Medlive Technology Co., Ltd. - Proxy Solicitation & Information Statement 2013

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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(s) or transferee(s) or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser(s) or the transferee(s).

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

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

(1) CONTINUING CONNECTED TRANSACTIONS (2) BUSINESS FRAMEWORK AGREEMENTS WITH QINGDAO HISENSE HITACHI AIR-CONDITIONING SYSTEMS CO., LTD. AND HISENSE WHIRLPOOL (ZHEJIANG) ELECTRIC APPLIANCES CO., LTD.

(3) PROPOSED APPOINTMENT OF SUPERVISORS

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 7 to 50 of this circular. A letter from the Independent Board Committee is set out on page 51 of this circular. A letter from Investec containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 52 to 98 of this circular.

A notice of the EGM to be held on 10 January 2014 at 2:30 p.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 21 November 2013 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 Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, not less than 24 hours before the time fixed for holding the EGM or any adjournment thereof (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.

18 December 2013

	Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
LETTER FROM THE INDEPENDENT BOARD COMMITTEE. . . . . . . . . . . . .	51
LETTER FROM INVESTEC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	52
APPENDIX – GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	99

— 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;

“associates”

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

“Board” or “Director(s)”

the board of directors of the Company;

“Business Co-operation Framework Agreement”

the Business Co-operation Framework Agreement （業務合作框架協議） entered into between the Company, Hisense Electric and Hisense Group dated 21 November 2013 in relation to the sale and purchase of home electrical appliances, raw materials, equipment, parts and components, supply of moulds, and the provision of various services;

“Caps”

the annual caps for the transactions contemplated under the Business Co-operation Framework Agreement for the year ending 31 December 2014, being (i) RMB1,110,000 in respect of the purchase of home electrical appliances by the Group from Hisense Group, Hisense Electric and their respective subsidiaries under the Business Cooperation Framework Agreement; (ii) RMB4,000,000 in respect of the purchase of equipment by the Group from Hisense Group and its subsidiaries under the Business Co-operation Framework Agreement; (iii) RMB67,980,000 in respect of the purchase of raw materials, parts and components by the Group from Hisense Group, Hisense Electric and their respective subsidiaries under the Business Co-operation Framework Agreement; (iv) RMB130,120,000 in respect of the provision of services by Hisense Group, Hisense Electric and their respective subsidiaries to the Group under the Business Co-operation Framework Agreement; (v) RMB366,830,000 in respect of the provision of agency services for export of white goods by Hisense Group and its subsidiaries to the Group under the Business Cooperation Framework Agreement; (vi) RMB3,039,800,000 in respect of the supply of home electrical appliances by the Group to Hisense Group, Hisense Electric and their respective subsidiaries under the Business Co-operation Framework Agreement; (vii) RMB8,560,000 in respect

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DEFINITIONS

of the supply of equipment by the Group to Hisense Group and its subsidiaries under the Business Cooperation Framework Agreement; (viii) RMB349,680,000 in respect of the supply of moulds by the Group to Hisense Group, Hisense Electric and their respective subsidiaries under the Business Co-operation Framework Agreement; (ix) RMB29,050,000 in respect of the supply of raw materials, parts and components by the Group to Hisense Group, Hisense Electric and their respective subsidiaries under the Business Co-operation Framework Agreement; (x) RMB6,870,000 in respect of the provision of services by the Group to Hisense Group and its subsidiaries under the Business Co-operation Framework Agreement; and the annual caps for the transactions contemplated under the Financial Services Agreement during the term of the Financial Services Agreement, being (a) RMB800,000,000 in respect of the maximum daily balance of the deposits placed by the Group with Hisense Finance under the Financial Services Agreement; (b) RMB2.2 billion in respect of the maximum balance of loan and electronic bank acceptance bills provided by Hisense Finance for the Group under the Financial Services Agreement; (c) RMB50,000,000 in respect of the annual discount interest payable by the Group to Hisense Finance for the provision of draft discount services under the Financial Services Agreement; and (d) US$500,000,000 in respect of the annual amount settled or sold by Hisense Finance for the Group under the Financial Services Agreement and (e) RMB5,000,000 in respect of the maximum annual amount of service fees payable by the Group to Hisense Finance for the provision of agency services such as settlement services for receipt and payment of funds under the Financial Services Agreement;

“CBRC”

“Company”

“connected person”

中國銀行業監管管理委員會 (China Banking Regulatory Commission);

Hisense Kelon Electrical Holdings Company Limited, a company incorporated in the PRC with limited liability, whose shares are listed on the main board of the Stock Exchange and the Shenzhen Stock Exchange;

has the meaning ascribed to it in the Hong Kong Listing Rules;

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DEFINITIONS

“EGM”

the first 2014 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 10 January 2014 at 2:30 p.m. for, among other things, the approval of the Business Co-operation Framework Agreement, the Financial Services Agreement, the Hitachi Business Framework Agreement, the Whirlpool Business Framework Agreement and the transactions contemplated thereunder and the annual caps in relation thereto and the proposed appointment of supervisors;

“Existing Business Co-operation Framework Agreement”
the framework agreement （業務合作框架協議） entered into between the Company, Hisense Electric and Hisense Group dated 6 December 2012 in relation to the sale and purchase of home electrical appliances, raw materials, equipment, parts and components, supply of moulds, and the provision of various services for the period up to 31 December 2013;
“Existing Export Agency Framework Agreement”

the Export Agency for White Goods Framework Agreement （白電產品出口代理框架協議） entered into between the Company and Hisense Marketing dated 6 December 2012 in connection with the provision by Hisense Marketing and/or its subsidiaries of agency services for export for the white goods products of the Group;

“Existing Financial Services Agreement”
the agreement （金融服務協議） entered into between the Company and Hisense Finance dated 29 November 2011 in connection with the provision of financial services by Hisense Finance to the Group;
“Existing Supplemental Financial Services Agreement”
the supplemental agreement （金融服務協議之補充協議） entered into between the Company and Hisense Finance dated 6 December 2012 supplemental to the Existing Financial Services Agreement;
“Financial Services Agreement” the agreement （金融服務協議） entered into between the Company and Hisense Finance dated 21 November 2013 in connection with the provision of financial services by Hisense Finance to the Group;
“Group”

the Company and its subsidiaries;

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DEFINITIONS

“H Shares”	overseas listed foreign shares of the Company with a
	nominal value of RMB1.00 each and are listed on the
	Stock Exchange;
“Hisense Air-conditioning”	Qingdao Hisense Air-conditioning Company Limited（青
	島海信空調有限公司）, a company incorporated in the
	PRC with limited liability and a subsidiary of Hisense
	Group;
“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 Finance”	Hisense Finance Co., Ltd.（海信集團財務有限公司）, a
	company incorporated in the PRC with limited liability
	and a subsidiary of Hisense Group;
“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;
“Hisense HK”	Hisense (Hong Kong) Company Limited, a company
	incorporated in Hong Kong with limited liability and a
	subsidiary of Hisense Group;
“Hisense Marketing”	青島海信國際營銷股份有限公司(Qingdao Hisense
	International Marketing Holdings Co., Ltd.), a company
	incorporated in the PRC with limited liability and a
	subsidiary of Hisense Group;
“Hisense Whirlpool”	Hisense Whirlpool (Zhejiang) Electric Appliances Co.,
	Ltd.（海信惠而浦（浙江）電器有限公司）, a company
	incorporated in the PRC with limited liability;
“Hitachi Business	the business framework agreement 1（業務框架協議一）
Framework Agreement”	entered into between the Company and Hisense Hitachi
	dated 21 November 2013 in relation to the sale of home
	electrical appliances, sale and purchase of raw materials,
	parts and components and supply of moulds;
“Hong Kong”	the Hong Kong Special Administrative Region of the
	People’s Republic of China;

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DEFINITIONS

“Hong Kong Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange;
“Independent Board Committee” an independent board committee of the Company comprising all the independent non-executive Directors, namely Mr. Xu Xiang Yi, Mr. Wang Xin Yu and Mr. Wang Ai Guo;
“Independent Financial Adviser” Investec Capital Asia Limited, a corporation licensed to or “Investec” conduct 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 and the independent financial adviser appointed to advise the Independent Board Committee and the Independent Shareholders in respect of the Business Co-operation Framework Agreement and the Financial Services Agreement and the transactions contemplated thereunder and the Caps in relation thereto;
“Independent Shareholders” (i) in respect of the Business Co-operation Framework Agreement, Shareholders other than Hisense Group, Hisense Electric and their respective associates and other Shareholders which are required to abstain from voting in relation to the Business Co-operation Framework Agreement under the Shenzhen Listing Rules, and (ii) in respect of the Financial Services Agreement, Shareholders other than Hisense Finance and its associates;
“Latest Practicable Date” 16 December 2013, 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;

— 5 —

DEFINITIONS

“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;
“VAT” value-added tax; “Whirlpool Business Framework the business framework agreement 2 （業務框架協議二） Agreement” entered into between the Company and Hisense Whirlpool dated 21 November 2013 in relation to the sale and purchase of home electrical appliances, raw materials, equipment, parts and components, supply of moulds and provision of services;
“white goods” the general term by which white-coloured household electrical appliances are commonly known which include, but not limited to, air-conditioners, refrigerators, freezers, washing machines and other small household electrical appliances;
“HK$” Hong Kong dollars, the lawful currency of Hong Kong; “RMB” Renminbi, the lawful currency of the PRC; “US$” United States dollars, the lawful currency of the United States of America;
“%” per cent.

— 6 —

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. Ren Li Ren

Ms. Yu Shu Min

Mr. Lin Lan

Mr. Xiao Jian Lin Mr. Gan Yong He

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

Independent non-executive Directors:

Mr. Xu Xiang Yi

Mr. Wang Xin Yu

Mr. Wang Ai Guo

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

18 December 2013

To the Shareholders

Dear Sir or Madam,

(1) CONTINUING CONNECTED TRANSACTIONS

(2) BUSINESS FRAMEWORK AGREEMENTS WITH QINGDAO HISENSE HITACHI AIR-CONDITIONING SYSTEMS CO., LTD. AND HISENSE WHIRLPOOL (ZHEJIANG) ELECTRIC APPLIANCES CO., LTD.

(3) PROPOSED APPOINTMENT OF SUPERVISORS

BACKGROUND

Reference is made to:

(a) the announcement and circular of the Company dated 29 November 2011 and 28 December 2011 respectively in relation to, inter alia, the Existing Financial Services Agreement;
(b) the announcement of the Company dated 6 December 2012 in relation to the Existing Supplemental Financial Services Agreement;

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LETTER FROM THE BOARD

(c) the announcement of the Company dated 6 December 2012 in relation to, inter alia, the Existing Business Co-operation Framework Agreement and the Existing Export Agency Framework Agreement; and
(d) the circular of the Company dated 4 January 2013 in relation to, inter alia, the Existing Business Co-operation Framework Agreement and the Existing Export Agency Framework Agreement.

As disclosed in the announcement of the Company dated 21 November 2013, the Existing Business Co-operation Framework Agreement, the Existing Export Agency Framework Agreement, the Existing Financial Services Agreement and the Existing Supplemental Financial Services Agreement will expire on 31 December 2013 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 and to modify the scope of the transactions between certain parties, on 21 November 2013, the following agreements were entered into by the Company:

(a) the Business Co-operation Framework Agreement; and
(b) the Financial Services Agreement.

In addition, on 21 November 2013, the Company has also entered into the Hitachi Business Framework Agreement and the Whirlpool Business Framework Agreement with Hisense Hitachi and Hisense Whirlpool respectively. The transactions contemplated under the Hitachi Business Framework Agreement and the Whirlpool 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 further information on the Business Co-operation Framework Agreement, the Financial Services Agreement and the Caps in relation thereto;
(b) provide you with further information on the Hitachi Business Framework Agreement and the Whirlpool Business Framework Agreement and the annual caps in relation thereto;
(c) set out the letter of advice from the Independent Financial Adviser to the Independent Board Committee and Independent Shareholders in relation to the Business Co-operation Framework Agreement and the Financial Services Agreement;
(d) set out the recommendation from the Independent Board Committee in relation to the Business Co-operation Framework Agreement and the Financial Services Agreement; and
(e) provide you with information regarding the ordinary resolutions in relation to the election of shareholder representative supervisors to be proposed at the EGM.

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LETTER FROM THE BOARD

I. CONTINUING CONNECTED TRANSACTIONS

(A) BUSINESS CO-OPERATION FRAMEWORK AGREEMENT

Date: 21 November 2013 Parties: The Company; Hisense Group; and Hisense Electric

Term:

The Business Co-operation Framework Agreement shall commence from 1 January 2014 or the date of approval of the Business Co-operation Framework Agreement by the Independent Shareholders at the EGM (whichever is the later) until 31 December 2014, which can be terminated before its expiration by mutual agreement of the parties.

In the event of any exemption for connected transactions being withdrawn or revoked or becoming invalid and there is 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.

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 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,

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LETTER FROM THE BOARD

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.

Payment term(s) for the transactions contemplated under the Business Co-operation Framework Agreement (other than fees for provision of agency services for export of the white goods products of the Group) shall be in accordance with the payment term(s) as stipulated in the definitive contract(s) to be signed by the relevant parties thereto. As provided in the Business Co-operation Framework Agreement, the fees for the provision of the agency services for export of the white goods products of the Group will be calculated on a monthly basis and the relevant members of the Group should pay the monthly fee for the preceding month by way of telegraphic transfer or bills.

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:

As the Business Co-operation Framework Agreement is a framework agreement, it only sets out the principles in determining the pricing of the transactions relating to the purchase of home electrical appliances by the Group from Hisense Group, Hisense Electric and/or their respective subsidiaries contemplated thereunder (being that the pricing for the purchase of home electrical appliances is determined by commercial negotiation between the parties according to the principles of fairness and reasonableness). When the contracting parties enter into such transactions contemplated under the Business Co-operation Framework Agreement, the parties will enter into definitive contract(s) setting out specific terms including the prices/ considerations for the relevant home electrical appliances to be procured.

During the commercial negotiation of the aforesaid definitive contract(s) between the parties, the Company will make reference to the then prevailing market price for the relevant home electrical appliances to be procured from Hisense Group, Hisense Electric and/or their respective subsidiaries, whereby the eventual price will not be less favourable to the Group than terms available from independent third parties. As such, the Company is of the view that the pricing of the aforesaid transactions will be on normal commercial terms and fair and reasonable and not prejudicial to the interests of the Company and its minority shareholders.

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LETTER FROM THE BOARD

Historical figures:

The annual cap allocated to the purchase of home electrical appliances by the Group from Hisense Group, Hisense Electric and/or their respective subsidiaries for the financial year ending 31 December 2013 as specified in the Existing Business Co-operation Framework Agreement is RMB2,100,000 (exclusive of VAT). For the nine months ended 30 September 2013, the aggregate transaction amount for the purchase of home electrical appliances by the Group from Hisense Group, Hisense Electric and/or their respective subsidiaries amounted to approximately RMB10,000 (exclusive of VAT and unaudited) (of which RMB0 was for the purchases from Hisense Group and/ or its subsidiaries, whereas RMB10,000 was for the purchases from Hisense Electric and/or its subsidiaries).

Proposed 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 ending 31 December 2014 are subject to the Cap of RMB1,110,000 (exclusive of VAT), of which:

(i) RMB600,000 will be allocated to the purchase of home electrical appliances from Hisense Group and/or its subsidiaries; and
(ii) RMB510,000 will be allocated to the purchase of home electrical appliances from Hisense Electric and/or its subsidiaries.

The above 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 to purchase television sets from Hisense Group, Hisense Electric and/or their respective subsidiaries for the year ending 31 December 2014 as gifts for the Group’s marketing and promotion activities which aim at boosting the sales of the Group’s home electrical appliances such as refrigerators. Purchase of certain home electrical appliances as gifts for the Group’s marketing and promotion activities were not executed in 2013 as other alternative gifts were used for the Group’s marketing and promotion which resulted in the low transactions value for the purchase of home appliances from Hisense Group, Hisense Electric and/or their respective subsidiaries for the nine months ended 30 September 2013. Following the launch of some innovative products by Hisense Electric, the Company has decided to use such products as gift for the Group’s marketing and promotion in 2014 due to its small size and light weight, and therefore the transactions in relation to purchase of home electrical appliances from Hisense Group, Hisense Electric and/or their respective subsidiaries is expected to increase in 2014.

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LETTER FROM THE BOARD

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 television sets from Hisense Group, Hisense Electric and/or their respective subsidiaries as gifts for the Group’s marketing and promotion activities which aim 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 and its subsidiaries for the purpose of conducting analysis and research so as to develop the Group’s market research functions. Since 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.

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 Framework Agreement and the Cap in relation thereto are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

(2) Purchase of equipment

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

Pricing:

As the Business Co-operation Framework Agreement is a framework agreement, it only sets out the principles in determining the pricing of the transactions relating to the purchase of equipment by the Group from Hisense Group and/or its subsidiaries contemplated thereunder (being that the pricing for the purchase of equipment is determined by commercial negotiation between the parties according to the principles of fairness and reasonableness). When the contracting parties enter into such transactions contemplated under the Business Co-operation Framework Agreement, the parties will enter into definitive contract(s) setting out specific terms including the prices/ considerations for the relevant equipment to be procured.

During the commercial negotiation of the aforesaid definitive contract(s) between the parties, the Company will make reference to the then prevailing market price for the relevant equipment to be procured from Hisense Group and/or its subsidiaries, whereby the eventual price will not be less favourable to the Group than terms available from independent third parties. As such, the Company is of the view that the pricing of the aforesaid transactions will be on normal commercial terms and fair and reasonable and not prejudicial to the interests of the Company and its minority shareholders.

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LETTER FROM THE BOARD

Historical figures:

The annual cap allocated to the purchase of equipment by the Group from Hisense Group and/or its subsidiaries for the financial year ending 31 December 2013 as specified in the Existing Business Co-operation Framework Agreement is RMB8,550,000 (exclusive of VAT). For the nine months ended 30 September 2013, the aggregate transaction amount for the purchase of equipment by the Group from Hisense Group and/or its subsidiaries amounted to approximately RMB30,000 (exclusive of VAT and unaudited).

Proposed Cap:

The transactions contemplated under the Business Co-operation Framework Agreement regarding the purchase of equipment by the Group from Hisense Group and/or its subsidiaries for the financial year ending 31 December 2014 are subject to the Cap of RMB4,000,000 (exclusive of VAT).

The above Cap was determined with reference to the projected level of production and sales of electrical appliances of the relevant subsidiaries of the Company for the year ending 31 December 2014. Due to the delay in overseas expansion of the Group in 2013, the relevant transactions value for the purchase of equipment by the Group from Hisense Group and/or its subsidiaries for the nine months ended 30 September 2013 was lower than expected. As (i) the Group has the need for production line technology of higher productivity and automation level in its ordinary business course; (ii) Hisense Group and/or its subsidiaries have a professional team of required expertise and provide very competitive price for relevant equipment that can reduce purchase costs of the Group; and (iii) the Group is satisfied with the quality of the equipment provided by Hisense Group and/or its subsidiaries from their previous course of dealings, the Group intends to purchase more imported equipment from Hisense Group and/or its subsidiaries in 2014 to improve the Group’s current production line technology and to continue moving towards high-end products.

Reasons for and benefits of the purchase of equipment from Hisense Group and/or its subsidiaries:

Certain subsidiaries of Hisense Group are principally engaged in the import and export business. As such, Hisense Group has broad channels for import of equipment and is in an advantageous position to obtain products with better quality and pricing by placing bulk purchase orders. For these reasons, the purchase of equipment by the Group from Hisense Group and/or its subsidiaries will reduce purchase costs. At the same time, the Company is satisfied with the quality of the equipment provided by Hisense Group and/or

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LETTER FROM THE BOARD

its subsidiaries from their previous course of dealings. Besides, it is the trend of the Group’s business and production to move towards high-end products and it is expected that equipment will be purchased and imported from overseas to improve the Group’s current production line technology.

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

(3) Purchase of raw materials, 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, parts and components as they may require from time to time.

Pricing:

As the Business Co-operation Framework Agreement is a framework agreement, it only sets out the principles in determining the pricing of the transactions relating to the purchase of raw materials, parts and components by the Group from Hisense Group, Hisense Electric and/or their respective subsidiaries contemplated thereunder (being that the pricing for the purchase of raw materials, parts and components is determined by commercial negotiation between the parties according to the principles of fairness and reasonableness). When the contracting parties enter into such transactions contemplated under the Business Cooperation Framework Agreement, the parties will enter into definitive contract(s) setting out specific terms including the prices/ considerations for the relevant raw materials, parts and components to be procured.

During the commercial negotiation of the aforesaid definitive contract(s) between the parties, the Company will make reference to the then prevailing market price for the relevant raw materials, parts and components to be procured from Hisense Group, Hisense Electric and/or their respective subsidiaries, whereby the eventual price will not be less favourable to the Group than terms available from independent third parties. As such, the Company is of the view that the pricing of the aforesaid transactions will be on normal commercial terms and fair and reasonable and not prejudicial to the interests of the Company and its minority shareholders.

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LETTER FROM THE BOARD

Historical figures:

The annual cap allocated to the purchase of raw materials, parts and components by the Group from Hisense Group, Hisense Electric and/or their respective subsidiaries for the financial year ending 31 December 2013 as specified in the Existing Business Co-operation Framework Agreement is RMB53,830,000 (exclusive of VAT). For the nine months ended 30 September 2013, the aggregate transaction amount for the purchase of raw materials, parts and components by the Group from Hisense Group, Hisense Electric and/ or their respective subsidiaries amounted to approximately RMB31,550,000 (exclusive of VAT and unaudited) (of which RMB14,310,000 was for the purchases from Hisense Group and/or its subsidiaries, whereas RMB17,240,000 was for the purchases from Hisense Electric and/or its subsidiaries).

Proposed Cap:

The transactions contemplated under the Business Co-operation Framework Agreement regarding the purchase of raw materials, parts and components by the Group from Hisense Group, Hisense Electric and/or their respective subsidiaries for the financial year ending 31 December 2014 are subject to the Cap of RMB67,980,000 (exclusive of VAT), of which:

(i) RMB18,010,000 will be allocated to the purchase of raw materials, parts and components from Hisense Group and/or its subsidiaries; and
(ii) RMB49,970,000 will be allocated to the purchase of raw materials, parts and components from Hisense Electric and/or its subsidiaries.

The above 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 2014. The order for some of components by the Group were small due to the fact that Hisense Group, Hisense Electric and their subsidiaries could not fully deliver the orders during the nine months ended 30 September 2013 and the Group expects delivery improvement of the guaranteed orders in 2014 by Hisense Group, Hisense Electric and their subsidiaries to an amount which represents approximately 2/5 of the respective proposed cap in 2014. In 2014 the Group plans to engage Hisense Group, Hisense Electric and/or their respective subsidiaries in the designated manufacturing for a type of the raw materials (which was on a pilot manufacturing scheme in 2013) and the transaction value is expected to multiply by 15 times from 2013 to an amount which represents approximately 30% of the respective proposed cap in 2014. Furthermore, the Group plans to purchase more raw materials, parts and components including some new parts and components directly from Hisense Electric in 2014.

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LETTER FROM THE BOARD

Reasons for and benefits of the purchase of raw materials, 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 by the Group from Hisense Group, Hisense Electric and/or their respective subsidiaries will reduce purchase costs, and at the same time, 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 raw materials, parts and components provided by Hisense Group, Hisense Electric and/or their respective subsidiaries from their previous course of dealings. Quality of the Group’s products is enhanced by importing certain raw materials overseas, which in turn boosts the sales of high-end products and increases product and brand competitiveness.

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, parts and components from Hisense Group, Hisense Electric and/or their respective subsidiaries under the Business Co-operation Framework Agreement and the Cap in relation thereto are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

(4) Provision of services

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

Pricing:

As the Business Co-operation Framework Agreement is a framework agreement, it only sets out the principles in determining the fee payable by the Group for the provision of services by Hisense Group, Hisense Electric and/ or their respective subsidiaries contemplated thereunder (being that the fees payable by the Group for the provision of the aforesaid services is determined by commercial negotiation between the parties according to the principles

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of fairness and reasonableness). When the contracting parties enter into such transactions contemplated under the Business Cooperation Framework Agreement, the parties will enter into definitive contract(s) setting out specific terms including the fees for the relevant services to be procured.

During the commercial negotiation of the aforesaid definitive contract(s) between the parties, the Company will make reference to the then prevailing market price and market practice for determining the fees for the services to be procured from Hisense Group, Hisense Electric and/or their respective subsidiaries, whereby the eventual price will not be less favourable to the Group than terms available from independent third parties. As such, the Company is of the view that the pricing of the aforesaid transactions will be on normal commercial terms and fair and reasonable and not prejudicial to the interests of the Company and its minority shareholders.

Historical figures:

The annual cap allocated to the provision of services by Hisense Group, Hisense Electric and/or their respective subsidiaries to the Group for the financial year ending 31 December 2013 as specified in the Existing Business Co-operation Framework Agreement is RMB124,840,000. For the nine months ended 30 September 2013, the aggregate transaction amount for the provision of services contemplated under the Business Co-operation Framework Agreement by Hisense Group, Hisense Electric and/or their respective subsidiaries to the Group amounted to approximately RMB54,990,000 (unaudited) (of which RMB50,830,000 was for the provision of relevant services by Hisense Group and/or its subsidiaries, whereas RMB4,160,000 was for the provision of relevant services by Hisense Electric and/or its subsidiaries).

Proposed 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 ending 31 December 2014 are subject to the Cap of RMB130,120,000, of which:

(i) RMB118,590,000 will be allocated to the provision of material processing, installation and maintenance, property, medical, leasing, design, inspection, agency services for import and export, property construction, management consultancy, technical support and information system maintenance services by Hisense Group and/or its subsidiaries; and
(ii) RMB11,530,000 will be allocated to the provision of property and design services by Hisense Electric and/or its subsidiaries.

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The above 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 2014. As the Group shall engage Hisense Group and its subsidiaries to provide the chip processing as a new service and the housing rental service to additional subsidiaries of the Group in 2014 and the transactions amount for provision of services by Hisense Group, Hisense Electric and/or their respective subsidiaries for 2014 is expected to increase accordingly. The amount of annual cap for the service fees for the year ending 31 December 2014 was approximately increased by 25% when compared to the historical transaction amount for the existing services for the nine months ended 30 September 2013. The provided unaudited value of the transactions for provision of services by Hisense Group, Hisense Electric and/or their respective subsidiaries for the nine months ended 30 September 2013 did not include all the amount attributed to the respective transactions during the period as a number of services fees were yet to be cleared and settled.

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 respective subsidiaries from their previous course of dealings and considers that Hisense Group, Hisense Electric and/ or their respective subsidiaries possess the expertise and experience for the provision of relevant services which can enable the Group to carry out its daily operation smoothly. Certain subsidiaries of Hisense Group are outstanding companies in the property development industry in Qingdao and the quality of property construction for the Group can be assured as a result of the professional quality which they can deliver.

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 Framework Agreement and the Cap in relation thereto are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

(5) Provision of agency services for export of the white goods

Pursuant to the terms of the Business Co-operation Framework Agreement, the Company and/or its subsidiaries will engage Hisense Group and/or its subsidiaries on a non-exclusive basis for the provision of agency services for export of white goods products of the Group (which include without limitation, refrigerators, air-conditioners, freezers, washing machines, small household electrical appliances and their related parts and spare parts which are to be assembled).

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The agency services for export of the white goods products of the Group to be provided by Hisense Group and/or its subsidiaries will mainly include the following:

(i) Hisense Group and/or its subsidiaries shall be responsible for expanding the customer base of the Group in the international market, and shall conduct business negotiation with third party customers in the name of the Company and/or its subsidiaries and accept orders for the goods after obtaining the latter’s consent. Contracts for such orders shall be entered into between the Company and/or its subsidiaries and the customers directly.
(ii) Hisense Group and/or its subsidiaries shall provide information in relation to the delivery requirements of the customers to the Group which shall arrange for production. Any amendments proposed by Hisense Group and/or its subsidiaries in relation to the orders for the goods shall be subject to the Group’s consent. In case the Group needs to adjust the date of delivery for reasons such as production capacity, Hisense Group and/or its subsidiaries shall negotiate and confirm with the customers on behalf of the Group.
(iii) The products to be supplied by the Group shall be delivered timely and in accordance with the specifications as per the purchase orders confirmed by the customers. There should not be any deficiencies in the design, raw materials and workmanship, and the quality and packaging shall meet the mandatory standards and requirements in the country of end use of the products. The Group shall provide technological services and warranties according to the agreement with the customers depending on the types of products involved.

Pricing:

The fees payable by the Group for the provision of the agency services for export for the white goods of the Group is calculated by multiplying the Group’s revenue from export of the relevant type of products (which shall be the final amount of revenue for sales by the Group to third party customers in RMB) with an export agency fee percentage. Taking into consideration the audited rate of the charges actually incurred by Hisense Marketing and/or its subsidiaries for providing agency services for export to the Group for the period from March 2011 to June 2012, the rate of the charges actually incurred during the first half of 2012 (being 7.24%) shall be used as the base percentage and the corresponding profit margin for export agency services payable by the Group to Hisense Group and/or its subsidiaries shall be determined according to the growth rate of the revenue from export subject to the export agency

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services in 2014, pursuant to which the export agency fee percentage during the term of the Business Co-operation Framework Agreement shall also be determined as provided in the table below:

	Corresponding
	profit margin	Corresponding
Growth rate of the revenue from export	for export	export agency
subject to the export agency services	agency services	fee percentage
Below 0%	0%	7.24%
0-5% (inclusive of 5%)	0.5%	7.74%
5-10% (inclusive of 10%)	0.8%	8.04%
10-15% (inclusive of 15%)	1%	8.24%
Above 15%	1.1%	8.34%

Note: Growth rate of the revenue from export subject to the export agency services = (the Group’s audited revenue from export subject to the export agency services in 2014 — the Group’s audited revenue from export subject to the export agency services in 2012)/the Group’s audited revenue from export subject to the export agency services in 2012.

In the course of provision of agency services for export for the white goods for the Group by Hisense Group and/or its subsidiaries, the Group will engage audit firm to conduct audit once every two years on the rate of the charges actually incurred by Hisense Group and/or its subsidiaries for providing agency services for export to the Group. If the difference between the latest audited rate of the charges actually incurred by Hisense Group and/or its subsidiaries for providing agency services for export to the Group and 7.24% does not exceed 1%, the export agency fee percentage shall remain the same as that agreed in the Business Co-operation Framework Agreement. However, if such difference exceeds 1%, then the parties shall further negotiate the export agency fee percentage based on the then circumstances.

Furthermore, pursuant to the Business Co-operation Framework Agreement, the charges which may be imposed at the port of inspection in relation to the export of products and the fees for repair and spare parts shall be borne and paid by the Group, and Hisense Group and/or its subsidiaries shall bear and pay other export-related charges.

The Group shall however bear the following costs/expenses in any of the following circumstances:

(i) in the event that any liquidated damages, damages, compensation and other compensation costs are claimed by customers due to the failure of the Group to deliver relevant products in time (including without limitation, inability to deliver relevant products, delay in delivering relevant products and deficiency in the quality of the products), Hisense Group and/or its subsidiaries shall negotiate with the customers on the settlement proposal for and on behalf of the Group. The Group shall be responsible if the proposal is agreed to by the Group; and

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(ii) for reasons such as the Group’s need to expand its business, the Group may propose, and Hisense Group and/or its subsidiaries will communicate with the customers on, certain support to be provided to the customers in relation to the expenses for the promotion of sales, etc. The Group shall be responsible for those expenses which have been agreed to by the Group.

Historical figures:

The annual cap allocated to the provision by Hisense Marketing and/or its subsidiaries of agency services for export of white goods products of the Group for the financial year ending 31 December 2013 as specified in the Existing Export Agency Framework Agreement is RMB280,000,000. For the nine months ended 30 September 2013, the aggregate transaction amount for the provision by Hisense Marketing and/or its subsidiaries of agency services for export of the white goods products of the Group amounted to approximately RMB157,090,000 (unaudited).

Proposed Cap:

The transactions contemplated under the Business Co-operation Framework Agreement regarding the provision of agency services for export of the white goods products of the Group by Hisense Group and/or its subsidiaries to the Group for the financial year ending 31 December 2014 are subject to the Cap of RMB366,830,000.

The above Cap was determined with reference to (a) similar transactions between the Group with Hisense Marketing and/or its subsidiaries in the past; and (b) the prevailing market conditions relating to the provision of such services. The Company expects an approximately 30% growth rate of the revenue from export subject to the export agency services for 2014 as compared to 2013 in light of the change in the relevant business model shifting more export sales through agency channel and the Company’s organic growth target of the export sales. Therefore, the corresponding export agency fee percentage for 2014 is expected to increase as compared to 2013.

Reasons for and benefits of the engagement of services of Hisense Group and/or its subsidiaries:

Hisense Marketing, a subsidiary of Hisense Group, has over 10 years’ experience in overseas operations, professional expertise and mature market network and channels in overseas market. By engaging the export agency services of Hisense Group and/or its subsidiaries which will provide professional management services to the Group for its development of the international market, the Group can largely reduce costs which would have to be committed for running the operation by itself, and use the available

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resources on the research and development and the quality warranties for the products to be exported, which will be beneficial to the Group in enhancing the stable development of its export business.

As the setting up of overseas market channels, the solicitation of and maintenance of relationship with customers and the overseas professional personnel are managed by Hisense Group and/or its subsidiaries under the export agency services, the Group is, to a certain extent, dependent on Hisense Group and/or its subsidiaries in respect of its export business. However, the expansion in the scale of revenue from export subject to the export agency services can bring about increase in the amount of gross profit and sharing of the Company’s fixed costs and expenses as a whole which enables the Company to improve its earning capacity.

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

(6) 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:

As the Business Co-operation Framework Agreement is a framework agreement, it only sets out the principles in determining the pricing of the transactions relating to the supply of home electrical appliances by the Group to Hisense Group, Hisense Electric and/or their respective subsidiaries contemplated thereunder (being that the pricing for the supply of home electrical appliances is determined by commercial negotiation between the parties according to the principles of fairness and reasonableness). When the contracting parties enter into such transactions contemplated under the Business Co-operation Framework Agreement, the parties will enter into definitive contract(s) setting out specific terms including the prices/ considerations for the relevant home electrical appliances to be supplied.

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available to independent third parties. As such, the Company is of the view that the pricing of the aforesaid transactions will be on normal commercial terms and fair and reasonable and not prejudicial to the interests of the Company and its minority shareholders.

Historical figures:

The annual cap allocated to the supply of home electrical appliances by the Group to Hisense Group, Hisense Electric and/or their respective subsidiaries for the financial year ending 31 December 2013 as specified in the Existing Business Co-operation Framework Agreement is RMB2,888,970,000 (exclusive of VAT). For the nine months ended 30 September 2013, the aggregate transaction amount for the supply of home electrical appliances by the Group to Hisense Group, Hisense Electric and/or their respective subsidiaries amounted to approximately RMB2,276,340,000 (exclusive of VAT and unaudited) (of which RMB2,276,300,000 was for the supply to Hisense Group and/or its subsidiaries, whereas RMB40,000 was for the supply to Hisense Electric and/or its subsidiaries).

Proposed 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 for the financial year ending 31 December 2014 are subject to the Cap of RMB3,039,800,000 (exclusive of VAT), of which:

(i) RMB3,038,950,000 will be allocated to the supply of home electrical appliances by the Group to Hisense Group and/or its subsidiaries; and
(ii) RMB850,000 will be allocated to the supply of home electrical appliances by the Group to Hisense Electric and/or its subsidiaries.

The above 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 2014.

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

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 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 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 Framework Agreement and the Cap in relation thereto are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

(7) Supply of equipment

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

Pricing:

As the Business Co-operation Framework Agreement is a framework agreement, it only sets out the principles in determining the pricing of the transactions relating to the supply of equipment by the Group to Hisense Group and/or its subsidiaries contemplated thereunder (being that the pricing for the supply of equipment is determined by commercial negotiation between the parties according to the principles of fairness and reasonableness). When the contracting parties enter into such transactions contemplated under the Business Co-operation Framework Agreement, the parties will enter into definitive contract(s) setting out specific terms including the prices/ considerations for the relevant equipment to be supplied.

During the commercial negotiation of the aforesaid definitive contract(s) between the parties, the Company will make reference to the then prevailing market price for the relevant equipment to be supplied by the Group to Hisense Group and/or its subsidiaries, whereby the eventual price will not be less favourable to the Group than terms available to independent third parties. As such, the Company is of the view that the pricing of the aforesaid transactions will be on normal commercial terms and fair and reasonable and not prejudicial to the interests of the Company and its minority shareholders.

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Historical figures:

The annual cap allocated to the supply of equipment by the Group to Hisense Group and/or its subsidiaries for the financial year ending 31 December 2013 as specified in the Existing Business Co-operation Framework Agreement is RMB8,550,000 (exclusive of VAT). For the nine months ended 30 September 2013, the aggregate transaction amount for the supply of equipment by the Group to Hisense Group and/or its subsidiaries amounted to approximately RMB3,850,000 (exclusive of VAT and unaudited).

Proposed Cap:

The transactions contemplated under the Business Co-operation Framework Agreement regarding the supply of equipment by the Group to Hisense Group and/or its subsidiaries for the financial year ending 31 December 2014 are subject to the Cap of RMB8,560,000 (exclusive of VAT).

The above Cap was determined with reference to (a) the prevailing market conditions about the demand for electrical appliances in the PRC; (b) the projected level of production and sales of electrical appliances of the relevant subsidiaries of the Company for the year ending 31 December 2014 and (c) estimation about the demand for home electrical appliances in the overseas market. As the equipment were sold in the overseas markets and the unaudited value of the respective transactions for supply of equipment by the Group recorded for the nine months ended 30 September 2013 did not reflect the full amount sold due to delayed clearance and settlement.

Reasons for and benefits of the supply of equipment to Hisense Group and/or its subsidiaries:

The supply of equipment by the Group to Hisense Group and/or its subsidiaries will increase the Company’s revenue and satisfy the production needs of Hisense Group and/or its subsidiaries. At the same time, through the export channels of Hisense Group and/or its subsidiaries, sales to overseas markets will be enhanced to satisfy the demands therein.

In light of the above, the Directors (including the independent non-executive Directors) are of the view that the terms of the supply of equipment to Hisense Group and/or its subsidiaries under the Business Co-operation Framework Agreement and the 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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(8) 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. The Group will determine the bidding price to be tendered with reference to the production cost of the relevant moulds and the level of gross profit margin which the Group adopts for the same (or similar) type of moulds. As such, the Company is of the view that the pricing of the aforesaid transactions will be on normal commercial terms and fair and reasonable and not prejudicial to the interests of the Company and its minority shareholders.

Historical figures:

The annual cap allocated to the supply of moulds by the Group to Hisense Group, Hisense Electric and/or their respective subsidiaries for the financial year ending 31 December 2013 as specified in the Existing Business Cooperation Framework Agreement is RMB358,550,000 (exclusive of VAT). For the nine months ended 30 September 2013, the aggregate transaction amount for the supply of moulds by the Group to Hisense Group, Hisense Electric and/ or their respective subsidiaries amounted to approximately RMB172,860,000 (exclusive of VAT and unaudited) (of which RMB115,440,000 was for the supply to Hisense Group and/or its subsidiaries, whereas RMB57,420,000 was for the supply to Hisense Electric and/or its subsidiaries).

Proposed 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 for the financial year ending 31 December 2014 are subject to the Cap of RMB349,680,000 (exclusive of VAT), of which:

(i) RMB255,660,000 will be allocated to the supply of moulds to Hisense Group and/or its subsidiaries; and

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(ii) RMB94,020,000 will be allocated to the supply of moulds to Hisense Electric and/or its subsidiaries.

The above 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 prevailing market conditions relating to the demand for electrical appliances in the PRC. The existing production of one of the subsidiaries of the Group could not meet the order target leading to lower realization of the transaction value for the supply of moulds by the Group for the nine months ended 30 September 2013 and the Group has set up action task force to tackle the problem and increase the production to meet the order target for 2014. Hence, the Group expects to supply more moulds to Hisense Group, Hisense Electric and/or their respective subsidiaries in 2014.

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 Framework Agreement and the Cap in relation thereto are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

(9) 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.

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Pricing:

As the Business Co-operation Framework Agreement is a framework agreement, it only sets out the principles in determining the pricing of the transactions relating to the supply of raw materials, parts and components by the Group to Hisense Group, Hisense Electric and/or their respective subsidiaries contemplated thereunder (being that the 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). When the contracting parties enter into such transactions contemplated under the Business Cooperation Framework Agreement, the parties will enter into definitive contract(s) setting out specific terms including the prices/ considerations for the relevant raw materials, parts and components to be supplied.

During the commercial negotiation of the aforesaid definitive contract(s) between the parties, the Company will make reference to the then prevailing market price for the relevant raw materials, parts and components to be supplied by the Group to Hisense Group, Hisense Electric and/or their respective subsidiaries, whereby the eventual price will not be less favourable to the Group than terms available to independent third parties. As such, the Company is of the view that the pricing of the aforesaid transactions will be on normal commercial terms and fair and reasonable and not prejudicial to the interests of the Company and its minority shareholders.

Historical figures:

The annual cap allocated to the supply of raw materials, parts and components by the Group to Hisense Group, Hisense Electric and/or their respective subsidiaries for the financial year ending 31 December 2013 as specified in the Existing Business Co-operation Framework Agreement is RMB26,350,000 (exclusive of VAT). For the nine months ended 30 September 2013, the aggregate transaction amount for the supply of raw materials, parts and components by the Group to Hisense Group, Hisense Electric and/or their respective subsidiaries amounted to approximately RMB9,590,000 (exclusive of VAT and unaudited) (of which RMB5,580,000 was for the supply to Hisense Group and/or its subsidiaries, whereas RMB4,010,000 was for the supply to Hisense Electric and/or its subsidiaries).

Proposed 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 their respective subsidiaries for the financial year ending 31 December 2014 are subject to the Cap of RMB29,050,000 (exclusive of VAT), of which:

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(i) RMB16,250,000 will be allocated to the supply of raw materials, parts and components to Hisense Group and/or its subsidiaries; and
(ii) RMB12,800,000 will be allocated to the supply of raw materials, parts and components to Hisense Electric and/or its subsidiaries.

The above 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 prevailing market conditions relating to the demand for electrical appliances in the PRC. The Group expects an increase in supply of raw materials, parts and components to Hisense Group, Hisense Electric and their respective subsidiaries in 2014 as there will be additional subsidiaries of Hisense Group and Hisense Electric which would require supply of raw materials, parts and components from the Group for the year ending 31 December 2014.

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 Framework Agreement and the Cap in relation thereto are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

(10) 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 loading and unloading, design, equipment rental and property services to Hisense Group and/or its subsidiaries on a non-exclusive basis from time to time.

Pricing:

As the Business Co-operation Framework Agreement is a framework agreement, it only sets out the principles in determining the fee payable by Hisense Group and/or its subsidiaries for the provision of services by the Group contemplated thereunder (being that the fees payable by Hisense Group and/or its subsidiaries for the provision of the aforesaid services is determined

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by commercial negotiation between the parties according to the principles of fairness and reasonableness). When the contracting parties enter into such transactions contemplated under the Business Cooperation Framework Agreement, the parties will enter into definitive contract(s) setting out specific terms including the fees for the relevant services to be procured.

During the commercial negotiation of the aforesaid definitive contract(s) between the parties, the Company will make reference to the then prevailing market price and market practice for determining the fees for the services to be provided to Hisense Group and/or its subsidiaries, whereby the eventual price will not be less favourable to the Group than terms available to independent third parties. As such, the Company is of the view that the pricing of the aforesaid transactions will be on normal commercial terms and fair and reasonable and not prejudicial to the interests of the Company and its minority shareholders.

Historical figures:

The annual cap allocated to the provision of services by the Group to Hisense Group and/or its subsidiaries for the financial year ending 31 December 2013 as specified in the Existing Business Co-operation Framework Agreement is RMB6,900,000. For the nine months ended 30 September 2013, the aggregate transaction amount for the provision of services contemplated under the Business Co-operation Framework Agreement by the Group to Hisense Group and/or its subsidiaries amounted to approximately RMB1,680,000 (unaudited).

Proposed Cap:

The transactions contemplated under the Business Co-operation Framework Agreement regarding the provision of loading and unloading, design, equipment rental and property services by the Group to Hisense Group and/or its subsidiaries for the financial year ending 31 December 2014 are subject to the Cap of RMB6,870,000.

The above Cap was determined with reference to (a) similar transactions between the Group with Hisense Group and/or its subsidiaries in the past; and (b) the prevailing market conditions relating to the provision of such services. A substantial amount in relation to the design services to be provided by Group which was previously expected did not occur in 2013. Due to the continued increase of rental price in the PRC and it is expected that additional subsidiaries of Hisense Group would require the Group to provide property management services for the year ending 31 December 2014, the Group expects that the value of the services to be provided by the Group to Hisense Group and/or its subsidiaries would eventually increase in 2014.

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LETTER FROM THE BOARD

Reasons for and benefits of the provision of services to Hisense Group and/or its subsidiaries:

The provision of design, loading and unloading services, equipment rental services and property services to Hisense Group and/or its 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 and/or its subsidiaries under the Business Co-operation Framework Agreement and the Cap in relation thereto are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

(B) FINANCIAL SERVICES AGREEMENT

Date: 21 November 2013

Parties: The Company; and Hisense Finance

Term:

The term of the Financial Services Agreement shall commence from the date of approval of the Financial Services Agreement by the Independent Shareholders until 31 December 2015, which can be terminated by either party if the other party is in default and such default is not remedied within a reasonable period.

Condition:

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

Subject matters:

Pursuant to the terms of the Financial Services Agreement, the Group will engage Hisense Finance to provide a range of financial services within its scope of business, including without limitation, deposit services, loan services, draft discount services （票據貼現服務） and other businesses which may be carried on by Hisense Finance as approved by the regulatory authorities. Particulars of the services to be provided by Hisense Finance to the Group are as follows:

(i) deposit services;
(ii) loan and electronic bank acceptance bill （電子銀行承兌匯票） services;

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LETTER FROM THE BOARD

(iii) draft discount services （票據貼現服務）;
(iv) settlement and sale of foreign exchange services （結售匯服務）; and
(v) agency services such as settlement services for receipt and payment of funds （資金收支結算等代理類服務）.

For the draft discount services which will be provided to the Group by Hisense Finance, the Group is entitled to present bank drafts to Hisense Finance for payment before the maturity date of the bank drafts. In return, Hisense Finance will charge discount interest （貼現利息） from the Group for “cashing” the bank drafts. After the Group has discounted the bank drafts with Hisense Finance, such bank drafts will belong to the latter which will have the right to present such bank drafts to the issuing banks for payment on their respective maturity dates.

The implementation of the provision of particular services contemplated under the Financial Services Agreement shall be subject to the definitive contract(s) to be entered into between the relevant parties within the scope of the Financial Services Agreement.

The Group may obtain financial services contemplated under the Financial Services Agreement from other financial institutions in addition to Hisense Finance, as it sees fit.

Pricing:

Deposit service

The interest rate payable for the Group’s deposits with Hisense Finance shall not be lower than the rate payable by normal commercial banks in the PRC for comparable deposits.

Loan and electronic bank acceptance bill service

The interest rate charged for the loans provided to the Group by Hisense Finance shall not be higher than the rate charged by normal commercial banks in the PRC for comparable loans.

The service fees charged for the provision of electronic bank acceptance bill services by Hisense Finance for the Group shall not be higher than the standard service fees charged by normal commercial banks in the PRC for comparable services.

Hisense Finance may require the Group to provide guarantee or security or pledge in respect of the loan services and the electronic bank acceptance bill services rendered, depending on the then circumstances and business needs.

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LETTER FROM THE BOARD

Draft discount service

The discount rate for the provision of draft discount services by Hisense Finance to the Group shall be determined on the basis of the rediscount rate （再貼現利率） quoted by The People’s Bank of China and with reference to market level and shall not be higher than the discount rate charged by normal commercial banks in the PRC providing such services to the Group.

Settlement and sale of foreign exchange

The level of services (including the level of exchange rates) for the settlement and sale of foreign exchange at Hisense Finance shall not be worse than the level of services (including the level of exchange rates) of normal commercial banks in the PRC providing such services to the Group.

Agency services such as settlement services for receipt and payment of funds

Hisense Finance will provide agency services such as settlement services for receipt and payment of funds to the Group in accordance with its instructions. The charging standard for service fees chargable for the provision of agency services such as settlements services for receipt and payment of funds by Hisense Finance for the Group shall not be higher than the charging standard for service fees for such services of normal commercial banks or similar agencies in the PRC during the corresponding period.

The basis for the pricing for the aforesaid services shall be the benchmark interest rate for deposits and loans （存貸款基準利率） and the rediscount rate （再貼現利率） prescribed by The People’s Bank of China, and the market level of the market interest rates of discounted bill （票據貼現市場利率）, the service fee for establishing electronic bank acceptance bill （開立電子銀行承兌匯票手續費） and the service fee for settlement for receipt and payment of funds （資金收支結算手續費） and agency services.

The transactions contemplated under the Financial Services 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.

Proposed Caps and Historical figures:

Deposit service

The maximum daily balance of the deposits which can be placed by the Group with Hisense Finance during the term of the Existing Financial Services Agreement is RMB350,000,000 (inclusive of interest). For the periods commencing from 16 January 2012 to 31 December 2012 and from 1 January 2013 to 30 September 2013, the maximum daily balance of the deposits placed by the Group with Hisense Finance amounted to approximately RMB328,234,064 and RMB347,026,565 respectively.

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LETTER FROM THE BOARD

The Company currently expects that the maximum daily closing balance of the deposits placed by the Group with Hisense Finance at any time during the term of the Financial Services Agreement shall not exceed the Cap of RMB800,000,000 (inclusive of interest) on any given day.

The above Cap was determined with reference to (i) the historical cashflow figures of the Group; and (ii) the expected financial needs of cash of the Group taking into account the business development plans on areas relating to research and development, investment, sales and supply of the Group. The Company expects that as a result of the business development plans on areas relating to research and development, investment, sales and supply of the Group, the Company shall utilise more deposit services in the coming years to take advantage of the more expedient and efficient service provision by Hisense Finance. As the Group may frequently utilise the loan services to be provided by Hisense Finance if the relevant terms are more favourable than those available from other financial institutions and the proposed loans to be provided by Hisense Finance to the Group under the Financial Services Agreement will first be transferred by Hisense Finance to the Group in its deposit account with Hisense Finance for withdrawal, the Company also expects to utilise frequently the deposit services to be provided by Hisense Finance.

Loan and electronic bank acceptance bill service

The maximum balance of loan and electronic bank acceptance bills which can be provided by Hisense Finance to the Group during the term of the Existing Financial Services Agreement is RMB1.5 billion (inclusive of interest and service fees). For the periods commencing from 16 January 2012 to 31 December 2012 and from 1 January 2013 to 30 September 2013, the maximum daily balance of the loans and electronic bank acceptance bills provided by Hisense Finance to the Group amounted to approximately RMB1,162,751,328 and RMB1,498,101,246 respectively.

The Company currently expects that the maximum balance of loan and electronic bank acceptance bills provided by Hisense Finance for the Group during the term of the Financial Services Agreement shall not exceed the Cap of RMB2.2 billion (inclusive of interest and service fees).

The above Cap was determined with reference to (i) the historical cashflow figures of the Group; (ii) the expected financial needs of the Group taking into account the business development plans on areas relating to research and development, investment, sales and supply of the Group; and (iii) the plan of the Group to obtain more loans from Hisense Finance instead of from other financial institutions for the years ending 31 December 2015 since the terms for the provision of the loans by Hisense Finance to the Group shall be no less favourable than those of other normal commercial banks and financial institutions and Hisense Finance has better knowledge about the background and financial status of the Company which will facilitate the loan application process by the Company. The historical figures for the provision of loan and electronic bank acceptance bill service provided by Hisense

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LETTER FROM THE BOARD

Finance was relatively low as the Group has not taken any loan from Hisense Finance in 2013 and the maximum daily balance of approximately RMB1,498 million recorded in the nine months ended 30 September 2013 was solely attributed to electronic bank acceptance bills. Taking into consideration the PRC credit market has become more tightened since 2013 and it is becoming difficult to borrow money from the PRC commercial banks and the terms for provision of the loans by Hisense Finance will be not less favourable to the Group than terms available from other normal commercial banks and financial institutions, the Company may utilise the loan services to be provided by Hisense Finance more frequently in the coming years.

Draft discount service

Under the Existing Financial Services Agreement, the annual discount interest payable by the Group to Hisense Finance for the provision of draft discount services shall not exceed RMB50,000,000 during the term of the Existing Financial Services Agreement. For the periods commencing from 16 January 2012 to 31 December 2012 and from 1 January 2013 to 30 September 2013, the total discount interest paid by the Group to Hisense Finance for the provision of draft discount services amounted to approximately RMB4,822,489 and RMB225,518 respectively.

The Company currently expects that the annual discount interest payable by the Group to Hisense Finance for the provision of draft discount services during the term of the Financial Services Agreement shall not exceed the Cap of RMB50,000,000.

The above Cap was determined with reference to (i) the expected financial needs of the Group taking into account the business development plans on areas relating to research and development, investment, sales and supply of the Group; and (ii) the plan of the Group to use more draft discount services to be provided by Hisense Finance instead of from other financial institutions for the years ending 31 December 2015 since the terms for the provision of the draft discount services by Hisense Finance to the Group shall be no less favourable than those of other normal commercial banks and financial institutions and Hisense Finance has better knowledge about the background and financial status of the Company which will facilitate the draft discount application process by the Company. The discount interest rates (thus the costs to the Group) were higher than previous years and the Group has minimised the transactions in relation to draft discount services with all financial institutions in 2013. The Company is of the view that the future discount interest rates in PRC are difficult to predict, leading to uncertainty for the transactions in relation to draft discount services utilised by the Group. In addition, with the expectation of increase of export sales by the Group, the Company shall utilise more draft discount services in the coming years to take advantage of the more expedient and efficient service provision by Hisense Finance.

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LETTER FROM THE BOARD

Settlement and sale of foreign exchange

Under the Existing Financial Services Agreement, the annual amount settled or sold by Hisense Finance for the Group shall not exceed US$50,000,000 during the term of the Existing Financial Services Agreement. For the periods commencing from 16 January 2012 to 31 December 2012 and from 1 January 2013 to 30 September 2013, the amount settled or sold by Hisense Finance for the Group amounted to approximately US$0 and US$26,046,587.

The Company currently expects that the annual amount settled or sold by Hisense Finance for the Group shall not exceed the Cap of US$500,000,000. The above Cap was determined with reference to the expected volume of export and the expected amount subject to settlement and sale of foreign exchange for the years ending 31 December 2015. No transactions for settlement and sale of foreign exchange services were carried out in 2012 as the Group has only engaged Hisense Finance for the provision of such services for trial purposes in 2013. The Group is satisfied with the quality of services provided by Hisense Finance and the relevant financial expenses have reduced notably since using such services provided by Hisense Finance. Hence, the Company plans to increase the usage of settlement and sale of foreign exchange services provided by Hisense Finance and shall utilise more settlement and foreign exchange services in the coming years to take advantage of the more expedient and efficient service provision by Hisense Finance.

Agency services such as settlement services for receipt and payment of funds

There has not been any historical transaction for the provision of agency services such as settlement services for receipt and payment of funds （資金收支結算等代理類服務） by Hisense Finance to the Group.

The Company currently expects that annual amount of the service fees payable by the Group to Hisense Finance for the provision of agency services such as settlement services for receipt and payment of funds （資金收支結算等代理類服務） during the term of the Financial Services Agreement shall not exceed the Cap of RMB5,000,000.

The above Cap was determined with reference to the historical expenses for agency services such as settlement services for receipt and payment of funds of the Group, taking into account the corresponding increase in agency services such as settlement services for receipt and payment of funds resulting from the increment in the scale of the Group’s revenue and the charging standard for service fees chargable for the provision of agency services such as settlements services for receipt and payment of funds by Hisense Finance for the Group which shall not be higher than the charging standard for service fees for such services of normal commercial banks or similar agencies in the PRC.

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LETTER FROM THE BOARD

Reasons for and benefits of the Financial Services Agreement:

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

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

In light of the above, the Directors (including the independent non-executive Directors) are of the view that the terms of the Financial Services Agreement and the Caps 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, HISENSE ELECTRIC, HISENSE GROUP AND HISENSE FINANCE

The Company is principally engaged in the manufacture and sales of refrigerators and airconditioners.

Hisense Electric was established on 17 April 1997 and has a registered capital of RMB1,306,645,222. 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.

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

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LETTER FROM THE BOARD

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 and property management.

Hisense Finance is a non-bank financial institution which establishment was approved by the CBRC and is regulated by the CBRC and other regulatory authorities in the PRC. Hisense Finance was established in the PRC on 12 June 2008 with a registered capital of RMB500 million. Hisense Finance is owned as to 51% by Hisense Group, 9% by 青島海信移動通信技術股份有限公司 (Hisense Mobile Communications Technology Co., Ltd.), 20% by Hisense Electric and 20% by 青島海信電子產業控股股份有限公司 (Qingdao Hisense Electronic (Holdings) Company Limited). Hisense Finance is not a banking company as defined in Rule 14A.10 of the Hong Kong Listing Rules.

The business scope of Hisense Finance include: the provision of financial services including financial consultation, credit appraisal and other relevant advice and agency services to member companies, provision of assistance in receiving transaction proceeds to member companies, provision of approved insurance agency services, provision of guarantees for member companies, entrusted loans and entrusted investment services among member companies, draft acceptance and discount services to member companies, planning of settlement scheme, deposit services to member companies, loan and finance leasing and intra-group transfer and settlement services to member companies, underwriting corporate bonds for member companies, securities investment other than investment in secondary markets for stocks and provision of consumer credit and buyer credit for products of member companies.

IMPLICATIONS UNDER THE HONG KONG LISTING RULES

(A) Business Co-operation Framework Agreement

As at the Latest Practicable Date, (i) 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 and (ii) Hisense HK holds 3.99% of the issued shares of the Company. As Hisense Group is the indirect holding company of Hisense Air-conditioning and Hisense HK and Hisense Electric is owned as to 40.43% by Hisense Group, Hisense Group, Hisense Electric and their respective subsidiaries are 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 and the transactions contemplated thereunder and the 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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LETTER FROM THE BOARD

In view of the interests of Hisense Group and Hisense Electric in the Business Cooperation Framework Agreement, Hisense Group and Hisense Electric and their respective associates will abstain from voting in relation to the resolution(s) to approve the Business Co-operation Framework Agreement and the transactions contemplated thereunder and the relevant Caps at the EGM. As such, Hisense Airconditioning, which held 612,316,909 Shares (representing approximately 45.22% of the issued share capital of the Company) and Hisense HK, which held 54,000,000 Shares (representing approximately 3.99% of the issued share capital of the Company) as at the Latest Practicable Date, will abstain from voting in relation to the relevant resolution(s) at the EGM.

(B) Financial Services Agreement

As the applicable percentage ratios for the Caps in relation to the transactions for the provision of deposit, loan and electronic bank acceptance bill, draft discount, settlement and sale of foreign exchange services and agency services such as settlement services for receipt and payment of funds by Hisense Finance to the Group contemplated under the Financial Services Agreement exceed 5%, the Financial Services Agreement, the transactions contemplated thereunder and the 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.

In view of the interests of Hisense Finance in the Financial Services Agreement, Hisense Finance and its associates will abstain from voting in relation to the resolution(s) to approve the Financial Services Agreement and the transactions contemplated thereunder and the relevant Caps at the EGM. As such, Hisense Airconditioning, which held 612,316,909 Shares (representing approximately 45.22% of the issued share capital of the Company) and Hisense HK, which held 54,000,000 Shares (representing approximately 3.99% of the issued share capital of the Company) as at the Latest Practicable Date, will abstain from voting in relation to the relevant resolution(s) at the EGM.

The Business Co-operation Framework Agreement and the Financial Services Agreement are not inter-conditional on each other.

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LETTER FROM THE BOARD

GENERAL

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

(a) Mr. Tang Ye Guo, Ms. Yu Shu Min, Mr. Lin Lan and Mr. Xiao Jian Lin are also directors or senior management of Hisense Group and/or some of its subsidiaries;
(b) Ms. Yu Shu Min, Mr. Lin Lan and Mr. Xiao Jian Lin are also directors of Hisense Electric and/or some of its subsidiaries; and
(c) Mr. Tang Ye Guo and Ms. Yu Shu Min are also directors of Hisense Finance.
II. BUSINESS FRAMEWORK AGREEMENTS WITH HISENSE HITACHI AND HISENSE WHIRLPOOL
(A) HITACHI BUSINESS FRAMEWORK AGREEMENT

Date: 21 November 2013

Parties: The Company; and Hisense Hitachi

Term:

The Hitachi Business Framework Agreement shall commence from 1 January 2014 or the date of approval of the Hitachi Business Framework Agreement at the EGM (whichever is the later) until 31 December 2014, which can be terminated before its expiration by mutual agreement of the parties.

In the event of any exemption for connected transactions being withdrawn or revoked or becoming invalid and there is non-compliance with the relevant Hong Kong Listing Rules and/or Shenzhen Listing Rules and/or the Rules Governing the Listing of Stocks on Shanghai Stock Exchange in respect of connected transactions for any transactions contemplated under the Hitachi Business Framework Agreement, the performance of the Hitachi Business Framework Agreement in respect of such transactions shall be terminated. The Hitachi Business Framework Agreement will be terminated if all transactions contemplated thereunder have been terminated for the above reason.

Condition:

The Hitachi Business Framework Agreement and the transactions contemplated thereunder are subject to approval at the EGM by the independent Shareholders.

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LETTER FROM THE BOARD

Subject matters:

The transactions contemplated under the Hitachi 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 Hitachi Business Framework Agreement does not restrict the rights of the Company to enter into transactions contemplated under the Hitachi Business Framework Agreement with any other third parties. The annual caps for the transactions contemplated under the Hitachi Business Framework Agreement and the historical amount of the transactions from January to September 2013 are set out as follows:

Unit: RMB (’0000) (exclusive of VAT)

	Annual caps of
	the transaction	Amount
	amount to be	paid/received
	paid/received	in respect of
	during the	such type of
	term of the	transactions
	Hitachi Business	from January to
	Framework	September 2013
Types of transactions	Agreement	(unaudited)
Sale of home electrical appliances	25,300	5,106
Sale of raw material, parts and components	1,200	119
Sale of moulds	850	0
Purchase of raw material, parts and
components	2,008	766

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 Hitachi Business Framework Agreement.

Pricing and payment term:

Pricing for the sale 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 is settled with the payment method as provided in the definitive contract(s) to be signed between the parties.

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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) signed by the parties. Payment is settled with the payment method as provided in the definitive contract(s) to be signed between the parties.

The price for the sale of moulds by the Company to Hisense Hitachi is the market price determined by price comparison by way of open bidding. Payment is settled with the payment method as provided in the definitive contract(s) to be signed between the parties.

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

Sales of home electrical appliances

The sale of home electrical appliances to Hisense Hitachi may expand the sales and increase sales revenue of the Company.

Reciprocal purchase of raw materials, parts and components

In order to ensure the supply and after-sale service for products customized by Hisense Hitachi, both parties intend to reciprocally purchase raw materials, parts and components that match the customized products.

Sales of moulds

Sale of mould products is an important business component of 青島海信模具有限公司 (Qingdao Hisense Mould Company Limited), the Company’s subsidiary. The sale of moulds to Hisense Hitachi to meet its production requirements may expand the sales of the Company 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 on 8 January 2003, registered address: 218 Qian Wan Gang Road, Qingdao Economic and Technological Development Zone, legal representative: Qing Shangong, registered capital: US$46 million, scope of business: research and development of commercial air-conditioning system, manufacture and sale of self-produced products and provision of after-sale services. As at the Latest Practicable Date, the Company held 49% equity interest of Hisense Hitachi.

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LETTER FROM THE BOARD

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, being Directors, are also the directors of Hisense Hitachi, the transactions contemplated under the Hitachi 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 Hitachi Business Framework Agreement for the consideration of the Board and they considered that such transactions would be conducted on normal commercial terms and based on the terms of the Hitachi Business Framework Agreement, and the terms of the transactions as agreed in the Hitachi 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 Hitachi Business Framework Agreement and the annual caps in relation thereto were fair and reasonable so far as the independent Shareholders were concerned.

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

(B) BUSINESS FRAMEWORK AGREEMENT WITH HISENSE WHIRLPOOL

Date: 21 November 2013

Parties: The Company; and Hisense Whirlpool

Term:

The Whirlpool Business Framework Agreement shall commence from 1 January 2014 or the date of approval of the Whirlpool Business Framework Agreement at the EGM (whichever is the later) until 31 December 2014, which can be terminated before its expiration by mutual agreement of the parties.

In the event of any exemption for connected transactions being withdrawn or revoked or becoming invalid and there is non-compliance with the relevant Hong Kong Listing Rules and/or Shenzhen Listing Rules and/or the Rules Governing the Listing of Stocks on Shanghai Stock Exchange in respect of connected transactions for any transactions contemplated under the Whirlpool Business Framework Agreement, the performance of the Whirlpool Business Framework Agreement in respect of such transactions shall be terminated. The Whirlpool Business Framework Agreement will be terminated if all transactions contemplated thereunder have been terminated for the above reason.

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LETTER FROM THE BOARD

Condition:

The Whirlpool Business Framework Agreement and the transactions contemplated thereunder are subject to approval at the EGM by the independent Shareholders.

Subject matters:

The transactions contemplated under the Whirlpool 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 Whirlpool Business Framework Agreement does not restrict the rights of the Company to enter into transactions contemplated under the Whirlpool Business Framework Agreement with any other third parties. The annual caps for the transactions contemplated under the Whirlpool Business Framework Agreement and the historical amount of the transactions from January to September 2013 are set out as follows:

Unit: RMB (’0000) (exclusive of VAT)

	Annual caps of
	the transaction
	amount to be	Amount
	paid/received	paid/received
	during the	in respect of
	term of the	such type of
	Whirlpool	transactions
	Business	from January to
	Framework	September 2013
Types of transactions	Agreement	(unaudited)
Sale of home electrical appliances	120	12
Sale of raw materials, parts and components	6,000	1,310
Sale of moulds	2,000	656
Sale of equipment	100	0
Provision of services	390	269
Purchase of home electrical appliances	124,810	29,192
Purchase of raw materials, parts and
components	863	455
Purchase of equipment	100	0

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 and equipment, 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 Whirlpool Business Framework Agreement.

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LETTER FROM THE BOARD

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 is settled with the payment method as provided in the definitive contract(s) to be signed between the parties.

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) to be signed by the parties. Payment is settled with the payment method as provided in the definitive contract(s) to be signed between the parties.

The price for the sale of moulds by the Company to Hisense Whirlpool is the market price determined by price comparison by way of open bidding. Payment is settled with the payment method as provided in the definitive contract(s) to be signed between the parties.

Pricing for the purchase and supply of equipment 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) to be signed by the parties. Payment is settled with the payment method as provided in the definitive contract(s) to be signed between the parties.

The price for the provision of services is determined after commercial negotiation between the parties according to fair and reasonable pricing principles based on the market prices for similar services in the industry, and it shall be stipulated in the definitive service contract(s) to be signed between the parties. Payment is settled with the payment method as provided in the definitive contract(s) to be signed between the parties.

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

Reciprocal purchase of home electrical appliances

Hisense Whirlpool owns equipment for the manufacture of large refrigerators and washing machines. Procuring Hisense Whirlpool to manufacture home electrical appliances may enhance the variety of the Company’s high-end products, expand the sales of high-end products, and raise the market share of such products, thereby increasing the Company’s income and facilitating the further development of its business. The sale of home electrical appliances by the Company to Hisense Whirlpool may expand the sales of the Company and increase sales revenue.

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LETTER FROM THE BOARD

Reciprocal purchase of raw materials, parts and components

Since the Company purchases home electrical appliances such as refrigerators from Hisense Whirlpool, to ensure the supply and after-sale service of products customized by the Company, the Company needs to purchase raw materials, parts and components that match the products customized by the Company. Meanwhile, the provision of raw materials, parts and components by the Company to Hisense Whirlpool may help the Company to expand its purchases and lower its procurement costs.

Sales of moulds

Sale of mould products is an important business component of 青島海信模具有限公司 (Qingdao Hisense Mould Company Limited), the Company’s subsidiary. The sale of moulds to Hisense Whirlpool to meet its production requirements may expand the sales of the Company and increase the sales revenue of the Company.

Reciprocal purchase of equipment

The sale of equipment to Hisense Whirlpool to meet its production requirements may increase the revenue of the Company. The purchases of equipment from Hisense Whirlpool can satisfy the Company’s production requirements.

Provision of services

The provision of services to Hisense Whirlpool may enhance asset utilization ratio and increase 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 Whirlpool

Hisense Whirlpool was established on 4 November 2008, registered address: Zhongyang Avenue North Side, Changxing Economic Development Zone, Zhejiang Province, legal representative: BORRA BARBARA, registered capital: RMB450 million, scope of business: development, production and assembly of washing machines, refrigerators and their parts, sale of self-manufactured products, provision of after-sale services and technical consultation services related to the abovementioned products. The substantial shareholders of Hisense Whirlpool are Whirlpool (Hong Kong) Limited and the Company, each holding a 50% equity interest as at the Latest Practicable Date.

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

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LETTER FROM THE BOARD

As Mr. Lin Lan and Mr. Gan Yong He, being Directors, are also the directors of Hisense Whirlpool, the transactions contemplated under the Whirlpool 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 Whirlpool Business Framework Agreement for the consideration of the Board and they considered that such transactions would be conducted on normal commercial terms and based on the terms of the Whirlpool Business Framework Agreement, and the terms of the transactions as agreed in the Whirlpool 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 Whirlpool Business Framework Agreement and the annual caps in relation thereto were fair and reasonable so far as the independent shareholders were concerned.

Mr. Lin Lan and Mr. Gan Yong He, being Directors, are also the directors of Hisense Whirlpool and have abstained from voting on the relevant board resolution for approving the Whirlpool Business Framework Agreement and the transactions contemplated thereunder.

III. PROPOSED APPOINTMENT OF SUPERVISORS

As Mr. Guo Qing Cun and Ms. Liu Jiang Yan have tendered their resignation as shareholder representative supervisors of the Company, Mr. Liu Zhen Shun (“ Mr. Liu ”) and Ms. Gao Yu Ling (“ Ms. Gao ”) have been nominated by Shareholders to be elected as shareholder representative supervisors of the eighth session of the supervisory committee of the Company, to ensure the normal operation of the supervisory committee of the Company.

Details of the biographies of the shareholder representative supervisor candidates are set out below.

BIOGRAPHIES OF MR. LIU AND MS. GAO

Mr. Liu, aged 43, holds a bachelor’s degree. He has served as the head of the legal department and the legal director of the president’s office of Hisense Company Limited （海信集團有限公司）. He was the deputy head of the legal affairs department, the deputy secretary of the discipline inspection committee of Hisense Company Limited from March 2005 to June 2012. He has been the head of the legal affairs department, the deputy secretary of the discipline inspection committee of Hisense Company Limited since July 2012.

Mr. Liu has not held any directorship in any listed companies for the past three years nor holds interests in any shares of the Company or any of its associated corporations within the meaning of Part XV of the Securities and Futures Ordinance. Save as disclosed above, Mr. Liu does not have any relationship with any directors, senior management, or substantial or controlling shareholders of the Company or

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LETTER FROM THE BOARD

its subsidiaries. During his term of office as the supervisor of the Company, Mr. Liu will not receive from the Company any remuneration as the supervisor of the Company. Mr. Liu is to stand for election as shareholder representative supervisor of the Company. If elected, Mr. Liu’s term of office will commence from the date of his appointment at the EGM until the expiry of the term of the eighth session of the supervisory committee of the Company (that is, 25 June 2015).

Save as disclosed above, Mr. Liu 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 Listing Rules nor any other matter that needs to be brought to the attention of the Shareholders.

Ms. Gao, aged 32, holds a master’s degree in accountancy. She has served as the treasury supervisor, tax supervisor, audit supervisor, accounting supervisor and financial management supervisor of the finance centre of Qingdao Hisense Electric Co., Ltd. She was the deputy director of the finance centre of Qingdao Hisense Electric Co., Ltd. from April 2012 to February 2013. She has been the deputy head of the finance and operation management department of Hisense Company Limited since March 2013.

Ms. Gao has not held any directorship in any listed companies for the past three years nor holds interests in any shares of the Company or any of its associated corporations within the meaning of Part XV of the Securities and Futures Ordinance. Save as disclosed above, Ms. Gao does not have any relationship with any directors, senior management, or substantial or controlling shareholders of the Company or its subsidiaries. During her term of office as the supervisor of the Company, Ms. Gao will not receive from the Company any remuneration as the supervisor of the Company. Ms. Gao is to stand for election as shareholder representative supervisor of the Company. If elected, Ms. Gao’s term of office will commence from the date of her appointment at the EGM until the expiry of the term of the eighth session of the supervisory committee of the Company (that is, 25 June 2015).

Save as disclosed above, Ms. Gao 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 Listing Rules nor any other matter that needs to be brought to the attention of the Shareholders.

EGM

The EGM will be held at the conference room of the Company’s head office, Shunde District, Foshan City, Guangdong Province, the PRC at 2:30 p.m. on Friday, 10 January 2014 at which ordinary resolutions will be proposed to approve, inter alia, the Business Co-operation Framework Agreement, the Financial Services Agreement, the Hitachi Business Framework Agreement and the Whirlpool Business Framework Agreement and the transactions contemplated thereunder and the annual caps in relation thereto and the proposed appointment of supervisors by poll.

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LETTER FROM THE BOARD

A notice of the EGM, a proxy form for use at the EGM and a reply slip have been despatched by the Company on 21 November 2013 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 Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, not less than 24 hours before the time fixed for holding the EGM or any adjournment thereof (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 (except those which relate purely to a procedural or administrative matter) and the chairman of the meeting will make such demand at the EGM and the results of the poll will be announced 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 11 December 2013 (Wednesday) until 10 January 2014 (Friday) (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 10 December 2013 (Tuesday) for registration.

RECOMMENDATION

The Directors consider that the Hitachi Business Framework Agreement and the Whirlpool Business 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. 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.

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LETTER FROM THE BOARD

The Independent Board Committee, having taken into account the advice of the Independent Financial Adviser, considers that the Business Co-operation Framework Agreement and the Financial Services Agreement and the transactions contemplated thereunder and the 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 relevant ordinary resolutions to be proposed in the EGM to approve the same.

The Board is of the opinion that the ordinary resolutions to be proposed at the EGM in respect of the appointment of Mr. Liu Zhen Shun and Ms. Gao Yu Ling as the shareholder representative supervisors of the eighth session of the supervisory committee of the Company are in the best interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends the Shareholders to vote in favour of the relevant resolutions to be proposed at the EGM to approve the same.

ADDITIONAL INFORMATION

Your attention is drawn to the letters from the Independent Board Committee and the Independent Financial Adviser in relation to the Business Co-operation Framework Agreement and the Financial Services Agreement and the transactions contemplated thereunder which are respectively set out on page 51 and pages 52 to 98 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)

18 December 2013

To the Independent Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

We refer to the circular issued by the Company to the Shareholders dated 18 December 2013 (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 Business Co-operation Framework Agreement and the Financial Services Agreement and the transactions contemplated thereunder and the Caps in relation thereto as to the fairness and reasonableness of the same. Investec 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 7 to 50 and pages 52 to 98 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 Business Co-operation Framework Agreement and the Financial Services Agreement and the transactions contemplated thereunder and the 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 Business Co-operation Framework Agreement and the Financial Services Agreement and the transactions contemplated thereunder and the Caps in relation thereto.

Yours faithfully,

For and on behalf of the Independent Board Committee Xu Xiang Yi Wang Xin Yu Wang Ai Guo

Independent non-executive Directors Hisense Kelon Electrical Holdings Company Limited

— 51 —

LETTER FROM INVESTEC

The following is the text of the letter of advice from Investec Capital Asia Limited to the Independent Board Committee and the Independent Shareholders in relation to the Agreements prepared for the purpose of incorporation in this circular.

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Investec Capital Asia Ltd

Room 3609, 36/F, Two International Finance Centre 8 Finance Street, Central, Hong Kong 香港中環金融街8號國際金融中心二期36樓3609室 Tel/電話: (852) 3187 5000 Fax/傳真: (852) 2501 0171 www.investec.com

18 December 2013

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 Business Cooperation Framework Agreement and the Financial Services Agreement (collectively the “Agreements”), details of which are set out in the circular to the Shareholders dated 18 December 2013 (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 Business Co-operation Framework Agreement, the Existing Export Agency Framework Agreement, the Existing Financial Services Agreement and the Existing Supplemental Financial Services Agreement will expire on 31 December 2013 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 and to modify the scope of the transactions between certain parties, on 21 November 2013, the Business Co-operation Framework Agreement and the Financial Services Agreement were entered into by the Company (details of the Agreements are stated in the section headed “Terms of the Agreements” below).

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LETTER FROM INVESTEC

Business Co-operation Framework Agreement

As at the Latest Practicable Date, (i) Hisense Air-conditioning is a connected person of the Company by virtue of being a substantial shareholder of the Company, holding approximately 45.22% of the issued shares of the Company and (ii) Hisense HK holds approximately 3.99% of the issued shares of the Company. As Hisense Group is the indirect holding company of Hisense Air-conditioning and Hisense HK and Hisense Electric is owned as to approximately 40.43% by Hisense Group, Hisense Group, Hisense Electric and their respective subsidiaries are 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 and the transactions contemplated thereunder and the 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.

Financial Services Agreement

As at the Latest Practicable Date, as Hisense Finance is a subsidiary of Hisense Group, Hisense Finance is also a connected person of the Company according to the Hong Kong Listing Rules. As such, the transactions contemplated under the Financial Services Agreement will constitute continuing connected transactions of the Company under the Hong Kong Listing Rules.

As the applicable percentage ratios for the Caps in relation to the transactions for the provision of deposit, loan and electronic bank acceptance bill（電子銀行承兌匯票）, draft discount（票據貼現）, settlement and sale of foreign exchange（結售匯）services and agency services such as settlement services for receipt and payment of funds（資金收支結算服務等代理類服務）by Hisense Finance to the Group contemplated under the Financial Services Agreement exceed 5%, the Financial Services Agreement, the transactions contemplated thereunder and the 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 provision of deposit services to the Group under the Financial Services Agreement also constitutes the provision of financial assistance by the Group to Hisense Finance under Rule14.04(1)(e) of the Hong Kong Listing Rules. Since the consideration ratio for the provision of such deposit services is more than 5% but less than 25%, it will constitute a discloseable transaction of the Company under Chapter 14 of the Hong Kong Listing Rules and is subject to the announcement requirement thereunder.

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LETTER FROM INVESTEC

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 Group 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 Group and/or its senior management staff (the “Management”) 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 Management 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 the Management 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 Group and/or its Management 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 or Hisense 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 development and manufacture of refrigerators and air-conditioners. As stated in the Company’s annual report for the year ended 31 December 2012 (the “2012 Annual Report”), approximately 66.5% of the Group’s turnover was derived from the PRC market and the rest was derived from overseas markets.

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LETTER FROM INVESTEC

Set out below is a summary of the Group’s consolidated operating results and financial position as extracted from the 2012 Annual Report, the annual report for the year ended 31 December 2011 and the Company’s interim report for the six months ended 30 June 2013 (the “2013 Interim Report”):

In RMB’000 approximately Revenues — Sales of refrigerators — Sales of air-conditioners — Sales of others Revenue from principal operations Revenue from other operations Total operating revenue Operating costs Business taxes and surcharges Selling and distribution expenses General and administrative expenses Financial expenses Impairment losses on assets Gain/(loss) from changes in fair value Investment income Operating profits Non-operating income Non-operating expenses Profit before tax Income tax expenses Profit for the year/period Attributable to: — Owners of the Company — Minority interests	For the year ended 31 December 2011 2012 (Audited) (Audited) 8,246,155 8,461,167 6,516,775 6,665,135 1,985,520 2,227,476 16,748,450 17,353,778 1,740,214 1,605,138 18,488,664 18,958,916 15,202,894 15,034,034 63,151 105,219 2,636,212 2,731,894 547,650 640,894 56,004 39,000 24,877 40,897 18,530,788 18,591,936 4,962 (16,638) 138,561 335,254 143,523 318,616 101,399 685,596 158,722 64,652 13,420 7,394 246,701 742,854 21,250 10,548 225,451 732,304 227,015 717,765 (1,566) 14,541	For the six months ended 30 June 2012 2013 (Unaudited) (Unaudited) 4,266,280 5,310,974 3,756,833 5,056,633 1,023,584 1,422,408 9,046,697 11,790,015 921,030 1,202,854 9,967,727 12,992,869 7,982,126 10,250,225 32,388 49,586 1,310,271 1,754,022 299,728 354,200 25,298 12,613 3,345 6,688 9,653,155 12,427,334 (14,093) 35,909 100,107 154,056 86,014 189,965 400,585 755,500 11,588 13,980 4,711 4,458 407,463 765,022 5,621 19,895 401,842 745,127 379,871 706,813 21,971 38,314

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LETTER FROM INVESTEC

	As at 31	December	As at 30 June	As at 30 June
	2011	2012	2012	2013
In RMB’000 approximately	(Audited)	(Audited)	(Unaudited)	(Unaudited)
Non-current assets	3,200,238	3,270,169	3,453,219	3,479,805
Current assets	4,435,201	5,930,166	6,064,469	9,014,235
Non-current liabilities	312,466	368,735	319,268	368,238
Current liabilities	6,162,159	6,958,392	7,041,770	9,516,398
Total net assets	1,160,814	1,873,208	2,156,650	2,609,404

For the year ended 31 December 2012, the Group recorded an audited turnover of approximately RMB18,958.9 million (representing an increase of approximately 2.5% from the turnover of approximately RMB18,488.7 million for the preceding year) and a net profit of approximately RMB732.3 million (representing an increase of approximately 224.8% from the net profit of approximately RMB225.5 million for the preceding year). As noted in the 2012 Annual Report, in 2012, the accumulated retail sales volume and retail sales value of the PRC refrigerator and air-conditioner industries have experienced a slowdown attributable to weakening stimulation effect of household appliances subsidy policies on expenditure and suppression of demand on household appliances (brought by the ongoing stringent real estate policies) while demand from export market was significantly slowed down by weak macro-economic environment of developed countries and shrinking demand from major overseas household appliances markets. These factors substantially intensified the operating pressure of the entire home electrical appliances industry. However, the Company strictly adhered to the operating strategies of “building product advantages, reforming marketing models, enhancing per capita efficiency, accelerating the progress of internationalization and realizing sound and rapid growth”, and thereby successfully achieved steadiness in the scale of operation and substantial growth in operating results amidst an unfavorable macroeconomic environment.

For the six months ended 30 June 2013, the Group recorded an unaudited turnover of approximately RMB12,992.9 million, representing an increase of approximately 30.4% from the unaudited turnover of approximately RMB9,967.7 million for the corresponding period in 2012. The Group’s unaudited net profit attributable to the equity holders of the Company for the six months ended 30 June 2013 of approximately RMB706.8 million represents an increase of approximately 86.1% from the unaudited net profit attributable to the equity holders of the Company of approximately RMB379.9 million for the corresponding period in 2012. As noted in the 2013 Interim Report, the domestic white goods market was driven by the energy-saving product subsidies policy but demand from overseas markets remained relatively sluggish due to inactive economic growth of European markets and slowing down economic growth of emerging markets. The Company achieved increased in scale, operating efficiency and positive financial results by continuing strictly adhered to its consistent operating strategies during the period.

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LETTER FROM INVESTEC

As at 30 June 2013, the Group had unaudited total current assets of approximately RMB9,014.2 million and unaudited total current liabilities of approximately RMB9,516.4 million, representing net current liabilities of approximately RMB502.2 million. As at 30 June 2013, the Group had net debt of approximately RMB9,405.0 million and its unaudited total equity was approximately RMB2,609.4 million.

We have noted from the 2012 Annual Report that the Company’s auditors (the “Auditors”), Ruihua Certified Public Accountants (formerly known as Crowe Horwath China Certified Public Accountants (LLP)), had expressed a qualified opinion on the financial statements of the Group and its subsidiaries for the year ended 31 December 2012 due to matters related to the Group’s amount due from or to Greencool Enterprise Development Company Limited and other related parties. For further details of the Auditors’ opinion on the Group’s financial statements and its latest financial position, Shareholders are advised to read the 2012 Annual Report and the 2013 Interim Report. It should be noted while the Group’s financial statements contain qualified auditors’ opinion, we do not consider such qualified auditors’ opinion 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 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. In 2011, Hisense Group made sales revenue of approximately RMB71.6 billion, ranking six among top 100 electronic information enterprises in the PRC.

Hisense Electric Co., Ltd. (“Hisense Electric”) has been listed on the Shanghai Stock Exchange since 1997 (stock code: 600060). As at 30 September 2013, Hisense Group was interested in approximately 40.43% of the issued share capital of Hisense Electric. The following financial results of Hisense Electric for each of the two years ended 31 December 2012 and the nine months ended 30 September 2013 which are extracted from its annual report for the year ended 31 December 2012 and the third quarter report for the nine months ended 30 September 2013.

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LETTER FROM INVESTEC

			For the
			nine months
	For the year	ended	ended
	31 December		30 September
	2011	2012	2013
	RMB’000	RMB’000	RMB’000
	(Audited,
	restated)	(Audited)	(Unaudited)
Turnover	23,523,724	25,251,980	20,654,278
Net Profit attributable to owners of
the Company	1,689,067	1,603,159	1,126,912
Total assets as at year/period end	16,144,615	18,251,357	18,288,036

As stated in its annual report for the year ended 31 December 2012, sales of televisions contributed to approximately 88.3% of Hisense Electric’s turnover and approximately 70.8% of its sales was generated from domestic sales in the PRC. As at 30 September 2012, Hisense Electric had unaudited net assets attributed to owners of the Company of approximately RMB9,367.9 million and a net profit attributable to owners of Company of approximately RMB1,126.9 million.

The business scope of Hisense Finance include: the provision of financial services including financial consultation, credit appraisal and other relevant advice and agency services to member companies, provision of assistance in receiving transaction proceeds to member companies, provision of approved insurance agency services, provision of guarantees for member companies, entrusted loans and entrusted investment services among member companies, draft acceptance and discount services to member companies, planning of settlement scheme, deposit services to member companies, loan and finance leasing and intra-group transfer and settlement services to member companies, under writing corporate bonds for member companies, securities investment other than investment in secondary markets for stocks and provision of consumer credit and buyer credit for products of member companies.

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LETTER FROM INVESTEC

3. Prevailing market conditions about the demand for electrical appliances

To leave some leeway for economic restructuring and change the growth model, the PRC government keeps its GDP growth target for 2013 at 7.5 percent and has announced several measures, including stabilize foreign trade growth and boost domestic consumption, in support of the economic growth.

Based on the information from the National Bureau of Statistics of China, we note that the economic growth of China was approximately 7.7% for the nine months ended 30 September 2013. In particular, as the economy of China turned to domestic consumption for growth, retail sales of consumer goods rose approximately 12.9% for the nine months ended 30 September 2013 as compared to the corresponding period in 2012 to approximately RMB16,881.7 billion. For the nine months ended 30 September 2013, the retail sales in cities reached approximately RMB14,579.9 billion, up by approximately 12.7% as compared to the same period last year, and the retail sales at and below county level stood at approximately RMB2,301.8 billion, representing an increase of approximately 14.5% on a year-on-year basis. According to the statistics from the website of chyxx.com（中國產業信息網）, the export sales of home appliances for the six months ended 30 June 2013 were approximately US$31.3 billion, representing an increase of approximately 6.8% as compared with that in the same period of 2012. In this relation, we understand from the Management that the Group has recorded an approximately 13.0% growth in export sales for the six months ended 30 June 2013 as compared to the same period of 2012, which outpaced the growth rate of the overall home appliances export market.

In addition, the government policies have impacted the home appliances industry. The General Office of the State Council announced the new energysaving subsidy policies（節能惠民補貼政策） in June 2012 (the “Energy-saving Policy”) which has encouraged consumers continuing to switch to low-energy appliances. Although the Energy-saving Policy is weaning, a new energysaving standard effectively entered into force on 1 October 2013 has a positive impact on the sales of air-conditioning products of high energy efficiency.

Based on (i) an expected stable future economic growth in the PRC; (ii) continued support of government policies; and (iii) the Group’s continued growth in export sales as evidenced in its export sales for the six months ended 30 June 2013, we concur with the Management’s view that the demand for home electrical appliances of the Group will be growing steadily in 2014.

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4. Reasons for the Agreements

a. The Business Co-operation Framework Agreement

Under the Business Co-operation Framework Agreement, the Company has agreed that it (or any of its subsidiaries which will be entitled to have the same rights and obligations under the Business Co-operation Framework Agreement) may enter into certain transactions with the respective subsidiaries of Hisense Group and Hisense Electric in respect of the supply and purchase of home electrical appliances, equipments, raw materials, parts and components, provision of agency and other services and supply of moulds (particulars and terms of each category of the aforesaid transactions are discussed in the section headed “Terms of the Agreements” below).

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’s 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 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 Marketing, a subsidiary of Hisense Group, has 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 its subsidiaries, 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 loading and unloading, design, equipment rental and property 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 Cooperation Framework Agreement will become an important part of the Group’s business and facilitate the Group 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 Group in respect of the sale of moulds, thereby further expanding the sales of the Group.

As regards the sale and supply of home electrical appliances, since certain subsidiaries of the Company currently possess 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 capacity and reduce the products’ per-unit fixed costs as a result of the increase in the production level. The competitiveness of the Group’s products in terms of costing may therefore increase.

As regards those transactions contemplated under the Business Cooperation Framework Agreement in relation to the sale and purchase of raw materials, equipments, parts and components and purchase of home electrical appliances between the Group and the respective subsidiaries of Hisense Group and Hisense Electric, we understand that as the Group, 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 the provision of agency services by Hisense Group and/or its subsidiaries to the Group, the Company agreed that it and/or its subsidiaries will engage Hisense Group and/or its subsidiaries for the provision of agency services for export for the white goods products of the Group (which include without limitation, refrigerators, airconditioners, freezers, washing machines, small household electrical appliances and their related parts which are to be assembled) from time to time. We understand from the Management that it is one of the Group’s strategies to increase the weight of its self-owned brand export

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and reinforce the effort of development for key export markets and in the absence of the necessary internal resources capable of fulfilling the agency services which Hisense Marketing has been providing, it is essential for the Group to reply on external parties to further stabilise and expand the Group’s sales in the international market and avoid risks in export business. As stated in the Letter from the Board, Hisense Marketing has over 10 years’ experience in overseas operations, professional expertise and mature market network and channels in overseas market. In addition, we understand from the Management that the Group’s profit level for export agency business has experienced a steady increase as a result of Hisense Marketing’s effort in adjusting customer structures through negotiation during the period when Hisense Marketing provided agency services for export to the Group. Furthermore, the Group can also largely reduce costs which would have to be committed for running the operation by itself, and use the available resources on the research and development and the quality warranties for the products to be exported, which will be beneficial to the Group in enhancing the stable development of its export business.

As regards the provision of other services by Hisense Group, Hisense Electric and/or their subsidiaries to the Group, we understand that both Hisense Group and Hisense Electric and/or their respective subsidiaries possess the expertise and experience for the provision of the relevant services and the Group is very satisfied with the quality of services provided by both Hisense Group and Hisense Electric and/ or their respective subsidiaries from their previous course of dealings. We also understand that the Group requires expertise to perform the abovementioned services and therefore, by leveraging on the expertise of Hisense Group and Hisense Electric and/or their subsidiaries, the Group can be assured that the relevant services essential to its daily operation can be carried out smoothly and thereby reducing the operational risk exposure of 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 broad channels for import of materials and are in an advantageous position to obtain products with better quality and pricing, can (i) benefit the Group in the development of its overseas sales channels, reduce setup costs for overseas market and reduce expenses in relation to export businesses; (ii) help 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; (iii) bring benefit to the Group from the sharing of resources and the maximization of the economies of scale; and (iv) continue to provide quality services to the Group due to their familiarity of the operations of the Group and help reduce the operational risk exposure of the Group.

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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 Group 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.

b. The Financial Services Agreement

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

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

Based on our discussion with the Management, we understand that the Group has been occasionally utilising financial services rendered by PRC commercial banks such as deposit services, loan and electronic bank acceptance bill services, draft discount services and agency services such as settlement services for receipt and payment of funds in the usual and ordinary course of its business. As advised by the Directors, due to the appreciation of Renminbi and the fluctuation of energy and raw materials prices in recent years, the market of refrigerating and airconditioning products was subject to unprecedented challenges and the competition in the PRC household appliances market would continue to intensify in the foreseeable future. In light of the expected intense competition in the household appliances market and the increase in the

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prices of raw materials and energy, the Directors are of the view that in order to compete successfully, it is important for the Company to have effective cost control measures including but not limited to strengthening its existing cost management as well as the tracking and analysis of the uses of the costs. Through reducing the level of capital used in all areas, strictly controlling the liquidity risk and increasing the capital utilisation efficiency, the Group may be able to increase its profitability as well as competitiveness by lowering the financing costs and improving the liquidity position.

As at 30 June 2013, the Group had outstanding bank loans (including bank and trade notes payable) of approximately RMB1,906.4 million and its unaudited total liabilities amounted to approximately RMB9,884.6 million. In addition, the Group’s total unaudited current liabilities exceeded its total unaudited current assets by approximately RMB502.2 million. Based on the existing financial position of the Group, we consider that the Group’s ongoing operations have been to significant extent relied on the availability of the banking facilities from financial institutions. Should the Group be unable to renew its existing banking facilities with the relevant financial institutions, it is likely that the Group would not have sufficient working capital to finance its normal operations and to meet its financial obligations as they fall due.

Furthermore, given the significant amount of bank borrowings utilised by the Group to finance its operations, the Group incurred substantial amount of finance costs in the past but has been reduced considerably. For the six months ended 30 June 2013, the Group incurred total finance costs of approximately RMB12.6 million, representing approximately 1.7% of the Group’s profit for the period and a reduction from approximately RMB28.5 million or approximately 9.8% of the Group’s profit for the six months ended 30 June 2012.

In addition, as discussed with the Management, we understand that the Group expects to extend its customer networks in the existing overseas markets as well as to the new overseas markets, details of which are set out below under heading “Rationale for determining the maximum value of the transactions contemplated under the Agreements”. It is expected that the Group will use more settlement and sale of foreign exchange services in coming years.

Pursuant to the Financial Services Agreement, the Group will be able to obtain certain deposit services, loan and electronic bank acceptance bill services, draft discount services, settlement and sale of foreign exchange services and agency services such as settlement services for receipt and payment of funds from Hisense Finance, the terms of which cannot be less favourable to the Company than those available from other normal commercial banks and financial institutions. As there is a possibility

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that the financing costs of the transactions under the Financial Services Agreement may be lower (but in any event cannot be higher) than the financing costs of the relevant transactions with other normal commercial banks and financial institutions (particulars of which are discussed under the section headed “Terms of the Agreement”), the Group may be able to further reduce its total finance costs, which is currently one of the cost control measures of the Company aiming to improve its competitiveness. In light of the existing financial position of the Group as discussed above, we consider that the transactions contemplated under the Financial Services Agreement will be conducted in the ordinary and usual course of business of the Company and we concur with the view of the Company that the entering into of the Financial Services Agreement is in the interests of the Company and the Shareholders as a whole.

II. Terms of the Agreements

1. The Business Co-operation Framework Agreement

The Business Co-operation Framework Agreement shall commence on 1 January 2014 or the date of approval of the Business Co-operation Framework Agreement by the Independent Shareholders at the EGM (whichever is the later) until 31 December 2014 (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 several aspects of business co-operation between the Group and the respective subsidiaries of Hisense Group and Hisense Electric. 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.

In terms of the pricing policy, as stated in the “Letter from the Board”, during the commercial negotiations of the aforesaid definitive contract(s) between the parties, the Company will make reference to the relevant then prevailing market prices, whereby the eventual price(s) will be not less favourable to the Group than terms available to or from (as appropriate) independent third parties. We also noted that, given the non-exclusive basis of the Business Co-operation Framework Agreement, in the event that the terms (including the price) of the transactions contemplated under the Business Co-operation Framework Agreement is less favourable to that available to or from (as appropriate) independent third parties, the Group has the flexibility of not entering into a definitive contract with the respective subsidiaries of Hisense Group and Hisense Electric.

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In addition, payment term(s) for the transactions contemplated under the Business Co-operation Framework Agreement (other than fees for provision of agency services for export of the white goods products of the Group) shall be in accordance with the payment term(s) as stipulated in the definitive contract(s) to be signed by the relevant parties thereto. As provided in the Business Co-operation Framework Agreement, the fees for the provision of the agency services for export of the white goods products of the Group will be calculated on a monthly basis and the relevant members of the Group should pay the monthly fee for the preceding month by way of telegraphic transfer or bills.

In particular, the Business Co-operation Framework Agreement covers the following aspects of business co-operation between the contracting parties:

a. Purchase of home electrical appliances

Under the Business Co-operation Framework Agreement, Hisense Group, Hisense Electric and/or their respective subsidiaries have agreed to 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 Cooperation Framework Agreement) may require from time to time.

The purchase price of 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 home electrical appliances 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. The Business Co-operation Framework Agreement will not restrict the Group from purchasing home electrical appliances from other suppliers apart from Hisense Group, Hisense Electric and/or their respective subsidiaries, nor will it restrict Hisense Group, Hisense Electric and/or their respective subsidiaries 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

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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; (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 Hisense Group, Hisense Electric and/or their respective subsidiaries; and (iii) the Group has conducted similar transactions under the same terms in the past based on the past transaction records advised by the Management which we have noted relatively small and immaterial amount incurred, we are of the view that the terms of the Business Cooperation 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 equipment

Under the Business Co-operation Framework Agreement, Hisense Group and/or its subsidiaries have agreed to supply on a non-exclusive basis such quantities of equipment 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.

Pricing for the purchase of equipment is determined principally by commercial negotiations between the relevant subsidiaries of the Company and the relevant subsidiaries of Hisense Group according to the principles of fairness and reasonableness.

The Business Co-operation Framework Agreement will not restrict the Group from purchasing equipment from supplier other than Hisense Group and/or its subsidiaries, nor will it restrict Hisense Group and/or its subsidiaries from selling their equipment to any other third parties.

On the basis that (i) the purchase of equipment 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 Cooperation Framework Agreement and will be determined in accordance with the principle of fairness and reasonableness and not less favourable to the Group than terms available to or from (as appropriate) independent third parties; (ii) the non-exclusive arrangement under the Business Cooperation Framework Agreement provides the Group with the flexibility without any commitment on the purchase quantity from Hisense Group, and/or its subsidiaries; (iii) the Group has conducted similar transactions under the same terms in the past based on the past transaction records

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advised by the Management which we have noted relatively small and immaterial amount incurred, we are of the view that the terms of the Business Co-operation Framework Agreement with respect to the purchase of equipment 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. Purchase of raw materials, parts and components

Under the Business Co-operation Framework Agreement, Hisense Group, Hisense Electric and/or their respective subsidiaries have agreed to supply on a non-exclusive basis such quantities of raw materials, 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.

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

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

On the basis that (i) the purchase of raw materials, 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 and not less favourable to the Group than terms available to or from (as appropriate) independent third parties; (ii) the non-exclusive arrangement under the Business Co-operation Framework Agreement provides the Group with the flexibility without any commitment on the purchase quantity from Hisense Group, Hisense Electric and/or their respective subsidiaries; (iii) the Group has conducted similar transactions under the Existing Business Co-operation Framework Agreement in the past and based on our review of the relevant sample of transaction records and our discussion with the Management that there is no indication the terms of the transactions between the Group and Hisense Group, Hisense Electric and their respective subsidiaries were less favourable than those

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between the Group and independent third party suppliers, we are of the view that the terms of the Business Co-operation Framework Agreement with respect to the purchase of raw materials, 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.

d. 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 Cooperation Framework Agreement) may engage (i) Hisense Group and/or its subsidiaries on a non-exclusive basis for the provision of material processing, installation and maintenance, property, medical, leasing, design, inspection, agency services for import and export, property construction, management consultancy, technical support and information system maintenance services and (ii) Hisense Electric and/or its subsidiaries on non-exclusive basis for the provision of property and design services as they may require from time to time.

The fees payable by the Group to Hisense Group, Hisense Electric and/ or their subsidiaries for the provision of the aforesaid services 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 Business Co-operation Framework Agreement will not restrict the Group from engaging services providers other than Hisense Group, Hisense Electric and/or their respective subsidiaries, nor will it restrict Hisense Group, Hisense Electric and/or their respective subsidiaries from providing their services to any other third parties.

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Hisense Electric and their respective subsidiaries as well as those entered into between the Company and independent third party suppliers and our discussion with the Management that there is no indication the terms of the transactions between the Group and Hisense Group, Hisense Electric and their respective subsidiaries were less favourable than those between the Group and independent third party suppliers, 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.

e. Provision of agency services for export of the white goods

Under the Business Co-operation Framework Agreement, the Company has agreed that it and/or its relevant subsidiaries will engage Hisense Group and/or its subsidiaries on a non-exclusive basis for the provision of agency services for export of the white goods products of the Group (which include without limitation, refrigerators, air-conditioners, freezers, washing machines, small household electrical appliances and their related parts and spare parts which are to be assembled) from time to time.

As set out in the Letter from the Board, the agency services for export of the white goods products of the Group to be provided by Hisense Group and/or its subsidiaries will mainly include the following:

(i) Hisense Group and/or its subsidiaries shall be responsible for expanding the customer base of the Group in the international market, and shall conduct business negotiations with third party customers in the name of the Company and/or its subsidiaries and accept orders for the goods after obtaining the latter’s consent. Contracts for such orders shall be entered into between the Company and/or its subsidiaries and the customers directly.
(ii) Hisense Group and/or its subsidiaries shall provide information in relation to the delivery requirements of the customers to the Group which shall arrange for production. Any amendments proposed by Hisense Group and/or its subsidiaries in relation to the orders for the goods shall be subject to the Group’s consent. In case the Group needs to adjust the date of delivery for reasons such as production capacity, Hisense Group and/or its subsidiaries shall negotiate and confirm with the customers on behalf of the Group.
(iii) The products to be supplied by the Group shall be delivered timely and in accordance with the specifications as per the purchase orders confirmed by the customers. There should not be any deficiencies in the design, raw materials and workmanship, and

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the quality and packaging shall meet the mandatory standards and requirements in the country of end use of the products. The Group shall provide technological services and warranties according to the agreement with the customers depending on the types of products involved.

Furthermore, pursuant to the Business Co-operation Framework Agreement, the charges which may be imposed at the port of inspection in relation to the export of products and the fees for spare parts shall be borne and paid by the Group, and Hisense Group and/or its subsidiaries shall bear and pay other export-related charges.

The Group shall however bear the following costs/expenses in any of the following circumstances:

(i) in the event that any liquidated damages, damages, compensation and other compensation costs are claimed by customers due to the failure of the Group to deliver relevant products in time (including without limitation, inability to deliver relevant products, delay in delivering relevant products and deficiency in the quality of the products), Hisense Group and/or its subsidiaries shall negotiate with the customers on the settlement proposal for and on behalf of the Group. The Group shall be responsible if the proposal is agreed to by the Group; and
(ii) for reasons such as the Group’s need to expand its business, the Group may propose, and Hisense Group and/or its subsidiaries will communicate with the customers on, certain support to be provided to the customers in relation to the expenses for the promotion of sales, etc. The Group shall be responsible for those expenses which have been agreed to by the Group.

The relevant parties will enter into definitive contract(s) setting out specific terms, but such terms shall be consistent with the principles and the terms of the Business Co-operation Framework Agreement.

Pursuant to the Business Co-operation Framework Agreement, the fees payable by the Group for the provision of the agency services for export of the white goods of the Group is calculated by multiplying the Group’s revenue from export of the relevant type of products (which shall be the final amount of revenue for sales by the Group to third party customers in RMB) with an export agency fee percentage.

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The table below sets out the export agency fee percentage with respect to various level of growth rate of the revenue from export subject to the export agency services:

	Corresponding
Growth rate of the revenue	profit margin for	Corresponding
from export subject to the	export agency	export agency fee
export agency services	services	percentage
Below 0%	0%	7.24%
0-5% (inclusive of 5%)	0.5%	7.74%
5-10% (inclusive of 10%)	0.8%	8.04%
10-15% (inclusive of 15%)	1%	8.24%
Above 15%	1.1%	8.34%

We understand from the Management that the abovementioned export agency fee percentage covers the major cost items involved in running of such export agency services including logistic and labour costs. We also understand that the export agency fee percentage was determined with reference to (i) the actual costs and expenses incurred by Hisense Group and/or its subsidiaries for providing agency services from March 2011 to June 2012, i.e. the actual rate of charges, of which as stated in the Letter from the Board (and according to the audit conducted by BDO China Shu Lun Pan Certified Public Accountants LLP (“ BDO ”)), was approximately 7.24%; and (ii) a build in incentive, i.e. profit margin for export agency services, which links the export agency fee percentage to the growth rate of the revenue from export subject to the export agency services.

In relation to the abovementioned export agency fee percentage, having considered that (i) based on the Management’s estimation, it would cost the Group more than the export agency fee percentage payable to Hisense Group and/or its subsidiaries should the Group run the operation by itself; (ii) the Group had explored the possibility of procuring the similar export agency services from independent third parties but noted that the export agency services offered by Hisense Group and/or its subsidiaries is the most comprehensive with terms no less favourable to the Group than terms available from independent third parties; and (iii) as confirmed by BDO, the starting point of the export agency fee percentage of 7.24% is the actual costs and expenses incurred by Hisense Group and/or its subsidiaries for providing agency services during the period from March 2011 to June 2012, we are of the view that it is fair and reasonable to adopt 7.24% as the starting point of the export agency fee percentage.

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We also understand from the Management that the profit margin (which ranges from 0% to 1.1%) for export agency services to be added to the initial 7.24% is in line with the profit margin of approximately 0.6% to 1.4% observed in the China import and export business and is no less favourable to the Group than terms available from independent third parties. In addition, such profit margin shall provide sufficient incentive for Hisense Group and/or its subsidiaries to help growing the Group’s export revenue and is therefore in the interests of the Company and the Shareholders as a whole. Based on the above, we are of the view that

such profit margin is fair and reasonable.

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 of similar services from time to time and not less favourable to the Group than terms available to or from (as appropriate) independent third parties; (ii) the transactions, when taken place, will increase the revenue of the Group; (iii) the export agency fee percentage payable to Hisense Group and/or its subsidiaries under the Business Co-operation Framework Agreement is fair and reasonable; (iv) 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 Hisense Group and/or its subsidiaries; and (v) the Group has conducted similar transactions in the past based on the relevant sample of the definitive agreements entered into between the Company and the relevant subsidiary of Hisense Group we have reviewed, 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.

f. 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 supply on a non-exclusive basis such quantities of home electrical appliances as Hisense Group, Hisense Electric and/or their respective subsidiaries may require from time to time.

The pricing for the supply of home electrical appliances by the Group to Hisense Group, Hisense Electric and/or their respective subsidiaries 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.

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The Business Co-operation Framework Agreement will not restrict Hisense Group, Hisense Electric and/or their respective subsidiaries 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 Hisense Group, Hisense Electric and/or their respective subsidiaries 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; (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; and iv) the Group has conducted similar transactions under the Existing Business Co-operation Framework in the past and based on our review of the relevant sample of the transaction records as well as our discussion with the Management that there is no indication the terms of the transactions between the Group and Hisense Group, Hisense Electric and their respective subsidiaries were less favourable than those between the Group and independent third parties, 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 Hisense Group, Hisense Electric and/or their respective subsidiaries are in the interests of the Company and the Shareholders as a whole, on normal commercial terms and fair and reasonable.

g. Supply of equipment

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 supply on a non-exclusive basis such quantities of equipment as Hisense Group and/or its subsidiaries may require from time to time.

Pricing for the sale and supply of equipment is determined by commercial negotiations between the contracting parties according to the principles of fairness and reasonableness.

The Business Co-operation Framework Agreement will not restrict Hisense Group and/or its subsidiaries from purchasing equipment from suppliers other than the Group, nor will it restrict the Group from selling its equipment to any other third parties.

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On the basis that (i) the sale and supply of equipment by the Group to Hisense Group and/or its subsidiaries will increase the revenue of the Group; (ii) the equipments are customised as per the customers’ requirements; (iii) 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 and not less favourable to the Group than terms available to or from (as appropriate) independent third parties; and iv) the Group has conducted similar transactions under the Existing Business Co-operation Framework in the past and based on our review of the relevant sample of the transaction records and our discussion with the Management that there is no indication the terms of the transactions between the Group and Hisense Group and its subsidiaries were less favourable than those between the Group and independent third parties, we are of the view that the terms of the Business Co-operation Framework Agreement with respect to the sale and supply of equipment to Hisense Group and/or its subsidiaries are in the interests of the Company and the Shareholders as a whole, on normal commercial terms and fair and reasonable.

h. 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 Hisense Group, Hisense Electric and/ or their respective subsidiaries may require from time to time.

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.

The Business Co-operation Framework Agreement will not restrict Hisense Group, Hisense Electric and/or their respective subsidiaries 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 i) the moulds are customised as per the customers’ requirements; ii) the pricing for the supply of moulds will be determined by open bidding process, which is a transparent pricing mechanism; and iii) the Group has conducted similar transactions under the Existing

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Business Co-operation Framework in the past and based on our review of the relevant sample of the transaction records and our discussion with the Management that there is no indication the terms of the transactions between the Group and Hisense Group, Hisense Electric and their respective subsidiaries were less favourable than those between the Group and independent third parties, 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 Hisense Group, Hisense Electric and/or their respective subsidiaries are in the interests of the Company and the Shareholders as a whole, on normal commercial terms and fair and reasonable.

i. Supply of raw materials, parts and components

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

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

The Business Co-operation Framework Agreement will not restrict Hisense Group, Hisense Electric and/or their respective subsidiaries 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 Hisense Group, Hisense Electric and/ or their respective subsidiaries 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 Co-operation Framework Agreement and will be determined in accordance with the principle of fairness and reasonableness and not less favourable to the Group than terms available to or from (as appropriate) independent third parties; and (iii) the Group has conducted similar transactions under the Existing Business Co-operation Framework in the past and based on our review of the relevant sample of the transaction records and our discussion with the Management that there is no indication the terms of the transactions between the Group and Hisense Group, Hisense Electric and their respective subsidiaries

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were less favourable than those between the Group and independent third parties, we are of the view that the terms of the Business Cooperation Framework Agreement with respect to the supply of raw materials, parts and components to Hisense Group, Hisense Electric and/ or their respective subsidiaries are in the interests of the Company and the Shareholders as a whole, on normal commercial terms and fair and reasonable.

j. Provision of services by the Group

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

The fees payable by Hisense Group and/or its subsidiaries for the aforesaid services is determined by commercial negotiations according to the principles 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 Business Co-operation Framework Agreement will not restrict Hisense Group and/or its subsidiaries from engaging services providers other than the Group, nor will it restrict the Group from providing its 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 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; (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; and (iv) the Group has conducted similar transactions under the Existing Business Co-operation Framework in the past and based on our review of the relevant sample of the definitive agreements entered into between the Company and Hisense Group and its subsidiaries as well as those entered into between the Company and independent third parties and our discussion with the Management that there is no indication the terms of the transactions between the Group and Hisense Group and its subsidiaries were less favourable than those between the Group and independent third parties, we are of the view that the terms

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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.

2. The Financial Services Agreement

Pursuant to the terms of the Financial Services Agreement, the Group will engage Hisense Finance to provide a range of financial services within its scope of business, including without limitation, deposit services, loan services, draft discount services and other businesses which may be carried on by Hisense Finance as approved by the regulatory authorities. Particulars of the services to be provided by Hisense Finance to the Group are as follows:

(i) deposit services;
(ii) loan and electronic bank acceptance bill services;
(iii) draft discount services;
(iv) settlement and sale of foreign exchange services; and
(v) agency services such as settlement services for receipt and payment of funds.

For the draft discount services which will be provided to the Group by Hisense Finance, the Group is entitled to present bank drafts to Hisense Finance for payment before the maturity date of the bank drafts. In return, Hisense Finance will charge discount interest from the Group for “cashing” the bank drafts. After the Group has discounted the bank drafts with Hisense Finance, such bank drafts will belong to the latter which will have the right to present such bank drafts to the issuing banks for payment on their respective maturity dates.

The Group may obtain financial services contemplated under the Financial Services Agreement from other financial institutions in addition to Hisense Finance, as it sees fit.

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a. Pricing of deposit service

The interest rate payable for the Group’s deposits with Hisense Finance shall not be lower than the rate payable by normal commercial banks in the PRC for comparable deposits.

b. Pricing of loan and electronic bank acceptance bill service

The interest rate charged on the loans provided to the Group by Hisense Finance shall not be higher than the rate charged by normal commercial banks in the PRC for comparable loans.

The service fees charged on the provision of electronic bank acceptance bill services by Hisense Finance to the Group shall not be higher than the standard service fees charged by normal commercial banks in the PRC for comparable services.

Hisense Finance may require the Group to provide guarantee or security over assets in respect of the loan and electronic bank acceptance bill services rendered, depending on the then circumstances and business needs.

c. Pricing of draft discount service

The discount rate for the provision of draft discount services by Hisense Finance to the Group shall be determined on the basis of the rediscount rate quoted by the People’s Bank of China (“ PBOC ”) and with reference to market level and shall not be higher than the discount rate charged by normal commercial banks in the PRC providing such services to the Group.

d. Pricing of settlement and sale of foreign exchange

The level of services (including the level of exchange rates) for the settlement and sale of foreign exchange at Hisense Finance shall not be less favourable than the level of services (including the level of exchange rates) of normal commercial banks in the PRC providing such services to the Group.

e. Price of agency services such as settlement services for receipt and payment of funds

Hisense Finance will provide agency services such as settlement services for receipt and payment of funds and the ancillary services relevant to such services to the Group in accordance with its instructions. The charging standard for service fees chargeable for the provision of agency

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services such as settlements services for receipt and payment of funds by Hisense Finance for the Group shall not be higher than the charging standard for service fees for such services of normal commercial banks or similar agencies in the PRC during the corresponding period.

The basis for the pricing for the aforesaid services shall be the benchmark interest rate for deposits and loans and the rediscount rate prescribed by the PBOC, and the market level of the market interest rates of discounted bill, the service fee for establishing electronic bank acceptance bill and the service fee for settlement services for receipt and payment of funds and agency services.

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

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

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

Pursuant to Rule 14A.35(2) of the Hong Kong Listing Rules, the transactions contemplated under 1) the Business Co-operation Framework Agreements during the year commencing from the date of approval of the Business Co-operation Framework Agreement by the Independent Shareholders until 31 December 2014 will be subject to an annual cap for the financial year ending 31 December 2014 of the Company; and 2) the Financial Services Agreement during the year commencing from the date of approval of the Financial Services Agreement by the Independent Shareholders until 31 December 2015 will be subject to an annual cap for the financial year ending 31 December 2014 and 2015 of the Company. The proposed maximum aggregate values, or “caps”, of the transactions contemplated under the Agreements for the year ending 31 December 2014 and the estimated unaudited value of similar transactions between the relevant parties in 2013 are summarised below:

			Increase of the
			proposed caps
			as compared to
			the estimated
			annualised
		Unaudited	unaudited value
		value	of the similar
		of the similar	transactions for
		transactions	the year 2013
		between the	based on
	Proposed caps	relevant parties	their unaudited
	for the	for the	value for the
	year ending	nine months ended	nine months ended
	31 December	30 September	30 September
	2014	2013	2013
	(RMB)	(RMB)	(%)
The Business Co-operation
Framework Agreement:
Maximum aggregate value of
purchase of home electrical
appliances:	1,110,000	10,000	8,225.0%
Maximum aggregate value of
purchase of equipment:	4,000,000	30,000	9,900.0%
Maximum aggregate value of
purchase of raw materials, parts
and components:	67,980,000	31,550,000	61.6%

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			Increase of the	Increase of the
				proposed caps
			as compared to
				the estimated
				annualised
		Unaudited	unaudited value
		value		of the similar
		of the similar	transactions for
		transactions		the year 2013
		between the		based on
	Proposed caps	relevant parties	their unaudited
	for the	for the		value for the
	year ending	nine months ended	nine months ended
	31 December	30 September		30 September
	2014	2013		2013
	(RMB)	(RMB)		(%)
Maximum aggregate value of the
provision of services by Hisense
Group, Hisense Electric and/or
their respective subsidiaries:	130,120,000	54,990,000		77.5%
Maximum aggregate value of the
provision of agency services
for export of the white goods
by Hisense Group and/or its
subsidiaries:	366,830,000	157,090,000		75.1%
Maximum aggregate value of supply
of home electrical appliances:	3,039,800,000	2,276,340,000		0.2%
Maximum aggregate value of supply
of equipment:	8,560,000	3,850,000		66.8%
Maximum aggregate value of supply
of moulds:	349,680,000	172,860,000		51.7%
Maximum aggregate value of
supply of raw materials, parts and
components:	29,050,000	9,590,000		127.2%
Maximum aggregate value of the
provision of services by the Group:	6,870,000	1,680,000		206.7%

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			Increase of the
			proposed caps
			as compared to
			the estimated
			annualised
		Unaudited	unaudited value
		value	of the similar
		of the similar	transactions for
		transactions	the year 2013
		between the	based on
	Proposed caps	relevant parties	their unaudited
	for the	for the	value for the
	year ending	nine months ended	nine months ended
	31 December	30 September	30 September
	2014	2013	2013
	(RMB)	(RMB)	(%)
The Financial Services Agreement:
Maximum daily balance of the
deposits to be placed by the Group
with Hisense Finance in respect of
the deposit services:	RMB800,000,000	RMB347,026,565	72.9%
		(Note 1)
Maximum balance of the loan and
electronic bank acceptance bills to
be provided by Hisense Finance to
the Group in respect of the loan
and electronic bank acceptance bill
services:	RMB2,200,000,000	RMB1,498,101,246	10.1%
		(Note 1)
Maximum aggregate value of the
annual discount interest payable
by the Group to Hisense Finance
in respect of the draft discount
services:	RMB50,000,000	RMB225,518	16,528.4%
Maximum aggregate value payable
by the Group to Hisense Finance
in respect of settlement and sale of
foreign exchange services:	US$500,000,000	US$26,046,587	1,339.7%
Maximum aggregate value payable
by the Group to Hisense Finance in
respect of agency services:	RMB5,000,000	N.A.	N.A
		(Note 2)	(Note 2)

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Notes:

being the maximum daily balance of deposits and loan and electronic bank acceptance bills, respectively, recorded in the period of 1 January and 30 September 2013.
being a new transaction category commencing in 2014, no historical figures recorded for such transactions with Hisense Finance in 2013.

The basis for the proposed maximum value for each category of transactions contemplated under the Business Co-operation Framework Agreement and the Financial Services 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 Business Co-operation Framework Agreement:

Purchase of home electrical (a) the prevailing market conditions about the demand appliances 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 to purchase television sets from Hisense Group, Hisense Electric and/or their respective subsidiaries for the year ending 31 December 2014 as gifts for the Group’s marketing and promotion activities which aim at boosting the sales of the Group’s home electrical appliances such as refrigerators
Purchase of equipment the projected level of production and sales of electrical appliances of the relevant subsidiaries of the Company for the year ending 31 December 2014
Purchase 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 projected level of production and sales of electrical appliances of the relevant subsidiaries of the Company for the year ending 31 December 2014

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 2014

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LETTER FROM INVESTEC

Basis for the proposed annual cap

Provision of agency services for export of the white goods by Hisense Group and/or its subsidiaries
(a) similar transactions between the Group with Hisense Marketing and/or its subsidiaries in the past; and (b) the prevailing market conditions relating to the provision of such services
Supply of home electrical appliances
(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 2014
Supply of equipment
(a) the prevailing market conditions about the demand for electrical appliances in the PRC; 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 2014
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, parts and components
(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
Provision of services by the Group
(a) similar transactions between the 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

The Financial Services Agreement:

Deposit service
(a) the historical cashflow figures of the Group; and (b) the expected financial needs of cash of the Group taking into account the business development plans on areas relating to research and development, investment, sales and supply of the Group

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Basis for the proposed annual cap

(a) the historical cashflow figures of the Group; (b) the expected financial needs of the Group taking into account the business development plans on areas relating to research and development, investment, sales and supply of the Group; and (c) the plan of the Group to obtain more loans from Hisense Finance instead of from other financial institutions for the years ending 31 December 2015 since the terms for the provision of the loans by Hisense Finance to the Group shall be no less favourable than those of other normal commercial banks and financial institutions and Hisense Finance has better knowledge about the background and financial status of the Company which will facilitate the loan application process by the Company

(a) the expected financial needs of the Group taking into account the business development plans on areas relating to research and development, investment, sales and supply of the Group; and (b) the plan of the Group to use more draft discount services to be provided by Hisense Finance instead of from other financial institutions for the years ending 31 December 2015 since the terms for the provision of the draft discount services by Hisense Finance to the Group shall be no less favourable than those of other normal commercial banks and financial institutions and Hisense Finance has better knowledge about the background and financial status of the Company which will facilitate the draft discount application process by the Company

the expected volume of export and the expected amount subject to settlement and sale of foreign exchange for the years ending 31 December 2015

(a) the historical expenses for agency services such as settlement services for receipt and payment of funds of the Group, taking into account the corresponding increase in agency services such as settlement services for receipt and payment of funds resulting from the increment in the scale of the Group’s revenue and the charging standard for service fees chargeable for the provision of agency services such as settlements services for receipt and payment of funds by Hisense Finance for the Group which shall not be higher than the charging standard for service fees for such services of normal commercial banks or similar agencies in the PRC

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The Business Co-operation Framework Agreement

For assessing the proposed annual caps of the transactions contemplated under the Business Co-operation Framework Agreements, we have reviewed and discussed with the Management the respective value of the historical transactions, the underlying assumptions and calculation in arriving at the respective proposed annual caps, details of which are elaborated in the following:

Purchase of home electrical appliances

As regards the proposed annual cap for the purchase of home electrical appliances, we understand from the Management that the purchase of certain home electrical appliances as gifts for the Group’s marketing and promotion activities were not executed in 2013 as other alternative gifts were used for the Group’s marketing and promotion which resulted in the low transactions value for the nine months ended 30 September 2013. Following the launch of some innovative products by Hisense Electric, the Company has decided to use such products as gift for the Group’s marketing and promotion in 2014 due to its small size and light weight, and therefore the transactions in relation to purchase of home electrical appliances is expected to increase in 2014. Taking into account that (i) the Group is to use Hisense Electric’s products as gifts for the Group’s marketing and promotion; (ii) our discussion with the Management about the underlying assumptions and calculation in arriving at the proposed annual cap; (iii) downward revision of the respective cap by close to 50% compared to 2013; and (iv) relatively small amount of the respective proposed cap in relation to the overall proposed caps, we are of the view that the proposed annual cap for the purchase of home electrical appliances for the year ending 31 December 2014 is not excessive.

Purchase of equipment

As regards the purchase of equipment by the Group, we understand from the Management that due to the delay in overseas expansion of the Group in 2013, the relevant transactions value for the nine months ended 30 September 2013 was lower than expected. We also understand that as (i) the Group has the need for production line technology of higher productivity and automation level in its ordinary business course; (ii) our discussion with the Management about the underlying assumptions and calculation including the projected level of the equipment needed by the Group for the year ending 31 December 2014; (iii) Hisense Group and/or its subsidiaries have a professional team of required expertise and provide very competitive price for relevant equipments that can reduce purchase costs of the Group; and (iv) the Group is satisfied with the quality of the equipment provided by Hisense Group and/or its subsidiaries from their previous course of dealings, the Group intends to purchase more imported equipment from Hisense Group and/or its subsidiaries in 2014 to improve the Group’s current production line technology and to continue moving towards high-end products. In addition, we note that the proposed cap for 2014 has been revised downward by more than 50% compared to 2013 and the amount is relatively small in relation to the overall proposed caps. Based on above, we are of the view that the proposed annual cap for the purchase of equipment from Hisense Group and/or its subsidiaries is prepared on a fair and reasonable basis.

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Purchase of raw materials, parts and component

As regards the purchase of raw materials, parts and components, as stated in the Letter from the Board, the purchase of raw materials, parts and components for refrigerators and air-conditioners by the Group from Hisense Group, Hisense Electric and/or their respective subsidiaries will reduce purchase costs, and at the same time, the Group can benefit from the sharing of resources and the maximization of the economies of scale. Further, the Group is satisfied with the quality of raw materials, parts and components provided by Hisense Group, Hisense Electric and/ or their respective subsidiaries from their previous course of dealings. Quality of the Group’s products is enhanced by importing certain raw materials overseas, which in turn boosts the sales of the Group’s high-end products and increase the product and brand competitiveness. We also understand from the Management that (i) the order for some of components by the Group were small due to the fact that Hisense Group, Hisense Electric and their subsidiaries could not fully deliver the orders during the nine months ended 30 September 2013 and the Group expects delivery improvement of the guaranteed orders in 2014 by Hisense Group, Hisense Electric and their subsidiaries to an amount which represents approximately 40% of the respective proposed cap in 2014; and (ii) in 2014 the Group plans to engage Hisense Group, Hisense Electric and/or their respective subsidiaries in the designated manufacturing for a type of the raw materials (which was on a pilot manufacturing scheme in 2013) that the transaction value is expected to multiply by 15 time from 2013 to an amount which represents approximately 30% of the respective proposed cap in 2014. Based on the above, taking into account that the Group’s plan to purchase more raw materials, parts and components including some new parts and components directly from Hisense Electric in 2014, the underlying assumptions and calculation which we have reviewed, we are of the view that the proposed annual cap for the purchase of raw materials, parts and components from Hisense Group and Hisense Electric is prepared on a fair and reasonable basis.

Provision of services by Hisense Group and Hisense Electric

As regards the provision of services by Hisense Group and Hisense Electric, we understand from the Management that (i) the Group shall engage Hisense Group and its subsidiaries to provide the chip processing as a new service and the housing rental service to more subsidiaries of the Group in 2014 and the transactions amount for 2014 is expected to increase accordingly; (ii) the increase of fees from the existing services was approximately 25% for the nine months ended 30 September 2013; and (iii) the provided unaudited value of the transactions for the nine months ended 30 September 2013 of RMB55.0 million did not include all the amount attributed to the respective transactions during the period as a number of services fees were yet to be cleared and settled. In order to determine the fairness and reasonableness of the proposed annual cap, we, for the purpose of ensuring the accuracy of the Company’s computation of the proposed annual cap, have carried out a review on the basis and the underlying assumptions prepared by the Management for calculation of the relevant annual cap. Based on (i) our discussion with the Management about the

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underlying assumptions including the additional category of services, in particular, the additional material processing service to be provided by Hisense Group and its subsidiaries; (ii) the expected increase in property management services fees and (iii) the result of our review, we are satisfied that the proposed annual cap has been conducted on a fair and reasonable basis.

Provision of agency services for export of the white goods

As regards the provision of agency services for export of the white goods, we understand from the Management that the export agency fee percentage was determined with reference to (i) the actual costs and expenses incurred by Hisense Marketing for providing agency services from March 2011 to June 2012, i.e. the actual rate of charges, of which as stated in the Letter from the Board (and according to the audit conducted by BDO), was 7.24%; and (ii) a build in incentive which links the export agency fee percentage to the growth rate of the revenue from export subject to the export agency services. The Management expects an approximately 30% growth rate of the revenue from export subject to the export agency services for 2014 as compared to 2013 in light of the change in the relevant business model shifting more export sales through agency channel and the Company’s organic growth target of the export sales. Therefore, the corresponding export agency fee percentage for 2014 is expected to increase as compared to 2013. In order to determine the fairness and reasonableness of the proposed annual cap, we, for the purpose of ensuring the accuracy of the Company’s computation of the proposed annual cap, have carried out a review on the basis and the underlying assumptions prepared by the Management for calculation of the relevant annual cap. Based on (i) our discussion with the Management about the underlying assumptions including the expected 30% growth rate of the revenue from export subject to the export agency services for 2014 as compared to 2013; and (ii) the result of our review, we are satisfied that the proposed annual cap has been conducted on a fair and reasonable basis.

Supply of home electrical appliances

As regards the supply of home electric appliances, as advised by the Management, the amount of relevant orders would remain stable in the fourth quarter of 2013 and the Management expects to sell approximately 5% more home electrical appliances to Hisense Group in 2014 as compared to 2013. Therefore, the transactions amount for 2014 is expected to increase accordingly. In order to determine the fairness and reasonableness of the proposed annual cap, we, for the purpose of ensuring the accuracy of the Company’s computation of the proposed annual cap, have carried out a review on the basis and the underlying assumptions prepared by the Management for calculation of the relevant annual cap including the estimated models to be developed and their estimated unit price. Based on (i) our discussion with the Management about the underlying assumptions; (ii) the result of our review; and (iii) the relatively high utilization rate in 2013 reflecting the consistency of Management’s target and achievement, we are satisfied that the proposed annual cap has been conducted on a fair and reasonable basis.

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LETTER FROM INVESTEC

Supply of equipment

As regards the supply of equipment, we understand from the Management that the equipment were sold in the overseas markets and the unaudited value of the respective transactions recorded for the nine months ended 30 September 2013 did not reflect the full amount sold due to delayed clearance and settlement. As regards to the increase in the proposed annual cap in relation to the supply of equipment for the year ending 31 December 2014, we have discussed with the Management and note that such proposed annual cap has been arrived at on the basis of (i) the Group’s estimation about the demand for home electrical appliances in the overseas market in the future; and (ii) the projected level of production and sales of electrical appliances of the relevant subsidiaries of the Company for the year ending 31 December 2014. In order to determine the fairness and reasonableness of the proposed annual cap, we, for the purpose of ensuring the accuracy of the Company’s computation of the proposed annual cap, have carried out a review on the basis and the underlying assumptions prepared by the Management for calculation of the relevant annual cap. Based on (i) our discussion with the Management about the underlying assumptions including the projected level of production and sales of electrical appliances of the relevant subsidiaries of the Company for the year ending 31 December 2014; and (ii) the result of our review, we are satisfied that the proposed annual cap has been conducted on a fair and reasonable basis.

Supply of moulds

As regards the supply of moulds, we understand from the Management that the existing production of one of the subsidiaries could not meet the order target leading to lower realization of the transaction value and the Group has set up action task force to tackle the problem and increase the production to meet the order target for 2014. Hence, the Group expected to supply more moulds to Hisense Group in 2014. We also note that the respective proposed cap for 2014 has been adjusted slightly downward from the cap for 2013. In order to determine the fairness and reasonableness of the proposed annual cap, we, for the purpose of ensuring the accuracy of the Company’s computation of the proposed annual cap, have carried out a review on the basis and the underlying assumptions prepared by the Management for calculation of the relevant annual cap. Based on (i) our discussion with the Management about the underlying assumptions; and (ii) the result of our review, we are satisfied that the proposed annual cap has been conducted on a fair and reasonable basis.

Supply of raw materials, parts and components

As regards the supply of raw materials, parts and components, we understand from the Management that the Group expects an increase in supply of raw materials, parts and components to Hisense Group and Hisense Electric in 2014 as there will be additional subsidiaries of Hisense Group and Hisense Electric which would require supply of raw materials, parts and components from the Group for the year ending 31 December 2014. In order to determine the fairness and reasonableness of the

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proposed annual cap, we, for the purpose of ensuring the accuracy of the Company’s computation of the proposed annual cap, have carried out a review on the basis and the underlying assumptions prepared by the Management for calculation of the relevant annual cap. Based on (i) our discussion with the Management about the underlying assumptions; and (ii) the result of our review, we are satisfied that the proposed annual cap has been conducted on a fair and reasonable basis.

Provision of services by the Group

As regards the provision of services by the Group, we understand from the Group that a substantial amount in relation to the design services that previously expected did not occur in 2013. However, due to the continued increase of rental price in the PRC, the Group expects that the value of the services to be provided by the Group to Hisense Group would eventually increase in 2014. In order to determine the fairness and reasonableness of the proposed annual cap, we, for the purpose of ensuring the accuracy of the Company’s computation of the proposed annual cap, have carried out a review on the basis and the underlying assumptions prepared by the Management for calculation of the relevant annual cap including the estimated transaction amount for each category of services. Based on (i) our discussion with the Management about the underlying assumptions including the additional subsidiaries of Hisense Group whom the Group will provide property management services to for the year ending 31 December 2014; and (ii) the result of our review, we are satisfied that the proposed annual cap has been conducted on a fair and reasonable basis.

The Financial Services Agreement

Deposit Services

As set out in the Letter from the Board, the Company currently expects that the maximum daily balance of the deposits to be placed by the Group with Hisense Finance at any time during the term of the Financial Services Agreement shall not exceed the cap of RMB800,000,000 (inclusive of interest) on any given day. Such proposed cap was determined with reference to (i) the historical cashflow figures of the Group; and (ii) the expected financial needs of cash of the Group taking into account the business development plans on areas relating to research and development, investment, sales and supply of the Group.

In general, we have discussed with the Management of the Company about its business development plans on areas relating to research and development, investment, sales and supply of the Group. In particular, we understand that the Company intends to strengthen its research and development capacity so as to shorten the lead time for its products. As mentioned above, the Group had bank loans (including bank and trade notes payable) of approximately RMB1,906.4 million and its unaudited total liabilities amounted to approximately RMB9,884.6 million as at 30 June 2013. For the purposes of efficient treasury management and satisfying the financial needs for its existing development plans, the Company expects that

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

For the purpose of evaluating the fairness and reasonableness of the proposed cap of RMB800 million in respect of the deposit services, we have discussed with the Management and understand that maximum daily balance of the deposits to be placed by the Group with Hisense Finance was approximately RMB328 million in 2012 and approximately RMB347 million in the first nine months of 2013 which are approximately 59.0% and 56.6% lower than the proposed annual cap of RMB800 million, respectively. We also note from the Interim 2013 that the Group had approximately RMB516 million opening balance of total cash at bank and on hand as per 30 June 2013. The Company currently expects that as a result of the business development plans on areas relating to research and development, investment, sales and supply of the Group, the Company shall utilise more deposit services in the coming years to take advantage of the more expedient and efficient service provision by Hisense Finance.

As stated in letter from the Board, Hisense Finance is regulated by the CBRC and engaged in the provision of financial services in compliance with the relevant regulations and operation requirements. Its primary customers are the subsidiaries of the Hisense Group. We have discussed with the Management on their view on credibility of Hisense Finance. The Management has advised that Hisense Finance only provides the services to the subsidiaries of the Hisnese Group, so the risks of those companies are fully monitored by the management of Hisense Group. In order to minimise the risk associated with Hisense Finance in relation to the deposit services, as a prerequisite of utilising such deposit services, each time the Company would assess the business and financial risks of Hisense Finance by reviewing its latest available financial statements and such assessment is required to be reported to the Directors for their approvals. In addition, the Management considers that Hisense Finance has honoured its business commitments and obligations in the past. Therefore, the Directors are of the view that the above measurement could minimise the risk exposed to Hisense Finance and is sufficient for the risk control purpose. Based on above and taking into account the additional regulatory and monitoring mechanism by CBRC, we concur with the view of the Management that the risk associated with Hisense Finance in relation to the deposit placed/to be placed by the Company is low and the relevant risk controlling mechanism is sufficient. Furthermore, the proposed transactions contemplated in relation to the deposit services will be conducted in the ordinary and usual course of business of the Company and on normal commercial terms and the terms will not be less favourable to the Company than terms available from other normal commercial banks and financial institutions, we are of the view that the proposed transactions in relation to the deposit services under the Financial Services Agreement are fair and reasonable.

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LETTER FROM INVESTEC

As set out above, it is proposed that the loans to be provided by Hisense Finance to the Group under the Financial Services Agreement will first be transferred by Hisense Finance to the Group in its deposit account with Hisense Finance for withdrawal. Given the proposed maximum amount of loan and electronic bank acceptance bill services of RMB2,200 million to be provided by Hisense Finance to the Group in respect of the loan and electronic bank acceptance bill services (which is 175% higher than the proposed maximum daily balance of the deposit to be placed by the Group with Hisense Finance), we do not consider the proposed annual cap of RMB800 million in respect of the deposit services under the Financial Services Agreement to be excessive. Given that (i) the proposed transactions contemplated under the Financial Services Agreement will be conducted in the ordinary and usual course of business of the Company and on normal commercial terms and on terms not less favourable to the Company than terms available from other normal commercial banks and financial institutions; and (ii) the non-exclusive arrangement under the Financial Services Agreement provides the Company with the flexibility without any commitment on the actual transaction values, we are of the view that the proposed annual cap of RMB800 million in respect of the deposit services under the Financial Services Agreement is fair and reasonable.

Loan and electronic bank acceptance bill services

As set out in the Letter from the Board, the Company currently expects that the maximum balance of loan and electronic bank acceptance bills to be provided by Hisense Finance to the Group shall not exceed the cap of RMB2,200 million (inclusive of interest) during the term of the Financial Services Agreement. Such proposed cap has been determined based on (i) the historical cashflow figures of the Group; (ii) the expected financial needs of the Group taking into account the business development plans on areas relating to research and development, investment, sales and supply of the Group; and (iii) the plan of the Group to obtain more loans from Hisense Finance instead of from other financial institutions for the next two financial years since the terms for the provision of the loans by Hisense Finance to the Group shall be no less favourable than those of other normal commercial banks and financial institutions and Hisense Finance has better knowledge about the background and financial status of the Company which will facilitate the loan application process by the Company.

We note that the maximum daily balance of loan and electronic bank acceptance bills to be placed by the Group with Hisense Finance was approximately RMB1,163 million in 2012 and approximately RMB1,498 million in the first nine months of 2013 which are approximately 47.1% and 31.9% lower than the proposed annual cap of RMB2,200 million, respectively. As understood from the Management, (i) the PRC credit market has become more tightened since 2013; (ii) it was difficult to borrow money from the PRC commercial banks; (iii) the Group has not taken any loan from Hisense Finance in 2013; and (iv) the maximum daily balance of RMB1,498 million recorded in the nine months ended 30 September 2013 was solely

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attributed to electronic bank acceptance bills. According to the statistics from the PBOC, the guideline interest rate between January and December 2012 was between 6.00% and 6.56% while the Group’s borrowings with Hisense Finance bore interest rates ranging from 4.376% to 6.560% in 2012 as advised by the Management. Furthermore, we also note from the 2012 annual report and the 2013 interim report of Bank of China Limited (“BOC”) that the respective average interest rate of domestic RMB corporate loans provided by BOC was 6.77% for 2012 and 6.49% for the first six months of 2013. As such, the interest rates for the loans provided by Hisense Finance were considered favourable to the Group and in the interests of the Company and the Shareholders as a whole. In addition, we understand from the Management that the service charge for electronic bank acceptance bills by Hisense Finance is at par that charged by any of the independent commercial banks. We consider that it is beneficial for the Group to continue to utilise such loan and electronic bank acceptance bills services to be provided by Hisense Finance in the future as the Group will be able to reduce its finance costs. We also consider that it is of the Group’s interest to maximise the relevant annual cap so as to capture the potential interest savings to the greatest extent.

Given that the loan and electronic bank acceptance bill services under the Financial Services Agreement will be conducted in the ordinary and usual course of business of the Company and on normal commercial terms and on terms not less favourable to the Company than terms available from other normal commercial banks and financial institutions, we are of the view that the proposed annual cap in respect of the loan and electronic bank acceptance bill services under the Financial Services Agreement is fair and reasonable.

Draft discount services

As set out in the Letter from the Board, the Company currently expects that the annual discount interest payable by the Company to Hisense Finance for draft discount services shall not exceed the cap of RMB50 million during the term of the Financial Services Agreement. Such proposed cap has been determined based on (i) the expected financial needs of the Group taking into account the business development plans on areas relating to research and development, investment, sales and supply of the Group; and (ii) the plan of the Group to use more draft discount services to be provided by Hisense Finance instead of from other financial institutions for the next two financial years ending 31 December 2015 since the terms for the provision of the draft discount services by Hisense Finance to the Group shall be no less favourable than those of other normal commercial banks and financial institutions and Hisense Finance has better knowledge about the background and financial status of the Company which will facilitate the draft discount application process by the Company.

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LETTER FROM INVESTEC

As mentioned above, the historical service fees paid by the Company for the draft discount services provided by other financial institutions to the Group was approximately RMB4.8 million in 2012 and RMB0.2 million for the first nine months of 2013. As advised by the Management, the discount interest rates (thus the costs to the Group) were higher than previous years and the Group has minimised the transactions in relation to draft discount services with all financial institutions in 2013. In the Management’s view, the future discount interest rates in PRC are difficult to predict, leading to uncertainty for the transactions in relation to draft discount services utilised by the Group. In addition, with the expectation of increase of export sales by the Group, the Company shall utilise more draft discount services in the coming years to take advantage of the more expedient and efficient service provision by Hisense Finance. We also note that such payments of services fees had been fluctuating during the past several financial years.

In view of the fact that (i) the proposed draft discount services to be provided by Hisense Finance to the Group will be conducted in the ordinary and usual course of business of the Company and on normal commercial terms and on terms not less favourable to the Company than terms available from other normal commercial banks and financial institutions; (ii) the non-exclusive arrangement under the Financial Services Agreement provides the Company with the flexibility without any commitment on the actual transaction values; and (iii) given the existing development plans of the Company, it is generally in the interest of the Company to maximise the amount of service fees payable so as to provide for its expected increasing utilisation in the coming financial years, we are of the view that the proposed annual cap of RMB50 million in respect of the draft discount service fees to be payable under the Financial Services Agreement is fair and reasonable.

Settlement and sale of foreign exchange services

As set out in the Letter from the Board, the Company currently expects that the annual amount settled or sold by Hisense Finance for the Group shall not exceed the annual cap of US$500 million. Such proposed cap has been determined based on the expected volume of export and the expected amount subject to settlement and sale of foreign exchange for each of the next two financial years ending 31 December 2015.

The historical transaction value for the provision of settlement and sale of foreign exchange services by Hisense Finance to the Group was amounted to approximately US$26 million for the first nine months of 2013. We understand from the Management that (i) provision of settlement and sale of foreign exchange services by Hisense Finance is in a trial phase in 2013; (ii) the Group is satisfied with the quality of services provided by Hisense Finance; and (iii) the relevant financial expenses has reduced notably since using such services by Hisense Finance. Hence, the Company plans to increase the usage of settlement and sale of foreign exchange services by Hisense Finance and shall utilise more settlement and foreign exchange services in relation in the coming years to take advantage of the more expedient and efficient service provision by Hisense Finance. In order to determine the fairness

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and reasonableness of the proposed annual cap, we, for the purpose of ensuring the accuracy of the Company’s computation of the proposed annual cap, have reviewed the basis and assumptions on calculation in respect of the expected volume of export and the expected amount subject to settlement and sale of foreign exchange for the next two financial years ending 31 December 2015.

In view of the fact that (i) the proposed settlement and sale of foreign exchange services to be provided by Hisense Finance to the Group will be conducted in the ordinary and usual course of business of the Company and on normal commercial terms and on terms not less favourable to the Company than terms available from other normal commercial banks and financial institutions; (ii) the non-exclusive arrangement under the Financial Services Agreement provides the Company with the flexibility without any commitment on the actual transaction values; and (iii) the business development plans of the Company to be implemented in the future, it is generally in the interest of the Company to maximise the amount of settlement and sale of foreign exchange payable so as to provide for its expected increase in export sales for the coming financial years, we are of the view that the proposed annual cap of US$500,000,000 in respect of the settlement and sale of foreign exchange to be payable under the Financial Services Agreement is fair and reasonable.

Agency services such as settlement services for receipt and payment of funds

As set out in the Letter from the Board, the Company currently expects the annual amount payable for the agency services such as settlement services for receipt and payment of funds to Hisense Finance by the Group shall not exceed the annual cap of RMB5 million. Such proposed cap has been determined based on the historical expenses for agency services such as settlement services for receipt and payment of funds of the Group, taking into account the corresponding increase in agency services such as settlement services for receipt and payment of funds resulting from the increment in the scale of the Group’s revenue and the charging standard for service fees chargeable for the provision of agency services such as settlements services for receipt and payment of funds by Hisense Finance for the Group which shall not be higher than the charging standard for service fees for such services of normal commercial banks or similar agencies in the PRC.

The Company will start this category of transactions in 2014. As advised by the Management, the Group recorded the historical expenses for agency services of approximately RMB2.6 million for the first nine months of 2013, which is approximately 48% lower than the proposed annual cap of RMB5 million. In order to determine the fairness and reasonableness of the proposed annual cap, we, for the purpose of ensuring the accuracy of the Company’s computation of the proposed annual cap, have reviewed the basis and assumptions on calculation in respect of the expected volume of export and the expected amount subject to settlement and sale of foreign exchange for the next two financial years.

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LETTER FROM INVESTEC

In view of the fact that (i) the proposed agency services such as settlement services for receipt and payment of funds to be provided by Hisense Finance to the Group will be conducted in the ordinary and usual course of business of the Company and on normal commercial terms and on terms not less favourable to the Company than terms available from other normal commercial banks and financial institutions; (ii) the non-exclusive arrangement under the Financial Services Agreement provides the Company with the flexibility without any commitment on the actual transaction values; and (iii) the business development plans of the Company to be implemented in the future, it is generally in the interest of the Company to maximise the amount of agency services fees payable so as to provide for its expected increase in export sales for the coming financial years, we are of the view that the proposed annual cap of RMB5 million in respect of agency services fees to be payable under the Financial Services Agreement is fair and reasonable.

IV. Conditions of the annual caps under the Agreements

There are certain conditions of the annual cap pursuant to the Hong Kong Listing Rules, in particular, the restriction of the value of the transactions contemplated under the Agreements by way of the annual cap for each of the relevant financial years 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 Hong Kong 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 Hong Kong Listing Rules, the Company shall publish an announcement if it knows or has reason to believe that the independent non-executive Directors and/or its auditors will not be able to confirm the terms of such transactions or the relevant annual caps not being exceeded. We are of the view that there are appropriate measures in place to govern the conduct of the transactions to be contemplated under the Agreements and safeguard the interests of the Independent Shareholders.

RECOMMENDATION

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

(i) The manufacture and sale of home electrical appliances is one of the principal businesses of the Group;
(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 its domestic business development;

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(iii) By engaging Hisense Group and/or its subsidiaries, the Group can largely reduce costs which would have to be committed for running the operation by itself, and use the available resources on the research and development and the quality warranties for the products to be exported, which will be beneficial to the Group in enhancing the stable development of its export business, while the basis in determining the export agency fee percentage, including the profit margin for export agency services are fair and reasonable and in the interest of the Company and the Shareholders as a whole. Accordingly, it is in the commercial interest of the Company and Hisense Group is in a good position to assist the Group in its export related business development;
(iv) By engaging Hisense Finance, the Group can largely reduce the financial costs. Accordingly, it is in the commercial interest of the Company;
(v) Certain transactions contemplated under the Agreements will increase the sales of the Group, so it is in the interest of the Company to enter into such transactions;
(vi) 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 course of business of the Group 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 Group from engaging in the similar transactions with other parties; and
(vii) 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 Group, 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, 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 resolutions to approve the Agreements at the EGM.

Yours faithfully

For and on behalf of

Investec Capital Asia Limited Alexander Tai

Managing Director

Head of Corporate Finance

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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

Interests of Directors, supervisors and chief executive of the Company in the securities of the Company

As at the Latest Practicable Date, the interests and short positions of the Directors, supervisors and chief executive of the Company in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV 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 he was taken or deemed to have under such provisions of the SFO) or which were required, pursuant to section 352 of the SFO, to be entered in the register maintained by the Company referred to therein, or which were required pursuant to the Model Code for Securities Transactions by Directors of Listed Companies of the Hong Kong Listing Rules (the “ Model Code ”) to be notified to the Company and the Stock Exchange were as follows:

Long position in the share options of the Company

	Number of			Approximate
	A Shares		Approximate	percentage of
	which may be		percentage of	total issued
	subscribed		issued	share capital of
	under the		A Shares	the Company
Name of Director	options		(%)	(%)
Tang Ye Guo	1,260,000_(Note)_		0.14	0.09
Ren Li Ren	720,000	(Note)	0.08	0.05
Xiao Jian Lin	828,000	(Note)	0.09	0.06
Gan Yong He	181,000	(Note)	0.02	0.01

Note: These share options were granted on 31 August 2011 pursuant to the first A share share option incentive scheme of the Company and are exercisable at RMB7.65 per A Share after a restriction period of 2 years from the grant date until the trading day falling on the fifth anniversary of the grant date, subject to the exercise arrangements and conditions as set out in the scheme.

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GENERAL INFORMATION

APPENDIX

Save as disclosed above, as at the Latest Practicable Date, none of the Directors, supervisors and chief executive of the Company had interests and short positions in the shares, underlying shares and/or debentures (as the case may be) of the Company or any of its associated corporations (within the meaning of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which any such Director, supervisor or chief executive was taken or deemed to have under such provisions of the SFO) or which were required pursuant to section 352 of the SFO, to be entered into the register maintained by the Company referred to therein or which were required, pursuant to the Model Code to be notified to the Company and the Stock Exchange.

Other interests

As at the Latest Practicable Date:

(a) none of the Directors or supervisors of the Company had any interest, direct or indirect, in any asset which have been, since 31 December 2012, 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;
(b) 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
(c) Mr. Tang Ye Guo, Ms. Yu Shu Min, Mr. Lin Lan and Mr. Xiao Jian Lin, being Directors, are also directors or senior management of Hisense Group or some of its subsidiaries. Hisense Group was deemed to have an interest in the shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

3. SERVICE AGREEMENTS

As at the Latest Practicable Date, none of the Directors or 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)).

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GENERAL INFORMATION

APPENDIX

4. COMPETING BUSINESS

As at the Latest Practicable Date, the following Directors or their respective associates had interests in the following businesses which were considered to compete or were 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
	which business	the entity which
	is considered to	is considered to
	compete or likely	compete or likely
	to compete with	to compete with	Nature of interest
	the business of	the business of	of the Director
Name of Director	the Group	the Group	in the entity
Mr. Tang Ye Guo	The subsidiaries of	Production of	Director
	Hisense Group	air-conditioning/
		electrical products
Ms. Yu Shu Min	Hisense Group, the	Production of	Director and/or
	subsidiaries of	air-conditioning/	senior management
	Hisense Group or	electrical products
	Hisense Electric
Mr. Lin Lan	Hisense Group or	Production of	Director and/or
	Hisense Electric	air-conditioning/	senior management
		electrical products
Mr. Xiao Jian Lin	Hisense Group or	Production of	Director and/or
	Hisense Electric	air-conditioning/	senior management
		electrical products

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

5. NO MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, none of the Directors was aware of any material adverse change in the financial or trading position of the Group since 31 December 2012 (being the date to which the latest published audited financial statements of the Group were made up).

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GENERAL INFORMATION

APPENDIX

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

Investec Capital Asia Limited

a corporation licensed 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, Investec:

(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 2012, 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 which were 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 and letter in the form and context in which they are included.

The letter of advice given by Investec 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 Company’s principal place of business in Hong Kong 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 10 January 2014:

(a) the letter from the Independent Financial Adviser dated 18 December 2013;
(b) the letter from the Independent Board Committee dated 18 December 2013;
(c) the Business Co-operation Framework Agreement;

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GENERAL INFORMATION

APPENDIX

(d) the Financial Services Agreement;
(e) the Hitachi Business Framework Agreement;
(f) the Whirlpool Business Framework Agreement;
(g) the resolutions passed at the fifth board meeting of the year 2013 of the eighth session of the Board;
(h) the prior approval and independent opinion of the independent non-executive Directors dated 21 November 2013 in relation to the connected transactions;
(i) the Existing Business Co-operation Purchase Framework Agreement;
(j) the Existing Financial Services Agreement; and
(k) the Existing Supplemental Financial Services Agreement.

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AI assistant

Medlive Technology Co., Ltd. — Proxy Solicitation & Information Statement 2013

50436_rns_2013-12-18_b1b2b355-3ce3-4cc8-93a8-2cde73683e53.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) (Stock Code: 00921)

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

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

(1) CONTINUING CONNECTED TRANSACTIONS

BACKGROUND

I. CONTINUING CONNECTED TRANSACTIONS

(A) BUSINESS CO-OPERATION FRAMEWORK AGREEMENT

Term:

Condition:

Subject matters:

(1) Purchase of home electrical appliances

Pricing:

Historical figures:

Proposed Cap:

(2) Purchase of equipment

Pricing:

Historical figures:

Proposed Cap:

Reasons for and benefits of the purchase of equipment from Hisense Group and/or its subsidiaries:

(3) Purchase of raw materials, parts and components

Pricing:

Historical figures:

Proposed Cap:

(4) Provision of services

Pricing:

Historical figures:

Proposed Cap:

LETTER FROM THE BOARD

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

(5) Provision of agency services for export of the white goods

Pricing:

LETTER FROM THE BOARD

Historical figures:

Proposed Cap:

Reasons for and benefits of the engagement of services of Hisense Group and/or its subsidiaries:

(6) Supply of home electrical appliances

Pricing:

Historical figures:

Proposed Cap:

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

(7) Supply of equipment

Pricing:

Historical figures:

Proposed Cap:

Reasons for and benefits of the supply of equipment to Hisense Group and/or its subsidiaries:

(8) Supply of moulds

Pricing:

Historical figures:

Proposed Cap:

LETTER FROM THE BOARD

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

(9) Supply of raw materials, parts and components

Pricing:

Historical figures:

Proposed Cap:

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

(10) Provision of services by the Group

Pricing:

LETTER FROM THE BOARD

Historical figures:

Proposed Cap:

(B) FINANCIAL SERVICES AGREEMENT

Term:

Condition:

Subject matters:

Pricing:

Loan and electronic bank acceptance bill service

LETTER FROM THE BOARD

Settlement and sale of foreign exchange

Proposed Caps and Historical figures:

LETTER FROM THE BOARD

Medlive Technology Co., Ltd. Proxy Solicitation & Information Statement 2013