HISTORY, REORGANIZATION AND CORPORATE STRUCTURE

OUR HISTORY AND DEVELOPMENT History and Development Our business operations commenced in 1987 when Jinan Chemicals was established in Zibo, Shandong Province, the PRC, to engage in the production of small quantities of AHF. Jinan Chemicals was then under collective ownership with a management team which included Mr. Zhang Jianhong (head of the factory) and Mr. Liu Chuanqi (deputy head of the factory). Mr. Cui Tongzheng joined the management team at the end of the 1980s. Jinan Chemicals was funded by Jinan Chemical Factory ( ) and by Huantai Constructions Engineering (Tang Shan) Company ( ), an enterprise under collective ownership which was ultimately controlled by the PRC government. The principal businesses of Huantai Constructions Engineering (Tang Shan) Company are construction, decoration and renovation. Huantai Constructions Engineering (Tang Shan) Company funded Jinan Chemicals because Jinan Chemicals was an enterprise which was wholly owned by the PRC county government and operated under the guidance of the PRC county government. The PRC county government decided to inject more funds into Jinan Chemicals as part of its then policy to develop Huantai’s economy. Huantai Constructions Engineering (Tang Shan) Company was chosen by Huantai county government as one of the candidates which could invest in Jinan Chemicals. Jinan Chemical Factory was established in 1914 and, after the establishment of the PRC government in 1949, became a state-owned enterprise ( ) ultimately owned by the PRC government. Jinan Chemicals was established in 1987 by Huantai Constructions Engineering (Tang Shan) Company and Jinan Chemicals Factory. However Jinan Chemical Factory was not registered with the Huantai Administration for Industry and Commerce as a contributor to Jinan Chemicals. Jinan Chemical Factory contributed to Jinan Chemicals by way of equipment and technology know-how whilst Huantai Constructions Engineering (Tang Shan) Company contributed by way of cash and land. Jinan Chemical Factory’s principal business was the production of organic fluorine, nitro compound, and organic chlorine, and was nominated as National Second-Tier Enterprise in 1988 by the PRC government. It was involved in the management of Jinan Chemicals to the extent Huantai Tang Shan Economic Planning Committee ( ), being the department in charge of Jinan Chemical Factory, was responsible for appointment of members of the management team of Jinan Chemicals. This management team was responsible for the carrying out of Jinan Chemicals’ business at the time and was the governing body of Jinan Chemicals. As Jinan Chemicals was a collectively owned enterprise, there was no equity interest ownership in Jinan Chemicals.

By the mid 1990s, Mr. Zhang Jianhong, Mr. Liu Chuanqi and Mr. Cui Tongzheng decided to expand the operations of Jinan Chemicals, and formed a partnership with Macrolink as a strategic investor. Macrolink, a Malaysian incorporated company, owns a variety of business interests in Malaysia, Hong Kong and China. Its investments in China include participation in the ceramic, real estate, catering and chemicals industries. In August 2007, Macrolink sold its indirect controlling stake in Macro-Link International Holdings Limited, a company listed on the Main Board of the Hong Kong Stock Exchange and which, with effect from November 15, 2007 has passed a special resolution to change its name to JLF Investment Company Limited ( ), but continues to be its substantial shareholder. Macro-Link International Holdings Limited is an investment company with its principal subsidiaries engaged in the manufacturing and trading of grape wine. The controlling shareholder of Macrolink has been Mr. Fu Kwan, who owns a 40% interest in Macrolink. The shareholders of the remaining 60% shareholding in Macrolink are Mr. Wu Xiang Dong ( )asto 15%, Mr. Fang Ming Li ( ) as to 5%, Mr. Yang Yun Hua ( ) as to 26%, Mr. Zeng Xian Hui ( ) as to 6%, Mr. Zeng Xian Guang ( ) as to 6% and Mr. Li Bing Kun ( ) as to 2%. Save for Zeng Xian Hui and Zeng Xian Guang who are brothers, and Wu Xiang Dong who is a relative of

93 HISTORY, REORGANIZATION AND CORPORATE STRUCTURE

Mr. Fu Kwan, the shareholders of Macrolink are independent of each other. Mr. Fu Kwan has been the chairman, executive director and single largest shareholder of Macrolink and some of the other shareholders (apart from Mr. Fu Kwan), namely Mr. Zeng Xian Hui, Mr. Yang Yan Hua, Mr. Zeng Xian Guang and Mr. Li Bing Kun, who together hold 40% of Macrolink, have confirmed that throughout the Track Record Period and so long as they continue to be shareholders of Macrolink, they had and will vote in favour of resolutions supported by Mr. Fu Kwan, thus giving Mr. Fu Kwan effective control of Macrolink throughout the Track Record Period. Further details of the backgrounds of our founders and management team are set out in the section headed “Directors, Senior Management and Employees” in this prospectus.

Set out below is the company structure chart of Macrolink as at June 30, 2007:

Fu Kwan Wu Xiang Dong Fang Ming Li Yang Yun Hua Zeng Xian HuiZeng Xian Guang Li Bing Kun

40% 15% 5% 26% 6% 6% 2%

Macrolink

After approximately ten years’ production of AHF, the management team decided to expand the scope of business of Jinan Chemicals to include the production of downstream fluorochemical products in order to meet the growing market demand for such products and capture new market opportunities. Accordingly, Dongyue Chemicals was established in December 1996 in Zibo, Shandong Province, the PRC, as a sino-foreign joint venture company with registered capital and total investment being RMB23,580,000. In addition to production and sales of AHF, Dongyue Chemicals also commenced the production and sales of a series of fluorochemical products, mainly refrigerants. The shareholders of Dongyue Chemicals then were Zibo Dongyue Fluorine and Macrolink, which held 65.73% and 34.27%, respectively, and contributed RMB15,500,000 and RMB8,080,000 to Dongyue Chemicals’ then registered capital, respectively. Set out below is the company structure chart of Dongyue Chemicals at the time when it was established in December 1996:

Zibo Dongyue Macrolink Fluorine

65.73% 34.27%

Dongyue Chemicals

The then management team of Dongyue Chemicals consisted of Mr. Zhang Jianhong, Mr. Liu Chuanqi and Mr. Cui Tongzheng.

94 HISTORY, REORGANIZATION AND CORPORATE STRUCTURE

On February 27, 1993, Zibo Dongyue Fluorine was established as a sino-foreign joint venture, with a registered capital of US$1,500,000. It was principally engaged in the business of manufacturing AHF. The 66% equity interest in Zibo Dongyue Fluorine was then held by Zibo Tangshan Constructions Company Limited ( ), an enterprise under collective ownership and ultimately controlled by the PRC government, and the remaining 34% equity interest held by Hong Kong Wah Fai Industrial Company Limited ( ). The ultimate owners of Zibo Tangshan Construction Company Limited and Hong Kong Wah Fai Industrial Company Limited are independent third parties. Zibo Tangshan Construction Company Limited then changed its name to Shandong Wanxin Group Company Limited ( ) in 1997, and was reorganized again in January 2002 upon approval by CSRC to transform from a collectively owned enterprise to a limited liability company called Shandong Tongji Wanxin Construction Company Limited ( ). Set out below is the company structure chart of Zibo Dongyue Fluorine at the time when it was established in February 1993:

Hong Kong Zibo Tangshan Wah Fai Construction Industrial Company Company Limited Limited

66% 34%

Zibo Dongyue Fluorine

As most of the business activities of Jinan Chemicals were then assumed by Zibo Dongyue Fluorine, after the establishment of Zibo Dongyue Fluorine, Jinan Chemicals was deregistered on December 21, 1993 subject to the approval issued by Huantai Administration for Industry and Commerce.

95 HISTORY, REORGANIZATION AND CORPORATE STRUCTURE

The management team of Dongyue Chemicals, including Zhang Jianhong, Cui Tongzheng, Liu Chuanqi, did not hold any equity interest in Dongyue Chemicals prior to June 29, 2000. On June 29, 2000, Dongyue Chemicals obtained regulatory approval from the Zibo Foreign Economic Relation and Trade Commission ( ) to change its equity holders to Shandong Wanxin Group Company Limited ( ) as to 33.5% equity interest and Zibo Huantai Dadi as to 19.5%, Zibo Huantai Dawei as to 12.7%, and Macrolink as to 34.3%. Hong Kong Wah Fai Industrial Company Limited sold its equity interests in Dongyue Chemicals as it decided to conduct investments in industries other than manufacturing chemicals, whilst Shandong Wanxin Group Company Limited decided to reduce its equity interest in light of its then economical policy as a collectively owned enterprise. The considerations involved for these transactions were the corresponding value of the paid- up registered capital and were funded by internal financial resources of the respective purchasers . The total registered capital then was RMB23,580,000. Set out below is the company structure chart of Dongyue Chemicals as at June 29, 2000:

Shandong Zibo Zibo Wanxin Group Huantai Huantai Macrolink Company Dadi Dawei Limited

33.5% 19.5% 12.7% 34.3%

Dongyue Chemicals

In 2004, Zibo Huantai Dawei was an investment vehicle for the sole purpose to invest in Dongyue Chemicals. The investment fund of Zibo Huantai Dawei was contributed by 192 employees of Dongyue Chemicals. Mr. Zhang Jianhong, Mr. Cui Tongzheng and Mr. Liu Chuanqi were among the 192 employees of Dongyue Chemicals and each of them held 4.33%, 13.3% and 6.67% (24.3% in aggregate) of the interest in Zibo Huantai Dawei respectively. Together with certain family members of Mr. Zhang Jianhong (wife and brothers-in-law) and Mr. Liu Chuanqi (son) who held 11% of the interest in Zibo Huantai Dawei in total, the economic interest held by these 3 shareholders and their relatives amounted to 35.3% in total. The interests in Zibo Huantai Dawei held by the remaining employee shareholders range from 0.1% to 3% and are registered through the names of six nominee shareholders. In relation to four of these six nominee shareholders, two were Mr. Liu Chuanqi’s brothers and two were the relatives of Mr Zhang’s wife, who together held 65% of the nominal interests in Zibo Huantai Dawei and confirmed in writing in May 2007 that they had delegated their voting rights to Mr. Zhang Jianhong, Mr. Cui Tongzheng and Mr. Liu Chuanqi throughout the Track Record Period. The six shareholders of Zibo Huantai Dawei are only nominee shareholders and there was no board of directors. These six nominee shareholders were chosen to act as nominee shareholders as four of them are related to Mr. Liu Chuanqi or Mr. Zhang Jianhong whilst the remaining two were senior staff of Dongyue Chemicals at the time. Four of the six nominees who gave written confirmation to Mr. Zhang Jianhong, Mr. Cui Tongzheng and Mr. Liu Chuanqi, already constituted over 50% equity interest in Zibo Huantai Dawei and no written confirmation was therefore obtained from the remaining two nominee shareholders. There were no written consents between the 192 employees and the six nominee shareholders in relation to the entrustment agreement.

96 HISTORY, REORGANIZATION AND CORPORATE STRUCTURE

The Company’s PRC legal counsel, Grandall Legal Group (Shanghai) has confirmed that the entrustment agreement is legal and valid under PRC laws and regulations.

In December 2004, Mr. Zhang Jianhong, Mr. Liu Chuanqi and Mr. Cui Tongzheng acquired further interests from the other shareholders and their equity interests in Zibo Huantai Dawei became 20.84%, 10.13% and 15.88%, respectively. Mr. Zhang Jianhong, Mr. Liu Chuanqi and Mr. Cui Tongzheng together own Zibo Huantai Dawei as to 46.85%. Decisions in relation to Dongyue Chemicals by Zibo Huantai Dawei are made through an arrangement between Mr. Zhang Jianhong, Mr. Liu Chuanqi, Mr. Cui Tongzheng and Macrolink whereby they would adopt a consistent decision between them. Two of the other six shareholders are their associates holding, in aggregate, 4.83% equity interest in Huantai Dawei. An entrustment agreement dated May 8, 2007 confirmed that, during the Track Record Period, the initial shareholders of Zibo Huantai Dawei, namely Wang Wei Dong, Liu Xian Hu, Zhang Shi Li, Jing Li Yun, Liu Chuan Wei and Liu Chuan Jun, delegated their respective voting rights in shareholders’ meetings to Mr. Zhang Jianhong, Mr. Cui Tongzheng and Mr. Liu Chuanqi so as to allow consensus decision making by them on behalf of Zibo Huantai Dawei.

On February 7, 2002, the registered capital of Dongyue Chemicals increased from RMB23,580,000 to RMB38,933,000 and the equity holders of Dongyue Chemicals included Zibo Huantai Huaye and Tsinghua University Enterprise Group Company Limited ( ). The equity holdings in Dongyue Chemicals changed to Shandong Wanxin Group Company Limited as to 27.39%, Zibo Huantai Dadi as to 15.95%, Zibo Huantai Dawei as to 10.4%, Zibo Huantai Huaye as to 11.56%, Tsinghua University Enterprise Group Company Limited as to 6.68% and Macrolink as to 28.02%. Tsinghua University Enterprise Group Company Limited was an independent third party. Two members of our management team, namely Zhang Jianhong and Liu Chuanqi, together held 86.96% equity interest in Zibo Huantai Huaye during the Track Record Period. Zibo Huantai Huaye owned 9.42% equity interests in Dongyue Chemicals as at January 1, 2004. For Zibo Huantai Dadi, its immediate shareholders consist of 40 individuals who are all independent third parties. Shandong Wanxin Group Company Limited was involved in the management of Dongyue Chemicals to the extent it exercised its right of appointment to appoint members of the management team of Dongyue Chemicals. This management team was responsible for the carrying out of Dongyue Chemicals’ business at the time. Set out below is the company structure chart of Dongyue Chemicals as at February 7, 2002:

Tsinghua Shandong University Wanxin Zibo Zibo Zibo Enterprise Group Huantai Huantai Macrolink Huantai Group Company Dadi Dawei Huaye Company Limited Limited

6.68% 27.39% 15.95% 10.40% 28.02% 11.56%

Dongyue Chemicals

97 HISTORY, REORGANIZATION AND CORPORATE STRUCTURE

On October 15, 2003, the registered capital of Dongyue Chemicals was further increased to RMB60,000,000. The equity holders included Tsinghua University Enterprise Group Company Limited, Shandong Wanxin Group Company Limited, Zibo Huantai Dadi, Zibo Huantai Dawei, Macrolink and Zibo Huantai Huaye holding 5.44%, 27.39%, 15.95%, 11.64%, 30.16% and 9.42% equity interest in Dongyue Chemicals respectively.

Due to the successful growth of the existing businesses of Dongyue Chemicals in the production and sale of upstream raw materials and refrigerants, the management team decided to further expand the operations to include downstream products in the fluorochemical industry, such as the fluoropolymers, to achieve cost efficiency and economies of scale. Therefore, Dongyue Polymers was established in November 2001 in Zibo, Shandong Province, the PRC as a sino-foreign joint venture company to engage in the production and sale of PTFE. Dongyue Chemicals and Macrolink contributed 28.59% and 25.96%, respectively, to the then registered capital of Dongyue Polymers. The remaining equity interests were held by Huantai Great, Huantai Merge and Huantai Guorui, as to 27.16%, 10.86% and 7.43%, respectively. Huantai Great was established on September 26, 2001 with a registered capital of RMB19,080,000. Its principal business is the manufacture and sale of leather shoes, leisure shoes and sports shoes. Its equity holders comprise 8 individuals who are independent third parties. Huantai Merge was established on August 23, 2001 with a registered capital of RMB6,000,000. Its principal business is the sale of construction materials. Its equity holders comprise 4 individuals who are independent third parties. Huantai Guorui was established on June 15, 2001 with registered capital of RMB5,300,000. Its principal business is the sale of construction materials. Its equity holders comprise 4 individuals who are independent third parties. As Dongyue Polymers was established at the time to engage in the production and sale of PTFE, it required substantial amount of capital investment. The Group therefore brought in Huantai Great, Huantai Merge and Huantai Guorui, all being domestic enterprises at the time, and which were able to inject capital into Dongyue Polymers within a short period of time. Set out below is the company structure chart of Dongyue Polymers at the time when it was established in November 2001:

Dongyue Macrolink Huantai Great Huantai Merge Huantai Guorui Chemicals

28.59% 25.96% 27.16% 10.86% 7.43%

Dongyue Polymers

On April 24, 2003, Huantai Great transferred its 27.16% equity interests in Dongyue Polymers to Shandong International Trust.

In order to become a vertically-integrated producer in the fluorochemical industry and to achieve greater profitability, the management team recognised the importance of internal production capability of upstream raw materials. Subsequently, in August 2003, Zibo Dongyue Chlorine was established in Zibo, Shandong Province, the PRC as a limited liability company primarily to engage in the production of chlorine. The chlorine was intended to be used for the production of CFM, which is

98 HISTORY, REORGANIZATION AND CORPORATE STRUCTURE the key raw material of refrigerants. Zibo Dongyue Chlorine was also engaged in the sale of liquid alkali, another chemical product that will be created during the production process of chlorine. Initially, Dongyue Polymers held an equity interest of 90% of the registered capital of Zibo Dongyue Chlorine. Such interest was subsequently transferred to Dongyue Fluorine Silicone as part of our Reorganization (as referred to below).

In March 2004, Dongyue Fluorine Silicone was established in Zibo, Shandong Province, the PRC, as a sino-foreign joint venture company to principally engage in the production and sale of methane chloride (including CFM, dichloromethane and chloromethane). Macrolink and Dongyue Chemicals owned approximately 40% and 20% of the then registered capital of Dongyue Fluorine Silicone, respectively. The establishment of this company is to capitalize on our existing production capability of chlorine, the raw material for methane chloride, and to secure the stable and quality supply of CFM, the key raw material for our refrigerant production. At this stage, we had achieved a vertically-integrated production value chain and possessed the production capabilities and facilities for ranging from the upstream raw materials, such as AHF, chlorine and CFM, to downstream refrigerants and fluoropolymers.

To further secure supplies of raw materials, particularly fluorspar, Dongyue Peak was established in Inner Mongolia, the PRC in February 2007 as a limited liability company to engage in the extraction and processing of fluorspar for the purpose of producing AHF. Dongyue Chemicals held 80% shareholding in Dongyue Peak, and Chifeng Peak Copper, an independent third party, held the remaining 20% equity interest. Set out below is the company structure chart of Dongyue Peak at the time when it was established in February 2007:

Dongyue Chifeng Peak Chemicals Copper

80% 20%

Dongyue Peak

99 HISTORY, REORGANIZATION AND CORPORATE STRUCTURE

With our established vertically-integrated production chain in the fluorochemical industry, our management decided to participate in the silicone industry. After a detailed study and long-term evaluation and preparation, Dongyue Organic Silicone was established in Zibo, Shandong Province, the PRC in December 2006 as a sino-foreign joint venture company for the production of silicone products. Our Company held 60% equity interests in Dongyue Organic Silicone and the remaining 40% equity interest was held by Hong Da Mining Industry. Set out below is the company structure chart of Dongyue Organic Silicone at the time when it was established in December 2006:

Hong Da Company Mining Industry

60% 40%

Dongyue Organic SiliconePeak

With a view to consolidating our Group for the purpose of listing on the Main Board of the Hong Kong Stock Exchange, our Group reorganized our business and corporate structure commencing from the second half of 2006 (the “Reorganization”). As part of the Reorganization, our Company was incorporated in the Cayman Islands on July 24, 2006. Our initial Shareholders were Macrolink International (64.5%), Dongyue Team (14.68%), Dongyue Initiator (13.12%) and Dongyue Wealth (7.7%). Macrolink International, Dongyue Team, Dongyue Initiator and Donyue Wealth are ultimately controlled by Mr. Fu Kwan, Mr. Zhang Jianhong, Mr. Cui Tongzheng and Mr. Liu Chuanqi, respectively. Please see the section headed “The Reorganization” below for further details of the Reorganization. Set out below is the company structure chart of the Company at the time when it was established in July 24, 2006:

Macrolink Dongyue Dongyue Dongyue International Team Initiator Wealth

64.50% 14.68% 13.12% 7.70%

Company

100 HISTORY, REORGANIZATION AND CORPORATE STRUCTURE

Key Business Milestones The following events are the key business milestones of our Group since its establishment:

1987 Established Jinan Chemicals in Zibo, Shandong Province, the PRC to produce AHF, marked the commencement of our Group’s business

1996 Macrolink became a strategic partner of our Group

Established Dongyue Chemicals and commenced the production of fluorochemical products, in particular refrigerants

2001 Established Dongyue Polymers and commenced the production of fluoropolymer products, including PTFE

2002 Dongyue Polymers was awarded the certificate of “High and New Technology Enterprise”

2003 Zibo Dongyue Chlorine was established and commenced production of chlorine for use as raw materials in the production of CFM, as well as to sell other chemicals including HCL and liquid alkali

2004 Dongyue Fluorine Silicone was established to produce and sell methane chloride (including CFM and dichloromethane)

2006 Incorporation of our Company as part of the Reorganization in preparation for the listing of the Group in the Hong Kong Stock Exchange

According to the National Bureau of Statistics of China, our Group ranked fourth among the China Top 500 Most Competitive Enterprise

Dongyue Organic Silicone was established and designed to produce silicone products

Our Industrial Park in Zibo, Shandong Province, the PRC was approved

2007 Dongyue Peak was established to enhance our production capacity of AHF

According to the China Petroleum and Chemical Industry Association, an association responsible for regulating the PRC chemical and petrochemical industry with over 200 members, and the National Bureau of Statistics of China, an agency directly under the State Council and responsible for statistics in China, Dongyue Chemicals was ranked among the top 100 companies in the domestic chemical and petrochemical industry and among the top 10 companies in the domestic specialty chemical products manufacture industry in terms of revenues generated in 2006

Baring and IFC became our corporate investors

THE REORGANIZATION Our Group underwent a Reorganization to rationalize our Group’s structure in preparation for the listing of the Shares on the Hong Kong Stock Exchange. As a result, our Company became the

101 HISTORY, REORGANIZATION AND CORPORATE STRUCTURE holding company of our Group. The following events took place during the Track Record Period prior to the Reorganisation:

Dongyue Fluorine Silicone On March 5, 2004, Dongyue Fluorine Silicone was established as a sino-foreign joint venture with a registered capital of RMB100,000,000. Macrolink, Dongyue Chemicals, Shandong International Trust and Shandong Hi Tech Investment held 40%, 20%, 15% and 25% equity interest respectively in Dongyue Fluorine Silicone. Shandong International Trust was a nominee of Dongyue Chemicals Union ( ) to hold such interest on trust and its principal business was the making of investments on trust. Mr. Zhang Jianhong, Mr. Liu Chuanqi and Mr. Cui Tongzheng were the majority contributors to Shandong International Trust in respect of the financial resources utilized by Shandong International Trust to invest in Dongyue Fluorine Silicone and as a result, they invested in Dongyue Fluorine Silicone with various employees of Dongyue Chemicals through Shandong International Trust Investment Co. Ltd. As Dongyue Fluorine Silicone was a foreign invested enterprise, PRC individuals were prohibited to invest directly in Dongyue Fluorine Silicone and as such, the employees invested in Dongyue Fluorine Silicone with Mr. Zhang Jianhong, Mr. Liu Chuanqi and Mr. Cui Tongzheng via Shandong International Trust. As such Shandong International Trust act upon instructions of Mr. Zhang Jianhong, Mr. Liu Chuanqi and Mr. Cui Tongzheng in relation to the exercise of its equity holder’s rights in Dongyue Fluorine Silicone. The majority of the remaining investors who were contributors to the financial resources of Shandong International Trust in respect of its investment in Dongyue Fluorine Silicone were employees of the Group who made investments in it due to the then legal prohibition of individual investments in Dongyue Fluorine Silicone. Shandong Hi Tech Investment was a state-owned enterprise whose principal business was investment management and consultancy services. Save for its interest in Dongyue Fluorine Silicone, Shandong Hi Tech Investment is an independent third party. On June 14, 2005, Dongying Macrolink Salt, an associate of the Group, was established whereby 20% of its equity interest was held by Dongyue Fluorine Silicone and the remaining 80% by Macrolink Holdings, a company held by Mr. Fu Kwan as to 42.5%.

On September 6, 2006, 55% of the equity interest in Dongyue Fluorine Silicone was transferred to our Company by Shandong International Trust (a nominee of Huantai Dawei to hold such interest on trust) (as to 15% for approximately RMB30,000,000) and Macrolink (as to 40%). Such acquisition was funded by internal financial resources of the Group. After this transfer, our Company owned 55% direct shareholdings in Dongyue Fluorine Silicone, and owned another 20% of the shareholdings through another of our subsidiaries, Dongyue Chemicals. During the Track Record Period, the directors of Dongyue Fluorine Silicone comprised Mr. Zhang Jianhong, Mr. Fu Kwan, Mr. Zhao Letian, Mr. Liu Chuanqi, Mr. Zhao Zhongjie, Mr. Cui Tongzheng, Mr. Wang Biao (until March 1, 2007), Mr. Yang Erning, Mr. Wu Tao (from March 14, 2005) and Mr. Song Yingren (from March 1, 2007).

Dongyue Polymers On December 28, 2004, Shandong International Trust transferred its 27.16% equity interest in Dongyue Polymers to Dongyue Chemicals for RMB9,500,000. This consideration was arrived at based on the corresponding value of registered capital of Dongyue Polymers. Huantai Merge transferred its 10.86% equity interest in Dongyue Polymers to Huantai Guorui for RMB25,000,000. This consideration was arrived at based on the corresponding value of registered capital of Dongyue Polymers.

102 HISTORY, REORGANIZATION AND CORPORATE STRUCTURE

On April 26, 2005, the registered capital of Dongyue Polymers was increased from RMB34.98 million to RMB65 million and the equity holdings were adjusted, whereby the equity interests of Macrolink, Dongyue Chemicals and Huantai Guorui became 25.96%, 51%, and 23.04% respectively according to their respective registered capital contributions.

As part of the Reorganization, the following events took place:

Our Company On July 24, 2006, our Company was incorporated in the Cayman Islands with an authorized share capital of US$100,000,000 divided into 1,000,000,000 Shares. On that day, one Share issued to the initial subscriber was transferred to Macrolink International and 128,999,999 Shares were allotted and issued to Macrolink International, 29,360,000 Shares to Dongyue Team, 15,400,000 Shares to Dongyue Wealth and 26,240,000 Shares to Dongyue Initiator.

On March 26, 2007, our Company entered into the Subscription Agreement pursuant to which Baring and IFC subscribed for 50,000,000 and 25,000,000 Preferred Shares, respectively. Baring and IFC were independent third parties prior to them becoming Shareholders. Further details of Baring and IFC are set out in the section headed “Our Corporate Investors.”

Dongyue Chemicals On September 4, 2006, 51.22% of the equity interest in Dongyue Chemicals was transferred to our Company by Macrolink (as to 30.16%), Huantai Huaye (as to 9.42% for approximately RMB18,780,000) and Zibo Huantai Dawei (as to 11.64% for approximately RMB23,220,000). Such acquisitions were funded by internal financial resources of the Group. Huantai Huaye is a company controlled by Mr. Zhang Jianhong and Mr. Liu Chuanqi. Zibo Huantai Dawei is a company controlled by Mr. Zhang Jianhong, Mr. Liu Chuanqi and Mr. Cui Tongzheng. On December 22, 2006, a further 27.39% of the equity interest in Dongyue Chemicals was transferred to our Company from Zhejiang Jinggong Construction (an independent third party) for approximately RMB80,000,000. Such acquisition was funded by the interest-free term loan facility from Baring, further details of which are set out in the section head “Our Corporate Investors” in the prospectus. On February 15, 2007, our Company purchased an additional 15.95% of the equity interest in Dongyue Chemicals from Zibo Huanai Dadi (an independent third party) for approximately RMB48,800,000, resulting in Dongyue Chemicals becoming our 94.56% owned subsidiary. Such acquisition was also funded by the interest- free term loan facility from Baring. During the Track Record Period, the directors of Dongyue Chemicals comprised Mr. Zhang Jianhong, Mr. Fu Kwan, Mr. Liu Chuanqi, Mr. Yang Erning (from March 18, 2004 onwards) Wang Liguo (until September 4, 2006), Rong Zhenjiang (until November 1, 2004), Zhang Guangxiang (until November 1, 2004), Chen Ke (until November 1, 2004), Sun Ling (until March 20, 2006), Cao Shuliang (until November 1, 2004), Dong Wenzhuang (until March 18, 2004), Zeng Xian Guang (until November 1, 2004), Wang Shigang (until August 21, 2006), Huang Chenghua (until August 21, 2006), Liu Wei (from November 1, 2004 until August 21, 2006), Zeng Min (from March 18, 2006 until November 1 2006), Yi Jianmin (from August 21, 2006 until February 15, 2007), Wang Shunlin, (from September 4, 2006 until December 22, 2006) and Mr. Cui Tongzheng (from December 22, 2006 onwards).

Dongyue Polymers Since April 26, 2005, Dongyue Chemicals owned 51% of the equity interest in Dongyue Polymers. On September 7, 2006, 49% of the remaining equity interest in Dongyue Polymers was

103 HISTORY, REORGANIZATION AND CORPORATE STRUCTURE transferred to our Company by Huantai Guorui (an independent third party) (as to 23.04% for approximately RMB25,000,000) and Macrolink (as to 25.96%). Such acquisitions were funded by internal financial resources of the Group and by a share swap with Macrolink International. Our equity interest then increased by a further 22.17% on May 8, 2007 as a result of our contribution to Dongyue Polymers’ registered capital by cash injection. As a result, our Company owned a 71.17% direct equity interest in Dongyue Polymers and owned the remaining 28.83% of the equity interest through another of our subsidiaries, Dongyue Chemicals. During the Track Record Period, the directors of Dongyue Polymers comprised Mr. Zhang Jianhong, Mr. Fu Kwan, Mr Tian Jun (until December 28, 2004), Mr. Dong Wenzhuang (until March 16, 2004), Mr. Feng Jianjun (until March 16, 2004), Mr. Liu Chuanqi, Mr. Cui Tongzheng (until August 21, 2006), Mr. Zhang Heng, Mr. Yang Erning (from March 16, 2004 onwards), Mr. Zeng Min (from March 16, 2004 until December 28, 2004) and Mr. Zhao Zhongjie (until August 21, 2006).

Dongyue Organic Silicone On December 28, 2006, Dongyue Organic Silicone was established with registered capital of RMB200,000,000, of which our Company holds a 60% interest by way of contribution of approximately RMB120,000,000. During the Track Record Period since its date of establishment, the directors of Dongyue Organic Silicone comprised Mr. Zhang Jianhong, Mr. Fu Kwan, Mr. Zhang Jian (until March 1, 2007) Mr. Yang Erning (since March 1, 2007), Mr. Liu Chuanqi and Mr. Wang Weidong.

Dongyue Peak On February 13, 2007, Dongyue Peak was established in the PRC as a limited liability company, with a registered capital of RMB50,000,000. Dongyue Chemicals held 80% of the then equity interest in Dongyue Peak, and Chifeng Peak Copper held the remaining 20% equity interest. On May 29, 2007, Dongyue Chemicals transferred 10% of the equity interest it held in Dongyue Peak to Kalaqin Qi Mining, and 19% to Xilin Tonghe, respectively, and Chifeng Peak Copper transferred 1% of its equity interest in Dongyue Peak to Xiling Tonghe. The ultimate beneficial owners of Kalaqin Qi Mining, Xilin Tonghe and Chifeng Peak Copper are Mr. Wang Xueyi, Mr. Geng Yanbo and Mr. Zhang Zhanseng respectively, who are all independent third parties save for their directorships in Dongyue Peak to represent the above companies respective shareholding interest in Dongyue Peak. Such transfers were funded by internal financial resources of each of the respective purchasers. These transfers were made to enhance the cooperative relationship between the Group and these connected parties in respect of the provision of relevant raw materials by these parties to the Group. Further details of such provision of raw materials are set out in the section headed “Connected Transactions” in this prospectus. Following such transfers, Dongyue Chemicals holds 51% equity interest in Dongyue Peak. Kalaqin Qi Mining, Xilin Tonghe and Chifeng Peak Copper are all connected persons of the Group pursuant to their equity interest in Dongyue Peak. During the Track Record Period and since its date of establishment, the directors of Dongyue Peak comprised Mr. Zhang Jianhong, Mr. Liu Chuanqi, Mr. Yang Erning, Mr. Xing Yujin, Mr. Zhang Zhansen, Mr. Geng Yanbo (since May 29, 2007) and Mr. Wang Xueyi (since May 29, 2007).

Zibo Dongyue Chlorine Zibo Dongyue Chlorine was established on August 14, 2003 in the PRC as a limited liability company, with a registered capital of RMB10,000,000. Dongyue Polymers held 90% of its initial

104 HISTORY, REORGANIZATION AND CORPORATE STRUCTURE registered share capital. On August 6, 2004, Dongyue Polymers transferred 90% equity interest in Zibo Dongyue Chlorine to Dongyue Fluorine Silicone for RMB9,000,000. This consideration was based on the contribution made by Dongyue Polymers at the time of establishing Zibo Dongyue Chlorine. On May 24, 2007, Dongyue Fluorine Silicone acquired the remaining 10% of Zibo Dongyue Chlorine from Huantai Construction Materials Factory. Such acquisition was funded by the Group’s internal financial resources. Zibo Dongyue Chlorine therefore became our wholly-owned subsidiary through Dongyue Fluorine Silicone. During the Track Record Period, the sole director of Zibo Dongyue Chlorine was Mr. Liu Chuanqi until his resignation on August 6, 2004 at which point in time Mr. Hu Qingli became the sole director.

Transfer gain/loss The above transfers had been negotiated and determined based on the net asset value of the relevant subsidiaries in the financial year prior to the relevant transfer. As such, there was no gains or losses as a result of these relevant transfers. The transfer of equity interest from Macrolink to the relevant parties as stated above were completed for the aggregate consideration of US$100 and, at the direction of Macrolink, the allotment and issue of 128,799,999 Shares to Macrolink International. The number of shares allotted and issued to Macrolink International was determined based on the value of the equity holding of Macrolink in the subsidiaries of the Company prior to consolidation of the subsidiaries under the Company as part of the Reorganisation process. As such value of Macrolink’s equity holding was based on the relevant subsidiary’s net asset value, no gains or losses arose under such allotment and issue of Shares to Macrolink International.

Management continuity Mr. Zhang Jianhong, Mr. Fu Kwan and Mr. Liu Chuanqi, being the main directors, acted as directors of the Dongyue Chemicals, Dongyue Polymers, Dongyue Fluorine Silicone and Zibo Dongyue Chlorine (collectively the operating subsidiaries of the Group) from January 1, 2004. Mr. Cui Tongzheng is a director of the Company who has been with the Group for over 18 years and who will serve as a director of the Company. Mr. Yang Erning has been with the Group for over four years and has since became an important member of the Group. The aforesaid main directors and Mr. Cui Tongzheng and Mr. Yang Erning together constituted the core management team of the Group and were responsible for the results, business, strategy and operational management of the Group throughout the relevant period from January 1, 2004. Mr. Cui Tongzheng also acted as either the director of the relevant operating subsidiaries, the company secretary to the board of directors, the deputy general manager or some of the aforesaid concurrently in these companies. The core management team have always been and still are entrusted to manage the actual operations of the operating subsidiaries which contributed directly to the track record results, and to be the ultimate decision makers in relation to all investment, strategies, material business, fund raising and the day-to- day operations of the operating subsidiaries. Furthermore, Mr. Zhang Jianhong, Mr. Fu Kwan (through Macrolink), Mr. Liu Chuanqi and Mr. Cui Tongzheng (collectively the “Controlling Shareholders”) entered into an act in concert agreement on December 20, 2003 whereby it was agreed that, as long as these parties maintain any equity interest in Dongyue Chemicals directly or indirectly, these parties will act in concert in relation to any general meeting decisions of Dongyue Chemicals. As Dongyue Chemicals, together with Macrolink, owned over 50% of equity interest in all of the Group’s subsidiaries during the Track Record Period, the Controlling Shareholders effectively controlled all of the Group’s subsidiaries (i.e. Macrolink did not have unilateral control over the Group during the Track Record Period). During the Track Record Period, the board and shareholders’ resolutions of all the subsidiaries of the Group were passed on an unanimous basis.

105 HISTORY, REORGANIZATION AND CORPORATE STRUCTURE

SHAREHOLDING STRUCTURE AND CORPORATE STRUCTURE OF THE GROUP IMMEDIATELY BEFORE THE GLOBAL OFFERING The following chart sets out the shareholding structure and corporate structure of our Group and our associated company immediately before the Global Offering and the Capitalization Issue (assuming no Shares are issued pursuant to the exercise of options under the Share Option Schemes):

Fu Kwan

40%

Zhang Liu Cui Macrolink(6) Jianhong Chuanqi Tongzheng

100% 100% 100% 100%

Macrolink Dongyue Dongyue Dongyue IFC Baring International Team Wealth Initiator

46.91% 10.68% 5.60% 9.54% 9.09% 18.18%

Our Company

55% 94.56% 71.17% 60%

Dongyue Dongyue 20% Dongyue 28.83% Dongyue Fluorine Organic Chemicals(1) Polymers Silicone(2) Silicone(4)

20% 100% 51%

Dongying Zibo Dongyue Macrolink Dongyue Peak(3) Salt(5) Chlorine

Notes: (1) The remaining 5.44 % equity holder of Dongyue Chemicals is Tsinghua Holdings Limited ( ), a state-owned enterprise and, save for its equity holding in Dongyue Chemicals, an independent third party. (2) The remaining 25% equity holder of Dongyue Fluorine Silicone is Shandong Hi Tech Investment Co., Ltd, a state-owned enterprise and, save for its equity holding in Dongyue Fluorine Silicone, an independent third party. (3) The remaining 49% equity holders of Dongyue Peak are Chifeng Peak Copper (as to 19%), Kalaqin Qi Mining (as to 10%) and Xilin Tonghe (as to 20%). Chifeng Peak Copper , Kalaqin Qi Mining and Xilin Tonghe are companies ultimately owned by Zhang Zhanseng ( ), Wang Xueyi ( ) and Geng Yanbo ( ) respectively, who are all directors of Dongyue Peak. Save for the aforesaid, Chifeng Peak Copper, Kalaqin Qi Mining and Xilin Tonghe are independent third parties. (4) The remaining 40% equity holder of Dongyue Organic Silicone is Hong Da Mining Industry, an independent third party, save for its equity holding in Dongyue Organic Silicone. Its equity holders are Sun Fubao ( ), Sun Fuqiang ( ), Bian Liang ( ), Wang Ming ( ), Zhang Shufang ( ), Zhao Xiuhua ( ), Ding Feng ( ), Ding Lianxin ( ), Duan Liantao ( ), Sun Zhaoyou ( ), Duan Lianquan ( ), Duan Yufeng ( ), Sun Zhitao ( ) and Duan Xujun ( ). (5) The remaining 80% equity holder of Dongying Macrolink Salt is Macrolink Holdings which is owned as to 42.5% by Mr Fu Kwan, one of our executive directors and the remaining 57.5% equity interests are held by Wu Xiangdong ( ) as to 20%, Xu Junqi ( )as to 2.25%, Yang Yunhua ( ) as to 31.65%, Chen Yue ( ) as to 1.6%, Wang Xiaoming ( ) as to 1% and Tan Zhiqiang ( ) as to 1%. These equity holders are, save for Wu Xiangdong ( ) who is a relative of Mr. Fu Kwan, independent to the Group. Dongying Macrolink Salt is an associated company of the Group. (6) The remaining 60% shareholders of Macrolink are Wu Xiangdong ( ) as to 15%, Fang Mingli ( ) as to 5%, Yang Yunhua ( ) as to 26%, Zeng Xianhui ( ) as to 6%, Zeng Xianguang ( ) as to 6% and Li Bingkun ( ) as to 2%. Save for Mr. Wu Xiangdong (a relative of Mr. Fu Kwan), these equity holders are independent third parties to the Group. Save for the aforesaid and Mr. Zeng Xianhui and Mr. Zeng Xianguang being brothers of each other, the equity holders of Macrolink are independent to each other. (7) Baring’s shareholding interest is not considered as part of the public float for so long as it is a substantial shareholder. IFC’s shareholding interest is considered as part of the public float.

106 HISTORY, REORGANIZATION AND CORPORATE STRUCTURE

SHAREHOLDING STRUCTURE AND CORPORATE STRUCTURE OF THE GROUP IMMEDIATELY AFTER THE GLOBAL OFFERING The following chart sets out the shareholding structure and corporate structure of our Group and our associated company immediately after the Global Offering and the Capitalization Issue (assuming no Shares are issued pursuant to the exercise of options under the Share Option Schemes):

Fu Kwan

40%

Zhang Liu Cui Macrolink(6) Jianhong Chuanqi Tongzheng

100% 100% 100% 100%

Macrolink Dongyue Dongyue Dongyue IFC Baring Public International Team Wealth Initiator

35.18% 8.01% 4.20% 7.16% 6.82% 13.63% 25%

Our Company

55% 94.56% 71.17% 60%

Dongyue Dongyue 20% Dongyue 28.83% Dongyue Fluorine Organic Chemicals(1) Polymers Silicone(2) Silicone(4)

20% 100% 51%

Dongying Zibo Dongyue Macrolink Dongyue Peak(3) Salt(5) Chlorine

Notes: (1) The remaining 5.44 % equity holder of Dongyue Chemicals is Tsinghua Holdings Limited ( ), a state-owned enterprise and an independent third party. (2) The remaining 25% equity holder of Dongyue Fluorine Silicone is Shandong Hi Tech Investment Co., Ltd, a state-owned enterprise and, save for its equity holding in Dongyue Fluorine Silicone, an independent third party. (3) The remaining 49% equity holders of Dongyue Peak are Chifeng Peak Copper (as to 19%), Kalaqin Qi Mining (as to 10%) and Xilin Tonghe (as to 20%). Chifeng Peak Copper , Kalaqin Qi Mining and Xilin Tonghe are companies ultimately owned by Zhang Zhanseng ( ), Wang Xueyi ( ) and Geng Yanbo ( ) respectively, who are all directors of Dongyue Peak. Save for the aforesaid, Chifeng Peak Copper, Kalaqin Qi Mining and Xilin Tonghe are independent third parties. (4) The remaining 40% equity holder of Dongyue Organic Silicone is Hong Da Mining Industry, an independent third party, save for its equity holding in Dongyue Organic Silicone. Its equity holders are Sun Fubao ( ), Sun Fuqiang ( ), Bian Liang ( ), Wang Ming ( ), Zhang Shufang ( ), Zhao Xiuhua ( ), Ding Feng ( ), Ding Lianxin ( ), Duan Liantao ( ), Sun Zhaoyou ( ), Duan Lianquan ( ), Duan Yufeng ( ), Sun Zhitao ( ) and Duan Xujun ( ). (5) The remaining 80% equity holder of Dongying Macrolink Salt is Macrolink Holdings which is owned as to 42.5% by Mr Fu Kwan, one of our executive directors and the remaining 57.5% equity interests are held by Wu Xiangdong ( ) as to 20%, Xu Junqi ( )as to 2.25%, Yang Yunhua ( ) as to 31.65%, Chen Yue ( ) as to 1.6%, Wang Xiaoming ( ) as to 1% and Tan Zhiqiang ( ) as to 1% who are, save for Wu Xiangdong ( ) who is a relative of Mr. Fu Kwan, independent to the Group. Dongying Macrolink Salt is an associated company of the Group. (6) The remaining 60% shareholders of Macrolink are Wu Xiangdong ( ) as to 15%, Fang Mingli ( ) as to 5%, Yang Yunhua ( ) as to 26%, Zeng Xianhui ( ) as to 6%, Zeng Xianguang ( ) as to 6% and Li Bingkun ( ) as to 2%. Save for Mr. Wu Xiangdong (a relative of Mr. Fu Kwan), these equity holders are independent third parties to the Group. Save for the aforesaid and Mr. Zeng Xianhui and Mr. Zeng Xianguang being brothers of each other, the equity holders of Macrolink are independent to each other. (7) Baring’s shareholding interest is not considered as part of the public float for so long as it is a substantial shareholder. IFC’s shareholding interest is considered as part of the public float.

107