ETIKA INTERNATIONAL HOLDINGS LIMITED Company Registration No Z

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ETIKA INTERNATIONAL HOLDINGS LIMITED Company Registration No. 200313131Z PROPOSED ACQUISITION OF THE ENTIRE ISSUED AND PAID-UP SHARE CAPITAL OF P.T. SENTRAFOOD INDONUSA ( PTSF ) AND P.T. SENTRABOGA INTISELERA ( PTSB ) BY P.

1 ETIKA INTERNATIONAL HOLDINGS LIMITED Company Registration No Z PROPOSED ACQUISITION OF THE ENTIRE ISSUED AND PAID-UP SHARE CAPITAL OF P.T. SENTRAFOOD INDONUSA ( PTSF ) AND P.T. SENTRABOGA INTISELERA ( PTSB ) BY P.T. ETIKA INDONESIA AND P.T. ETIKA MARKETING 1. INTRODUCTION The board of directors (the Board ) of Etika International Holdings Limited (the Company and together with its subsidiaries, the Group ) is pleased to announce that two of the Company s wholly-owned subsidiaries, P.T. Etika Indonesia ( PTEI ) and P.T. Etika Marketing ( PTEM ) (PTEI and PTEM are collectively referred to as the Purchasers ) have entered into a conditional sale and purchase agreement (the S&P Agreement ) dated 5 July 2010 with P.T. Medco Duta ( MD ) and P.T. Medco Intidinamika ( MI ) (MD and MI are collectively referred to as the Vendors ), for the proposed acquisition by the Purchasers of the entire issued and paid-up share capital of each of P.T. Sentrafood Indonusa ( PTSF ) and P.T. Sentraboga Intiselera ( PTSB ) (PTSF and PTSB are collectively referred to as the Target Companies ) (the Proposed ). 2. RATIONALE FOR THE PROPOSED ACQUISITION The Company is of the view that the Proposed represents an opportunity to penetrate the Indonesian market further. The Group already has an existing presence in Indonesia with the acquisition of a distribution company P.T. Vixon Indonesia ( PTVI ) in September 2009 primarily for the distribution of condensed milk. This Proposed is in line with the Company s overall plans to expand its food and beverages businesses, in particular its staple food and beverage offerings in Indonesia and the region. Instant noodles falls within this strategic direction and Indonesia, being a highly populated country, represents a huge market for the Company s products. As a further pull factor towards this decision, both PTSF and PTSB have access to land bank and unutilised factory spaces. This will allow the Company to have the ability to shortcut the gestation period required to quickly set up its condensed milk manufacturing facilities there, without the need for the Company to source and acquire new land and/or construct factory buildings for the purposes of achieving its long term objective of locally producing its condensed milk for distribution in Indonesia in order to remain competitive. Additionally, the existing distribution network of PTSF and PTSB combined with the distribution network of PTVI, will also provide greater access for the Group to market its consumer products in Indonesia. Further, apart from its strong distribution base in Malaysia, the Group distributes to over 60 countries around the world. This provides a gateway for the Target Companies to penetrate and gain greater overseas market for distributing the instant noodles other than their existing markets in Saudi Arabia, Malaysia and Brunei Darussalam. Both instant noodles and condensed milk essentially ride on similar distribution network. 1

2 The Company is of the view that with the combined operations of instant noodles and condensed milk, this will reduce the fixed production overhead and other operating costs of the Target Companies. In view of the greater distribution network and lower overhead and other operating costs resulting from the synergistic impact pursuant to the Proposed, the management believes that it will be able to turn around the loss making business of the Target Companies within two years of the acquisition. 3. THE PROPOSED ACQUISITION 3.1 ABOUT THE TARGET COMPANIES Both PTSF and PTSB are principally engaged in the business of manufacturing and distributing instant noodles in Indonesia. PTSF PTSF s manufacturing facility is located in Anggadita Village, Klari District, Karawang Regency, West Java Province, on its own leasehold land measuring approximately 47,880 square metres with a factory built-up area of about 27,960 square metres. It primarily manufactures and distributes its instant noodles under the trademark of Salamie and Cintamie and is also an OEM manufacturer for a few private label products (such as Mie Sehati and Pandaroo). PTSF's products are currently distributed locally in Indonesia and overseas via authorised distributors to areas such as Saudi Arabia, Malaysia and Brunei Darussalam. PTSB PTSB was also previously involved in the manufacture of instant noodles, although its factory located in Randupitu Village, Gempol District, Pasuruan Regency, East Java Province has ceased operations in PTSB still owns the leasehold land measuring approximately 35,290 square metres in Surabaya with a factory built-up area of about 8,375 square metres. The cessation of the operation back in 2005 was due largely to the then management differences in strategic direction. PTSB is currently appointed as the main distributor for PTSF in the Central and East Java regions. The combined workforce of PTSF and PTSB is approximately PRINCIPAL TERMS AND SALIENT FEATURES OF THE PROPOSED ACQUISITION Sale and Purchase PTSF has an issued and paid-up capital share capital of Rp68,700,000,000 (RM24.53 million) 1 comprising 68,700,000 ordinary shares and PTSB has an issued and paid-up share capital of Rp15,000,000,000 (RM5.36 million) comprising 15,000 ordinary shares (the entire issued and paid-up share capital of each of PTSF and PTSF collectively referred to as the Sale Shares ). Pursuant to the S&P Agreement, the Purchasers will acquire the Sale Shares in two stages, with an initial purchase of only 70% of the total shareholdings of the Target Companies ( 1 st Stage ) and the balance 30% as on option exercisable upon written request by the Purchasers at any time from the end of the Refinancing Period up to the first anniversary of 1 All Ringgit Malaysia figures are calculated based on an exchange rate of Rp1 million = RM357. 2

3 the First Payment Date (the Final Payment Date ) ( 2 nd Stage ). The Refinancing Period is the period within 90 days following completion of the 1 st Stage during which the Purchasers shall, amongst other things, procure the settlement and/or refinancing of the loans granted by PT Bank Negara Indonesia (Persero) Tbk ( BNI Loans ) to the Target Companies. The Sale Shares are to be acquired free from all encumbrances and together with all rights, dividends, entitlements and benefits attaching to the Sale Shares as at completion of such sale and purchase and thereafter Purchase Consideration The aggregate consideration for the purchase of all of the Sale Shares (the Aggregate Consideration ) was arrived at on a willing buyer willing seller basis. The Aggregate Consideration shall be satisfied in cash shall comprise: (a) (b) Rupiah Ten Thousand only (Rp10,000) (RM3.57) which shall be attributable to the Sale Shares (the Equity Consideration ); and An amount (the Assignment Consideration ) equivalent to the sum of Seventy Eight Billion Rupiah (Rp78,000,000,000) (RM27.85 million) less the outstanding loan amount as at the date on which all the conditions precedent have been satisfied or waived (as applicable) (the First Payment Date ) under the BNI Loans, as certified by independent auditors pursuant to a completion audit The Aggregate Consideration shall be payable in the following manner: (a) Upon signing of the S&P Agreement, the Purchasers shall pay part of the Assignment Consideration in the amount of Rupiah Four Billion (Rp4,000,000,000) (RM1.43 million) to the Vendors in the following manner: The amount of Rupiah Two Billion (Rp 2,000,000,000) (RM0.71 million) shall be deposited into an escrow account, which details shall be determined by the Parties in writing (the Escrow Deposit ); and The amount of Rupiah Two Billion (Rp 2,000,000,000) (RM0.71 million) shall be directly paid to the Vendors. (b) On the First Payment Date, the Purchasers shall cause: (iii) The release of the Escrow Deposit to the Vendors; The payment of part of the Assignment Consideration in the sum of Rupiah Six Billion (Rp 6,000,000,000) (RM2.14 million) to the Vendors; and The payment of the sum of Rupiah Seven Thousand (Rp 7,000) (RM2.50) (the First Equity Consideration ) to each of the Vendors On or before the Final Payment Date, the Purchasers shall cause the payment of the sum of Rupiah Three Thousand (Rp 3,000) (RM1.07) (the Final Equity Consideration ) to each of the Vendors. 3

4 The balance Assignment Consideration shall be payable on the Final Payment Date subject to any set-off that the Purchasers are entitled to make pursuant to the terms of the S&P Agreement (the Retention Sum ) Conditions Precedent Completion is conditional upon the fulfilment of certain conditions precedent including, amongst others, the following: A. In respect of the Purchasers: Approval from: (iii) (iv) the Singapore Exchange Securities Trading Limited (the SGX-ST ), if required; the shareholders of the Company ( Shareholders ), if required; the Board of Directors and the Board of Commissioners of each of PTEI and PTEM; and the shareholders of each of PTEI and PTEM (at an extraordinary general meeting), for the Purchasers entry into the S&P Agreement and the Purchasers acquisition of the Sale Shares under the S&P Agreement; B. In respect of the Vendors: (a) The approval from: (iii) the Board of Directors; and/or the Board of Commissioners; and/or the shareholders, of each of MD and MI for the Vendors entry into the 1 st Stage and the Vendors disposal of 70% of the Sale Shares under the S&P Agreement; (b) Approval from the shareholders of each of the Target Companies for: (iii) The sale and transfer of 70% of the Vendors Sale Shares under the S&P Agreement to the Purchasers, including but not limited to the waiver of preemption rights by the shareholders of the Target Companies; The change of the shares ownership composition and structure; The change of the composition of the Board of Directors and the Board of Commissioners, whereby the shareholders of each Target Company will approve the appointment of such persons as the Purchasers may nominate as the directors and commissioners of each Target Company and such appointment may only come to effect on completion of the 1 st Stage; and 4

5 (iv) The amendment to the Articles of Association of each of the Target Companies; (c) (d) (e) The consent of the Badan Koordinasi Penanaman Modal or the Investment Coordinating Board in Indonesia ( BKPM ) to the change in the status of each of the Target Companies from a domestic investment company to a foreign investment company; The Bank s written approval, in such form and substance satisfactory to the Purchasers, for MD and MI to transfer the Shares in amount of 70% of the total issued and paid-up shares of each of PTSF and PTSB to the Purchasers and for the change in the composition of the Board of Directors and the Board of Commissioners for each of the Target Companies with effect from the First Payment Date in accordance with the appointments made by the Purchasers; and There being no material adverse change to the financial and/or business conditions of the Target Companies. 3.3 RULE 1006 CALCULATIONS The relative figures of the Proposed computed on the bases set out in Rules 1006(a) to (d) of the Listing Manual of the SGX-ST are as follows: Relative figures under Rule 1006 Rule 1006(a) Net asset value of the assets to be disposed of Net asset value of the Group Size of relative figure Rule 1006(b) Net profits (1) attributable to the acquired assets (9,218) (RM 000) Net profits (1) of the Group (RM 000) 79,767 Size of relative figure -11.6% Rule 1006(c) Aggregate value of consideration to be given (2) RM6,829,003 Company s market capitalisation (3) as at 2 July RM439,284, , being the last traded market day immediately preceding the date of the S&P Agreement Size of relative figure 1.55% Rule 1006(d) Number of equity securities to be issued by the Company as consideration for the Proposed Number of equity securities in issue Size of relative figure 5

6 Notes: (1) Under Rule 1002(3), net profits is defined as profit or loss before income tax, minority interests and extraordinary items. (2) The estimated consideration payable under the Proposed is Rp19,128,860,000 (RM6.83 million) [being Rp78,000,000,000 (RM27.85 million) less Rp58,871,140,000 (RM21.02 million) (BNI Loans as at 31 March 2010)], at an exchange rate of Rp1 million = RM357. (3) The market capitalisation of RM439,284,790 is calculated based on the total number of issued shares of the Company ( Shares ) of 266,685,764 (excluding treasury shares) at S$0.71 per Share as at 2 July 2010, at an exchange rate of S$ 1 = RM2.32. Although the Proposed would not constitute a major transaction for the purposes of Chapter 10 of the Listing Manual as none of the relative figures computed pursuant to Rule 1006 exceeds 20%, pursuant to Rule 1007(1), if any of the relative figures computed pursuant to Rule 1006 is a negative figure, Chapter 10 of the Listing Manual may still be applicable to the transaction. The Company is therefore seeking the approval of Shareholders at a general meeting for the Proposed. 4. FINANCIAL EFFECTS OF THE PROPOSED ACQUISITION The unaudited pro forma financial effects of the Proposed on the Company are set out below. The objective is to illustrate what the historical information might have been had the Proposed been completed at an earlier date. However, such information is not necessarily indicative that the results of operations or the financial position as illustrated would have been attained had the Proposed been completed at an earlier date. The pro forma financial effects in this section are based on the unaudited financial statements of the Company for the 12 months period ended 31 March 2010, i.e. from 1 April 2009 to 31 March The financial effects of the Proposed have been prepared based on the following assumptions and anticipated events: (a) the Proposed is assumed to have been completed on 1 April 2009; (b) (c) the pro forma financial effects of the Proposed, where relevant, have been translated using the closing exchange rate of RM2.32 to S$1.00 and Rp1 million to RM357; and the financials for the Target Companies are based on the management accounts of the Target Companies for the 12 months period ended 31 March 2010, i.e. from 1 April 2009 to 31 March Share Capital There is no effect on the issued and paid-up share capital of the Company. 6

7 Earnings per Share Before the Proposed After Proposed RM 000 Net profit of the Company 79,767 79,767 Less: Losses of PTSF and PTSB N/A (9,218) Add: Negative goodwill arising from N/A 109 Proposed Adjusted net profit 79,767 70,658 Earnings per Share (RM sen) (1) Note: (1) Earnings per Share is calculated based on the weighted average of number of ordinary shares of 261,023,869 as at 31 March Net Tangible Assets ( NTA )/(Net Tangible Liabilities ( NTL ) per Share RM'000 Before the Proposed After Proposed NTA of the Company 162, ,579 NTL of PTSF N/A (43,570) NTL of PTSB N/A (7,967) Adjustments: - Assignment of PTSF and PTSB shareholder s loan to the Company - Aggregate value of consideration to be given by the Company N/A 58,475 N/A (6,829) Adjusted NTA of the Company 162, ,688 NTA per Share (RM sen) (2) Note: (2) NTA per Share is calculated based on the weighted average of number of ordinary shares of 261,023,869 as at 31 March Gearing RM 000 Before the Proposed After Proposed Borrowings -Company 156, ,259 -PTSF N/A 15,939 -PTSB N/A 5,078 Total Borrowings (3) 156, ,276 7

8 RM 000 Before the Proposed After Proposed Cash and cash equivalents - Company 31,755 31,755 - PTSF N/A PTSB N/A 161 Total cash and cash equivalents 31,755 32,567 Net Borrowings 124, ,709 Total Shareholders funds of the Company 184, ,601 (4) Gearing (times) Net gearing (times) Notes: (3) Total borrowings refer to the aggregate borrowings from bank and financial institutions. (4) After incorporating the negative goodwill arising from the Proposed. 5. INTERESTS OF THE DIRECTORS AND SUBSTANTIAL SHAREHOLDERS None of the Directors (other than in his or her capacity as a director or shareholder of the Company) and substantial Shareholders has any interest, direct or indirect, in the Proposed. 6. RESPONSIBILITY STATEMENT The Directors of the Company (including those who have been delegated supervision of this Announcement) collectively and individually accept full responsibility for the accuracy of the information given in this Announcement (save for information relating to PTSF and PTSB) and confirm, after making all reasonable enquiries that to the best of their knowledge and belief, the facts stated and opinions expressed in this Announcement are fair and accurate in all material respects as at the date hereof, and that there are no material facts the omission of which would make this Announcement misleading in any material respect. The Vendors accept full responsibility for the accuracy of the information given in this Announcement in respect of PTSF and PTSB and confirm, after making all reasonable enquiries that to the best of their knowledge and belief, the facts stated and opinions expressed by them in this Announcement in respect of PTSF and PTSB are fair and accurate in all material respects as at the date hereof, and that there are no material facts in respect of PTSF and PTSB the omission of which would make any statement in respect of PTSF and PTSB misleading in any material respect. 7. CIRCULAR AND DOCUMENTS AVAILABLE FOR INSPECTION The circular to Shareholders (the Circular ) containing further information on the Proposed, and enclosing the notice of the extraordinary general meeting of the Company, will be dispatched by the Company to Shareholders in due course. 8

9 A copy of the S&P Agreement will be made available for inspection during normal business hours at the registered office of the Company for three (3) months from the date of this Announcement. 8. CAUTION IN TRADING Shareholders are advised to exercise caution in trading their shares. The Proposed is subject to numerous conditions. There is no certainty or assurance as at the date of this Announcement that the Proposed will be completed, or that no changes will be made to the terms thereof. The Company will make the necessary announcements when there are further developments on the Proposed. Shareholders are advised to read this Announcement and any further announcements by the Company carefully. Shareholders should consult their stock brokers, bank managers, solicitors or other professional advisors if they have any doubt about the actions they should take. By order of the Board ETIKA INTERNATIONAL HOLDINGS LIMITED DATO KAMAL Y P TAN Group Chief Executive Officer 5 July

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