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Loans from financial institutions 44.18 99.00 - - Trade accounts payable and agreements to 39.74 34.88 35.47 34.70 buy and to sell Current portion of loans 12.00 33.60 51.60 3.01 Other current liabilities 78.33 10.63 14.69 33.79 Total current liabilities 174.25 178.11 101.76 71.51 Non-current liabilities Payables and loans from directors and elated company 874.64 1,074.52 513.63 529.56 Long-term loans 335.99 297.39 245.79 275.79 Deposit for rent and services 12.42 13.28 13.53 13.31 Total non-current liabilities 1,223.05 1,385.19 772.95 818.67 Total liabilities 1,397.31 1,563.30 874.70 890.18 Registered and paid-up capital 300.00 300.00 300.00 300.00 Shareholders' equity 195.62 565.15 304.71 281.59 Total liabilities and shareholders' equity 1,592.93 2,128.45 1,179.41 1,171.77 Total revenues 74.35 573.50 104.79 36.20 Total costs and expenses 65.25 60.03 58.34 27.94 Interest expenses 70.44 78.39 70.65 31.38 Net profit (loss) (61.34) 429.531/ (24.19) (23.11) Net earning (loss) per share (Baht) (20.45) 143.18 (8.06) (7.70) Book value per share (Baht) 65.21 188.38 101.57 93.87 Note : 1/ During 2005, CK Office recorded gains from sale of investment worth Baht 372.80 million 2.6.3 Shareholders List of shareholders of CK Office as of 3 July 2007 is as below: Name No. of shares % holding 1. Mahasiri Siam Co., Ltd. 750,000 25.00 2. Mr. Tavorn Trivisvavet 375,000 12.50 3. Mr. Plew Trivisvavet 375,000 12.50 4. Mr. Prasert Trivisvavet 375,000 12.50 5. Mr. Thep Trivisvavet 375,000 12.50 6. Mr. Yim Trivisvavet 375,000 12.50 7. Mr. Kamthorn Trivisvavet 375,000 12.50 Total 3,000,000 100.00 2.6.4 The Board of Directors The Board of Directors of CK Office as of 2 May 2007 is as below: Name position 1. Mr. Plew Trivisvavet Director 2. Mr. Prasert Trivisvavet Director 3. Mr. Thep Trivisvavet Director 4. Mr. Yim Trivisvavet Director 5. Mr. Kamthorn Trivisvavet Director 6. Mr. Prasert Thongkiitkul Director 3. Reasonableness of the Transaction 3.1 Objectives and necessity of the transaction CK intends to acquire assets from CK Office for use as office condominium for business operations of the Company and its subsidiaries. At present, the buildings and land have accommodated the Company's head office and the group's offices. According to CK Office, as of 30 June 2007, CK and its group members are the lessees of a total space of 11,615.33 sq.m., or 88.55% of the total occupied office space of 13,117.01 sq.m. Meantime, the purchase of the vacant land sited next to the parking building is to serve as another car park area to relieve the high volume of traffic at the parking building at present. Moreover, it can also serve vehicles with the height over 2.10 m. limit set for vehicles now using the car park building. Therefore, the Company would like to enter into the transaction to ensure the group's business continuity, which would in turn benefit the Company and its shareholders. 3.2 Comparison of the advantages and disadvantages of making and not making the transactions that may have impact on the Company Making the transaction Pros 1. At present, CK and its group members are the main lessees of the building space, representing 88.55% of the total occupied office space, while CK Office as the lessor has recorded income from rent and services higher than the incurred expenses by Baht 3.61 million and Baht 3.57 million in 2006 and the 6-month period of 2007 respectively. Thus, to prevent conflict of interest between the Company and the major shareholder in that, instead of having the lessor gain from the office rent and related services, such assets will after the transaction belong to the Company, allowing all such benefits to go to the Company and its shareholders. 2. Taking the ownership of the assets that currently accommodate the Company's head office and its subsidiaries' offices is considered mitigating the risk of business discontinuity related to the use of office space by the group. If the existing lease contracts are not extended, it is expected that the Company will have to bear a large amount of expenses on the office relocation, such as moving of office equipment, change of documents to have the new address indicated, issuance of letters to relevant government agencies and customers to notify them of the office relocation, announcements through various media, etc. 3. The Company expects to enjoy cash inflow from future lease of the office space and other related services in the amount of Baht 3,759.59 million as the total revenues obtainable from the lease over the remaining useful life of 33 years of the office building and calculated on a going concern basis.The calculation is made using CK's past record of rent and service income during 2004-2006 in the amount of Baht 55.45 million, Baht 59.84 million and Baht 61.95 million, respectively. Depreciation of the buildings is Baht 507.45 million using the building acquisition price as the cost (new cost excluding land value and calculated with the remaining useful life of 33 years of the building taken into account.). Hence net cash inflow would be Baht 3,251.13 million in total. In this light, the cash inflow in each year can be regarded as a diversified source of income of the Company other than the income from its core business operations. At the time when the Company's core business fails to perform healthily, it would still be able to maintain consistent business operations with a not too low rate of return to its shareholders. 4. The location of Viriyathavorn Building is suitable for CK's type of business. The Company is engaged in contractor business. It is also a major shareholder in such infrastructure businesses as expressway, subway train and tap water, the control centers of which are in the location close to Viriyathavorn Building. In view of this, the Company and its group members have no need to have their offices sited in the CBD. Moreover, one of its major customer groups, i.e. the government agencies are currently centered in the areas of Chaengwatthana-Nonthaburi Road, which is in close proximity and requires just a short time in transportation from and to Viriyathavorn Building. 5. The Company will be able to save construction cost, which would be incurred if it needs construction of a new office building. The acquisition price of the assets would be Baht 49.58 million lower than the valuation price worked out by the independent appraiser of Baht 674.58 million. In view of this, the Company will be able to save cost at least in the amount equal to the difference between the valuation price and the acquisition price. Cons 1. The Company has to burden Baht 625 million in cash lump sum payment for the assets, upon approval by the shareholders' meeting, with the funds from borrowings and cash flows from operations. As a consequence, its liquidity would be contracted and may lead it to additional debt incurrence with financial institutions, hence higher debt to equity ratio from the present level of 4.03. If the Company opts for funding the asset payment solely by loan borrowings, its debt to equity ratio would go up to 4.13. This would heighten its financial cost as the financial institutions may charge higher interest rates, and in its planned bond issue, it may have to offer higher coupon rate to attract investors following the increase in the debt to equity ratio. Under such circumstance, the Company would have to bear larger interest expense, hence dampening its net profit. 2. The acquisition price of the land (Baht 129.45 million in total), though equivalent to the valuation price by the independent appraiser, is still higher than the appraisal price of the Land Department (Baht 71.20 million in total). In case of material drop in the land prices in the future, the Company would have to recognize loss from the land devaluation, hence impact on the income statement. Not making the transaction Pros 1. The Company has no burden of loan borrowings and utilization of cash flow from the operations for the asset acquisition payment that would give rise to the debt to equity ratio and press down the liquidity. Cons 1. Presently, the Company and its subsidiaries pay rental of Baht 300-350 per sq.m. per month to CK Office as the lessor, except for floor 2, a commercial area where the rental is Baht 450 per sq .m. per month. The average rental is Baht 328 per sq.m. per month. Most of the lease contracts will gradually expire in 2008. If the lessor adjusts the rental to a higher rate than the present rate which is relatively lower than those of the surrounding buildings (as hereinafter described in detail on page 27 and 30), greater burden would be posed on the Company and its subsidiaries. 3.3 Comparison of the advantages and disadvantages between making the transaction with a connected person and making the transaction with an outside party Pros 1. The fact that CK and CK Office have common directors and shareholders and their executives have had a good relationship helps facilitate the transaction price negotiation more than that in the case of an outside party. 2. The Company and its subsidiaries have been the major tenants of the building since it was first put for rent. Moreover, the Company's management has indicated that the building has been the office site of the Trivisvavet group, the major shareholder group, since the business inception to date, all along witnessing the group's business growth and prosperity. The Company thus intends to continue using it as the office building. With this asset acquisition, any possible conflict of interest, which may occur if the Company and its subsidiaries continue renting the building and CK Office remains as the lessor, with both sides having the Trivisvavet family as the major shareholder group, would be wiped off. Cons 1. In making the transaction with a connected person, there may not be a due diligence review as in the case of making the transaction with an outside person. Access to in-depth information for use to support the decision making would be limited. However, as CK and CK Office have common directors and shareholders, information on the business status and performance has all along been accessible. 2. To make the transaction with a connected party may generally give rise to a conflict of interest such as the power of negotiations, prices and other conditions, unless the price and conditions are the same as those of normal trade done with an outsider, or persons without vested interest are involved in the transaction. Reasons for not entering into a transaction with a third person At present, CK and its subsidiaries occupy 73.79% of Viriyathavorn Building's total office rent space of 15,740.38 sq.m. If the lease contracts are not extended in the future, they have to move their offices from the building and their businesses will be disrupted. They will also have to bear expenses related to the office, furniture and office equipment, which have to be amortized as expenses in the income statement. In addition, the group has a plan to have its members that rent other buildings for their offices to move, upon expiration of the relevant lease contracts, to Viriyathavorn Building and occupy the unoccupied space available of only 16.63%. The remaining unoccupied space of 9.58% is for rent to outside parties. This building will then be near-fully occupied, comparable to MBK Center Building, which is considered one of the top office and shopping center buildings in Bangkok with highest occupancy rates, i.e. at least 95%. If a new office building has to be sought from an outside party or if the Company opts for construction of a new building of its own, there will be a number of expenses to be borne, e.g. site survey, investment capital, construction cost and project development cost, etc. 3.4 Sources and adequacy of funds From enquiries with the Company's executives, sources of funds for the asset acquisition payment are expected to come from borrowings and cash flow from operations in a 50:50 proportion. The Company will pay in one cash lump sum. However, in view of its consolidated financial statements as of 30 June 2007, its current liabilities were in a high amount, particularly coming from 1) overdrafts and short-term loans from financial institutions amounting to Baht 3,657.94 million, and 2) long-term loans current due amounting to Baht 4,153.20 million, thus totaling Baht 7,811.14 million or 42.39% of total current liabilities. Meantime, its cash and cash equivalents accounted for Baht 4,146.61 million or 20.78% of total current assets. To fend off any possible liquidity problem and impact on its business operations, the Financial Advisor considers it proper for the Company to make payment for the acquired assets in a way that is in line with its liquidity status, and to keep the debt to equity ratio in watch as a high debt to equity ratio would impact its funding cost and loan borrowing in the future. 4. Fairness of Price and Conditions of Transaction After reviewing the information and documents obtained as well as other relevant information, the Financial Advisor's opinion is as follows: 4.1 Reasonableness and appropriateness of the acquisition price We have assessed the appropriateness of the transaction to acquire assets from CK Office by the discounted cash flow (DCF) approach to figure out the net present value as of 2007 of the projected net cash flow to be generated from the rent and related service of Viriyathavorn Building and the parking building from 1 July 2007 to 31 December 2039 (33 years in total) and with the weighted average cost of capital (WACC) used as the discount rate in calculating the present value. The calculation is based on the assumptions in operations and financial projection prepared by the Company in its cash flow projection of income from rent of the office and parking buildings. We have worked out the asset prices by various valuation approaches to compare them with the acquisition price. Details are as follows: 4.1.1 Valuation by independent appraiser In making the transaction, CK has engaged Year Appraisal Co., Ltd., an appraiser approved by the SEC, as the independent appraiser to valuate the assets so as to figure out the proper price of the assets to be acquired by the Company. The independent appraiser has classified the assets into two groups below: Asset group 1 comprising: One office condominium of 26 units on the total areas of 16,978.18 sq.m. (Viriyathavorn Building of 23 stories with basement and rooftop floors, and one car park building of 6 stories) located at No. 587 Viriyathavorn Building, Sutthisarnvinitchai Road, Dindaeng Sub-district, Dindaeng District, Bangkok. The income approach is mainly used by the independent appraiser in the valuation, with asset group 1 valuated at Baht 666,500,000. When cross-checked with the market comparison approach, asset group 1 is valuated at Baht 673,000,000. Asset group 2 comprising: Two adjacent plots of vacant land with total areas of 0-1-01 rai (101 sq. wah) are situated next to Inthamara Soi 37, Sutthisarnvinitchai Road, Dindaeng Sub-district, Dindaeng District, Bangkok.The market comparison approach is mainly used by the independent appraiser in the valuation, with asset group 2 valuated at Baht 8,080,000 (Baht 80,000 per sq.wah). Summary of asset value The independent appraiser has considered all the features and details of the assets surveyed underthe above assumptions and constraints as earlier mentioned. Unless otherwise impacted by any unknown factors, the independent appraiser has the following opinion on the assets valuated: Assets : There are two groups of assets: 1. One office building named Viriyathavorn Building, having 23 stories and basement and rooftop floors, and one parking building of 6 stories, registered as office condominium named Viriyathavorn Condominium, registration number 1/2544, offering 26 units covering 16,978.18 sq.m., for lease as office building 2. Two adjacent vacant land on 0-1-01 rai (101 sq.wah) areas, close to the office building, now used as parking area. Asset value as of : 3 August 2007 Value of asset group 1 : Baht 666,500,000 Value of asset group 2 : Baht 8,080,000 Total value : Baht 674,580,000 4.1.2 Appraisal price of Land Department According to the valuation report dated 10 August 2007 by Year Appraisal, the appraisal prices of lands used by the Land Department as the official prices in the transfer and register of Far East Securities Co., Ltd. rights on lands, and entering into legal documents for asset group 1 in clause 4.1.1 above will be those under such criteria as 1) Baht price per sq.m. for condominium valuation price, and 2) Baht price per plot of land. Details are as follows: Asset group 1 (official valuation price of Viriyathavorn Building) Unit Floor Space Price per sq.m. Asset value no. (sq.m.) (Baht) (Baht) 587 Basement and Floor 1 1,327.99 7,600 10,092,724 587/1 Floor 1 and 2 674.06 40,000 26,962,400 587/3 3 771.10 33,000 25,446,300 587/4 3 1,161.25 33,000 38,321,250 587/5 4 767.97 33,000 25,343,010 587/6 4 1,163.69 33,000 38,401,770 587/7 5 462.28 33,000 15,255,240 587/8 6 787.52 33,000 25,988,160 587/9 6 645.38 33,000 21,297,540 587/10 7 642.68 33,500 21,529,780 587/11 8 642.50 33,500 21,523,750 587/12 9 642.50 33,500 21,523,750 587/13 10 642.50 33,500 21,523,750 587/14 11 642.50 34,000 21,845,000 587/15 12 642.50 34,000 21,845,000 587/16 13 642.50 34,000 21,845,000 587/17 14 642.50 34,000 21,845,000 587/18 15 642.50 34,500 22,166,250 587/19 16 428.69 34,500 14,789,805 587/20 17 479.43 34,500 16,540,335 587/21 18 479.43 34,500 16,540,335 587/22 19 479.43 35,000 16,780,050 587/23 20 468.92 35,000 16,412,200 587/24 21 537.72 35,000 18,820,200 587/25 22 280.32 35,000 9,811,200 587/26 23 280.32 35,500 9,951,360 Total 16,978.18 542,401,159 Asset group 1 (official valuation price of land on which Viriyathavorn Building is sited) Land title deed Land area Land Dept's rate Asset value (sq.wah) (Baht per sq.wah) (Baht) Title deeds no. 21495, 21496, 24496, 24497, 24499, 24500, 31431, 31432, 31433, 31434, 41835, 57992, 138958, 138961 and 140145 1,517.10 44,000 66,752,400 From the above tables, asset group 1 value based on the appraisal prices of the Land Department will be in a total amount of Baht 609,153,559. Asset group 2 (official land valuation price) Land title deed Land area Land Dept's rate Asset value (sq.wah) (Baht per sq.wah) (Baht) Title deed no. 21494 62 44,000 2,728,000 Title deed no. 61932 39 44,000 1,716,000 Total 101 4,444,000 From the above table, asset group 2 value based on the appraisal price of (more)