Independent Financial Advisors Opinion on Connected Transaction

 
 
Enclosure no. 9




                 Independent Financial Advisors Opinion
                       on Connected Transaction

                                 Involving

         (1) Change of Investment in Convertible Bonds Issued by
Chia Tai Enterprises International Limited to Convertible Preference Shares
                   (2) Entering into Option Agreement with
               C.P. Holding (BVI) Investment Company Limited
     (3) Exercise the Right to Sell the Convertible Preference Shares
             to C.P. Holding (BVI) Investment Company Limited


                                    for

                           The Shareholders of


                     CP ALL Public Company Limited


                               Prepared by


                   TISCO Securities Company Limited
                            May 26, 2010
Table of Contents

                                                                                 Page
Definitions                                                                         1
Background                                                                          3
1. Details of the Transaction                                                      11
2. Reasonableness of the Transaction                                               27
3. Fairness of Price and Conditions of the Transaction                             35
4. The Independent Financial Advisor's Opinions for the Company's Shareholders     61
Definitions
Unless specifying to be otherwise in this document, the definitions of specified words are as follows:
The Company or CPALL                        defines           CP ALL Public Company Limited
LDI                                         defines           Lotus Distribution Investment Limited
CTEI                                        defines           Chia Tai Enterprises International Limited
CPG                                         defines           Charoen Pokphand Group Company Limited
CPH                                         defines           C.P. Holding (BVI) Investment Company Limited
YSI                                         defines           Yangtze Supermarket Investment Company
                                                              Limited
CTDI                                        defines           Chia Tai Distribution Investment Company
                                                              Limited
SLS                                         defines           Shanghai Lotus Supermarket Chain Store
                                                              Company Limited
CRF                                         defines           China Retail Fund LDC which is a non-related
                                                              Company
The Convertible Bonds or the CB             defines           Convertible Bonds issued by CTEI and held
                                                              by CPALL and LDI
The Convertible Preference Shares or        defines           Convertible Preference Shares to be received
the CPS                                                       by change of investment from the CB
The SEC                                     defines           Securities and Exchange Commission
The SET                                     defines           Stock Exchange of Thailand
The HKSE                                    defines           Hong Kong Stock Exchange
The Independent Financial Advisor or        defines           TISCO Securities Co., Ltd.
The IFA
EV                                          defines           Enterprise Value
The purchase and cancellation agreement defines               The Agreement in relation to the purchase and
                                                              cancellation of the Convertible Bonds between
                                                              the Company, LDI, and CTEI dated 16 March 2010
The Option Agreement                        defines           The Option Agreement between the Company,
                                                              LDI, and CPH dated March 16, 2010
Market price of CTEI's common share         defines           Market closing price of CTEI's common share as
                                                              at May 24, 2010 at 0.225 HKD per share
HKD                                         defines           Hong Kong Dollar
THB                                         defines           Thai Baht
USD                                         defines           U.S. Dollars


                                             Page 1
RMB                                         defines          Chinese Renminbi
The PRC                                     defines          The People's Republic of China
The exchange rate used in the calculation is THB 4.14 per HKD 1.00 and THB 32.357 per USD 1.00 with
reference to an average of commercial banks' exchange rates as at May 7, 2010 which might differ from the
exchange rate used in the consolidated financial statement of the Company and its subsidiaries.




                                             Page 2
Background
        Over the past year, the Company and LDI, a wholly-owned subsidiary of the Company, engaged in
hypermarket business in the PRC by investing in SLS through their investment holding company, YSI. The
investment diagram was illustrated as follows:
                                                    100%
                                                             CPALL

                              CPH                 LDI             1%         CRF

                          100%              54%                                 45%
                              CTDI                             YSI


                                 46%                        54%
                                              SLS


         However, since SLS had continually operated at loss, the investment of the Company and LDI
inevitably absorbed that loss. Therefore in October 2008, the Company and LDI decided to divest their
investment in relation to hypermarket business in the PRC by selling assets invested in SLS which comprises
of shareholder's interest and loan interest through YSI to CTEI. As a result of the divestment, the Company
and LDI received the CB issued by CTEI in a total face value of HKD 891.17 million in return. In addition to the
CB received, LDI also subscribed additional CB as part of the terms and conditions from the disposal of SLS
interest with a purchasing price of HKD 156.38 million (which was equal to the face value at that time).
Moreover, in July 2009, LDI purchased additional CB from CRF, which it received from the disposal of assets
invested in SLS through YSI (the same CB as the Company and LDI received), at discount with a purchasing
price of HKD 273.95 million for a total face value of HKD 472.32 million. As a result, the Company and LDI
currently hold investment in the CB at a total face value of HKD 1,519.87 million.
         The CB held by the Company and LDI is 3-year unsecured convertible bonds which will be matured
on October 31, 2011 with can be extended for October 31, 2013 on mutual agreement between the CB
holders and CTEI. The CB's coupon payment terms are semi-annual of 1.00% per annum, and CTEI shall
return principal together with the additional amount which would result the bondholder to receive a 3.5% per
annum yield to maturity compounded annually from the date of issuance of the CB to the Maturity Date.
         Even though CTEI's operation has continually improved, CTEI still recorded net loss due to
substantial interest expenses as a result of its highly financial leverage, especially interest expenses from the
CB, affecting CTEI shareholders' equity. The Company and LDI, as the CB holders, might face the default risk,
both principle and interest, on the extension of redeemable period from October 31, 2011 to October 31,
2013, and the credit risk when the CB is at maturity.



                                               Page 3
Because of the reasons stated above, the Board of Directors' Meeting of CP ALL Public Company
Limited No. 3/2010 held on May 11, 2010 resolved and approved:
          (1) CPALL and LDI to change their investment from the CB issued by CTEI to the CPS issued by
CTEI with the total number of 3,897,110,334 shares and
          (2) CPALL and LDI to enter into the Option Agreement for the rights to sell and purchase the CPS
issued by CTEI with CPG or such a person designated by CPG, which CPG has designated CPH to be the
person entering the agreement with details as follows:
                    (2.1) The Company and LDI have the right to sell the CPS with the amount not exceeding
          3,897,110,334 shares (accounted for up to 100% of the CPS issued this time) to CPH with the
          exercise price of HKD 0.248 per share, within September 30, 2010 (Hereof, the Option Agreement
          stated that the rights shall be exercised within 180 days from the date of transaction but no later than
          September 30, 2010). Transaction value derived from exercising the right to sell the whole amount of
          the CPS will be HKD 966.48 million or approximately THB 4,0001.24 million (the EPut OptionF); and
                    (2.2) CPH has the right to purchase the CPS with the amount not exceeding 1,948,555,167
          shares (accounted for up to 50% of the CPS issued this time) from LDI with the exercise price of HKD
          0.276 per share, within September 30, 2010 (Hereof, the Option Agreement stated that the rights
          shall be exercised within 180 days from the date of transaction but no later than September 30,
          2010). Transaction value derived from exercising the right to purchase 1,948,555,167 shares will be
          HKD 537.8 million or approximately THB 2,226.50 million (the ECall OptionF) ((1) and (2) are
          collectively called as the EChange of Investment and Entering into the Option AgreementF).
                    The Board of Directors agreed in principles to allow CPALL and LDI exercising the Put
          Option immediately in full to CPH if either of the following events has occurred: (a) at any time during
          the exercise period, the closing price of the CTEI shares as quoted on the HKSE is less than or equal
          to HKD 0.248 per share (as adjusted for stock splits, stock combination, stock dividends,
          reclassifications and similar corporate actions) on at least 15 consecutive trading days; or (b) the
          average of the closing price of the CTEI shares as quoted on the HKSE is less than or equal to HKD
          0.248 per share (as adjusted for stock splits, stock combination, stock dividends, reclassifications
          and similar corporate actions) on not less than 20 consecutive trading days.
          In order to provide immediate liquidity for CPALL and LDI and to reduce volatility risk created from
CTEI's share price, the Board of Directors additionally approved that:
          (3) CPALL and LDI to exercise the Put Option to sell the whole amount of the CPS received from the
change of investment or 3,897,110,334 shares to CPH immediately after receiving the CPS at the exercise
price of HKD 0.248 per share regardless of CTEI market price consideration. The consideration for the CPS
will be in cash amounted HKD 966.48 million or approximately THB 4,001.24 million (the EExercise of the Put
OptionF) ((1), (2), and (3) are collectively called as the ETransactionF).


                                                Page 4
CTEI's Board of Directors' meeting and Extraordinary General Meeting on April 26, 2010 approved
the purchase and cancellation of the Convertible Bond and the issuance of Convertible Preference Share as
well as consents and waivers required by any applicable law or rules or regulations, or by governmental,
administrative or regulatory bodies, necessary or otherwise appropriate for the parties to consummate the
transactions contemplated by the relevant agreement. However, the important Conditions Precedent for the
company to fulfill the completion of the Option Agreement is the approval of the company shareholders'
meeting (on June 29, 2010) for entering the transaction (1) and (2)
         According to the Notification of the Capital Market Supervisory Board No. Tor. Chor. 20/2008 Re:
Rules and Regulations for Executing Significant Transactions Categorized as an Acquisition or Disposal of
Asset, concerning the Notification of the Board of Governors of the SET Re: Disclosure of Information and
Other Acts of Listed Companies Concerning the Acquisition and Disposition of Assets B.E. 2004 (as
amended), the change in investment from the CB to the CPS is considered an acquisition with the
transaction's size of 13.8% of the Company's total assets stated in its consolidated financial statement as at
March 31, 2010 and the agreement with CPH together with the immediately exercising of the Put Option is
considered a disposition of the Company's assets with the transaction's size of 8.8% of the Company's total
assets stated in its consolidated financial statement as at March 31, 2010; so these two transactions, each
with its size less than 15% of total assets, are not required to be further considered and approved in
shareholders' meeting.
         However, the above transactions under item (1) (2) and (3) are considered connected transactions in
accordance to the Notification of the Capital Market Supervisory Board No. Tor. Chor. 21/2008 Re: Rules and
Regulations for Executing Connected Transaction concerning the Notification of the Board of Governors of the
SET Re: Disclosure of Information and Other Acts of Listed Companies Concerning the Connected
Transaction, 2003 (as amended). CPH is considered connected party with the Company because they share
the same ultimate shareholder, CPG, and as at May 26, 2010, CPG and companies under Charoen Pokphand
Group held 45.2% of paid-up shares in CPALL and held indirectly 100% of paid-up capital in CPH. Moreover,
CPH is also a major shareholder of CTEI, holding 75% of CTEI's paid-up shares. The combined size of the
above items is 32.4% of net tangible assets of the latest consolidated financial statement of CPALL and its
subsidiaries for the period ended March 31, 2010.
         Therefore, it is required to report and disclose the Transaction to the SEC and the SET and to
propose this transaction into the Extraordinary General Meeting of Shareholders No. 1/2010 for further
consideration and approval. The shareholders voting in favor of or approving for the Transaction must not be
less than three-fourths of total votes of shareholders or proxies (if any) attending the meeting and having
voting right, excluding the voting from shareholders with interests who have no right to vote. The Company
must appoint an independent financial advisor to give opinion on the reasonableness of the Transaction and




                                              Page 5
the fairness of the price with suggestion to the shareholders on how the shareholders should vote on the
connected transaction.
         TISCO Securities Company Limited is appointed by CPALL to be an independent financial advisor to
provide the opinion upon the Transaction. The IFA is a qualified financial advisor under the supervision of the
SEC and has no relationship with CPALL, CPG, CPH, and CTEI including affiliated companies and
subsidiaries of those companies that related to the Transaction.
         In preparing this report, the study of the IFA relied on information and materials supplied by the
Company, interview with the management and employees, publicly available information and those industry
related information in public domain. As such, the IFA cannot give any representation or warranty on the
accuracy or the completeness of the information obtained. Additionally, the report should be considered as
an additional information to the shareholders, and the shareholders should use other information in order to
make a decision concerning the Transaction. Moreover, the report was based on certain assumptions during
due diligence and report preparation period. Should there be any change in the future which has the impact
on the Company's operations, both the Company and the shareholders could be affected. However, at the
time of preparing the report, the IFA had no reason to believe and was not aware of any such incidents that
could significantly affect the Company.
         From the study and consideration, the IFA renders its opinion that the criteria applied to consider the
transaction's fairness shall be the comparison between the values of investment prior to the Transaction,
which are the values of the Company's and LDI's investment in hypermarket business in the PRC as well as
the value of the CB, and the values of investment after the Transaction, which are the values of the CPS and
the value of the Option Agreement together with the benefit from entering into the Transaction.
         The IFA considers that historical market price and the discounted cash flow approach combined with
the value of the Option Agreement are the appropriate approaches to determine value of the CPS to be
received after the Change of Investment and Entering into the Option Agreement. This is because historical
market price is the price that shareholders decide to engage in the transactions taking into account all factors
and the discounted cash flow approach is taking into account of future operating performance.
         Therefore, after comparing between the value of investment prior the Transaction and the value of
the CPS based on historical market price and discounted cash flow approaches, the conclusion is as follows:




                                               Page 6
Scenario 1 : The Company and LDI change their investment to convertible preference shares
                                                                                      Unit : THB, million
                                              Value prior the                           Difference
              Methodology                                       Value of the CPS
                                               transaction                            Higher (Lower)
 1.Total investment cost                          3,879                N.A.                  N.A.
 2.Value of the CB
  2.1 Face value                                   6,292               N.A.                 N.A.
    2.2 Book value under consolidated
                                                   5,716               N.A.                 N.A.
 financial statement
    2.3 Redemption value                       6,785 I 7,116           N.A.                 N.A.
  2.4 Comparable past transaction value        3,650 I 5,348      4,143 I 4,224        (1,125) - 494
  2.5 Fair market value                        5,142 I 5,525      2,902 I 4,312       (2,240) I (1,213)


Scenario 2 : The Company and LDI change their investment and exercise 100% of the Put Option
                                                                                      Unit : THB, million
                                                                  Value from the
                                              Value prior the                           Difference
              Methodology                                       Exercise of the Put
                                               transaction                            Higher (Lower)
                                                                      Option
 1.Total investment cost                           3,879              4,001                 122
 2.Value of the CB
  2.1 Face value                                   6,292              4,001               (2,291)
    2.2 Book value under consolidated
                                                   5,716              4,001               (1,715)
 financial statement
    2.3 Redemption value                       6,785 I 7,116          4,001           (3,115) I (2,784)
  2.4 Comparable past transaction value        3,650 I 5,348          4,001            (1,347) - 351
  2.5 Fair market value                        5,142 I 5,525          4,001           (1,524) - (1,141)




                                          Page 7
Scenario 3 : The Company and LDI change their investment and receive the exercise of the Call
                Option (50% of the CPS)
                                                                                                          Unit : THB, million
                                                                               Value from the
                                                     Value prior the         Exercise of the Call            Difference
                     Methodology
                                                      transaction            Option and 50% of             Higher (Lower)
                                                                                CPSs Value
       1.Total investment cost                             3,879                    N.A.                        N.A.
       2.Value of the CB
         2.1 Face value                                    6,292                     N.A.                       N.A.
          2. 2 Book value under consolidated
                                                           5,716                     N.A.                       N.A.
       financial statement
          2.3 Redemption value                        6,785 I 7,116                  N.A.                       N.A.
         2.4 Comparable past transaction value        3,650 I 5,348             4,298 I 4,338               (1,010) I 648
         2.5 Fair market value                        5,142 I 5,525             4,227 I 4,383              (1,142) - (915)


         From the comparison table between the values of investment prior the Transaction and the
     values of investment after the Transaction together with the value derived from the exercising of the
     Option Agreement, the values of investment after the transaction from the above 3 scenarios are
     lower than the CB's value; however, with consideration in details, they are higher than the total
     investment cost that the company and LDI invested in hypermarket business in the PRC and within
     the range of the CB's value derived under comparable past transaction approach. The highest
     possible impact for each scenario is shown as follows:
                                                                                                      Unit : THB, million
                                                             The highest possible negative impact comparing to the CB
                      Scenario                            Book Value Redemption Comparable Past               Fair Value
                                                                           Value         Transaction Value
Scenario 1 : Changing investment to CPS                      N.A.           N.A.              (1,125)           (2,240)
Scenario 2 : Changing investment to CPS and                 (1,715)        (3,115)              (1,347)            (1,524)
exercising 100% of the Put Option
Scenario 3 : Changing investment to CPS and CPH              N.A.           N.A.                (1,010)            (1,142)
exercise 50% of the Call Option


         By considering the highest possible negative impact from the above 3 scenarios, value from
     entering to the Transaction is the lowest when comparing to the CB's redemption value, which is the
     value to be received from holding the CB until redemption and CTEI has capability to repay debt. In
     addition, changing investment to CPS would have the highest possible impact to the Company's
     investment because the value to be received from the change of investment would be lower than


                                                 Page 8
value of the CB. However, CPALL and LDI should be able to reduce such impact by exercising the
Option.

     IFAs opinion on the Change of Investment and Entering into the Option Agreement
     Considering the aforementioned information, although the Change of Investment and Entering
into the Option Agreement would lower CPALL's and LDI's investments value, there are several
benefits to the Company and LDI from the Change of Investment and Entering into the Option
Agreement as follows:
    - It would reduce the risk from the extended repayment or the uncertainties of receiving
         repayment upon redemption and would increase liquidity, having the alternatives to liquidate
         the Company's and LDI 's investment either to CPH or third parties;
    - The Company would be able to make a decision whether to hold the CPS or to sell it with the
         Put Option. As a result, it would reduce risk of deteriorate investment value from directly
         dispose the CB to third parties. From the fact that there is no secondary market for the CB, if
         the Company decides to dispose the CB to other third parties, the Company might have to
         give a significant discount comparing to face value or fair value depending upon negotiation
         with potential buyer and CTEI's financial performance as an issuer of the CB.
    - The Company has an option to reduce its investment risk by having the right to reduce the
         investment proportion including the permanent exit from the investment in CTEI;
    - If there is an exercise of the Put Option, the Company would receive immediate cash flow
         and it would allow the Company to invest in proficient business or other investment that
         could generate long-term value for the Company; and
    - It would increase the opportunity for the Company to receive additional return in terms of
         profits from selling shares and expected dividend since the changes in investment of the
         Company would lower CTEI's liabilities and interest expense, resulting in the improved
         financial status and operating results of CTEI.
     From the aforementioned reationales, considering to the benefits to be received, and comparing
with total investmet cost in hypermarket business in the PRC, the IFA opines that the Company's
shareholders shall approve the resolution for the Change of Investment and Entering into the Option
Agreement.
     However, the Change of Investment and Entering into the Option Agreement would have
limitation with exercise period, which shall be exercised within September 30, 2010 and would have
several related risks, for example, risk from not being able to exercise its rights under the Option
Agreement from the conflict in shareholders' structure, risk from conversion restrictions as CTEI
already reaches public float of 25% of its paid-up capital, and exchange rate risk, which might
effect definite considerations to be received in THB.

                                      Page 9
IFAs opinion on the Exercise of the Put Option
     In case that the Company change its investments from the CB to the CPS issued by CTEI and
enter into the Option Agreement with CPH and subsequently exercise its Put Option immediately,the
Company and LDI would together receive considerations from the sale of CPS in a total of
approximately THB 4,001 million. Although value of the considerations received is lower than value
of the CB currently held by the Company and LDI, value of the considerations received is higher
than the Company's and LDI's total investment cost in hypermarket business in the PRC, which
valued approximately THB 3,879 million and within the range of comparable past transaction of the
CB which valued between THB 3,650 to 5,348 million. In addition to guarantee minimum value from
considerations to be received, the Exercise of the Put Option would reduce risks and provide a
number of benefits to the Company and LDI as follows:
    - It would eliminate risk from not being able to exercise its rights under the Option Agreement
         from the conflict in shareholders' structure regardless of the decision of Company's board of
         directors and managements. and conversion risk as CTEI has to maintain its public float in
         accordance with HKSE's regulations;
    - It would reduce the risk of investment and guarantee immediate exit from an investment in
         hypermarket business in the PRC of the Company;
    - Exercising the Put Option would accelerate cash flow to be received by the Company in
         which allowing the Company to invest in proficient business or other investment that could
         generate long-term value for the Company; and
    - Although value from exercising the Put Option is lower than value of the CB, exercising the
         Put Option would allow the company to realize exact amount of investment to be received.

     With the rationales stated above, the IFA renders its opinion based on possible reduction in
risks, and the benefits together with the value to be received from the Exercise of the Put Option to
sell the whole amount of CPS to CPH comparing to the Company's and LDI's investment in
hypermarket business, the Company's shareholders shall approve the resolution to exercise the Put
Option immediately in order to realize specific return of investment and reduce risk from not
exercing the Option due to conflict in shareholders' structure and conversion restriction.
     However, the approval of the Transaction, whether the Change of Investment and Entering into
the Option Agreement, or the Exercise of the Put Option to sell the whole amount of CPS to
CPH,depends on the shareholders' discretionary judgment through considering the reasons and
opinions stated in this report. The important information and the IFA's opinions can be concluded as
follows:




                                     Page 10
1. Details of the Transaction
   1.1. Transaction Characteristics
       1.1.1. Changes of investment from the CB issued by CTEI into the CPS issued by CTEI
              CTEI will redeem all the CB from the Company and LDI with a total face value of HKD 1,519.87
              million (approximately THB 6,292.27 million); in exchange, CTEI will issue the CPS, which can
              be converted into CTEI ordinary shares to the Company and LDI. Details of the CB and the
              CPS are as follows:
                                              The Convertible Bonds              The Convertible Preference Shares
               Issuer                 CTEI                                     CTEI
               Underlying             Unsecured convertible bonds with face Convertible preference shares of
               securities             value of HKD 1,519,873,031 which can 3,897,110,334 shares which can be
                                      be converted into CTEI ordinary shares converted into CTEI ordinary shares
               Par value              HKD 1,519,873,031 (HKD 50,000,000 HKD 0.02 per share
                                      per unit)
               Conversion ratio       1 unit of the CB can be converted into 1 convertible preference share can be
                                      128.205 million CTEI ordinary shares     converted into 1 CTEI ordinary share
               Number of              3,897,110,334 shares with a par value of 3,897,110,334 shares with a par value
               converted ordinary     HKD 0.02 per share                       of HKD 0.02 per share
               shares
               Rights of conversion   Ordinary shares from the conversion of      Ordinary shares from the conversion of
               shares                 CB have the same rights and                 CPS have the same rights and
                                      responsibilities with CTEI ordinary         responsibilities with CTEI ordinary
                                      shares                                      shares
               Conversion             The CB may be converted to CTEI             The CPS can be wholly or partially
               conditions             ordinary shares only one time and in        converted to CTEI ordinary shares
                                      whole amount within the maturity
                                      date/redemption period
               Conversion             CTEI's registrar will not accept            CTEI's registrar will not accept
               restrictions           registration of ordinary shares converted   registration of ordinary shares
                                      by the CB holders if such conversion        converted by the CPS holders if such
                                      causes the public float of CTEI to be       conversion causes the public float of
                                      lower than the level regulated by the       CTEI to be lower than the level
                                      Hong Kong Stock Exchange which              regulated by the Hong Kong Stock
                                      currently is 25.0%                          Exchange which currently is 25.0%
               Conversion period      From the 7th day after the date of          Holders have the right to convert at any
                                      issuance till and including the date of 7   time but must be conformed with the
                                      days prior to maturity date, or be          conversion restriction
                                      automatically converted if the closing
                                      price of the CTEI shares is equal to or


                                                Page 11
The Convertible Bonds             The Convertible Preference Shares
                            higher than HKD 0.43 per share on at
                            least 15 consecutive trading days or the
                            average of the closing prices of the
                            CTEI shares on not less than 20
                            consecutive trading days is HKD 0.43
                            per share or higher
        Shareholder meeting - None -                                  - None -
        and voting rights
        Dividend rights     - None -                                  CTEI has no dividend policy; therefore,
                                                                      the CPS holders would have the same
                                                                      entitlement with CTEI ordinary shares
        Coupon rate         1.0% per annum, and at maturity the CB - None -
                            holder shall also receive the difference
                            of the yield to maturity of 3.50% per
                            annum compounded annually from the
                            issuance of the CB to the CB holders, as
                            if it is held to maturity, and the actual
                            interest received of 1.00% per annum.
        Maturity and        Redeem in cash on the date falling on     - None -
                                   rd
        redemption          the 3 anniversary from October 31,
                            2008 unless 1) previously redeemed,
                            converted or purchased and cancelled
                            before the date falling on the 3rd
                            anniversary October 31, 2008, or 2) if
                            mutually agreed in writing between CTEI
                            and the CB holders, the date falling on
                            the 5th anniversary after October 31,
                            2008
        Default rate        In case of CTEI's defaults in the         - None -
                            payment of any sum due and payable
                            under the CB and the CB is not
                            converted, the Company and its
                            subsidiaries shall receive the default
                            rate at 3-month HIBOR (Hong Kong
                            Inter-bank Offered Rate) plus 4.0% per
                            annum
        Secondary market    - None -                                  - None -
      The settlement date of changing the investment is expected to take place within the 3rd quarter
of 2010.



                                        Page 12
1.1.2. The entering into the Option Agreement for the rights to sell and purchase the CPS issued by
       CTEI under item 1.1.1 held by CPALL and LDI with CPH under the following details:
     1.1.2.1. The Put Option
              Where as the holders of the Put Option have the right to wholly or partially sell or not to
              sell the CPS to the counterparty at the agreed price under the specified condition with
              details as follows:
     - Parties with the         : CPALL and LDI, a CPALL's subsidiary
         Rights to Sell
     - Counterparty             : CPH who is the connected party
         with Obligation to Purchase
     - Trading Securities : The Convertible Preference Shares issued by CTEI
     - Amount                   : Not exceeding 3,897,110,334 shares (Up to 100% of the CPS issued
                                  this time)
     - Exercise Price           : HKD 0.248 per share or approximately THB 1.027 per share
     - Transaction Value : HKD 966.48 million or approximately THB 4,001.24 million
     - Period of Option : Within September 30, 2010 (Hereof, the Option Agreement
          to Exercise the Right stated that the rights shall be exercised wihin 180 days from the
                                  date of entering the transaction but no later than September 30,
                                  2010)
     - Completion Date : Completion Date shall be incurred after 30 days but not exceeding
                                  90 days from the exercise date, and the payment shall be in cash.
     - Other Relevant Term : The Board of Directors agreed in principles to allow CPALL and LDI
                                  exercising the Put Option immediately to sell the whole amount of
                                  CPS to CPH if either of the following events has occurred: (a) at any
                                  time during the exercise period, the closing price of the CTEI shares
                                  as quoted on the HKSE is less than or equal to HKD 0.248 per share
                                  (as adjusted for stock splits, stock combination, stock dividends,
                                  reclassifications and similar corporate actions (Ethe Changes related
                                  to CTEI shareF) on at least 15 consecutive trading days; or (b) the
                                  average of the closing prices of the CTEI shares as quoted on the
                                  HKSE is less than or equal to HKD 0.248 per share (the Changes
                                  related to CTEI share) on not less than 20 consecutive trading days.




                                      Page 13
1.1.2.2. The Call Option
                 Where as the holder of the Call Option has the right to wholly or partially purchase or not
                 purchase the CPS from the counterparty at agreed price under specified condition with
                 details as follows:
        - Party with the           : CPH which is the connected party
            Right to Purchase
        - Counterparty with : LDI which is a CPALL's subsidiary
            Obligation to sell
        - Trading Securities : The Convertible Preference Shares issued by CTEI
        - Amount                   : Not exceeding 1,948,555,167 shares (Up to 50% of the CPS issued
                                     this time)
        - Exercise Price           : HKD 0.276 per share or approximately THB 1.143 per share
        - Transaction Value : HKD 537.80 million or approximately THB 2,226.50 million
        - Period of Option : Within September 30, 2010 (Hereof, the Option Agreement
             to Exercise the Right stated that the rights shall be exercised wihin 180 days from the the
                                     date of entering the transaction but no later than September 30,
                                     2010)
        - Completion Date : Completion Date shall be incurred after 30 days but not exceeding
                                     90 days from the exercise date, and the payment shall be in cash.

    1.1.3. The exercise of the Put Option to sell 3,897,110,334 shares of the CPS held by the Company
           and LDI (accounted for 100% of CPS issued this time) to CPH at the exercise price of HKD
           0.248 per share in regards to the conditions in the Option Agreement between the Company,
           LDI and CPH immediately after receiving CPS regardless of CTEI market price consideration.
           The considerations for the CPS will be in cash amounted HKD 966.48 million or approximately
           THB 4,001.24 million.

1.2. Pre- and Post-Transaction Shareholding Structure of CTEI
    1.2.1. Pre-Transaction Shareholding Structure
                                                                   Unit: million shares
                                   Shareholder       Ordinary Shares            %
                             CPH                         6,888.32              75
                             Minority Shareholder        2,296.09              25
                             Total                       9,184.41             100




                                           Page 14
1.2.2. Post-Transaction Shareholding Structure (Including all the CPS)
          1.2.2.1. Post-Transaction Shareholding Structure after changing investment
                                                                                                Unit: million shares
                                                               Convertible             If All CPS are Exercised
            Shareholder        Ordinary Shares       %
                                                            Preference Shares        Ordinary Shares           %
        CPH                       6,888.32          75           1,518.81                8,407.13            57.6
        CPALL                         -             0              35.82                   35.82              0.2
        LDI                           -             0            3,861.29                3,861.29            26.5
        Minority Shareholder      2,296.09          25                 -                 2,296.09           15.7
        Total                     9,184.41          100          5,415.92               14,600.33          100.0

          1.2.2.2. Shareholding Structure if CPALL, LDI, or CPH exercises the option
                                                                                                Unit: million shares
                       If CPALL and LDI exercise the Put Option 100%        If CPH exercise the Call Option 50%
    Shareholder
                        Ordinary Shares                 %                   Ordinary Shares              %
CPH                        12,304.24                  84.3                     10,355.68                70.9
CPALL                           -                      0.0                        35.82                  0.2
LDI                             -                      0.0                      1,912.74               13.1
Minority Shareholder        2,296.09                   15.7                     2,296.09                15.7
Total                      14,600.33                  100.0                    14,600.33               100.0



1.3. Type of Connected Transaction among CPALL, LDI, and CPH
    1.3.1. Share the Same Ultimate Shareholder
           CPG is the ultimate shareholder of CPALL and CPH, and as at May 26, 2010, CPG and
           companies under Charoen Pokphand Group held 45.2% of total paid-up capital in CPALL and
           as at December 31, 2009, CPG indirectly held 100% of total paid-up capital in CPH. In addition,
           LDI is a wholly-owned subsidiary of CPALL. Detail of shareholders' structure diagram is
           illustrated as follows:




                                                 Page 15
CPG


                     100.00%                                    37.20%

              Worth Access                           Charoen Pokphand
              Trading Ltd.                              Foods Plc.
                      100.00%
                                        100.00%                                100.00%

                  CPH                   C.P. Merchandising           Bangkok Produce
                                              Co.,Ltd.               Merchandising Plc.
                                                  25.0%                        2.2%
                     75.00%
                                   18.0%

                  CTEI                                       CPALL
                                                                                          Source: The Company

    1.3.2. Having the Common Director
         - CPALL and CPH have 1 common director: Mr. Dhanin Chearavanont
         - CPALL and CTEI have 4 common directors: Mr. Dhanin Chearavanont,
             Mr. Soopakij Chearavanont, Mr. Narong Chearavanont, and Mr. Umroong Sanphasitvong

1.4. Summary Information of the Comapany
           The Company was established in 1988 by CPG to be a Thai company operating in
     convenience store business under E7-ElevenF trademark licensed from 7-Eleven, Inc. USA. The
     Company opened its first store in Patpong in 1989. Currently, the Company has registered capital of
     THB 4,500,000,000 consisting of common shares of 4,493,148,024 shares with a par value of THB
     1.00.
         On March 31, 2010, there are 5,409 stores of 7-Eleven in Thailand consisting of 2,654 stores in
      Bangkok and suburban area and 2,755 up-country stores. By considering types of stores, there are
      2,848 company-owned stores, 2,199 franchised stores, and 362 sub-area stores.
    1.4.1. Current Board of Directors of the Company consisted of the following:
        1. Mr. Dhanin Chearavanont                 9. Mr. Pittaya Jearavisitkul
        2. Mr. Korsak Chairasmisak                 10. Mr. Tanin Buranamanit
        3. Mr. Piyawat Titasattavorakul            11. Mr. Padoong Techasarintr
        4. Mr. Adirek Sripratak                    12. Mr. Pridi Boonyoung
        5. Mr. Soopakij Chearavanont               13. Mr. Komain Bhatarabhirom
        6. Mr. Narong Chearavanont                 14. Mr. Suphachai Phisitvanich
        7. Mr. Umroong Sanphasitvong               15. Pol. Gen. Kowit Wattana
        8. Mr. Prasert Jarupanich




                                           Page 16
1.4.2. Securities of the Company
              Currently, the Company has registered capital of THB 4,500,000,000 consisting of common
        shares of 4,493,148,024 shares with a par value of THB 1.00.

     1.4.3. List of the first 10 shareholders as at the date of closing share register book (May 26, 2010)
                                   Shareholders                                        No. of Shares      %
1. C.P. Merchandising Co., Ltd.*                                                        1,123,992,200 25.02
2. Charoen Pokphand Group Co., Ltd.*                                                      807,665,500 17.98
3. AMERICAN INTERNATIONAL ASSURANCE COMPANY, LIMITED-DI-LIFE                              327,184,400 7.28
4. STATE STREET BANK AND TRUST COMPANY                                                    269,228,992 5.99
5. CHASE C.S. CENTRAL NOMINEES LIMITED                                                    176,741,415 3.93
6. Thai NVDR Co., Ltd.                                                                    138,408,103 3.08
7. ALBOUYS NOMINEES LIMITED                                                               136,950,500 3.05
8. HSBC (SINGAPORE) NOMINEES PTE LTD                                                      118,594,409 2.64
9. GOVERNMENT OF SINGAPORE INVESTMENT CORPORATION                                         114,072,500 2.54
10. Bangkok Produce Merchandising Plc. *                                                   97,805,200 2.18
11. Others                                                                              1,182,504,805 26.32
;
Reviewed Financial
         Financial Highlights                Audited Financial Statements            Satements for the 1st
         (Unit : THB, million)                                                              Quarter
                                        2007            2008            2009         2009           2010
SG&A                                   29,099.37        31,100.89      28,253.06     6,305.17        7,545.00
EBIT                                       101.45         3,999.63       6,789.58    1,722.86        2,301.55
Interest Expenses                          634.30           505.11            2.47        0.90            0.05
Tax                                       828..82         1,204.90       1,773.97       482.43         624.23
Net Income                               1,460.47         3,301.47       4,992.07    1,246.61        1,675.89
Cash flow from operating                 6,026.97         9.410.03       9,005.39    1,005.44        3,227.39
Cash flow from investing               (3,858.54)       (5,872.67)     (5,338.56)     (732.72)       (798.18)
Cash flow from financing                   (15.97)      (3,807.66)     (2,856.78)      (11.13)            7.72
Net increase (decrease) in cash          2,152.46         (270.31)         810.05       261.60       2,436.93
Effect of changes in exchange rates        (22.34)           84.65         (24.49)        8.58         (15.91)
Current ratio                                 0.62            0.96            0.98        1.01            1.04
D/E                                           7.03            1.38            1.35        1.19            1.23
Gross profit margin (%)                     22.1%           24.0%           26.4%       26.2%           26.5%
Net profit margin (%)                       1.27%           2.55%           4.24%       4.57%           5.01%
ROA (%)                                     3.31%           7.73%         11.80%       12.51%         14.71%
ROE (%)                                   16.34%           25.49%         28.14%       27.37%         32.82%
  Source : The Company


  Summary of Operating Results
   - The Company had continually increased in sales revenue from THB 110,624.93 million in
      2007 to THB 124,082.71 million in 2008. However, after the complete restructuring of its
      investment in hypermarket business on October 31, 2008, the Company deconsolidate
      sales revenue from hypermarket business in the PRC resulting in sales revenue of THB
      117,760.78 million in 2009, which decreased 9.0% from 2008. Nevertheless, sales revenue
      of the Company in for the 1st quarter in 2010 increased from the same peiod of 2009 by
      23.4% or from THB 25,917.83 million to THB 31,981.95 million.
   - The increasing of the Company's sales revenues was resulted from stores expansion of 7-
      Eleven, by increasing 499 stores in 2008 from 4,279 stores to 4,778 stores or an incremental
      of 11.7% and increasing 492 stores in 2009 to 5,270 stores or an incremental of 10.3%. In
      addition, at the end of 1st quarter 2010, there were 497 additional stores comparing to the
      same period of 2009 or from 4,912 stores to 5,409 stores or an incremental of 10.1%
   - Moreover, gross profit margin of the Company has been increased since 2007 from 22.1%
      to 24.0% in 2008 and to 26.4% in 2009 as well as an increase from 26.2% of 1st quarter of
      2009 to 26.5% of 1st quarter of 2010 as a result of the development of merchandise-
      selection system to match with customers' needs.

                                      Page 18
-     The reduction in SG&A in 2009 was resulted from the restructure of investment in
              hypermarket business in the PRC. However, in general, SG&A would vary in the same
              direction with sales revenue and number of stores, as shown in 2008 and 1st quarter of 2010.
        -     As a result, net income had increased from THB 1,460.47 million in 2007 to THB 3,301.47
              million in 2008 and to THB 4,992.07 million in 2009 or an incremental of 126.1% and 51.2%,
              respectively. For the 1st quarter of 2009 and 2010, net income increased from THB 1,246.61
              million to THB 1,675.89 million or an incremental of 34.4%.

       Summary of Financial Status
        - As at March 31, 2010, the Company and its subsidiaries had total assets of THB 45,578.54
           million, which increased 14.4% from March 31, 2009. As at December 31, 2009, the
           Company and its subsidiaries had total assets of THB 44,441.46 million, which increased
           10.7% from December 31, 2008 as a result of the increasing in sales revenue and
           expansion of 7-Eleven stores.
        - As at March 31, 2010, the Company and its subsidiaries had total liabilities of THB
           25,154.44 million, which increased 16.3% from March 31, 2009. As at December 31, 2009,
           the Company and its subsidiaries had total liabilities of THB 25,504.92 million, which
           increased 9.7% from December 31, 2008 as a result of increase in sales revenue and
           expansion of 7-Eleven stores.
        - As at March 31, 2010, the Company and its subsidiaries had shareholders' equities of THB
           20,424.10 million, increased 12.1% from March 31, 2009. As at December 31, 2009, the
           Company and its subsidiaries had shareholders' equities of THB 18,936.54 million,
           increased 12.1% from December 31, 2008 as a result of continual profitable performance.

1.5. Summary Information of CPH
    1.5.1. Business Operation
           CPH operates as an investment holding company by investing in hypermarket business in the
           PRC.
    1.5.2. Shareholder (as at December 31, 2009)
           CPH has only one shareholder, Worth Access Trading Limited, holding 159.25 million shares
           with par value per share at USD 1.00.
    1.5.3. Board of Directors of CPH as at December 31, 2009 consisted of the following
            1. Mr. Dhanin Chearavanont                4. Mr. Thirayut Phitya-Isarakul
           2. Mr. Sumet Jiaravanon                    5. Mr. Veerawat Kanchanadul
           3. Mr. Min Tieanworn
            Source : The Company


                                          Page 19
1.5.4. Financial Highlights I Company Only
                         Financial Highlights
                                                          2007      2008          2009
                         (Unit : USD, million)
       Cash and cash equivalents                           2.79      0.13          1.19
       Short-term loans to and accrued interest income     0.21     2.00          2.62
       Other account receivable                           36.67     39.90         44.57
       Total current assets                               39.67     42.03         48.37
       Investment in subsidiaries                        162.40    234.55        349.58
       Total non-current assets                          162.40    234.55        349.58
       Total assets                                      202.07    276.58        397.96
       Short-term borrowing                               2.96     60.95          68.18
       Total current liabilities                           0.13      3.98         17.45
       Total liabilities                                   3.09     64.93         85.65
       Authorized and fully paid-up capital              149.25    159.25        159.25
       Revaluation increase (decrease) from changes in
                                                          16.90    (45.23)       69.58
       available-for-sale investment valuation
       Retained earnings (deficit)                        32.83     97.64         83.48
       Total shareholders' equity                         198.97   211.66        312.31
       Total revenues                                      0.00     69.51          0.21
       Net income (loss)                                  (0.13)    64.81        (14.16)
       Net profit margin (%)                               n.a.    93.24%     (6,754.96%)
       ROA (%)                                           (0.07%)   23.43%       (3.56%)
       ROE (%)                                           (0.07%)   30.62%       (4.53%)
     Source: The Company
     Considering from the company only financial statement of CPH, the total assets and
     shareholders' equity were continually increased by CPH's investment. As at December 31,
     2009, CPH had total assets and shareholders' equity of USD 397.96 million and USD 312.31
     million respectively or approximately THB 12,877 million and THB 10,105 million respectively.
     For operating results from 2007 to 2009, CPH as a holding company, generated revenues from
     dividend income or sale of investment, In 2008, CPH recorded total revenues of USD 69.51
     million or THB 2,249 million and net profit of USD 64.81 million or approximately THB 2,097
     million but, in 2007 and 2009, CPH recorded net loss of USD 0.13 million and USD 14.16
     million respectively or equivalent to THB 4 million and THB 458 million, respectively.
     Althought total revenues and operating results of CPH would rely heavily on its subsidiaries,
     which varied in the past 3 years, its financial status at the end of 2009 demonstrates
     shareholders' equities of USD 312.31 million or approximately THB 10,105 million with low debt
     to equity ratio of 0.27 times. Having CPG as a major shareholder, CPH has capability to
     expand its investments from its own equity, major shareholders and external loan.



                                        Page 20
1.6. Summary Information of CTEI
     CTEI is a company registered in the Cayman Islands and listed on the HKSE with current authorized
     capital of HKD 480,000,000 and paid-up capital of 10,703,221,485 shares consisting of ordinary
     shares of 9,184,414,410 shares with a par value of HKD 0.02 and convertible preference shares of
     1,518,807,075 shares with a par value of HKD 0.02.

    1.6.1. Type of Business
         CTEI has operated its business as an investment holding company, which invests mostly in
      hypermarket business named ELotus SupercenterF. Lotus Supercenter currently operates a total of
      45 stores: 10 stores in the north, 21 stores in the central, and 14 stores in the south of the PRC. In
      addition, CTEI also owns 4 distribution centers to support Lotus Supercenter's operation.

        Location and Number of Stores
                      Region                                City/ State                No. of Stores
          Northern region                       Beijing, Qingdao, Xian, Zhengzhou           10
          Central region                          Shanghai, Nantong, Kunshan                21
          Southern region                         Guangzhou, Shantou, Foshan                14
          Total                                                                             45
         The 4 distribution centers enable Lotus Supercenter to manage inventory, order supply, and
     distribute product efficiently, as well as facilitate distributors and reduce transportation costs. The 4
     distribution centers of Lotus Supercenter consist of:
         Location of the Distribution Centers
                      Location                        Product Type               No. of Stores
                                                                                  Supported
          Shanghai Dry                             Goods and dry food                 26
          Shanghai Fresh                              Fresh food                      26
          Beijing Dry                              Goods and dry food                  5
          Guangzhou Dry                            Goods and dry food                 14
    1.6.2. Retail Business Industry in the People's Republic of China
                       With the highest population in the world of over 1,300 million people and the
             support from the PRC's Government, the country's economy continually expands and
             consequently enables the GDP (Gross Domestic Product) to grow with increasing rates.
                         Year                           2005           2006            2007         2008       2009
          Population (People, million)                1,307.56       1,314.48        1,321.29     1,328.50   1,336.41*
          Population Growth Rate (%)                    0.59           0.53            0.52         0.55        0.60
          GDP (RMB, 100 million)                      183,217        211,923         257,306      300,670     335,353
          GDP Growth Rate (%)                           10.4           11.6            13.0          9.0         8.7
           Source: National Bureau of Statistic, PRC
           * Estimated by United Nations Department of Economic and Social Affairs



                                                 Page 21
Economic expansion and new styles of business operation from foreign countries
affect consumers' demands and behaviors. Consumers' spending behavior in modern trade
becomes favorable, as evidence in the increasing Total Retail Sale of Consumer Goods and
Retail Price Index.

                   Year                      2005        2006      2007         2008         2009
Total Retail Sale of Consumer Goods         67,176      76,410    89,210       108,487      125,343
(RMB, 100 million)
Growth Rate (%)                                 12.9    13.7       16.8         21.6         15.5
Retail Price Index (%)                          103.8   101.1      100.8        101.3        98.8
Source: National Bureau of Statistic, PRC


             According to data illustrated in the table above, retail business has expanded with
substantial growth rate, mainly driven by middle-class people. Besides, the new style of
business operation partially attracts consumers to purchase products from modern trade than
the traditional ones.
            In addition to the retail business expansion in main cities such as Beijing, Shanghai,
Guangzhou, and Shenzhen, modern trade begins to expand in other cities since there still are
many consumers in unreachable areas, enabling the retail business to continually expand.
             Although retail business still has high potential growth from the factors stated
above, the industry is highly competitive due to the enter of foreign entrepreneurs after the
PRC's Government has relaxed the restrictions on foreign entrepreneurs. Therefore, major
foreign entrepreneurs such as Wal-Mart, Carrefour, and Tesco, etc began to invest in the
country, increasing the number of competitors as well as the necessary adjustment to be
competitive.




                                      Page 22
1.6.3. Shareholding Structure in Subsidiaries of CTEI as at March 31, 2010
                                                         CTEI


          100%           100%             100%               100%           100%              100%            100%
    Chia Tai       Chia Tai         Chia Tai           Chia Tai                                           Union
    Trading        Trading          Trading            Trading                                           Growth
                                                                         CTDI              YSI
   (Qingdao)     (Zhengzhou)       (Xian) Co.,       (Beijing) Co.,                                    Investments
    Co., Ltd.      Co., Ltd.           Ltd.               Ltd.                                             Ltd.
                                                                             46%                 54%
                                                                                   SLS                  Southern
                 Northern region : 10 branches                                                         region: 14
                                                                      Central region : 21 branches     branches



1.6.4. The Board of Directors of CTEI as at March 31, 2010 consist of the following :
    1. Mr. Dhanin Chearavanont                 10. Mr. Robert Ping-Hsien Ho
    2. Mr. Soopakij Chearavanont               11. Mr. Meth Jiaravanont
    3. Mr. Narong Chearavanont                 12. Mr. Nopadol Chiaravanont
    4. Mr. Tse Ping                            13. Mr. Chatchaval Jiaravanon
    5. Mr. Michael Ross                        14. Mr. Supachai Chearavanont
    6. Mr. Yang Xiaoping                       15. Mr. Kachorn Chiaravanont
    7. Mr. Li Wen Hai                          16. Mr. Viroj Sangsnit
    8. Mr. Umroong Sanphasitvong               17. Mr. Chokchai Kotikula
    9. Mr. Zheng Mengyin                       18. Mr. Cheng Yuk Wo

1.6.5. Securities of CTEI
       Currently, CTEI has registered capital of HKD 480 million with current paid-up capital of HKD
       214.07 million.

                                                       Registered Capital                   Paid-up Capital
                                                 Share, million    HKD, million     Share, million   HKD, million
          Ordinary Shares                         18,000.00           360.00          9,184.41          183.69
          Convertible Preference Shares            6,000.00           120.00          1,518.81           30.38
          Total                                   24,000.00           480.00         10,703.22          214.07


1.6.6. Business Restructuring of CTEI
       As at October 31, 2008, CTEI went through business restructuring to reorganize and to expand
       its hypermarket business as details below:


                                          Page 23
1. Acquired all of the equity interest of YSI and CTDI who were the shareholders of SLS
           (SLS operates 19 performing stores of Lotus Supercenter) from the Company, LDI, CPH,
           and CRF including the acquisition of loan interest in SLS that was invested through YSI.
           The considerations were the ordinary shares, convertible preference shares, and
           convertible bonds, which amounted to HKD 2,814.6 million. From this transaction, the
           Company and LDI received the Convertible Bonds with value of HKD 891.17 million.
       2. Disposed 11 non-performing stores of Lotus Supercenter to CPH and received HKD
           433.4 million in return.
       3. Issued additional convertible bonds amounted HKD 156.38 million which were
           subscribed by LDI.
                 As a result of the restructuring, CTEI owns a total of 45 stores of Lotus Supercenter
          in the northern, central, and southern regions of the PRC.

1.6.7. Consolidated Financial Highlights
                                                       Audited Financial Statements
          Financial Highlights
          (Unit: HKD, Million)
                                           2006           2007             2008        2009
 Current assets                               947.82       1,225.67        2,789.10    2,487.73
 Non-current assets                        1,511.28        1,239.86        5,656.66    5,472.54
 Total assets                              2,459.10        2,465.53        8,445.76    7,960.27
 Current liabilities                       1,692.35        2,001.18        6,487.92    5,922.31
 Non-current liabilities                      836.13         783.72        1,518.50    1,884.80
 Total liabilities                         2,528.48        2,784.90        8,006.42    7,807.11
 Authorized and fully paid-up capital         119.93         119.93           214.06      214.06
 Total shareholders' equity                  (69.38)       (319.37)           439.34      153.16
 Sales revenue                             3,482.84        4,390.66        6,277.12    9,967.36
 Cost of goods sold                        3,104.11        3,651.65        5,115.21    8,099.03
 Gross profit                                 378.73         739.01        1,161.92    1,868.33
 SG&A                                      1,056.25        1,200.01        1,445.39    2,098.59
 Operating profit (loss)                    (677.53)       (461.00)         (283.48)    (230.26)
 Other revenues                               208.82         175.35           411.22      352.98
 EBIT                                       (502.32)       (213.15)           127.74      122.72
 Convertible Bonds interest expense                -               -           39.93      190.19
 Other financial costs                         62.46           92.97          129.76      176.02
 Net income (loss)                          (354.58)       (304.71)          (45.57)    (267.51)
 Cash flow from operating                    (95.53)       (211.91)          (58.06)      534.45
 Cash flow from investing                      28.40         (40.15)        (231.16)       28.77
 Cash flow from financing                      14.07         349.58           368.56    (501.61)
 Net increase (decrease) in cash             (53.06)           97.53           79.33       61.62


                                        Page 24
Audited Financial Statements
         Financial Highlights
         (Unit: HKD, Million)
                                        2006            2007             2008         2009
Effect of changes in exchange rates          4.52             7.63           13.62         0.47
Current ratio                                0.56             0.61            0.43         0.42
D/E                                       (36.44)           (8.72)           18.22        50.97
Gross profit margin (%)                    10.9%            16.8%           18.5%        18.7%
Net profit margin (%)                    (9.60%)          (6.67%)         (0.68%)      (2.59%)
ROA (%)                                 (14.42%)         (12.36%)         (0.54%)      (3.36%)
ROE (%)                                       n.a.             n.a.      (10.37%)    (174.66%)
Interest coverage ratio                    (0.53)           (1.28)            0.66         4.04
Leverage ratio                             (0.11)           (0.47)          (0.07)         0.35


  Summary of Operating Results
   - After the restructuring by acquiring 19 performing stores and disposing 11 non-performing
      stores at the end of 2008, CTEI's revenues and operations had improved. As at the end of
      2009, which was the year CTEI fully recognized operations from the restructuring, sales
      revenue increased substantially by 58.79% from the previous year.
   - In addition to the revenue increase after the restructuring, CTEI's gross profit margin also
      increased from 16.8% in 2007 to 18.5% in 2008 and to 18.7% in 2009 due to the acquisition
      of performing stores and disposal of non-performing stores.
   - Besides the increases in sales revenue and gross profit margin since 2008, CTEI's earning
      before interest and tax (EBIT) turned positive compared to net loss of HKD 213.15 million in
      2007. CTEI's EBIT in 2008 and 2009 were HKD 127.74 million and HKD 122.72 million
      respectively.
   - Even though CTEI began to make operating profits, it still recorded net loss in 2008 of HKD
      45.57 million, improved by 85.04% from 2007, and in 2009 recorded net loss of HKD 267.51
      million, or an increased loss of 487.03% from year 2008,.

  Summary of Financial Status
   - The restructuring in 2008 increased CTEI' s total assets and liabilities substantially; as at
      December 31, 2009, CTEI had total assets of HKD 7,960.27 million and total liabilities of
      HKD 7,807.11 million.
   - CTEI shareholders' equity increased from HKD (319.37) million as at December 31, 2007 to
      HKD 439.34 million as at December 31, 2008 as a result of the restructuring through the
      issuances of ordinary shares, the Convertible Preference Shares, and the Convertible Bond



                                      Page 25
and decreased to HKD 153.16 million as at December 31, 2009 as a result of net loss in
    2009.
-   Although the restructuring enabled CTEI's operation to improve, CTEI still recorded net loss
    due to its highly financial leverage which resulted in substantial amount of interest expenses,
    affecting CTEI shareholders' equity; the debt to equity ratio was 50.97 times as at December
    31, 2009. This shows that CTEI has high leverage risk, which might lead to risk exposure on
    obtaining additional loan for business expansion or refinance in the future.

Liquidity
- Even though CTEI's net cash flow was positive since 2007, the main source of cash came
    from loan financing which increased CTEI's liabilities as well as the burden for debt
    repayment in the future. In addition, CTEI has to depend on loans from financial institutions
    for debt repayment since its operating and investing activities have been generating cash
    outflows. As a result, CTEI has high financial leverage as well as a substantial amount of
    interest expenses each year as shown in 2009, which CTEI started to repay bank loans.
    From these factors, efficient debt management is highly important for CTEI's liquidity and
    financial status.




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2. Reasonableness of the Transaction
   2.1. Objectives and Necessities of the Transaction
             Even though CTEI's operation was continually improved in terms of sales revenue, gross profits,
        operating profits, and EBIT, CTEI still recorded net loss due to substantial interest expenses as a
        result of its highly leverage financing, especially interest expenses from the CB, affecting CTEI
        shareholders' equity. The Company and LDI as the CB holders might face with the repayment risk,
        on the extension of redeemable period from October 31, 2011 to October 31, 2013, and the credit
        risk when the CB is at maturity.
             Moreover, the conversion from the CB to ordinary shares of CTEI is being restricted by the
        requirement of public float ratio which CTEI currently maintain its public float of 25%. Therefore
        CTEI cannot issue common shares for the conversion of the CB held by the Company and LDI
        because the Company and LDI are considered as a same group of major shareholders.
             In order to reduce the aforesaid risk, the Company and LDI propose to change the investment
        from the CB to the CPS. In addition to reduce CTEI's interest expenses, the change in investment
        would enable CTEI to generate positive net income in the future which might result in the increase
        of CTEI's share price and the Company's and LDI's investment values in the future.
             Furthermore, the Company and LDI will enter into the Option Agreement for the rights to sell
        and purchase the CPS with CPH including the exercise of the Put Option to sell the whole amount
        of CPS in regard to the Option Agreement with an objective to increase the investment's liquidity
        and to reduce risk from volatility in value of CTEI shares.
             Therefore, the Option Agreement is important to the Company in relation to the change of
        investment since the Option Agreement would increase liquidity and reduce the risk of investment
        of the Company and LDI. Since there is no secondary market for trading the CPS, if the Company
        would like to offer the CPS to other parties, the Company might have to offer at significant discounts
        even though the other parties might be strategic business partners or minority shareholders or even
        through the private placement or public offering due to the larger number of shares. Moreover, the
        Option Agreement, which would enable the Company and LDI to offer the CPS in whole to CPH,
        also enables the Company and LDI to have alternatives on continually hold the investment or
        permanently exit the investment in CTEI. With all the reasons stated, the change in investment
        together with the Put Option would benefit the Company and LDI rather than doing each of the
        transaction separately.
             Besides the advantage of exercising the Put Option to sell the whole amount of the CPS to CPH
        would not only provide the alternative for the Company and LDI to exit the investment, it would also
        guarantee the Company and LDI for the specific considerations to be received.



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Nevertheless, the exercising of the Put Option to sell the whole amount of the CPS would
      ensure the Company and LDI to receive immediate considerations and limit risk for the Company
      and LDI as well as eliminate risk from conflict of interest arising from granting the authority to
      exercise the option to the management.

2.2. Advantages and Disadvantages of doing or not doing the Transaction
     The IFA considers advantages and disadvantages of doing or not doing the Transaction with
     conclusion as follows:
            Advantages of the Change of Investment and Entering into the Option Agreement
            1. Reduce credit risk
                     Due to its financial status of highly financial leverage, CTEI has a substantial
                amount of interest expenses which might affect its capability to repay debt of the CB in
                the future. The entering of the Option Agreement would help the Company and LDI to
                reduce the repayment risks on the extension of repayment period and the credit risk
                when the CB matures. Since the Company has an option to divest wholly or partially
                during the exercise period under the Option Agreement.
            2. Increase the investment's liquidity
                     Even though both the CPS and the CB do not have the secondary market to trade,
                the Option Agreement with CPH, would increase the investment's liquidity. In addition,
                the similar features of the CPS to that of the ordinary shares (with exceptions on the
                rights to attend shareholder's meeting and vote) as well as the right to convert partially,
                allow higher liquidity on the CPS. Moreover, the CPS could be converted to ordinary
                shares immediately after offering to external parties. With all the reasons stated, the
                liquidity of Company's and LDI's investment would be increased after entering the
                Transaction.
            3. Reduce risk of deteriorate investment value from sale of the CB to other third parties
                     Since there is no secondary market for the CB, if the Company decides to dispose
                the CB to other third parties, the Company might have to offer a significant discount
                comparing to face value or fair value depending upon negotiation with potential buyer
                and CTEI's financial performance. According to the past transaction, the CB was
                traded between 15% and 42% discount from its face value. Thus, if the Company and
                LDI change its investment from the CB to the CPS together with the entering into the
                Option Agreement would help reduce risk from the uncertainty of the investment value
                to be received.




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