Medlive Technology Co., Ltd. - Proxy Solicitation & Information Statement 2010

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should 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) PROPOSED APPOINTMENT OF DIRECTORS AND ADjUSTMENT OF EMOLUMENT OF AN INDEPENDENT NON-EXECUTIVE DIRECTOR (2) CONTINUING CONNECTED TRANSACTIONS (3) BUSINESS FRAMEWORK AGREEMENT WITH QINGDAO HISENSE HITACHI AIR-CONDITIONING SYSTEMS CO., LTD.

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

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A letter from the Board is set out on pages 6 to 36 of this circular. A letter from the Independent Board Committee is set out on pages 37 of this circular. A letter from the Independent Financial Adviser containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 38 to 70 of this circular.

A notice of the EGM to be held on 20 January 2011 at 9:30 a.m. at the conference room of the Company’s head office, Shunde District, Foshan City, Guangdong Province, the PRC, a proxy form for use at the EGM and a reply slip have been despatched by the Company on 3 December 2010 and are also published on the websites of the Stock Exchange (http://www.hkexnews.hk) and the Company (http://www.kelon.com). If you are not able to attend the meeting in person, you are requested to complete and return the proxy form in accordance with the instructions printed thereon and to lodge the same with the Company’s branch share registrar in Hong Kong, Hong Kong Registrars Limited, at 17M/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, not less than 24 hours before the time fixed for holding the EGM or any adjournment thereof (as the case may be). Completion and delivery of the proxy form will not preclude you from attending and voting in person at the EGM or any adjournment thereof (as the case may be) if you so wish.

31 December 2010

	Page
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Letter from the Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . .	37
Letter from the Independent Financial Adviser. . . . . . . . . . . . . . . . . . . . . . .	38
Appendix — General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	71

— i —

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

“Annual Caps”

the annual caps for the transactions contemplated under the Compressors Purchase Framework Agreement, the Compressors Purchase and Supply Agreement and the Business Co-operation Framework Agreement for the year ending 31 December 2011, being (i) RMB250,000,000 in respect of the transactions contemplated under the Compressors Purchase Framework Agreement; (ii) RMB1,260,000,000 in respect of the transactions contemplated under the Compressors Purchase and Supply Framework Agreement; (iii) RMB12,930,000 in respect of the purchase of home electrical appliances from Hisense Group, Hisense Electric and their respective subsidiaries under the Business Co-operation Framework Agreement; (iv) RMB89,550,000 in respect of the purchase of raw materials, equipments, parts and components from Hisense Group, Hisense Electric and their respective subsidiaries under the Business Co-operation Framework Agreement; (v) RMB396,420,000 in respect of the provision of services by Hisense Group, Hisense Electric and their respective subsidiaries under the Business Co-operation Framework Agreement; (vi) RMB1,783,850,000 in respect of the supply of home electrical appliances to Hisense Group, Hisense Electric and their respective subsidiaries under the Business Co-operation Framework Agreement; (vii) RMB275,000,000 in respect of the supply of moulds to Hisense Group, Hisense Electric and their respective subsidiaries under the Business Co-operation Framework Agreement; (viii) RMB208,930,000 in respect of the supply of raw materials, parts and components to Hisense Group, Hisense Electric and their respective subsidiaries under the Business Co-operation Framework Agreement; and (ix) RMB3,920,000 in respect of the provision of services to Hisense Group, Hisense Electric and their respective subsidiaries under the Business Co-operation Framework Agreement

“associates”

has the meaning ascribed to it under the Hong Kong Listing Rules

“Beijing Embraco Snowflake Compressor”

Beijing Embraco Snowflake Compressor Company Limited （北京恩布拉科雪花壓縮機有限公司）, a limited company incorporated in the PRC, which is held as to 30.82% by Beijing Snowflake Group

— 1 —

DEFINITIONS

“Beijing Snowflake Group” Beijing Snowflake Electrical Appliance Group Corporation （北京雪花電器集團公司）, a limited company incorporated in the PRC and a substantial shareholder which holds 45% of the equity interests in the Company’s non wholly owned subsidiary Hisense Beijing
“Board” or “Director(s)”
the board of directors of the Company
“Business Co-operation Framework Agreement”
the agreement（業務合作框架協議）entered into between the Company, Hisense Electric and Hisense Group dated 3 December 2010 in relation to the sale and purchase of home electrical appliances, raw materials, equipments, parts and components, supply of moulds, and the provision of various services
“Business Framework Agreement”
the agreement（業務框架協議）entered into between the Company and Hisense Hitachi dated 3 December 2010 in relation to the sale and purchase of home electrical appliances, raw materials, equipments, parts and components and supply of moulds
“Company”
Hisense Kelon Electrical Holdings Company Limited, a company incorporated in the PRC with limited liabilities, whose shares are listed on the main board of the Stock Exchange and the Shenzhen Stock Exchange
“Compressors Purchase and Supply Framework Agreement”
the agreement（壓縮機採購供應框架協議）entered into between the Company and Huayi Compressor dated 3 December 2010 in connection with the purchase of compressors by the Group from Huayi Compressor and/or its subsidiaries
“Compressors Purchase Framework Agreement”
the agreement（壓縮機採購框架協議）entered into between the Company and Beijing Embraco Snowflake Compressor dated 3 December 2010 in connection with the purchase of compressors by the Group from Beijing Embraco Snowflake Compressor and/or its subsidiaries
“connected person” has the meaning ascribed to it in the Hong Kong Listing Rules

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DEFINITIONS

“EGM”

“Existing Business Co-operation Framework Agreement”
“Existing Compressors Purchase and Supply Framework Agreement”
“Existing Compressors Purchase Framework Agreement”
“Group”
“H Shares”
“Hisense Air-conditioning”

the first 2011 extraordinary general meeting of the Company to be held at the conference room of the Company’s head office, Shunde District, Foshan City, Guangdong Province, the PRC on 20 January 2011 at 9:30 a.m. for, among other things, the proposed appointment of directors and adjustment of emolument of an independent non-executive director, the approval of the Business Co-operation Framework Agreement, the Compressors Purchase Framework Agreement, the Compressors Purchase and Supply Framework Agreement, the Business Framework Agreement and the transactions contemplated thereunder and the annual caps in relation thereto

collectively the agreement（業務合作框架協議）entered into between the Company, Hisense Electric and certain subsidiaries of Hisense Group (including Hisense Air-conditioning) dated 6 November 2009 and the agreement
（業務合作框架協議（二））entered into between the Company, Hisense Group and Hisense Electric dated 5 May 2010 (as amended and supplemented by the supplemental agreement entered into between the Company, Hisense Group and Hisense Electric dated 20 September 2010) in relation to the business co-operation between the Group and Hisense Group, Hisense Electric and/or their respective subsidiaries for the period up to 31 December 2010
collectively the agreement（壓縮機採購供應框架協議）dated 6 November 2009 and the agreement（壓縮機採購供應框架協議（二））dated 5 May 2010 entered into between the Company and Huayi Compressor in connection with the purchase of compressors by the Group from Huayi Compressor and/or its subsidiaries for the period up to 31 December 2010
the agreement（壓縮機採購框架協議）entered into between the Company and Beijing Embraco Snowflake Compressor dated 5 May 2010 in connection with the purchase of compressors by the Group from Beijing Embraco Snowflake Compressor and/or its subsidiaries for the period up to 31 December 2010
the Company and its subsidiaries
overseas listed foreign shares of the Company with a nominal value of RMB1.00 each and are listed on the Stock Exchange
Qingdao Hisense Air-conditioning Company Limited（青島海信空調有限公司）, a company incorporated in the PRC with limited liability and a subsidiary of Hisense Group

— 3 —

DEFINITIONS

“Hisense Beijing”	海信（北京）電器有限公司(Hisense (Beijing) Electric Company
	Limited), a limited company incorporated in the PRC and a
	non-wholly owned subsidiary of the Company
“Hisense Electric”	Hisense Electric Co., Ltd.（青島海信電器股份有限公司）,
	a company incorporated in the PRC with limited liability,
	whose shares are listed on the Shanghai Stock Exchange
“Hisense Group”	Hisense Company Limited（海信集團有限公司）, a company
	incorporated in the PRC with limited liability
“Hisense Hitachi”	Qingdao Hisense Hitachi Air-Conditioning Systems Co., Ltd.
	（青島海信日立空調系統有限公司）, a company incorporated
	in the PRC with limited liability
“Hong Kong”	the Hong Kong Special Administrative Region of the
	People’s Republic of China
“Hong Kong Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange
“Huayi Compressor”	Huayi Compressor Company Limited（華意壓縮機股份有限
	公司）(stock code: 000404), a limited company incorporated
	in the PRC and whose A shares are listed on the Shenzhen
	Stock Exchange
“Independent Board	an independent board committee of the Company comprising
Committee”	all the independent non-executive Directors, namely Mr. Zhang
	Sheng Ping and Mr. Cheung Yui Kai, Warren
“Independent Financial	Access Capital Limited, a corporation licensed under the
Adviser”	SFO for carrying on type 1 (dealing in securities), type
	4 (advising on securities), type 6 (advising on corporate
	finance) and type 9 (asset management) regulated activities
	under the SFO, being the independent financial adviser
	to the Independent Board Committee and the Independent
	Shareholders in respect of the Compressors Purchase
	Framework Agreement, the Compressors Purchase
	and Supply Agreement and the Business Co-operation
	Framework Agreement and the transactions contemplated
	thereunder and the Annual Caps in relation thereto

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DEFINITIONS

“Independent Shareholders”	(i) in respect of the Compressors Purchase Framework
	Agreement, Shareholders other than Beijing Embraco
	Snowflake Compressor and its associates, (ii) in respect of
	the Compressors Purchase and Supply Framework Agreement,
	Shareholders other than Huayi Compressor and its associates,
	and (iii) in respect of the Business Co-operation Framework
	Agreement, Shareholders other than Hisense Group, Hisense
	Electric and their respective associates
“Latest Practicable Date”	28 December 2010, being the latest practicable date prior
	to the printing of this circular for ascertaining certain
	information in this circular
“PRC”	the People’s Republic of China, which for the purposes
	of this circular, excludes Hong Kong, the Macau Special
	Administrative Region of the People’s Republic of China
	and Taiwan
“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 Listing Rules”	the Rules Governing the Listing of Stocks on the Shenzhen
	Stock Exchange（深圳証劵交易所上市規則）
“Shenzhen Stock Exchange”	The Shenzhen Stock Exchange
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“substantial shareholder”	has the meaning ascribed to it under the Hong Kong Listing
	Rules
“Target Group”	Hisense Beijing,海信（南京）電器有限公司(Hisense (Nanjing)
	Electric Co., Ltd.),海信（山東）空調有限公司(Hisense (Shandong)
	Air-conditioning Company Limited),海信（浙江）空調有限公司
	(Hisense (Zhejiang) Air-condition Co., Ltd.) and青島海信模具有
	限公司(Qingdao Hisense Mould Company Limited), all being non
	wholly owned subsidiaries of the Company
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“RMB”	Renminbi, the lawful currency of the PRC
“%”	per cent

— 5 —

LETTER FROM THE BOARD

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

(a joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 00921)

Executive Directors:

Mr. Tang Ye Guo Mr. Zhou Xiao Tian Ms. Yu Shu Min Mr. Lin Lan Ms. Liu Chun Xin

Independent non-executive Directors: Mr. Zhang Sheng Ping Mr. Cheung Yui Kai, Warren

Registered Office: No. 8 Ronggang Road Ronggui Street Shunde District Foshan City Guangdong Province The PRC

Principal place of business in Hong Kong: Room 3101-05 Singga Commercial Centre No. 148 Connaught Road West Hong Kong

31 December 2010

To the Shareholders

Dear Sir or Madam,

(1) PROPOSED APPOINTMENT OF DIRECTORS AND ADjUSTMENT OF EMOLUMENT OF AN INDEPENDENT NON-EXECUTIVE DIRECTOR (2) CONTINUING CONNECTED TRANSACTIONS (3) BUSINESS FRAMEWORK AGREEMENT WITH QINGDAO HISENSE HITACHI AIR-CONDITIONING SYSTEMS CO., LTD.

BACKGROUND

As disclosed in the announcement of the Company dated 2 December 2010, the Board has nominated Mr. Xiao Jian Lin and Mr. Wang Ai Guo as a Director candidate and an independent non-executive Director candidate respectively for the seventh session of the Board, subject to the approval of the appointment by the Shareholders at the EGM by way of ordinary resolutions. On the same date, a resolution was passed by the Board to approve the motion on the adjustment to the emoluments of the independent non-executive Director, Mr. Zhang Sheng Ping as an independent non-executive Director.

Reference is also made to:

(a) the announcement and circular of the Company dated 5 May 2010 and 18 May 2010 in relation to, inter alia, the Existing Compressors Purchase Framework Agreement;

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LETTER FROM THE BOARD

(b) the announcements of the Company dated 6 November 2009 and 5 May 2010 and the circulars of the Company dated 26 November 2009 and 18 May 2010 in relation to, inter alia, the Existing Compressors Purchase and Supply Framework Agreement; and
(c) the announcements of the Company dated 6 November 2009, 5 May 2010 and 20 September 2010 and the circulars of the Company dated 26 November 2009, 18 May 2010 and 21 October 2010 in relation to, inter alia, the Existing Business Co-operation Framework Agreement.

As disclosed in the announcement of the Company dated 3 December 2010, the Existing Compressors Purchase Framework Agreement, Existing Compressors Purchase and Supply Framework Agreement and Existing Business Co-operation Framework Agreement will expire on 31 December 2010 and it is expected that the Group will continue to enter into transactions of a nature similar to the transactions under those agreements from time to time thereafter. In view of the above, on 3 December 2010, the following agreements were entered into by the Company:

(a) the Compressors Purchase Framework Agreement;
(b) the Compressors Purchase and Supply Framework Agreement; and
(c) the Business Co-operation Framework Agreement.

In addition, on 3 December 2010, the Company has also entered into the Business Framework Agreement with Hisense Hitachi. The transactions contemplated under the Business Framework Agreement constitute ordinary connected transactions under the Shenzhen Listing Rules and are subject to the approval at the EGM.

The purpose of this circular is to:

(a) provide you with details of the proposed appointment of Mr. Xiao Jian Lin as Director and Mr. Wang Ai Guo as independent non-executive Director and the proposed adjustment of the emolument of Mr. Zhang Sheng Ping as an independent non-executive Director;
(b) provide you with further information on the Compressors Purchase Framework Agreement, the Compressors Purchase and Supply Agreement and the Business Co-operation Framework Agreement and the Annual Caps in relation thereto;
(c) provide you with further information on the Business Framework Agreement and the annual caps in relation therto;
(d) set out the letter of advice from the Independent Financial Adviser to the Independent Board Committee and Independent Shareholders in relation to the Compressors Purchase Framework Agreement, the Compressors Purchase and Supply Agreement and the Business Co-operation Framework Agreement; and
(e) set out the recommendation from the Independent Board Committee in relation to the Compressors Purchase Framework Agreement, the Compressors Purchase and Supply Agreement and the Business Co-operation Framework Agreement.

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LETTER FROM THE BOARD

I. PROPOSED APPOINTMENT OF DIRECTORS AND ADjUSMENT OF EMOLUMENT OF AN INDEPENDENT NON-EXECUTIVE DIRECTOR

Proposed Appointment of Directors

As disclosed in the announcement of the Company dated 2 December 2010, the Board has nominated Mr. Xiao Jian Lin and Mr. Wang Ai Guo as a Director candidate and an independent non-executive Director candidate respectively for the seventh session of the Board, subject to the approval of the appointment by the Shareholders at the EGM by way of ordinary resolutions. If Mr. Xiao Jian Lin and Mr. Wang Ai Guo are elected, the term of office will expire at the end of the seventh session of the Board.

The biographical details of Mr. Wang Ai Guo and Mr. Xiao Jian Lin are set out below:

Mr. Wang Ai Guo , aged 46, holds a master’s degree in accountancy from Tianjin Institute of Finance & Economics（天津財經學院）and a doctoral degree from the School of Management of Tianjin University（天津大學管理學院）, and is a postdoctoral fellow in accountancy in Tianjin University of Finance & Economics （天津財經大學）. He was an associate professor at the Faculty of Accountancy of Shandong Economics College（山東經濟學院）between 1995 and 2000, and has been a professor at the Faculty of Accountancy of Shandong Economics College since 2000. He is currently the dean of the School of Accountancy of Shandong Economics College, executive chairman of Nationwide Asset Valuation Education Association（全國資產評估教學研究會）, council member of Accounting Society of China, and vice-chairman and secretary-general of Accounting Education Committee of Shandong Province（山東省會計教育委員會）. He has been the independent director of Laiwu Steel Co., Ltd.（萊蕪鋼鐵股份有限公司）(listed on the Shanghai Stock Exchange) since June 2008, independent director of Shandong Chenming Paper Holdings Co., Ltd.（山東晨鳴紙業集團股份有限公司）(listed on the Shenzhen Stock Exchange and Hong Kong Stock Exchange) since April 2010, and independent director of China Corn Oil Company Limited（中國玉米油股份有限公司）(listed on the Hong Kong Stock Exchange) since May 2010.

Save as disclosed above, Mr. Wang has not held any directorship in any other listed companies for the past three years nor any shares of the Company or any of its associated corporations within the meaning of Part XV of the SFO. Save as disclosed above, Mr. Wang does not have any relationship with any directors, senior management, or substantial or controlling shareholders of the Company or its subsidiaries. During his term of office as an independent non-executive Director, Mr. Wang is entitled to an annual emolument of RMB90,000 (before taxation) from the Company as the independent non-executive Director. Such emolument shall be determined by the remuneration and appraisal committee of the Board after taking into consideration of the scale of operation of the Company and the remuneration level of independent non-executive directors of other listed companies. Mr. Wang will stand for election as the independent non-executive Director at the EGM. If elected, Mr. Wang’s term of office will commence from the date of his appointment at the EGM until the expiry of the term of the seventh session of the Board (that is, 25 June 2012).

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LETTER FROM THE BOARD

Save as disclosed above, Mr. Wang confirms that there is no other matter that needs to be disclosed pursuant to Rules 13.51(2)(h) to 13.51(2)(v) of the Hong Kong Listing Rules nor any other matter that needs to be brought to the attention of the Shareholders.

Mr. Xiao jian Lin , aged 43, has served as the deputy head of Operation Centre, the head of Finance Centre, head of Finance Department and assistant to president of Hisense Group. He has been the vice-president of Hisense Group since January 2008, head of Finance and Operation Management Centre of Hisense Group since January 2009, director of Hisense Group since January 1999, and director of Hisense Electric since June 2008.

As disclosed in the announcement of the Company dated 2 December 2010 in relation to the proposed adoption of the A share share option scheme and the proposed grant thereunder, share options for the subscription of 920,000 A shares of the Company (representing 0.068% of the total issued share capital of the Company and 0.103% of the total issued A shares of the Company as at Latest Practicable Date) are proposed to be granted to Mr. Xiao under the A share share option scheme proposed to be adopted by the Company. Such proposed grant will be conditional upon the appointment of Mr. Xiao as a Director and the relevant approvals having been obtained from the Shareholders and the relevant authorities.

Save as disclosed above, Mr. Xiao has not held any directorship in any other listed companies for the past three years nor any shares of the Company or any of its associated corporations within the meaning of Part XV of the SFO. Save as disclosed above, Mr. Xiao does not have any relationship with any directors, senior management, or substantial or controlling shareholders of the Company or its subsidiaries. During the term of his directorship, Mr. Xiao will not receive any director’s remuneration from the Company. Mr. Xiao will stand for election as the Director at the EGM. If elected, Mr. Xiao’s term of office will commence from the date of his appointment at the EGM until the expiry of the term of the seventh session of the Board (that is, 25 June 2012).

Save as disclosed above, Mr. Xiao confirms that there is no other matter that needs to be disclosed pursuant to Rules 13.51(2)(h) to 13.51(2)(v) of the Hong Kong Listing Rules nor any other matter that needs to be brought to the attention of the Shareholders.

Adjusment of Emolument of An Independent Non-Executive Director

At the fourteenth board meeting of the year 2010 of the seventh session of the Board held on 2 December 2010, a resolution was passed by the Board to approve the motion on the adjustment to the emoluments of the independent non-executive Director, Mr. Zhang Sheng Ping as an independent non-executive Director.

With the objectives to better enhance the role of an independent non-executive Director of the Company in the decision-making process and to motivate the independent non-executive Director to contribute to the Company with his expertise, and after taking into consideration of the scale of operation of the Company and the

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LETTER FROM THE BOARD

salary level of independent non-executive directors of other listed companies, it is proposed that the annual remuneration of Mr. Zhang Sheng Ping as an independent non-executive Director be adjusted to RMB90,000 (pre-tax).

II. CONTINUING CONNECTED TRANSACTIONS

(A) Compressors Purchase Framework Agreement

Date: 3 December 2010 Parties: The Company; and Beijing Embraco Snowflake Compressor

Term:

The Compressors Purchase Framework Agreement shall commence from the date of approval of the Compressors Purchase Framework Agreement by the Independent Shareholders until 31 December 2011, which can be terminated before its expiration by mutual agreement of the parties.

In the event of any non-compliance with the relevant Hong Kong Listing Rules and/or Shenzhen Listing Rules in respect of connected transactions for any transactions contemplated under the Compressors Purchase Framework Agreement, the performance of the Compressors Purchase Framework Agreement in respect of such transactions shall be terminated. The Compressors Purchase Framework Agreement will be terminated if all transactions contemplated thereunder have been terminated for the above reason.

Condition:

The Compressors Purchase Framework Agreement and the transactions contemplated thereunder are subject to the approval of the Independent Shareholders at the EGM.

Subject matter — Purchase of compressors:

Pursuant to the terms of the Compressors Purchase Framework Agreement, the Company and/or its subsidiaries will purchase on a non-exclusive basis such quantities of compressors as they may require from time to time from Beijing Embraco Snowflake Compressor and/or its subsidiaries (as the case may be) for the purpose of manufacturing home electrical appliances, including but not limited to refrigerators and freezers, by the Group.

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LETTER FROM THE BOARD

The Compressors Purchase Framework Agreement does not restrict the rights of Beijing Embraco Snowflake Compressor and/or its subsidiaries (as the case may be) to sell its compressors to any other purchasers, nor the rights of the Company and/or its subsidiaries (as the case may be) to purchase compressors from any other suppliers.

Pricing:

Pricing for the purchase of compressors is determined 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 parties, on normal commercial terms and on terms not less favourable to the parties than terms available to or from (as appropriate) independent third parties.

Payment term:

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

Historical figures:

For the year ended 31 December 2009 and the ten months ended 31 October 2010, the aggregate amount paid by the Group for the purchase of compressors from Beijing Embraco Snowflake Compressor and/or its subsidiaries amounted to approximately RMB179,305,200 and RMB51,414,800 respectively.

Proposed Annual Cap:

The transactions contemplated under the Compressors Purchase Framework Agreement for the financial year ended 31 December 2011 are subject to the Annual Cap of RMB250,000,000 (inclusive of value-added tax).

The above Annual Cap was determined with reference to (a) similar transactions between the Group with Beijing Embraco Snowflake Compressor and/or its subsidiaries in the past; (b) the prevailing market conditions relating to the demand for electrical appliances in the PRC; and (c) the business development plan of the Company relating to the production and sales level of refrigerators and freezers in 2011.

Reasons for and benefits of the Compressors Purchase Framework Agreement:

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LETTER FROM THE BOARD

compressors manufactured by Beijing Embraco Snowflake Compressor and/or its subsidiaries with the current facilities used by and the refrigerators and freezers manufactured by the Group as well as the level of services provided by Beijing Embraco Snowflake Compressor and/or its subsidiaries, the Group considers that Beijing Embraco Snowflake Compressor and/or its subsidiaries are in a good position to supply compressors to the Group.

In light of the above, the Directors (including the independent non-executive Directors) are of the view that the terms of the Compressors Purchase Framework Agreement and the Annual Cap in relation thereto are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

(B) Compressors Purchase And Supply Framework Agreement

Date: 3 December 2010 Parties: The Company; and Huayi Compressor

Term:

The Compressors Purchase and Supply Framework Agreement shall commence from the date of approval of the Compressors Purchase and Supply Framework Agreement by the Independent Shareholders until 31 December 2011, which can be terminated before its expiration by mutual agreement of the parties.

In the event of any non-compliance with the relevant Hong Kong Listing Rules and/or Shenzhen Listing Rules in respect of connected transactions for any transactions contemplated under the Compressors Purchase and Supply Framework Agreement, the performance of the Compressors Purchase and Supply Framework Agreement in respect of such transactions shall be terminated. The Compressors Purchase and Supply Framework Agreement will be terminated if all transactions contemplated thereunder have been terminated for the above reason.

Condition:

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

Subject matter — Purchase of compressors:

Pursuant to the terms of the Compressors Purchase and Supply Framework Agreement, the Company and/or its subsidiaries will 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 home electrical appliances, including but not limited to refrigerators and freezers, by the Group.

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LETTER FROM THE BOARD

The relevant parties will enter into definitive contract(s) setting out specific terms including specifications of the compressors, quantity involved, pricing, quality standards and warranties, payment terms, terms of delivery, technological services and obligations of the parties upon default, but such terms shall be consistent with the principles and the terms of the Compressors Purchase and Supply Framework Agreement.

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 purchasers, nor the rights of the Company and/or its subsidiaries (as the case may be) to purchase compressors from any other suppliers.

Pricing:

Payment term:

Payment for the purchase of compressors should be made by the Group by telegraphic transfer or bills within 90 days from the first day of the following month after the compressors had passed the inspection tests and the relevant invoice(s) have been accounted for in the accounts.

Historical figures:

For the year ended 31 December 2009 and the ten months ended 31 October 2010, the aggregate amount paid by the Group for the purchase of compressors from Huayi Compressor and/or its subsidiaries amounted to approximately RMB472,423,200 and RMB720,288,600 respectively.

Proposed Annual Cap:

The transactions contemplated under the Compressors Purchase and Supply Framework Agreement for the financial year ended 31 December 2011 are subject to the Annual Cap of RMB1,260,000,000 (inclusive of value-added tax).

The above Annual Cap was determined with reference to (a) similar transactions between the Group and Huayi Compressor and/or its subsidiaries in the past; (b) the prevailing market conditions relating to the demand for home electrical appliances in the PRC; and (c) the business development plan of the Company relating to the production and sales level of refrigerators and freezers in 2011.

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Reasons for and benefits of the Compressors Purchase and Supply Framework Agreement:

The Group is engaged in the manufacture of home electrical appliances, including but not limited to refrigerators and freezers, 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 freezers manufactured by the Group as well as the level of services provided by Huayi Compressor and/or its subsidiaries, the Company considers that Huayi Compressor and/or its subsidiaries are in a good position to supply compressors to the Group.

In light of the above, the Directors (including the independent non-executive Directors) are of the view that the terms of the Compressors Purchase and Supply Framework Agreement and the Annual Cap in relation thereto are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

(C) Business Co-Operation Framework Agreement

Date: 3 December 2010 Parties: The Company; Hisense Group; and Hisense Electric

Term:

The Business Co-operation Framework Agreement shall commence from the date of approval of the Business Co-operation Framework Agreement by the Independent Shareholders until 31 December 2011, which can be terminated before its expiration by mutual agreement of the parties.

In the event of any non-compliance with the relevant Hong Kong Listing Rules and/or Shenzhen Listing Rules in respect of connected transactions for any transactions contemplated under the Business Co-operation Framework Agreement, the performance of the Business Co-operation Framework Agreement in respect of such transactions shall be terminated. The Business Co-operation Framework Agreement will be terminated if all transactions contemplated thereunder have been terminated for the above reason.

Condition:

The Business Co-operation Framework Agreement and the transactions contemplated thereunder are subject to the approval of the Independent Shareholders at the EGM.

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Subject matters:

The transactions contemplated under the Business Co-operation Framework Agreement will be conducted in the ordinary and usual course of business of the parties, on normal commercial terms and on terms not less favourable to the parties than terms available to or from (as appropriate) independent third parties. The Business Co-operation Framework Agreement does not restrict the rights of the parties (as the case may be) to sell or purchase products or services contemplated under the Business Co-operation Framework Agreement from any other purchasers or suppliers (as the case may be). The transactions contemplated under the Business Co-operation Framework Agreement are in connection with the following aspects of business co-operation between the parties:

(1) Purchase of home electrical appliances

Pursuant to the terms of the Business Co-operation Framework Agreement, the Company and/or its subsidiaries will purchase from Hisense Group, Hisense Electric and/or their respective subsidiaries on a non-exclusive basis home electrical appliances as they may require from time to time.

Pricing:

Pricing for the purchase of home electrical appliances is determined by commercial negotiation between the parties according to the principles of fairness and reasonableness mainly with reference to the market price of similar home electrical appliances from time to time.

Payment term:

Payment for the purchase of home electrical appliances should be made by the Group by telegraphic transfer or bills within 60 days after the receipt of the home electrical appliances.

Historical figures:

For the year ended 31 December 2009 and the ten months ended 31 October 2010, the aggregate amount paid by the Group for the purchase of home electrical appliances from Hisense Group, Hisense Electric and/or their respective subsidiaries (other than the historical

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figures for transactions between the Group and members of the Target Group which no longer constitute continuing connected transactions) amounted to approximately RMB0 and RMB54,000 respectively.

Proposed Annual Cap:

The transactions contemplated under the Business Co-operation Framework Agreement regarding the purchase of home electrical appliances by the Group from Hisense Group, Hisense Electric and/or their respective subsidiaries for the financial year ended 31 December 2011 are subject to the Annual Cap of RMB12,930,000 (inclusive of value-added tax), of which:

(i) RMB7,930,000 will be allocated to the purchase of home electrical appliances from Hisense Group and/or its subsidiaries; and
(ii) RMB5,000,000 will be allocated to the purchase of home electrical appliances from Hisense Electric and/or its subsidiaries.

The above Annual Cap was determined with reference to (a) the prevailing market conditions about the demand for electrical appliances; (b) the Group’s plan to boost the sales of the Group’s home electrical appliances through marketing and promotion activities; and (c) the projected need of purchase cellular phones and television sets from Hisense Group, Hisense Electric and/or their respective subsidiaries for the year ending 31 December 2011 as gifts for the Group’s marketing and promotion activities which aimed at boosting the sales of the Group’s home electrical appliances such as refrigerators.

Reasons for and benefits of the purchase of home electrical appliances from Hisense Group, Hisense Electric and/or their respective subsidiaries:

The sales and overall image of the Company can be enhanced by purchasing cellular phones and television sets from Hisense Group, Hisense Electric and/or their respective subsidiaries as gifts for the Group’s marketing and promotion activities which aimed at boosting the sales of the Group’s home electrical appliances. In addition, the Group intends to procure models for electrical appliances (such as refrigerators and air-conditioners) through Hisense Group, Hisense Electric and/or their respective subsidiaries for the purpose of conducting analysis and research so as to develop the Group’s market research functions. Since certain subsidiaries of Hisense Group and Hisense Electric are engaged in the import and export business and given that the pricing for the purchase of home electrical appliances will be determined with reference to the market price of similar home electrical appliances, it will be more convenient to the Group in terms of time and costs to purchase certain home electrical appliances through Hisense Group, Hisense Electric and/or their respective subsidiaries.

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In light of the above, the Directors (including the independent non-executive Directors) are of the view that the terms of the purchase of home electrical appliances from Hisense Group, Hisense Electric and/or their respective subsidiaries under the Business Co-operation Agreement and the Annual Cap in relation thereto are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

(2) Purchase of raw materials, equipments, parts and components

Pursuant to the terms of the Business Co-operation Framework Agreement, the Company and/or its subsidiaries will purchase from Hisense Group, Hisense Electric and/or their respective subsidiaries on a non-exclusive basis such quantities of raw materials, equipments, parts and components as they may require from time to time.

Pricing:

Pricing for the purchase of raw materials, equipments, parts and components is determined by commercial negotiation between the parties according to the principles of fairness and reasonableness.

Payment term:

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

Historical figures:

For the year ended 31 December 2009 and the ten months ended 31 October 2010, the aggregate amount paid by the Group for the purchase of raw materials, equipments, parts and components from Hisense Group, Hisense Electric and/or their respective subsidiaries (other than the historical figures for transactions between the Group and members of the Target Group which no longer constitute continuing connected transactions) amounted to approximately RMB101,130,400 and RMB108,574,400 respectively.

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Proposed Annual Cap:

The transactions contemplated under the Business Co-operation Framework Agreement regarding the purchase of raw materials, equipments, parts and components by the Group from Hisense Group, Hisense Electric and/or their respective subsidiaries for the financial year ended 31 December 2011 are subject to the Annual Cap of RMB89,550,000 (inclusive of value-added tax), of which:

(i) RMB8,630,000 will be allocated to the purchase of raw materials, parts and components from Hisense Group and/or its subsidiaries;
(ii) RMB18,920,000 will be allocated to the purchase of equipments from Hisense Group and/or its subsidiaries;
(iii) RMB60,000,000 will be allocated to the purchase of raw materials, parts and components from Hisense Electric and/or its subsidiaries; and
(iv) RMB2,000,000 will be allocated to the purchase of equipments from Hisense Electric and/or its subsidiaries.

The above Annual Cap was determined with reference to (a) similar transactions between the Group with Hisense Group, Hisense Electric and/or their respective subsidiaries in the past; and (b) the projected level of production and sales of electrical appliances of the relevant subsidiaries of the Company for the year ending 31 December 2011.

Reasons for and benefits of the purchase of raw materials, equipments, parts and components from Hisense Group, Hisense Electric and/or their respective subsidiaries:

Certain subsidiaries of Hisense Group and/or Hisense Electric are principally engaged in the import and export business. As such, Hisense Group and/or Hisense Electric have broad channels for import of materials and are in an advantageous position to obtain products with better quality and pricing by placing bulk purchase orders. For these reasons, the purchase of raw materials, parts and components for refrigerators and air-conditioners and equipments by the Group from Hisense Group, Hisense Electric and/or their respective subsidiaries will improve the control of reserve fund by the relevant subsidiaries of the Company and reduce purchase costs, and at the same time, it can reduce the bottleneck limitation in the upstream raw materials during production peak season, and the Group can benefit from the sharing of resources and the maximization of the economies of scale. Further, the Company is satisfied with the quality of the raw materials, equipments, parts and components provided by Hisense Group, Hisense Electric and/or their subsidiaries from their previous course of dealings.

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In light of the above, the Directors (including the independent non-executive Directors) are of the view that the terms of the purchase of raw materials, equipments, parts and components from Hisense Group, Hisense Electric and/or their respective subsidiaries under the Business Co-operation Agreement and the Annual Cap in relation thereto are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

(3) Provision of services

Pursuant to the terms of the Business Co-operation Framework Agreement, the Company and/or its subsidiaries will engage Hisense Group, Hisense Electric and/or their respective subsidiaries on a non-exclusive basis for the provision of property management service, medical service, material processing services, material inspection services, installation and maintenance, management consultancy, agency services for import and export, leasing, design, advertising and information system maintenance as they may require from time to time.

Pricing:

The fees payable by the Group for the provision of the aforesaid services (other than agency services for export) is determined by commercial negotiations according to the principles of fairness and reasonableness between the parties with reference to the market price for the provision of similar services from time to time.

The fees payable by the Group for the provision of the agency services for export is calculated by multiplying the Group’s turnover from overseas sales for the relevant products with an export agency fee percentage. Such export agency fee percentage is determined by commercial negotiations according to the principles of fairness and reasonableness between the parties on the basis that such percentage shall be a rate which is lower than the level of the rate of the charges actually incurred by the Group for conducting overseas sales by itself in previous years.

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Payment term:

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

Historical figures:

For the year ended 31 December 2009 and the ten months ended 31 October 2010, the aggregate amount paid by the Group for the provision of services contemplated under the Business Co-operation Framework Agreement by Hisense Group, Hisense Electric and/or their respective subsidiaries (other than the historical figures for transactions between the Group and members of the Target Group which no longer constitute continuing connected transactions) amounted to approximately RMB46,922,000 and RMB57,958,700 respectively.

Proposed Annual Cap:

The transactions contemplated under the Business Co-operation Framework Agreement regarding the provision of services by Hisense Group, Hisense Electric and/or their respective subsidiaries to the Group for the financial year ended 31 December 2011 are subject to the Annual Cap of RMB396,420,000 (inclusive of value-added tax), of which:

(i) RMB150,280,000 will be allocated to the provision of property management service, medical service, material processing services, material inspection services, installation and maintenance, management consultancy, agency services for import, leasing, design, advertising and information system maintenance by Hisense Group and/or its subsidiaries;
(ii) RMB222,000,000 will be allocated to the provision of agency services for export by Hisense Group and/or its subsidiaries; and
(iii) RMB24,140,000 will be allocated to the provision of property management service and material processing services by Hisense Electric and/or its subsidiaries.

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Reasons for and benefits of the engagement of services of Hisense Group, Hisense Electric and/or their respective subsidiaries:

The Company is satisfied with the quality of the services provided by Hisense Group, Hisense Electric and/or their subsidiaries from their previous course of dealings and considers that Hisense Group, Hisense Electric and/or their subsidiaries possess the expertise and experience for the provision of relevant services which can enable the Group to carry out its daily operation smoothly. In addition, Hisense Group and Hisense Electric have over 10 years’ experience in overseas operations, professional expertise and mature market network and channels in overseas market. By leveraging on the overseas sales platform of Hisense Group and Hisense Electric, the Group can benefit in the development of its overseas sales channels, reduce setup costs for overseas market and reduce expenses in relation to export businesses. The Group can also make use of the popularity of the “Hisense” brand in the overseas market to compensate for the lack of brand awareness of the “Kelon” brand overseas, which boost confidence of customers and increase competitiveness of the products.

In light of the above, the Directors (including the independent non-executive Directors) are of the view that the terms of the engagement of services of Hisense Group, Hisense Electric and/or their respective subsidiaries under the Business Co-operation Agreement and the Annual Cap in relation thereto are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

(4) Supply of home electrical appliances

Pursuant to the terms of the Business Co-operation Framework Agreement, the Company and/or its subsidiaries will supply on a non-exclusive basis home electrical appliances to Hisense Group, Hisense Electric and/or their respective subsidiaries as they may require from time to time.

Pricing:

Pricing for the supply of home electrical appliances is determined by commercial negotiation between the parties according to the principles of fairness and reasonableness with reference to the market price of similar home electrical appliances from time to time.

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LETTER FROM THE BOARD

Payment term:

Payment for the purchase of home electrical appliances should be made by Hisense Group, Hisense Electric and/or their respective subsidiaries by telegraphic transfer or bills within 60 days after the receipt of the home electrical appliances.

Historical figures:

For the year ended 31 December 2009 and the ten months ended 31 October 2010, the aggregate amount received by the Group for the supply of home electrical appliances to Hisense Group, Hisense Electric and/or their respective subsidiaries (other than the historical figures for transactions between the Group and members of the Target Group which no longer constitute continuing connected transactions) amounted to approximately RMB486,761,200 and RMB852,400,800 respectively.

Proposed Annual Cap:

The transactions contemplated under the Business Co-operation Framework Agreement regarding the supply of home electrical appliances by the Group to Hisense Group, Hisense Electric and/or their respective subsidiaries to the Group for the financial year ended 31 December 2011 are subject to the Annual Cap of RMB1,783,850,000 (inclusive of value-added tax), of which:

(i) RMB1,777,850,000 will be allocated to the supply of home electrical appliances to Hisense Group and/or its subsidiaries; and
(ii) RMB6,000,000 will be allocated to the supply of home electrical appliances to Hisense Electric and/or its subsidiaries.

The above Annual Cap was determined with reference to (a) similar transactions between the Group with Hisense Group, Hisense Electric and/or their respective subsidiaries in the past; (b) the prevailing market conditions about the demand for electrical appliances in the PRC; and (c) the projected level of production and sales of electrical appliances of the relevant subsidiaries of the Company for the year ending 31 December 2011.

Reasons for and benefits of the supply of home electrical appliances to Hisense Group, Hisense Electric and/or their respective subsidiaries:

The competition in the home electrical appliances market in the PRC is very keen at present with substantial increase in the price of raw materials. The production and supply of home electrical appliances by the Group to Hisense Group, Hisense Electric and/or their respective subsidiaries can help to lower the production costs of the Group by

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lowering the fixed costs per unit of product incurred by the Group as a result of the increase in production level, which in turn enhance the market competitiveness of the Group’s products. At the same time, the Group can continue to develop overseas market and enhance brand competitiveness and awareness. The Group can also increase market share and boost its sales turnover and revenue by selling products through the online platform of Hisense Group and Hisense Electric which reduces the product circulation links.

In light of the above, the Directors (including the independent non-executive Directors) are of the view that the terms of the supply of home electrical appliances to Hisense Group, Hisense Electric and/or their respective subsidiaries under the Business Co-operation Agreement and the Annual Cap in relation thereto are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

(5) Supply of moulds

Pursuant to the terms of the Business Co-operation Framework Agreement, the Company and/or its subsidiaries will supply on a non-exclusive basis moulds to Hisense Group, Hisense Electric and/or their respective subsidiaries as they may require from time to time.

Pricing:

In response to the invitations to tender from Hisense Group, Hisense Electric and/or their respective subsidiaries (which are also extended to various independent third parties) from time to time, the Group may submit such tenders or bids to supply the moulds for such products requested by Hisense Group, Hisense Electric and/or their respective subsidiaries in its/ their invitation to tender. Pricing for the supply of moulds is determined by the open bidding process.

Payment term:

Payment for the supply of moulds is determined according to the payment terms agreed between the parties as set out in the relevant contract(s) as agreed in the open bidding process.

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Historical figures:

For the year ended 31 December 2009 and the ten months ended 31 October 2010, the aggregate amount received by the Group for the supply of moulds to Hisense Group, Hisense Electric and/or their respective subsidiaries (other than the historical figures for transactions between the Group and members of the Target Group which no longer constitute continuing connected transactions) amounted to approximately RMB126,382,300 and RMB111,258,700 respectively.

Proposed Annual Cap:

The transactions contemplated under the Business Co-operation Framework Agreement regarding the supply of moulds by the Group to Hisense Group, Hisense Electric and/or their respective subsidiaries to the Group for the financial year ended 31 December 2011 are subject to the Annual Cap of RMB275,000,000 (inclusive of value-added tax), of which:

(i) RMB182,500,000 will be allocated to the supply of moulds to Hisense Group and/or its subsidiaries; and
(ii) RMB92,500,000 will be allocated to the supply of moulds to Hisense Electric and/or its subsidiaries.

Reasons for and benefits of the supply of moulds to Hisense Group, Hisense Electric and/or their respective subsidiaries:

The sale of moulds by the Group to Hisense Group and Hisense Electric will become an important part of the Group’s business. The sale of moulds under the Business Co-operation Framework Agreement will facilitate the Group in maintaining an important existing relationship with the relevant subsidiaries of Hisense Group and Hisense Electric as the latter’s supplier for moulds. By maintaining such relationship, the relevant subsidiaries of Hisense Group and Hisense Electric may become stable customers of the Company in respect of the sale of moulds, thereby further expanding the sales of the Company.

In light of the above, the Directors (including the independent non-executive Directors) are of the view that the terms of the supply of moulds to Hisense Group, Hisense Electric and/or their respective subsidiaries under the Business Co-operation Agreement and the Annual Cap in relation thereto are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

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(6) Supply of raw materials, parts and components

Pursuant to the terms of the Business Co-operation Framework Agreement, the Company and/or its subsidiaries will supply to Hisense Group, Hisense Electric and/or their respective subsidiaries on a non-exclusive basis such quantities of raw materials, parts and components to Hisense Group, Hisense Electric and/or their respective subsidiaries as they may require from time to time.

Pricing:

Pricing for the supply of raw materials, parts and components is determined by commercial negotiation between the parties according to the principles of fairness and reasonableness.

Payment term:

Payment for the purchase of raw materials, parts and components should be made by Hisense Group, Hisense Electric and/or their respective subsidiaries within 60 days after the receipt of the raw materials, parts and components.

Historical figures:

For the year ended 31 December 2009 and the ten months ended 31 October 2010, the aggregate amount received by the Group for the supply of raw materials, parts and components to Hisense Group, Hisense Electric and/or their respective subsidiaries (other than the historical figures for transactions between the Group and members of the Target Group which no longer constitute continuing connected transactions) amounted to approximately RMB8,167,400 and RMB21,819,600 respectively.

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Proposed Annual Cap:

The transactions contemplated under the Business Co-operation Framework Agreement regarding the supply of raw materials, parts and components by the Group to Hisense Group, Hisense Electric and/or its subsidiaries for the financial year ended 31 December 2011 are subject to the Annual Cap of RMB208,930,000 (inclusive of value-added tax), of which:

(i) RMB197,930,000 will be allocated to the supply of raw materials, parts and components to Hisense Group and/or its subsidiaries; and
(ii) RMB11,000,000 will be allocated to the supply of raw materials, parts and components to Hisense Electric and/or its subsidiaries.

Reasons for and benefits of the supply of raw materials, parts and components to Hisense Group, Hisense Electric and/or their respective subsidiaries:

Hisense Group and Hisense Electric have overseas sales channels and high quality customer resources which can enhance the sales of raw materials, parts and components of the Company. Further, the provision of raw materials, parts and components to Hisense Group, Hisense Electric and their respective subsidiaries can increase the revenues of the Company.

In light of the above, the Directors (including the independent non-executive Directors) are of the view that the terms of the supply of raw materials, parts and components to Hisense Group, Hisense Electric and/or their respective subsidiaries under the Business Co-operation Agreement and the Annual Cap in relation thereto are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

(7) Provision of services by the Group

Pursuant to the terms of the Business Co-operation Framework Agreement, the Company and/or its subsidiaries will provide property management services, design, loading and unloading services and equipment rental services to Hisense Group, Hisense Electric and/or their respective subsidiaries on a non-exclusive basis from time to time.

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Pricing:

Payment term:

Historical figures:

For the year ended 31 December 2009 and the ten months ended 31 October 2010, the aggregate amount received by the Group for the provision of the aforesaid services to Hisense Group, Hisense Electric and/or their respective subsidiaries (other than the historical figures for transactions between the Group and members of the Target Group which no longer constitute continuing connected transactions) amounted to approximately RMB256,200 and RMB513,400 respectively.

Proposed Annual Cap:

The transactions contemplated under the Business Co-operation Framework Agreement regarding the provision of services by the Group to Hisense Group, Hisense Electric and/or their respective subsidiaries for the financial year ended 31 December 2011 are subject to the Annual Cap of RMB3,920,000 (inclusive of value-added tax), of which:

(i) RMB3,560,000 will be allocated to the provision of design, loading and unloading services and equipment rental services to Hisense Group and/or its subsidiaries; and
(ii) RMB360,000 will be allocated to the provision of property management services to Hisense Electric and/or its subsidiaries.

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Reasons for and benefits of the provision of services to Hisense Group, Hisense Electric and/or their respective subsidiaries:

The provision of design, loading and unloading services, equipment rental services and property management services to Hisense Group, Hisense Electric and/or their respective subsidiaries will increase the Company’s revenue.

In light of the above, the Directors (including the independent non-executive Directors) are of the view that the terms of the provision of services to Hisense Group, Hisense Electric and/or their respective subsidiaries under the Business Co-operation Framework Agreement and the Annual Cap in relation thereto are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

Information Relating to the Company, Beijing Embraco Snowflake Compressor, Beijing Snowflake Group, Hisense Group, Hisense Electric, Huayi Compressor

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

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

Beijing Snowflake Group was established on 14 December 1992 with a registered capital of RMB226.55 million. Its authorised representative is Dong Chun（董淳）and its registered address is at No.1 (Section 3) Xinghua Street, Huangcun Town, Daxing District, Beijing City. It is primarily engaged in the manufacture and sale of home appliances such as refrigerators, washing machines and compressors.

Hisense Electric was established on 17 April 1997 with a registered capital of RMB866,651,715. Its authorised representative is Ms. Yu Shu Min and its registered address is at 218 Qian Wan Gang Road, Qingdao Economic and Technological Development Zone. It is primarily engaged in the manufacture and sale of television, refrigerators, washing machines, radio and television equipment, communication products, information technology products, home and commercial appliances and electronic products and provision of the related services.

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

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

Implications Under the Hong Kong Listing Rules

(A) Compressors Purchase Framework Agreement

As at the Latest Practicable Date, Beijing Embraco Snowflake Compressor is held as to 30.82% by Beijing Snowflake Group, a substantial shareholder which holds 45% of the equity interests in Hisense Beijing (being a non wholly owned subsidiary of the Company) and therefore Beijing Embraco Snowflake Compressor is a connected person of the Company according to the Hong Kong Listing Rules. Accordingly, the transactions contemplated under the Compressors Purchase Framework Agreement will constitute continuing connected transactions for the Company under the Hong Kong Listing Rules. As the applicable percentage ratios for the transactions contemplated under the Compressors Purchase Framework Agreement exceed 5% on an annual basis and the annual consideration exceeds HK$10,000,000, the Compressors Purchase Framework Agreement, the transactions contemplated thereunder and the Annual Cap in relation thereto are subject to reporting, announcement, annual review and independent shareholders’ approval requirements under Rule 14A.35 of the Hong Kong Listing Rules.

Beijing Embraco Snowflake Compressor and its respective associates are required under the Hong Kong Listing Rules to abstain from voting in relation to the continuing connected transactions under the Compressors Purchase Framework Agreement and so far as the Company is aware, none of them holds any Shares as at the Latest Practicable Date. Should Beijing Embraco Snowflake Compressor or its associates become interested as registered or beneficial owner(s) of the Shares from the Latest Practicable Date 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 Group and Beijing Embraco Snowflake Compressor and the relevant Annual Cap.

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(B) Compressors Purchase and Supply Framework Agreement

As at the Latest Practicable Date, Huayi Compressor is a substantial shareholder holding 29.95% of Shunde Ronshen Plastic Products Co., Ltd. （佛山市順德區容聲塑膠有限公司）and 29.89% of Guangdong Kelon Mould Co., Ltd.（廣東科龍模具有限公司）(both being non wholly owned subsidiaries of the Company) and therefore Huayi Compressor is a connected person of the Company according to the Hong Kong Listing Rules. Accordingly, the transactions contemplated under the Compressors Purchase and Supply Framework Agreement will constitute continuing connected transactions for the Company under the Hong Kong Listing Rules. As the applicable percentage ratios for the transactions contemplated under the Compressors Purchase and Supply Framework Agreement exceed 5% on an annual basis and the annual consideration exceeds HK$10,000,000, the Compressors Purchase and Supply Framework Agreement, the transactions contemplated thereunder and the Annual Cap in relation thereto are subject to the reporting, announcement, annual review and independent shareholders’ approval requirements under Rule 14A.35 of the Hong Kong Listing Rules.

Huayi Compressor and its respective associates are required under the Hong Kong Listing Rules to abstain from voting in relation to the continuing connected transactions under the Compressors Purchase Framework Agreement and so far as the Company is aware, none of them holds any Shares as at the Latest Practicable Date. Should Huayi Compressor or its associates become interested as registered or beneficial owner(s) of the Shares after the Latest Practicable Date 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 Group and Huayi Compressor and the relevant Annual Cap.

(C) Business Co-operation Framework Agreement

As at the Latest Practicable Date, Hisense Air-conditioning is a connected person of the Company by virtue of being a substantial shareholder of the Company, holding 45.22% of the issued shares of the Company. As Hisense Group is the indirect holding company of Hisense Air-conditioning and Hisense Electric is owned as to 41.36% by Hisense Group, Hisense Group, Hisense Electric and their respective subsidiaries are associates of Hisense Air-conditioning and are therefore connected persons of the Company according to the Hong Kong Listing Rules. As such, the transactions contemplated under the Business Co-operation Framework Agreement will constitute continuing connected transactions of the Company under the Hong Kong Listing Rules. As the applicable percentage ratios for the transactions contemplated under the Business Co-operation Framework Agreement exceed 5% on an annual basis and the annual consideration exceeds HK$10,000,000, the Business Co-operation Framework Agreement, the transactions contemplated thereunder and the Annual Caps in relation thereto are subject to the reporting, announcement, annual review and independent shareholders’ approval requirements under Rule 14A.35 of the Hong Kong Listing Rules.

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In view of the interests of Hisense Group and Hisense Electric in the Company, Hisense Group and Hisense Electric and their respective associates will abstain from voting in relation to the resolutions to approve the Business Co-operation Framework Agreement and the transactions contemplated thereunder and the relevant Annual Caps at the EGM. As such, Hisense Air-conditioning, which held 612,316,909 Shares, representing approximately 45.22% of the issued share capital of the Company as at the Latest Practicable Date, will abstain from voting in relation to the relevant resolution at the EGM.

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

III. BUSINESS FRAMEWORK AGREEMENT WITH HISENSE HITACHI

Date: 3 December 2010

Parties: The Company; Hisense Hitachi

Term:

The Business Framework Agreement shall commence from the date of approval of the Business Framework Agreement at the EGM until 31 December 2011, which can be terminated before its expiration by mutual agreement of the parties.

Condition:

The Business Framework Agreement and the transactions contemplated thereunder are subject to approval at the EGM and associated Shareholders who have interests in such transactions shall abstain from voting on the relevant resolution at the EGM.

Subject matters:

The transactions contemplated under the Business Framework Agreement will be conducted in the ordinary and usual course of business of the parties, on normal commercial terms and on terms not less favourable to the parties than terms available to or from (as appropriate) independent third parties. The Business Framework Agreement does not restrict the rights of the Company to enter into transactions

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LETTER FROM THE BOARD

contemplated under the Business Framework Agreement with any other third parties. The transactions contemplated under the Business Framework Agreement, annual caps in relation thereto and the historical amount of the transactions from January to October 2010 are set out as follows:

Unit: RMB (’0000) (including value-added tax)

		Annual caps
		of transaction	Amount
		amount to be	paid/received in
		paid/received	respect of uch
		during the term	transactions
		of the Business	from january
Types of		Framework	to October 2010
transactions	Division by products or services	Agreement	(unaudited)
	Sale of home electrical appliances	6500	500
	products by the Company
Sale of products and materials	Sale of moulds by the Company	200	—
	Sale of raw materials, parts and	400	—
	components by the Company
	Purchase of home electrical	600	—
Purchase of products and	appliances products by the Company
materials	Purchase of raw materials, parts	1300	100
	and components by the Company

The parties will enter into definitive contract(s) setting out specific terms including specifications of the home electrical appliances, moulds, raw materials, parts and components, quantity involved, pricing principles, quality standards and warranties, payment terms, terms of delivery, technological services and obligations of the parties upon default, but such terms shall be consistent with the principles and the terms of the Business Framework Agreement.

Pricing and payment term:

Pricing for the purchase and supply of home electrical appliances is determined by commercial negotiation between the parties according to the principles of fairness and reasonableness mainly with reference to the market price of similar home electrical appliances from time to time. Payment for the purchase and supply of home electrical appliances should be made by the relevant party within 45 days after the receipt of the home electrical appliances.

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LETTER FROM THE BOARD

Pricing for the purchase and supply of raw materials, parts and components is determined by commercial negotiation between the parties according to the principles of fairness and reasonableness and shall be confirmed in the definitive contract(s). Payment for the purchase and supply of raw materials, parts and components should be made by the relevant party within 60 days after the receipt of the same.

Pricing for the supply of moulds by the Company to Hisense Hitachi is determined by the open tender process and payment is determined according to the payment terms agreed between the parties as set out in the relevant contract(s) as agreed in the open tender process.

Reasons for and benefits of the transactions contemplated under the Business Framework Agreement:

Purchase and sale of home electrical appliances

The sale of home electrical appliances to Hisense Hitachi can expand the sales scale and increase the sales revenue of the Company, and the purchase of home electrical appliances from Hisense Hitachi can further enrich the product lines of the Company and promote the business development of the Company.

Purchase and sale of raw materials, parts and components

To ensure the supply of customized products and after-sale service, the parties intend to sell and purchase raw materials, parts and components which are compatible with the customized products to and from the other party.

Supply of mould

The sale of moulds is an important part of the business of a subsidiary of the Company, namely, 青島海信模具有限公司 (Qingdao Hisense Mould Company Limited). The sale of moulds to Hisense Hitachi can satisfy the production needs of such subsidiary, expand the sales scale and increase the sales revenue of the Company.

The above connected transactions will not prejudice the interests of the Company and will not cause adverse effect on the current and future financial situation and operating results of the Company.

Information of Hisense Hitachi

Hisense Hitachi was established in 2003. It has a registered capital of US$12.1 million and its authorised representative is Qing Shangong（青山貢）and its registered address is at 218 Qian Wan Gang Road, Qingdao Economic and Technological Development Zone. Its scope of business is the research and development and manufacture of commercial air-conditioning systems, sale of self-manufactured products and provision of after-sale services. As at the Latest Practicable Date, the Company held 49% of the equity interests in Hisense Hitachi.

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LETTER FROM THE BOARD

As at 31 December 2009, the audited total asset of Hisense Hitachi was RMB701,075,612.22 and its net asset was RMB368,030,717.62, while its total realized operating revenue was RMB1,112,993,737.34 and total realized net profits was RMB153,007,004.87. As at 30 September 2010, the unaudited total net asset of Hisense Hitachi was RMB452,710,841.36.

In view of the above, and based on the business credit and ability of commercial operation of Hisense Hitachi as known by the Company, the Board considers that Hisense Hitachi can honour its obligations, and deliver and pay to the Company the products and payments under the connected transactions.

As Mr. Tang Ye Guo and Ms. Yu Shu Min, both being Directors, are also directors of Hisense Hitachi, the transactions contemplated under the Business Framework Agreement will constitute ordinary connected transactions under the Shenzhen Listing Rules. The independent non-executive Directors have agreed to put forward the transactions contemplated under the Business Framework Agreement for the Board’s consideration and they considered that such transactions would be conducted on normal commercial terms and based on the terms of the Business Framework Agreement, and the terms of the transactions as agreed in the Business Framework Agreement were fair and reasonable and were in the interests of the Company and its Shareholders as a whole. They also considered that the terms of the Business Framework Agreement and the annual caps in relation thereto were fair and reasonable so far as the independent shareholders were concerned.

GENERAL

Mr. Tang Ye Guo, Mr. Zhou Xiao Tian, Ms. Yu Shu Min, Mr. Lin Lan and Ms. Liu Chun Xin, being Directors, have abstained from voting on the relevant board resolution for approving the Business Co-operation Framework Agreement and the transactions contemplated thereunder in view of their interest therein as set out below:

(a) Mr. Tang Ye Guo, Mr. Zhou Xiao Tian, Ms. Yu Shu Min, and Mr. Lin Lan, are also directors or senior management of Hisense Group or some of its subsidiaries;
(b) Ms. Yu Shu Min and Mr. Lin Lan are also directors of Hisense Electric; and
(c) Ms. Liu Chun Xin has interest in the shares of a subsidiary of Hisense Group.

Mr. Tang Ye Guo and Ms. Yu Shu Min, being Directors, are also directors of Hisense Hitachi and have abstained from voting on the relevant board resolution for approving the Business Framework Agreement and the transactions contemplated thereunder in view of their interest therein.

The Directors confirm that they do not have any material interest in the Compressors Purchase Framework Agreement, the Compressors Purchase and Supply Framework Agreement and the transactions contemplated therein, and therefore, no Directors have abstained from voting on the board resolution(s) for approving the same.

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LETTER FROM THE BOARD

EGM

The EGM will be held at the conference room of the Company’s head office, Shunde District, Foshan City, Guangdong Province, the People’s Republic of China at 9:30 a.m. on Thursday, 20 January 2011 at which ordinary resolutions will be proposed to approve the appointment of Directors, the adjustment of emolument of an independent non-executive Director, the Compressors Purchase Framework Agreement, the Compressors Purchase and Supply Agreement, the Business Co-operation Framework Agreement and the Business Framework Agreement and the transactions contemplated thereunder and the annual caps in relation thereto by poll.

A notice of the EGM, a proxy form for use at the EGM and a reply slip have been despatched by the Company on 3 December 2010 and are also published on the websites of the Stock Exchange (http://www.hkexnews.hk) and the Company (http://www.kelon.com). If you are not able to attend the meeting in person, you are requested to complete and return the proxy form in accordance with the instructions printed thereon and to lodge the same with the Company’s branch share registrar in Hong Kong, Hong Kong Registrars Limited, at 17M/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, not less than 24 hours before the time fixed for holding the EGM or any adjournment thereof (as the case may be). Completion and delivery of the proxy form will not preclude you from attending and voting in person at the EGM or any adjournment thereof (as the case may be) if you so wish.

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

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

Pursuant to Rule 13.39(4) of the Hong Kong Listing Rules, all votes casted at the EGM must be taken by poll and the Company will procure the chairman of the EGM to demand for voting by poll, the results of which will be announced after the EGM in the manner prescribed under Rule 13.39(5) of the Hong Kong Listing Rules.

The register of members of the Company has been closed since 21 December 2010 (Tuesday) until 20 January 2011 (Thursday) (both days inclusive). In order to qualify for attending the EGM, all transfer documents of H Shares together with the relevant share certificates must have been lodged with the Company’s branch share registrar in Hong Kong, Hong Kong Registrars Limited at Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong not later than 4:30 p.m. on 20 December 2010 (Monday) for registration.

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LETTER FROM THE BOARD

RECOMMENDATION

The Directors consider that (i) the appointment of Mr. Wang Ai Guo as independent non-executive Director and the appointment of Mr. Xiao Jian Lin as Director of the seventh session of the Board respectively; (ii) the adjustment to the emoluments of Mr. Zhang Sheng Ping as independent non-executive Director and (iii) the Business Framework Agreement and the transactions contemplated thereunder and the annual caps in relation thereto are in the interests of the Company and its Shareholders as a whole and are fair and reasonable. Accordingly, the Directors recommend the Shareholders to vote in favour of the relevant ordinary resolutions to be proposed at the EGM to approve the same.

The Independent Board Committee, having taken into account the advice of the Independent Financial Adviser, considers that the Compressors Purchase Framework Agreement, the Compressors Purchase and Supply Agreement and the Business Co-operation Framework Agreement and the transactions contemplated thereunder and the Annual Caps in relation thereto are in the interest of the Company and are fair and reasonable so far as the Independent Shareholders are concerned. The Independent Board Committee therefore recommends the Independent Shareholders to vote in favour of the resolutions to be proposed in the EGM to approve the Compressors Purchase Framework Agreement, the Compressors Purchase and Supply Agreement and the Business Co-operation Framework Agreement and the transactions contemplated thereunder.

ADDITIONAL INFORMATION

Your attention is drawn to the letters from the Independent Board Committee and the Independent Financial Adviser in relation to the Compressors Purchase Framework Agreement, the Compressors Purchase and Supply Agreement and the Business Co-operation Framework Agreement and the transactions contemplated thereunder which are respectively set out on pages 37 and pages 38 to 70 of this circular. Additional information is also set out in the Appendix of this circular for your information.

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)

31 December 2010

To the Independent Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

We refer to the circular issued by the Company to the Shareholders dated 31 December 2010 (the “Circular”) of which this letter forms part. Terms defined in the Circular shall have the same meanings in this letter unless the context otherwise requires.

We have been appointed by the Board as the members of the Independent Board Committee to consider the terms of the Compressors Purchase Framework Agreement, the Compressors Purchase and Supply Agreement and the Business Co-operation Framework Agreement and the transactions contemplated thereunder and the Annual Caps in relation thereto as to the fairness and reasonableness of the same. The Independent Financial Adviser, Access Capital Limited, has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

RECOMMENDATION

We wish to draw your attention to the letter from the Board and the letter from the Independent Financial Adviser as set out on pages 6 to 36 and pages 38 and 70 in the Circular respectively. Having considered the principal factors and reasons considered by, and the advice of the Independent Financial Adviser as set out in its letter of advice, we concur with the views of the Independent Financial Adviser and consider that the terms of the Compressors Purchase Framework Agreement, the Compressors Purchase and Supply Agreement and the Business Co-operation Framework Agreement and the transactions contemplated thereunder and the Annual Caps in relation thereto are in the interests of the Company and the Shareholders as a whole and are fair and reasonable so far as the Independent Shareholders are concerned.

Accordingly, we recommend the Independent Shareholders to vote in favour of the resolutions to be proposed in the EGM to approve the Compressors Purchase Framework Agreement, the Compressors Purchase and Supply Agreement and the Business Co-operation Framework Agreement and the transactions contemplated thereunder and the Annual Caps in relation thereto.

Yours faithfully,

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

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

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.

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

31 December 2010

To the Independent Board Committee and

the Independent Shareholders of

Hisense Kelon Electrical Holdings Company Limited

Dear Sirs,

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Compressors Purchase Framework Agreement, the Compressors Purchase and Supply Framework Agreement and the Business Co-operation Framework Agreement (collectively the “Agreements”), details of which are set out in the circular to the Shareholders dated 31 December 2010 (the “Circular”), of which this letter forms part. This letter contains our advice to the Independent Board Committee and the Independent Shareholders in respect of the Agreements. Unless otherwise stated, terms defined in the Circular have the same meanings in this letter.

The Existing Compressors Purchase Framework Agreement, the Existing Compressors Purchase and Supply Framework Agreement and the Existing Business Co-operation Framework Agreement will expire on 31 December 2010 and it is expected that the Group will continue to enter into transactions of a nature similar to the transactions under those agreements from time to time thereafter.

On 3 December 2010, the Board announced that the Company entered into the Agreements with Beijing Embraco Snowflake Compressor, Huayi Compressor, Hisense Group and Hisense Electric on the same day (details of the Agreements are stated in the section headed “Terms of the Agreements” below).

As at the date of the Agreements and the Latest Practicable Date, Beijing Embraco Snowflake Compressor is held as to 30.82% by Beijing Snowflake Group, a substantial shareholder which holds 45% of the equity interests in Hisense Beijing (being a non-

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

wholly owned subsidiary of the Company). Therefore, Beijing Embraco Snowflake Compressor is a connected person of the Company and the transactions contemplated under the Compressors Purchase Framework Agreement will constitute continuing connected transactions for the Company under the Hong Kong Listing Rules. As the applicable percentage ratios for the transactions contemplated under the Compressors Purchase Framework Agreement exceed 5% on an annual basis and the annual consideration exceeds HK$10,000,000, the Compressors Purchase Framework Agreement, the transactions contemplated thereunder and the Annual Cap in relation thereto are subject to reporting, announcement, annual review and independent shareholders’ approval requirements under Rule 14A.35 of the Hong Kong Listing Rules.

As at the date of the Agreements and the Latest Practicable Date, Huayi Compressor is the substantial shareholder holding 29.95% of Shunde Ronshen Plastic Products Co., Ltd. （佛山市順德區容聲塑膠有限公司） and 29.89% of Guangdong Kelon Mould Co., Ltd. （廣東科龍模具有限公司）(both being 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 Hong Kong Listing Rules. As the applicable percentage ratios for the transactions under the Compressors Purchase and Supply Framework Agreement exceed 5% on an annual basis and the annual consideration exceeds HK$10,000,000, the Compressors Purchase and Supply Framework Agreement, the transactions contemplated thereunder and the Annual Cap in relation thereto are subject to reporting, announcement, annual review and independent shareholders’ approval requirements under Rule 14A.35 of the Hong Kong Listing Rules.

As at the date of the Agreements and the Latest Practicable Date, Hisense Air-conditioning is a connected person of the Company by virtue of being a substantial shareholder of the Company, holding 45.22% of the issued shares of the Company. As Hisense Group is the indirect holding company of Hisense Air-conditioning and Hisense Electric is owned as to 41.36% by Hisense Group, Hisense Group, Hisense Electric and their respective subsidiaries are associates of Hisense Air-conditioning and are therefore connected persons of the Company according to the Hong Kong Listing Rules. As such, the transactions contemplated under the Business Co-operation Framework Agreement will constitute continuing connected transactions of the Company under the Hong Kong Listing Rules. As the applicable percentage ratios for the transactions contemplated under the Business Co-operation Framework Agreement exceed 5% on an annual basis and the annual consideration exceeds HK$10,000,000, the Business Co-operation Framework Agreement, the transactions contemplated thereunder and the Annual Caps in relation thereto are subject to the reporting, announcement, annual review and independent shareholders’ approval requirements under Rule 14A.35 of the Hong Kong Listing Rules.

The Independent Board Committee, comprising all the independent non-executive Directors, has been formed to advise the Independent Shareholders as to whether the transactions contemplated under the Agreements are in the interests of the Company and the Shareholders as a whole, and the terms of the Agreements including the proposed annual caps are fair and reasonable. As the independent financial adviser to the Independent Board Committee and the Independent Shareholders, our role is to give an independent opinion to the Independent Board Committee and the Independent Shareholders as to (i) whether or not the transactions contemplated under each of the

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

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.

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 2009 (the “2009 Annual 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 the year ended 31 December 2009, approximately 65.2% 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 THE INDEPENDENT FINANCIAL ADVISER

Set out below is a summary of the Group’s operating results and financial position extracted from the 2009 Annual Report and interim report for the six months ended 30 June 2010 (the “2010 Interim Report”):

Turnover — Sales of refrigerators — Sales of air-conditioners — Sales of freezers — Sales of product components Gross profit Other revenue Other gains and losses Distribution costs Administrative expenses Finance costs (Loss)/Profit for the year/period Attributable to: — Owners of the Company — Minority interests Non-current assets Current assets Current liabilities Net current liabilities Total net (liabilities)/assets	For the year ended 31 December 2008 2009 RMB’000 RMB’000 (Audited) (Audited) 4,189,049 5,208,614 3,024,028 2,497,832 397,572 594,816 442,260 372,499 8,052,909 8,673,761 1,236,300 1,703,215 63,832 95,845 1,283 23,785 (1,081,498) (1,254,513) (352,733) (351,022) (89,771) (68,621) (237,520) 135,009 (231,896) 136,412 (5,624) (1,403) As at 31 December 2008 2009 RMB’000 RMB’000 (Audited) (Audited) 1,991,145 1,958,671 1,696,361 2,263,654 (4,546,134) (4,953,698) (2,849,773) (2,690,044) (858,628) (731,373)	For the six months ended 30 june 2010 RMB’000 (Unaudited) 4,429,974 3,134,937 463,822 463,659 8,492,392 1,527,361 150,123 126,780 (1,177,640) (239,475) (35,149) 361,818 343,254 18,564 As at 30 june 2010 RMB’000 (Unaudited) 3,058,230 5,204,207 (7,676,847) (2,472,640) 585,590

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have noted from the Company’s annual report for 2008 (the “2008 Annual Report”) that the Company’s auditors (the “Auditors”), BDO Limited, had 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. 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 RMB285 million (net of an accumulated impairment loss of approximately RMB365 million). Any adjustments found to be necessary would affect the opening accumulated losses as at 1 January 2008, the net liabilities as at 31 December 2008 and the profit for the year then ended. Except for the effects of such adjustments (if any), the Auditors opined that the financial statements give a true and fair view of the state of the Group’s affairs as at 31 December 2008 and of its profit and cash flows for the year then ended.

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

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.

As for the year ended 31 December 2009, the Auditors had also expressed a qualified opinion on the financial statements of the Company and its subsidiaries for the year ended 31 December 2009 arising from limitation of audit scope. As mentioned above, there were a series of activities/transactions entered into by Greencool Enterprise, its affiliates and/or companies 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 judgments which mostly ruled in favour of the Company. However, certain court judgments were under further appeal and the enforcement of court judgments had not been completed. Due to the uncertainty on the final outcome of the legal proceedings and execution of court judgments, 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 2009, the net liabilities as at 31 December 2009 and the loss for the year then ended.

For the year ended 31 December 2009, the Group recorded an audited turnover of approximately RMB8,673.8 million (representing an increase of approximately 7.7% from the turnover of approximately RMB8,052.9 million for the preceding year) and a net profit of approximately RMB135.0 million, compared to a net loss of approximately RMB228.8 million for the year ended 31 December 2008. As explained in the 2009 Annual Report, the significant improvement of the Group’s financial performance with was due to (i) the Company proactively capitalised on the PRC government’s industrial policies; (ii) the Company’s implementation of industrial benchmark cost reduction project; (iii) continued improvement in product quality; (iv) the Company accelerated the perfection of its marketing system; (v) the Company seizing the opportunities arising from the steady recovery of the global economy; and (vi) the Company recorded a much lower exchange loss as compared to that of 2008 as the exchange rate of RMB remained relatively steady.

For the six months ended 30 June 2010, the Group’s recorded an unaudited turnover of approximately RMB8,492.4 million, representing an increase of approximately 35.9% from the unaudited turnover of approximately RMB6,250.4 million for the corresponding period in 2009. The Group’s unaudited profit for the six months ended 30 June 2010 of approximately RMB361.8 million represents an increase of approximately 25.9% from the unaudited profit of approximately RMB287.4 million for the corresponding

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

period in 2009. As noted in the 2010 Interim Report, the main reasons for the significant increase in the results for the six months ended 30 June 2010 are, among others, (i) the Company implemented a significant asset restructuring and economics of sales of the Company started to be seen after completion of the restructuring; (ii) the Company continued to fully implement the industrial benchmark projects and significantly enhanced manufacturing efficiency with remarkable economic benefits; and (iii) the Company recorded certain investment gains upon disposal of some marketable securities.

As at 30 June 2010, the Group had unaudited total current assets of approximately RMB5,204.2 million and unaudited total current liabilities of approximately RMB7,676.8 million, representing net current liabilities of approximately RMB2,472.6 million. As at 30 June 2010, the Group had outstanding borrowings of approximately RMB1,483.9 million and its unaudited total net assets was approximately RMB585.6 million.

For further details of the Auditors’ opinions on the Company’s financial statements and its latest financial position, Shareholders are advised to read the respective annual reports and the 2010 Interim Report. It should be noted while the Company’s financial statements contain qualified auditors’ opinions, we do not consider such qualified auditors’ opinions to have any impact on the fairness or reasonableness of the Annual Caps (details of the fairness and reasonableness of the Annual Caps are set out in the section headed “Rationale for determining the maximum value of the transactions contemplated under the Agreements” below).

2. Information on Beijing Embraco Snowflake Compressor

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

Based on the information available from the website of Beijing Embraco Snowflake Compressor, Beijing Embraco Snowflake Compressor is an affiliated company of Embraco. Embraco was founded in 1971 and has more than 9,000 employees worldwide. Embraco has factories in Brazil, Italy, China and Slovakia and has a global production capacity of over 30 million compressors per annum. In addition to these factories, Embraco has business offices in the United States, Mexico and Italy, and distribution centers in strategic locations.

3. Information on Huayi Compressor

Huayi Compressor has been listed on the Shenzhen Stock Exchange of the PRC (stock code: 000404) 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

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

compressor producers in the PRC. As disclosed in the interim report of Huayi Compressor for the six months ended 30 June 2010, 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 2010. We also note that the Company held approximately 15.60% of the issued share capital of Huayi Compressor as at 30 June 2010 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 2009 and the six months ended 30 June 2010 which is extracted from its annual report for the year ended 31 December 2009 and interim report for the six months ended 30 June 2010.

			For the
			six months
	For the year	ended	ended
	31 December		30 june
	2008	2009	2010
	RMB’000	RMB’000	RMB’000
	(Audited)	(Audited)	(Unaudited)
Turnover	3,079,505	3,255,733	2,660,428
Net Profit attributable to owners
of the company	26,231	87,244	21,479
Total assets as at year/period end	2,078,785	2,695,517	3,299,974

As stated in its annual report for 2009, Huayi Compressor had a business segment turnover of approximately RMB2,931.6 million which was generated from the sales of about 14.9 million units of compressors. In addition, Huayi Compressor was the largest producer of refrigerator compressors in the PRC for 2009 in terms of sales volume. As at 30 June 2010, Huayi Compressor had unaudited net assets of approximately RMB554.6 million.

4. Information on Hisense Group

Based on the information available from the website of Hisense Group, Hisense Group is one of the major electronic companies in the PRC. Hisense Group is headquartered in Qingdao, the PRC and has operational presence in every major continent and sells its products to more than 100 countries worldwide. It is principally engaged in trust operation of stateowned assets; and the manufacturing and sale of TV set, DVD/VCD player, hi-fi 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.

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5. Reasons for the Agreements

a. Compressors Purchase Framework Agreement

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

As stated in the Letter from the Board, the Group is engaged in the manufacture of household electrical appliances, including but not limited to refrigerators and freezers, which requires compressors as component for its products. After considering a range of factors including the quality, the price and the compatibility of the compressors manufactured by the Beijing Embraco Snowflake Compressor Group with the current facilities used by and the refrigerators and freezers manufactured by the relevant subsidiaries of the Company, as well as the level of services provided by the Beijing Embraco Snowflake Compressor Group, the Group considers that the Beijing Embraco Snowflake Compressor Group is in a good position to supply compressors to the Group.

We understand from the Company that certain of its subsidiaries have been purchasing compressors from the Beijing Embraco Snowflake Compressor Group and they were very satisfied with the quality and prices of the compressors produced by the Beijing Embraco Snowflake Compressor Group. In view of the fact that the manufacture and sale of refrigerators and freezers is one of the principal businesses of the Group and compressors are essential components of refrigerators and freezers, it is reasonable for the Group to purchase compressors as part of the components for the manufacture of its products from time to time in its ordinary course of business. As mentioned above, Embraco is one of the major producers and has operations worldwide. Furthermore, the Beijing Embraco Snowflake Compressor Group has been one of the major suppliers of compressors of the Group. On this basis, we consider that the Beijing Embraco Snowflake Compressor Group has the relevant experience and expertise in the manufacture of compressors. Accordingly, we are of the view that the entering into of the Compressors Purchase Framework Agreement for the purpose of

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sourcing compressors from the Beijing Embraco Snowflake Compressor Group is in the interests of the Company and the Shareholders as a whole and the transactions contemplated under the Compressors Purchase Framework Agreement are in the ordinary and usual course of business of the Company.

b. 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 freezers, 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 freezers, 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 freezers 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.

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 freezers is one of the principal businesses of the Group and compressors are essential components of refrigerators and freezers, it is reasonable for the Group to purchase compressors as part of the components for the manufacture of its products from time to time in its ordinary course of business. As mentioned above, Huayi Compressor is one of the major producers of compressors in the PRC and was the largest producer of refrigerator compressors in the PRC for 2009 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

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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.

c.

The Business Co-operation Framework Agreement

Given the similar principal activities between the Group, Hisense Group and Hisense Electric which include the manufacture of home electrical appliances 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 as a manufacturer of home electrical appliances.

In view of the substantial interest of Hisense Group in the Company and the fact 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 Hisense Group to assist the Group in maintaining its business conditions and improving its profitability. As Hisense Group and Hisense Electric 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, we are of the view that it is in the commercial interest of the Company to enter into the Business Co-operation Framework Agreement to cooperate with Hisense Group and Hisense Electric. Furthermore, as noted in the Letter from the Board, Hisense Group and Hisense Electric have over 10 years’ experience in overseas operations, professional expertise and mature market network and channels in overseas market. By leveraging on the overseas sales platform of Hisense Group and Hisense Electric, the Group can benefit in the development of its overseas sales channels, reduce setup costs for overseas market and reduce expenses in relation to export businesses.

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Certain transactions contemplated under the Business Co-operation Framework Agreement such as the sales of home electrical appliances, moulds, raw materials parts and components and provision of property management services, design, loading and unloading services and equipment rental services by the 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 respective subsidiaries of Hisense Group and Hisense Electric as the latter’s supplier for moulds. By maintaining such relationship, the relevant subsidiaries of Hisense Group and Hisense Electric may become stable customers of the Company in respect of the sale of moulds, thereby further expanding the sales of the Company.

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

As regards to those transactions contemplated under the Business Cooperation Framework Agreement in relation to the sale and purchase of raw materials, equipments, parts and components and purchase of home electrical appliances between Group and the respective subsidiaries of Hisense Group and Hisense Electric, we understand that as the Company, Hisense Group and Hisense Electric combine the purchase of raw materials, bulk purchase orders can be placed in order to negotiate for a more favourable price for the purchasing of raw materials. Accordingly, the total cost of sales of the Group may be reduced and the competitiveness and responsiveness of the Group’s products may therefore increase.

As regards to the provision of services (mainly agency services for import and export) by Hisense Group, Hisense Electric and/or their subsidiaries to the Group, we understand that the Group has engaged Hisense Group and Hisense Electric for a few years and is very satisfied with the services. As mentioned above, Hisense Group and Hisense Electric have over 10 years’ experience in overseas operations, professional expertise and mature market network and channels in overseas market. On the other hand, we understand that the Group currently does not have any overseas sales offices and all its overseas sales are carried out by the Group in the PRC. By leveraging on the overseas sales platform of Hisense Group and Hisense Electric, the

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Group can benefit in the development of their overseas sales channels, reduce setup costs for overseas market and reduce expenses in relation to export businesses.

In addition, as advised by the management of the Company, the “Hisense” brand is much more well-known than the “Kelon” brand in the overseas market. By selling the Group’s products through Hisense Group’s or Hisense Electric’s overseas sales network, the Group can also make use of the popularity of the “Hisense” brand in the overseas market to compensate for the lack of brand awareness of the “Kelon” brand overseas, which boost confidence of customers and increase competitiveness of the products.

As regards to the provision of services in relation to services such as property management service, medical service, material processing services, installation and maintenance, management consultancy, leasing, design, equipment management, advertising and information system maintenance, we understand that the Group has engaged Hisense Group and Hisense Electric for a few years and is very satisfied with the services received. As Hisense Group and Hisense Electric are familiar with the operations of the Group, they are able to provide quality services to the Group.

In summary, we are of the view that the respective co-operation between the Group and Hisense Group and Hisense Electric, which have board channels for import of materials and are in an advantageous position to obtain products with better quality and pricing, can (i) help to lower the production costs of the Group by lowering the fixed costs per unit of product incurred by the Group as a result of the increase in production level, which in turn enhance the market competitiveness of the Group’s products; (ii) improve the control of reserve fund by the relevant subsidiaries of the Company by reducing purchase costs, and at the same time, it can reduce the bottleneck limitation in the upstream raw materials during production peak season, and the Group can benefit from the sharing of resources and the maximization of the economies of scale; (iii) benefit in the development of the overseas sales channels of Hisense Group and Hisense Electric, reduce setup costs for overseas market and reduce expenses in relation to export businesses; and (iv) continue to provide quality services to the Group due to their familiarity of the operations of the Group.

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.

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II. Terms of the Agreements

1. The Compressors Purchase Framework Agreement

The Compressors Purchase Framework Agreement is valid from the date of approval of the Compressors Purchase Framework Agreement by the Independent Shareholders until 31 December 2011 (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 Beijing Embraco Snowflake Compressor and/or its subsidiaries (as the case may be) for the purpose of manufacturing home electrical appliances, including but not limited to refrigerators and freezers, by the Group. The transactions contemplated under the Compressors Purchase Framework Agreement are in the ordinary and usual course of business of the Company.

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

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

On the basis that (i) the purchase of compressors will be conducted in the ordinary and usual course of business of the Company; and (ii) the terms of the definitive contract(s) to be entered into between the Company (and/ or its subsidiaries) and Beijing Embraco Snowflake Compressor (and/or its subsidiaries) will be consistent with those of the Compressors Purchase Framework Agreement and will be determined in accordance with the principle of fairness and reasonableness with reference to the market and will not be less favourable to the Group than those available from independent third party,

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we are of the view that the terms of the Compressors Purchase Framework Agreement are in the interests of the Company and the Shareholders as a whole, on normal commercial terms and fair and reasonable.

2. The Compressors Purchase and Supply Framework Agreement

The Compressors Purchase and Supply Framework Agreement is valid from the date of approval of the Compressors Purchase and Supply Framework Agreement by the Independent Shareholders until 31 December 2011 (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 home electrical appliances, including but not limited to refrigerators and freezers, 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 definitive contract(s) setting out specific terms including specifications of the compressors, quantity involved, pricing, quality standards and warranties, payment terms, terms of delivery, technological services and obligations of the parties upon default, but such terms shall be consistent with the principles and the terms of the Compressors Purchase and Supply Framework Agreement.

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 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 for the purchase of compressors should be made by telegraphic transfer or bills within 90 days from the first day of the following month after the compressors had passed the inspection tests and the relevant invoice(s) have been accounted for in the accounts.

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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.

3. The Business Co-operation Framework Agreement

The Business Co-operation Framework Agreement is valid from the date of approval of the Business Co-operation Framework Agreement by the Independent Shareholders until 31 December 2011 (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 cooperation between the Group and the respective subsidiaries of Hisense Group and Hisense Electric:

a. Purchase of home electrical appliances

Under the Business Co-operation Framework Agreement, the relevant subsidiaries of Hisense Group and Hisense Electric have agreed to manufacture and supply on a non-exclusive basis such quantities of home electrical appliances 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. The contracting parties have also agreed to enter into definitive contract(s) setting out specific terms including specifications of the products or services, quantity involved, pricing principles, quality standards and warranties, payment terms, terms of delivery, technological services and obligations in the event of default, but such terms shall be consistent with the principles and the terms of the Business Co-operation Framework Agreement.

The purchase price of the home electrical appliances supplied by the relevant subsidiaries of Hisense Group and Hisense Electric to the Group will be determined by commercial negotiations according to the principle of fairness and reasonableness between the contracting parties mainly with reference to the market price of similar home electrical appliances from time to time.

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 home electrical appliances should be made by the Group by telegraphic transfer or bills within 60 days after receipt of the home electrical appliances. The Business Co-operation Framework Agreement will not restrict the Group from purchasing home electrical appliances

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from other suppliers apart from the subsidiaries of Hisense Group or Hisense Electric, nor will it restrict the subsidiaries of Hisense Group or Hisense Electric from selling their home electrical appliances to any other third parties.

On the basis that (i) the purchase of home electrical appliances by the Group will be conducted in the ordinary and usual course of its business and the terms of the definitive contract(s) to be 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 of the similar home appliances and not less favourable to the Group than terms available to or from (as appropriate) independent third parties; and (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 respective subsidiaries of Hisense Group and Hisense Electric, we are of the view that the terms of the Business Co-operation Framework Agreement with respect to the purchase of home electrical appliances by the Group are in the interests of the Company and the Shareholders as a whole, on normal commercial terms and fair and reasonable.

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

Under the Business Co-operation Framework Agreement, the respective subsidiaries of Hisense Group and Hisense Electric have agreed to supply on a non-exclusive basis such quantities of raw materials, equipments, parts and 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. The contracting parties have also agreed to enter into definitive contract(s) setting out specific terms including specifications of the products or services, quantity involved, pricing principles, quality standards and warranties, payment terms, terms of delivery, technological services and obligations of the parties upon default, but such terms shall be consistent with the principles and the terms of the Business Co-operation Framework Agreement.

Pricing for the purchase of raw materials, equipments, parts and components is determined principally by commercial negotiations between the relevant subsidiaries of the Company and the relevant subsidiaries of Hisense Group and Hisense Electric according to the principles of fairness and reasonableness.

Payment for the purchase of raw materials, equipments, parts and components should be made by the Company or its relevant subsidiaries within 60 days after receipt of the raw materials, equipments, parts and components. The Business Co-operation Framework Agreement will not

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restrict the Group from purchasing raw materials, equipments, parts and components from suppliers other than the subsidiaries of Hisense Group or Hisense Electric, nor will it restrict the subsidiaries of Hisense Group or Hisense Electric from selling their raw materials, equipments, parts and components to any other third parties.

On the basis that (i) the purchase of raw materials, equipments, parts and components by the Group will be conducted in the ordinary and usual course of its business and the terms of the definitive contract(s) to be 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, (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 Hisense Electric and (iii) the Group 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, equipments, parts and components by the Group are in the interests of the Company and the Shareholders as a whole, on normal commercial terms and fair and reasonable.

c. Provision of services

Under the Business Co-operation Framework Agreement, 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 Hisense Electric (and their relevant subsidiaries) for the provision of property management service, medical service, material processing services, installation and maintenance, management consultancy and agency services for import and export, leasing, design, equipment management, advertising and information system maintenance as they may require from time to time. The contracting parties have also agreed to enter into definitive contract(s) setting out specific terms including specifications of the products or services, quantity involved, pricing principles, quality standards and warranties, payment terms, terms of delivery, technological services and obligations of the parties upon default, but such terms shall be consistent with the principles and the terms of the Business Co-operation Framework Agreement.

The fees payable by the Group to the relevant subsidiaries of Hisense Group and Hisense Electric for the provision of the aforesaid services (other than agency services for export) will be determined principally by commercial negotiations according to the principle of fairness and reasonableness between the contracting parties with reference to the market price for the provision of similar services from time to time. The fees payable by the Group for the provision of the agency services for

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export is calculated by multiplying the Group’s turnover from overseas sales for the relevant products with an export agency fee percentage. Such export agency fee percentage is determined by commercial negotiations according to the principles of fairness and reasonableness between the parties mainly with reference to the level of the rate of the charges actually incurred by the Group for overseas sales in previous years.

The fees for the provision of the aforesaid services will be calculated on a monthly basis and such monthly fee should be made by telegraphic transfer or bills by the Company or its relevant subsidiaries (as the case may be) within the following month. The Business Co-operation Framework Agreement will not restrict the Group from engaging services providers other than the subsidiaries of Hisense Group or Hisense Electric, nor will it restrict the subsidiaries of Hisense Group or Hisense Electric from providing their services to any other third parties.

On the basis that (i) the terms of the definitive contract(s) 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; (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 respective subsidiaries of Hisense Group and Hisense Electric; and (iii) the Group has conducted similar transactions 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.

d. Supply of home electrical appliances

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 home electrical appliances as the respective subsidiaries of Hisense Group and Hisense Electric may require from time to time. The relevant contracting parties will enter into definitive contract(s) setting out specific terms including specifications of the products or services, quantity involved, pricing principles, quality standards and warranties, payment terms, terms of delivery, technological services and obligations in the event of default, but such terms shall be consistent with the principles and the terms of the Business Co-operation Framework Agreement.

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The pricing for the supply of home electrical appliances supplied by the Group to the respective subsidiaries of Hisense Group and Hisense Electric will be determined principally by commercial negotiations according to the principle of fairness and reasonableness between the contracting parties with reference to the market price of the similar home electrical appliances from time to time. Payment for the purchase of home electrical appliances should be made by telegraphic transfer or bills by the relevant subsidiaries of Hisense Group and Hisense Electric within 60 days from the receipt of the home electrical appliances.

The Business Co-operation Framework Agreement will not restrict the relevant subsidiaries of Hisense Group or Hisense Electric from purchasing home electrical appliances from suppliers other than the Group, nor will it restrict the Group from selling its home electrical appliances to any other third parties.

On the basis that (i) the sale and supply of home electrical appliances by the Group to the respective subsidiaries of Hisense Group and Hisense Electric will increase the revenue of the Group; (ii) such transactions will be able to utilise the Group’s resources so as to help to lower the production costs by lowering the fixed costs per unit of product as a result of the increase in production level, which in turn enhance the market competitiveness of the Group’s product and facilitate the Group to maintain normal business operations; and (iii) such transactions will be conducted in the ordinary and usual course of business of the Group and on terms according to the principle of fairness and reasonableness between the contracting parties with reference to the market price of the similar home electrical appliances from time to time, we are of the view that the terms of the Business Co-operation Framework Agreement with respect to the sale and supply of home electrical appliances by the Group to the respective subsidiaries of Hisense Group and Hisense Electric are in the interests of the Company and the Shareholders as a whole, on normal commercial terms and fair and reasonable.

e. Supply of moulds

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 moulds as the respective subsidiaries of Hisense Group and Hisense Electric may require from time to time. The relevant parties will enter into definitive contract(s) setting out specific terms including specifications of the products or services, quantity involved, pricing principles, quality standards and warranties, payment terms, terms of delivery, technological services and obligations in the event of default, but such terms shall be consistent with the principles and the terms of the Business Co-operation Framework Agreement.

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Pursuant to the Business Co-operation Framework Agreement and in response to the invitations to tender from Hisense Group, Hisense Electric and/or their respective subsidiaries (which are also extended to various independent third parties) from time to time, the Group may submit such tenders or bids to supply the moulds for such products requested by Hisense Group, Hisense Electric and/or their respective subsidiaries in its/ their invitation to tender. Pricing for the supply of moulds is determined by the open bidding process. Payment for the supply of moulds is determined according to the payment terms agreed between the parties as set out in the relevant contract(s) as agreed in the open bidding process.

The Business Co-operation Framework Agreement will not restrict the relevant subsidiaries of Hisense Group or Hisense Electric 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 respective subsidiaries of Hisense Group and Hisense Electric are in the interests of the Company and the Shareholders as a whole, on normal commercial terms and fair and reasonable.

f. Supply of raw materials, parts and components

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, parts and components as the respective subsidiaries of Hisense Group and Hisense Electric may require from time to time.

The relevant parties will enter into definitive contract(s) setting out specific terms including specifications of the products or services, quantity involved, pricing principles, quality standards and warranties, payment terms, terms of delivery, technological services and obligations of the parties upon default, but such terms shall be consistent with the principles and the terms of the Business Co-operation Framework Agreement. Pricing for the sale and supply of raw materials, parts and components is determined by commercial negotiations between the parties according to the principles of fairness and reasonableness. Payment for the purchase of raw materials, parts and components should be made by the relevant subsidiaries of Hisense Group and Hisense Electric within 60 days after the receipt of the raw materials, parts and components.

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The Business Co-operation Framework Agreement will not restrict the relevant subsidiaries of Hisense Group or Hisense Electric from purchasing raw materials, parts or components from suppliers other than the Group, nor will it restrict the Group from selling its raw materials, parts or components to any other third parties.

On the basis that (i) the sale and supply of raw materials, parts and components by the Group to the subsidiaries of Hisense Group or Hisense Electric will increase the revenue of the Group; (ii) the terms of the definitive contract(s) to be 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 (iii) the Group has conducted similar transactions 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 raw materials, parts and components to the subsidiaries of Hisense Group and Hisense Electric are in the interests of the Company and the Shareholders as a whole, on normal commercial terms and fair and reasonable.

g. Provision of services by the Group

Under the Business Co-operation Framework Agreement, the Company and/or its subsidiaries will provide property management services, design, loading and unloading services and equipment rental services to Hisense Group, Hisense Electric and/or their respective subsidiaries on a non-exclusive basis from time to time. The contracting parties have also agreed to enter into definitive contract(s) setting out specific terms including specifications of the products or services, quantity involved, pricing principles, quality standards and warranties, payment terms, terms of delivery, technological services and obligations of the parties upon default, but such terms shall be consistent with the principles and the terms of the Business Co-operation Framework Agreement.

The fees payable by Hisense Group, Hisense Electric and/or its subsidiaries for the aforesaid services is determined by commercial negotiations according to the principles of fairness and reasonableness between the parties with reference to the market price for the provision of similar services from time to time. The fees for the provision of the aforesaid services will be calculated on a monthly basis and such monthly fee should be made by telegraphic transfer or bills by Hisense Group, Hisense Electric and/or its subsidiaries (as the case may be) within the following month.

The Business Co-operation Framework Agreement will not restrict Hisense Group, Hisense Electric and/or its respective subsidiaries from engaging services providers other than the Group, nor will it restrict the Group from providing its services to any other third parties.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

On the basis that (i) the terms of the definitive contract(s) 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; (ii) the transactions, when taken place, will increase the revenue of the Group; and (iii) 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, 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.

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

1. The Compressors Purchase Framework Agreement, 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 Agreements during the year commencing from 1 January 2011 to 31 December 2011 will be subject to an annual cap for the financial year ending 31 December 2011 of the Company. The proposed maximum aggregate values, or “caps”, of the transactions contemplated under the Agreements for the year ending 31 December 2011 and the unaudited value of similar transactions between the relevant parties in 2010 are summarised below:

Increase/ (decrease) of the proposed caps as compared to Annualised value the estimated of the similar annualised value transactions of the similar between the transactions for relevant parties the year 2010 for the year based on their Proposed caps ending unaudited value for the year 31 December for the ten ending 31 2010 months ended December 2011 (note) 31 October 2010 (RMB) (RMB) (%) The Compressors Purchase Framework Agreement: Maximum aggregate value of purchase of compressors: 250,000,000 61,697,760 305.2%

The Compressors Purchase Framework Agreement:

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

				Increase/
				(decrease) of the
				proposed caps
				as compared to
		Annualised value		the estimated
		of the similar		annualised value
			transactions	of the similar
			between the	transactions for
		relevant parties		the year 2010
			for the year	based on their
	Proposed caps		ending	unaudited value
	for the year		31 December	for the ten
	ending 31		2010	months ended
	December 2011		(note)	31 October 2010
	(RMB)		(RMB)	(%)
The Compressors Purchase	and Supply Framework		Agreement:
Maximum aggregate
value of purchase of
compressors:	1,260,000,000		864,346,320	45.8%
The Business Co-operation	Framework Agreement:
Maximum aggregate value
of purchase of home
electrical appliances:	12,930,000		64,800	19,853.7%
Maximum aggregate value
of purchase of raw
materials, equipments,
parts and components:	89,550,000		130,289,280	(31.3)%
Maximum aggregate
value of the provision
of services by Hisense
Group and Hisense
Electric:	396,420,000		69,550,440	470.0%
Maximum aggregate value
of supply of home
electrical appliances:	1,783,850,000	1,022,880,960		74.4%
Maximum aggregate value
of supply of moulds:	275,000,000		133,510,440	106.0%
Maximum aggregate
value of supply of raw
materials, parts and
components:	208,930,000		26,183,520	697.9%
Maximum aggregate value
of the provision of
services by the Group:	3,920,000		616,080	536.3%

Note: Annualised value based on the unaudited transaction amount for the ten months ended 31 October 2010.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The basis for the proposed maximum value for each category of transactions contemplated under the Compressors Purchase Framework Agreement, 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 Framework Agreement:

Purchase of compressors (a) similar transactions between the Group with Beijing Embraco Snowflake Compressor and/ or its subsidiaries in the past; (b) the prevailing market conditions relating to the demand for electrical appliances in the PRC; and (c) the business development plan of the Company relating to the production and sales level of refrigerators and freezers in 2011.

The Compressors Purchase and Supply Framework Agreement:

Purchase of compressors (a) similar transactions between the Group and Huayi Compressor and/or its subsidiaries in the past; (b) the prevailing market conditions relating to the demand for home electrical appliances in the PRC; and (c) the business development plan of the Company relating to the production and sales level of refrigerators and freezers in 2011.

The Business Co-operation Framework Agreement:

Purchase of home electrical (a) the prevailing market conditions about the appliances demand for electrical appliances; (b) the Group’s plan to boost the sales of the Group’s home electrical appliances through marketing and promotion activities; and (c) the projected need of purchase cellular phones and television sets from Hisense Group, Hisense Electric and/or their respective subsidiaries for the year ending 31 December 2011 as gifts for the Group’s marketing and promotion activities which aimed at boosting the sales of the Group’s home electrical appliances such as refrigerators

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Category Basis for the proposed annual cap Purchase of raw materials, (a) similar transactions between the Group with equipments, parts and Hisense Group, Hisense Electric and/or their components respective subsidiaries in the past; and (b) the projected level of production and sales of electrical appliances of the relevant subsidiaries of the Company for the year ending 31 December 2011
Provision of services (a) similar transactions between the Group with Hisense Group, Hisense Electric and/or their respective subsidiaries in the past; and (b) the projected level of production and sales of electrical appliances of the relevant subsidiaries of the Company for the year ending 31 December 2011
Supply of home electrical (a) similar transactions between the Group appliances with Hisense Group, Hisense Electric and/or their respective subsidiaries in the past; (b) the prevailing market conditions about the demand for electrical appliances in the PRC; and (c) the projected level of production and sales of electrical appliances of the relevant subsidiaries of the Company for the year ending 31 December 2011
Supply of moulds (a) similar transactions between the Group with Hisense Group, Hisense Electric and/or their respective subsidiaries in the past; and (b) the prevailing market conditions relating to the demand for electrical appliances in the PRC
Supply of raw materials, (a) similar transactions between the Group with parts and components Hisense Group, Hisense Electric and/or their respective subsidiaries in the past; and (b) the prevailing market conditions relating to the demand for electrical appliances in the PRC
Provision of services by the (a) similar transactions between the Group Group with Hisense Group, Hisense Electric and/or their respective subsidiaries in the past; (b) the prevailing market conditions relating to the provision of such services

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In respect of the basis for the proposed annual caps under the Agreements as set out in the above table, we note that the majority of the annual caps have been arrived at on the basis of (i) similar transactions between the relevant parties in the past and (ii) the prevailing market conditions relating to the demand for electrical appliances in the PRC. As indicated from above, certain proposed annual caps such as those for the purchase of compressors, home electrical appliances, provision of services, supply of moulds, raw materials, parts and components, and the provision of services by the Group represent a significant increase over the unaudited value of the similar transactions conducted between the relevant parties for the ten-month period in 2010. For instance, the proposed annual cap of RMB250 million for the sale and supply of compressors for the year ending 31 December 2011 under the Compressors Purchase Framework Agreement represents an increase of approximately 305.2% over the estimated annualised value of such transactions for the year 2010 on the basis of their unaudited value of approximately RMB61.7 million for the ten months ended 31 October 2010.

We understand from the management of the Company that following the completion of the acquisition of certain interests in the Target Group (the “Acquisition”), the Company’s transactions with the Target Group will no longer constitute continuing connected transactions of the Company. Accordingly, the historical transaction value under the Agreements excluded those transactions carried out between the relevant subsidiaries of the Company and the Target Group, but included those transactions between the Target Group and Hisense Group and Hisense Electric from 1 January 2010 to the date of completion as if the Target Group was part of the Group. On the other hand, the proposed annual caps have taken into account those transactions that will be carried out between the relevant members of the Target Group and Beijing Embraco Snowflake Compressor, Huayi Compressor, Hisense Group and Hisense Electric for the year ending 31 December 2011.

As discussed with the management of the Company, as the Acquisition has resulted in the increase of the number of subsidiaries that will enter into transactions with the respective subsidiaries of Hisense Group and Hisense Electric, the transaction amount for all categories of transactions to be carried out under the Business Co-operation Framework Agreement are expected to increase. In addition, it should also be noted that after the transactions between members of the Target Group and Hisense Group, Hisense Electric and their respective subsidiaries constituted continuing connected transactions of the Company from 1 April 2010, the Target Group had to cease engaging in the relevant transactions with Beijing Embraco Snowflake Compressor, Huayi Compressor, Hisense Group, Hisense Electric and their respective subsidiaries because of such transactions being regarded as non-exempt continuing connected transactions. It was not until 4 June 2010 when the relevant independent shareholders’ approval had been obtained by the Company, the Target Group could resume the relevant transactions.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on our discussion with the management, we are of the view that the historical transaction value under the Agreements might not reflect the full picture as a result of the fact that there was a period of a few months during which members of the Target Group had suspended dealing in transactions with Beijing Embraco Snowflake Compressor, Huayi Compressor, Hisense Group, Hisense Electric or any of their respective subsidiaries. We noted that should the transactions between the Target Group and Hisense Group and Hisense Electric continue without interruption in 2010, the transaction amount for the year 2010 would be higher due to the transactions between the Target Group and Hisense Group and Hisense Electric. We have also reviewed the relevant worksheets prepared by the management of the Company and noted that each member of the Target Group has been included in the estimation of

the relevant annual caps for 2011.

As regards the proposed annual cap for the purchase of home electrical appliances which represents an increase of about 19,853.7% over the estimated annualised value of such transactions for 2010, it has been arrived at based on the Company’s estimate of the transaction value the Group would purchase (i) certain home electrical appliances such as mobile phones from members of Hisense Group and Hisense Electric as gifts for the Group’s marketing and promotion activities and (ii) certain models of air-conditioners and refrigerators for the purposes of the Group’s internal research and developments. Regarding the purchase of certain home electrical appliances as gifts for the Group’s marketing and promotion activities, we understand from the Company that the reception of such marketing and promotion activities in 2010 has been satisfactory and the Group intends to increase the amount of such marketing and promotion activities. It should be noted that such increase of about 19,853.7% over the estimated annualised value of the similar transactions for the year 2010 was in fact due to the insignificantly low base value of RMB54,000 for the ten months ended 31 October 2010 which represents only the purchase of home electrical appliances from members of Hisense Group and Hisense Electric as gifts for the Group’s marketing and promotion activities. Taking into account that (i) the Group’s marketing and promotion activities can enhance the sales and overall image of the Company and (ii) the purchase of certain models of air-conditioners and refrigerators from members of Hisense Group and Hisense Electric for the purposes of the Group’s internal research and developments is a new proposal not having conducted in 2010, we are of the view that the proposed annual cap for the purchase of home electrical appliances for the year ending 31 December 2011 is not excessive.

As regards the purchase of raw materials, equipments, parts and components, we understand from the Company that Hisense Group intends to perform more agency services for import and export for the Group. As a result, the Group will purchase more raw materials, equipments, parts and components directly from overseas suppliers and not through Hisense Group. Accordingly, the transaction amount with Hisense Group and Hisense Electric for 2011 is expected to be lower than the historical transaction amount for the ten months ended 31 October 2010. Taking into account that the Group will purchase

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

more raw materials, equipments, parts and components directly from overseas suppliers, we are of the view that the proposed annual cap for the purchase of raw materials, equipments, parts and components from Hisense Group and Hisense Electric is prepared on a fair and reasonable basis.

As regards the provision of services by the Group, we understand from the company that the Company mainly provided leasing and property management services to the relevant subsidiaries of Hisense Group and Hisense Electric in 2010. As the Group would provide additional design services to the relevant subsidiaries of Hisense Group and Hisense Electric for the year ending 31 December 2011, the transaction amount for 2011 is expected to increase significantly. We are of the view that the proposed annual cap’s significant increase over the estimated annualised value of the similar transactions for the year 2010 was mainly because of the low base value of RMB513,400 for the ten months ended 31 October 2010 which did not include any design services. In order to determine the fairness and reasonableness of the proposed annual 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 estimated transaction amount for each category of services. Based on (i) our discussion with the management of the Company about the underlying assumptions including the additional category of services; and (ii) the result of our review, we are satisfied that the proposed annual caps has been conducted on a fair and reasonable basis.

As regards the supply of moulds, as Hisense Group and Hisense Electric plans to develop more products in 2011 which will therefore require more moulds as components, Hisense Group and Hisense Electric intend to purchase more moulds from the Company. In order to determine the fairness and reasonableness of the proposed annual 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 estimated models to be developed and the unit price for the subject items. Based on (i) our discussion with the management of the Company about the underlying assumptions including the estimated models to be developed; and (ii) the result of our review, we are satisfied that the proposed annual caps has been conducted on a fair and reasonable basis.

As regards to the provision of services with respect to property management service, medical service, leasing, equipment management, advertising and information system maintenance, we understand that the proposed annual caps attributable to such services are largely stable compared to year 2010. As stated above, we understand that the Group has been very satisfied with the services provided by Hisense Group and Hisense Electric and will continue to engage them. Accordingly, we are of the view that the proposed annual caps in respect to property management service, medical service, leasing, equipment management, advertising and information system maintenance have been prepared on a fair and reasonable basis.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As regards the significant increase in the other proposed annual caps in relation to the sale and supply of home electrical appliances, raw materials, parts and components, purchase of compressors, raw materials, equipment, parts and components and provision of services (with respect to material processing services, installation and maintenance, management consultancy and design services only) for the year ending 31 December 2011, 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 home 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 2009（中國統計年鑑 2009） 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 30.2 refrigerators and 9.8 air-conditioners in 2008, whereas every 100 urban households in China owned approximately 93.6 refrigerators and 100.3 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 the Ministry of Commence of the PRC, there were approximately 7.8 million units or RMB18.3 billion worth of home appliances sold under the Subsidy Policy in November 2010, representing an increase of approximately 104% and 153% over November 2009, respectively. The sales of home appliances under the Subsidy Policy continued to increase. During the first half of 2010, the value of home appliances sold under the Subsidy Policy was approximately RMB67.8 billion, already exceeded the sales value under the Subsidy Policy for the full year in 2009. For the eleven months ended 30 November 2010, there were approximately 67.3 million units or RMB150.4 billion worth of home appliances sold under the Subsidy Policy, representing an increase of approximately 140% and 180%, respectively, over the same period in 2009.

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 economy of China turned to domestic consumption for growth. In particular, retail sales of consumer goods rose approximately 18.3% for the

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

ten months ended 31 October 2010 compared to the corresponding period in 2009 to approximately RMB12,531.3 billion. For the ten months ended 31 October 2010, the retail sales in cities reached RMB10,838.3 billion, up by approximately 18.7% as compared to the same period last year, and the retail sales at and below county level stood at RMB1,693.1 billion, representing an increase of approximately 15.9% on a year-on-year basis.

With (i) an expected stable economic growth in the future; (ii) rising household income and spending power and improving living standard; and (iii) the PRC government’s policy of raising rural household’s living condition through the Subsidy Policy, China represents a huge consumer market with enormous potential. Accordingly, we are generally of the view that the demand for home electrical appliances in China market is promising.

It should be noted that the Agreements will not restrict the relevant subsidiaries of Beijing Embraco Snowflake Compressor, Huayi Compressor, Hisense Group or Hisense Electric 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 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 annual 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 (i) our discussion with the management of the Company about the underlying assumptions; (ii) the result of our review; and (iii) the increase in home appliances sold under the Subsidy Policy in 2010 compared to 2009 as stated above, we are satisfied that the proposed annual caps has been conducted on a fair and reasonable basis and consider the proposed annual caps for the subject items are not excessive or unreasonable.

While the proposed annual caps under the Business Co-operation Framework Agreement for the year ending 2011 in certain cases represent a significant increase over the historical unaudited value of the similar transactions between the relevant parties in 2010, it should be noted that (i) the proposed transactions contemplated under the Agreements will continue to be conducted in the ordinary and usual course of business of the Company and on normal commercial terms; (ii) it is generally in the interest of the Company to maximise the value of the sales transactions contemplated under the Agreements so as to increase the Company’s revenue; and (iii) the nonexclusive arrangement under the Agreements provides the Company with the flexibility without any commitment on the actual transaction values. Accordingly, we are of the view that the entering into of the Agreements is in the interests of the Company and the Shareholders as a whole and the proposed annual caps under the Agreements have been arrived at on a fair and reasonable basis.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

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 the financial year ending 31 December 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 independent nonexecutive 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 home electrical appliances is one of the principal businesses of the Group and compressors are essential components of home electrical appliances such as refrigerators and freezers. Huayi Compressor and Beijing Embraco Snowflake Compressor are major producers of compressors in the PRC and have the relevant experience and expertise in the manufacture of compressors. It is therefore in the commercial interest of the Company to enter into the Compressors Purchase Framework Agreement and Compressors Purchase and Supply Framework Agreement with Beijing Embraco Snowflake Compressor and Huayi Compressors, respectively;
(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 and Hisense Electric are 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 of the definitive contract(s) to be 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

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

course of business of the Company and on normal commercial terms. In addition, all the transactions contemplated under the Agreements are to be conducted on a nonexclusive basis, so the Agreements will not restrict the Company from engaging in the similar transactions with other parties; and

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

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

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accepts full responsibility, includes particulars given in compliance with the Hong Kong Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquires, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement contained herein or this circular misleading.

2. DISCLOSURE OF INTERESTS

Directors, supervisors and chief executive of the Company

As at the Latest Practicable Date:

(a) 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 Hong Kong Listing Rules;
(b) none of the Directors, proposed Directors or supervisors of the Company had any interest, direct or indirect, in any asset which have been, since 31 December 2009, being the date to which the latest published audited financial statements of the Group were made up, acquired or disposed of by or leased to any member of the Group or are proposed to be acquired or disposed of by or leased to any member of the Group;
(c) 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 subsisting as at the Latest Practicable Date and which was significant in relation to the business of the Group; and
(d) Mr. Tang Ye Guo, Mr. Zhou Xiao Tian, Ms. Yu Shu Min, Mr. Lin Lan, being Directors, are also directors or senior management of Hisense Group or some of its subsidiaries. Ms. Yu Shu Min and Mr. Lin Lan, being Directors, are also directors of Hisense Electric. Ms. Liu Chun Xin, being Director, has interest in the shares of a subsidiary of Hisense Group. Mr. Xiao Jian Lin, being a proposed Director, is also a director and senior management of Hisense Group and a director of Hisense Electric.

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GENERAL INFORMATION

APPENDIX

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 Group 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 Hong Kong Listing Rules:

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

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

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GENERAL INFORMATION

APPENDIX

5. NO MATERIAL ADVERSE CHANGE

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

6. EXPERT

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 Limited 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

As at the Latest Practicable Date, the Independent Financial Adviser:

(a) did 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;
(b) did not have any interest, direct or indirect, in any assets which have been, since 31 December 2009, the date to which the latest published audited financial statements of the Company were made up, 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; and
(c) has given and has not withdrawn its written consent to the issue of this circular with the inclusion of and references to its name, letter and/or report in the form and context in which they are included.

The letter of advice given by the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders 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 3101-05, Singga Commercial Centre, No. 148 Connaught Road West, Hong Kong during normal business hours from the date of this circular up to and including 20 January 2011:

(a) the letter from the Independent Financial Adviser dated 31 December 2010;
(b) the Compressors Purchase Framework Agreement;

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GENERAL INFORMATION

APPENDIX

(c) the Compressors Purchase and Supply Framework Agreement ;
(d) the Business Co-operation Framework Agreement;
(e) the Business Framework Agreement;
(f) resolutions passed at the fifteenth board meeting of the year 2010 of the seventh session of the Board;
(g) the prior approval and independent opinion of the independent non-executive Directors dated 3 December 2010 in relation to the connected transactions;
(h) the Existing Compressors Purchase Framework Agreement;
(i) the Existing Compressors Purchase and Supply Framework Agreement;
(j) the Existing Business Co-operation Framework Agreement.

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AI assistant

Medlive Technology Co., Ltd. — Proxy Solicitation & Information Statement 2010

50436_rns_2010-12-31_c33419db-6153-4684-909d-cf1f04afa7fd.pdf

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)

(1) PROPOSED APPOINTMENT OF DIRECTORS AND ADjUSTMENT OF EMOLUMENT OF AN INDEPENDENT NON-EXECUTIVE DIRECTOR (2) CONTINUING CONNECTED TRANSACTIONS (3) BUSINESS FRAMEWORK AGREEMENT WITH QINGDAO HISENSE HITACHI AIR-CONDITIONING SYSTEMS CO., LTD.

CONTENTS

DEFINITIONS

DEFINITIONS

“EGM”

DEFINITIONS

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

(1) PROPOSED APPOINTMENT OF DIRECTORS AND ADjUSTMENT OF EMOLUMENT OF AN INDEPENDENT NON-EXECUTIVE DIRECTOR (2) CONTINUING CONNECTED TRANSACTIONS (3) BUSINESS FRAMEWORK AGREEMENT WITH QINGDAO HISENSE HITACHI AIR-CONDITIONING SYSTEMS CO., LTD.

BACKGROUND

I. PROPOSED APPOINTMENT OF DIRECTORS AND ADjUSMENT OF EMOLUMENT OF AN INDEPENDENT NON-EXECUTIVE DIRECTOR

Proposed Appointment of Directors

Adjusment of Emolument of An Independent Non-Executive Director

II. CONTINUING CONNECTED TRANSACTIONS

(A) Compressors Purchase Framework Agreement

Condition:

Subject matter — Purchase of compressors:

Pricing:

Payment term:

Historical figures:

Proposed Annual Cap:

Reasons for and benefits of the Compressors Purchase Framework Agreement:

(B) Compressors Purchase And Supply Framework Agreement

Condition:

Subject matter — Purchase of compressors:

Pricing:

Payment term:

Historical figures:

Proposed Annual Cap:

(C) Business Co-Operation Framework Agreement

Term:

Condition:

Subject matters:

(1) Purchase of home electrical appliances

Pricing:

Payment term:

Historical figures:

Proposed Annual Cap:

Reasons for and benefits of the purchase of home electrical appliances from Hisense Group, Hisense Electric and/or their respective subsidiaries:

(2) Purchase of raw materials, equipments, parts and components

Pricing:

Payment term:

Historical figures:

Proposed Annual Cap:

Reasons for and benefits of the purchase of raw materials, equipments, parts and components from Hisense Group, Hisense Electric and/or their respective subsidiaries:

(3) Provision of services

Pricing:

Payment term:

Historical figures:

Proposed Annual Cap:

(4) Supply of home electrical appliances

Pricing:

Payment term:

Historical figures:

Proposed Annual Cap:

Reasons for and benefits of the supply of home electrical appliances to Hisense Group, Hisense Electric and/or their respective subsidiaries:

(5) Supply of moulds

Pricing:

Payment term:

Historical figures:

Proposed Annual Cap:

Reasons for and benefits of the supply of moulds to Hisense Group, Hisense Electric and/or their respective subsidiaries:

(6) Supply of raw materials, parts and components

Pricing:

Payment term:

Historical figures:

Proposed Annual Cap:

Reasons for and benefits of the supply of raw materials, parts and components to Hisense Group, Hisense Electric and/or their respective subsidiaries:

(7) Provision of services by the Group

Pricing:

Payment term:

Historical figures:

Proposed Annual Cap:

Reasons for and benefits of the provision of services to Hisense Group, Hisense Electric and/or their respective subsidiaries:

Information Relating to the Company, Beijing Embraco Snowflake Compressor, Beijing Snowflake Group, Hisense Group, Hisense Electric, Huayi Compressor

Implications Under the Hong Kong Listing Rules

(A) Compressors Purchase Framework Agreement

Medlive Technology Co., Ltd. Proxy Solicitation & Information Statement 2010