CHIA TAI ENTERPRISES INTERNATIONAL LIMITED

Transcription

1 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION If you are in any doubt as to any aspect of this circular, you should consult a stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser. If you have sold or transferred all your securities of Chia Tai Enterprises International Limited, you should at once hand this circular, together with the enclosed form of proxy, to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee. The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular. CHIA TAI ENTERPRISES INTERNATIONAL LIMITED (Incorporated in the Cayman Islands with limited liability) (Stock Code: 121) MAJOR AND CONNECTED TRANSACTIONS DISPOSAL OF A 75% INTEREST IN FORTUNE (SHANGHAI) LIMITED AND ACQUISITION OF A 10% INTEREST IN LOTUS-CPF (PRC) INVESTMENT COMPANY LIMITED CONTINUING CONNECTED TRANSACTIONS AND THE SUPPLEMENTAL AGREEMENTS Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders A letter from the Independent Board Committee to the Independent Shareholders is set out on page 26 of this circular and a letter of advice from Baron to the Independent Board Committee and the Independent Shareholders is set out on pages 27 to 48 of this circular. A notice convening the extraordinary general meeting of Chia Tai Enterprises International Limited to be held at 53rd Floor, Bank of China Tower, 1 Garden Road, Hong Kong on Thursday, 22nd December, 2005 at 9:45 a.m. is set out on pages 147 to 151 of this circular. Whether or not you are able to attend the meeting, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or any adjourned meeting should you so wish. 7th December, 2005

2 CONTENTS Page Definitions Letter from the Board Introduction Major and Connected Transactions Continuing Connected Transactions The Supplemental Agreements Information on Fortune Shanghai, Lotus-CPF and the other parties Reasons for the Disposal, the Acquisition and the Continuing Connected Transactions Financial Effects Implications under the Listing Rules Financial and Trading Prospects EGM Recommendation Letter from the Independent Board Committee Letter from Baron Appendix I Financial Information of the Group Appendix II Accountants Report on Lotus-CPF Appendix III Pro Forma Statement of the Unaudited Consolidated Balance Sheet of the Group immediately after completion of the Acquisition and the Disposal Appendix IV Valuation Report of Fortune Shanghai Appendix V General Information Notice of EGM

3 DEFINITIONS In this circular, unless the context otherwise requires, the following expressions shall have the following meanings: Acquisition Announcement associate(s) Baron Board Business Day Chia Tai Food (Shanghai) Chia Tai Food (Shanghai) Agreement Chia Tai Lotus (Guangdong) Chia Tai Ningbo Chia Tai Ningbo Agreement the proposed purchase of the Lotus-CPF Sale Shares by Union Growth pursuant to the terms and conditions of the Lotus-CPF Agreement the announcement issued by the Company dated 16th September, 2005 has the meaning ascribed to it under the Listing Rules Baron Asia Limited, a licensed corporation under the SFO permitted to carry out Type 6 regulated activity (as defined in the SFO) which has been appointed as the independent financial adviser to the Independent Board Committee and the Independent Shareholders the board of Directors a day (other than a Saturday or Sunday or a day on which typhoon signal no. 8 or above or a black rainstorm warning is hoisted in Hong Kong) when commercial banks are open for general banking business in Bangkok, Thailand and Hong Kong ( ) (Chia Tai Food Product (Shanghai) Co. Ltd.), a foreign-owned enterprise established in the PRC and a subsidiary of CPP the purchase agreement entered into between Guangzhou Lotus and Chia Tai Food (Shanghai) on 9th September, 2005 in relation to the purchase, on an ongoing basis, of packaged food and poultry products by Guangzhou Lotus from Chia Tai Food (Shanghai) Chia Tai-Lotus (Guangdong) Investment Co. Ltd., a company incorporated in the British Virgin Islands; 10% and 90% of its issued share capital are held by Union Growth and Lotus-CPF, respectively (Ningbo Chia Tai Cereal and Oil Industrial Co., Ltd.), a wholly foreign-owned enterprise established in the PRC and a subsidiary of CPP the purchase agreement entered into between Guangzhou Lotus and Chia Tai Ningbo on 9th September, 2005 in relation to the purchase, on an ongoing basis, of edible oil by Guangzhou Lotus from Chia Tai Ningbo 1

4 DEFINITIONS Chia Tai Qingdao (Qingdao Chia Tai Company Limited), a wholly foreign-owned enterprise established in the PRC and a subsidiary of CPP Chia Tai Qingdao Agreement the purchase agreement entered into between Guangzhou Lotus and Chia Tai Qingdao on 9th September, 2005 in relation to the purchase, on an ongoing basis, of chicken and processed meat by Guangzhou Lotus from Chia Tai Qingdao Company Chia Tai Enterprises International Limited ( ), a company incorporated in the Cayman Islands whose shares are listed and traded on the Main Board of the Stock Exchange connected person has the meaning ascribed to it under the Listing Rules Continuing Connected Transactions transactions, on an ongoing basis, under the Master Purchase Agreements, the Shanghai Lotus Purchase Agreement and the Supplemental Agreements CPG Charoen Pokphand Group Co., Ltd., a company incorporated in Thailand CPP C.P. Pokphand Co. Ltd., a company incorporated in Bermuda whose shares are listed and traded on the Main Board of the Stock Exchange C.P. Seven Eleven C.P. Seven Eleven Public Company Limited, a company incorporated in Thailand whose shares are listed on the Stock Exchange of Thailand CPP Subsidiaries Chia Tai Food (Shanghai), Chia Tai Qingdao and Chia Tai Ningbo credit term the time period over which credit is provided Directors the directors of the Company Disposal the proposed sale of the Fortune Sale Shares, the assignment of the Fortune Shareholder s Loan and the novation of the Indebtedness by the Company pursuant to the terms and conditions of the Fortune Shanghai Agreement EGM an extraordinary general meeting of the Company to be held to approve, among other things, the Disposal, the Acquisition, and the terms and the related annual caps of the Continuing Connected Transactions 2

5 DEFINITIONS First Supplemental Agreement Fortune Sale Shares Fortune Shanghai Fortune Shanghai Agreement Fortune Shareholder s Loan Group Guangzhou Lotus HK$ Hong Kong Indebtedness Independent Board Committee Independent Shareholders Latest Practicable Date the supplemental agreement entered into between Guangzhou Lotus and Shanghai Lotus on 25th November, 2005 to supplement the terms of the Shanghai Lotus Supply Agreement 112,500 ordinary shares of par value US$1.00 each in the capital of Fortune Shanghai currently held by the Company, representing 75% of the issued share capital of Fortune Shanghai Fortune (Shanghai) Limited, a company incorporated in the Cayman Islands and a 75% subsidiary of the Company the agreement dated 9th September, 2005 entered into between the Company and CPG in relation to the Disposal the loan in the original (and currently outstanding) principal amount of US$13,806,000 (approximately HK$108 million) advanced by or on behalf of the Company to Fortune Shanghai the Company and its subsidiaries (Guangzhou Lotus Supermarket Chain Store Company Limited), a company established in the PRC and a wholly-owned subsidiary of Chia Tai Lotus (Guangdong) Hong Kong dollars, the lawful currency of Hong Kong the Hong Kong Special Administrative Region of the PRC the loan in the original (and currently outstanding) principal amount of US$22,138,000 (approximately HK$173 million) advanced by or on behalf of Fortune Shanghai to the Company the independent committee of the board of directors of the Company comprising Mr. Viroj Sangsnit, Mr. Chokchai Kotikula and Mr. Cheng Yuk Wo, independent non-executive Directors which has been established to advise the Independent Shareholders Shareholders other than Mr. Dhanin Chearavanont and his associates 2nd December, 2005, being the latest practicable date prior to the printing of this circular for ascertaining certain information referred to in this circular 3

6 DEFINITIONS Listing Rules Lotus-CPF Lotus-CPF Agreement Lotus-CPF Sale Shares Master Purchase Agreements New Annual Caps Property PRC RMB Second Supplemental Agreement SFO Shanghai Lotus the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited Lotus-CPF (PRC) Investment Company Limited, a company incorporated in the British Virgin Islands which is held as to 50% by Union Growth, 40% by C.P. Merchandising Co., Ltd. and 10% by CPG the agreement dated 9th September, 2005 entered into between Union Growth and CPG in relation to the Acquisition 9,740,000 ordinary shares of par value US$1.00 each in the capital of Lotus-CPF currently held by CPG, representing 10% of the issued share capital of Lotus-CPF Chia Tai Food (Shanghai) Agreement, Chia Tai Qingdao Agreement, Chia Tai Ningbo Agreement and Shanghai Lotus Supply Agreement the new annual caps for the transactions under each of the Master Purchase Agreements and the Shanghai Lotus Purchase Agreement, respectively to be proposed to the Independent Shareholders for approval at the EGM 54 residential units in Fortune Garden, a commercial podium and 2 plots of land situated in Shanghai, owned by (Shanghai Fortune World Development Co., Ltd.), and 19 residential units in Fortune Garden owned by Fortune Shanghai the People s Republic of China (for the purpose of this circular, excluding Taiwan, Hong Kong, and the Macau Special Administrative Region) Renminbi, the lawful currency of the PRC the supplemental agreement entered into between Guangzhou Lotus and Shanghai Lotus on 25th November, 2005 to supplement the terms of the Shanghai Lotus Purchase Agreement Securities and Futures Ordinance (Chapter 571 Laws of Hong Kong) (Shanghai Lotus Supermarket Chain Store Co., Ltd.), a wholly foreign-owned enterprise established in the PRC and a subsidiary of C.P. Seven Eleven 4

7 DEFINITIONS Shanghai Lotus Purchase Agreement the supply agreement entered into between Guangzhou Lotus and Shanghai Lotus on 9th September, 2005 in relation to the supply, on an ongoing basis, of food, electrical appliances and clothing by Guangzhou Lotus to Shanghai Lotus, as supplemented by the Second Supplemental Agreement Shanghai Lotus Supply Agreement the purchase agreement entered into between Guangzhou Lotus and Shanghai Lotus on 9th September, 2005 in relation to the purchase, on an ongoing basis, of packaged food, beverage and condiments by Guangzhou Lotus from Shanghai Lotus, as supplemented by the First Supplemental Agreement Share(s) share(s) of HK$0.02 each in the issued share capital of the Company Shareholders holders of shares of the Company Share Option Scheme the share option scheme adopted by the Company in 2002 (details of which were set out in the circular dated 16th May, 2002 of the Company (formerly known as Hong Kong Fortune Limited ) pursuant to which, among others, directors, employees and holder of any securities of any member of the Group or any controlling shareholder (as defined under the said scheme) or companies controlled by the controlling shareholder (as defined under the said scheme) are eligible to participate in the scheme Stock Exchange The Stock Exchange of Hong Kong Limited Supplemental Agreements the First Supplemental Agreement and the Second Supplemental Agreement Union Growth Union Growth Investments Limited, a company incorporated in the British Virgin Islands and a wholly-owned subsidiary of the Company U.S.A. United States of America US$ United States dollars, the lawful currency of U.S.A. Translations of RMB into HK$ and US$ into HK$ are made in this circular at the following respective exchange rates for illustration purposes only. No representation is made that any amounts in RMB or US$ could have been or could be converted at those rates or at any other rates: RMB1.00 US$1.00 HK$0.96 HK$7.80 5

8 LETTER FROM THE BOARD CHIA TAI ENTERPRISES INTERNATIONAL LIMITED (Incorporated in the Cayman Islands with limited liability) (Stock Code: 121) Directors: Registered office: Mr. Soopakij Chearavanont (Chairman) P.O. Box 309 Mr. Tse Ping (Vice Chairman) Grand Cayman Dr. Lee G. Lam (Vice Chairman and Cayman Islands Chief Executive Officer) British West Indies Mr. Narong Chearavanont Mr. Supachai Chearavanont Principal place of business Mr. Chatchaval Jiaravanon in Hong Kong: Mr. Kachorn Chiaravanont 53rd Floor Mr. Meth Jiaravanont Bank of China Tower Mr. Yang Xiaoping 1 Garden Road Mr. Umroong Sanphasitvong Hong Kong Mr. Robert Ping-Hsien Ho Mr. Viroj Sangsnit* Mr. Chokchai Kotikula* Mr. Cheng Yuk Wo* * Independent non-executive Directors To the Shareholders Dear Sir or Madam, INTRODUCTION 6 7th December, 2005 MAJOR AND CONNECTED TRANSACTIONS DISPOSAL OF A 75% INTEREST IN FORTUNE (SHANGHAI) LIMITED AND ACQUISITION OF A 10% INTEREST IN LOTUS-CPF (PRC) INVESTMENT COMPANY LIMITED CONTINUING CONNECTED TRANSACTIONS AND THE SUPPLEMENTAL AGREEMENTS On 16th September, 2005, the Directors announced in the Announcement that, among other things, the Company had agreed to dispose of its 75% interest in Fortune Shanghai to CPG pursuant to the

9 LETTER FROM THE BOARD Fortune Shanghai Agreement and to acquire a 10% interest in Lotus-CPF from CPG pursuant to the Lotus-CPF Agreement. Further details of the Disposal and the Acquisition are set out in the section headed Major and Connected Transactions below. On the basis of the percentage ratios represented by the Group s commitment under each of the Fortune Shanghai Agreement and the Lotus CPF Agreement calculated in accordance with Rule of the Listing Rules, the Disposal and the Acquisition each constitutes a major transaction for the Company pursuant to Rule of the Listing Rules. As CPG is an associate of Mr. Dhanin Chearavanont, a substantial shareholder of the Company who, through a company in which he has a 50.86% shareholding interest, is interested in approximately 61.71% in aggregate of the issued share capital of the Company, CPG is a connected person of the Company for the purpose of Rule 14A.11 of the Listing Rules. Accordingly, the Disposal and the Acquisition each also constitutes a connected transaction for the Company, and each is conditional upon the approval by the Independent Shareholders at the EGM. Mr. Dhanin Chearavanont and his associates are required to abstain from voting at the EGM on the relevant resolutions. The Company also announced in the same announcement that, among other things, Guangzhou Lotus had entered into a number of master purchase agreements with each of the CPP Subsidiaries and Shanghai Lotus, respectively in respect of the purchase of merchandise including packaged food, poultry products, chicken and processed meat, edible oil, beverage and condiments. On the same date, Guangzhou Lotus also entered into the Shanghai Lotus Purchase Agreement with Shanghai Lotus in respect of the supply of merchandise including food, electrical appliances and clothing to Shanghai Lotus. The type of merchandise supplied under the Shanghai Lotus Supply Agreement and the Shanghai Lotus Purchase Agreement were subsequently expanded. Details of the Supplemental Agreements are set out in the paragraph headed The Supplemental Agreements below. Guangzhou Lotus, being a subsidiary of Lotus-CPF, will become a subsidiary of the Company upon completion of the Lotus-CPF Agreement. The CPP Subsidiaries and Shanghai Lotus are associates of Mr. Dhanin Chearavanont, a substantial shareholder of the Company, and therefore are connected persons of the Company for the purpose of Rule 14A.11 of the Listing Rules. Accordingly, transactions entered into with Guangzhou Lotus under the Master Purchase Agreements and the Shanghai Lotus Purchase Agreement, respectively will, upon completion of the Lotus-CPF Agreement, constitute continuing connected transactions for the Company under the Listing Rules which, on an aggregate basis, will require the approval of the Independent Shareholders at the EGM and be the subject of advice from the Independent Board Committee and the fairness opinion of Baron. Mr. Dhanin Chearavanont and his associates are required to abstain from voting at the EGM on the relevant resolutions. If the Lotus-CPF Agreement fails to be completed, Guangzhou Lotus will not become a subsidiary of the Company and none of the said transactions will constitute a continuing connected transaction for the Company, and therefore will not require the Independent Shareholders approval. On 5th December, 2005, the Company announced the details of the New Annual Caps and the Supplemental Agreements to provide revised information to the Shareholders after publication of the Announcement. The same information is set out in the paragraphs headed Shanghai Lotus Supply Agreement, Shanghai Lotus Purchase Agreement, New Annual Caps and The Supplemental Agreements, respectively below. 7

10 LETTER FROM THE BOARD The purpose of this circular is to provide you with details of (1) the Disposal, the Acquisition, and the terms and the related annual caps of the Continuing Connected Transactions; (2) a letter from Baron containing its advice to the Independent Board Committee and the Independent Shareholders; (3) the recommendation of the Independent Board Committee to the Independent Shareholders; (4) financial information relating to the Group; (5) financial information on Lotus-CPF; (6) a pro forma statement of the unaudited consolidated balance sheet of the Group immediately after completion of the Acquisition and the Disposal; and (7) notice to convene the EGM. I. MAJOR AND CONNECTED TRANSACTIONS A. THE FORTUNE SHANGHAI AGREEMENT Date: 9th September, 2005 Parties: (i) the Company (as vendor) (ii) CPG (as purchaser) Assets to be disposed of Pursuant to the terms of the Fortune Shanghai Agreement, the Company agreed to sell, and CPG agreed to acquire, the Fortune Sale Shares, to assign the Fortune Shareholder s Loan and to assume the repayment obligations of the Company under the Indebtedness. There are no provisions in the Fortune Shanghai Agreement which impose any subsequent transfer restriction on the Fortune Sale Shares following completion of the Fortune Shanghai Agreement. Consideration The total consideration for the acquisition of the Fortune Sale Shares and the assignment of the Fortune Shareholder s Loan of US$52,700,000 (approximately HK$411 million) shall include the assumption by CPG of the Company s repayment obligations under the Indebtedness of US$22,138,000 (approximately HK$173 million). The payment of the above total consideration by CPG, has been agreed among CPG, the Company and Union Growth to be partially off-set by the consideration to be received by CPG from Union Growth (a wholly-owned subsidiary of the Company) of US$8,750,000 (approximately HK$68 million) under the Lotus-CPF Agreement. Further details of which are set out in the section headed The Lotus-CPF Agreement below). As a result, a net amount of US$43,950,000 (approximately HK$343 million) shall be payable by CPG to the Company in cash upon completion of the Fortune Shanghai Agreement. The Company will also record an intra-group account receivable of US$8,750,000 (approximately HK$68 million) from Union Growth, which will be eliminated upon consolidation of the financial results of the Group. 8

11 LETTER FROM THE BOARD The total consideration was determined after arm s length negotiation between the Company and CPG with reference to (i) the Company s 75% share of the audited consolidated net asset value of Fortune Shanghai as at 31st December, 2004, as adjusted by taking into account the aggregate appraised value of the properties owned by Fortune Shanghai and its associated companies in the PRC, respectively, as at 30th June, 2005, of approximately HK$504,000,000 in a valuation carried out by an independent property valuer; (ii) the amount of the Fortune Shareholder s Loan; and (iii) the repayment obligations under the Indebtedness that CPG will assume. The total consideration of US$52,700,000 (approximately HK$411 million) and the assumption by CPG of the Company s repayment obligations under the Indebtedness less the amount of the Fortune Shareholder s Loan to be assigned by the Company to CPG, represents a premium of approximately 94% over 75% (being the percentage interest in the issued share capital of Fortune Shanghai represented by the Fortune Sale Shares) of the audited consolidated net asset value of Fortune Shanghai as at 31st December, 2004 of approximately HK$327,210,000. Apart from the Company s repayment obligations under the Indebtedness, the Fortune Sale Shares and the Fortune Shareholder s Loan represent the entire interests of the Company in Fortune Shanghai. Upon completion of the Fortune Shanghai Agreement, the Company will cease to have any interest in Fortune Shanghai, and Fortune Shanghai will no longer be a subsidiary of the Company. Conditions The completion of the Fortune Shanghai Agreement is conditional upon, among other things, the Independent Shareholders approval of both the Fortune Shanghai Agreement and the Lotus- CPF Agreement, and the respective transactions contemplated thereunder. Completion Subject to the satisfaction of the conditions specified in the Fortune Shanghai Agreement, completion shall take place on 30th December, 2005 or such other Business Day as may be agreed between the Company and CPG, contemporaneously with the completion of the Lotus-CPF Agreement. B. THE LOTUS-CPF AGREEMENT Date: 9th September, 2005 Parties: (i) CPG (as vendor) (ii) Union Growth, a wholly-owned subsidiary of the Company (as purchaser) 9

12 LETTER FROM THE BOARD Assets to be acquired Pursuant to the Lotus-CPF Agreement, CPG agreed to sell, and Union Growth agreed to acquire, the Lotus-CPF Sale Shares. There are no provisions in the Lotus-CPF Agreement which impose any subsequent transfer restriction on the Lotus-CPF Sale Shares following completion of the Lotus-CPF Agreement. Consideration As mentioned above, the consideration to be borne by Union Growth for the acquisition of the Lotus-CPF Sale Shares of US$8,750,000 (approximately HK$68 million) which shall be payable in cash upon completion of the Lotus-CPF Agreement shall be used by CPG to off-set the amount of US$52,700,000 (approximately HK$411 million) payable by CPG to the Company under the Fortune Shanghai Agreement. As a result, Union Growth will record an intra-group account payable of US$8,750,000 (approximately HK$68 million) due to the Company, which will be eliminated upon consolidation of the financial results of the Group. The consideration was determined after arm s length negotiation with reference to the Company s 10% share of the audited net asset value of Lotus-CPF as at 31st December, 2004 of approximately US$8,348,200 (approximately HK$65 million), which represents a premium of 4.81% over 10% of the said audited net asset value of Lotus-CPF. Conditions The completion of the Lotus-CPF Agreement is conditional upon, among other things, the Independent Shareholders approval of both the Lotus-CPF Agreement and the Fortune Shanghai Agreement, and the respective transactions contemplated thereunder. Completion Subject to the satisfaction of the conditions specified in the Lotus-CPF Agreement, completion shall take place on 30th December, 2005 or such other Business Day as may be agreed between CPG and Union Growth, contemporaneously with the completion of the Fortune Shanghai Agreement. Union Growth currently owns a 50% interest in the issued share capital of Lotus-CPF. Upon completion of the Lotus-CPF Agreement, Union Growth will have an aggregate 60% shareholding in Lotus-CPF, and accordingly Lotus-CPF will become a subsidiary of the Company and a member of the Group. The board of Lotus-CPF comprises eight directors, four, three and one of whom are appointed by Union Growth, C.P. Merchandising Co., Ltd. and CPG, respectively in proportion to their respective shareholding in Lotus-CPF. The Board has no immediate intention to change the composition of the board of Lotus-CPF as a result of the Acquisition. 10

13 LETTER FROM THE BOARD Save as those disclosed above, the Group has no immediate plan to acquire any other interests in any Lotus supermarkets in the PRC or in companies operating them. The tables below set out certain audited financial information on each of Fortune Shanghai and Lotus-CPF for the two years ended 31st December, Fortune Shanghai (prepared in accordance with the general accepted accounting principles in Hong Kong) 31st December, st December, 2003 Turnover HK$1,576,000 HK$2,831,000 Net assets HK$327,207,000 HK$311,004,000 Net profit (loss) before taxation and extraordinary items HK$23,199,000 HK$(3,670,000) Net profit (loss) after taxation and extraordinary items HK$23,199,000 HK$(3,670,000) Lotus-CPF (prepared in accordance with International Accounting Standards) 31st December, st December, 2003 Turnover US$126,366,000 US$117,303,000 (approximately (approximately HK$986 million) HK$915 million) Net assets (before minority interests) US$91,333,000 US$94,734,000 (approximately (approximately HK$712 million) HK$739 million) Net assets (after minority interests) US$83,482,000 US$86,639,000 (approximately (approximately HK$651 million) HK$676 million) Net loss before taxation, extraordinary US$(3,386,000) US$(2,232,000) items and minority interests (approximately (approximately HK$(26 million)) HK$(17 million)) Net loss after taxation, extraordinary US$(3,142,000) US$(1,959,000) items and minority interests (approximately (approximately HK$(25 million)) HK$(15 million)) 11

14 LETTER FROM THE BOARD II. CONTINUING CONNECTED TRANSACTIONS A. MASTER PURCHASE AGREEMENTS (1) Chia Tai Food (Shanghai) Agreement Date: 9th September, 2005 Parties: (i) Guangzhou Lotus (as purchaser) (ii) Chia Tai Food (Shanghai) (as supplier) Subject matter Packaged food and poultry products Term From the date of completion of the Lotus-CPF Agreement to 31st December, Price To be determined by reference to the prevailing market price of packaged food and poultry products in the PRC, the prevailing market demand and the quotations obtained from various potential suppliers, and to be no less favourable to Guangzhou Lotus than those available from independent suppliers. Payment terms Credit terms of up to 60 days. Payment for the purchases shall be made by telegraphic transfer, bank-issued bills payable within three months or other payment methods acceptable in the PRC. It is proposed that the annual value of the purchases of packaged food and poultry products by Guangzhou Lotus from Chia Tai Food (Shanghai) for the one month period of December, 2005 (assuming completion of the Lotus-CPF Agreement shall take place in December 2005) and for the two financial years ending 31st December, 2006 and 31st December, 2007 will not exceed HK$500,000, HK$6,600,000 and HK$7,260,000, respectively. The proposed caps have been determined by reference to (i) the aggregate value of the relevant merchandise purchased by Guangzhou Lotus during the period from January to September, 2005 of approximately HK$748,000, which was the same for the period from January to July, 2005 as disclosed in the Announcement; (ii) the possible price increases in line with consumer prices in the PRC generally; (iii) the projected organic growth of Guangzhou Lotus based on expected new store openings; and (iv) the anticipated increase in the variety of packaged food to be carried by Chia Tai Food (Shanghai) and therefore, the possible increase in the purchase volume of the relevant merchandise by Guangzhou Lotus in the coming years. 12

15 LETTER FROM THE BOARD (2) Chia Tai Qingdao Agreement Date: 9th September, 2005 Parties: (i) Guangzhou Lotus (as purchaser) (ii) Chia Tai Qingdao (as supplier) Subject matter Chicken and processed meat Term From the date of completion of the Lotus-CPF Agreement to 31st December, Price To be determined by reference to the prevailing market price of chicken and processed meat in the PRC, the prevailing market demand and the quotations obtained from various potential suppliers, and to be no less favourable to Guangzhou Lotus than those available from independent suppliers. Payment terms Credit terms of up to 60 days. Payment for the purchases shall be made by telegraphic transfer, bank-issued bills payable within three months or other payment methods acceptable in the PRC. It is proposed that the annual value of the purchases of chicken and processed meat by Guangzhou Lotus from Chia Tai Qingdao for the one month period of December, 2005 (assuming completion of the Lotus-CPF Agreement shall take place in December 2005) and for the two financial years ending 31st December, 2006 and 31st December, 2007 will not exceed HK$2,600,000, HK$34,320,000 and HK$37,752,000, respectively. The proposed caps have been determined by reference to (i) the aggregate value of the relevant merchandise purchased by Guangzhou Lotus during the period from January to September, 2005 of approximately HK$12,636,000, which compares with the corresponding figure for the period from January to July, 2005 of approximately HK$9,777,000 as disclosed in the Announcement; (ii) the possible price increases in line with consumer prices in the PRC generally; and (iii) the projected organic growth of Guangzhou Lotus based on expected new store openings. 13

16 LETTER FROM THE BOARD (3) Chia Tai Ningbo Agreement Date: 9th September, 2005 Parties: (i) Guangzhou Lotus (as purchaser) (ii) Chia Tai Ningbo (as supplier) Subject matter Edible oil Term From the date of completion of the Lotus-CPF Agreement to 31st December, Price To be determined by reference to the prevailing market price of edible oil in the PRC, the prevailing market demand and the quotations obtained from various potential suppliers, and to be no less favourable to Guangzhou Lotus than those available from independent suppliers. Payment terms Credit terms of up to 60 days. Payment for the purchases shall be made by telegraphic transfer, bank-issued bills payable within three months or other payment methods acceptable in the PRC. It is proposed that the annual value of the purchases of edible oil by Guangzhou Lotus from Chia Tai Ningbo for the one month period of December, 2005 (assuming completion of the Lotus-CPF Agreement shall take place in December 2005) and for the two financial years ending 31st December, 2006 and 31st December, 2007 will not exceed HK$2,500,000, HK$33,000,000 and HK$36,300,000, respectively. The proposed caps have been determined by reference to (i) the aggregate value of the relevant merchandise purchased by Guangzhou Lotus during the period from January to September, 2005 of approximately HK$10,325,000, which compares with the corresponding figure for the period from January to July, 2005 of approximately HK$9,440,000 as disclosed in the Announcement; (ii) the possible price increases in line with consumer prices in the PRC generally; and (iii) the projected organic growth of Guangzhou Lotus based on expected new store openings. 14

17 LETTER FROM THE BOARD (4) Shanghai Lotus Supply Agreement (as amended) Date: 9th September, 2005 Parties: (i) Guangzhou Lotus (as purchaser) (ii) Shanghai Lotus (as supplier) Subject matter Packaged food, beverage, condiments, clothing, household products, motor vehicles accessories and other daily products. Term From the date of completion of the Lotus-CPF Agreement to 31st December, Price To be determined by reference to the prevailing market price of the merchandise supplied thereunder in the PRC, the prevailing market demand and the quotations obtained from various potential suppliers, and to be no less favourable to Guangzhou Lotus than those available from independent suppliers. Payment terms Credit terms of up to 60 days. Payment for the purchases shall be made by telegraphic transfer, bank-issued bills payable within three months or other payment methods acceptable in the PRC. It is proposed that the annual value of the purchases of the merchandise supplied thereunder by Guangzhou Lotus from Shanghai Lotus for the one month period of December, 2005 (assuming completion of the Lotus-CPF Agreement shall take place in December 2005) and for the two financial years ending 31st December, 2006 and 31st December, 2007 will not exceed HK$3,025,000, HK$39,928,000 and HK$43,921,000, respectively. The increase in the new proposed annual caps for the period compared to those stated in the Announcement was mainly due to the expansion of the type of merchandise to be supplied under the First Supplemental Agreement and the recent significant increase in the volume of merchandise purchased by Guangzhou Lotus from Shanghai Lotus due to recent adjustments of the prices at which Shanghai Lotus has been able to supply the relevant merchandise to Guangzhou Lotus. Guangzhou Lotus has been informed that Shanghai Lotus had recently located new sourcing supplies through which it has been able to obtain certain relevant or similar merchandise at more favourable prices, and that Shanghai Lotus has therefore been able to pass on the benefit to Guangzhou Lotus by reducing the prices offered to Guangzhou Lotus. As a result, Guangzhou Lotus has taken advantage of these 15

18 LETTER FROM THE BOARD reduced prices by increasing its purchases from Shanghai Lotus, and the aggregate value of the relevant merchandise purchased by Guangzhou Lotus increased from the amount of approximately HK$4,416,000 for the period from 1st January to 31st July, 2005 (as disclosed in the Announcement) to approximately HK$10,466,000 for the period from 1st January to 30th September, After discussing with the management of Shanghai Lotus, the Directors consider that it is necessary to increase the proposed annual caps for the purchases from Shanghai Lotus to capture this invaluable business opportunities. The new proposed annual caps have been determined by reference to (i) the aggregate value of the relevant merchandise purchased by Guangzhou Lotus during the period from January to September, 2005 of approximately HK$10,466,000, which compares with the corresponding figure for the period from January to July, 2005 of approximately HK$4,416,000 as disclosed in the Announcement; (ii) the expansion of the type of merchandise to be supplied under the First Supplemental Agreement; (iii) the favourable prices of the relevant merchandise offered by Shanghai Lotus; (iv) the possible price increases in line with consumer prices in the PRC generally; and (v) the projected organic growth of Guangzhou Lotus based on expected new store openings. Details of the supplemental agreement to the Shanghai Lotus Supply Agreement are set out in the section headed The Supplemental Agreements below. B. SHANGHAI LOTUS PURCHASE AGREEMENT (as amended) Date: 9th September, 2005 Parties: (i) Shanghai Lotus (as purchaser) (ii) Guangzhou Lotus (as supplier) Subject matter Food, electrical appliances, clothing, household products, toys, stationery and other daily products. Term From the date of completion of the Lotus-CPF Agreement to 31st December, Price To be determined by reference to the prevailing market price of food, electrical appliances and clothing in the PRC, the prevailing market demand and the quotations obtained from various potential suppliers, and to be no less favourable to Shanghai Lotus than those available from independent suppliers. 16

19 LETTER FROM THE BOARD Payment terms Credit terms of up to 60 days. Payment for the purchases shall be made by telegraphic transfer, bank-issued bills payable within three months or other payment methods acceptable in the PRC. It is proposed that the annual value of the purchases of the merchandise supplied thereunder by Shanghai Lotus from Guangzhou Lotus for the one month period of December, 2005 (assuming completion of the Lotus-CPF Agreement shall take place in December 2005) and for the two financial years ending 31st December, 2006 and 31st December, 2007 will not exceed HK$11,616,000, HK$153,333,000 and HK$168,667,000, respectively. The increase in the new proposed annual caps for the period compared to those stated in the Announcement was mainly due to the expansion of the type of merchandise to be supplied under the Second Supplemental Agreement and the recent significant increase in the volume of merchandise purchased by Shanghai Lotus from Guangzhou Lotus due to recent adjustments of the prices at which Guangzhou Lotus has been able to supply the relevant merchandise to Shanghai Lotus. As in the case of the merchandise to be supplied by Shanghai Lotus to Guangzhou Lotus under the Shanghai Lotus Supply Agreement, Guangzhou Lotus had also recently located new sourcing supplies through which it has been able to obtain certain relevant or similar merchandise at more favourable prices, and that Guangzhou Lotus has therefore been able to pass on the benefit to Shanghai Lotus by reducing the prices offered to Shanghai Lotus. As a result, Shanghai Lotus has taken the advantage of these reduced prices by increasing of its purchases from Guangzhou Lotus, and the aggregate value of the relevant merchandise sold to Shanghai Lotus increased from the amount of approximately HK$5,057,000 for the period from 1st January to 31st July, 2005 (as disclosed in the Announcement) to approximately HK$28,289,000 for the period from 1st January to 30th September, After discussing with the management of Shanghai Lotus, the Directors consider that it is necessary to increase the proposed annual caps for the supplies to Shanghai Lotus to meet its increased demands. The new proposed annual caps have been determined by reference to (i) the aggregate value of the relevant merchandise purchased by Shanghai Lotus during the period from January to September, 2005 of approximately HK$28,289,000 which compares with the corresponding figure for the period from January to July, 2005 of approximately HK$5,057,000; (ii) the expansion of the type of merchandise to be supplied under the Second Supplemental Agreement; (iii) the possible price increases in line with consumer prices in the PRC generally; (iv) the projected increase in the demand of the relevant merchandise as indicated by Shanghai Lotus due to a more favourable price being offered; and (v) the projected growth of business of Shanghai Lotus. Details of the supplemental agreement to the Shanghai Lotus Purchase Agreement are set out in the section headed The Supplemental Agreements below. 17

20 LETTER FROM THE BOARD C. NEW ANNUAL CAPS Set out below is a summary of the New Annual Caps as compared with the annual caps proposed in the Announcement: One month of Year ending Year ending December, 31st December, 31st December, (HK$ 000) (HK$ 000) (HK$ 000) Master Purchase Agreements (1) Chia Tai Food (Shanghai) 500 6,600 7,260 Agreement (two month period: 1,000) (2) Chia Tai Qingdao Agreement 2,600 34,320 37,752 (two month period: 5,200) (3) Chia Tai Ningbo Agreement 2,500 33,000 36,300 (two month period: 5,000) (4) Shanghai Lotus Supply 3,025 39,928 43,921 Agreement (two month period: 2,400) (increased from (increased from 15,840) 17,424) Shanghai Lotus Purchase Agreement Shanghai Lotus Purchase Agreement 11, , ,667 (two month period: 2,100) (increased from (increased from 13,860) 15,246) III. THE SUPPLEMENTAL AGREEMENTS In anticipation of the continuing increase in demand in the merchandise provided by Shanghai Lotus to Guangzhou Lotus under the Shanghai Lotus Supply Agreement, and the merchandise provided by Guangzhou Lotus to Shanghai Lotus under the Shanghai Lotus Purchase Agreement, the Supplemental Agreements were entered into between Shanghai Lotus and Guangzhou Lotus on 25th November, 2005, respectively, to expand the scope of the merchandise to be supplied under the respective agreements. In relation to the Shanghai Lotus Supply Agreement, the subject merchandise shall extend from packaged food, beverage and condiments to include clothing, household products, motor vehicles accessories and other daily products. 18

21 LETTER FROM THE BOARD In relation to the Shanghai Lotus Purchase Agreement, the subject merchandise shall extend from food, electrical appliances and clothing to include household products, toys, stationery and other daily products. Save for the addition of these items, all other terms of the Shanghai Lotus Supply Agreement and the Shanghai Lotus Purchase Agreement remain the same. The Supplemental Agreements will be subject to the Independent Shareholders approval at the EGM and be the subject of advice from the Independent Board Committee and the fairness opinion of Baron. IV. INFORMATION ON FORTUNE SHANGHAI, LOTUS-CPF AND THE OTHER PARTIES Fortune Shanghai Fortune Shanghai is an investment holding company whose principal assets are a 50% interest in a PRC property development company which owns the Shanghai Fortune World Development Project, comprising two plots of land, a commercial podium, four luxury high-rise apartment blocks and two-combined office/apartment blocks located in Pudong, Shanghai, the PRC, and a 90% interest in a PRC property management company. Lotus-CPF Lotus-CPF is an investment holding company which is owned as to 50% by Union Growth, 10% by CPG and 40% by C.P. Merchandising Co., Ltd.. Both CPG and C.P. Merchandising Co., Ltd. are associates of the controlling shareholder of the Company (being Mr. Dhanin Chearavanont who, through a company in which he has a 50.86% shareholding interest, is interested in approximately 61.71% in aggregate of the issued share capital of the Company). Lotus-CPF owns a 90% shareholding in Chia Tai Lotus (Guangdong), an associated company of the Company and the holding company of a number of subsidiaries in the PRC which are principally engaged in the business of the supply of food and non-food products through the operation of a total of seven cash-and-carry warehouse stores in Guangzhou, Shantou, Nanhai, Jiangmen and Foshan, all located in the Guangdong province. Lotus-CPF is currently a 50%- owned associated company of the Company and Chia Tai Lotus (Guangdong) is a 55%-owned associated company of the Company. The Group does not currently have control of the composition of the board of, or over half of the voting power of, either Lotus-CPF or Chia Tai Lotus (Guangdong). Upon completion of the Lotus-CPF Agreement, both companies will become subsidiaries of the Company. 19

22 LETTER FROM THE BOARD Set out below is the shareholding structure of Lotus-CPF and its subsidiaries as at the Latest Practicable Date. The Company 100% Union Growth C.P. Merchandising Co., Ltd. 50% 40% 10% CPG 10% Lotus CPF 90% Chia Tai Lotus (Guangdong) 100% 100% 100% Foshan Nanhai Hua Nan Tong Trading Development Company Limited Guangdong Hua Nan Tong Trading Development Company Limited 35% 65% 90% Guangzhou Lotus Shantou Lotus Supermarket Chain Store Company Limited 20

23 LETTER FROM THE BOARD Set out below is the shareholding structure of Lotus-CPF and its subsidiaries upon completion of the Lotus-CPF Agreement. The Company 100% Union Growth 60% 40% C.P. Merchandising Co., Ltd. Lotus-CPF 90% Chia Tai Lotus (Guangdong) 100% 100% 100% Foshan Nanhai Hua Nan Tong Trading Development Company Limited Guangdong Hua Nan Tong Trading Development Company Limited 35% 65% 90% Guangzhou Lotus Shantou Lotus Supermarket Chain Store Company Limited CPG CPG is an investment holding company incorporated in Thailand which has invested in the agribusiness, retail and distribution services and telecommunications and multi-media service sectors in Thailand and the PRC. CPG is a connected person of the Company. CPP Subsidiaries CPP and its subsidiaries are principally engaged in the trading of agricultural products, feedmill and poultry operations, the production and sale of motorcycles and accessories of automotives and property and investment holding. The CPP Subsidiaries are all engaged in the production of agricultural produce. CPP and the CPP Subsidiaries are connected persons of the Company. Shanghai Lotus Shanghai Lotus is principally engaged in the operation of large scale cash-and-carry warehouse stores in Shanghai and other localities in the PRC. Shanghai Lotus is a connected person of the Company. 21

24 LETTER FROM THE BOARD V. REASONS FOR THE DISPOSAL, THE ACQUISITION AND THE CONTINUING CONNECTED TRANSACTIONS The Company is an investment holding company whose subsidiaries are engaged in various business activities including, among other things, the operation of large scale cash-and-carry warehouse stores in the PRC. As mentioned in the 2004 annual report of the Company, the Directors believe that the extensive and well established network, coupled with the provision of high quality products and services would provide a solid base for the Group to develop its large scale cash-and-carry warehouse stores in the PRC, and, would be able to generate substantial returns to the Group in the long term. The Directors consider that the Acquisition will enable the Group to consolidate its interest in and control of Lotus-CPF and therefore in the cash-and-carry warehouse stores in Guangzhou, Shantou, Nanhai, Jiangmen and Foshan of the PRC operated by its subsidiaries, which is in line with the Group s above-mentioned strategy to develop the business of cash-and-carry warehouse stores in the PRC. The Directors consider that the Disposal will enable the Group to dispose of a significant non-core asset at a satisfactory price and enable the Group to raise funds part of which will be applied to finance the Acquisition. The Disposal also represents an invaluable opportunity for the Group to streamline its internal resources and enable the Group to focus on its core businesses. The Directors are of the view that the purchases by Guangzhou Lotus of the relevant merchandise from the CPP Subsidiaries and Shanghai Lotus respectively under the Master Purchase Agreements will enable the existing and future retail network of Guangzhou Lotus to have a reliable source of merchandise with consistent quality at competitive prices. The Directors are also of the view that the supply by Guangzhou Lotus of certain merchandise to Shanghai Lotus under the Shanghai Lotus Purchase Agreement will enable Guangzhou Lotus to benefit from the economy of scale of bulk purchasing and therefore increase its competitiveness. The Directors are also of the view that the expansion of the scope of merchandise supplied by Shanghai Lotus and Guangzhou Lotus under the Shanghai Lotus Supply Agreement and the Shanghai Lotus Purchase Agreement, respectively pursuant to the Supplemental Agreements will be of commercial benefit to the business of the Group. The Directors (including the independent non-executive Directors after taking into account the advice of Baron) consider that the terms of the Disposal, the Acquisition, the terms and the related annual caps of the Continuing Connected Transactions and the Supplemental Agreements are fair and reasonable and are in the interests of the Company and the Shareholders as a whole. VI. FINANCIAL EFFECTS Set out in section A of Appendix III to this circular is a pro forma statement of the unaudited consolidated balance sheet of the Group as at 30th June, 2005 as if the Disposal and the Acquisition were completed on 30th June, On the basis as set out in that section, the earnings of the Group after completion of the Acquisition and Disposal will be increased by HK$213,000,000. After completion of 22

25 LETTER FROM THE BOARD the Disposal, the Company will no longer have any interest in Fortune Shanghai and its jointly controlled entities. The assets of the Group after completion of the Disposal will be increased by HK$98,000,000 and the liabilities of the Group will be decreased by HK$45,000,000. After completion of the Acquisition, the financial results of Lotus-CPF will be consolidated into the accounts of the Group. On the basis as set out in that section, after completion of the Acquisition, the assets and liabilities of the enlarged Group will be increased by HK$640,000,000 and HK$410,000,000, respectively. Based on the total consideration provided under the Fortune Shanghai Agreement, which represents a premium of approximately HK$231,000,000 over the Company s 75% of the audited consolidated net asset value of Fortune Shanghai and after taking into account the estimated expenses in relation to the Disposal, the Directors expect that the net gain from the Disposal which will accrue to the Group will be approximately HK$228,000,000. The Group is expected to realize net proceeds of approximately HK$408,000,000 from the Disposal, out of which the amount of US$8,750,000 (approximately HK$68,000,000) will be used to off-set against the consideration payable for the Acquisition. The Company has no current definite plan on the specific use of the balance of HK$343,000,000, which currently is intended to be applied as additional general working capital for the Group. VII. IMPLICATIONS UNDER THE LISTING RULES The Fortune Shanghai Agreement and the Lotus-CPF Agreement As the Group s commitment under the Fortune Shanghai Agreement exceeds 25% but is less than 75%, and its commitment under the Lotus-CPF Agreement exceeds 25% but is less than 100%, of the percentage ratio under Rule of the Listing Rules, the Disposal and the Acquisition each constitutes a major transaction of the Company pursuant to Rule of the Listing Rules. As CPG is an associate of Mr. Dhanin Chearavanont, a substantial shareholder of the Company who, through a company in which he has a 50.86% shareholding interest, is interested in approximately 61.71% in aggregate of the issued share capital of the Company, CPG is a connected person of the Company for the purpose of Rule 14A.11 of the Listing Rules. Accordingly, the Disposal and the Acquisition each also constitutes a connected transaction for the Company under Rule 14A.11(1) of the Listing Rules and each is required to be made conditional on approval by the Independent Shareholders at the EGM. Mr. Dhanin Chearavanont and his associates will abstain from voting on the relevant resolution to be proposed at the EGM. The Master Purchase Agreements and the Shanghai Lotus Purchase Agreement As mentioned above, Mr. Dhanin Chearavanont is a substantial shareholder of the Company. Four members of the Chearavanont family, namely, Mr. Jaran Chiaravanont, Mr. Montri Jiaravanont, Mr. Dhanin Chearavanont and Mr. Sumet Jiaravanon, on an aggregated basis, are indirectly interested in approximately 51.43% of the issued share capital of CPP. Accordingly, CPP and the CPP Subsidiaries are considered as associates of a substantial shareholder of the Company, and are therefore connected persons of the Company for the purpose of Rule 14A.11 of the Listing Rules. 23