Fu Ji- Kpmg Report

Lehman Brothers Commercial Corporation Asia Limited (In Liquidation) FU JI Food and Catering Services Holdings Limited Bondholders’ Meeting 23 October 2009

Disclaimer This Report has been prepared by the Joint and Several Liquidators of Lehman Brothers Commercial Corporation Asia Limited (In Liquidation) for the Bondholders of Fu Ji Food and Catering Services Holdings Limited, based on information currently available from various public sources. It is prepared for the sole purpose of facilitating initial discussions. This Report should not be relied upon by any other person, or for any other purpose, or used in any other context, including but not limited to trading in the Company’s securities. This Report has been released on a confidential basis and it should not be copied, referred to or disclosed, in whole or in part, without the prior consent of the Joint and Several Provisional Liquidators of Lehman Brothers Commercial Corporation Asia Limited (In Liquidation).

© 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in Hong Kong.

1

FU JI Food and Catering Services Holdings Limited (“the Company”)

Events leading to winding up  On 29 July 2009, the Company announced a delay in the publication of the annual report. HKSE suspended the trading of the Company’s

shares and convertible bonds on the same day. Subsequently, the Company announced further delays on 25 August 2009 and 22 September 2009 respectively.  On 30 September 2009, the delay in publishing annual reports resulted in technical defaults under the Company’s convertible bonds and bank

facility agreements.  On the same day, one of the Company’s Independent Non-executive Directors, Dr Tsui Wai Ling Carlye, resigned, citing lack of open

communication from the management as the cause.  On 7 October 2009, Deloitte was appointed as the Independent Financial Advisors.  On 17 October 2009, the board filed a winding-up petition and the Court appointed Deloitte as the Provisional Liquidators.

HKSE suspended the trading of the Company’s shares and convertible bonds

Publication of the last interim financial report

30/9/2008

Mar-Apr 2009

31/3/2009 – Fiscal year end 8/4/2009 – Company amended its bank loan facility

29/7/2009

Divested almost all of its ownership in Golden Hans, one of the most profitable restaurant chain.

30/9/2009

Deloitte appointed as independent financial advisors

7/10/2009

Breach of covenants of convertible bonds and a cross default under the bank facility

© 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in Hong Kong.

17/10/2009

Filed a winding-up petition and appointed Deloitte as the Provisional Liquidators

2

FU JI Food and Catering Services Holdings Limited

Current Situation Cash Positions  Cash positions declined dramatically. As of petition date, the remaining bank deposits were as follows, excluding

pledged deposits.

As of Petition Date Local US$ Currency Bank Deposits Cash in HK Bank Account Cash in PRC Bank Account

75 39

As of Sept 08 Local US$ Currency

10 6 15

689

As of March 08 Local US$ Currency

103

957

143

Dramatic Revenue Decline  Lost a great number of major institutional clients including Intel, Asus and Wal-Mart. Sales to the remaining

institutional clients have also substantially declined.

 Possible inflation of revenue figures for the past few years.

Key Customers Lost Apr 08 to Sep 09 (Amount in millions) Intel Asus Ping An Insurance Saint-Gobain TSMC Philips Lenovo China Mobile Wal-Mart Dupont

RMB 24.7 7.9 7.4 7.1 3.2 2.9 2.6 2.2 1.2 0.9

Oct 08 to Mar 09

USD 3.6 1.2 1.1 1.0 0.5 0.4 0.4 0.3 0.2 0.1

RMB 16.0 3.6 7.0 4.2 6.1 5.0 0.5 0.6 0.9

USD 2.3 0.5 1.0 0.6 0.9 0.7 0.1 0.1 0.1

© 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in Hong Kong.

3

FU JI Food and Catering Services Holdings Limited

Current Situation (Continued) Supplier concerns  There are indications that certain suppliers are very concerned with the Company’s financial position and have

stopped delivery.

Massive layoffs  Laid off 5,500 of its 8,500 employees in the past year.  Some laid-off employees organized strikes in the factories and business premises, interfering day-to-day operations.

Management hemorrhage  During the past year, key management level staff resignations included vice president, sales director, head of

investment department, general manager of processing factory, head of convenience food division, head of legal department and head of human resources department.

 Sales Department – fourteen out of fifteen managerial staff left the Company  Finance Department – twelve out of nineteen staff resigned

Potential asset preservation issue  Unpaid construction contractors occupied certain land and properties owned by the Company  With 15 legal proceedings against the Group in the PRC, some assets have been frozen by the PRC court.

© 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in Hong Kong.

4

FU JI Food and Catering Services Holdings Limited Summary of Liabilities As the Company has failed

Liabilities Position

to complete its annual financial report, this event

(All amounts in millions)

Currency

triggers the default of the

Value in local currency

Value in US$

Due Date

convertible bonds and bank loan. The outstanding sums are immediately repayable.

Bank Loan at operation Entity Level Bank Loan - Deutsche Bank * Convertible Bonds due 2009 Convertible Bonds due 2010

USD HKD RMB

N/A 5 548 1,610

Other Liabilities Suppliers Construction Contractors Landlords of business/ factory premises

RMB RMB RMB

93 149 32

14 22 5

RMB

22

3

PRC Tax Liabilities

N/A 5 Nov-Dec 2009 71 Nov 2009 235 Oct 2009

* Pursuant to an Amendment entered on 8 April 2009 Source: Affirmation of Wong Chi Keung, independent non-executive director of FU JI Food and Catering Services Holdings Limited, filed with the High Court of HKSAR.

© 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in Hong Kong.

5

FU JI Food and Catering Services Holdings Limited

Issues Facing the Bondholders  Building a united and focused strategy to optimize recovery to Bondholders through the Liquidation process  Steering Committee for the Bondholders?  Financial and legal advisors representing the Bondholders?

 Evaluating options in preserving value of the Company  Sales of the Company as a whole or in parts?  Interested parties already surfacing

 Wind-down and sales of assets?

 Evaluating the Company’s operations and identifying value-drivers

 Assessing core and non-core assets

 Recovery of lost value - claims against Directors?

 Identification of potential investors?

© 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in Hong Kong.

6

FU JI Food and Catering Services Holdings Limited Appendix: Revenue and Operation Profit by Segment Financial information (Amounts in Millions)

For the 6 months ending Sept 2008 RMB

For the 12 months ending Mar 2008

USD

RMB

USD

Segment Revenue Catering Services business Chinese Restaurants business Theme Restaurants business Convenience Food and other Total Revenue

959 152 260 17 1,387

140 22 38 3 203

1,383 275 191 66 1,916

202 40 28 10 280

Segment Income Catering Services business Chinese Restaurants business Theme Restaurants business Convenience Food and other Other Income Profit from operations

309 27 56 (14) 22 401

45 4 8 (2) 3 59

459 50 41 (16) 46 581

67 7 6 (2) 7 85

© 2009 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in Hong Kong.

7