KINGBOARD CHEMICAL HOLDINGS LIMITED 建滔化工集團* (Incorporated in the Cayman Islands with Limited Liability) (Stock Code: 148)

This announcement does not constitute an offer for sale of or invitation to subscribe for or purchase any securities nor is it calculated to invite any such offer or invitation. In particular, this announcement is not an offer of securities for sale in Hong Kong, the United States or elsewhere. Securities may not be offered or sold in the United States absent registration or an exemption from registration. Any public offering of securities to be made in the United States will be made by means of a prospectus that may be obtained from the issuer or selling shareholder and that will contain detailed information about the issuer and its management, as well as financial statements.

KINGBOARD CHEMICAL HOLDINGS LIMITED 建滔化工集團* (Incorporated in the Cayman Islands with limited liability) (Stock Code: 148)

ANNOUNCEMENT PROPOSED DISCLOSEABLE TRANSACTION BY WAY OF SPIN-OFF AND SEPARATE LISTING OF HEBEI COALCHEM HOLDINGS LIMITED ON THE MAIN BOARD OF THE STOCK EXCHANGE OF HONG KONG LIMITED

Sole Sponsor to Hebei CoalChem

ISSUE OF WEB PROOF INFORMATION PACK

The following is a web proof information pack of Hebei CoalChem Holdings Limited, a subsidiary of Kingboard Chemical Holdings Limited.

By Order of the Board Kingboard Chemical Holdings Limited Lo Ka Leong Company Secretary

Hong Kong, 18 January 2010

As at the date hereof, the Board consists of Messrs. Cheung Kwok Wing, Chan Wing Kwan, Chang Wing Yiu, Cheung Kwong Kwan, Ho Yin Sang, Cheung Wai Lin, Stephanie and Mok Cham Hung, Chadwick, being the executive Directors, and Messrs. Cheng Wai Chee, Christopher, Henry Tan, Lai Chung Wing, Robert and Tse Kam Hung, being the independent non-executive Directors.

* For identification purpose only Hong Kong Exchanges and Clearing Limited, the Stock Exchange of Hong Kong Limited and the Securities and Futures Commission take no responsibility for the contents of this Web Proof Information Pack, 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 Web Proof Information Pack.

Web Proof Information Pack of

Hebei CoalChem Holdings Limited 河北煤化工控股有限公司 (incorporated in the Cayman Islands with limited liability) WARNING

This Web Proof Information Pack is being published as required by The Stock Exchange of Hong Kong Limited (the “HKEx”)/the Securities and Futures Commission solely for the purpose of providing information to the public in Hong Kong.

This Web Proof Information Pack is in draft form. The information contained in it is incomplete and is subject to change which can be material. By viewing this document, you acknowledge, accept and agree with Hebei CoalChem Holdings Limited (the “Company”), its sponsor, advisors and members of the underwriting syndicate that: (a) this Web Proof Information Pack is only for the purpose of facilitating equal dissemination of information to investors in Hong Kong and not for any other purposes. No investment decision should be based on the information contained in this Web Proof Information Pack; (b) the posting of the Web Proof Information Pack or supplemental, revised or replacement pages on the website of HKEx does not give rise to any obligation of the Company, its sponsor, advisors and members of the underwriting syndicate to proceed with an offering in Hong Kong or any other jurisdiction. There is no assurance that the Company will proceed with any offering; (c) the contents of this Web Proof Information Pack or supplemental, revised or replacement pages may or may not be replicated in full or in part in the actual prospectus; (d) this Web Proof Information Pack is in draft form and may be changed, updated revised by the Company from time to time and the changes, updates and/or revisions could be material, but each of the Company and its affiliates, advisors, sponsor or members of the underwriting syndicate is under no obligation, legal or otherwise, to update any information contained in this Web Proof Information Pack; (e) this Web Proof Information Pack does not constitute a prospectus, notice, circular, brochure or advertisement offering to sell any securities to the public in any jurisdiction, nor is it an invitation to the public to make offers to subscribe for or purchase any securities, nor is it calculated to invite offers by the public to subscribe for or purchase any securities; (f) this Web Proof Information Pack must not be regarded as an inducement to subscribe for or purchase any securities, and no such inducement is intended; (g) neither the Company nor any of its affiliates, advisors, sponsor or members of the underwriting syndicate is offering, or is soliciting offers to buy, any securities in any jurisdiction through the publication of this Web Proof Information Pack; (h) neither the Company nor any of its affiliates, advisors, sponsor or members of its underwriting syndicate makes any express or implied representation or warranty as to the accuracy or completeness of the information contained in this Web Proof Information Pack; (i) each of the Company and any of its affiliates, advisors, sponsor or members of its underwriting syndicate expressly disclaims any and all liability on the basis of any information contained in, or omitted from, or any inaccuracies or errors in, this Web Proof Information Pack; (j) the Company has not and will not register the securities referred to in this Web Proof Information Pack under the United States Securities Act of 1933, as amended, (the “Securities Act”) or any state securities laws of the United States; and (k) as there may be legal restrictions on the distribution of this Web Proof Information Pack or dissemination of any information contained in this Web Proof Information Pack, you agree to inform yourself about and observe any such restrictions applicable to you.

THIS WEB PROOF INFORMATION PACK IS NOT FOR PUBLICATION OR DISTRIBUTION TO PERSONS IN THE UNITED STATES. ANY SECURITIES REFERRED TO HEREIN HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT, AND MAY NOT BE OFFERED OR SOLD WITHOUT REGISTRATION THEREUNDER OR PURSUANT TO AN AVAILABLE EXEMPTION THEREFROM.

NEITHER THIS WEB PROOF INFORMATION PACK NOR THE INFORMATION CONTAINED HEREIN CONSTITUTES AN OFFER TO SELL OR THE SOLICATION OF AN OFFER TO BUY ANY SECURITIES IN THE UNITED STATES. THIS WEB PROOF INFORMATION PACK IS NOT BEING MADE AND MAY NOT BE DISTRIBUTED OR SENT INTO CANADA OR JAPAN.

No offer or invitation will be made to the public in Hong Kong until after a prospectus of the Company is registered with the Registrar of Companies in Hong Kong. If an offer or an invitation is made to the public in Hong Kong in due course, prospective investors are reminded to make their investment decisions solely based on a prospectus of the Company registered with the Registrar of Companies in Hong Kong, copies of which will be distributed to the public during the offer period. THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

CONTENTS

This Information Pack contains the following information relating to Hebei CoalChem Holdings Limited extracted from an amended version of the post-hearing proof of the draft document:

• Summary

• Definitions

• Glossary of Technical Terms

• Risk Factors

• Forward-looking Statements

• Directors and Parties Involved

• Corporate Information

• Industry Overview

• Regulations

• Business

• History, Reorganization and Corporate Structure

• Relationship with Kingboard

• Directors, Senior Management and Staff

• Financial Information

• Future Plans

• Appendix I — Accountants’ Report

• Appendix IIIA — Profit Estimate for the Year Ended December 31, 2009

• Appendix IIIB — Profit Forecast for the Six Months Ending June 30, 2010

• Appendix IV — Property Valuation

• Appendix V — Summary of the Constitution of the Company and the Cayman Islands Companies Law

• Appendix VI — Statutory and General Information

YOU SHOULD READ THE WARNING ON THE COVER OF THIS INFORMATION PACK. THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

SUMMARY

OVERVIEW CO 3rd Sch 1

We are one of the leading coke producers in Hebei province in China, based on our production volume for 2008, according to the Hebei Coke & Chemical Industry Association. Historically, the steel and metallurgical industries have been a major consumer of coke in China, accounting for approximately 85% of China’s end-market applications of coke in 2007, according to CEIC. In 2008, Hebei was the largest steel-producing province in China, accounting for 19.9% of the total steel production volume in China, according to CEIC. Hebei is also the second largest coke-producing province in China, accounting for 12.1% of China’s total coke production volume in 2008, according to the China Coking Industry Association.

Our production facilities are located at Xingtai City in Hebei province, where we occupy a site of approximately 0.6 million square meters, and are currently capable of producing 1,960,000 tonnes of coke per annum. We produce coke by heating a mix of different types of coking coal, including 1/3 coking coal, fat coal, lean coal, main coking coal and gas coal. The principal customers for our coke are steel manufacturers located in Hebei province. We generally produce Class II coke, as this class of coke comprises the majority of our customers’ requirements. We believe the quality of our Class II coke generally falls on the higher end of the Class II coke industry standard, as it has comparatively low ash and sulfur contents and high mechanical strength compared to the specifications for Class II coke stipulated by the PRC General Administration of Quality Supervision, Inspection and Quarantine (國家質量監督檢驗檢疫總局).

In addition to coke, we produce methanol and pure benzene through a resource-recycling system, using the chemical wastes and by-products generated from our coke production process. Our current annual production capacities for methanol and pure benzene are 200,000 tonnes and 42,000 tonnes, respectively. We produce methanol using coking gas produced during the coke production process as feedstock. We produce pure benzene through a hydrorefining process using the crude benzene produced from our coke production process, the hydrogen produced from our methanol production process, as well as externally procured crude benzene and coke oven light oil. The resource-recycling system we use for methanol production was developed by Sedin Engineering Company Limited (formerly known as Second Design Institute of Chemical Industry). According to Sedin Engineering Company Limited, we were one of the first five companies in the PRC to commercially operate this resource-recycling system at the large scale of 100,000 tonnes per annum per production facility. For our pure benzene production, we utilize the Crude Benzene Hydrorefining Device designed by Uhde GmbH. These systems allow us to create additional revenue streams and reduce our waste emissions.

The principal customers for our methanol and pure benzene products are chemical companies located in Hebei and Shandong. We have dedicated sales and marketing teams and we market our coke, methanol and pure benzene products primarily through direct contacts with potential customers and participation in large-scale trade conferences. We conduct our sales and marketing efforts through our sales and marketing teams, who maintain close relationships with our key customers.

All of our production facilities for coke, methanol and pure benzene are located at the same site, enabling us to increase our operational efficiency and reduce infrastructure and transportation costs. We place strong emphasis on quality control and environmental protection. We have obtained an ISO 9001:2000 certification in 2009 in respect of our production and sales quality management at all of

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SUMMARY our production facilities. We were named one of the “Fifty Enterprises Receiving Key Support in Hebei” and one of the “Fifty Most Efficient Enterprises in Hebei” in 2008 and a “Leading Company in Petrochemical, Coking and Nuclear Fuel Processing Enterprise in Hebei” in 2006, 2007 and 2008 by the Hebei Top Hundred Enterprises Ranking Committee.

We plan to expand our coke and methanol production capacities to capitalize on opportunities in the coke and methanol markets in China. We also strive to develop a vertically integrated operation for our coking business, with downstream and upstream assets, including acetic acid production facilities and coal mines. Specifically, we have the following expansion and acquisition opportunities that we may take up:

Expansion of Our Coke and Methanol Production Capacities

Our indirect wholly-owned subsidiary Fast Intellect (BVI) has received the First Additional Capacities Approvals for additional coke and methanol projects which must be implemented through specified PRC subsidiaries to be established. In addition, Fast Intellect (BVI) has previously received the Second Additional Capacities Approvals for other additional coke and methanol projects which must be implemented through specified PRC subsidiaries, namely, Zhongxin Huagong and Yingdu Qihua. As described below, Zhongxin Huagong and Yingdu Qihua have been transferred to members of the Parent Group. Each set of the First Additional Capacities Approvals and the Second Additional Capacities Approvals has been issued by the Development and Reform Commission of Xingtai City to permit the recipients of such approvals to undertake coke and methanol projects with an annual capacity of up to 1,920,000 tonnes and 200,000 tonnes, respectively.

Pursuant to the Revitalization Rules, the PRC government authorities have (i) suspended the issuance of approvals for coke projects intended solely for the expansion of production capacity for a period of three years starting from 2009 and (ii) started strictly controlling the construction of methanol projects until PRC laws and regulations provide otherwise. Our PRC legal advisors, Commerce & Finance Law Offices, have advised that (i) the Revitalization Rules do not provide for the exact expiry date of such three-year period, (ii) as the First Additional Capacities Approvals and the Second Additional Capacities Approvals were issued in December 2008, the approved entities are entitled to undertake the projects in accordance with the approvals and (iii) the Second Additional Capacities Approvals may be invalidated as a result of the change in ownership of Zhongxin Huagong and Yingdu Qihua. Zhongxin Huagong and Yingdu Qihua own the Acetic Acid Plant, and given that the operations of the Acetic Acid Plant do not form part of our Group’s operations, these two entities were transferred to members of the Parent Group, as a result of which the Second Additional Capacities Approvals may be invalidated. In addition, based on our consultation with the relevant government authorities, the application of Fast Intellect (BVI) to undertake the coke and methanol projects relating to the Second Additional Capacities Approvals through other PRC subsidiaries to be established by Fast Intellect (BVI) may not be granted. See “Risk Factors — We may be unable to obtain the approvals to undertake the coke and methanol projects relating to the Second Additional Capacities Approvals”.

We are currently operating at close to full capacity at all of our production facilities. Therefore, the growth potential of our coke and methanol production capacities until the relevant restriction periods under the Revitalization Rules expire will be dependent upon our ability to implement our

—2— THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

SUMMARY expansion plan of developing additional production capacities. Furthermore, you should note that Commerce & Finance Law Offices have advised us that the First Additional Capacities Approvals and the Second Additional Capacities Approvals will expire after December 30, 2010 unless construction of the relevant coke and methanol production facilities shall have commenced in accordance with the relevant PRC laws and regulations and such construction shall have been certified by the relevant PRC government authorities before such date (even though there is no explicit requirement on the completion date under such approvals).

Kingboard has undertaken that it will not, and it will cause members of the Parent Group to not, with respect to the Second Additional Capacities Approvals, (i) use such approvals for the Parent Group or (ii) sell, transfer or assign such approvals to any person, firm or company (other than a member of the Group).

We intend to spend up to RMB1.1 billion to expand our coke and methanol annual production capacities by 960,000 tonnes and 100,000 tonnes, respectively, using half of the approved production capacities covered by the First Additional Capacities Approvals. We plan to commence pre-construction development work relating to such expansion (including the establishment of the relevant PRC subsidiaries to hold such approvals). We expect that such pre-construction development work will last approximately six months, following which we expect to commence construction of the relevant facilities. We expect such construction will be completed within approximately 18 months and we expect that following the completion of the construction, we will need an additional four months to “ramp up” our production volume. The above timetable is an indicative estimate by our Directors, which is based on a number of assumptions, including that there is no material delay to the construction timetable. As such, we cannot assure you that the timing set forth in this paragraph will in fact be achieved.

For the remaining half of the approved production capacities covered by the First Additional Capacities Approvals, we may commence development by the end of 2010. We intend to cause Fast Intellect (BVI) to apply to the relevant PRC government authorities for approvals to undertake coke and methanol projects for the capacities covered by the Second Additional Capacities Approvals. If Fast Intellect (BVI) is successful in its application for the approvals, we may commence development of additional coke and methanol production facilities using part or all of the capacities covered by such approvals by the end of 2010. In deciding whether to undertake any such additional development, we expect our Directors will consider, among others, our financial condition, the prevailing market conditions and the cost of funding in the open market. If Fast Intellect (BVI) is unable to obtain such approvals, our ability to expand our coke and methanol production facilities will be limited to the production capacities set forth in the First Additional Capacities Approvals (until the three-year restriction period under the Revitalization Rules ceases to apply). Commerce & Finance Law Offices, our PRC legal advisors, have confirmed that, as of the date of this document, the application of such approvals does not require the payment of any fee to the relevant governmental authorities in the PRC.

Acetic Acid Plant Option

We hold a call option to acquire Kingboard’s interest in True Glory, which indirectly owns the Acetic Acid Plant located adjacent to our production facilities. We will carefully evaluate the

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SUMMARY performance of the Acetic Acid Plant and may exercise the Acetic Acid Plant Option to acquire True Glory from Kingboard if we believe the acquisition of the Acetic Acid Plant will support our growth and improve our profitability. There is no assurance that we will exercise the Acetic Acid Plant Option.

Yuanda Coal Project

The Neiqiu County government has issued a letter stating its intention to assist us in acquiring the Yuanda Coal Project, which is located less than 10 km from our production facilities. This letter is not legally binding and there is no assurance that we will successfully acquire the Yuanda Coal Project.

See “Business — Our Expansion Opportunities”, “Relationship with Kingboard — Our Expansion Opportunities Involving Kingboard”, “Risk Factors — Improvements in our future results of operations may depend on the results of our future expansion, and recent changes in PRC laws impose limits on the expansion of coke and methanol production capacities” and “Risk Factors — We may not be able to successfully acquire the Yuanda Coal Project and the Acetic Acid Plant, and even if we acquire these assets, we may not be successful in operating them as we do not have any experience operating coal mines or acetic acid plants”.

To meet our expansions plans, we may need to obtain additional external financing through debt or equity financing. See “Risk Factors — We may be unable to secure additional funding in the future to meet our capital expenditure requirements”.

OUR OPERATING RESULTS

Our Revenue and Profits During the Three Years Ended December 31, 2008 and the Nine Months Ended September 30, 2009

We experienced overall growth in our revenue from 2006 through the third quarter of 2008, although our revenue declined during the fourth quarter of 2008 and early 2009. Our revenue increased from HK$1,104.1 million in 2006 to HK$3,135.0 million in 2008, representing a compound annual growth rate of 68.5%, and decreased by 7.3% from HK$2,739.7 million for the nine months ended September 30, 2008 to HK$2,539.4 million for the nine months ended September 30, 2009.

Our gross profit increased from HK$193.9 million in 2006 to HK$434.3 million in 2008, representing a compound annual growth rate of 49.7%, and decreased by 59.0% from HK$615.2 million for the nine months ended September 30, 2008 to HK$252.3 million for the nine months ended September 30, 2009. Our gross margin was 17.6%, 22.9%, 13.9%, respectively, in 2006, 2007 and 2008. It decreased from 22.5% for the nine months ended September 30, 2008 to 9.9% for the nine months ended September 30, 2009, primarily because the average selling price of coke, our key product, decreased by 32.7%, but our average cost of coking coal, the major component of our cost of sales, decreased by a lesser extent, by 24.3%, during the same periods.

Profit attributable to owners of our Company increased from HK$134.4 million in 2006 to HK$208.0 million in 2008, representing a compound annual growth rate of 24.4%, and decreased by 72.2% from HK$404.4 million for the nine months ended September 30, 2008 to HK$112.6 million

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SUMMARY for the nine months ended September 30, 2009. Our net margin was 12.2%, 16.7%, 6.6%, respectively, in 2006, 2007 and 2008. It decreased from 14.8% for the nine months ended September 30, 2008 to 4.4% for the nine months ended September 30, 2009, primarily due to the decrease in our gross margin during the same periods. See “Risk Factors — Our operating results have been subject to significant fluctuations during the three years ended December 31, 2008 and the nine months ended September 30, 2009 and may continue to fluctuate in future”.

The Effect of the Global Financial Crisis in 2008 on Our Operating Results

During the fourth quarter of 2008, after commencement of our phase II coke trial production, we were subject to the effects of the global financial crisis and adverse economic and market conditions prevailing in China, which resulted in a sharp decrease in the average selling price of our coke and methanol products and the prices for such products did not recover until early 2009. Therefore, we suffered a gross loss during the fourth quarter of 2008. According to the China Coking Industry Association, the market price for coke above 40mm in diameter (including VAT) decreased by 43.6% from RMB2,846 per tonne in August 2008 to RMB1,606 per tonne in December 2008, and then increased by 10.3% to RMB1,771 per tonne in November 2009. According to CEIC, the market price for methanol (including VAT) decreased by 44.1% from RMB3,540 per tonne in August 2008 to RMB1,980 per tonne in December 2008, and remained relatively stable since then. From September 2008 to April 2009, we also restricted our coke production volume to approximately two-thirds of our designed production capacity except that in October 2008, which was around the trough during the second half of 2008, we restricted our coke production volume to approximately one quarter of our designed production capacity.

The largest component of our cost of sales is the cost of raw materials, and coking coal is our principal raw material. In 2006, 2007 and 2008 and the nine months ended September 30, 2009, raw material costs accounted for approximately 83.3%, 82.5%, 88.1% and 87.6% of our total cost of sales, respectively, and the cost of coking coal accounted for approximately 97.8%, 98.1%, 99.0% and 92.8% of our raw materials costs, respectively. During the same periods, fluctuations in the average selling prices of our coke were largely in line with fluctuations in the average costs of coking coal sourced by our Group, except for the period from September to December in 2008, when the average selling prices of our coke were lower than our realized average costs of coking coal. This was caused by our decision to purchase additional supplies of coking coal of approximately one month’s supply (beyond our usual commitment of maintaining 18 to 21 days’ supply) between June and August 2008, as (i) we commenced phase II trial production of coke in June 2008 and we were concerned with an adequate supply of coking coal and (ii) we were concerned with potential disruptions in the transportation of our coking coal during the 2008 Olympics. As a result, we had to consume coking coal previously purchased at a cost higher than the average prevailing selling price of our coke products during the fourth quarter of 2008. The average selling price of our coke also remained lower than that of coking coal through December 2008.

Our Directors believe that we will be able to transfer any material risks associated with fluctuations in coking coal prices to our customers. However, if we are unable to do so, our business, financial condition and results of operations may be materially and adversely affected. See “Risk Factors — Fluctuations in the market prices for coking coal, coke and chemical products may materially and adversely affect our business, financial condition and results of operations”.

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SUMMARY

Since early 2009, due to improving market conditions, the average selling price of our coke and methanol products has started to improve. Our revenue did not recover until May 2009, when our coke production resumed to full capacity. In addition, we commenced trial production of pure benzene on November 16, 2008 and diversified our businesses and revenue sources in 2009. See “Financial Information” for further details relating to the movements of our revenue during the three years ended December 31, 2008 and the nine months ended September 30, 2009.

OUR COMPETITIVE STRENGTHS

We believe the following competitive strengths contribute to our historical success and future prospects:

• We are one of the leading coke producers in Hebei province based on production volume

• Our high-quality products and close proximity to our key customers enable us to maintain stable long-term relationships with them

• Our production system with resource-recycling technology allows us to create additional revenue streams and lower our overall production costs

• We are well positioned to benefit from industry consolidation trends driven by tightening government policy due to technology and scale advantage as well as ability to expand production capacities

• We have an experienced senior management team with a proven track record

OUR STRATEGIES

We seek to enhance shareholder value by maintaining and enhancing our position in the production and sale of coke and related chemical products in the PRC. The strategies that we have adopted with a view to attaining this goal include the following principal elements:

• Enhance production and operating efficiency of coke, methanol and pure benzene

• Strengthen existing and develop new relationships with key customers

• Expand our coke and methanol production capacities

• Further diversify and expand our production capacity of downstream products by selectively pursuing acquisition opportunities such as the acquisition of True Glory, which indirectly owns the Acetic Acid Plant

• Enhance and diversify our access to coking coal supply by strengthening our relationships with our existing coking coal suppliers and pursuing acquisition opportunities

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SUMMARY

SUMMARY FINANCIAL INFORMATION CO 3rd Sch 27

The following tables present our selected historical combined financial information for the periods indicated. The selected items of the combined statements of comprehensive income of our Group for the years ended December 31, 2006, 2007 and 2008 and the nine months ended September 30, 2008 and 2009, together with the selected items of the combined statements of financial position of our Group as of December 31, 2006, 2007 and 2008 and September 30, 2009, are derived from, and should be read in conjunction with, the combined financial information set forth in the accountants’ report included as Appendix I to this document.

Selected items of combined statements of comprehensive income

Nine months ended Year ended December 31, September 30,

2006 2007 2008 2008 2009 LR8.06 App16(2)(5) HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 App16(4)(1) (unaudited)

Revenue...... 1,104,084 1,540,899 3,134,963 2,739,712 2,539,394 App1A33(1) LR4.05(1)(a) Cost of sales...... (910,144) (1,187,679) (2,700,623) (2,124,503) (2,287,073) LR4.05(1)(d) Gross profit ...... 193,940 353,220 434,340 615,209 252,321 Other income ...... 12,000 17,920 13,425 12,985 4,995 LR4.05(1)(b) Distribution and selling expenses ...... (39,091) (39,208) (88,350) (67,261) (100,736) Administrative expenses...... (56,298) (93,451) (97,807) (92,040) (38,084) Other gains and losses ...... 32,713 27,750 11,993 14,203 8,827 Finance costs ...... (8,882) (8,862) (25,621) (22,887) (10,373) LR4.05(1)(e) Profit before taxation...... 134,382 257,369 247,980 460,209 116,950 Taxation...... — — (39,948) (55,774) (4,310) LR4.05(1)(h)

Profit for the year/period attributable to LR4.05(1)(g) LR4.05(1)(j) owners of the Company...... 134,382 257,369 208,032 404,435 112,640 Other comprehensive income for the year/period: Exchange difference arising on translation to presentation currency . 6,358 31,362 51,600 61,023 814 Total comprehensive income for the year/period attributable to owners of the Company ...... 140,740 288,731 259,632 465,458 113,454 Earnings per share Basic ...... [●] cents [●] cents [●] cents [●] cents [●] cents LR4.04(8)

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SUMMARY

Combined statements of financial position

As at As at December 31, September 30, LR4.04(3)(a) LR4.09(1) 2006 2007 2008 2009 App16(2)(1)

HK$’000 HK$’000 HK$’000 HK$’000 LR8.06 App16(2)(5) App16(4)(2) Non-current assets LR4.05(2)(a) Properties, plant and equipment ...... 766,694 1,175,054 1,989,536 2,106,256 Prepaid lease payments ...... 28,579 30,005 62,964 61,900 Deposits for acquisition of properties, plant and equipment ...... 11,243 13,284 11,223 4,330

806,516 1,218,343 2,063,723 2,172,486

Current assets LR4.05(2)(b) Inventories...... 96,830 139,739 145,329 190,900 Trade and other receivables and prepayments...... 50,683 133,729 314,352 214,066 Bills receivables ...... 30,219 107,367 78,382 214,150 Amounts due from fellow subsidiaries ...... 2,640 14,541 13,610 71,710 Pledged bank deposits...... 14,462 15,004 15,875 76,041 Bank balances and cash ...... 13,588 200,256 99,008 103,302 208,422 610,636 666,556 870,169

Current liabilities LR4.05(2)(c) Trade and other payables ...... 137,624 332,893 536,605 754,053 Amounts due to fellow subsidiaries...... 3,608 36,213 176,349 172,562 Amount due to immediate holding company...... 597,003 371,539 735,197 688,669 Bank borrowings — amount due within one year . 39,814 42,717 44,473 198,505 Taxation payable...... — — 20,077 10,504 778,049 783,362 1,512,701 1,824,293

Net current liabilities...... (569,627) (172,726) (846,145) (954,124) LR4.05(2)(d)

Total assets less current liabilities ...... 236,889 1,045,617 1,217,578 1,218,362 LR4.05(2)(e)

Non-current liabilities Bank borrowings — amount due after one year.... — 400,641 430,527 317,857 LR4.05(2)(f) Net assets ...... 236,889 644,976 787,051 900,505

Capital and reserves LR4.05(2)(g) Paid in capital/share capital ...... 150,355 269,711 463,640 463,640 Reserves ...... 86,534 375,265 323,411 436,865 Equity attributable to owners of the Company ...... 236,889 644,976 787,051 900,505

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SUMMARY

Summary of combined cash flows

Nine months ended Year ended December 31, September 30,

2006 2007 2008 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited)

Net (decrease) increase in cash and cash equivalents...... (4,340) 185,677 (113,623) (159,190) 4,204 Cash and cash equivalents at the beginning of the year/period ...... 17,309 13,588 200,256 200,256 99,008 Effect of foreign exchange rate changes of cash and cash equivalents...... 619 991 12,375 13,685 90 Cash and cash equivalents at the end of the year/period, representing bank balances and cash ...... 13,588 200,256 99,008 54,751 103,302

As of December 31, 2006, 2007 and 2008 and September 30, 2009, we had net current liabilities of HK$569.6 million, HK$172.7 million, HK$846.1 million and HK$954.1 million, respectively, primarily because we used trade and other payables and short-term bank borrowings to finance our working capital requirements. In addition, during the three years ended December 31, 2008 and the nine months ended September 30, 2009, we received significant advances, in the form of shareholders’ loans, from Kingboard and other members of the Parent Group to fund our operations. These shareholders’ loans are classified as current liabilities. As at September 30, 2009, these shareholders’ loans amounted to approximately HK$861.2 million. As at September 30, 2009, Kingboard and other members of the Parent Group also acted as guarantors in relation to HK$459.6 million of our bank loans. We have already obtained bank loans for an aggregate amount of HK$500 million to repay these shareholders’ loans. In addition, Kingboard and other members of the Parent Group will be released from the guarantees.

Our Directors expect that, after giving effect to, among other things, (i) the repayment of our shareholders’ loans, (ii) the payment of a special dividend of HK$200 million to the Parent Group, and (iii) the current portion of the HK$500 million commercial bank loan that we are expected to obtain, our net current liabilities would be reduced and our working capital position is expected to improve.

—9— THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

SUMMARY

PROFIT ESTIMATE FOR THE YEAR ENDED DECEMBER 31, 2009 AND PROFIT FORECAST FOR THE SIX MONTHS ENDING JUNE 30, 2010

Our Directors estimate that, on the bases set out in Appendix IIIA and in the absence of unforeseen circumstances, our estimated combined profit attributable to owners of our Company for the year ended December 31, 2009 will be as follow:

Estimated combined profit attributable to owners of the Company for the year ended December 31, 2009(1) ...... Not less than HK$[●]

Our Directors forecast that, on the bases and assumptions set out in Appendix IIIB and in the absence of unforeseen circumstances, our forecast combined profit attributable to owners of our Company for the six months ending June 30, 2010 will be as follows:

Forecast combined profit attributable to owners of the Company for the six months ending June 30, 2010(2) ...... Not less than HK$[●]

Notes:

(1) The bases on which the estimated combined profit attributable to owners of our Company for the year ended December 31, 2009 have been prepared are set out in “Appendix IIIA — Profit Estimate for the Year Ended December 31, 2009”.

(2) The bases and assumptions on which the forecast combined profit attributable to owners of our Company for the six months ending June 30, 2010 has been prepared are set out in “Appendix IIIB — Profit Forecast for the Six Months Ending June 30, 2010”. Our Directors have prepared a profit forecast only for the six months ending June 30, 2010, as the factors described under the sections headed “Risk Factors — Risks Relating to Our Business” and “Financial Information — Factors Affecting Our Results of Operations and Financial Condition” make any forecast for a longer period subject to many uncertainties. The forecast combined profit attributable to owners of our Company for the six months ending June 30, 2010 should not be used in any way as an indication or forecast of our Company’s performance for the year ending December 31, 2010 or any subsequent periods. Fluctuations in our operating results may make it difficult to predict future results, and period-to-period comparisons may not be meaningful. See “Risk Factors — Our operating results have been subject to significant fluctuations during the three years ended December 31, 2008 and the nine months ended September 30, 2009 and may continue to fluctuate in future”.

Our Directors believe that our revenue and the demand for our products are not affected by seasonality.

The Company has undertaken to have its interim results for the six months ending June 30, 2010 audited as required under applicable rules.

—10— THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

SUMMARY

DIVIDEND POLICY

We expect that our Directors will declare a special dividend in the amount of HK$200 million to the Parent Group. This dividend will be paid to the Parent Group. Such dividend will be financed by our operating cash flow and bank borrowings that we are expecting to obtain. Immediately following the payment of such dividend, our cash balance is expected to substantially decrease and our gearing ratio (net debt to total assets) is expected to increase.

In the future, our shareholders will be entitled to receive dividends declared by us. The payment and the amount of any dividends will be at the discretion of our Directors and will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that our Directors deem relevant.

We may distribute dividends by way of cash or by other means as our Board considers appropriate. Final dividends, if any, on the outstanding Shares must be recommended by our Board and approved at our annual general meeting of shareholders. In addition, the Board may declare interim dividends as appear to the Board to be justified by our profits. The payment and the amount of any dividends declared will be subject to our Articles and the Companies Law. We are entitled under our Articles and the Companies Law to pay dividends out of our share premium account provided that on the date the proposed dividend is to be paid, we are able to pay our debts when they fall due in the ordinary course of business. The timing, amount and form of future dividends, if any, will depend, among other things, on:

• the Group’s results of operations and cash flows;

• the Group’s future prospects;

• general business conditions;

• the Group’s capital requirements and surplus;

• contractual restrictions on the payment of dividends by the Company to its shareholders or by subsidiaries to the Company;

• taxation considerations;

• possible effects on the Company’s creditworthiness;

• statutory and regulatory restrictions; and

• any other factors the Board may deem relevant.

—11— THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

SUMMARY

Our ability to pay cash dividends will also depend upon the amount of distributions, if any, received by us from our operating subsidiaries. Under PRC law, dividends may be paid only out of distributable profits, which are the retained earnings of the relevant companies organized in the PRC. We will not ordinarily pay any dividends in a year in which we do not have any distributable earnings. We have been advised by our PRC legal advisors, Commerce & Finance Law Offices, that PRC law and regulations currently provide for a withholding tax for dividends made to non-resident shareholders by companies considered to be PRC resident enterprises for tax purposes. The rate of such PRC withholding tax may be up to 10%, depending on the provisions of any tax treaty between the PRC and the jurisdiction in which the relevant non-resident shareholder resides.

Subject to the above factors, our Directors currently intend to declare a cash dividend in an amount equivalent to not less than 30% of the consolidated profit attributable to owners of our Company for the periods subsequent to January 1, 2010.

We can give no assurance that any dividends will be paid. You should consider the risk factors affecting the Group contained in “Risk Factors” and the cautionary notice regarding forward-looking statements contained in “Forward-looking Statements”.

RISK FACTORS

There are certain risks and uncertainties involved in our operations, many of which are beyond our control. These risks are set out in “Risk Factors” and are summarized below.

Risks Relating to Our Business

• Our business is heavily dependent on the coal, steel, construction and automobile industries.

• Fluctuations in the market prices for coking coal, coke and chemical products may materially and adversely affect our business, financial condition and results of operations.

• Our operating results have been subject to significant fluctuations during the three years ended December 31, 2008 and the nine months ended September 30, 2009 and may continue to fluctuate in future.

• Improvements in our future results of operations may depend on the results of our future expansion, and recent changes in PRC laws impose limits on the expansion of coke and methanol production capacities.

• We may be unable to obtain the approvals to undertake the coke and methanol projects relating to the Second Additional Capacities Approvals.

—12— THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

SUMMARY

• We may not be able to successfully acquire the Yuanda Coal Project and the Acetic Acid Plant, and even if we acquire these assets, we may not be successful in operating them as we do not have any experience in operating coal mines or acetic acid plants.

• We may be unable to secure additional funding in the future to meet our capital expenditure requirements.

• We may not be successful as an independent stand-alone company with public shareholders and our historical financial condition and results of operations may have been different had we been operated as a stand-alone enterprise.

• Our short production history may make it difficult for you to evaluate our business and prospects.

• We depend on a small number of customers for a substantial portion of our sales and we do not have long-term purchase orders from our customers.

• We depend on a limited number of suppliers for our coking coal supplies and do not have long-term supply contracts with them.

• Our reputation, business and results of operations may suffer if coking coal supplied to us does not meet our specifications.

• We rely on third parties to transport some of our coking coal purchases and all of our coke deliveries. Any increase in transportation costs or inability to secure the necessary transportation capacity could have a material adverse effect on our business and results of operations.

• Failure to comply with coke and chemical industry, safety and environmental regulations could harm our business.

• Certain of our products are volatile, flammable and harmful materials that are exposed to the risk of fire, explosion and other hazards.

• We had net current liabilities as at December 31, 2006, 2007, 2008 and September 30, 2009.

• Our indebtedness may materially and adversely affect our financial performance and results of operations.

• We do not have insurance to cover all potential losses and claims.

• Our business operations may be adversely affected by unexpected business interruptions.

• Failure to attract and retain key personnel and employees could adversely affect our operations.

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SUMMARY

• While Kingboard has executed a Non-Competition Deed in our favor, the deed is subject to certain exceptions and the Parent Group may compete with us in the future.

• Our controlling shareholder, Kingboard, may take actions that are not in, or conflict with, our public shareholders’ best interests.

• We may not be able to continue to receive the business encouragement subsidies from the Neiqiu County Government.

• There is no assurance that we will continue to benefit from preferential tax treatment.

Risks Relating to Our Industry

• We face significant geographic barriers in both our ability to source our raw materials and extend our sales network.

• We operate in an intensely competitive industry and we may lose market share if we cannot compete successfully.

• Any slowdown in the global economy could materially and adversely affect our business, financial condition and results of operations.

• The coal resource and reserve data in this document relating to the Yuanda Coal Project is only an estimate and the actual resource and reserve of the Yuanda Coal Project may differ materially from this estimate.

Risks Relating to the PRC

• Adverse changes in China’s economic, political and social conditions as well as governmental policies could have a material adverse effect on China’s overall economic growth, which could in turn adversely affect our financial condition and results of operations.

• Changes in foreign exchange regulations and future movements in the exchange rate of Renminbi may adversely affect the financial condition and results of operations of our Company and our ability to pay dividends.

• We are subject to risks associated with the PRC legal system.

• Our Company may be treated as resident enterprise for PRC tax purposes under the new enterprise income tax law, which could result in the imposition of 25% PRC enterprise income tax payable on our taxable global income.

• Dividends payable by our Company to its non-resident shareholders may become subject to taxes under the PRC tax laws.

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SUMMARY

• If our Company is treated as a non-resident enterprise of PRC, dividends received from our PRC subsidiaries may be subject to PRC withholding tax.

• The implementation of the new Labor Contract Law and the expected increase in labor costs in the PRC may adversely affect our business and profitability.

• We are vulnerable to natural disasters and other events that could severely disrupt our operations.

• There may be an occurrence of a widespread public health problem.

—15— THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

DEFINITIONS

“Acetic Acid Plant” a production facility owned by Kingboard and located adjacent to the production facilities of our Group in Hebei Province, the PRC, with an annual production capacity of acetic acid of 400,000 tonnes

“Acetic Acid Plant Option” an option granted to the Company by Kingboard under the Acetic Acid Plant Option Agreement, pursuant to which the Company may acquire the entire issued share capital of True Glory, a company that indirectly owns the Acetic Acid Plant

“Acetic Acid Plant Option an agreement dated [●] entered into between our Company and Agreement” Kingboard pursuant to which our Company agreed to accept and Kingboard agreed to grant the Acetic Acid Plant Option

“Affiliate” with respect to any person, any other person directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified person

“Articles” the articles of association of our Company adopted on [January 18, 2010] and as amended from time to time

“Audit Committee” the audit committee of our Board

“Banking Ordinance” the Banking Ordinance (Chapter 155 of the Laws of Hong Kong)

“Board” our board of Directors

“business day” any day (excluding Saturday, Sunday or public holidays) on which banks in Hong Kong are generally open for normal banking business

“BVI” British Virgin Islands

“CAGR” compound annual growth rate

“CBI China” CBI (China) Co., Ltd., a market information service provider in China that specializes in the energy, chemical, iron and steel and non-ferrous metals sectors, and an Independent Third Party

“CEIC” CEIC Data Company Ltd, a financial information service provider in China that provides economic research data, and an Independent Third Party

“Cheminfo” www.cheminfo.gov.cn（中國化工信息網）, which is operated by China National Chemical Information Center （中國化工信息中心）, a state-owned organization and an Independent Third Party

—16— THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

DEFINITIONS

“China Coking Industry China Coking Industry Association (中國煉焦行業協會), a Association” national non-profit association controlled by the State-Owned Assets Supervision and Administration Commission of the State Council (國務院國有資產監督管理委員會) that collects and analyzes information in the coking industry, and an Independent Third Party

“China Investment Consultant” China Investment Consultant （中投顧問產業研究中心）,a research institution in the PRC that conducts market surveys and research, and an Independent Third Party

“Companies Law” the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands as amended, supplemented or otherwise modified from time to time

“Companies Ordinance” the Companies Ordinance of Hong Kong (Chapter 32 of the Laws of Hong Kong) as amended, supplemented or otherwise modified from time to time

“Company” Hebei CoalChem Holdings Limited, an exempted company incorporated in the Cayman Islands on September 4, 2009 with limited liability

“Controlling Shareholder(s)” in the context of our Company, means Kingboard and Jamplan App1A 27A

“Director(s)” our director(s) as of the date of this document

“Entry Conditions” the Entry Conditions of the Coke Industry (焦化行業准入條件) issued by the NDRC on December 16, 2004 and revised by the Ministry of Industry and Information Technology on December 19, 2009

“Fast Intellect (BVI)” Fast Intellect Limited, a company incorporated in the British Virgin Islands with limited liability and our indirect wholly-owned subsidiary

“Fast Intellect (HK)” Fast Intellect (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability and a wholly-owned subsidiary of True Glory, a member of the Parent Group

“Fenwei” Shanxi Fenwei Energy Consulting Co., Ltd, a company that provides consultancy and information services relating to the coal and coke industry, and an Independent Third Party

“First Additional Capacities the approvals issued by the Development and Reform Approvals” Commission of Xingtai City that permit Fast Intellect (BVI), through Zhongxin Jiaohua and Yingdu Jiaohua, to undertake coke and methanol projects with an annual capacity of up to 1,920,000 tonnes and 200,000 tonnes, respectively

—17— THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

DEFINITIONS

“Grace Mind” Grace Mind Investments Limited, a company incorporated in the British Virgin Islands with limited liability and our direct wholly-owned subsidiary

“Group” or “our Group” or “we” the Company and its subsidiaries or, where the context so or “our” or “us” requires, in respect of the period before our Company became the holding company of its current subsidiaries, our Company’s current subsidiaries or the business operated by such subsidiaries or their predecessors (as the case may be)

“Hallgain” Hallgain Management Limited, a company incorporated in the British Virgin Islands with limited liability, and the Controlling Shareholder of Kingboard

“Hebei Coke & Chemical Industry Hebei Coke & Chemical Industry Association Association” （河北省焦化行業協會）, a non-profit association that collects and analyzes data in the coking and chemicals industries as well as formulates non-binding strategies and policies applicable to participants within such industries, and an Independent Third Party

“HKFRS(s)” Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants

“HKICPA” Hong Kong Institute of Certified Public Accountants

“Hong Kong” the Hong Kong Special Administrative Region of the PRC

“Independent Third Party(ies)” a person(s) or company(ies) who/which is or are independent of and not connected with our Company and our connected persons

“INEDs” independent non-executive Directors

“Jamplan” Jamplan (BVI) Limited, a company incorporated in the BVI and a wholly-owned subsidiary of Kingboard, which is currently our sole Shareholder

“Kingboard” Kingboard Chemical Holdings Limited, a company incorporated in the Cayman Islands whose shares are listed on the Main Board

“Kingboard Hebei Chemical” Kingboard (Hebei) Chemical Company Limited (建滔 (河北) 化工有限公司), a limited liability company in the PRC and a wholly-owned subsidiary of our Company

“Kingboard Hebei Cokechem” Kingboard (Hebei) Cokechem Company Limited (建滔 (河北) 焦化有限公司), a limited liability company in the PRC and a wholly-owned subsidiary of our Company

—18— THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

DEFINITIONS

“Kingboard Group” Kingboard and its subsidiaries, including our Group

“Kingboard Shares” ordinary shares with a nominal value of HK$0.10 each in the share capital of Kingboard

“Latest Practicable Date” [●], being the latest practicable date for the purpose of ascertaining certain information contained in this document prior to its publication

“Memorandum” the memorandum of association of our Company adopted on [●], and as amended from time to time

“Merchant Research & Merchant Research & Consulting, Ltd., a company that Consulting” provides market research of chemical industry products on the global and regional markets, and an Independent Third Party

“Metalytics” Metalytics Pty Ltd, a company that provides advisory services in the resources and metals industries, and an Independent Third Party

“Nomination Committee” the nomination committee of our Board

“Non-Competition Deed” a deed of non-competition dated [●] between Kingboard and our Company in relation to the non-compete undertaking given by Kingboard to our Company (for itself and on behalf of our subsidiaries), details of which are set out in the section headed “Relationship with Kingboard — Independence from the Parent Group” in this document

“OECD/IEA” International Energy Agency, an autonomous body within the Organisation for Economic Co-operation and Development which, among other functions, gathers and analyzes statistics on the supply, transformation and consumption of major energy sources and disseminates information on the world energy market, and an Independent Third Party

“Parent Group” Kingboard and its subsidiaries, excluding our Group

“PBOC” The People’s Bank of China (中國人民銀行)

“PRC” or “China” the People’s Republic of China, which, unless otherwise stated, excludes Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan for the purposes of this document

“Reach Goal” Reach Goal Limited, a company incorporated in Hong Kong with limited liability and our indirect wholly-owned subsidiary

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DEFINITIONS

“Remuneration Committee” the remuneration committee of our Board

“Restructuring” the restructuring of the businesses and operations previously owned by the Parent Group, and transferred to our Company and/or our Group, as described in the section headed “History, Reorganization and Corporate Structure — The Restructuring” in this document

“Revitalization Rules” the Rules Regarding the Adjustment and Revitalization Planning of the Petrochemical Industry (石化產業調整和振興規劃) promulgated in May 2009

“Runge Asia” Runge Asia Limited (trading as Minarco-Mineconsult), a company that specializes in mining consultancy services (including the provision of feasibility studies and the assessment of reserves and resources data), and an Independent Third Party

“SACMS” State Administration of Coal Mine Safety (國家煤礦安全監察局), a state-owned entity that is responsible for formulating regulations and policies regarding work safety in coal mines, supervising coal mine safety, issuing health and safety permits in relation to coal mines and investigating major coal mine accidents

“SAFE” State Administration of Foreign Exchange (國家外匯管理局)

“Second Additional Capacities the approvals issued by the Development and Reform Approvals” Commission of Xingtai City that permit Fast Intellect (BVI), through Zhongxin Huagong and Yingdu Qihua, to undertake coke and methanol projects with an annual capacity of up to 1,920,000 tonnes and 200,000 tonnes, respectively

“Sedin Engineering Company (formerly known as Second Design Institute of Chemical Limited” Industry), a firm that specializes in engineering, design and engineering contracting services, and an Independent Third Party

“Share(s)” ordinary share(s) of nominal value of HK$0.10 each in the App1A23(1) share capital of our Company

“Shareholder(s)” holder(s) of Share(s)

“subsidiary(ies)” has the meaning ascribed to it in section 2 of the Companies Ordinance

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DEFINITIONS

“Supply Agreement” an agreement dated [●] entered into between our Company and Kingboard pursuant to which we agreed to sell and Kingboard agreed to cause members of the Parent Group to purchase our coke, steam and methanol

“True Glory” a company incorporated in the British Virgin Islands with limited liability and a member of the Parent Group as of the date of this document

“Uhde GmbH” Uhde GmbH, an engineering company with its head office in Germany with limited liability specializing in the design and construction of chemical, refining and other industrial plants, and an Independent Third Party

“US” the United States of America

“Yingdu Jiaohua” Hebei Yingdu Jiaohua Company Limited (河北英都焦化有限公司), a wholly foreign-owned enterprise to be established in the PRC as a wholly-owned subsidiary of Fast Intellect (BVI)

“Yingdu Qihua” Hebei Yingdu Qihua Company Limited (河北英都氣化有限公司), a wholly foreign-owned enterprise established in the PRC and a wholly-owned subsidiary of Fast Intellect (HK) as of the date of this document

“Yuanda Coal Project” the Neiqiu County Yuanda Coal Project (內邱縣遠大煤礦), formerly known as the Xingtai Yongli Coal Project (邢台永利煤礦), located in Neiqiu County, Hebei province

“Zhongxin Huagong” Hebei Zhongxin Huagong Company Limited (河北忠信化工有限公司), a wholly foreign-owned enterprise established in the PRC and a wholly-owned subsidiary of Fast Intellect (HK) as of the date of this document

“Zhongxin Jiaohua” Hebei Zhongxin Jiaohua Company Limited (河北忠信焦化有限公司), a wholly foreign-owned enterprise to be established in the PRC as a wholly-owned subsidiary of Fast Intellect (BVI)

“HK$”, “Hong Kong dollars” and Hong Kong dollars and cents respectively, the lawful currency “cents” of Hong Kong

“RMB” Renminbi, the lawful currency of China

“US$” and “US dollars” United States dollars, the lawful currency of the United States

“mm” millimeters

“sq.ft.” square foot/feet

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DEFINITIONS

“sq.m.” square meter/meters

“tonne” a unit of weight, one metric tonne is equal to 1,000 kilograms

“km” kilometer

“%” percent

“VAT” value added tax, which was charged at 17% during the three years ended December 31, 2008 and the nine months ended September 30, 2009

The English names of the companies incorporated in the PRC are translations of their Chinese names and are included for identification purposes only.

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GLOSSARY OF TECHNICAL TERMS

This glossary of technical terms contains terms used in this document. The terms and their meanings may not correspond to standard industry definitions.

“ash content” ash consists of incombustible impurities contained in coal. Ash increases the weight of coal, adds to the cost of handling, and can affect the burning characteristics. Ash content is measured as a percent by weight of coal on a moisture-free basis

“bituminous coal” bituminous coal typically contains 60-80% carbon and has two to three times the heating value of lignite. Bituminous coal is formed under high heat and pressure, and its forms include thermal coal, which is used to generate electricity, and coking coal, which is an important fuel and raw material for the metallurgical industries

“carbon black” a material produced by the incomplete combustion of heavy petroleum products such as coal tar and ethylene cracking tar

“Chinese Resource and Reserve a set of national standards issued by the State Bureau of Reporting Standards” Quality and Technical Supervision stipulating the classification of solid mineral resources and reserves

“Class I coke and Class II coke” classification of coke based on its ash content, sulfur content, volatility, mechanical strength and other chemical properties in accordance with quality standard GB/T 1996-2003 stipulated by the PRC General Administration of Quality Supervision, Inspection and Quarantine. The following table sets forth the main chemical properties of Class I and Class II coke in accordance with quality standard GB/T 1996-2003 stipulated by the PRC General Administration of Quality Supervision, Inspection and Quarantine.

Classifications

Index Class I Class II

Ash Content (%)...... ≤12 ≤13.5 Sulfur Content (%) ...... ≤0.6 ≤0.8 Volatility (%)...... ≤1.8 ≤1.8 Mechanical Strength (M40)(1) (%)...... ≥80 ≥76 Mechanical Strength (M25)(2) (%)...... ≥92 ≥88 Mechanical Strength (M10)(3) (%)...... For M25: ≤7.0; ≤8.5 For M40: ≤7.5(4)

(1) This measures the percentage of coke which is 40mm or greater in diameter after the coke grinding and pressing process for categorization of coke by size.

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GLOSSARY OF TECHNICAL TERMS

(2) This measures the percentage of coke which is 25mm or greater in diameter after the coke grinding and pressing process for categorization of coke by size.

(3) This measures the percentage of coke which is 10mm or smaller in diameter after the coke grinding and pressing process for categorization of coke by size.

(4) M10 is ≤ 7.0 if tested by the methodology for determining M25, and ≤ 7.5 if tested by the methodology for determining M40.

“clean coal” coal cleaned and processed in coal washing plants, which has less ash than raw coal

“clean coking coal” coking coal cleaned and processed in coal washing plants, which has less ash than raw coking coal

“coal” a solid, brittle, more or less distinctly stratified combustible carbonaceous rock, formed by partial to complete decomposition of vegetation

“coal mixing” mixing coal in predetermined and controlled quantities to adjust the chemical or burn characteristics of the resulting coal or to produce a more uniform product

“coal tar” a brown or black liquid of high viscosity, which is the liquid by-product of the distillation of coal to make coke

“coal washing” the process of segregating coal residue stone from raw coal through beneficiation at a coal washing plant

“coke” a solid carbon fuel and carbon source used to melt and reduce iron ore, which is used for making pig iron in the steel production process

“coking” the process of converting clean coking coal into coke

“coking coal” a form of bituminous coal with carbon content of around 60-80%

“Crude Benzene Hydrorefining a device designed by Uhde GmbH which we used to produce Device” pure benzene

“DME” dimethyl ether, an organic compound with the formula

CH3OCH3, a colorless gas and an aerosol propellant

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GLOSSARY OF TECHNICAL TERMS

“formal production” production of a substance or chemical in accordance with applicable PRC laws upon the grant of the permits, licenses and approvals by the relevant PRC governmental authorities (i) following the inspection by such authorities of the environmental and safety protection standards at the production facilities and (ii) for formal production

“foundry coke” a special type of coke that is used in furnaces to produce cast and ductile iron products

“hard coal” a type of coal that is harder and contains a high percentage of fixed carbon and a low percentage of volatile matter (when compared to bituminous coal); it is also known as anthracite coal

“ISO 9001:2000” a standard for quality management systems maintained by the International Organization for Standardization

“LPG” liquefied petroleum gas, which is a mixture of hydrocarbon gases synthesized by refining petroleum natural gas, and is generally used as a type of fuel for vehicles and cooking, in refrigeration and as an aerosol propellant

“M85 methanol gasoline” methanol-blended gasoline which contains approximately 85% of methanol and approximately 15% of gasoline

“mechanical strength” the strength of coke during transportation into blast furnaces, which is derived from the percentage of coke that is of a certain size after the coke pressing process

“metallurgical coke” a carbon material produced by the destructive distillation of a mixture of coking coal and may be used as a fuel in smelting iron ore in a blast furnace

“methanol” an organic chemical with formula CH3OH which is the simplest form of alcohol, and is a colorless, flammable and toxic liquid with an alcohol-like odor

“moisture content” the percentage moisture content equals the weight of moisture divided by the weight of dry material multiplied by 100. The moisture content of a coal or mineral sample consists of two portions, namely, the free or surface moisture which can be removed by exposure to air, and the inherent moisture which is entrapped in the fuel, and is removed by heating at 93.3 degrees centigrade

—25— THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

GLOSSARY OF TECHNICAL TERMS

“MTBE” methyl tert-butyl ether, a chemical compound with molecular

formula C5H12O, a volatile, flammable and colourless liquid used as an oxygenate to raise octane number

“pig iron” raw iron, the immediate product of smelting iron ore with coke and limestone in a blast furnace

“production capacity” the maximum quantity of product that can be produced by an equipment in a period of time on a normal sustainable long-term operating rate that is based on the operating parameters of such equipment, subject to certain assumptions

“pure benzene” an organic chemical compound with the molecular formula

C6H6 which is a colorless, toxic and highly flammable liquid

“raw coal” a mineral in its raw, untreated state subsequent to extraction and prior to coal washing and sizing

“raw coking coal” coking coal in its raw, untreated state subsequent to extraction and prior to coal washing and sizing

“sulfur content” the amount of sulfur, a non-metallic chemical element, that is contained in a particular sample of coal

“trial production” production of a substance or chemical in accordance with applicable PRC laws prior to the grant of the permits, licenses and approvals by the relevant PRC governmental authorities (i) for environmental and safety protection at the production facilities and (ii) for formal production

“volatility” the percentage of volatile matter contained in coal, which is determined by heating coal to around 1,000 degrees Celsius under controlled conditions and measuring, among others, the weight loss

—26— THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

RISK FACTORS

There are certain risks and uncertainties involved in our operations, many of which are beyond our control. We have categorized these risks and uncertainties into: (i) risks relating to our business; (ii) risks relating to our industry; and (iii) risks relating to the PRC.

RISKS RELATING TO OUR BUSINESS

Our business is heavily dependent on the coal, steel, construction and automobile industries.

A large portion of our revenue is derived from the sale of coke and related products. During 2006, 2007 and 2008 and the nine months ended September 30, 2009, approximately 85.1%, 85.9%, 91.2% and 85.0%, respectively, of our revenue were attributable to the sale of coke and related products. We are heavily dependent on the coal industry, as the key raw material for the production App1A 34(1)(b) of coke is coking coal. During 2006, 2007 and 2008 and the nine months ended September 30, 2009, the cost of coking coal accounted for 97.8%, 98.1%, 99.0% and 92.8%, respectively, of our total raw material costs. We are subject to the risk of fluctuating prices of coking coal as we may not be able to pass on any increase in coking coal prices to our customers. Historically, market prices for coking coal in China have fluctuated periodically and have at times experienced alternating periods of increased demand and excess supply. The fluctuations in supply and demand are caused by numerous factors beyond our control, which include, but are not limited to:

• economic and political conditions and competition from other energy sources;

• the rate of growth and expansion in industries with high demand for coal (including coking coal), and in particular the power and construction industries; and

• regulatory changes through the PRC Government’s regulation of on-grid tariffs and the allocation of transportation capacity on the national rail system.

Our operations could be materially and adversely affected if we are unable to obtain sufficient quantities of coking coal on specifications and prices that are acceptable to us.

Coke is used principally in the steel industry, which is heavily influenced by demand for steel in the construction and automobile industries. Historically, a slowdown in the economy has usually resulted in a reduction in activities in the construction and automobile industries. The PRC and global economies slowed down in 2008, and according to CEIC, the annual growth rates of the construction industry and the automobile industry decreased from 22.8% and 23.7% in 2007 to 19.8% and 8.9% in 2008, respectively. Accordingly, any slowdown in the economy may result in reduced demand for steel, which in turn would result in reduced demands for coke, and which could materially and adversely affect our financial condition and results of operations. Furthermore, substantially all of our coke was sold to steel producers in Hebei during the three years ended December 31, 2008 and the nine months ended September 30, 2009, and as such, we are heavily reliant on their orders. We cannot assure you that the demand for coke in Hebei and in China will continue to grow or will be sustained, or that the markets for coke will not experience excess supply. Any significant downturn in the steel industry in China, and in particular, a downturn affecting steel manufacturers in Hebei province, could materially affect our business, results of operations and financial condition.

—27— THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

RISK FACTORS

Fluctuations in the market prices for coking coal, coke and chemical products may materially and adversely affect our business, financial condition and results of operations.

Coking coal is a key raw material for our coke production process, and we currently source coking coal principally from Shanxi, Hebei, Jiangsu and Shandong provinces in China. For the years ended December 31, 2006, 2007 and 2008 and the nine months ended September 30, 2009, raw materials costs accounted for 83.3%, 82.5%, 88.1% and 87.6%, respectively, of our cost of sales, and our costs of coking coal accounted for 97.8%, 98.1%, 99.0% and 92.8%, respectively, of our raw materials costs. During the years ended December 31, 2006, 2007 and 2008 and the nine months ended September 30, 2009, our coking coal input to coke output ratios were 1.303, 1.301, 1.298 and 1.294, and we consumed approximately 1.4 million tonnes, 1.4 million tonnes, 1.7 million tonnes and 1.7 million tonnes of coking coal, respectively. If our coking coal input to coke output ratio increases, we may need to source additional coking coal from our suppliers.

Our coke and chemical products as well as our coking coal supplies are all priced largely according to prevailing market prices. In the past few years, the market prices for coking coal, coke and chemical products have experienced drastic fluctuations. For example, according to the China Coking Industry Association, the market price for coke above 40mm in diameter (including VAT) decreased by 43.6% from RMB2,846 per tonne in August 2008 to RMB1,606 per tonne in December 2008, and then increased by 10.3% to RMB1,771 per tonne in November 2009. Although the factors influencing changes in the price of coking coal overlap with those influencing changes in the prices of our coke and chemical products, market price trends of coking coal and our coke and chemical products do not always correlate with one another. In particular, the average selling price of our methanol during the nine months ended September 30, 2009 still remained below 2006 levels due to the increase in the supply of methanol in China during the preceding years. Any increase in the market price of coking coal, our key raw material, without a corresponding increase in the market prices of our products, or any decrease in the market prices of our products without a corresponding decrease in the market price of coking coal, could materially and adversely affect our business, financial condition and results of operations.

Furthermore, coal producers are subject to extensive national, provincial and local governmental laws, regulations, policies and controls. Changes to these laws, regulations, policies and controls had, on many occasions during the three years ended December 31, 2008 and the nine months ended September 30, 2009, resulted in significant changes to the supply of coking coal, which in turn had caused coking coal prices to fluctuate. The PRC Government regulates the supply (and indirectly the demand and market price) of coking coal in part through changes in laws, regulations, policies and controls. For example, pursuant to the Advices on Strengthening the Production Safety of Coal Mines and Standardizing the Consolidation of Coal Resources (關於加強煤礦安全生產工作規範煤炭資源整合的若干意見) issued on March 25, 2006 and the Advices concerning Further Progressing the Rectifications and Closure of Coal Mines (關於進一步做好煤礦整頓關閉工作意見) issued on September 28, 2006, coal mines shall be consolidated for scale enlargement purposes, and small-scale coal mines shall be closed down under certain circumstances such as having an annual production

—28— THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

RISK FACTORS capacity of less than 30,000 tonnes or failing to obtain the relevant safety production permit. The SACMS is responsible for implementing and supervising the implementation of the relevant safety laws and regulations applicable to coal mines and coal mining operations, as well as conducting regular safety inspections of coal producers. Coal producers that fail to comply with the applicable production safety and mining laws and regulations are subject to fines, penalties or in severe cases suspension of operations. If the SACMS were to tighten the legal requirements or carry out their inspection in increased frequencies or with increased rigor, there could be a reduction in the supply of coking coal, which in turn could result in an increase in coking coal prices.

On the demand side, PRC Government policies heavily influence infrastructure, housing and automobile demands, which in turn affect the level of activities in the construction and automobile industries and therefore the demand for coke as well as coke prices. Pursuant to the Opinions on Limiting Excess Capacity and Repeated Construction in Connection with the Healthy Development of Certain Industries (關於抑制部份行業產能過剩和重覆建設引導產業健康發展的若干意見) jointly issued by NDRC and other PRC government authorities in September 2009, the PRC government authorities have ceased to approve steel projects involving new construction or intended solely for expansion of production capacity. If we are unable to pass any price increase in coking coal on to our customers and cannot lower other costs in amounts sufficient to offset such higher raw material costs, our results of operations and profitability may be materially and adversely affected.

If there is an increased demand for, or a shortage in the supply of, coking coal in China, competition for the supply of coking coal in China will increase and in such situation we cannot assure you that we will be able to secure an adequate supply of coking coal at acceptable prices, or at all. If we are not able to procure the requisite amount of coking coal from China-based coking coal producers, we may have to purchase coking coal from sources outside China, which in turn may increase our raw materials costs and reduce our profit margin.

Our operating results have been subject to significant fluctuations during the three years ended December 31, 2008 and the nine months ended September 30, 2009 and may continue to fluctuate in future.

Due to the cyclical nature of our industry, our operating results during the three years ended December 31, 2008 and the nine months ended September 30, 2009 were, and we expect will continue to be, subject to significant fluctuations. Our profit before taxation increased by 91.5% from HK$134.4 million in 2006 to HK$257.4 million in 2007, but suffered a slight drop in 2008 to HK$248.0 million, or 3.7%. We experienced a 74.6% drop in our profit before taxation from HK$460.2 million for the nine-month period ended September 30, 2008 to HK$117.0 million for the nine-month period ended September 30, 2009. Some material factors affecting our operating results include, but are not limited to:

• changes in general economic conditions;

• alterations in demand for our products;

• our customers’ business outlook;

—29— THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

RISK FACTORS

• changes in our production cost and the availability of raw materials and labor;

• our effectiveness in managing the timing of our raw materials purchases;

• our effectiveness in managing our manufacturing processes and controlling costs;

• maintenance schedule of our production facilities and our ability to optimize our available production capacity;

• our ability to obtain financing in a timely manner and on reasonable terms;

• natural disasters and other unexpected business interruptions; and

• local conditions and events that may affect our production volumes, such as labor conditions, political instability and changes in local rules and regulations.

Due to the factors mentioned above and other risks discussed in this section, many of which are beyond our control, our operating results may fluctuate from period to period. As a result, our Share price may be volatile and may not always accurately represent the longer-term value of our Company. Moreover, the forecast profit attributable to owners of our Company for the six months ending June 30, 2010 should not be used in any way as an indication or forecast of our Company’s performance for the year ending December 31, 2010 or any subsequent periods. Fluctuations in our operating results may make it difficult to predict future results. Accordingly, period-to-period comparisons may not be meaningful due to the above reasons. No assurance can be given that our operating results will meet the expectations of market analysts or our investors. If we fail to meet their expectations, there may be a decline in our Share price.

Improvements in our future results of operations may depend on the results of our future expansion, and recent changes in PRC laws impose limits on the expansion of coke and methanol production capacities.

We are currently operating at close to full capacity in all of our existing production facilities. Given that coke prices are driven by market demand, our ability to increase revenue, net profit and cash flow will in each case be principally dependent upon the volume of the products that we can sell, which in turn is driven principally by the expansion of our production capacities. Without any such expansion, we may not be able to achieve substantial improvements to our profitability unless the prices of our products increase substantially without a corresponding increase in our operating costs, or that our operating costs decrease substantially without a corresponding decrease in the prices of our products. Accordingly, it is important that we can expand our production capacities.

Pursuant to the Rules Regarding the Adjustment and Revitalization Planning of the Petrochemical Industry (石化產業調整和振興規劃) promulgated in May 2009 (the “Revitalization Rules”), the PRC government authorities have (i) suspended the issuance of approvals for coke projects intended solely for the expansion of production capacity for a period of three years starting from 2009 and (ii) started strictly controlling the construction of methanol projects until PRC laws and regulations provide otherwise. Our PRC legal advisors, Commerce & Finance Law Offices, have

—30— THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

RISK FACTORS advised us that the Revitalization Rules do not provide for the exact expiry date of such three-year period. Our indirect wholly-owned subsidiary Fast Intellect (BVI) has received the First Additional Capacities Approvals for additional coke and methanol projects which must be implemented through specified PRC subsidiaries to be established. In addition, Fast Intellect (BVI) has previously received the Second Additional Capacities Approvals for other additional coke and methanol projects which must be implemented through specified PRC subsidiaries, namely, Zhongxin Huagong and Yingdu Qihua, being former PRC subsidiaries of Fast Intellect (BVI). Each set of the First Additional Capacities Approvals and the Second Additional Capacities Approvals has been issued by the Development and Reform Commission of Xingtai City to permit the recipients of such approvals to undertake coke and methanol projects with an annual capacity of up to 1,920,000 tonnes and 200,000 tonnes, respectively. Commerce & Finance Law Offices have advised us that as these approvals were issued in December 2008, the approved entities are entitled to undertake the projects in accordance with the approvals. In relation to the Second Additional Capacities Approvals, there is some uncertainty under PRC law as to whether we can undertake the coke and methanol projects relating to the Second Additional Capacities Approvals. See “Risk Factors — We may be unable to obtain the approvals to undertake the coke and methanol projects relating to the Second Additional Capacities Approvals.”

Commerce & Finance Law Offices have advised that each of such approvals will expire after December 30, 2010 unless construction of the relevant coke and methanol production facilities shall have commenced in accordance with the relevant PRC laws and regulations and such construction shall have been certified by the relevant PRC government authorities before such date (even though there is no explicit requirement on the completion date under such approvals). We cannot assure you that we will commence expansion of our coke and methanol production capacities in time, or at all.

We may be unable to obtain the approvals to undertake the coke and methanol projects relating to the Second Additional Capacities Approvals

Our indirect wholly-owned subsidiary Fast Intellect (BVI) has received the First Additional Capacities Approvals for additional coke and methanol projects which must be implemented through specified PRC subsidiaries to be established. In addition, Fast Intellect (BVI) has previously received the Second Additional Capacities Approvals for other additional coke and methanol projects which must be implemented through specified PRC subsidiaries, namely, Zhongxin Huagong and Yingdu Qihua, being former PRC subsidiaries of Fast Intellect (BVI). The ownership of Zhongxin Huagong and Yingdu Qihua were transferred to Fast Intellect (HK), a wholly-owned subsidiary of True Glory and also a member of the Parent Group. The transfer was undertaken because Zhongxin Huagong and Yingdu Qihua own the Acetic Acid Plant, and given that the operations of the Acetic Acid Plant do not form part of our Group’s operations, the two entities were transferred to members of the Parent Group. As a result of such transfer, Fast Intellect (BVI) can no longer undertake the coke and methanol projects through Zhongxin Huagong and Yingdu Qihua pursuant to the Second Additional Capacities Approvals.

Fast Intellect (BVI) plans to apply to the relevant government authorities to undertake the coke and methanol projects relating to the Second Additional Capacities Approvals through two PRC subsidiaries that will be established by Fast Intellect (BVI). Commerce & Finance Law offices, our PRC legal advisors, have advised us that the Second Additional Capacities Approvals may be

—31— THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

RISK FACTORS invalidated as a result of the change in ownership of Zhongxin Huagong and Yingdu Qihua. In addition, based on our consultation with the relevant government authorities, the application of Fast Intellect (BVI) to undertake the coke and methanol projects relating to the Second Additional Capacities Approvals through other PRC subsidiaries to be established by Fast Intellect (BVI) may not be granted.

If we are not able to undertake the coke and methanol projects relating to the Second Additional Capacities Approvals, we may not be able to expand our coke and methanol production capacities by an additional 1,920,000 tonnes and 200,000 tonnes, respectively, beyond the limits permitted under the First Additional Capacities Approvals until the Revitalization Rules are amended or upon the expiry of the three-year suspension period provided under such rules. See “Risk Factors — Improvements in our future results of operations may depend on the results of our future expansion, and recent changes in PRC laws impose limits on the expansion of coke and methanol production capacities”.

We may not be able to successfully acquire the Yuanda Coal Project and the Acetic Acid Plant, and even if we acquire these assets, we may not be successful in operating them as we do not have any experience in operating coal mines or acetic acid plants.

We hold a call option to acquire the entire issued share capital of True Glory, a member of the Parent Group as of the date of this document that owns the Acetic Acid Plant. The Acetic Acid Plant only commenced commercial operations in September 2009 and we have not completed our evaluation of it. We will only exercise such option if we expect to derive substantial benefits from the investment. We cannot assure you that we will exercise such option.

Furthermore, pursuant to a letter issued to us by the Neiqiu County Government in September 2009, the government has offered to assist us to acquire the Yuanda Coal Project. Commerce & Finance Law Offices, our PRC legal advisors, have advised us that this letter does not constitute a definitive agreement that is binding against the Neiqiu County Government under PRC law. Neither we nor the Neiqiu County Government currently hold any interest in the Yuanda Coal Project. We cannot assure you that definitive agreements bearing terms acceptable to us will be entered into, or that the Neiqiu County Government’s commitment to assist us to acquire the Yuanda Coal Project will result in our acquisition of such mine.

According to the Advices on Strengthening the Production Safety of Coal Mines and Standardizing the Consolidation of Coal Resources (關於加强煤礦安全生產工作規範煤炭資源整合的若干意見) collectively issued by 11 ministries including the State Administration of Work Safety, small-scale coal mines shall be consolidated into larger integrated coal mines which, in Hebei, shall have an annual production capacity of not less than 150,000 tonnes per annum each. We cannot assure you that we can acquire or develop the Yuanda Coal Project on a standalone basis. Commerce & Finance Law Offices have advised us that before we can acquire and operate the Yuanda Coal Project, we will need to obtain approvals and licenses from a number of PRC government authorities, including for the mining and exploration of coal from the relevant PRC land and resources authorities. We cannot assure you that we will be able to obtain such approvals and licenses at a reasonable cost, or at all.

—32— THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

RISK FACTORS

In deciding whether to acquire the Yuanda Coal Project, our Directors will also consider various factors, including our financial condition, the purchase price of the Yuanda Coal Project, its geological condition and the capital expenditure required to convert it to a condition that we require. As such, we cannot assure you that we will be able to successfully acquire the Yuanda Coal Project. The Yuanda Coal Project ceased production in November 2005 due to a water inflow. We cannot assure you that the geological condition of the Yuanda Coal Project is suitable for commercial exploitation or we will be able to successfully operate the Yuanda Coal Project.

We do not have any experience with operating an acetic acid plant or a coal mine and cannot assure you that we will be able to operate either one successfully. Each of acetic acid production and coal mining requires business and operating resources (such as technologies, skilled personnel and customer bases), knowledge and expertise that are inherently different from coke and coke-related chemicals production and is subject to different, and potentially more stringent, government regulations. Our expansion into these new businesses may result in unforeseen operating difficulties, increase our costs and expense and divert significant management attention that would otherwise be available for our existing business. We may be unable to successfully integrate the newly acquired operations with our existing operations or otherwise be unable to realize the benefits and synergies expected from these acquisitions.

As a result of any of these investments, we may assume liabilities that are unknown to us prior to making the investment or be required to make significant additional capital expenditure in the new operations. Such liabilities or capital expenditure may force us to engage in further capital raising through debt or equity financing. See “Risk Factors — We may be unable to secure additional funding in the future to meet our capital expenditure requirements” below. Any failure to successfully manage our business expansion may have a material adverse effect on our business, financial condition and results of operations.

We may be unable to secure additional funding in the future to meet our capital expenditure requirements.

We plan to expand our coke and methanol production capacities, and we may exercise the option to acquire Kingboard’s interest in True Glory, which indirectly owns the Acetic Acid Plant, as well as acquire the Yuanda Coal Project. Any of our expansions or acquisitions will require significant capital expenditure. We may not generate sufficient cash flow from our operation and may need to obtain additional external financing to meet our capital expenditure plans, which may include commercial bank borrowings or the issuance of equity or debt securities. We may also require further funding for debt servicing, working capital, investments, potential acquisitions, joint ventures and other corporate requirements. If we decide to raise additional funds through the incurrence of debt, our interest and debt repayment obligations will increase, and we may be subject to additional covenants, which could limit our ability to access cash flows from operations. We cannot assure you that we will be able to raise adequate financing to fund our future capital requirements on acceptable terms, in time, or at all. External funding is subject to various factors that are beyond our control, including market conditions, credit availability and interest rates. Our failure to obtain sufficient financing could result in the delay or abandonment of our development and expansion plans and have a material adverse effect on our business and financial results.

—33— THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

RISK FACTORS

We may not be successful as an independent stand-alone company with public shareholders and our historical financial condition and results of operations may have been different had we been operated as a stand-alone enterprise.

We are a subsidiary of Kingboard, and we have no history operating as an independent stand-alone company. During the three years ended December 31, 2008 and the nine months ended September 30, 2009, we received significant advances, in the form of shareholders’ loans, from Kingboard and other members of the Parent Group to fund our operations. As at September 30, 2009, these shareholders’ loans amounted to approximately HK$861.2 million. As at September 30, 2009, Kingboard and other members of the Parent Group also acted as guarantors in relation to HK$459.6 million of our bank loans. We have already obtained bank loans for an aggregate amount of HK$500 million to repay these shareholders’ loans. We also plan to repay the remaining balance of these shareholders’ loans. Kingboard and other members of the Parent Group will also be released from these guarantees. If we are unable to obtain sufficient funding for our operations or development plans on commercially acceptable terms, or at all, our liquidity and financial condition may be adversely affected.

Furthermore, we depend on the Kingboard Group to provide certain head office and back office support functions and to provide us with a license over certain intellectual property rights. For further information on these connected transactions, see “Relationship with Kingboard — Details of Continuing Connected Transactions”. The termination of provision of any such service or facility by the Kingboard Group could disrupt our business and could increase our costs for such service or facility. If, in the future, the Kingboard Group chooses not to provide, or procure the provision of, any such services or facilities to us, we will have to relocate or seek alternative means of securing comparable services and facilities. We cannot assure you that we will be able to secure alternative arrangements on terms that are economically attractive, or at all. Failure to do so could have a material adverse effect on our business, financial condition, results of operations and future prospects.

Our combined financial statements included elsewhere in this document have been prepared as if our Company and the structure of our ownership of our subsidiaries had been in existence at all dates and during all the periods presented, and include the accounts of our direct and indirect subsidiaries contributed to us by the Kingboard Group in connection with the Restructuring. For further information on the basis of presentation of our combined financial statements, see note 1 to the financial information included in Appendix I to this document. Our combined financial statements may not reflect what our historical financial condition and results of operations would have been if we had operated as a stand-alone enterprise, instead of as a part of the Kingboard Group, and they are not necessarily indicative of our future financial condition or results of operations.

—34— THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

RISK FACTORS

Our short production history may make it difficult for you to evaluate our business and prospects.

We commenced our phase I coke trial production on November 2, 2004, our phase I methanol trial production on September 20, 2005, our phase II coke trial production on June 18, 2008, our pure benzene trial production on November 16, 2008, and our phase II methanol trial production on January 20, 2009. Due to this limited operating history, there may not be an adequate basis on which to evaluate our future operating results and prospects. Moreover, given the cyclical nature of our business, we may not always experience growth. You may have difficulties evaluating our business and prospects because our limited operating history and our rapid growth during the three years ended December 31, 2008 and the nine months ended September 30, 2009 may not be indicative of our business and operating results in the future.

We depend on a small number of customers for a substantial portion of our sales and we do not have long-term purchase orders from our customers.

We rely on our major customers for a substantial portion of our revenue. During 2006, 2007 and 2008 and the nine months ended September 30, 2009, we derived 67.7%, 65.6%, 51.6% and 60.7%, respectively, of our total revenue from sales to our five largest customers. Pursuant to the Supply Agreement, Kingboard also agreed to cause a member of the Parent Group to purchase, any and all methanol produced by us, at prevailing market prices. There is no assurance that we will produce such (or any other) quantity of methanol in any given year for sale to Kingboard or any other member of the Parent Group. We anticipate that for the foreseeable future a small number of customers will continue to account for a large portion of our sales. Our ability to maintain close relationships with these major customers is essential to our strategy and to the stability of our business. We cannot guarantee that we will be able to retain any of our major customers or any other customers, or that these customers will place orders with us in the future at the same levels as in prior periods, or that any of these or future customers will not terminate their relationship with us or significantly change, reduce, delay or cancel the products ordered from us. If any one of these customers significantly reduces its purchases of our products or if we are unable to sell our products to them on similarly favorable terms or at all, or if Kingboard does not fulfill its contractual obligations pursuant to the Supply Agreement, our business, financial condition and results of operations may be materially and adversely affected.

Furthermore, during 2006, 2007 and 2008 and the nine months ended September 30, 2009, we derived approximately 85.1%, 85.9%, 91.2% and 85.0% of our revenue from the sale of coke and related products. We have entered into annual strategic cooperation agreements with some of our key coke customers covering the general terms of our cooperation, but none of our customers is obliged to purchase a minimum or fixed quantity of our products. Instead, our customers purchase our products through purchase orders issued from time to time, typically on a weekly or monthly basis, which set out the specific terms for each sale, including quantity and price. Although our key customers typically provide us on a regular basis with informal periodic indications of the quantities of each product they expect to order, we cannot assure you of the stability and profitability of our sales. We do not have any minimum purchase orders or long-term purchase orders to protect us from the adverse financial effect of a reduction in the demand for our products, which may materially and adversely affect our financial condition and results of operations.

—35— THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

RISK FACTORS

Our results of operations and financial condition also depend on the financial condition and commercial success of our major customers. If one or more of these customers were to become insolvent or otherwise become unable to pay for products supplied by us, our business, financial condition and results of operations would be adversely affected.

We depend on a limited number of suppliers for our coking coal supplies and do not have long-term supply contracts with them.

We depend on third party suppliers for coking coal, the principal raw material for our coke production. During 2006, 2007 and 2008 and the nine months ended September 30, 2009, our purchases of coking coal from our five largest suppliers constituted approximately 68.2%, 71.0%, 70.3% and 62.4%, respectively, of our total purchases for the relevant periods. We have entered into annual strategic cooperation agreements with some of our major suppliers covering the general terms of our cooperation, but none of our suppliers is obliged to supply a minimum or fixed quantity of coking coal to us. We procure our coking coal supplies through purchase orders issued from time to time typically on a monthly basis, which set out the specific terms for each purchase, including quantity and price. We cannot assure you that there would not be any sudden shortage in supply of coking coal, or any fluctuations in their prices due to change in market conditions, which would in turn lead to price increases in the future or our inability to obtain sufficient amount of coking coal, if at all, to satisfy our requirements in the future. In particular, some of our suppliers are coal washing companies or coal trading companies which do not have their own coal mines and they rely on third party suppliers for their coking coal requirements. If these coal washing or trading companies do not obtain sufficient supplies of coking coal, they may not be able to service our needs. If we are unable to satisfy our supply requirements, we may lose sales or be subject to increased raw materials costs, which will adversely and materially affect our business and results of operations.

Our reputation, business and results of operations may suffer if coking coal supplied to us does not meet our specifications.

Our customers require coke that meets certain benchmark specifications, including ash, sulfur and carbon content. In order to be able to produce coke that meets these specifications, we in turn require from our suppliers coking coal that meets certain benchmark specifications stipulated by us. If we fail to use coking coal of adequate standards as feedstock, we may be unable to produce coke that meets the requirements of our customers, which in turn may lead to our coke products being rejected and claims for damages by our customers. If this were to happen, our reputation, business and results of operations would be adversely affected.

Seven of our employees were involved in, and five of our employees were convicted for, receiving bribes in an aggregate amount of RMB 30,000 in 2005 from a representative of Jize County Hengtonda Coal Trading Company Limited, a coal supplier that we have previously used, to facilitate the sale to us of coking coal of inferior quality. As a result of this fraud, we produced approximately 14,000 tonnes of coke that did not meet our customers’ specifications, which we had to sell at a lower price. None of these seven employees continues to be employed by us. We cannot assure you that no acts of fraud will be committed against us in the future or that the coking coal procured by us will always meet the specifications required by us or our customers. We may suffer losses as a result of such incidents, which could have a material adverse effect on our reputation, business, financial condition and results of operations. See “Business — Employees” for further information relating to this incident.

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RISK FACTORS

We rely on third parties to transport some of our coking coal purchases and all of our coke deliveries. Any increase in transportation costs or inability to secure the necessary transportation capacity could have a material adverse effect on our business and results of operations.

In the case of coking coal purchased from state-owned coal companies, we are typically required to procure our own transportation from their sites to our production facilities. In addition, we are required to transport the coke to our customers’ sites or designated drop-off points. As is the norm in our industry, all of our coke is transported by trucks for short distance deliveries. We do not own or operate any trucks, and we rely on third party transportation companies to transport our coking coal purchased from state-owned coal companies and our coke products to our customers. Since we are deemed to have taken delivery of the coking coal from our suppliers upon pick-up from our suppliers’ sites, and since our customers are not deemed to have taken delivery of our coke until it is delivered to their sites or designated drop-off points, we are exposed to the risk of loss or delay during the transportation process.

We have entered into transportation agreements with transportation companies which set out the fees payable by us as well as other major terms and conditions of the transportation arrangements. Specifically, the transportation companies are responsible for any accidents or other incidents arising in relation to the transport trucks or drivers and for any loss of, or damage to, the goods while being delivered. Where the transportation process results in loss or delay, we may be able to claim the loss from the relevant transportation companies. However, we cannot assure you that we will be able to recover our lost profits, or that such companies will pay us compensation for any of our loss. In addition, if we transport coking coal from suppliers located further away from our production facilities, if we sell to customers located further away from our production facilities, or if fuel prices were to increase, our transportation costs would likely further increase, and we may not be able to pass such increase to our customers. Like other coke producers in China, transportation costs represent a significant portion of our distribution and selling expenses. Any significant increase in our transportation costs could reduce our margins and profitability and could also have a negative effect on the competitiveness of our coke, which may in turn have an adverse effect on our business and results of operations.

Failure to comply with coke and chemical industry, safety and environmental regulations could harm our business.

We are subject to various PRC coke and chemical industry, safety and environmental laws and regulations in the areas that we operate, including laws regulating the production, sales, storage, transportation and usage of dangerous chemicals, the generation, storage, handling, use and transportation of waste materials, the emission and discharge of waste materials into soil, air or water, energy saving standard and the health and safety of employees. These laws and regulations currently impose fees for the discharge of waste substances, require the payment of fines for serious pollution and provide for the discretion of the PRC Government to close down any facility which fails to comply with orders requiring it to cease or cure operations causing environmental damage. The production of coke, methanol and pure benzene, as well as the production of acetic acid and coal mining, are inherently dangerous in nature, and there have been many casualties in the PRC caused by mining accidents. We cannot assure you that industrial accidents will not occur in connection with our operations as well as any new operations that we may take on (including the coal mining and the acetic

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RISK FACTORS acid businesses that we may acquire). We are also required to obtain and comply with production and operation licenses, permits and registration certificates for our chemical products and environmental permits for our operations. In addition, we are responsible for clean-up in the event that our operations result in contamination at our production facilities.

We were fined RMB100,000 by the Neiqiu County Administration of Work Safety (內邱縣安全生產監督管理局) in 2008, as a result of an explosion at our phase II methanol production facility that happened in September 2008. At the time of the explosion, such facility was still under construction. The relevant site was under the supervision and control of an independent contractor that we had hired to construct the facility. According to a letter issued by the Neiqiu County Administration of Work Safety, the explosion was caused by an employee of the contractor igniting a flame without following the relevant safety procedures at that stage of the construction of our phase II methanol production. The explosion caused one death, two serious injuries and 16 minor injuries. All of the affected persons were employees of the contractor (other than six of the persons that suffered minor injuries, which were our employees). The Neiqiu County Administration of Work Safety imposed the fine on us on the basis that we did not adequately supervise the work of the independent contractor. Due to the explosion, the trial production commencement date of our phase II methanol production facility was delayed by one month from December 2008 to January 2009.

We cannot assure you that we will at all times be in compliance with all material applicable laws. If we violate or fail to comply with such requirements, we could be fined or otherwise sanctioned by regulators. If more stringent compliance or clean-up standards are imposed, or the results of future testing and analyses at our operating facilities indicate that we are in breach, we may be subject to additional remediation liability. Additional matters may also arise in the future at sites where no problem is currently known or at sites that we may acquire in the future. Any non-compliance with these standards established by applicable laws and regulations or imposed on us could have a material adverse effect on our operations and future prospects.

Certain of our products are volatile, flammable and harmful materials that are exposed to the risk of fire, explosion and other hazards.

Methanol, pure benzene and certain other products of ours are volatile, flammable and harmful materials that are susceptible to the risk of fire, explosion and other hazards during the manufacture, storage and transportation processes. These hazards can cause personal injury or loss of life, severe damage to or destruction of property and equipment, and environmental damage. A large accident at our plants or storage facilities could cause us to suspend our operations and result in revenue loss and significant remediation costs. As a result of our exposure to the risk of fire, explosion and other hazards due to the nature of our products, our business, financial condition and results of operations could be materially and adversely affected.

We experienced an explosion at our phase II methanol production facility in September 2008, causing one death, two serious injuries and 16 minor injuries. The explosion occurred when such facility was still under construction and before the commencement of its trial production. We were fined RMB100,000 in connection with this explosion and we suffered a one month delay in the commencement of trial production at our phase II methanol production facility. See “Risk Factors — Failure to comply with coke and chemical industry, safety and environmental regulations could harm our business”.

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RISK FACTORS

We had net current liabilities as at December 31, 2006, 2007, 2008 and September 30, 2009.

As at December 31, 2006, 2007 and 2008 and September 30, 2009, we had net current liabilities of HK$569.6 million, HK$172.7 million, HK$846.1 million and HK$954.1 million, respectively, primarily because we use trade and other payables and short-term bank borrowings to finance our working capital requirements. In addition, during the three years ended December 31, 2008 and the nine months ended September 30, 2009, we received significant advances, in the form of shareholders’ loans, from Kingboard and other members of the Parent Group to fund our operations. As at September 30, 2009, these shareholders’ loans amounted to approximately HK$861.2 million. We cannot assure you that we will cease to have net current liabilities in the future. If we continue to have net current liabilities in the future, our working capital for the purpose of our operations may be constrained, which may materially and adversely affect our business operations and financial conditions.

Our indebtedness may materially and adversely affect our financial performance and results of operations.

Our substantial indebtedness could affect our financial performance. We have relied upon both short-term and long-term borrowings from banks to fund a substantial portion of our capital expenditures and operations and expect to continue to do so in the future. As at September 30, 2009, the total outstanding amount of our bank debt was approximately HK$516.4 million. Our ability to repay the principal and pay the interest on our debt depends substantially on our operating performance, which in turn depends on the general conditions of the Chinese economy and the economic conditions of the particular market segments we serve, many of which are beyond our control. We cannot assure you that our business will generate sufficient cash flow from our operations or that future borrowings under our credit facilities will continue to be available to enable us to service our debt or to fund our other liquidity needs.

Moreover, we may incur additional debt to fund our planned capital expenditures and future projects, including in connection with the expansion of our coke and methanol production capacities, the Yuanda Coal Project and the Acetic Acid Plant. The level of our indebtedness could have important consequences to you, including, but not limited to: (i) limiting our ability to pay dividends and satisfy our debt obligations; (ii) increasing our exposure to general adverse economic and industry conditions; (iii) limiting our ability to obtain additional financing to fund future capital expenditures, working capital or other business development and expansion projects; (iv) requiring us to set aside a substantial portion of cash flow from our operations for the repayment of the principal of, and the interest on, our indebtedness, thereby reducing the availability of cash flow to fund capital expenditures, working capital or other business development expansion projects; and (v) limiting our ability to plan for, or react to, changes in our business.

Historically, we have relied on the credit of Kingboard and its subsidiaries for financing purposes. As at September 30, 2009, HK$459.6 million of our bank debt was guaranteed by members of the Parent Group and our shareholders’ loans received from the Parent Group amounted to approximately HK$861.2 million. Had these shareholders’ loans been borrowed by us at the average effective interest rate of our bank loans in the relevant periods, the effective interest payable by us to the Parent Group for 2006, 2007, 2008 and for the nine months ended September 30, 2009 under such loans would have amounted to approximately HK$33.9 million, HK$11.5 million, HK$25.9

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RISK FACTORS million and HK$17.9 million, respectively. We have already obtained bank loans for an aggregate amount of HK$500 million to repay these shareholders’ loans. We also plan to repay the remaining balance of these shareholders’ loans. In addition, Kingboard and other members of the Parent Group will also be released from the guarantees. Our Company may not have comparable access to the credit markets or access on similar terms in the future. An inability to obtain sufficient financing on reasonable terms or at all could adversely affect our business and financial condition.

We do not have insurance to cover all potential losses and claims.

We maintain insurance policies for our production facilities, which cover losses arising from fire, earthquake and other calamities in respect of buildings, machinery, equipment and automobiles. We intend to maintain directors’ and officers’ liability insurance. We do not carry any business interruption insurance, insurance against tortuous acts, or third party liability insurance to cover claims or liabilities in respect of personal injury or environmental damage arising from accidents on our production facilities or operations. In addition, there are certain types of losses that are normally uninsurable in China, such as losses due to war and terrorism. While we believe that our practice with regard to insurance coverage is in line with the general practice in the PRC, there may be instances when we will have to bear the cost of losses, damage and liabilities from our own resources because of our lack of insurance coverage, which may in turn materially and adversely affect our financial condition and results of operations.

Our business operations may be adversely affected by unexpected business interruptions.

Our business operations are exposed to interruptions by fire, power failure and power shortage App1A 28(6) and other events beyond our control. For example, given the significant demand for electricity in the PRC, the local supply of electricity may not be stable at all times and there may be occasional electricity shortages. We have our own generator to generate electricity in case of electricity shortage, but this facility is only able to generate up to approximately one-quarter of our current electricity requirements and is costly to run. Our operations require a significant and stable supply of electricity, a requirement which will further increase substantially if we decide to expand our production capacity. Any disruption of our operations could cause interruption, limitation or delay in our production, prevent us from meeting customer orders, increase our costs of production or require us to make unplanned expenditures, each of which could materially and adversely affect our business and results of operations.

Failure to attract and retain key personnel and employees could adversely affect our operations.

Our success depends to a significant extent on the continued services of our key personnel, including our Directors, key senior executives, managers, engineers, marketing, sales, manufacturing, support and other personnel, as well as on our ability to continue to attract, retain and motivate such personnel. For detailed information, see “Directors and Senior Management”. Although we have not experienced any loss of key personnel over the three years ended December 31, 2008 and the nine months ended September 30, 2009, the loss in the services of any of these key personnel without adequate and timely replacement could limit our competitiveness, interrupt our production processes, reduce our manufacturing quality and cause customer dissatisfaction, all of which could reduce our

—40— THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

RISK FACTORS profitability. In addition, in order to manage our growth, we will need to recruit additional skilled personnel. The competition for such personnel is intense, and the failure to attract or retain key personnel could harm our operations. We do not maintain “key man” insurance with respect to any of our key personnel.

Moreover, the success of our operations in part relies on the availability of manual labor at rates acceptable to us. Although we have not experienced any significant local labor shortage, in the event of any future local labor shortage, we may have difficulties recruiting or retaining labor for our production facilities or may face increasing labor costs. In such event, our business and results of operations may be adversely affected.

While Kingboard has executed a Non-Competition Deed in our favor, the deed is subject to certain exceptions and the Parent Group may compete with us in the future.

Kingboard has executed a Non-Competition Deed in our favor that limits the ability of the Parent Group to compete directly or indirectly with any business carried on by our Group. Specifically, Kingboard has agreed that it will not, and will cause each member of the Parent Group not to, except through a member of our Group, (i) acquire, develop, invest or manage any production facility that produces (a) coke or pure benzene in China or (b) methanol in Hebei; and (ii) engage in the sale or distribution of (a) coke or pure benzene in China or (b) methanol in Hebei. The restrictions in the Non-Competition Deed will terminate if Kingboard and its associates together hold, whether individually or taken together, less than 30% of our issued ordinary share capital or are otherwise no longer regarded as a controlling shareholder of our Company under applicable rules. See the section headed “Relationship with Kingboard — Independence from the Parent Group — Non-competition undertaking” in this document for a discussion of the terms of the Non-Competition Deed. We cannot assure you that no future competition will not occur if the Non-Competition Deed terminates. Any such competition may have a material adverse effect on our financial condition, results of operations and prospects.

Our controlling shareholder, Kingboard, may take actions that are not in, or conflict with, our public shareholders’ best interests.

As a controlling shareholder, Kingboard will be able to direct the election of all of the members App1A 27A of our Board of Directors and exercise a controlling influence over our business and affairs, including, but not limited to, decisions with respect to:

• mergers or other business combinations;

• the acquisition or disposition of assets;

• the issuance of any additional shares or other equity securities;

• the timing and amount of dividend payments; and

• management of our Company.

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RISK FACTORS

As our directors may serve concurrently as managers or officers of Kingboard, there may be an appearance of conflicts of interest. Furthermore, we cannot give any assurance that the directors appointed by Kingboard will always vote in a way that is in the best interest of our other shareholders.

We may not be able to continue to receive the business encouragement subsidies from the Neiqiu County Government.

Since 2005, we have received government grants from the Neiqiu County Government in the form of business encouragement subsidies. These subsidies are for encouraging our contribution to the development of the Neiqiu economy. The subsidy for each year is calculated at 7% of all taxes (including enterprise income tax, VAT and other taxes) paid by each of our PRC operating companies during the year in relation to which the amount of government grant was assessed. The Neiqiu County Government determines whether to grant this subsidy on a year to year basis. During 2006, 2007, 2008 and the nine months ended September 30, 2009, the amounts of subsidies we received were HK$2.0 million, HK$5.6 million, nil and nil, respectively. The Neiqiu County Government has issued a letter to us stating our eligibility to receive these subsidies through 2012, but we cannot assure you that the Neiqiu County Government will not terminate our eligibility to receive these subsidies before 2012, or that we will receive similar subsidies after 2012. The termination of this business encouragement subsidy could materially and adversely affect our profitability, results of operations and financial conditions.

There is no assurance that we will continue to benefit from preferential tax treatment.

Under the current laws of the PRC, each of our PRC subsidiaries is subject to PRC enterprise income tax on a separate basis. The flat statutory PRC enterprise income tax rate is 25% of taxable income as determined in accordance with the relevant PRC enterprise income tax laws and regulations. However, PRC state and local tax laws provide for a number of preferential tax treatments applicable to different industries. The Hebei Provincial Office of the State Administration of Taxation has also granted an additional preferential tax treatment to Kingboard Hebei Chemical in respect of its income generated from the phase II coke and phase II methanol production facilities. Our PRC subsidiaries are currently subject to various preferential income tax rates, resulting in effective tax rates for our Group of nil, nil, 16.1% and 3.7% for 2006, 2007 and 2008 and the nine months ended September 30, 2009, respectively. There is no assurance that our PRC subsidiaries will continue to benefit from preferential tax treatment previously and currently enjoyed by them. We expect our taxable income generated from our phase I coke and phase I methanol production facilities and our pure benzene production facility to be subject to the 25% tax rate starting from 2011, and our taxable income generated from our phase II coke and phase II methanol production facilities to be subject to the 12.5% tax rate starting from 2010 and the 25% tax rate starting from 2013. Any change in, or termination of, preferential tax treatment may result in an increase in our tax liability, which would have a negative impact on our net profits.

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RISK FACTORS

RISKS RELATING TO OUR INDUSTRY

We face significant geographic barriers in both our ability to source our raw materials and extend our sales network.

Transportation costs represent a significant component of the price of coking coal, our key raw material. For coking coal delivered to us by our privately-owned suppliers, the prices they quote generally include transportation from their sites to our production facilities. As such, coking coal sourced from regions outside of Hebei would generally cost more than coking coal of a comparable quality sourced around the proximity of our coke production facility. Similarly, the price we quote for our coke includes delivery, which will generally be higher if we were to deliver our coke to customers in regions outside Hebei instead of our usual customer base in Hebei, thereby rendering it difficult for our coke to compete with locally produced coke in other regions in terms of price. Although we generally quote the price of our chemical products on the basis of our customers taking delivery of them at our facilities, our customers are similarly constrained by transportation costs as they would generally use their own delivery trucks or hire third party transportation companies to transport our products to their sites. We operate in a highly localized market which limits both our ability to obtain supply of our raw materials and to extend our sales network beyond the Hebei area and nearby provinces. Accordingly, our business is highly susceptible to changes in local market conditions, which may in turn materially and adversely our business, financial conditions and results of operations.

We operate in an intensely competitive industry and we may lose market share if we cannot compete successfully.

We operate in an intensely competitive market. Competition in the coke, methanol and pure benzene industries is generally based on factors such as price, production capacity, quality, transportation capability and costs and brand name recognition. We face competition in both Hebei and nearby areas from other producers. Such competitors may have greater access to financial resources, higher levels of integration, better operating efficiency, more advanced technologies, or longer operating histories. These companies may have greater production capacities, lower transportation costs, and greater financial, marketing, distribution and other resources than we do. If we are unable to maintain or improve our product quality and price competitiveness, maintain our operating efficiency and control our costs in connection with our expansion, raw materials and energy usage, our growth opportunities may be limited and our revenue and profitability may be adversely affected.

Our production processes, particularly those in respect of methanol and pure benzene, also need to contend with competing production processes. We produce methanol using coking gas, which is a by-product of our coke manufacturing process, as feedstock. However, many manufacturers in the PRC also produce methanol by using natural gas as feedstock, which is particularly convenient and economical where there is a readily available source of natural gas within the proximity of the methanol production facility. Similarly, we currently only produce pure benzene through the Crude Benzene Hydrorefining Device, but many manufacturers in the PRC, especially smaller ones, also produce pure benzene through other methods, which may use more readily available materials as feedstock and may also be easier and cheaper to manage and operate. We cannot assure you that there will not be changes in raw materials availability and technological advancements for the competing

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RISK FACTORS production processes (including those processes that are not currently available) in the future, which in turn may lower the competitiveness of our production processes and have a material adverse effect on our financial condition and results of operations.

Any slowdown in the global economy could materially and adversely affect our business, financial condition and results of operations.

The global financial markets and global economy experienced volatility and disruptions in the second half of 2008 and in 2009, which diminished liquidity and the availability of credit. The market turmoil and tightening of credit also led to an increased level of corporate delinquencies and a reduction in business activities generally. The availability of credit to us and credit terms have also tightened. The recession has impacted and may continue to impact the PRC domestic economy, as a substantial portion of China’s GDP is derived from exports to the United States and other countries that have been more severely affected by the recession. For the nine months ended September 30, 2009, China’s real GDP increased by 7.7% as compared to the same period in 2008, which was lower than the real GDP growth rate of 9.9% for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007, according to the National Bureau of Statistics of China. For the nine months ended September 30, 2009, our gross profit decreased by 59.0% and our profit attributable to owners of our Company decreased by 72.2%, as compared with the nine months ended September 30, 2008. Due to the adverse market conditions in 2008, our trade receivables turnover days have also increased to 24.9 days in 2008 from 5.1 days in 2007. It is difficult to predict with certainty and precision the impact of the global recession on the steel and coke industries in China going forward. There can be no assurance that any recovery in the global economy will continue and that it will return to the pre-recession state. If the current recovery ceases or takes another downturn, we could face a substantial loss of revenue and shareholders’ value and our business prospects could be materially and adversely affected.

The coal resource and reserve data in this document relating to the Yuanda Coal Project is only an estimate and the actual resource and reserve of the Yuanda Coal Project may differ materially from this estimate.

The coal resource and reserve data relating to the Yuanda Coal Project included elsewhere in this document represents an estimate made in a report issued by a state-owned institute that collects, analyzes and assesses individual coal reserves data in Hebei province in August 2005. Runge Asia, an independent technical consultant in the coal mining industry that we have engaged, has reviewed this report but did not independently verify such data. This resource and reserve estimate may differ materially from the actual resource and reserve of the Yuanda Coal Project. Resource and reserve estimates are expressions of judgment based on knowledge, experience and industry practice, and may require revision based on actual production experience. Estimates that are valid estimates when made may change significantly when new information becomes available. Such estimates are necessarily imprecise and depend to some extent on statistical inferences, which may prove unreliable. Many of the factors, assumptions and variables involved in estimating resources are beyond the control of this state-owned institute, Runge Asia and our Company, and may prove to be incorrect over time.

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RISK FACTORS

RISKS RELATING TO THE PRC

Adverse changes in China’s economic, political and social conditions as well as governmental policies could have a material adverse effect on China’s overall economic growth, which could in turn adversely affect our financial condition and results of operations.

Since 1978, China’s GDP has grown at a rapid rate. In 2008, China’s nominal GDP grew at the real rate of 9.0% to RMB30,067.0 billion compared to RMB25,730.6 billion in 2007. We cannot assure you that such growth will continue in the future.

The PRC economy differs from the economies of most developed countries in many respects, including structure, government involvement, level of development; economic growth rate, control of foreign exchange, allocation of resources and balance of payment position. For the past three decades, the PRC Government has implemented economic reform measures emphasizing the utilization of market forces in the development of the PRC economy. Although we believe these reforms will have a positive effect on the PRC’s overall long-term development, we cannot predict whether changes in the economic, political and social conditions of the PRC will adversely affect our current future business, financial condition or results of operations. Moreover, even if new policies may benefit us in the long term, we cannot assure you that we will be able to successfully adjust to such policies. If there is a further slowdown in the economic growth of the PRC, or if its economy experiences a recession, demand for our products may also decrease and our business, financial condition and results of operations may be materially and adversely affected.

In addition, demand for our products may be affected by a variety of factors, many of which may be beyond our control, including:

• political stability or changes in social conditions within the PRC;

• changes in laws and regulations or the interpretation of law and regulations;

• measures which may be introduced to control inflation or deflation;

• changes in the rate or method of taxation; and

• the imposition of additional restrictions on currency conversion and remittances abroad.

Any significant changes to any of these factors may materially and adversely affect our business, financial condition and results of operations.

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RISK FACTORS

Changes in foreign exchange regulations and future movements in the exchange rate of Renminbi may adversely affect the financial condition and results of operations of our Company and our ability to pay dividends.

We receive all of our sales proceed in Renminbi, which is not freely convertible into other currencies. Under the existing foreign exchange regulations in China, we may undertake current account foreign exchange transactions without prior approval from the SAFE by complying with certain procedural requirements. The PRC Government may in the future, however, at its discretion, restrict access to foreign currencies for current account transactions under certain circumstances. All of our sales are denominated in RMB, and any such change to the foreign exchange regulations may adversely affect our ability to pay dividends, make interest payments and principal repayments in connection with our Hong Kong dollar-denominated loans with commercial banks (which amounted to approximately HK$459.6 million in aggregate as of September 30, 2009).

The value of the Renminbi against other foreign currencies is subject to changes in the PRC’s policies and international economic and political developments. Effective July 21, 2005, the Renminbi is no longer pegged solely to the US dollars. Instead, it is pegged against a basket of currencies, determined by the PBOC, against which it can rise or fall by as much as 0.3% each day. On September 23, 2005, the PRC Government widened the daily trading band for Renminbi against non-US dollar currencies from 1.5% to 3% in order to improve the flexibility of the new foreign exchange system. On May l8, 2007, the PBOC enlarged, effective May 21, 2007, the floating band for the trading prices in the inter-bank spot exchange market of the Renminbi against the US dollars from 0.3% to 0.5% around the central parity rate. This allowed the Renminbi to fluctuate against the US dollars by up to 0.5% above or below the central parity rate published by the PBOC each day.

There has been pressure on the PRC from foreign countries to adopt a more flexible currency system that could lead to appreciation of the Renminbi. The exchange rate may become volatile, the Renminbi may be revalued further against the US dollars, or other currencies, or the Renminbi may be permitted to enter into a full or limited free float, which may result in an appreciation or depreciation in the value of the Renminbi against the US dollars or other currencies. Fluctuations in exchange rates may adversely affect the value, translated or converted into US dollars or Hong Kong dollars (which are pegged to the US dollars), of our net assets, earnings or any declared dividends. In addition, any unfavorable movement in the exchange rate may lead to an increase in our loan liabilities, which could materially affect our results of operation, or affect our ability to pay dividends. We have not entered into any agreements to hedge our exchange rate exposure.

We are subject to risks associated with the PRC legal system.

All of our operating subsidiaries are incorporated under PRC law. As substantially all of our businesses are conducted in the PRC, our operations are governed principally by PRC laws and regulations. The PRC legal system is based on written statutes, and prior court decisions can only be cited as reference. Since 1979, the PRC Government has promulgated laws and regulations in relation to economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade, with a view to developing a comprehensive system of commercial laws. However, enforcement of existing laws and regulations may be uncertain and sporadic, and implementation and interpretation thereof may be inconsistent. The PRC judiciary is relatively inexperienced in enforcing the laws and regulations that currently exist, leading to a degree of uncertainty as to the outcome of

—46— THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

RISK FACTORS any litigation. Furthermore, it may be difficult to obtain swift and equitable enforcement, or to obtain enforcement of a judgment by a court of another jurisdiction. The introduction of new PRC laws and regulations and the interpretation of existing ones may be subject to policy changes reflecting domestic political or social changes. As the PRC legal system develops, we cannot assure you that changes in such legislation or interpretation thereof will not have a material adverse effect on our business, financial condition, results of operations and future prospects.

Our Company may be treated as resident enterprise for PRC tax purposes under the new enterprise income tax law, which could result in the imposition of 25% PRC enterprise income tax payable on our taxable global income.

On March 16, 2007, the National People’s Congress of the PRC passed the Enterprise Income Tax Law of the PRC《中華人民共和國企業所得稅法》 ( ) (the “New Tax Law”), which took effect as of January 1, 2008. On December 6, 2007, the Implementation Rules of Enterprise Income Tax Law of the PRC《中華人民共和國企業所得稅法實施條例》 ( ) (the “Implementation Rules”) were also enacted, and took effect as of January 1, 2008. In accordance with the new laws and regulations, a unified enterprise income tax rate of 25% and unified tax deduction standards will be applied equally to both domestic enterprises and foreign-invested enterprises.

Under the New Tax Law and the Implementation Rules, enterprises established under the laws of jurisdictions other than the PRC may nevertheless be considered as PRC-resident enterprises for tax purposes if these enterprises have their “de facto management organization” within the PRC. A number of the members of our senior management are located in the PRC. Hence, our Company and our overseas members may be considered PRC-resident enterprises and accordingly, our global income may be subject to the PRC enterprise income tax rate of 25%. In addition, dividend payments between certain “qualified PRC-resident enterprises” shall be exempted from income tax under the New Tax Law, and the Implementation Rules refer to “qualified PRC-resident enterprises” as enterprises with “direct equity interest”. However, we have been advised by our PRC legal advisors that it remains unclear what the detailed qualification requirements for such exemption are, and whether dividends distributed by our PRC subsidiaries to our Company and our overseas members will meet such requirements to qualify for tax exemption even if our Company and our overseas members are considered PRC-resident enterprises for tax purposes.

Dividends payable by our Company to its non-resident shareholders may become subject to taxes under the PRC tax laws.

The New Tax Law and the Implementation Rules provide that (i) if the enterprise that distributes the dividends is domiciled in the PRC, or (ii) if capital gains are realized from the transfer of equity interests of enterprises domiciled in the PRC, then such dividends or capital gains are treated as PRC-sourced income, and PRC income tax at the rate of up to 10% is applicable to such dividends or capital gains payable to overseas investors that are “non-resident enterprises”. We have been advised by our PRC legal advisors that if our Company is considered a PRC-resident enterprise for tax purposes, any dividends distributed by our Company to our Company’s non-resident shareholders as well as gains realized by such shareholders from the transfer of our shares may be regarded as PRC-sourced income. As a result, such dividends and gains may be subject to PRC withholding tax at the rate of up to 10%, depending on the provisions of tax treaty between the PRC and the jurisdiction in which the non-resident shareholder resides.

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RISK FACTORS

As the New Tax Law and the Implementation Rules have only been in effect from January 1, 2008, we have been advised by our PRC legal advisors that it is uncertain as to how these laws and regulations would be implemented by the relevant PRC tax authorities. If our Company’s dividend payments to our Company’s non-resident shareholders are subject to PRC withholding tax, it may materially and adversely affect our shareholders’ return on, and the value of, their investment in our Company.

If our Company is treated as a non-resident enterprise of PRC, dividends received from our PRC subsidiaries may be subject to PRC withholding tax.

The New Tax Law provides that an enterprise income tax rate of 20% may be applicable to dividends payable to non-PRC investors that are “non-resident enterprises”, to the extent such dividends are derived from sources within the PRC. “Non-resident enterprises” are enterprises which do not have an establishment or place of business in the PRC, or which have such establishment or place of business but the relevant income is not effectively connected with the establishment or place of business. The State Council of the PRC has reduced such rate to be actually executed at 10% through the Implementation Rules, except otherwise provided in the tax treaties between PRC and other states or regions. Under the Arrangement between the Mainland and Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income《內地和香港特別行政區關於對所得避免雙重徵稅和防止偷漏稅的 ( 安排》), which took effect on January 1, 2007 (“Tax Agreement”), the withholding tax rate for dividends paid by a PRC resident enterprise to a Hong Kong resident enterprise is 5% if the Hong Kong enterprise owns at least 25% of the PRC enterprise; otherwise, the dividend withholding tax rate is 10%. According to the Notice of the State Administration of Taxation on issues relating to the administration of the dividend provision in tax treaties《國家稅務總局關於執行稅收協定股息條款有 ( 關問題的通知》) (“Notice 81”) promulgated on February 20, 2009, the corporate recipients of dividends distributed by PRC enterprises must satisfy the direct ownership thresholds at all times during the 12 consecutive months preceding the receipt of the dividends. On August 24, 2009, the State Administration of Taxation issued the Administrative Measures for Non-resident Enterprises to Enjoy Treatments under Tax Treaties (For Trial Implementation)《非居民享受稅收協定待遇管理辦法 ( （試行）》) (the “Administrative Measures”), which requires that the non-resident enterprises obtain the approval for enjoying the treatments under tax treaties from the competent tax authority. We cannot assure you that we will qualify for, or successfully obtain, such approval.

As the New Tax Law and the Implementation Rules have only been in effect from January 1, 2008, we have been advised by our PRC legal advisors that it is uncertain as to how these laws and regulations would be implemented by the relevant PRC tax authorities. If dividend payments from our PRC subsidiaries to our Company are subject to PRC withholding tax, our Company’s financial condition, results of operations may be adversely affected.

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RISK FACTORS

The implementation of the new Labor Contract Law and the expected increase in labor costs in the PRC may adversely affect our business and profitability.

The new Labor Contract Law, which became effective on January 1, 2008, imposes more stringent requirements on employers in relation to entering into fixed term employment contracts, hiring of temporary employees and dismissing employees. In addition, under the newly promulgated Regulations on Paid Annual Leave for Employees, which came into effect on the same date, employees who have continuously worked for more than one year are entitled to a paid holiday ranging from 5 to 15 days, depending on their length of service. Employees who agree to waive their holiday time at the request of their employers must be compensated with three times their normal daily salaries for each holiday waived. As a result of the new law and regulations, our labor costs may increase. We cannot assure you that any disputes, work stoppages or strikes will not arise in the future. Increases in our labor costs and future disputes with our employees could have a material adverse effect on our business, financial condition or results of operations.

We are vulnerable to natural disasters and other events that could severely disrupt our operations.

Our production facilities are located in Hebei province, China. Significant damage or other impediments to any of these facilities, whether as a result of fire, weather, earthquakes or other natural disasters, disease, civil strife, industrial strikes, breakdowns of equipment, difficulties or delays in obtaining materials and equipment, terrorist incidents, industrial accidents or other causes could temporarily disrupt or shut down our operations, which would have a material adverse effect on our business, financial condition and results of operations. In addition, the production facilities of many of our suppliers and customers are located in China. If our customers are affected by such disruptions, it could result in a decline in the demand for our products. Similarly, if our suppliers are affected, our production schedule could be interrupted or delayed. As a result, a major disruptive event in China — even one that does not directly affect us — could severely disrupt the normal operation of our business and have a material adverse effect on our business, financial condition and results of operations.

There may be an occurrence of a widespread public health problem.

Epidemics threaten people’s lives and may materially and adversely affect their livelihoods as well as their living and consumption patterns. The occurrence of an epidemic is beyond our control, and there is no assurance that another outbreak of severe acute respiratory syndrome or avian influenza will not happen. Recently, there has been an outbreak of A/H1N1 swine influenza, primarily in Mexico, the United States and Canada. According to the World Health Organization, up to the end of June 2009, there were over 110 countries that had officially reported cases of swine influenza infection, including the PRC, which had over 1,500 reported laboratory-confirmed human cases. The World Health Organization has been raising the level of pandemic alert to indicate a significant increase in risk of this pandemic. We cannot assure you that an outbreak of this disease will not become an epidemic or pandemic in Asia or China. Any epidemic or pandemic occurring in areas in which we operate, or even in areas in which we do not operate, may materially and adversely affect our business, financial condition and operating results.

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FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements that are, by their nature, subject to significant risks and uncertainties, including the risk factors described in this document. These forward-looking statements include, but are not limited to, statements relating to:

• our operations and business prospects;

• future developments, trends and competition in the industry of coke and coke-related products;

• products under development or planning;

• our strategy, business plans, objectives and goals;

• our capital expenditure plans;

• our dividend distribution plans;

• the amount and nature of, and potential for, future development of our business;

• general economic conditions in the PRC and elsewhere; and

• changes in the regulatory environment and operating conditions in the markets in which we operate.

In some cases we use words such as “believe,” “seek,” “intend,” “anticipate,” “estimate,” “project,” “forecast,” “plan,” “potential,” “will,” “may,” “should,” “going forward,” “expect” and other similar expressions to identify forward-looking statements. All statements other than statements of historical facts included in this document, including statements regarding our future financial position, strategy, projected costs and plans and objectives of management for future operations, are forward-looking statements. Although we believe that the expectations reflected in those forward-looking statements are reasonable, we can give no assurance that those expectations will prove to have been correct, and you are cautioned not to place undue reliance on such statements.

Furthermore, these forward-looking statements merely reflect our current view with respect to future events and are not a guarantee of future performance. Our financial condition may differ materially from the information contained in the forward-looking statements as a result of a number of factors, including, without limitation, factors disclosed under “Risk Factors” and elsewhere in this document and the following:

• demand for coke and coke-related products;

• changes in the general operating environment of the industry of coke and coke-related products;

• general economic, market and business conditions in the PRC and globally;

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FORWARD-LOOKING STATEMENTS

• the effects of competition on the demand for and the prices of our products; the development of new products or technologies affecting our current and future business;

• changes or volatility in interest rates, foreign exchange rates, equity prices or other rates or prices; and

• other factors beyond our control.

Subject to the requirements of applicable laws, rules and regulations, we do not have any obligation and do not intend to update or otherwise revise the forward-looking statements in this document, whether as a result of new information, future events or otherwise. Because of these risks, uncertainties or assumptions, the forward-looking events and circumstances discussed in this document might not occur in the way we expect, or at all. Accordingly, you should not place undue reliance on any forward-looking statements. All forward-looking statements contained in this document are qualified by reference to this cautionary statement.

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DIRECTORS AND PARTIES INVOLVED

DIRECTORS CO 3rd Sch 6

Name Address Nationality Executive Directors

Ho Yin Sang ...... Flat B, 8th Floor, Block 7 Chinese LR19.05(2)(b) Villa Rhapsody Symphony Bay No.533 Sai Sha Road New Territories Hong Kong

WongYunKit...... 25EPeony Court Chinese LR19.05(2)(b) Fulrich Garden 9 Kung Lok Road Kwun Tong Hong Kong

Non-executive Directors

Cheung Kwok Wing ...... C1,Ground Floor, Pine Villa Chinese 4-14 Lok Yuen Path Shatin New Territories Hong Kong

Chan Wing Kwan...... Flat A, 8th Floor, Chinese Claymore Garden 3 Lok Fung Path Shatin New Territories Hong Kong

Independent non-executive Directors

Lau Tai Chim...... Ground Floor, DD239, Lot 419 Chinese Clear Water Bay Road O Pui Village Mang Kung Uk, Sai Kung New Territories Hong Kong

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DIRECTORS AND PARTIES INVOLVED

Name Address Nationality Huang Wujun ...... Room 501 Chinese Dormitory of Foreign and Overseas Chinese Affairs Bureau No. 2 Renmin Road Qingcheng District Qingyuan City Guangdong Province PRC

Cheung Ming Man ...... House 96 Miami Crescent Chinese 328 Fan Kam Road Sheung Shui New Territories Hong Kong

Chung Wai Cheong, Stanley...... Unit F, 41st Floor Chinese Tower 3, Sorrento 1 Austin Road Tsim Sha Tsui Kowloon Hong Kong

PARTIES INVOLVED App1A3

Legal advisors to our Company as to Hong Kong law: Mallesons Stephen Jaques 13th Floor, Gloucester Tower The Landmark 15 Queen’s Road Central Central Hong Kong

as to United States federal securities law: Cleary Gottlieb Steen & Hamilton LLP 39th Floor, Bank of China Tower One Garden Road Hong Kong

as to PRC law: Commerce & Finance Law Offices 6th Floor, NCI Tower A12 Jianguomenwai Avenue Chaoyang District Beijing PRC

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DIRECTORS AND PARTIES INVOLVED

as to Cayman Islands law: Maples and Calder 53rd Floor, The Center 99 Queen’s Road Central Hong Kong

Auditors and reporting accountants Deloitte Touche Tohmatsu App1A4 CO 3rd Sch 18 Certified Public Accountants CO 3rd Sch 43 35th Floor, One Pacific Place 88 Queensway Hong Kong

Property valuer B.I. Appraisals Limited Unit 1301, 13th Floor Tung Wai Commercial Building, 109-111 Gloucester Road Wanchai Hong Kong

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CORPORATE INFORMATION

Registered Office PO Box 309 App1A43 Ugland House Grand Cayman KY1-1104 Cayman Islands

Headquarter and principal place 2nd Floor, Harbour View 1 App1A6 CO S342(1)(a)(v) of business in Hong Kong No. 12 Science Park East Avenue Phase 2 Hong Kong Science Park Shatin, Hong Kong

Company website www.hbcoalchem.com (the website address and its contents do not form part of this document)

Company secretary Mr. Tse Man Fu (CPA)

Authorized representatives Mr. Ho Yin Sang Flat B, 8th Floor, Block 7 Villa Rhapsody Symphony Bay No. 533 Sai Sha Road New Territories Hong Kong

Mr. Wong Yun Kit 25E Peony Court Fulrich Garden 9 Kung Lok Road Kwun Tong Hong Kong

Audit committee Mr. Chung Wai Cheong, Stanley (Chairman) Mr. Huang Wujun Mr. Cheung Ming Man Mr. Lau Tai Chim

Remuneration committee Mr. Lau Tai Chim (Chairman) Mr. Huang Wujun Mr. Cheung Ming Man Mr. Chung Wai Cheong, Stanley

Nomination committee Mr. Huang Wujun (Chairman) Mr. Lau Tai Chim Mr. Cheung Ming Man Mr. Chung Wai Cheong, Stanley

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CORPORATE INFORMATION

Principal bankers Bank of America N.A. App1A3 42nd Floor, Two International Finance Centre 8 Finance Street Central Hong Kong

Citibank, N.A. 45th Floor, Citibank Tower Citibank Plaza 3 Garden Road Central Hong Kong

Standard Chartered Bank (Hong Kong) Limited 13th Floor, 4-4A Des Voeux Road Central Hong Kong

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INDUSTRY OVERVIEW

Certain information and statistics set out in this section and elsewhere in this document relating to the PRC economy and the construction, coke, methanol, pure benzene and coal industries and markets have been extracted from various official government publications and other sources. No report or publication quoted or used in this document was commissioned by us. The information in such sources and publications may not be consistent with information compiled by other institutions within or outside China. Due to the inherent time-lag involved in collecting any industry and economic data, some or all of the data contained in this section may only represent the state of affairs at the time such data was collected. As such, you should also take into account subsequent movements in our industry and the PRC economy when you evaluate the information contained in this section. The Directors have exercised reasonable care in extracting and repeating such information and statistics.

We believe that the sources of such information are appropriate sources and have taken reasonable care in extracting and reproducing such information. We have no reason to believe that such information is false or misleading or that any fact has been omitted that would render such information false or misleading. No independent verification has been carried out on such information and statistics. None of our Company, our respective directors and advisers makes any representation as to the accuracy of such information and statistics, which may be inaccurate, incomplete, out-of-date or inconsistent with each other or with other information and statistics.

THE PRC ECONOMY

China’s economy has grown significantly since the PRC Government initiated economic reforms and “open-door” policies in 1978, recording eight years of continuous growth after China’s accession to the WTO in 2001. According to the National Bureau of Statistics of China, China’s real GDP grew at a CAGR of 10.5% from 2001 to 2008, and China became the third largest economy in the world in 2008 according to the World Bank. The following chart sets out China’s GDP and its growth rate for the periods indicated.

China’s Nominal GDP and Real GDP Growth Rate, 2001-2008

RMB billion 40,000 13.0% 14.0% 11.6% 35,000 12.0% 10.0% 10.1% 10.4% 30,067 30,000 9.1% 10.0% 8.3% 25,731 25,000 21,192 9.0% 8.0% 20,000 18,322 15,988 6.0% 15,000 13,582 10,966 12,033 4.0% 10,000 5,000 2.0% 0 0.0% 2001 2002 2003 2004 2005 2006 2007 2008

Nominal GDP Real GDP Growth

Source: National Bureau of Statistics of China

Demands for our products are dependent on China’s economic development. Of particular relevance to our business are China’s urbanization and industrialization and the growth in its fixed asset investments.

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INDUSTRY OVERVIEW

Urbanization and Industrialization

The rates of urbanization and industrialization in China continued to rise as its economy grew. According to CEIC, China’s urbanization rate (being urban population as a percentage of total population) increased from 37.7% in 2001 to 45.7% in 2008. During the same period, China’s industrialization rate (being GDP attributable to industrial activities as a percentage of total GDP) increased from 45.1% to 48.6%, according to the National Bureau of Statistics of China. The following chart sets out China’s urbanization rate and industrialization rate for the periods indicated.

China’s Urbanization Rate and Industrialization Rate, 2001-2008

50% 48.7% 48.6% 48.6% 47.7% 46.0% 46.2% 45.7% 45.1% 44.8% 44.9% 43.9% 45% 43.0% 41.8% 40.5% 39.1% 40% 37.7%

35%

30% 2001 2002 2003 2004 2005 2006 2007 2008

Urbanization Rate Industrialization Rate

Source: CEIC for urbanization rate; National Bureau of Statistics of China for industrialization rate

Growth in Fixed Asset Investments

Driven by the high rates of urbanization and industrialization in recent years, fixed asset investments in China also increased substantially, growing at a CAGR of 24.5% from 2001 to 2008 according to CEIC. The following chart sets out the total fixed asset investments in China and their growth rates for the periods indicated.

Total Fixed Asset Investments in China and Annual Growth Rate, 2001-2008

RMB billion

25,000 27.7% 26.8% 30% 26.0% 25.5% 23.9% 24.8% 25% 20,000 17,229 16.9% 20% 15,000 13,732 13.0% 11,000 15% 10,000 8,877 7,048 10% 5,557 3,721 4,350 5,000 5%

0 0% 2001 2002 2003 2004 2005 2006 2007 2008

Total Fixed Asset Investments in China Annual Growth Rate

Source: CEIC

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INDUSTRY OVERVIEW

CONSTRUCTION INDUSTRY

As a result of China’s urbanization and industrialization and growth in fixed asset investments, China’s construction industry experienced rapid growth in recent years. According to CEIC, the total output of China’s construction industry increased at a CAGR of 21.8% from RMB1,536 billion in 2001 to RMB6,114 billion in 2008. The following chart sets out the total output of China’s construction industry and its growth rates for the periods indicated.

Total Output of China’s Construction Industry and Annual Growth Rate, 2001-2008

RMB billion 8,000 30% 25.7% 7,000 24.6% 22.9% 22.8% 6,114 25% 6,000 20.6% 20.3% 19.1% 5,104 20% 5,000 4,156 19.8% 4,000 3,455 15% 2,902 3,000 2,308 10% 1,853 2,000 1,536 5% 1,000

0 0% 2001 2002 2003 2004 2005 2006 2007 2008

Total Output of China's Construction Industry Annual Growth Rate

Source: CEIC

COKE INDUSTRY

Introduction

There are two broad categories of coke: metallurgical coke and foundry coke. Metallurgical coke is a carbon material produced by the destructive distillation of a mixture of coking coal and may be used as a fuel in smelting iron ore in a blast furnace. Foundry coke is a special type of coke that is used in furnaces to produce cast and ductile iron products.

Coke’s principal usage in the steel industry is to melt and reduce iron ore, which is used for making pig iron in the steel production process. To produce pig iron, iron ore, coke, heated air and limestone or other fluxes are fed into a blast furnace. The heated air causes coke combustion, which provides the heat for pig iron production as well as the source of carbon for removing the oxygen from the iron ores. The production of pig iron involves blasting large quantities of air at the bottom of the blast furnace, and coke also provides structural support for the raw materials stacked up in the blast furnace, allowing ventilation for the heated air to rise up and liquid iron to be collected at the bottom

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INDUSTRY OVERVIEW of the blast furnace. Crude steel is made from molten steel after processing pig iron and other raw materials from the process of casting. Crude steel is then further processed into finished steel products. The following chart sets out a breakdown of the consumption of coke in China in 2007.

Breakdown of Consumption of Coke in China in 2007

Chemicals 7.3% Others 7.7%

Steel , Pig Iron and Alloys 85.0%

Source: CEIC

Coke is a solid carbon-based derivative of coking coal. Coke is grey, hard and porous. Ash content and sulfur content are considered the key properties of coke. Generally, the lower the ash content and sulfur content, the higher the price of the coke. With the steel, pig iron and alloys industries being the main end-user of coke, its mechanical strength when being pressed in the coking process and its ability to endure blast furnace conditions are also key qualities. Coke may have a water content of a few percentages of its mass. The following table sets forth the main chemical properties of Class I and Class II coke in accordance with quality standard GB/T 1996-2003 stipulated by the PRC General Administration of Quality Supervision, Inspection and Quarantine.

Classifications

Index Class I Class II

Ash Content (%) ...... ≤12 ≤13.5 Sulfur Content (%)...... ≤0.6 ≤0.8 Volatility (%) ...... ≤1.8 ≤1.8 Mechanical Strength (M40) (1) (%)...... ≥80 ≥76 Mechanical Strength (M25) (2) (%) ...... ≥92 ≥88 Mechanical Strength (M10) (3) (%) ...... For M25: ≤7.0; For M40: ≤7.5(4) ≤8.5

(1) This measures the percentage of coke which is 40mm or greater in diameter after the coke pressing process for categorization of coke by size.

(2) This measures the percentage of coke which is 25mm or greater in diameter after the coke pressing process for categorization of coke by size.

(3) This measures the percentage of coke which is 10mm or smaller in diameter after the coke pressing process for categorization of coke by size.

(4) M10 is ≤ 7.0 if tested by the methodology for determining M25, and ≤ 7.5 if tested by the methodology for determining M40.

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INDUSTRY OVERVIEW

Coking is the process by which coke is produced from coal. This involves feeding coking coal of suitable physical and chemical qualities into ovens for heating, which combines the carbon and residual ash present and removes volatile compounds. The coke is then cooled in a quench tower and screened before storage or transportation. The various volatile compounds dispelled are usually collected and processed into other chemical products. These include coking gas, coal tar, ammonium sulfate, phenol, naphthalene and crude benzene.

Demand and Supply Landscape

The rapid growth of China’s construction industry has led to an increase in demand for pig iron and crude steel. As a result, China’s pig iron and crude steel production volume also experienced substantial growth in recent years, with annual outputs increasing from 147 million tonnes of pig iron and 151 million tonnes of crude steel in 2001, to 471 million tonnes of pig iron and 500 million tonnes of crude steel in 2008, according to Metalytics. According to Metalytics, China is currently the largest crude steel production country in the world, producing 37.7% of the total global crude steel output in 2008, which is far more than the second largest crude steel production country in the world, Japan, which produced 8.9% of the total global crude steel output in 2008. The following chart sets out China’s annual output of pig iron and crude steel for the periods indicated.

China’s Annual Outputs of Pig Iron and Crude Steel, 2001-2008

million tonnes 600

495 500 500 471 471 414 423 400 345 356 280 300 257 214 222 200 171 182 147 151

100

0 2001 2002 2003 2004 2005 2006 2007 2008

Pig Iron Crude Steel

Source: Metalytics, 2009

The PRC Government announced in late 2008 that it will implement a RMB4,000 billion economic stimulus package, and that such package will consist of, among others, investments in the national public infrastructure development, national housing development, and reconstruction works in regions hit by the Sichuan earthquake in May 2008. As a result of this stimulus package, steel

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INDUSTRY OVERVIEW production activities increased in the nine months ended September 30, 2009 when compared to the nine months ended December 31, 2008. The following chart sets out the steel production volume in China for the periods indicated.

Annual Steel Production Volume in China, 2004-2009 9M

million tonnes

700.0

579.1 600.0 560.1 499.3 500.0 467.0

400.0 369.3 295.6 300.0

200.0

100.0

0.0 2004 2005 2006 2007 2008 2009 9M

Source: CEIC

Within China, the largest steel production province in China in 2008 was Hebei, with an output volume of 115.5 million tonnes, according to CEIC. The second and third largest were Jiangsu and Shandong, producing 72.5 million tonnes and 50.5 million tonnes of steel, respectively. The following chart sets out the production volume of the ten largest steel production provinces in China in 2008.

Top 10 Provinces in China by Steel Production Volume in 2008

million tonnes

140.0

120.0 115.5

100.0

80.0 72.5

60.0 50.5 42.7 40.0 29.4 25.5 21.6 20.8 20.4 19.9 20.0

0.0 Hebei Jiangsu Shandong Liaoning Tianjin Henan Hubei Shanghai Guangdong Shanxi

Source: CEIC

Steel production volume in Hebei has grown steadily over recent years, increasing from 47.4 million tonnes in 2004 to 115.5 million tonnes in 2008 at a CAGR of 24.9%. During the nine months ended September 30, 2009, steel production volume in Hebei was 108.6 million tonnes. The following chart sets out the steel production volume in Hebei for the periods indicated.

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INDUSTRY OVERVIEW

Annual Steel Production Volume in Hebei, 2004-2009 9M

million tonnes

140.0

120.0 115.5 106.0 108.6 100.0 85.4 80.0 63.2 60.0 47.4 40.0

20.0

0.0 2004 2005 2006 2007 2008 2009 9M

Source: CEIC

As the largest steel production province in China in 2008, Hebei is also a major coke production province in China. According to the China Coking Industry Association, Hebei has been the second largest coke production province in China behind Shanxi since 2004, and it accounted for 12.1% of the total coke production volume in China in 2008. The following chart sets out the production volume of the ten largest coke production provinces in China in 2008.

Top 10 Provinces in China by Coke Production Volume in 2008

million tonnes 90.0 82.4 80.0

70.0

60.0

50.0 39.2 40.0

28.9 30.0 20.4 20.0 17.4 13.2 12.3 12.2 10.8 10.1 10.0

0.0 Shanxi Hebei Shandong Henan Liaoning Inner Shaanxi Yunnan Jiangsu Sichuan Mongolia

Source: China Coking Industry Association, 2008

Fueled by the growth of steel production in Hebei, coke production volume in Hebei also experienced significant growth in recent years, increasing from 17.7 million tonnes in 2004 to 39.2 million tonnes in 2008 at a CAGR of 22.0%. The global and domestic economic slowdown in the last

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INDUSTRY OVERVIEW quarter of 2008 resulted in slower growth in steel production volume in Hebei. Due to the decreased demand for coke in such quarter, the aggregate coke production volume in Hebei in 2008 remained at the same level as that in 2007. As a result of the improved economic and market environments, as well as the RMB4,000 billion economic stimulus package announced by the PRC government in late 2008, steel production activities increased in the nine months ended September 30, 2009 when compared to the nine months ended December 31, 2008. This in turn led to an increase in the demand for coke and Hebei produced 34.6 million tonnes of coke during such nine-month period. The following chart sets out the coke production volume in Hebei for the periods indicated.

Annual Coke Production Volume in Hebei, 2004-2009 9M

million tonnes 45.0 39.2 39.2 40.0 34.6 35.0 30.7 30.0 24.6 25.0

20.0 17.7

15.0

10.0

5.0

0.0 2004 2005 2006 2007 2008 2009 9M

Source: China Coking Industry Association, 2004-2009

Pricing Dynamics

The market price of coke in China is largely driven by its supply and demand, as well as government policies. The market price of coke in China increased steadily in recent years. According to the China Coking Industry Association which published the average selling price of Class I and Class II coke on a combined basis, by the end of 2007, the market price for coke above 40mm (including VAT) rose by 46.0% from RMB995 per tonne in January 2006 to RMB1,453 per tonne in December 2007. Coke prices continued to increase during the first eight months of 2008 as demand from the steel industry grew. The market price for coke above 40mm in diameter (including VAT) rose by 95.9% from RMB1,453 per tonne in December 2007 to RMB2,846 per tonne in August 2008. From August to December 2008, coke prices decreased sharply due to decreased demand from the steel industry both domestically and for export and an increase in coke inventory caused by the deteriorated global and domestic market conditions, with the market price for coke above 40mm in diameter (including VAT) dropping by 43.6% to RMB1,606 per tonne. In 2009, the market prices of coke above 40mm in diameter (including VAT) rebounded slightly due to the recovery of the steel industry, increasing by 10.3% from RMB1,606 per tonne in December 2008 to RMB1,771 per tonne in November 2009. The following chart sets out the monthly average selling price of Class I and Class II coke (on a combined basis) in China for the periods indicated.

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INDUSTRY OVERVIEW

Monthly Average Selling Price of Coke in China(1) (January 2006 - November 2009)

RMB/tonne 3,000

2,500

2,000

1,500

1,000

500 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Nov-09 >40mm 25~40mm in diameter in diameter

Source: China Coking Industry Association, 2006-2009 (1) Including VAT

METHANOL INDUSTRY

Introduction

Methanol is a colorless, flammable and toxic liquid with an alcohol-like odor. Methanol has broad applications and can be used to produce a number of products. Methanol is commonly converted to formalin, which is used in the manufacturing process of plastics, plywood, paints, explosives and permanent press textiles. Methanol is also blended in gasoline as methanol fuel for use by vehicles in a number of countries. Other chemical derivatives of methanol include DME, acetic acid and MTBE. DME can be blended with LPG for home heating and cooking or used as a replacement for diesel as a transportation fuel. Acetic acid is used as a chemical reagent for the production of various chemical compounds and can be used to manufacture insecticides and pharmaceutical products. MTBE can be used as a fuel component in gasoline as well. Methanol can also be processed into a laboratory solvent. The chart below sets out a breakdown of the consumption of methanol in China in 2008.

Breakdown of Consumption of Methanol in China in 2008

Others 24.2% Formalin 29.8%

MTBE 8.1%

Methanol fuel Acetic acid 12.5% 9.3% DME 16.1%

Source: CBI China

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INDUSTRY OVERVIEW

Prior to the mid-1920s, methanol was produced by the distillation of wood. This inefficient method has been superseded by a multi-step process based on hydrogen-carbon oxide mixtures, which was introduced in the mid-1920s. Mixtures used as feedstock to produce methanol include natural gas and other hydrocarbon chemical mixtures derived from coal. Outside China, natural gas is more commonly used as feedstock, but given the popular use of coal as an energy source in China, coking gas is more widely used as a feedstock in China. The multi-step process involves processing hydrogen-carbon oxide mixtures with heat, steam and oxygen to convert the feedstock into a synthetic gas containing hydrogen, carbon monoxide and carbon dioxide. The synthetic gas is condensed and processed at high heat in the presence of copper-based catalysts to produce crude methanol. Crude methanol is then purified by distillation to recover methanol.

Supply and Demand Landscape

As China’s economy grew, energy supply became an increasingly large concern, and the use of methanol as an alternative fuel source became increasingly attractive. Under government encouragement, the supply of methanol in China has grown rapidly over recent years. The chart below sets out the production volume of methanol in China for the periods indicated.

Annual Methanol Production Volume in China, 2001-2008

million tonnes

12.0 11.1 10.1 10.0

8.0 7.5

6.0 5.4 4.4 4.0 3.0 2.0 2.1 2.0

0.0 2001 2002 2003 2004 2005 2006 2007 2008

Source: CEIC

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INDUSTRY OVERVIEW

Driven by the rapid development of the chemicals industry in China, which consumes various downstream products of methanol, as well as increasing gasoline prices, which encourage the use of methanol as an alternative fuel source, the demand for methanol in China increased rapidly over recent years. The chart below sets out the annual methanol consumption volume in China.

Annual Methanol Consumption Volume in China, 2001-2008

million tonnes 14.0 12.2 12.0 10.4 10.0 8.4 8.0 6.7 5.7 6.0 3.9 4.3 4.0 3.5

2.0

0.0 2001 2002 2003 2004 2005 2006 2007 2008

Source: CEIC, Cheminfo

On May 18, 2009, the Standardization Administration of China announced a set of national standards for M85 methanol gasoline for vehicle-use. These standards would be implemented starting from December 1, 2009. M85 methanol gasoline is a methanol-blended gasoline which contains approximately 85% of methanol and approximately 15% of gasoline. Methanol-blended gasoline emits fewer pollutants, such as sulfur dioxide, nitrous oxide and solid particles, than pure gasoline. Methanol-blended gasoline is also generally cheaper than gasoline. Car engines need to be modified in order to run on M85 methanol gasoline, but domestic automakers have developed engines suitable for methanol gasoline. Methanol gasoline has already been in use in northern Chinese provinces such as Shanxi, Shaanxi and Henan. The implementation of the national standards for M85 methanol gasoline for vehicle-use is expected to eliminate discrepancies between the industry standards in different provinces, enhance market access for methanol-blended gasoline in China and hence increase demand for methanol.

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INDUSTRY OVERVIEW

Pricing Dynamics

According to CEIC, methanol prices (including VAT) have remained at around the level of RMB2,500 per tonne to RMB3,000 per tonne from 2004 through the six months ended June 30, 2006. Methanol prices (including VAT) fluctuated after July 2006 and increased to approximately RMB4,000 per tonne in the last quarter of 2007. At the start of 2008, due to decreased demand for downstream products of methanol, prices dropped again to approximately RMB3,400 per tonne. During the second quarter of 2008, partially driven by increases in the price of gasoline, methanol prices (including VAT) rebounded, reaching over RMB4,000 per tonne in June 2008. Since then, due to deteriorating global and domestic market conditions as well as an influx of low priced methanol import, methanol prices (including VAT) dropped to below RMB2,000 per tonne in December 2008. Since January 2009, methanol prices (including VAT) in China started to stabilize at around RMB2,000 per tonne. The chart below sets out the monthly average selling price of methanol (including VAT) in China from January 2004 to November 2009.

Monthly Average Selling Price of Methanol in China(1) (January 2004 - November 2009)

RMB/tonne 4,500

4,000

3,500

3,000

2,500

2,000

1,500 Jan-04 Jul-04Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Nov-09

Source: CEIC (1) Including VAT

PURE BENZENE INDUSTRY

Introduction

Pure benzene is a colorless, toxic and highly flammable liquid. It is primarily used to manufacture chemical ingredients such as ethylbenzene, cyclohexane and cumene. Pure benzene is used as an industrial solvent, a derivative for manufacturing synthesized benzene and in the production of nylon, dyes, plastics, drugs, explosives and synthetic rubber.

Pure benzene is traditionally manufactured from the distillation of crude benzene and coke oven light oils. Nowadays, pure benzene is most commonly produced by: (i) catalytic reforming, (ii) steam cracking of liquid petroleum feedstock, (iii) hydrodealkylation of toluene and (iv) toluene

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INDUSTRY OVERVIEW disproportionation. Catalytic reforming involves blending a mixture of hydrocarbons with hydrogen, exposing it to a bifunctional platinum chloride or rhenium chloride catalyst to form aromatic hydrocarbons, separating the aromatics by extraction and obtaining pure benzene from distillation. Steam cracking involves producing ethylene and other alkenes from paraffin gases, naphthas, gas oils and other hydrocarbons. Depending on the feedstock used, this process can yield pyrolysis gasoline, a benzene-rich liquid, as by-product. Benzene is extracted with a solvent and through distillation. Toluene hydrodealkylation involves converting toluene to benzene by mixing toluene with hydrogen and exposing it to a chromium, molybdenum or platinum oxide catalyst. Toluene disproportionation involves reacting two toluene molecules and rearranging the methyl groups from one toluene molecule to the other to yield one benzene molecule and one xylene molecule, and is mostly used by manufacturers with similar demands for both benzene and xylene.

Supply and Demand Landscape

The global supply of pure benzene has been tight since 2004, which in turn increased profitability for pure benzene manufacturing and led to subsequent capacity increase. The majority of the new capacity growth is in Asia and the Middle East, in particular China, Thailand and Saudi Arabia. According to Merchant Research & Consulting, China produced 5.8 million tonnes of pure benzene in 2008 and is the second largest pure benzene production country in the world, just behind the US which produced 7.0 million tonnes of pure benzene in 2008. The chart below sets out the production volume of the ten largest pure benzene production areas in the world in 2008.

Top 10 Areas in the World by Pure Benzene Production in 2008

million tonnes 8.0 7.0 7.0

6.0 5.8 5.3 5.0

4.0 3.3 3.0 2.3 2.0 2.0 1.5 1.1 1.0 1.0 0.9

0.0 US China Japan South Germany Netherlands Thailand Taiwan U.K. Iran Korea

Source: Merchant Research & Consulting, 2009

China’s pure benzene production has remained at approximately or slightly above 5.8 million tonnes per year in recent years, according to Merchant Research & Consulting. China has a negative trade balance of pure benzene with its consumption slightly exceeding its production in recent years,

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INDUSTRY OVERVIEW according to Merchant Research & Consulting. The chart below sets out the pure benzene production and consumption volume in China for the periods indicated.

Pure Benzene Production and Consumption Volume in China, 2006-2008

million tonnes 7.0

6.2 6.1 5.9 6.0 6.0 5.8 5.8

5.0

4.0

3.0

2.0

1.0

0.0 2006 2007 2008

Production Volume Consumption Volume

Source: Merchant Research & Consulting, 2009

Pricing Dynamics

According to CEIC, pure benzene prices (including VAT) have increased gradually from approximately RMB5,150 per tonne in January 2004 to approximately RMB8,200 per tonne in December 2006. Pure benzene prices (including VAT) further increased to above RMB9,000 per tonne in 2007 and reached over RMB10,500 per tonne in June and July 2008. In the fourth quarter of 2008, driven by deteriorating economic and market conditions, pure benzene prices (including VAT) dropped sharply to RMB3,010 per tonne in December 2008. Since January 2009, pure benzene prices (including VAT) in China started to recover, due to improved market conditions as well as increase in the demand of downstream chemical products.

Monthly Average Selling Price of Pure Benzene in China(1) (January 2004 - November 2009)

RMB/tonne 11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Nov-09

Source: CEIC (1) Including VAT

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INDUSTRY OVERVIEW

COKING COAL INDUSTRY

Introduction

Coal is a combustible sedimentary rock composed principally of carbon. Other constituents of coal include hydrogen, oxygen, sulfur and nitrogen. Coal is a type of fossil fuel and is formed from a layer of plant being accumulated between layers of rock and exposed to heat and pressure over long periods of time. Depending on the extent of exposure, coal transforms successively from peat, which is the lowest form of coal, to lignite, sub-bituminous coal, bituminous coal and anthracite, which is the highest rank of coal in terms of carbon content.

Lignite and sub-bituminous coal are low rank coals. They are usually brown in color, softer, and are dull and earthy in appearance. They have a low carbon content, high moisture level and a low energy level. Bituminous coal and anthracite are higher rank coals. They are typically black in color and are glossier in appearance. They have higher carbon content, lower moisture level and higher energy content than low ranked coal. Some types of bituminous coal contain higher energy contents than anthracite.

Coking coal is a form of bituminous coal and typically has a carbon content of around 60-80%. The majority of coking coal is used as a feedstock to produce coke. To improve efficiency, raw coal is usually washed to remove waste and constituents such as ash before it is used as feedstock. A portion of coking coal is also used to produce electricity and heat in power plants.

The demand for coking coal in China is largely driven by the production of coke, which is in turn driven by the production of pig iron and crude steel by the steel production industry. With the rapid growth of the steel industry in China, the demand for coking coal also increased significantly in recent years.

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INDUSTRY OVERVIEW

China is the largest producer of hard coal in the world in 2008, accounting for 47.4% of the world’s hard coal, according to OECD/IEA. The following chart sets out the regional shares of global hard coal production in 2008.

Regional Shares of Global Hard Coal Production in 2008

China 47.4%

Former Soviet Union Asia (excluding China) 7.0% 13.9%

Latin America OECD 1.5% 26.1% Africa 4.1%

Source: Key World Energy Statistics 2009 OECD/IEA, 2009, figure on page 14: “1973 and 2008 regional shares of hard coal production”

Within China, Shanxi has been the largest raw coal supply province in China historically, according to CEIC. The chart below sets out the supply volume of the ten largest raw coal supply provinces in China in 2008.

Top 10 Provinces in China by Raw Coal Supply Volume in 2008

million tonnes 700.0 609.5 600.0

500.0 465.1

400.0

300.0 226.5 208.9 200.0 146.6 119.1 118.0 100.0 86.0 81.9 79.1

0.0 Shanxi Inner Shaanxi Henan Shandong Anhui Guizhou Sichuan Heilongjiang Hebei Mongolia

Source: CEIC, 2008

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INDUSTRY OVERVIEW

China produced a total of approximately 1,033 million tonnes of raw coking coal in 2008, according to Fenwei. The chart below sets out the supply volume of the ten largest raw coking coal supply provinces in China in 2008. Top 10 Provinces in China by Raw Coking Coal Supply Volume in 2008

million tonnes 350.0 327.0

300.0

250.0

200.0

150.0 120.4 112.4 100.0 75.9 75.8 49.9 49.1 50.0 40.7 33.5 30.0

0.0 Shanxi Shandong Anhui Heilongjiang Henan Hebei Guizhou Yunnan Inner Sichuan Mongolia

Source: Fenwei

According to Fenwei, China had approximately 280 billion tonnes of proven coking coal reserves in 2008, with proven reserves (i) being those that geological and engineering information indicates with reasonable certainty that coking coal can be recovered in the future from known deposits under existing economic and operating conditions and (ii) including basic reserves and resources (based on the Chinese Resource and Reserve Reporting Standards). The chart below sets out the proven coking coal reserves of the top ten provinces in China in 2008.

Top 10 Provinces in China by Proven Coking Coal Reserves in 2008 million tonnes 180,000

160,000 155,184

140,000

120,000

100,000

80,000

60,000

40,000 20,022 18,838 20,000 10,004 9,501 9,453 9,299 8,612 7,146 5,310 0 Shanxi Anhui Shandong Guizhou Heilongjiang Xinjiang Henan Hebei Inner Shaanxi Mongolia

Source: Fenwei

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INDUSTRY OVERVIEW

The chart below sets out certain monthly average selling prices of coking coal from January 2006 to September 2009.

Certain Monthly Market Prices of Coking Coal, January 2006 - September 2009

RMB/tonne 2,500

2,000

1,500

1,000

500

0 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Sep-09

Main coking coal from Liulin, Shanxi (1)

1/3 coking coal from Zaozhuang, Shandong(2)

Fat coal from Lingshi, Shanxi (1)

Source: Fenwei

Notes:

(1) These are “mine mouth” prices, being the prices of coking coal for pick-up from the relevant mines, exclusive of VAT.

(2) These are “FOR” (free-on-rail) prices, being the prices of coking coal already loaded onto rail cars. Prices include all costs incurred prior to the coking coal being loaded onto the rail cars and include loading costs. Prices are inclusive of VAT.

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REGULATIONS

Set forth below are summaries of certain PRC laws and regulations applicable to our Group’s operations and business.

CHEMICAL INDUSTRY REGULATIONS

Supervising and Competent Authorities

On January 26, 2002, the State Council promulgated the Regulations on the Safety Administration of Dangerous Chemicals《危險化學品安全管理條例》 ( ) (“Dangerous Chemicals Regulations”) which became effective on March 15, 2002. The Dangerous Chemicals Regulations apply to the production, sales, storage, transportation and usage of dangerous chemicals, as well as disposal of dangerous chemical waste. According to the Dangerous Chemicals Regulations, the production of dangerous chemicals is regulated by a number of state authorities and departments, including without limitation the economic and trade administrative authorities of the State Council and the local office at the provincial level, the administration authorities of quality supervision and inspection, the public security authorities and the environmental protection authorities, etc. These administrative authorities promulgate various rules and regulations in relation to the production, operation, storage, transportation and handling of dangerous chemicals.

We are mainly supervised and regulated by the following PRC governmental authorities:

1) The National Development and Reform Commission (“NDRC”), who examines and approves investment projects exceeding certain capital limits or investment projects in special industry sectors in the PRC, including foreign investment projects.

2) The Ministry of Industry and Information Technology of the People’s Republic of China (“MIIT”) - pursuant to the Provisions on the Main Functions, Internal Bodies and Staffing of the Ministry of Industry and Information Technology《工業和信息化部主要職責內設機 ( 構和人員編制規定》) issued by the MIIT on July 11, 2008, various functions of the NDRC relating to the management of the industries and information technology of the PRC have been delegated to the MIIT. These functions mainly comprise studying and devising strategies for development of industries in the PRC, formulating and implementing plans and policies of the industrial sectors of the PRC; and guiding the formulation of technical regulations and industry standards of the industrial sectors of the PRC.

3) The State Administration of Work Safety, who manages and supervises matters relating to production safety.

4) The Ministry of Commerce of the People’s Republic of China (“MOFCOM”), who is responsible for managing domestic and overseas trading and cooperation with international economies. In addition, the MOFCOM and NDRC are also jointly responsible for examining and approving major investment projects identified in the Catalogue for the Guiding of Foreign Investment Industries《外商投資產業指導目錄》 ( ).

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REGULATIONS

5) The Ministry of Environmental Protection, who supervises and controls environmental protection matters and monitors environmental systems in the PRC.

6) The State Administration of Foreign Exchange (“SAFE”), who is responsible for the supervision and management of the foreign exchange market of the PRC; to undertake supervision and management of the settlement and sale of foreign exchange; to cultivate and develop the foreign exchange market.

Production Licenses

According to the Dangerous Chemicals Regulations, enterprises producing dangerous chemicals shall obtain the production license for dangerous chemicals from the competent quality inspection authorities. According to the Regulations on the Administration of Production Licenses for Industrial Products《工業產品生產許可證管理條例》 ( ) effective as of September 1, 2005, and Measures for the Implementation of the Regulations of the People’s Republic of China on the Administration on Production License for Industrial Products《工業產品生產許可證管理條例實施辦法》 ( ) effective as of November 1, 2005, enterprises producing the products listed in the Catalogue of Industrial Products (the “Catalogue”) shall obtain the Production License for Industrial Products (全國工業產品生產許可證). Since dangerous chemical products are listed in the Catalogue, enterprises producing dangerous chemical products shall obtain the Production License for Industrial Products.

Operation Licenses

On October 8, 2002, the National Economic and Trade Commission, which was later abolished in 2003 and whose responsibilities were assumed by the MOFCOM and the NDRC, issued the Measures for the Administration of Operation Licenses for Dangerous Chemicals《危險化學品經營 ( 許可證管理辦法》) which came into effect on November 15, 2002 (“Measures”). Pursuant to the Measures, the PRC government implements a licensing system for the operation and sale of dangerous chemicals. Enterprises that are engaged in the operation and sale of dangerous chemicals are required to obtain the relevant operation licenses for dangerous chemicals. Enterprises which sell dangerous chemicals that are self-produced need not obtain such operation licenses. If enterprises sell dangerous chemicals which are not self-produced or set up sales centers outside their plant, they still need to obtain the relevant operation licenses.

Dangerous Chemicals Registration

Under the former National Economic and Trade Commission promulgated the Measures for the Administration of Registration of Dangerous Chemicals《危險化學品登記管理辦法》 ( ) which came into effect on November 15, 2002, an enterprise engaged in the production, storage and usage of dangerous chemicals shall register the dangerous chemicals with the competent offices in charge of the registration of dangerous chemicals and obtain a Dangerous Chemical Registration Certificate (危險化學品登記證) and a registration number.

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REGULATIONS

Production and Operation Permit or Record Certificate of Non-pharmaceutical Chemicals Apt to be Used in Manufacturing Narcotic Drugs

According to the Measures for Production and Operation Permit of Non-pharmaceutical Chemicals Apt to be Used in Manufacturing Narcotic Drugs《非藥品類易制毒化學品生產、經營許 ( 可辦法》) which took effect from April 15, 2006, enterprises shall obtain a permit or a record certificate for production and operation of non-pharmaceutical chemicals apt to be used in manufacturing narcotic drugs. The Group’s toluene（甲苯）production is subject to this requirement.

COKE INDUSTRY REGULATIONS

According to the Urgent Notice Regarding the Advices on Standardization of the Coke Industry (《關於清理規範焦炭行業的若干意見的緊急通知》) (the ‘‘Notice’’) collectively issued by nine ministries including the NDRC on May 27, 2004, all facilities with coke ovens, a relatively low technology process that causes heavy pollution, must be closed down. Under the Notice, entities which are unable to meet the environmental requirement and energy saving standard are given a concrete and limited time period to innovate, and those which are still unable to reach the standard after such time must be closed down. The Notice also provides that a minimum annual production capacity of 600,000 tonnes is an entry condition of coke production plant construction.

On December 16, 2004 , the NDRC issued the Entry Conditions of the Coke Industry (焦化行業准入條件) which was revised by the Ministry of Industry and Information Technology on December 19, 2008. The Entry Conditions sets out the entry requirements for the coking industry including production enterprise layout, technology and equipment, quality of major products, resources, energy consumption and integrated utilization of by-products, environmental protection, and clean production, and supervision and administration. In December 2008, the Entry Conditions was revised to include a minimum production capacity of 1,000,000 tonnes which is applicable to certain types of coke ovens.

Under the Rules Regarding the Adjustment and Revitalization Planning of the Petrochemical Industry（《石化產業調整和振興規劃》）promulgated by the General Office of the State Council in 2009, approvals for coke projects intended solely for the expansion of production capacity shall be suspended for three years starting from 2009, and methanol, caustic soda, soda ash and other industries with excess production capacity shall be strictly controlled.

SAFETY REGULATIONS

Production Safety Law of the PRC

Pursuant to the Production Safety Law of the PRC《中華人民共和國安全生產法》 ( ) promulgated by the Standing Committee of the National People’s Congress in 2002, the production and business operation entities shall be equipped with the conditions for safe production as provided in laws, administrative regulations, national standards and trade standards. Any entity that is not equipped with the conditions for safe production may not engage in any production and business operation activities.

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REGULATIONS

If a production and business operation entity fails to comply with the Production Safety Law of the PRC, the production and business operation shall be ordered to rectify within a prescribed time period. If the production and business operation fails to rectify within the prescribed time period, the entity shall be ordered to suspend its construction or production or business for rectification and may be fined.

Safety Production Permit

In accordance with the PRC Production Safety Law, the State Council promulgated the Regulations on Safety Production Permits《安全生產許可證條例》 ( ) on January 13, 2004. The State Administration of Work Safety (國家安全生產監督管理總局) (“SAWS”) further issued implementation rules regarding the Measures on Implementation of Safety Production Permits for Dangerous Chemical Production Enterprises《危險化學品生產企業安全生產許可證實施辦法》 ( )on May 17, 2004. The regulations provide that an enterprise engaged in the production of dangerous chemicals are required to obtain a Safety Production Permit (安全生產許可證) from the SAWS or its local office at the provincial level before it commences production. The enterprises without the Production Safety Permit shall not carry on producing dangerous chemicals activities.

Safety Permit of Dangerous Chemicals Construction Project

The SAWS issued the Measures for the Implementation of Safety Permit on Dangerous Chemicals Construction Project《危險化學品建設項目安全許可實施辦法》 ( ) which came into effect on October 1, 2006. The measures provide that all enterprises shall obtain the relevant safety permit for commencement, safety facilities design and completion of safety facilities of construction project from the central offices of SAWS or from the local offices of SAWS at the provincial or municipal level.

LABOR PROTECTION REGULATIONS

According to the Labor Law of the PRC《中華人民共和國勞動法》 ( ) and the Labor Contract Law of the PRC《中華人民共和國勞動合同法》 ( ) effective on January 1, 1995 and January 1, 2008 respectively, labor contracts shall be concluded if labor relationships are to be established between the units and the laborers. The units cannot require the laborers to work in excess of a time limit and shall provide the wages which are no lower than local standards on minimum wages to the laborers in time. The units shall establish and perfect their system for labor safety and sanitation, strictly abide by the rules and standards on labor safety and sanitation set by the State, educate laborers in labor safety and sanitation. The units shall provide laborers with labor safety and sanitation conditions meeting stipulations by the State and necessary articles of labor protection, and carry out regular health examination for laborers engaged in work with occupational hazards.

As required under Regulation of Insurance for Labor Injury《工傷保險條例》 ( ), Provisional Insurance Measures for Maternity of Employees《企業職工生育保險試行辦法》 ( ), Interim Regulation on the Collection and Payment of Social Insurance Premiums《社會保險費徵繳暫行條例》 ( ) and Interim Provisions on Registration of Social Insurance《社會保險登記管理暫行辦法》 ( ), enterprises are obliged to provide their employees in the PRC with welfare schemes covering pension insurance, unemployment insurance, maternity insurance, injury insurance and medical insurance.

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REGULATIONS

According to Regulations on Management of Housing Fund《住房公積金管理條例》 ( ), enterprises should undertake registration at the competent managing center of housing fund and then, upon the examination by such managing center of housing fund, undergo the procedures of opening the account of housing fund for their employees at the relevant bank. Enterprises are also obliged to timely pay and deposit housing fund in full amount.

ENVIRONMENTAL PROTECTION REGULATIONS

The Group is subject to various PRC environmental protection laws and regulations promulgated by the central and local governments. These laws and regulations set out environmental protection measures in construction projects, use, discharge and disposal of toxic and hazardous materials, discharge and disposal of waste water, solid waste and waste gases, and control of industrial noise.

The Ministry of Environmental Protection is responsible for the overall supervision and management of environmental protection in the PRC.

According to the Environmental Protection Law of the PRC《中華人民共和國環境保護法》 ( ) effective on December 26, 1989, units that cause environmental pollution and other public nuisances shall adopt effective measures to avoid and control the pollution and damage caused to the environment, such as waste gas, waste water, waste residues, dust and noises generated during manufacturing or other activities. Pollution prevention facilities in construction projects shall be designed, built and put into operation together with the main part of the project. Construction projects can only be put into operation after the environmental protection authority has examined and approved the pollution prevention facilities. Enterprises and institutions discharging pollutants shall report to and register with the relevant authorities in accordance with the provisions of the environmental protection authority under the State Council. Units which are involved in manufacture, storage, transportation, sale and use of toxic chemicals and materials containing radioactive substances shall comply with the relevant regulations to prevent environmental pollution. The relevant authorities are authorized to impose various types of penalties on the persons or entities in violation of the environmental regulations. The penalties which could be imposed include issue of warning, suspension of operation or installation which are incomplete and fail to meet the prescribed standard, reinstallation of preventive facilities which have been dismantled or left idle, administrative sanction against office-in-charge, suspension of business operations or shut-down of the enterprise or institution. Fines could also be levied together with these penalties.

According to the Law of the PRC on Appraising of Environment Impacts《中華人民共和國環 ( 境影響評價法》) which came into effect on September 1, 2003, the PRC government has set up a system to appraise the environmental impact from construction projects, and classify and administer the environmental impact appraisals in accordance with the degree of the environmental impact. If the construction project may result in a material impact on the environment, an environmental impact report of appraising thoroughly the potential environmental impact is required. If the construction project may result in a slight impact on the environment, an environmental impact record of analyzing or appraising the specific potential environmental impact is required; and if the construction project may result in very little impact on the environment, an environmental impact appraisal is not required but an environmental impact form shall be filed. The report is prepared by construction units and shall be approved by the relevant PRC authority before construction commences.

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REGULATIONS

According to the Law of the PRC on the Prevention and Control of Environmental Pollution by Solid Wastes《中華人民共和國固體廢物污染環境防治法》 ( ) effective on April 1,1996 and revised on December 29, 2004, environment impacts appraisal shall be conducted for construction of projects discharging solid wastes, store, use and disposal of solid wastes and comply with regulations by the State regarding environmental protection of construction project.

According to the Law of the PRC on the Prevention and Control of Atmospheric Pollution (《中華人民共和國大氣污染防治法》) effective on June 1, 1988 and revised on August 29, 1995 and April 29, 2000, respectively, new construction projects, expansion projects or reconstruction projects which discharge atmospheric pollutants shall comply with regulations by the State regarding environmental protection of construction projects. The environmental impacts statement of the construction projects shall include an assessment of the project impact on the ecosystem. The statement shall be submitted to the environmental protection authority for approval. The construction project can only commence operation after the environmental protection authority has examined and approved the atmospheric pollution prevention facilities.

According to the Law of the PRC on Prevention and Control of Environmental Noise Pollution (《中華人民共和國環境噪聲污染防治法》) which came into on March 1, 1997, a construction project which is likely to produce environmental noise pollution shall prepare an environmental impact statement which includes measures to prevent and control such pollution, and submit it to the relevant environmental protection authority for approval. The construction project can commence operation only after the environmental protection authority has examined and approved the noise pollution prevention facilities.

According to the Law of the PRC on Prevention and Control of Water《中華人民共和國水污染 ( 防治法》) effective on November 1, 1984 and revised on May 15, 1996 and February 28, 2008, new construction projects, expansion projects or reconstruction projects and other above-water facilities that directly or indirectly discharge pollutants to water shall carry out an appraisal regarding the pollutants’ effects on environment according to law. Water pollution prevention facilities shall be designed, built and put into operation together with the main part of the project. The construction project can commence operation only after the environmental protection authority has examined and approved the water pollution prevention facilities.

According to the Law of the PRC on Prevention and Control of Radioactive Pollution （《中華人民共和國放射性污染防治法》）promulgated on June 28, 2003 and effective on October 1, 2003, the Administrative Department of Environmental Protection under the State Council shall have unified supervision over the work of prevention and control of radioactive pollution throughout the country in accordance with the law. An entity producing, selling or using radioisotope and ray devices shall, in accordance with the relevant provisions of the State Council on prevention of radioactivity from the radioisotope and ray devices, apply for a permit to do so, and register with the relevant authority accordingly.

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REGULATIONS

The Regulation on the Safety and Protection of Radioisotopes and Radiation Devices （《放射性同位素與射線裝置安全和防護條例》）, which came into effect on December 1, 2005 and the Measures on Safety Permission of Radioisotopes and Radiation Devices（《放射性同位素與射線裝置安全許可管理辦法》）amended on December 6, 2008 further provide that an enterprise producing, selling or using radioisotope and radiation devices shall obtain a Radiation Safety Permit. Under such regulations, the relevant enterprise shall be prohibited to produce, sell or use radioisotopes or radiation devices without a permit or in violation of the types and scope as specified in the permit.

FOREIGN CURRENCY EXCHANGE

The principal regulations governing foreign currency exchange in the PRC are the Foreign Exchange Administrative Regulations (1996), as amended. Under the Regulations, the RMB is freely convertible for current account items, including the distribution of dividends, interest payments, trade and service related foreign exchange transactions, but not for capital account items, such as direct investment, loan, repatriation of investment and investment in securities outside the PRC, unless the prior approval of the State Administration of Foreign Exchange (“SAFE”) is obtained. Under the Administration Rules of Settlement, Sale and Payment of Foreign Exchange promulgated by the People’s Bank of China on June 20, 1996, foreign investment enterprises in the PRC generally may purchase foreign exchange without the approval or review of SAFE, if such purchases are trade and service related foreign exchange transactions and commercial documents evidencing these transactions are produced. They may also retain foreign exchange, subject to a cap approved by SAFE, under current account items. However, the relevant PRC government authorities may limit or eliminate the ability of foreign investment enterprises to purchase and retain foreign currencies in the future. Foreign investment enterprises are permitted to remit their profits or dividends in foreign currencies out of their foreign exchange accounts or exchange Renminbi for foreign currencies through banks authorized to conduct foreign exchange business.

TAXATION

1. Enterprise Income Tax

On March 16, 2007, the Enterprises Income Tax Law (“EIT Law”) was enacted. Under the EIT Law, which has taken effect since January 1, 2008, the PRC adopts a uniform income tax rate of 25% for all enterprises in the PRC (including foreign-invested enterprises) and revoke many of the tax exemption, reduction and preferential treatments applicable to foreign-invested enterprises before January 1, 2008. According to the EIT Law and the Regulation on the Implementation of the Enterprise Income Tax Law of the People’s Republic of China (the “Implementation Rules”) effective since January 1, 2008, there will be a transition period for enterprises, whether foreign-invested or domestic, that is currently receiving preferential tax treatments according to former applicable laws and regulations. Enterprises that are subject to an enterprise income tax rate lower than 25% may continue to enjoy the lower rate and gradually transit to the new tax rate within five years after the effective date of the EIT Law. Enterprises that are currently entitled to exemptions or reductions from the standard income tax rate for a fixed term may continue to enjoy such treatment until the fixed term expires.

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REGULATIONS

Under the EIT Law, enterprises are classified as either resident enterprises or non-resident enterprises. A resident enterprise is an enterprise incorporated under the PRC law, or that is incorporated under the law of a jurisdiction outside the PRC with its de facto management organization located within the PRC. Under the New Implementation Rules, “de facto management organization” is defined as the organization of an enterprise through which substantial and comprehensive management and control over the manufacturing and business operations, personnel, accounting and properties of the enterprise are exercised. Non-resident enterprise refers to an enterprise incorporated under the law of a jurisdiction outside the PRC with its de facto management organization located outside of the PRC, but which has either set up institutions or establishments in the PRC or has its income originating from the PRC without setting up an institution or establishment in the PRC.

2. PRC VAT

According to the Provisional Regulation of the PRC on Value-added Tax (“VAT Regulation”), all units and individuals engaged in the sale of goods, provision of processing, repair and replacement services, and the importation of goods within the territory of the PRC are taxpayers of Value-added tax (“VAT”), and shall pay VAT in accordance with the VAT Regulation. According to the VAT Regulation, a VAT tax rate of 17% applies to PRC enterprises.

OUR COMPLIANCE WITH APPLICABLE REGULATIONS

As confirmed by Commerce & Finance Law Offices, our PRC legal advisors, we are currently in compliance in all material respects with all relevant PRC regulatory requirements and have obtained all material permits and licenses required for our operations. To ensure compliance with all applicable PRC laws and regulations and to prevent any breaches of such laws and regulations in the future, we have already issued written policies to guide our employees. Such policies include work safety guidelines, periodic inspections of all of our production facilities to ensure compliance with applicable laws and periodic training sessions for applicable employees on regulatory compliance requirements. We will promulgate, revise, announce and/or comply with all related regulations and systems of operations, and ensure that our staff members are trained and are fully aware of all such regulations.

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BUSINESS

OVERVIEW LR 11.07 App1A28(1)(a)

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BUSINESS our production facilities. We were named one of the “Fifty Enterprises Receiving Key Support in Hebei” and one of the “Fifty Most Efficient Enterprises in Hebei” in 2008 and a “Leading Company in Petrochemical, Coking and Nuclear Fuel Processing Enterprise in Hebei” in 2006, 2007 and 2008 by the Hebei Top Hundred Enterprises Ranking Committee.

Expansion of Our Coke and Methanol Production Capacities

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BUSINESS expansion plan of developing additional production capacities. Furthermore, you should note that Commerce & Finance Law Offices have advised us that the First Additional Capacities Approvals and the Second Additional Capacities Approvals will expire after December 30, 2010 unless construction of the relevant coke and methanol production facilities shall have commenced in accordance with the relevant PRC laws and regulations and such construction shall have been certified by the relevant PRC government authorities before such date (even though there is no explicit requirement on the completion date under such approvals).

Acetic Acid Plant Option

We hold a call option to acquire Kingboard’s interest in True Glory, which indirectly owns the Acetic Acid Plant located adjacent to our production facilities. We will carefully evaluate the

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BUSINESS performance of the Acetic Acid Plant and may exercise the Acetic Acid Plant Option to acquire True Glory from Kingboard if we believe the acquisition of the Acetic Acid Plant will support our growth and improve our profitability. There is no assurance that we will exercise the Acetic Acid Plant Option.

Yuanda Coal Project

OUR OPERATING RESULTS

Our Revenue and Profits During the Three Years Ended December 31, 2008 and the Nine Months Ended September 30, 2009

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BUSINESS for the nine months ended September 30, 2009. Our net margin was 12.2%, 16.7%, 6.6%, respectively, in 2006, 2007 and 2008. It decreased from 14.8% for the nine months ended September 30, 2008 to 4.4% for the nine months ended September 30, 2009, primarily due to the decrease in our gross margin during the same periods. See “Risk Factors — Our operating results have been subject to significant fluctuations during the three years ended December 31, 2008 and the nine months ended September 30, 2009 and may continue to fluctuate in future”.

The Effect of the Global Financial Crisis in 2008 on Our Operating Results

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BUSINESS

OUR COMPETITIVE STRENGTHS

We believe the following competitive strengths contribute to our historical success and future prospects:

We are one of the leading coke producers in Hebei province based on production volume.

We are one of the leading coke producers in Hebei province based on our production volume in 2008, according to Hebei Coke & Chemical Industry Association. We are capable of producing 1.96 million tonnes of coke per annum, and we have been operating at close to full capacity since May 2009. We have received a number of industry awards, including the “Fifty Enterprises Receiving Key Support in Hebei” and the “Fifty Most Efficient Enterprises in Hebei” award, both in 2008, and a “Leading Company in Petrochemical, Coking and Nuclear Fuel Processing Enterprise in Hebei” award in 2006, 2007 and 2008 granted by the Hebei Top Hundred Enterprises Ranking Committee.

According to CEIC, Hebei was the largest steel-producing province in China in 2008 in terms of production volume. Our strategic location in Hebei has allowed us to benefit from the strong demand of coke from steel manufacturers in the region during the three years ended December 31, 2008 and the nine months ended September 30, 2009. We have generally been able to utilize our large production capacity to meet the increased demand for coke from large steel manufacturers in Hebei. The relatively high transportation costs to deliver coke result in an obstacle for coke producers in other provinces to enter the Hebei market. This helps Hebei coke producers, including us, to compete favorably against coke producers from outside Hebei.

Furthermore, we believe our location in Hebei offers us another advantage in that we are able to obtain a stable supply of coking coal from coal mines in Hebei as well as Shanxi and other nearby provinces. According to Fenwei, Shanxi had the largest coking coal supply accounting for approximately 31.7% of total supply of raw coking coal in China in 2008. We believe we have maintained a stable long-term relationship with our key suppliers. We believe this, together with our location, will help to ensure a stable and continuous supply of coking coal for our coke production.

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BUSINESS

Our high-quality products and close proximity to our key customers enable us to maintain stable long-term relationships with them.

We aim to offer coke bearing specifications that cater to the needs of our customers. As such, we primarily focus on offering our customers Class II coke as this class of coke constitutes the majority of their requirements. Our Class II coke generally has comparatively low ash and sulfur contents and high mechanical strength compared to the specifications for Class II coke stipulated by the PRC General Administration of Quality Supervision, Inspection and Quarantine. In addition, we are located within close proximity to the majority of our customers in Hebei in terms of revenue. Out of our top five customers, four are located within a radius of 50 kilometers from our production facilities and accounted for 41.7% of our revenue in 2008. This results in lower transportation costs for us to deliver our coke to these customers, which in turn enhances our competitiveness.

The close proximity to our customers has also enabled us to deliver our coke to customers within a short timeframe following production, to meet our customers’ needs on a “just-in-time” basis. This has allowed us to maintain a stable supply of coke to our customers, which in turn has strengthened our customer relationships. At the same time, as a result of our close proximity to our customers, we have been able to better manage our chain of operations from production to delivery and maintain low levels of inventories for our finished products at our production facilities. The inventory turnover days for our finished products were 0.4, 0.5, 1.4 days and 1.5 days for 2006, 2007, 2008 and the nine months ended September 30, 2009, respectively.

We believe that the combination of our ability to produce Class II coke that falls on the higher end of the Class II coke industry standard and our proximity to our major customers have enabled us to establish and maintain stable long-term relationships with our key customers, which reduce volatility in our sales over time.

Our production system with resource-recycling technology allows us to create additional revenue streams and lower our overall production costs.

We use the resource-recycling technology developed by Sedin Engineering Company Limited to recycle coking gas produced from our coke production process as a feedstock to produce methanol, and also recycle coking gas to generate energy for coke production. This technology has allowed us to reduce wastage. We believe we were one of the first five companies in the PRC to commercially operate this resource-recycling system at the large scale of 100,000 tonnes per annum per production facility. After we commenced our phase I coke trial production on November 2, 2004, we successfully applied this technology to our phase I methanol trial production on September 20, 2005, our phase II coke trial production on June 18, 2008 and our phase II methanol trial production on January 20, 2009. Furthermore, on November 16, 2008, we commenced trial production of pure benzene by refining crude benzene produced from our coke production and utilizing hydrogen produced from our methanol production as feedstock. We believe our production system has allowed us to create additional revenue streams and lower our production costs, thereby increasing our competitiveness and profit margin. In addition, since the resource-recycling technology allows wastes, such as coking gas and hydrogen, to be recycled into other chemical products, we believe that this technology also allows us to reduce environmental pollution and lower our waste disposal cost.

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BUSINESS

Through our accumulated operating experience, we have been able to continuously improve our coke production efficiency during the past few years. During the years ended December 31, 2006, 2007 and 2008 and the nine months ended September 30, 2009, our coking coal input to coke output ratio were 1.303, 1.301, 1.298 and 1.294 respectively. This has translated into less coking coal required for the same amount of coke produced from period to period, which would enhance our gross profit margins for coke over the periods provided that the prices of coking coal and coke and the mix of the different types of coals remained constant. We believe there is room to further improve our production efficiency.

In addition, we have been able to maintain a stable production yield of our coke related chemical products. During 2006, 2007 and 2008 and the nine months ended September 30, 2009, our crude benzene yield rate (calculated as crude benzene production volume divided by coke production volume) were 1.26%, 1.18%, 1.20% and 1.24% respectively. During 2006, 2007 and the first five months in 2008 before our phase II coke trial production commenced in June 2008, our methanol yield rate (calculated as methanol production volume divided by coke production volume) for our phase I methanol production were 7.8%, 8.5% and 10.4% respectively, while our methanol yield rate for the full year 2008 (with our phase I and II coke and phase I methanol trial production commenced) and nine months ended September 30, 2009 (after both of our phase II coke and phase II methanol production facilities commenced trial production) were 7.5% and 9.5%, respectively. Our methanol yield rate of 7.5% for the full year 2008 was lower than that of 10.4% during the first five months in 2008 because our phase II coke production facilities commenced trial production in the second half of 2008 but our phase II methanol production facilities were still under construction. Our methanol yield rate of 9.5% for the nine months ended September 30, 2009 was lower than that of 10.4% during the first five months in 2008 for our phase I coke and phase I methanol production facilities, primarily because we did not increase our methanol production volume during the first few months after our phase II methanol production facilities commenced trial production on January 20, 2009 due to adverse market conditions. A higher yield rate allows us to increase our output for the same amount of raw materials consumed, and hence is expected to result in an increase in our revenue as well as gross margins.

We are well positioned to benefit from industry consolidation trends driven by tightening government policy due to technology and scale advantage as well as ability to expand production capacities.

The coke industry in China is highly fragmented at present. The government has historically promulgated policies aiming to tighten the environmental protection requirements and conserve energy. For example, according to the Urgent Notice Regarding the Advices on Standardization of the Coke Industry (關於清理規範焦炭行業的若干意見的緊急通知) (the “Notice”) collectively issued by nine ministries including the National Development and Reform Commission (“NDRC”) on May 27, 2004, coke production facilities with coke ovens causing heavy pollution due to backward coke production techniques must be closed down immediately. In addition, those facilities with coke ovens causing heavy pollution and which cannot be rectified within a certain period of time to meet applicable environmental standards must also be closed down. We believe our resource-recycling technology allows us to operate in a more environmentally responsible manner and benefit from the industry consolidation trend.

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BUSINESS

In addition, the Notice has also specified the minimum required standard including a minimum annual production capacity of 600,000 tonnes for players to enter the coke industry which will require App1A34(1)(a) App1A28(8) significant capital investment. In December 2008, the Entry Conditions of the Coke Industry were revised to include a minimum production capacity of 1,000,000 tonnes which is applicable to certain type of coke ovens. For example, we have invested approximately RMB1.1 billion to construct phase I and II of our coke production facilities with a total annual production capacity of 1,960,000 tonnes. We believe that, given the higher entry barrier and because economies of scale are an important source of efficiency and competitiveness in the coke industry, the industry will experience more consolidation in the long term, which will help reduce the competition we face from small-scale coke producers. As one of the largest coke producers in Hebei in terms of production volume, and with strong management and technical expertise, we believe we are well-positioned to benefit from potential consolidation within the coke industry. We believe any material consolidation will help to reduce the competition we face from small-scale coke producers.

Pursuant to the Rules Regarding the Adjustment and Revitalization Planning of the Petrochemical Industry (石化產業調整和振興規劃) (the “Revitalization Rules”) promulgated by the General Office of the State Council in May 2009, approvals for coke projects intended solely for the expansion of production capacity shall be suspended for three years starting from 2009, and expansion plans for methanol projects shall also be strictly controlled until PRC laws and regulations provide otherwise. Our PRC legal advisors, Commerce & Finance Law Offices, have advised us that the Revitalization Rules do not provide for the exact expiry date of such three-year period. We believe this will limit the development of new coke and methanol plants in the PRC. However, our indirect wholly-owned subsidiary Fast Intellect (BVI) has received the First Additional Capacities Approvals for additional coke and methanol projects which must be implemented through specified PRC subsidiaries to be established. In addition, Fast Intellect (BVI) has previously received the Second Additional Capacities Approvals for other additional coke and methanol projects which must be implemented through specified PRC subsidiaries, namely, Zhongxin Huagong and Yingdu Qihua, being former PRC subsidiaries of Fast Intellect (BVI). Each set of the First Additional Capacities Approvals and the Second Additional Capacities Approvals has been issued by the Development and Reform Commission of Xingtai City to permit the recipients of such approvals to undertake coke and methanol projects with an annual capacity of up to 1,920,000 tonnes and 200,000 tonnes, respectively. We believe that our ability to expand our coke and methanol production capacities will give us a competitive advantage vis-à-vis our competitors, as they may face limitation in growth opportunities given the difficulty for them to expand their coke and methanol production capacities.

We have an experienced senior management team with a proven track record.

We have an experienced management team that has successfully led our operations and increased our capacity and revenue through organic expansion. Mr. Ho Yin Sang, our Chairman, has over 20 years of experience in chemicals-related industries and is currently a member of the Political Consultative Committee of Hebei Province. Mr. Wong Yun Kit, our Executive Director, has over 20 years of experience in finance, sales and marketing in an international corporation and over six years of experience in the coke and coke-related chemicals industry, and is currently a Standing Committee Representative of the Hebei Coke & Chemical Industry Association. In addition, Mr. Han Guo Kai, our General Manager, has over ten years in the coke and coke-related chemicals industry and is currently

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BUSINESS the Vice Chairman of the Hebei Coke & Chemical Industry Association. We believe that our senior management team’s technical and industry knowledge as well as their operating experience help us anticipate and take advantage of market opportunities.

Our senior management team has also demonstrated a proven track record and contributed to the success of our historical growth. Leveraging on our operating and management experience for phase I production of coke and methanol, we expanded our production capacity through the construction and successful commencement of phase II trial production of coke and methanol on June 18, 2008 and January 20, 2009 respectively. We also successfully commenced trial production of pure benzene on November 16, 2008. These have increased our capacity to capitalize on opportunities in the coke, methanol and pure benzene markets in China.

OUR STRATEGIES

Enhance production and operating efficiency of coke, methanol and pure benzene.

We aim to improve our cost competitiveness by enhancing our production and operating efficiency. We plan to leverage our experience with resource-recycling technology to continue to improve our coal mixing technique and streamline our production process, which will allow us to improve the production yield and lower the production costs of our coke, methanol and pure benzene products. We aim to stabilize our coking coal input to coke output ratio at 1.285, our production yield of methanol at 11.0% and our production yield of crude benzene at 1.25% in the next few years.

Historically, we have dedicated significant resources to production safety and environmental protection matters. For example, we conduct periodic inspections of our production facilities to ensure that all parts of our operations are in compliance with existing laws and regulations, and we have installed a number of equipment in our facilities, including waste water monitoring devices and secured storage for waste products, to prevent, reduce or treat the waste generated from our production process. We will continue to devote substantial resources to maintain our production safety and environmental protection standard. We plan to improve our technology to further reduce the waste and pollution generated during our production process and hence our environmental-related compliance cost. In addition, we plan to improve our maintenance schedules and budget management to enhance operating efficiency.

Strengthen existing and develop new relationships with key customers.

We are one of the leading coke producers in Hebei based on our production volume for 2008 according to the Hebei Coke & Chemical Industry Association, and we currently offer a number of downstream products. We plan to leverage our position to strengthen our relationships with our key customers. A number of our customers have indicated that they are, or will be in the near future, implementing expansion plans and we have observed a corresponding increase of orders from them. We plan to satisfy their increasing needs by producing and selling coke to these customers on a

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BUSINESS priority basis. We aim to be the preferred supplier to our key customers, by continuing to produce high-quality coke and coke-related chemical products at competitive prices using our resource-recycling technology.

In addition, our sales and marketing team will continue to build on our existing reputation and attract and develop relationships with new customers.

Expand our coke and methanol production capacities.

We plan to expand our coke and methanol production capacities to capitalize on opportunities in the coke and methanol markets in China. Our indirect wholly-owned subsidiary Fast Intellect (BVI) has received the First Additional Capacities Approvals for additional coke and methanol projects which must be implemented through specified PRC subsidiaries to be established. In addition, Fast Intellect (BVI) has previously received the Second Additional Capacities Approvals for other additional coke and methanol projects which must be implemented through specified PRC subsidiaries, namely, Zhongxin Huagong and Yingdu Qihua, being former PRC subsidiaries of Fast Intellect (BVI). Each set of the First Additional Capacities Approvals and the Second Additional Capacities Approvals has been issued by the Development and Reform Commission of Xingtai City to permit the recipients of such approvals to undertake coke and methanol projects with an annual capacity of up to 1,920,000 tonnes and 200,000 tonnes, respectively. We believe we are in an advantageous position against our competitors, who may not have the requisite approvals to expand. We cannot assure you that the application of Fast Intellect (BVI) to undertake the coke and methanol projects relating to the Second Additional Capacities Approvals through other PRC subsidiaries to be established by Fast Intellect (BVI) will be granted. If Fast Intellect (BVI) is unable to obtain such approvals, our ability to expand our coke and methanol production facilities will be limited to the production capacities set forth in the First Additional Capacities Approvals (until the three-year restriction period under the Revitalization Rules ceases to apply). See “Risk Factors — We may be unable to obtain the approvals to undertake the coke and methanol projects relating to the Second Additional Capacities Approvals”.

We believe we will be able to successfully manage such expansion given our track record in the coke industry. See “Business — Our Competitive Strengths” above. There is no assurance that we will expand our coke and methanol production capacities and, even if we do, there is no assurance that such expansion will be successful. See “Risk Factors — Improvements in our future results of operations may depend on the results of our future expansion, and recent changes in PRC laws impose limits on the expansion of coke and methanol production capacities” and “Risk Factors — We may be unable to secure additional funding in the future to meet our capital expenditure requirements” for more details.

Further diversify and expand our production capacity of downstream products by selectively pursuing acquisition opportunities such as the acquisition of True Glory, which indirectly owns the Acetic Acid Plant.

In order to increase our revenue and profitability, we plan to capitalize on the growth of the chemicals market by diversifying into new products in the future. We plan to selectively acquire or invest in new projects that meet our selection criteria based on their expected profit margins, return on investments, strategic value and potential synergies.

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BUSINESS

We hold a call option to acquire Kingboard’s interest in True Glory, which indirectly owns the App1A34(1)(c) Acetic Acid Plant located adjacent to our production facilities. We will carefully evaluate the performance of the Acetic Acid Plant and may exercise the call option to acquire True Glory from Kingboard if we believe such acquisition will support our growth and generate attractive returns. We believe that the Acetic Acid Plant is potentially an attractive investment opportunity because acetic acid generally commands a higher average selling price than our existing products. At the same time, we expect to be able to incur lower transportation costs for our raw materials compared to other acetic acid producers which procure raw materials externally. For example, we have entered into an agreement with a transportation company to transport coke to a customer located within 50 kilometers from our production site for approximately RMB12 per tonne. As we can utilize our internally-produced coke, methanol and steam to produce acetic acid at the Acetic Acid Plant located adjacent to our existing production facilities, we believe we can lower our costs of transporting such raw materials for acetic acid production on a per tonne basis and maintain a stable supply of such raw materials. We believe that this will help to enhance our competitiveness as an acetic acid producer.

In addition, acquiring the Acetic Acid Plant from Kingboard will allow us to recycle the carbon dioxide currently generated from the coke production system for use in the acetic acid production process. This is expected to further reduce environmental pollution and lower our waste disposal costs. However, there is no assurance that we will exercise the Acetic Acid Plant Option and, even if we do, there is no assurance that we can achieve the synergies and benefits expected from the acquisition. See “Relationship with Kingboard — Acetic Acid Plant Option”, “Risk Factors — We may not be able to successfully acquire the Yuanda Coal Project and the Acetic Acid Plant, and even if we acquire these assets, we may not be successful in operating them as we do not have any experience in operating coal mines or acetic acid plants” and “Risk Factors — We may be unable to secure additional funding in the future to meet our capital expenditure requirements” for more details.

Enhance and diversify our access to coking coal supply by strengthening our relationships with our existing coking coal suppliers and pursuing acquisition opportunities.

We plan to strengthen our relationships with our existing coking coal suppliers, as well as identify alternative supply sources, to ensure that we do not face concentration risks. In particular, we are seeking to strengthen relationships with coking coal companies in closer proximity to our production facilities in Hebei to secure coking coal supply at more competitive prices.

In addition, we plan to acquire some upstream assets with a goal to reducing our raw material price risks. For example, the Neiqiu County government has issued a letter stating its intention to assist us in acquiring the Yuanda Coal Project. This letter is not binding and there is no assurance that we will successfully acquire the Yuanda Coal Project. According to a report issued by a state-owned institute that collects, analyzes and assesses individual coal reserves data in Hebei province in August 2005, the Yuanda Coal Project is estimated to have a total combined resource and basic reserve (based on the Chinese Resource and Reserve Reporting Standards) of approximately 15 million tonnes. This report has been reviewed by Runge Asia, an independent technical consultant in the coal mining industry that we have engaged, and Runge Asia is of the opinion that the procedures carried out by this state-owned institute are reasonable for the purpose of ascertaining the total combined resource and basic reserve data (based on the Chinese Resource and Reserve Reporting Standards) contained in such report.

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BUSINESS

We believe acquiring the Yuanda Coal Project will complement our coke business by enhancing our access to coking coal supply. We will continue to pursue acquisition opportunities of coal mines and we believe ownership interests in coal mines will help us develop a fully integrated model in Hebei with both upstream and downstream assets to enhance our competitiveness and the stability of our earnings. However, there is no assurance that we will acquire the Yuanda Coal Project. Our Directors will consider various factors, including our financial condition, the purchase price of the Yuanda Coal Project, its geological condition and the capital expenditure required to convert it to a condition that we require. Even if we acquire the Yuanda Coal Project, there is no assurance that we can successfully operate it. See “Risk Factors — We may not be able to successfully acquire the Yuanda Coal Project and the Acetic Acid Plant, and even if we acquire these assets, we may not be successful in operating them as we do not have any experience in operating coal mines or acetic acid plants. and “Risk Factors — We may be unable to secure additional funding in the future to meet our capital expenditure requirements” for more details.

OUR PRODUCTS

We are a large producer of coke and coke-related chemicals products in Hebei. We derive our revenue from four product categories: the sale of coke and related products, the sale of methanol, the sale of pure benzene and related products, and others, which consists principally of the sale of scrap materials. See “Financial Information” for further information.

Our Principal Products

We offer three principal products: coke, methanol and pure benzene. In addition, we generate a small portion of our revenue from the sale of various by-products generated from our production processes, including coal tar, crude benzene, ammonium sulfate, pure toluene, pure xylene, non-aromatics, residue oil and scrap materials. SC2.8(a)(iii)

The table below sets out the breakdown of our revenue by product category. During the years ended December 31, 2006, 2007 and 2008 and the nine months ended September 30, 2009, our total revenue was HK$1,104.1 million, HK$1,540.9 million, HK$3,135.0 million and HK$2,539.4 million, respectively.

Year ended December 31, Nine months ended September 30,

2008 2006 2007 2008 (unaudited) 2009

(% of (% of (% of (% of (% of (HK$’000) Total) (HK$’000) Total) (HK$’000) Total) (HK$’000) Total) (HK$’000) Total)

Coke and related products.... 939,542 85.1% 1,322,930 85.9% 2,857,843 91.2% 2,496,480 91.1% 2,159,656 85.0% Methanol...... 164,015 14.9% 217,270 14.1% 272,415 8.7% 242,690 8.9% 220,451 8.7% Pure benzene and related products...... — — — — 4,064 0.1% — — 157,181 6.2% Others(1)...... 527 0.0% 699 0.0% 641 0.0% 542 0.0% 2,106 0.1%

Total revenue ...... 1,104,084 100.0% 1,540,899 100.0% 3,134,963 100.0% 2,739,712 100.0% 2,539,394 100.0%

(1) Revenue amounts under the “others” category in 2006, 2007, 2008 and the nine months ended September 30, 2008 were negligible after rounding the percentages and were rounded down to zero.

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BUSINESS

The following table sets forth the average selling price (net of VAT) and sales volume of each of our principal products during the three years ended December 31, 2008 and the nine months ended September 30, 2009.

Year ended December 31, Nine months ended September 30,

2006 2007 2008 2008 2009

Average Average Average Average Average selling Sales selling Sales selling Sales selling Sales selling Sales price volume price volume price volume price volume price volume

(HK$/ (thousand (HK$/ (thousand (HK$/ (thousand (HK$/ (thousand (HK$/ (thousand tonne) tonnes) tonne) tonnes) tonne) tonnes) tonne) tonnes) tonne) tonnes)

Coke ...... 770 1,045.3 1,083 1,086.3 2,073 1,277.6 2,273 1,019.6 1,529 1,338.7 Methanol ...... 2,055 79.8 2,357 92.2 2,835 96.1 3,030 80.1 1,774 124.3 Pure benzene .... — — — — 2,901 1.1 — — 4,466 25.6

Coke

Coke is a solid carbon fuel and carbon source. There are two broad categories of coke: metallurgical coke and foundry coke. Metallurgical coke is a carbon material produced by the destructive distillation of a mixture of coking coal. Foundry coke is a special type of coke that is used in furnaces to produce cast and ductile iron products. Our Company produces metallurgical coke, and references in this document to coke are to metallurgical coke.

Coke is used to melt and reduce iron ore, which is used for making pig iron in the steel production process. To produce pig iron, iron ore, coke, heated air and limestone or other fluxes are fed into a blast furnace. The heated air causes coke combustion, which provides the heat for pig iron production as well as the source of carbon for removing the oxygen from the iron ores. The production of pig iron involves blasting large quantities of air at the bottom of the blast furnace, and coke also provides structural support for the raw materials stacked up in the blast furnace, allowing ventilation for the heated air to rise up and liquid iron to be collected at the bottom of the blast furnace. Crude steel is made from molten steel after processing pig iron and other raw materials from the process of casting. Crude steel is then further processed to produce finished steel products.

We produce coke by the heating of a mix of different types of coking coal, including 1/3 coking coal, fat coal, lean coal, main coking coal and gas coal. During the three years ended December 31, 2008 and the nine months ended September 30, 2009, we derived the bulk of our revenue through the production and sale of coke and related products. During 2006, 2007 and 2008 and the nine months ended September 30, 2009, 85.1%, 85.9%, 91.2% and 85.0%, respectively, of our revenue were generated by the sale of coke and related products. We expect that revenue from the sale of coke will continue to constitute a significant portion of our revenue going forward.

We operate a modern, well-maintained coking plant capable of producing 1,960,000 tonnes of coke annually. We use coking coal sourced primarily from Shanxi, Hebei, Jiangsu and Shandong. During the years ended December 31, 2006, 2007 and 2008 and the nine months ended September 30,

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BUSINESS

2009, our coking coal input to coke output ratio were 1.303, 1.301, 1.298 and 1.294, respectively. We produce coke with the specifications required by our customers. We generally produce Class II coke, as this class of coke constitutes the majority of our customers’ requirements. We believe the quality of our Class II coke falls on the higher end of the Class II coke industry standard, as it generally has comparatively low ash and sulfur contents and high mechanical strength compared to the specifications for Class II coke stipulated by the PRC General Administration of Quality Supervision, Inspection and Quarantine. Our coke is therefore close to Class I coke in these respects but costs less than Class I coke.

Methanol

We produce methanol using coking gas produced during the coke production process as feedstock, and we do not procure any of our coking gas requirements from entities outside the Group. During the three years ended December 31, 2008 and the nine months ended September 30, 2009, we generated only a small portion of our revenue from its sale. During 2006, 2007 and 2008 and the nine months ended September 30, 2009, 14.9%, 14.1%, 8.7% and 8.7%, respectively, of our revenue were generated by the sale of methanol.

During 2006, 2007 and the first five months in 2008 before our phase II coke trial production commenced in June 2008, our methanol yield rate (calculated as methanol production volume divided by coke production volume) for our phase I methanol production were 7.8%, 8.5% and 10.4% respectively, while our methanol yield rate for the full year 2008 (with our phase I and II coke and phase I methanol trial production commenced) and nine months ended September 30, 2009 (after both of our phase II coke and phase II methanol production facilities commenced trial production) were 7.5% and 9.5%, respectively. Our methanol yield rate of 7.5% for the full year 2008 was lower than that of 10.4% during the first five months in 2008 because our phase II coke production facilities commenced trial production in the second half of 2008 but our phase II methanol production facilities were still under construction. Our methanol yield rate of 9.5% for the nine months ended September 30, 2009 was lower than that of 10.4% during the first five months in 2008 for our phase I coke and phase I methanol production facilities, primarily because we did not increase our methanol production volume during the first few months after our phase II methanol production facilities commenced trial production on January 20, 2009 due to adverse market conditions.

Our phase I and phase II methanol production facilities in Hebei are capable of producing a total of 200,000 tonnes of methanol annually. Pursuant to the Supply Agreement entered into with Kingboard on [●], 2009, Kingboard has agreed to cause a member of the Parent Group to purchase, in the future, any and all methanol produced by us, at prevailing market prices.

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BUSINESS

Pure Benzene

Pure benzene is a colorless, toxic and highly flammable liquid. It is primarily used to manufacture chemical ingredients such as ethylbenzene, cyclohexane and cumene. Pure benzene is also used as an industrial solvent, a derivative for manufacturing synthesized benzene and in the production of nylon, dyes, plastics, drugs, explosives and synthetic rubber.

We produce pure benzene through a hydrorefining process using the crude benzene produced from our coke production process, the hydrogen produced from our methanol production process, as well as externally procured crude benzene and coke oven light oil. For 2008 and the nine months ended September 30, 2009, we procured nil and approximately 55%, respectively, of our crude benzene used in our production of pure benzene from external sources. During both periods, we procured all of the coke oven light oil used in our production of pure benzene from external sources. Our trial production of pure benzene commenced on November 16, 2008 and during the nine months ended September 30, 2009, 6.2% of our revenue was generated by the sale of pure benzene and related products.

We currently produce pure benzene using the Crude Benzene Hydrorefining Device, which we believe we can operate efficiently with the crude benzene and hydrogen generated from our production of coke and methanol. We are also able to sell the by-products generated from this production process at attractive prices. During the nine months ended September 30, 2009, the average selling price of the pure benzene produced by us is HK$4,466 per tonne, while the average selling price of crude benzene used as our feedstock for producing pure benzene is HK$3,288 per tonne. Our pure benzene production facilities in Hebei are currently capable of producing 42,000 tonnes of pure benzene annually. In the fourth quarter of 2009, we upgraded our pure benzene production facility to increase its annual production capacity from 35,000 to 42,000 tonnes.

Our By-Products

We generate a number of by-products through our production processes for coke, methanol and pure benzene. The by-products that are internally re-used as feedstock for our other production processes consist of coking gas and crude benzene produced during our coke production process, and hydrogen produced during our methanol production process. The by-products that are sold externally consist of coal tar and ammonium sulfate produced during our coke production process, and pure toluene, pure xylene, non-aromatics and residue oil produced during our pure benzene production process. Before our pure benzene production commenced full operation, we also sold crude benzene externally.

By-products from our coke production process:

• Coal tar — Coal tar is used to produce carbon black, which can be mixed with rubber to manufacture tires and can also be used as a pigment or for conducting electricity. Coal tar is also used to extract bitumen, which is used in manufacturing battery electrodes and moisture barriers. Chemicals such as naphthalene, phenol, anthracene and phenanthrene can also be extracted from coal tar.

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BUSINESS

• Crude benzene — Crude benzene is used as feedstock to produce pure benzene, pure toluene, pure xylene and non-aromatics.

• Ammonium sulfate — Ammonium sulfate is usually mixed with phosphorus and potassium to produce fertilizers.

By-products from our pure benzene production process:

• Pure toluene — Pure toluene can be used in manufacturing sweeteners, drugs and dyes, and can also be used as a solvent.

• Pure xylene — Pure xylene is commonly used as an organic solvent and in manufacturing synthetic drugs, paints, resins, dyes, explosives and pesticides.

• Non-aromatics — Non-aromatics are used as a type of fuel.

• Residue oil — Various chemicals can be extracted from residue oil. Residue oil can also be used as a type of fuel.

OUR EXPANSION OPPORTUNITIES

We plan to expand our coke and methanol production capacities to capitalize on opportunities in App1A34(1)(c) the coke and methanol markets in China. We also strive to develop a vertically integrated operation for our coking business, with downstream and upstream assets, including acetic acid production facilities and coal mines. Specifically, we have the following expansion and acquisition opportunities that we may take up:

Expansion of Our Coke and Methanol Production Capacities

Our indirect wholly-owned subsidiary Fast Intellect (BVI) has received the First Additional Capacities Approvals for additional coke and methanol projects which must be implemented through specified PRC subsidiaries to be established. In addition, Fast Intellect (BVI) has previously received the Second Additional Capacities Approvals for other additional coke and methanol projects which must be implemented through specified PRC subsidiaries, namely, Zhongxin Huagong and Yingdu Qihua, being former PRC subsidiaries of Fast Intellect (BVI). Each set of the First Additional Capacities Approvals and the Second Additional Capacities Approvals has been issued by the Development and Reform Commission of Xingtai City to permit the recipients of such approvals to undertake coke and methanol projects with an annual capacity of up to 1,920,000 tonnes and 200,000 tonnes, respectively.

Under the Revitalization Rules promulgated by the General Office of the State Council in May 2009, approvals for coke projects intended solely for the expansion of production capacity shall be suspended for three years starting from 2009, and the construction of methanol projects shall also be strictly controlled until PRC laws and regulations provide otherwise. Our PRC legal advisors, Commerce & Finance Law Offices, have advised us that the Revitalization Rules do not provide for the exact expiry date of such three-year period. We intend to cause Fast Intellect (BVI) to apply to the

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BUSINESS relevant PRC government authorities to undertake the coke and methanol projects relating to the Second Additional capacities Approvals through two PRC subsidiaries that will be established by Fast Intellect (BVI). See “Risk Factors — We expect our results of operations and profitability to be driven principally by our future expansion, and recent changes in PRC laws impose limits on the expansion of coke and methanol production capacities”, “Risk Factors — We may be unable to obtain the approvals to undertake the coke and methanol projects relating to the Second Additional Capacities Approvals” and “Risk Factors — We may be unable to secure additional funding in the future to meet our capital expenditure requirements”.

Acetic Acid Plant Option

The Acetic Acid Plant commenced trial production in September 2009 and has a current annual production capacity of 400,000 tonnes. Acetic acid is a colorless corrosive liquid and is commonly produced synthetically by using methanol and coke as feedstock. The production process of acetic acid also requires consumables such as steam. Acetic acid is used mainly to produce other chemicals, including polyethylene terephthalate used in soft drink bottles, cellulose acetate used in photographic film, polyvinyl acetate for wood glue, as well as synthetic fibers and fabrics. Acetic acid can also be

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BUSINESS used to manufacture insecticides and pharmaceutical products. The Acetic Acid Plant is located adjacent to our production facilities, which allows our methanol, coke and steam to be utilized as feedstock with little transportation costs.

In addition, acquiring the Acetic Acid Plant from Kingboard will allow the carbon dioxide currently generated from the coke production system to be recycled for use in the acetic acid production process. This is expected to further reduce environmental pollution and lower our waste disposal costs. Pursuant to the Supply Agreement, Kingboard has agreed to cause a member of the Parent Group to purchase, in the future, any and all methanol produced by us, at prevailing market prices. It is expected that members of the Parent Group will use such methanol to produce acetic acid. There is no assurance that we will produce such (or any other) quantity of methanol in any given year for sale to Kingboard or any other member of the Parent Group. In addition, pursuant to the Supply Agreement, members of the Parent Group may purchase from us coke at prevailing market prices and steam at cost for use to produce acetic acid, although we will not be obligated to supply a minimum amount of coke and steam to such members and they will not be obligated to purchase any set quantity of coke and steam from us during the term of the Supply Agreement. See “Relationship with Kingboard — Details of Continuing Connected Transactions” for details.

Pursuant to the Acetic Acid Plant Option Agreement, we have been granted by Kingboard the Acetic Acid Plant Option, which entitles us to acquire the entire issued share capital of True Glory, the company that indirectly owns the Acetic Acid Plant. The purchase price payable by us for the Acetic Acid Plant will be determined by an independent valuer to be appointed jointly by us and Kingboard. Our INEDs will be responsible in evaluating whether to exercise the Acetic Acid Plant Option. See “Relationship with Kingboard — Acetic Acid Plant Option” and “Risk Factors — We expect our results of operations and profitability to be driven principally by our future expansion, and recent changes in PRC laws impose limits on the expansion of coke and methanol production capacities” and “Risk Factors — We may be unable to secure additional funding in the future to meet our capital expenditure requirements”.

Yuanda Coal Project

The Yuanda Coal Project is located less than 10 km from our production site. According to a report issued by a state-owned institute that collects, analyzes and assesses individual coal reserves data in Hebei province in August 2005, the Yuanda Coal Project is estimated to have a total combined resource and basic reserve (based on the Chinese Resource and Reserve Reporting Standards) of approximately 15 million tonnes. This report has been reviewed by Runge Asia, an independent technical consultant in the coal mining industry that we have engaged, and Runge Asia is of the opinion that the procedures carried out by this state-owned institute are reasonable for the purpose of ascertaining the total combined resource and basic reserve data (based on the Chinese Resource and Reserve Reporting Standards) contained in such report. In a letter dated September 3, 2009, the Neiqiu County Government has stated its intention to assist us in acquiring the Yuanda Coal Project. This letter is not binding and there is no assurance that we will successfully acquire the Yuanda Coal Project.

See “Risk Factors — We expect our results of operations and profitability to be driven principally by our future expansion, and recent changes in PRC laws impose limits on the expansion of coke and methanol production capacities” and “Risk Factors — We may be unable to secure additional funding in the future to meet our capital expenditure requirements” for more details.

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BUSINESS

PRODUCTION PROCESSES

Production Facilities

All of our production facilities are currently located at Kingboard Road, Neiqiu, Xingtai City, Hebei province, China, occupying a total site area of approximately 0.6 million square meters. The site photos of our production facilities are set out as follows:

Coke Production Facilities Methanol Production Facilities Pure Benzene Production Facilities

The table below sets out our production lines, their production commencement dates and the annual production capacities for our principal products.

Trial Production Formal Production Annual Production Capacity Production Line Commencement Date Commencement Date (tonnes)

Phase I coke...... November 2, 2004 November 16, 2006 1,000,000 Phase I methanol ...... September 20, 2005 November 25, 2006 100,000 Phase II coke...... June 18, 2008 November 27, 2009 960,000 Phase II methanol...... January 20, 2009 November 27, 2009 100,000 Pure benzene ...... November 16, 2008 November 27, 2009 42,000

Our PRC legal advisors, Commerce & Finance Law Offices, have confirmed that (i) pursuant to the relevant PRC laws and regulations and the requirements of the relevant PRC governmental authorities, we are required to conduct trial production prior to undertaking formal production, and (ii) in the case of our existing production facilities, trial production was a prerequisite to formal production. Commerce & Finance Law Offices have also confirmed that all of our operating subsidiaries possess all the necessary licenses, permits and certificates in respect of the business activities currently conducted by them and such activities are in compliance with the requirements of all applicable PRC laws and regulations in all material respects.

Sedin Engineering Company Limited developed the resource-recycling system we use for producing coke and methanol. According to Sedin Engineering Company Limited, we were one of the first five companies in the PRC to commercially operate this resource-recycling system at the large scale of 100,000 tonnes per annum per production facility. We also utilize the Crude Benzene Hydrorefining Device designed by Uhde GmbH to produce pure benzene. We use a modern production process to utilize the crude benzene generated from our coke production process, the hydrogen generated from our methanol production process, as well as externally procured crude benzene and

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BUSINESS coke oven light oil, as feedstock to produce pure benzene. Our phase I and phase II coke and methanol production facilities cost approximately RMB1.9 billion, and our Crude Benzene Hydrorefining Device cost approximately RMB200 million.

In building our coke and methanol production facilities, we obtained design blueprints from Sedin Engineering Company Limited. In selecting contractors for constructing the facilities, we also consulted with Sedin Engineering Company Limited, who gave their recommendations, assisted in supervising the construction process, provided instructions on how to operate the facilities and provided training to our staff. In building our pure benzene production facility, we obtained a non-exclusive license from Uhde GmbH to utilize their design and technology relating to, as well as blueprints for constructing, the Crude Benzene Hydrorefining Device. Uhde GmbH also assisted in our contractor selection process, assisted in supervising the construction process, provided instructions on how to operate the facility and provided training to our staff. Since completion of the construction of our production facilities, we have been able to operate and maintain our production facilities independently of Sedin Engineering Company Limited and Uhde GmbH. We do not engage in any significant research and development activities and rely on our accumulated experience to operate and maintain our production facilities.

Our coke production facilities consist principally of a coal pulverizer, a coal tower (which is used to feed mixed coal for coal stamping), a coking furnace and a coking gas purification system. Our methanol production facilities consist principally of a condensation tower, a deep desulfuration system, a conversion furnace, a synthesis and condensation system and a distillation system. Our pure benzene production facility consists principally of a hydrorefining unit, a predistillation unit, an extractive distillation device and a xylene distillation device.

Year ended December 31, Nine months ended September 30,

2006 2007 2008 2008 2009

Designed Designed Designed Designed Designed annual Production Utilization annual Production Utilization annual Production Utilization nine-month Production Utilization nine-month Production Utilization capacity volume rate(1) capacity volume rate(1) capacity volume rate(1) capacity volume rate(1) capacity volume rate(1)

(’000 (’000 (’000 (’000 (’000 (’000 (’000 (’000 (’000 (’000 tonnes) tonnes) (%) tonnes) tonnes) (%) tonnes) tonnes) (%) tonnes) tonnes) (%) tonnes) tonnes) (%)

Products Coke ...... 1,000.0 1,014.1 101.4 1,000.0 1,085.9 108.6 1,516.7(2) 1,280.3 84.4(2) 1,024.0(2) 1,023.9 100.0(2) 1,466.0 1,338.7 91.3 Methanol ...... 100.0 79.2 79.2 100.0 92.5 92.5 100.0 95.9 95.9 74.9 79.3 105.9 144.4(3) 127.3 88.2(3) Pure benzene ...... — — — — — — 4.4(4) 1.4 31.8(4) — — — 26.2 25.5 97.3

(1) Utilization rate is calculated as a percentage by dividing our production volume by the designed capacity during the relevant period. Designed capacity is determined on the basis of certain assumptions with respect to limitations in the production process. As we can operate our production facilities such that these limitations can sometimes be exceeded, our utilization rate may exceed 100% in respect of a particular period.

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BUSINESS

(2) Calculated based on the designed capacity of our phase I coke production for the entire period and the designed capacity of our phase II coke production for the period after trial production commenced on June 18, 2008.

(3) Calculated based on the designed capacity of our phase I methanol production for the entire period and the designed capacity of our phase II methanol production for the period after trial production commenced on January 20, 2009.

(4) Calculated based on the designed capacity of our pure benzene production for the period after trial production commenced on November 16, 2008.

Our production of coke primarily involves coal mixing and pulverizing, coking, extinguishing and drying of coke, and selection and grading by size. The crude coking gas produced in our coke production is then refined and removed of coal tar, ammonia, sulfur and crude benzene. Our production of methanol primarily involves the condensation, deep desulfuration and conversion of clean coking gas into synthesis gas, which is then passed through a synthesis and condensation tower and distilled to extract methanol. Our production of pure benzene primarily involves the hydrorefinement, predistillation and distillation of crude benzene, coke oven light oil and hydrogen. Details of the production processes of our products are set out below.

Our production process for coke

We produce coke by the heating of a mix of different types of coking coal, including 1/3 coking coal, fat coal, lean coal, main coking coal and gas coal. The different types of coking coal are mixed to produce the end coke product that fits the required specifications of each customer. Coal must meet a set of criteria for use as coking coal, determined by certain coal assay techniques. These include moisture content, ash content, volatile content, tar and plasticity.

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BUSINESS

During the coking process, volatile constituents of coking coal, including water, coking gas and coal tar, are driven off by baking coking coal in a furnace at a temperature of approximately 1,350˚C. The residual ash and fixed carbon are fused together during this process to form coke. Certain by-products are also generated during the coking process. See the flowchart below for a summary of our coke production process and details of the related by-products.

Coal Storage

Coal Mixing and Pulverization

Coal Tower

Coal Stamping

Coking Furnace

Coke Pushing Crude Carbon Coking Gas Dioxide

Electric Filter Coke Receiving Coal Tar

Extinguish and Dry Coke Desulfuration Sulfur

Removal of Ammonia with Sulfuric Acid Ammonium Categorization Sulfate of Coke

Removal of Crude Benzene Crude Benzene Delivery

Clean Coking Gas

Used as Feedstock for Methanol Production

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BUSINESS

Coking coal is first transported into our production facilities by truck and then unloaded into the coal mangers by our spiral unloading machine. Impellers beneath the mangers feed the coking coal to the coal yard via transport belts. Coking coal is then transported via transport belts to the mixing station, where an electronic automatic coal mixer distributes different quantities of different types of coking coal to the conveyer belts beneath the mixing station according to various ratios and contents of the coking coal. The different types of coking coal used as feedstock include 1/3 coking coal, fat coal, lean coal, main coking coal and gas coal. The coking coal mixture is pressed into brick form, and then sent to the furnace for heating. Afterwards, coke pushing cars push the hot coke to coke extinguishing cars, which transport the hot coke to cooling towers for water quenching and cooling. The coke is then left outdoor for drying, after which the dried coke is categorized by size. Typical sizes include coke of less than 10mm, 10mm-25mm, 25mm-40mm in diameter, and coke of larger than 40mm in diameter. Coke is then transported via conveyer belts to coke trucks for delivery to our customers or to our designated outdoor storage areas.

Crude coking gas is produced during the coking process as a by-product. It is pumped to a chemical processing container, condensed, removed of coal tar by an electric filter, desulfured, removed of ammonia with sulfuric acid and removed of crude benzene to produce clean coking gas. Historically, we have used approximately 50-60% of our clean coking gas to heat our coking furnace, and the remaining portion as feedstock for producing methanol. Carbon dioxide is also produced during the coking process as a by-product.

The overall production lead time for our coking process is approximately 24 hours. We take various precaution procedures in the coke production process, including sample-testing the quality of the coke produced, monitoring the temperature as well as the level of toxicity and combustible gas within our facilities.

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BUSINESS

Our production process for methanol

Our methanol is produced by converting clean coking gas, produced from the coke production process as a by-product, with steam and oxygen to produce hydrogen, carbon monoxide and carbon dioxide, which is then synthesized into crude methanol. The crude methanol is distilled into methanol which is then transported to methanol containers. A summary of the production process of methanol is set out in the following flowchart:

Clean Coking Gas

Coking Gas Container

Condensation

Deep Desulfuration

Air Separation Conversion Used as Feedstock Hydrogen for Pure Benzene Production

Condensation fuel

Synthesis

Used as Fuel for Discharge Gas Coking Furnace

Distillation

Pure Methanol

Methanol Containers

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BUSINESS

Clean coking gas produced from the coke production process is injected into a coking gas container for buffering, condensed in the coking gas condenser, goes through deep desulfuration in order to lower the organic sulfur content in the gas, and is then converted with steam and oxygen produced through air separation to produce a synthesis gas containing hydrogen, carbon monoxide and carbon dioxide, which is then synthesized in the presence of a catalyst into methanol gas and water. Unreacted synthesis gas is then condensed and undergoes the conversion and synthesis processes again to produce more methanol gas. The methanol gas is condensed to extract crude methanol which is then distilled to extract pure methanol. Pure methanol is then transported into containers for sale. Our methanol containers can hold up to 10,000 cubic meters of methanol and are placed in special designated outdoor areas at our site. We utilize the reaction heat generated from the conversion and synthesis process to produce steam and use our low temperature air separation device to produce oxygen, both of which are used in the conversion and distillation processes. We use the hydrogen produced during the methanol production process as feedstock for our pure benzene production. The discharge gas from the synthesis process is used as fuel, a portion of which is used to provide heat for the synthesis process and the rest is used by our coking furnace.

The overall production lead time for our methanol production process is approximately four hours. We take various precaution procedures in the methanol production process, including verifying that our equipment and valve doors are operational, checking our equipment and pipes for leakage, monitoring the temperature within our facilities and ensuring the stability and balance of the moisture level.

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BUSINESS

Our production process for pure benzene

We use the Crude Benzene Hydrorefining Device to produce pure benzene. During this process, a mixture of hydrocarbons from crude benzene/coke oven light oil is blended with hydrogen gas. The mixture is then exposed to a catalyst at a high temperature and is subject to high pressure. Under these conditions, aromatic hydrocarbons are formed, and are then separated by chemical solvents through distillation. Residue gas and liquid are processed and certain ingredients are retained for production use. A summary of our pure benzene production process is set out in the following flowchart:

Crude Benzene / Hydrogen Coke Oven Light Oil Gas

Hydrorefining Residue Oil Used as Fuel for Discharge Gas Coking Furnace

BTXS Raffinate

Predistillation

Xylene Extractive Distillation Distillation

Pure Xylene Residue Oil Pure Benzene Pure Toluene Non-aromatics

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BUSINESS

A mixture of crude benzene, coke oven light oil and hydrogen reacts under high heat and high pressure in the presence of a catalyst and is then removed of chemicals such as sulfur and nitrogen, resulting in BTXS raffinate. Through the predistillation system, the BTXS raffinate undergoes preliminary separation and is separated into the BT fraction and the XS fraction. The BT fraction is distilled by the extractive distillation process, resulting in non-aromatics and aromatics. The aromatics are then further separated to obtain pure benzene and pure toluene. The XS fraction is distilled by the xylene distillation process, with pure xylenes and residue oil being extracted. The discharge gas from the hydrorefining process is used as fuel to heat our coking furnace. Our pure benzene containers can hold up to 2,800 cubic meters of pure benzene and are placed in special designated outdoor areas at our site.

The overall production lead time for our pure benzene production process is approximately nine hours (on the basis that the process is being run for the first time, which requires a longer lead time as the system needs to heat up). Under normal production conditions, the overall production lead time is approximately five hours. We take various precaution procedures in the pure benzene production process, including testing the chemical properties of our feedstock, maintaining the stability and balance of temperature and pressure level within our facilities, and sample-checking to ensure the quality of our products.

RAW MATERIALS, INVENTORY, ENERGY AND WATER SUPPLY

Raw Materials

Coking coal is our principal raw material and accounts for the largest portion of our cost of goods sold. We currently source coking coal principally from Shanxi, Hebei, Jiangsu and Shandong provinces. The key raw material for the production of methanol is coking gas, which we produce in our coking furnace. Steam and oxygen required for the methanol production process are also produced in-house. The key raw materials for the production of pure benzene are crude benzene and coke oven light oil. A portion of the crude benzene we use is a by-product from our coke production process, and we purchase a portion of the crude benzene and all of the coke oven light oil used from external sources. Our pure benzene production process also utilizes hydrogen gas as feedstock, which is produced from our methanol production process as a by-product. During the three years ended December 31, 2008 and the nine months ended September 30, 2009, we were not dependent on any single supplier and did not experience any shortage of supplies.

During 2006, 2007 and 2008 and the nine months ended September 30, 2009, our purchases of App1A28(1)(b)(ii) supplies from our five largest suppliers constituted approximately 68.2%, 71.0%, 70.3% and 62.4%, respectively, of our total purchases for the relevant periods. During the same periods, our purchases of supplies from our single largest supplier constituted approximately 21.1%, 17.5%, 25.7% and App1A28(1)(b)(i) 28.6%, respectively, of our total purchases for the relevant periods. A number of our coking coal suppliers have their own coal mines; others are coal washing companies, who wash and then sell coking coal obtained from third party coal mines, and coal trading companies, who purchase washed coal from third party suppliers and resell them to us. As of September 30, 2009, we had maintained relationships with three out of the five of our top suppliers (based on purchased orders for the nine months ended September 30, 2009) for an average of approximately four to five years, and had maintained relationships with the remaining two for an average of approximately one to two years. To

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BUSINESS our knowledge, (i) all of our suppliers with their own coal mines possess the proper ownership and mining licenses and (ii) none of our coking coal suppliers imported coking coal from outside of China during the three years ended December 31, 2008 and the nine months ended September 30, 2009.

The table below sets forth details of our key suppliers during 2006, 2007, 2008 and the nine months ended September 30, 2009 based on information provided by the relevant suppliers to us (unless otherwise indicated).

Relationship of Raw Coking Supplier with Coal Production Owner of Coal Mine from Volume of which the Supplier Location of Ownership of Coal Mine Supplier Sourced Coking Coal Coal Mine Coal Mine (million tonnes)

2006 1 Independent Shanxi Privately-owned N/A(1) 2 Independent Shanxi State-owned 22 3 Affiliate Shanxi State-owned 70(2) 4 Independent Hebei Privately-owned N/A(1) 5 Affiliate Hebei State-owned 9 2007 1 Independent Shanxi State-owned 25 2 Affiliate Shanxi State-owned 73(2) 3 Affiliate Hebei State-owned 10 4 Independent Hebei Privately-owned N/A(1) 5 Independent Shanxi Privately-owned N/A(1) 2008 1 Affiliate Hebei State-owned 11 2 Independent Shanxi State-owned 26 3 Affiliate Shanxi State-owned 80 4 Independent Hebei Privately-owned N/A(1) 5 Independent Hebei Privately-owned N/A(1) For the Nine Months ended September 30, 2009 1 Independent Shanxi State-owned 29 2 Affiliate Hebei State-owned 50 3 Affiliate Hebei State-owned 17 4 Affiliate Jiangsu State-owned 14 5 Independent Hebei State-owned 21

Notes:

(1) This figure is not available as the relevant supplier sourced coking coal from a number of mines.

(2) The source of this figure is Fenwei.

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BUSINESS

According to our key suppliers for the nine months ended September 30, 2009, the respective mines from which they sourced coking coal (i) had coking coal reserves (based on the Chinese Resource and Reserve Reporting Standards) of approximately 31 billion tonnes, 15 billion tonnes, 2 billion tonnes, 280 million tonnes and 8 billion tonnes as of September 30, 2009, respectively, and (ii) were ranked among the top five mines in terms of raw coking coal production volume for the nine months ended September 30, 2009 in the respective provinces in which the coal mines were located.

We select coking coal suppliers based on a number of factors including their operating history, source of coking coal, location, production volume, reputation, whether we have an existing relationship with them and our prior experience dealing with them. We did not experience any material disruption in our coking coal supply during the three years ended December 31, 2008 and the nine months ended September 30, 2009, and based on the coking coal production volumes and reserves of the coal mines from which our suppliers source coking coal and the total coking coal supply and reserves in provinces near Hebei, our Directors believe that we will be able to obtain an adequate supply of coking coal for our production needs going forward. See “Industry Overview — Coking Coal Industry” for details on the supply and reserves of coking coal in China.

We purchase raw materials from suppliers based on purchase orders that we issue to them from time to time. We have not entered into any long-term contract with our coking coal suppliers except that with our largest coking coal supplier as well as some key coking coal suppliers, we have entered into annual strategic cooperation agreements covering the general terms of our cooperation. Specifically, these agreements provide, among other things, that the relevant supplier shall sell, and we shall purchase, on a priority basis, coking coal of a certain quantity per year or such other quantity as shall be mutually agreed from time to time, at a price that does not exceed that provided by the relevant supplier to any of its other customers and on terms that are no less favorable to us than those provided by the relevant supplier to any of its other customers. The relevant supplier is not obliged to supply to us, and we are not obliged to purchase from the relevant supplier, any fixed or minimum amount of coking coal.

We issue purchase orders to our suppliers generally on a monthly basis. Payments for our purchases are made in RMB. We are generally required by our state-owned coking coal suppliers to settle invoiced amounts before delivery can be made. In respect of privately-owned coking coal suppliers, payment terms are subject to negotiation, but we typically pay a deposit of the total purchase price prior to delivery, with the remaining balance settled upon delivery. These arrangements with respect to the purchase of coking coal do not apply in the case of a few coking coal suppliers that we have strong and long-standing relationships with. In the case of these suppliers, we are usually offered a credit period of three to four weeks before we have to settle our purchases. For the nine months ended September 30, 2009, we purchased approximately 29% of our coking coal from state-owned coking coal suppliers, and approximately 71% of our coking coal from privately-owned coking coal suppliers, in terms of the total value of our coking coal purchases.

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BUSINESS

Inventory

Occasionally, we purchase raw materials based on our customers’ rolling forecasts. However, we usually retain on average 18 to 21 days of coking coal supply at our site as back-up inventory to satisfy our production requirements. We are exposed to the market risks associated with fluctuations in coking coal prices. As such, we may increase or decrease our coking coal purchase in anticipation of the changes in coking coal prices. During the three years ended December 31, 2008 and the nine months ended September 30, 2009, we did not experience any material shortage of raw materials.

Our inventory principally comprises coking coal, chemical catalysts and spare parts for our equipments. We have designated outdoor areas for storing our coking coal prior to use and our coke before they are delivered. We seek to manage our inventory levels proactively. Our quality control department inspects inventory quality and we keep daily inventory records and carry out a full inventory count every month. Our inventory also comprises our finished products. During 2006, 2007 and 2008 and the nine months ended September 30, 2009, our finished products were kept at our storage areas for an average of 0.4 days, 0.5 days, 1.4 days and 1.5 days, respectively, prior to delivery to our customers.

Energy

We utilize electricity in our operations as many of the equipment used in our production processes are powered by electricity. During the three years ended December 31, 2008 and the nine months ended September 30, 2009, we obtained the majority of our electricity from the power grid operated by the government. Electricity prices purchased from the power grid in the PRC are under government control. We also have a power generator of 150kwh, which is able to supply up to approximately one-quarter of our electricity needs and which we use to supplement the electricity obtained from the power grid operated by the government. We have not experienced any material disruption in electricity supply during the three years ended December 31, 2008 and the nine months ended September 30, 2009. For the years ended December 31, 2006, 2007 and 2008 and the nine months ended September 30, 2009, our average electricity consumption was approximately 10.3 million kwh, 10.8 million kwh, 12.9 million kwh and 19.9 million kwh per calendar month. See “Risk Factors — Our business operations may be adversely affected by unexpected business interruptions” for more details.

Water Supply

All of the water we use in our operations are pumped from underground, processed and filtered by us on site using our own water processing facility.

We have not experienced any material disruption in water supply during the three years ended December 31, 2008 and the nine months ended September 30, 2009.

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BUSINESS

QUALITY ASSURANCE

We focus on quality and reliability of our coke, methanol and pure benzene. We establish quality assurance standards for individual customers and evaluate such standards on a continuous basis. We have established various quality control checkpoints at important stages of our production process to closely monitor the quality of our production and to ensure that our products meet all our internal benchmarks and customers’ specifications.

To meet the specifications of our customers, we evaluate our suppliers on a bi-annual basis based on factors including their operating history, source of coking coal, location, production volume, and our prior experience dealing with them. We purchase raw materials only from suppliers on our approved vendor list, and only those suppliers that pass our assessment are admitted to our list. Raw materials, including different types of coking coal, are tested for their chemical qualities and specifications when they arrive at our production facilities. We select random samples from each procurement of coking coal for testing, and if such sampled coking coal does not meet our standards, we will either return the entire procurement (in the case of coking coal that falls substantially below our standards) or negotiate with the seller for an appropriate reduction in price (in the case of a minor deviation from our standards). We will also make adjustments in our production process, for example, in the coking coal mixing process during the production of coke, to ensure the end product meets the specifications of our customers.

During 2006, 2007 and 2008 and the nine months ended September 30, 2009, we have had to reject and return coking coal procurement representing 0.4%, 0.1%, 0.1% and 0.1%, respectively, in terms of volume of our total coking coal procurement for the relevant periods. We have, on no more than two or three occasions each year during the three years ended December 31, 2008 and the nine months ended September 30, 2009, identified substantial defects in the coking coal supplied by our suppliers. On those occasions, there were no material delays in delivering our products to our customers and we did not suffer any financial loss as a result of the defective raw materials due to the coking coal reserve that we maintained.

We are subject to, among other PRC laws and regulations, the Product Quality Law of the PRC and the Regulations on Quality Responsibility for Industrial Products. Under the Product Quality Law, industrial products are required to conform to existing national and industry standards for ensuring the safety and physical well-being of humans as well as product safety. Failure to comply with such standards may result in the revocation of the business licenses of the manufacturer and seller of the non-conforming products, the issuance of government orders to cease production, the confiscation of such products, the levy of penalties up to a maximum amount equal to three times the value of such products, and the confiscation of proceeds generated from the sale of such products. Since our establishment, we have not been subject to any contractual damages for defective products. We have also been in compliance with all applicable laws and regulations regarding product quality in all material respects.

We have received an ISO9001:2000 certification in respect of our production and sales quality management at all of our production facilities. The certificate is valid from May 24, 2009 to November 14, 2010. Our quality control procedures have not failed to detect any coking coal of inferior quality during the three years ended December 31, 2008 and the nine months ended September 30, 2009.

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BUSINESS

However, in 2005, seven of our employees were involved in receiving bribes to facilitate the sale of inferior coking coal to us, which our quality assurance system had failed to detect until after such coking coal had been used in our production process. See “Business — Employees” below and “Risk Factors — Our reputation, business and results of operations may suffer harm if coking coal supplied to us does not meet our specifications” for more information relating to this incident.

CUSTOMERS

Our key customers are steel manufacturers for coke, and chemical companies for methanol, pure benzene and our other chemical products. The principal markets for our products, based on the destinations to which our products are delivered, are steel manufacturers in Hebei and chemical companies in Hebei and Shandong. During the three years ended December 31, 2008 and the nine months ended September 30, 2009, we did not depend on any one single customer for our products.

During the three years ended December 31, 2008 and the nine months ended September 30, 2009, we sold our coke, methanol, pure benzene and related products locally to third party purchasers and members of the Kingboard Group. Pursuant to the Supply Agreement we entered into with Kingboard on [●], 2009, Kingboard has agreed to cause a member of the Parent Group to purchase in the future any and all methanol produced by us, at prevailing market prices. There is no assurance that we will produce such (or any other) quantity of methanol in any given year for sale to Kingboard or any other member of the Parent Group. In addition, pursuant to the Supply Agreement, members of the Parent Group may purchase from us coke at prevailing market prices and steam at cost for use to produce acetic acid, although we will not be obligated to supply a minimum amount of coke and steam to such members and they will not be obligated to purchase any set quantity of coke and steam from us during the term of the Supply Agreement. See “Relationship with Kingboard — Details of Continuing Connected Transactions” for details.

During 2006, 2007 and 2008 and the nine months ended September 30, 2009, our five largest App1A28(1)(b)(iv) customers together accounted for 67.7%, 65.6%, 51.6% and 60.7%, respectively, of our revenue. None of our directors, their associates nor any of our shareholders (which to the knowledge of our Directors, App1A28(1)(b)(v) beneficially own more than 5% of our issued share capital) had any interest in any of our five largest customers during 2006, 2007 and 2008 and for the nine months ended September 30, 2009. During 2006, 2007, 2008 and the nine months ended September 30, 2009, our sales to our single largest App1A28(1)(b)(iii) customer constituted approximately 25.1%, 20.2%, 14.8% and 17.7%, respectively, and sales to the Parent Group constituted approximately 2.5%, 4.0%, 1.3% and 0.3%, respectively, of our total sales for the relevant periods. See “Relationship with Kingboard — Details of Continuing Connected Transactions” for details regarding sales to the Parent Group.

SALES, MARKETING AND PRICING

Sales and Marketing

We have entered into annual strategic cooperation agreements with some of our key coke customers covering the general terms of our cooperation. Specifically, these agreements provide, among other things, that we shall sell, and the relevant customer shall purchase, on a priority basis, coke of a certain quantity per year or such other quantity as shall be mutually agreed from time to

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BUSINESS time, at a price that does not exceed that provided by us to any of our other customers and on terms that are no less favorable to the relevant customer than those provided by us to any of our other customers. The relevant customer is not obliged to purchase from us, and we are not obliged to supply to the relevant customer, any fixed or minimum amount of coke.

Our key customers typically provide us on a regular basis with informal periodic non-binding indications of the quantities of each product they expect to order. Our sales are conducted on the basis of weekly or monthly purchase orders we receive from time to time, which set out the specific terms for a particular sale. Typically, when our customers wish to place a new order, the selection of their supplier will be based on principal competitive factors such as proximity, stability, quality and cost. We generally invoice our customers upon delivery for coke and upon pick-up for methanol and pure benzene and our invoices are payable upon presentation. We generally require our customers to settle their purchases upon delivery, but for those customers that have long-standing relationships with us we have generally allowed them to settle their purchases within 15 to 30 days of delivery. In exceptional circumstances, we may allow our customers to settle their purchases up to 90 days following delivery. During the three years ended December 31, 2008 and the nine months ended September 30, 2009, we did not offer any of our customers a credit period in excess of 30 days.

We believe that we have historically experienced a relatively low return rate for our products as a result of our quality control assurance systems. During 2006, 2007 and 2008 and the nine months ended September 30, 2009, the aggregate value of our products returned by our customers constituted 0.07%, 0.02%, 0.07% and 0.05%, respectively, of the total revenue for the relevant periods.

We have two sales and marketing teams in Hebei responsible for coke and coke-related chemical products respectively. The team responsible for coke consisted of 13 employees as at the Latest Practicable Date, and the team responsible for coke-related chemical products consists of three employees as of the Latest Practicable Date. We market our products primarily through direct contacts with potential customers and participation in large-scale trade conferences. We conduct our sales and marketing efforts through our sales and marketing teams and maintain close relationships with our key customers. Our sales and marketing teams also work to identify business and market opportunities, engage in business networking, organize logistics, deepen relationships with our existing customers and cultivate relationships with potential customers. We identify and target steel manufacturers and chemical companies which are within close proximity to us, and with whom we believe we can develop long-term relationships. We intend to concentrate our sales efforts on increasing sales to our existing customers, as well as targeting new customers in Hebei province that are growing in their production capacity for steel and chemical products. We believe that the close contact between our staff and our customers further strengthens our relationships with our customers.

Pricing

We price our products according to the prevailing market prices, which are primarily driven by supply and demand, by raw material costs and (in respect of coke only) the transportation costs for delivery. The specifications of our products affect our pricing as well, as products of higher quality can generally be sold for higher prices. Key qualities of coke that can increase our selling price include lower ash content, lower sulfur content, higher mechanical strength and higher fixed carbon content, and purity is the key specification for methanol and pure benzene.

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BUSINESS

Our relationship with a particular customer may also affect our pricing, as we offer favorable terms to some strategic customers with long standing relationships. We have entered into annual strategic cooperation agreements with some of our key coke customers covering the general terms of our cooperation. Specifically, these agreements provide, among other things, that we shall sell, and the relevant customer shall purchase, on a priority basis, coke of a certain quantity per year or such other quantity as shall be mutually agreed from time to time, at a price that does not exceed that provided by us to any of our other customers and on terms that are no less favorable to the relevant customer than those provided by us to any of our other customers.

TRANSPORTATION

Coking Coal

We purchase our coking coal from both state-owned coking coal suppliers and privately-owned coking coal suppliers. For 2006, 2007, 2008 and the nine months ended September 30, 2009, we purchased approximately 9%, 32%, 37% and 29% of our coking coal from state-owned coking coal suppliers, and approximately 91%, 68%, 63% and 71% of our coking coal from privately-owned coking coal suppliers, respectively, in terms of the total value of our coking coal purchases. We are generally responsible for the transportation of coking coal from state-owned coking coal suppliers to our production facilities. The prices that privately-owned coking coal suppliers quote us generally include transportation of the coking coal from their sites to our production facilities. Our coking coal is transported through trucks.

We do not own or operate any truck, and we rely on third party transportation companies to transport our coking coal from our suppliers to our production facilities. We have entered into transportation agreements with these transportation companies which set out the fees payable by us as well as other major terms and conditions of the transportation arrangements. Specifically, the transportation companies are responsible for loading and unloading the coking coal onto and from their trucks, maintaining the quality and quantity of the coking coal during transportation, for any accidents or other incidents arising in relation to the transport trucks or drivers, for any loss of, or damage to, the coking coal while being delivered, and following the transportation route designated by us. During the three years ended December 31, 2008 and the nine months ended September 30, 2009, we did not have any incidents involving significant losses of coking coal through transportation or material delays in delivery of coking coal to our production facilities.

Coke

The price we quote generally includes the cost of transporting the coke from our production facilities to the customers’ sites or designated drop-off points. As is the norm in our industry, coke is transported through trucks for short distance deliveries, which cover all of our sales. We do not own or operate any truck, and we rely on a third party transportation company to transport our coke products to our customers. We have entered into a transportation agreement with this transportation company, which sets out the fees payable by us as well as other major terms and conditions of the transportation arrangement. Specifically, the transportation company is responsible for obtaining a signed receipt after each delivery, for any accidents or other incidents arising in relation to the transport trucks or drivers, for all toll fees payable during delivery, for any loss of, or damage to, the

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BUSINESS goods while being delivered, and for ensuring that there is no change to the quality and quantity of our coke during transport. During the three years ended December 31, 2008 and the nine months ended September 30, 2009, we did not have any incidents involving significant losses of coke through transportation or material delays in delivery our coke products.

Methanol and Pure Benzene

We generally require our customers to take delivery of our methanol and pure benzene at our facilities, and our methanol and pure benzene are priced accordingly. Our customers would use their own delivery trucks or hire third party transportation companies to transport the methanol and pure benzene to their sites. Our customers bear the risk of loss for the products once they are delivered to the trucks at our facilities.

LAND AND BUILDINGS

Land

Our production facilities are located in Xingtai, Hebei province, China. We own the production facilities in Xingtai and hold valid land use rights for these facilities. As at the Latest Practicable Date, we held three parcels of granted land with a total site area of approximately 0.6 million square meters land use rights certificates. Our PRC legal advisors, Commerce & Finance Law Offices, have confirmed that the use of our land does not contravene the use specified in the land use rights certificates. The location of our production facilities allows us to have access to relatively low-cost labor in China, while maintaining close proximity to our coking coal suppliers and our customers.

Buildings

As at the Latest Practicable Date, we owned various buildings and structures with a total gross floor area of approximately 90,426 square meters. All of them are located in Xingtai at our site and they are mainly used as offices, production facilities, dormitories, storage buildings and ancillary facilities. We have been issued all requisite building ownership rights certificates with respect to our buildings and structures. Our use of our buildings and structures does not contravene the use specified in the building ownership rights certificates with respect to our buildings and structures.

Property Valuation

B.I. Appraisals Limited, an independent property valuation firm, has valued our property App1A9 interests as at October 31, 2009. The text of B.I. Appraisals Limited’s letter and summary of valuation, together with the valuation certificates, are set out in Appendix IV to this document.

COMPETITION

We face competition from other companies in Hebei and nearby provinces that produce coke, methanol and pure benzene. We compete on product quality, stability, reliability, production volume and, to a lesser extent, pricing. We generally do not compete with coke producers outside Hebei or methanol and pure benzene producers located outside of an approximately 300 kilometers radius from

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BUSINESS our production facilities at Xingtai, as the high costs associated with the transportation of our products can be a significant deterrent to our customers’ decision to purchase from producers that are not located within close proximity to them.

According to China Investment Consultant, as of the end of 2008, there were more than 900 coke producers in China, with a total annual production capacity of approximately 380 million tonnes. There are a large number of small-scale coke manufacturers in Hebei but we believe that we face limited competition from them, as they are generally unable to produce the volume our customers require and do not have our reputation as to product quality, stability and reliability. According to the four Lists of Enterprises Qualified for Coking Industry Access and the Provisional List of Enterprises Qualified for Coking Industry Access issued by the National Development and Reform Commission and the Ministry of Industry and Information Technology on December 9, 2005, November 22, 2006, December 17, 2007, March 3, 2009 and August 20, 2009, respectively, more than 30 enterprises have been qualified to engage in coke production in Hebei, among which we believe more than 20 are not engaged in steel production as of the date of this document. We believe we are one of the few coke producers in Hebei that do not engage in steel production and have an annual production capacity of more than 1.9 million tonnes. For the nine months ended September 30, 2009, our market share of the Hebei coke market was 4% (calculated by dividing our coke production volume during that period by the total coke production volume in Hebei during that period according to the China Coking Industry Association).

We face competition in the coke and pure benzene sectors from a number of other coke producers. We generate crude benzene from our coke production process, which, together with other internally generated and externally procured feedstock, is then processed into pure benzene by us. Using data reported by the Hebei Coke & Chemical Industry Association in September 2009, we believe our crude benzene yield rate (calculated as crude benzene production volume divided by coke production volume) is one of the highest among coke producers in Hebei. Not every coke producer in Hebei has the required capital investment and expertise to process the crude benzene into pure benzene, although there are a few companies in Hebei that are producing both coke and pure benzene as at the Latest Practicable Date. We understand that a good reputation is important for us to remain competitive, so we strive to maintain a high level of customer satisfaction by undergoing periodic business reviews with our key customers based on these factors, which we believe enable us to compete qualitatively with our competitors.

Pursuant to the Supply Agreement we entered into with Kingboard on [●], 2009, Kingboard has agreed to cause a member of the Parent Group to purchase, in the future, any and all methanol produced by us, at prevailing market prices. In addition, pursuant to the Supply Agreement, members of the Parent Group may purchase from us coke at prevailing market prices and steam at cost for use to produce acetic acid, although we will not be obligated to supply a minimum amount of coke and steam to such members and they will not be obligated to purchase any set quantity of coke and steam from us during the term of the Supply Agreement. See “Relationship with Kingboard — Details of Continuing Connected Transactions” for details. It is anticipated that the Acetic Acid Plant will require approximately 108,000 tonnes of coke, 216,000 tonnes of methanol and 768,000 tonnes of steam per year upon commencement of full commercial operation. Our future coke, methanol and steam production levels will be affected by commercial considerations and other factors and there is

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BUSINESS no assurance that we will produce such (or any other) quantities of coke, methanol or steam in any given year for sale to Kingboard or any other member of the Parent Group. We also cannot make any assurance regarding the future production level of the Acetic Acid Plant.

The Supply Agreement is renewable every three years at the option of our Company and as the underlying transaction is a connected transaction for us, the transaction contemplated thereunder is subject to the approval of our independent shareholders. As such, there is no assurance that the Supply Agreement will be renewed in the future and we expect to sell our methanol to third party purchasers and face competition in this regard if we do not sell all our methanol products to Kingboard in the future. For details, see “Risk Factors — We depend on a small number of customers for a substantial portion of our sales and any significant reductions in purchases may materially and adversely affect our business, financial condition and results of operations.”

We believe our competitive strengths have enabled us to outperform our competitors. For details, see “Our Competitive Strengths”. In addition, as part of our strategies, we plan to expand our coke and methanol production capacities to capitalize on opportunities in the coke and methanol markets in China. We also strive to develop a vertically integrated business model to enhance and diversify our access to coking coal supply and further diversify and expand our production capacity of downstream products to enhance our profitability and earnings stability. The Neiqiu County government has agreed in principle to assist us in acquiring the Yuanda Coal Project located less than 10 km from our production facilities. This agreement is not binding and there is no assurance that we will successfully acquire the Yuanda Coal Project. Successfully acquiring the Yuanda Coal Project may help us ensure long-term supply of coking coal as well as hedge against coking coal price, which represents a primary component of our raw material procurement costs. We also hold an option to acquire Kingboard’s interests in True Glory, which indirectly owns the Acetic Acid Plant located adjacent to our production facilities. If we exercise this option, the Acetic Acid Plant may provide us with growth opportunities to further diversify and expand our production capacity of downstream products and to support our growth and improve our profitability. There is no assurance that we will exercise the Acetic Acid Plant Option and, even if we do, there is no assurance that we can achieve the synergies and benefits expected from the acquisition.

INTELLECTUAL PROPERTY

As at the Latest Practicable Date, we did not own any intellectual property rights other than the App1A28(4) license granted by Kingboard to use the trademarks owned by Kingboard, including the “Kingboard” registered trademark, and the license granted by Uhde GmbH to use the know-how and patents relating to the Crude Benzene Hydrorefining Device. Details of our intellectual property rights are set out in the section headed “Statutory and General Information — Further Information about the Company — Our Intellectual Property Rights” in Appendix VI to this document.

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BUSINESS

REGULATORY COMPLIANCE

All of our operating subsidiaries conduct business operations in China. Our PRC legal advisors, Commerce & Finance Law Offices, have confirmed that our operating subsidiaries possess all the necessary licenses, permits and certificates in respect of the business activities currently conducted by them and such activities are in compliance with the requirements of all applicable PRC laws and regulations in all material respects.

It is our policy that we will not engage in any business activities without first obtaining all the necessary approvals, licenses, permits and certificates in the future, including production license for industrial products, safe production permits, land use right certificates and building ownership certificates.

We were fined RMB30,000 by the Xingtai Quality and Technology Supervision Bureau (邢台市質量技術監督局) in 2007, as a result of our failure to apply for the requisite production licenses for industrial products in a timely manner. This failure was due to an oversight by our employees. We have subsequently obtained the requisite licenses in July 2007. According to two confirmation letters issued by the Xingtai Quality and Technology Supervision Bureau, no further penalty will be imposed on us in this regard.

We were late in carrying out our employees’ medical and maternity insurance registration and we did not make contributions in relation to our employees’ medical and maternity insurance until September 1, 2009. The late payment was caused by an oversight of our employees. The Personnel and Social Insurance Authority of Neiqiu Country (內邱縣人事勞動和社會保障局) confirmed that we will not be penalized for our failure to make contributions in relation to the medical insurance and maternity insurance prior to September 1, 2009 and we will not be required to make retrospective contributions of the medical insurance and maternity insurance with respect to the period prior to September 1, 2009.

We were late in carrying out our housing fund registration and we did not make the required contribution for the national housing fund until January 1, 2009. The late payment was caused by an oversight of our employees. The Xingtai Housing Fund Administration Center Neiqiu Branch (邢台市住房公積金管理中心內邱縣管理部) confirmed that we will not be penalized in this regard and we will not be compulsorily required to make retrospective housing fund contributions with respect to the period prior to January 1, 2009.

In an attempt to improve our regulatory compliance record and to minimize the likelihood of non-compliance with laws, we now hold periodic training sessions for the relevant employees on regulatory compliance requirements.

ENVIRONMENTAL PROTECTION

We are subject to PRC environmental protection laws and regulations which currently impose fees for the discharge of waste substances, require the payment of fines for serious pollution and provide for the discretion of the PRC government to close any facility which fails to comply with orders requiring it to cease or cure operations causing environmental damage. Our facilities are in

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BUSINESS compliance with the requirements of the relevant environmental protection laws and regulations in all material respects. We have not been subject to any penalties for breach of environmental laws or regulations. We did not apply for the requisite radiation safety licenses for our production processes in a timely manner. We have subsequently obtained the requisite licenses on May 31, 2009. According to a confirmation letter issued by the Xingtai Environmental Protection Bureau (邢台市環境保護局), no penalty will be imposed on us in this regard. We have not been presented with any specific demands or requirements by our customers in complying with relevant environmental protection rules in the areas in which they operate. We have an environmental team responsible for ensuring that all of our operations are in compliance with applicable environmental laws and regulations. As of September 30, 2009, this team comprised 14 employees.

Our production processes generate solid waste, liquid waste, waste water, gas and other industrial waste at various stages of the manufacturing process. We take steps to ensure that industrial wastes and by-products generated as a result of our operations are properly disposed of in order to reduce adverse effects to the environment. PRC laws and regulations require us to conduct an environmental impact assessment for each of our production projects and submit an environmental impact assessment report to the competent authority for approval before commencement of the construction of such production project. We have engaged professional institutions, which are Independent Third Parties holding qualification certificates issued by the administrative department of the State Counsel responsible for environmental protection, to prepare the environmental impact assessment reports for all of our existing production projects, and we have obtained the approvals in connection with such environmental impact assessment reports from the Xingtai Environmental Production Bureau or the Hebei Environmental Production Bureau before commencement of the construction of our production projects and systems for preventing and controlling pollution have been designed, built and put into operation together with the main operating components of our production facilities. We are not required by PRC laws and regulations to conduct environmental feasibility studies after project construction has been completed, and are required to conduct environmental impact assessments after project construction has been completed only if the construction or operation of the project is inconsistent with the relevant approved environmental impact assessment report. The local administrative department of environmental protection also conducts quarterly environmental monitoring of our production facilities.

We have installed a number of equipment in our facilities, including waste water monitoring devices and secured storage for waste products, to prevent, reduce or treat the waste generated from our production process. In addition, we have the following systems in place to address fundamental environmental management requirements: (i) an environmental protection inspection system; (ii) periodic checks of safety and environmental protection; and (iii) management controls for handling, storage and use of hazardous materials. We undertake routine and periodic inspections of our production facilities to ensure compliance with all applicable environmental requirements.

We have adopted a number of environmentally responsible practices in our operations in an attempt to reduce the impact of our operations on the environment. We use our coking gas produced from our coke production process as feedstock to produce methanol and also to fuel the coking furnace at our coking plant. We use crude benzene produced during our coke production process and hydrogen produced during our methanol production process as feedstock to produce pure benzene. We will continue to explore opportunities to further resource optimization and efficiency.

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BUSINESS

Our environmental protection expenditures have been primarily associated with installation of SC2.9 environmental protection facilities in our manufacturing site to comply with environmental protection laws and regulations and to upgrade our environmental protection systems. For 2006, 2007, 2008, and the nine months ended September 30, 2009, such expenditures amounted to RMB20.4 million, RMB46.0 million, RMB36.6 million and RMB63.8 million, respectively. Based on the information currently available to us, we expect our environmental protection expenditures for 2009 and 2010 will be RMB63.8 million and RMB39.0 million, respectively.

If our facilities are found to have engaged in activities that severely polluted or endangered the environment, the relevant authorities may impose penalties on us, as well as require us to restore the environment or remedy the effects of the pollution. Any failure to so restore or remedy within the prescribed time may result in our facilities being ordered to suspend operations or close down.

OCCUPATIONAL HEALTH AND SAFETY

With respect to matters relating to occupational health and safety, we are subject to, among other PRC laws and regulations, the Production Safety Law of the PRC, the Labor Law of the PRC and the PRC Law on the Prevention and Treatment of Occupational Diseases. We regard occupational health and safety as one of our most important responsibilities and have implemented a number of measures to ensure compliance with the stringent regulatory requirements. During the three years ended December 31, 2008 and the nine months ended September 30, 2009, there were six minor injuries and no fatality suffered by our employees at our production facilities. We did not have any accidents at our production facilities during the three years ended December 31, 2008 and the nine months ended September 30, 2009 other than the explosion at our phase II methanol production facility that happened in September 2008 while such facility was under construction.

We have implemented various measures at our production facilities to promote occupational safety and to ensure compliance with applicable laws and regulations. For example, we conduct periodic inspections of our production facilities to ensure that all parts of our operations are in compliance with existing laws and regulations. As we believe that following safe practices is the best way to ensure employee safety, our safety supervision personnel also conduct regular training sessions for employees on accident prevention and management. We confirm that our operations were in compliance with the applicable safety regulations in all material respects as of the Latest Practicable Date.

We were fined RMB100,000 by the Neiqiu County Administration of Work Safety (內邱縣安全生產監督管理局) in 2008, as a result of an explosion at our phase II methanol production facility that happened on September 25, 2008 while such facility was under construction. The relevant site was under the supervision and control of an independent contractor that we had hired to construct the facility. According to a letter issued by the Neiqiu County Administration of Work Safety, the explosion was caused by an employee of the contractor igniting a flame without following the relevant safety procedures at that stage of construction of our phase II methanol production facility. The explosion caused one death, two serious injuries and 16 minor injuries. All of the affected persons were employees of the contractor (other than six of the persons that suffered minor injuries, which were our employees). We were not required to pay any compensation in respect of the death and injuries. All of our employees that suffered minor injuries were compensated through their injury

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BUSINESS insurances maintained by us. After the explosion occurred, we adopted the following measures to prevent similar accidents from occurring again: (a) implementing stricter control procedures at our construction sites to avoid unrelated persons’ entry into such sites; (b) conducting regular meetings with our contractors to enhance the safety control of their personnel; and (c) conducting regular joint inspections at our construction sites with our contractors. For further details, see “Risk Factors — Failure to comply with coke and chemical industry, safety and environmental regulations could harm our business”.

We provide various healthcare benefits to our full-time employees in accordance with applicable laws and regulations.

INSURANCE

We maintain insurances for our employees, such as pension insurance, medical insurance (including basic medical insurance and serious illness medical insurance), injury insurance, maternity insurance and unemployment insurance, in accordance with applicable PRC laws and regulations in all material respects.

We also maintain insurance policies for our production facilities. These policies cover losses arising from fire, earthquakes and other calamities in respect of buildings, machinery, equipment and automobiles. We also insure our products against the risks of loss or damage during domestic transport (including when our products are being transported by third party transportation companies). We intend to maintain directors’ and officers’ liability insurance in the future. Currently, we do not maintain business interruption insurance because our Directors believe that such policies are either not readily available in the PRC or would require payment of unacceptably high premiums. We have not made any material claims under our insurance policies and have not experienced any material business interruptions during the three years ended December 31, 2008 and the nine months ended September 30, 2009.

Our PRC legal advisors have advised us that we are not required to maintain any insurance on environmental damage (including soil and groundwater contamination) by mandatory provisions of PRC laws and regulations. As such, we have not maintained such insurances.

During the three years ended December 31, 2008 and the nine months ended September 30, 2009, we did not experience any significant loss or damage to our facilities. We renew insurance policies annually as required by PRC law. Our Directors confirm that, subject to the relevant disclosure in the section headed “Risk Factors — We do not have insurance to cover all potential losses and claims”, they believe the insurance coverage on our assets are adequate as at the Latest Practicable Date.

EMPLOYEES

As at the Latest Practicable Date, we had approximately 2,000 full-time employees. All of our App1A28(7) employees are members of our company union. We believe we have good working relationships with our employees. We believe that our management policies, working environment and the employee development opportunities and benefits extended to employees have contributed to building good employee relations and employee retention. We provide our employees with accidental and medical

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BUSINESS insurance as well as additional benefits such as subsidized accommodation and meals for our workers at our production site and transportation to and from our production site. We organize recreational activities for our employees and we have in the past presented cash, prizes or gifts to employees on special occasions. We equip our employees with the skills and knowledge relevant to their work by providing internal and external training programs.

The remuneration package of our employees includes salary, bonuses and allowances. In accordance with the relevant labor and social welfare laws and regulations, we are required to pay in respect of each of our employees a monthly social insurance premium covering pension insurance, App1A33(4)(a) medical insurance, unemployment insurance, maternity insurance and injury insurance.

We also maintain the mandatory pension contributory plan, medical and work-related insurance schemes for our workers. We confirm that we have complied with applicable employment laws and regulations in China in all material respects during the three years ended December 31, 2008 and the nine months ended September 30, 2009.

In 2005, seven of our employees were involved, and five of our employees were convicted for, receiving bribes representing an aggregate amount of RMB30,000 from an executive from Jize County Hengtonda Coal Trading Company Limited, a coking coal supplier that we have previously used. Such employees were alleged to have taken bribes from the executive to facilitate the sale of inferior coking coal to us. We reported the incident to the local police upon becoming aware of it, and none of these seven employees continues to be employed by us. For more information relating to this incident, see “Risk Factors — Our reputation, business and results of operations may suffer if coking coal supplied to us does not meet our specifications.” Since this incident, we have taken steps to enhance our internal reporting channels. We have established an inspection team, which comprised eight inspectors as of September 30, 2009, to check for material quality defects or irregularities in our production process. We have also started using more established coking coal suppliers and rotating our employees at different posts, as well as establishing more detailed protocols in respect of the sourcing and testing of our coking coal supplies.

LEGAL PROCEEDINGS

We have not been involved in any material legal or arbitration proceedings (whether pending or App1A40 threatened or otherwise).

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HISTORY, REORGANIZATION AND CORPORATE STRUCTURE

OUR GROUP

Our Organization History

We commenced trial production of coke in 2004, methanol in 2005 and pure benzene in 2008. The directors and senior management at Kingboard saw the increase in demand for coke in Hebei province in 2003 and made the strategic decision to enter the coke production business. As methanol and pure benzene can be produced through chemical wastes and by-products generated in the coke production process, Kingboard also entered into these two businesses.

Our Company is a holding company and was established as a limited liability company under the laws of the Cayman Islands on September 4, 2009 in connection with the Restructuring. After the Restructuring, a wholly-owned BVI-incorporated subsidiary of our Company, Grace Mind, holds all the shares of (i) Reach Goal, a Hong Kong-incorporated company, which in turn holds all the shares of Kingboard Hebei Cokechem and Kingboard Hebei Chemical, both companies incorporated in the PRC, and (ii) Fast Intellect (BVI), a BVI-incorporated company. We operate our phase I coke production through Kingboard Hebei Cokechem, and our phase II coke production, phase I and II methanol production and pure benzene production through Kingboard Hebei Chemical. Prior to the Restructuring, our Company did not exist as a separate legal entity and our subsidiaries were part of the Kingboard Group, which was principally engaged in the production and sale of printed circuit boards, laminates, copper foil, glass fabric, glass yarn, bleached kraft paper, caustic soda, formalin, epoxy resin, phenol, acetone, PVC, acetic acid, coke and methanol. After the Restructuring, we were wholly-owned by Jamplan, which in turn was wholly-owned by Kingboard.

We have grown our production capacity substantially since 2004. We commenced our phase I trial production of coke with an annual production capacity of 1,000,000 tonnes on November 2, 2004 and our phase I trial production of methanol with an annual production capacity of 100,000 tonnes on September 20, 2005. Leveraging on our operating experience and increasing demand for our products, we expanded the scale of our coke and methanol production, and we commenced our phase II trial production on June 18, 2008 and January 20, 2009 for coke and methanol, respectively, which increased our total annual production capacity to 1,960,000 tonnes of coke and 200,000 tonnes of methanol. On November 16, 2008, we commenced trial production of pure benzene with an annual production capacity of 35,000 tonnes. In the fourth quarter of 2009, we upgraded our pure benzene production facility to increase its annual production capacity to 42,000 tonnes.

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HISTORY, REORGANIZATION AND CORPORATE STRUCTURE

The Restructuring

The following diagram sets out the shareholding structure of the Group prior to the Restructuring:

Kingboard (Cayman Islands)

100%

Jamplan (BVI)

100% 100%

Kingboard Investments Grace Mind (BVI) Limited (Hong Kong)

100% 100%

Reach Goal Kingboard Petrochem (Hong Kong) Company Limited (Hong Kong)

100% 100%

Kingboard Hebei Cokechem Kingboard Hebei Chemical (PRC) (PRC)

In connection with the Restructuring, members of the Kingboard Group transferred to us their interests in those companies that conduct coke and coke-related chemical operations in Hebei province, China, with the exception of Kingboard’s interest in the Acetic Acid Plant.

The objective of the Restructuring was to establish our Company as a holding company for all of the Kingboard Group’s coke and coke-related chemicals business and operations in Hebei province. All of the Kingboard Group’s coke and coke-related chemicals interests in Hebei province were transferred to our control with the exception of the Kingboard Group’s interest in the Acetic Acid Plant.

In summary, the principal steps of the Restructuring included:

• the establishment of our Company in the Cayman Islands;

• Kingboard Investments Limited disposed of the entire issued share capital of Reach Goal to Grace Mind for a consideration of HK$1.00 which was waived by Kingboard Investments Limited;

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HISTORY, REORGANIZATION AND CORPORATE STRUCTURE

• the acquisition by Reach Goal of the entire equity interest of each of Kingboard Hebei Cokechem and Kingboard Hebei Chemical from Kingboard Petrochem Company Limited, for an aggregate consideration of HK$463,639,575.48, which was waived by Kingboard Petrochem Company Limited; and

• the acquisition by our Company of the entire share capital of Grace Mind from Jamplan, in consideration of 9,999 new Shares being issued to Jamplan.

The entire share capital of Fast Intellect (BVI) has also been transferred to Grace Mind concurrent with the Restructuring. Fast Intellect (BVI) has been granted the First Additional Capacities Approvals, and our ownership of Fast Intellect (BVI) will entitle us to expand our coke and methanol production capacities subject to the limits contained in such approvals.

In addition, the following arrangements in connection with the Restructuring will be completed:

• The release of Kingboard as guarantor of our bank borrowings. The amount of our Group’s bank borrowings so guaranteed by Kingboard was HK$459.6 million as at September 30, 2009.

• The set-off of all the outstanding amounts of non-trade in nature owed by the Parent Group to our Group, which amounted to HK$64.0 million as at September 30, 2009, against the outstanding amounts of non-trade in nature owed by our Group to the Parent Group, which amounted to HK$861.2 million as at September 30, 2009, and the repayment of all remaining amounts owed by our Group to the Parent Group, which amounted to HK$797.2 million as at September 30, 2009.

• The declaration of a special dividend in the amount of HK$200 million to the Parent Group by our Directors.

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RELATIONSHIP WITH KINGBOARD

As of the Latest Practicable Date, Kingboard, through Jamplan, owned 100% of our issued share App1A27A capital.

Prior to the Restructuring, the Kingboard Group was principally engaged in the production and sale of printed circuit boards, laminates, copper foil, glass fabric, glass yarn, bleached kraft paper, caustic soda, formalin, epoxy resin, phenol, acetone, PVC, acetic acid, coke and methanol. As part of the Restructuring, all of the Kingboard Group’s coke and coke-related chemicals operations in Hebei province, China, which include its coke, methanol and pure benzene production operations, with the exception of Kingboard’s interest in the Acetic Acid Plant, were transferred to us. For further details of the Restructuring, please refer to the section headed “History, Reorganization and Corporate Structure — The Restructuring” in this document.

INDEPENDENCE FROM THE PARENT GROUP

The Board is satisfied that we can carry on business independently of Kingboard and its App1A27A associates on the basis of the followings:

• Independence of boards and management

Kingboard and our Company will have boards of directors that will function independently of each other. The following table sets out details of the directorships of our Company and Kingboard in the future:

Our Company Kingboard

Executive Directors Mr. Ho Yin Sang Mr. Cheung Kwok Wing Mr. Wong Yun Kit Mr. Chan Wing Kwan Mr. Cheung Kwong Kwan Mr. Chang Wing Yiu Ms. Cheung Wai Lin, Stephanie Mr. Mok Cham Hung, Chadwick

Non-executive Directors Mr. Cheung Kwok Wing Mr. Ho Yin Sang Mr. Chan Wing Kwan

Independent Non-executive Mr. Lau Tai Chim Mr. Cheng Wai Chee, Christopher Directors Mr. Huang Wujun Mr. Henry Tan Mr. Cheung Ming Man Mr. Lai Chung Wing, Robert Mr. Chung Wai Cheong, Mr. Tse Kam Hung Stanley

There will be three common directors between our Company and Kingboard, namely Mr. Cheung Kwok Wing, Mr. Chan Wing Kwan and Mr. Ho Yin Sang. Mr. Ho Yin Sang is also the brother-in-law of Mr. Cheung Kwok Wing and Ms. Cheung Wai Lin, Stephanie, each an executive director of Kingboard.

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RELATIONSHIP WITH KINGBOARD

Mr. Cheung Kwok Wing is the brother of Ms. Cheung Wai Lin, Stephanie, the cousin of Mr. Cheung Kwong Kwan and the brother-in-law of Mr. Chang Wing Yiu and Mr. Ho Yin Sang, each a director of Kingboard.

Mr. Ho Yin Sang is currently also an executive director of Kingboard. To ensure there is independence between our Company and Kingboard, Mr. Ho will cease his executive role at Kingboard and will be re-designated as a non-executive director of Kingboard so that he will focus on the business development and day-to-day operations of our Group. Mr. Ho will be responsible for higher level decision making processes and business planning of the Parent Group (particularly in the glass yarn manufacturing business in Guangdong province and chemical business in Shanxi province). Mr. Ho will not have any management role in the day-to-day operation of the Parent Group. Mr. Ho is also a non-executive director of Kingboard Copper Foil Holdings Limited, a subsidiary of Kingboard whose shares are listed on the Singapore Exchange Securities Trading Limited.

Mr. Ho Yin Sang and Mr. Wong Yun Kit have had, for all or substantially all of the three years ended December 31, 2008 and the nine months ended September 30, 2009, management and supervisory responsibilities in our business and have been running the day-to-day operations of our Group. They will be expected to continue to devote their resources and time to our Group and will continue to run our day-to-day operations. Our Board believes that it would be in the best interests of the Shareholders for Mr. Ho to be an executive Director on our Board, as he possesses over 20 years’ experience in the chemicals-related industries in the PRC and has an impressive track record in establishing new businesses. Mr. Ho was one of the founders of the Parent Group’s glass yarn manufacturing business in Guangdong province and the Parent Group’s chemical business in Shanxi province in 2001 and 2006, respectively. We believe that Mr. Ho and Mr. Wong together will offer valuable input in directing our future growth and implementing our strategies.

Our senior management team comprises Mr. Han Guokai, Mr. Wang Chengwu, Ms. Zhong Weihong, Mr. Zhao Jimin and other senior managers from the coke, methanol and pure benzene production subsidiaries that were transferred to us as part of the Restructuring. Our senior management and the senior management of the operating subsidiaries within the Parent Group are independent of, and separate from, each other.

We were informed by Kingboard that its board of directors believes that it would be in the best interests of the shareholders of Kingboard for Mr. Ho Yin Sang to remain on its board of directors (as a non-executive director). Kingboard has indicated to us that Mr. Ho’s vision, experience and knowledge in the business and operations of the Parent Group would be beneficial to its future growth success. In particular, since the establishment by the Parent Group of the glass yarn manufacturing business in Guangdong province in 2001 and the chemical business in Shanxi province in 2006, Mr. Ho has been supervising the development of these businesses through his over 20 years’ experience in the chemicals-related industries in the PRC and his expertise in the glass yarn manufacturing and chemical businesses. In addition, the board of Kingboard considers that having Mr. Ho remain in the board of Kingboard would enable

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RELATIONSHIP WITH KINGBOARD

Kingboard to continue to benefit from Mr. Ho’s advice and input to these businesses. As such, Mr. Ho will continue to serve on the board of directors of Kingboard (in his new role as a non-executive director).

Our non-executive Directors, Mr. Cheung Kwok Wing and Mr. Chan Wing Kwan, were the co-founders of the Parent Group and are responsible for overseeing, and they play a leading and supervisory role in, the strategic development of the Parent Group. While Mr. Cheung is responsible for the overall strategic planning and sets the general direction and goals for the Parent Group, Mr. Chan is responsible for the overall implementation of the strategic plans and goals of the Parent Group. Mr. Cheung and Mr. Chan were two of the directors of Kingboard who made the strategic decision to enter into the coke production business and they were involved in the establishment of our Group in 2003. They will not have any management role in the day-to-day operation of our Group and will only be involved in higher level business decisions provided that there are no actual or potential conflicts of interest. As our Company will remain a subsidiary of Kingboard immediately in the future, it is expected that Kingboard will have its presence at our Board through these directors. Our Board believes that it would be in the best interests of the Shareholders for Mr. Cheung and Mr. Chan to participate as non-executive Directors on our Board, as each of them has had over 20 years’ experience in the chemicals-related industries in the PRC and each has vast experience in planning and developing new businesses in the PRC, having successfully planned and developed the chemicals and laminates businesses of the Parent Group, among others. We expect that Mr. Cheung and Mr. Chan, acting together or individually, can provide important practical advice to our Board regarding our corporate strategies (including our strategy to become a vertically integrated group with upstream and downstream coke-related operations).

Even though Mr. Cheung Kwok Wing and Mr. Chan Wing Kwan are also executive directors of Kingboard and Mr. Ho Yin Sang will be re-designated as a non-executive director of Kingboard and therefore may potentially be perceived as having a conflict of interest in certain circumstances involving our Company and Kingboard, they are mindful of their fiduciary duties as Directors to act in the best interest of our Company and Kingboard. In cases where there are actual or potential conflicts of interest, these three common Directors will in accordance with the requirements of applicable rules and the Articles abstain from voting on the relevant resolutions in board meetings of our Company and Kingboard (for the details of the relevant articles, please refer to the sub-section headed “Corporate Governance” in this section). Given that there will be a Non-Competition Deed signed between Kingboard and our Company (for further details on the Non-Competition Deed, please refer to the sub-section headed “Non-compete undertaking” in this section), we do not expect there to be many situations where the interests of Kingboard do not align with those of our Company. As such, it is unlikely that Mr. Cheung Kwok Wing and Mr. Chan Wing Kwan will be conflicted from being able to provide their high-level strategic advice to our Company when such advice is needed.

In the future, any Directors who have a material interest in actual or potential connected transactions will be required under the applicable rules and the Articles to abstain from voting in meetings of the Board in relation to such transactions. In these cases, the independent non-executive Directors will advise on the transactions. Through these mechanisms, our Company believes that the Directors will be able to exercise their function as a board properly.

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RELATIONSHIP WITH KINGBOARD

In addition, our Group has been operating under the supervision of an experienced senior management team, which has extensive experience in the coke and coke-related chemicals industry in China. It is expected that the Company will continue to be centrally managed by such senior management. Our Company has reporting mechanisms in place to ensure that important decisions are made independently and only with the proper authorities of the senior management team. For example, budgets, expenditures exceeding certain thresholds, raw materials procurements and hiring of senior personnel require approval of the senior management of our Group. In the future, the senior management of our Group and the senior management of the Parent Group will not overlap. This helps to ensure the independence between the daily management and operations of our Group and those of the Parent Group.

There is no other senior management member responsible for our Group’s day-to-day operations during the three years ended December 31, 2008 and the nine months ended September 30, 2009 who has not been appointed as a Director or listed as a member of the senior management of our Group.

Save for the aforesaid, none of our Directors or senior management holds any office in or is employed by the Parent Group. On the above basis, our Directors believe that we operate independently of the Parent Group and in the interests of the Shareholders.

During the three years ended December 31, 2008 and the nine months ended September 30, 2009, the amount of remuneration received by the over-lapping Directors from us and Kingboard are as follows:

Nine months ended Year ended December 31, September 30,

2006 2007 2008 2009

Name Company Kingboard Company Kingboard Company Kingboard Company Kingboard

(HK$) (HK$) (HK$) (HK$) (HK$) (HK$) (HK$) (HK$)

Ho Yin Sang...... — 14,912,000 — 15,167,000 — 10,717,000 — 2,977,000 Cheung Kwok Wing .. — 29,755,000 — 29,737,000 — 19,708,000 — 4,688,000 Chan Wing Kwan ...... — 17,572,000 — 17,528,000 — 11,888,000 — 2,977,000

As to our remuneration policy, we will set up a Remuneration Committee which comprises the four INEDs which will formulate policies and procedures for determining the remuneration of Directors and senior management and other remuneration related matters.

When recommending the remuneration package for each individual Director, the Remuneration Committee will consider his qualification and experience, specific duties and responsibilities assigned to him by our Board and the prevailing market packages available for similar position.

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RELATIONSHIP WITH KINGBOARD

Currently, all the over-lapping Directors were on the payroll of Kingboard because these Directors were responsible for overseeing different business, carried out by different subsidiaries of the Kingboard Group. In the future, Mr. Ho Yin Sang will cease to be on the payroll of Kingboard and our Group will be responsible for paying the remuneration of Mr. Ho. Mr. Cheung Kwok Wing and Mr. Chan Wing Kwan will continue to be on the payroll of Kingboard.

• Separate lines of business

Our operations will be independent of and separate from the businesses of the Parent Group.

We are engaged in the coke and coke-related business which consists principally of the production and sale of coke, methanol and pure benzene and their related products. On the other hand, the Parent Group is principally engaged in the production and sale of printed circuit boards, laminates, copper foil, glass fabric, glass yarn, bleached kraft paper, caustic soda, formalin, epoxy resin, phenol, acetone, PVC, acetic acid and methanol.

The Directors believe that in the future there will not be any meaningful competition between the Parent Group and our Group. Our Group is expected to generate revenue principally through the sale of three products: coke and its related products, pure benzene and its related products and methanol. Pursuant to a Non-Competition Deed, Kingboard and our Company have agreed as follows:

(i) Coke

Members of the Parent Group will not produce, sell or otherwise distribute coke and its related products anywhere in China. As such, there is no competition between the Parent Group and our Group.

(ii) Pure Benzene

Members of the Parent Group will not produce, sell or otherwise distribute pure benzene and its related products anywhere in China. As such, there is no competition between the Parent Group and our Group.

(iii) Methanol

The sale of methanol is currently not, and is not expected to be in the future, a core business for our Group or the Parent Group. During the three years ended December 31, 2008 and the nine months ended September 30, 2009, we did not derive a material portion of our revenue from the sale of methanol. We expect that going forward the sale of methanol will not generate a material portion of our revenue. Revenue generated by the sale of methanol accounted for approximately 14.9%, 14.1%, 8.7% and 8.7% of the total revenue generated by our Group for the three years ended December 31, 2008 and the nine months ended September 30, 2009, respectively.

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RELATIONSHIP WITH KINGBOARD

Members of the Parent Group are currently engaged in the production of methanol for sale to chemical companies through (a) two 56%-owned production facilities in Shanxi province (the “Shanxi Plants”) and (b) a wholly-owned production facility in Chongqing province (the “Chongqing Plant”). In addition, the Parent Group holds a 40% minority investment in a company that is engaged in the production of methanol in Hainan province (the “Hainan Plant”). The remaining 60% of the equity interest in this company is owned by China BlueChemical Ltd. (中海石油化學股份有限公司), a company listed on the Main Board of the Stock Exchange and an Independent Third Party to us. The Parent Group does not have management or operational control of the Hainan Plant.

The table below sets forth certain information regarding the Shanxi Plants, the Chongqing Plant and the Hainan Plant:

Designed annual Number of production capacity Location of targeted employees as at Plant for methanol customers September 30, 2009

The Shanxi Plants...... 200,000 tonnes Shandong, Shanxi and Approximately 570 (in aggregate) Henan provinces The Chongqing Plant . 450,000 tonnes Southwestern and Approximately 200 Eastern provinces The Hainan Plant ...... 600,000 tonnes Southern and Eastern Approximately 80 provinces

Revenue generated by the two Shanxi Plants and the Chongqing Plant for 2008 amounted to approximately RMB51 million and RMB527 million, respectively, each of which represented less than 5% of the revenue of the Parent Group for such period. The sale of methanol is not currently, and is not expected to be in the future, a material business of the Parent Group, and Kingboard has informed us that the revenue generated by such business is not expected to exceed 5% of its total revenue and it has not dedicated any significant resources to the marketing and sales channels as well as the management of such business. Revenue generated by the Hainan Plant in 2008 amounted to approximately RMB1,500 million. Kingboard accounts for the entity that owns the Hainan Plant through the equity accounting method.

There are two practical industrial ways to produce methanol: (a) through the use of coking gas (which is a by-product from the coking process); or (b) through the use of natural gas. The methanol produced by our Group and the Shanxi Plants are through method (a), whereas the methanol produced by the Chongqing and the Hainan Plants are through method (b). For further details on the production process of methanol, please refer to the section headed “Industry Overview” in this document.

The Parent Group has not included the Shanxi Plants, the Chongqing Plant and the Hainan Plant in our Group because (i) our strategy is to produce methanol through the recycling of internally produced coking gas through our resource recycling system, but the

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RELATIONSHIP WITH KINGBOARD

Chongqing and Hainan Plants produce methanol through the use of natural gas; and (ii) both the Shanxi Plants and the Hainan Plant are owned by joint venture companies that are partially owned by the Parent Group and we have been informed by Kingboard that it has negotiated with the relevant joint venture parties and it is unable to obtain the agreement of such joint venture partners to transfer its interests in the joint ventures to us.

Given that the sale of methanol was not, and is not expected to form, a material part of our business and the revenue generated by such sale is not expected to account for a material portion of our revenue going forward, we believe that any risk of competition between us and the Parent Group for the sale of methanol is not material in the context of our operations and our financial results. In any event, we do not believe the Shanxi Plants, the Chongqing Plant and the Hainan Plant compete with us in any material manner for the sale of methanol for the following reasons:

• Different Customer Base.

During the three years ended December 31, 2008 and the nine months ended September 30, 2009, there were no common customers between the Parent Group and our Group for the sale of methanol.

We target customers in the Hebei and Shandong provinces for our methanol sales. The Hainan Plant and the Chongqing Plant targets customers based in the Southwestern and Eastern provinces in the PRC that are located outside of our coverage area. A major consideration that purchasers of methanol generally take into account in deciding their purchase is transportation cost of the methanol. This cost is in turn dependent upon the distance between the production site and the delivery point. It is market practice that purchasers of methanol pay for and arrange their own transportation from the production sites to their drop-off points. As such, it is economically unfeasible for the Hainan Plant or the Chongqing Plant to sell to customers in our coverage area, or for us to sell methanol to customers in the regions covered by the Hainan Plant or the Chongqing Plant.

The Shanxi Plants target customers in the Shandong, Shanxi and Henan provinces. Sales of methanol to customers located in Shandong province were during the three years ended December 31, 2008 and the nine months ended September 30, 2009, and are expected to continue to be, immaterial for both us and the Parent Group. For 2008, revenue generated by the sale of methanol to customers located in the Shandong province by the Parent Group was HK$17.7 million, which represented less than 1% of our revenue in 2008. Revenue generated by the sale of methanol to customers located in the Shandong province by the Parent Group in 2008 accounted for less than 0.5% of the Parent Group’s revenue. Revenue generated by the sale of methanol to customers located in the Shandong province by us in 2008 accounted for less than 7% of our revenue. Given the close proximity of these provinces to Hebei and Shandong provinces (the provinces that we seek to sell

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RELATIONSHIP WITH KINGBOARD

our methanol to), in addition to geographical delineation, we have entered into the following additional arrangements with Kingboard to eliminate any competition between the Shanxi Plants and the Hebei Plant:

(i) Any-and-all Purchase. Kingboard has, pursuant to the Supply Agreement, agreed to cause a member of the Parent Group to purchase, in the future, any and all methanol produced by the Hebei Plant at the then prevailing market price. We are not obligated to sell our methanol to Kingboard or any other member of the Parent Group, but we have the right to sell any and all methanol produced at the Hebei Plant to Kingboard or any other members of the Parent Group should we decide to do so. Our Company and Kingboard will determine the prevailing market price as follows:

— first, by reference to the higher of the price of methanol that (a) members of the Parent Group purchased from Independent Third Parties within the 30-day period immediately preceding the proposed sale, (b) we sold to Independent Third Parties within the 30-day period immediately preceding the proposed sale, and (c) contained in one or more offers or quotations obtained by us from Independent Third Parties within the five-day period immediately preceding the proposed sale; and

— if none of the above is available, then by an Independent Third Party in the methanol industry that is appointed jointly by our Company and Kingboard.

(ii) Non-compete. Pursuant to the Non-compete Undertaking, Kingboard has undertaken that it will not, and it has agreed to cause members of the Parent Group not to, carry out or engage in the production and sale of methanol in Hebei province (other than the resale of any methanol that Kingboard or any other member of the Parent Group has purchased from us pursuant to the Supply Agreement).

If we choose to sell our methanol to Kingboard or any other member of the Parent Group pursuant to the Supply Agreement, we will not bear any risk to the off-take and pricing of methanol following the parties’ confirmation of any such sale. As such, through this arrangement, we are able to eliminate any risk that we may not be able to sell our methanol.

Our Directors do not believe that this arrangement will expose us to material pricing risks with respect to the sale of methanol. This is because our Directors take the view that (a) the market size for methanol in the provinces we currently cover is very large compared to our and the Parent Group’s market share, (b) such market is fragmented, with no single supplier having a dominant market share, and (c) given that the market share of the Parent Group in such market is relatively small, it is not able to drive the price of methanol in such market on its own.

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RELATIONSHIP WITH KINGBOARD

We do not believe that this arrangement will cause us to be financially dependent on Kingboard or any other member of the Parent Group, as (a) revenue from the sale of methanol currently accounts, and is expected to continue to account, for a relatively low percentage of our total revenue and (b) we are not obligated to sell our methanol to Kingboard or any other member of the Parent Group and we have in the past sold, and can going forward continue to sell, to customers that are not related to the Parent Group.

• Independent Source of Raw Materials.

The Hainan Plant and the Chongqing Plant do not compete with us for raw materials as the production processes adopted by such plants are different to ours. Kingboard has informed us that the natural gas used at the Hainan Plant and the Chongqing Plant for the production of methanol is purchased from Independent Third Parties to Kingboard. While the Shanxi Plants and the plant operated by us at the Hebei site (the “Hebei Plant”) adopt the same production process (and as such the same raw materials), they do not compete with us for raw materials as we obtain our coking gas from our coke production process, whereas the Shanxi Plants procure their coking gas supply from local sources within Shanxi province. During the three years ended December 31, 2008 and the nine months ended September 30, 2009, we have not had to procure coking gas from outside of our Group. Given that it is expensive to transport coking gas (given its gasified state), it is uneconomical for us to procure coking gas from Shanxi province, or for the Shanxi Plants to purchase coking gas from Hebei.

• Operational and Management Independence.

The persons responsible for the day-to-day operation and management of the Shanxi Plants, the Chongqing Plant and the Hainan Plant at the Parent Group are different to the persons that manage our methanol operations.

• Non-compete undertaking

In order to maintain a clear delineation of our respective businesses going forward, subject to the exceptions set forth below, Kingboard has, pursuant to the Non-Competition Deed, undertaken (the “Non-compete Undertaking”) to our Company that, for so long as Kingboard and its associates together hold, whether individually or taken together, 30% or more of our issued share capital or are otherwise regarded as a controlling shareholder of our Company under applicable rules, Kingboard will not, and will procure that its associates (excluding our Group) will not, on its own account or with each other or in conjunction with or on behalf of any person, firm or company, except through a member of the Group, (a) acquire, develop, invest or manage any production facility that produces (i) coke or pure benzene in China; or (ii) methanol in Hebei; and (b) carry on or be engaged in, concerned with or interested in, directly or indirectly, whether as a shareholder (other than being a director or a shareholder of our Group or its

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RELATIONSHIP WITH KINGBOARD

associated companies), partner, agent or otherwise, the sale or distribution of (i) coke or pure benzene in China; or (ii) methanol to customers located in Hebei (other than the resale of any methanol that Kingboard or any other member of the Parent Group has purchased from us pursuant to the Supply Agreement), or in any other business that may compete, directly or indirectly, with any business carried on from time to time by any member of our Group (the “Restricted Activity”).

The restrictions which Kingboard agreed to undertake in the above do not apply in the circumstance where Kingboard or its associates holding or being interested in shares or other securities in any company which conducts or is engaged in any Restricted Activity (the “Subject Company”); provided that (i) such shares or securities are listed on a recognized stock exchange, (ii) the aggregate number of shares held by Kingboard and its associates do not exceed 30% of the issued shares of the Subject Company and (iii) Kingboard and its associates do not have board or management control of the Subject Company.

Furthermore, Kingboard has undertaken that it will not, and it will cause members of the Parent Group not to, with respect to the Second Additional Capacities Approvals, (i) use such approvals for the Parent Group or (ii) sell, transfer or assign such approvals to any person, firm or company (other than a member of the Group).

Kingboard has also undertaken to procure that any business investment, government approval or other business or commercial opportunity relating to (a) the production of coke or pure benzene in China or methanol in Hebei or (b) any Restricted Activity or (c) invention or discovery of products or technologies which could be applied to (i) the production of coke or pure benzene in China or methanol in Hebei or (ii) any Restricted Activity that it or any of its associates (other than members of our Group) identifies or proposes or that is offered or presented to it or any such associates by a third party (the “New Opportunity”) must be first referred to our Company in accordance with the Non-compete Undertaking.

In deciding whether to pursue a particular New Opportunity, our Company will seek approval from the Board or board committee, in either case, comprising only our INEDs. Our INEDs will consider whether it is in our interest and that of our Shareholders as a whole to pursue the New Opportunity, taking into account the advice given by various independent professional advisors appointed by us, including but not limited to financial advisors or valuers, at our cost, where necessary. In considering whether to pursue a New Opportunity, our INEDs are expected to consider, among others, whether the exercise of such New Opportunity would be consistent with our strategies existing at the time of the exercise, our financial condition and the financial commitments associated with such New Opportunity, the prevailing market conditions and cost of funding in the open market if we were to borrow funds in connection with the exercise of such New Opportunity, the expected return of such New Opportunity compared to other available business opportunities and any impact that the exercise of such New Opportunity may have on our share price. Our Company will disclose in its annual report any decision by the INEDs to accept or decline the New Opportunity and the basis thereof.

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RELATIONSHIP WITH KINGBOARD

Kingboard has further undertaken that, during the period for which the Non-compete Undertaking is in force:

• it will provide all information necessary for (i) the annual review by the independent board committee of our Company for the enforcement of the undertakings under the Non-compete Undertaking and the compliance of the Non-compete Undertaking by Kingboard; and (ii) disclosure of decisions made by such committee on matters reviewed by it relating to the compliance and enforcement of the Non-compete Undertaking in our Company’s annual report or public announcement and will give consent to such disclosures;

• it will make an annual declaration on compliance with the undertakings under the Non-compete Undertaking for disclosure in the annual reports of our Company; and

• in the event of any disagreement between the parties as to whether any activity or proposed activity of Kingboard constitutes a Restricted Activity or a breach of the Non-compete Undertaking, the matter shall be determined by the independent board committee of our Company whose majority decision shall be final and binding.

Our INEDs will review Kingboard’s compliance with the Non-compete Undertaking on an annual basis. We will disclose decisions on matters reviewed by our INEDs relating to the compliance and enforcement of the Non-compete Undertaking either through our annual reports or by way of announcements to the public. We will also disclose Kingboard’s annual declaration on compliance with the Non-compete Undertaking in our annual reports.

The entry into of the Non-Competition Deed by Kingboard will not require the approval of its independent shareholders, as it does not constitute a transaction that requires the approval of the shareholders of Kingboard under applicable rules.

Our Directors believe we are independent from Kingboard and its associates (other than our Group), in terms of our business operations, financial matters and administrative management. The bases of such belief are set forth below. Our Directors also believe that there is no conflict of interest or undue reliance on Kingboard.

• Independence of operations

Our products are manufactured in separate and distinct facilities from the Parent Group’s facilities. All our coke and coke-related business production facilities are located in Xingtai, Hebei province in China. We also have our own sources of supplies, customer base and sales and distribution channels. Such sources of supplies, customer base and sales and distribution channels are independent of the Parent Group.

We have entered into the Supply Agreement with Kingboard pursuant to which Kingboard has agreed to cause a member of the Parent Group to purchase, in the future, any and all methanol produced by us. We are not under any obligation to sell to Kingboard or any other member of the Parent Group and may sell our methanol to third parties. The prices payable by

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RELATIONSHIP WITH KINGBOARD

the Parent Group will be the then prevailing market prices. Given that (i) we are not obligated to sell our methanol to the Parent Group and may sell to third parties; and (ii) revenue from the sale of methanol does not, and is not expected to, account for a significant portion of our total revenue, we do not believe that the existence of the Supply Agreement will result in us being dependent operationally on the Parent Group. During the three years ended December 31, 2008 and the nine months ended September 30, 2009, we did not derive a material portion of our revenue from the sale of methanol. We expect that going forward the sale of methanol will not generate a material portion of our revenue. See “— Relationship with Kingboard — Independence from the Parent Group — Separate lines of business” and “— Non-exempt continuing connected transactions — (ii) sale of methanol under the Supply Agreement”.

Although the Acetic Acid Plant of the Parent Group is located in the same city as the facilities of our Group, they are in separate factory buildings and are operated separately.

• Financial Independence

We will be able to function independently of Kingboard. Members of our Group do not currently, and are not expected in the future to, rely on Kingboard for services, funds or operational support. During the three years ended December 31, 2008 and the nine months ended September 30, 2009, we received significant advances, in the form of shareholders’ loans, from Kingboard and other members of the Parent Group to fund our operations. As at September 30, 2009, these shareholders’ loans amounted to approximately HK$861.2 million. As at September 30, 2009, Kingboard and other members of the Parent Group also acted as guarantors in relation to HK$459.6 million of our bank loans. In the future, we will cease to receive advances from the Parent Group and will seek to obtain funding from commercial lenders to replace such advances to fund our operations and to ensure our Company’s independence. We have already obtained bank loans for an aggregate amount of HK$500 million to repay these shareholders’ loans. We also plan to repay the remaining balance of these shareholders’ loans. In addition, Kingboard and other members of the Parent Group will be released from these guarantees.

As illustrated in the section headed “Financial Information” in this document, the Directors confirm that our Group has the ability to support its own operations following the Restructuring. We will also have our own internal control and accounting systems, accounting and finance department, independent treasury function for cash receipts and payments, and independent access to third party financing.

• Independence of administrative capability

All the essential administrative functions are handled locally at our plant. We will only rely on the Parent Group for certain office space for our head office in Hong Kong. Save for the sharing of the head office, we will be administratively independent of the Parent Group. For further details on connected transactions, please refer to the sub-section headed “Details of Continuing Connected Transactions” in this section.

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RELATIONSHIP WITH KINGBOARD

OUR EXPANSION OPPORTUNITIES INVOLVING KINGBOARD

Acetic Acid Plant Option

The Acetic Acid Plant commenced trial production in September 2009, and currently has an annual production capacity of 400,000 tonnes. It is located adjacent to our methanol production facilities, which allows our methanol to be utilized as feedstock with minimal transportation costs. See “Business — Our Expansion Opportunities” for more details.

The Acetic Acid Plant Option will, if not exercised, lapse under certain conditions. We have agreed to a five-year exercise period for the Acetic Acid Plant Option because we believe that five years will be sufficient for our INEDs to evaluate the performance and profitability of the Acetic Acid Plant and to determine if the operations of such plant will complement our operations.

Kingboard did not include the Acetic Acid Plant into our Group as neither the Parent Group nor our Group has had any prior experience in the operation of acetic acid plants, and given that the Acetic Acid Plant only commenced trial production recently (in September 2009), the Acetic Acid Plant does not have any track record which could show its profitability, and our INEDs believe that there are a lot of uncertainties with respect to the operation of such plant as well as the long-term profitability of the business for the production and sale of acetic acid. Both we and Kingboard are of the opinion that given the uncertainties surrounding the profitability and operation of the Acetic Acid Plant, it would not be in the best interest of the Shareholders for us to acquire the Acetic Acid Plant.

If we exercise the Acetic Acid Plant Option to acquire the entire interest in True Glory, such acquisition will be treated as a connected transaction of the Company under applicable rules and regulations for so long as Kingboard remains a connected person of the Company. We will comply with the relevant requirements regarding connected transactions under applicable rules and regulations.

Exercise of the Acetic Acid Plant Option

In considering whether to exercise the Acetic Acid Plant Option, our INEDs are expected to consider, among others, the following factors:

• whether the exercise of such option would be consistent with our strategies existing at the time of the exercise;

• our financial condition and the exercise price of such option;

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RELATIONSHIP WITH KINGBOARD

• the prevailing market conditions, our capital commitment and cost of funding in the open market if we were to borrow funds to pay for all or a portion of the purchase price;

• the expected return compared to other available business opportunities;

• any potential benefits and synergies that we may be able to realize from the acquisition and operation of such plant; and

• any impact that the exercise of such option may have on our share price.

Kingboard has agreed to cause members of the Parent Group to provide us with all information as may be reasonably requested by us from time to time (and if requested by us on a quarterly basis) relating to the Acetic Acid Plant in order for us to evaluate the Acetic Acid Plant Option.

Any decision with respect to the exercise of the Acetic Acid Plant Option would be evaluated and made by the INEDs, and any meeting to evaluate the exercise of such options will not be attended by other Directors, including those that also serve as directors on the board of Kingboard. Our INEDs are expected to convene at least once a year or upon request by any Director to consider whether to exercise the Acetic Acid Plant Option. The INEDs are entitled to engage professional advisors, including technical advisors or financial advisors as they consider necessary, at our cost, to assist them with the evaluation. The INEDs will also review, on an annual basis, any decisions relating to the exercise of the Acetic Acid Plant Option and state their views with bases and reasons in our annual report.

CORPORATE GOVERNANCE

We strive to compose our Board in such a way that it will include a balanced composition of executive and non-executive Directors (including INEDs) so that there is a strong element on the Board which can effectively exercise independent judgment. We are also committed to the view that our INEDs should be of sufficient caliber and number for their views to carry weight. Our INEDs, details of whom are set forth in the section headed “Directors, Senior Management and Staff” in this document, are free of any business or other relationships which could interfere in any material manner with the exercise of their independent judgment.

The Articles provide that:

(a) if any Director has a conflict of interest in a matter to be considered by the Board and the Board has determined such matter to be material, the matter should not be dealt with by way of circulation or by a Board committee (except an appropriate Board committee set up for that purpose pursuant to a resolution passed in a Board meeting) but a Board meeting should be held. The INEDs who, and whose associates, have no material interest in the transaction should be present at such Board meeting;

(b) any Director prohibited from voting by reason of conflict of interest will not have voting authority and will not be counted towards the quorum;

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RELATIONSHIP WITH KINGBOARD

(c) any Director who shall not vote (nor be counted in the quorum) on any resolutions as mentioned above shall not attend the Board meeting or the relevant part of the Board meeting nor participate in the discussions on the relevant resolutions unless he is invited by a majority of the INEDs to attend, but subject to the aforesaid restrictions on his voting rights and being counted in the quorum on the relevant resolutions;

(d) any Director who is also a director on the board of Kingboard or another member of the Parent Group is, for the purpose of any transaction involving a member of the Group and a member of the Parent Group, considered to have a conflict of interest and such Director shall not attend any Board meeting (or vote at such meeting or be counted towards the quorum for such meeting), unless he is invited by a majority of the INEDs to attend, but subject to the aforesaid restrictions on his voting rights and being counted in the quorum on the relevant resolutions; and

(e) a majority of the INEDs acting together are empowered to engage professional advisors at the Company’s costs without the need to obtain prior approval from other members of the Board.

It is also provided in the Articles that any board committee may request to seek independent professional advice in appropriate circumstances in relation to any matters for which the board committee is established at our costs. However, we have no obligation to engage any independent professional advisor unless such request is reasonable. The relevant members of the board committee may nominate any independent professional to provide them with the relevant services of advice subject to the approval of the majority of members of our Board (other than the members of the relevant board committee).

Kingboard has provided the Non-compete Undertaking to us with a view to maintaining a clean delineation of the business of our Group and the Parent Group going forward. Kingboard has also undertaken to make an annual confirmation regarding its compliance with the Non-compete Undertaking in our Company’s annual report. Furthermore, Kingboard has undertaken to provide all information necessary to us for the review and enforcement of the Non-compete Undertaking.

In addition, we have adopted the following measures in respect of the enforceability of the Non-compete Undertaking:

• we will disclose decisions on matters reviewed by the INEDs relating to the enforcement of the Non-compete Undertaking (if any) in our annual report or, where the Board considers it appropriate, by way of an announcement; and

• our INEDs will review, at least on an annual basis, Kingboard’s compliance with the Non-compete Undertaking.

We will disclose in our annual reports how the undertakings contained in the Non-compete Undertaking have been complied with and enforced in accordance with the principles of making voluntary disclosures in the Corporate Governance Report.

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RELATIONSHIP WITH KINGBOARD

Furthermore, any transaction that is proposed between the Parent Group and us will be required to comply with the then applicable rules, including, where applicable, the announcement, reporting and independent shareholders’ approval requirements.

DETAILS OF CONTINUING CONNECTED TRANSACTIONS

Certain transactions have occurred between members of our Group and the Parent Group and are expected to be carried out on a continuing or recurring basis for a period of time. Our Directors (including the INEDs) are of the opinion that the transactions (i) have been entered into and will be carried out in the ordinary and usual course of business of the members of our Group; (ii) are on normal commercial terms and the terms of the relevant agreements are fair and reasonable; and (iii) are in the interests of our Company and the Shareholders as a whole.

Set forth below is a summary of these connected transactions and, where applicable, the waivers from strict compliance with the relevant requirements of applicable rules that we have received:

Annual cap (HK$ million) For the year ending December 31, Nature of transaction Waiver sought 2010 2011 2012

Exempt continuing connected transactions 1Office N/A N/A N/A N/A Sharing Agreement 2 Trademark N/A N/A N/A N/A Licence Deed Non-exempt continuing connected transactions 1 Supply announcement Coke - 182 Coke - 200 Coke - 220 Agreement and Steam - 113 Steam - 122 Steam - 132 independent Methanol - 408 Methanol - 449 Methanol - 494 Shareholders’ approval requirement

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RELATIONSHIP WITH KINGBOARD

Exempt continuing connected transaction

1. Sharing of office space between Kingboard and our Group

On [●], our Company entered into an agreement with Kingboard in relation to the sharing of office space (the “Office Sharing Agreement”). Pursuant to the Office Sharing Agreement, Kingboard will share certain office space with our Company for our head office in Hong Kong.

Parties Subject premises Term Annual Fee

Our Company and 2nd Floor, Harbour View 1, No. 12 for a term ending HK$120,000 to be paid Kingboard Science Park East Avenue, Phase 2 on March 29, 2011 by our Company to Hong Kong Science Park, Shatin, Kingboard Hong Kong

The Office Sharing Agreement is on terms no less favorable to our Group than those offered to other parties sharing the office space with Kingboard which are Independent Third Parties.

Our Directors (including our INEDs) are of the view that the Office Sharing Agreement has been entered into on normal commercial terms, in the ordinary and usual course of business of our Group and that the terms of the Office Sharing Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

As each of the percentage ratios (other than the profit ratio) of the fees to be paid by our Group on an annual basis under the Office Sharing Agreement for each of the years ending December 31, 2010 and 2011 (calculated by reference to applicable rules) is less than 0.1%, the transactions contemplated under the Office Sharing Agreement fall under the de minimis provision set forth in applicable rules and are therefore exempt from the reporting, announcement and independent shareholders’ approval requirements applicable to continuing connected transactions under relevant rules.

2. Grant of rights to use certain intellectual property by Kingboard and its subsidiaries to our Group

Kingboard and some of its subsidiaries are the owner of and are applying for the registration of a number of trademarks which will be used by us in the course of our businesses. We have been using such trademarks in connection with our operations on a royalty-free basis. Our Company and Kingboard entered into a trademark license deed dated [●] (the “Trademark License Deed”), pursuant to which Kingboard granted to us a non-exclusive license to use the trademarks owned by Kingboard, including the use of “KingBoard” and “建滔” (together, the “Trademarks”), in conducting our businesses for a term ending on [●]. We may renew the term thereof for a further five years at no cost by giving notice within one month prior to the expiry of the Trademark License Deed. Our Directors consider the duration of the Trademark License Deed to be consistent with normal commercial terms to secure long-term rights for us. Our Directors (including our INEDs) are of the view that the

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RELATIONSHIP WITH KINGBOARD

Trademark License Deed has been entered into on normal commercial terms, in the ordinary and usual course of business of our Group and the terms of the Trademark License Deed are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Pursuant to the Trademark License Deed, Kingboard will maintain at its own cost the registration of the Trademarks, broaden the categories and jurisdictions under and in which the Trademarks are registered at our reasonable request and will be responsible for any expenses for enforcement against any infringement of the Trademarks by any third party.

We may not sub-license the Trademarks to, or allow the use thereof by, any third parties other than our subsidiaries, without the prior written consent of Kingboard. Kingboard can also license the Trademarks to its subsidiaries and associated companies or other parties.

Should the term of the Trademark License Deed be renewed, we shall ensure compliance with the then applicable requirements of applicable rules.

Kingboard has not transferred ownership of the relevant trademarks to us because they are also used by the Parent Group in its businesses, in its company names and in its company logos. Our Directors believe that the non-exclusive nature of the Trademark License Deed does not adversely impact our business, as our products are industrial products that do not carry logos or marks.

The need to obtain licensed usage of the relevant trademarks is a result of our corporate history. As a subsidiary and business division of Kingboard, our business was advertized using the Kingboard trademarks. No fee was paid by us during the three years ended December 31, 2008 and the nine months ended September 30, 2009 for the use of the trademarks as historically we were under part of the Kingboard Group and was under its management and control.

As the right to use the Trademarks is granted to us by Kingboard on a royalty-free basis, the arrangement under the Trademark License Deed is exempt from the reporting, announcement and independent shareholders’ approval requirements applicable to continuing connected transactions under applicable rules on the basis that it falls within the de minimis threshold as stipulated under applicable rules.

Non-exempt continuing connected transactions

Sale of coke, steam and methanol to Kingboard

Historically, for the years 2006, 2007 and 2008, the operating subsidiaries of the Group in Hebei province sold methanol to Kingboard’s subsidiary in Jiangsu province for the production of formalin. However, such transactions were terminated in 2009.

Our Group currently sells and will continue to sell our coke, steam and methanol to Kingboard. Kingboard owns and operates the Acetic Acid Plant located adjacent to our production facilities in Hebei and coke, steam and methanol are essential for the production of acetic acid. The Acetic Acid Plant currently has an annual production capacity of 400,000 tonnes.

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RELATIONSHIP WITH KINGBOARD

We have been informed by Kingboard that it anticipates that the Acetic Acid Plant will require approximately 108,000 tonnes of coke and 768,000 tonnes of steam per year upon its commencement of full commercial operation. Kingboard also anticipates that it will require a total of approximately 216,000 tonnes of methanol per year as feedstock to produce acetic acid, of which approximately 200,000 tonnes of methanol will be acquired from our Group, representing our existing annual production capacity of methanol and the remaining 16,000 tonnes will be acquired from Independent Third Parties.

In view of the above arrangement, the Supply Agreement was entered into for an initial period commencing from the date of the agreement and ending on the third anniversary of the date of the Supply Agreement.

(i) Sale of coke and steam under the Supply Agreement

Pursuant to the Supply Agreement, our Group will not be obligated to supply a minimum amount of coke and steam to members of the Parent Group and they will not be obligated to purchase any set quantity of coke and steam offered by our Group during the term of the Supply Agreement. Also, the prices are not fixed and we will charge for the coke to be determined in accordance with prevailing market prices, which will be determined by the prices of coke we sold to Independent Third Parties within the 30-day period immediately preceding the proposed sale, and for the steam to be determined in accordance with the cost, at the relevant time. Our Directors believe that the market for coke in China is competitive and pricing terms are generally transparent to the market players, and as such, our Directors are of the opinion that the price paid by Independent Third Parties to us for coke should accurately represent the prevailing market price. In no event will the terms be more favorable to the Parent Group than those offered by our Group to Independent Third Parties at the relevant point in time (generally having regard to the quantity, quality and special specifications of the products ordered and other special circumstances). Our Group shall grant a credit period of up to 30 days to the Parent Group, which is consistent with the credit terms granted by our Group to comparable Independent Third Parties.

Both the Parent Group and our Group require steam in their and our production processes. We have already installed a boiler in our production facilities to produce steam to satisfy our production requirements. As the boiler is capable of producing steam in excess of the quantity required by us, we consider it reasonable to sell our excess steam to the Parent Group. Given that steam is not a tradable commodity, no reference can be made to ascertain its prevailing market price. Also, steam is a non-principal product of our Group and there is no demand in the market for such product. We plan to sell our excess steam to the Parent Group at cost, with such cost to be determined after taking into account, among others, the cost of water, depreciation and amortization of equipment dedicated for steam production, staff cost and other consumables used to produce steam. Our Directors consider that, given (i) the general lack of market demand for steam in the region where our production facilities are located and (ii) the practical difficulties associated with transporting steam to distant locations (once the temperature inside the steam pipes reduces the steam will turn into water), it is fair and reasonable to sell steam to the Parent Group at cost.

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RELATIONSHIP WITH KINGBOARD

Having considered the expected growth in Kingboard’s production of acetic acid and expected increase in demand for coke and steam from us, and taken into consideration the estimated increase in the average selling price for the sale of coke and the estimated increase in the cost for the sale of steam by our Group for the years ending December 31, 2010, 2011 and 2012, the Directors are of the view that the annual caps in respect of the sale of coke and steam by our Group to Kingboard or any other member of the Parent Group under the Supply Agreement are as follows:

Annual caps for coke and steam under the Supply Agreement

Financial year ending Coke Steam

December 31, 2010...... HK$182 million HK$113 million December 31, 2011...... HK$200 million HK$122 million December 31, 2012 ...... HK$220 million HK$132 million

Our Group started selling coke and steam to Kingboard and other members of the Parent Group in September 2009, when the Acetic Acid Plant commenced operations. Our Directors believe that given the Acetic Acid Plant commenced operations in September 2009, the transaction value for sale of coke and steam for the month of September, as well as for the subsequent three months, are not indicative of the transaction value of such sale in future, as it is expected that it will take a few months of “ramping up” before the operations of the Acetic Acid Plant stabilize. During this “ramping up” period, we expect the amounts of coke and steam purchased by the Parent Group will not be representative of the amounts to be purchased in future by it, as the Parent Group has yet to optimize the production schedule and the efficiency of the Acetic Acid Plant and there will be numerous start-stop attempts together with recalibration and maintenance procedures. Furthermore, as a large amount of steam was used to start up and bring the equipment to a certain temperature in September 2009, the amount of steam sold in such month to members of the Parent Group does not accurately reflect the amount of steam that is generally required to be consumed by such plant. Notwithstanding these limitations, our Company estimates that, for the three months ended December 31, 2009, the Acetic Acid Plant operated at an average utilization rate of approximately 30% and we generated sales of approximately HK$15 million and HK$25 million from coke and steam, respectively, sold to members of the Parent Group.

The annual caps for coke and steam under the Supply Agreement for 2010 were estimated by our Directors with reference to the estimated required volume of coke and steam, estimated average selling price of coke and estimated average cost of steam and on the assumption that (i) the Acetic Acid Plant will operate at full capacity and on a full-year basis; (ii) the Acetic Acid Plant will require 108,000 tonnes of coke and 768,000 tonnes of steam on a full-year basis; and (iii) the estimated average selling price of HK$1,682 per tonne for coke based on a 10% increase from the average selling price of coke for the nine months ended September 30, 2009 and the estimated cost of HK$147 per tonne for steam.

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RELATIONSHIP WITH KINGBOARD

The annual caps for coke and steam under the Supply Agreement for 2011 and 2012 were estimated by our Directors with reference to the proposed annual caps of 2010 and on the assumption that (i) the Acetic Acid Plant will operate at full capacity and on a full-year basis; and (ii) there would be an annual increase in the average selling price and cost for coke and steam from 2010 to 2012 of approximately 10% and 8% respectively.

The 10% annual increase in the average selling price for coke is within the historical range of period-over-period change of the average selling price during the three years ended December 31, 2008 and the nine months ended September 30, 2009 and the assumed average selling price is also within the historical range of the monthly average selling price of coke. In addition, the 8% annual increase in the average selling price for steam is within the historical range of monthly inflation rate in China.

(ii) Sale of methanol under the Supply Agreement

Pursuant to the Supply Agreement, Kingboard has undertaken to purchase or cause a member of the Parent Group to purchase, in the future, any and all methanol produced by us in accordance with the terms and conditions therein. Our Group will not be obligated to supply a minimum amount of methanol to Kingboard or any other member of the Parent Group, but Kingboard will be obligated to cause a member of the Parent Group to purchase any and all methanol produced by our Group at the prevailing market price during the term of the Supply Agreement. Also, the prices are not fixed and we will charge for the methanol to be determined in accordance with the prevailing market prices. The prevailing market price will be the higher of the price of methanol that (a) members of the Parent Group purchased from Independent Third Parties within the 30-day period immediately preceding the proposed sale, (b) we sold to Independent Third Parties within the 30-day period immediately preceding the proposed sale, and (c) contained in one or more offers or quotations obtained by us from Independent Third Parties within the five-day period immediately preceding the proposed sale. If none of the foregoing is available, then the price will be determined by an Independent Third Party in the methanol industry that is appointed jointly by our Company and Kingboard. Our Directors believe that the market for methanol in China is competitive and pricing terms are generally transparent to the market players. Under the Supply Agreement, Kingboard has also undertaken to supply all information reasonably requested by our Company in connection with its assessment of the price of methanol to be sold to the Parent Group. In no event will the terms be more favorable to the Parent Group than those offered by our Group to Independent Third Parties at the relevant point in time (generally having regard to the quantity, quality and special specifications of the products ordered and other special circumstances). Our Group shall grant a credit period of up to 30 days to the Parent Group, which is consistent with the credit terms granted by our Group to comparable Independent Third Parties.

The Parent Group owns and operates an Acetic Acid Plant in Hebei, which requires methanol as feedstock to produce acetic acid. The Parent Group currently purchases methanol from our Group and upon the commencement of full commercial operation of the Acetic Acid Plant, the demand for methanol by the Parent Group will increase substantially.

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RELATIONSHIP WITH KINGBOARD

Having considered the expected growth in the Parent Group’s production of acetic acid and expected increase in demand for methanol from us, and taken into consideration the estimated increase in the average selling price for the sale of methanol by our Group for the years ending December 31, 2010, 2011 and 2012, the Directors are of the view that the annual caps in respect of the sale of methanol by our Group to the Parent Group under the Supply Agreement are as follows:

Annual cap for methanol under the Financial year ending Supply Agreement

December 31, 2010 ...... HK$408 million December 31, 2011 ...... HK$449 million December 31, 2012 ...... HK$494 million

As disclosed above, our Group sold methanol to Kingboard’s subsidiary in Jiangsu province for the production of formalin for the three years ended December 31, 2008. Revenue generated by such sales amounted to approximately HK$28.1 million, HK$62.1 million and HK$41.1 million, respectively. Such transactions were terminated in 2009 as Kingboard’s subsidiary in Jiangsu province was able to obtain methanol at a lower price from other suppliers in such province. Due to the difference in geographical locations and intended usage of the methanol, we believe it is inappropriate and not reliable to make reference to the historical value of such transactions when determining the annual caps for the sale of methanol under the Supply Agreement.

Our Group started selling methanol to Kingboard and other members of the Parent Group in September 2009, when the Acetic Acid Plant commenced operations. Our Directors believe that given the Acetic Acid Plant commenced operations in September 2009, the transaction value for sale of methanol for the month of September, as well as for the subsequent three months, are not indicative of the transaction value of such sale in future, as it is expected that it will take a few months of “ramping up” before the operations of the Acetic Acid Plant is expected to stabilize. During this “ramping up” period, we expect the amount of methanol purchased by the Parent Group will not be representative of the amount to be purchased in future by it, as the Parent Group has yet to optimize the production schedule and the efficiency of the Acetic Acid Plant and there will be numerous start-stop attempts together with recalibration and maintenance procedures. Notwithstanding these limitations, our Company estimates that, for the three months ended December 31, 2009, the Acetic Acid Plant operated at an average utilization rate of approximately 30% and we generated sales of approximately HK$35 million from methanol sold to members of the Parent Group.

The annual cap for methanol under the Supply Agreement for 2010 was estimated by our Directors with reference to the estimated required volume of methanol, estimated average selling price of methanol and on the assumption that (i) the Acetic Acid Plant will operate at full capacity and on a full-year basis; (ii) the Acetic Acid Plant will require 200,000 tonnes of methanol from us on a full-year basis; and (iii) the average selling price of HK$2,040 per tonne for methanol based on a 15% increase from the average selling price of methanol for the nine months ended September 30, 2009.

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RELATIONSHIP WITH KINGBOARD

The annual caps for methanol under the Supply Agreement for 2011 and 2012 were estimated by our Directors with reference to the proposed annual cap of 2010 and on the assumption that (i) the Acetic Acid Plant will operate at full capacity and on a full-year basis; and (ii) there would be an annual increase in the average selling price for methanol from 2010 to 2012 of approximately 10%.

The 10% annual increase in the average selling price for methanol is within the historical range of period-over-period change of the average selling price during the three years ended December 31, 2008 and the nine months ended September 30, 2009 and the assumed average selling price is also within the historical range of the monthly average selling price of methanol.

Our Group has established a close working relationship with the Parent Group and the continuation of the transactions under the Supply Agreement will enhance the revenue of our Group through increased sales and thus benefiting the Shareholders as a whole.

Confirmation from the Directors

Our Directors (including the INEDs) consider that the non-exempt continuing connected transactions specified under the section headed “Non-exempt Continuing Connected Transactions” in this document have been and will be entered into in the ordinary and usual course of business and on normal commercial terms and on an arm’s-length basis and the terms under the Supply Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Our Directors (including INEDs) are of the view that the proposed annual caps to the above non-exempt continuing connected transactions are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Under applicable rules, these continuing connected transactions are considered non-exempt continuing connected transactions and would be subject to compliance with the reporting, announcement and independent shareholders’ approval requirements on each occasion that they arise.

Related party transactions

Certain transactions, which are continuing or discontinuing in nature, have occurred between members of our Group and the Parent Group during the three years ended December 31, 2008 and the nine months ended September 30, 2009, constitute or constituted related party transactions of our Company pursuant to Hong Kong Accounting Standard 24 “Related Party Disclosures”. Our Directors are of the view that the related party transactions are and were carried out in the ordinary and usual course of business and on normal commercial terms. Please refer to note 30 to the Accountants’ Report as set out in Appendix I to this document for details of the significant related party transactions.

Potential Future Connected Transactions

Kingboard has granted to the Company the Acetic Acid Plant Option to acquire the Acetic Acid Plant from Kingboard. If we seek to exercise the Acetic Acid Plant Option to acquire the Acetic Acid Plant, the acquisition will be treated as a connected transaction of the Company under applicable rules for so long as Kingboard remains a connected person of the Company. We will comply with the relevant requirements under applicable rules in the event that the Acetic Acid Plant Option is exercised. For further details of these arrangements, please refer to the section headed “Relationship with Kingboard — Acetic Acid Plant Option” in this document.

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DIRECTORS, SENIOR MANAGEMENT AND STAFF

GENERAL App1A41(1) App1A41(2) App1A41(3) App1A41(4) The Board consists of eight Directors, comprising two executive Directors, two non-executive App1A41(5) App1A42 Directors and four independent non-executive Directors. The Directors are appointed for a term not exceeding three years, with one-third of our Board voting at each annual general meeting provided that every Director shall be subject to retirement at an annual general meeting at least once every three years.

The principal functions and duties conferred on our Board include:

• convening general meetings and reporting our Board’s work at general meetings;

• implementing the resolutions passed by our Shareholders in general meetings;

• deciding our business plans and investment plans;

• preparing our annual financial budgets and final reports;

• formulating the proposals for profit distributions, recovery of losses and for the increase or reduction of our registered capital; and

• exercising other powers, functions and duties conferred by our Shareholders in general meetings.

The following table provides information about our Directors and other senior management of CO 3rd Sch 6 our Company.

Year of joining our Name Age Residential address Group Position App1A41

Ho Yin Sang (何燕生) 55 Flat B, 8th Floor, Block 7 2003 Executive Director and Villa Rhapsody Chairman Symphony Bay No.533 Sai Sha Road New Territories Hong Kong

Wong Yun Kit (王仁傑) 61 25E Peony Court 2004 Executive Director Fulrich Garden 9 Kung Lok Road Kwun Tong Hong Kong

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DIRECTORS, SENIOR MANAGEMENT AND STAFF

Year of joining our Name Age Residential address Group Position App1A41

Cheung Kwok Wing 54 C1, Ground Floor 2003 Non-executive Director (張國榮) Pine Villa 4-14 Lok Yuen Path Shatin, New Territories Hong Kong

Chan Wing Kwan 63 Flat A, 8th Floor 2003 Non-executive Director (陳永錕) Claymore Garden 3 Lok Fung Path Shatin, New Territories Hong Kong

Lau Tai Chim (劉大潛) 58 Ground Floor, DD239, 2009 Independent non-executive Lot 419 Director Clear Water Bay Road O Pui Village Mang Kung Uk, Sai Kung New Territories Hong Kong

Huang Wujun (黃武君) 68 Room 501, Dormitory of 2009 Independent non-executive Foreign and Overseas Director Chinese Affairs Bureau No. 2 Renmin Road Qingcheng District Qingyuan City Guangdong Province PRC

Cheung Ming Man 53 House 96 Miami Crescent 2009 Independent non-executive (張明敏) 328 Fan Kam Road Director Sheung Shui New Territories Hong Kong

Chung Wai Cheong, 40 Unit F, 41st Floor 2009 Independent non-executive Stanley (鍾偉昌) Tower 3, Sorrento Director 1 Austin Road Tsim Sha Tsui Kowloon Hong Kong

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DIRECTORS, SENIOR MANAGEMENT AND STAFF

Year of joining our Name Age Residential address Group Position App1A41

Han Guokai (韓國凱) 49 No. 6 , Helanqiao Alley 2005 General manager of the Pingyao County Company in charge of the Shanxi Province production, operation and PRC management

Wang Chengwu (王成武) 41 No. 502, Unit 2 2004 Deputy general manager of the Building 2, Courtyard 7 Company in charge of the Diyuan Alley production and management Xuanhua District Zhanjiakou City Hebei Province PRC

Zhong Weihong 50 No. 40-3-15, Sijiefang 2008 Financial controller (鍾偉紅) Zhongbei Road Wuchang District Wuhan City PRC

Zhao Jimin (趙繼民) 42 Chemical Factory No.1 2004 Chief production coordination No. 268 Zhongxing Road officer Qiaoxi District Xingtai City Hebei Province PRC

EXECUTIVE DIRECTORS

Mr. Ho Yin Sang (何燕生), aged 55, is the chairman of our Company and an executive Director. He is currently an executive director of Kingboard, but will cease his executive role in Kingboard and be redesignated as a non-executive director of Kingboard. He is the brother-in-law of Mr. Cheung Kwok Wing and Ms. Cheung Wai Lin, Stephanie, each an executive director of Kingboard. Mr. Ho joined the Kingboard Group in 1989 and is responsible for the Kingboard Group’s chemical business operations in Hebei and Shanxi provinces. Mr. Ho is responsible for the overall strategic planning and business operation of Kingboard Hebei Chemical and Kingboard Hebei Cokechem. He has over 20 years of experience in the chemicals-related industries and is currently a member of the Hebei Provincial Committee of the Chinese People’s Political Consultative Conference. Mr. Ho Yin Sang was also one of the founders of the Parent Group’s glass yarn manufacturing business in Guangdong province and the Parent Group’s chemical business in Shanxi province. Since the establishment of these businesses in Guangdong and Shanxi provinces in 2001 and 2006 respectively, Mr. Ho has been supervising their development and providing his industry expertise for the expansion of these businesses. He is also a non-executive director of Kingboard Copper Foil Holdings (“KCFH”), a

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DIRECTORS, SENIOR MANAGEMENT AND STAFF subsidiary of Kingboard listed on the Singapore Exchange Securities Trading Limited (“SGX”). Mr. Ho was appointed as a Director on September 4, 2009. Save as disclosed, in the three years preceding the Latest Practicable Date, Mr. Ho did not hold any directorship position with other listed public companies.

Mr. Wong Yun Kit (王仁傑), aged 61, is an executive Director. Mr. Wong obtained a diploma in accounting from the Hong Kong Baptist College in 1975 and subsequently graduated from School of Communication, Hong Kong Baptist University in 1998 with a master degree in arts. Since his joining of the Kingboard Group in November 1999, Mr. Wong has been in charge of Foreign Market Export Department and was the Head of Sales of the Foreign Market Export Department for the Kingboard Group. Mr. Wong is responsible for the sales and marketing of Kingboard Hebei Chemical and Kingboard Hebei Cokechem since they commenced production in 2004. Mr. Wong has over six years of experience in the coke and coke-related chemicals industry and is currently a Standing Committee Representative of the Hebei Coke & Chemical Industry Association. Before joining Kingboard, Mr. Wong worked with 3M Hong Kong Limited for more than 20 years, assuming positions in the departments of finance, market development, China operations, China and Hong Kong market promotions and public relations, respectively. Mr. Wong was appointed as a Director on September 4, 2009. In the three years preceding the Latest Practicable Date, Mr. Wong did not hold any directorship position with other listed public companies.

NON-EXECUTIVE DIRECTORS

Mr. Cheung Kwok Wing (張國榮), aged 54, is a non-executive Director. He is the chairman and a co-founder of the Kingboard Group, the chairman of KCFH as well as Elec & Eltek International Company Limited (“EEIC”), a subsidiary of Kingboard listed on the SGX. Mr. Cheung is the brother of Ms. Cheung Wai Lin, Stephanie, the cousin of Mr. Cheung Kwong Kwan and the brother-in-law of Mr. Chang Wing Yiu and Mr. Ho Yin Sang, each an executive director of Kingboard. Mr. Cheung was brought up and lived in the PRC for approximately seven years before he moved to Hong Kong in 1962 where he resides until now. Mr. Cheung is responsible for the overall strategic planning of the Kingboard Group and sets the general direction and goals for the Kingboard Group. He has over 20 years of experience in the sales and distribution of electronic components, industrial chemicals and printed circuit boards. Mr. Cheung won the Young Industrialist Award of Hong Kong 1993, which was organized by the Federation of Hong Kong Industries. Mr. Cheung was the winner of the DHL/SCMP Hong Kong Business Award, accredited with the Owner-Operator Award in 2006. Mr. Cheung is not, and has not been a full time government official of any country nor a full time employee of any state/government-owned or operated entity. Mr. Cheung was appointed as a Director on September 4, 2009. Save as disclosed, in the three years preceding the Latest Practicable Date, Mr. Cheung did not hold any directorship position with other listed public companies.

Mr. Chan Wing Kwan (陳永錕), aged 63, is a non-executive Director. He is the managing director and a co-founder of the Kingboard Group, the managing director of KCFH and a non-executive director of EEIC. Mr. Chan has over 20 years of experience in the sales and distribution of electronic components, industrial chemicals and printed circuit boards. Mr. Chan is responsible for the overall implementation of the strategic plans and goals of the Kingboard Group. Mr. Chan was appointed as a Director on September 4, 2009. Save as disclosed, in the three years preceding the Latest Practicable Date, Mr. Chan did not hold any directorship position with other listed public companies.

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DIRECTORS, SENIOR MANAGEMENT AND STAFF

INDEPENDENT NON-EXECUTIVE DIRECTORS

Mr. Lau Tai Chim (劉大潛), aged 58, is an independent non-executive Director. He is a solicitor practising law in Hong Kong in the firm T. C. Lau & Co. He graduated from the University of Buckingham in England in 1981 with a bachelor degree in laws. He is also a solicitor in England and Wales and the Republic of Singapore. Mr. Lau is a notary public and an attesting officer appointed by the PRC Ministry of Justice. He is also an independent non-executive director of Warderly International Holdings Limited, a company listed on the Main Board of the Stock Exchange which is under the third stage of delisting. Mr. Lau also has approximately seven years of experience in reviewing and analyzing audited financial statements by serving as the chairman of the audit committee of Warderly International Holdings Limited from 2002 to present. Mr. Lau was appointed as an independent non-executive Director on October 23, 2009. Save as disclosed, in the three years preceding the Latest Practicable Date, Mr. Lau did not hold any directorship position with any listed public companies.

Mr. Huang Wujun (黃武君), aged 68, is an independent non-executive Director. Mr. Huang graduated from the South China Normal University (華南師範大學) in 1963 with a bachelor degree in mathematics. He has previously served as the executive deputy mayor of Qingyuan City, Guangdong Province between 1988 and 1998, where he was in charge of economic development works and planning. He was also a member of the Guangdong Provincial Committee of the Chinese People’s Political Consultative Conference, the chairman of the City Committee of Qingyuan, Guangdong Province of the Chinese People’s Political Consultative Conference, the founding consultant of Hong Kong Qingyuan Organization (香港清遠友好協進會) and the director of Hong Kong Kingswood Richly Limited (香港新北江有限公司). Mr. Huang was appointed as an independent non-executive Director on October 23, 2009. In the three years preceding the Latest Practicable Date, Mr. Huang did not hold any directorship position with any listed companies.

Mr. Cheung Ming Man (張明敏), aged 53, is an independent non-executive Director. He has extensive experience in the sector of entertainment, performance and cultural in Hong Kong in the 1980s. Mr. Cheung also participated in a number of community associations, including the Hong Kong Chinese Importers’ & Exporters’ Association (Executive Director) (香港中華出入口商會常務會常務理事); The Hong Kong Special Administrative Region Election Committee (First and Second Election Committee Member) (香港特別行政區第一、二屆推選委員會委員); Deputy of the National People’s Congress of PRC Election Committee (Ninth and Tenth Election Committee Member) (第九、十屆港區人大選舉會議成員) and Chinese People’s Political Consultative Conference Guangxi Zhuang Autonomous Region Committee (Member) (中國人民政治協商會議廣西壯族自治區委員). He is also an independent non-executive director of Mei Ah Entertainment Group Limited, a company listed on the Main Board of the Stock Exchange. Mr. Cheung also has approximately five years of experience in reviewing and analyzing audited financial statements by serving as a member of the audit committee of Mei Ah Entertainment Group Limited from 2004 to present. Mr. Cheung was appointed as an independent non-executive Director on October 23, 2009. Save as disclosed in the document, in the three years preceding the Latest Practicable Date, Mr. Cheung did not hold any directorship position with any listed companies.

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DIRECTORS, SENIOR MANAGEMENT AND STAFF

Mr. Chung Wai Cheong, Stanley (鍾偉昌), aged 40, is an independent non-executive Director. He is the financial controller of IDT Electronic Products Limited. Mr. Chung graduated from the University of Melbourne in 1993 with a bachelor’s degree in commerce. He is a member of the Hong Kong Institute of Certified Public Accountants and is a certified practising accountant of the CPA Australia. He has over 15 years’ experience in the accounting industry. Mr. Chung was previously appointed as the company secretary of Kingboard between 1999 and 2001. Mr. Chung was appointed as an independent non-executive Director on December 19, 2009. In the three years preceding the Latest Practicable Date, Mr. Chung did not hold any directorship position with any listed public companies. The Board is of the view that Mr. Chung’s prior involvement with Kingboard as its company secretary does not conflict with his independence, given that such involvement was more than eight years ago.

Save as disclosed above, there is no other information in respect of the Directors to be disclosed pursuant to applicable rules.

Although none of our INEDs has any relevant industry experience, the Articles provide that a majority of the INEDs acting together are empowered to engage professional advisors at the Company’s costs without the need to obtain prior approval from other members of the Board. See “Relationship with Kingboard — Corporate Governance”.

OTHER SENIOR MANAGEMENT

Mr. Han Guokai (韓國凱), aged 49, joined us in 2005. Since then, Mr. Han has acted as our deputy general manager in charge of production. Mr. Han is presently the general manager of our Company in charge of the production, operation and management of Kingboard Hebei Cokechem and Kingboard Hebei Chemical. He is presently in charge of production operations and is responsible for liaising with government departments of different levels. In November 2007, Mr. Han attended a training program organized by the Hebei Province Administration of Work Safety for responsible officers on dangerous chemicals and received a certificate for “Chief Responsible Officer and Managers of Enterprises Producing Dangerous Chemicals” (危險化學品生產企業主要負責人管理人員證書). He was also the responsible officer for the construction of the phase II coke and phase II methanol production facilities in 2007. Before joining the Kingboard Group, Mr. Han had worked in the coke and coke-related chemicals industry for more than ten years where he was mainly involved in production operations and sales aspects. He is currently the Vice Chairman of the Hebei Coke & Chemical Industry Association. He has served as the deputy general manager of a coke chemical company in Shanxi.

Mr. Wang Chengwu (王成武), aged 41, joined us in 2004. He acquired a diploma from Hebei University of Science and Technology (河北科技大學) in 2003, majoring in chemical process technology. Prior to joining the Group, Mr. Wang worked in China Haohua Group Xuanhua Corporation Limited (中國昊華集團宣化有限公司), which was formerly known as Hebei Xuanhua Chemical Fertilizer Group Corporation Limited (河北宣化化肥有限責任公司), for approximately 15 years where he served as a technician, equipment officer, head of the equipment and power division, the deputy head of the industrial engineering department and the deputy manager of the repair and maintenance engineering department. His main duties included arranging for the analysis of the physiochemical properties of external raw materials, project installation and management of facilities,

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DIRECTORS, SENIOR MANAGEMENT AND STAFF setting conditions for processes, improving production processes and formulating process documentation. Mr. Wang was also responsible for controlling the process of chemical products production, analyzing and solving specific technical problems, introducing and following up with new products and processes, instructing the process for synthesis ammonia and managing the repair and maintenance of mechanical equipment. Since his joining of our Group, Mr. Wang has served positions such as specialist engineer, department manager and deputy general manager of Kingboard Hebei Cokechem. He is mainly responsible for the design and consultation works on water treatment in the coking and chemical projects, including the process design of domestic sewage and some high density sewage. Mr. Wang is involved in the construction of related facilities, the operations of and transferrals of technicians. He is also responsible for the quality control of the incoming and outgoing products and raw materials of the Group and is in charge of the overall management of the construction, building, reform and production of the phase I and phase II methanol production facilities. Mr. Wang is presently the deputy general manager of Kingboard Hebei Cokechem and Kingboard Hebei Chemical and in charge of production and management of our Company.

Ms. Zhong Weihong (鍾偉紅), aged 50, joined the Kingboard Group in 1996. She acquired a diploma from Shenyang University of Technology (瀋陽工業大學) in 1988, majoring in industrial accounting. Prior to her joining of the Group, Ms. Zhong has over 16 years of experience in financial management work where she was responsible for finance and tax affairs of various companies. Since her joining of the Kingboard Group, Ms. Zhong has served as finance manager of Fogang Kingboard Industry Ltd., finance manager of Guangzhou Chung Shun Century Fibre Glass Co., Ltd. and financial controller of Kingboard South China Chemical Department. Ms. Zhong is presently the financial controller of Kingboard Hebei Cokechem and Kingboard Hebei Chemical where her work involves preparing the budgets and monitoring the daily financial and accounting activities of the Group. She is also in charge of the establishment of the Group’s audit and financial management framework. Her main responsibilities include ensuring the compliance of the Group’s financial, accounting and audit reports and to report to the management any operational behavior which deviates from the requirements of PRC laws and regulations or is likely to cause loss or damage to the Group’s assets.

Mr. Zhao Jimin (趙繼民), aged 42, joined the Kingboard Group in March 2004. He graduated from Hebei University of Technology (河北工業大學) in 1989 with a bachelor’s degree in science, majoring in inorganic chemistry. Mr. Zhao is a chemical engineer and a certified safety engineer in the PRC. He has over 12 years of experience in the production of syntheses ammonia and over 18 years of experience in chemical production and safety management works. From 1989 to 2001, he worked in a chemical factory in Xingtai City where he served as the deputy officer of the carbonation of synthesis ammonia workshop, officer of the syntheses workshop, officer of the production office and head of the safety technology branch. He was also in charge of the technology, production and safety management of the synthesis ammonia process. Since joining the Kingboard Group in 2004, Mr. Zhao has worked with Kingboard Hebei Cokechem mainly in charge of the management of safety and production of cokes and methanol and served positions including safety supervisor and chief production coordinator. Mr. Zhao is presently the chief production coordinator of Kingboard Hebei Cokechem and Kingboard Hebei Chemical.

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DIRECTORS, SENIOR MANAGEMENT AND STAFF

COMPANY SECRETARY

Mr. Tse Man Fu (謝文富), aged 38, is our company secretary. He started to work for the App1A42 Company on a full-time basis upon his appointment as a company secretary of the Company on October 23, 2009. He joined the Kingboard Group in May 2006 where he worked on a full-time basis and was primarily responsible for the company secretarial work and related matters of the Kingboard Group. Prior to joining the Kingboard Group, he was an accountant at a property development company and a senior auditor at T.C. Ng & Co. Certified Public Accountants. He graduated from The Hong Kong Polytechnic University in 1994 with a bachelor’s degree in accountancy. He is an associate LR8.17(3) member of The Hong Kong Institute of Certified Public Accountants. He has over 15 years of experience in auditing and accounting.

BOARD COMMITTEES

Audit Committee

The Board has established the Audit Committee, which operates under a charter approved by the Board. It is the Board’s responsibility to ensure that an effective internal control framework exists within the entity. This includes internal controls to deal with both the effectiveness and efficiency of significant business processes, the safeguarding of assets, the maintenance of proper accounting records, and the reliability of financial information as well as non-financial considerations such as the benchmarking of operational key performance indicators. The Board has delegated the responsibility for the initial establishment and the maintenance of a framework of internal controls and ethical standards for our management to the Audit Committee.

Our Audit Committee currently comprises of four independent non-executive Directors, namely Chung Wai Cheong, Stanley, Lau Tai Chim, Huang Wujun, Cheung Ming Man. Chung Wai Cheong, Stanley is the chairman of our Audit Committee.

Remuneration Committee

The Remuneration Committee of the Board is responsible for determining and reviewing compensation arrangements for the Directors, the chief executive officer and the senior management. The Remuneration Committee assesses the appropriateness of the nature and amount of emoluments of such officers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum shareholder benefit from the retention of a high quality board and executive team. To assist in achieving these objectives, the Remuneration Committee considers the nature and amount of executive Directors’ and senior executives’ emoluments to the Company’s financial and operational performance.

Our Remuneration Committee currently comprises of four independent non-executive Directors, namely, Lau Tai Chim, Huang Wujun, Cheung Ming Man and Chung Wai Cheong, Stanley. Lau Tai Chim is the chairman of our Remuneration Committee.

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DIRECTORS, SENIOR MANAGEMENT AND STAFF

Nomination Committee

The Nomination Committee of the Board is responsible for making recommendations to the Board regarding candidates to fill vacancies on the Board, management of the Board succession.

Our Nomination Committee currently comprises of four independent non-executive Directors, namely, Lau Tai Chim, Huang Wujun, Cheung Ming Man and Chung Wai Cheong, Stanley. Huang Wujun is the chairman of our Nomination Committee.

EMPLOYEES

Our Company was incorporated on September 4, 2009. Prior to that, our operations were conducted by the Kingboard Group.

As at the Latest Practicable Date, we had approximately 2,000 full-time employees. All of our employees are members of our company union.

As at the Latest Practicable Date, the number of our employees was as follows:

Kingboard Kingboard Hebei Hebei Cokechem Chemical Total

Production ...... 891 877 1,768 Management and administrative ...... 75 67 142 Sales and marketing ...... 8 8 16 Total ...... 974 952 1,926

We provide our employees with accidental and medical insurance as well as additional benefits such as subsidized accommodation and meals for our workers at our production site and transportation to and from our production site. We organize recreational activities for our employees and we have in the past presented cash, prizes or gifts to employees on special occasions. We equip our employees with the skills and knowledge relevant to their work by providing internal and external training programs.

The remuneration package of our employees includes salary, bonuses and allowances. In accordance with the relevant labor and social welfare laws and regulations, we are required to pay in respect of each of our employees a monthly social insurance premium covering pension insurance, medical insurance, unemployment insurance, maternity insurance and injury insurance.

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DIRECTORS, SENIOR MANAGEMENT AND STAFF

Our Directors believe that we maintain good relations with our employees. During the three years ended December 31, 2008 and the nine months ended September 30, 2009, we have not experienced any difficulty in recruiting suitable staff for our operations. We have not experienced any disruption of our operations arising from labor disputes since the establishment of our business.

During each of the years ended December 31, 2006, 2007, 2008 and the nine months ended App1A46(2) September 30, 2009, no director’s emoluments have been paid or payable. Save as disclosed in this document, no remuneration has been paid to our Directors as an inducement to join or upon joining our Group or as compensation for the loss of office as a director of any member of our Group or of any other office in connection with the management of the affairs of any member of our Group during the three years ended December 31, 2008 and the nine months ended September 30, 2009. No Directors waived any emoluments during the three years ended December 31, 2008 and the nine months ended September 30, 2009.

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FINANCIAL INFORMATION

SELECTED HISTORICAL COMBINED FINANCIAL INFORMATION LR11.07

Selected Historical Combined Financial Information

Prior to the Restructuring, our business operations were conducted by the companies wholly-owned or controlled by the Kingboard Group. After the Restructuring, our Group comprising our Company and our subsidiaries is being treated for accounting purposes as a continuing entity and has been under the common control of the Kingboard Group both prior to and after the Restructuring. The combined statements of comprehensive income, the combined statements of changes in equity and the combined statements of cash flows for each of the years ended December 31, 2006, 2007 and 2008 and the nine months ended September 30, 2008 and 2009, which include the results, changes in equity and cash flows of the companies comprising our Group, have been prepared as if the current group structure had been in existence throughout the three years ended December 31, 2008 and the nine months ended September 30, 2009, or since their respective dates of incorporation if shorter.

The combined statements of financial position of our Group as at December 31, 2006, 2007 and 2008 and September 30, 2009 have been prepared to present the assets and liabilities of the companies comprising our Group as at the respective dates as if the current group structure had been in existence at those dates.

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FINANCIAL INFORMATION

Selected items of combined statements of comprehensive income Co 3rd Sch27

Nine months ended Year ended December 31, September 30,

2006 2007 2008 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited)

Revenue...... 1,104,084 1,540,899 3,134,963 2,739,712 2,539,394 App1A33(1) Cost of sales...... (910,144) (1,187,679) (2,700,623) (2,124,503) (2,287,073)

Gross profit ...... 193,940 353,220 434,340 615,209 252,321 Other income ...... 12,000 17,920 13,425 12,985 4,995 Distribution and selling expenses...... (39,091) (39,208) (88,350) (67,261) (100,736) Administrative expenses ...... (56,298) (93,451) (97,807) (92,040) (38,084) Other gains and losses ...... 32,713 27,750 11,993 14,203 8,827 Finance costs ...... (8,882) (8,862) (25,621) (22,887) (10,373) Profit before taxation...... 134,382 257,369 247,980 460,209 116,950 Taxation...... — — (39,948) (55,774) (4,310)

Profit for the year/period attributable LR8.05(1)(a) to owners of the Company ...... 134,382 257,369 208,032 404,435 112,640 Other comprehensive income for the year/period: Exchange difference arising on translation to presentation currency ...... 6,358 31,362 51,600 61,023 814 Total comprehensive income for the year/period attributable to owners of the Company ...... 140,740 288,731 259,632 465,458 113,454

Earnings per share - basic...... [●] cents [●] cents [●] cents [●] cents [●] cents

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FINANCIAL INFORMATION

Selected items of combined statements of financial position

As at As at December 31, September 30,

2006 2007 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000

Non-current assets Properties, plant and equipment...... 766,694 1,175,054 1,989,536 2,106,256 Prepaid lease payments ...... 28,579 30,005 62,964 61,900 Deposits for acquisition of properties, plant and equipment ...... 11,243 13,284 11,223 4,330

806,516 1,218,343 2,063,723 2,172,486

Current assets Inventories ...... 96,830 139,739 145,329 190,900 Trade and other receivables and prepayments ...... 50,683 133,729 314,352 214,066 Bills receivables...... 30,219 107,367 78,382 214,150 Amounts due from fellow subsidiaries...... 2,640 14,541 13,610 71,710 Pledged bank deposits ...... 14,462 15,004 15,875 76,041 Bank balances and cash...... 13,588 200,256 99,008 103,302 208,422 610,636 666,556 870,169 Current liabilities Trade and other payables...... 137,624 332,893 536,605 754,053 Amounts due to fellow subsidiaries ...... 3,608 36,213 176,349 172,562 Amount due to immediate holding company ...... 597,003 371,539 735,197 688,669 Bank borrowings - amount due within one year.... 39,814 42,717 44,473 198,505 Taxation payable ...... — — 20,077 10,504 778,049 783,362 1,512,701 1,824,293 Net current liabilities ...... (569,627) (172,726) (846,145) (954,124) Total assets less current liabilities...... 236,889 1,045,617 1,217,578 1,218,362 Non-current liabilities Bank borrowings - amount due after one year ...... — 400,641 430,527 317,857 Net assets ...... 236,889 644,976 787,051 900,505

Capital and reserves Paid in capital/share capital...... 150,355 269,711 463,640 463,640 Reserves...... 86,534 375,265 323,411 436,865 Equity attributable to owners of the Company...... 236,889 644,976 787,051 900,505

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FINANCIAL INFORMATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis in conjunction with our combined financial information set forth in the accountants’ report included as Appendix I to this document, and our selected historical combined financial information and operating data and the notes thereto included elsewhere in this document. Our combined financial information has been prepared in accordance with HKFRS.

The following discussion and analysis contains certain forward-looking statements that reflect our current views with respect to future events and financial performance. These statements are based on assumptions and analysis made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate under the circumstances. However, whether the actual outcome and developments will meet our expectations and predictions depends on a number of risks and uncertainties over which we do not have control. See “Risk Factors” and “Forward-looking Statements”.

OVERVIEW

We are one of the leading coke producers in Hebei province in China, based on our production volume in 2008, according to the Hebei Coke & Chemical Industry Association. We also produce and sell methanol and pure benzene through a resource-recycling system, using chemical wastes and by-products generated from our coke production process as feedstock. Our principal customers for coke are steel manufacturers in Hebei, while the principal customers for our methanol and pure benzene are chemical companies in Hebei and Shandong. Our production facilities are located at Xingtai city, Hebei province, China, where we occupy a site of approximately 0.6 million square meters.

Our products are divided into the following four categories for financial reporting purposes:

• Coke and related products. This category records the revenue generated by our sale of coke and related products (consisting principally of coal tar, crude benzene and ammonium sulfate). In each of the years ended December 31, 2006, 2007 and 2008 and the nine months ended September 30, 2009, revenue generated by the sale of coke and related products accounted for more than 85% of our total revenue.

• Methanol. This category records the revenue generated by our sale of methanol. Pursuant to the Supply Agreement entered into with Kingboard on [●], 2009, Kingboard has agreed to cause a member of the Parent Group to purchase, in the future, any and all methanol produced by us, at prevailing market prices. See “Relationship with Kingboard — Details of Continuing Connected Transactions” for further information.

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FINANCIAL INFORMATION

• Pure benzene and related products. This category records the revenue generated by our sale of pure benzene and related products (consisting principally of pure toluene, pure xylene, non-aromatics and residue oil). We commenced trial production of pure benzene on November 16, 2008, and accordingly, we did not record any revenue from this segment in 2006 and 2007. Our financial statements for 2008 only included approximately one and a half months of results of operations from this category.

• Others. This category records the revenue generated by the sale of scrap materials.

The table below presents our revenue from our four product categories after elimination of intra-group sales and as a percentage of our total revenue for the years ended December 31, 2006, 2007 and 2008 and the nine months ended September 30, 2008 and 2009.

Year ended December 31, Nine months ended September 30,

2008 2006 2007 2008 (unaudited) 2009

(% of (% of (% of (% of (% of (HK$’000) Total) (HK$’000) Total) (HK$’000) Total) (HK$’000) Total) (HK$’000) Total)

Total revenue ...... 1,104,084 100.0% 1,540,899 100.0% 3,134,963 100.0% 2,739,712 100.0% 2,539,394 100.0%

(1) Revenue amounts under the “others” category in 2006, 2007, 2008 and the nine months ended September 30, 2008 were negligible after rounding the percentages and were rounded down to zero.

BASIS OF PRESENTATION

Our Company was incorporated and registered as an exempted company with limited liability in the Cayman Islands on September 4, 2009 under the Companies Law. Pursuant to the Restructuring, Kingboard transferred its entire equity interests in the companies now comprising our Group directly or indirectly to our Company and our Company became the holding company of our Group on [●], 2010. Our Group comprising our Company and our subsidiaries resulting from the Restructuring is regarded as a continuing entity.

The combined statements of comprehensive income, combined statements of changes in equity and combined statements of cash flows for each of the years ended December 31, 2006, 2007 and 2008 and the nine months ended September 30, 2009, which include the results, changes in equity and cash flow of the companies now comprising our Group, have been prepared on the basis as if the current group structure had been in existence throughout the three years ended December 31, 2008 and the nine months ended September 30, 2009, or since their respective dates of incorporation if shorter. The combined statements of financial position of our Group as at December 31, 2006, 2007 and 2008 and September 30, 2009 have been prepared to present the assets and liabilities of the companies comprising our Group as if the current group structure had been in existence as at those dates.

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FINANCIAL INFORMATION

APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

The HKICPA issued a number of new and revised Hong Kong Accounting Standards and HKFRSs and Amendments and Interpretations, which are effective for our financial periods beginning on January 1, 2009. For the purposes of preparing the Financial Information for the three years ended December 31, 2008 and the nine months ended September 30, 2009, we have adopted all these new HKFRSs consistently throughout the three years ended December 31, 2008 and the nine months ended September 30, 2009.

As of the date of this document, the HKICPA has issued a number of standards, amendments and interpretations that are not yet effective. Please see note 2 to the Accountants’ Report of the Company set forth in Appendix I of this document for more information.

Hong Kong Accounting Standards 1 (Revised) has introduced a number of terminology changes, including revised titles for the combined financial information, which have resulted in a number of changes in presentation and disclosures since January 1, 2009. However, Hong Kong Accounting Standards 1 (Revised) has had no impact on the reported results or financial position of our Group throughout the three years ended December 31, 2008 and the nine months ended September 30, 2009.

As a result of the application of new and revised HKFRSs, we have added an item entitled “exchange differences arising on translation to presentation currency” to the other comprehensive income section of our combined statements of comprehensive income. Such amount represents the translation of our financial information from our functional currency of Renminbi into our presentation currency of Hong Kong dollars. For the years ended December 31, 2006, 2007 and 2008 and the nine months ended September 30, 2009, our exchange differences arising on translation to presentation currency were HK$6.4 million, HK$31.4 million, HK$51.6 million and HK$0.8 million, respectively.

FACTORS AFFECTING OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Our results of operations and the period-to-period comparability of our financial results are primarily affected by the following factors:

Supply and Demand for Our Products

During the three years ended December 31, 2008 and the nine months ended September 30, 2009, we generated, and we expect to continue to generate going forward, the bulk of our revenue through the sale of coke in Hebei province. Coke prices in Hebei province are primarily driven by the supply and demand for coke in Hebei and nearby provinces. The demand for coke is in turn driven primarily by the demand for steel in such provinces. Increases or decreases in the demand for steel in Hebei or nearby provinces will likely increase or decrease coke prices in such provinces. Given that transportation cost can materially affect the price of coke, an increase in the demand for coke in one province cannot ordinarily be satisfied by coke suppliers in provinces that are not in close proximity to such province. Historically, economic growth in the Chinese economy has usually resulted in an increase in activities in the construction and automobile industries, and our business has benefited as

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FINANCIAL INFORMATION activities in the construction and automobile industries increased. The principal customers for our coke are steel manufacturers located in Hebei, and demand for our coke largely corresponds to demand for steel both domestically and from abroad.

During the three years ended December 31, 2008 and the nine months ended September 30, 2009, we generated a small portion of our revenue from the sale of methanol. Historically, a large portion of methanol produced in China is used as an alternative fuel type, either by blending it with gasoline or by processing it into DME. The demand for such alternative fuel type in turn largely depends on gasoline and other energy prices, as an increase in gasoline and other energy prices makes the use of such alternative fuel more attractive and thus increases the demand for methanol. Pursuant to the Supply Agreement entered into with Kingboard on [●], 2009, Kingboard has agreed to cause a member of the Parent Group to purchase, in the future, any and all methanol produced by us, at prevailing market prices. Accordingly, we expect that going forward our revenue from methanol will be driven by our methanol production levels as opposed to demand for methanol generally. There is no assurance that we will produce any methanol in any given year for sale to Kingboard or any other member of the Parent Group.

Average Selling Price

Market forces of supply and demand generally determine the pricing of our products, including any methanol that we sell to Kingboard. Historically, market prices for coke and related products, methanol, and pure benzene and related products have been cyclical, with alternating periods of increased demand and resulting price increases followed by periods of excess supply and resulting price declines. The prices of our products are affected by a number of factors including:

• supply of and demand for coke and related products, methanol, and pure benzene and related products, which is affected by PRC domestic as well as global economic cycles;

• price of our principal raw material, coking coal, which are affected by the supply of and demand for coking coal and subject to PRC domestic as well as global economic cycles;

• our transportation costs, and the availability of transportation capacity and means of transportation;

• our product characteristics and quality (as different grades of coke command different prices in the market); and

• the performance of industries that rely on coke and related products, methanol, and pure benzene and related products, being primarily the steel and chemicals industries, which demand in turn is significantly affected by other industries, such as the construction and automobile industries, as well as PRC government policies.

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FINANCIAL INFORMATION

Our sales are typically conducted on the basis of weekly or monthly purchase orders received from time to time, which set out the specific terms for a particular sale. Prices with respect to purchases made are generally determined at the time of sale. We sell our products for negotiated prices which are typically stated as a price per tonne. We price our products according to the prevailing market prices, the specifications of our products and our relationship with the customer.

This pricing arrangement provides us with a profit incentive to minimize our costs and maximize our efficiency and procurement power. However, if conditions are adverse, we may experience reduced profit margins in the short term, as well as in the long term if such adverse conditions persist for a prolonged period. To the extent our actual costs, production efficiency or product quality differ from our anticipated costs, production efficiency or product quality, our realized margin may differ from what we anticipate. Our profitability may therefore vary due to conditions such as whether we can achieve our target yield performance and whether we can procure raw materials at prices acceptable to us.

The table below presents the average selling price of each of our principal products for the years ended December 31, 2006, 2007 and 2008 and the nine months ended September 30, 2008 and 2009.

Nine months ended Year ended December 31, September 30,

2006 2007 2008 2008 2009

(HK$/tonne) (HK$/tonne) (HK$/tonne) (HK$/tonne) (HK$/tonne)

Principal products Coke ...... 770 1,083 2,073 2,273 1,529 Methanol...... 2,055 2,357 2,835 3,030 1,774 Pure benzene...... — — 2,901 — 4,466

The average selling price of our coke increased from 2006 until the third quarter of 2008, primarily because demand for coke generated by the steel industry in China exceeded supply. The average selling price of methanol also increased during the same period, primarily due to the increase in gasoline prices which drove up the demand for methanol as an alternative fuel source. During the fourth quarter of 2008, we were subject to the effects of the global financial crisis and adverse economic and market conditions prevailing in China, as a result of which the demand for steel produced in China decreased and the average selling price of coke dropped sharply. The average selling price of our methanol also dropped sharply because decreased gasoline prices made methanol less attractive as an alternative fuel source and there was also an increased supply of methanol from abroad including the Middle East, driven by the weakened demand for methanol in the relevant domestic market and the rest of the world. For the nine months ended September 30, 2009, the average selling price of coke recovered to 2007 levels, primarily due to the increased domestic demand for coke from the steel industry, but the average selling price of our methanol still remained below 2006 levels due to the increase in the supply of methanol in China during the preceding years. We commenced trial production of pure benzene on November 16, 2008 and the average selling price of our pure benzene has increased primarily due to the recovery of the domestic economy during the nine months ended September 30, 2009.

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FINANCIAL INFORMATION

The chart below presents the monthly average selling price of our coke and our monthly average costs of coking coal per tonne of coke sold during 2006, 2007, 2008 and the 11 months ended November 30, 2009.

Our Average Selling Price of Coke and Our Average Costs of Coking Coal Per Tonne of Coke Sold, January 2006 - November 2009

HK$/tonne of coke sold 3,000

2,500

2,000

1,500

1,000

500 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Sep-09 Nov-09

Average selling price of coke Average costs of coking coal per tonne of coke sold

During 2006, 2007, 2008 and the 11 months ended November 30, 2009, fluctuations in the average selling prices of our coke were largely in line with fluctuations in the average costs of coking coal sourced by our Group, except for the period from September to December in 2008, when the average selling prices of our coke were lower than our realized average costs of coking coal. This was caused by our decision to purchase additional supplies of coking coal of approximately one month’s supply (beyond our usual commitment of maintaining 18-21 days’ supply on average) between June and August 2008, as (i) we commenced phase II trial production of coke in June 2008 and we were concerned with an adequate supply of coking coal and (ii) we were concerned with potential disruptions in the transportation of our coking coal during the 2008 Olympics. Immediately after August 2008, the average market selling prices of coke decreased sharply. As a result, we had to consume coking coal previously purchased at a cost higher than the average prevailing selling price of our coke products during the fourth quarter of 2008. The average market selling price of coke also remained lower than that of coking coal through December 2008, after which market conditions started to improve.

During the three years ended December 31, 2008 and the nine months ended September 30, 2009, the selling price of coke has been driven by, and has reflected, fluctuations in the selling price of coking coal. Based on the chart “Our Average Selling Price of Coke and Our Average Costs of Coking Coal Per Tonne of Coke Sold, January 2006 — November 2009” above, there was estimated to be a significant correlation between our average selling price of coke and our average costs of coking coal. According to Hebei Coke & Chemical Industry Association, we are one of the leading coke producers in Hebei province based on our production volume in 2008. We believe that the combination of our ability to produce large quantities of Class II coke that falls on the higher end of the Class II coke industry standard and our proximity to our major customers have enabled us to establish and maintain

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FINANCIAL INFORMATION stable long-term relationships with our key customers, which reduce volatility in our sales over time. We also believe the resource-recycling system we operate has allowed us to create additional revenue streams and lower our production costs, thereby increasing our competitiveness and profit margin. On the bases of the above factors, our Directors believe that we will be able to transfer any material risks associated with fluctuations in coking coal prices to our customers. See “Business — Our Competitive Strengths” for details. In addition, we have established long-term strategic relationships with our key suppliers and customers. See “Business — Raw Materials, Inventory, Energy and Water Supply — Raw Materials” and “Business — Sales, Marketing and Pricing — Sales and Marketing” for details.

Sales Volume

Our results of operations are directly affected by our sales volume, which in turn is primarily driven by our production capacity, our production yield for chemical products, and market demand and prevailing market prices for our raw materials and products.

Our coke production capacity has nearly doubled because of the addition of our phase II coke production facility. The actual output of our production facilities and our sales volume also depend on our repair and maintenance schedule, which may temporarily suspend certain components of our production processes. For our coke production facilities, we are not required to suspend production for the purpose of undertaking regular maintenance, whereas for our methanol production facilities, we typically carry out maintenance for approximately one month every one and a half to two years, during which we may suspend or reduce the operations of our methanol production facilities.

Market demand and prevailing market prices for our raw materials and products can also influence our production volume, as we may decide to lower our production volume, which affects our sales volume, where the market demand and prevailing market prices for coking coal increase to a level that renders our production uneconomical. In light of the challenging environment, we have proactively adjusted our strategy and restricted our production volume. From September 2008 to April 2009, we generally restricted our coke production volume to approximately two-thirds of our designed production capacity except that in October 2008, which was around the trough during the second half of 2008, we restricted our coke production volume to approximately one quarter of our designed production capacity. As a result of the reduction in our coke production volume, together with the decreased average selling price of our coke products, during each month from September 2008 to April 2009, our monthly revenue from the sale of coke was approximately one-third to two-thirds of our revenue generated from the sale of coke in August 2008, except that in October 2008, our revenue was approximately one-fifth of our revenue generated from the sale of coke in August 2008.

During the same monthly period, our methanol production volume remained relatively stable except that in October 2008, we did not produce any methanol due to a scheduled maintenance of the methanol production facilities. Although we commenced phase II methanol trial production on January 20, 2009, we did not increase our methanol production volume primarily due to adverse market conditions prevailing during the first few months after our phase II methanol production facilities commenced trial production on January 20, 2009. Driven primarily by the decrease in average selling price of methanol, during each month from September 2008 to April 2009, our monthly revenue from the sale of methanol was approximately half to three-quarters of our revenue generated from the sale of methanol in August 2008, except that in October 2008, we did not generate revenue from the sale

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FINANCIAL INFORMATION of methanol due to a scheduled maintenance of the methanol production facilities. However, since May 2009, we have reached full production capacity, which, together with improved market conditions and the increased average selling price of our coke products, has led to increased revenue.

The table below presents our sales volume, production volume and utilization rate for each of our principal products for the years ended December 31, 2006, 2007 and 2008 and the nine months ended September 30, 2008 and 2009.

Year ended December 31, Nine months ended September 30,

2006 2007 2008 2008 2009

Sales Production Utilization Sales Production Utilization Sales Production Utilization Sales Production Utilization Sales Production Utilization volume volume rate(1) volume volume rate(1) volume volume rate(1) volume volume rate(1) volume volume rate(1)

(’000 (’000 (’000 (’000 (’000 (’000 (’000 (’000 (’000 (’000 tonnes) tonnes) (%) tonnes) tonnes) (%) tonnes) tonnes) (%) tonnes) tonnes) (%) tonnes) tonnes) (%)

Principal products Coke...... 1,045.3 1,014.1 101.4 1,086.3 1,085.9 108.6 1,277.6 1,280.3 84.4(2) 1,019.6 1,023.9 100.0(2) 1,338.7 1,338.7 91.3 Methanol ...... 79.8 79.2 79.2 92.2 92.5 92.5 96.1 95.9 95.9 80.1 79.3 105.9 124.3 127.3 88.2(3) Pure benzene ...... — — — — — — 1.1 1.4 31.8(4) — — — 25.6 25.5 97.3

(4) Calculated based on the designed capacity of our pure benzene production for the period after trial production commenced on November 16, 2008.

During 2006, 2007 and the first five months in 2008 before our phase II coke trial production commenced in June 2008, our methanol yield rate (calculated as methanol production volume divided by coke production volume) for our phase I methanol production were 7.8%, 8.5% and 10.4% respectively. The increasing yield rate for our phase I methanol production was primarily due to our accumulated operating experience and improved production efficiency. Our methanol yield rate for the full year 2008 (with our phase I and II coke and phase I methanol trial production commenced) and nine months ended September 30, 2009 (after both of our phase II coke and phase II methanol production facilities commenced trial production) were 7.5% and 9.5%, respectively. Our methanol yield rate of 7.5% for the full year 2008 was lower than that of 10.4% during the first five months in 2008 because our phase II coke production facilities commenced trial production in the second half of 2008 but our phase II methanol production facilities were still under construction. Our methanol yield rate of 9.5% for the nine months ended September 30, 2009 was lower than that of 10.4% during the first five months in 2008 for our phase I coke and phase I methanol production facilities, primarily because we did not increase our methanol production volume during the first few months after our phase II methanol production facilities commenced trial production on January 20, 2009 due to adverse market conditions.

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FINANCIAL INFORMATION

A higher yield rate allows us to increase our output for the same amount of raw materials consumed, and hence increases our revenue as well as gross margins. As we accumulated operating experience, our methanol yield rate for our phase I production facility has increased from 2006 to 2007 to the first five months in 2008. The drop in methanol yield rate for the full year 2008 was because phase II coke commenced trial production in June 2008 but phase II methanol has not commenced trial production in 2008.

During 2006, 2007 and 2008 and the nine months ended September 30, 2009, our crude benzene yield rate (calculated as crude benzene production volume divided by coke production volume) were 1.26%, 1.18%, 1.20% and 1.24% respectively. Each of the five types of coking coal we use to produce coke generates different amount of crude benzene as by-products due to their different chemical compositions. Our crude benzene yield rate has decreased during 2007 compared to 2006, as we optimized the mix of coking coals we used in 2007 for coke production, which affected the crude benzene yield rate. Since 2007, we have been able to maintain an increasing trend of crude benzene yield rate due to our accumulated operating experience and improved production efficiency.

Cost of Sales

Our cost of sales has a significant effect on our margins and profitability and hence our results of operations. The largest component of our cost of sales is cost of raw materials, and coking coal is our principal raw material. In 2006, 2007 and 2008 and the nine months ended September 30, 2009, raw materials costs accounted for approximately 83.3%, 82.5%, 88.1% and 87.6% of our total cost of sales, respectively. During the same periods, the costs of coking coal accounted for approximately 97.8%, 98.1%, 99.0% and 92.8% of our raw materials cost, respectively. During the years ended December 31, 2006, 2007 and 2008 and the nine months ended September 30, 2009, our coking coal input to coke output ratios were 1.303, 1.301, 1.298 and 1.294 respectively. This has translated into less coking coal required for the same amount of coke produced from period to period, which would enhance our gross margins for coke over the periods provided that the prices of coking coal and coke and the mix of the different types of coals remain constant. We believe there is room to further improve our production efficiency.

We were able to continuously improve our coke production efficiency by leveraging our experience in coal mixing and other operating experience, following the commencement of our phase I coke trial production in November 2004. Based on our cost of coking coal and sales volume of coke, our cost of coking coal were approximately HK$709, HK$885, HK$1,844 and HK$1,388 per tonne of coke sold in 2006, 2007, 2008 and the nine months ended September 30, 2009, respectively. Our average cost of coking coal per tonne of coke sold increased from 2006 until the third quarter of 2008, primarily because demand for coking coal (driven by the demand for coke) exceeded supply. During the fourth quarter of 2008, we were subject to the effects of the global financial crisis and the adverse economic and market conditions then prevailing in China, which together with a decrease in demand for steel produced in China (and correspondingly demand for coke), resulted in a sharp decrease in our average cost of coking coal per tonne of coke sold. Our average cost of coking coal continued to decrease in the beginning of 2009 and started to stabilize and increased from the second quarter of 2009, driven by improved economic and market conditions and increased demand for coking coal.

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FINANCIAL INFORMATION

The chart below presents the amount of coking coal we purchased during each month from January 2006 to November 2009.

Our Monthly Coking Coal Purchase Amount, January 2006 — November 2009

'000 tonnes 350

300

250

200

150

100

0 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Nov-09

During the years ended 2006, 2007, 2008 and the nine months ended September 30, 2009, we consumed approximately 1.4 million tonnes, 1.4 million tonnes, 1.7 million tonnes and 1.7 million tonnes of coking coal, respectively, and our costs of coking coal accounted for 97.8%, 98.1%, 99.0% and 92.8% of our raw material costs, respectively. The chart below presents our average monthly purchase price of coking coal from January 2006 to November 2009.

Our Average Monthly Purchase Price of Coking Coal, January 2006 - November 2009

HK$ / tonne 2,500

2,000

1,500

1,000

500

0 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Nov-09

We purchase coking coal from suppliers based on purchase orders that we issue to them from time to time. Although we occasionally purchase coking coal based on our customers’ rolling forecasts, we usually retain on average 18 to 21 days of coking coal supply at our site as back-up inventory to satisfy our production requirements. During the three years ended December 31, 2008 and the nine months ended September 30, 2009, we deviated from our usual purchase pattern between June and August 2008, when we purchased additional supplies of coking coal of approximately one month’s supply (beyond our usual commitment of maintaining 18 to 21 days’ supply on average), as (i) we

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FINANCIAL INFORMATION commenced phase II trial production of coke in June 2008 and we were concerned with an adequate supply of coking coal and (ii) we were concerned with potential disruptions in the transportation of our coking coal during the 2008 Olympics.

Our other raw material costs primarily include the cost of crude benzene and coke oven light oil (being the raw materials we purchase and use as feedstock to produce pure benzene). An increase in our cost of raw materials that cannot be passed on to customers may lead to a corresponding decrease in our profits.

Other components of our cost of sales include fuel, water and electricity, consumables (being thermal coal used to produce steam and chemical catalysts used in our production processes), depreciation of our production facilities, staff costs related to production, and repair and maintenance costs. Our consumption volume of fuel and consumables are primarily driven by our production volume. Our electricity, steam and water expenses in aggregate accounted for approximately 10.1%, 9.0%, 6.2% and 8.0% of our cost of sales for 2006, 2007, 2008 and the nine months ended September 30, 2009, respectively.

Our fixed overhead, including staff costs, water, electricity and depreciation, is relatively low. Our production plant and equipment is generally depreciated on a straight-line basis. Incremental salary increases affect our cost of sales, but our production facilities are all located in Xingtai in Hebei province where labor cost is significantly lower than those prevailing in more developed regions in China.

Transportation Costs

The principal markets for our products, based on the destinations to which our products are delivered, are steel manufacturers in Hebei and chemical companies in Hebei and Shandong. The price we quote for our coke generally includes delivery from our production facilities to the customers’ sites or designated drop-off points. During 2006, 2007 and 2008 and the nine months ended September 30, 2009, we recorded transportation costs of HK$37.2 million, HK$36.6 million, HK$85.7 million and HK$98.7 million, respectively, which constituted 95.1%, 93.4%, 96.9% and 98.0% of our distribution and selling expenses, respectively.

As is the norm in our industry, coke is transported through trucks for short distance deliveries, which cover all of our sales. We do not operate or own any truck and we rely on third party transportation companies to provide the transportation services. As we price our coke according to the prevailing market price, which is quoted as a price inclusive of delivery, we are unable to charge our customers separately for our transportation costs. Generally, transportation cost is one of the factors that affect the prevailing market price of coke. However, there may be time lags between increases in transportation costs and increases in the prevailing market price of coke, the extent of increase may not be necessarily proportional, and changes in general transportation costs may not necessarily reflect changes in our particular transportation costs. We are therefore exposed to the risk that an increase in our transportation cost cannot be passed on to our customers, which in turn may lead to a reduction in our profits.

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FINANCIAL INFORMATION

We are also generally responsible for transporting the coking coal from our state-owned coal suppliers to our production facilities, the costs of which were booked in our cost of sales as part of our raw material cost. An increase in our transportation costs will therefore also increase our cost of sales and hence lower our margins and profitability.

For methanol and pure benzene, our customers are generally required to take delivery for such products at our production facilities.

Product Mix

Our operating results are also affected by our product mix. During the three years ended December 31, 2008 and the nine months ended September 30, 2009, our profit margin for methanol and pure benzene was generally higher than that for coke. During 2008, we derived 91.2% of our revenue from the sale of coke and related products. We expect that our revenue will continue to be heavily driven by the sale of coke and related products.

Income Tax Expense

Under the Law of the PRC on Enterprise Income Tax, each of our PRC subsidiaries is subject to PRC Enterprise Income Tax at a unified tax rate of 25% and has been so since January 1, 2008. Our PRC subsidiaries were exempted from PRC Foreign Enterprise Income Tax (“FEIT”) for the first two years starting from their first profit-making year after offsetting the accumulated losses brought forward from the previous five years, followed by a 50% reduction on the FEIT for the next three years.

Pursuant to an approval letter dated December 31, 2007, the Hebei Provincial Office of the State Administration of Taxation has also granted an additional preferential tax treatment to Kingboard Hebei Chemical in respect of its income generated from the phase II coke and phase II methanol production facilities. Such income was exempt from FEIT for 2008 and 2009, followed by a 50% reduction on the FEIT for 2010 to 2012.

Our Group was not subject to any taxation under the jurisdiction of the Cayman Islands during the three years ended December 31, 2008 and the nine months ended September 30, 2009. No provision for Hong Kong Profits Tax had been made as our Group had not derived any assessable profits in Hong Kong during the three years ended December 31, 2008 and the nine months ended September 30, 2009.

Our effective income tax rate was nil, nil, 16.1% and 3.7% for the years ended December 31, 2006, 2007 and 2008 and the nine months ended September 30, 2009, respectively. See “Review of Historical Operating Results” for more details. We may not be able to obtain the same levels of preferential income tax treatment upon the expiry of the current tax exemptions and preferential treatments, and our net profits may be adversely affected.

Significant judgment is required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain in the ordinary

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FINANCIAL INFORMATION course of business. Where the final tax outcome of these matters is different from the accounts that were initially recorded, such difference would impact the income tax and deferred tax provisions in the period during which such determination was made.

CRITICAL ACCOUNTING POLICIES

The preparation of our financial statements requires us to make difficult, complex and subjective judgments in selecting the appropriate estimates and assumptions that affect the amounts reported in our financial statements. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, terms of existing contracts, our observance of trends in the industry, information provided by our customers and information available from outside sources, as appropriate. There can be no assurance that our judgments will prove correct or that actual results reported in future periods will not differ from our expectations reflected in our accounting treatment of certain items. We believe that the following critical accounting policies involve the most significant judgments and estimates used in the preparation of our combined financial statements.

Revenue Recognition

Our revenue is primarily derived from the sale of coke, methanol and pure benzene products. Our management has determined that revenue is recognized when it is probable that the economic benefits will flow to us and when the revenue can be measured reliably, which, in the case of the sale of coke, methanol and pure benzene products, is when the significant risks and rewards of ownership have been transferred to the buyer, provided that we maintain neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold. In the case of:

• the sale of coke to our customers, when the coke is unloaded at our customers’ premises (as we generally quote our prices inclusive of delivery); and

• the sale of methanol and pure benzene to our customers, when the methanol and pure benzene are loaded on to the trucks owned or arranged by such customers for transportation (as we generally quote our prices exclusive of delivery).

Inventories

Inventories comprise raw materials, work-in-progress and finished goods and are valued at the lower of cost and net realizable value. Cost is determined on the weighted average basis and, in the case of work-in-progress and finished goods, comprises direct materials, direct labor and an appropriate portion of overheads. Net realizable value is based on estimated selling prices less any estimated costs to be incurred to completion and disposal.

Properties, plant and equipment

Properties, plant and equipment (other than construction in progress) are stated at cost less subsequent accumulated depreciation and accumulated impairment losses, if any. Depreciation is

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FINANCIAL INFORMATION provided to write off the cost of items of properties, plant and equipment (other than construction in progress) over their estimated useful lives and after taking into account of their estimated residual value, using the straight-line method.

Construction in progress includes properties, plant and equipment in the course of construction for production or for its own use purposes. Construction in progress is carried at cost less any recognized impairment loss. Construction in progress is classified to the appropriate category of properties, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other items of properties, plant and equipment, commences when the assets are ready for their intended use.

An item of properties, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the combined statement of comprehensive income in the year/period in which the item is derecognized.

Financial instruments

Financial assets and financial liabilities are recognized on the combined statement of financial position when a group entity becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Financial assets

Our financial assets comprise of loans and receivables. The accounting policies adopted in respect of financial assets are set out below.

Effective interest method

The effective interest method is a method of calculating the amortized cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period. Income is recognized on an effective interest basis for debt instruments.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At the end of each reporting period subsequent to initial

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FINANCIAL INFORMATION recognition, loans and receivables (including amounts due from fellow subsidiaries, trade and other receivables, bills receivables, pledged bank deposits and bank balances and cash) are carried at amortized cost using the effective interest method, less any identified impairment losses.

Impairment of financial assets

Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occur after the initial recognition of the financial asset, the estimated future cash flows of the financial assets have been impacted. Objective evidence of impairment could include significant financial difficulty of the issuer or counterparty; or default or delinquency in interest or principal payments; or it becoming probable that the borrower will enter bankruptcy or financial re-organization.

For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include our past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the credit period of up to 90 days, observable changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortized cost, an impairment loss is recognized in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profit or loss.

For financial assets measured at amortized cost, if, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

Derecognition

Financial assets are derecognized when the rights to receive cash flows from the assets expire or, the financial assets are transferred and we have transferred substantially all the risks and rewards of ownership of the financial assets. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized directly in equity is recognized in profit or loss.

— 179 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

FINANCIAL INFORMATION

Financial liabilities are derecognized when the obligation specified in the relevant contract is discharged, cancelled or expires. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.

Financial liabilities and equity

Financial liabilities and equity instruments issued by a group entity are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in our assets after deducting all of its liabilities.

Effective interest method

The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period. Interest expense is recognized on an effective interest basis for debt instruments.

Financial liabilities

Financial liabilities including trade and other payables, amounts due to related companies and bank borrowings are subsequently measured at amortized cost, using the effective interest method.

Equity instruments

Equity instruments issued by the Company and other group entities are recorded at the proceeds received, net of direct issue cost.

Leasing

Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards of ownership of the assets concerned to us. All other leases are classified as operating leases.

Our Group as lessee

Rental expense arising from operating leases is recognized in the combined statement of comprehensive income on a straight-line basis over the term of the relevant leases. Benefits received and receivable as an incentive to enter into an operating lease are recognized as a reduction of rental expense over the lease term on a straight-line basis.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are recognized as part of the cost of those assets. Capitalization of such borrowing costs ceases

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FINANCIAL INFORMATION when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization. All other borrowing costs are recognized in profit or loss in the year/period in which they are incurred.

Impairment

At the end of each reporting period, we review the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognized as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior periods. A reversal of an impairment loss is recognized as income immediately.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year/period. Taxable profit differs from profit as reported in the combined statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other periods and it further excludes income and expense that are never taxable or deductible. Our liability for current tax is calculated using the tax rate that has been enacted or substantially enacted at the end of each reporting period.

Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the combined statement of financial position and the corresponding tax bases used in the computation of taxable profit, and are accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized.

Such assets and liabilities are not recognized if the temporary difference arises from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognized for taxable temporary differences arising on investments in subsidiaries, except where we are able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered.

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FINANCIAL INFORMATION

Deferred tax is calculated at the tax rates that are expected to apply in the year/period when the liability is settled or the asset realized. Deferred tax is charged or credited to the combined statement of comprehensive income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in the respective functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchange prevailing on the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the end of each reporting period. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are recognized in profit or loss in the year/period in which they arise. For the purposes of presenting the Financial Information, the assets and liabilities of the group entities denominated in RMB are translated into our presentation currency (i.e. Hong Kong dollars) at the rate of exchange prevailing at the end of each reporting period, and their income and expenses are translated at the average exchange rates for the year/period, unless exchange rates fluctuate significantly during the year/period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognized as a separate component of equity (the translation reserve).

Government grants

Government grants are not recognized until there is reasonable assurance that we will comply with the conditions attaching to them and the grants will be received. Government grants are recognized as income over the periods necessary to match them with the costs for which they are intended to compensate, on a systematic basis. Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to us with no future related costs are recognized in profit or loss in the year/period in which they become receivable.

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FINANCIAL INFORMATION

DESCRIPTION OF SELECTED INCOME STATEMENT LINE ITEMS

Revenue

Our revenue represents the amounts received and receivable from goods sold, excluding value-added taxes and after allowances for returns and trade discounts during the relevant periods. During the three years ended December 31, 2008 and the nine months ended September 30, 2009, our revenue principally comprised revenue from the sale of coke and related products, and to a lesser extent, the sale of methanol, pure benzene and related products, and others. We commenced our sale of pure benzene in November 2008 and our revenue for the year ended December 31, 2008 included approximately one and a half months of revenue from such sale. The following table sets forth, for the periods indicated, the components of our revenue.

Nine months ended Year ended December 31, September 30,

2006 2007 2008 2008 2009

(HK$’000) (HK$’000) (HK$’000) (HK$’000) (HK$’000) (unaudited)

Coke and related products...... 939,542 1,322,930 2,857,843 2,496,480 2,159,656 Methanol ...... 164,015 217,270 272,415 242,690 220,451 Pure benzene and related products ..... — — 4,064 — 157,181 Others...... 527 699 641 542 2,106 Total revenue...... 1,104,084 1,540,899 3,134,963 2,739,712 2,539,394

Cost of Sales

Our cost of sales represented 82.4%, 77.1%, 86.1% and 90.1% of our total revenue in 2006, 2007, 2008 and the nine months ended September 30, 2009, respectively. Our cost of sales primarily consists of the cost of raw materials, fuel, water and electricity, consumables (being thermal coal used to produce steam and chemical catalysts used in our production processes), depreciation of our production facilities, staff costs related to production and repair and maintenance costs of our production facilities. The largest component of our cost of sales is the cost of raw materials, accounting for approximately 83.3%, 82.5%, 88.1% and 87.6% of our total cost of sales in 2006, 2007, 2008 and the nine months ended September 30, 2009, respectively.

Other Income

Our other income consists primarily of interest income generated from the deposits we maintained at our bank accounts, government grant and value added tax refund. Government grant is a business encouragement subsidy granted by the Neiqiu County Government to encourage the establishment of coke and coke-related products manufacturing business in Hebei province. The subsidy for each year is calculated at 7% of all taxes (including enterprise income tax, VAT and other taxes) paid by each of Kingboard Hebei Cokechem and Kingboard Hebei Chemical during the year in relation to which the amount of government grant was assessed. The Neiqiu County Government

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FINANCIAL INFORMATION determines whether or not to grant the business encouragement subsidy at its discretion on a year-to-year basis. Value added tax refund is a tax incentive granted to Kingboard Hebei Cokechem and Kingboard Hebei Chemical for capital investment in the Hebei province by the local tax bureau.

Distribution and Selling Expenses

Our distribution and selling expenses primarily consist of transportation costs of delivering our coke to our customers, business development expenses, staff remuneration and others.

Administrative Expenses

Our administrative expenses primarily consist of management fees paid to the Parent Group, staff costs of administrative personnel, traveling expenses and allowances, depreciation charges of our office buildings and equipment, pre-operating expenses incurred prior to trial production and other expenses. For each of 2006, 2007 and 2008, we paid a management fee to the Parent Group equal to 1.9% of our total invoiced revenue amount for certain management services and head office and back office support functions provided by the Parent Group. The management fee percentage was determined based on the total expenses incurred by Kingboard Group at the corporate overhead level as a percentage of the total revenue from the relevant members of Kingboard Group from 2006 to 2008. The total invoiced revenue amount represents the amounts invoiced by us to our customers, which amount is slightly different to the amount of our revenue recognized from such invoices, when goods are delivered and titles have passed. Our invoiced revenue amount is different to our revenue amount as we recognize revenue for products sold upon the physical delivery and transfer of title of the products, which is not necessarily at the same time as when we invoice our customers. We have not paid any management fee to the Parent Group since January 1, 2009 and will not be paying any such fee going forward.

Other Gains and Losses

Our other gains and losses primarily consist of allowance for or reversal of allowance for doubtful debts, exchange gain arising from the settlement or translation of our Hong Kong dollar-denominated bank loans and liabilities, and loss on disposal of properties, plant and equipment.

Finance Costs

Our finance costs consist primarily of interest payments on bank loans wholly repayable within five years and interest payments on discounted bills receivables. We have not been required to make any interest payment on our shareholders’ loans.

Other comprehensive income

Our other comprehensive income comprises exchange difference arising on translating our historical combined financial information from Renminbi, being the functional currency of our business operations, to Hong Kong Dollars, being the currency in which our historical combined financial information is presented.

— 184 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

FINANCIAL INFORMATION

REVIEW OF HISTORICAL OPERATING RESULTS

Nine Months Ended September 30, 2009 Compared with Nine Months Ended September 30, 2008

Revenue

Our revenue decreased from HK$2,739.7 million for the nine months ended September 30, 2008 to HK$2,539.4 million for the nine months ended September 30, 2009, or 7.3%. The decrease in revenue was primarily due to a reduction in the revenue from the sale of coke and related products by 13.5% from HK$2,496.5 million for the nine months ended September 30, 2008 to HK$2,159.7 million for the nine months ended September 30, 2009, and to a lesser extent, a reduction in the revenue from the sale of methanol by 9.1% from HK$242.7 million for the nine months ended September 30, 2008 to HK$220.5 million for the nine months ended September 30, 2009, which was partially offset by revenue generated by the sale of pure benzene and related products. We commenced the sale of pure benzene in November 2008, and as such, we did not record any revenue under this product category for the nine months ended September 30, 2008. For the nine months ended September 30, 2009, revenue from the sale of pure benzene and related products amounted to HK$157.2 million, or 6.2% of our total revenue.

The decrease in revenue from our sale of coke was primarily due to a decrease in the average selling price of our coke by 32.7% from HK$2,273 per tonne for the nine months ended September 30, 2008 to HK$1,529 per tonne for the nine months ended September 30, 2009. According to the China Coking Industry Association, the average selling price of coke peaked in August 2008 and dropped by approximately 50% over the next four months. The average selling price of coke started to recover in January 2009, but the average selling price for the nine months ended September 30, 2009 was still lower than that in the same period in 2008. The decrease in average selling price was partially offset by an increase in the sales volume of our coke by 31.3% from 1.020 million tonnes for the nine months ended September 30, 2008 to 1.339 million tonnes for the nine months ended September 30, 2009. The increase in the sales volume of our coke was primarily driven by an increase in the demand for coke in Hebei province. We were able to service these larger orders because we almost doubled our production capacity from 1,000,000 tonnes to 1,960,000 tonnes per annum following the commencement of our trial production of our phase II coke production facilities on June 18, 2008.

The decrease in revenue from our sale of methanol was primarily due to a decrease in the average selling price of our methanol by 41.5% from HK$3,030 per tonne for the nine months ended September 30, 2008 to HK$1,774 per tonne for the nine months ended September 30, 2009. According to CEIC, the average selling price of methanol peaked in June 2008 and dropped by approximately 60% over the next seven months. The average selling price of methanol started to recover and stabilize in the nine months ended September 30, 2009. The decrease in the average selling price of our methanol was partially offset by an increase in the sales volume of our methanol by 55.0% from 0.080 million tonnes for the nine months ended September 30, 2008 to 0.124 million tonnes for the nine months ended September 30, 2009. The increase in the sales volume of our methanol was primarily driven by an increase in the demand for methanol in the Hebei and Shandong provinces. We were able to increase our production and sales volume as we commenced our trial production of our phase II methanol production facility on January 20, 2009.

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FINANCIAL INFORMATION

Cost of Sales

Our cost of sales increased by 7.7% from HK$2,124.5 million for the nine months ended September 30, 2008 to HK$2,287.1 million for the nine months ended September 30, 2009. The increase was primarily due to an increase in our sales volume and the commencement of our phase II coke, pure benzene and phase II methanol trial production on June 18, 2008, November 16, 2008 and January 20, 2009, respectively, which led to an increase in our consumption volume of coking coal, fuel, water, electricity and consumables, and an increase in our staff costs related to production, which was partially offset by a decrease in the average selling price of coking coal, being our principal raw material. Our cost of coking coal decreased by 0.6% from HK$1,869.7 million for the nine months ended September 30, 2008 to HK$1,858.2 million for the nine months ended September 30, 2009.

Gross Profit and Gross Margin

As a result of the foregoing, our gross profit decreased by 59.0% from HK$615.2 million for the nine months ended September 30, 2008 to HK$252.3 million for the nine months ended September 30, 2009. Our gross margin decreased from 22.5% for the nine months ended September 30, 2008 to 9.9% for the nine months ended September 30, 2009, primarily because the average selling price of coke, our key product, decreased by 32.7% from HK$2,273 per tonne for the nine months ended September 30, 2009 to HK$1,529 per tonne for the nine months ended September 30, 2008, but our cost of coking coal, the major component of our cost of sales, decreased by a lesser extent by 24.3% from HK$1,834 to HK$1,388 per tonne of coke sold during the corresponding periods.

Other Income

Other income decreased by 61.5% from HK$13.0 million for the nine months ended September 30, 2008 to HK$5.0 million for the nine months ended September 30, 2009. The decrease was primarily due to a decrease in value added tax refund from HK$8.4 million for the nine months ended September 30, 2008 to nil for the nine months ended September 30, 2009 and a decrease in interest income from HK$4.3 million for the nine months ended September 30, 2008 to HK$2.7 million for the nine months ended September 30, 2009, which was primarily due to a decrease in the average amounts of deposits we maintained at our bank accounts and a decrease in interest rates.

Distribution and Selling Expenses

Our distribution and selling expenses increased by 49.6% from HK$67.3 million for the nine months ended September 30, 2008 to HK$100.7 million for the nine months ended September 30, 2009, primarily due to an increase in transportation expense from HK$65.2 million for the nine months ended September 30, 2008 to HK$98.7 million for the nine months ended September 30, 2009. The increase in transportation expense was primarily due to an increase in the sales volume of our coke and an increase in our transportation costs per tonne of coke sold, which was driven by an increase in the distances over which we were required to deliver coke products to a few of our new customers following the commencement of trial production of our phase II coke production on June 18, 2008 and an increase in fuel prices.

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FINANCIAL INFORMATION

Administrative Expenses

Administrative expenses decreased by 58.6% from HK$92.0 million for the nine months ended September 30, 2008 to HK$38.1 million for the nine months ended September 30, 2009, primarily because we ceased to pay management fee to the Parent Group, which was partially offset by an increase in our office expenses due to the commencement of our phase II coke and phase II methanol trial production on June 18, 2008 and January 20, 2009, respectively. From 2006 to 2008, we paid a management fee each year to the Parent Group for certain management services and head office and back office support functions provided by the Parent Group. In 2009, in light of the commencement of trial production for our phase II methanol production facilities on January 20, 2009, given all our then existing expansion plan was completed, we expected less management service required from the Parent Group going forward. As such, and also to ensure independence with the Parent Group going forward, we have ceased to pay management fee to the Parent Group since January 1, 2009.

Other Gains and Losses

Other gains and losses decreased by 38.0% from HK$14.2 million for the nine months ended September 30, 2008 to HK$8.8 million for the nine months ended September 30, 2009, primarily due to a decrease in our exchange gain from HK$26.6 million for the nine months ended September 30, 2008 to a loss of HK$0.1 million for the nine months ended September 30, 2009, which was partially offset by a reversal of allowance for doubtful debts of HK$9.5 million for the nine months ended September 30, 2009 compared to an allowance for doubtful debts of HK$12.4 million for the nine months ended September 30, 2008. The decrease in our exchange gain was due to the relatively stable exchange rate of RMB against Hong Kong dollars for our Hong Kong dollar-denominated bank loans and liabilities for the nine months ended September 30, 2009, compared with the appreciation of RMB against Hong Kong dollars for the nine months ended September 30, 2008. We booked a reversal of allowance for doubtful debts as our customers settled overdue trade receivables due to improved market conditions.

Finance Costs

Finance costs decreased by 54.6% from HK$22.9 million for the nine months ended September 30, 2008 to HK$10.4 million for the nine months ended September 30, 2009, which was primarily due to a decrease in average interest rates.

Profit before Taxation

As a result of the foregoing, our profit before taxation decreased by 74.6% from HK$460.2 million for the nine months ended September 30, 2008 to HK$117.0 million for the nine months ended September 30, 2009.

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FINANCIAL INFORMATION

Taxation

Taxation expenses decreased by 92.3% from HK$55.8 million for the nine months ended September 30, 2008 to HK$4.3 million for the nine months ended September 30, 2009, which was due to the decrease in our profit before taxation for these periods. Our preferential tax treatment did not change for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008. Both Kingboard Hebei Cokechem and Kingboard Hebei Chemical started making profits in 2006 and hence income generated from our phase I coke and phase I methanol production facilities and our pure benzene production facility was subject to an income tax rate of 12.5% for both nine-month periods ended September 30, 2008 and 2009. The income tax rate was 12.5% because both Kingboard Hebei Cokechem and Kingboard Hebei Chemical were entitled to a 50% reduction to the normal enterprise income tax of 25% in accordance with applicable PRC laws. No income tax was payable by Kingboard Hebei Chemical in respect of the phase II coke and phase II methanol production facilities in 2008 or 2009 due to the preferential tax treatment granted by the Hebei Provincial Office of the State Administration of Taxation.

Our effective tax rate decreased from 12.1% for the nine months ended September 30, 2008 to 3.7% for the nine months ended September 30, 2009. During the first three quarters of 2008, we generated positive taxable profits and paid our quarterly provisional tax in accordance with applicable laws. With the downturn in the economy and a corresponding reduction in our revenue in the fourth quarter of 2008, we generated negative taxable profits such that the quarterly provisional tax we had paid for the first three quarters of 2008 was in excess of our final assessed tax liability. The surplus amount was carried forward to 2009 and correspondingly reduced our provisional tax liability for the first three quarters of 2009.

Profit Attributable to Owners of our Company

As a result of the foregoing, our profit attributable to owners of our Company decreased by 72.2% from HK$404.4 million for the nine months ended September 30, 2008 to HK$112.6 million LR8.05(1)(a) for the nine months ended September 30, 2009.

Year Ended December 31, 2008 Compared with Year Ended December 31, 2007

Revenue

Our revenue increased by 103.5% from HK$1,540.9 million in 2007 to HK$3,135.0 million in 2008. The increase was primarily due to an increase in revenue from our sale of coke and related products by 116.0% from HK$1,322.9 million in 2007 to HK$2,857.8 million in 2008, and to a lesser extent, an increase in revenue from our sale of methanol by 25.4% from HK$217.3 million in 2007 to HK$272.4 million in 2008, and revenue contributed by the sale of pure benzene. We only commenced sale of pure benzene in November 2008 and as such our results in 2007 did not contain revenue from such sale. In 2008, revenue from the sale of pure benzene and related products amounted to HK$4.1 million, or 0.1% of our total revenue.

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FINANCIAL INFORMATION

The increase in revenue from our sale of coke was primarily due to an increase in the average selling price of our coke by 91.4% from HK$1,083 per tonne in 2007 to HK$2,073 per tonne in 2008, and to a lesser extent, an increase in the sales volume of our coke by 17.7% from 1.086 million tonnes in 2007 to 1.278 million tonnes in 2008. The increase in the sales volume of our coke and related products was primarily driven by an increase in the demand for coke in Hebei province. We were able to service these larger orders because we almost doubled our production capacity from 1,000,000 tonnes to 1,960,000 tonnes per annum with the addition of our phase II coke production facilities, which commenced trial production on June 18, 2008.

The increase in revenue from our sale of methanol was primarily due to an increase in the average selling price of our methanol by 20.3% from HK$2,357 per tonne in 2007 to HK$2,835 per tonne in 2008, and to a lesser extent, an increase in sales volume of our methanol by 4.3% from 0.092 million tonnes in 2007 to 0.096 million tonnes in 2008. The increase in the sales volume of our methanol was primarily driven by an increase in the demand from our existing customers.

Cost of Sales

Our cost of sales increased by 127.4% from HK$1,187.7 million in 2007 to HK$2,700.6 million in 2008. The increase was primarily due to an increase in the average selling price of coking coal, being our principal raw material, and an increase in our consumption volume of coking coal, as well as fuel, water and electricity, consumables and staff costs and depreciation expenses related to production driven by an increase in production volumes and commencement of our phase II coke and pure benzene trial production on June 18, 2008 and November 16, 2008, respectively. Our cost of coking coal increased by 145.0% from HK$961.4 million in 2007 to HK$2,355.3 million in 2008.

Gross Profit and Gross Margin

As a result of the foregoing, our gross profit increased by 23.0% from HK$353.2 million in 2007 to HK$434.3 million in 2008. Our gross margin decreased from 22.9% in 2007 to 13.9% in 2008, primarily because the average selling price of coke, our major product, increased by 91.4% from HK$1,083 per tonne in 2007 to HK$2,073 per tonne in 2008, but our cost of coking coal, the major component of our cost of sales, increased by a greater extent by 108.4% from HK$885 to HK$1,844 per tonne of coke sold during the corresponding periods.

Other Income

Other income decreased by 25.1% from HK$17.9 million in 2007 to HK$13.4 million in 2008. The decrease was primarily due to a decrease in interest income from HK$9.3 million in 2007 to HK$4.6 million in 2008, which was primarily due to a decrease in interest rates, and a decrease in government grant from HK$5.6 million in 2007 to nil in 2008. This decrease was partially offset by an increase in value added tax refund from nil in 2007 to HK$8.5 million in 2008.

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FINANCIAL INFORMATION

Distribution and Selling Expenses

Our distribution and selling expenses increased by 125.5% from HK$39.2 million in 2007 to HK$88.4 million in 2008, primarily due to an increase in transportation expense from HK$36.6 million in 2007 to HK$85.7 million in 2008. The increase in transportation expense was primarily due to an increase in the sales volume of our coke and an increase in our transportation costs per tonne of coke sold, which was driven by an increase in the distances over which we were required to deliver our coke products to a few new customers and an increase in fuel prices.

Administrative Expenses

Our administrative expenses increased by 4.7% from HK$93.5 million in 2007 to HK$97.8 million in 2008, primarily as a result of (i) an increase in management fee paid to the Parent Group from HK$29.9 million in 2007 to HK$53.4 million in 2008 due to increase in our total invoiced revenue amount from 2007 to 2008, (ii) an increase in depreciation expenses from HK$0.7 million in 2007 to HK$6.3 million in 2008 due to the re-classification of certain depreciation expenses from our cost of sales to administrative expenses and (iii) an increase in traveling expenses and allowances from HK$6.6 million in 2007 to HK$10.2 million in 2008 due to the commencement of our phase II coke trial production on June 18, 2008, which were partially offset by a decrease in pre-operating expenses incurred in connection with our phase II production facilities from HK$26.7 million in 2007 to HK$1.0 million in 2008. The management fee paid to the Parent Group amounted to approximately 1.9% of our total invoiced revenue amount (which is not materially different from our total revenue amount).

Other Gains and Losses

Other gains and losses decreased by 56.8% from HK$27.8 million in 2007 to HK$12.0 million in 2008, primarily due to an increase in our allowance for doubtful debts from nil in 2007 to HK$12.4 million in 2008 due to adverse market conditions.

Finance Costs

Finance costs increased by 187.6% from HK$8.9 million in 2007 to HK$25.6 million in 2008, which was primarily due to an increase in our average balance of bank borrowings.

Profit before Taxation

As a result of the foregoing, our profit before taxation decreased by 3.7% from HK$257.4 million in 2007 to HK$248.0 million in 2008.

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FINANCIAL INFORMATION

Taxation

Taxation expenses increased from nil in 2007 to HK$39.9 million in 2008. The effective tax rate increased from nil in 2007 to 16.1% in 2008. Both Kingboard Hebei Cokechem and Kingboard Hebei Chemical were exempt from PRC enterprise income tax in 2007 and commenced paying enterprise income tax in 2008. In respect of income generated from the phase I production facilities and the pure benzene production facility, both companies were subject to an enterprise income tax rate of 12.5% in 2008, as both companies were entitled to a 50% reduction to the normal enterprise income tax of 25% in accordance with applicable PRC laws. No income tax was payable by Kingboard Hebei Chemical in respect of the phase II production facilities in 2007 and 2008 as the phase II production facilities were not in production in 2007 and the relevant income generated in 2008 was exempt from taxation due to the preferential tax treatment granted by the Hebei Provincial Office of the State Administration of Taxation. In addition, the increase in effective tax rate was also due to quarterly provisional tax we paid for the first three quarters in 2008 when we generated positive taxable profits.

Profit Attributable to Owners of our Company

As a result of the foregoing, our profit attributable to owners of our Company decreased by LR8.05(1)(a) 19.2% from HK$257.4 million in 2007 to HK$208.0 million in 2008.

Year Ended December 31, 2007 Compared with Year Ended December 31, 2006

Revenue

Our revenue increased by 39.6% from HK$1,104.1 million in 2006 to HK$1,540.9 million in 2007. The increase was primarily due to an increase in revenue from our sale of coke and related products by 40.8% from HK$939.5 million in 2006 to HK$1,322.9 million in 2007, and to a lesser extent, an increase in revenue from our sale of methanol by 32.5% from HK$164.0 million in 2006 to HK$217.3 million in 2007.

The increase in revenue from our sale of coke was primarily due to an increase in the average selling price of our coke by 40.6% from HK$770 per tonne in 2006 to HK$1,083 per tonne in 2007, and to a lesser extent, an increase in the sales volume of our coke by 3.9% from 1.045 million tonnes in 2006 to 1.086 million tonnes in 2007. The increase in the sales volume of our coke and related products was primarily driven by an increase in the demand from our existing customers.

The increase in revenue from our sale of methanol was primarily due to an increase in sales volume of our methanol by 15.0% from 0.080 million tonnes in 2006 to 0.092 million tonnes in 2007, and to a lesser extent, an increase in the average selling price of our methanol by 14.7% from HK$2,055 per tonne in 2006 to HK$2,357 per tonne in 2007. The increase in the sales volume of our methanol was primarily driven by an increase in the demand from our existing customers.

— 191 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

FINANCIAL INFORMATION

Cost of Sales

Our cost of sales increased by 30.5% from HK$910.1 million in 2006 to HK$1,187.7 million in 2007. The increase was primarily due to an increase in the average selling price of coking coal, being our principal raw material, and to a lesser extent, increases in our consumption volume of coking coal as well as fuel and consumables driven by an increase in production volume. Our cost of coking coal increased by 29.7% from HK$740.9 million in 2006 to HK$961.4 million in 2007.

Gross Profit and Gross Margin

As a result of the foregoing, our gross profit increased by 82.2% from HK$193.9 million in 2006 to HK$353.2 million in 2007. Our gross margin increased from 17.6% in 2006 to 22.9% in 2007, primarily because the average selling price of coke, our major product, increased by 40.6% from HK$770 per tonne in 2006 to HK$1,083 per tonne in 2007, but our cost of coking coal, the major component of our cost of sales, increased by a lesser extent by 24.8% from HK$709 to HK$885 per tonne of coke sold during the corresponding periods.

Other Income

Other income increased by 49.2% from HK$12.0 million in 2006 to HK$17.9 million in 2007. The increase was primarily due to an increase in interest income from HK$5.5 million in 2006 to HK$9.3 million in 2007, due to an increase in the average amounts of deposits we maintained in our bank accounts, an increase in government grant from HK$2.0 million in 2006 to HK$5.6 million in 2007 and an increase in others from nil in 2006 to HK$3.1 million in 2007, which was partially offset by a decrease in value added tax refund from HK$4.5 million in 2006 to nil in 2007.

Distribution and Selling Expenses

There were no material changes to our distribution and selling expenses in 2006 and 2007, being HK$39.1 million and HK$39.2 million, respectively. An increase in our business development expenses was partially offset by a slight decrease in the transportation costs of our coke.

Administrative Expenses

Our administrative expenses increased by 66.1% from HK$56.3 million in 2006 to HK$93.5 million in 2007, primarily as a result of (i) an increase in our pre-operating expenses from HK$6.2 million in 2006 to HK$26.7 million in 2007 due to start-up costs we incurred in relation to our phase II production facilities, (ii) an increase in our management fee paid to the Parent Group from HK$20.5 million in 2006 to HK$29.9 million in 2007 due to increase in our total invoiced revenue amount from 2006 to 2007, and (iii) an increase in our repair and maintenance expenses from HK$0.8 million in 2006 to HK$4.3 million in 2007. The management fee paid to the Parent Group amounted to approximately 1.9% of our total invoiced revenue amount (which represents the amounts invoiced by us to our customers, which amount is slightly different to the amount of our revenue recognized from such invoices, when goods are delivered and titles have passed). Our invoiced revenue amount is different from our revenue amount as we recognize revenue for products sold upon the physical delivery and transfer of title of the products, which is not necessarily at the same time as when we invoice our customers.

— 192 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

FINANCIAL INFORMATION

Other Gains and Losses

Other gains and losses decreased by 15.0% from HK$32.7 million in 2006 to HK$27.8 million in 2007, primarily due to a decrease in our exchange gain from HK$32.7 million in 2006 to HK$27.8 million in 2007. The decrease in our exchange gain was driven by a lesser extent of appreciation of RMB against Hong Kong dollars for our Hong Kong dollar-denominated bank loans and liabilities in 2007 compared with 2006.

Finance Costs

There were no material changes to our finance costs in 2006 and 2007, being HK$8.9 million in both years. The decrease in interest payments made in respect of bills receivables in 2007 was offset by an increase in interest payments made in respect of three new loan facilities that we obtained in the fourth quarter of 2007 for funding the purchases and construction of machines for use in our phase I and phase II production facilities and our pure benzene production facility.

Profit before Taxation

As a result of the foregoing, our profit before taxation increased by 91.5% from HK$134.4 million in 2006 to HK$257.4 million in 2007.

Taxation

Our taxation expenses were nil for both 2006 and 2007, as both Kingboard Hebei Cokechem and Kingboard Hebei Chemical were exempted from PRC Foreign Enterprise Income Tax for both years.

Profit Attributable to Owners of our Company

As a result of the foregoing, our profit attributable to owners of our Company increased by 91.5% LR8.05(1)(a) from HK$134.4 million in 2006 to HK$257.4 million in 2007.

LIQUIDITY AND CAPITAL RESOURCES

Financial Resources App1A32(5)(a)

During the three years ended December 31, 2008 and the nine months ended September 30, 2009, App1A32(5)(b) we funded our growth principally from proceeds from the sale of our products, shareholders’ equity, commercial borrowings and shareholders’ loans. Our Directors have confirmed that we did not experience any liquidity problems during the three years ended December 31, 2008 and the nine months ended September 30, 2009.

Our finance department prepares cash flow projections, which are reviewed regularly by our senior management. Specific considerations in determining our appropriate cash position include our forecast working capital and capital expenditure needs and our liquidity ratios, and we also aim to maintain a certain level of excess cash to meet unexpected needs.

— 193 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

FINANCIAL INFORMATION

Financial Commitments

We owe various third parties an aggregate of HK$280 million for the development of our phase II production facilities and such amount remains outstanding as of the date of this document.

We intend to spend up to RMB1.1 billion (or its equivalent) to expand our coke and methanol production capacities by 960,000 tonnes and 100,000 tonnes, respectively, using half of the amounts covered by the First Additional Capacities Approvals.

If we choose to exercise the Acetic Acid Plant Option or acquire the Yuanda Coal Project, we will have additional financial commitments. We are not able to ascertain the amounts of such commitments at this stage. See “Business — Our Expansion Opportunities”.

Cash Flow Data

We conduct all of our operations through our two wholly-owned PRC subsidiaries. The cash flows generated by our operating subsidiaries on a stand-alone basis may differ significantly from that represented by our combined cash flow data.

The following table presents selected cash flow data from our combined statements of cash flows for the periods indicated.

Nine months ended Year ended December 31, September 30,

2006 2007 2008 2008 2009

(HK$’000) (HK$’000) (HK$’000) (HK$’000) (HK$’000) (unaudited)

Net cash from operating activities...... 315,917 339,278 215,874 32,333 189,516 Net cash used in investing activities .. (138,906) (401,442) (659,008) (576,251) (219,834) Net cash (used in) from financing activities ...... (181,351) 247,841 329,511 384,728 34,522 Net (Decrease) increase in cash and cash equivalents...... (4,340) 185,677 (113,623) (159,190) 4,204 Cash and cash equivalents at the beginning of the year/period ...... 17,309 13,588 200,256 200,256 99,008 Effect of foreign exchange rate changes of cash and cash equivalents...... 619 991 12,375 13,685 90 Cash and cash equivalents at the end of the year/period, representing bank balances and cash ...... 13,588 200,256 99,008 54,751 103,302

— 194 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

FINANCIAL INFORMATION

Cash Flow from Operating Activities

Nine months ended September 30, 2009. Our net cash from operating activities of HK$189.5 million for the nine months ended September 30, 2009 was primarily attributable to (i) our operating profit before changes in working capital of HK$211.8 million, (ii) an increase in trade and other payables of HK$123.8 million due to an increase in our business scale and (iii) a decrease in trade and other receivables and prepayments of HK$110.1 million due to the improved financial conditions of our customers as compared to the end of 2008, which were partially offset by (i) an increase in bills receivables of HK$135.7 million and (ii) a decrease in amount due to fellow subsidiaries of HK$54.7 million.

Nine months ended September 30, 2008. Our net cash from operating activities of HK$32.3 million for the nine months ended September 30, 2008 was primarily attributable to (i) our operating profit before changes in working capital of HK$541.2 million and (ii) an increase in trade and other payables of HK$102.1 million, which were partially offset by (i) an increase in trade and other receivables and prepayments of HK$313.5 million due to an increase in our revenue, (ii) an increase in inventories of HK$295.6 million due to an increase in our business scale and (iii) an increase in amounts due from fellow subsidiaries of HK$19.8 million.

Year ended December 31, 2008. Our net cash from operating activities of HK$215.9 million in 2008 was primarily attributable to (i) our operating profit before changes in working capital of HK$349.3 million, (ii) a decrease in bills receivables of HK$35.6 million and (iii) an increase in amounts due to fellow subsidiaries of HK$22.0 million, which were partially offset by an increase in trade and other receivables and prepayments of HK$184.0 million as we extended more credit to our customers due to the adverse market conditions prevailing in the second half of 2008.

Year ended December 31, 2007. Our net cash from operating activities of HK$339.3 million in 2007 was primarily attributable to (i) our operating profit before changes in working capital of HK$313.6 million, (ii) an increase in trade and other payables of HK$190.2 million due to an increase in our business scale and (iii) an increase in amounts due to fellow subsidiaries of HK$26.0 million, which were partially offset by (i) an increase in trade and other receivables and prepayments of HK$78.6 million due to an increase in the amount of deposits we paid to our suppliers to secure supplies of coking coal in an environment of tighter supply, (ii) an increase in bills receivables of HK$74.9 million, and (iii) an increase in inventories of HK$35.8 million due to an increase in our business scale.

Year ended December 31, 2006. Our net cash from operating activities of HK$315.9 million in 2006 was primarily attributable to (i) our operating profit before changes in working capital of HK$190.5 million, (ii) decrease in trade and other receivables and prepayments of HK$64.9 million due to improved market conditions, and (iii) decrease in bills receivables of HK$27.6 million, which were partially offset by a decrease in trade and other payables of HK$3.3 million.

— 195 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

FINANCIAL INFORMATION

Cash Flow from Investing Activities

Nine months ended September 30, 2009. Our net cash used in investing activities of HK$219.8 million for the nine months ended September 30, 2009 was due to purchase of properties, plant and equipment of HK$115.4 million, an increase in pledged bank deposits of HK$60.2 million and deposits paid for acquisition of properties, plant and equipment of HK$4.3 million, which were partially offset by proceeds from disposal of properties, plant and equipment of HK$9.0 million and interest received of HK$2.7 million. The additions of properties, plant and equipment consisted of purchases and construction of machines for use in our phase II production facilities and our pure benzene production facility.

Nine months ended September 30, 2008. Our net cash used in investing activities of HK$576.3 million for the nine months ended September 30, 2008 was due to purchase of properties, plant and equipment of HK$539.8 million, an increase in pledged bank deposits of HK$11.4 million and deposits paid for acquisition of properties, plant and equipment of HK$11.1 million, which were partially offset by interest received of HK$4.3 million. The additions of properties, plant and equipment consisted of purchases and construction of machines for use in our phase II production facilities and our pure benzene production facility.

Year ended December 31, 2008. Our net cash used in investing activities of HK$659.0 million in 2008 was due to purchase of properties, plant and equipment of HK$619.7 million, prepaid lease payments paid of HK$33.0 million and deposits paid for acquisition of properties, plant and equipment of HK$11.2 million, which were partially offset by interest received of HK$4.6 million and proceeds from disposal of properties, plant and equipment of HK$0.2 million. The additions of properties, plant and equipment consisted of purchases and construction of machines for use in our phase II production facilities and our pure benzene production facility, and the prepaid lease payments paid were in relation to medium-term land use rights at our production site.

Year ended December 31, 2007. Our net cash used in investing activities of HK$401.4 million in 2007 was due to purchase of properties, plant and equipment of HK$387.8 million and deposits paid for acquisition of properties, plant and equipment of HK$13.3 million, which were partially offset by interest received of HK$9.3 million and proceeds from disposal of properties, plant and equipment of HK$0.4 million. The additions of properties, plant and equipment consisted of purchases and construction of machines for use in our phase I and phase II production facilities and our pure benzene production facility.

Year ended December 31, 2006. Our net cash used in investing activities of HK$138.9 million in 2006 was due to purchase of properties, plant and equipment of HK$121.4 million, an increase in pledged bank deposits of HK$14.5 million and deposits paid for acquisitions of properties, plant and equipment of HK$11.2 million, which were partially offset by interest received of HK$5.5 million and proceeds from disposal of properties, plant and equipment of HK$3.7 million. The additions of properties, plant and equipment consisted of purchases and construction of machines for use in our phase I production facilities.

— 196 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

FINANCIAL INFORMATION

Cash Flow from Financing Activities

Nine months ended September 30, 2009. Our net cash from financing activities of HK$34.5 million in the nine months ended September 30, 2009 was due to new bank borrowings raised of HK$96.5 million and advances from fellow subsidiaries of HK$50.7 million, which were partially offset by repayment of advances from immediate holding company of HK$47.2 million and interest paid on bank loans of HK$10.4 million.

Nine months ended September 30, 2008. Our net cash from financing activities of HK$384.7 million for the nine months ended September 30, 2008 was due to advances from immediate holding company of HK$649.7 million, capital injection from immediate holding company of HK$193.9 million and new bank borrowings raised of HK$119.6 million, which were partially offset by repayment of advances from immediate holding company of HK$156.2 million and interest paid of HK$22.9 million.

Year ended December 31, 2008. Our net cash from financing activities of HK$329.5 million in 2008 was due to advances from immediate holding company of HK$692.7 million, capital injection from immediate holding company of HK$193.9 million, advances from fellow subsidiaries of HK$157.1 million and new bank borrowings raised of HK$120.4 million, which were partially offset by repayments of advances from immediate holding company of HK$363.3 million, dividends paid to the Kingboard Group of HK$311.5 million and interest paid of HK$25.6 million.

Year ended December 31, 2007. Our net cash from financing activities of HK$247.8 million in 2007 was due to new bank borrowings raised of HK$480.7 million, advances from immediate holding company of HK$258.0 million, capital injection from immediate holding company of HK$119.4 million and advances from fellow subsidiaries of HK$6.3 million, which were partially offset by repayment of advances from immediate holding company of HK$527.0 million, repayment of bank borrowings of HK$80.7 million and interest paid of HK$8.9 million.

Year ended December 31, 2006. Our net cash used in financing activities of HK$181.4 million in 2006 was due to repayment of advances from immediate holding company of HK$148.0 million, repayment of bank borrowings of HK$76.9 million and interest paid of HK$8.9 million, which were partially offset by new bank borrowings raised of HK$39.8 million.

Working Capital

Our Directors are of the opinion that, taking into account the financial resources available to our LR8.21A(1) App1A36 Group (including, among other things, internally generated funds and available banking facilities), the working capital available to our Group is sufficient for our present requirements for at least the next 12 months from the date of this document.

— 197 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

FINANCIAL INFORMATION

Net Current Liabilities

The table below sets forth our current assets, current liabilities and net current liabilities as of the end of each reporting period indicated.

As at As at As at December 31, September 30, November 30,

2006 2007 2008 2009 2009

(HK$’000) (HK$’000) (HK$’000) (HK$’000) (HK$’000) (unaudited)

Current assets Inventories...... 96,830 139,739 145,329 190,900 [●] Trade and other receivables and prepayments ...... 50,683 133,729 314,352 214,066 [●] Bills receivables ...... 30,219 107,367 78,382 214,150 [●] Amounts due from fellow subsidiaries ...... 2,640 14,541 13,610 71,710 [●] Pledged bank deposits...... 14,462 15,004 15,875 76,041 [●] Bank balances and cash ...... 13,588 200,256 99,008 103,302 [●] 208,422 610,636 666,556 870,169 [●]

Current liabilities Trade and other payables ...... 137,624 332,893 536,605 754,053 [●] Amounts due to fellow subsidiaries ...... 3,608 36,213 176,349 172,562 [●] Amount due to immediate holding company...... 597,003 371,539 735,197 688,669 [●] Bank borrowings - amount due within one year ...... 39,814 42,717 44,473 198,505 [●] Taxation payable...... — — 20,077 10,504 [●] 778,049 783,362 1,512,701 1,824,293 [●] Net current liabilities...... (569,627) (172,726) (846,145) (954,124) [●]

— 198 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

FINANCIAL INFORMATION

Our Directors expect that after giving effect to, among other things, (i) the repayment of our shareholders’ loans, (ii) the payment of a special dividend of HK$200 million to the Parent Group, and (iii) the current portion of the HK$500 million commercial bank loan that we are expected to obtain, our net current liabilities would be reduced and our working capital position is expected to improve.

Inventory Analysis

The following table sets forth a summary of our inventory balances, as of the end of each reporting period indicated.

As at As at December 31, September 30,

2006 2007 2008 2009

(HK$’000) (HK$’000) (HK$’000) (HK$’000)

Raw materials and consumables...... 91,958 132,295 113,996 168,832 Work in progress ...... 3,945 5,975 20,933 9,633 Finished goods ...... 927 1,469 10,400 12,435 Total ...... 96,830 139,739 145,329 190,900

The following table sets forth a summary of our inventory turnover days for the periods indicated.

Nine months ended Year ended December 31, September 30,

2006 2007 2008 2009

Inventory turnover days(1) ...... 38.8 42.9 19.6 22.8

(1) Inventory turnover days equal inventory as at the end of the period divided by cost of sales and then multiplied by 365 for 2006, 2007 and 2008, and by 273.75 for the nine months ended September 30, 2009.

The majority of our inventory balances consists of raw materials and consumables, with the rest being work in progress and finished goods. Our close proximity to our key customers has enabled us to transport our coke products to customers continuously and within a short timeframe following production, on a “just-in-time” basis. This has allowed us to maintain low levels of inventories for our finished products at our production facility, as evidenced by our low inventory turnover days for our finished products of 0.4, 0.5, 1.4 days for 2006, 2007 and 2008, respectively, and 1.5 days for the nine months ended September 30, 2009.

Our inventory turnover days have increased from 38.8 days in 2006 to 42.9 days in 2007, then decreased to 19.6 days in 2008. Our inventory turnover days for the nine months ended September 30, 2009 was 22.8 days. (32)

— 199 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

FINANCIAL INFORMATION

The increase in inventory turnover days for the nine months ended September 30, 2009 compared to 2008 was primarily because after the slowdown in the second half of 2008, our production volume and sales increased in the first nine months of 2009, and as a result we maintained a higher level of inventory in the first nine months of 2009.

The decrease in inventory turnover days in 2008 compared to 2007 was primarily because we did not have to maintain as high an inventory level of coking coal as we did in 2007 when the supply of coking coal was tight. In the fourth quarter of 2008, due to the adverse market conditions, we also restricted our coke production volume and hence required less coking coal inventories.

The increase in inventory turnover days in 2007 compared to 2006 was primarily because we maintained a higher inventory level of coking coal in an environment of tighter supply.

Our balances of raw materials and consumables, work in progress and finished goods as at September 30, 2009 have all been used in production, completed and sold to our customers, respectively, as at December 31, 2009.

Trade and Other Receivables and Prepayments

Our trade receivables represent receivables from the sale of our products. Our prepayments and deposits mainly comprise prepayments for utility expenses and deposits paid for the purchase of raw materials, and our prepaid lease payments represent payments for medium-term land use rights situated in the PRC and are amortized over 50 years. The following table sets forth a breakdown of our trade and other receivables and prepayments as of the end of each reporting period indicated.

As at As at December 31, September 30,

2006 2007 2008 2009

(HK$’000) (HK$’000) (HK$’000) (HK$’000)

Trade receivables ...... 36,142 21,703 213,459 100,915 Prepayments and deposits...... 13,916 111,316 97,397 111,687 Prepaid lease payments...... 625 671 1,443 1,464 Other receivables...... — 39 2,053 — Total ...... 50,683 133,729 314,352 214,066

— 200 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

FINANCIAL INFORMATION

Trade Receivables

The following table sets forth a summary of our trade receivables turnover days for the periods indicated.

Nine months ended Year ended December 31, September 30,

2006 2007 2008 2009

Trade receivables turnover days(1) ...... 11.9 5.1 24.9 10.9

(1) Trade receivables turnover days equal trade receivables as at the end of the period divided by revenue and then multiplied by 365 for 2006, 2007 and 2008, and by 273.75 for the nine months ended September 30, 2009.

Our trade receivables turnover days have decreased from 11.9 days in 2006 to 5.1 days in 2007. This was primarily due to our ability to require shorter payment terms as a result of increased demand for our coke. Our trade receivables turnover days have increased from 5.1 days in 2007 to 24.9 days in 2008 primarily due to our willingness to extend more credit to our customers in order to improve customer relationships during the adverse market conditions in the fourth quarter of 2008. During the nine months ended September 30, 2009, our trade receivables turnover days have decreased to 10.9 days due to improved market conditions.

The table below sets forth an aging analysis of our trade receivables as of the end of each reporting period indicated.

As at As at December 31, September 30,

2006 2007 2008 2009

(HK$’000) (HK$’000) (HK$’000) (HK$’000)

0 - 90 days...... 36,142 21,703 167,582 100,835 91 - 180 days ...... — — 45,877 80 Over 180 days...... — — — — Total ...... 36,142 21,703 213,459 100,915

The substantial increase in the amounts of our trade receivables aged 0-90 days and 91-180 days as at December 31, 2008 and September 30, 2009 were primarily due to the deteriorated market conditions in the fourth quarter of 2008, which resulted in a number of our customers requiring more time to settle our invoices and which we were willing to accommodate to maintain customer relationships. Before accepting a new customer, we have reviewed the financial ability and assessed the potential customer’s credit quality and our management has delegated a credit control team responsible for determining credit limits and credit approvals for customers. Credit limits attributed to customers are reviewed every year and are also dependent on the length of time the customer has done business with us, the nature of the customer’s business and the payment history of the customer.

— 201 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

FINANCIAL INFORMATION

Included in our trade receivables balances are debtors owing an aggregate amount of HK$0.2 million, nil, HK$12.9 million and HK$0.1 million as at December 31, 2006, 2007, 2008 and September 30, 2009, respectively, which were past due at the reporting date for which we have not provided for impairment loss. We do not hold any collateral over these balances. The table below sets forth an aging analysis of our trade receivables which are past due but not impaired as of the end of each reporting period indicated.

As at As at December 31, September 30,

2006 2007 2008 2009

(HK$’000) (HK$’000) (HK$’000) (HK$’000)

Past due 1 to 90 days...... 184 — 12,915 50

The increase in our trade receivables past due 1 to 90 days was primarily due to the deteriorated market conditions in the fourth quarter of 2008 resulting in a number of our customers requiring more time to settle our invoices, which we were willing to accommodate in order to maintain customer relationships.

All of our trade receivables that were outstanding as at September 30, 2009 had been settled as at December 31, 2009.

The table below sets forth the movements in our allowance for doubtful debts during the three years ended December 31, 2008 and the nine months ended September 30, 2009.

As at As at December 31, September 30,

2006 2007 2008 2009

(HK$’000) (HK$’000) (HK$’000) (HK$’000)

Balance at beginning of the year/period...... — — — 12,575 Exchange realignment ...... — — 148 9 Allowance (reversal of allowance) for doubtful debts...... — — 12,427 (9,474) Balance at end of the year/period ...... — — 12,575 3,110

Our balance of allowance for doubtful debts as at December 31, 2006, 2007 and 2008 and September 30, 2009 were nil, nil, HK$12.6 million and HK$3.1 million, respectively. In determining the recoverability of trade receivables, we consider any change in the credit quality of the trade receivables since the credit was granted and up to the reporting date. Our Directors believe that there is no further allowance required in excess of the above-stated amounts as at the relevant dates. The allowance for doubtful debts made as at December 31, 2008 and September 30, 2008 were primarily due to the deteriorated market conditions in the fourth quarter of 2008. As at September 30, 2009, we had reversed the allowance for doubtful debts of HK$9.5 million due to improved market conditions.

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FINANCIAL INFORMATION

Prepayments and Deposits

Prepayments and deposits as at December 31, 2006, 2007, 2008 and September 30, 2009 were HK$13.9 million, HK$111.3 million, HK$97.4 million and HK$111.7 million, respectively. Prepayments and deposits mainly comprise prepayments for utility expenses and deposits paid for our purchase of raw materials.

Our prepayments and deposits increased from HK$13.9 million as at December 31, 2006 to HK$111.3 million as at December 31, 2007, which was principally because market supply of coking coal was tight and suppliers demanded payment in advance, and to a lesser extent, because our business volume increased. Our prepayments and deposits decreased from HK$111.3 million as at December 31, 2007 to HK$97.4 million as at December 31, 2008 because our business activities were affected by the adverse market conditions in the fourth quarter of 2008. As at September 30, 2009, our prepayments and deposits had increased to HK$111.7 million due to improved market conditions. All of our deposits as at September 30, 2009 were recognized for the purchases of raw materials.

Prepaid Lease Payments

Total prepaid lease payments (including current and non-current portions) as at December 31, 2006, 2007 and 2008 and September 30, 2009 were HK$29.2 million, HK$30.7 million, HK$64.4 million and HK$63.4 million, respectively. The following table sets forth our prepaid lease payments as of the end of each reporting period indicated.

As at As at December 31, September 30,

2006 2007 2008 2009

(HK$’000) (HK$’000) (HK$’000) (HK$’000)

Prepaid lease payments comprise: Medium-term land use rights in the PRC ...... 29,204 30,676 64,407 63,364

Analyzed for reporting purposes as: Current portion (included in trade and other receivables)...... 625 671 1,443 1,464 Non-current portion ...... 28,579 30,005 62,964 61,900 29,204 30,676 64,407 63,364

Prepaid lease payments represent payments for medium-term land use rights situated in the PRC and are amortized over 50 years. Only the current portion has been included in trade and other receivables for reporting purposes.

Other Receivables

We had nil, HK$0.04 million, HK$2.1 million and nil of other receivables as at December 31, 2006, 2007 and 2008 and September 30, 2009, respectively. These other receivables primarily comprise quality-related claims against our suppliers and short-term advances to our employees in the form of petty cash.

— 203 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

FINANCIAL INFORMATION

Bills Receivables

Our bills receivables represent receivables evidenced by bills issued by licensed banks registered in the PRC. We allow our customers to use bank acceptance bills (which typically have credit terms of within 180 days) to settle their purchases with us. These bills, once received by us, may be converted into cash prior to their maturity dates subject to the payment of discount interest, or endorsed by us to settle our payables. As these bills are issued by licensed banks registered in the PRC, the credit standing of the relevant customer is substituted by that of the issuing bank. Our bills receivables as at December 31, 2006, 2007 and 2008 and September 30, 2009 were HK$30.2 million, HK$107.4 million, HK$78.4 million and HK$214.2 million, respectively.

As at As at December 31, September 30,

2006 2007 2008 2009

(HK$’000) (HK$’000) (HK$’000) (HK$’000)

Bills receivables...... 30,219 107,367 78,382 214,150

The following table sets forth a summary of our bills receivables turnover days for the periods indicated.

Nine months ended Year ended December 31, September 30,

2006 2007 2008 2009

Bills receivables turnover days (1) ...... 10.0 25.4 9.1 23.1

(1) Bills receivables turnover days equal bills receivables as at the end of the period divided by revenue and then multiplied by 365 for 2006, 2007 and 2008, and by 273.75 for the nine months ended September 30, 2009.

Our bills receivables turnover days have increased from 10.0 days in 2006 to 25.4 days in 2007 due to the increased use of bank acceptance bills which typically have longer credit terms than the payment terms of our trade receivables outstanding. Our bills receivables turnover days have decreased from 25.4 days in 2007 to 9.1 days in 2008 due to the decreased amount of bills receivables outstanding as at the end of 2008 as a result of adverse market conditions during the fourth quarter of 2008. During the nine months ended September 30, 2009, our bills receivables turnover days have increased to 23.1 days due to the increased amount of bills receivables outstanding as at September 30, 2009 as a result of improved market conditions.

All of our bills receivables that were outstanding as at September 30, 2009 had been settled as at December 31, 2009.

— 204 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

FINANCIAL INFORMATION

Trade and Other Payables

Our trade payables represent payables from our purchase of raw materials. Our bills payables represent payables from bills we have issued to our suppliers. All bills payables are aged within 180 days as at December 31, 2006, 2007 and 2008 and September 30, 2009. Receipts in advance from customers represent the deposits paid in advance by the customers to us before delivery of the goods to customers. Accrued expenses mainly comprise utility expenses, interest expenses and other miscellaneous expenses. Value-added tax payable and other tax payables represent payables for our value-added tax and other taxes. Payables for the acquisition of properties, plant and equipment represent the unpaid balances for the properties, plant and equipment acquired by us.

The table below sets forth our trade and other payables as of the end of each reporting period indicated.

As at As at December 31, September 30,

2006 2007 2008 2009

(HK$’000) (HK$’000) (HK$’000) (HK$’000)

Trade payables ...... 63,160 91,306 158,959 182,742 Bills payables ...... — 146,458 31,802 152,083 Receipt in advance from customers ...... 5,418 15,537 13,278 47,325 Accrued expenses ...... 2,768 5,864 11,195 7,854 Value-added tax payable and other tax payables ...... 26,542 47,759 117,838 73,405 Payables for the acquisition of properties, plant and equipment ...... 25,883 20,963 187,308 280,093 Other payables ...... 13,853 5,006 16,225 10,551 137,624 332,893 536,605 754,053

Trade Payables

The following table sets forth a summary of our trade payables turnover days for the periods indicated.

Nine months ended Year ended December 31, September 30,

2006 2007 2008 2009

Trade payables turnover days(1) ...... 25.3 28.1 21.5 21.9

(1) Trade payables turnover days equal trade payables as at the end of the period divided by cost of sales and then multiplied by 365 for 2006, 2007 and 2008, and by 273.75 for the nine months ended September 30, 2009.

Our trade payables turnover days have increased from 25.3 days in 2006 to 28.1 days in 2007, decreased to 21.5 days in 2008, and increased to 21.9 days for the nine months ended September 30, 2009.

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FINANCIAL INFORMATION

The increase from 21.5 days in 2008 to 21.9 days for the nine months ended September 30, 2009 was primarily because we increased our purchase volume of raw materials when the market conditions improved.

The decrease from 28.1 days in 2007 to 21.5 days in 2008 was primarily because we limited our purchase volume of raw materials when we restricted our production volume in the fourth quarter of 2008 due to adverse market conditions.

The increase from 25.3 days in 2006 to 28.1 days in 2007 was primarily due to our enhanced reputation and relationship with our suppliers.

The table below sets forth an aging analysis of our trade payables as of the end of each reporting period indicated.

As at As at December 31, September 30,

2006 2007 2008 2009

(HK$’000) (HK$’000) (HK$’000) (HK$’000)

0 to 90 days ...... 38,030 49,688 84,551 118,387 91 to 180 days ...... 4,030 15,017 45,376 16,893 181 to 360 days ...... 21,100 26,601 29,032 47,462 Total ...... 63,160 91,306 158,959 182,742

The overall increase of our trade payables aged 0 to 90 days for the periods indicated above was primarily due to an increase in our production volume which led to an increase in our raw materials consumption.

Out of the HK$182.7 million of trade payables outstanding as at September 30, 2009, HK$[●] million had been settled as at December 31, 2009.

Bills Payables

The following table sets forth a summary of our bills payables turnover days for the periods indicated.

Nine months ended Year ended December 31, September 30,

2006 2007 2008 2009

Bills payables turnover days(1) ...... nil 45.0 4.3 18.2

(1) Bills payables turnover days equal bills payables as at the end of the period divided by cost of sales and then multiplied by 365 for 2006, 2007 and 2008, and by 273.75 for the nine months ended September 30, 2009.

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FINANCIAL INFORMATION

Our bills payables turnover days have increased from nil in 2006 to 45.0 days in 2007 as we started settling our purchases of raw materials with bank acceptance bills, which typically have longer credit terms. Our bills payables turnover days have decreased from 45.0 days in 2007 to 4.3 days in 2008 due to a decrease in purchase of raw materials when we restricted our coke production volume in the fourth quarter of 2008 as a result of adverse market conditions. During the nine months ended September 30, 2009, our bills payables turnover days have increased to 18.2 days due to the increased amount of bills payables outstanding as a result of improved market conditions.

With respect to the HK$152.1 million of bills payables outstanding as at September 30, 2009, [all such amount] remained outstanding as at December 31, 2009. All of these bills payables are within their respective credit terms and we expect to pay all outstanding amounts upon their respective maturity dates.

We intend to settle our trade and other payables for the year ended December 31, 2009 with our internally generated funds.

Indebtedness Co 3rd Sch23

The table below sets forth our third party commercial borrowings as of the end of each reporting period indicated.

App1A32(2) As at As at December 31, September 30,

2006 2007 2008 2009

(HK$’000) (HK$’000) (HK$’000) (HK$’000)

Bank borrowings are repayable as follows: Within one year...... 39,814 42,717 44,473 198,505 After one year but within two years ...... — 38,397 141,758 141,758 After two years but within three years...... — 119,812 141,758 141,758 After three years but within four years...... — 119,812 136,297 34,341 After four years but within five years...... — 122,620 10,714 — 39,814 443,358 475,000 516,362 Less: Amount due within one year included in current liabilities ...... (39,814) (42,717) (44,473) (198,505) Amount due after one year...... — 400,641 430,527 317,857

Range of effective interest rates...... 5.58%-5.85% 4.12%-6.03% 4.12%-6.37% 2.51%-4.86%

Our bank loans are unsecured and, other than our bank loans of HK$39.8 million, HK$42.7 million, nil and HK$56.7 million as at December 31, 2006, 2007, 2008 and September 30, 2009, respectively, are arranged at floating rate. All of our bank loans were guaranteed by Kingboard as at December 31, 2006, 2007 and 2008 and HK$459.6 million of our bank loans were guaranteed by Kingboard as at September 30, 2009. These guarantees will be terminated in the future.

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FINANCIAL INFORMATION

Nil, HK$400 million and HK$459.6 million of our bank borrowings as at December 31, 2006, 2007, and September 30, 2009, respectively, and all of our bank borrowings as at December 31, 2008 were denominated in Hong Kong dollars. As at December 31, 2006, 2007 and 2008 and September 30, 2009, the amount of our bank borrowings was HK$39.8 million, HK$443.4 million, HK$475.0 million and HK$516.4 million, respectively.

Our Directors believe that we maintain good relationships with our lenders generally and they expect that, based on the current prevailing market conditions, we will be able to obtain replacement financing commitments when our short-term bank borrowings become due.

The table below sets forth our indebtedness to the Parent Group as of the end of each reporting period indicated.

As at As at December 31, September 30,

2006 2007 2008 2009

(HK$’000) (HK$’000) (HK$’000) (HK$’000)

Amounts due to fellow subsidiaries ...... 3,608 36,213 176,349 172,562 Amount due to immediate holding company ...... 597,003 371,539 735,197 688,669 600,611 407,752 911,546 861,231

The amounts due to the Parent Group are unsecured, interest-free and repayable on demand. As at December 31, 2006, 2007 and 2008 and September 30, 2009, the amount of our indebtedness to the Parent Group was HK$600.6 million, HK$407.8 million, HK$911.5 million and HK$861.2 million, respectively.

Indebtedness as at November 30, 2009 Co 3rd Sch24

As at the close of business on November 30, 2009, being the latest practicable date for the purpose of this indebtedness statement prior to the posting of this document, our Group had obtained App1A32(2) banking facilities in an aggregate amount of approximately HK$[●] million, of which an aggregate amount of approximately HK$[●] million was still available for utilization. As at such date, our Group had total outstanding bank borrowings of approximately HK$[●] million, all of which was unsecured. We intend to refinance our bank borrowings or repay our bank borrowings as and when they fall due with our internally generated funds. As at such date, our Group had trade and revolving credit facilities of approximately HK$[●] million. The availability period for each such credit facility ends in February 2010. We are currently involved in preliminary discussions with the relevant banks and expect to be able to roll over such facility upon its maturity. In addition, as at such date, our Group had unsecured payables of approximately HK$[●] million due to members of the Parent Group. We have already obtained bank loans for an aggregate amount of HK$500 million to repay these shareholders’ loans.

[Our Directors confirm that there has been no material change in our indebtedness and contingent liabilities since November 30, 2009.]

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FINANCIAL INFORMATION

Save as disclosed in this section of this document, as at the close of business on November 30, App1A32(3) App1A32(1) 2009, apart from normal trade payables and intra-group liabilities, our Group did not have any App1A23(2) outstanding mortgages, charges or pledges, debentures or other debt securities (including those authorized or otherwise created but unissued), term loans, loan capital, other borrowings or other similar indebtedness (including bank loans and overdrafts, hire purchase commitments, acceptance liabilities or acceptance credits), finance leases or any guarantees or other material contingent liabilities.

CERTAIN FINANCIAL RATIOS

Gearing Ratio

Gearing ratio is calculated by dividing our total interest-bearing bank borrowings by our total assets as at the end of each reporting period. Our gearing ratio was 3.9%, 24.2%, 17.4% and 17.0% as at December 31, 2006, 2007 and 2008 and September 30, 2009, respectively.

Our gearing ratio increased from 2006 to 2007 primarily because we obtained three new loan facilities in the fourth quarter of 2007 to fund our purchases and construction of machinery in connection with each of our production facilities. Our gearing ratio decreased from 2007 to 2008 and from 2008 to September 30, 2009 primarily due to the higher rate of increase of our total assets than that of our interest-bearing bank borrowings.

Return on Equity

Return on equity for 2006, 2007 and 2008 is calculated by dividing our profit attributable to owners of our Company for each year by our equity attributable to owners of our Company as at the end of each year. Return on equity for the nine months ended September 30, 2009 is calculated by dividing our profit attributable to owners of our Company for such period by our equity attributable to owners of our Company as at the end of such period, and then dividing the resulting figure by 273.75 and multiplying it by 365. Our return on equity was 56.7%, 39.9%, 26.4% and 16.7% for 2006, 2007, 2008 and the nine months ended September 30, 2009, respectively.

Our return on equity decreased from 2006 to 2007 primarily due to the higher rate of increase of our equity attributable to owners of our Company than that of our profit attributable to owners of our Company. Our return on equity decreased from 2007 to 2008 and from 2008 to the nine months ended September 30, 2009 primarily due to the decrease in our profit attributable to owners of our Company. The decrease in the profit attributable to owners of our Company from 2007 to 2008 was primarily due to (i) the increase in distribution and selling expenses by 125.5% from HK$39.2 million in 2007 to HK$88.4 million in 2008, driven by an increase in the distances over which we were required to deliver our coke products to a few new customers and an increase in fuel prices, (ii) the increase in finance cost by 187.6% from HK$8.9 million in 2007 to HK$25.6 million in 2008 as we obtained three new loan facilities in the fourth quarter of 2007, and (iii) the increase in taxation expense from nil in 2007 to HK$39.9 million in 2008. The decrease in the profit attributable to owners of our Company from 2008 to the nine months ended September 30, 2009, on an annualized basis, was primarily due to the decrease in our gross profit.

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FINANCIAL INFORMATION

Return on Assets

Return on assets for 2006, 2007 and 2008 is calculated by dividing our profit attributable to owners of our Company for each year by our total assets as at the end of each year. Return on assets for the nine months ended September 30, 2009 is calculated by dividing our profit attributable to owners of our Company for such period by our total assets as at the end of such period, and then dividing the resulting figure by 273.75 and multiplying it by 365. Our return on assets was 13.2%, 14.1%, 7.6% and 4.9% for 2006, 2007, 2008 and the nine months ended September 30, 2009, respectively.

Our return on assets increased from 2006 to 2007 primarily due to the higher rate of increase of our profit attributable to owners of our Company than that of our total assets. Our return on assets decreased from 2007 to 2008 and from 2008 to the nine months ended September 30, 2009 primarily due to the decrease in our profit attributable to owners of our Company. The reasons for the decrease in our profit attributable to owners of our Company from 2007 to 2008 and from 2008 to the nine months ended September 30, 2008 (on an annualized basis) are discussed under the paragraph headed “Return on Equity” above.

Current Ratio

Current ratio is calculated by dividing our total current assets by our total current liabilities as at the end of each reporting period. Our current ratio was 0.3, 0.8, 0.4 and 0.5 as at December 31, 2006, 2007 and 2008 and September 30, 2009, respectively.

Our current ratio increased from 2006 to 2007 primarily due to the decrease in our shareholders’ loans from Kingboard and other members of the Parent Group, as well as the higher rate of increase of our bank balances and cash, trade and other receivables and prepayments, and bills receivables, than that of our trade and other payables. Our current ratio decreased from 2007 to 2008 primarily due to the decrease in our bank balances and cash and bills receivables, as well as the higher rate of increase of our shareholders’ loans from Kingboard and other members of the Parent Group and trade and other payables than that of our trade and other receivables and prepayments. Our current ratio increased from 2008 to the nine months ended September 30, 2009 primarily due to the higher rate of increase of our bills receivables, pledged bank deposits, amounts due from fellow subsidiaries, and inventories, than that of our trade and other payables and short-term bank borrowings.

Quick Ratio

Quick ratio is calculated by dividing our total current assets excluding inventories by our total current liabilities as at the end of each reporting period. Our quick ratio was 0.1, 0.6, 0.3 and 0.4 as at December 31, 2006, 2007 and 2008 and September 30, 2009, respectively. The fluctuation of our quick ratio was in line with that of our current ratio.

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FINANCIAL INFORMATION

CONTRACTUAL OBLIGATIONS

The table below sets forth our capital commitments and operating lease commitments as at the end of each reporting period indicated.

As at As at December 31, September 30,

2006 2007 2008 2009

(HK$’000) (HK$’000) (HK$’000) (HK$’000)

Capital expenditure in respect of acquisition of properties, plant and equipment contracted for but not provided in the Financial Information .... 2,905 336,192 205,624 53,579 Operating lease commitments due within one year . — — 129 155

Our capital commitments as at September 30, 2009 primarily relate to the construction of our phase II coke and phase II methanol production facility and the upgrading of our pure benzene production facility to increase its annual production capacity to 42,000 tonnes. All payments are expected to be made before the end of 2010 in accordance with contractual requirements and funded with our internally generated funds.

New business developments (including our possible acquisition of the Acetic Acid Plant and the Yuanda Coal Project and expansion of our coke and methanol production facilities) may occur, resulting in additional capital expenditures. We estimate that the amount of capital expenditures required for expanding our coke and methanol production capacities by one phase (being 960,000 tonnes and 100,000 tonnes, respectively) is approximately RMB1 billion. The purchase price payable by us for the Acetic Acid Plant will be determined by an independent valuer to be appointed jointly by us and Kingboard. We intend to fund these new business developments with, among other things, additional debt or equity financings.

For more details regarding our operating lease commitments, please see note 29 to the Accountants’ Report in Appendix I of this document.

Other than the transactions described in the above table, as at the Latest Practicable Date, we had no other material contractual commitments.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTINGENCIES

As of September 30, 2009, we did not have any material off-balance sheet arrangements or any material contingencies. Specifically, we have not entered into any derivative contracts that are indexed to our Shares and classified as shareholders’ equity, or that are not reflected in our combined financial statements. Furthermore, we do not have any retained or contingent interests in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Moreover, we do not have any variable interests in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

—211— THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

FINANCIAL INFORMATION

RELATED PARTY TRANSACTIONS

Details of the related party transactions are set out in note 30 to the Accountants’ Report in Appendix I to this document. Our Directors confirm that all related party transactions are conducted on normal commercial terms, and that their terms are fair and reasonable to us.

FINANCIAL INDEPENDENCE

As at the Latest Practicable Date, we had no non-trade balances due to Directors, no non-trade balances due from Directors, and no non-trade balances due from related parties other than balances in the amounts of HK$1.0 million, HK$11.6 million, HK$12.4 million and HK$64.0 million as at December 31, 2006, 2007 and 2008 and September 30, 2009, respectively, which are non-trade in nature.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Market risk is the risk of loss related to adverse changes in market prices, including interest rate and foreign exchange rates of financial instruments. We are exposed to various types of market risks in the normal course of our business. For instance, we are exposed to market interest rate risks and market foreign currency risks attributable to our borrowings at variable interest rates and exchange rate movements on foreign currency denominated borrowings. We aim to minimize risk through regular operating and financial activities.

During the three years ended December 31, 2008 and the nine months ended September 30, 2009, we did not enter into any foreign exchange or interest rate hedging contract or forward purchase or sale contract for commodities.

Commodity Price Risk

We are exposed to fluctuations in the prices of raw materials, and in particular, coking coal, as well as fluctuations in the prevailing market prices of our products. We generally purchase coking coal and other raw materials at prevailing market prices. Our products are also generally sold at prevailing market prices. Market prices may fluctuate and are beyond our control and may have a significant effect on our results of operations.

Our policy is to maintain up to 21 days of our average daily coking coal usage as reserve at our production facilities. We believe the use of this reserve helps us to reduce the risk associated with an unexpected sharp rise in coking coal prices.

Foreign Currency Exchange Rate Risk

We receive all of our sales proceeds in Renminbi, which is not freely convertible into other currencies. As at September 30, 2009, our assets and liabilities were all denominated in Renminbi except that HK$459.6 million of our bank borrowings were denominated in Hong Kong dollars. Fluctuations in the Hong Kong dollars — Renminbi exchange rates will affect the amounts of principal and interest payable on such loans. The exchange rate for Renminbi has been subject to relatively

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FINANCIAL INFORMATION minor adjustments in the last 18 months. On July 21, 2005, the PRC government introduced a managed floating exchange rate system to allow the value of the RMB to fluctuate within a regulated band based on market supply and demand and by reference to a basket of currencies. This change in policy has resulted in the appreciation of the Renminbi against the US dollars. The PRC government may take further actions that could cause future exchange rates to vary significantly from current or historical exchange rates.

We do not currently use any foreign currency forward contracts to hedge our exposure to foreign exchange risk. Fluctuations in exchange rates may adversely affect the value, translated or converted into US dollars or Hong Kong dollars (which are pegged to the US dollars), of our net assets, earnings and any declared dividends.

Had the exchange rate of Renminbi increased or decreased by 5% as at December 31, 2006, 2007 and 2008 or 2% as at September 30, 2009 against Hong Kong dollars, with all other variables held constant, our post-tax profit for the relevant year or period would have increased or decreased by approximately HK$29.9 million, HK$23.5 million, HK$20.8 million and HK$8.0 million, respectively.

Interest Rate Risk

We are subject to interest rate risk, mainly arising from our interest-bearing bank loans, which we do not currently hedge. As at September 30, 2009, approximately 89% of our bank borrowings were subject to floating interest rates, which were principally determined by reference to HIBOR. Our net profit is affected by changes in interest rates due to the impact such changes have on interest income and interest expense from short-term deposits and other interest-bearing financial assets and liabilities. In addition, an increase in interest rates would adversely affect our ability to service loans and our ability to raise and service long-term debt and to finance our developments, all of which in turn would adversely affect our results of operations.

Credit Risk

We are exposed to the credit risk of our customers as a result of our trade receivables, as we do not typically take deposits from our customers. However, we have not experienced any material losses as a result of our customers’ default in their payment obligations during the three years ended December 31, 2008 and the nine months ended September 30, 2009. The balance of our allowance for doubtful debts as at December 31, 2006, 2007 and 2008 and September 30, 2009 was nil, nil, HK$12.6 million and HK$3.1 million, respectively.

Transportation Cost Risk

We bear the cost of transporting coke from our production facilities to our customers and rely on third party companies to transport the coke from our production facilities to our customers. As we price our coke according to the prevailing market price which is quoted as a price inclusive of delivery, we are unable to charge our customers separately for our transportation costs. We are also generally required to transport our coking coal supplies from our state-owned suppliers to our facilities. Accordingly, fluctuations in our transportation costs could have a direct impact on our

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FINANCIAL INFORMATION selling expenses and costs of sales, which in turn could impact our net profit. During the three years ended December 31, 2008 and the nine months ended September 30, 2009, we did not seek to hedge our exposure to transportation cost risk.

Inflation

Inflation and deflation have not had a significant effect on our business during the three years ended December 31, 2008 and the nine months ended September 30, 2009. According to the National Bureau of Statistics of China, the year-on-year changes in the Consumer Price Index in China were 1.5%, 4.8%, 5.9% and -1.1% for the three calendar years 2006, 2007 and 2008 and the nine months ended September 30, 2009, respectively.

NO MATERIAL ADVERSE CHANGE

Our Directors confirm that there has been no material adverse change in the financial or trading App1A38 position of our Group since September 30, 2009 (being the date to which our latest combined financial results were prepared as set out in the Accountants’ Report in Appendix I to this document.

PROFIT ESTIMATE FOR THE YEAR ENDED DECEMBER 31, 2009 AND PROFIT FORECAST LR11.18 LR11.17 FOR THE SIX MONTHS ENDING JUNE 30, 2010

Estimated combined profit attributable to owners of the Company for the year ended December 31, 2009(1) ...... Not less than HK$[●]

Forecast combined profit attributable to owners of the Company for the six months ending June 30, 2010(2) ...... Not less than HK$[●]

Notes:

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FINANCIAL INFORMATION

months ending June 30, 2010 should not be used in any way as an indication or forecast of our Company’s performance for the year ending December 31, 2010 or any subsequent periods. Fluctuations in our operating results may make it difficult to predict future results, and period-to-period comparisons may not be meaningful. See “Risk Factors — Our operating results have been subject to significant fluctuations during the three years ended December 31, 2008 and the nine months ended September 30, 2009 and may continue to fluctuate in future”.

Our Directors believe that our revenue and the demand for our products are not affected by seasonality.

The Company has undertaken to have its interim results for the six months ending June 30, 2010 audited as required under applicable rules.

DIVIDEND POLICY

Our shareholders will be entitled to receive dividends declared by us. The payment and the amount of any dividends will be at the discretion of our Directors and will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that our Directors deem relevant.

• the Group’s results of operations and cash flows;

• the Group’s future prospects;

• general business conditions;

• the Group’s capital requirements and surplus;

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FINANCIAL INFORMATION

• contractual restrictions on the payment of dividends by the Company to its shareholders or by subsidiaries to the Company;

• taxation considerations;

• possible effects on the Company’s creditworthiness;

• statutory and regulatory restrictions; and

• any other factors the Board may deem relevant.

DISTRIBUTABLE RESERVES

Under the Companies Law, the share premium of the Company may be distributed subject to the App1A33(5) provisions of the Company’s Memorandum or Articles and provided that immediately following the date on which the dividend is proposed to be distributed, the Company will be in a position to pay off its debts as and when they fall due in the ordinary course of business. As at September 30, 2009, our Company had no distributable reserves. As a result of the Restructuring, we expect that our Company will have sufficient distributable reserves to pay a special dividend in the amount of HK$200 million to the Parent Group.

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FINANCIAL INFORMATION

PROPERTY INTERESTS

Details relating to our property interests are set out in Appendix IV of this document. B.I. Appraisals Limited, an independent property valuation firm, has valued the properties owned by us as at October 31, 2009. The text of its letter, summary of values and valuation certificate are set out in Appendix IV of this document. The table below shows the reconciliation of the carrying values of the relevant property interests, including buildings and prepaid lease payments, as at September 30, 2009 to their fair value as at October 31, 2009 as stated in Appendix IV to this document:

HK$’000

Carrying values as at September 30, 2009 Buildings...... [●] Prepaid lease payments...... [●] [●] Movements for the one month ended October 31, 2009 Depreciation and amortization (unaudited) ...... [●] Carrying values as at October 31, 2009 ...... [●] Valuation surplus as at October 31, 2009...... [●] Valuation as at October 31, 2009 per Appendix IV to this document...... [●]

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FUTURE PLANS

We aim to become a leading producer of coke and related products in Hebei, China. To achieve App1A34(1)(a) this, we plan to, among other strategies, expand our coke and methanol production capacities. We also strive to develop a vertically integrated operation for our coking business, with downstream and upstream assets, including acetic acid production facilities and coal mines.

By adopting our future plans and the proposed strategies as described in the section “Business — Our Strategies”, we believe that we will be able to further strengthen our market position as well as maximizing profitability and returns to our shareholders.

See the section “Business — Our Strategies” for a detailed description of our business strategies and future plans.

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APPENDIX I ACCOUNTANTS’ REPORT

The following is the text of a report prepared for the purpose of incorporation in this document received from the reporting accountants, Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong.

Co 3rd Sch3 Co 3rd Sch31 Co 3rd Sch42 Co 3rd Sch43 LR4.08(4)

[Date] LR4.08(5)

The Directors Hebei CoalChem Holdings Limited Merrill Lynch Far East Limited

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) relating to Hebei CoalChem Holdings Limited (the “Company”) and its subsidiaries (hereinafter collectively App1A37 referred to as the “Group”) for each of the three years ended December 31, 2008 and for the nine months ended September 30, 2009.

The Company, formerly known as Kingboard CokeChem Holdings Limited, was incorporated and App1A5 registered as an exempted company with limited liability in the Cayman Islands on September 4, 2009 under the Companies Law, Cap 22 (Laws of 1961, as consolidated and revised) of the Cayman Islands. On [Date], through a group reorganisation as more fully explained in the paragraph headed “Corporate Reorganisation” in Appendix VI to this document (the “Group Reorganisation”), Kingboard Chemical Holdings Limited (“KCHL”), the ultimate holding company and a company incorporated in Cayman Islands with limited liability and whose shares are listed on the Stock Exchange, transferred its entire equity interests in the companies now comprising the Group to the Company and the Company became the holding company of the Group. The Group is principally engaged in the manufacture and sales of coke and related products and chemicals in the People’s Republic of China (the “PRC”).

— I-1 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

APPENDIX I ACCOUNTANTS’ REPORT

Throughout the three years ended December 31, 2008 and the nine months ended September 30, Co 3rd Sch29 2009 and as at the date of this report, the Company has interests in the following subsidiaries.

Issued and fully paid Place and date of share capital/ incorporation/ registered establishment capital Attributable equity interest to the Group Principal activities App1A28(2) App1A29(1) At the December 31, September 30, date of Name of the company 2006 2007 2008 2009 report

Fast Intellect Limited British Virgin US$1 N/A N/A N/A N/A 100% Inactive2 迅智有限公司 Islands (“Fast Intellect”)* August 13, 2007

Grace Mind Investments British Virgin US$1 N/A N/A N/A 100% 100% Investment holding Limited Islands 思雅投資有限公司 August 20, 2009 (“Grace Mind”)#

Reach Goal Limited Hong Kong HK$1 N/A N/A N/A 100% 100% Investment holding 達志有限公司 June 18, 2009 (“Reach Goal”)*

建滔(河北)焦化有限公司 PRC 1 RMB96,000,000 100% 100% 100% 100% 100% Manufacture and Kingboard (Hebei) July 31, 2003 sales of coke and Cokechem Co., Ltd. coke related (“Hebei Cokechem”)** products

建滔(河北)化工有限公司 PRC 1 RMB357,000,000 100% 100% 100% 100% 100% Manufacture and Kingboard (Hebei) July 31, 2003 sales of coke and Chemical Co., Ltd. coke related (“Hebei Chemical”)** products and chemicals

# Directly held by the Company. * Directly held by Grace Mind. ** Directly held by Reach Goal. 1 These companies were established in the PRC in the form of wholly foreign-owned enterprises. 2 On December 19, 2009, the Company entered into an agreement to acquire Fast Intellect from an indirect subsidiary of KCHL at a consideration of HK$7.8. Prior to the acquisition, Fast Intellect held two PRC subsidiaries that operates other business which is different to the Group’s core business and were transferred to another indirect subsidiary of KCHL on December 10, 2009. At the date of acquisition by Grace Mind, Fast Intellect only held the coke and methanol expansion approval right and has no other business, therefore, the acquisition of Fast Intellect has been treated as an asset acquisition rather than as business combination under common control.

All of the above subsidiaries are limited liability companies and adopt December 31 as the LR4.08(1)(a) financial year end date.

No statutory financial statements have been prepared for the Company, Fast Intellect and Grace LR19.12 Mind as these companies were incorporated in jurisdictions where there were no statutory audit requirement. In addition, no statutory financial statements of Reach Goal have been prepared as Reach Goal has not reached its first financial reporting period. The Company, Grace Mind and Reach Goal

— I-2 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

APPENDIX I ACCOUNTANTS’ REPORT have not carried on any business during the three years ended December 31, 2008 and the nine months ended September 30, 2009, other than the Group Reorganisation. We have, however, reviewed all relevant transactions of the Company, Grace Mind and Reach Goal since their respective dates of incorporation and carried out such procedures as we considered necessary for inclusion of the financial information relating to these companies in this document.

The statutory financial statements of the following subsidiaries for the three years ended December 31, 2008 and the nine months ended September 30, 2009 were prepared in accordance with relevant accounting principles and financial regulations applicable to PRC enterprises and were audited by the following certified public accountants registered in the PRC:

Name Financial period Name of auditors

Hebei Cokechem For each of the two years ended 邢台華信會計師事務所有限責任公司 December 31, 2007 For the year ended December 31, 河北華信會計師事務所有限責任公司 2008 Hebei Chemical For each of the two years ended 邢台華信會計師事務所有限責任公司 December 31, 2007 For the year ended December 31, 河北華信會計師事務所有限責任公司 2008 For the purpose of this report, the directors of the Company have prepared the financial statements of Hebei Cokechem and Hebei Chemical for the three years ended December 31, 2008 and the nine months ended September 30, 2009 in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). We have audited the financial statements of Hebei Cokechem and Hebei Chemical for the three years ended December 31, 2008 and the nine months ended September 30, 2009 in accordance with the Hong Kong Standards on Auditing issued by the HKICPA.

We have examined the audited financial statements or, where appropriate, the management LR4.08(3) accounts of the companies now comprising the Group for the three years ended December 31, 2008 and the nine months ended September 30, 2009 or since their respective dates of incorporation to September 30, 2009, where this is a shorter period, which were prepared in accordance with HKFRSs (the “Underlying Financial Statements”) in accordance with the Auditing Guideline 3.340 “Prospectuses and Reporting Accountant” as recommended by the HKICPA.

The Financial Information for the three years ended December 31, 2008 and the nine months ended September 30, 2009 set out in this report has been prepared from the Underlying Financial Statements on the basis set out in note 1 to Section A of the Financial Information, after making such adjustments as we consider appropriate for the purpose of preparing our report for inclusion in this document.

The Underlying Financial Statements are the responsibility of the directors of those companies who approve their issue. The directors of the Company are responsible for the contents of this document in which this report is included. It is our responsibilities to compile the Financial Information set out in this report from the Underlying Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

— I-3 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

APPENDIX I ACCOUNTANTS’ REPORT

In our opinion, on the basis of presentation set out in note 1 to section A of the Financial LR4.08(2) Information, the Financial Information together with the notes thereon gives, for the purpose of this report, a true and fair view of the state of affairs of the Group as at December 31, 2006, December 31, 2007, December 31, 2008 and September 30, 2009 and of the Company as at September 30, 2009 and of the combined results and combined cash flows of the Group for the three years ended December 31, 2008 and the nine months ended September 30, 2009.

The comparative combined statement of comprehensive income, combined statement of cash flows and combined statement of changes in equity of the Group for the nine months ended September 30, 2008 together with the notes thereon have been extracted from the Group’s unaudited combined financial information for the same period (the “September 30, 2008 Financial Information”) which was prepared by the directors of the Company solely for the purpose of this report. We have reviewed the September 30, 2008 Financial Information in accordance with the Hong Kong Standard on Review Engagements 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the HKICPA. Our review of the September 30, 2008 Financial Information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly we do not express an audit opinion on the September 30, 2008 Financial Information. Based on our review, nothing has come to our attention that causes us to believe that the September 30, 2008 Financial Information is not prepared, in all material respects, in accordance with the accounting policies consistent with those used in the preparation of the Financial Information which conform to HKFRSs.

— I-4 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

APPENDIX I ACCOUNTANTS’ REPORT

A. FINANCIAL INFORMATION

COMBINED STATEMENTS OF COMPREHENSIVE INCOME LR4.04(1) LR4.09(1) App16(2)(2)

Nine months ended Year ended December 31, September 30,

Notes 2006 2007 2008 2008 2009 LR8.06 App16(2)(5) HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 App16(4)(1) (unaudited)

Revenue...... 6 1,104,084 1,540,899 3,134,963 2,739,712 2,539,394 App1A33(1) LR4.05(1)(a) Cost of sales...... (910,144) (1,187,679) (2,700,623) (2,124,503) (2,287,073) LR4.05(1)(d)

Gross profit ...... 193,940 353,220 434,340 615,209 252,321 Other income ...... 8 12,000 17,920 13,425 12,985 4,995 LR4.05(1)(b) Distribution and selling expenses. (39,091) (39,208) (88,350) (67,261) (100,736) Administrative expenses...... (56,298) (93,451) (97,807) (92,040) (38,084) Other gains and losses ...... 32,713 27,750 11,993 14,203 8,827 Finance costs ...... 9 (8,882) (8,862) (25,621) (22,887) (10,373) LR4.05(1)(e)

Profit before taxation...... 10 134,382 257,369 247,980 460,209 116,950 LR4.05(1)(g) Taxation...... 12 — — (39,948) (55,774) (4,310) LR4.05(1)(h)

Profit for the year/period LR4.05(1)(j) attributable to owners of the Company ...... 134,382 257,369 208,032 404,435 112,640 Other comprehensive income for the year/period Exchange difference arising on translation to presentation currency ...... 6,358 31,362 51,600 61,023 814 Total comprehensive income for the year/period attributable to owners of the Company...... 140,740 288,731 259,632 465,458 113,454

Earnings per share 14 Basic ...... [●] cents [●] cents [●] cents [●] cents [●] cents LR4.04(8)

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APPENDIX I ACCOUNTANTS’ REPORT

COMBINED STATEMENTS OF FINANCIAL POSITION

As at As at December 31, September 30, LR4.04(3)(a) LR4.09(1) Notes 2006 2007 2008 2009 App16(2)(1)

HK$’000 HK$’000 HK$’000 HK$’000 LR8.06 App16(2)(5) App16(4)(2) Non-current assets LR4.05(2)(a) Properties, plant and equipment ...... 15 766,694 1,175,054 1,989,536 2,106,256 Prepaid lease payments ...... 16 28,579 30,005 62,964 61,900 Deposits for acquisition of properties, plant and equipment...... 11,243 13,284 11,223 4,330

806,516 1,218,343 2,063,723 2,172,486

Current assets LR4.05(2)(b) Inventories ...... 17 96,830 139,739 145,329 190,900 Trade and other receivables and prepayments ...... 18 50,683 133,729 314,352 214,066 Bills receivables...... 19 30,219 107,367 78,382 214,150 Amounts due from fellow subsidiaries...... 20 2,640 14,541 13,610 71,710 Pledged bank deposits ...... 21 14,462 15,004 15,875 76,041 Bank balances and cash...... 22 13,588 200,256 99,008 103,302 208,422 610,636 666,556 870,169

Current liabilities LR4.05(2)(c) Trade and other payables...... 23 137,624 332,893 536,605 754,053 Amounts due to fellow subsidiaries...... 20 3,608 36,213 176,349 172,562 Amount due to immediate holding company ...... 20 597,003 371,539 735,197 688,669 Bank borrowings — amount due within one year...... 24 39,814 42,717 44,473 198,505 Taxation payable ...... — — 20,077 10,504 778,049 783,362 1,512,701 1,824,293

Net current liabilities...... (569,627) (172,726) (846,145) (954,124) LR4.05(2)(d)

Total assets less current liabilities...... 236,889 1,045,617 1,217,578 1,218,362 LR4.05(2)(e)

Non-current liabilities Bank borrowings — amount due after one year... 24 — 400,641 430,527 317,857 LR4.05(2)(f) Net assets ...... 236,889 644,976 787,051 900,505

Capital and reserves LR4.05(2)(g) Paid in capital/share capital ...... 25 150,355 269,711 463,640 463,640 Reserves...... 86,534 375,265 323,411 436,865 Equity attributable to owners of the Company ...... 236,889 644,976 787,051 900,505

— I-6 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

APPENDIX I ACCOUNTANTS’ REPORT

COMBINED STATEMENTS OF CHANGES IN EQUITY

LR4.04(6) Attributable to owners of the Company LR4.04(9) LR4.05(2)(g) Paid in (Accumulated App16(2)(4) App16(2)(5) capital/ losses) App16(4)(2) share Statutory Translation retained capital reserve reserve profits Total

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Note b)

At January 1, 2006 ...... 150,355 — 2,626 (56,832) 96,149

Exchange differences arising on translation to presentation currency ...... — — 6,358 — 6,358 Profit for the year...... — — — 134,382 134,382

Total comprehensive income for the year ...... — — 6,358 134,382 140,740 Transfers...... — 4,601 — (4,601) —

At December 31, 2006 and January 1, 2007 .. 150,355 4,601 8,984 72,949 236,889 Exchange differences arising on translation to presentation currency ...... — — 31,362 — 31,362 Profit for the year...... — — — 257,369 257,369 Total comprehensive income for the year ...... — — 31,362 257,369 288,731 Capital injection (Note a)...... 119,356 — — — 119,356 Transfers...... — 26,391 — (26,391) — At December 31, 2007 and January 1, 2008 .. 269,711 30,992 40,346 303,927 644,976 Exchange differences arising on translation to presentation currency ...... — — 51,600 — 51,600 Profit for the year...... — — — 208,032 208,032 Total comprehensive income for the year ...... — — 51,600 208,032 259,632 Capital injection (Note a)...... 193,929 — — — 193,929 Dividends paid (Note 13)...... — — — (311,486) (311,486) Transfers...... — 23,773 — (23,773) — At December 31, 2008 and January 1, 2009 .. 463,640 54,765 91,946 176,700 787,051 Exchange differences arising on translation to presentation currency ...... — — 814 — 814 Profit for the period...... — — — 112,640 112,640 Total comprehensive income for the period ... — — 814 112,640 113,454 At September 30, 2009 ...... 463,640 54,765 92,760 289,340 900,505

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APPENDIX I ACCOUNTANTS’ REPORT

Attributable to owners of the Company

Paid in (Accumulated capital/ losses) share Statutory Translation retained capital reserve reserve profits Total

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Note b)

Unaudited At January 1, 2008 ...... 269,711 30,992 40,346 303,927 644,976

Exchange differences arising on translation to presentation currency ...... — — 61,023 — 61,023 Profit for the period...... — — — 404,435 404,435

Total comprehensive income for the period ... — — 61,023 404,435 465,458 Capital injection (Note a)...... 193,929 — — — 193,929 Dividends paid (Note 13)...... — — — (311,486) (311,486) At September 30, 2008 ...... 463,640 30,992 101,369 396,876 992,877

Notes:

(a) Capital injection represents the capital contributed to the subsidiaries established in the PRC by their then immediate holding company.

(b) Statutory reserve represents the general reserve set aside by the two PRC subsidiaries in accordance with the relevant laws and regulations of the PRC. Appropriation to such reserve is made out of net profit after taxation of the statutory financial statements of these PRC subsidiaries and the allocation basis are decided by their board of directors annually. The statutory reserve can be used to make up their prior year losses, if any, and can be applied for conversion into capital by means of capitalization issue.

— I-8 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

APPENDIX I ACCOUNTANTS’ REPORT

COMBINED STATEMENTS OF CASH FLOWS

LR4.04(5) Nine months ended App16(2)(3) Year ended December 31, September 30, App16(2)(5)

2006 2007 2008 2008 2009 LR8.06

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited)

Operating activities Profit before taxation ...... 134,382 257,369 247,980 460,209 116,950 Adjustments for: Interest income ...... (5,495) (9,264) (4,616) (4,319) (2,702) Interest expense...... 8,882 8,862 25,621 22,887 10,373 Loss on disposal of properties, plant and equipment ...... 35 — 618 — 574 Depreciation of properties, plant and equipment ...... 52,110 56,036 66,190 49,338 94,968 Allowance (reversal of allowance) for doubtful debts...... — — 12,427 12,376 (9,474) Release of prepaid lease payments...... 592 632 1,113 745 1,101 Operating cash flows before movements in working capital...... 190,506 313,635 349,333 541,236 211,790 Decrease (increase) in inventories ...... 22,023 (35,849) 3,046 (295,610) (45,439) Decrease (increase) in trade and other receivables and prepayments...... 64,921 (78,580) (184,014) (313,477) 110,066 Decrease (increase) in bills receivables ...... 27,648 (74,945) 35,620 15,519 (135,697) Decrease (increase) in amounts due from fellow subsidiaries...... 10,508 (1,143) 1,830 (19,785) (6,430) (Decrease) increase in trade and other payables ...... (3,297) 190,155 7,891 102,140 123,803 Increase (decrease) in amounts due to fellow subsidiaries ...... 3,608 26,005 22,039 20,590 (54,676) Cash from operation ...... 315,917 339,278 235,745 50,613 203,417 PRC Enterprise Income Tax paid ...... — — (19,871) (18,280) (13,901) Net cash from operating activities ...... 315,917 339,278 215,874 32,333 189,516

— I-9 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

APPENDIX I ACCOUNTANTS’ REPORT

Nine months ended Year ended December 31, September 30,

2006 2007 2008 2008 2009 LR8.06

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited)

Investing activities Interest received ...... 5,495 9,264 4,616 4,319 2,702 Advance to fellow subsidiaries ...... (1,001) (10,566) — — (51,658) (Increase) decrease in pledged bank deposits ...... (14,462) 512 56 (11,353) (60,152) Purchase of properties, plant and equipment ...... (121,375) (387,765) (619,654) (539,847) (115,388) Deposits paid for acquisition of properties, plant and equipment ...... (11,243) (13,284) (11,223) (11,079) (4,330) Proceeds from disposal of properties, plant and equipment...... 3,680 397 159 — 8,992 Prepaid lease payments paid ...... — — (32,962) (18,291) — Net cash used in investing activities...... (138,906) (401,442) (659,008) (576,251) (219,834)

Financing activities Interest paid ...... (8,882) (8,862) (25,621) (22,887) (10,373) New bank borrowings raised...... 39,814 480,715 120,356 119,638 96,470 Repayment of bank borrowings...... (76,879) (80,715) (90,713) (44,638) (55,108) Advances from fellow subsidiaries...... — 6,337 157,081 — 50,729 Advances from immediate holding company ...... 12,596 258,010 692,657 649,743 — Repayment of advances from fellow subsidiaries ...... — — (43,399) (43,399) — Repayment of advances from immediate holding company...... (148,000) (527,000) (363,293) (156,172) (47,196) Capital injection from immediate holding company ...... — 119,356 193,929 193,929 — Dividends paid...... — — (311,486) (311,486) — Net cash (used in) from financing activities...... (181,351) 247,841 329,511 384,728 34,522 Net (decrease) increase in cash and cash equivalents ...... (4,340) 185,677 (113,623) (159,190) 4,204 Cash and cash equivalents at the beginning of the year/period ...... 17,309 13,588 200,256 200,256 99,008 Effect of foreign exchange rate changes of cash and cash equivalents ...... 619 991 12,375 13,685 90 Cash and cash equivalents at the end of the year/period, representing bank balances and cash ...... 13,588 200,256 99,008 54,751 103,302

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APPENDIX I ACCOUNTANTS’ REPORT

NOTES TO THE FINANCIAL INFORMATION App16(2)(6)

1. BASIS OF PRESENTATION OF FINANCIAL INFORMATION

The Company was incorporated and registered as an exempted company with limited liability in the Cayman Islands on September 4, 2009 under the Companies Law, Cap 22 (Laws of 1961, as consolidated and revised) of the Cayman Islands. Through the Group Reorganisation, KCHL transferred its entire equity interests in the companies now comprising the Group to the Company and the Company became the holding company of the Group on [●]. The Group comprising the Company and its subsidiaries resulting from the Group Reorganisation is regarded as a continuing entity.

The combined statements of comprehensive income, combined statements of changes in equity and combined statements of cash flows for each of the three years ended December 31, 2008 and the nine months ended September 30, 2009 which include the results, changes in equity and cash flows of the companies now comprising the Group have been prepared on the basis as if the current group structure, except for Fast Intellect, had been in existence throughout the three years ended December 31, 2008 and the nine months ended September 30, 2009, or since their respective dates of incorporation where it is a shorter period. The combined statements of financial position of the Group as at December 31, 2006, 2007 and 2008 and September 30, 2009 have been prepared to present the assets and liabilities of the companies now comprising the Group as if the current group structure, except for Fast Intellect, had been in existence as at those dates.

The acquisition of Fast Intellect has been treated as an asset acquisition rather than as business combination under common control. Its results and cash flows since its incorporation but prior to acquisition were not included in the Financial Information of the Group.

The addresses of the registered office and the principal place of business of the Company are disclosed in the paragraph headed “Corporate Information” to this document.

The functional currency of the Company and its subsidiaries is Renminbi (“RMB”) while the Financial Information are presented in Hong Kong Dollars (“HK$” or “HKD”), which the management of the Company considered is more beneficial for the users of the Financial Information.

2. APPLICATION OF HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRS”s) LR4.13 App16(2.2)

The HKICPA has issued a number of new and revised Hong Kong Accounting Standards (“HKAS”s) and HKFRSs, Amendments and Interpretations (“INT”s) (hereinafter collectively referred to as “new HKFRSs”) which are effective for the Group’s financial periods beginning on January 1, 2009, except for HK(IFRIC) — INT 18 “Transfers of assets from customers” which is only effective for transfers on or after July 1, 2009. For the purposes of preparing and presenting the Financial Information for the three years ended December 31, 2008 and the nine months ended September 30, 2009, the Group has adopted all these new HKFRSs consistently throughout the three years ended December 31, 2008 and the nine months ended September 30, 2009.

At the date of this report, the HKICPA has issued the following standards, amendments and interpretations that are not yet effective.

HKFRSs (Amendments) Amendment to HKFRS 5 as part of Improvements to HKFRSs issued in 20081 HKFRSs (Amendments) Improvements to HKFRSs in 2009 2 HKAS 24 (Revised) Related party disclosures 3 HKAS 27 (Revised) Consolidated and separate financial statements 1

— I-11 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

APPENDIX I ACCOUNTANTS’ REPORT

HKAS 32 (Amendment) Classification of rights issues 4 HKAS 39 (Amendment) Eligible hedged items 1 HKFRS 1 (Amendment) Additional exemptions for first-time adopters 5 HKFRS 2 (Amendment) Group cash-settled share-based payment transactions 5 HKFRS 3 (Revised) Business combinations 1 HKFRS 9 Financial instruments6 HK(IFRIC) — INT 14 Prepayments of a minimum funding requirement3 (Amendment) HK(IFRIC) — INT 17 Distributions of non-cash assets to owners 1 HK(IFRIC) — INT 19 Extinguishing financial liabilities with equity instruments7

1 Effective for annual periods beginning on or after July 1, 2009.

2 Amendments that are effective for annual periods beginning on or after July 1, 2009 and January 1, 2010, as appropriate.

3 Effective for annual periods beginning on or after January 1, 2011.

4 Effective for annual periods beginning on or after February 1, 2010.

5 Effective for annual periods beginning on or after January 1, 2010.

6 Effective for annual periods beginning on or after January 1, 2013.

7 Effective for annual periods beginning on or after July 1, 2010.

The adoption of HKFRS 3 (Revised) may affect the Group’s accounting treatment for non-common control business combination for which the acquisition dates are on or after January 1, 2010. HKAS 27 (Revised) will affect the accounting treatment for changes in the Group’s ownership interest in a subsidiary.

The directors of the Company anticipate that the application of the other standards, amendments and interpretations will have no material impact on the Financial Information of the Group.

3. SIGNIFICANT ACCOUNTING POLICIES

The Financial Information has been prepared under the historical cost basis as explained in the accounting LR4.04(11) policies set out below.

The Financial Information has been prepared in accordance with the following accounting policies which LR4.10 LR4.11(a) conform to HKFRSs issued by the HKICPA. In addition, the Financial Information includes the applicable LR19.13 LR19.39 disclosures required by applicable rules and by the Hong Kong Companies Ordinance. App16(2.1)

Basis of combination

The Financial Information incorporates the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the three years ended December 31, 2008 and the nine months ended September 30, 2009 are included in the combined statement of comprehensive income from the effective date of acquisition or up to the effective date of disposal (except for subsidiaries under common control which are accounted for using the principles of merger accounting), as appropriate.

— I-12 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

APPENDIX I ACCOUNTANTS’ REPORT

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group.

All intra-group transactions, balances, income and expenses are eliminated on combination.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods sold in the normal course of business, net of discounts and excludes sales related taxes.

Sales of goods is recognised when goods are delivered and title has passed.

Interest income from a financial asset is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.

Properties, plant and equipment

Properties, plant and equipment (other than construction in progress) are stated at cost less subsequent accumulated depreciation and accumulated impairment losses, if any.

Depreciation is provided to write off the cost of items of properties, plant and equipment other than construction in progress over their estimated useful lives and after taking into account of their estimated residual value, using the straight-line method.

Construction in progress includes properties, plant and equipment in the course of construction for production or for its own use purposes. Construction in progress is carried at cost less any recognised impairment loss. Construction in progress is classified to the appropriate category of properties, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other items of properties, plant and equipment, commences when the assets are ready for their intended use.

An item of properties, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the combined statement of comprehensive income in the year/period in which the item is derecognised.

Prepaid lease payments

The land and building elements of a lease of land and building are considered separately for the purpose of lease classification, unless the lease payments cannot be allocated reliably between the land and building elements, in which case, the entire lease is generally treated as finance lease and accounted for as properties, plant and equipment. To the extent the allocation of the lease payments can be made reliably, leasehold interests in land are accounted for as operating leases.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted average method.

— I-13 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

APPENDIX I ACCOUNTANTS’ REPORT

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are recognised as part of the cost of those assets. Capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in profit or loss in the year/period in which they are incurred.

Impairment

At the end of each reporting period, the Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior periods. A reversal of an impairment loss is recognised as income immediately.

Financial instruments

Financial assets and financial liabilities are recognised on the combined statement of financial position when a group entity becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Financial assets

The Group’s financial assets comprise of loans and receivables. The accounting policies adopted in respect of financial assets are set out below.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period.

Income is recognised on an effective interest basis for debt instruments.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At the end of each reporting period subsequent to initial recognition, loans and receivables (including amounts due from fellow subsidiaries, trade and other receivables, bills receivables, pledged bank deposits and bank balances and cash) are carried at amortised cost using the effective interest method, less any identified impairment losses.

— I-14 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

APPENDIX I ACCOUNTANTS’ REPORT

Impairment of financial assets

Objective evidence of impairment could include significant financial difficulty of the issuer or counterparty; or default or delinquency in interest or principal payments; or it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the credit period of up to 90 days, observable changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortised cost, an impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profit or loss.

For financial assets measured at amortised cost, if, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Financial liabilities and equity

An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.

Interest expense is recognised on an effective interest basis for debt instruments.

— I-15 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

APPENDIX I ACCOUNTANTS’ REPORT

Financial liabilities

Financial liabilities including trade and other payables, amounts due to related companies and bank borrowings are subsequently measured at amortised cost, using the effective interest method.

Equity instruments

Equity instruments issued by the Company and other group entities are recorded at the proceeds received, net of direct issue cost.

Derecognition

Financial assets are derecognised when the rights to receive cash flows from the assets expire or, the financial assets are transferred and the Group has transferred substantially all the risks and rewards of ownership of the financial assets. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised directly in equity is recognised in profit or loss.

Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year/period. Taxable profit differs from profit as reported in the combined statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other periods and it further excludes income and expense that are never taxable or deductible. The Group’s liability for current tax is calculated using the tax rate that has been enacted or substantially enacted at the end of each reporting period.

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the combined statement of financial position and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

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APPENDIX I ACCOUNTANTS’ REPORT

Deferred tax is calculated at the tax rates that are expected to apply in the year/period when the liability is settled or the asset realised. Deferred tax is charged or credited to the combined statement of comprehensive income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Foreign currencies

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are recognised in profit or loss in the year/period in which they arise.

For the purposes of presenting the Financial Information, the assets and liabilities of the group entities denominated in RMB are translated into the presentation currency of the Group (i.e. Hong Kong dollars) at the rate of exchange prevailing at the end of each reporting period, and their income and expenses are translated at the average exchange rates for the year/period, unless exchange rates fluctuate significantly during the year/period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised as a separate component of equity (the translation reserve).

Government grants

Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and the grants will be received.

Government grants are recognised as income over the periods necessary to match them with the costs for which they are intended to compensate, on a systematic basis. Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future related costs are recognised in profit or loss in the year/period in which they become receivable.

Leasing

Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards of ownership of the assets concerned to the Group. All other leases are classified as operating leases.

The Group as lessee

Rental expense arising from operating leases is recognised in the combined statement of comprehensive income on a straight-line basis over the term of the relevant leases. Benefits received and receivable as an incentive to enter into an operating lease are recognised as a reduction of rental expense over the lease term on a straight-line basis.

— I-17 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

APPENDIX I ACCOUNTANTS’ REPORT

Retirement benefit costs

Payments to government-managed retirement benefit schemes are charged as an expense when employees have rendered service entitling them to the contributions.

4. CAPITAL RISK MANAGEMENT

The Group manages its capital to ensure that group entities will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The Group’s overall strategy remains unchanged during the three years ended December 31, 2008 and the nine months ended September 30, 2009.

The capital structure of the Group consists of net debts, which include bank borrowings and non-trade advances from related companies as disclosed in respective notes, net of cash and cash equivalents and equity attributable to owners of the Company, comprising paid-in capital and reserves.

The management of the Company review the capital structure on a regular basis. As part of this review, the management considers the cost of capital and the risks associated with each class of capital. Based on recommendations of the management, the Group will balance its overall capital structure through the payment of dividends and new share issues as well as the issue of new debt or the redemption of existing debts.

5. FINANCIAL INSTRUMENTS

Categories of financial instruments

As at As at December 31, September 30,

2006 2007 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000

Financial assets Loan and receivables (including cash and cash equivalents) — trade and other receivables...... 36,317 22,032 215,820 101,223 — bills receivables ...... 30,219 107,367 78,382 214,150 — amounts due from fellow subsidiaries...... 2,640 14,541 13,610 71,710 — pledged bank deposits ...... 14,462 15,004 15,875 76,041 — bank balances and cash ...... 13,588 200,256 99,008 103,302 97,226 359,200 422,695 566,426

Financial liabilities Amortised cost — trade and other payables...... 102,896 263,733 394,294 625,469 — amounts due to fellow subsidiaries ...... 3,608 36,213 176,349 172,562 — amount due to immediate holding company ...... 597,003 371,539 735,197 688,669 — bank borrowings...... 39,814 443,358 475,000 516,362 743,321 1,114,843 1,780,840 2,003,062

— I-18 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

APPENDIX I ACCOUNTANTS’ REPORT

Financial risk management objectives and policies

The Group’s financial instruments include trade and other receivables, bills receivables, amounts due from (to) related companies, pledged bank deposits, bank balances and cash, trade and other payables and bank borrowings. Details of the financial instruments are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

Market risk

There has been no change to the Group’s exposure to market risk or the manner in which the Group manages and measures the risk throughout the three years ended December 31, 2008 and the nine months ended September 30, 2009. Details of sensitivity analysis for foreign currency risk and interest rate risk are set out below.

Currency risk

The Group did not have any foreign currency sales and purchases during the three years ended December 31, 2008 and the nine months ended September 30, 2009 which expose the Group to foreign currency risk.

The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities at each of the reporting date are as follows:

Assets Liabilities

As at As at As at December 31, September 30, As at December 31, September 30,

2006 2007 2008 2009 2006 2007 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

HKD...... — — — — 597,000 470,000 475,000 459,615

The management continuously monitors the foreign exchange exposure and will consider hedging foreign currency risk should the need arise.

Sensitivity analysis

The Group mainly exposes to currency of HKD. The following table details the Group’s sensitivity to a 5% for December 31, 2006, 2007 and 2008 and 2% for September 30, 2009 increase and decrease in RMB against HKD. The percentages are the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rate. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the year/period end for a 5% for December 31, 2006, 2007 and 2008 and 2% for September 30, 2009 change in foreign currency rate. The sensitivity analysis includes bank borrowings and amount due to immediate holding company. A positive number below indicates an increase in post-tax profit for the year/period where RMB strengthen 5% for December 31, 2006, 2007 and 2008 and 2% for September 30, 2009

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APPENDIX I ACCOUNTANTS’ REPORT against the relevant currency. For a 5% for December 31, 2006, 2007 and 2008 and 2% for September 30, 2009 weakening of RMB against the relevant currency, there would be an equal and opposite impact on the post-tax profit and the amounts below would be negative.

As at As at December 31, September 30,

2006 2007 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000

HKD...... 29,850 23,500 20,781 8,043

Interest rate risk

The Group is exposed to cash flow interest rate risk in relation to floating-rate bank borrowings (see note 24 for details of these borrowings). The management continuously monitors interest rate fluctuation and will consider further hedging interest rate risk should the need arise.

The Group is also exposed to fair value interest rate risk in relation to fixed-rate bank borrowings (see note 24 for details of these borrowings). The management monitors interest rate exposure and will consider repaying the fixed-rate bank borrowings when significant interest rate exposure is anticipated.

The Group’s exposures to interest rates on financial liabilities are detailed in the liquidity risk management section of this note. The Group’s cash flow interest rate risk is mainly concentrated on the fluctuation of HIBOR and the benchmark interest rates predetermined by the People’s Bank of China arising from the Group’s bank borrowings.

The Group’s bank balances and pledged bank deposits have exposure to cash flow interest rate risk due to the fluctuation of the prevailing deposit rate on bank balances except for pledged bank deposits as at September 30, 2009 carried fixed interest rate that expose the Group to fair value interest rate risk. The directors of the Company consider the Group’s exposure of the short-term bank deposits to interest rate risk is not significant as interest bearing bank balances and deposits are within short maturity period.

Sensitivity analysis

The sensitivity analysis below have been determined based on the exposure to interest rates for interest bearing bank borrowings at the end of each reporting period and the stipulated changes taking place at the beginning of the year/period and held constant throughout the year/period.

If the interest rates on floating-rate bank borrowings had been 50 basis points higher/lower and all other variables were held constant, the Group’s post-tax profit would have decreased/increased by approximately nil, HK$2,003,000, HK$2,078,000 and HK$1,508,000 for the years ended December 31, 2006, 2007 and 2008 and for the nine months ended September 30, 2009, respectively.

— I-20 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

APPENDIX I ACCOUNTANTS’ REPORT

Credit risk

The Group’s maximum exposure to credit risk in the event of the counterparties’ failure to perform their obligations at the end of each reporting period in relation to each class of recognised financial assets is the carrying amount of those assets as stated in the combined statements of financial position. In order to minimise the credit risk, the management has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of each individual debt at the end of each reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors consider that the Group’s credit risk is significantly reduced.

The Group has concentration of credit risk in relation to trade receivables from top five customers amounting to HK$32,708,000, HK$21,390,000, HK$178,300,000 and HK$95,570,000 representing approximately 90.5%, 98.6%, 83.5% and 94.7% of the total trade receivables as at December 31, 2006, 2007 and 2008 and September 30, 2009, respectively. The largest trade receivable from a customer by itself accounted for approximately 41.5%, 84.1%, 28.1% and 38.1% of the total trade receivables as at December 31, 2006, 2007 and 2008 and September 30, 2009 respectively. The details of trade receivables which are past due but not impaired at the end of each reporting period are disclosed in note 18. In order to minimise the credit risk, the management has reviewed the recoverable amounts of trade receivables regularly to ensure that follow-up action is taken timely and assigned a dedicated team to monitor the credit risk that takes into consideration the ageing status and estimate the likelihood of collection. In this regard, the directors of the Company consider that the Group’s credit risk on trade receivables is significantly reduced.

The Group also has concentration of credit risk in relation to receivables from fellow subsidiaries amounting to HK$2,640,000, HK$14,541,000, HK$13,610,000 and HK$71,710,000 as at December 31, 2006, 2007 and 2008 and September 30, 2009, respectively. The largest receivable from a fellow subsidiary by itself accounted for approximately 62%, 44%, 50% and 49% of the total receivables from fellow subsidiaries as at December 31, 2006, 2007 and 2008 and September 30, 2009, respectively. At the end of each reporting period, all receivables from fellow subsidiaries are neither past due nor impaired. In order to minimise the credit risk, the management has reviewed the recoverable amounts of the receivables from fellow subsidiaries regularly to ensure that follow-up action is taken timely. In this regard, the directors of the Company consider that the Group’s credit risk on amounts due from fellow subsidiaries is significantly reduced.

The Group’s credit risk on bank deposits or bills receivables is limited and there is no significant concentration of credit risk because all bank deposits or bills receivables are deposited in or contracted with several state-owned banks with good reputation and with high credit ratings assigned by international credit-rating agencies.

Liquidity risk

In the management of the liquidity risk, the Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Group’s operations and mitigate the effects of fluctuations in cash flows. The management also monitors the utilisation of bank borrowings and ensures compliance with loan covenants. As at September 30, 2009, the Group does not have any available unutilised banking facilities.

— I-21 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

APPENDIX I ACCOUNTANTS’ REPORT

The following table details the Group’s remaining contractual maturity for its financial liabilities. For non-derivative financial liabilities, the table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows.

Over Over 3 months 6 months Over 1 year Weighted On demand but not but not but not Total average or less than more than more than more than undiscounted Carrying interest rate 3 months 6 months 1 year 5 years cash flows amount

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

As at December 31, 2006 Non-derivative financial liabilities Trade and other payables ...... N/A 102,896 — — — 102,896 102,896 Amounts due to fellow subsidiaries ...... N/A 3,608 — — — 3,608 3,608 Amount due to immediate holding company ...... N/A 597,003 — — — 597,003 597,003 Bank borrowings — fixed-rate borrowings ...... 5.58% 20,469 20,475 — — 40,944 39,814

723,976 20,475 — — 744,451 743,321

As at December 31, 2007 Non-derivative financial liabilities Trade and other payables ...... N/A 263,733 — — — 263,733 263,733 Amounts due to fellow subsidiaries ...... N/A 36,213 — — — 36,213 36,213 Amount due to immediate holding company ...... N/A 371,539 — — — 371,539 371,539 Bank borrowings — floating-rate borrowings ...... 4.71% — — — 485,163 485,163 400,641 Bank borrowings — fixed-rate borrowings ...... 6.03% 43,361 — — — 43,361 42,717

714,846 — — 485,163 1,200,009 1,114,843

As at December 31, 2008 Non-derivative financial liabilities Trade and other payables ...... N/A 394,294 — — — 394,294 394,294 Amounts due to fellow subsidiaries ...... N/A 176,349 — — — 176,349 176,349 Amount due to immediate holding company ...... N/A 735,197 — — — 735,197 735,197 Bank borrowings — floating-rate borrowings ...... 4.64% — — 46,536 499,419 545,955 475,000

1,305,840 — 46,536 499,419 1,851,795 1,780,840

As at September 30, 2009 Non-derivative financial liabilities Trade and other payables ...... N/A 625,469 — — — 625,469 625,469 Amounts due to fellow subsidiaries ...... N/A 172,562 — — — 172,562 172,562 Amount due to immediate holding company ...... N/A 688,669 — — — 688,669 688,669 Bank borrowings — floating-rate borrowings ...... 3.83% 36,786 36,786 73,573 353,617 500,762 459,615 Bank borrowings — fixed-rate borrowings ...... 4.86% — 57,436 — — 57,436 56,747

1,523,486 94,222 73,573 353,617 2,044,898 2,003,062

— I-22 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

APPENDIX I ACCOUNTANTS’ REPORT

Fair value

The fair value of financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices or rates from observable current market transactions as input.

The directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the Financial Information approximate their fair values.

6. REVENUE LR4.05(1)(a)

Revenue represents the amounts received and receivable by the Group from the sales of goods to the outside customers and the fellow subsidiaries, less returns and discounts, for the three years ended December 31, 2008 and the nine months ended September 30, 2009.

The analysis of the revenue is as follows:

Nine months ended Year ended December 31, September 30,

2006 2007 2008 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited)

Sales of coke and related products ...... 939,542 1,322,930 2,857,843 2,496,480 2,159,656 Sales of methanol ...... 164,015 217,270 272,415 242,690 220,451 Sales of pure benzene and related products ...... — — 4,064 — 157,181 Others...... 527 699 641 542 2,106 1,104,084 1,540,899 3,134,963 2,739,712 2,539,394

7. SEGMENT INFORMATION LR4.05(4)(a) App16(4)(3)

The Group’s operating activities are attributable to a single reporting segment focusing on manufacture and sales of coke and coke-related products and chemicals. This reportable segment has been identified on the basis of internal management reports prepared in accordance with accounting policies conform to HKFRSs, that are regularly reviewed by the Chairman of the Company. The Chairman of the Company regularly reviews revenue analysis by products, including sales of coke and related products, sales of methanol, sales of pure benzene and related products and others. However, other than revenue analysis, no operating results and other discrete financial information is available for the assessment of performance of the respective products. The Chairman of the Company reviews the overall results of the Group as a whole to make decisions about resources allocation. Accordingly, no analysis of this single reporting segment is presented.

For the year ended December 31, 2006, revenue from three of the Group’s customers amounting to HK$277,228,000, HK$261,363,000 and HK$111,613,000 had individually accounted for over 10% of the Group’s total revenue for the year. For the year ended December 31, 2007, revenue from three of the Group’s customers amounting to HK$310,596,000, HK$272,890,00 and HK$243,231,000 had individually accounted for over 10% of the Group’s total revenue for the year. For the year ended December 31, 2008, revenue from two of the Group’s customers amounting to HK$464,552,000 and HK$382,097,000 had individually accounted for over 10% of the Group’s total revenue for the year. For the nine months ended September 30, 2008, revenue from three customers

— I-23 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

APPENDIX I ACCOUNTANTS’ REPORT of the Group amounting to HK$462,634,000, HK$338,150,000 and HK$290,211,000 had individually accounted for over 10% of the Group’s total revenue for the period. For the nine months ended September 30, 2009, revenue from three of the Group’s customers amounting to HK$454,900,000, HK$411,357,000 and HK$279,841,000 had individually accounted for over 10% of the Group’s total revenue for the period. Save as disclosed above, none of the customers of the Group contributed more than 10% of the total revenue for the years ended December 31, 2006, 2007 and 2008 and for the nine months ended September 30, 2008 and 2009.

All revenue from external customers during the three years ended December 31, 2008 and the nine months ended September 30, 2009 are derived from customers in the PRC and all non-current assets of the Group are located in the PRC.

8. OTHER INCOME LR4.04(1)(b) App16(4)(1)

Nine months ended Year ended December 31, September 30,

2006 2007 2008 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited)

Interest income ...... 5,495 9,264 4,616 4,319 2,702 Government grants (Note a) ...... 2,019 5,550 — — — Value added tax (“VAT”) refund (Note b)...... 4,486 — 8,535 8,394 — Others...... — 3,106 274 272 2,293 12,000 17,920 13,425 12,985 4,995

Notes:

(a) The government grants were business encouragement subsidies granted by the relevant PRC government to encourage the Group’s contribution to the development of the Neiqiu economy. The subsidies were granted to Hebei Chemical and Hebei Cokechem and were calculated at 7% of all taxes paid (including enterprise income tax, VAT and other taxes) during the year of which the subsidy was granted. The Neiqiu County Government determines whether or not to grant the business encouragement subsidy at its discretion on a year-to-year basis.

(b) The amount represents tax incentives granted to Hebei Chemical and Hebei Cokechem for capital investment in the Hebei Province by the local tax bureau. During the three years ended December 31, 2008 and the nine months ended September 30, 2009, Hebei Chemical and Hebei Cokechem had received VAT refund on approved previously acquired machinary, amounting to HK$4,486,000, nil, HK$8,535,000 during the years ended December 31, 2006, 2007 and 2008, respectively, and HK$8,394,000 and nil during each of the nine months ended September 30, 2008 and 2009, respectively.

— I-24 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

APPENDIX I ACCOUNTANTS’ REPORT

9. FINANCE COSTS LR4.05(1)(e) App16(4)(1)

Nine months ended Year ended December 31, September 30,

2006 2007 2008 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited)

Interest on: — Bank borrowings wholly repayable within five years ...... 2,681 5,506 18,043 16,390 9,994 — Discount of bills receivables...... 6,201 3,356 7,578 6,497 379

8,882 8,862 25,621 22,887 10,373

10. PROFIT BEFORE TAXATION LR4.05(1)(g)

Nine months ended Year ended December 31, September 30,

2006 2007 2008 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited)

Profit before taxation has been arrived at after charging (crediting): Directors’ emoluments (Note 11) ...... — ————App1A33(2) Other staff costs: Salaries and other benefits ...... 15,803 25,002 36,953 26,711 30,928 Contribution to retirement benefits App1A33(4)(c) scheme ...... 652 1,234 2,870 2,106 2,848 16,455 26,236 39,823 28,817 33,776 Allowance (reversal of allowance) for doubtful debts (included in other gains and losses) ...... — — 12,427 12,376 (9,474) Release of prepaid lease payments ...... 592 632 1,113 745 1,101 LR4.05(1)(f) App16(4)(1) Depreciation of properties, plant and equipment ...... 52,110 56,036 66,190 49,338 94,968 Exchange (gain) loss (included in other gains and losses) ...... (32,748) (27,750) (25,038) (26,579) 73 Loss on disposal of properties, plant and equipment (included in other LR4.05(1)(c) App16(4)(1) gains and losses) ...... 35 — 618 — 574 Operating lease payments in respect of rented premises ...... 180 584 355 314 436 Cost of inventories recognised as expenses...... 910,144 1,187,679 2,700,623 2,124,503 2,287,073

— I-25 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

APPENDIX I ACCOUNTANTS’ REPORT

11. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS

No directors’ emoluments have been paid or payable for the years ended December 31, 2006, 2007 and 2008 App1A33(2) and for the nine months ended September 30, 2008 and 2009. However, certain directors of the Company were also directors of KCHL whose fees, salaries and other benefits were paid by KCHL and no amount has been charged to the Group for services that these directors rendered to the Group during the three years ended December 31, 2008 and the nine months ended September 30, 2009. None of the directors have waived any emoluments during the three years ended December 31, 2008 and the nine months ended September 30, 2009.

The five highest paid individuals do not include any director of the Company during the three years ended December 31, 2008 and the nine months ended September 30, 2009. The emoluments of the five highest paid individuals during the three years ended December 31, 2008 and the nine months ended September 30, 2009 are as follows:

Nine months ended Year ended December 31, September 30,

2006 2007 2008 2008 2009 App1A33(3)

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited)

Employees — Salaries and other benefits ...... 563 768 891 662 632 App1A33(3)(a)(c) — Contribution to retirement App1A33(3)(b) benefits scheme ...... 34555 566 772 896 667 637

The emoluments of each of the five highest paid individuals during the three years ended December 31, 2008 and the nine months ended September 30, 2009 are below HK$1,000,000.

During the three years ended December 31, 2008 and the nine months ended September 30, 2009, no App1A33(2)(e) App1A33(3)(e) emoluments were paid by the Group to any of the directors or the five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office.

12. TAXATION LR4.05(1)(h) App16(4)(1)

Nine months ended Year ended December 31, September 30,

2006 2007 2008 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited)

Current taxation Hong Kong Profits Tax...... ————— PRC Enterprise Income Tax...... — — 39,948 55,774 4,310 — — 39,948 55,774 4,310

— I-26 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

APPENDIX I ACCOUNTANTS’ REPORT

No provision for Hong Kong Profits Tax has been provided in the Financial Information during the three years ended December 31, 2008 and the nine months ended September 30, 2009 as the Group did not have assessable profit derived in Hong Kong during the three years ended December 31, 2008 and the nine months ended September 30, 2009.

PRC Enterprise Income Tax represents the income tax in the PRC which is calculated at the prevailing tax rate on the taxable income of the group entities in the PRC. According to PRC tax laws and regulations before the effective of the New Tax Law as defined below, Hebei Cokechem and Hebei Chemical, which are established in the PRC, are exempted from PRC Foreign Enterprise Income Tax (“FEIT”) for the first two years starting from their first profit-making year after offsetting the accumulated losses brought forward from previous five years, followed by a 50% reduction on the FEIT for the next three years (“Tax Holiday”).

On March 16, 2007, The Law of the PRC on Enterprise Income Tax (the “New Tax Law”) was promulgated by Order No. 63 of the President of the PRC. On December 6, 2007, the State Council of the PRC issued Implementation Regulations of the New Tax Law, which became effective on January 1, 2008 and superseded the PRC Foreign Invested Enterprise and Foreign Enterprise Income Tax Law and the Provisional Regulations on Enterprise Income Tax of the PRC. The New Tax Law consolidates the previous two separate tax regimes for domestic enterprises and foreign-invested enterprises and imposes an unified enterprise income tax rate of 25% for both types of enterprises. Under the New Tax Law, Hebei Cokechem and Hebei Chemical (Phase I & II) that previously enjoyed the Tax Holiday will continue to enjoy such preferential tax treatment until the expiry of such prescribed period. The preferential tax treatment for Hebei Cokechem and Phase I of Hebei Chemical will expire in December 2010 and Phase II of Hebei Chemical will expire in December 2012.

Taxation arising in the PRC is calculated at the following income tax rates.

Nine months ended Year ended December 31, September 30,

2006 2007 2008 2008 2009

Hebei Cokechem ...... — — 12.5% 12.5% 12.5% Hebei Chemical (Note) — Phase I ...... — — 12.5% 12.5% 12.5% — Phase II...... N/A N/A — — —

Note:

Hebei Chemical has successfully applied the Tax Holiday from the relevant PRC tax bureau for each of its two distinct phases of production. Consequently, in respect of the first phase of production (Phase I), Hebei Chemical was exempted from FEIT in respect of the profits derived from Phase I during the years ended December 31, 2006 and 2007 and enjoyed a 50% reduction on enterprise income tax for the next three years since December 31, 2007. In respect of the profits derived from the second phase of production (Phase II), Hebei Chemical was exempted from enterprise income tax started from the year ended December 31, 2008 followed by a 50% reduction on enterprise income tax rate (i.e. 12.5%) for the next three years starting January 1, 2010.

— I-27 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

APPENDIX I ACCOUNTANTS’ REPORT

A statement of reconciliation of taxation is as follows:

Nine months ended Year ended December 31, September 30,

2006 2007 2008 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited)

Profit before taxation ...... 134,382 257,369 247,980 460,209 116,950

Taxation charge at the applicable income tax rate (Note)...... 44,346 84,932 61,995 115,052 29,238 Tax effect of expenses not deductible for tax purpose...... 2,407 9,160 17,732 17,088 143 Tax effect of income not taxable for tax purpose ...... ————(2,368) Tax effect of income that is exempted from PRC Enterprise Income Tax in determining taxable profit or at concessionary rate ...... (46,753) (94,092) (39,779) (76,366) (22,703) Taxation for the year/period ...... — — 39,948 55,774 4,310

Note: The applicable income tax rate represents PRC Enterprise Income Tax rate of 33% for the years ended December 31, 2006 and 2007, and 25% for the year ended December 31, 2008 and for the nine months ended September 30, 2008 and 2009, because the Group’s operations are substantially based in the PRC.

13. DIVIDENDS LR4.05(1)(k) App16(4)(1)

No dividend has been paid or declared by the Company since its date of incorporation. However, in respect of the three years ended December 31, 2008 and the nine months ended September 30, 2009, the following dividends were paid by two subsidiaries of the Company to KCHL and its subsidiaries prior to the Group Reorganisation.

Nine months ended Year ended December 31, September 30,

2006 2007 2008 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited)

Final dividends paid to KCHL and its subsidiaries ...... — — 311,486 311,486 —

— I-28 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

APPENDIX I ACCOUNTANTS’ REPORT

14. EARNINGS PER SHARE LR4.04(8) App16(4)(1)

The calculation of the basic earnings per share for the three years ended December 31, 2008 and the nine months ended September 30, 2009 is based on the combined profit attributable to the owners of the Company for each of the three years ended December 31, 2008 and the nine months ended September 30, 2009 and the weighted average number of [●], [●], [●], [●] and [●] shares for the years ended December 31, 2006, 2007 and 2008 and for the nine months ended September 30, 2008 and 2009, respectively. Earnings per share is calculated assuming [●] ordinary shares in issue and to be issued as of the date of this document and the weighted average number of shares for respective year/period was based on assumed number of shares to be issued and timing of capital contribution.

No diluted earnings per share are presented for the three years ended December 31, 2008 and the nine months ended September 30, 2009 as there were no potential ordinary shares in issue during the three years ended December 31, 2008 and the nine months ended September 30, 2009.

15. PROPERTIES, PLANT AND EQUIPMENT LR4.05(2)(a) App16(4)(2)

Furniture, fixtures and Plant and Transportation Construction Buildings equipment machinery equipment in progress Total

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 COST At January 1, 2006 ...... 298,357 2,863 442,155 2,274 47,463 793,112 Exchange realignment...... 11,154 114 16,681 87 864 28,900 Additions...... 7,596 3 10,879 261 9,952 28,691 Transfers ...... 17,153 674 30,448 — (48,275) — Disposals...... (2,495) (137) (1,361) — — (3,993)

At December 31, 2006 and January 1, 2007 ...... 331,765 3,517 498,802 2,622 10,004 846,710 Exchange realignment...... 24,188 320 37,508 191 15,824 78,031 Additions...... — 1,286 27,163 — 366,459 394,908 Transfers ...... — 288 874 — (1,162) — Disposals...... — (51) (413) — — (464)

At December 31, 2007 and January 1, 2008 ...... 355,953 5,360 563,934 2,813 391,125 1,319,185 Exchange realignment...... 22,007 1,082 42,391 188 25,368 91,036 Additions...... 859 462 133 1,163 797,487 800,104 Transfers ...... — 62,969 633,951 — (696,920) — Disposals...... — (240) (913) — — (1,153)

At December 31, 2008 and January 1, 2009 ...... 378,819 69,633 1,239,496 4,164 517,060 2,209,172 Exchange realignment...... 471 83 1,217 5 303 2,079 Additions...... 6,826 164 1,982 10 210,998 219,980 Transfers ...... 377,518 57,180 266,346 764 (701,808) — Disposals...... (5,549) — (4,854) — — (10,403)

At September 30, 2009 ...... 758,085 127,060 1,504,187 4,943 26,553 2,420,828

— I-29 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

APPENDIX I ACCOUNTANTS’ REPORT

Furniture, fixtures and Plant and Transportation Construction Buildings equipment machinery equipment in progress Total

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 ACCUMULATED DEPRECIATION At January 1, 2006 ...... 9,305 303 16,231 284 — 26,123 Exchange realignment...... 574 23 1,446 18 — 2,061 Provided for the year...... 11,232 527 40,004 347 — 52,110 Eliminated on disposals ...... (141) (19) (118) — — (278)

At December 31, 2006 and January 1, 2007 ...... 20,970 834 57,563 649 — 80,016 Exchange realignment...... 2,012 99 5,968 67 — 8,146 Provided for the year...... 11,694 949 42,907 486 — 56,036 Eliminated on disposals ...... — (23) (44) — — (67)

At December 31, 2007 and January 1, 2008 ...... 34,676 1,859 106,394 1,202 — 144,131 Exchange realignment...... 2,308 184 7,114 85 — 9,691 Provided for the year...... 13,845 6,029 45,449 867 — 66,190 Eliminated on disposals ...... — (123) (253) — — (376)

At December 31, 2008 and January 1, 2009 ...... 50,829 7,949 158,704 2,154 — 219,636 Exchange realignment...... 51 10 169 1 — 231 Provided for the period...... 19,373 8,860 66,079 656 — 94,968 Eliminated on disposals ...... (101) — (162) — — (263)

At September 30, 2009 ...... 70,152 16,819 224,790 2,811 — 314,572

CARRYING VALUES At December 31, 2006...... 310,795 2,683 441,239 1,973 10,004 766,694

At December 31, 2007...... 321,277 3,501 457,540 1,611 391,125 1,175,054

At December 31, 2008...... 327,990 61,684 1,080,792 2,010 517,060 1,989,536

At September 30, 2009 ...... 687,933 110,241 1,279,397 2,132 26,553 2,106,256

The above items of properties, plant and equipment other than construction in progress are depreciated using a straight-line method at the following rates per annum:

Buildings Over the remaining unexpired terms of leases or fifty years, whichever is the shorter

Furniture, fixtures and equipment 10% - 331⁄3% Plant and machinery 5% - 10% Transportation equipment 10% - 20%

The buildings are held under medium-term of leases and are situated in the PRC.

— I-30 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

APPENDIX I ACCOUNTANTS’ REPORT

16. PREPAID LEASE PAYMENTS

As at As at December 31, September 30,

2006 2007 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000

Prepaid lease payments comprise: Medium-term land use rights in the PRC ...... 29,204 30,676 64,407 63,364

Analysed for reporting purposes as: Current portion (Note 18) ...... 625 671 1,443 1,464 Non-current portion ...... 28,579 30,005 62,964 61,900

29,204 30,676 64,407 63,364

Prepaid lease payments represent payments for medium-term land use rights situated in the PRC and are amortised over 50 years.

17. INVENTORIES LR4.05(2)(b) App16(4)(2)

As at As at December 31, September 30,

2006 2007 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000

Raw materials and consumables...... 91,958 132,295 113,996 168,832 Work in progress ...... 3,945 5,975 20,933 9,633 Finished goods ...... 927 1,469 10,400 12,435 96,830 139,739 145,329 190,900

18. TRADE AND OTHER RECEIVABLES AND PREPAYMENTS

As at As at December 31, September 30,

2006 2007 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000

Trade receivables (Note a) ...... 36,142 21,703 213,459 100,915 Prepayments and deposits (Note b)...... 13,916 111,316 97,397 111,687 Prepaid lease payments (Note 16)...... 625 671 1,443 1,464 Other receivables...... — 39 2,053 — 50,683 133,729 314,352 214,066

— I-31 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

APPENDIX I ACCOUNTANTS’ REPORT

Notes:

(a) The Group allows credit periods of up to 90 days from date of issuance of invoices to its trade customers. The following is an aged analysis of trade receivables at the end of each reporting period:

As at As at December 31, September 30,

2006 2007 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000

0 - 90 days ...... 36,142 21,703 167,582 100,835 91 - 180 days...... — — 45,877 80 Over 180 days ...... — — — —

36,142 21,703 213,459 100,915

Before accepting any new customers, the Group reviews the financial ability and assess the potential customers’ credit quality and the management has delegated a credit control team responsible for determination of credit limits and credit approvals for any customers. Credit limits attributed to customers are reviewed every year. 99%, 100%, 94% and 99% of the trade receivables as at December 31, 2006, 2007 and 2008 and September 30, 2009, respectively, that are neither past due nor impaired have good repayment record in the past.

Included in the Group’s trade receivable balance are debtors with aggregate carrying amount of HK$184,000, nil, HK$12,915,000 and HK$50,000 as at December 31, 2006, 2007 and 2008 and September 30, 2009, respectively, which were past due at the end of the reporting date for which the Group has not provided for impairment loss. The Group does not hold any collateral over these balances.

The following is an aged analysis of trade receivables which are past due but not impaired at the end of each reporting period:

As at As at December 31, September 30,

2006 2007 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000

Past due 1 to 90 days...... 184 — 12,915 50

Movement in the allowance for doubtful debts:

Nine months ended Year ended December 31, September 30,

2006 2007 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000

Balance at beginning of the year/period ...... — — — 12,575 Exchange realignment ...... — — 148 9 Allowance (reversal of allowance) for doubtful debts...... — — 12,427 (9,474)

Balance at end of the year/period...... — — 12,575 3,110

— I-32 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

APPENDIX I ACCOUNTANTS’ REPORT

Included in the allowance for doubtful debts as at December 31, 2008 and September 30, 2009 are individually impaired trade receivables with an aggregate balance of HK$12,575,000 and HK$3,110,000, respectively, which have been in severe financial difficulties. The Group does not hold any collateral over these balances.

In determining the recoverability of the trade receivables, the Group considers any change in the credit quality of the trade receivables since the credit was granted and up to the end of the reporting date. Accordingly, the directors believe that no further allowance is required in excess of the current amount of allowance for doubtful debts.

(b) Prepayments and deposits mainly comprise the prepayments for utility expenses and deposits paid for the purchase of raw materials.

19. BILLS RECEIVABLES

All bills receivables of the Group are aged within 180 days as at December 31, 2006, 2007 and 2008 and September 30, 2009.

20. AMOUNTS DUE FROM (TO) FELLOW SUBSIDIARIES/IMMEDIATE HOLDING COMPANY LR4.04(10) LR4.05(2)(c) App16(4)(2) All balances included in amounts due from fellow subsidiaries are unsecured, non-interest bearing and trade in nature except for amounts of HK$1,001,000, HK$11,640,000, HK$12,360,000 and HK$64,028,000 at December 31, 2006, 2007 and 2008 and September 30, 2009, respectively, which are non-trade in nature. The trade balances with fellow subsidiaries are repayable within 90 days which is the credit period normally granted by the Group to its fellow subsidiaries.

All balances included in amounts due to fellow subsidiaries are unsecured, non-interest bearing, repayable on demand and operating in nature except for amounts of nil, HK$6,337,000, HK$121,722,000 and HK$172,562,000 at December 31, 2006, 2007 and 2008 and September 30, 2009, respectively, which are non-trade in nature.

The amount due to immediate holding company is non-trade nature, unsecured, non-interest bearing and repayable on demand.

The aged analysis of the amounts due from fellow subsidiaries at the end of each reporting period are as follows:

As at As at December 31, September 30,

2006 2007 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000

0 - 90 days...... 2,640 14,541 13,610 71,710

No balance of the amount due from fellow subsidiaries is past due but not impaired at the end of each reporting period.

— I-33 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

APPENDIX I ACCOUNTANTS’ REPORT

The amounts due from (to) fellow subsidiaries and immediate holding company at the end of each reporting period are all denominated in RMB except that the following amounts of payable to immediate holding company are denominated in a currency other than the functional currency of the group entities to which they relate:

As at As at December 31, September 30,

2006 2007 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000

HKD...... 597,000 70,000 — —

The directors of the Company have advised that all amounts due from (to) related companies which are of a non-trade nature will be fully settled.

21. PLEDGED BANK DEPOSITS

Bank deposits of HK$14,462,000, HK$15,004,000, HK$15,875,000 and HK$76,041,000 as at December 31, 2006, 2007 and 2008 and September 30, 2009 respectively, have been pledged to banks to secure facilities for bills drawn by the Group. The pledged bank deposits at December 31, 2006, 2007 and 2008 carried interest at deposit rates (see note 22). The pledged bank deposits at September 30, 2009, with maturity within three months from initial inception, carried fixed interest at 1.98% per annum.

22. BANK BALANCES AND CASH

Bank balances and cash comprises cash held by the Group and short-term bank deposits with maturity within three months from initial inception.

As at As at December 31, September 30,

2006 2007 2008 2009

%%% %

Range of interest rates of the bank deposits per annum ...... 0.01-0.41 0.01-0.51 0.01-0.36 0.01-0.36

— I-34 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

APPENDIX I ACCOUNTANTS’ REPORT

23. TRADE AND OTHER PAYABLES

As at As at December 31, September 30,

2006 2007 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000

Trade payables (Note a) ...... 63,160 91,306 158,959 182,742 Bills payables (Note b) ...... — 146,458 31,802 152,083 Receipt in advance from customers (Note c) ...... 5,418 15,537 13,278 47,325 Accrued expenses (Note d)...... 2,768 5,864 11,195 7,854 Value-added tax payable and other tax payables .. 26,542 47,759 117,838 73,405 Payables for the acquisition of properties, plant and equipment (Note e) ...... 25,883 20,963 187,308 280,093 Other payables...... 13,853 5,006 16,225 10,551

137,624 332,893 536,605 754,053

Notes:

(a) The following is an aged analysis of trade payables at the end of each reporting period:

As at As at December 31, September 30,

2006 2007 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000

0 to 90 days...... 38,030 49,688 84,551 118,387 91 to 180 days ...... 4,030 15,017 45,376 16,893 181 to 360 days ...... 21,100 26,601 29,032 47,462

63,160 91,306 158,959 182,742

(b) All bills payables are aged within 180 days as at December 31, 2006, 2007 and 2008 and September 30, 2009.

(c) Receipt in advance from customers represent the deposits paid in advance by the customers to the Group before delivering the goods to the customers.

(d) Accrued expenses mainly comprise accruals for utility expenses, interest expenses and other miscellaneous expenses.

(e) Payables for the acquisition of properties, plant and equipment represent the unpaid balances for the properties, plant and equipment acquired by the Group.

— I-35 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

APPENDIX I ACCOUNTANTS’ REPORT

24. BANK BORROWINGS LR4.04(10) LR4.05(2)(f) App16(4)(2) Bank borrowings comprise unsecured bank loans at the end of each reporting date.

As at As at December 31, September 30,

2006 2007 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000

39,814 443,358 475,000 516,362 Less: Amount due within one year included in current liabilities ...... (39,814) (42,717) (44,473) (198,505) Amount due after one year ...... — 400,641 430,527 317,857

Included in the above bank borrowings were the fixed-rate bank borrowings of HK$39,814,000, HK$42,717,000, nil and HK$56,747,000 at December 31, 2006, 2007, 2008 and September 30, 2009, respectively, all are due within one year. The fixed-rate bank borrowings carry interest at 5.58%, 6.03% and 4.86% per annum as at December 31, 2006, December 31, 2007 and September 30, 2009 respectively.

The rest of the bank loans were arranged at floating rates of HIBOR plus 0.4% and HIBOR plus 0.6%, except when a condition that HIBOR falls below a certain level that the lending bank identified the interest rates offered to the Group do not accurately reflect the cost of funding, then the interest rate shall be determined by the lending banks with reference to the PRC market lending rates. The range of effective interest rates (which are also equal to contracted interest rates) on the Group’s bank loans is from 5.58% to 5.85%, 4.12% to 6.03%, 4.12% to 6.37% and 2.51% to 4.86% per annum as at December 31, 2006, 2007 and 2008 and September 30, 2009, respectively.

Guarantees of HK$39,814,000, HK$443,358,000, HK$475,000,000 and HK$459,615,000 were given to the banks by KCHL, the ultimate holding company, as at December 31, 2006, 2007 and 2008 and September 30, 2009, respectively, in respect of the bank facilities utilised by the Group.

Bank borrowings that are denominated in a currency other than the functional currency of the group entities to which they relate:

As at As at December 31, September 30,

2006 2007 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000

HKD...... — 400,000 475,000 459,615

— I-36 — THIS INFORMATION PACK IS IN DRAFT FORM. The information contained in it is incomplete and is subject to change. This Information Pack must be read in conjunction with the section headed ‘‘Warning’’ on the cover of this Information Pack.

APPENDIX I ACCOUNTANTS’ REPORT

25. PAID IN CAPITAL/SHARE CAPITAL LR4.05(2)(g) App16(4)(2)

For the purpose of the preparation of the combined statements of financial position, the paid in capital/share capital as at December 31, 2006, 2007 and 2008 and September 30, 2009 represents the aggregate amount of the paid in capital/share capital of the companies now comprising the Group existed at the end of each reporting period.

26. SHARE OPTIONS

Employees’ share option scheme of KCHL App1A27

KCHL adopted a share option scheme (“2002 Scheme”) on July 2, 2002 for the duration of 10 years. A new App1A44 share option scheme (the “2009 Scheme”) was approved by shareholders of KCHL at the extraordinary general meeting of KCHL held on March 23, 2009. The 2002 Scheme was accordingly terminated on the same day without affecting the rights of holders of any options granted and outstanding under the 2002 Scheme.

Under the 2009 Scheme which is valid for a period of ten years, the board of directors of KCHL may, at its discretion, grant options to subscribe for shares in KCHL to eligible participants (“Eligible Participants”) who contribute to the long term growth and profitability of KCHL and its subsidiaries (the “KCHL Group”). Eligible Participants include (i) any employee (whether full time or part time) of KCHL, any of its subsidiaries or any entity in which the KCHL Group holds any equity interests (“Invested Entity”), including any executive director of KCHL, any of its subsidiaries or any Invested Entity; (ii) any non-executive directors (including independent non-executive directors) of KCHL, its subsidiaries or any Invested Entity; (iii) any supplier of goods or services to any member of the KCHL Group or any Invested Entity; (iv) any customer of the KCHL Group or any Invested Entity; (v) any shareholder of any member of the KCHL Group or any Invested Entity or any holder of any securities issued by any member of the KCHL Group or any Invested Entity; and (vi) any person or entity who from time to time determined by the board of directors of KCHL as having contributed or may contribute to the development and growth of the KCHL Group based on his/her/its performance and/or years of service, or is regarded as valuable resources of the KCHL Group based on his/her/its working experience, knowledge in the industry and other relevant factors. The subscription price for KCHL’s shares shall be a price at least equal to the highest of the nominal value of KCHL’s shares, the average of the closing prices of KCHL’s shares quoted on the Stock Exchange on the five trading days immediately preceding the date of an offer of the grant of the options and the closing price of KCHL’s shares quoted on the Stock Exchange on the date of an offer of the grant of the options. The options must be taken up within 28 business days from the date of grant upon payment of HK$1 and are exercisable over a period to be determined and notified by the directors of KCHL to each grantee, which period may commence from the date of acceptance of the offer of the grant of the options but shall end in any event not later than ten years from the date of adoption of the 2009 Scheme.

The total number of KCHL’s shares which may be issued upon exercise of all options to be granted under the 2009 Scheme and any other schemes of the KCHL Group (excluding options lapsed in accordance with the terms of the 2009 Scheme and any other schemes of the KCHL Group) must not in aggregate exceed 10% of KCHL’s shares in issue as at the date of approval of the 2009 Scheme. The limit on the number of KCHL’s shares which may be issued upon exercise of all outstanding options granted and yet to be exercised under the 2009 Scheme and any other schemes of the KCHL Group must not exceed 30% of KCHL’s shares in issue from time to time. The total number of KCHL’s shares issued and to be issued upon exercise of the options granted to each grantee (including both exercised and outstanding options) under the 2009 Scheme or other schemes of the KCHL Group in any 12-month period up to the date of grant must not exceed 1% of KCHL’s shares in issue at the date of grant unless approved by the KCHL’s shareholders in general meeting.

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APPENDIX I ACCOUNTANTS’ REPORT

In accordance with the terms of the 2009 Scheme, share options of KCHL issued are vest at the date of grant. There was no share options granted under the 2009 Scheme since its adoption. No share options under the 2002 Scheme were granted to the directors of the Company for their services rendered to the Group during the three years ended December 31, 2008 and the nine months ended September 30, 2009.

27. CAPITAL COMMITMENTS

As at As at December 31, September 30,

2006 2007 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000

Capital expenditure in respect of acquisition of properties, plant and equipment contracted for but not provided in the Financial Information .. 2,905 336,192 205,624 53,579

28. RETIREMENT BENEFIT SCHEME

The employees of the Group in the PRC are members of government-managed retirement benefit schemes operated by the respective local government in the PRC. The Group is required to contribute a specified percentage of payroll cost to the retirement benefit schemes to fund the benefits. The only obligation of the Group with respect to these schemes is to make the specified contributions.

29. OPERATING LEASE COMMITMENTS

The Group as lessee

At the end of each reporting period, the Group had outstanding commitments under non-cancellable operating leases for rented premises which fall due as follows:

As at As at December 31, September 30,

2006 2007 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000

Within one year...... — — 129 155

Operating leases are negotiated for a term of one year.

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APPENDIX I ACCOUNTANTS’ REPORT

30. RELATED PARTY TRANSACTIONS

(a) Apart from details of the balances with related parties disclosed in the combined statements of financial position, the Group entered into the following transactions with related parties during the three years ended December 31, 2008 and the nine months ended September 30, 2009:

Nine months ended Year ended December 31, September 30,

2006 2007 2008 2008 2009

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited)

Continuing transactions* Sales of goods to fellow subsidiaries ... 28,110 62,055 41,148 40,978 6,507

Discontinued transactions# Management fee paid to a fellow subsidiary...... 20,513 29,876 53,377 51,002 —

Notes:

* These transactions will continue in the future.

# These transactions will discontinue in the future.

(b) The key management personnel includes solely the directors of the Company and details of their emoluments are disclosed in note 11.

(c) In the opinion of the directors of the Company, the sales of goods to fellow subsidiaries were conducted on normal commercial terms and in the ordinary and usual course of the Group’s business. For the sales of goods to fellow subsidiaries, the selling prices of methanol and steam were determined based on market price and at cost, respectively. For the management fee paid to a fellow subsidiary, the amount was determined on a mutually agreed price between the Group and the fellow subsidiary. In the opinion of the directors of the Company, the payment of management fee to a fellow subsidiary was conducted in the ordinary and usual course of the Group’s business.

(d) KCHL, the ultimate holding company, had given guarantees to banks for the banking facilities granted to the Group during the three years ended December 31, 2008 and the nine months ended September 30, 2009 free of charge as detailed in note 24. The directors of the Company have advised that these guarantees will be replaced by guarantees given by the Company.

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APPENDIX I ACCOUNTANTS’ REPORT

B. ULTIMATE HOLDING COMPANY AND IMMEDIATE HOLDING COMPANY

The ultimate holding company is Kingboard Chemical Holdings Limited, a company incorporated in the Cayman Islands with its shares listed on the Stock Exchange, and the immediate holding company is Jamplan (BVI) Limited, a company incorporated in the British Virgin Islands.

C. STATEMENT OF FINANCIAL POSITION OF THE COMPANY

The Company was incorporated on September 4, 2009 with an authorised share capital of HK$390,000 divided into 3,900,000 shares of HK$0.10 each. On September 4, 2009, one paid subscriber share was issued. Except for the above, there was no other balance on the statement of financial position of the Company on September 30, 2009.

Save for aforesaid, the Company has not carried out any other business since its date of incorporation and up to September 30, 2009.

D. DIRECTORS’ EMOLUMENTS

As disclosed in the Financial Information, no emolument has been paid or payable by the Group App1A33(2) App1A46(3) to the directors of the Company in respect of the three years ended December 31, 2008 and the nine months ended September 30, 2009.

Under the arrangement currently in force, the aggregate amount of the directors’ fees and other emoluments would be nil for the year ended December 31, 2009.

E. SUBSEQUENT EVENTS LR4.04(12)

Subsequent to September 30, 2009, the Group had the following subsequent events.

(i) On October 5, 2009, pursuant to the Group Reorganisation, Kingboard Investments Limited, an indirect wholly-owned subsidiary of KCHL, transferred one share of HK$1.0 in Reach Goal to Grace Mind for a consideration of HK$1.0. On the same day, Kingboard Investments Limited and Grace Mind entered into a deed of waiver pursuant to which the aforesaid consideration for the transfer was waived by Kingboard Investments Limited.

(ii) On [●], Hebei Cokechem and Hebei Chemical declared a payment of special dividend of HK$200,000,000 to their shareholders.

(iii) On November 5, 2009, pursuant to the Group Reorganisation, Reach Goal acquired 100% equity interests in Hebei Cokechem and Hebei Chemical from Kingboard Petrochem Company Limited (“Kingboard Petrochem”) for a consideration of HK$90,216,000 and HK$373,423,000, respectively. On [the same day], Kingboard Petrochem and Reach Goal entered into a deed of waiver pursuant to which the aforesaid consideration for the transfer were waived by Kingboard Petrochem.

(iv) By resolutions in writing of the sole shareholder of the Company on [●], the authorised share capital of the Company was increased from HK$390,000 to HK$[●] by creation of [●] new shares ranking pari passu in all respects with the existing share.

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APPENDIX I ACCOUNTANTS’ REPORT

(v) On December 19, 2009, Grace Mind acquired the coke and methanol expansion approval to expand the Group’s coke and methanol production capacities, through acquisition of the entire equity interest in Fast Intellect from an indirect wholly-owned subsidiary of KCHL for a consideration of HK$7.8. Prior to the acquisition, Fast Intellect held two PRC subsidiaries that operates other business which is different to the Group’s core business and were transferred to another indirect subsidiary of KCHL on December 10, 2009. At the date of acquisition by Grace Mind, Fast Intellect only held the coke and methanol expansion approval right and has no other business, therefore, the acquisition of Fast Intellect has been treated as an asset acquisition rather than as business combination under common control.

(vi) On [●], pursuant to the Group Reorganisation, the Company and Jamplan (BVI) Limited (“Jamplan”) entered into a sale and purchase agreement to which the Company acquired 100% of the issued share capital of Grace Mind from Jamplan in consideration of which the Company allotted and issued, credited as fully paid, 9,999 shares to Jamplan.

(vii) The Company entered into three loan agreements with financial institutes in [January] 2010 for term loans and revolving credit facilities of HK$500 million for repayment of amounts due to its immediate holding company and fellow subsidiaries.

(viii) On [●], 2010, the Company entered into an agreement with KCHL, pursuant to which the Company agreed to accept and KCHL agreed to grant an option to the Company to acquire the entire issued share capital of True Glory Limited, a company that indirectly holds two PRC subsidiaries that owns the acetic acid plants (“Acetic Acid Plants”) at a consideration that will be determined when the Company exercise the option. The Acetic Acid Plants are production facilities owned by KCHL and located adjacent to the production facilities of the Group in Hebei Province. The option provides opportunity for the Company to extend the Group’s downstream expansion capabilities.

F. SUBSEQUENT FINANCIAL STATEMENTS LR4.08(1)(b)

No audited financial statements have been prepared by the Company or any of the companies of the Group subsequent to September 30, 2009.

Yours faithfully, LR4.08(4) Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong

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APPENDIX IIIA PROFIT ESTIMATE FOR THE YEAR ENDED DECEMBER 31, 2009

The estimate of the combined profit attributable to owners of our Company for the year ended December 31, 2009 is set forth in “Financial Information — Profit Estimate for the year ended December 31, 2009” in this document.

A. BASIS

The Directors have prepared the estimate of combined profit after taxation attributable to owners of the Company for the year ended December 31, 2009 on the basis of the audited combined results of the Group for the nine months ended September 30, 2009, results shown in the unaudited management accounts of the Group for the one month ended October 31, 2009 and an estimate of the results of the Group for the two months ended December 31, 2009.

The estimate has been prepared on a basis consistent in all material respects with the accounting policies currently adopted by us as summarized in Appendix I to this document.

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APPENDIX IIIB PROFIT FORECAST FOR THE SIX MONTHS ENDING JUNE 30, 2010

The forecast of the combined profit attributable to owners of our Company for the six months ending June 30, 2010 is set forth in “Financial Information — Profit Forecast for the six months ending June 30, 2010” in this document.

A. BASIS

The Directors have prepared the forecast of combined profit after taxation attributable to owners of the Company for the six months ending June 30, 2010 on the basis of the audited combined results for the nine months ended September 30, 2009, management accounts for the one month ended October 31, 2009, an estimate of the results of the Group for the two months ended December 31, 2009 and a forecast of combined results for the six months ending June 30, 2010.

The forecast has been prepared on a basis consistent in all material respects with the accounting policies currently adopted by us as summarized in Appendix I to this document.

B. ASSUMPTIONS

The forecast has been prepared based on the following principal assumptions:

• there has been, and there will be no material changes in existing political, legal, fiscal, market or economic conditions in the PRC or any other country or territory in which we currently operate or which are otherwise material to our business;

• there has been, and there will be no changes in legislation, regulations or rules in the PRC or any other country or territory in which we operate or with which we have arrangements or agreements, which materially adversely affect our business;

• there has been, and there will be no material changes in the bases or rates of taxation in the PRC or any other country or territory in which we operate, except as otherwise disclosed in this document; and

• there has been, and there will be no material changes in inflation rates, interest rates or foreign currency exchange rates from those currently prevailing.

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APPENDIX IV PROPERTY VALUATION

App1A 39 R5.06(7)

[●] January, 2010

The Directors Hebei CoalChem Holdings Limited 2nd Floor, Harbour View 1 No. 12 Science Park East Avenue Phase II, Hong Kong Science Park Sha Tin, New Territories Hong Kong

Dear Sirs,

Re: The land and buildings of an industrial complex located at No. 1 Jiantao Road, Dameng Town, Neiqiu County, Xingtai City, Hebei Province, the People’s Republic of China (“PRC”)

In accordance with the instructions from Hebei CoalChem Holdings Limited (hereinafter referred R5.06(8) R5.07 to as the “Company”) for us to value the captioned property (hereinafter referred to as the “Property”) PN12.8.2 Co 3rd Sch46 which is held by the Company and/or its subsidiaries (hereinafter together referred to as the “Group”), we confirm that we have carried out inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of value of the Property in existing state as at 31 October 2009 (hereinafter referred to as the “Date of Valuation”). It is our understanding that this valuation document is to be used for public disclosure purpose.

This letter, forming part of our valuation report, identifies the property being valued, explains the basis and methodology of our valuation, and lists out the assumptions and the title investigation we have made in the course of our valuation, as well as the limiting conditions.

BASIS OF VALUATION

Our valuation of the Property is our opinion of its market value which we would define as intended to mean “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.”

Our valuation has been prepared in accordance with The HKIS Valuation Standards on Properties R5.05 (1st Edition 2005) published by the Hong Kong Institute of Surveyors and under generally accepted valuation procedures and practices, which are in compliance with applicable rules.

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APPENDIX IV PROPERTY VALUATION

VALUATION METHODOLOGY

In valuing of the Property, which is an industrial complex held by the Group in the PRC, due to R5.06(5) PN12.8 the nature of buildings and structures constructed, there is no readily identifiable market comparable and accordingly the Property cannot be valued by comparison with open market transactions. Therefore, we have adopted the Depreciated Replacement Cost (“DRC”) Method in arriving at the value of the Property. The DRC Method is based on an estimate of the market value for the existing use of the land in the Property, and the costs to reproduce or replace in new conditions the buildings and structures being valued in accordance with current construction costs for similar buildings and structures in the locality, with allowance for accrued depreciation as evidenced by observed condition or obsolescence present, whether arising from physical, functional or economic causes. The DRC Method generally furnishes the most reliable indication of value for properties in the absence of a known market based on comparable sales.

VALUATION ASSUMPTIONS

Our valuation has been made on the assumption that the Property is to be sold on the open market without the benefit of a deferred terms contract, leaseback, joint venture, management agreement or any similar arrangement that would serve to affect its value. In addition, no account has been taken of any option or right of pre-emption concerning or effecting a sale and no forced sale situation in any manner is assumed in our valuation.

No allowance has been made in our valuation for any charges, mortgages or amounts owing on any of the property valued nor for any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the Property is free from encumbrances, restrictions and outgoing of an onerous nature that could affect its value.

TITLE INVESTIGATION

We have been provided by the Group with copies of documents in relation to the title to the PN12.15 Property. We have not examined the original documents to verify the ownership and to ascertain the existence of any amendments that may not appear on the copies handed to us.

In the course of our valuation, we have relied on the advice given by the Group and the legal PN12.5 PN12.7 opinion dated [●] 2009 prepared by Commerce & Finance Law Offices, the Group’s legal advisors on PN12.8.2 PRC law (hereinafter referred to as the “PRC Legal Advisors”), regarding the title to and the interest of the Group in the Property.

LIMITING CONDITIONS

We have inspected the exterior and, where possible, the interior of the Property. In the course of our inspection, we did not note any serious defects. However, no structural survey has been made nor have any tests been carried out on any of the building services provided in the Property. We are, therefore, not able to report that the Property is free from rot, infestation or any other structural defects.

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APPENDIX IV PROPERTY VALUATION

We have not conducted detail on-site measurements to verify the site and floor areas of the Property but have assumed that the areas shown on the documents furnished to us are correct. Dimensions, measurements and areas included in the valuation certificate attached are based on information contained in the documents provided to us by the Group and are therefore approximations only.

Moreover, we have not carried out any site investigations to determine or otherwise the suitability of the ground conditions, the presence or otherwise of contamination and the provision of or otherwise suitability for services etc. for any future development. Our valuation is prepared on the assumption that these aspects are satisfactory and that no extraordinary expenses or delays will be incurred in the event of any redevelopment.

We have relied to a considerable extent on the information provided by the Group and accepted advice given to us on such matters as planning approvals, statutory notices, easements, tenure, completion date of buildings, particulars of occupancy, site and floor areas and all other relevant matters in the identification of the Property in which the Group has valid interest.

We have had no reason to doubt the truth and accuracy of the information provided to us by the Group. We were also advised by the Group that no material facts have been omitted from the information provided. We consider that we have been provided with sufficient information to reach an informed view, and have no reason to suspect that any material information has been withheld.

CURRENCY

Unless otherwise stated, all monetary amounts stated in our valuation report are in Renminbi (RMB).

REMARKS

We hereby confirm that we have neither present nor prospective interests in the Group, the Property or the value reported herein.

Our valuation certificate is attached.

Yours faithfully, R5.06(7) R5.08(2) For and behalf of PS12.4.1 B.I. APPRAISALS LIMITED PN12.4.2

William C. K. Sham Registered Professional Surveyor (G.P.) China Real Estate Appraiser MRICS, MHKIS, MCIREA Executive Director

Note: Mr. William C. K. Sham is a qualified valuer on the approved List of Property Valuers for Undertaking Valuation for R5.06(7) R5.08(a), (b) Incorporation or Reference in Listing Particulars and Circulars and Valuations in Connection with Takeovers and PN12.4.1 Mergers published by the Hong Kong Institute of Surveyors. Mr. Sham has over 25 years’ experience in the valuation PN12.4.2 of properties in Hong Kong and has over 10 years’ experience in the valuation of properties in the People’s Republic of China and the Asia Pacific regions.

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APPENDIX IV PROPERTY VALUATION

VALUATION CERTIFICATE

Market value in R5.06(1) (a)to(c) Particulars of existing state as at (f) to (g) Property Description and tenure occupancy 31 October 2009 Co 3rd Sch34

The land and The Property is an industrial The Property is RMB190,000,000 buildings of an complex erected on a site formed occupied by industrial complex by 3 parcels of land having a total Kingboard (Hebei) located at site area of approximately 585,393 Chemical Co., Ltd No. 1 Jiantao Road, sq.m. (6,301,170 sq.ft.). and Kingboard Dameng Town, (Hebei) Cokechem Neiqiu County, The industrial complex, developed Co., Ltd for R5.06(5) PN12.5.20 Xingtai City, by phases, comprises 115 blocks of production purpose. PN12.8.2 Hebei Province, 1 to 7-storey building, which are the PRC for workshop, storage, dormitory and office uses. The buildings were completed in the period from 2004 to 2009.

The total gross floor area of the Property is approximately 90,425.74 sq.m. (973,343 sq.ft.).

The land use rights of the Property R5.06(1)(j) have been granted for industrial use for terms due to expire on 4 March 2055 and 16 November 2059 respectively (See Notes 1 to 3).

Notes:

(1) Pursuant to the Certificate of State-owned Land Use 內國用(2005)第013號 (Nei Guo Yong (2005) No. 013) issued by R5.06(1)(j) PN12.5.2 Neiqiu County People’s Government on 6 April 2005, the land use right of a parcel of land in the Property having a site PN12.16 area of 154,397.00 sq.m. has been granted to Kingboard (Hebei) Chemical Co., Ltd, which is a wholly-owned subsidiary of the Company, for industrial use for a term due to expire on 4 March 2055.

(2) Pursuant to the Certificate of State-owned Land Use 內國用(2005)第014號 (Nei Guo Yong (2005) No. 014) issued by Neiqiu County People’s Government on 6 April 2005, the land use right of a parcel of land in the Property having a site area of 250,596.00 sq.m. has been granted to Kingboard (Hebei) Cokechem Co., Ltd, which is a wholly-owned subsidiary of the Company, for industrial use for a term due to expire on 4 March 2055.

(3) Pursuant to the Certificate of State-owned Land Use 內國用(2009)第076號 (Nei Guo Yong (2009) No. 076) issued by Neiqiu County People’s Government on 27 October 2009, the land use right of a parcel of land in the Property having a site area of 180,400.00 sq.m. has been granted to Kingboard (Hebei) Chemical Co., Ltd, which is a wholly-owned subsidiary of the Company, for industrial use for a term due to expire on 16 November 2059.

(4) Pursuant to the Certificate of Building Ownership 房權證內字第20070226號 (Fang Quan Zheng Nei Zi No. 20070226) issued by Neiqiu County People’s Government on 11 July 2007, the ownership of forty-six blocks of building in the Property having a total gross floor area of 23,916.29 sq.m. is vested in Kingboard (Hebei) Cokechem Co., Ltd.

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APPENDIX IV PROPERTY VALUATION

(5) Pursuant to the Certificate of Building Ownership 房權證內字第20070227號 (Fang Quan Zheng Nei Zi No. 20070227) issued by Neiqiu County People’s Government on 11 July 2007, the ownership of twenty-two blocks of building in the Property having a total gross floor area of 30,230.11 sq.m. is vested in Kingboard (Hebei) Chemical Co., Ltd.

(6) Pursuant to the Certificate of Building Ownership 房權證內字第20090224號 (Fang Quan Zheng Nei Zi No. 20090224) issued by Neiqiu County People’s Government registered on 1 September 2009, the ownership of forty-six blocks of building in the Property having a total gross floor area of 34,427.194 sq.m. is vested in Kingboard (Hebei) Chemical Co., Ltd.

(7) Pursuant to the Certificate of Building Ownership 房權證內字第20090225號 (Fang Quan Zheng Nei Zi No. 20090225) issued by Neiqiu County People’s Government registered on 1 September 2009, the ownership of three blocks of building in the Property having a total gross floor area of 1,852.15 sq.m. is vested in Kingboard (Hebei) Chemical Co., Ltd.

(8) The opinion of the PRC Legal Advisor stated, inter alia, that:

a) Kingboard (Hebei) Chemical Co., Ltd has legally obtained the Certificates of State-owned Land Use for its land (mentioned in Note 1 and 3 above) and is entitled to the exclusive rights in occupation, use, transfer, lease, mortgage and disposal by any other lawful way of the land use right of the said parcel of land within the land use term stated in the relevant Certificates of State-owned Land Use.

b) Kingboard (Hebei) Chemical Co., Ltd has legally obtained the Certificates of Building Ownership for its buildings (mentioned in Notes 5 to 7 above).

c) Kingboard (Hebei) Chemical Co., Ltd is entitled to the exclusive rights in occupation, use, transfer, lease, mortgage or disposal by any other lawful way of its buildings within the land use term stated in the relevant Certificates of State-owned Land Use and Certificates of Building Ownership.

d) Kingboard (Hebei) Cokechem Co., Ltd has legally obtained the Certificate of State-owned Land Use for its land (mentioned in Note 2 above) and is entitled to the exclusive rights in occupation, use, transfer, lease, mortgage or disposal by any other lawful way of the land use right of the said parcel of land within the land use term stated in the relevant Certificate of State-owned Land Use.

e) Kingboard (Hebei) Cokechem Co., Ltd has legally obtained the Certificate of Building Ownership for its buildings (mentioned in Note 4 above) and is entitled to the exclusive rights in occupation, use, transfer, lease, mortgage or disposal by any other lawful way of such buildings within the land use term stated in the relevant Certificate of State-owned Land Use and Certificate of Building Ownership.

f) The property is free from charges, third party rights on encumbrances.

(9) The status of title and grant of major approvals, consents or licences in accordance with the information provided by to us the Company are as fo1lows:

Contract for Grant of State-owned Land Use Rights Yes Certificate of State-owned Land Use (part) Yes Planning Permit for Construction Land Yes Planning Permit for Construction Works Yes Commencement Permit for Construction Works Yes Certificate for Building Ownership Yes

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APPENDIX V SUMMARY OF THE CONSTITUTION OF THE COMPANY AND THE CAYMAN ISLANDS COMPANIES LAW

AND THE CAYMAN ISLANDS COMPANIES LAW )

SUMMARY OF THE CONSTITUTION OF THE COMPANY Co 3rd Sch29 Co s342 LR19.08(3) LR19.10(2) 1 Memorandum

The Memorandum of the Company was adopted on September 4, 2009 and states, inter alia, that the liability of members of the Company is limited, that the objects for which the Company is established are unrestricted and the Company shall have full power and authority to carry out any object not prohibited by the Companies Law or any other law of the Cayman Islands.

2 Articles

The Articles of the Company were adopted on [●], 2009 and include provisions to the following effect:

2.1 Classes of Shares App 3 r9

The share capital of the Company consists of ordinary shares. The authorized share capital of the LR8.09A Company at the date of adoption of the Articles is HK$[2,000,000,000] divided into [20,000,000,000] shares of HK$0.10 each.

2.2 Directors

(a) Power to allot and issue Shares

Subject to the provisions of the Companies Law and the Memorandum and Articles, the unissued shares in the Company (whether forming part of its original or any increased capital) shall be at the disposal of the Directors, who may offer, allot, grant options over or otherwise dispose of them to such persons, at such times and for such consideration, and upon such terms, as the Directors shall determine.

Subject to the provisions of the Articles and to any direction that may be given by the App 3 r6(1) Company in general meeting and without prejudice to any special rights conferred on the holders of any existing shares or attaching to any class of shares, any share may be issued with or have attached thereto such preferred, deferred, qualified or other special rights or restrictions, whether in regard to dividend, voting, return of capital or otherwise, and to such persons at such time and for such consideration as the Directors may determine. Subject to the Companies Law and to any special rights conferred on any shareholders or attaching to any class of shares, any share may, with the sanction of a special resolution, be issued on terms that it is, or at the option of the Company or the holder thereof, liable to be redeemed.

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APPENDIX V SUMMARY OF THE CONSTITUTION OF THE COMPANY AND THE CAYMAN ISLANDS COMPANIES LAW

(b) Power to dispose of the assets of the Company or any subsidiary

The management of the business of the Company shall be vested in the Directors who, in addition to the powers and authorities by the Articles expressly conferred upon them, may exercise all such powers and do all such acts and things as may be exercised or done or approved by the Company and are not by the Articles or the Companies Law expressly directed or required to be exercised or done by the Company in general meeting, but subject nevertheless to the provisions of the Companies Law and of the Articles and to any regulation from time to time made by the Company in general meeting not being inconsistent with such provisions or the Articles, provided that no regulation so made shall invalidate any prior act of the Directors which would have been valid if such regulation had not been made.

Payment to any Director or past Director of any sum by way of compensation for loss of App 13 r5(4) office or as consideration for or in connection with his retirement from office (not being a payment to which the Director is contractually entitled) must first be approved by the Company in general meeting.

(d) Loans to Directors

There are provisions in the Articles prohibiting the making of loans to Directors and App 13 r5(2) associates which are equivalent to the restrictions imposed by the Companies Ordinance.

(e) Financial assistance to purchase Shares

Subject to all applicable laws, the Company may give financial assistance to Directors and employees of the Company, its subsidiaries or any holding company or any subsidiary of such holding company in order that they may buy shares in the Company or any such subsidiary or holding company. Further, subject to all applicable laws, the Company may give financial assistance to a trustee for the acquisition of shares in the Company or shares in any such subsidiary or holding company to be held for the benefit of employees of the Company, its subsidiaries, any holding company of the Company or any subsidiary of any such holding company (including salaried Directors).

(f) Disclosure of interest in contracts with the Company or any of its subsidiaries

No Director or proposed Director shall be disqualified by his office from contracting with App 13 r5(3) the Company either as vendor, purchaser or otherwise nor shall any such contract or any contract or arrangement entered into by or on behalf of the Company with any person, company or partnership of or in which any Director shall be a member or otherwise interested be capable on that account of being avoided, nor shall any Director so contracting or being any member or so interested be liable to account to the Company for any profit so realised by any such contract or arrangement by reason only of such Director holding that office or the fiduciary relationship thereby established, provided that such Director shall, if his interest in such contract or

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APPENDIX V SUMMARY OF THE CONSTITUTION OF THE COMPANY AND THE CAYMAN ISLANDS COMPANIES LAW

arrangement is material, declare the nature of his interest at the earliest meeting of the board of Directors at which it is practicable for him to do so, either specifically or by way of a general notice stating that, by reason of the facts specified in the notice, he is to be regarded as interested in any contracts of a specified description which may be made by the Company.

A Director shall not be entitled to vote on (nor shall he be counted in the quorum in relation App 3 r4(1) to) any resolution of the Directors in respect of any contract or arrangement or any other proposal App 1A7(1) in which the Director or any of his associates has any material interest, and if he shall do so his vote shall not be counted (nor is he to be counted in the quorum for the resolution), but this prohibition shall not apply to any of the following matters, namely:

(i) the giving to such Director or any of his associates of any security or indemnity in respect of money lent or obligations incurred by him or any of them at the request of or for the benefit of the Company or any of its subsidiaries;

(ii) the giving of any security or indemnity to a third party in respect of a debt or obligation of the Company or any of its subsidiaries for which the Director or any of his associates has himself/themselves assumed responsibility in whole or in part and whether alone or jointly under a guarantee or indemnity or by the giving of security;

(iii) any proposal concerning an offer of shares, debentures or other securities of or by the Company or any other company which the Company may promote or be interested in for subscription or purchase where the Director or any of his associates is/are or is/are to be interested as a participant in the underwriting or sub-underwriting of the offer;

(iv) any proposal concerning any other company in which the Director or any of his associates is/are interested only, whether directly or indirectly, as an officer, executive or shareholder or in which the Director or any of his associates is/are beneficially interested in shares of that company, provided that the Director and any of his associates, are not in aggregate beneficially interested in five per cent. or more of the issued shares of any class of such company (or of any third company through which his interest or that of any of his associates is derived) or of the voting rights;

(v) any proposal or arrangement concerning the benefit of employees of the Company or any of its subsidiaries including:

(A) the adoption, modification or operation of any employees’ share scheme or any share incentive scheme or share option scheme under which the Director or any of his associates may benefit;

(B) the adoption, modification or operation of a pension or provident fund or retirement, death or disability benefits scheme which relates both to Directors, their associates and employees of the Company or any of its subsidiaries and

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APPENDIX V SUMMARY OF THE CONSTITUTION OF THE COMPANY AND THE CAYMAN ISLANDS COMPANIES LAW

does not provide in respect of any Director or any of his associates as such any privilege or advantage not generally accorded to the class of persons to which such scheme or fund relates; and

(C) any contract or arrangement in which the Director or any of his associates is/are interested in the same manner as other holders of shares or debentures or other securities of the Company by virtue only of his interest in shares or debentures or other securities of the Company.

Notwithstanding the foregoing, the Director is prohibited from voting by reason of conflict of interest and will not be counted towards the quorum in certain circumstances. Details are set out in the section headed “Relationship with Kingboard — Corporate Governance” in this document.

(g) Remuneration Co 3rd Sch5

The Directors shall be entitled to receive by way of remuneration for their services such App 1A7(2) sum as shall from time to time be determined by the Directors, or the Company in general meeting, as the case may be, such sum (unless otherwise directed by the resolution by which it is determined) to be divided amongst the Directors in such proportions and in such manner as they may agree, or failing agreement, equally, except that in such event any Director holding office for less than the whole of the relevant period in respect of which the remuneration is paid shall only rank in such division in proportion to the time during such period for which he has held office. Such remuneration shall be in addition to any other remuneration to which a Director who holds any salaried employment or office in the Company may be entitled by reason of such employment or office.

The Directors shall also be entitled to be paid all expenses, including travel expenses, reasonably incurred by them in or about the performance of their duties as Directors including their expenses of traveling to and from board meetings, committee meetings or general meetings or otherwise incurred whilst engaged on the business of the Company or in the discharge of their duties as Directors.

The Directors may grant special remuneration to any Director who shall perform any special or extra services at the request of the Company. Such special remuneration may be made payable to such Director in addition to or in substitution for his ordinary remuneration as a Director, and may be made payable by way of salary, commission or participation in profits or otherwise as may be agreed.

The remuneration of an executive Director or a Director appointed to any other office in the management of the Company shall from time to time be fixed by the Directors and may be by way of salary, commission or participation in profits or otherwise or by all or any of those modes and with such other benefits (including share option and/or pension and/or gratuity and/or other benefits on retirement) and allowances as the Directors may from time to time decide. Such remuneration shall be in addition to such remuneration as the recipient may be entitled to receive as a Director.

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APPENDIX V SUMMARY OF THE CONSTITUTION OF THE COMPANY AND THE CAYMAN ISLANDS COMPANIES LAW

(h) Retirement, appointment and removal Co 3rd Sch5 App 1A7(4)

The Directors shall have power at any time and from time to time to appoint any person to App 3 r4(2) be a Director, either to fill a casual vacancy or as an addition to the existing Directors. Any Director so appointed shall hold office only until the next annual general meeting of the Company and shall then be eligible for re-election at that meeting.

The Company may by ordinary resolution remove any Director (including a Managing App 3 r4(3) Director or other executive Director) before the expiration of his period of office App 13 r5(1) notwithstanding anything in the Articles or in any agreement between the Company and such Director (but without prejudice to any claim for compensation or damages payable to him in respect of the termination of his appointment as Director or of any other appointment or office as a result of the termination of his appointment as Director). The Company may by ordinary resolution appoint another person in his place. Any Director so appointed shall hold office during App 3 R4(4) such time only as the Director in whose place he is appointed would have held the same if he had not been removed. The Company may also by ordinary resolution elect any person to be a Director, either to fill a casual vacancy or as an addition to the existing Directors. Any Director so appointed shall hold office only until the next following annual general meeting of the Company and shall then be eligible for re-election. No person shall, unless recommended by the Directors, be eligible for election to the office of Director at any general meeting unless, during the period, which shall be at least seven days, commencing no earlier than the day after the despatch of the notice of the meeting appointed for such election and ending no later than seven days prior to the date of such meeting, there has been given to the Secretary of the Company notice in writing by a member of the Company (not being the person to be proposed) entitled to attend and vote at the meeting for which such notice is given of his intention to propose such person for election and also notice in writing signed by the person to be proposed of his willingness to be elected.

There is no shareholding qualification for Directors nor is there any specified age limit for Directors.

The office of a Director shall be vacated:

(i) if he resigns his office by notice in writing to the Company at its registered office or its principal office in Hong Kong;

(ii) if an order is made by any competent court or official on the grounds that he is or may be suffering from mental disorder or is otherwise incapable of managing his affairs and the Directors resolve that his office be vacated;

(iii) if, without leave, he is absent from meetings of the Directors (unless an alternate Director appointed by him attends) for 12 consecutive months, and the Directors resolve that his office be vacated;

(iv) if he becomes bankrupt or has a receiving order made against him or suspends payment or compounds with his creditors generally;

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APPENDIX V SUMMARY OF THE CONSTITUTION OF THE COMPANY AND THE CAYMAN ISLANDS COMPANIES LAW

(v) if he ceases to be or is prohibited from being a Director by law or by virtue of any provision in the Articles;

(vi) if he is removed from office by notice in writing served upon him signed by not less than three-fourths in number (or, if that is not a round number, the nearest lower round number) of the Directors (including himself) for the time being then in office; or

(vii) if he shall be removed from office by an ordinary resolution of the members of the App 3 r4(3) Company under the Articles.

At every annual general meeting of the Company one-third of the Directors for the time being, or, if their number is not three or a multiple of three, then the number nearest to, but not less than, one-third, shall retire from office by rotation provided that every Director (including those appointed for a specific term) shall be subject to retirement by rotation at least once every three years. A retiring Director shall retain office until the close of the meeting at which he retires and shall be eligible for re-election thereat. The Company at any annual general meeting at which any Directors retire may fill the vacated office by electing a like number of persons to be Directors.

(i) Borrowing powers Co 3rd Sch22

The Directors may from time to time at their discretion exercise all the powers of the App 1A7(3) Company to raise or borrow or to secure the payment of any sum or sums of money for the purposes of the Company and to mortgage or charge its undertaking, property and assets (present and future) and uncalled capital or any part thereof.

The rights of the Directors to exercise these powers may only be varied by a special resolution.

(j) Proceedings of the Board

The Directors may meet together for the despatch of business, adjourn and otherwise regulate their meetings and proceedings as they think fit in any part of the world. Questions arising at any meeting shall be determined by a majority of votes. In the case of an equality of votes, the chairman of the meeting shall have a second or casting vote.

2.3 Alteration to constitutional documents

No alteration or amendment to the Memorandum or Articles may be made except by special App 13 r1 resolution.

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APPENDIX V SUMMARY OF THE CONSTITUTION OF THE COMPANY AND THE CAYMAN ISLANDS COMPANIES LAW

2.4 Variation of rights of existing shares or classes of shares

If at any time the share capital of the Company is divided into different classes of shares, all or App 13 r2(1) any of the rights attached to any class of shares for the time being issued (unless otherwise provided App 1A25(3) for in the terms of issue of the shares of that class) may, subject to the provisions of the Companies Law, be varied or abrogated either with the consent in writing of the holders of not less than three-fourths in nominal value of the issued shares of that class or with the sanction of a special resolution passed at a separate meeting of the holders of the shares of that class. To every such separate meeting all the provisions of the Articles relating to general meetings shall mutatis mutandis apply, but so that the quorum for the purposes of any such separate meeting and of any adjournment App 3 r6(2) thereof shall be a person or persons together holding (or representing by proxy or duly authorised representative) at the date of the relevant meeting not less than one-third in nominal value of the issued shares of that class.

The special rights conferred upon the holders of shares of any class shall not, unless otherwise expressly provided in the rights attaching to or the terms of issue of such shares, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.

2.5 Alteration of Capital

The Company in general meeting may, from time to time, whether or not all the shares for the App 1A7(6) time being authorised shall have been issued and whether or not all the shares for the time being issued shall have been fully paid up, by ordinary resolution, increase its share capital by the creation of new shares, such new capital to be of such amount and to be divided into shares of such respective amounts as the resolution shall prescribe.

The Company may from time to time by ordinary resolution:

(a) consolidate and divide all or any of its share capital into shares of larger amount than its existing shares. On any consolidation of fully paid shares and division into shares of larger amount, the Directors may settle any difficulty which may arise as they think expedient and in particular (but without prejudice to the generality of the foregoing) may as between the holders of shares to be consolidated determine which particular shares are to be consolidated into each consolidated share, and if it shall happen that any person shall become entitled to fractions of a consolidated share or shares, such fractions may be sold by some person appointed by the Directors for that purpose and the person so appointed may transfer the shares so sold to the purchaser thereof and the validity of such transfer shall not be questioned, and so that the net proceeds of such sale (after deduction of the expenses of such sale) may either be distributed among the persons who would otherwise be entitled to a fraction or fractions of a consolidated share or shares rateably in accordance with their rights and interests or may be paid to the Company for the Company’s benefit;

(b) cancel any shares which at the date of the passing of the resolution have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so cancelled subject to the provisions of the Companies Law; and

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APPENDIX V SUMMARY OF THE CONSTITUTION OF THE COMPANY AND THE CAYMAN ISLANDS COMPANIES LAW

(c) sub-divide its shares of any of them into shares of smaller amount than is fixed by the Memorandum, subject nevertheless to the provisions of the Companies Law, and so that the resolution whereby any share is sub-divided may determine that, as between the holders of the shares resulting from such sub-division, one or more of the shares may have any such preferred or other special rights, over, or may have such deferred rights or be subject to any such restrictions as compared with the others as the company has power to attach to unissued or new shares.

The Company may by special resolution reduce its share capital or any capital redemption reserve in any manner authorised and subject to any conditions prescribed by the Companies Law.

2.6 Special resolution - majority required

A “special resolution” is defined in the Articles to have the meaning ascribed thereto in the App 13 r1 Companies Law, for which purpose, the requisite majority shall be not less than three-fourths of the votes of such members of the Company as, being entitled to do so, vote in person or, in the case of corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a general meeting of which notice specifying the intention to propose the resolution as a special resolution has been duly given and includes a special resolution approved in writing by all of the members of the Company entitled to vote at a general meeting of the Company in one or more instruments each signed by one or more of such members, and the effective date of the special resolution so adopted shall be the date on which the instrument or the last of such instruments (if more than one) is executed.

In contrast, an “ordinary resolution” is defined in the Articles to mean a resolution passed by a simple majority of the votes of such members of the Company as, being entitled to do so, vote in person or, in the case of corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a general meeting held in accordance with the Articles and includes an ordinary resolution approved in writing by all the members of the Company aforesaid.

2.7 Voting rights

Subject to any special rights, privileges or restrictions as to voting for the time being attached App1A25(1) to any class or classes of shares, at any general meeting on a poll every member present in person (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy shall have one vote for each share registered in his name in the register of members of the Company.

Where any member of the Company is, under applicable rules, required to abstain from voting App 3 r14 on any particular resolution or is restricted to voting only for or only against any particular resolution, any votes cast by or on behalf of such member in contravention of such requirement or restriction shall not be counted.

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APPENDIX V SUMMARY OF THE CONSTITUTION OF THE COMPANY AND THE CAYMAN ISLANDS COMPANIES LAW

In the case of joint registered holders of any share, any one of such persons may vote at any meeting, either personally or by proxy, in respect of such share as if he were solely entitled thereto; but if more than one of such joint holders be present at any meeting personally or by proxy, that one of the said persons so present being the most or, as the case may be, the more senior shall alone be entitled to vote in respect of the relevant joint holding and, for this purpose, seniority shall be determined by reference to the order in which the names of the joint holders stand on the register in respect of the relevant joint holding.

A member of the Company in respect of whom an order has been made by any competent court or official on the grounds that he is or may be suffering from mental disorder or is otherwise incapable of managing his affairs may vote by any person authorised in such circumstances to do so and such person may vote by proxy.

Save as expressly provided in the Articles or as otherwise determined by the Directors, no person other than a member of the Company duly registered and who shall have paid all sums for the time being due from him payable to the Company in respect of his shares shall be entitled to be present or to vote (save as proxy for another member of the Company), or to be counted in a quorum, either personally or by proxy at any general meeting.

At any general meeting a resolution put to the vote of the meeting is to be decided by way of App13 r2(3) a poll.

If a recognised clearing house (or its nominee) is a member of the Company it may authorise such App 13 r6 person or persons as it thinks fit to act as its proxy(ies) or representative(s) at any general meeting of the Company or at any general meeting of any class of members of the Company provided that, if more than one person is so authorised, the authorisation shall specify the number and class of shares in respect of which each such person is so authorised. A person authorised pursuant to this provision shall be entitled to exercise the same rights and powers on behalf of the recognised clearing house (or its nominee) which he represents as that recognised clearing house (or its nominee) could exercise if it were an individual member of the Company holding the number and class of shares specified in such authorisation.

2.8 Annual general meetings

The Company shall in each year hold a general meeting as its annual general meeting in addition App 13 r3(3) to any other general meeting in that year and shall specify the meeting as such in the notice calling r4(2) it; and not more than 15 months (or such longer period as the applicable regulatory authority may authorise) shall elapse between the date of one annual general meeting of the Company and that of the next.

2.9 Accounts and audit

The Directors shall cause to be kept such books of account as are necessary to give a true and App 13 r4(1) fair view of the state of the Company’s affairs and to show and explain its transactions and otherwise in accordance with the Companies Law.

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APPENDIX V SUMMARY OF THE CONSTITUTION OF THE COMPANY AND THE CAYMAN ISLANDS COMPANIES LAW

The Directors shall from time to time determine whether, and to what extent, and at what times and places and under what conditions or regulations, the accounts and books of the Company, or any of them, shall be open to the inspection of members of the Company (other than officers of the Company) and no such member shall have any right of inspecting any accounts or books or documents of the Company except as conferred by the Companies Law or any other relevant law or regulation or as authorised by the Directors or by the Company in general meeting.

The Directors shall, commencing with the first annual general meeting, cause to be prepared and App 13 r3(3) to be laid before the members of the Company at every annual general meeting a profit and loss account for the period, in the case of the first account, since the incorporation of the Company and, in any other case, since the preceding account, together with a balance sheet as at the date at which the profit and loss account is made up and a Director’s report with respect to the profit or loss of the Company for the period covered by the profit and loss account and the state of the Company’s affairs as at the end of such period, an auditor’s report on such accounts and such other reports and accounts as may be required by law. Copies of those documents to be laid before the members of the Company App 3 r5 at an annual general meeting shall not less than 21 clear days before the date of the meeting, be sent in the manner in which notices may be served by the Company as provided in the Articles to every member of the Company and every holder of debentures of the Company provided that the Company shall not be required to send copies of those documents to any person of whose address the Company is not aware or to more than one of the joint holders of any shares or debentures.

The Company shall at any annual general meeting appoint an auditor or auditors of the Company who shall hold office until the next annual general meeting. The remuneration of the auditors shall be fixed by the Company at the annual general meeting at which they are appointed provided that in respect of any particular year the Company in general meeting may delegate the fixing of such remuneration to the Directors.

2.10 Notice of meetings and business to be conducted thereat

An annual general meeting and any extraordinary general meeting called for the passing of a App 13 r3(1) special resolution shall be called by notice of not less than 21 clear days and any other extraordinary general meeting shall be called by not less than 14 clear days. The notice shall be inclusive of the day on which it is served or deemed to be served and of the day for which it is given, and shall specify the time, place and agenda of the meeting, particulars of the resolutions to be considered at the meeting and, in the case of special business, the general nature of that business. The notice convening an annual general meeting shall specify the meeting as such, and the notice convening a meeting to pass a special resolution shall specify the intention to propose the resolution as a special resolution. Notice of every general meeting shall be given to the auditors and all members of the Company (other than those who, under the provisions of the Articles or the terms of issue of the shares they hold, are not entitled to receive such notice from the Company).

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APPENDIX V SUMMARY OF THE CONSTITUTION OF THE COMPANY AND THE CAYMAN ISLANDS COMPANIES LAW

Notwithstanding that a meeting of the Company is called by shorter notice than that mentioned above, it shall be deemed to have been duly called if it is so agreed:

(a) in the case of a meeting called as an annual general meeting, by all members of the Company entitled to attend and vote thereat or their proxies; and

(b) in the case of any other meeting, by a majority in number of the members having a right to attend and vote at the meeting, being a majority together holding not less than 95 per cent. in nominal value of the shares giving that right.

All business shall be deemed special that is transacted at an extraordinary general meeting and also all business shall be deemed special that is transacted at an annual general meeting with the exception of the following, which shall be deemed ordinary business:

(a) the declaration and sanctioning of dividends;

(b) the consideration and adoption of the accounts and balance sheets and the reports of the Directors and the auditors and other documents required to be annexed to the balance sheet;

(d) the appointment of auditors;

(e) the fixing of, or the determining of the method of fixing of, the remuneration of the Directors and of the auditors;

(f) the granting of any mandate or authority to the Directors to offer, allot, grant options over or otherwise dispose of the unissued shares of the Company representing not more than 20 per cent. (or such other percentage as may from time to time be specified in applicable rules) in nominal value of its then existing issued share capital and the number of any securities repurchased pursuant to sub-paragraph (g) below; and

(g) the granting of any mandate or authority to the Directors to repurchase securities of the Company.

2.11 Transfer of Shares

Transfers of shares may be effected by an instrument of transfer in the usual common form or App 1A7(8) in such other form as the Directors may approve which is consistent with the standard form of transfer as prescribed by the relevant regulatory authority.

The instrument of transfer shall be executed by or on behalf of the transferor and, unless the Directors otherwise determine, the transferee, and the transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the register of members of the Company in respect thereof. All instruments of transfer shall be retained by the Company.

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APPENDIX V SUMMARY OF THE CONSTITUTION OF THE COMPANY AND THE CAYMAN ISLANDS COMPANIES LAW

The Directors may refuse to register any transfer of any share which is not fully paid up or on App 3 r1(1) which the Company has a lien. The Directors may also decline to register any transfer of any shares r1(2) unless:

(a) the instrument of transfer is lodged with the Company accompanied by the certificate for the shares to which it relates (which shall upon the registration of the transfer be cancelled) and such other evidence as the Directors may reasonably require to show the right of the transferor to make the transfer;

(b) the instrument of transfer is in respect of only one class of shares;

(d) in the case of a transfer to joint holders, the number of joint holders to whom the share is App 3 r1(3) to be transferred does not exceed four;

(e) the shares concerned are free of any lien in favour of the Company; and App 3 r1(2)

(f) a fee of such maximum as the relevant regulatory authority may from time to time App3 r1(1) determine to be payable (or such lesser sum as the Directors may from time to time require) is paid to the Company in respect thereof.

If the Directors refuse to register a transfer of any share they shall, within two months after the date on which the instrument of transfer was lodged with the Company, send to each of the transferor and the transferee notice of such refusal.

The registration of transfers may, on 14 days’ notice being given by advertisement in the newspaper or, subject to applicable rules, by electronic communication in the manner in which notices may be served by the Company by electronic means as provided in the Articles, be suspended and the register of members of the Company closed at such times for such periods as the Directors may from time to time determine, provided that the registration of transfers shall not be suspended or the register closed for more than 30 days in any year (or such longer period as the members of the Company may by ordinary resolution determine provided that such period shall not be extended beyond 60 days in any year).

2.12 Power of the Company to purchase its own Shares

The Company is empowered by the Companies Law and the Articles to purchase its own shares App 1A7(9) subject to certain restrictions and the Directors may only exercise this power on behalf of the Company subject to the authority of its members in general meeting as to the manner in which they do so and to any applicable requirements imposed from time to time by the relevant regulatory authorities.

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APPENDIX V SUMMARY OF THE CONSTITUTION OF THE COMPANY AND THE CAYMAN ISLANDS COMPANIES LAW

2.13 Power of any subsidiary of the Company to own Shares

There are no provisions in the Articles relating to the ownership of shares by a subsidiary.

2.14 Dividends and other methods of distributions

Subject to the Companies Law and Articles, the Company in general meeting may declare dividends in any currency but no dividends shall exceed the amount recommended by the Directors. No dividend may be declared or paid other than out of profits and reserves of the Company lawfully available for distribution, including share premium.

Unless and to the extent that the rights attached to any shares or the terms of issue thereof App 3 r3(1) otherwise provide, all dividends shall (as regards any shares not fully paid throughout the period in respect of which the dividend is paid) be apportioned and paid pro rata according to the amounts paid up on the shares during any portion or portions of the period in respect of which the dividend is paid. For these purposes no amount paid up on a share in advance of calls shall be treated as paid up on the share.

The Directors may from time to time pay to the members of the Company such interim dividends as appear to the Directors to be justified by the profits of the Company. The Directors may also pay half-yearly or at other intervals to be selected by them at a fixed rate if they are of the opinion that the profits available for distribution justify the payment.

The Directors may retain any dividends or other moneys payable on or in respect of a share upon which the Company has a lien, and may apply the same in or towards satisfaction of the debts, liabilities or engagements in respect of which the lien exists. The Directors may also deduct from any dividend or other monies payable to any member of the Company all sums of money (if any) presently payable by him to the Company on account of calls, instalments or otherwise.

No dividend shall carry interest against the Company.

Whenever the Directors or the Company in general meeting have resolved that a dividend be paid or declared on the share capital of the Company, the Directors may further resolve: (a) that such dividend be satisfied wholly or in part in the form of an allotment of shares credited as fully paid up on the basis that the shares so allotted are to be of the same class as the class already held by the allottee, provided that the members of the Company entitled thereto will be entitled to elect to receive such dividend (or part thereof) in cash in lieu of such allotment; or (b) that the members of the Company entitled to such dividend will be entitled to elect to receive an allotment of shares credited as fully paid up in lieu of the whole or such part of the dividend as the Directors may think fit on the basis that the shares so allotted are to be of the same class as the class already held by the allottee. The Company may upon the recommendation of the Directors by ordinary resolution resolve in respect of any one particular dividend of the Company that notwithstanding the foregoing a dividend may be satisfied wholly in the form of an allotment of shares credited as fully paid without offering any right to members of the Company to elect to receive such dividend in cash in lieu of such allotment.

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APPENDIX V SUMMARY OF THE CONSTITUTION OF THE COMPANY AND THE CAYMAN ISLANDS COMPANIES LAW

Any dividend, interest or other sum payable in cash to a holder of shares may be paid by cheque or warrant sent through the post addressed to the registered address of the member of the Company entitled, or in the case of joint holders, to the registered address of the person whose name stands first in the register of members of the Company in respect of the joint holding to such person and to such address as the holder or joint holders may in writing direct. Every cheque or warrant so sent shall be made payable to the order of the holder or, in the case of joint holders, to the order of the holder whose name stands first on the register of members of the Company in respect of such shares, and shall be sent at his or their risk and the payment of any such cheque or warrant by the bank on which it is drawn shall operate as a good discharge to the Company in respect of the dividend and/or bonus represented thereby, notwithstanding that it may subsequently appear that the same has been stolen or that any endorsement thereon has been forged. The Company may cease sending such cheques for dividend entitlements or dividend warrants by post if such cheques or warrants have been left uncashed on two consecutive occasions. However, the Company may exercise its power to cease sending cheques for App 3 r13(1) dividend entitlements or dividend warrants after the first occasion on which such a cheque or warrant is returned undelivered. Any one of two or more joint holders may give effectual receipts for any dividends or other moneys payable or property distributable in respect of the shares held by such joint holders.

Any dividend unclaimed for six years from the date of declaration of such dividend may be App 1A7(7) forfeited by the Directors and shall revert to the Company.

The Directors may, with the sanction of the members of the Company in general meeting, direct that any dividend be satisfied wholly or in part by the distribution of specific assets of any kind, and in particular of paid up shares, debentures or warrants to subscribe securities of any other company, and where any difficulty arises in regard to such distribution the Directors may settle it as they think expedient, and in particular may disregard fractional entitlements, round the same up or down or provide that the same shall accrue to the benefit of the Company, and may fix the value for distribution of such specific assets and may determine that cash payments shall be made to any members of the Company upon the footing of the value so fixed in order to adjust the rights of all parties, and may vest any such specific assets in trustees as may seem expedient to the Directors.

2.15 Proxies

Any member of the Company entitled to attend and vote at a meeting of the Company shall be App 13 r2(2) entitled to appoint another person who must be an individual as his proxy to attend and vote instead of him and a proxy so appointed shall have the same right as the member to speak at the meeting. A proxy need not be a member of the Company.

Instruments of proxy shall be in common form or in such other form as the Directors may from App 3 r11(1) time to time approve provided that it shall enable a member to instruct his proxy to vote in favour of or against (or in default of instructions or in the event of conflicting instructions, to exercise his discretion in respect of) each resolution to be proposed at the meeting to which the form of proxy relates. The instrument of proxy shall be deemed to confer authority to vote on any amendment of a

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APPENDIX V SUMMARY OF THE CONSTITUTION OF THE COMPANY AND THE CAYMAN ISLANDS COMPANIES LAW resolution put to the meeting for which it is given as the proxy thinks fit. The instrument of proxy shall, unless the contrary is stated therein, be valid as well for any adjournment of the meeting as for the meeting to which it relates provided that the meeting was originally held within 12 months from such date.

The instrument appointing a proxy shall be in writing under the hand of the appointor or his App 3 r11(2) attorney authorised in writing or if the appointor is a corporation either under its seal or under the hand of an officer, attorney or other person authorised to sign the same.

The instrument appointing a proxy and (if required by the Directors) the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of such power or authority, shall be delivered at the registered office of the Company (or at such other place as may be specified in the notice convening the meeting or in any notice of any adjournment or, in either case, in any document sent therewith) not less than 48 hours before the time appointed for holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote or, in the case of a poll taken subsequently to the date of a meeting or adjourned meeting, not less than 48 hours before the time appointed for the taking of the poll and in default the instrument of proxy shall not be treated as valid. No instrument appointing a proxy shall be valid after the expiration of 12 months from the date named in it as the date of its execution. Delivery of any instrument appointing a proxy shall not preclude a member of the Company from attending and voting in person at the meeting or poll concerned and, in such event, the instrument appointing a proxy shall be deemed to be revoked.

2.16 Calls on Shares and forfeiture of Shares

The Directors may from time to time make calls upon the members of the Company in respect of any moneys unpaid on their shares (whether on account of the nominal amount of the shares or by way of premium) and not by the conditions of allotment thereof made payable at fixed times and each member of the Company shall (subject to the Company serving upon him at least 14 days’ notice specifying the time and place of payment) pay to the Company at the time and place so specified the amount called on his shares. A call may be revoked or postponed as the Directors may determine. A person upon whom a call is made shall remain liable on such call notwithstanding the subsequent transfer of the shares in respect of which the call was made.

A call may be made payable either in one sum or by instalments and shall be deemed to have been made at the time when the resolution of the Directors authorising the call was passed. The joint holders of a share shall be jointly and severally liable to pay all calls and instalments due in respect of such share or other moneys due in respect thereof.

If a sum called in respect of a share shall not be paid before or on the day appointed for payment thereof, the person from whom the sum is due shall pay interest on the sum from the day appointed for payment thereof to the time of actual payment at such rate, not exceeding 15 per cent. per annum, as the Directors may determine, but the Directors shall be at liberty to waive payment of such interest wholly or in part.

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APPENDIX V SUMMARY OF THE CONSTITUTION OF THE COMPANY AND THE CAYMAN ISLANDS COMPANIES LAW

If any call or instalment of a call remains unpaid on any share after the day appointed for payment thereof, the Directors may at any time during such time as any part thereof remains unpaid serve a notice on the holder of such shares requiring payment of so much of the call or instalment as is unpaid together with any interest which may be accrued and which may still accrue up to the date of actual payment.

The notice shall name a further day (not being less than 14 days from the date of service of the notice) on or before which, and the place where, the payment required by the notice is to be made, and shall state that in the event of non-payment on or before the time and at the place appointed, the shares in respect of which such call was made or instalment is unpaid will be liable to be forfeited.

If the requirements of such notice are not complied with, any share in respect of which such notice has been given may at any time thereafter, before payment of all calls or instalments and interest due in respect thereof has been made, be forfeited by a resolution of the Directors to that effect. Such forfeiture shall include all dividends and bonuses declared in respect of the forfeited shares and not actually paid before the forfeiture. A forfeited share shall be deemed to be the property of the Company and may be sold, re-allotted or otherwise disposed of.

A person whose shares have been forfeited shall cease to be a member of the Company in respect of the forfeited shares but shall, notwithstanding the forfeiture, remain liable to pay to the Company all moneys which at the date of forfeiture were payable by him to the Company in respect of the shares, together with (if the Directors shall in their discretion so require) interest thereon at such rate not exceeding 15 per cent. per annum as the Directors may prescribe from the date of forfeiture until payment, and the Directors may enforce payment thereof without being under any obligation to make any allowance for the value of the shares forfeited, at the date of forfeiture.

2.17 Inspection of register of members

The register of members of the Company shall be kept in such manner as to show at all times the members of the Company for the time being and the shares respectively held by them. The register may, on 14 days’ notice being given by advertisement in the newspapers, or subject to applicable rules, by electronic communication in the manner in which notices may be served by the Company by electronic means as provided in the Articles be closed at such times and for such periods as the Directors may from time to time determine either generally or in respect of any class of shares, provided that the register shall not be closed for more than 30 days in any year (or such longer period as the members of the Company may by ordinary resolution determine provided that such period shall not be extended beyond 60 days in any year).

Any register of members kept in Hong Kong shall during normal business hours (subject to such App 13 r3(2) reasonable restrictions as the Directors may impose) be open to inspection by any member of the Company without charge and by any other person on payment of such fee not exceeding HK$2.50 (or such higher amount as may from time to time be permitted under applicable rules) as the Directors may determine for each inspection.

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APPENDIX V SUMMARY OF THE CONSTITUTION OF THE COMPANY AND THE CAYMAN ISLANDS COMPANIES LAW

2.18 Quorum for meetings and separate class meetings

No business shall be transacted at any general meeting unless a quorum is present when the meeting proceeds to business, but the absence of a quorum shall not preclude the appointment, choice or election of a chairman which shall not be treated as part of the business of the meeting.

Two members of the Company present in person or by proxy shall be a quorum provided always that if the Company has only one member of record the quorum shall be that one member present in person or by proxy.

A corporation being a member of the Company shall be deemed for the purpose of the Articles to be present in person if represented by its duly authorised representative being the person appointed by resolution of the directors or other governing body of such corporation or by power of attorney to act as its representative at the relevant general meeting of the Company or at any relevant general meeting of any class of members of the Company.

The quorum for a separate general meeting of the holders of a separate class of shares of the Company is described in sub-paragraph 2.4 above.

2.19 Rights of minorities in relation to fraud or oppression

There are no provisions in the Articles concerning the rights of minority shareholders in relation to fraud or oppression.

2.20 Procedure on liquidation

If the Company shall be wound up, and the assets available for distribution amongst the members of the Company as such shall be insufficient to repay the whole of the paid-up capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the members of the Company in proportion to the capital paid up, or which ought to have been paid up, at the commencement of the winding up on the shares held by them respectively. And if in a winding up the assets available for distribution amongst the members of the Company shall be more than sufficient to repay the whole of the capital paid up at the commencement of the winding up, the excess shall be distributed amongst the members of the Company in proportion to the capital paid up at the commencement of the winding up on the shares held by them respectively. The foregoing is without prejudice to the rights of the holders of shares issued upon special terms and conditions.

If the Company shall be wound up, the liquidator may with the sanction of a special resolution of the Company and any other sanction required by the Companies Law, divide amongst the members of the Company in specie or kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may, for such purpose, set such value as he deems fair upon any property to be divided as aforesaid and may determine how such division shall be carried out as between the members or different classes of members of the Company. The liquidator

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APPENDIX V SUMMARY OF THE CONSTITUTION OF THE COMPANY AND THE CAYMAN ISLANDS COMPANIES LAW may, with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the members of the Company as the liquidator, with the like sanction and subject to the Companies Law, shall think fit, but so that no member of the Company shall be compelled to accept any assets, shares or other securities in respect of which there is a liability.

2.21 Untraceable members

The Company shall be entitled to sell any shares of a member of the Company or the shares to App 3 r13(2) which a person is entitled by virtue of transmission on death or bankruptcy or operation of law if: (i) (a) (b) all cheques or warrants, not being less than three in number, for any sums payable in cash to the holder of such shares have remained uncashed for a period of 12 years; (ii) the Company has not during that time or before the expiry of the three month period referred to in (iv) below received any indication of the whereabouts or existence of the member; (iii) during the 12 year period, at least three dividends in respect of the shares in question have become payable and no dividend during that period has been claimed by the member; and (iv) upon expiry of the 12 year period, the Company has caused an advertisement to be published in the newspapers or subject to applicable rules, by electronic communication in the manner in which notices may be served by the Company by electronic means as provided in the Articles, giving notice of its intention to sell such shares and a period of three months has elapsed since such advertisement and the relevant regulatory authority has been notified of such intention. The net proceeds of any such sale shall belong to the Company and upon receipt by the Company of such net proceeds it shall become indebted to the former member for an amount equal to such net proceeds.

SUMMARY OF CAYMAN ISLANDS COMPANY LAW AND TAXATION LR19.10(3)

1 Introduction

The Companies Law is derived, to a large extent, from the older Companies Acts of England, although there are significant differences between the Companies Law and the current Companies Act of England. Set out below is a summary of certain provisions of the Companies Law, although this does not purport to contain all applicable qualifications and exceptions or to be a complete review of all matters of corporate law and taxation which may differ from equivalent provisions in jurisdictions with which interested parties may be more familiar.

2 Incorporation

The Company was incorporated in the Cayman Islands as an exempted company with limited App 1A5 liability on September 4, 2009 under the Companies Law. As such, its operations must be conducted mainly outside the Cayman Islands. The Company is required to file an annual return each year with the Registrar of Companies of the Cayman Islands and pay a fee which is based on the size of its authorised share capital.

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APPENDIX V SUMMARY OF THE CONSTITUTION OF THE COMPANY AND THE CAYMAN ISLANDS COMPANIES LAW

3 Share capital

The Companies Law permits a company to issue ordinary shares, preference shares, redeemable shares or any combination thereof.

The Companies Law provides that where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount of the value of the premia on those shares shall be transferred to an account called the “share premium account”. At the option of a company, these provisions may not apply to premia on shares of that company allotted pursuant to any arrangement in consideration of the acquisition or cancellation of shares in any other company and issued at a premium. The Companies Law provides that the share premium account may be applied by a company, subject to the provisions, if any, of its memorandum and articles, in such manner as the company may from time to time determine including, but without limitation:

(a) paying distributions or dividends to members;

(b) paying up unissued shares of the company to be issued to members as fully paid bonus shares;

(d) writing-off the preliminary expenses of the company;

(e) writing-off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company; and

(f) providing for the premium payable on redemption or purchase of any shares or debentures of the company.

No distribution or dividend may be paid to members out of the share premium account unless immediately following the date on which the distribution or dividend is proposed to be paid the company will be able to pay its debts as they fall due in the ordinary course of business.

The Companies Law provides that, subject to confirmation by the Grand Court of the Cayman Islands, a company limited by shares or a company limited by guarantee and having a share capital may, if so authorised by its articles, by special resolution reduce its share capital in any way.

Subject to the detailed provisions of the Companies Law, a company limited by shares or a company limited by guarantee and having a share capital may, if so authorised by its articles, issue shares which are to be redeemed or are liable to be redeemed at the option of the company or a shareholder. In addition, such a company may, if authorised to do so by its articles, purchase its own shares, including any redeemable shares. However, if the articles do not authorise the manner of purchase, a company cannot purchase any of its own shares unless the manner of purchase has first been authorised by an ordinary resolution of the company. At no time may a company redeem or

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APPENDIX V SUMMARY OF THE CONSTITUTION OF THE COMPANY AND THE CAYMAN ISLANDS COMPANIES LAW purchase its shares unless they are fully paid. A company may not redeem or purchase any of its shares if, as a result of the redemption or purchase, there would no longer be any member of the company holding shares. A payment out of capital by a company for the redemption or purchase of its own shares is not lawful unless immediately following the date on which the payment is proposed to be made, the company shall be able to pay its debts as they fall due in the ordinary course of business.

There is no statutory restriction in the Cayman Islands on the provision of financial assistance by a company for the purchase of, or subscription for, its own or its holding company’s shares. Accordingly, a company may provide financial assistance if the directors of the company consider, in discharging their duties of care and to act in good faith, for a proper purpose and in the interests of the company, that such assistance can properly be given. Such assistance should be on an arm’s-length basis.

4 Dividends and distributions

With the exception of section 34 of the Companies Law, there are no statutory provisions relating to the payment of dividends. Based upon English case law which is likely to be persuasive in the Cayman Islands in this area, dividends may be paid only out of profits. In addition, section 34 of the Companies Law permits, subject to a solvency test and the provisions, if any, of the company’s memorandum and articles, the payment of dividends and distributions out of the share premium account (see 3 above for further details).

5 Shareholders’ suits

The Cayman Islands courts can be expected to follow English case law precedents. The rule in Foss v. Harbottle (and the exceptions thereto which permit a minority shareholder to commence a class action against or derivative actions in the name of the company to challenge (a) an act which is ultra vires the company or illegal, (b) an act which constitutes a fraud against the minority where the wrongdoers are themselves in control of the company, and (c) an action which requires a resolution with a qualified (or special) majority which has not been obtained) has been applied and followed by the courts in the Cayman Islands.

6 Protection of minorities

In the case of a company (not being a bank) having a share capital divided into shares, the Grand Court of the Cayman Islands may, on the application of members holding not less than one fifth of the shares of the company in issue, appoint an inspector to examine into the affairs of the company and to report thereon in such manner as the Grand Court shall direct.

Any shareholder of a company may petition the Grand Court of the Cayman Islands which may make a winding up order if the court is of the opinion that it is just and equitable that the company should be wound up.

Claims against a company by its shareholders must, as a general rule, be based on the general laws of contract or tort applicable in the Cayman Islands or their individual rights as shareholders as established by the company’s memorandum and articles.

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APPENDIX V SUMMARY OF THE CONSTITUTION OF THE COMPANY AND THE CAYMAN ISLANDS COMPANIES LAW

The English common law rule that the majority will not be permitted to commit a fraud on the minority has been applied and followed by the courts of the Cayman Islands.

7 Disposal of assets

The Companies Law contains no specific restrictions on the powers of directors to dispose of assets of a company. As a matter of general law, in the exercise of those powers, the directors must discharge their duties of care and to act in good faith, for a proper purpose and in the interests of the company.

8 Accounting and auditing requirements

The Companies Law requires that a company shall cause to be kept proper books of account with respect to:

(a) all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure takes place;

(b) all sales and purchases of goods by the company; and

Proper books of account shall not be deemed to be kept if there are not kept such books as are necessary to give a true and fair view of the state of the company’s affairs and to explain its transactions.

9 Register of members

An exempted company may, subject to the provisions of its articles, maintain its principal register of members and any branch registers at such locations, whether within or without the Cayman Islands, as its directors may, from time to time, think fit. There is no requirement under the Companies Law for an exempted company to make any returns of members to the Registrar of Companies in the Cayman Islands. The names and addresses of the members are, accordingly, not a matter of public record and are not available for public inspection.

10 Inspection of books and records

Members of a company will have no general right under the Companies Law to inspect or obtain copies of the register of members or corporate records of the company. They will, however, have such rights as may be set out in the company’s articles.

11 Special resolutions

The Companies Law provides that a resolution is a special resolution when it has been passed by a majority of not less than two-thirds (or such greater number as may be specified in the articles

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APPENDIX V SUMMARY OF THE CONSTITUTION OF THE COMPANY AND THE CAYMAN ISLANDS COMPANIES LAW of the company) of such members as, being entitled to do so, vote in person or, where proxies are allowed, by proxy at a general meeting of which notice specifying the intention to propose the resolution as a special resolution has been duly given. Written resolutions signed by all the members entitled to vote for the time being of the company may take effect as special resolutions if this is authorised by the articles of the company.

12 Subsidiary owning shares in parent

The Companies Law does not prohibit a Cayman Islands company acquiring and holding shares in its parent company provided its objects so permit. The directors of any subsidiary making such acquisition must discharge their duties of care and to act in good faith, for a proper purpose and in the interests of the subsidiary.

13 Reconstructions

There are statutory provisions which facilitate reconstructions and amalgamations approved by a majority in number representing 75 per cent. in value of shareholders or creditors, depending on the circumstances, as are present at a meeting called for such purpose and thereafter sanctioned by the Grand Court of the Cayman Islands. Whilst a dissenting shareholder would have the right to express to the Grand Court his view that the transaction for which approval is sought would not provide the shareholders with a fair value for their shares, the Grand Court of the Cayman Islands is unlikely to disapprove the transaction on that ground alone in the absence of evidence of fraud or bad faith on behalf of management and if the transaction were approved and consummated the dissenting shareholder would have no rights comparable to the appraisal rights (i.e. the right to receive payment in cash for the judicially determined value of his shares) ordinarily available, for example, to dissenting shareholders of United States corporations.

14 Take-overs

Where an offer is made by a company for the shares of another company and, within four months of the offer, the holders of not less than 90 per cent. of the shares which are the subject of the offer accept, the offeror may at any time within two months after the expiration of the said four months, by notice require the dissenting shareholders to transfer their shares on the terms of the offer. A dissenting shareholder may apply to the Grand Court of the Cayman Islands within one month of the notice objecting to the transfer. The burden is on the dissenting shareholder to show that the Grand Court should exercise its discretion, which it will be unlikely to do unless there is evidence of fraud or bad faith or collusion as between the offeror and the holders of the shares who have accepted the offer as a means of unfairly forcing out minority shareholders.

15 Indemnification

Cayman Islands law does not limit the extent to which a company’s articles may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy (e.g. for purporting to provide indemnification against the consequences of committing a crime).

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APPENDIX V SUMMARY OF THE CONSTITUTION OF THE COMPANY AND THE CAYMAN ISLANDS COMPANIES LAW

16 Liquidation

A company may be placed in liquidation compulsorily by an order of the court, or voluntarily (i) by a special resolution of its members if the company is solvent or (ii) by an ordinary resolution of its members if the company is insolvent. The liquidator’s duties are to collect the assets of the company (including the amount (if any) due from the contributories (shareholders)), settle the list of creditors and discharge the company’s liability to them, rateably if insufficient assets exist to discharge the liabilities in full, and to settle the list of contributories and divide the surplus assets (if any) amongst them in accordance with the rights attaching to the shares.

17 Stamp duty on transfers

No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands companies except those which hold interests in land in the Cayman Islands.

18 Taxation

Pursuant to section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands, the Company has applied for, and can expect to obtain, an undertaking from the Governor in Cabinet:

(a) that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciation shall apply to the Company or its operations; and

(b) in addition, that no tax to be levied on profits, income gains or appreciations or which is App 1A 10 in the nature of estate duty or inheritance tax shall be payable by the Company:

(i) on or in respect of the shares, debentures or other obligations of the Company; or

(ii) by way of withholding in whole or in part of any relevant payment as defined in Section 6(3) of the Tax Concession Law (1999 Revision).

The undertaking is for a period of twenty years from the date of issuance.

The Cayman Islands currently levy no taxes on individuals or corporations based upon profits, income, gains or appreciations and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to the Company levied by the Government of the Cayman Islands save certain stamp duties which may be applicable, from time to time, on certain instruments executed in or brought within the jurisdiction of the Cayman Islands. The Cayman Islands are not party to any double tax treaties.

19 Exchange control

There are no exchange control regulations or currency restrictions in the Cayman Islands.

20 General

Maples and Calder the Company’s legal advisers on Cayman Islands law, have sent to the Company a letter of advice summarising aspects of Cayman Islands company law. Any person wishing to have a detailed summary of Cayman Islands company law or advice on the differences between it and the laws of any jurisdiction with which he/she is more familiar is recommended to seek independent legal advice.

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APPENDIX VI STATUTORY AND GENERAL INFORMATION

FURTHER INFORMATION ABOUT OUR COMPANY AND OUR SUBSIDIARIES LR19.05(2)(a)

1. Incorporation CO 3rd Sch29

Our Company was incorporated in the Cayman Islands under the Companies Law as an exempted CO s342(1)(a) (iv),(v) company with limited liability on September 4, 2009 with the name Kingboard Cokechem Holdings Limited, and by a shareholders’ resolution dated November 7, 2009, was renamed as Hebei CoalChem Holdings Limited. The registered office of our Company as at the date of this document is situated at PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. We have established a principal place of business in Hong Kong at 2nd Floor, Harbour View 1, No.12 Science Park East Avenue, Phase 2 Hong Kong Science Park, Shatin, Hong Kong and have been registered as an overseas company in Hong Kong under Part XI of the Companies Ordinance on January 4, 2010. Mr. Ho Yin Sang and Mr. Wong Yun Kit have been appointed as the authorized representatives of our Company for the acceptance of service of process and notices on behalf of our Company in Hong Kong.

As our Company was incorporated in the Cayman Islands, it operates subject to the Companies CO s342(1) (a)(i)(ii) Law and its constitutional documents, which comprise the Memorandum and the Articles. A summary of certain relevant provisions of its constitution and relevant aspects of the Companies Law is set out in Appendix V to this document.

2. Changes in share capital of our Company

The following changes in the share capital of our Company have taken place since the date of incorporation of our Company up to the date of this document:-

(a) As at the date of incorporation of our Company, our authorized share capital was HK$390,000 divided into 3,900,000 Shares of HK$0.10 each. On September 4, 2009, one Share was allotted and issued at par to the initial subscriber and subsequently transferred to Jamplan on the same day. On September 4, 2009, the balance of Share owned by Jamplan was one Share.

(b) On [●], the Company entered into a share purchase agreement with Jamplan, pursuant to which it allotted and issued 9,999 Shares to Jamplan as consideration for our acquisition of the entire issued share capital of Grace Mind.

(c) By resolution in writing of our sole Shareholder passed on [●], the authorized share capital of our Company was increased from HK$390,000 to HK$[2,000,000,000] by the creation of [19,996,100,000] new Shares ranking pari passu in all respects with the then existing issued Share.

Save as disclosed herein and as mentioned in the following paragraphs respectively headed App1A26(1) “Written resolutions of our sole Shareholder passed on [●]” and “Corporate reorganization”, there has been no alteration in the share capital of our Company since the date of its incorporation.

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APPENDIX VI STATUTORY AND GENERAL INFORMATION

3. Written resolutions of our sole Shareholder passed on [●]

On [●], written resolutions of our sole Shareholder were passed pursuant to which, the following matters, amongst others, were approved:

(a) our Company approved and adopted the Articles;

(b) the authorized share capital of our Company was increased from HK$390,000 divided into 3,900,000 Shares to HK$[2,000,000,000] divided into [20,000,000,000] Shares by the creation of an additional [19,996,100,000] new Shares ranking pari passu in all respects with the then existing issued Shares.

4. Corporate reorganization

The companies comprising our Group underwent a reorganization which involved the following:

(a) On June 18, 2009, Reach Goal was incorporated in Hong Kong with an authorized share capital of HK$10,000 divided into 10,000 shares of HK$1.00 each. On September 8, 2009, one share of Reach Goal was allotted and issued fully paid at par to the initial subscriber, and was subsequently transferred to Kingboard Investments Limited on the same day.

(b) On August 20, 2009, Grace Mind was incorporated in the British Virgin Islands with an authorized share capital of US$50,000 divided into 50,000 shares of US$1.00 each. On September 8, 2009, one share of Grace Mind was allotted and issued fully paid at par to Jamplan.

(c) On September 4, 2009, our Company was incorporated in the Cayman Islands as an exempted company with an authorized share capital of HK$390,000 divided into 3,900,000 Shares of HK$0.10 each, with one Share allotted and issued at par to Mapcal Limited as the initial subscriber. On September 4, 2009, Mapcal Limited transferred the said one Share to Jamplan.

(d) On October 5, 2009, Kingboard Investments Limited transferred one share of HK$1.00 in Reach Goal (which constitutes 100% of the issued share capital of Reach Goal) to Grace Mind for a consideration of HK$1.00. On [the same day], Kingboard Investments Limited and Grace Mind entered into a deed of waiver pursuant to which the aforesaid consideration for the transfer was waived by Kingboard Investments Limited.

(e) On November 5, 2009, Reach Goal acquired the entire equity interest of Kingboard Hebei Cokechem from Kingboard Petrochem Company Limited for a consideration of HK$90,216,191.07. On the same day, Kingboard Petrochem Company Limited and Reach Goal entered into a deed of waiver pursuant to which the aforesaid consideration for the transfer was waived by Kingboard Petrochem Company Limited.

(f) On November 5, 2009, Reach Goal acquired the entire equity interest of Kingboard Hebei Chemical from Kingboard Petrochem Company Limited for a consideration of

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APPENDIX VI STATUTORY AND GENERAL INFORMATION

HK$373,423,384.41. On the same day, Kingboard Petrochem Company Limited and Reach Goal entered into a deed of waiver pursuant to which the aforesaid consideration for the transfer was waived by Kingboard Petrochem Company Limited.

(g) On [●], our Company and Jamplan entered into a sale and purchase agreement pursuant to which our Company acquired 100% of the issued share capital of Grace Mind from Jamplan in consideration of which our Company allotted and issued, credited as fully paid, [9,999] Shares to Jamplan.

5. Changes in share or registered capital of subsidiaries CO 3rd Sch29

The present subsidiaries of our Company are referred to in the accountants’ report, the text of which is set forth in Appendix I to this document.

The following alterations in the share or registered capital of each of our subsidiaries took place App1A26(1) within the two years immediately preceding the date of this document:

[(a) On October 17, 2007, Kingboard Hebei Chemical was granted approval by the Department of Commerce of Hebei Province to increase its registered capital from RMB64,000,000 to RMB179,000,000;

(b) On December 29, 2007, Kingboard Hebei Chemical was granted approval by the App1A26(1) Department of Commerce of Hebei Province to increase its registered capital from RMB179,000,000 to RMB295,100,000;

(c) On April 8, 2008, Kingboard Hebei Chemical was granted approval by the Department of Commerce of Hebei Province to increase its registered capital from RMB295,100,000 to RMB357,000,000;

(d) On June 18, 2009, Reach Goal was incorporated with an authorized share capital of HK$10,000 divided into 10,000 shares of HK$1.00 each, and on September 8, 2009, one share of Reach Goal was allotted and issued fully paid at par to the initial subscriber, and was subsequently transferred to Kingboard Investments Limited on the same day; and

(e) On August 20, 2009, Grace Mind was incorporated with an authorized share capital of US$50,000 divided into 50,000 shares of US$1.00 each, and on September 8, 2009 one share of Grace Mind was allotted and issued fully paid at par to Jamplan.]

Save as disclosed in this document and except as referred to in the paragraph headed “Corporate reorganization” above, there has been no alteration in the share capital of any subsidiary of our Company within the two years immediately preceding the date of this document.

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APPENDIX VI STATUTORY AND GENERAL INFORMATION

FURTHER INFORMATION ABOUT THE BUSINESS OF OUR COMPANY

6. Summary of material contracts CO 3rd Sch17

The following contracts (not being contracts entered into in the ordinary course of business) have App1A52 been entered into by us or any of our subsidiaries within the two years immediately preceding the date of this document and are or may be material:

(a) a share purchase agreement dated [December 19, 2009] entered into between Grace Mind Investments Limited as purchaser and Jamplan as vendor pursuant to which Grace Mind Investments Limited acquired from Jamplan the entire issued share capital of Fast Intellect (BVI) for a consideration of HK$7.80;

(b) a share purchase agreement dated October 5, 2009 entered into between Grace Mind Investments Limited as purchaser and Kingboard Investments Limited as vendor pursuant to which Grace Mind Investments Limited acquired from Kingboard Investments Limited the entire issued share capital of Reach Goal Limited for a consideration of HK$1.00;

(c) a deed of waiver dated October 5, 2009 entered into between Kingboard Investments Limited and Grace Mind Investments Limited pursuant to which Kingboard Investments Limited agreed to waive the consideration of HK$1.00 payable by Grace Mind Investments Limited to Kingboard Investments Limited for the transfer of the entire issued share capital in Reach Goal Limited from Kingboard Investments Limited to Grace Mind Investments Limited;

(d) an equity transfer agreement dated September 8, 2009 entered into between Reach Goal Limited and Kingboard Petrochem Company Limited pursuant to which Reach Goal Limited acquired the entire equity interest of Kingboard Hebei Cokechem for a consideration of HK$90,216,191.07;

(e) a deed of waiver dated November 5, 2009 entered into between Kingboard Petrochem Company Limited and Reach Goal Limited pursuant to which Kingboard Petrochem Company Limited agreed to waive the consideration of HK$90,216,191.07 payable by App1A52 Reach Goal Limited to Kingboard Petrochem Company Limited for the transfer of the entire equity interests in Kingboard Hebei Cokechem from Kingboard Petrochem Company Limited to Reach Goal Limited;

(f) an equity transfer agreement dated September 8, 2009 entered into between Reach Goal Limited and Kingboard Petrochem Company Limited pursuant to which Reach Goal Limited acquired the entire equity interest of Kingboard Hebei Chemical in consideration of HK$373,423,384.41;

(g) a deed of waiver dated November 5, 2009 entered into between Kingboard Petrochem Company Limited and Reach Goal Limited pursuant to which Kingboard Petrochem Company Limited agreed to waive the consideration of HK$373,423,384.41 payable by Reach Goal Limited to Kingboard Petrochem Company Limited for the transfer of the entire equity interest of Kingboard Hebei Chemical from Kingboard Petrochem Company Limited to Reach Goal Limited;

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APPENDIX VI STATUTORY AND GENERAL INFORMATION

(h) a share purchase agreement dated [●] entered into between our Company and Jamplan pursuant to which our Company acquired 100% of the issued share capital of Grace Mind Limited in consideration of [9,999] Shares allotted and issued to Jamplan;

(i) the Acetic Acid Plant Option Agreement;

(j) the Non-Competition Deed; and

(k) a deed of indemnity dated [●] entered into by Kingboard in favour of our Company, pursuant to which the controlling shareholder has agreed to indemnify our Company containing the indemnities in respect of estate duty and taxation.

7. Particulars of our subsidiaries in China

As at the Latest Practicable Date, we had two subsidiaries in the PRC, particulars of which are as follows:

Kingboard Hebei Cokechem

Date of establishment : July 31, 2003 Nature of enterprise : Limited liability company Registered capital : RMB96,000,000 Paid-up capital : RMB96,000,000 Percentage of equity interest held : 100% by us Registered owners : Reach Goal Limited Term of operation : From July 31, 2003 to July 30, 2053 Principal scope of business : Processing and sale of stamped coke, crude benzene, tar, ammonium sulfate and coking gas Directors : Mr. Cheung Kwong Kwan Mr. Chang Wing Yiu Mr. Ho Yin Sang Legal representative : Mr. Ho Yin Sang

Kingboard Hebei Chemical

Date of establishment : July 31, 2003 Nature of enterprise : Limited liability company Registered capital : RMB357,000,000 Paid-up capital : RMB357,000,000 Percentage of equity held by us : 100%

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APPENDIX VI STATUTORY AND GENERAL INFORMATION

Registered owner : Reach Goal Limited Term of operation : From July 31, 2003 to July 30, 2053 Principal scope of business : Processing of methanol, steam, stamped coke, ammonium sulfate; preparation of processing of pure benzene, toluene, xylene, non-aromatics and residue oil; sale of the above products Directors : Mr. Chang Wing Yiu Mr. Cheung Kwong Kwan Mr. Ho Yin Sang Legal representative : Mr. Ho Yin Sang

8. Our Intellectual Property Rights

(a) Trademarks App1A28(4)

We have applied for the registration of the following trademark, which has yet to be granted:

Place of Application Trademark Applicant application Class Application Date Number

the Company Hong Kong 1 and 4 January 5, 2010 301515654

As of the Latest Practicable Date, our Group had the right to use the following trademarks pursuant to the trademark license deed dated [●] entered into between our Company, Kingboard and Shenzhen Kingboard Investment Co., Ltd. (a wholly-owned subsidiary of Kingboard):

(i) Registered trademark

Registered Place of Registration trademark Licensor Licensee Registrant registration Class Valid period Number

KingBoard .... Kingboard the Company Kingboard PRC 1 January 14, 4814827 2009 to January 13, 2019

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APPENDIX VI STATUTORY AND GENERAL INFORMATION

(ii) Trademarks under application

Trademark under Place of Application Application application Licensor Licensee Applicant application Class Date Number

KingBoard ... Shenzhen the Company Shenzhen PRC 4 February 27, 6566557 Kingboard Kingboard 2008 Investment Investment Co., Ltd. Co., Ltd. 深圳市深圳市建滔投資建滔投資有限公司有限公司

建滔 ...... Shenzhen the Company Shenzhen PRC 4 February 27, 6566243 Kingboard Kingboard 2008 Investment Investment Co., Ltd. Co., Ltd. 深圳市深圳市建滔投資建滔投資有限公司有限公司

(b) Know-how and patent

In 2006, Kingboard Hebei Cokechem has entered into a contract with Uhde GmbH, a German company, pursuant to which Uhde GmbH as licensor has agreed to grant, and Kingboard Hebei Cokechem as licensee has agreed to accept, the non-exclusive and non-transferable rights and licences to use or implement the processes, namely the crude benzene hydrorefining process and the morphylane process, and their related know-how and patents at a one-off licence fee of= C6,860,000. Such contract shall continue to be valid unless it is terminated by either party by giving written notice of termination to another party upon occurrence of certain events such as a major breach of the contract by any party.

As at the Latest Practicable Date, we had registered the following domain name:

Domain Name Registration Date Expiration Date

www.hbcoalchem.com...... November 11, 2009 November 11, 2019

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APPENDIX VI STATUTORY AND GENERAL INFORMATION

FURTHER INFORMATION ABOUT DIRECTORS, MANAGEMENT AND STAFF

9. Disclosure of interests

(a) Particulars of Directors’ service agreements and letters of appointment

Each of our executive Directors has entered into a service agreement with us for an initial fixed term of three years commencing on [●] 2010. Each of these service agreements may be terminated by either party giving to the other party at least one month’s prior notice in writing.

Pursuant to the service agreements, the director’s fee of our executive Directors are as follows:

Remuneration Director (per annum)

Mr. Ho Yin Sang ...... HK$[1,780,800] Mr. Wong Yun Kit ...... HK$ [720,000]

Each of our non-executive Director and our independent non-executive Directors has been appointed for an initial fixed term of two years commencing on [●] 2010. The annual remuneration payable to each of our non-executive Directors and independent non-executive Directors is as follows:

Remuneration Director (per annum)

Mr. Cheung Kwok Wing ...... — Mr. Chan Wing Kwan ...... — Mr. Lau Tai Chim ...... HK$[200,000] Mr. Huang Wujun ...... HK$[200,000] Mr. Cheung Ming Man ...... HK$[200,000] Mr. Chung Wai Cheong, Stanley ...... HK$[200,000]

(b) Directors’ remuneration

None of the Directors has received from our Company any remuneration or benefit in kind during the three years ended December 31, 2008 and the nine months ended September 30, 2009.

Save as disclosed in this document, no Director has been paid in cash or shares or otherwise by any person either to induce him to become, or to qualify him as a Director, or otherwise for services rendered by him in connection with the promotion or formation of our Company.

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APPENDIX VI STATUTORY AND GENERAL INFORMATION

Save as disclosed in this document:

(i) none of our Directors and the experts referred to under the heading “Consents of experts” in this appendix has any direct or indirect interest in the promotion of our Company or any of our subsidiaries, or in any assets which have been, within the two years immediately preceding the date of this document, acquired or disposed of by or leased to, our Company or any of our subsidiaries, or are proposed to be acquired or disposed of by or leased to our Company or any of our subsidiaries;

(ii) none of our Directors and the experts referred to under the heading “Consents of experts” in this appendix is materially interested in any contract or arrangement subsisting at the date of this document which is significant in relation to our business taken as a whole;

(iii) none of our Directors has any existing or proposed service contracts with our Company or App1A46(1) any of our subsidiaries, excluding contracts which are expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation);

(iv) none of the experts referred to under the heading “Consents of experts” in this appendix has any shareholding in our Company or any of our subsidiaries or the right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in our Company or any of our subsidiaries; and

(v) none of our Directors, their respective associates (as defined under the applicable rules), or shareholders of our Company who are interested in more than 5% of the issued share capital of our Company has any interest in our Company’s five largest customers and five largest suppliers.

10. Agency fees or commissions received

Save as disclosed in this document, within the two years immediately preceding the date of this document, no commissions, discounts, brokerages or other special terms have been granted in connection with the issue or sale of any share or loan capital of our Company or any of our subsidiaries.

11. Related party transactions

Save as disclosed in the accountants’ report set out in Appendix I to this document and other parts of this document, we have not engaged in any dealings with our Directors and their associates within the two years immediately preceding the date of this document.

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APPENDIX VI STATUTORY AND GENERAL INFORMATION

OTHER INFORMATION

12. Indemnities

Estate duty and tax indemnity

Kingboard has pursuant to document k in the paragraph headed “Summary of material contracts” of this Appendix given indemnities in connection with, among other matters, any liability for Hong Kong estate duty which might be payable by any member of the Group by reason of any transfer of property to any member of the Group on or before a certain date (the “Effective Date”). The deed of indemnity also contains indemnities given by Kingboard in respect of, among other things, taxation resulting from any income, profits or gains earned, accrued or received on or before the Effective Date which might by payable by any member of the Group.

The indemnity in the deed shall not apply in, among others, the following circumstances:

(a) to the extent that full provision has been made for such taxation in the audited combined accounts of our Company as set out in Appendix I to this document or the audited accounts of the relevant member of our Company for the three years ended December 31, 2008 and the nine months ended September 30, 2009;

(b) to the extent that the taxation liability would not have arisen but for any voluntary act of any members of our Group after the Effective Date which the relevant member our Group ought reasonably to have known would give rise to such taxation liability but excluding any act (i) carried out pursuant to a legally binding obligation of any members of our Group entered into or incurred on or before the Effective Date; or (ii) pursuant to an obligation imposed by any law, regulation or requirement having the force of law; or (iii) which has taken place with the written approval of Kingboard; or (iv) which has occurred in the ordinary course of business of the relevant member of our Group; or

(c) to the extent that the taxation liability arises or is increased as a result only of (i) an increase in tax rates made after the Effective Date with retrospective effect; or (ii) the passing of any legislation or change in practice of any tax authority after the Effective Date with retrospective effect.

Our Directors have been advised that no material liability for estate duty is likely to fall on any member of our Company in the Cayman Islands.

13. Litigation

As of the Latest Practicable Date, we were not engaged in any litigation, arbitration or claim of material importance and no litigation, arbitration or claim of material importance is known to our Directors to be pending or threatened by or against us, that would have a material adverse effect on our results of operations or financial condition.

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APPENDIX VI STATUTORY AND GENERAL INFORMATION

14. No material adverse change

Our Directors believe that there has been no material adverse change in our financial or trading position or prospects since September 30, 2009 (being the date on which the latest audited combined financial statements of the Group was made up).

15. Qualifications of experts

The following are the qualifications of the experts which have given their opinion or advice App1A9(1) which are contained in, or referred to in, this document:

Expert Qualification

Deloitte Touche Tohmatsu ...... Certified public accountants

B.I. Appraisals Limited ...... Property valuer

Maples and Calder ...... Legal advisors on Cayman Islands law to our Company

Commerce & Finance Law Offices ...... Legal advisers on PRC law to our Company

Runge Asia ...... Technical consultant

16. Consents of experts CO s342B App1A9(2)

Each of Deloitte Touche Tohmatsu, B.I. Appraisals Limited, Maples and Calder, Commerce & App1A9(3) Finance Law Offices and Runge Asia has given and has not withdrawn its written consent to the issue of this document with the inclusion of its reports, letters, valuation certificate, opinions or summaries of opinions (as the case may be) and the references to its name included herein in the form and context in which they are respectively included.

17. Miscellaneous

(a) Save as disclosed in this document:

(i) within the two years immediately preceding the date of this document, neither we nor CO 3rd Sch11 any of our subsidiaries has issued or agreed to issue any share or loan capital fully or partly paid up either for cash or for a consideration other than cash;

(ii) within the two years immediately preceding the date of this document, no share or CO 3rd Sch10 loan capital of our Company or any of our subsidiaries is under option or is agreed conditionally or unconditionally to be put under option;

(iii) no founder, management or deferred shares of our Company or any of our subsidiaries CO 3rd Sch4 have been issued or agreed to be issued;

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APPENDIX VI STATUTORY AND GENERAL INFORMATION

(iv) our Directors confirm that there has not been any interruption in the business of our Company which may have or have had a material adverse effect on the financial position of our Company in the twelve months immediately preceding the date of this document; and

(v) our Company has no outstanding convertible debt securities or debentures. CO 3rd Sch25

(b) No company within our Group is presently listed on any stock exchange or traded on any trading system.

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