Medlive Technology Co., Ltd. - M&A Activity 2007

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this announcement, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

This announcement is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for the shares of the Company.

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: 0921)

ANNOUNCEMENT

MAJOR AND CONNECTED TRANSACTION:

ACQUISITION OF THE TARGET GROUP FROM QINGDAO HISENSE AIR-CONDITIONING COMPANY LIMITED CONTINUING CONNECTED TRANSACTIONS APPLICATION FOR WHITEWASH WAIVER AND PROPOSED AMENDMENTS TO ARTICLES OF ASSOCIATION DESPATCH OF SHAREHOLDERS’ CIRCULAR

Financial Adviser to Qingdao Hisense

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

MAJOR AND CONNECTED TRANSACTION

On 28 December 2007, the Company entered into the Acquisition Agreement to acquire from Qingdao Hisense the Target Group White Goods Business at a total consideration of RMB2,541,400,000 (equivalent to approximately HK$2,662,573,730). The consideration will be satisfied by the issue of 364,097,421 Consideration Shares at RMB6.98 (equivalent to approximately HK$7.31) per Consideration Share.

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CONTINUING CONNECTED TRANSACTIONS

Hisense Beijing, Hisense Nanjing, Hisense Shandong and Hisense Zhejiang will become Subsidiaries of the Enlarged Group upon Completion. They have been engaging in certain transactions relating to the purchase of moulds, raw materials and components, leasing of properties and provision of services with the relevant Subsidiaries of Hisense Group before Completion, based on the business planning of the Company, it is anticipated that they will continue such transactions with the relevant Subsidiaries of Hisense Group after Completion. Therefore, the Company entered into the Business Co-operation Framework Agreement with Hisense Group and some of its Subsidiaries on 28 December 2007 in relation to the purchase of moulds, raw materials and components, leasing of properties and provision of services to be carried out after Completion.

WHITEWASH WAIVER

The shareholding interest of Qingdao Hisense in the Company will increase from approximately 24.08% as at the date of this announcement to approximately 44.46% immediately after Completion as enlarged by the issue of the Consideration Shares. As such, Qingdao Hisense and its concert parties will, upon Completion, be required to make a mandatory general offer to the Shareholders to acquire the Shares in issue not already owned or agreed to be acquired by Qingdao Hisense and parties acting in concert with it under Rule 26.1 of the Takeovers Code unless a waiver pursuant to Note 1 on dispensations from Rule 26 of the Takeovers Code is granted by the Executive.

A formal application has been made by Qingdao Hisense to the Executive for the Whitewash Waiver pursuant to Note 1 of the Notes on dispensations from Rule 26 of the Takeovers Code. The Whitewash Waiver, if granted by the Executive, would be subject to, among other things, the approval of the Independent Shareholders at the EGM by way of poll. It is a condition precedent to Completion that the Whitewash Waiver is granted by the Executive. If the Whitewash Waiver is not granted by the Executive or if the conditions (if any) imposed thereon are not fulfilled, the Acquisition will not proceed. In any event, the requirement for Qingdao Hisense to make a mandatory general offer under Rule 26 of the Takeovers Code as a result of the Acquisition will not be triggered.

The Executive has indicated that it will agree, subject to the approval by the Independent Shareholders at the EGM by way of poll, to waive Qingdao Hisense and parties acting in concert with it from any obligation to make a general offer for all the Shares under Rule 26 of the Takeovers Code as a result of the Company’s allotment and issue of the Consideration Shares for payment of the consideration for the Acquisition.

IMPLICATIONS OF THE LISTING RULES

As each of the applicable percentage ratio (as defined in Rule 14.07 of the Listing Rules) is 25% or more, the Acquisition constitutes a major transaction for the Company under Rule 14.06 of the Listing Rules. As at the date of this announcement, Qingdao Hisense is a substantial shareholder of the Company holding approximately 24.08% of the issued shares of the Company and is a connected person of the Company under the Listing Rules, and as such, the Acquisition also constitutes a connected transaction for the Company under Chapter 14A of the Listing Rules. The Acquisition is therefore subject to the announcement, reporting and independent shareholders’ approval requirements under Chapters 14 and 14A of the Listing Rules.

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Qingdao Hisense is a substantial shareholder of the Company, holding approximately 24.08% of the issued shares of the Company as at the date of this announcement. Each of Hisense Group Co. and its Subsidiaries are associates of Qingdao Hisense, and therefore connected persons of the Company. As such, the transactions contemplated under the Business Co-operation Framework Agreement will constitute continuing connected transactions of the Company under the Listing Rules. Given that the applicable percentage ratios (other than the profit ratio) for the aggregated amount of the transactions is more than 2.5%, the continuing connected transactions contemplated under the Business Co-operation Framework Agreement are subject to reporting, announcement and independent shareholders’ approval requirements under Rule 14A.35 of the Listing Rules.

Accordingly, the Acquisition, the Non-exempt Continuing Connected Transactions and the Whitewash Waiver are subject to approval of the Independent Shareholders at the EGM while the Acquisition is also subject to the approval of the A Shareholders and H Shareholders in separate class meetings, and in each case, by way of poll. Qingdao Hisense and its associates and parties acting in concert with it will abstain from voting for the approval of the Acquisition, the Non-exempt Continuing Connected Transactions and the Whitewash Waiver at the EGM. Qingdao Hisense’s associates do not hold any Shares as at the date of this announcement. An independent board committee has been formed to advise the Independent Shareholders on the Acquisition, the Non-exempt Continuing Connected Transactions and the Whitewash Waiver and the Independent Financial Adviser has been appointed to advise the independent board committee and the Independent Shareholders on the Acquisition, the Non-exempt Continuing Connected Transactions and the Whitewash Waiver.

PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION

In view of the allotment and issue of the Consideration Shares as a result of the Acquisition, certain amendments are proposed to be made to the Articles of Association.

A circular containing, among other things, (i) further information on the Acquisition, the Nonexempt Continuing Connected Transactions and the Whitewash Waiver; (ii) the recommendation from the independent board committee of the Company in relation to the Acquisition, the Nonexempt Continuing Connected Transactions and the Whitewash Waiver; (iii) the advice of Independent Financial Adviser to the independent board committee of the Company and the Independent Shareholders in relation to the Acquisition, the Non-exempt Continuing Connected Transactions and the Whitewash Waiver; and (iv) other information as required under the Listing Rules and the Takeovers Code, together with notice of the EGM will be despatched to the Shareholders on 31 December 2007 in accordance with the Listing Rules and the Takeovers Code.

SUSPENSION OF TRADING IN THE H SHARES OF THE COMPANY

At the request of the Company, trading in the H shares of the Company was suspended from 28 April 2005 to 10 May 2005, and has remained suspended since 10:00 a.m. on 16 June 2005, initially following various press releases regarding the investigation by the CSRC on Greencool Technology Holdings Limited in connection with the possible misappropriation of funds of the Company. Greencool Technology Holdings Limited was then an indirect shareholder of the Company controlled by Mr. Gu Chu Jun, who was the then executive director and chairman of the Company and the controlling shareholder of Guangdong Greencool Enterprise Development Company Limited, the then single largest shareholder of the Company.

The Company is currently reviewing the relevant documents in relation to the suspension of H Shares, the events leading to such suspension and the actions taken by the Company and will submit a resumption proposal to the Stock Exchange as soon as practicable.

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INTRODUCTION

The Board announced that on 28 December 2007 the Company entered into an Acquisition Agreement with Qingdao Hisense in respect of the acquisition of the Target Group.

THE ACQUISITION AGREEMENT

Parties

Purchaser: The Company Vendor: Qingdao Hisense Date: 28 December 2007

Assets to be acquired:

(1) 55% of the equity interests in Hisense Beijing, which in turn holds 60% of the equity interests in Hisense Nanjing;
(2) 100% of the equity interests in Hisense Shandong;
(3) 51% of the equity interests in Hisense Zhejiang; and
(4) Hisense Marketing Business

Consideration

The consideration for the Acquisition is RMB2,541,400,000 (equivalent to approximately HK$2,662,573,730), which has been arrived at after arm’s length negotiations between the parties with reference to various factors including, but not limited to, the financial results, the earnings potential and the prospects of the Target Group, the preliminary valuation of the Target Group by an independent firm of qualified PRC valuers, the interests of the A Share and H Share Shareholders of the Company and other similar transactions on the market. When considering such factors, the Vendor and the Company have reviewed various data available to them, for example, the financial information disclosed in this announcement and the Circular, industry information, market trading data of comparable listed companies, analysis provided by their respective advisers, etc.

The Company and Qingdao Hisense agreed that, if the audited net asset value in accordance with PRC GAAP of the Target Group as at the Completion Date is less than its audited pro forma net asset value in accordance with PRC GAAP as at 30 June 2007, Qingdao Hisense shall pay for the amount of such shortfall in cash to the Company. If the audited net asset value in accordance with PRC GAAP of the Target Group as at the Completion Date is more than its audited pro forma net asset value in accordance with PRC GAAP as at 30 June 2007, the Company will pay such excess amount to Qingdao Hisense, where such cash payment will be satisfied by the internal resources of the Kelon Group.

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The calculation of the difference is set out as follows:

The audited net asset value in accordance with PRC GAAP of the Target Group as at the Completion Date minus the audited pro forma net asset value in accordance with PRC GAAP of the Target Group as at 30 June 2007.

The “audited pro forma net asset value” is the audited net asset value attributable to equity holders of the Target Group, i.e. net asset value net of minority interests.

The audit for the net asset value of the Target Group will be carried out on the last day of the month in which the Acquisition has completed. Although it takes time for the audit work to perform on the net asset value of the Target Group and the audited net asset value will not be available upon Completion, the finalization of the audit on the net asset value of the Target Group will not affect the completion of the Acquisition as the adjustment to the consideration would be done after Completion.

Based on the information currently available to the Company, it is currently estimated that, subject to the audit for the net asset value of the Target Group to be carried out as specified above, the amount to be paid by the Company to Qingdao Hisense will be no more than approximately RMB53,500,000 (equivalent to approximately HK$56,050,875). A further announcement will be made by the Company if there is any adjustment to the consideration as required under the Acquisition Agreement.

Payment method

The consideration will be satisfied in full by the allotment and issue of 364,097,421 Consideration Shares by the Company to Qingdao Hisense at the issue price of RMB6.98 (equivalent to approximately HK$7.31) per Consideration Share. The Consideration Shares shall be issued as fully paid and shall rank pari passu in all respects with the A Shares in issue (including the right to any dividend declared on or after the date on which the Consideration Shares will be issued).

The Consideration Shares represent approximately 36.70% of the Company’s existing issued share capital and approximately 26.85% of the Company’s issued share capital as enlarged by the issue of the Consideration Shares.

The issue price

The issue price of RMB6.98 (equivalent to approximately HK$7.31) per Consideration Share was determined after arm’s length negotiations between the Company and Qingdao Hisense with reference to the arithmetic average of the weighted average price of the Company’s A Shares as quoted on the Shenzhen Stock Exchange for the 20 trading days immediately preceding its suspension of trading on 4 September 2007. It represents

(a) a discount of approximately 11.4% over RMB7.88 (equivalent to approximately HK$8.26), the closing price of the A Shares on the Shenzhen Stock Exchange on 3 September 2007, being the last trading day immediately prior to the suspension of trading in the A Shares on 4 September 2007;
(b) a discount of approximately 2.93% over RMB7.191 (equivalent to approximately HK$7.53), the average closing price of the A Shares on the Shenzhen Stock Exchange for the last 10 trading days immediately prior to the suspension of trading in the A Shares on 4 September 2007;

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(c) a premium of approximately 0.22% over RMB6.965 (equivalent to approximately HK$7.30), the average closing price of the A Shares on the Shenzhen Stock Exchange for the last 30 trading days immediately prior to the suspension of trading in the A Shares on 4 September 2007; and
(d) a premium of approximately 721% over HK$0.89 (equivalent to approximately RMB0.85), the closing price of the H Shares on the Stock Exchange on 15 June 2005, being the last trading day immediately prior to the suspension of trading in the H Shares on 16 June 2005.

Corporate Structure before and after Completion

The following diagrams illustrate the corporate and shareholding structure of the Kelon Group and Hisense Group immediately before and after Completion.

Structure of the Hisense Group and the Kelon Group

Immediately before Completion

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The Target Group
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----- Start of picture text -----

Tsingdao SASAC
Hisense Group Co.
(a PRC state owned company)
48.4% 55.59%
Hisense Electric Hisense Electronic
(a PRC listed company) (a PRC company)
100%
Hisense International
(a BVI Company)
93.33% 6.67%
Qingdao Hisense
(a PRC company)
100%
Hisense Marketing
(a PRC company)
100% 51% 55% 24.08%
Hisense Hisense Zhejiang Hisense Beijing Company
Shandong (a PRC company) (a PRC company) (a PRC company)
Hisense Marketing
(a PRC company)
Business
60%
Existing
Hisense Nanjing
business of
(a PRC company)
the Company
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Immediately after Completion

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Tsingdao SASAC
Hisense Group Co.
(a PRC state owned company)
48.4% 55.59%
Hisense Electric Hisense Electronic
(a PRC listed company) (a PRC company)
100%
Hisense International
(a BVI Company)
93.33%
6.67%
Qingdao Hisense
(a PRC company)
44.46% 100%
Company Hisense Marketing
(a PRC company) (a PRC company)
100% 51% 55%
Hisense Shandong Hisense Zhejiang Hisense Beijing
Existing business
(a PRC company) (a PRC company) (a PRC company)
of the Company
Hisense Marketing Business
60%
Hisense Nanjing
(a PRC company)
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Conditions to Completion

Completion is subject to, among other things, the following Conditions set out in the Acquisition Agreement being satisfied or waived:

(a) the continued listing of the A Shares and H Shares on the Shenzhen Stock Exchange and the Stock Exchange, respectively;
(b) the approval by the Independent Shareholders at the EGM of (i) the Acquisition by the Company and (ii) the Whitewash Waiver and the CSRC Waiver;
(c) the approval by the Independent Shareholders of H Shares eligible to attend and vote at the CSM of the Acquisition by the Company;

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(d) the approval by the Independent Shareholders of A Shares eligible to attend and vote at the class meeting of A Shareholders of the Acquisition by the Company;
(e) the Executive granting to Qingdao Hisense and parties acting in concert with it the Whitewash Waiver;
(f) the granting of the following approvals from the relevant PRC regulatory authorities in accordance with the applicable PRC laws:
(i) the approval to the Company by CSRC of the Acquisition and the issue of Consideration Shares and the granting of the CSRC Waiver; and
(ii) the approval of the Acquisition by the Ministry of Commerce of the PRC;
(g) the relevant approval from Hong Kong authorities in accordance with the rules and regulations in Hong Kong (if any);
(h) the granting of the following third party consents:
(i) the consent of major creditors of each of the Company and Qingdao Hisense to the Acquisition;
(ii) the waiver by holders of pre-emptive rights in relation to the interests in the Target Group of their pre-emptive rights; and
(iii) permission by any third party who has rights under the Acquisition.
(i) the representations and warranties given by Qingdao Hisense and the Company to each other in the Acquisition Agreement remaining true and accurate.

Pursuant to the Acquisition Agreement, if any of the Conditions is not fulfilled by the parties to the Acquisition Agreement within 12 months from the approvals referred to in (b), (c) and (d) above (or such later date as the parties to the Acquisition Agreement may agree in writing), the Acquisition Agreement will lapse and all obligations and liabilities of all parties thereunder will cease.

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Completion

Completion is expected to take place on the last business day of the month following the month in which the last of all the Conditions have been fulfilled.

Although the Completion is not subject to confirmation by Tsingdao SASAC, the valuation of the Target Group prepared by the Asset Valuer needs to be filed to Tsingdao SASAC.

Following Completion, Hisense Beijing, Hisense Nanjing, Hisense Shandong and Hisense Zhejiang will become subsidiaries of the Company and their financial results will be consolidated into the financial statements of the Kelon Group.

Undertakings

Qingdao Hisense has undertaken that it will not dispose of the Consideration Shares within 36 months after the allotment and issue and the registration of the Consideration Shares with the Shenzhen branch of China Securities Depository and Clearing Corporation Limited.

Qingdao Hisense agreed that after Completion, it and its controlled entities will not participate or engage in any new businesses which compete or may compete with the existing businesses of the Target Group and the Kelon Group.

SHAREHOLDING STRUCTURE OF THE COMPANY BEFORE AND AFTER COMPLETION

Set out below is a table showing, for the purpose of illustration, the shareholding structure of the Company before and after the issue of the Consideration Shares and assuming completion of the Share Reform Proposal, and that save for the Consideration Shares, no further Shares will be issued by the Company after the date of this announcement until Completion:

							Upon completion of the Share Reform	Upon completion of the Share Reform		Upon completion of the Share
							Proposal	and the issue of Consideration		Reform Proposal and the issue
				Upon completion of the Share Reform			Shares and	the repayment of the Borrowed		of Consideration Shares and the repayment of
				Proposal and the issue of Consideration				Shares		the Borrowed Shares and the Donation
Shareholders	As at the date of this announcement				Shares			(Notes 1 and 2)		(Notes 1, 2 and 3)
	Type of			Type of			Type of			Type of
	Shares	Shares	%	Shares	Shares	%	Shares	Shares	%	Shares Shares	%
Qingdao Hisense (and parties
acting in concert with it)	A Shares	238,872,074	24.08	A Shares	602,969,495	44.46	A Shares	608,198,402	44.85	A Shares 598,473,352	44.13
SEC	A Shares	68,666,667	6.92	A Shares	68,666,667	5.06	A Shares	63,923,804	4.71	A Shares 63,923,804	4.71
Dongheng	A Shares	7,036,894	0.71	A Shares	7,036,894	0.52	A Shares	6,550,850	0.48	A Shares 6,550,850	0.48
Public A Shareholders	A Shares	217,841,120	21.96	A Shares	217,841,120	16.07	A Shares	217,841,120	16.07	A Shares 227,566,170	16.79
Public H Shareholders	H Shares	459,589,808	46.33	H Shares	459,589,808	33.89	H Shares	459,589,808	33.89	H Shares 459,589,808	33.89
Total		992,006,563	100.00		1,356,103,984	100.00		1,356,103,984	100.00	1,356,103,984	100.00

Notes:

(1) Please refer to the section headed “Implications of the Takeovers Code and Whitewash Waiver” below for details of the Share Reform Proposal.

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(2) As SEC and Dongheng, both being holders of the Company’s non-freely transferable Shares prior to the implementation of the Share Reform Proposal, did not explicitly express that they would involve in the share reform, Qingdao Hisense has advanced the Borrowed Shares on behalf of SEC and Dongheng for distribution to eligible A Shareholders. Subsequently, they should repay the Borrowed Shares advanced by Qingdao Hisense or obtain its consent before the Shares held by SEC and Dongheng can be listed and transferred.
(3) Qingdao Hisense has undertaken to make a Donation under certain circumstances pursuant to the Share Reform Proposal as set out in the announcement of the Company dated 19 December 2006, including the circumstance where the Acquisition cannot be completed on or before 28 March 2008.

As described in the paragraph headed “Payment method” above, the Company has agreed to issue 364,097,421 Consideration Shares to Qingdao Hisense to satisfy the consideration payable by the Company under the Acquisition Agreement. Qingdao Hisense is expected to be directly or indirectly interested in approximately 44.46% in the share capital of the Company immediately after the Completion as enlarged by the issue of the Consideration Shares. The issue of the Consideration Shares will result in Qingdao Hisense becoming the controlling shareholder (as defined under the Listing Rules) of the Company.

Save as disclosed above, Qingdao Hisence and parties acting in concert with it do not hold any other securities of the Company.

INFORMATION OF THE COMPANY

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

INFORMATION OF THE TARGET GROUP

The Target Group is principally engaged in manufacturing and sales of air-conditioners and refrigerators in the PRC.

Air-conditioner manufacturing

The Target Group’s air-conditioner manufacturing operation is primarily carried out through Hisense Shandong and Hisense Zhejiang.

In 2006, the annual output of air-conditioners of these two companies was over 1.6 million sets.

(1) Hisense Shandong

Background

Name: Hisense Shandong Address: Qingdao Pingdu Nanzhen Resident Hisense Road No.1 Legal representative: Wang Shi Lei Registered capital: RMB500,000,000

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Nature of the Enterprise: single person company with limited liability

Business scope: Research and development, manufacturing and sales of airconditioning product, plastic injection mould and product after-sales maintenance services

Term of operation: 8 November 2007 to 7 November 2017

Hisense Shandong took over all the production and sales operations of air-conditioning business of Qingdao Hisense and is primarily engaged in manufacture and sale of air-conditioners.

(2) Hisense Zhejiang

1. Background

Name:

Hisense Zhejiang

Address: Changxing County Economic and Technological Development Zone, north of Central Avenue

Legal representative:

Wang Shi Lei

Registered capital: RMB110,000,000 Nature of the Enterprise: company with limited liability (foreign funded enterprises) Business scope: production of air-conditioners and the manufacturing and sales of other household appliances, provision of related technical services, import and export of goods and technology

Term of operation: 22 April 2005 to 21 April 2020

2. History

On 8 April 2005, Qingdao Hisense and Zhejiang Xianke jointly established Hisense Zhejiang as a joint venture with a registered capital of RMB110,000,000. Qingdao Hisense contributed a total of RMB56,100,000, of which RMB34,100,000 in cash and RMB22,000,000 of which in intangible assets, (representing 51% of the registered capital of Hisense Zhejiang); Zhejiang Xianke contributed by way of land and tangible assets such as equipment and apparatus with the value of RMB53,900,000 (representing 49% of the registered capital of Hisense Zhejiang).

3. Operating business

The major business of Hisense Zhejiang is the manufacturing of household air-conditioners and related products. Hisense Zhejiang has equipment such as advanced auto Helium Leak Detectors, and equipped with advanced integrated production and inspection line, quality assurance system established according to international quality accreditation standard and

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reformed management system. It is the second largest variable-frequency air-conditioners production base in the PRC. Through continuous expansion, Hisense Zhejiang is expected to have an annual production capacity of 2 million sets of variable-frequency air-conditioners. Hisense Zhejiang produced 300,000 sets of variable-frequency air-conditioners in 2006 as compared to 100,000 sets in 2005.

Refrigerator manufacturing

The Target Group’s refrigerator manufacturing operation is primarily conducted through Hisense Beijing and its subsidiary, namely Hisense Nanjing.

(1) Hisense Beijing

1. Background

Name: Hisense Beijing Address: Beijing Daxing District Qingyuan Road No. 36 Legal representative: Su Yu Tao Registered capital: RMB85,710,000 Nature of the Enterprise: company with limited liability Business scope: manufacture and sales of refrigerators products and other household appliances products; operation of the export business of self-produced products and technologies of the enterprise and other members enterprises; import of the raw materials, machines and facilities, equipment and apparatuses, parts and technologies required for the production processes of the enterprise and its member enterprise (except goods and technologies operated by enterprises specified by the government or prohibited for import and export); operation of raw material processing and compensation trade.

2. History

On 13 June 2002, Hisense Group Co. and Xuehua Group jointly established Hisense Beijing Company as a joint venture with a registered capital of RMB85,710,000. Hisense Group Co. contributed a total of RMB47,140,500 in cash and intangible assets (representing 55% of the registered capital of the company), in which intangible assets accounted for RMB17,140,500; Xuehua Group contributed by way of land and equipment with the value of RMB38,569,500 (representing 45% of the registered capital of the company).

On 12 September 2002, Hisense Group Co. transferred its entire 55% equity interests in Hisense Beijing to Hisense Electric. On 12 October 2007, the transfer of the 55% equity interests in Hisense Beijing to Qingdao Hisense was approved at the general meeting of Hisense Electric.

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3. Operating business

The major business of Hisense Beijing is the research and development and manufacture of refrigerator products. In 2006, the refrigerators production capacity of Hisense Beijing was 900,000 sets, and the refrigerators production capacity of 2007 reaches approximately 1,000,000 sets.

(2) Hisense Nanjing

1. Background

Name: Hisense Nanjing Legal representative: Su Yu Tao Registered capital: RMB128,691,500 Business scope: research and development, manufacture, sales and marketing of chlorine-free freezing products. Import and export business for self-operation and agency business of various goods and technologies (except goods and technologies operated by enterprises specified by the State or prohibited for import and export).

2. History

Hisense Nanjing was established by Hisense Beijing and Nanjing Yilaite on 18 November 2004 as a joint venture with a registered capital of RMB80,580,000, of which Hisense Beijing contributed RMB36,260,000 in monies and RMB12,090,000 in non-patent assets (representing 60% of the registered capital of the company) and Nanjing Yilaite contributed by way of land use rights with the value of RMB32,230,000 (representing 40% of the registered capital of the company).

On 20 August 2006, Hisense Beijing and Nanjing Aipulaisi High and New Technology Industrial Park Company Limited entered into the “Hisense (Nanjing) Electric Company Limited Phase 2 Capital Injection Agreement”, pursuant to which Hisense Beijing injected additional capital to Hisense Nanjing with RMB21,650,200 in cash and RMB7,216,700 in intangible assets, while Nanjing Aipulaisi High and New Technology Industrial Park Company Limited contributed with equipment with the value of RMB19,244,600 to Hisense Nanjing. After this capital injection, the registered capital of Hisense Nanjing increased to RMB128,691,500 without changes to the respective proportion of interests of the two parties.

3. Operating business

The major business of Hisense Nanjing is the research and development and manufacture of refrigerator products. In 2006, the production capacity of Hisense Nanjing was 500,000 sets, and in 2007, the production capacity of Hisense Nanjing reaches approximately 550,000 sets.

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White Goods sales and marketing

Hisense Marketing Business

Hisense Marketing Business comprise the assets of Hisense Marketing mainly for use in the sales and marketing operations of the White Goods products produced by Hisense Shandong, Hisense Zhejiang, Hisense Beijing and its subsidiary, Hisense Nanjing.

The entities and businesses comprising the Target Group were commonly controlled by Hisense Group Co., the ultimate holding company of the Target Group, for the three years ended 31 December 2006 and the six months ended 30 June 2007. The unaudited combined financial information of the Target Group has been prepared on the basis as if the entities and the businesses comprising the Target Group had formed a group and such group structure had been in existence throughout the period, or since their respective dates of incorporation or establishment.

The combined income statements of the Target Group have been prepared as if the current structure had been in existence throughout the period or since their respective dates of incorporation or establishment whichever is earlier. The combined balance sheets of the Target Group as at 31 December 2004, 2005, 2006 and 30 June 2007 have been prepared to present the assets and liabilities as if the current structure of the Target Group had been in existence as at the above-mentioned dates.

Since Hisense Shandong took over the production and sales operations of air-conditioning business of Qingdao Hisense gradually from 8 November 2007, the combined financial information of the Target Group includes the track record of the air-conditioning business of Qingdao Hisense.

The Acquisition is considered as a business combination involving entities under common control because the Company and the Target Group are ultimately controlled by Hisense Group Co. both before and after the Acquisition, and that control is not transitory. Such business combination under common control is outside the scope of IFRS 3 “business Combinations” issued by IASB. In the absence of a standard under IFRSs in relation to the accounting for business combinations under common control, Accounting Guideline 5 “Merger Accounting for Common Control Combinations” issued by Hong Kong Institute of Certified Public Accountants, being pronouncements of standard-setting bodies other than the IASB that use a similar conceptual framework, is referred to in accounting for the Acquisition.

Hisense Group Co. exercises its control over the Kelon Group through Qingdao Hisense, the largest shareholder of the Company who currently holds approximately 24.08% equity interest in the Company, and upon completion of the anticipated Acquisition will hold approximately 44.46% equity interest in the Company, is considered the ultimate holding company of the Kelon Group. Hisense Group Co. has control over the Kelon Group by virtue of Qingdao Hisense’s power to govern the financial and operating policies of the Kelon Group so as to obtain benefits from the activities of the Kelon Group through its power to cast majority votes at the meetings of the board of directors of the Company as prescribed under IFRS 3 and its de facto control over the majority of the voting rights of the Company’s shareholders’ meetings as commented by IASB in the IASB Update issued in October 2005.

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The summary financial information of the Target Group for the three years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2007, respectively as extracted or derived from the audited combined financial statements of the Target Group prepared in accordance with all applicable IFRS are set out as follows:

	As at	As at	As at	As at
	31 December	31 December	31 December	30 June
	2004	2005	2006	2007
	(RMB’000)	(RMB’000)	(RMB’000)	(RMB’000)
Total assets	1,522,948	2,314,463	2,156,318	3,470,192
Total liabilities	1,368,835	1,827,100	1,590,276	2,839,353
Net assets	154,113	487,363	566,042	630,839
				For the
	For the	For the	For the	six months
	year ended	year ended	year ended	ended
	31 December	31 December	31 December	30 June
	2004	2005	2006	2007
	(RMB’000)	(RMB’000)	(RMB’000)	(RMB’000)
Revenue	2,785,751	4,140,333	4,452,551	2,891,969
Gross profit	611,321	814,247	1,073,100	716,363
Profit before taxation	78,261	144,862	96,213	107,791
Profit after taxation	77,340	109,500	59,435	67,027

ASSET VALUATION OF THE TARGET GROUP

In accordance with PRC regulatory requirements including “上市公司重大購買、出售、置換資產報送材料內容與格式” (the Required Documents and Format for the Notice for Arrangement regarding Major Acquisition, Disposal, Asset Swap) attaching to the “關於上市公司重大購買、出售、置換資產若干問題的通知” (the Notice for Arrangement regarding Major Acquisition, Disposal, Asset Swap) and the “企業國有產權轉讓管理暫行辦法” (Provisional Measures for Transfer of State-owned Asset in Enterprises), a valuation of the Target Group has to be prepared by an independent firm of qualified PRC valuers, which valued 100% of Hisense Shandong, 51% of Hisense Zhejiang, 55% of Hisense Beijing (including the respective interests in Hisense Nanjing) and 100% of Hisense Marketing Business at approximately RMB1,498.07 million, approximately RMB168.84 million, approximately RMB365.55 million and approximately RMB508.95 million, as of 30 June 2007.

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The Asset Valuer has used the income approach in its valuation of Hisense Shandong, Hisense Zhejiang and Hisense Beijing (including Hisense Nanjing). In addition, the Asset Valuer has used the cost approach in its valuation of Hisense Marketing Business. According to the Asset Valuer, both approaches are among the most recognised valuation approaches for state-owned assets in the PRC.

By adopting the income approach, the Asset Valuer has derived values of the businesses of each of Hisense Shandong, Hisense Zhejiang and Hisense Beijing (including Hisense Nanjing) by aggregating the net present value of a stream of five and half year projected net profit commencing from 1 July 2007 and the terminal value of such businesses. In addition, by adopting the cost approach, the Asset Valuer has derived a value of the business of Hisense Marketing Business by estimating the market value as at 30 June 2007 of each asset and liabilities of Hisense Marketing Business.

The Asset Valuer has made the following major assumptions in the valuation:

The relevant entities continue as a going concern, and their senior management, business structure and major businesses are relatively stable;
All information provided by the relevant entities is true, legal and complete;
The accounting system adopted by the relevant entities is basically consistent with the accounting system applied in the calculation of relevant data in the course of valuation at all material aspects;
The scope of operation, ways of operation and modes of management of the relevant entities are consistent, subject to appropriate adjustments and innovations with economic development;
There is no dispute over property rights and other economic matters. Future lending rate, tax rate, additional tax rate and income tax rate change within the normal range provided by the State;
The economic behavior of the relevant entities comply with State requirements without material defaults;
There is no material change in the socio-economic environment of the relevant entities. There is no material change in the laws, regulations and policies of the State and the territory where the relevant entities are located in as compared to the prevailing laws, regulations and policies; and
There is no other force majeure and unforeseeable factors which may materially and adversely affect the enterprise.

The valuation of the Target Group has been prepared to provide an indication to the PRC regulators and PRC Shareholders of the business valuation of the Target Group and not as a representation of the level of profit that the Target Group will be able to achieve in any specific period.

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Pursuant to Rule 14.61 of the Listing Rules and Rule 11.1(a) of the Takeovers Code, any valuation of assets (other than land and buildings) or businesses acquired by a listed issuer based on discounted cash flows or projections of profits, earnings or cash flows and where it is possible to derive a forecast of profits from such valuations, will normally be regarded as a profit forecast. Accordingly, such valuations of the Hisense Shandong, Hisense Zhejiang and Hisense Beijing (including Hisense Nanjing) will be regarded as profit forecasts, and therefore, the Company is required to comply with Rules 14A.56(8) and 14.62 of the Listing Rules and Rule 10 of the Takeovers Code.

However, such valuations of Hisense Shandong, Hisense Zhejiang and Hisense Beijing (including Hisense Nanjing) by using income approach as valuation method do not comply with the standards required by Rule 14.62 of the Listing Rules or Rule 10 of the Takeovers Code because: (i) the cash flow projections are based on the unaudited management accounts as at 30 September 2007 of Hisense Shandong as well as unaudited management accounts as at 30 June 2007 of Hisense Zhejiang and Hisense Beijing (including Hisense Nanjing), which have been prepared in accordance with PRC GAAP and do not take into account any adjustments which may have to be made when those management accounts are audited; and (ii) in deriving an intrinsic discounted value, the projections of net profits have been prepared on the assumption that Hisense Shandong, Hisense Zhejiang and Hisense Beijing (including Hisense Nanjing) will operate on a normalised basis. In other words, events which do not arise out of the ordinary course of the existing business of Hisense Shandong, Hisense Zhejiang and Hisense Beijing (including Hisense Nanjing) have not been taken into account, whereas typically when preparing a profit forecast, all foreseeable events and their effects will be taken into consideration in its preparation.

Hence, it is not possible to simply adopt projections of net profits and regenerate a set of profit forecasts.

Furthermore, the Asset Valuer has made certain assumptions about projections of net profits of Hisense Shandong, Hisense Zhejiang and Hisense Beijing (including Hisense Nanjing) based on its own judgment as to what would be appropriate for a company in the same industry, as opposed to applying consistent accounting policies previously adopted by these companies. While the directors of the Target Group have provided information to the Asset Valuer to assist with the preparation of such valuation, neither they nor the Directors have any influence on the Asset Valuer in the preparation of such valuation, including in respect of any projections or estimates. Hence, such valuation should not be regarded as an indication of the forecast profit of the Target Group for any period.

The valuation of the Target Group has been prepared by the Asset Valuer in compliance with PRC regulatory requirements. It does not meet the standards required by Rule 14.62 of the Listing Rules or Rules 10 and 11 of the Takeovers Code. Nevertheless, having considered the information provided in relation to the PRC Valuation and on the basis that this announcement and the Circular contain the profit forecasts of the Target Group for the two years ending 31 December 2008 that are already subject to Rule 14.62 of the Listing Rules, the Stock Exchange is prepared to permit the publication of the result of such valuation in this announcement and the Circular with additional information explaining why such valuation does not meet the standards required by Rule 14.62 of the Listing Rules. In view of the PRC regulatory requirements, the Executive is prepared to permit the publication of the result of such valuation in this announcement and the Circular. Shareholders and potential investors should, however, exercise caution in placing reliance on the result of such valuation in assessing the merits and demerits of the Acquisition and the Whitewash Waiver. A further announcement will be made by the Company in accordance with Rule 13.09(2) of the Listing Rules if and when further information in respect of such valuation is published in the PRC.

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Prospective financial information of the Target Group and the Enlarged Group

PRC Target Group Profit Forecasts and PRC Enlarged Group Profit Forecasts

In compliance with PRC laws and regulations and pursuant to the requirements of CSRC in respect of substantial acquisitions by PRC listed companies, the Company has published in the PRC Report the PRC Target Group Profit Forecasts and the PRC Enlarged Group Profit Forecasts prepared on the following assumptions:

(1) the restructuring of the Target Group have been completed on 1 January 2007 and in the absence of unforeseen circumstances; the pro forma forecast net profit attributable to equity holders of the Target Group for the two years ending 31 December 2008 are approximately RMB79.49 million (equivalent to approximately HK$83.28 million) and RMB106.44 million (equivalent to approximately HK$111.52 million) respectively; and
(2) the Company acquires the interest of the Target Group and the acquisition having been completed on 1 January 2007 and in the absence of unforeseen circumstances; the pro forma forecast net profit attributable to equity holders of the Enlarged Group for the two years ending 31 December 2008 are approximately RMB383.98 million (equivalent to approximately HK$402.29 million) and RMB236.50 million (equivalent to approximately HK$247.78 million) respectively.

IFRS 2007 Profit Forecasts

Forecast figures

As required under the Listing Rules, the Directors have prepared, among others, the IFRS 2007 Profit Forecasts in accordance with IFRS and in compliance with Rules 4.29, 14.62, 14.66(1) and 14A.56(8) of the Listing Rules. The Directors forecast that on the bases and assumptions set out below and in the absence of unforeseen circumstances, the forecast profit attributable to equity holders of the Kelon Group and the Target Group for the year ending 31 December 2007 will be not less than RMB304.50 million (equivalent to approximately HK$319.02 million) and RMB79.49 million (equivalent to approximately HK$83.28 million) respectively.

The IFRS 2007 Profit Forecasts include the profit forecasts of the Kelon Group and the Target Group as well as the pro forma profit forecast of the Enlarged Group for the year ending 31 December 2007, prepared in accordance with IFRS.

a. Profit forecasts of the Kelon Group and the Target Group

Bases and assumptions

(1) Profit forecast of the Kelon Group for the year ending 31 December 2007 has been prepared by the Directors based on the results shown in unaudited management accounts of the Kelon Group for the ten months ended October 2007 and a forecast of the results for the remaining two months ending 31 December 2007.

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(2) Profit forecast of the Target Group for the year ending 31 December 2007 has been prepared by the Directors based on the results shown in the audited accounts of the Target Group for the six months ended 30 June 2007, the unaudited management accounts of the Target Group for the four months ended 31 October 2007 and a forecast of the results for the remaining two months ending 31 December 2007.

The Directors are not currently aware of any extraordinary items which have arisen or are likely to arise in respect of the period from 1 January 2007 to 31 December 2007. The IFRS 2007 Profit Forecasts have been prepared on a basis consistent in all material respects with the accounting policies currently adopted by the Kelon Group and on the following principal assumptions:

(1) the Acquisition had been completed on 1 January 2007;
(2) there will be no material changes in existing government policies or political, legal (including changes in legislation, regulations or rules) or regulatory environment or fiscal, economic or market conditions, or macro-economic measures in the PRC or any of the countries in which the Enlarged Group carries on business;
(3) there will not be any material changes in product pricing as well as cost and expense structure within the industry under which the Enlarged Group operates.
(4) there will be no material changes in the bases or rates of taxation or duties in the PRC or any of the territories in which the Enlarged Group operates except as otherwise disclosed in the Circular;
(5) there will be no material changes in inflation rates, interest rates or foreign currency exchange rates from those currently prevailing; and
(6) the operations and business of the Enlarged Group will not be severely interrupted by any unforeseeable factors or any unforeseeable reasons that are beyond the control of the Enlarged Group, including but not limited to, the occurrence of natural disasters or catastrophes, epidemics or serious accidents.
b. Pro forma profit forecast of the Enlarged Group

The pro forma profit forecast of the Enlarged Group for the year ending 31 December 2007 is prepared assuming that the Acquisition had been completed on 1 January 2007 and based on the forecast profit attributable to equity holders of each of the Kelon Group and the Target Group for the year ending 31 December 2007 as set out under the section “Profit forecasts of the Kelon Group and the Target Group” in this announcement, with adjustments to reflect the effect of the Acquisition.

The pro forma profit forecast of the Enlarged Group for the year ending 31 December 2007 is prepared for illustrative purposes only based on the judgments and assumptions of the Directors and because of its nature, it does not provide any assurance or indication that any event will take place in the future and may not give a true picture of the results of the Kelon Group, the Target Group or the Enlarged Group for any financial period.

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					Pro forma
		The Kelon	The Target	Pro forma	profit
		Group	Group	adjustments	forecast
		RMB’000	RMB’000	RMB’000	RMB’000
		(Note 1)	(Note 1 and 2)	(Note 2)
Forecast	profit attributable to
equity	holders for the year
ending	31 December 2007	304,497	79,486	—	383,983

Notes:

The forecast profit of the Enlarged Group for the year ending 31 December 2007 is based on the profit forecasts of the Kelon Group and the Target Group for the year ending 31 December 2007, details of which have been set out under the section “Profit forecasts of the Kelon Group and the Target Group” in Appendix V of the Circular.
The respective percentages of Hisense Beijing and Hisense Zhejiang is still 55% and 51% respectively and the minority interests have already been excluded in the forecast profit attributable to equity holders of the Target Group for the year ending 31 December 2007. As such, exclusion of the minority interests would not be reflected as pro forma adjustments.
The directors of the Company are not aware of any significant effect of transaction on the Target Group or the Enlarged Group that would occur as if the Acquisition was completed on 1 January 2007 and as if such transaction had been undertaken at the commencement of the period being reported on.

Letters from the auditors of the Company

BDO McCabe Lo Limited, the auditors of the Kelon Group and the reporting accountants of the Target Group, has reviewed the accounting policies and calculations adopted in arriving at the IFRS 2007 Profit Forecasts and is of the opinion that, so far as the accounting policies and calculations are concerned, the IFRS 2007 Profit Forecasts has been properly compiled in accordance with the assumptions made by the Directors set out above and in the Appendix V of the Circular and are presented on a basis consistent in all material respects with the accounting policies adopted by the Kelon Group and the Target Group in their respective annual audited financial statements for the year ended 31 December 2006 in accordance with IFRSs. The IFRS 2007 Profit Forecasts, together with the bases and assumptions upon which they have been prepared and the letters from the auditors of the Company, will be included in the Circular.

IFRS 2008 Profit Forecasts

Forecast figures

As required under the Listing Rules, the Directors have prepared, among others, the IFRS 2008 Profit Forecasts in accordance with IFRS and in compliance with Rules 14.62, 14.66(1) and 14A.56(8) of the Listing Rules. The Directors forecast that on the bases and assumptions set out below and in the Appendix VI of the Circular and in the absence of unforeseen circumstances, the forecast profit attributable to equity holders of the Target Group and the Enlarged Group for the year ending 31 December 2008 will be not less than RMB106.44 million (equivalent to approximately HK$111.52 million) and RMB236.50 million (equivalent to approximately HK$247.78 million) respectively.

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Bases and assumptions

The IFRS 2008 Profit Forecasts include the following:

(1) Profit forecast of the Target Group for the year ending 31 December 2008, which has been prepared by the Directors based on a forecast of the results for the year ending 31 December 2008; and
(2) Profit forecast of the Enlarged Group for the year ending 31 December 2008, which has been prepared by the Directors based on a forecast of the results for the year ending 31 December 2008.

The Directors are not currently aware of any extraordinary items which have arisen or are likely to arise in respect of the period from 1 January 2008 to 31 December 2008. The IFRS 2008 Profit Forecasts have been prepared on a basis consistent in all material respects with the accounting policies currently adopted by the Kelon Group and the Target Group, respectively and on the following principal assumptions:

(1) the Acquisition had been completed on 1 January 2008;
(2) there will be no material changes in existing government policies or political, legal (including changes in legislation, regulations or rules) or regulatory environment or fiscal, economic or market conditions, or macro-economic measures in the PRC or any of the countries in which the Enlarged Group carries on business;
(3) there will not be any material changes in product pricing as well as cost and expense structure within the industry under which the Enlarged Group operates.
(4) there will be no material changes in the bases or rates of taxation or duties in the PRC or any of the territories in which the Enlarged Group operates except as otherwise disclosed in the Circular;
(5) there will be no material changes in inflation rates, interest rates or foreign currency exchange rates from those currently prevailing; and
(6) the operations and business of the Enlarged Group will not be severely interrupted by any unforeseeable factors or any unforeseeable reasons that are beyond the control of the Enlarged Group, including but not limited to, the occurrence of natural disasters or catastrophes, epidemics or serious accidents.

Letters from the auditors of the Company

BDO McCabe Lo Limited, the auditors of the Kelon Group and the reporting accountants of the Target Group, has reviewed the accounting policies and calculations adopted in arriving at the IFRS 2008 Profit Forecasts and is of the opinion that, so far as the accounting policies and calculations are concerned, the IFRS 2008 Profit Forecasts have been properly compiled on the assumptions made by the Directors set out in Appendix VI of the Circular and are presented on a basis consistent in all material respects with the accounting policies adopted by the Kelon Group and the Target Group in their respective annual audited financial statements for the year ended 31 December 2006 in accordance with IFRSs. The IFRS 2008 Profit Forecasts, together with the bases and assumptions upon which they have been prepared and the letters from the auditors of the Company, will be included in the Circular.

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The IFRS 2007 Profit Forecasts and the IFRS 2008 Profit Forecasts are prepared for illustrative purposes only based on the judements and assumptions made by the Directors, and because of its nature, they do not provide any assurance or indication that any event will take place in the future and may not give a true picture of the results of the Enlarged Group for the two years ending 31 December 2008.

Since there was a convergence of PRC GAAP to IFRS starting from 1 January 2007, there is no material reconciling item between the profit forecasts prepared under the PRC GAAP and those prepared under IFRS. The auditors of the Company are of the same view in this regard.

The PRC Target Group Profit Forecasts and the PRC Enlarged Group Profit Forecasts have been prepared in compliance with PRC laws and regulations and pursuant to the requirements of CSRC. They constitute profit forecasts under Rule 10 of the Takeovers Code. However, the PRC Target Group Profit Forecasts and the PRC Enlarged Group Profit Forecasts do not meet the standards required by Rule 10 of the Takeovers Code, and the Independent Financial Adviser has not satisfied itself that the PRC Target Group Profit Forecasts and the PRC Enlarged Group Profit Forecasts have been prepared by the Directors after careful enquiry, due care and consideration and neither have the auditors of the Company satisfied themselves that the PRC Target Group Profit Forecasts and the PRC Enlarged Group Profit Forecasts, so far as the accounting policies and calculations are concerned, have been properly prepared on the basis of the assumptions made. Nevertheless, in view of the PRC regulatory requirements, the Executive is prepared to permit the publication of the PRC Target Group Profit Forecasts and the PRC Enlarged Group Profit Forecasts in this announcement and the Circular.

In addition, the IFRS 2007 Profit Forecasts and the IFRS 2008 Profit Forecasts also constitute profit forecasts under Rule 10 of the Takeovers Code. However, the IFRS 2007 Profit Forecasts and the IFRS 2008 Profit Forecasts do not meet the standards required by Rule 10 of the Takeovers Code as the Independent Financial Adviser has not satisfied itself that the IFRS 2007 Profit Forecasts and the IFRS 2008 Profit Forecasts have been prepared by the Directors after careful enquiry, due care and consideration. In compliance with the Listing Rules, the Directors have confirmed that they have made the IFRS 2007 Profit Forecasts and the IFRS 2008 Profit Forecasts after due and careful enquiry. The auditors of the Company have satisfied themselves that the IFRS 2007 Profit Forecasts and the IFRS 2008 Profit Forecasts have been prepared by the Directors, so far as the accounting policies and calculations are concerned and have been properly prepared on the basis of the assumptions made. Nevertheless, in view of the PRC regulatory requirement, the Executive is prepared to permit the publication of the IFRS 2007 Profit Forecasts and the IFRS 2008 Profit Forecasts in this announcement and the Circular. Shareholders and potential investors should, however, exercise caution in placing reliance on the PRC Target Group Profit Forecasts and the PRC Enlarged Group Profit Forecasts as well as the IFRS 2007 Profit Forecasts and the IFRS 2008 Profit Forecasts to be included in the Circular in assessing the merits and demerits of the Acquisition and the Whitewash Waiver.

Pro forma financial information of the Enlarged Group

The unaudited pro forma financial information of the Enlarged Group as at 30 June 2007 which has been prepared in accordance with IFRS and in compliance with Rule 4.29 of the Listing Rules will be included in the Circular.

In compliance with PRC regulatory requirements, the Company has published the audited pro forma income statements for the three years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2007 and audited pro forma balance sheets as at 31 December 2004, 2005 and 2006 and 30 June 2007 of the Enlarged Group prepared in accordance with PRC GAAP in the PRC Report.

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Shareholders and potential investors are advised to exercise caution in placing reliance on such pro forma financial information, and to refer, instead, to the unaudited pro forma financial information of the Enlarged Group for the six months ended 30 June 2007 prepared in accordance with IFRS and the IFRS 2007 Profit Forecasts prepared in accordance with IFRS to be included in the Circular in assessing the merits and demerits of the Acquisition and the Whitewash Waiver.

The Directors do not consider that the aforesaid audited pro forma financial information of the Enlarged Group, prepared in accordance with PRC GAAP, as disclosed in the PRC Report is material for Shareholders and potential investors to assess the merits and demerits of the Acquisition and the Whitewash Waiver because the pro forma statement of assets and liabilities of the Enlarged Group as at 30 June 2007 and the IFRS 2007 Profit Forecasts which comply with the relevant Listing Rules and are therefore more relevant will be included in appendices IV and V respectively in the Circular. The Directors do not consider the non-inclusion of such information in this announcement and the Circular to be misleading.

REASONS FOR AND BENEFITS OF THE ACQUISITION

(1) The Acquisition is expected to enable the Enlarged Group to become one of the most competitive market leaders in the White Goods industry of the PRC

The Directors believe that the Acquisition will enable the Enlarged Group to become one of the most competitive market leaders in the refrigerator and air-conditioner sectors of the PRC and further strengthen the leadership position of the Kelon Group in the White Goods industry of the PRC. Through integration with the White Goods Business of the Hisense Group, the Enlarged Group is expected to consolidate and rationalize its operation and resources allocation structure to optimize its product portfolio, production locations, technology development, brand promotion, and domestic and international channel management. The Directors believe that the Acquisition will lead to changes in the competitive landscape of the White Goods industry in the PRC with the Enlarged Group moving up to be one of the most competitive market leaders in the industry.

(2) The financial position of the Enlarged Group is expected to be significantly improved

The Enlarged Group will benefit from the relatively stronger balance sheet of the Target Group as compared with the Kelon Group. As compared to the negative equity position of the Company of approximately RMB(719.1) million, acquisition of the Target Group with positive net assets value of approximately RMB630.8 million as at 30 June 2007 will reduce the negative equity position of the Enlarged Group to approximately RMB(88.3) million. The bank borrowings to total assets ratio of the Enlarged Group will also be significantly reduced by combining the Target Group and the Company, which have corresponding ratios of approximately 3.01% and approximately 23.14% respectively as at 30 June 2007. Hence, the financial position of the Enlarged Group will be reinforced by the Acquisition.

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(3) The Enlarged Group will benefit from economies of scale and cost-savings

Upon Completion, the Enlarged Group will have a consolidated production capacity of more than 8 million refrigerators and more than 6 million air-conditioners. The production facilities, including refrigerator production plants in Beijing, Liaoning, Jiangsu, Guangdong and Sichuan, and airconditioner production plants in Shandong, Zhejiang, and Guangdong, are all strategically located in the most developed and populated areas in the PRC.

The Enlarged Group will strive to leverage such production capacity and geographic locations of its production facilities to achieve cost-savings and operation efficiencies from economies of scale, and synergies derived through integration in raw material procurement, production, sales and marketing, after sales services, working capital utilization, and research and development.

(4) Overall brand recognition will be enhanced through combined strength of the multiple brands of the two groups

The Enlarged Group intends to adopt a multi-brand strategy to capitalize on the established goodwill of the existing brands of the two groups — “Hisense”, “Kelon” and “Rongshen”. Given the size and diversity of the PRC market, a multiple-brand strategy would better satisfy demand from various market segments. The combination of the three different brands will allow the Enlarged Group to extend its brand coverage to new market segments and lift its overall brand recognition in both the domestic and international market.

(5) Management efficiency will be improved through streamlining corporate and management structures

Upon Completion, the Enlarged Group will be able to consolidate the management of the two groups and improve management efficiency through streamlining corporate and management structures. The Enlarged Group intends to strengthen its supervision and internal control by establishing better alignment of the responsibilities, powers and economic rewards of the subsidiaries and associates. While the Enlarged Group will provide a centralized platform to support the operation of its subsidiaries and associates, the member companies will be required to be responsible for their own profits and loss.

(6) Competition with the Hisense Group will be eliminated

After Completion, the White Goods businesses including air conditioners and refrigerators would be operated under the Kelon Group. The Hisense Group will operate the multimedia businesses such as televisions, communications business and real estate businesses. The Acquisition will effectively eliminate competition between the Kelon Group and its largest shareholder, Hisense Group Co., in the White Goods business and therefore enhance the corporate governance of the Enlarged Group.

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(7) Connected transactions between the Kelon Group and the Hisense Group will be substantially reduced

Under the current group structure, a large part of the sourcing, sales and other production and operation activities of the Kelon Group was made through the sourcing system and marketing channels of the Hisense Group, which has led to a large amount of connected transactions between the Kelon Group and the Hisense Group.

After Completion, the Kelon Group will be primarily engaged in the White Goods businesses while the Hisense Group will focus on, among others, multimedia businesses. It is expected that connected transactions between the Hisense Group and the Kelon Group in respect of White Goods businesses will be substantially reduced.

CONTINUING CONNECTED TRANSACTIONS

Hisense Beijing, Hisense Nanjing, Hisense Shandong and Hisense Zhejiang will become Subsidiaries of the Enlarged Group upon Completion. They have been engaging in certain transactions relating to the purchase of moulds, raw materials and components, leasing of properties and provision of services with the relevant Subsidiaries of Hisense Group Co. before Completion, based on the business planning of the Company, it is anticipated that they will continue such transactions with the relevant Subsidiaries of Hisense Group Co. after Completion. Therefore, the Company entered into the Business Co-operation Framework Agreement with Hisense Group Co. and some of its Subsidiaries on 28 December 2007 in relation to the purchase of moulds, raw materials and components, leasing of properties and provision of services to be carried out after Completion.

BUSINESS CO-OPERATION FRAMEWORK AGREEMENT

Date

28 December 2007

Parties

(i) The Company; and

(ii) Hisense Group Co. and some of its Subsidiaries.

Term

The transactions contemplated under the Business Co-operation Framework Agreement will only be carried out from the Completion Date to 31 December 2008, which can be terminated before its expiration by mutual agreement of the parties.

The parties are entitled to terminate the Business Co-operation Framework Agreement before its expiration upon mutual agreement or in the event of occurrence of any breach of the Business Cooperation Framework Agreement, which include any non-compliance with the relevant Listing Rules in respect of connected transactions. In the event of any breach of any declaration, warranty and

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undertaking and non-fulfilment of its obligations by any party under the Business Co-operation Framework Agreement, the other party(ies) is(are) entitled to claim damages and compensation from such party.

Conditions

The continuing connected transactions contemplated under the Business Co-operation Framework Agreement are subject to the approval of the Independent Shareholders at the EGM and conditional upon Completion.

The Business Co-operation Framework Agreement is in connection with the following aspects of business co-operation between the Enlarged Group and Hisense Group Co. and some of its Subsidiaries:

(1) Purchase of Moulds

Pursuant to the Business Co-operation Framework Agreement, the Company has agreed that the Relevant Subsidiaries will purchase on a non-exclusive basis such quantities of moulds as the Relevant Subsidiaries may require from time to time after Completion for the purpose of the manufacture of household electrical appliances, including but not limited to air-conditioners, from the relevant Subsidiary of Hisense Group Co.. The relevant parties agreed to enter into individual mould purchase orders setting out specific terms including the price, payment terms, 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, including the pricing, operation and trading policies set out therein.

The Relevant Subsidiaries have the right to purchase moulds from suppliers other than the relevant Subsidiary of Hisense Group Co. from time to time according to their own needs. The Business Co-operation Framework Agreement does not restrict the rights of the relevant Subsidiary of Hisense Group Co. to sell its moulds to any other third parties.

Pricing

In response to the invitations to tender from the Relevant Subsidiaries (which are also extended to various Independent Third Parties) from time to time, the relevant Subsidiary of Hisense Group Co. may submit such tenders or bids to manufacture the moulds for such products requested by the Relevant Subsidiaries in their invitations to tender. Pricing for the manufacture of moulds is determined predominantly by the open bidding process.

However, the prices to be paid by the Relevant Subsidiaries to the relevant Subsidiary of Hisense Group Co. for the purchase of moulds shall be on normal commercial terms and on terms no less favourable to the Company than terms available to or from (as appropriate) Independent Third Parties. Such transactions will be conducted in the ordinary and usual course of business of the Enlarged Group.

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Payment Term

Payment for the purchase of moulds should be made by telegraphic transfer or bank-issued bills by the Relevant Subsidiaries within 60 days from the receipt of delivery of the moulds.

Reasons for and Benefits of the Purchase of Moulds

The Relevant Subsidiaries are principally engaged in the manufacturing of household appliances, including air-conditioners and refrigerators. The relevant Subsidiary of Hisense Group Co. is principally engaged in the design and manufacture of large and medium size moulds for household electrical appliances.

Before Completion, the Relevant Subsidiaries have established long-term satisfactory co-operation relationship with the relevant Subsidiary of Hisense Group Co. which has been providing compatible moulds to the Relevant Subsidiaries for the manufacture of household appliances, including air-conditioners and refrigerators. After considering a range of factors including the quality, the price and the compatibility of the moulds manufactured by the relevant Subsidiary of Hisense Group Co. with the refrigerators and air-conditioners manufactured by the Relevant Subsidiaries, the level of services provided by, and the long term business relationship with, the relevant Subsidiary of Hisense Group Co., as well as the limited number of suppliers available in the proximity, the Company considers that the relevant Subsidiary of Hisense Group Co. is in a good position to supply moulds to the Relevant Subsidiaries.

In light of the above, the Directors (excluding the independent non-executive Directors whose views will be contained in the Circular) are of the view that the terms of the purchase of moulds under the Business Co-operation Framework Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Historical Figures

The Relevant Subsidiaries have conducted similar transactions with the relevant Subsidiary of Hisense Group Co. in the past, the particulars of which are set out as follows:

For the ten months ended 31 October 2007

RMB6,117,100 (unaudited)

Maximum Annual Cap

The transactions contemplated by the Business Co-operation Framework Agreement for the year ending 31 December 2008 in relation to the purchase of moulds are subject to the annual cap set out below:

For the year ending 31 December 2008

RMB20,000,000

The above annual cap was determined with reference to (a) similar transactions between the Relevant Subsidiaries with the relevant Subsidiary of Hisense Group Co. before Completion; (b) the prevailing market conditions about the increasing demand for electrical appliances in the PRC; (c) the projected rising level of production of household electrical appliances of the Enlarged Group for

— 27 —

the year ending 31 December 2008 based on its forecast of the market demand taking into account the steady growth of the PRC economy and the increasing purchasing power of its citizens; and (d) the intention of the Relevant Subsidiaries to increase their purchases from, and to further enhance their business co-operation with, the relevant Subsidiary of Hisense Group Co. in 2008, in view of the confidence and trust the Relevant Subsidiaries have in the quality and compatibility of moulds manufactured by the relevant Subsidiary of Hisense Group Co., and the satisfactory co-operation relationship established between them in the past.

(2) Purchase of Raw Materials and Components

Pursuant to the Business Co-operation Framework Agreement, the Company has agreed that the Relevant Subsidiary will purchase on a non-exclusive basis such quantities of raw materials (including electronic control boards and plastic parts) and air-conditioners’ components as it may require from time to time after Completion for the purpose of the manufacture of air-conditioners, from the relevant Subsidiaries of Hisense Group Co..

The parties agreed to enter into individual raw materials purchase and supply orders setting out specific terms including the price, payment terms, 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, including the pricing, operation and trading policies set out therein.

The Relevant Subsidiary has the right to purchase raw materials and air-conditioners’ components from suppliers other than the relevant Subsidiaries of Hisense Group Co. from time to time according to its own needs. The Business Co-operation Framework Agreement does not restrict the rights of any of the relevant Subsidiaries of Hisense Group Co. to sell their raw materials and airconditioners’ components to any other third parties.

Pricing

Pricing for the purchase of raw materials and air-conditioners’ components is determined principally by arm’s length commercial negotiation between the parties according to the principle of fairness and reasonableness with reference to the market price of raw materials and components of air-conditioners from time to time.

The above transactions will be conducted in the ordinary and usual course of business of the Enlarged Group, 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 for the purchase of raw materials and air-conditioners’ components should be made by telegraphic transfer or bank-issued bills by the Relevant Subsidiary within 60 days from the receipt of delivery of the raw materials and air-conditioners’ components.

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Reasons for and Benefits of the Purchase of Raw Materials and Components

The Relevant Subsidiary is principally engaged in the design and manufacture of air-conditioners. The relevant Subsidiaries of Hisense Group Co. are principally engaged in the sales and manufacture of electrical appliances and electrical components for the production of electrical appliances.

The Relevant Subsidiary and the relevant Subsidiaries of Hisense Group Co. are located closed to each other. Before Completion, the Relevant Subsidiary has established long-term satisfactory co-operation relationship with the relevant Subsidiaries of Hisense Group Co. which have been providing compatible raw materials and components to the Relevant Subsidiary. After considering a range of factors including the quality, the reasonable price, the compatibility of the raw materials and components manufactured by the relevant Subsidiaries of Hisense Group Co. with the airconditioners manufactured by the Relevant Subsidiary, the level of services provided by, and the long-term business relationship with, the relevant Subsidiaries of Hisense Group Co., as well as the limited number of suppliers available in the proximity and the relatively low transportation costs of raw materials and components to be incurred, the Company considers that the relevant Subsidiaries of Hisense Group Co. are in a good position to supply raw materials and components to the Relevant Subsidiary.

In light of the above, the Directors (including the independent non-executive Directors whose views will be contained in the Circular) are of the view that the terms of the purchase of raw materials and components under the Business Co-operation Framework Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Historical Figures

The Relevant Subsidiary has conducted similar transactions with the relevant Subsidiaries of Hisense Group Co. in the past, the particulars of which are set out as follows:

For the ten months ended 31 October 2007

RMB44,670,000 (unaudited)

Maximum Annual Cap

The transactions contemplated by the Business Co-operation Framework Agreement for the year ending 31 December 2008 in relation to the purchase of raw materials and components are subject to the annual cap set out below:

For the year ending 31 December 2008

RMB83,750,000

The above annual cap was determined with reference to (a) similar transactions between the Relevant Subsidiary with the relevant Subsidiaries of Hisense Group Co. before Completion; (b) the prevailing market conditions about the increasing demand for electrical appliances in the PRC; (c) the projected rising level of production of household electrical appliances of the Enlarged Group for the year ending 31 December 2008 based on its forecast of the market demand taking into account the steady growth of the PRC economy and the increasing purchasing power of its citizens; and

— 29 —

(d) the intention of the Relevant Subsidiary to increase its purchases from, and to further enhance its business co-operation with, the relevant Subsidiaries of Hisense Group Co. in 2008, in view of the confidence and trust the Relevant Subsidiary has in the quality and compatibility of the raw materials and components manufactured by the relevant Subsidiaries of Hisense Group Co., and the satisfactory co-operation relationship established between them in the past.

(3) Provision of Property Leasing and Management and Communication Services

Pursuant to the Business Co-operation Framework Agreement, the Company has agreed that the Relevant Subsidiaries will engage Hisense Group Co. and its Subsidiaries for the provision of property leasing, management and communication services. 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, but such terms shall be consistent with the principles and the terms of the Business Co-operation Framework Agreement, including the pricing, operation and trading policies set out therein.

The Relevant Subsidiaries have the right to engage from time to time according to their own needs other service providers to provide such services to the Relevant Subsidiaries, other than the relevant Subsidiaries of Hisense Group Co.. The Business Co-operation Framework Agreement also does not restrict the rights of Hisense Group Co. and its Subsidiaries to provide such services to any other third parties.

Pricing

The fees payable by the Relevant Subsidiaries to Hisense Group Co. and its Subsidiaries for the provision of property leasing, management and communication services to the Relevant Subsidiaries are determined principally by arm’s length commercial negotiations according to the principle 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 property leasing, management and communication services will be calculated on a monthly basis and such monthly fees should be made by telegraphic transfer or bank-issued bills by the Relevant Subsidiaries within 15 days of the following month.

Reasons for and Benefits of the Engagement for the Services Provision

The Relevant Subsidiaries are principally engaged in the manufacture and sales of refrigerators and air-conditioners and White Goods sales and marketing. Hisense Group Co. and its Subsidiaries are principally engaged in the manufacture of electrical appliances and provision of property management services

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The Relevant Subsidiaries and Hisense Group Co. and its Subsidiaries are located closed to each other. In view of production and office operation needs and demands, the Relevant Subsidiaries have to lease properties from Hisense Group Co. and its Subsidiaries and engage Hisense Group Co. and its Subsidiaries for the provision of property management services (e.g. sanitary and security services) and communication services (e.g. telephone and web conference services) for their business operations.

In light of the above, the Directors (excluding the independent non-executive Directors whose views will be contained in the Circular) are of the view that the terms of the leasing of properties and service engagement under the Business Co-operation Framework Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Historical Figures

The Relevant Subsidiaries have conducted similar transactions with Hisense Group Co. and its Subsidiaries in the past, the particulars of which are set out as follows:

For the ten months ended 31 October 2007 RMB6,212,200 (unaudited)

Maximum Annual Cap

The transactions contemplated by the Business Co-operation Framework Agreement for the year ending 31 December 2008 regarding the leasing of properties and service engagement are subject to the annual cap set out below:

For the year ending 31 December 2008 RMB13,700,000

The above annual cap was determined with reference to (a) similar transactions between the Relevant Subsidiaries with Hisense Group Co. and its Subsidiaries before Completion; (b) the projected rising level of production and business operation of the Enlarged Group for the year ending 31 December 2008 and as such, the increase in demand for the provision of the services; and (c) the intention to further enhance the business co-operation between the Relevant Subsidiaries and the relevant Subsidiaries of Hisense Group Co. in 2008, in view of the satisfactory co-operation relationship established between them in the past.

IMPLICATIONS OF THE TAKEOVERS CODE AND WHITEWASH WAIVER

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None of Qingdao Hisense or its concert parties has dealt in any securities of the Company in the 6 months prior to the date of this announcement. According to the Share Reform Proposal, Qingdao Hisense has undertaken to make a Donation under certain circumstances, including the circumstance where the Acquisition cannot be completed by 28 March 2008. In the event that the Company issues bonus A Shares, transfer to share capital or reduce its numbers of share capital during this period, the number of donated Shares under the Donation shall, on the basis of 9,725,050 A Shares, be increased or decreased in the same proportion. The criteria to recognize the Completion includes the completion of all transfer registration (including asset, shareholding, credit and debts) procedures for injecting the related assets (or shareholdings) of the White Goods Business into the Company. As SEC and Dongheng, both being holders of the Company’s non-freely transferable Shares prior to the implementation of the Share Reform Proposal, did not explicitly express that they would involve in the share reform, Qingdao Hisense has advanced the Borrowed Shares on behalf of SEC and Dongheng for distribution to eligible A Shareholders. Subsequently, they should repay the Borrowed Shares advanced by Qingdao Hisense or obtain its consent before the Shares held by SEC and Dongheng can be listed and transferred. As at the date of this announcement, the Company is negotiating with SEC with respect to the return of the Borrowed Shares while it is still trying to contact Dongheng. Further announcement will be made by the Company once further information is available.

An application has been made to seek confirmation from the Executive that the possible Donation and the return of the Borrowed Shares would not constitute disqualifying transactions under paragraph 3(b) of Schedule VI of the Takeovers Code.

A formal application has been made by Qingdao Hisense to the Executive for the Whitewash Waiver pursuant to Note 1 of the Notes on dispensations from Rule 26 of the Takeovers Code. The Whitewash Waiver, if granted by the Executive, would be subject to, among other things, the approval of the Independent Shareholders at the EGM by way of poll. It is a condition precedent to Completion that the Whitewash Waiver is granted by the Executive. If the Whitewash Waiver is not granted by the Executive or if the conditions (if any) imposed thereon are not fulfilled, the Acquisition will not proceed. In such case, the requirement for Qingdao Hisense to make a mandatory general offer under Rule 26 of the Takeovers Code as a result of the Acquisition will not be triggered.

As at the date hereof, there was no agreement, arrangement or understanding between Qingdao Hisense or any of its concert parties and any other person that the Consideration Shares to be acquired by Qingdao Hisense under the Acquisition Agreement would be transferred, charged or pledged to that person.

— 32 —

IMPLICATIONS OF THE LISTING RULES

Qingdao Hisense is a substantial shareholder of the Company, holding approximately 24.08% of the issued shares of the Company as at the date of this announcement. Each of Hisense Group Co. and its Subsidiaries are associates of Qingdao Hisense, and therefore connected persons of the Company. As such, the transactions contemplated under the Business Co-operation Framework Agreement will constitute continuing connected transactions of the Company under the Listing Rules. Since the relevant Subsidiaries of Hisense Group Co. are connected or otherwise associated with each other, the transactions contemplated under the Business Co-operation Framework Agreement should be aggregated with the continuing connected transactions occurring in the ordinary course of business between the Company and the relevant Subsidiaries of Hisense Group Co. before Completion (particulars of which will be set out in a separate announcement).

Given that the applicable percentage ratios (other than the profit ratio) for the aggregated amount of the transactions is more than 2.5%, the continuing connected transactions contemplated under the Business Co-operation Framework Agreement are subject to reporting, announcement and independent shareholders’ approval requirements under Rule 14A.35 of the Listing Rules.

Since the Non-exempt Continuing Connected Transactions are contemplated as a result of the Acquisition, in the event that the Acquisition does not proceed resulting in a change of circumstances of the Company, the Company will make appropriate disclosures and comply with all relevant requirements, where applicable, under Chapter 14A of the Listing Rules.

— 33 —

DESPATCH OF SHAERHOLDERS’ CIRCULAR

A circular containing, among other things, (i) further information on the Acquisition, the Non-exempt Continuing Connected Transactions and the Whitewash Waiver; (ii) the recommendation from the independent board committee of the Company in relation to the Acquisition, the Non-exempt Continuing Connected Transactions and the Whitewash Waiver; (iii) the advice of Independent Financial Adviser to the independent board committee of the Company and the Independent Shareholders in relation to the Acquisition, the Non-exempt Continuing Connected Transactions and the Whitewash Waiver; and (iv) other information as required under the Listing Rules and the Takeovers Code, together with notice of the EGM will be despatched to the Shareholders on 31 December 2007 in accordance with the Listing Rules and the Takeovers Code.

The Company’s register of members will be closed from 16 January 2008 to 15 February 2008 (both days inclusive) to determine eligibility to attend the EGM and CSM.

CSRC WAIVER

The allotment and issue of the Consideration Shares by the Company to Qingdao Hisense under the Acquisition and the resulting increase in the number of A Shares held by Qingdao Hisense would, unless the CSRC Waiver is obtained, result in Qingdao Hisense having to acquire further Shares by way of an offer in accordance with the Takeover Procedures. Subject to the approval of the Acquisition by the Shareholders (other than Qingdao Hisense, its associates, concert parties and any person who is involved or interested in the Acquisition and/or the Whitewash Waiver) in the EGM, Qingdao Hisense will apply to CSRC for the grant of the CSRC Waiver.

PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION

In light of the issue of the Consideration Shares and pursuant to the requirements of the applicable PRC laws and regulations, certain amendments are proposed to be made to the Articles of Association. Such proposed amendments to be made to the Articles of Association are subject to approval by the Shareholders at the EGM, and are conditional upon obtaining any approval, endorsement or registration as may be necessary from the relevant PRC authorities.

The proposed amendments deal with matters consequential to the Completion including, among other things, the increase of the registered capital and change of business scope of the Company and the change in the number of A Shares and the proportion between the number of A Shares and H Shares pursuant to the issue of the Consideration Shares.

The proposed amendments to the Articles of Association are proposed in accordance with the laws and regulations prescribed by the relevant PRC authorities. The proposed amended Articles of Association will only be adopted for use by the Company after Completion.

The proposed amendments to the Articles of Association are set forth below:

(i) Article 2.2 of the Articles of Association shall be amended to read as follows: “The scopes of operation of the Company: development and manufacture of domestic appliances such as refrigerators, air-conditioners, freezers and washing machines, domestic and overseas sales of

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products and provision of after-sale services, transportation of self-operated products. The scopes of operation of the Company are in accordance with the scopes of operation approved by the industry, commerce and administrative authorities. The Company may adjust the scopes and the ways of operation and establish branch institutions in response to changes in market conditions and its own needs of operation under approval from the review and approval authorities from time to time.”

(ii) Article 3.5 of the Articles of Association shall be amended to read as follows : “The total number of ordinary shares issued by the Company was approximately 1,356,103,984 shares, of which overseas listed foreign shares accounted for 459,589,808 shares, representing 33.89% of the total share capital while domestically-listed domestic shares accounted for 896,514,176 shares, representing 66.11% of the total share capital.”
(iii) Article 3.8 of the Articles of Association shall be deleted.

Article 3.8 of the Articles of Association currently reads as “After the issuance of A-shares, the total number of paid-up capital was 992,006,563 shares, and the registered capital of the Company was RMB992,006,563. The entire capital of the Company was divided into shares of equal amount with a nominal value of RMB1 per shares.”

(iv) Articles 3.9, 3.10, 3.11, 3.12 and 3.13 of the Articles of Association shall be renumbered as Articles 3.8, 3.9, 3.10, 3.11 and 3.12.
(v) A new Article 7.8 shall be inserted to the Articles of Association to read as “The directors, supervisors and senior managements of the Company have the obligation to protect the capital of the Company from being embezzled by the controlling shareholder or the beneficial controller. In the case of directors and senior managements of the Company assisting or conniving the controlling shareholder or its subsidiaries in misappropriating the assets of the Company, the board of directors of the Company shall inflict punishment on the directly responsible persons and remove the directors with significant responsibilities. In the case of the controlling shareholder or beneficial controller of the Company misappropriating the assets of the Company, including but not limited to, the capital of a listing company, the board of directors of the Company shall immediately apply to the People’s Court in the name of the Company to legally freeze the assets of the Company embezzled and the shares of the Company held by the controlling shareholder or beneficial controller. For any misappropriated assets of the Company that cannot be restored to the original form or repaid in cash by the controlling shareholder or beneficial controller, the board of directors of the Company shall restitute the misappropriated assets of the Company by realizing the shares of the Company held by the controlling shareholder or beneficial controller in accordance with the provisions and procedures of the relevant laws, rules and regulations.”
(vi) The original Article 7.8 of the Articles of Association shall be renumbered as Article 7.9 and shall be amended to read as “The controlling shareholder set out in Articles 7.6, 7.7 and 7.8 of the Articles of Associations refer to persons meeting one of the following criteria: (1) shareholders whose shareholding account for more than fifty percent of the entire share capital of the Company; (2) shareholders whose shareholding account for less than fifty percent but the voting rights entitled by the shares held are sufficient to cause significant influence to the resolutions of shareholders’ meetings and general meetings.”

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(vii) The original Article 7.9 of the Articles of Association shall be renumbered as Article 7.10.

(viii) Article 10.3 of the Articles of Association shall be amended from “Both the board of directors and the supervisory committee of the Company are entitled to propose resolutions at general meetings to nominate candidates for directorship or to change directors of the Company. In addition, shareholders holding or aggregately holding more than five percent of the total number of issued shares with voting rights are entitled to propose resolutions at general meetings to change directors of the Company. However, when nominating the directorship candidates, the maximum number of nominees shall be determined in accordance with the ratio of one directorship candidate for every five percent of the total number of shares with voting rights (the remaining balance not making up to five percent will be ignored and not taken into account). The written notice of the intention to propose directorship candidates and the statement of acceptance of nomination by the nominees shall not be delivered to the board of directors of the Company before the day following the despatch of the notice of general meeting for the directors election, and shall not be later than seven days before the holding of the general meeting. The resolutions related to the nomination of directorship candidates and change of directors shall be subject to the provisions of these Articles of Association.” to “Both the board of directors and the supervisory committee of the Company are entitled to propose resolutions at general meetings to nominate candidates for directorship or to change directors of the Company. In addition, shareholders holding or aggregately holding more than three percent of the total number of issued shares with voting rights are entitled to propose resolutions at general meetings to change directors of the Company. However, when nominating the directorship candidates, the maximum number of nominees shall be determined in accordance with the ratio of one directorship candidate for every three percent of the total number of shares with voting rights (the remaining balance not making up to three percent will be ignored and not taken into account). The written notice of the intention to propose directorship candidates and the statement of acceptance of nomination by the nominees shall not be delivered to the board of directors of the Company before the day following the despatch of the notice of general meeting for the directors election, and shall not be later than seven days before the holding of the general meeting. The resolutions related to the nomination of directorship candidates and change of directors shall be subject to the provisions of these Articles of Association.”

Details in relation to the amendments to the Articles of Association will be set out in the Circular and the notice of EGM.

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SUSPENSION OF TRADING IN THE H SHARES OF THE COMPANY

DEFINITIONS

In this announcement, the following expressions have the meanings set out below unless the context otherwise requires:

“A Shareholders”	holders of A Shares
“A Shares”	domestic ordinary shares of the Company with a nominal value of
	RMB1.00 each and are listed on the Shenzhen Stock Exchange
“Acquisition Agreement”	the agreement entered into between the Company and Qingdao Hisense
	dated 28 December 2007
“Acquisition”	the acquisition of the Target Group by the allotment and issue of the
	Consideration Shares as contemplated under the Acquisition Agreement
“Articles of Association”	the articles of association of the Company as amended from time to
	time
“Asset Valuer”	北京中威華德誠資產評估有限公司(Beijing Zhongwei Huadecheng
	Asset Appraisal Company Limited), an independent firm of qualified
	PRC valuers
“associate(s)”	has the meaning ascribed to it in the Listing Rules
“Board”	the board of Directors
“Borrowed Shares”	the 4,742,863 Shares and 486,044 Shares advanced by Qingdao
	Hisense on behalf of SEC and Dongheng to eligible A Shareholders,
	respectively, under the Share Reform Proposal for their participation in
	the share reform

— 37 —

“Business Co-operation	the agreement dated 28 December 2007 and entered into between the
Framework Agreement”	Company and Hisense Group Co. and some of its Subsidiaries in
	relation to the business co-operation between the Enlarged Group
	and Hisense Group Co. and some of its Subsidiaries in respect of
	the purchase of moulds, raw materials and components, leasing of
	properties and provision of services to be carried out after Completion
“Circular”	the circular to be despatched to the Shareholders in relation to, among
	other things, the Acquisition, the Non-exempt Continuing Connected
	Transactions, the Whitewash Waiver and the proposed amendments to
	the Articles of Association on 31 December 2007
“Company”	海信科龍電器股份有限公司(Hisense Kelon Electrical Holdings Co.,
	Ltd), a company incorporated in the PRC with limited liability and
	listed on the main board of the Stock Exchange and Shenzhen Stock
	Exchange
“Completion”	the completion of the Acquisition
“Completion Date”	the date on which Completion takes place, which shall be the last
	business day of the month following the month in which the last of all
	the Conditions to the Acquisition Agreement has been satisfied
“concert party” or	has the meaning given to the term “parties acting in concert” in the
“party acting in concert”	Takeovers Code
“Conditions”	conditions precedent to the Acquisition Agreement and “Condition”
	means any of them
“connected person(s)”	has the meaning ascribed to it under the Listing Rules
“Consideration Shares”	364,097,421 A Shares to be issued by the Company to Qingdao Hisense
	as contemplated under the Acquisition Agreement
“CSM”	the class meeting to be convened among the H Share Shareholders to
	consider and, if thought fit, approve the matters as set out in the notice
	of CSM or any adjournment thereof (as the case may be)
“CSRC”	China Securities and Regulatory Commission
“CSRC Waiver”	the waiver in respect of the obligation of Qingdao Hisense to acquire
	further Shares by way of an offer which would otherwise arise under
	the Takeover Procedures as a result of the allotment and issue of the
	Consideration Shares by the Company to Qingdao Hisense and the
	resulting increase in the number of A Shares held by Qingdao Hisense

— 38 —

“Donation” the donation by Qingdao Hisense of 9,725,050 A Shares, equivalent to 0.5 donated A Share per 10 A Shares on the basis of the total A Shares of 194,501,000 Shares, to eligible A Shareholders under certain circumstances pursuant to the Share Reform Proposal as set out in the announcement of the Company dated 19 December 2006

“Dongheng” 佛山市順德區東恒信息諮詢服務有限公司 (Foshan City Shunde Dongheng information Consulting Service Company Limited), a limited liability company established under the laws of the PRC, the shareholding of which is owned by two individuals who are Independent Third Parties
“Director(s)” the director(s) of the Company
“EGM” the extraordinary general meeting of the Company to be convened among the Shareholders to consider and approve the matters as set out in the notice of EGM or any adjournment hereof (as the case may be)
“Enlarged Group” the Kelon Group as enlarged by, or taking into account the impact of, the interests in the Target Group pursuant to the Acquisition
“Executive” the Executive Director of the Corporate Finance Division of the SFC or any delegate of the Executive Director
“Financial Adviser Daiwa Securities SMBC Hong Kong Limited, a corporation licensed to the Vendor” under the SFO for carrying out type 1 (dealing in securities), type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities, being the financial adviser to Qingdao Hisense
“H Shareholders” holders of H Shares
“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 Beijing” 海信（北京）電器有限公司 (Hisense (Beijing) Electric Company Limited), a company incorporated under the laws of the PRC with limited liability
“Hisense Electric” 青島海信電器股份有限公司 (Hisense Electric Co., Ltd.), a company incorporated under the laws of the PRC with limited liability and listed on the Shanghai Stock Exchange
“Hisense Electronic” 青島海信電子產業控股股份有限公司(Qingdao Hisense Electronic (Holdings) Company Limited), a joint stock limited company incorporated in the PRC, the shareholding of which is owned as to 55.58% by Hisense Group Co., 39.84% by the management group of Hisense Group Co. and 4.58% by the labour union of Hisense Group Co.

— 39 —

“Hisense International” 海信國際控股有限公司(Hisense International (Holding) Company Limited), a limited company incorporated in the British Virgin Islands, a wholly-owned subsidiary of Hisense Electronic

“Hisense Group”	Hisense Group Co. and its Subsidiaries but excluding members of the
	Target Group
“Hisense Group Co.”	海信集團有限公司(Hisense Group Company), a state-owned enterprise
	incorporated under the laws of the PRC with limited liability and under
	the auspices of the Qingdao Municipal State-owned Assets Supervision
	and Administrative Committee（青島市國有資產監督管理委員會）
“Hisense Nanjing”	海信（南京）電器有限公司(Hisense (Nanjing) Electric Company
	Limited), a company incorporated under the laws of the PRC with
	limited liability
“Hisense Marketing”	青島海信營銷有限公司(Qingdao Hisense Marketing Company
	Limited), a company incorporated in the PRC with limited liability
“Hisense Marketing Business”	The assets and business operation of Hisense Marketing for and in
	relation to the operation of sales and marketing of the white goods
	products produced by Hisense Shandong, Hisense Zhejiang, Hisense
	Beijing and its subsidiary, Hisense Nanjing
“Hisense Shandong”	海信（山東）空調有限公司(Hisense (Shandong) Air-conditioning
	Company Limited), a company established under the laws of the PRC
	with limited liability
“Hisense Zhejiang”	海信浙江空調有限公司(Hisense Zhejiang Air-conditioning Company
	Limited), a limited liability company incorporated under the laws of the
	PRC
“Hong Kong’’	the Hong Kong Special Administrative Region of the PRC
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“IASB”	International Accounting Standards Board
“IFRS”	International Financial Reporting Standards adopted by the IASB
“IFRS 2007 Profit Forecasts”	the profit forecasts of the Kelon Group and the Target Group and the
	pro forma profit forecasts of the Enlarged Group for the year ending 31
	December 2007 prepared in accordance with IFRS
“IFRS 2008 Profit Forecasts”	the profit forecasts of the Target Group and the Enlarged Group for
	the year ending 31 December 2008 prepared in accordance with IFRS

— 40 —

“Independent Financial Access Capital Limited, a corporation licensed under the SFO for Adviser” carrying out type 1 (dealing in securities), type 4 (advising on securities) type 6 (advising on corporate finance) and type 9 (asset management) regulated activities, being the independent financial adviser to the independent board committee and the Independent Shareholders in respect of the Acquisition, the Non-exempt Continuing Connected Transaction and the Whitewash Waiver
“Independent Shareholder(s)” Shareholders other than Qingdao Hisense, its associates and parties acting in concert with it and any person who is involved in, or interested in, the Acquisition and/or the Whitewash Waiver, who are entitled to attend and vote at the relevant shareholders’ meeting of the Company under the applicable laws and regulations and the Articles of Association
“Independent Third Parties” to the best of the Directors’ knowledge, information and belief having made all reasonable enquiry, third parties independent of the Company and its connected persons
‘‘Kelon Group’’ collectively, the Company and its subsidiaries from time to time
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange
“Nanjing Yilaite” 南京伊萊特高新科技工業園有限責任公司(Nanjing Yilaite High and New Technology Industrial Park Company Limited) (formerly known as 南京蘇寧高新科技工業園有限公司 (Nanjing Suning High-Tech Industrial Park Co. Ltd.) , an independent third party
“Non-exempt Continuing the continuing connected transactions to be carried out pursuant to Connected Transactions” the Business Co-operation Framework Agreement that are subject to the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules
“PRC”
the People’s Republic of China
“PRC Enlarged Group the profit forecast of the Enlarged Group for the two years ending 31 Profit Forecasts” December 2007 and 2008 prepared in accordance with PRC GAAP
“PRC GAAP” generally accepted accounting principles in the PRC
“PRC Report” the report on the Acquisition in draft form dated 28 December 2007 published by the Company in the PRC in accordance with PRC regulatory requirements

“PRC Target Group the pro forma forecasts of the net profit attributable to equity holders of Profit Forecasts” the Company for the two years ending 31 December 2008 prepared in accordance with PRC GAAP

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“Qingdao Hisense”	青島海信空調有限公司(Qingdao Hisense Air-conditioning Company
or “Vendor”	Limited), a company incorporated in the PRC with limited liability, the
	Shareholding of which is owned as to 93.33% by Hisense Electronic
	and 6.67% by Hisense International
“Relevant Subsidiaries”	means Hisense Beijing, Hisense Nanjing, Hisense Shandong and
	Hisense Zhejiang, which will become Subsidiaries of the Company
	upon Completion and “Relevant Subsidiary” shall mean any one of
	them
“RMB”	Renminbi yuan, the lawful currency of the PRC
“SEC”	佛山市順德區經濟諮詢公司(Shunde Economic Consultancy Company),
	a state-owned enterprise incorporated under the laws of the PRC with
	limited liability
“SFC”	Securities and Futures Commission of Hong Kong
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong
	Kong)
“Share Reform Proposal”	the share reform proposal of the Company in relation to the conversion
	of the non-freely transferable Shares into listed Shares, which was
	approved by the Shareholders eligible to vote thereon on 29 January
	2007 and implemented on 29 March 2007. Particulars of the proposal
	were set out in the announcements of the Company dated 19 and 28
	December 2006, 29 January 2007 and 26 March 2007
“Shareholders’’	holders of Shares
“Shares”	Share(s) of RMB1.00 each in the capital of the Company, comprising
	the A Shares and the H Shares
“Shenzhen Stock Exchange”	Shenzhen Stock Exchange（深圳證券交易所）of the PRC
“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)
“substantial shareholder”	has the meaning ascribed to it under the Listing Rules
“Takeovers Code”	The Hong Kong Code on Takeovers and Mergers

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“Takeover Procedures” 上市公司收購管理辦法 (the Administration of the Takeover of Listed Companies Procedures) promulgated by CSRC on 31 July 2006

“Target Group” 55% of the equity interests in Hisense Beijing which in turn holds 60% of the equity interests in Hisense Nanjing, 100% of the equity interests in Hisense Shandong, 51% of the equity interests in Hisense Zhejiang, and the Hisense Marketing Business
“Tsingdao SASAC” 青島市國有資產監督管理委員會(Tsingdao State-owned Assets Supervision and Administrative Committee)
“White Goods” the general term by which white-coloured household electrical appliances are commonly known which include, but not limited to, airconditioners and refrigerators
“White Goods Business”

the White Goods business operated by the Target Group

“Whitewash Waiver” a waiver in respect of the obligation on Qingdao Hisense and parties acting in concert with it to make a mandatory offer to the Shareholders to acquire the Shares in issue not already owned or agreed to be acquired by Qingdao Hisense and parties acting in concert with it as a result of the issue of the Consideration Shares, in accordance with Note 1 on dispensations from Rule 26 of the Takeovers Code
“Xuehua Group” Beijing Xuehua Group Company Limited (北京雪花電器集團公司) , an independent third party
“Zhejiang Xianke” Zhejiang Xianke Electrical Appliance Manufacturing Co., Ltd. (浙江先科電器製造有限公司), an independent third party
“%” Per cent.

By order of the Board of Hisense Kelon Electrical Holdings Company Limited Tang Ye Guo Chairman

Foshan City, Guangdong, the PRC, 28 December 2007

As at the date of this announcement, the directors of the Company are Mr. Tang Ye Guo, Mr. Yang Yun Duo, Mr. Wang Shi Lei, Ms. Yu Shu Min, Mr. Lin Lan and Ms. Liu Chun Xin; and independent nonexecutive directors of the Company are Mr. Zhang Sheng Ping, Mr. Lu Qing and Mr. Cheung Yui Kai, Warren.

For the purpose of this announcement, translations of Renminbi into HK dollars or vice versa have been calculated by using an exchange rate of HK$1 equal to RMB0.95449. Such exchange rate has been used, where applicable, for the purposes of illustration only and do not constitute a representation that any amounts were or may have been exchanged at such rate or any other rates or at all.

— 43 —

The Directors jointly and severally accept full responsibility for the accuracy of the information contained in this announcement (other than information relating to Qingdao Hisense) and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this announcement (other than information relating to Qingdao Hisense) have been arrived at after due and careful consideration and there are no other facts not contained in this announcement, the omission of which would make any statement (other than information relating to Qingdao Hisense) in this announcement misleading.

The directors of Qingdao Hisense jointly and severally accept full responsibility for the accuracy of the information (other than that relating to the Kelon Group) contained in this announcement and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this announcement (other than that relating to the Kelon Group) have been arrived at after due and careful consideration and there are no other facts not contained in this announcement, the omission of which would make any statement (other than that relating to the Kelon Group), in this announcement misleading.

— 44 —

AI assistant

Medlive Technology Co., Ltd. — M&A Activity 2007

50436_rns_2007-12-30_d0720246-e51b-468c-a47f-9d124fabf26e.pdf

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

ANNOUNCEMENT

MAJOR AND CONNECTED TRANSACTION:

MAJOR AND CONNECTED TRANSACTION

CONTINUING CONNECTED TRANSACTIONS

WHITEWASH WAIVER

IMPLICATIONS OF THE LISTING RULES

PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION

SUSPENSION OF TRADING IN THE H SHARES OF THE COMPANY

INTRODUCTION

THE ACQUISITION AGREEMENT

Parties

Assets to be acquired:

Consideration

Payment method

The issue price

Corporate Structure before and after Completion

Structure of the Hisense Group and the Kelon Group

Immediately before Completion

Conditions to Completion

Completion

Undertakings

SHAREHOLDING STRUCTURE OF THE COMPANY BEFORE AND AFTER COMPLETION

INFORMATION OF THE COMPANY

INFORMATION OF THE TARGET GROUP

Air-conditioner manufacturing

(1) Hisense Shandong

Background

(2) Hisense Zhejiang

1. Background

2. History

3. Operating business

Refrigerator manufacturing

(1) Hisense Beijing

2. History

3. Operating business

(2) Hisense Nanjing

2. History

3. Operating business

Hisense Marketing Business

ASSET VALUATION OF THE TARGET GROUP

PRC Target Group Profit Forecasts and PRC Enlarged Group Profit Forecasts

IFRS 2007 Profit Forecasts

Forecast figures

Bases and assumptions

Letters from the auditors of the Company

IFRS 2008 Profit Forecasts

Forecast figures

Letters from the auditors of the Company

Pro forma financial information of the Enlarged Group

REASONS FOR AND BENEFITS OF THE ACQUISITION

(1) The Acquisition is expected to enable the Enlarged Group to become one of the most competitive market leaders in the White Goods industry of the PRC

(2) The financial position of the Enlarged Group is expected to be significantly improved

(3) The Enlarged Group will benefit from economies of scale and cost-savings

(4) Overall brand recognition will be enhanced through combined strength of the multiple brands of the two groups

(5) Management efficiency will be improved through streamlining corporate and management structures

(6) Competition with the Hisense Group will be eliminated

(7) Connected transactions between the Kelon Group and the Hisense Group will be substantially reduced

CONTINUING CONNECTED TRANSACTIONS

BUSINESS CO-OPERATION FRAMEWORK AGREEMENT

Date

Parties

Term

Conditions

(1) Purchase of Moulds

Pricing

Payment Term

Reasons for and Benefits of the Purchase of Moulds

Historical Figures

Maximum Annual Cap

(2) Purchase of Raw Materials and Components

Pricing

Payment Term

Historical Figures

Maximum Annual Cap

(3) Provision of Property Leasing and Management and Communication Services

Pricing

Medlive Technology Co., Ltd. M&A Activity 2007