09:34 HUALING<00382> - Announcement (2) Air-conditioners at the relevant time. The Company has undertaken that members of the Group would sell Air-conditioners to members of the Midea Electric Group pursuant to Master Agreement on the terms and conditions not less favourable than or more favourable than they would sell to independent third parties from time to time. Term Master Agreement is for a term of 3 years commencing from 1 January 2005 to 31 December 2007. CAPS FOR THE CONTINUING CONNECTED TRANSACTIONS There is no historical transaction record between the Group and the Midea Electric Group for the sales of Air-conditioners. The Continuing Connected Transactions is expected to be commenced at around the end of May 2005 upon obtaining the Independent Shareholder's approval. The following table sets out the expected capped amounts of the sales of Air-conditioners for each of the three years ending 31 December 2007: Year ending 31 December 2005 2006 2007 Expected Transaction 500,000,000 750,000,000 1,000,000,000 amounts (RMB) (equivalent to (equivalent to (equivalent to approximately approximately approximately HK$471,698,113) HK$707,547,170) HK$943,396,226) The aforesaid caps are ascertained by reference to the anticipated growth in the market demand of air-conditioners in both mainland and overseas markets in the next three years in view of the recovery of the world economy. As the production capacity of Midea Electric Group may not be able to meet such a growing market demand, air-conditioners manufactured by members of the Group have to be purchased by members of the Midea Electric Group in order to meet the demand. The caps are also ascertained by reference to the expected increase of transactions between members of the Group and members of the Midea Electric Group after Midea International became the controlling shareholder of the Company on 11 November 2004. REASONS FOR THE CONTINUING CONNECTED TRANSACTIONS The Group is principally engaged in the manufacture and sale of household electrical appliances, which include air-conditioners, refrigerators and mini-refrigerators. The principal business carried on by Midea Electric Group is the manufacture and sale of air conditioners, electric fans, rice cookers and microwave ovens and materials and spare parts for the manufacture of the household electrical appliances. The Continuing Connected Transactions will be conducted in the ordinary and usual course of business of the Group and the Directors believe that the Continuing Connected Transactions can enhance the economy efficacy of the Group and the Midea Electric Group. The Directors (including the independent non-executive Directors) consider that the terms of Master Agreement were negotiated between the Company and Midea Electric on an arm's length basis and on normal commercial terms and are fair and reasonable and the Continuing Connected Transactions are in the best interest of the Company and its shareholders as a whole. DISCLOSURE REQUIREMENTS AND APPROVAL BY THE INDEPENDENT SHAREHOLDERS