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HISTORY, REORGANISATION AND CORPORATE STRUCTURE HISTORY AND DEVELOPMENT Our History Our Company was established in June 1997 as GAG, a limited liability company wholly owned by the State, with the Guangzhou State-Owned Assets Administration Bureau (the predecessor of Guangzhou SASAC) as its sole shareholder. The purpose of the establishment of GAG in 1997 was to consolidate all of the automobile-related assets in Guangzhou at the time under the ownership of the Guangzhou Municipal Government. These assets were primarily held by three companies, being, Guangzhou Junda Automobile Enterprise Group ( ), Yangcheng Automobile Group Company ( ) and Guangzhou Guangke Automobile Enterprise Group Company Limited ( ). The businesses of these companies formed the foundations for our subsequent development. Guangzhou Junda Automobile Enterprise Group ( ) was a passenger and commercial vehicle and auto parts manufacturer, Yangcheng Automobile Group Company ( ) and Guangzhou Guangke Automobile Enterprise Group Company Limited ( ) were commercial vehicle manufacturers specialising in light duty trucks, commercial buses and special purpose vehicles. Following the establishment of GAG in 1997, Guangqi Honda was established in 1998. As at the Latest Practicable Date, our Company holds approximately 37.9% of the issued share capital of in Denway through China Lounge, and Denway, in turn, through its wholly-owned subsidiary Guangzhou Auto, holds 50% equity interest in Guangqi Honda. The remaining 50% equity interest of Guangqi Honda is held as to 40% by Honda and 10% by Honda Motor (China) Investment Corporation Limited. For Guangzhou Auto, the establishment of Guangqi Honda marked an important milestone for the development of its production of mid-to-high-end sedans and marked the beginning of its manufacture and sale of the Guangqi Honda Accord series of passenger vehicles. On 25 May 2000, the Guangzhou State-Owned Assets Administration Bureau agreed to entrust the management and operation of GAG to a separate entity and GAIG was duly incorporated on 18 October 2000 to serve such purpose. In July 2004, the Guangzhou State-Owned Assets Administration Bureau transferred all of its equity interest in GAG to GAIG and GAIG became the sole shareholder of our Company. Further, in 2000, in order to facilitate the continual development of our commercial vehicle business, our Company established Guangzhou Isuzu Bus Co., Ltd. (now known as Guangzhou Yue Long Bus Co., Ltd.) for the manufacture of high-end commercial vehicles and related auto parts. At the time of its establishment, Guangzhou Isuzu was respectively owned as to 51% by GAG, 25% by Isuzu and 24% by Isuzu (China) Investment Co. Ltd. The year 2000 saw the establishment of GAC Commercial which conducts automobile-related businesses. It was then a wholly-owned subsidiary of GAG. To comply with the relevant PRC law then in force which required each limited liability company to have at least two shareholders, GAG transferred 5% of its interest in GAC Commercial to Guangzhou Motors Group Company (“Guangzhou Motors”) on 30 July 2004 at a consideration of RMB4,614,003.35 with reference to independent valuation. Guangzhou Motors is a wholly owned subsidiary of GAIG and is principally engaged in the manufacture of motorcycles and related parts and components. Such 5% interest was later transferred by Guangzhou Motors to our Company on 2 June 2008 at a consideration of RMB33,066,820 as a result of the change in the relevant PRC law which allows a company to take the form of a one-shareholder company. The transfer price was determined with reference to an independent valuation. GAC Commercial’s core businesses include the importing and exporting of automobile-related products, vehicle sales services and logistics services which are supported by its vehicle leasing and recycling businesses. 66 HISTORY, REORGANISATION AND CORPORATE STRUCTURE In 2000, our Company established GAC Components as its wholly-owned subsidiary for the manufacture of auto parts. On 30 July 2004, our Company transferred 5% of its interest in GAC Components to Guangzhou Motors, a wholly owned subsidiary of GAIG, at a consideration of RMB15,132,083.81 to comply with the relevant PRC law then in force. The transfer price was determined with reference to an independent valuation. As an important step towards Denway’s vertical integration of operations, we have undergone a series of reorganisation. On 28 September 2005, our Company transferred 44% of the interest in GAC Components to Steed Full Development Limited, which was then wholly-owned by China Lounge through its wholly-owned subsidiary Yue Lung Enterprise Limited ( ), at a consideration of HK$478,412,000 and Guangzhou Motors transferred 5% of its interest in GAC Components to Steed Full Development Limited at a consideration of HK$54,365,000. Both transfer prices were determined with reference to independent valuations. On 7 November 2005, Yue Lung Enterprise Limited ( ) transferred its 100% interest in Steed Full Development Limited to Denway at a consideration of HK$710,000,000. The transfer was negotiated and entered into on an arm’s length basis and on normal commercial terms. Since the sole equity asset held by Steed Full Development Limited at the relevant time was the 49% equity interests in GAC Components, the consideration was determined based on the market comparable on price earnings multiples and the net asset value of the then JCEs of GAC Components. Honda (China) was established in September 2003 by our Company, Honda and Dongfeng Motor Group Company Limited for the manufacture of the Honda Jazz series of passenger vehicles for exports. At the time of its establishment, Honda (China) was respectively owned as to 25% by GAG, 10% by Dongfeng Motor Group Company Limited and 65% by Honda. In November 2003, our Company and Ullitec Holdings Corporation established Foison Auto Co., Ltd. ( “Foison Auto”) for the manufacture and sale of special purpose vehicles and related auto parts and our Company and Ullitec Holdings Corporation each held 50% of the equity interest in Foison Auto. Ullitec Holdings Corporation is a wholly-owned subsidiary of GSK Group which manufactures auto, motorcycle and bicycle parts and is also an independent third party to us. However, the revenue of Foison Auto for the year ended 31 December 2006 was RMB5,847,000, and it generated losses of RMB1,896,000 for the same period. As the products of Foison Auto were not well accepted by the market, the board of directors of Foison Auto decided to terminate the joint venture agreement of Foison Auto. The termination was approved by Guangzhou Economic and Technological Development Zone Administrative Commission ( ) on 26 October 2007 and the liquidation process commenced on the same day. The liquidation was completed on 9 April 2008 and net losses arising from the liquidation amounted to RMB2,579,439. The registration of Foison Auto was cancelled on 27 June 2008. Our Company confirms that there is no contingent liability resulting from the termination and there is no liability or obligation imposed against any Directors or senior management of our Group resulting from the liquidation. Our Company began its partnership with Toyota in 2004 when GAC Toyota Engine was established by our Company and Toyota for the manufacture of the Toyota brand engines for export to overseas and in preparation for supply to GAC Toyota. The products of GAC Toyota Engine are manufactured for incorporation into GAC Toyota Camry and for use in Toyota’s products in other parts of the world. GAC Toyota was subsequently established in September 2004 by our Company and Toyota, which commenced production in 2006 and marked the beginning of the manufacture and sale of our Toyota Camry series of passenger vehicles and related auto parts. 67 HISTORY, REORGANISATION AND CORPORATE STRUCTURE As part of its restructuring and reorganisation, our Company transferred some non-operating assets to GAIG and its associated companies in 2004 and 2005 by way of open tender through Guangzhou Enterprises Mergers and Acquisitions Services ( ). Our Company transferred 60% of its interest in Guangzhou Guangyue Asset Administration Co., Ltd. ( “Guangzhou Guangyue”) for a consideration of RMB4,210,255.12 and the capital contribution of RMB5,000,000 in Guangzhou Motors for a consideration of RMB3,980,533.33 to GAIG, and 100% of its interest in Guangzhou Automobile Manufacturing Factory ( ) to Guangzhou Guangyue for a consideration of RMB9,673,943.56. Our Company also transferred 100% of its interest in Guangzhou Bus Factory ( ), Guangzhou Yangcheng Automobile Factory ( ), Guangdong Province Bus Factory ( ), Guangzhou Junda Automobile Enterprise Group ( ) and 10% of its interest in Guangzhou Anxun Investment Co., Ltd. ( ) to Guangzhou Guangyue and 100% of its interest in Guangzhou Luxury Automotive Plastic Parts Factory ( ) to Guangzhou Junda Automobile Enterprise Group ( ) and the transfer price for each of the abovementioned companies was RMB1. The transfer prices were determined with reference to independent valuations. Guangzhou Guangyue is owned as to 60% by GAIG and 40% by Guangzhou Motors, which in turn is wholly owned by GAIG. Guangzhou Guangyue is principally engaged in corporate asset management. Guangzhou Junda Automobile Enterprise Group ( ) is wholly owned by Guangzhou Guangyue and therefore is also a wholly owned subsidiary of GAIG. Each of Guangzhou Automobile Manufacturing Factory ( ), Guangzhou Bus Factory ( ), Guangzhou Yangcheng Automobile