CITRUS LEISURE PLC [Company Reg. No. PQ 211] No.7/5, Gregory s Road Colombo 7

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1 CITRUS LEISURE PLC [Company Reg. No. PQ 211] No.7/5, Gregory s Road Colombo 7 Circular to Shareholders Dear Shareholder CITRUS GROUP RESTRUCTURE We refer to the Corporate Disclosure made by the Company on 27 th September 2016 of the decision of the Board of Directors of the Company to recommend to the shareholders of the Company to restructure the Group constituting Hikkaduwa Beach Resort PLC, Kalpitiya Beach Resort PLC, Waskaduwa Beach Resort PLC and Passikudah Beach Resorts Limited. (1) The Proposed Citrus Group Restructure is as follows : 1.1 Voluntary Offer by Hikkaduwa Beach Resort PLC (CITH) to purchase 201,746,915 shares of Waskaduwa Beach Resort PLC (CITW) constituting the 100% of the shares in issue Pursuant to the disclosure made by CITH on 27 th September 2016, CITH made an Announcement of a Voluntary Offer [in terms of the Company Take-overs and Mergers Code 1995 (as amended in 2003) (the Code)] to the shareholders of Waskaduwa Beach Resort PLC (CITW), a subsidiary of the Company, to purchase 201,746,915 shares of CITW constituting the 100% of the shares in issue, the consideration for the purchase of such shares being the issue of 5 shares of CITH for every 12 shares of CITW held by a shareholder of CITW at an issue value of Rs.24/- per share. Consequently, the total purchase consideration payable to CITW shareholders, shall not exceed (based on the level of acceptance of the Offer) the issue of upto 84,061,215 of CITH (rounded up) of a total value not exceeding Rs.2,017,469,160/-. The said issue price of Rs.24/- per share is based on a valuation carried out by NDB Investment Bank Limited (NDBIB) on CITH. The Valuation Report prepared by NDBIB is hosted on the Website of the Colombo Stock Exchange ( from the date of this Circular until the date of the Extraordinary General Meetings of the respective companies. As at the time of the Announcement, the issue price of Rs.24/- per share was considered by the Board of CITH as fair and reasonable to CITH and to the existing shareholders of CITH. Due to the lapse of time, from the date of the Announcement to the date of this Circular, as required by the CSE and the SEC, the valuation aforesaid was updated by NDBIB taking into consideration, the Interim Financial Statements for the nine (9) months ended 31 st December Based on such updated valuation, the Board of CITH was of the view that the issue price of Rs.24/- per share is fair and reasonable to CITH and to the existing shareholders of CITH. Any fractional shares arising based on the aforesaid proportion are to be settled in cash based on the issue price of Rs. 24/- per share of CITH. Accordingly, on accepting the said Voluntary Offer in respect of the 138,436,501 shares held by the Company in CITW, the Company would receive 57,681,875 shares of CITH.

2 CITH does not have any intention to de-list the shares of CITW subsequent to the Voluntary Offer. However, in the event that the level of acceptance for the Voluntary Offer results in the public holding of CITW falling below the continuous public holding requirements as per the CSE Listing Rules, CITH may consider to de-list the shares of CITW from the CSE considering the shareholder sentiment. 1.2 Amalgamation of CITH with Kalpitiya Beach Resort PLC (CITK) CITH proposes to amalgamate with Kalpitiya Beach Resort PLC (CITK) (amalgamating company), a subsidiary of the Company, in terms of Section 241 of the Companies Act, No.7 of The consideration for converting the shares of CITK into shares of CITH is the issue of 5 shares of CITH for every 12 shares of CITK held by a shareholder of CITK at an issue value of Rs.24/- per share. In order to arrive at the aforesaid share swap ratio for the above amalgamation, a valuation of CITK and CITH was carried out by NDBIB. The Valuation Report prepared by NDBIB is hosted on the Website of the Colombo Stock Exchange ( from the date of this Circular until the date of the Extraordinary General Meetings of the respective companies. The number of shares in issue in CITK is 161,200,010. Consequently, the total consideration payable to CITK shareholders, shall not exceed the issuance of 67,166,670 new shares of CITH (rounded down) of a total value not exceeding Rs.1,612,000,080/-. As stated in 1.1, the issue price of Rs.24/- per share was considered by the Board of CITH as fair and reasonable to CITH and to the existing shareholders of CITH. Any fractional shares arising based on the aforesaid proportion are to be settled in cash based on the issue price of Rs. 24/- per share of CITH. Accordingly, as consideration for converting the 111,653,901 shares held by the Company in CITK into shares of CITH, the Company would receive 46,522,458 shares of CITH through the aforesaid amalgamation. According to the Board of CITK, all preliminary work for the Ayurveda Resort Spa has been concluded. A construction company has been selected and a low cost construction plan has been evaluated. The construction company has begun the setting up process. The construction of the mock chalet has commenced in order for the Board to further evaluate the marketability of the product. The Board of CITK is of the view that the expected growth in the Kalpitiya region has still not taken place and therefore, would continue to carefully evaluate the region s development as a tourist destination, specially in view of the escalating costs. Post amalgamation, CITK will cease to exist. 1.3 Amalgamation of CITH with Passikudah Beach Resorts Limited (PBR) CITH also proposes to amalgamate with Passikudah Beach Resorts Limited (PBR) (amalgamating company), a 100% subsidiary of the Company, in terms of Section 242 of the Companies Act, No.7 of

3 Passikudah Beach Resorts Limited was incorporated under the Companies Act No.7 of 2007 on 29 th July, The only asset of PBR is a land with an extent of 2, perches at Passikudah. PBR s Stated Capital is Rs.10/- represented by one share and the Net Asset Value of the share is Rs.15,928,244/- The consideration for converting the share of PBR (valued at the Net Asset Value of Rs. 15,928,244 as per the independent Valuation Report by NDBIB) and held by the Company into shares of CITH is the issue of 663,676 shares of CITH at an issue value of Rs.24/- per share. Consequently, the total consideration payable to the sole shareholder of PBR namely, the Company, shall be 663,676 new shares of CITH of a total value of Rs.15,928,224. As stated in 1.1, the issue price of Rs.24/- per share was considered by the Board of CITH as fair and reasonable to CITH and to the existing shareholders of CITH. Post amalgamation, PBR will cease to exist. 1.4 The Restructure aforesaid, vis-à-vis the Company would amount to a major transaction in terms of Section 185 of the Companies Act, No.7 of 2007 as it constitutes an exchange of assets which may amount to a disposition/acquisition of assets of a value which is greater than half the value of the assets of the Company before the disposition/acquisition and accordingly, the Shareholders are required to pass a Special Resolution in terms of Section 185 read together with Section 92(1)(b) of the Companies Act to accept the Voluntary Offer made by CITH to the shareholders of CITW and vote in favour of the Amalgamations as morefully set out in 1.2 and 1.3 above. In this regard your attention is drawn to Clause (3) pertaining to the Conditions Precedent for the effectivity of the Proposed Restructure. 1.5 The acceptance of the Voluntary Offer to be made by CITH to the shareholders of CITW and voting in favour of the amalgamations of CITK and PBR with CITH being major transactions vis-à-vis the Company, the shares of any dissenting shareholder, who exercise the shareholder s rights as enumerated in Sections 92, 93, 94 and 95 of the Companies Act, will be purchased in terms of Section 94(2) of the Companies Act as disclosed in Annex A at a price of Rs per share which is based on the arithmetic average of the daily volume weighted price of REEF for a six months period as at the close of market on 23 rd September 2016, being the market day immediately preceding the date of the Announcement pertaining to the Group Restructure. Given below is the formula used for the computation of the above price : 3

4 1.6 Post Amalgamations and the Voluntary Offer (if fully accepted), the shareholding of the Company in CITH would decrease from the current 89% to approximately 74% and CITH s market capitalization would increase to approximately Rs.5.0 Bn. As a result, it is expected that the public float of CITH would improve significantly from its present 11 % to approximately 26% which will satisfy the continuous public float requirements of the CSE. Taking into consideration, the SEC Directive on the minimum public float requirements based on market capitalization for the restructured CITH, effective from 1 st January 2017, even at a lower level of acceptance, the Board of CITH is confident that the required level of public float could be maintained. In the unlikely event that CITH fails to meet the minimum public float, the Company intends to take necessary steps to meet the said requirements. (2) Rationale for the Restructure (i) (ii) (iii) (iv) The proposed restructuring (which would result in the assets hitherto held directly and indirectly by the Company being re-positioned within the Group) would enable the Company and its subsidiaries referred to above to achieve higher levels of fiscal and management efficiency within the Group Companies engaged in tourism and leisure related sectors, by optimizing and unearthing the collective strengths and synergies within the Group.. This would result in economies of scale, better risk management, cost effective administration, prudent tax management etc. which would ultimately be accrued to the benefit of all the shareholders. The proposed restructuring would extend an opportunity to the current minority shareholders of CITK and CITW to be shareholders of an entity (CITH, a subsidiary of the Company) which will own a diverse portfolio of leisure sector assets (including operational and future development properties) spread across the country, thereby benefitting from the above mentioned synergies of the proposed group restructuring plan. The consolidated entity (CITH) will be in a better position to pursue more growth opportunities owing to its portfolio diversification of the leisure sector properties and the strengthened financial position enhancing fund raising capabilities at CITH level both via equity and debt through strategic partners and financial institutions locally as well as from overseas. Overall, the Board of Directors of the Company is of the view that the aforementioned consolidation and the expected efficiencies resulting from this restructuring exercise would enhance the shareholder value at Company level notwithstanding that the percentage shareholding of the Company in CITH would decrease from the current 89% to around 74% post restructuring provided all shareholders at various companies accept the respective offers made and support the plan. As a result, it is expected that the public float of CITH shares would improve significantly to approximately 26%, thus enhancing the level of liquidity for CITH shares on the CSE. Further, with the consolidation of assets/properties/liabilities under CITH, the size of CITH would be significantly increased, with the total asset base exceeding Rs.8 billion, and a market capitalization of around Rs. 5 billion at the value of Rs.24/- per share of CITH estimated for the purpose of the restructuring. 4

5 The estimated market value (assuming a value of Rs. 24/- per share) of the stake in CITH as held by the Company, being the major shareholder of CITH, pre and post restructuring, is given below. Shares Pre-restructuring Value (Rs. Mn) Ownership (%) Shares Post-restructuring Value (Rs.Mn) Ownership (%) Citrus Leisure PLC (REEF) 51,127,239 1, % 155,995,248 3, % Other Shareholders 6,446, % 53,470,210 1, % Total 57,573,897 1, % 209,465,458 5, % Assuming all shareholders of CITW accept the voluntary offer and no shareholder of CITH and CITK opt to exercise the buy-back right The amalgamation proposals for CITK and PBR, if fully accepted by shareholders of respective companies, would result in an issuance of up to 67,166,670 and up to 663,676 new shares of CITH respectively. Furthermore, the voluntary offer for CITW, if fully accepted by all the shareholders, would result in an issuance of up to 84,061,215 new shares of CITH. The above would result in a total of up to 151,891,561 shares of CITH being issued over and above the existing 57,573,897 shares already in issue. The resulting total of 209,465,458 shares of CITH valued at the recommended price of Rs.24/- per share for the purpose of the restructuring proposal amounts to a potential market capitalisation of LKR 5,027,170,992/-. However, it should be noted that the actual market price of CITH shares post-restructuring may be higher or lower than the estimated valuation of Rs. 24/- per share and would be subject to overall prevailing market conditions and investor sentiments in relation to the Citrus Group of companies. (3) Conditions Precedent for the effectivity of the Proposed Citrus Group Restructure The Proposed Citrus Group Restructure is conditional upon the happening of the following events : (i) (ii) Special Resolutions to give effect to the proposed restructure placed before the shareholders of the Company, CITH, CITK and PBR, being passed in terms of the Companies Act, No. 7 of The aggregate payout obligation/s (if any) of the relevant companies [namely, the Company and/or CITH and/or CITK] based on buy back request/s from dissenting shareholder/s, not exceeding a total of Rs million (Rupees two hundred and fifty million) for the Restructuring Proposal to be financially viable. (iii) CITH receiving the in principle approval of the Colombo Stock Exchange (CSE) for listing of shares of CITH arising from the Voluntary Offer to the shareholders of CITW and the amalgamations of CITH with CITK and PBR which form part of the Group Restructure, in terms of the Listing Rules with particular reference to Listing Rules pertaining to Private Placement of Shares and Share Swap. [This approval was received by CITH on 26 th May 2017] 5

6 (iv) (v) A waiver as set out in Rule 5.4b of the Listing Rules of the CSE being obtained from the Securities and Exchange Commission of Sri Lanka (SEC) to implement the issue of shares upto 151,891,561 ordinary shares which exceeds 20% of the shares in issue of CITH by way of a Private Placement of Shares and through a Share Swap as referred to in (3)(iii) above. The concurrence of the Lenders being received by the respective companies involved in the Group Restructure (as applicable). (4) Additional Information as required by the CSE Please refer to the Table set out in Annex B hereto which sets out the price per share which the Company offers to pay to a dissenting shareholder multiplied by the maximum possible number of dissenting shares entitled for cash out option, with the maximum expected cash payment for dissenting shareholders. As set out elsewhere in this Circular the total fund allocation to acquire shares of dissenting shareholders of CITH, CITK and the Company is limited to Rs.250,000,000/-. Hence, if the actual cash payout were to exceed Rs.250,000,000/- the Proposed Restructure will not be proceeded with. In this regard your attention is also drawn to the Conditions Precedent set-out in Paragraph (3)(ii) above. (5) Extraordinary General Meeting Attached hereto is a Notice convening an Extraordinary General Meeting to be held on 3 rd July 2017 for the purpose of passing the requisite Special Resolution to give effect to the Group Restructure to the extent as applicable to the Company, as set out therein, details of which are set out below: The Company accepting the Voluntary Offer and voting in favour of the Amalgamations referred to in the Proposal for Group Restructure as set out in (1) of this Circular, constituting an exchange of assets which may amount to a disposition/acquisition of assets of a value which is greater than half the value of the assets of the Company before the disposition/acquisition, in terms of Section 185(2)(b) and 185(2)(a) of the Companies Act, and therefore requiring the approval of the Shareholders by way of a Special Resolution, in terms of Section 185(1)(a) of the Companies Act. (6) General Information (i) (ii) Additional Details and Assistance Shareholders who may require additional details or assistance in relation to any of the above mentioned mattes may contact Ms Shashikala De Mel, of the Registrars on any working day between 8.30 am and 4.30 pm on CITH has made application to the CSE for the listing of upto 151,891,561 new ordinary shares, arising from the Amalgamations and the Voluntary Offer with particular reference to Listing Rules pertaining to Private Placement of Shares and Share Swap. 6

7 Approval, in principle, has been obtained from the CSE for the said Application made by CITH, subject to CITH receiving the relevant approvals from the SEC. (iii) CITH has also made application to the SEC for a waiver as set out in Rule 5.4b of the Listing Rules of the CSE to implement the issue of shares upto 151,891,561 ordinary shares which exceeds 20% of the shares in issue of CITH by way of a Private Placement of Shares. (iv) (v) (vi) The shares of CITH to be issued under the Amalgamations and the Voluntary Offer would be uploaded to the Central Depository System within twelve (12) market days of the issue of the Certificates of Amalgamation. The listing of the shares by the CSE will in no way be reflective of the merits of the issue. The CSE assumes no responsibility for the correctness of any of the statements made, opinions expressed or reports included. The Directors of the Company collectively and individually accept full responsibility for the accuracy of the information given and confirm having made all reasonable enquiries, that to the best of their knowledge and belief, that there are no other facts the omission of which would render any statement in the Circular misleading. IF YOU ARE IN DOUBT AS TO THE ACTION YOU SHOULD TAKE, YOU SHOULD CONSULT YOUR STOCK-BROKER OR OTHER PROFESSIONAL ADVISER IMMEDIATELY. WE REITERATE THAT UPON THE SHAREHOLDERS APPROVING THE RESOLUTION SET OUT IN THE NOTICE OF MEETING, THE EFFECTIVITY OF SUCH RESOLUTION SHALL BE WHEN CITH RECEIVES THE RELEVANT APPROVALS FROM THE SECURITIES AND EXCHANGE COMMISSION OF SRI LANKA FOR WHICH APPLICATION HAS BEEN MADE. ACCORDINGLY, AN ANNOUNCEMENT WILL BE MADE ON THE TRADING FLOOR OF THE CSE AS TO THE EFFECTIVE DATE. By Order of the Board CITRUS LESIURE PLC P W Corporate Secretarial (Pvt) Ltd (Sgd.) Anusha Wijesekara Director/Secretaries 1 st June

HIKKADUWA BEACH RESORT PLC. Interim Financial Statements Six months ended 30 September 2017

HIKKADUWA BEACH RESORT PLC. Interim Financial Statements Six months ended 30 September 2017 `y HIKKADUWA BEACH RESORT PLC Interim Financial Statements Six months ended 30 September 2017 STATEMENT OF COMPREHENSIVE INCOME Quarter Ended 30th September Six months ended 30th September 2017 2016 Increase