Medlive Technology Co., Ltd. - M&A Activity 2009

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

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HISENSE KELON ELECTRICAL HOLDINGS COMPANY LIMITED 海信科龍電器股份有限公司 (A joint stock limited company incorporated in the People's Republic of China with limited liability) (Stock Code: 00921)

ANNOUNCEMENT

MAJOR AND CONNECTED TRANSACTION: ACQUISITION OF THE TARGET GROUP FROM QINGDAO HISENSE AIRCONDITIONING COMPANY LIMITED AND APPLICATION FOR WHITEWASH WAIVER AND RESUMPTION OF TRADING

Financial Adviser to Qingdao Hisense

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

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MAJOR AND CONNECTED TRANSACTION

On 29 June 2009, the Company entered into the Acquisition Agreement to acquire from Qingdao Hisense the Target Group at a total consideration of RMB1,238,204,800 (equivalent to approximately HK$1,404,672,543). The consideration will be satisfied by the issue of not more than 362,048,187 Consideration Shares at RMB3.42 (equivalent to approximately HK$3.88) per Consideration Share.

WHITEWASH WAIVER

Assuming that the maximum number of Consideration Shares will be issued by the Company to Qingdao Hisense, the shareholding interest of Qingdao Hisense in the Company will increase from approximately 25.22% as at the date of this announcement to approximately 45.21% in the share capital of the Company immediately after the 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 and all other securities of the Company 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 of the Notes on dispensations from Rule 26 of the Takeovers Code is granted by the Executive.

A formal application will be 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, will be subject to, among other things, the approval by 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.

IMPLICATIONS OF THE LISTING RULES

As each of the applicable percentage ratios (as defined in Rule 14.07 of the Listing Rules) is 25% or more but less than 100%, 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 25.22% of the entire issued share capital of the Company and is a connected person of the Company under the Listing Rules. As such, the Acquisition also constitutes a connected transaction of 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.

Accordingly, the Acquisition and the Whitewash Waiver are subject to the approval by 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 Qingdao Hisense will abstain from voting for the approval of the Acquisition and the Whitewash Waiver at the EGM. An independent board committee has been formed to advise the Independent Shareholders on the Acquisition 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 and the Whitewash Waiver.

CONTINUING CONNECTED TRANSACTIONS

The Company is in the process of collecting information relating to transactions that could become continuing connected transactions as a result of the completion of the Acquisition. The Company will comply with the relevant requirements under the Listing Rules in respect of any connected transactions that would continue to take place as a result of and after the Acquisition as and when appropriate.

RESUMPTION OF TRADING

At the request of the Company, trading of H Shares on the Stock Exchange was suspended with effect from 9:30 a.m. on 29 June 2009 pending the release of this announcement. The Company has made an application to the Stock Exchange for the resumption of trading of H Shares on the Stock Exchange with effect from 9:30 a.m. on 17 July 2009.

INTRODUCTION

The Board announced that on 29 June 2009, the Company entered into the Acquisition Agreement with Qingdao Hisense in respect of the Acquisition.

THE ACQUISITION AGREEMENT

Parties

Purchaser: The Company

Vendor: Qingdao Hisense

Date: 29 June 2009

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;
(4) 78.7% of the equity interests in Hisense Mould;
(5) 49% of the equity interests in Hisense Hitachi; and
(6) Hisense Marketing Business.

Consideration

The consideration for the Acquisition is RMB1,238,204,800 (equivalent to approximately HK$1,404,672,543), which has been arrived at after arm’s length negotiations between the parties using the valuation of the Target Group derived based on the cost approach by the Asset Valuer as a major consideration, and with reference to various other factors including, but not limited to, the financial results, the business conditions and the prospects of the Target Group, the interests of the holders of A Shares and H Shares and other similar transactions in the market. When considering such factors, Qingdao Hisense and the Company have reviewed various data available to them, including the financial information disclosed in this announcement, industry information, market trading data of comparable listed companies and analysis provided by their respective advisers.

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 April 2009 (details of which have been disclosed in the section headed “Financial Information of the Target Group” in this announcement), Qingdao Hisense shall make up the difference in cash. 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 April 2009, the Company will not be required to pay such excess amount to Qingdao Hisense. The “audited pro forma net asset value” is the pro forma net asset value of the Target Group as at 30 April 2009 audited by BDO Guangdong Dahua Delu Certified Public Accountants.

The audit for the net asset value of the Target Group as at the Completion Date will be completed within 60 days after Completion. Although it takes time to perform the audit work 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.

Payment method

The consideration will be satisfied in full by the allotment and issue of not more than 362,048,187 Consideration Shares by the Company to Qingdao Hisense at the issue price of RMB3.42 (equivalent to approximately HK$3.88) per Consideration Share, being the average trading price of the A Shares for the 20 trading days immediately preceding the date of the announcement on resolutions passed at the 9[th] meeting of 2009 of the sixth Board.

The Consideration Shares shall be issued as fully paid and shall rank pari passu in all respects with the A Shares in issue. Upon occurrence of any “ex-right and ex-dividend” events, such as distribution of dividends, bonus issue and capitalization of the capital reserve fund, prior to the issue of the Consideration Shares, the issue price shall be

subject to the corresponding “ex-right and ex-dividend” adjustments and the number of shares to be issued shall be adjusted accordingly based on any adjustments of the issue price.

The number of Consideration Shares to be issued is subject to the final approval by the CSRC, but in any event shall not exceed 362,048,187 Shares.

The maximum number of the Consideration Shares to be issued represents approximately 36.50% of the Company’s existing issued share capital and approximately 26.74% of the Company’s issued share capital as enlarged by the issue of the Consideration Shares.

The Issue Price

The issue price of RMB3.42 (equivalent to approximately HK$3.88) per Consideration Share was determined after arm’s length negotiation between the Company and Qingdao Hisense with reference to the average trading 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 9 April 2009. It represents:

(a) a discount of approximately 8.56% over RMB3.74 (equivalent to approximately HK$4.24), the closing price of the A Shares on the Shenzhen Stock Exchange on 8 April 2009, being the last trading day immediately prior to the suspension of trading in the A Shares on 9 April 2009;
(b) a discount of approximately 3.66% over RMB3.55 (equivalent to approximately HK$4.03), 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 9 April 2009;
(c) a premium of approximately 5.23% over RMB3.25 (equivalent to approximately HK$3.69), 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 9 April 2009; and
(d) a premium of approximately 178.05% over HK$1.40 (equivalent to approximately RMB1.23), the closing price of the H Shares on the Stock Exchange on 26 June 2009, being the last trading day immediately prior to this announcement.

Corporate Structure before and after Completion

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

Structure of the Hisense Group and the Hisense Kelon Group

Immediately before Completion

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white goods business to be acquired
Qingdao SASAC
100%
Hisense Group Co.
(a PRC state owned company)
51.01%
Hisense Electronic
(a PRC company)
93.33% 100%
Hisense International
(a BVI company)
6.67%
Qingdao Hisense
(a PRC company)
100%
Hisense Marketing
(a PRC company)
49% 78.7% 100% 51% 55% 25.22%
Company
Hisense Hisense Hisense Marketing Hisense Shandong Hisense Zhejiang Hisense Beijing
Hitachi Mould Business (a PRC company)
(a PRC company) (a PRC company) (a PRC company)
(a PRC (a PRC
company) company) 60%
Hisense Nanjing
(a PRC company) Existing
business of the
Company
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Immediately after Completion

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

Qingdao SASAC
100%
Hisense Group Co.
(a PRC state owned company)
51.01%
Hisense Electronic
(a PRC company)
93.33% 100%
Hisense International
(a BVI company)
6.67%
Qingdao Hisense
(a PRC company)
45.21% 100%
Company Hisense Marketing
(a PRC company) (a PRC company)
49% 78.7% 100% 55%
51%
Hisense Hisense Hisense Shandong Hisense Zhejiang Hisense Beijing
Hitachi Mould (a PRC company) Existing business
Hisense (a PRC company) (a PRC company) of the Company
(a PRC (a PRC Marketing
company) company) Business
60%
Hisense Nanjing
(a PRC company)
----- End of picture text -----*

on the assumption that 362,048,187 Consideration Shares will be issued by the Company to Qingdao Hisense in respect of the Acquisition

Conditions to Completion

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

(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;
(d) the approval by the Independent Shareholders of A Shares eligible to attend and vote at the class meeting of the A Shareholders of the Acquisition by the Company;
(e) 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 from Qingdao SASAC for the Acquisition, and the completion of the filing of the valuation result of the Target Group with Qingdao SASAC;
(f) all relevant approvals from Hong Kong authorities in accordance with the law and regulations in Hong Kong, including, without limitation, the Executive granting to Qingdao Hisense and parties acting in concert with it the Whitewash Waiver;
(g) the granting of the following third party consents and agreement:
(i) the consent of the major creditors of Hisense Marketing in relation to the Hisense Marketing Business;
(ii) the waiver by the holders of pre-emptive rights in relation to the interests in the Target Group of their pre-emptive rights; and
(iii) permission and agreement by any other third party who has rights under the Acquisition; and
(h) 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 date of the approvals obtained at the EGM and the relevant class meetings 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. None of the Conditions (a) to (h) above may be waived by the Company or Qingdao Hisense.

Completion

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

Following the Completion, each of Hisense Beijing, Hisense Nanjing, Hisense Shandong, Hisense Zhejiang and Hisense Mould will become Subsidiaries of the Company and their financial results will be consolidated into the financial statements of the Hisense Kelon Group. Hisense Hitachi will become a jointly controlled entity of the Company and its financial position and results will be accounted for by the Company under the equity method of accounting.

Undertakings

Qingdao Hisense has undertaken that it will not transfer the Consideration Shares, as well as the Shares originally held by Qingdao Hisense, for a period of 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 under the name of Qingdao Hisense.

Qingdao Hisense has agreed that in compliance with relevant laws and regulations, 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 Hisense Kelon Group.

SHAREHOLDING STRUCTURE OF THE COMPANY BEFORE AND AFTER THE 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 that the maximum number of Consideration Shares will be issued by the Company to Qingdao Hisense and that save for the Consideration Shares, no further Shares will be issued by the Company after the date of this announcement until Completion:

Shareholders	As at the date of this announcement	As at the date of this announcement	As at the date of this announcement	Upon the issue of the maximum number of the Consideration Shares	Upon the issue of the maximum number of the Consideration Shares	Upon the issue of the maximum number of the Consideration Shares
	Type of Shares	Number of Shares	%	Type of Shares	Number of Shares	%
QingdaoHisense (and parties acting	AShares	250,173,722	25.22	AShares	612,221,909	45.21

Shareholders	As at the date of this announcement	As at the date of this announcement	As at the date of this announcement	Upon the issue of the maximum number of the Consideration Shares	Upon the issue of the maximum number of the Consideration Shares	Upon the issue of the maximum number of the Consideration Shares
	Type of Shares	Number of Shares	%	Type of Shares	Number of Shares	%
in concert with it)
Public A Shareholders	A Shares	282,243,033	28.45	A Shares	282,243,033	20.85
Public H Shareholders	H Shares	459,589,808	46.33	H Shares	459,589,808	33.94
Total		992,006,563	100.00		1,354,054,750	100.00

As described in the paragraph headed “Payment method” above, the Company has agreed to issue not more than 362,048,187 Consideration Shares to Qingdao Hisense to satisfy the consideration payable by the Company under the Acquisition Agreement. Assuming that the maximum number of Consideration Shares will be issued by the Company to Qingdao Hisense, Qingdao Hisense is expected to be directly or indirectly interested in approximately 45.21% in the share capital of the Company immediately after the Completion as enlarged by the issue of the Consideration Shares and Qingdao Hisense will become the controlling shareholder (as defined under the Listing Rules) of the Company.

Save as disclosed above, Qingdao Hisense 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 QINGDAO HISENSE

Qingdao Hisense is a limited liability company established on 17 November 1995 in the PRC. After Completion, Qingdao Hisense will mainly be a holding company with its shareholding in the Company as its major asset. Qingdao Hisense is currently owned as to 93.33% by Hisense Electronic and as to 6.67% by Hisense International.

Hisense Electronic is a limited liability company established on 1 May 2001 in the PRC. It is a holding company. Hisense Electronic is currently owned as to 51.01% by Hisense Group Co. and 48.99% by the management group and key employees of Hisense Group Co.

Hisense International is a limited liability company established on 9 March 2005 in the BVI. It is a holding company and is a wholly-owned subsidiary of Hisense Electronic.

Hisense Group Co. is a limited liability company established on 2 August 1979 in the PRC and is under the auspices of the Qingdao SASAC. It is a holding company.

It is the intention of Qingdao Hisense to continue to carry on the business of the Company and not to introduce any material change on the continuance of the

employment of the employees of the Hisense Kelon Group. Qingdao Hisense does not intend to introduce any material change to the existing businesses, operations or assets of the Hisense Kelon Group (including any deployment of the fixed assets of the Hisense Kelon Group).

INFORMATION OF THE TARGET GROUP

The Target Group is principally engaged in manufacture and sales of White Goods including air-conditioners, refrigerators and washing machines as well as moulds in the PRC.

Air-conditioner manufacturing

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

(1) Hisense Shandong

1.1 Background

Name: Hisense Shandong Address: 1 Hisense Road, Nancun Town, Pingdu, Qingdao Legal representative: Wang Shi Lei Registered capital: RMB500,000,000 Corporate nature: Single person company with limited liability Scope of business: Research and development, manufacture and sale of air-conditioning products and injection moulds and provision of after-sale services for products (The relevant permits for operation will be required if any of the business activities mentioned above is subject to approvals and permits) Term of operation: 8 November 2007 to 7 November 2017

1.2 History

On 8 November 2007, Qingdao Hisense established Hisense Shandong by way of investment of cash of RMB150,000,000. On 27 November 2007, Qingdao Hisense increased the registered capital of Hisense Shandong to RMB500,000,000 through the injection of all of the operating assets of Pingdu Plant, including all land, plants and machinery and equipment.

Upon completion of the capital increase, Qingdao Hisense and Hisense Shandong entered into a creditor’s right and debt transfer agreement, pursuant to which Qingdao Hisense transferred its operating assets (including liabilities) in relation to the manufacture and sale of airconditioners to Hisense Shandong. Both parties also entered into a creditor’s right and debt transfer agreement with certain third parties. As a result, Hisense Shandong has taken over all of the businesses of manufacture and sale of air-conditioners of Qingdao Hisense.

1.3 Operating status

Hisense Shandong is principally engaged in the manufacture and sale of household air-conditioners, and the provision of relevant technical services and training. It strives to become a specialized manufacturer and service provider in household air-conditioners with advanced technology and leading production capacity. Hisense Shandong has the biggest and the most advanced production base of inverter air-conditioners in the PRC at present, with an annual production capacity of over 2,000,000 sets. Hisense Shandong produced 750,000 sets of air-conditioners in 2008.

(2) Hisense Zhejiang

2.1 Background

Name: Hisense Zhejiang Address: North of Central Avenue, Changxing County Economic and Technological Development Zone Legal representative: Liu Wen Zhong Registered capital: RMB110,000,000 Corporate nature: Company with limited liability (invested by foreign invested enterprise)

Scope of business: Production of air-conditioners and manufacture and sale of other household appliances, provision of related technical services, and import and export of goods and technologies (excluding the businesses prohibited by the laws and administrative regulations; and in case of the restricted businesses under the laws and administrative regulations, the relevant approval(s) or licence(s) of operation shall be obtained)

22 April 2005 to 21 April 2020

Term of operation:

2.2 History

On 22 April 2005, Qingdao Hisense and Zhejiang Xianke jointly established Hisense Zhejiang as a joint venture company with a registered capital of RMB110,000,000. Qingdao Hisense contributed a total of RMB56,100,000, of which RMB34,100,000 was in cash and RMB22,000,000 was by injection of intangible assets (representing 51% of the registered capital of Hisense Zhejiang); and Zhejiang Xianke made its contribution of RMB53,900,000 in specie, including land, plants and equipment and machinery (representing 49% of the registered capital of Hisense Zhejiang).

On 25 March 2009, Zhejiang Xianke entered into an equity transfer agreement with Changxing Jingwei, pursuant to which it was agreed that 49% equity interests in Hisense Zhejiang shall be transferred to Changxing Jingwei at a price of RMB148,000,000. The relevant procedures for the registration of the change in shareholders at the administration for industry and commerce department to effect the above transfer of equity interests have been completed.

2.3 Operating status

Hisense Zhejiang is principally engaged in the manufacture of household air-conditioners and the related products. It has equipment such as advanced automatic helium leakage detectors, and is well-equipped with an advanced integrated production and inspection line, a quality assurance system established according to the international quality assurance standards and a sound management system. It is the second largest inverter air-conditioner production base equipped with advanced technology next to Hisense Shandong in the PRC. Through continuous expansion, the production capacity of Hisense Zhejiang will increase to 1,500,000 sets of inverter air-conditioners. Hisense Zhejiang produced 475,600 sets of airconditioners in 2008.

(3) Hisense Hitachi

3.1 Background

Name: Hisense Hitachi Address: 218 Qian Wan Gang Road, Qingdao Economic and Technological Development Zone Legal representative: 西耕一 (Nishi Koichi)

Registered capital: US$12,100,000 Corporate nature: Sino-foreign equity joint venture enterprise Scope of business: Research and development and manufacture of commercial air-conditioning systems, sale of self-produced products and provision of after-sale services (The relevant permits for operation will be required if any of the business activities mentioned above is subject to approvals and permits) Term of operation: 8 January 2003 to 8 January 2053

3.2 History

In January 2003, Hisense Hitachi was established as a sino-foreign equity joint venture enterprise by a co-investment of Hisense Group Co., Hitachi Air Conditioning, Taiwan Hitachi and Union Trading with a registered capital of US$12,100,000. Hisense Group Co. contributed US$5,929,000 (accounting for 49% of the registered capital); Hitachi Air Conditioning contributed US$3,509,000 (accounting for 29% of the registered capital); Taiwan Hitachi contributed US$2,420,000 (accounting for 20% of the registered capital); and Union Trading contributed US$242,000 (accounting for 2% of the registered capital). Hisense Group Co. and Hitachi Air Conditioning have joint control over Hisense Hitachi.

By an agreement dated 8 May 2009, Hisense Group Co. transferred 49% of the equity interest in Hisense Hitachi to Qingdao Hisense. It was agreed that the consideration for such transfer would be determined based on the valuation result which has been filed with the relevant authorities of state-owned assets supervision and administration.

3.3 Operating status

Hisense Hitachi is principally engaged in the research and development, manufacture and sale of household and commercial-use central airconditioning system units. Its household and commercial-use airconditioning unit products are equipped with state of the art technologies for inverter VRF air-conditioning systems, and situate in a leading position among the industry in terms of outstanding performance and high quality. Hisense Hitachi is the largest production base for inverter VRF air-conditioners of Hitachi Air Conditioning outside Japan. It also represents the application of the latest results of the research and development of Hitachi Air Conditioning in the PRC.

The production base of Hisense Hitachi located at Hisense Information Technology Park has a site area of 100,000 square metres, and is equipped

with internationally-advanced manufacturing facilities and well-equipped laboratories. Hisense Hitachi has built a product system based mainly on inverter VRF air-conditioning systems to satisfy the needs of both commercial and household users. Its products are widely used in different settings, such as offices, guest houses, apartments, villas, shops and restaurants. Since the commencement of production, Hisense Hitachi has recorded stable growth in its business.

Refrigerator Manufacturing

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

(1) Hisense Beijing

1.1 Background

Name: Hisense Beijing Address: 36 Qingyuan Road, Daxing District, Beijing Legal representative: Zhou Xiao Tian Registered capital: RMB85,710,000 Corporate nature: Company with limited liability (invested by foreign invested enterprise) Scope of business: Manufacture of refrigerator products and other household electrical appliances; sale of self-produced products; import and export of goods and technologies and provision of import and export agency services Term of operation: 13 June 2002 to 12 June 2012

1.2 History

On 13 June 2002, Hisense Group Co. and Xuehua Group jointly established Hisense Beijing as a joint venture company with a registered capital of RMB85,710,000. Hisense Group Co. contributed a total of RMB47,140,500, including intangible assets amounting to RMB17,140,500 and cash (representing 55% of the registered capital of Hisense Beijing) and Xuehua Group made its contribution of RMB38,569,500 in specie, including land and equipment (representing 45% of the registered capital of Hisense Beijing).

On 12 September 2002, Hisense Group Co. transferred its 55% equity interests in Hisense Beijing to Hisense Electric at a consideration of RMB47,140,500.

On 25 September 2007, Qingdao Hisense and Hisense Electric entered into an agreement which was approved at the general meeting of Hisense Electric, pursuant to which Hisense Electric transferred its 55% equity interests in Hisense Beijing to Qingdao Hisense at a consideration of RMB133,046,800. The Company would like to clarify that the information relating to the aforementioned transaction as set out in the Company’s announcement dated 8 May 2009 was not accurate and should not be relied on.

1.3 Operating status

Hisense Beijing is principally engaged in the research and development, manufacture and sale of refrigerators. With its internationally leading patented technologies in vector inverter, digital preservation and optimized control in multi-cycle refrigeration system for refrigerators, Hisense Beijing has launched over 100 product models in 7 major series, mainly including vector refrigerators and super energy-saving refrigerators. Its products are exported to the regions such as Europe, America, South Africa and Southeast Asia. In 2008, Hisense Beijing produced 647,000 units of refrigerators.

(2) Hisense Nanjing

2.1 Background

Name: Hisense Nanjing Address: 19 Heng Fei Road, Nanjing Economic and Technological Development Zone Legal representative: Zhou Xiao Tian Registered capital: RMB128,691,500 Corporate nature: Company with limited liability Scope of business: Research and development, manufacture and sale of fluorine-free refrigeration products and other home electrical appliances. Import and export of various goods and technologies self-manufactured and distributed (except goods and technologies under operation restriction or prohibited for import and export by the State)

12 January 2005 to 10 January 2020

Term of operation:

2.2 History

Hisense Nanjing was jointly established by Hisense Beijing and Nanjing Yilaite on 12 January 2005 as a joint venture company with a registered capital of RMB80,580,000. Hisense Beijing made a contribution in cash of RMB36,260,000 and by way of non-patent technologies of RMB12,090,000 (representing 60% of the registered capital of Hisense Nanjing); and Nanjing Yilaite made a contribution of RMB32,230,000 by land use rights (representing 40% of the registered capital of Hisense Nanjing).

On 20 October 2005, Nanjing Yilaite entered into an equity transfer agreement with Nanjing Aipulaisi, pursuant to which Nanjing Yilaite transferred its 40% equity interests in Hisense Nanjing to Nanjing Aipulaisi at a consideration of RMB9,500,000. Nanjing Yilaite completed the procedure for the change of the industrial and commercial registration for this equity transfer on 9 November 2005.

On 20 August 2006, Hisense Beijing and Nanjing Aipulaisi entered into the “Hisense (Nanjing) Electric Company Limited Capital Increase Phase 2 Agreement”, pursuant to which Hisense Beijing made an additional capital contribution to Hisense Nanjing in cash of RMB21,650,200 and in intangible assets of RMB7,216,700; and Nanjing Aipulaisi made a contribution of RMB19,244,600 in machinery and equipment. Upon completion of this capital increase, the registered capital of Hisense Nanjing increased to RMB128,691,500 and the proportion of shareholdings of both shareholders remained unchanged.

2.3 Operating status

Hisense Nanjing is principally engaged in the manufacture, operation and sale of refrigerators. Hisense Nanjing currently has two production lines of refrigerators with an annual production capacity of 1,000,000 units. In 2008, Hisense Nanjing produced 665,800 units of refrigerators.

Mould Manufacturing

The Target Group’s mould manufacturing operation is primarily conducted through Hisense Mould.

(1) Hisense Mould

1.1 Background

Name:

Hisense Mould

Address: North New Industry Zone, Qingdao Economic and Technological Development Zone (Shang'ma Town, Chengyang District)

Legal representative: Ma Ming Tai Registered capital: RMB27,642,000 Corporate nature: Company with limited liability Scope of business: General operations: design and manufacture of moulds; machine processing; design and manufacture of jigs; wholesaling, retailing and “four-agency” business; mould materials, standard components, parts, jigs and measuring tools, CAD/CAM system products, automatic office system and related consumables; plastic injection, painting/brushing and processing; development, design, sale and system integration of intelligent instruments and meters and opto-mechatronic equipments; import and export of self-manufactured goods and technologies

Date of incorporation: 28 September 1996

1.2 History

On 28 September 1996, Qingdao Hisense Electric Company and Hisense Optical jointly invested in the establishment of Hisense Mould. Qingdao Hisense Electric Company made a contribution of RMB21,472,562 in specie, including buildings, structures and machinery and equipment (representing 98.7% of the registered capital); Hisense Optical made a contribution of RMB282,000 in specie, including machinery and equipment (representing 1.3% of the registered capital).

In December 1996, Qingdao Hisense Electric Company was renamed Qingdao Hisense Group Company, and was again renamed Hisense Group Company in April 1998. On 28 December 2000, Hisense Group Company was restructured to become Hisense Group Co., and still held 98.7% equity interests in Hisense Mould at that time.

On 5 September 2005, Hisense Mould convened a general meeting for consideration of capital increase. Pursuant to the “Approval in relation to the Increase in Registered Capital of Qingdao Hisense Mould Company Limited” (Qing Guo Zi Chan Quan [2005] No. 85) of Qingdao SASAC, it was unanimously approved that 47 persons (including Wang Pei Song, an

individual shareholder) should make contribution of RMB7,470,000 to be converted into a share capital of RMB5,887,453 at a premium ratio of 1:1.2688. They held an aggregate of 21.3% equity interests in Hisense Mould after the capital increase.

After the above capital increase, the shareholders and shareholding structure of Hisense Mould were as follows:

Name of Shareholder	Contribution Amount (RMB)	Shareholding Percentage	Form of Contribution
Hisense Group Co.	21,472,562	77.68%	Contribution in specie
Hisense Optical	282,000	1.02%	Contribution in specie
47 natural person shareholders including Liu Dian Wei	5,887,453	21.30%	Contribution in cash
Total	27,642,015	100%	-

On 29 July 2006, natural person shareholders Fang Xian Long and Dai Hui Zhong entered into an equity transfer agreement, pursuant to which it was agreed that Fang Xian Long shall transfer the capital contribution in an amount of RMB157,629 in Hisense Mould (accounting for 0.57% of the registered capital of Hisense Mould) to Dai Hui Zhong at a price of RMB200,000. On the same day, natural person shareholders Xie Feng and Zhao Bing Bing entered into an equity transfer agreement, pursuant to which it was agreed that Xie Feng shall transfer the capital contribution in an amount of RMB39,407 in Hisense Mould (accounting for 0.14% of the registered capital of Hisense Mould) to Zhao Bing Bing at a price of RMB50,000.

On 16 April 2009, natural person shareholders Dong Zhuang Zhi and Yao Shu Lin entered into an equity transfer agreement, pursuant to which it was agreed that Dong Zhuang Zhi shall transfer the capital contribution in an amount of RMB39,407 in Hisense Mould (accounting for 0.14% of the registered capital of Hisense Mould) to Yao Shu Lin at a price of RMB50,000.

On 16 April 2009, natural person shareholders Ma Feng and Ji Jian entered into an equity transfer agreement, pursuant to which it was agreed that Ma Feng shall transfer the capital contribution in an amount of RMB118,222 in Hisense Mould (accounting for 0.43% of the registered capital of Hisense Mould) to Ji Jian at a price of RMB150,000.

By an agreement dated 31 March 2009, Hisense Mould transferred 95% of the equity interest in 青島海信塑料製品有限公司 (Qingdao Hisense

Plastic Products Limited), including 100% of the equity interest in 青島海平電器配件有限公司 (Qingdao Haiping Electric Parts Limited), to Hisense Optical at a consideration of RMB1,879,456.53. The relevant registration procedures at the relevant PRC authorities have been completed.

By an agreement dated 8 May 2009, Hisense Group Co. transferred 77.68% of the equity interest in Hisense Mould to Qingdao Hisense. By another agreement of the same date, Hisense Optical transferred 1.02% of the equity interest in Hisense Mould to Qingdao Hisense. It was agreed in both of the above agreements that the consideration for the respective transfers would be determined based on the valuation result which has been filed with the relevant authorities of state-owned assets supervision and administration.

1.3 Operating status

Hisense Mould was established in 1996. After more than 10 years of development, Hisense Mould has become one of the most specialized large-scale suppliers of plastic injection moulds for household appliances in the PRC. Hisense Mould carries out its businesses in the industry of mould and injection, moulding, painting/brushing and processing and the related services. Hisense Mould utilizes CAD/CAM/CAE technologies to proactively promote the research and development and manufacture of plastic injection and painting/brushing mould products with moulding machines of high-precision, high-quality and high-efficiency. The principal businesses of Hisense Mould include design of industrial products, as well as the design, processing, manufacture and plastic injection of moulds. It possesses an annual processing and production capacity of approximately 500 sets of large plastic injection moulds up to 60 tones, and approximately 200 sets of precision moulds. In 2007, Hisense Mould was chosen by China Die & Mould Industry Association as one of the Top 50 Enterprises in China’s Die & Mould Industry.

White Goods Sales and Marketing

Hisense Marketing Business

Hisense Marketing Business comprises the assets and liabilities of Hisense Marketing in relation to the sales and marketing operations of the White Goods products produced by Hisense Shandong, Hisense Zhejiang, Hisense Beijing and its subsidiary, Hisense Nanjing. The relevant assets mainly include fixed assets, comprising equipment (electronic or otherwise), cars and machineries as well as inventories of raw materials and finished products of refrigerators and air-conditioners. The relevant liabilities mainly include trade payables and customers’ prepayments.

FINANCIAL INFORMATION OF THE TARGET GROUP

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 2008 and the four months ended 30 April 2009. The 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 2006, 2007, 2008 and 30 April 2009 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 airconditioning business of Qingdao Hisense gradually from 8 November 2007, the combined financial information of the Target Group includes the track record of the airconditioning business of Qingdao Hisense.

By an agreement dated 31 March 2009, Hisense Mould transferred 95% of the equity interest in 青島海信塑料製品有限公司 (Qingdao Hisense Plastic Products Limited), including 100% of the equity interest in 青島海平電器配件有限公司 (Qingdao Haiping Electric Parts Limited), to Hisense Optical at a consideration of RMB1,879,456.53. The relevant registration procedures at the relevant PRC authorities have not yet been completed as at 30 April 2009. As such, the combined financial information of the Target Group for the three years ended 31 December 2008 and the four months ended 30 April 2009 includes the financial positions and results of 青島海信塑料製品有限公司 (Qingdao Hisense Plastic Products Limited) and 青島海平電器配件有限公司 (Qingdao Haiping Electric Parts Limited) throughout the period.

The financial position and results of Hisense Hitachi have been accounted for in the combined financial information of the Target Group under the equity method of accounting throughout the period.

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 Hisense Kelon Group through Qingdao Hisense, the largest shareholder of the Company who currently holds approximately 25.22% equity interest in the Company, and upon completion of the Acquisition will hold approximately 45.21% in the share capital of the Company as enlarged by the issue of the Consideration Shares and assuming that the maximum number of Consideration Shares will be issued by the Company to Qingdao Hisense, and is therefore considered as the ultimate holding company of the Hisense Kelon Group. Hisense Group Co. has control over the Hisense Kelon Group by virtue of Qingdao Hisense’s power to govern the financial and operating policies of the Hisense Kelon Group so as to obtain benefits from the activities of the Hisense 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.

The summary financial information of the Target Group for the three years ended 31 December 2006, 2007 and 2008 and the four months ended 30 April 2009, respectively as extracted from the audited combined financial statements of the Target Group prepared in accordance with all applicable PRC GAAP are set out as follows:

	As at 31 December 2006	As at 31 December 2007	As at 31 December 2008	As at 30 April 2009
	(RMB’000)	(RMB’000)	(RMB’000)	(RMB’000)
Total assets	2,498,814	2,629,277	2,261,836	2,880,929
Total liabilities	1,791,167	1,779,710	1,374,306	1,932,967
Net assets	707,647	849,567	887,530	947,962

	For the year ended 31 December 2006	For the year ended 31 December 2007	For the year ended 31 December 2008	For the four months ended 30 April 2009
	(RMB’000)	(RMB’000)	(RMB’000)	(RMB’000)
Revenue~~(Note 1)~~	5,587,973	6,124,952	5,488,141	1,703,770
Profit before income tax (expense)/ credit	159,279	216,511	44,400	84,800
Net profit attributable to owners of the Target Group	100,806	123,676	38,092	59,763

Note 1: Revenue includes turnover and other income

The audited combined financial statements of the Target Group for the three years ended 31 December 2006, 2007 and 2008 and the four months ended 30 April 2009 prepared in accordance with all applicable PRC GAAP have been published by the Company in Chinese as an overseas regulatory announcement pursuant to Rule 13.09(2) of the Listing Rules on the same day when the Company publishes this announcement.

The audited financial information of the Target Group for the three years ended 31 December 2006, 2007 and 2008 and the four months ended 30 April 2009 prepared in accordance with IFRS will be included in the Circular.

ASSET VALUATION OF THE TARGET GROUP

In accordance with the relevant PRC regulatory requirements including “上市公司重大資產重組管理辦法” (“Administrative Measures for Major Asset Restructuring of Listed Companies”), the Company has appointed an independent firm of qualified PRC valuers to conduct a valuation of the Target Group.

In accordance with clause 18 of the Administrative Measures for Major Asset Restructuring of Listed Companies, the Asset Valuer is required to use two or more approaches in conducting the valuation of the Target Group. Therefore, the Asset Valuer has used both the cost approach and income approach in its valuation of Hisense Shandong, Hisense Zhejiang, Hisense Beijing (including Hisense Nanjing), Hisense Hitachi, Hisense Mould and Hisense Marketing Business. As advised by the Asset Valuer, although there is no specification in the relevant PRC regulatory requirement on the valuation approaches to be used, the two approaches used by the Asset Valuer (i.e. the cost approach and the income approach) are the most commonly used approaches for transactions similar in nature to the Acquisition. The Asset Valuer has adopted the value derived from the cost approach as the final valuation result for each of the entities concerned.

By using the cost approach, the Asset Valuer has derived the equity values of Hisense Shandong, Hisense Zhejiang, Hisense Beijing (including Hisense Nanjing), Hisense Hitachi, Hisense Mould and Hisense Marketing Business by estimating the market value of assets, netting with the liabilities verified, of each of Hisense Shandong, Hisense Zhejiang, Hisense Beijing (including Hisense Nanjing), Hisense Hitachi, Hisense Mould and Hisense Marketing Business as at 30 April 2009. The Asset Valuer estimated the market value of each of the above assets mainly by reference to the actual condition of the assets, the relevant information of open market transactions and the prevailing open market prices of the assets, assuming the continual use of the assets. The amounts of liabilities were estimated by verifying against the relevant book value amounts. The valuations derived by the Asset Valuer using the cost approach for 100% of Hisense Shandong, 51% of Hisense Zhejiang, 55% of Hisense Beijing (including the respective interests in Hisense Nanjing), 78.7% of Hisense Mould, 49% of Hisense Hitachi and 100% of Hisense Marketing Business as of 30 April 2009 were approximately RMB727.46 million, approximately RMB92.14 million, approximately RMB157.87 million, approximately RMB138.96 million, approximately RMB180.73 million and approximately RMB-58.95 million, respectively.

By using the income approach, the Asset Valuer has derived equity values of each of Hisense Shandong, Hisense Zhejiang, Hisense Beijing (including Hisense Nanjing), Hisense Hitachi, Hisense Mould and Hisense Marketing Business mainly by estimating

the aggregate net present value of (i) a stream of four years and eight months projected net cashflow commencing from 1 May 2009 and (ii) the terminal value of such businesses. The valuations derived by the Asset Valuer using the income approach for 100% of Hisense Shandong, 51% of Hisense Zhejiang, 55% of Hisense Beijing (including the respective interests in Hisense Nanjing), 78.7% of Hisense Mould, 49% of Hisense Hitachi and 100% of Hisense Marketing Business as of 30 April 2009 were approximately RMB729.02 million, approximately RMB92.12 million, approximately RMB161.84 million, approximately RMB142.78 million, approximately RMB188.01 million and approximately RMB-57.77 million, respectively.

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

There is no material change in the PRC macro-economic policies and policies which govern the industry that the relevant entity is engaged;
There is no material change in the socio-economic environment of the relevant entities, tax policies and tax rates;
Management of the relevant entities will continue to act with due care and the ways of operation and modes of management of the relevant entities will be same as the valuation date;
There is no material change in the assets size, structure, principal business, product portfolio, revenue and cost structure, sales policies and cost control policies, etc;
There is no material change in cost composition, which will instead maintain the trend in the recent years and adjust in accordance with the change in operation size. Finance cost represents the costs incurred on funds raised for operation or capital purposes. Short term loans are regarded as recurring financing needs under normal operation and will be repaid by new borrowings. No interest income from bank deposit and other income/loss (except loan interest expenses) have been taken into account for the valuation; and
Effect of inflation has not been taken into account. Pricing standard and pricing mechanism as at the valuation date have been used for the valuation.

Valuation derived from income approach is often affected by the accuracy of forecasts on the future business development and profit of a company. In light of the recent volatile economic environment and the uncertainties associated with the forecasts, valuation using cost approach shall reflect the equity value of the subject more objectively. Therefore, the Asset Valuer has adopted the value derived from the cost approach as the valuation result for each of Hisense Shandong, Hisense Zhejiang, Hisense Beijing (including Hisense Nanjing), Hisense Hitachi, Hisense Mould and Hisense Marketing Business. Although the Asset Valuer has not adopted the value

derived from the income approach as the final valuation result for the Target Group, the relevant valuation figures have been disclosed in this announcement for the information of the Shareholders.

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.

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 Hisense Shandong, Hisense Zhejiang, Hisense Beijing (including Hisense Nanjing), Hisense Hitachi, Hisense Mould and Hisense Marketing Business will be regarded as profit forecasts, and therefore, the Company is required to comply with Rules 14.62 and 14A.56(8) of the Listing Rules and Rule 10 of the Takeovers Code.

Pursuant to Rules 14.62 and 14A.56(8) of the Listing Rules and Rule 10 of the Takeovers Code, financial advisers must satisfy themselves that the forecast has been prepared by the directors with due care and consideration and, auditors or reporting accountants must satisfy themselves that the forecast, so far as the accounting policies and calculations are concerned, has been properly compiled on the basis of the assumptions made.

However, the Company has not complied with Rules 14.62 and 14A.56(8) of the Listing Rules and Rule 10 of the Takeovers Code due to the following reasons:

(1) The Independent Financial Adviser indicated that it could not report on the valuation prepared using income approach in view of the high uncertainty involved in cash flow projections for such a long period.
(2) In reviewing the accounting policies and calculations for profit forecasts, auditors or reporting accountants are required to observe Auditing Guideline 3.341 “Accountants’ Report On Profit Forecasts” ("AG 3.341") issued by the Hong Kong Institute of Certified Public Accountants. As stated in AG 3.341, it is exceptional to issue report on profit forecast for a future accounting period, and if required, should in any case be limited to the immediate succeeding period and only if a significant part of the current period has already elapsed. It is further stated in AG 3.341 that “ in practice, it is unusual to issue report on a forecast for a succeeding period unless: (a) at least 10 months of the current period has elapsed; and (b) the company's operations lend themselves to reasonably accurate forecasting such as in the case of a property investment company. ”. Given that the Asset Valuer has derived equity values of each of the entities within the Target Group mainly

by estimating the aggregate net present value of (i) a stream of projected net cash flow for a period of four years and eight months commencing from 1 May 2009 and (ii) the terminal value of such businesses, it is impracticable for auditors or reporting accountants to report on the valuation prepared by the Asset Valuer using the income approach.

In any event, the valuations of Hisense Shandong, Hisense Zhejiang, Hisense Beijing (including Hisense Nanjing), Hisense Hitachi, Hisense Mould and Hisense Marketing Business conducted by the Asset Valuer using the income approach do not comply with the standards required by Rules 14.62 and 14A.56(8) of the Listing Rules or Rule 10 of the Takeovers Code because of the following reasons:

(1) Six individual valuations have been prepared for each of Hisense Shandong, Hisense Zhejiang, Hisense Beijing (including Hisense Nanjing), Hisense Hitachi, Hisense Mould and Hisense Marketing Business. The valuation of the Target Group is the arithmetic sum of the six individual valuations. However, a combined valuation has not been made up for the Target Group as a whole. Such approach has not taken into account the synergy for entities bundled together. For example, stronger bargaining power due to economies of scale arisen from combining different entities into the Target Group as a whole, have not been taken into account. On the other hand, elimination of related party transactions among the entities on a combined basis, have not been taken into account;
(2) By using the income approach, the Asset Valuer has derived equity values of each of Hisense Shandong, Hisense Zhejiang, Hisense Beijing (including Hisense Nanjing), Hisense Hitachi, Hisense Mould and Hisense Marketing Business mainly by estimating the aggregate net present value of (i) a stream of projected net cash flow for a period of four years and eight months commencing from 1 May 2009 and (ii) the terminal value of such businesses. However, the income projections for each of the entities in the Target Group are based on accounts of the relevant entities, 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 accounts and projections are prepared in accordance with IFRS; and
(3) The cash flow projections are based on the management accounts of each of Hisense Shandong, Hisense Zhejiang, Hisense Beijing (including Hisense Nanjing), Hisense Hitachi, Hisense Mould and Hisense Marketing Business, 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. Further, in deriving an intrinsic discounted value, the projections of net profits have been prepared on the assumption that each of Hisense Shandong, Hisense Zhejiang, Hisense Beijing (including Hisense Nanjing), Hisense Hitachi, Hisense Mould and Hisense Marketing Business will operate on a normalised basis. In other words, events which do not arise out of the ordinary course of the existing business of each of Hisense Shandong, Hisense Zhejiang, Hisense Beijing (including Hisense Nanjing), Hisense Hitachi, Hisense

Mould and Hisense Marketing Business 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, Hisense Beijing (including Hisense Nanjing), Hisense Hitachi, Hisense Mould and Hisense Marketing Business 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 Rules 14.62 and 14A.56(8) of the Listing Rules or Rule 10 of the Takeovers Code. Nevertheless, having considered the information provided in relation to the asset valuation of the Target Group conducted by the Asset Valuer in accordance with PRC regulatory requirements as described above (the “PRC Valuation”) and on the basis that this announcement and the Circular contain the profit forecast of the Target Group for the year ending 31 December 2009 that is already subject to Rules 14.62 and 14A.56(8) of the Listing Rules, the Stock Exchange is prepared to permit the publication of the result of the PRC Valuation (i.e. the results of the valuation derived by adopting the cost and income approaches) in this announcement and the Circular with additional information explaining why the valuation derived by the Asset Valuer using the income approach does not meet the standards required by Rules 14.62 and 14A.56(8) of the Listing Rules.

In view of the PRC regulatory requirements and having considered the information provided in relation to the PRC Valuation, the Executive is prepared to permit the publication of the results of the valuation derived by adopting the income approach in this announcement and the Circular, with additional information explaining why the valuation derived by the Asset Valuer using the income approach does not meet the standards required by Rule 10 of the Takeovers Code.

In addition, disclosure of results of the PRC Valuation in this announcement is not strictly in compliance with the disclosure requirements of Rule 11.1 of the Takeovers Code. Shareholders should note that the PRC Valuation has been disclosed in this announcement without the Company having complied in full with Rule 11.1 of the Takeovers Code. As additional time is required by the Company to comply with Rule 11.1 of the Takeovers Code, the Executive is prepared to permit the publications of the results of the valuation of the Target

Group in this announcement on the basis that the Company has undertaken to procure disclosure of summary of the PRC Valuation Reports (in English and Chinese) prepared in accordance with Rule 11 of the Takeovers Code (except for the valuation derived by using income approach which does not meet the standards required by Rules 10 and 11.1(a) of the Takeovers Code; and Rule 11.1(b) of the Takeovers Code) will be published on the website of the Stock Exchange within 5 business days from the date of this announcement and in the Circular. A valuation report on the relevant property interests to be prepared by an international valuer in accordance with Rule 11 of the Takeovers Code, Rule 5.05 and practice note 16 of the Listing Rules will be included in the Circular. As to the relevant property interests, their asset values set out in the PRC Valuation Reports may be different from those that may be expressed in the valuation report to be prepared by the international valuer and to be included in the Circular.

Shareholders and potential investors should, therefore, exercise caution in placing reliance on the results of the PRC Valuation in assessing the merits and demerits of the Acquisition and the Whitewash Waiver.

The full version of the valuation reports for each of Hisense Shandong, Hisense Zhejiang, Hisense Beijing (including Hisense Nanjing), Hisense Hitachi, Hisense Mould and Hisense Marketing Business prepared by the Asset Valuer, each of which contains the respective valuation for each of Hisense Shandong, Hisense Zhejiang, Hisense Beijing (including Hisense Nanjing), Hisense Hitachi, Hisense Mould and Hisense Marketing Business derived by the Asset Valuer using both the cost and income approaches, have been published by the Company in Chinese only as overseas regulatory announcements pursuant to Rule 13.09(2) of the Listing Rules on the same day when the Company publishes this announcement and will also be included in the documents to be on display under Note 1(f) to Rule 8 of the Takeovers Code. Summary of the PRC Valuation Reports (in English and Chinese) prepared in accordance with Rule 11 of the Takeovers Code (except for the valuation derived by using income approach which does not meet the standards required by Rules 10 and 11.1(a) of the Takeovers Code; and Rule 11.1(b) of the Takeovers Code) will be published on the website of the Stock Exchange within 5 business days from the date of this announcement and in the Circular. The Company will also comply with Rule 11.1(b) of the Takeovers Code in the Circular.

Prospective financial information of the Target Group and the Enlarged Group

PRC Target Group Profit Forecast and PRC Enlarged Group Profit Forecast

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 Forecast and the PRC Enlarged Group Profit Forecast prepared on the following assumptions:

(1) the restructuring of the Target Group has been completed on 1 January 2009 and in the absence of unforeseen circumstances; the pro forma forecast net profit attributable to equity holders of the Target Group for the year ending 31 December 2009 is approximately RMB63.81 million (equivalent to approximately HK$72.38 million); and
(2) the Company acquires the interest of the Target Group and the acquisition having been completed on 1 January 2009 and in the absence of unforeseen circumstances; the pro forma forecast net profit attributable to equity holders of the Enlarged Group for the year ending 31 December 2009 is approximately RMB112.78 million (equivalent to approximately HK$127.94 million).

The PRC Target Group Profit Forecast and the PRC Enlarged Group Profit Forecast 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 Forecast and the PRC Enlarged Group Profit Forecast do not meet the standards required by Rule 10 of the Takeovers Code, and the Independent Financial Adviser has not reported on whether the PRC Target Group Profit Forecast and the PRC Enlarged Group Profit Forecast have been prepared by the Directors after careful enquiry, due care and consideration and neither have the auditors of the Company reported on whether the PRC Target Group Profit Forecast and the PRC Enlarged Group Profit Forecast, 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 Forecast and the PRC Enlarged Group Profit Forecast in this announcement and the Circular.

Shareholders and potential investors should, therefore, exercise caution in placing reliance on the PRC Target Group Profit Forecast and the PRC Enlarged Group Profit Forecast in assessing the merits and demerits of the Acquisition and the Whitewash Waiver.

IFRS 2009 Profit Forecasts

Forecast figures

As required under the Listing Rules, the Directors have prepared, among others, the IFRS 2009 Profit Forecasts in accordance with IFRS and in compliance with Rules 4.29, 14.62 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 Company and the Target Group for the year ending 31 December 2009 will be not less than RMB37.88 million (equivalent to approximately HK$42.98 million) and RMB63.81 million (equivalent to approximately HK$72.38 million) respectively.

The IFRS 2009 Profit Forecasts include the profit forecasts of the Hisense Kelon Group and the Target Group as well as the pro forma profit forecast of the Enlarged Group for the year ending 31 December 2009, prepared in accordance with IFRS.

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

Bases and assumptions

Profit forecast of the Hisense Kelon Group and the Target Group for the year ending 31 December 2009 has been prepared by the Directors based on the results shown in the unaudited management accounts of the Hisense Kelon Group and the Target Group for the four months ended 30 April 2009 and a forecast of the results for the remaining eight months ending 31 December 2009.

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 2009 to 31 December 2009. The IFRS 2009 Profit Forecasts have been prepared on a basis consistent in all material respects with the accounting policies currently adopted by the Hisense Kelon Group and on the following principal assumptions:

(1) the Acquisition had been completed on 1 January 2009;
(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) although the impact resulting from financial turmoil and economic slowdown still exists, the growth potential for the PRC consumer market remains strong. In addition, the PRC Government continues to implement macro-economic policies and also increases its support to the household electrical appliance industry;
(4) 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;
(5) 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 this announcement;
(6) there will be no material changes in inflation rates, interest rates or foreign currency exchange rates from those currently prevailing;
(7) there will be no material changes in the corporate structure of the Enlarged Group (except for the disposal of 95% equity interest in 青島海信塑料製品有限公司 (Qingdao Hisense Plastic Products Limited ), including 100% of the equity

interest in 青島海平電器配件有限公司 (Qingdao Haiping Electric Parts Limited) completed in May 2009); and

(8) 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 2009 is prepared assuming that the Acquisition had been completed on 1 January 2009 and based on the forecast profit attributable to equity holders of each of the Company and the Target Group for the year ending 31 December 2009 as set out under the section “Profit forecasts of the Hisense 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 2009 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 Hisense Kelon Group, the Target Group or the Enlarged Group for any financial period.

				Pro forma
				profit forecast
		The Target	Pro forma	of the
	The Company	Group	adjustments	Enlarged
	RMB’000	RMB’000	RMB’000	Group
	(Note 1)	(Notes 1 and	(Note 2)	RMB’000
		2)
Forecast profit attributable
to equity holders for the
year ending 31 December
2009	37,883	63,805	(1,360)	100,328

Notes:

The forecast profit of the Enlarged Group for the year ending 31 December 2009 is based on the profit forecasts of the Hisense Kelon Group and the Target Group for the year ending 31 December 2009.
The respective equity interests percentages of the Target Group in Hisense Beijing, Hisense Zhejiang and Hisense Mould are 55%, 51% and 78.7% 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 2009. As such, exclusion of the minority interests would not be reflected as pro forma adjustments.
The “pro forma adjustments” represent elimination of unrealised profit on sales and purchases of goods, raw materials and components and other services transactions between the Hisense Kelon

Group and the Target Group of approximately RMB1,360,000. The Directors are not aware of any other significant adjustments on the forecast of the Enlarged Group that would occur as if the Acquisition was completed on 1 January 2009.

Letter from the Board

The Board is of the opinion that the IFRS 2009 Profit Forecasts have been made after due and careful enquiry. The letter from the Board prepared in accordance with the requirements of the Listing Rules has been lodged with the Stock Exchange.

Letters from the auditor of the Company

BDO Limited, the auditor of the Hisense Kelon Group and the reporting accountant of the Target Group, has reviewed the accounting policies and calculations adopted in arriving at the IFRS 2009 Profit Forecasts and is of the opinion that, so far as the accounting policies and calculations are concerned, the IFRS 2009 Profit Forecasts has been properly compiled in accordance with the assumptions made by the Directors set out above and are presented on a basis consistent in all material respects with the accounting policies adopted in preparing the financial statements of the Hisense Kelon Group and the Target Group for the year ended 31 December 2008 in accordance with IFRSs. The IFRS 2009 Profit Forecasts, together with the bases and assumptions upon which they have been prepared and the letters from the auditor of the Company prepared in accordance with the requirements of the Listing Rules and the Takeovers Code have been lodged with the Stock Exchange.

The IFRS 2009 Profit Forecasts are prepared for illustrative purposes only based on the judgments and assumptions of 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 year ending 31 December 2009.

Since there was a convergence of PRC GAAP to IFRS starting from 1 January 2007, except for expenditure of approximately RMB12,449,000 incurred in relation to the Acquisition is recognised as an expense in the period in which it is incurred in accordance with IFRS whereas such expense is capitalised in prepayments in accordance with PRC GAAP, there is no other material reconciling item between the profit forecasts prepared under the PRC GAAP and those prepared under IFRS. The auditor of the Company is of the same view in this regard based on the work performed in relation to the IFRS 2009 Profit Forecasts.

In addition, the IFRS 2009 Profit Forecasts also constitute profit forecasts under Rule 10 of the Takeovers Code. However, the IFRS 2009 Profit Forecasts do not meet the standards required by Rule 10 of the Takeovers Code as no financial adviser has reported on whether the IFRS 2009 Profit Forecasts have been prepared by the Directors after careful enquiry, due care and consideration as at the date of this announcement. The Company has engaged the Independent Financial Adviser to report on the IFRS 2009 Profit Forecasts but additional time is

required by the Independent Financial Adviser to review the IFRS 2009 Profit Forecasts. In view of the above, the Executive is prepared to permit the publication of the IFRS 2009 Profit Forecasts in this announcement subject to the condition that the publication of the IFRS 2009 Profit Forecasts in the Circular will be reported on in accordance with Rule 10 of the Takeovers Code and the relevant reports will be set out in the Circular.

Shareholders should note that the IFRS 2009 Profit Forecasts have been disclosed in this announcement without the Company having complied in full with Rule 10 of the Takeovers Code. Therefore, the Shareholders should not rely on the IFRS 2009 Profit Forecasts before having an opportunity to review the reports from the Independent Financial Adviser and the auditor of the Company as will be set out in the Circular. The Company has undertaken to procure the reports from the Independent Financial Adviser and the auditor of the Company on the IFRS 2009 Profit Forecasts to be included in the Circular in accordance with Rule 10 of the Takeovers Code.

Shareholders and potential investors should, therefore, exercise caution in placing reliance on the IFRS 2009 Profit Forecasts in assessing the merits and demerits of the Acquisition and the Whitewash Waiver.

In compliance with the Listing Rules, the Directors have confirmed that they have made the IFRS 2009 Profit Forecasts after due and careful enquiry. The auditor of the Company has satisfied itself that the IFRS 2009 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.

Financial information of the Hisense Kelon Group

The audited financial statements of the Hisense Kelon Group for the three years ended 31 December 2008 which have been prepared in accordance with IFRS will be included in the Circular.

Pro forma financial information of the Enlarged Group

The unaudited pro forma financial information of the Enlarged Group as at 31 December 2008 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 year ended 31 December 2008 and the four months ended 30 April 2009 and audited pro forma balance sheets as at 31 December 2008 and 30 April 2009 of the Enlarged Group prepared in accordance with PRC GAAP in the PRC Report, which has been published by the Company as an overseas regulatory announcement pursuant to Rule 13.09(2) of the Listing Rules on the same day when the Company publishes this announcement.

Shareholders and potential investors are advised to exercise caution in placing reliance on such pro forma financial information of the Enlarged Group, and to refer, instead, to the audited financial information of the Hisense Kelon Group and unaudited pro forma financial information of the Enlarged Group as at 31 December 2008 prepared in accordance with IFRS and the IFRS 2009 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 31 December 2008 and the IFRS 2009 Profit Forecasts, which comply with the relevant Listing Rules and are therefore more relevant, will be included in the Circular. The Directors do not consider the non-inclusion of the aforesaid audited financial information of the Hisense Kelon Group and audited pro forma financial information of the Enlarged Group prepared in accordance with PRC GAAP 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 in 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 airconditioner sectors of the PRC and further strengthen the leadership position of the Hisense 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 Hisense Kelon Group. As compared to the audited negative equity position of the Company under PRC GAAP of

approximately RMB842 million as at 31 December 2008 (which is extracted from the annual report of the Company for the year ended 31 December 2008 published on 27 April 2009 in accordance with the Listing Rules), acquisition of the Target Group with an audited positive net assets value under PRC GAAP of approximately RMB888 million as at 31 December 2008 (which is extracted from the audited financial statements of the Target Group which is published as an overseas regulatory announcement pursuant to Rule 13.09(2) of the Listing Rules on the same day when the Company publishes this announcement) will change the equity position of the Enlarged Group to audited positive net assets value under PRC GAAP of approximately RMB38 million, after net of intragroup adjustment. 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 under the PRC GAAP of approximately 4.8% and approximately 48.0% respectively as at 31 December 2008. Hence, the financial position of the Enlarged Group will be reinforced by the Acquisition.

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

Upon Completion, the Enlarged Group will have a consolidated annual production capacity of more than 10 million sets of refrigerators and more than 6 million sets of air-conditioners. The production facilities, including refrigerator production plants in Beijing, Liaoning, Jiangsu, Guangdong and Sichuan, and air-conditioner 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 “Ronshen”. 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 markets.

(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 losses.

(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 Hisense 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 Hisense Kelon Group and its largest shareholder, Hisense Group Co., in the White Goods business and therefore enhance the corporate governance of the Enlarged Group.

(7) Connected transactions between the Hisense 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 Hisense 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 Hisense Kelon Group and the Hisense Group.

After Completion, the Hisense 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 Hisense Kelon Group in respect of White Goods businesses will be substantially reduced.

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 Acquisition Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

IMPLICATIONS OF THE TAKEOVERS CODE AND WHITEWASH WAIVER

Hisense and its concert parties will, upon Completion, be required to make a mandatory general offer to the Shareholders to acquire the Shares and all other securities of the Company 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 of the Notes on dispensations from Rule 26 of the Takeovers Code is granted by the Executive.

Save as disclosed above and in the section headed “Shareholding structure of the Company before and after the Completion” of this announcement, none of Qingdao Hisense and parties acting in concert with it owned, controlled or directed any shares, convertible securities, warrants, options or derivatives in respect of the Shares as at the date of this announcement.

There is no outstanding derivative in respect of relevant securities (as defined in the Takeovers Code) in the Company which has been entered into by Qingdao Hisense or any person acting in concert with it as at the date of this announcement.

None of Qingdao Hisense or its concert parties has dealt in any securities of the Company during the 6 months prior to the date of this announcement.

Save for the proposed issuance of the Consideration Shares, there is no arrangement (whether by way of option, indemnity or otherwise) in relation to the Shares or the shares of Qingdao Hisense and which might be material to the Whitewash Waiver as at the date of this announcement.

As at the date of this announcement, save for the Acquisition Agreement, there was no agreement or arrangement to which Qingdao Hisense is party which relates to the circumstances in which it may or may not invoke or seek to invoke a precondition or a condition to the Acquisition or the Whitewash Waiver.

None of Qingdao Hisense or any person acting in concert with it had borrowed or lent any relevant securities (as defined in the Takeovers Code) of the Company as at the date of this announcement.

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.

IMPLICATIONS OF THE LISTING RULES

An independent board committee has been formed to advise the Independent Shareholders on the Acquisition 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 and the Whitewash Waiver.

CONTINUING CONNECTED TRANSACTIONS

DESPATCH OF SHAERHOLDERS’ CIRCULAR

A circular containing, among other things, (i) further information on the Acquisition and the Whitewash Waiver; (ii) the recommendation from the independent board committee of the Company in relation to the Acquisition 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 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 as soon as practicable and in accordance with the Listing Rules and the Takeovers Code.

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.

MISCELLANEOUS

Under Rules 13.73, 14.41 and 14A.20 of the Listing Rules, an issuer should despatch a circular to its shareholders at the same time as (or before) the issuer gives notice of the general meeting to approve the transaction referred to in the Circular. Given that the Company is a PRC issuer and subject to a 45-day notice period requirement under the PRC Company Law and its articles of association for convening a Shareholders’ meeting, the Company has applied for, and the Stock Exchange has granted, a waiver from strict compliance with Rules 13.73, 14.41 and 14A.20 of the Listing Rules to issue the notices of the EGM and the CSM before despatch of the Circular.

RESUMPTION OF TRADING

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 in relation to the Acquisition dated 29 June 2009

“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”

中聯資產評估有限公司 (China United Assets Appraisal Co., Ltd), an independent firm of qualified PRC valuers with the relevant qualifications to engage in securities business

“associate(s)”

has the meaning ascribed to it under the Listing Rules

“Board”
the board of Directors
“BVI”
the British Virgin Islands
“Changxing Jingwei”
長興經緯建設開發有限公司 (Changxing Jingwei Construction Development Co., Ltd.), an Independent Third Party
“Circular”

the circular to be despatched to the Shareholders in relation to, among other things, the Acquisition and the Whitewash Waiver

“Company”

海信科龍電器股份有限公司 (Hisense Kelon Electrical Holdings Company Limited), a company incorporated in the PRC with limited liability and listed on the main board of the Stock Exchange and Shenzhen Stock Exchange

“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 in which the last of all the Conditions to the Acquisition Agreement has been satisfied
“concert party” or “party acting has the meaning given to the term “parties acting in in concert” concert” in the 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”
not exceeding 362,048,187 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 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 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
“Director(s)” the director(s) of the Company
“EGM”
the fourth 2009 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 Hisense 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 to Qingdao Daiwa Securities SMBC Hong Kong Limited, a Hisense” corporation licensed to conduct type 1 (dealing in securities), type 2 (dealing in futures contracts), type 4 (advising on securities) and type 6 (advising on corporate finance) regulated activities under the SFO, 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 (Qingdao 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 51.01% by Hisense Group Co. and 48.99% by the management group and key employees of Hisense Group Co.
“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 Company Limited), a state-owned enterprise incorporated under the laws of the PRC with limited liability and under the auspices of Qingdao SASAC
“Hisense Hitachi”
青島海信日立空調系統有限公司 (Qingdao Hisense Hitachi Air-conditioning Systems, Co., Ltd.), a sinoforeign equity joint venture enterprise incorporated under the laws of the PRC
“Hisense International”

海信國際 ( 控股 ) 有限公司 (Hisense International (Holdings) Company Limited), a limited company incorporated in the British Virgin Islands, a wholly-

owned subsidiary of Hisense Electronic

“Hisense Kelon Group”
“Hisense Marketing”
“Hisense Marketing Business”
“Hisense Mould”
“Hisense Nanjing”
“Hisense Optical”
“Hisense Shandong”
“Hisense Zhejiang”
“Hitachi Air Conditioning”
“Hong Kong”
“HK$”
“IASB”
collectively, the Company and its subsidiaries from time to time
青島海信營銷有限公司 (Qingdao Hisense Marketing Company Limited), a company incorporated under the laws of the PRC with limited liability
the assets, business operation and liabilities 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
青島海信模具有限公司 (Qingdao Hisense Mould Company Limited), a company incorporated under the laws of the PRC with limited liability
海信 ( 南京 ) 電器有限公司 (Hisense (Nanjing) Electric Co., Ltd.), a company incorporated under the laws of the PRC with limited liability
青島海信光學有限公司 (Qingdao Hisense Optical Co., Ltd.), a company incorporated under the laws of the PRC with limited liability
海信 ( 山東 ) 空調有限公司 (Hisense (Shandong) Airconditioning Company Limited), a company incorporated under the laws of the PRC with limited liability
海信 ( 浙江 ) 空調有限公司 (Hisense (Zhejiang) Aircondition Co., Ltd.), a company incorporated under the laws of the PRC with limited liability
Hitachi Air Conditioning Systems Co., Ltd., an Independent Third Party
the Hong Kong Special Administrative Region of the PRC
Hong Kong dollars, the lawful currency of Hong Kong
International Accounting Standards Board

“IFRS”
International Financial Reporting Standards adopted by the IASB
“IFRS 2009 Profit Forecasts”
the profit forecasts of the Hisense Kelon Group and the Target Group and the pro forma profit forecast of the Enlarged Group for the year ending 31 December 2009 prepared in accordance with IFRS
“Independent Financial Adviser”
Access Capital Limited, a corporation licensed under the SFO for 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 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 Party(ies)”
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
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange
“Nanjing Aipulaisi”
南京愛普萊斯高新科技有限公司 (Nanjing Aipulaisi High and New Technology Company Limited), an Independent Third Party
“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 Limited Liability Company) (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
“PRC”
the People’s Republic of China
“PRC Enlarged Group Profit the pro forma profit forecasts of the net profit of the

Forecast”

Enlarged Group attributable to equity holders of the Company for the year ending 31 December 2009 prepared in accordance with PRC GAAP

“PRC GAAP” generally accepted accounting principles in the PRC

“PRC Report”

the (draft) report relating to the non-public issue of Shares (A Shares) by the Company for acquiring assets and connected transactions ( 海信科龍電器股份有限公司非公開發行股份 (A 股 ) 購買資産暨關聯交易報告書 ( 草案 )) published by the Company in the PRC in accordance with PRC regulatory requirements, and as an overseas regulatory announcement pursuant to Rule 13.09(2) of the Listing Rules on the same day when the Company publishes this announcement

“PRC Target Group Profit the pro forma forecasts of the net profit of the Target Forecast” Group attributable to equity holders of the Company for the year ending 31 December 2009 prepared in accordance with PRC GAAP

PRC Valuation

the asset valuation of the Target Group conducted by the Asset Valuer in accordance with PRC regulatory requirements in connection with the Acquisition

PRC Valuation Reports

the reports of the PRC Valuation made by the Asset Valuer and published on 16 July 2009
“Qingdao Hisense” 青島海信空調有限公司 (Qingdao Hisense Airconditioning Company 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
“Qingdao SASAC” 青島市國有資產監督管理委員會 (Qingdao Stateowned Assets Supervision and Administrative Committee)
“RMB” Renminbi yuan, the lawful currency of the PRC
“SFC” Securities and Futures Commission of Hong Kong
“SFO”

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

“Shareholders”
“Shares”
“Shenzhen Stock Exchange”
“Stock Exchange”
“Subsidiary” or “Subsidiaries”
“substantial shareholder”
“Taiwan Hitachi”
“Takeovers Code”
“Takeover Procedures”
“Target Group”
“Union Trading”
“White Goods”
“White Goods Business”
“Whitewash Waiver”

holders of Shares

share(s) of RMB1.00 each in the capital of the Company, comprising the A Shares and the H Shares
Shenzhen Stock Exchange ( 深圳證券交易所 ) of the PRC
The Stock Exchange of Hong Kong Limited
has the meaning defined in sections 2 and 2B of the Companies Ordinance (Cap. 32 of the Laws of Hong Kong)
has the meaning ascribed to it under the Listing Rules
Taiwan Hitachi Co., Ltd., an Independent Third Party
The Hong Kong Code on Takeovers and Mergers
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
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, 78.7% of the equity interests in Hisense Mould, 49% of the equity interests in Hisense Hitachi and the Hisense Marketing Business
Union Trading Co., Ltd., an Independent Third Party
the general term by which white-coloured household electrical appliances are commonly known which include, but not limited to, air-conditioners and refrigerators
the White Goods business operated by the Target Group
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 of the Notes 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.

PRC COMPANY NAMES

The English names of companies incorporated or established in the PRC as disclosed in this announcement are translation of their respective official Chinese names for identification purposes only.

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

Foshan City, Guangdong, the PRC, 16 July 2009

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

In this announcement, for the purpose of illustration only and unless otherwise specified, amounts quoted in RMB have been converted into HK$ at the rate of RMB0.88149 to HK$1.00, and vice versa. 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.

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 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 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 Hisense 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 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 in this announcement misleading.

AI assistant

Medlive Technology Co., Ltd. — M&A Activity 2009

50436_rns_2009-07-16_a8c3b94e-07c9-41cc-9961-bf85be066618.pdf

ANNOUNCEMENT

MAJOR AND CONNECTED TRANSACTION: ACQUISITION OF THE TARGET GROUP FROM QINGDAO HISENSE AIRCONDITIONING COMPANY LIMITED AND APPLICATION FOR WHITEWASH WAIVER AND RESUMPTION OF TRADING

Financial Adviser to Qingdao Hisense

MAJOR AND CONNECTED TRANSACTION

WHITEWASH WAIVER

IMPLICATIONS OF THE LISTING RULES

CONTINUING CONNECTED TRANSACTIONS

RESUMPTION OF TRADING

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 Hisense Kelon Group

Immediately before Completion

Immediately after Completion

Conditions to Completion

Completion

Undertakings

SHAREHOLDING STRUCTURE OF THE COMPANY BEFORE AND AFTER THE COMPLETION

INFORMATION OF THE COMPANY

INFORMATION OF QINGDAO HISENSE

INFORMATION OF THE TARGET GROUP

Air-conditioner manufacturing

(1) Hisense Shandong

1.1 Background

1.3 Operating status

(2) Hisense Zhejiang

2.1 Background

2.2 History

2.3 Operating status

(3) Hisense Hitachi

3.1 Background

3.2 History

3.3 Operating status

Refrigerator Manufacturing

(1) Hisense Beijing

1.1 Background

1.2 History

1.3 Operating status

(2) Hisense Nanjing

2.1 Background

2.2 History

2.3 Operating status

Mould Manufacturing

(1) Hisense Mould

1.2 History

1.3 Operating status

White Goods Sales and Marketing

Hisense Marketing Business

FINANCIAL INFORMATION OF THE TARGET GROUP

ASSET VALUATION OF THE TARGET GROUP

Prospective financial information of the Target Group and the Enlarged Group

PRC Target Group Profit Forecast and PRC Enlarged Group Profit Forecast

IFRS 2009 Profit Forecasts

Forecast figures

Bases and assumptions

Letter from the Board

Letters from the auditor of the Company

Financial information of the Hisense Kelon Group

Pro forma financial information of the Enlarged Group

REASONS FOR AND BENEFITS OF THE ACQUISITION

(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 Hisense Kelon Group and the Hisense Group will be substantially reduced

IMPLICATIONS OF THE TAKEOVERS CODE AND WHITEWASH WAIVER

IMPLICATIONS OF THE LISTING RULES

CONTINUING CONNECTED TRANSACTIONS

DESPATCH OF SHAERHOLDERS’ CIRCULAR

CSRC WAIVER

MISCELLANEOUS

RESUMPTION OF TRADING

Medlive Technology Co., Ltd. M&A Activity 2009