北京易初莲花连锁超市有限公司

1HongKongExchangesandClearingLimitedandTheStockExchangeofHongKongLimitedtakenoresponsibilityforthecontentsofthisannouncement,makenorepresentationastoitsaccuracyorcompletenessandexpresslydisclaimanyliabilitywhatsoeverforanylosshowsoeverarisingfromorinrelianceuponthewholeoranypartofthecontentsofthisannouncement.PROPOSEDREDUCTIONOFSHAREPREMIUMANDCONTINUINGCONNECTEDTRANSACTIONSPROPOSEDREDUCTIONOFSHAREPREMIUMItisproposedthatthesharepremiumaccountoftheCompanybereducedbyanamountofHK$1,217,243,000(correspondingtotheamountoftheunauditedconsolidatedaccumulatedlossesoftheGroupasat30June2010)withthecreditarisingtherefrombeentirelyappliedtoeliminatetheunauditedaccumulatedlossesofHK$201,190,000oftheCompanyasat30June2010,andtherebycreatingasurplusofHK$1,016,053,000intheretainedearningsaccountoftheCompany.SuchsurpluswillbeavailabletooffsetandentirelycleanuptheunauditedconsolidatedaccumulatedlossesoftheGroupasat30June2010.ByeliminatingtheaccumulatedlossesoftheCompany,theReductionofSharePremiumwillallowflexibilityfortheCompanytodeclaredividendstotheShareholdersatanearlieropportunityinthefutureasandwhentheBoardconsidersappropriate.TheBoardthereforeconsidersthattheReductionofSharePremiumisintheinterestsoftheCompanyandtheShareholdersasawhole.PROPOSEDCONTINUINGCONNECTEDTRANSACTIONSOn19October2010,thefollowingCCTAgreementswereenteredintobytheGroup:(i)theOSIL-CCTPurchaseAgreementbetweentheCompanyandOSIL;(ii)the2010CPHSupplyAgreementbetweentheCompanyandCPH;(iii)the2010SuperBrandMallLeasebetweenSLSandShanghaiKinghill;(iv)theSLSSub-LeasebetweenSLSandCTCREM;and(v)theCPLotusConsultingAgreementbetweentheCompanyandCTCREM.ThetransactionscontemplatedundertheseCCTAgreementsconstitutecontinuingconnectedtransactionsunderChapter14AoftheListingRules.TheOSIL-CCTPurchaseAgreementandthe2010CPHSupplyAgreementwilltakeeffectsubjecttoanduponreceivingapprovalfromtheIndependentShareholdersattheEGM.(IncorporatedintheCaymanIslandswithlimitedliability)(StockCode:00121)2OSIL-CCTPurchaseAgreementPursuanttotheOSIL-CCTPurchaseAgreement,theCPLotusSubsidiariesshallpurchasefromOSILandtheOSILRelatedEntitiespackagedfood,poultryproducts,processedmeat,edibleoil,grains,vegetables,freshandpreservedfruits,groceriesandanyothermerchandisecustomarilysoldinhypermarketswhichmayberequiredbyanyoftheCPLotusSubsidiariesandwhichOSILoranyoftheOSILRelatedEntitiesmaybeabletosupply.ThepricingtermsaretobedeterminedbyreferencetotheprevailingmarketpriceanddemandoftherelevantmerchandiseinthePRCandnolessfavourabletotheCPLotusSubsidiariesthanthoseavailablefromindependentthirdparties.CPLotusSubsidiarieshavebeensourcingmerchandisefromcertainOSILRelatedEntitiesforsaleforanumberofyears.Duetothislongtermbusinessrelationship,certainOSILRelatedEntitieshavebeenabletoprovidesuppliestotheCPLotusSubsidiariesinanefficientmannerandontermsnolessfavourablecomparedtoothersupplierstotheCPLotusSubsidiaries.Accordingly,theDirectorsconsiderthatitisbeneficialforCPLotusSubsidiariestocontinuetoenjoyareliablesourceofmerchandise.GoodssourcedfromcertainOSILRelatedEntitiesrepresentedapproximately2.7%ofthetotalCPLotusSubsidiariespurchasesofmerchandiseforthesixmonthsended30June2010,ofwhichover70%werefreshproductsunderthewell-known“ChiaTai”brand.ByenteringintotheOSIL-CCTPurchaseAgreementwithOSIL,CPLotusSubsidiarieswillhavetheabilitytocontinuetopurchasefromcertainOSILRelatedEntitieswherecircumstancesareappropriate.2010CPHSupplyAgreementPursuanttothe2010CPHSupplyAgreement,CPLotusSubsidiariesshallsupplytoCPHandCPHRelatedEntitieselectricalappliances,food,clothing,householdproducts,toys,stationeryandotherdailyproductsandanyothermerchandisecustomarilysoldinhypermarketswhichmayberequiredbyCPHoranyoftheCPHRelatedEntitiesandwhichanyoftheCPLotusSubsidiariesmaybeabletosupply.ThepricingtermsaretobedeterminedbyreferencetotheprevailingmarketpriceanddemandoftherelevantmerchandiseinthePRC,andnolessfavourabletotheCPLotusSubsidiariesthanthoseavailablefromindependentthirdparties.The2010CPHSupplyAgreementwillenabletheCPLotusGrouptocapitalizeonandfurtherenhanceitssubstantialcollectivepurchasingpower,furtherstrengthenitsnegotiatingpositionwithsupplierstosecuremorefavorabletermsandincreaseitssalesrevenueandprofitthroughlargevolumepurchases.3ThearrangementwillincreasesalesrevenueandprofitoftheCPLotusGroup.ThetotalmerchandisesuppliedbyCPLotusSubsidiariestoCPHandcertainCPHRelatedEntitiesamountedtoapproximately3.5%ofthetotalsalesoftheCPLotusSubsidiariesforthesixmonthsended30June2010.ThediscountandallowancesreceivedbyCPLotusSubsidiariesfromsuppliersinrespectofthemerchandisesoldtoCPHandcertainCPHRelatedEntitiesiscapturedbytheCPLotusGroup,whichforthesixmonthsended30June2010amountedto5-6%ofthetotalpurchaseamountunderthe2008CPHSupplyAgreementforthesameperiod.Inadditiontosupplyingmerchandisedirectly,pursuanttotheExistingProcurementServicesAgreement,theCPLotusGroupalsoactsasprocurementagentforCPHandcertainCPHRelatedEntitiesandreceivesa1%procurementservicesfeeonthetotalpurchaseamountprocuredthroughCPLotusGroupbytheStoresoperatedbyCPHandcertainCPHRelated