10:05 <00508> & <00025> - Joint Announcement & <00508> Resume (2) Asset to be acquired 400,337 ordinary shares of Pacific Coffee, being the entire issued share capital of Pacific Coffee. Pacific Coffee's first outlet was established in 1993. Pacific Coffee now operates 39 retail outlets in Hong Kong and five in Singapore. Pacific Coffee sells high quality, premium roasted whole bean coffees, specialty coffees and cold beverages, baked goods and pastries along with coffee-related hardware and supplies. Pacific Coffee also sells its branded products to wholesale accounts and provides coffee services to corporate customers including hotels, restaurants, clubs and large corporations. In addition, Pacific Coffee Group is also engaged in the wholesale of selected coffee beans in Hong Kong, Macau, the PRC and Singapore. For the year ended 31st March, 2003, Pacific Coffee recorded an audited consolidated profit before and after tax of approximately HK$6.2 million and HK$4.3 million respectively. For the year ended 31st March, 2004, Pacific Coffee recorded an audited consolidated profit before and after tax of approximately HK$11.9 million and HK$9.4 million respectively. EBITDA of Pacific Coffee for 2003 and 2004 was approximately HK$17.6 million and HK$24.0 million respectively. As at 31st March, 2004, the audited consolidated net asset value of Pacific Coffee was approximately HK$70.3 million. Consideration The consideration for the Acquisition was HK$205 million in cash, which was agreed between CIL and the Vendors after arm's length negotiations. The consideration represents approximately 22 times of the 2004 audited consolidated net profit of Pacific Coffee and 8.5 times of the 2004 EBITDA of Pacific Coffee. The Boards of both CiTL and CIHL are of the view that the consideration for the Acquisition is reasonable after taking into account the growth rate of Pacific Coffee in the past years, the growth potential in demand for specialty coffee in Hong Kong, the southeast Asia region and the PRC market, as well as the goodwill of Pacific Coffee. The entire consideration will be financed by the internal resources of the CiTL Group only. Given the current cashflow position, the cash and the cash equivalent securities of the CiTL Group, the Board of CiTL considers the Acquisition will not have a significant adverse impact on the CiTL Group's liquidity. Upon completion of the Acquisition, CIL will pay to the Vendors HK$164 million in cash, representing 80% of the consideration. The remaining HK$41 million of the consideration, being the Escrow Amount, will be deposited with the Escrow Agent. The release of such Escrow Amount will be subject to the terms of the Escrow Agreement to be entered between the Vendors, the Warrantor, the Purchaser and the Escrow Agent on completion of the Agreement. In the event of any breach of warranties given by the Warrantor (which relate to various aspects of the Pacific Coffee Group, including but not limited to its assets and liabilities, investments, accounts and records), the liability of the Warrantor shall be an amount equal to the diminution in value of the Sale Shares thereby caused and such amount will be deducted from the Escrow Amount. In the event of any dispute between the Warrantor and CIL as to the amount of the diminution, it will be resolved by final judgment of the courts of the relevant jurisdiction. It is further provided under the warranties that in the event the audited consolidated net profit before tax (excluding exceptional and extraordinary items) of Pacific Coffee for the eleven months ended 28th February, 2005 is three percent lower than that set out in the consolidated management accounts of Pacific Coffee provided to CIL, CIL will be compensated with an amount equal to eight times of the shortfall, which will be settled by the Warrantor by deducting the same amount from the Escrow Amount. Claims under the warranties are limited to the Escrow Amount.