THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

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

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

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

(Stock Code: 00921)

(1) CONTINUING CONNECTED TRANSACTIONS AND DISCLOSEABLE TRANSACTION AND

(2) PROPOSED AMENDMENTS TO THE ARTICLES

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

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A letter from the Board is set out on pages 5 to 60 of this circular. A letter from the Independent Board Committee is set out on pages 61 to 62 of this circular. A letter from Access Capital Limited containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 63 to 121 of this circular.

A notice of the EGM to be held on 15 January 2010 at 9:30 a.m. at the conference room of the Company’s head office, Shunde District, Foshan City, Guangdong Province, the PRC is set out on pages 129 to 130 of this circular.

A proxy form for use at the EGM is enclosed with this circular. If you are not able to attend the meeting in person, you are requested to complete and return the enclosed proxy form in accordance with the instructions printed thereon and to lodge the same with the Company’s branch share registrar in Hong Kong, Hong Kong Registrars Limited of Rooms 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, not less than 24 hours before the time fixed for holding the EGM or any adjournment thereof. Completion and delivery of the proxy form will not preclude you from attending and voting at the meeting or any adjournment thereof if you so wish.

26 November 2009

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Letter from the Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . . . . . .	61
Letter from Access Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	63
Appendix I — General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	122
Notice of Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	129

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DEFINITIONS

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

“A Shares” domestic ordinary shares of the Company with a nominal value of RMB1.00 each and are listed on the Shenzhen Stock Exchange
“Access Capital” Access Capital Limited, a corporation licensed under the SFO for carrying on type 1 (dealing in securities), type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities under the SFO, being the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Compressors Purchase and Supply Framework Agreement, the Business Co-operation Framework Agreement, the Financial Services Agreement and the relevant annual caps
“Articles” the articles of association of the Company from time to time “Associate” has the meaning ascribed to it in the Listing Rules “Board” the board of Directors “Business Co-operation the agreement (業務合作框架協議) entered into between the Framework Agreement” Company and certain Subsidiaries of Hisense Group dated 6 November 2009 in relation to the sale and purchase of refrigerators, air-conditioners, raw materials, moulds, the sale of freezers, home appliances and parts and components for refrigerators, air-conditioners and freezers and the provision of after-sale maintenance, repair, internet and consultation services, electronic communication services and property management services and leasing services

“CBRC” 中國銀行業監督管理委員會 (China Banking Regulatory Commission)

— 1 —

DEFINITIONS

“Company”	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
“Compressors Purchase	the agreement (壓縮機採購供應框架協議) entered into
and Supply Framework	between the Company and Huayi Compressor dated 6
Agreement”	November 2009 in connection with the purchase and supply
	of compressors
“Director(s)”	the director(s) of the Company
“EGM”	the extraordinary general meeting of the Company to be
	held on 15 January 2010 at 9:30 a.m. for the approval of,
	among other things, the transactions under the Compressors
	Purchase and Supply Framework Agreement, the Business
	Co-operation Framework Agreement, the Financial Services
	Agreement, the relevant annual caps, and the amendments
	to the Articles
“Financial Services	an agreement dated 6 November 2009 entered into between
Agreement”	the Company and Hisense Finance, in respect of the
	provision of financial services by Hisense Finance to the
	Company
“Group”	the Company and the Subsidiaries of the Company
“H Shares”	overseas listed foreign shares of the Company with a
	nominal value of RMB1.00 each and are listed on the Stock
	Exchange
“Hisense Air-conditioning”	Qingdao Hisense Air-conditioning Company Limited (青島
	海信空調有限公司), a Subsidiary of Hisense Group
“Hisense Finance”	Hisense Finance Co., Ltd (海信集團財務有限公司), a limited
	company incorporated in the PRC
“Hisense Group”	Hisense Company Limited (海信集團有限公司), a limited
	company incorporated in the PRC

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DEFINITIONS

“Hong Kong” the Hong Kong Special Administrative Region of the PRC
“Huayi Compressor” Huayi Compressor Company Limited (華意壓縮機股份有限公司), a limited company incorporated in the PRC
“HK$” Hong Kong dollar(s), the lawful currency of Hong Kong
“Independent Board an independent board committee of the Company comprising Committee” all the independent non-executive Directors, namely Mr. Zhang Sheng Ping, Mr. Lu Qing and Mr. Cheung Yui Kai, Warren
“Independent Shareholders” Shareholders other than those who are required under the Listing Rules to abstain from voting on the resolutions to be proposed at the EGM to approve the Compressors Purchase and Supply Framework Agreement, the Business Co-operation Framework Agreement, the Financial Services Agreement and the relevant annual caps and the transactions contemplated thereunder
“Independent Third Parties” third parties independent of and not connected with the Company and its connected persons, as defined in the Listing Rules, of the Company
“Kelon Mould” Guangdong Kelon Mould Co., Ltd (廣東科龍模具有限公司), a company incorporated in the PRC on 20 July 1994, an indirect non wholly-owned Subsidiary of the Company
“Latest Practicable Date” 23 November 2009, 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
“RMB” Renminbi yuan, the lawful currency of the PRC

— 3 —

DEFINITIONS

“Ronshen Plastic”	Shunde Ronshen Plastic Products Co., Ltd (佛山市順德區容
	聲塑膠有限公司), a company incorporated in the PRC on 18
	October 1991 and which is an indirect non wholly-owned
	Subsidiary of the Company
“SFO”	Securities and Futures Ordinance (Cap. 571 of the Laws of
	Hong Kong)
“Share(s)”	share(s) of RMB1.00 each in the capital of the Company,
	comprising the A Shares and the H Shares
“Shareholder(s)”	holder(s) of the Shares
“Shenzhen Stock Exchange”	The Shenzhen Stock Exchange
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Subsidiary” or	has the meaning defined in sections 2 and 2B of the
“Subsidiaries”	Companies Ordinance (Cap. 32 of the Laws of Hong Kong)
“%”	per cent.

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LETTER FROM THE BOARD

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

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

(Stock Code: 00921)

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

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

26 November 2009

To the Shareholders

Dear Sir or Madam,

(1) CONTINUING CONNECTED TRANSACTIONS AND DISCLOSEABLE TRANSACTION AND

(2) PROPOSED AMENDMENTS TO THE ARTICLES

INTRODUCTION

The purpose of this circular is to provide you with

(i) details of the Compressors Purchase and Supply Framework Agreement, the Business Co-operation Framework Agreement, the Financial Services Agreement and the related annual caps, the recommendation of the Independent Board Committee and the letter of advice from Access Capital to the Independent Board Committee and the Independent Shareholders in respect of the terms of the Compressors Purchase and Supply Framework Agreement, the Business Co-operation Framework Agreement, the Financial Services Agreement and the related annual caps; and

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LETTER FROM THE BOARD

(ii) details of the proposed amendments to the Articles.

1. COMPRESSORS PURCHASE AND SUPPLY FRAMEWORK AGREEMENT

Date

6 November 2009

Parties

(i) The Company (as purchaser); and
(ii) Huayi Compressor (as supplier).

Term

The Compressors Purchase and Supply Framework Agreement is valid for a term of one year commencing from 1 January 2010 to 31 December 2010, which can be terminated before its expiration by mutual agreement of the parties.

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

Conditions

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

Purchase of Compressors

Pursuant to the terms of the Compressors Purchase and Supply Framework Agreement, the Company agreed that it and/or its relevant Subsidiaries shall purchase on a non-exclusive basis such quantities of compressors as they may

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LETTER FROM THE BOARD

require from time to time from Huayi Compressor and/or its Subsidiaries (as the case may be) for the purpose of manufacturing household electrical appliances, including but not limited to refrigerators and air-conditioners, by the Group. The transactions contemplated under the Compressors Purchase and Supply Framework Agreement are in the ordinary and usual course of business of the Company.

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

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

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

Pricing

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

Payment Term

Payment for the purchase of compressors should be made by telegraphic transfer or bank-issued bills by the Company and/or its Subsidiaries within 60 days after receipt of the compressors.

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LETTER FROM THE BOARD

Historical Figures

The Company and/or its Subsidiaries have conducted similar transactions with Huayi Compressor and/or its Subsidiaries in the past. Details of such historical transaction amount is set out below:

Annual cap for the purchase of Transaction amount for the purchase compressors with Huayi Compressor of compressors with Huayi Compressor and/or its Subsidiaries for the year and/or its Subsidiaries for the nine ending 31 December 2009 months ended 30 September 2009 (RMB) (RMB) 453,658,690 355,453,097

355,453,097 (unaudited)

Maximum Aggregate Annual Caps

The transactions contemplated by the Compressors Purchase and Supply Framework Agreement for the year ending 31 December 2010 are subject to the annual cap set out in the table below:

For the year ending 31 December 2010

RMB580,000,000 (inclusive of value-added tax)

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

Reasons for and Benefits of the Compressors Purchase and Supply Framework Agreement

The Company and/or its Subsidiaries are engaged in the manufacture of household electrical appliances, including but not limited to refrigerators and air-conditioners, which requires compressors as a component for its products. After considering a range of factors including the quality, the price and the compatibility of the compressors manufactured by Huayi Compressor and/or its Subsidiaries with the current facilities used by and the refrigerators and air-conditioners manufactured by

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LETTER FROM THE BOARD

the relevant Subsidiaries of the Company, as well as the level of services provided by Huayi Compressor and/or its Subsidiaries, the Group considers that Huayi Compressor and/or its Subsidiaries are in a good position to supply compressors to the Group.

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

2. BUSINESS CO-OPERATION FRAMEWORK AGREEMENT

Date

6 November 2009

Parties

(i) The Company; and
(ii) Certain Subsidiaries of Hisense Group.

Term

The Business Co-operation Framework Agreement is valid for a term of one year commencing from 1 January 2010 to 31 December 2010, which can be terminated before its expiration by mutual agreement of the parties.

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

Conditions

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

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LETTER FROM THE BOARD

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

(A) Sale and Supply of Moulds

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

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

Pricing

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

Payment Term

Payment for the purchase of moulds is determined according to the payment terms agreed between the parties as set out in the individual mould purchase orders.

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LETTER FROM THE BOARD

Prior to the delivery of the moulds, if either party has made any prepayment to the other party, the receiving party shall pay the interest thereon accrued during the term of such prepayment based on the prevailing lending rate published by the People’s Bank of China.

Reasons for and Benefits of the Sale and Supply of Moulds

The relevant Subsidiary of the Company is principally engaged in the design and manufacture of large and medium size moulds for household electrical appliances. The relevant Subsidiaries of Hisense Group are principally engaged in the manufacture of household appliances. The manufacture and provision of moulds by the relevant Subsidiary of the Company to the relevant Subsidiaries of Hisense Group therefore form an integral part of the business of the relevant Subsidiary of the Company. The sale of moulds under the Business Co-operation Agreement will facilitate the Company to maintain an important existing relationship with the relevant Subsidiaries of Hisense Group so that they may become stable customers of the Company thereby further expanding the sales of the Company.

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

Historical Figures

The relevant Subsidiary of the Company has conducted similar transactions with the relevant Subsidiaries of Hisense Group in the past. Details of such historical transaction amount is set out below:

Transaction amount for the sale and Annual cap for the sale and supply of moulds with the relevant supply of moulds with the relevant Subsidiaries of Hisense Group Subsidiaries of Hisense Group for for the nine months ended the year ending 31 December 2009 30 September 2009 (RMB) (RMB)

17,000,000

3,333,630 (unaudited)

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LETTER FROM THE BOARD

Maximum Annual Cap

The transactions contemplated by the Business Co-operation Framework Agreement for the year ending 31 December 2010 regarding the sale and supply of moulds are subject to the annual cap set out below:

For the year ending 31 December 2010

RMB24,000,000 (inclusive of value-added tax)

(B) Sale and Supply of Air-Conditioners

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

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

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LETTER FROM THE BOARD

Pricing

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

The prices offered by the relevant Subsidiary of the Company to the relevant Subsidiary of Hisense Group for the sale and supply of air-conditioners shall be on terms no more favourable than other third parties.

The price of individual air-conditioner to be sold by the relevant Subsidiary of the Company to the relevant Subsidiary of Hisense Group is determined according to the following standard:

The selling price of individual air-conditioner sold by the relevant Subsidiary of the Company to the relevant Subsidiary of Hisense Group should not be less than the aggregate of (1) production cost for individual air-conditioner; (2) management fee; and (3) after-sale service fee.

After considering the above pricing standard, the price of individual airconditioner agreed by both parties, is:

The price of air-conditioner (specific model) sold by the relevant Subsidiary of the Company to the relevant Subsidiary of Hisense Group = production cost of the air-conditioner (specific model) of the Company or its Subsidiary/0.95 (Note)

Note: This figure is arrived at after considering the relevant percentage level of the management fee and after-sales service fee to be received by the relevant Subsidiary of the Company and the market price of air-conditioners.

The relevant Subsidiary of Hisense Group is responsible for the collection of the air-conditioners from the relevant Subsidiary of the Company.

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LETTER FROM THE BOARD

Payment Term

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

Prior to the delivery of the air-conditioners, if either party has made any prepayment to the other party, the receiving party shall pay the interest thereon accrued during the term of such prepayment based on the prevailing lending rate published by the People’s Bank of China.

Reasons for and Benefits of the Sale and Supply of Air-Conditioners

The relevant Subsidiary of the Company is principally engaged in the design and manufacture of air-conditioners. The relevant Subsidiary of Hisense Group is principally engaged in the production and sales of air-conditioners. Pursuant to the Business Co-operation Framework Agreement, the relevant Subsidiary of the Company shall manufacture and supply air-conditioners to the relevant Subsidiary of Hisense Group for its sale to its customers. The manufacture and provision of air-conditioners by the Company or its Subsidiaries to the relevant Subsidiary of Hisense Group will increase the sales and revenues of the Group.

The competition in the air-conditioners’ market in the PRC is very keen at present with substantial increase in raw materials prices, the production and supply of air-conditioners by the Company or its Subsidiaries to the relevant Subsidiary of Hisense Group can help to lower the fixed costs per unit of product incurred by the Company or its Subsidiaries for the production of airconditioners.

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

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LETTER FROM THE BOARD

Further, since the Company has no means to access the sales channel of Hisense Group and in view of the above-mentioned benefits of selling and supplying air-conditioners to the relevant Subsidiary of Hisense Group, the Company intends to enter into the Business Co-operation Framework Agreement.

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

Historical Figures

The relevant Subsidiary of the Company has conducted similar transactions with the relevant Subsidiary of Hisense Group in the past. Details of such historical transaction amount is set out below:

Transaction amount for the sale and Annual cap for the sale and supply supply of air-conditioners with the of air-conditioners with the relevant relevant Subsidiary of Subsidiary of Hisense Group for the Hisense Group for the nine months year ending 31 December 2009 ended 30 September 2009 (RMB) (RMB) 300,000,000 201,557,729

201,557,729 (unaudited)

Maximum Aggregate Annual Cap

The transactions contemplated by the Business Co-operation Framework Agreement for the term of the agreement are subject to the annual cap set out below:

For the year ending 31 December 2010

RMB260,000,000 (inclusive of value-added tax)

The above annual cap was determined with reference to (a) similar transactions between the relevant Subsidiary of the Company with the relevant Subsidiary of Hisense Group in the past; (b) the prevailing market conditions about the demand for electrical appliances, including air-conditioners, in the

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LETTER FROM THE BOARD

PRC; and (c) the projected level of production and sale of air-conditioners of the relevant Subsidiary of Hisense Group for the year ending 31 December 2010.

(C) Sale and Supply of Refrigerators

Pursuant to the Business Co-operation Framework Agreement, the Company has agreed that the relevant Subsidiary of the Company shall manufacture and supply on a non-exclusive basis such quantities of refrigerators (which models are different from the models of refrigerators to be purchased by the relevant Subsidiary of the Company from the relevant Subsidiaries of Hisense Group under the Business Co-operation Framework Agreement, the particulars of such models will be set out in the refrigerators production and supply orders to be entered into between the relevant parties) as the relevant Subsidiary of Hisense Group may require from time to time for its sale to its customers. The relevant parties agreed to enter into individual refrigerators production and supply orders setting out specific terms including the price, payment terms and schedules, technological services and other terms of delivery, but such terms shall be consistent with the principles and the terms of the Business Co-operation Framework Agreement, including the pricing, operation and trading policies set out therein.

The relevant Subsidiary of Hisense Group has the right to purchase refrigerators from suppliers other than the relevant Subsidiary of the Company from time to time according to its own needs. The relevant Subsidiary of the Company also has the right to supply and sell refrigerators to other companies other than the relevant Subsidiary of Hisense Group.

Pricing

The pricing for the supply of refrigerators is determined principally by arm’s length commercial negotiations according to the principles of fairness and reasonableness between the relevant parties with reference to the market price of the refrigerators from time to time and the price fixing policy of OEM products within the industry. Such transactions will be conducted in the ordinary and usual course of business of the Company, on normal commercial terms and on terms not less favourable to the Company than terms available to or from (as appropriate) Independent Third Parties.

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LETTER FROM THE BOARD

The prices offered by the relevant Subsidiary of the Company to the relevant Subsidiary of Hisense Group for the sale and supply of refrigerators shall be on terms no more favourable than other third parties.

The price of individual refrigerator sold by the relevant Subsidiary of the Company to the relevant Subsidiary of Hisense Group is determined according to the following standard:

The selling price of individual refrigerator sold by the Company or its Subsidiaries to the relevant Subsidiary of Hisense Group should not be less than the aggregate of (1) production cost for individual refrigerator, (2) management fee, and (3) after-sale service fee.

After considering the above pricing standard, the price of individual refrigerator agreed by both parties, is:

The price of refrigerator (specific model) to be sold by the relevant Subsidiary of the Company to the relevant Subsidiary of Hisense Group = production cost of the refrigerator (specific model) of the relevant Subsidiary of the Company/0.93 (Note)

Note: This figure is arrived at after considering the relevant percentage level of the management fee and after-sale service fee to be received by the relevant Subsidiary of the Company and the market price of refrigerators.

The relevant Subsidiary of Hisense Group is responsible for the collection of the refrigerators from the Company or its Subsidiaries.

Payment Term

Payment for the purchase of refrigerators should be made by telegraphic transfer or bank-issued bills by the relevant Subsidiary of Hisense Group within 60 days after receipt of the refrigerators. Prior to the delivery of the refrigerators, if either party has made any prepayment to the other party, the receiving party shall pay the interest thereon accrued during the term of such repayment based on the prevailing lending rate published by the People’s Bank of China.

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LETTER FROM THE BOARD

Reasons for and Benefits of the Sale and Supply of Refrigerators

The relevant Subsidiary of the Company is principally engaged in the design and manufacture of refrigerators. The relevant Subsidiary of Hisense Group is principally engaged in the production, research and sales of household appliances and electronic products and the provision of related services. Pursuant to the Business Co-operation Framework Agreement, the relevant Subsidiary of the Company shall manufacture and supply refrigerators to the relevant Subsidiary of Hisense Group for its sale to its customers. The manufacture and provision of refrigerators by the relevant Subsidiary of the Company to the relevant Subsidiary of Hisense Group will increase the sales and revenues of the Group.

The competition in the refrigerators’ market in the PRC is very keen at present with substantial increase in raw materials prices, the production and supply of refrigerators by the Subsidiary of the Company to the relevant Subsidiary of Hisense Group can help to lower the fixed costs per unit of product incurred by the relevant Subsidiary of the Company for the production of refrigerators.

The relevant Subsidiary of the Company possesses excess production capacity for refrigerators and fixed costs (e.g. depreciation of machinery and rent) will be incurred by the relevant Subsidiary of the Company for the production of refrigerators in any event, the production of refrigerators for the relevant Subsidiary of Hisense Group can help to make the best use of the idle machinery and lower the fixed costs per unit of product incurred by the relevant Subsidiary of the Company as a result of the increase in production level. Therefore, the competitiveness of the products of the Company will increase.

Further, since the Company has no means to access the sales channel of Hisense Group and in view of the above-mentioned benefits of selling and supplying refrigerators to the relevant Subsidiary of Hisense Group, the Company intends to enter into the Business Co-operation Framework Agreement.

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

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LETTER FROM THE BOARD

Historical Figures

The relevant Subsidiary of the Company has conducted similar transactions with the relevant Subsidiary of Hisense Group in the past. Details of such historical transaction amount is set out below:

Transaction amount for the sale Annual Cap for the sale and supply and supply of refrigerators with the of refrigerators with the relevant relevant Subsidiary of Subsidiary of Hisense Group for the Hisense Group for the nine year ending 31 December 2009 months ended 30 September 2009 (RMB) (RMB) 797,920,000 514,717,479 (unaudited)

Maximum Aggregate Annual Cap

The transactions contemplated by the Business Co-operation Framework Agreement regarding the sale and supply of refrigerators for the year ending 31 December 2010 are subject to the annual cap set out below:

For the year ending 31 December 2010

RMB928,864,300 (inclusive of value-added tax)

The above annual cap was determined with reference to (a) the similar transactions between the relevant Subsidiary of the Company with the relevant Subsidiary of Hisense Group in the past; and (b) the prevailing market conditions about the demand for electrical appliances, including refrigerators, in the PRC; and (c) the projected level of production and sale of refrigerators of the relevant Subsidiary of Hisense Group for the year ending 31 December 2010.

(D) Sale and Supply of Raw Materials, Components and Facilities

Pursuant to the Business Co-operation Framework Agreement, the Company has agreed that the relevant Subsidiaries of the Company shall (i) manufacture and supply on a non-exclusive basis such quantities of raw materials (including “white board materials”, “black board materials” and compressors) and components of refrigerators and air-conditioners (which models and nature

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are different from the models and nature of raw materials of components of refrigerators and air-conditioners to be purchased by the relevant Subsidiaries of the Company from the relevant Subsidiaries of Hisense Group under the Business Co-operation Framework Agreement, the particulars of such models will be set out in the raw-materials production and supply orders to be entered into between the relevant parties) and components of televisions, facilities and electrical machinery (which are components of air-conditioners) as the relevant Subsidiaries of Hisense Group may require from time to time for the purpose of the manufacture of refrigerators and air-conditioners, for sale to the Company pursuant to the Business Co-operation Framework Agreement (which will be elaborated in subsequent section of this circular) and for the purpose of the manufacture of televisions; and (ii) act as the agent of the relevant Subsidiaries of Hisense Group for the purchase of raw materials from other third parties for the production of refrigerators and air-conditioners. The relevant parties agreed to enter into individual raw materials production and supply orders setting out specific terms including the price, payment terms and schedules, technological services and other terms of delivery, but such terms shall be consistent with the principles and the terms of the Business Co-operation Framework Agreement, including the pricing, operation and trading policies set out therein.

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

Pricing

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

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(ii) Pricing for the sale and supply of facilities is determined principally by arm’s length commercial negotiation between the parties according to the principles of fairness and reasonableness with reference to the net book value of such facilities. Such transactions will be conducted on normal commercial terms and on terms not less favourable to the Company than terms available to or from (as appropriate) Independent Third Parties.
(iii) Pricing for the sale and supply of raw materials by acting as the agent of the relevant Subsidiaries of Hisense Group is determined principally by arm’s length commercial negotiation between the parties according to the principles of fairness and reasonableness with reference to the market price of raw materials. The price for such raw materials is agreed as:

Price of raw materials (per tonne) = the cost for the purchase of raw materials by the Company from other third parties (per tonne) + administration fee of RMB50

The prices to be offered by the relevant Subsidiaries of the Company to the relevant Subsidiaries of Hisense Group for the sale and supply of such raw materials shall be on terms no more favourable than other third parties.

Payment Term

Payment for the purchase of raw-materials, components and facilities should be made by telegraphic transfer or bank-issued bills by the relevant Subsidiaries of Hisense Group within 60 days after receipt of the raw materials, facilities and components.

Prior to the delivery of the raw materials and components and facilities if either party has made any prepayment to the other party, the receiving party shall pay the interest thereon accrued during the term of such prepayment based on the prevailing lending rate published by the People’s Bank of China.

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Reasons for and Benefits of the Sale and Supply of Raw Materials, Components and Facilities

The relevant Subsidiaries of the Company are principally engaged in the design and manufacture of refrigerators and air-conditioners and components parts of electrical appliances. The relevant Subsidiaries of Hisense Group are principally engaged in the production and sales of household appliances and electronic products.

Pursuant to the Business Co-operation Framework Agreement, the relevant Subsidiaries of Hisense Group shall manufacture and supply refrigerators and air-conditioners to the Company (which will be elaborated in subsequent section of this circular). In such circumstances, the relevant Subsidiaries of Hisense Group shall purchase compatible refrigerators’ and air-conditioners’ components for the production of refrigerators and air-conditioners for its sale to the Company. The provision of refrigerators’ and air-conditioners components by the relevant Subsidiaries of the Company to the relevant Subsidiaries of Hisense Group facilitates the Company to distribute and sell its products. The sale and supply of facilities by the relevant Subsidiaries of the Company to the relevant Subsidiaries of Hisense Group can facilitate its production of refrigerators and air-conditioners for its sale to the Company. Further, the Company considers that the relevant Subsidiaries of Hisense Group are reliable business co-operation partners and such co-operation is beneficial to the business of the Company. The sale and supply of raw materials and components between the parties under the Business Cooperation Framework Agreement is in compliance with the relevant laws and regulations of the PRC. They will not jeopardise the interest of the Group and the Shareholders and will not affect the independence of the Group.

Further, the provision of raw materials and components parts of televisions to the relevant Subsidiaries of Hisense Group can increase the revenues of the Company.

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

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Historical Figures

The relevant Subsidiaries of the Company have conducted similar transactions with the relevant Subsidiaries of Hisense Group in the past. Details of such historical transaction amount is set out below:

Transaction amount for the sale Annual cap for the sale and supply and supply of raw materials and of raw materials and components components with the relevant with the relevant Subsidiaries of Subsidiaries of Hisense Group for Hisense Group for the year ending the nine months ended 31 December 2009 30 September 2009 (RMB) (RMB) 247,600,000 97,411,843

97,411,843 (unaudited)

Maximum Aggregate Annual Cap

The transactions contemplated by the Business Co-operation Framework Agreement regarding the sale and supply of raw materials and components for the year ending 31 December 2010 are subject to the annual cap set out below:

For the year ending 31 December 2010

RMB655,900,000 (inclusive of value-added tax)

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

(E) Sale and Supply of Home Appliances and Parts and Components

Pursuant to the Business Co-operation Framework Agreement, the Company has agreed that the relevant Subsidiary of the Company shall manufacture and supply on a non-exclusive basis such quantities of home appliances, including air-conditioners, refrigerators and freezers, and parts and components for airconditioners, refrigerators and freezers to the relevant Subsidiary of Hisense Group may require from time to time for sale purpose.

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

The relevant Subsidiary of Hisense Group has the right to purchase home appliances, including air-conditioners, refrigerators and freezers, and parts and components for air-conditioners, refrigerators and freezers from suppliers other than the relevant Subsidiary of the Company from time to time according to its own needs. The relevant Subsidiary of the Company also has the right to supply and sell home appliances, including air-conditioners, refrigerators and freezers, and parts and components for air-conditioners, refrigerators and freezers to other companies other than the relevant Subsidiary of Hisense Group.

Pricing

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

Such transactions will be conducted in the ordinary and usual course of business of the Company, on normal commercial terms and on terms not less favourable to the Company than terms available to or from (as appropriate) Independent Third Parties.

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Payment Term

Payment for the purchase of home appliances, including air-conditioners, refrigerators and freezers, and parts and components for air-conditioners, refrigerators and freezers should be made by the relevant Subsidiary of Hisense Group within 60 days from delivery of such home appliances and components.

Prior to the delivery of the home appliances and parts and components, if either party has made any prepayment to the other party, the receiving party shall pay the interest thereon accrued during the term of such prepayment based on the prevailing lending rate published by the People’s Bank of China.

Reasons for and Benefits of the Sale and Supply of Home Appliances and Parts and Components

The sales of home appliances and parts and components to the relevant Subsidiary of Hisense Group for sale purpose can increase the revenue of the Company, globalize its sales networks, improve its profit margins and enhance its publicity.

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

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Historical Figures

The relevant Subsidiary of the Company has conducted similar transactions with the relevant Subsidiary of Hisense Group in the past. Details of such historical transaction amount is set out below:

Annual cap for the sale and supply of Home Appliances and Parts and Components with the relevant Subsidiary of Hisense Group for the year ending 31 December 2009 (RMB)

Transaction amount for the sale and supply of Home Appliances and Parts and Components with the relevant Subsidiary of Hisense Group for the nine months ended 30 September 2009 (RMB)

346,600,000

209,648,045 (unaudited)

Maximum Aggregate Annual Cap

The transactions contemplated by the Business Co-operation Framework Agreement regarding the sale and supply of home appliances, including airconditioners, refrigerators and freezers, and parts and components for airconditioners, refrigerators and freezers, for the year ending 31 December 2010 are subject to the annual cap set out below:

For the year ending 31 December 2010

RMB1,008,405,000 (inclusive of value-added tax)

The above annual cap was determined with reference to (a) similar transactions between the relevant Subsidiary of the Company with the relevant Subsidiary of Hisense Group in the past; (b) the prevailing market conditions about the demand for home appliances, including air-conditioners, refrigerators and freezers, and parts and components for air-conditioners, refrigerators and freezers for the year ending 31 December 2009.

(F) Provision of Leasing and Property Management Service

Pursuant to the Business Co-operation Framework Agreement, the Company has agreed that the relevant Subsidiary of the Company shall provide leasing, property management, sanitary and security services to the factories or offices

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of the relevant Subsidiary of Hisense Group. The parties agreed to enter into individual service provision orders setting out specific terms for the provision of leasing, property management, sanitary and security services including fees, scope of the services, payment terms and schedules, but such terms shall be consistent with the principles and the terms of the Business Co-operation Framework Agreement, including the pricing, operation and trading policies set out therein.

The relevant Subsidiary of Hisense Group has the right to engage from time to time according to its own needs other service providers to provide leasing, property management, sanitary and security services to its factories and offices other than the relevant Subsidiary of the Company. The Business Co-operation Framework Agreement also does not restrict the rights of the relevant Subsidiary of the Company to provide leasing, property management, sanitary and security services to any other third parties.

Pricing

The fees payable by the relevant Subsidiary of Hisense Group to the relevant Subsidiary of the Company for the provision of leasing, property management, sanitary and security services is determined principally by arm’s length commercial negotiations according to the principles of fairness and reasonableness between the parties with reference to the market price for the provision of leasing, property management, sanitary and security services from time to time. Such transactions will be conducted in the ordinary and usual course of business of the Company, on normal commercial terms and on terms not less favourable to the Company than terms available to Independent Third Parties.

Payment Term

The fees for the provision of leasing, property management, sanitary and security services will be calculated on a monthly basis and such monthly fee should be made by telegraphic transfer or bank-issued bills by the relevant Subsidiary of Hisense Group within 15 days from the next following month.

Prior to the provision of the leasing, property management, sanitary and security services, if either party has made any prepayment to the other party, the receiving party shall pay the interest thereon accrued during the term of such prepayment based on the prevailing lending rate published by the People’s Bank of China.

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Reasons for and Benefits of the Engagement for the Service Provision

The relevant Subsidiary of the Company is principally engaged in the provision of leasing, property management, sanitary and security services to offices and factories. The relevant Subsidiary of Hisense Group is principally engaged in production and sales of electrical appliances.

Since the provision of the leasing, property management, sanitary and security services to the relevant Subsidiary of Hisense Group can increase the revenues of the Company, the Directors are of the view that the terms of the provision of leasing, property management, sanitary and security services under the Business Co-operation Framework Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Historical Figures

The relevant Subsidiary of the Company has conducted similar transactions with the relevant Subsidiary of Hisense Group in the past. Details of such historical transaction amount is set out below:

Transaction amount for the provision of the property management, sanitary and security services with the relevant Subsidiary of Hisense Group for the nine months ended 30 September 2009 (RMB) (RMB) 1,880,000 308,501 (unaudited)

Annual cap for the provision of property management, sanitary and security services with the relevant Subsidiary of Hisense Group for the year ending 31 December 2009

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Maximum Aggregate Annual Cap

The transactions contemplated by the Business Co-operation Framework Agreement regarding the provision of the leasing, property management, sanitary and security services for the year ending 31 December 2010 are subject to the annual cap set out below:

For the year ending 31 December 2010

RMB9,460,000 (inclusive of value-added tax)

The above annual cap was determined with reference to (a) similar transactions between the relevant Subsidiaries of the Company with the relevant Subsidiaries of Hisense Group in the past; (b) the prevailing market conditions for the demand of the provision of leasing, property management, sanitary and security services; and (c) the anticipated increase in demand for property management, sanitary and security services from the relevant Subsidiaries of Hisense Group due to the satisfactory cooperation relationship between the parties in the past.

(G) Purchase of Air-Conditioners

Pursuant to the Business Co-operation Framework Agreement, the Company has agreed that the relevant Subsidiary of the Company shall purchase from the relevant Subsidiaries of Hisense Group on a non-exclusive basis such quantities of air-conditioners (which models are different from the models of air-conditioners to be sold by the relevant Subsidiary of the Company to the relevant Subsidiary of Hisense Group under the Business Co-operation Framework Agreement, the particulars of such models will be set out in the air-conditioners production and purchase orders to be entered into between the relevant parties) as the relevant Subsidiary of the Company may require from time to time to facilitate its sale. The parties agreed to enter into individual air-conditioners production and purchase orders setting out specific terms including the price, payment terms and schedules, technological services and other terms of delivery, but such terms shall be consistent with the principles and the terms of the Business Co-operation Framework Agreement, including the pricing, operation and trading policies set out therein.

The relevant Subsidiary of the Company has the right to purchase airconditioners from suppliers other than the relevant Subsidiaries of Hisense Group from time to time according to its own needs.

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The Business Co-operation Framework Agreement does not restrict the rights of the relevant Subsidiaries of Hisense Group to sell air-conditioners to any other third parties.

Pricing

The pricing for the purchase of air-conditioners is determined principally by arm’s length commercial negotiations according to the principles of fairness and reasonableness between the parties with reference to the market price of the air-conditioners from time to time and the Group’s knowledge of pricing policy of OEM products within the industry. Such transactions will be conducted in the ordinary and usual course of business of the Company, on normal commercial terms and on terms not less favourable to the Company than terms available to or from (as appropriate) Independent Third Parties.

The price of individual air-conditioners sold by the relevant Subsidiaries of Hisense Group to the relevant Subsidiary of the Company is determined according to the following standard:

The purchase price of individual air-conditioner purchased by the relevant Subsidiary of the Company from the relevant Subsidiaries of Hisense Group should be less than or equal to the aggregate of (1) production cost for individual air-conditioner produced by the relevant Subsidiary of the Company, (2) management fee, and (3) transportation costs for individual air-conditioner (from Shunde to the locations of the relevant Subsidiaries of Hisense Group).

After considering the above pricing standard, the price of individual airconditioners agreed by both parties is:

The price of air-conditioner (specific model) sold by the relevant Subsidiaries of Hisense Group to the relevant Subsidiary of Company = production cost of the air-conditioner (specific model) of the Subsidiaries of the Company/0.95 (Note)

Note: This figure is arrived at after considering the relevant percentage level of the production costs, transportation costs and management fee to be incurred if the air-conditioners are produced by the relevant Subsidiary of the Company and the market price of airconditioners.

The relevant Subsidiary of the Company is responsible for the collection of the air-conditioners from the relevant Subsidiaries of Hisense Group.

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Payment Term

Payment for the purchase of air-conditioners should be made by telegraphic transfer or bank-issued bills by the relevant Subsidiary of the Company within 60 days after receipt of the air-conditioners.

Reasons for and Benefits of the Purchase of Air-Conditioners

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

The relevant Subsidiaries of Hisense Group are principally engaged in the production of air-conditioners and the production and sales of other household electrical appliances.

Taking into account a range of factors including the reduction in transportation costs, the improvement in competitiveness, the quality and the price of the air-conditioners manufactured by the relevant Subsidiaries of Hisense Group, as well as the level of services provided by the relevant Subsidiaries of Hisense Group, the Company considers that the purchase of air-conditioners under the Business Co-operation Framework Agreement will improve the competitiveness and responsiveness of the air-conditioners of the relevant Subsidiary of the Company and thus facilitating the Group’s airconditioners sales so as to assist the Company to further develop its business.

The pricing for the purchase of air-conditioners by the Company from the relevant Subsidiaries of Hisense Group will be substantially the same as the aggregate costs of production of air-conditioners by the relevant Subsidiary of the Company in Shunde, Guangdong and costs of transportation of the same for sale to the relevant locations of the relevant Subsidiaries of Hisense Group. The purchase of air-conditioners from the relevant Subsidiaries of Hisense Group will reduce the time of transportation between Shunde, Guangdong to the location of the relevant Subsidiaries of Hisense Group, improving the responsiveness of the Company to changes in the market conditions as well as changes in climate and thus preventing loss of market share to its competitors.

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A reduction in the transportation distance of air-conditioners will also reduce probable damages to the cooling products during transportation.

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

Historical Figures

The relevant Subsidiary of the Company has conducted similar transactions with the relevant Subsidiary of Hisense Group in the past. Details of such historical transaction amount is set out below:

Transaction amount for the Annual cap for the purchase of purchase of air-conditioners from air-conditioners from the relevant the relevant Subsidiary of Hisense Subsidiary of Hisense Group for the Group for the nine months year ending 31 December 2009 ended 30 September 2009 (RMB) (RMB) 540,000,000 324,652,510

324,652,510 (unaudited)

Maximum Aggregate Annual Cap

The transactions contemplated by the Business Co-operation Framework Agreement regarding the purchase of air-conditioners for the year ending 31 December 2010 are subject to the annual cap set out below:

For the year ending 31 December 2010

RMB1,124,000,000 (inclusive of value-added tax)

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

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(H) Purchase of Refrigerators

Pursuant to the Business Co-operation Framework Agreement, the Company has agreed that the relevant Subsidiary of the Company shall purchase from the relevant Subsidiaries of Hisense Group on a non-exclusive basis such quantities of refrigerators (which models are different from the models of refrigerators to be sold by the relevant Subsidiary of the Company to the relevant Subsidiary of Hisense Group under the Business Co-operation Framework Agreement, the particulars of such models will be set out in the refrigerators production and purchase orders to be entered into between the relevant parties) as the relevant Subsidiary of the Company may require from time to time to facilitate its sale. The parties agreed to enter into individual refrigerators production and purchase orders setting out specific terms including the price, payment terms and schedules, technological services and other terms of delivery, but such terms shall be consistent with the principles and the terms of the Business Co-operation Framework Agreement, including the pricing, operation and trading policies set out therein.

The relevant Subsidiary of the Company has the right to purchase refrigerators from suppliers other than the relevant Subsidiaries of Hisense Group from time to time according to its own needs.

The Business Co-operation Framework Agreement also does not restrict the rights of the relevant Subsidiaries of Hisense Group to sell refrigerators to any other third parties.

Pricing

The pricing for the purchase of refrigerators is determined principally by arm’s length commercial negotiations according to the principles of fairness and reasonableness between the parties with reference to the market price of the refrigerators from time to time and the Group’s knowledge of pricing policy of OEM products within the industry. Such transactions will be conducted in the ordinary and usual course of business of the Company, on normal commercial terms and on terms not less favourable to the Company than terms available to or from (as appropriate) Independent Third Parties.

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The price of individual refrigerators sold by the relevant Subsidiaries of Hisense Group to the relevant Subsidiary of the Company is determined according to the following standard:

The purchase price of individual refrigerators purchased by the relevant Subsidiary of the Company from the relevant Subsidiaries of Hisense Group should be less than or equal to the aggregate of (1) production cost for individual refrigerator produced by the relevant Subsidiary of the Company, (2) management fee, and (3) transportation costs for individual refrigerator (from Shunde to the locations of the relevant Subsidiaries of Hisense Group)

After considering the above pricing standard, the price of individual refrigerator agreed by both parties is:

The price of refrigerator (specific model) sold by the relevant Subsidiaries of Hisense Group to the relevant Subsidiary of the Company = production cost of the refrigerator (specific model) of the relevant Subsidiary of the Company/0.93 (Note)

Note: This figure is arrived at after considering the relevant percentage level of the production costs, transportation costs and management fee to be incurred if the refrigerators are produced by the relevant Subsidiary of the Company and the market price of refrigerators.

The relevant Subsidiary of the Company is responsible for the collection of the refrigerators from the relevant Subsidiaries of Hisense Group.

Payment Term

Payment for the fees for purchase of refrigerators should be made by telegraphic transfer or bank-issued bills by the relevant Subsidiary of the Company within 60 days after receipt of the refrigerators. Prior to the delivery of the refrigerators, if either party has made any prepayment to the other party, the receiving party shall pay the interest thereon accrued during the term of such repayment based on the prevailing lending rate published by the People’s Bank of China.

Reasons for and Benefits of the Purchase of Refrigerators

The relevant Subsidiary of Company is principally engaged in the manufacture and sales of refrigerators. The relevant Subsidiaries of Hisense Group are principally engaged in the production of refrigerators and the production and sales of other household electrical appliances.

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Taking into account a range of factors including the reduction in transportation costs, the improvement in competitiveness, the quality and the price of the refrigerators manufactured by the relevant Subsidiaries of Hisense Group, as well as the level of services provided by the relevant Subsidiaries of Hisense Group, the relevant Subsidiary of Company considers that the purchase of refrigerators under the Business Co-operation Framework Agreement will improve the competitiveness and responsiveness of the refrigerators of the Company for its sales and thus facilitating the Group’s refrigerators sales so as to assist the relevant Subsidiary of the Company to further develop its business.

The pricing for the purchase of refrigerators by the relevant Subsidiary of the Company from the relevant Subsidiaries of Hisense Group will be substantially the same as the aggregate costs of production of refrigerators by the relevant Subsidiary of the Company in Shunde, Guangdong and the costs of transportation of the same for sale to the relevant locations of the relevant Subsidiaries of Hisense Group.

The purchase of refrigerators from the relevant Subsidiaries of Hisense Group will reduce the time of transportation between Shunde, Guangdong and the location of the relevant Subsidiaries of Hisense Group, improving the responsiveness of the Company to changes in the market and preventing loss of market share to its competitors.

A reduction in the transportation distance of refrigerators will also reduce wear and tear to the cooling products during transportation. In light of the above, the Directors are of the view that the terms for the purchase of refrigerators under the Business co-operation Framework Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

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Historical Figures

The relevant Subsidiary of the Company has conducted similar transactions with the relevant Subsidiary of Hisense Group in the past. Details of such historical transaction amount is set out below:

Transaction amounts for the Annual cap for the purchase of purchase of refrigerators from refrigerators from the relevant the relevant Subsidiary of Hisense Subsidiary of Hisense Group for the Group for the nine months year ending 31 December 2009 ended 30 September 2009 (RMB) (RMB) 820,000,000 711,600,608 (unaudited)

Maximum Aggregate Annual Cap

The transactions contemplated by the Business Co-operation Framework Agreement regarding the purchase of refrigerators for the year ending 31 December 2010 are subject to the annual cap set out below:

For the year ending 31 December 2010

RMB1,188,372,300 (inclusive of value-added tax)

The above annual cap was determined with reference to (a) similar transactions between the relevant Subsidiary of the Company with the relevant Subsidiaries of Hisense Group in the past; (b) the prevailing market conditions about the demand for electrical appliances, including refrigerators, in the PRC; and (c) the projected level of production and sale of refrigerators of the relevant Subsidiary of the Company for the year ending 31 December 2010.

(I) Purchase of Raw Materials, Components and Facilities

Pursuant to the Business Co-operation Framework Agreement, the Company has agreed that the relevant Subsidiaries of the Company shall purchase from the relevant Subsidiaries of Hisense Group on a non-exclusive basis such quantities of raw materials (including “white board materials”, “black board materials” and compressors), facilities, and refrigerators’ and air-conditioners’ components (which models and nature are different from the models and

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nature of facilities, raw materials of refrigerators’ and air-conditioners’ components to be purchased by the relevant Subsidiaries of Hisense Group from the relevant Subsidiaries of the Company under the Business Cooperation Framework Agreement, the particulars of such models will be set out in the raw-materials purchase and supply orders to be entered into between the relevant parties) as the relevant Subsidiaries of the Company may require from time to time for the purpose of the manufacture of air-conditioners and refrigerators, for sale to the relevant Subsidiaries of Hisense Group pursuant to the Business Co-operation Framework Agreement (which are set out in previous sections of this circular). The parties agreed to enter into individual raw materials purchase and supply orders setting out specific terms including the price, payment terms and schedules, technological services and other terms of delivery, but such terms shall be consistent with the principles and the terms of the Business Co-operation Framework Agreement, including the pricing, operation and trading policies set out therein.

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

Pricing

(i) Pricing for the purchase of raw materials and refrigerators’ and airconditioners’ components is determined principally by arm’s length commercial negotiation between the relevant Subsidiaries of the Company and the relevant Subsidiaries of Hisense Group according to the principles of fairness and reasonableness with reference to the market price of raw materials and components of refrigerators and airconditioners from time to time.
(ii) Pricing for the purchase of facilities is determined principally by arm’s length commercial negotiation between the parties according to the principles of fairness and reasonableness with reference to the net book value of such facilities. Such transactions will be conducted on normal commercial terms and on terms not less favourable to the Company than terms available to or from (as appropriate) Independent Third Parties.

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Payment Term

Payment for the fees for the purchase of raw materials, components and facilities should be made by telegraphic transfer or bank-issued bills by the relevant Subsidiaries of the Company within 60 days after receipt of the raw materials, components and facilities.

Prior to the delivery of the raw materials, components and facilities, if either party has made any prepayment to the other party, the receiving party shall pay the interest thereon accrued during the term of such prepayment based on the prevailing lending rate published by the People’s Bank of China.

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

The relevant Subsidiaries of the Company are principally engaged in the design and manufacture of air-conditioners and refrigerators. The relevant Subsidiaries of Hisense Group are principally engaged in the manufacture of electrical appliances, including air-conditioners.

Pursuant to the Business Co-operation Framework Agreement, the relevant Subsidiaries of the Company shall manufacture and supply refrigerators and air-conditioners to the Subsidiaries of Hisense Group (which were set out in previous parts of this circular). In such circumstances, the relevant Subsidiaries of the Company shall purchase compatible raw materials, facilities and refrigerators’ and air-conditioners’ components for the production of refrigerators and air-conditioners for its sale to the relevant Subsidiaries of Hisense Group.

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

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

Historical Figures

The relevant Subsidiary of the Company has conducted similar transactions with the relevant Subsidiary of Hisense Group in the past. Details of such historical transaction amount is set out below:

Annual Cap for the purchase of raw materials and components of refrigerators and air-conditioners from the relevant Subsidiary of Hisense Group for the year ending 31 December 2009 (RMB)

Transaction amount for the purchase of raw materials and components of refrigerators and air-conditioners from the relevant Subsidiary of Hisense Group for the nine months ended 30 September 2009 (RMB)

59,840,000 15,629,742 (unaudited)

Maximum Aggregate Annual Cap

The transactions contemplated by the Business Co-operation Framework Agreement regarding the purchase of raw materials, components and facilities for the year ending 31 December 2010 are subject to the annual cap set out below:

For the year ending 31 December 2010

RMB78,330,000 (inclusive of value-added tax)

The above annual cap was determined with reference to (a) the prevailing market conditions about the demand for electrical appliances, including airconditioners and refrigerators, in the PRC; and (b) the projected rising level of sale and production of refrigerators by the relevant Subsidiaries of the Company to the relevant Subsidiaries of Hisense Group for the year ending 31

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December 2010 and in turn the relevant Subsidiaries of the Company have to increase their purchases of raw materials facilities and components from the relevant Subsidiaries of Hisense Group to enable such production and sale.

(J) Provision of Services

Pursuant to the Business Co-operation Framework Agreement, the Company has agreed that the relevant Subsidiary of the Company shall engage Hisense Group and its relevant Subsidiaries for the provision of after-sale maintenance, repair and consultation services to the customers of the Group in part of the PRC who have purchased electrical appliances from the Group and the provision and maintenance of electronic communication services (e.g., web-conferences services) to the Company. The parties agreed to enter into individual service provision orders setting out specific terms for the provision of services including fees, scope of the services, payment terms and schedules, but such terms shall be consistent with the principles and the terms of the Business Co-operation Framework Agreement, including the pricing, operation and trading policies set out therein.

The relevant Subsidiary of the Company has the right to engage from time to time according to its own needs other service providers to provide after-sale maintenance, repair and consultation services to the customers of the Group and the provision and maintenance of electronic communication services to the Company, other than Hisense Group and its relevant Subsidiaries. The Business Co-operation Framework Agreement also does not restrict the rights of the relevant Subsidiaries of Hisense Group to provide such services to any other third parties.

Pricing

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

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Payment Term

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

Prior to the provision of services, if either party has made any prepayment to the other party, the receiving party shall pay the interest thereon accrued during the term of such prepayment based on the prevailing lending rate published by the People’s Bank of China.

Reasons for and Benefits of the Engagement for the Services Provision

The relevant Subsidiary of the Company is principally engaged in the manufacture and sales of refrigerators and air-conditioners. The relevant Subsidiaries of Hisense Group are principally engaged in the provision of after-sale maintenance, repair and consultation services and the provision and maintenance of electronic communication services.

At present, the Company does not have its own repair, maintenance and consultation services team to provide after-sale maintenance, repair and consultation services to its customers and as such, it has to engage third party service providers for the provision of the after-sale maintenance, repair and consultation services to its customers, including customers in the Regions. Even though the Company will continue to engage other third parties service providers for the provision of such services to its customers, the engagement of Hisense Group and its relevant Subsidiaries for the provision of after-sale maintenance, repair and maintenance services can help the relevant Subsidiary of the Company to reduce reliance on a single service provider, foster its control on its services network, enhance its supervision on the maintenance and repair service teams and enable the Company to make long term planning on maintenance services provision. Further, the relevant Subsidiaries of Hisense Group possess the expertise and experience for the provision and maintenance of electronic communication services which can enable the Company to carry out its daily operation smoothly.

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

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Historical Figures

The relevant Subsidiary of the Company has conducted similar transactions with the relevant Subsidiary of Hisense Group in the past. Details of such historical transaction amount is set out below:

Transaction amount for the Annual cap for the provision of provision of services by the services by the relevant Subsidiary relevant Subsidiary of Hisense of Hisense Group for the year Group for the nine months ending 31 December 2009 ended 30 September 2009 (RMB) (RMB) 27,900,000 10,233,278 (unaudited)

Maximum Aggregate Annual Cap

The transactions contemplated by the Business Co-operation Framework Agreement regarding the service provision for the year ending 31 December 2010 are subject to the annual cap set out below:

For the year ending 31 December 2010

RMB47,041,600 (inclusive of value-added tax)

The above annual cap was determined with reference to (a) similar transactions between the relevant Subsidiary of the Company with the relevant Subsidiaries of Hisense Group in the past; (b) the projected level of production and sale of electrical appliances of the relevant Subsidiary of the Company for the year ending 31 December 2010.

3. FINANCIAL SERVICES AGREEMENT

Date

6 November 2009

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Parties

(i) The Company; and
(ii) Hisense Finance

Term

The term of the Financial Services Agreement is two years with effective from obtaining the approval by the Independent Shareholders at the EGM.

Conditions Precedent

The transactions under the Financial Services Agreement are subject to the approval of the Independent Shareholders at the EGM.

Major terms

(1) The services to be provided by Hisense Finance to the Group include deposit services, loan services and draft discount services;
(2) Hisense Finance shall be appointed to provide financial services to the Group, subject to compliance with the terms and conditions of the Financial Services Agreement and the subsequent agreement of the terms and conditions by the parties thereto in relation to the provision of each particular service which shall be recorded in writing. The Group may however obtain financial services, including deposit services and loan services and draft discount services, from other financial institutions in addition to or instead of Hisense Finance, as it sees fit;
(3) The interest rate payable for the Group’s deposits with Hisense Finance shall not be lower than the rate payable by normal commercial banks in the PRC for comparable deposits and such interest shall be payable by Hisense Finance on a quarterly basis by way of crediting cash into the deposit account of the Group. The terms for the provision of the deposit services by Hisense Finance to the Group shall be no less favourable than those of other normal commercial banks and financial institutions;

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(4) The interest rate charged for the loans provided to the Group by Hisense Finance shall not be higher than the rate charged by normal commercial banks in the PRC for comparable loans and such interest shall be payable by the Group to Hisense Finance on a monthly basis payable on the 20th day of each month. The terms for the provision of the loans by Hisense Finance to the Group shall be no less favourable than those of other normal commercial banks and financial institutions. Security over the assets of the Company may be provided by the Company to Hisense Finance in respect of the loan services rendered, depending on the then circumstances for the provision of the loan services;
(5) Under the Financial Services Agreement, Hisense Finance will provide draft discount services to the Group which means that the Group is entitled to present bank drafts to Hisense Finance for payment before the maturity date of the bank drafts. In return, Hisense Finance will charge service fee from the Group for “cashing” the bank drafts. After the Group has discounted the bank drafts with Hisense Finance, such bank drafts will belong to Hisense Finance which has the right to present such bank drafts to the issuing banks for payment on their respective maturity dates;

The service fee payable by the Company for the draft discount services to be provided by Hisense Finance shall not be less favourable than the service fee charged by normal commercial banks in the PRC for providing comparable draft discount services; and

(6) The Company will make payment for such interest and fees (if any) in accordance with the payment terms of the separate agreements for the provision of loans and draft discount services as might be entered into between the parties.

Proposed Annual Caps

Deposit Service

The Company currently expects that the maximum daily balance of the deposits placed by the Group with Hisense Finance at any time during the life of the Financial Services Agreement shall not exceed the cap of RMB400,000,000 (inclusive of interest) on any given day.

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Such proposed cap has been determined based on (i) the historical cashflow figures of the Group; and (ii) the historical transaction figures for the deposit services provided by other financial institutions to the Group that the average monthly balance of the deposits placed by the Group with other financial institutions were RMB402,216,000, RMB282,135,000, RMB167,361,000 and RMB207,884,000 for the three years ended 31 December 2006, 31 December 2007 and 31 December 2008 and the six months ended 30 June 2009, respectively; and (iii) the expected financial needs of cash of the Group taking into account the business development plans on areas relating to research and development, investment, sales and supply of the Group; and (iv) the proposed loans to be provided by Hisense Finance to the Group under the Financial Services Agreement will first be transferred by Hisense Finance to the Group in its deposit account with Hisense Finance for withdrawal.

Loan Service

The Company currently expects that the maximum balance of loan to be provided by Hisense Finance to the Group shall not exceed the cap of RMB1.5 billion (inclusive of interest) during the term of the Financial Services Agreement.

Such proposed cap has been determined based on (i) the historical cashflow figures of the Group; and (ii) the historical transaction figures for the loan services provided by other financial institutions to the Group that the average monthly balance of the loans provided by other financial institutions to the Group were RMB1,407,321,000, RMB1,052,266,000, RMB1,006,362,000 and RMB1,184,630,000 for the three years ended 31 December 2006, 31 December 2007 and 31 December 2008 and the six months ended 30 June 2009, respectively; and (iii) the expected financial needs of the Group taking into account the business development plans on areas relating to research and development, investment, sales and supply of the Group; and (iv) the plan of the Group to obtain more loans from Hisense Finance instead of from other financial institutions for the year ending 31 December 2011 since the terms for the provision of the loans by Hisense Finance to the Group shall be no less favourable than those of other normal commercial banks and financial institutions and Hisense Finance has better knowledge about the background and financial status of the Company which will facilitate the loan application process by the Company.

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Draft Discount Service

The Company currently expects that the annual service fee payable by the Company to Hisense Finance for the provision of draft discount services shall not exceed the cap of RMB25,000,000 during the term of the Financial Services Agreement.

Such proposed cap has been determined based on (i) the historical service fees paid by the Company for the draft discount services provided by other financial institutions to the Group which were RMB16,100,000, RMB4,200,000, RMB18,200,000 and RMB1,960,000 for the three years ended 31 December 2006, 31 December 2007 and 31 December 2008 and the six months ended 30 June 2009, respectively; and (ii) the expected financial needs of the Group taking into account the business development plans on areas relating to research and development, investment, sales and supply of the Group; and (iii) the plan of the Group to use more draft discount services to be provided by Hisense Finance instead of from other financial institutions for the year ending 31 December 2011 since the terms for the provision of the draft discount services by Hisense Finance to the Group shall be no less favourable than those of other normal commercial banks and financial institutions and Hisense Finance has better knowledge about the background and financial status of the Company which will facilitate the draft discount application process by the Company.

Reasons for and Benefits of Entering into the Financial Services Agreement

The main reasons for the election by the Company to use Hisense Finance for the provision of the relevant financial services are as follows:

the rates on loans and deposits offered by Hisense Finance to the Group will be equal to or more favourable than those offered by PRC commercial banks;
the Group is expected to benefit from Hisense Finance’s better understanding of the operations of the Group which should allow more expedient and efficient service provision that those offered by PRC commercial banks; and
Hisense Finance is regulated by the CBRC and engages into the provision of financial services in compliance with the regulations and operation requirements issued by the relevant regulatory authorities. Its primary customer is the companies within the Hisense Group. In general, as the risks exposed to Hisense Finance are lesser than those exposed to the financial institutions with a broad and unrestricted customer base, Hisense Finance is able to safeguard the customers’ funds more effectively.

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The Board considers that the terms of the Financial Services Agreement and the proposed caps in respect of the maximum daily balance of deposit and the maximum annual loan and draft discount amount under the Financial Services Agreement are fair and reasonable and are entered into on normal commercial terms, and on terms no less favourable than those available to Independent Third Parties under the prevailing local market conditions, in the ordinary and usual course of business of the Company and in the interests of the Company and the Shareholders as a whole.

4. INFORMATION RELATING TO THE COMPANY, HUAYI COMPRESSOR, HISENSE GROUP AND HISENSE FINANCE

Information relating to the Company

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

Information relating to Huayi Compressor

Huayi Compressor was incorporated in the PRC on 13 June 1996 with a registered capital of RMB324,581,200. Its authorised representative is Mr. Liu Ti Bin. Its registered address is 28 Xinchang Road East, Jingdezhen City, Jiangxi Province, the PRC. It is principally engaged in the production and sales of fluorine-free compressors, refrigerators and related accessories, the processing of refrigerating equipment with imported materials and imported samples, the assembly of refrigerating equipment with imported parts, trade of refrigerating equipment, the processing and sales of hardware accessories, and export trading business.

Information relating to Hisense Group

Hisense Group Limited was incorporated in August 1979 with its registered address at No. 17 Donghai West Road, Shinan, Qingdao. Zhou Houjian is the legal representative of Hisense Group, a wholly state-owned enterprise with the registered capital of RMB806,170,000. The scope of business includes: the entrusted operation of state-owned assets; the manufacture and sales of TV sets, refrigerators, freezers, washing machines, small household appliances, VCD and DVD players, audio sets, broadcasting appliances, air-conditioners, electronic computers, telephones, communication products, internet products and electronic products and the provision of related services; the development of software and the provision of internet services; the technological development and the provision of consultation services; the self-operated import and export business (with its operation subject to the

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list of projects as approved by the MOFTEC); the foreign economic and technical cooperation (with its operation subject to the list of projects as approved by the MOFTEC); operation of property rights transaction, provision of brokerage and information services; provision of industrial travel agency services; and provision of relevant business trainings. (Permit/licence shall be obtained for the operation of the businesses above if they fall into the requirements of licensure).

Information relating to Hisense Finance

Hisense Finance is a non-bank financial institution which establishment was approved by the CBRC and is regulated by CBRC and other regulatory authorities in the PRC. Hisense Finance was established in the PRC on 12 June 2008 with a registered capital of RMB500 million. Hisense Finance is owned as to 51% by Hisense Group; 9% by China Everbright Limited (Stock Code: 00165, a company listed on the Stock Exchange); 20% by 青島海信電器股份有限公司 (Qingdao Hisense Electric Co., Ltd.) and 20% by 青島海信電子產業控股股份有限公司 (Qingdao Hisense Electronic (Holdings) Company Limited). Hisense Finance is not a banking company as defined in Rule 14A.10 of the Listing Rules.

Under the approval document relating to the establishment of Hisense Finance dated 29 May 2008 issued by the CBRC (Yin Jian Fu No. 207 of 2008), the business scopes of Hisense Finance include: the provision of financial services, including financial consultation, credit appraisal and other relevant advice and agency services to member companies; provision of assistance in receiving transaction proceeds to member companies; provision of insurance agency services, security, entrusted loans and entrusted investment services, draft acceptance and discount services, and planning of settlement scheme, deposit services, loans and finance leasing and intragroup transfer and settlement services to member companies.

5. LISTING RULES IMPLICATIONS

Compressors Purchase and Supply Framework Agreement

As at the Latest Practicable Date, Huayi Compressor is the substantial shareholder of each of Kelon Mould and Ronshen Plastic, both of which are non wholly-owned Subsidiaries of the Company and therefore, Huayi Compressor is a connected person of the Company according to the Listing Rules. Accordingly, the transactions contemplated under the Compressors Purchase and Supply Framework Agreement will constitute continuing connected transactions for the Company under the Listing Rules. As each of the applicable percentage ratios (other than the profit ratio) is

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more than 2.5%, the continuing connected transactions under the Compressors Purchase and Supply Framework Agreement are subject to reporting, announcement and Independent Shareholders’ approval requirements under Rule 14A.35 of the Listing Rules.

So far as the Company is aware, Huayi Compressor is independent from, not related to, and not otherwise connected with (as defined in the Listing Rules) Hisense Group or its Subsidiaries.

Business Co-operation Framework Agreement

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

Since the relevant Subsidiaries of Hisense Group are connected or otherwise associated with each other, the transactions contemplated under the Business Cooperation Framework Agreement are aggregated for the purpose of Rules 14A.25 to 14A.27 of the Listing Rules and are subject to Independent Shareholders’ approval.

The Compressors Purchase and Supply Framework Agreement and the Business Cooperation Framework Agreement are not inter-conditional on each other.

Financial Services Agreement

Hisense Air-conditioning is a substantial shareholder of the Company, holding 25.22% of the issued shares of the Company. Hisense Group is an indirect holding company of Hisense Air-conditioning and Hisense Finance is a subsidiary of Hisense Group and is therefore an Associate of Hisense Air-conditioning. Therefore, Hisense Finance is a connected person (as defined under the Listing Rules) of the Company. Accordingly, the transactions contemplated under the Financial Services

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Agreement constitute continuing connected transactions of the Company under the Listing Rules and the maximum transaction amounts for the provision of deposit and loan services by Hisense Finance to the Group should be aggregated for the purpose of Rules 14A.25 to 14A.27 of the Listing Rules.

As each of the applicable percentage ratios (as defined in Rule 14.07 of the Listing Rules) applicable to the aggregated amounts of the transactions for the provision of deposit and loan services by Hisense Finance to the Group contemplated under the Financial Services Agreement is more than 2.5%, such transactions are subject to the reporting, announcement and Independent Shareholders’ approval requirements set out in Rules 14A.45 to 14A.48 of the Listing Rules.

Further, the provision of deposit services under the Financial Services Agreement also constitutes the provision of financial assistance by the Company to Hisense Finance under Rule14.04(1)(e) of the Listing Rules. Since the consideration ratio for the provision for deposit services are more than 5% but less than 25%, it constitutes a discloseable transaction (as defined under Chapter 14 of the Listing Rules) and is subject to the announcement requirement under Chapter 14 of the Listing Rules. The provision of deposit services under the Financial Services Agreement also constitutes advance to an entity and is subject to the requirements under Rule 13.13 of the Listing Rules. The Company will comply with the general disclosure obligation when the amount of the advance to Hisense Finance increases since the previous disclosure under Rule 13.13 of the Listing Rules is 3% or more under the assets ratio as defined under Rule 14.07(1) of the Listing Rules.

6. PROPOSED AMENDMENTS TO THE ARTICLES

For the purpose of allowing the Company to adopt a more environment-friendly approach in despatching corporate communications to the Shareholders by using electronic means, the Directors propose amending the relevant provisions in the Articles to that effect. Under the proposed amendments, the Company may send or supply corporate communications to the H Shareholders by making them available on the Company’s own website. Corporate communication means any document issued or to be issued by the Company for the information or action of holders of any of its securities, including but not limited to:

(i) the directors’ report, the annual accounts of the Company together with the auditors’ report and, where applicable, its summary financial report;
(ii) the interim report and, where applicable, its summary interim report;

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(iii) a notice of meeting;
(iv) a listing document;
(v) a circular; and
(vi) a proxy form.

A special resolution will be proposed at the EGM to approve such amendments. Details of the amendments to the Articles are as follows:

1. Article 8.9:

Original article:

“When the Company convenes a general meeting, a notice in writing shall be given 45 days before the date of the meeting to notify all the shareholders registered in the register of members of the matters to be considered at and date and place of the meeting. Any shareholder wishing to attend the general meeting shall serve a reply slip for the meeting to the Company 20 days before the date of such meeting.”

Shall be amended as:

“When the Company convenes a general meeting, a notice in writing or in electronic form (including but not limited to publication of an announcement on the Company’s website and the website of Hong Kong Stock Exchange) shall be given 45 days before the date of the meeting to notify all the shareholders registered in the register of members of the matters to be considered at, and the date and place of, the meeting. Any shareholder wishing to attend the general meeting shall serve a reply slip for the meeting to the Company 20 days before the date of such meeting.”

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2. Article 8.12(1):

Original article:

“A notice of shareholders’ general meeting of the Company shall satisfy the following requirements:

(1) be in writing;”

Shall be amended as:

“A notice of shareholders’ general meeting of the Company shall satisfy the following requirements:

(1) be in writing or in electronic form (including but not limited to publication of an announcement on the Company’s website and the website of Hong Kong Stock Exchange);”

3. Article 8.13:

Original article:

“As for holders of foreign shares, the notice of shareholders’ general meeting shall be delivered to shareholders (with or without voting power at the general meeting) by hand or prepaid post at their respective address which appeared in the register of members. As for holders of domestic shares, the notice of shareholders’ general meeting may also be made by way of announcement.”

Shall be amended as:

“As for holders of foreign shares, the notice of shareholders’ general meeting shall be delivered to shareholders (with or without voting power at the general meeting) by hand or prepaid post at their respective address which appeared in the register of members, or in electronic form (including but not limited to publication of an announcement on the Company’s website and the website of Hong Kong Stock Exchange). As for holders of domestic shares, the notice of the shareholders’ general meeting may also be made by way of announcement.”

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4. Article 9.6(1):

Original article:

“When the Company convenes a class meeting, a notice in writing shall be given 45 days before the date of the meeting to notify all holders of such class of shares registered in the register of members of the matters to be considered at, and the date and place of, the meeting. Any shareholder wishing to attend the meeting shall serve a reply slip for the meeting to the Company 20 days before the date of such meeting.”

Shall be amended as:

“When the Company convenes a class meeting, a notice in writing or in electronic form (including but not limited to publication of an announcement on the Company’s website and the website of Hong Kong Stock Exchange) shall be given 45 days before the date of the meeting to notify all holders of such class of shares registered in the register of members of the matters to be considered at, and the date and place of, the meeting. Any shareholder wishing to attend the meeting shall serve a reply slip for the meeting to the Company 20 days before the date of such meeting.”

5. Article 15.5:

Original article:

“The financial report of the Company shall be kept at the Company’s registered office and made available for shareholders’ inspection 20 days before the date of the annual general meeting. Each shareholder of the Company is entitled to obtain the financial report as described herein.

The Company shall send to each holder of overseas-listed foreign shares (including but not limited to holders of H Shares) a photocopy of the financial report, together with the balance sheet (including all documents that are required to be accompanied with according to the laws and administrative regulations of the People’s Republic of China) and profit and loss statement or income statement (including the aforesaid report) by prepaid post. The financial report shall be served or despatched to each shareholder not later than 21 days before the the date of annual general meeting at their respective address which appeared in the register of members.”

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Shall be amended as:

The Company shall send to each holder of overseas-listed foreign shares (including but not limited to holders of H Shares) a photocopy of the financial report, together with the balance sheet (including all documents that are required to be accompanied with according to the laws and administrative regulations of the People’s Republic of China) and profit and loss statement or income statement (including the aforesaid report) by prepaid post, or in electronic form (including but not limited to publication of an announcement on the Company’s website and the website of Hong Kong Stock Exchange). The financial report shall be served or despatched to each shareholder not later than 21 days before the annual general meeting at their respective address which appeared in the register of members.”

6. Article 16.11:

Original article:

“The Company shall submit a copy of the notice in writing to the competent authorities within 14 days upon receipt of such notice as stated in Article 16.10(2) hereof. In the event that the statement mentioned in Article 16.10(2) hereof is set forth in the notice, a copy of such statement shall be kept at the Company’s registered office and made available for shareholders’ inspection, and the Company shall despatch a copy thereof to each holder of overseas listed foreign shares by a prepaid post at their respective address which appeared in the register of members.”

Shall be amended as:

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of overseas listed foreign shares by a prepaid post at their respective address which appeared in the register of members or by means of electronic communications (including but not limited to publication of an announcement on the Company’s websites and the website of Hong Kong Stock Exchange).”

7. Article 20.1:

Original article:

“Any resolution on merger or separation of the Company shall be proposed by the board of directors of the Company, and the relevant approval and examination procedures shall be completed in accordance with laws upon passing the resolution pursuant to the procedures under the Articles of Association. Any shareholder opposing the resolution on merger or separation of the Company shall have the right to request the Company or those shareholders voted in favour of such resolution to purchase shares from them at a fair price. The proposal of merger or separation of the Company shall be regarded as a special document to be made available for shareholders’ inspection.

For holders of H shares, the aforesaid document shall also be delivered by post.”

Shall be amended as:

For holders of H shares, the aforesaid document shall also be delivered by post or by means of electronics communications (including but not limited to publication of an announcement on the Company’s websites and the website of Hong Kong Stock Exchange).”

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8. Article 24.1:

Original article:

“Any notice, information or written statement made by the Company to the holders of H shares shall be served by hand to the holders of H shares holding registered shares at their respective registered address or sent by post to all the holders of H shares at their respective address which appeared in the register of members.

Any notice issued by the Company to the holders of its domestic shares shall be published on one or more newspapers designated by the securities regulatory authorities of the State, and all holders of domestic shares shall be deemed to have received such notice.”

Shall be amended as:

“Any notice, written statement or information (including but not limited to annual report, interim report, quarterly report, notice of meeting, listing document, circular to shareholders, proxy form, reply slip and announcement) made by the Company to the holders of H shares shall be served by hand to the holders of H shares holding registered shares at their respective registered address, or sent by post to all the holders of H shares at their respective address which appeared in the register of members, or delivered by electronic means (including but not limited to publication of an announcement on the Company’s websites and the website of Hong Kong Stock Exchange) in compliance with the laws, administrative regulations and relevant requirements of the securities regulatory authorities of the place of listing, or delivered by other means recognized by the securities regulatory authorities at the place where the Company’s shares are listed.

Any notices issued by the Company to the holders of its domestic shares shall be published on one or more newspapers designated by the securities regulatory authorities of the State, and all holders of domestic shares shall be deemed to have received such notice.”

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9. Article 24.2:

Original article:

“Any notice issued by mail shall be deemed to have been received after 24 hours upon posting if such notice was delivered by post, provided that the name of the recipient and the address were clearly written, postage fee prepaid and the notice put inside such envelope.”

Shall be amended as:

“Any notice issued by mail shall be deemed to have been received after 24 hours upon posting if such notice was delivered by post, provided that the name of the recipient and the address was clearly written, postage fee pre-paid and the notice put inside such envelope.

Any notice, document, information or written statement issued by electronic mail or facsimile at the e-mail addresses or fax numbers provided by shareholders to the Company shall be deemed to have been received by the shareholder upon successful delivery.

Notices, documents, information or written statements issued by the Company by way of announcements shall be deemed to have been received by all parties concerned once announced (see below).

Unless the context otherwise requires, “announced” referred to in this Articles of Association shall mean, in relation to announcements to holders of domestic shares or announcements to be published in the PRC as required by the relevant provisions and the Articles of Association, announcements published in the newspapers in the PRC as designated by the PRC laws and regulations or the securities regulatory authorities under the State Council; in relation to announcements to holders of H shares or announcements to be published in Hong Kong as required by the relevant requirements and the Articles of Association, such announcements that must be published in accordance with the Listing Rules’ requirements on the Company’s website, the website of Hong Kong Stock Exchange or other websites as required from time to time by the Listing Rules.

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LETTER FROM THE BOARD

If the Company issues notices, documents, information or written statements to the shareholders in electronic forms other than by way of electronic mail, facsimile, publication of announcement on website, subject to the laws, administrative regulations and the relevant requirements of the securities regulatory authorities in the place of listing, such notices, documents, information or written statements of the Company shall be deemed to be delivered after such electronic data message containing such notices, documents, information or written statements has been entered into the system specified by the shareholders.”

7. EGM

The Company will convene the EGM, among other things, to:

(A) consider and approve the Compressors Purchase and Supply Framework Agreement and the related caps;
(B) consider and approve the Business Co-operation Framework Agreement and the related caps;
(C) consider and approve the Financial Services Agreement and the related caps;
(D) consider and approve the amendments to the Articles.

A notice of the EGM to be held on 15 January 2010 at 9:30 a.m. at the conference room of the Company’s head office, Shunde District, Foshan City, Guangdong Province, the PRC, at which relevant resolutions will be proposed to approve, among other things, the Compressors Purchase and Supply Framework Agreement, the Business Co-operation Framework Agreement, the Financial Services Agreement and the related annual caps, and the proposed amendments to the Articles is set out on pages 129 to 130 of this circular.

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

(A) the chairman of the meeting; or
(B) at least two Shareholders with voting rights or their proxies; or

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LETTER FROM THE BOARD

(C) one or more Shareholder(s) (including their proxies) representing, individually or in aggregate, 10% or more of all shares carrying the voting rights at the general meeting.

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

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

Since Hisense Air-conditioning is a shareholder of the Company holding 25.22% of the issued shares of the Company, it and its Associates have to be abstained from voting in the EGM in relation to the continuing connected transactions entered between the Subsidiaries of the Companies and the Subsidiaries of Hisense Group under the Business Co-operation Framework Agreement and the provision of deposit, loan and draft discount services under the Financial Services Agreement.

8. RECOMMENDATION

Your attention is drawn to the advice of the Independent Board Committee set out in its letter on pages 61 to 62 of this circular which contains its recommendation to the Independent Shareholders on the terms of the Compressors Purchase and Supply Framework Agreement, the Business Co-operation Framework Agreement, the Financial Services Agreement and the related annual caps.

Your attention is also drawn to the letter of advice from Access Capital, which is set out on pages 63 to 121 of this circular, to the Independent Board Committee and the Independent Shareholders in respect of the terms of and the annual caps

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LETTER FROM THE BOARD

for the continuing connected transactions contemplated under the Compressors Purchase and Supply Framework Agreement, the Business Co-operation Framework Agreement, the Financial Services Agreement and the related annual caps.

The directors believe that the proposed amendments to the Articles mentioned above are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend that all shareholders vote in favour of the relevant resolutions to be proposed at the EGM.

9. ADDITIONAL INFORMATION

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

Yours faithfully, By Order of the Board of

Hisense Kelon Electrical Holdings Company Limited

Tang Ye Guo Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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

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

(Stock Code: 00921)

26 November 2009

To the Independent Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS AND DISCLOSEABLE TRANSACTION

We refer to the circular issued by the Company to the Shareholders dated 26 November 2009 (the “Circular”) of which this letter forms part. Terms defined in the Circular shall have the same meanings in this letter unless the context otherwise requires.

Under the Listing Rules, the entering into of the Compressors Purchase and Supply Framework Agreement, the Business Co-operation Framework Agreement and the Financial Services Agreement constitutes continuing connected transactions for the Company and is thus subject to the approval of the Independent Shareholders at the EGM.

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

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

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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

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

Yours faithfully,

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

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LETTER FROM ACCESS CAPITAL

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

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

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

26 November 2009

To the Independent Board Committee and

the Independent Shareholders of

Hisense Kelon Electrical Holdings Company Limited

Dear Sirs,

CONTINUING CONNECTED TRANACTIONS

INTRODUCTION

We refer to our appointment as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Compressors Purchase and Supply Framework Agreement, the Business Co-operation Framework Agreement and the Financial Services Agreement (collectively the “Agreements”), details of which are set out in the circular to the Shareholders dated 26 November 2009 (the “Circular”), of which this letter forms part. This letter contains our advice to the Independent Board Committee and the Independent Shareholders in respect of the Agreements. Unless otherwise stated, terms defined in the Circular have the same meanings in this letter.

On 6 November 2009, the Board announced that the Company entered into the Agreements respectively with Huayi Compressor and certain Subsidiaries of Hisense Group on the same day (details of the Agreements are stated in the section headed “Terms of the Agreements” below).

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LETTER FROM ACCESS CAPITAL

As at the date of the Agreements and the Latest Practicable Date, Huayi Compressor is the substantial shareholder of each of Kelon Mould and Ronshen Plastic, both of which are non wholly-owned Subsidiaries of the Company. Accordingly, Huayi Compressor is a connected person of the Company and the transactions contemplated under the Compressors Purchase and Supply Framework Agreement will constitute continuing connected transactions for the Company under the Listing Rules. As each of the applicable percentage ratios (other than the profit ratio) is more than 2.5%, the continuing connected transactions under the Compressors Purchase and Supply Framework Agreement are subject to reporting, announcement and Independent Shareholders’ approval requirements under Rule 14A.35 of the Listing Rules.

As at the date of the Agreements and the Latest Practicable Date, Hisense Airconditioning is a substantial shareholder of the Company, holding approximately 25.22% of the issued shares of the Company. As Associates of Hisense Air-Conditioning, each of Hisense Group and its Subsidiaries are deemed to be connected persons of the Company under the Listing Rules. Accordingly, the transactions contemplated under the Business Co-operation Framework Agreement will constitute continuing connected transactions of the Company under the Listing Rules and shall be aggregated for the purpose of Rules 14A.25 to 14A.27 of the Listing Rules. Given that the applicable percentage ratios (other than the profit ratio) for the aggregated amount of the transactions contemplated under the Business Co-operation Framework Agreement are more than 2.5%, the continuing connected transactions under the Business Co-operation Framework Agreement are subject to reporting, announcement and Independent Shareholders’ approval requirements under Rule 14A.35 of the Listing Rules.

As at the date of the Agreements and the Latest Practicable Date, Hisense Finance is a Subsidiary of Hisense Group. As Associate of Hisense Air-conditioning, Hisense Finance is deemed to be a connected person of the Company under the Listing Rules. Accordingly, the transactions contemplated under the Financial Services Agreement will constitute continuing connected transactions of the Company under the Listing Rules and the maximum transaction amounts for the provision of deposit and loan services by Hisense Finance to the Group shall be aggregated for the purpose of Rules 14A.25 to 14A.27 of the Listing Rules. As each of the applicable percentage ratios (as defined in Rule 14.07 of the Listing Rules) applicable to the aggregated amounts of the transactions for the provision of deposit and loan services by Hisense Finance to the Group contemplated under the Financial Services Agreement is more than 2.5%, such transactions are subject to the reporting, announcement and Independent Shareholders’ approval requirements set out in Rules 14A.45 to 14A.48 of the Listing Rules. In addition, the provision of deposit services under the Financial Services Agreement also constitutes the provision of financial assistance under Rule 14.04(1)(e) of the Listing Rules. Since the consideration ratio for the provision for deposit services is more than 5% but less than 25%, the provision of deposit

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LETTER FROM ACCESS CAPITAL

services under the Financial Services Agreement constitutes a discloseable transaction and is subject to the announcement requirement under Chapter 14 of the Listing Rules. The provision of deposit services under the Financial Services Agreement also constitutes advance to an entity and is subject to the requirements under Rule 13.13 of the Listing Rules.

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

BASIS OF OUR OPINION

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

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LETTER FROM ACCESS CAPITAL

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

PRINCIPAL FACTORS CONSIDERED

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

I. Background information and reasons for the Agreements

1. Information on the Group

The Company was incorporated in the PRC on 16 December 1992 and, together with its Subsidiaries, is principally engaged in the manufacture and sale of refrigerators and air-conditioners. As stated in the Company’s annual report for the year ended 31 December 2008 (the “2008 Annual Report”) and interim report for the six months ended 30 June 2009 (the “2009 Interim Report”), the Group’s operations were carried out in the PRC and almost all of the production facilities of the Group were located in the PRC. For each of the year ended 31 December 2008 and the six months ended 30 June 2009, approximately 61.0% and 65.0%, respectively, of the Group’s turnover was derived from the PRC market (including Hong Kong) with the rest derived from European, American and other overseas markets.

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LETTER FROM ACCESS CAPITAL

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

Turnover — Sales of refrigerators — Sales of air-conditioners — Sales of freezers — Sales of product components Gross profit Other income and gains Distribution costs Administrative expenses Other operating expenses Profit/(Loss) from operations Profit/(Loss) for the year/period	For the year ended 31 December 2007 2008 RMB’000 RMB’000 (Audited) (Audited) 4,324,808 4,189,049 3,214,875 3,024,028 324,821 397,572 455,456 442,260 8,319,960 8,052,909 1,377,171 1,236,300 570,905 201,701 (1,126,269) (1,081,498) (397,500) (432,835) (133,500) (71,529) 290,807 (147,861) 203,657 (237,520)	For the six months ended 30 June 2009 RMB’000 (Unaudited) 2,513,841 1,387,484 359,366 175,069 4,435,760 943,023 49,822 (597,099) (162,049) (28,408) 205,289 149,712

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LETTER FROM ACCESS CAPITAL

			As at
	As at 31	December	30 June
	2007	2008	2009
	RMB’000	RMB’000	RMB’000
	(Audited)	(Audited)	(Unaudited)
Non-current assets	1,990,117	1,991,145	1,977,296
Current assets	2,404,085	1,696,361	2,463,152
Current liabilities	5,044,345	4,546,134	5,149,205
Net current liabilities	2,640,260	2,849,773	2,686,053
Total net liabilities	629,774	858,628	708,757

We have noted from the Company’s annual report for 2007 (the “2007 Annual Report”) that the Company’s auditors (the “Auditors”), BDO McCabe Lo Limited, had expressed a qualified opinion on the financial statements of the Company and its Subsidiaries for the year ended 31 December 2007 arising from limitation of audit scope. In particular, due to the limitation of information available on and the irregularity of a series of activities/ transactions entered into by Guangdong Greencool Enterprise Development Company Limited (“Greencool Enterprise”), which is the previous controlling shareholder of the Company, its affiliates and/or companies suspected to be connected with Mr. Gu Chu Jun (“Mr. Gu”), who is a former executive Director and the former chairman of the Company, during the period from October 2001 to July 2005 including but not limited to unauthorised use of the Group’s funds, fictitious sales of goods and scrap materials, unreasonable prepayments and purchases of raw materials and property, plant and equipment at unreasonable quantities and prices, the Auditors were unable to satisfy themselves concerning the validity of the aforesaid transactions and the appropriateness of the accumulated impairment and the recoverability of the carrying amounts of the receivables and payables due from/to the suspected companies at approximately RMB286 million (net of an accumulated impairment loss of approximately RMB364 million). Any adjustments found to be necessary would affect the opening accumulated losses as at 1 January 2007, the net liabilities as at 31 December 2007 and the profit for the year

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LETTER FROM ACCESS CAPITAL

then ended. Except for the effects of such adjustments (if any), the Auditors opined that the financial statements give a true and fair view of the state of the Group’s affairs as at 31 December 2007 and of its profit and cash flows for the year then ended.

For the year ended 31 December 2007, the Group recorded a turnover of approximately RMB8,320.0 million, representing an increase of approximately 26.7% from the preceding year’s turnover of approximately RMB6,564.3 million. For the same period, the Group recorded a net profit of approximately RMB203.7 million, which represents a significant improvement over the net profit of approximately RMB49.2 million for the financial year 2006. As explained in the 2007 Annual Report and further advised by the Company, while 2007 had been a challenging year for PRC home appliance manufacturers there were significant fluctuation in the prices of energy and raw materials around the world; worsening of financing environment under stringent domestic credit and increased financing costs; continued rapid appreciation of RMB; and increased costs of sea freight and non-tariff barriers, the improvement in the Group’s profitability was mainly attributable to the overall growth of the PRC economy and the industry, increase in idle assets disposal and revitalised revenues, as well as to the operation quality enhancement measures adopted by the Company during the year.

Nevertheless, as set out in the 2007 Annual Report, despite the considerable improvement as compared to the previous years, the growth of the revenues for the Group’s air-conditioner business was still below the planned objectives and economies of scale was not achieved. In addition, as the Company aimed at enhancing its brand image and reputation, it had significantly increased the advertising and brand promotion expenses during the year, which resulting in the increase in sales expense exceeded the increase in revenues. Some production bases of the Group were still out of production and in a state of sustained loss due to the prolonged suspension in the past. In summary, the Company is generally still in a recovery stage. As a number of historical problems have brought numerous difficulties to the Company, the Company still failed to achieve its targets during the financial year 2007.

As for the year ended 31 December 2008, the Auditors had also expressed a qualified opinion on the financial statements of the Company and its Subsidiaries for the year ended 31 December 2008 arising from limitation of audit scope. As mentioned above, there were a series of activities/transactions entered into by Greencool Enterprise, its affiliates and/or companies

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LETTER FROM ACCESS CAPITAL

suspected to be connected with Mr. Gu during the period from October 2001 to July 2005 which had been harmful to the Group. During the year ended 31 December 2008, legal proceedings which had been previously initiated against Greencool Enterprise and its affiliates and companies suspected to be connected with Mr. Gu reached court judgements which mostly ruled in favour of the Company. However, certain court judgements were under further appeal and the enforcement of court judgements had not been completed. Due to the uncertainty on the final outcome of the legal proceedings and execution of court judgements, the Auditors were unable to satisfy themselves as to the appropriateness of the accumulated impairment amounts and the recoverability of the carrying amounts of the receivables due from by Greencool Enterprise, its affiliates and/or companies suspected to be connected with Mr. Gu. Any adjustments found to be necessary would affect the opening accumulated losses as at 1 January 2008, the net liabilities as at 31 December 2008 and the loss for the year then ended.

For the year ended 31 December 2008, the Group recorded an audited turnover of approximately RMB8,052.9 million (representing a slight decrease of approximately 3.2% from the turnover of approximately RMB8,320.0 million for the preceding year) and a net loss of approximately RMB237.5 million, compared to a net profit of approximately RMB203.7 million for the year ended 31 December 2007. As explained in the 2008 Annual Report, the significant deterioration of the Group’s financial performance with substantial loss for the year was due to (i) the absence of significant revenue from the disposal of idle assets for the year resulting in a decrease in the non-recurring revenue for 2008 by RMB315,000,000 as compared to 2007; (ii) in light of the global financial crisis, the consumption and demand in overseas markets shrank remarkably and the Company recorded a significant decrease in its export business; (iii) as a result of the appreciation of RMB as well as the significant fluctuation of exchange rates, the Company recorded a larger amount of exchange loss for 2008 of approximately RMB65.8 million; and (iv) due to the slowdown of both domestic and overseas markets resulted from industrial depression and lower temperature during the summer time, the sales size and gross profit margin of the Company fell below the expected targets and in particular, the air-conditioner business recorded remarkable decrease in both production and sales volume as compared to 2007.

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LETTER FROM ACCESS CAPITAL

As stated in the 2008 Annual Report, in order to overcome the adverse factors, the Company undertook a series of measures to reduce its losses, such as lowering the production cost, raising the manufacturing efficiency, increasing the technological level of products and increasing the product competitiveness to maintain a stable and healthy operation.

For the six months ended 30 June 2009, the Group’s recorded an unaudited turnover of approximately RMB4,435.8 million, representing a decrease of approximately 12.1% from the unaudited turnover of approximately RMB5,046.9 million for the corresponding period in 2008. As noted in the 2009 Interim Report, the decrease in revenue was mainly attributable to chances in both domestic and external economic conditions, and the recession in the entire industry. The Group’s unaudited profit from operations of approximately RMB205.3 million represents an increase of approximately 81.8% from the unaudited profit from operations of approximately RMB112.9 million for the corresponding period in 2008. For the six months ended 30 June 2009, the Group recorded an unaudited net profit of approximately RMB149.7 million, representing a substantial increase of approximately 139.1% from the unaudited net profit of approximately RMB62.6 million for the six months ended 30 June 2008. As noted in the 2009 Interim Report, the increase in the operating profit and net profit for the six months ended 30 June 2009 as compared to the corresponding period in 2008 was mainly due to, among others, (i) the Group implemented its industry benchmark projects while implementing the projects for the optimization of the research and development process, the procurement process, the inventory and logistics management of products and the improvement of staff performance based on the prevailing operating environment and (ii) the economies of scale in respect of material procurement were witnessed gradually after the consolidation and optimization of suppliers.

As at 30 June 2009, the Group had unaudited total current assets of approximately RMB2,463.2 million and unaudited total current liabilities of approximately RMB5,149.2 million, representing net current liabilities of approximately RMB2,686.0 million. As at 30 June 2009, the Group had outstanding borrowings of approximately RMB1,714.5 million and its unaudited total net liabilities amounted to approximately RMB708.8 million.

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

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LETTER FROM ACCESS CAPITAL

2. Information on Huayi Compressor

Huayi Compressor has been listed on the Shenzhen Stock Exchange of the PRC since 1996 and is located in Jingdezhen City, Jiangxi Province, the PRC. Based on the information available from the website of Huayi Compressor, Huayi Compressor is one of the major fluorine-free compressor producers in the PRC. As disclosed in the interim report of Huayi Compressor for the six months ended 30 June 2009, its largest shareholder was 四川長虹電器股份有限公司 (Sichuan Changhong Electric Company Limited), a PRC national enterprise holding approximately 29.92% of the issued share capital of Huayi Compressor as at 30 June 2009. We also note that the Company held approximately 18.26% of the issued share capital of Huayi Compressor as at 30 June 2009 and was the second largest shareholder. Set out below is the consolidated financial information of Huayi Compressor for each of the two years ended 31 December 2008 and the six months ended 30 June 2009 which is extracted from its annual report for the year ended 2008 and interim report for the six months ended 30 June 2009.

			For the
			six months
	For the year ended		ended
	31 December		30 June
	2007	2008	2009
	RMB’000	RMB’000	RMB’000
	(Audited)	(Audited)	(Unaudited)
Turnover	2,662,555	3,079,505	1,697,567
Net Profit	87,322	89,784	45,948
Total assets as at year/period end	2,409,717	2,078,785	2,451,485

As stated in its annual report for 2008, Huayi Compressor had a business segment turnover of approximately RMB2,767 million which was generated from the sales of about 13.2 million units of compressors. As disclosed in the annual report of Huayi Compressor for 2008, the sales volume of Huayi Compressor accounted for approximately 21% of China’s total sales of refrigerator compressors for 2008 and Huayi Compressor was the largest producer of refrigerator compressors in the PRC for 2008 in terms of sales volume, the seventh year in a row. As at 30 June 2009, Huayi Compressor had unaudited net assets of approximately RMB747.6 million.

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LETTER FROM ACCESS CAPITAL

3. Information on Hisense Group

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

Hisense Air-conditioning, a Subsidiary of Hisense Group, is a substantial shareholder of the Company, holding approximately 25.22% of the issued shares of the Company as at the Latest Practicable Date. In addition, we note that Hisense Electric Co., Ltd. (“Hisense Electric”), of which Hisense Group was beneficially interested in approximately 48.40% of the issued share capital as at the Latest Practicable Date, has been listed on the Shanghai Stock Exchange of the PRC since 1997. The following financial results of Hisense Electric for each of the two years ended 31 December 2008 and the six months ended 30 June 2009 are extracted from its 2008 annual report and 2009 interim report.

			For the
			six months
	For the year ended		ended
	31 December		30 June
	2007	2008	2009
	RMB’000	RMB’000	RMB’000
	(Audited)	(Audited)	(Unaudited)
Turnover	14,838,636	13,407,101	7,416,239
Net profit	213,516	211,293	174,378
Total assets as at year/period end	6,272,947	5,913,756	6,037,211

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LETTER FROM ACCESS CAPITAL

As stated in its latest annual report for the year ended 31 December 2008, the turnover of Hisense Electric mainly represented sales of televisions and refrigerators and approximately 80.1% of its turnover was generated from domestic sales in the PRC. As at 30 June 2009, Hisense Electric had unaudited total assets of approximately RMB6,037.2 million. In view of the favourable historical financial performance of Hisense Electric for the past few years and its strong financial position as at 30 June 2009, we consider that it has demonstrated a good track record and is one of the major electronic companies in the PRC.

4. Reasons for the Agreements

a. Compressors Purchase and Supply Framework Agreement

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

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

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LETTER FROM ACCESS CAPITAL

We understand from the Company that the Group has been purchasing compressors from the Huayi Group since 2001 and the Company was very satisfied with the quality and prices of the compressors produced by the Huayi Group. In view of the fact that the manufacture and sale of refrigerators and air-conditioners is one of the principal businesses of the Group and compressors are essential components of refrigerators and air-conditioners, it is reasonable for the Group to purchase compressors as part of the components for the manufacture of its products from time to time in its ordinary course of business. As mentioned above, Huayi Compressor is one of the major producers of compressors in the PRC and was the largest producer of refrigerator compressors in the PRC for 2008 in terms of sales volume. Furthermore, the Huayi Group has been one of the major suppliers of compressors of the Group. On this basis, we consider that the Huayi Group has the relevant experience and expertise in the manufacture of compressors. Accordingly, we are of the view that the entering into of the Compressors Purchase and Supply Framework Agreement for the purpose of sourcing compressors from the Huayi Group is in the interests of the Company and the Shareholders as a whole and the transactions contemplated under the Compressors Purchase and Supply Framework Agreement are in the ordinary and usual course of business of the Company.

b. The Business Co-operation Framework Agreement

Under the Business Co-operation Framework Agreement, the Company has agreed that it (or any of its Subsidiaries which will be entitled to have the same rights and obligations under the Business Co-operation Framework Agreement) may enter into certain transactions with the relevant Subsidiaries of Hisense Group in respect of the sale and purchase of refrigerators, air-conditioners, raw materials, the sale of moulds, home appliances and parts and components for refrigerators, air-conditioners and freezers and the provision of after-sale maintenance, repair and consultation services, electronic communication services, property management services and leasing services (particulars and terms of each category of the aforesaid transactions are discussed in the section headed “Terms of the Agreements” below).

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As noted in the Letter from the Board, the competition in the white goods market in the PRC is very keen at present with substantial increase in raw materials prices, and the sale of the white goods such as air-conditioners and refrigerators is often affected by weather and the peak sales seasons of such products are very short. As such, transportation time is always an important consideration for the white goods producers such as the Company and Hisense Group. The Board believes that the production plants of the Group and Hisense Group can supplement each other in terms of their locations since most of their plants are located at different regions of the PRC. In particular, the sale of refrigerators and air-conditioners by the Group to the relevant Subsidiaries of Hisense Group under the Business Co-operation Framework Agreement can achieve the following benefits to the Company:

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

On the other hand, the purchase of refrigerators and air-conditioners by the Group from the relevant Subsidiaries of Hisense Group under the Business Co-operation Framework Agreement can achieve the following benefits to the Company:

(i) reducing the time of transportation between Shunde, Guangdong and the location of the relevant Subsidiaries of Hisense Group, which can improve the responsiveness of the Group to changes in the market and prevent loss of market share to its competitors; and
(ii) reducing wear and tear to the relevant products during transportation as a result of the reduction in the transportation time, which may reduce the costs to the Group.

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Given the aforesaid benefits, the Company is of the view that the transactions contemplated under the Business Co-operation Framework Agreement in relation to the purchases and sales of air-conditioners and refrigerators are in the interests of the Company and the Shareholders as a whole.

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

In view of the substantial interest of Hisense Group in the Company, we consider it commercially reasonable and sensible for Hisense Group to assist the Group in maintaining its business conditions. Given that Hisense Group, together with its Subsidiaries, is currently one of the major electronic companies in the PRC and has demonstrated a good track record in the sales of electrical appliances in the PRC, we are of the view that it is in the commercial interest of the Company to enter into the Business Co-operation Framework Agreement as Hisense Group and its Subsidiaries have the relevant expertise in the domestic electrical appliances market in the PRC as well as strong financial resources and are therefore able to assist the Group in maintaining its business conditions.

In addition, certain transactions contemplated under the Business Cooperation Framework Agreement such as the sales of moulds, airconditioners, refrigerators, raw materials, components and facilities, home appliances and parts and components and the provision of leasing and property management services by the Group to the relevant Subsidiaries of Hisense Group, when take place, will be recognised by the Group as its sales or other income, and the overall revenue of the Group will therefore be increased as a result of such transactions. As stated in the Letter from the Board, the sale and supply of moulds under the Business Co-operation Framework Agreement will facilitate the Company to maintain an important relationship with the relevant Subsidiaries of Hisense Group so that they may become stable customers

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of the Company thereby further expanding the sales of the Company. As regards the sale and supply of air-conditioners and refrigerators under the Business Co-operation Framework Agreement, since the relevant Subsidiaries currently possess excess production capacity for air-conditioners and refrigerators and they will incur fixed costs such as depreciation of machinery and rent regardless of the production level, the sale and supply of air-conditioners and refrigerators to the Subsidiaries of Hisense Group can help to utilise their otherwise idling capacity as well as reduce the products’ per-unit fixed costs as a result of the increase in the production level. The competitiveness of the Group’s products in terms of costing may therefore increase.

As regards those transactions contemplated under the Business Cooperation Framework Agreement in relation to the purchase of airconditioners, refrigerators, raw materials, components and facilities by the Group from the relevant Subsidiaries of Hisense Group, they are expected to reduce the Group’s transportation costs or purchase costs and hence improve the competitiveness and responsiveness of the Group’s products in the market. In particular, it has been agreed between the relevant parties that the pricing for the purchase of airconditioners or refrigerators (as the case may be) by the Group from the Subsidiaries of Hisense Group will be substantially the same as the aggregate of the production costs of air-conditioners or refrigerators (as the case may be) by the Group in Shunde, Guangdong and the transportation costs to the relevant locations of the Subsidiaries of Hisense Group.

Given the fact that demand for refrigerators and air-conditioners in the market is sometimes affected by the weather conditions the change of which is often unpredictable and sudden, it may be strategically important for the Group to have additional production bases located outside its existing base in Shunde (i.e. the southern part of the PRC) in the event that there is an unexpected increase in the demand for refrigerators or air-conditioners in other regions of the PRC and the Group has to respond to such demand in a timely manner in order not to lose its market share to competitors. The relevant Subsidiaries of Hisense Group currently have production bases in Beijing, Nanjiang, Shangdong and Zhejiang, (i.e. the northern and eastern part of the PRC). The purchase of air-conditioners and refrigerators from the Subsidiaries of Hisense Group will therefore reduce the transportation time between

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Shunde and other locations of the production plants of Hisense Group as the products purchased will be delivered directly from the relevant production plants of Hisense Group, instead of the Group’s production base in Shunde, to the relevant market, which may therefore improve the Group’s responsiveness to market changes and prevent loss of market share to its competitors. Furthermore, the reduction in the transportation distance will also reduce wear and tear to the products during transportation.

As regards the procurement of after-sale maintenance, repair and consultation services by the Group from the relevant Subsidiaries of Hisense Group under the Business Co-operation Framework Agreement, we understand from the management of the Company that the Group presently does not have its own repair and maintenance services team to provide after-sale services to its customers. Therefore, the Group has to engage outside service providers for the provision of after-sale services to its customers. Accordingly, we concur with the Company’s view that the engagement of the relevant Subsidiaries of Hisense Group to handle the after-sale services for the Group will help reduce the Group’s reliance on any single service provider.

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

c. The Financial Services Agreement

As set out in the Letter from the Board, the main reasons for the election by the Company to use Hisense Finance for the provision of the relevant financial services are as follows:

the rates on loans and deposits offered by Hisense Finance to the Group will be equal to or more favourable than those offered by PRC commercial banks;

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the Group is expected to benefit from Hisense Finance’s better understanding of the operations of the Group which should allow more expedient and efficient service provision than those offered by PRC commercial banks; and
Hisense Finance is regulated by the CBRC and engages into the provision of financial services in compliance with the regulations and operation requirements issued by the relevant regulatory authorities. Its primary customer is the companies within the Hisense Group. In general, as the risks exposed to Hisense Finance are lesser than those exposed to the financial institutions with a broad and unrestricted customer base, Hisense Finance is able to safeguard the customers’ funds more effectively.

The Board considers that the terms of the Financial Services Agreement and the proposed caps in respect of the maximum daily balance of deposit and the maximum annual loan and draft discount amount under the Financial Services Agreement are fair and reasonable and are entered into on normal commercial terms, and on terms no less favourable than those available to independent third parties under the prevailing local market conditions, in the ordinary and usual course of business of the Company and in the interests of the Company and its shareholders as a whole.

Based on our discussion with the Directors, we understand that the Group has been occasionally utilising financial services rendered by PRC commercial banks such as deposit services, loan services and draft discount services in the usual and ordinary course of its business. As advised by the Directors, due to the appreciation of Renminbi and the fluctuation of energy and raw materials prices in recent years, the market of refrigerating and air-conditioning products was subject to unprecedented challenges and the competition on the PRC household appliances market would continue to intensify in the foreseeable future. In light of the expected intense competition in the household appliances market and the increase in the prices of raw materials and energy, the Directors are of the view that in order to compete successfully, it is important for the Company to have effective cost control measures

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including but not limited to strengthening its existing cost management as well as the tracking and analysis of the uses of the costs. Through reducing the level of capital used in all areas, strictly controlling the liquidity risk and increasing the capital utilisation efficiency, the Group may be able to increase its profitability as well as competitiveness by lowering the financing costs and improving the liquidity position.

As at 30 June 2009, the Group had outstanding bank loans of approximately RMB1,714.5 million and its unaudited total net liabilities amounted to approximately RMB708.8 million. In addition, the Group’s total unaudited current liabilities exceeded its total unaudited current assets by approximately RMB2,686.1 million. Based on the existing financial position of the Group, we consider that the Group’s ongoing operations have been to significant extent relied on the availability of the banking facilities from financial institutions. Should the Group be unable to renew its existing banking facilities with the relevant financial institutions, it is likely that the Group would not have sufficient working capital to finance its normal operations and to meet its financial obligations as they fall due.

Furthermore, given the significant amount of bank borrowings utilised by the Group to finance its operations, the Group has been incurring substantial amount of finance costs. For the six months ended 30 June 2009, the Group incurred total finance costs of approximately RMB38.5 million, representing approximately 25.7% of the Group’s profit for the period.

Pursuant to the Financial Services Agreement, the Group will be able to obtain certain deposit services, loan services and draft discount services from Hisense Finance, the terms of which cannot be less favourable to the Company than those available from other normal commercial banks and financial institutions. As there is a possibility that the financing costs of the transactions under the Financial Services Agreement may be lower (but in any event cannot be higher) than the financing costs of the relevant transactions with other normal commercial banks and financial institutions (particulars of which are discussed under the section headed “Terms of the Agreement”), the Group may be able to reduce its total finance costs, which is currently one of the cost control measures of the Company aiming to improve its competitiveness. In light of the existing financial position of the Group as discussed above, we consider that

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the transactions contemplated under the Financial Services Agreement will be conducted in the ordinary and usual course of business of the Company and we concur with the view of the Company that the entering into of the Financial Services Agreement is in the interests of the Company and the Shareholders as a whole.

II. Terms of the Agreements

1. The Compressors Purchase and Supply Framework Agreement

The Compressors Purchase and Supply Framework Agreement is valid for a term of one year commencing from 1 January 2010 to 31 December 2010 (which can be terminated before its expiration by mutual agreement of the parties or in the event of any breaches of the agreement), pursuant to which the Company agreed that it and/or its relevant Subsidiaries shall purchase on a non-exclusive basis such quantities of compressors as they may require from time to time from Huayi Compressor and/or its Subsidiaries (as the case may be) for the purpose of manufacturing household electrical appliances, including but not limited to refrigerators and air-conditioners, by the Group. The transactions contemplated under the Compressors Purchase and Supply Framework Agreement are in the ordinary and usual course of business of the Company.

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

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from time to time. Such transactions will be conducted in the ordinary and usual course of business of the company, on normal commercial terms and on terms not less favourable to the Company than terms available to or from (as appropriate) Independent Third Parties. Payment for the purchase of compressors should be made by telegraphic transfer or bank-issued bills by the Company or its relevant Subsidiaries (as the case may be) within 60 days after receipt of the compressors.

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

2. The Business Co-operation Framework Agreement

The Business Co-operation Framework Agreement is valid for a term of one year commencing from 1 January 2010 to 31 December 2010 (which can be terminated before its expiration by mutual agreement of the parties or in the event of any breaches of the agreement) and covers the following aspects of business co-operation between the Group and the relevant Subsidiaries of Hisense Group:

a. Sale and supply of moulds

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the price, payment terms and schedules, technological services and terms of delivery will be entered into by the relevant contracting parties and such terms must be consistent with the principles and the terms of the Business Co-operation Framework Agreement, including the pricing, operation and trading policies set out therein.

Pursuant to the Business Co-operation Framework Agreement, the market price for the manufacture of moulds is determined predominantly by open tender invited by the relevant Subsidiaries of Hisense Group. Payment for the purchase of moulds is determined according to the payment terms agreed between the parties as set out in the individual mould purchase orders. The Group may from time to time submit tenders or bids to manufacture the moulds for such products as requested by the relevant Subsidiaries of Hisense Group in their invitations to tender (which are also extended to various Independent Third Parties).

The Business Co-operation Framework Agreement will not restrict the relevant Subsidiaries of Hisense Group from purchasing moulds from suppliers other than the Group, nor will it restrict the Group from supplying its moulds to any other third parties.

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

b. Sale and supply of air-conditioners

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terms including the price, payment terms and schedules, technological services and terms of delivery, and such terms must be consistent with the principles and the terms of the Business Co-operation Framework Agreement, including the pricing, operation and trading policies set out therein.

The purchase price of the air-conditioners supplied by the Group to the relevant Subsidiaries of Hisense Group will be determined principally by arm’s length commercial negotiations according to the principle of fairness and reasonableness between the contracting parties with reference to the market price of the air-conditioners from time to time and the pricing policy of OEM products within the industry. The sale of air-conditioners by the Group will be conducted in the ordinary and usual course of its business, on normal commercial terms and on terms not less favourable to the Group than terms available to or from (as appropriate) Independent Third Parties. Payment for the purchase of air-conditioners should be made by telegraphic transfer or bank-issued bills by the relevant Subsidiaries of Hisense Group within 60 days from the receipt of the air-conditioners. The relevant Subsidiaries of Hisense Group will be responsible for the collection of the air-conditioners from the Group.

In addition, the parties to the Business Co-operation Framework Agreement have agreed that the price of air-conditioner of a specific model sold by the Group to the relevant Subsidiaries of Hisense Group will equal the production cost of such specific model of the Group divided by 0.95. As stated in the Business Co-operation Framework Agreement, such formula is determined by the relevant parties on the principle that the unit sale price of the air-conditioner to be sold by the Group to the relevant Subsidiaries of Hisense Group shall not be lower than the aggregate of the production cost, management fee and aftersale service fee for each such air-conditioner. In arriving at the formula, the relevant parties have taken into account the relevant percentage level of the management fee and after-sale service fee of the Group and have made reference to the market prices of air-conditioners.

As stated in the Letter from the Board, the air-conditioners to be sold by the Group to the relevant Subsidiaries of Hisense Group under the Business Co-operation Framework Agreement are of different models from the air-conditioners manufactured and supplied by the relevant

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Subsidiaries of Hisense Group to the Group (particulars of the purchases of air-conditioners by the Group from the relevant Subsidiaries of Hisense Group are discussed below). The Business Co-operation Framework Agreement will not restrict the relevant Subsidiaries of Hisense Group from purchasing air-conditioners from suppliers other than the Group, nor will it restrict the Group from selling its airconditioners to any other third parties.

On the basis that (i) the sale and supply of air-conditioners by the Group to the relevant Subsidiaries of Hisense Group will increase the revenue of the Group as well as utilise its resources so as to facilitate the Group to maintain normal business operations; (ii) such sales will be conducted in the ordinary and usual course of business of the Group and on terms not less favourable to the Group than terms available to or from (as appropriate) Independent Third Parties; and (iii) the unit sale price of the air-conditioner will not be lower than the aggregate of the production cost, management fee and after-sale service fee for each such air-conditioner as incurred by the Group, we are of the view that the terms of the Business Co-operation Framework Agreement with respect to the sale and supply of air-conditioners by the Group to the relevant Subsidiaries of Hisense Group are in the interests of the Company and the Shareholders as a whole, on normal commercial terms and fair and reasonable.

c. Sale and supply of refrigerators

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

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The purchase price of the refrigerators supplied by the Group to the relevant Subsidiaries of Hisense Group will be determined principally by arm’s length commercial negotiations according to the principle of fairness and reasonableness between the contracting parties with reference to the market price of the refrigerators from time to time and the price fixing policy of OEM products within the industry. The sale of refrigerators by the Group will be conducted in the ordinary and usual course of its business, on normal commercial terms and on terms not less favourable to the Group than terms available to or from (as appropriate) Independent Third Parties. Payment for the purchase of refrigerators should be made by telegraphic transfer or bank-issued bills by the relevant Subsidiaries of Hisense Group within 60 days after receipt of the refrigerators. The relevant Subsidiaries of Hisense Group will be responsible for the collection of the refrigerators from the Group.

In addition, the relevant parties have agreed that the price of refrigerator of a specific model sold by the Group to the relevant Subsidiaries of Hisense Group will equal the production cost of such specific model of the Group divided by 0.93. As stated in the Business Co-operation Framework Agreement, such formula is determined by the relevant parties on the principle that the unit sale price of the refrigerator to be sold by the Group to the relevant Subsidiaries of Hisense Group shall not be lower than the aggregate of the production cost, management fee and after-sale service fee for each such refrigerator. In arriving at the formula, the relevant parties have taken into account the relevant percentage level of the management fee and after-sale service fee of the Group and have made reference to the market prices of refrigerators.

As stated in the Letter from the Board, the refrigerators to be sold by the Group to the relevant Subsidiaries of Hisense Group under the Business Co-operation Framework Agreement are of different models from the refrigerators manufactured and supplied by the relevant Subsidiaries of Hisense Group to the Group (particulars of the purchase of refrigerators by the Group from Subsidiaries of Hisense Group are discussed below). The Business Co-operation Framework Agreement will not restrict the relevant Subsidiaries of Hisense Group from purchasing refrigerators from suppliers other than the Group, nor will it restrict the Group from selling its refrigerators to any other third parties.

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On the basis that (i) the sale and supply of refrigerators by the Group to the relevant Subsidiaries of Hisense Group will increase the revenue of the Group as well as utilise its resources so as to facilitate the Group to maintain normal business operations; (ii) such sales will be conducted in the ordinary and usual course of business of the Group and on terms not less favourable to the Group than terms available to or from (as appropriate) Independent Third Parties; and (iii) the unit sale price of the refrigerator to be sold by the Group to the relevant Subsidiaries of Hisense Group will not be lower than the aggregate of the production cost, management fee and after-sale service fee for each such refrigerator as produced by the Group, we are of the view that the terms of the Business Co-operation Framework Agreement with respect to the sale and supply of refrigerators by the Group to the relevant Subsidiaries of Hisense Group are in the interests of the Company and the Shareholders as a whole, on normal commercial terms and fair and reasonable.

d. Sale and supply of raw materials, components and facilities

Under the Business Co-operation Framework Agreement, the Company has agreed that it (or any of its Subsidiaries which will be entitled to have the same rights and obligations under the Business Co-operation Framework Agreement) may manufacture and supply on a non-exclusive basis such quantities of raw materials, components of refrigerators and air-conditioners and components of televisions, facilities and electrical machinery as the relevant Subsidiaries of Hisense Group may require from time to time for the purpose of the manufacture of airconditioners and refrigerators for sale to the Company (particulars of the purchases of air-conditioners and refrigerators by the Company from Subsidiaries of Hisense Group under the Business Co-operation Framework Agreement are discussed below) and for the purpose of the manufacture of televisions. In addition, the Company has also agreed to act as the agent of the relevant Subsidiaries of Hisense Group for the purchase of raw materials from other third parties for the production of air-conditioners and refrigerators.

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Individual raw materials production and supply orders setting out specific terms including the price, payment terms and schedules, technological services and terms of delivery will be entered into by the relevant contracting parties from time to time and such terms must be consistent with the principles and the terms of the Business Cooperation Framework Agreement including the pricing, operation and trading policies set out therein.

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

Pricing for the sale and supply of facilities is determined principally by arm’s length commercial negotiations between the parties according to the principles of fairness and reasonableness with reference to the net book value of such facilities. Such transactions will be conducted on normal commercial terms and on terms not less favourable to the Group than terms available to or from (as appropriate) Independent Third Parties.

Pricing for the sale and supply of raw materials by acting as the agent of the relevant Subsidiaries of Hisense Group is determined principally by arm’s length commercial negotiations between the parties according to the principles of fairness and reasonableness with reference to the market price of raw materials. The price for such raw materials is agreed as:

Price of raw materials (per tonne) = the cost for the purchase of raw materials by the Group from other third parties (per tonne) + administration fee of RMB50.

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

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Under the Business Co-operation Framework Agreement, the raw materials and components of air-conditioners and refrigerators to be sold by the Group to the relevant Subsidiaries of Hisense Group include those compatible components utilised for the manufacture of the airconditioners and refrigerators which are to be sold to the Group. The sale and supply of facilities by the Group to the relevant Subsidiaries of Hisense Group will facilitate them in the production of those airconditioners and refrigerators to be sold to the Group. As stated in the Letter from the Board, the models and nature of such raw materials and components of air-conditioners and refrigerators to be sold to the Subsidiaries of Hisense Group are different from those raw materials and components proposed to be purchased from the Subsidiaries of Hisense Group (particulars of the purchase of raw materials and components of air-conditioners and refrigerators by the Group from Subsidiaries of Hisense Group under the Business Co-operation Framework Agreement are discussed below). The Business Co-operation Framework Agreement will not restrict the relevant Subsidiaries of Hisense Group from purchasing raw materials, components or facilities of air-conditioners, refrigerators and televisions from suppliers other than the Group, nor will it restrict the Group from selling its raw materials, components or facilities of air-conditioners and refrigerators to any other third parties.

The relevant Subsidiary of the Company has conducted similar transactions in the past. We have reviewed the transactions between the Subsidiary of the Company with the relevant Subsidiary of Hisense Group and with Independent Third Parties. We note that the terms (including the price, payment terms, technological services and terms of delivery) under the agreements with the relevant Subsidiary of Hisense Group are similar to those with Independent Third Parties and no less favourable to the Company than terms available to Independent Third Parties.

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

e. Sale and supply of home appliances and parts and components

Under the Business Co-operation Framework Agreement, the Company has agreed that the Group shall manufacture and supply on a nonexclusive basis such quantities of home appliances, including airconditioners, refrigerators and freezers, and parts and components for air-conditioners, refrigerators and freezers to the relevant Subsidiaries of Hisense Group may require from time to time for sale purpose.

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

The relevant Subsidiary of Hisense Group has the right to purchase home appliances, including air-conditioners, refrigerators and freezers, and parts and components for air-conditioners, refrigerators and freezers from suppliers other than the Group from time to time according to its own needs. The Group also has the right to supply and sell home appliances, including air-conditioners, refrigerators and freezers, and parts and components for air-conditioners, refrigerators and freezers to other companies other than the relevant Subsidiaries of Hisense Group.

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

Payment for the purchase of home appliances, including air-conditioners, refrigerators and freezers, and parts and components for airconditioners, refrigerators and freezers should be made by the relevant Subsidiary of Hisense Group within 60 days from delivery of such home appliances and components.

On the basis that (i) the terms (including the price, payment terms, technological services and terms of delivery) of the home appliances production and supply orders entered into between the relevant contracting parties will be consistent with those of the Business Cooperation Framework Agreement and will be determined in accordance with the principle of fairness and reasonableness and on terms not less favourable to the Group than those available to or from (as appropriate) Independent Third Parties; and (ii) the relevant Subsidiary of the Company has conducted similar transactions under the same terms in the past, we are of the view that the terms of the Business Co-operation Framework Agreement with respect to the sale and supply of home appliances and parts and components by the Group to the relevant Subsidiaries of Hisense Group are in the interests of the Company and the Shareholders as a whole, on normal commercial terms and fair and reasonable.

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f. Provision of leasing and property management services

Under the Business Co-operation Framework Agreement, the Company has agreed that it (or any of its Subsidiaries which will be entitled to have the same rights and obligations under the Business Co-operation Framework Agreement) may provide leasing, property management, sanitary and security services to the factories or offices of the relevant Subsidiaries of Hisense Group. The contracting parties have also agreed to enter into individual service provision orders setting out specific terms for the provision of leasing, property management, sanitary and security services including scope of the services, fees and payment terms and schedules, and such terms must be consistent with the principles and the terms of the Business Co-operation Framework Agreement.

The fees payable by the relevant Subsidiaries of Hisense Group for the provision of leasing, property management, sanitary and security services will be determined principally by arm’s length commercial negotiations according to the principle of fairness and reasonableness between the contracting parties with reference to the market price for the provision of such services from time to time. Such transactions will be conducted in the ordinary and usual course of business of the Group, on normal commercial terms and on terms not less favourable to the Group than terms available to or from (as appropriate) Independent Third Parties. The fees for the provision of leasing, property management, sanitary and security services will be calculated on a monthly basis and such monthly fee should be made by telegraphic transfer or bank-issued bills by the relevant Subsidiaries of Hisense Group within 15 days from the next following month. The Business Co-operation Framework Agreement will not restrict the relevant Subsidiaries of Hisense Group from engaging other services providers to provide such leasing, property management, sanitary and security services, nor will it restrict the Group from providing its services to any other third parties.

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(including the fees and payment terms) under the agreements with the relevant Subsidiary of Hisense Group are similar to those with Independent Third Parties and no less favourable to the Company than terms available from Independent Third Parties.

On the basis that (i) the terms (including the fees and payment terms) of the service provision orders to be entered into between the contracting parties will be consistent with those of the Business Co-operation Framework Agreement and will be determined in accordance with the principle of fairness and reasonableness with reference to the market price for the provision of such services from time to time; and (ii) the relevant Subsidiary of the Company has conducted similar transactions under the same terms in the past, we are of the view that the terms of the Business Co-operation Framework Agreement with respect to the provision of leasing, property management, sanitary and security services by the Group to Subsidiaries of Hisense Group are in the interests of the Company and the Shareholders as a whole, on normal commercial terms and fair and reasonable.

g. Purchase of air-conditioners

Under the Business Co-operation Framework Agreement, the relevant Subsidiaries of Hisense Group have agreed to manufacture and supply on a non-exclusive basis such quantities of air-conditioners as the Company (or any of its Subsidiaries which will be entitled to have the same rights and obligations under the Business Co-operation Framework Agreement) may require from time to time for its sale to customers. The contracting parties have also agreed to enter into individual airconditioners production and purchase orders setting out specific terms including the price, payment terms and schedules, technological services and other terms of delivery, and such terms must be consistent with the principles and the terms of the Business Co-operation Framework Agreement including the pricing, operation and trading policies set out therein.

The purchase price of the air-conditioners supplied by the relevant Subsidiaries of Hisense Group to the Group will be determined principally by arm’s length commercial negotiations according to the principle of fairness and reasonableness between the contracting parties with reference to the market price of air-conditioners from time

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to time and the pricing policy of OEM products within the industry. In particular, as set out in the Business Co-operation Framework Agreement, the purchase price of air-conditioners shall not be higher than the total sum of production costs, management expenses and transportation costs of air-conditioners as produced by the Group in Shunde, Guangdong or its other production base. In this connection, the relevant parties have agreed that the price of air-conditioner of a specific model sold by the relevant Subsidiaries of Hisense Group to the Group will equal the production cost of such specific model of the Group divided by 0.95. In arriving at the formula, the relevant parties have taken into account the relevant percentage level of the production costs, transportation costs and management expenses of the Group and have made reference to the market prices of air-conditioners.

Effectively, the purchase price of air-conditioners by the Group from the relevant Subsidiaries of Hisense Group is less than or equal to the total sum of production costs and transportation costs of air-conditioners as produced by the Group in Shunde, Guangdong and transporting the same for sale in the regions of relevant production bases of Hisense Group (i.e., Beijing, Nanjing, Shandong and Zhejiang). In addition, the Group can save management fees and after-sale service fees, which is equivalent to approximately 5% of the total production costs of airconditioners of the Group, as a result of its purchase of air-conditioners from the relevant Subsidiaries of Hisense Group. Accordingly, the formula for the pricing of the air-conditioner sold by Hisense Group to the Group under Business Co-operation Framework Agreement has been determined by dividing the relevant production cost of the airconditioner of the Group by 0.95 (i.e. 1 – 5%).

The purchase of air-conditioners by the Group will be conducted in the ordinary and usual course of its business, on normal commercial terms and on terms not less favourable to the Group than terms available to or from (as appropriate) Independent Third Parties. Payment for the purchase of air-conditioners should be made by telegraphic transfer or bank-issued bills by the Company or its relevant Subsidiaries (as the

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case may be) within 60 days after receipt of the air-conditioners. The Group is responsible for the collection of the air-conditioners from the relevant Subsidiaries of Hisense Group. The Business Co-operation Framework Agreement will not restrict the Group from purchasing air-conditioners from suppliers other than the Subsidiaries of Hisense Group, nor will it restrict the Subsidiaries of Hisense Group from selling their air-conditioners to any other third parties.

On the basis that (i) the purchase of air-conditioners by the Group will be conducted in the ordinary and usual course of its business and the terms (including the price, payment terms, technological services and terms of delivery) of the air-conditioners production and purchase orders entered into between the relevant contracting parties will be consistent with those of the Business Co-operation Framework Agreement and will be determined in accordance with the principle of fairness and reasonableness with reference to the market price and not less favourable to the Group than terms available to or from (as appropriate) Independent Third Parties; (ii) the price of the air-conditioners purchased by the Group from the relevant Subsidiaries of Hisense Group will not be higher than the total sum of production costs, management expenses and transportation costs of air-conditioners that will otherwise be incurred by the Group if such air-conditioners are produced by itself; and (iii) the non-exclusive arrangement under the Business Co-operation Framework Agreement provides the Group with the flexibility without any commitment on the purchase quantity from the relevant Subsidiaries of Hisense Group, we are of the view that the terms of the Business Co-operation Framework Agreement with respect to the purchase of air-conditioners by the Group are in the interests of the Company and the Shareholders as a whole, on normal commercial terms and fair and reasonable.

h. Purchase of refrigerators

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parties have also agreed to enter into individual refrigerators production and purchase orders setting out specific terms including the price, payment terms and schedules, technological services and other terms of delivery, and such terms must be consistent with the principles and the terms of the Business Co-operation Framework Agreement including the pricing, operation and trading policies set out therein.

The purchase price of the refrigerators supplied by the relevant Subsidiaries of Hisense Group to the Group will be determined principally by arm’s length commercial negotiations according to the principle of fairness and reasonableness between the contracting parties with reference to the market price of refrigerators from time to time and the pricing policy of OEM products within the industry. In particular, as set out in the Business Co-operation Framework Agreement, the purchase price of refrigerators shall not be higher than the total sum of production costs, management expenses and transportation costs of refrigerators as produced by the Group in Shunde, Guangdong or its other production base. In this connection, the relevant parties have agreed that the price of refrigerator of a specific model sold by the relevant Subsidiaries of Hisense Group to the Group will equal the production cost of such specific model of the Group divided by 0.93. In arriving at the formula, the relevant parties have taken into account the relevant percentage level of the production costs, transportation costs and management expenses of the Group and have made reference to the market prices of refrigerators.

Effectively, the purchase price of refrigerators by the Group from the relevant Subsidiaries of Hisense Group is less than or equal to the total sum of production costs and transportation costs of refrigerators as produced by the Group in Shunde, Guangdong and transporting the same for sale in the regions of relevant production bases of Hisense Group (i.e., Beijing, Nanjing, Shandong and Zhejiang). In addition, the Group can save management fees and after-sale service fees, which is equivalent to approximately 7% of the total production costs of refrigerators of the Group, as a result of its purchase of refrigerators from the relevant Subsidiaries of Hisense Group. Accordingly, the formula for the pricing of the refrigerators sold by Hisense Group to the Group under Business Co-operation Framework Agreement has been determined by dividing the relevant production cost of the refrigerators of the Group by 0.93 (i.e. 1 – 7%).

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The purchase of refrigerators by the Group will be conducted in the ordinary and usual course of its business, on normal commercial terms and on terms not less favourable to the Group than terms available to or from (as appropriate) Independent Third Parties. Payment for the purchase of refrigerators should be made by telegraphic transfer or bank-issued bills by the Company or its relevant Subsidiaries (as the case may be) within 60 days after receipt of the refrigerators. The Group is responsible for the collection of the refrigerators from the relevant Subsidiaries of Hisense Group. The Business Co-operation Framework Agreement will not restrict the Group from purchasing refrigerators from other suppliers apart from the Subsidiaries of Hisense Group, nor will it restrict the Subsidiaries of Hisense Group from selling their refrigerators to any other third parties.

On the basis that (i) the purchase of refrigerators by the Group will be conducted in the ordinary and usual course of its business and the terms (including the price, payment terms, technological services and terms of delivery) of the refrigerators production and purchase orders entered into between the relevant contracting parties will be consistent with those of the Business Co-operation Framework Agreement and will be determined in accordance with the principle of fairness and reasonableness with reference to the market price and not less favourable to the Group than terms available to or from (as appropriate) Independent Third Parties; (ii) the price of the refrigerators purchased by the Group from the relevant Subsidiaries of Hisense Group will not be higher than the total sum of production costs, management expenses and transportation costs of refrigerators that will otherwise be incurred by the Group if the relevant refrigerators are produced by itself; and (iii) the non-exclusive arrangement under the Business Co-operation Framework Agreement provides the Group with the flexibility without any commitment on the purchase quantity from the relevant Subsidiaries of Hisense Group, we are of the view that the terms of the Business

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Co-operation Framework Agreement with respect to the purchase of refrigerators by the Group are in the interests of the Company and the Shareholders as a whole, on normal commercial terms and fair and reasonable.

i. Purchase of raw materials, components and facilities

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

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

Pricing for the purchase of facilities is determined principally by arm’s length commercial negotiations between the parties according to the principles of fairness and reasonableness with reference to the net book value of such facilities. Such transactions will be conducted on normal commercial terms and on terms not less favourable to the Company than terms available to or from (as appropriate) Independent Third Parties.

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Payment for the purchase of raw materials, components or facilities should be made by telegraphic transfer or bank-issued bills by the Company or its relevant Subsidiaries within 60 days after receipt of the raw materials, components and facilities. The Business Co-operation Framework Agreement will not restrict the Group from purchasing raw materials, components or facilities from suppliers other than the Subsidiaries of Hisense Group, nor will it restrict the Subsidiaries of Hisense Group from selling their raw materials, components or facilities to any other third parties.

On the basis that (i) the purchase of raw materials, components and facilities by the Group will be conducted in the ordinary and usual course of its business and the terms (including the price, payment terms, technological services and terms of delivery) of the raw materials purchase and supply orders entered into between the relevant contracting parties will be consistent with those of the Business Co-operation Framework Agreement and will be determined in accordance with the principle of fairness and reasonableness with reference to the market price or to the net book value (as the case may be) and will not be less favourable to the Group than terms available to or from (as appropriate) Independent Third Parties, (ii) the non-exclusive arrangement under the Business Co-operation Framework Agreement provides the Group with the flexibility without any commitment on the purchase quantity from the relevant Subsidiaries of Hisense Group and (iii) the relevant Subsidiary of the Company has conducted similar transactions under the same terms in the past, we are of the view that the terms of the Business Co-operation Framework Agreement with respect to the purchase of raw materials, components and facilities by the Group are in the interests of the Company and the Shareholders as a whole, on normal commercial terms and fair and reasonable.

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j. Provision of services

Under the Business Co-operation Framework Agreement, the Company has agreed that it (or any of its Subsidiaries which will be entitled to have the same rights and obligations under the Business Co-operation Framework Agreement) may engage Hisense Group and its relevant Subsidiaries for the provision of after-sale maintenance, repair and consultation services to the customers of the Group in part of the PRC who have purchased electrical appliances from the Group and the provision and maintenance of electronic communication services (e.g., web-conferences services) to the Company. The contracting parties have also agreed to enter into individual service provision orders setting out specific terms for the provision of the services including fees, scope of services, payment terms and schedules, and such terms must be consistent with the principles and the terms of the Business Cooperation Framework Agreement.

The fees payable by the Company to the relevant Subsidiaries of Hisense Group for the provision of the after-sale maintenance, repair and consultation services will be determined principally by arm’s length commercial negotiations according to the principle of fairness and reasonableness between the contracting parties with reference to the market price for the provision of such services from time to time. Such transactions will be conducted in the ordinary and usual course of business of the Group, on normal commercial terms and on terms not less favourable to the Group than terms available to or from (as appropriate) Independent Third Parties. The fees for the provision of the after-sale maintenance, repair and consultation services will be calculated on a monthly basis and such monthly fee should be made by telegraphic transfer or bank-issued bills by the Company or its relevant Subsidiaries (as the case may be) within 15 days from the next following month. The Business Co-operation Framework Agreement will not restrict the Group from engaging services providers other than the Subsidiaries of Hisense Group, nor will it restrict the Subsidiaries of Hisense Group from providing their services to any other third parties.

On the basis that (i) the terms (including the fees, payment terms, and scope of the after-sale maintenance, repair and consultation services) of the service provision orders to be entered into between the contracting parties will be consistent with those of the Business Co-

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operation Framework Agreement and will be determined in accordance with the principle of fairness and reasonableness with reference to the market price for the provision of such services from time to time and will not be less favourable to the Group than terms available to or from (as appropriate) Independent Third Parties; (ii) the non-exclusive arrangement under the Business Co-operation Framework Agreement provides the Group with the flexibility without any commitment on the amount of services to be provided by the relevant Subsidiaries of Hisense Group; and (iii) the relevant Subsidiary of the Company has conducted similar transactions under the same terms in the past, we are of the view that the terms of the Business Co-operation Framework Agreement with respect to the provision of services are in the interests of the Company and the Shareholders as a whole, on normal commercial terms and fair and reasonable.

3. The Financial Services Agreement

The term of the Financial Services Agreement is two years with effect from obtaining the approval by the Independent Shareholders at the EGM and the principal terms of the Financial Services Agreement are summarised as follows:

(i) The services to be provided by Hisense Finance to the Group include deposit services, loan services and draft discount services;
(ii) Hisense Finance shall be appointed to provide financial services to the Group, subject to compliance with the terms and conditions of the Financial Services Agreement and the subsequent agreement of the terms and conditions by the parties thereto in relation to the provision of each particular service which shall be recorded in writing. The Group may however obtain financial services, including deposit services and loan services and draft discount services, from other financial institutions in addition to or instead of Hisense Finance, as it sees fit;
(iii) The interest rate payable for the Group’s deposits with Hisense Finance shall not be lower than the rate payable by normal commercial banks in the PRC for comparable deposits and such interest shall be payable by Hisense Finance on a quarterly basis by way of crediting cash into the deposit account of the Group. The terms for the provision of the deposit services by Hisense Finance to the Group shall be no less favourable than those of other normal commercial banks and financial institutions;

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(iv) The interest rate charged for the loans provided to the Group by Hisense Finance shall not be higher than the rate charged by normal commercial banks in the PRC for comparable loans and such interest shall be payable by the Group to Hisense Finance on a monthly basis payable on the 20th day of each month. The terms for the provision of the loans by Hisense Finance to the Group shall be no less favourable than those of other normal commercial banks and financial institutions. Security over the assets of the Company may be provided by the Company to Hisense Finance in respect of the loan services rendered, depending on the then circumstances for the provision of the loan services;
(v) Under the Financial Services Agreement, Hisense Finance will provide draft discount services to the Group which means that the Group is entitled to present bank drafts to Hisense Finance for payment before the maturity date of the bank drafts. In return, Hisense Finance will charge service fee from the Group for “cashing” the bank drafts. After the Group has discounted the bank drafts with Hisense Finance, such bank drafts will belong to Hisense Finance which has the right to present such bank drafts to the issuing banks for payment on their respective maturity dates. The service fee payable by the Company for the draft discount services to be provided by Hisense Finance shall not be less favourable than the service fee charged by normal commercial banks in the PRC for providing comparable draft discount services; and
(vi) The Company will make payment for such interest and fees (if any) in accordance with the payment terms of the separate agreements for the provision of loans and draft discount services as might be entered into between the parties.

Based on our review of the principal terms of the Financial Services Agreement as stated above, we consider (i) the non-exclusivity of the financial services to be provided under the Financial Services Agreement (i.e. the Group is free to obtain such financial services from other financial institutions as it sees fit); and (ii) the condition that the actual terms of such financial services shall not be less favourable than those offered by other normal commercial banks and financial institutions to be the most important terms in safeguarding the interests of the Company.

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On the basis that (i) the transactions under the Financial Services Agreement will be conducted in the ordinary and usual course of business of the Group and on terms not less favourable to the Company than terms available from other normal commercial banks and financial institutions; and (ii) the nonexclusive arrangement under the Financial Services Agreement provides the Company with the flexibility without any commitment or obligation for the Company to obtain such services from Hisense Finance, we are of the view that the terms of the Financial Services Agreement are in the interests of the Company and the Shareholders as a whole, on normal commercial terms and fair and reasonable.

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

1. The Compressors Purchase and Supply Framework Agreement and the Business Co-operation Framework Agreement

Pursuant to Rule 14A.35(2) of the Listing Rules, the transactions contemplated under the Compressors Purchase and Supply Framework Agreement and Business Co-operation Framework Agreement during the year commencing from 1 January 2010 to 31 December 2010 will be subject to an annual cap for the financial year ending 31 December 2010 of the Company. The proposed maximum aggregate values, or “caps”, of the transactions contemplated under the Compressors Purchase and Supply Framework Agreement and Business Co-operation Framework Agreement for the year ending 31 December 2010 and the unaudited value of similar transactions between the relevant parties in 2009 are summarised below:

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			Increase/(decrease)
			of the proposed
			caps as compared
			to the estimated
		Unaudited value	annualised value
		of the similar	of the similar
		transactions	transactions for the
		between	year 2009 based
		the relevant	on their unaudited
	Proposed caps for	parties for the	value for the
	the year ending	nine months ended	nine months ended
	31 December	30 September	30 September
	2010	2009	2009
	(RMB)	(RMB)	(%)
The Compressors Purchase and
Supply Framework Agreement:
Maximum aggregate value of purchase
and supply of compressors:	580,000,000	355,453,097	22.4
The Business Co-operation
Framework Agreement:
Maximum aggregate value of sale and
supply of moulds:	24,000,000	3,333,630	440.0
Maximum aggregate value of sale and
supply of air-conditioners:	260,000,000	201,557,729	(3.3)
Maximum aggregate value of sale and
supply of refrigerators:	928,864,300	514,717,479	35.3
Maximum aggregate value of sale and
supply of raw materials, components
and facilities:	655,900,000	97,411,843	405.0

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			Increase/(decrease)
			of the proposed
			caps as compared
			to the estimated
		Unaudited value	annualised value
		of the similar	of the similar
		transactions	transactions for the
		between	year 2009 based
		the relevant	on their unaudited
	Proposed caps for	parties for the	value for the
	the year ending	nine months ended	nine months ended
	31 December	30 September	30 September
	2010	2009	2009
	(RMB)	(RMB)	(%)
Maximum aggregate value of sale and
supply of home appliances and parts
and components:	1,008,405,000	209,648,045	260.7
Maximum aggregate value of provision
of leasing and property management
services:	9,460,000	308,501	2,199.8
Maximum aggregate value of purchase
of air-conditioners:	1,124,000,000	324,652,510	159.7
Maximum aggregate value of purchase
of refrigerators:	1,188,372,300	711,600,608	25.2
Maximum aggregate value of purchase
of raw materials, components and
facilities:	78,330,000	15,629,742	275.9
Maximum aggregate value of provision
of services:	47,041,600	10,233,278	244.8

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The basis for the proposed maximum value for each category of transactions contemplated under the Compressors Purchase and Supply Framework Agreement and the Business Co-operation Framework Agreement is set out in the letter from the Board. The table below summaries the basis for each category of the transactions:

Basis for the proposed annual cap

The Compressors Purchase and Supply Framework Agreement:

Purchase and supply of (a) similar transactions between the Company compressors and/or its Subsidiaries with Huayi Compressor and/or its Subsidiaries in the past; (b) the prevailing market conditions relating to the demand for electrical appliances in the PRC; and (c) the business development plan of the Company relating to the production and sales level of refrigerators and air-conditioners in 2010.

The Business Co-operation Framework Agreement:

Sale and supply of moulds (a) similar transactions between the relevant Subsidiary of the Company with the relevant Subsidiaries of Hisense Group in the past; (b) the prevailing market conditions relating to the demand for electrical appliances in the PRC.

Sale and supply of (a) similar transactions between the relevant air-conditioners Subsidiary of the Company with the relevant Subsidiary of Hisense Group in the past; (b) the prevailing market conditions about the demand for electrical appliances, including airconditioners, in the PRC; and (c) the projected level of production and sale of air-conditioners of the relevant Subsidiary of Hisense Group for the year ending 31 December 2010.

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Sale and supply of refrigerators

Sale and supply of raw materials, components and facilities
Sale and supply of home appliances and parts and components
Provision of leasing and property management services

(a) the similar transactions between the relevant Subsidiary of the Company with the relevant Subsidiary of Hisense Group in the past; and (b) the prevailing market conditions about the demand for electrical appliances, including refrigerators, in the PRC; and (c) the projected level of production and sale of refrigerators of the relevant Subsidiary of Hisense Group for the year ending 31 December 2010.

(a) similar transactions between the relevant Subsidiaries of the Company with the relevant Subsidiaries of Hisense Group in the past; and (b) the prevailing market conditions relating to the demand for electrical appliances, including televisions, air-conditioners and refrigerators, in the PRC.
(a) similar transactions between the relevant Subsidiary of the Company with the relevant Subsidiary of Hisense Group in the past; (b) the prevailing market conditions about the demand for home appliances, including air-conditioners, refrigerators and freezers, and parts and components for air-conditioners, refrigerators and freezers for the year ending 31 December 2009.
(a) similar transactions between the relevant Subsidiaries of the Company with the relevant Subsidiaries of Hisense Group in the past; (b) the prevailing market conditions for the demand of the provision of leasing, property management, sanitary and security services; and (c) the anticipated increase in demand for property management, sanitary and security ser vices f rom t he releva nt Subsidia r ies of Hisense Group due to the satisfactory cooperation relationship between the parties in the past.

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Purchase of air-conditioners (a) similar transactions between the relevant Subsidiary of the Company with the relevant Subsidiaries of Hisense Group in the past; (b) the prevailing market conditions about the demand for electrical appliances, including airconditioners, in the PRC; and (c) the projected level of production and sale of air-conditioners of the relevant Subsidiary of the Company for the year ending 31 December 2010.

Purchase of refrigerators (a) similar transactions between the relevant Subsidiary of the Company with the relevant Subsidiaries of Hisense Group in the past; (b) the prevailing market conditions about the demand for electrical appliances, including refrigerators, in the PRC; and (c) the projected level of production and sale of refrigerators of the relevant Subsidiary of the Company for the year ending 31 December 2010.
Purchase of raw materials, (a) the prevailing market conditions about the components and facilities demand for electrical appliances, including air-conditioners and refrigerators, in the PRC; and (b) the projected rising level of sale and production of refrigerators by the relevant Subsidiaries of the Company to the relevant Subsidiaries of Hisense Group for the year ending 31 December 2010 and in turn the relevant Subsidiaries of the Company have to increase their purchases of raw materials, facilities and components from the relevant Subsidiaries of Hisense Group to enable such production and sale.

Provision of services

(a) similar transactions between the relevant Subsidiary of the Company with the relevant Subsidiaries of Hisense Group in the past; (b) the projected level of production and sale of electrical appliances of the relevant Subsidiary of the Company for the year ending 31 December 2010.

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In respect of the basis for the proposed annual caps under the Compressors Purchase and Supply Framework Agreement and the Business Co-operation Framework Agreement as set out in the above table, we note that the majority of the annual caps have been arrived at on the basis of (i) similar transactions between the relevant Subsidiaries of the Company and the relevant Subsidiaries of Hisense Group in the past and (ii) the prevailing market conditions relating to the demand for electrical appliances in the PRC for the year ending 2010. First of all, regarding the relevant transactions in the past, we have reviewed certain historical similar transactions conducted between the relevant Subsidiaries of the Company and the relevant Subsidiaries of Huayi Compressor or Hisense Group (as the case may be) as well as those between the relevant Subsidiaries of the Company and the Independent Third Parties, and we have found that the terms of the relevant transactions between the Subsidiaries of the Company and the relevant Subsidiaries of Huayi Compressor or Hisense Group (as the case may be) were not less favourable to the terms of those transactions conducted between the relevant Subsidiaries of the Company and the Independent Third Parties. As indicated from above, certain proposed annual caps such as those for the sale and supply of moulds, raw materials, components and facilities, home appliances and parts and components; provision of leasing and property management services; purchase of air conditioners, raw materials, components and facilities; and the provision of services represent a significant increase over the unaudited value of the similar transactions conducted between the relevant parties for the nine-month period in 2009. For instance, the proposed annual cap of RMB24 million for the sale and supply of moulds for the year ending 31 December 2010 represents an increase of approximately 440% over the estimated annualised value of such transactions for the year 2009 on the basis of their unaudited value of approximately RMB3.3 million for the nine months ended 30 September 2009.

We understand from the management of the Company that as Hisense Group plans to develop more products in 2010 which will therefore require more moulds as components, Hisense Group intends to purchase more moulds from the Company. In general, the Group will be benefited from the sales of moulds to Hisense Group as such transactions will increase the Group’s revenue, we are of the view that it is of the commercial interest for the Company to maximise the value of such transactions. As such, we are also of the view that the proposed annual cap of RMB24 million for the sale and supply of moulds by the Group to the Subsidiaries of Hisense Group for the year ending 31 December 2010 is not excessive and has been prepared on a fair and reasonable basis.

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LETTER FROM ACCESS CAPITAL

As regards the proposed annual cap for the provision of leasing and property management services which represents an increase of about 2,199.8% over the estimated annualised value of such transactions for 2009, we understand from the company that the Company only provided property management services to the relevant Subsidiary of Hisense Group. As the Group would provide leasing services in addition to property management services to the relevant Subsidiary of Hisense Group for the year ending 31 December 2010, such transaction amount is expected to increase significantly in the future. We are of the view that the proposed cap’s significant increase over the estimated annualised value of the similar transactions for the year 2009 was only because of the low base value of RMB308,501. In addition, the Group will be benefited from the provision of leasing and property management services to Hisense Group as such transactions will increase the Group’s revenue, so we are also of the view that it is of the commercial interest of the Company to maximise the value of such transactions. Accordingly, we consider that the proposed cap for the provision of leasing and property management services is fair and reasonable.

As regards the proposed annual cap for the supply and supply of airconditioners and refrigerators and the purchase of refrigerators, we notice that the increase or decrease of the proposed caps as compared to the estimated annualised value of such transactions for 2009 range from -3.3% to 35.3% which do not differ significantly from the transactions conducted for the previous year. It should be noted that the Business Co-operation Framework Agreement will not restrict the relevant Subsidiaries of Hisense Group from purchasing products from suppliers other than the Group, nor will it restrict the Group from selling its products to any other third parties. Therefore, the anticipated value of the transactions to be carried out between the Group and the relevant Subsidiaries of Hisense Group does not reflect the Company’s projection of total purchases or sales of the relevant product. In order to determine the fairness and reasonableness of the proposed caps, we, for the purpose of ensuring the accuracy of the Company’s computation of the proposed annual caps, have carried out a review on the worksheets prepared by the management of the Company for calculation of the relevant annual caps including the review of the quantities and the unit prices of the subject items. Based on the result of our review, we are satisfied that the calculation of the proposed annual caps has been conducted on a fair and reasonable basis and consider the proposed caps for the subject items are not excessive or unreasonable.

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As regards the significant increase in the other proposed annual caps in relation to the sale and supply of raw materials, components and facilities, home appliances and parts and components as well as the purchase of airconditioners and raw materials, components and facilities and the provision of services for the year ending 2010, we have discussed with the management of the Company and note that such proposed annual caps have been largely arrived at on the basis of the Company’s estimation of the prevailing market conditions about the demand for electrical appliances in the PRC in the future in light of the Home Appliances Subsidy Policy for Rural Villages（家電下鄉政策）(the “Subsidy Policy”), which is essentially the major consideration taken into account by the relevant parties in the determination of the majority of the annual caps as discussed above.

According to the China Statistical Yearbook 2008（中國統計年鑑2008） compiled by the National Bureau of Statistics of China（中華人民共和國國家統計局）, on average, every 100 rural households in China only owned approximately 26.1 refrigerators and 8.5 air-conditioners in 2007, whereas every 100 urban households in China owned approximately 95.0 refrigerators and 95.1 air-conditioners. With the aim to reduce the inequality between urban and rural households and to boost the domestic sales with the PRC market, the PRC government adopted the Subsidy Policy, pursuant to which the PRC government would provide a 13% subsidy to farmers who bought designated brands of color TV sets, refrigerators and mobile phones in the three agricultural provinces of Shandong, Henan, and Sichuan. On 1 February 2009, the PRC government expanded the Subsidy Policy nationwide to benefit all rural people and added four more products: motorcycles, personal computers, water heaters and air-conditioners.

According to Xinhua News, China has more than 50,000 townships and the number of rural households accounts for 68 percent of the total families. According to Xinhua News, Mr. Fu Ziying, Vice Minister of Commerce of the PRC, stated on 1 February 2009 that the Subsidy Policy could help stimulate rural consumption amounting to RMB920 billion, drive up growth of retail sales of consumer goods in rural areas by 2.5 percentage points, and realise household appliance sales of 480 million units. According to the PRC government’s official website for the Subsidy Policy, in September 2009, approximately 1.2 million units of refrigerators valuing over RMB2.5 billion were sold under the Subsidy Policy. There were also approximately 348,000 units of air-conditioners valuing over RMB940 million sold under the Subsidy Policy in September 2009. As at the end of September 2009, there

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were approximately 20.8 million units of household appliances sold under the Subsidy Policy valuing at approximately RMB38.8 billion. With the 13% subsidy on household appliances, it is expected that the sales of household appliance in rural household will continue to increase.

Furthermore, as part of the recent stimulus policies of the PRC Government to boost domestic consumption, the State Council has announced a pilot program of home appliance replacement and set several provinces and cities, including Beijing, Shanghai, Tianjin, Fuzhou, Changsha and provinces of Jiangsu, Zhejiang, Shandong, Guangdong, as pilots for the replacement of used TV sets, refrigerators, washing machines, air conditioners and computers. In particular, the PRC government will set aside RMB2 billion to subsidise purchases of home appliances and consumers who hand in certain used electronic products, namely, TV sets, refrigerators, washing machines, airconditioners and computers, and buy new ones can receive a subsidy worth 10% of the prices on the new electronic products.

Based on the information from the National Bureau of Statistics of China as at the Latest Practicable Date, retail sales kept solid growth in China as the world’s third largest economy turned to domestic consumption for growth after exports tumbled. In particular, retail sales of consumer goods rose approximately 15.0% in the first half of 2009 (on a year-on-year basis) to approximately RMB5,871.1 billion. For the six months ended 30 June 2009, the retail sales in cities reached RMB3,983.3 billion, up by 14.4% as compared to the same period last year, and the retail sales at and below county level stood at RMB1,887.8 billion, representing an increase of approximately 16.4% on a year-on-year basis.

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

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LETTER FROM ACCESS CAPITAL

While the proposed annual caps under the Business Co-operation Framework Agreement for the year ending 2010 in certain cases represent a significant increase over the historical unaudited value of the similar transactions between the relevant parties in 2009, it should be noted that (i) the proposed transactions contemplated under the Business Co-operation Framework Agreement will continue to be conducted in the ordinary and usual course of business of the Company and on normal commercial terms and on terms not less favourable to the Company than terms available to or from (as appropriate) Independent Third Parties; (ii) it is generally in the interest of the Company to maximise the value of the sales transactions contemplated under the Business Co-operation Framework Agreement so as to increase the Company’s revenue; and (iii) the non-exclusive arrangement under the Business Co-operation Framework Agreement provides the Company with the flexibility without any commitment on the actual transaction values. Accordingly, we are of the view that the entering into of the Business Cooperation Framework Agreement is in the interests of the Company and the Shareholders as a whole and the proposed annual caps under the Business Cooperation Framework Agreement have been arrived at on a fair and reasonable basis.

2. The Financial Services Agreement

Pursuant to Rule 14A.35(2) of the Listing Rules, the transactions contemplated under the Financial Services Agreement will be subject to a maximum aggregate annual cap in respect of each category of the transactions under the Financial Services Agreement (i.e. the deposit services, the loan services and the draft discount services). The proposed annual caps of the transactions contemplated under the Financial Services Agreement are as follows:

	Proposed annual
	caps
	(RMB)
Maximum daily balance of the deposits to be placed by
the Group with Hisense Finance in respect of the
deposit services:	400,000,000
Maximum balance of the loan to be provided by Hisense
Finance to the Group in respect of the loan services:	1,500,000,000
Maximum aggregate value of the annual service fees
payable by the Company to Hisense Finance
in respect of the draft discount services:	25,000,000

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LETTER FROM ACCESS CAPITAL

For the purpose of evaluating the fairness and reasonableness of the above annual caps, we have analysed the historical value of the relevant transactions between the Group and other commercial banks and financial institutions in the past and discussed with the Directors about the underlying basis for determining the value of such proposed annual caps. Details of our analysis in respect of each annul cap are summarised as follows:—

Deposit Services

As set out in the Letter from the Board, the Company currently expects that the maximum daily balance of the deposits to be placed by the Group with Hisense Finance at any time during the term of the Financial Services Agreement shall not exceed the cap of RMB400,000,000 (inclusive of interest) on any given day. Such proposed cap has been determined based on (i) the historical cashflow figures of the Group; (ii) the historical transaction figures for the deposit services provided by other financial institutions to the Group that the average monthly balance of the deposits placed by the Group with other financial institutions were RMB402,216,000, RMB282,135,000, RMB167,361,000 and RMB207,884,000 for each of the three years ended 31 December 2006, 2007 and 2008 and the six months ended 30 June 2009, respectively; (iii) the expected financial needs of cash of the Group taking into account the business development plans on areas relating to research and development, investment, sales and supply of the Group; and (iv) the proposed loans to be provided by Hisense Finance to the Group under the Financial Services Agreement will first be transferred by Hisense Finance to the Group in its deposit account with Hisense Finance for withdrawal.

In general, we have discussed with the management of the Company about its business development plans on areas relating to research and development, investment, sales and supply of the Group. In particular, we understand that the Company intends to strengthen its research and development capacity so as to shorten the lead time for its products. As mentioned above, the Group had outstanding borrowings of approximately RMB1,714.5 million and its unaudited total net liabilities amounted to approximately RMB708.8 million as at 30 June 2009. While we have not discussed with the relevant financial institutions, we are of the view that in light of the current financial position of the Group, it may be difficult for the Company to obtain additional credit facilities from the existing financial institutions on acceptable terms. For the purposes of efficient treasury management and satisfying the financial

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needs for its existing development plans, the Company expects that the Group may frequently utilise the loan services and draft discount services to be provided by Hisense Finance if the relevant terms are more favourable than those available from other financial institutions. On the other hand, since the proposed loans to be provided by Hisense Finance to the Group under the Financial Services Agreement will first be transferred by Hisense Finance to the Group in its deposit account with Hisense Finance for withdrawal, the Company also expects to utilise frequently the deposit services to be provided by Hisense Finance.

For the purpose of evaluating the fairness and reasonableness of the proposed cap of RMB400 million in respect of the deposit services, we have analysed the historical value for the deposit services provided by other financial institutions to the Group in the past so as to see whether or not the proposed cap is excessive. As mentioned above, the average monthly balance of the deposits placed by the Group with other financial institutions were approximately RMB402,216,000, RMB282,135,000, RMB167,361,000 and RMB207,884,000 for each of the three years ended 31 December 2006, 2007 and 2008 and the six months ended 30 June 2009, respectively. We note that such average monthly balance figures had been decreasing during the past three financial years and the overall average monthly balance for the whole three-year period would amount to approximately RMB283.9 million, which is approximately 29.0% lower than the proposed annual cap of RMB400 million.

As set out above, it is proposed that the loans to be provided by Hisense Finance to the Group under the Financial Services Agreement will first be transferred by Hisense Finance to the Group in its deposit account with Hisense Finance for withdrawal. Given the proposed maximum loan amount of RMB1,500 million to be provided by Hisense Finance to the Group in respect of the loan services (which is 275% higher than the proposed maximum daily balance of the deposit to be placed by the Group with Hisense Finance), we do not consider the proposed annual cap of RMB400 million in respect of the deposit services under the Financial Services Agreement to be excessive. Given that (i) the proposed transactions contemplated under the Financial Services Agreement will be conducted in the ordinary and usual course of business of the Company and on normal commercial terms and on terms not less favourable to the Company than terms available from other normal commercial banks and financial institutions; and (ii) the non-exclusive arrangement under the Financial Services Agreement provides the Company

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with the flexibility without any commitment on the actual transaction values, we are of the view that the proposed annual cap of RMB400 million in respect of the deposit services under the Financial Services Agreement is fair and reasonable.

Loan services

As set out in the Letter from the Board, the Company currently expects that the maximum balance of loan to be provided by Hisense Finance to the Group shall not exceed the cap of RMB1.5 billion (inclusive of interest) during the term of the Financial Services Agreement. Such proposed cap has been determined based on (i) the historical cashflow figures of the Group; and (ii) the historical transaction figures for the loan services provided by other financial institutions to the Group that the average monthly balance of the loans provided by other financial institutions to the Group were RMB1,407,321,000, RMB1,052,266,000, RMB1,006,362,000 and RMB1,184,630,000 for each of the three years ended 31 December 2006, 2007 and 2008 and the six months ended 30 June 2009, respectively; and (iii) the expected financial needs of the Group taking into account the business development plans on areas relating to research and development, investment, sales and supply of the Group; and (iv) the plan of the Group to obtain more loans from Hisense Finance instead of from other financial institutions for the year ending 31 December 2011 since the terms for the provision of the loans by Hisense Finance to the Group shall be no less favourable than those of other normal commercial banks and financial institutions and Hisense Finance has better knowledge about the background and financial status of the Company which will facilitate the loan application process by the Company.

We note that the average monthly balance of loan had been decreasing during the past three financial years and the overall average monthly balance for the whole three-year period would amount to approximately RMB1,155.3 million, which is approximately 23.0% lower than the proposed annual cap of RMB1,500 million. As noted in the 2008 Annual Report, the Group’s borrowings with banks bear interest rates ranging from 4.32% to 8.02% while the Group’s borrowings with Hisense Finance bear interest rates ranging from 4.20% to 5.52%. As such, the interest rates for the loans provided by Hisense Finance were lower than the loans provided by PRC commercial banks, which is in the interests of the Company and the Shareholders as a whole.

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LETTER FROM ACCESS CAPITAL

We consider that it is beneficial for the Group to continue to utilise such loan services to be provided by Hisense Finance in the future as the Group will be able to reduce its finance costs. We also consider that it is of the Group’s interest to maximise the relevant annual cap so as to capture the potential interest savings to the greatest extent. Given that the loan services under the Financial Services Agreement will be conducted in the ordinary and usual course of business of the Company and on normal commercial terms and on terms not less favourable to the Company than terms available from other normal commercial banks and financial institutions, we are of the view that the proposed annual cap in respect of the loan services under the Financial Services Agreement to be fair and reasonable.

Draft discount services

As set out in the Letter from the Board, the Company currently expects that the annual service fee payable by the Company to Hisense Finance for the provision of draft discount services shall not exceed the cap of RMB25,000,000 during the term of the Financial Services Agreement. Such proposed cap has been determined based on (i) the historical service fees paid by the Company for the draft discount services provided by other financial institutions to the Group which were RMB16,100,000, RMB4,200,000, RMB18,200,000 and RMB1,960,000 for each of the three years ended 31 December 2006, 2007 and 2008 and the six months ended 30 June 2009, respectively; and (ii) the expected financial needs of the Group taking into account the business development plans on areas relating to research and development, investment, sales and supply of the Group; and (iii) the plan of the Group to use more draft discount services to be provided by Hisense Finance instead of from other financial institutions for the year ending 31 December 2011 since the terms for the provision of the draft discount services by Hisense Finance to the Group shall be no less favourable than those of other normal commercial banks and financial institutions and Hisense Finance has better knowledge about the background and financial status of the Company which will facilitate the draft discount application process by the Company.

As mentioned above, the historical service fees paid by the Company for the draft discount services provided by other financial institutions to the Group were approximately RMB16,100,000, RMB4,200,000, RMB18,200,000 and RMB1,960,000 for each of the three years ended 31 December 2006, 2007

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and 2008 and the six months ended 30 June 2009, respectively. We note that such payments of services fees had been fluctuating during the past three financial years and the service fees paid by the Company in the year ended 31 December 2008 was approximately 27.2% lower than the proposed cap of RMB25 million. As advised by the Directors, the Company currently expects that as a result of the business development plans on areas relating to research and development, investment, sales and supply of the Group, the Company shall utilise more draft discount services in the coming years to take advantage to the more expedient and efficient service provision by Hisense Finance amid the fierce competition in the industry.

In view of the fact that (i) the proposed draft discount services to be provided by Hisense Finance to the Group will be conducted in the ordinary and usual course of business of the Company and on normal commercial terms and on terms not less favourable to the Company than terms available from other normal commercial banks and financial institutions; (ii) the non-exclusive arrangement under the Financial Services Agreement provides the Company with the flexibility without any commitment on the actual transaction values; and (iii) given the existing development plans of the Company, it is generally in the interest of the Company to maximise the amount of service fees payable so as to provide for its expected increasing utilisation in the coming financial years, we are of the view that the proposed annual cap of RMB25 million in respect of the draft discount service fees to be payable under the Financial Services Agreement is fair and reasonable.

IV. Conditions of the annual caps under the Agreements

There are certain conditions of the annual cap pursuant to the Listing Rules, in particular, the restriction of the value of the transactions contemplated under the Agreements by way of the annual cap for relevant financial year ending 31 December 2010 and 2011 and the annual review by the independent non-executive Directors of the terms of such transactions and the relevant annual caps not being exceeded, details of which must be included in the Company’s subsequent published annual reports and accounts. Also, pursuant to the Listing Rules, each year the auditors of the Company must provide a letter to the Board confirming, among other things, that the transactions contemplated under the Agreements are conducted in accordance with the terms of the relevant Agreements and that the relevant annual caps not being exceeded. In addition, pursuant to the Listing Rules, the Company shall publish an announcement if it knows or has reason to believe that the

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independent non-executive Directors and/or its auditors will not be able to confirm the terms of such transactions or the relevant annual caps not being exceeded. We are of the view that there are appropriate measures in place to govern the conduct of the transactions to be contemplated under the Agreements and safeguard the interests of the Independent Shareholders.

RECOMMENDATION

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

(i) The manufacture and sale of air-conditioners and refrigerators is one of the principal businesses of the Group and compressors are essential components of airconditioners and refrigerators. Huayi Compressor is one of the major producers of compressors in the PRC and has the relevant experience and expertise in the manufacture of compressors. It is therefore in the commercial interest of the Company to enter into the Compressors Purchase and Supply Framework Agreement with Huayi Compressors;
(ii) Hisense Group, together with its Subsidiaries, is currently one of the major electronic companies in the PRC and has the relevant expertise in the domestic electric appliances market in the PRC as well as strong financial resources. Accordingly, Hisense Group is in a good position to assist the Group in maintaining its business conditions;
(iii) Certain transactions contemplated under the Agreements will increase the sales of the Group, so it is in the interest of the Group to enter into such transactions;
(iv) The terms (including the price, payment terms and schedules, technological services and terms of delivery) of the formal orders entered into by the Group pursuant to the Agreements will be determined in accordance with the principle of fairness and reasonableness with reference to the market price, and the proposed transactions contemplated under the Agreements will be conducted in the ordinary and usual course of business of the Company, on normal commercial terms and on terms not less favourable to the Company than terms available to or from (as appropriate) Independent Third Parties. In addition, all the transactions contemplated under the Agreements are to be conducted on a non-exclusive basis, so the Agreements will not restrict the Company from engaging in the similar transactions with other parties; and

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(v) The value of, and the basis for determining, the annual caps under the Agreements are fair and reasonable, details of which are set out in the section headed “Rationale for determining the maximum value of the transactions contemplated under the Agreements”.

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

Yours faithfully,

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

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GENERAL INFORMATION

APPENDIX I

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF INTERESTS

Directors, supervisors and chief executive of the Company

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

As at the Latest Practicable Date, none of the Directors or supervisors of the Company had any interest, direct or indirect, in any asset which have been since 31 December 2008, 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 2008, being the date to which the latest published audited financial statements of the Company were made up, and which was significant in relation to the business of the Group.

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GENERAL INFORMATION

APPENDIX I

Interests of Substantial Shareholders

Interests in the Company

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

			Proportion
			to the
			relevant	Proportion
			class of	to the total
		Number	issued share	issued share
		of issued	capital	capital of
	Class of	ordinary	of the	the
Name	Shares	shares held	Company	Company
Hisense Air-	A Shares	250,173,722	46.99%	25.22%
conditioning
China Finance Asset	A Shares	63,923,804	12.01%	6.44%
Management
Corporate

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GENERAL INFORMATION

APPENDIX I

Interests in other members of the Group

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

		Percentage
		shareholding of
	Shareholders holding 10% or	shareholders in
Other members of	more in other members of	other members
the Group	the Group	of the Group
Guangdong Kelon	Weishi Investments Company	40%
Air-Conditioner Co., Ltd	Limited
Guangdong Kelon Mould Co.,	Hua Yi Compressor Company	29.89%
Ltd	Limited
Foshan Shunde Rongsheng	Hua Yi Compressor Company	29.95%
Plastic Co., Ltd	Limited
Guangdong Huaao Electrical	Foshan City Shunde District Yun	30%
Electronics Co., Ltd.	Long Enquiry Service Company
	Limited
Hisense Ronshen (Yingkou)	Yingkou Yingleng (Group)	14.74%
Refrigerator Co., Ltd.	Bankruptcy Liquidation Team
Xi’an Kelon Cooling Co., Ltd.	Xi’an Gaoke (Group) Company	29.05%
	Limited
Jiangxi Kelon Combine	Jiangxi Fadasi Domestic Electrical	45%
Electrical Appliances	Appliances Company Limited
Co., Ltd.

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GENERAL INFORMATION

APPENDIX I

		Percentage
		shareholding of
	Shareholders holding 10% or	shareholders in
Other members of	more in other members of	other members
the Group	the Group	of the Group
Hua Yi Compressor Company	Sichuan Changhong Electric	29.92%
Limited	Holdings Co., Ltd
	A-share public shareholders	49.05%
Guangzhou Antaida Logistic	Guangzhou Zhongyuan	30%
Co., Ltd.	International Freight Forwarding
	CompanyLimited
	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 Yun	11%
Chuang Technology	Long Enquiry Service Company
Company	Limited
Guangdong Kelon Weili	Zhongshan City Fusha Town	20%
Electrical Appliances	Shunchang Industry Limited
Company Limited	Company

Save as disclosed above, as at the Latest Practicable Date and so far as is known to the Directors or chief executive of the Company, there was no other person (other than a Director, supervisor or chief executive of the Company or a member of the Group), who had an interest or short position in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions

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GENERAL INFORMATION

APPENDIX I

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. COMPETING BUSINESS

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

Name of Director

Name of entity which business is considered to compete or likely to compete with the business of the Group

Description of business of the entity which is considered to compete or likely to compete with Nature of interest the business of of the Director in the Group the entity

Mr. Tang Ye Guo Hisense Group or Production of Director its Subsidiaries air-conditioning/ electrical products
Mr. Zhou Xiao Tian The Subsidiaries of Production of Director Hisense Group air-conditioning/ electrical products

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GENERAL INFORMATION

APPENDIX I

Ms. Yu Shu Min	Hisense Group or	Production of	Director
	its Subsidiaries	air-conditioning/	and/or senior
		electrical	management
		products
Mr. Lin Lan	Hisense Group or	Production of	Director
	its Subsidiaries	air-conditioning/	and/or senior
		electrical	management
		products
Mr. Zhang Ming	The Subsidiaries of	Manufacture and	Director
	Hisense Group	sales of fittings
		for electric
		appliances

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

5. NO MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, none of the Directors was aware of any material adverse change in the financial or trading position of the Group since 31 December 2008 (being the date to which the latest published audited financial statements of the Group were made up).

6. EXPERT

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

Name

Qualifications

Access Capital a corporation licensed under the SFO to carry on type 1 (dealing in securities), type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities under the SFO

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GENERAL INFORMATION

APPENDIX I

(b) Access Capital does not have any shareholding, direct or indirect, in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.
(c) Access Capital does not have any interest, direct or indirect, in any assets which have been acquired or disposed of by or leased to any member of the Group, or which are proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2008, the date to which the latest published audited financial statements of the Company were made up.
(d) Access Capital has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name in the form and context in which they are included.
(e) The letter and recommendation given by Access Capital are given as of the date of this circular for incorporation herein.

7. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the principal place of business in Hong Kong of the Company at Room 3104-06, Singga Commercial Centre, No. 148 Connaught Road West, Hong Kong during normal business hours from the date of this circular up to and including 18 December 2009:

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

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NOTICE OF EXTRAORDINARY GENERAL MEETING

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

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

(Stock Code: 00921)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that the First 2010 extraordinary general meeting (the “EGM”) of Hisense Kelon Electrical Holdings Company Limited (the “Company”) will be held at the conference room on the Company’s head office, Shunde District, Foshan City, Guangdong Province, the People’s Republic of China (the “PRC”) on 15 January 2010 at 9:30 a.m. to review and, if thought fit, pass the following as resolutions. Unless otherwise defined, capitalized terms used in this notice and the following resolutions shall have the same meanings as those defined in the circular of the Company dated 26 November 2009:

ORDINARY RESOLUTIONS

To consider and approve the Business Co-operation Framework Agreement between the Company and certain Subsidiaries of Hisense Group Company, and the continuing connected transactions contemplated thereunder.
To consider and approve the Compressors Purchase and Supply Framework Agreement entered into between the Company and Huayi Compressor Company Limited and the continuing connected transactions contemplated thereunder.
To consider and approve the Business Framework Agreement entered into between the Company and Hisense Whirlpool (Zhejiang) Electric Appliances Co., Ltd (海信惠而浦（浙江）電器有限公司), and the continuing connected transactions contemplated thereunder.
To consider and approve the financial services agreement entered into by the Company and Hisense Finance Co., Ltd and the transactions contemplated thereunder.

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NOTICE OF EXTRAORDINARY GENERAL MEETING

SPECIAL RESOLUTION

To consider and approve the proposed amendments to the relevant provisions of the Articles of Association of the Company.

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

Chairman

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

Foshan City, Guangdong, the PRC, 26 November 2009

Notes:

(1) H shares shareholders intending to attend the EGM shall give written reply slip, as attached, to the Company, which shall be lodged at the registered office of the Company on or before Friday, 25 December 2009. To qualify for attendance at the EGM, all H shares shareholders transfers accompanied by the relevant share certificates must be lodged with the Company’s Branch Share Registrar in Hong Kong, Hong Kong Registrars Limited of Rooms 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, no later than 4:30 p.m. on Tuesday, 15 December 2009 for registration.
(2) Shareholders who are entitled to attend and vote at the EGM are entitled to appoint one or more persons (whether or not a shareholder of the Company) as their proxy to attend and vote on behalf of themselves.
(3) Notice of the holders of domestic shares and H shares of the Company whose names appear on the register of members of the Company as at or before the close of business of Tuesday, 15 December 2009 (including holders of H Shares of the Company who have submitted verification transfer forms on or before 15 December 2009) will be entitled to attend the EGM. The register of members of the Company will be closed from 16 December 2009 (Wednesday) to 15 January 2010 (Friday) (both days inclusive).
(4) In order to be valid, the form of proxy, together with a duly notarised power of attorney or other document of authority, if any, under which the form is signed must be deposited at the Company’s Branch Share Registrar in Hong Kong, Hong Kong Registrars Limited of Rooms 1712-1716, 17/F Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not later than 24 hours before the time for holding the EGM.
(5) The registered address of the Company is: No. 8 Ronggang Road, Ronggui Street, Shunde District, Foshan City, Guangdong Province.

Postal code: 528303 Tel: (86) 757 2836 2570 Fax: (85) 757 2836 1055 Contact person: Ms. Li Lin, Mr. Mei Shi Liang

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AI assistant

Medlive Technology Co., Ltd. — Proxy Solicitation & Information Statement 2009

50436_rns_2009-11-26_da0a518b-2ccc-4bd6-8681-cab5e79cb69e.pdf

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

(1) CONTINUING CONNECTED TRANSACTIONS AND DISCLOSEABLE TRANSACTION AND

(2) PROPOSED AMENDMENTS TO THE ARTICLES

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

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

(1) CONTINUING CONNECTED TRANSACTIONS AND DISCLOSEABLE TRANSACTION AND

(2) PROPOSED AMENDMENTS TO THE ARTICLES

INTRODUCTION

1. COMPRESSORS PURCHASE AND SUPPLY FRAMEWORK AGREEMENT

Date

Parties

Term

Conditions

Purchase of Compressors

LETTER FROM THE BOARD

Pricing

Payment Term

Historical Figures

Maximum Aggregate Annual Caps

Reasons for and Benefits of the Compressors Purchase and Supply Framework Agreement

2. BUSINESS CO-OPERATION FRAMEWORK AGREEMENT

Date

Parties

Term

Conditions

(A) Sale and Supply of Moulds

Pricing

Payment Term

Reasons for and Benefits of the Sale and Supply of Moulds

(B) Sale and Supply of Air-Conditioners

Pricing

Payment Term

Reasons for and Benefits of the Sale and Supply of Air-Conditioners

Historical Figures

(C) Sale and Supply of Refrigerators

Pricing

Payment Term

Historical Figures

(D) Sale and Supply of Raw Materials, Components and Facilities

LETTER FROM THE BOARD

Pricing

Payment Term

Historical Figures

(E) Sale and Supply of Home Appliances and Parts and Components

Pricing

Payment Term

Historical Figures

(F) Provision of Leasing and Property Management Service

Pricing

Payment Term

Historical Figures

(G) Purchase of Air-Conditioners

Pricing

Payment Term

Historical Figures

(H) Purchase of Refrigerators

Pricing

Payment Term

Reasons for and Benefits of the Purchase of Refrigerators

LETTER FROM THE BOARD

Historical Figures

(I) Purchase of Raw Materials, Components and Facilities

LETTER FROM THE BOARD

Pricing

Payment Term

Historical Figures

(J) Provision of Services

Pricing

Payment Term

Historical Figures

3. FINANCIAL SERVICES AGREEMENT

Date

Parties

Term

Medlive Technology Co., Ltd. Proxy Solicitation & Information Statement 2009