EXCELSIOR CAPITAL LTD - AGM Information 2008

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CMI LIMITED ABN 98 050 542 553

Notice of Extraordinary General Meeting of Ordinary Shareholders

31 March 2008 at 10.00 am Brisbane Riverview Hotel, Charter Room, Corner Kingsford Smith Drive and Hunt Street Hamilton, Brisbane Queensland

This Notice of Extraordinary General Meeting has been distributed to Class A Shareholders for information only. Class A Shareholders will not be entitled to vote at the Extraordinary General Meeting.

CHAIRMAN’S LETTER	1
NOTICE OF ExTRAORDINARy	2
GENERAL MEETING
ExPLANATORy MEMORANDUM	4
GLOSSARy OF TERMS	10
ANNExURE A
Option Terms	11
ANNExURE B
Independent Expert's Report	13

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CMI LIMITED NoTICE of ExTraorDINary GENEraL MEETING of orDINary sharEhoLDErs 2008

Chairman’s Letter

29 February 2008

Dear Shareholder

ExTrAOrdiNAry GENErAl MEETiNG Of OrdiNAry ShArEhOldErS

This booklet contains notice of an Extraordinary General Meeting for Ordinary Shareholders of CMI Limited ( CMI or the Company ).

The Company is seeking shareholder approval for:

(a) the sale of the majority of the Company’s engineering division; and
(b) the issue of 300,000 Options to each of the two non-executive Directors, being myself and Danny Herceg.

On 31 August 2007, the Company announced an after tax loss for the year ended 30 June 2007 of $3.8 million. The result included a pre-tax impairment loss of $18.6 million from the write down of the engineering division’s fixed and intangible assets.

The Company produced a profit before tax of $13.4 million prior to the $18.6 million impairment write down, a decrease of 16.3% on the prior year which was in line with the Board’s expectations as outlined in the half year announcement.

The Company’s electrical division has continued to show strong profitability, however, the difficult market conditions continue to exist in the engineering and finance businesses.

The Directors consider that the resolutions are in the best interests of the Company.

Selling the majority of the engineering division will enable the Company to:

pay down debt;
remove an underperforming division which has limited growth potential; and
focus its efforts into maximising the potential of the electrical, TJM and finance divisions.

The Directors have requisitioned an independent expert’s report from InterFinancial Limited in relation to the proposed sale of the majority of the engineering division. The report, which is in Annexure B, states that in InterFinancial’s opinion, the proposed transaction is fair and reasonable to CMI’s shareholders.

Issuing Options to its non-executive Directors:

will allow the Company to attract and retain high calibre Directors;
aligns the interests of Directors and shareholders; and
is a cost effective and efficient incentive when compared to other forms of incentive.

The Board recommends the resolutions and accordingly seeks your support for their adoption.

yours faithfully

Colin Ryan

Chairman CMI Limited

CMI LIMITED NoTICE of ExTraorDINary GENEraL MEETING of orDINary sharEhoLDErs 2008

Notice of Extraordinary General Meeting

CMi limited ABN 98 050 542 553

Notice is given that the Extraordinary General Meeting of CMi will be held at:

Location	Brisbane Riverview Hotel, Charter Room, Corner Kingsford Smith Drive and Hunt Street, Hamilton,
	BrisbaneQueensland
Date	31 March 2008
Time	10:00 am

AGENdA – SpECiAl BuSiNESS

Sale of engineering business

To consider and, if in favour, to pass the following ordinary resolution:

1 ‘That pursuant to ASx Listing Rule 11.1, the shareholders approve that the majority of the engineering division of the Company be sold to CMI Industrial Pty Limited, on the terms set out in the Explanatory Memorandum.’

issue of Options to Colin ryan and danny herceg

To consider and, if in favour, to pass the following ordinary resolutions:

2 ‘That pursuant to ASx Listing Rules 10.11 and 10.13, the shareholders approve the issue of 300,000 Options to Colin Ryan on the terms set out in the Explanatory Memorandum.’
3 ‘That pursuant to ASx Listing Rules 10.11 and 10.13, the shareholders approve the issue of 300,000 Options to Danny Herceg on the terms set out in the Explanatory Memorandum.’

VOTiNG rESTriCTiONS

In accordance with the requirements of ASx Listing Rules 10.13.6 and 14.11, the Company will disregard any votes cast on the following resolutions by the following persons:

rESOluTiON	pErSONS ExCludEd frOM VOTiNG
Resolution 1 – Sale of engineering business	Any person who might obtain a beneft if the resolution is
	passed and an associate of thatperson
Resolution 2 – Issue of Options to Colin Ryan	Colin Ryan and his associates
Resolution 3 – Issue of Options to DannyHerceg	DannyHercegand his associates

However, the Company need not disregard any such vote if:

(a) it is cast by any person referred to above as a proxy for a person who is entitled to vote in accordance with the directions provided on the proxy form; or
(b) it is cast by the person chairing the meeting as a proxy for a person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides. In accordance with ASx Listing Rule 14.2.3, the manner in which the Chairman intends to cast any undirected proxies given to him i.e. proxies that do not specify the manner in which way the proxy is to be cast, is set out on the Proxy Form.

DATED 29 February 2008

By Order of the Board

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Mark Laidlaw

Company Secretary CMI Limited

CMI LIMITED NoTICE of ExTraorDINary GENEraL MEETING of orDINary sharEhoLDErs 2008

Notice of Extraordinary General Meeting

CMi limited ABN 98 050 542 553

NOTES

(a) Ordinary Shareholders who are entitled to attend and cast a vote at the meeting are entitled to appoint a proxy.
(b) The proxy need not be a member of the Company. Ordinary Shareholders who are entitled to cast 2 or more votes may appoint 2 proxies and may specify the proportion or number of votes each proxy is appointed to exercise.
(c) If you wish to appoint a proxy and are entitled to do so, then complete and return the enclosed Proxy Form.
(d) A corporation may elect to appoint a representative, rather than appoint a proxy, in accordance with the Act. In which case the Company will require written proof of the representative’s appointment which must be lodged with or presented to the Company before the meeting.
(e) The Company has determined in accordance with Regulation 7.11.37 of the Corporations Regulations 2001 that for the purpose of voting at the meeting or adjourned meeting, shares will be taken to be held by those persons recorded in the Company’s register of Ordinary Shareholders as at 7.00pm (Brisbane time) on 29 March 2008.

If you have any queries on how to cast your votes then call the Company’s share registry on (02) 8280 7454 during business hours.

CMI LIMITED NoTICE of ExTraorDINary GENEraL MEETING of orDINary sharEhoLDErs 2008

Explanatory Memorandum

CMi limited ABN 98 050 542 553

The information in this Explanatory Memorandum is provided to all shareholders of CMI in compliance with the Corporations Act, ASx Listing Rules and the Company’s constitution.

iNTrOduCTiON

This Explanatory Memorandum is dispatched with the Notice of Extraordinary General Meeting .

Only Ordinary Shareholders will be entitled to vote at the Extraordinary General Meeting. Class A Shareholders will not be entitled to vote.

All shareholders should read this Explanatory Memorandum in full and if they have any questions, obtain professional advice before making any decisions in relation to the resolutions to be put to Ordinary Shareholders at the Extraordinary General Meeting.

ExTrAOrdiNAry GENErAl MEETiNG Of OrdiNAry ShArEhOldErS

1 Sale of Engineering division – resolution 1

Background

1.1 CMI is made up of three divisions, the:
(a) electrical division, which in Fy 2007 contributed $14,965,000 of CMI’s net profit before tax;
(b) finance division, which in Fy 2007 contributed $90,000 of CMI’s net profit before tax; and
(c) engineering division, which in Fy 2007 made a loss before tax of $1,690,000 of CMI’s total net profit before tax (before impairment of non-current assets) of $13,365,000.

The Transaction

1.2 CMI has entered into Acquisition Agreements to sell the majority of its engineering division to CMI Industrial Pty Limited ( CMI Industrial ), an entity associated with Mr Maxwell Hofmeister, the former Chairman of the Company. The Acquisition Agreements are conditional upon CMI shareholder approval.
1.3 CMI’s engineering division comprises of:
(a) the following assets held by CMI Operations Pty Ltd:
- (i) CMI Kensington;
- (ii) CMI Forge;
- (iii) CMI Campbellfield;
- (iv) CMI Horsham;
- (v) CMI USA;
- (vi) CMI Ballarat;
- (vii) Toowoomba Metal Technologies; and
- (viii) CMI Water.
(b) CMI Limited (a separate wholly owned subsidiary incorporated in New Zealand); and
(c) TJM.

CMI LIMITED NoTICE of ExTraorDINary GENEraL MEETING of orDINary sharEhoLDErs 2008

Explanatory Memorandum

1.4 TJM will be retained by CMI, however the remainder of the engineering division (listed in paragraph 1.3 (a) and (b)) will be sold. CMI Industrial will acquire all of the Sale Assets.
1.5 The total consideration payable for the Sale Assets is $51 million. This will be paid through:
(a) approximately $26.6 million in cash which will be used to pay down CMI’s existing debt;
(b) the assumption of approximately $7.4 million of existing lease liabilities; and
(c) a $17 million loan to CMI Industrial (on commercial terms) by way of vendor finance to partly fund the purchase price.
1.6 The key terms of the loan agreement to be entered into with CMI Industrial are as follows:
(a) the loan amount is $17 million;
(b) the term of the loan is three years;
(c) interest is payable quarterly in arrears. The interest rate will be the same rate as that paid by CMI Industrial under its facility with the National Australia Bank, which is anticipated to be the bank bill swap rate plus a margin;
(d) pre-payments of the outstanding principal amount are permitted and must be a minimum of $500,000. Should a prepayment be made, the outstanding principal amount will be discounted in accordance with a sliding scale formula based on the amount of the pre-payment and the date on which the pre-payment is made. The discount receivable is capped at $3 million, payable only if the whole of the outstanding principal is repaid within the first six months of the loan;
(e) CMI Industrial will provide security including, but not limited to:
- (i) a second ranking fixed and floating charge granted by CMI Industrial to CMI; and
- (ii) other encumbrances from the related bodies corporate substantially in the form and substance of the charge referred to in paragraph 1.6(e)(i) or in such other form and substance as CMI may agree;
(f) that if CMI Industrial does not repay certain minimum amounts of the loan, ensure CMI is released from certain obligations in relation to leases, creditors and employees of the businesses within the prescribed period or otherwise does not comply with the transaction documents, CMI will have the right to acquire up to 45% of the shares in Transport Water and Power Holdings Pty Limited (the parent company of CMI Industrial) by converting up to $4.5 million of the amount outstanding under the loan;
(g) CMI Industrial will provide covenants and undertakings to CMI in line with the covenants and undertakings it will provide to its first ranking lender. It is proposed that CMI Industrial borrow funds from National Australia Bank Limited (as first ranking lender) sufficient to complete the purchase of the Sale Assets.

CMI LIMITED NoTICE of ExTraorDINary GENEraL MEETING of orDINary sharEhoLDErs 2008

Explanatory Memorandum

pro-forma balance sheet as at 31 december 2007

1.7 The summary unaudited balance sheet as at 31 December 2007 and pro forma balance sheet as at 31 December 2007 adjusted for the sale of the assets and liabilities is shown in the table below.
1.8 The summary pro forma balance sheet has been based on the actual 31 December 2007 balance sheet including an impairment write down of the property plant and equipment in line with the projected loss on sale of $10.3 million after tax.

Balance Sheet	31 december 2007 unaudited $’000 31 december 2007 pro-forma $’000
Current Assets Cash and cash equivalents Trade and other receivables Inventories Current tax assets Total Current Assets Non-Current Assets Trade and other receivables Property, plant and equipment Goodwill and Intangible assets Deferred tax assets Total Non-Current Assets Total Assets Current liabilities Trade and other payables Borrowings Provisions Total Current liabilities Non-Current liabilities Borrowings Provisions Total Non-Current liabilities Total liabilities Net Assets	5,137 4,775 50,682 15,313 45,259 20,600 940 940
	102,018 41,628
	– 17,000 27,525 7,898 32,310 32,292 2,977 2,787
	62,812 59,977
	164,830 101,605
	31,673 12,014 43,410 14,087 6,763 1,626
	81,846 27,727
	5,389 700 5,369 952
	10,758 1,652
	92,604 29,379
	72,226 72,226

CMI LIMITED NoTICE of ExTraorDINary GENEraL MEETING of orDINary sharEhoLDErs 2008

Explanatory Memorandum

1.9 The pro forma balance sheet has been prepared as at 31 December 2007 and the actual date of the sale, if approved, is 1 April 2008. Events and circumstances do not always occur as expected or anticipated and as such the actual balance sheet as at the date of the Transaction may be different and such difference may be material.
1.10 As can be seen from the above table, the Sale Assets form a significant part of CMI’s assets and liabilities.
1.11 Notwithstanding this, their contribution to CMI’s overall performance has been deteriorating for some time due to conditions in the Australian manufacturing industry. CMI’s Board expects this deterioration to continue for the foreseeable future.

Who are the parties to the Transaction?

1.12 CMI and CMI Operations Pty Limited (as vendor), CMI Industrial (as purchaser), Max Hofmeister (as guarantor) and Transport Water and Power Holdings Pty Limited (parent of the purchaser).

how the proceeds from the sale are to be used?

1.13 The proceeds from the sale of assets are to be used to pay down CMI’s existing debt.

What majority of votes is required for the Transaction to be approved?

1.14 Resolution 1 requires only an ordinary resolution which is a simple majority of Ordinary Shareholders present and voting either in person or by proxy at the meeting, either on a show of hands or on a poll if one is called in accordance with the applicable requirements.

Who can vote on the resolutions to approve the Transaction?

1.15 Only Ordinary Shareholders can vote on resolution 1. Class A Shareholders are not entitled to vote.

interest of the directors in the Transaction

1.16 None of the Directors have any interest in the Transaction.

how did the independent directors vote in relation to putting the Transaction to Ordinary Shareholders for approval and in relation to the contents of this document?

1.17 Each of the Independent Directors voted in favour of putting the Transaction to Ordinary Shareholders for approval and approved the contents of this document.

do the directors recommend the approval of the Transaction?

1.18 yes, the Directors recommend the Ordinary Shareholders vote in favour of the Transaction.
1.19 After carefully considering all of the aspects of the Transaction and the Independent Expert’s Report, the Directors are of the view that the Transaction is in the best interest of the Company because selling the engineering division will enable the Company to:
(a) pay down debt;
(b) remove an underperforming division which has limited growth potential; and
(c) focus its efforts into maximising the potential of the electrical, TJM and finance divisions.

is the Company paying the costs associated with approving the Transaction?

1.20 yes, the Company has commissioned and will pay for the Independent Expert’s Report in respect of the Transaction. Further, the Company will pay its own legal costs associated with the preparation of the Acquisition Agreements, this notice of meeting and advice with respect to the Transaction.

CMI LIMITED NoTICE of ExTraorDINary GENEraL MEETING of orDINary sharEhoLDErs 2008

Explanatory Memorandum

Are there other contracts or arrangements that are connected with the Transaction?

1.21 As far as the Directors are aware:
(a) there is no other contract or proposed contract between CMI or any of its respective associates which is conditional upon, or directly or indirectly dependent on, Ordinary Shareholders agreement to the Transaction; and
(b) there is no proposal that any property will be transferred between the Company and CMI Industrial or any person associated with any of them, other than under the Transaction.

When will the Transaction be completed?

1.22 If approved by Ordinary Shareholders, the Transaction will settle on 1 April 2008.
1.23 The Acquisition Agreements entered into between CMI Industrial and the Company provide that if the Transaction is not approved by Ordinary Shareholders at this EGM, the Transaction will not proceed.

Additional information

1.24 In the Independent Directors’ opinion, there is no other information that:
(a) is material to the making of a decision by an Ordinary Shareholder of the Company in relation to the Transaction, be it information that is within the knowledge of any Director or the Company or any related body corporate at the time of lodging this statement for registration; and
(b) has not previously been disclosed to the members of the Company,

other than information set out in this document.

2 issue of Options to Colin ryan and danny herceg – resolutions 2 and 3

2.1 The Company proposes to issue 300,000 Options to Colin Ryan and 300,000 Options to Danny Herceg.
2.2 The Options are exercisable from the date of issue and expire after 5 years. The exercise price will be the higher of $1.20 or the volume weighted average price of the Company’s Ordinary Shares over the 30 trading days prior to the issue of the Options.
2.3 The full terms of the Options are included in an option deed to be entered into by the Company and each non-executive Director. A summary of the key terms of the Options is set out in Annexure A to this Explanatory Memorandum.
2.4 Listing Rule 10.11 provides that a listed company must not, without the approval of Ordinary Shareholders, issue equity securities to a related party. For the purposes of the Listing Rules, the Options will be regarded as equity securities.
2.5 Under section 208 of the Corporations Act giving a financial benefit (such as options) to a related party (such as a director) requires shareholder approval unless an exception applies. The grant of Options to Colin Ryan and Danny Herceg are considered to be under the reasonable remuneration exception in section 211 of the Corporations Act.
2.6 Listing Rule 10.13 requires the following information to be provided to shareholders prior to obtaining approval for the issue of the Options:

Names of persons entitled to participate:	Colin ryan and Danny herceg.
Allottees and number of securities to be issued:	It is proposed that 300,000 options will be issued to Colin ryan and
	300,000 options will be issued to Danny herceg.
date by which the securities will be issued:	The options will be issued as soon as reasonably practicable after the
	EGM and in any event within one month of the EGM.
issue price and terms of issue:	No consideration will be provided for the grant of the options.
	The terms of issue of the options are set out in annexure a to this
	Explanatory Memorandum.
use of funds raised:	The current intention of the Company is that on exercise, the funds
	raised from the issue of ordinary shares will be used to fund the
	Company’s working capital requirements.

CMI LIMITED NoTICE of ExTraorDINary GENEraL MEETING of orDINary sharEhoLDErs 2008

Explanatory Memorandum

2.7 Where the approval of shareholders for the issue of the Options is obtained pursuant to Listing Rule 10.11, approval is not required pursuant to Listing Rule 7.1. This means that the proposed issue of the Options to Colin Ryan and Danny Herceg will not erode the Company’s ability to issue equity securities up to the 15% limit, prescribed by Listing Rule 7.1, without obtaining further shareholder approval.
2.8 Raymond Catelan, being the only Director of the Company who is not to eligible to receive any Options, recommends that shareholders approve the grant of Options to Colin Ryan and Danny Herceg. The grant of Options will align the interests of the Directors with those of the Company and help the Company to achieve its objective of attracting and retaining high calibre directors.
2.9 Colin Ryan and Danny Herceg do not wish to make a recommendation in respect of the grant of the Options as they have a material personal interest in the matter.
2.10 If the Options are granted and all of them are exercised, the resulting Ordinary Shares issued would equate to approximately 1.75% of the total number of Ordinary Shares that the Company has on issue.
2.11 The Directors consider that the incentive represented by the issue of the Options is a cost effective and efficient incentive when compared to other forms of incentive.
2.12 The primary purpose of the Options is to reward performance and provide an incentive to Colin Ryan and Danny Herceg. Given this purpose, the Directors do not consider that there is any opportunity cost or benefit foregone to the Company in granting the Options, the subject of this resolution.
2.13 There is no other information known to Directors or the Company which is considered to be required by shareholders in order to decide whether or not it is in the Company’s interests to pass resolutions 2 and 3.

CMI LIMITED NoTICE of ExTraorDINary GENEraL MEETING of orDINary sharEhoLDErs 2008

Glossary of Terms

In the attached Notice of Meeting and Explanatory Memorandum the following words and expressions have the following meanings:

Act	means the_Corporations Act 2001 _(Cth).
Acquisition Agreements	means the agreements between CMI Industrial and its parent Transport Water and Power holdings Pty Ltd aCN 129 398 125 and the Company and its subsidiary CMI operations Pty Limited for the sale of the sale assets and the Loan agreement to be entered into between CMI Industrial, CMI, Maxwell John hofmeister and Transport Water and Power holdings Pty Ltd.
ASiC	means australian securities and Investments Commission.
ASx	means asx Limited aCN 008 624 691 and the market that it operates.
Board	means the board of Directors of the Company.
Chairman	means the Chairman of the Company as approved from time to time and includes an acting Chairman.
Class A Shareholders	means the holders of Class a shares from time to time, and Class a shareholder means any one of them.
Class A Shares	means the Class a shares having the rights as set out in the constitution of the Company.
CMi industrial	means CMI Industrial Pty Limited aCN 129 401 832, an entity controlled by Max hofmeister.
Company or CMi	means CMI Limited aBN 98 050 542 553 or its wholly owned subsidiary, CMI operations Pty Limited aCN 088 279 270.
Corporations Act	means the_Corporations Act 2001_.
directors	means the directors of the Company from time to time, and Director means any one of them.
Extraordinary General Meeting or EGM	means the extraordinary general meeting of the Company to be held on 31 March 2008.
Explanatory Memorandum	means the Explanatory Memorandum to the notice of meeting contained in this booklet.
Grantee	means Colin ryan and Danny herceg.
Grantor	means CMI Limited aBN 98 050 542 553.
head Offce Operation	means the administrative function conducted in the head offce of CMI and includes, but is not limited to, the employees, plant and equipment, leases, head offce property lease and contracts relating to the administrative function.
independent Expert’s report	means the report prepared by Interfinancial Limited, a copy of which is included at annexure B.
listing rules	means the offcial listing rules of asx.
Option	means a right to purchase ordinary shares in the Company on the terms set out in annexure a.
Ordinary Share	means an ordinary share in the capital of the Company, the terms of which are contained in the Company’s constitution.
Ordinary Shareholders	means the holders of the ordinary shares from time to time.
Sale Assets	means CMI Kensington, CMI forge, CMI Campbellfeld, CMI horsham, CMI Usa, CMI Ballarat, Toowoomba Metal Technologies, CMI Water, CMI Ltd (NZ) and the head offce operation.
TJM	means TJM Products Pty Ltd aCN 009 887 325.
Transaction	means the disposal of the engineering business of the Company to CMI Industrial Pty Ltd, as described in this Explanatory Memorandum.

CMI LIMITED NoTICE of ExTraorDINary GENEraL MEETING of orDINary sharEhoLDErs 2008

Annexure A

OpTiON TErMS

1 Exercise price

The exercise price of the Options will be the higher of $1.20 or the volume weighted average price per Ordinary Share over the 30 trading days prior to the issue of the Options.

2 Terms of issue

2.1 The terms of issue of the Options are:
(a) each Option carries the right to subscribe for one fully paid Ordinary Share, subject to the adjustment provisions which are set out below;
(b) any Ordinary Shares issued pursuant to the exercise of any Option will be issued on the same terms and will rank in all respects on equal terms with the other existing fully paid Ordinary Shares;
(c) any portion of the total number of Options held may be exercised by the holder;
(d) the exercise of only a portion of the Options held does not affect the holder’s rights to exercise the balance of any Options held;
(e) Options are fully transferable, subject to the same restrictions which apply to the issued Ordinary Shares;
(f) the Grantor must issue the Shares no later than 14 business days after receipt of the notice of exercise of the Options;
(g) Options will not entitle the holder to participate in any new pro-rata issue of securities of the Company. However, an entitlement to participate will apply following the exercise of the Options. Option holders will be afforded the period of at least 9 business days before the record date of a new pro-rata issue of securities to exercise the Options;
(h) subject to the Listing Rules, if the issued capital of the Grantor is reconstructed or if there is an in specie distribution to shareholders (howsoever described), the number of Options or the exercise price of the Options or both must be reconstructed (as appropriate) so that there will not be any benefits conferred on Option holders which are not conferred on shareholders of the Grantor. Subject to the rounding of entitlements as sanctioned by the meeting of shareholders approving the reconstruction of capital or the in specie distribution, the terms for the exercise of Options remain unchanged in all other respects;
(i) subject to the Listing Rules, the number of shares issued on the exercise of Options will be adjusted for pro-rata bonus issues made before exercise of Options. The exercise price of the Options will not change because of any bonus issue;
(j) the Options do not give any right to participate in any dividends declared by the Grantor. Shares issued on the exercise of the Options rank equally for dividends with other shares;
(k) at any time after the date of this deed, and subsequent to the Grantee giving a notice of exercise to the Grantor, the Grantor can elect to pay to the Grantee the difference between the exercise price of the Option and the current market price of the shares and cancel the Option granted to the Grantee;
(l) where a change of control event (including but not limited to a takeover, trade sale or disposition of a substantial asset) has, or is in the opinion of the Grantor likely to occur, the Grantor must at the discretion of the Grantee allow or procure;
- (i) accelerated vesting and exercise of all of the Options;
- (ii) issue of options or shares in a substituted corporation;
- (iii) a buy-back of the Options; or
- (iv) allow the Grantee to transfer his Options.
(m) The Options are issued subject to the law, the Listing Rules and the Grantor’s constitution.

CMI LIMITED NoTICE of ExTraorDINary GENEraL MEETING of orDINary sharEhoLDErs 2008

Annexure A

OpTiON TErMS

3 Notice of exercise

3.1 The Options may be exercised by notice in writing executed by the Grantee specifying the number of Options in respect of which the notice is given.

4 issue of shares

4.1 Upon exercise of the Options, and provided payment of the exercise price has been made, Grantor must:
(a) cause to be allotted and issued to the Grantee the parcel of shares in respect of which the Option has been exercised;
(b) cause the issue of a holding statement for the shares; and
(c) make application for the quotation of the shares on ASx (if applicable) within 1 month of issue.

CMI LIMITED NoTICE of ExTraorDINary GENEraL MEETING of orDINary sharEhoLDErs 2008

iNdEpENdENT ExpErT’S rEpOrT

Annexure B

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InterFinancial�Limited��

Financial�Services�Guide�

About�us�

InterFinancial�Limited�(IFL�or�we�or�us�or�our)�has�been�engaged�by�CMI�Limited�(CMI�or� Company)�to�provide�general�financial�product�advice�in�the�form�of�an�Independent�Expert’s� Report�(Report)�in�connection�with�the�proposed�sale�of�a�substantial�part�of�the�CMI�engineering� division�(being�all�of�the�engineering�division�other�than�the�business�trading�as�TJM).�

The�Corporations�Act�2001�(Cth)�requires�us�to�provide�this�Financial�Services�Guide�(FSG)�in� connection�with�the�attached�Report�prepared�for�the�benefit�of�CMI.��You�are�not�the�party�who� engaged�us�to�prepare�this�Report�and�we�are�not�acting�for�any�person�other�than�CMI.��This�FSG� provides�important�information�designed�to�assist�retail�clients�in�their�views�of�any�general� financial�product�advice�provided�by�IFL�in�this�Report.�It�is�not�intended�to�comprise�personal�retail� financial�product�advice�to�retail�investors�or�market-related�advice�to�retail�investors.�This�FSG� contains�information�about�our�engagement�by�the�directors�of�CMI�to�prepare�this�Report�in� connection�with�the�proposed�sale�(Engagement),�the�financial�services�we�are�authorised�to� provide,�the�remuneration�we�(and�any�other�relevant�parties)�may�receive�in�connection�with�the� Engagement,�and�details�of�our�internal�and�external�dispute�resolution�systems�and�how�these� may�be�accessed.�

Financial�services�we�are�licensed�to�provide�

Our�Australian�Financial�Services�License�authorises�us�to�provide�the�following�services�to�both� retail�and�wholesale�clients:�

financial�product�advice�in�relation�to�deposit�products,�securities,�derivatives,�managed� investment�schemes�(excluding�investor�directed�portfolio�services),�superannuation�and� government�debentures,�stocks�and�bonds;�and�
deal�in�a�financial�product�by�arranging�for�another�person�to�apply�for,�acquire,�vary�or�dispose� of�the�abovementioned�financial�products.�

General�financial�product�advice�

This�Report�contains�only�general�financial�product�advice.�It�was�prepared�without�taking�into� account�your�personal�objectives,�financial�situation�or�needs.�Where�the�advice�relates�to�the� application�for�or�acquisition�of�a�financial�product,�you�should�also�obtain�and�read�carefully�the� relevant�offer�document�or�explanatory�memorandum�provided�by�the�issuer�or�seller�of�the� financial�product�before�making�a�decision�regarding�the�application�for�or�acquisition�of�the� financial�product.�

Remuneration,�commissions�and�other�benefits�

IFL�charges�fees�for�its�services,�and�will�receive�a�fee�for�its�work�on�this�Report.�These�fees�have� been�agreed�on,�and�will�be�paid�solely�by�CMI,�which�has�engaged�our�services�for�the�purpose�of� providing�this�Report.�IFL�may�seek�reimbursement�of�any�out�of�pocket�expenses�incurred�in� providing�these�services.��Further�details�on�our�fees�are�set�out�in�section�11.3�of�this�Report.�

Associations�and�relationships�

Other�than�as�set�out�in�this�FSG�or�this�Report,�IFL�has�no�associations�or�relationships�with�any� person�who�might�reasonably�be�expected�to�be�capable�of�influencing�it�in�providing�advice�under� the�Engagement.��IFL,�its�officers�and�employees�and�other�related�parties�have�not�and�will�not� receive,�whether�directly�or�indirectly,�any�commission,�fees,�or�benefits,�except�for�the�fees�for� services�rendered�in�producing�this�Report.�Neither�IFL�nor�its�directors�or�executives�has�an�

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interest�in�securities,�directly�or�indirectly,�which�are�the�subject�of�this�Report.�IFL�may�perform� paid�services�in�the�ordinary�course�of�business�for�entities�which�are�the�subject�of�this�Report.�

Complaints�

Our�Australian�Financial�Services�License�requires�us�to�have�an�internal�complaints-handling� mechanism.�All�complaints�must�be�addressed�to�us�in�writing.�If�we�are�not�able�to�resolve�your� complaint�to�your�satisfaction,�you�are�entitled�to�have�your�matter�referred�to�the�Financial� Industry�Complaints�Service�(FICS).�You�will�not�be�charged�for�using�the�FICS�service.�

To�contact�IFL:�

Level�3,�Emirates�House� 167�Eagle�Street� GPO�Box�975� Brisbane,�Qld�4000� Tel:� 07�3218�9100� Fax:�07�3218�9199�

To�contact�the�FICS:

PO�Box�579� Collins�Street�West� Melbourne,�Vic�8007� Tel:� 1800�355�405� Fax:�03�9621�2291��

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20�February�2008�

The�Directors� CMI�Limited� Level�4� 240�Margaret�Street� Brisbane�QLD�4000�

Dear�Directors�

Independent�Expert’s�Report�to�CMI�Shareholders�–�� Approval�of�Sale�of�Business�to�CMI�Industrial�Pty�Ltd�(The�Buyer)�

1.� Introduction�

The�independent�directors�of�CMI�Limited�(CMI�or�Company)�have�instructed�InterFinancial� Limited�(IFL�or�we�or�us�or�our)�to�prepare�an�independent�expert’s�report�(IER�or�Report)�in� connection�with�the�proposed�sale�of�the�majority�of�the�CMI�engineering�division�(being�all�of� the�engineering�division�other�than�the�business�trading�as�TJM)�(Engineering�Business�or� CMI�Engineering),�to�CMI�Industrial�Pty�Limited�(Proposed�Transaction).�

CMI�Industrial�Pty�Ltd�(Buyer)�is�a�company�associated�with�the�former�Managing�Director�of� CMI,�Max�Hofmeister.��In�broad�terms,�the�Buyer�is�acquiring�the�business�assets�of�the� Australian�operations�and�the�shares�in�the�company�CMI�Limited�(NZ)�which�owns�the�New� Zealand�operations.��The�total�consideration�for�the�sale�is�approximately�$51�million.�This�will� be�paid�through�the�assumption�of�$7.4�million�of�existing�lease�liabilities�and�the�payment�of� $26.6�million�in�cash�by�the�Buyer.�An�additional�$17�million�is�to�be�paid�over�a�three�year� period�(Deferred�Amount).��A�discount�applies�to�early�repayment�of�the�Deferred�Amount.�� The�amount�of�the�discount�varies�depending�when�it�is�paid,�with�the�greatest�discount�being� $3�million�should�the�Deferred�Amount�be�paid�in�total�within�six�months�of�the�settlement�of� the�Proposed�Transaction.��Accordingly,�throughout�this�Report,�we�have�referred�to�the� consideration�for�the�sale�of�the�Engineering�Business�as�being�within�the�range�of� approximately�$48�million�to�$51�million.��

This�IER�is�to�accompany�a�Notice�of�Extraordinary�General�Meeting�and�Explanatory� Memorandum�to�be�sent�to�CMI�shareholders.�It�has�been�prepared�exclusively�for�the� purpose�of�assisting�CMI�shareholders�entitled�to�vote�on�the�resolution�to�approve�the� Proposed�Transaction�(CMI�Shareholders)�in�their�consideration�of�that�resolution.�This�IER� must�not�be�used�for�any�other�purpose.�This�Report�should�be�read�in�full,�including�all�of�the� assumptions�upon�which�our�work�is�based,�together�with�the�Notice�of�Extraordinary�General� Meeting�and�Explanatory�Memorandum�and�any�other�information�provided�to�CMI� shareholders�in�connection�with�the�Proposed�Transaction.��

2.� Summary�of�Opinion�

In�assessing�whether�the�Proposed�Transaction�is�fair�and�reasonable�to�CMI�Shareholders,� we�have�considered�the�advantages�and�disadvantages�of�the�Proposed�Transaction�to�CMI� Shareholders�in�the�event�that�the�Proposed�Transaction�proceeds�or�does�not�proceed,� including:�

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the�consideration�offered�for�the�assets�being�disposed�of�by�CMI�in�comparison�with�the� value�of�those�assets�as�assessed�by�IFL;�and�
the�potential�impact�of�the�Proposed�Transaction�on�the�financial�performance�and� financial�position�of�CMI�and�the�impact�on�the�value�of�the�shareholdings�of�CMI� Shareholders.�

We�are�of�the�view�that�the�consideration�of�between�$48�million�to�$51�million�being�offered� by�the�Buyer�is�in�excess�of�the�value�of�Engineering�Business�as�assessed�by�IFL,�being� between�$34.7�million�and�$42.5�million.�The�consideration�offered�therefore�represents�a� premium�of�between�$5.5�million�and�$16.3�million�over�IFL’s�assessed�market�value�of�the� Engineering�Business.�In�light�of�this,�and�after�due�consideration�of�the�other�advantages�and� the�disadvantages�of�the�Proposed�Transaction�as�detailed�in�Section�7�of�this�Report,�it�is� IFL’s�opinion�that�the�Proposed�Transaction�is�fair�and�reasonable�to�CMI�Shareholders.�

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Table�of�Contents�

1.	Introduction.............................................................................................................................1
2.	SummaryofOpinion ..............................................................................................................1
	3.3 BasisofEvaluation ..............................................................................................5
	3.5 Conclusion ...........................................................................................................6
5.	EngineeringValuation ............................................................................................................9
	5.1 Valuationmethodologyandapproach .................................................................9
	5.2 ForecastCashFlows .........................................................................................10
	5.3 DCFAssumptions ..............................................................................................10
	5.4 ValuationSummary............................................................................................10
6.	ValuationCrossCheck.........................................................................................................11
	6.1 ImpliedEquityValueandEnterpriseValue-CMI
	(pre&postsaleofEngineering) ........................................................................11
	6.2 ConclusiononCrossCheckValuation ..............................................................12
7.	AdvantagesandDisadvantagesoftheProposedTransaction............................................12
	7.1 Advantages ........................................................................................................12
	7.2 Disadvantages ...................................................................................................13
8.	AssessmentofFairnessandReasonableness....................................................................14
9.	Director’sPosition ................................................................................................................14
10.	Limitations,RepresentationsandRelianceonInformation .................................................14
11.	Qualifications,DeclarationsandConsents ..........................................................................16
	11.5 Consents............................................................................................................18
AppendixA:SectorBenchmarkCompanies 19
AppendixB:CalculationofDiscountRates 21

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3.� This�Report�

3.1� Scope�of�the�Report�

ASX�Listing�Rule�11�sets�out�the�requirements�that�an�entity�must�satisfy�if�it�proposes�a� significant�change�to�its�activities,�including�that:��

the�entity�must�provide�full�details�of�the�proposed�change�to�ASX�as�soon�as�practicable;��
ASX�may�require�the�entity�to�obtain�approval�from�shareholders�prior�to�implementing�the� proposed�change;�and�
the�entity�must�comply�with�any�requirements�of�ASX�in�relation�to�the�notice�of�meeting�for� approval�of�the�proposed�change.��

Further,�if�the�significant�change�involves�the�sale�of�an�entity’s�main�undertaking,�ASX�Listing� Rule�11.2�states�that�the�entity�must�get�the�approval�of�its�shareholders.��

Under�ASX�Listing�Rule�10.1,�a�listed�entity�must�obtain�the�approval�of�its�ordinary�security� holders�for�the�sale�of�a�substantial�asset�to:�

a�related�party;�
a�substantial�holder,�if�that�person�and�that�person’s�associates,�have�a�relevant�interest,� or�had�a�relevant�interest,�at�any�time�in�the�6�months�before�the�transaction�in�at�least� 10%�of�the�total�votes�attached�to�the�voting�securities;�or�
a�person�whose�relationship�is�such�that,�in�ASX’s�opinion,�the�transaction�should�be� approved�by�security�holders.�

ASX�Listing�Rule�10.2�provides�that�an�asset�is�substantial�if�its�value�is�five�percent�or�more� of�the�equity�interests�of�the�entity�as�set�out�in�the�latest�financial�statements�given�to�ASX.�

CMI�has�informed�IFL�that�ASX�has�advised�that�shareholder�approval�is�required�under� Listing�Rule�11.1.2�as�the�Proposed�Transaction�involves�a�significant�change�to�the�nature�or� scale�of�CMI’s�activities.��However,�ASX�has�advised�that�shareholder�approval�is�not�required� under�either�Listing�Rule�10�or�Listing�Rule�11.2�in�relation�to�the�Proposed�Transaction�as� Max�Hofmeister�is�not�a�person�referred�to�in�Listing�Rule�10.1�and�as�the�Engineering� Business�is�not�the�Company’s�main�undertaking.�

Further,�CMI�has�advised�IFL�that�ASX�has�not�imposed�a�requirement�for�CMI�to�commission� an�independent�expert’s�report�in�relation�to�the�Proposed�Transaction.�However,�the�Board�of� CMI�has�decided�to�obtain�shareholder�approval�for�the�Proposed�Transaction,�and�to�provide� this�Report,�in�the�interests�of�ensuring�that�CMI�shareholders�are�fully�informed.��

3.2� Purpose�of�the�Report��

The�directors�of�CMI�have�engaged�IFL�to�prepare�an�independent�expert’s�report�setting�out� whether,�in�its�opinion,�the�Proposed�Transaction�is�fair�and�reasonable�to�CMI�Shareholders.� This�Report�will�accompany�a�Notice�of�Extraordinary�General�Meeting�and�Explanatory� Memorandum�which�will�be�sent�to�CMI�Shareholders.�

IFL's�opinion�should�not�be�construed�as�a�recommendation�as�to�whether�or�not�to�approve� the�Proposed�Transaction.��Approval�or�rejection�of�the�Proposed�Transaction�is�a�matter�for� individual�shareholders�based�on�their�own�circumstances,�including�risk�profile,�liquidity� preference,�investment�strategy,�portfolio�structure�and�tax�position.��Shareholders�who�are�in� any�doubt�as�to�the�action�they�should�take�in�relation�to�the�Proposed�Transaction�should� consult�their�own�independent�professional�adviser.�

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3.3� Basis�of�Evaluation��

There�is�no�statutory�definition�of�the�expressions�“fair�and�reasonable”,�and�the�expression� has�different�meanings�for�different�regulatory�purposes.��

In�determining�whether�the�Proposed�Transaction�is�fair�and�reasonable,�we�have�had�regard� to�the�views�expressed�by�ASIC�in�Regulatory�Guide�111�“Content�of�expert�reports”�(RG111)� and�Regulatory�Guide�112�“Independence�of�experts”�(RG112)�(to�the�extent�that�they�are� relevant).��Whilst�RG111�and�RG112�do�not�indicate�what�is�considered�fair�and�reasonable�in� the�specific�context�of�a�disposal�by�a�company�of�a�substantial�asset,�they�do�provide�some� guidance�as�to�the�considerations�relevant�to�IFL�in�determining�whether�the�Proposed� Transaction�is�fair�and�reasonable.�

the�consideration�offered�for�the�assets�being�disposed�of�by�CMI�in�comparison�with�the� assessed�value�of�those�assets;�and�
the�potential�impact�of�the�Proposed�Transaction�on�the�financial�performance�and� financial�position�of�CMI�and�the�impact�on�the�value�of�the�CMI�shareholdings�of�CMI� Shareholders.�

In�the�process�of�making�an�assessment�of�the�Proposed�Transaction,�IFL�has�made�certain� assumptions.�Where�these�assumptions�are�material�to�our�work,�we�have�set�them�out�in�this� Report.�

3.4� Source�of�Information�

This�Report�is�based�upon�financial�and�other�information�provided�by�or�on�behalf�of�CMI.�We� have�considered�and�relied�upon�this�information�and�believe�the�information�provided�is� reliable,�complete�and�not�misleading�and�have�no�reason�to�believe�that�material�facts�have� been�withheld.�The�information�provided�to�IFL�has�been�evaluated�through�analysis,�inquiry� and�review�for�the�purposes�of�forming�an�opinion�as�to�whether�the�Proposed�Transaction�is� fair�and�reasonable�to�CMI�Shareholders.�However,�IFL�does�not�warrant�that�its�inquiries� have�identified�or�verified�all�of�the�matters�that�an�audit,�extensive�examination�or�due� diligence�investigation�might�disclose.�

An�important�part�of�the�information�used�in�forming�an�opinion�as�to�fairness�and� reasonableness�is�comprised�of�the�opinions�and�judgment�of�CMI�management.�This�type�of� information�was�evaluated�through�analysis,�inquiry�and�review.��However,�such�information�is� often�not�capable�of�external�verification�or�validation�and�has�not�been�independently�verified.��

The�financial�forecasts�used�in�the�preparation�of�this�report�reflect�the�judgment�of�Directors� and�management�of�CMI�based�on�present�circumstances,�as�to�both�the�most�likely�set�of� conditions�and�the�course�of�action�CMI�is�most�likely�to�take.��It�is�sometimes�the�case�that� events�and�circumstances�do�not�occur�as�expected�or�are�not�anticipated.��Accordingly,� actual�results�during�the�forecast�period�can�differ�from�the�forecast�and�such�differences�may� be�material.��To�the�extent�that�our�conclusions�are�based�on�forecasts,�we�express�no� opinion�on�the�achievability�of�those�forecasts.�

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3.5� Conclusion�
We�have�considered�the�Proposed�Transaction�and,�taking�account�of�the�matters�outlined�in�
this�Report,�we�believe�that�the�Proposed�Transaction�is�fair�and�reasonable.�
4.� Background�Information�
4.1� Company�Information�
CMI�is�an�Australian�public�company�listed�on�the�Australian�Securities�Exchange�(ASX).�Its�
current�operations�are�conducted�through�three�business�segments,�namely:�
 Engineering�–�manufacture,�distribution�and�marketing�of�precision�engineered�
components,�particularly�for�the�automotive�industry,�including�components�and�parts�for�
4WD,�light�commercial�and�heavy�transport�vehicles;�
 Electrical�–�manufacture,�distribution�and�marketing�of�specialist�cabling�and�electrical�
products�for�a�range�of�industry�sectors�(Electrical�Business);�and�
 Financial�Services�–�provision�of�chattel�finance�to�both�consumer�and�commercial�
borrowers�(Financial�Services�Business).�
4.2� Engineering�Operations�
CMI�Engineering�and�4WD�Components�division�operates�through�a�number�of�operational�
bases�and�businesses.��The�division�specialises�in�the�manufacture�and�distribution�of�metal-
based�products�for�a�diverse�range�of�industry�sectors�including�automotive,�4WD�
accessories,�heavy�transport,�water�fittings,�white�goods,�energy,�rural�and�housing.�
The�Engineering�business�unit�comprises�a�number�of�divisions�including:�
 CMI�Engineered�Components�-�specialised�manufacturing�services�to�manufacturing�
industries.��Plants�are�located�in�Victoria�in�Ballarat,�Kensington,�Campbellfield,�Footscray�
(Forge)�and�Horsham;�
 Toowoomba�Metal�Technologies�(Toowoomba�Foundry);�
 CMI�Springs�located�in�Auckland�and�Christchurch;�
 CMI�USA�in�Columbia�and�Knoxville,�USA�
 CMI�Water,�located�in�Bundaberg;�and�
 TJM�Products�Pty�Ltd�(TJM),�located�in�Brisbane.�
TJM�is�not�part�of�the�Proposed�Transaction�and�will�continue�as�a�division�of�CMI .��
The�businesses�included�in�the�sale�are:�
Table�4.2�–�Engineering�Businesses�included�in�the�Proposed�Transaction�
Site� Key�Business�Activities� End�market�
Ballarat� Manufacturer�of�brake�parts,�pressed�metal�clips,�fasteners�and� 52%�Auto�OEM;�48%�
components�to�USA�automotive�OEM�market.��Fasteners�and� Building/Other�
parts�for�the�building,�construction�and�whitegoods�industry.�
Campbellfield� Heavy�pressing�to�manufacture�seatbelt�components,�airbags,� 100%�Auto�OEM�
brake�pad�backing�plates,�painting�and�other�automotive�
components�(both�domestic�and�export).�
Forge� Hot�forging�of�materials�(including�steel,�aluminium,�titanium�and� 64%�Auto�OEM;�36%�
others);�value-added�activities�(design,�painting�and�coating).�� Building/Other�
Key�sectors�include�automotive�OEM�and�energy�(turbine�
blades)�sectors.��
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Site	KeyBusinessActivities	Endmarket
Horsham	ProducerofvariousgradesofDuctileIronandEngineering	54%Building/Other;46%
	GradesofGreyIron.Productsincludebrakediscs,suspension	AutoOEM
	componentsanddifferentialcastings.Majorsectorsserviced
	includeautomotiveaftermarket,defenceandagriculture.
Kensington	Manufacturerofhighprecisionmachinedcomponentsincluding	97%AutoOEM;3%
	manifolds,machinedoilpumps,thermostathousingsandsprings	Building/Other
	principallyfortheautomotiveOEMmarket.
USA	DistributorofarangeofCMImanufacturedautomotivebrake	100%AutoOEM
	componentstotheUSmarket.
Bundaberg	ManufacturerofpolyethylenewatertanksforCentralandSouth	100%Water
	EastQueenslandsupplymarkets.
Toowoomba	Foundryspecialisinginthemanufactureandmarketingofductile	76%HeavyTransport;15%
	andgreyironproducts.Productsincludetruckandtrailerwheel	Water;9%AutoExport/Other
	components,automotivecomponents,cylinderheads,water
	reticulationpipefittings.Approximately76%ofsalesaretothe
	heavytransportsectorandthebalancetowaterandautoexport.
Auckland	Springmanufacturer.Mainproductsarepigtailsfortheelectric	100%Building/Agriculture
	fencemarket,springcomponents,garagedoorspringsand
	FisherandPaykelproducts.Sectorssuppliedareagriculture,
	housingandwhitegoods.

Source:��CMI�Management�

4.3� Background�on�Market�Sectors��

CMI�Engineering�competes�primarily�in�the�automotive�OEM�and�heavy�transport�markets.�

Table�4.2�–�Market�Sectors�

	AutomotiveOEM	HeavyVehicles	Agriculture/Building	Water
%ofEngineering	54%	22%	18%	6%
Sales
KeyCharacteristics	-Matureandvery	-Toughbutresilient	-Partsforthe	-Supplyofwatertanksto
	demanding.	Australianmarket	Agriculturalindustry.	fulfilvariouswater
	-OriginalEquipment	characterisedby	-Partsforconsumer	storageneedsinQLD.
	Manufacturers	strongunderlying	product	-Designandproductionof
	placesuppliers	growthin	manufacturers.	waterreticulationfittings
	underextreme	commerce,mining
	service,qualityand	andinfrastructure.
	pricingpressures.
KeyTrends	-Reduceddemand	-Growthofroad	-AgricultureinAustralia	-Highlymarketedsector.
	forlocallyproduced	freight.	challengedbywater	-Strongandgrowing
	largecarswith	-Miningboomdriven	managementissues	demand,drivenbylack
	trendstoimported	byChinesegrowth.	andinternational	ofwatersuppliesin
	smallandSUV	-Significantly	competition.	Queensland.
	vehicles.	increasedfundingto	-Australian
	-Marginpressure,	infrastructure	manufacturing
	dueto	projects.	industryshowing
	overcapacity.		steadygrowth
			prospects.
CMIEngineering	-LightVehicleparts.	-BrakeandHub	-Springmanufacturing.	-Roto-moulded
KeyCapabilities	-4WDparts.	componentsfor	-Electricfencing,	-Polyethylenewater
	-Sportcars	heavyandlarge	garagedoors,white	tanks.
	components.	vehicles.	goods,electronic	-Ironpipefittings
			products.

Source:��CMI,�Desktop�Research,�Hub�Analysis�

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4.4� Market�Sectors�–�Key�Information�

The�Automotive�OEM�Market�

The�Australian�car�market�has�grown�by�4.4%�per�annum�in�volume�from�2000�to�2007.�
The�number�of�cars�sold�annually�in�Australia�surpassed�one�million�for�the�first�time�in� 2007.�
The�main�beneficiaries�of�this�increase�are�foreign�manufacturers,�whose�market�share� has�increased�from�67%�in�2000�to�80%�in�2007.�
The�shift�to�imports�is�driven�by�a�high�Australian�dollar�and�reducing�import�tariffs,�with� rising�petrol�prices�and�interest�rates�having�little�effect�on�car�sales.�
Federation�of�Automobile�Products�Manufacturers�forecasts�that�exports�of�Australian� manufactured�cars�are�expected�to�help�local�manufacturers�increase�their�production�over� the�next�years.�
Ford�and�Toyota,�in�particular,�have�aggressive�assumptions�on�increased�exports�over� the�next�few�years.�
There�is�a�trend�toward�smaller�imported�cars�and�SUVs�due�to�high�fuel�prices�and� changing�consumer�life-style.�
OEMs�are�continually�re-engineering�cars�so�that�less�components�are�required.�
Tariff�reduction�uncertainties�coupled�with�high�exchange�rates�will�likely�reduce�volumes� of�cars�manufactured�in�Australia.�
Overcapacity�in�the�automotive�sector�has�forced�down�component�prices.�
Customers�are�sourcing�from�low�cost�countries.�

The�Heavy�Vehicles�Market�

Heavy�vehicle�sales�increased�by�11.4%�per�annum�from�FY2005�to�FY2007,�driven�by� regulatory�changes�and�favourable�market�conditions.�
Heavy�vehicle�sales�are�expected�to�increase�again�in�2008�but�then�growth�may�decline� as�major�logistics�companies�have�replaced�fleets�ahead�of�legislative�changes�associated� with�Australian�Design�Rule�legislation�defining�tighter�pollutants/noise�emissions� limitations�for�heavy�vehicles�to�be�implemented�as�of�1�July�2008.�
Heavy�vehicle�sales�will�continue�to�be�strong�due�to�favourable�economic�indicators.�

The�Agriculture/Building�Markets�

After�a�decline�in�volume�over�the�last�3�years,�the�industry�started�to�recover�in�the� beginning�of�2007.�
Solid�rises�expected�in�mining,�heavy�industry�and�telecommunications�should�drive�further� growth�in�the�years�to�come.�
With�the�NZ�Dollar�reaching�a�post-float�high�against�the�US�in�2007,�exports�have� experienced�a�slow�but�continuous�growth.�
The�sharp�rise�in�fuel�prices,�the�US�mortgage�crisis�and�recession�fears�might�be� concerns�for�2008.�However,�assumed�falling�exchange�rate,�firm�international�prices�and� increases�in�volume�should�drive�strong�growth.�
In�FY2008�and�FY2009,�agricultural�income�in�New�Zealand�is�expected�to�grow�by�5%� and�24%�respectively,�the�dairy�industry�being�the�main�driver�of�this�dramatic�increase.�

Page�8�

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The�Water�Market�

Water�tank�sales�have�experienced�a�record�growth�of�30%�in�2007�and�are�expected�to� increase�by�8.3%�per�annum�between�2007�and�2010�driven�by�expected�water�shortages.�
In�Queensland,�water�tanks�will�have�to�be�plumbed�into�the�internal�system�from� 1�February�2008�in�order�to�be�eligible�for�a�rebate,�which�will�lead�to�dampening�of�tank� sales.�
A�large�number�of�competitors�in�the�market�are�likely�to�drive�down�value�growth.�
4.5� Overview�of�CMI�Engineering’s�Position�in�the�Automotive�OEM�Market�
CMI�has�a�strong�position�in�auto�components�with�feedback�from�key�customers� demonstrating�good�operational�performance.�
CMI�Engineering�has�long�tenure�with�key�customers�(often�exceeding�ten�years).�
CMI�won�Ford�Supplier�Excellence�Award�in�2006.�
CMI’s�Campbellfield�and�Kensington�sites�are�located�within�the�same�locale�as�the� customers�and�are�therefore�able�to�minimise�supply�chain�cost�and�effectively�supply� components�for�JIT�production.�
Australia’s�shift�in�sentiment�from�larger�6�and�8�cylinder�cars�in�favour�of�small�imported� cars�and�SUVs�has�lead�to�a�decline�in�large�cars,�where�CMI�is�particularly�exposed.�

5.� Engineering�Valuation�

5.1� Valuation�methodology�and�approach�

Valuations�of�shares�and�businesses�are�traditionally�performed�using�one�of�the�following� methods:�

capitalisation�of�earnings�or�cash�flow;�
discounting�projected�cash�flows�of�the�business;�
discounted�projected�dividends;�
comparative�transactions;�
industry�“rules�of�thumb”;�or�
net�asset�based.�

Each�of�these�valuation�methodologies�has�application�in�different�circumstances.�The� decision�as�to�which�methodology�to�apply�generally�depends�on�the�nature�of�the�company� being�valued,�the�most�common�method�adopted�and�the�availability�of�appropriate� information.�

The�discounted�cash�flow�(DCF)�method�has�been�selected�as�the�primary�valuation�method� for�the�Engineering�Business�for�the�following�reasons:�

lack�of�relevant�benchmark�market�data,�and�the�dependability�of�such�data�during�periods� of�considerable�volatility�in�markets�as�is�being�experienced�at�the�time�of�writing�this� Report;�
the�issue�of�life�span�of�some�of�the�divisions�of�the�Engineering�Business,�given�exposure� to�the�Australian�automotive�industry;�and�
due�to�the�nature�of�the�capital�expenditure�requirements�that�will�arise�over�the�life�of�the� business�which�is�best�reflected�in�value�by�using�a�DCF.�

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Applying�the�DCF�methodology�involves�the�following�procedures:�

estimating�the�future�cash�flows�of�the�business;�
assessing�the�appropriate�discount�rates�which�reflects�the�risks�associated�with�the� cash�flows;�and�
calculating�the�present�value�of�the�future�cash�flows.�

5.2� Forecast�Cash�Flows��

The�information�provided�to�IFL�included�management�projections�for�the�operating� businesses.��IFL�has�used�and�relied�upon�this�financial�information�for�the�purposes�of�its� analysis.�IFL�reviewed�the�reasonableness�of�the�forecasts�for�sales,�cost�of�materials,�wages,� EBITDA�margins�and�capital�expenditure�and�developed�a�‘High‘�and�‘Low’�case�financial� model�for�each�division�of�the�CMI�Engineering�Business.��The�key�elements�to�the�forecast� cash�flows�in�the�high�case�and�low�case�are:��

The�high�case�financial�model�indicating�a�decline�in�trading�cash�flows�of�$8.6�million�in� 2008�to�$5.8�million�in�the�final�year�of�consideration;�
The�low�case�financial�model�indicating�a�decline�in�trading�cash�flows�of�$8.6�million�in� 2008�to�$3.3�million�in�the�final�year�of�consideration;�
Management�expectations�for�annual�capital�expenditure�utilised�in�both�the�high�and�low� cases�was�$740,000�in�2008,�$885,000�in�2009,�and�then�$540,000�in�each�of�the�ensuing� years�under�consideration.�
5.3� DCF�Assumptions�

IFL�then�used�a�discounted�cash�flow�model�with�the�following�assumptions:�

DCF�window�of�10�years;�
terminal�growth�rate�was�set�at�0%,�giving�no�real�growth;�
tax�rate�30%;�
debt�funding�30%;�and�
after-tax�discount�rate�of�11.75%.��Refer�to�Appendix�B�for�a�detailed�discussion�of�this� calculation.�

5.4� Valuation�Summary�

The�value�of�the�Engineering�Business�has�been�estimated�on�the�basis�of�fair�market�value;� that�is,�the�value�that�would�be�negotiated�between�a�knowledgeable�and�willing,�but�not� anxious�buyer,�and�a�knowledgeable�and�willing,�but�not�anxious�seller,�acting�in�an�arm’s� length�transaction�where�both�buyer�and�seller�are�fully�informed.��

It�must�be�noted�that�the�value�of�the�Engineering�Business�in�this�Report�is�a�matter�of� opinion,�and�a�definitive�or�certain�value�cannot�be�provided�as�the�ultimate�price�of�any�asset� is�largely�a�question�of�market�demand,�market�sentiment�and�competing�assets�at�the�time�of� sale,�all�features�which�cannot�be�readily�assessed�by�an�expert.��

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The�following�table�summarises�the�application�of�the�DCF�calculation.�

Table�5.2�–�Engineering�Business�Valuation�

	High($m)	Low($m)
DiscountRate	11.75%	11.75%
PresentValueofCashFlows	29.4	26.7
PresentValueofTerminalValue	13.0	8.1
EnterpriseValue	42.5	34.7

Source:�InterFinancial�Analysis��

6.� Valuation�Cross�Check�

As�a�cross�check�of�our�valuation�conclusion�above,�we�have�reviewed�the�sum�of�parts� valuation�of�CMI�based�on�the�market�capitalisation�of�CMI�and�the�value�implied�by�the� Proposed�Transaction.�

6.1� Implied�Equity�Value�and�Enterprise�Value�-�CMI�(pre�&�post�sale�of�Engineering)�

We�reviewed�the�market�capitalisation�(Equity�Value)�and�enterprise�value�of�CMI�and� subtracted�the�consideration�of�between�$48�million�and�$51�million�in�consideration�under�the� Proposed�Transaction�to�obtain�an�implied�Equity�Value�and�enterprise�value�of�the�remaining� CMI�business�after�the�Proposed�Transaction,�as�detailed�below.�

Table�6.1�–�Implied�Value�of�the�balance�of�CMI�(post�sale)

Table6.1–ImpliedValueofthebalanceofCMI(postsale)
ImpliedValueofCMI	($mills)
MarketCapitalisationofCMI15February2008	56.7
LesstheConsiderationtobepaidforEngineeringBusiness	51.0
ImpliedMarketCapitalisationforthebalanceofCMI	5.7
PlusInterestBearingDebt	48.8
LessCash	(5.1)
ImpliedEnterpriseValueforthebalanceofCMI	49.4
ForecastEBITDAforbalanceofCMI	17.1
ImpliedEBITDAmultipleforthebalanceofCMI	3.0x

Source:��CMI,�IFL�Analysis�

The�market�capitalisation�value�of�CMI�as�detailed�above�was�based�on�the�share�price�as�at� 15�February,�2008.�The�Implied�Market�Capitalisation�for�the�balance�of�CMI�merely� calculates�the�resultant�value�of�CMI�if�the�consideration�paid�for�the�Engineering�Business� represents�market�value�and�the�share�price�(as�quoted�on�ASX)�of�CMI�adjusts�the�market� capitalisation�accordingly.�

The�businesses�remaining�after�the�sale�of�the�Engineering�Business�are�the�TJM�Business,� the�Electrical�Business�and�the�Financial�Services�Business.��

Management�has�provided�forecasts�for�those�remaining�businesses.�

Neither�of�these�calculations�represents�IFL’s�view�on�forecast�performance�of�either�the� share�price�or�the�profits�of�the�businesses�as�we�have�not�performed�a�review�of�the� Electrical�Business�or�Financial�Services�Business.�This�is�merely�a�calculation�based�on� publicly�available�information,�forecast�results�and�from�discussions�with�CMI�management.�

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6.2� Conclusion�on�Cross�Check�Valuation�

To�assess�the�Proposed�Transaction�in�light�of�the�CMI�market�capitalisation�and�the�value� implied�after�the�Proposed�Transaction,�we�have�reviewed�resulting�forecast�EBITDA� multiples�for�remaining�CMI�businesses�and�compared�these�to�its�benchmark�companies�as� detailed�below.�

Table�6.2�–�Implied�EBITDA�Multiples�for�the�balance�of�CMI�

Table6.2–ImpliedEBITDAMultiplesforthebalanceof	CMI
	Multiple
ImpliedEBITDAMultipleforbalanceofCMI	3.0x
AverageElectricalBusinessBenchmarks	6.0xto6.5x
AverageAutomotiveandcomponentsbenchmarks	6.0xto6.5x
AverageFinancialServicesBenchmarks	5.0xto6.0x

Source:��IFL�Analysis�

This�analysis�highlights�that�after�deducting�the�value�of�the�Engineering�Business�(based�on� the�value�implied�by�the�Proposed�Transaction),�that�the�remaining�CMI�business�would�be� valued�at�a�significant�discount�to�other�listed�electrical�and�financial�services�companies.�This� could�infer�that�the�consideration�payable�under�the�Proposed�Transaction�(when�referenced� to�the�market�capitalisation�of�CMI)�disproportionately�allocates�market�value�to�the� Engineering�Business.�

Further,�it�could�infer�that�should�CMI�be�re-valued�in�line�with�the�benchmark�listed� companies�after�the�Proposed�Transaction,�the�shareholders�of�CMI�may�experience�an�uplift� in�value�as�a�result�of�the�Proposed�Transaction.�

Details�on�the�financial�services,�automotive�components�and�electrical�benchmarks�used�in� this�analysis�are�attached�at�Appendix�A.�

7.� Advantages�and�Disadvantages�of�the�Proposed�Transaction�

In�the�course�of�our�analysis�we�have�identified�the�following�advantages�and�disadvantages� to�CMI�Shareholders�of�approving�the�Proposed�Transaction.�

We�have�assessed�that�in�all�cases�the�advantages�and�disadvantages�of�rejecting�the� Proposed�Transaction�are�the�inverse�of�accepting�the�Proposed�Transaction.�Accordingly,�for� simplicity�and�ease�of�evaluation�of�the�Proposed�Transaction,�we�have�set�out�the�significant� factors�only�in�the�context�of�accepting�the�Proposed�Transaction.�

7.1� Advantages��

The�consideration�offered�for�the�assets�being�disposed�by�CMI�exceeds�our�assessed� value�of�those�assets,�as�discussed�in�section�2;�
We�understand�that�the�Proposed�Transaction�has�been�negotiated�on�an�arm’s�length� basis.�We�have�also�reviewed�the�terms�and,�based�on�our�experience,�we�consider�them� to�be�consistent�with�market�practice�and,�in�some�cases,�more�favourable�to�CMI.��In� particular,�the�sale�agreement�has�limited�warranties�and�guarantees�provided�by�CMI�and� reduced�rights�for�the�Buyer�to�claim�in�relation�to�the�sale.�In�broad�terms,�the�business�is� being�sold�on�an�‘as�is,�where�is’�basis;�
�The�Company�will�receive�a�significant�cash�injection�which�will�enable�it�to�reduce�debt�-� the�consideration�for�sale�of�the�Engineering�Business�will�generate�a�cash�inflow�of� approximately�$26.6�million�and�the�Buyer�will�assume�$7.4�million�in�existing�lease� liabilities.�The�inflow�of�funds�is�to�be�used�to�pay�down�debt�with�the�effect�that�the�net�

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debt�position��of�CMI�will�reduce�from�approximately�$43.7�million�(as�at�31[st] �December� 2007)�to�$10.0�million;�

The�Buyer�is�taking�on�liabilities�including�all�employee�entitlements�associated�with�the� Engineering�Business�and�also�takes�responsibility�for�after�sale�service�and�returned� goods�or�services�supplied�by�CMI�before�completion;�
The�sale�fits�the�strategic�plan�for�CMI�–�at�the�annual�general�meeting�on�12 November� 2007,�the�Managing�Director�announced�the�intention�to�retain�and�expand�the�electrical� division�business�and�pursue�the�option�to�sell�or�merge�the�financial�services�business� and�Engineering�Business;�
The�stand-alone�nature�of�CMI�businesses�means�little�disruption�from�the�sale�-�the� Engineering�Business�is�not�integrated�with�the�other�divisions�and�management�has� indicated�that�it�will�take�the�opportunity�to�rationalise�head�office�and�move�to�TJM�offices� at�Geebung�which�will�lead�to�administrative�cost�savings;�and�
The�sale�reduces�the�risk�profile�of�CMI�-�as�the�market�generally�views�businesses� exposed�to�the�automotive�OEM�market�as�higher�risk�than�businesses�in�the�financial� services�and�electrical�sectors,�there�may�be�a�re-rating�of�the�share�price�of�CMI.�

7.2� Disadvantages�

No�trade�sale�process�has�been�undertaken�so�we�cannot�be�sure�that�the�current�offer�is� the�best�possible�offer�–�however,�we�consider�that�the�Buyer�is�a�‘special�purchaser’�given� his�involvement�as�an�executive�and�director�of�CMI�over�an�extended�period�of�time.��A� ‘special�purchaser’�is�likely�to�be�able�to�pay�a�higher�price�than�the�market�or�other�market� participants�as�the�risk�of�acquisition�is�likely�to�be�lower.��This�may�explain�the�Buyer� paying�higher�consideration�than�IFL’s�valuation;�
Possible�reduction�in�distribution�per�share�-�the�sale�price�of�the�Proposed�Transaction�is� lower�than�the�book�value�and�will�crystallise�further�losses�of�approximately�$10.3�million.�� Given�a�forecast�net�profit�after�tax�before�write-downs�of�$9.9�million,�it�is�unlikely�that� sufficient�profits�will�be�available�to�make�expected�distributions�to�Class�A�shareholders�or� ordinary�shareholders;�
Vendor�loans�–�CMI�is�taking�on�credit�risk�on�the�Buyer�of�$17�million�in�the�form�of�a� Deferred�Amount�payable�over�a�three�year�period�following�settlement�of�the�Proposed� Transaction.�However,�it�has�taken�security�over�the�assets,�knows�the�assets�well�and�is� confident�as�to�the�value�of�that�security.��Max�Hofmeister�has�provided�personal� guarantees�in�the�amount�of�$2.5�million.��In�addition,�CMI�has�also�agreed�that,�in�event�of� default�under�the�loan�agreement�relating�to�the�Deferred�Amount,�and�in�certain�other� circumstances,�it�will�have�an�option�to�convert�the�outstanding�component�of�the�Deferred� Amount�into�up�to�45%�of�the�shares�in�the�100%�parent�of�the�Buyer.�The�security�held�by� CMI�is�in�the�form�of�a�second-ranking�fixed�and�floating�charge�over�the�interests�of�the� Buyer�and�all�of�the�present�and�future�undertakings�of�the�Buyer;��
Reduction�in�diversification�-�approval�of�the�Proposed�Transaction�will�divest�a�business� focussed�in�the�engineering/automotive�sector.�The�remaining�businesses,�other�than� TJM,�are�in�the�financial�services�and�electrical�sectors.�Accordingly,�the�Proposed� Transaction�will�reduce�the��more�diversified�nature�of�the�CMI�business;��
Net�asset�decline�–�due�to�the�loss�on�sale�of�the�Engineering�Business,�discussed�above,� the�net�assets�of�the�Company�will�diminish�by�some�$10.3�million�to�$72.2�million;�
Future�Australian�Competitiveness�Investment�Scheme�(ACIS)�credits�–�the�ACIS�allows� component�producer�to�claim�credits�for�the�value�of�new�investment�in�plant�and� equipment�and�research�and�development.�The�credits�are�provided�in�the�quarter�

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following�that�in�which�the�investment�occurs.�The�arrangement�between�the�parties�to�the� Proposed�Transaction�is�that�future�credits�will�remain�with�the�Buyer.��The�impact�of� credits�has�been�included�in�the�forecast�cash�flows.�� 8.� Assessment�of�Fairness�and�Reasonableness� We�are�of�the�view�that�the�consideration�of�$48�million�to�$51�million�being�offered�by�the� Buyer�is�in�excess�of�the�value�of�Engineering�Business,�being�between�$34.7million�and� $42.5�million.�The�consideration�offered�therefore�represents�a�premium�of�between�$5.5� million�and�$16.3�million�over�the�assessed�market�value�of�the�Engineering�Business.�� In�light�of�this,�and�after�due�consideration�of�the�other�advantages�and�the�disadvantages�of� the��Proposed�Transaction�as�detailed�in�Section�7�of�this�Report,�it�is�IFL’s�opinion�that�the� Proposed�Transaction�is�fair�and�reasonable�to�CMI�Shareholders.� 9.� Director’s�Position� The�Directors�have�indicated�that�they�intend�to�recommend�the�approval�of�the�Proposed� Transaction.� 10.�Limitations,�Representations�and�Reliance�on�Information� 10.1�Sources�of�Information�

IFL�has�relied�on�the�following�information�in�the�preparation�of�this�Report:�

the�Notice�of�Extraordinary�General�Meeting�and�Explanatory�Memorandum�which�this� Report�accompanies;�
the�Business�Purchase�Agreement�–�Victoria�and�USA�between�CMI�Operations�Pty� Limited,�CMI�Industrial�Pty�Limited�and�Maxwell�John�Hofmeister;�
the�Business�Purchase�Agreement�–�Queensland�between�CMI�Limited,�CMI�Operations� Pty�Limited,�CMI�Industrial�Pty�Limited�and�Maxwell�John�Hofmeister;�
the�Business�Purchase�Agreement�–�Ballarat�between�CMI�Operations�Pty�Limited,�CMI� Industrial�Pty�Limited�and�Maxwell�John�Hofmeister;�
the�Share�Purchase�Agreement�for�CMI�Limited�(NZ)�between�CMI�Limited�(Aust),�CMI� Industrial�Pty�Limited�and�Maxwell�John�Hofmeister;�
Letter�of�offer�of�Vendor�Finance�from�CMI�Limited�to�CMI�Industrial��
Proposed�Loan�Agreements�between�CMI�Limited,�CMI�Industrial�Pty�Limited,�Maxwell� John�Hofmeister�and�Transport�Water�and�Power�Holdings�Pty�Limited;�
Proposed�Deed�of�Charge�between�CMI�Limited�and�CMI�Industrial�Pty�Limited�[CMI� Limited�(NZ)�Transport�Water�and�Power�Holdings�Pty�Limited];�
Guarantee�and�Indemnity�-�CMI�Operations�Pty�Limited,�CMI�Limited,�CMI�Industrial�Pty� Limited�and�Maxwell�John�Hofmeister;�
Interdependency�Deed�between�CMI�Operations�Pty�Limited,�CMI�Limited,�CMI�Industrial� Pty�Limited,�Maxwell�John�Hofmeister�and�Transport�Water�and�Power�Holdings�Pty� Limited;�
CMI�press�and�ASX�releases;�and�
other�confidential�correspondence,�project�presentations,�material�contracts,�taxation� advice,�financial�model,�and�working�papers.�

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IFL�has�also�held�discussions�with,�and�obtained�information�from,�senior�management�and� independent�directors�of�CMI.�

In�forming�our�opinions�of�the�value�of�the�Engineering�Business,�we�have�reviewed�and�relied� upon�the�following�discussions�and�documents:�

publicly�available�information;�
discussions�with�management;�
an�industry�review�by�Hub�Consulting�commissioned�by�IFL;��
audited�financial�statements�for�the�year�ended�30�June�2007;�
budgets�for�FY2008;�
reviewed�financial�statements�for�the�half�year�ended�31�December�2006;�
financial�forecasts�for�the�years�ended�30�June�2008�to�30�June�2017;�
estimates,�by�the�Company,�of�head�office�costs�going�forward;�and�
capital�expenditure�forecasts�for�the�next�10�years.�

10.2�Assumptions�

IFL's�opinion�is�based�on�economic,�share�market,�business�trading,�financial�and�other� conditions�and�expectations�prevailing�at�the�date�of�this�Report.��These�conditions�can� change�significantly�over�relatively�short�periods�of�time.�If�they�did�change�materially� subsequent�to�the�date�of�this�Report,�our�opinion�could�be�different�in�these�changed� circumstances.��However,�IFL�has�no�obligation,�and�gives�no�undertaking,�to�advise�any� person�of�any�change�in�circumstances�which�comes�to�its�attention�after�the�date�of�this� Report�or�to�review,�revise�or�update�its�Report�or�opinion.��

This�Report�is�also�based�on�publicly�available�information�and�on�financial�and�other� information�provided�by�CMI�(either�directly�or�through�its�advisers).��IFL�has�considered�and� relied�upon�this�information�and�its�completeness,�accuracy�and�fair�presentation.�CMI�has� represented�in�writing�to�IFL�that,�to�its�knowledge,�the�information�provided�by�it�was� complete,�accurate�and�not�misleading�in�any�material�respect.��The�information�provided�to� IFL�has�been�evaluated�through�analysis,�enquiry�and�review�for�the�purposes�of�forming�an� opinion�as�to�whether�the�Proposed�Transaction�is�fair�and�reasonable.��However,�in� preparing�reports�such�as�this,�time�is�limited�and�IFL�does�not�warrant�that�its�enquiries�have� identified�or�verified�all�of�the�matters�that�an�audit,�extensive�examination�or�"due�diligence"� investigation�might�disclose.��Except�as�expressly�set�out�in�this�Report,�IFL�has�not�attempted� to�independently�verify�the�completeness,�accuracy�or�fair�presentation�of�any�of�the� information�provided�by�CMI.��In�any�event,�an�opinion�as�to�whether�a�proposal�is�fair�and� reasonable�is�more�in�the�nature�of�an�overall�review�rather�than�a�detailed�audit�or� investigation.��IFL�confirms�that�its�procedures�and�enquiries�do�not�constitute�an�audit�in� accordance�with�Australian�Accounting�Standards�(AAS),�and�do�not�constitute�a�review�in� accordance�with�AAS�902�applicable�to�review�engagements.�

IFL�has�no�reason�to�believe�that�any�material�facts�have�been�withheld�and�CMI�has� confirmed�in�writing�that�it�believes�it�has�provided�all�relevant�information�of�which�it�is�aware� but�IFL�does�not�represent�that�it�has�received�all�relevant�information.��

IFL�believes�that�its�opinion�must�be�considered�as�a�whole�as�the�various�elements�of�its� analysis�are�often�interdependent.��IFL�cautions�against�examination�of�individual�elements�of� its�analysis�as�this�may�create�a�misleading�impression�of�the�overall�opinion.�

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An�important�part�of�the�information�used�in�forming�an�opinion�of�the�kind�expressed�in�this� Report�is�comprised�of�the�opinions�and�judgments�of�management.��This�type�of�information� was�also�evaluated�through�analysis,�enquiry�and�review�to�the�extent�practical.��However,� such�information�is�often�not�capable�of�external�verification�or�validation.��

Preparation�of�this�Report�does�not�imply�that�IFL�has�audited�in�any�way�the�management� accounts�or�other�records�of�CMI.��It�is�understood�that�the�accounting�information�that�was� provided�was�prepared�in�accordance�with�generally�accepted�accounting�principles�and�in�a� manner�consistent�with�the�methods�of�accounting�in�previous�financial�years�of�CMI�(except� where�noted�or�where�required�due�to�a�change�in�accounting�standards).��

In�forming�its�opinion,�IFL�has�also�assumed�that:��

matters�such�as�title,�compliance�with�laws�and�regulations�and�contracts�are�in�good� standing�and�will�remain�so;�
the�information�set�out�in�the�accompanying�Notice�of�Extraordinary�General�Meeting�and� Explanatory�Memorandum�is�complete,�accurate�and�fairly�presented�in�all�material� respects;�and�
the�public�and�confidential�information�relied�on�by�IFL�in�its�analysis�was�accurate�and�not� misleading.�

In�this�Report�we�have�limited�the�disclosure�of�information�to�that�which�is�regularly�placed� into�the�public�domain�by�CMI,�which�we�consider�to�be�quite�extensive.�This�approach�has� been�adopted�following�a�request�by�CMI�and�recognises�the�commercially�sensitive�and� confidential�nature�of�certain�operational�and�financial�information�that�has�been�supplied�to� us.�Nevertheless,�we�believe�that�our�opinion�is�adequately�supported�by�the�information� disclosed�in�the�Report�and,�accordingly,�we�were�able�to�accommodate�CMI’s�request�in� preparing�this�Report.��

11.�Qualifications,�Declarations�and�Consents�

11.1�Qualifications��

IFL�provides�corporate�advisory�services�in�relation�to�mergers�and�acquisitions,�capital� raisings,�corporate�restructuring�and�financial�matters�generally.��One�of�its�activities�is�the� preparation�of�company�and�business�valuations�and�the�provision�of�independent�advice�and� expert's�reports�in�connection�with�mergers�and�acquisitions,�takeovers�and�schemes�of� arrangements.��IFL�directors�have�prepared�a�number�of�public�expert's�reports�since�its� formation�in�1987.��

The�principal�person�responsible�for�preparing�this�Report�on�behalf�of�IFL�is�Mr�Paul�Keehan� who�has�over�20�years�of�experience�in�relevant�corporate�advisory�matters.��Mr�Keehan�is�an� authorised�representative�of�IFL�pursuant�to�its�Australian�Financial�Services�Licence�under� Part�7.6�of�the�Corporations�Act.��

11.2�Declarations��

It�is�not�intended�that�this�Report�should�be�used�or�relied�upon�for�any�purpose�other�than�as� an�expression�of�IFL’s�opinion�as�to�whether�the�Proposed�Transaction�is�fair�and�reasonable.�� IFL�expressly�disclaims�any�liability�to�any�CMI�shareholder�who�relies�or�purports�to�rely�on� this�Report�for�any�other�purpose�and�to�any�other�party�who�relies�or�purports�to�rely�on�this� Report�for�any�purpose.��

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This�Report�has�been�prepared�by�IFL�with�care�and�diligence�and�the�statements�and� opinions�given�by�IFL�in�this�Report�are�given�in�good�faith�and�in�the�belief�on�reasonable� grounds�that�such�statements�and�opinions�are�correct�and�not�misleading.��However,�no� responsibility�is�accepted�by�IFL�or�any�of�its�directors,�officers�or�employees�for�errors�or� omissions�however�arising�in�the�preparation�of�this�Report,�provided�that�this�shall�not� absolve�IFL�from�liability�arising�from�an�opinion�expressed�recklessly�or�in�bad�faith�(unless� the�law�otherwise�requires).��

IFL�has�had�no�involvement�in�the�preparation�of�the�Notice�of�Extraordinary�General�Meeting� and�Explanatory�Memorandum�and�has�not�verified�or�approved�any�of�the�contents�of�the� Notice�of�Extraordinary�General�Meeting�and�Explanatory�Memorandum.��IFL�does�not�accept� any�responsibility�for�the�contents�of�the�Notice�of�Extraordinary�General�Meeting�and� Explanatory�Memorandum�or�any�other�documents�provided�to�CMI�shareholders�(except�for� this�Report).�

11.3�Independence�

IFL�is�entitled�to�receive�a�fee�of�$130,000�(exclusive�of�GST)�for�the�preparation�of�this� Report.��IFL�is�also�entitled�to�be�reimbursed�for�any�out-of-pocket�expenses�incurred�in�the� preparation�of�this�Report.��Except�for�this�fee�and�the�reimbursement�of�these�expenses,�IFL� has�not�received�and�will�not�receive�any�pecuniary�or�other�benefit,�whether�direct�or�indirect,� in�connection�with�the�preparation�of�this�Report.��

Neither�the�signatories�to�this�Report�nor�IFL�holds�securities�in�CMI.��No�such�securities�have� been�held�at�any�time�over�the�last�two�years.��

Neither�the�signatories�to�this�Report�nor�IFL�have�had�within�the�past�two�years�any�business� relationship�material�to�an�assessment�of�IFL’s�impartiality�with�CMI,�or�its�associates,�other� than�in�connection�with�the�preparation�of�this�Report.��

Prior�to�accepting�this�engagement,�IFL�considered�its�independence�with�respect�to�CMI�and� any�of�their�respective�associates�with�reference�to�ASIC�Regulatory�Guide�112�entitled� “Independence�of�Experts".��In�IFL’s�opinion�it�is�independent�of�CMI,�CMI�Industrial�Pty� Limited�and�their�associates.��

A�draft�of�this�Report�was�provided�to�CMI�and�its�advisors�for�confirmation�of�the�factual� accuracy�of�its�contents.��No�significant�changes�were�made�to�this�Report�as�a�result�of�this� review�and�there�was�no�alteration�to�the�methodology,�evaluation�or�opinions�set�out�in�this� Report�as�a�result�of�issuing�the�draft.�

11.4�Indemnity�

Under�the�terms�of�our�engagement,�CMI�has�agreed�that�no�claim�shall�be�made�by�CMI�or� any�of�its�subsidiaries�against�IFL,�any�of�their�directors,�officers,�partners,�employees�or� agents�(Indemnified�Persons)�to�recover�any�loss�or�damage�which�CMI�or�any�of�its� subsidiaries�may�suffer�by�reason�of�or�arising�out�of�anything�done�or�omitted�in�relation�to� the�provision�of�the�services�by�IFL,�provided�that�such�loss�or�damage�does�not�arise�from� the�negligence�or�wilful�default�of�any�of�the�Indemnified�Persons.��CMI�has�unconditionally� indemnified�IFL�and�its�related�bodies�corporate�and�their�respective�officers,�employees�and� agents�against�any�losses,�claims,�damages,�liabilities,�costs,�expenses�and�outgoings� whatsoever�(Losses)�which�they�may�suffer�or�incur�directly�or�indirectly�arising�out�of:�

IFL�relying�on�information�provided�by�CMI�or�any�of�its�employees,�agents�or�advisers;�or��
CMI�failing�to�provide�IFL�with�material�information�in�relation�to�the�Proposed�Transaction� or�CMI.�

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Further,�CMI�must�pay�and�must�indemnify�IFL�against�any�Losses�in�relation�to�any� investigations,�enquiries�or�legal�proceedings�by�ASIC,�ASX�or�any�other�competent� regulatory�body�arising�out�of,�or�in�connection�with,�the�Proposed�Transaction,�including� reasonable�legal�expenses�and�disbursements�incurred�by�IFL�and�fees�payable�to�IFL� attributable�to�time�reasonably�spent�by�its�staff�assessed�at�its�hourly�rates�to�the�extent�that� investigation,�enquiry�or�legal�proceeding�is�not�caused�by�an�act�or�omission�of�the� Indemnified�Persons.��

11.5�Consents��

IFL�consents�to�the�issuing�of�this�Report�in�the�form�and�context�in�which�it�is�to�be�included� in�the�Notice�of�Extraordinary�General�Meeting�and�Explanatory�Memorandum�to�be�sent�to� CMI�shareholders.��Neither�the�whole�nor�any�part�of�this�Report�nor�any�reference�thereto� may�be�included�in,�or�attached�to,�any�other�document�without�the�prior�written�consent�of�IFL� as�to�the�form�and�context�in�which�it�appears.��

IFL�takes�no�responsibility�for�the�content�of�the�Notice�of�Extraordinary�General�Meeting�and� Explanatory�Memorandum�or�any�other�documents�provided�to�CMI�shareholders,�other�than� this�Report.��

11.6�Other��

The�opinion�of�IFL�is�made�at�the�date�of�this�Report�and�reflects�circumstances�and� conditions�as�at�that�date.��In�particular,�IFL�provides�no�representations�or�warranties�in� relation�to�the�future�value�of�shares�of�CMI.��

CMI�shareholders�who�are�in�any�doubt�as�to�the�action�they�should�take�should�consult�their� own�independent�professional�adviser.��

IFL�has�prepared�a�Financial�Services�Guide�as�required�by�the�Corporations�Act.��The� Financial�Services�Guide�is�set�out�at�the�beginning�of�this�Report.�

Yours�sincerely� InterFinancial�Limited��

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Paul�Keehan� Executive�Director�

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

The�following�tables�summarise�the�various�companies�and�their�associated�metrics�that�IFL� have�considered�in�formulating�benchmark�multiples�for�the�Financial�Services�and� Engineering�segments�for�the�purposes�of�the�divisional�indicative�valuation.�

Engineering�

The�table�below�sets�out�benchmark�companies�that�provide�manufacturing�components�to�a� range�of�sectors.��The�most�relevant�to�this�report�are�direct�competitors�–�Pacifica�Group�and� Nylex.��IFL�estimates�a�weighted�average�of��between�6.0x�to�6.5x�forecast�FY2008�EBITDA� as�representative�of�the�sector.��

Table�A.1�–�Automotive�Sector�Benchmarks�

Company	Enterprise	EV/EBITDA	EV/EBITDA	PE2008	PE2009
	Value($M)	2008	2009
GUDHoldings	730.0	8.7	8.3	14.4	13.5
PacificaGroup	482.3	3.7	3.9
ARBCorp	266.0	8.7	7.6	14.3	12.5
Maxitrans	162.1	6.2	5.8	9.2	8.5
NylexLimited	135.6	6.0
Total/WeightedAverage	1,776.0	6.9	6.6	11.5	10.6

Source:��Iress,�Reuters�Knowledge�on�15�February�2008�

Financial�Services�

At�the�time�of�writing�this�report�markets�are�experiencing�considerable�volatility,�this�is� particularly�so�in�the�financial�services�sector.��At�such�times�reliability�of�benchmark�analysis� is�questionable.��However,�over�a�longer�term�IFL�considers�a�range�of�5.0x�to�6.0x�forecast� FY2008�EBITDA�to�be�reasonable.�

Table�A.2�–�Financial�Services�Sector�Benchmarks�

Company	Enterprise	EV/EBITDA	EV/EBITDA	PE2008	PE2009
	Value($M)	2008	2009
ChallengerFinancial	1,663.0	4.9	3.9	7.4	6.0
MortgageChoice	226.8	8.6	7.6	12.3	10.6
AustbrokerHoldings	197.0	10.5	8.9	13.2	11.7
SilverChefLtd	19.8	1.1	0.9	7.9	5.4
Total/WeightedAverage	2,106.6	5.8	4.7	8.5	7.0

Source:��Iress,�Reuters�Knowledge�on�15�February�2008�

Electrical�

While�there�are�a�number�listed�electrical�companies�that�have�relevance�to�CMI�Electrical�in� a�benchmark�context�(IFL�has�identified�8)�there�is�a�complete�lack�of�consensus�forecasts� available.��IFL�has�therefore�taken�a�group�of�other�companies�that�manufacture,�assemble� and�supply�products�to�the�same�or�similar�markets�as�CMI�Electrical�as�its�benchmarks.�

In�this�case�we�have�removed�the�outlier�(Industrea)�resulting�in�a�range�of�6.0x�to�6.5x� forecast�FY2008�EBITDA.�

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Table�A.3�–�Electrical�Sector�Benchmarks�

Company	Enterprise	EV/EBITDA	EV/EBITDA	PE2008	PE2009
	Value($M)	2008	2009
Bradken	967.9	7.9	7.0	12.6	10.7
Industrea	399.8	14.1	10.1	18.0	14.5
RCRTomlinson	223.4	4.3	3.6	8.1	6.9
CodanLimited	127.7	6.4	5.9	12.3	11.1
BSALimited	106.2	4.8	4.2	8.7	7.6
Total/WeightedAverage	1,825.0	8.5	7.0	13.0	10.9

Source:��Iress,�Reuters�Knowledge�on�15�February�2008�

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Appendix�B�-�Calculation�of�Discount�Rates�

Overview��

Selection�of�an�appropriate�discount�rate�to�apply�to�the�forecast�cash�flows�of�a�company� fundamentally�is�a�matter�of�judgment.��There�is�a�formulaic�approach�that�can�and�is�derived� by�theory;�however,�a�mechanistic�application�of�financial�theory�can�result�in�a�discount�rate� that�is�not�applicable�in�reality.��Hence,�it�should�be�stressed�that�there�is�no�"correct"�discount� rate.��Despite�the�growing�acceptance�and�application�of�various�theoretical�models,�many� companies�may�rely�on�less�sophisticated�approaches�and�use�relatively�arbitrary�"hurdle� rates"�which�do�not�vary�significantly�over�time�despite�interest�rate�movements.��

The�discount�rate�that�IFL�has�adopted�is�reasonable�relative�to�the�rates�derived�from� theoretical�models�and�has�been�based�on�an�estimated�weighted�average�cost�of�capital� (WACC).��There�are�three�main�considerations�to�the�determination�of�an�appropriate�WACC,� namely�cost�of�equity,�cost�of�debt�and�debt/equity�mix.��

The�cost�of�equity�was�derived�from�the�Capital�Asset�Pricing�Model�(CAPM)�methodology.�� The�CAPM�is�probably�the�most�widely�accepted�and�used�methodology�for�determining�the� cost�of�equity�capital.��However,�while�the�theory�underlying�the�CAPM�is�rigorous,�the� practical�application�is�subject�to�shortcomings�and�limitations�and�the�results�of�applying�the� CAPM�model�should�only�be�regarded�as�providing�a�general�guide.��

Weighted�Average�Cost�of�Capital�(WACC)�

The�WACC�is�given�by�Officer’s�(1994)�formula�used�to�calculate�an�after-tax�WACC�under�a� dividend�imputation�system:�

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�Where��

V sum�of�debt�and�equity�values;� E value�of�equity;� D value�of�debt;� Re cost�of�equity;� Rd cost�of�debt;�

[t] c the�corporate�tax�rate;�and�

γ the�value�of�imputation�tax�credits�(gamma)�

This�is�an�after�tax�discount�rate�to�be�applied�to�nominal�ungeared�after-tax�cash�flows.��

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Overview�of�the�CAPM�Framework

The�CAPM�provides�a�theoretical�basis�for�determining�a�discount�rate�that�reflects�the�returns� required�by�diversified�investors�in�equities.�CAPM�is�based�on�the�assumption�that�investors� require�a�premium�for�investing�in�equities�above�risk�free�investments�(such�as�Australian� government�bonds).��The�premium�is�commonly�known�as�the�market�risk�premium�and� notionally�represents�the�premium�required�to�compensate�for�investment�in�the�equity�market� in�general.��

The�risks�associated�with�an�investment�in�a�company�can�be�classed�as�either�specific�risks� or�systematic�risks.��Specific�risks�are�risks�that�are�specific�to�a�particular�company�or� business�and�are�unrelated�to�movements�in�equity�markets.��Systematic�risk�is�the�risk�that� returns�from�an�investment�or�business�will�vary�with�market�returns�in�general.��If�returns�on� an�investment�are�expected�to�be�perfectly�correlated�with�returns�on�the�market,�then�the� return�required�on�the�investment�would�be�equal�to�the�return�required�from�the�market�(ie.� the�risk�free�rate�plus�the�market�risk�premium).��

CAPM�postulates�that�the�return�required�on�investment�or�assets�can�be�estimated�by� applying�to�the�market�risk�premium�a�measure�of�systematic�risk�described�as�the�equity�beta� factor.��The�equity�beta�for�an�investment�reflects�the�covariance�of�the�return�from�that� investment�with�the�return�from�the�market�as�a�whole.��Covariance�is�a�measure�of�relative� volatility�and�correlation.�The�equity�beta�of�an�investment�represents�its�systematic�risk�only.�� It�is�not�a�measure�of�the�total�risk�of�a�particular�investment.�In�general,�an�investment�with� an�equity�beta�greater�than�1�is�riskier�than�the�market�and�an�investment�with�a�beta�of�less� than�1�is�less�risky.��

The�formula�for�deriving�the�cost�of�equity�using�CAPM�is�as�follows:��

Re�=�Rf�+�Beta�(Rm�-�Rf)��

Where��

Re is�the�expected�return�on�equity;�� Rf is�the�risk�free�rate;�� Beta is�the�equity�beta�factor;�� Rm is�the�expected�market�return;�and�� Rm�–�Rf is�the�market�risk�premium.��

The�equity�beta�for�a�company�is�normally�estimated�by�observing�the�historical�relationship� between�returns�from�the�company�or�comparable�companies�and�returns�from�the�market�in� general.��

Risk-Free�Rate�

The�risk-free�rate�can�be�defined�as�is�a�theoretical�return�on�risk-free�assets.��Although�a�truly� risk-free�asset�exists�only�in�theory,�in�practice�most�professionals�and�academics�use� government�bonds�of�the�currency�in�question�to�estimate�the�risk-free�rate�–�in�this�case� Commonwealth�Government�bonds.�

While�it�is�theoretically�correct�to�apply�a�series�of�spot�rates�for�each�cash�flow�for�the� duration�of�the�forecast�period,�IFL�recognizes�that�valuation�methodology�typically�applies�a� single�risk-free�rate�estimated�by�the�yield-to-maturity�of�10-year�Commonwealth�Government� bonds.��Similarly�it�is�common�industry�practice�to�‘match’�the�maturity�profile�of�the�proxy�for�

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the�risk-free�rate�to�the�maturity�of�the�cash�flows�over�the�forecast�period.��Where�the� forecast�period�exceeds�ten�years,�a�practical�estimation�issue�arises�as�to�the�bond�maturity� to�use�as�an�appropriate�proxy.�While�longer-maturity�bonds�exist,�IFL�views�that�the�10-year� Commonwealth�Government�bond�is�a�widely�used�and�accepted�benchmark�for�the�risk-free� rate.�

For�the�purpose�of�this�report,�IFL�has�adopted�a�risk�free�rate�of�6.1%.��The�risk�free�rate� approximates�the�yield�to�maturity�on�10�year�Australian�Government�bonds�prevailing� throughout�January�2008.��

Market�Risk�Premium��

The�market�risk�premium�(Rm�-�Rf)�represents�the�additional�return�that�investors�require�to� invest�in�equity�securities�as�a�whole�over�a�risk�free�investment�which�is�not�observable�and� therefore�a�historical�premium�is�used�as�a�proxy.��Australian�studies�have�been�limited�but� indicate�that�the�long�run�average�premium�has�been�in�the�order�of�6%�measured�over�more� than�100�years�of�data.�

The�market�risk�premium�is�not�constant�and�may�change�over�time�as�investors�perceive�that� equities�are�more�risky�than�at�other�times�and�will�increase�or�decrease�their�expected� premium.�

A�market�risk�premium�of�6%�has�been�assumed�which�IFL�believes�is�within�the�range�of� generally�accepted�figures�of�long�term�market�risk�premiums�in�the�Australian�capital�market.��

Equity�Beta

Beta�is�a�measure�of�the�expected�covariance�(ie.�volatility�and�correlation�of�returns)�between� returns�on�an�investment�and�returns�on�the�market�as�a�whole.��The�conventional�practice�for� estimating�beta�is�to�calculate�a�historical�beta�using�past�share�price�and�market�returns�data� and�use�it�as�a�proxy�for�the�future.�

Equity�Beta�estimate

To�obtain�an�equity�beta,�IFL�has�considered�Ordinary�Least�Squares�(OLS)�betas�of�CMI�and� other�comparable�companies�listed�on�Australian�Securities�Exchange�(ASX).��Due�to�the� nature�of�the�manufacturing�sector,�OLS�equity�betas�tend�to�be�unstable�and�subject�to� estimation�and�statistical�error.��

Much�of�this�can�be�attributed�to�thin�trading�and�a�lack�of�liquidity�in�the�sector,�which� contributes�to�underestimated�equity�betas�under�the�OLS�methodology.�

Rather�than�taking�OLS�equity�betas�in�isolation,�IFL�has�also�considered�Scholes-Williams� Betas�which�correct�for�thin�trading.�The�results�are�presented�in�Table�B.1�below:�

Table�B.1�-�Beta�Methodologies�and�Results�

Company	EnterpriseValue	OLSBeta	Scholes-WilliamsBeta
CMI	121.5	1.11	1.35
GUDholdingsLtd	663.9	0.39	0.87
PacificaGroupLimited	467.8	2.66	5.20
ARBCorporationLimited	251.2	1.08	1.28
Maxitrans	152.7	1.01	3.81
NylexLimited	139.8	2.51	5.77
WeightedAverage		1.34	2.72
Min		0.39	0.87

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Company	OLSBeta	Scholes-WilliamsBeta
Max	2.66	5.77
SimpleAverage	1.46	3.05
Median	1.10	2.58
Sources:AustralianGraduateSchoolofManagementRiskManagementservice2006/07

CMI’s�Scholes-Williams�beta�is�1.35�while�the�sector�median�(sourced�from�AGSM�analysis)�is� 2.58.�IFL�considers�that�an�appropriate�equity�beta�of�1.35�would�be�acceptable�for�investors� considering�an�investment�in�this�sector.�

Gearing�Levels

The�selection�of�the�appropriate�gearing�levels,�as�represented�by�the�debt-to-asset�ratio,�is� highly�subjective�and�should�be�consistent�with�the�level�implicit�in�the�measurement�of�beta.�� Debt�levels�should�represent�the�weighted�average�level�of�debt�financing�expected�over�the� forecast�period�rather�than�just�at�the�current�point�in�time.��The�tax�deductibility�of�the�cost�of� debt�means�that�the�higher�the�proportion�of�debt�the�lower�the�WACC,�although�this�could�be� offset,�at�least�in�part,�by�an�increase�in�the�beta�as�leverage�increases.��

In�a�steady�state,�debt�levels�should�reflect�the�level�of�gearing�utilised�by�the�firm�to�maximise� shareholder�returns.��The�optimal�capital�structure�is�assumed�to�be�an�optimal�trade-off� between�the�tax�deductibility�of�debt,�and�the�added�financial�risk�associated�with�additional� debt.�

IFL�considers�that�an�optimal�level�of�gearing�for�the�manufacturing�sector�would�be� approximately�30%.�

Cost�of�Debt

The�cost�of�debt�should�represent,�for�the�purposes�of�evaluating�a�discount�rate�under�the� WACC/CAPM�framework,�the�anticipated�borrowing�costs�of�the�company�over�the�forecast� period.��Typically,�this�is�a�‘weighted�average’�interest�rate�charged�for�the�company’s�short-� and�long-term�debt�facilities.��

IFL�has�applied�an�industry�pre-tax�cost�of�debt�of�8.6%,�which�represents�a�2.5%�margin�over� the�risk�free�rate�of�6.1%.�

Imputation�Credits�(Gamma)

The�WACC�set�out�above�assumes�a�"classical"�tax�system.�The�CAPM�model�is�constructed� to�derive�returns�to�investors�after�corporate�taxes�but�before�personal�taxes.��Under�the�US� classical�tax�system,�interest�expense�is�deductible�to�a�company�but�dividends�are�not.� Investors�are�also�double-taxed�on�dividends�received.��

Under�Australia's�dividend�imputation�system,�domestic�equity�investors�now�receive�a� taxation�credit�(franking�credit)�for�any�tax�paid�by�a�company,�hence�eliminating�the�double� taxation�associated�with�US�dividends.��There�are�schools�of�economic�thought�that�argue�that� the�taxation�benefits�of�dividend�imputation�should�be�incorporated�into�any�analysis�of�value.�� However,�Australian�studies�of�the�relative�value�of�dividend�imputation�are�controversial�and� have�produced�mixed�results.��

It�is�worth�noting�that�franking�credits�can�only�be�utilised�in�the�hands�of�domestic�Australian� investors�and�to�a�lesser�extent,�superannuation�funds�who�are�eligible�for�a�refund�of�unused� imputation�credits�(provided�that�franking�credit�trading�rules�are�met).��Foreign�investors�are�

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CMI LIMITED NoTICE of ExTraorDINary GENEraL MEETING of orDINary sharEhoLDErs 2008

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Annexure B

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unable�to�access�attached�franking�credits�and�hence�attribute�no�additional�value�to�franking� credits.�

While�a�number�of�studies�point�towards�the�proposition�that�some�value�should�be�attributed� to�dividend�imputation,�IFL�considers�that�the�evidence�provided�by�the�different�schools�of� thought�as�to�the�value�that�investors�attributes�to�dividend�imputation�is�unclear.��

IFL�considers�that�any�adjustment�to�CAPM�methodology�to�factor�in�an�estimate�of�dividend� imputation�is�unnecessary.�

In�IFL's�opinion�it�is�not�appropriate�to�make�any�such�adjustments�in�the�valuation� methodology�and�therefore�assigned�a�value�of�zero.

Summary�of�WACC�Parameters�

Parameter/Estimate	Value
Equitybeta	1.35
Gamma(γ )	0
Debt/Assets	30%
Marketriskpremium	6.0%
Risk-freerate	6.1%
Corporatetaxrate	30%
Costofdebt	8.60%
Costofequity	14.20%
Post-taxWACC	11.75%

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CMI LIMITED ABN 98 050 542 553

AI assistant

EXCELSIOR CAPITAL LTD — AGM Information 2008

64816_rns_2008-02-28_7a261494-01bb-4458-9f37-08d9f50501b4.pdf

Table of Contents

Chairman’s Letter

ExTrAOrdiNAry GENErAl MEETiNG Of OrdiNAry ShArEhOldErS

Notice of Extraordinary General Meeting

CMi limited ABN 98 050 542 553

Notice is given that the Extraordinary General Meeting of CMi will be held at:

AGENdA – SpECiAl BuSiNESS

Sale of engineering business

issue of Options to Colin ryan and danny herceg

VOTiNG rESTriCTiONS

DATED 29 February 2008

Notice of Extraordinary General Meeting

NOTES

Explanatory Memorandum

CMi limited ABN 98 050 542 553

iNTrOduCTiON

ExTrAOrdiNAry GENErAl MEETiNG Of OrdiNAry ShArEhOldErS

1 Sale of Engineering division – resolution 1

Background

The Transaction

Explanatory Memorandum

Explanatory Memorandum

Explanatory Memorandum

interest of the directors in the Transaction

Explanatory Memorandum

When will the Transaction be completed?

Additional information

2 issue of Options to Colin ryan and danny herceg – resolutions 2 and 3

Explanatory Memorandum

Glossary of Terms

Annexure A

OpTiON TErMS

1 Exercise price

2 Terms of issue

Annexure A

OpTiON TErMS

3 Notice of exercise

4 issue of shares

Annexure B

InterFinancial�Limited��

Financial�Services�Guide�

About�us�

Financial�services�we�are�licensed�to�provide�

General�financial�product�advice�

Remuneration,�commissions�and�other�benefits�

Associations�and�relationships�

Annexure B

Complaints�

Annexure B

Independent�Expert’s�Report�to�CMI�Shareholders�–�� Approval�of�Sale�of�Business�to�CMI�Industrial�Pty�Ltd�(The�Buyer)�

1.� Introduction�

2.� Summary�of�Opinion�

Annexure B

iNdEpENdENT ExpErT’S rEpOrT

Annexure B

iNdEpENdENT ExpErT’S rEpOrT

Table�of�Contents�

Annexure B

3.� This�Report�

3.1� Scope�of�the�Report�

3.2� Purpose�of�the�Report��

Annexure B

3.3� Basis�of�Evaluation��

3.4� Source�of�Information�

Annexure B

iNdEpENdENT ExpErT’S rEpOrT

Annexure B

4.3� Background�on�Market�Sectors��

Table�4.2�–�Market�Sectors�

Annexure B

4.4� Market�Sectors�–�Key�Information�

The�Automotive�OEM�Market�

The�Heavy�Vehicles�Market�

The�Agriculture/Building�Markets�

Annexure B

The�Water�Market�

5.� Engineering�Valuation�

EXCELSIOR CAPITAL LTD AGM Information 2008