	For the year ended
	31 December
	2008	2009
	RMB’000	RMB’000
	(Audited)	(Audited)
Turnover	3,079,505	3,255,733
Net profit attributable to shareholders	26,231	87,244
Total assets as at year end	2,078,785	2,695,517

As stated in its annual report for 2009, Huayi Compressor had a business segment turnover of approximately RMB2,931.6 million which was generated from the sales of about 14.9 million units of compressors. Huayi Compressor was the largest producer of refrigerator compressors in the PRC for 2009 in terms of sales volume. As at 31 December 2009, Huayi Compressor had net assets of approximately RMB533.2 million.

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LETTER FROM ACCESS CAPITAL

3. Information on Beijing Embraco Snowflake Compressor

Beijing Embraco Snowflake Compressor was established on 30 April 1995 with a registered capital of US$94.15 million and is primarily engaged into the production and repairing of self-manufactured refrigeration and hermetically sealed compressors and their parts and components; and sale of self-manufactured products.

Based on the information available from the website of Beijing Embraco Snowf lake Compressor, Beijing Embraco Snowf lake Compressor is an affiliated company of Embraco. Embraco was founded in 1971 and has more than 9,000 employees worldwide. Embraco has factories in Brazil, Italy, China and Slovakia and has a production capacity of 27 million compressors per annum. In addition to these factories, Embraco has business offices in the United States, Mexico and Italy, and distribution centers in strategic locations.

4. Information on Hisense Group

Based on the information available from the website of Hisense Group, Hisense Group is one of the major electronic companies in the PRC. Hisense Group is headquartered in Qingdao, the PRC and has operational presence in every major continent and sells its products to more than 100 countries worldwide. It is principally engaged in trust operation of state-owned assets; and the manufacturing and sale of TV set, DVD/VCD player, hifi set, broadcasting and television equipment, air-conditioner, electronic computer, telephone set, communications product, network product and electronic products; the development of software; sale and after-sale services, technological development and consultancy, self-managed import & export trade with the items verified by the Ministry of Foreign Trade and Economic Co-operation (“MOFTEC”), Sino-foreign economic and technical co-operation with the items verified by MOFTEC. In 2009, Hisense Group generated revenue of approximately RMB56 billion, making it one of the largest company in the electronic industry in the PRC.

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LETTER FROM ACCESS CAPITAL

Hisense Air-conditioning, a Subsidiary of Hisense Group, is a substantial shareholder of the Company, holding approximately 25.22% of the issued shares of the Company as at the Latest Practicable Date. In addition, we note that Hisense Electric Co., Ltd. (“Hisense Electric”), of which Hisense Group was beneficially interested in approximately 41.36% of the issued share capital as at 31 December 2009, has been listed on the Shanghai Stock Exchange of the PRC since 1997 (stock code: 600060). The following financial results of Hisense Electric for each of the two years ended 31 December 2008 and 2009 are extracted from its 2009 annual report.

	For the year ended	For the year ended
	31 December
	2008	2009
	RMB’000	RMB’000
	(Audited)	(Audited)
Turnover	13,407,101	18,406,555
Net profit	224,969	498,229
Total assets as at year end	5,913,756	10,343,098

As stated in its annual report for the year ended 31 December 2009, the turnover of Hisense Electric mainly represented sales of televisions and approximately 83.7% of its turnover was generated from domestic sales in the PRC. As at 31 December 2009, Hisense Electric had total assets of approximately RMB10,343.1 million.

5. Reasons for the Agreements

Reference is made to the announcement of the Company dated 16 July 2009 and the circular of the Company dated 31 July 2009 (the “July Circular”) in relation to the acquisition from Qingdao Hisense Air-Conditioning Company Limited of certain equity interests in the Target Group (as defined in the July Circular), which operates the White Goods Business (as defined in the July Circular). Following completion of the acquisition of the Target Group, the Company will hold, among other things, 55% of the equity interests in Hisense Beijing, 60% of the equity interests in Hisense Nanjing through Hisense Beijing, 100% equity interests in Hisense Shandong, 51% of the equity interests in Hisense Zhejiang and 78.7% of the equity interests in Hisense Mould.

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LETTER FROM ACCESS CAPITAL

In addition, the aforesaid companies will cease to be connected persons of the Company as defined under Rule 14A.11 of the Hong Kong Listing Rules. Therefore, the Company’s non-exempt continuing connected transactions with some of the members of the Target Group as announced on 6 November 2009 and approved by the Independent Shareholders on 15 January 2010 will no longer constitute continuing connected transactions of the Company after completion of the acquisition of the Target Group. The Company expects that RMB4.259 billion out of RMB5.324 billion of such aggregated amount as announced on 6 November 2009 will not be applicable thereafter. On the other hand, certain transactions between some of the members of the Target Group and connected persons of the Company will constitute non-exempt continuing connected transactions after completion of the acquisition of the Target Group. Accordingly, the Company entered into the Compressors Purchase Framework Agreement, the Compressors Purchase and Supply Framework Agreement 2 and the Business Co-operation Framework Agreement 2 in compliance with the Hong Kong Listing Rules.

a. Compressors Purchase Framework Agreement

Under the Compressors Purchase Framework Agreement, the Company agreed that it and/or its relevant Subsidiaries shall purchase on a nonexclusive basis such quantities of compressors as they may require from time to time from Beijing Embraco Snowflake Compressor and/or its Subsidiaries (the “Beijing Embraco Snowflake Compressor Group”) (as the case may be) for the purpose of manufacturing household electrical appliances, including but not limited to refrigerators and airconditioners, by the Group. The transactions contemplated under the Compressors Purchase Framework Agreement are in the ordinary and usual course of business of the Company, and the Company and/or its Subsidiaries have the right to purchase compressors from suppliers other than the Beijing Embraco Snowflake Compressor Group from time to time according to their own needs.

As stated in the Letter from the Board, the Group is engaged in the manufacture of household electrical appliances, including but not limited to refrigerators and air-conditioners, which requires compressors as component for its products. After considering a range of factors including the quality, the price and the compatibility of the compressors manufactured by the Beijing Embraco Snowflake Compressor Group with the current facilities used by and the refrigerators and air-

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LETTER FROM ACCESS CAPITAL

conditioners manufactured by the relevant Subsidiaries of the Company, as well as the level of services provided by the Beijing Embraco Snowflake Compressor Group, the Group considers that the Beijing Embraco Snowflake Compressor Group is in a good position to supply compressors to the Group.

We understand from the Company that the Target Group has been purchasing compressors from the Beijing Embraco Snowf lake Compressor Group since 2002 and the Target Group was very satisfied with the quality and prices of the compressors produced by the Beijing Embraco Snowflake Compressor Group. In view of the fact that the manufacture and sale of refrigerators and air-conditioners is one of the principal businesses of the Group and compressors are essential components of refrigerators and air-conditioners, it is reasonable for the Group to purchase compressors as part of the components for the manufacture of its products from time to time in its ordinary course of business. As mentioned above, Embraco is one of the major producers and has operations worldwide. Furthermore, the Beijing Embraco Snowflake Compressor Group has been one of the major suppliers of compressors of the Target Group since 2002. On this basis, we consider that the Beijing Embraco Snowflake Compressor Group has the relevant experience and expertise in the manufacture of compressors. Accordingly, we are of the view that the entering into of the Compressors Purchase Framework Agreement for the purpose of sourcing compressors from the Beijing Embraco Snowflake Compressor Group is in the interests of the Company and the Shareholders as a whole and the transactions contemplated under the Compressors Purchase Framework Agreement are in the ordinary and usual course of business of the Company.

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LETTER FROM ACCESS CAPITAL

b. Compressors Purchase and Supply Framework Agreement 2

Under the Compressors Purchase and Supply Framework Agreement 2, the Company agreed that it and/or its relevant Subsidiaries shall purchase on a non-exclusive basis such quantities of compressors as they may require from time to time from Huayi Compressor and/or its Subsidiaries (the “Huayi Group”) for the purpose of manufacturing household electrical appliances, including but not limited to refrigerators and air-conditioners, by the Group. The transactions contemplated under the Compressors Purchase and Supply Framework Agreement are in the ordinary and usual course of business of the Company, and the Company and/or its Subsidiaries have the right to purchase compressors from suppliers other than the Huayi Group from time to time according to their own needs.

As stated above, the Company and/or its Subsidiaries are engaged in the manufacture of household electrical appliances, including but not limited to refrigerators and air-conditioners, which requires compressors as component for its products. After considering a range of factors including the quality, the price and the compatibility of the compressors manufactured by the Huayi Group with the current facilities used by and the refrigerators and air-conditioners manufactured by the relevant Subsidiaries of the Company, as well as the level of services provided by the Huayi Group, the Group considers that the Huayi Group are in a good position to supply compressors to the Group.

We understand from the Company that the Group has been purchasing compressors from the Huayi Group since 2001 and the Company was very satisfied with the quality and prices of the compressors produced by the Huayi Group. As stated above, compressors are essential components of refrigerators and air-conditioners, it is reasonable for the Group to purchase compressors as part of the components for the manufacture of its products from time to time in its ordinary course of business. As mentioned above, Huayi Compressor is one of the major producers of compressors in the PRC and was the largest producer of refrigerator compressors in the PRC for 2009. Furthermore, the Huayi Group has been one of the major suppliers of compressors of the Group. On this basis, we consider that the Huayi Group has the relevant experience and expertise in the manufacture

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of compressors. Accordingly, we are of the view that the entering into of the Compressors Purchase and Supply Framework Agreement 2 for the purpose of sourcing compressors from the Huayi Group is in the interests of the Company and the Shareholders as a whole and the transactions contemplated under the Compressors Purchase and Supply Framework Agreement 2 are in the ordinary and usual course of business of the Company.

c. Business Co-operation Framework Agreement 2

Under the Business Co-operation Framework Agreement 2, the Company has agreed that it (or any of its Subsidiaries which will be entitled to have the same rights and obligations under the Business Cooperation Framework Agreement 2) may enter into certain transactions with the relevant Subsidiaries of Hisense Group and Hisense Electric Co. (collectively, the “H and HE Group”) in respect of the sale and/ or purchase of home electrical appliances, raw materials, equipment, parts and components, provision of services, moulds, raw materials and parts, and the provision of loading and unloading services and equipment rental services (particulars and terms of each category of the aforesaid transactions are discussed in the section headed “Terms of the Agreements” below).

As noted in the Letter from the Board, the competition in the airconditioners’ and refrigerators’ market in the PRC is very keen at present with substantial increase in raw materials prices. In particular, the sale of refrigerators and air-conditioners by the Group to the H and HE Group under the Business Co-operation Framework Agreement 2 can achieve the following benefits to the Company:

(i) making best use of the idling production capacity of the Group as well as increasing the sales and revenue of the Company; and
(ii) lowering the fixed costs per unit of products (i.e. depreciation of machinery and rent) incurred by the Group for the production of air-conditioners and refrigerators as a result of the increase in production level, which will enhance the competitiveness of the Group’s products.

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Given the similar principal activities between the Group and the H and HE Group which include the design and manufacture of household electrical appliances including air-conditioners and refrigerators and the provision of related services and the substantial interest of Hisense Group in the Company, we consider that the business arrangements under the Business Co-operation Framework Agreement 2 serve essentially to assist the Group in improving its competitiveness for the manufacture and sales of air-conditioners and refrigerators.

In view of the substantial interest of Hisense Group in the Company, we consider it commercially reasonable and sensible for Hisense Group to assist the Group in improving its competitiveness for the manufacture and sales of air-conditioners and refrigerators. Given that Hisense Group, together with its Subsidiaries, is currently one of the major electronic companies in the PRC. As shown in the section headed “Information on Hisense Group” above, given that Hisense Group generated revenue of approximately RMB56 billion in 2009 demonstrating a good track record in the sales of electrical appliances in the PRC, we are of the view that it is in the commercial interest of the Company to enter into the Business Co-operation Framework Agreement 2 as the H and HE Group have the relevant expertise in the domestic electrical appliances market in the PRC as well as strong financial resources and therefore are able to assist the Group in improving its competitiveness for the manufacture and sales of air-conditioners and refrigerators.

In addition, certain transactions contemplated under the Business Cooperation Framework Agreement 2 such as the sales of home electrical appliances, moulds and raw materials and parts and the provision of loading and unloading services and equipment rental services by the Group to the H and HE Group, when take place, will be recognised by the Group as its sales or other income, and the overall revenue of the Group will therefore be increased as a result of such transactions. As stated in the Letter from the Board, the sale and supply of moulds under the Business Co-operation Framework Agreement 2 will facilitate the Company to maintain an important existing relationship with the H and HE Group so that they may become stable customers of the Company thereby further expanding the sales of the Company. As regards to the sale and supply of home electrical appliances under the Business Co-operation Framework Agreement 2, since the relevant

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Subsidiaries currently possess excess production capacity for home electrical appliances and they will incur fixed costs such as depreciation of machinery and rent regardless of the production level, the sale and supply of home electrical appliances to the H and HE Group can help to utilise their otherwise idling capacity as well as reduce the products’ per-unit fixed costs as a result of the increase in the production level. The competitiveness of the Group’s products in terms of costing may therefore increase.

As regards to those transactions contemplated under the Business Cooperation Framework Agreement 2 in relation to the purchase of raw materials, equipment, parts and components by the Group from the H and HE Group, they are expected to reduce purchase costs, and at the same time, can reduce the limitation of the bottleneck in the production of upstream raw materials during peak season, achieving full utilisation of resources. It can also facilitate the Group’s production of refrigerators and air-conditioners for its sale to Hisense Group and/or Hisense Electric.

As regards to the purchase of home electrical appliances by the Group from the H and HE Group under the Business Co-operation Framework Agreement 2, the Group expects that sales and overall image of the Company can be enhanced by purchasing cellular phones and television sets from the H and HE Group as gifts for the Group’s marketing and promotion activities which aimed at boosting the sales of the Group’s home electrical appliances such as refrigerators.

As regards to the procurement of services by the Group from the relevant Subsidiaries of Hisense Group under the Business Co-operation Framework Agreement 2, it is stated in the Letter from the Board that engaging H and HE Group will to reduce reliance on a single service provider, foster its control on its services network, enhance its supervision on the maintenance and repair service teams and enable the Group to make long term planning on maintenance services provision. We understand from the management of the Company that the Group has multiple service providers for the provision of such services to its customers. Accordingly, we concur with the Company’s view that the engagement of the H and HE Group for the provision of property management service, medical service, material processing services, installation and maintenance, management consultancy and agency

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services for import and export, leasing, design, equipment management, advertising and information system maintenance for the Group will help reduce the Group’s reliance on any single service provider. In addition, the non-exclusive arrangement allows the Group to engage according to its own needs service providers other than the H and HE Group to provide the aforesaid services to the Group. Hence, the Group can choose the services providers that offers the most favourable terms to the Group and is not obligated to obtain services from the H and HE Group. Accordingly, the engagement will not lead to the Group’s reliance on any single service provider (including the H and HE Group).

Based on the nature of the transactions to be contemplated under the Business Co-operation Framework Agreement 2 and the benefits expected to be brought by such transactions as discussed above, we consider that the transactions to be contemplated under the Business Co-operation Framework Agreement 2 will be conducted in the ordinary and usual course of business of the Company and we concur with the view of the Company that the entering into of the Business Co-operation Framework Agreement 2 is in the interests of the Company and the Shareholders as a whole.

II. Terms of the Agreements

1. The Compressors Purchase Framework Agreement

The Compressors Purchase Framework Agreement is valid from the date of its approval by the Independent Shareholders, which is expected to be on 4 June 2010, until 31 December 2010 (which can be terminated before its expiration by mutual agreement of the parties or in the event of any breaches of the agreement), pursuant to which the Company agreed that it and/or its relevant Subsidiaries shall purchase on a non-exclusive basis such quantities of compressors as they may require from time to time from the Beijing Embraco Snowflake Compressor Group for the purpose of manufacturing household electrical appliances, including but not limited to refrigerators and air-conditioners, by the Group. The transactions contemplated under the Compressors Purchase Framework Agreement are in the ordinary and usual course of business of the Company.

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The parties will enter into individual compressors purchase orders setting out specific terms including the price, payment terms and schedules, technological services and other terms of delivery, but such terms shall be consistent with the principles and the terms of the Compressors Purchase Framework Agreement, including the pricing, operation and trading policies set out therein.

The Company and/or its Subsidiaries have the right to purchase compressors from suppliers other than the Beijing Embraco Snowflake Compressor Group from time to time according to their own needs. The Compressors Purchase Framework Agreement does not restrict the rights of the Beijing Embraco Snowflake Compressor Group to sell its compressors to any other third parties.

Pricing for the purchase of compressors is determined principally by commercial negotiations between the parties according to the principles of fairness and reasonableness with reference to the market price of compressors from time to time. Such transactions will be conducted in the ordinary and usual course of business of the company, on normal commercial terms and on terms not less favourable to the Company than terms available to or from (as appropriate) Independent Third Parties. Payment term(s) for the purchase of compressors shall be in accordance with the payment term(s) as stipulated in the detailed contract(s) to be signed by relevant parties thereto.

On the basis that (i) the purchase of compressors will be conducted in the ordinary and usual course of business of the Company; and (ii) the terms (including the price, payment terms, technological services and terms of delivery) of the compressors purchase orders entered into between the Company (and/or its Subsidiaries) and the Beijing Embraco Snowflake Compressor Group will be consistent with those of the Compressors Purchase Framework Agreement and will be determined in accordance with the principle of fairness and reasonableness with reference to the market and will not be less favourable to the Group than those available from Independent Third Party, we are of the view that the terms of the Compressors Purchase Framework Agreement are in the interests of the Company and the Shareholders as a whole, on normal commercial terms and fair and reasonable.

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2. The Compressors Purchase and Supply Framework Agreement 2

The Compressors Purchase and Supply Framework Agreement 2 is valid from the date of its approval by the Independent Shareholders, which is expected to be on 4 June 2010, until 31 December 2010 (which can be terminated before its expiration by mutual agreement of the parties or in the event of any breaches of the agreement), pursuant to which the Company agreed that it and/or its relevant Subsidiaries shall purchase on a non-exclusive basis such quantities of compressors as they may require from time to time from Huayi Compressor and/or its Subsidiaries (as the case may be) for the purpose of manufacturing household electrical appliances, including but not limited to refrigerators and air-conditioners, by the Group. The transactions contemplated under the Compressors Purchase and Supply Framework Agreement 2 are in the ordinary and usual course of business of the Company.

The parties will enter into individual compressors purchase orders setting out specific terms including the price, payment terms and schedules, technological services and other terms of delivery, but such terms shall be consistent with the principles and the terms of the Compressors Purchase and Supply Framework Agreement 2, including the pricing, operation and trading policies set out therein.

The Company and/or its Subsidiaries have the right to purchase compressors from suppliers other than Huayi Compressor and/or its Subsidiaries from time to time according to their own needs. The Compressors Purchase and Supply Framework Agreement 2 does not restrict the rights of Huayi Compressor and/ or its Subsidiaries (as the case may be) to sell its compressors to any other third parties.

Pricing for the purchase of compressors is determined principally by commercial negotiations between the parties according to the principles of fairness and reasonableness with reference to the market price of compressors from time to time. Such transactions will be conducted in the ordinary and usual course of business of the company, on normal commercial terms and on terms not less favourable to the Company than terms available to or from (as appropriate) Independent Third Parties. Payment for the purchase of compressors should be made by telegraphic transfer or bank-issued bills by the Company and/or its Subsidiaries within 90 days from the first day of the following month after the compressors had passed the inspection tests and the relevant receipt(s) have been accounted for in the accounts.

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On the basis that (i) the purchase of compressors will be conducted in the ordinary and usual course of business of the Company; and (ii) the terms (including the price, payment terms, technological services and terms of delivery) of the compressors purchase and supply orders entered into between the Company (and/or its Subsidiaries) and Huayi Compressor (and/or its Subsidiaries) will be consistent with those of the Compressors Purchase and Supply Framework Agreement 2 and will be determined in accordance with the principle of fairness and reasonableness with reference to the market and will not be less favourable to the Group than those available from Independent Third Party, we are of the view that the terms of the Compressors Purchase and Supply Framework Agreement 2 are in the interests of the Company and the Shareholders as a whole, on normal commercial terms and fair and reasonable.

3. The Business Co-operation Framework Agreement 2

The Business Co-operation Framework Agreement 2 is valid for from the date of its approval by Independent Shareholders which is expected to be on 4 June 2010 to 31 December 2010 (which can be terminated before its expiration by mutual agreement of the parties or in the event of any breaches of the agreement) and covers the following aspects of business co-operation between the Group and the H and HE Group:

a. Purchase of home electrical appliances

Under the Business Co-operation Framework Agreement 2, the H and HE Group have agreed to manufacture and supply on a non-exclusive basis such quantities of home electrical appliances such as cellular phones and television sets as the Company (or any of its Subsidiaries which will be entitled to have the same rights and obligations under the Business Co-operation Framework Agreement 2) may require from time to time. The contracting parties have also agreed to enter into individual home electrical appliances purchase orders setting out specific terms including the price, payment terms and schedules, technological services and other terms of delivery, and such terms must be consistent with the principles and the terms of the Business Co-operation Framework Agreement 2 including the pricing, operation and trading policies set out therein.

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The purchase price of the home electrical appliances supplied by the H and HE Group to the Group will be determined principally by arm’s length commercial negotiations according to the principle of fairness and reasonableness between the contracting parties with reference to the market price of home electrical appliances from time to time.

The purchase of home electrical appliances by the Group will be conducted in the ordinary and usual course of its business, on normal commercial terms and on terms not less favourable to the Group than terms available to or from (as appropriate) Independent Third Parties. Payment for the fees for the purchase of home electrical appliances should be made by telegraphic transfer or bank-issued bills by the relevant purchaser of the Group within 60 days after receipt of the home electrical appliances. The Business Co-operation Framework Agreement 2 will not restrict the Group from purchasing home electric appliances from suppliers other than the H and HE Group, nor will it restrict the H and HE Group from selling its home electrical appliances to any other third parties.

On the basis that (i) the purchase of home electrical appliances by the Group will be conducted in the ordinary and usual course of its business and the terms (including the price, payment terms, technological services and terms of delivery) of the home electrical appliances purchase orders entered into between the relevant contracting parties will be consistent with those of the Business Co-operation Framework Agreement 2 and will be determined in accordance with the principle of fairness and reasonableness with reference to the market price; (ii) the price of the home electrical appliances purchased by the Group from the H and HE Group is determined principally by arm’s length commercial negotiations between the relevant purchaser of the Group and the relevant vendor of the H and HE Group according to the principles of fairness and reasonableness with reference to the market price of home electrical appliances from time to time; and (iii) the non-exclusive arrangement under the Business Co-operation Framework Agreement 2 provides the Group with the flexibility without any commitment on the purchase quantity from the H and HE Group, we are of the view that the terms of the Business Co-operation Framework Agreement 2 with respect to the purchase of home electrical appliances by the Group are in the interests of the Company and the Shareholders as a whole, on normal commercial terms and fair and reasonable.

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b. Purchase of raw materials, equipment, parts and components

Under the Business Co-operation Framework Agreement 2, the H and HE Group has agreed to supply on a non-exclusive basis such quantities of raw materials such as copper tubes and parts and components such as electronic components and parts for equipment for refrigerators as the Company (or any of its Subsidiaries which will be entitled to have the same rights and obligations under the Business Co-operation Framework Agreement 2) may require from time to time for its manufacture of airconditioners and refrigerators. The contracting parties have also agreed to enter into individual raw materials purchase and supply orders setting out specific terms including the price, payment terms and schedules, technological services and other terms of delivery, and such terms must be consistent with the principles and the terms of the Business Cooperation Framework Agreement 2 including the pricing, operation and trading policies set out therein.

Pricing for the purchase of raw materials and refrigerators’ and airconditioners’ parts and components and parts for equipment for refrigerators is determined principally by arm’s length commercial negotiations between the relevant Subsidiaries of the Company and the relevant Subsidiaries of Hisense H and HE Group according to the principles of fairness and reasonableness with reference to the market price of raw materials and parts and components of refrigerators and air-conditioners from time to time.

The Target Group has conducted similar transactions in the past. The transactions between the Target Group and the H and HE Group were not connected transactions in the past. Accordingly, the terms of purchasing raw materials, equipment, parts and components were arrived at after arm’s length negotiations and on normal commercial terms.

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On the basis that (i) the purchase of raw materials, equipment, parts and components by the Group will be conducted in the ordinary and usual course of its business and the terms (including the price, payment terms, technological services and terms of delivery) of the raw materials purchase and supply orders entered into between the relevant contracting parties will be consistent with those of the Business Co-operation Framework Agreement 2 and will be determined in accordance with the principle of fairness and reasonableness with reference to the market price; (ii) the non-exclusive arrangement under the Business Co-operation Framework Agreement 2 provides the Group with the flexibility without any commitment on the purchase quantity from the relevant Subsidiaries of the H and HE Group; and (iii) the relevant Subsidiary of the Company has conducted similar transactions with the H and HE Group under the same terms in the past which have always been arrived at after arm’s length negotiations, we are of the view that the terms of the Business Co-operation Framework Agreement 2 with respect to the purchase of raw materials, equipment, parts and components by the Group are in the interests of the Company and the Shareholders as a whole, on normal commercial terms and fair and reasonable.

c. Provision of services

Under the Business Co-operation Framework Agreement 2, the Company has agreed that the Group shall engage the H and HE Group for the provision of property management service, medical service, material processing services, installation and maintenance, management consultancy and agency services for import and export, leasing, design, equipment management, advertising and information system maintenance. The contracting parties also agreed to enter into individual service provision orders setting out specific terms for the provision of services including fees, scope of the services, payment terms and schedules, but such terms shall be consistent with the principles and the terms of the Business Co-operation Framework Agreement 2, including the pricing, operation and trading policies set out therein.

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The Target Group has conducted similar transactions in the past. The transactions between the Target Group and the H and HE Group were not connected transactions in the past. Accordingly, the terms for the provision of property management service, medical service, material processing services, installation and maintenance, management consultancy and agency services for import and export, leasing, design, equipment management, advertising and information system maintenance were arrived at after arm’s length negotiations and on normal commercial terms.

On the basis that (i) the provision of services to the Group will be conducted in the ordinary and usual course of its business and the terms (including fees, scope of the services, payment terms and schedules) of the services to be rendered will be consistent with those of the Business Co-operation Framework Agreement 2 and will be determined in accordance with the principle of fairness and reasonableness with reference to the market price and will not be less favourable to the Group than terms available to or from (as appropriate) Independent Third Parties, (ii) the non-exclusive arrangement under the Business Co-operation Framework Agreement 2 provides the Group with the flexibility without any commitment on the services to be provided by the H and HE Group and (iii) the relevant Subsidiary of the Company has conducted similar transactions under the same terms in the past, we are of the view that the terms of the Business Co-operation Framework Agreement 2 with respect to the provision of services to the Group are in the interests of the Company and the Shareholders as a whole, on normal commercial terms and fair and reasonable.

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d. Sale and supply of home electrical appliances

Under the Business Co-operation Framework Agreement 2, the Company has agreed that it (or any of its Subsidiaries which will be entitled to have the same rights and obligations under the Business Cooperation Framework Agreement 2) may manufacture and supply on a non-exclusive basis such quantities of air-conditioners, refrigerators and other home electrical appliances such as washing machines as the H and HE Group may require from time to time for their sales to its customers. The relevant contracting parties will enter into individual home electrical appliances production and supply orders setting out specific terms including the price, payment terms and schedules, technological services and terms of delivery, and such terms must be consistent with the principles and the terms of the Business Co-operation Framework Agreement 2, including the pricing, operation and trading policies set out therein.

The sales price of the air-conditioners, refrigerators and other home electrical appliances such as washing machines supplied by the Group to the relevant Subsidiaries of the H and HE Group will be determined principally by arm’s length commercial negotiations according to the principles of fairness and reasonableness between the relevant parties with reference to the market price of the air-conditioners, refrigerators and home appliances from time to time. Such transactions will be conducted in the ordinary and usual course of business of the Company, on normal commercial terms and on terms not less favourable to the Company than terms available to or from (as appropriate) Independent Third Parties. Payment for the purchase of home electrical appliances should be made by telegraphic transfer or bank-issued bills by the relevant Subsidiary of the H and HE Group within 60 days after receipt of the home electrical appliances.

The Business Co-operation Framework Agreement 2 will not restrict the H and HE Group from purchasing air-conditioners, refrigerators and other home electrical appliances such as washing machines from suppliers other than the Group, nor will it restrict the Group from supplying home electrical appliances to any other third parties.

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The Target Group has conducted similar transactions in the past. The transactions between the Target Group and the H and HE Group were not connected transactions in the past. Accordingly, the terms of purchasing air-conditioners, refrigerators and other home electrical appliances such as washing machines were arrived at after arm’s length negotiations and on normal commercial terms.

On the basis that (i) the sale and supply of air-conditioners, refrigerators and other home electrical appliances such as washing machines by the Group to the H and HE Group will increase the revenue of the Group as well as utilise its idle machinery; (ii) such sales will be conducted in the ordinary and usual course of business of the Group and on terms not less favourable to the Group than terms available to or from (as appropriate) Independent Third Parties; and (iii) the relevant Subsidiary of the Company has conducted similar transactions under the same terms in the past, we are of the view that the terms of the Business Cooperation Framework Agreement 2 with respect to the sale and supply of air-conditioners, refrigerators and other home electrical appliances such as washing machines by the Group to the H and HE Group are in the interests of the Company and the Shareholders as a whole, on normal commercial terms and fair and reasonable.

e. Sale and supply of moulds

Under the Business Co-operation Framework Agreement 2, the Company has agreed that it (or any of its Subsidiaries which will be entitled to have the same rights and obligations under the Business Cooperation Framework Agreement 2) may manufacture and supply on a non-exclusive basis such quantities of moulds as the H and HE Group may require from time to time. Individual mould purchase orders setting out specific terms including the price, payment terms and schedules, technological services and terms of delivery will be entered into by the relevant contracting parties and such terms must be consistent with the principles and the terms of the Business Co-operation Framework Agreement 2, including the pricing, operation and trading policies set out therein.

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Pursuant to the Business Co-operation Framework Agreement 2, the market price for the manufacture of moulds is determined predominantly by open bidding process. The Group may submit such tenders or bids to manufacture the moulds for such products requested by the H and HE Group in its invitation to tender (which are also extended to various Independent Third Parties). The prices offered by the Group to the H and HE Group for the sale and supply of moulds shall be on terms no more favourable than other third parties. Payment for the purchase of moulds is determined according to the payment terms agreed between the parties as set out in the individual mould purchase orders.

The Business Co-operation Framework Agreement 2 will not restrict the H and HE Group from purchasing moulds from suppliers other than the Group, nor will it restrict the Group from supplying its moulds to any other third parties.

In view of the pricing for the manufacture of moulds will be determined by open tendering process, which is a transparent pricing mechanism, we are of the view that the terms of the Business Co-operation Framework Agreement 2 with respect to the sale and supply of moulds by the Group to the H and HE Group are in the interests of the Company and the Shareholders as a whole, on normal commercial terms and fair and reasonable.

f. Sale and supply of raw materials and parts

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The contracting parties also agreed to enter into individual raw materials production and supply orders setting out specific terms including the price, payment terms and schedules, technological services and other terms of delivery, but such terms shall be consistent with the principles and the terms of the Business Co-operation Framework Agreement 2, including the pricing, operation and trading policies set out therein.

Pricing for the sale and supply of raw materials and parts is determined principally by arm’s length commercial negotiations between the parties according to the principles of fairness and reasonableness with reference to the market price of raw materials and parts from time to time. Such transactions will be conducted in the ordinary and usual course of business of the Company, on normal commercial terms and on terms not less favourable to the Company than terms available to or from (as appropriate) Independent Third Parties. Payment for the sale and supply of raw materials and parts should be made within 60 days after receipt of the raw materials and parts.

The Business Co-operation Framework Agreement 2 will not restrict the H and HE Group from purchasing raw materials and parts from suppliers other than the Group, nor will it restrict the Group from selling its raw materials and parts to any other third parties.

The Target Group has conducted similar transactions in the past. The transactions between the Target Group and the H and HE Group were not connected transactions in the past. Accordingly, the terms of sale and supply of raw materials and parts were arrived at after arm’s length negotiations and on normal commercial terms.

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On the basis that (i) the terms (including the price, payment terms, technological services and terms of delivery) of the raw materials production and supply orders entered into between the relevant contracting parties will be consistent with those of the Business Cooperation Framework Agreement 2 and will be determined in accordance with the principle of fairness and reasonableness and on terms not less favourable to the Group than those available to or from (as appropriate) Independent Third Parties; (ii) the sale and supply of raw materials and parts, when take place, will increase the revenue of the Group; and (iii) the Target Group has conducted similar transactions under the same terms in the past, we are of the view that the terms of the Business Cooperation Framework Agreement 2 with respect to the sale and supply of raw materials and parts by the Group to the H and HE Group are in the interests of the Company and the Shareholders as a whole, on normal commercial terms and fair and reasonable.

g. Provision of loading and unloading services and equipment rental services

Under the Business Co-operation Framework Agreement 2, the Company has agreed that it (or any of its Subsidiaries which will be entitled to have the same rights and obligations under the Business Cooperation Framework Agreement 2) may provide services for loading and unloading of goods and equipment rental services to Hisense Group.

The contracting parties agreed to enter into individual orders setting out specific terms including the price, payment terms and schedules, technological services and other terms of delivery, but such terms shall be consistent with the principles and the terms of the Business Cooperation Framework Agreement 2, including the pricing, operation and trading policies set out therein.

The H and HE Group have the right to engage suppliers other than the relevant Subsidiaries of the Company for such services from time to time according to its own needs.

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The fees payable by the He and HE Group for the provision of the aforesaid services is determined principally by arm’s length commercial negotiations according to the principles of fairness and reasonableness between the parties with reference to the market price for the provision of such services from time to time.

The Target Group has conducted similar transactions in the past. The transactions between the Target Group and the H and HE Group were not connected transactions in the past. Accordingly, the terms of the provision of loading and unloading of goods and equipment rental services were arrived at after arm’s length negotiation and on normal commercial terms.

On the basis that (i) the terms (including fees, scope of the services, payment terms and schedules) of the loading and unloading of goods and equipment rental services entered into between the relevant contracting parties will be consistent with those of the Business Co-operation Framework Agreement 2 and will be determined in accordance with the principle of fairness and reasonableness; (ii) the provision of loading and unloading of goods and equipment rental services, when take place, will increase the revenue of the Group; and (iii) the Target Group has conducted similar transactions with the H and HE Group under the same terms in the past which have always been arrived at after arm’s length negotiations, we are of the view that the terms of the Business Co-operation Framework Agreement 2 with respect to the provision of loading and unloading services and equipment rental services by the Group to the H and HE Group are in the interests of the Company and the Shareholders as a whole, on normal commercial terms and fair and reasonable.

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III. Rationale for determining the maximum value of the transactions contemplated under the Agreements

Pursuant to Rule 14A.35(2) of the Hong Kong Listing Rules, the transactions contemplated under the Agreements will be subject to an annual cap for the financial year ending 31 December 2010. The proposed maximum aggregate values, or “caps”, of the transactions contemplated under the Agreements and the unaudited value of similar transactions between the relevant parties in 2009 are summarised below. As the proposed annual caps are for the period from the date of approval of the Agreements by the Independent Shareholders which is expected to be on 4 June 2010 to 31 December 2010, we have annualised the proposed annual caps to reflect the hypothetical full year amount of the proposed annual caps.

			Historical
			transaction	Increase/
			for the year	(decrease)
			ended 31	over the
	Proposed	Annualised	December	annualised
Transaction	annual cap	proposed cap	2009	proposed cap
		(Note)		(%)
Compressors Purchase Framework Agreement:
Purchase of compressors	252,000,000	432,000,000	179,305,190	140.9%
Compressors Purchase and Supply Framework
Agreement 2:
Purchase of compressors	330,050,000	565,800,000	472,423,200	19.8%
Business Co-operation Framework Agreement 2:
Purchase of home electrical appliances	2,200,000	3,771,429	—	N/A
Purchase of raw materials, equipment, parts and
components	107,800,000	184,800,000	101,130,400	82.7%
Provision of services	67,570,000	115,834,286	42,561,500	172.2%
Sale and supply of home electrical appliances	294,420,000	504,720,000	144,642,600	248.9%
Sale and supply of moulds	138,300,000	237,085,714	126,382,300	87.6%
Sale and supply of raw materials and parts	18,760,000	32,160,000	7,923,800	305.9%
Provision of loading and unloading services and
equipment rental services	420,000	720,000	356,200	102.1%

Note: the annualised value of the proposed annual caps are arrived at by dividing the effective period of the Agreements of 7 months and multiply by 12 months.

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The basis for the proposed maximum value for each category of transactions contemplated under the Agreements is set out in the letter from the Board. The table below summaries the basis for each category of the transactions:

Basis for the proposed annual cap

Compressors Purchase Framework Agreement:

Purchase of compressors

(a) similar transactions between Hisense (Beijing) and/ or its Subsidiaries with Beijing Embraco Snowflake Compressor and/or its Subsidiaries in the past; (b) the prevailing market conditions relating to the demand for electrical appliances in the PRC; and (c) the business development plan of the Company relating to the production and sales level of refrigerators and airconditioners in 2010

Compressors Purchase and Supply Framework Agreement 2:

Purchase of compressors

(a) similar transactions between the Group and Huayi Compressor and/or its Subsidiaries in the past; (b) the prevailing market conditions relating to the demand for home electrical appliances in the PRC; and (c) the business development plan of the Company relating to the production and sales level of refrigerators and airconditioners in 2010

Business Co-operation Framework Agreement 2:

Purchase of home electrical appliances

(a) the prevailing market conditions about the demand for electrical appliances; (b) the Group’s plan to boost the sales of the Group’s home electrical appliances through marketing and promotion activities and (c) the projected need of the relevant companies which will become Subsidiaries of the Company after completion of the acquisition of the Target Group to purchase cellular phones and television sets from the H and HE Group for the year ending 31 December 2010 as gifts for the Group’s marketing and promotion activities which aimed at boosting the sales of the Group’s home electrical appliances such as refrigerators

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LETTER FROM ACCESS CAPITAL

Purchase of raw materials, equipment, parts and components

Provision of services

Sale and supply of airconditioners, refrigerators and other home electrical appliances
(a) the prevailing market conditions about the demand for electrical appliances, including air-conditioners and refrigerators, in the PRC; and (b) the projected increase in the sale and production of refrigerators by the relevant companies which will become Subsidiaries of the Company after completion of the acquisition of the Target Group to Hisense Group and/ or Hisense Electric for the year ending 31 December 2010 and their projected purchases of raw materials, equipment, and refrigerators’ and air-conditioners’ parts and components and parts for equipment from Hisense Group and/or Hisense Electric to enable such production and sale

(a) similar transactions between the Group with Hisense Group and/or Hisense Electric in the past; (b) the projected level of production and sale of electrical appliances of the relevant companies which will become Subsidiaries of the Company after completion of the acquisition of the Target Group and the Company from 4 June 2010 to 31 December 2010

(a) similar t ransactions bet ween the relevant companies which will become Subsidiary of the Company after completion of the acquisition of the Target Group with the H and HE Group in the past; (b) the prevailing market conditions about the demand for electrical appliances, including air-conditioners, refrigerators and home appliances, in the PRC; and (c) the projected level of production and sale of airconditioners, refrigerators and home appliances, of the relevant Subsidiary of Hisense Group for the year ending 31 December 2010

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LETTER FROM ACCESS CAPITAL

Sale and supply of moulds

(a) similar t ransactions bet ween the relevant companies which will become the subsidiaries of the Company after completion of the acquisition of the Target Group and the relevant Subsidiaries of the H and HE Group in the past; and (b) the prevailing market conditions relating to the demand for electrical appliances in the PRC

Sale and Supply of Raw Materials and Parts

(a) similar t ransactions bet ween the relevant companies which have become Subsidiaries of the Company after completion of the acquisition of the Target Group and the relevant Subsidiaries of Hisense Group in the past; and (b) the prevailing market conditions relating to the demand for electrical appliances, including air-conditioners and refrigerators, in the PRC

Provision of loading and unloading of goods and equipment rental services

(a) similar t ransactions bet ween the relevant companies which have become Subsidiaries of the Company after completion of the acquisition of the Target Group and the Hisense Group in the past; and (b) the prevailing market conditions relating to the provision of such services

In respect of the basis for the proposed annual caps under the Agreements as set out in the above table, we note that the majority of the annual caps have been arrived at on the basis of (i) similar transactions between the relevant Subsidiaries of the Company and the H and HE Group in the past and (ii) the prevailing market conditions relating to the demand for electrical appliances in the PRC for the year ending 2010. We also note that all the proposed annual caps, when annualised, represent an increase over the amount of similar transactions entered into between the relevant Subsidiaries of the Company and the H and HE Group. For instance, the annualised proposed annual cap of RMB432,000,000 and RMB565,800,000 for the purchase of compressors under the Compressors Purchase Framework Agreement and Compressors Purchase and Supply Framework Agreement 2, respectively, represent a significant increase of approximately 140.9% and 19.8% over the similar transactions entered into between the relevant parties for the year ended 31 December 2009.

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LETTER FROM ACCESS CAPITAL

In formulating our opinion, we have noted the fact that prior to the completion of the acquisition of the Target Group, the transactions between the relevant parties were independent third parties transactions which were negotiated after arm’s length negotiations and on normal commercial terms. We understand from the Company that after the completion of the acquisition of the Target Group, the relevant parties will continue to carry on the transactions at the same terms as in the past.

We further understand from the Company that the home appliances industry in the PRC is dynamic and market participants must react quickly in order to maximise profitability. For example, as stated in the 2009 Annual Report, during the first half of 2009, the electrical home appliances industry faced harsh market conditions under weak export and immense pressure on inventory level. However, under the stimulus policies adopted by the PRC government, the industry began recovery in the second half of 2009. The total operating income of approximately RMB2,815.9 million for the three months ended 31 March 2010 represents an increase of approximately 56.8% over the corresponding period in 2009. As such, companies in the home appliances industry in the PRC must be flexible and adjust to market needs quickly in order to gain a competitive edge over competitors. We were advised by the Company that the proposed annual caps included a reasonable buffer so as to provide the Group more flexibility in adjusting the changing market needs. As the industry began recovery in the second half of 2009 and the total operating income of the Group increased substantially in the first quarter of 2010, we concur with the view of the Company that the buffer for the proposed annual caps provides more flexibility to the Group and, given the non-exclusive nature of the transactions, is fair and reasonable.

As regards to the proposed annual caps for the purchase of compressors under the Compressors Purchase Framework Agreement and Compressors Purchase and Supply Framework Agreement 2 which represent a significant increase of approximately 140.9% and 19.8%, respectively, over the similar transactions entered into between the relevant parties for the year ended 31 December 2009, we understand that compressor is a main component for the production of refrigerators and airconditioners. Due to the anticipated increasing demand for refrigerators and airconditioners, the Company intends to purchase more compressors in 2010 so that the Group can have the necessary components to manufacture the refrigerators and airconditioners according to the market needs.

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LETTER FROM ACCESS CAPITAL

Similarly, as regards to the proposed annual cap for the purchase of raw materials, equipment, parts and components which represents a significant increase of approximately 82.7% over the similar transactions entered into between the relevant parties for the year ended 31 December 2009, we understand that the purchase of such products by the Company from the H and HE Group is to facilitate the manufacture of air-conditioners and refrigerators. Accordingly, we are of the view that the proposed annual caps for the purchase of compressors and raw materials, equipment, parts and components by the Group from the H and HE Group for the year ending 31 December 2010 are not excessive and have been prepared on a fair and reasonable basis.

As regards to the proposed annual cap for the purchase of home electrical appliances, notwithstanding the relevant parties did not enter into similar transactions for the year ended 31 December 2009, the Group purchased certain home electrical appliances from the H and HE Group for the three months ended 31 March 2010 as gifts for the Group’s marketing and promotion activities. We understand from the Company that the reception of such marketing and promotion has been satisfactory and the Group intends to increase the amount of such marketing and promotion activities. Taking into account that (i) the Group’s marketing and promotion activities can enhance the sales and overall image of the Company and (ii) the proposed annual cap of RMB2,200,000 is not significant relative to the Group’s operations, we are of the view that the proposed annual caps for the purchase of home electrical appliances for the year ending 31 December 2010 is not excessive and has been prepared on a fair and reasonable basis.

As regards to the proposed annual cap for the provision of services, we understand from the Company that as the Target Group began obtaining services from the H and HE Group since 2003 and is very satisfied with the services, the Target Group intends to engage the H and HE Group for more services for the year ending 31 December 2010. We further understand that the increase in the proposed annual cap over the historical transaction amount is mainly due to (i) certain Subsidiaries of the Target Group did not obtain certain types of services, such as agency services for import and export, from the H and HE Group in 2009 but is now considering to obtain such services and the provision of such services is expected to increase the transaction amount for the year ending 31 December 2010; (ii) the Company expects that more Subsidiaries of the Target Group will obtain services from the H and HE Group; and (iii) the demand for certain types of services, such as installation and maintenance, is expected to increase as the sales volume of the Group increases. Furthermore, the terms of the transactions (including fees, payment terms and schedule) are not less favourable to the Company than terms available to or from

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LETTER FROM ACCESS CAPITAL

(as appropriate) Independent Third Parties. As such, we are of the view that the proposed annual cap for the provision of services is not excessive and has been prepared on a fair and reasonable basis.

As regards to the sale and supply of home electrical appliances, moulds and raw materials and parts and the provision of loading and unloading services and equipment rental services, we understand from the Company that in light of the improved market environment, the H and HE Group anticipates to generate higher revenue in 2010 and as such, it will purchase more home electrical appliances and related products/service from the Group. For instance, the Target Group sold RMB85,690,800 worth of home electrical appliances to the H and HE Group for the three months ended 31 March 2010, the value of which already amounts to approximately 59.2% of the transaction amount entered into between the relevant parties for the year ended 31 December 2009. In general, the Group will be benefited from the sales and provision of services to the H and HE Group as such transactions will increase the Group’s revenue, we are of the view that it is of the commercial interest for the Company to maximise the value of such transactions. As such, we are also of the view that the proposed annual caps for the sale and supply of home electrical appliances, moulds and raw materials and parts and the provision of services, loading and unloading services and equipment rental services by the Group to the H and HE Group for the year ending 31 December 2010 are not excessive and have been prepared on a fair and reasonable basis.

It should be noted that the Agreements will not restrict the H and HE Group from purchasing products from suppliers other than the Group, nor will it restrict the Group from selling its products to any other third parties. Therefore, the anticipated value of the transactions to be carried out between the Group and the H and HE Group does not reflect the Company’s projection of total purchases or sales of the relevant product. In order to determine the fairness and reasonableness of the proposed caps, we, for the purpose of ensuring the accuracy of the Company’s computation of the proposed annual caps, have carried out a review on the worksheets prepared by the management of the Company for calculation of the relevant annual caps including the review of the quantities and the unit prices of the subject items. Based on the result of our review, we are satisfied that the calculation of the proposed annual caps has been conducted on a fair and reasonable basis and consider the proposed caps for the subject items are not excessive or unreasonable.

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LETTER FROM ACCESS CAPITAL

We have discussed with the management of the Company and note that the proposed annual caps under the Agreements have been largely arrived at on the basis of the Company’s estimation of the prevailing market conditions about the demand for electrical appliances in the PRC in the future in light of the various policies adopted by the PRC Government such as (i) Home Appliances Subsidy Policy for Rural Villages（家電下鄉政策）(the “Subsidy Policy”), (ii) home appliance replacement program（以舊換新）and (iii) subsidy program for energy efficient home appliances （節能補貼）, which are the major consideration taken into account by the relevant parties in the determination of the majority of the annual caps as discussed above.

With the aim to reduce the inequality between urban and rural households and to boost the domestic sales in the PRC market, the PRC government adopted the Subsidy Policy, pursuant to which the PRC government would provide a 13% subsidy to farmers who bought designated brands of color TV sets, refrigerators and mobile phones in the three agricultural provinces of Shandong, Henan, and Sichuan. On 1 February 2009, the PRC government expanded the Subsidy Policy nationwide to benefit all rural people and added four more products: motorcycles, personal computers, water heaters and air-conditioners. On 22 December 2009, Ministry of Finance further announced that the upper cap of the qualified appliances is adjusted upward so that more appliances qualify under the Subsidy Policy. For example, the upper cap for the price of refrigerator under the Subsidy was adjusted to RMB4,000 while that of air-conditioner was adjusted to RMB6,000. On 31 January 2010, the PRC government published a circular to reiterate its emphasis in assisting the rural households in order to bridge the gap between urban and rural household.

According to the PRC government’s official website for the Subsidy Policy, approximately 15.6 million units of refrigerators valuing over RMB32.0 billion were sold under the Subsidy Policy in 2009. There were also approximately 3.0 million units of air-conditioners valuing over RMB8.1 billion sold under the Subsidy Policy in 2009. As at 31 December 2009, there were approximately 37.7 million units of household appliances sold under the Subsidy Policy valuing at approximately RMB69.3 billion. With the 13% subsidy on household appliances, it is expected that the sales of household appliance in rural household will continue to increase.

Furthermore, as part of the recent stimulus policies of the PRC Government to boost domestic consumption, the State Council has announced a pilot program of home appliance replacement and set several provinces and cities, including Beijing, Shanghai, Tianjin, Fuzhou, Changsha and provinces of Jiangsu, Zhejiang, Shandong, Guangdong, as pilots for the replacement of used TV sets, refrigerators, washing machines, air conditioners and computers. In particular, the PRC government will

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LETTER FROM ACCESS CAPITAL

set aside RMB2 billion to subsidise purchases of home appliances and consumers who hand in certain used electronic products, namely, TV sets, refrigerators, washing machines, air-conditioners and computers, and buy new ones can receive a subsidy worth 10% of the prices on the new electronic products.

Based on the information from the National Bureau of Statistics of China as at the Latest Practicable Date, retail sales kept solid growth in the PRC as it turned to domestic consumption for growth after exports tumbled. In particular, total retail sales of consumer goods rose approximately 15.5% in 2009 (on a year-on-year basis) to approximately RMB12,534.3 billion. For the year ended 31 December 2009, the retail sales in cities reached approximately RMB8,513.3 billion, up by 15.5% as compared to the same period in 2008. Retail sales at and below county level was approximately RMB4,021.0 billion, representing an increase of approximately 15.7% on a year-on-year basis.

With (i) a population of over 1.32 billion; (ii) an expected stable economic growth in the future; (iii) rising household income and spending power and improving living standard; (iv) the PRC government’s policy of raising rural household’s living condition through the Subsidy Policy; and (v) the pilot program of home appliance replacement introduced in China recently to boost domestic consumption, China still represents a huge consumer market with enormous potential. Accordingly, we are generally of the view that the demand for household electrical appliances including air-conditioners and refrigerators in China market is promising.

While the proposed annual caps under the Agreements in certain cases represent a significant increase over the historical unaudited value of the similar transactions between the relevant parties in 2009, it should be noted that (i) the proposed transactions contemplated under the Agreements will continue to be conducted in the ordinary and usual course of business of the Company and on normal commercial terms and on terms not less favourable to the Company than terms available to or from (as appropriate) Independent Third Parties; (ii) it is generally in the interest of the Company to maximise the value of the sales transactions contemplated under the Agreements so as to increase the Company’s revenue; and (iii) the non-exclusive arrangement under the Agreements provides the Company with the flexibility without any commitment on the actual transaction values. Accordingly, we are of the view that the entering into of the Agreements is in the interests of the Company and the Shareholders as a whole and the proposed annual caps under the Agreements have been arrived at on a fair and reasonable basis.

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LETTER FROM ACCESS CAPITAL

IV. Conditions of the annual caps under the Agreements

There are certain conditions of the annual cap pursuant to the Hong Kong Listing Rules, in particular, the restriction of the value of the transactions contemplated under the Agreements by way of the annual cap for relevant financial year ending 31 December 2010 and the annual review by the independent non-executive Directors of the terms of such transactions and the relevant annual caps not being exceeded, details of which must be included in the Company’s subsequent published annual reports and accounts. Also, pursuant to the Hong Kong Listing Rules, each year the auditors of the Company must provide a letter to the Board confirming, among other things, that the transactions contemplated under the Agreements are conducted in accordance with the terms of the relevant Agreements and that the relevant annual caps not being exceeded. In addition, pursuant to the Hong Kong Listing Rules, the Company shall publish an announcement if it knows or has reason to believe that the independent non-executive Directors and/or its auditors will not be able to confirm the terms of such transactions or the relevant annual caps not being exceeded. We are of the view that there are appropriate measures in place to govern the conduct of the transactions to be contemplated under the Agreements and safeguard the interests of the Independent Shareholders.

RECOMMENDATION

In formulating our recommendation to the Independent Board Committee and the Independent Shareholders, we have considered the above principal factors and reasons, in particular, the following:

(i) The manufacture and sale of air-conditioners and refrigerators is one of the principal businesses of the Group and compressors are essential components of airconditioners and refrigerators. Beijing Embraco Snowflake Compressor and Huayi Compressor are major producers of compressors and have the relevant experience and expertise in the manufacture of compressors. It is therefore in the commercial interest of the Company to enter into the Compressors Purchase Framework Agreement and the Compressors Purchase and Supply Framework Agreement 2 with Beijing Embraco Snowflake Compressor and Huayi Compressors, respectively;
(ii) The H and HE Group is currently one of the major electronic companies in the PRC and has the relevant expertise in the domestic electric appliances market in the PRC as well as strong financial resources. Accordingly, the H and HE Group is in a good position to assist the Group in improving its competitiveness for the manufacture and sales of air-conditioners and refrigerators;

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LETTER FROM ACCESS CAPITAL

(iii) Certain transactions contemplated under the Agreements will increase the revenue of the Group, so it is in the interest of the Group to enter into such transactions;
(iv) The terms (including the price, payment terms and schedules, technological services and terms of delivery) of the formal orders entered into by the Group pursuant to the Agreements will be determined in accordance with the principle of fairness and reasonableness with reference to the market price, and the proposed transactions contemplated under the Agreements will be conducted in the ordinary and usual course of business of the Company, on normal commercial terms and on terms not less favourable to the Company than terms available to or from (as appropriate) Independent Third Parties. In addition, all the transactions contemplated under the Agreements are to be conducted on a non-exclusive basis, so the Agreements will not restrict the Company from engaging in the similar transactions with other parties; and
(v) The value of, and the basis for determining, the annual caps under the Agreements are fair and reasonable, details of which are set out in the section headed “Rationale for determining the maximum value of the transactions contemplated under the Agreements”.

Based on the above, we are of the opinion that each of the Agreements is in the interests of the Company and the Shareholders as a whole, the transactions to be contemplated under the Agreements are in the ordinary and usual course of business of the Company, on normal commercial terms and in the interests of the Company and the Shareholder as a whole. We are also of the opinion that the terms of the Agreements, including the proposed annual caps, are in the interests of the Company and the Shareholders as a whole, on normal commercial terms and fair and reasonable. Accordingly, we would advise the Independent Board Committee and the Independent Shareholders that the Independent Shareholders should vote in favour of the resolutions to approve the Compressors Purchase Framework Agreement, the Compressors Purchase and Supply Framework Agreement 2 and the Business Co-operation Framework Agreement 2 at the AGM.

Yours faithfully, For and on behalf of Access Capital Limited Alexander Tai Principal Director

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GENERAL INFORMATION

APPENDIX I

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Hong Kong Listing Rules for the purpose of giving information with regard to the Company. All the Directors jointly and severally accept full responsibility for the accuracy of information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this circular have been arrived at after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any statement in this circular misleading.

2. DISCLOSURE OF INTERESTS

Directors, supervisors and chief executive of the Company

As at the Latest Practicable Date, none of the Directors, supervisors and chief executive of the Company had interests and short positions in the Shares, underlying Shares and/or debentures (as the case may be) of the Company or any of its associated corporations (within the meaning of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which any such Director or chief executive is taken or deemed to have under such provisions of the SFO) or which were required to be entered into the register required to be kept by the Company under section 352 of the SFO or which were otherwise required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers in the Listing Rules.

As at the Latest Practicable Date, none of the Directors or supervisors of the Company had any interest, direct or indirect, in any asset which have been since 31 December 2009, being the date to which the latest published audited financial statements of the Group were made up, acquired or disposed of by or leased to any member of the Group or are proposed to be acquired or disposed of by or leased to any member of the Group.

As at the Latest Practicable Date, none of the Directors or supervisors of the Company was materially interested in any contract or arrangement entered into by any member of the Group since 31 December 2009, being the date to which the latest published audited financial statements of the Company were made up, and which was significant in relation to the business of the Group.

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GENERAL INFORMATION

APPENDIX I

Interests of Substantial Shareholders

Interests in the Company

As at the Latest Practicable Date, so far as the Directors are aware, each of the following persons, not being a Director, supervisor or chief executive of the Company, had an interest in the Shares which falls to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO:

			Proportion to
			the relevant	Proportion to
		Number of	class of		the total
		issued	issued share	issued share
		ordinary	capital of		capital of
Name	Class of Shares	shares held	the Company	the Company
Hisense Air-conditioning	A Shares	250,173,722	46.99%		25.22%
China Finance Asset
Management Corporate	A Shares	53,019,795	9.96%		5.34%

Interests in other members of the Group

As at the Latest Practicable Date, so far as the Directors are aware, the following persons, not being a Director, supervisor or chief executive of the Company, was directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other members of the Group:

		Percentage
		shareholding of
	Shareholders holding 10%	shareholders in
Other members	or more in other members	other members
of the Group	of the Group	of the Group
Guangdong Kelon Air-	Weishi Investments Company	40%
Conditioner Co., Ltd	Limited
Guangdong Kelon Mould	Hua Yi Compressor Company	29.89%
Co., Ltd	Limited

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GENERAL INFORMATION

APPENDIX I

		Percentage
		shareholding of
	Shareholders holding 10%	shareholders in
Other members	or more in other members	other members
of the Group	of the Group	of the Group
Foshan Shunde Rongsheng	Hua Yi Compressor Company	29.95%
Plastic Co., Ltd	Limited
Guangdong Huaao	Foshan City Shunde District Yun	30%
Electrical Electronics	Long Enquiry Service Company
Co., Ltd.	Limited
Hisense Ronshen	Yingkou Yingleng (Group)	14.74%
(Yingkou) Refrigerator	Bankruptcy Liquidation Team
Co., Ltd.
Xi’an Kelon Cooling Co.,	Xi’an Gaoke (Group) Company	29.05%
Ltd.	Limited
Jiangxi Kelon Combine	Jiangxi Fadasi Domestic Electrical	45%
Electrical Appliances	Appliances Company Limited
Co., Ltd.
Hua Yi Compressor	Sichuan Changhong Electric	29.92%
Company Limited	Holdings Co., Ltd
Guangzhou Antaida	Guangzhou Zhongyuan	30%
Logistic Co., Ltd.	International Freight Forwarding
	Company Limited
	China Far Ocean Network	25%
	Company Limited
	Wuxi Small Swan Holdings	20%
	Company Limited
Sichuan Rongsheng Kelon	Xu Wei Ru	24%
Refrigerator Sales Co.,
Ltd.

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GENERAL INFORMATION

APPENDIX I

		Percentage
		shareholding of
	Shareholders holding 10%	shareholders in
Other members	or more in other members	other members
of the Group	of the Group	of the Group
Beijing Hengsheng Xin	Foshan City Shunde District Yun	11%
Chuang Technology	Long Enquiry Service Company
Company	Limited
Guangdong Kelon Weili	Zhongshan City Fusha Town	20%
Electrical Appliances	Shunchang Industry Limited
Company Limited	Company

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

3. SERVICE AGREEMENTS

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

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GENERAL INFORMATION

APPENDIX I

4. COMPETING BUSINESS

As at the Latest Practicable Date, the following Directors or their respective Associates have interests in the following businesses which are considered to compete or are likely to compete, either directly or indirectly, with the businesses of the Group other than those businesses where the Directors were appointed as directors to represent the interests of the Company and/or the Group pursuant to the Hong Kong Listing Rules:

	Name of entity
	which business	Description of
	is considered to	business of the entity
	compete or likely	which is considered	Nature of
	to compete with	to compete or likely	interest of
Name of	the business of the	to compete with the	the Director
Director	Group	business of the Group	in the entity
Mr. Tang Ye Guo	Hisense Group or its	Production of air-	Director
	Subsidiaries	conditioning/
		electrical products
Mr. Zhou Xiao	The Subsidiaries of	Production of air-	Director
Tian	Hisense Group	conditioning/
		electrical products
Ms. Yu Shu Min	Hisense Group or its	Production of air-	Director and/
	Subsidiaries	conditioning/	or senior
		electrical products	management
Mr. Lin Lan	Hisense Group or its	Production of air-	Director and/
	Subsidiaries	conditioning/	or senior
		electrical products	management
Mr. Zhang Ming	The Subsidiaries of	Manufacture and	Director
	Hisense Group	sales of fittings for
		electric appliances

As at the Latest Practicable Date, save as disclosed above, none of the Directors or their respective Associates has interests in the businesses which compete or are likely to compete, either directly or indirectly, with the businesses of the Group.

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GENERAL INFORMATION

APPENDIX I

5. NO MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, none of the Directors was aware of any material adverse change in the financial or trading position of the Group since 31 December 2009 (being the date to which the latest published audited financial statements of the Group were made up).

6. EXPERT

(a) The following sets out the qualifications of the expert which has given its opinion or advice as contained in this circular:

Name

Qualifications

Access Capital
a corporation licensed under the SFO to carry on type 1 (dealing in securities), type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities under the SFO
(b) Access Capital does not have any shareholding, direct or indirect, in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.
(c) Access Capital does not have any interest, direct or indirect, in any assets which have been acquired or disposed of by or leased to any member of the Group, or which are proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2009, the date to which the latest published audited financial statements of the Company were made up.
(d) Access Capital has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name in the form and context in which they are included.
(e) The letter and recommendation given by Access Capital are given as of the date of this circular for incorporation herein.

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GENERAL INFORMATION

APPENDIX I

7. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the principal place of business in Hong Kong of the Company at Room 3104-06, Singga Commercial Centre, No. 148 Connaught Road West, Hong Kong during normal business hours from the date of this circular up to and including 8 June 2010:

(a) the letter from Access Capital;
(b) the Compressors Purchase Framework Agreement;
(c) the Compressors Purchase and Supply Framework Agreement 2; and
(d) the Business Co-operation Framework Agreement 2.

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SUPPLEMENTAL AND FURTHER NOTICE OF ANNUAL GENERAL MEETING

HISENSE KELON ELECTRICAL HOLDINGS COMPANY LIMITED 海信科龍電器股份有限公司

(a joint stock limited company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 00921)

SUPPLEMENTAL AND FURTHER NOTICE OF ANNUAL GENERAL MEETING

Hisense Kelon Electrical Holdings Company Limited (the “Company”) received a written request from Qingdao Hisense Air-conditioning Company Limited (“Hisense Airconditioning”) on 18 May 2010. Hisense Air-conditioning, a substantial shareholder of the Company which holds 250,173,722 shares of the Company, being approximately 25.22% of the issued shares of the Company, requests that additional resolutions be tabled before the forthcoming 2009 annual general meeting (the “AGM”) of the Company to be held on 4 June 2010 for the Company’s shareholders’ consideration and approval.

SUPPLEMENTAL AND FURTHER NOTICE IS HEREBY GIVEN that the AGM will be held as originally scheduled at the conference room of the Company’s head office at Shunde District, Foshan City, Guangdong Province, the People’s Republic of China (the “PRC”) on 4 June 2010 at 9:30 a.m. to review and, if thought fit, pass the following as ordinary resolutions in addition to the resolutions set out in the previous notice of the AGM dated 16 April 2010:

ORDINARY RESOLUTIONS

(8) To consider and approve the Business Co-operation Framework Agreement 2 entered into between the Company and Hisense Company Limited and Qingdao Hisense Electric Co., Ltd., and the continuing connected transactions contemplated thereunder;
(9) To consider and approve the Compressors Purchase and Supply Framework Agreement 2 entered into between the Company and Huayi Compressor Company Limited and the continuing connected transactions contemplated thereunder;
(10) To consider and approve the Business Framework Agreement 2 entered into between the Company and Hisense Whirlpool (Zhejiang) Electric Appliances Co., Ltd. (海信惠而浦（浙江）電器有限公司), and the continuing connected transactions contemplated thereunder;

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SUPPLEMENTAL AND FURTHER NOTICE OF ANNUAL GENERAL MEETING

(11) To consider and approve the Business Framework Agreement 3 entered into between the Company and Qingdao Hisense Hitachi Air-Conditioning Systems Co., Ltd. (青島海信日立空調系統有限公司), and the continuing connected transactions contemplated thereunder;
(12) To consider and approve the Compressor Purchase Framework Agreement entered into between the Company and Beijing Embraco Snowflake Compressor Company Limited (北京恩布拉科雪花壓縮機有限公司), and the continuing connected transactions contemplated thereunder; and
(13) To consider and approve the Resolution on the Authorisation of the Company’s Board of Directors (the “ Board ”) to Dispose of Not More Than 50,000,000 Shares of Huayi Compressor Company Limited Held by the Company.

Pursuant to article 8.11 of the articles of association of the Company, where the number of voting shares represented by the shareholders who intend to attend a general meeting does not exceed half of the Company’s total number of voting shares, the Company shall further notify its shareholders about the agenda, date and venue of the general meeting by publishing an announcement. As notified, the Company will hold the general meeting at the time originally scheduled. Apart from adding the above-mentioned proposed resolutions in the agenda, the date and venue of the AGM and all other matters relating to the AGM will remain the same as disclosed in the notice of AGM dated 16 April 2010. (Please refer to the announcement dated 16 April 2010 published on the websites (http:// www.hkex.com.hk and www.kelon.com) of The Stock Exchange of Hong Kong Limited and the Company, respectively.)

By Order of the Board of

Hisense Kelon Electrical Holdings Company Limited

Tang Ye Guo Chairman

As at the date of this notice, the executive directors of the Company are Mr. Tang Ye Guo, Mr. Zhou Xiao Tian, Ms. Yu Shu Min, Mr. Lin Lan, Ms. Liu Chun Xin and Mr. Zhang Ming; and the independent non-executive directors are Mr. Zhang Sheng Ping, Mr. Lu Qing and Mr. Cheung Yui Kai, Warren.

Foshan City, Guangdong, the PRC, 18 May 2010

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AI assistant

Medlive Technology Co., Ltd. — AGM Information 2010

50436_rns_2010-05-18_febb84f9-03a0-4d40-aef9-3b52e73db360.pdf

HISENSE KELON ELECTRICAL HOLDINGS COMPANY LIMITED 海信科龍電器股份有限公司

CONTINUING CONNECTED TRANSACTIONS

CONTENTS

DEFINITIONS

“AGM”

DEFINITIONS

“Company”

DEFINITIONS

DEFINITIONS

DEFINITIONS

HISENSE KELON ELECTRICAL HOLDINGS COMPANY LIMITED 海信科龍電器股份有限公司

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

LETTER FROM THE BOARD

NEW NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

(A) Compressors Purchase Framework Agreement

Date and Parties

Term

Condition

Purchase of Compressors

Pricing

Payment Term

Historical Figures

Proposed Annual Cap

R EASONS FOR A ND BENEFITS OF THE COMPR ESSORS PURCH ASE FRAMEWORK AGREEMENT

(B) Compressors Purchase and Supply Framework Agreement 2

Date and Parties

Term

LETTER FROM THE BOARD

Condition

Purchase of Compressors

Pricing

Payment Term

Historical Figures

Proposed Annual Cap

REASONS FOR AND BENEFITS OF THE COMPRESSORS PURCHASE AND SUPPLY FRAMEWORK AGREEMENT 2

(C) Business Co-operation Framework Agreement 2

Date and parties

Term

Condition

Pricing

Payment Term

Reasons for and Benefits of the Purchase of Home Electrical Appliances

Historical Figures

Proposed Annual Cap

(2) Purchase of Raw Materials, Equipment, Parts and Components

LETTER FROM THE BOARD

Pricing

Payment Term

Reasons for and Benefits of the Purchase of Raw Materials, Equipment, Parts and Components

LETTER FROM THE BOARD

Historical Figures

Proposed Annual Cap

(3) Provision of Services

Pricing

Payment Term

Reasons for and Benefits of the Engagement for the Services Provision

Historical Figures

Proposed Annual Cap

LETTER FROM THE BOARD

Pricing

Payment Term

Reasons for and Benefits of the Sale and Supply of Home Electrical Appliances

Historical Figures

LETTER FROM THE BOARD

Pricing

Payment Term

Reasons for and Benefits of the Sale and Supply of Moulds

Historical Figures

Proposed Annual Cap

Pricing

Historical Figures

Historical Figures

(D) INFORMATION RELATING TO THE COMPANY, BEIJING EMBRACO SNOWFLAKE COMPRESSOR, HISENSE ELECTRIC, HISENSE GROUP AND HUAYI COMPRESSOR

Information relating to the Company

Information relating to Beijing Embraco Snowflake Compressor

Information relating to Hisense Electric

Medlive Technology Co., Ltd. AGM Information 2010