PURCHASE OF MEMBERSHIP INTERESTS OF THB AMERICA, LLC, THB DE HONDURAS S. DE R.L. AND SAKOMA, LLC

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1 CHINA AUTO ELECTRONICS GROUP LIMITED (Incorporated in Bermuda with limited liability) (Bermuda Company Registration Number: 34300) PURCHASE OF MEMBERSHIP INTERESTS OF THB AMERICA, LLC, THB DE HONDURAS S. DE R.L. AND SAKOMA, LLC 1. INTRODUCTION The Board of Directors ( Board ) of China Auto Electronics Group Limited ( Company ) wishes to announce that the Company has on 29 February 2008, through its wholly owned subsidiary, CAE US Holdings, Inc. ( CAE US ), entered into the following unit purchase agreements: a. Unit purchase agreement ( Unit Purchase Agreement 1 ) with Sakamo, LLC ( Sakamo ) for the purchase of 45% of the outstanding membership interests of Sakoma, and with THB America, LLC ( THB America ) for the purchase of 80% of the outstanding membership interests of THB America. b. Unit purchase agreement ( Unit Purchase Agreement 2 ) with THB de Honduras S. de R.L. ( THB Honduras ) for the purchase of 80% membership interests of the outstanding interests of THB Honduras. Unit Purchase Agreement 1 and Unit Purchase Agreement 2 will be collectively known as the Unit Purchase Agreements and the purchases mentioned therein will be collectively known as the Unit. CAE US is a company incorporated in the State of Delaware, USA, for the above mentioned purpose. The issued and paid up capital stock of CAE US is US$10 comprising of 1,000 common stocks with a par value of US$0.01 each. Zaima Family, LLC ( Zaima ) is the sole owner of Sakoma, a Michigan limited liability company. At Completion, Sakoma will purchase from Kensa, LLC ( Kensa ) certain properties, assets, rights, claims and contracts related to the operation of Sakoma as the primary sales center and distributor of wire harnesses and battery cable assemblies. Zaima is the sole owner of THB America, a Michigan limited liability company. At Completion, THB America will purchase from Kensa certain properties, assets, rights, claims and contracts related to the operation of THB America as a manufacturer and distributor of wire harnesses and battery cable assemblies in countries subject to the North American Free Trade Agreement and Central American Free Trade Agreement. Kensa is wholly owned by Zaima and was in the principal business of manufacturer and distributor of wire harnesses and battery cable assemblies. Zaima owns 100% of the outstanding membership interests of THB Honduras, a Honduran company. At Completion, THB Honduras will purchase from Kensa de Honduras S. de R.L. ( Kensa Honduras ) and Kensa de Mexico de S. de R.L. C.V. ( Kensa Mexico ) certain properties, assets, rights, claims and contracts related to the operation of THB Honduras as a wire harness and battery cable assembly manufacturing plant in Honduras. Kensa Honduras and Kensa Mexico are wholly owned by Zaima and 1

2 operated as manufacturers of wire harness and battery cable assembly in Honduras and Mexico. The rationale for the above purchases of certain properties, assets, rights, claims and contracts by Sakoma, THB America and THB Honduras (collectively known as THB Zaima Group ) from Kensa, Kensa Honduras and Kensa Mexico respectively is to ensure that there will not be any issues relating to any unknown or contingent liabilities and/or non-recoverability of receivables in the companies that CAE US will be acquiring. 2. PURCHASE CONSIDERATION The purchase consideration ( Purchase Consideration ) for the Unit was arrived at after arm s length negotiations, on a willing buyer and willing seller basis, and was computed based on 80% of a multiple of the average annual forecasted earnings for the financial period from 1 January 2008 to 31 December 2010 of THB Zaima Group (the forecasted earnings for the financial period from 1 January 2008 to 31 December 2010 will be known as Forecasted Earnings ). The Purchase Consideration computed is US$14,547,352, of which 80% shall be satisfied in cash upon completion ( Cash Payment ) and the balance 20% ( Performance Security ) upon completion of the audited results for the financial year ending 31 December 2010 of THB Zaima Group as follows: a. If 90% of the Forecasted Earnings is achieved, 100% of the Performance Security will be paid. b. If 50% or less of the Forecasted Earnings is achieved, none of the Performance Security will be paid. c. If more than 50% but less than 90% of the Forecasted Earnings is achieved, the Performance Security to be paid will be pro-rated accordingly. The Cash Payment will be paid as follows: a. US$100,000 to Sakoma, b. US$100,000 to THB America, and c. US$11,437,882 to THB Honduras. The Performance Security will be paid to Zaima in accordance with the above-mentioned payment scheme. The Unit will be funded from cash generated from operations. 3. COMPLETION Completion is expected to occur on or around 6 March Upon completion, the membership interests of THB America will be increased by US$1,000,000 with 80% coming from CAE US and 20% coming from Zaima. The capital injection in THB America will be for its working capital purposes. The capital injection by CAE US is expected to be funded from cash generated from operations of the Group. There will be no increase in membership interests in Sakoma and THB Honduras. 2

3 4. RULE 1006 OF THE SGX-ST LISTING MANUAL For the purposes of Chapter 10 of the Listing Manual of the Singapore Exchange Securities Trading Limited ( SGX-ST ), the relative figures for the Unit using the applicable bases of comparison under Rule 1006 of the SGX-ST Listing Manual are set out below: (a) (b) (c) (d) Notes: Net asset value of the assets to be disposed of, compared with the group s net asset value Net profits attributable to the assets acquired or disposed of, compared with the group s net profits Aggregate value of the consideration given or received, compared with the issuer s market capitalization Number of equity securities issued by the issuer as consideration for an acquisition, compared with the number of equity securities previously in issue Not applicable 0.63% (1) 11.44% (2) Not applicable (1) Based on the net profit of approximately RMB117,187,000 of the Group and the proforma net profit of approximately RMB743,000 (US$97,5000 converted to RMB at the average exchange rate of US$1: RMB for 2007) of the THB Zaima Group for the financial year ended 31 December As the THB Zaima Group are new companies set up in 2008 to take over the business of Kensa and Kensa Honduras for the reason stated in Point (1) above, the proforma results of the THB Zaima Group used are the consolidated results of Kensa and Kensa Honduras. The small proforma net profit of the THB Zaima Group for the financial year ended 31 December 2007 was due mainly to the following reasons: (i) (ii) Increased freight costs as a result of suppliers not able to supply on a timely basis and tightening of credit from suppliers due to liquidity issues (approximately US$995,000); and Increased labour costs as a result of production inefficiency caused by timeliness of supply issues (approximately US$855,000). If not for the above factors, the proforma net profit would have been approximately US$1,947,500. With the expected injection of funds, these problems are expected to be resolved. The proforma revenue of the THB Zaima Group for the year ended 31 December 2007 was US$39,686,000. (2) Computed based on the Purchase Consideration of approximately S$20,270,280 (US$14,547,352 converted to S$ at the exchange rate of US$1:S$ as at 28 February 2008) and the market capitalisation of the Company of S$177,216,000 on 28 February 2008, being the market day immediately preceding the date of the Unit Purchase Agreements. As one of the applicable relative figures computed under Rule 1006(b) of the SGX-ST Listing Manual exceeds 5.00% but does not exceed 20.00%, the Unit constitutes a discloseable transaction as defined under Chapter 10 of the SGX-ST Listing Manual and must be announced immediately. 5. RATIONALE FOR THE UNIT PURCHASES The Company is of the view that the Unit are in the best interest of the Company and its subsidiaries ( Group ) for the following reasons: (i) The Unit will enhance the implementation of the Group s strategy to become an international company with 50% of its revenue from domestic sales and 3

4 50% from export sales. The acquisition will allow the Group to expand its customer base to include the existing customers of the THB Zaima Group in North and South America, which are top auto manufacturers and Tier 1 suppliers such as Yazaki, Behr, Fauercia, Intier and Chrysler.. (ii) (iii) (iv) By acquiring an existing player in the THB Zaima Group, the time taken by the Group to penetrate the North and South American markets will be significantly faster than if the Group had set up its own operations in these markets. The cost of penetration will also be significantly lower. As the THB Zaima Group s customers include several top auto manufacturers and Tier 1 suppliers in the United States, this acquisition will provide the Group with the most efficient way to increase sales to these auto players. Following the Unit, the THB Zaima Group will use the Group s products in the production of its wire harnesses, which will reduce its material costs and thus enhance its competitiveness. The purchases by the THB Zaima Group will also expand the revenue base of the Group. With the THB Zaima Group as a base in the United States, this will enable the Group to service its existing US customers better and provide a great platform to increase sales to these customers. 6. FINANCIAL EFFECTS OF THE PROPOSED SALE For illustrative purposes, the financial effects of the Unit on the Group are prepared based on the unaudited consolidated financial statements of the Group and the proforma unaudited consolidated financial statements of the THB Zaima Group for the financial year ended 31 December The following are the financial effects on the Group if the Unit had taken place on 1 January (a) Financial effects on share capital There will be no impact on the authorised and issued share capital of the Company. (b) Financial effects on net tangible assets ( NTA ) and NTA per share Before the Unit Immediately after the Unit Consolidated NTA as at 31 December 836,051, ,438, (RMB) (1) Number of issued shares 681,600, ,600,000 Consolidated NTA per share (RMB) Note: (1) The net tangible assets of the THB Zaima Group of US$9,223,383 were translated into RMB using the exchange rate of US$1:RMB as at 31 December As US$11,637,882 will be paid for the Unit, there will be a goodwill of approximately RMB17,613,000 resulting from the Unit. 4

5 (c) Financial effects on earnings and earnings per share Before the Unit Immediately after the Unit Earnings for FY2007 (RMB) 107,101, ,844,000 Weighted average number of shares 443,933, ,933,000 Earnings per share (RMB cents) INTEREST OF DIRECTORS AND CONTROLLING SHAREHOLDERS None of the Directors and controlling Shareholders of the Company has any interest, direct or indirect, in the Unit. 8. DOCUMENT AVAILABLE FOR INSPECTION Copies of the Unit Purchase Agreements are available for inspection during normal business hours at the office of PR Bluprint Pte Ltd, 24 Raffles Place #17-03 Clifford Centre, Singapore for a period of 3 months from the date of this announcement. By Order of the Board of Wang Laisheng Executive Chairman China Auto Electronics Group Limited 5