Medlive Technology Co., Ltd. — Proxy Solicitation & Information Statement 2006

Dec 14, 2006

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult a licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

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

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

GUANGDONG KELON ELECTRICAL HOLDINGS COMPANY LIMITED

(A joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 0921)

DISCLOSEABLE AND CONNECTED TRANSACTION

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

A letter from the Board of the Company is set out on pages 3 to 10 of this circular. A letter from the Independent Board Committee is set out on page 11 of this circular. A letter from Hercules Capital Limited containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 12 to 17 of this circular.

13 December 2006

CONTENTS

		Page
Definitions	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
**Letter from **	the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
**Letter from **	the Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . . . . . .	11
**Letter from **	Hercules Capital Limited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Appendix	– General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18

– i –

DEFINITIONS

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

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

||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|“A|Shares”|Domestic|ordinary|Shares|of|the|Company|with|a|
|nominal|value|of|RMB1.00|each|and|are|listed|on|the|
|Shenzhen|Stock|Exchange|
|“Board”|The|board|of|Directors|
|“Chengdu|Engine|Group”|(Chengdu|Engine|(Group)|
|Co.,|Ltd.)|
|“Chengdu|Kelon”|(Chengdu|Kelon|Refrigerator|
|Co.,|Ltd.),|a|Subsidiary|of|the|Company|
|“Chengdu|Xinxing”|(Chengdu|Xinxing|
|Electrical|Appliance|Co.,|Ltd.)|
|“Company”|Guangdong 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|
|“Directors”|The|directors|of|the|Company|
|“EGM”|the|extraordinary|general|meeting|to|be|held|at|the|
|conference|room|of|the|Company’s|head|office,|Shunde|
|District,|Foshan|City,|Guangdong|Province,|the|PRC|
|“Equity|Transfer”|The transfer of the 30% equity interest in Chengdu Kelon|
|from|Chengdu|Engine|Group|to|the|Company|
|“Equity|Transfer|Memorandum|of|An|equity|transfer|memorandum|of|understanding|dated|
|Understanding”|31 October 2006 entered between the Company, Chengdu|
|Engine|Group,|Chengdu|Xinxing|and|Chengdu|Kelon|in|
|respect|of|the|Equity|Transfer|
|“Group”|The|Company|and|its|Subsidiaries|
|“H|Shares”|Overseas|listed|foreign|shares|of|the|Company|with|a|
|nominal|value|of|RMB1.00|each|and|are|listed|on|the|
|Stock|Exchange|
|“Hong|Kong”|The|Hong|Kong|Special|Administrative|Region|of|the|
|PRC|

----- End of picture text -----

– 1 –

DEFINITIONS

“HK$”	Hong Kong dollar(s), the lawful currency of Hong Kong
“Independent Board Committee”	an independent board committee of the Company
	comprising all the independent non-executive Directors,
	namely Mr. Zhang Sheng Ping, Mr. Lu Qing and Mr.
	Cheung Yui Kai, Warren
“Independent Shareholders” or	Shareholder(s) other than persons who are, under the
“independent shareholders”	Listing Rules, required to abstain from voting on the
	resolution to approve a transaction
“Interest”	Interest on the said sum of RMB47,000,000 at the
	prevailing deposit interest rate of PRC banks
“Latest Practicable Date”	12 December 2006, being the latest practicable date prior
	to the printing of this circular for ascertaining certain
	information in this circular
“Listing Rules”	Rules Governing the Listing of Securities on the Stock
	Exchange
“PRC”	The People’s Republic of China
“Proposed Acquisition”	The proposed acquisition of the 30% of equity interest in
	Chengdu Kelon by the Company from Chengdu Engine
	Group
“RMB”	Renminbi yuan, the lawful currency of the PRC
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the
	Laws of Hong Kong) as amended from time to time
“Share(s)”	Share(s) of RMB1.00 each in the capital of the Company,
	comprising the A Shares and the H Shares
“Shareholder(s)”	Holders of the Shares
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Subsidiary” or “Subsidiaries”	Has the meaning defined in sections 2 and 2B of the
	Companies Ordinance (Cap. 32 of the Laws of Hong
	Kong)
“%”	Per cent.

– 2 –

LETTER FROM THE BOARD

GUANGDONG KELON ELECTRICAL HOLDINGS COMPANY LIMITED

(A joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 0921)

Executive Directors:

Mr. Tang Ye Guo Ms. Yu Shu Min Mr. Xiao Jian Lin Mr. Lin Lan

Independent non-executive Directors:

Mr. Zhang Sheng Ping Mr. Lu Qing Mr. Cheung Yui Kai, Warren

Registered office: No. 8 Ronggang Road Ronggui Street Shunde District Foshan City Guangdong Province China

Principal place of

business in Hong Kong: Room 2502-2505 Harbour Centre 25 Harbour Road Wanchai Hong Kong

13 December 2006

To the Shareholders

Dear Sir or Madam,

DISCLOSEABLE AND CONNECTED TRANSACTION

INTRODUCTION

The Board is pleased to announce that on 31 October 2006, the Company entered into an Equity Transfer Memorandum of Understanding with Chengdu Engine Group, Chengdu Xinxing and Chengdu Kelon in respect of an acquisition of 30% equity interest in Chengdu Kelon by the Company from Chengdu Engine Group. Upon completion of the Equity Transfer, the Company will directly and indirectly hold 100% of the equity interest of Chengdu Kelon and Chengdu Kelon will become a wholly-owned Subsidiary of the Company.

As at the date of this announcement, Chengdu Engine Group is holding 30% equity interest in Chengdu Kelon, while the Company directly and indirectly holds the remaining 70% equity interest therein. As such Chengdu Engine Group is a connected person of the Company under the Listing Rules. Accordingly, the Proposed Acquisition constitutes a connected transaction of the Company under the Listing Rules. As the consideration ratio (as defined in

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LETTER FROM THE BOARD

Rule 14.07 of the Listing Rules) of the connected transaction is more than 2.5% and thus it is subject to the reporting, announcement and independent shareholders’ approval requirements under the Listing Rules. Relevant details of such connected transaction will also be included in the next published annual report of the Company pursuant to Rule 14A.45 of the Listing Rules.

Since the consideration ratio of the connected transaction is more than 5% and each of the applicable percentage ratio as defined in Chapter 14 of the Listing Rules is less than 25% , the Proposed Acquisition also constitutes a Discloseable transaction of the Company which is subject to the notification and announcement requirements under Rules 14.34 to 14.39 of the Listing Rules.

The purpose of this circular is to provide you with details of the Equity Transfer Memorandum of Understanding, to set out the recommendation of the Independent Board Committee and to set out the letter of advice from Hercules Capital Limited to the Independent Board Committee and the Independent Shareholders in respect of the Equity Transfer Memorandum of Understanding.

EQUITY TRANSFER MEMORANDUM OF UNDERSTANDING

Date

31 October 2006

Parties

• (1) Chengdu Engine Group, as the vendor;

• (2) the Company, as the purchaser;

• (3) Chengdu Kelon; and

• (4) Chengdu Xinxing.

Interest to be transferred

Pursuant to the Equity Transfer Memorandum of Understanding, Chengdu Engine Group has agreed to sell and the Company has agreed to acquire 30% of the equity interest in Chengdu Kelon.

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LETTER FROM THE BOARD

Consideration

The consideration for the Equity Transfer is RMB81,000,000 and has been determined by the arm’s length negotiations between the Company and Chengdu Engine Group after taking into account the current assets value of Chengdu Kelon attributable to such 30% equity interest held by Chengdu Engine Group, the current financial status of Chengdu Kelon and the significance of Chengdu Kelon to the business of the Company, details of which is set out in the subsequent section “reasons for and benefits of the Equity Transfer Memorandum of Understanding”. As Chengdu Engine Group is a PRC stated-owned enterprise, the consideration is subject to further adjustment (if any) after valuation of such 30% interest in Chengdu Kelon by a valuer appointed by Chengdu Engine Group and approved by its supervising entity. In the event that the value of the said 30% interest, after making the said valuation, is higher than RMB81,000,000, the consideration for the Equity Transfer will still be RMB81,000,000. In the event that the value of the said 30% interest, after making the said valuation, is lower than RMB81,000,000, the consideration for Equity Transfer will be adjusted accordingly.

The consideration, which will be satisfied by the internal resources of the Company, will be payable by the Company in the following manners:

• (A) a refundable amount of RMB47,000,000 (the “Initial Consideration”) has been paid on 31 October 2006 upon the signing of the Equity Transfer Memorandum of Understanding; and

• (B) subject to any adjustment as a result of the valuation mentioned above, RMB34,000,000 (the “Deferred Consideration”) shall become payable after the completion of the Equity Transfer.

Other terms

• (1) The Company and Chengdu Engine Group agree that the Equity Transfer shall be completed by the end of March 2007, failing which, Chengdu Engine Group shall return the Initial Consideration together with the Interest to the Company;

• (2) Chengdu Engine Group shall pledge its 30% equity interest in Chengdu Kelon to the Company within three business days after the payment of the Initial Consideration by the Company;

• (3) In the event that the Equity Transfer fails to complete on or before the end of March 2007 and Chengdu Engine Group has returned the Initial Consideration to the Company as mentioned in (1) above, the Company shall release the pledge of the said 30% equity interest in Chengdu Kelon to Chengdu Engine Group;

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LETTER FROM THE BOARD

• (4) Chengdu Xinxing, a Subsidiary of Chengdu Engine Group, was indebted to Chengdu Kelon in the sum of RMB34,000,000 (the “Chengdu Xinxing Payables”) pursuant to a borrowing agreement entered between Chengdu Kelon and Chengdu Xinxing in 1998, under which Chengdu Kelon agreed to provide Chengdu Xinxing with an operating fund of RMB34,000,000. Chengdu Xinxing has not repaid the Chengdu Xinxing Payables to Chengdu Kelon due to its poor financial situation. Chengdu Kelon and the Company did not make any provisions in respect of the Chengdu Xinxing Payables in their accounts or financial statements. Upon obtaining the relevant approvals of the Equity Transfer, Chengdu Engine Group shall repay the Chengdu Xinxing Payables to Chengdu Kelon on behalf of Chengdu Xinxing by setting off against the Deferred Consideration to be paid by the Company.

In the event that the Deferred Consideration is less than the Chengdu Xinxing Payables as a result of the valuation mentioned above, the Chengdu Xinxing Payables will still be used to set off the Deferred Consideration and the balance of the Chengdu Xinxing Payables will be settled by Chengdu Engine Group by means to be agreed;

• (5) The Company, Chengdu Engine Group, Chengdu Kelon and Chengdu Xinxing agree that interest on the Chengdu Xinxing Payables will only be calculated up to 30 November 2005;

• (6) All receivables, in the approximate sum of RMB11,752,331.43, according to the financial records of Chengdu Kelon as at 31 October 2006, owing by Chengdu Kelon to Chengdu Xinxing shall be paid by Chengdu Kelon to Chengdu Xinxing on or before 31 December 2006; and

• (7) The sum of RMB5,200,000 owing by Chengdu Kelon to Chengdu Engine Group shall be repaid by Chengdu Kelon to Chengdu Engine Group on or before 31 December 2006.

REASONS FOR AND BENEFITS OF THE EQUITY TRANSFER MEMORANDUM OF UNDERSTANDING

Chengdu Kelon is principally engaged in the production and sales of refrigerators in the western region of the PRC. As the major production unit and selling arm of the Group in the western region of the PRC, Chengdu Kelon forms an integral part of the business of the Company, especially in the western region of the PRC. Further, this region also represents a significant strategic meaning for the Company in terms of brand image and sales in the PRC refrigerators’ market.

Since Chengdu Engine Group, being one of the shareholders of Chengdu Kelon, did not want to make further investment in or carry on the business of Chengdu Kelon due to its own business concerns, Chengdu Engine Group, originally proposed to liquidate Chengdu Kelon or to sell their equity interest in Chengdu Kelon to other third parties. However, the Group

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LETTER FROM THE BOARD

considered that a liquidation of Chengdu Kelon would result in a significant increase in the Group’s transportation costs in order to maintain the Group’s market share in the western region of the PRC, and lowered market reaction to launching of new products in the western region of the PRC. In addition, as Chengdu Kelon is heartland of the western region of the PRC, it will serve a radiant effect for the brand into the proximity markets. In light of the foregoing, the western region of the PRC represents significant strategic importance to the Company in terms of brand image and sales in the PRC refrigerator market. Currently, the major products manufactured by Chengdu Kelon includes the CK, CB and QA series, all of which are sold nationally and the aggregate monthly production volume amounted to approximately 10,000 pieces. The CK series is a replacement of the CN series and the CB series is a replacement of the CA series. As the CN and CA series are about to be phased out of the market, it is a critical time for the launch of the new products. In the event the operations of Chengdu Kelon were affected by a liquidation or change of shareholder, the new series might not be launched in time. Missing the opportunity to launch the new series into the market could have an overall adverse effect on the Group.

In view of the significance of Chengdu Kelon to the business of the Company in terms of its strategic meaning and in order to sustain the business of Chengdu Kelon and to work out a way for the repayment of the Chengdu Xinxing Payables and that the Company does not want part of the equity interest of Chengdu Kelon to be transferred to other third parties due to its strategy concerns, the Directors (excluding the independent non-executive directors, whose views will be contained in the letter from the Independent Board Committee contained in the subsequent section of the circular) consider that the Proposed Acquisition is beneficial to the Company and the Shareholders as a whole and the terms and conditions in the Equity Transfer Memorandum of Understanding are fair and reasonable.

FINANCIAL IMPACT ON THE GROUP

Upon completion of the Proposed Acquisition, the direct and indirect shareholding of the Company in Chengdu Kelon will increase from 70% to 100% and Chengdu Kelon will become a wholly-owned Subsidiary of the Company. In accordance with the audited 2005 financial report of Chengdu Kelon and the PRC GAAP, the direct and indirect interest of the Company in the net assets value of Chengdu Kelon will increase from RMB96,191,179 to RMB137,415,179, representing an increase of RMB41,224,000 upon the completion of the Proposed Acquisition.

Based on the latest published interim report of the Company, the unaudited consolidated net deficit of the Group as at 30 June 2006 was approximately RMB810.7 million. The Equity Transfer will not have a material impact on the net deficit of the Group.

The Group reported a loss of approximately RMB3.8 billion for the year ended 31 December 2005. Assuming the Equity Transfer was completed on 1 January 2005, the Group’s net loss would have increased due to an increased share of loss of Chengdu Kelon of RMB46,930,272 for the financial year ended 31 December 2005 based on PRC GAAP.

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LETTER FROM THE BOARD

INFORMATION RELATING TO THE COMPANY

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

INFORMATION RELATING TO CHENGDU ENGINE GROUP

Chengdu Engine Group was established in the PRC in October 1958under the PRC Aviation Ministry, which was renamed as Chengdu Engine Company in November 1986, and was further transformed into Chengdu Engine (Group) Company Limited. It is held by China Aviation Industry Corporation II as to 53.81% of its equity interest and by as to 46.19% of its equity interest. It is principally engaged in the production for products of use in the army.

INFORMATION RELATING TO CHENGDU KELON

Chengdu Kelon was incorporated in the PRC on 29 November 1996. It is principally engaged in the production and sales of household refrigerators and its spare parts and provision of after-sale service.

The net assets value of Chengdu Kelon as at 30 June 2006 was RMB136,356,866 based on the PRC GAAP. The net profit before and after taxation of Chengdu Kelon for the financial year ended 31 December 2004 were RMB522,537 and RMB522,537 respectively based on the PRC GAAP. The net loss before and after taxation of Chengdu Kelon for the financial year ended 31 December 2005 were RMB46,930,272 and RMB46,930,272 respectively based on the PRC GAAP.

Chengdu Kelon was established by the Company and Chengdu Engine Group in November 1996. So far as the Company is aware and based on the information available to the Company, Chengdu Engine Group has contributed the sum of RMB60,000,000 as the registered share capital of Chengdu Kelon.

INFORMATION RELATING TO CHENGDU XINXING

Chengdu Xinxing was incorporated in the PRC in October 1997. It is principally engaged in the production, design and sales of refrigerators, steamers for air-conditioners and household appliances.

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LETTER FROM THE BOARD

DISCLOSEABLE AND CONNECTED TRANSACTIONS

As at the date of this announcement, Chengdu Engine Group is holding 30% equity interest in Chengdu Kelon while the Company holds the remaining 70% equity interest therein. As such, Chengdu Engine Group is a connected person of the Company under the Listing Rules. Accordingly, the Proposed Acquisition constitutes a connected transaction of the Company under the Listing Rules. As the consideration ratio (as defined in Rule 14.07 of the Listing Rules) of the connected transaction is more than 2.5% and thus it is subject to the reporting, announcement and independent shareholders’ approval requirements under the Listing Rules. Relevant details of such connected transaction will also be included in the next published annual report of the Company pursuant to Rule 14A.45 of the Listing Rules.

Since the consideration ratio of the connected transaction is more than 5% and each of the applicable percentage ratio as defined in Chapter 14 of the Listing Rules is less than 25% , the Proposed Acquisition also constitutes a discloseable transaction of the Company which is subject to the notification and announcement requirements under Rules 14.34 to 14.39 of the Listing Rules.

The Directors (excluding the independent non-executive directors, whose views will be contained in the Letter from the Independent Board Committee in the subsequent section of this circular) are of the view that the Proposed Acquisition was conducted in the interest of the Company and the Shareholders as a whole. In these circumstances, an EGM will be held to consider and, if thought fit, among other things, to approve the Proposed Acquisition and the terms and conditions of the Equity Transfer Memorandum of Understanding.

SUSPENSION OF TRADING IN THE H SHARES

At the request of the Company, trading in the H Shares was suspended with effect from 10:00 a.m. on 16 June 2005 pending the release of an announcement in relation to price sensitive information. Subject to the further announcements in relation to, amongst others, the financial, production and trading position of the Group, and the satisfaction by the Stock Exchange of the adequacy of the internal control measures of the Company, trading in the H Shares will remain suspended until further notice.

EGM

The Company will convene the EGM to, among other things, to consider and approve the Proposed Acquisition and the terms and conditions of the Equity Transfer Memorandum of Understanding. A notice convening the EGM will be announced separately and despatched to the Shareholders as soon as reasonably practicable.

So far as the Company is aware, no one would have to be abstained from voting in approving the Proposed Acquisition in the EGM.

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LETTER FROM THE BOARD

POLL PROCEDURE

The voting in the EGM by the independent shareholders for the approval of the Proposed Acquisition and the terms and conditions of the Equity Transfer Memorandum of Understanding will be taken by poll.

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

• (A) the chairman of the meeting; or

• (B) at least two Shareholders with voting rights or their representative; or

• (C) individual or a group of Shareholders (including their representatives) holding 10% or more of the voting rights present in that general meeting.

RECOMMENDATION

Your attention is drawn to the advice of the Independent Board Committee set out in its letter on page 11 of this circular which contains its recommendation to the independent shareholders on Proposed Acquisition and the terms and conditions of the Equity Transfer Memorandum of Understanding.

Your attention is also drawn to the letter of advice from Hercules Capital Limited, which are set out on pages 12 to 17 in this circular, to the Independent Board Committee and the independent shareholders in respect of Proposed Acquisition and the terms and conditions of the Equity Transfer Memorandum of Understanding.

ADDITIONAL INFORMATION

Your attention is also drawn to the general information as set out in the Appendix 1 of this circular.

Yours faithfully, By Order of the Board of Guangdong Kelon Electrical Holdings Company Limited Tang Ye Guo

Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

GUANGDONG KELON ELECTRICAL HOLDINGS COMPANY LIMITED

(A joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 0921)

13 December 2006

To the Independent Shareholders

Dear Sir or Madam,

DISCLOSEABLE AND CONNECTED TRANSACTION

We refer to the circular issued by the Company to Shareholders dated 13 December 2006 (the “Circular”) of which this letter forms part. Terms defined in this Circular shall have the same meanings in this letter unless the context otherwise requires.

Under the Listing Rules, the Proposed Acquisition and the entering into the Equity Transfer Memorandum of Understanding constitutes a discloseable and connected transaction for the Company and is subject to the approval of the independent shareholders at the EGM.

We have been appointed by the Board to consider the Proposed Acquisition and the terms of the Equity Transfer Memorandum of Understanding and to advise the independent shareholders in connection with the Proposed Acquisition and the terms of the Equity Transfer Memorandum of Understanding as to whether, in our opinion, their terms are fair and reasonable so far as the independent shareholders are concerned. Hercules Capital Limited has been appointed as the independent financial adviser to advise us in this respect.

We wish to draw your attention to the letter from the Board and the letter from Hercules Capital Limited as set out in this circular. Having considered the principal factors and reasons considered by, and the advice of Hercules Capital Limited as set out in its letter of advice, we consider that the Proposed Acquisition and the terms of the Equity Transfer Memorandum of Understanding are in the interests of the Company and the Shareholders as a whole.

We also consider that the terms of the Equity Transfer Memorandum of Understanding are fair and reasonable so far as the Independent Shareholders are concerned.

Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolution to approve the Proposed Acquisition and the Equity Transfer Memorandum of Understanding.

Yours faithfully,

For and on behalf of the Independent Board Committee Zhang Sheng Ping Lu Qing Cheung Yui Kai, Warren Independent non-executive Directors Guangdong Kelon Electrical Holdings Company Limited

– 11 –

LETTER FROM HERCULES CAPITAL LIMITED

The following is the full text of the letter from Hercules Capital Limited to the Independent Board Committee and the Independent Shareholders prepared for the incorporation into this circular.

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1503 Ruttonjee House 11 Duddell Street Central Hong Kong

13 December 2006

To the Independent Board Committee and the Independent Shareholders

Dear Sirs,

DISCLOSEABLE AND CONNECTED TRANSACTION

We refer to our engagement as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in relation to the Equity Transfer, details of which are set out in the letter from the Board contained in the circular of the Company dated 13 December 2006 to the Shareholders (the “Circular”), of which this letter forms part. Unless the context requires otherwise, terms used in this letter have the same meanings as defined elsewhere in the Circular.

On 2 November 2006, the Board announced that the Company had entered into the Equity Transfer Memorandum of Understanding with Chengdu Engine Group, Chengdu Xinxing and Chengdu Kelon in respect of an acquisition of a 30% equity interest in Chengdu Kelon by the Company. As at the Latest Practicable Date, Chengdu Kelon is owned as to 30% by Chengdu Engine Group and 70% directly and indirectly by the Company. Chengdu Engine Group is therefore a connected person of the Company, and accordingly, the Equity Transfer constitutes a connected transaction for the Company under the Listing Rules and is subject to approval by the Independent Shareholders, by way of poll, at the EGM.

The Independent Board Committee, comprising all the independent non-executive Directors, namely Messrs. Zhang Sheng Ping, Lu Qing and Cheung Yui Kai, Warren, has been constituted to consider the terms of the Equity Transfer and to advise the Independent Shareholders. We have been appointed to act as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

– 12 –

LETTER FROM HERCULES CAPITAL LIMITED

In formulating our recommendations, we have relied on the information and representations supplied, and the opinions expressed, by the Directors and have assumed that all statements and representations made or referred to in the Circular are true, accurate and complete at the time they were made and as at the date of the Circular, and will continue as such at the date of the EGM. We have no reason to doubt the truthfulness, accuracy and completeness of the information, opinions and representations contained or referred to in the Circular and provided to us by the Directors, and consider that they may be relied upon in formulating our opinion. The Directors have confirmed that, having made all reasonable enquiries and to the best of their knowledge and belief, there are no material facts the omission of which would make any statements in the Circular misleading. We consider that we have reviewed sufficient information to reach an informed view as set out in this letter, to justify reliance on the accuracy of the information contained in the Circular and to provide a reasonable basis for our recommendation as required under Rule 13.80 of the Listing Rules. We have no reason to suspect that any material information has been withheld by the Directors or management of the Group, or is misleading, untrue or inaccurate. We have not, however, for the purpose of this exercise, conducted any independent detailed investigation or audit into the businesses or affairs or future prospects of the Group.

PRINCIPAL FACTORS CONSIDERED

The principal factors that we have taken into consideration in arriving at our opinion are set out below:

1. Overview

Pursuant to the Equity Transfer Memorandum of Understanding, the Company has conditionally agreed to acquire from Chengdu Engine Group a 30% equity interest in Chengdu Kelon for a consideration of RMB81 million. However, such consideration will be subject to a valuation of such 30% interest in Chengdu Kelon by an independent valuer to be appointed by Chengdu Engine Group and approved by its supervising entity. The consideration will be adjusted dollar for dollar in respect of any difference between the valuation and RMB81 million, save that the maximum consideration is capped at RMB81 million. The purchase price consists of payment of a refundable initial cash consideration of RMB47 million and a deferred consideration of RMB34 million (subject to any adjustment as a result of the aforesaid valuation). The Initial Consideration was paid on 31 October 2006 upon the signing of the Equity Transfer Memorandum of Understanding from the Company’s internal resources. Upon obtaining the relevant approvals of the Equity Transfer, Chengdu Engine Group shall repay the Chengdu Xinxing Payables to Chengdu Kelon on behalf of Chengdu Xinxing by setting off against the Deferred Consideration to be paid by the Company.

2. Information on Chengdu Kelon

Chengdu Kelon was incorporated in the PRC on 29 November 1996. It is principally engaged in the production and sale of household refrigerators and its spare parts and provision of after-sale service. As at the Latest Practicable Date, Chengdu Kelon is owned as to 30% by Chengdu Engine Group and 70% directly and indirectly by the Company.

– 13 –

LETTER FROM HERCULES CAPITAL LIMITED

As at 30 June 2006, the net asset value of Chengdu Kelon was RMB136,356,866 based on PRC GAAP. The net profit before and after taxation of Chengdu Kelon for the financial year ended 31 December 2004 were RMB522,537 and RMB522,537 respectively based on PRC GAAP. The net loss before and after taxation of Chengdu Kelon for the financial year ended 31 December 2005 were RMB46,930,272 and RMB46,930,272 respectively based on PRC GAAP.

Chengdu Kelon was established by the Company and Chengdu Engine Group in November 1996. So far as the Company is aware and based on the information available to the Company, Chengdu Engine Group has contributed the sum of RMB60,000,000 as the registered share capital of Chengdu Kelon.

3. Reasons for the Equity Transfer

As stated in the letter from the Board, Chengdu Kelon is principally engaged in the production and sale of refrigerators in the western region of the PRC. As the major production unit and selling arm of the Group in the western region of the PRC, the operations of Chengdu Kelon form an integral part of the business of the Company.

Since Chengdu Engine Group, being one of the shareholders of Chengdu Kelon, did not want to make further investment in or carry on the business of Chengdu Kelon due to its own business concerns and originally proposed to liquidate Chengdu Kelon or to sell their equity interest in Chengdu Kelon to other third parties. However, the Group considered that a liquidation of Chengdu Kelon would result in a significant increase in the Group’s transportation costs in order to maintain the Group’s market share in the western region of the PRC, and lowered market reaction to launching of new products in the western region of the PRC. In addition, as Chengdu Kelon is heartland of the western region of the PRC, it will serve a radiant effect for the brand into the proximity markets. In light of the foregoing, the western region of the PRC represents significant strategic importance to the Company in terms of brand image and sales in the PRC refrigerator market. Currently, the major products manufactured by Chengdu Kelon includes the CK, CB and QA series, all of which are sold nationally and the aggregate monthly production volume amounted to approximately 10,000 pieces. The CK series is a replacement of the CN series and the CB series is a replacement of the CA series. As the CN and CA series are about to be phased out of the market, it is a critical time for the launch of the new products. In the event the operations of Chengdu Kelon were affected by a liquidation or change of shareholder, the new series might not be launched in time. Missing the opportunity to launch the new series into the market could have an overall adverse effect on the Group. In view of the significance of Chengdu Kelon to the business of the Group in terms of its strategic importance, and in order to sustain the business of Chengdu Kelon and to work out a way for the repayment of the Chengdu Xinxing Payables and that the Company does not wish part of the equity interest of Chengdu Kelon to be transferred to other third parties due to strategic concerns, the Directors (excluding the independent non-executive directors, whose views is contained in the letter from the Independent Board Committee) consider that the Proposed Acquisition is beneficial to the Company and the Shareholders as a whole and the terms and conditions in the Equity Transfer Memorandum of Understanding are fair and reasonable.

– 14 –

LETTER FROM HERCULES CAPITAL LIMITED

4. Basis of the consideration and payment method

As noted in the letter from the Board, the consideration was negotiated between the parties at arm’s length, having regard to various factors, including the net asset value of Chengdu Kelon attributable to such 30% equity interest held by Chengdu Engine Group, the current financial status of Chengdu Kelon and the significance of Chengdu Kelon to the business of the Company.

As Chengdu Engine Group is a PRC state-owned enterprise, the consideration is subject to further adjustment (if any) after valuation (the “Valuation”) of such 30% interest in Chengdu Kelon by an independent valuer to be appointed by Chengdu Engine Group and approved by its supervising entity. In the event that the value of the said 30% interest, after being valued by the Valuation, is higher than RMB81 million, the consideration for the Equity Transfer will be capped at RMB81 million. In the event that the value of the said 30% interest, after being valued by the Valuation, is less than RMB81 million, the consideration for the Equity Transfer is subject to downward adjustment to the extent of the shortfall.

Pursuant to the Equity Transfer Memorandum of Understanding, the consideration for the Equity Transfer of RMB81 million will be satisfied by the payment of the Initial Cash Consideration and the Deferred Consideration.

The Initial Consideration was paid on 31 October 2006 upon the signing of the Equity Transfer Memorandum of Understanding from the Company’s internal resources.

Upon obtaining the relevant approvals of the Equity Transfer, Chengdu Engine Group shall repay the Chengdu Xinxing Payables to Chengdu Kelon on behalf of Chengdu Xinxing by setting off against the Deferred Consideration to be paid by the Company. In the event that the Deferred Consideration is less than the Chengdu Xinxing Payables as a result of the valuation mentioned above, the Chengdu Xinxing Payables will still be used to set off the Deferred Consideration and the balance of the Chengdu Xinxing Payables will be settled by Chengdu Engine Group by means to be agreed.

Having considered

• (i) the total consideration is subject to valuation by an independent valuer;

• (ii) the consideration will be adjusted dollar for dollar in respect of any difference between the Valuation and RMB81 million;

• (iii) the maximum consideration is capped at RMB81 million and therefore the Company will be able to acquire the 30% interest in Chengdu Kelon at a discount if the Valuation is more than RMB81 million;

we consider the consideration for the Equity Transfer to be fair and reasonable so far as the Independent Shareholders are concerned.

– 15 –

LETTER FROM HERCULES CAPITAL LIMITED

5. Other terms of the Equity Transfer

As stated in the letter from the Board, completion of the Equity Transfer is subject to the following terms:

• (1) The Company and Chengdu Engine Group agree that the Equity Transfer shall be completed by the end of March 2007, failing which, Chengdu Engine Group shall return the Initial Consideration together with the Interest to the Company;

• (2) Chengdu Engine Group shall pledge its 30% equity interest in Chengdu Kelon to the Company within three business days after the payment of the Initial Consideration by the Company;

• (3) In the event that the Equity Transfer fails to complete on or before the end of March 2007 and Chengdu Engine Group has returned the Initial Consideration to the Company as mentioned in (1) above, the Company shall release the pledge of the said 30% equity interest in Chengdu Kelon to Chengdu Engine Group;

• (4) Chengdu Xinxing, a Subsidiary of Chengdu Engine Group, was indebted to Chengdu Kelon in the sum of RMB34,000,000 (the “Chengdu Xinxing Payables”) pursuant to a borrowing agreement entered into between Chengdu Kelon and Chengdu Xinxing in 1998, under which Chengdu Kelon agreed to provide Chengdu Xinxing with an operating fund of RMB34,000,000. Chengdu Xinxing has not repaid the Chengdu Xinxing Payables to Chengdu Kelon due to its poor financial situation. Chengdu Kelon and the Company did not make any provisions in respect of the Chengdu Xinxing Payables in its accounts or financial statements. Upon obtaining the relevant approvals of the Equity Transfer, Chengdu Engine Group shall repay the Chengdu Xinxing Payables to Chengdu Kelon on behalf of Chengdu Xinxing by setting off against the Deferred Consideration to be paid by the Company.

In the event that the Deferred Consideration is less than the Chengdu Xinxing Payables as a result of the Valuation, the Chengdu Xinxing Payables will still be used to set off the Deferred Consideration and the balance of the Chengdu Xinxing Payables will be settled by Chengdu Engine Group by means to be agreed;

• (5) The Company, Chengdu Engine Group, Chengdu Kelon and Chengdu Xinxing have agreed that interest on the Chengdu Xinxing Payables will only be calculated up to 30 November 2005;

• (6) All receivables, in the approximate sum of RMB11,752,331.43, according to the financial records of Chengdu Kelon as at 31 October 2006, owing by Chengdu Kelon to Chengdu Xinxing shall be paid by Chengdu Kelon to Chengdu Xinxing on or before 31 December 2006; and

• (7) The sum of RMB5,200,000 owing by Chengdu Kelon to Chengdu Engine Group shall be repaid by Chengdu Kelon to Chengdu Engine Group on or before 31 December 2006.

– 16 –

LETTER FROM HERCULES CAPITAL LIMITED

6. Financial effects of the Equity Transfer on the Group

Net asset value

Based on the latest published interim report of the Company, the unaudited consolidated net deficit of the Group as at 30 June 2006 was approximately RMB810.7 million. The Equity Transfer will not have a material impact on the net deficit of the Group.

Earnings

The Group reported a loss of approximately RMB3.8 billion for the year ended 31 December 2005. As Chengdu Kelon posted net loss after taxation of RMB46,930,272 for the financial year ended 31 December 2005 based on PRC GAAP, assuming the Equity Transfer was completed on 1 January 2005, the Group’s net loss would have increased due to an increased share of loss of Chengdu Kelon.

Having considered the strategic importance of the business of Chengdu Kelon to the Group as discussed in the section headed “3. Reasons for the Equity Transfer”, we consider the increase in share of loss of Chengdu Kelon to be acceptable.

RECOMMENDATION

Having considered the abovementioned principal factors and reasons, we consider that the Equity Transfer is on normal commercial terms and in the interests of the Company and the Shareholders as a whole, and the terms of the Equity Transfer are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we would recommend the Independent Shareholders, as well as the Independent Board Committee to advise the Independent Shareholders, to vote in favour of the resolution to approve the Equity Transfer at the EGM.

Yours faithfully, For and on behalf of

Hercules Capital Limited Louis Koo

Managing Director

– 17 –

GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries that to the best of their knowledge and belief, there are no other facts the omission of which would make any statement in this circular misleading.

2. DISCLOSURE OF INTERESTS

Directors, supervisors and chief executive of the Company

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

As at the Latest Practicable Date, none of the Directors or supervisors of the Company had any interest, direct or indirect, in any asset which have been since 31 December 2005, being the date to which the latest published audited financial statements of the Group were made up, acquired or disposed of by or leased to any member of the Group or are proposed to be acquired or disposed of by or leased to any member of the Group.

As at the Latest Practicable Date, none of the Directors or supervisors of the Company was materially interested in any contract or arrangement entered into by any member of the Group since 31 December 2005, being the date to which the latest published audited financial statements of the Company were made up, and which was significant in relation to the business of the Group.

– 18 –

GENERAL INFORMATION

APPENDIX

Interests of Substantial Shareholders

Interests in the Company

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

			Proportion
			to the
			relevant class	Proportion
		Number of	of issued	to the total
		issued	share capital	issued share
		ordinary	of the	capital of the
Name	Class of Shares	shares held	Company	Company
Guangdong Greencool	Domestic legal	262,212,194	77.60%	26.43%
Enterprise	person shares
Development
Company Limited
Shunde Economic	Domestic legal	68,666,667	20.32%	6.92%
Consultancy Company	person shares
Shenyin Wanguo	H Shares	54,851,000	11.93%	5.53%
Securities (H.K.)
Limited
The Hong Kong &	H Shares	51,273,925	11.16%	5.17%
Shanghai Banking
Corporation Limited
Bank of China (Hong	H Shares	49,031,000	10.67%	4.94%
Kong) Limited
Guotai Junan Securities	H Shares	40,920,000	8.90%	4.12%
(Hong Kong) Limited
HSBC Nominees (Hong	H Shares	40,106,904	8.73%	4.04%
Kong) Limited
First Shanghai	H Shares	25,868,000	5.63%	2.61%
Securities Limited

– 19 –

GENERAL INFORMATION

APPENDIX

Interests in other members of the Group

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

		Percentage
		shareholding of
	Shareholders holding 10%	shareholders in
Other members	or more in other members	other members
of the Group	of the Group	of the Group
Guangdong Kelon Air-	Weishi Investments	40%
Conditioner Co., Ltd.	Company Limited
Guangdong Kelon Mould	Hua Yi Compressor	30%
Co., Ltd.	Company Limited
Foshan Shunde Rongsheng	Hua Yi Compressor	30%
Plastic Products Co.,Ltd.	Company Limited
Guangdong Huaao Electrical	Foshan City Shunde District	30%
Electronics Co., Ltd.	Yun Long Enquiry
	Service Company Limited
Chengdu Kelon Refrigerator	Chengdu Generator Factory	30%
Co., Ltd.
Yingkou Kelon Refrigerator	Yingkou Yingleng (Group)	14.74%
Co., Ltd.	Bankruptcy Liquidation
	Team
Hangzhou Kelon Electrical	Hangzhou Xiling Group	30%
Company Limited	Company Limited
Xi’an Kelon Cooling	Xi’an Gaoke (Group)	29.05%
Co., Ltd.	Company Limited
Jiangxi Kelon Combine	Jiangxi Fadasi Domestic	45%
Electrical Appliances	Electrical Appliances
Co., Ltd.	Company Limited
Kaifeng Kelon Air-	Kaifeng Economic	30%
Conditioner Co., Ltd.	Technique Development
	(Group) Company

– 20 –

GENERAL INFORMATION

APPENDIX

		Percentage
		shareholding of
	Shareholders holding 10%	shareholders in
Other members	or more in other members	other members
of the Group	of the Group	of the Group
Hua Yi Compressor	Huayi Electrical Appliances	40.67%
Company Limited	Company Limited
	A-share public shareholders	30.61%
Chongqing Kelon Rongsheng	Chongqing Shang She	24%
Refrigerator Sales Co., Ltd.	Group
	Chongqing Huaqing	24%
	Commerce Company
	Chongqing Department	24%
	Building
Guangzhou Antaida	Guangzhou Zhongyuan	30%
Logistic Co., Ltd.	International Freight
	Forwarding Company
	Limited
	China Far Ocean Network	25%
	Company Limited
	Wuxi Small Swan Holdings	20%
	Company Limited
Wuhu Yingjia Electrical	Heavenly King Incorporated	20%
Machinery Co., Ltd
Sichuan Rongsheng Kelon	Xu Wei Ru	24%
Refrigerator Sales Co., Ltd.
Beijing Hengsheng Xin	Foshan City Shunde District	11%
Chuang Technology	Yun Long Enquiry
Company	Service Company Limited
Guangdong Kelon Weili		20%
Electrical Appliances
Company Limited

– 21 –

GENERAL INFORMATION

APPENDIX

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

3. SERVICE AGREEMENTS

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

4. MATERIAL CHANGES

The Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2005, being the date to which the latest published audited financial statements of the Group were made up.

– 22 –

GENERAL INFORMATION

APPENDIX

5. COMPETING INTEREST

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

		Description of
	Name of entity	business of the
	which business is	entity which is
	considered to	considered to
	compete or likely	compete or likely	Nature of
	compete with the	to compete with	interest of the
	business of the	the business of the	Director in the
Name of Director	Group	Group	entity
Mr. Tang Ye Guo	The Subsidiaries of	Production of air-	Director
	Hisense Group	conditioning/
		electrical products
Ms. Yu Shu Min	The Subsidiaries of	Production of air-	Director and/or
	Hisense Group	conditioning/	senior
		electrical products	management
Mr. Xiao Jian Lin	Hisense Group or its	Production of air-	Director
	Subsidiaries	conditioning/
		electrical products
Mr. Lin Lan	Hisense Group	Production of air-	Senior
		conditioning/	Management
		electrical products

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

– 23 –

GENERAL INFORMATION

APPENDIX

6. EXPERT

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

Name

Qualifications

Hercules Capital Limited

• a corporation licensed under the SFO to conduct type 6 regulated activity under the SFO

• (b) Hercules Capital Limited does not have any shareholding, direct or indirect, in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

• (c) Hercules Capital Limited does not have any interest, direct or indirect, in any assets which have been acquired or disposed of by or leased to any member of the Group, or which are proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2005, the date to which the latest published audited financial statements of the Company were made up.

• (d) Hercules Capital Limited has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name in the form and context in which they are included.

• (e) The letter and recommendation given by Hercules Capital Limited are given as of the date of this circular for incorporation herein.

– 24 –

GENERAL INFORMATION

APPENDIX

7. LITIGATION

As at the Latest Practicable Date, so far as the Directors are aware, the following litigation or claims of material importance are pending or threatened against the Company and its subsidiaries:

			Claim
**No. **	Name of case	Plaintiff	Amount	Particulars	Status
			(RMB)
1.	Claims against the	Zhejiang	19,853,000.00	The plaintiff alleged that it	The Court
	Company initiated by	Hangxiao		had undertaken the	has
	Zhejiang Hangzhou Xiu			construction works of the	adjourned to
	Ganggou Holdings			Company’s plain warehouse	proceed with
	Company Limited			factories No. 1 and No. 2	the case.
	(“Zhejiang Hangxiao”)			pursuant to a construction
	in relation to a			contract with the Company
	construction contract			and the Company defaulted in
				payment of RMB1,193,000 in
				construction fees. The plaintiff
				sued the Company for
				payment of RMB1,193,000 in
				construction fees and
				RMB17,660,000 in default
				penalties and the cost of legal
				proceedings.
2.	Claims against Jiangxi	China	140,000,000.00	China Construction Bank	The Court
	Kelon and the	Construction		Corporation Nanchang	has
	Company initiated by	Bank		Changbei Branch applied to	adjourned to
	China Construction	Corporation		the court for pre-trial security	proceed with
	Bank Corporation	Nanchang		order on the basis of dispute	the case.
	Nanchang Changbei	Changbei		over the loan contract and
	Branch in relation to	Branch		guarantee contract. On 5
	the loan contract and			August, the High Court of
	guarantee contract			Jiangxi Province ordered to
				freeze Jiangxi Kelon’s 80%
				shareholdings in Shangqiu
				Kelon. During the freezing
				period, such shareholdings
				shall not be pledged or
				transferred without the court’s
				prior consent.

– 25 –

GENERAL INFORMATION

APPENDIX

			Claim
**No. **	Name of case	Plaintiff	Amount	Particulars	Status
			(RMB)
3.	Claims against Jiangxi	Henan	18,000,000.00	The plaintiff applied for a	The Court
	Kelon and Kaifeng	Province		pre-trial security order from	has
	Kelon Air-Conditioner	Kaifeng		the court to seize properties	adjourned to
	Co., Ltd. (“Kaifeng	Economic		worth of RMB18,000,000 of	proceed with
	Kelon”) by Kaifeng	Technology		Jiangxi Kelon and Kaifeng	the case.
	Economic Technology	Development		Kelon. The equipments,
	Development (Group)	(Group)		factory and the land use right
	Company in relation to	Company		of Kaifeng Kelon were seized.
	joint venture contract
4.	Claims initiated by	Can	221,942,108.01	The plaintiff alleged that it	The Court
	CNA/MC Appliance	International		had entered into a contract	has
	Corporation against the	Inc./MC		with the defendant on 29	adjourned to
	Company and Kelon	Appliance		December 2003 to purchase	proceed with
	International	Corporation		108,108 units of	the case.
	Incorporation			MCBR1000W refrigerators,
				that the defendant failed to
				perform its obligations as set
				out in the contract on a timely
				basis and that the goods
				delivered were defective.

8. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the principal place of business in Hong Kong of the Company at Room 2502-2505, Harbour Centre, 25 Harbour Road, Wanchai, Hong Kong during normal business hours from the date of this circular up to and including 28 December 2006:

• (1) An equity transfer memorandum of understanding dated 31 October 2006 entered between the Company, Chengdu Engine Group, Chengdu Xinxing and Chengdu Kelon in respect of the Equity Transfer.

9. MISCELLANEOUS

• (1) The company secretary and qualified accountant of the Company is Mr. Dai Zu Mian. Mr. Dai is a member of the Association of Chartered Certified Accountants in the United Kingdom and is a certified public accountant in the PRC.

• (2) The English text of this circular shall prevail over its Chinese text.

– 26 –