CIRCULAR TO SHAREHOLDERS

Transcription

1 CIRCULAR DATED 7 JANUARY 2010 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. PLEASE READ IT CAREFULLY. If you are in any doubt as to the action you should take, you should consult your stockbroker, bank manager, accountant, solicitor or other professional adviser immediately. If you have sold or transferred all your shares in the capital of ASA Group Holdings Ltd (Company) held through The Central Depository (Pte) Limited (CDP), you need not forward this Circular to the purchaser or transferee as arrangements will be made by CDP for a separate Circular to be sent to the purchaser or transferee. If you have sold or transferred all your shares represented by physical share certificate(s), you should immediately forward this Circular together with the notice of Extraordinary General Meeting and the accompanying Proxy Form immediately to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for onward transmission to the purchaser or the transferee. The Singapore Exchange Securities Trading Limited (SGX-ST) assumes no responsibility for the correctness of any of the statements made, reports contained or opinions expressed in this Circular. (Incorporated in Singapore) (Company Reg. No M) CIRCULAR TO SHAREHOLDERS in relation to I. SHAREHOLDERS RATIFICATION, CONFIRMATION AND APPROVAL OF THE SALES AGENCY AND DISTRIBUTORSHIP AGREEMENT (AS DEFINED HEREIN) AS A PAST INTERESTED PERSON TRANSACTION II. PROPOSED SHAREHOLDERS MANDATE FOR RECURRENT TRANSACTIONS WITH SHANGHAI CHAOYUE TRADING CO., LTD. PURSUANT TO THE SALES AGENCY AND DISTRIBUTORSHIP AGREEMENT Independent Financial Adviser to the Non-Interested Directors Partners Capital (Singapore) Pte. Ltd. (Incorporated in Singapore) (Company Registration. No G) IMPORTANT DATES AND TIMES: Last date and time for lodgment of Proxy Form : 20 January 2010 at 10 a.m. Date and time of Extraordinary General Meeting : 22 January 2010 at 10 a.m. Place of Extraordinary General Meeting : Function Rooms 1 & 2, Level 2, Raffles Marina Club, 10 Tuas West Drive Singapore

2 CONTENTS Page DEFINITIONS... 3 LETTER TO SHAREHOLDERS INTRODUCTION CHAPTER 9 OF THE LISTING MANUAL THE INTERESTED PERSON TRANSACTIONS THE PROPOSED IPT MANDATE GUIDELINES AND REVIEW PROCEDURES FOR INTERESTED PERSON TRANSACTIONS RATIONALE AND BENEFITS OF THE SHANGHAI CHAOYUE TRANSACTIONS AND THE PROPOSED IPT MANDATE STATEMENT OF AUDIT COMMITTEE OPINION OF THE IFA NON-INTERESTED DIRECTORS RECOMMENDATIONS EXTRAORDINARY GENERAL MEETING ACTION TO BE TAKEN BY SHAREHOLDERS DIRECTORS AND SUBSTANTIAL SHAREHOLDERS INTERESTS CONSENTS DIRECTORS RESPONSIBILITY STATEMENT DOCUMENTS AVAILABLE FOR INSPECTION APPENDIX I LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS NOTICE OF EXTRAORDINARY GENERAL MEETING PROXY FORM 2

3 DEFINITIONS For the purpose of this Circular, the following definitions apply throughout unless the context otherwise requires or unless otherwise stated: Act : The Companies Act, Chapter 50 of Singapore, as amended or modified from time to time. AGM : The annual general meeting of the Company. ASA Entity or ASA Entities : Has the meaning ascribed to it in Section 1.1 of this Circular. associate : (i) In relation to an interested person who is a director, chief executive officer or controlling shareholder (being an individual) means: (a) (b) (c) his immediate family (that is, the spouse, child, adopted child, step-child, sibling or parent); the trustees of any trust of which he and/or his immediate family is a beneficiary or, in the case of a discretionary trust, is a discretionary object; or any company in which he and his immediate family together (directly or indirectly) have an interest of 30% or more. (ii) In relation to a substantial shareholder or a controlling shareholder (being a company) means any other company which is its subsidiary or holding company or is a subsidiary of such holding company or one in the equity of which it and/or such other company or companies taken together (directly or indirectly) have an interest of 30% or more. associated company : Any company in which at least twenty per cent (20%) but not more than fifty per cent (50%) of its shares are held by the Company or the Group. Audit Committee : The audit committee of the Company for the time being. Board of Directors : The board of directors of the Company for the time being. CDP : The Central Depository (Pte) Limited. CEO : Chief executive officer. Circular : This circular to Shareholders dated 7 January 2010 in relation to Shareholders ratification, confirmation and approval of the Sales Agency and Distributorship Agreement as a past interested person transaction and the proposed shareholders mandate for recurrent transactions with Shanghai Chaoyue pursuant to the Sales Agency and Distributorship Agreement. Company or ASA : ASA Group Holdings Ltd. Concessionary Price : Has the meaning ascribed to it in Section 3.3(a) of this Circular. 3

4 controlling shareholder : A person who: (a) (b) holds directly or indirectly 15% or more of the nominal amount of all voting shares in the Company; or in fact exercises control over the Company. Directors : The directors of the Company as at the Latest Practicable Date. Distributor Price : Has the meaning ascribed to it in Section 3.3(a) of this Circular. DGM (Finance) : Has the meaning ascribed to it in Section 3.3(a) of this Circular. EGM : The extraordinary general meeting of the Company to be convened and held on 22 January 2010 at 10 a.m., notice of which is set out in this Circular. entity at risk : Means: (i) (ii) (iii) the Company; a subsidiary of the Company that is not listed on the SGX- ST or an approved exchange; or an associated company of the Company that is not listed on the SGX-ST or an approved exchange, provided that the Group, or the Group and its interested person(s), has or have control over the associated company. ERP System : Has the meaning ascribed to it in Section 3.3(a) of this Circular. FY : Financial year ended or ending (as the case may be) 31 December. Forecasted Sales Revenue : Has the meaning ascribed to it in Section 3.3(c) of this Circular. GM (Sales) : Has the meaning ascribed to it in Section 3.3(a) of this Circular. Group : The Company and its subsidiaries. IFA : Partners Capital (Singapore) Pte Ltd. IFA Letter : The letter dated 7 January 2010 from the IFA to the Non- Interested Directors, as contained in Appendix I of this Circular interested person(s) : A director, chief executive officer, or controlling shareholder of the Company, or an associate (as defined in the Listing Manual) of any such director, chief executive officer, or controlling shareholder. interested person transaction(s) : Interested person transactions (within the meaning of Chapter 9 of the Listing Manual) entered or to be entered between an entity at risk and an interested person. IPT Mandate : Has the meaning ascribed to it in Section 1.2 of this Circular. IPT Register : Has the meaning ascribed to it in Section 5.2 of this Circular. 4

5 Latest Practicable Date : The latest practicable date prior to the printing of this Circular, being 28 December Listing Manual : The Listing Manual of the SGX-ST, as may be amended or modified from time to time. Non-Interested Directors : The Directors who are deemed to be independent for the purposes of making a recommendation to Shareholders in respect of the Shareholders ratification, confirmation and approval of the Sales Agency and Distributorship Agreement as a past interested person transaction and the proposed shareholders mandate for recurrent transactions with Shanghai Chaoyue pursuant to the Sales Agency and Distributorship Agreement, being Ms. Ng Hoi Yin, Ms. Chan Fung Lan, Mr. Zhang Jian Gen, Mr. Soo Choon Kiat and Mr. Er Kwong Wah. NTA : Net tangible assets. PRC : People s Republic of China. Pre-agreement Transactions : Has the meaning ascribed to it in Section 1.1 of this Circular. RMB : Renminbi dollar and cents respectively, unless otherwise stated, being the lawful currency of PRC. Sales Agency and : The sales agency and distributorship agreement entered into on Distributorship Agreement 25 April 2009 between each of the ASA Entities and Shanghai Chaoyue (as supplemented by the Supplementary Agency Agreement). Sales Transactions : Has the meaning ascribed to it in Section 1.1 of this Circular. SGX-ST : Singapore Exchange Securities Trading Limited. Shandong ASA : Shandong ASA Ceramic Co., Ltd. (Company Registration No.: ), a subsidiary of the Company. Shanghai ASA : Shanghai ASA Ceramic Co., Ltd. (Company Registration No.: ), a wholly-owned subsidiary of the Company. Shanghai Chaoyue : Shanghai Chaoyue Trading Co., Ltd (Company Registration No.: ), with its principal place of business and registered office at 536 Chaozhou Road, Puto District, Shanghai, PRC. Shanghai Chaoyue Transactions : Has the meaning ascribed to it in Section 1.1 of this Circular. Shanghai Fortune : Shanghai Fortune Ceramic Co., Ltd (Company Registration No.: ), a wholly-owned subsidiary of the Company. Shanghai Jinming : Shanghai Jinming Investment Group Co., Ltd (Company Registration No.: ), with its principal place of business and registered office at 518 Chaozhou Road, Puto District, Shanghai, PRC. Shares : Ordinary shares in the capital of the Company. 5

6 Shareholders : Persons who are registered as holders of the Shares in the Register of Members of the Company, or where CDP is the registered holder, the term Shareholders shall in relation to such Shares, mean the Depositors who have Shares entered against their names in the Depository Register. Substantial Shareholder(s) : A person (including a corporation) who holds, directly or indirectly, 5% or more of the aggregate votes attached to all voting shares of the Company. Template Agreement : Has the meaning ascribed to it in Section of this Circular. Tiles : Includes polished tiles, ceramic tiles and rustic tiles. Watch-list : Has the meaning ascribed to it on page 7 of this Circular. % or per cent : Percentage or per centum. S$ and cents : Singapore dollar and cents respectively, unless otherwise stated. Unless otherwise specifically provided, the following exchange rate is used throughout this Circular: S$1.00 : RMB 4.7 The terms Depositor and Depository Register shall have the meanings ascribed to them respectively in Section 130A of the Act and the terms subsidiary and substantial shareholder shall have the meanings ascribed to them in sections 5 and 81 of the Act. Words importing the singular shall, where applicable, include the plural and vice versa. Words importing the masculine gender shall, where applicable, include the feminine and neuter genders and vice versa. References to persons shall include corporations. Any reference in this Circular to any enactment is a reference to that enactment as for the time being amended or re-enacted. Any word defined under the Act or any statutory modification thereof and not otherwise defined in this Circular shall have the same meaning assigned to it under the Act or any statutory modification thereof, as the case may be. Any reference to a time of day in this Circular is made by reference to Singapore time unless otherwise stated. The headings in this Circular are inserted for convenience only and shall be ignored in construing this Circular. Any discrepancies in the tables in this Circular between the listed amounts and the totals thereof are due to rounding. Accordingly, figures shown as totals in this Circular may not be the arithmetic aggregation of the figures that precede them. 6

7 CAUTIONARY NOTE TO SHAREHOLDERS COMPANY ON THE SGX-ST WATCH-LIST As announced by the Company on 4 March 2008, pursuant to Rule 1311 of the Listing Manual, SGX-ST had placed the Company on the watch-list of the SGX-ST (Watch-list) with effect from 5 March Pursuant to Rule 1313(2) of the Listing Manual, the Company will, for the period in which it remains on the Watch-list, provide the market with a quarterly update on its financial situation, including its future direction, or any other material development that may have a significant impact on its financial position. On 3 December 2009, in compliance with Rule 1313(2) of the Listing Manual, the Company announced an update on its financial situation for the third quarter ended 30 September In addition, the Company also announced updates on its future direction and initiatives to facilitate its removal from the Watch-list. Shareholders should note that: (a) (b) while the Company remains on the Watch-list, trading in the Company s securities will continue unless a trading halt or suspension is or has been previously effected; and the Company has within 24 months from 5 March 2008 to restore its financial health to the prescribed levels as set out in Rule 1314 of the Listing Manual, failing which the SGX-ST may either remove the Company from the official list of the SGX-ST or suspend trading of the listed securities of the Company (without the agreement of the Company) with a view to removing the Company from the official list of the SGX-ST. As at the Latest Practicable Date, the Company remains on the Watch-list. There is no assurance that the Company will be able to meet the conditions for its removal from the Watch-List within the time limit prescribed by Rule 1315 of the Listing Manual and avoid a possible delisting. 7

8 LETTER TO SHAREHOLDERS ASA GROUP HOLDINGS LTD (Incorporated in Singapore) (Company Reg. No M) Directors Registered Office Lu Weijian (Executive Chairman & Chief Executive Officer) 8 Cross Street Ng Hoi Yin (Executive Director) #11-00 PWC Building Chan Fung Lan (Executive Director) Singapore Zhang Jian Gen (Independent Non-Executive Director) Soo Choon Kiat (Independent Non-Executive Director) Er Kwong Wah (Independent Non-Executive Director) 7 January 2010 To: The Shareholders of ASA Group Holdings Ltd Dear Sir/Madam I. SHAREHOLDERS RATIFICATION, CONFIRMATION AND APPROVAL OF THE SALES AGENCY AND DISTRIBUTORSHIP AGREEMENT (AS DEFINED HEREIN) AS A PAST INTERESTED PERSON TRANSACTION II. PROPOSED SHAREHOLDERS MANDATE FOR RECURRENT TRANSACTIONS WITH SHANGHAI CHAOYUE TRADING CO., LTD. PURSUANT TO THE SALES AGENCY AND DISTRIBUTORSHIP AGREEMENT 1. INTRODUCTION 1.1 Background information on the Shanghai Chaoyue Transactions Purpose of Circular On 13 October 2009, the Board of Directors of the Company announced that its subsidiaries, Shanghai ASA, Shandong ASA and Shanghai Fortune (each an ASA Entity and collectively the ASA Entities) had entered into certain interested person transactions with an interested person being Shanghai Chaoyue in relation to the sales of Tiles. The purpose of this Circular is to seek (i) Shareholders ratification, confirmation and approval of the Sales Agency and Distributorship Agreement as a past interested person transaction and (ii) a Shareholders mandate for recurrent transactions with Shanghai Chaoyue pursuant to the Sales Agency and Distributorship Agreement. Background At a meeting of the Board of Directors held on 5 August 2009, it was decided that the Company shall convene a general meeting to seek Shareholders approval for a general mandate for the sale of Tiles to Shanghai Chaoyue pursuant to the Sales Agency and Distributorship Agreement (Sales Transactions) as the value of the Sales Transactions for FY2009 would likely exceed 5% of the last audited NTA of the Group. On 20 August 2009, the Company intended to make an announcement pursuant to Chapter 9 of the Listing Manual in relation to the Sales Transactions as the value of the Sales Transactions had exceeded 3% of the last audited NTA of the Group. 8

9 The Company sought advice from its legal advisers and interpreted the amount at risk to the issuer resulting from the Sales Transactions, for purposes of Chapter 9 of the Listing Manual, as the amount of rebates and commissions the Company was required to pay out under the Sales Agency and Distributorship Agreement to Shanghai Chaoyue. On this basis, the aggregate amount at risk to the Company from the Sales Transactions since 25 April 2009 to the relevant point in time, had not yet exceeded 3% of the last audited NTA of the Group and hence the Company, although mindful of the disclosure requirements under Rule 905(2) of the Listing Manual, made no announcement as the 3% threshold had not been reached. As the value of the Sales Transaction may exceed 5% of the Group s latest NTA, going forward, the Company decided to proceed with the preparation of the circular to seek Shareholders approval. While preparations for the Shareholders circular to convene a general meeting were in progress, the Company continued with the Sales Transactions. For the purposes of the general mandate, the IFA was appointed and was informed that the Company was seeking a general mandate in anticipation that the value at risk may increase. After the initial review and receipt of the draft circular prepared by the Company s legal advisers, the IFA sought clarification on 29 September 2009 as to whether the interested person transaction is confined to the aggregate rebates and not inclusive of the sales transaction amounts and whether such sales amounts fell under exceptions under the Listing Manual which did not require IFA to review. Subsequently on 30 September 2009, the legal advisers sought confirmation and clarification from the Company and it was discovered that due to a difference in interpretation in certain documentation pertaining to the interested person transactions, the Company interpreted the value of the transaction of the Sales Transactions (being the amount at risk to the issuer, for purposes of Chapter 9 of the Listing Manual) as the amount of rebates and commissions the Company was required to pay out under the Sales Agency and Distributorship Agreement to Shanghai Chaoyue. The misinterpretation was then brought to light and the Company was thereafter on 30 September 2009 alerted that the value of the transaction (being the amount at risk to the Company for purposes Chapter 9 of the Listing Manual) should, in addition to the amount of rebates and commissions the Company was required to pay out under the Sales Agency and Distributorship Agreement to Shanghai Chaoyue, have included the aggregate sales amount arising from the sale of Tiles to Shanghai Chaoyue. It was at this point that the breach was discovered by both the Company and the legal advisers. The legal advisers then requested the IFA to opine on the sales amount arising from the sale of Tiles to Shanghai Chaoyue in addition to the aggregate rebates. The IFA agreed to such understanding that the proposed shareholders general mandate will be for the category of IPTs as Sales Transactions to refer to both the sales amount and its corresponding rebates entitlements, which are subject to a set of guidelines and review procedures established (or will be established) by the Company. By that time the misinterpretation was discovered on 30 September 2009, the aggregate value of the Shanghai Chaoyue Transactions had already inadvertently exceeded 5% of the last audited NTA of the Group. The volume of the sales had escalated rapidly as the sales were carried out during the usual peak sales periods of the Company and the said volume had exceeded the 5% threshold sooner than the Company had anticipated. Further the Company had benefited from the Sales Transactions since Shanghai Chaoyue had made upfront payments before delivery of the Tiles to itself, unlike other third-party, agents and distributors who only pay the Company upon delivery of the Tiles to them. On 9 October 2009, the Company informed SGX-ST of the breach and immediately suspended all transactions with Shanghai Chaoyue and on 13 October 2009, announced the Shanghai Chaoyue Transactions. 9

10 From 1 January 2009 up to 24 April 2009 (being the day immediately before the date of the Sales Agency and Distributorship Agreement) the aggregate value of all interested person transactions between the Group and Shanghai Chaoyue is approximately RMB 0.06 million, which represents approximately 0.05% of the Group s latest audited NTA. As the value of each such transaction did not exceed S$100,000, these transactions were not required to be disclosed pursuant to Rule 905(3) of the Listing Manual (Pre-agreement Transactions). From 25 April 2009 (being the date of entry of the Sales Agency and Distributorship Agreement) up to the Latest Practicable Date, the Sales Transactions has generated aggregate sales revenue of approximately RMB 8.31 million, constituting approximately 6.9% of the Group s latest audited NTA. As at the Latest Practicable Date, the aggregate value of the Pre-agreement Transactions and the Sales Transactions (collectively the Shanghai Chaoyue Transactions) is RMB 8.37 million, constituting approximately 6.9% of the Group s latest NTA and approximately 8% of the Group s total sales revenue for FY2009. As at the Latest Practicable Date, none of the ASA Entities have made any payment of any rebates to Shanghai Chaoyue. Further details on the Shanghai Chaoyue Transactions can be found in Section 3 of this Circular. Assurance The Company would like to assure Shareholders that, despite the inadvertence described above, its previously established review procedures as set out in Section 5 of this Circular had ensured that the transactions with Shanghai Chaoyue were undertaken on an arm s length basis, on normal commercial terms and were not prejudicial to the interests of the Company and its minority Shareholders. The volume of sales has contributed significantly to the Group s total sales revenue for the year to date and, given the Company s financial position, such volume of sales resulting in revenue for the Group has proven beneficial to the Company and to its Shareholders. As such, the Company did not consider the volume of sales as constituting a risk to the issuer, which had contributed to a certain extent to the misinterpretation. The Shanghai Chaoyue Transactions had been previously disclosed to, and were reviewed by, the Audit Committee and the Audit Committee is similarly of the view that the said transactions were undertaken on an arm s length basis, on normal commercial terms and were not prejudicial to the interests of the Company and its minority Shareholders. The Board has subjected all interested person transactions to the review of the Company s internal auditors and further to the Audit Committee on a quarterly basis. The internal auditors have also tightened the monitoring of interested person transactions. In addition, the independent directors have agreed to commit additional time and resources and will carry further checks at the various stages of the interested person transactions. At all material times the guidelines and procedures had been adhered to in the administering and processing of the Shanghai Chaoyue Transactions. As explained above, the inadvertent breach arose as a result of the factual interpretation of the amount at risk to the issuer resulting from the Shanghai Chaoyue Transactions for the purpose of Chapter 9 of the Listing Manual and not as a result of the lack of adherence to the guidelines and procedures. Nonetheless, in addition to the closer monitoring of the guidelines and procedures which were in place before the inadvertent breach, the Company has assigned a staff of the finance department (who shall be a non-interested person) to re-check and monitor the interested person transactions monthly to ensure that there will be no recurrence of such inadvertent breaches. The Company has approached a third-party accountant to act as a consultant to the auditors, with a view to audit and review the operations of the Company including internal controls review. Both the external consultant and the internal audit department of the Company will help the Company to review its operations and address any weaknesses or defects in its internal controls in order to ensure that there will not be any future inadvertent breaches. 10

11 The Company is also in the process of engaging an external consultant to advise on all compliance issues in relation to the Listing Manual. As at the Latest Practicable Date, the Company has not yet appointed the external consultant as the terms of the appointment are being finalized. The Company undertakes to make the appropriate announcement once the appointment is finalized. The Chairman of the Audit Committee is currently Mr Soo Choon Kiat. Mr Soo has extensive experience in accounting and auditing and is familiar with the requirements of the Listing Manual. Notwithstanding the above, with respect to the obligations under the Listing Manual, the directors are prepared to undergo specialised training programs to be conducted by a professional adviser or compliance adviser who is familiar with the rules and regulations applicable to a listed company and with the relevant experience to refresh their training in the roles and responsibilities of directors of a Singapore-listed company which will include obligations in the Listing Manual. At the same time, the Company is also in the process of developing a compliance checklist based on the Listing Manual. It is contemplated that this checklist will be reviewed by the external consultant and the Audit Committee to ensure that all Listing Manual requirements have been complied with. The checklist will be completed by both the DGM (Finance) and the internal audit manager, and will be reviewed by the CEO and an executive director of the Company before the release of each quarter s results. The checklist is expected to be completed before the finalisation of the audited accounts for FY Information on the proposed IPT Mandate In addition to the Shanghai Chaoyue Transactions that have already occurred, the Company anticipates that the Company, its subsidiaries, its associated companies or any of them may, in the ordinary course of business, enter into recurrent transactions with Shanghai Chaoyue pursuant to the Sales Agency and Distributorship Agreement. As there are no other transactions with Shanghai Chaoyue therefore the recurrent transactions refer only to the sale of Tiles under the Sales Agency and Distributorship Agreement. As such, the Company intends to seek Shareholders approval for a new general mandate for the Group to enter into such recurrent transactions with Shanghai Chaoyue pursuant to the Sales Agency and Distributorship Agreement (IPT Mandate). If approved by Shareholders, the proposed IPT Mandate will take effect from the date of the passing of the ordinary resolution at the EGM and will, unless earlier revoked or varied by the Company in general meeting, continue in force until the next AGM. Thereafter, approval from Shareholders for renewal of the proposed IPT Mandate will be sought at each subsequent AGM. Further details on the proposed IPT Mandate can be found in Section 4 of this Circular. 1.3 Purpose of this Circular The purpose of this Circular is to provide Shareholders with information on the Shanghai Chaoyue Transactions and the proposed IPT Mandate, and to seek Shareholders approval for the ordinary resolutions in respect thereof, all of which are set out in the notice of the EGM found in this Circular. 2. CHAPTER 9 OF THE LISTING MANUAL 2.1 General requirements Under Chapter 9 of the Listing Manual, where a listed company or any of its subsidiaries or associated companies that are defined as entities at risk proposes to enter into a transaction with an interested person, shareholders approval and/or an immediate announcement is required in respect of that transaction if its value is equal to or exceeds certain financial thresholds. In particular, shareholders approval (in addition to an immediate announcement) is required where the value of such transaction equals to or exceeds 5% of the listed group s latest audited NTA. In obtaining such approval, the interested person and its associates are required to abstain from voting on the resolution approving the transaction. The above requirements for immediate announcement and for shareholders approval do not apply to any transaction below S$100,

12 In addition to requiring shareholders approval, the independent directors of the listed company are also required to obtain an opinion in a separate letter from an independent financial adviser acceptable to the SGX-ST stating whether the transaction is on normal commercial terms and whether it is prejudicial to the interests of the listed company and its minority shareholders. 2.2 Objective of Chapter 9 of the Listing Manual The objective of Chapter 9 of the Listing Manual is to guard against the risk that interested persons could influence the listed company, its subsidiaries and/or its associated companies to enter into transactions with the interested persons that may adversely affect the interests of the listed company or its shareholders. In applying the rules under Chapter 9 of the Listing Manual, regard must be given to its objective and the economic and commercial substance of the interested person transaction instead of legal form and technicality. 2.3 General mandate Part VIII of Chapter 9 of the Listing Manual permits a listed company, however, to seek a mandate from its shareholders for recurrent transactions of a revenue or trading nature or those necessary for its day-to-day operations such as the purchase and sale of supplies and materials (but not in respect of the purchase or sale of assets, undertakings or businesses) that may be carried out with the listed company s interested persons. A general mandate granted by shareholders is also subject to annual renewal. 3. THE INTERESTED PERSON TRANSACTIONS 3.1 Shanghai Chaoyue as an interested person Based on the business licence of Shanghai Chaoyue issued on 19 February 2004, the principal activity of Shanghai Chaoyue is stated to be that of the sale of ceramic materials. Such sales are generally made to the retail public, its own network of retailers, developers and contractors. Its other activities are the sale of metal material, building material, plastic products, automobile accessories, hardware spares, electric appliances, building machinery and general merchandise and business information consultancy. As at the Latest Practicable Date, the Company s controlling shareholder, Shanghai Jinming holds 90% of the equity interests in Shanghai Chaoyue. The remaining 10% of the equity interests in Shanghai Chaoyue is held by Mr. Lu Min, who is not related to any of the directors, chief executive officers or controlling shareholders of the Company or their respective associates. Therefore, as Shanghai Chaoyue is a company in which Shanghai Jinming holds 30% or more of the equity interests, Shanghai Chaoyue is considered to be an associate of Shanghai Jinming and hence, on the basis of Rule 904(4) of the Listing Manual, Shanghai Chaoyue is an interested person in relation to the Group. Based on the business licence of Shanghai Jinming issued on 29 July 1997, the principal activities of Shanghai Jinming is stated to be that of industry investment, investment management, assets management, domestic trading, sale of metal and mineral products, property development and operation, rental of properties and machineries, and consultancy The principal activity of Shanghai Jinming is that of property development and sale of units and since the issue of the business licence up to the Latest Practicable Date, it does not have any transactions with the Company in relation to the sale of Tiles. As Shanghai Chaoyue is the exclusive agent/distributor appointed by the ASA Entities in Shanghai in relation to the sale of Tiles, it is not possible for Shanghai Jinming to be a customer of the Group as this would breach the terms of the Sales Agency and Distributorship Agreement. The Board has confirmed that there is no current intention for Shanghai Jinming to purchase Tiles from Shanghai Chaoyue. In the event that the Tiles are so purchased by Shanghai Jinming, such Tiles will only be for their private consumption and not for resale. 12

13 Given the above, the Board is of the view that Shanghai Jinming does not compete directly or indirectly with the Group. Neither Shanghai Jinming nor Mr Lu Min is a customer of the Company and/or of Shanghai Chaoyue, and neither of them has purchased Tiles from the Company and or Shanghai Chaoyue as at the Latest Practicable Date. 3.2 Information on the Shanghai Chaoyue Transactions Since 1 January 2009, the Group has streamlined its operations and realigned its sales channels from a direct mass retail system (via branch offices) to a sales agency and distributorship model for purposes of cost control. Under this sales agency and distributorship model, the Group does not sell products directly to the retail public. Instead, the Group sells its products to its agents/distributors and such agents/distributors will then sell the same to the retail public. As such, none of the Group s agents/distributors (whether or not they are interested persons) are in competition with the Group for the sale of ceramic products. The main sales team of the Company (this being the Shanghai ASA sales team) may appoint an exclusive agent/distributor for the sale of Tiles in a specific sale territory for the other ASA Entities. Different agents/distributors may be appointed in different sale territories. However, for the Shanghai area, the ASA Entities are only contractually obliged to sell the Tiles through Shanghai Chaoyue through the exclusive arrangement of the Sales Agency and Distributorship Agreement. When the Company s sales channels were first changed from a direct mass retail system to that of a sales agency and distributorship model, the Company had appointed an unrelated third-party as its exclusive agent/distributor in the Shanghai area pursuant to a Template Agreement. However, as the said third-party was unable to achieve its sales quotas within the stipulated period in the agreement, the agreement was terminated. The Company had subsequently tried to search for a new exclusive agent/distributor for the Shanghai area but was unsuccessful. Please refer to section 6.1 of the Circular for the relevant rationales in appointing Shanghai Chaoyue as the Company s agent/distributor. The Group and Shanghai Chaoyue had, from time to time before the Sales Agency and Distributorship Agreement was entered into, engaged in transactions for the sale of Tiles from the Group to Shanghai Chaoyue. From 1 January 2009 up to 24 April 2009 (being the day immediately before the date of the Sales Agency and Distributorship Agreement) the aggregate value of the Pre-agreement Transactions is approximately RMB 0.06 million, which represents approximately 0.05% of the Group s latest audited NTA. As the value of each such Pre-agreement Transaction did not exceed S$100,000, these transactions were not required to be disclosed pursuant to Rule 905(3) of the Listing Manual. Each such Pre-agreement Transaction was carried out on terms and prices which were uniformly applied to all agents/distributors of the ASA Entities and was subject to the Group s established pricing review procedures. Please refer to Section 5 of this Circular for further details. On 25 April 2009, each of the ASA Entities entered into the Sales Agency and Distributorship Agreement with Shanghai Chaoyue, pursuant to which Shanghai Chaoyue agreed to act as an exclusive agent and distributor for each of the ASA Entities: (i) (ii) to sell, market and distribute the Tiles under the ASA brand name to the retail public; and for the purposes of major construction projects in Shanghai for a period commencing on 25 April 2009 and ending on 31 December From 25 April 2009 up to the Latest Practicable Date, the Sales Transactions have generated aggregate sales revenue of approximately RMB 8.31 million, constituting approximately 6.9% of the Group s latest audited NTA and approximately 8% of the Group s total sales revenue for the year to date. 13

14 Each Sales Transaction was carried out on terms and prices which were uniformly applied to all agents/distributors of the ASA Entities and was subject to the Group s established pricing review procedures. Please refer to Section 5 of this Circular for further details on the Group s pricing review procedures. As at the Latest Practicable Date, the aggregate value of the Pre-agreement Transactions and the Sales Transactions entered into between the ASA Entities and Shanghai Chaoyue had inadvertently exceeded 5% of the Group s latest audited NTA as at 31 December As at the Latest Practicable Date, the Shanghai Chaoyue Transactions has generated aggregate sales revenue of approximately RMB 8.37 million, constituting approximately 8% of the Group s total sales revenue for FY2009. Save as disclosed above, Shanghai Chaoyue has not entered into any other transactions with the Group. 3.3 Salient terms of the Sales Agency and Distributorship Agreement The salient terms of the Sales Agency and Distributorship Agreement are set out below: (a) Purchase of Tiles from the ASA Entities for sale to third-party buyers Shanghai Chaoyue will first purchase Tiles directly from the ASA Entities at a specified distributor price which is uniformly applied to all agents/distributors of the ASA Entities (Distributor Price). Thereafter, Shanghai Chaoyue will sell, market and distribute such Tiles to third-party buyers. The Distributor Price will be at a pre-specified discount off the Company s ex-factory price list and is merely a pricing mechanism employed by the Company taking into account the market price and cost price of the Tiles as well as marketing, sales and inventory conditions. The Distributor Price for each type of Tiles, once determined, are fixed and invariable and uniformly applied to all sales transactions to all agents/distributors. A price list setting out the Distributor Price for each type of Tiles is provided to all agents/distributors of the Company (as at the Latest Practicable Date, there are 66 non-interested agents/distributors) and is also imputed into the ERP System to further ensure that it is fixed and invariable and is uniformly applied to all sales transactions to all interested or non-interested agents/distributors. In this regard, the Distributor Price (for the same type of Tiles) enjoyed by Shanghai Chaoyue shall not be lower than the price offered to at least two other unrelated third-party agents/distributors so as to ensure that the pricing is fair and reasonable and comparable to those offered to other unrelated third party agents/distributors. The district sales manager of the relevant ASA Entities (who shall be a non-interested person) will be responsible for procuring the quotes from unrelated third-party agents/distributors. There are however, instances where certain Tiles may be sold at lower prices than the Distributor Price (Concessionary Price). Such instances include the disposal of obsolete inventories (such as Tiles which are (i) more than five years old (ii) less popular Tiles (iii) Tiles which are only available in small batches and (iv) Tiles which are no longer in production). These obsolete inventories are physically kept separately in the warehouses from the other Tiles. A Concessionary Price may also be set where the relevant ASA Entity offers its Tiles at special promotional prices for a limited period in order to promote its Tiles. Each Concessionary Price is determined internally by the relevant non-interested personnel of each ASA Entity taking into account the respective sales or marketing objectives. The relevant non-interested personnel are the General Manager of the Sales Department (GM (Sales) and Deputy General Manager of the Finance Department (DGM (Finance)) and the CEO. Once a Concessionary Price is fixed in each instance, it will be made public and is therefore transparent to all agents/distributors and uniformly applied to all agents/distributors of each ASA Entity. 14

15 The Concessionary Price is subsequently subject to the scrutiny of the internal audit department who will carry out further checks to prepare a quarterly report to present to the Audit Committee. In addition to the above, the independent directors have agreed to commit additional time and resources and will carry out further checks to ensure that the Concessionary Price is applied uniformly to all agents/distributors and is on an arm s length basis, on normal commercial terms and is not prejudicial to the interests of the Company and its minority Shareholders. However, in each instance where Tiles (excluding Tiles which are on special promotional offer for a limited period) are sold at a Concessionary Price, the relevant ASA Entity will pay to each relevant agent/distributor an amount representing the difference between the Distributor Price and the Concessionary Price fixed in that instance (hereafter D ), multiplied by the number of that particular type of Tiles left in the inventory of the relevant agent/distributor (hereafter T ) calculated as at the last day of the month preceeding the date on which the Concessionary Price is applied. This is illustrated by the formula below: Refund Amount (assuming that the Concessionary Price is applied as at 15 January) = D x T (with T calculated as at 31 December) However, T shall not exceed the aggregate number of that particular type of Tiles purchased by the agent/distributor for the period of three (3) months prior to 15 January, being the date on which the Concessionary Price is applied. To the best of the knowledge of the Directors, such refunds are in line with industry norms and standards. The Group has in place an enterprise resource planning system (ERP System) which has software capabilities to record and track all sales transactions entered into by the Group with its agents/distributors (whether they are interested persons or not). The ERP System documents the entire sales process (including various aspects such as product manufacture date, the purchaser of the products, the quantity sold and the product price etc.) and as such, may be used to ensure that a Concessionary Price is only offered on obsolete inventories or promotional products. The ERP system is also a transparent and verifiable platform by which the Company, the Audit Committee, the internal audit department and external auditors can track and document all sales transactions and consequently, during their periodic checks, flag any material variations in pricing so as to ensure that the sale price and the rebates offered to any interested person are comparable to those offered to unrelated third-parties for the same or substantially similar type of products. As a result of the inadvertent breach, the Company had commissioned a special internal audit to review all sales of Tiles to Shanghai Chaoyue sold at the Concessionary Price for the period from 25 April 2009 to 7 October 2009 and had prepared a report to the Chairman of the Audit Committee containing satisfactory findings that the guidelines and procedures had been adhered to in the administering and processing of the Shanghai Chaoyue Transactions. To the best of the knowledge of the Directors, the pricing scheme for Tiles sold to Shanghai Chaoyue under the Sales Agency and Distributorship Agreement: (i) (ii) is a standard pricing scheme consistently applied to all agents/distributors of the ASA Entities and the terms are not more favourable to Shanghai Chaoyue than those extended to unrelated third-parties; and the terms of the pricing scheme are on an arm s length basis, on normal commercial terms and is not prejudicial to the interests of the Company and its minority Shareholders. 15

16 (b) Purchase of Tiles from the ASA Entities for major construction projects In cases where any of the ASA Entities collaborates with Shanghai Chaoyue to bid competitively for certain major construction projects, the relevant ASA Entity may also supply the Tiles to Shanghai Chaoyue in relation to such projects at a Concessionary Price, provided that the special projects meet the following criteria: (i) the total quantity of the Tiles purchased should not be less than 2,000m 2 ; (ii) (iii) the sales amount of the project should not be less than RMB 200,000; and full details of the project must be disclosed to the relevant ASA Entity. Each Concessionary Price is determined in accordance with the project at hand and may differ from project to project. For major construction projects, the agents/distributors will initiate and apply for the Concessionary Price by way of an prescribed application form to the Company and include evidence of the sales amounts achieved together with supporting documents to the district manager, who will in turn verify the application and prepare a report to the Deputy General Manager of the Sales Department who will work with the DGM (Finance) and thereafter to the GM (Sales), who will submit the final report to the CEO. If the CEO is an interested person, approval will be sought from any non-interested executive director of the subsidiary or the DGM (Finance). This process is similar to the process for the recommendations for procuring the services of the agents/distributorship set out in section of the Circular. The ERP system, in addition to the above functions described in section 3.3(a) of the Circular, allows the Company, the internal audit department, the Audit Committee, and external auditors to track and document all sales transactions pursuant to major construction projects and consequently, during the periodic checks by the auditors, flag any material variations in pricing so as to ensure that the Concessionary Price offered to Shanghai Chaoyue are not more favourable to Shanghai Chaoyue than those extended to unrelated third-parties for the same or substantially similar type of projects. The Concessionary Prices are subject to the scrutiny of the internal audit department who will then carry out further checks to prepare a quarterly report to present to the Audit Committee. In addition to the above, the independent directors have agreed to commit additional time and resources and will carry out further checks to ensure that the Concessionary Price is applied uniformly to all agents/distributors and is on an arm s length basis, on normal commercial terms and is not prejudicial to the interests of the Company and its minority Shareholders. (c) Sales quotas and payment of rebates In addition to the price paid by Shanghai Chaoyue to the relevant ASA Entity for the purchase of Tiles as described above, Shanghai Chaoyue is also entitled to payment of certain rebates as set out below, by the relevant ASA Entity depending on the sales quotas achieved. The rebates entitlements are based on a schedule approved annually taking into account marketing, sales and inventory conditions. The GM (Sales) or the DGM (Finance) is responsible for the initial review of the rebate schedule. The CEO will then review and thereafter submit the annual rebate schedule to the Board of Directors for final review and record. The Sales Agency and Distributorship Agreement has provided for four (4) types of rebates, namely, the quarterly sales revenue rebates, annual sales revenue rebates, annual advertising rebates and annual renovation support rebates, all of which are calculated based on a percentage of the sales revenue generated from the sale of Tiles sold at the Distributor Price. 16

17 The rebates payable to Shanghai Chaoyue under the Sales Agency and Distributorship Agreement is part of a standard incentive scheme consistently applied to all agents/distributors of the ASA Entities and the terms are not more favourable to Shanghai Chaoyue than those extended to unrelated third-parties. The rebates under the Sales Agency and Distributorship Agreement are subject to the scrutiny of the internal audit department who will then carry out further checks to prepare a quarterly report to present to the Audit Committee. In addition to the above, the independent directors have agreed to commit additional time and resources and will carry out further checks to ensure that all rebates are applied uniformly to all agents/distributors and are on an arm s length basis, on normal commercial terms and is not prejudicial to the interests of the Company and its minority Shareholders. As at the Latest Practicable Date, none of the ASA Entities have made any payment of any rebates to Shanghai Chaoyue. Sales quotas Shanghai Chaoyue is expected to meet certain sales quotas (which includes both sales to third-party buyers and sales in relation to major construction projects) calculated on a monthly and annual basis (Forecasted Sales Revenue): (Unit: million RMB) Month Monthly sales quota Annual sales quota 20 The GM (Sales) (who is a non-interested party) for each ASA Entity will determine the Forecasted Sales Revenue for each agent/distributor based on the agent s historical sales performance and the sales area to be covered. The CEO will then review and thereafter submit the Forecasted Sales Revenues to the Board of Directors for final review and record. If the CEO is an interested person, the review will be carried out by any non-interested executive director of the subsidiary or the DGM (Finance). All sales quotas are determined at arm s length taking into account the necessary commercial considerations. Where Shanghai Chaoyue fails to meet the cumulative sales quotas for three consecutive months, under the terms of the Sales Agency and Distributorship Agreement, the relevant ASA Entity shall have the right to terminate the agreement and revoke all rebates due. Quarterly and Annual Sales Revenue Rebates Under the terms of the Sales Agency and Distributorship Agreement, the ASA Entities will pay, on a quarterly and/or annual basis, sales revenue rebates (calculated as a percentage of the actual sales revenue achieved) to Shanghai Chaoyue for its agency and distributorship services. Such rebates are only applicable where the Tiles have been sold at the Distributor Price. In order to qualify for these sales revenue rebates, Shanghai Chaoyue must first achieve aggregate sales revenue of not less than 80% of the quarterly or annual Forecasted Sales Revenue (as the case may be). In order to provide an incentive to the agents/distributors to achieve higher sales revenues, the Company had set the Forecasted Sales Revenue for each agent/distributor based on the respective actual sales revenue achieved for the preceding year. The 80% threshold is approximately equal to the actual sales revenue achieved by that agent/distributor in the preceding year. 17