space and merchandising areas on the Company's stations and the Company train's body with a subsidiary since 1999. The concession is for a period of 10 years with an option to renew for a further 5 years. Under the concession, the subsidiary is to pay a concession fee for managing and renting the space to the Company at the certain percentage in accordance with the rate and conditions stipulated in the agreement. Subsequently, on 5 December 2009, the Company launched the letter to the subsidiary in order to confirm that the concession for marketing and advertising services management of space and renting the merchandising areas has been renewed for further 5 years, while the other conditions in the original concession are to remain in force. b) On 6 November 2002 and on 20 April 2006, the Company entered into a concession for commercial broadcast at BTS stations through plasma screens and LCD screens, respectively, with the subsidiary (VGI Global media Co., Ltd.). Under the concession, the subsidiary is to pay some expenses of such broadcast and has to share its revenue at the certain percentage in accordance with the agreement to the Company. 19 c) On 21 December 2004, the subsidiary entered into a concession with Ek- Chai Distribution System Company Limited for managing and renting the advertising spaces in department stores (Modern trade) since 1 January 2005. The concession is for a period of 5 years with an option to renew for a further 5 years. Under the concession, the subsidiary is to pay a concession fee for managing and renting the spaces to Ek-Chai Distribution System Company Limited at the certain percentage in accordance with the rate and conditions stipulated in the agreement. Subsequently, on 23 May 2008, the subsidiary and Ek-Chai Distribution System Company Limited amended the existing concession by adding the provision of commercial broadcast through LCD screens in the department store (Modern trade). Under the concession, the subsidiary is to pay some expenses of such broadcast and has to share its revenue at the certain percentage in accordance with the agreement. d) On 8 August 2005, the subsidiary entered into a concession with Big C Supercenter Public Company Limited for managing and renting the advertising spaces in department stores (Modern trade) since 1 January 2006. The concession is for a period of 5 years with an option to renew for a further 5 years. Under the concession, the subsidiary is to pay a concession fee for managing and renting the spaces to Big C Supercenter Public Company Limited at the certain percentage in accordance with the rate and conditions stipulated in the agreement. e) On 1 October 2008, the subsidiary (VGI Advertising Media Co., Ltd.) entered into a concession with Ek-Chai Distribution System Company Limited for managing and renting the advertising spaces in retail stores (Small modern trade) from 1 October 2008 to 31 December 2011. Under the concession, the subsidiary is to pay a concession fee for managing the spaces to Ek-Chai Distribution System Company Limited at the certain percentage in accordance with the rate and conditions stipulated in the agreement. f) On 7 February 2009, the subsidiary (888 Media Co., Ltd., formerly known as VGI Property Co., Ltd.) entered into a concession with CenCar Limited for managing and renting the advertising spaces in department stores (Modern trade) since 1 July 2009. The concession is for a period of 5 years with an option to renew for a further 5 years. Under the concession, the subsidiary is to pay a concession fee for managing and renting the spaces to CenCar Limited at the certain percentage in accordance with the rate and conditions stipulated in the agreement. Risk Factors 1. Risks Relating to the BTS Skytrain System 1.1 Risk Relating to the BTS Skytrain System BTSC depends on passenger fares as its primary source of revenues, and any reduction in passenger volumes and fare revenues could adversely affect its business, financial condition, results of operations and prospects of BTSC. BTSC's revenues and profitability are substantially dependent on fare revenue from BTS Sky Train system's passengers. In the fiscal years ended March 31, 2007, 2008, and 2009, and nine-month periods ended 31 December 2009; approximately 92.5%, 91.3%, 89.9%, and 79.1% respectively, of BTSC's total operating revenues were derived from passenger fares. Accordingly, any factor adversely affecting passenger volume, individually or collectively, could have a material adverse effect on BTSC's business, financial condition, results of operations and prospects. Ridership trends are influenced by several factors, many of which are beyond BTSC's control, including passengers' commuting needs, confidence in security, level of traffic congestion, economic conditions in general, fuel prices, availability and quality of alternative modes of transportation, real estate developments surrounding its stations, and Government plans for the extension of other transportation systems. There are no assurances that in the future its passenger volume and fare revenues will not decrease. If its passenger volumes and/or fare revenues decrease, its business, financial performance, results of operations and prospects would be adversely affected. 20 1.2 BTSC's ability to raise fares is limited. BTSC's ability to raise fares to adjust to changes in market conditions and trends and other events or fare raises to compensate for increase in operating and other costs is limited (i) by competitive dynamics and commuter preferences, and (ii) by the terms of the Concession Agreement. The adjustment of passenger fares is subject to the terms and conditions set out in the Concession Agreement. Pursuant to the Concession Agreement, BTSC may increase the actual rate charged (the "Effective Fare") only once every 18 months, provided that such charged fares are not in excess of a maximum chargeable rate (the "Authorized Fare"). In addition, BTSC may request for adjustment of the Authorized Fare up to 7% from the existing fare if the Bangkok consumer price index published by the Ministry of Commerce of Thailand in any month increased by 5% or more compared to a period of at least 12 months prior. The ceiling applicable the Authorized Fares may also be adjusted by request of BTSC for certain special situations, including variations in the Baht/U.S.$ exchange rates to be higher or lower than the referenced rate as specified, variations in local or overseas interest rates to be higher or lower than the referenced rate as specified, fluctuations in its electricity costs or if certain exceptional risks transpire. If any of these special situations occur, we may propose a increase in the Authorized Fares. If the proposed adjustment is not approved by the BMA, within 30 days, then an advisory committee established under the Concession Agreement may be requested to decide whether the proposal is acceptable. If at such time it is against the Government's policy to permit a fare increase, BTSC will not be allowed to increase BTSC's fares to remedy the loss BTSC incurred during the relevant period though the government may provide certain remedial measure to mitigate BTSC loss. However, there is no guarantee that the Government will provide such a remedy or that such a remedy will be available. In addition, even if BTSC is allowed to increase fares under the Concession Agreement BTSC might not be able, or may choose not to do so, due to political, social and other reasons relating to competitive dynamics and commuter preferences. Furthermore, BMA may propose a decrease of the Authorized Fares upon an occurrence of certain special situations, such as where BTSC's interest rate on loans is 10% higher or lower than the referenced interest rate. 1.3 The Concession Agreement can be terminated by the BMA upon the triggering of certain events specified in the Concession Agreement. Pursuant to the Concession Agreement, the occurrence of certain events triggered by BMA would allow BMA or BTSC, respectively, to terminate the Concession Agreement, unless these events are remedied within the specified cure period. Specifically, BMA is entitled to terminate the Concession Agreement upon its bankruptcy or its willful, continuous and material breach of the Concession Agreement. BMA is required to provide BTSC with one- month's prior notice before termination (in case of incurable default) or six-months prior notice before termination (in case of curable default). If BTSC is unable to cure the default within these cure periods and BMA desires to terminate the Concession Agreement in accordance with its terms, BMA shall notify the financial institution who serves as the representative of BTSC's creditors under certain credit facilities for the construction of BTS SkyTrain System, giving BTSC 's creditors not less than a 6-month period to procure another party to accept an assignment of rights and obligations under the Concession Agreement. If the creditors do not find a suitable party to accept the assignment within such period, the BMA will be entitled to terminate the Concession Agreement. In that case, BTSC must compensate the BMA for damages, and the ownership of all equipment, controlling equipment and other assets situated on the land used for the BTS Skytrain System will be transferred to the BMA. If the Concession Agreement is terminated, BTSC may not be able to operate the BTS Skytrain System, which would have a material adverse effect on BTSC's business, financial condition, results of operations and prospects. 21 1.4 Failure to be granted concessions relating to future expansion, or delays in the Government's execution of its expansion plans, may adversely affect BTSC's growth prospects. If the BMA wishes to establish new or additional lines during the term of the Concession Agreement or to expand, or to provide services at the extension of, the existing electric train system, BTSC has a right of first refusal to negotiate with BMA on such extensions on the condition that BTSC accepts the best offer BMA has received from other, third-party offerors. However, BTSC cannot guarantee that the Government will proceed with its current plans to expand Bangkok's mass transit systems, or that if they do, that BTSC would be granted a concession for any such extensions. There is also no guarantee that BTSC would be able to accept the same terms and conditions as BMA received from other, third- party offerors or otherwise match the best offer to BMA and, if BTSC was awarded the new concessions, that BTSC would be able to proceed with such plans according to schedule and under other terms specified. The pursuit of substantial amounts of funds for investment in the extension line, an increase in the power of political parties opposed to the expansion plans of the system or a host of other significant political changes, individually or collectively, may delay or deter postpone or even cancel such extension plans. In addition, in order to extend BTSC concession, which is scheduled to expire in December 2029, BTSC must give BMA advance notice of at least three years and not more than five years of its intention to extend. Such extension is subject to the prior consent of the Ministry of Interior. There is no guarantee that BTSC will be granted additional concessions in the future and there is no guarantee that future concessions, if granted to BTSC, will be on comparable terms to the Concession Agreement. In the event that future concessions are granted on less favorable terms or not at all, BTSC's business, financial condition, results of operations and prospects may be adversely affected. 1.5 BTSC may not be able to successfully implement its growth strategy in the public transportation business which is in part dependent upon various factors including government approval. BTSC growth strategies in the public transportation business include, among others, bidding for operations with respect to extensions to its system and for new mass transit system projects such as the BRT Project, or links with new mass transit projects, such as the Suvarnabhumi Airport Link. BTSC success in implementing these strategies will depend on, among other things, the government's decision and execution with regard to such expansion plans, BTSC's ability to identify and assess potential partners and investments successfully, finance, close and integrate such investments, obtain the necessary approvals and concession rights, and maintain sufficient operational and financial controls. These growth strategies will place significant demands on BTSC's management and other resources, and certain factors, including political factors, will be beyond BTSC's control. BTSC's future growth may be adversely affected if BTSC is unable to make these investments or if these investments prove unsuccessful or do not prove successful as expected. 1.6 BTSC faces substantial competition from other forms of public transportation that may result in pricing pressures and reduced revenues. BTSC faces substantial competition from other forms of transportation in Bangkok, which may cause pricing pressures and reduced revenues. BTSC has a variety of competitors, including government-subsidized buses, Microbuses, and vans, all of which are generally cheaper than the BTS Skytrain System. Many of these other forms of transportation also cover more routes throughout Bangkok and its vicinities and provide commuters with easier access. In addition, other newer forms of transportation may also provide more comfort or services. There are no assurances that BTSC will be able to compete with existing and/or new forms of transportation effectively in respect of each of these factors, or at all. Such competition and any resulting loss of its competitive advantages could have a material adverse effect on BTSC's business, financial condition, results of operations and prospects. 22 1.7 BTSC's entry into other lines of business will increase BTSC's exposure to new sector-specific risks in such other lines of business. 1.7.1 Real estate development As part of BTSC's growth strategy, BTSC has recently acquired (or entered into agreements to acquire) (directly or through the purchase of shares) 5 plots of land in Bangkok along the BTS Skytain System route for future development. The total value of such real-estate development projects is approximately Baht 27,000 million. While BTSC expects to develop synergies between these properties and its stations, BTSC has no previous experience in the property development business. Accordingly, BTSC expects to compete with a number of existing residential and commercial property developers, some of which have greater financial and other resources than BTSC. Even if BTSC wishes to enter into a joint venture with investors with experience in the real estate development business to reduce the risks of business operations, there still will be no guarantee that BTSC will be successful in its investment in real estate development, and in the case that BTSC faces loss it could have a material adverse effect on BTSC's results of operations and financial condition. 1.7.2 Advertising media business BTSC entered into the License to Manage Marketing Service Agreement with VGI by which VGI has the rights to provide advertising service and manage marketing activities pursuant to the Marketing Services Agreement for a 10-year period (since 1999) and VGI has exercised its right to request for an extension of the term for an additional 5 years until the year 2014. Under this agreement, BTSC has granted VGI an exclusive license to manage marketing services with respect to advertising space, merchandising areas, exterior train areas and other areas related to the BTS SkyTrain System, and VGI has agreed to pay BTSC (a) 50% of its gross revenues arising from the lease of the advertising and merchandising space, (b) 60% of its gross revenues arising from the lease of the advertising space on the exterior of trains, and (c) 50% of its gross revenue arising from the lease of additional space other than those previously agreed in the agreement. This is, however, subject to certain minimum payments. In the event that VGI's operational results are not satisfactory and gross revenues decline, BTSC, as the sole shareholder of VGI, may not receive any benefit from investing in VGI or have to invest more in VGI. 1.8 BTSC may encounter a lack of liquidity if BTSC does not obtain a credit facility or source of funds for its operations and investments in other businesses, BTSC has additional investment plans in respect of the electric-railway business and has plans to invest in the real-estate development business (excluding investment from its subsidiaries). BTSC expects that all of such investments require additional funds from BTSC in the aggregate amount of approximately Baht 2,506 million during 1 January 2009 - fiscal year ended 31 March 2010 and BTSC's board of directors has approved the dividend payment of Baht 1,300 million. However, as of 31 December 2009, BTSC has cash-in-hand of Baht 3,049,6 million and as of fiscal year ended 31 March 2009 and nine-month periods ended 31 December 2009, BTSC's profit from its operation before deduction of expenses, interest and depreciation is Baht 1,930.2 million and Baht 1,829.5 million, respectively. In addition, on 21 August 2009, BTSC had issued and offered 5 series of debentures in an aggregrate amount of Baht 12,000 million in which BTS has interest payable of approximately Baht 675 million per annum. The debentures in an amount of Baht 2,500 million, Baht 2,500 million, Baht 4,000 million, Baht 1,500 million, and Baht 1,500 million would be due in 2012, 2013, 2014, 2015, and 2016 and therefore BTSC may have to reserve its fund or refinance it. 23 If BTSC is unable to meet such obligation, BTSC's financial condition could be adversely affected. BTSC intends to obtain funds from third parties (the Third Party Financing), particularly by raising funds through offering securities for sale, borrowing from financial institutions, and seeking co-investors in its subsidiaries. In respect of the subsidiaries, BTSC may sell some portion of shares and/or having its subsidiaries obtain outside financing through new co- investor relationships, by issuing instruments according to market conditions, and/or by borrowing from financial institutions. If BTSC and/or its subsidiaries are unable to obtain funds by issuing debt instruments, through borrowing from financial institutions or through coinvestors within the expected timeframe, BTSC's liquidity and financial condition could be adversely affected. 1.9 BTS SkyTrain System currently offers limited coverage area and interchange stations, and relies on a feeder system linked by other forms of transportation. The BTS SkyTrain System and the Silom Line Extension currently runs along 25.7 km of rail lines with 25 elevated stations, including one common interchange or central station at Siam Station. Despite BTSC's plans to improve shuttle bus services to selected stations, increase linkages with major commercial buildings, hotels and shopping centers, and operate any line extensions, the BTS SkyTrain System (and the Silom Line Extension) has, and will continue to have, a limited service route which relies heavily on feeder systems for a substantial portion of its ridership. While accessible by other forms of public transportation, the BTS SkyTrain System (and the Silom Line Extension) has a limited number of interchange stations with other public transportation and limited park-and-ride services. BTSC's fare revenues and, as a result, BTSC's future growth may be adversely affected if these feeder systems discontinue or delay their services or if BTSC is unable to expand its coverage area and interchange stations successfully. Any of the foregoing could have a material adverse effect on BTSC's anticipated revenues, financial condition and results of operations in the future. 1.10 BTSC relies on Siemens to provide us with maintenance services; the long- term (more)