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					                                  Securities Prospectus
                       for the public offering in Germany and Luxembourg


                                                of


                       up to 575,000 no par value ordinary bearer shares
 resulting from a capital increase against cash contribution from authorised capital pursuant to a
resolution of the management board (Vorstand) and a corresponding approval of the supervisory
    board (Aufsichtsrat), both expected to be adopted on or shortly before 2 December 2010

                                          as well as of

                   up to 57,500 no par value ordinary bearer shares
 which have been granted to VEM Aktienbank AG (“VEM”) by means of a securities loan for a
                                potential over-allotment

                                                of

                                  Madison Property AG
                                              Berlin

                                         (the “Offering”).



             International Securities Identification Number (ISIN): DE000A0V9KR3
                   German Securities Identification Number (WKN): A0V9KR
                                   Common Code: 053814310
                                       Ticker Symbol: MPD




                            Date of Prospectus: 15 November 2010


                 Sole Global Coordinator, Sole Bookrunner and Lead Manager
                                      VEM Aktienbank AG




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                                            Table of Contents

SUMMARY.................................................................................................7
General Information on the Company and its Business ........................................7
Further Material Information Concerning the Company ......................................13
Summary of the Offering ........................................................................................14
Selected Financial Information ..............................................................................17
Summary of Risk Factors .......................................................................................19
ZUSAMMENFASSUNG...........................................................................23
Allgemeine Informationen zur Gesellschaft und ihrer Geschäftstätigkeit .........23
Weitere wesentliche Angaben über die Gesellschaft...........................................29
Zusammenfassung des Angebots .........................................................................30
Ausgewählte Finanzinformationen ........................................................................34
Zusammenfassung der Risikofaktoren .................................................................36
RISK FACTORS ......................................................................................40
Risks Related to Madison Group’s Business .......................................................40
Risks Related to the Real Estate Industry in China..............................................61
Risks Related to the Political, Social and Legal Environment of the
People’s Republic of China ....................................................................................64
Risks Related to the Offering .................................................................................67
GENERAL INFORMATION .....................................................................69
Responsibility for the Content of the Prospectus ................................................69
Subject Matter of this Prospectus..........................................................................69
Forward-Looking Statements.................................................................................69
Information Derived from Third Parties.................................................................70
Documents Available for Inspection......................................................................72
Notes Regarding Financial and Currency Data ....................................................72
Auditors....................................................................................................................73
Valuation Company .................................................................................................73
THE OFFERING ......................................................................................74
Subject Matter of the Offering ................................................................................74
Timetable for the Offering.......................................................................................74
Price Range, Offer Period, Offer Price, and Allotment .........................................75
General Allotment Criteria ......................................................................................76
Delivery and Settlement of the Offer Shares.........................................................77
Stabilisation Measures, Over-Allotments, and Greenshoe Option .....................77
Greenshoe Shareholders........................................................................................77
General and Specific Information on the Shares..................................................78
Selling Restrictions (Lock-Up) ...............................................................................78
Inclusion in Trading ................................................................................................79
Designated Sponsors..............................................................................................79
REASONS FOR THE OFFERING, USE OF PROCEEDS, COSTS
AND INTERESTS OF THIRD PARTIES INVOLVED IN THE
OFFERING...............................................................................................80
Reasons for the Offering ........................................................................................80
Use of Proceeds and Costs ....................................................................................80

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Interests of Third Parties Involved in the Offering ...............................................80
DIVIDEND POLICY AND EARNINGS PER SHARE ..............................82
General Provisions Relating to Profit Allocation and Dividend Payments ........82
Dividend Policy and Earnings per Share...............................................................82
CAPITALISATION AND INDEBTEDNESS ............................................84

DILUTION ................................................................................................85

SELECTED FINANCIAL INFORMATION...............................................86

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...................................88
Results of Operations .............................................................................................91
Liquidity and Capital Resources............................................................................96
Investments and Capital Expenditures................................................................101
Contractual Obligations, Commitments and Contingencies .............................101
Critical Accounting Principles .............................................................................101
INDUSTRY OVERVIEW ........................................................................106
China’s Economy ..................................................................................................106
China’s Property Markets .....................................................................................107
Measures taken by the Chinese Government Related to the Real Estate
Market.....................................................................................................................108
Property Sales .......................................................................................................109
Shandong...............................................................................................................110
Qingdao..................................................................................................................113
Chongqing .............................................................................................................116
Property Management Industry in China.............................................................118
BUSINESS.............................................................................................119
Overview ................................................................................................................119
Strengths................................................................................................................122
Strategy ..................................................................................................................125
Project Description................................................................................................126
Investment Properties...........................................................................................142
Property Development ..........................................................................................143
Customers..............................................................................................................146
Competition ...........................................................................................................147
Intellectual Property ..............................................................................................149
Insurance ...............................................................................................................150
Employees .............................................................................................................150
Property Management...........................................................................................151
Legal Proceedings ................................................................................................151
Investments ...........................................................................................................151
Material Contracts .................................................................................................152
REGULATORY ENVIRONMENT ..........................................................155
Land Acquisition ...................................................................................................155
Legal Title and Registration of Real Estate.........................................................156
Real Estate Development Enterprises .................................................................157

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Development of Real Estate Projects ..................................................................158
Foreign Investment in the Real Estate Sector ....................................................159
Foreign Exchange Control....................................................................................161
Mergers and Acquisitions of Domestic Enterprises by Foreign Investors ......162
Round-Trip Investments and Special Purpose Vehicles....................................163
SHAREHOLDER STRUCTURE............................................................165

GENERAL INFORMATION ON THE COMPANY ................................166
Formation, Business Name, Registered Office, Financial Year and Term
of the Company .....................................................................................................166
Business Purpose of the Company .....................................................................166
Notices ...................................................................................................................174
Paying and Depositary Agent...............................................................................174
INFORMATION ON THE SHARE CAPITAL OF MADISON
PROPERTY AG AND APPLICABLE PROVISIONS ............................175
Share Capital .........................................................................................................175
Development of the Share Capital .......................................................................175
Authorised Share Capital......................................................................................176
Contingent Share Capital......................................................................................176
General Provisions Relating to the Liquidation of the Company......................177
General Provisions Governing Changes in Share Capital.................................177
General Provisions Relating to Pre-Emptive Rights (Subscription Rights) .....178
Squeeze-Out of Minority Shareholders and Integration.....................................178
Reporting and Notification Requirements in Relation to Share
Ownerships............................................................................................................178
CORPORATE BODIES AND MANAGEMENT.....................................180
General ...................................................................................................................180
Management Board ...............................................................................................181
Supervisory Board ................................................................................................184
Shareholders’ General Meeting............................................................................187
Corporate Governance Code Declaration ...........................................................188
RELATED PARTY TRANSACTIONS ...................................................189
General ...................................................................................................................189
Qingdao Guanghua Project Agreement ..............................................................189
Property Management Services Agreement .......................................................189
Cooperation Agreement........................................................................................189
Steel Purchase and Supply Agreement...............................................................190
Purchase Agency Agreement...............................................................................190
Fund Occupation...................................................................................................190
Transactions with Shareholders and Key Management Personnel ..................190
TAXATION IN GERMANY ....................................................................192
Taxation of the Company......................................................................................192
Taxation of Capital Gains .....................................................................................196
Inheritance and Gift Tax........................................................................................198
Other Taxes............................................................................................................199
TAXATION IN LUXEMBOURG.............................................................200

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General ...................................................................................................................200
Luxembourg tax residency of the shareholders.................................................200
Withholding tax .....................................................................................................200
Income tax..............................................................................................................200
Net Wealth Tax.......................................................................................................202
Other Taxes............................................................................................................203
UNDERWRITING...................................................................................204
Listing Agreement .................................................................................................204
Greenshoe Option and Securities Loan ..............................................................204
Other Relationships ..............................................................................................205
Selling and Transfer Restrictions ........................................................................205
RECENT DEVELOPMENTS AND OUTLOOK .....................................207

FINANCIAL SECTION........................................................................... F-1

VALUATION REPORTS........................................................................ V-1

GLOSSARY ...........................................................................................G-1

SIGNATURES........................................................................................ S-1




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SUMMARY

The following summary is intended as an introduction to this Prospectus and should be read in
conjunction with the more detailed information contained elsewhere in this Prospectus. Investors
should base their decision on whether to invest in the shares on an examination of the entire
Prospectus.

Madison Property AG (the “Company” and collectively with its direct and indirect subsidiaries
“Madison Group” or “the Group”) assumes responsibility for the contents of this summary
pursuant to Section 5, para. 2, sentence 3 no. 4 of the German Securities Prospectus Act
(Wertpapierprospektgesetz). However, they can be held liable for the content of the summary only
in the event that the summary is misleading, false or contradictory when read in conjunction with
other parts of this Prospectus. If a claim is brought by an investor before a court on the basis of
information contained in this Prospectus, the investor, appearing as plaintiff may, pursuant to the
national legislation of the Member States of the European Economic Area (the “EEA”), be required
to bear the cost of having this Prospectus translated prior to the commencement of legal
proceedings.


General Information on the Company and its Business
Overview

Madison Group is a large scale property developer with a two-pronged geographic strategy, firstly
in its home market Shandong Province and in particular Shandong’s well-known harbour city
Qingdao and secondly in the municipality of Chongqing, the fast growing hub in Central China,
which is a main beneficiary of the national government’s initiative to promote growth in Central and
Western China (Source: Chongqing Municipal People’s Government: Chongqing Selected as One
of Five Central Cities in China). Madison Group is recognised as a Class One property developer
by the People’s Republic of China (“PRC” or “China”) Ministry of Housing and Urban-Rural
Development and can therefore undertake projects nationwide without limitation on the
construction scale. It has furthermore recently been selected as one of “Qingdao's Top 10 Real
Estate Development Enterprises with Comprehensive Strengths” by the Qingdao Municipal
Construction Commission and was also selected to be one of the “Top 50 Provincial Real Estate
Development Enterprises in Shandong Province” by the Shandong Provincial Real Estate
Association. Established in 1998, Madison Group has completed ten projects and has three
projects currently under development (plus later phases of two other projects). In addition, it has
another two projects earmarked for future development. It will have a further seven projects if all
other property projects materialise. As at 15 October 2010, Madison Group’s aggregated
developed Gross Floor Area (“GFA”) is more than 690,000 m² and GFA under development is
more than 266,000 m². Moreover, Madison Group’s property portfolio contains sizeable land
reserves with a total size of approximately 170,000 m² (or approximately 1,075,746 m² if all projects
of the Company, including those that are not certain to materialise, are counted in).

Madison Group’s business activities are mainly focused on the Shandong Province with most
property projects being located in the coastal city of Qingdao and individual projects in the
neighbouring cities of Zibo and Tai’an. Madison Group’s second geographical focus area is the
municipality of Chongqing in central China.

Shandong has the strongest economic strength of China’s northern provinces and is ranked third in
China’s Gross Domestic Product (“GDP”) ranking by province (Source: China Statistic Press:
Shandong Statistical Yearbook 2010). Qingdao is a sub-provincial city area in Central Shandong
Province with approximately 8.5 million inhabitants. It is situated on the coast of the Yellow Sea,
roughly half-way between Shanghai and Beijing. It is also located in the fast growing central coastal
regions of China, which are home to the new Chinese middle class that foreign and Chinese
investors alike are targeting. As part of the Jiaozhou (Kiautschou) Bay concession, the city of
Qingdao was under German administration from 1898 to 1914. During that period, the German
imperial government turned the small fishing village into a strategically important port with urban
infrastructure, electrification, a sewer system and a safe drinking water supply. A German heritage
that is still visible today is Tsingtao Beer, a leading beer brand in China that has its origins in the
German-founded Tsingtao Brewery in Qingdao.



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The municipality of Chongqing is located in Central China and is one of the fastest growing regions
in the Chinese hinterland. Chongqing with its population of approximately 32.8 million inhabitants is
China’s largest and most populous municipality. Chongqing’s GDP increased by 14.9% in 2009
and is ranked twenty-third in China. The total economic output exceeded RMB 600 billion in 2009.
With the construction of the Three Gorges Dam Project and the implementation of the Go West
Policy, Chongqing was ranked as one of the Top 5 cities in China.

Madison Group has a diversified approach and its portfolio includes mid to high-end residential
properties as well as travel and leisure properties. The Company also intends to move into
industrial properties in its future development, especially in the fast growing Chongqing
Municipality. Madison Group’s residential properties include high-rise apartments (typically higher
than eleven floors), sub-high rise apartments (typically seven to eleven floors), low-rise apartments
(typically three to six floors), townhouses (typically two to three floors), and villas (typically
independent houses with two to three floors). In each case, the properties are built with amenities
such as commercial spaces and car parking facilities. Future projects of Madison Group include
hotels and resorts in Qingdao and also industrial real estate in Chongqing.

Madison Group’s travel and leisure properties are typically low density villas and residential
apartments as well as other properties such as serviced apartments. The Company plans to also
further engage in properties featuring commercial spaces, club houses, hotels and other travel and
leisure activity related properties. These are typically strategically located or surrounded by travel
and leisure resources such as hot springs, theme parks or natural scenery destinations such as
ocean fronts or mountain sides. Madison Group plans to further expand the development of travel
and leisure hospitality properties. The development of hotels will result in Madison Group keeping
such hotels in its portfolio as investment properties.

Strengths

Madison Group believes the following factors to be the key factors for its future growth:

A well established player in residential properties in Qingdao and other cities in Shandong
Province.

Madison Group’s strategic focus is on the development of residential properties in Qingdao and
neighbouring cities in Shandong Province. Madison Group believes that since its establishment in
1998, it has successfully established its presence as one of the leading real estate developers in
the Qingdao region. With its strategic and geographical focus along with, in the Company’s view,
well established governmental relations, extensive industry knowledge and local operating
expertise, Madison Group believes it has been able to gain a sound reputation for delivering high
quality property development projects in the region as evidenced by the numerous awards it has
already received. In the Company’s view, its familiarity with the market allows it to respond faster to
local market trends and competition than developers without such local knowledge. Madison Group
believes its strategic regional focus will allow it to continue to leverage its perceived competitive
advantages to grow its residential as well as extend its commercial properties in Qingdao and other
cities in Shandong Province.

High brand recognition with proven execution capability in property development.

Madison Group believes that it has succeeded in building up a strong brand recognition for the
“Madison” brand in the market by endeavouring to constantly deliver high quality products and
services to its customers in the property development markets of Qingdao and other neighbouring
cities in Shandong Province. In the Company’s view, Madison Group’s brand recognition has been
bolstered on a continuing basis by the numerous awards it keeps receiving. The following is a list of
selected awards that Madison Group has received in the past:

         Most recently in 2009, Madison Group was recognised as one of Qingdao’s 2008 “Top 10
         Real Estate Development Enterprises with Comprehensive Strengths” by the Qingdao
         Municipal Construction Commission and was also listed as one of the “Top 500 Chinese
         Real Estate Developers” by the China Real Estate Assessment Centre;

         In 2009, Madison Group was recognised by the Qingdao Real Estate Association as one
         of the “Top 10 Famous Enterprises” because of its “Green Bay” project;




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        In 2008, Madison Group’s “Garden State” project won the title of “Eco Estate Model” as
        part of the “10 Years of Human Habitation in China” event organised by the China Real
        Estate Press.

        In 2007, Madison Group was recognised as a “Class I Real Estate Developer” by the PRC
        Ministry of Housing and Urban-Rural Development;

        In 2006, Madison Group was selected as one of the “Top 50 Real Estate Developers with
        Comprehensive Strengths in Shandong Province” and one of the “Top 10 Real Estate
        Developers with Comprehensive Strengths” in Qingdao;

        Madison Group obtained the award of being one of “Qingdao’s 10 Best Real Estate
        Enterprises” in 2001, 2002 and 2003;

The Company believes that what it perceives to be a strong brand recognition and a proven
execution ability of Madison Group from its past projects for high value-added properties in
Qingdao and other cities in Shandong will allow it to retain loyal customers and to continue to be
able to offer its residential products at high-end prices.

A diversified business model focusing on residential, travel and leisure property and
industrial development.

Madison Group believes that its diversified business model, which includes residential, travel and
leisure as well as industrial property projects, will enable it to maintain a sustainable and balanced
long-term growth. In the Company’s view, Madison Group will be able to capitalise on China’s rapid
urbanisation through its residential property projects. The Company believes that it is ideally
positioned to take advantage of Qingdao’s position as one of the most popular travel destinations in
China and the growing demand in China for travel and leisure properties in general by developing
integrated holiday resorts, hotels and high-end residential properties. Through its industrial
properties in Chongqing, the Company plans to meet what it perceives as a growing demand for
industrial real estate in a region that has been earmarked by the PRC government as one of the
future growth regions where both domestic and foreign investment is encouraged (Source:
Catalogue of Foreign Investment in Competitive Industries in Middle-west areas (revised in 2008)).
The Company believes that Madison Group’s diversified project portfolio caters to the needs of
different consumer groups thereby allowing it to cover a large share of the overall real estate
market. The Company is also of the opinion that the diversified business model adopted by
Madison Group helps to mitigate cyclical and government policy risks to which Madison Group’s
business might be exposed. In the event that one of the real estate sub-sectors is subject to a
downturn, Madison Group believes it will be able to compensate lower returns in the affected sub-
sector through higher returns generated through increased activity in other real estate sectors. The
Company further believes that Madison Group’s business model also reduces the risks created by
changing government policies or government intervention as these are, in the Company’s view,
usually targeted at individual sub-sectors of the real estate industry.

A diversified geographical spread focusing on Shandong Province and Chongqing.

The Company believes that its unique geographical footprint with property projects in Shandong
Province and Chongqing Municipality will enable it to take full advantage of China’s continued
economic growth and to weather any adverse effects of potential regional economic downturns in
the future. Shandong Province forms part of China’s established coastal regions which have
traditionally been the centre of foreign direct investment activities as well as the corresponding
rapid economic growth. As the majority of Madison Group’s current projects are located in and
around Qingdao in Shandong Province, Madison Group believes that it can take full advantage of
the continued strong growth in that region. However, lured by a range of government incentives for
Central and Western China as well as by lower labour costs, foreign investors are increasingly
targeting the Chinese hinterland and, in particular, Chongqing. The Company therefore believes
that its second geographical focus on Chongqing will enable it to also take advantage of the new
economic dynamism in what it believes could develop into the new economic centre of Central
China. Since the Company assesses the real estate market in Chongqing to be in an earlier phase
of development than that of coastal cities like Qingdao, it expects to be able to reach a leading
position in the Chongqing real estate market in the near future. The Company sees itself in a first
mover advantage compared to competitors in Qingdao and elsewhere in China that only focus on
real estate projects in the more developed regions in China. Moreover, by developing property
projects in two different and largely unrelated regional markets, the Company also believes to be
able to offset any potential downturn in of its markets by increased business activity in the other.
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Deliver a high level of quality for projects located at unique sites.

Madison Group focuses on the development of mid to high-end projects located at, what it
perceives as, unique and strategically well placed sites. Many of the site locations selected for
current and future developments are located at or close to scenic spots like the Confucius
Mountain, the Lao Mountain as well as parks and the ocean front. In order to secure a high level of
quality within the designated budget, Madison Group places high importance on the aesthetic
appeal, the modern design, comprehensive ancillary facilities and the landscaping of its projects.
Moreover, Madison Group maintains a strict quality control system and monitors all key stages of
the construction process, from the selection of material suppliers to the conduct of a final inspection
just before delivery. Madison Group believes that its commitment to choosing outstanding sites and
creating high-quality real estate will contribute to customer satisfaction and allow it to continue to
maintain what it perceives to be an excellent reputation in the local market.

Sizable Land Reserves to support Madison Group’s growth for the coming years.

As of 15 October 2010, Madison Group had an aggregate planned GFA under development of
266,220 m² and an aggregate planned GFA held for future development of 411,588 m² for which it
has obtained land use rights certificates. Moreover, Madison Group has other potential projects for
which it has signed co-operation agreements, or is in the process of participating in the auction for
the land which was previously granted to it due to change in zoning plans by the Qingdao
government. In the event that these projects materialise and Madison Group succeeds in the bid
for the various pieces of land, an aggregate planned GFA of approximately 1,692,866 m² will be
added to its future development projects. The Company believes that Madison Group’s current land
reserves will be sufficient to sustain the planned development needs and to provide the basis for
growth over at least the next three years. The Company also believes that Madison Group will
continue to be able to expand its land reserves due to, what it perceives to be, an extensive
industry knowledge and insight into the local development trends in Qingdao, other cities in
Shandong Province and Chongqing.

An experienced and cohesive senior management team supported by a well-trained and
motivated workforce.

Mr. Qingtong Tian, who is chairman of the management board of Madison Property AG and also
chairman and Chief Executive Officer of Madison Qingdao, has, in the Company’s view, extensive
knowledge of the real estate business environment and industry dynamics in China. Among other
things, he was voted one of the “Top 10 Real Estate Leaders in Qingdao” by the Qingdao Municipal
Construction Commission in 2006. Some of the members of Madison Group’s senior management
team have more than ten years of real estate development experience and the Company therefore
believes that they provide of strong strategic planning, business management and operational
capabilities. Madison Group has a cohesive and stable senior management team, many of whom
joined Madison Group in its early development stages. Madison Group believes that its senior
management team possesses strong professional skills and that its extensive industry experience
has been the driving factor for Madison Group’s past successful performance and will continue to
be a driving force for its future growth. In addition, Madison Group has endeavoured to consistently
invest in development and training programs for its employees and to offer competitive
compensation packages and performance-bonus programs. As a result, Madison Group believes
that its workforce is well trained and highly motivated.

Strategy
Madison Group pursues the following strategic goals:

Dual geographical market strategy focusing on Shandong Province and Chongqing.

The Company intends to continue to focus on the greater Qingdao city region and other cities in
Shandong Province including Zibo and Tai’an as its main market for real estate developments but
to also diversify into the Two Rivers New Area in Chongqing which, in the Company’s view, has
substantial potential for further economic growth.

Qingdao with a population of 8.5 million (sub-provincial city area, as of 2010) is among the Chinese
cities with the highest real GDP growth rate, which was 12.2% in 2009; in 2009, the GDP per capita
in Qingdao reached RMB 57,251, 2.27 times of the national average at RMB 25,188. Chongqing is
one of China’s four municipalities that are directly administered by the PRC central government.

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The other three municipalities are Beijing, Shanghai and Tianjin. In the Company’s view, the
establishment of the Two Rivers New Area in Chongqing in June 2010 has created a substantial
potential for economic growth in the area. The Two Rivers New Area is one of only three deputy
provincial new zones (the others being Shanghai’s Pudong New Area and Tianjin’s Binhai New
Area) which have been directly approved by the PRC State Council and therefore have a special
position in China’s economy. Chongqing is expected to become a gateway to China’s hinterland
which will be gradually developed into an advanced base for manufacturing and the modern
service industries as well as a financial and innovation centre on the upper reaches of the Yangtze
River.

With its diversification into different geographical areas, Madison Group believes that it will be able
to capitalise on its experience of building up a, to its own assessment, leading market position in
the Qingdao real estate market as well as on its position as an early entrant to the local real estate
market of Chongqing.

Continue to build up Madison’s brand name and strengthen its competitive advantages.

Madison Group plans to continue to promote and strengthen its brand name, and the development
of high-quality property projects at strategically selected locations. Madison Group will continue to
promote the “Green Bay” and “State Garden” series of residential properties as its key product
offerings through its sales and marketing activities and the provision of effective after-sales
services. It further intends to develop commercial properties and travel and leisure properties to
complement its current business model. The Company believes that by continuing to offer well-
designed property projects which meet the needs of the local residents and customers, it will be
able to further elevate Madison Group’s brand recognition and reputation.

Maintain a comprehensive product offering with a primary focus on residential properties.

Madison Group will maintain its strategy of offering a comprehensive product range to its
customers with a view to maintaining a target proportion of 60%, 30% and 10% in terms of the
number of projects distributed among its residential, industrial and commercial, and travel and
leisure developments, in order to attract a broad consumer base. In addition, while Madison Group
will continue to focus primarily on residential property developments within the next three years, it
also aims to gradually expand and diversify its business mix to include more commercial and
industrial properties thereby enhancing its long-term financial performance and diversifying risks.

Continue to identify unique land reserves.

The Company intends to continue to acquire additional projects and new land reserves which are
ready for development in Shandong Province, particularly in and around Qingdao, as well as in
Chongqing. Madison Group plans on continuing to identify land reserves located at unique and
strategically well placed sites and conceive high-quality projects for such sites. Madison Group also
plans on continuing to acquire undeveloped land for development which fits into its overall
development strategy. In the long term, Madison Group may also start to carry out property
development in other parts of Shandong Province to enhance its overall further growth.

Capitalise on its expertise in green and environmental friendly building.

Madison Group is committed to the principles of green and environmentally friendly building and
will continue to implement a high proportion of landscaping and greenery for its property projects
allowing them to be increasingly integrated with the natural habitat. Madison Group’s “Mount
Green” project may serve as a good example in this context having a planned ratio of greenery of
40.59%. It is one of only two model real estate projects in China to have won the “Green City
Development” award funded by the Gordon and Betty Moore Foundation. Due to Qingdao’s
position as a popular holiday and leisure destination, the city government is placing a greater
emphasis on green and environmental friendly building than other local governments. Among other
things, the Qingdao government is currently preparing regulations that will require real estate
developers to adhere to certain minimum greenery ratios for their property projects. As evidenced
by the “Mount Green” project, the Company has been anticipating this trend for some time already.
The Company believes that its growing knowledge of such green building principles will become
ever more useful as China faces increasing challenges in terms of environmental pollution. In the
Company’s view, the rising environmental pollution in China will trigger ever stricter standards for
green and environmentally friendly building methods by the national and local governments.
Madison Group believes to be in an advantageous position compared to other real estate

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developers in China which have not yet embraced green building principles for their property
projects.

Continue to maintain a strict financial discipline.

Madison Group will continue to maintain a strict financial discipline in its business expansion.
Among other things, Madison Group will continue to closely monitor its capital and cash positions
and carefully manage key operating parameters such as land acquisition costs, construction costs,
cash flow and fixed expenditures. By closely monitoring sales and pre-sales, Madison Group will
control its cash flow at all times in order to ensure that the respective capital requirements are met.
The management of the respective Madison Group companies will establish elaborate standards to
balance capital commitments against long-term financing opportunities.

In addition, all companies belonging to Madison Group are committed to adhering to strict cost
control, to real-time sales monitoring and to developing efficient customer relationship
management. These measures ensure the consistency of the application of Madison Group’s
business model to all large-scale development projects of companies belonging to Madison Group.




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Further Material Information Concerning the Company
The Company is a German stock corporation incorporated under the laws of Germany with its legal seat
in Berlin, Germany, and registered with the commercial register of the local court (Amtsgericht) of
Charlottenburg (Berlin) under the registration number HRB 129015. The Company’s business objective
is to operate as the holding company of Madison Property Group Limited (“Madison Hong Kong”)
which was incorporated under the laws of Hong Kong and which is the holding company of its ten
operational subsidiaries incorporated under the laws of the People’s Republic of China (“PRC” or
“China”), namely Madison Qingdao Property Group Company Limited (“Madison Qingdao”),
Qingdao Junxin Properties Company Limited (“Qingdao Junxin”), Madison Zibo Real Estate
Company Limited (“Madison Zibo”), Madison Tai’an Real Estate Company Limited (“Madison
Tai’an”), Chongqing Yinlian Investments Company Limited (“Chongqing Yinlian”), Chongqing
Longkunxiang Properties Company Limited (“Chongqing Longkunxiang”), Qingdao Jundong
Properties Company Limited (“Qingdao Jundong”), Qingdao Guanghua Properties Company
Limited (“Qingdao Guanghua”), Qingdao Xianggen Quanhai Zhiye Company Limited (“Qingdao
Xianggen Quanhai”) and Qingdao Junyang Zhiye Company Limited (“Qingdao Junyang”).


 Management Board                                  Mr. Qingtong Tian, Mr. Zaisheng Wei and Mr. Yi
                                                   (Alex) Yuan

 Supervisory Board                                 Mr. Andreas Grosjean, Mr. Oliver Kuan and Mr.
                                                   Yongting Hou

 Share capital (Prior to the Implementation of     EUR 3,500,000 divided into 3,500,000 no par
 the Offering)                                     value ordinary bearer shares (Inhaber-
                                                   Stückaktien)

 Auditors                                          KPMG AG Wirtschaftsprüfungsgesellschaft,
                                                   Marie-Curie-Str. 30, 60439 Frankfurt am Main,
                                                   Germany

 Existing Shareholders                             Immediately prior to the implementation of the
                                                   offering 92% of the share capital were held by
                                                   Falcon Grow Investments Limited (“Falcon
                                                   Grow“), 3.25% of the share capital by Best Way
                                                   Ecological Food Inc., 3.25% of the share capital
                                                   by Mr. Wah Lam and 1.5% of the share capital
                                                   by Kvalue Financial Co., Ltd. (the “Existing
                                                   Shareholders”).

 Registered Office and Financial Year              The registered office of the Company is located
                                                   at c/o Salans LLP, Markgrafenstraße 33,
                                                   10117 Berlin. The financial year is the year
                                                   ending 30 April.

 Employees                                         As of 31 July 2010 Madison Group had 132
                                                   employees, as of the date of the Prospectus
                                                   there has been an increase in the number of
                                                   employees to 149.




                                                                                                  13
Summary of the Offering
Offering                               The Offering consists of a public offering in
                                       Germany and Luxembourg and private
                                       placements to institutional investors outside
                                       Germany, Luxembourg and the United States.

                                       The Offering consists of up to 632,500 no par
                                       value ordinary bearer shares (Inhaber-
                                       Stückaktien) of Madison Property AG, each
                                       ordinary bearer share having a notional amount
                                       of the share capital of EUR 1.00 and each
                                       vested with full dividend rights for the entire
                                       financial year ended 30 April 2011.

                                       Of this amount, (i) 575,000 no par value ordinary
                                       bearer shares emanate from a capital increase
                                       against cash contribution from authorised capital
                                       pursuant to a resolution of the management
                                       board (Vorstand) and a corresponding approval
                                       of the supervisory board (Aufsichtsrat), both
                                       expected to be adopted on or shortly before 2
                                       December 2010 (the “New Shares”); and (ii)
                                       57,500 no par value ordinary bearer shares
                                       which are held by the Greenshoe Shareholders,
                                       i.e. by Falcon Grow Investments Limited
                                       (“Falcon Grow”), Best Way Ecological Food
                                       Inc., Mr. Wah Lam and Kvalue Financial Co.,
                                       Ltd., in connection with a potential over-
                                       allotment (the “Greenshoe Shares” together
                                       with the New Shares the “Offer Shares”).

Offer Period                           The offer period is expected to begin on 22
                                       November 2010 and to end on 2 December
                                       2010. During the offer period, offers to purchase
                                       shares may be submitted by retail investors to
                                       their respective broker or bank. Institutional
                                       investors shall submit offers to purchase shares
                                       to VEM.

                                       On the last day of the offer period, retail
                                       investors may submit offers to purchase shares
                                       until 12:00 a.m. (Central European Time) and
                                       institutional investors until 4:00 p.m (Central
                                       European Time).

Price Range and Offer Price            The price range within which purchase orders
                                       may be placed shall be between EUR 26.00 and
                                       EUR 29.00 per Offer Share.

                                       The offer price per Offer Share will be
                                       collectively determined by the Company and
                                       VEM using the order book prepared during the
                                       book building process. Afterwards, the offer
                                       price will be published on the Company’s
                                       website (www.madisonproperty.cn) and as a
                                       corporate news. Particulary in the event that the
                                       placement volume proves insufficient to satisfy
                                       all of the purchase orders submitted at the offer
                                       price, VEM reserves the right not to accept
                                       purchase orders, in whole or in part.

Amendments to the Terms of the Offer   The Company and VEM, reserve the right to
                                       decrease the number of Offer Shares, to
                                       increase or decrease the upper limit and/or
                                       lower limit of the price range, and/or to extend or
                                       shorten the entire offer period. Should any of the

                                                                                        14
                                          terms of the offer be modified, the change will be
                                          published via an electronic information system
                                          and       on     the     Company’s       website
                                          (www.madisonproperty.cn) This publication will
                                          be made to the extent required by applicable
                                          German law as a supplement (Nachtrag) to the
                                          Prospectus. There will be no individual
                                          notification of investors who have submitted
                                          purchase offers.

Delivery and Settlement of Offer Shares   It is expected that the Offer Shares will be
                                          delivered one banking day after commencement
                                          of the trading of the shares against payment of
                                          the offer price.

Over-Allotment                            In connection with the placement of the Offer
                                          Shares, over-allotments may be made and
                                          stabilisation measures aimed at supporting the
                                          stock exchange or market price of the
                                          Company’s shares may be undertaken to the
                                          extend permitted by applicable law. Stabilisation
                                          measures may be effected as of the date of the
                                          commencement of trading of the Company’s
                                          shares and must be completed no later than the
                                          30th calendar day after such date.

Greenshoe Option                          Falcon Grow Investments Limited, Best Way
                                          Ecological Food Inc., Mr. Wah Lam and Kvalue
                                          Financial Co., Ltd. have granted VEM the option
                                          of purchasing 57,500 no par value ordinary
                                          bearer shares of the Company at the offer
                                          price, less the agreed commissions by means
                                          of a securities loan for a potential over-allotment.
                                          This option will expire 30 calendar days after
                                          the date of the commencement of trading of
                                          the shares.

General Allotment Criteria                The Company and VEM will comply with the
                                          “Principles for the Allotment of Share Issues to
                                          Private Investors” (Grundsätze für die Zuteilung
                                          von Aktienemissionen an Privatanleger), that
                                          were issued on 7 June 2000 by the Exchange
                                          Expert                                Comission
                                          (Börsensachverständigenkommission) of the
                                          German       Federal     Ministry  of    Finance
                                          (Bundesministerium der Finanzen).

Greenshoe Shareholders                    Falcon Grow Investments Limited, Best Way
                                          Ecological Food Inc., Mr. Wah Lam and Kvalue
                                          Financial Co., Ltd.

Sole Global Coordinator                   VEM

Underwriter                               VEM

Inclusion in Trading                      The shares of the Existing Shareholders of the
                                          Company have been included in the trading in
                                          the First Quotation Board segment of the Open
                                          Market (Freiverkehr) of the Frankfurt Stock
                                          Exchange since 12 August 2010. An application
                                          for the transfer of the shares of the Existing
                                          Shareholders to, and the inclusion of the New
                                          Shares in the trading in, the Entry Standard, a
                                          sub-segment of the Open Market (Freiverkehr)
                                          of the Frankfurt Stock Exchange, is expected to
                                          be filed on 3 December 2010. The transfer and
                                          inclusion approval is expected to be granted no

                                                                                            15
                                        later than 5 December 2010. Commencement of
                                        trading in the Entry Standard segment of the
                                        Open Market (Freiverkehr) of the Frankfurt Stock
                                        Exchange is expected to take place on 6
                                        December 2010.

Early Termination of the Offering       The Listing Agreement provides that VEM may
                                        terminate the Listing Agreement under certain
                                        circumstances, even after the shares have been
                                        allocated and included in the trading, up to
                                        delivery and settlement.

                                        If the Listing Agreement is terminated, the
                                        Offering will not take place. In such case,
                                        allocations of shares to investors will be
                                        invalidated, and investors will have no claim for
                                        delivery. Claims relating to any subscription fees
                                        paid and costs incurred by any investor in
                                        connection with the subscription are governed
                                        solely by the legal relationship between the
                                        investor and the institution to which the investor
                                        submitted its purchase order.

Selling Restrictions (Lock-Up)          The Existing Shareholders have agreed with
                                        VEM that, for a period ending on 30 November
                                        2011, they will not

                                        •       offer, pledge, sell, contract to sell, sell an
                                        option to buy, buy an option to sell or otherwise,
                                        directly or indirectly, transfer or dispose of
                                        shares of the Company or other securities that
                                        are convertible into or exchangeable for shares
                                        of the Company,

                                        •       enter    into   swap     transactions    or
                                        transactions that transfer the economic risk of
                                        holding the shares to a third party, in whole or in
                                        part, regardless of whether any such transaction
                                        is to be settled by delivery of shares, payment in
                                        cash or other consideration, as well as

                                        •      initiate, vote in favor of or in any other
                                        way support a capital increase of the Company
                                        or issuance of shares which are exchangeable
                                        into shares of the Company or an economically
                                        equivalent transaction.

                                        These restrictions do not apply to transactions
                                        relating to the shares of the Company to be sold
                                        in the event and to the extent that the
                                        Greenshoe Option is exercised, the Greenshoe
                                        Shares offered by the Existing Shareholders and
                                        in case of shares purchased in the Open Market.

Costs of the Offering for the Company   As the costs of the Offering depend on the
                                        total number of shares placed and the offer
                                        price that determine the amount of the
                                        commissions to be paid, the Company cannot,
                                        at the date of this Prospectus, reliably predict
                                        the costs of the Offering. Subject to the
                                        uncertainties stated above, the Company
                                        estimates that the costs of the Offering
                                        (including commissions of VEM) will be between
                                        EUR 1.75 million to EUR 1.9 million.

Use of Proceeds                         The net proceeds from the sale of the shares will
                                        be used by the Company for the operation and

                                                                                            16
                                                    completion of Madison Group’s current projects
                                                    as well as for a possible future expansion. The
                                                    Company plans to use EUR 6.475 million for
                                                    part of the preconstruction and construction of its
                                                    Chongqing Project (Phase I) as well as EUR 8.3
                                                    million for part of the preconstruction and
                                                    construction of its Fragrance Town Island
                                                    Project.



 German Securities Identification Number            A0V9KR
 (WKN)

 International     Securities      Identification   DE000A0V9KR3
 Number (ISIN)

 Common Code                                        053814310

 Ticker Symbol                                      MPD




Selected Financial Information
The Company was founded on 30 April 2008 and incorporated by registration in the commercial
register of the local court of Munich on 8 May 2008. On 14 January 2010 the Company became the
holding company of Madison Property Group Limited and the other companies of Madison Group
through an exchange of equity interests. In accordance with IAS 8.10 et. seqq. the Company has
elected to use merger or predecessor accounting for this transaction: the assets and liabilities of
the acquired entities are incorporated in the Company’s consolidated financial statements at the
amounts recorded in the consolidated financial statements of Madison Property Group Limited
without any fair value adjustments. The subscribed capital of the acquired entities was reclassified
in retained earnings in order to reflect the legal parent’s equity structure. The acquired entities’
results are incorporated into the consolidated financial statements as if Madison Property AG and
the acquired entities had been combined since 1 May 2008. Consequently, the consolidated
financial statements reflect all entities’ results for the current and the prior year, even though the
business combination did occur on 14 January 2010.
The summary financial information presented in the tables below is derived from the audited
consolidated financial statements of Madison Property AG as of and for the financial years ended
30 April 2009 and 2010, the audited consolidated financial statements of Madison Property Group
Limited as of and for the financial year ended 30 April 2008 and the unaudited interim consolidated
financial statements of Madison Property AG as of and for the three months ended 31 July 2010
(with comparable figures for the prior year period). The audited consolidated financial statements
have been prepared in accordance with International Financial Reporting Standards as adopted in
the European Union (“IFRS”) and the unaudited interim consolidated financial statements have
been prepared in accordance with IAS 34 Interim Financial Reporting. The consolidated financial
statements of Madison Property Group Limited („Madison Hong Kong”) as of and for the year
ended 30 April 2008 do not include Qingdao Guanghua Properties Company Limited (“Qingdao
Guanghua”), a subsidiary in China that was retrospectively included in the consolidated financial
statements of the Company for the years ended 30 April 2009 and 2010.
Where financial data in the tables below is labeled “audited”, this means that it was taken from our
audited consolidated financial statements. The label “unaudited” is used in the tables below to
indicate financial data that was taken or derived from a source other than the audited consolidated
audited financial statements mentioned above.




                                                                                                     17
Selected Consolidated Income Statement Data

                                                                                                 As of and for the financial year        As of and for the three
                                                                                                         ended 30 April                  months ended 31 July
                                                                                                 2010          2009           2008*        2010        2009
                                                                                               (audited)     (audited)      (audited)   (unaudited) (unaudited)

                                                                                                                            (€ ‘000)

Revenue .................................................................................... 63,498           57,166         54,105        1,866        25,309
Cost of properties sold .............................................................. -45,657               -36,733        -31,393        -1,318       -19,889
Gross profit.............................................................................. 17,841             20,433         22,712          548         5,420
Other income.............................................................................          304           804           156             6             0
Change in fair value of investment properties ...........................                        2,051         1,203          3,100         -102           493
Selling expenses ....................................................................... -1,060                 -878           -853         -357          -285
Administrative expenses ........................................................... -2,634                    -4,795         -2,132         -710          -540
Other expenses .........................................................................          -219          -209            -77           -83           -21
Net finance costs.......................................................................          -786          -476            -49         -150          -151
Share of loss of equity accounted investee...............................                           -5           -12             -1            -7            -1
Profit (loss) before income tax .............................................. 15,492                         16,070         22,856         -855         4,915
Income tax expense ................................................................             -6,264        -7,586        -11,848          173         -1,763
Profit (loss) for the period ...................................................... 9,228 8,484                              11,008         -682         3,152
* taken from the audited consolidated financial statements of Madison Property Group Limited



Selected Consolidated Statement of Financial Position Data

                                                                                                           As at 30 April               As at 31 July

                                                                                                 2010          2009           2008*        2010
                                                                                               (audited)     (audited)      (audited)   (unaudited)

                                                                                                                         (€ ‘000)

Property and equipment ............................................................                880           881           740           807
Investment properties ................................................................ 22,624                 20,918         16,329       23,018
Investment accounted for using the equity method...................                                522           525           448           527
Other investments .....................................................................          1,405         1,397                0      1,436
Deferred tax asset .....................................................................         3,901         2,418          1,209        4,219
Total non-current assets ........................................................ 29,332                      26,139         18,726       30,007
Inventories ................................................................................. 69,047          72,619         41,003       74,460
Trade and other receivables ..................................................... 38,913                      50,089         22,778       46,470
Restricted bank deposits ...........................................................               666           439           241           681
Cash and cash equivalents .......................................................                5,624         6,191          8,049       12,888
Total current assets ................................................................ 114,250                129,338         72,071      134,499
Total assets ............................................................................. 143,582           155,477         90,797      164,506
Subscribed capital .....................................................................         3,500            50          4,960        3,500
Reserves ...................................................................................     4,698         4,341         -1,725        5,864
Retained earnings ..................................................................... 42,156                37,524         22,947       41,697
Non-controlling interest .............................................................           1,275         1,087          1,280        1,052
Total equity .............................................................................. 51,629            43,002         27,462       52,113
Loans and borrowings ............................................................... 17,084                   11,339          7,156       25,938
Deferred tax liabilities ................................................................        6,017         4,969          3,553        6,091
Total non-current liabilities .................................................... 23,101                     16,308         10,709       32,029
Loans and borrowings ...............................................................             4,813         4,128          3,853        4,579
Sales deposits ...........................................................................       9,312        23,103         19,007       25,528
Trade and other payables ......................................................... 30,768                     49,753         19,400       26,288
Income tax payable ................................................................             23,959        19,183         10,366       23,969
Total current liabilities ............................................................ 68,852                 96,167         52,626       80,364
Total liabilities ......................................................................... 91,953           112,475         63,335      112,393
Total equity and liabilities ...................................................... 143,582                  155,477         90,797      164,506

 * taken from the audited consolidated financial statements of Madison Property Group Limited




                                                                                                                                                           18
Summary of Risk Factors
Prior to making a decision on the purchase of shares in the Company, investors should carefully
consider certain risks. If any of the events associated with these risks occur, individually or in
connection with other circumstances, the business of Madison Group may be affected to a
substantial degree, with a material adverse effect on the net assets, financial condition and results
of operations of Madison Group. The stock exchange price of the shares could decline as a result
of an event associated with the occurrence of any of these risks, and investors could lose some or
all of the capital they have invested. The following are risk factors:

Risks Related to Madison Group’s Business
        Madison Group’s business is dependent on the performance of the property market in
        China and in particular that of Shandong Province and the municipality of Chongqing.

        Madison Group’s business is subject to extensive governmental regulation and, in
        particular, to policy changes in the Chinese property sector.

        Madison Group may not be able to identify and acquire suitable land sites for its future
        projects at reasonable prices, or at all, and may not be able to pass on any higher prices
        to its tenants or buyers.

        Madison Group may be unable to obtain land-use rights certificates for properties which it
        plans to develop or which it may acquire in the future.

        Madison Qingdao may not be able to extend the qualification certificates for real estate
        developers.

        Madison Group may not be able to obtain project approvals for new real estate
        development projects.

        The Company’s subsidiary Chongqing Yinlian is not qualified as a real estate developer
        under PRC law.

        Madison Group depends on the continuing services and cooperation of its CEO, Mr. Tian,
        and of other members of its senior management.

        The Company’s Existing Shareholders may take actions that conflict with the best
        interests of its public shareholders.

        Madison Group may be adversely affected by possible disputes with its joint venture
        partners or its project development partners.

        Madison Group may be affected by the performance of independent third party contractors
        and the prices of construction materials.

        There may be changes to Madison Group’s tax status or to applicable PRC tax legislation
        and/or its interpretation.

        Madison Group may be taxed retroactively for an indirect transfer of the shares in Madison
        Qingdao.

        Madison Group may be subject to fines or fail to be granted the land-use rights for
        property projects if it fails to pay deed tax.

        Madison Group may be involved from time to time in material disputes, legal and other
        proceedings arising out of its operations and may face significant liabilities as a result.

        Madison Group may not have adequate financing to fund its land acquisitions and property
        developments in the future.

        Madison Group may not be able to directly use the proceeds from the Offering for its
        current property projects.

                                                                                                  19
The Company is a holding company, and therefore relies principally on dividends paid by
its Chinese subsidiary Madison Qingdao.

Madison Group provides guarantees for mortgages taken out by its customers and may
become liable to mortgagee banks if customers default on their mortgage loans.

Madison Group entered into security contracts in order to secure its own as well as third
parties’ bank loans.

The Chinese M&A Provisions may have a material adverse effect on Madison Group’s
business.

Chinese State Administration of Foreign Exchange regulations relating to offshore
investments by PRC residents or passport holders may adversely affect Madison
Qingdao’s business operations and financing alternatives.

Several share transfers regarding entities within Madison Group did not conform with the
rules for the transfer of state-owned equity under PRC law.

The increases of Madison Qingdao’s registered capital in March 2006 and March 2008 did
not comply with the statutory conditions and procedures.

Agreements between the Company’s CEO, Mr. Tian, and the nominee shareholders of
Madison Qingdao may be deemed invalid.

Madison Qingdao may be subject to third party claims due to its position as nominee
shareholder of Qingdao Jindishen Commercial Company Limited.

The land use rights transfer from Madison Real Estate to Madison Qingdao did not comply
with the statutory conditions and procedures.

Madison Group’s land use rights for the Chongqing Project may be revoked.

The expropriation and conversion of the land for the Ocean Century Garden project was
not approved by the competent authority.

Madison Group did not obtain the Construction Land Use Planning Permits for its Villa with
Springs property project.

Madison Qingdao fails to keep the required number of professionals as employees of the
company.

Madison Group’s PRC subsidiaries have failed to fully pay the social insurance and
housing funds for their employees in the past and new PRC labour law regulations may
increase Madison Group’s labour costs.

Madison Group may be unable to complete or deliver its development projects on time or
at all.

Madison Group faces revenue and cost related risks before it can realise any benefits
from its property development projects.

Madison Group may not be able to generate adequate returns on its properties held for
long-term investment purposes.

Potential liability for environmental problems could result in substantial costs.

Madison Group has limited insurance to cover potential losses and claims.

Third party infringement of Madison Group’s intellectual property rights may damage its
reputation and adversely affect Madison Group’s business, operational performance and
financial condition.



                                                                                       20
      As Madison Group derives its revenue mainly from the sale of property, the Company’s
      results from operations may vary significantly from period to period.

      An increase in interest rates may materially and adversely affect Madison Group’s
      business, financial condition and results of operations.

      The fair value of Madison Group’s investment properties may fluctuate from time to time
      and may decrease significantly in the future.

      Seismic activity or other natural perils could have a substantial impact on Madison Group's
      business and, in particular, its future sales.

      Future resettlement negotiations may add costs or cause delays to Madison Group’s
      development projects.

      The Company’s Supervisory Board may have difficulties in adequately supervising the
      management board.

      The Company is not experienced with respect to German regulatory requirements for
      listed companies and currently does not have a comprehensive risk management system
      in place.

Risks Related to the Real Estate Industry in China
      The PRC government may adopt further policies, regulations and measures to slow down
      growth in the real estate sector.

      The property market in the PRC is at an early stage of development and is volatile.

      In China, property owners only have a limited period of exclusive right to their property.

      Changes to laws and regulations with respect to pre-sale may adversely affect Madison
      Group’s cash flow position and performance.

      Madison Group is exposed to contractual and legal risks related to pre-sales.

      Intensified competition may adversely affect Madison Group’s business and its financial
      position.

      Madison Group may be subject to fines and its land may be forfeited to the PRC
      government if it fails to comply with the terms of the land-use rights grant contracts.

Risks Related to the Political, Social and Legal Environment of the People’s
Republic of China

      General risks relating to business operations in emerging markets.

      Economic instability in China could adversely affect Madison Group’s business.

      Recent regulations relating to employee stock options granted by overseas listed
      companies to citizens of China have to be observed by the Company and its employees to
      avoid fines and legal sanctions.

      Madison Group’s business operations could be disrupted due to China’s inadequate
      infrastructure.

      China’s economic liberalisation could be compromised by a change of the political system.

      Health epidemics and outbreaks of contagious diseases, including severe acute
      respiratory syndrome (SARS), avian influenza or swine flu, could materially and adversely
      affect the Chinese economy.




                                                                                                   21
      The PRC legal system and regional and national taxation laws contain inherent
      uncertainties and inconsistencies.

      Madison Group might not be able to receive effective judicial remedies.

      Recognition and enforcement of judgments may be difficult to obtain in China.

      Foreign investment in PRC companies may be subject to additional restrictions in the
      future.

Risks Related to the Offering
      The Offering may not result in an active and liquid market for the Company’s shares.

      The market price for the Company’s shares may be volatile.

      The sale, or perceived sale, of shares by the Existing Shareholders could adversely affect
      the market price of the Company’s shares.

      There may be too little liquidity in the Open Market (Freiverkehr) and its sub-segment, the
      Entry Standard, for the Company’s shares.

      Risk of short sales before delivery of shares.




                                                                                              22
ZUSAMMENFASSUNG

Die folgende Zusammenfassung ist als Einführung zu diesem Prospekt zu verstehen und sollte in
Verbindung mit den ausführlicheren Informationen gelesen werden, die sich an anderer Stelle in
diesem Prospekt finden. Anleger sollten jede Entscheidung zur Anlage in Aktien auf die Prüfung
des gesamten Prospekts stützen.

Die Madison Property AG (die „Gesellschaft" und gemeinsam mit ihren unmittelbaren und
mittelbaren Tochtergesellschaften die „Madison-Gruppe übernimmt im Sinne von § 5 Abs. 2 Satz
3 Nr. 4 Wertpapierprospektgesetz die Verantwortung für den Inhalt dieser Zusammenfassung. Sie
kann jedoch für den Inhalt der Zusammenfassung nur haftbar gemacht werden, falls die
Zusammenfassung irreführend, unrichtig oder widersprüchlich ist, wenn sie zusammen mit den
anderen Teilen dieses Prospekts gelesen wird. Für den Fall, dass vor einem Gericht Ansprüche
aufgrund der in diesem Prospekt enthaltenen Informationen geltend gemacht werden, könnte der
als Kläger auftretende Anleger in Anwendung einzelstaatlicher Rechtsvorschriften der Staaten des
Europäischen Wirtschaftsraumes die Kosten für die Übersetzung des Prospekts vor Prozessbeginn
zu tragen haben.


Allgemeine Informationen zur Gesellschaft und ihrer
Geschäftstätigkeit
Überblick

Die Madison-Gruppe ist ein großer Immobilienentwickler in der Provinz Shandong mit einer starken
Fokussierung auf die Stadtregionen Qingdao und Chongqing. Die Madison-Gruppe ist vom
chinesischen Ministerium für Wohnungsbau und städtisch-ländliche Entwicklung als
Immobilienentwicklungsgesellschaft der Klasse I anerkannt und kann daher landesweit, ohne
Beschränkung bezüglich der Größe des Bauvorhabens, Projekte durchführen. Daneben wurde die
Madison-Gruppe kürzlich von der Baukommission der Stadt Qingdao als eine der „zehn führenden
Immobilienentwicklungsgesellschaften mit umfassenden Stärken“ ausgewählt und von der
Immobilienvereinigung      der    Provinz     Shandong    zu    einer    der    „50   führenden
Immobilienentwicklungsgesellschaften in der Provinz Shandong“ gekürt. Seit ihrer Gründung 1998
hat die Madison-Gruppe zehn Immobilienprojekte entwickelt, und gegenwärtig sind weitere drei
Projekte in Entwicklung (sowie spätere Entwicklungsphasen zweier weiterer Prokjekte). Darüber
hinaus sind zwei Immobilienprojekte zur Entwicklung in der nahen Zukunft vorgemerkt. Sie wird
über weitere sieben Projekte verfügen, falls alle weiteren Immobilienprojekte zustande kommen.
Am 15. Oktober 2010 hatte die Madison-Gruppe mehr als 690.000 m² Bruttogeschossfläche
(„BGF“) entwickelt und mehr als 266.000 m² BGF gegenwärtig in der Entwicklung. Ferner umfasst
der Immobilienbestand der Madison-Gruppe beträchtliche Grundstücksreserven mit einer
Gesamtgröße von ca. 170.000 m² (oder ca. 1.075.000 m², wenn man auch die nur potentiell
realisierbaren Projekte der Gesellschaft mit einrechnet).

Die Geschäftstätigkeiten der Madison-Gruppe konzentrieren sich in erster Linie auf die Provinz
Shandong, wobei die meisten Immobilienvorhaben in der Küstenstadt Qingdao und einzelne
Vorhaben in den Nachbarstädten Zibo und Tai’an angesiedelt sind. Der zweite geografische
Schwerpunkt der Madison-Gruppe liegt in der Stadt Chongqing in Zentralchina.

Shandong ist die wirtschaftlich stärkste Provinz Nordchinas und nimmt, gemessen am
Bruttoinlandsprodukt („BIP“), den dritten Platz unter Chinas Provinzen ein (Source: China Statistic
Press: Shandong Statistical Yearbook 2010). Qingdao ist eine Stadt auf Nebenprovinzebene mit
ca. 8,5 Mio. Einwohnern. Sie liegt am Gelben Meer, ungefähr auf halbem Weg von Shanghai nach
Peking. Qingdao liegt zudem in den schnell wachsenden, zentralen Küstenregionen Chinas, in
denen die neue chinesische Mittelschicht lebt, auf welche ausländische wie chinesische Investoren
gleichermaßen abzielen. Als Teil der Jiaozhou (Kiautschou)-Bucht-Konzession, stand die Stadt
Qingdao von 1898 bis 1914 unter deutscher Verwaltung. Während dieser Zeit verwandelte die
kaiserliche deutsche Regierung das kleine Fischerdorf in einen strategisch wichtigen Hafen mit
städtischer Infrastruktur, Elektrifizierung      einem Abwassersystem und einer sicheren
Trinkwasserversorgung. Ein heute noch sichtbares deutsches Erbe ist das Tsingtao-Bier, eine
führende Biermarke in China, welche auf die von Deutschen gegründete Tsingtao-Brauerei in
Qingdao zurückgeht.


                                                                                                23
Die Gemeinde Chongqing liegt in Zentralchina und ist eine der am schnellsten wachsenden
Regionen in Chinas Landesinneren. Mit einer Bevölkerung von ca. 32,8 Mio. Einwohnern ist
Chongqing Chinas größte und bevölkerungsreichste städtísche Gemeinde. Chongqings BIP wuchs
2009 um 14,9% und liegt damit auf dem 23. Platz in China. Die Gesamtwirtschaftsleistung
überschritt 2009 RMB 600 Mrd. Vor dem Hintergrund des Baus des Drei-Schluchten-Staudammes
und der Einführung der „Go-West“-Politik zur wirtschaftlichen Entwicklung Zentral- und Westchinas
wurde Chongqing jüngst als eine der „fünf führenden Städten Chinas“ ausgezeichnet (Source:
Chongqing Municipal People’s Government: Chongqing Selected as One of Five Central Cities in
China – Adjustment of Regional Development Strategy of China).

Die Madison-Gruppe hat einen breit gefächerten Ansatz, und ihre Geschäftsbereiche umfassen
mittel- bis hochwertige Wohnimmobilien, genauso wie Immobilien im Bereich Erholung, Freizeit
und Tourismus. Die Gesellschaft beabsichtigt auch, künftig Industrieimmobilien weiter in den
Mittelpunkt ihrer Entwicklung zu stellen, insbesondere im schnell wachsenden Chongqing. Die
Wohnimmobilien der Madison-Gruppe beinhalten Hochhausapartments (typischerweise mehr als
elf Stockwerke), mittelgroße Apartmenthäuser (typischerweise sieben bis elf Stockwerke), kleine
Apartmenthäuser (typischerweise drei bis sechs Stockwerke), Reihenhäuser (typischerweise zwei
bis drei Stockwerke) und Villen (typischerweise allein stehende Häuser mit zwei bis drei
Stockwerken). In allen genannten Fällen sind die Immobilien mit Zusatzeinrichtungen wie
Gewerberäumen und Pkw-Parkplätzen ausgestattet. Die zukünftigen Immobilienprojekte der
Madison-Gruppe schließen Hotels und Resorts in Qingdao und Industrieimmobilien in Chongqing
ein.

Die Erholungs-, Freizeit- und Tourismusimmobilien der Madison-Gruppe sind normalerweise
großräumige Villen und Wohnapartments sowie andere Immobilien, wie z.B. sogenannte „Serviced
Apartments“. Die Gesellschaft hat zudem vor, noch mehr in den Bereichen Immobilien mit
Gewerberäumen, Freizeitzentren, Hotels sowie Immobilien mit Erholungs-, Freizeit- und
Tourismusausrichtung aktiv zu werden. Diese Immobilien sind üblicherweise an strategisch
wichtigen Orten angesiedelt oder von Erholungs-, Freizeit- und Tourismuszielen umgeben, wie z.B.
von heißen Quellen, Freizeitparks oder in natürlichen Landschaften gelegen, etwa am Meer oder
an Berghängen. Die Madison-Gruppe will die Entwicklung von Immobilien für Gastbetriebe im
Erholungs-, Freizeit- und Tourismusgewerbe ausweiten. Bei der Entwicklung von Hotels plant die
Madison-Gruppe, die Immobilien für Investmentzwecke zu halten.

Stärken
Nach Einschätzung der Madison-Gruppe sind die folgenden Stärken für ihr zukünftiges Wachstum
ausschlaggebend:

Ein gut etabliertes Unternehmen im Wohnimmobiliensektor in Qingdao und anderen Städten
der Provinz Shandong.

Der strategische Fokus der Madison-Gruppe liegt auf der Entwicklung von Wohnimmobilien in
Qingdao und benachbarten Städten in der Provinz Shandong. Die Madison-Gruppe ist der
Überzeugung, dass sie sich seit ihrer Gründung 1998 erfolgreich als eine der führenden
Immobilienentwicklungsgesellschaften in der Region Qingdao etabliert hat. Aufgrund ihres
strategischen und geografischen Fokus’ in Verbindung mit, nach Ansicht der Gesellschaft,
etablierten Beziehungen zur Regierung, umfassendem Branchenwissen und einer örtlichen
Expertise ist die Madison-Gruppe überzeugt, dass sie sich eine nachhaltige Reputation für die
Lieferung hochqualitativer Immobilienentwicklungsprojekte in der Region verschafft hat, was sich
auch an den zahlreichen Auszeichnungen zeigt, die sie bereits erhalten hat. Nach Ansicht der
Gesellschaft erlaubt es ihr ihre Vertrautheit mit dem Markt, schneller auf örtliche Markttendenzen
und Wettbewerb zu reagieren, als dies Bauträgern ohne das örtliche Wissen möglich ist. Die
Madison-Gruppe geht davon aus, dass ihr strategischer regionaler Fokus es ihr auch weiterhin
erlauben wird, ihre wahrgenommenen Wettbewerbsvorteile für das Wachstum ihrer
Wohnimmobilien und für die Ausweitung ihrer Gewerbeimmobilien in Qingdao und anderen
Städten der Provinz Shandong zu nutzen.

Große Bekanntheit der Marke und nachgewiesene Fähigkeit bei der Ausführung von
Vorhaben in der Immobilienentwicklung.

Die Madison-Gruppe ist davon überzeugt, dass sie der Marke „Madison“ durch ihr Bestreben, ihren
Kunden konstant hochqualitative Produkte und Dienstleistungen auf dem Immobilienmarkt in
Qingdao und anderen benachbarten Städten in der Provinz Shandong zu bieten, erfolgreich zu

                                                                                               24
großer Bekanntheit im Markt verholfen hat. Nach Ansicht der Gesellschaft, wird die Bekanntheit der
Marke „Madison“ durch den fortwährenden Erhalt zahlreicher Auszeichnungen auf eine stabile
Grundlage gestellt. Die folgende Liste beinhaltet ausgewählte, in der Vergangenheit erhaltene
Auszeichnungen der Madison-Gruppe:

          Zuletzt wurde die Madison-Gruppe 2009 als eine der „zehn führenden
          Immobilienentwicklungsgesellschaften mit umfassenden Stärken“ durch die
          Baukommission der Stadt Qingdao ausgezeichnet und in der Liste der „500 führenden
          Immobilienentwicklungsgesellschaften  Chinas“     durch       das     Chinesische
          Immobilienbewertungszentrum vermerkt;

          2009 erhielt die Madison-Gruppe von der Immobilienvereinigung Qingdao wegen ihres
          „Green Bay“-Projektes die Auszeichnung als eines der „zehn berühmtesten
          Unternehmen“;

          2008 gewann das „State Garden“-Projekt der Madison-Gruppe den Titel „Muster Öko-
          Siedlung“ im Rahmen einer von der Immobilienpresse Chinas organisierten
          Veranstaltung „10 Jahre Wohnen in China“.

          2007 wurde die Madison-Gruppe vom chinesischen Ministerium für Wohnungsbau und
          städtisch-ländliche Entwicklung als Immobilienentwicklungsgesellschaft der Klasse I
          anerkannt;

          2006     wurde    die    Madison-Gruppe     zu   einer    der    „50    führenden
          Immobilienentwicklungsgesellschaften mit umfassenden Stärken“ in der Provinz
          Shandong und zu einer der „zehn führenden Immobilienentwicklungsgesellschaften mit
          umfassenden Stärken“ in Qingdao ausgewählt;

          2001, 2002 und 2003 erhielt die Madison-Gruppe die Auszeichnung, zu einer der „zehn
          besten Immobilienentwicklungsgesellschaften Qingdaos“ zu gehören;

Die Gesellschaft ist davon überzeugt, dass die von ihr als groß wahrgenommene Bekanntheit der
Marke „Madison“ und eine durch vergangene Projekte nachgewiesene Fähigkeit der Madison-
Gruppe, Immobilien mit hohem Mehrwert in Qingdao und anderen Städten Shandongs zu
entwickeln es ihr ermöglichen, treue Kunden zu halten und auch weiterhin Produkte im
Wohnungsbau zu Preisen am oberen Ende der Marktpreisspanne anzubieten.

Ein breit aufgestelltes Geschäftsmodell, das sich auf Wohn-, Erholungs-, Freizeit- und
Tourismusimmobilien sowie industrielle Entwicklung konzentriert.

Die Madison-Gruppe ist überzeugt, dass ihr breit gefächertes Geschäftsmodell, das sowohl Wohn-,
Erholungs-, Freizeit- und Tourismusimmobilien als auch Industrieimmobilien umfasst, sie in die
Lage versetzt, langfristig ein nachhaltiges und ausgeglichenes Wachstum beizubehalten. Aus Sicht
der Gesellschaft wird die Madison-Gruppe Chinas schnell fortschreitende Urbanisierung über ihre
Wohnimmobilienprojekte zu Ihrem Vorteil nutzen können. Die Gesellschaft geht davon aus, dass
sie ideal aufgestellt ist, um aus Qingdaos Stellung als eines der beliebtesten Reiseziele Chinas
sowie aus dem wachsenden Bedarf für Erholungs-, Freizeit- und Tourismusimmobilien in China
allgemein Kapital schlagen zu können, indem es integrierte Urlaubsresorts, Hotels und
Wohnimmobilien im Luxussegment entwickelt. Mit seinen Gewerbeimmobilien in Chongqing plant
die Gesellschaft, eine von ihr wahrgenommene Nachfrage nach Gewerbeimmobilien in einer
Region zu befriedigen, die von der chinesischen Regierung als eine der Wachstumsregionen der
Zukunft vorgesehen ist, in der sowohl chinesische als auch ausländische Investitionen gefördert
werden (Quelle: Catalogue of Foreign Investment in Competitive Industries in Middle-west areas
(revised in 2008)). Die Gesellschaft ist der Ansicht, dass das breit aufgestellte Geschäftsmodell der
Madison-Gruppe die Bedürfnisse der verschiedenen Kundengruppen befriedigt und es ihr dadurch
erlaubt, einen großen Teil des gesamten Immobilienmarktes abzudecken. Die Gesellschaft ist auch
der Meinung, dass das von der Madison-Gruppe angewandte, breit aufgestellte Geschäftsmodell
vermindert zyklische und auf der Politik der Regierung beruhende Risiken, denen das Geschäft der
Madison-Gruppe ausgesetzt sein könnte. Für den Fall, dass es in einem Bereich des
Immobilienmarktes zu einem Abschwung kommt, glaubt die die Madison-Gruppe in der Lage zu
sein, geringere Einnahmen in dem betroffenen Bereich durch höhere Einnahmen aufgrund
verstärkter Geschäftstätigkeit in anderen Bereichen des Immobilienmarktes auszugleichen. Die
Gesellschaft glaubt weiterhin, dass das Geschäftsmodell der Madison-Gruppe zudem die Risiken
einer sich ändernden Regierungspolitik oder einer Regierungsintervention reduziert, da letztere,

                                                                                                  25
nach Wahrnehmung der Gesellschaft, üblicherweise auf einen bestimmten Sektor des
Immobilienmarktes abzielen.

Eine diversifizierte geografische Verteilung mit Schwerpunkten in der Provinz Shandong
und in Chongqing.

Die Gesellschaft geht davon aus, dass ihr einzigartiges geografisches Profil, mit
Immobilienprojekten in der Provinz Shandong und in Chongqing, es ihr ermöglichen, maximalen
Nutzen aus Chinas fortschreitendem Wachstum zu ziehen und alle nachteiligen Folgen regionaler
wirtschaftlicher Abschwünge in der Zukunft zu überstehen. Die Provinz Shandong bildet einen Teil
der entwickelten Küstenregionen Chinas, die traditionell das Zentrum ausländischer Investitionen
und des damit einhergehenden schnellen wirtschaftlichen Wachstums bilden. Da der Großteil der
aktuellen Projekte der Madison-Gruppe in und rundum Qingdao in der Provinz Shandong verortet
sind, glaubt die Madison-Gruppe in der Lage zu sein, den vollen Nutzen aus dem andauernden
starken Wachstum der Region zu ziehen. Angelockt durch eine Vielzahl staatlicher Anreize für
Zentral- und Westchina sowie niedrigere Arbeitskosten, streben ausländische Investoren
zunehmend in Chinas Landesinnere und insbesondere nach Chongqing. Die Gesellschaft geht
davon aus, dass Chongqing sich zum neuen wirtschaftlichen Zentrum Zentralchinas entwickeln
könnte und ist daher der Ansicht, dass Sie mit Ihrem zweiten geografischen Standbein in
Chongqing die Möglichkeit hat, auch aus dieser neuen wirtschaftlichen Dynamik Vorteile zu ziehen.
Die Gesellschaft schätzt, dass sich der Immobilienmarkt Chongqings noch in einer früheren
Entwicklungsphase befindet, als dies bei Städten in Küstengebieten, wie Qingdao, der Fall ist.
Daher erwartet die Gesellschaft, dass sie in naher Zukunft eine führende Position auf dem
Immobilienmarkt Chongqings einnehmen kann. Die Gesellschaft sieht sich hierbei in der
vorteilhaften Position, bereits zu einem frühen Zeitpunkt den lokalen Markteintritt gewagt zu haben,
im Vergleich zu Konkurrenten in Qingdao und anderen Regionen Chinas, die sich nur auf die
entwickelteren Gebiete Chinas konzentrieren. Darüber hinaus geht die Gesellschaft davon aus,
durch die Entwicklung von Immobilienvorhaben in zwei unterschiedlichen und weitestgehend
unabhängig voneinander bestehenden regionalen Märkten, potentielle wirtschaftliche Abschwünge
in dem einen Markt durch verstärkte Geschäftstätigkeiten im anderen kompensieren zu können.

Die Lieferung eines hohen Maßes an Qualität für Projekte an einzigartigen Standorten.

Die Madison-Gruppe konzentriert sich auf die Entwicklung mittel- bis hochwertiger Projekte an,
nach ihrer Wahrnehmung, einzigartigen und strategisch gut gelegenen Standorten. Viele der für
gegenwärtige und zukünftige Entwicklungen ausgewählten Standorte liegen in oder in der Nähe
von malerischen Landschaften wie dem Konfuziusberg, dem Laoberg oder in Parks und am Meer.
Um ein hohes Qualitätsniveau innerhalb des festgelegten Budgets zu gewährleisten, legt die
Madison-Gruppe viel Wert auf die ästhetische Erscheinung, das moderne Design, umfassende
Zusatzeinrichtungen und die landschaftliche Gestaltung ihrer Vorhaben. Darüber hinaus unterhält
die Madison-Gruppe ein strenges Qualitätskontrollsystem und überwacht die wichtigsten Etappen
des Bauprozesses, von der Auswahl der Materiallieferanten bis zur Durchführung einer
abschließenden Überprüfung unmittelbar vor der Abnahme. Die Madison-Gruppe ist davon
überzeugt, dass ihre Festlegung auf die Auswahl herausragender Standorte und die Schaffung
hochwertiger Immobilien zur Kundenzufriedenheit beiträgt und es ihr erlaubt, auch weiterhin eine
Reputation im lokalen Markt aufrechtzuerhalten, die sie selbst als exzellent wahrnimmt.

Beträchtliche Landreserven zur Unterstützung des Wachstums der Madison-Gruppe in den
kommenden Jahren.

Zum 15. Oktober 2010 hielt die Madison-Gruppe eine gesamtgeplante BGF von ungefähr 266.220
m² in Entwicklung und eine gesamtgeplante BGF von ca. 411.588 m² für zukünftige Entwicklungen
bereit, für welche sie die Landnutzungsrechtszertifikate erhalten hat. Außerdem hat die Madison-
Gruppe andere potentielle Projekte in Vorbereitung, für welche sie Kooperationsvereinbarungen
geschlossen hat oder gerade dabei ist, aufgrund von Änderungen der Flächennutzungspläne der
Qingdao-Regierung jetzt das Land zu ersteigern, welches ihr vormals bereits zugesagt worden
war. Sofern diese Projekte umgesetzt werden und die Madison-Gruppe Erfolg bei der Ersteigerung
der verschiedenen Landstücke hat, wird eine gesamtgeplante BGF von ca. 1.692.866 m² für ihre
zukünftigen Entwicklungsprojekte hinzukommen. Die Gesellschaft geht davon aus, dass die
gegenwärtigen Landreserven der Madison-Gruppe für die Aufrechterhaltung geplanter
Entwicklungen ausreichen und als Grundlage für das Wachstum zumindest der nächsten drei
Jahre ausreichen. Die Gesellschaft nimmt weiter an, dass die Madison-Gruppe aufgrund ihrer von
ihr als umfangreich wahrgenommenen Branchenkenntnisse und Einblicke in die lokalen
Entwicklungstendenzen in Qingdao, anderen Städten der Provinz Shandong und Chongqing, auch
zukünftig in der Lage sein wird, ihre Landreserven auszubauen.
                                                                                                 26
Ein erfahrenes und eingespieltes führendes Management, unterstützt von einer gut
ausgebildeten und motivierten Belegschaft.

Der Vorstandsvorsitzende der Madison Property AG und gleichzeitiger Geschäftsführer von
Madison Qingdao, Herr Qingtong Tian, besitzt nach Ansicht der Gesellschaft umfassende
Kenntnisse des Immobiliengeschäftsumfeldes und der Branchendynamik in China. Unter anderem
wurde er 2006 von der Baukommission Qingdao unter die „zehn führenden
Immobilienführungskräfte in Qingdao“ gewählt. Einige der Mitglieder des führenden Managements
der Madison-Gruppe sind erfahrene Branchenkenner mit mehr als zehn Jahre Erfahrung in der
Immobilienentwicklung, und die Gesellschaft ist daher der Ansicht, dass diese Mitglieder daher
starke Fähigkeiten bei der strategischen Planung, dem Management und dem operativen Geschäft
haben. Das führende Management der Madison-Gruppe ist stabil und eingespielt, viele seiner
Mitglieder waren von Beginn an Teil des Teams. Die Madison-Gruppe ist überzeugt, dass ihr
führendes Management über solide berufliche Qualifikationen verfügt, und dass die umfangreichen
Branchenkenntnisse des führenden Managements ein maßgebender Faktor für den Erfolg der
Madison-Gruppe in der Vergangenheit waren und auch treibende Kraft für das zukünftige
Wachstum sein werden. Daneben hat sich die Madison-Gruppe stetig um die Weiterbildung und
Schulung ihres Personals bemüht,              dem sie auch kompetitive Gehälter und
Leistungsbonusprogramme bietet. Aus diesem Grund ist die Madison-Gruppe der Ansicht, dass
ihre Belegschaft gut ausgebildet und hoch motiviert ist.

Strategie
Die Madison-Gruppe verfolgt folgende strategische Ziele:

Zweifach ausgerichtete geografische Marktstrategie mit Schwerpunkten in der Provinz
Shandong und in Chongqing.

Die Gesellschaft beabsichtigt, sich weiterhin auf den Großraum Qingdao und andere Städte in der
Provinz Shandong, einschließlich Zibo und Tai’an, als Hauptmarkt für die Entwicklung von
Immobilien zu konzentrieren. Sie will sich aber auch in der Two Rivers New Area in Chongqing
ausbreiten, die nach Ansicht der Gesellschaft beträchtliches wirtschaftliches Wachstumspotential
für die Zukunft bietet.

Mit einer Bevölkerung von 8,5 Mio. Einwohnern (2010: Stadt auf Nebenprovinzebene) gehört
Qingdao zu einer der Städte Chinas mit der höchsten Real BIP Wachstumsrate, die 2009 12,2%
betrug. 2009 lag das Pro-Kopf-BIP in Qingdao bei RMB 57.251, das 2,27-fache des nationalen
Durchschnittes von RMB 25.188. Chongqing ist eine der vier Gemeinden, die direkt von der
chinesischen Zentralregierung verwaltet werden. Die anderen drei Gemeinden sind Peking,
Shanghai und Tianjin. Aus Sicht der Gesellschaft hat die Gründung der Two Rivers New Area in
Chongqing im Juni 2010 ein bedeutendes Potential für wirtschaftliches Wachstum in dieser Region
geschaffen. Die Two Rivers New Area ist eine von lediglich drei unterhalb der Provinzebene
angesiedelten „New Zones“ (die anderen sind die Pudong New Area in Shanghai und die Binhai
New Area in Tianjin), die direkt vom chinesischen Staatsrat genehmigt wurden und daher eine
hervorgehobene Stellung in Chinas Wirtschaftssystem einnehmen. Es wird erwartet, dass die Two
Rivers New Area ein Tor zu Chinas Landesinneren wird, welches sich schrittweise zu einem
fortschrittlichen Standort für das herstellende Gewerbe und die moderne Dienstleistungsindustrie
sowie zum Finanz- und Innovationszentrum am Oberfluss des Jangtse entwickelt.

Die Madison-Gruppe ist überzeugt, dass sie bei ihrer Ausbreitung in verschiedene geografische
Regionen fähig sein wird, aus ihrer Erfahrung im Aufbau einer ihrer Ansicht nach führenden
Marktposition im Immobilienmarkt in Qingdao und aus ihrem frühen Eintritt in den lokalen
Immobilienmarkt in Chongqing, Kapital zu schlagen.

Weiterer Aufbau der Marke „Madison“ und Stärkung der Wettbewerbsvorteile.

Die Madison-Gruppe plant, ihren Markennamen weiter zu fördern und stärken und hochwertige
Immobilienprojekte an strategisch ausgewählten Standorten zu entwickeln. Die Madison-Gruppe
wird fortfahren, ihr Hauptprodukt, die „Green Bay“- und „State Garden“-Reihen ihrer
Wohnimmobilien, durch Verkaufs- und Marketingaktivitäten sowie die Bereitstellung eines
effizienten Kundendienstes voranzutreiben. Sie beabsichtigt weiterhin, zur Ergänzung ihres
aktuellen Geschäftsmodells, ihre Gewerbe-, Erholungs-, Freizeit und Tourismusimmobilien zu
entwickeln. Die Gesellschaft geht davon aus, dass sie durch das kontinuierliche Angebot gut
gestalteter Immobilienprojekte, die den Bedürfnissen der lokalen Einwohner und Kunden

                                                                                             27
entsprechen, in der Lage sein wird, die Bekanntheit und Reputation der Marke „Madison“ weiter zu
verbessern.

Beibehaltung einer umfassenden Produktpalette mit einem vorrangigen Fokus auf
Wohnimmobilien.

Die Madison-Gruppe wird ihre Strategie beibehalten, ihren Kunden eine umfassende
Produktpalette zu bieten, wobei eine anteilige Gewichtung von 60%, 30%, 10% in Bezug auf die
Anzahl der Vorhaben im Wohn-, Industrie- und Gewerbe- sowie Tourismus- und Freizeitsektor
anvisiert wird, um einen großen Kundenkreis anzusprechen. Während sich die Madison-Gruppe
innerhalb der nächsten drei Jahre in erster Linie auf Wohnimmobilien konzentrieren wird, richtet sie
sich zusätzlich schrittweise auf die Ausweitung und Diversifizierung ihrer Geschäftes aus, um mehr
Gewerbe- und Industrieimmobilien einzubeziehen, wodurch ihre Finanzergebnisse und ihre
Risikostreuung verbessert werden.

Weiterhin einzigartige Landreserven ausfindig machen.

Die Gesellschaft hat vor, auch in Zukunft in der Provinz Shandong, insbesondere in und rundum
Qingdao, aber auch in Chongqing, zusätzliche Projekte und neue, zur Entwicklung bereitstehende
Landreserven zu erwerben. Die Madison-Gruppe plant, weiterhin Landreserven an einzigartigen
und strategisch gut gelegenen Standorten ausfindig zu machen und hochwertige Projekte für
dieselben zu entwerfen. Auch plant sie, weiterhin unerschlossene Grundstücke zu erwerben, die in
ihre Gesamtentwicklungsstrategie passen. Langfristig gesehen wird die Madison-Gruppe
möglicherweise auch beginnen, Immobilienentwicklung in anderen Teilen der Provinz Shandong
durchzuführen, um ihr Gesamtwachstum zu steigern.

Nutzen aus ihrer Expertise im grünen und umweltfreundlichen Bauen ziehen.
Die Madison-Gruppe ist den Prinzipien des grünen und umweltfreundlichen Bauens verpflichtet
und wird damit fortfahren, in großem Umfang Landschaftsgestaltung und Begrünung in ihren
Immobilienvorhaben durchzuführen, um ihre Projekte in gesteigertem Maße in die natürliche
Umgebung zu integrieren. Das „Mount Green“-Projekt der Madison-Gruppe mit einem geplanten
Begrünungsanteil von 40,59%, kann in diesem Zusammenhang als gutes Beispiel dienen. Es ist
eines von lediglich zwei Musterimmobilienprojekten in China, die den „Entwicklung einer grünen
Stadt“-Preis der Gordon and Betty Moore Foundation gewonnen haben. Wegen Qingdaos
Bedeutung als beliebtes Urlaubs- und Freizeitziel legt die Stadtregierung mehr Wert auf grünes
und umweltfreundliches Bauen als andere Lokalregierungen. Unter anderem bereitet die
Stadtregierung       in     Qingdao        derzeit     Bestimmungen         vor,     die      für
Immobilienentwicklungsgesellschaften die Einhaltung gewisser Mindestgrünflächenanteile bei ihren
Immobilienprojekten vorschreiben. Wie man am “Mount Green” Projekt erkennen kann, hat die
Gesellschaft diese Entwicklung bereits seit geraumer Zeit vorhergesehen. Die Gesellschaft ist der
Überzeugung, dass ihr wachsendes Wissen über derartige grüne Bebauungsprinzipien angesichts
der    zunehmenden       Herauforderungen,     denen    sich   China     durch   die   steigende
Umweltverschmutzung ausgesetzt sieht, immer mehr von Nutzen sein wird. Nach Ansicht der
Gesellschaft wird die steigende Umweltverschmutzung in China die Aufstellung immer strengerer
Standards für grünes und umweltfreundliches Baumethoden durch nationale und lokale
Regierungen auslösen. Die Madison-Gruppe geht davon aus, dass sie sich in einer vorteilhaften
Position gegenüber anderen Immobilienentwicklungsgesellschaften in China befindet, welche die
Prinzipien des grünen Bauens noch nicht in ihre Immobilienprojekte mit einbeziehen.

Beibehaltung einer strikten finanziellen Disziplin.

Die Madison-Gruppe wird ihre strikte finanzielle Disziplin bei der Ausweitung ihrer
Geschäftstätigkeit beibehalten. Unter anderem wird die Madison-Gruppe die genaue Überwachung
ihrer Kapital- und Bargeldpositionen fortsetzen und vorsichtig die wesentlichen Parameter ihres
operativen Geschäftes steuern, z.B. die Kosten von Landzukäufen, Baukosten, den Geldfluss und
Fixkosten. Durch die genaue Überwachung von Verkäufen und Vorverkäufen will die Madison-
Gruppe jederzeit ihren Geldfluss kontrollieren, um sicherzustellen, dass die entsprechenden
Kapitalanforderungen eingehalten werden. Die Geschäftsleitung der jeweiligen Unternehmen der
Madison-Gruppe wird ausführliche Standards einführen, um die Kapitalverpflichtungen mit
langfristigen Finanzierungsmöglichkeiten in Einklang zu bringen.

Darüber hinaus sind alle Unternehmen der Madison-Gruppe zur Einhaltung einer strengen
Kostenkontrolle verpflichtet, zur Echt-Zeit-Überwachung der Verkäufe und zur Entwicklung eines
effizienten Kundenbeziehungsmanagements. Diese Maßnahmen gewährleisten die durchgängige

                                                                                                 28
Anwendung des Geschäftsmodells auf alle großen Entwicklungsprojekte von Unternehmen der
Madison-Gruppe.


Weitere wesentliche Angaben über die Gesellschaft
Die Gesellschaft ist eine nach deutschem Recht gegründete Aktiengesellschaft mit Sitz in Berlin.
Sie ist im Handelsregister des Amtsgerichts Berlin unter HRB 129015 eingetragen.
Unternehmensgegenstand der Gesellschaft ist der Geschäftsbetrieb als Holding der Madison
Property Group Limited (“Madison Hong Kong”), einer nach Hong Kong Recht gegründeten
Gesellschaft, welche die Holding ihrer zehn operativ tätigen, nach dem Recht der Volksrepublik
China gegründeten Tochtergesellschaften Madison Qingdao Property Group Company Limited
(“Madison Qingdao”), Qingdao Junxin Properties Company Limited (“Qingdao Junxin”), Madison
Zibo Real Estate Company Limited (“Madison Zibo”), Madison Tai’an Real Estate Company
Limited (“Madison Tai’an”), Chongqing Yinlian Investments Company Limited (“Chongqing
Yinlian”), Chongqing Longkunxiang Properties Company Limited (“Chongqing Longkunxiang”),
Qingdao Jundong Properties Company Limited (“Qingdao Jundong”), Qingdao Guanghua
Properties Company Limited (“Qingdao Guanghua”), Qingdao Xianggen Quanhai Zhiye Company
Limited (“Qingdao Xianggen Quanhai”) und Qingdao Junyang Zhiye Company Limited (“Qingdao
Junyang”) ist.



Vorstand                                        Herr Qingtong Tian, Herr Zaisheng Wei und Herr
                                                Yi (Alex) Yuan

Aufsichtsrat                                    Herr Andreas Grosjean, Herr Oliver Kuan und
                                                Herr Yongting Hou

Grundkapital    (vor     Durchführung     des   EUR 3.500.000 unterteilt in 3.500.000 auf den
Angebots)                                       Inhaber lautende Stammaktien ohne Nennbetrag
                                                (Stückaktien).

Gegenwärtiger Abschlussprüfer                   KPMG AG Wirtschaftsprüfungsgesellschaft,
                                                Marie-Curie-Str. 30, 60439 Frankfurt am Main,
                                                Deutschland

Altaktionäre                                    Unmittelbar vor der Durchführung des
                                                Angebots wurden 92% der Aktien von Falcon
                                                Grow, 3.25% der Aktien von Best Way
                                                Ecological Food Inc., 3.25% der Aktien von Mr.
                                                Wah Lam und 1.5% der Aktien von Kvalue
                                                Financial Co., Ltd. gehalten (die “Altaktionäre”)

Sitz und Geschäftsjahr                          Der Sitz der Gesellschaft ist c/o Salans LLP,
                                                Markgrafenstraße 33, 10117 Berlin. Das
                                                Geschäftsjahr der Gesellschaft endet am
                                                30. April.

Mitarbeiter                                     Zum Stichtag des 31. Juli 2010 beschäftigte die
                                                Madison Group 132 Mitarbeiter. Bis zum Datum
                                                dieses Prospektes hat sich die Mitarbeiterzahl
                                                auf insgesamt 149 erhöht.




                                                                                                    29
Zusammenfassung des Angebots
 Angebot                             Das Angebot besteht aus einem öffentlichen
                                     Angebot in Deutschland und Luxemburg sowie
                                     Privatplatzierungen an institutionelle Investoren
                                     außerhalb von Deutschland, Luxemburg und
                                     den Vereinigten Staaten von Amerika.

                                     Das Angebot besteht aus bis zu 632.500 auf
                                     den      Inhaber     lautenden    Stammaktien
                                     (Stückaktien) ohne Nennbetrag der Madison
                                     Property AG mit einem anteiligen Betrag am
                                     Grundkapital von jeweils EUR 1,00 und mit
                                     voller Gewinnbeteiligung für das gesamte zum
                                     30. April 2011 endende Geschäftsjahr.

                                     Von diesem Betrag stammen (i) 575.000 auf
                                     den Inhaber lautende Stammaktien ohne
                                     Nennbetrag aus einer Kapitalerhöhung gegen
                                     Bareinlagen aus genehmigtem Kapital gemäß
                                     eines Beschlusses des Vorstandes und einer
                                     entsprechenden         Zustimmung         des
                                     Aufsichtsrates, die beide voraussichtlich am
                                     oder kurz vor dem 2. Dezember 2010 erfolgen
                                     werden (die „Neuen Aktien“); und (ii) 57.500
                                     auf den Inhaber lautende Stammaktien ohne
                                     Nennbetrag aus dem Eigentum des Greenshoe-
                                     Aktionäre, d.h. von Falcon Grow Investments
                                     Limited (“Falcon Grow“), Best Way Ecological
                                     Food Inc., Mr. Wah Lam und Kvalue Financial
                                     Co., Ltd., im Zusammenhang mit einer
                                     möglichen Mehrzuteilung (die „Greenshoe-
                                     Aktien“, zusammen mit den Neuen Aktien die
                                     „Angebotsaktien“).

 Angebotsfrist                       Die      Frist,   innerhalb   welcher   Anleger
                                     Kaufangebote             abgeben         können
                                     (“Angebotsfrist”), beginnt voraussichtlich am
                                     22. November 2010 und endet am 2. Dezember
                                     2010. Während der Angebotsfrist können
                                     Privatanleger Angebote zum Kauf der Aktien bei
                                     ihrem Aktienhändler oder ihrer Bank abgeben
                                     Institutionelle Investoren sollen ihre Angebote
                                     zum Kauf der Aktien gegenüber VEM abgeben.

                                     Am letzten Tag der Angebotsfrist können
                                     Privatinvestoren ihr Angebot zum Kauf von
                                     Aktien bis 12:00 Uhr mittags (Mitteleuropäischer
                                     Zeit) und institutionelle Anleger bis 16:00 Uhr
                                     (Mitteleuropäischer Zeit) abgeben.

 Preisspanne und Platzierungspreis   Die Preisspanne, innerhalb derer Kaufangebote
                                     abgegeben werden können, beträgt EUR 26,00
                                     bis EUR 29,00 per Offer Share.

                                     Der Platzierungspreis je Angebotsaktie wird von
                                     der Gesellschaft und VEM anhand des im
                                     Bookbuilding-Verfahren erstellten Orderbuchs
                                     gemeinsam festgelegt. Der Platzierungspreis
                                     wird im Anschluss hieran auf der Internetseite
                                     der Gesellschaft (www.madisonproperty.cn) und
                                     als     Unternehmensnachricht     veröffentlicht.
                                     Insbesondere für den Fall, dass das
                                     Platzierungsvolumen     nicht ausreicht,     um
                                     sämtliche Kaufaufträge zum Platzierungspreis
                                     zu bedienen, behält sich VEM das Recht vor,

                                                                                    30
                                     Kaufangebote     nicht   oder    nur    teilweise
                                     anzunehmen.

Änderungen der Angebotsbedingungen   Die Gesellschaft behält sich gemeinsam mit
                                     VEM das Recht vor, die Anzahl der
                                     Angebotsaktien zu verringern, die obere
                                     und/oder untere Begrenzung der Preisspanne zu
                                     ermäßigen oder zu erhöhen und/oder den
                                     Angebotszeitraum zu verlängern oder zu
                                     verkürzen. Im Falle einer Änderung der
                                     Angebotsbedingungen wird die Änderung als
                                     Mitteilung über elektronische Medien sowie auf
                                     der       Internetseite    der     Gesellschaft
                                     (www.madisonproperty.cn) bekannt gegeben.
                                     Diese Informationen werden, soweit dies nach
                                     anwendbarem deutschen Recht zulässig ist, als
                                     Nachtrag zu diesem Prospekt veröffentlicht
                                     werden. Eine individuelle Unterrichtung der
                                     Anleger, die Kaufangebote abgegeben haben,
                                     erfolgt nicht.

Lieferung und Abrechnung der         Die Angebotsaktien werden voraussichtlich
Angebotsaktien                       einen Bankarbeitstag nach Börsennotierung der
                                     Aktien gegen Zahlung des Platzierungspreises
                                     geliefert.

Mehrzuteilung/Stabilisierung         Im Zusammenhang mit der Platzierung können
                                     im rechtlich zulässigen Umfang Mehrzuteilungen
                                     und so genannte Stabilisierungsmaßnahmen in
                                     dem      gesetzlich    zugelassenen       Umfang
                                     vorgenommen werden, um den Börsen- oder
                                     den Marktpreis der Aktien der Gesellschaft zu
                                     unterstützen.         Stabilisierungsmaßnahmen
                                     können mit dem Zeitpunkt der Aufnahme der
                                     Börsennotierung der Aktien der Gesellschaft
                                     eingeleitet werden und müssen spätestens am
                                     darauf         folgenden          30. Kalendertag
                                     abgeschlossen werden.

Greenshoe-Option                     Falcon Grow Investments Limited, Best Way
                                     Ecological Food Inc., Mr. Wah Lam und Kvalue
                                     Financial Co., Ltd. haben VEM die Option
                                     eingeräumt, 57.500 nennwertlose Stückaktien
                                     der     Gesellschaft   zum    Platzierungspreis
                                     abzüglich vereinbarter Kommissionen im
                                     Rahmen einer so genannten Wertpapierleihe zu
                                     erwerben, um eine eventuelle Mehrzuteilung zu
                                     ermöglichen.     Diese   Option    verfällt 30
                                     Kalendertage nach dem Beginn des Handels der
                                     Aktien.

Allgemeine Zuteilungskriterien       Die Gesellschaft und VEM werden die
                                     “Grundsätze     für    die     Zuteilung    von
                                     Aktienemissionen an Privatanleger” beachten,
                                     die     am       7. Juni 2000      von      der
                                     Börsensachverständigenkommission           beim
                                     Bundesministerium          der         Finanzen
                                     herausgegeben wurden.

Greenshoe-Aktionäre                  Falcon Grow Investments Limited, Best Way
                                     Ecological Food Inc., Mr. Wah Lam und Kvalue
                                     Financial Co., Ltd.

Globaler Koordinator                 VEM




                                                                                    31
Konsortialbank                         VEM



Einbeziehung in den Börsenhandel       Die Aktien der Altaktionäre der Gesellschaft sind
                                       seit dem 12. August 2010 in den Handel im First
                                       Quotation Board-Segment des Freiverkehrs der
                                       Frankfurter Wertpapierbörse einbezogen. Ein
                                       Antrag auf Übertragung der Aktien der
                                       Altaktionäre in den Entry Standard, einem
                                       Untersegment des Freiverkehrs, und auf
                                       Einbeziehung der Neuen Aktien in den Handel
                                       im Entry Standard, wird voraussichtlich am 3.
                                       Dezember 2010        gestellt      werden.    Die
                                       Genehmigung        der     Einbeziehung      und
                                       Übertragung wird voraussichtlich spätestens am
                                       5. Dezember 2010             erfolgen.        Die
                                       Notierungsaufnahme       im     Entry   Standard-
                                       Segment des Freiverkehrs der Frankfurter
                                       Wertpapierbörse wird voraussichtlich am
                                       6. Dezember 2010 erfolgen.

Vorzeitige Beendigung des Angebots     Das Listing Agreement sieht vor, dass VEM das
                                       Listing Agreement bis zur Lieferung und
                                       Abrechnung der Aktien unter bestimmten
                                       Voraussetzungen kündigen kann, selbst wenn
                                       Aktien bereits zugeteilt und in den Handel
                                       einbezogen wurden. Im Falle einer Kündigung
                                       des Listing Agreement, erfolgt kein Angebot. In
                                       diesem Fall werden Zuteilungen von Aktien an
                                       Investoren für unwirksam erklärt und Investoren
                                       haben keinen Lieferanspruch. Ansprüche in
                                       Bezug auf für die Zeichnung gezahlte Gebühren
                                       und Kosten, die einem Investor in Verbindung
                                       mit der Zeichnung entstanden sind, bestimmen
                                       sich alleine nach der Rechtsbeziehung zwischen
                                       dem Investor und der Institution, welcher der
                                       Investor sein Kaufangebot übermittelt hat.

Veräußerungsbeschränkungen (Lock-Up)   Die Altaktionäre haben mit VEM vereinbart, dass
                                       sie bis zum 30. November 2011 nicht

                                       -      Aktien an der Gesellschaft anbieten,
                                       verpfänden, verkaufen, sich verpflichten diese
                                       zu verkaufen, Optionen zum Kauf, Optionen zum
                                       Verkauf anbieten oder sonstige Rechtsgeschäfte
                                       zur direkten oder indirekten Übertragung oder
                                       andere Sicherheiten, die zum Erwerb von Aktien
                                       berechtigten, eingehen,

                                       -       ein Swap-Geschäft oder ein anderes
                                       Rechtsgeschäfts     abschließen,    dass    das
                                       ökonomische Risiko der Beteiligung auf einen
                                       Dritten    ganz   oder    teilweise   überträgt,
                                       unabhängig davon, ob Aktien übergeben
                                       werden, Barzahlungen oder andere Gegenwerte
                                       geleistet werden oder

                                       -        eine Kapitalerhöhung der Gesellschaft
                                       initiieren, einer solchen zustimmen oder eine
                                       solche in anderer Weise fördern werden oder
                                       Aktien ausgeben werden, welche gegen Aktien
                                       der Gesellschaft getauscht werden können oder
                                       sich an einem anderen vergleichbaren
                                       Rechtsgeschäft beteiligen.

                                       Diese   Beschränkungen       gelten   nicht   für

                                                                                      32
                                          Rechtsgeschäfte die im Zusammenhang mit der
                                          Ausübung der Greenshoe-Option stehen, sofern
                                          die Greenshoe-Aktien von den Altaktionären im
                                          Freiverkehr angeboten werden.

Die Kosten des Börsengangs für die        Da die Kosten des Börsengangs von der
Gesellschaft                              Gesamtzahl der platzierten Aktien und dem
                                          Angebotspreis abhängen, welche die Höhe der
                                          zu zahlenden Kommissionen bestimmen, ist die
                                          Gesellschaft zum Prospektdatum nicht in der
                                          Lage, die Kosten des Börsengangs verlässlich
                                          vorauszusagen. Unter Einbeziehung der oben
                                          genannten      Unsicherheiten    schätzt  die
                                          Gesellschaft, dass die Kosten des Börsengangs
                                          (einschließlich der Kommissionen von VEM)
                                          zwischen EUR 1,75 Mio. und EUR 1,9 Mio.
                                          liegen werden.

Verwendung des Emissionserlöses           Die    Gesellschaft  beabsichtigt, den   ihr
                                          zufließenden Nettoemissionserlös aus dem
                                          Verkauf der Aktien zur Finanzierung der
                                          laufenden Projekte der Madison Group und für
                                          etwaige zukünftige Expansionen der Madison
                                          Group zu verwenden.

                                          Insbesondere plant die Gesellschaft:

                                              -     Chongqing    Projekt   (Phase    I):
                                                    EUR 6,475 Mio. werden für einen Teil
                                                    der Kosten der Bauplanung und der
                                                    Baukosten verwendet. Der Rest der
                                                    Kosten wird durch ein Darlehen und
                                                    von den Einnahmen anderer Projekte
                                                    finanziert.

                                              -     Fragrance Town Island Project:
                                                    EUR 8,3 Millionen werden für einen
                                                    Teil der Bauplanung und der
                                                    Baukosten verwendet.

Wertpapier-Kenn-Nummer (WKN)              A0V9KR

International Securities Identification   DE000A0V9KR3
Number (ISIN)

Common Code                               053814310

Ticker-Symbol                             MPD




                                                                                       33
Ausgewählte Finanzinformationen
Die Gesellschaft wurde am 30. April 2008 gegründet und am 8. Mai in das vom Amtsgericht
München geführte Handelsregister eingetragen. Am 14. Januar 2010 wurde die Gesellschaft im
Zuge einer Sachkapitalerhöhung zur Muttergesellschaft der Madison Property Group Limited sowie
der übrigen Gesellschaften der Madison Property Gruppe. Gemäß IAS 8.10 ff. hat sich die
Gesellschaft dazu entschieden, diese Transaktion nach der Rechnungslegung bei
Verschmelzungen bzw. durch die Übernahme der Bilanzierung des Rechtsvorgängers abzubilden:
Die Buchwerte der Vermögenswerte und Schulden der erworbenen Konzerngesellschaften wurden
aus dem Konzernabschluss der Madison Property Group Limited ohne jegliche Anpassungen an
beizulegende     Zeitwerte    übernommen.    Das gezeichnete        Kapital  der    erworbenen
Konzerngesellschaften wurde in den Posten erwirtschaftetes Konzernergebnis umgegliedert, um
die Eigenkapitalstruktur des Mutterunternehmens widerzuspiegeln. Die Ergebnisse der erworbenen
Konzerngesellschaften wurden in den Konzernabschluss der Madison Property AG und ihrer
Tochtergesellschaften so einbezogen, als ob der Konzern bereits seit dem 1. Mai 2008 bestanden
hätte. Der Konzernabschluss umfasst daher die Ergebnisse aller Konzerngesellschaften für das
laufende Geschäftsjahr und das Vorjahr, obwohl der Unternehmenszusammenschluss erst am 14.
Januar 2010 stattgefunden hat. Die in den nachstehenden Tabellen enthaltenen Finanzangaben
sind den geprüften Konzernabschlüssen der Madison Property AG für die zum 30. April 2009 und
2010 endenden Geschäftsjahre, dem geprüften Konzernabschluss der Madison Property Group
Limited für das zum 30. April 2008 endende Geschäftsjahr sowie dem ungeprüften
Konzernzwischenabschluss der Madison Property AG für den am 31. Juli 2010 endenden
Dreimonats-Zeitraum (mit Vergleichszahlen für die Vorjahresperiode) entnommen. Die geprüften
Konzernabschlüsse wurden nach Maßgabe der International Financial Reporting Standards, wie
sie in der EU anzuwenden sind (“IFRS”), erstellt und der ungeprüfte Konzernzwischenabschluss
wurde nach Maßgabe von IAS 34 Zwischenberichterstattung erstellt. In den Konzernabschluss der
Madison Property Group Limited („Madison Hong Kong”) zum 30. April 2008 ist die chinesische
Tochtergesellschaft Qingdao Guanghua Properties Company Limited („Qingdao Guanghua“) nicht
einbezogen, die rückwirkend in den Konzernabschlüssen der Gesellschaft zum 30. April 2009 und
30.April 2010 berücksichtigt wurde.
Soweit Finanzangaben in den nachfolgenden Tabellen als „geprüft” gekennzeichnet sind, bedeutet
dies, dass sie aus den geprüften Konzernabschlüssen stammen. Die Kennzeichnung „ungeprüft“
wird in den nachstehenden Tabellen zur Kenntlichmachung von Finanzangaben verwendet, die
einer anderen Quelle als den geprüften Konzernabschlüssen entnommen bzw. aus einer solchen
abgeleitet wurden.

Ausgewählte Finanzinformationen aus der Konzern-Gewinn- und Verlustrechnung


                                                                                                                                    Zum 31. Juli
                                                                                                    Zum 30. April
                                                                                                                                endender Dreimonats-
                                                                                                endendes Geschäftsjahr
                                                                                                                                     Zeitraum
                                                                                             2010        2009        2008*        2010        2009
                                                                                           (geprüft)   (geprüft)   (geprüft)   (ungeprüft) (ungeprüft)

                                                                                                                   (in TEUR)

Umsatzerlöse ............................................................................ 63.498       57.166      54.105         1.866      25.309
Umsatzkosten der verkauften Immobilien ................................ -45.657                        -36.733     -31.393       -1.318     -19.889
Bruttoergebnis vom Umsatz .................................................. 17.841                    20.433      22.712          548        5.420
Sonstige Erträge .......................................................................      304         804            156         6            0
Veränderung des beizulegenden Zeitwerts als
                                                                                             2.051       1.203       3.100         -102        493
Finanzinvestition gehaltener Immobilien ................................
Vertriebskosten ......................................................................... -1.060          -878        -853         -357        -285
Verwaltungskosten .................................................................... -2.634           -4.795      -2.132         -710        -540
Sonstige Aufwendungen ...........................................................             -219        -209           -77        -83         -21
Nettofinanzaufwand ................................................................           -786        -476           -49       -150        -151
Anteil am Ergebnis assoziierter Unternehmen ..........................                          -5         -12            -1         -7          -1
Ergebnis vor Steuern.............................................................. 15.492              16.070      22.856          -855       4.915
Steuern vom Einkommen und vom Ertrag ................................ -6.264                            -7.586     -11.848         173       -1.763
Gewinn (Verlust)......................................................................       9.228       8.484     11.008          -682       3.152
* stammen aus dem geprüften Konzernabschluss der Madison Property Group Limited




                                                                                                                                                34
Ausgewählte Finanzinformationen aus der Konzernbilanz

                                                                                                          Zum 30. April                 Zum 31. Juli

                                                                                                2010          2009          2008*          2010
                                                                                              (geprüft)     (geprüft)     (geprüft)     (ungeprüft)

                                                                                                                        (in TEUR)

Sachanlagen .............................................................................        880           881            740             807
Als Finanzinvestition gehaltene Immobilien .............................. 22.624                             20.918        16.329          23.018
Anteile an assoziierten Unternehmen .......................................                      522           525            448             527
Übrige Finanzanlagen ...............................................................            1.405         1.397                 0       1.436
Latente Steueransprüche..........................................................               3.901         2.418         1.209           4.219
Langfristige Vermögenswerte ............................................... 29.332                           26.139        18.726          30.007
Vorräte ...................................................................................... 69.047        72.619        41.003          74.460
Forderungen aus Lieferungen und Leistungen
                                                                                  38.913                     50.089        22.778          46.470
sowie übrige Forderungen ........................................................
Als Sicherheit hinterlegte Bankguthaben ................................                         666           439            241             681
Zahlungsmittel und Zahlungsmitteläquivalente .........................                          5.624         6.191         8.049          12.888
Kurzfristige Vermögenswerte ................................................ 114.250                       129.338         72.071         134.499
Aktiva ....................................................................................... 143.582     155.477         90.797         164.506
Gezeichnetes Kapital ................................................................           3.500           50          4.960           3.500
Rücklagen .................................................................................     4.698         4.341        -1.725           5.864
Erwirtschaftetes Konzernergebnis ............................................ 42.156                         37.524        22.947          41.697
Anteile ohne beherrschenden Einfluss......................................                      1.275         1.087         1.280           1.052
Eigenkapital ............................................................................. 51.629            43.002        27.462          52.113
Bankdarlehen ............................................................................ 17.084             11.339         7.156          25.938
Latente Steuerverbindlichkeiten ................................................                6.017         4.969         3.553           6.091
Langfristige Schulden ............................................................ 23.101                    16.308        10.709          32.029
Bankdarlehen ............................................................................       4.813         4.128         3.853           4.579
Erhaltene Anzahlungen ............................................................. 9.312                    23.103        19.007          25.528
Verbindlichkeiten aus Lieferungen und Leistungen
                                                                                    30.768                   49.753        19.400          26.288
sowie sonstige Verbindlichkeiten ..............................................
Laufende Ertragsteuerverbindlichkeiten.................................... 23.959                            19.183        10.366          23.969
Kurzfristige Schulden ............................................................. 68.852                   96.167        52.626          80.364
Summe Schulden .................................................................... 91.953                 112.475         63.335         112.393
Passiva ..................................................................................... 143.582      155.477         90.797         164.506
* stammen aus dem geprüften Konzernabschluss der Madison Property Group Limited




                                                                                                                                                       35
Zusammenfassung der Risikofaktoren

Anleger sollten gewisse Risiken sorgfältig abwägen, bevor sie die Entscheidung zum Kauf von
Aktien der Gesellschaft treffen. Das Eintreten der mit diesen Risiken verbundenen Ereignisse
entweder einzeln oder zusammen mit anderen Umständen kann sich wesentlich nachteilig auf die
Geschäftstätigkeit der Madison-Gruppe auswirken und die Vermögens-, Finanz- und Ertragslage
der Madison-Gruppe erheblich beeinträchtigen. Es ist möglich, dass infolge eines mit dem
Eintreten dieser Risiken verbundenen Ereignisses der Börsenkurs der Aktien sinkt und Anleger ihr
investiertes Kapital ganz oder teilweise verlieren. Als Risikofaktoren gelten:


Risiken bezüglich der Geschäftstätigkeit der Madison-Gruppe

        Das Geschäft der Madison-Gruppe hängt von der Leistungsfähigkeit des
        Immobilienmarktes in China und insbesondere in der Provinz Shandong und der
        Gemeinde Chongqing ab.

        Das    Geschäft    der   Madison-Gruppe unterliegt umfangreichen staatlichen
        Rechtsvorschriften und ist insbesondere von Politikwechseln im chinesischen
        Immobilienbereich abhängig.

        Die Madison-Gruppe könnte nicht oder nur zu unverhältnismäßigen Preisen in der Lage
        sein, passende Standorte für zukünftige Projekte ausfindig zu machen und zu erwerben
        und höhere Preise an ihre Mieter oder Käufer weiterzugeben.

        Die Madison-Gruppe könnte nicht in der Lage sein, die Landnutzungsrechtszertifikate für
        die Immobilien, die sie in der Zukunft zu entwickeln plant oder erwerben möchte, zu
        erhalten.

        Madison Qingdao könnte außerstande sein,              die   Qualifikationszertifikate   für
        Immobilienentwicklungsgesellschaften zu verlängern.

        Die Madison-Gruppe könnte nicht in der Lage sein, Genehmigungen für die Entwicklung
        oder Durchführung neuer Immobilienprojekte zu erlangen.

        Das Tochterunternehmen Chongqing Yinlian der Gesellschaft ist nach chinesischem
        Recht nicht als Immobilienentwicklungsgesellschaft qualifiziert.

        Die Madison-Gruppe ist von der Fortsetzung der Dienste und Kooperation ihres CEO,
        Herrn Tian, und anderen Mitgliedern des führenden Managements abhängig.

        Die Altaktionäre der Gesellschaft könnten Handlungen vornehmen, die nicht im besten
        Interesse der öffentlichen Aktionäre sind.

        Mögliche Auseinandersetzungen mit ihren Joint-Venture-Partnern oder ihren
        Projektentwicklungspartnern könnten sich nachteilig auf die Madison-Gruppe auswirken.

        Die Vertragserfüllung unabhängiger Drittvertragspartner und die Preise für Baumaterialien
        können sich nachteilig auf die Madison-Gruppe auswirken.

        Es könnte Änderungen im steuerrechtlichen Status der Madison-Gruppe oder bei den
        anwendbaren Steuergesetzen der Volksrepublik China und/oder ihrer Interpretation
        geben.

        Die Madison-Gruppe könnte für die indirekte Übertragung der Anteile an Madison Qingdao
        rückwirkend besteuert werden.

        Die Madison-Gruppe könnte mit Geldbußen belegt, oder die Überlassung von
        Landnutzungsrechten könnte ihr verwehrt werden, wenn sie es versäumt, Urkundsteuer
        zu zahlen.



                                                                                                36
Die Madison-Gruppe könnte im Rahmen ihrer Geschäftstätigkeit von Zeit zu Zeit in
erhebliche Auseinandersetzungen, Rechts- und andere Verfahren verwickelt werden, und
infolgedessen einer erheblichen Haftung ausgesetzt sein.

Die Madison-Gruppe könnte in Zukunft nicht über ausreichende Finanzmittel zum
Landerwerb und zur Immobilienentwicklung verfügen.

Die Madison-Gruppe könnte nicht in der Lage sein, die Erträge aus dem öffentlichen
Angebot unmittelbar für ihre aktuellen Immobilienprojekte zu nutzen.

Die Gesellschaft ist eine Holdinggesellschaft und ist grundsätzlich von den von ihrer
chinesischen Tochtergesellschaft Madison Qingdao gezahlten Dividenden abhängig.

Die Madison-Gruppe bürgt für Hypotheken ihrer Kunden und könnte                     von
Hypothekenbanken in Haftung genommen werden, wenn die Kunden                        ihre
Hypothekenschulden nicht begleichen.

Die Madison-Gruppe hat Verträge zur Sicherung eigener Bankkredite und zur Sicherung
von Bankkrediten Dritter abgeschlossen.

Die chinesischen M&A-Bestimmungen könnten einen nachteiligen Effekt auf die Madison-
Gruppe haben.

Die Chinese State Administration of Foreign Exchange Bestimmungen über ausländische
Investitionen durch chinesische Staatsangehörige können die Geschäftstätigkeit und die
Finanzierungsmöglichkeiten von Madison Qingdao beeinträchtigen.

Mehrere Anteilsübertragungen an Tochterunternehmen der Madison-Gruppe erfüllten
nicht die Anforderungen nach den chinesischen Bestimmungen zur Übertragung von
Staatseigentum.

Die Kapitalerhöhungen von Madison Qingdao im März 2006 und März 2008 genügten
nicht den gesetzlichen Bedingungen und Verfahrensvorschriften.

Vereinbarungen zwischen dem CEO der Gesellschaft, Herrn Tian, und den Treuhand-
Gesellschaftern von Madison Qingdao könnten als unwirksam angesehen werden.

Madison Qingdao könnte aufgrund seiner Stellung als Treuhand-Gesellschafter von
Qingdao Jindishen Commercial Company Limited der Haftung gegenüber Dritten
ausgesetzt sein.

Die Übertragung der Landnutzungsrechte von Madison Real Estate auf Madison Qingdao
entsprach nicht den gesetzlichen Voraussetzungen und Verfahrensvorschriften.

Die Landnutzungsrechte der Madison-Gruppe für das Chongqing-Projekt könnten
widerrufen werden.

Die Enteignung und Umwidmung des Grundstücks für das Ocean Century Garden-Projekt
wurden nicht von der zuständigen Behörde genehmigt.

Die Madison-Gruppe hat keine Baulandnutzungsplanungsgenehmigung               für   das
Immobilienprojekt The Villa with Springs eingeholt.

Madison Qingdao beschäftigt nicht die erforderliche Anzahl an Berufsträgern als
Arbeitnehmer der Gesellschaft.

Chinesische Tochterunternehmen der Madison-Gruppe haben in der Vergangenheit
Beiträge für Sozialversicherungs- und Wohnungsfonds nicht in vollem Umfang zu Gunsten
ihrer Arbeitnehmer abgeführt, und neue Bestimmungen im chinesischen Arbeitsrecht
könnten die Arbeitskosten der Madison-Gruppe erhöhen.

Die Madison-Gruppe könnte außerstande sein, ihre Entwicklungsprojekte fristgerecht oder
überhaupt auszuführen oder zu übergeben.


                                                                                     37
      Die Madison-Gruppe geht Einnahmen- und Kostenrisiken ein, bevor sie den Nutzen aus
      ihren Immobilienentwicklungsprojekten ziehen kann.

      Die Madison-Gruppe könnte nicht in der Lage sein, angemessene Einnahmen aus ihren
      für langfristige Investitionen gehaltenen Immobilien zu ziehen.

      Eine mögliche Haftung für Umweltprobleme könnte in erheblichen Kosten münden.

      Die Madison-Gruppe verfügt lediglich über eine eingeschränkte Versicherung zur
      Abdeckung möglicher Verluste und Ansprüche.

      Die Verletzung von Urheberrechten der Madison-Gruppe durch Dritte könnte ihren Ruf
      schädigen und nachteilige Auswirkungen auf das Geschäft, die Unternehmensleistung
      und die Finanzsituation der Madison-Gruppe haben.

      Da die Madison-Gruppe ihre Einnahmen hauptsächlich aus dem Verkauf von Immobilien
      ableitet, können die Unternehmensgeschäftsergebnisse von Zeit zu Zeit erheblich
      schwanken.

      Eine Steigerung des Zinssatzes könnte das Geschäft, die Finanzlage und das
      Geschäftsergebnis der Madison-Gruppe erheblich und nachteilig beeinflussen.

      Der tatsächliche Wert der Investitionsimmobilien der Madison-Gruppe kann von Zeit zu
      Zeit schwanken und in Zukunft erheblich abnehmen.

      Seismische Aktivitäten oder andere natürliche Risiken könnten eine erhebliche
      Auswirkung auf das Geschäft der Madison-Gruppe und insbesondere ihre zukünftigen
      Verkäufe haben.

      Zukünftige Umsiedlungsverhandlungen können Mehrkosten oder Verzögerungen bei der
      Projektentwicklung der Madison-Gruppe verursachen.

      Der Aufsichtsrat der Gesellschaft könnte Schwierigkeiten haben, den Vorstand
      angemessen zu kontrollieren.

      Die Gesellschaft hat keine Erfahrung mit den deutschen regulatorischen Anforderungen
      für   gelistete   Unternehmen     und    besitzt  gegenwärtig     kein  umfassendes
      Risikomanagementsystem.

Risiken bezüglich des chinesischen Immobilienmarkts
      Die chinesische Regierung könnte weiter politische Leitlinien, Rechtsvorschriften und
      Maßnahmen zur Drosselung des Wachstums im Immobilienmarkt einführen.

      Der Immobilienmarkt in China befindet sich in einem frühen Entwicklungsstadium und ist
      volatil.

      In China verfügen Immobilieneigentümer nur über ein zeitlich begrenztes ausschließliches
      Nutzungsrecht für ihre Immobilien.

      Änderungen von Gesetzen und Rechtsvorschriften in Bezug auf den Vorvertrieb von
      Immobilien können sich nachteilig auf den Kapitalfluss und die Leistungsfähigkeit der
      Madison-Gruppe auswirken.

      Die Madison-Gruppe ist den mit dem Vorvertrieb von Immobilien verbundenen
      vertraglichen und rechtlichen Risiken ausgesetzt.

      Verstärkte Konkurrenz kann sich nachteilig auf das Geschäft der Madison-Gruppe und
      ihre finanzielle Stellung auswirken.

      Die Madison-Gruppe könnte Geldbußen auferlegt bekommen, und ihre Grundstücke
      könnten von der chinesischen Regierung beschlagnahmt werden, wenn sie sich nicht an
      die Bedingungen der Überlassungsverträge für Landnutzungsrechte hält.


                                                                                           38
Risiken bezüglich des politischen, sozialen und rechtlichen Umfelds der
Volksrepublik China
      Allgemeine Risiken im Zusammenhang mit der Geschäftstätigkeit in Schwellenmärkten.

      Wirtschaftliche Instabilität in China könnte sich nachteilig auf das Geschäft der Madison-
      Gruppe auswirken.

      Um Geldbußen und rechtliche Sanktionen zu vermeiden, müssen von der Gesellschaft
      und ihren Arbeitnehmern kürzlich erlassene Vorschriften zu Aktienoptionsprogrammen für
      Arbeitnehmer, die von im Ausland börsennotierten Unternehmen an chinesische
      Staatsangehörige gewährt werden, beachtet werden.

      Die Geschäftstätigkeit der Madison-Gruppe könnte durch die unzureichende Infrastruktur
      in China gestört werden.

      Chinas wirtschaftliche Liberalisierung könnte durch einen Wechsel des politischen
      Systems gefährdet werden.

      Epidemien und Ausbrüche ansteckender Seuchen, einschließlich des Severe Acute
      Respiratory Syndrome (SARS) und der Vogel- oder Schweinegrippe, könnten sich
      nachteilig auf die chinesische Wirtschaft auswirken.

      Das chinesische Rechtssystem und regionale und nationale Steuergesetze enthalten
      innere Unsicherheiten und Widersprüche.

      Die Madison-Gruppe könnte nicht in der Lage sein, wirksame gerichtliche Rechtshilfe zu
      erhalten.

      Die Anerkennung und Durchsetzung von Urteilen könnten in China schwierig zu erlangen
      sein.

      Ausländische Investitionen in Unternehmen in China können in Zukunft zusätzlichen
      Beschränkungen unterworfen werden.

Risiken bezüglich des Angebots

      Das Angebot könnte zu keinem aktiven und liquiden Markt für die Aktien der Gesellschaft
      führen.

      Der Marktpreis für Aktien der Gesellschaft kann schwanken.

      Der Verkauf oder vermeintliche Verkauf von Aktien der Altaktionäre könnte den Marktpreis
      der Gesellschaftsaktien nachteilig beeinflussen.

      Es könnte im Freiverkehr und seinem Untersegment, dem Entry Standard, eine zu geringe
      Liquidität für Aktien der Gesellschafts geben.

      Risiko von Leerverkäufen vor Ausgabe der Aktien.




                                                                                             39
RISK FACTORS

Investors should carefully consider all of the information set out in this Prospectus and, in
particular, the risks described below before deciding on whether to purchase shares of the
Company. Madison Group’s business, financial condition and results of operations could be
materially adversely affected, should any of these risks materialise, alone or in connection with
other circumstances. The market price of the Company’s shares could decline due to the
occurrence of any of these risks, and investors may lose all or part of their investment as a result.
The risks described below are all substantial risks that the Company is aware of but are not the
only risks to which Madison Group is exposed. Other uncertainties and risks which are currently
unknown to the Company may also impair the operations of Madison Group and cause
considerable harm to its business and its net assets, financial position and results of operations.
The order in which the following risk factors are presented does not reflect the likelihood of their
occurrence, nor the extent or significance of each individual risk.


Risks Related to Madison Group’s Business
Madison Group’s business is dependent on the performance of the property market in
China and in particular that of Shandong Province and the municipality of Chongqing.

Madison Group’s business prospects depend on the prevalent conditions in the Chinese property
market, particularly in Shandong Province’s city of Qingdao and the municipality of Chongqing.
Growth in demand for commercial and residential properties in the People’s Republic of China
(PRC) is often coupled with unbalanced supply and demand which can cause heavy fluctuations in
property prices. The Chinese property market is affected by many factors, including changes in
China’s political, economic and legal environment, and the lack of a mature and active secondary
market for commercial and residential properties. As Madison Group’s real estate projects are all
located in and around the cities of Qingdao and Chongqing, its business prospects depend
substantially on the conditions of the property market in these areas. As consumer spending
changes due to varying economic conditions, the demand for new commercial or residential
properties in the Qingdao and Chongqing areas in general may cease to grow. In the future, there
may also be an over-supply of properties or an economic downturn in the area where Madison
Group’s property projects are located or in China as a whole. Any such over-supply or economic
downturn could result in a decline in property sales or property prices regionally or nationally.
Because of Madison Group’s geographical focus on Shandong Province and the municipality of
Chongqing, it would not be able to compensate the effects of a regional economic downturn in
these two regions through the results of projects in other parts of China. Therefore, any of the
above scenarios could have a material adverse effect on the Company’s business, results of
operations and financial position.

Madison Group’s business is subject to extensive governmental regulation and, in
particular, to policy changes in the Chinese property sector.

Madison Group’s business is subject to extensive government regulation. It must comply with
various PRC laws and regulations to the same extent as other Chinese property developers.
Furthermore, it has to ensure compliance with the policies and procedures which were enacted by
local authorities to implement these laws and regulations. Also, the PRC government is capable of
influencing the Chinese property sector directly and indirectly through various measures relating to,
inter alia, property financing, taxation, foreign investment, property development and foreign
exchange rates. For example, the PRC government is able to restrict or reduce land normally
available for property development, raise commercial bank’s interest rates, place limitations on the
ability of commercial banks to make loans to property developers and buyers, impose additional
taxes and levies on property sales or even restrict overall foreign investment in the Chinese
property sector. Various property industry policies implemented by the Chinese government are
unprecedented and one can expect them to be refined and improved in the future. Similarly,
political, economic and social factors may result in significant adjustments of current policies.
Despite the fact that the PRC government has adopted numerous measures to spur domestic
consumption in the residential property market and encourage real estate development, there can
be no assurance that these measures will not be changed over time. Such policies pertaining to the
Chinese property industry, even in their refined form, might not necessarily only have positive

                                                                                                40
effects on the Company’s operations or its future business development. Even the favourable
policy changes implemented in the second half of 2008 are subject to revision or even termination
by the PRC government at any time given particular changes in market conditions calling for such
action. Additionally, the Company is not in a position to make assurances that the Chinese
government will not adopt additional and more stringent policies, regulations or measures relating
to the property industry in the future. If Madison Group fails to properly adjust its operations
according to new policies, regulations or measures pertaining to the real estate industry or if such
changes disrupt Madison Group’s business or cause it to incur additional costs, the Company’s
business prospects, results of operations and financial condition may be materially and adversely
affected.

Madison Group may not be able to identify and acquire suitable land sites for its future
projects at reasonable prices, or at all, and may not be able to pass on any higher prices to
its tenants or buyers.

Madison Group’s ability to generate sustainable revenues and growth largely depends on its ability
to identify and acquire suitable sites for property development at affordable prices. Land prices in
China’s larger cities have increased over the past few years and there is only limited supply of
suitable sites for development in these cities. As a result, Madison Group may face strong
competition from other property developers regarding particular sites which it seeks to acquire and
therefore no assurances can be made as to whether Madison Group will be able to acquire these
sites at reasonable prices, or at all, and may not be able to pass on any higher prices to its tenants
or buyers. Therefore, Madison Group’s future growth prospects and operational performance may
be adversely affected if it fails to identify and acquire appropriate new sites for development at
commercially acceptable prices so as to achieve reasonable returns upon sale or leases to
customers.

Moreover, the PRC government’s policies in relation to land supply may increase Madison Group’s
costs for acquiring land and furthermore hamper its ability to acquire land-use rights for future
developments. In recent years, the central and local Chinese governments have implemented
various measures to regulate the overall framework under which property developers may obtain
and develop land. The central government also controls land supply through zoning, land usage
and other mechanisms. Specific regulations are currently in place to control the way in which land
is acquired and developed. Further changes in government policy regarding land supply and
development may lead to increases in Madison Group’s land acquisition costs and may limit its
ability to successfully acquire land at reasonable costs, which would have a material adverse
impact on its business, financial condition, results of operations and business prospects.

Madison Group may not be able to obtain land-use rights certificates for properties which it
plans to develop or which it may acquire in the future.

In order to develop and sell real estate in China, property developers have to obtain land-use rights
certificates from the relevant government authorities. Land-use rights certificates for a specific
piece of land will not be issued until the developer has successfully executed the land-use rights
grant contract with the relevant authorities, made full payments of the land premium and complied
with the use rights and until any other land grant conditions are fulfilled. As at 15 October 2010, the
land-use rights certificates for various phases of seven projects had not yet been issued. These
projects are Green Bay Phase II, Mount Green (Phase I), Mount Green (Phase II), Mount Green
(Phase III), Riviera Royale Resort (Phase I), Riviera Royale Resort (Phase II), Riviera Royale Hotel,
Left-bank River Seine (Phase I), Left-bank River Seine (Phase II), Left-bank River Seine (Phase III),
Spring Milan, Fragrance Town Island and Fragrance Town River. There can be no assurance that
the Ministry of Land and Resources or its local branches will grant the respective land-use rights
and that they will issue the relevant land-use rights certificates in respect of these lots of land or
any other land Madison Group will acquire in the future in a timely manner, if at all. If Madison
Group cannot obtain land-use rights certificates in respect of these lots of land or any other land it
will purchase in the future, it may not be able to lease or sell the respective property projects, which
could have a material adverse impact on its business, financial position, results of operations,
financial position and business prospects.

Madison Qingdao may not be able to extend the qualification certificates for real estate
developers.



                                                                                                  41
In order to carry out the business of property development in the PRC, real estate developers must
obtain a certificate of qualification. A qualification certificate will be issued with a certain validity
period. Real estate developers have to undergo the procedures for renewal of their qualification
certificate upon the expiration of the validity period indicated in the qualification certificate. The
provincial construction department is in charge of the preliminary examination of a renewal
application, and the competent construction department of the State Council will be in charge of
approving and issuing the qualification certificate.

In addition, the qualification of real estate developers is also subject to an annual inspection by the
government authorities and real estate developers are mandated by government regulations to fulfil
all statutory requirements before passing such annual inspection. The competent construction
department of the State Council is in charge of the annual inspection for enterprises with Class
One qualification certificates. The annual results of such inspections will be published.

Madison Qingdao’s current Qualification Certificate (Class One) for Real Estate Development
Enterprises was issued for a validity period commencing on 5 February 2007 and expiring on 5
February 2010. At the date of this Prospectus, the administrative renewal procedure is still pending.
On 8 September 2010, the PRC Ministry of Housing and Urban-Rural Development issued a letter
confirming that the application submitted by Madison Qingdao for renewal of its Class One
qualification certificate had been approved and that Madison Qingdao’s renewed qualification
certificate will be issued after 31 October 2010. It cannot be concluded with absolute certainty,
however, that the PRC Ministry of Housing and Urban-Rural Development will ultimately decide to
issue a renewed Qualification Certificate (Class One) to Madison Qingdao in the end. Also, there
can be no assurance that Madison Qingdao will be able to renew its qualification certificates or
pass the annual inspections in the future. If Madison Qingdao does not hold valid certificates, it will
no longer be allowed to engage in real estate development and the government will refuse to issue
the pre-sale and other permits which are indispensable for conducting its property development
business. This would have a material adverse effect on Madison Group’s business, results of
operations, financial position and business prospects.
Madison Group may be unable to obtain project approvals for new real estate development
projects.

Under the PRC Circular on Further Strengthening and Regulating the Approval and Supervision of
Foreign Direct Investment in the Real Estate Sector, jointly issued by the PRC Ministry of
Commerce (“MOFCOM”) and Chinese State Administration of Foreign Exchange (“SAFE”) on 23
May 2007 (“Circular 50”), foreign-invested entities which have been set up as real estate
enterprises need to obtain individual approvals from the approval authorities for any new real
estate development project. There can be no assurance that Madison Qingdao can obtain such
approval from the competent authority for its future projects. The Company could, however, use the
existing or future subsidiaries of Madison Qingdao in the PRC to launch new real estate
development projects. According to the Company's own assessment, the approvals of MOFCOM or
its local counterparts are required only if Madison Qingdao’s subsidiaries, being the company is
with investment from an FIE, are engaged in the business where foreign investment is restricted.
With respect to real estate development, the business where foreign investment is restricted
includes tract development of land (limited to equity joint ventures and cooperative joint ventures),
and construction and operation of high-grade hotels, villas, high-class office buildings, and
international exhibition centers. Except for the business where foreign investment is restricted or
prohibited, Madison Qingdao’s subsidiaries could conduct their business without the approvals of
MOFCOM or its local counterparts. If any of Madison Qingdao’s subsidiaries intend to start new
real estate development projects that fall in the business scope where foreign investment is
restricted, it shall obtain the approvals of MOFCOM or its local counterparts.

However, there can be no assurance that MOFCOM or other government authorities will take the
same view. If MOFCOM or other government authorities conclude that Madison Qingdao’s
investment in new real estate projects through its existing or future subsidiaries without approval is
a circumvention of the Circular 50, it may be subject to legal sanctions imposed by the PRC
government, among other things being prohibited from conducting foreign exchange procedures
with SAFE or its local counterparts or the banks designated to conduct foreign exchange business,
which could have a material adverse effect on Madison Group’s business, results of operations,
financial position and business prospects.



                                                                                                    42
The Company’s subsidiary Chongqing Yinlian is not qualified as a real estate developer
under PRC law.

Chongqing Yinlian does not have an effective qualification certificate for real estate development
and its business license also does not indicate that its business scope includes real estate
development. Without an effective qualification certificate, Chongqing Yinlian will not be allowed to
engage in real estate development and the government authorities will refuse to issue the pre-sale
and other permits which are indispensable for conducting property development business.
Chongqing Yinlian holds the land use rights for the Chongqing Project, and it is planned that this
project be developed by Chongqing Yinlian. If Chongqing Yinlian will not be able to obtain the
necessary qualification certificate, this could lead to delays and difficulties regarding the Chongqing
Project, which could have a material adverse effect on Madison Group’s business, results of
operations, financial position and business prospects.

Madison Group depends on the continuing services and cooperation of its CEO, Mr. Tian,
and of other members of its senior management.

Madison Group’s future success and growth depends on the continuing services and cooperation
of its senior management, in particular of Mr. Qingtong Tian who serves as chairman of the
Company’s management board (Vorstand) and Madison Qingdao’s board of directors. Mr. Tian has
more than 25 years of experience in different industries, including the Chinese real estate sector
and an in-depth knowledge of the different aspects of property development. He also provides of
an established business network in Qingdao and Chongqing and a good relationship with the local
governments in those regions. If Mr. Tian or any other member of Madison Group’s senior
management is unable or unwilling to continue in their present positions, Madison Group may not
be able to replace them. In the Chinese property development sector, competition for qualified and
experienced personnel is intense as the pool of suitable candidates is limited. Madison Group may
not be able to retain the services of Mr. Tian or of other members of its senior management and it
may not be able to attract high-quality senior executives and key personnel in the future. Moreover,
if Mr. Tian or any other member of the senior management join a competitor or carry on a
competing business, Madison Group may lose customers and staff members. As Madison Group’s
business continues to grow, it will, however, be necessary to recruit and provide training to
additional qualified personnel. Should any of the above risks materialise, this would have a material
adverse effect on the Company’s business, financial condition, results of operations and business
prospects.

The Company’s Existing Shareholders may take actions that conflict with the best interests
of its public shareholders.

Following the Offering, assuming no exercise of the over-allotment option, the Existing
Shareholders will collectively own 85.89% of the Company’s share capital (84.48 % if the over-
allotment option is exercised in full). Through their voting power at the Company’s shareholders'
general meetings and its elections of the members to the supervisory board, the Existing
Shareholders will be able to exercise significant control or exert significant influence over the
Company’s business or otherwise on matters of significance to the Company. The Existing
Shareholders could, inter alia, determine the outcome of any corporate transaction or other matter
submitted to the Company’s shareholders for approval. This includes but is not limited to matters
such as mergers and acquisitions, consolidations, the sale of all or substantially all of the
Company’s assets, the election of directors as well as any other significant corporate action. The
interests of the Existing Shareholders may differ from the interests of the Company’s other
shareholders and the Existing Shareholders are furthermore free to exercise their voting rights
according to their interests. In the event that there is divergence between the Company’s strategic
and other interests and those of the Existing Shareholders in the future, the Existing Shareholders
may exercise control over the Company in ways that conflict with the interests of its other
shareholders, and the interests of minority shareholders could be disadvantaged.

Madison Group may be adversely affected by possible disputes with its joint venture
partners or its project development partners.

Madison Group has developed certain projects jointly with other partners through joint venture or
cooperation agreements. As at the date of this Prospectus, three of Madison Group’s PRC project
companies are joint ventures, namely Qingdao Junxin, Qingdao Guanghua and Qingdao Xianggen
Quanhai. Qingdao Junxin is jointly operated by Madison Qingdao and Qingdao GaokeJi Industry

                                                                                                  43
Park Property Management Development Center (“GaokeJi Industry Park”) with Madison
Qingdao holding 60% of shares and GaokeJi Industry Park holding 40% of the shares through the
nominee shareholders Qingdao Hanlan Real Estate Development Company Limited and Qingdao
Hanlan Company Limited by Shares (with Qingdao Hanlan Real Estate Development Company
Limited and Qingdao Hanlan Company Limited by Shares each holding 20% of shares). Madison
Qingdao holds 97% of the equity interest in Qingdao Guanghua with the remaining 3% being held
by Mr. Luan Yong. Qingdao Xianggen Quanhai is operated by Madison Qingdao and Qingdao
Xianggen Wenquan Zhiye Company Limited with each holding 51% and 49% of the shares in
Qingdao Xianggen Quanhai, respectively. Madison Group does not have imminent plans to
develop other projects through joint venture or cooperation agreements, but may do so in the future.

In any present or future joint venture, Madison Group’s joint venture partners or project
development partners may have economic or business interests or goals that are inconsistent with
Madison Group’s own interests or goals and may take actions contrary to Madison Group’s
instructions or requests or contrary to Madison Group’s policies or objectives. Madison Group’s
joint venture partners or project development partners may also be unable or unwilling to fulfil their
obligations under the relevant joint venture or cooperation agreements, or may suffer financial
difficulties. Disagreement between Madison Group and its joint venture or cooperation partners in
connection with the scope or performance of their respective obligations under the joint venture or
cooperation agreements or any other contract could affect Madison Group’s ability to develop or
operate a property. The partner in question may be unable or unwilling to perform its obligations
under the relevant agreement, including its obligation to make the necessary capital contributions
and shareholder loans, whether as a result of financial difficulties or otherwise. Such partner may
also interpret the obligations of the parties under the joint venture contract or other agreements
differently from Madison Group. A dispute of Madison Group with its joint venture or cooperation
partners or the early termination of a joint venture or cooperation contract or any other agreement
with such partner could adversely affect Madison Group’s business, financial condition, results of
operations and business prospects.

Madison Group may be affected by the performance of independent third party contractors
and the prices of construction materials.

Madison Group depends on a number of independent third parties for a variety of services such as,
inter alia, design, construction, equipment installation, landscaping, electro-mechanical
engineering, pipeline engineering and lift installation. Madison Group selects third party contractors
mainly through a tender or a privately negotiated selection process. Madison Group cannot assure
that the services rendered by any of these third parties will always be satisfactory or match its
requirements for quality. If the completion of Madison Group’s property projects is delayed due to
any independent contractor’s financial or other difficulties or if the quality of the service provided is
not satisfactory, Madison Group may be required to incur additional costs to compensate its
customers or to cover additional expenses. Any of these factors could have a material adverse
impact on Madison Group’s reputation, business, financial condition, results of operations and
business prospects.

In addition, Madison Group’s results from operations and financial performance are affected by
volatility in the price of construction materials. The cost of construction materials, which is generally
included in payments to Madison Group’s construction contractors, constitutes the most substantial
item among Madison Group’s construction costs, significantly exceeding Madison Group’s
construction labour cost and project design cost. Any rise in the cost of construction materials may
result in an increase in the fees charged by Madison Group’s construction contractors. Despite the
efficiencies and pricing advantages of bulk purchases when Madison Group purchases ancillary
construction materials directly from suppliers, any increase in the cost of any significant
construction materials, including and in particular those purchased by Madison Group’s contractors,
will impact Madison Group’s overall construction costs and cost of sales. If Madison cannot pass
any or all of the increased costs on to its customers, Madison Group’s profitability will be adversely
affected.

There may be changes to Madison Group’s tax status or to applicable PRC tax legislation
and/or its interpretation.

Since 2008, a general income tax rate of 25% applies to all enterprises in China, whether foreign-
invested or domestic. This new taxation rule has been introduced by the PRC Enterprise Income
Tax Law ("EIT Law"). The 2008 EIT Law introduced the concept of tax resident enterprises

                                                                                                    44
(”TRE”). By definition, TREs refer to enterprises which are established in China under PRC laws
and regulations, or which have their effective management in China. TREs will be subject to the
EIT Law as regards their worldwide income. Article 4 of the Implementation Rules of the EIT Law
(“Implementation Rules”) stipulates that an “effective management” is effectively a management
body which exercises essential management and control over an enterprise.

As to the determination of the body of effective management, the PRC State Administration of
Taxation (“SAT”) issued Circular Guoshuifa [2009] No. 82 (“Circular No. 82/2009”) regulating
specific standards on recognizing a foreign-registered enterprise (whose major controlling
shareholder is a China domestic enterprise or enterprise group) (“China Invested Foreign
Enterprise”) with effective management in China. Namely, if a China Invested Foreign Enterprise
meets certain conditions, it should be recognised as a Chinese TRE and its main tax implication is
set out as below:

          !   This enterprise shall be subject to PRC Enterprise Income Tax (“EIT”) on its global
              income;

          !   The dividend income from a PRC subsidiary of this enterprise shall be exempt from
              PRC EIT because it is considered as the dividend distribution between two Chinese
              TREs;

          !   The dividend income from this enterprise to its investor shall be considered as the
              dividend distribution from a PRC TRE and hence:

                   o   If the investor is a PRC TRE, the dividend is exempt from PRC EIT;

                   o   If the investor is an overseas company, the dividend shall be subject to
                       withholding tax at a rate of 10% in China or subject to a lower tax rate
                       provided in an applicable tax treaty.

The Company and Madison Hong Kong do not appear to fall into the scope of Circular No.
82/2009 given that their direct shareholders are foreign entities. There can be no assurance,
however, that the SAT might not use the “look through” method to actively assess the Company
and Madison Hong Kong as PRC TREs if the SAT adopts “substance over form” principle.

Moreover, the Company will receive dividend income distributed by Madison Group’s Chinese
subsidiaries via Madison Hong Kong. According to the Arrangement between Mainland of China
and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the
Prevention of Fiscal Evasion with respect to Taxes on Income (“HK-China DTA”), the dividends will
be subject to withholding income tax at a rate of 5% in China if the beneficial owner is a company
which holds directly at least 25% of shares in the company paying the dividends. If a company is
not regarded as the beneficial owner of the dividends distributed from a Chinese subsidiary, the
HK-China DTA will not be applied and the dividends paid by the subsidiary will therefore be subject
to a withholding income tax of 10% in lieu of 5%.

In October 2009, the SAT issued a Circular Guoshui han [2009] No. 601 (“Circular No.
601/2009”)to provide guidance on how to recognize a “beneficial owner”. Under Circular No.
601/2009, a “beneficial owner” is an individual, company or other entity that has ownership and
decision-making power over the relevant income or the rights and property producing such income.
Madison Hong Kong should submit the relevant documents to the Chinese tax authority for
recognition of its “beneficial owner” status, otherwise, the tax rate of dividends and other benefits
under HK-China DTA will not apply and therefore the dividends from Madison Chinese subsidiaries
will be subject to a withholding income tax of 10% in lieu of 5%. As a result, the China tax burden of
Madison Group may increase accordingly.

Tax rules and regulations as well as tax rates and their respective exemptions concerning an
investment in Madison Group may be subject to adverse changes in the future. Changes in the
taxation of Madison Group may affect the value of investments held by the Company, its ability to
pay shareholder returns, or it may even significantly change the after tax returns possibly obtained
by shareholders. All statements made in this document regarding the taxation of Madison Group
and the company’s investors are based on existing tax regulations which may change at any time.
Additionally, the current PRC tax regime may change and this could adversely affect Madison


                                                                                                 45
Group’s business, financial condition and results of operations. Because Madison Group’s PRC
subsidiaries, which generate almost all operational profits of Madison Group, are subject to PRC
tax legislation, the materialisation of the above risks could have a material adverse effect on the
business, financial condition and results of operation of Madison Group as a whole.

Madison Group may be taxed retroactively for an indirect transfer of the shares in Madison
Qingdao.
The Chinese State Administration of Taxation (SAT) released circular Guo Shui Han No. 698
(“Circular 698”) on 10 December 2009 that addresses the transfer of shares by non-resident
companies. Circular 698 imposes filing obligations on a foreign investor that indirectly transfers
equity interests in a Chinese resident enterprise by selling the shares in an offshore holding
company if the latter is located in a country or jurisdiction where the effective tax burden is less
than 12.5% or where the offshore income of his, her, or its residents is not taxable (like in Hong
Kong). For example, if the Company sells its equity interest in Madison Hong Kong, the Company
must provide the Chinese tax authority in charge of Madison Qingdao with the relevant information
within 30 days of the transfers. Moreover, if the Chinese tax authority considers that the Company’s
transfer of Madison Hong Kong’s equity interest involves an abuse of form of organisation and
there are no reasonable commercial purposes for this transfer such that the Chinese enterprise
income tax liability is avoided, the Chinese tax authority may re-assess the nature of the equity
transfer by applying the “substance-over-form” principle and deny the existence of Madison Hong
Kong. In this case, the investors of Madison Hong Kong, i.e., the Company, may not be able to
enjoy the benefits of relevant tax treaties and Hong Kong tax regulations and may have to pay 10%
capital gain tax to the Chinese tax authority. It is still unclear if the investors may avoid double
taxation in their home countries if they have paid capital gain tax under this case.

There is uncertainty as to the application of Circular 698. For example, while the term "indirectly
transfers" is not defined, it is understood that the relevant PRC tax authorities have jurisdiction
regarding requests for information over a wide range of foreign entities having no direct contact
with China, including Madison Hong Kong and the Company itself. Moreover, the relevant authority
has not yet promulgated any formal provisions or formally declared or stated how to calculate the
effective tax in the country or jurisdiction and to what extent and the process of the disclosure to
the tax authority in charge of that Chinese resident enterprise. In addition, so far there have been
no formal declarations as to how to determine the “abuse of form of organisation” and a
“reasonable commercial purpose”. Nevertheless, Madison Group may be considered to be falling
within the scope of Circular 698 and therefore be taxed accordingly and it may be required to
expend valuable resources to comply with Circular 698 or to establish that it should not be taxed
under Circular 698, which could have a material adverse effect on Madison Group’s financial
condition and results of operations.

Madison Group may be subject to fines or fail to be granted the land-use rights for property
projects if it fails to pay deed tax.

Under PRC law, a developer is liable to pay deed tax of 3% to 5% of the land premium or transfer
consideration at the date of the conclusion of the land-use rights granting contract or the land-use
rights transfer agreement and before it obtains title to the land-use rights. If it fails to pay up the
deed tax within the prescribed time limit, the competent authority will not grant and register the
land-use rights under its name. Moreover, the tax authority may impose a late payment fine
equivalent to 0.05% per day of the unpaid deed tax as well as a penalty of between 50%
and 500% of the unpaid deed tax. Should Madison Group fail to pay its deed tax in time or at all,
this could materially and adversely affect Madison Group’s title to the land-use rights or result in a
penalty of up to 500% of unpaid deed tax to be imposed on Madison Group, which could materially
and adversely affect the Company’s business prospects, financial conditions and results of
operations.

Madison Group may be involved from time to time in material disputes, legal and other
proceedings arising out of its operations and may face significant liabilities as a result.

Madison Group may be involved in disputes with various parties involved in the development and
sale of its properties, including contractors, suppliers, construction workers, local partners and
customers. These disputes may lead to protests and legal, administrative or other proceedings and
may result in damage to Madison Group’s reputation, additional operational costs and a diversion
of resources and management’s attention from Madison Group’s core business activities. It can

                                                                                                  46
not be excluded with certainty that Madison Group will not be involved in such legal proceedings in
the future or that the outcome of these proceedings will not materially and adversely affect its
business, financial condition, results of operations and business prospects.

Madison Group may not have adequate financing to fund its land acquisitions and property
developments in the future.

Property development is capital intensive. Madison Group’s general financing scheme for its
property projects is based on a combination of the proceeds of pre-sales and sales, borrowings
from financial institutions, equity financing, internal funds and interest-free shareholder loans.
Madison Group’s ability to obtain adequate financing for land acquisitions and property
development on terms and conditions which will allow it to achieve reasonable returns is dependent
on a number of factors that are beyond its control, such as general economic conditions, credit
availability from financial institutions, as well as China’s monetary policies and laws and regulations
related to the property sector. Under PRC law, the ability of foreign-invested real estate companies
is restricted to raising funds from offshore and to then inject such funds into the company either
through capital increase or by way of shareholder loans. The PRC State Administration of Foreign
Exchange (“SAFE”) will no longer process foreign debt registration or foreign debt application for
settlement of foreign exchange for real estate enterprises with foreign investment that have
obtained the certificate of approval (including new formation and capital increase) from and filed
with the PRC Ministry of Commerce (“MOFCOM”) on or after 1 June 2007.

On 22 March 2008, Hongyuan Holding Co., Ltd. transferred all of its equity interest, i.e. 90.08% of
total equity interest, in Madison Qingdao to Joyful Merit Limited (Madison Hong Kong). Meanwhile
Madison Hong Kong entered into a capital increase agreement and a joint venture contract with
Qingdao Yizhai Group Building Company Limited (“Qingdao Yizhai”) and Qingdao Gold Training
Center (“Qingdao Gold”), under which they all agreed on an increase in the registered capital in
Madison Qingdao and Madison Hong Kong would subscribe to all of such increased registered
capital of Madison Qingdao. As a result of the equity transfer agreement and the capital increase
agreement, Madison Hong Kong would own 98.58% of equity interest in Madison Qingdao.
Qingdao Bureau of Foreign Trade and Economic Cooperation (“BFTEC”) approved the equity
transfer and capital increase on 29 January 2008 and the Certificate of Approval for Establishment
of Enterprises with Foreign Investment was issued on 30 January 2008. Madison Hong Kong’s first
acquisition was filed with MOFCOM on 2 February 2008. Madison Hong Kong’s further acquisition
of 1.42% of equity interest in Madison Qingdao was approved by Qingdao BFTEC on 26
September 2008 and the Certificate of Approval for Establishment of Enterprises with Foreign
Investment was issued on 27 September 2008. The second acquisition of Madison Hong Kong
was filed with MOFCOM on 31 October 2008.

In view of the above, SAFE will not process foreign debt registration or foreign debt application for
settlement of foreign exchange for Madison Qingdao. In this connection, Madison Qingdao will not
be allowed to borrow any offshore loan, either from its shareholders or from a third party lender.
There can be no assurance that the PRC government will not further limit Madison Group’s access
to capital, its flexibility or its ability to use bank loans or other forms of financing to fund its property
development projects. Also, one cannot assume with certainty that Madison Group will be able to
secure adequate financing to fund its land acquisitions and project constructions. Failure to do so
may adversely affect Madison Group’s business, financial condition, results of operations and
business prospects.

Madison Group may not be able to directly use the proceeds from the Offering for its
current property projects.

In August 2008, SAFE promulgated the Circular on Issues Relating to the Improvement of
Business Operations with Respect to the Administration of Foreign Exchange Capital Payment and
Settlement of Foreign-invested Enterprises (“Circular 142”), a notice regulating the conversion by
foreign-invested enterprises of foreign currency into Renminbi by restricting how the converted
RMB may be used. Circular 142 requires that RMB converted from the foreign currency-dominated
capital of a foreign-invested enterprise may only be used for purposes within the business scope
approved by the applicable government authority and may not be used for equity investments
within China, unless specifically provided for otherwise. SAFE has recently also strengthened its
oversight over the flow and use of RMB funds converted from the foreign currency-dominated
capital of a foreign-invested enterprise. The use of such RMB may not be changed without


                                                                                                        47
approval from SAFE, and may not be used to repay RMB loans if the proceeds of such loans have
not yet been used. Violations of Circular 142 may result in substantial fines, among other things.

Madison Group may therefore not be able to directly use the funds raised through the Offering to
fund the real estate projects carried out by its project companies, i.e. by the current subsidiaries of
Madison Qingdao or any future subsidiary to be established by Madison Qingdao. Nevertheless,
Madison Qingdao will be able to use the funds raised through the Offering for its own business
activities and may conduct and operate property projects itself using such funds. It will also be able
to use the proceeds derived from such new property projects and inject such funds into its PRC
subsidiaries, since such injection would not fall into the scope of the above cited regulations.
However, there can be no assurance that Madison Group may not encounter difficulties in
channeling the proceeds from the Offering using the mechanism described above meaning that
such funds could not be used by Madison Group’s current project companies in the near future or
at all which could have a material adverse effect on Madison Group’s business, financial condition,
results of operations and business prospects.

The Company is a holding company and therefore relies principally on dividends paid by its
Chinese subsidiary Madison Qingdao.

The Company is a holding company without any significant operating business of its own. Madison
Group’s assets are mainly located in China. Current PRC regulations permit the payment of
dividends only out of accumulated profits determined in accordance with Chinese accounting
standards and regulations. In addition, a subsidiary of the Company, if it constitutes a foreign-
invested entity under PRC law, is required to set aside at least 10% of its after-tax profits each year
to fund a statutory reserve fund until such reserves in aggregate reach 50% of its registered capital.
Furthermore, foreign-invested entities may be required to set aside a portion of their after-tax
profits to fund an employee welfare fund in an amount which lies within the discretion of the
subsidiary's board. These reserves are not distributable as cash dividends.

Under PRC foreign exchange rules and regulations, payments of current account items, including
profit distributions and operating-related expenditures, may be made in foreign currencies without
prior approval but are subject to procedural requirements. Strict foreign exchange controls continue
to apply to capital account transactions. These transactions must be approved by and/or registered
with the State Administration of Foreign Exchange or its local counterparts, and repayment of loan
principal, distribution of return on direct capital investment and investments in negotiable
instruments are also subject to restrictions.

There can be no assurance that Madison Group will be able to meet all of its foreign currency
obligations under PRC laws or to remit profits out of China. Should the Company’s subsidiary,
Madison Qingdao, be, or become, restricted and/or legally prohibited from and/or unable to pay
dividends or other distributions outside of China, this could have material adverse effects on the
Company's or its subsidiary’s financial condition.

Madison Group provides guarantees for mortgages taken out by its customers and may
become liable to mortgagee banks if customers default on their mortgage loans.

As Madison Group pre-sells properties before their actual completion of construction in accordance
with industry practice, domestic banks require Madison Group to guarantee its customers’
mortgage loans. According to market practice, domestic banks require Madison Group to
guarantee these mortgage loans until the issuance of the relevant property ownership certificates.
If a customer defaults on a mortgage and the bank calls upon the guarantee, Madison Group shall
be required to repay the full portion of the mortgage owed by the customer to the mortgagee bank.
Consistent with industry practice, Madison Group relies on the results of customer credit checks
conducted by the mortgagee banks relating to these guarantees and does not conduct any
independent credit checks.

As at 30 April 2008, 30 April 2009 and 30 April 2010, Madison Group‘s outstanding guarantees of
mortgage loans of customers amounted to RMB 74,022,931, RMB 72,106,579 and RMB
98,680,166, respectively. Should any material defaults occur and Madison Group be required to
honour its guarantees, Madison Group’s business, results of operations, financial position and
business prospects may be materially adversely affected.



                                                                                                  48
Madison Group entered into security contracts in order to secure its own as well as third
parties’ bank loans.

Due to the restrictions on bank loans for real estate developers, Madison Group has concluded a
number of financing contracts and security contracts with third parties. As part of these contracts,
Madison Group issues guarantees or securities to suppliers, including mortgages and joint
guarantees. In return the suppliers will charge the prices for the supplied materials with a
considerable time lag, e.g. of one year. Madison Group also created mortgages over its real estate
for its own bank loans. In total, as of 31 July 2010, Madison Group has concluded seven security
contracts with a total secured amount of RMB 363,500,000. If, under any of the security contracts
concluded for loans to third parties by Madison Group, the third party fails to perform its repayment
obligations under the respective loan agreement or if Madison Group itself is unable to repay the
loans it has taken out from banks, the bank will enforce the security against Madison Group, which
could have material adverse effects on the business, results of operations, financial condition and
business prospects of the Company.

The Chinese M&A Provisions may have a material adverse effect on Madison Group’s
business.

On 8 August 2006, six Chinese regulatory agencies, including MOFCOM and the China Securities
and Regulatory Commission (“CSRC”), promulgated the Provisions on the Acquisition of Domestic
Enterprises by Foreign Investors (the “M&A Provisions”), which came into effect on 8 September
2006 and were further amended by MOFCOM on 22 June 2009. The M&A Provisions provide,
among other things, that an offshore special purpose vehicle (“SPV”) which is formed by Chinese
legal entities and/or individuals for indirect overseas listings and that directly or indirectly controls
Chinese companies must obtain the approval of the CSRC prior to the listing and trading of its
shares on a foreign stock exchange. On 21 September 2006, the CSRC published on its official
website a notice specifying the documents and materials required to be submitted to it by SPVs
seeking CSRC approval of a foreign listing. A number of additional requirements must be fulfilled in
the course of an initial public offering, the violation of which may lead to regulatory actions or other
sanctions by the CSRC or other Chinese regulatory agencies.

In addition to the provisions relating to foreign indirect listings, the M&A Provisions also stipulate
that a domestic natural person or legal person must obtain approval from MOFCOM before
acquiring an affiliated domestic company via a foreign company established or controlled by such
domestic natural or legal person. This requirement may not be circumvented by forming a foreign-
invested enterprise or otherwise.

Madison Qingdao was acquired in 2008 by Madison Hong Kong, which was at that time owned and
controlled by Ms. Ma Li, a citizen of Canada. Mr. Tian Qingtong was a PRC citizen at the time but
has become a Dominican citizen since November 2009. The acquisition was approved by Qingdao
BFTEC. After Madison Hong Kong acquired ownership of Madison Qingdao, Mr. Tian Qingtong
acquired all of Ms. Ma Li’ s equity interest in Record Time Holdings Ltd., Chancelink Investments
Ltd. and Keywealth Success Ltd. in 2010 which were majority owners and effective controlling
entities of Madison Hong Kong.

When Madison Qingdao was acquired by Madison Hong Kong, Madison Qingdao submitted an
enquiry to the Department of Foreign Investment Administration of Qingdao, BFTEC, as to
whether Mr. Tian Qingtong should be deemed as a person who controlled Madison Hong Kong and
therefore a MOFCOM approval was necessary for such acquisition. In response to such enquiry as
to whether Mr. Qingtong Tian should be deemed as a person who controls Madison Hong Kong,
the Department of Foreign Investment Administration of Qingdao, BFTEC, issued a written
response on 16 September 2008 after its reviewing of the relevant documents, including the
Management Entrustment Agreement between Falcon Grow and Mr. Qingtong Tian dated 25
January 2008 (which has been terminated and replaced by a subsequent Entrustment Agreement
on 13 January 2010, which, in turn, has been terminated on 27 July 2010), confirming that at the
time Madison Hong Kong acquired the equity interest in Madison Qingdao, for the purpose of the
New M&A Provisions, the controlling person of Madison Hong Kong was Ms. Ma Li and the
controlling person of the PRC subsidiaries was Mr. Qingtong Tian; thus Madison Hong Kong and
Madison Qingdao did not have the same controlling person(s). Therefore, the Department of
Foreign Investment Administration of Qingdao, BFTEC, believed that the acquisition of Madison
Qingdao by Madison Hong Kong should not be subject to approval by MOFCOM. However, there
can be no assurance that CSRC or the Ministry of Commerce will agree with this view and not

                                                                                                    49
require respective approvals in connection with the recent equity acquisition or in connection with
the inclusion in the trading of the Company’s shares. In addition, it cannot be ruled out that CSRC
or the Ministry of Commerce will ultimately refuse to grant such approval. If an approval is required
and as long as such approval has not been granted, CSRC or another competent government
authority could prevent profits from being distributed by Madison Qingdao to its parent company
and to the Company. The authorities may also impose fines and penalties on Madison Qingdao.
The CSRC or other authorities may also request the Company, or making it advisable for the
Company, to delay or cancel its offering of shares before settlement and delivery of the shares
being offered by the Company. Any of these actions could have material adverse effects on the
business, financial condition, results of operations and business prospects of Madison Group.

SAFE regulations relating to offshore investments by PRC residents or passport holders
may adversely affect Madison Qingdao’s business operations and financing alternatives.

Mr. Qingtong Tian was a Chinese national originally and obtained citizenship of the Dominican
Republic on 25 November 2009. In accordance with PRC law, Mr. Tian automatically lost his PRC
nationality when he obtained citizenship of the Dominican Republic. Nevertheless Mr. Tian as well
as each of the Company’s direct or indirect PRC shareholders shall be subject to the PRC law in
connection with foreign exchange control.

On 21 October 2005, SAFE issued the Circular on Issues Concerning the Administration of Foreign
Exchange in Financing and Round-trip Investment Activities Conducted by Domestic Residents via
Offshore Special Purpose Vehicles (“Circular 75”). Under Circular 75, a PRC Resident Natural
Person must register with the relevant SAFE branches for their offshore investment into a Special
Purpose Vehicle before they are allowed to establish or control a Special Purpose Vehicle.

For the purpose of Circular 75, a “PRC resident natural person” is interpreted as a natural person
holding a PRC resident identity card or passport or any natural person who does not legally hold a
PRC identity but has a habitual domicile in China due to economic relations. The PRC Circular of
Implementation Procedures of the Circular on the Relevant Issues Concerning Foreign Exchange
Administration of Financing and Round-trip Investment Activities Conducted by Domestic
Residents via Overseas Special Purpose Vehicles (“Implementation Procedures for Circular
75”) further clarifies that a “PRC resident natural person” shall include a natural person who holds
rights and interests (not arising from any foreign investment) in a PRC enterprise and then such
rights and interests becomes foreign investment while such natural person remaining the ultimate
controller of such rights and interests; “Special Purpose Vehicle” is interpreted as an offshore
company that is established or indirectly controlled by the PRC residents (including both a legal
entity and a natural person) and that is formed for the purpose of equity financing by use of the
assets or rights and interests in a PRC enterprise which is owned by the aforementioned PRC legal
entity or natural person; “Round-trip Investment” is interpreted as the direct investment made by
PRC residents into the PRC through a Special Purpose Vehicle, by means of equity purchase or
swap, setting up of a foreign-invested enterprise that is to purchase or control by agreement the
assets in PRC, or purchase by agreement the assets in PRC that is contributed to the registered
capital of a foreign-invested enterprise or increase of the capital in a PRC enterprise; and a PRC
resident natural person will be deemed to have “control” over the Special Purpose Vehicle or PRC
enterprise if the PRC Residents acquires the rights to operate, claim a profit from or make
decisions for such Special Purpose Vehicle or PRC enterprise by means of acquisition, trust,
holding on behalf, voting, call-back or convertible bonds

Under Circular 50, jointly issued by the MOFCOM and SAFE on 23 May 2007, acquisitions of real
estate entities and foreign investment in the real estate sector by way of round-trip investment
should be strictly regulated. Foreign investors should not avoid foreign investment approval
procedures by changing actual controlling persons. As soon as SAFE is aware of any foreign-
invested real estate enterprise that is established by means of willful circumvention of law or false
statement and that remits the capital or profit out of the PRC, SAFE will regard such remittance as
an illegal foreign exchange transaction and impose a penalty thereon.

Therefore, Mr. Qingtong Tian is affected by the registration requirements imposed by SAFE
Circular 75. Further, under SAFE Circular 75, Mr. Tian as well as each of the Company’s direct or
indirect PRC shareholders will also be required to amend their SAFE registrations under certain
circumstances, including upon any further transfer of equity interests as well as any material
change in the capital of the offshore company. In addition, each of the Company’s direct or indirect
PRC shareholders is required to make additional amendments to its SAFE registration within 30

                                                                                                50
days of this Offering or if any other future changes in its holdings of the Company’s shares are
made. The failure or inability of any of the Company’s current or future direct or indirect
shareholders, whose actions the Company does not control, to obtain any required approvals or to
make any required registrations in a timely manner could subject the Company’s direct or indirect
PRC shareholders to future registration under SAFE Circular 75, subject Madison Qingdao to fines
and legal sanctions, restrict the Company’s intended investments in its PRC subsidiaries or limit
Madison Qingdao’s ability to make distributions or pay dividends and could thus have material
adverse effects on the business, financial condition, results of operations and business prospects
of Madison Group.

Several share transfers regarding entities within Madison Group did not conform with the
rules for the transfer of state-owned equity under PRC law.

The transfer of state-owned shares or equity interests in PRC companies is subject to a set of
special rules and certain procedural requirements. According to the Notice on Strengthening the
Administration on the Trading of State-Owned Equity, issued on 22 April 1994 by the General
Office of the State Council, the transfer of state-owned equity shall be subject to the approval of the
people’s government at or above the city level, and the value of state-owned equity shall be
appraised before it is transferred, with the appraised value serving as the mandatory basis for the
eventual transfer price of such state-owned equity interest. In accordance with the Interim
Regulations on the Administration of the State-Owned Equity Interest in Companies Limited by
Shares (the “State-Owned Shares Regulations”), promulgated on 3 November 1994, which were
revoked with effect from 31 January 2008, state-owned shares include shares directly obtained and
held by the state or shares obtained and held by a state-owned enterprise or public institution,
which have been registered at the equity interest records of a company limited by shares. The
State-Owned Shares Regulations provide that the transfer of state-owned shares shall be subject
to the approval of the State-Owned Assets Supervision and Administration Committee (“SASAC”)
and the provincial administration of state-owned assets, and that it must be approved jointly by
SASAC and the state system reform commission and other authorities if the transfer of state-
owned shares will result in a modification of the controlling status of the state-owned shares in a
company limited by shares.

Qingdao Gold and Qingdao Yizhai were both state-owned companies and they respectively
transferred their equity interest in Madison Qingdao to Qingdao Nasiwei International Trade
Company Limited (“Qingdao Nasiwei”) and Qingdao Lianzhong Warranty Investment Company
Limited (“Qingdao Lianzhong”) on 11 September 2008. On 23 September 2008, Qingdao Gold
obtained a letter from its superior entity, Shandong Gold Property Group Limited. On 25 September
2008, Qingdao Yizhai also obtained a letter from its superior entity, Qingdao Real Estate Property
Group Limited. These two letters confirmed that Mr. Tian was the beneficial owner to the equity
interests held by Qingdao Gold and Qingdao Yizhai in Madison Qingdao and that the equity
transfers from Qingdao Gold and Qingdao Yizhai to Qingdao Nasiwei and Qingdao Lianzhong had
been internally approved and ratified.

On 20 December 1997, Mr. Tian and Madison Real Estate entered into a nominee shareholder
agreement under which Mr. Tian Qingtong entrusted Madison Real Estate to hold its 75% equity
interest in Chongqing Yinlian on his behalf. On 28 October 1998, Madison Qingdao and Qingdao
Gold entered into a nominee shareholder agreement, under which Madison Qingdao entrusted
Qingdao Gold to hold its 27.3% equity interest in Chongqing Yinlian on behalf of Madison Qingdao.
Under these two nominee shareholder agreements, Mr. Tian and Madison Qingdao were to be the
beneficial shareholders of Chongqing Yinlian and, hence, were to assume the rights and
obligations as well as the investment risk of a shareholder of the respective equity interests. In
December 2001, Madison Real Estate transferred its equity interest in Chongqing Yinlian to Mr.
Tian and Mr. Zhang Zhiguo, respectively, and Qingdao Gold transferred all of its equity interest in
Chongqing Yinlian to Mr. Tian. Considering that Madison Real Estate and Qingdao Gold were
State-Owned Enterprises (“SOEs”), and that the equity interest held by them in Chongqing Yinlian
fell under the definition of a state-owned equity interest, the transfer and disposition of such state-
owned equity interest should have complied with the legal procedures for the transfer of state-
owned equity interests, in particular, with the the mandatory appraisal of the equity interest’s value
by SASAC, which they did not. On 23 September 2008, Shandong Gold Property Group Company
Limited issued a written confirmation that it had internally approved the nominee shareholder
agreement between Madison Qingdao and Qingdao Gold dated 28 October 1998 and the transfer
of equity interest in Chongqing Yinlian from Qingdao Gold to Mr. Tian in December 2001. On 19
September 2008, Shandong Medicines and Health Products Import & Export Company Limited

                                                                                                  51
also issued a letter confirming that it had internally approved the nominee shareholder agreement
between Madison Real Estate and Mr. Tian dated 20 December 1997 and the transfer of equity
interest in Chongqing Yinlian from Madison Real Estate to Mr. Tian and to Mr. Zhang Zhiguo.

It appears questionable whether the above cited confirmation letters have any legal effect. Also, the
legal validity of a nominee shareholder agreement is unclear under PRC law. The laws and
regulations with respect to the transfer of state-owned equity interests are silent or ambiguous on
whether a violation of the rules for the transfer of state-owned equity interest will render such
transfers invalid. Although the above described transfers were effected years ago and several
subsequent transfers of the equity interests in Chongqing Yinlian have taken place, it cannot be
excluded with absolute certainty that the competent PRC authority will declare such transfers
invalid, which would result in the original ownership structure of Madison Qingdao being restored,
which in turn could have material adverse effects on business, results of operations, financial
condition and business prospects of the Company.

The increases of Madison Qingdao’s registered capital in March 2006 and March 2008 did
not comply with the statutory conditions and procedures.

Pursuant to the Opinion Regulating the Reform of State-Owned Enterprises enacted on 30
November 2003 and the Notice of Forwarding the Implementation of the Opinion on Further
Regulating the Reform of State-Owned Enterprises, issued by SASAC and promulgated by the
General Office of State Council on 19 December 2005,

(i) with respect to a state-controlled enterprise or an SOE, if the increase of registered capital
results in a dilution of state-owned equity/shares in such an enterprise, such capital increase shall
be subject to the approval of the competent authorities in charge of state-owned assets and shall
comply with certain statutory procedures, such as the formulation of a restructuring plan, a
verification of assets and an appraisal of the value of the equity interest/shares of such state-
controlled or state-owned enterprise; and

(ii) if an SOE intends to conduct a corporate restructuring by way of a capital increase, such SOE
shall publish the relevant information on the restructuring as well as the qualifications for potential
investors, through channels such as e.g. equity transfer exchange institutions, media, the internet
and shall choose the investor with the best qualifications.

Qingdao Yizhai and Qingdao Gold are both SOEs and the increases of Madison Qingdao’s
registered capital in March 2006 and March 2008 did result in the dilution of the shares/equity
interest held by Qingdao Yizhai and Qingdao Gold in Madison Qingdao. Nevertheless, these
capital increases did not undergo the procedures for assets appraisal or the publication of
information as described above. On 23 September 2008, Qingdao Gold obtained a letter issued by
Shandong Gold Property Group Limited. On 25 September 2008, Qingdao Yizhai also obtained a
letter from its superior entity, Qingdao Real Estate Property Group Limited. The above two letters
contained a statement that the equity interest in Madison Qingdao was held by Qingdao Gold and
Qingdao Yizhai on behalf of Mr. Tian under the relevant nominee shareholder agreements and that
the capital increases in 2006 and 2008 had been internally approved and ratified.

It appears questionable whether the above cited confirmation letters have any legal effect. Also, the
legal validity of a nominee shareholder agreement is unclear under PRC law. It cannot be excluded
with absolute certainty that the competent PRC authority will declare the above capital increases
invalid, which would result in the original ownership structure of Madison Qingdao being restored
which could have material adverse effects on the business, results of operations, financial condition
and business prospects of the Company.

Agreements between the Company’s CEO, Mr. Tian, and the nominee shareholders of
Madison Qingdao may be deemed invalid.

Pursuant to the PRC Company Law, as in effect on 29 December 1993, more than five persons
were required for the establishment of a Chinese company limited by shares. In order to satisfy
such requirement, Mr. Tian entered into nominee shareholder agreements in 1998 under which he
entrusted Madison Real Estate, the Labour Union of Madison Real Estate, Qingdao Tianjia Trade
Company Limited, Qingdao Xinguoji Group Company Limited, Qingdao Tax Free Zone Tongxiang
International Trade Company Limited and Qingdao Gold Training Center to hold 100% of shares in
Madison Qingdao on his behalf. In accordance with these nominee shareholder agreements, the

                                                                                                  52
contributions to the registered capital were paid by Mr. Tian and Mr. Tian was to assume the rights
and obligations of a shareholder as well as the investment risk with respect to the relevant shares
held by the nominee shareholders. These nominee shareholder agreements have been terminated
upon the transfer of the shares held by each nominee shareholder on behalf of Mr. Tian. Also,
Madison Qingdao is no longer a company limited by shares but a limited liability company.
Moreover, the current effective Company Law no longer contains the above mentioned requirement
for a miminum number of founding shareholders and the Company Law provisions in effect at the
time were either silent or ambiguous on whether such nominee arrangements were invalid and
which legal consequences such invalidity would entail. Nevertheless, there can be no assurance
that the above mentioned nominee shareholder agreements will not be deemed invalid by the
competent authority for being considered a circumvention of PRC law. Should the nominee
shareholder agreements be considered invalid, Madison Qingdao could be deemed not to have
been established according to applicable law, which could result in Madison Qingdao being
exposed to penalties or even its business license being revoked, which would have material
adverse effects on the business, results of operations, financial condition and business prospects
of the Company.

Madison Qingdao may be subject to third party claims due to its position as nominee
shareholder of Qingdao Jindishen Commercial Company Limited.

Madison Qingdao holds its equity interest in Qingdao Jindishen Commercial Company Limited on
behalf of Qingdao Haotai pursuant to a nominee shareholder agreement dated 31 December 2002.
Madison Qingdao will transfer all such equity interest to Qingdao Haotai or a third party designated
by Qingdao Haotai after the settlement of the dispute regarding a joint venture agreement. In
accordance with the agreement between Madison Qingdao and Qingdao Haotai, Madison was
entrusted by Qingdao Haotai to raise a court action against Qingdao Jinshiguan Company Limited
and the results of the lawsuit should be actually undertaken by Qingdao Haotai. The first instance
trial was heard by Shandong Qingdao Intermediate People’s Court and a civil judgment ([2006]
Qing Min Chu Zi No. 164) was rendered on 8 June 2007. The second instance trial was heard by
Shandong Superior People’s Court, and the final civil judgment ([2007] Lu Min Yi Zhong Zi No. 237)
was rendered on 8 January 2008. In accordance with this final judgment, the original joint venture
agreement and supplementary agreement between Madison Qingdao and Qingdao Jinshiguan
Company Limited should be performed. Qingdao Jinshiguan Company Limited proposed as an
alternative to the original agreement that it would transfer the property with a total area of 1,500 m²
at a price of RMB 1,500 per m² to Qingdao Haotai as compensation for its breach of the agreement,
and Qingdao Haotai is considering whether to accept such alterative settlement.

The nominee shareholding structure was not disclosed to the public, so theoretically there would be
a risk for the nominee shareholder. When any third party, including the creditors and the other
shareholders of the Qingdao Jindishen Commercial Company Limited raises claim against the
nominee shareholder, Madison Qingdao would take liability to such third party since Madison
Qingdao is the registered shareholder of these entities, even though Madison Qingdao can require
the beneficial shareholders to compensate the loss of Madison Qingdao. If the beneficial
shareholders refuse or are unable to provide such compensation to Madison Qingdao, this would
have material adverse effects on the business, results of operations, financial condition and
business prospects of the Company.

The land use rights transfer from Madison Real Estate to Madison Qingdao did not comply
with the statutory conditions and procedures.

Under PRC law, the transfer of state-owned assets requires that the price for such transfer be
based on an appraisal of the assets in question. On 12 October 1998, Madison Real Estate and
Madison Qingdao entered into an agreement on the transfer of land use rights to Madison Qingdao
at a price of RMB 2,100,000. The land use rights referred to the property project Fragrance Town
World. However, no appraisal was done for determination of the value of the aforementioned land
use rights. Madison Real Estate obtained a letter from its superior entity, Shandong Medicines and
Health Products Import & Export Company Limited which contained a confirmation that the transfer
of the above mentioned land use rights was deemed in the ordinary course of business and that
the transfer price for the land use rights was based on the market price, which was considerably
higher than the original land premium paid by Madison Real Estate to obtain such land use right.
The letter further confirmed that the transfer of the aforementioned land use rights from Madison
Real Estate to Madison Qingdao and the price for such transfer had been internally ratified and
approved. It is unclear, however, if Shandong Medicines and Health Products Import & Export

                                                                                                 53
Company Limited had the legal authority to issue a legally binding confirmation letter. Hence, there
can be no assurance that the competent authority will not deem the above cited confirmation letter
invalid or legally irrelevant and declare the two transfers of land use rights in question invalid, which
would have material adverse effects on the business, results of operations, financial condition and
business prospects of the Company.

Madison Group’s land use rights for the Chongqing Project may be revoked.

Chongqing Yinlian and the Administrative Committee Office of Chongqing Gangcheng Industrial
Park (“Gangcheng Office”) entered into a land use agreeement with respect to the Chongqing
Project on 30 August 2005 and a supplemental agreement to this agreement on 1 August 2008.
Further, a land grant contract was entered into between Chongqing Yinlian and Chongqing Land
and Resource and Real Estate Bureau on 31 December 2006. Under the land use agreement and
its supplemental agreement, Chongqing Yinlian was required to commence construction of the
main structure within three months after delivery by Gangcheng Office of the land, to finish the
construction of plants covering 50,000 m² to put them into production no later than one year after
delivery by Gangcheng Office of the land. Moreover, Chongqing Yinlian was required to finish the
construction of plants covering a further 50,000 m² and put them into production no later than two
years after delivery by Gangcheng Office of the land. Under the land grant contract, Chongqing
Yinlian was also under obligation to commence construction prior to the end of March 2007 and to
finish the construction prior to the end of March 2009.

Chongqing Yinlian failed to commence and complete the construction project as scheduled in the
land use agreements and land grant contract. In accordance with the PRC Law of Administration of
Urban Real Estate, promulgated on 5 July 1994 and effective on 1 January 1995, if a holder of land
use rights fails to commence construction for more than one year after the date stipulated in the
land use right grant contract, idle land fees may be imposed. If construction has not started two
years after the date set forth in the land use rights grant contract, the land use rights for the land in
question may be revoked without compensation. However, if the delay of the construction of the
land is caused by the government authorities or force majeure, then such sanctions may not be
carried out. According to the above land use agreement, the Gangcheng Office shall prepare the
construction conditions for Chongqing Yinlian but Gangcheng Office did not fulfill such obligations
which caused the delayed construction by Chongqing Yinlian. Pursuant to the Law on Urban Real
Property Management, in the event that a delay of construction is incurred due to the necessary
preparation work of the construction, the land user shall not be held liable for such delay. However,
it cannot be excluded with absolute certainty that the competent PRC authority will determine that
Gangcheng Office had not been responsible for the delay and that therefore Chongqing Yinlian
should be held liable for the delay. Should Chongqing Yinlian’s land use rights to the Chongqing
Project be revoked, this would have material adverse effects on the business, results of operations,
financial condition and business prospects of the Company.

The expropriation and conversion of the land for the Ocean Century Garden project was not
approved by the competent authority.

Under PRC law, the expropriation and conversion of a parcel of agricultural land for construction
purposes is subject to the competent PRC government’s approval. On 16 July 2002, Madison Zibo
and Zibo Land Resource Bureau (“Zibo LRB”) entered into two land-use rights granting contracts,
under which Madison Zibo was granted the land-use rights for two parcels of land. These two
parcels of land were used to develop the Ocean Century Garden project. For the granting of these
two parcels by Zibo LRB to Madison Zibo, the Zibo Municipal People’s Government issued its
approval on 12 July 2002 based on which the two parcels were converted from collectively-owned
land to state-owned land expropriated and the corresponding expropriation was effected. However,
the people’s government at the municipal level is not authorised to issue the approval for the
conversion of collectively-owned land to state-owned land, the Zibo Municipal People’s
Government was not in a position to issue the approval in the above case.

Since the Ocean Century Garden project has been completed and most of the units of that project
have already been sold out, the possibility that the land-use rights for the Ocean Century Garden
project may be withdrawn and that the construction of the Ocean Century Garden project may be
confiscated appears rather remote. However, there can be no assurance that the competent
authority will not take a different standpoint and order the above sanctions for the Ocean Century
Garden project, which would expose Madison Group to damages claims regarding the sold
properties and would result in a loss of the unsold properties, which, in turn, would have material

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adverse effects on the business, results of operations, financial condition and business prospects
of Madison Group.

Madison Group did not obtain the Construction Land Use Planning Permits for its Villa with
Springs property project.

Under PRC law, a developer shall apply for and obtain the Construction Land Use Planning
Permits for using a piece of land. The competent governments will revoke the approvals in
connection with the land use and will expropriate the land if a developer does not obtain the
Construction Land Use Planning Permits. Qingdao Xianggen Quanhai commenced the
construction works on the land designated for its Villa with Springs project in October 2010.
However, Qingdao Xianggen Quanhai did not obtain the Construction Land Use Planning Permits
for using the above tract of land.
However, the competent Qingdao Planning authority gave an oral confirmation to the Company on
25 October 2010 that the Construction Land Use Planning Permits were not required for a
developer for using and developing a parcel of land if the planning parameter for that parcel of land
had been approved before the granting of the land. For the Villa with Springs project the planning
parameter for the land granted to Qingdao Xianggen Quanhai had been indicated in the auction
documents before the granting of the land to Qingdao Xianggen Quanhai. Since the necessary
prior approval had, in the Company’s view, therefore been obtained, there was, according to the
Company’s own assessment, no need for obtaining the Construction Land Use Planning Permits.
However, there can be no assurance that the upper level competent government authority will
consider this to be sufficient and not take a different legal standpoint than the Qingdao Planning
authority altogether and consequently revoke the approvals granted for the Villa with Springs
project and reclaim the underlying land. Madison Group would, in this case, need to put a halt to
the Villa with Springs project and would be prevented from using the underlying land, which could
result in material adverse effects on the business, results of operations, financial condition and
business prospects of Madison Group.
Madison Qingdao fails to keep the required number of professionals as employees of the
company.

Pursuant to the Regulations on the Administration of Development of Urban Real Estate,
promulgated on 20 July 1998, as well as additional local regulations, a real estate development
enterprise shall, in principle, have four or more full-time professional real estate/construction
technicians and two or more full-time accounting officers, each of whom shall hold relevant
qualifications. Furthermore, the interim employees or part-time real estate/construction technicians
or managers shall not be taken into account for the above calculation. Pursuant to the Regulations
on the Administration of the Qualification of Real Estate Development Enterprises, promulgated on
23 March 2000, and the Rules on the Administration of Qualifications of Real Estate Developers of
Shandong Province, promulgated on 8 March 2005, a real estate development enterprise holding a
Class One qualification certificate shall have no less than 40 professional management staff,
including professionals trained in matters of construction, structure, finance, real estate,
economics, etc. Among such professionals, there shall be more than 20 persons with medium or
higher qualifications (of which 8 persons with senior qualifications) and 15 persons with special
qualifications regarding engineering, accounting, statistics or others.

Currently, Madison Qingdao fails to satisfy the above requirements with regard to keeping a certain
number of professionals as employees of the company. However, Madison Qingdao will endeavour
to satisfy the above criteria as soon as possible. If Madison Qingdao fails to satisfy the above
requirements, the competent authorities could degrade or, in the worst case, cancel Madison
Qingdao’s qualification certificate for real estate development which could have material adverse
effects on the business, financial condition and results of operations of Madison Group.

Madison Group’s PRC subsidiaries may be subject to fines if they fail to pay the social
insurance and housing funds for their employees and new PRC labour law regulations may
increase Madison Group’s labour costs.

Under PRC law, an employer shall pay and withhold social insurance premiums for all of its
employees, including those without written labor contracts, as long as factual labor relations have
been established between the employer and the employees, and shall also pay and withhold
housing funds for its employees. Madison Qingdao has obtained a certificate from the insurance
department of the local government of Qinggao city stating that it has no records of outstanding

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social insurance premiums. Nevertheless, there can be no assurance that Madison Group’s PRC
subsidiaries have fully paid up the social insurance and housing funds for their employees. As a
result the respective entities within Madison Group might be ordered by competent governmental
authority to make a remedial payment of social insurance and housing funds for the affected
employees and might be sanctioned with a monetary penalty of 0.2% of the overdue sum of
social insurance premiums per day. If they fail to make such remedial payment within a required
period, which could have material adverse effects on the business, results of operations, financial
condition and business prospects of the Company.

Moreover, the new PRC Employment Contract Law became effective on 1 January 2008. It
imposes more stringent requirements on employers in relation to entering into fixed-term
employment contracts, recruitment of temporary employees and dismissal of employees. In
addition, under the newly promulgated Regulations on the Paid Annual Leave for Employees,
which also became effective on 1 January 2008, employees who have worked for a given employer
continuously for more than one year are entitled to a paid vacation ranging from 5 to 15 days,
depending on the length of the employee’s service. Employees who waive such vacation
entitlements at the request of the employer will be compensated for three times their normal daily
salaries for each vacation day so waived. As a result of the new law and regulations, the
Company’s labor costs may increase. There is no assurance that disputes or strikes will not arise in
the future.

Madison Group may be unable to complete or deliver its development projects on time or at
all.

Property development projects require substantial capital expenditures before and during the
period of construction. Also, the actual construction of a property project may take several years
before it generates a positive cash flow through sales or pre-sales. The progress and cost of a
development project can be negatively affected by many factors, including delays in obtaining the
necessary licenses, permits or approvals from government agencies or authorities, relocation of
existing residents and/or demolition of buildings, shortages of material, equipment, contractors and
skilled labour, labour disputes, construction accidents, natural catastrophes, adverse weather
conditions, changes in government policies as well as economic downturns and unfavourable
consumer sentiment in general.

Construction delays or failure to complete a project according to its planned specifications,
schedule or budget as a result of the above factors may affect Madison Group’s results of
operations and financial position as well as its reputation in the industry. There can be no
assurance that Madison Group will not experience any significant delays in the completion or
delivery of its projects, or that it will not be subject to liabilities for any such delays. Liabilities for
such delays could have a material adverse effect on Madison Group’s business, results of
operations, financial position and business prospects.

Once a property project has passed the necessary completion acceptance inspections, Madison
Group is required to deliver the completed properties to its customers within the particular time
frame set forth in the sale and purchase agreements. Madison Group may become liable to
purchasers for pecuniary penalties for late delivery of individual property ownership certificates due
to delays in the administrative approval process or for any other reason beyond Madison Group’s
control. There can be no assurance that such delays will not occur with respect to Madison Group’s
property projects in the future, which could have a material adverse effect on its business, results
of operations, financial position and business prospects.

Madison Group faces revenue and cost related risks before it can realise any benefits from
its property development projects.

Madison Group’s primary business is the development of property for residential, commercial and
industrial, and travel and leisure purposes. Property developments typically require substantial
capital outlays during the land/project acquisition and construction phases and may take years
before positive cash flows may be generated through pre-sales or sales of interests in completed
properties. Depending on the size of the property, the time for completion usually is more than a
year. Consequently, changes in the business environment during development may affect Madison
Group’s revenue and cost, which, in turn, may have a direct impact on the profitability of the
project. Factors that may affect a project’s profitability include government approvals taking longer


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than expected, the failure to complete construction according to original specifications, scheduling
or budgeting issues, and lacklustre sales or leases of properties. Sales as well as the value of a
property development project may be adversely affected by a number of factors, including but not
limited to the overall international, regional and local economic climates, local real estate
conditions, the perception of property buyers, businesses, retailers or shoppers as concerns the
convenience and attractiveness of projects, competition from other available properties, changing
market rates for comparable sales and/or increased business and operating costs. If any of the
risks described above materialise, this could have material adverse effects on Madison Group’s
business, results of operations, financial position and business prospects.

Madison Group may not be able to generate adequate returns on its properties held for
long-term investment purposes.

Madison Group is in the process of developing commercial and industrial property. It is possible
that the properties will be held as a long-term investment through rental income if sales cannot be
concluded at a reasonable price. Property investment is subject to varying degrees of risk. Returns
from real estate investment depend to a large extent on capital appreciation, the income earned
from renting out the relevant properties and on the total expenses incurred. Maximising yields from
properties held as long-term investments also depends to a large extent on the ongoing
management and maintenance of the properties. The ability to ultimately dispose of investment
properties will also depend on prevalent market conditions and levels of liquidity, which may be
limited or which may be subject to significant fluctuation as concerns certain types of commercial
properties. Revenue derived from and the value of property investment may be adversely affected
by a number of factors, including but not limited to changes in market rates for comparable rentals,
the inability to collect rent due to bankruptcy or insolvency of tenants and the cost resulting from
periodic maintenance, repair and re-letting. If Madison Group expands the property investment
aspect of its business but is unable to generate adequate returns, this could have material adverse
effects on Madison Group’s business, results of operations, financial position and business
prospects.

Potential liability for environmental problems could result in substantial costs.

Madison Group is subject to extensive and increasingly stringent environmental protection laws
and regulations. The particular environmental laws and regulations that apply to any given project
development site vary greatly according to the site’s location, the site’s environmental condition,
the present and former uses of the site, as well as adjoining properties. Compliance with
environmental laws and conditions may result in delays, may cause Madison Group to incur
substantial compliance and other costs and can severely restrict project development activities in
environmentally sensitive regions or areas.

As required by PRC law, independent environmental consultants have conducted environmental
impact assessments for most of Madison Group’s current and past property development projects,
except for Phases I to III of Ocean Century Garden, Phase I of Fragrance Town World, Skyway
Garden, Prosperity Garden, Scenic Garden and Xuzhou Garden. Due to this failure, Madison
Group could be instructed to stop construction and carry out the environmental impact
assessments. If it fails to do so within the time limit, it may be fined between RMB 50,000 to RMB
200,000 and the persons in charge of the construction unit and other persons directly responsible
may face administrative sanctions. Moreover, there can be no assurance that completed
investigations have revealed all environmental liabilities or their extent, and that there will not be
any material environmental liabilities of which Madison Group is unaware. Moreover, there can be
no assurance that more stringent requirements on environmental protection will not be imposed by
the relevant government authorities in the future. If Madison Group fails to comply with existing or
future environmental laws and regulations or fails to meet the expectations of the society, Madison
Group’s reputation may be damaged and it may be required to pay penalties or fines or take
remedial actions, any of which could have a material adverse effect on its business, results of
operations, financial position and business prospects.

Madison Group has limited insurance to cover potential losses and claims.

In general, Madison Group does not take out insurance coverage against potential losses or
damages with respect to its properties developed for sale before their delivery to customers.
Neither does Madison Group maintain insurance coverage against liability from tortuous acts nor
other personal injuries on its project sites. Under relevant PRC laws, construction companies bear

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the primary civil liability for personal injuries arising out of their construction work. In addition, there
are certain types of losses for which insurance is not available on commercially practicable terms in
China, such as losses suffered due to earthquakes, typhoons, flooding, war and civil disorder.
Therefore, while Madison Group believes that its practice is in line with the prevalent practices in
the Chinese property development industry, there cannot be any assurances that Madison Group
will not be sued or held liable for damages due to such tortuous acts and/or other personal injuries.
If Madison Group suffers from any losses, damages or liabilities during its operations and property
development, it may not have sufficient financial resources to remedy these damages or to satisfy
its potential obligations. In addition, any payments that Madison Group may have to make to cover
any losses, damages or liabilities may have a material adverse effect on its business, results of
operations, financial position and business prospects.

Third party infringement of Madison Group’s intellectual property rights may damage its
reputation and adversely affect Madison Group’s business, operational performance and
financial condition.

Madison Group sees its trademarks and company logos as critical to its success. Unauthorised use
of Madison Group’s intellectual property by third parties may adversely affect its business and
reputation. Madison Group is reliant on the protection of its trademarks and company logos.
Despite any precautions that may have been taken, it may be possible for third parties to obtain
and use Madison Group’s intellectual property without authorisation. Moreover, litigation may be
necessary at some point in the future to enforce Madison Group’s intellectual property rights or to
determine the validity and scope of the proprietary rights of third parties. Future litigation could
result in substantial costs and a diversion of resources. Should any of the above risks materialse,
this could have material adverse effects on Madison Group’s business, results of operations,
financial position and business prospects.

As Madison Group derives its revenue mainly from the sale of property, the Company’s
results from operations may vary significantly from period to period.

Currently, Madison Group derives the major part of its revenue from the sale of properties that it
has developed and only a relatively small amount of its revenue stems from returns on investment
properties such as rental income. The Company’s results from operations may fluctuate in the
future due to a combination of factors, including the overall development schedule of Madison
Group’s property development projects, the level of acceptance of its properties by prospective
customers, the timing of the sale of properties that it has developed, Madison Group’s recognition
of revenue policies and any volatility in expenses, such as land costs and construction costs.
Moreover, Madison Group’s property developments often last for more than one year and some
projects are developed in multiple phases. Typically, as the overall development moves closer to
completion, the sales prices of the properties in such development tend to increase because a
more established residential community is available to purchasers. Also, according to its
accounting policy for revenue recognition, Madison Group recognizes revenue from the sale and
pre-sale of its properties upon the execution of the relevant sales contract or the handover of the
property (upon receipt of the completion certificate), whichever is later. Generally, there is a time
difference, typically for at least several months or longer, between the time Madison Group
commences the pre-sale of properties under development and the handover of the properties.
Because the timing of handover of Madison Group’s properties varies according to Madison
Group’s construction timetable, Madison Group’s results from operations may vary significantly
from period to period depending on the GFA sold or pre-sold and the timing of handover of the
properties Madison Group sells. Historically, periods in which Madison Group handed over more
GFA typically generated a higher level of revenue. Periods in which Madison Group pre-sells a
large aggregate GFA, however, may not generate a correspondingly high level of revenue, if the
properties pre-sold are not handed over within the same period. The effect of the timing of project
delivery on Madison Group’s operational results is accentuated by the fact that during any
particular period of time Madison Group can only undertake a limited number of projects due to the
substantial capital requirements for land acquisitions and construction costs as well as limited
supply of land. Accordingly, Madison Group’s interim results for a given financial year may not be
indicative of its performance for the financial year or otherwise comparable to the results of
previous periods. In light of the above, the Company believes that period-to-period comparisons of
Madison Group’s operating results may not be as meaningful as it would be for a company with a
greater proportion of recurring revenues. If Madison Group’s operating results in one or more
periods do not meet the market's expectations, the price of the Company’s shares could be
materially and adversely affected.

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An increase in interest rates may materially and adversely affect Madison Group’s business,
financial condition and results of operations.

In China, mortgages are the primary means of financing property purchases. Most of Madison
Group’s prospective residential property customers will be expected to finance significant parts of
the purchase price using mortgages. Given this indispensability of mortgages, demand for
commercial and residential properties is likely to be materially and adversely affected by increased
interest rates because they would make these properties less affordable for potential customers.
Also, changing interest rates would affect Madison Group’s financing costs. There can be no
assurance that interest rates will not increase in the future. As a result of any increase in interest
rates, Madison Group’s borrowing cost will increase which, in turn, could materially and adversely
affect Madison Group’s business, results of operations, financial position and business prospects.

The fair value of Madison Group’s investment properties may fluctuate from time to time
and may decrease significantly in the future.

Madison Group is required to reassess the fair value of its investment properties at every balance
sheet date on which its financial statements are issued. Under International Financial Reporting
Standards (“IFRS”), its income statements include gains or losses arising from changes in the fair
value of Madison Group’s investment properties in the period in which they arise. Madison Group
recognises the fair value of its investment properties on its consolidated balance sheets and
recognises fair value gains or losses on investment properties and the relevant deferred tax on its
consolidated income statements. There can be no assurance that the fair value of Madison Group’s
properties will not decline in the future. Particularly, the fair value of Madison Group’s investment
properties could decline if the real estate industry experiences a downturn as a result of
government policies aimed at “cooling-off” the Chinese property market, or any other global market
fluctuations and/or economic downturns. Any decrease in the fair value of Madison Group’s
investment properties could lead to a reduction in fair value gains on investment properties in its
income statement which, in turn, could adversely affect its financial performance.

Seismic activity or other natural perils could have a substantial impact on Madison Group's
business and, in particular, its future sales.

Madison Group's completed buildings and development projects under construction are vulnerable
to damage or interruption from natural perils, in particular earthquakes, fires, windstorms, floods
and similar events. Some of Madison Group's current or future buildings may be located in areas
with a high risk of such natural perils, in particular earthquakes, tidal waves and hurricanes. The
occurrence of a natural disaster of substantial strength, during construction or prior to sale of one
or more of Madison Group's property development projects could cause severe damage to
buildings under construction or completed buildings up for sale. Thus, the occurrence of such
natural perils may cause a significant loss to Madison Group's assets as well as future revenue
and/or damage to the relationship between Madison Group and its customers. A natural peril could
lead to a substantial increase in building or restoration costs and could furthermore have an overall
detrimental effect on the development of Madison Group's future business and also on the
development of the prosperity in Madison Group's markets and would thus have a negative impact
on the future demand for Madison Group's property development projects. As evidenced by the
devastating earthquake in Sichuan province in May 2008, an earthquake might furthermore add to
inflationary pressures in the local and surrounding areas as the impacts of an earthquake may
negatively affect the overall housing situation, the food and other supplies and transportation. Thus,
natural perils, and in particular an earthquake, could have a substantial impact on Madison Group's
business and in particular its future sales, which could have a material adverse effect on the
business, results of operations, financial position and business prospects of Madison Group.

Future resettlement negotiations may add costs or cause delays to Madison Group’s
development projects.

Some of the properties which Madison Group will acquire for development in the future may have
existing buildings or other structures or may be occupied by third parties. In such a case, either the
relevant land authorities or Madison Group as the property developer may be responsible for
relocating existing residents and for demolishing existing structures on project sites. PRC laws and
regulations stipulate that where a property developer is required to demolish existing properties on
development sites or remove existing residents, it will have to pay resettlement costs to those
residents. On 16 March 2007, the National People’s Congress of China adopted the PRC Property

                                                                                                 59
Rights Law which expressly protects the private rights of housing owners. This makes demolition
and resettlement through administrative intervention more difficult and costly. Should Madison
Group be required to compensate existing residents in the future, the compensation payable will be
calculated in accordance with a pre-set formula determined by the relevant provincial authorities,
which may be subject to change. If such compensation formula is changed so as to increase the
compensation to be paid, Madison Group’s land acquisition costs may significantly increase which
could materially and adversely affect its business, financial condition, results of operations and
business prospects.

Where Madison Group is not responsible for the demolition and removal, the party responsible for
the demolition and removal and the party subject to the demolition and removal may apply for a
ruling of the relevant governmental authorities if they fail to reach agreement for compensation and
resettlement. If either of the parties is not satisfied with the ruling, it may initiate proceedings in a
people’s court within three months from the date of service of such ruling, which, in turn, may
cause delays in the development projects. Such proceedings and delays, if they occur, could
adversely affect Madison Group’s reputation. In addition, any such delays to Madison Group’s
development projects will lead to an increase in costs and, if applicable, in a delay of the expected
cash inflow resulting from pre-sales of the relevant project, which may materially and adversely
affect its business, financial condition, results of operations and business prospects.

The Company’s supervisory board may have difficulties in adequately supervising the
management board.

The Company’s assets are mainly located in China and the members of its management board
reside there. The Company is a holding company without any significant operational business of its
own. One of the members of the Company’s supervisory board is a Chinese citizen who has only
limited experience in fulfilling his obligations under the German Stock Corporation Act
(Aktiengesetz). The members of the supervisory Board residing outside of China may have
difficulties in fulfilling their statutory supervisory duties vis-à-vis the management residing in China
as a result of the physical distance to China and due to language barriers. In addition, the members
of the management board have only limited experience with German corporate governance
requirements and its statutory reporting obligations. Any lack of supervision by the Company’s
supervisory board may have material adverse effects on the business, results of operations,
financial position and business prospects of the Company.

The Company is not experienced with respect to German regulatory requirements for listed
companies and currently does not have a comprehensive risk management system in place.

The Company has no experience in complying with German regulatory requirements. None of the
members of the management board of the Company speaks German. Madison Group only
maintains a small finance and accounting staff. The Company and its directors are therefore
inexperienced in dealing with the legal, accounting, transparency and administrative requirements
imposed on a company listed in the Entry Standard, a sub-segment of the Open Market
(Freiverkehr) of the Frankfurt Stock Exchange, under the relevant German rules. The obligation to
comply with German law, the German corporate governance requirements, the shift from the
application of Chinese generally accepted accounting principles to internationally accepted
accounting standards and the requirement to publish relevant company news, quarterly reports and
to comply with various other reporting, notification and publications obligations resulting from the
inclusion of the Company’s shares in the trading in the Entry Standard, a sub-segment of the Open
Market (Freiverkehr) of the Frankfurt Stock Exchange, will put increased demand on the
compliance, finance and accounting departments. If the Company fails to comply with the
obligations it faces as a company listed in the Entry Standard or fails to timely issue complete and
correct financial reports and accounts, the consequences of such actions or omissions could have
a material adverse effect on the Company’s business, results of operations, financial position and
business prospects.

The Company is currently in the process of implementing a comprehensive risk management
system, however, such risk management system has not yet been completely implemented. The
lack of an established comprehensive risk management system increases the Company’s and
Madison Group’s susceptibility to all operational and financial risks, including but not limited to the
risks mentioned in this Prospectus. This could have material adverse effects Madison Group’s
business, results of operations, financial position and business prospects.


                                                                                                    60
Risks Related to the Real Estate Industry in China
The PRC government may adopt further policies, regulations and measures to slow down
growth in the real estate sector.

As a property developer, Madison Group is subject to extensive government regulation and is
susceptible to changes in the regulatory framework and policy initiatives implemented by the PRC
government. Over the past few years, property developers have invested heavily in China, thereby
raising concerns that certain sectors of the property market are subject to overheating. As a
response, the PRC government has introduced certain austerity measures intended to curtail the
overheating of property development and discourage speculation in the residential property market.
Such measures include the raising of benchmark interest rates of commercial banks, the placing of
additional limitations on the ability of commercial banks to make loans to property developers, the
imposition of additional taxes and levies on property sales and the restriction of foreign investment
in the PRC property sector. These measures may limit Madison Group’s access to capital
resources, restrict its business operations or increase its operating costs in complying with these
measures. There can be no assurance that the PRC government will not adopt additional and more
stringent measures in the future, which, in turn, could have a material adverse impact on Madison
Group’s business, financial condition, results of operations and business prospects.

The property market in the PRC is at an early stage of development and is volatile.

The Chinese property market is still at an early stage of development, and its progress may be
affected by social, political, economic, legal and other factors. For example, the lack of a mature
and active secondary market for private properties and the limited amount of mortgage loans
available to individuals in the PRC have been cited as factors which may inhibit demand for
residential properties. Madison Group is, and expects to continue to be, dependent upon the
growth of China’s urban middle and upper-middle classes. A significant downturn in the Chinese
economy could adversely affect such demand, as well as the demand by corporations and other
institutional entities for Madison Group’s commercial real estate projects.

The Chinese property market is volatile and may experience undersupply or oversupply and
property price fluctuations. The central and local governments frequently adjust monetary and other
economic policies in order to prevent and curtail the overheating of the PRC and local economies.
These economic adjustments may affect the property market in China. There can be no assurance
that there will not be overdevelopment in the Chinese real estate sector in the future. Such
overdevelopment may result in an oversupply of properties and, at the same time, in decreasing
property prices, an undersupply of sites available for future development and an increase in the
cost of acquiring land in Madison Group’s markets, which could materially and adversely affect its
business, financial condition, results of operations and business prospects.

In China, property owners only have a limited period of exclusive right to their property.

Under PRC Law, the title to a property is only conferred for a limited amount of time and there is no
permanent exclusive right to the land beneath a property. PRC law provides that all urban land in
China is exclusively owned by the state, and private parties, such as Madison Group’s Chinese
subsidiaries, may only be granted a “land use right” from the state for a fixed period of time.
Depending on the planned use of the land, the term of the land use right, i.e. the period of
exclusive use granted to the private party, can be 40 years for commercial use, 50 years for
industrial use or 70 years for residential use.

When the term of the land use rights for Madison Group’s properties held for investment purposes
expires, the respective corporate entity within Madison Group which is the owner of the properties
will have to apply to the land authority in China for an extension of the land use right to allow it to
continue using the property, and the land authority may turn down the application or demand too
high a land premium. If Madison Group fails to reach a commercially viable renewal of the
respective land use rights, e.g. because the government authority makes an offer of compulsory
purchase of the respective property in an effort to redevelop the nearby region or for any other
reason of public welfare, Madison Group may not be able to defend its title to the respective
property. Should any of the above scenarios materialise, this could materially and adversely affect
Madison Group’s business, financial condition, results of operations and business prospects.

                                                                                                  61
Changes to laws and regulations with respect to pre-sale may adversely affect Madison
Group’s cash flow position and performance.

An important source of funding for Madison Group’s real estate projects is the cash flow from pre-
sales. However, assurances that Madison Group will be able to secure sufficient pre-sales to fund
a particular development in the future cannot be made. Current laws and regulations in China
stipulate that property developers must fulfil a number of specific conditions before they can start
pre-selling relevant properties and that they may only use the proceeds of these sales to finance
their developments. In August 2005, the People’s Bank of China (“PBOC”) issued a report entitled
“2004 Real Estate Financing Report.” In this report, the PBOC recommended abolishing the
practice of pre-selling incomplete properties because such practice creates significant market risks
and because it offers opportunities for malpractice and other forms of regulatory non-compliance.
Although this and other PBOC recommendations were not ultimately adopted by the PRC
government, it cannot be excluded with certainty that the Chinese government will not eventually
impose a moratorium on pre-sales of unfinished properties or even implement further restrictions
on presales, such as imposing additional and more stringent conditions for obtaining a pre-sale
permit or further restrictions on the use of pre-sale proceeds. Any such measure would adversely
affect Madison Group’s cash flow. It would also force Madison Group to seek alternative sources of
funding for large parts of its property development business. All of the above would have material
adverse effects on Madison Group’s business, results of operations, financial position and business
prospects.

Madison Group is exposed to contractual and legal risks related to pre-sales.

Madison Group will make a number of commitments in its pre-sale contracts. Pre-sale contracts
and Chinese laws provide for remedies in case these commitments are not honoured. For
example, if Madison Group fully or partially pre-sells a property project and fails to complete that
project, it will be liable to the buyers for the losses they incur as a result of this failure. Also, should
Madison Group fail to complete a pre-sold project on time, the buyers may seek compensation for
late delivery according to the terms and conditions of their pre-sale contracts or of relevant Chinese
laws. If the delay extends beyond a specified period, purchasers may also have the right to
terminate their pre-sale contracts and claim compensation accordingly. There can be no assurance
that Madison Group will not experience significant delays in completing and delivering its projects,
which could have material adverse effects on Madison Group’s business, results of operations,
financial position and business prospects.

Intensified competition may adversely affect Madison Group’s business and its financial
position.

The real estate market in China has become increasingly competitive in recent years. Chinese as
well as overseas property developers entered the market and launched development and
investment projects in different regions in China, These projects also target the city of Qingdao
where the majority of Madison Group’s property projects are located. Madison Group will then be
forced to compete with these developers as well as with other existing and potential competitors.
Madison Group’s competitors, existing and potential, may have greater resources, for example in
terms of marketing, financing or technical expertise and they may have bigger economies of scale
and scope, better name recognition, longer track records and more established relationships in
certain markets. Competition among property developers may result in increased land premiums,
and raw materials prices, shortages of reliable contractors, oversupply of properties leading to
lower property prices, delayed government approvals and higher costs to attract or retain key
personnel. Moreover, residential property markets across China are influenced by a variety of
factors such as the overall economy, banking practices and prevalent consumer sentiments. If
Madison Group fails to compete successfully, its business, results of operations, financial position
and business prospects could be materially and adversely affected.

Madison Group may be subject to fines and its land may be forfeited to the PRC government
if it fails to comply with the terms of the land-use rights grant contracts.

Under PRC law, if a developer fails to develop any land according to the terms of the land grant
contract, including those relating to the payment of land premium, demolishment and resettlement
costs and other fees, specified usage of the land and the time for commencement and completion
of the property development, the PRC government may issue a warning, impose a penalty and/or
order it to forfeit the land. Specifically, under the relevant PRC law, (i) for any idle land without

                                                                                                       62
commencement of construction for more than two years, the local government should, if required
under the PRC law, order forfeiture of such idle land without any compensation, or take other
actions to fully utilise such idle land, and (ii) for any idle land without commencement of
construction for more than one year (but less than two years), the local government should levy
certain idle land fees on idle land, especially for property development, the amount of which shall
be equal to 20% of the land-use rights grant premium paid for such idle land. Moreover, even if the
development of certain land is conducted in accordance with the construction commencement date
as stipulated in the land-use rights grant contract, if (i) the actual developed land area of such land
is less than one-third of its approved land development area or the actual total investment on the
development of such land is less than one-fourth of its approved total investments, and (ii) the
development of such land has been suspended for more than one year without any approval for
such suspension from the relevant PRC government, and (iii) if the planning parameters set out in
the land use rights grant contract are not fulfilled, such land will be also treated as idle land.

There cannot be any assurance that there will not be delays in Madison Group’s current and future
property developments which could result in warnings, fines, penalties or even forfeiture of land
without any compensation. Should Madison Group be ordered to pay substantial idle land fees, its
results and its reputation may be negatively affected. If Madison Group is forced to forfeit land, it
will not only lose the opportunity to develop property projects on this land, but it may also lose all
investments made in relation thereto, including the land premiums which were paid and/or the
development costs which were incurred, which could have material adverse effects on Madison
Group’s business, results of operations, financial position and business prospects.




                                                                                                  63
Risks Related to the Political, Social and Legal Environment of
the People’s Republic of China
General risks relating to business operations in emerging markets.

Madison Group operates its entire business in the PRC. China has been classified as one of the
five biggest emerging markets together with India, Indonesia, Brazil and Russia by the World
Bank.1 Investors should therefore keep in mind that Madison Group’s operations are and will be
subject to greater legal, economic and political risks than comparable business operations in
mature and more developed markets. Furthermore, emerging economies tend to change rapidly.
Therefore, the information set out in this Prospectus may quickly become outdated. Investments in
emerging markets or in companies operating in such markets are, in general, exposed to additional
risks and are therefore only suitable for sophisticated investors, who fully comprehend the
significance of the risks involved. Investors are strongly recommended to consult their own legal
and financial advisors before making an investment.

Economic instability in China could adversely affect Madison Group’s business.

China’s economy differs considerably from the economies of more developed countries, in
particular regarding the degree of government intervention, the political structure, the level of
development, the growth rate, the control of foreign exchange and the allocation of resources. As a
result of ongoing rapid changes in China, the Chinese economy is subject to various risks, such as
significant declines in gross domestic product, hyperinflation, unstable currency, high governmental
debts in relation to gross domestic product and a weak banking system providing limited liquidity to
domestic enterprises. Furthermore, unemployment in China increases steadily due to the
privatisation of state-owned enterprises ("SOEs"), and the costs caused by environmental
damages – such as air pollution, soil erosion and the ongoing drop of ground water levels – are
rising.
                                                                             2
The Chinese economy has grown significantly in the past 30 years. However, this growth has
been geographically uneven, within the various sectors of the economy and during different
periods. It cannot be foreseen whether the Chinese economy will continue to grow and whether
growth will be steady and uniform if there is any growth. Moreover, it could also be that there will
be a slowdown of economic growth. Such slowdown could then have a negative impact on
Madison Group’s business operations.

For example, the Chinese economy experienced high inflation in the second half of 2007 and the
first half of 2008. As a reaction the Chinese government enforced a number of tightening
macroeconomic measures and monetary policies. In particular, the following measures have been
taken: increase of interest rates, raise of statutory reserve rates from banks and implementation of
the control of bank lending to certain industries or economic sectors. However, due to the global
crises in financial services and credit markets and due to other factors, the growth rate of China’s
gross domestic product decreased to 6.8% in the fourth quarter of 2008, 6.1% in the first quarter of
2009 and 7.1% in the second quarter of 2009 from 11.9% in the second quarter of 2007. As a
result, beginning in September 2008 China’s government began to loosen macroeconomic
measures and monetary policies by reducing interest rates and decreasing the statutory reserve
rates for banks. In addition the Chinese government accredited an economic stimulus package in
the amount of USD 586 billion in November 2008. However, it is unclear whether the
macroeconomic measures, monetary policies and the economic stimulus package adopted by
China’s government to stimulate economic growth will have the envisaged effect of sustaining a
fast growth rate of the Chinese economy in the long run. Moreover, all these measures might
adversely affect Madison Group’s business if they reduce the disposable income of its possible
customers, even if they have a positive impact on the overall Chinese economy in the long term.
Furthermore, it cannot be foreseen how long the global financial crisis will continue and how much
adverse impact it will have on the Chinese economy in general and on the customers of the

1
    World Bank Annual Report of 31 December 2005.

2
 OECD Economic Survey of China 2005, Chapter 1; see also WTO Trade Policy Review Report by the Secretariat, 12
August 2008, WT/TPR/S/199/Rev.1


                                                                                                         64
Company in particular. The occurrence of one or several of the above risks could a have material
adverse effects on the business, financial condition, results of operations and business prospects
of Madison Group.

Recent regulations relating to employee stock options granted by overseas listed
companies to citizens of China have to be observed by the Company and its employees to
avoid fines and legal sanctions.

In January and March 2007, SAFE issued the Implementation Rules of the Administrative
Measures for Individual Foreign Exchange and the Application Procedure for Foreign Exchange
Administration for Domestic Individuals Participating in Employee Stock Holding Plans or Stock
Option Plans of Overseas Listed Companies, respectively. Under the above rules, Chinese citizens
who are granted shares or share options under an employee share option or share incentive plan
of a foreign listed company are required to register with SAFE through the Chinese subsidiary of
the respective foreign company or through another qualified Chinese agent and to pass other
procedures related to the share option or share incentive plan. Foreign exchange income received
from sales or dividends distributed by the foreign listed company can be paid into a foreign
currency account of Chinese citizens or be exchanged into RMB. The Company has not yet
established an employee stock option plan. However, if such plan should be established at a later
stage and if Madison Group’s subsidiaries or its Chinese employees would then fail to comply with
the respective regulations the Company might be subject to fines and legal sanctions.

Madison Group’s business operations could be disrupted due to China’s inadequate
infrastructure.

In China, the infrastructure has not been maintained and adequately developed. Rail and road
networks, power generation and transmission systems, communications systems, and building
stock are particularly affected. This inadequate and bad condition of Chinese infrastructural
systems leads to additional costs for business operators and can result in business disruptions or
delays. Such disruptions and delays could adversely affect Madison Group’s business, financial
condition, results of operations and business prospects.

China’s economic liberalisation could be compromised by a change of the political system.

The Chinese economy has changed fundamentally over the last thirty years. The originally centrally
planned system became a more market-oriented economy. However, the political system still
operates under communist control. Although the political system in China seems to be generally
stable, it cannot be excluded that the political conditions change, which might have an adverse
effect on the ownership or operation of Madison Group’s interests. Such changes could for
example be changes within the government as well as changes in the legislative and regulatory
regimes.

Material changes in the liberalisation of China’s economic system due to political disruptions or
other reasons could lead to a slowdown of China’s economic growth in general and of the growth of
Madison Group’s business in particular. Public support for the renovation of the centralised
authority could be increased by social instability. Nationalism or violence could lead to a tougher
stance by the PRC government on foreign investors operating in China or on foreign investment in
general. Such developments could have a material adverse effect on Madison Group’s business,
financial condition, results of operations and business prospects.

Health epidemics and outbreaks of contagious diseases, including severe acute respiratory
syndrome (SARS), avian influenza or swine flu, could materially and adversely affect the Chinese
economy.

Diseases such as avian flu, SARS or other epidemics or outbreaks such as the swine flu could
negatively impact Madison Group’s business. Cases of SARS, a highly contagious form of atypical
pneumonia, were reported from China in 2003. This led to the closure of many businesses
determined by the Chinese government to prevent the transmission of the disease. Furthermore,
the occurrence of avian flu in various parts of China has been reported in recent years, some of
which were human cases. If avian flu, SARS, swine flu or any other disease would spread, the
negative impact on the public health in China could also negatively affect Madison Group’s
business operations, in particular due to possible illness and loss of management, key employees


                                                                                              65
or employees of sub-contractors. Madison Group has not adopted any written preventive measures
or contingency plans to combat any future outbreak of avian flu, swine flu, SARS or any other
epidemic.

The PRC legal system and regional and national taxation laws contain inherent
uncertainties and inconsistencies.

Madison Group’s operations are subject to PRC law as Madison Group’s operational business is
exclusively conducted in China. However, China still does not have a comprehensive legal system
compared to the legal systems of most Western countries. In particular, foreign investment laws
and company law in China, including the regulations for the protection of shareholders’ rights and
the access to information do not award the same amount of protection as the laws that apply for
e.g. to German corporate entities or those incorporated in other European Economic Area (“EEA”)
member states. As a consequence, e.g. legal provisions on local, regional and national bases often
differ; there is no uniform interpretation of regulations by courts and authorities; judges and courts
do neither have enough experience nor sufficient guidelines in respect of the interpretation of laws,
and governmental authorities are entitled to make decisions with broad discretion which often
means that decisions such as approvals, permissions and licenses, are simply revoked.

As a result, decisions, licenses, permissions and approvals granted by local authorities with regard
to Madison Group and its business might be annulled by national or regional authorities or courts
due to a different interpretation of laws. Furthermore, the inconsistencies of the legal system as
described above could make it difficult to receive protection by filing a claim or defending against a
claim respectively. All these factors could have a negative impact on Madison Group’s business as
far as it depends on administrative or court decisions.

Madison Group might not be able to receive effective judicial remedies.

Compared to judicial systems in Western countries, China’s judicial system is less independent
from political, economical, financial or governmental influences. Judges are only appointed for
certain terms, may be released at any time and are furthermore not well paid. As a result, some
PRC courts may base their decisions on personal, political or financial factors rather than on the
basis of PRC laws and regulations. Moreover, it is difficult to enforce judgements in China. If
Madison Group’s Chinese subsidiaries should therefore become subjected to a claim of a
competitor, sub-contractor or any other party, it might be impossible to get a fair court procedure,
and the result of a court hearing cannot be foreseen, even if the facts appear to be in favour of
Madison Group’s respective subsidiary. Unfair or arbitrary judgement and the inability to enforce
favourable judgements might have a negative effect on Madison Group’s business operations if it
should come to a court hearing.

Recognition and enforcement of judgments may be difficult to obtain in China.

All of Madison Group's assets are located in China and all members of the Group’s management
reside there. However, China is not party to any agreements regarding the recognition and
enforcement of judgments of the courts of Germany or those of other jurisdictions. Therefore, court
decisions obtained by investors in connection with claims regarding the Offering could be
considered as not binding in China by PRC courts, and investors could be unable to enforce
potential court decisions made by a foreign court against Madison Group, its management,
personnel or over its assets.

Foreign investment in PRC companies may be subject to additional restrictions in the
future.

Due to the inconsistent application of recent PRC legislation which has been implemented to make
investments in China easier for foreign investors, such foreign investors presently face practical
barriers when investing in China. Although the PRC government eliminated some restrictions for
investments in China, in particular for certain industrial sectors in the past decade, it cannot be
excluded that the PRC government will decide to implement tougher restrictions on foreign
investors in the future. Such measures could make it difficult for foreign-invested entities to lead
and control their PRC subsidiaries.




                                                                                                 66
Risks Related to the Offering
The Offering may not result in an active and liquid market for the Company’s shares.

No assurance can be given that liquid trading in the shares of the Company will develop after the
Offering and that the stock exchange price will not fall below the offer price. The offer price for the
shares will be determined by way of a book-building procedure and will not necessarily provide any
indication of the stock exchange price at which the shares will subsequently be traded on the
Frankfurt Stock Exchange or on any other exchange. The Company cannot make forecasts as to
the extent that investors’ interest in its shares will foster trading, nor whether a liquid trading market
will develop. The stock exchange price of the Company's shares could become subject to greater
volatility and therefore buy and sell orders might be executed less efficiently. Under certain
circumstances, investors might not be able to sell their shares at the purchase price fixed for the
Offering or at a higher stock exchange price; or they might not even be able to sell them at all.

The market price for the Company’s shares may be volatile.

Following the Offering, the market price of the Company’s shares may be highly volatile and may
not always accurately reflect the underlying value of the Company’s business. Factors such as,
inter alia, variations in the Company’s revenue, earnings and cash flows, the failure to meet
analysts’ expectations, announcements of new investments, strategic alliances and/or acquisitions,
fluctuations in real estate prices in China as well as changes in PRC laws and regulations could
cause the market price of the Company’s shares to change substantially. The general volatility of
stock exchange prices could also exert pressure on the market price of the Company’s shares, and
it is therefore possible that the Company’s shares will be subject to changes in price that may not
be directly related to Madison Group’s financial and business performance or its business
prospects.

The sale, or perceived sale, of shares by the Existing Shareholders could adversely affect
the market price of the Company’s shares.

As a result of future sales of substantial amounts of shares in the public market, the market price of
the Offer Shares could decline substantially. Upon completion of the Offering (assuming that all
Offer Shares are placed), the Existing Shareholders will hold approximately 85.89% of the
Company’s shares (or approximately 84.48% if the Greenshoe Option is fully exercised). The
Existing Shareholders have agreed with VEM that, for a period ending on 30 November 2011, they
will not offer, pledge, sell, contract to sell, sell an option to buy, buy an option to sell or otherwise,
directly or indirectly, transfer or dispose of shares of the Company or other securities that are
convertible into or exchangeable for shares of the Company; enter into swap transactions or
transactions that transfer the economic risk of holding the shares to a third party, in whole or in
part, regardless of whether any such transaction is to be settled by delivery of shares, payment in
cash or other consideration, as well as; initiate, vote in favor of or in any other way support a capital
increase of the Company or issuance of shares which are exchangeable into shares of the
Company or an economically equivalent transaction.

The Company can, however, not give any assurances that the Existing Shareholders will always
observe and comply with this undertaking and/or that VEM will be in a position to enforce that
market protection agreement.

There may be too little liquidity in the Open Market (Freiverkehr) and its sub-segment, the
Entry Standard, for the Company’s shares.

Neither the Open Market (Freiverkehr) nor its sub-segment, the Entry Standard, is a regulated
market within the meaning of MiFID (Directive 2004/39/EC). The future success and liquidity of
these markets for the Company’s shares cannot be guaranteed. These markets are designed
primarily for emerging or smaller companies. The market in the Company’s shares may therefore
be relatively illiquid or subject to fluctuation. Investments in shares traded on the Open Market
(Freiverkehr) and its sub-segment, the Entry Standard, traditionally carry a higher degree of risk
than investments in shares quoted on the EU-regulated markets. It may therefore be more difficult
for investors to realise their investment in the Company. There can be no assurance that the


                                                                                                     67
trading in the Company’s shares the Open Market (Freiverkehr) and its sub-segment, the Entry
Standard, will prevail at satisfactory and sufficient liquidity levels.

Risk of short sales before delivery of shares.

The Listing Agreement provides that VEM may terminate the agreement given certain
preconditions. Should the Listing Agreement be terminated, the Offering will not take place. If
investors have engaged in so-called “short sales”, they will bear the risk of not being able to
financially cover these sales through the delivery of the shares.




                                                                                          68
GENERAL INFORMATION

Responsibility for the Content of the Prospectus
The Company, with its registered office at c/o Salans LLP, Markgrafenstraße 33, 10117 Berlin,
Germany (together with its direct and indirect subsidiaries, the “Madison Group”) assumes
responsibility for the contents of this prospectus (the”Prospectus”) pursuant to Section 5, para. 4
of the German Securities Prospectus Act (Wertpapierprospektgesetz) and declares that to its
knowledge all information contained in the Prospectus is correct and that no material facts have
been omitted. Furthermore, the Company declares that it has exercised all reasonable diligence to
ensure that, to its knowledge, the information contained in this Prospectus is correct and all
relevant facts have been disclosed which could have any impact on the statements made in this
Prospectus.


Subject Matter of this Prospectus
For the purpose of the public offering, this Prospectus relates to a total of up to 632,500 no par
value ordinary bearer shares, each with a notional amount of the share capital of EUR 1.00 and
each share vested with full dividend rights for the financial year 2010/2011. The shares which are
subject to the public offering consist of:

      !      575,000 no par value ordinary bearer shares which emanate from a capital increase
             against cash contribution from authorised capital pursuant to a resolution of the
             management board (Vorstand) and a corresponding approval of the supervisory board
             (Aufsichtsrat) both expected to be adopted on or shortly before 2 December 2010 (the
             “New Shares”); and

      !      57,500 no par value ordinary bearer shares which are held by the Greenshoe
             Shareholders, i.e. by Falcon Grow Investments Limited, Best Way Ecological Food
             Inc., Mr. Wah Lam and Kvalue Financial Co., Ltd., in connection with a potential over-
             allotment (the “Greenshoe Shares” together with the New Shares the “Offer Shares”)


Forward-Looking Statements
The Prospectus contains a range of forward-looking statements relating to future events and facts.
All statements in this Prospectus, which do not refer to historical facts and events, are to be
considered as forward-looking statements. This does, in particular, apply to statements made in
this Prospectus regarding the future financial earning potential, regarding plans and expectations
for the business and management of the Company, regarding growth and profitability as well as
regarding economic and regulatory conditions to which the Company is exposed.

Such forward-looking statements are based on current assumptions and estimations made by the
Company to the best of its knowledge. The occurrence or non-occurrence of uncertain events may
result in that the actual results, including the business and financial condition of the Company and
its results of operations will differ significantly from the expectations expressed or implied in such
forward-looking statements. The business operations of Madison Group are subject to a number of
risks and uncertainties which may cause a certain forward-looking statement, assumption or
prediction will become inaccurate. Investors should therefore carefully read the sections
“Summary”, “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and
Results of Operations”“, “Industry Overview”, “Business”, “Regulatory Environment” and “Recent
Developments and Outlook” which contain a detailed description of the factors having an impact on
the development of Madison Group’s business and the market in which Madison Group operates.

In view of the risks, uncertainties and assumptions, the future events mentioned in this Prospectus
may not occur. In addition, forward-looking estimates and predictions derived from third parties’
surveys may prove to be inaccurate (please see “Information Derived from Third Parties”). Hence,
neither the Company nor the Company’s management are in a position to guarantee the


                                                                                                 69
correctness of the estimations or the actual occurrence of the projected developments as laid out in
this Prospectus. Moreover, the Company does not assume responsibility to update such forward-
looking statements or to adjust them to future events and developments.


Information Derived from Third Parties
This Prospectus contains numerous references to statistical information, data and studies prepared
by third parties. Such data has in particular been taken from the following sources:

      !     Beijing University New Media Marketing Broadcasting Research Centre and Beijing
            Yuanjing Liandong Web Consultancy Company Limited: Investment Analysis and
            Prospects of China’s Tourism Market in 2010-2015, 10 September 2010
            (http://city.sina.com.cn/travel/f/2009-2010lycswybg/index.shtml).

      !     Bundesverband deutsche Banken (www.bankenverband.de/waehrungsrechner/index-
            xi.asp).

      !      China Statistic Press: China Statistical Yearbook 2008, Beijing, 2009.

      !      China Statistic Press: China Statistical Yearbook 2009, Beijing, 2010.

      !      China Statistic Press: Shandong Statistical Yearbook 2010, Beijing, 2010.

      !      China Statistic Press: Qingdao Statistical Yearbook 2009, Beijing, 2009.

      !     China Statistic Press: Qingdao Statistical Yearbook 2010, Beijing 2010.

      !      Chongqing       Municipal     Government      Website,     10     September      2010
            (http://english.cq.gov.cn/).

      !      China Statistic Press: Chongqing Statistical Yearbook 2007, Beijing 2008.

      !      China Statistic Press: Chongqing Statistical Yearbook 2009, Beijing 2010.

      !      China Statistic Press: Chongqing Statistical Yearbook 2010, Beijing 2010.

      !      China Land Resource/Ministry of Land and Resources: Shandong: Prices Lower Than
            National      Average,       29    July     2008,     10    September       2010
            (http://www.clr.cn/bao/read.asp?ID=138513).

      !      China Land Resource/Ministry of Land and Resources: 10 September 2010
            (http://www.mlr.gov.cn/mlrenglish/).

      !      Chinanews: 5 August 2010 (www.chinanews.com).

      !     China Commercial Intelligence Network: National Systematic Planning of City and
            Township, 10 September 2010 (http://www.21cnci.com/view/54972.html).

      !      China Investment Consultation Industry Research Center: 2009-2010 Webtrust
            Report of National Tourism Cities of China, 10 September 2010
            (http://www.ocn.com.cn/reports/2008636hainanlvyou.htm).

      !      Encyclopaedia     Britannica: Weifang,     Shandong,   10          September     2010
            (http://www.britannica.com/EBchecked/topic/638886/Weifang).

      !      Economic      Daily:   China    Economic     Net,   10    September              2010
            (http://www.ce.cn/macro/more/201002/26/t20100226_21016776.shtml).

      !      Hong Kong Trade Development Council: 10 September 2010 (http://www.hktdc.com/).


                                                                                               70
      !     Maps of China: 10 September 2010 (http://www.maps-of-china.com/shandong-s-
            ow.shtml).

      !     Maps of China: 10 September 2010 (http://www.maps-of-china.com/chongqing-s-
            ow.shtml).

      !     National Bureau of Statistics China: National Economy: Steady and Fast Growth in
            2008,                     10                    September                  2010
            (http://www.stats.gov.cn/enGliSH/newsandcomingevents/t20090122_402534173.htm).

      !      National Bureau of Statistics China: National Economy: Steady and Fast Growth in
            2008,                     10                     September                  2010
            (http://www.stats.gov.cn/enGliSH/newsandcomingevents/t20090122_402534173.htm).

      !      National Bureau of Statistics China: National Economy: Steady and Fast Growth in
            2008,                     10                     September                  2010
            (http://www.stats.gov.cn/enGliSH/newsandcomingevents/t20090122_402534173.htm).

      !      OECD: OECD Economic Survey of China 2005, Chapter 1, 10 September 2010
            (http://www.oecd.org/document/7/0,3343,en_2649_34109_35343687_1_1_1_1,00.ht
            ml).

      !      People’s Daily Online: 1 July 2010 (http://english.peopledaily.com.cn/).

      !      Sachs, J./Woo, W.: China’s Economic Growth After WTO Membership, Journal of
            Chinese Economic and Business Studies, Vol. 1, No. 1, 2003, pp. 1-31, 10 September
            2010
            (http://unpan1.un.org/intradoc/groups/public/documents/APCITY/UNPAN012142.pdf).

      !     Shandong Statistical Bureau: Shandong Statistical Information Net, 10 September
            2010 (www.stats-sd.gov.cn/2007/tjgb/tjgb.asp).

      !      Shandong Statistics Bureau: Telephone Enquiry made on 25 February 2010.

      !      State Statistic Bureau: 10 September 2010 (www.stats.gov.cn).

      !     Statistical Bureau Shandong: Statistical Bulletin 2009 on National Economic and
            Social Development of Shandong, 10 September 2010 (http://www.stats-
            sd.gov.cn/disp/tjgb.asp?aa=1100201000).

      !      Shandong Provincial Foreign Economic and Trade Department: Current Situation of
            Foreign Direct Investment in Shandong Province in 2007, 10 September
            (http://www.dzwww.com/xinwen/xinwenzhuanti/2008/sdggkf/bjzl/200802/t20080218_3
            207061.htm).

      !     Statistical Bureau Qingdao: Statistical Bulletin 2009 on National Economic and Social
            Development       of   Qingdao,       10     September      2010     (http://www.stats-
            qd.gov.cn/statsqd/news/201021110375019068.asp?typeid=992&videos=).

      !      Statistical Bureau Qingdao: Qingdao Statistical Bureau 2009, 10 September 2010
            (http://www.stats-qd.gov.cn/statsqd/index/index.shtml).

      !      World Bank: World Bank Annual Report of 31 December 2005, 10 September 2010
            (http://siteresources.worldbank.org/INTANNREP2K5/Resources/51563_English.pdf).

      !      WTO: WTO Trade Policy Review Report by the Secretariat, 10 September 2010
            (http://www.wto.org/english/theWTO_e/countries_e/china_e.htm

Such information derived from third parties has accurately been reproduced by the Company. As
far as the Company is aware and is able to ascertain from information published by third parties, no
facts have been omitted which would render the reproduced information inaccurate or misleading.

                                                                                               71
However, it has to be noted that market studies often rely on information and assumptions that may
not be accurate or appropriate, and their methodology is inherently predictive and speculative.
Furthermore, this Prospectus also contains estimates made by the Company relating to market
data of third parties that are based on published market data or figures from publicly available
sources. Figures, market data or other information on which third parties based their studies have
neither been independently verified by the Company. Therefore, the Company does not assume
responsibility or make representation or warranty as to the accuracy of any information derived
from information and studies of third parties included in this Prospectus.


Documents Available for Inspection
For the duration of the validity of this Prospectus, copies of the following documents will be
available for inspection in printed form during regular business hours at the registered office of
Madison Property AG, c/o Salans LLP, Markgrafenstraße 33, 10117 Berlin, Germany, as well as on
the Company’s website www.madisonproperty.cn:

         !       the Company’s Articles of Association (Satzung) and the by-laws (Geschäftsordnung)
                 for the management board and the supervisory board;

         !       the audited single entity financial statements of the Company for the financial year
                 2009/2010 based on the German Accounting Standard (HGB) and audited by KPMG;

         !       the audited consolidated financial statement of the Company for the financial years
                 2009/2010 and 2008/2009 based on International Financial Reporting Standards
                 (IFRS), as adopted in the European Union (“EU”), and audited by KPMG;

         !       the audited consolidated financial statements of Madison Hong Kong for the financial
                 years 2005/2006, 2006/2007, 2007/2008 and 2008/2009 based on IFRS, as adopted
                 in the EU, and audited by KPMG;

         !       the Company's unaudited condensed consolidated financial statements for the three
                 months ended 31 July 2010, in accordance with International Accounting Standard
                 (“IAS”) 34 Interim Financial Reporting;

         !       Valuation Report for the Company’s property projects, prepared by Savills Valuation
                 and Professional Services Limited (Hong Kong), as at 30 April 2010

         !       Valuation Report for the Company’s property projects, prepared by Savills Valuation
                 and Professional Services Limited (Hong Kong), as at 31 July 2010.

Future annual reports and interim reports of the Company will be available at its German office.


Notes Regarding Financial and Currency Data
Some figures (including percentages) contained in this Prospectus have been rounded to the
nearest whole number. As a result, figures in tables so rounded may in some cases not add up to
the exact totals shown in the tables. Percentages quoted in the text were, however, calculated on
the basis of actual values rather than the rounded values. Accordingly, percentages quoted in the
text may in some cases differ from percentages based on the rounded values.

All information with respect to currencies in this Prospectus refers to Renminbi (RMB) except
                                                                                      3
otherwise stated. As at 31 July 2010 the exchange rate was RMB 8.851 per EUR 1.00. Amounts
denominated in other currencies are expressly identified as such with the corresponding currency
designation or currency symbol.




3
    Source: Bundesverband deutsche Banken (http://www.bankenverband.de/waehrungsrechner/)


                                                                                                72
Auditors

KPMG AG Wirtschaftsprüfungsgesellschaft, Marie-Curie-Str. 30, 60439 Frankfurt am Main,
Germany, (“KPMG”) has audited the Company’s single entity financial statements for the financial
year 2009/2010 based on the German Accounting Standard (HGB), the Company’s financial
statements for the years 2009/2010 and 2008/2009 based on IFRS, as adopted in the EU as well
as the financial statements of Madison Hong Kong for the financial years 2005/2006, 2006/2007,
2007/2008 and 2008/2009 based on IFRS, as adopted in the EU. KPMG is a member of the
German Chamber of Public Accountants (Wirtschaftsprüferkammer).


Valuation Company

Savills Valuation and Professional Services Limited, 23/F Two Exchange Square Central, Hong
Kong, has prepared two valuation reports regarding Madison Group’s property projects, one as at
30 April 2010 and one as at 31 July 2010. The valuation reports have been added to this
Prospectus with the consent of Savills Valuation and Professional Services Limited.


No material changes have occurred since the date of valuation indicated in the valuation report as
at 31 July 2010.




                                                                                             73
THE OFFERING

Subject Matter of the Offering
The Offering consists of a public offering in Germany and Luxembourg and private placements to
institutional investors outside Germany, Luxembourg and the United States.

The Offering consists of up to 632,500 no par value ordinary bearer shares (Inhaber-Stückaktien) of
Madison Property AG, created under and in accordance with German law, each ordinary bearer
share having a notional amount of the share capital of EUR 1.00 and each vested with full dividend
rights for the entire financial year 2010/2011, consisting of:

      !      575,000 no par value ordinary bearer shares which emanate from a capital increase
             against cash contribution from authorised capital pursuant to a resolution of the
             management board (Vorstand) and a corresponding approval of the supervisory board
             (Aufsichtsrat) both expected to be adopted on or shortly before 2 December 2010; and

      !      57,500 no par value ordinary bearer shares which are held by the Greenshoe
             Shareholders, i.e. by Falcon Grow Investments Limited, Best Way Ecological Food Inc.,
             Mr. Wah Lam and Kvalue Financial Co., Ltd., in connection with a potential over-
             allotment (the “Greenshoe Shares” together with the New Shares the “Offer
             Shares”).

No fixed tranches have been reserved for any particular group of investors nor for the intended
private placement.

The nominal value of the 632,500 shares that are the subject of this Offering represents a total of
up to EUR 632,500 of the share capital of the Company.

Upon implementation and registration of the capital increase against cash contribution from
authorised capital pursuant to a resolution of the management board (Vorstand) and a
corresponding approval of the supervisory board (Aufsichtsrat) both expected to be adopted on or
shortly before 2 December 2010, the share capital of the Company will amount to EUR 4,075,000.

In connection with the Offering, up to 14.11% of the shares of the Company (15.52% including
shares available for an over-allotment) will be offered. The actual number of Offer Shares is
expected to be published on 2 December 2010 in an announcement on the Company’s website
(www.madisonproperty.cn) and as a corporate news.

In connection with the Offering, the Company will receive the net proceeds from the sale of the
New Shares. The Greenshoe Shareholders will receive the net proceeds from the sale of the
Greenshoe Shares, if any.

VEM Aktienbank AG, Prannerstr. 8, 80333 Munich, Germany, is the Sole Global Coordinator, Sole
Bookrunner and Lead Manager.


Timetable for the Offering
The scheduled timetable for the Offering is as follows:

  15 November 2010         Expected Approval of the Prospectus by the German Federal
                           Financial     Supervisory       Authority (Bundesanstalt für
                           Finanzdienstleistungsaufsicht, “BaFin”)


                           Expected Publication of the Prospectus on the Company’s website



                                                                                              74
                           (www.madisonproperty.cn)




   22 November 2010        Commencement of the offer period




  2 December 2010          End of the offer period for retail investors at 12 a.m. (Central
                           European Time) and for institutional investors at 4 p.m. (Central
                           European Time)


                           Approval of trading inclusion issued by the Frankfurt Stock Exchange


                           Determination of the offer price and allotment; publication of the offer
                           price, the offer volume and the allotment criteria


                           Publication of the offer price and the offer volume as a corporate
                           news and on the Company’s website (www.madisonproperty.cn)

                           Commencement of book-entry delivery of Offer Shares against
  2 December 2010
                           payment of the offer price using a share loan by the Existing
                           Shareholders

                           Commencement of trading in the Company’s shares
  6 December 2010


  6 December 2010          Subscription of the New Shares by VEM


  8 December 2010          Expected registration of the completion of the capital increase with
                           the commercial register


The Prospectus will be published and available in electronic form for download on the Company’s
website (www.madisonproperty.cn) on the date of its approval. In addition, the Prospectus will be
available in printed form as of the same date free of charge during regular business hours from the
Company and VEM.


Price Range, Offer Period, Offer Price, and Allotment
The price range within which purchase orders may be placed shall be between EUR 26.00 and
EUR 29.00 per Offer Share.

The Offering will be denominated in Euros and the offer period, within which investors will have the
possibility to place purchase orders for the shares, is expected to begin on 22 November 2010 and
is expected to end on 2 December 2010. Interested investors are asked to pay attention to the
announcements published in the media mentioned in the preceding paragraph for further details of
the Offering. During the offer period, offers to purchase shares may be submitted by retail investors
to their respective broker or bank. Institutional investors shall submit offers to purchase shares to
VEM. On the last day of the offer period, retail investors will be able to submit offers to purchase
shares until 12:00 a.m. (noon) (Central European Time) and institutional investors until 4:00 p. m.
(Central European Time).


                                                                                                 75
The Company and VEM, reserve the right to decrease the number of Offer Shares, to increase or
decrease the upper limit and/or lower limit of the price range, and/or to extend or shorten the entire
offer period. Should any of the terms of the offer be modified, the change will be published via an
electronic information system and on the Company’s website (www.madisonproperty.cn). This
publication will be made to the extent required by applicable German law as a supplement
(Nachtrag) to the Prospectus. There will be no individual notification of investors who have
submitted purchase offers. Any changes to the number of Offer Shares or to the price range or to
any extension or shortening of the offer period will not nullify any purchase orders that have already
been placed. Investors who have already placed purchase orders prior to the publication of a
supplement will have the right to withdraw these purchase orders within two business days
following publication of the supplement as is provided for in the German Securities Prospectus Act
(Wertpapierprospektgesetz). Instead of withdrawing their purchase orders, investors may also
amend the purchase orders submitted prior to publication of the supplement (Nachtrag) or
alternatively place new limited or unlimited purchase orders within two business days after
publication of the supplement (Nachtrag).

Once the offer period has expired, the Company and VEM will jointly determine the offer price on 2
December 2010 at the earliest by using the order book prepared during the book building process.
The determination of the offer price will depend on the purchase offers for the shares submitted by
investors during the offer period and recorded in the abovementioned order book. Purchase orders
are revocable until the end of the offer period.

Once the offer price has been determined, the Offer Shares will be allotted to investors based on
the orders that they submitted. It is expected that the offer price and the offer volume be published
on 2 December 2010 on the Company's website (www.madisonproperty.cn) and as a corporate
news.

Investors who have submitted purchase orders with VEM will be able to obtain information from
VEM regarding the offer price and the number of shares which will be allotted to them at the
earliest possible date after the determination of the offer price but no earlier than the banking day
which follows the determination of the offer price. Since retail investors will receive notice of the
number of shares allotted to them by their broker or bank with which they have placed their
purchase order, such notice could potentially be made after the first day of trading of the
Company’s shares in the Entry Standard of the Frankfurt Stock Exchange, which is expected to
occur on 6 December 2010. Neither VEM nor Madison have any influence on the timing of such
notices as these are made by the retail investor’s brokers or banks.

Multiple subscriptions are permissible. There is no minimum and/or maximum amount of
subscription. Book-entry delivery of the allotted shares against payment of the offer price is
expected to occur as of 2 December 2010. VEM reserves the right not to accept purchase orders in
whole or in part, e.g. in case the placement volume proves insufficient to satisfy all the orders
placed at the offer price.


General Allotment Criteria
No agreements exist between the Company, the Existing Shareholders and VEM Aktienbank AG
as to the allotment procedure prior to the commencement of the offer period. The Company and
VEM will comply with the “Principles for the Allotment of Share Issues to Private Investors”
(‘Grundsätze für die Zuteilung von Aktienemissionen an Privatanleger’) which were issued on 7
June 2000 by the Exchange Expert Commission (Börsensachverständigenkommission) of the
German Federal Ministry of Finance (Bundesministerium der Finanzen). After the offer period has
ended, the Company and VEM will determine and publish the details of the allotment method in
accordance with the “Principles for the Allotment of Share Issues to Private Investors.”

To the extent known to the Company, no major shareholders or members of the Company's
management, supervisory or administrative bodies intend to subscribe New Shares, nor does any
person intend to subscribe for more than five per cent of the offer.




                                                                                                 76
Delivery and Settlement of the Offer Shares
Book-entry delivery of the allotted shares against payment of the offer price using a share loan by
Existing Shareholders is expected to occur as of 3 December 2010. The shares will then be made
available to shareholders as co-ownership interests in the respective global certificates.

Shares purchased pursuant to this Offering will be credited to a securities deposit account
maintained by a bank at Clearstream Banking AG, Neue Börsenstrasse 1, in 60485 Frankfurt am
Main, Germany for the account of such investor or to the securities deposit account of a participant
at Euroclear Bank S. A./N. V., 1, Boulevard Roi Albert II, 1120 Brussels, Belgium, as operator of
the Euroclear Systems, or Clearstream Banking S. A., L-2967 Luxembourg.


Stabilisation Measures, Over-Allotments, and Greenshoe Option
VEM or persons acting on its behalf will act as stabilisation managers in connection with the
Offering and the placement of the Offer Shares. The former are entitled to take measures aimed at
supporting the stock exchange or the market price of the Company's shares in order to offset any
sales pressures that may exist.

A stabilisation manager is under no obligation to take stabilisation measures and there is therefore
no guarantee that any such stabilisation measures will be effected. If any stabilisation measures
are taken, they may be terminated at any time without prior notice. Such measures may be taken
from the date of the inclusion of the Company’s shares in the trading in the Entry Standard, a sub-
segment of the Open Market (Freiverkehr) of the Frankfurt Stock Exchange, and must be
completed no later than on the 30th calendar day after such date.

Stabilisation measures may lead to the stock exchange or market price of the Company's shares
being higher than it would have been in the absence of any such measures. Additionally, such
measures may result in a stock exchange or market price at a level that is not sustainable.
Regarding to potential stabilisation measures, investors may be allotted up to 57,500 additional
shares of the Company in addition to the New Shares as part of the allotment of the shares to be
placed by the Company.

As to a potential over-allotment, up to 57,500 no par value ordinary bearer shares of the
Greenshoe Shareholders will be made available to VEM for the account of VEM through a
securities loan. The Greenshoe Shareholders have also granted VEM the option of purchasing
these shares of the Company at the offer price, less the agreed commissions (the "Greenshoe
Option"). This option will expire 30 calendar days after the date of the commencement of trading of
the shares.

Within one week after the end of the stabilisation period, information regarding possible
stabilisation measures will be announced on the Company's website (www.madisonproperty.cn)
and as a corporate news. This information will outline whether a stabilisation measure has been
taken or not, the date on which such stabilisation measure has commenced, the date on which the
last stabilisation transaction has been taken, and the price range within which such stabilisation
has been effected for each date on which stabilisation measures have been effected. The exercise
of the Greenshoe Option, the date of such exercise and the number and type of shares involved
will also be published without delay (unverzüglich). The publication will be effected in the manner
and at the time prescribed above.


Greenshoe Shareholders

Should the Greenshoe Option be exercised, up to 57,500 Greenshoe Shares will be offered by the
Greenshoe Shareholders, i.e. by Falcon Grow Investments Limited, Best Way Ecological Food Inc.,
Mr. Wah Lam and Kvalue Financial Co., Ltd. For further information about the shareholder structure
of the Company please refer to the section “Shareholder Structure” of this Prospectus.




                                                                                               77
General and Specific Information on the Shares
Voting Rights
Each share confers one vote at the Shareholders’ General Meeting (Hauptversammlung) of the
Company. There are no limitations to the voting rights. The Existing Shareholders of the Company
do not have different voting rights.

Dividend Entitlement
Each share confers upon the shareholder the right to an equal share in any dividend paid by the
Company. The shares are vested with full dividend rights for the entire financial year 2010/2011.

Form and Certification of Shares
All shares of the Company have been and will be issued as no par value ordinary bearer shares as
prescribed by the Company's articles of association. The current share capital of the Company in
the amount of EUR 3,500,000 is represented by one or several global share certificates without
dividend coupons, which are deposited with Clearstream Banking AG, Neue Börsenstrasse 1,
60487 Frankfurt am Main, Germany.

Pursuant to Section 4 para. 4 sentence 3 of the Company’s Articles of Association (Satzung), the
Company may issue multiple share certificates that evidence several individual shares (so-called
global share certificates (Globalurkunden). To the extent that global share certificates have been
issued in respect of the shares of the Company, the shareholders have no claim to the issue of
individual share certificates.

Securities Identification Numbers/Stock Symbol


German Securities Identification Number (WKN):                A0V9KR

International Securities Identification Number (ISIN):        DE000A0V9KR3

Common Code:                                                  053814310

Ticker Symbol:                                                MPD

Transferability/Lock Up

The Company’s shares are freely transferable. Except for the restrictions set forth under Selling
Restrictions (Lock-Up), there are no prohibitions with respect to the disposal or the transferability of
the shares of the Company.


Selling Restrictions (Lock-Up)
The Existing Shareholders have agreed with VEM that, for a period ending on 30 November 2011,
they will not

    !   offer, pledge, sell, contract to sell, sell an option to buy, buy an option to sell or otherwise,
        directly or indirectly, transfer or dispose of shares of the Company or other securities that
        are convertible into or exchangeable for shares of the Company,

    !   enter into swap transactions or transactions that transfer the economic risk of holding the
        shares to a third party, in whole or in part, regardless of whether any such transaction is to
        be settled by delivery of shares, payment in cash or other consideration, as well as




                                                                                                    78
    !   initiate, vote in favor of or in any other way support a capital increase of the Company or
        issuance of shares which are exchangeable into shares of the Company or an
        economically equivalent transaction.

These restrictions do not apply to transactions relating to the shares of the Company to be sold in
the event and to the extent that the Greenshoe Option is exercised, the Greenshoe Shares offered
by the Existing Shareholders and in case of shares purchased in the Open Market.


Inclusion in Trading

The shares of the Existing Shareholders of the Company have been included in the trading in the
First Quotation Board segment of the Open Market (Freiverkehr) of the Frankfurt Stock Exchange
since 12 August 2010. An application for the transfer of the shares of the Existing Shareholders to,
and the inclusion of the New Shares in the trading in the Entry Standard, a sub-segment of the
Open Market (Freiverkehr) of the Frankfurt Stock Exchange, is expected to be filed on 3 December
2010. The transfer and inclusion approval is expected to be granted no later than 5 December
2010. Commencement of trading in the Entry Standard segment of the Open Market (Freiverkehr)
of the Frankfurt Stock Exchange is expected to take place on 6 December 2010. No admission of
the Company’s shares to the Regulated Market (Regulierter Markt) will be sought.


Designated Sponsors
VEM will assume the function of designated sponsor of the Company's shares traded on the
Frankfurt Stock Exchange and will be entitled to designate an appropriately licensed third party to
perform its functions. Pursuant to the designated sponsor agreement between VEM and the
Company, VEM may, among other things, place limited orders to buy or sell shares of the
Company in the electronic trading system of the Frankfurt Stock Exchange during daily trading
hours. This measure is expected to improve liquidity of trading for the shares of the Company.




                                                                                               79
REASONS FOR THE OFFERING, USE OF PROCEEDS, COSTS
AND INTERESTS OF THIRD PARTIES INVOLVED IN THE
OFFERING

Reasons for the Offering
The reason for the offering is the intention of the Company’s management to enhance Madison
Group’s brand name, visibility and recognition and to finance its further expansion.


Use of Proceeds and Costs
The Company will receive the net proceeds, that is to say the gross proceeds from the sale of the
shares less commission paid by the Company to VEM and its pro-rata costs. The gross proceeds
as well as the costs of the Offering depend on the number of shares offered and placed in the
Offering as well as on the offer price. As the costs of the Offering depend on the total number of
shares placed and the offer price that determine the amount of the commissions to be paid, the
Company cannot, at the date of this Prospectus, reliably predict the costs of the Offering or the net
proceeds.

Subject to the uncertainties stated above, the Company estimates that the costs of the Offering
(including commissions of VEM) will be between EUR 1.75 million and EUR 1.9 million. Assuming
placement of all offered shares, the Company believes that total net proceeds of up to
approximately EUR 14,775,000 are attainable.

The net proceeds from the sale of the shares will be used by the Company for the operation and
completion of Madison Group’s current projects as well as for a possible future expansion of
Madison Group. Increased capital resources will enable Madison Group to acquire new projects
and finish its present projects. Moreover, a part of the net proceeds could also be used for the
development of the projects which are described as projects for further development in the section
Business – Project Description below.

The following is an overview of the principal intended uses presented by order of priority of such
uses assuming net proceeds from the Offering to be EUR 14,775,000:

    !   Chongqing Project (Phase I): EUR 6.475 million will be used for part of the pre-construction
        and construction cost. The rest of the cost will be settled by loan and cash collected from
        other projects.


    !   Fragrance Town Island Project: EUR 8.3 million will be used for part of the pre-construction
        and construction cost.


Interests of Third Parties Involved in the Offering
The Greenshoe Shareholders have an interest in the Offering because of the portion of the Offering
proceeds they will receive.

VEM has entered into a contractual relationship with the Company in connection with the
implementation of the Offering. It has been mandated as Underwriter and will advise the Company
in connection with the implementation of the Offering and coordinate its structuring and execution
and will purchase and sell the Offer Shares in accordance with the executed Listing Agreement.
The compensation of VEM is incentive-based and depends, among other factors, on the amount of
the offer proceeds such that VEM has an interest in the successful implementation of the Offering.

VEM and affiliated companies will be able to acquire Offer Shares on their own accounts, hold,
purchase or sell them on their own accounts and offer or sell them outside the Offering. VEM does

                                                                                                80
not intend to disclose the scope of such investments or transactions where such disclosure is not
legally required.




                                                                                            81
DIVIDEND POLICY AND EARNINGS PER SHARE

General Provisions Relating to Profit Allocation and Dividend
Payments
The shareholders’ share of profits is determined based on their respective interest in the
Company’s share capital. In a German stock corporation (Aktiengesellschaft), resolutions regarding
the distribution of dividends for a given fiscal year and the amount and payment date of such
dividends are adopted by the shareholders’ general meeting of the subsequent fiscal year upon a
joint proposal by the management board and the supervisory board.

Dividends may only be distributed from the distributable profit of the Company. Said distributable
profit is calculated based on the Company’s annual unconsolidated financial statements prepared
in accordance with the German accounting principles, i.e. the accounting principles laid out in the
German Commercial Code (Handelsgesetzbuch).

When determining the amount available for distribution, net income for the year must be adjusted
for profit/loss carry-forwards from the prior year and release of or allocations to reserves. Certain
reserves are required to be set up by law and must be deducted when calculating the profit
available for distribution. The management board must prepare the financial statements (balance
sheet, income statement and notes to the financial statements) and the management report for the
previous fiscal year by the statutory deadline, and present these to the auditors and then the
supervisory board after preparation. At the same time, the management board and supervisory
board must present a proposal for the allocation of the Company’s distributable profit pursuant to
Section 170 of the German Stock Corporation Act (Aktiengesetz). Pursuant to Section 171 of the
German Stock Corporation Act, the supervisory board must review the financial statements, the
management board’s management report and the proposal for the allocation of the distributable
profit, and report to the shareholders’ general meeting in writing on the results. The supervisory
board must submit its report to the management board within one month after the documents have
been received. If the supervisory board approves the financial statements after its review, these are
deemed adopted unless the management board and supervisory board resolve to assign adoption
of the financial statements to the shareholders’ general meeting. If the management board and
supervisory board choose to allow the shareholders’ general meeting to adopt the financial
statements, or if the supervisory board does not approve the financial statements, the management
board must convene a shareholders’ general meeting without delay.

The general shareholders meeting’s resolution on the allocation of the distributable profit must be
passed with a simple majority of votes cast. If the management board and supervisory board adopt
the financial statements, they can allocate an amount of up to half of the Company’s net income for
the year to other surplus reserves. Additions to the legal reserves and loss carry-forwards must be
deducted in advance when calculating the amount of net income for the year to be allocated to
other surplus reserves. Dividends resolved by the shareholders’ general meeting are paid annually
shortly after the shareholders’ general meeting, as provided in the dividend resolution, in
compliance with the rules of the respective clearing system. Dividend payment claims are subject
to a three-year standard limitation period. If dividend payment claims expire, the Company
becomes the beneficiary of the dividends.

Dividend income is subject to German dividend withholding tax (Kapitalertragsteuer) (see: Taxation
in Germany – Taxation of Shareholders – Taxation of Dividends).


Dividend Policy and Earnings per Share
No dividends will be paid to the Existing Shareholders and retained earnings will remain with the
Company until the Offering is completed and trading in the Company’s shares in the Entry
Standard segment of the Open Market (Freiverkehr) has commenced. Future dividends will depend
on the Company's earnings and financial position, the results of operation, the capital needs, the
plans for expansion, the profit after tax financial position, the expected financial performance, the
projected capital expenditures and other investment plans, any restriction on dividend payments


                                                                                                82
under the Company's financing arrangements as well as other factors. The Company intends to
distribute profits only if and to the extent covered by the annual net income (Jahresüberschuss)
which is shown in the respective Company's annual financial statement and to the extent that
profits are not needed to fund the Company’s further growth. The remaining profit, if any, shall be
booked into retained earnings and shall be used to finance the further development of the
Company's business and its internal growth. In order to report net profits available for distribution,
Madison Property AG as a holding company depends on profit distributions from its subsidiaries
(see Risk Factors – Risks Related to Madison’s Business – The Company is a holding company,
and it relies principally on dividends paid by its Chinese subsidiary). The costs of this offering will
have a one-time impact that will adversely affect the Company’s results of operations in the
financial year 2010/2011.

The Company was incorporated in 2008 and therefore does not have a three-year financial history.
On the basis of the Company’s audited single entity financial statement for the financial year
2009/2010 based on the German Accounting Standard (HGB), the Company’s audited
consolidated financial statements for the years 2008/2009 and 2009/2010 based on IFRS and the
audited consolidated financial statements of Madison Property Group Limited („Madison Hong
Kong”) for the year 2007/2008 based on IFRS, the following summary shows the earnings of the
Company on a consolidated basis (rounded to two decimal points), the earnings per share, each in
accordance with IFRS and the distributed dividends as of and for the years 2007/2008, 2008/2009
and 2009/2010. The consolidated financial statements of Madison Hong Kong as of and for the
year ended 30 April 2008 do not include Qingdao Guanghua Properties Company Limited
(“Qingdao Guanghua”), a subsidiary in China that was retrospectively included in the consolidated
financial statements of the Company for the years ended 30 April 2009 and 2010.

Earnings per Share:

                                                                                        Financial Year ended 30 April
                                                                                     2008           2009            2010

Profit for the year (in EUR thousand)**....................................         12,828          8,705           9,069

Number of shares*
                                                                                   3,500,000      3,500,000       3,500,000


Earnings per share in EUR (undiluted) ..................................             3.67            2.49           2.59
Earnings per share in EUR (diluted) ........................................         3.67            2.49           2.59

Dividends per share in EUR......................................................     0.00            0.00           0.00

 * For better comparability, the current number of shares in the Company of 3,500,000 has been used throughout the
    period.
 ** Profit attributable to controlling party and equity holders of the Company




                                                                                                                              83
CAPITALISATION AND INDEBTEDNESS
The data presented in the following table shows the capitalisation of the Company as at 30
September 2010 on a consolidated basis. The data has been prepared in accordance with IFRS.
As a result of the net proceeds obtained in the Offering, the capitalisation of the Company will
change following the Offering.

                                                                                                                                    As at
                                                                                                                                30 September
(in EUR thousand)                                                                                                                   2010

Total current liabilities ........................................................................................                  91,328
  of which guaranteed/secured ..............................................................................                         2,847
  of which unguaranteed/unsecured ......................................................................                            88,481
Total non-current liabilities ................................................................................                      32,645
  of which guaranteed/secured ..............................................................................                        26,760
  of which unguaranteed/unsecured ......................................................................                             5,885
Equity ......................................................................................................................       52,068
  of which paid-in capital ........................................................................................                  3,500
  of which revaluation reserve................................................................................                          69
  of which translation reserve.................................................................................                      3,858
  of which retained earnings...................................................................................                     43,585
  of which non-controlling interest .........................................................................                        1,056
Capitalization (total) ...............................................................................................             176,041

Cash and cash equivalents.....................................................................................                      21,410
Restricted bank deposits.........................................................................................                      659
Current financial receivables(1) ..............................................................................                     36,956
Current bank debt and current portion of non-current debt..................................                                          2,847
Other current financial liabilities(2) ..........................................................................                   46,879
Net current financial indebtedness ...................................................................                              -9,299
Non-current bank debt ...........................................................................................                   26,760
Non-current financial indebtedness...................................................................                               26,760
Net financial indebtedness .................................................................................                        17,461
Off-balance sheet liabilities
Other financial obligations(3) ...................................................................................                  17,061
(1)
      Current financial receivables include trade receivables, advances to related parties and advances to third parties.
(2)
      Other current financial liabilities include trade and other payables as well as income tax payables.
(3)
  Other financial obligations mainly include commitments in respect of properties under development including the
acquisition of land use rights and costs of building construction.

The Company’s existing working capital is sufficient to cover at least those payment obligations
which will become due within the next twelve months from the date of this Prospectus.




                                                                                                                                               84
DILUTION

The book value of the shareholders’ equity of the Company as reflected in the consolidated
financial statements in accordance with International Financial Reporting Standards (IFRS)
amounted to EUR 50.354 million as at 30 April 2010. This is equivalent to approximately
EUR 14.39 per share (calculated on the basis of 3,500,000 shares held by the Existing
Shareholders as of the date of inclusion of the Company’s shares in the trading in the Entry
Standard segment of the Open Market (Freiverkehr) of the Frankfurt Stock Exchange).

Assuming that all 575,000 New Shares of the Company are placed applying the bookbuilding
spread per offered share between EUR 26.00 and EUR 29.00, then the gross issue proceeds
obtained by the Company are between EUR 14.95 million and EUR 16.675 million. If the Offer
Price were to correspond to the midpoint of this assumed range at EUR 27.50 per offered share,
the Company would obtain net proceeds of approximately EUR 15.8 million. If the Company had
obtained this amount as at 30 April 2010, the book value of shareholders’ equity at that time would
have been about EUR 66.154 million or around EUR 16.23 per share (based on the increased
number of shares after the Offering of 575,000 New Shares). Consequently, under the above-
mentioned assumptions, the implementation of the Offering would lead to a direct increase in the
net book value of shareholders’ equity of about EUR 1.84 per share corresponding to an increase
of 12.79% for the Existing Shareholders and a direct dilution of about EUR 11.27 per share for the
purchasers of the Offer Shares and, thus, investors who acquire shares at the midpoint of the
assumed range at EUR 27.50 per offered share are diluted by about 40.98%.




                                                                                              85
SELECTED FINANCIAL INFORMATION

The Company was founded on 30 April 2008 and incorporated by registration in the commercial
register of the local court of Munich on 8 May 2008. On 14 January 2010 the Company became the
holding company of Madison Property Group Limited and the other companies of Madison Group
through an exchange of equity interests. In accordance with IAS 8.10 et. seqq. the Company has
elected to use merger or predecessor accounting for this transaction: the assets and liabilities of
the acquired entities are incorporated in the Company’s consolidated financial statements at the
amounts recorded in the consolidated financial statements of Madison Property Group Limited
(“Madison Hong Kong”) without any fair value adjustments. The subscribed capital of the acquired
entities was reclassified in retained earnings in order to reflect the legal parent’s equity structure.
The acquired entities’ results are incorporated into the consolidated financial statements as if
Madison Property AG and the acquired entities had been combined since 1 May 2008.
Consequently, the consolidated financial statements reflect all entities’ results for the current and
the prior year, even though the business combination did occur on 14 January 2010.

The summary financial information presented in the tables below is derived from the audited
consolidated financial statements of Madison Property AG as of and for the financial years ended
30 April 2009 and 2010, the audited consolidated financial statements of Madison Property Group
Limited as of and for the financial year ended 30 April 2008 and the unaudited interim consolidated
financial statements of Madison Property AG as of and for the three months ended 31 July 2010
(with comparable figures for the prior year period). The audited consolidated financial statements
have been prepared in accordance with International Financial Reporting Standards as adopted in
the European Union (“IFRS”) and the unaudited interim consolidated financial statements have
been prepared in accordance with IAS 34 Interim Financial Reporting. The consolidated financial
statements of Madison Hong Kong as of and for the year ended 30 April 2008 do not include
Qingdao Guanghua Properties Company Limited (“Qingdao Guanghua”), a subsidiary in China
that was retrospectively included in the consolidated financial statements of the Company for the
years ended 30 April 2009 and 2010.

Where financial data in the tables below is labeled “audited”, this means that it was taken from our
audited consolidated financial statements. The label “unaudited” is used in the tables below to
indicate financial data that was taken or derived from a source other than the audited consolidated
audited financial statements mentioned above.

Selected Consolidated Income Statement Data



                                                                                              As of and for the financial year     As of and for the three
                                                                                                      ended 30 April               months ended 31 July
                                                                                              2010         2009         2008*        2010        2009
                                                                                            (audited)    (audited)    (audited)   (unaudited) (unaudited)

                                                                                                                       (€ ‘000)

Revenue .................................................................................... 63,498       57,166       54,105        1,866       25,309
Cost of properties sold .............................................................. -45,657           -36,733       -31,393      -1,318      -19,889
Gross profit.............................................................................. 17,841         20,433       22,712         548         5,420
Other income.............................................................................       304          804          156            6             0
Change in fair value of investment properties ...........................                     2,051        1,203         3,100        -102          493
Selling expenses ....................................................................... -1,060             -878          -853        -357         -285
Administrative expenses ........................................................... -2,634                -4,795        -2,132        -710         -540
Other expenses .........................................................................       -219         -209           -77         -83          -21
Net finance costs.......................................................................       -786         -476           -49        -150         -151
Share of loss of equity accounted investee...............................                        -5          -12            -1          -7             -1
Profit (loss) before income tax .............................................. 15,492                     16,070       22,856         -855        4,915
Income tax expense ................................................................          -6,264       -7,586       -11,848        173        -1,763
Profit (loss) for the period ......................................................           9,228        8,484       11,008         -682        3,152
* taken from the audited consolidated financial statements of Madison Property Group Limited




                                                                                                                                                  86
Selected Consolidated Statement of Financial Position Data

                                                                                                           As at 30 April               As at 31 July

                                                                                                 2010          2009           2008*        2010
                                                                                               (audited)     (audited)      (audited)   (unaudited)

                                                                                                                         (€ ‘000)

Property and equipment ............................................................                880           881           740           807
Investment properties ................................................................ 22,624                 20,918         16,329       23,018
Investment accounted for using the equity method...................                                522           525           448           527
Other investments .....................................................................          1,405         1,397                0      1,436
Deferred tax asset .....................................................................         3,901         2,418          1,209        4,219
Total non-current assets ........................................................ 29,332                      26,139         18,726       30,007
Inventories ................................................................................. 69,047          72,619         41,003       74,460
Trade and other receivables ..................................................... 38,913                      50,089         22,778       46,470
Restricted bank deposits ...........................................................               666           439           241           681
Cash and cash equivalents .......................................................                5,624         6,191          8,049       12,888
Total current assets ................................................................ 114,250                129,338         72,071      134,499
Total assets ............................................................................. 143,582           155,477         90,797      164,506
Subscribed capital .....................................................................         3,500            50          4,960        3,500
Reserves ...................................................................................     4,698         4,341         -1,725        5,864
Retained earnings ..................................................................... 42,156                37,524         22,947       41,697
Non-controlling interest .............................................................           1,275         1,087          1,280        1,052
Total equity .............................................................................. 51,629            43,002         27,462       52,113
Loans and borrowings ............................................................... 17,084                   11,339          7,156       25,938
Deferred tax liabilities ................................................................        6,017         4,969          3,553        6,091
Total non-current liabilities .................................................... 23,101                     16,308         10,709       32,029
Loans and borrowings ...............................................................             4,813         4,128          3,853        4,579
Sales deposits ...........................................................................       9,312        23,103         19,007       25,528
Trade and other payables ......................................................... 30,768                     49,753         19,400       26,288
Income tax payable ................................................................             23,959        19,183         10,366       23,969
Total current liabilities ............................................................ 68,852                 96,167         52,626       80,364
Total liabilities ......................................................................... 91,953           112,475         63,335      112,393
Total equity and liabilities ...................................................... 143,582                  155,477         90,797      164,506

 * taken from the audited consolidated financial statements of Madison Property Group Limited




                                                                                                                                                        87
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the financial condition and results of operations should be
read in conjunction with the other information in this Prospectus, including the financial information
and related notes thereto beginning on page F-1 and the “Selected Financial Information”. It also
contains forward looking statements. These are subject to risks, uncertainties and other factors,
which could cause actual events to differ from those described or implied in the forward looking
statements (see “General Information – Forward Looking Statements” and “Risk Factors”).

The Company was founded on 30 April 2008 and incorporated by registration in the commercial
register of the local court of Munich on 8 May 2008 and therefore has no historical financial data for
the period before 30 April 2008. The presentation and analysis of the financial condition and results
of operations of the Madison Group in this section are based on the IFRS consolidated financial
statements of Madison Property Group Limited (“Madison Hong Kong”) as of and for the year
2007/2008, those of the Company as of and for the years 2008/2009 and 2009/2010 and the
interim condensed consolidated financial statements of the Company as of and for the three
months ended 31 July 2009 and 2010 in accordance with IAS 34. Please refer to the description
under “Consolidated Group” in this chapter with regard to the comparability of the financial data
analysed.

Since neither the Company nor Madison Hong Kong carry out any operational business, there
would be no material differences between the historical consolidated financial statements of the
Company (had it already been the group holding company within the respective financial periods)
and the financial statements of Madison Hong Kong, except for differences in the sub-
categorisation of capital and reserves resulting from the differences in registered capital.

Columns in the tables below marked ‘‘audited’’ contain data derived from the audited consolidated
financial statements referred to above; the tables themselves have not been audited. Certain
numbers in this Prospectus (including percentages) have been rounded. As a result, figures shown
as totals in some tables may not be the exact arithmetic aggregations of the rounded figures that
precede them. Percentages cited in the text, however, were calculated using the actual values
rather than the rounded values. Accordingly, in certain cases it is possible that the percentages in
the text differ from percentages based on the rounded values.

Overview

Madison Group is a large scale real estate deveveloper in Shandong Province and the municipality
of Chongqing. It has been recognised as a “Class One Real Estate Developer” and has been
granted among others the awards “Qingdao’s 10 Best Real Estate Enterprises” and “Top 50 Real
Estate Developers with Comprehensive Strengths in Shandong Province”.

Projects developed by Madison Group are located in the Shandong Province and the municipality
of Chongqing, with an aggregated Gross Floor Area (GFA) of over 690,000 m². Currently, the total
GFA of projects under development is approximately 266,000 m², and the planned future projects
have a GFA of approximately 2,104,000 m². Madison Group’s completed projects were mainly
residential properties. Planned future developments are residential properties, as well as hotels,
commercial and industrial properties.
Madison Group has more than ten years of development history in Shandong Province and its
senior management team members provide of more than fifteen years of real estate development
experience, which equips them with tested industrial knowledge and professional experience.
Madison Group provides of substantial land reserves and development experience in second to
third-tier cities. Moreover, Madison Group believes to have developed a leading regional brand
name in some of these cities and established a faithful customer base.
Significant Factors Affecting Results

Madison Group believes that the following factors had and will continue to have a material effect on
its results of operations and financial condition.

Value appreciation


                                                                                                 88
Investment properties are recorded at fair values. The fair value is based on active market prices,
adjusted, if necessary, for any difference in the nature, location or condition of a specific asset. If
such information is not available, Madison Group uses alternative valuation methods such as
recent prices on less active markets or discounted cash flow projections. These valuations have
been performed at each balance sheet date by independent valuation agencies. Investment
property that is being redeveloped for continuing use as investment property, or for which the
market has become less active, continues to be measured at fair value. The fair value of
investment property reflects, among other things, rental income from current leases and
assumptions about rental income from future leases in the light of current market conditions.
Valuations have been based on either (i) the capitalisation of net rental income derived from the
existing tenancies using discount rates that reflect current market assessments of the uncertainty in
the amount and timing of cash flows; or (ii) on a direct comparison approach assuming sales of
each of these properties in its existing state with the benefit of vacant possession by making
reference to comparable sales transactions as available in the relevant market. The revaluation
gains or losses have been credited to the income statement of the respective years, or, in the case
of revaluation gains arising on the transfer of an item of property and equipment to investment
properties following a change in use to equity directly.

Currency exchange rate fluctuations

The RMB is not freely convertible into foreign currencies. All foreign exchange transactions
involving RMB must take place through the People’s Bank of China (PBOC) or other institutions
authorised to buy and sell foreign exchange. The exchange rate adopted for foreign exchange
transactions is the exchange rate set by the PBOC which is subject to a managed float against an
unspecified basket of foreign currencies. Madison Group is exposed to currency exchange rate
fluctuations on future transactions denominated in currencies other than EUR. A depreciation or
appreciation of the EUR against foreign currencies could affect Madison Group’s results. Madison
Group does not hedge its currency exposure. In addition, the RMB is not a freely convertible
currency, and the People’s Republic of China (PRC) government may, at its discretion, restrict
access to foreign currencies for current account transactions in the future. Changes in the foreign
exchange control system may prevent Madison Group from satisfying its foreign currency
demands.

On the cost side, Madison Group’s results of operations are primarily affected by the following
factors:

Land policy

The supply and demand relationship and the prices for real estate markets are largely affected by
the respective national land policies. In an effort to prevent an overheating of the Chinese housing
market, the PRC government has introduced a number of measures aimed at slowing down the
fast pace of growth in this market, thereby rendering the business activities of real estate
developers increasingly difficult. Changes in land policies, such as restrictions on supply structures
and supply methods will impact the development costs and financing of real estate enterprises. In
the Company’s view, its current land reserves will be sufficient to meet its development needs for
approximately the next three years. However, if more restrictive land control procedures are
adopted, this will affect land supply and land prices, thereby increasing the cost of development
and decreasing the Company’s gross profit.

Financial policy

The PRC government has been increasing its control of credits for real estate enterprises,
especially on foreign-invested real estate enterprises by imposing, among others, stricter
regulations on project development loans, loans on land reserves, personal mortgage loans etc.
from commercial banks. Moreover, the PBOC has also increased the interest rate for personal
mortgage loans several times during the last years. These controls increased the financing risks
and costs for real estate enterprises and hence also for Madison Group.

Increasing competition.

Madison Group is currently engaged in medium-scale property projects and has a relatively small
capital base when compared to large property developers in the market. The intense competition


                                                                                                  89
among property developers for land, financing, raw materials and skilled management and labour
may result in increased construction and land acquisition costs, a decrease in profit margin and a
slowdown in the rate at which new property projects are approved by the PRC government. If the
Company is not able to maintain its competitive advantages, its business, operating results and
financial conditions could be adversely affected.

Consolidated Group
Madison Property AG is the parent company of the Madison Group, which comprises the following
subsidiaries as of 31 July 2010 and 30 April 2010:

            Madison Property Group Limited (“Madison Hong Kong”);
            Qingdao Madison Group Co., Limited (“Madison Qingdao”);
            Qingdao Junxin Properties Co., Limited (“Qingdao Junxin”);
            Zibo Madison Real Estate Co., Limited (“Madison Zibo Madison”);
            Taian Madison Real Estate Co., Limited (“Madison Tai’an”);
            Chongqing Yinlian Investments Co., Limited (“Chongqing Yinlian”);
            Chongqing Longkunxiang Properties Co., Limited (“Chongqing Longkunxiang”);
            Qingdao Jundong Properties Co., Limited (“Qingdao Jundong”);
            Qingdao Guanghua Properties Co., Limited (“Qingdao Guanghua”)


      and one associate:

            Qingdao Xiang Gen Quan Hai Co., Limited (“Qingdao Xianggen Quanhai”).


Madison Group was firstly established on 8 September 1998 through the establishment of Madison
Qingdao and included until 25 January 2008 following entities: Madison Qingdao, Qingdao Junxin,
Madison Zibo, Madison Tai’an, Chongqing Yinlian and Chongqing Longkunxiang.

From 1 May 2005 to 25 January 2008 the interest in those entities were 100% held by Mr. Tian
either directly or through trust agreements with various parties. In January 2008, as part of the
restructuring of Madison Group, Madison Qingdao subscribed all direct interest of Mr. Tian in these
entities. Further, Qingdao Jundong was set up by Madison Qingdao in February 2008.

On 25 January 2008, Madison Hong Kong became the holding company of Madison Group through
a share purchase agreement.

Madison Property AG was founded on 30 April 2008 and incorporated by registration in the
commercial register of the local court of Munich on 8 May 2008.

On 14 January 2010, all the shares of Madison Hong Kong were contributed by Falcon Grow into
the Company by way of a contribution in kind and Madison Property AG became the parent
company of the Madison Group.

Furthermore, in April 2010 Qingdao Madison subscribed all direct interest of Mr. Tian, the ultimate
shareholder of Madison Group, in Qingdao Guanghua Properties Company Limited (“Qingdao
Guanghua”). As Mr. Tian was the 97% shareholder of Qingdao Guanghua since 26 September
2007, the consolidated financial statements of the Company for the years 2009/2010 and
2008/2009 have retrospectively included Qingdao Guanghua.

Madison Group is regarded as a continuing group resulting from the above-mentioned
restructuring, and the financial figures presented in this section have been prepared assuming that
the Company has been the holding company of Madison Group for all the periods beginning May
2008 and Madison Hong Kong has been the holding company of Madison Group for the year
2007/2008. Accordingly, the financial figures of Madison Group presented in this section for the
years 2007/2008, 2008/2009 and 2009/2010 and for the three months ended 31 July 2009 and
2010 include the financial statements of the Company, Madison Hong Kong and other group entities
listed above its subsidiaries with effect from 1 May 2007 or where their respective dates of
incorporation/establishment, at a date later than 1 May 2007, from the respective dates of
incorporation/establishment. The only exception is Qingdao Guanghua, which is not included in the
audited figures for the year 2007/2008. In the year 2007/2008, Qingdao Guanghua had a total
revenue of EUR 0 and a net loss of EUR 283,000. As of 30 April 2008, the net equity of Qingdao

                                                                                              90
Guanghua amounted to EUR 640,000, the total assets amounted to EUR 36,881,000, mainly
consisting of properties under development of EUR 27,214,000, and total liabilities amounted to
EUR 36,242,000, mainly consisting of bank loans of EUR 7,339,000 and accounts payables of
EUR 22,510,000. As the Company is firstly incorporated in May 2008, the financial figures for the
year 2007/2008 have been based on the consolidated financial statements of Madison Hong Kong
for the year 2007/2008. Financial figures for other periods presented have been based on the
consolidated financial statements of the Company for the years 2008/2009 and 2009/2010 and
interim condensed consolidated financial statements of the Company for the three months ended
31 July 2009 and 2010.


Results of Operations
Overview
The financial data in the following table sets forth selected financial information derived from the
audited IFRS financial statements of Madison Group as of and for the years 2007/2008, 2008/2009
and 2009/2010, and unaudited IFRS group financial statements for the three months periods ended
31 July 2009 and 2010.

Since Madison Group generates income primarily by the sales of real estate properties and rental
income of investment properties, these are the operating segments. Operations of property
development segment included the development and sales of real estate properties. Operations of
investment properties segment included the leasing of properties for rental income and holding
properties in long term for the appreciation gain.

The audited figures for the year 2007/2008 do not include the results of Qingdao Guanghua.

                                                             1 May            1 May       1 May
Income Statement                                            2007 to          2008 to     2009 to     1 May to    1 May to
                                                            30 April         30 April    30 April     31 July     31 July
Amounts in € thousands                                       2008             2009        2010         2009        2010
                                                                             (audited)                   (unaudited)
                                                                 54,105
Revenue ..............................................................          57,166    63,498       25,309       1,866
Gross results .......................................................
                                                                 22,712         20,433    17,841        5,420         548
Expenses (net of other income) ..........................       (2,906)        (5,078)    (3,609)       (846)     (1,144)
Change in fair values of investment
                                                                   3,100
   properties........................................................           1,203       2,051         493       (102)
Results from operating activities .........................      22,906        16,558      16,283       5,067       (698)
                                                                     (
Net finance costs................................................. 49)          (476)       (786)       (151)       (150)
Share of results of equity accounted                                   (1)        (12)         (5)         (1)        (7)
   investees.........................................................
Income tax expenses ................................ (11,848)                  (7,586)    (6,264)      (1,763)        173
Profit (loss) for the year/period ............................   11,008          8,484      9,228        3,152      (682)



The revenue of Madison Group was EUR 54,105,000, EUR 57,166,000, EUR 63,498,000, EUR
25,309,000 and EUR 1,866,000 for the years 2007/2008, 2008/2009 and 2009/2010 and the three
months periods ended 31 July 2009 and 2010 respectively. The increases of revenue for the years
were 5.7% and 11.1% during 2009 and 2010 when compared to the preceding years. Net income
was EUR 11,008,000, EUR 8,484,000, EUR 9,228,000 and EUR 3,152,000 for the years
2007/2008, 2008/2009 and 2009/2010 and the three months period ended 31 July 2009
respectively. For the three months period ended 31 July 2010, a loss of EUR 682,000 was incurred.
The relevant net profit ratios were 20.3%, 14.8% and 14.5% for the three financial years 2007/2008,
2008/2009 and 2009/2010, and 12.5% and -36.5% for the periods ended 31 July 2009 and 2010.
The net loss suffered in the period ended 31 July 2010 was due to low revenue recognised, while
certain expenses have been incurred during the period. Please refer to further analysis of revenue
and expenses below. As at 30 April 2008, 2009 and 2010, the cash balances were EUR 8,049,000,
EUR 6,191,000 and EUR 5,624,000, respectively. And the cash balances were EUR 6,243,000 and
EUR 12,888,000 for the three months periods ended 31 July 2009 and 2010 respectively. The cash
accumulated at the end of 31 July 2010 was mainly related to the pre-sale of Green Bay Phase I


                                                                                                                       91
commenced from May 2010. The cash collected will be used for the land acquisition of Green Bay
Phase II.


Revenue

Revenue represents the sale of properties held for sale excluding applicable turnover tax. Madison
Group recognises revenue from the sale of properties when the significant risks and rewards of
ownership are transferred to the buyers.
Consistent with customary practice in the property development industry in the PRC, after
satisfying the conditions for pre-sales according to PRC laws and regulations, Madison Group can
sign the contracts with buyers while the properties are still under development. Generally, there is a
time difference typically ranging from several months to one year between the time Madison Group
commences the pre-selling of properties under development and the delivery of the properties to
the buyers. Madison Group does not recognize any revenue from the pre-sales of its properties
until the development of such properties is completed and the properties are delivered to the
buyers, even though a portion of the purchase price for a property is typically paid at various stages
prior to the delivery of properties. Before the delivery of a pre-sold property upon the completion of
development, deposits and purchase prices or portions thereof received from the buyers are
recorded as sales deposit, a current liability in Madison Group’s balance sheet, and reflected in the
cash flow statements as change in sales deposits.

Madison Group achieved revenue during the three months ended 31 July 2010 of EUR 1,866,000,
92.6% lower than that of the three months ended 31 July 2009 of EUR 25,309,000 whereas
management remains confident that the shortfall can be picked up in the fourth quarter in view of
the pre-sale status so far. The pre-sale was mainly attributed by Green Bay Phase I. The houses of
Green Bay Phase I are expected to be delivered by April 2011. During the fiscal year 2009/2010,
Madison Group achieved a revenue of EUR 63,498,000, which was 11% higher than the prior year
total of EUR 57,166,000. During the financial year 2007/2008, Madison Group recorded a revenue
of EUR 54,105,000. The GFA sold for the fiscal year of 2008, 2009 and 2010 were approximately
91,167 m², 96,559 m² and 109,763 m² and for the two interim periods ended 31 July 2009 and
2010 were 43,241 m² and 3,223 m² respectively.

In the financial year 2008, revenue generated from Qingdao Junxin, Madison Qingdao and
Madison Zibo represented 46.2%, 32.9% and 18.7% of the total revenue respectively. In 2009,
revenue generated from Qingdao Junxin, Madison Tai’an and Qingdao Guanghua represented
40.3%, 23.0% and 16.0% of the total revenue respectively. In 2010, revenue generated from
Qingdao Guanghua, Madison Tai’an and Qingdao Junxin represented 56.6%, 27.5% and 12.6% of
the total revenue. For the three months period ended 31 July 2009, the revenue generated from
Qingdao Guanghua represented 90.6% of the total revenue. For the three months period ended 31
July 2010, the revenue generated from Qingdao Guanghua and Madison Tai’an represented 42.8%
and 30.8% of the total revenue.

The consecutive growth of revenue in the financial years was attributable to the macro control by
the central government since 2008. Ever since then, the overall real estate industry was booming.
Another reason was due to the normal steady growth of Madison Group based on the cornerstone
set in the past years. In the long term, the management expects Madison Group to continue its
growth. The land reserve of Madison Group for future development as at 15 October 2010 was
approximately 1,070,000 m² (if all projects of the Madison Group, including those that are not
certain to materialise, are counted in).


Cost of properties sold
Cost of properties sold mainly comprises construction and development costs and land acquisition
costs. Other costs include relevant taxes, capitalised finance costs and management costs.

Madison Group recognizes the cost of the properties sold in the same period in which the
respective revenue of such properties is recognised. Properties under development and completed
properties held for sale are included in Madison Group’s balance sheets at the lower of cost and
net realizable value. Cost of sales incurred under work under construction contracts is recognised
incrementally depending on the stage of the construction. The composition of Madison Group’s


                                                                                                 92
cost of sales may change in any given year based on the type and location of properties completed
and sold.

Construction and development costs

Construction and development costs include all of the costs for the design and construction of a
project, including payments to third-party contractors and designers and the cost of construction
materials. Historically, construction material costs have been a major cause of fluctuations in
Madison Group’s overall construction costs. Price movements of other supplies in relation to
property developments, including ventilation systems, plant watering systems, elevators and
interior decoration materials, may also affect Madison Group’s construction and development costs.
Construction cost is rather stable in nature while development cost depends on many other factors.
Costs associated with the design and construction of a building’s foundation are a particularly
significant component of Madison Group’s construction and development costs and vary not only
according to the area and height of the building but also according to the geological conditions of
the site. The foundation design and construction process for developments in different localities
and the respective costs incurred may vary considerably. Construction costs of a property
development may therefore be higher if the conditions of a site require more complex designs and
processes or more expensive materials to provide the necessary foundational support.

Land acquisition costs
Land acquisition costs include costs relating to the acquisition of rights to occupy, use and develop
land, including land premiums (which are incurred in connection with a land grant from the PRC
government or land obtained in the secondary market by transfer, cooperative arrangement or
corporate acquisition), the applicable deed tax associated with the acquisition of land, and other
land-related taxes and government surcharges. It is the most critical component of the cost of
properties sold and is influenced by a number of factors, including the location of the property,
market conditions, the project’s plot ratios, the approved use of the land and Madison Group’s
method of acquisition, whether through government-organised tenders, auctions or listings-for-sale,
through private sale transactions or through the acquisition of other companies that hold land use
rights. Land acquisition costs are also affected by changes in PRC regulations.

The land acquisition costs are gradually increased in amounts and also proportion to the revenue
during the periods due to intense market competition and the management expects it continue to
increase in the future. It is principally attributable to the land policy of the local municipal
government, which increased the land acquisition costs for all land acquisition transactions.

Gross profit
The gross profit ratio for the three financial years 2007/2008, 2008/2009 and 2009/2010 were
42.0%, 35.7% and 28.1% respectively, while for the three months period ended 31 July 2009 and
2010 were 21.4% and 29.4% respectively.

In financial year 2008, revenue generated from Qingdao Junxin, Madison Qingdao and Madison
Zibo represented 46.2%, 32.9% and 18.7% of the total revenue. The individual gross profit ratio for
Qingdao Junxin, Madison Qingdao and Madison Zibo were 42.9%, 51.4% and 23.9% respectively.
Since most of the sales had a gross profit ratio over 40%, the overall gross profit ratio reached
42.0%.

In 2009, revenue generated from Qingdao Junxin, Madison Tai’an and Qingdao Guanghua
represented 40.3%, 23.0% and 16.0% of the total revenue. The individual gross profit ratio for
Qingdao Junxin, Madison Tai’an and Qingdao Guanghua were 53.2%, 25.8% and 0.1%
respectively. Comparing with the gross profit ratio of 2008, the gross profit ratio of 2009 decreased.
As Madison Tai’an set a lower price strategy aiming to enter the Tai’an local real estate market with
low end products, the gross profit was comparatively low for Phase I of Tai’an Garden State. As
part of the contribution to the public welfare, Qingdao Guanghua committed that Phase I of
Yangguang Coast was sold as economy houses with nearly no profit.

In 2010, Qingdao Junxin remained very profitable with gross profit ratio of 48.5%. As most of the
houses are sold in 2009, revenue generated by Qingdao Junxin accounted for only 12.6% of total
revenue. Benefited from more high-end product mix including villas in its Phase II than low-end
apartments in Phase I, the gross ratio of Tai’an State Garden project, contributing to 27.5% of total
revenue of 2010, rose to 42.7%. Qingdao Guanghua, the major contributor of the revenue in 2010

                                                                                                 93
accounting for 56.6% of the total revenue, started to sell commercial residential houses in 2010
with most of the economy houses delivered in 2009. The gross profit ratio of Qingdao Guanghua
rose from 0.1% to 16.3% whereas it was still much lower than the average projects, and further
pulled down the overall gross profit ratio.

Due to the specific industrial characteristics, it is inappropriate to focus on quarterly or semi-annual
results. It is more appropriate to analyse the result of a property developer at least annually as to
its operation is on project basis.

For the three months period ended 31 July 2009, the revenue recognized by Qingdao Guanghua,
with a gross profit ratio of 19.5%, represented 90.6% of the total revenue. Hence the overall gross
profit margin was lowered to 21%.

For the three months period ended 31 July 2010, the revenue generated from Qingdao Guanghua
and Madison Tai’an represented 42.8% and 30.8% of the total revenue. The individual gross profit
ratio was 13.4% and 41.3% respectively. Since the percentage of the revenue from Qingdao
Guanghua decreased, for which gross profit was low, the overall gross profit margin was restored
to a better level. In May 2010, project Green Bay commenced its pre-sales and Madison Group has
already received nearly EUR 14 million sales deposit.

Selling expenses
Selling expenses include advertising and promotional expenses relating to the sale and rental of
Madison Group’s properties (including leaflet and advertisements in newspapers, on outdoor
advertising boards, on radio broadcasts and running TV commercials), selling and marketing staff
expenses and other selling-related expenses, such as opening ceremony for new building on sale
and pre-sales promotion.

During the three months ended 31 July 2010, Madison Group’s selling expenses amounted to EUR
357,000, an increase of 25.3% compared to the EUR 285,000 selling expenses incurred during the
three months ended 31 July 2009. The selling expenses incurred for the three months ended 31
July 2010 was mainly due to the preparation for pre-sale of Green Bay Phase I in May 2010 and
Zibo Ocean Century Garden Phase IV expected in August 2010. During the financial year
2009/2010, Madison Group’s selling expenses amounted to EUR 1,060,000, compared to EUR
878,000 selling expenses incurred during the financial year 2008/2009. During the financial year
2007/2008, Madison Group incurred selling expenses of EUR 853,000. The increase in selling
expenses was mainly due to the increase in number of newly introduced projects being pre-sold.
Selling expenses were also affected by the targeted selling price and market.

In the years 2008 and 2009, the selling expenses were mainly attributable to general
advertisements, while for year 2010, part of the expenses was related to Qingdao Jundong (Green
Bay Phase I) which commenced the pre-sales in May 2010. It was also the reason for the 25.3%
increase in selling expenses for the three months period ended 31 July 2010 compared to that of
31 July 2009.

Madison Group’s sales and marketing expenses in all periods are affected by the proportion of
newly introduced developments in that period. The Company expects Madison Group’s marketing
and selling expenses continue to increase, as Madison Group has multiple projects that will be
released to the market periodically in the near future. Certain projects, such as Fragrance Town
Mountain to be developed by Madison Qingdao, may incur higher marketing expenses in order to
reach potential purchasers of a higher income level in the city, where costs are generally higher.

Administrative expenses
Administrative expenses consist primarily of administrative staff costs, traveling and entertainment
expenses, other professional fees, and general office expenses. During the three months ended 31
July 2010, Madison Group’s administrative expenses amounted to EUR 710,000, an increase of
31.% compared to the EUR 540,000 administrative expenses incurred during the three months
ended 31 July 2009. The increase in administrative expenses was mainly due to increase in staff
costs 2010 resulted from an increase in average staff number from 137 to 153 as well as the
average salary levels by over 30% for staff incentive.

The administrative expenses for the three financial years 2010, 2009 and 2008 were EUR
2,634,000, EUR 4,795,000 and EUR 2,132,000 respectively. The exceptional high amount for

                                                                                                   94
financial year 2009 was due to some professional consultancy fees amounted to EUR 2,045,000
regarding listing and Initial Public Offering (IPO) projects, which were expensed. Administrative
expenses in 2009 excluding the listing and IPO projects fees would be EUR 2,750,000.

In addition, Madison Group has introduced a stricter cost control over labour costs aiming to
overcome the economic slowdown from January to November 2009, which impacted the financial
year 2009 for 4 months, meanwhile the impact for the financial year 2010 last for 7 months. Hence,
there was a slight decrease in administrative expenses other than IPO expenses in the financial
year 2010 compared to financial year 2009.

Management expects the administrative expenses to remain stable in the future, and will increase
steadily only during the expansion of operations of Madison Group.

Change in fair value of investment properties
The investment properties of Madison Group mainly represented a piece of land in Chongqing,
which contributed to more than 50% of the total values of investment properties.

The fair value of Madison Group’s investment properties decreased by EUR 102,000 during the
three months ended 31 July 2010, compared to an increase of EUR 493,000 during the three
months ended 31 July 2009. The main reason for the slight decrease in fair value of investment
properties during the three months ended 31 July 2010 was the appraisers’ lower expectation over
the land price due to some new governmental policies. To the best knowledge of the management,
the actual price remains unchanged so far.

In the financial year 2009/2010, the fair value of Madison Group’s investment properties increased
by EUR 2,051,000, compared to an increase of EUR 1,203,000 during the financial year 2008/2009
and an increase of EUR 3,100,000 during the financial year 2007/2008. In 2008, the increase in fair
value was mainly due to the general economic boom as the result of the national macro control.
With the slowdown of economy growth in financial year 2009 due to worldwide economy downturn,
the properties appreciated less. In the financial year 2009/2010, the economy was recovering.
Hence, the fair values increased steadily again.

Finance income
Finance income consists of interest earned on Madison Group’s cash and cash-equivalents held in
interest-bearing accounts as well as foreign exchange gain. Madison Group utilised the cash
generated efficiently so that the average cash balances were maintained at appropriate levels.
During the three months ended 31 July 2010, Madison Group recorded finance income of EUR
6,000, compared to EUR 8,000 during the three months ended 31 July 2009. In the financial year
2009/2010, Madison Group’s finance income amounted to EUR 74,000, compared to EUR 38,000
during the financial year ended April 30, 2009 and EUR 34,000 during the financial year ended
April 30, 2008. The increase in the finance income, mainly the increase in interest income, was due
to higher property sale proceeds.

Finance expense
                                                            1 May       1 May ,      1 May,
                                                           2007 to      2008 to     2009 to    1 May to    1 May to
                                                           30 April     30 April    30 April    31 July     31 July
Amounts in € thousands                                      2008         2009         2010       2009        2010
                                                                       (audited)                    (unaudited)
Total interest paid.....................................         976       1,411       1,363         209          404
Less: Interest capitalised..........................           (893)        (897)      (503)         (50)       (248)
Interest expenses .....................................           83          514        860         159          156



Finance expense consists of interest on loans and borrowings as well as bank charges. Madison
Group capitalises its borrowing costs to the extent they are directly attributable to the acquisition
and construction of an asset that necessarily takes a substantial period of time to get ready for its
intended use or sale. During the three months ended 31 July 2010, Madison Group recorded
finance expense of EUR 156,000, compared to EUR 159,000 during the three months ended 31
July 2009. In the financial year 2009/2010, Madison Group’s finance expense amounted to



                                                                                                             95
EUR 860,000, compared to EUR 514,000 during the financial year 2008/2009 and EUR 83,000
during the financial year 2007/2008.

The total interest paid for the years 2008, 2009 and 2010 were in line with the opening loans
balances, which were EUR 8,000,000, EUR 18,349,000 (if Qingdao Guanghua was included) and
EUR 15,467,000 respectively.

The decrease in capitalised expenses in 2010 was mainly due to the completion of Qingdao
Guanghua’s projects during the financial year 2010.

Income tax
During the periods presented, income tax expense comprises current and deferred tax. Income tax
expense is recognised in profit or loss except to the extent that it relates to items recognised
directly in equity, in which case it is recognised in equity.

No provision for German income tax has been made as the holding company incorporated in
Germany did not have assessable profits subject to German income tax. The applicable German
income tax rate for the period from 1 April 2008 to 30 April 2010 was 25.6%.

No provision for Hong Kong Profits Tax has been made as the intermediate holding company
incorporated in Hong Kong did not have assessable profits subject to Hong Kong Profits Tax. The
applicable Hong Kong Profits Tax rate for the period was 16.5% since 1 April 2008.

The provision for PRC Enterprise Income Tax for the Company’s subsidiaries in the PRC is based
on a statutory rate of 25% since the calendar year 2008 and the taxable income as determined in
accordance with relevant income tax rules and regulations of the PRC.

In accordance with the Land Appreciation Tax Law of the PRC, Land Appreciation Tax is levied at
the properties developed by Madison Group for sale in the PRC. Land Appreciation Tax is charged
on the appreciated amount at progressive rates ranged from 30% to 60%.

During the three months ended 31 July 2010, Madison Group’s income taxes income amounted to
EUR 173,000, while there was an income tax expense of EUR 1,763,000 during the three months
ended 31 July 2009. Madison Group’s PRC Enterprise Income Tax expenses decreased by
EUR 1,252,000, or 116.7%, from EUR 1,073,000 to an income of EUR 179,000 largely as a result
of the decrease in gross profits by 89.9%. Madison Group’s PRC Land Appreciation Tax expenses
dropped by EUR 684,000, from EUR 690,000 to EUR 6,000 also mainly due to the decrease in
gross profits.

During the financial year 2009/2010, Madison Group’s income tax expenses amounted to
EUR 6,264,000, compared to EUR 7,586,000 during the financial year 2008/2009. During the
financial year 2007/2008, Madison Group’s income taxes expenses amounted to EUR 11,848,000.
Madison Group’s expenses for EIT decreased from EUR 4,935,000 in the year 2007/2008 to
EUR 3,876,000 in the year 2008/2009 and EUR 3,186,000 in the year 2009/2010 as the result of
lower profit margins in the years. Moreover, Madison Group’s LAT expenses dropped from
EUR 6,913,000 to EUR 3,710,000 and EUR 3,078,000, which were in line with the drops in profit
margins as well.


Liquidity and Capital Resources
Madison Group operates in a capital intensive industry and has historically financed, and Madison
Group expects to continue to finance its working capital, capital expenditure and other capital
requirements through proceeds from the pre-sale and sale of properties, borrowings from
commercial banks and other parties, capital contributions from shareholders and new share
issuances. Madison Group’s short-term liquidity requirements relates to the funding of operating,
activities, the working capital requirements, the acquisition of additional land reserves, the
development of developing and future projects and other debt requirements. And the sources of
short-term liquidity include cash balances, proceeds from pre-sales and sales of properties and
new loans. Madison Group’s long-term liquidity requirements relate to the funding of its new



                                                                                            96
property projects and repayment of its long-term debt. And its sources of long-term liquidity include
loans, capital contributions from shareholders and share issuances.
For information about Madison Group’s historical debt, see “Capitalisation and Indebtedness”.
As of 31 July 2010, Madison Group had cash and cash equivalents of approximately EUR 12.9
million and total financial liabilities of approximately EUR 80.8 million, resulting in cash and cash
equivalents less total financial liabilities of approximately EUR 67.9 million. Madison Group’s
working capital (liquidity) is sufficient to meet Madison Group’s current and foreseeable liabilities at
least as they become due in the next 12 months. Madison Group’s ability to generate sufficient
cash from operating activities depends on its future performance and market conditions in each of
the markets, which are subject to a number of factors beyond the Madison Group’s control. During
period of economic downturn, the Company may need to access capital markets and/or other
available financial resources to strengthen the consolidated statement of financial position. In
addition, Madison Group’s future capital expenditures and other cash requirements could be higher
than it currently expects as the result of various factors, including any additional acquisitions that it
may undertake.

Balance Sheet data
The financial data in the following table sets forth selected balance sheet information derived from
Madison Group’s IFRS financial statements as of and for the years 2007/2008, 2008/2009 and
2009/2010, and the three months period ended 31 July 2009 and 2010.
Balance Sheet                                                     30 April       30 April    30 April   31 July     31 July
Amounts in € thousands                                             2008           2009        2010       2009        2010
                                                                                (audited)                   (unaudited)
Investment properties............................................16,329            20,918      22,624     20,220      23,018
Investments .......................................................... 448           1,922      1,927      1,814        1,963
Inventories............................................................41,003      72,619      69,047     52,720      74,460
Receivables..........................................................22,778        50,089      38,913     52,734      46,470
Other assets ......................................................... 2,190         3,738      5,447      3,406        5,707
Cash and bank ..................................................... 8,049            6,191      5,624      6,243      12,888
Total assets ..........................................................90,797     155,477     143,582    137,137     164,506
Total equity...........................................................27,462      43,002      51,629     43,644      52,113
Loans ................................................................ 11,009      15,467      21,897     10,961      30,517
Sales deposits ......................................................19,007        23,103       9,312     14,686      25,528
Trade and other payables................................               19,400      49,753      30,768     43,954      26,288
Deferred tax liabilities............................................ 3,553           4,969      6,017      4,926        6,091
Income tax payables .............................................10,366            19,183      23,959     18,966      23,969
Total equity and liabilities ................................          90,797     155,477     143,582    137,137     164,506



Investment properties
                                                                  30 April       30 April    30 April   31 July      31 July
Amounts in € thousands                                             2008           2009        2010       2009         2010
                                                                                (audited)                   (unaudited)
Land in Chongqing.....................................               9,826         13,210      14,605     12,883       14,812
Other investment properties .......................                  6,503           7,708      8,019      7,337        8,206
Total..........................................................     16,329         20,918      22,624     20,220       23,018



From the above table, one can see that the piece of land in Chongqing contributed to more than
50% of the total values of investment properties.

Investments
Investments included Madison Group’s equity investment in Qingdao Xianggen Quanhai Zhiye
Company Limited (“Qingdao Xianggen Quanhai”), an associated company, and Qingdao Baitong
Huyun Real Estate Company Limited.




                                                                                                                     97
Inventories
                                                                  30 April    30 April    30 April   31 July     31 July
Amounts in € thousands                                             2008        2009        2010       2009        2010
                                                                             (audited)                   (unaudited)
Properties under development (“PUD”) .......                        24,913      50,050      48,752     28,149      54,556
Completed properties held-for-sales
(“CPH”)......................................................       16,090      22,569      20,295     24,571      19,904
Total..........................................................     41,003      72,619      69,047     52,720      74,460



PUD represented the values of the projects under construction. Once the projects were accepted
and examined by relevant authorities, they were transferred to CPH and were ready for delivery to
customers.

For the financial year 2008, inventories mainly represented Sandalwood Bay (49.6%) and State
Garden Phase I (22.3%). The pre-sales of those projects commenced in 2008. As at 30 April and
31 July 2009, inventories mainly represented projects of Qingdao Guanghua and Qingdao Jundong,
which contributed to a total over 80% of the total inventories applied for both dates. Projects of
Qingdao Guanghua started pre-sales in 2009 and recognised as sales in financial year 2010. The
pre-sales of Green Bay, project of Qingdao Jundong, was started in May 2010. As at 30 April and
31 July 2010, inventories mainly consisted of Fragrance Town Mountain and Green Bay Phase I,
which represented over 84% of the total inventories for the both dates.

Inventories are accounted for using the lower of costs or net realisable values. The valuation
extracted from valuation and advisory reports, which are the market values of the properties, are
used as reference for the net realisable values and may not be consistent with the valuation in the
financial statements. For details, see “Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Critical Accounting Principles”.


Receivables
                                                                  30 April    30 April    30 April   31 July     31 July
Amounts in € thousands                                             2008        2009        2010       2009        2010
                                                                             (audited)                   (unaudited)
Trade receivables ......................................               870      12,406       5,534     11,437        5,436
Advances to related parties ........................                 5,101        7,463      8,465      7,187        9,570
Advances to third parties............................                1,670      17,055      10,801     20,914      11,959
Prepayments .............................................           13,744      12,104      13,938     13,172      19,118
Others .......................................................       1,393        1,061        175         25          387
Total..........................................................     22,778      50,089      38,913     52,734      46,470



Trade receivables represented the receivables resulting from sales of CPH. The increase in year
2009 was mainly due to the sales of Sandalwood Bay developed by Qingdao Junxin, including
some residential apartments and a shop of a total sales amount of over EUR 12,000,000. Most of
the receivables were subsequently settled in August and September 2010.

Advances to related parties and third parties were unsecured, interest free and had no fixed term of
repayments. They mainly represented current accounts with related parties and other parties. No
bad debts provision was considered necessary by the management on the amounts since there
was a piece of land held by one of the third parties, Qingdao Guangrun Investments Limited, who
agreed to settle the outstanding balances over EUR 9 million as at 31 July 2010 with the proceeds
from the disposal of the land.

Prepayments were amounts paid in advance to constructors for construction works of the projects
and amounts paid to secure land acquisitions upon agreements were signed. They were unsecured,
interest free and had no fixed term of repayments.

Others mainly represented the prepaid sales taxes.




                                                                                                                  98
Minority Interests

Minority interests represent third-party interests in our non-wholly owned subsidiaries. Qingdao
GaokeJi Industry Park Property Management Development Center (“GaokeJi Industry Park”)
holds a 40 % interest in Qingdao Junxin, so that a respective portion of Madison Group’s profit is
attributable to GaokeJi Industry Park. Mr. Luan Yong holds a 3% interest in Qingdao Guanghua, so
that a respective portion of Madison Group’s profit is attributable to him.

Loans

During the financial year 2009, Madison Group had been granted development loans from banks of
approximately EUR 8,036,000 regarding projects of Qingdao Guanghua. During financial year 2010,
development loans of approximately EUR 15,380,000 were granted to Qingdao Jundong for the
development of Green Bay. Further bank loans of approximately EUR 8,480,000 were granted to
Madison Group for Fragrance Town Mountain project and Green Bay during the three months
period ended 31 July 2010. Other movements in loans were mainly repayment to the banks.

Sales deposits

Sales deposits are proceeds received on the pre-sales of the projects after receiving proper
approval from relevant government authorities.

As at 30 April 2008, the amount is mainly attributable to the projects of Qingdao Junxin
(Sandalwood Bay), Madison Tai’an (State Garden Phase I) and Qingdao Guanghua (Yangguang
Coast). The hand-over of the properties to customer started in the year 2009. As at 30 April and 31
July 2009, the amounts are mainly attributable to the projects of Qingdao Guanghua (Yangguang
Coast and Dongshan Peak) and Madison Tai’an (State Garden Phase II). The properties were
handed-over to customer since financial year 2010. As at 30 April 2010, the amounts mainly
contributed to projects of Qingdao Guanghua (Yangguang Coast) and Madison Tai’an (State
Garden Phase II). The properties were subsequently handed-over to customer after the year end.
As at 31 July 2009, the amount is mainly attributable to the project of Qingdao Jundong (Green Bay
Phase I), of which the pre-sales started in May 2010.

Payables
                                                                  30 April    30 April     30 April   31 July     31 July
Amounts in € thousands                                             2008        2009         2010       2009        2010
                                                                             (audited)                    (unaudited)
Trade payables..........................................            11,229      31,531       12,292     14,513      10,890
Amounts due to related parties ...................                   3,688        3,038       7,462      5,228        4,370
Advances from third parties........................                  4,027      15,184       11,014     24,213      11,028
Advances from shareholders ......................                      456             -          -           -           -
Total..........................................................     19,400      49,753       30,768     43,954      26,288



Trade payables represented payables to constructors and materials suppliers for the projects.

Most part of the amounts due to related parties, advances from third parties and advances from
shareholders were unsecured, interest free and had no fixed term of repayments. They mainly
represented current accounts with those parties.

Tax payables
                                                                  30 April    30 April     30 April   31 July     31 July
Amounts in € thousands                                             2008        2009         2010       2009        2010
                                                                             (audited)                    (unaudited)
EIT payable ...............................................          4,661        8,259      11,723      8,403      11,355
LAT payable ..............................................           5,705      10,924       12,236     10,563      12,614
Total..........................................................     10,366      19,183       23,959     18,966      23,969




                                                                                                                   99
LAT were firstly prepaid in a fixed ratio of the sales and pre-sales proceeds of the projects, as
determined by taxation regulations. After the completion of the projects sales, the information of the
projects needed to be filed with tax authorities for LAT clearance. Since no projects of Madison
Group were actually cleared up to present although information were filed as requested, the LAT
payable were accumulating during the years and periods. Madison Group accrued LAT payable
according to the portion of projects sold with a deemed LAT clearance. The actual LAT payable will
depend on the actual LAT clearance to be performed by tax authorities.

Cash flow
The following table highlights selected cash flow data for the three financial years 2007/2008,
2008/2009 and 2009/2010, and the three months ended 31 July 2009 and 31 July 2010:


                                                   1 May         1May         1 May
                                                 2007 to 30   2008 to 30    2009 to 30   1 May to     1 May to
                                                   April         April        April       31 July      31 July
Amounts in € thousands                             2008          2009         2010         2009         2010
                                                               (audited)                       (unaudited)
Net cash from (used in) operating activities.        4,255          2,801      (8,031)        4,152      (1,025)
Net cash (used in) from investing activities..       (792)          (640)        (204)            6           (6)
Net cash from (used in) financing activities .       2,938        (5,904)        7,510      (3,742)        8,052
Movement in cash and cash equivalents.....           6,401        (3,743)        (725)          416        7,021


Cash flow from (used in) operating activities
During the three months ended 31 July 2010, Madison Group’s cash flow used in operating
activities was EUR 1,025,000, which was mainly due to the construction of projects such as Green
Bay and Ocean Century Garden Phase IV. During the three months ended 31 July 2009 the cash
flow from operating activities were EUR 4,152,000, which is mainly attributable to the pre-sales
proceeds from the projects of Qingdao Guanghua and Madison Tai’an.

The cash inflow from operating activities decreased from EUR 4,255,000 in the financial year
2007/2008 to EUR 2,801,000 in the financial year 2008/2009 and further decreased to a cash
outflow of EUR 8,031,000 in the financial year 2009/2010. It was mainly due to the increase in
scale and progress of the projects during these years as a result of the expansion of Madison
Group. The decrease in cash inflow in the year 2008/2009 was mainly due to the decrease in profit
by approximately EUR 2.5 million. The cash outflow in the year 2009/2010 was mainly driven by
the settlement of trade payables for the completed projects which reduced the trade payables of
Madison Group by approximately EUR 19.2 million.

Cash (used in) from investing activities

Madison Group’s investing activities during the periods under review consist primarily of
investments in property, plant and equipment, equity accounted investee and other investments.
For further information on cash used in investing activities, see “Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Investments and Capital Expenditures”.

Cash flow from (used in) financing activities

In the year 2009/2010, cash inflow from financing activities includes EUR 25,042,000 proceeds
from bank loans. In the financial years 2008/2009 and 2007/2008, bank loan proceeds amounted to
EUR 5,255,000 and EUR 3,551,000, respectively. Other financing activities included the repayment
of loans and borrowings, the restructuring of Madison Group taken place in financial year 2008 and
the increase of share capitals in financial year 2010.




                                                                                                         100
Investments and Capital Expenditures
The following table sets forth Madison Group’s capital expenditures for the periods indicated.

                                                       1 May            1 May       1 May      1 May to     May 1 to
                                                     2007 to 30      2008 to 30   2009 to 30    31 July     31 July
Amounts in € thousands                               April 2008      April 2009   April 2010     2009        2010
                                                                      (audited)                     (unaudited)
Acquisition of property and equipment                          368          213         278             2          12
Total capital expenditures ..............                      368          213         278             2          12



During the financial year 2008/2009, Madison Group’s other investment increased by
EUR 1,397,000, from nil on 30 April 2008 to EUR 1,397,000 on 30 April 2009. This increase was
primarily due to the acquisition of other investment as described in previous section. Other
movement on investments of Madison Group represented the equity accounted investee, Qingdao
Xianggen Quanhai.

As of 30 April 2008, Madison Group only had EUR 448,000 at equity accounted investee, reflecting
investments made in Qingdao Xianggen Quanhai.

Madison Group’s investments have been funded primarily from its operating cash flow and bank
loans.

Madison Group’s future investment mainly includes the projects descripted in “Project Description –
Projects for future development”.

Save for the above, a definitive investment plan has not been prepared.


Contractual Obligations, Commitments and Contingencies
The following table provides a maturity analysis of certain of Madison Group’s maximum
obligations as of 31 July 2010:


                                                     up to 1         1 to 5       more than    secured     Total 31
Amounts in € thousands                                year           years         5 years       by       July 2010
Capital commitments.............................      2,105                   -          -           -       2,105
External guarantees ..............................    2,000                   -          -           -       2,000
Mortgage guarantees ............................     11,000                   -          -           -      11,000



Mortgage guarantees were resulted from the pre-sales of properties according to the specific
system in China. It referred to guarantees by stages. For details of mortgage guarantees, please
refer to the “Risks” section. Based on the historical experience of Madison Group, no actual
damages were incurred.


Critical Accounting Principles
The presentation and analysis of the financial condition and results of operations of the Madison
Group are based on the consolidated financial statements of Madison Hong Kong as of and for the
year 2007/2008, those of Madison Property AG as of and for the years 2008/2009 and 2009/2010
and the interim condensed consolidated financial statements of Madison Property AG as of and for
the three months ended 31 July 2009 and 2010. The underlying annual consolidated financial
statements were prepared in accordance with the respective applicable accounting methods and
valuation principles in compliance with IFRS, as adopted in the European Union, and their
interpretation by International Financial Reporting Interpretations Committee (IFRIC), as approved
and published by International Accounting Standards Board (IASB). The interim condensed
consolidated financial statements as of and for the three months ended 31 July 2009 and 2010


                                                                                                             101
were prepared in accordance with International Accounting Standard 34 Interim Financial
Reporting. The Company’s stand-alone financial statements for the year beginning 1 May 2009 and
ended 30 April 2010 were prepared in accordance with German Accounting Standard (HGB) in
consideration of the supplementary provisions of the German Stock Corporation Act (AktG).

The preparation of Madison Group’s financial statements in accordance with IFRS requires
management to make assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingencies as of the dates of the financial statements, as well as the reported
amounts of revenues and expenses during the reporting periods. Critical accounting principles are
accounting and valuation policies that require the most complex or subjective judgments regarding
the effects of matters that are inherently uncertain. Thus, to the extent that actual events differ from
management’s estimates and assumptions, there could be a material impact on the financial
statements. In applying Madison Group’s accounting and valuation policies, accounting estimates
were used on the basis of assumptions about matters that were highly uncertain at the time the
estimate was made or where it is reasonably likely that changes of these estimates may occur from
period to period that would have a material impact on the presentation of Madison Group’s results
of operations, financial position or cash flows. Madison Group’s critical accounting and valuation
policies are summarized as follows:
Functional and presentation currency
The financial statements of Madison Group’s operations are measured in the currency in which that
entity primarily conducts its business (the functional currency). The functional currency of all the
Chinese companies’ operations is the applicable local currency which is RMB, with the exception of
the Hong Kong entity (which is USD). Madison Group prepares its financial statements in EUR (the
reporting currency). When translating the financial statements prepared in RMB and USD into the
EUR, year-end exchange rates are applied to asset and liability accounts, while yearly average
rates are applied to income statement accounts. Adjustments resulting from this process are
recorded as separate component of shareholders’ equity.

As a result of the translation from the functional currency into the reporting currency, changes in
Madison Group’s financial position, statements of comprehensive income and cash flows may be
incurred in a way that may not reflect the economic development of Madison Group in the period
under review as this would be the case, if presented while using the functional currency. Financial
information presented in EUR has been rounded to the nearest thousand or million.
Acquisitions from entities under common control
Business combinations arising from transfers of interests in entities that are under the control of the
controlling party that controls Madison Group are accounted for as if the acquisition had occurred
at the beginning of the earliest comparative period presented or, if later, at the date common
control was established. The assets and liabilities acquired are recognised at the carrying amounts
recognised previously in Madison Group’s controlling investor’s consolidated financial statements.
The components of equity of the acquired entities are added to the same components within
Madison Group’s equity. Any cash paid for the acquisition is recognised directly in equity.

Investment property

Investment property is property held either to earn rental income or for capital appreciation or for
both, but not for sale in the ordinary course of business, use in the production or supply of goods or
services or for administrative purposes.

Investment property comprises land held under operating leases and properties held for operating
leases. Land held under operating leases (through land-use-rights) is classified and accounted for
as investment property when the rest of the definition of investment property is met.

Investment property is measured initially at its cost, including related transaction costs.

After initial recognition, investment property is carried at fair value. Fair value is based on active
market prices, adjusted, if necessary, for any difference in the nature, location or condition of the
specific asset. If this information is not available, Madison Group uses alternative valuation
methods such as recent prices on less active markets or discounted cash flow projections. These
valuations are performed at each balance sheet date by independent valuers. Investment property


                                                                                                   102
that is being redeveloped for continuing use as investment property, or for which the market has
become less active, continues to be measured at fair value.

The fair value of investment property reflects, among other things, rental income from current
leases and assumptions about rental income from future leases in the light of current market
conditions.

Changes in fair values of investment property are recognised in the consolidated income
statement.

When the use of a property changes such that it is reclassified as property and equipment, its fair
value at the date of reclassification becomes its cost for subsequent accounting.

Inventories

Properties under development and completed properties held for sale in respect of property
development activities are carried at the lower of cost and net realisable value. Cost and net
realisable values are determined as follows:

-     Properties under development

The cost of properties under development comprises specifically identified cost, including
aggregate cost of development, materials and supplies, wages and other direct expenses, an
appropriate proportion of overheads and borrowing costs capitalised. Net realisable value
represents the estimated selling price less estimated costs of completion and costs to be incurred
in selling the property.

-     Completed properties held for sale

In the case of completed properties developed by Madison Group, cost is determined by
apportionment of the total development costs for that development project, attributable to the
unsold properties. Net realisable value represents the estimated selling price less costs to be
incurred in selling the property.

The cost of completed properties held for sale comprises all costs of purchase, costs of conversion
and other costs incurred in bringing the properties to their present location and condition.

Financial instruments

Non-derivative financial instruments comprise other investments, trade and other receivables,
restricted bank deposits, cash and cash equivalents, loans and borrowings, sales deposits and
trade and other payables.

For non-derivative financial assets, the categories available for sale and loans and receivables are
applied. All financial liabilities belong to the category other financial liabilities.

Non-derivative financial instruments are recognised initially at fair value plus any directly
attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments
are measured as described below.

Financial assets are accounted for at settlement date.

Other investments- available-for-sale

Madison Group’s investments in equity securities are classified as available-for-sale financial
assets. Subsequent to initial recognition, they are measured at fair value and changes therein,
other than impairment losses, are recognised in other comprehensive income and presented within
equity in the fair value reserve. When an investment is derecognised, the cumulative gain or loss in
other comprehensive income is transferred to profit or loss.




                                                                                                 103
Available-for-sale investments that do not have a quoted market price in an active market and
whose fair value cannot be reliably measured are recognised in the balance sheet at cost less
impairment losses.

Trade and other receivables

Trade and other receivables are initially recognised at fair value and thereafter stated at amortised
cost less impairment losses for bad and doubtful debts.

Restricted bank deposits and cash and cash equivalents

Restricted bank deposits and cash and cash equivalents comprise cash balances and call deposits
with original maturities of three months or less. Bank overdrafts that are repayable on demand and
form an integral part of Madison Group’s cash management are included as a component of cash
and cash equivalents for the purpose of the statement of cash flows. Restricted bank deposits and
cash and cash equivalents are stated at cost, which approximate fair value.

Loans and borrowings

Loans and borrowings are measured at amortised cost using the effective interest method.

Sales deposits and trade and other payables

Sales deposits and trade and other payables are initially recognised at fair value and thereafter
stated at amortised cost unless the effect of discounting would be immaterial, in which case they
are stated at cost.

Other provisions and contingent liabilities
Provisions are recognised for other liabilities of uncertain timing or amount when Madison Group
has a legal or constructive obligation arising as a result of a past event, it is probable that an
outflow of economic benefits will be required to settle the obligation and a reliable estimate can be
made. Where the time value of money is material, provisions are stated at the present value of the
expenditure expected to settle the obligation.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot
be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of
outflow of economic benefits is remote. Possible obligations, whose existence will only be
confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as
contingent liabilities unless the probability of outflow of economic benefits is remote.
Revenue

  (i)      Properties sold

           Revenue from the sale of properties held for sale is recognised when persuasive
           evidence exists, usually in the form of an executed sales agreement, that the significant
           risks and rewards of ownership have been transferred to the buyers. Madison Group
           considers that the significant risks and rewards of ownership are transferred when the
           properties are completed, sales contracts are signed and properties delivered to the
           buyers. The property right certificate is issued on later date. Revenue from sales of
           properties excludes business tax and is after deduction of any trade discounts.
           Deposits and instalments received on properties sold prior to the date of revenue
           recognition are included in the balance sheet as sales deposits.

  (ii)     Rental income

           Rental income from investment property is recognised in profit or loss on a straight-line
           basis over the term of the lease. Lease incentives granted are recognised as an integral
           part of the total rental income, over the term of the lease. Rental income from subleased
           property is recognised as other income.



                                                                                                  104
Finance income and finance costs
Borrowing costs are expensed in profit or loss in the period in which they are incurred, except to
the extent that they are capitalised as being directly attributable to the acquisition, construction or
production of an asset which necessarily takes a substantial period of time to get ready for its
intended use or sale.

The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when
expenditure for the asset are being incurred, borrowing costs are being incurred and activities that
are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation of
borrowing costs is suspended or ceases when substantially all the activities necessary to prepare
the qualifying asset for its intended use or sale are interrupted or complete.
Income tax
Income tax expense comprises current and deferred tax. Income tax expense is recognised in
profit or loss except to the extent that it relates to items recognised directly in equity, in which case
it is recognised in equity.

Current tax is the expected tax payable on the taxable income or loss for the year, using tax rates
enacted or substantively enacted at the reporting date, and any adjustment to tax payable in
respect of previous years.

Deferred tax is recognised using the balance sheet method, providing for temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes. Deferred tax is not recognised for the following temporary
differences: the initial recognition of assets or liabilities in a transaction that is not a business
combination and that affects neither accounting nor taxable profit or loss, and differences relating
to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they
will not reverse in the foreseeable future. In addition, deferred tax is not recognised for taxable
temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the
tax rates that are expected to be applied to the temporary differences when they reverse, based on
the laws that have been enacted or substantively enacted by the reporting date. Deferred tax
assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities
and assets, and they relate to income taxes levied by the same tax authority on the same taxable
entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net
basis or their tax assets and liabilities will be realised simultaneously.

A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary
differences, to the extent that it is probable that future taxable profits will be available against which
they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to
the extent that it is no longer probable that the related tax benefit will be realised.




                                                                                                      105
INDUSTRY OVERVIEW

China’s Economy
The Chinese economy has grown significantly since the Chinese government introduced economic
reforms in the late 1970s. 4 Furthermore, China’s accession to the World Trade Organisation
(WTO) in 2001 has accelerated the reform of the Chinese economy. China’s Nominal Gross
Domestic Product (GDP) increased from approximately RMB 16.0 trillion in 2004 to approximately
RMB 34.1 trillion in 2009 5 at a Compounded Annual Growth Rate (CAGR) of approximately
13.44%. GDP per capita in China reached approximately RMB 25,188 in 2009, representing an
increase of approximately 11.3% in relation to 2008. 6 Per capita disposable income of urban
households reached approximately RMB 17,174 in 2009, representing an increase of 8,8% in
relation to 2008. Foreign investments in China were approximately USD 91,8 billion in 2009,
representing an annual increase of approximately 8,25% in relation to 2007.7

The following table sets out selected economic statistics for China for the years indicated.

Selected Chinese Economic Statistics:

                                   2004           2005        2006       2007       2008         2009

     Nominal GDP              15,987.8       18,321.7      21,192.4   24,953.0   30,067.0    34,050.7
     (RMB in billion)

     Real GDP growth                  9.5           9.9       10.7       11.4         9.0          9.1
     rate (%)

     GDP per capita              12,336         14,053      16,165     18,934     22,640       25,188
     (RMB)

     Real GDP per                     9.4           9.8       11.0       12.5         8.4          8.6
     capita growth
     rate (%)

     Total imports and          1,154.6        1,421.9      1,760.4    2,173.7    2,563.3     2,207.2
     exports (USD in
     billion)

     Utilised foreign            64.072         63.805      67.076     78.339     95.253       91,804
     direct investment
     (“FDI”) (USD in
     billion)

     Per capita                   9,422         10,493      11,760     13,786     15,781       17,175
     disposal income
     of urban
     households
     (RMB)

     Outstanding              11,955.5       14,105.1      16,158.7   17,253.4   21,788.5    26,0772
     amount of saving
     deposits in urban
     and rural (RMB

4
 OECD Economic Survey of China 2005, Chapter 1; see also WTO Trade Policy Review Report by the Secretariat, 12
August 2008, WT/TPR/S/199/Rev.1
5
    National Bureau of Statistics China, 22 January 2009
6
    China Statistical Yearbook 2009
7
    China Statistical Yearbook 2009


                                                                                                         106
   in billion)


Source: China Statistical Yearbooks 2008, 2009 and 2010 and Shandong Statistical Yearbook 2010



China’s Property Markets
The Chinese property markets did only start to develop in the 1990s. Before this period, the
Chinese property development industry was part of the nation’s centrally planned economy. In the
1990s, the Chinese government initiated housing reforms and, as a result, China’s real estate and
housing sector began the transition to a market-based system. The process basically started in
1988 when the National People’s Congress amended the national constitution to permit the transfer
of state-owned land-use rights. The timeline below provides a general overview of key housing
reforms over recent years.

2004      The State Council issued a notice which required developers to contribute at least 35% of
          its own capital funds rather than 20% of the total projected capital outlay for real estate
          development projects (excluding affordable housing programs)

          The Ministry of Construction amended the rules relating to pre-sale of commodity housing
          in urban areas.

          The China Banking Regulatory Commission (“CBRC”) issued guidelines requiring
          commercial banks to further tighten their risk control mechanisms regarding real estate
          financing.

2005      The Chinese government adopted a series of measures to discourage speculation in the
          real estate market. For example, the minimum down payment was increased to 30% of the
          total purchase price in cities where housing prices increased too fast; preferential mortgage
          interest rate for residential housing was abolished; a business tax of 5% was imposed on
          the proceeds from sales that occur within two years of purchase of a property and the
          resale of unfinished properties was prohibited.

2006      The Chinese government implemented numerous additional measures to curb rapid
          increase in property prices, encourage the development of mid-to-low-end housing and to
          promote the healthy development of the property industry. Measures taken include limiting
          land supply, bank financing and other regulatory measures.

2007      The Chinese government increased the annual land-use tax and began to impose land-use
          tax on foreign-invested enterprises also.

          The Ministry of Land and Resources issued regulations that prohibited the issuance of
          land-use rights certificates unless and until the full land premium has been paid with
          respect to the whole parcel of land under a land contract. This effectively stopped the
          practice of issuing land-use rights certificates in installments.

          The Council of Real Estate Brokerage Managers strengthened the administration over real
          estate financing and it prohibited commercial banks from extending loans to real estate
          developers solely for the purpose of paying the land premium.

          MOFCOM and Chinese State Administration of Foreign Exchange (SAFE) issued a notice
          to further strengthen the approval requirement and supervision of foreign investment in the
          real estate sector. The establishment of foreign-invested real estate entities or the increase
          of registered capital for such entities now requires the filing with People’s Republic of China
          (PRC) Ministry of Commerce (MOFCOM).

2008      The State Council issued a circular to urge all local governments to enforce an idle-land
          policy, which mandates that a piece of land idle for two full years or longer must be
          withdrawn from the owner unconditionally and become subject to reuse.

          The Chinese government issued regulations promoting the development of the real estate
          market and encouraging the purchase of ordinary commodity housing.

                                                                                                    107
2009       The State Council issued a notice that set the minimum proportion of capital that needs to
           be invested by the developer itself (out of the total investment of a project) for low-to-mid-
           income housing projects at 20% and the minimum proportion of capital that needs to be
           invested by the developer itself for other real estate projects at 30%.

Additional and more detailed information on housing reforms and recent regulatory developments
with respect to China’s real estate industry is available in section “Regulatory Environment” of this
document.

Housing reforms, economic growth and the emergence of a mortgage lending market are all key
factors that continuously spur the overall growth in China’s real estate market. In addition to these
factors, further government housing reform measures will continue to encourage private housing
ownership in China. According to the National Bureau of Statistics, China’s urbanisation rate rose
from approximately 41.8% in 2004 to approximately 46.6% in 2009. It is likely that this sharp
increase in the urban population in China will result in an increase in demand for residential and
commercial properties.

The following table illustrates China’s urbanisation rate between 2004 and 2009:

Chinese Urbanisation Rate 2004-2009:

                     2004            2005          2006           2007          2008             2009

   Total              1,299.9        1,307.6        1,314.5      1,321.3        1,328.0          1,334.7
   population
   (million)

   Urban                542.8          562.1          577.1         593.8          606.7          621.9
   population
   (million)

   Urbanisati            41.8           43.0           43.9          44.9           45.7           46.6
   on    rate
   (%)

Source: China Statistical Yearbooks 2008, 2009 and 2010 and Shandong Statistical Yearbook 2010



Measures taken by the Chinese Government Related to the Real
Estate Market
Beginning in 2004, the Chinese government has taken various measures to control money supply,
credit availability and fixed assets investment in order to prevent China’s economy from expanding
too rapidly and to achieve balanced and sustainable economic growth. The government has also
implemented measures to discourage speculation in the residential property market as well as
mechanisms to increase the supply of affordable housing instead of high-end residential properties.
Responding to concerns about the rapid increase in property prices, the Chinese government has
introduced policies and measures to restrict such increase, including but not limited to:

       !       Limiting the monthly mortgage payment ratio to 50% of an individual borrower’s
               monthly income and limiting all monthly debt service payments of an individual
               borrower to 55% of his or her monthly income;

       !       Requiring real estate developers to finance 35% (instead of the former 20%) of the
               total projected capital outlay of any property development project using their own
               capital funds;

       !       Increasing the required fund reserve ratio that needs to be held on deposit by a
                commercial bank from 7.5% in the first half of 2006 to 17.5% in June 2008, thereby
                effectively reducing the amount of money a bank is able to lend;



                                                                                                           108
          !      Cutting the People’s Bank of China (PBOC) benchmark lending interest rates and
                 public housing fund lending rates; with the PBOC one-year lending interest rate
                 decreasing to 5.31% and the public housing fund lending rates decreasing to 5,76%
                 for loans with maturities of no more than five years and to 5,94% for loans with
                 maturities of over five years in December 2008;8

          !      Tightening regulations governing mortgage lending and making the conditions for
                 approval for new large-scale development sites more stringent.

For additional and more detailed information regarding the recent regulatory developments in
China’s real estate industry please see the section “Regulatory Environment” of this document.

According to the agenda for the economic policies in 2010 issued by the Central Economic Work
Conference, the Chinese government has decided, inter alia, the provisions regarding the state
control of people’s place of residence shall be changed in 2010. In particular the registration of the
rural population in Chinese cities shall become easier in order to enhance the urbanisation process
in China.

The Chinese government recently further announced that it will carefully monitor the situation of the
real estate market, in particular in respect of the development of average prices and that it will
intervene if it considers state actions necessary to avert unfair practices and instability.


Property Sales
Demand for real estate in China has steadily increased over the past five years. According to
figures published by the Chinese National Bureau of Statistics, the total revenue from sale of
commercialized buildings in China increased from approximately RMB 1,175.2 billion in 2004 to
approximately RMB 3,250.8 billion in 2009. During the same period, the aggregate Gross Floor
Area (GFA) sold in China increased from approximately 382.3 million m² in 2004 to approximately
937.1 million m² in 2009. Of the 937.1 million m² of aggregate GFA sold in 2009, approximately
861.9 million m² were residential properties. This represents an increase of approximately 45.4% in
relation to 2008 which is mainly due to numerous cooling measures adopted by the Chinese
government since 2007 that had effect on the sale of real estate in particular in 2008.

The average selling price of commercialised buildings in China increased from approximately RMB
2,778 per m² in 2004 to roughly RMB 4,681 per m² in 2009 while the average selling price for
residential buildings increased from approximately RMB 2,608 per m² to roughly RMB 4,459 per m²
during the same period.

The table below sets out the key statistics related to the Chinese real estate market between 2004
and 2009.

Property Sales on Chinese Real Estate Market:

                           2004           2005           2006            2007          2008      2009

     Real estate           1,315.8        1,590.9         1,942.3         2,528.9      3,120.3   3,623.2
     development
     investment
     (RMB in
     billion)

     GFA of                   382.3         554.9           618.6           773.5        659.7     937.1
     commodity
     properties
     sold (million
     m²)

     GFA of                   338.2         495.9           554.2           701.4        592.8    861,9

8
    China Statistical Yearbooks 2009 and 2010 and Shandong Statistical Yearbook 2010


                                                                                                        109
   residential
   properties
   sold (million
   m²)

   Average                 2,778         3,168           3,367           3,864           3,800    4,681
   selling price
   of
   commercialis
   ed properties
   (RMB per m²)

   Average                 2,608         2,937           3,119           3,645           3,576    4,459
   selling price
   of residential
   properties
   (RMB per m²)

   Total sale            1,037.6       1,757.6         1,082.6         2,988.9         2,506.8   4,399.5
   revenue from
   commodity
   properties
   (RMB in
   billion)

   Total sale              861.9       1,456.4         1,728.8         2,556.6         2,119.6   3,815.7
   revenue from
   residential
   properties
   (RMB in
   billion)

Source: China Statistical Yearbooks 2008,,2009 and 2010 and Shandong Statistical Yearbook 2010



Shandong
Shandong is a Chinese province located at the east coast of the Chinese mainland. It lies in the
economic region Bohai Bay and comprises a total area of 156,700 km². Its neighbouring provinces
are Anhui, Hebei, Henan and Jiangsu. There are 17 cities located in Shandong Province, the most
important of which are Shandong’s provincial capital Jinan and the cities Weifang, Jining, Tai’an,
Qingdao, Yantai and Zibo. The cities’ cluster represented 65.9% of Shandong's GDP in 2007.
Qingdao and Yantai are two of the largest ports in China.




                                                                                                       110
Illustration of Shandong:




Source: ChinaToday.com

Shandong Province’s population stood at 94.7 million in 2009 and is the second largest in China
after Henan. It reflects approximately 7.1% of the population of the whole of China. In 2004, the
annual per capita disposal income of urban households was approximately RMB 9,438 and the
annual per capita disposal income of rural households was approximately RMB 3,507 in relation to
RMB 17,811 and RMB 6,119 respectively in 2009.9

Shandong Province’s economy, with a GDP of approximately RMB 3,390 billion in 2009, is the third
largest in China. The GDP per capita amounts to approximately RMB 35,894 per annum in 2009
and is the eighth largest in the whole of China. Shandong Province’s real GDP CAGR between
2004 and 2009 was 13.9% and Shandong Province achieved a 12.2% real GDP growth in 2009.
Shandong Province's private sector has developed very quickly. The total number of private
                                                                 10
enterprises reached 363,000 in 2006, compared to 175,000 in 2002.

The following table sets out some of Shangdong’s key economic indicators between 2004 and
2009.




9
    Shandong Statistical Information Net and Shandong Statistical Yearbook 2010
10
     Shandong Statistical Information Net and Shandong Statistical Yearbook 2010


                                                                                            111
Key Economic Indicators Shandong:

                                    2004            2005            2006            2007       2008         2009
      Nominal GDP (RMB           1,521.84        1,836.69         2,190.02      2,577.69     3,0933.28    3,389.67
      in billions)
      Real    GDP      growth    15.3            15.0             14.7          14.2         12.0         12.2
      rate (%)
      GDP        per    capita   16,413          19,934           23,603        27,604       33,936       35,894
      (RMB)
      Population (million)       91.80           92.48            93.09         93.67        94.17        94,70
      Per    capita    annual    6,673.8         7,457.3          8,468         9,667        11,007       12,012
      consumption
      expenditure of urban
      households (RMB)
Source: Shandong Statistical Information Net and Shandong Statistical Yearbook 2010

The real estate market in Shandong Province has been growing fast in recent years.The total
residential GFA under construction made by real estate enterprises in Shandong Province was
                                          11
approximately 181,283 million m² in 2009.

Real estate investments in Shandong between 2004 and 2009:


                                    2004            2005            2006            2007       2008         2009


 Completed                       76.48           97.77            118.52        152.10       203.85       242.87
 investments in real
 estate development
 (RMB in billions)


 Completed                       54.99           69.83            89.53         119.07       160.03       186.05
 investments in
 residential real estate
 development (RMB in
 billions)

Source: Shandong Statistical Information Net and Shandong Statistical Yearbook 2010

In Shandong Province, the average price of residential properties in 2009 was approximately RMB
3,382 per m².12

Construction and sale of buildings made by real estate enterprises in Shandong:
                          2004            2005             2006              2007          2008          2009
     Residential         30,233.7        30,635.2         36,968.5         33,171.9        39,039.0      43,295.1
     GFA
     completed
     (thousand m²)



11
     Shandong Statistical Information Net and Shandong Statistical Yearbook 2010
12
     China Land Resource/Ministry of Land and Resources, 29 July 2008


                                                                                                                    112
     Residential         90,024.7       87,713.5       102,470.4       126,714.3        165,240.2    181,283.7
     GFA     under
     construction
     (thousand m²)

     Residential         22,072.8       34,177.5        38,210.6         47,096.6        50,394.0       65,161.7
     GFA       sold
     (thousand m²)

     Average                 1,886          2,295           2,400           2,795          2,851          3,382
     selling price
     (RMB      per
     m²)13

Source: Shandong Statistical Yearbook 2010 and Shandong Statistics Bureau and State Statistics Bureau



Qingdao
Qingdao is a city that is directly administered by the Chinese central government, located at the
                                                 14
south-eastern part of the Shandong Peninsula. It covers a total area of 1,159 km² and has a
                                       15
population of approximately 8.5 million . The city borders Yantai to the northeast, Weifang to the
west and Rizhao to the southeast. The Qingdao-Jinan Railway passes through the city, and three
major highways connect Qingdao with Zibo, Weifang and Yantai.

As part of the Jiaozhou (Kiautschou) Bay concession, the city of Qingdao was under German
administration from 1898 to 1914. During that period, the German imperial government turned the
small fishing village into a strategically important port with urban infrastructure, electrification, a
sewer system and a safe drinking water supply. A German heritage that is still visible today is
Tsingtao Beer, a leading beer brand in China that has its origins in the German-founded Tsingtao
Brewery in Qingdao.

Today, Qingdao is one of the fast growing coastal cities in China. Qingdao’s real GDP CAGR
between 2004 and 2009 was 15.13% which is well above the national figure of 9.93% for the same
period.

Key Economic Indicators Qingdao:

                          2004            2005            2006             2007           2008           2009

      Real GDP             216.38           269.55          320.65          378.65          443.61        489.03
      (RMB      in
      billions)

      Real GDP                  16.8           16.9            15.7            16.0           13.2           12.2
      growth rate
      (%)

      GDP per              28,540           33,188          38,892          45,399          52,266         57,251
      capita
      (RMB)

                                  16
      Population            7,31               8.20            8.29            8.39           8.46           8.50
      (million)



13
     Based on own calculation
14
     Encyclopaedia Britannica
15
     Statistical Bulletin 2009 on National Economic and Social Development of Qingdao
16
  According to Shandong Statistical Bureau the data is based on annual reports of public security departments. Starting
2005 the data is based on sample surveys


                                                                                                                   113
      Per capita              6,674            7,457            8,486            9,667          11,007        12,013
      annual
      consumptio
      n
      expenditur
      e of urban
      households
      (RMB)

Sources: Qingdao Statistical Bureau, Qingdao Statistical Yearbook 2009 and 2010, Shandong Statistical Yearbook 2010
and Shandong Statistical Bureau, 3 August 2010

Qingdao is the third largest city in Shandong Province and its economy has grown rapidly. Its
annual real GDP growth rate in 2009 was 12.2%. The city's GDP reached RMB 489 billion in 2009,
ranking first in Shandong Province. The annual per capita disposable income for urban households
increased from approximately RMB 8,016 in 2000 to approximately RMB 22,367 in 2009 at a
CAGR of 10,8%.17 Statistics show that investment in residential real estate in 2009 was RMB
                                                                            18
31.38 billion compared to RMB 7 billion in 2001 at a CAGR of 20,64%, which makes up for
approximately 16,9% of the total residential real estate investment in Shandong Province.19

The rate of increase of completed residential GFA in Qingdao is also rising rapidly. In 2003,
residential GFA completed was approximately 4.53 million m² and increased to approximately 6.44
million m² in 2009. Residential GFA sold increased from approximately 4.02 million m² in 2003 to
approximately 11.51 million m² in 2009,20 The average price of residential property increased from
approximately RMB 2,011 per m² in 2001 to approximately RMB 5,384 per m² in 200921 at a CAGR
          22
of 13,1%.
Qingdao is a key tourist destination in China. In 2009, the number of tourists reached 1 million,
representing an increase of almost 25% over the previous year. Qingdao was also the host city for
the yachting and sailing event of the 2008 Beijing Olympics Games based on its hospitable natural
environment and great cultural diversity.

Qingdao attracts significant foreign investment, with a large proportion of the investment coming
from Japanese and Korean companies due to the geographical vicinity of Japan and South Korea
to Qingdao. In line with the great amount of foreign investment flowing into Qingdao, Qingdao is
also home to a large expatriate population, with a significant Korean population numbering
approximately 100,000 Koreans who live in Qingdao to work and study. 23

The Qingdao Port is one of the five major foreign trade ports in mainland China and a pivotal point
for the sea-route along the Yellow River Delta and the Pacific Rim. In the first half of 2010, the
foreign trade cargo throughput of Qingdao Port reached 128.87 million tons, including 5.66 million
       24                                                                        25           26
TEUs, ranking second as foreign trade port in mainland China and seventh worldwide. At
present, Qingdao Port operates routes linking more than 450 ports in over 140 countries, with over
300 scheduled monthly liners connecting Qingdao with the major seaports in America, Europe, the
Mediterranean, the Persian Gulf, Australia and Southeast Asia.


17
     Based on own calculation
18
     Based on own calculation
19
     Statistical Bulletin 2009 on National Economic and Social Development of Shandong
20
     Qingdao Statistical Bureau, 3 August 2010, Qingdao Statistical Yearbook 2010
21
  Based on actual sales of residential buildings of 11.510 million m² and on an actual sales volume of RMB 61.964 billion in
2008, Qingdao Statistical Yearbook 2010
22
     Based on own calculation
23
     “ wwww.chinanews.com, 5 August 2010
24
     Twenty Foot Equivalent Unit which is the unit used for measuring capacity in container transportation
25
     In 2009; “Qingdao Port's throughput exceeds 300 mln tons this year”, HKTDC, 15 December 2009
26
  The total throughput, both domestic and foreign trade, totaled 170,48 million tons, “China's Qingdao Port sees foreign
trade throughput up 21%”, People’s Daily Online, 1 July 2010


                                                                                                                      114
Qingdao’s manufacturing industry has also developed rapidly. By the end of 2008, there were
      27
5,895 manufacturing companies registered in Qingdao. It is also home to some of China’s leading
companies, such as Haier, a large domestic appliances manufacturer, and Hisense, a major
electronics company.

The real estate market in Qingdao.

The following table shows the development of the residential property market in Qingdao from 2004
to 2009.

Qingdao’s key residential property market:

                                2004           2005           2006           2007           2008         2009

 Residential GFA                 16,898         18,682        21,816         24,647         27,404      35,0
 under                                                                                                   80
 development
 (thousand m²)

 Residential GFA                  4,465          6,501          6,604          7,697            6,898     11,510
 sold (thousand
 m²)

 Total Sales (billion             12,27          22,53          26,48          39,29            32,82      61,96
 RMB)

Source: Qingdao Statistical Bureau, 3 August 2010, Qingdao Statistical Yearbook 2010




27
     Above designated size according to Qingdao Statistical Bureau, Statistical Yearbook 2010


                                                                                                                   115
The following table shows the construction and sales of Qingdao City Real Estate Developer:

Construction and Sales in Qingdao’s Real Estate Sector:

                               2004           2005       2006          2007            2008       2009

 Completed devel            16,27          22,38       26,84        32,24        37,31         45,95
 opment
 investment (billion
 RMB)




 Construction in            21,01          23,62       27,81        32,23        37,04         43,10
 progress (million
 m²)




 Total Sales (billion       15,31          26,67       31,33        43,34        39,03         70,37
 RMB)




Source: Qingdao Statistical Bureau, 3 August 2010, Qingdao Statistical Yearbook 2010



Chongqing
Chongqing is a municipality that is directly administered by the PRC central government, located in
                                                    28
Central China. With a total area of 82,400 km² and a total population of approximately 32.8
                                                                          29
million Chongqing is China’s largest and most populous municipality.         It borders on Sichuan
province to the west, Hubei province and Hunan province to the east, Shaanxi to the north and
Guizhou province to the south. Chongqing is a major transportation hub in South Central China
with seven railway lines passing through and eight highways connecting it to many parts of China.
Chongqing is the biggest inland river port in Western China. Historically, most of its transportation,
especially to Eastern China, is via the Yangtze River.

With the construction of the Three Gorges Dam Project and the implementation of the Go West
Policy, Chongqing was ranked as one of the Top 5 cities in China.30 Chongqing’s GDP increased
                                                     31
by 14.9% in 2009 and is ranked twenty-third in China.

Chongqing is China's third largest center of motor vehicle production and the largest for
motorcycles. In 2007, it had an annual output capacity of 1 million automobiles and 8.6 million
motorcycles. Leading makers of cars and motor bikes include Changan Automotive Corporation
which is China's fourth biggest automaker and Lifan Hongda Enterprise. The municipality is also
one of the nine largest iron and steel centres in China and one of its three major aluminium
producers. Important manufacturers include Chongqing Iron and Steel Company and South West
Aluminium, Asia's largest aluminum plant. Agriculture remains significant.

28
     Chongqing Municipal Government Website
29
     Chongqing Statistical Yearbook 2009
30
  National Systematic Planning of City and Township (Chongqing is selected as Top 5 national central city with Beijing,
Shanghai, Tianjin, Guangzhou)
31
     Chongqing Statistical Yearbook 2010


                                                                                                                 116
Key Economic Indicators Chongqing:

                            2004            2005            2006         2007     2008     2009

      Nominal      GDP      303.46          346.78          390.72       467.61   597.37   653.00
      (RMB           in
      billions)

      Real       GDP        12.4            11.7            12.4         15.9     14.5     14,9
      growth rate (%)
                       32
      Population            31.4            31.7            32.0         32.4     32.6     32.8
      (million)

      Per      capita       7,973           8,623           9,398        10,876   12,269   13,507
      consumer
      expenditure of
      urban
      households
      `(RMB)

Sources: Chongqing Statistical Yearbook 2009, 2010

The real estate market in Chongqing.

The annual per capita disposable income for metropolitan households increased from
approximately RMB 6,176.30 in 2000 to approximately RMB 17,191.10 in 2009. Statistics show
that the amount of investment in non-residential real estate completed in 2009 was approximately
RMB 45 billion compared to approximately RMB 8.5 billion in 2001.33

Chongqing has also invested heavily in infrastructure to attract investment. The network of roads
and railways connecting Chongqing to the rest of China has been expanded and upgraded.
Furthermore, the nearby Three Gorges Dam which is the world's largest dam, will not only supply
Chongqing with power once completed but also allows ocean-going ships to reach Chongqing's
Yangtze River port. These infrastructure improvements have led to the arrivals of several foreign
investors in industries ranging from automobile, finance and retailing such as Ford, Mazda, HSBC,
Standard Chartered Bank, Wal-Mart and Carrefour.

The following tables show the development of the real estate industry in Chongqing from 2004 to
2009.

Real estate investments in Chongqing between 2004 and 2009:

                              2004            2005           2006         2007     2008     2009

      Investments     in      62.2            88.1           99.9         155.4    156.0    220.2
      urban real estate
      development
      (RMB in billions)

      Completed               21.7            30.0           37.7         52.2     62.0     78,9
      investments in
      residential real
      estate
      development
      (RMB in billions)

Source Chongqing Statistical Yearbook 2009, 2010




32
     The data is total population
33
     Based on own calculation according to referring statistical data.



                                                                                                    117
The following table shows the construction and sales of Real Estate in Chongqing:

Construction and Sales Chongqing City Real Estate:

                                  2004       2005            2006   2007    2008    2009

   Completed developmen           40.5       51.8            63.0   85.0    99.1    123.9
   t investment (billion
   RMB)



   Floor   space       under      62.5       74.9            88.6   162.8   105.8   130.5
   construction (million m²)



   Total    Sales      (billion   23.3       43.1            50.6   96.7    80.0    137.7
   RMB)



Source: Chongqing Statistical Yearbook 2007, 2009 and 2010



Property Management Industry in China
The Ministry of Construction adopted a decision to regulate the business activities of property
management enterprises through the Measures on Administration of Qualifications of Property
Management Enterprises (“Measures”), effective as of 1 May 2004.

Under these Measures, property management enterprises will be categorised into Class I, II and III.
The issuance of qualification certificates for and administration of Class I enterprises will be
handled by the competent department for construction under the State Council. These Measures
also require that property management professionals working in all three classes of property
management must obtain professional credentials in accordance with relevant state regulations.
The Measures also set out the penalties for misconduct by property management enterprises and
their directors.

In 2007, the certification of professional property managers was introduced in China. It is expected
that such certification will standardize and thus generally improve property management services.

On 26 November 2007, the Ministry of Housing and Urban-Rural Development (“MOHURD”)
issued a decision to amend the Measures. According to this decision, property managment
enterprises are now to be called property service enterprises.




                                                                                               118
BUSINESS

Overview
Madison Group is a large scale property developer with a two-pronged geographic strategy, firstly
in its home market Shandong Province and in particular Shandong’s well-known harbour city
Qingdao and secondly in the municipality of Chongqing, the fast growing hub in Central China,
which is a main beneficiary of the national government’s initiative to promote growth in Central and
                34
Western China . Madison Group is recognised as a Class I property developer by the People’s
Republic of China (PRC) Ministry of Housing and Urban-Rural Development35 and can therefore
undertake projects nationwide without limitation on the construction scale. It has furthermore
recently been selected as one of “Qingdao's Top 10 Real Estate Development Enterprises with
Comprehensive Strengths” by the Qingdao Municipal Construction Commission and was also
selected to be one of the “Top 50 Provincial Real Estate Development Enterprises in Shandong
Province” by the Shandong Provincial Real Estate Association. Established in 1998, Madison
Group has completed ten projects and has three new projects (plus later phases of two other
projects) currently under development. In addition, it has another two projects earmarked for future
development. It will have a further seven projects if all the projects in the “Other Property Projects”
as set out in the “Project Description” materialise. As at 15 October 2010, Madison Group’s
aggregated developed Gross Floor Area (GFA) is more than 690,000 m² and GFA under
development is more than 266,000 m². Moreover, Madison Group’s property portfolio contains
sizeable land reserves with a total size of approximately 170,000 m² (or approximately 1,075,000
m² if all the projects in the “Other Property Projects” section as set out below in the “Project
Description” materialise).

Madison Group’s business activities are mainly focused on the Shandong Province with most
property projects being located in the coastal city of Qingdao and individual projects in the
neighbouring cities of Zibo and Tai’an. Madison Group’s second geographical focus area is the
municipality of Chongqing in Central China.

Shandong has the strongest economic strength of China’s northern provinces and is ranked third in
China’s Gross Domestic Product (GDP) ranking by province. 36 Qingdao is a sub-provincial city
                                                                             37
area in Central Shandong Province with approximately 8.5 million inhabitants. It is situated on the
coast of the Yellow Sea, roughly half-way between Shanghai and Beijing. It is also located in the
fast growing central coastal regions of China, which are home to the new Chinese middle class that
foreign and Chinese investors alike are targeting.

The municipality of Chongqing is located in Central China and is one of the fastest growing regions
                          38
in the Chinese hinterland. Chongqing with its population of approximately 32.8 million inhabitants
                                                  39
is China’s largest and most populous municipality. Chongqing’s GDP increased by 14.9% in 2009


34
     Chongqing Municipal People’s Government: Chongqing Selected as One of Five Central Cities in China.

35
   Real estate development enterprises in China are divided into four classes, namely Class I to Class IV. The scope of real
estate development projects that a developer may engage in is subject to its approved class of qualification. A Class I
developer may undertake projects nationwide without limitation on construction scale. A Class II, III or IV developer may
only undertake projects with floor area of no more than 250,000 m. The specific limitation on the scope of projects that may
be undertaken by these developers is determined by the provincial construction authorities. Various conditions are taken
into account by the construction administration authorities when they consider which class a developer qualifies for. These
conditions include the developer’s assets, professional personnel and industrial achievements.
36
   Source: statistical data from China Economic Net, (the ranking is calculated based on official statistical data from
websites of national bureau of statistics of China, every local bureau of statistics and the annual governmental report 2010
of every province and municipality. http://www.ce.cn/macro/more/201002/26/t20100226_21016776.shtml)
37
  Source: Statistical Bulletin 2009 on National Economic and Social Development of Qingdao (there was 7.63 Million
registered inhabitant until the end of 2009)
38
  Source: Several Opinions on Enhancement of Balanced Urban and Rural Reform and Development of Chongqing by
State Council
39
  Source: Statistical Bulletin 2009 on National Economic and Social Development of Chongqing (there was 23.6 Million
resident population until the end of 2009)

                                                                                                                      119
                                                40
and is ranked twenty-third in China. The total economic output exceeded RMB 600 billion in
2009.41 With the construction of the Three Gorges Dam Project and the implementation of the Go
West Policy, Chongqing was ranked as one of the Top 5 cities in China.42

Major Cities in Shandong Province:




Source: http://www.maps-of-china.com/shandong-s-ow.shtml

Chongqing Municipality:




Source: http://www.maps-of-china.com/chongqing-s-ow.shtml


40
   Source: statistical data from China Economic Net, (the ranking is calculated based on official statistical data from websites
of national bureau of statistics of China, every local bureau of statistics and the annual governmental report 2010 of every
province and municipality. http://www.ce.cn/macro/more/201002/26/t20100226_21016776.shtml)
41
   Source: Statistical Bulletin of 2009 on National Economic and Social Development of Chongqing (GDP reached 653
billion in 2009)
42
  Source: National Systematic Planning of City and Township (Chongqing is selected as Top 5 national central city with
Beijing, Shanghai, Tianjin, Guangzhou)


                                                                                                                          120
 Madison Group has a diversified approach and its portfolio includes mid to high-end residential
 properties as well as travel and leisure properties. The Company also intends to move into
 industrial properties in its future development, especially in the fast growing Chongqing
 Municipality. Madison Group’s residential properties include high-rise apartments (typically higher
 than eleven floors), sub-high rise apartments (typically seven to eleven floors), low-rise apartments
 (typically three to six floors), townhouses (typically two to three floors), and villas (typically
 independent houses with two to three floors). In each case, the properties are built with amenities
 such as commercial spaces and car parking facilities. Future projects of Madison Group include
 hotels and resorts in Qingdao and also industrial real estate in Chongqing.

 Madison Group’s travel and leisure properties are typically low density villas and residential
 apartments as well as other properties such as serviced apartments. The Company plans to also
 further engage in properties featuring commercial spaces, club houses, hotels and other travel and
 leisure activity related properties. These are typically strategically located or surrounded by travel
 and leisure resources such as hot springs, theme parks or natural scenery destinations such as
 ocean fronts or mountain sides. Madison Group plans to further expand the development of travel
 and leisure hospitality properties. The development of hotels will result in Madison Group keeping
 such hotels in its portfolio as investment properties.

 Main Markets Analysis


 Madison Group’s breakdown of revenue by principal activity for the period covered by the historical
 financial information up to 31 July 2010 is set out below:

 Residential projects

Revenue in   1 May      % of       1 May      % of       1 May      % of       1 May     % of      1 May     % of
Financial    2007 to    total      2008 to    total      2009 to    total      2009 to   total     2010 to   total
Period (in   30 April   revenue    30 April   revenue    30 April   revenue    31 July   revenue   31 July   revenue
‘000 EUR)    2008       for 1      2009       for 1      2010       for 1      2009      for 1     2010      for 1
                        May                   May                   May                  May                 May
                        2007 to               2008 to               2009 to              2009 to             2010 to
                        30 April              30 April              30 April             31 July             31 July
                        2008                  2009                  2010                 2009                2010
Qingdao      42,819     79.1%      19,958     34.9%      41,598     65.5%      24,392    96.4%     600       32.1%
Zibo         9,726      18.0%      8,229      14.4%      69         0.1%       0         -         0         -
Tai’an       0          -          10,957     19.2%      18,178     28.6%      0         -         574       30.8%
Chongqing    611        1.1%       43         0.1%       0          -          0         -         0         -
Total        53,156     98.2%      39,187     68.6%      59,845     94.2%      24,392    96.4%     1,174     62.9%

 Commercial projects

Revenue in   1 May      % of       1 May      % of       1 May      % of       1 May     % of      1 May     % of
Financial    2007 to    total      2008 to    total      2009 to    total      2009 to   total     2010 to   total
Period (in   30 April   revenue    30 April   revenue    30 April   revenue    31 July   revenue   31 July   revenue
‘000 EUR)    2008       for 1      2009       for 1      2010       for 1      2009      for 1     2010      for 1
                        May                   May                   May                  May                 May
                        2007 to               2008 to               2009 to              2009 to             2010 to
                        30 April              30 April              30 April             31 July             31 July
                        2008                  2009                  2010                 2009                2010
Qingdao      0          -          12,864     22.5%      2,142      3.4%       123       0.5%      503       27.0%
Zibo         107        0.2%       1,111      2.0%       847        1.4%       515       2.0%      83        4.4%
Tai’an       0          -          1,775      3.1%       -897       -1.4%      0         -         0         -
Chongqing    556        1.0%       0          0%         589        0.9%       75        0.3%      0         -
Total        663        1.2%       15,750     27.6%      2,681      4.3%       713       2.8%      586       31.4%




 Carpark/ Storage and others

                                                                                                              121
Madison Group’s breakdown of revenue by geographic area for the period covered by the historical
financial information up to 31 July 2010 is set out below:
Revenue in   1 May      % of       1 May      % of       1 May      % of       1 May     % of      1 May     % of
Financial    2007 to    total      2008 to    total      2009 to    total      2009 to   total     2010 to   total
Period (in   30 April   revenue    30 April   revenue    30 April   revenue    31 July   revenue   31 July   revenue
‘000 EUR)    2008       for 1      2009       for 1      2010       for 1      2009      for 1     2010      for 1
                        May                   May                   May                  May                 May
                        2007 to               2008 to               2009 to              2009 to             2010 to
                        30 April              30 April              30 April             31 July             31 July
                        2008                  2009                  2010                 2009                2010

Qingdao      0          -          747        1.3%       184        0.3%       106       0.4%      36        1.9%
Zibo         262        0.5%       1,003      1.7%       453        0.7%       93        0.4%      18        1.0%
Tai’an       0          -          427        0.7%       206        0.3%       0         -         0         -
Chongqing    24         0.1%       52         0.1%       129        0.2%       5         0.0%      52        2.8%
Total        286        0.6%       2,229      3.8%       972        1.5%       204       0.8%      106       5.7%



Revenue in   1 May      % of       1 May      % of       1 May      % of       1 May     % of      1 May     % of
Financial    2007 to    total      2008 to    total      2009 to    total      2009 to   total     2010 to   total
Period (in   30 April   revenue    30 April   revenue    30 April   revenue    31 July   revenue   31 July   revenue
‘000 EUR)    2008       for 1      2009       for 1      2010       for 1      2009      for 1     2010      for 1
                        May                   May                   May                  May                 May
                        2007 to               2008 to               2009 to              2009 to             2010 to
                        30 April              30 April              30 April             31 July             31 July
                        2008                  2009                  2010                 2009                2010

Qingdao      42,819     79.1%      33,569     58.7%      43,924     69.2%      24,621    97.3%     1,139     61.0%
Zibo         10,095     18.7%      10,343     18.1%      1,369      2.2%       608       2.4%      101       5.4%
Tai’an       0          -          13,159     23.0%      17,487     27.5%      0         -         574       30.8%
Chongqing    1,191      2.2%       95         0.2%       718        1.1%       80        0.3%      52        2.8%
Total        54,105     100.0%     57,166     100.0%     63,498     100.0%     25,309    100.0%    1,866     100.0%




Strengths
Madison Group believes the following factors to be the key factors for its future growth:

A well established player in residential properties in Qingdao and other cities in Shandong
Province.

Madison Group’s strategic focus is on the development of residential properties in Qingdao and
neighbouring cities in Shandong Province. Madison Group believes that since its establishment in
1998, it has successfully established its presence as one of the leading real estate developers in
the Qingdao region. With its strategic and geographical focus along with, in the Company’s view,
well established governmental relations, extensive industry knowledge and local operating
expertise, Madison Group believes it has been able to gain a sound reputation for delivering high
quality property development projects in the region as evidenced by the numerous awards it has
already received. In the Company’s view, its familiarity with the market allows it to respond faster to
local market trends and competition than developers without such local knowledge. Madison Group
believes its strategic regional focus will allow it to continue to leverage its perceived competitive
advantages to grow its residential as well as extend its commercial properties in Qingdao and other
cities in Shandong Province.

High brand recognition with proven execution capability in property development.

Madison Group believes that it has succeeded in building up a strong brand recognition for the
“Madison” brand in the market by endeavouring to constantly deliver high quality products and
services to its customers in the property development markets of Qingdao and other neighbouring
cities in Shandong Province. In the Company’s view, Madison Group’s brand recognition has been
bolstered on a continuing basis by the numerous awards it keeps receiving. The following is a list of
selected awards that Madison Group has received in the past:



                                                                                                             122
             Most recently in 2009, Madison Group was recognised as one of Qingdao’s 2008 “Top 10
             Real Estate Development Enterprises with Comprehensive Strengths” by the Qingdao
             Municipal Construction Commission and was also listed as one of the “Top 500 Chinese
             Real Estate Developers” by the China Real Estate Assessment Centre;

             In 2007, Madison Group was recognised as a “Class I Real Estate Developer” by the PRC
             Ministry of Housing and Urban-Rural Development;

             In 2006, Madison Group was selected as one of the “Top 50 Real Estate Developers with
             Comprehensive Strengths in Shandong Province” and one of the “Top 10 Real Estate
             Developers with Comprehensive Strengths” in Qingdao;

             Madison Group obtained the award of being one of “Qingdao’s 10 Best Real Estate
             Enterprises” in 2001, 2002 and 2003;

             In 2009, Madison Group was recognised by the Qingdao Real Estate Association as one
             of the “Top 10 Famous Enterprises” because of its “Green Bay” project;

             In 2008, Madison Group’s “State Garden” project won the title of “Eco Estate Model” as
             part of the “10 Years of Human Habitation in China” event organised by the China Real
             Estate Press.

The Company believes that what it perceives to be a strong brand recognition and a proven
execution ability of Madison Group from its past projects for high value-added properties in
Qingdao and other cities in Shandong will allow it to retain loyal customers and to continue to be
able to offer its residential products at high-end prices.

A diversified business model focusing on residential, travel and leisure property and
industrial development.

Madison Group believes that its diversified business model, which includes residential, travel and
leisure as well as industrial property projects, will enable it to maintain a sustainable and balanced
long-term growth. In the Company’s view, Madison Group will be able to capitalise on China’s rapid
urbanisation through its residential property projects. The Company believes that it is ideally
positioned to take advantage of Qingdao’s position as one of the most popular travel destinations in
China 43 and the growing demand in China for travel and leisure properties in general 44 by
developing integrated holiday resorts, hotels and high-end residential properties. Through its
industrial properties in Chongqing, the Company plans to meet what it perceives as a growing
demand for industrial real estate in a region that has been earmarked by the PRC government as
one of the future growth regions where both domestic and foreign investment is encouraged.45 The
Company believes that Madison Group’s diversified project portfolio caters to the needs of different
consumer groups thereby allowing it to cover a large share of the overall real estate market. The
Company is also of the opinion that the diversified business model adopted by Madison Group
helps to mitigate cyclical and government policy risks to which Madison Group’s business might be
exposed. In the event that one of the real estate sub-sectors is subject to a downturn, Madison
Group believes that it will be able to compensate lower returns in the affected sub-sector through
higher returns generated through increased activity in other real estate sectors. The Company
further believes that Madison Group’s business model also reduces the risks created by changing
government policies or government intervention as these are, in the Company’s view, usually
targeted at individual sub-sectors of the real estate industry.

A diversified geographical spread focusing on Shandong Province and Chongqing.

The Company believes that its unique geographical footprint with property projects in Shandong
Province and Chongqing Municipality will enable it to take full advantage of China’s continued
economic growth and to weather any adverse effects of potential regional economic downturns in
the future. Shandong Province forms part of China’s established coastal regions which have

43
     Source: 2009-2010 Webtrust Report of National Tourism Cities of China
44
     Source: Investment Analysis and Prospects of China’s Tourism Market in 2010-2015
45
     Source: Catalogue of Foreign Investment in Competitive Industries in Middle-west areas (revised in 2008)


                                                                                                                123
traditionally been the centre of foreign direct investment activities as well as the corresponding
                         46
rapid economic growth. As the majority of Madison Group’s current projects are located in and
around Qingdao in Shandong Province, Madison Group believes that it can take full advantage of
the continued strong growth in that region. However, lured by a range of government incentives for
Central and Western China as well as by lower labour costs, foreign investors are increasingly
targeting the Chinese hinterland and, in particular, Chongqing.47 The Company therefore believes
that its second geographical focus on Chongqing will enable it to also take advantage of the new
economic dynamism in what it believes could develop into the new economic centre of Central
China. Since the Company assesses the real estate market in Chongqing to be in an earlier phase
of development than that of coastal cities like Qingdao, it expects to be able to reach a leading
position in the Chongqing real estate market in the near future. The Company sees itself in a first
mover advantage compared to competitors in Qingdao and elsewhere in China that only focus on
real estate projects in the more developed regions in China. Moreover, by developing property
projects in two different and largely unrelated regional markets, the Company also believes to be
able to offset any potential downturn in of its markets by increased business activity in the other.

Deliver a high level of quality for projects located at unique sites.

Madison Group focuses on the development of mid to high-end projects located at, what it
perceives as, unique and strategically well placed sites. Many of the site locations selected for
current and future developments are located at or close to scenic spots like the Confucius
Mountain, the Lao Mountain as well parks and the ocean front. In order to secure a high level of
quality within the designated budget, Madison Group places high importance on the aesthetic
appeal, the modern design, comprehensive Ancillary facilities and the landscaping of its projects.
Moreover, Madison Group maintains a strict quality control system and monitors all key stages of
the construction process, from the selection of material suppliers to the conduct of a final inspection
just before delivery. Madison Group believes that its commitment to choosing outstanding sites and
creating high-quality real estate will contribute to customer satisfaction and allow it to continue to
maintain what it perceives to be an excellent reputation in the local market.

Sizable Land Reserves to support Madison Group’s growth for the coming years.

As of 15 October 2010, Madison Group had an aggregate planned GFA under development of
266,220 m² and an aggregate planned GFA held for future development of 411,588 m² for which it
has obtained land use rights certificates. Moreover, Madison Group has other potential projects for
which it has signed co-operation agreements, or is in the process of participating in the auction for
the land which was previously granted to it due to change in zoning plans by the Qingdao
government. In the event that these projects materialise and Madison Group succeeds in the bid
for the various pieces of land, an aggregate planned GFA of approximately 1,692,866 m² will be
added to its future development projects. The Company believes that Madison Group’s current land
reserves will be sufficient to sustain the planned development needs and to provide the basis for
growth over at least the next three years. The Company also believes that Madison Group will
continue to be able to expand its land reserves due to, what it perceives to be, an extensive
industry knowledge and insight into the local development trends in Qingdao, other cities in
Shandong Province and Chongqing of Madison Group.

An experienced and cohesive senior management team supported by a well-trained and
motivated workforce.

Mr. Qingtong Tian, who is chairman of the management board of Madison Property AG and also
chairman and Chief Executive Officer of Madison Qingdao, has, in the Company’s view, extensive
knowledge of the real estate business environment and industry dynamics in China. Among other
things, he was voted one of the “Top 10 Real Estate Leaders in Qingdao” by the Qingdao Municipal
Construction Commission in 2006. Some of the members of Madison Group’s senior management
team have more than ten years of real estate development experience and the Company therefore
believes that they provide of strong strategic planning, business management and operational
capabilities. Madison Group has a cohesive and stable senior management team, many of whom
joined Madison Group in its early development stages. Madison Group believes that its senior

46
  Source: Current Situation of Foreign Direct Investment in Shandong Province in 2007 made by Shandong Provincial
Foreign Economic and Trade Department
47
     Source: Statistical Bulletin of 2009 on National Economic and Social Development of Chongqing


                                                                                                            124
management team possesses strong professional skills and that its extensive industry experience
has been the driving factor for Madison Group’s past successful performance and will continue to
be a driving force for its future growth. In addition, Madison Group has endeavoured to consistently
invest in development and training programs for its employees and to offer competitive
compensation packages and performance-bonus programs. As a result, Madison Group believes
that its workforce is well trained and highly motivated.


Strategy
Madison Group pursues the following strategic goals:

Dual geographical market strategy focusing on Shandong Province and Chongqing.

The Company intends to continue to focus on the greater Qingdao city region and other cities in
Shandong Province including Zibo and Tai’an as its main market for real estate developments but
to also diversify into the Two Rivers New Area in Chongqing which, in the Company’s view, has
substantial potential for further economic growth. Qingdao with a population of 8.5 million (sub-
provincial city area, as of 2010) is among the Chinese cities with the highest real GDP growth rate,
which was 12.2% in 2009; in 2009, the GDP per capita in Qingdao reached RMB 57,251, 2.27
                                               48
times of the national average at RMB 25,188. Chongqing is one China’s four municipalities that
are directly administered by the PRC central government. The other three municipalities are
Beijing, Shanghai and Tianjin. In the Company’s view, the establishment of the Two Rivers New
Area in Chongqing in June 2010 has created a substantial potential for economic growth in the
area. The Two Rivers New Area is one of only three deputy provincial new zones (the others being
Shanghai’s Pudong New Area and Tianjin’s Binhai New Area) which have been directly approved
by the PRC State Council and therefore have a special position in China’s economy. Chongqing is
expected to become a gateway to China’s hinterland which will be gradually developed into an
advanced base for manufacturing and the modern service industries as well as a financial and
innovation centre on the upper reaches of the Yangtze River.49

With its diversification into different geographical areas, Madison Group believes that it will be able
to capitalise on its experience of building up a, to its own assessment, leading market position in
the Qingdao real estate market as well as on its position as an early entrant to the local real estate
market of Chongqing.

Continue to build up Madison’s brand name and strengthen its competitive advantages.

Madison Group plans to continue to promote and strengthen its brand name, and the development
of high-quality property projects at strategically selected locations. Madison Group will continue to
promote the “Green Bay” and “State Garden” series of residential properties as its key product
offerings through its sales and marketing activities and the provision of effective after-sales
services. It further intends to develop commercial properties and travel and leisure properties to
complement its current business model. The Company believes that by continuing to offer well-
designed property projects which meet the needs of the local residents and customers, it will be
able to further elevate Madison Group’s brand recognition and reputation.

Maintain a comprehensive product offering with a primary focus on residential properties.

Madison Group will maintain its strategy of offering a comprehensive product range to its
customers with a view to maintaining a target proportion of 60%, 30% and 10% in terms of the
number of projects distributed among its residential, industrial and commercial, and travel and
leisure developments, in order to attract a broad consumer base. In addition, while Madison Group
will continue to focus primarily on residential property developments within the next three years, it
also aims to gradually expand and diversify its business mix to include more commercial and
industrial properties thereby enhancing its long-term financial performance and diversifying risks.


48
     Source: Shandong Statistical Bureau, Shandong Statistical Yearbook 2009
49
  The Opinion of the State Council regarding the Masterplan for the Reform of Rural-Urban Development of Chongqing
published by the State Council in 2009 (Guo Fa (2009) No.3)



                                                                                                            125
Continue to identify unique land reserves.

The Company intends to continue to acquire additional projects and new land reserves which are
ready for development in Shandong Province, particularly in and around Qingdao, as well as in
Chongqing. Madison Group plans on continuing to identify land reserves located at unique and
strategically well placed sites and conceive high-quality projects for such sites. Madison Group also
plans on continuing to acquire undeveloped land for development which fits into its overall
development strategy. In the long term, Madison Group may also start to carry out property
development in other parts of Shandong Province to enhance its overall further growth.

Capitalise on its expertise in green and environmental friendly building.

Madison Group is committed to the principles of green and environmentally friendly building and
will continue to implement a high proportion of landscaping and greenery for its property projects
allowing them to be increasingly integrated with the natural habitat. Madison Group’s “Mount
Green” project may serve as a good example in this context having a planned ratio of greenery of
40.59%. It is one of only two model real estate projects in China to have won the “Green City
Development” award funded by the Gordon and Betty Moore Foundation. Due to Qingdao’s
position as a popular holiday and leisure destination, the city government is placing a greater
emphasis on green and environmental friendly building than other local governments. Among other
things the Qingdao government is currently preparing regulations that will require real estate
developers to adhere to certain minimum greenery ratios for their property projects. As evidenced
by the “Mount Green” project, the Company has been anticipating this trend for some time already.
The Company believes that its growing knowledge of such green building principles will become
ever more useful as China faces increasing challenges in terms of environmental pollution. In the
Company’s view, the rising environmental pollution in China will trigger ever stricter standards for
green and environmentally friendly building methods by the national and local governments.
Madison Group believes to be in an advantageous position compared to other real estate
developers in China which have not yet embraced green building principles for their property
projects.

Continue to maintain a strict financial discipline.

Madison Group will continue to maintain a strict financial discipline in its business expansion.
Among other things, Madison Group will continue to closely monitor its capital and cash positions
and carefully manage key operating parameters such as land acquisition costs, construction costs,
cash flow and fixed expenditures. By closely monitoring sales and pre-sales, Madison Group will
control its cash flow at all times in order to ensure that the respective capital requirements are met.
The management of the respective Madison Group companies will establish elaborate standards to
balance capital commitments against long-term financing opportunities.

In addition, all companies belonging to Madison Group are committed to adhering to strict cost
control, to real-time sales monitoring and to developing efficient customer relationship
management. These measures ensure the consistency of the application of Madison Group’s
business model to all large-scale development projects of companies belonging to Madison Group.


Project Description
As of 15 October 2010, Madison Group had a total of 15 property projects in 4 cities in China. The
following maps show the locations of Madison Group’s completed properties, properties under
development and properties held for future development.




                                                                                                  126
Property projects in Qingdao:




Source: The Company

Property projects in Tai’an:




Source: The Company




                                127
Property projects in Zibo:




Source: The Company

Property projects in Chongqing:




Source: The Company

The properties held by Madison Group can be divided into four groups as follows:

!     Completed properties: Comprising property projects that have been completed since
      inception, with the certificates of completion issued by the relevant government authorities.

!     Properties under construction: Comprising property projects with land use rights certificates
      issued by the relevant government authorities and the construction thereof commenced but
      for which the certificates of completion have not been obtained.

!     Properties for future development: Comprising property projects with respect to which the
      relevant land grant contracts, equity transfer agreement or land transaction confirmation
      letter with the relevant PRC land authorities has been signed but for which the land use
      rights certificates have not yet been issued pending payment of land premium and/or
      satisfaction of other conditions contained in the land grant contracts.



                                                                                              128
!     Other property projects: Comprising property projects where only co-operation agreements
      have been signed or projects where the Madison Group companies are still in the process of
      participating in the auction for the land which was previously granted to it due to changes in
      zoning plans by the local government.

The above classification of properties reflects the basis on which Madison Group operates its
business and may differ from classifications used by other developers. Each property project may
be subject to multiple land use rights certificates, construction land planning permits, construction
works planning permits, construction permits, pre-sale permits and other permits and certificates
which are issued at different stages throughout their development. Some of the projects comprise
multi-phase developments on a rolling basis and single projects may include different phases with
various stages of completion.

Site Area Calculation

The site area information in this Prospectus is derived on the following basis:

        if the relevant Madison Group project company has received the land use rights certificates
        for a project, the site area information in respect of such project refers to the site area
        information in such land use rights certificates; and

        if the relevant Madison Group project company has not yet received the land use rights
        certificates, the site area information in respect of such project refers to the site area
        information in the relevant land grant contract or the relevant government permits related to
        such project excluding, however, the areas earmarked for public infrastructure, such as
        roads and community recreation zones.


When completed properties and properties under development are subject to a single land use
rights certificate, such as e.g. the “State Garden” project, the site area attributable to such
completed properties and such properties under development is calculated according to the actual
area allocated for the particular phase of the project.

GFA Calculation

The GFA information in this Prospectus is derived on the following basis:

        if the construction of a project is completed and the relevant Madison Group project
        company has received the certificate of completion, the total GFA information in respect of
        the project refers to the total GFA cited in such certificate of completion;

        if the certificate of completion is not yet obtained but the relevant Madison Group project
        company has obtained the construction works planning permit for the project, the total GFA
        information in respect of the project refers to the total GFA cited in such construction works
        planning permit;

        if the construction works planning permit is not obtained yet, but the relevant Madison
        Group project company has obtained the construction land planning outline for the project,
        the total GFA information in respect of the project refers to the total GFA cited in such
        construction land planning outline;

        if the construction land planning outline is not obtained yet, but the relevant Madison Group
        project company has received the government-approved design plan for the project, the
        total GFA information in respect of the project refers to the total GFA cited in such
        government-approved design plan; and

        if none of the above documents for the project has been obtained yet, the total GFA
        information in respect of the project refers to the total GFA based on the relevant Madison
        Group project company’s current development plan for the project.

The total GFA stated in certificates of completion, construction works planning permits,
construction land planning outline and government-approved design plans includes underground



                                                                                                 129
GFA. Underground GFA refers to basement and other underground spaces, generally used for
parking and storage purposes.

The total GFA information in this Prospectus includes both saleable and non-saleable GFA.
Saleable GFA generally includes residential properties, saleable car park spaces, retail shops and
office spaces (including internal floor area and shared areas in the building that are exclusively
allocated to such properties). Non-saleable GFA generally includes communal facilities, such as
schools, floor area for property management purposes as required by the government, project
related supplemental facilities and Madison Group’s own properties such as hotels and non-
saleable car park spaces.

The relationship between the total site area of the project and its total GFA is primarily a function of
the plot ratio as contained in the land grant contracts and the amount of associated Ancillary
facilities. High-rise buildings tend to generate more total GFA than low-rise buildings on the same
development site. Ancillary facilities such as parks and infrastructural constructions, such as roads,
tend to reduce the total GFA in a development.

Saleable GFA Calculation

The saleable GFA information in this Prospectus is derived on the following basis:

        if the property ownership certificate for a project has been obtained, the saleable GFA
        information refers to the saleable GFA cited in the property ownership certificate;

        if the property ownership certificate has not yet been obtained but the pre-sale permit for
        the project has been issued, the saleable GFA information refers to the saleable GFA cited
        in the pre-sale permit;

        if the pre-sale permit has not been obtained yet but the construction works planning permit
        for the project has been issued, the saleable GFA information in respect of the project
        refers to the saleable GFA estimated in such construction works planning permit;

        if the construction works planning permit has not yet been obtained, but the construction
        land planning outline for the project has been issued, the saleable GFA information in
        respect of the project refers to the saleable GFA estimated in such construction land
        planning outline;

        if the construction land planning outline has not yet been obtain, but the government-
        approved design plan for the project has been received, the saleable GFA information in
        respect of the project is estimated based on such government-approved design plan; and

        if none of the above documents for the project have been obtained, the saleable GFA
        information in respect of the project is estimated based on the relevant Madison Group
        project company’s current development plan for the project.

The information on GFA sold refers to the GFA sold or pre-sold as specified in the relevant sale
and purchase agreements on an aggregate basis. The information on GFA sold in this Prospectus
does not include the GFA of parking spaces.

Saleable GFA of a project relates to the GFA that may be pre-sold and sold under the PRC laws.
The selling price of a residential unit is typically calculated on the basis of its saleable GFA. The
total GFA of a project, however, includes not only its saleable GFA but also a wide variety of
ancillary facilities associated with a project, such as hotels, entertainment facilities and commercial
centres that are not for sale.

Unless the pre-sale of a project has started, the estimated pre-sale commencement time is
provided for such on-going project in this Prospectus. While these estimates are based on the best
belief and knowledge of the Company’s management’s, they do not represent commitments and
are subject to change. Unless a project has already been completed, the estimated completion
time for such on-going project likewise has been provided in this Prospectus. Similarly, while these
estimates are based on the management’s best belief and knowledge, they do not represent
commitments and are subject to change.


                                                                                                   130
Summary of Property Projects

As of 15 October 2010, Madison Group had completed the development of a total GFA of 691,013
m² since inception. Of the 691,013 m² of total GFA of its completed properties as of 15 October
2010, 645,995 m² constituted saleable GFA and 634,192 m² constituted GFA pre-sold and sold,
representing 98.2% of the completed saleable GFA.

As of 15 October 2010, Madison Group had properties under development with a total GFA of
266,220 m². The properties held for future development had an aggregate site area of
approximately 169,967 m² and a total estimated GFA of 411,588 m². For some of Madison Group’s
property projects, Madison Group has only signed co-operation agreements, or is still in the
process of participating in the auction for the land which was previously granted to it due to
changes in zoning plans by the Qingdao government (see details in the “Other Property Projects”
section as set out below in the “Project Description”). In the event that these projects materialise
and Madison Group succeeds in the bid for the various pieces of land, an aggregate planned GFA
of approximately 1,692,866 m² will be added to its future development projects.




                                                                                               131
The table below sets out Madison Group’s project-by-project information as of 15 October 2010.
                                                                                                                      GFA(m²)
                                                                                                                 Properties under       Properties held for     Attributable equity
  No.     Project                                Site area (m²)      Total GFA(m²)      Completed properties     development            future development      interest
          Qingdao
   1      Prosperity Garden                                 37,932             91,408                   91,408                                                                  100
   2      Xuzhou Garden                                      1,188              6,528                    6,528                                                                  100
   3      Scenic Garden                                      7,737             30,770                   30,770                                                                  100
   4      Skyway Garden                                      9,016             42,651                   42,651                                                                  100
   5      Sandalwood Bay                                    13,380             73,699                   73,699                                                                   60
   6      Yangguang Coast                                   36,790             69,047                   69,047                                                                   97
   7      Dongshan Peak                                     18,172             18,357                   18,357                                                                   97
   8      Green Bay Phase 1 (East Zone)                     67,601             87,646                                          87,646                                           100
   9      Green Bay Phase 1 (West Zone)                     34,190             54,605                                          54,605                                           100
                                 #
   10     Fragrance Town World                              36,633             11,588                                                                  11,588                   100
   11     Fragrance Town Mountain                           12,473             31,155                                          31,155                                           100
   12     The Villa with Springs                            27,943             28,581                                          24,878                                            51

          Zibo
    1     Ocean   Century   Garden   Phase   1              57,123             51,923                   51,923                                                                  100
    2     Ocean   Century   Garden   Phase   2              40,793             45,925                   45,925                                                                  100
    3     Ocean   Century   Garden   Phase   3              30,310             70,018                   70,018                                                                  100
    4     Ocean   Century   Garden   Phase   4              15,187             42,479                                          42,479                                           100

          Tai'an
    1     State Garden Phase 1                              43,093             51,584                   51,584                                                                  100
    2     State Garden Phase 2                              59,544             64,548                   64,548                                                                  100
    3     State Garden Phase 3                              22,241             21,754                                          21,754                                           100

          Chongqing
    1     East Sea Garden Phase 1                            9,594             23,800                   23,800                                                                  100
    2     East Sea Garden Phase 2                           11,898             50,755                   50,755                                                                  100
                                   #
    3     Chongqing Project Phase 1                                            50,000                                                                  50,000                   100
                                   #
    4     Chongqing Project Phase 2                        133,334            100,000                                                                 100,000                   100
                                   #
    5     Chongqing Project Phase 3                                           250,000                                                                 250,000                   100

          Other projects*
   1      Green Bay Phase 2                                145,334           201,280                                                                  201,280                   100
   2      Mount Green Phase 1                               51,215           164,833                                                                  164,833                   100
   3      Mount Green Phase 2                               50,843           163,338                                                                  163,338                   100
   4      Mount Green Phase 3                               21,949            70,643                                                                   70,643                   100
   5      Riviera Royale Resort Phase 1                     66,540            43,270                                                                   43,270                   100
   6      Riviera Royale Resort Phase 2                    159,840           140,700                                                                  140,700                   100
   7      Riviera Royale Hotel                              20,000            20,000                                                                   20,000                   100
   8      Left Bank. River Seine Phase 1                    53,280           124,576                                                                  124,576                   100
   9      Left Bank. River Seine Phase 2                   123,200           319,616                                                                  319,616                   100
   10     Left Bank. River Seine Phase 3                   110,000           286,800                                                                  286,800                   100
   11     Spring Milan                                      11,729            62,010                                                                   62,010                   100
   12     Fragrance Town River                              22,148            35,650                                                                   35,650                   100
   13     Fragrance Town Island                             68,701            60,150                                                                   60,150                   100

          Total                                          1,630,952          3,061,687                  691,013                262,517               2,104,454

          *Other projects are projects which Madison Qingdao or its subsidiaries have prospects of developing but have not yet signed land grant contracts or obtained land use
          rights yet and are not certain to materialize.
          #
           Projects for which the relevant land grant contracts, equity transfer agreement or land transaction confirmation letter with the relevant PRC land authorities has been
          signed but for which the land use rights certificates have not yet been issued pending payment of land premium and/or satisfaction of other conditions contained in the
          land grant contracts.


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Completed Properties

The completed properties set out below represent all properties Madison Group has completed since inception. As of 15 October 2010, Madison Group had
completed the development of the following ten property projects (including two property projects with further phases under construction) with a total GFA of 691,013
m², of which approximately 645,994 m² constituted saleable GFA and approximately 634,192 m² constituted GFA pre-sold and sold, representing 98.1% of saleable
GFA.

                                                                                              Attributable       Saleable   GFA pre-sold   GFA unsold     Rentable
   No.    Project                         Location          Completion Time Total GFA (m²)    equity interest    GFA (m²)   and sold (m²)  (m²)           GFA (m²)
    1     Prosperity Garden               Qingdao                      Jul-99          91,408                100     78,277         78,277              -          -
    2     Xuzhou Garden                   Qingdao                     Aug-99            6,528                100      6,528          6,528              -          -
    3     Scenic Garden                   Qingdao                      Jul-03          30,770                100     27,549         27,549              -          -
    4     Skyway Garden                   Qingdao                     Dec-07           42,651                100     41,924         41,179           745           -
    5     Sandalwood Bay                  Qingdao                     Dec-07           73,699                 60     73,699         70,656         3,043           -
    6     Yangguang Coast                 Qingdao                     Jun-09           69,047                 97     67,078         67,078              -          -
    7     Dongshan Peak                   Qingdao                     Nov-09           18,357                 97     17,319         17,319              -          -
    8     Ocean Century Garden Phase 1    Zibo                        Dec-03           51,923                100     51,923         51,923              -          -
    9     Ocean Century Garden Phase 2    Zibo                        Nov-05           45,925                100     45,925         45,404           521           -
   10     Ocean Century Garden Phase 3    Zibo                       May-08            70,018                100     70,018         69,296           722           -
   11     State Garden Phase 1            Tai'an                      Aug-08           51,584                100     47,130         44,669         2,461           -
   12     State Garden Phase 2            Tai'an                      Mar-10           64,548                100     50,643         48,774         1,869           -
   13     East Sea Garden Phase 1         Chongqing                   Apr-02           23,800                100     18,038         16,676         1,362       5,762
   14     East Sea Garden Phase 2         Chongqing                   Aug-06           50,755                100     49,944         48,864         1,080         811

          Total                                                                        691,013                    645,994        634,192          11,802       6,573




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Properties under construction

For all property projects under construction, Madison Group has received the land use rights certificates. With respect to “GFA with construction permits” or “GFA
under construction”, the relevant construction land planning permits, construction works planning permits and construction permits or governmental approval for
early construction has been obtained as of 15 October 2010. Some of these projects have also received pre-sale permits. With respect to “GFA without construction
permits” Madison Group had yet to obtain some or all of the relevant construction land planning permits, construction works planning permits and construction
permits as of 15 October 2010. As of 15 October 2010, three new projects and two phases of earlier projects are under construction are under construction. The
total GFA under construction is 266,490 m².


                                                                  GFA without                                             Actual or estimated     Actual or estimated
                                          GFA with construction   construction permit            Attributable Saleable construction               pre-sale
   No.    Project                         permit (m²)             (m²)                 Sub-total equity interest GFA (m²) commencement time       commencement time
    1     Green Bay Phase 1 (East Zone)                   87,646                     -   87,646             100    76,072                  Dec-09                May-10
    2     Green Bay Phase 1 (West Zone)                   31,709              22,896     54,605             100    47,788                  Sep-10                Dec-10
    3     Ocean Century Garden Phase 4                    42,479                     -   42,479             100    37,180                  Mar-10                Sep-10
    4     State Garden Phase 3                                  -             21,754     21,754             100    18,406                  Dec-10                May-11
    5     Fragrance Town Mountain                         31,155                     -   31,155             100    24,550                  Sep-10                Dec-10
    6     The Villa with Springs                                -             28,851     28,851              51    24,878                  Oct-10                Dec-10

          Total                                          192,989              73,501    266,490                  228,874




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Properties for Future Development

Madison Group has two projects held for future development as of 15 October 2010. Madison
Group has entered into a land grant contract, equity transfer agreement or a land transaction
confirmation letter but has not obtained the land use rights certificates for the relevant land. These
properties are meant for future development and had an aggregate site area of approximately
166,967 m² and an estimated total GFA of 411,588 m² as of 15 October 2010. The table below sets
out further information about the properties held for future development as of 15 October 2010. The
total GFA with respect to each project included in the properties held for future development
represents estimates by the management on the basis of current development plans formulated
pursuant to the relevant land grant contracts.
                                                                       Total estimated    Attributable equity
      No.     Project                     Location    Site area (m²)   GFA(m²)            interest
       1      Fragrance Town World        Qingdao               36,633             11,588                  100
       2      Chongqing Project Phase 1   Chongqing                                80,000                  100
       3      Chongqing Project Phase 2   Chongqing           133,334             160,000                  100
       4      Chongqing Project Phase 3   Chongqing                               160,000                  100

              Total                                          169,967             411,588




Property Projects in Qingdao

(1)         Prosperity Garden

Prosperity Garden was completed in 1999 and is one of the earliest projects completed by Madison
Group. Prosperity Garden is located in downtown Qingdao and consists of multi-storey apartment
complexes and auxiliary retail spaces. This project occupies a total site area of 37,932 m² with a
total GFA of 91,408 m². It features 700 residential units with an aggregate total GFA of 69,101 m²
and 216 car park spaces with an aggregate total GFA of 8,673 m². The total GFA of the individual
residential units range from 80 to 160 m².

As of 15 October 2010, all the residential units in this project had been sold.

Under PRC law, independent environmental consultants must conduct environmental impact
assessments of property projects in China. For the Prosperity Garden project, such assessments
have not been carried out. Madison Group could therefore still be instructed to carry out the
environmental impact assessments. If it fails to do so within the time limit, it may be fined between
RMB 50,000 to RMB 200,000 and the persons in charge of the construction unit and other persons
directly responsible may face administrative sanctions.

(2)         Xuzhou Garden

Xuzhou Garden was completed in 1999 by Madison Qingdao. Xuzhou Garden is located in
downtown Qingdao and consists of multi-storey apartment complexes. This project occupies a total
site area of 1,188 m² with a total GFA of 6,528 m². It features 78 residential units with an aggregate
total GFA of 6,466 m². The total GFA of the individual residential unit ranges from 60 to 140 m².

As of 15 October 2010, all residential units in this project had been sold.

Under PRC law, independent environmental consultants must conduct environmental impact
assessments of property projects in China. For the Xuzhou Garden project, such assessments
have not been carried out. Madison Group could therefore still be instructed to carry out the
environmental impact assessments. If it fails to do so within the time limit, it may be fined between
RMB 50,000 to RMB 200,000 and the persons in charge of the construction unit and other persons
directly responsible may face administrative sanctions.

(3)         Scenic Garden


Scenic Garden was completed in 2003 by Madison Qingdao. Scenic Garden is located in
downtown Qingdao and consists of multi-storey apartment complexes and auxiliary retail spaces.


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This project occupies a total site area of 7,737 m² with a total GFA of 30,770 m². It features 170
residential units with an aggregate total GFA of 26,901 m². The total GFA of the individual
residential units ranges from 120 to 290 m².

As of 15 October 2010, all residential units in this project had been sold.

Under PRC law, independent environmental consultants must conduct environmental impact
assessments of property projects in China. For the Scenic Garden project, such assessments have
not been carried out. Madison Group could therefore still be instructed to carry out the
environmental impact assessments. If it fails to do so within the time limit, it may be fined between
RMB 50,000 to RMB 200,000 and the persons in charge of the construction unit and other persons
directly responsible may face administrative sanctions.
(4)   Skyway Garden

Skyway Garden was completed in 2007 by Madison Qingdao. Skyway Garden is located in
downtown Qingdao adjacent to the city's central beach area on the sea front and consists of high-
rise apartments buildings. This project occupies a total site area of 9,016 m² with a total GFA of
42,651 m². It features 231 residential units with an aggregate total GFA of 37,940 m² and 199 car
park spaces with an aggregate total GFA of 2,820 m². The total GFA of the individual residential
unit ranges from 106 to 322 m².
As of 15 October 2010, a total GFA of 41,179 m² had been sold with 745 m² remaining unsold.

Under PRC law, independent environmental consultants must conduct environmental impact
assessments of property projects in China. For the Skyway Garden project, such assessments
have not been carried out. Madison Group could therefore still be instructed to carry out the
environmental impact assessments. If it fails to do so within the time limit, it may be fined between
RMB 50,000 to RMB 200,000 and the persons in charge of the construction unit and other persons
directly responsible may face administrative sanctions.

(5)   Sandalwood Bay

Sandalwood Bay was completed in 2007 by Qingdao Junxin Properties Company Limited of which
Madison Qingdao is a 60% shareholder. Sandalwood Bay is located in downtown Qingdao, directly
across from the Tsingtao Beer Festival Park and near the beach front. It consists of high-rise
apartment buildings and auxiliary retail spaces and is, in the Company’s view, Qingdao's first high-
end serviced apartment building that lives up to international standards. This project occupies a
total site area of 13,380 m² with a total GFA of 73,699 m². It features 368 residential units with an
aggregate total GFA of 42,707 m², 20 commercial units with an aggregate GFA of 12,898 m² and
259 car park spaces with an aggregate total GFA of 15,166 m².

Ancillary facilities in this project include a club house and a business centre. The total GFA of the
individual residential unit ranges from 70 to 222 m².

Sandalwood Bay won the “Mansion Gold Ranking” award granted by Committee of the 2006
Qingdao Luxury Villa Exhibition and was awarded the title of “Qingdao Top 10 Sales” granted by
Qingdao Real Estate Media Evaluation Committee. “Sandalwood Bay” was also recognised as a
“Leading Name Brand” by the Qingdao Daily Newspaper Group.

As of 15 October 2010, a total GFA of 70,656 m² had been sold, with 3,043 m² unsold.

(6)   Yangguang Coast

Yangguang Coast was completed in September 2009 by Qingdao Guanghua Properties Company
Limited (“Qingdao Guanghua”) of which Madison Qingdao is a 97% shareholder. Yangguang
Coast is located in the Sifang District of Qingdao.

Yangguang Coast consists of multi-storey apartment complexes, high-rise apartment complexes
and auxiliary retail spaces. It occupies a total site area of 36,790 m² with an aggregate total GFA of
69,047 m². It primarily comprise 763 residential units with an aggregate total GFA of 63,554 m², 16
auxiliary retails spaces with an aggregate total GFA of 1,563 m² and 50 car park spaces with an



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aggregate total GFA of 1,495 m². The total GFA of the individual residential units ranges from 56-
113 m². This project featured a kindergarten.

As of 15 October 2010, all residential units in this project had been sold.

(7)   Dongshan Peak

Dongshan Peak was completed in November 2011 by Qingdao Guanghua. Dongshan Peak is
located in the Licang District of Qingdao and is developed by Qingdao Guanghua.

Dongshan Peak consists of seven multi-storey apartment complexes. It occupies a total site area of
18,172 m² with an aggregate total GFA of 18,357 m². It primarily comprise 204 residential units with
an aggregate total GFA of 17,319 m². The total GFA of the individual residential units ranges from
62-109 m².

As of 15 October 2010, all residential units in this project had been sold.

(8)   Green Bay
Green Bay is located in the Chengyang district in Qingdao and is developed by Qingdao Jundong
Properties Company Limited, a project company wholly owned by Madison Group.
This project is conceived as Southern European (French) neoclassical style apartment complexes
for mid to high-end residential living. It occupies a total site area of 101,791 m² with an aggregate
total GFA of 142,251 m². It will primarily comprise 1,281 residential units with an aggregate total
GFA of 123,004 m² and 743 car park spaces with an aggregate total GFA of 13,374 m². This
project will also have amenities such as a kindergarten.

The project will be developed in two phases and construction for the eastern zone and western
zone of Green Bay’s Phase I commenced in December 2009 and September 2010, respectively.
Pre-sale of the eastern zone of Phase I has commenced in May 2010, and pre-sale of the western
zone of Phase I is scheduled to start in December 2010.

Qingdao Jundong is currently in the process of acquiring the land use right for Phase II of Green
Bay’s development.

On 6 November 2009, Qingdao Jundong and No. 2 Qingdao Shinan Sub-branch of the Industrial
and Commercial Bank of China (“ICBC”) entered into a loan contract, under which No. 2 Qingdao
Shinan Sub-branch of ICBC would provide Qingdao Jundong a bank loan in the amount of RMB
140,000,000. The purpose of this loan was for development of Green Bay project and the term of
the loan was from 6 November 2009 to 5 November 2012. On the same day, Qingdao Jundong
entered into a maximum mortgage contract with No. 2 Qingdao Shinan Sub-branch of ICBC, under
which Qingdao Jundong would create a mortgage in favour of No.2 Qingdao Shinan Sub-branch of
ICBC over its use right to the parcel of the land at the address of No.360 Yinhe Road, Xiazhuang
Community, Qingdao in order to secure its repayment of the loan under the aforementioned loan
contract. The appraisal value of such land use right was RMB 310,360,000 and the area of the
concerned land was 101,791.6 m².

(9)   Fragrance Town Mountain

Fragrance Town Mountain is located in the Laoshan District of Qingdao and is developed by
Madison Qingdao.

Fragrance Town Mountain consists of high rise apartment buildings, and the design adopts the
classic architectural style of Boston. It occupies a total site area of 12,473 m² with an aggregate
total estimated GFA of 31,155 m². It will primarily comprise 220 residential units with an aggregate
total GFA of 21,923 m² and 227 car park spaces with an aggregate total GFA of 6,690 m². The total
GFA of the individual residential units ranges from 67 to 165 m². This project will feature a
clubhouse.

Construction for Fragrance Town Mountain has commenced in September 2010 and is expected to
be completed in 2012.




                                                                                                137
(10)    Fragrance Town World

Fragrance Town World is located within the national 3A-rated50 Langyatai peninsular across the
southwestern coastal area of Qingdao with a view to the mountains and the ocean. This project is
developed by Madison Qingdao.

The first phase of Fragrance Town World was completed in 2002, and the expansion phase is
expected to commence construction in May 2012. Fragrance Town World is positioned as a casual
outing and nature resort and will be integrated with the neighbouring tourism projects to provide
multi-functional leisure, entertainment, travel, convention and residential facilities. The project will
offer low density resort style serviced apartment buildings and a clubhouse. It occupies a total site
area of 36,633 m². However, due to change in the zoning plans of the local land authorities, plans
for this project have to be adjusted pending confirmation from the land authorities on the zoning
plans.

Under PRC law, independent environmental consultants must conduct environmental impact
assessments of property projects in China. For Phase I of Fragrance Town World, such
assessments have not been carried out. Madison Group could therefore still be instructed to carry
out the environmental impact assessments. If it fails to do so within the time limit, it may be fined
between RMB 50,000 to RMB 200,000 and the persons in charge of the construction unit and other
persons directly responsible may face administrative sanctions.

On 3 February 2010, Madison Qingdao entered into a maximum mortgage contract with West
Xianggang Road Branch of Bank of Qingdao, under which Madison Qingdao agreed to create a
mortgage over its use right to the parcel of the land (certificate with code Nan Guo Yong (2008) No.
G112704 ) and its real property (certificate with the code Fang Quan Zheng Chu Si Zi No. 02172)
belonging to Madison Qingdao used for the Fragrance Town World project to secure the repayment
by Qingdao Xintongda Trading Company Limited of bank loans in a maximum amount up to RMB
15,000,000 under a facility agreement between Qingdao Xintongda Trading Company Limited and
West Xianggang Road Branch of Bank of Qingdao. The term of the loan was from 4 February 2010
to 4 February 2013. The appraisal value of such land use right and real property was RMB
24,197,700.

(11)    The Villa with Springs

The Villa with Springs is located in Jimo city in Qingdao, and is developed by Qingdao Xianggen
Quanhai Zhiye Company Limited (Qingdao Xianggen Quanhai), a project company that is 51%
owned by Madison Qingdao.

The Villa with Springs consists of three-storey villas, and the design adopts the Tuscany
architectural style. It occupies a total site area of 27,943 m² with an aggregate total estimated GFA
of 28,581 m². It will primarily comprise 71 residential units with an aggregate total GFA of 24,878
m²and 130 car park spaces with an aggregate total GFA of 3,700 m². The total GFA of the
individual residential units ranges from 300-500 m².

Construction for The Villa with Springs has commenced in October 2010 and is expected to be
completed in 2011.

Property Projects in Zibo

(12)    Ocean Century Garden

Ocean Century Garden is developed by Madison Zibo Real Estate Company Limited, a project
company wholly owned by Madison Qingdao. Ocean Century Garden is located in downtown Zibo,
Shandong Province, alongside the Yulong River and consists of large-scale and integrated mid to
high-end residential complexes of over thirty blocks of multi-storey, sub high-rise and high-rise
apartment buildings and auxiliary retail spaces.

50
  3A-rated tourist site refers to a tourist site which has satisfied the national standards in respect of certain requirements in
aspects of tourist communications, touring, tourism safety, sanitation, post and telegraph service, tourist shopping, operating
management, resource and environmental protection, tourism resource attraction, marketing attraction, over 300,000
tourists from home and abroad and higher tourist sampling satisfaction rating.



                                                                                                                           138
The development of Ocean Century Garden is divided into four phases. Phases I, II and III were
completed in 2003, 2005 and 2008, respectively, and Phase IV commenced construction in March
2010. Phases I to III occupy a total site area of 128,226 m² with a total GFA of 167,866 m². As of
15 October 2010, of the saleable GFA of 167,866 m², 164,513 had been sold. It comprises 1,428
residential units with an aggregate total GFA of 159,503 m², and 194 car park spaces with an
aggregate total GFA of 3,492 m². The total GFA of the individual residential unit ranges from 74 to
177 m².

Phase IV features a total GFA of 42,479 m². Pre-sale has commenced in September 2010.

As of 15 October 2010, 166,623 m² of the residential units in Phases I to III had been sold with
1,243 m² remaining unsold.

On 16 April 2010, Madison Zibo and Agriculture Bank of China entered into a loan contract, under
which Agriculture Bank of China agreed to provide a loan in an amount of RMB 15,000,000 for the
development of Phase IV of the Ocean Century Garden project. The term of the loan was 36
months from the date on which the first instalment of the loan was advanced by the bank. In
accordance with the loan contract, when Madison Zibo failed to utilise the bank loan for such a
purpose as stated in the loan contract, it would be subject to a penalty at the rate of 100% of the
amount of the loan that was not used for a purpose as stated in the loan contract. The two parties
also entered into a mortgage contract, under which Madison Zibo agreed to create a mortgage in
favour of Agriculture Bank of China over its land use right vested in the State-owned Land Use
Right Certificate Zi Guo Yong (2009) No.A26045 in order to secure its repayment of the loan under
the aforementioned loan contract.

On 16 April 2010, Madison Zibo and Xicheng Branch of Shandong Zhangdian Rural Cooperative
Bank entered into a loan contract, under which Xicheng Branch of Shandong Zhangdian Rural
Cooperative Bank agreed to provide a bank loan to Madison Zibo in an amount of RMB 3,500,000
for the purpose of project liquidity. The term of the loan would be from 22 February 2010 to 21
February 2011. In accordance with the loan contract, when Madison Zibo failed to utilise the bank
loan for such a purpose as stated in the loan contract, it would be subject to a penalty at the rate of
50% of the amount of the loan that was not used for a purpose as stated in the loan contract. The
two parties also entered into a maximum amount mortgage contract, under which Madison Zibo
agreed to create a mortgage over its real estate (certificate with code 01-1000308) in favour of
Zhangdian Rural Cooperative Bank in order to secure its repayment of the loan under the
aforementioned loan contract.

Property Projects in Tai’an

(13)   State Garden

State Garden is developed by Madison Tai’an Real Estate Company Limited (“Madison Tai’an”), a
project company wholly owned by Madison Qingdao. This project is located in Tai’an in Shandong
Province, within the national 3A-rated tourist site of Pan River. The site has a panoramic view of
Taishan Mountain, a popular tourist attraction which is located close to where the home of Chinese
historical figure Confucius is said to have been. Tai’an is also an important connection point for rail
traffic between Beijing and Shanghai as well as between Beijing and Fujian. This project comprises
large-scale high-end residential multi-storey apartment buildings.

The development of State Garden is divided into three phases. Phases I and II were completed in
2008 and 2010, respectively, and construction for Phase III will commence in December 2010.
Phases I and II occupy a total site area of 102,637 m² with an aggregate total GFA of 116,132 m².
As of 15 October 2010, of the saleable GFA of 97,773 m², 93,443 m² has been sold. Phase III has
a total GFA of 21,754 m². It is estimated that pre-sale for Phase III will commence in May 2011.
The completed phases of the State Garden project features 745 residential units with an aggregate
total GFA of 85,113 m² and 209 car park spaces with an aggregate total GFA of 6,722 m². Ancillary
facilities include a club house, a swimming pool and a kindergarten.

The State Garden project won the “Habitation Environment Award” conferred by the China Real
Estate Newspaper.

On 30 April 2009, Madison Tai’an and Tai’an Branch of Industrial and Commercial Bank of China



                                                                                                  139
(“ICBC”) entered into a loan contract, under which the Tai’an Branch of ICBC agreed to provide a
loan in an amount of RMB 30,000,000 for the development of Phase II of the State Garden project.
The term of the loan was 24 months from 30 April 2009. On May 2009, Madison Tai’an and Tai’an
Branch of ICBC entered into a loan contract, under which Tai’an Branch of ICBC agreed to provide
a loan in an amount of RMB 15,000,000 for the development of Phase II of the State Garden
project. The term of the loan was 24 months from the date on which the loan was advanced by the
bank in accordance with the loan contract. According to the payment voucher dated as of
December 18, 2009, Madison Tai’an has paid off the loan in amount of RMB 5,000,000. On 30
April 2009, Madison Tai’an entered into a maximum mortgage contract with Taian Branch of ICBC,
under which Madison Tai’an would create a mortgage over its use right to the parcel of the land
(certificate with code Tai Tu Guo Yong (2007) No. D-0017) in order to secure its repayment of bank
loans up to a maximum amount up to RMB 50,000,000 under a facility agreement between
Madison Tai’an and Tai’an Branch of ICBC. Any loan within the maximum amount occurring during
the period from 30 April 2009 to 17 April 2012 will be secured by the mortgage. The appraisal value
of such land use right was RMB 83,090,000.

Property Projects in Chongqing

(14)   East Sea Garden

East Sea Garden was developed by Chongqing Longkunxiang Properties Company Limited, a
project company wholly owned by Madison Qingdao. East Sea Garden is located in the Jiangbei
commercial district of Chongqing.

The project was developed in two phases with Phase I being completed in 2002 and Phase II being
completed in 2006. East Sea Garden consists of large-scale and integrated mid to high-end
residential complexes and auxiliary retail spaces. It occupies a total site area of 21,492 m² with a
total GFA of 74,555 m² which includes 6,573 m² of rentable GFA. It features 514 residential units
with an aggregate total GFA of 57,838 m² and 107 car park spaces with an aggregate total GFA of
4,284 m².

Ancillary facilities in this project include a club house, a swimming pool, a kindergarten and a
supermarket. The total GFA of the individual residential units ranges from 50 to 163 m².

As of 15 October 2010, of the aggregate saleable GFA of 67,982 m², 65,540 m² have been sold
and 2,442 m² remain unsold.

(15)   Chongqing Project

Chongqing Project, located in Jiangbei district of Chongqing, is an industrial property project
developed by Chongqing Yinlian Investments Company Limited, a project company wholly owned
by Madison Qingdao. The site area of 133,334 m² is located in the Two Rivers New Zone which will
be developed into a modern industrial park on the upper reaches of the Yangtze River.

The project will be developed in three phases and construction for the respective phases is
anticipated to start in January 2011, October 2011 and February 2013, respectively. Chongqing
Project is estimated to have a total GFA of 400,000 m².

Other Property Projects

Madison Group also plans to develop the following property projects in the near future.

(1)    Riviera Royale Hotel and Resort

Riviera Royale Hotel and Resort will be developed by Madison Qingdao. The project is located in
the town of Aoshanwei. It faces the ocean front northeast of Qingdao with a view of the famed Lao
Mountain in Qingdao.

The project is conceived as a premier seaside resort featuring multi-functional ecological, health
enhancement, vacation, culture, leisure and living elements with hotels and resorts as well as
ancillary facilities on the premises. Adjacent facilities and sites include China’s only seawater hot
spring, a 27 hole golf course and several 5-star hotels. The project site captures the last


                                                                                                140
undeveloped bay area surrounding the Lao Mountain. The Riviera Royale Hotel and Resort project
targets growing market for Japanese and Korean tourists and is also intended to host conventions
on a regular basis. It is planned that the project will include two project phases of resort
development and one project phase of hotel development. The Riviera Royale Hotel and Resort
will feature 2-storey villas and a 5-storey hotel with full amenities, all designed in a tropical-themed
style. The project will occupy a total site area of 246,380 m² and will have a total estimated GFA of
203,970 m².

Madison Qingdao signed a land grant contract for a portion of the total site with the competent land
resource bureau while another company, Qingdao Tianying Forging Industry Company Limited
(“Qingdao Tianying”) signed a land grant contract for the other part of the total site. An entrustment
contract exists between Qingdao Tianying and Madison Qingdao where Qingdao Tianying is
entrusted to purchase the state-owned land use right on behalf of Madison Qingdao and to transfer
the same to Madison Qingdao when the land use right certificate is issued. However, due to a
change in the land use planning of the Qingdao People’s Government of the Aoshanwei, the
relevant land authorities have not delivered the land use right certificates to Madison Group or
Qingdao Tianying. The relevant land authorities have announced that they will take back the land.
Madison Qingdao will therefore have to bid for the land through competitive bidding, auction or
listing-for-sale in order to recover the land use rights for this property project and any amounts paid
by Madison Qingdao and Tianying previously will be used to offset the price of land if Madison
Qingdao wins the bid.

(2)   Mount Green

Mount Green is located in the Haier Commercial & Business Centre region of the Fushan New
District of Qingdao which is a key residential area. The neighbourhood features schools, hospitals,
large commercial buildings, high-tech parks and a large forest park and is next to Qingdao’s largest
residential district.

Mount Green will feature mid to high-end residential apartments comprising sub-high-rise and high-
rise apartment buildings adopting a “New England” architectural style. It will also have amenities
like a commercial street, primary schools, a kindergarten and a shopping centre. It will occupy a
total site area of 124, 007 m² and will have a total estimated GFA of 398,814 m².

Madison Qingdao signed a land grant contract with the Land Administration Bureau of the Qingdao
High Technology Industry Park (“HTI Park”) regarding the land use right for the underlying piece of
land. However, due to a change in land planning by the competent land planning authority, the land
use rights under the signed land grant contract will be taken back by HTI Park, and HTI Park will
re-grant the land use rights through competitive bidding, auction or listing-for-sale. Madison
Qingdao will participate in the bidding and auction procedures in order to recover the land use
rights for this property project.

(3)   Spring Milan

Spring Milan is located in the western part of Shaoxing Road in the Shibei District of Qingdao which
is in the central part of Qingdao’s business district. The surrounding amenities are well developed
and include a hospital and a shopping centre. Spring Milan will consist of high-end residential
apartments and will feature high rise apartment blocks designed in a European building style.
Strong emphasis will be placed on green and environmentally friendly building principles and the
design will adopt clean and simple lines. It will occupy a site area of 11,729 m² and will have a total
estimated GFA of 62,010 m².

Madison Group has not yet signed a land grant contract regarding the underlying land use rights for
this project. The land use rights for this project will be transferred to the Chinese People’s
Liberation Army (“PLA”) pursuant to an exchange agreement between PLA and Xiaogangwan
Tourism Development Administration Committee of Shibei (“Xiaogangwan”). The PLA signed a
cooperation construction agreement with the Qingdao Yanye Investment Development Center
(“Qingdao Yanye”) to jointly develop the land on certain terms and conditions, inter alia, the
contribution of the land use rights owned by PLA. Qingdao Yanye has, in turn, signed a
cooperation agreement with Madison Qingdao to jointly develop the land on certain terms and
conditions, inter alia, that Qingdao Yanye contributes the land use rights to a project company that
will be set up at later stage. Said project company will upon its establishment sign a supplementary



                                                                                                   141
contract to the cooperation construction agreement with the PLA for the development of the Spring
Milan project.

As of 15 October 2010, the PLA had yet to change its own land use right certificates,which is a
precondition for fulfilling the terms of the exchange agreement with Xiaogangwan.

(4)   Left Bank. River Seine

The Left Bank. River Seine project is located in the suburban Chengyang District of the Qingdao
Airport Economic Development Zone, close to the Laoshan Mountain. In the Company’s view this
area offers an excellent natural environment with lower than average air pollution while, at the
same time offering the convenience of public transportation and a proximity to the Chengyang
district centre.

This project will be developed in three phases and will feature townhouses, villas, sub-high rise
apartment buildings and commercial spaces. It will adopt a Southern European (France) inspired
architecture with neo-classical design, and amenities will include a primary school, a kindergarten
and a large scale commercial area. It will occupy a total site area of 286,480 m² and will have a
total estimated GFA of 730,992 m².

Madison Qingdao signed an agreement with the Residents’ Committee of Dong Zhai Zi Tou,
Chengyang District (“Residents’ Committee”) in 2006 to develop 620,003.1 m² of land for the
purposes of village renovation. Of the whole tract of land, Madison Qingdao will develop 86,667 m²
for the relocation and re-settlement of the villagers and in turn the Residents’ Committee will be
responsible for the expropriation of the remaining 533,336 m² of the collectively-owned land and
handling the land auction matters and assist Madison Qingdao in obtaining the land use rights at a
price not exceeding RMB 700,000 per 666,67 m². After having developed and sold the Left Bank.
River Seine project, Madison Qingdao is required to distribute RMB 200 per m² to the Residents’
Committee for the properties sold.

As of 15 October 2010, Madison Qingdao has not yet obtained the land use right for the Left Bank.
River Seine project.

(5)   Fragrance Town River

Fragrance Town River is located in the Licang District of Qingdao. The site is conveniently located
close to the Licang District Commercial District and is easily accessible and complete with living
amenities.

This project is positioned as top-of-the-class sub-high rise residential apartments. It will occupy a
total site area of 22,148 m² and will have a total estimated GFA of 35,650 m².

Madison Qingdao is currently participating at the competitive bidding, auction or listing-for-sale for
the underlying land use rights.

(6)   Fragrance Town Island

Fragrance Town Island will be situated in the suburban Daiyue District of Tai’an with easy access
to the city. Due to its location north of the Wohu Mountain it features excellent views of Taishan.
This project will be developed by Madison Qingdao.

The project is positioned as low density high-end housing and will mainly feature townhouses and
villas with distinguished architecture. It will occupy a total site area of 68,701 m² and will have a
total estimated GFA of 60,150 m².


Investment Properties
Along with Madison Group’s residential property projects, it also develops commercial properties
and retail shop units as part of its residential complexes for leasing. As Madison Group intends to
hold these properties for long-term investment purposes, they are treated as investment properties.
As of 31 July 2010, these investment properties had an aggregate GFA of approximately 11,505 m².


                                                                                                 142
Madison Group may choose to sell the retail shop units when it believes that sales would generate
a better return on its investment than through rental and capital appreciation. As of 31 July 2010,
Madison Group leased commercial spaces with an aggregate GFA of approximately 4,020 m² to
third parties. As of 31 July 2010, investment properties constituted 14% of the total assets.


Property Development
Madison Group’s business operations primarily involve the development and operation of high-
quality, large-scale, multi-storey residential apartments as well as travel and leisure properties in
Qingdao and other cities in Shandong Province and Chongqing. Madison Group will continue to
explore the property markets in the regions which it currently operates in and pursue suitable
opportunities in strategically selected cities in other regions in China.

Project Development and Management Process

Madison Group obtains the information on proposed land offers through different means, such as
the internet, personal relationships and government announcements. The key indicators obtained
are passed to budgets and costing as well as marketing and products departments for preliminary
estimation on product types, setting and relevant costs. These criteria are used to decide whether
Madison Group will bid for the land in question.

After obtaining a lot of land, the marketing and products department will determine the product
types and appoint designing agents for the construction plan. Meanwhile, the budget and costing
department will co-operate with the marketing and production department to optimise the costs.
Once the construction plan is approved by the relevant government authorities, the marketing and
products department will contact agents regarding construction plan drawings, internal design (if
there is any) and landscaping design. In the meantime, the procedures for commencing the
construction, setting up the target budgets and preparing the marketing strategies are being
worked out simultaneously.

After obtaining the construction permit issued by the competent government authority, the project
starts with the formal construction phase. The main steps for construction include foundation laying,
main body construction, installation of decoratives, outdoors supporting construction, landscaping,
etc. Finally, under the supervision of the competent government authority, the inspection and
acceptance of the construction, which is organised by Madison Group with the participation of sub-
contractors and construction supervisors, is conducted. The competent government authority will
then issue the inspection and acceptance record for the construction. The customer services
department of Madison Group monitors the entire inspection and acceptance process and
organises the examination of properties by customers before the official hand-over to ensure that
satisfactory products are delivered to customers. Customers are to perform the agreed procedures
stated in the sales contracts before the ownership of the properties is transferred to them. Madison
Group will organise project assessment and costs conclusion sessions within half a year of the
completion of a project in order to summarise the lessons learned and accumulate experience.

City and Site Selection Process

Madison Group reviews cities and sites in China on a continuing basis to identify potential
development opportunities. Its senior management personnel is actively involved in the city and
site selection process and closely follows the established site and city selection guidelines. Projects
are chosen after a thorough screening process comprising numerous site visits, thorough market
research and analysis. Prior to purchasing a parcel of land, the market research department
collects all relevant information regarding the potential acquisition opportunity and conduct
preliminary feasibility studies and market research to evaluate the potential risk and return of the
investment, potential property demand in that area, preferences of the target customer groups and
potential competition from other property developers in the vicinity. For market research and
analysis, information is obtained from research reports produced by independent third party market
researchers and data compiled internally by Madison Group’s market research department. Data is
also extracted from official government publications and other publications produced by relevant
industry associations.




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Before Madison Group decides whether to acquire a site, an analysis is conducted based on the
information relating to the project. An initial project development blue print is then drawn up and a
preliminary feasibility study is conducted to make a preliminary assessment on the entry into the
particular market. If the result of the feasibility study is satisfactory, due diligence investigations will
be conducted for a more detailed analysis of the acquisition. If the due diligence results are
satisfactory, a detailed project design and investment return analysis is prepared. This report is
submitted to the strategy committee and Madison Group’s senior management for final
consideration and approval. The acquisition will proceed if the conclusion reached from the
evaluation procedures is that a particular site has good development potential and an acceptable
risk profile. The Company believes that all of these pre-purchase measures help Madison Group to
acquire land prudently and develop its projects with a clear market positioning from the very
commencement of a particular project.

Among other things, Madison Group applies the following criteria in its city and site selection
process:
    - size and population of the city;
    - general economic development of the city;
    - purchasing power of the residents;
    - urban planning and development;
    - the ratio of the annual average income per resident to average property sale price of the
       city;
    - overall competition landscape;
    - overall fit in Madison Group strategy;
    - development cost, estimated return on investment and impact on cash flow;
    - established supporting infrastructure, convenient transportation system, and appropriate
       value appreciation potential.

Land Acquisition

According to current PRC laws and regulations, state-owned land use rights for property
development must be granted by the relevant governmental authorities via public tender, auction or
listing-for-sale. Land reserves may also be acquired in the secondary market through acquisition of
the equity interests of companies that possess the land use rights.

Madison Group acquires land use rights either by bidding directly at auctions organised by the
relevant government authorities or through acquiring companies holding the land use rights. As a
property developer targeting middle to upper-middle income customers, the Company believes that
acquiring land at competitive prices is critical to its overall development strategy. Based on
Madison Group’s current development and growth targets, the Company expects to maintain
sufficient land reserves to fulfil its development requirements for the next three to five years on a
rolling basis. As of 15 October 2010, Madison Group had approximately 266,220 m² of GFA under
development and approximately 411,588 m² of GFA held for future development. In the event that
the projects described in the “Other Property Projects” section above materialise and Madison
Group succeeds in the bid for the various pieces of land, an aggregate planned GFA of
approximately 1,692,866 m² will be added to its future development projects Madison Group
continually searches for land sites that meet its selection criteria.

Once Madison Group obtains the rights to develop a parcel of land, the process for applying for the
various permits and licenses that are needed in order to begin construction of the properties is
commenced according to the applicable PRC laws and regulations. If the land use rights are
acquired by way of grant, the land grant contract will be a precondition to applications for the
following permits and licenses:
     - land use rights certificate: a certificate for the right of a developer to use the parcel of land;
     - construction land planning permit: a permit formally approving a developer to conduct the
        survey, planning and design of the parcel of land;
     - construction works planning permit: a permit indicating governmental approval for a
        developer’s overall planning and design of a project which allows a developer to apply for a
        construction permit;
     - construction permit: a permit required for commencement of construction.

None of the land parcels that Madison Group owns are subject to idle land fees.




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Project Planning and Design

Madison Group engages leading domestic and international design firms, including US firm JSG,
Shanghai Cospal Italian Designers and Hong Kong firm Artbell to carry out its project design
according to its project design guidelines. Madison Group typically works with its long term
cooperation partners who are familiar with Madison Group‘s product development. Madison
Group’s internal design department then coordinates and works closely with the selected design
firms in major aspects of the design process, from master planning, design details and adjustments
to material selection.

The following steps form part of an integrated process of Madison Group’s property design
procedures:
    - overall planning: primarily focused on product positioning, pacing of development,
        development model, development phases and property mix, transportation and
        environment evaluation and ancillary facilities;
    - product design: primarily focused on the style, theme and functionality of the development,
        building structure and facilities, floor plans and choice of materials,
    - landscape design: primarily focused on creating a harmonious and aesthetically pleasing
        living environment, through integrating the overall design scheme with the designs for
        individual buildings; and
    -   interior design: focused on the ergonomic design of all interior space of common areas to
        optimize the residents’ experience and usage of these areas.

Project Construction

The construction work is outsourced to independent construction companies which are selected
through a tender process. Madison Group has established a selection procedure to choose its
construction contractors in order to ensure compliance with its quality and workmanship standards.
The selection procedure involves detailed due diligence work on the contractors during the bidding
process before offering the construction contract to them. The contractor’s professional
qualifications, reputation in the industry, track record, past co-operation with Madison Group,
financial condition and technical abilities is taken into consideration in the selection process.
Madison Group carefully evaluates the suitability of each potential contractor and determines who
the contract is awarded to. Madison Group also reviews the qualifications and performance of its
construction contractors on an annual basis.

Under relevant PRC laws and regulations, construction contractors need to have obtained the
relevant construction qualification certificates for the type of construction work they carry out before
they can undertake such property construction work.

Madison Group’s construction contracts typically require payments based on construction progress
until a specified maximum percentage of the total contract sum is paid. Except for approximately
5% of the contract sum, which is generally withheld for two years from the time of completion to
cover any contingent expenses incurred as a result of any construction defects, the remaining
balance is payable upon the issue of a certificate by the relevant governmental authorities
approving construction quality.

Madison Group is not responsible for any labour problems of its contractors or accidents and
injuries that may occur during construction. These risks are born by construction companies, as
provided in Madison Group’s contracts with them.

Sales and Marketing

Each of Madison Group’s project companies provides of its own sales and marketing team which is
headed by a sales manager who leads a sales team. Madison Group’s sales and marketing teams
work closely with external agencies in order to determine the appropriate advertising campaigns,
peripherals and sales plans for any particular project. The sales and marketing team taps on the
accumulated customer resources from previous sales and the sales staff pay visits to the
customers, or inform them through telephone calls. Promotional activities at completed
developments are also organised to raise awareness of new projects by Madison Group. Television,
newspaper, internet and radio advertising is also used to raise awareness of new projects.



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Pre-sale

Like other developers, Madison Group pre-sells properties prior to the completion of their
construction. Under the PRC pre-sale laws and regulations, property developers must satisfy
specific conditions before they may pre-sell their properties under construction. These mandatory
conditions include:
    - The land premium has been paid in full;
    - The land use right certificates, the construction land planning permits, construction works
         planning permits and the construction permits have been obtained;
    - At least 25% of the total project development investment have been made;
    - The progress and the expected completion and delivery date of the construction are certain;
         and
    - The pre-sale permit has been obtained.

These mandatory conditions are designed to impose a timing restriction on developers with respect
to the commencement of pre-sales. They are predicated on substantial progress in project
construction and in capital expenditure. To protect the rights and interests of consumers, local
governments generally require developers and property purchasers to use standard sales and
purchase contracts prepared under the auspices of such local governments. Developers are
required to file all such contracts with local land bureaus and real estate administrative authorities
within 30 days of entering into such contracts. Local governments may impose additional
conditions from time to time for commencing the pre-sale of properties.

Payment Arrangement

Madison Group typically requires its purchasers to pay a non-refundable deposit upon entering into
provisional purchase contracts. If the purchasers later decide not to enter into formal purchase
contracts, they will forfeit such deposits to Madison Group. Upon executing the formal purchase
contracts, the purchasers are typically required to pay between 20-30% of the total purchase price
of the property within five days, and the remaining balance within 20 days. If the purchasers
choose to fund their purchases by mortgage loans provided by banks, it is their own responsibility
to apply for and obtain the mortgage approvals. Upon request, Madison Group also assists
mortgage applicants by providing the relevant property information to expedite their application
process. The payment terms of Madison Group’s sales and pre-sales are substantially identical.

Most of Madison Group’s customers purchase their properties through mortgage financing. In
accordance with industry practice in China, Madison Group provides guarantees to mortgagee
banks in respect of the mortgage loans provided to the purchasers of its pre-sold properties. These
guarantees are released upon the earlier of (i) the relevant property ownership certificates being
delivered to the purchasers; or (ii) the full repayment of mortgage loans by the purchasers of its
properties. In line with industry practice, Madison Group does not conduct independent credit
checks on purchasers but rely on the credit checks conducted by the mortgagee banks.

After-sales Services and Property Management

Madison Group has a dedicated customer service department at the Madison Qingdao level and
also at the individual project company level to manage its after-sales services. Madison Group
offers various communication channels, such as designated hotlines for its customers to
conveniently express their feedback and complaints about its products or services. The customer
service team is responsible for the inspection of the apartments upon completion, assisting
residents in their moving in etc. Customer service staff is committed to finding the best solutions to
the reported problems. It also organizes activities to maintain links with the customer and also
obtains feedback from customers regularly.

Customers
Madison Group’s principal customers are individual purchasers of residential properties in China
and none of them individually contribute a significant part to its total revenues.




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Competition
Madison Group competes with other real estate developers in Shandong, in particular in the
Qingdao area, where the Company operates the main part of its current business. Competition is
carried out by different means and in different areas, such as product quality, financial resources,
pricing, service quality, ability to restock land portfolios and others.

Madison Group considers the following companies to be its main competitors:

1.    Qingdao Vanke Real Estate Company Limited

2.    Qingdao Hisense Real Estate Limited.

3.    Qingdao Chengjian Real Estate Group

4.    Qingdao Tiantai Real Estate Limited

5.    Qingdao Haier Estate Investment Company Limited

6.    Qingdao Builtown Construction Group Limited

7.    Qingdao Yinshengtai Real Estate Company Limited

8.    Qingdao Weidong Real Estate Company Limited

9.    Zhuoyue Properties Group (Qingdao) Company Limited

10.   Qingjian Group

Based on the Company’s analysis, the relative strengths and areas of competition with respect to
the above companies are set out below:

Qingdao Vanke Real Estate Company Limited, is part of China Vanke Group, which is the
biggest real estate developer in China. It entered the Qingdao market in 2006 and mainly focuses
on the development of residential properties as its core product. Qingdao Vanke also has several
projects which are located in the same city district and in a similar market segment as projects of
Madison Group. For example, Qingdao Vanke’s project in the Chengyang district of Qingdao
competes directly with the Green Bay project that Madison Group is developing.

Hisense Real Estate Company Limited is part of the Hisense Group. It is the largest real estate
developer in Qingdao and has been ranked as one of the “Top 10 Qingdao Real Estate Developers
with Comprehensive Strengths” for the recent five years. Its strategic focus is residential properties
in Shandong Province with developments in Qingdao, Jinan, Yantai, Weifang and Jimo. This
company mainly focuses on the developed city area and develops mainly mid to high-end
residential properties.

Qingdao Chengjian Real Estate Group is a real estate developer with a long operating history in
Qingdao. Its key competitive advantage lies in the substantial land reserves they hold in prime
locations of the city area.

Qingdao Tiantai Real Estate Company Limited, was established in 1994 and has established a
market presence in Qingdao over the years. It focuses on travel and leisure real estate projects,
hotel management, property management, and real estate consultancy as well as building and
construction design. Its developments are mainly in Qingdao and its surrounding precincts.

Qingdao Haier Estate Investment Company Limited, is part of the Haier Group which is China’s
largest white good household appliances manufacturer. It started its investment in real estate in
2007 and has achieved rapid growth in sales and has also ventured into other parts of China.

Qingdao Builtown Construction Group Limited was established in 1998 and is another real
estate developer active in the Qingdao region. It is also ranked among the “Top 10 Qingdao Real
Estate Developers with Comprehensive Strengths”, and it focuses on low to mid-end residential


                                                                                                 147
properties and social (subsidised) housing in response to the Chinese government’s policy to
increase supply of this type of residential properties

Qingdao Yinshengtai Real Estate Company Limited, is one of the faster growing real estate
developers in Qingdao. They have projects in the Chengyang district in Qingdao which is also a
key area for Madison Group’s current projects. It has seen substantial growth in its scale and profit
due to various cooperations with Vanke Group.

Qingdao Weidong Real Estate Company Limited, is one of the early entrants into the Qingdao
real estate market. It primarily focuses on the Licang district of Qingdao but also has projects in
Jinan, another city in Shandong Province. The company has capitalised on its relationships with
the government and external funding which have allowed it to develop bigger scale projects
thereby achieving greater profitability.

Zhuoyue Properties Group (Qingdao) Company Limited, is founded in Shenzhen and is a
China-wide developer with strong capabilities in design, capital and development experience.
Although it does not have many projects in Qingdao, the individual projects they are developing are
usually larger in scale.

Qingjian Group is Qingdao’s largest construction company which has progressively ventured into
real estate development starting in 2005. With its strong funding abilities, it has developed several
projects and has a sizable land reserve. It also has strong service providers in terms of sales,
advertising, construction design and landscaping.




                                                                                                148
Intellectual Property
Madison Group sees its trademarks and company logos as critical to its success and is hence
reliant on the protection of its trademarks and company logos. Madison Group has, among other
things, registered the following trademarks with the PRC intellectual property administrative
authorities with respect to its logo and company name in Chinese and English as set out below:

Trademark            Registration No.      Class       Validity Period     Status

                                                       2000.4.14—          Pending approval for
                     1385956               36
                                                       2010.4.13           extension of term

                                                       2000.4.14—          Pending approval for
                     1385967               36
                                                       2010.4.13           extension of term


                                                       2000.5.14—          Pending approval for
                     1395636               19
                                                       2010.5.13           extension of term

                                                       2000.5.14—          Pending approval for
                     1397269               6
                                                       2010.5.13           extension of term
                                                       2000.5.21—          Pending approval for
                     1398626               19
                                                       2010.5.20           extension of term

                                                       2000.6.14—          Pending approval for
                     1409902               42
                                                       2010.6.13           extension of term

                                                       2000.6.14—          Pending approval for
                     1409927               42
                                                       2010.6.13           extension of term

                                                       2000.6.21—          Pending approval for
                     1412983               41
                                                       2010.6.20           extension of term


                                                       2001.9.21—
                     1637900               8                               Valid
                                                       2011.9.20

                                                                           Valid
                                                       2001.10.21—
                     1653643               6
                                                       2011.10.20

                                                                           Valid
                                                       2001.10.28—
                     1657025               19
                                                       2011.10.27

                                                                           Valid
                                                       2001.11.7—
                     1663617               37
                                                       2011.11.6

                                                                           Valid
                                                       2001.11.28—
                     1675971               42
                                                       2011.11.27

                                                                           Valid
                                                       2002.2.7—
                     1711543               36
                                                       2012.2.6

                                                                           Valid
                                                       2002.3.14—
                     1731718               41
                                                       2012.3.13




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Insurance
Property developers are not required under PRC law to maintain insurance coverage in respect of
their property development operations. Madison Group does not maintain insurance coverage on
its properties developed for sale other than with respect to those developments over which its
lending banks have security interests, or for which it is required to maintain insurance coverage
under the relevant loan agreements. In addition, Madison Group does not require the construction
companies that are contracted to maintain insurance coverage on properties under construction.
Madison Group generally does not carry insurance against personal injuries that may occur during
the construction of its properties. The construction companies, however, are responsible for quality
and safety control during the course of the construction and are required to maintain accident
insurance for their construction workers pursuant to PRC laws and regulations. Madison Group
ensures compliance by doing regular checks and spot checks on the register of workers of the
construction companies and if any worker is found to be working without the necessary insurance
coverage, the worker will be asked to stop working until the construction company has rectified the
situation.

To help ensure construction quality and safety, Madison Group has formulated a set of standards
and specifications for the construction workers to comply with during the construction process.
Madison Group engages qualified external supervision companies to oversee the construction
process. Under PRC laws and regulations, the owner or manager of a property under construction
bears the civil liability for personal injuries arising out of construction work unless the owner or
manager can prove that it is not at fault. Madison Group has taken these and other steps in an
effort to prevent construction accidents and personal injuries.


Employees
As of the 31 July 2010, Madison Group had 132 full-time employees. Breakdowns of employees by
function as of the same date were as follows:


  Function                 No. of employees            Percentage of total
  Management               40                          30%
  Functional               28                          21%
  Technical                37                          28%
  Sales                    19                          15%
  Administration           8                           6%
  Total                    132                         100%


As at the date of this Prospectus, there has been an increase in the number of employees to 149.
The average number of employees of Madison Group was 99 in the fiscal year 2005/2006, 107 in
in 2006/2007, 118 in 2007/2008 and 122 in 2008/2009.

Madison Group aims to develop its talents internally through training its existing employees. In the
event of an expansion, Madison Group will also recruit externally through websites, headhunters,
newspaper advertisements and also directly from universities, vocational schools and labour
markets. Madison Group has also established a human resource database where it has shortlisted
potential candidates from different sectors that it can tap on at short notice to meet shortfall in
manpower.
The compensation package of its employees includes salary, quarterly bonus, annual bonus and
loyalty allowance. Madison Group is subject to social insurance contribution plans organised by the
PRC local governments. In accordance with the relevant national and local labour and social
welfare laws and regulations, Madison Group is required to pay on behalf of its employees a
monthly social insurance premium covering pension insurance, medical insurance, unemployment
insurance and housing reserve fund. Work-related injury insurance and maternity insurance are
also required to be paid by employers.



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Madison Group’s employees do not negotiate their terms of employment through any labor union or
by way of collective bargaining agreements. Madison Group has not adopted any share option
scheme for its senior management and employees.


Property Management
Madison Group and its project companies outsource the management of its residential properties
to third parties.


Legal Proceedings
From time to time, Madison Group is involved in legal proceedings or disputes in the ordinary
course of business, including claims related to guarantees for mortgage loans provided to
purchasers and contract disputes with purchasers and suppliers. As of 31 July 2010, Madison
Group had not encountered any circumstances that have led to material construction delays or
received any material claims from customers for failure to complete any pre-sold project on time, or
received any material claims from customers for delay in delivery of property ownership certificates.

As of 31 July 2010, Madison Group had the following lawsuits pending:

In 2009, a dispute arose between Madison Qingdao, Madison Tai’an and Wang Zhenwei, Guo
Chengxue, Li Zhanwei and Zhan Zhenxing relating to the transfer of land use right under a land
use right transfer contract entered into on 28 January 2002 between Madison Qingdao and
Shandong Xianxian Food Company Limited. The court of first instance in their judgment dated 26
February 2009 ruled that Madison Qingdao has to deliver a residential house with construction
area of 1,000 m² to Zhao and 1,100 m² to Guo, Li and Wang each at the price of RMB 1,200 per m²
or otherwise indemnify them RMB 1,980,000 each. However as the verdict by the court of first
instance has been revoked by the superior court and the court of first instance is re-trying the case,
there is no conclusive verdict on this case yet.

In 2010, a dispute arose between Madison Qingdao, Xu Xiuling and Qingdao Zhongshan Road
sub-branch of China Merchants Bank relating to a loan contract between Xu Xiuling and China
Merchants Bank entered into on 26 October 2004, for which Madison Qingdao undertakes the joint
liability. China Merchants Bank filed a lawsuit in 2010 against Xu Xiuling and Madison Qingdao and
required Xu and Madison Qingdao to jointly pay the loan in the amount of RMB 945,743.87 plus
relevant interests as well as attorney fees in amount of RMB 52,422. The lawsuit is pending for the
trial of the court of first instance.

None of the litigations, individually or in the aggregate, have any material adverse effect on
Madison Group’s financial position or results of operations.


Investments
In the financial year 2007/2008, Madison Group invested EUR 368,000 in the acquisition of
property and equipment. In the financial year 2008/2009, Madison Group invested EUR 213,000 in
the acquisition of property and equipment. In the financial year 2009/2010, Madison Group
invested EUR 278,000 in the acquisition of property and equipment. The investments in the years
2008 to 2010 were financed primarily from its operating cash flow. The Company is currently also
investing in leashold improvements and intends to acquire new office equipment in the near future
using its operating cash flow.

In addition to the above, Madison Group will invest in property projects – please refer to the section
“Business – Projects Description” for details. The property projects currently under development
are situated in the cities of Qingdao, Zibo and Tai’an in Shandong Province, China. The projects
are 32.4% financed by bank loans and 67.6% self-financed.

The additional investment amount since 31 July 2010 to the date of the Prospectus is
approximately EUR 4 million. And the total future investment amount will be approximately be EUR
910 million. In a board meeting held on 2 October 2010, the Company has passed a resolution
confirming that it will carry out the following future investments, i.e. property projects, in the near


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future: Fragrance Town World, Chongqing Project Phases I to III, Green Bay Phase II, Mount
Green Phases I to III, Riviera Royale Resort Phase I to II, Riviera Royale Hotel, Left Bank. River
Seine Phases I to III, Spring Milan, Fragrance Town River, Fragrance Town Island.


Material Contracts
Financing Contracts and Security Agreements

Due to the restrictions on bank loans for real estate developers, Madison Group has concluded a
number of financing contracts and security contracts with third parties. As part of these contracts,
Madison Group issues guarantees or securities to suppliers. In return the suppliers will charge the
prices for the supplied materials with a considerable time lag, e.g. one year.

Madison Group has concluded some of the following contracts based on the above priciples:

On 30 April, 2009, Madison Tai’an and Tai’an Branch of Industrial and Commercial Bank of China
(“ICBC”) entered into a loan contract, under which Tai’an Branch of ICBC agreed to provide a loan
in the amount of RMB 30,000,000 for the development of Phase II of the State Garden project. The
term of the loan is 24 months from 30 April 2009. On May 2009, Madison Tai’an and Tai’an Branch
of ICBC entered into a loan contract, under which Tai’an Branch of ICBC agreed to provide a loan
in the amount of RMB 15,000,000 for the development of Phase II of the State Garden project. The
term of the loan is 24 months from the date on which the loan is advanced by the bank in
accordance with the loan contract. According to the payment voucher dated as of 18 December
2009, Madison Tai’an has paid off the loan in the amount of RMB5,000,000. On 30 April 2009,
Madison Tai’an entered into a maximum mortgage contract with Tai’an Branch of ICBC, under
which Madison Tai’an would create a mortgage over its use right to the parcel of the land
(certificate with code Tai Tu Guo Yong (2007) No. D-0017) in order to secure its repayment of bank
loans in a maximum amount up to RMB 50,000,000 under a facility agreement between Madison
Taian and Taian Branch of ICBC. Any loan within the maximum amount occurring during the period
from 30 April 2009 to 17 April 2012 will be secured by the mortgage. The appraisal value of such
land use right is RMB 83,090,000.

On 6 November 2009, Qingdao Jundong and No. 2 Qingdao Shinan Sub-branch of ICBC entered
into a loan contract, under which No. 2 Qingdao Shinan Sub-branch of ICBC would provide for
Qingdao Jundong a bank loan in the amount of RMB 140,000,000. This loan was taken out for the
development of the Green Bay project and the term of the loan is from 6 November 2009 to 5
November 2012. On the same day, Qingdao Jundong entered into a maximum mortgage contract
with No. 2 Qingdao Shinan Sub-branch of ICBC, under which Qingdao Jundong would create a
mortgage in favour of No.2 Qingdao Shinan Sub-branch of ICBC over its use right to the parcel of
the land at the address of No.360 Yinhe Road, Xiazhuang Community, Qingdao in order to secure
its repayment of the loan under the aforementioned loan contract. The appraisal value of such land
use right is RMB 310,360,000 and the area of the concerned land is 101,791.6 m².

On 3 February 2010, Madison Qingdao entered into a maximum mortgage contract with West
Xianggang Road Branch of Bank of Qingdao, under which Madison Qingdao agreed to create a
mortgage over its use right to the parcel of the land (certificate with code Nan Guo Yong (2008) No.
G112704 ) and its real property (certificate with the code Fang Quan Zheng Chu Si Zi No. 02172)
belonging to Madison Qingdao used for the Fragrance Town World project in order to secure the
repayment by Qingdao Xintongda Trading Company Limited of bank loans in a maximum amount
up to RMB 15,000,000 under a facility agreement between Qingdao Xintongda Trading Company
Limited and West Xianggang Road Branch of Bank of Qingdao. The term of the loan is from 4
February 2010 to 4 February 2013. The appraisal value of such land use right and real property is
RMB 24,197,700.

On 16 April 2010, Madison Zibo and Xicheng Branch of Shandong Zhangdian Rural Cooperative
Bank entered into a loan contract, under which Xicheng Branch of Shandong Zhangdian Rural
Cooperative Bank agreed to provide a bank loan to Madison Zibo in the amount of RMB 3,500,000
for the purpose of project liquidity. The term of the loan is from 22 February 2010 to 21 February
2011. In accordance with the loan contract, when Madison Zibo fails to utilise the bank loan for
such a purpose as stated in the loan contract, it would be subject to a penalty at the rate of 50% of
the amount of the loan that is not used for a purpose as stated in the loan contract. The two parties
also entered into a maximum amount mortgage contract, under which Madison Zibo agreed to


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create a mortgage over its real estate (certificate with code 01-1000308) in favour of Zhangdian
Rural Cooperative Bank in order to secure its repayment of the loan under the aforementioned loan
contract.
On 16 April 2010, Madison Zibo and Agriculture Bank of China entered into a loan contract, under
which Agriculture Bank of China agreed to provide a loan in the amount of RMB 15,000,000 for the
development of Ocean Century Garden Phase IV Residential Project. The term of the loan is 36
months from the date on which the first instalment of the loan is advanced by the bank. In
accordance with the loan contract, when Madison Zibo fails to utilise the bank loan for such a
purpose as stated in the loan contract, it would be subject to a penalty at the rate of 100% of the
amount of the loan that is not used for a purpose as stated in the loan contract. The two parties
also entered into a mortgage contract, under which Madison Zibo agreed to create a mortgage in
favour of Agriculture Bank of China over its land use right vested in the State-owned Land Use
Right Certificate Zi Guo Yong (2009) No.A26045 in order to secure its repayment of the loan under
the aforementioned loan contract.
On 20 May 2010, Qingdao Jundong and No.2 Qingdao Shinan Sub-branch of ICBC entered into a
loan agreement, under which No.2 Qingdao Shinan Sub-branch of ICBC was to provide for
Qingdao Jundong a bank loan in the amount of RMB 40,000,000.This loan was taken out for the
development of the Green Bay project, with the term of the loan agreement running from 20 May
2010 to 5 November 2012. On the same day, Qingdao Jundong entered into a maximum mortgage
contract with No.2 Qingdao Shinan Sub-branch of ICBC, under which Qingdao Jundong agreed to
create a mortgage over its real estate (buildings of No.1-No.7 and No.14-No.25 of the Green Bay
project) with a GFA of 47,255.07m ² , which is located at No. 360 Yinhe Road, Xiazhuang
Community , Qingdao) in favour of No.2 Qingdao Shinan Sub-branch of ICBC in order to secure
the repayment by Qingdao Jundong of bank loans in a maximum amount of up to RMB 40,000,000
under a facility agreement between Qingdao Jundong and No.2 Qingdao Shinan Sub-branch of
ICBC. The term of the loan agreement is from 20 May 2010 to 5 November 2012. The appraisal
value of the mortgaged real estate is RMB 62,282,200.
On 21 June 2010, Madison Qingdao and No.2 Qingdao Shinan Sub-branch of ICBC entered into a
loan agreement, under which No.2 Qingdao Shinan Sub-branch of ICBC was to provide for
Madison Qingdao a bank loan in the amount of RMB 110,000,000. This loan was taken out for the
development of the Fragrance Town Mountain project, with the term of this loan agreement being
three years. On June 2010, Madison Qingdao entered into a maximum mortgage contract with
No.2 Qingdao Shinan Sub-branch of ICBC, under which Madison Qingdao agreed to create a
mortgage over its use right to the parcel of the land (certificate with code Qing Fang Di Quan Shi Zi
No. 201018377) in favour of No.2 Qingdao Shinan Sub-branch of ICBC in order to secure the
repayment by Madison Qingdao of bank loans in a maximum amount of up to RMB 110,000,000
under a facility agreement between Madison Qingdao and No.2 Qingdao Shinan Sub-branch of
ICBC. The term of the loan agreement is from 18 June 2010 to 17 June 2013. The appraisal value
of such mortgaged land use right is RMB 165,262,500 and the area of the concerned land is
12,468.31 m².
Nominee Shareholder Agreements
On 31 December 2002, Qingdao Haotai entrusted Madison Qingdao to hold the 55% equity interest
of Qingdao Jindishen Commercial Company Limited on behalf of Qingdao Haotai. Qingdao Haotai
made contributions to the registered capital of Qingdao Jindishen Commercial Company Limited in
the amount of RMB 1,705,000. During the entrustment term of 10 years, Qingdao Haotai will enjoy
the shareholder’s rights and undertake the shareholder’s obligations and investment risk with
respect to the 55% equity interest. Upon the expiration of the entrustment term or the termination of
the entrustment, Madison Qingdao must transfer the equity interest to Qingdao Haotai or a third
party designated by Qingdao Haotai in accordance with relevant laws.
On 10 February 2008, Madison Qingdao and Mr. Jiang Zhiyong entered into a nominee
shareholder agreement and a power of attorney, under which Mr. Jiang Zhiyong would be the
nominee shareholder holding the 5% equity interest on behalf of Madison Qingdao and the rights
and equity relating to such 5% equity interest would be actually enjoyed and implemented by
Madison Qingdao.

Cooperation Agreement

Madison Qingdao and Qingdao Yanye entered into a project cooperation agreement on 17 April
2008, under which the two parties agreed to jointly develop the real estate project of “Spring Milan”.
In accordance with this agreement, Qingdao Yanye should be obligated to obtain the approvals for


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the state-owned land use right and the project and Madison Qingdao should not only bear all of the
expenses and cost relating to the project, including all the debts resulting from the development of
the projects. Madison Qingdao was also required by this agreement to pay Qingdao Yanye an
aggregate amount of RMB 118,000,000 by installments.




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REGULATORY ENVIRONMENT

Land Acquisition
Granting of Land-use Rights

Land in China is owned either by the state or by collectives. Nevertheless, land-use rights can be
granted by the state to domestic and foreign enterprises and private individuals for their exclusive
use of a piece of land for a specified purpose within a specified term on such terms and conditions
that may be prescribed. Where certain applicable conditions are met, the land-use rights may also
be legally transferred, leased or mortgaged. Under the Provisional Regulations of the People’s
Republic of China (PRC) Concerning the Grant and Transfer of the Right to Use State-owned Land
in Urban Areas as promulgated by the State Council in May 1990 (the “Urban Land Regulations”),
local governments at or above county level have the authority to grant land-use rights for specific
purposes and a definite period to a land-user pursuant to a contract for the grant of land-use rights
upon payment of a grant premium.

Under the Urban Land Regulations, the maximum term of a land grant ranges from 40 years to 70
years depending on the type and purposes of land-use listed as follows:

 Type of Use                                                Maximum Term (in years)
 Residential                                                                          70
 Industrial                                                                           50

 Educational, scientific and technological,                                           50
 cultural, medical or sports
 Combined or other purposes                                                           50

 Commercial, Tourism and Entertainment                                                40

                                                                                                 Upon
expiration of the term of grant, renewal is possible subject to the execution of a new contract for the
grant of land-use rights and the payment of a premium. If the term of the grant is not renewed, the
land-use rights and ownership of any buildings thereon will revert to the PRC government without
compensation.

Tender, Auction or Listing-for-sale of Land

Under the Urban Land Regulations, there are three different methods by which land-use rights may
be granted, namely by agreement, tender or auction. In accordance with the PRC Regulations on
Grant of State-owned Land-use Rights by Way of Tender, Auction and Listing-for-sale effective as
of 1 July 2002 (the “Construction Land Grant Regulations”), land-use rights for the purpose of
commercial use, tourism, entertainment and commodity residential properties and land plots with
two or more competitors intending to use such land plot shall only be granted through tender,
auction or listing-for-sale. Pursuant to the PRC Regulations on the Grant of State-owned
Construction Land-use Rights Through Bidding, Auction and Listing, effective as of 1 November
2007 (the “Amended Construction Land Grant Regulations”), land-used for industry shall also
be granted by way of auction, bidding or listing-for-sale.

Under PRC law, land-use rights procured in contravention of the mandatory requirements of public
bidding, auction and listing-for-sale are invalid and unenforceable. Furthermore, such non-
compliance will subject the government officials involved to the possibility of disciplinary actions.

Land Premium

On 31 August 2006, the State Council promulgated the PRC Notice on Issues Relating to
Strengthening the Land Control (“Notice 31”) which provides that the PRC government shall,
according to land status and regional land-use policy, set forth the minimum price for the granting


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of land for industrial use, and make public announcement for such minimum price. Such minimum
price shall not be lower than the sum of the original land acquisition cost, the cost for land pre-
development and relevant statutory fees. Notice 31 also provides that granting land at a price lower
than the minimum price or providing any subsidy or refund for land grant shall be unlawful.

In accordance with the Amended Construction Land Grant Regulations, no land-use rights
certificates shall be issued before all the land premium has been fully paid up pursuant to the land-
use rights grant contract, and the land-use rights certificates shall not be issued separately
according to the proportion of the payment of the land premium.

Land Grant Contract

A draft Land Grant Contract will in most cases be provided by the relevant land authorities and is
usually modelled upon the Model Text of the State-owned Construction Land-use Rights Grant
Contract that took effective on 1 July 2008. As mentioned previously, the state, through the offices
of local land authorities, grants land-use rights on such terms and conditions as it dictates.

The Land Grant Contract not only confers rights, but also imposes restrictions upon the grantee.
For example, there might be a restriction upon use for private residential purposes, permitted plot
ratio, and the dates for commencing or completing the development. That does not mean, however,
that the grantee can do what is not prohibited by the terms of the Land Grant Contract because
many restrictions are imposed on the development itself pursuant to applicable planning and
building legislation.

According to the PRC City and Countryside Planning Law, promulgated by the Standing Committee
of the National People’s Congress on 28 October 2007 and effective on 1 January 2008 (the
“Planning Law”) the competent planning authorities of a city or county shall, before granting state-
owned land-use rights in a planning area, set down such planning requirements related to location,
use, extent of development etc. as it deems appropriate. These shall then be included in the land
grant contracts. If the planning requirements are not incorporated into a land grant contract, such
contract is invalid. If any land has nevertheless been occupied, such land must be returned
promptly.

Transfer of Land-use Rights

After land-use rights relating to a particular area of land have been granted by the State, unless
any restriction is imposed, the party to whom such land-use rights are granted may transfer such
land-use rights for a term not exceeding the term which has been granted by the State. Land-use
rights cannot be transferred if the provisions of the grant contract, with respect to the prescribed
period and conditions of investment, development and use of the land, have not been complied
with. Also, under the PRC Administration of Urban Real Property Law, if land-use rights are
acquired by means of grant, the real property shall not be transferred before the following
conditions have been met: (i) the premium for the grant of land-use rights must have been paid in
full in accordance with the land-use rights grant contract and a land-use rights certificate must have
been obtained; (ii) investment or development must have been made or carried out in accordance
with terms of the land-use rights grant contract; (iii) where the investment or development involves
building construction, more than 25% of the total amount of investment or development must have
been made or completed; and (iv) where the investment or development involves a large tract of
land, conditions for use of the land for industrial or other construction purposes have been satisfied.

All transfers of land-use rights must be evidenced by a written contract between the parties. Upon a
transfer of land-use rights, all rights and obligations contained in the contract pursuant to which the
land-use rights were originally granted by the State are deemed to be incorporated as part of the
terms and conditions of such transfer, depending on the nature of the transaction.


Legal Title and Registration of Real Estate
In China, there are generally two registers of property interests. Registration of land-use rights is
effected by the issuance of land-use rights certificates by the relevant land authorities to the land-
users. The legal title to a building is vested in an individual or entity by the issuance of building
property ownership certificates to such individual or entity. While a land-use rights certificate is
prima facie evidence of the certificate holder's legal right to use the land concerned, a building


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property ownership certificate is prima facie evidence of the certificate holder's legal title to the
building concerned.

According to the PRC Land Registration Regulations effective as of 1 February 2008 (“Land
Registration Regulations”) issued by the Ministry of Land and Resources and the PRC Real
Properties Registration Regulations issued by the Ministry of Construction, effective as of 1 July
2008 (“Real Properties Registration Regulations”), in the event of a discrepancy between the
land-use rights certificate or building ownership certificate and the relevant public records
maintained by the relevant land or real estate administration authorities, the latter shall prevail
unless their entries are proved erroneous.


Real Estate Development Enterprises
According to the PRC Administration of Urban Real Property Law, a real estate developer is
defined as an enterprise which engages in the development and operation of real estate for the
purpose of making profits (compared to construction of buildings for self-use purposes). The PRC
Regulations on Administration of Urban Real Property Development and Operation promulgated
and implemented by the State Council on 20 July 1998 (“Real Property Development
Regulations”) further clarify that “business of development and operation of real estate” refers to
the activities of construction of infrastructure and buildings and transfer of the property project as a
whole or disposal of the properties by means of either sale or lease-out.

Pursuant to the Real Property Development Regulations, a real estate developer must report its
establishment to the construction administration authority within 30 days of the receipt of its
business license, and shall in the meantime apply for an appropriate class of qualification for real
estate development. The scope of real estate development projects that a developer may engage
in is subject to its approved class of qualification. The PRC Provisions on Administration of
Qualifications of Real Estate Developers promulgated by the Ministry of Construction on March 29,
2000 (the “Provisions on Administration of Qualifications”) set out various conditions that might
be taken into account by the construction administration authorities when they consider which class
of qualification shall be granted to a developer. These conditions refer, inter alia, to the developer’s
assets as well as professional personnel and industrial achievements.

A provisional qualification certificate will be issued by the construction administration authority to an
eligible newly established developer. A developer shall not engage in any real estate development
and operation business unless it holds a real estate development qualification certificate.




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Development of Real Estate Projects
Permit for the Development and Operation of Real Estate

In accordance with the Regulations for Administration of Urban Real Estate Development and
Operation in Shandong Province and the Measures for Administration of Real Estate Development
and Operation Permit in Shandong Province, a developer is required to enter into a real estate
development contract with the government real estate development authority and to apply to the
same authority for a real estate development project handbook and a permit for development and
operation of real estate. A developer may apply for the permit for planning and constructing on land
and various other permits relating to the project only after it has obtained the permit for
development and operation of real estate.

Planning

Under the Measures for Control and Administration of Grant and Assignment of the Right to Use
Urban State-owned Land promulgated by the Ministry of Construction in December 1992, the
grantee under a land grant contract, i.e. a real estate developer, must further apply for a permit for
planning and construction on land from the relevant municipal planning authority. Only after
obtaining such a permit will a real estate developer be able to organize the necessary planning and
design work. Planning and design proposals in respect of a real estate development project are
again subject to relevant reporting and approval procedures as required under the Planning Law
and local statutes on municipal planning. Upon approval by the authorities, a permit for
construction works and planning will be issued by the relevant municipal planning authority.

Commencement of Construction

The Construction Law requires that a permit for construction should be obtained before the
commencement of any project construction. The PRC Notice Regarding Strengthening and
Regulating the Administration of New Commencement of Projects issued by the General Office of
the State Council on 17 November 2007 (“Notice on New Commencement of Projects”) further
requires that the commencement of project construction shall satisfy the following requirements:

      !      the project is in accordance with state industry policies, development and construction
             plans, land supply policies and market entry standards;

      !      relevant approval, verification or registration procedures for the project have been
             completed;

      !      the location and layout of the project is in accordance with city/village planning laws,
             and relevant procedures for obtaining a planning permit have been completed;

      !      the project has legally completed the land-use approval procedures, and a land-use
             agreement has been signed or a land allocation approval has been obtained. Land
             use rights in respect of any industrial, commercial, tourism, entertainment and
             commodity property projects shall be lawfully granted land-use rights by way of tender,
             auction or listing-for-sale;

      !      the approval for environmental impact evaluation has been duly obtained;

      !      the energy conservation evaluation and inspection for the fixed asset investment
             project has been duly completed;

      !      the construction entity has, before the commencement of the construction work and
             pursuant to relevant provisions in the Construction Law, obtained a work
             commencement permit or a work commencement report, and has adopted specific
             measures to ensure the quality and safety of the construction project; and

      !      other relevant requirements are in accordance with laws and regulations.




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Examination and Approval of Completion

The development of real estate projects must comply with various laws and legal requirements on
construction quality, safety standards and technical guidance on architecture, design and
construction work, as well as with the provisions of the relevant contracts. According to the
Regulations on the Quality Management of Construction Projects promulgated and implemented by
the State Council on 30 January 2000 and the Measures for Reporting Details Regarding
Acceptance Examination Upon Completion of Buildings and Municipal Infrastructure promulgated
by the Ministry of Construction in April 2000 and amended in October 2009, after construction of a
project is completed, a property developer shall apply to the property development authority (under
the people’s government at the county level or above) for an acceptance examination. Upon
reporting details of the acceptance examination, a record of acceptance examination will then be
issued. A real estate development project may not be delivered until and unless it has satisfactorily
passed the necessary acceptance examination.

Environmental Protection

The laws and regulations governing the environmental requirements for property development in
the PRC include the PRC Environmental Protection Law, the PRC Prevention and Control of Noise
Pollution Law, the PRC Environmental Impact Assessment Law and the Administrative Regulations
on Environmental Protection for Construction Projects.

Pursuant to these laws and regulations and depending on the impact of the project on the
environment, an environmental impact study report, an environmental impact analysis table or an
environmental impact registration form must be submitted to the relevant authorities by a developer
before the former will approve the commencement of the construction of the proposed property
development. In addition, upon completion of the property development, the relevant environmental
authorities will also inspect the property to ensure compliance with applicable environmental
standards and regulations before the property can be delivered to the purchasers.


Foreign Investment in the Real Estate Sector
Foreign-Invested Real Estate Enterprise

The PRC Circular of the General Office of PRC Ministry of Commerce (MOFCOM) on Relevant
Issues Concerning the Implementation of Opinions on Regulating the Entry of Foreign Investment
into the Real Estate Market and the Administration Thereof (Shang Zi Zi [2006] No. 192) issued on
14 August 2006 (“Circular 192”) defines a foreign-invested real estate enterprise as a foreign-
invested enterprise that engages in construction and operation of common residential buildings,
apartment, villas, hotels (restaurants), holiday resorts, office buildings, exhibition centers,
commercial facilities, theme parks and so on. The Industrial Guidance Catalogue for Foreign
Investment classifies foreign investment in various industries as encouraged, permitted, restricted
and prohibited. Currently, the classification of real estate business is as follows:

      !      Restricted: tract development (only permitted for Sino-Foreign Cooperative Joint
             Ventures, “CJVs”/Equity Joint Ventures, “EJVs”), construction and/or operation of
             high-end hotels, villas, high-end office buildings and international meeting and
             exhibition centers, property transactions in secondary market and real estate
             intermediaries or brokers; and

      !      Permitted: other than those specified above.

Commercial Presence

Under the PRC Opinions on Regulating the Entry of Foreign Investment into the Real Estate
Market and the Administration Thereof (Jian Zhu Fang [2006] No. 171) promulgated by the Ministry
of Construction, the MOFCOM, the PRC National Development and Reform Commission
(“NDRC”), the People’s Bank of China (PBOC), PRC State Administration for Industry and
Commerce (“SAIC”) and Chinese State Administration of Foreign Exchange (SAFE) jointly on 11
July 2006 (“Circular 171”), any foreign institution or individual that intends to invest in and procure
property for other than self-use in China must follow the principle of “commercial presence” and


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apply for the establishment of an foreign-invested enterprise pursuant to the regulations of foreign
investment in property. Foreign investors may only engage in real estate business in strict
compliance with their approved business scope.

Registered Capital

Under Circulars 171 and 192, where the total investment amount of a foreign-invested real estate
enterprise is USD 10 million or more, its registered capital shall be no less than 50 percent of the
total investment amount; where the total investment is between USD 3 million and USD 10 million,
the registered capital must not be less than 50% of the total investment; where the total investment
is less than or equal to USD 3 million, the registered capital must not be less than 70% of the total
investment.

Temporary Certificate of Approval and Business License

Under Circular 171, for the establishment of a foreign-invested real estate enterprise, the
commerce authorities and the administration for industry and commerce authorities shall be
responsible for the approval and registration of the foreign-invested real estate enterprise as well
as for the issuance of a temporary approval certificate for a foreign-invested enterprise and a
temporary business license (which is only effective for one year). Upon full payment of the land
grant fee for the land-use rights, the foreign-invested real estate enterprise should apply for the
land-use rights certificate. With such land-use rights certificate, it can obtain a formal approval
certificate for a foreign-invested enterprise from the commerce authorities and a formal business
license with the same approved business term as the formal approval certificate for a foreign-
invested enterprise.

Acquisition of Domestic Real Estate Enterprise

Under Circular 171, when acquiring domestic real estate enterprises by way of share transfer or
otherwise, foreign investors should make proper arrangements for the employees, handle the debts
of the banks and pay the consideration in one single payment with its own capital.

Project Company Principle

Under the PRC Circular on Further Strengthening and Regulating the Approval and Supervision of
Foreign Direct Investment in the Real Estate Sector (Shang Han Zi [2007] No. 50) jointly issued by
MOFCOM and SAFE on 23 May 2007 (Circular 50), before obtaining approval for the set-up of real
estate entities with foreign investment, (a) both the land-use rights certificates and housing
ownership right certificates should be obtained or, (b) contracts for obtaining land-use rights or
housing ownership rights should be entered into.

The entities established with foreign investment need to obtain approval before expanding their
business operations into the real estate development or operation sector, and they need to obtain a
new approval before they can engage in any new project of real estate development and/or
operation.

Fixed Return Prohibition

Under Circular 171, parties to real estate entities with foreign investment are not permitted to
guarantee a fixed investment return.

Filing with MOFCOM

Circular 50 requires that filing shall be effected immediately with MOFCOM regarding the
establishment of real estate entities with foreign investment approved by local PRC government
authorities according to applicable laws. For those real estate entities, which are wrongfully
approved by local authorities for their establishment, MOFCOM should carry out investigation and
order sanctions or corrections.

The PRC Circular of the General Affairs Department of SAFE on the Distribution of the List of the
First Batch of Foreign-invested Real Estate Projects Filed with the Ministry of Commerce (Hui Zong




                                                                                                160
Fa [2007] No. 130) issued on 10 July 2007 (“Circular 130”) provides that the filing requirement
shall be applicable to both the cases, a new formation and a capital increase.

Under the PRC Circular of the Ministry of Commerce on Better Implementation of the Filing of
Foreign Investment in Real Estate Industry (Shang Zi Han [2008] No. 23) issued on 13 June 2008
(“Circular 23”), MOFCOM delegated its verification power regarding the filing of foreign investment
in real estate to the provincial level commerce authorities. The filing obligations shall apply to the
cases of new formation, capital increase, equity transfer, issuance of new shares and mergers and
acquisitions.


Foreign Exchange Control
Overview on Foreign Exchange Control Policy

The lawful currency of the PRC is the Renminbi, which is subject to foreign exchange control and is
not freely convertible into foreign exchange at this time. China exercises government control on the
inflow and outflow of foreign exchange. SAFE and its local offices are the government authorities in
charge of the administration of foreign exchange matters in China.

Foreign exchange is regarded by SAFE as having two sources, i.e. current items and capital items.
Current items generally refer to regular international transactions, such as trading of goods and
services. Current items are further divided into two sub-categories: trading items (i.e. trading of
tangible goods) and non-trading items (i.e. trading of services, transfer/licensing of intellectual
property, etc.). Capital items generally refer to those international transactions which may lead to
the increases/decreases of capital and loans, such as direct investment, loans and security
investment.

In practice, the inflow and outflow of foreign exchange under current items has much less
restrictions than under capital items which should be subject to a set of stringent requirements
given that the former is evidenced to have a real and legal basis.

Normal Ways of Cash Repatriation from China

With respect to a foreign-invested enterprise, normal methods which may be used by its overseas
investor to repatriate cash from such foreign-invested enterprise, include dividend distribution,
service fee payments, repayment of shareholder loans, goods trading, royalty payments/technical
service fees.

Special Control over Real Estate Sector

Under the Notice of SAFE and the Ministry of Construction on Regulating the Administration of
Foreign Exchange in the Real Estate Market, issued on 1 September 2006 (“Circular 47”), if a
foreign-invested real estate enterprise fails to pay the registered capital in full or to acquire a state-
owned land-use rights certificate or to make a capital contribution to a development project of at
least 35% of the project’s total investment, the foreign exchange authority will not process its
foreign debt registration or approve its settlement of foreign currencies of foreign debt;

Under Circular 47, if a foreign institution or individual acquires a domestic property enterprise and
fails to pay the transfer price in a lump sum from own funds, the foreign exchange authority will not
process the registration of foreign exchange for income derived from the transfer of equity;

Under Circular 47, if the parties to a Sino-foreign joint venture reach an agreement on a fixed
return, either explicitly or in a disguised manner, in a joint venture contract, articles of association,
equity transfer agreement or any other document, the foreign exchange authority will not process
the foreign exchange registration or registration modification of the foreign-invested enterprise;

Under Circular 50, foreign exchange authorities and banks authorised to conduct foreign exchange
business should not effect foreign exchange settlements regarding capital account items to those
which fail to do the relevant filing with MOFCOM or fail to pass the annual reviews. For those real
estate entities which are wrongfully approved by local authorities for their formation, no foreign
exchange registrations shall be carried out by the foreign exchange authorities.



                                                                                                     161
Under Circular 130, the ability of foreign-invested real estate companies is restricted to raising
funds from offshore and to then inject such funds into the company either through capital increase
or by way of shareholder loans:

      !      SAFE will no longer process foreign debt registration or foreign debt application for
             settlement of foreign exchange for real estate enterprises with foreign investment that
             have obtained the certificate of approval (including new formation and capital
             increase) from and filed with the MOFCOM on or after 1 June 2007; and

      !      SAFE will no longer process foreign exchange registrations (or changes of such
             registrations) or applications for the settlement and sale of foreign exchange for real
             estate enterprises with foreign investment that obtained approval certificates from
             local commerce authority on or after 1 June 2007 but have not done a filing with
             MOFCOM.

Funds in a special foreign exchange account for foreign investors opened in a bank within the PRC
by a foreign institution or individual shall not be used to develop and operate real estate property.
Under Circular 142, foreign-invested enterprises are not allowed to convert foreign exchange on
their capital accounts into RMB for the procurement of non-self-use real estate in China.


Mergers and Acquisitions of Domestic Enterprises by Foreign
Investors
On 8 August 2006, six PRC regulatory agencies, including MOFCOM and China Securities and
Regulatory Commission (CSRC), jointly promulgated the M&A Provisions, a new regulation with
respect to mergers and acquisitions of domestic enterprises by foreign investors. It became
effective on 8 September 2006 and amended on 22 June 2009.

The M&A Provisions require that mergers and acquisitions of domestic enterprises by foreign
investors have to be approved by MOFCOM or its counterparts at the provincial level. Under the
M&A Provisions, “mergers and acquisitions” refers to both equity acquisitions and asset
acquisitions. Under the M&A Provisions, a “domestic company” for the purpose of the M&A
Provisions is defined as a PRC company in which no foreign investor owns any registered capital.
MOFCOM’s or its local counterparts’ approval will especially be required in the following cases:

      !      a foreign investor purchases the equity in a domestic company or subscribes to a
             capital increase of a domestic company; or

      !      a foreign investor sets up a foreign-invested enterprise and uses this enterprise to
             purchase the assets of a domestic enterprise and to operate such assets; and

      !      a foreign investor agrees to purchase the assets of a domestic enterprise, such assets
             are then contributed to the registered capital of a foreign-invested enterprise and such
             foreign-invested enterprise then operates such assets.

The M&A Provisions require that a domestic company, enterprise or natural person shall obtain
approval from MOFCOM before any offshore company duly founded by or controlled by such
domestic company, enterprise or natural person makes an acquisition of a domestic company that
has an affiliation or relationship with such company, enterprise or natural person.

The M&A Provisions do not further provide a definition of “control” or “relation”. As a reference only,
in accordance with the PRC Company Law, “controlling shareholder” means a shareholder whose
capital contribution to a limited liability company accounts for no less than 50% of the company's
total capital or whose shareholding accounts for no less than 50% of the total share capital of a
company limited by shares; or a shareholder whose capital contribution or shareholding, although
accounting for less than 50%, is nonetheless, through the voting rights associated with his or her
capital contribution or his or her shareholding, able to materially affect the resolutions of the
shareholders' meeting or shareholders' general meeting. “De facto controller” means a person who,
although not being a shareholder of the company, is nonetheless able to direct the acts of the
company by virtue of an investment relationship, agreement or other arrangement. “Affiliated
relation” means the relationship between the company's controlling shareholder, de facto controller,


                                                                                                  162
director, supervisor or senior officer, on the one hand, and the enterprise he or she directly or
indirectly controls, on the other hand, as well as other relationships that could result in the transfer
of the company's interests.


Round-Trip Investments and Special Purpose Vehicles
MOFCOM and CSRC Approval

It is provided by the M&A Provisions that when a PRC company sets up a special purpose vehicle,
it shall obtain approval from MOFCOM in advance.

Under the M&A Provisions, a “special purpose vehicle” is defined as an offshore company that is
controlled directly or indirectly by a domestic company or PRC natural person and one that is
formed for the purpose of listing rights and interests in a domestic company (which are owned by
the aforementioned domestic company or PRC natural person) on an overseas stock exchange.

A special purpose vehicle shall also obtain the approval of CSRC prior to the listing and trading of
such special purpose vehicle’s securities on an overseas stock exchange, especially in the event
that the special purpose vehicle acquires shares of or equity interests in the PRC company in
exchange for the shares of the special purpose vehicle.

The M&A Provisions does not specifically require a PRC individual to obtain any approval from
MOFCOM before it can set up a special purpose vehicle.

Like other relevant PRC legislation on foreign investement, the M&A Provisions treat companies
and individuals from Hong Kong as non PRC companies/individuals. Therefore, the M&A
Provisions only cover the establishment of special purpose vehicles set up by PRC companies or
PRC individuals.

SAFE Registration

Pursuant to Circular 75, “special purpose vehicle” is an offshore company that is established or
indirectly controlled by PRC residents (legal entities and natural persons) and one formed for the
purpose of financing equity using those assets or rights and interests in a PRC enterprise which
are owned by the aforementioned PRC legal entities or natural persons. As mentioned above,
offshore companies set up by companies and/or individuals from Hong Kong are not covered by
the above definition of a “special purpose vehicle”,

Under the Implementation Procedures for Circular 75, a PRC resident’s holding of any shares in an
offshore company (notwithstanding the fact that such holding may not account for a control over
such offshore company) shall also be deemed as “establishment of an offshore company” for the
purpose of the definition of special purpose vehicle in the Circular 75.

For the purpose of Circular 75, “round-trip investment” is interpreted as a direct investment made
by PRC residents into the PRC through a special purpose vehicle by means of equity purchase or
share swap, through the setting up of a foreign-invested enterprise which then purchases or
controls the assets in the PRC by agreement, or through the purchase of the assets in the PRC by
agreement which are then contributed to the registered capital of a foreign-invested enterprise or
by way of a capital increase in a PRC enterprise.

For the purpose of Circular 75, “PRC resident legal person” is interpreted as a duly established
legal person or any other economic organisation in China, and “PRC resident natural person” is
interpreted as a natural person holding a PRC resident identity card or passport or any natural
person who does not legally hold a PRC identity but who has his/her usual domicile in China due to
economic relations.

For the purpose of Circular 75, PRC residents will be deemed to have “control” over a special
purpose vehicle or PRC enterprise if the PRC residents acquire the rights to operate, claim a profit
from or make decisions for such special purpose vehicle or PRC enterprise by means of
acquisition, trust, holding on behalf, voting, call-back or convertible bonds.




                                                                                                   163
Under the Implementation Procedures for Circular 75, “PRC resident natural person” is further
categorised as follows:

       !      a natural person having permanent domicile in the PRC but leaves such domicile for
              the reason of travel, study, medical treatment, work or requirement of overseas
              government for staying as a resident in a foreign country, and who will come back to
              his/her permanent domicile when the aforementioned reason no longer exists;

       !      a natural person holding the rights and interests (not arising from any foreign
              investment) in a PRC enterprise; or

       !      a natural person holding rights and interests (not arising from any foreign investment)
              in a PRC enterprise which is subsequently converted into a foreign-invested enterprise
              while such natural person remains the ultimate controller of such rights and interests.

Under Circular 75, PRC residents must register with the relevant SAFE branches for their offshore
investment in a special purpose vehicle before they are allowed to establish or control a special
purpose vehicle.

Under Circular 50, acquisitions of real estate entities and foreign investment in the real estate
sector by way of round-trip investment should be strictly regulated. Foreign investors should not
avoid foreign investment approval procedures by replacing persons exercising de facto control. As
soon as SAFE is aware of any foreign-invested real estate enterprise that is established by means
of wilful circumvention of the law or through false statements and that remits the capital or profit out
of the PRC, SAFE will regard such remittance as an unlawful foreign exchange transaction and
impose a penalty thereon.

Insurance of Property

There is no mandatory provision in PRC laws, regulations and government rules requiring a
property developer to take out insurance policies for its real estate developments. According to
common practice in the property industry in China, construction companies are usually required to
submit insurance proposals in the course of tendering and bidding for construction projects.
Construction companies must pay for the insurance premium at their own cost and take out
insurance to cover their liabilities, such as third party’s liability risk, employer’s liability risk, risk of
non-performance of contract in the course of construction and other kinds of risks associated with
the construction and installation works throughout the construction period. The insurance coverage
for all these risks will cease immediately after completion and acceptance upon inspection of
construction.




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SHAREHOLDER STRUCTURE
The following table provides an overview of the shareholding structure and the participation of the
shareholders in the share capital of the Company prior to the Offering and upon completion of the
Offering assuming the placement of all of the Offer Shares.

          Name             Shareholdings before      Shareholdings     Following completion
                               the Offering      following completion   of Offering (with full
                             (percentage and      of Offering (without exercise of Greenshoe
                            number of shares)   exercise of Greenshoe          Option)
                                                        Option)
       Falcon Grow
   Investments Limited               92%                     79,02%                     77,72%

                                                            3,220,000                  3.167.100
                                  3,220,000
      Mr. Wah Lam
                                    3.25%                     2,79%                      2,75%

                                                                                        111.881
                                                             113,750
                                   113,750
   Best Way Ecological
        Food Inc.                   3.25%                     2,79%                      2,75%

                                                             113,750                    111.881
                                   113,750
  Kvalue Financial Co.,
          Ltd.                       1.5%                     1,29%                      1,27%

                                                              52,500                     51.638
                                    52,500



The Company’s CEO, Mr. Qingtong Tian is an indirect shareholder of Falcon Grow Investments Limited
(Falcon Grow). Through this indirect shareholding Mr. Tian indirectly holds 3,170,300 shares in the Company,
representing 88.78% of the Company’s share capital at the date of this Prospectus and hence assumes the
position of a controlling shareholder. There are no special measures in place to ensure that such control is not
abused besides the general statutory and regulatory rules on the duties of care applicable to members of a
German AG’s management board. The Company is not aware of any other member of the Company’s
management board and supervisory board who, directly or indirectly, has an interest in the Company’s capital
or voting rights which is notifiable under German law.




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GENERAL INFORMATION ON THE COMPANY

Formation, Business Name, Registered Office, Financial Year and
Term of the Company
The Company is a German stock corporation (Aktiengesellschaft) operating under German law.
The Company was founded as a shelf company by Mss. Anneliese and Ina Regenbogen by means
of a notarial deed of incorporation (Gründungsurkunde) (Roll of Deeds No. 272/2008 of the notary
public Hans Friedrich von Homeyer, Buxtehude, Germany) dated 30 April 2008 with a registered
shared capital of EUR 50,000. The Company was founded under the legal and business name
(Firma) “ISARAGIL Aktiengesellschaft” with its registered business address in Münsing, Germany.
The formation of the Company became legally effective upon registration in the commercial register
(Handelsregister) with the local court (Amtsgericht) of Munich on 8 May 2008. The Company was
registered under registration number HRB 173558. Ms. Anneliese Regenbogen subscribed for
99.8% of the share capital and Ms. Ina Regenbogen for 0.2% of the share capital. Upon
effectiveness of the Company’s formation, Ms. Anneliese Regenbogen held 49,900 shares,
representing 99.8% of the share capital and Mrs. Ina Regenbogen held 100 shares, representing
0.2% of the share capital. Mmes. Anneliese Regenbogen and Ina Regenbogen transferred the
shares to Falcon Grow with share purchase agreement dated 20 August 2008. On 12 August 2010,
Falcon Grow transferred to each Mr. Wah Lam and Best Way Ecological Food Inc. 113,750 shares,
representing 3.25% of the share capital, respectively. On 19 October 2010, Falcon Grow
transferred 52,500 shares, representing 1.5% of the share capital, to Kvalue Financial Co., Ltd.. As
at the date of this Prospectus the Company has the following shareholders: Falcon Grow holds
3,220,000 shares, representing 92% of the share capital, Mr. Wah Lam holds 113,750 shares,
representing 3.25% of the share capital, Best Way Ecological Food Inc. holds 113,750 shares,
representing 3.25% of the share capital, and Kvalue Financial Co., Ltd. holds 52,500 shares,
representing 1.5% of the share capital.

The Company changed its registered business address (Sitz) from Münsing to Eschborn by means
of a notarial deed of the shareholders’ general meeting (Roll of Deeds No. 938/2008 of the notary
public Dr. Heinz L. Bauer, Frankfurt a.M., Germany) dated 3 September 2008. The change of
registered business address became legally effective upon registration in the commercial register
with the local court of Frankfurt a.M. on 5 December 2008. The Company was registered under
registration number HRB 84451. On 14 January 2010 another shareholders’ general meeting of the
Company was held during which resolutions for a change of the Company’s name from “ISARAGIL
Aktiengesellschaft” to “Madison Property AG” and an increase of the share capital were passed.
The Company’s registered business address was changed from Eschborn to Berlin by way of a
shareholders’ resolution passed at another shareholders’ general meeting held on 11 August 2010.

The legal and business name of the Company is “Madison Property AG”. The Company is
registered with the commercial register of the local court (Amtsgericht) of Charlottenburg (Berlin)
under registration number HRB 129015. The Company has its registered business address at c/o
Salans LLP, Markgrafenstraße 33, 10117 Berlin, Germany (telephone number: +49 (0) 30 –
74396692). The Company’s financial year runs from 1 May of each year to 30 April of the following
year. The Company has been established for an unlimited period of time.


Business Purpose of the Company
The Company engages in business activities outside of Germany. According to Section 2 of the
Company’s Articles of Association (Satzung) the Company has full capacity to carry on or
undertake any business or activity, do any act or enter into any transaction and provides of full
rights, powers and privileges for these purposes. The Company’s principal business is to act as a
holding company of its Chinese operating subsidiaries which buy, own, hold, subdivide, lease, sell
and rent properties, develop land and buildings and provide consulting services as may seem
expedient without prejudice to the generality of the foregoing.




                                                                                               166
Group Structure and Recent Corporate Restructuring of the Madison Group

The current corporate structure of Madison Group is as follows:

Corporate Structure:




                                                                          167
                                            Overview

Madison Group comprises twelve companies, namely Madison Property AG, Madison Property
Group Limited (“Madison Hong Kong”), Madison Qingdao Property Group Company Limited
(“Madison Qingdao”), Qingdao Junxin Properties Company Limited (“Qingdao Junxin”), Madison
Zibo Real Estate Company Limited (“Madison Zibo”), Madison Tai’an Real Estate Company
Limited (“Madison Tai’an”), Chongqing Yinlian Investments Company Limited (“Chongqing
Yinlian”), Chongqing Longkunxiang Properties Company Limited (“Chongqing Longkunxiang”),
Qingdao Jundong Properties Company Limited (“Qingdao Jundong”) and Qingdao Guanghua
Properties Company Limited (“Qingdao Guanghua”) Qingdao Xianggen Quanhai Zhiye Company
Limited (“Qingdao Xianggen Quanhai”) and Qingdao Junyang Zhiye Company Limited (“Qingdao
Junyang”). Falcon Grow Investment Limited (“Falcon Grow”) is the majority shareholder of
Madison Property AG and holds 92% of its shares.

The Company is majority-owned by Falcon Grow which is a limited liability company established in
the Cayman Islands with its registered office at Offshore Incorporations (Cayman) Limited, Scotia
           th
Centre, 4 Floor, P.O.Box 2804, George Town, Grand Cayman, KY1-111-2, Cayman Islands. The
Company assumes the position of a holding company with respect to the other companies. The
Company holds 100% of equity interest in its subsidiary Madison Hong Kong. Madison Hong Kong
is an intermediate holding company, and it is a limited liability company established under the laws
of Hong Kong with business address at Unit 06, 21 F, Beautiful Group Tower, 77 Connaught Road,
Central, Hong Kong. The operational business of Madison Group is carried out by the following
entities: Madison Qingdao, Qingdao Junxin, Madison Zibo, Madison Tai’an, Chongqing Yinlian,
Chongqing Longkunxiang, Qingdao Jundong and Qingdao Guanghua. Madison Hong Kong holds
100% of equity interest in Madison Qingdao and Madison Qingdao holds 100% of equity interest in
its following subsidiaries: Madison Zibo, Madison Tai’an, Chongqing Longkunxiang, Chongqing
Yinlian, Qingdao Jundong and Qingdao Junyang. Madison Qingdao holds 97% of equity interest in
Qingdao Guanghua and its joint venture partner, Mr. Luan Yong, holds the remaining 3% of equity
interest in Qingdao Guanghua. Madison Qingdao holds 60% of equity interest in its subsidiary
Qingdao Junxin while the remaining 40% of equity interest in Qingdao Junxin is held by Qingdao
GaokeJi Industry Park Property Management Development Center (“GaokeJi Industry Park”)
through the nominee shareholders Qingdao Hanlan Real Estate Development Company Limited
and Qingdao Hanlan Company Limited by Shares (with Qingdao Hanlan Real Estate Development
Company Limited and Qingdao Hanlan Company Limited by Shares each holding 20% of shares).
In addition, Madison Qingdao holds 51% of equity interest in its joint venture Qingdao Xianggen
Quanhai with its joint venture partner Qingdao Xianggen Wenquan Zhiye Company Limited holding
the remaining 49%.

Madison Group’s Project Companies

The corporate details of the Company’s project companies are as follows:
Madison Qingdao, registered at Qingdao Administration for Industry and Commerce under
registration number 370200018017659 with the business address at 25/F Tanxiangwan Building
No.2, No.230 Shenzhen Road, Laoshan District, Qingdao, Shandong, People’s Republic of China
(PRC). The corporate term of Madison Qingdao commenced on 8 September 1998 and expires on
8 September 2028.
Qingdao Jundong, registered at the Chengyang Branch of the Qingdao Administration for Industry
and Commerce under registration number 370214020000083 with the business address at No.B-
10, Net Point, Lijiacao Village, Xiazhuang Street, Chengyang District, Qingdao, Shandong, PRC.
The corporate duration of Qingdao Jundong is for an indefinite term commencing on 29 February
2008.

Qingdao Junxin, registered at the Laoshan Branch of the Qingdao Administration for Industry and
Commerce under registration number 370212018073600 with the business address at Hanhe
Community, Shazikou Street, Laoshan District, Qingdao, Shandong, PRC. The corporate term of
Qingdao Junxin is for an indefinite term commencing on 25 May 2004.

Madison Tai’an, registered at the Tai’an Administration for Industry and Commerce under
registration number 370900018008996 with the business address at 8/F No.159, Dongyue Avenue,
Tai’an, Shandong, PRC. The corporate duration of Madison Tai’an is for an indefinite term
commencing on 17 October 2002.



                                                                                               168
Madison Zibo, registered at the Zibo Administration for Industry and Commerce under registration
number 370300228057961 with the business address at No.118, Shiji Road, Zhangdian District,
Zibo City, Shandong, PRC. The corporate term of Madison Zibo commenced on 22 January 2001
and expires on 21 February 2021.

Chongqing Longkunxiang, registered at the Jiang Bei District Branch of Chongqing
Administration for Industry and Commerce under registration number 5000105000025153 with the
business address at No.9, Jianguo Village, Jiangbei District, Chongqing, PRC. The corporate term
of Chongqing Longkunxiang commenced on 3 September 1998 and expires on 16 September
2013.

Chongqing Yinlian, registered at the Jiang Bei District Branch of Chongqing Administration for
Industry and Commerce under registration number 500105000002646 with the business address at
No.4, Building, No.9 Jianguo Village, Jiangbei District, Chongqing, PRC. The corporate term of
Chongqing Longkunxiang commenced on 31 December 1997 and expires on 31 December 2017.

Qingdao Guanghua, registered at the Licang Branch of Qingdao Administration for Industry and
Commerce under registration number 370213228070391 with the business address at No. 7
Beiyuan Road, Licang District, Qingdao, Shandong, PRC. The corporate term of Qingdao
Guanghua is for an indefinite term commencing on 20 November 2002.

Qingdao Xianggen Quanhai, registered at the Jimo Administration for Industry and Commerce
under registration number 370282230000172 with the business address at the Jimo Wenquan
County, Qingdao, PRC. The corporate term of Qingdao Xianggen Quanhai is for five years
commencing on 19 December 2007.

Qingdao Junyang, registered at the Chengyang Branch of the Qingdao Administration for Industry
and Commerce under registration number 370214020001297 with the business address at Suite
No. 501, 502 Xiazhuang Street, Donggu Town Community Residence Committee Office,
Chengyang District, Qingdao, Shandong, PRC. The corporate duration of Qingdao Junyang is for
an indefinite term commencing on 2 September 2010.

Madison Qingdao

Madison Qingdao was incorporated on 8 September 1998 as a company limited by shares. In
January 2008, Madison Qingdao was converted from a company limited by shares into a limited
liability company. The total registered capital of Madison Qingdao has been changed five times.
Madison Qingdao’s original registered capital upon its incorporation in September 1998 was RMB
12,000,000; its current registered capital is RMB 84,448,500.

When Madison Qingdao was established, its registered shareholders were Madison Real Estate,
Qingdao Tianjia Trade Company Limited, Qingdao Xinguoji Group Company Limited, Qingdao
Gold, Qingdao Tax Free Zone Tongxiang International Trade Company Limited and employees of
Madison Qingdao. Pursuant to the PRC Company Law, effective on 29 December 1993, more than
five persons were required to establish a company limited with shares. In order to satisfy such
requirement, Mr. Tian entered into nominee shareholder agreements with the aforementioned
registered shareholders. Under these nominee shareholder agreements, the aforementioned
registered shareholders were entrusted to hold the shares of Madison Qingdao on behalf of Mr.
Tian, and Mr. Qingtong Tian was meant to be the de facto controlling person and the 100%
beneficial shareholder of Madison Qingdao pursuant to these agreements. It was furthermore
agreed that the nominee shareholder agreements would terminate, as soon as the shares held by
the relevant nominee shareholder were transferred to a third party designated by Mr. Tian.

On 25 January 2008, Tian and Qingdao Yizhai reached a modification agreement to the nominee
shareholder agreement dated 25 May 2003 between Qingtong Tian and Qingdao Yizhai. Under this
modification agreement, Mr. Tian’s rights provided in the nominee shareholder agreement dated 25
May 2003 between these two parties were transferred to Joyful Merit Limited (the predecessor of
Madison Hong Kong). On the same day, Tian and Qingdao Gold concluded a modification
agreement to the nominee shareholder agreements dated 1 September 1998 and 29 October 1999
between Tian Qingdao and Qingdao Gold. Under this modification agreement, Mr. Tian transferred
his rights provided in the nominee shareholder agreements dated 1 September 1998 and 29
October 1999 between these two parties to Joyful Merit Limited.



                                                                                           169
In March 2008, Madison Qingdao completed a restructuring, in the course of which Madison Hong
Kong acquired a 98.58% equity interest in Madison Qingdao. As a result of such equity acquisition,
Madison Qingdao was converted into a Sino-foreign joint venture, with Madison Hong Kong holding
a 98.58% equity interest of Madison Qingdao, Qingdao Yizhai holding a 0.07% equity interest of
Madison Qingdao and Qingdao Gold holding a 1.35% equity interest in Madison Qingdao. On 11
September 2008, Qingdao Gold transferred its 1.35% equity interest in Madison Qingdao to
Qingdao Nasiwei and Qingdao Yizha transferred its 0.07% equity interest in Madison Qingdao to
Qingdao Lianzhong. On 16 September 2008, Qingdao Nasiwei transferred its 1.35% equity interest
in Madison Qingdao to Madison Hong Kong and Qingdao Lianzhong transferred its 0.07% equity
interest in Madison Qingdao to Madison Hong Kong. As a result of the foresaid equity transfer,
Madison Qingdao has become the wholly owned subsidiary of Madison Hong Kong.

Madison Qingdao has modified its business scope five times since its incorporation date. Upon its
incorporation, Madison Qingdao’s business scope included as its main operation (1) “real estate
development and management, property management (operating with permit)”; (2) “decoration”; (3)
“manufacturing and installation of plastic steel, aluminum-alloy doors and windows, processing of
mechanical devices and electronic equipment”; (4) “wholesale and retail, purchase and sale
agency”;(5) “domestic commercial business (except for commodities which are forbidden by the
government)”; and (6) “technique consultation service”. Madison Qingdao currently has a business
scope of “development of Fragrance Town World under the State-owned Land Use Right
Certificate of Jiao Nan Guo Yong 2002 ZI No.4928 located at Qingdao Jiaonan and the residency
project with an area of 12468.1 m² located at south of Liao Yang West Road and east of Jin Song
Qi Road, Shibei District, Qingdao”.

Qingdao Jundong

Qingdao Jundong was incorporated on 29 February 2008 as a limited liability company with a
registered capital in the amount of RMB 20,000,000. It was established by Madison Qingdao and
Jiang Zhiyong, which held a 95% and a 5% equity interest, respectively, in Qingdao Junxin. Jiang
Zhiyong was a nominee shareholder entrusted by Madison Qingdao to hold the 5% equity interest
in Qingdao Jundong under a nominee shareholder agreement dated 10 February 2008. Jiang
Zhiyong transferred the 5% equity interest it held in Qingdao Jundong pursuant to a share transfer
agreement dated 31 August 2010 which was approved by relevant government authorities and took
effect on 7 September 2010.

Qingdao Jundong currently has a business scope of “general operation items: real estate
development, construction (the aforesaid items are to be operated with qualifications); sales of real
estate (the aforesaid items are to be operated with approval certificates if the approval is required)”.

Qingdao Junxin

An agreement on joint investment in Qingdao Junxin was entered into among Qingdao Hanlan
Group Company Limited (“Qingdao Hanlan”), Qingdao Hanhe Real Estate Development Company
Limited (“Qingdao Hanhe”), Madison Qingdao and Wang Zhenhe on 22 May 2004, under which
the parties agreed to jointly invest RMB 20,000,000 to establish Qingdao Junxin. Qingdao Junxin
was incorporated accordingly on 25 May 2004 as a limited liability company with a registered
capital in the amount of RMB 20,000,000.

Qingdao Junxin, Madison Qingdao, Qingdao Hanhe, Qingdao Hanlan, and Qingdao GaokeJi
Industry Park Property Management Development Center (GaokeJi Industry Park) jointly issued a
confirmation letter on 22 December 2008, under which it was confirmed that Qingdao GaokeJi
Industry Park Property Management Development Center was the beneficial shareholder of a 40%
equity interest in Qingdao Junxin while Qingdao Hanhe and Qingdao Hanlan which held such 40%
equity interest in Junxin as nominee shareholders on behalf of GaokeJi Industry Park did not enjoy
any right related to such 40% equity interest.

On 23 July 2004, Mr. Tian and Wang Zhenhe entered into a nominee shareholder agreement,
under which Mr. Tian entrusted Wang Zhenhe to hold a 10% equity interest in Qingdao Junxin on
behalf of Mr. Qingtong Tian.

On 25 October 2004, an equity interest transfer agreement was entered into between Wang
Zhenhe and Yang Xiaoming, under which Wang Zhenhe agreed to transfer all his equity interests



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in Qingdao Junxin to Yang Xiaoming for a consideration of RMB 2,000,000. On 23 September
2004, Mr. Tian entered into a nominee shareholder agreement with Yang Xiaoming, under which
Mr. Tian entrusted Yang Xiaoming to hold the 10% equity interest in Qingdao Junxin on behalf of
Mr. Tian.

According to a shareholders’ resolution dated July 3, 2006, Qingdao Hanhe changed its company
name to “Qingdao Hanlan Real Estate Development Company Limited” (“Hanlan REDC”). Further,
according to a Notice on Modification of Company Name dated December 21, 2007, Qingdao
Hanlan changed its company name to “Qingdao Hanlan Company Limited by Shares” (“Hanlan
CLS”).

In January 2008, Qingdao Junxin completed a restructuring. On 3 January 2008, an equity interest
transfer agreement was entered into between Yang Xiaoming and Madison Qingdao, under which
Yang Xiaoming agreed to transfer all his equity interests in Qingdao Junxin to Madison Qingdao
without consideration. As a result, Madison Qingdao holds a 60% equity interest, Hanlan REDC a
20% equity interest and Hanlan CLS the remaining 20% equity interest in Qingdao Junxin.

Qingdao Junxin currently has a business scope of “general operation items: real estate
development and management (the aforesaid items are to be operated with approval certificates if
the approval is required)”. However, Qingdao Junxin currently does not have a valid qualification
certificate for real estate development as its Interim Qualification Certificate for Real Estate
Development Enterprises expired on 30 September 2009. Without an effective and valid
qualification certificate, Qingdao Junxin is not allowed to engage in real estate development
activities in China.

Madison Tai’an

Madison Tai’an was incorporated on 17 October 2002 as a limited liability company with a
registered capital in the amount of RMB 10,000,000. When it was established, its shareholders
were Madison Qingdao and Song Wenbo, which held a 95% and a 5% equity interest in Madison
Tai’an, respectively.

On 28 January 2007, a shareholders’ meeting resolution was adopted according to which Madison
Tai’an’s registered capital was increased to RMB 30,000,000 by RMB 20,000,000, and according
to which Madison Qingdao would subscribe to the total amount of such increased capital. As a
result, Madison Qingdao held 98.33% of equity interest in Madison Tai’an.

Mr. Tian and Song Wenbo entered into a nominee shareholder agreement on 5 September 2002
and a supplemental agreement to the above nominee shareholder agreement on 26 November
2006. According to the nominee shareholder agreement, Mr. Tian entrusted Song Wenbo to hold
the 5% equity interest in Madison Tai’an on behalf of him. According to the supplemental
agreement, the equity interest held by Song Wenbo on behalf of Mr. Qingtong Tian was changed
from 5% to 1.67% due to the capital increase of Madison Tai’an.

On January 11 2008, Song Wenbo transferred his entire equity interest in Madison Tai’an to
Madison Qingdao for a consideration of RMB 500,000, and Madison Qingdao became the 100%
shareholder of Madison Tai’an.

Madison Tai’an currently has a business scope of “decorating (excluding advertising), sales of
mechanical and electronic equipments (excluding the commodities for which pre-approval is
required by the state), installation of doors and windows made of plastic steel or aluminium alloy,
real estate development and operation (the aforesaid items are to be operated based on
qualification certificates)”.

Madison Zibo

Madison Zibo was incorporated on 22 February 2001 as a limited liability company with a
registered capital in the amount of RMB 13,000,000. When it was established, its shareholders
were Madison Qingdao, Qingdao Haotai and Shenlian Commerce, which held a 46.14%, a 26.92%
and a 26.92% equity interest in Madison Zibo, respectively. However, Qingdao Haotai and
Shenlian Commerce were only nominee shareholders which held their equity interest in Madison




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Zibo on behalf of Madison Qingdao under the relevant nominee shareholder agreements dated 20
January 2001.

In June 2004, a shareholders’ meeting resolution of Madison Zibo was adopted according to which
the registered capital of Madison Zibo was increased to RMB 30,000,000.

On 11 January 2008, Qingdao Haotai, Chongqing Yinlian and Wang Xiaoying respectively entered
into an equity transfer agreement with Madison Qingdao and transferred all of its/his equity interest
in Madison Zibo to Madison Qingdao. As a result, Madison Qingdao became the 100% shareholder
of Madison Zibo.

Madison Zibo currently has a business scope of real estate development and sale (subject to
approvals and permits where required).

Chongqing Longkunxiang

Chongqing Longkunxiang was established by two individual shareholders, i.e. Lu Aijun and Zhai
Guanghua, on 3 September 1998 as a limited liability company with a registered capital in the
amount of RMB 10,000,000. As a result of a shareholders’ resolution of Chongqing Longkunxiang
dated 28 May 2000, the registered capital of Chongqing Longkunxiang was increased from RMB
10,000,000 to RMB 20,000,000.

In January 2008, Song Wenbo and Mr. Qingtong Tian transferred all of their equity interest in
Chongqing Longkunxiang to Madison Qingdao, with Madison Qingdao becoming the 100%
shareholder of Chongqing Longkunxiang as a result.

Upon its incorporation, its business scope was real estate development (Grade Two, management
of residential community and intelligent buildings, house rent, rent of construction facilities, sale of
construction materials, decoration materials, internal decoration, engineering technical consulting).
In July 2008, its business scope was modified to investment by using self-owned capital, lease of
house and building facilities (exclusive of financial lease and tower crane), and parking service.
Chongqing Longkunxiang obtained a Class Three qualification certificate for Real Estate
Development Enterprises on 27 August 2008, which was issued by the Chongqing Municipal
Construction Commission. The qualification certificate expired on 31 March 2010, and currently
Chongqing Longkunxiang does not have an effective and valid qualification certificate. Chongqing
Longkunxiang has no property project under construction at present.

Chongqing Yinlian

Chongqing Yinlian was established by Madison Real Estate Development Company Limited and
Qingdao Bonded Zone Tongxiang International Trading Company Limited on 31 December 1997
as a limited liability company with a registered capital in the amount of RMB 10,000,000. Madison
Real Estate Development Company Limited and Qingdao Bonded Zone Tongxiang International
Trading Company Limited held a 75% and a 25% equity interest in Chongqing Yinlian, respectively,
while both Madison Real Estate Development Company Limited and Qingdao Bonded Zone
Tongxiang International Trading Company Limited were only nominee shareholders which were
entrusted by Mr. Tian to hold equity interest in Chongqing Yinlian on behalf of Mr. Tian under the
relevant nominee shareholder agreements dated 20 December 1997.

In January 2002, the registered capital of Chongqing Yinlian was increased to RMB 34,000,000.

In January 2008, Mr. Tian and Song Wenbo transferred all of their equity interests, i.e. 100%
altogether, in Chongqing Yinlian to Madison Qingdao. After such equity transfer, Madison Qingdao
held a 100% equity interest in Chongqing Yinlian. On 28 July 2009, an equity transfer agreement
was entered into between Madison Qingdao and Mr. Tian, under which Madison Qingdao
transferred its 100% equity interest in Chongqin Yinlian to Mr. Tian. On 12 July 2010, Madison
Qingdao and Mr. Tian entered into another equity transfer agreement, under which Mr. Tian
transferred its 100% equity interest in Chongqin Yinlian back to Madison Qingdao. After such
restructuring, Chongqing Yinlian became a wholly-owned subsidiary of Madison Qingdao.

When Chongqing Yinlian was incorporated, its business scope was movable property, real estate,
transportation, warehousing, hi-tech and product project investment (prohibited from absorbing


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savings and deposits from the general public); property restructuring and transaction consulting
services (except for those subject to special rules of the State); agricultural, information, hi-tech
and product development; real estate development (subject to the qualification certificate as issued
by the competent construction authorities), property management, corporate trust; sale of
construction materials, chemical products (excluding hazardous chemical products), steel,
electrical machinery, grain and oil, metal, mineral products (excluding products subject to special
rules of the State), communications devices (excluding launching and receiving equipment) and
agricultural products. In June 2006, its business scope was changed into movable property, real
estate, transportation, warehousing, hi-tech and product project investment (prohibited from
absorbing savings and deposits from the general public); property restructuring and transaction
consulting services (except for those subject to special rules of the State); Agricultural, information,
hi-tech and product development; equipment leasing; sale of construction materials, chemical
products (excluding hazardous chemical products), steel, electrical machinery, metal, mineral
products (excluding products subject to special rules of the State), communications devices
(excluding launching and receiving equipment) and agricultural products (excluding grain
wholesale). Currently, Chongqing Yinlian does not have a qualification certificate for real estate
development.

Qingdao Guanghua
Qingdao Guanghua was originally established on 20 November 2002 as a limited liability company
with a registered capital of RMB 10,000,000. Upon establishment, the registered name of Qingdao
Guanghua was Qingdao Qingyuan Properties Company (“Qingdao Qingyuan”), which was
changed to Qingdao Guanghua’s current name in 2007. Its current business scope is the
development of real estate, preparation of construction projects and the lease of commercial
space. In December 2009, the registered capital of Qingdao Guanghua was increased to RMB
20,000,000.

On 26 September 2007, an equity transfer agreement was entered into between Mr. Tian and
Chen Hailing, under which Chen Hailing agreed to transfer the 97% equity interest in Qingdao
Guanghua to Mr. Tian for a consideration of RMB 9,700,000, and on the same day, Mr. Tian and
Ding Wenli entered into a nominee shareholder agreement, under which Mr. Tian entrusted Ding
Wenli to hold the 97% equity interest in Qingdao Guanghua on behalf of Mr. Tian.

On 16 August 2009, Mr. Tian and Chen Haihua entered into a nominee shareholder agreement,
under which Mr. Tian entrusted Chen Haihua to hold the 97% equity interest in Qingdao Guanghua
on behalf of Mr. Tian, and on the same day, an equity transfer agreement was entered into
between Ding Wenling and Chen Haihua, under which Ding Wenli agreed to transfer the 97%
equity interest in Qingdao Guanghua to Chen Haihua. As the registered capital of Qingdao
Guanghua was increased to RMB 20,000,000, on 1 December 2009, Mr. Tian and Chen Haihua
entered into a new nominee shareholder agreement, under which Mr. Tian entrusted Chen Haihua
to hold the 97% equity interest (RMB 19,400,000) in Qingdao Guanghua on behalf of Mr. Tian.

On 2 April 2010, Mr. Tian entered into a Share Transfer Agreement with Madison Qingdao, under
which Mr. Tian agreed to transfer 97% of the equity interest in Qingdao Guanghua to Madison
Qingdao. On 5 July 2010, an equity transfer agreement, under Mr. Tian’s instruction, was entered
into by Chen Haihua, a shareholder of Qingdao Guanghua at the time, and Madison Qingdao,
under which Chen Haihua transferred the equity interest of RMB 19,400,000 in Qingdao Guanghua
to Madison Qingdao. As a result of such equity transfer, Madison Qingdao and an individual named
Luan Yong hold 97% and 3% of the equity interest in Qingdao Guanghua, respectively.

Qingdao Xianggen Quanhai

Qingdao Xianggen Quanhai was established by Qingdao Xianggen Wenquan Zhiye Company
Limited (“Xianggen Wenquan”) as its sole shareholder on 19 December 2007 as a limited liability
company with a registered capital of RMB 10,000,000. Its current business scope is development
and operation of real estate.

On 30 January 2008, an equity transfer agreement was entered into between Madison Qingdao
and Xianggen Wenquan, under which Xianggen Wenquan transferred a 49% equity interest in
Xianggen Quanhai to Madison Qingdao. As a result of such equity transfer, Madison Qingdao and
Xianggen Wenquan held 49% and a 51% of the equity interest in Qingdao Xianggen Quanhai
respectively.


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On 9 October 2010, another equity transfer agreement was entered into between Madison Qingdao
and Xianggen Wenquan under which Xianggen Wenquan transferred another 2% equity interest in
Qingdao Xianggen Quanhai to Madison Qingdao. As a result of such equity transfer, Madison
Qingdao and Xianggen Wenquan hold 51% and 49% of the equity interest in Qingdao Xianggen
Quanhai respectively.

Qingdao Junyang

Qingdao Junyang was established by Madison Qingdao as its sole shareholder on 2 September
2010 as a Chinese limited liability company with a registered capital of RMB 20,000,000. Its current
business scope is the development of real estate, building and construction (based on its
qualification); sale of real estate (for projects that require special permits, the relevant permit must
be first obtained).


Notices
Pursuant to its Articles of Association (Satzung), notices of the Company will be made in the
electric version of the German Federal Gazette (elektronischer Bundesanzeiger). Publications
required by stock exchange laws and regulations will be made in a national journal designated for
such purposes by the Frankfurt Stock Exchange.

Notices related to the approval of the Prospectus or amendments to the Prospectus will be made
pursuant to the provisions of the German Securities Prospectus Act (Wertpapierprospektgesetz)
and will be published in the form intended for Prospectuses, i.e., on the website of Madison AG
with a printed version available at the office of Madison AG.


Paying and Depositary Agent
The paying agent for Germany is VEM Aktienbank AG. The depository agent is Clearstream
Banking AG, Neue Börsenstrasse 1, 60485 Frankfurt am Main, Germany.




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INFORMATION ON THE SHARE CAPITAL                                              OF      MADISON
PROPERTY AG AND APPLICABLE PROVISIONS

Share Capital
The registered share capital of the Company (eingetragenes Grundkapital) amounts to
EUR 3,500,000 and is divided into 3,500,000 non-par value ordinary bearer shares
(Inhaberstückaktien). All shares are fully paid in and are of the same class, namely non-par value
ordinary bearer shares.

According to section 4 of the Company’s Articles of Association each share in the Company
confers upon a shareholder (i) the right to one vote at a meeting of the shareholders or on any
written resolution of the shareholders, (ii) the right to an equal share in any dividend paid by the
Company and (iii) the right to an equal share in the distribution of the surplus assets of the
Company upon its liquidation. The shares carry full dividend entitlement for the entire financial year
2010/2011 and all subsequent financial years. In the event that the Company is dissolved, the
Company’s assets remaining after settlement of its liablilities will be distributed among the
shareholders in proportion of their share capital.

The management board determines the form of the share certificates as well as the dividend
coupons and renewal coupons. Global share certificates may be issued.

The Company’s current share capital will be represented by one or several global share certificates
without dividend coupons, which will be deposited with Clearstream Banking AG, Neue
Börsenstrasse 1, in 60485 Frankfurt am Main, Germany. For the shares originating from the
Authorised Capital I or Contigent Share Capital 2010 additional global certificates will be issued
and subsequently deposited with Clearstream Banking AG, Neue Börsenstrasse 1, 60485 Frankfurt
am Main, Germany.


Development of the Share Capital
The Company was founded on 30 April 2008 and incorporated by registration in the commercial
register of the local court of Munich on 8 May 2008. At that time, the Company’s registered share
capital amounted to EUR 50,000 and was divided into 50,000 ordinary bearer shares with a par
value of EUR 1.00 each. On 14 January 2010 an extraordinary shareholder’s meeting was held
and the registered share capital was redivided in non-par-value shares and was increased from
EUR 50,000 to EUR 3,500,000 (notarial deed, Roll of Deed No. 31/2010 of the notary public,
Dr. Oliver Habighorst, Frankfurt a.M., Germany, dated 14 January 2010). The issuance of the new
3,450,000 non-par value ordinary bearer shares with a proportionate value of EUR 1.00 was
effected against a contribution in kind as well as against a contribution in cash by paying an
amount of EUR 200,000 under a share contribution agreement (Einbringungsvertrag). Pursuant to
this share contribution agreement, Falcon Grow contributed all shares in Madison Property Group
Limited (Hong Kong) to the Company’s registered capital. Falcon Grow subscribed for 100% of the
newly issued shares of the Company. Upon effectiveness of the increase of the Company’s
registered share capital, Falcon Grow held 3,500,000 shares, representing 100% of the share
capital of the Company. The registered share capital is fully paid in.

On the basis of a resolution of the shareholders’ general meeting held on 12 February 2010
(notarial deed, Roll of Deed No. 51/2010 of the notary public, Dr. Oliver Habighorst, Frankfurt a.M.,
Germany, dated 12 February 2010), the management board is authorised to increase the
registered share capital by up to EUR 1,750,000 through the issuance of up to 1,750,000 new non-
par value ordinary bearer shares with the approval of the supervisory board until 31 January 2015
(“Authorised Capital I”). The Authorised Capital I has been registered with the commercial
register of the local court of Frankfurt a.M. on 12 August 2010.

On 11 August 2010, a shareholders’ general meeting of the Company was held and resolved to
authorise the management board to increase the share capital of the Company with the approval of
the supervisory board until 1 August 2015 by up to EUR 1,750,000 through the issuance of up to
1,750,000 new non-par value ordinary bearer shares (“Contingent Share Capital 2010”). The


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Contingent Share Capital 2010 has been registered with the commercial register of the local court
of Berlin on 5 November 2010.


Authorised Share Capital
As at the date of this Prospectus, the authorised capital of the Company amounts to EUR
1,750,000. According to Section 4 para. 6 of the Company’s Articles of Association, the
management board is authorised to increase the share capital of the Company with the consent of
the supervisory board until 31 January 2015 once or several times by up to EUR 1,750,000 through
the issuance of up to 1,750,000 new non-par value ordinary bearer shares in cash or in
contributions in kind (“Authorised Capital I”).

In case of a capital increase based on the Authorised Capital I, the management board is
authorised, in each case with the consent of the supervisory board, to provide that the pre-emption
rights of the shareholders are excluded. An exclusion of the pre-emption rights, however, is only
admitted in the following cases:

    !   for fractional amounts;

    !   as far as necessary to grant holders of convertible bonds, profit participation rights with
        conversion components, or stock options, pre-emptive rights equivalent to the pre-emptive
        rights that they would have as shareholders after the exercise of the conversion rights or
        pre-emptive rights;

    !   if the shares are issued in consideration of contributions in cash at an issue price which is
        not substantially below the stock exchange price and the exclusion of the pre-emption
        rights is only applied to new shares that represent not more than 10% of the share capital;
        for the calculation of the 10% limitation, any other exclusion of the pre-emption-rights
        according to Section 186, para. 3, sentence 4 German Stock Corporation Act
        (Aktiengesetz) has to be taken into account.

The management board decides with the consent of the supervisory board on the rights to and the
conditions of issuance of new shares to be generated through the Authorised Capital I.


Contingent Share Capital
As at the date of this Prospectus, the authorised capital of the Company amounts to
EUR 1,750,000. According to Section 4, para. 7 of the Company’s Articles of Association
(Satzung), the management board is authorised to increase the share capital of the Company with
the consent of the supervisory board until 1 August 2015 once or several times by up to EUR
1,750,000 through the issuance of up to 1,750,000 new non-par value ordinary bearer shares in
cash or in contributions kind (“Contingent Share Capital 2010”).

The Contingent Share Capital 2010 relates to the issue of shares to the holders or creditors of
convertible or warrant-linked bonds as well as profit participation rights with option or conversion
rights. The respective capital increase may only be implemented to the extent option or conversion
rights under bonds or warrants have been exercised or conversion obligations under such warrants
or bonds have to be fulfilled and to the extent that neither treasury shares of company nor new
shares from the authorised capital are being used to fulfill such claims. The management board will
be authorised to set forth additional details of the implementation of the conditional capital
increase.

In case of a capital increase based on the Contingent Share Capital 2010, the management board
is authorised, in each case with the consent of the supervisory board, to provide that the pre-
emption rights of the shareholders are excluded. An exclusion of the pre-emption rights, however,
is only admitted in the following cases:

    !   for fractional amounts;




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    !   for the sale of bonds against contribution in kind, especially, but not limited to acquiring
        enterprises, shares in enterprises or parts of an enterprise;

    !   to the extent necessary to grant holders of convertible bonds, profit participation rights with
        conversion components, or stock options, pre-emptive rights equivalent to the pre-emptive
        rights that they would have as shareholders after the exercise of the conversion rights or
        pre-emptive rights.

    !   for the sale of bonds against contribution in cash, if the bonds are sold at an issue price,
        which is not substantially below the theoretical market value of the partial debenture. For
        the calculation of the theoretical market value, an accountant’s opinion of an auditing firm
        or an investment bank has to be obtained. This authorisation only permits the exclusion of
        pre-emption rights provided newly issued shares do not exceed the amount of 10% of the
        registered share capital. For such calculation, pre-emption-rights according to Section 186
        para. 3 sentence 4 German Stock Corporation Act (Aktiengesetz) have to be taken into
        account as well as the amount of the registered share capital represented by own shares
        of the Company.

The management board decides with the consent of the supervisory board on the rights to and the
conditions of issuance of new shares to be generated through the Contingend Share Capital 2010.


General Provisions Relating to the Liquidation of the Company
Apart from liquidation as a result of insolvency proceedings and other reasons as set forth in the
German Stock Corporation Act (Aktiengesetz), the Company may be liquidated only upon
resolution of the shareholders’ general meeting (Hauptversammlung) to be adopted with a majority
of at least 75% of the share capital represented at the shareholders’ general meeting at which such
resolution is adopted. In such a case, the assets remaining following fulfillment of all of the
Company’s liabilities will be distributed among the shareholders according to their respective
shares in the share capital and in accordance with the German Stock Corporation Act.


General Provisions Governing Changes in Share Capital
Under the German Stock Corporation Act (Aktiengesetz), the share capital of a German stock
corporation may be increased against contributions (Kapitalerhöhungen gegen Einlagen) on the
basis of a resolution by the shareholders’ general meeting passed with a majority of at least three-
quarters of the share capital represented at the time the resolution is adopted. Each shareholder
generally has pre-emptive rights (Bezugsrechte), which may be excluded in certain circumstances
(see: “Information on Share Capital of Madison Property AG and Applicable Provisions – General
Provisions Relating to Pre-Emptive Rights (Subscription Rights)”).

In addition to the capital increase against contributions, the shareholders may also resolve to
create authorised capital (genehmigtes Kapital) or contingent capital (bedingtes Kapital). In the
case of authorised capital, the management board is authorised, upon the approval of the
supervisory board to increase the share capital once or several times up to an amount of not more
than 50% of the issued share capital at the time the authorisation is granted against contributions in
cash by issuing new shares within a period of no more than five years. The shareholders’
resolution creating the authorised capital requires a majority of three-quarters of the share capital
represented at the time the resolution is adopted. The shareholders’ general meeting may also
create contingent capital for the purpose of issuing (i) shares to holders of convertible bonds or
other securities conferring subscription rights on company shares, (ii) shares that serve as
consideration in the event of a merger with another company, or (iii) shares offered to senior
managers and employees. The resolution of approval to be adopted by the shareholders’ general
meeting requires a majority of three-quarters of the share capital represented at the time of the
resolution. The nominal amount of the contingent capital may not exceed 50% of the share capital
or, if the contingent capital is created for the purpose of issuing shares to senior managers and
employees, 10% of the existing share capital at the time the resolution is adopted.

A resolution to decrease the amount of the share capital requires a majority of three-quarters of the
share capital represented at the time of the resolution.



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General Provisions Relating to Pre-Emptive Rights (Subscription
Rights)
The German Stock Corporation Act (Aktiengesetz) provides that, in the case of a capital increase,
shareholders are entitled by law to subscribe for new shares in accordance with their current equity
quota (Bezugsrecht). The same applies to the issuance of convertible bonds, income bonds, profit
participation rights or bonds with warrants as well as in respect of the sale of treasury shares.
Subscription rights are freely transferable and the Company may determine that the subscription
rights may be traded on a German stock exchange during a fixed period prior to the expiry of the
subscription period.

The shareholders’ general meeting may partially or completely exclude the subscription rights by
means of a resolution passed with a majority of at least three-quarters of the share capital
represented at the time the resolution is adopted. Unless all shareholders waive this requirement,
the management board must present a written report to the shareholders’ general meeting
justifying the exclusion of the subscription rights. An exclusion of subscription rights is permissible if
the Company’s interest in excluding the subscription rights outweighs the shareholders’
subscription rights. The Stock Corporation Act allows a capital increase without subscription rights
if such capital increase is made in return for cash contributions, the amount of the capital increase
does not exceed 10% of the existing share capital, and the issue price of the new shares is not
substantially below the current stock exchange price.


Squeeze-Out of Minority Shareholders and Integration
In accordance with the provisions of sections 327a et. seq, of the German Stock Corporation Act
(Aktiengesetz) concerning so-called "squeeze-outs" in corporate law, the shareholders of a
German stock corporation may resolve at a shareholders' general meeting at the request of a
shareholder holding at least 95% of the share capital (majority shareholder) to transfer the shares
of the other minority shareholders to the majority shareholder in return for a reasonable cash
indemnity. The amount of the cash indemnity to be granted to the minority shareholders must take
into account the Company's relations on the date the shareholders’ resolution is adopted. The
determining factor for the indemnity amount is the full value of the enterprise, which is normally
determined through the discounted cash-flow method.

Furthermore, sections 319 et seq. of the German Stock Corporation Act provide for the so-called
"integration" (Eingliederung) of German stock corporations. The shareholders of a German stock
corporation may resolve in a shareholders' general meeting to integrate another company if at least
95% of the shares of the company to be integrated are held by the future principal company. The
withdrawn shareholders of the integrated company are entitled to a reasonable indemnity, which
shall generally be granted in the form of shares in the principal company. The amount of the
indemnity is thereby to be determined through the so-called "merger value ratio" between the two
companies, i.e., the conversion ratio which in the event of a merger of two companies would be
regarded as fair ratio. In contrast to the provisions on the preclusion of minority shareholders,
integration is only possible if the future principal company is a stock corporation domiciled in
Germany.


Reporting and Notification Requirements in Relation to Share
Ownerships
According to Section 20 of the German Stock Corporation Act (Aktiengesetz), a shareholder who
holds more than 25% in the shares of a company or to whom more than 25% of the shares are
attributed, is required to report the amount of shares held to the company immediately. The
company must publish such information in the electric version of the German Federal Gazette
without undue delay. Pursuant to the German Stock Corporation Act, there are different types of
attribution mechanisms for shares to direct or indirect shareholders. For example, shares held by a
company being a subsidiary of a third company in the meaning of Section 17 German Stock
Corporation Act, will be attributed to the parent company. Equally, shares held by a company
holding the shares on behalf of a third company, are attributed to that third company. If a
shareholder does not report the amount of shares held to the company pursuant to Section 20 of
the German Stock Corporation Act, such shareholder is legally barred from exercising its rights in


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the shares (including the voting rights and rights of dividend payment) until such shareholder
reports its shareholding to the company.




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CORPORATE BODIES AND MANAGEMENT

General
The corporate bodies of the Company are the management board (Vorstand), the supervisory
board (Aufsichtsrat) and the shareholders’ general meeting (Hauptversammlung). The powers of
these governing bodies are determined by the provisions of the German Stock Corporation Act
(Aktiengesetz), the Company’s Articles of Association (Satzung), and the respective by-laws of the
management board and the supervisory board (Geschäftsordnungen für den Vorstand und den
Aufsichtsrat).

The management board conducts the Company’s business in accordance with the relevant
statutes, the Company’s Articles of Association and the management board’s by-laws. It represents
the Company in dealings with third parties.

The management board is responsible for ensuring that appropriate risk management and risk
monitoring systems are in place to provide early warning of any developments that might
jeopardize the Company’s continuing existence. The management board also has an obligation to
report regularly at least on a quarterly basis to the supervisory board on the status of business, in
particular any developments affecting revenues, and on the situation of the Company and its
subsidiaries. In the last supervisory board meeting of each financial year, the management board
must report on business policy and other key issues relating to corporate planning and present the
budget for the following financial year, as well as present its mid-term strategy. The management
board is also required to report to the supervisory board in a timely manner on any transactions
that may be significant with respect to the Company’s profitability or liquidity, in order to give the
supervisory board the opportunity to express its opinion on such transactions prior to their
implementation. The management board must further report any important matters to the chairman
of the supervisory board, including any matter involving subsidiaries and/or affiliates that could
have a material effect on the Company’s position. A member of the management board may not
serve as a member of the supervisory board simultaneously.

The supervisory board appoints the members of the management board and is only entitled to
dismiss them for good cause. The supervisory board advises the management board on managing
the Company and supervises its management activities. Pursuant to the German Stock
Corporation Act, the supervisory board may not engage in management activities. However, the
Articles of Association or the management board’s respective by-laws must stipulate that the
management board must obtain the supervisory board’s prior approval for certain transactions.

Members of the management board and supervisory board owe a duty of care and loyalty to the
Company. In all their actions, members of these governing bodies must consider a wide number of
interests, including those of the Company, its shareholders, its employees and its creditors. The
management board must also take into consideration the right of shareholders to equal treatment
and equal information. Should members of the management or supervisory boards breach these
duties, they are jointly and severally liable to the Company for compensation.

Under currently applicable German law, a shareholder has no possibility of taking direct action
against members of the management board or the supervisory board if such shareholder deems
that they have breached their fiduciary duties and that, as a result, the Company has suffered
damages. Under normal circumstances only the Company itself is entitled to claim compensatory
damages against members of the management board or the supervisory board. The Company will
be represented by the management board in case of claims against members of the supervisory
board and by the supervisory board in case of claims against members of the management board.
Based on a decision of the German Supreme Court, if there is a likelihood that the Company has a
claim against a member of the management board, the supervisory board must pursue this claim
unless it is in the Company’s interest not to pursue it.

If the respective governing body entitled to represent the Company decides not to pursue a claim,
the German Stock Corporation Act, requires that claims for compensatory damages of the
Company must be enforced against members of governing bodies if the shareholders’ general
meeting so resolves with a simple majority. Shareholders whose aggregate shareholdings equal or


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exceed 10% of the share capital or a notional value of the share capital of EUR 350,000 may
request that a representative be appointed to enforce claims for compensatory damages.
Moreover, shareholders whose aggregate shareholdings at the time of the request equal or exceed
1% of the share capital or a notional value of the share capital of EUR 35,000 may request in their
own name that a law suit be admitted before the Regional Court (Landgericht) at the Company’s
registered domicile for enforcement of claims for compensation brought by the Company. Among
other things, it is a precondition for admission of the action that the shareholders of the Company
have unsuccessfully requested to bring an action after having set an appropriate deadline, and that
facts exist that justify the suspicion that the Company has incurred damages due to impropriety or
gross violation of the law or the Company’s Articles of Association. The Company is entitled at any
time to enforce its claim for compensatory damages itself. The bringing of an action by the
Company makes a pending approval procedure or action by the shareholders inadmissible.

The Company may not waive or settle any such claim until three years have elapsed since the
vesting of such claims, and then only if the shareholders’ general meeting so resolves by simple
majority, provided further that no minority of shareholders, holding in the aggregate 10% or more of
the registered share capital, raises a written objection in the minutes of the meeting.

Under German law, neither a shareholder nor any other individual may attempt to influence
members of the management or supervisory boards to act in a manner that would harm the
Company. Shareholders who have a majority shareholding in the Company may not use their
influence to the disadvantage of the Company, unless such disadvantage is compensated. Any
person who uses its influence to cause a member of the management or supervisory board, a
commercial attorney in fact (Prokurist) or any person holding a commercial power of attorney to act
in a manner that harms the Company or its shareholders may be obliged to compensate the
Company and its shareholders for the resulting damage. In addition, the members of the respective
supervisory and management boards may be jointly and severally liable for breach of their duties.


Management Board

General Provisions on the Management Board
The supervisory board determines the size of the management board. The supervisory board may
appoint one management board member as chairman or spokesman and another member as
deputy chairman or spokesman. Moreover, the supervisory board may appoint further members of
the management board.

Members of the management board are appointed by the supervisory board for a maximum term of
five years. Reappointment or extension of the term, for a maximum of five years in each case, is
permissible upon a resolution of the supervisory board that may be adopted not earlier than one
year prior to the expiration of the current term of office. The supervisory board may revoke the
appointment of a management board member prior to the expiration of its term for good cause,
such as for gross breach of fiduciary duties or if the shareholders’ general meeting adopts a no-
confidence resolution in relation to the management board member in question.

The supervisory board, or, if the supervisory board has not done so, the management board, with
the approval of the supervisory board, may issue by-laws for the management board. For specific
types of transactions of the Company or controlled and affiliated companies, in particular
transactions that fundamentally change the Company’s earnings prospects or its risk exposure, the
respective by-laws must specify that such transactions require the prior consent of the supervisory
board.

By-laws for the management board and for the supervisory board were adopted by a resolution of
the supervisory board on 10 September 2010. According to the by-laws, certain transactions (e.g.
capital expenditure projects above a specific amount, the acquisition and disposal of companies
and of real property above a specific amount) require the prior consent of the supervisory board.

According to its Articles of Association, the Company is legally represented by the members of the
management board acting jointly or by one member of the management board acting jointly with
one commercial attorney in fact (Prokurist). If only one person is appointed to the management
board, that person is entitled to represent the Company solely. The supervisory board can grant
sole power of representation to individual members or to all members of the management board


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and exempt individual members or all members of the management board from the prohibition
against multiple representations (Section 181, second alternative, German Civil Code), Section 112
of the German Stock Corporation Act (Aktiengesetz) not being affected. The supervisory board has
granted Mr. Zaisheng Wei sole power of representation and exemption from the restrictions of
Section 181, second alternative, of the German Civil Code by means of a resolution dated 29
December 2009. Mr. Qingtong Tian is released from the restrictions of Section 181, second
alternative, of the German Civil Code by means of a resolution of the supervisory board dated 28
August 2008. The resolutions of the management board are adopted by a simple majority of its
members unless other majorities are prescribed by law, the Company’s Articles of Association or
the management board’s respective by-laws.

The Members of the Company’s Management Board

The management board of the Company currently comprises three members. The current
members of the Company’s management board are Messrs. Qingtong Tian, Zaisheng Wei
and Yi (Alex) Yuan. Qingtong Tian and Zaisheng Wei have been appointed by resolutions of
the Company’s supervisory board of 28 August 2008 and 29 December 2009, respectively, for a
term of five years. Yi (Alex) Yuan has been appointed by a resolution of the Company’s
supervisory board of 10 September 2010 for a term ending on 28 December 2014.
The following table sets lays out further information on the members of the Company’s
management board:

Information about Members of the Management Board:


Name                 Age Appointed on              Term expires on      Responsibility
Qingtong Tian        51   28 August 2008           27 August 2013       Chairman/CEO
Zaisheng Wei         47   29 December 2009         28 December 2014     Vice Chairman/COO
Yi (Alex) Yuan       37   10 September 2010        28 December 2014     ChaimrChairCHairm
                                                                        CFO

Mr. Qingtong Tian

Mr. Qingtong Tian is chairman of the Company’s management board (Vorstandsvorsitzender). He
is responsible for strategic planning and the overall management of Madison Group. He
started his career in 1982 in the Shandong Rushan Commission of Housing and Rural-Urban
Development. Thereafter, he went on to work in the Shandong FT Architecture Design
Institute for five years from 1985 to 1990. He joined the Shandong Medicine and Health
Products Import and Export Corporation and was made Director of the Infrastructure
Department in his five years there from 1990 to 1995. He was the general manager of
Madison Qingdao Real Estate during his three years with that company from 1995 to 1998 and
currently also serves as chairman and Chief Executive Officer of Madison Qingdao.

Mr. Tian has over 25 years of extensive experience in the real estate industry and a well-
established relationship to the local government and the local community in Qingdao. In 2006, Mr.
Tian was voted one of the “Top 10 Real Estate Leaders in Qingdao” by the Qingdao Municipal
Construction Commission in 2006. He also serves as board director at Qingdao Polytechnic
University and is vice-chairman of the Qingdao Association of Productivity as well as the Qingdao
Federation of Industry and Commerce.

As at the date of this Prospectus, Mr. Tian provides his service to the Company without
remuneration, and no employment contract has been concluded between Mr. Tian and the
Company.

Over the last five years, apart from what is mentioned above, Mr. Tian has not served as
member of any administrative, management or supervisory bodies of any entities or held
other comparable positions on domestic or foreign control committees outside the Company
nor is he currently holding any such position.

Mr. Zaisheng Wei

Mr. Zaisheng Wei is Chief Operating Officer (“COO”) and vice-chairman of the Company’s
management board. He is responsible for managing Madison Group’s capital. He worked as


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deputy finance manager of the leading People’s Republic of China (PRC) real estate developer,
China Vanke Group from 1989 to 1990. He was the chief accountant of Zhuhai International
Trust and Investment Company from 1990 to 1997 and also served as finance director at
Shenzhen Xinye Company Limited, during the same period. Between 1997 and 2002 he was
chairman of Hainan International Rental & Loan Company Limited, and joined Madison Group
in 2002.

As at the date of this Prospectus, Mr. Wei provides his service to the Company without
remuneration, and no employment contract has been concluded between Mr. Wei and the
Company. .
Over the last five years, Mr. Wei has not served as member of administrative, management or
supervisory bodies of any entities or held other comparable positions on domestic or foreign
control committees outside the Company nor is he currently holding any such position.

Mr. Yi (Alex) Yuan

Mr. Yi (Alex) Yuan is the Company’s CFO with responsibilities for taxation, controlling,
investors’ relations, and risk management. Mr. Yuan is also responsible for financial planning,
as well as financial reporting. Mr. Yuan has worked for more than 15 years in the financial
management industry. During that period, he has, among other things, worked three years for
Ernst & Young and eight years with various multinational companies, including International
Information Products Company Limited, a joint venture between IBM and Great Wall Computer
Company Limited, and Orbotech Limited, a company listed on the American Stock Exchange
(NASDAQ). He was the CFO and Finance Director of ZTC Telecommunications Plc and High
Win Plc Inc., which are overseas-listed Chinese companies (on the London AIM and Frankfurt
Stock Exchange markets). Mr. Yuan also serves as CFO of Phoenix Ecological Food Limited
which is currently preparing a listing on NASDAQ. Finally, Mr. Yuan is currently also the CFO of
Capital Golden Holdings Limited, a listing consultancy company focused on US and European
markets.

As at the date of this Prospectus, Mr. Yuan provides his services to the Company without
remuneration, and no employment contract has been concluded between Mr. Yuan and the
Company.

Shareholding and Options

The Company’s CEO, Mr. Qingtong Tian is an indirect shareholder of Falcon Grow
Investments Limited (Falcon Grow). Through this indirect shareholding Mr. Tian indirectly holds
3,170,300 shares in the Company, representing 88.78% of the Company’s share capital at the
date of this Prospectus and hence assumes the position of a controlling shareholder. There are
no special measures in place to ensure that such control is not abused besides the general
statutory and regulatory rules on the duties of care applicable to members of a German AG’s
management board. The Company is not aware of any other member of the Company’s
management board who, directly or indirectly, has an interest in the Company’s capital or
voting rights which is notifiable under German law.

Conflicts of Interest

The members of the management board do not have conflicts of interests between any of their
duties to the Company and their private interests or other duties.

Compensation in Case of Termination of Office

The employment agreements of the members of the Management Board do not provide for any
specific payments in case of termination of office or employment. Therefore, no member of the
Management Board has a claim to any benefits upon termination of his office beyond the
statutory requirements in the PRC for termination of employment.

Under PRC labor law, an employer is required to pay statutory severance payments if an
employee is dismissed by the employer due to (i) incompetence, (ii) non work-related illness, (iii)
change of the circumstances based on which the employment contract was concluded, or (iv)



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workforce reduction, or if (v) the employment contract is terminated by an agreement, or (vi) the
employment contract expires without being extended by the employer.

The amount of statutory severance payments depends on the duration of employment of the
employee with the respective employer and corresponds to one monthly gross salary for each
year of employment. In case the employee has been employed for less than 6 months, the
employee is entitled to half of one monthly salary. If the monthly salary of the employee exceeds
three times of the average monthly salary of employees for the previous year, the calculation
basis for the severance payment is three times the average monthly salary of employees as
stipulated by the local government.


Supervisory Board
General Provisions on the Supervisory Board

Pursuant to the Company’s Articles of Association and Sections 95 and 96 of the German Stock
Corporation Act (Aktiengesetz), the supervisory board is composed of three members who are
appointed by the shareholders’ general meeting. The term of a supervisory board member may
only run until the annual shareholders’ general meeting which formally approves the actions of the
supervisory board members for the fourth financial year following commencement of the member’s
term of office, not including the financial year in which the term commences. Supervisory board
members may be re-elected.

Any supervisory board member may be removed by means of a resolution of the shareholders’
general meeting with a simple majority of the votes cast. Moreover, according to the Articles of
Association, any supervisory board member as well as any substitute member (Ersatzmitglied) may
resign for any reason by serving at least one month’s prior written notice to the chairman of the
supervisory board and to the management board.

When electing a member of the supervisory board, the shareholders’ general meeting may
simultaneously elect substitute members who become members of the supervisory board if the
appointed member’s office for any reason terminates before the end of its term of appointment.

The supervisory board appoints a chairman and a deputy chairman from among its members. The
chairman or, if the chairman is unable to attend, the deputy chairman, is obliged to convene and
conduct the meetings of the supervisory board.

The Members of the Company’s Supervisory Board

By means of the deed of incorporation (Gründungsurkunde) the founders of the Company have
elected the following persons as members of the first supervisory board:

    !   Mr. Ole Gronemeier;

    !   Mr. Ursula Gronemeier;

    !   Mr. Edita Gronemeier.

All above mentioned members of the supervisory board were dismissed by a resolution of the
shareholders’ general meeting passed on 10 October 2008. The current members of the
Company’s supervisory board are:

    !   Mr. Andreas Grosjean;

    !   Mr. Oliver Kuan;

    !   Mr. Yongting Hou.

Mr. Andreas Grosjean and Mr. Oliver Kuan were appointed as members of the supervisory board
by resolution of an extraordinary shareholder’s general meeting held on 11 August 2010. Mr.
Yongting Hou was appointed by resolution of an extraordinary shareholder’s general meeting held


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on 15 December 2009. By resolution dated 10 September 2010, the supervisory board appointed
Mr. Andreas Grosjean as chairman and Mr. Oliver Kuan as deputy chairman of the supervisory
board.

The table below shows the current members of the supervisory board and their respective terms of
office:

Information about Members of the Supervisory Board:


Name                         Age                           Appointed in                   Term expires in1
Andreas Grosjean             36                            2010                           2013
Oliver Kuan                  43                            2010                           2013
Yongting Hou                 67                            2009                           2013
1
 The respective term of office expires after the shareholders’ general meeting that formally approves the actions of the
members of the supervisory board of the financial year 2012.

Mr. Andreas Grosjean

Mr. Andreas Grosjean completed his law studies at the Ludwig Maximilians University in
Munich, Germany, where he got his law degree as well as his bar admission.

Mr. Grosjean started to work for the international law firm Roedl & Partner at the head offices in
Nuremberg, Germany. In May 2003 he joined VEM Aktienbank AG in Munich. Since then he has
completed more than 150 capital market transactions including Initial Public Offerings (IPOs),
introductions, secondary fundraisings, convertible bonds, tender offers and other corporate
actions for European and global companies. He successfully coordinated the IPOs and listing
introductions of several China-based companies.

Over the last five years, Mr. Grosjean has been a member of the administrative, management
and supervisory bodies of the following companies:
    -   Amictus AG: listed on the regulated market of the Frankfurt Stock Exchange; member of the
        management board since 11 July 2006;
    -   Zhihai Lighting AG: supervisory board member since 30 March 2010;
    -   Accelero AG: member of supervisory board since 16 September 2009.

Mr. Oliver Kuan
Mr. Kuan holds an MSc and a BSc degree in Economics from the London School of Economics.
He is currently the managing partner of Sustainomics Group, an international advisory firm which
offers cross-border strategic and corporate finance advisory services to clients. Sustainomics
typically caters mid to large sised clients in industries such as energy (including renewable
energy), automotive, real estate, consumer goods and others. Mr. Kuan founded and runs
Sustainomics' Shanghai office. Sustainomics is part of the global M&A alliance Pandion Partners.

Mr. Kuan previously worked at the investment banking department of Deutsche Bank in Hong
Kong and London for eight years. During that time, he was responsible for the origination and
execution of corporate finance transactions and was working on equity capital markets, mergers
and acquisitions, and project finance transactions in Europe and Asia with a particular focus on
the energy, utilities and transportation industries. He has extensive knowledge of and senior level
contacts within the energy, utilities, transportation, infrastructure and financial industry sectors in
Asia and, in particular, Greater China.

Over the last five years, Mr. Kuan has been a member of the administrative, management and
supervisory bodies of the following companies:
    -   Sustainomics Group Limited, managing director since June 2005;
    -   Kinghero AG: CFO from August 2009 to July 2010.

Mr. Yongting Hou

Mr. Hou studied economics at the graduate level both at Shanghai Jiaotong University and Hong Kong
Chinese University. From 1986 to 2001, Mr. Hou worked as a professor and PhD supervisor at the


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Chinese Ministry of Science and Technology, Nankai University, Maritime University of China and
Shanghai University of Science and Technology. Subsequently, since 2001, Mr. Hou has been serving in
the following positions:
-    expert on the Qingdao City Government Advisory Committee;

-    member and deputy director of the Qingdao Securities Committee;

-    member and deputy director of the Economic System Reform Committee;

-    Qingdao City Financial Office, in charge of the reform of companies for listing;

-    executive director of the Science and Technology Financial Promotion Association of China,
     member of the venture capital committee;

-    director of Shanghai Ouyuan Capital Management Limited;

-    Director of the World Environment Fund;

-    Vice President of the Hong Kong Chinese Business Association.

During 2006 to 2008, Mr. Hou is employed as the deputy general manager of Bontai Properties
Company Limited (a property developer in Shanghai)/Mr. Hou’s experience includes successfully
arranging the IPO and capital raising of Haier, Tsingtao Beer, Hisense and other renowned
Chinese enterprises. He also presided over two key research projects funded by the National
Social Science Fund including one on state-owned assets management. He was awarded “Top
Talent” by the Qingdao City government, Shandong Province in 1990 and “Outstanding
Contribution Experts” by the State Council in 1992. He is also a representative of Shandong
                  th
Province to the 9 National People’s Congress of China and is a member of the standing
                     th th  h       th
committee of the 7 , 8 , 9 and 10 Committee of the Political Consultative Conference of
Qingdao.

Pursuant to the Articles of Association, the shareholders’ general meeting resolves on the
compensation for the members of the supervisory board. If a person is a member of the
supervisory board for only part of a financial year, compensation is determined for a proportionate
period of time. The shareholders’ general meeting of the Company has determined the annual
gross compensation for each ordinary member of the supervisory board to be EUR 16,000 per
annum, EUR 20,000 per annum of the deputy chairman, and EUR 25,000 per annum for the
chairman of the supervisory board.

The Company has entered into a directors’ and officers’ insurance in its name, covering the
members of the management board and supervisory board, based on prevailing market conditions.

Every member of the supervisory board is reimbursed for expenses incurred in performing the
duties of its office. Moreover, the members of the supervisory board are reimbursed for any value-
added tax incurred on the reimbursement of expenses or on the supervisory board compensation,
provided they are entitled to charge the Company for the value-added tax separately and if they
exercise this right.

Shareholding and Options

None of the members of the supervisory board holds directly or indirectly shares in the
Company or options on shares in the Company.

Conflicts of Interest

There are no conflicts of interest between any duties of the members of the supervisory
board to the Company and their private interests and or other duties.

Compensation in Case of Termination of Office

No member of the supervisory board has a claim to any benefits upon termination of his
office.


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Certain Information on the Members of the Supervisory Board and the Management
Board

Over the last five years, no member of the Company’s administrative, management or
supervisory bodies, in particular, no member of the management board and supervisory
board:

-    was convicted in relation to fraudulent offences;

-    was associated with any bankruptcies, receiverships or liquidations in any of the
     capacities set out above;

-    was publicly incriminated and/or sanctioned by statutory or regulatory authorities
     (including designated professional bodies);

-    has been disqualified by a court from acting as a member of the administrative,
     management or supervisory bodies of an issuer or from acting in the management or
     conduct of the affairs of any issuer.

The Company has not granted sureties or loans to members of the management board and
the supervisory board nor has it assumed any guarantees for them. No members of the
management board and the supervisory board have been or are presently involved in any
business activities outside the Company, or in any other Company transaction of unusual
type or nature.

Members of the management board and the supervisory board may be contacted at the
Company’s business address at c/o Salans LLP, Markgrafenstraße 33, 10117 Berlin, Germany.


Shareholders’ General Meeting
A shareholders’ general meeting may be held at the Company’s registered office, at the seat of a
German stock exchange or in a town with more than 250,000 inhabitants. The shareholders'
general meeting must be called at least 30 days prior to the day until the end of which the
shareholders must register for the shareholders' general meeting. The day of the calling is not
counted for the calculation of the above term. Only shareholders of the Company that have
registered for the shareholders' general meeting in due time and have proven their eligibility to
attend are entitled to attend and exercise their voting right at the shareholders’ general meeting.
The eligibility of shareholders for participating in the shareholders’ general meeting is documented
by a certification of their shareholding prepared in text format by the depository institution (Section
126b German Civil Code) in German or English and referring to the start of the 21st day before the
day of the shareholders’ general meeting. The registration and the certification must be received at
the place announced in the invitation at the Company's registered offices no later than six days
before the day of the shareholders’ general meeting. The day of the shareholders’ general meeting
and the day of receipt are not counted for the calculation of the above term. Each share grants the
right to one vote. A voting right may be exercised by a proxy.

Unless provided otherwise by the Company’s Articles of Association or applicable laws and
regulations, the resolutions of the shareholders’ general meeting are adopted by a simple majority
of the votes cast and, insofar as the law requires a majority of the share capital as well as a voting
majority, by a simple majority of the share capital represented at the time the resolution is adopted.

According to the German Stock Corporation Act (Aktiengesetz), certain resolutions of fundamental
importance require a vote of no less than three-quarters of the registered capital represented at the
meeting. Such resolutions include:

    !   amendments to the Company’s Articles of Association;

    !   capital increases;

    !   capital reductions;



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    !   the creation or amendment of authorised or contingent capital;

    !   the transfer of the company’s entire assets and any reorganisations as set forth in the
        German Transformation Act (Umwandlungsgesetz) such as mergers (Verschmelzungen),
        spin-offs (Spaltungen), transfer of the company’s assets (Vermögensübertragungen) and
        type-changing transformations (Formwechsel);

    !   the conclusion of agreements establishing contractual corporate groups (such as
        domination and profit-and-loss-transfer agreements); and

    !   the dissolution of the Company.

The Company’s Articles of Association stipulate in Section 19 para. 1 that, unless otherwise
mandatorily required by law, resolutions are taken by a simple majority of votes and, if a majority of
capital is required, by a simple majority of capital present at the meeting.

The convening of a shareholders’ general meeting can be initiated by the management board, the
supervisory board or, under certain circumstances, by shareholders holding an aggregate of 5% of
the registered share capital. The supervisory board must call a shareholders’ general meeting
whenever the interests of the Company require such a meeting. The shareholders’ general meeting
must be held during the first eight months of each financial year.


Corporate Governance Code Declaration
The German Corporate Governance Code in its current version of 26 May 2010 (the “Code”)
contains recommendations and suggestions for managing and supervising German companies
listed on a stock exchange. The Code contains provisions relating to shareholders and the
shareholders’ general meeting, the management board, the supervisory board, as well as to
transparency, accounting policies and auditing. There is no obligation to comply with the
recommendations and suggestions of the Code.

The management board and supervisory board of the Company identify, however. with the goals of
the Code to foster responsible and transparent corporate management and control, oriented to a
sustained increase in company value. The management board and supervisory board will be
largely following the recommendations and suggestions of the Code. Details will be agreed upon
between the management board and the supervisory board.




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RELATED PARTY TRANSACTIONS

General
Related parties to the Company include members of the Company’s management and supervisory
boards and their close family members and companies over which members of the management
and supervisory boards of the Company or their family members could exercise considerable
influence or hold a substantial amount of the voting rights.

In addition, related parties include companies which are consolidated within the Company or in
which the Company holds an investment, which enables the Company to exercise considerable
influence over the business policies of the company in which it holds such investment, as well as
the major shareholders of the Company, including their affiliates.

Madison Group has concluded the following related party transactions:


Qingdao Guanghua Project Agreement
On 2 April 2010, Madison Qingdao entered into a Share Transfer Agreement with Mr. Tian
Qingtong, the Company’s Chief Executive Officer (CEO). Pursuant to this agreement, Madison
Qingdao acquired 97% of the equity interest, equivalent to RMB 19,400,000 in the registered
capital, in Qingdao Guanghua Property Company Limited (“Qingdao Guanghua”) for a purchase
price of RMB 19,400,000. On 8 September 2010, Madison Qingdao completed the legal
registration process of the acquisition of 97% of the equity interest Qingdao Guanghua. Given that
both Madison Group and Qingdao Guanghua were under common control of Mr. Qingtong Tian at
the time the transaction took place, the transaction represents a business combination under
common control. Since it was a business combination under common control, the purchase price
was based on book value of the equity interest rather than the appraised value of the equity
interest


Property Management Services Agreement
On 18 May 2007, Qingdao Madison Property Management Company Limited and Madison Tai’an
entered into Property Management Service Agreement, in which the parties agree that all utility
fees for Madison Tai'an’s projects are to be paid to Qingdao Madison Property Management in
advance, with the fees being calculated according to the development area of the development
projects of Madison Tai'an. Qingdao Madison Property Management will then refund Madison
Tai'an according to the actually collected amounts of the utility fees. The Property Management
Service Agreement was concluded at arm’s length.

Cooperation Agreement
On 26 December 2007, Madison Qingdao and Qingdao Xianggeng Wenquan Zhiye Company
Limited ("Xianggen Wenquan") entered into a cooperation agreement to jointly purchase the land
use rights for a lot of land with the size of 27,943 m² to be administered by the jointly run joint
venture company Qingdao Xianggen Quanhai Zhiye Company Limited (“Qingdao Xianggen
Quanhai”). Under the agreement, Xianggen Wenquan acquired the lot of land and agreed to set up
a wholly owned subsidiary, Qingdao Xianggen Quanhai with a registered capital of RMB 10 million,
and to transfer the title to the lot of land to Qingdao Xianggen Quanhai . After that, Madison
Qingdao was to acquire 49% of the shares in Qingdao Xianggen Quanhai to jointly develop the
project. The share purchase price (for 49% shares) was RMB 4.9 million, which is the total amount
of consideration payable for the share transfer under this agreement. It was to be paid the day after
Xianggen Wenquan transfers the lot of land to Qingdao Xianggen Quanhai. Within three days upon
receipt of this amount, Xianggen Wenquan was to transfer 49% of the shares to Madison Qingdao.
The parent company of Xianggen Wenquan, Qingdao Construction Group 001 Project Company
Limited will provide a guarantee to Madison Qingdao to ensure that Xianggen Wenquan could fulfill
the share transfer registration within 3 days upon receipt of this amount. Madison Qingdao agreed
that the construction company (general contractor) would be designated by Xianggen Wenquan.


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The cost of the project, i.e. land grant premium, preliminary development cost, installation cost,
utility fees, sales fees, office cost, government charges and taxes, were to be borne by both parties
according to the shareholding percentage. The completed construction areas of the project were to
be sold by Qingdao Xianggen Quanhai. The profits were to be allocated pro rata according to the
shareholding percentage. Both parties were to jointly handle the procedures and liaise with
governments. The Cooperation Agreement was concluded at arm’s length.


Steel Purchase and Supply Agreement
Qingdao Xintongda Trading Company Limited (“Xintongda”) is a material supplier of Madison
Group. On 3 March 2010, Qingdao Jundong entered into a steel purchase and supply agreement
with Xintongda, under which Xintongda agreed to provide Qingdao Jundong with steel bars for the
construction of the Green Bay project and the parties agreed that the purchase price for the steel
bars to be paid by Qingdao Jundong be RMB 100 per ton higher than the respective market price.
For the purpose of ensuring that Xintongda has sufficient funds to deliver a stable supply of
material to Qingdao Jundong, Madison Qingdao is to provide a guarantee to Xintongda, under the
steel purchase and supply agreement. Accordingly, on 3 February 2010, Madison Qingdao entered
into a maximum mortgage contract with West Xianggang Road Branch of Bank of Qingdao, under
which Madison Qingdao agreed to create a mortgage over its land use right to the parcel of the
land (certificate with code Nan Guo Yong (2008) No. G112704) and the real property (certificate
with the code Fang Quan Zheng Chu Si Zi No. 02172) belonging to Madison Qingdao and used for
the Fragrance Town World project in order to secure the repayment by Xintongda of bank loans in
a maximum amount of up to RMB 15,000,000 under a facility agreement between Xintongda and
West Xianggang Road Branch of Bank of Qingdao. The term of the loan is from 4 February 2010 to
4 February 2013. The appraisal value of such land use right and real property is RMB 24,197,700.
The steel purchase and supply agreement was concluded at arm's length.


Purchase Agency Agreement
Qingdao Tianying Forging Industry Company Limited (“Qingdao Tianying”) is a material supplier
(mainly of steel products) of Madison Group. On 28 February 2008, Qingdao Tianying and Madison
Qingdao entered into a purchase agency agreement, under which Madison Qingdao agreed to pay
Qingdao Tianying RMB 4,000,000 in advance and Qingdao Tianying agreed to purchase steel from
Qingdao Tianying’s long-term cooperation companies at the lowest price for Madison Qingdao. The
total contract price is approximately RMB 10,000,000. The purchase agency agreement was
concluded at arm’s length.


Fund Occupation
On 6 September 2007, Madison Group provided a loan to Hongyuan Holding Co., Ltd. for the
purpose of supporting its operation. The loan is unsecured, non-interesting bearing and has no
fixed term of repayment. As at 31 August 2010, Hongyuan Holding Co., Ltd. had repaid the entire
loan amount to Madison Group. The transaction on fund occupation was concluded orally and at
arm’s length.


Transactions with Shareholders and Key Management Personnel
Advances to and advances from the Company’s shareholders and key
management personnel
There have been transactions with the Company’s shareholders, the shareholders at the time
being Falcon Grow and Mr. Qingtong Tian, and key management personnel, which were mostly
related to the restructuring of Madison Group. At the date of this Prospectus an amount of
approximately RMB 18.43 million is still outstanding from a loan which has been granted by Mr.
Qingtong Tian to Madison Qingdao on 2 April 2010 in connection with the acquisiton of shares in
Qingdao Guanghua by Madison Qingdao. All advances to and from the shareholders of the
Company and key management personnel were unsecured, interest free, and had no fixed term of
repayment. All advance transactions between shareholders and key management personnel were
concluded orally and at arm’s length.



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Shareholders and key management personnel transactions
There have been transactions relating to key management personnel related to sales of properties.
The balance outstanding was settled during the year ended 30 April 2010. All the related
transactions with key management personnel were concluded orally and at arm’s length.




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TAXATION IN GERMANY

The following section describes certain material German tax principles that may become relevant
when acquiring, holding or transferring shares. This section is not a comprehensive or complete
description of all German tax aspects that may be relevant for shareholders. It is based on the
German tax laws applicable as of the date of this Prospectus and on the provisions of double
taxation conventions entered into between Germany and other countries as of this date. In both
areas the law may change, possibly also with retroactive effect.

Potential purchasers of the Company’s shares should consult their tax advisors with respect to the
tax consequences of acquiring, holding and transferring shares and with respect to the procedure
to be complied with to obtain a refund of German withholding tax (Kapitalertragsteuer) paid. The
specific tax situation of each shareholder can only be addressed adequately by means of individual
tax advice.


Taxation of the Company
In Germany, corporations are generally subject to corporate income tax at a rate of 15% plus a
5.5% solidarity surcharge (Solidaritätszuschlag) thereon (in total 15.825%). In addition, German
corporations are subject to trade tax (Gewerbesteuer) with their income from permanent
establishments in Germany subject to certain adjustments for trade tax purposes, the trade taxable
income (Gewerbeertrag). The trade tax depends on the municipalities in which the corporation
maintains permanent establishments. As a general rule, the effective trade tax rate varies between
7% and 20% of the trade taxable income depending in each case on the trade tax rate of the
relevant municipality. The trade tax rate in Berlin is currently 14.35%.

Interest expenses are only deductible in the event the Company is in compliance with the so-called
interest barrier (Zinsschranke). The interest barrier restricts the deductibility of interest expenses
exceeding the interest income to 30% of the earnings before interest, taxes, depreciation and
amortisation (“EBITDA”) determined for tax purposes for corporate income tax and trade tax
purposes. The non-deductible part of the interest expenses can be carried forward to future fiscal
years and might reduce the taxable profit of the Company in the future if the interest expenses in
such period are deductible under the interest barrier. There is a risk that the non-deductible part of
interest expenses might be forfeited, for example in case of restructuring or closure of the
business. The interest barrier will not apply if the interest expenses exceeding the interest income
are less than EUR 3 million or in the event the Company complies with the so-called “escape
clause”, provided there is no harmful shareholder debt financing. The escape clause stipulates the
complete deductibility of interest expenses in the event that the Company’s equity ratio is not more
than 2% lower than that of Madison Group. For this purpose the equity ratios of the financial
statements at the end of the preceding business year are relevant. Only in case that there is no
harmful shareholder debt financing, the escape clause will be applicable. A harmful shareholder
debt financing is existing if a shareholder (holding directly or indirectly more than 25% of the
shares) or any related party hereto or any third party who has a right of recourse against the
shareholder or a related party hereto receives interest exceeding 10% of the negative interest
balance (difference between interest income and interest expenses) from the respective
corporation or from another affiliated company.

Dividend income that the Company receives from corporations domiciled outside Germany such as
Madison Hong Kong is generally exempt from corporate income tax. However, 5% of the tax
exempt dividend income is deemed to be a non-deductible business expense for corporate income
tax purposes, and as a result is subject to corporate income tax (plus solidarity surcharge).

Dividend income of the Company derived from its shares in Madison Hong Kong will be subject to
trade tax. However, such dividend income of the Company will be exempt from trade tax but for
5%, if specific preconditions are fulfilled (section 9 no. 7 of the German Trade Tax Act).

In general, this trade tax exemption requires that the Company has continuously held a share of at
least 15% of the nominal capital of Madison Hong Kong since the beginning of the assessment
period and Madison Hong Kong generates its gross income exclusively or almost exclusively from
trade or business within the meaning of section 8 para. 1 nos. 1 – 6 of the German Foreign Tax Act


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and from direct participations, such as Madison Qingdao, which amount to at least 25% if the
participations are held continuously since at least twelve months prior to the relevant balance sheet
date for the assessment of the profits. Furthermore, the trade tax exemption requires proof that (i)
the direct participations are located in the same country as Madison Hong Kong and the direct
participations, such as Madison Qingdao, generate their gross income exclusively or almost
exclusively from trade or business within the meaning of section 8 para. 1 nos. 1 – 6 of the German
Foreign Tax Act (so-called Landesholding) or (ii) Madison Hong Kong holds the participations,
Madison Qingdao, in connection with its own activities pursuant to section 8 para. 1 nos. 1 – 6 of
the German Foreign Tax Act and the participations, such as Madison Qingdao, generate their
gross income exclusively or almost exclusively from trade or business within the meaning of
section 8 para. 1 nos. 1 – 6 of the German Foreign Tax Act (so-called Funktionsholding). Currently
cannot be judged clearly, whether Madison Hong Kong and Madison Qingdao are located in the
same country for the purposes of section 9 no. 7 of the German Trade Tax Act, because Madison
Hong Kong is located in Hong Kong and Madison Qingdao is located in China. The prevailing legal
situation has to be discussed with the competent German tax authority. Furthermore, Madison
Qingdao does not generate income from an active trade or business within the meaning of
section 8 para. 1 nos. 1 – 6 of the German Foreign Tax Act.

Nevertheless, dividend income from Madison Hong Kong may be exempt from trade tax upon
application by the Company if the Company owns a participation of at least 15% in foreign
subsidiaries, such as Madison Qingdao, indirectly via Madison Hong Kong, Madison Hong Kong
and the foreign subsidiaries distribute their dividends within the same business year and the
following additional requirements are met: (i) The foreign subsidiaries, such as Madison Qingdao,
exclusively or almost exclusively generates its gross profits from an active trade or business within
the meaning of section 8 para. 1 nos. 1 – 6 of the German Foreign Tax Act or from direct
participations of at least 25%, such as Qingdao Jundong and Madison Zibo, which exclusively or
almost exclusively generate their gross profits from an active trade or business within the meaning
of section 8 para. 1 nos. 1 – 6 of the German Foreign Tax Act and are located in the same country
as Madison Qingdao and (ii) Madison Qingdao has held at least a participation of 15% in the
foreign subsidiaries’ share capital without interruption since the beginning of the assessment
period.

If the trade tax exemption applies, it applies only to the dividends distributed by Madison Hong
Kong which corresponds to the indirect participation rate of the Company in Madison Qingdao. If
Madison Hong Kong realises other profits than dividends received by Madison Qingdao, the trade
tax exemption applies only to the dividends of Madison Hong Kong which correspond to the ratio
between the dividends received by Madison Qingdao and all profits of Madison Hong Kong. In any
case the trade tax exemption is limited to the amount of the dividends received by Madison
Qingdao. In addition, the trade tax exemption requires proof of its requirements. If the requirements
of section 9 no. 7 of the German Trade Tax Act are met, 5% of the exempt dividend income is
deemed to be a non-deductible business expense, and as a result, is subject to trade tax.

Corporate income tax losses incurred by the Company in one year may be carried back to the
immediately preceding assessment period up to an amount of EUR 511,500. Any remaining
corporate income losses as well as any trade tax losses may only be offset within certain
restrictions against profits from future years (so-called “minimum taxation”). Up to an
amount of EUR 1 million taxable profits may be offset against existing tax loss carry forwards
without limitation. Taxable profits in excess of EUR 1 million may be offset against existing tax
loss carry forwards for corporate income and trade tax purposes only by 60%. Unused tax loss
carry forwards may be carried forward indefinitely.

Tax loss carry forwards and the non-deductible part of the interest expenses will be forfeited
completely in the event that more than 50% of the share capital, participation rights or
voting rights of the Company are directly or indirectly transferred within 5 years to one
acquirer or a related person hereto or a group of acquirers with same interests or any
comparable circumstances of the case. If more than 25% and up to 50% are transferred the
tax loss carry forwards and the non-deductible part of the interest expenses will be forfeited
proportionally. A capital increase is equal to a transfer of shares if the shareholding quota
has been changed. As an exception introduced for transfers after 31 December 2009, tax loss
carry forwards and the non-deductible part of the interest expenses may be maintained in the
event the preconditions of the corporate group clause within the meaning of section 8c para. 1
sentence 5 of the German Corporation Tax Act are fulfilled.



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Taxation of Shareholders

Shareholders are subject to tax in particular in connection with the holding of shares (taxation
of dividends), the disposal of shares (taxation of capital gains) and the gratuitous transfer of
shares (inheritance and gift tax).

Taxation of Dividends

Withholding Tax

Generally, the Company must withhold tax on its dividend distributions at a rate of 25% plus
5.5% solidarity surcharge thereon (in total 26.37%) and is thus responsible for withholding
amounts corresponding to such taxation at source.

Such withholding tax is levied and withheld irrespective of whether and to what extent the
dividend distribution is taxable at the level of the shareholder and whether the shareholder
resides inside or outside Germany. Certain exceptions may apply to corporations in another
EU Member State to which the EU Parent/Subsidiary Directive (90/435/ EEC of 23 July 1990, as
amended) applies. A partial exemption may also be available under a respective double taxation
convention. In cases of a full or partial exemption under the EU Parent/Subsidiary Directive
(90/435/ EEC of 23 July 1990, as amended) or a respective double taxation convention the
restrictive preconditions according to section 50d para. 3 German Income Tax Act have to be
fulfilled. Application forms may be obtained from the German Federal Central Tax Office
(Bundeszentralamt für Steuern), An der Kuppe 1, 53225 Bonn, Germany (www.bzst.bund.de),
as well as from German embassies and consulates.

Dividends to a corporation domiciled outside of Germany are subject to a reduced withholding
tax (irrespective of any double taxation conventions) in the event the shares do not constitute
an asset of a permanent establishment in Germany or an asset for which a permanent
representative has been appointed in Germany. In this case, 2/5 of the withholding tax will be
refunded upon application. The refund requires that the corporation fulfils the preconditions of
section 50d para. 3 German Income Tax Act. Refund application forms may be obtained from
the German Federal Central Tax Office (Bundeszentralamt für Steuern), An der Kuppe 1,
53225 Bonn, Germany (www.bzst.bund.de) as well as from German embassies and
consulates. A further reduction or refund under an applicable double taxation convention is
possible.

For shareholders resident in Germany (meaning shareholders whose residence, habitual abode
– for legal entities the place of management, or domicile – is located in Germany) holding their
shares as business assets as well as for shareholders residing outside Germany (foreign
shareholders) holding their shares in a permanent establishment or a fixed base in Germany,
or as assets for which a permanent representative has been appointed in Germany, the tax
withheld is credited against the shareholders’ personal income tax or corporate income tax
liability. Any tax withheld in excess of the shareholders’ personal tax liability is refunded. The
same principles apply to the solidarity surcharge.

Taxation of Dividend Income of Investors Resident in Germany holding their Shares as Private
Assets

For individual shareholders resident in Germany holding their shares as private assets
dividends are subject to the final flat tax (Abgeltungsteuer). Under this regime dividend
income of private investors will be taxed at the principal final flat tax rate of 25% plus a 5.5%
solidarity surcharge thereon (aggregate tax burden: 26.375%) and church tax if applicable.
Except for an annual lump sum allowance (Sparer-Pauschbetrag) of EUR 801 (EUR 1,602 for
married couples filing jointly), private investors will not be entitled to deduct expenses
incurred in connection with the capital investments from their dividend income.

If the final flat tax results in a higher tax burden as opposed to the private investor’s
individual tax rate the investor may opt for taxation at his individual tax rate. In case of such
an option the final flat tax will be credited against the individual income tax. Private investors
are not entitled to deduct expenses incurred in connection with the capital investments
from their income except of the annual lump sum allowance even if they opt for taxation at



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an individual tax rate. This option may be exercised only for all capital income and married
couples may only jointly exercise the option.

Taxation of Dividend Income of Investors Resident in Germany holding their Shares as
Business Assets

If shares are held as business assets of a shareholder, the taxation depends on whether the
shareholder is a corporation, a sole proprietor, or a partnership (Mitunternehmerschaft):

Corporations. Dividend distributions to corporate shareholders are generally exempt from
corporate income tax. However, 5% of the tax-exempt dividend income is deemed to be a non-
deductible business expense for tax purposes and is therefore subject to corporate income tax
(plus solidarity surcharge) and trade tax. Business expenses actually incurred in connection
with the shares are entirely tax deductible. 95% of dividend income must be added back
when determining the trade taxable income and is therefore subject to trade tax unless the
investor holds at least 15% of the share capital of the Company at the beginning of the
relevant assessment period.

Sole Proprietors. For sole proprietors holding their shares as business assets, generally 60% of
the dividend distributions are taxable. Correspondingly, 60% of the business expenses related
to the dividend income are deductible for tax purposes (subject to any other restrictions on
deductibility). In addition, dividends are entirely subject to trade tax if the shares are held as a
business asset of a permanent establishment in Germany and if the shareholder does not hold at
least 15% of the share capital of the Company at the beginning of the relevant assessment
period. The trade tax levied – depending on the municipal trade tax rate and the individual
tax situation – is partly or entirely credited against the shareholder’s personal income tax
liability.

Partnerships. If shares are held by a partnership, personal income tax or corporate income
tax is levied only at the level of the partners. If a partner is subject to corporate income tax,
dividends are generally tax-exempt to 95% (see: “Taxation of Shareholders – Taxation of
Dividend Income of Investors Resident in Germany Holding their Shares as Business Assets –
Corporations”). If the partner is subject to personal income tax, 60% of the dividends are taxable
and 60% of the business expenses related to dividend income are deductible (see: “Taxation
of Shareholders – Taxation of Dividend Income of Investors Resident in Germany Holding
their Shares as Business Assets – Sole Proprietors”). At the level of a partnership which is
liable to trade tax, the entire dividends are subject to trade tax if the partnership does not
hold at least 15% of the share capital of the Company at the beginning of the relevant
assessment period. However, depending on the applicable municipal trade tax rate and
individual circumstances, the trade tax paid at the level of a partnership may partly or entirely
be credited against the personal income tax liability of the partners if the partners are natural
persons.

If the partnership holds 15% of the share capital of the Company at the beginning of the
relevant assessment period, only 5% of the dividends are non-deductible business expenses
and therefore subject to trade tax in the event the partners are corporations or the dividends
are trade tax exempt in the event the partners are individuals.

Taxation of Dividend Income of Investors not Resident in Germany

For foreign shareholders who do not hold their shares in a permanent establishment or a
fixed base in Germany, or as an asset for which a permanent representative has been
appointed in Germany, the German tax liability is, in principle, satisfied upon deduction of a
25% withholding tax plus a solidarity surcharge of 5.5% (possibly reduced or exempt by way
of a refund under a double taxation convention or if the shareholder is a corporation under the
EU Parent/Subsidiary Directive (90/435/ EEC of 23 July 1990, as amended) or 2/5 of the
withholding tax may be refunded in some cases.) In cases of a full or partial exemption under a
respective double taxation convention or under the EU Parent/Subsidiary Directive (90/435/ EEC
of 23 July 1990, as amended) the restrictive preconditions according to section 50d para. 3
German Income Tax Act have to be fulfilled.

However, shareholders who hold their shares in a permanent establishment or a fixed base in
Germany, or in business assets for which a permanent representative has been appointed in


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Germany, are subject to the same rules described above for shareholders resident in
Germany.


Taxation of Capital Gains
Taxation of Capital Gains of Investors Resident in Germany holding their shares as Private
Assets

Any gains from the sale or redemption of the shares will be subject to a final flat tax
(Abgeltungsteuer) of 25% plus a solidarity surcharge of 5.5% thereon resulting in an aggregate tax
burden of 26.375%. Except for an annual lump sum allowance (Sparer-Pauschbetrag) of EUR 801
(EUR 1,602 for married couples filing jointly) private investors will not be entitled to deduct
expenses incurred in connection with the capital investments from their capital gain. The
annual lump sum allowance (Sparer-Pauschbetrag) of EUR 801 (EUR 1,602 for married couples
filing jointly) shall be granted annually and includes both dividends and capital gains.

If the final flat tax results in a higher tax burden as opposed to the private investor’s
individual tax rate the investor may opt for taxation at his individual tax rate. If so the final
flat tax will be credited against the individual income tax. Private investors are not entitled to
deduct expenses incurred in connection with the capital investments from their income
except for the annual lump sum allowance even if they opt for taxation at an individual tax
rate. This option may only be exercised for all capital gains and income from capital
investments and married couples may only exercise the option jointly.

Losses from the disposition of the shares may only be offset against other capital gains
resulting from the disposition of shares. Offsetting of overall losses with other income (for
example business or rental income) and other capital income (for example dividends) is not
possible. Such losses are to be carried forward and to be offset against positive capital gains
deriving from the sale of shares in future years.

The final flat tax will not apply if the seller of the shares or, in case of gratuitous transfer, its legal
predecessor has held, directly or indirectly, at least 1% of the share capital of the Company at
any time during the five years prior to the disposal. 60% of the capital gains are taxed upon
this disposal.

Capital gains are principally subject to a final flat tax (Abgeltungsteuer) of 25% plus 5.5%
solidarity surcharge thereon (in total 26.375%) in the event a German credit or financial
institution (including a German branch of a foreign credit or financial institution) stores or
administrates or carries out the sale of the shares and pays or credits the capital income. If
the shares have not been acquired by such German credit or financial institution and
administered thereafter, for example in case of a change of administration (Depotwechsel),
withholding tax may be levied on 30% of the sale proceeds.

Taxation of Capital Gains of Investors Resident in Germany holding their Shares as Business
Assets

If shares are held as business assets of a shareholder, the taxation of capital gains realised upon
disposal depends on whether the shareholder is a corporation, a sole proprietor, or a
partnership:

Corporations. Capital gains realised by a corporate shareholder upon disposal of shares are
generally exempt from corporate income tax and trade tax. Capital gain for this purpose is the
amount by which the selling price or the equivalent value after deduction of selling costs
exceeds the tax base at the time of disposal. However, 5% of the capital gain is deemed to be
a non-deductible business expense and is therefore subject to corporate income and trade tax.
Losses incurred upon the disposal of shares or other impairments of the shares’ value are not
tax deductible. A reduction of profit is also defined as any losses incurred in connection with
a loan or security in the event the loan or the security is granted by a shareholder or by a
related person hereto or by a third person with the right of recourse against the before
mentioned persons and the shareholder holds directly or indirectly 25% or more of the share
capital of the Company.



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Sole Proprietors. If the shares are held by sole proprietors, 60% of the capital gains realised
upon disposal are taxed. Correspondingly, 60% of the business expenses related to such
capital gains and 60% of any losses incurred upon disposal of shares are tax deductible. In
addition, 60% of the capital gains are subject to trade tax if the sole proprietor is subject to
trade tax. However, trade tax is partly or entirely credited against the shareholder’s personal
income tax liability depending on the applicable municipal trade tax rate and individual
circumstances.

Partnerships. If the shareholder is a partnership, taxation depends on whether the partners
are subject to personal income tax or corporate income tax: If the partners are subject to corporate
income tax, any capital gains are generally tax exempt in amount of 95% (see: “Taxation of
Shareholders – Taxation of Capital Gains of Investors Resident in Germany Holding their Shares
as Business Assets – Corporations”). If the partners are subject to personal income tax, 60% of
the capital gains are taxable (see: “Taxation of Shareholders – Taxation of Capital Gains of
Investors Resident in Germany Holding their Shares as Business Assets – Sole Proprietors”).
For information on the deductibility of business expenses relating to capital gains and disposal
losses for partners who are subject to corporate income tax see also “Taxation of Shareholders
– Taxation of Capital Gains of Investors Resident in Germany Holding their Shares as
Business Assets – Corporations” and see above “Taxation of Shareholders – Taxation of
Capital Gains of Investors Resident in Germany Holding Their Shares as Business Assets – Sole
Proprietors” for information with respect to partners who are subject to personal income tax. In
addition, 60% of the capital gains are subject to trade tax at the level of a partnership if the
partnership is liable to trade tax and the partners are individuals and 5% of the capital gains are
subject to trade tax if partners are corporations. However, the trade tax paid at the level of a
partnership may partly or entirely be credited – depending on the applicable municipal trade
tax rate and individual circumstances – against the personal income tax liability of the partners
who are individuals.

Special rules for banks, financial services institutions, financial enterprises, life and health
insurance companies, and pension funds, are described below.

For capital gains of a corporation, no withholding tax is assessed. This applies also to capital
gains attributable to business assets if additional documentation requirements are met.

Taxation of Capital Gains of Shareholders Resident Outside Germany

Capital gains realised upon disposal of shares by a shareholder resident outside Germany are
only subject to German income or corporate income tax (plus solidarity surcharge) and, as the
case may be, German trade tax in the event (i) the shares are held in a permanent establishment
or through a fixed base in Germany, or held as assets for which a permanent representative has
been appointed in Germany or (ii) the selling Shareholders or, in case of a gratuitous transfer,
its legal predecessor has held, directly or indirectly, at least 1% of the share capital of the
Company at any time during the five year period prior to the disposal. No withholding tax
should be assessed upon the sale provided sufficient proof of the foreign tax status is given.

Corporations. If the shareholder is a corporation and the shares are held in a permanent
establishment, 5% of the capital gain is subject to German corporate income tax, solidarity
surcharge and German trade tax. If the corporation holds less than 15% of the share capital of
the Company at the beginning of the relevant assessment period the whole capital gain is
subject to German trade tax. If the shares are not held in a permanent establishment, but the
corporation has held at least 1% of the share capital of the Company at any time during the
five year period prior to the disposal, 5% of the capital gain is subject to German corporate
income tax and solidarity surcharge. In this case no German trade tax will be triggered.

Sole Proprietors. If the shares are held by sole proprietors in permanent establishments 60%
of the capital gains are subject to German income tax including solidarity surcharge and, as the
case may be, German trade tax. The capital gains are not subject to German trade tax, if a sole
proprietor holds at least 15% of the share capital of the Company at the beginning of the
relevant assessment period. If the shares are not held in a permanent establishment, but the
selling Shareholder or, in case of a gratuitous transfer, its legal predecessor has held the
shares, directly or indirectly, at least 1% of the share capital of the Company at any time
during the five year period prior to the disposal the capital gain is subject to German income
tax and solidarity surcharge. In this case no German trade tax will be triggered.


                                                                                               197
Partnerships. If the shareholder is a partnership, taxation depends on whether the partners
are subject to corporate income tax or to personal income tax and the shares are held in a
permanent establishment or not. If the partners are subject to corporate income tax, 5% of any
capital gains are subject to German corporate income tax and solidarity surcharge. If the
partners are subject to personal income tax and the shares are held in a permanent
establishment, 60% of the capital gains are subject to German income tax including solidarity
surcharge. If the shares are held in a permanent establishment of the partnership and the
partnership holds less than 15% of the share capital of the Company at the beginning of the
relevant assessment period the whole capital gains are subject to German trade tax. In this
case the partnership itself is liable to the German trade tax.

If the shares are not held in a permanent establishment, but the Partner has held indirectly at
least 1% of the share capital of the Company at any time during the five year period prior to
the disposal the capital gain is subject to German income tax and solidarity surcharge. In this
case no German trade tax will be triggered.

However, the most of the German double taxation conventions provide for a complete
exemption from German taxation (except in case (i)) in such cases and assign the right to tax
to the shareholder’s State of residence. Capital gains realised upon disposal of shares held in
a permanent establishment or through a fixed base in Germany, or held as assets for which a
permanent representative has been appointed in Germany, are subject to the same rules as
described above for shareholders resident in Germany.

Special Rules for Banks, Financial Services Institutions, Financial Institutions, Life and Health
Insurance Companies, and Pension Funds

To the extent banks and financial services institutions hold shares that are attributable to their
trading book pursuant to section 1 para. 12 of the German Banking Act (Kreditwesengesetz)
neither the standard tax exemption for corporations nor the part-income system applies to
dividend income received or to capital gains or losses realised upon the disposal of shares, that
means dividend income and capital gains are fully subject to corporate income tax or personal
income tax and, if applicable, to trade tax. The same applies to shares that were acquired by
financial institutions within the meaning of the German Banking Act in order to realise short-
term proprietary trading gains. Further more, this applies to banks, financial services
institutions and financial institutions domiciled in another Member State of the European
Community or another contracting party to the EEA Agreement. The standard tax exemption for
corporations neither applies to dividends received nor to capital gains or losses if the shares
are attributable to the capital investments (Kapitalanlagen) of life and health insurance
companies or pension funds. Certain exceptions may apply to corporations if the EU
Parent/Subsidiary Directive (90/435/EEC of 23 July 1990, as amended) applies to the Company’s
dividends and the preconditions of section 50d para. 3 of the German Income Tax Act are
fulfilled.


Inheritance and Gift Tax
The transfer of shares by way of gift or succession is, in principle, subject to German
inheritance and gift tax only if one of the following criteria is met:

(i)     The testator, donor, heir, donee, or any other beneficiary has his or her residence or
        habitual abode, registered domicile or place of management in Germany at the time of
        the transfer or is a German Citizen who has not stayed abroad for more than five years
        without having a residence in Germany;

(ii)    Irrespective of these personal circumstances, the shares are held as business assets for
         which a permanent establishment is maintained or a permanent representative is
         appointed in Germany; or

(iii)   At the time of succession or donation, the testator or donor held, either alone or with
        other closely related persons, directly or indirectly, at least 10% of the registered share
        capital of the Company.

The few double taxation treaties on inheritance and gift tax which Germany has entered into


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generally provide that German inheritance or gift tax is levied only in case (i) and, with
certain restrictions, in case (ii). Special provisions apply to certain German expatriates and
former German Citizens.


Other Taxes
No German capital transfer tax, value-added tax, stamp duty, or similar tax is levied on the
acquisition, sale, or other forms of transferring shares. However, an entrepreneur may opt for
value-added tax being levied on a transaction that is normally tax-exempt if the transaction is
executed for the enterprise of another entrepreneur. Net wealth tax (Vermögensteuer) is
currently not levied in Germany.




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TAXATION IN LUXEMBOURG

General
The following information is of a general nature only and is based on the Company’s understanding
of certain aspects of the laws and practice in force in Luxembourg as of the date of this Prospectus.
It does not purport to be a comprehensive description of all of the tax considerations that might be
relevant to an investment decision. It is included herein solely for preliminary information purposes.
It is not intended to be, nor should it be construed to be, legal or tax advice. It is a description of the
essential material Luxembourg tax consequences with respect to the shares and may not include
tax considerations that arise from rules of general application or that are generally assumed to be
known to shareholders. This summary is based on the laws in force in Luxembourg law on the date
of this Prospectus and is subject to any change in law that may take effect after such date.
Prospective shareholders should consult their professional advisors with respect to particular
circumstances, the effects of state, local or foreign laws to which they may be subject and as to
their tax position.

Please be aware that the residence concept used under the respective headings applies for
Luxembourg income tax assessment purposes only. Any reference in the present section to a tax,
duty, levy impost or other charge or withholding of a similar nature refers to Luxembourg tax law
and/or concepts only. Also, please note that a reference to Luxembourg income tax encompasses
corporate income tax (impôt sur le revenu des collectivités), municipal business tax (impôt
commercial communal), a solidarity surcharge (contribution au fonds pour l’emploi), as well as
personal income tax (impôt sur le revenu) generally. Corporate shareholders may further be
subject to net wealth tax (impôt sur la fortune) as well as other duties, levies or taxes. Corporate
income tax, municipal business tax as well as the solidarity surcharge invariably apply to most
corporate taxpayers resident of Luxembourg for tax purposes. Individual taxpayers are generally
subject to personal income tax and the solidarity surcharge. Under certain circumstances, where
an individual taxpayer acts in the course of the management of a professional or business
undertaking, municipal business tax may apply as well.


Luxembourg tax residency of the shareholders
A shareholder will not become resident, nor be deemed to be resident, in Luxembourg by reason
only of the holding and/or disposing of the shares or the execution, performance or enforcement of
his/her rights thereunder.


Withholding tax
Dividend payments made to the shareholders by a non-resident company, as well as liquidation
proceeds and capital gains derived by shareholders from the shares of a non-resident company,
are not subject to a withholding tax in Luxembourg.


Income tax
Luxembourg resident shareholders

Luxembourg resident individuals

Dividends and other payments derived from the shares by resident individual shareholders, who
act in the course of the management of either their private wealth or their professional/business
activity, are subject to income tax at the ordinary progressive rates. A tax credit may be generally
granted for foreign withholding taxes, provided it does not exceed the corresponding Luxembourg
tax. 50% of the gross amount of dividends received by resident individual shareholders from (i) a
Luxembourg resident fully-taxable company limited by share capital (société de capitaux), (ii) a
company limited by share capital (société de capitaux) resident in a State with which Luxembourg



                                                                                                      200
has concluded a double tax treaty and liable to a tax corresponding to Luxembourg corporate
income tax or (iii) a company resident in a EU Member State and covered by Article 2 of the
amended Directive 90/435 EEC of 23 July 1990 (“EU Parent-Subsidiary Directive”) are exempt
from income tax.

Capital gains realised on the disposal of the shares by resident individual shareholders, who act in
the course of the management of their private wealth, are not subject to income tax, unless said
capital gains qualify either as speculative gains or as gains on a substantial participation. Capital
gains are deemed to be speculative and are subject to income tax at ordinary rates if the shares
are disposed of within 6 months after their acquisition or if their disposal precedes their acquisition.
Speculative gains are subject to income tax as miscellaneous income at ordinary rates. A
participation is deemed to be substantial where a resident individual shareholder holds or has held,
either alone or together with his spouse or partner and/or minor children, directly or indirectly at any
time within the 5 years preceding the disposal, more than 10% of the share capital of the company
whose shares are being disposed of. A shareholder is also deemed to alienate a substantial
participation if he acquired free of charge, within the 5 years preceding the transfer, a participation
that was constituting a substantial participation in the hands of the alienator (or the alienators in
case of successive transfers free of charge within the same 5-year period). Capital gains realised
on a substantial participation more than 6 months after the acquisition thereof are taxed according
to the half-global rate method (i.e. the average rate applicable to the total income is calculated
according to progressive income tax rates and half of the average rate is applied to the capital
gains realised on the substantial participation). A disposal may include a sale, an exchange, a
contribution or any other kind of alienation of the participation.

Capital gains realised on the disposal of the shares by resident individual shareholders, who act in
the course of their professional/business activity, are subject to income tax at ordinary rates.
Taxable gains are determined as being the difference between the price for which the shares have
been disposed of and the lower of their cost or book value.

Luxembourg corporate residents

Dividends and other payments derived from the shares by Luxembourg resident fully-taxable
companies are subject to income taxes, unless the conditions of the participation exemption regime,
as described below, are satisfied. A tax credit may generally be granted for foreign withholding
taxes, provided it does not exceed the corresponding Luxembourg tax. If the conditions of the
participation exemption are not met 50% of the gross amount of dividends received by Luxembourg
resident fully-taxable companies from (i) a Luxembourg resident fully-taxable company limited by
share capital (société de capitaux), (ii) a company limited by share capital (société de capitaux)
resident in a State with which Luxembourg has concluded a double tax treaty and liable to a tax
corresponding to Luxembourg corporate income tax or (iii) a company resident in a EU Member
State and covered by Article 2 of the EU Parent-Subsidiary Directive are exempt from income tax.

Under the participation exemption regime, dividends derived from the shares may be exempt from
income tax at the level of the shareholder if cumulatively (i) the shareholder is a Luxembourg
resident fully-taxable company, (ii) the distributing company is a qualified subsidiary (“Qualified
Subsidiary”) and (iii) at the time the dividend is put at the shareholder's disposal, the shareholder
has held or commits itself to hold for an uninterrupted period of at least 12 months a qualified
shareholding (“Qualified Shareholding”). A Qualified Subsidiary means (a) a Luxembourg fully-
taxable company, (b) a company covered by Article 2 of the EU Parent-Subsidiary Directive or (c) a
non-resident company limited by share capital (société de capitaux) liable to a tax corresponding to
Luxembourg corporate income tax. A Qualified Shareholding means shares representing a direct
participation of at least 10% in the share capital of the Qualified Subsidiary or a direct participation
of an acquisition price of at least €1.2 million. Liquidation proceeds are assimilated to a received
dividend and may be exempt under the same conditions. Shares held through a tax transparent
entity are considered as being a direct participation proportionally to the percentage held in the net
assets of the transparent entity.

Capital gains realised by a Luxembourg fully-taxable resident company on the shares are subject
to income tax at ordinary rates, unless the conditions of the participation exemption regime, as
described below, are satisfied. Under the participation exemption regime, capital gains realised on
the shares may be exempt from income tax at the level of the shareholder if cumulatively (i) the
shareholder is a Luxembourg resident fully-taxable company, (ii) the distributing company is a
Qualified Subsidiary and (iii) at the time the capital gain is realised, the shareholder has held or


                                                                                                   201
commits itself to hold for an uninterrupted period of at least 12 months shares representing a direct
participation of at least 10% in the share capital of the Qualified Subsidiary or a direct participation
of an acquisition price of at least €6 million. Shares held through a tax transparent entity are
considered as being a direct participation proportionally to the percentage held in the net assets of
the transparent entity. Taxable gains are determined as being the difference between the price for
which the shares have been disposed of and the lower of their cost or book value.

Luxembourg residents benefiting from a special tax regime

Shareholders who are either (i) a holding company subject to the amended law of July 31, 1929, (ii)
an undertaking for collective investment governed by the amended law of December 20, 2002, (iii)
a specialised investment fund governed by the law of February 13, 2007 or (iv) family wealth
management companies governed by the law of May 11, 2007 are exempt from income tax in
Luxembourg. Dividends derived from and capital gains realised on the shares are thus not subject
to income tax in their hands.

Taxation of Luxembourg non-resident shareholders

Non-resident shareholders who have neither a permanent establishment nor a permanent
representative in Luxembourg to which or whom the shares are attributable, are not liable to any
Luxembourg income tax on income and gains derived from the shares.
Non-resident shareholders which have a permanent establishment or a permanent representative
in Luxembourg to which the shares are attributable, must include any income received, as well as
any gain realised on the sale, disposal or redemption of shares, in their taxable income for
Luxembourg tax assessment purposes unless the conditions of the participation exemption, as
described below, are satisfied. Taxable gains are determined as being the difference between the
price for which the shares have been disposed of and the lower of their cost or book value.

Under the participation exemption regime, dividends derived from the shares may be exempt from
income tax if cumulatively (i) the shares are attributable to a qualified permanent establishment
(“Qualified Permanent Establishment”), (ii) the distributing company is a Qualified Subsidiary and
(iii) at the time the dividend is put at the disposal of the Qualified Permanent Establishment, it has
held or commits itself to hold for an uninterrupted period of at least 12 months a Qualified
Shareholding. A Qualified Permanent Establishment means (a) a Luxembourg permanent
establishment of a company covered by Article 2 of the EU Parent-Subsidiary Directive, (b) a
Luxembourg permanent establishment of a company limited by share capital (société de capitaux)
resident in a State having a tax treaty with Luxembourg and (c) a Luxembourg permanent
establishment of a company limited by share capital (société de capitaux) or a cooperative society
(société coopérative) resident in the European Economic Area other than a EU Member State.
Under the participation exemption regime, capital gains realised on the shares may be exempt from
income tax if cumulatively (i) the shares are attributable to a Qualified Permanent Establishment,
(ii) the distributing company is a Qualified Subsidiary and (iii) at the time the capital gain is realised,
the Qualified Permanent Establishment has held or commits itself to hold for an uninterrupted
period of at least 12 months shares representing a direct participation in the share capital of the
Qualified Subsidiary of at least 10% or a direct participation in the Qualified Subsidiary of an
acquisition price of at least EUR 6 million.

Net Wealth Tax
Luxembourg resident shareholders, as well as non-resident shareholders who have a permanent
establishment or a permanent representative in Luxembourg to which the shares are attributable,
are subject to Luxembourg net wealth tax on such shares, except if the shareholder is (i) a resident
or non-resident individual, (ii) a holding company governed by the amended law of July 31, 1929,
(iii) an undertaking for collective investment subject to the amended law of December 20, 2002, (iv)
a securitisation company governed by the law of March 22, 2004 on securitisation, (v) a company
governed by the law of June 15, 2004 on venture capital vehicles, (vi) a specialised investment
fund governed by the law of February 13, 2007 or (vii) a family wealth management company
governed by the law of May 11, 2007.




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Under the participation exemption, a Qualified Shareholding held in a Qualified Subsidiary by a
Luxembourg resident fully-taxable company or attributable to a Qualified Permanent Establishment
may be exempt.


Other Taxes
There is no Luxembourg registration tax, stamp duty or other similar tax or duty payable by the
shareholders in Luxembourg by reason only of the issuance or transfer of shares.

Under Luxembourg tax law, where an individual shareholder is a resident of Luxembourg for tax
purposes at the time of his/her death, the shares are included in his or her taxable basis for
inheritance tax purposes.

Gift tax may be due on a gift or donation of the shares, if the gift is recorded in a Luxembourg
notarial deed or otherwise registered in Luxembourg.




                                                                                           203
UNDERWRITING

Listing Agreement
On 30 June 2010, the Company, VEM, Falcon Grow and Axiom China Capital Partners Ltd., have
concluded an agreement (the “Listing Agreement”) regarding the inclusion of the Company’s
shares in the trading in the Entry Standard, a sub-segment of the Open Market (Freiverkehr) on the
Frankfurt Stock Exchange. In the Listing Agreement VEM has committed to subscribing an amount
of New Shares corresponding to the amount of received valid subscriptions obtained from third
parties as well as the corresponding purchase price. The Company and the Existing Shareholders
will pay VEM a management fee of 1.5% plus a placement fee of 5.0% of the gross proceeds from
the offering (including the proceeds from the exercise of the Greenshoe Option for the Greenshoe
Shares), i.e. the number of Offer Shares actually sold multiplied by the offer price. In addition, the
Company will pay to VEM a corporate finance remuneration of EUR 100,000 for the services
rendered in connection with the inclusion of the Company’s shares in the trading in the Entry
Standard, a sub-segment of the Open Market (Freiverkehr) of the Frankfurt Stock Exchange.

The Listing Agreement provides that VEM may terminate the Listing Agreement under certain
circumstances, even after the shares have been allocated and included in the trading, up to
delivery and settlement. Such circumstances include in particular an adverse change or
prospective adverse change in the assets, financial condition or results of operations or an
impairment of the business of the Company or one of its subsidiaries, a material change in the
management structure of the Company, a complete or partial suspension of trading on the
Frankfurt Stock Exchange or an adverse change in the national or international financial, political,
industrial, economic or legal conditions or capital markets conditions or currency exchange rates or
an outbreak or escalation of hostilities or terrorist activities.

If the Listing Agreement is terminated, the offering will not take place. In such case, shares which
have already been allocated to investors will be invalidated and investors will have no claim for
delivery. Claims relating to any subscription fees paid and costs incurred by any investor in
connection with the subscription are governed solely by the legal relationship between the investor
and the institution to which the investor submitted its purchase order. Investors who have engaged
in short sales of shares will bear the risk of not being able to fulfil their delivery obligations in
connection with such sale.

The Company has agreed in the Listing Agreement to indemnify and hold harmless VEM and its
directors, officers, partners and employees, any affiliate and each person who may be deemed to
control VEM (each an ‘‘Indemnified Person’’) against any losses, claims, damages, liabilities,
charges, expenses or demands (or actions in respect thereof) (‘‘Losses’’) to which such
Indemnified Person may become subject and which arise out of, or in relation to, or in connection
with (i) any breach by the Company of its representations and warranties pursuant to the Listing
Agreement or (ii) any untrue statement of a material fact contained in the Prospectus or any
omission to state therein a material fact required to be stated therein necessary to make the
statements therein, in the light of the circumstances under which they were made, not misleading.
In each such case, the Company will in addition reimburse each Indemnified Person for any
properly documented legal or other expenses (together with any amount equal to Value Added Tax
(“VAT”), if applicable) incurred by such Indemnified Person in connection with investigation or
defending any such action or claim including with respect to an alleged breach, alleged untrue
statements, or an alleged omission as such expenses are incurred. The Existing Shareholders
have also severally and not jointly agreed under the Listing Agreement to indemnify and hold
harmless VEM Aktienbank AG under certain circumstances.


Greenshoe Option and Securities Loan
With regard to a potential over-allotment of 57,500 no par value ordinary bearer shares (Inhaber-
Stammaktien) of the Greenshoe Shareholder have been granted to VEM for the account of VEM by
way of a securities loan. The Greenshoe Shareholders have further granted VEM an option to
acquire these shares at the offer price less agreed commission. This option expires 30 calendar
days after the commencement of trading of the shares on the Entry Standard.



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Other Relationships
VEM may, from time to time, engage in transactions or perform services for the Company in the
ordinary course of business.


Selling and Transfer Restrictions
The offering consists of public offerings in Germany and Luxembourg, as well as private
placements outside of Germany, Luxembourg and the United States going to institutional investors.
The shares are not currently, and in the future will not be, registered under the U.S. Securities Act
of 1933, as amended, and they are only being offered outside the United States in reliance on
Regulation S under the Securities Act. This Prospectus does not constitute an offer, solicitation or
invitation to subscribe for shares in any jurisdiction in which such an offer, solicitation or invitation
would be unlawful or would not be authorised or to any person to whom it would be unlawful to
make such an offer, solicitation or invitation. No action has been, or will be, taken under the
requirements of the legislation or regulations, or of the legal or regulatory authorities, of any
jurisdiction, aside from the filing and/or registration of this Prospectus in Germany and Luxembourg
in order to allow a public offering of the shares and the public distribution of this Prospectus in
Germany and Luxembourg. The distribution of this Prospectus and the offering of the shares in
certain jurisdictions may be restricted by the relevant national laws in the respective jurisdictions.
Those who might come into possession of this Prospectus are required by the Company and VEM
to inform themselves about, and to observe and comply with, any such restrictions at their own
expense and without there being liability on the part of the Company or VEM. Those people to
whom a copy of this Prospectus has been issued may not circulate the Prospectus to any other
person or reproduce or otherwise distribute this Prospectus or any information contained within it
for any purpose whatsoever, nor permit or cause the same to occur.

VEM has represented and warranted to the Company that, with respect to each member state of
the EEA that has implemented the Prospectus Directive, the shares which are the subject of the
Offering described in this Prospectus have not been, and will not be, publicly offered in such a EEA
member state apart from in connection with a public offering in Germany and Luxembourg once the
Prospectus has been approved by German Federal Financial Supervisory Authority (Bundesanstalt
für Finanzaufsicht, BaFin), published in accordance with the German Securities Prospectus Act
and with the Luxembourg Commission for the Supervision of the Financial Sector being notified.
The Offer Shares may, however, be publicly offered at any time in each such EEA member state in
accordance with the following exceptions laid down in the Prospectus Directive, provided that these
exceptions have been implemented in the such EEA member state: offerings to legal entities which
are authorised or regulated to operate in the financial markets or legal entities with the sole
corporate purpose of investing in securities; offerings to any legal entity, which in accordance with
its latest financial statements or consolidated financial statements, meet at least two of the
following criteria: (i) an average of at least 250 employees in the last financial year, (ii) a balance
sheet total in excess of EUR 43 million and (iii) an annual net turnover in excess of EUR 50 million;
offerings to fewer than 100 natural or legal persons (other than qualified investors within the
meaning of the Prospectus Directive) with the proviso that the prior consent of VEM for any such
offer is obtained; or in all other circumstances which fall within Article 3(2) of the Prospectus
Directive. The above exemptions only apply on the provison that such an offer for the sale of
shares does not require the publication of a Prospectus by the Company or VEM in accordance
with Article 3 of the Prospectus Directive.

For purposes of this rule, the term "public offering" of the shares offered in any such EEA member
state means a communication to the public in any form and by any means presenting sufficient
information on the terms and conditions of the offering and the shares to be offered so as to make
it possible for an investor to decide whether or not to purchase any shares. In relation to the
interpretation of this definition, the measures taken to implement the Prospectus Directive in the
EEA member state in the territory of which the Offer Shares are being offered has prevalence.
"Prospectus Directive" means Directive 2003/71/EC including any relevant measures taken in each
Relevant Member State in order to implement it.




                                                                                                    205
VEM has not circulated and will not circulate or distribute this Prospectus in the People’s Republic
of China (PRC) and VEM has not offered or sold, and will not offer or sell, to any person for re-
offering or resale, either directly or indirectly, any shares to any resident of the PRC except in
accordance with applicable laws and stipulations of the PRC. For the purposes of the interpretation
of this paragraph, the PRC does not include Hong Kong, Macau or Taiwan.

Additionally, VEM has represented and warranted that (i) it has only communicated or caused to be
communicated, and will only communicate or cause to be communicated, invitations or
inducements to partake in investment activities within the meaning of Article 21 of the Financial
Services and Markets Act ("FSMA") in relation to the offer or sale of the Offer Shares under
circumstances in which Article 21 of the FSMA does not apply to the Company and (ii) it has
complied and will comply with all applicable rules within FSMA with respect to all of its activities in
relation to the Offer Shares in, from or otherwise involving, the United Kingdom.

This Prospectus has not been submitted to the Australian Securities & Investments Commission
and is only directed at certain categories of exempt persons. This being so, if you receive this
Prospectus in Australia: either you confirm and warrant that you are either: (i) a "sophisticated
investor" under section 708(8)(a) or (b) of the Corporations Act 2001 (Cth) of Australia
("Corporations Act"); (ii) a sophisticated investor" under section 708(8)(c) or (d) of the Corporations
Act and that you have submitted an accountant's certificate to the Company complying with the
requirements of section 708(8)(c)(i) or (ii) of the Corporations Act and related regulations before the
offer has been made; (iii) a person associated with the Company under section 708(12) of the
Corporations Act; or (iv) "professional investor" coming under the meaning of section 708(11 )(a) or
(b) of the Corporations Act, and to the extent that you are unable to confirm or warrant that you are
an exempt sophisticated investor, associated person or professional investor under the
Corporations Act, any offer made to you under this particular document is void and incapable of
being accepted; or you warrant and agree that you will not offer any of the securities issued to you
pursuant to this document for resale in Australia within 12 months of those securities being issued
except where any such resale offer is exempt from the obligation to issue a disclosure document
under section 708 of the Corporations Act.

The shares are not, and will not be, registered under the Securities and Exchange Law of Japan
and may not be offered or sold, either directly or indirectly, in Japan or to, or for the account or
benefit of, any resident of Japan (this term as is used in the Law means any person resident in
Japan, including any corporation or other entity organised under the laws of Japan) or to, or for the
account or benefit of, any person for reoffering or resale, either directly or indirectly, in Japan or to,
or for the account or benefit of, any resident of Japan, except (i) in accordance with an exemption
from the registration requirements of, or otherwise in compliance with, the Securities and Exchange
Law of Japan and (ii) in compliance with any other relevant laws, regulations and provisions of
Japan.

This Prospectus has not been submitted to, and registered as, a prospectus or information
memorandum with the Monetary Authority of Singapore. Therefore, no advertisement may be
made which offers or calls attention to an offer or intended offer of the shares to the public in
Singapore. VEM will not offer or sell shares, and will not make shares the subject of an invitation
for subscription or purchase, and will not circulate or distribute this Prospectus or any other
document or material in relation to the offer or sale, or invitation for subscription or purchase, of
shares, be it directly or indirectly, to the public or any member of the public in Singapore other than:
to an institutional investor or other person laid down in Section 274 of the Securities and Futures
Act 2001 of Singapore; to a sophisticated investor, and in line with the conditions, specified in
Section 275 of the Securities and Futures Act; or otherwise pursuant to, and in accordance with,
the conditions of any other applicable provision or measure of the Securities and Futures Act.




                                                                                                     206
RECENT DEVELOPMENTS AND OUTLOOK

On 28 August 2010, Madison Group started the pre-sales of its project Ocean Century Garden in
the city of Zibo. During the first selling phase, 155 out of the 198 available housing stock units were
sold on the first day. Up to 15 October 2010, a total of 291 out of the 300 available on-sales
housing stock units have been or reserved for sale. The project is expected to be completed in
April 2011.

On 30 May 2010, pre-sales of Green Bay Phase I (East) project were commenced in the city of
Qingdao. Up to 15 October 2010, a total of 719 out of the 766 available housing stock unites have
been or reserved for sale, achieving an increase in premium over the average sales price of RMB
200/m² during the launching period.

Up to 15 October 2010, the overall construction progress of the Green Bay Phase I (East) project
was approximately 70%. The estimated completion dates are December 2010 for 20 of a total of 29
blocks and April 2011 for the remaining 9 blocks.

As at 15 October 2010, the building construction of Ocean Century Garden Phase IV reached 14
out of a total of 17 floors. The estimated completion date is April 2011.

Green Bay Phase I (West) and Fragrance Town Mountain commenced the building construction in
September 2010.

In terms of construction and civil engineering methods, for new property project in Zibo the
Company has adopted new methods of construction that are on line with the government's latest
policy to encourage green and environmentally friendly building and construction methods.
Traditional methods of on-site constructions have been replaced by "advanced pre-fabricated and
pre-assembled at factory" type construction methods which are a more environmentally friendly
way of construction engineering with the costs being at similar levels as with traditional construction
methods.

- Yangguang Coast: The Gross Floor Area (GFA) of this project is 69,000 m². The project was
completed in June 2009.

-   Dongshan Peak: The GFA of this project is 18,000 m² and it was completed in November 2009.

On 31 August 2010, Madison Qingdao completed the legal process of acquisition of 5% of the
equity interest held by Mr. Jiang Zhiyong, equivalent to RMB 1,000,000 in the registered capital of
Qingdao Jundong Properties Co., Limited (“Qingdao Jundong”) for the purchase price of RMB
1,000,000. Madision Qingdao is now legally the sole shareholder of Qingdao Jundong.

On 2 September 2010, Madison Qingdao completed the registration process of Qingdao Junyang
Zhiye Company Limited (“Qingdao Junyang”) and has fully paid in the registered capital of RMB
20,000,000. Madison Qingdao is the sole shareholder of Qingdao Junyang. Qingdao Junyang is
currently does not develop any projects.

On 8 September 2010, Madison Qingdao completed the the legal process of acquisition of 97% of
the equity interest, equivalent to RMB 19,400,000 in the registered capital, in Qingdao Guanghua
Property Company Limited (”Qingdao Guanghua”) for a purchase price of RMB 19,400,000. The
acquisition of Qingdao Guanghua from Mr. Tian Qingtong was effective on the date of signature of
the relevant agreements in April 2010. Madison Qingdao is now legally the 97% shareholder of
Qingdao Guanghua.
On 9 October 2010, Madison Qingdao entered into a share transfer contract with Qingdao Xiang
Gen Wen Quan Company Limited to acquire 2% of the equity interest, equivalent to RMB 200,000
in the registered capital, in Qingdao Xianggen Quanhai Company Limited (Qingdao Xianggen
Quanhai) for a purchase price of RMB 200,000. Before the acquisition, Madison Qingdao held 49%
equity interest of Xianggen Quanhai, which was accounted for using the equity method in the
financial statements. The acquisition of Xianggen Quanhai was effective on the date of signature of
the relevant agreements stated above. The updated business licence was issued on 18 October
2010. As at the date of this Prospectus, Madison Qingdao is the 51% shareholder of Xianggen


                                                                                                  207
Quanhai. Xianggen Quanhai is currently developing the project “The Villa with Springs”. The GFA
of this project is 28,500 m² and comprises three-storey villas. The project was commenced in
October 2010. Six blocks of villas, approximately 50% of the GFA, are estimated to be completed
and delivered by April 2011.
There have been no material changes with regard to the operations of Madison Group since 31
July 2010. The annual budget is anticipated to be fulfilled. Further strengthening intervention over
the real estate market from the PRC government might have an adverse effect on the market
position of Madison. However, since sales of most of the Company’s projects are nearly completed,
no material effects to the financial statements of Madison Group as at 30 April 2011 is anticipated
to be caused by such potential intervention. If there are periods of extreme cold during the winter
2010/2011, this might have an adverse effect on the construction progress of the Company’s
projects.




                                                                                               208
FINANCIAL SECTION


Table of Contents

Madison Property AG, Berlin, Unaudited Condensed Consolidated Financial
Statements for the three months period ended 31 July 2010 (IFRS) ······························ F-4
Unaudited Condensed Consolidated Statement of Comprehensive Income for the three months period
ended 31 July 2010························································································································ F-5

Unaudited Condensed Consolidated Statement of Financial Position as at 31 July 2010 ················ F-7

Unaudited Condensed Consolidated Statement of Changes in Equity for the three months period
ended 31 July 2010························································································································ F-9

Unaudited Condensed Consolidated Statement of Cash Flows for the three months period

ended 31 July 2010······················································································································ F-10

Notes to the unaudited Condensed Consolidated Financial Statements for the three months period
ended 31 July 2010······················································································································ F-11

Madison Property AG, Berlin, Consolidated Financial Statements for the years ended
30 April 2010 and 2009 (IFRS) ······························································································· F-19

Consolidated Statement of Comprehensive Income for the years ended 30 April 2010 and 2009·· F-20

Consolidated Statement of Financial Position as at 30 April 2010 and 2009·································· F-22

Consolidated Statement of Changes in Equity for the years ended 30 April 2010 and 2009 ·········· F-24

Consolidated Statement of Cash Flows for the years ended 30 April 2010 and 2009 ···················· F-25

Notes to the Consolidated Financial Statements for the years ended 30 April 2010 and 2009······· F-27

Independent Auditors’ Report······································································································· F-71

Madison Property Group Limited, Hong Kong, Consolidated Financial Statements for
the year ended 30 April 2009 (IFRS) ···················································································· F-72
Consolidated Income Statement for the year ended 30 April 2009 ················································ F-73

Consolidated Balance Sheet as at 30 April 2009 ·········································································· F-74

Consolidated Statement of Changes in Equity for the year ended 30 April 2009 ··························· F-76

Consolidated Statement of Cash Flows for the year ended 30 April 2009 ····································· F-77

Notes to the Consolidated Financial Statements for the year ended 30 April 2009 ························ F-80

Independent Auditors’ Report····································································································· F-119

Madison Property Group Limited, Hong Kong, Consolidated Financial Statements for
the years ended 30 April 2006, 2007 and 2008 (IFRS) ···················································· F-120
Consolidated Income Statement for the years ended 30 April 2006, 2007 and 2008 ··················· F-121

Consolidated Balance Sheet as at 30 April 2006, 2007 and 2008 ··············································· F-122

Consolidated Statement of Changes in Equity for the years ended



                                                                                                                                          F-1
30 April 2006, 2007 and 2008 ···································································································· F-124

Consolidated Statement of Cash Flows for the years ended 30 April 2006, 2007 and 2008········· F-125

Notes to the Consolidated Financial Statements for the years ended

30 April 2006, 2007 and 2008 ···································································································· F-128

Independent Auditors’ Report····································································································· F-171
Madison Property AG, Berlin, Single Financial Statements for the year ended 30 April
2010 (HGB) ····························································································································· F-172

Balance Sheet as at 30 April 2010 [German] ·············································································· F-173

Income Statement for the financial year from 1 May 2009 to 30 April 2010 [German]·················· F-175

Notes to the Financial Statements for the financial year from 1 May 2009 to 30

April 2010 [German]··················································································································· F-176

Auditor’s Report [German]·········································································································· F-179

Auditor’s Report [English]··········································································································· F-180

Balance Sheet as at 30 April 2010 [Translation in English] ························································· F-181
Income Statement for the financial year from 1 May 2009 to 30 April 2010
[Translation in English] ······································································································· F-183
Notes to the Financial Statements for the financial year from 1 May 2009 to 30 April 2010 [Translation
in English] ·································································································································· F-184




                                                                                                                                                F-2
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                                        F-3
Madison Property AG, Berlin, Unaudited Condensed Consolidated Finanicial
Statements for the three months period ended 31 July 2010 (IFRS)




                                                                     F-4
Unaudited Condensed Consolidated Statement of Comprehensive Income for the three
months period ended 31 July 2010


                                                                          2010                2009
                                                 Note                (Unaudited)        (Unaudited)
                                                                       EUR’000            EUR’000

Revenue                                                                    1,866             25,309
Cost of properties sold                                                   (1,318)           (19,889)

Gross profit                                                                 548              5,420
Other income                                                                   6                  -
Change in fair value of
     investment properties                        7                         (102)               493
Selling expenses                                                            (357)              (285)
Administrative expenses                                                     (710)              (540)
Other expenses                                                               (83)               (21)

Results from operating activities                                           (698)             5,067

Finance income                                                                 6                  8
Finance costs                                                               (156)              (159)

Net finance costs                                                           (150)              (151)

Share of loss of an equity accounted
   investee, net of income tax                                                 (7)                  (1)

(Loss)/profit before income tax                                             (855)             4,915
Income tax expense                                4                          173             (1,763)

(Loss)/profit for the period                                                (682)             3,152

Other comprehensive income

Foreign currency translation differences                                   1,166             (2,510)

Other comprehensive income for the period,
   net of income tax                                                       1,166             (2,510)

Total comprehensive income for the period                                    484                642




The accompanying notes are an integral part of these condensed consolidated financial statements.




                                                                                                F-5
Unaudited Consolidated Statement of Comprehensive Income for the three months
period ended 31 July 2010 (Continued)


                                                                          2010                2009
                                                 Note                (Unaudited)        (Unaudited)
                                                                       EUR’000            EUR’000

(Loss)/profit attributable to:
   Controlling party and equity holders
        of the Group                                                        (459)             3,055
   Non-controlling interest                                                 (223)                97

(Loss)/profit for the period                                                (682)             3,152


Total comprehensive income
   attributable to:

    Controlling party and equity holders
       of the Group                                                          707                545
    Non-controlling interest                                                (223)                97

Total comprehensive income for the period                                    484                642

Earnings per share in EUR (basic and diluted       )                       (0.14)              0.93




The accompanying notes are an integral part of these condensed consolidated financial statements.




                                                                                                F-6
Unaudited Condensed Consolidated Statement of Financial Position as at 31 July 2010

                                                                    31 July 2010      30 April 2010
                                                 Note                (Unaudited)          (Audited)
                                                                        EUR’000           EUR’000

Assets
Property and equipment                                                       807                880
Investment properties                             7                       23,018             22,624
Investment accounted for
    using the equity method                                                  527                522
Other investments                                                          1,436              1,405
Deferred tax assets                                                        4,219              3,901

Total non-current assets                                                  30,007             29,332

Inventories                                       8                       74,460             69,047
Trade and other receivables                       9                       46,470             38,913
Restricted bank deposits                                                     681                666
Cash and cash equivalents                                                 12,888              5,624

Total current assets                                                     134,499           114,250

Total assets                                                             164,506           143,582




The accompanying notes are an integral part of these condensed consolidated financial statements.




                                                                                                F-7
Unaudited Condensed Consolidated Statement of Financial Position as at 31 July 2010
(Continued)


                                                                    31 July 2010      30 April 2010
                                                 Note                (Unaudited)          (Audited)
                                                                        EUR’000           EUR’000

Equity
Paid-in capital                                                            3,500              3,500
Revaluation reserve                                                           69                 69
Translation reserve                                                        5,795              4,629
Retained earnings                                                         41,697             42,156

Total equity attributable to
   controlling party and equity
   holders of the Group                                                   51,061             50,354
Non-controlling interest                                                   1,052              1,275

Total equity                                                              52,113             51,629

Liabilities
Loans and borrowings                                                      25,938             17,084
Deferred tax liabilities                                                   6,091              6,017

Total non-current liabilities                                             32,029             23,101

Loans and borrowings                                                       4,579              4,813
Sales deposits                                                            25,528              9,312
Trade and other payables                                                  26,288             30,768
Income tax payable                                                        23,969             23,959

Total current liabilities                                                 80,364             68,852

Total liabilities                                                        112,393             91,953

Total equity and liabilities                                             164,506           143,582



Approved and authorised for issue by the Board of Directors on 27 September 2010.

                    a) Mr. Qingtong Tian
                    b) Mr. Zaisheng Wei
                    c) Mr. Yi (Alex) Yuan


The accompanying notes are an integral part of these condensed consolidated financial statements.




                                                                                                F-8
Unaudited Condensed Consolidated Statement of Changes in Equity for the three months period ended 31 July 2010

                                                         Attributable to controlling party and equity holders of the Group              Non-
                                                         Paid-in Revaluation          Translation       Retained                   controlling      Total
                                                          capital       reserve          reserve         earnings      Sub-total     interest      equity
                                                        EUR’000       EUR’000           EUR’000         EUR’000        EUR’000      EUR’000      EUR’000

Balance at 1 May 2009                                         50             69           4,272           37,524        41,915         1,087      43,002

Total comprehensive income for the period
Profit for the period                                           -              -               -           3,055          3,055            97      3,152
Other comprehensive income
Foreign currency translation differences                        -              -          (2,510)               -        (2,510)             -     (2,510)

Total comprehensive income for the period                       -              -          (2,510)          3,055            545            97        642

Balance at 31 July 2009                                       50             69           1,762           40,579        42,460         1,184      43,644


Balance at 1 May 2010                                      3,500             69           4,629           42,156        50,354         1,275      51,629

Total comprehensive income for the period
Loss for the period                                             -              -               -            (459)          (459)         (223)      (682)
Other comprehensive income
Foreign currency translation differences                        -              -          1,166                 -         1,166              -     1,166

Total comprehensive income for the period                       -              -          1,166             (459)           707          (223)       484

Balance at 31 July 2010                                    3,500             69           5,795           41,697        51,061         1,052      52,113

The accompanying notes are an integral part of these condensed consolidated financial statements.




                                                                                                                                                      F-9
Unaudited Condensed Consolidated Statement of Cash Flows for the three months
period ended 31 July 2010


                                                                          2010                2009
                                                                     (Unaudited)        (Unaudited)
                                                                       EUR’000            EUR’000


Net cash (used in)/generated from operating activities                      (1,025)           4,152


Net cash (used in)/generated from investing activities                         (6)                  6


Net cash generated from/ (used in) financing activities                    8,052             (3,742)


Net increase in cash                                                       7,021                416

Cash at 1 May                                                              5,624              6,191
Effect of exchange rate fluctuations on cash held 243                       (364)

Cash and cash equivalents at 31 July                                      12,888              6,243




The accompanying notes are an integral part of these condensed consolidated financial statements.




                                                                                               F-10
Notes to the unaudited Condensed Consolidated Financial Statements for the three
months period ended 31 July 2010
1   Basis of preparation

    (a)     Statement of compliance

            These condensed consolidated financial statements as at and for the three months period
            ended 31 July 2010 have been prepared in accordance with IAS 34 Interim Financial
            Reporting. They do not include all of the information required for full annual financial
            statements, and should be read in conjunction with the consoli-dated financial statements
            of the Group as at and for the year ended 30 April 2010.

            These condensed consolidated financial statements were approved by the Board of
            Directors on 27 September 2010.

    (b)     Use of estimates and judgments

            The preparation of the condensed consolidated financial statements as at and for the
            three months period ended 31 July 2010 requires management to make judgements,
            estimates and assumptions that affect the application of accounting policies and the
            reported amounts of assets, liabilities, income and expenses. Actual results may differ
            from these estimates.

            In preparing these condensed consolidated financial statements as at and for the three
            months period ended 31 July 2010, the significant judgements made by management in
            applying the Group’s accounting policies and the key sources of estimation uncertainty
            were the same as those that applied to the Group’s consolidated financial statements as
            at and for the year ended 30 April 2010.

2   Significant accounting policies

    The accounting policies applied by the Group in these condensed consolidated financial
    statements as at and for the three months period ended 31 July 2010 are the same as those
    applied by the Group in its consolidated financial statements as at and for the year ended 30
    April 2010.

    The assets and liabilities of the subsidiaries, including fair value adjustments arising on
    acquisition, if any, are recorded in the functional currency RMB and USD and were translated to
    the reporting currency EURO at exchange rates at the reporting date. The income and expenses
    are translated to EURO at average exchange rates for the reporting period. The parent
    company’s functional currency is EURO. Firstly, assets and liabilities were translated to RMB at
    exchange rates at the reporting date and income and expenses are translated at average
    exchange rates for the reporting period. In a second step, accounts are translated to EURO.

     Foreign currency differences are recognized directly in equity.

     Applicable currency translation rates against EURO were as follows:


                     RMB/EUR                      RMB/USD                        HKD/USD
              As at 31 July   Average       As at 31 July   Average        As at 31 July   Average

     2010         8.84          8.94            6.78          6.80             7.77         7.77
     2009         9.63          9.35            6.83          6.83             7.75         7.75




                                                                                                   F-11
3   Revenue and operating segment
    The Group’s revenue mainly derived from sales of properties and rental income of investment
    properties.

    The Group has two reportable segments, as described below, which are the Group’s strategic
    business units. The strategic business units offer different products and services, and are
    managed separately because they require different marketing strategies. For each of the
    strategic business units, the Group’s CEO reviews internal management reports on at least a
    quarterly basis. The following summary describes the operations in each of the Group’s
    reportable segments:

    !   Investment properties: the leasing of office premises and commercial units to generate
        rental income and to gain from the appreciation in the properties’ values in the long term.

    !   Property development: the development and sale of residential properties and commercial
        units.

    Information regarding the results of each reportable segment is included below. Performance is
        measured based on segment profit before income tax. Segment profit is used to measure
        performance as management believes that such information is the most relevant in evaluating
        the results of certain segments relative to other entities that operate within these industries




                                                                                                F-12
3     Revenue and operating segment (continued)



                                      Investment properties        Property development             Holding/Eliminations             Consolidated
                                   For the three months period   For the three months period    For the three months period   For the three months period
                                          ended 31 July                 ended 31 July                  ended 31 July                 ended 31 July

                                        2010            2009           2010           2009            2010           2009           2010           2009
                                     EUR’000         EUR’000        EUR’000        EUR’000         EUR’000        EUR’000        EUR’000        EUR’000
External revenues                            -              5          1,866         25,304                -              -         1,866         25,309
Interest revenue                             -              -              6              8                -              -             6              8
Interest expense                             -              -           (156)          (159)               -              -          (156)          (159)
Depreciation                                 -               -           (88)            (74)              -              -           (88)            (74)
Reportable segment (loss)/profit
   before income tax                       (42)           507           (812)         4,408               (1)             -          (855)         4,915
Share of loss of an equity
   accounted investee                        -               -            (7)             (1)              -              -            (7)             (1)
Other material non-cash items:
   Change in fair value of
   investment properties                  (102)           493              -               -               -              -          (102)           493
Capital expenditure                          -              -             12               2               -              -            12              2


                                     Investment properties           Property development                Eliminations                 Consolidated
                                 31 July 2010 30 April 2010      31 July 2010 30 April 2010     31 July 2010 30 April 2010    31 July 2010 30 April 2010
                                     EUR’000        EUR’000          EUR’000        EUR’000         EUR’000         EUR’000       EUR’000        EUR’000
Reportable segment assets              25,450          25,052        246,464        223,828        (107,408)      (105,298)       164,506        143,582
Investment accounted for
    using equity method                     -               -            527            522               -              -            527            522
Reportable segment liabilities         11,523          14,642        182,321        157,138         (81,451)       (79,827)       112,393         91,953




                                                                                                                                                    F-13
4   Income tax expense

                                                                   31 July 2010          31 July 2009
                                                                       EUR’000               EUR’000

    Current tax expense
        - PRC Enterprise Income Tax                                           66                1,105
        - Land Appreciation Tax                                               48                  531
    Deferred tax expense
        - PRC Enterprise Income Tax                                         (245)                 (32)
        - Land Appreciation Tax                                              (42)                 159

                                                                            (173)               1,763



    The provision for income tax comprised PRC Enterprise Income Tax and Land Appreciation Tax.

    No provision for German income tax has been made as the holding company incorporated in
    Germany did not have assessable profits subject to German income tax. The applicable German
    income tax rate for the three month periods ended 31 July 2010 and 31 July 2009 was 25.6%.

    The provision for PRC Enterprise Income Tax for the Company’s subsidiaries in the PRC is based
    on a statutory rate of 25% since the calendar year of 2008 of the taxable income as determined in
    accordance with the relevant income tax rules and regulations of the PRC.

    In accordance with the Land Appreciation Tax Law of the PRC, Land Appreciation Tax is levied at
    the properties developed by the Group for sale in the PRC. Land Appreciation Tax is charged on
    the appreciated amount at progressive rates ranged from 30% to 60%.

5   Earnings per share

    The calculation of earnings per share at 31 July 2010 was based on the loss attributable to
    shareholders of EUR 459,000 (2009: EUR 3,055,000 profit), and a weighted average number of
    ordinary shares outstanding of 3,300,000 (2009: 3,300,000), which is calculated as follows:

                                                                           2010                     2009
    Issued shares at 1 Mai                                               50,000                        0
    Adjustment of the contribution of shares                          3,250,000                3,250,000
    Effect of shares issued in May 2009                                       -                   50,000
    Weighted average number of shares at 31 July                      3,300,000                3,300,000


    As the contribution of all shares of Madison Property Group Limited to the Company in
    January 2010 for 3,250,000 new shares has not changed the resources of the Group, the number
    of shares outstanding is adjusted as if the contribution has occurred at the beginning of the earliest
    period presented.

6   Cyclicality of interim operations

    The Group derives its revenue mainly from the sale of property, which is recognized when the
    significant risks and rewards of ownership are transferred. It is the case when the properties are
    completed, sales contracts are signed and properties delivered to the buyers. The Group’s property
    developments often last for more than one year and some projects are developed in multiple
    phases. Therefore the Group’s results from operations may vary significantly from period to period
    depending on the timing of completion and handover of the properties. Accordingly, the Group’s
    interim result for the three months ended 31 July 2010 is not indicative of its performance for the
    financial year or otherwise comparable to the results of the same period in the prior year.

7   Investment properties



                                                                                                     F-14
                                                                                               2010
                                                                                            EUR’000

    Balance at 1 May                                                                          22,624
    Change in fair value:
        Recognised in income statement                                                           (102)
    Translation reserve                                                                           496

    Balance at 31 July                                                                        23,018




    All investment properties of the Group are stated at fair value at 31 July 2010 and 30 April 2010.
    The fair values were arrived at based on valuation reports issued by Savills Valuation and
    Professional Services Limited. Valuations were based on either (i) capitalisation of net rental
    income derived from the existing tenancies, using discount rates that reflect current market
    assessments of the uncertainty in the amount and timing of the cash flows; or (ii) on direct
    comparison approach assuming sale of each of these properties in its existing state with the benefit
    of vacant possession by making reference to comparable sales transactions as available in the
    relevant market. The revaluations gains or losses have been credited to the income statement of
    the respective years, or, in the case of revaluation gains arising on transfer of an item of property
    and equipment to investment properties following a change in use, to equity directly.

    The range of yields applied to the net annual rentals to determine the fair value of property for
    which current prices in an active market are unavailable is as follows:

    Yields

    4% - 10% (As at 30 April 2010: 4% - 8%)

8   Inventories

                                                                   31 July 2010         30 April 2010
                                                                       EUR’000              EUR’000

    Properties under development                                         54,556               48,752
    Completed properties held for sale                                   19,904               20,295

                                                                         74,460               69,047



          At 31 July 2010 properties under development and completed properties held for sale of RMB
          58 million were pledged against the bank loans (as at 30 April 2010: RMB 40 million).




                                                                                                    F-15
9    Trade and other receivables

                                                                      31 July 2010         30 April 2010
                                               Note                       EUR’000              EUR’000

     Trade receivables                           (i)                         5,436                5,534
     Advances to related parties                (ii)                         9,570                8,465
     Advances to third parties                  (ii)                        11,959               10,801
     Prepayments and other receivables          (iii)                       19,118               13,938
     Prepaid other taxes                                                       387                  175

                                                                            46,470               38,913


     (i)     Trade receivables are expected to be recovered within one year.

     (ii)    Advances to related parties and third parties are unsecured, interest free and recoverable on
             demand.

     (iii)   The prepayments and other receivables mainly represented the amounts paid in advance to
             constructors and suppliers and the prepayments for the acquisition of land use rights.

10   Commitments and contingent liabilities

     (a)     Capital commitments

             Commitments in respect of properties under development including the acquisition of land
             use rights and costs of building construction outstanding at 31 July 2010 and 30 April 2010
             were as follows:

                                                                      31 July 2010         30 April 2010
                                                                          EUR’000              EUR’000

             Contracted for                                                  2,105                 7,733


             The commitments are expected to be settled in the following financial year.

     (b)     Guarantees


             As at 31 July 2010, the Group provided guarantees to Qingdao Xintongda Trading Co., Ltd. in
             respect of its bank loans of EUR 1.7 million (as at 30 April 2010: EUR 1.7 million) in total
             using the Group’s completed properties held for sale with carrying amount of EUR 0.7 million
             (as at 30 April 2010: EUR 0.7 million).


             As at 31 July 2010, the Directors of the Company did not consider it is probable that a claim
             would be made against the Group under any of the guarantees. The maximum exposure,
             including the loan proceeds and the related interest relating to financial guarantees issued by
             the Group for the above bank loan was EUR 2.0 million (as at 30 April 2010: EUR 2.0
             million).

             (i) The Group normally arranges bank financing for buyers of properties up to 70% of the
                 total purchase price of the property. In the cities of Chongqing, Zibo and Taian, the Group
                 provides guarantee to secure repayment obligations of such purchasers. The Group’s
                 guarantee periods commence from the dates of grants of relevant mortgage loans and




                                                                                                       F-16
                end upon completion of construction and the mortgage registration documents are
                delivered to the relevant banks after the issue of the property title deeds. If there is
                default in payments by these purchasers, the Group is responsible to repay the
                outstanding mortgage loans together with any accrued interests and penalties owed by
                the defaulted purchasers to banks. Under such circumstances, the Group is able to retain
                the customer’s deposit, take over the ownership of relevant properties and sell the
                properties to recover any amounts paid by the Group to the banks since the Group has
                not applied for individual property title deeds for these purchasers until full payment are
                received. The Group is not subject to the same kind of credit risks in Qingdao where the
                banks do not require such guarantee. The nominal amount of guarantees relating to such
                agreements was approximately EUR 11 million (as at 30 April 2010: EUR 11 million).

     (c)    Warranty against defects of properties

            Properties purchased by buyers are provided with various warranties with terms ranging from
            one to five years against certain defects as stipulated in the PRC laws and regulations which
            are covered by back-to-back warranties provided by the relevant contractors of the projects.
            Considered historical experience, none of warranty against defects of properties will have a
            material effect on the balance sheet, profits or liquidity of the Group according to the
            estimation of the management.

     (d)    Legal contingencies

            The Group is involved in litigations resulting from operating activities, both as the plaintiff and
            the defendant. These legal disputes and claims for damages are routine resulting from the
            normal course of business. They are in particular sales disputes. None of these legal
            disputes and claims for damages will have a material effect on the balance sheet, profits or
            liquidity of the Group.
11   Related parties

     Parent and ultimate controlling party

     The Directors consider the legal holding company of the Group as at 31 July 2010 to be Falcon
     Grow Investments Limited and the ultimate controlling party of the Group as at 31 July 2010 to be
     Mr. Tian Qingtong.

     Related party transactions

     (i)    Amount due from/to shareholder and key management personnel


                                                                       31 July 2010          30 April 2010
                                                                           EUR’000               EUR’000

            Amount due to shareholder                                          2,036                 2,052
            Amount due from key management personnel                             288                   261
            Amount due to key management personnel                                57                    55


     (ii)   Key management personnel compensation comprised:

                                                                              For the three months
                                                                              period ended 31 July
                                                                                2010               2009
                                                                             EUR’000          EUR’000

            Short-term employee benefits                                            35                  25
            Post-employment benefits                                                 4                   4




                                                                                                          F-17
                                                                                  39                 29


     (iii)   Balances with other related parties

                                                                       31 July 2010       30 April 2010
                                                                          EUR’000             EUR’000

             Amounts due from other related parties                           9,282               8,204
             Amounts due to other related parties                             2,278               5,355


     (iv)    Transactions with other related parties


                                                                         For the three months
                                                                         period ended 31 July
                                                                     2010                    2009
                                                                    EUR’000                EUR’000
     Purchase of construction materials                                     542                       -
     Advances provided                                                    6,392                   1,091
     Advances paid back                                                   4,391                   1,390
     Advances obtained                                                    1,295                       -
     Advances returned                                                    2,912                       -


     All advances to and from these related parties were unsecured, interest free, and have no fixed
     terms of repayment.

     Please refer to Note 10 (b) for financial guarantees provide to Xintongda.


12   Subsequent events

             Per shareholder resolution as of 11 August 2010 the Board of Directors was authorized to
             issue with prior approval of the Supervisory Board bearer or registered warrant or convertible
             bonds as well as profit participation rights with option or conversion rights with a nominal
             value of up to EUR 60,000,000.00 with or without term limitation and to grant to the
             bondholders option or conversion rights for up to 1,750,000.00 new shares of the Company
             with a nominal amount of up to EUR 1,750,000.00 in accordance with the terms and
             conditions of the warrant or convertible bonds and profit participation rights (Contingent
             Share Capital 2010).




                                                                                                      F-18
Madison Property AG, Berlin, Consolidated Financial Statements for the years
ended 30 April 2010 and 2009 (IFRS)




                                                                        F-19
Consolidated Statement of Comprehensive Income for the years ended 30 April 2010 and
2009



                                                          01/05/2009-      01/05/2008-
                                             Note          30/04/2010       30/04/2009
                                                             EUR’000          EUR’000

Revenue                                        4          63,498          57,166
Cost of properties sold                      16(c)       (45,657)        (36,733)

Gross profit                                              17,841         20,433
Other income                                                    304                 804
Change in fair value of
     investment properties                    12         2,051            1,203
Selling expenses                                        (1,060)                 (878)
Administrative expenses                                 (2,634)           (4,795)
Other expenses                                                 (219)            (209)

Results from operating activities                       16,283           16,558

Finance income                                 7                   74               38
Finance costs                                  7                 (860)            (514)

Net finance costs                                                (786)            (476)

Share of loss of equity accounted
   investee (net of income tax)               13                  (5)           (12)

Profit before income tax                                15,492           16,070
Income tax expense                             8        (6,264)          (7,586)

Profit for the year                                      9,228            8,484

Other comprehensive income                     9

Foreign currency translation differences                          357     6,366

Other comprehensive income for the year,
   net of income tax                                              357     6,366

Total comprehensive income for the year                  9,585           14,850




The accompanying notes are an integral part of these consolidated financial statements.




                                                                                          F-20
Consolidated Statement of Comprehensive Income for the years ended 30 April 2010 and
2009(Continued)




                                                          01/05/2009-      01/05/2008-
                                             Note          30/04/2010       30/04/2009
                                                             EUR’000          EUR’000

Profit attributable to:
   Controlling party and equity holders
        of the Group                                     9,069             8,705
   Non-controlling interest                    5                 159               (221)

Profit for the year                                      9,228             8,484


Total comprehensive income
   attributable to:

    Controlling party and equity holders
       of the Group                                      9,426            15,071
    Non-controlling interest                   5                 159               (221)

Total comprehensive income for the year                  9,585            14,850


Earnings per share in EUR
 (Basic and diluted)                          10                   2.70        2.64




The accompanying notes are an integral part of these consolidated financial statements.




                                                                                           F-21
Consolidated Statement of Financial Position as at 30 April 2010 and 2009


                                                                                                 2009
                                                                               2009         Previously
                                             Note               2010    Re-presented          reported
                                                             EUR’000        EUR’000          EUR’000

Assets
Property and equipment                        11                 880             881                719
Investment properties                         12        22,624          20,918            20,918
Investment accounted for
    using the equity method                   13                 522             525                525
Other investments                             14         1,405           1,397                  -
Deferred tax assets                           15         3,901           2,418             2,311

Total non-current assets                                29,332          26,139            24,473

Inventories                                   16        69,047          72,619            42,828
Trade and other receivables                   17        38,913          50,089            34,139
Restricted bank deposits                      18                 666             439                261
Cash and cash equivalents                     19         5,624           6,191             4,505

Total current assets                                   114,250         129,338            81,733

Total assets                                           143,582         155,477         106,206




The accompanying notes are an integral part of these consolidated financial statements.




                                                                                                          F-22
Consolidated Statement of Financial Position as at 30 April 2010 and 2009(Continued)


                                                                                                 2009
                                                                                 2009       Previously
                                              Note                2010    Re-presented        reported
                                                               EUR’000        EUR’000        EUR’000

Equity
Subscribed capital                            20(a)         3,500                  50      4,960
Revaluation reserve                           20(b)                 69             69              69
Translation reserve                           20(c)         4,629          4,272           4,455
Retained earnings                             20(d)        42,156         37,524          31,755

Total equity attributable to
   controlling party and equity
   holders of the Group                                    50,354         41,915          41,239
Non-controlling interest                        5           1,275          1,087           1,062

Total equity                                               51,629         43,002          42,301

Liabilities
Loans and borrowings                           21          17,084         11,339           3,303
Deferred tax liabilities                       15           6,017          4,969           4,969

Total non-current liabilities                              23,101         16,308           8,272

Loans and borrowings                           21           4,813          4,128           4,128
Sales deposits                                 22           9,312         23,103           6,376
Trade and other payables                       23          30,768         49,753          24,696
Income tax payable                                         23,959         19,183          20,433

Total current liabilities                                  68,852         96,167          55,633

Total liabilities                                          91,953        112,475          63,905

Total equity and liabilities                              143,582        155,477         106,206



Approved and authorised for issue by the Board of Directors on 27 September 2010.

                                a)   Mr. Qingtong Tian
                                b)   Mr. Zaisheng Wei
                                c)   Mr. Yi (Alex) Yuan



The accompanying notes are an integral part of these consolidated financial statements.




                                                                                                        F-23
Consolidated Statements of Changes in Equity for the years ended 30 April 2010 and 2009


                                                           Attributable to controlling party and equity holder of the Group              Non-
                                                       Subscribed Revaluation          Translation        Retained                  controlling      Total
                                                           capital       reserve           reserve        earnings      Sub-total     interest      equity
                                                       Note 20(a)     Note 20(b)       Note 20 (c)      Note 20(d)                   Note 5
                                                         EUR’000       EUR’000           EUR’000          EUR’000       EUR’000      EUR’000      EUR’000
Balance at 1 May 2008                                            0            69            (2,094)         28,819        26,794        1,308      28,102

Total comprehensive income for the year
Profit for the year                                              -              -               -           8,705          8,705         (221)      8,484
Other comprehensive income
Foreign currency translation differences                         -              -          6,366                 -         6,366              -     6,366

Total comprehensive income for the year                          -              -          6,366            8,705        15,071          (221)     14,850
Transactions with controlling party and
    equity holder, recorded directly in equity
Issuance of shares by Madison Property AG                      50               -               -                -            50             0         50

Balance at 30 April 2009                                       50             69           4,272           37,524        41,915         1,087      43,002

Total comprehensive income for the year
Profit for the year                                              -              -               -           9,069          9,069          159       9,228
Other comprehensive income
Foreign currency translation differences                         -              -            357                 -           357              -       357

Total comprehensive income for the year                          -              -            357            9,069          9,426          159       9,585
Transactions with controlling party and
    equity holder, recorded directly in equity
Issuance of shares by Madison Property AG                   3,450               -               -          (3.250)           200             -         200
Issuance of shares by Guanghua                                  -               -               -              946           946            29         975
Acquision of Guanghua                                           -               -               -          (2,133)       (2,133)             -     (2,133)

Balance at 30 April 2010                                    3,500             69           4,629           42,156        50,354         1,275      51,629

The accompanying notes are an integral part of these consolidated financial statements.




                                                                                                                                                     F-24
Consolidated Statement of Cash Flows for the years ended 30 April 2010 and 2009

                                                        01/05/2009-   01/05/2008-
                                             Note          30/04/2010    30/04/2009
                                                             EUR’000       EUR’000
Cash flows from operating activities

Profit for the year                                      9,228           8,484
Adjustments for:
    Depreciation                              11                  283              258
    Change in fair value of
         investment properties                12        (2,051)          (1,203)
    Net finance costs                          7                  786              476
    Share of loss/ (profit) of an equity
         accounted investee                                         5              12
    Gain on sale of other investments         14                    -            (800)
    Gain on sale of property and equipment                          -              (4)
    Income tax expense                          8        6,264           7,586

                                                        14,515           14,809
Change in inventories                                    4,886            9,300
Advances to related parties                   26       (28,237)         (19,445)
Repayments from related parties               26        19,060           14,822
Advances to third parties                              (65,954)         (41,243)
Repayments from third parties                           72,277           38,462
Change in trade and other receivables                    4,778           (6,247)
Advances from related parties                 26        23,819            3,652
Repayments to related parties                 26       (12,942)          (1,707)
Advances from third parties                             35,836           17,670
Repayments to third parties                            (39,210)         (14,255)
Change in trade and other payables                     (19,350)          (2,942)
Change in restricted bank deposits                             (224)               (57)
Change in sales deposits                               (13,872)          (7,230)

                                                        (4,618)           5,589
Interest paid                                  7        (1,363)          (1,411)
Income tax paid                                         (2,050)          (1,377)

Net cash (used in)/ from
    operating activities                                (8,031)          2,801




The accompanying notes are an integral part of these consolidated financial statements.




                                                                                          F-25
Consolidated Statement of Cash Flows for the years ended 30 April 2010 and 2009
(Continued)



                                                          01/05/2009-      01/05/2008-
                                             Note          30/04/2010       30/04/2009
                                                             EUR’000          EUR’000

Cash flows from investing activities

Interest received                              7                   74              38
Acquisition of property and equipment         11                 (278)           (213)
Acquisition of other investments              14                    -     (1,520)
Proceeds from sale of investments             14                    -      1,049
Proceeds from sale of property
    and equipment                                                   -                6

Net cash from/ (used in)
    investing activities                                         (204)            (640)

Cash flows from financing activities

Proceeds from loans and borrowings                      25,042             5,255
Repayment of loans and borrowings                      (18,707)          (11,209)
Proceeds from issue of paid-in capital
   by Madison Property AG                    20(a)                200               50
Proceeds from issue of paid-in capital
   by Guanghua                                                    975                -

Net cash from/ (used in)
    financing activities                                 7,510            (5,904)

Net decrease in cash                                             (725)    (3,743)

Cash at 1 May                                            6,191            8,679
Effect of exchange rate fluctuations
    on cash held                                                  158     1,255

Cash and cash equivalents at 30 April         19         5,624            6,191




The accompanying notes are an integral part of these consolidated financial statements.




                                                                                          F-26
Notes to the Consolidated Financial Statements for the years ended 30 April 2010 and
2009

1    Reporting entity

     Madison Property AG (the “Company”, formerly known as ISARAGIL AG) was incorporated in
     Münsing on 30 April 2008 and recorded in the commercial register of the district court in Munich
     under number HRB 173558 on 8 May 2008. On 20 August 2008 Falcon Grow Investments
     Limited (“Falcon”, incorporated in the Cayman Islands on 28 November 2007), which is
     controlled by Mr. Tian Qingtong, Qingdao, the People’s Republic of China (the “PRC”)
     (controlling party), acquired all of the Company’s shares. Per shareholder´s resolution as of
     3 September 2008 the Company’s registered office has been changed from Münsing to
     Eschborn (Mergenthaleralle 10-12); this modification of the articles of association was recorded
     in the commercial register of the district court in Frankfurt am Main under number HRB 84451
     on 5 December 2008. The extraordinary shareholder´s meeting on 11 August 2010 decided to
     change the Company’s registered office from Eschborn to Berlin; this modification of the articles
     of association was recorded in the commercial register of the local court of Charlottenburg
     (Berlin) under the registration number HRB 129015 B on 9 September 2010.

     On 14 January 2010 Falcon contributed all shares of Madison Property Group Limited (formerly
     known as Joyful Merit Limited), Hong Kong SAR, into the Company through a contribution in
     kind. Since then, Madison Property AG is the parent company of the Madison Property AG
     Group (“the Group”), which comprises the following subsidiaries as of 30 April 2010:

           Madison Property Group Limited (“Madison Property Ltd.”);
           Qingdao Madison Group Co., Limited (“Qingdao Madison”);
           Qingdao Junxin Properties Co., Limited (“Junxin”);
           Zibo Madison Real Estate Co., Limited (“Zibo Madison”);
           Taian Madison Real Estate Co., Limited (“Taian Madison”);
           Chongqing Yinlian Investments Co., Limited (“Yinlian”);
           Chongqing Longkunxiang Properties Co., Limited (“Longkunxiang”);
           Qingdao Jundong Properties Co., Limited (“Jundong”);
           Qingdao Guanghua Properties Co., Limited (“Guanghua”)


     and one associate:

           Qingdao Xiang Gen Quan Hai Co., Limited (“Xiang Gen”).
     The companies of the Group are principally engaged in the property development and
     construction of residential real estate projects and the sale of individual property units. The
     Group’s real estate projects are located in Shandong Province and Chongqing Municipality of
     the PRC.

    The contribution of the Madison Property Ltd. shares into Madison Property AG represents the
    final step of the restructuring of the Group, which was firstly established on 8 September 1998
    through the establishment of Qingdao Madison, formerly known as Qingdao Madison Holdings
    Co., Limited, which subsequently changed to Qingdao.

    Madison Group Co., Limited (“Qingdao Madison”) in January 2008 and consisted of the
    following business activities conducted through the following entities until 25 January 2008:
    Qingdao Madison, Junxin, Zibo Madison, Taian Madison, Yinlian and Longkunxiang.

    From 1 May 2005 to 25 January 2008 the interest in those companies were 100% held by
    Mr. Tian either directly or through trust agreements with various parties. In January 2008, as
    part of the Group’s restructuring Qingdao Madison subscribed all direct interest of Mr. Tian in
    the entities of Junxin, Zibo Madison, Taian Madison, Yinlian, and Longkunxiang. Further,
    Jundong was set up by Qingdao Madison in February 2008.

    On 25 January 2008, a share purchase agreement and a supplementary agreement dated
    18 March 2008 were entered into between Madison Property Ltd., which was incorporated in
    Hong Kong on 18 April 2007 and was 100% acquired by Falcon in December 2007, as acquirer



                                                                                                 F-27
    and Holyo Holdings Co., Limited (trustee of Mr. Tian) at a total consideration of USD 7.66 million
    for the 90.08% of the equity of Qingdao Madison. Furthermore, pursuant to a share transfer
    agreement between Madison Property Ltd. and Mr. Tian dated 25 January 2008 Madison
    Property Ltd. acquired the remaining 9.92% equity interest in Qingdao Madison on 25 January
    2008. Accordingly, as at 30 April 2010, Qingdao Madison and its subsidiaries were wholly held
    by Madison Property Ltd., except for Junxin, which was 60% held.

    Simultaneously, on 25 January 2008 Falcon entered into a contractual agreement (the “Entrust
    Agreement”) with Mr. Tian for a period of 10 years. Pursuant to the Entrust Agreement Mr. Tian
    retained the power to govern and direct the operation and finance policy of Madison Property
    Ltd. and its subsidiaries and to appoint directors of the companies. During the contract’s
    effective period, the profit appropriation right of the companies and its subsidiaries based on
    statutory financial statements shall belong to Mr. Tian. Falcon will receive from Mr. Tian RMB 10
    million each year as return for Falcon’s equity investment, even if the companies’ results are
    below this guaranteed payment. In the course of the contribution in kind of the shares of
    Madison Property Ltd. into Madison Property AG in January 2010 the original Entrust
    Agreement was replaced by a new Entrust Agreement granting Mr. Tian the power to govern the
    financial and operating policies of Madison Property AG. Following a reorganisation of the
    shareholder structure of Falcon Mr. Tian reached direct control of the Group in July 2010.
    Therefore, the Entrust Agreement was cancelled on 27 July 2010.

    In April 2010 Qingdao Madison subscribed all direct interest of Mr. Tian in the entity Guanghua,
    formerly known as Qingdao Qingyuan Property Co., Ltd. and established on 20 November 2002.
    This entity is principally engaged in the property development and construction of residential real
    estate projects and the sale of individual property units. Mr. Tian acquired 97% of Guanghua’s
    shares on 26 September 2007. From 26 September 2007 to 2 April 2010 the interest in
    Guanghua was 97% held by Mr. Tian through trust agreements with various parties. As a result,
    as at 30 April 2010, Qingdao Madison owned 97% interests of Guanghua.

    The consolidated financial statements of the Group for the year ended 30 April 2009 had been
    re-presented to comprise Guanghua.

    As a result of the restructuring, the equity interests of Guanghua were acquired by Qingdao
    Madison from the controlling party at par value. Transactions were as follows:


                                                                                            EUR’000



    Offsetting receivables due from controlling party                                                92

    Increasing payable due to controlling party                                             2,001

    Translation reserve                                                                              40



    Net decrease in equity                                                                  2,133




    The net decrease in equity was treated as reduction in retained earnings without any impact on
    the income statement.


2   Basis of preparation

    On 14 January 2010, Madison Property AG became the holding company of the Group through
    an exchange of equity interests. Although this transaction has characteristics of a reverse



                                                                                                    F-28
acquisition, the accounting prescribed in IFRS 3 does not apply because Madison Property AG
was a shell company with no business activity. In other IFRSs there is also no guidance on the
accounting treatment that should be applied to such transactions. Therefore, the Company has
in accordance with IAS 8.10 et. seqq. elected to use merger or predecessor accounting for this
transaction: the assets and liabilities of the acquired entities are incorporated in the Company’s
consolidated financial statements at the amounts recorded in the consolidated financial
statements of Madison Property Ltd. without any fair value adjustments. The subscribed capital
of the acquired entities was reclassified in retained earnings in order to reflect the legal parent’s
equity structure. The acquired entities’ results are incorporated into the consolidated financial
statements as if Madison Property AG and the acquired entities had been combined since 1
May 2008. Consequently, the consolidated financial statements reflect all entities’ results for the
current and the prior year, even though the business combination did occur on 14 January 2010.
In the view of the Company, the consolidated financial statements prepared on this basis
present fairly the results of operations and the state of affairs of the Group as a whole.

(a) Statement of compliance

      The Group has applied the International Financial Reporting Standards (IFRS) for the
      consolidated financial statements and the interpretations about them issued by the
      International Financial Reporting Interpretations Committee (IFRIC) as adopted in the
      European Union (EU).

      The consolidated financial statements were authorised for issue by the Board of Directors
      on 27 September 2010.

(b) Basis of measurement

      The consolidated financial statements have been prepared on the historical cost basis
      except for investment properties and financial instruments which are measured at fair
      value as explained in the accounting policies set out below.

(c) Functional and presentation currency

      The financial statements of the Group operations are measured in the currency in which
      that entity primarily conducts its business (the functional currency). The functional
      currency of all the Chinese companies’ operations is the applicable local currency which
      is RMB, with the exception of the Hong Kong entity (which is USD). The Group prepares
      its financial statements in EURO (the reporting currency). When translating the financial
      statements prepared in RMB and USD into the EURO, year-end exchange rates are
      applied to asset and liability accounts, while yearly average rates are applied to income
      statement accounts. Adjustments resulting from this process are recorded as separate
      component of shareholders’ equity.

      As a result of the translation from the functional currency into the reporting currency,
      changes in the Group financial position, statements of comprehensive income and cash
      flows may be incurred in a way that may not reflect the economic development of the
      Group in the period under review as this would be the case, if presented while using the
      functional currency. Financial information presented in EURO has been rounded to the
      nearest thousand or million.

(d) Use of estimates and judgements

      The preparation of the consolidated financial statements in conformity with IFRSs
      requires management to make judgements, estimates and assumptions that affect the
      application of accounting policies and the reported amounts of assets, liabilities, income
      and expenses. Actual results may differ from these estimates.

      Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
      accounting estimates are recognised in the period in which the estimates are revised and
      in any future periods affected.




                                                                                                F-29
      In particular, information about significant areas of estimation uncertainty and critical
      judgements in applying accounting policies that have the most significant effect on the
      amounts recognised in the consolidated financial statements is disclosed in Note 28.

(e) Prior year restatement

     As part of the Group’s restructuring, Qingdao Madison acquired Mr. Tian’s controlling
     interest in Guanghua in April 2010. On 14 January 2010, Madison Property AG became
     the holding company of the Group through a contribution in kind of all shares of Madison
     Property Ltd. by Falcon. The Group consolidated financial statements for the year ended
     30 April 2010 have been prepared on the basis as if Guanghua was a subsidiary of the
     Company and Madison Property AG was the parent company of the Group for all periods
     presented.

     The effect of the prior year restatement for each financial statement line item affected in
     respect of the year ended 30 April 2009 is illustrated as follows:


                                                  As Previously
                                                       reported      Adjustment Re-presented
                                                      EUR’000          EUR’000     EUR’000

     Consolidated Statement of Comprehensive Income
     For the year ended 30 April 2009

     Revenue                                         47,994            9,172             57,166
     Cost of properties sold                        (27,571)          (9,162)          (36,733)

     Gross profit                                    20,423                   10       20,433
     Other income                                              34            770             804
     Change in fair value of
      investment properties                            1,203                   -        1,203
     Selling expenses                                       (512)           (366)            (878)
     Administrative expenses                          (4,349)               (446)         (4,795)
     Other expenses                                         (208)             (1)            (209)

     Results from operating activities               16,591                     (33)   16,558




                                                                                            F-30
2   Basis of preparation (Continued)

    (e)   Prior year restatement (Continued)

                                                     As Previously
                                                          reported     Adjustment Re-presented
                                                         EUR’000         EUR’000     EUR’000

          Finance income                                       24             14           38
          Finance costs                                      (420)           (94)        (514)

          Net finance costs                                  (396)           (80)        (476)

          Share of loss of equity accounted
           investees (net of income tax)                        (12)           -          (12)

          Profit before income tax                     16,183               (113)   16,070
          Income tax expense                           (7,593)                 7    (7,586)

          Profit for the year                           8,590               (106)    8,484

          Other comprehensive income

          Foreign currency translation differences                         6,249       117
                                             6,366

          Other comprehensive income for the year,
           net of income tax                            6,249                117     6,366

          Total comprehensive income for the year      14,839                 11    14,850

          Profit attributable to:
            Controlling party and equity holders
              of the Group                              8,808               (103)    8,705
            Non-controlling interest                         (218)            (3)        (221)

          Profit for the year                           8,590               (106)    8,484

          Total comprehensive income
           attributable to:

            Controlling party and equity holders
              of the Group                             15,057                 14    15,071
            Non-controlling interest                         (218)            (3)        (221)

          Total comprehensive income for the year      14,839                 11    14,850




                                                                                         F-31
2   Basis of preparation (Continued)

    (e)   Prior year restatement (Continued)

                                                   As Previously
                                                        reported       Adjustment Re-presented
                                                       EUR’000           EUR’000     EUR’000

          Consolidated Statement of Financial Position
          As at 30 April 2009

          Assets
          Property and equipment                                 719            162         881
          Investment properties                      20,918                       -    20,918
          Investment accounted for
            using the equity method                              525              -          525
          Other investments                                        -    1,397             1,397
          Deferred tax assets                            2,311                  107     2,418

          Total non-current assets                   24,473             1,666          26,139

          Inventories                                42,828            29,791          72,619
          Trade and other receivables                34,139            15,950          50,089
          Restricted bank deposits                               261            178         439
          Cash and cash equivalents                      4,505          1,686           6,191

          Total current assets                       81,733            47,605         129,338

          Total assets                              106,206            49,271         155,477

          Equity
          Subscribed capital                             4,960         (4,910)                  50
          Revaluation reserve                                     69            -               69
          Translation reserve                         4,455                  (183)      4,272
          Retained earnings                          31,755             5,769          37,524

          Total equity attributable to
           controlling party and equity
           holders of the Group                      41,239                     676   41,915
          Non-controlling interest                    1,062                      25    1,087

          Total equity                               42,301                     701   43,002

          Liabilities
          Loans and borrowings                           3,303          8,036          11,339
          Deferred tax liabilities                       4,969                    -     4,969

          Total non-current liabilities                  8,272          8,036          16,308

          Loans and borrowings                        4,128                       -     4,128
          Sales deposits                              6,376            16,727            23,103
          Trade and other payables                   24,696            25,057          49,753
          Income tax payable                         20,433            (1,250)         19,183

          Total current liabilities                  55,633            40,534          96,167

          Total liabilities                          63,905            48,570         112,475

          Total equity and liabilities              106,206            49,271         155,477




                                                                                               F-32
3   Significant accounting policies

    The accounting policies set out below have been applied consistently to all periods presented in
    these consolidated financial statements, and have been applied consistently by the Group
    entities.

    (a)   Basis of consolidation

          (i)     Subsidiaries

                  Subsidiaries are entities controlled by the Group. Control exists when the Group has
                  the power to govern the financial and operating policies of an entity so as to obtain
                  benefits from its activities. In assessing control, potential voting rights that presently
                  are exercisable are taken into account. The financial statements of subsidiaries are
                  included in the consolidated financial statements from the date control commences
                  until the date control ceases. The accounting policies of subsidiaries have been
                  changed when necessary to align them with the policies adopted by the Group.

          (ii)    Acquisitions from entities under common control

                  Business combinations arising from transfers of interests in entities that are under
                  the control of the controlling party that controls the Group are accounted for as if the
                  acquisition had occurred at the beginning of the earliest comparative period
                  presented or, if later, at the date common control was established. The assets and
                  liabilities acquired are recognised at the carrying amounts recognised previously in
                  the Group’s controlling investor’s consolidated financial statements. The
                  components of equity of the acquired entities are added to the same components
                  within Group equity. Any cash paid for the acquisition is recognised directly in
                  equity.

          (iii)   Equity accounted investee

                  Associates are those entities in which the Group has significant influence, but not
                  control, over the financial and operating policies. Significant influence is presumed
                  to exist when the Group holds between 20 and 50 percent of the voting power of
                  another entity. Associates are accounted for using the equity method and are
                  recognised initially at cost. The consolidated financial statements include the
                  Group’s share of the net income or loss and equity movements of equity accounted
                  investees, after adjustments to align the accounting policies with those of the Group,
                  from the date significant influence commences until the date significant influence
                  ceases. When the Group’s share of losses exceeds its interest in an equity
                  accounted investee, the carrying amount of that interest (including any long-term
                  investments) is reduced to nil and the recognition of further losses is discontinued
                  except to the extent that the Group has an obligation or has made payments on
                  behalf of the investee.

          (iv)    Transactions eliminated in consolidation

                  Intra-group balances and transactions, and any unrealised income and expenses
                  arising from intra-group transactions, are eliminated in preparing the consolidated
                  financial statements. Unrealised gains arising from transactions with equity
                  accounted investees are eliminated against the investment to the extent of the
                  Group’s interest in the investee. Unrealised losses are eliminated in the same way
                  as unrealised gains, but only to the extent that there is no evidence of impairment.

    (b)   Foreign currency

          (i)     Foreign currency transactions




                                                                                                      F-33
             Transactions in foreign currencies are translated to the respective functional
             currencies of Group entities at exchange rates at the dates of the transactions.
             Monetary assets and liabilities denominated in foreign currencies at the reporting
             date are retranslated to the functional currency at the exchange rate at that date.
             The foreign currency gain or loss on monetary items is the difference between
             amortised cost in the functional currency at the beginning of the period, adjusted for
             effective interest and payments during the period, and the amortised cost in foreign
             currency translated at the exchange rate at the end of the period. Non-monetary
             assets and liabilities denominated in foreign currencies that are measured at fair
             value are retranslated to the functional currency at the exchange rate at the date
             that the fair value was determined. Foreign currency differences arising on
             translation are recognised in the income statement.

      (ii)   Foreign operations

             The assets and liabilities of operations in the PRC, including fair value adjustments
             arising on acquisition, if any, are recorded in the functional currency RMB and were
             translated to the reporting currency EURO at exchange rates at the reporting date.
             The income and expenses are translated to EURO at yearly average exchange
             rates. The parent company’s functional currency is EURO. Firstly, assets and
             liabilities were translated to RMB at exchange rates at the reporting date and
             income and expenses are translated at yearly average exchange rates. In a second
             step, accounts are translated to EURO.

             Foreign currency differences are recognised directly in equity.


             Applicable currency translation rates against EURO were as follows:

                             RMB/EUR                  RMB/USD                     HKD/USD
                          Year-end Average         Year-end Average            Year-end Average

             2010              9.04        9.06         6.83        6.83           7.77       7.76
             2009              9.08        9.99         6.83        6.91           7.75       7.78

(c)   Financial instruments

      Non-derivative financial instruments comprise other investments, trade and other
      receivables, restricted bank deposits, cash and cash equivalents, loans and borrowings,
      sales deposits and trade and other payables.

      For non-derivative financial assets, the categories available for sale and loans and
      receivables are applied. All financial liabilities belong to the category other financial
      liabilities.

      Non-derivative financial instruments are recognised initially at fair value plus any directly
      attributable transaction costs. Subsequent to initial recognition non-derivative financial
      instruments are measured as described below.

      Financial assets are accounted for at settlement date.

      Accounting for finance income and finance costs is discussed in Note 3(m).

      Other investments- available-for-sale

      The Group’s investments in equity securities are classified as available-for-sale financial
      assets. Subsequent to initial recognition, they are measured at fair value and changes
      therein, other than impairment losses (see note 3(i)), are recognised in other
      comprehensive income and presented within equity in the fair value reserve. When an




                                                                                              F-34
      investment is derecognised, the cumulative gain or loss in other comprehensive income is
      transferred to profit or loss.

      Available-for-sale investments that do not have a quoted market price in an active market
      and whose fair value cannot be reliably measured are recognised in the balance sheet at
      cost less impairment losses (see note 3(i)).

      Trade and other receivables

      Trade and other receivables are initially recognised at fair value and thereafter stated at
      amortised cost less impairment losses for bad and doubtful debts.

      Restricted bank deposits and cash and cash equivalents

      Restricted bank deposits and cash and cash equivalents comprise cash balances and call
      deposits with original maturities of three months or less. Bank overdrafts that are
      repayable on demand and form an integral part of the Group’s cash management are
      included as a component of cash and cash equivalents for the purpose of the statement of
      cash flows. Restricted bank deposits and cash and cash equivalents are stated at cost,
      which approximate fair value.

      Loans and borrowings

      Loans and borrowings are measured at amortised cost using the effective interest method.

      Sales deposits and trade and other payables

      Sales deposits and trade and other payables are initially recognised at fair value and
      thereafter stated at amortised cost unless the effect of discounting would be immaterial, in
      which case they are stated at cost.

(d)   Subscribed capital

      Ordinary shares are classified as equity. Incremental costs directly attributable to the issue
      of ordinary shares are recognised as a deduction from equity, net of any tax effects.

(e)   Property and equipment

      (i)    Recognition and measurement

             Items of property and equipment are measured at cost less accumulated
             depreciation and accumulated impairment losses.

             Cost includes expenditure that is directly attributable to the acquisition of the asset.
             The cost of self-constructed assets includes the cost of materials and direct labour,
             any other costs directly attributable to bringing the asset to a working condition for
             its intended use, and the costs of dismantling and removing the items and restoring
             the site on which they are located.

             When parts of an item of property and equipment have different useful lives, they
             are accounted for as separate items (major components) of property and
             equipment.

             Gains and losses on disposal of an item of property and equipment are determined
             by comparing the proceeds from disposal with the carrying amount of property and
             equipment and are recognised net within other income in profit or loss.

      (ii)   Reclassification to investment property




                                                                                                F-35
              When the use of a property changes from owner-occupied to investment property,
              the property is remeasured to fair value and reclassified as investment property.
              Any gain arising on remeasurement is recognised in profit or loss to the extent the
              gain reverses a previous impairment loss on the specific property, with any
              remaining gain recognised in other comprehensive income and presented in the
              revaluation reserve in equity. Any loss is recognised in other comprehensive income
              and presented in the revaluation reserve in equity to the extent that an amount had
              previously been included in the revaluation reserve relating to the specific property,
              with any remaining loss recognised immediately in profit or loss.

      (iii)   Subsequent costs

              The cost of replacing part of an item of property and equipment is recognised in the
              carrying amount of the item if it is probable that the future economic benefits
              embodied within the part will flow to the Group and its cost can be measured
              reliably. The carrying amount of the replaced part is derecognised. The costs of the
              day-to-day servicing of property and equipment are recognised in profit or loss as
              incurred.

      (iv)    Depreciation

              Depreciation is calculated over the depreciable amount, which is the cost of an
              asset, or other amount substituted for cost, less its residual value.

              Depreciation is recognised in profit or loss on a straight-line basis over the
              estimated useful lives of each part of an item of property and equipment, since this
              most closely reflects the expected pattern of consumption of the future economic
              benefits embodied in the asset.

              The estimated useful lives for the current and the comparative period are as follows:

              •     Office and other equipment                                            5-8 years
              •     Motor vehicles                                                        5-8 years
              •     Leasehold improvements                                                  5 years

              Depreciation methods, useful lives and residual values are reviewed at each
              financial year-end and adjusted if appropriate.

(f)   Investment property

      Investment property is property held either to earn rental income or for capital appreciation
      or for both, but not for sale in the ordinary course of business, use in the production or
      supply of goods or services or for administrative purposes.

      Investment property comprises land held under operating leases and properties held for
      operating leases. Land held under operating leases (through land-use-rights) is classified
      and accounted for as investment property when the rest of the definition of investment
      property is met.

      Investment property is measured initially at its cost, including related transaction costs.

      After initial recognition, investment property is carried at fair value. Fair value is based on
      active market prices, adjusted, if necessary, for any difference in the nature, location or
      condition of the specific asset. If this information is not available, the Group uses
      alternative valuation methods such as recent prices on less active markets or discounted
      cash flow projections. These valuations are performed at each balance sheet date by
      independent valuers. Investment property that is being redeveloped for continuing use as
      investment property, or for which the market has become less active, continues to be
      measured at fair value.




                                                                                                F-36
      The fair value of investment property reflects, among other things, rental income from
      current leases and assumptions about rental income from future leases in the light of
      current market conditions. Please refer to Note 12 for further explanations on fair value
      measurement of investment properties.

      Changes in fair values of investment property are recognised in profit or loss.

      When the use of a property changes such that it is reclassified as property and
      equipment, its fair value at the date of reclassification becomes its cost for subsequent
      accounting.

(g)   Leased assets

      The leased assets in an operating lease except for investment property are not
      recognised in the Group’s statement of financial position. Payments made under operating
      leases are recognised in profit or loss on a straight-line basis over the term of the lease.

(h)   Inventories

      Properties under development and completed properties held for sale in respect of
      property development activities are carried at the lower of cost and net realisable value.
      Cost and net realisable values are determined as follows:

      -     Properties under development

            The cost of properties under development comprises specifically identified cost,
            including aggregate cost of development, materials and supplies, wages and other
            direct expenses, an appropriate proportion of overheads and borrowing costs
            capitalised. Net realisable value represents the estimated selling price less
            estimated costs of completion and costs to be incurred in selling the property.

      -     Completed properties held for sale

            In the case of completed properties developed by the Group, cost is determined by
            apportionment of the total development costs for that development project,
            attributable to the unsold properties. Net realisable value represents the estimated
            selling price less costs to be incurred in selling the property.

            The cost of completed properties held for sale comprises all costs of purchase,
            costs of conversion and other costs incurred in bringing the properties to their
            present location and condition.

(i)   Impairment

      (i)   Financial assets

            A financial asset not carried at fair value through profit or loss is assessed at each
            reporting date to determine whether there is any objective evidence that it is
            impaired. A financial asset is impaired if objective evidence indicates that a loss
            event has occurred after the initial recognition of the asset, and that the loss event
            had a negative effect on the estimated future cash flows of that asset that can be
            estimated reliably.

            Objective evidence that financial assets are impaired can include default or
            delinquency by a debtor, restructuring of an amount due to the Group on terms that
            the Group would not consider otherwise, indications that a debtor or issuer will enter
            bankruptcy, the disappearance of an active market for a security.

            The Group considers evidence of impairment for receivables at both a specific asset
            and collective level. All individually significant receivables are assessed for specific




                                                                                               F-37
       impairment. All individually significant receivables found not to be specifically
       impaired are then collectively assessed for any impairment that has been incurred
       but not yet identified. Receivables that are not individually significant are collectively
       assessed for impairment by grouping together receivables with similar risk
       characteristics.

       In assessing collective impairment the Group uses historical trends of the probability
       of default, timing of recoveries and the amount of loss incurred, adjusted for
       management’s judgement as to whether current economic and credit conditions are
       such that the actual losses are likely to be greater or less than suggested by
       historical trends.

       An impairment loss in respect of a financial asset measured at amortised cost is
       calculated as the difference between its carrying amount and the present value of
       the estimated future cash flows discounted at the asset’s original effective interest
       rate. Losses are recognised in profit or loss and reflected in an allowance account
       against receivables. Interest on the impaired asset continues to be recognised
       through the unwinding of the discount. When a subsequent event causes the
       amount of impairment loss to decrease, the decrease in impairment loss is reversed
       through profit or loss.

       For the year ended 30 April 2009 and 2010, no impairment losses have been
       identified for financial assets.

(ii)   Non-financial assets

       The carrying amounts of the Group’s non-financial assets, other than investment
       property, properties under development, completed properties held for sale and
       deferred tax assets, are reviewed at each reporting date to determine whether there
       is any indication of impairment. If any such indication exists, then the asset’s
       recoverable amount is estimated.

       For the purpose of impairment testing, assets that cannot be tested individually are
       grouped together into the smallest group of assets that generates cash inflows from
       continuing use that are largely independent of the cash inflows of other assets or
       groups of assets (the “cash-generating unit”).The recoverable amount of an asset or
       cash-generating unit is the greater of its value in use and its fair value less costs to
       sell. In assessing value in use, the estimated future cash flows are discounted to
       their present value using a pre-tax discount rate that reflects current market
       assessments of the time value of money and the risks specific to the asset.

       The Group’s corporate assets do not generate separate cash inflows. If there is an
       indication that a corporate asset may be impaired, then the recoverable amount is
       determined for the cash generating unit to which the corporate asset belongs.

       An impairment loss is recognised if the carrying amount of an asset or cash-
       generating unit exceeds its estimated recoverable amount. Impairment losses are
       recognised in profit or loss.

       In respect of other assets than goodwill, impairment losses recognised in prior
       periods are assessed at each reporting date for any indications that the loss has
       decreased or no longer exists. An impairment loss is reversed if there has been a
       change in the estimates used to determine the recoverable amount. An impairment
       loss is reversed only to the extent that the asset’s carrying amount does not exceed
       the carrying amount that would have been determined, net of depreciation or
       amortisation, if no impairment loss had been recognised.

       For the years ended 30 April 2009 and 2010, no impairment losses have been
       identified for non-financial assets.




                                                                                           F-38
3   Significant accounting policies (Continued)


    (j)   Employee benefits

          (i)     Defined contribution plans

                  A defined contribution plan is a post-employment benefit plan under which an entity
                  pays fixed contributions into a separate entity and will have no legal or constructive
                  obligation to pay further amounts. Obligations for contributions to defined
                  contribution pension plans are recognised as an employee benefit expense in profit
                  or loss in the periods during which services are rendered by employees.

           (ii)   Short-term employee benefits

                  Short-term employee benefit obligations are measured on an undiscounted basis
                  and are expensed as the related service is provided.

                  A liability is recognised for the amount expected to be paid under short-term cash
                  bonus or profit-sharing plans if the Group has a present legal or constructive
                  obligation to pay this amount as a result of past service provided by the employee,
                  and the obligation can be estimated reliably.

    (k)   Warranties

          A provision for warranties is recognised when the underlying products or services are
          sold. The provision is based on the best estimate of the expenditure required to settle the
          present obligation at the end of the reporting period.

    (l)   Revenue

          (i)     Properties sold

                  Revenue from the sale of properties held for sale is recognised when persuasive
                  evidence exists, usually in the form of an executed sales agreement, that the
                  significant risks and rewards of ownership have been transferred to the buyers. The
                  Group considers that the significant risks and rewards of ownership are transferred
                  when the properties are completed, sales contracts are signed and properties
                  delivered to the buyers. The property right certificate is issued on later date.
                  Revenue from sales of properties excludes business tax and is after deduction of
                  any trade discounts. Deposits and instalments received on properties sold prior to
                  the date of revenue recognition are included in the balance sheet as sales deposits.

          (ii)    Rental income

                  Rental income from investment property is recognised in profit or loss on a straight-
                  line basis over the term of the lease. Lease incentives granted are recognised as an
                  integral part of the total rental income, over the term of the lease. Rental income
                  from subleased property is recognised as other income.

    (m)   Finance income and finance costs

          Borrowing costs are expensed in profit or loss in the period in which they are incurred,
          except to the extent that they are capitalised as being directly attributable to the
          acquisition, construction or production of an asset which necessarily takes a substantial
          period of time to get ready for its intended use or sale.

          The capitalisation of borrowing costs as part of the cost of a qualifying asset commences
          when expenditure for the asset are being incurred, borrowing costs are being incurred and
          activities that are necessary to prepare the asset for its intended use or sale are in




                                                                                                   F-39
      progress. Capitalisation of borrowing costs is suspended or ceases when substantially all
      the activities necessary to prepare the qualifying asset for its intended use or sale are
      interrupted or complete.

(n)   Income tax

      Income tax expense comprises current and deferred tax. Income tax expense is
      recognised in profit or loss except to the extent that it relates to items recognised directly
      in equity, in which case it is recognised in equity.

      Current tax is the expected tax payable on the taxable income or loss for the year, using
      tax rates enacted or substantively enacted at the reporting date, and any adjustment to
      tax payable in respect of previous years.

      Deferred tax is recognised using the balance sheet method, providing for temporary
      differences between the carrying amounts of assets and liabilities for financial reporting
      purposes and the amounts used for taxation purposes. Deferred tax is not recognised for
      the following temporary differences: the initial recognition of assets or liabilities in a
      transaction that is not a business combination and that affects neither accounting nor
      taxable profit or loss, and differences relating to investments in subsidiaries and jointly
      controlled entities to the extent that it is probable that they will not reverse in the
      foreseeable future. In addition, deferred tax is not recognised for taxable temporary
      differences arising on the initial recognition of goodwill. Deferred tax is measured at the
      tax rates that are expected to be applied to the temporary differences when they reverse,
      based on the laws that have been enacted or substantively enacted by the reporting date.
      Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset
      current tax liabilities and assets, and they relate to income taxes levied by the same tax
      authority on the same taxable entity, or on different tax entities, but they intend to settle
      current tax liabilities and assets on a net basis or their tax assets and liabilities will be
      realised simultaneously.

      A deferred tax asset is recognised for unused tax losses, tax credits and deductible
      temporary differences, to the extent that it is probable that future taxable profits will be
      available against which they can be utilised. Deferred tax assets are reviewed at each
      reporting date and are reduced to the extent that it is no longer probable that the related
      tax benefit will be realised.

(o)   Financial guarantees issued and contingent liabilities

      (i)    Financial guarantees issued

             Financial guarantees are contracts that require the issuer (i.e. the guarantor) to
             make specified payments to reimburse the beneficiary of the guarantee (the
             “holder”) for a loss the holder incurs because a specified debtor fails to make
             payment when due in accordance with the terms of a debt instrument.

             Where the Group issues a financial guarantee, the fair value of the guarantee (being
             the transaction price, unless the fair value can otherwise be reliably estimated) is
             initially recognised as deferred income within trade and other payables. Where
             consideration is received or receivable for the issuance of the guarantee, the
             consideration is recognised in accordance with the Group’s policies applicable to
             that category of asset. Where no such consideration is received or receivable, an
             immediate expense is recognised in profit or loss on initial recognition of any
             deferred income.

             The amount of the guarantee initially recognised as deferred income is amortised in
             profit or loss over the term of the guarantee as income from financial guarantees
             issued.

      (ii)   Other provisions and contingent liabilities




                                                                                                F-40
            Provisions are recognised for other liabilities of uncertain timing or amount when the
            Group has a legal or constructive obligation arising as a result of a past event, it is
            probable that an outflow of economic benefits will be required to settle the obligation
            and a reliable estimate can be made. Where the time value of money is material,
            provisions are stated at the present value of the expenditure expected to settle the
            obligation.

            Where it is not probable that an outflow of economic benefits will be required, or the
            amount cannot be estimated reliably, the obligation is disclosed as a contingent
            liability, unless the probability of outflow of economic benefits is remote. Possible
            obligations, whose existence will only be confirmed by the occurrence or non-
            occurrence of one or more future events are also disclosed as contingent liabilities
            unless the probability of outflow of economic benefits is remote.

(p)   Operating segments

      An operating segment is a component of the Group that engages in business activities
      from which it may earn revenues and incur expenses, including revenues and expenses
      that relate to transactions with any of the Group’s other component. All operating
      segments’ operating results are reviewed regularly by the Group’s CEO to make decisions
      about resources to be allocated to the segment and to assess its performance, and for
      which discrete financial information is available.

      Segments results that are reported to the CEO include items directly attributable to a
      segment as well as those that can be allocated on a reasonable basis.

      Segment capital expenditure is the total cost incurred during the year to acquire property
      and equipment, and intangible assets other than goodwill.

      Since unallocated items are immaterial, they have been included into the principal
      segment property development.

(q)   New standards and interpretations not yet adopted

      A number of new amendments, standards and interpretations are not yet adopted by the
      EU for the year ended 30 April 2010, and have not been applied in preparing these
      financial statements:

      IFRS 9, Financial Statements

      Effective for accounting period beginning on or after                      1 January 2013

      Improvements to IFRSs (issued by IASB in May 2010)
                                                                                Various, earliest
      Effective for accounting period beginning on or after                                    is
                                                                                     1 July 2010


      The Group is in the process of making an assessment of what the impact of these
      amendments, new standards and new interpretations is expected to be in the period of
      initial application and has so far concluded that the adoption of them is unlikely to have a
      significant impact on the Group’s results of operations and financial position, except for
      IFRS 9 Financial Instruments, which becomes mandatory for the Group’s 2013
      consolidated financial statements and is expected to impact the classification and
      measurement of financial assets. The extent of the impact has not been determined.




                                                                                              F-41
3   Significant accounting policies (Continued)

    (r)   Possible impact of amendments, new standards and interpretations adopted by the
          EU but not yet effective for the year ended 30 April 2010

          A number of new amendments, standards and interpretations are adopted by the EU but
          not yet effective for the year ended 30 April 2010, and have not been applied in preparing
          these financial statements:
          Revised IFRS 3, Business Combinations
                                                                                       1 July 2009
           Effective for accounting period beginning on or after

          Amendments to IAS 27, Consolidated and Separate Financial Statements
                                                                                       1 July 2009
           Effective for accounting period beginning on or after

          IFRIC 17, Distributions of Non-Cash Assets to Owners
                                                                                  1 November 2009
           Effective for accounting period beginning on or after

          Improvements to IFRSs (Issued by IASB in April 2009)
                                                                                    1 January 2010
           Effective for accounting period beginning on or after

          Amendments to IFRS 2, Group Cash-settled Share-based Payment Transactions
                                                                            1 January 2010
          Effective for accounting period beginning on or after

          Amendments to IAS 32, Classification of Rights Issues
                                                                                   1 February 2010
          Effective for accounting period beginning on or after

          IAS 39, Financial Instruments: Recognition and Measurement: Eligible Hedged Items
          (amended)
                                                                                     1 July 2009
           Effective for accounting period beginning on or after


          IFRIC 15, Agreements for the Construction of Real Estate
                                                                                    1 January 2010
           Effective for accounting period beginning on or after

          IFRIC 16, Hedges of a Net Investment in a Foreign Operation
                                                                                       1 July 2009
          Effective for accounting period beginning on or after

          IFRIC 18, Transfer of Assets from Customers
                                                                                  1 November 2009
          Effective for accounting period beginning on or after


          IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments

           Effective for accounting period beginning on or after                       1 July 2010

          IFRIC 14, Prepayments of a Minimum Funding Requirement

           Effective for accounting period beginning on or after                    1 January 2011

          Amendments to IAS 24, Related Party Disclosures



                                                                                               F-42
          Effective for accounting period beginning on or after                     1 January 2011

         Amendments to IFRS 1, First-time adoption of International Financial Standards- Limited
         exemption from comparative IFRS 7 disclosures for first-time adopters of IFRSs

          Effective for accounting period beginning on or after                         1 July 2010

         Amendments to IFRS 1, First-time adoption of International Financial Standards- additional
         exemptions for first-time adopters of IFRSs
                                                                                  1 January 2010
          Effective for accounting period beginning on or after

          The Group is in the process of making an assessment of what the impact of these
          amendments, new standards and new interpretations is expected to be in the period of
          initial application and has so far concluded that the adoption of them is unlikely to have a
          significant impact on the Group’s results of operations and financial position.


4   Revenue and operating segments

    The Group’s revenue mainly derived from sales of properties and rental income of investment
    properties.

    The Group has two reportable segments, as described below, which are the Group’s strategic
    business units. The strategic business units offer different products and services, and are
    managed separately because they require different marketing strategies. For each of the
    strategic business units, the Group’s CEO reviews internal management reports on at least a
    quarterly basis. The following summary describes the operations in each of the Group’s
    reportable segments:

    !   Investment properties: the leasing of office premises and commercial units to generate
        rental income and to gain from the appreciation in the properties’ values in the long term.

    !   Property development: the development and sale of properties and commercial property
        units.

    Information regarding the results of each reportable segment is included below. Performance is
    measured based on segment profit before income tax. Segment profit is used to measure
    performance as management believes that such information is the most relevant in evaluating
    the results of certain segments relative to other entities that operate within these industries.




                                                                                                 F-43
4     Revenue and operating segments (Continued)

                                    Investment properties         Property development               Holding/Eliminations                   Consolidated


                                   2010            2009          2010             2009             2010            2009              2010             2009
                                 EUR’000        EUR’000       EUR’000          EUR’000          EUR’000         EUR’000           EUR’000          EUR’000

External revenues                     18                24   63,480          57,142                       -                  -   63,498          57,166

Interest revenue                       -               -            73                  38                1                  -          74                  38
Interest expense                       -            (100)         (860)               (414)               -                  -        (860)               (514)

Depreciation                           -                 -        (283)               (258)               -                  -        (283)               (258)

Reportable segment profit
   before income tax               1,735             562      13,780          15,511                  (23)               (3)     15,492           16,070

Share of loss of an equity
   accounted investee                  -                 -             (5)             (12)               -              -                 (5)             (12)

Other material non-cash items:
   Change in fair value of
   investment properties           2,051        1,203                   -                -                -              -         2,051           1,203

Reportable segment assets         25,052       23,369        223,828         213,162          (105,298)       (81,054)           143,582         155,477

Investment accounted for
    using equity method                -                 -            522             525                 -                  -        522                 525

Capital expenditure                    -                 -            278             213                 -                  -        278                 213

Reportable segment liabilities    14,642        8,148        157,138         162,000           (79,827)       (57,673)           91,953          112,475




                                                                                                                                                              F-44
5   Non-controlling interest

    The non-controlling interest represents the share of profit and loss and net asset of Qingdao
    Junxin by the minority investor Qingdao GaokeJi Industry Park Property Management
    Development Center (GaokeJi Industry Park) at 40% equity interest and the share of profit and
    loss and net asset of Guanghua by the minority investor Luan Yong at 3% equity interest.

    The subsidary Qingdao Junxin is currently engaged in the development and marketing of Plage
    Mansion project located in Qingdao and the project is designed to develop two towers on a land
    use right owned by Qingdao Junxin. According to the co-operation framework agreement and
    the related supplementary agreements signed between Qingdao Madison and GaokeJi Industry
    Park, the rewards of the sales of Tower A units as well as related risks associated with the
    Tower A of Plage Mansion project is borne by Qingdao Madison while those associated with the
    Tower B of Plage Mansion project is attributed to GaokeJi Industry Park.

    Accordingly, the calculation of non-controlling interests for Qingdao Junxin is based on the profit
    and loss and net asset relating to Tower B of the Plage Mansion project which are attributable to
    GaokeJi Industry Park, rather than the equity interest of 40%. For the year ended 30 April 2010,
    GaokeJi Industry Park has assumed the land appreciation tax expenses and enterprise income
    tax expenses of EUR 0.4 million (2009: EUR 1 million) for the Tower A.

    Revenues recognised for Plage Mansion project for the year ended 30 April 2010 amounted to
    EUR 8 million (2009: EUR 24 million), including EUR 7 million (2009: EUR 5 million) which was
    attributable to GaokeJi Industry Park.

    The consolidated balance sheet as at 30 April 2010 includes the following assets and liabilities
    which are attributable to the net assets of GaokeJi Industry Park:

    !                                                                              Inventories EUR
                                                                                   6,700,895
    !                                                                              Cash and cash
        equivalents                                                                EUR       831,867
    !                                                                                               T
        otal assets                                                                  EUR 11,003,365
    !                                   Total liabilities
                                        EUR 9,319,260

6   Employee benefits


                                                            01/05/2009-    01/05/2008-
                                                             30/04/2010     30/04/2009
                                                               EUR’000        EUR’000

    Wages, salaries and other benefits                             834             814
    Contributions to defined contribution plans                    104              81

                                                                   938             895




                                                                                                  F-45
7   Finance income and finance costs


                                                       01/05/2009-       01/05/2008-
                                                        30/04/2010        30/04/2009
                                                          EUR’000           EUR’000

    Finance income - Interest income                              74                38

    Interest expense on loans and borrowings           (1,363)            (1,411)
    Less: Borrowing costs capitalised into
               properties under development                      503              897

    Finance costs                                                (860)           (514)

    Net finance costs recognised
        in profit or loss                                        (786)           (476)


    Borrowing costs were capitalised at a rate of 7.00% (2009: 7.36 %,) per annum for the year
    ended 30 April 2010.

8   Income tax expense

                                                       01/05/2009-       01/05/2008-
                                                        30/04/2010        30/04/2009
                                                          EUR’000           EUR’000

    Current tax expense
    (Provision for the year)
        - PRC Enterprise Income Tax                     4,403            4,477
        - Land Appreciation Tax                         2,308            3,255
    Deferred tax expense
        - PRC Enterprise Income Tax                        (1,217)               (601)
        - Land Appreciation Tax                                770                455

                                                        6,264            7,586


    The provision for income tax comprised PRC Enterprise Income Tax and Land Appreciation
    Tax.

    No provision for German income tax has been made as the holding company incorporated in
    Germany did not have assessable profits subject to German income tax. The applicable German
    income tax rate for the period from 1 April 2008 to 30 April 2010 was 25.6%.

    The provision for PRC Enterprise Income Tax for the Company’s subsidiaries in the PRC is
    based on a statutory rate of 25% since the calendar year of 2008 of the taxable income as
    determined in accordance with the relevant income tax rules and regulations of the PRC.

    In accordance with the Land Appreciation Tax Law of the PRC, Land Appreciation Tax is levied
    at the properties developed by the Group for sale in the PRC. Land Appreciation Tax is charged
    on the appreciated amount at progressive rates ranged from 30% to 60%.




                                                                                             F-46
Reconciliation between actual income tax and expected income tax based on profit
before tax at applicable statutory tax rates:


                                                   01/05/2009-      01/05/2008-
                                                    30/04/2010       30/04/2009
                                                      EUR’000          EUR’000

Profit for the year                                 9,228            8,484
Income tax expense                                  6,264            7,586

Profit before income tax                           15,492           16,070

Expected income tax using the Company’s
    average tax rate 25.6%                          3,966            4,114
Effect of different tax rates                               (120)              4
Non-deductible expenses                                       83             459
Current year losses for which no deferred
    tax assets was recognised                                46              227
Provision for Land Appreciation Tax for the year    3,078            3,710
Tax effect of Land Appreciation Tax
    deductible for PRC Enterprise Income Tax           (769)                 (928)
Other                                                   (20)                    0

                                                    6,264            7,586




                                                                                     F-47
9    Other comprehensive income


                                                         01/05/2009-     01/05/2008-
                                                          30/04/2010      30/04/2009
                                                            EUR’000         EUR’000

     Foreign currency translation differences                  357       6,366


     There is no tax effect relating to the above component of other comprehensive income.

10   Earnings per share

     The calculation of earnings per share at 30 April 2010 was based on the profit attributable to
     shareholders of EUR 9,069,000 (2009: EUR 8,705,000), and a weighted average number of
     ordinary shares outstanding of 3,360,000 (2009: EUR 3,300,000), which is calculated as follows:

                                                           Note               2010               2009
     Issued shares at 1 May                                                  50,000                  0
     Adjustment of the contribution of shares                20 (a)       3,250,000          3,250,000
     Effect of shares issued in May 2009                     20 (a)                -            50,000
     Effect of share issued in January 2010                  20 (a)          60,000                   -
     Weighted average number of shares at 30 April                        3,360,000          3,300,000




                                                                                                 F-48
11   Property and equipment

                                     Office
                                  and other      Motor     Leasehold
                                 equipment     vehicles improvements       Total
                                  EUR’000     EUR’000        EUR’000     EUR’000
     Cost
     Balance at 1 May 2008             196 1,226                273        1,695
     Additions                           8       205              -           213
     Disposals                          (3)      (44)             -           (47)
     Translation reserve                39       262             54           355

     Balance at 30 April 2009          240    1,649             327      2,216

     Balance at 1 May 2009             240    1,649             327     2,216
     Additions                          28            250         -             278
     Translation reserve                 1              9         2              12

     Balance at 30 April 2010          269    1,908             329      2,506


     Accumulated depreciation
     Balance at 1 May 2008            (116)       (727)          (75)           (918)
     Depreciation for the year         (12)       (187)          (59)           (258)
     Disposals                           3          42             -              45
     Translation reserve               (24)       (159)          (21)           (204)

     Balance at 30 April 2009         (149) (1,031)             (155)     (1,335)

     Balance at 1 May 2009            (149) (1,031)             (155)     (1,335)
     Depreciation for the year         (39)       (179)          (65)        (283)
     Translation reserve                (1)         (6)           (1)          (8)

     Balance at 30 April 2010         (189) (1,216)             (221)    (1,626)

     Carrying amounts
     At 30 April 2010                   80            692       108             880

     At 30 April 2009                   91            618       172             881




                                                                                F-49
12   Investment properties



                                                                 2010             2009
                                                              EUR’000          EUR’000

     Balance at 1 May                                    20,918            16,329
     Change in fair value:
         Recognised in income statement                   2,051             1,203
     Transfer to inventories                                      (454)              -
     Translation reserve                                           109      3,386

     Balance at 30 April                                 22,624            20,918


     All investment properties of the Group are stated at fair value at 30 April 2009 and 2010. The fair
     values were based on valuation reports issued by Savills Valuation and Professional Services
     Limited. Valuations were based on either (i) capitalisation of net rental income derived from the
     existing tenancies, using discount rates that reflect current market assessments of the
     uncertainty in the amount and timing of the cash flows; or (ii) on direct comparison approach
     assuming sale of each of these properties in its existing state with the benefit of vacant
     possession by making reference to comparable sales transactions as available in the relevant
     market. The revaluations gains or losses have been credited to the income statement of the
     respective years, or, in the case of revaluation gains arising on transfer of an item of property
     and equipment to investment properties following a change in use, to equity directly.

     The range of yields applied to the net annual rentals to determine the fair value of property for
     which current prices in an active market are unavailable is as follows:

     Yields

     4% - 8% (2009: 4% - 10%)

     As at 30 April 2009, investment properties with a total carrying amount of EUR 5.1 million were
     pledged as collateral for the guarantee on the bank loans of General Construction Company of
     Laixi and Qingdao Madison Forging Casting Co., Ltd. (Note 25(c)).

     Certain portion of the Group’s investment properties were pledged against the Group’s bank
     loans, details are set out in Note 21.




                                                                                                   F-50
13   Investment accounted for using the equity method

     Summary financial information for the associate, not adjusted for the percentage of ownership
     held by the Group:

                                                                      Year ended 30 April 2010
     Qingdao Xiang Gen Quan Hai Co., Ltd.                                               EUR’000

     Ownership                                                                              49%
     Current assets                                                                        4,988
     Non-current assets                                                                        -
     Total assets                                                                          4,988
     Current liabilities                                                                   3,923
     Total liabilities                                                                     3,923
     Expenses                                                                                 10
     Loss                                                                                     10

     During the year ended 30 April 2010, the Group had a 49% investment in the equity of Qingdao
     Xiang Gen Quan Hai Co., Ltd. This investee was established as at 19 December 2007 to
     develop real estate properties.

14   Other investments

     On 12 August 2008, Guanghua acquired 5% interest of Qingdao Baitong Huyun Property Co.,
     Ltd. at a consideration of RMB 12,700,000 (equivalent to EUR 1,271,000).
     On 28 September 2008, Guanghua acquired 24.9% interest of Qingdao Baitong Guanghua
     Property Co., Ltd. at a consideration of RMB 2,490,000 (equivalent to EUR 249,000), which was
     disposed at a consideration of RMB 10,483,000 (equivalent to EUR 1,049,000) on 13 October
     2008.
     The above investments did not have a quoted market price in an active market and they are
     recognised in the balance sheet at cost less impairment losses, if any.




                                                                                             F-51
15   Deferred tax assets and liabilities

     Movement in deferred tax assets and liabilities during the years

                                                                 Assets
                                                       Deductible Land
                                                          Appreciation            Other
                                              Tax Loss             Tax            Items           Total
                                              EUR’000        EUR’000            EUR’000         EUR’000


     Balance 1 May 2008                             315                  925              54      1,294
     Recognised in income statement                 137                  709             (58)       788
     Translation reserve                             76                  256               4        336

     Balance 30 April 2009                          528          1,890                     -      2,418
     Recognised in income statement                 303          1,019                   145      1,467
     Translation reserve                              5                   11               -         16

     Balance 30 April 2010                          836             2,920                145      3,901


                                                                           Liabilities
                                                                     Land
                                                               Investment Appreciation
                                                                  Property            Tax         Total
                                                                 EUR’000       EUR’000          EUR’000

     Balance 1 May 2008                                         (1,630)        (1,923)            (3,553)
     Recognised in income statement                                  (187)           (455)          (642)
     Translation reserve                                             (344)           (430)          (774)

     Balance 30 April 2009                                      (2,161)        (2,808)            (4,969)
     Recognised in income statement                                  (250)       (770)            (1,020)
     Translation reserve                                              (11)               (17)        (28)

     Balance 30 April 2010                                     (2,422)         (3,595)            (6,017)


     Unrecognised deferred tax assets

     The Group has not recognised deferred tax assets in respect of cumulative tax losses in the
     Company and certain subsidiaries of EUR 1,613,000 (2009: EUR 1,430,000), as it is not
     probable that future taxable profits will be available. Tax losses in the amount of EUR 1,411,000
     do not expire under current tax legislation. As at 30 April 2010, the tax losses in certain
     subsidiaries of EUR 41,000, EUR 43,000, EUR 37,000, EUR 34,000 and EUR 47,000 will expire
     at 30 April 2011, 2012, 2013, 2014 and 2015 respectively.




                                                                                                    F-52
16   Inventories


                                                               2010            2009
                                                           EUR’000         EUR’000
     Properties under development                       48,752          50,050
     Completed properties held for sale                 20,295          22,569

                                                        69,047          72,619


     (a)   The amount of properties under development expected to be completed after more than
           one year is analysed as follows:


                                                               2010            2009
                                                            EUR’000         EUR’000

           Properties under development                28,181           16,071


     (b)   All of the other properties under development and completed properties held for sale are
           expected to be recovered within one year.

     (c)   The cost of properties sold for the year amounted to EUR 46 million (2009: EUR 37
           million).

     (d)   Certain portion of the Group’s properties under development and completed properties
           held for sale were pledged against the bank loans, details are set out in Note 21.

     (e)   Certain portion of the Group’s completed properties held for sale were pledged as
           collateral for the guarantee on the bank loans of other companies, details are set out in
           Note 25(c).




                                                                                               F-53
17   Trade and other receivables



                                              Note              2010             2009
                                                             EUR’000          EUR’000

     Trade receivables                         (i)         5,534          12,406
     Advances to related parties              (ii)         8,465           7,463
     Advances to third parties                (ii)        10,801          17,055
     Prepayments and other receivables        (iii)       13,938          12,104
     Prepaid other taxes                                           175     1,061

                                                          38,913          50,089


     (iv)   Trade receivables are expected to be recovered within one year.

     (v)    Advances to related parties and third parties are unsecured, interest free and recoverable
            on demand.

     (vi)   The prepayments and other receivables mainly represented the amounts paid in advance
            to constructors and suppliers and the prepayments for the acquisition of land use rights.

     The Group’s exposure to credit risk and foreign currency risk related to trade and other
     receivables are disclosed in Note 24 (a) and (c).

18   Restricted bank deposits

     Restricted bank deposits represented mortgage security for customers. The Group has issued
     guarantees on mortgage loans provided to the customers with banks, details are set out in Note
     25(c).

19   Cash and cash equivalents

                                              Note              2010             2009
                                                             EUR’000          EUR’000

     Cash on hand                                                  168            256
     Bank balances                                         5,456          5,935

                                                           5,624          6,191




                                                                                                 F-54
20   Capital and reserves

     (a)   Subscribed capital

           The Group’s subscribed capital is stated as follows:

                                                                 2010             2009
                                                              EUR’000          EUR’000

           As at 1 May                                                50               0
           Issuance of shares                                 3,450                   50

           As at 30 April                                         3,500               50


           Subscribed capital comprises the share capital of Madison Property AG. The Company
           was incorporated on 30 April 2008 with a share capital of EUR 50,000, which was divided
           up into 50,000 shares with a par value of EUR 1.00 each. The contribution immediately
           payable in cash amounted to EUR 12,500 and was paid in on 2 May 2008. The remaining
           share capital was paid in on 20 August 2008.

           Per shareholder resolution as of 14 January 2010 the share capital was redivided into no-
           par-value shares; every share with a par value of EUR 1.00 was exchanged by one no-
           par-value share.

           On 14 January 2010 the subscribed capital of Madison Property AG was also increased
           by EUR 3,450,000 to EUR 3,500,000 by issuing 3,450,000 new shares to Falcon. In
           return, Falcon contributed to Madison Property AG EUR 200,000 in cash as well as 100%
           of the shares of Madison Property Group Limited. As Madison Property Group Limited is
           incorporated into the consolidated financial statements as if it and its subsidiaries had
           been combined with the Company since 1 May 2008 (please refer to note 2), the
           contribution in kind has no effect on the Group’s net equity position. Nevertheless an
           amount of EUR 3,250,000 was reclassified from the Group’s retained earnings to
           subscribed capital in order to reflect the legal parent’s equity structure in the consolidated
           financial statements.

           Per shareholder resolution as of 12 February 2010 the Board of Directors was authorized
           to increase the Company’s share capital with prior approval of the Supervisory Board until
           31 January 2015 by up to EUR 1,750,000.00 through a cash contribution and/or a
           contribution in kind in one or several tranches. The subscription rights of existing
           shareholders can be excluded (Authorized Capital I).

           Per shareholder resolution as of 11 August 2010 the Board of Directors was authorized to
           issue with prior approval of the Supervisory Board bearer or registered warrant or
           convertible bonds as well as profit participation rights with option or conversion rights with
           a nominal value of up to EUR 60,000,000.00 with or without term limitation and to grant to
           the bondholders option or conversion.

           rights for up to EUR 1,750,000.00 new shares of the Company with a nominal amount of
           up to EUR 1,750,000.00 in accordance with the terms and conditions of the warrant or
           convertible bonds and profit participation rights (Contingent Share Capital 2010).

     (b)   Revaluation reserve

           The revaluation reserve relates to the revaluation of property and equipment prior to its
           reclassification as investment property less deferred taxes.

     (c)   Translation reserve




                                                                                                    F-55
      The translation reserve comprises all foreign exchange differences arising from the
      translation of the financial statements of foreign operations. The reserve is dealt with in
      accordance with the accounting policies set out in Note 3(b).

(d)   Retained earnings

      Pursuant to the Articles of Association of the Company’s subsidiaries in the PRC,
      appropriations to the general reserve fund were made at a certain percentage of profit
      after taxation determined in accordance with the accounting rules and regulations of the
      PRC. The percentage for this appropriation was decided by the directors of the
      subsidiaries. This reserve fund can be utilised in setting off accumulated losses or
      increasing capital of the subsidiaries and is non-distributable other than in liquidation.

      The balance of general reserve fund included in retained earnings as at 30 April 2010
      amounted to EUR 2,700,000 (2009: EUR 1,644,000), which includes a non-distributable
      statutory surplus reserve fund of EUR 3,461,000 (2009: EUR 2,405,000).

      The balance of capital reserve included in retained earnings represents the surplus
      resulting from a capital increase of a subsidiary of the Company. The balance is non-
      distributable. The balance included in retained earnings as at 30 April 2010 was EUR
      1,898,000 (2009: EUR 1,898,000).




                                                                                            F-56
21   Loans and borrowings

     This note provides information about the contractual terms of the Group’s interest-bearing loans,
     which are measured at amortised cost. For more information about the Group’s exposure to
     interest rate, foreign currency and liquidity risk, see Note 24.



                                                                  2010               2009
                                                               EUR’000            EUR’000

     Non-current liabilities
     Secured long term bank loans                          17,084              11,339

     Current liabilities
     Current portion of
         secured long term bank loans                       4,426               3,082
     Secured short term bank loan                                   387         1,046

                                                            4,813               4,128



     Terms and debt repayment schedule

     Terms and conditions of outstanding loans are as follows:

                                                  Nominal                        2010           2009
                               Original           interest Year of       Face Carrying  Face Carrying
                              currency                rate maturity     value amount   value amount
                                                                      EUR’000EUR’000 EUR’000 EUR’000
     Secured long term bank loan    RMB       *BLR×120%       2009             -      -     3,082    3,082
     Secured long term bank loan    RMB       *BLR×110%       2010         4,426 4,426      3,303    3,303
     Secured long term bank loan    RMB       *BLR×130%       2012        15,424 15,424         -        -
     Secured long term bank loan    RMB       *BLR×130%       2013         1,660 1,660          -        -
     Secured long term bank loan    RMB       *BLR×110%       2010             -      -     6,605    6,605
     Secured long term bank loan    RMB       *BLR×120%       2010             -      -     1,431    1,431
     Secured short term bank loan   RMB       *BLR×150%       2009             -      -       661      661
     Secured short term bank loan   RMB            7.97%      2011           387    387       385      385

                                                                          21,897 21,897   15,467    15,467


     * BLR represents Base Lending Rate in China.

     As at 30 April 2009, the bank loans are secured over investment properties with carrying amount
     of EUR 2.3 million and inventories with a carrying amount of EUR 27 million. The interest rates
     for these bank loans range from 6.48% to 11.20% per annum.

     The bank loans with carrying amount of EUR 6,605,000 and EUR 1,431,000 as at 30 April 2009
     have been settled before maturity during the year ended 30 April 2010.

     As at 30 April 2010, the bank loans are secured over inventories with a carrying amount of EUR
     38 million. The interest rates for these bank loans range from 5.40% to 7.97% per annum.

     The Group’s exposure to liquidity risk, interest rate risk and foreign currency risk related to loans
     and borrowings are disclosed in Note 24(b) and (c).

22   Sales deposits

     Sales deposits represented proceeds received on pre-sales of properties that have not been
     recognised as revenue in accordance with the Group’s revenue recognition policy.




                                                                                                     F-57
23   Trade and other payables


                                               Note                2010             2009
                                                                EUR’000          EUR’000

     Trade payables                                         12,292           31,531
     Amount due to related parties               (i)         7,462            3,038
     Advances from third parties                 (ii)       11,014           15,184

                                                            30,768           49,753


     (i)      The balance mainly represents the advances from related parties. The advances from
              related parties are unsecured, interest free and repayable on demand.

     (ii)     Included in advances from third parties, advances of EUR 3,084,000 (2009: EUR
              1,475,000) are unsecured, interest-bearing at 5.4% to 7% per annum and repayable by
              4 January 2011.

              Other advances from third parties are unsecured, interest free and repayable on
              demand.

     The Group’s exposure to liquidity risk and foreign currency risk related to trade and other
     payable are disclosed in Note 24(b) and (c).

24   Financial instruments

     The Group is exposed to the following risks from its use of financial instruments:

     •      credit risk
     •      liquidity risk
     •      market risk

     This note presents information about the Group’s exposure to each of the above risks, the
     Group’s objectives, and policies and processes for measuring and managing risk. Further
     quantitative disclosures are also included.

     Exposure to credit, liquidity and market risks arises in the normal course of the Group’s business.
     The Group has implemented financial management policies and practices to closely monitor and
     manage risks as described below.

     (a)    Credit risk

            Credit risk is the risk of financial loss to the Group if a customer or counterparty to a
            financial instrument fails to meet its contractual obligations, and arises principally from the
            Group’s receivables from customers. The Group’s credit risk is primarily attributable to
            trade and other receivables.

            The credit risk of trade and other receivables arises from the default of counterparties who
            have transactions with the Group, with maximum exposure equal to the carrying amounts
            of such instruments. Management has a credit policy in place and the exposures to these
            credit risks are monitored on an ongoing basis. In most of the cases the Group does
            award any credit to customers. In case credit award is requested, credit evaluations are
            performed before the CEO’s approval. In addition, the Group normally would not release
            the property ownership certificates to the buyers before the buyers finally settle the selling
            price. Sales and marketing staff of the Group is delegated to determine credit limits, credit
            approvals and other monitoring procedures to ensure that follow-up action is taken to
            recover overdue debts.




                                                                                                      F-58
      In respect of other receivables, the Group assesses the financial ability of the debtors
      before granting the facilities to them. The Group chases the debtors to settle outstanding
      balances and monitors the settlement progress on an ongoing basis.

      In addition, the Group is also exposed to credit risk through the granting of financial
      guarantees (Note 25(c)). If there is a default in payments by them, the Group is
      responsible to repay the outstanding bank loans together with any accrued interests and
      penalties owed by them to banks. The Group seeks to maintain strict control over the
      guarantees and keep close monitoring on them to minimise credit risk.

      The carrying amount of financial assets and maximum exposures under issued financial
      guarantee contracts, without taking account of any collateral held or other credit
      enhancement, represents the maximum credit exposure. The maximum exposure to
      credit risk at the reporting date was:


                                                            2010             2009
                                                         EUR’000          EUR’000

      Trade and other receivables (Note 17)38,913 50,089
      Restricted bank deposits (Note 18)                666               439
      Cash and cash equivalents (Note 19)5,624     6,191
      Financial guarantee (Note 25 (c))               12,929          11,165


                                                      58,132           67,884


      Impairment losses

      The aging of trade and other receivables as at 30 April was:

                                 2010                       2009
                              Gross Impairment         Gross Impairment
                            EUR’000 EUR’000          EUR’000 EUR’000

      Not past due      35,870                   - 48,845                  -
      Past due 0-30 days      740                - 1,244                   -
      Past due 31-180 days2,303                  -          -              -

                          38,913                 - 50,089                  -


      Based on historical default rates, the Group believes that no significant impairment
      allowance is necessary in respect of trade and other receivables not past due or past due
      by up to 180 days as at 30 April 2010.

(b)   Liquidity risk

      Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations
      associated with its financial liabilities that are settled by delivering cash or another
      financial asset.

      Historically, the Group relied to a great extent on proceeds received from pre-sale of
      property units (sold in advance of the completion of the real estate projects) to fund its
      development and construction of real estate projects. As there is no assurance that
      proceeds received from future pre-sales of the Group’s current real estate projects will be
      sufficient to meet the Group’s needs, the Group’s operating plan requires it to raise
      additional funds to finance the development and construction of its current real estate
      projects. If the Group is unable to raise additional equity or debt financing, the Group’s



                                                                                               F-59
expansion plans and operations might need to be curtailed.

The Group’s objective to managing liquidity is to ensure, as far as possible, that it will
always have sufficient liquidity to meet its liabilities when due, under both normal and
stressed conditions, without incurring unacceptable losses or risking damage to the
Group’s reputation. The Group’s policy is to regularly monitor current and expected
liquidity requirements and its compliance with lending covenants, to ensure that it
maintains sufficient reserves of cash and adequate committed lines of funding from major
financial institutions to meet its liquidity requirement in the short and longer term.

The Group prepares its mid to long terms financing need and liquidity through the three
years business plan. In the three years business plan cash flow is estimated and planned
at the Group and entity level. Senior management monitors the financing and liquidity by
benchmarking against the three years business plan at least at a quarterly basis.

The Group’s management reviews the liquidity position of the Group on an ongoing basis,
including review of the expected cash inflows and outflows, sale/pre-sale results of
respective property projects, maturity of loans and borrowings and the progress of the
planned property development projects in order to monitor the Group’s liquidity
requirements in the short and long terms. As well, the Group’s management monitors the
liquidity ratios including current ratio, quick ratio, and leverage ratio in order to assess the
Group’s liquidity situation.

The following are the contractual maturities of financial liabilities, including estimated
interest payments and excluding the impact of netting agreements, and issued financial
guarantee contracts:

30 April 2010

                    Carrying     Contractual    6 months        6-12     1-2
                     amount       cash flows      or less     months   years                2-5 years
                    EUR’000        EUR’000      EUR’000      EUR’000 EUR’000                EUR’000

Secured bank loans21,897          24,745              650    5,458      1,006           17,631
    (Note 21)
Trade and other
    payables      30,768          30,850       29,843        1,007              -                -
    (Note 23)
Financial guarantee             12,578         12,929        10,918         -           -                2,011
    (Note 25 (c))

                  65,243          68,524       41,411        6,465      1,006           19,642

30 April 2009

                    Carrying     Contractual    6 months        6-12     1-2
                     amount       cash flows      or less     months   years                2-5 years
                    EUR’000        EUR’000      EUR’000      EUR’000 EUR’000                EUR’000

Secured bank loans15,467          16,996             4,258           809 11,929                      -
    (Note 21)
Trade and other
    payables 49,753               49,819       48,371        1,448                  -                -
    (Note 23)
Financial guarantee11,020         11,165       11,165                  -            -                -
    (Note 25 (c))

                 76,240           77,980       63,794        2,257         11,929                    -




                                                                                                 F-60
24   Financial instruments (Continued)

     (c)   Market risk

           Market risk is the risk that changes in market prices, such as foreign exchange rates,
           interest rates, property prices, rental prices and the prices of raw materials, will affect the
           Group’s income or the value of its holdings of financial instruments. The objective of
           market risk management is to manage and control market risk exposures within
           acceptable parameters, while optimising the return.

           Interest rate risk

           Profile

           As at 30 April the interest rate profile of the Group’s interest-bearing financial instruments
           was:

                                                                  Carrying amount

                                                                  2010             2009
                                                               EUR’000          EUR’000
           Fixed rate instruments
           Financial liabilities                          (3,471)          (5,163)

                                                          (3,471)          (5,163)

           Variable rate instruments
           Financial assets                                6,122            6,374
           Financial liabilities                         (21,510)         (11,779)

                                                         (15,388)          (5,405)




                                                                                                     F-61
24   Financial instruments (Continued)

     (c)   Market risk (Continued)

           Interest rate risk (Continued)

           Fair value sensitivity analysis for fixed rate instruments

           The Group does not account for any financial assets and liabilities at fair value through
           profit or loss, or equity, and the Group does not designate derivatives (interest rate swaps)
           as hedging instruments under a fair value hedge accounting model. Therefore a change in
           interest rates at the reporting date would not affect profit or loss, or equity.

           Cash flow sensitivity analysis for variable rate instruments

           The Group’s major interest rate risk arises from borrowings. Borrowings obtained at
           variable rates expose the Group to the cash flow interest-rate risk. Borrowing obtained at
           fixed rates expose the Group to fair value interest-rate risk. The Group has not hedged its
           cash flow and fair value interest rate risk.

           The interest rates of the Group’s bank loans are disclosed in Note 21. The annual interest
           rate of the Group’s deposits at bank was 0.36% for the year ended 30 April 2010.

           A change of 10% in interest rates as at 30 April 2009 and 2010 would have increased or
           decreased the profit or loss and property under development by the amounts shown
           below. Since the Group capitalised part of its financing expenses in property under
           development, the change of interest rate would have impact on the balance of property
           under development and the profit and loss. This analysis assumes that all other variables,
           in particular foreign currency rates, remain constant.


                                                    Year ended 30 April
                                              2010               2009
                                          10%      10%         10%      10%
                                      increase decrease    increase decrease
                                      EUR’000 EUR’000 EUR’000 EUR’000

           Cash flow sensitivity           112       (112)         128     (128)


           Foreign currency risk

           RMB is not freely convertible into foreign currencies. All foreign exchange transactions
           involving RMB must take place through the People’s Bank of China (“PBOC”) or other
           institu