SM SUMMIT HOLDINGS LIMITED (Incorporated in Singapore on 31 March 1984) (Company Registration No.: W)

Transcription

1 CIRCULAR DATED 30 JUNE 2011 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. IF YOU ARE IN DOUBT AS TO THE ACTION THAT YOU SHOULD TAKE, YOU SHOULD CONSULT YOUR LEGAL, FINANCIAL, TAX OR OTHER PROFESSIONAL ADVISERS IMMEDIATELY. If you have sold or transferred all your shares in the capital of SM Summit Holdings Limited ( Company ), you should forward this Circular, the Notice of EGM and the attached Proxy Form immediately to the purchaser or transferee or to the stockbroker, bank or agent through whom you effected the sale or transfer for onward transmission to the purchaser or transferee. The Singapore Exchange Securities Trading Limited ( SGX-ST ) assumes no responsibility for the correctness of any statements made, reports contained or opinions expressed in this Circular. Application has been made to the SGX- ST for the listing and quotation of the Westlite Consideration Shares, the JVCo Consideration Shares and Placement Shares (the New Shares ) on the SGX-ST. Approval in-principle granted by the SGX-ST to the Company for the listing and quotation, on the Official List of the SGX-ST, of up to 756,061,120 Consolidated Shares following the completion of the Proposed Transactions and the Compliance Placement, is not to be taken as an indication of the merits of the Company, its Subsidiaries, its securities, the Proposed Transactions and the new Consolidated Shares. Terms appearing on the cover of this Circular bear the same meanings as defined in this Circular. YOUR ATTENTION IS DRAWN TO THE SECTION ENTITLED RISK FACTORS OF THIS CIRCULAR AND IN THE LETTER TO SHAREHOLDERS FROM WESTLITE, WHICH YOU SHOULD REVIEW CAREFULLY. The Company would like to highlight in particular the following risk (set out on page A-12) to be considered in connection with this Circular: The business of Westlite may be affected by policy changes in Singapore which reduce the number of foreign workers. SM SUMMIT HOLDINGS LIMITED (Incorporated in Singapore on 31 March 1984) (Company Registration No.: W) CIRCULAR TO SHAREHOLDERS in relation to: (1) The Proposed Acquisition of the entire issued and paid up share capital in Centurion Dormitory (Westlite) Pte. Ltd. ( Westlite Acquisition ); (2) The Proposed Acquisition of 45% of the issued and paid up share capital in Lian Beng- Centurion (Mandai) Pte. Ltd. ( JVCo Acquisition ); (3) The proposed allotment and issue of 849,702,740 Westlite Consideration Shares in satisfaction of the consideration for the Westlite Acquisition and 100,000,000 JVCo Consideration Shares in satisfaction of the consideration for the JVCo Acquisition; (4) The Proposed Share Consolidation; (5) The Proposed Whitewash Resolution; (6) The Appointment of Proposed New Directors; (7) The proposed placement of up to 200 million New Shares pursuant to the Compliance Placement; and (8) The Proposed Name Change. Financial Adviser to the Company CIMB Bank Berhad (13491-P) Singapore Branch (Incorporated in Malaysia) Independent Financial Adviser in relation to the Proposed Acquisitions and the Proposed Whitewash Resolution PROVENANCE CAPITAL PTE. LTD. (Incorporated in the Republic of Singapore) (Company Registration No.: E) IMPORTANT DATES AND TIMES Last date and time for lodgement of Proxy Form : 27 July 2011 at 3.30 p.m. Date and time of Extraordinary General Meeting : 29 July 2011 at 3.30 p.m. Place of Extraordinary General Meeting : Paramount Hotel Singapore, Parawave@level 4, 25 Marine Parade, Singapore

2 TABLE OF CONTENTS CORPORATE INFORMATION... 3 DEFINITIONS... 5 CAUTIONARY NOTE ON FORWARD LOOKING STATEMENTS INDICATIVE TIMETABLE LETTER TO SHAREHOLDERS INTRODUCTION SUMMARY OF THE PROPOSALS PROPOSED ACQUISITIONS PROPOSED SHARE CONSOLIDATION FINANCIAL EFFECTS IN-PRINCIPLE APPROVAL FROM THE SGX-ST PROPOSED WHITEWASH RESOLUTIONS PROPOSED NAME CHANGE COMPLIANCE PLACEMENT RATIONALE FOR THE PROPOSED ACQUISITIONS THE ENLARGED GROUP AFTER THE PROPOSED TRANSACTIONS RISK FACTORS CORPORATE GOVERNANCE INTERESTED PERSON TRANSACTIONS POTENTIAL CONFLICTS OF INTERESTS INTERESTS OF DIRECTORS AND SUBSTANTIAL SHAREHOLDERS MORATORIUM Page 18. ADVICE OF INDEPENDENT FINANCIAL ADVISER IN RELATION TO THE PROPOSED ACQUISITIONS AND THE PROPOSED WHITEWASH RESOLUTION DIRECTORS RECOMMENDATION EXTRAORDINARY GENERAL MEETING ACTION TO BE TAKEN BY SHAREHOLDERS DIRECTORS RESPONSIBILITY STATEMENT WESTLITE VENDORS RESPONSIBILITY STATEMENT FINANCIAL ADVISER S RESPONSIBILITY STATEMENT MISCELLANEOUS ADDITIONAL INFORMATION

3 TABLE OF CONTENTS APPENDIX A - LETTER TO SHAREHOLDERS FROM WESTLITE... A-1 APPENDIX B - INFORMATION ON JVCO... B-1 APPENDIX C - LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED... C-1 APPENDIX D - AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND D-1 APPENDIX E - REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND E-1 APPENDIX F - LETTER FROM THE REPORTING AUDITOR ON THE PROFIT FORECAST FOR THE YEAR ENDING 31 DECEMBER 2011 AND PROFIT PROJECTION FOR THE YEAR ENDING 31 DECEMBER 2012 OF CENTURION DORMITORY (WESTLITE) PTE. LTD.... F-1 APPENDIX G - SUMMARY OF SINGAPORE LAWS ON TAXATION... G-1 APPENDIX H - SINGAPORE FOREIGN WORKER DORMITORY MARKET STUDY... H-1 APPENDIX I - WESTLITE PROPERTY VALUATION REPORT... I-1 APPENDIX J - MANDAI PROPERTY VALUATION REPORT... J-1 NOTICE OF EXTRAORDINARY GENERAL MEETING... N-1 PROXY FORM 2

4 CORPORATE INFORMATION BOARD OF DIRECTORS : Lee Kerk Chong (Executive Director and Chairman) Kong Chee Min (Executive Director and Group Finance Director) Gn Hiang Meng (Independent Non-Executive Director) Chandra Mohan s/o Rethnam (Independent Non-Executive Director) Mak Bang Mui (Non-Executive Director) Tang Kay Hwa (Non-Executive Director) COMPANY SECRETARY : Hazel Chia Luang Chew Juliana Tan Beng Hwee REGISTERED OFFICE OF THE : 45 Ubi Road 1 COMPANY Summit Building Singapore PRINCIPAL PLACE OF BUSINESS : 45 Ubi Road 1 OF THE COMPANY Summit Building Singapore REGISTERED OFFICE OF : 47 Scotts Road WESTLITE #18-01 Goldbell Towers Singapore PRINCIPAL PLACE OF BUSINESS : Westlite Dormitory OF WESTLITE 18 Toh Guan Road East Singapore FINANCIAL ADVISER TO THE : CIMB Bank Berhad, Singapore Branch COMPANY 50 Raffles Place #09-01 Singapore Land Tower Singapore AUDITOR TO THE COMPANY : PricewaterhouseCoopers LLP AND REPORTING AUDITOR 8 Cross Street #17-00 PWC Building Singapore Partner-in-charge: Chua Lay See AUDITORS TO WESTLITE : RSM Chio Lim LLP 8 Wilkie Road, #03-08, Wilkie Edge, Singapore Partner-in-charge: Chan Weng Keen LEGAL ADVISER TO THE : Rajah & Tann LLP COMPANY 9 Battery Road #25-01 Straits Trading Building Singapore LEGAL ADVISER TO WESTLITE : Baker & McKenzie.Wong & Leow AND THE WESTLITE VENDORS 8 Marina Boulevard #05-01 Marina Bay Financial Centre Tower 1 Singapore

5 CORPORATE INFORMATION SHARE REGISTRAR : B.A.C.S. Private Limited 63 Cantonment Road Singapore INDEPENDENT FINANCIAL : Provenance Capital Pte. Ltd. ADVISER IN RELATION TO THE 96 Robinson Road #13-01 PROPOSED ACQUISITIONS AND SIF Building THE PROPOSED WHITEWASH Singapore RESOLUTION PROPERTY VALUER : Chesterton Suntec International Pte Ltd 9 Temasek Boulevard #06-01 Suntec Tower Two Singapore INDUSTRY EXPERT : Jones Lang LaSalle Property Consultants Pte Ltd 9 Raffles Place #39-00 Republic Plaza Singapore PRINCIPAL BANKER TO THE : United Overseas Bank Limited COMPANY 80 Raffles Place UOB Plaza Singapore PRINCIPAL BANKER TO : DBS Bank Ltd WESTLITE 6 Shenton Way DBS Building Tower One Singapore

6 DEFINITIONS In this Circular, unless the context otherwise requires, the following terms or expressions shall have the following meanings: Companies Within the Enlarged Group Centurion Dormitories : Centurion Dormitories Pte Ltd, the company to be set up by the Company to hold Westlite and the JVCo Shares Company : SM Summit Holdings Limited Enlarged Group The group of companies comprising the Company, its Subsidiaries and associated companies, Westlite and JVCo, following the completion of the Proposed Acquisitions Group : The Company, its Subsidiaries and associated companies, prior to the completion of the Proposed Acquisitions JVCo : Lian Beng-Centurion (Mandai) Pte. Ltd. Subsidiaries : The subsidiaries of the Company prior to the completion of the Proposed Transactions Westlite : Centurion Dormitory (Westlite) Pte. Ltd. Other Companies, Corporations and Organisations CDP : The Central Depository (Pte) Ltd Centurion : Centurion Properties Pte Ltd Centurion Group : The Centurion group of companies Financial Adviser : CIMB Bank Berhad, Singapore Branch IFA or Independent Financial : Provenance Capital Pte. Ltd., the independent financial Adviser or Provenance Capital adviser in relation to the Proposed Acquisitions and the Proposed Whitewash Resolution Industry Expert : Jones Lang LaSalle Property Consultants Pte Ltd Lian Beng : Lian Beng Group Ltd, one of the shareholders of JVCo MOM : Ministry of Manpower Property Valuer : Chesterton Suntec International Pte Ltd SGX-ST : Singapore Exchange Securities Trading Limited SIC : Securities Industry Council SLA : Singapore Land Authority URA : Urban Redevelopment Authority of Singapore 5

7 DEFINITIONS General AGM : The annual general meeting of the Company Announcement : The Company s announcement of 6 April 2011 relating to, inter alia, the Westlite Acquisition and the JVCo Acquisition Audit Committee or AC : The audit committee of the Company Board : The board of Directors of the Company from time to time Books Closure Date : The books closure date for the Proposed Share Consolidation to be determined by our board of directors for the purpose of determining Shareholders entitlements of the Consolidated Shares Business Day : A day (other than a Saturday or Sunday) on which commercial banks are open for business in Singapore Circular : This circular to Shareholders, including the appendices hereto Code : The Singapore Code on Take-overs and Mergers Companies Act : Companies Act, Chapter 50 of Singapore Compliance Placement : The proposed placement of up to 200 million New Shares (or 100 million Consolidated Shares subsequent to the Proposed Share Consolidation) by the Company for the purposes of, inter alia, meeting the shareholding spread and distribution requirements of the Listing Manual, as more particularly discussed in the Section entitled Compliance Placement in this Circular Consideration Shares : The Westlite Consideration Shares and the JVCo Consideration Shares Consolidated Shares : Ordinary shares in the capital of the Company subsequent to the Proposed Share Consolidation Controlling Shareholder : A person who: (a) (b) holds directly or indirectly 15% or more of the total number of issued shares excluding treasury shares in the Company, unless otherwise determined by the SGX-ST; or in fact exercises control over the Company Corporate Governance Code : The Code of Corporate Governance issued by the Committee on Corporate Governance from time to time Directors : The directors of the Company from time to time Effective Trading Date : The date on which the Shares will trade on the SGX-ST in board lots of 1,000 Consolidated Shares EGM : The extraordinary general meeting of the Company to be held on 29 July 2011, notice of which is set out on pages N-1 and N-4 of this Circular 6

8 DEFINITIONS Enlarged Capital : The enlarged issued share capital of the Company immediately after the completion of the Proposed Acquisitions, and prior to the Compliance Placement EPS : Earnings per Share Escrow Account : An interest bearing bank account with or to be controlled by the Escrow Agent Escrow Agent : The escrow agent to be appointed pursuant to the Westlite Escrow Agreement Escrow Agreement : An escrow agreement, in form and substance acceptable to the Company, to be executed by the Westlite Vendors, the Company and the Escrow Agent and delivered by the Westlite Vendors on completion of the Westlite Acquisition Escrow Share Account : A CDP securities direct or sub-account to be opened by the Escrow Agent and operated by it Escrow Shares : 89,760,000 Westlite Consideration Shares to be deposited by Centurion and 12,240,000 Westlite Consideration Shares to be deposited by TPK (or such other number of Westlite Consideration Shares as adjusted for the Proposed Share Consolidation) Existing Shareholders Loans : The loans in the aggregate sum of S$17,094,600 which have been extended by the Westlite Vendors to Westlite on or prior to the date of the Westlite Sale and Purchase Agreement FY : The financial year ended or ending 31 December Independent Directors : Gn Hiang Meng and Chandra Mohan S/O Rethnam Independent Shareholders : Shareholders other than the following: (i) (ii) Obliged Parties; and persons not independent of the Obliged Parties, for the purposes of the Proposed Whitewash Resolution, the Westlite Acquisition and the JVCo Acquisition Interested Person Transactions : The Proposed Acquisitions to be approved by the Independent Shareholders pursuant to Chapter 9 of the Listing Manual Issue Price : The issue price of S$0.10 per Consideration Share (or such other issue price for each share as adjusted for the Proposed Share Consolidation) JVCo Acquisition : The proposed acquisition by the Company of the JVCo Shares and the proposed assignment by Centurion to the Company of the JVCo Shareholders Loan pursuant to the terms and conditions of the JVCo Sale and Purchase Agreement 7

9 DEFINITIONS JVCo Completion Date : A date falling five (5) Business Days after all the conditions precedent in the JVCo Sale and Purchase Agreement have been fulfilled or waived as the case may be or such other date as the parties may mutually agree JVCo Consideration : Such amount being equivalent to the total amount of equity financing and JVCo Shareholders Loan contributed by Centurion to JVCo up to and including the completion date of the JVCo Acquisition, being the purchase consideration payable by the Company pursuant to the JVCo Acquisition JVCo Consideration Shares : 100,000,000 New Shares to be allotted and issued at the Issue Price in satisfaction of S$10 million of the JVCo Consideration (or such other issue price and number of New Shares as adjusted for the Proposed Share Consolidation) JVCo Long-Stop Date : 30 September 2011 or such later date as may be mutually agreed by the Company and Centurion JVCo Sale and Purchase : The conditional sale and purchase agreement dated 6 April Agreement 2011 entered into between the Company, and Centurion in relation to the JVCo Acquisition (as amended, modified and supplemented from time to time) JVCo Shareholders Loan : Certain shareholders loan advanced by Centurion to JVCo for the purpose of funding its share of the acquisition costs of the Mandai Land, all applicable taxes (including goods and services tax, stamp duty and property tax), related expense and operational expenses of JVCo JVCo Shares : A 45% stake in the share capital of JVCo, comprising 450,000 shares Key Executives : (a) In relation to the Company, means individuals who are employed in an executive capacity by the Company and who (i) make or participate in making decisions that affect the whole or a substantial part of the business of the Company or (ii) have the capacity to make decisions which affect significantly the Company s financial standing; and (b) in relation to the Enlarged Group, means individuals who are employed in an executive capacity by an entity in the Enlarged Group and who (i) make or participate in making decisions that affect the whole or a substantial part of the business of the Enlarged Group or (ii) have the capacity to make decisions which affect significantly the Enlarged Group s financial standing, and includes the management team of the Company excluding the Directors Latest Practicable Date : 22 June 2011, being the latest practicable date prior to the printing of this Circular Listing Manual : The listing manual of the SGX-ST, as amended from time to time 8

10 DEFINITIONS Mandai Land : The land lots 202V, 203P, 240K and 241N of Mukim 14 of Mandai Estate, Singapore Mandai Property Valuation : The independent valuation report dated 13 January 2011 issued Report by the Property Valuer on the industrial development site at 4A and 6 Mandai Estate Market Day : A day on which the SGX-ST is open for trading of securities New Shares : The new Shares to be issued by the Company pursuant to the Proposals Nominating Committee or NC : The nominating committee of the Company Non-interested Directors : The Directors who are independent for the purposes of the Proposed Acquisitions and the Proposed Whitewash Resolution, namely, Lee Kerk Chong, Kong Chee Min, Gn Hiang Meng and Chandra Mohan S/O Rethnam NPAT : Net profits after tax NTA : Net tangible assets Obliged Parties : Centurion and parties acting in concert with them (including Thinkpac Limited, Loh Kim Kang David and Han Seng Juan) Placement Shares : Up to 200 million New Shares (or 100 million Consolidated Shares subsequent to the Proposed Share Consolidation) to be issued pursuant to the Compliance Placement Premises : Lot 7661T, Mukim 5, at 18 Toh Guan Road East, Singapore Proposals : The proposals for which Shareholders approval are sought under this Circular Proposed Acquisitions : The Westlite Acquisition and the JVCo Acquisition Proposed Key Executive : TPK, who is proposed to be appointed as a Key Executive on completion of the Westlite Acquisition Proposed Name Change : The proposed change of name of the Company from SM Summit Holdings Limited to Centurion Corporation Limited Proposed New Directors : The new Directors proposed to be appointed to the Board on completion of the Westlite Acquisition, namely, Wong Kok Hoe and Bin Hee Din Tony Proposed Share Consolidation : The proposed share consolidation of every 2 Shares into 1 Consolidated Share Proposed Share Issue : The proposed allotment and issue of the Consideration Shares Proposed Transactions : The Proposed Acquisitions, the Proposed Share Issue and the Proposed Share Consolidation 9

11 DEFINITIONS Proposed Whitewash Resolution : The resolution which, if passed by the Independent Shareholders, would result in a waiver by the Independent Shareholders of their rights to receive a mandatory take-over offer from Centurion following the Westlite Acquisition or following the Proposed Acquisitions Remuneration Committee : The remuneration committee of the Company or RC Relative Proportions : The relative proportions of Centurion s and TPK s shareholding in Westlite of 88% and 12% respectively RNAV : In respect of Westlite, means the sum of: (i) (ii) the audited net asset value of Westlite (being the total assets less total liabilities of Westlite) as at 31 December 2010 as set out in the audited financial statements of Westlite for FY2010, adjusted to assume that shareholders loans as at 31 December 2010 has been capitalised into equity; and the surplus arising from the revaluation of the Premises and the Westlite Dormitory (being (a) the open market value on a redevelopment basis (at a plot ratio of 3.2) of the Premises and the Westlite Dormitory as at 31 December 2010 of S$120 million as reflected in the Westlite Property Valuation Report less (b) the audited net book value of the Premises and the Westlite Dormitory as at 31 December 2010 as set out in the audited financial statements of Westlite for FY2010) Securities Account : A securities account maintained by a depositor with CDP but does not include a securities sub-account Service Agreements : The service agreements to be entered into between the Company and Bin Hee Din Tony and between Centurion Dormitories and TPK, as described in the section entitled Service Agreements of this Circular SFA : Securities and Futures Act (Cap 289) of Singapore SGXNET : A system network used by listed companies to send information and announcements to the SGX-ST or any other system networks prescribed by the SGX-ST Shareholders or Members : Persons who are registered as holders of Shares in the Register of Members of the Company Shares : Ordinary shares in the capital of the Company as at the date hereof and prior to the Proposed Share Consolidation Special Resolution : The special resolution in relation to the Proposed Name Change of the Company from SM Summit Holdings Limited to Centurion Corporation Limited 10

12 DEFINITIONS Substantial Shareholder : A person which has an interest (as defined in the Companies Act) in one or more voting shares of a company and the total votes attached to that share, or those shares, is not less than 5% of the total votes attached to all the voting shares in that company Taxation : All forms of taxation whether in the past, present and future (including, without limitation, withholding tax, capital gains tax, income tax, estate duty, profits tax, stamp duty, value added tax, purchase tax, goods and services tax, customs and other import or export duties) and all other statutory, governmental or state impositions, duties or levies and all penalties, charges, costs and interest relating to any of the aforesaid TPK : Teo Peng Kwang Upgrading Works : Upgrading works at the Premises to realise the plot ratio of 3.2 which will involve (i) the demolition of part of the Westlite Dormitory which currently houses approximately 40 dormitory units and commercial retail space (where the food court is located); and (ii) the development and construction of a new 18- storey block on the Premises, subject to all regulatory approvals being obtained Westlite Acquisition : The proposed acquisition by the Company of all the issued and paid-up shares of Westlite, comprising the Westlite Shares and the assignment by the Westlite Vendors to the Company of the Westlite Shareholders Loans, pursuant to the terms and conditions of the Westlite Sale and Purchase Agreement Westlite Completion Date : The date falling five (5) Business Days after all the conditions precedent in the Westlite Sale and Purchase Agreement have been fulfilled, or waived (as the case may be) or such other date as the parties may mutually agree Westlite Consideration : The sum of S$84,970,274, being the aggregate purchase consideration payable by the Company for the Westlite Shares and the assignment of the Westlite Shareholders Loans pursuant to the Westlite Acquisition, to be fully satisfied by the allotment and issue of the Westlite Consideration Shares Westlite Consideration Shares : 849,702,740 New Shares to be allotted and issued at the Issue Price in full satisfaction of the Westlite Consideration Westlite Dormitory : the worker dormitory known as Westlite Dormitory that is owned and operated by Westlite and situated at the Premises Westlite Long-Stop Date : 31 July 2011 or such later date as may be mutually agreed by the Company and the Westlite Vendors Westlite Property Valuation : The independent valuation report dated 12 January 2011 issued Report by the Property Valuer on 12 to 28 Toh Guan Road East Westlite Dormitory Westlite Sale and Purchase : The conditional sale and purchase agreement dated 6 April Agreement 2011 entered into between the Company, Centurion and TPK in relation to the Westlite Acquisition (as amended, modified and supplemented from time to time) 11

13 DEFINITIONS Westlite Shareholders Loans : Shareholders loans of approximately S$17.1 million that have been extended by the Westlite Vendors to Westlite on or prior to the date of the Westlite Sale and Purchase Agreement Westlite Shares : The entire issued and paid-up capital of Westlite, comprising 1,000,000 shares Westlite Vendors : Centurion and TPK, being the vendors of the Westlite Shares Currencies, Units of Measurements and Others S$ : Singapore dollars % or per cent. : Percentage or per centum The expressions Depositor, Depository Agent and Depository Register shall have the meanings ascribed to them respectively in Section 130A of the Companies Act. The term subsidiary shall have the meaning ascribed to it by Section 5 of the Companies Act. The terms associate and associated company shall have the meanings ascribed to them respectively in the Section headed Definitions and Interpretation of the Listing Manual. As used in this Circular, an entity at risk and interested person is a person falling within the meaning of that term in Section 1 of the Fourth Schedule to the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 or the Listing Manual. Words importing the singular shall, where applicable, include the plural and vice versa and words importing the masculine gender shall, where applicable, include the feminine and neuter genders and vice versa. Words importing persons shall include corporations. Any reference in this Circular to Clause, Rule or Chapter is a reference to the relevant clause, rule or chapter in the Listing Manual as for the time being, unless otherwise stated. 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 Companies Act or any amendment thereof, and used in this Circular shall have the meaning assigned to it under the Companies Act. Any reference to a time of day in this Circular shall be a reference to Singapore time unless otherwise stated. Any discrepancies in tables included in this Circular between the amounts listed and the totals shown thereof are due to rounding. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them. 12

14 CAUTIONARY NOTE ON FORWARD LOOKING STATEMENTS All statements contained in this Circular, statements made in the press releases and oral statements that may be made by the Company or its respective Directors or Key Executives or employees acting on the Company s behalf, which are not statements of historical fact constitute forward-looking statements. Some of these statements can be identified by words that are biased or by forward-looking terms such as expect, forecast, if, possible, probable, project, believe, plan, intend, estimate, anticipate, may, will, would, could and should or similar words. However, these words are not the exclusive means of identifying forward-looking statements. All statements regarding the Company s, Westlite s, JVCo s and the Enlarged Group s expected financial position, business strategy, plans and prospects are forward-looking statements. These forward-looking statements and other matters discussed in this Circular that are not historical facts are only predictions. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the Company s, Westlite s, JVCo s and the Enlarged Group s actual results, performance or achievements to be materially different from any future results, performance or achievements expected, expressed or implied by such forward-looking statements. These risks, uncertainties and other factors are discussed in more detail in this Circular. Given the risks and uncertainties that may cause the Company s, Westlite s and the Enlarged Group s actual future results, performance or achievements to be materially different than expected, expressed or implied by the forward-looking statements in this Circular, you are advised not to place undue reliance on those statements. None of the Company, Westlite, the Westlite Vendors, the Financial Adviser, or any other person represents or warrants to you that the Company s, Westlite s, JVCo s and the Enlarged Group s actual future results, performance or achievements will be as discussed in those statements. The Company s, Westlite s, JVCo s and the Enlarged Group s actual results may differ materially from those anticipated in these forward-looking statements. Further, the Company and the Financial Adviser disclaim any responsibility to update any of those forward-looking statements or publicly announce any revisions to those forward-looking statements to reflect future developments, events or circumstances for any reason, even if new information becomes available or other events occur in the future, subject to compliance with all applicable laws and regulations and/or rules of the SGX-ST and/or any regulatory or supervisory body or agency. 13

15 INDICATIVE TIMETABLE The following events assume approval of all the resolutions proposed at the EGM is obtained. Event Date Expected completion date of the Westlite : 1 August 2011 Acquisition Expected commencement date of suspension : 5 August 2011 of trading of the Shares Expected Books Closure Date : 5.00 p.m., 10 August 2011 Expected effective date of the Proposed : 12 August 2011 Share Consolidation Expected date of completion of Compliance : 29 August 2011 Placement Expected date of lifting of suspension of : 31 August 2011 trading of the Shares Expected completion date of the JVCo : by 7 October 2011 Acquisition Please note that the above timetable is indicative only and may be subject to change. Where any of the events cannot take place on the dates specified, an appropriate announcement stipulating an alternative date will be made by the Company prior thereto through a SGXNET announcement to be posted on the internet at the SGX-ST website, For events listed which are described as expected, please refer to future announcement(s) by the Company and/or the SGX-ST for the exact dates of these events. 14

16 LETTER TO SHAREHOLDERS SM SUMMIT HOLDINGS LTD (Incorporated in Singapore on 31 March 1984) (Company Registration No.: W) Directors Registered Office Lee Kerk Chong (Chairman) 45 Ubi Road 1 Kong Chee Min (Executive Director and Group Finance Director) Summit Building Gn Hiang Meng (Independent Non-Executive Director) Singapore Chandra Mohan s/o Rethnam (Independent Non-Executive Director) Mak Bang Mui (Non-Executive Director) Tang Kay Hwa (Non-Executive Director) To: The Shareholders 30 June 2011 Dear Sir / Madam, (1) The Proposed Acquisition of the entire issued and paid up share capital in Centurion Dormitory (Westlite) Pte. Ltd. ( Westlite Acquisition ); (2) The Proposed Acquisition of 45% of the issued and paid up share capital in Lian Beng- Centurion (Mandai) Pte. Ltd. ( JVCo Acquisition ); (3) The proposed allotment and issue of 849,702,740 Westlite Consideration Shares in satisfaction of the consideration for the Westlite Acquisition and 100,000,000 JVCo Consideration Shares in satisfaction of the consideration for the JVCo Acquisition; (4) The Proposed Share Consolidation; (5) The Proposed Whitewash Resolution; (6) The Appointment of Proposed New Directors; (7) The proposed placement of up to 200 million New Shares pursuant to the Compliance Placement; and (8) The Proposed Name Change. 1. INTRODUCTION 1.1 Purpose of this Circular The purpose of this Circular is to provide you with information on, to explain the rationale of, and to seek your approval for the abovementioned transactions for which the approval of the Shareholders will be sought at the EGM. This Circular has been prepared solely for the purposes outlined above and may not be relied upon by any persons (other than the Shareholders to whom this Circular is despatched to by the Company) or for any other purpose. 2. SUMMARY OF THE PROPOSALS 2.1 The Proposed Acquisitions The Company had announced on 13 January 2011 that it had entered into two separate term sheets with (i) Centurion and TPK ( Westlite Term Sheet ) in relation to the Westlite Acquisition and the JVCo Acquisition; and (ii) Jian Yu Construction Pte Ltd and NCL Housing Pte Ltd in relation to the proposed acquisition of 75% of the issued and paid-up shares in JYC-NCL Pte. Ltd. ( JYC-NCL Acquisition ). Subsequently, as announced on 6 April 2011, the Company did not proceed further with the term sheet relating to the JYC-NCL Acquisition. 15

17 LETTER TO SHAREHOLDERS On 6 April 2011, the Company announced that it had entered into: (a) (b) the Westlite Sale and Purchase Agreement with the Westlite Vendors for the purchase of the Westlite Shares from the Westlite Vendors and the assignment by the Westlite Vendors to the Company of the Westlite Shareholders Loans; and the JVCo Sale and Purchase Agreement with the Centurion for the purchase of the JVCo Shares from Centurion and the assignment by Centurion to the Company of the JVCo Shareholders Loan Westlite Acquisition and Proposed Issue of the Westlite Consideration Shares The Westlite Consideration is S$84,970,274, and shall be fully satisfied by the allotment and issue to the Westlite Vendors of an aggregate of 849,702,740 New Shares (the Westlite Consideration Shares ) at an issue price of S$0.10 per Share (the Issue Price ), credited as fully paid up. Of the total Westlite Consideration Shares: (i) (ii) 747,738,412 New Shares will be allotted and issued to Centurion, representing 61.7% of the enlarged issued number of Shares in the Company immediately following completion of the Westlite Acquisition (before the Compliance Placement and the completion of the JVCo Acquisition); and 101,964,328 New Shares will be allotted and issued to TPK representing 8.4% of the enlarged issued number of Shares in the Company immediately following completion of the Westlite Acquisition (before the Compliance Placement and the completion of the JVCo Acquisition). The relative figures for the Westlite Acquisition computed on the bases set out in Rule 1006 of the Listing Manual are as follows: Rule 1006(a) Rule 1006(b) Rule 1006(c) Rule 1006(d) Not applicable to an acquisition of assets. The audited net profit attributable to Westlite for FY2010 of S$7.1 million constitutes approximately 1315% of the consolidated net profit of the Company for FY2010 of S$0.5 million. (1) The Westlite Consideration of S$84,970,274 constitutes approximately 141% of the Company s market capitalisation of approximately S$60.2 million, based on the weighted average price of S$0.166 per share on 5 April 2011, being the market day preceding the date of the Westlite Sale and Purchase Agreement. The number of Westlite Consideration Shares to be issued by the Company as consideration for the Westlite Acquisition represents approximately 234% of the existing issued 362,419,500 shares in the capital of the Company as at the Latest Practicable Date. (2) Notes: (1) Consolidated net profit of the Company is defined as net profit of the Group before taxation, minority interests and extraordinary items. (2) An aggregate of 849,702,740 Westlite Consideration Shares will be issued by the Company (before taking into account the effect of the Share Consolidation). 16

18 LETTER TO SHAREHOLDERS Upon completion of the Westlite Acquisition, the Westlite Vendors will, together with parties acting in concert with them, hold approximately 79.7% of the enlarged issued share capital of the Company (of which the Obliged Parties will hold approximately 71.3% and TPK will hold approximately 8.5%) as a result of the allotment and issue of the Westlite Consideration Shares by the Company to the Westlite Vendors (assuming that an aggregate of 849,702,740 Consideration Shares are issued and there are no other changes to the issued share capital of the Company and not taking into account the effect of the Share Consolidation and the Compliance Placement). As the relative figures under Rules 1006 (b), (c) and (d) above exceed 100%, the Westlite Acquisition constitutes a very substantial acquisition or a Reverse Takeover Transaction as defined in Chapter 10 of the Listing Manual. Accordingly, the Westlite Acquisition is a transaction that is subject to inter alia the approval of Shareholders pursuant to Rule 1015 of the Listing Manual. Information on the Westlite Acquisition, and information relating to Westlite, is set out in Section 3.1 in this Letter to Shareholders and Appendix A of this Circular, respectively JVCo Acquisition and Proposed Issue of the JVCo Consideration Shares The JVCo Consideration shall be equivalent to the total amount of equity financing and JVCo Shareholders Loan contributed by Centurion to JVCo up to and including the JVCo Completion Date, subject to the condition that such contribution by Centurion shall not be less than S$10 million as at the JVCo Completion Date. The JVCo Consideration shall be fully satisfied as follows: (a) (b) S$10 million of the JVCo Consideration shall be satisfied by the allotment and issue, credited as fully paid-up, of 100 million New Shares ( JVCo Consideration Shares ) to Centurion at the Issue Price (or 50 million JVCo Consideration Shares at the issue price of S$0.20 as adjusted for the Proposed Share Consolidation) on the JVCo Completion Date; and if the total amount of equity financing and JVCo Shareholders Loan contributed by Centurion to JVCo exceeds S$10 million, the Company shall pay Centurion such excess amount in cash as soon as reasonably practicable but in any event, no later than 30 days after the JVCo Completion Date. The relative figures for the JVCo Acquisition computed on the bases set out in Rule 1006 of the Listing Manual are as follows: Rule 1006(a) Rule 1006(b) Rule 1006(c) Rule 1006(d) Not applicable to an acquisition of assets. There is no audited net profit attributable to JVCo for FY2010 as JVCo was incorporated on 4 January The consolidated net profit of the Company for FY2010 of S$0.5 million. (1) The JVCo Consideration of S$10 million constitutes approximately 17% of the Company s market capitalisation of approximately S$60.2 million, based on the weighted average price of S$0.166 per share on 5 April 2011 being the market day preceding the date of the JVCo Sale and Purchase Agreement. (2) The number of JVCo Consideration Shares to be issued by the Company as consideration for the JVCo Acquisition represents approximately 28% of the existing issued 362,419,500 shares in the capital of the Company as at the Latest Practicable Date. (2) 17

19 LETTER TO SHAREHOLDERS Notes: (1) Consolidated net profit of the Company is defined as net profit of the Group before taxation, minority interests and extraordinary items. (2) This is based on the aggregate of 100 million JVCo Consideration Shares to be issued by the Company (without taking into account the effect of the Share Consolidation) and assumes that the JVCo Consideration is S$10 million. As the relative figures under Rule 1006 (d) above exceed 20%, the JVCo Acquisition is considered a major acquisition as defined in Chapter 10 Rule 1014 of the SGX-ST Listing Manual and would require approval of the Shareholders pursuant to Rule 1014 of the Listing Manual Application of Chapter 10 of the Listing Manual to the Westlite Acquisition and the JVCo Acquisition on an aggregated basis The relative figures for the Westlite Acquisition and the JVCo Acquisition, on an aggregated basis, computed on the bases set out in Rule 1006 of the Listing Manual are as follows: Rule 1006(a) Rule 1006(b) Rule 1006(c) Rule 1006(d) Not applicable to an acquisition of assets. The audited net profit attributable to Westlite for FY2010 of S$7.1 million constitutes approximately 1315% of the consolidated net profit of the Company for FY2010 of S$0.5 million. (1)(2) The aggregate of the Westlite Consideration and JVCo Consideration of S$94,970,274 constitutes approximately 158% of the Company s market capitalisation of approximately S$60.2 million, based on the weighted average price of S$0.166 per share on 5 April 2011, being the market day preceding the date of the Westlite Sale and Purchase Agreement and the JVCo Sale and Purchase Agreement. The aggregate number of Westlite Consideration Shares and JVCo Consideration Shares (comprising 949,702,740 shares) represents approximately 262% of the existing issued 362,419,500 shares in the capital of the Company as at the Latest Practicable Date. (3) Notes: (1) Consolidated net profit of the Company is defined as net profit of the Group before taxation, minority interests and extraordinary items. (2) There is no audited net profit attributable to JVCo for FY2010 as JVCo was incorporated on 4 January This assumes that the JVCo Consideration is S$10 million. (3) An aggregate of 849,702,740 Westlite Consideration Shares will be issued by the Company (before taking into account the effect of the Share Consolidation). This is also based on the aggregate of 100 million JVCo Consideration Shares to be issued by the Company (without taking into account the effect of the Share Consolidation) and assumes that the JVCo Consideration is S$10 million. As the relative figures under Rules 1006 (b), (c) and (d) above exceed 100%, the Westlite Acquisition and the JVCo Acquisition, on an aggregated basis, constitutes a "very substantial acquisition" or a "Reverse Takeover Transaction" as defined in Chapter 10 of the Listing Manual. 18

20 LETTER TO SHAREHOLDERS The vendors under the Proposed Acquisitions All the Westlite Shares are held by Centurion and TPK in the proportions of 88% and 12% respectively. Centurion is 100% owned by Messrs Loh Kim Kang David and Han Seng Juan collectively through Centurion Global Ltd. Centurion is an investment holding company involved in the business of real estate development and investment. The Centurion Group is involved in a diverse range of business activities including, real estate development and investment, private equity, investment management, sports and resources, with offices in Shanghai, Hong Kong and Singapore. The Centurion Group invests in public listed companies and private companies in a wide range of industries in various jurisdictions. The primary focus of Messrs Loh Kim Kang David and Han Seng Juan is their interests in the Centurion Group. Messrs Loh Kim Kang David and Han Seng Juan are also Controlling Shareholders of the Company and their direct and deemed interests in the Company constitute approximately 32.1% of the issued and outstanding shares in the Company as at the Latest Practicable Date. TPK is a shareholder of Westlite with a 12% stake in Westlite. He was a director of Westlite until 21 April He will continue to be an executive officer of Westlite, responsible for overseeing the day to day operations of the Westlite Dormitory. TPK owns 625,000 Shares, representing approximately 0.2% of the issued and outstanding shares in the Company as at the Latest Practicable Date. Centurion also holds the JVCo Shares which are to be transferred to the Company pursuant to the JVCo Acquisition Interested Person Transactions In addition, Centurion, being one of the Westlite Vendors and the vendor of the JVCo Shares, is 100% owned by Messrs Loh Kim Kang David and Han Seng Juan collectively through Centurion Global Ltd. Messrs Loh Kim Kang David and Han Seng Juan are also Controlling Shareholders of the Company and their direct and deemed interests (through Thinkpac Limited) in the Company as at the Latest Practicable Date constitute approximately 32.1% of the issued and outstanding Shares. Accordingly, Centurion would be an interested person of the Company as defined in Chapter 9 of the Listing Manual and the Westlite Acquisition and the JVCo Acquisition would be interested person transactions under Chapter 9 of the Listing Manual ( Interested Person Transactions ). As the Westlite Consideration of S$84,970,274 represents approximately 180% of the audited NTA of the Group as at 31 December 2010 and as the JVCo Consideration of at least S$10,000,000 represents at least approximately 21% of the audited NTA of the Group as at 31 December 2010, the Company will be required to seek approval of the Independent Shareholders for such Interested Person Transactions under Rule 906 of the Listing Manual. Accordingly, the IFA has been appointed to opine that the Interested Person Transactions (namely, the Westlite Acquisition and the JVCo Acquisition) are on normal commercial terms and are not prejudicial to the interests of the Company and the minority Shareholders. Approval from Independent Shareholders for the Westlite Acquisition, JVCo Acquisition and the Proposed Share Issue will be sought at the EGM. 2.2 Proposed Share Consolidation The Company proposes to undertake the Share Consolidation to consolidate every two (2) Shares into one (1) Consolidated Share after the completion of the Westlite Acquisition but prior to the Compliance Placement. Approval from Shareholders for the Proposed Share Consolidation will be sought at the EGM. Information on Proposed Share Consolidation is set out in Section 4 of this Letter to Shareholders. 19

21 LETTER TO SHAREHOLDERS 2.3 Proposed Whitewash Resolution Messrs Loh Kim Kang David and Han Seng Juan are Controlling Shareholders of the Company with direct and deemed interests (through Thinkpac Limited) of approximately 32.1% of the issued and outstanding Shares. Centurion is 100% owned by Messrs Loh Kim Kang David and Han Seng Juan through Centurion Global Ltd. The allotment and issue of the Westlite Consideration Shares to Centurion pursuant to the Westlite Acquisition will result in an increase in the interests held by the Obliged Parties in the Company to approximately (i) 71.3% following completion of the Westlite Acquisition (but before the Compliance Placement) and (ii) 61.2% following completion of the Westlite Acquisition and the Compliance Placement (assuming that 200 million New Shares (or 100 million Consolidated Shares after the Proposed Share Consolidation) are issued pursuant to the Compliance Placement). The allotment and issue of the Westlite Consideration Shares and the JVCo Consideration Shares to Centurion pursuant to both the Westlite Acquisition and the JVCo Acquisition will result in an increase in the interests held by the Obliged Parties in the Company to approximately (i) 73.5% following completion of the Proposed Acquisitions (but before the Compliance Placement); and (ii) 63.8% following completion of Proposed Acquisitions and the Compliance Placement (assuming that 200 million New Shares (or 100 million Consolidated Shares after the Proposed Share Consolidation) are issued pursuant to the Compliance Placement). In the circumstances, pursuant to Rule 14.1 of the Code, the Obliged Parties will be required to make a mandatory general offer for the remaining Shares not owned, controlled or agreed to be acquired by them. However, the SIC had on 27 May 2011 granted the Obliged Parties a waiver of the aforesaid requirement subject to, inter alia, a majority of holders of voting rights of the Company present and voting at the EGM, held before the issue of the Westlite Consideration Shares to the Obliged Parties, approving a separate resolution at the EGM by way of a poll, to waive their rights to receive the mandatory general offer from the Obliged Parties. Accordingly, the approval of such Shareholders for the Proposed Whitewash Resolution will be sought at the EGM. Provenance Capital has been appointed the IFA to the Non-Interested Directors of the Company in relation to the Proposed Whitewash Resolution. Information on the Proposed Whitewash Resolution and the Letter from the IFA to the Non- Interested Directors are set out in Section 7 of this Letter to Shareholders and Appendix C of this Circular respectively. Shareholders should note that under the Westlite Sale and Purchase Agreement and the JVCo Sale and Purchase Agreement, Independent Shareholders approval of the Proposed Whitewash Resolution is a condition precedent to the completion of both the Westlite Acquisition and the JVCo Acquisition. 2.4 Appointment of Proposed New Directors The Company proposes to appoint new Directors following completion of the Proposed Acquisitions. Approval from Shareholders for the appointment of the Proposed New Directors will be sought at the EGM. Information on the Proposed New Directors is set out in Section 11.5 of this Letter to Shareholders and the section entitled Information on the Proposed New Directors and Proposed Key Executive in the Letter to Shareholders from Westlite. 20

22 LETTER TO SHAREHOLDERS 2.5 Compliance Placement Upon completion of the Westlite Acquisition, the percentage shareholding in the Company held by public Shareholders will be diluted such that the public Shareholders will hold approximately 14.86% of the enlarged capital of the Company immediately after the Westlite Acquisition. Upon completion of the JVCo Acquisition, such figure will be further diluted to approximately 13.73% of the Enlarged Capital. Under Rule 210(1)(a) of the Listing Manual, at least 25% of the issued share capital of the Company must be held in the hands of at least 500 public Shareholders. For the purposes of, inter alia, meeting the shareholding spread and distribution requirements set out in the Listing Manual, the Company proposes to undertake the Compliance Placement which will comprise a private placement of up to 200 million New Shares (or 100 million Consolidated Shares) to investors. Completion of the Compliance Placement is intended to take place within one month after completion of the Westlite Acquisition. The issue of Placement Shares pursuant to the Compliance Placement is subject to Shareholders approval to be obtained at the EGM. Information on the Compliance Placement is set out in Section 9 of this Letter to Shareholders. 2.6 Proposed Name Change In view of the Proposed Acquisitions and the Proposed Share Issue, the Company is seeking the approval of the Shareholders to change the name of the Company from SM Summit Holdings Limited to Centurion Corporation Limited. 2.7 Indicative Timetable An indicative timetable for certain of the events relating to the Proposals contemplated in this Circular is set out in the Section entitled Indicative Timetable in this Letter to Shareholders. 2.8 Inter-conditionality of Resolutions Shareholders should note that: (i) (ii) (iii) the approval of each of Ordinary Resolutions 1, 3, 5, 6, 7, 8 and 9 is contingent upon the passing of each of the other Ordinary Resolutions (other than Ordinary Resolutions 2 and 4); the approval of each of Ordinary Resolutions 2 and 4 is contingent upon the passing of each of the other Ordinary Resolutions; and the approval of the Special Resolution is contingent upon the passing of each of the other Ordinary Resolutions (other than Ordinary Resolutions 2 and 4). This means that: (a) (b) (c) if any of Ordinary Resolutions (other than Ordinary Resolutions 2 and 4) are not approved, Ordinary Resolutions 1, 3, 5, 6, 7, 8 and 9 would not be duly passed; if any of Ordinary Resolutions are not approved, Ordinary Resolutions 2 and 4 would not be duly passed; and if any of Ordinary Resolutions (other than Ordinary Resolutions 2 and 4) are not approved, the Special Resolution would not be duly passed. 21

23 LETTER TO SHAREHOLDERS 3. PROPOSED ACQUISITIONS 3.1 Further details of the Westlite Acquisition Rights of Westlite Shares to be acquired (a) The Westlite Shares will be acquired with all rights and benefits accruing thereto with effect from the Westlite Completion Date. The retained earnings of Westlite from 1 January 2011 up to and including the Westlite Completion Date and any distributions or dividends declared and/or paid out of such retained earnings ( Pre-Completion Dividends ) shall be for the account of the Westlite Vendors, subject to the following limit: The total amount of Pre-Completion Dividends that the Westlite Vendors are entitled to shall not be more than (i) the net profits after tax of Westlite earned from 1 January 2011 to the Westlite Completion Date, or (ii) S$550,000 for each month (or part thereof on a pro-rated basis) during the period from 1 January 2011 to the Westlite Completion Date, whichever is the lower. Payment of the Pre-Completion Dividends to the Westlite Vendors shall be subject to the following: (i) (ii) The maximum amount of Pre-Completion Dividends that may be paid to the Westlite Vendors in FY2011 shall not exceed S$2.5 million, and shall be subject to the Independent Directors being satisfied that the distribution of such amount will not adversely affect the working capital position of the Enlarged Group or its ability to meet its obligations. Should the Independent Directors be of the view that this condition is not satisfied, the payment of this amount of the Pre-Completion Dividends shall be deferred until such time when the condition can be met to the satisfaction of the Independent Directors; and To the extent that any Pre-Completion Dividends are not paid to the Westlite Vendors in FY2011, such amounts shall be paid to them not earlier than 1 January 2012, and shall be subject to the Independent Directors being satisfied that the distribution of such amount will not adversely affect the working capital position of the Enlarged Group or its ability to meet its obligations. Should the Independent Directors be of the view that this condition is not satisfied, the payment of this amount of the Pre-Completion Dividends shall be deferred until such time when the condition can be met to the satisfaction of the Independent Directors. In the event that dividends out of such retained earnings are declared by Westlite after the Westlite Completion Date, the Company undertakes to transfer the full amount of such dividends to the Westlite Vendors in the relative proportions of their respective shareholdings in Westlite. (b) (c) Following the completion of the Westlite Acquisition, Westlite will become a whollyowned subsidiary of the Company. The Company intends to incorporate a new company in Singapore as a whollyowned subsidiary to be named Centurion Dormitories Pte Ltd to hold the Westlite Shares. Centurion Dormitories will accordingly be an intermediate holding company of the Company to hold Westlite. 22

24 LETTER TO SHAREHOLDERS Westlite Consideration and Westlite Profit Warranty (A) Westlite Consideration (a) The Westlite Consideration of S$84,970,274 is an amount equivalent to the RNAV of Westlite as at 31 December 2010, which is determined based on (i) the assumption that all shareholders loans in Westlite as at 31 December 2010 have been capitalised into equity and (ii) an independent valuation of the Westlite Dormitory and the Premises on a re-development basis (at a plot ratio of 3.2) as at 31 December 2010 of S$120 million. The valuation of Westlite of S$120 million reflects the potential to increase the plot ratio of the Premises to 3.2, and is net of upgrading costs. In other words, it represents the residual value of the redeveloped property, arrived at by taking the gross value of the redeveloped property (as if it is already completed), and deducting from that the upgrading costs required to achieve the upgrading. These upgrading costs are based on the cost of the Upgrading Works as set out in the Letter to Shareholders from Westlite presently estimated to be in the range of S$35 million to S$40 million (inclusive of construction costs, professional fees, development charges and/or premiums payable to the SLA). Please refer to section 9(a) of the Letter to Shareholders from Westlite entitled Business Strategy and Future Plans Increase the bed capacity of Westlite Dormitory for further details on the proposed Upgrading Works and the present estimated costs. (b) (c) (d) The Company had engaged the Property Valuer to carry out such independent valuation of the Westlite Dormitory and the Premises. The Westlite Consideration was arrived at on a willing-buyer willing-seller basis and shall be fully satisfied by the allotment and issue to the Westlite Vendors of an aggregate of 849,702,740 Westlite Consideration Shares (comprising 747,738,412 Westlite Consideration Shares to be allotted and issued to Centurion and 101,964,328 Westlite Consideration Shares to be allotted and issued to TPK) at the Issue Price, credited as fully paid up. The Issue Price of S$0.10 represents a discount of approximately 39.4% from the last transacted price of the Company s shares of S$0.165 on the SGX-ST on 5 April 2011, being the last traded price on the market day preceding the date of the Announcement. The Issue Price was determined in September 2010 based on the then prevailing market share price at the time of the negotiations between the Company and the Westlite Vendors. As at that time, the Shares had been trading mostly below its NTA per Share of S$ based on the NTA of S$47.9 million as at 31 December As at 31 December 2010, the NTA per Share is S$ based on the NTA of S$47.2 million as at 31 December The Issue Price represents a discount of 24.4% and 23.15% to the NTA per Share of the Group as at 31 December 2009 and 31 December 2010 respectively. The Westlite Consideration Shares when issued, will rank pari passu in all respects with the existing Shares. 23

25 LETTER TO SHAREHOLDERS (B) Westlite Profit Warranty (a) The Westlite Vendors have jointly and severally represented, warranted and undertaken to the Purchaser that, the NPAT of Westlite for FY2011 and FY2012 as disclosed in the audited financial statements of Westlite for FY2011 and FY2012 approved by the board of directors of Westlite (the Aggregate NPAT ), as adjusted for the Excluded NPAT (as defined below), shall be at least S$10.2 million in the aggregate (the Profit Warranty ) (b) (c) In the event that the Aggregate NPAT (as adjusted for the Excluded NPAT (the Adjusted Aggregate NPAT ) is less than the Profit Warranty, the Vendors shall jointly and severally pay to the Company the full amount of shortfall (the NPAT Shortfall ) in cash, within seven (7) days after notice of the Adjusted Aggregate NPAT is delivered to the Westlite Vendors. Excluded NPAT means the net profits or losses after taxes for FY2011 and FY2012, as disclosed in the audited financial statements of Westlite for FY2011 and FY2012 approved by the board of directors of Westlite, which is attributable to: (i) (ii) (iii) (iv) (v) any profits or losses attributable to any business or operations of Westlite other than that carried on at the Westlite Dormitory as at the date of the Westlite Sale and Purchase Agreement, based on the accounting bases and in accordance with the same accounting principles as the audited financial statements of Westlite for FY2008, FY2009 and FY2010; any expenses of Westlite incurred pursuant to the requirements of the Company after the date of the Westlite Sale and Purchase Agreement and which are not incurred in the ordinary course of business of Westlite, as may be mutually agreed; any loss incurred or suffered by Westlite in connection with or relating to the Upgrading Works, including but not limiting to (i) any loss of income due to the disruption to its business and operations at the Westlite Dormitory (including but not limited to the loss of income from the closure of dormitory rooms) and (ii) any increase in expenses incurred in connection with or relating to the Upgrading Works including but not limited to professional fees (such as architect s fees, legal fees, fees payable to government bodies), interest and other costs incurred for financing the Upgrading Works and amortization or depreciation of the works carried out in the Upgrading Works; any deduction against NPAT arising from the application of current or future accounting standards or principles that require any surplus or deficit from the revaluation of the Premises and the Westlite Dormitory to be taken against the income statement of Westlite; and any change to the rates of taxation, accounting bases or accounting practices or principles of Westlite prevailing as at the date of the Westlite Sale and Purchase Agreement. The Excluded NPAT shall be examined and reported by the Company s auditors and/or such other firm of certified public accountants as may be mutually agreed, based on the adjustments as set out in (i) to (v) above. 24

26 LETTER TO SHAREHOLDERS It is not expected that any contingent liabilities will be included in the said expenses of Westlite to be incurred pursuant to the requirements of the Company after the date of the Westlite Sale and Purchase Agreement and which are not incurred in the ordinary course of business of Westlite (if any) as referred to in sub-paragraph (ii) above. (d) (e) (f) (g) As security for the Westlite Vendors obligations to make payment for the NPAT Shortfall, Centurion and TPK will deposit 89,760,000 Westlite Consideration Shares (or 44,880,000 Westlite Consideration Shares as adjusted for the Proposed Share Consolidation) and 12,240,000 Westlite Consideration Shares (or 6,120,000 Westlite Consideration Shares as adjusted for the Proposed Share Consolidation) respectively, being the Escrow Shares into the Escrow Share Account pursuant to the terms of the Escrow Agreement on the completion of the Westlite Acquisition. If there is any NPAT Shortfall and the Westlite Vendors fail to make payment of the NPAT Shortfall in full within seven (7) days after the notice of the Adjusted Aggregate NPAT has been delivered to the Westlite Vendors, the Company shall, without prejudice to any other rights or remedies available to it, be entitled to sell or procure the sale of the Escrow Shares in the Relative Proportions to pay for any amount of the NPAT Shortfall remaining unpaid. In the event that the NPAT of Westlite for FY2011 as disclosed in the audited financial statements of Westlite for FY2011, adjusted for the Excluded NPAT (the Adjusted FY2011 NPAT ) is equal to or exceeds S$5.1 million, half of the Escrow Shares shall be released to Centurion and TPK in the Relative Proportions, within seven (7) days of the determination of the Adjusted FY2011 NPAT. The Escrow Shares will, unless applied towards any payment obligations pursuant to the Westlite Sale and Purchase Agreement, be fully released to Centurion and TPK within seven (7) days after the determination of the Adjusted Aggregate NPAT in accordance with the provisions of the Escrow Agreement together with any dividends and distributions (together with interest thereon) accrued on the Escrow Shares and paid out of the retained earnings of the Company after issuance of the Westlite Consideration Shares. In the event the Company is entitled to sell or procure the sale of the Escrow Shares to pay for any amount of the NPAT Shortfall remaining unpaid, any dividends and distributions accrued on the Escrow Shares and paid out of the retained earnings of the Company after 31 December 2010 may be set off against any NPAT Shortfall remaining unpaid. The costs pertaining to the Escrow Shares and the Escrow Agent are to be borne by the Company. The Board is of the view that such escrow arrangement is reasonably adequate. The Board is of the view that it was reasonable for the Westlite Vendors to provide the Westlite Profit Warranty, so as to safeguard the interest of the Company in the Westlite Acquisition. The factors which the Board took into account in accepting the Westlite Profit Warranty and the bases of the Board s view are as follows: (i) Westlite has consistently achieved an audited NPAT of approximately S$5.6 million for each of FY2009 and FY2010; 25

27 LETTER TO SHAREHOLDERS (ii) (iii) (iv) The foreign worker housing market is expected to be a relatively stable market due to the constant demand for foreign workers and government regulations that requires the employers of foreign workers to accommodate their foreign workers in approved housing facilities. These factors are putting an upward pressure on dormitory rental rates and increasing capital values of foreign worker dormitories; The scarcity of the supply of current dormitories is reflected by the nearto-full occupancy levels throughout the industry (where most dormitories have a constant backlog of prospective tenants) and the constantly rising dormitory rental rates over the past three years; and The future supply of foreign worker dormitories in Singapore is expected to be limited by the scarcity of suitable development sites. (h) The Westlite Profit Warranty was based on the following principal assumptions: (i) (ii) (iii) That the Westlite Profit Warranty was prepared on an as-is basis without taking into consideration the Upgrading Works or any new business contracted after the signing of the Westlite Sale and Purchase Agreement; That the tenancy contracts with its customers remain intact and will be renewed as and when they expire either with existing customers or with new customers; and That operating expenses will either remain constant or that there will be a corresponding increase in revenue when operating expenses increase. (i) (j) The Reporting Auditor have examined the profit forecast for FY2011 and profit projection for FY2012 of Westlite, on which the Profit Warranty is based, in accordance with Singapore Standards on Assurance Engagements 3400 Examination of Prospective Financial Information applicable to the examination of prospective financial information. In their opinion, the profit forecast and profit projection are properly prepared on the basis of the assumptions and are prepared in accordance with the accounting policies adopted by the Enlarged Group. Further, based on their examination of the evidence supporting the assumptions, nothing has come to their attention which causes them to believe that the assumptions do not provide a reasonable basis the profit forecast for FY2011 and profit projection for FY2012 of Westlite. The Letter from the Reporting Auditor on the Profit Forecast for the year ending 2011 and Profit Projection for the year ending 2012 of Centurion Dormitory (Westlite) Pte. Ltd. is set out in Appendix F to this Circular. Upon determination of whether the Profit Warranty has been met, the Company will make an immediate announcement to inform Shareholders of the same and the impact (if any) of the same to the Enlarged Group Conditions Precedent The Westlite Acquisition is conditional upon, inter alia: (a) completion of a business, legal and financial due diligence exercise by the Company on Westlite, which shall include, without limitation, (i) the review of the business and operations of Westlite including management meetings and site visits; (ii) the review of Westlite s historical financial figures; and (iii) the review of any and all documents relating to legal and taxation matters of Westlite, the results of such exercise being satisfactory to the Company in its sole and absolute discretion; 26

28 LETTER TO SHAREHOLDERS (b) the SIC having granted Centurion and its concert parties a waiver of their obligation to make a mandatory offer under Rule 14 of the Code arising from the allotment and issue of the Westlite Consideration Shares and the allotment and issue of the JVCo Consideration Shares, such waiver not having been revoked, repealed or amended as of the Westlite Completion Date, and such waiver being subject to: (i) (ii) any conditions that the SIC may impose, such conditions being acceptable to Centurion and the Company (to the extent that any condition imposed relates to matters to be fulfilled or complied with by the Company), and to the extent that any such conditions are required to be fulfilled on or before the Westlite Completion Date, they are so fulfilled; and the Proposed Whitewash Resolution having been passed by the Independent Shareholders at the EGM; (c) (d) (e) (f) (g) (h) (i) (j) the SGX-ST having granted its in-principle approval for the Westlite Acquisition and its approval in-principle for the listing and quotation of the Westlite Consideration Shares and the Placement Shares; the Company having received the requisite approvals from the Shareholders at the EGM for the Westlite Acquisition, the Proposed Whitewash Resolution, the issue of the Westlite Consideration Shares, the issue of the Placement Shares and the Proposed Share Consolidation; no material adverse change in Westlite (as determined by the Company in its sole and absolute discretion) occurring since the date of the Westlite Sale and Purchase Agreement until the Westlite Completion Date; no material adverse change in the Company (as determined by the Westlite Vendors in their sole and absolute discretion) occurring since the date of the Westlite Sale and Purchase Agreement until the Westlite Completion Date; save as disclosed, all representations, warranties and undertakings provided by the Westlite Vendors under the Westlite Sale and Purchase Agreement being complied with, true, accurate and correct in all material respects as at the date of the Westlite Sale and Purchase Agreement and as at the Westlite Completion Date; save as disclosed, all representations, warranties and undertakings provided by the Company under the Westlite Sale and Purchase Agreement being complied with, true, accurate and correct in all material respects as at the date of the Westlite Sale and Purchase Agreement and as at the Westlite Completion Date; all approvals and consents as may be necessary from any third party, governmental or regulatory body or relevant competent authority having jurisdiction over the Westlite Acquisition, the Proposed Whitewash Resolution, the issue of the Westlite Consideration Shares, the issue of the Placement Shares and the Proposed Share Consolidation or to the entry into and completion of the Westlite Sale and Purchase Agreement by the parties, being granted or obtained on, and being in full force and effect and not having been withdrawn, suspended, amended or revoked as at completion, and if such consents or approvals are granted or obtained subject to any conditions, such conditions being reasonably acceptable to the Company; the Company being satisfied, in its sole and absolute discretion, that the business of Westlite has been carried on in a satisfactory manner and in its usual course, and all approvals and consents (including any governmental, regulatory and/or corporate approvals and consents) required for the business of Westlite have been obtained, and are and shall remain as at the Westlite Completion Date valid and effective and not withdrawn or amended; 27

29 LETTER TO SHAREHOLDERS (k) (l) (m) (n) (o) (p) (q) the execution and performance of the Westlite Sale and Purchase Agreement by the parties not being prohibited, restricted, curtailed, hindered, impaired or otherwise adversely affected by any relevant statute, order, rule, directive or regulation promulgated by any legislative, executive or regulatory body or authority; the execution of deeds of non-competition and non-solicitation by each of the Westlite Vendors; the execution of a deed of assignment for the assignment of the Westlite Shareholders Loans; the approval of the Controller of Residential Property for Westlite to be converted into a converted foreign company under section 9 of the Residential Property Act (Chapter 274), and where applicable, for the completion of the sale and purchase of the Westlite Shares resulting in the Company owning 100% of Westlite, being obtained; the entry by TPK into a service agreement in the agreed form with the Company and/or a subsidiary or associate of the Company (which will include Westlite) and/or JVCo, for an initial term of 2 years and each of which may be extended for a further 2-year term at the option of the Company; the supplemental disclosure letter to be provided by the Westlite Vendors (if any) being in form and substance satisfactory to the Company at the Company s sole discretion; and the supplemental disclosure letter to be provided by the Company (if any) being in form and substance satisfactory to the Westlite Vendors at the Westlite Vendors sole discretion. If: (i) (ii) (iii) any of the conditions precedent in paragraphs (f), (h) or (q) above is not fulfilled or is not waived by the Westlite Vendors by the Westlite Long-Stop Date; any of the conditions precedent in paragraphs (a), (e), (g), (j), (l), (o) or (p) is not fulfilled or is not waived by the Company by the Westlite Long-Stop Date; or any of the other conditions precedent is not fulfilled or complied with by the Westlite Long-Stop Date, the Westlite Sale and Purchase Agreement shall ipso facto cease and determine and none of the parties shall have any claim against the other for costs, damages, compensation or otherwise, save for any claim by a party against the other arising from antecedent breaches of the terms of the Westlite Sale and Purchase Agreement and save that the parties obligation of confidentiality under the Westlite Sale and Purchase Agreement shall survive such termination. The condition precedent referred to in sub-paragraph (n) was included as Westlite was under an obligation pursuant to the Residential Property Act (Chapter 274) to obtain SLA s approval to convert its status to a converted foreign company before Centurion Global Ltd became part of the ownership structure of Westlite, as Centurion Global Ltd is not a Singapore incorporated company. SLA has since approved the conversion of the status of Westlite to a converted foreign company on 27 April 2011 and accordingly, this condition precedent has been fulfilled. 28

30 LETTER TO SHAREHOLDERS Notwithstanding the above, the Westlite Vendors and the Company may by way of mutual agreement vary any of the above conditions precedent. In the event of any such variation, the Company will make an immediate announcement of the same. Any decision on the part of the Company on any variation to the conditions precedent or any waiver to the conditions precedent shall only be made by the Non-interested Directors on the basis that the waiver will not be prejudicial to the Company and its minority shareholders. As at the date of this Circular, the conditions precedent set out in sub-paragraphs (a), (b), (c) and (n) have been satisfied Representations, warranties and undertakings Both the Company and the Westlite Vendors have in the Westlite Sale and Purchase Agreement provided to the other various customary representations, warranties and undertakings Moratorium The Westlite Acquisition, being within the ambit of Rule 1015, is subject to the moratorium requirements specified in Rule 229 of the Listing Manual. Each of the Westlite Vendors have undertaken under the Westlite Sale and Purchase Agreement not to, during the period commencing on the date of the issue of the Westlite Consideration Shares and ending on the date falling 6 months thereafter or such other period as may otherwise be required by the SGX-ST, sell, transfer or otherwise dispose of the Westlite Consideration Shares to be issued to it/him on completion of the Westlite Acquisition, in whole or in part. Please refer to Section 17 of this Letter to Shareholders for further details Additional Shareholders Loan The business and operations of Westlite are being funded by equity and shareholders loans contributed by the Westlite Vendors. As mentioned in Section 2.1(a) above, the Westlite Acquisition includes the purchase of the Westlite Shares from the Westlite Vendors and the assignment by the Westlite Vendors to the Company of the Westlite Shareholders Loans, being shareholders loans up to 31 December Under the terms of the Westlite Sale and Purchase Agreement, the Company shall within 30 days after the Westlite Completion Date pay or procure to be paid in full to the Westlite Vendors such loan/advances extended by the Westlite Vendors to Westlite, on or after 1 January 2011 up to and including the Westlite Completion Date, including payments made on behalf of Westlite in connection with the Upgrading Works for payments to any governmental, statutory or regulatory authorities fees in respect of the differential premium or the developmental charge for the increase in plot ratio of the Premises and professional fees such as architects fees, legal fees, engineers fees (the Additional Shareholders Loans ). As at the Latest Practicable Date, there is no Additional Shareholders Loan. The Company intends to fund payment of the Additional Shareholders Loans (if any) from internal resources. 29

31 LETTER TO SHAREHOLDERS Non-Compete Deeds and use of Centurion name It is a condition precedent of the Westlite Acquisition that each of the Westlite Vendors executes a deed of non-competition and non-solicitation with the Company and Westlite (the Non-Compete Deeds ). Pursuant to that condition precedent, Centurion, Loh Kim Kang David and Han Seng Juan (the Centurion Covenantors ) will jointly execute a Non-Compete Deed prior to completion of the Westlite Acquisition. The period of restriction applicable to the Centurion Covenantors under their Non-Compete Deed shall be the latest of: (i) (ii) (iii) the date falling 24 months after the Westlite Completion Date; the date on which the Centurion Covenantors and their affiliates cease to be a Controlling Shareholder; and the date on which the Centurion Covenantors and their affiliates cease to have any nominees on the Board. References to a Centurion Covenantor s affiliates are to any other person that directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such Centurion Covenantor, from time to time. The period of restriction applicable to TPK under his Non-Compete Deed shall be the latest of: (i) (ii) (iii) the date falling 24 months after the Westlite Completion Date; the date falling 12 months after the date on which TPK ceases to be a director of the Company and/or any Enlarged Group company; and the date falling 12 months after the date on which TPK ceases to be employed as an executive officer or key management staff of the Company and/or any Enlarged Group company. Under their respective Non-Compete Deeds, each of the Centurion Covenantors and TPK shall not, without the prior written consent of the Company and Westlite, inter alia: (a) either on its/his own account or in conjunction with or on behalf of any person, firm or company, carry on or be employed, engaged, concerned, provide expertise or be interested directly or indirectly in, any business within Singapore, Malaysia, Indonesia, Philippines, Thailand, Hong Kong, Taiwan, China, Vietnam, Cambodia, Laos, Myanmar and other parts of Indochina, United Arab Emirates, Saudi Arabia, Qatar, Oman and other parts of the Middle East or any jurisdiction where any Enlarged Group company carries on the business of managing and operating worker dormitory accommodation and any businesses incidental thereto (the Business ) from time to time ( Territory ), whether as shareholder, director, employee, partner, agent or otherwise, that is the same, similar to, or in competition with the Business; 30

32 LETTER TO SHAREHOLDERS (b) (c) (d) (e) either on its/his own account or in conjunction with or on behalf of any other person, firm or company, solicit or entice away or attempt to solicit or entice away from any Enlarged Group company, the custom of any person, firm, company or organisation who shall, during the relevant period of restriction, have been a customer, client, agent or correspondent of the Enlarged Group or in the habit of dealing with the Enlarged Group; either on its/his own account or in conjunction with or on behalf of any other person, firm or company, solicit or entice away or attempt to solicit or entice away from any Enlarged Group company any person who is an officer, manager or employee of the Enlarged Group who shall at any time from the date of the Non-Compete Deed up to the expiry of the relevant period of restriction have been an officer, manager or employee of the Enlarged Group whether or not such person would commit a breach of his contract of or associated company employment by reason of leaving such employment (save that in respect of the Centurion Covenantors Non-Compete Deed, such restriction shall not apply to officers, managers or employees of the Enlarged Group who have been assigned, seconded or transferred to the Enlarged Group from the Centurion Group or who are employed or who hold positions or functions with the Centurion Group concurrently with being employed or holding positions or functions with the Enlarged Group); make use of or disclose or divulge to any third party any confidential information or trade secrets relating to any Group Company, other than any information properly available to the public or disclosed or divulged pursuant to an order of a court of competent jurisdiction; and in relation to any trade, business or company, use any name (including the words Westlite, and in the case of TPK s Non-Compete Deed, Centurion as well) in such a way as to be capable of being or likely to be confused with the name of the Company, Westlite or any Enlarged Group company. 31

33 LETTER TO SHAREHOLDERS TPK s Non-Compete Deed provides for exceptions to the above restrictions in respect of the following disclosed interests that TPK has in companies that carry on the Business: Shareholding interest of TPK, Business activities TMK or CN in Appointment/ Name of company of company company (%) Title in company Maxi Consultancy Provides management TPK s wife Cerlyn CN is a non- Pte Ltd services since 2009 Neo Ah Geok executive director for a dormitory at 60 ( CN ) has a Boundary Close, 33.33% interest TPK, CN and TMK Serangoon Gardens do not hold any which has a capacity management of 1000 beds position Etrek Network Provides management TPK has an CN is a non- Building Pte Ltd services since 2001 interest of executive director for a dormitory located approximately at 10 Shaw Road which 80.9% TPK, CN and TMK has a capacity of do not hold any 1000 beds management position Etrek Construction Provides management Teo Mee Kwang TPK, CN and TMK Pte Ltd services since 2008 ( TMK ), the do not hold any for a dormitory located brother of TPK, management at Sungei Kadut has a 44% position which has a capacity interest of 450 beds ISO Industry Pte Ltd Provides management TPK has a 50% TPK, CN and TMK services since 2007 interest do not hold any for a dormitory located management at 2 Kampung Ampat position which has a capacity of 320 beds Swissplan Dormitory Provides management TPK has a TPK, CN and TML Management services since % interest do not hold any Pte. Ltd. for a dormitory located management at 46 Sungei Kadut position Street 1 which has a capacity of 500 beds Alpha Sunshine Sdn. Engaged in the TPK has a TPK, CN and TMK Bhd. construction of a 15% interest do not hold any dormitory located in management Johor Bahru (with a position capacity of 2800 beds) and will take on the operations of such dormitory upon completion Each of TPK, TMK and CN is not related to the other directors and shareholders of each of the companies listed in the above table. In this regard, TPK will also undertake that during his relevant period of restriction, these companies shall not operate and/or manage any dormitories other than disclosed in the table above and shall not increase their respective capacity other than those that have been disclosed in the table above. 32

34 LETTER TO SHAREHOLDERS The Centurion Covenantors Non-Compete Deed also provides for an exception to the above restrictions. It is a condition precedent to the JVCo Acquisition under the JVCo Sale and Purchase Agreement that JVCo obtains, on or before 30 September 2011, all necessary approvals and permits required for the Mandai Land (as defined in the JVCo Sale and Purchase Agreement) to be used for the development and operation of worker dormitories with a capacity of at least 4,000 beds (the Approval ). Please refer to the section 3.2 of this Circular entitled Further details of the JVCo Acquisition for further details. Subject to the paragraph below, in the event that the Approval granted to JVCo is for the development and operation of worker dormitories with a capacity of less than 4,000 beds on or before the JVCo Long-Stop Date, Centurion shall inform the Company of the same. If Lian Beng and Centurion decide to undertake the development of the worker dormitory on the Mandai Land based on such approval, Centurion shall grant the Company an option (at no cost) to purchase Centurion s 45% interest in JVCo on the same terms, which shall remain open for acceptance by the Company for 21 days from the date the option is granted. If the Company does not proceed to acquire the 45% interest in JVCo, Centurion shall be entitled to continue holding the 45% interest in JVCo and JVCo shall have the right to manage and operate such worker dormitories to be developed by JVCo at its discretion. Centurion undertakes that if completion of the JVCo Acquisition does not take place, because: (i) (ii) regulatory approval is not obtained for JVCo to have 4,000 or more dormitory beds by the JVCo Long-Stop Date; or approval of Shareholders is not obtained for the JVCo Acquisition, and if JVCo should obtain such approval subsequently (for any number of dormitory beds) and if Lian Beng and Centurion decide to undertake the development of such dormitory or if Centurion wishes to sell its stake in JVCo, Centurion shall inform the Company of the same. If required by the Company, Centurion shall enter into discussions with the Company in good faith to allow the Company to participate in JVCo s dormitory business (including but not limited to the acquisition of Centurion s equity interest in JVCo), based on and having regard to, inter alia, the then prevailing market conditions and circumstances at that point in time. If the parties wish to pursue further, Centurion shall seek the necessary preemption waivers from Lian Beng and if obtained, Centurion and the Company shall proceed to negotiate and enter into definitive agreements for the acquisition. On all of the above matters, only the Non-interested Directors, namely Lee Kerk Chong, Kong Chee Min, Gn Hiang Meng and Chandra Mohan S/O Rethnam, shall take part in the decision making process. The Obliged Parties and parties not independent of these Obliged Parties, shall abstain from the decision making process of the board of directors of the Company. In addition, the Centurion Covenantors Non-Compete Deed will provide that the Centurion Covenantors permit the Company and the Enlarged Group companies to use or adopt the name Centurion as part of its name, for so long as Centurion and its affiliates shall own more than 50% of the Shares. The Centurion Covenantors may require the Company and the Enlarged Group companies to cease to use or adopt the name Centurion as part of its name if Centurion and its affiliates shall cease to own more than 50% of the Shares or if any of the Centurion Covenantors have reasonable grounds to believe that the use of the name has been or is likely to be materially damaging to the goodwill of the Centurion 33

35 LETTER TO SHAREHOLDERS name or is in any way materially disparaging to the reputation of Centurion or any of its affiliates. The Centurion Covenantors and their affiliates shall at all times be entitled to continue to use or adopt the name Centurion as part of Centurion s name or in such manner as they may decide in their absolute discretion. Following the completion of the Westlite Acquisition and the JVCo Acquisition, all the dormitory businesses of the Centurion Group will be held within the Enlarged Group Assumption of guarantee by the Company Shareholders should note that following completion of the Westlite Acquisition, certain personal and corporate guarantees given by the former directors and a shareholder of Westlite to secure banking and financing facilities extended by DBS Bank Ltd to Westlite will be released and replaced by a corporate guarantee by the Company. In the event that the release of the guarantees cannot be procured, the relevant former directors and shareholder of Westlite (as the case may be) will continue to provide such guarantees, and the Company shall indemnify them in the event that any claims are made against them under their respective guarantees. Please refer to section 14.2 entitled Present and Ongoing Interested Person Transactions - Personal and corporate guarantees by the former directors and a shareholder of Westlite in the Letter to Shareholders from Westlite for further details Post-completion support services Westlite is supported by its parent company, Centurion, on functions such as general administrative, finance and accounting and general operational support. To facilitate a smooth transition following completion of the Westlite Acquisition, Centurion will continue to provide such support services to Westlite for up to a six month period after completion of the Westlite Acquisition. Such support services may be terminated by the Company at any time with one month s notice. Please refer to section 2.9 entitled Staff - Functional Distribution in the Letter to Shareholders from Westlite for further details. Given that Centurion will continue to provide the abovementioned related support services to Westlite for up to six months after completion of the Westlite Acquisition, the Company does not foresee any issues with the integration of Westlite into the Enlarged Group. 3.2 Further details of the JVCo Acquisition Rights of JVCo Shares to be acquired (a) The JVCo Shares will be acquired with all rights and benefits accruing thereto with effect from the JVCo Completion Date. (b) (c) Following the completion of the JVCo Acquisition, Lian Beng will hold the remaining 55% equity interest in JVCo and JVCo will become an associated company of the Company. The Company intends to hold the JVCo Shares through Centurion Dormitories, which will also be the intermediate holding company of the Company to hold its interests in JVCo. 34

36 LETTER TO SHAREHOLDERS Purchase Consideration (a) The JVCo Consideration for the JVCo Acquisition shall be equivalent to the total amount of equity financing and JVCo Shareholder s Loan contributed by Centurion to JVCo up to and including the JVCo Completion Date. (b) The JVCo Consideration is subject to the condition that such contribution by Centurion shall not be less than S$10 million as at the JVCo Completion Date. Centurion has undertaken in the JVCo Sale and Purchase Agreement that it shall contribute no less than S$10 million in the form of equity financing and shareholder s loan to JVCo on or before the JVCo Completion Date. As at the Latest Practicable Date, Centurion has contributed a total amount of S$7,191,326 (comprising S$450,000 by way of equity and S$6,741,326 by way of shareholders loan). As at the Latest Practicable Date, Centurion s contribution by way of shareholders loan is not in accordance to its shareholding proportion in JVCo. In this regard, Centurion will contribute at least S$2.8 million to JVCo prior to completion of JVCo acquisition, being its proportionate shareholding contribution. (c) The Purchase Consideration shall be fully satisfied in the following manner: (i) (ii) S$10 million of the JVCo Consideration shall be satisfied by the allotment and issue, credited as fully paid-up, of the 100,000,000 JVCo Consideration Shares to Centurion at the Issue Price (or 50,000,000 JVCo Consideration Shares at the issue price of S$0.20 as adjusted for the Proposed Share Consolidation) on the JVCo Completion Date; and if the total amount of equity financing and JVCo Shareholders Loan contributed by Centurion to JVCo exceeds S$10 million, the Company shall pay Centurion such excess amount in cash as soon as reasonably practicable but in any event, no later than 30 days after the JVCo Completion Date. The Company will fund the cash portion of the JVCo Consideration (if any) from internal resources. (d) (e) The JVCo Consideration Shares when issued, will rank pari passu in all respects with the existing Shares. The JVCo Consideration was arrived at after arms length negotiations between the parties, on a willing-buyer-willing-seller basis, and having regard to the valuation of the Mandai Land (as set out in the Mandai Property Valuation Report set out in Appendix J to this Circular). The JVCo Consideration effectively represents Centurion s investment costs in JVCo Conditions Precedent The JVCo Acquisition is conditional upon, inter alia, the conditions precedent in the JVCo Sale and Purchase Agreement: (a) (b) completion of a business, legal and financial due diligence exercise by the Company on JVCo which shall include, without limitation, the review of any and all documents relating to legal and taxation matters of JVCo, the results of such exercise being satisfactory to the Company, in its sole and absolute discretion; the Westlite Acquisition having been completed; 35

37 LETTER TO SHAREHOLDERS (c) the SIC having granted to Centurion and their concert parties a waiver of their obligation to make a mandatory offer under Rule 14 of the Singapore Code on Take- Overs and Mergers arising from the issue of the Westlite Consideration Shares and the issue of JVCo Consideration Shares, such waiver not having been revoked, repealed or amended as of the completion date, and such waiver being subject to: (i) (ii) any conditions that the SIC may impose, such conditions being acceptable to Centurion and the Company (to the extent that any condition imposed relates to matters to be fulfilled or complied with by the Company), and to the extent that any such conditions are required to be fulfilled on or before the JVCo Completion Date, they are so fulfilled; and the Proposed Whitewash Resolution having been passed by the Independent Shareholders at the EGM; (d) (e) (f) (g) (h) (i) (j) (k) the SGX-ST having granted its approval in-principle for the listing and quotation of the JVCo Consideration Shares; the Company having received the requisite approvals from its shareholders, at an extraordinary general meeting to be convened by the Company, for the JVCo Acquisition, the Westlite Acquisition, the Proposed Whitewash Resolution, the issue of the JVCo Consideration Shares and the consolidation of its shares based on such ratio as may be advised by the Company s financial advisors; no material adverse change in JVCo (as determined by the Company in its sole and absolute discretion) occurring since the date of the JVCo Sale and Purchase Agreement until the JVCo Completion Date; no material adverse change in the Company (as determined by Centurion in its sole and absolute discretion) occurring since the date of the JVCo Sale and Purchase Agreement until the JVCo Completion Date; save as disclosed, all representations, warranties and undertakings on the part of Centurion set out in the JVCo Sale and Purchase Agreement provided by Centurion under the JVCo Sale and Purchase Agreement being complied with, true, accurate and correct in all material respects as at the date of the JVCo Sale and Purchase Agreement and as at the JVCo Completion Date; save as disclosed, all warranties provided by the Company under the JVCo Sale and Purchase Agreement being complied with, true, accurate and correct in all material respects as at the date of the JVCo Sale and Purchase Agreement and as at the JVCo Completion Date; all approvals and consents as may be necessary from any third party, governmental or regulatory body or relevant competent authority having jurisdiction over the transactions contemplated by the JVCo Sale and Purchase Agreement or to the entry into and completion of the JVCo Sale and Purchase Agreement by the parties, being granted or obtained, and being in full force and effect and not having been withdrawn, suspended, amended or revoked as at the completion date, and if such consents or approvals are granted or obtained subject to any conditions, such conditions being reasonably acceptable to the Company; the execution and performance of the JVCo Sale and Purchase Agreement by the parties not being prohibited, restricted, curtailed, hindered, impaired or otherwise adversely affected by any relevant statute, order, rule, directive or regulation promulgated by any legislative, executive or regulatory body or authority; 36

38 LETTER TO SHAREHOLDERS (l) (m) (n) JVCo having obtained, on or before 30 September 2011, all necessary approvals and permits required for the Mandai Land to be used for the development and operation of worker dormitories with a capacity of at least 4,000 beds (for the avoidance of doubt, the approvals and permits referred to herein shall only relate to the permitted use of all or part of the Mandai Land as worker dormitories and shall not include planning, construction and other approvals and permits relating to the building of the worker dormitories); the supplemental disclosure letter to be provided by Centurion (if any) being in form and substance satisfactory to the Company at the Company s sole discretion; and the supplemental disclosure letter to be provided by the Company (if any) being in form and substance satisfactory to Centurion at Centurion s sole discretion If: (i) (ii) (iii) any of the conditions precedent in paragraphs (g), (i) or (n) above is not fulfilled or is not waived by Centurion by the JVCo Long-Stop Date; any of the conditions precedent in paragraphs (a), (f), (h), (j) or (m) is not fulfilled or is not waived by the Company by the JVCo Long-Stop Date; or any of the other conditions precedent is not fulfilled or complied with by the JVCo Long-Stop Date, the JVCo Sale and Purchase Agreement shall ipso facto cease and determine and none of the parties shall have any claim against the other for costs, damages, compensation or otherwise, save for any claim by a party against the other arising from antecedent breaches of the terms of the JVCo Sale and Purchase Agreement and save that the parties obligation of confidentiality under the JVCo Sale and Purchase Agreement shall survive such termination. Notwithstanding the above, Centurion and the Company may by way of mutual agreement vary any of the above conditions precedent. In the event of any such variation, the Company will make an immediate announcement of the same. Any decision on the part of the Company on any variation to the conditions precedent or any waiver to the conditions precedent shall only be made by the Non-interested Directors on the basis that the waiver will not be prejudicial to the Company and its minority shareholders.. As at the date of this Circular, the conditions precedent set out in sub-paragraphs (a), (c) and (d) have been satisfied Representations, warranties and undertakings Both the Company and Centurion have in the JVCo Sale and Purchase Agreement provided to the other various customary representations, warranties and undertakings Funding requirements of JVCo Based on costing estimates as at the Latest Practicable Date, the costs of developing and constructing the dormitory on the first plot of land is estimated to be approximately S$40 million to S$45 million and the costs of developing and constructing the industrial spaces on the second plot of land is estimated to be approximately S$37 million to S$42 million. The costs are inclusive of construction costs, professional fees, development charges and/or premiums payable to the SLA (but excludes interest charges on bank financing). 37

39 LETTER TO SHAREHOLDERS JVCo intends to fund the development of the Mandai Land through bank borrowings of up to 70% of the total costs of development and construction and the balance through shareholders loan and equity. Assuming completion of the JVCo Acquisition, the Company will be required to contribute 45% of such funding needs of JVCo. Please refer to the paragraph entitled Acquisition of the Mandai Land and proposed development costs in Appendix B for further details. Based on the cost estimates and bank financing arrangement as described in Appendix B, and assuming the JVCo Acquisition is completed, it is expected that the Company will be required to contribute approximately S$11.5 million to S$16 million in relation to the proposed development of part dormitory and part industrial on the first and second plots of land as described above. This amount will be funded through existing internal sources, or proceeds from the Compliance Placement. If necessary, the Company may raise further funds from equity funding through future share placement, bank borrowing at corporate level or issuance of debt instruments. 4. PROPOSED SHARE CONSOLIDATION 4.1 Proposed Share Consolidation Pursuant to the Listing Manual, the issue price of shares offered for a subscription or sale, for which a listing is sought, is required to be at least S$0.20 each (the Minimum Issue Price ). On 1 February 2008, the SGX-ST issued a guidance note to state that the Minimum Issue Price for initial public offerings should also apply to reverse take-overs. To comply with the Minimum Issue Price, we propose to consolidate every two (2) existing Shares into one (1) Consolidated Share. As at the date of the Circular, the Company s issued and paid-up share capital comprises 362,419,500 Shares. Following the completion of the Proposed Share Consolidation (and assuming completion of the Proposed Acquisitions but not taking into account the Compliance Placement), the Company will have an issued and paid-up share capital comprising up to 656,061,120 Consolidated Shares. The implementation of the Proposed Share Consolidation is subject to Shareholders approval by way of an ordinary resolution at the EGM. The Proposed Share Consolidation is intended to be effected after the completion of the Westlite Acquisition but prior to the Compliance Placement. Shareholders should note that although the trading price per Consolidated Share should theoretically be proportionally higher than the trading price per Share prior to the Proposed Share Consolidation, there can be no assurance that the Proposed Share Consolidation will achieve the desired results nor is there assurance that such results (if achieved) can be sustained in the longer term. 4.2 Administrative Procedures General Shareholders should note that the number of Consolidated Shares which they are entitled to, arising from the Proposed Share Consolidation, will be rounded down to the nearest whole consolidated share and any fractions thereof arising from the Proposed Share Consolidation will be disregarded. The Proposed Share Consolidation will not involve any diminution of any liability in respect of unpaid capital or the payment to any shareholder of any paid-up capital of the Company. Shareholders are not required to make any payment to our Company in respect of the Proposed Share Consolidation. 38

40 LETTER TO SHAREHOLDERS Subject to Shareholders approval being obtained for the Proposed Share Consolidation at the EGM, Shareholders holdings of the Consolidated Shares arising from the Proposed Share Consolidation will be ascertained on the Books Closure Date. We will, in due course, issue an announcement to notify Shareholders of the Books Closure Date and the date on which our Consolidated Shares will commence trading on the SGX-ST (the Effective Trading Date ) Updating of Register of Members and Depository Register If the Shareholders approve the Proposed Share Consolidation, the Register of Members of our Company and the Depository Register will be updated to reflect the number of Consolidated Shares held by Shareholders and depositors based on their shareholdings in our Company as at the Books Closure Date. Trading will be in board lots of 1,000 Consolidated Shares on the Effective Longstop Date. (a) Deposit of share certificates with CDP If you hold old physical share certificates in your own name ( Old Share Certificates ) and wish to deposit them with CDP and have your Consolidated Shares (after the Proposed Share Consolidation) credited to your Securities Account, you must deposit the Old Share Certificates, together with the duly executed instruments of transfer in favour of CDP, at least twelve (12) Market Days before the Books Closure Date. After the Books Closure Date, CDP will only accept for deposit new share certificates of Consolidated Shares (the New Share Certificates ). If you wish to deposit your New Share Certificates with CDP after the Books Closure Date, you must first deliver your Old Share Certificates to our share registrar, B.A.C.S. Private Limited at 63 Cantonment Road Singapore , for cancellation and issue of replacement New Share Certificates as described below. (b) Issue of New Share Certificates If you have deposited your Old Share Certificates with CDP at least 12 Market Days before the Books Closure Date, you need not take any action. We will arrange with CDP to facilitate the exchange of New Share Certificates. If you have not deposited or do not wish to deposit your Old Share Certificates with CDP, you are advised to forward all such Old Share Certificates to the share registrar as soon as possible after you have been notified of the Books Closure Date, and preferably, not later than 5 Market Days after the Books Closure Date for cancellation and exchange for New Share Certificates. Our share registrar will not issue a receipt for your Old Share Certificates. The New Share Certificates will be sent by ordinary mail to your registered addresses at your own risk within 10 Market Days from the Books Closure Date or the date of receipt of the Old Share Certificates, whichever is the later. The New Share Certificates will not be issued to you unless you have tendered your Old Share Certificates to our share registrar for cancellation. Please notify our share registrar if you have lost any of your existing Old Share Certificates or if there is any change in your address from that reflected in the Register of Members of our Company. You are to deliver your Old Share Certificates to our share registrar or CDP in accordance with the provisions set out above only after our announcement of the Books Closure Date. 39

41 LETTER TO SHAREHOLDERS 4.3 Trading arrangements for the Shares and odd lots Trading arrangements for the Shares Subject to the Shareholders approval for the Proposed Share Consolidation, with effect from 9.00 a.m. on the Effective Trading Date, trading in the Shares will be in board lots of 1,000 Consolidated Shares Trading arrangements for odd lots All fractional entitlements arising upon the implementation of the Proposed Share Consolidation will be aggregated and dealt with in such manner as the Directors may, in their absolute discretion, deem fit in the interests of the Company. The Shares are currently traded in board lots of 1,000 Shares in the ready market. Following the Proposed Share Consolidation, the Securities Account maintained with CDP of Shareholders may be credited with odd lots of Consolidated Shares (that is, lots other than board lots of 1,000 Consolidated Shares). Shareholders who receive odd lots of Consolidated Shares pursuant to the Proposed Share Consolidation and who wish to trade in odd lots on the SGX-ST should note that the unit share market has been set up to allow trading in odd lots with a minimum size of one share on the SGX-ST. The unit share market will enable trading in odd lots in any quantity less than one board lot of the underlying shares in the ready market Temporary trading counter We have applied to the SGX-ST to set up a temporary counter to allow Shareholders to trade in board lots of 500 Consolidated Shares. If approval from the SGX-ST is obtained, this temporary counter will be maintained for a period of one calendar month commencing from the resumption of trading of the Consolidated Shares ( Concessionary Period ). Thereafter, Shareholders can trade in odd lots of Consolidated Shares on the SGX-ST unit share market. The set-up of the temporary odd lot counter is strictly of a provisional nature. Entitled Shareholders who continue to hold odd lots of less than 1,000 Consolidated Shares after the Concessionary Period may have difficulty and/or have to bear disproportionate transaction costs in realising the fair market price of such Consolidated Shares. We will make further announcement on the setting up of such temporary counter when the outcome of our application to the SGX-ST is known Suspension The trading of the Shares (or Consolidated Shares subsequent to the Proposed Share Consolidation) on the SGX-ST will be suspended following completion of the Westlite Acquisition. Please refer to the indicative timetable set out in this Circular. The suspension will continue during the period allowed for the Compliance Placement. In the case where the Compliance Placement that is to be completed within one month of completion of the Westlite Acquisition is not or is unable to be carried out so as to meet the applicable shareholding spread and distribution requirements of the Listing Manual, the trading of the Shares (or Consolidated Shares subsequent to the Proposed Share Consolidation) will continue to be suspended. Please refer to Section 9 of this Circular for further details. 40

42 LETTER TO SHAREHOLDERS 5. FINANCIAL EFFECTS 5.1 Financial Effects The financial effects of the Westlite Acquisition and JVCo Acquisition as set out below are for illustrative purposes only and are, therefore, not indicative of the actual financial performance or position of the Group after the completion of the Proposed Transactions. The financial effects of the Proposed Transactions on the share capital, earnings, consolidated NTA and gearing of the Enlarged Group have been prepared based on the audited consolidated financial statements of the Company for the financial year ended 31 December 2010 and the audited financial statements of Westlite for the financial year ended 31 December For purposes of illustration, the financial effects of the Proposed Transactions are based on, inter alia, the following assumptions: (a) (b) (c) (d) For the purpose of computing the financial effects of the Proposed Transactions on the earnings of the Enlarged Group, the Proposed Transactions are assumed to have been completed on 1 January 2010; For the purpose of computing the financial effects of the Proposed Transactions on the NTA and gearing of the Enlarged Group, the Proposed Transactions are assumed to have been completed on 31 December 2010; The investment in JVCo is recorded at cost based on the fair value of the equity instrument issued by the Company; The proposed Westlite Acquisition will result in the shareholders of Westlite obtaining the majority of the voting rights in the Enlarged Group, with Centurion itself (the controlling shareholder of Westlite) obtaining the majority of the voting rights over the Enlarged Group. As such, the proposed Westlite Acquisition is accounted for as a reverse acquisition, in which it is deemed that it is Westlite which acquired the Company. The unaudited pro forma consolidated financial statements of the Enlarged Group presented for the financial year ended 31 December 2010 have been prepared using reverse acquisition accounting for the Westlite Acquisition as set out in FRS 103 Business Combination. Under reverse acquisition accounting: (i) (ii) (iii) (iv) (v) the accounting acquirer (legal subsidiary) will be Westlite and the accounting acquiree (legal parent) will be the Company; the cost of the reverse acquisition by Westlite (legal subsidiary) of the Company (the legal parent) is deemed to be incurred by the legal subsidiary in the form of equity issued to the owners of the legal parent and will be determined using the fair value of the issued equity of the Company just before the Westlite Acquisition; the assets and liabilities of Westlite are recognised and measured at their precombination carrying amounts; the assets and liabilities of the Company, its subsidiary companies and associated companies (the Group ) are recognised and measured at fair value in accordance with FRS 103 Business Combination ; the retained earnings and other equity balances are those of Westlite before the Westlite Acquisition; and 41

43 LETTER TO SHAREHOLDERS (vi) the amount recognised as issued equity interests in the unaudited pro forma consolidated financial statements of the Enlarged Group determined by adding the issued equity interests of Westlite outstanding immediately before the business combination to the cost of reverse acquisition of the Group determined in accordance with FRS 103 Business Combination. However, the equity structure of the Company (ie the number and type of equity interests issued) only reflects the equity structure of the Company, including the equity interests the Company issued to effect the Proposed Transactions; (e) (f) (g) (h) (i) (j) (k) Upon completion of the Proposed Transactions, in accordance with FRS 103 Business Combinations, the Enlarged Group is required to carry out a purchase price allocation exercise to assess the fair values of the net identifiable assets of the Group. The excess of the cost of the reverse acquisition over the fair values of the net identifiable assets will be recorded as goodwill in the balance sheet and subject to an annual impairment test. If the cost of the reverse acquisition is less than the fair values of the net identifiable assets, the difference is recognised directly in profit and loss as a gain on bargain purchase; The cost of reverse acquisition has been assumed to be equivalent to the carrying amounts of the net assets of the Group as at 31 December 2010 for the purpose of this transaction. This may differ from the actual cost of reverse acquisition as the actual cost of reverse acquisition will depend on the share price of the Company at the date of the actual transfer of shares at the completion of these Proposed Transactions. As the actual goodwill or gain on bargain purchase will be determined at the completion of the Proposed Transactions, the eventual amounts could be materially different from the amount derived based on the assumption used; The fair values of the net assets of the Group are assumed to be equivalent to the carrying amounts of the net assets of the Group as at the relevant acquisition dates. This may differ from the fair values of the net assets as at the actual date of completion of the Proposed Transactions upon the full completion of a purchase price allocation exercise. As the carrying value of the net assets of the Group excludes the effect of fair value adjustments to the assets, liabilities and contingent liabilities arising from the Proposed Transactions, the financial effects exclude the effects of any changes to depreciation and amortisation, and any other adjustments arising from these fair value adjustments. As the actual goodwill or gain on bargain purchase will be determined at the completion of the Proposed Transactions, the eventual amounts could be materially different from the amount derived based on the assumption used; The fair value of the investment in JVCo is assumed to be S$10 million. This may differ from the actual investment in JVCo as the fair value of the JVCo Consideration Shares will be based on the share price at the issue date of the JVCo Consideration Shares at the completion of the JVCo Acquisition; The acquisition costs relating to the Proposed Transactions are assumed to be S$1.5 million; The Westlite Consideration is satisfied by the issuance of 849,702,740 Westlite Consideration Shares and the JVCo Consideration is satisfied by the issuance of 100,000,000 JVCo Consideration Shares, at the Issue Price; and The JVCo Acquisition is assumed to be completed before the Proposed Share Consolidation. The financial effects presented below are proforma in nature and are for illustrative purposes only. It does not represent the actual financial position and/or results of the Enlarged Group immediately after completion of the Proposed Transactions. 42

44 LETTER TO SHAREHOLDERS Issued and paid-up share capital Number of Shares ( 000) Share Capital (S$ 000) Share capital of the Company 362,420 40,194 Issue of Consideration Shares 949,702 94,970 Share Capital of the Company before the Proposed Share Consolidation 1,312, ,164 Share capital of the Company after the Proposed Share Consolidation 656, ,164 NTA After Westlite Acquisition, After Westlite JVCo Acquisition Before the Acquisition and Proposed Proposed After Westlite and JVCo Share Acquisitions Acquisition Acquisition Consolidation Consolidated NTA (S$ 000) as at end FY ,158 67,936 77,936 77,936 Number of Shares ( 000) 362,420 1,212,122 1,312, ,061 NTA per Share (cents) Earnings After Westlite Acquisition, After Westlite JVCo Acquisition Before the Acquisition and Proposed Proposed After Westlite and JVCo Share Acquisitions Acquisition Acquisition Consolidation Profit attributable to equity holders of the Company for FY2010 (S$ 000) 688 4,869 4,869 4,869 Number of Shares ( 000) 362,420 1,212,122 1,312, ,061 Earnings per Share (cents) Gearing ratio After Westlite Acquisition, After Westlite JVCo Acquisition Before the Acquisition and Proposed Proposed After Westlite and JVCo Share Acquisitions Acquisition Acquisition Consolidation Total borrowings as at end FY2010 (S$ 000) ,742 34,742 34,742 Cash at bank, on hand and short term bank deposits as at end FY2010 (S$ 000) 21,010 22,413 22,413 22,413 Shareholders funds (S$ 000) 47,222 68,000 78,000 78,000 Gross gearing as at end FY2010 (times) Net gearing as at end FY2010 (times) Net cash

45 LETTER TO SHAREHOLDERS The expression Total borrowings means the aggregate liabilities arising from borrowings from banks and financial institutions. The expression Shareholders funds refers to the aggregate of issued and paid-up share capital and reserves. Gross gearing is computed based on the ratio of Total borrowings to Shareholders funds and Net gearing is computed based on the ratio of Total borrowings less Cash at bank, on hand and short term bank deposits to Shareholders funds. 5.2 Financial Highlights of the Enlarged Group The following summary of the unaudited pro forma consolidated financial information should be read in conjunction with our unaudited pro forma consolidated financial statements for the Enlarged Group set out in Appendix E. Unaudited Pro Forma Consolidated FY2008 FY2009 FY2010 Income Statement Summary S$ 000 S$ 000 S$ 000 Sales 67,820 55,027 50,346 Profit/(loss) before income tax (2,260) 6,919 7,658 Profit/(loss) attributable to Equity holders of the Company (2,827) 5,243 6,369 Unaudited Pro Forma Consolidated Balance Sheet Summary As at 31 December 2010 S$ 000 ASSETS Total non-current assets 87,263 Total current assets 44,244 Total Assets 131,507 EQUITY AND LIABILITIES Equity 78,000 Non-current Liabilities Total Non-current liabilities 34,406 Total current liabilities 19,101 Total Liabilities 53,507 Total Liabilities and Equity 131,507 Unaudited Pro Forma Cash Flow Statement Summary FY2010 S$ 000 Net cash generated from operating activities 11,481 Net cash generated from investing activities 17,080 Net cash used in financing activities (12,141) Net increase in cash and cash equivalents 16,420 Cash and cash equivalents at beginning of the year 3,961 Effects of exchange rate changes on cash and cash equivalents 82 Cash and cash equivalents at end of the year 20,463 The Directors are of the opinion that, after having made all due and careful enquiry, the working capital available to the Enlarged Group as at the date of this Circular is sufficient for its present requirements and for at least the next 12 months. 44

46 LETTER TO SHAREHOLDERS 6. IN-PRINCIPLE APPROVAL FROM THE SGX-ST In-principle Approval On 27 June 2011, the SGX-ST granted Approval In-Principle for the listing and quotation, on the Official List of the SGX-ST, of up to 756,061,120 Consolidated Shares following the completion of the Proposed Transactions and the Compliance Placement, subject to, inter alia, the following conditions: (a) (b) (c) (d) (e) (f) (g) (h) Compliance with the SGX-ST s listing requirements; Independent Shareholders approval being obtained for the Proposed Acquisitions and for all other necessary and relevant proposals to be put forth at the forthcoming EGM; Compliance with the requirements in Rules 113(2) and 210(5)(a) of the Listing Manual in relation to sponsorship and director disclosures respectively; Pre-quotation disclosure of information as required by the SGX-ST; The Compliance Placement being completed within one month from the date of suspension; An immediate announcement being made on SGXNet upon receipt by JVCo of approval from the URA for part of the Mandai Land to be used for development of a worker dormitory; The Company being required to seek the prior consent of the SGX-ST for any proposed change in the auditors of the Company or any of its significant subsidiaries and associated companies; Submission of:- (i) (ii) (iii) (iv) (v) a written confirmation from the Company that it will notify the SGX-ST prior to TPK s appointment as a director of any company within the Enlarged Group; a written confirmation from the Financial Adviser that the signed moratorium agreements by the relevant parties pursuant to Rules 227 and 1015(3)(d) of the Listing Manual are in accordance with the requirements of Rules 228 and 229 of the Listing Manual; a written confirmation from the Financial Adviser that Rules 232, 233 and 240 of the Listing Manual have been complied with; a written confirmation by the Financial Adviser that the Proposed Acquisitions has complied with Rule 203 and 210(4)(a) of the Listing Manual; and documents mentioned in Rule 248 (before the date of issue of the Circular), Rule 249 (by the date of allotment of the shares) and Rule 250 (market date before the trading suspension is lifted) of the Listing Manual, where applicable. In addition, the Company shall be required to disclose its corporate social responsibility policies in its annual report on a continuing basis with reference to the SGX-ST s Guide to Sustainability Reporting for Listed Companies published on 27 June It should be noted that Approval In-Principle granted by the SGX-ST to the Company for the listing and quotation of the new Consolidated Shares on the Official List of the SGX-ST is not to be taken as an indication of the merits of the Company, its Subsidiaries, its securities, the Proposed Transactions and the new Consolidated Shares. 45

47 LETTER TO SHAREHOLDERS 7. PROPOSED WHITEWASH RESOLUTION Messrs Loh Kim Kang David and Han Seng Juan are Controlling Shareholders of the Company with direct and deemed interests (through Thinkpac Limited) of approximately 32.1% of the issued and outstanding Shares. All the shares in Thinkpac Limited are held by Messrs Loh Kim Kang David and Han Seng Juan. Centurion is 100% owned by Messrs Loh Kim Kang David and Han Seng Juan through Centurion Global Ltd. The allotment and issue of the Westlite Consideration Shares to Centurion pursuant to the Westlite Acquisition will result in an increase in the interests held by the Obliged Parties in the Company to approximately (i) 71.3% following completion of the Westlite Acquisition (but before the Compliance Placement); and (ii) 61.2% following completion of the Westlite Acquisition and the Compliance Placement (assuming that 200 million New Shares (or 100 million Consolidated Shares after the Proposed Share Consolidation) are issued pursuant to the Compliance Placement). The allotment and issue of the Westlite Consideration Shares and the JVCo Consideration Shares to Centurion pursuant to both the Westlite Acquisition and the JVCo Acquisition will result in an increase in the interests held by the Obliged Parties in the Company to approximately (i) 73.5% following completion of the Proposed Acquisitions (but before the Compliance Placement); and (ii) 63.8% following completion of Proposed Acquisitions and the Compliance Placement (assuming that 200 million New Shares (or 100 million Consolidated Shares subsequent to the Proposed Shares Consolidation) are issued pursuant to the Compliance Placement). Please also refer to the Section entitled Changes in Shareholding Structure in this Letter to Shareholders for more details on the changes in shareholdings arising from the Proposed Transactions. Pursuant to Rule 14.1 of the Code and Section 139 of the SFA, the Obliged Parties would be required to make a general offer for the remaining Shares not owned or agreed to be acquired by the Obliged Parties. It is a condition precedent to each of the Proposed Acquisitions that the SIC grants the Obliged Parties a waiver of their obligation to make a mandatory general offer under Rule 14 of the Code arising from the allotment and issue of the Consideration Shares pursuant to the terms and conditions of the Westlite Sale and Purchase Agreement and the JVCo Sale and Purchase Agreement, such waiver not having been revoked, repealed or amended as of the Westlite Completion Date and that Shareholders approve at a general meeting of the Company, the Proposed Whitewash Resolution for the waiver of the rights of the Independent Shareholders to receive a mandatory general offer from the Obliged Parties at the highest price paid or agreed to be paid by them for the Shares in the 6 months preceding the commencement of the offer. Centurion has sought a waiver from the SIC of the obligation of Centurion and its concert parties to make a general offer under Rule 14.1 of the Code. The SIC had on 27 May 2011 granted to Centurion and its concert parties, being the Obliged Parties, a waiver of the requirement to make a general offer under Rule 14.1 of the Code upon the issue of the Westlite Consideration Shares to the Obliged Parties pursuant to the Westlite Acquisition, respectively, subject to, inter alia, the following conditions: (a) (b) (c) a majority of holders of voting rights of the Company present and voting at a general meeting, held before the issue of the Westlite Consideration Shares to the Obliged Parties, approve by way of a poll, a resolution to waive their rights to receive a general offer from the Obliged Parties; the Proposed Whitewash Resolution is separate from other resolutions; the Obliged Parties and parties not independent of them abstain from voting on the Proposed Whitewash Resolution; 46

48 LETTER TO SHAREHOLDERS (d) the Obliged Parties did not acquire and are not to acquire any Shares or instruments convertible into and options in respect of Shares (other than subscriptions for, rights to subscribe for, instruments convertible into or options in respect of the Westlite Consideration Shares and JVCo Consideration Shares which have been disclosed in this Circular): (i) (ii) during the period between the announcement of the Westlite Acquisition and JVCo Acquisition and the date the Shareholders approval is obtained for the Proposed Whitewash Resolution; and in the six months prior to the announcement of the Westlite Acquisition and JVCo Acquisition, but subsequent to negotiations, discussions or the reaching of understandings or agreements with the Directors in relation to the Westlite Acquisition; (e) (f) the Company appoints an independent financial adviser to advise its Independent Shareholders on the Proposed Whitewash Resolution; the Company sets out clearly in this Circular: (i) (ii) (iii) (iv) (v) (vi) details of the Westlite Acquisition and JVCo Acquisition; the dilution effect to existing holders of voting rights in the Company in issuing the Westlite Consideration Shares and the JVCo Consideration Shares to the Obliged Parties; the number and percentage of voting rights in the Company as well as the number of instruments convertible into, rights to subscribe for and options in respect of Shares held by the Obliged Parties as at the Latest Practicable Date; the number and percentage of voting rights in the Company to be issued to the Obliged Parties under the Westlite Acquisition; specific and prominent reference to the fact that the issue of the Westlite Consideration Shares will result in the Obliged Parties holding Shares carrying over 49% of the voting rights of the Company based on the enlarged issued share capital of the Company, and the Obliged Parties will be free to acquire further Shares (including the JVCo Consideration Shares) without incurring any obligation under Rule 14 of the Code to make a general offer for the Company; and a specific and prominent statement that by voting for the Proposed Whitewash Resolution, Shareholders are waiving their rights to a general offer from the Obliged Parties at the highest price paid or agreed to be paid by the Obliged Parties for the Shares in the six months preceding the commencement of the offer; (g) (h) (i) this Circular states that the waiver granted by SIC to the Obliged Parties from the requirement to make a general offer under Rule 14 of the Code is subject to the conditions stated in sub-paragraphs (a) to (f); the Company obtains SIC s approval in advance for those parts of this Circular which refer to the Proposed Whitewash Resolution; and the acquisition of the Westlite Consideration Shares by the Obliged Parties must be completed within three months of the approval of the Proposed Whitewash Resolution. As at the Latest Practicable Date, the conditions imposed by the SIC described in sub-paragraphs (b), (e), (f), (g) and (h) above have been satisfied. 47

49 LETTER TO SHAREHOLDERS Shareholders should note that approval of the Proposed Whitewash Resolution is a condition precedent to completion of each of the Proposed Acquisitions. If Shareholders do not vote in favour of the Proposed Whitewash Resolution, the Proposed Acquisitions will not take place. Shareholders should also note that by voting in favour of the Proposed Whitewash Resolution, they will be waiving their rights to receive the general offer for all the Shares which the Obliged Parties would otherwise be obliged to make at the highest price paid or agreed to be paid by them for the Shares in the past six months preceding the commencement of the offer. Shareholders should further note that the issue of the Westlite Consideration Shares will result in the Obliged Parties holding Shares carrying more than 49% of the voting rights of the Company and the Obliged Parties will thereafter be free to acquire further Shares (including the JVCo Consideration Shares) without incurring any obligation under Rule 14 of the Code to make a general offer for the Company. Provenance Capital has been appointed as the IFA to the Non-Interested Directors in relation to the Proposed Whitewash Resolution. The letter from the IFA to the Non-Interested Directors containing their advice is set out in Appendix C of this Circular. The Independent Shareholders are therefore asked to vote by way of a poll on the Proposed Whitewash Resolution set out as an ordinary resolution in the Notice of EGM. 8. PROPOSED NAME CHANGE In view of the Proposed Acquisitions, the Company is seeking the approval of the Shareholders to change the name of the Company from SM Summit Holdings Limited to Centurion Corporation Limited. The change of name of the Company will only take effect after completion of the Westlite Acquisition. The name Centurion Corporation Limited has been reserved with ACRA on 15 March 2011 until 13 July 2011, following which the reservation will have to be extended. Approval from Shareholders for the Proposed Name Change will be by way of passing of the Special Resolution. 9. COMPLIANCE PLACEMENT Upon completion of the Westlite Acquisition, the percentage shareholding in the Company held by public Shareholders will be diluted such that the public shareholders will hold approximately 14.86% of the enlarged capital of the Company immediately after the Westlite Acquisition. Upon completion of the JVCo Acquisition, such figure will be further diluted to approximately 13.73% of the Enlarged Capital. Under Rule 210(1)(a) of the Listing Manual, at least 25% of the issued share capital of the Company must be held in the hands of at least 500 public Shareholders. In order to, inter alia, meet the requirements under Rule 210(1)(a) of the Listing Manual, the Company proposes to undertake the Compliance Placement within one month of completion of the Westlite Acquisition or such period of time as may be permitted by SGX-ST. It is proposed that the placees for the Compliance Placement may be institutional investors, retail investors, and/or existing Shareholders so long as such placees are acceptable to the SGX-ST for the purposes of fulfilling the free float requirements. Trading of the Shares (or Consolidated Shares subsequent to the Proposed Share Consolidation) on the SGX-ST will be suspended following completion of the Westlite Acquisition. Please refer to the indicative timetable set out in this Circular. The suspension will continue during the period allowed for the Compliance Placement. 48

50 LETTER TO SHAREHOLDERS In the case where the Compliance Placement that is to be completed within one month of completion of the Westlite Acquisition is not or is unable to be carried out so as to meet the applicable shareholding spread and distribution requirements of the Listing Manual, the trading of the Shares (or Consolidated Shares subsequent to the Proposed Share Consolidation) will continue to be suspended. The Compliance Placement may comprise the issue of up to 200 million New Shares (or up to 100 million new Consolidated Shares subsequent to the Proposed Share Consolidation). Where new Consolidated Shares are to be issued for the purposes of the Compliance Placement, these Shares, when issued, will rank pari passu in all respects with the existing Consolidated Shares (subsequent to the Proposed Share Consolidation). The Company will announce the deployment and utilisation of the proceeds at regular intervals in the event that new Consolidated Shares are issued pursuant to the Compliance Placement or pursuant to the share issue mandate referred to in the paragraph below. The approval of the Shareholders is sought at the EGM for the grant of a share issue mandate for the allotment and issuance of new Shares (or new Consolidated Shares subsequent to the Proposed Share Consolidation) for the purposes of the Compliance Placement. The price upon which the new Consolidated Shares are to be issued pursuant to the Compliance Placement shall be determined and confirmed by the Board at its absolute discretion after taking into consideration, inter alia, prevailing market conditions. 10. RATIONALE FOR THE PROPOSED ACQUISITIONS The Board is of the view that it is in the best interest of the Company to undertake the Proposed Acquisitions for the following reasons: (a) (b) (c) (d) The Company believes that the Proposed Acquisitions would present an opportunity for the Company to diversify from its current business of manufacturing compact discs, data storage and related products/services and create a new revenue stream for the Group. While the Company recorded net profits of S$0.63 million in FY2010, it recorded losses in FY2008 and FY2009. The business environment in manufacturing compact discs and digital versatile discs remains to be difficult as the demand for optical disc products remains weak and is faced with high raw material cost. The Westlite Acquisition will allow the Company to acquire a profitable business with healthy operating cashflows which should improve its prospects with a view to exploring further opportunities in this sector in the future. The JVCo Acquisition, which is offered to the Company effectively at cost, also provides the Company with an attractive opportunity for further expansion of the dormitory business. The Proposed Acquisitions are likely to increase the market capitalisation of the Company significantly and these factors will help raise the profile of the Company and generate more investor interest in the Company. 11. THE ENLARGED GROUP AFTER THE PROPOSED TRANSACTIONS 11.1 Information on Westlite The information on Westlite is set out in the Letter to Shareholders from Westlite which is set out in Appendix A to this Circular. 49

51 LETTER TO SHAREHOLDERS 11.2 The Enlarged Group Structure The following diagram depicts the structure of the Enlarged Group following completion of the Proposed Acquisitions. SM SUMMIT HOLDINGS LIMITED 100% Summit CD Manufacture Pte Ltd 100% Summit Technology Australia Pty Ltd 100% SM Summit Holdings (HK) Ltd 34.02% WOW Vision Pte Ltd 100% Centurion Dormitories Pte. Ltd. 100% Summit Technology Japan KK 100% SM Summit Holdings (Australia) Pty Ltd 100% Summit CD Manufacture (HK) Ltd 40% AVSM Logistics Pte Ltd 100% Centurion Dormitory (Westlite) Pte. Ltd. 100% Summit Hi-Tech Pte Ltd 100% Summit Printing (Australia) Pty Ltd 100% (BVI) Gate Cosmos Investments Ltd 40% Typhoon Creations Pte. Ltd. 45% Lian Beng - Centurion (Mandai) Pte Ltd 100% SM Summit Investment Pte Ltd 100% WOW Vision Australia Pty Ltd 100% (ultimate holding) PT Digital Media Technology 25% Sherford (M) Sdn Bhd 70% FairVision Pte Ltd 100% 3Ngine Pte Ltd 100% Advance Technology Investment Ltd 49% Shanghai Huade Photoelectron Science & Technology Co. Ltd 50

52 LETTER TO SHAREHOLDERS The details of the Enlarged Group, assuming that the Proposed Acquisitions were completed as at the Latest Practicable Date, are as follows: Effective Interest held Issued by the and Paid-up Company after Name of Capital/ completion of subsidiary/ Place of Business Registered the Proposed associated and Place of Capital Transactions company Incorporation Principal Businesses (as applicable) (%) Held by the Company:- Summit CD Singapore Manufacture and S$2,000, Manufacture replication of compact Pte Ltd discs, data storage products and related components Summit Hi-Tech Singapore Manufacture and S$4,000, Pte Ltd replication of digital versatile discs, data storage products and related components SM Summit Singapore Investment holding S$500, Investment Pte. Ltd. (formerly known as Summit (China) Investment Pte Ltd) WOW Vision Singapore Provision of wireless S$4,267, (2) Pte Ltd applications and solutions Sherford (M) Malaysia Property Investment RM12,000, (3) Sdn. Bhd. Summit CD Hong Kong Dormant HK$3,000, Manufacture (HK) Limited SM Summit Hong Kong Dormant HK$1, Holdings (HK) Limited Summit Australia Manufacture and A$2,000, Technology replication of compact Australia Pty Ltd discs and digital versatile discs Gate Cosmos British Virgin Trading and investment US$1 100 Investments Ltd Islands holding Centurion Singapore Investment holding S$2 100 Dormitories Pte Ltd (1) 51

53 LETTER TO SHAREHOLDERS Effective Interest held Issued by the and Paid-up Company after Name of Capital/ completion of subsidiary/ Place of Business Registered the Proposed associated and Place of Capital Transactions company Incorporation Principal Businesses (as applicable) (%) Held by the Company s Subsidiaries:- FairVision Pte Ltd Singapore Media advertising S$2,000, (4) 3ngine Pte. Ltd. Singapore Media advertising S$100, SM Summit Australia Dormant A$2 100 Holdings (Australia) Pty Limited Summit Printing Australia Printing A$100, (Australia) Pty Limited Wow Vision Australia Dormant A$2 100 Australia Pty Ltd Summit Japan Dormant JPY10,000, Technology Japan KK PT Digital Media Indonesia Manufacture and US$1,150, Technology replication of compact discs, data storage products and related components Advance Hong Kong Investment holding HK$100, Technology Investment Limited AVSM Logistics Singapore Providing warehousing S$1, (5) Pte Ltd and logistics services Typhoon Singapore Marketing Services S$10, (6) Creations Pte Ltd Shanghai Huade China Manufacture and US$8,800, (7) Photoelectron replication of compact Science & discs, data storage Technology Co., products and related Ltd components Held by Centurion Dormitories Pte Ltd:- Centurion Singapore Property investment and S$1,000, Dormitory provision of dormitory (Westlite) Pte Ltd accommodation and services Lian Beng- Singapore Real Estate Developer, S$1,000, (8) Centurion real estate activities with (Mandai) Pte Ltd owned or leased property 52

54 LETTER TO SHAREHOLDERS Notes: (1) As at the Latest Practicable Date, Centurion Dormitories has not been incorporated. It is assumed that Centurion Dormitories will initially be set up will an issue and paid up share capital of S$2. (2) The balance 65.98% of WOW Vision Pte Ltd is held by Kong Chee Min (0.55%), Yeo Boon Hing (0.55%), Choo Wee Winston Choo (0.65%), Theseira Colin George (1.09%) and Dinesh Tripathi (63.14%). Kong Chee Min is an Executive Director and Group Finance Director of the Company. (3) The balance 75% of Sherford (M) Sdn. Bhd. is held by Teo Kee Bock (25%), Te Lay Hoon (25%) and Wang Sam Wang (25%). (4) The balance 30% of Fair Vision Pte Ltd is held by Newfront Investments Pte Ltd. (5) The balance 60% of AVSM Logistics Pte Ltd is held by Cher Chee Uei. (6) The balance 60% of Typhoon Creations Pte Ltd is held by Giouw Jui Chian (40%) and Oricreation Ltd (20%). (7) The balance 51% of Shanghai Huade Photoelectron Science & Technology Co., Ltd is held by China National Textiles Corporation Group (36%), Shanghai YSY Film & Enterprise Co., Ltd (5%) and Shanghai Push Sound Music & Entertainment Ltd (10%). (8) The balance 55% of Lian Beng-Centurion (Mandai) Pte. Ltd. is held by Lian Beng Principal Business The Group manufactures and provides services relating to optical storage media in the Asia Pacific Region. It manufactures compact discs and digital versatile discs in the audio, video multimedia and the information technology industries. Following completion of the Proposed Acquisitions, the principal businesses of the Enlarged Group will be expanded to include the owning of a worker dormitory and provision of dormitory accommodation and services. The Company has no current intention to dispose of its existing businesses. 53

55 LETTER TO SHAREHOLDERS 11.4 Changes In Shareholding Structure Based on the shareholdings of the Company as at the Latest Practicable Date, the Company s existing Directors, Proposed New Directors and Substantial Shareholders and their respective shareholdings in the Company before and immediately after the Proposed Transactions are summarised below: Before the Proposed Transactions Immediately after the Proposed Transactions Direct Interest Deemed Interest Direct Interest Deemed Interest No. of No. of No. of No. of No. of Consolidated No. of Consolidated Shares % Shares % Shares Shares % Shares Shares % Existing Directors Lee Kerk Chong (1) 58,432, ,432,543 29,216, Kong Chee Min 34, ,375 17, Gn Hiang Meng (2) 450, , , Chandra Mohan s/o Rethnam Mak Bang Mui Tang Kay Hwa Proposed New Directors (3) Bin Hee Din Tony 100, ,000 50, Wong Kok Hoe Substantial Shareholders (other than the Existing Directors or Proposed New Directors) Thinkpac Limited (4) 90,000, ,000,000 45,000, Loh Kim Kang David (5) 20,103, ,000, ,103,000 10,051, ,738, ,869, Han Seng Juan (6) 6,144, ,000, ,144,000 3,072, ,738, ,869, Centurion Properties Pte Ltd 847,738, ,869, Teo Peng Kwang 625, ,589,328 51,294,

56 LETTER TO SHAREHOLDERS Before the Proposed Transactions Immediately after the Proposed Transactions Direct Interest Deemed Interest Direct Interest Deemed Interest No. of No. of No. of No. of No. of Consolidated No. of Consolidated Shares % Shares % Shares Shares % Shares Shares % Others Lee Geok Ing (8) 1,523, ,523, , Lee Joh Ern (9) 4,537, ,537,500 2,268, Loo Bee Hoon (10) 450, , , Er Lian Hong (11) 102, ,343 51, Yeo Boon Hing (12) 200, , , Public shareholders 180,167,302 (13) ,167,302 90,083, Total 362,419, ,312,122, ,061,120 (14) 100 Notes: (1) 37,500,000 shares of Lee Kerk Chong are held through United Overseas Bank Nominees Pte Ltd as bare trustee. (2) Gn Hiang Meng is deemed interested in the 450,000 shares held by his spouse. (3) Bin Hee Din Tony is deemed public prior to completion of the Proposed Transactions. Following completion of the Proposed Transactions, Bin Hee Din Tony will cease to be public as he will be a director of the Company. (4) All the shares held by Thinkpac Limited are held through UOB Kay Hian Pte Ltd as bare trustee. (5) Prior to completion of the Proposed Transactions, Loh Kim Kang David is deemed interested in the 90,000,000 shares held by Thinkpac Limited by virtue of his shareholdings in Thinkpac Limited. Following completion of the Proposed Transactions, Loh Kim Kang David will, in addition to his deemed interest in the shares held by Thinkpac Limited, have a deemed interest in the 847,738,412 Westlite Consideration Shares (or 423,869,206 Consolidated Shares) to be issued by the Company to Centurion Properties Pte Ltd by virtue of his shareholding interests in Centurion Properties Pte Ltd. (6) Prior to completion of the Proposed Transactions, Han Seng Juan is deemed interested in the 90,000,000 shares held by Thinkpac Limited by virtue of his shareholdings in Thinkpac Limited. Following completion of the Proposed Transactions, Han Seng Juan will, in addition to his deemed interest in the shares held by Thinkpac Limited, have a deemed interest in the 847,738,412 Westlite Consideration Shares (or 423,869,206 Consolidated Shares) to be issued by the Company to Centurion Properties Pte Ltd by virtue of his shareholding interests in Centurion Properties Pte Ltd. (7) Teo Peng Kwang is deemed public prior to completion of the Proposed Transactions. Following completion of the Proposed Transactions, Teo Peng Kwang will cease to be public as he will become a substantial shareholder of the Company. (8) Lee Geok Ing is the sister of Lee Kerk Chong and a director of several subsidiaries of the Company. (9) Lee Joh Ern is the brother of Lee Kerk Chong. (10) Loo Bee Hoon is the spouse of Gn Hiang Meng. (11) Er Lian Hong is the spouse of Lee Geok Ing. (12) Yeo Boon Hing is a director of several subsidiaries of the Company. (13) This number does not include the Shares held by Bin Hee Din Tony and Teo Peng Kwang. Bin Hee Din Tony and Teo Peng Kwang are considered public prior to the Proposed Transactions but will cease to be public following completion of the Proposed Transactions. (14) As fractions of Shares arising from the Proposed Share Consolidation will be disregarded, the aggregate number of Consolidated Shares in the resultant capital of the Company subsequent to the Proposed Share Consolidation may not add up to 656,061,120 Consolidated Shares. 55

57 LETTER TO SHAREHOLDERS 11.5 Directors and Key Executives of the Enlarged Group On completion of the Westlite Acquisition, the following persons are proposed to be appointed to the board of the Company: Mr Wong Kok Hoe (Non-executive Chairman) Mr Bin Hee Din Tony (Executive Director) Ms Mak Bang Mui and Mr Tang Kay Hwa will resign from the Board following completion of the Westlite Acquisition. Upon the completion of the Westlite Acquisition, the new board of the Company is intended to be reconstituted to comprise the following: Mr Wong Kok Hoe (Non-executive Chairman) Mr Kong Chee Min (Chief Executive Officer) Mr Lee Kerk Chong (Executive Director) Mr Bin Hee Din Tony (Executive Director) Mr Chandra Mohan s/o Rethnam (Independent Director) Mr Gn Hiang Meng (Independent Director) With the new board of the Company, the compositions of the Audit Committee and the Remuneration Committee are intended to be reconstituted as follows: Audit Committee comprising Mr Gn Hiang Meng, Mr Chandra Mohan s/o Rethnam and Mr Wong Kok Hoe; and Remuneration Committee comprising Mr Gn Hiang Meng, Mr Chandra Mohan s/o Rethnam and Mr Wong Kok Hoe. There will be no change to the Nominating Committee, comprising Mr Gn Hiang Meng, Mr Chandra Mohan s/o Rethnam and Mr Lee Kerk Chong. Save for Mr Bin Hee Din Tony who is the brother-in-law of Mr Loh Kim Kang David, none of the Proposed New Directors are related to one another, to the Proposed Key Executive or to any Substantial Shareholder of the Enlarged Group. Information on the business and working experience of the Proposed New Directors is set out in the section entitled Information on the Proposed New Directors and Proposed Key Executive in the Letter to the Shareholders from Westlite. Mr Wong Kok Hoe is a director of several public listed companies in Singapore and is familiar with the role and responsibilities of a director of a company listed on the SGX-ST. Mr Bin Hee Din Tony has been briefed, and will receive relevant training to familiarise himself with, his role and responsibilities as a Director of the Company. Following his appointment as the Non-executive Chairman of the Company, Mr Wong Kok Hoe will continue to be the Chief Operating Officer of Centurion Global Ltd. Following his appointment as an Executive Director of the Company, Mr Bin Hee Din Tony will remain as the Chief Executive Officer of Centurion. Mr Bin Hee Din Tony is the Chief Executive Officer of Centurion Properties. Mr Bin joined Centurion Properties in As Chief Executive Officer of Centurion Properties, he is responsible for strategic planning and overall management of the property investment and development business of Centurion Properties. He has played an integral part in sourcing, acquisition and management of Centurion Properties portfolio of real estate assets, which include residential properties, a golf resort, commercial office spaces, and the Westlite dormitory. He will continue with his role as Chief Executive Officer of Centurion Properties going forward. As Chief Executive Officer, Mr Bin is supported by a team of executive officers of Centurion Properties and also works with the other directors of Centurion Properties. 56

58 LETTER TO SHAREHOLDERS As Executive Director of the Company, Mr Bin will essentially be continuing in his present role and be primarily responsible for the strategic planning and overall management of the dormitory business of the Enlarged Group. With the support of the Key Executives, he will not be involved in the day-to-day operations of the dormitory business. Information on the business and working experience of Mr Bin is set out in the section entitled Information on the Proposed New Directors and Proposed Key Executive in the Letter to the Shareholders from Westlite. On completion of the Westlite Acquisition, Mr Teo Peng Kwang, the Proposed Key Executive, will be appointed as a key executive of the Enlarged Group, holding the position of Chief Operating Officer, Dormitory Business, of Centurion Dormitories. As Chief Operating Officer, TPK will be involved in strategic planning and will be responsible for the day-to-day operations of the dormitory business. He will not be directly involved in handling the accounts, finance, compliance and corporate governance matters of the dormitory business and the Enlarged Group. Information on the business and working experience of TPK is set out in the section entitled Information on the Proposed New Directors and Proposed Key Executive in the Letter to the Shareholders from Westlite. When the Company was considering the appointment of TPK as a Key Executive, the Company was informed of the following matters relating to TPK: (i) (ii) (iii) TPK had previously been a director of various Singapore-incorporated companies, which had failed to file annual returns and to hold annual general meetings in contravention of the Companies Act. TPK, as a director of the relevant companies, had consequently, in or around the late 1990s to the early 2000s, been fined and disqualified by the Registrar of Companies and Businesses under Section 155 of the Companies Act from acting as a director of Singapore-incorporated companies. TPK has explained to the Company that he was a financial investor in these companies, and was not involved in the day to day management and operations of these companies. Pursuant to such disqualification, TPK took steps to resign from the Singapore-incorporated companies in which he was a director. However, he had inadvertently failed to resign from his directorship in three companies. Two of these companies were subsequently struck off the register of companies. Sometime in or around 2005, TPK was fined in respect of the non-compliance by the third company of its filing obligations under the Companies Act. TPK subsequently resigned as a director of such company in late From 2006 through 2010, TPK assumed directorships in various other Singapore incorporated companies. As at the Latest Practicable Date, TPK is seeking clarification from ACRA as to whether he is currently in breach of Section 155 of the Companies Act in respect of such new directorships assumed by him between 2006 to 2010, and if so, the sanctions that may be imposed on him; TPK was formerly a director of a Singapore-incorporated company that was fined for failing to comply with the conditions of the work pass issued to one of its employees by failing to ensure that such employee was under its direct employment. TPK was not charged or fined in connection with the incident; and TPK had in the early 1980s been fined for engaging in gambling-related activities. Please refer to the section entitled Material Background Information on the Proposed New Directors, Proposed Key Executive and Controlling Shareholders in the Letter to Shareholders from Westlite for further details of such disclosures. 57

59 LETTER TO SHAREHOLDERS Having considered the qualifications and working experience of TPK and having noted that the past breaches by TPK generally relate to compliance and corporate governance related matters, the NC considers TPK suitable for his proposed role as a Key Executive of the Enlarged Group, notwithstanding the aforementioned disclosures. In this regard, the NC has noted that TPK s proposed role in the Enlarged Group is as Chief Operating Officer, which will involve strategic planning, responsibility for the day-to-day operations of the dormitory business, overseeing expansion of the existing dormitory operations in the Westlite Dormitory through the upgrading of the Westlite Dormitory and the construction of the proposed dormitory in Mandai and identifying growth opportunities for the dormitory business of the Enlarged Group in the region. TPK s role would be operational in nature, and he will not be directly involved in handling the accounts, finance, compliance and corporate governance matters of the dormitory business and the Enlarged Group. In addition, TPK will be reporting to Mr Bin Hee Din Tony, who will be responsible for strategic planning and overall management of the dormitory business of the Enlarged Group. Furthermore, Mr Kong Chee Min, who will manage and be responsible for the Enlarged Group s businesses and day-to-day operations, will also have oversight of the dormitory business. The NC s view is based on information currently made available to it as at the Latest Practicable Date, without taking into account the outcome of the clarification sought by TPK from ACRA as to whether he is in breach of Section 155 of the Companies Act. In the event that TPK s clarification with ACRA leads to him being unable or unsuitable to continue to be a Key Executive of the Enlarged Group, the Company believes that there would be minimal disruption to the Enlarged Group s operations for the following reasons: (a) (b) (c) (d) TPK s role is that of a Key Executive and not an executive director of the Enlarged Group. Mr Bin Hee Din Tony, the Chief Executive Officer of Centurion, and Mr Wong Kok Hoe, the Chief Operations Officer of Centurion Global Ltd, who will respectively be appointed as an Executive Director and the Non-Executive Chairman of the Enlarged Group, are familiar with the operations of Westlite. They will be able to ensure continuity of the dormitory business being acquired by the Company; Mr Kong Chee Min, who will be the Enlarged Group Chief Executive Officer following completion of the Westlite Acquisition, will also be involved in overseeing the dormitory business and if necessary, will be able to take on a more active role in managing such business. The dormitory management business generally does not require specialised technical expertise or qualifications to manage; The Company will recruit a suitable replacement to take over TPK s role; and Centurion will continue to provide support services to Westlite for up to a 6-month period after completion of the Westlite Acquisition to facilitate a smooth transition. Please refer to Section of the Circular and the section 2.9 entitled Staff - Functional Distribution in the Letter to Shareholders from Westlite for further details. Please refer to the section entitled Information on the Proposed New Directors and Proposed Key Executive in the Letter to Shareholders from Westlite for the present and past directorships of each of the Proposed New Directors and the Proposed Key Executive, held in the five years preceding the Latest Practicable Date. 58

60 LETTER TO SHAREHOLDERS 11.6 Management Reporting Structure of the Enlarged Group Following completion of the Westlite Acquisition, and with the appointment of the Proposed New Directors and Proposed Key Executive, the management reporting structure of the Enlarged Group will be as follows: Board of Directors Kong Chee Min Enlarged Group, Group Chief Executive Officer Lee Kerk Chong Optical Disc Business, Executive Director Foo Ai Huey (1) Enlarged Group, Group Chief Financial Officer Bin Hee Din, Tony Dormitory Business, Executive Director Teo Peng Kwang Dormitory Business, Chief Operating Officer Note: (1) Ms Foo is currently the Group Finance Manager of the Company Service Agreements Mr Bin Hee Din Tony and TPK will on completion of the Westlite Acquisition, enter into separate service agreements with the Company and Centurion Dormitories respectively. Mr Bin s service agreement with the Company provides that he will be appointed as an Executive Director of the Company, and is for a term of three (3) years subject to automatic renewal, and may be terminated by either party giving to the other at least three (3) months notice in writing. The Company may also terminate Mr Bin s employment upon the occurrence of certain events, including serious and persistent breach of employment terms, being guilty of any dishonesty, grave misconduct or willful neglect in the discharge of his duties, bankruptcy, or incapacitation by reason of illness or other like causes. Under the terms of his service agreement, Mr Bin shall be entitled to an annual package of S$120,000 per annum, payable over twelve months equally, comprising a basic monthly salary of S$10,000 per month (with a fixed component of S$9,375 and a flexible component of S$625 which is subject to certain discretionary adjustments by the Company). He will also be entitled to a transport allowance and to discretionary ex-gratia payments depending on the operating results of the Company and his performance and contribution. 59

61 LETTER TO SHAREHOLDERS In addition, Mr Bin shall be entitled to a profit sharing incentive based on the audited consolidated net profits before tax and before deduction of such incentive ( NPBT ) of Centurion Dormitories as follows: NPBT Attained For the first S$7 million More than S$7 million but up to and including S$10 million Incentive 0% of the NPBT 0.75% of the NPBT More than S$10 million but up to and S$22,500 plus 1.0% of the NPBT from S$10 including S$15 million million to S$15 million More than S$15 million S$72,500 plus 1.25% of the NPBT from S$15 million onwards TPK s service agreement with Centurion Dormitories provides that he will be appointed as the Chief Operating Officer, Dormitory Business, of Centurion Dormitories, and is for an initial term of two (2) years extendable on the same terms and conditions for an additional two (2) years at the option of Centurion Dormitories. During the initial two (2) year term, TPK s service agreement may be terminated by Centurion Dormitories giving to him at least 3 months written notice. During the subsequent two (2) year term, TPK s service agreement may be terminated by either party giving to the other at least three (3) months notice in writing. Centurion Dormitories may also terminate TPK s employment upon the occurrence of certain events, including serious and persistent breach of employment terms; he is guilty of any dishonesty, grave misconduct or willful neglect in the discharge of his duties; bankruptcy; or incapacitation by reason of illness or other like causes. Under the terms of his service agreement, TPK shall be entitled to an annual package of S$240,000 per annum, payable over twelve months equally, comprising a basic monthly salary of S$20,000 per month (with a fixed component of S$18,750 and a flexible component of S$1,250 which is subject to certain discretionary adjustments by Centurion Dormitories). He will also be entitled to a transport allowance and to discretionary ex-gratia payments depending on the operating results of the Centurion Dormitories and his performance and contribution. In addition, TPK shall be entitled to a profit sharing incentive based on the NPBT of Centurion Dormitories as follows: NPBT Attained For the first S$7 million More than S$7 million but up to and including S$10 million Incentive 0% of the NPBT 1.5% of the NPBT More than S$10 million but up to and S$45,000 plus 2.0% of the NPBT from S$10 including S$15 million million to S$15 million More than S$15 million S$145,000 plus 2.5% of the NPBT from S$15 million onwards As Chief Operating Officer, TPK will be involved in strategic planning and will be responsible for the day-to-day operations of the dormitory business. In addition, TPK will be overseeing expansion of the existing dormitory operations in the Westlite Dormitory through the upgrading of the Westlite Dormitory and the construction of the proposed dormitory in Mandai and identifying growth opportunities for the dormitory business of the Enlarged Group in the region. As Executive Director, 60

62 LETTER TO SHAREHOLDERS Mr Bin will be responsible for strategic planning and overall management of the dormitory business of the Enlarged Group. Please refer to the section entitled Information on the Proposed New Directors and Proposed Key Executives in the Letter to Shareholders from Westlite for more details on the responsibilities of both Mr Bin and TPK. In addition to his position as an Executive Director of the Enlarged Group, Mr Bin will keep and continue with his role as the Chief Executive Officer of Centurion. As Mr Bin is also devoting part of his time outside of the Enlarged Group, and as TPK has a broader scope of responsibilities within the Enlarged Group, their respective annual remuneration packages are reflective of this. Under the terms of their respective service agreements, each of Mr Bin and TPK shall not, during the period of his employment and ending on the later of: (i) (ii) the date falling 12 months after the date of which he ceases to be a director of the Company or Centurion Dormitories (as the case may be) and/or any other Enlarged Group company; and the date falling 12 months after the date on which he ceases to be employed as an executive director or executive officer of the Company or Centurion Dormitories (as the case may be) and/or any other Enlarged Group company (the Prescribed Period ), without prior consent of the Company or Centurion Dormitories (as the case may be), inter alia: (a) (b) (c) (d) either on his own account or in conjunction with or on behalf of any person, firm or company, carry on or be employed, engaged, concerned, provide expertise or be interested directly or indirectly in, any business within Singapore, Malaysia, Indonesia, Philippines, Thailand, Hong Kong, Taiwan, China, Vietnam, Cambodia, Laos, Myanmar and other parts of Indochina, United Arab Emirates, Saudi Arabia, Qatar, Oman and other parts of the Middle East or any jurisdiction where any Enlarged Group company carries on the business of managing and operating worker dormitory accommodation and any businesses incidental thereto (the Business ) from time to time ( Territory ), whether as shareholder, director, employee, partner, agent or otherwise, that is the same, similar to, or in competition with the Business; either on his own account or in conjunction with or on behalf of any other person, firm or company, solicit or entice away or attempt to solicit or entice away from any Enlarged Group company, the custom of any person, firm, company or organisation who shall, during the Prescribed Period, have been a customer, client, agent or correspondent of the Enlarged Group or in the habit of dealing with the Enlarged Group; either on his own account or in conjunction with or on behalf of any other person, firm or company, solicit or entice away or attempt to solicit or entice away from any Enlarged Group company any person who is an officer, manager or employee of the Enlarged Group who shall, during the Prescribed Period, have been an officer, manager or employee of the Enlarged Group whether or not such person would commit a breach of his contract of or associated company employment by reason of leaving such employment; and make use of or disclose or divulge to any third party any confidential information or trade secrets relating to any Group Company, other than any information properly available to the public or disclosed or divulged pursuant to an order of a court of competent jurisdiction. However, TPK s service agreement provides for exceptions to the above restrictions in respect of certain disclosed interests that TPK has in companies that carry on the Business. In this regard, TPK will also undertake that during the Prescribed Period, these companies shall not operate and/or manage any dormitories and shall not increase their respective capacity other than those that have been disclosed. 61

63 LETTER TO SHAREHOLDERS Before the Company or Centurion Dormitories (as the case may be) grants its consent in any of the abovementioned situations, the NC (which comprises only Non-interested Directors) will consider the best interests of Shareholders, taking into consideration the prevailing circumstances at the time of making the decision and having regard to the business strategies and plans of the Enlarged Group. The NC will need to approve any grant by the Company or Centurion Dormitories of the Company s or Centurion Dormitories (as the case may be) consent to any of the abovementioned situations. Save as disclosed above, there are no other existing or proposed service contracts entered into between the Proposed New Directors and the Company Dividend Policy As at the Latest Practicable Date, the Enlarged Group does not have a fixed dividend policy. The form, frequency and amount of future dividends will depend on the Enlarged Group s operating results, financial position, cash requirements, expansion plans and other factors which the Board may deem appropriate. There is no assurance that dividends will be paid in the future. The declaration and payment of future dividends will be determined at the sole discretion of the Board subject to Shareholders approval, and will depend upon the Enlarged Group s operating results, financial position, other cash requirements including working capital, capital expenditures, the terms of borrowing arrangements (if any), expansion plans and other factors deemed relevant by the Board. In making their recommendation, the Board will consider, among other things, the Enlarged Group s future earnings, operations, capital requirements, cash flow and financial condition, as well as general business conditions and other factors which the Board may consider appropriate. 12. RISK FACTORS Please refer to Section 10 of the Letter to Shareholders from Westlite which correspondingly apply to the Enlarged Group. In addition, the following factors are also relevant in assessing the risks relating to the ownership of Shares following completion of the Westlite Acquisition and/or the JVCo Acquisition. Shareholders should carefully evaluate each of the following considerations and all of the other information set forth in this Circular. If any of the following considerations and uncertainties set out in Section 10 of the Letter to Shareholders from Westlite or below develops into actual events, the business, financial condition or results of operations of the Enlarged Group could be materially and adversely affected. If goodwill arises from the Proposed Acquisitions, the impairment of goodwill in the current or subsequent financial periods may materially affect the income statement and financial position of the Enlarged Group. The Proposed Acquisitions upon completion may result in goodwill being recognised in the financial statements of the Enlarged Group for FY2011. The goodwill represents an excess of the cost of the reverse acquisition over the fair values of the net identifiable assets of the Group. The cost of reverse acquisitions will depend on the share price of the Company at the date of the actual transfer of shares at the completion of these Proposed Transactions. As such, the actual goodwill will be determined at the completion of the Proposed Transactions, and will be accounted for in accordance with the accounting policies of the Enlarged Group. The accounting policies also requires the goodwill to be tested for impairment on an annual basis or more frequently if there are indication of impairment. This assessment may lead to an impairment charge to be recorded in the income statements of the Enlarged Group in the current or subsequent financial periods. Any impairment charge against the goodwill could have a material negative impact on the profits of the Enlarged Group to be reported in respect of the current or subsequent financial periods. 62

64 LETTER TO SHAREHOLDERS Control by the Obliged Parties could influence the outcome of matters requiring Shareholders approval. Upon completion of the Proposed Transactions and the Compliance Placement, the Obliged Parties will hold approximately 63.8% of the Enlarged Capital (assuming that 200 million New Shares are issued pursuant to the Compliance Placement). As a result, they will be able to significantly influence matters requiring Shareholders approval (other than the approval of transactions for which they and their associates may be prohibited from voting) in a manner which may or may not be in the interests of other Shareholders, including the election of Directors, the timing and payment of dividends, transactions such as the sale of all or substantially all of the Company s assets, the Company s merger or consolidation with another entity, capital restructuring and business ventures. There is no assurance that the integration of the existing business of the Company and the business of the Enlarged Group will be successful The Company s core business is in the manufacturing of optical media products. The business of Westlite and JVCo is that of provision of worker accommodation and related services. As stated in the section entitled Rationale for the Proposed Acquisitions in this Circular, it is envisaged that the Proposed Acquisitions would present an opportunity for the Company to diversify from its current business of manufacturing compact discs, data storage and related products/services and create a new revenue stream from the Company. The Proposed Acquisitions will also allow the Company to venture into the lucrative workers accommodation sector, with a view to exploring further opportunities in this sector in the future. However, there is no assurance that the businesses of the Company and Westlite and JVCo can be successfully integrated. If the businesses of the Company and Westlite and JVCo are not integrated successfully, the future prospects and growth of the Enlarged Group will be adversely affected. The Enlarged Group may require additional funding for its future growth In view of fast changing business requirements and market conditions, certain business opportunities that may increase the Enlarged Group s revenue may arise from time to time and the Enlarged Group may be required to expand its capabilities and business through acquisitions, investments, joint ventures and/or strategic partnerships with parties who are able to add value to its business. If such situation arises, the Enlarged Group may require additional funds to take advantage of these opportunities. Such funding, if raised through the issuance of equity or securities convertible into equity, may be priced at a discount to the then prevailing market price of the Shares trading on the SGX-ST, resulting in a dilution of Shareholders equity interest. If the Enlarged Group fails to utilise the new equity to generate a commensurate increase in earnings, the Company s EPS may be diluted, and this could lead to a decline in the price of the Shares. Alternatively, if such funding requirements are met by way of additional debt financing, the Enlarged Group may have restrictions placed on it through such debt financing arrangements which may: limit its ability to pay dividends or require it to seek consent for the payment of dividends; increase its vulnerability to general adverse economic and industry conditions; limit its ability to pursue its growth plans; require it to dedicate a substantial portion of its cash flow from operations to payment for its debt, thereby reducing the availability of its cash flow to fund other capital expenditure, working capital requirements and other general corporate purposes; and limit its flexibility in planning for, or reacting to, changes in its businesses and its industries. 63

65 LETTER TO SHAREHOLDERS Future sales of securities by the Company or Shareholders may adversely affect the price of the Shares Upon completion of the Proposed Transactions and the Compliance Placement, the Obliged Parties will hold approximately 63.8% of the Enlarged Capital. Although the Shares held by the Obliged Parties after the completion of the Proposed Acquisitions are subject to moratorium, any sale of significant amounts of these Shares after the expiration of the applicable moratorium period or any permitted sales during the applicable moratorium period by the Obliged Parties or the perception that such sales may occur could materially and adversely affect the market price of the Shares and may thereby also affect the Company s ability to raise funds through issuance of equities or other forms of securities. No prior market for the Shares of the Company on an Enlarged Group basis The Shares have never been traded on an Enlarged Group basis. As such, there can be no assurance that an active trading market for the Shares will develop or, if developed, will be sustainable. Volatility of the Share price of the Company The issue price of the Consideration Shares allotted and issued to acquire the ordinary shares of Westlite and JVCo may not be indicative of prices of the Shares that will prevail in the trading market. The trading prices of the Shares could be subject to fluctuations in response to variations in the results of operations, changes in general economic conditions, changes in accounting principles or other developments affecting the Enlarged Group, the customers or competitors, changes in financial estimates by securities analysts, the operating and stock price performance of other companies, general stock market price fluctuations and other events or factors. Volatility in market prices of the Shares may be caused by factors beyond the control of the Enlarged Group and may be unrelated and disproportionate to the operating results of the Enlarged Group. The market price of the Shares may fluctuate significantly and rapidly as a result of, amongst other things, the following factors, some of which are beyond the control of the Enlarged Group: (a) (b) (c) (d) (e) (f) (g) (h) (i) the success or failure of the Enlarged Group s management team in implementing business and growth strategies; announcements by the Company, following completion of the Proposed Acquisitions, of significant contracts, acquisitions, strategic alliances or capital commitments; loss of the Enlarged Group s major customers or failure to complete significant orders or contracts; changes in the Enlarged Group s operating results; involvement in litigation; unforeseen contingent liabilities of the Enlarged Group; addition or departure of key personnel of the Enlarged Group; changes in share prices of companies with similar business to the Enlarged Group that are listed in Singapore; changes in securities analysts estimates of the Enlarged Group s financial performance and recommendations; 64

66 LETTER TO SHAREHOLDERS (j) (k) differences between the Enlarged Group s actual financial operating results and those expected by investors and securities analysts; and changes in general market conditions and broad market fluctuations. Negative publicity may adversely affect the price of the Shares Any negative publicity or announcement, whether justifiable or not, relating to Westlite, JVCo or any of their associates or existing or future joint venture partners may adversely affect the price of the Shares. Such negative publicity or announcement may include involvement in insolvency proceedings, litigation suits and failed attempts in joint ventures or takeovers. It is anticipated that new dormitory sites for foreign workers may be located nearer residential areas as Singapore becomes more built up. The presence of such worker dormitories near residential areas may be considered undesirable to the residents in that area who may then raise objections in public forums. Such public objections could result in negative publicity for the Enlarged Group thereby affecting the price of the Shares. The Company may not be able to pay dividends in the future The ability of the Company to pay dividends to its Shareholders is directly affected by, inter alia, its financial condition, capital needs, investment plans and the ability of the companies within the Enlarged Group to pay the Company dividends. The ability of the various companies within the Enlarged Group to pay dividends to the Company would, in turn, depend on, amongst other things their respective earnings, cashflows and the applicable laws and regulations of the relevant jurisdictions in which these companies operate. There is no assurance that the Enlarged Group will declare and pay dividends nor is there any indication of the levels of dividends that Shareholders can expect. Independent Shareholders will face immediate and substantial dilution and may experience future diminution to shareholdings Following completion of the Proposed Acquisitions, the Company proposes to undertake the Compliance Placement to maintain its listing status. Upon completion of the Compliance Placement, Shareholders equity interests in the Company will be diluted accordingly. Before the Proposed Acquisitions, the 362,419,500 Shares held by existing Shareholders of the Company comprise 100% of the issued share capital of the Company. Immediately after the Proposed Acquisitions, the aforesaid number of Shares will represent 27.62% of the issued share capital of the Company. Subsequent to the Compliance Placement, the aforesaid number of Shares will represent 23.97% of the issued share capital of the Company. In the case where the Compliance Placement that is to be completed within one month of completion of the Westlite Acquisition is not or is unable to be carried out so as to meet the applicable shareholding spread and distribution requirements of the Listing Manual, the listing of the Shares may continue to be suspended, or the SGX-ST may require the Shares to be delisted. 13. CORPORATE GOVERNANCE The Company has adopted corporate governance practices which are based on the best practice outlined in the Best Practices Guide issued by SGX-ST and the principles in the Corporate Governance Code. Nominating Committee There will be no change in the composition of the Nominating Committee following completion of the Proposed Transactions. The Nominating Committee comprises Mr Gn Hiang Meng, Mr Chandra Mohan s/o Rethnam and Mr Lee Kerk Chong. The Chairman of the Nominating Committee is Mr Gn Hiang Meng. 65

67 LETTER TO SHAREHOLDERS The Nominating Committee reviews and ensures that there is an appropriate composition of members of the Board with suitably diverse backgrounds to meet the Group s operational and business requirements. The Nominating Committee is responsible for making recommendations to the Board on all appointments and re-appointment of Directors. The Nominating Committee meets at least once annually and as and when deemed necessary. The principle responsibilities of the Nominating Committee are summarised below: (a) (b) (c) (d) (e) (f) (g) to assess the effectiveness of the Board as a whole and the contribution of each Director; to review and nominate newly appointed Directors and Directors retiring by rotation, having regard to their contributions and performance, for re-election at each AGM; to review and recommend all new appointments to the Board; to determine on an annual basis the independence of each Director; to decide whether a Director is able to and has been adequately carrying out his or her duties as a Director of the Company, particularly when the Director has multiple Board representations; to identify gaps in the mix of skills, experience and other qualities required in an effective Board so as to better nominate or recommend suitable candidates to fill the gaps; and to review and recommend candidates for senior management staff, who are not also candidates for appointment to the Board. The NC adopts a formal process to evaluate the performance of the Board as a whole. A Board performance evaluation is carried out to assess and evaluate the Board s composition, size and expertise. Quantitative financial criteria such as return on equity and return on assets are also considered in the evaluation. Each member of the Nominating Committee shall abstain from voting on any resolutions in respect of the assessment of his performance or re-nomination as a proposed Director. New Remuneration Committee Following the completion of the Westlite Acquisition, it is intended that the Remuneration Committee be reconstituted. Our new Remuneration Committee will comprise Mr Gn Hiang Meng, Mr Chandra Mohan s/o Rethnam and Mr Wong Kok Hoe. The Chairman of the Remuneration Committee will be Mr Chandra Mohan s/o Rethnam. The Remuneration Committee will review and recommend to the Board a framework of remuneration as well as determine the remuneration package and terms of employment for each Director and employees who are immediate family members of a Director or controlling shareholder of the Group. The Remuneration Committee will also review the remuneration policies and packages for senior management on an annual basis. The review covers all aspects of remuneration, including but not limited to Directors fees, salaries, allowances, bonuses, and benefits-in-kind. The Remuneration Committee will have access to the Company s internal human resource department to assist in their review. The Remuneration Committee s recommendations will be submitted for endorsement by the entire Board. Annual reviews of the compensation of Directors will also be carried out by the Remuneration Committee to ensure that the remuneration of the Directors and senior management 66

68 LETTER TO SHAREHOLDERS commensurate with their performance and value-add to the Group, giving due regard to the financial and commercial health and business needs of the Group. The remuneration of the Chief Executive Officer (along with that of other senior management) is also to be reviewed annually by the Remuneration Committee and the Board. New Audit Committee Following the completion of the Westlite Acquisition, it is intended that the Audit Committee be reconstituted. Our new Audit Committee will comprise Mr Gn Hiang Meng, Mr Chandra Mohan s/o Rethnam and Mr Wong Kok Hoe. The Chairman of the Audit Committee will be Mr Gn Hiang Meng. The Proposed New Directors recognise the importance of corporate governance and the offering of high standards of accountability to the shareholders of our Company. The Audit Committee s main function is to provide assistance to the Board in fulfilling its responsibility relating to corporate accounting and auditing, the Company s financial reporting practices, the quality and integrity of the Company s financial reports and the Company s internal control systems including financial, operational and compliance controls, and risk management established by the management and the Board. The Audit Committee also performs the following functions: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) (m) reviews the audit plan and scope of audit examination of the external auditors; evaluates the overall effectiveness of both the internal and external audits through regular meetings with the internal and external auditors; reviews the adequacy of the internal audit function; determines that no restrictions are being placed by management upon the work of the internal and external auditors; evaluates the adequacy of the internal control systems of the Group by reviewing written reports from the internal and external auditors, the management s responses and actions to address any deficiencies noted; evaluates the adherence to the Group s administrative, operating and internal accounting controls; reviews the quarterly and full-year financial statements and announcements before submission to the board for approval; reviews interested person transactions for potential conflicts of interest as well as all potential conflicts of interests; ensures that proper measures to mitigate any conflicts of interests have been put in place; reviews all non-audit services provided by external auditors to determine if the provision of such services would affect the independence of the external auditors; reviews and recommends the appointment or re-appointment of the external auditors; reviews transactions falling within the scope of Chapter 9 and Chapter 10 of the Listing Manual (if any); considers other matters as requested by the Board; 67

69 LETTER TO SHAREHOLDERS (n) (o) commissions and reviews findings of internal investigations into matters where there is any suspected fraud or irregularities or failure of internal controls or infringement of any law, rule and regulation which has or is likely to have a material impact on the Group s operating results and/or financial position; and reviews and approves all hedging policies and types of hedging instruments to be implemented by the Group, if any. The Audit Committee is authorised to investigate any matter within its terms of reference, has full access to management and full discretion to invite any Executive Director or executive officer to attend its meetings, as well as reasonable resources to enable it to discharge its functions properly. Annually, the Audit Committee shall meet with the internal and external auditors without the presence of management. This is to review the adequacy of the audit arrangements, with particular emphasis on the scope and quality of their audits, the independence and objectivity of the external auditors and the observations of the auditors. 14. INTERESTED PERSON TRANSACTIONS Pursuant to the Westlite Acquisition, the Company will acquire the Westlite Shares from the Westlite Vendors and, in consideration for the Westlite Acquisition, allot and issue the Westlite Consideration Shares to the Westlite Vendors. Pursuant to the JVCo Acquisition, the Company will acquire the JVCo Shares from Centurion, and, in consideration for the JVCo Acquisition, allot and issue the JVCo Consideration Shares to Centurion. Centurion is an interested person of the Company as defined in Chapter 9 of the Listing Manual and the Westlite Acquisition and the JVCo Acquisition would be Interested Person Transactions by virtue of the fact that Centurion, one of the Westlite Vendors and the vendor of the JVCo Shares, is 100% owned by Messrs Loh Kim Kang David and Han Seng Juan collectively through Centurion Global Ltd. Messrs Loh Kim Kang David and Han Seng Juan are also Controlling Shareholders of the Company and their direct and deemed interests (through Thinkpac Limited) in the Company as at the Latest Practicable Date constitute approximately 32.1% of the issued and outstanding Shares. As the Westlite Consideration of S$84,970,274 represents approximately 180% of the audited NTA of the Group as at 31 December 2010 and as the JVCo Consideration of S$10,000,000 represents approximately 21% of the audited NTA of the Group as at 31 December 2010, the Company will be required to seek approval of the Independent Shareholders for such Interested Person Transactions under Rule 906 of the Listing Manual. Provenance Capital Pte. Ltd. has been appointed as the independent financial adviser to the directors who do not have an interest in the Proposed Acquisitions. The IFA has been appointed to opine whether or not the Proposed Acquisitions are on normal commercial terms and whether or not the Proposed Acquisitions are prejudicial to the interests of the Company and the minority Shareholders. A copy of the IFA s letter in relation to the Proposed Acquisitions is set out in Appendix C. 15. POTENTIAL CONFLICTS OF INTERESTS Save as disclosed in this Letter, none of the Directors, Key Executives or Controlling Shareholders has any interest, direct or indirect, in any company or enterprise carrying on the same business as the Enlarged Group. 68

70 LETTER TO SHAREHOLDERS 16. INTERESTS OF DIRECTORS AND SUBSTANTIAL SHAREHOLDERS Save as disclosed in this Circular, none of the Directors or Substantial Shareholders, of the Company, or any of their concert parties has any interests or is deemed to be interested in the Proposals. Mr Tang Kay Hwa and Ms Mak Bang Mui are non-executive Directors of the Company. They also hold certain executive positions within the Centurion Group. Accordingly, Mr Tang Kay Hwa and Ms Mak Bang Mui will abstain from making any recommendation or voting on resolutions in respect of the Westlite Acquisition and the JVCo Acquisition. 17. MORATORIUM The Westlite Acquisition, being within the ambit of Rule 1015 of the Listing Manual, is subject to the moratorium requirements specified in Rule 229 of the Listing Manual. This period of moratorium is applicable, inter alia, to persons and associates of such persons who are Controlling Shareholders or who will become Controlling Shareholders as a result of the Westlite Acquisition. As Messrs Loh Kim Kang David and Han Seng Juan (through Thinkpac Limited) are the Controlling Shareholders, they and their associates will be subject to this period of moratorium in respect of all the Shares for which they are directly or indirectly interested, including the Westlite Consideration Shares. Accordingly, in compliance with the moratorium requirements specified in Rule 229 of the Listing Manual: (i) (ii) (iii) Centurion Global Ltd shall not during the period of six (6) months after the date of completion of the Westlite Acquisition (the Moratorium Period ) sell, transfer or otherwise dispose of its shares and interests in the Centurion, in whole or in part; and Thinkpac Limited shall undertake that it shall not during the Moratorium Period sell, transfer or otherwise dispose of its shares and interests in the Company, in whole or in part; and Each of Messrs Loh Kim Kang David and Han Seng Juan shall undertake that he shall not during the Moratorium Period sell, transfer or otherwise dispose of his respective shares and interests in each of Centurion Global Ltd, Thinkpac Limited and the Company, in whole or in part. In addition, Centurion has undertaken that it shall not during the period commencing on the date of the issue of the JVCo Consideration Shares and ending on the date falling 6 months after the Westlite Completion Date, sell, transfer or otherwise dispose of the JVCo Consideration Shares to be issued to it on completion of the JVCo Acquisition, in whole or in part. Each of the Westlite Vendors have also undertaken under the Westlite Sale and Purchase Agreement not to, during the period commencing on the date of the issue of the Westlite Consideration Shares and ending on the date falling 6 months thereafter or such other period as may otherwise be required by the SGX-ST, sell, transfer or otherwise dispose of the Westlite Consideration Shares to be issued to it/him on completion of the Westlite Acquisition, in whole or in part. 18. ADVICE OF INDEPENDENT FINANCIAL ADVISER IN RELATION TO THE PROPOSED ACQUISITIONS AND THE PROPOSED WHITEWASH RESOLUTION Provenance Capital Pte. Ltd. has been appointed as the IFA to advise the Non-interested Directors in respect of the Proposed Acquisitions and the Proposed Whitewash Resolution. The letter from the IFA to the Non-Interested Directors of SM Summit Holdings Limited is set out in Appendix C of this Circular, and Shareholders attention is drawn to it. 69

71 LETTER TO SHAREHOLDERS Taking into consideration the factors set out in its letter, the IFA is of the view that, on balance, the Proposed Acquisitions and the Proposed Whitewash Resolution when considered in the context of the Proposed Acquisitions are on normal commercial terms and are not prejudicial to the interests of the Company and the Independent Shareholders. Accordingly, the IFA advises the Noninterested Directors to recommend the Independent Shareholders to vote in favour of the Proposed Acquisitions and the Proposed Whitewash Resolution to be proposed at the EGM. 19. DIRECTORS RECOMMENDATION 19.1 The Proposals Mr Tang Kay Hwa and Ms Mak Bang Mui are non-executive Directors of the Company. They also hold certain executive positions within the Centurion group of companies. Accordingly, Mr Tang Kay Hwa and Ms Mak Bang Mui will abstain from making any recommendation or voting on resolutions in respect of the Westlite Acquisition and the JVCo Acquisition. Having considered and reviewed, amongst others, the terms of the Westlite Sale and Purchase Agreement, the rationale for and the financial effects of the Proposals, the risk factors and other investment considerations, and all other relevant facts set out in this Circular, the Directors, save for Mr Tang Kay Hwa and Ms Mak Bang Mui, are unanimously of the opinion that: (i) (ii) (iii) (iv) (v) (vi) the Proposed Acquisitions; the Proposed Share Issue; the Proposed Share Consolidation; the appointment of the Proposed New Directors; the Proposed Name Change; and the Compliance Placement, are in the best interest of the Company, and accordingly, they recommend that Shareholders vote in favour thereof The Proposed Whitewash Resolution The Non-Interested Directors have considered and concur with the advice of the IFA in relation to the Proposed Whitewash Resolution. They believe that the Proposed Whitewash Resolution is in the interest of all Shareholders. Accordingly, they recommend that Independent Shareholders vote in favour of the Proposed Whitewash Resolution. In accordance with the terms of the waiver granted by the SIC, the Obliged Parties and persons not independent of them will abstain from voting on the Proposed Whitewash Resolution. 20. EXTRAORDINARY GENERAL MEETING The EGM, notice of which is set out in this Circular, will be held at Paramount Hotel Singapore, 4, 25 Marine Parade, Singapore on Friday, 29 July 2011 at 3.30p.m. for the purpose of considering and, if thought fit, passing, with or without modifications, the ordinary and special resolution set out in the Notice of EGM. 70

72 LETTER TO SHAREHOLDERS 21. ACTION TO BE TAKEN BY SHAREHOLDERS A Shareholder who is unable to attend the EGM and wishes to appoint a proxy to attend and vote on his behalf should complete, sign and return the proxy form enclosed with this Circular in accordance with the instructions printed thereon as soon as possible and in any event so as to reach the office of the Company at 45 Ubi Road 1, Summit Building, Singapore , not later than 48 hours before the time fixed for the EGM. The completion and return of the proxy form by a Shareholder will not prevent him from attending and voting at the EGM in place of his proxy should he subsequently wish to do so. A Depositor is not regarded as a Shareholder entitled to attend the EGM and to speak and vote thereat unless his name appears on the Depository Register as certified by CDP, not less than 48 hours before the EGM. Messrs Loh Kim Kang David and Han Seng Juan are Controlling Shareholders of the Company and their direct and deemed interests (through Thinkpac Limited) in the Company as at the Latest Practicable Date constitute approximately 32.1% of the issued and outstanding Shares. As they are interested in the Proposed Acquisitions and the Whitewash Resolution, each of Messrs Loh Kim Kang David and Han Seng Juan will abstain and procure that their respective associates and concert parties (including Thinkpac Limited) abstain from voting in respect of all the resolutions relating to the Proposed Acquisitions and the Whitewash Resolution set out in the Notice of EGM at the EGM. They will also not accept nominations to act as proxy, corporate representatives or attorney to vote in respect of the all the resolutions set out in the Notice of EGM unless the Shareholders appointing them have indicated clearly how votes are to be cast in respect of all the resolutions. TPK, one of the Westlite Vendors, will abstain from voting in respect of the resolutions relating to the Westlite Acquisition set out in the Notice of EGM at the EGM. He will also not accept nominations to act as proxy, corporate representative or attorney to vote in respect of the resolutions relating to the Westlite Acquisition set out in the Notice of EGM unless the Shareholders appointing him have indicated clearly how votes are to be cast in respect of all such resolutions. 22. DIRECTORS RESPONSIBILITY STATEMENT This Circular has been seen and approved by the Directors who collectively and individually accept full responsibility for the accuracy of the information given herein, and confirm that, having made all reasonable enquiries, to the best of their knowledge and belief the facts stated and opinions expressed in this Circular are fair and accurate in all material respects and that there are no material facts the omission of which would make any statement in this Circular misleading in any material respect or have any material effect on the financial position. Where information relating to the Westlite Vendors, Westlite, JVCo or the Enlarged Group has been extracted from published or otherwise available sources or is otherwise based on information obtained from the Westlite Vendors, Westlite or JVCo, the sole responsibility of the Directors has been to ensure that such information has been accurately and correctly extracted from the sources, or as the case may be, reflected or reproduced in this Circular. Where information has been extracted from published or publicly available sources, the responsibility of the Directors has been to ensure that such information has been accurately and correctly extracted from such sources. 23. WESTLITE VENDORS RESPONSIBILITY STATEMENT Centurion confirms that, having made reasonable enquiries, to the best of the knowledge and belief of its directors, the information given in this Circular (including the Appendices) in respect of Centurion and the Centurion Group is true and accurate, and it accepts full responsibility for the accuracy of such information. 71

73 LETTER TO SHAREHOLDERS TPK confirms that, having made reasonable enquiries, to the best of his knowledge and belief, the information given in this Circular (including the Appendices) in respect of himself is true and accurate, and he accepts full responsibility for the accuracy of such information. 24. FINANCIAL ADVISER S RESPONSIBILITY STATEMENT The Financial Adviser to the Company, confirms, having made all the reasonable enquiries, that to the best of its knowledge and belief, and based on information provided by or on behalf of the Company, Westlite, JVCo and the Westlite Vendors, the facts stated in this Circular are true and accurate in all material respects with regard to the Proposals, Westlite and JVCo as at the Latest Practicable Date, and the Financial Adviser is not aware of any material facts, the omission of which would make any statement in the Circular misleading in any material respect as at the Latest Practicable Date. Where information has been extracted from published or publicly available sources, the sole responsibility of the Financial Adviser has been to ensure that such information has been accurately and correctly extracted from such sources. 25. MISCELLANEOUS 25.1 Consents (a) PricewaterhouseCoopers LLP, being the Auditor to the Company and Reporting Auditor, has given and has not withdrawn its written consent to the issue of this Circular with the inclusion herein of: (i) (ii) its name and references to its name; the Reporting Auditor s Report On Examination Of The Unaudited Proforma Consolidated Financial Statements Of The Enlarged Group For The Financial Years Ended 31 December 2008, 2009 and 2010 set out in Appendix E of this Circular; and (iii) the Letter from the Reporting Auditor on the Profit Forecast for the year ending 31 December 2011 and Profit Projection for the year ending 31 December 2012 of Centurion Dormitory (Westlite) Pte. Ltd. as set out in Appendix F of this Circular, in the form and context in which it appears in this Circular and to act in such capacity in relation to this Circular. (b) RSM Chio Lim LLP, being the auditors to Westlite, has given and has not withdrawn its written consent to the issue of this Circular with the inclusion herein of: (i) its name and references to its name; and (ii) the Audited Financial Statements Of Westlite For The Financial Years Ended 31 December 2009 And 2010 set out in Appendix D of this Circular, in the form and context in which it appears in this Circular and to act in such capacity in relation to this Circular. (c) Odds & Even Associates, being the previous auditors to Westlite, has given and has not withdrawn its written consent to the issue of this Circular with the inclusion herein of: (i) its name and references to its name; and (ii) the Audited Financial Statements Of Westlite For The Financial Year Ended 31 December 2008 set out in Appendix D of this Circular, 72

74 LETTER TO SHAREHOLDERS in the form and context in which it appears in this Circular and to act in such capacity in relation to this Circular. (d) Provenance Capital Pte. Ltd., being the IFA in respect of the Proposed Acquisitions, which are Interested Person Transactions, and the Proposed Whitewash Resolution, has given and has not withdrawn its written consent to the issue of this Circular with the inclusion herein of: (i) (ii) its name and references to its name; and the Letter from the IFA to the Non-Interested Directors of SM Summit Holdings Limited set out in Appendix C of this Circular, in the form and context in which it appears in this Circular and to act in such capacity in relation to this Circular. (e) Jones Lang LaSalle Property Consultants Pte Ltd, the Industry Expert, has given and has not withdrawn its written consent to the issue of this Circular with the inclusion herein of: (i) (ii) its name and references to its name; and the Singapore Foreign Worker Dormitory Market Study set out in Appendix H of this Circular, in the form and context in which it appears in this Circular and to act in such capacity in relation to this Circular. (f) Chesterton Suntec International Singapore, the Property Valuer, has given and has not withdrawn its written consent to the issue of this Circular with the inclusion herein of: (i) (ii) its name and references to its name; and the Westlite Property Valuation Report and the Mandai Property Valuation Report, set out in Appendix I and Appendix J of this Circular respectively, in the form and context in which it appears in this Circular and to act in such capacity in relation to this Circular. (g) Each of the Financial Adviser to the Company, the Legal Adviser to the Company, the Legal Adviser to Westlite and the Westlite Vendors and the Share Registrar has given and has not withdrawn its written consent to the issue of this Circular with the inclusion of its name and all references thereto in the form and context in which they appear in this Circular to act in such capacity in relation to the Circular Documents available for inspection Copies of the following documents are available for inspection at the principal place of business of the Company at 45 Ubi Road 1, Summit Building, Singapore , during normal business hours for a period of six months from the date of this Circular: (a) (b) (c) the Westlite Sale and Purchase Agreement and the JVCo Sale and Purchase Agreement; the Service Agreements to be entered into between the Company and Bin Hee Din Tony and between Centurion Dormitories and TPK; the Letter from the IFA to the Non-Interested Directors of SM Summit Holdings Limited as set out in Appendix C of this Circular; 73

75 LETTER TO SHAREHOLDERS (d) (e) the audited financial statements of Westlite for FY2008, FY2009 and FY2010 as set out in Appendix D of this Circular; the Reporting Auditor s Report on the Unaudited Pro Forma Consolidated Financial Statements of the Enlarged Group for FY2008, FY2009 and FY2010 set out in Appendix E of this Circular; (f) the Letter from the Reporting Auditor on the Profit Forecast for the year ending 31 December 2011 and Profit Projection for the year ending 31 December 2012 of Centurion Dormitory (Westlite) Pte. Ltd. as set out in Appendix F of this Circular; (g) (h) (i) (j) (k) the Singapore Foreign Worker Dormitory Market Study by the Industry Expert as set out in Appendix H of this Circular; the Westlite Property Valuation Report as set out in Appendix I of this Circular; the Mandai Property Valuation Report as set out in Appendix J of this Circular; the Memorandum and Articles of Association of the Company; and the letters of consent referred to in Section 25.1 in this Letter to Shareholders. 26. ADDITIONAL INFORMATION Your attention is drawn to the additional information set out in the Appendices of this Circular. Yours faithfully LEE KERK CHONG Chairman For and on behalf of SM Summit Holdings Limited 74

76 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE 30 June 2011 Sole Director of Westlite Bin Hee Din Tony To: The Shareholders of SM Summit Holdings Limited Dear Sir/Madam PROPOSED ACQUISITION BY SM SUMMIT HOLDINGS LIMITED OF CENTURION DORMITORY (WESTLITE) PTE. LTD. 1. INTRODUCTION This letter has been prepared by the sole director of Westlite, on behalf of Westlite, for inclusion in this Circular. Except where the context otherwise requires, capitalised terms defined in this Circular shall apply throughout this letter. 2. INFORMATION ON WESTLITE 2.1 HISTORY Westlite (formerly known as Duchess Dormitory Pte Ltd) is a private limited company incorporated in Singapore under the Companies Act (Cap. 50) in July 2007 and is jointly owned by Centurion and TPK in the proportion of 88% and 12% respectively. In February 2008, it acquired the Westlite Dormitory. In June 2008, the name of Westlite was changed from Duchess Dormitory Pte Ltd to Centurion Dormitory (Westlite) Pte. Ltd.. With a view to enhancing the value of Westlite Dormitory, and to position ourselves to meet with the increased demand of foreign worker dormitories, we applied to the URA for the increase of the plot ratio of Westlite Dormitory. We were granted Written Permission on 9 March 2011 for the increase of Westlite Dormitory s plot ratio from 2.0 to 3.2. The approved plot ratio of 3.2 would allow us to upgrade Westlite Dormitory and increase its capacity from approximately 5,300 beds to approximately 8,000 beds. As at the date hereof, the Upgrading Works have yet to commence. Please refer to the section entitled Business Strategy and Future Plans in this Letter to Shareholders from Westlite for further details on the proposed upgrading. 2.2 SHARE CAPITAL As at the Latest Practicable Date, the issued and paid up share capital of Westlite was S$1,000,000 comprising 1,000,000 fully paid-up ordinary shares. Centurion holds 88% of the issued shares in Westlite, and the balance 12% is held by TPK. There are no outstanding share options or other securities that are convertible into shares of Westlite. There is only one class of shares in Westlite, being ordinary shares. capital of Westlite are bearer shares. None of the shares in the A-1

77 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE 2.3 INDUSTRY Singapore has a history of dependency on foreign workers across its pillar industries and the Singapore government regularly stresses the importance of foreign workers to the economy and its competitiveness. The worker dormitory market in which Westlite operates is characterised on the one hand by this strong underlying demand for foreign workers, driven in recent years primarily by economic expansion, and on the other hand by limited supply of available sites for worker dormitory accommodation, resulting in a demand / supply imbalance as reflected by near 100% occupancy levels within the industry and in rising rental rates. The market imbalance between high total demand for foreign worker dormitories and limited supply has led to rental rate increases. This is likely to be sustainable in the short term, while the medium to longer term may see more private players enter the market and increased supply. Please refer to the section entitled Prospects of this Letter to Shareholders from Westlite for further details on the factors surrounding industry demand and supply. Permanent Dormitories and Temporary Dormitories Approved foreign worker housing in Singapore is classified into two types: permanent and temporary dormitories. Permanent dormitories are held on a longer lease term, typically of at least 30 years, compared with temporary dormitories which have much shorter lease terms of three years with options to extend the lease terms for two further three year terms. Permanent dormitories are generally of higher quality, with food halls and sporting amenities, and they are also in self-contained apartments of 8, 10 or 12 beds. In contrast, temporary dormitories are generally barrack-style units with communal kitchens and toilets with little or no retail amenities. Temporary dormitories generally cater for the construction industry. However, there are a few which cater for both the construction and a combination of the manufacturing, marine and process and other industries. The majority of permanent dormitories provide for the manufacturing, marine and process industries. There are a few permanent dormitories that provide for the construction industry and some that will accommodate all industries. Our Westlite Dormitory is a permanent dormitory. Please refer to the Properties and Fixed Assets section of this Letter to Shareholders from Westlite for a description of our dormitory and facilities. Please also refer to the Singapore Foreign Worker Dormitory Market Study by the Industry Expert set out in Appendix H of this Circular. 2.4 BUSINESS Business Overview Westlite carries on the business of providing foreign worker accommodation and related services. We own and operate Westlite Dormitory which we had acquired in We derive our income primarily from renting out worker dormitory units to our customers, who comprise companies from various industries including the marine, engineering, oil and gas, and construction industries. These companies house the foreign workers that they employ in our dormitory. In addition to income from rental of the dormitory units, we also derive rental income by leasing commercial spaces to third party operators to operate a canteen, a provision shop and a barber shop. Some space is also leased to a third-party company as an office. These commercial spaces and office space are within the compound of the Westlite Dormitory. A-2

78 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE Westlite Dormitory is certified as a Singapore OK dormitory, which means that the dormitory complies with certain quality requirements as determined by the National Environment Agency. These requirements include, inter alia, having a cleaning programme for the dormitory and a pest control programme Business Operations The Westlite Dormitory comprises 5 blocks of 5-storey and 3 blocks of 6-storey worker dormitory building with a 3-storey building that contains commercial and office spaces, including a canteen and a provision shop. Westlite Dormitory has a total of 448 dormitory units which can house approximately 5,300 residents. While Westlite s management is responsible for the overall operation of the dormitory, some services such as cleaning, pest control, security and other ancillary services are outsourced to third party service providers. Facilities and Services Besides providing accommodation, the Westlite Dormitory seeks to offer a safe and conducive living environment for our residents. The Westlite Dormitory has various facilities including open badminton courts, an exercise corner, a multi-purpose room and a communal reading and Internet room with newspapers and reading materials in various languages. The foreign workers residing in Westlite Dormitory are of various races and nationalities and comprise, amongst others, Indians, Bangladeshis, Thais, Myanmese, Filipinos and Chinese. As the incoming residents come from diverse societal backgrounds and living environments, we conduct briefings on house rules and acceptable dress codes and behaviour in Singapore s society. We also provide them with necessary information to help them adjust to life in Singapore. We organise various leisure and enrichment activities to cater to the well-being of our residents, such as screening of movies, dinners to commemorate festive occasions and national days, free health screening and English classes. We also hold weekly night markets where third party vendors set up stalls within our dormitory compound selling various goods such as phone cards, clothing and footwear. We emphasize the importance of cleanliness and hygiene within our dormitory. We outsource the cleaning of our dormitory s common areas to professional cleaning contractors. We maintain house rules which require our residents to maintain the cleanliness of the units they reside in. In addition, to encourage sanitary living conditions, we also incentivise our residents by awarding prizes on a regular basis to the residents maintaining the cleanest units. Further details on the Westlite Dormitory are set out in the Properties and Fixed Assets section of this Letter to Shareholders from Westlite Intellectual Property Our business is not reliant on any intellectual property rights. As at the Latest Practicable Date, we do not own any copyright, patent or trademark. 2.5 CUSTOMERS AND CREDIT MANAGEMENT For our dormitory units, we enter into lease agreements with our corporate customers to provide them with accommodation at our Westlite Dormitory for their foreign workers. The lease agreements are for one to two year terms, and are signed with these companies and not with the individual foreign workers. Rentals are generally charged on per unit basis, irrespective of the number of workers housed in each unit but is capped at 12 workers per unit. A-3

79 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE The majority of our customers are required to pay a rental deposit of two months and rentals are payable monthly in advance. The majority of rental payments are made via electronic direct debit payment system. With our credit and payment policy, our exposure to credit risk is limited. Our trade receivables were S$28,405 as at 31 December 2008 and there were no outstanding trade receivables as at 31 December 2009 and 31 December MAJOR CUSTOMERS We have a broad customer base and are not dependent on any one major customer or industry. As at 31 December 2010, we had more than 150 customers. Our customers comprise companies from various industries, including companies in the marine, engineering, oil and gas and construction industries. Save for Atwin Marine Engineering Pte Ltd, which contributed 4.5%, 5.6% and 5.6% of our revenue for FY2008, FY2009 and FY2010 respectively, none of our customers contributed more than 5% of our revenue in any of the said period. The top five customers of Westlite for each of FY2008, FY2009 and FY2010 are as follows: Name of Customer Revenue contribution for FY2008 (%) Atwin Marine Engineering Pte Ltd 4.5 Ensure Engineering Pte Ltd 3.5 Tech Offshore Marine (S) Pte Ltd 3.2 Lee Welded Mesh Singapore Pte Ltd 2.5 NSH Global Marine Engineering Pte Ltd 2.5 Name of Customer Revenue contribution for FY2009 (%) Atwin Marine Engineering Pte Ltd 5.6 Ensure Engineering Pte Ltd 3.2 Tech Offshore Marine (S) Pte Ltd 2.9 Lee Welded Mesh Singapore Pte Ltd 2.6 Univenture Technologies Pte Ltd 2.3 Name of Customer Revenue contribution for FY2010 (%) Atwin Marine Engineering Pte Ltd 5.6 Transvert Scaffold & Engineering Pte Ltd 3.2 Ensure Engineering Pte Ltd 2.9 Lee Welded Mesh Singapore Pte Ltd 2.6 Univenture Technologies Pte Ltd 2.4 None of the director and Substantial Shareholders of Westlite or their respective associates has any interest, direct or indirect, in any of the abovementioned customers. A-4

80 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE 2.7 MAJOR SERVICE PROVIDERS We engage the services of various third party service providers to provide security, cleaning, pest control and other ancillary services at Westlite Dormitory. We are not dependent on any such service providers. Our controlling shareholder, Centurion, provides to Westlite certain general administration, financial and accounting and related support services. Please refer to the section entitled Interested Person Transactions in this Letter to Shareholders from Westlite for further details. Save for the cost of services provided by Centurion to Westlite which accounted for 12.5%,10.0% and 9.6% of our total operating expenses in FY2008, FY2009 and FY2010 respectively, none of our service providers accounted for more than 5% of our total operating expenses in any of FY2008, FY2009 and FY2010. Save as disclosed in the section entitled Interested Person Transactions in this Letter to Shareholders from Westlite, none of the director and Substantial Shareholders of Westlite or their respective associates has any interest, direct or indirect, in any of our service providers that account for more than 5% of our total operating expenses in FY2008, FY2009 and FY PROPERTIES AND FIXED ASSETS We currently own a leasehold property, being the Westlite Dormitory, the details of which are set out below: Approximate Built-up Land Area Area Location (m 2 ) (m 2 ) Usage Tenure Encumbrance 12 to 28 Toh 11, ,358 Foreign 60 years Legal mortgage Guan Road Worker (1 December 1997 in favour of East Dormitory (1) 30 November DBS Bank Ltd 2057) (1) Note: (1) Westlite Dormitory is built on part of a larger land parcel sold by the URA in 1997 on a 60-year leasehold. The land is zoned Clean and Light Industrial. The parcel on which Westlite Dormitory is built was subsequently approved for workers dormitory use for 30 years from 12 Sept 2002, after which, it shall revert to Clean and Light Industrial Use. Westlite Dormitory comprises 5 blocks of 5-storey and 3 blocks of 6-storey worker dormitory building with a 3-storey building that contains commercial and office spaces. Westlite Dormitory has a total of 448 dormitory units which can house approximately 5,300 residents. Each unit in the dormitory is equipped with an attached bathroom and cooking facilities for the workers to prepare their own meals. Each resident is provided with his own bed and locker. The facilities on the premises include open badminton courts, an exercise corner, a multi-purpose room and a communal reading and Internet room with newspapers and reading materials in various languages. In order to cater to the needs of our residents, Westlite also leases commercial spaces to third party operators to operate a canteen, a provision shop and a barber shop. We engage an external security firm to provide overall security of our dormitory and provide us with security personnel. Through the security firm, we have put in place appropriate security measures. Entry to our dormitory is by access card only, and security personnel manning the checkpoints conduct additional visual checks on the workers entering the security gantries to ensure that there is no unauthorised entry. Closed-circuit television cameras are installed at the entrances to the compound and certain common areas. A-5

81 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE 2.9 STAFF Functional Distribution As at the Latest Practicable Date, we have a total of 6 employees all of whom are based in Singapore. The number of employees by function as at the end of each of FY2008, FY2009 and FY2010 are as follows: Function FY2008 FY2009 FY2010 Management Operations Finance and Accounting Administrative Total number of full-time employees The day-to-day operations of the Westlite Dormitory are overseen by our dormitory manager, Mr Bakurdeen s/o Abdul Majid. Our employees are not members of any external labour union. The relationship between management and employees has been good and there has been no industrial dispute with our employees since we acquired Westlite Dormitory in Westlite outsources services such as security and cleaning to external service providers. Furthermore, we are supported by our parent company, Centurion, on functions such as general administration, finance and accounting and general operational support. To facilitate a smooth transition following completion of the Westlite Acquisition, Centurion will continue to provide such support services to Westlite for up to a six month period after completion of the Westlite Acquisition. Such support services may be terminated by the Company at any time with one month s notice. Staff Training All new staff undergo a job familiarisation programme during which they are familiarised with the corporate culture of Westlite, their roles and responsibilities as well as knowledge relating to the dormitory business. Our dormitory manager briefs new employees on dormitory policies and guidelines SEASONALITY The business of Westlite is not affected by any seasonal changes in demand SALES AND MARKETING We do not have a dedicated sales and marketing department. Due to the high demand for worker dormitory accommodation in Singapore, we receive many enquiries from potential customers on the availability of dormitory accommodation. Through these enquiries and our existing customer base, we build and maintain a large customer database of companies (comprising past and prospective customers) who have needs for dormitory accommodation and would approach them should units become available at our dormitory. Currently, we have a waiting list of customers who wish to rent dormitory units from us. Generally, potential customers obtain our contact details via the Ministry of Manpower website which lists the Westlite Dormitory as one of the approved dormitories for foreign workers. They will contact us for details and information on vacancies, and our staff will liaise with them on the rental of the dormitory units. A-6

82 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE We also maintain an ongoing relationship and dialogue with our existing customers and potential customers. Such active customer management strengthens our position when companies are looking for housing for their foreign workers. Our dormitory units are generally fully rented out except for brief downtime of between one to three days when units are vacated in preparation for new residents. Please refer to Occupancy of our dormitory units under section entitled Management Discussion and Analysis of The Results of Operations and Financial Condition of Westlite of this Letter to Shareholders from Westlite for more details. 3. INSURANCE In relation to the operations of the Westlite Dormitory, Westlite maintains insurance coverage for material damage and business interruption and public liability. Westlite maintains insurance for our full-time employees, including hospitalisation and surgery insurance, personal accident insurance and work injury insurance. All the policies are in force and the premiums have been paid. These insurance policies are reviewed annually to ensure that the coverage is adequate. The director of Westlite is of the view that Westlite has adequate insurance coverage consistent with market practices for the purpose of its business and operations. 4. MATERIAL LITIGATION Westlite was not engaged in any legal or arbitration proceedings in the last 12 months before the date of this Circular, as plaintiff or defendant in respect of any claims or amounts which are material in the context of Westlite s financial position or profitability. Our director has no knowledge of any proceedings pending or threatened against Westlite or any facts likely to give rise to any litigation, claims or proceedings which might materially affect the financial position or profitability of Westlite. 5. GOVERNMENT REGULATIONS As at the Latest Practicable Date, save as disclosed below, our business operations, which are only carried out in Singapore, are not subject to any special legislation or regulatory controls other than those generally applicable to companies and businesses operating in Singapore. Westlite Dormitory is built on part of a larger land parcel sold by the URA in 1997 on a 60-year leasehold. The land is zoned Clean and Light Industrial. The parcel on which Westlite Dormitory is built was subsequently approved for workers dormitory use for 30 years from 12 September 2002, after which, it shall revert to Clean and Light Industrial Use. Under the Immigration Act (Chapter 133) of Singapore, any person who is found guilty of harbouring illegal immigrants shall be subject to imprisonment or fine, or both. Landlords who rent out their premises to foreign tenants are required by law to ensure that these tenants have valid permits and/or passes to stay in Singapore before renting out their premises and landlords are required to perform checks to ensure that the premises are not let out to illegal immigrants. We have taken precautionary measures to ensure that the persons residing at our dormitory have the necessary work passes/permits, such as issuing of access passes to workers registered as residents of our dormitory, conducting regular checks on the validity of their work passes/permits. A-7

83 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE 6. COMPETITION As there is a shortage of foreign worker dormitories in Singapore, we do not experience significant competition. We consider our closest competitors as those foreign worker dormitories primarily located within close proximity to the Westlite Dormitory as well as those permanent dormitories located in the western part of Singapore. We have identified the following dormitories to be our competitors: Approximate Dormitory Owner/operator Location Number of Beds Toh Guan Dormitory Capital Development No. 19A Toh Guan 6,000 Pte Ltd Road East Kian Teck Dormitory Valparaiso consortium No. 26 Kian Teck Avenue 3,500 Avery Lodge Valparaiso consortium No. 2D Jalan Papan 8,000 Jurong Penjuru Mini Environment Service No. 58 Penjuru Place 6,000 Dormitory 1 Pte Ltd Jurong Penjuru Mini Environment Pte Ltd No. 36 Penjuru Place 6,000 Dormitory 2 Blue Stars Dormitory Mini Environment Pte Ltd No. 3 Kian Teck Lane 4,500 Note: All information relating to the dormitories that we have identified as our competitors is extracted from the Singapore Foreign Worker Dormitory Market Study by the Industry Expert in Appendix H. 7. COMPETITIVE STRENGTHS Our director believes that Westlite has the following competitive strengths: We operate in a growth industry, and have an established reputation as owner-operator of permanent worker dormitories The foreign worker dormitory market in Singapore that we operate in is characterized by near 100% occupancy levels, with significant demand and supply imbalances and a constant backlog of prospective tenants and rising rental rates. As an active owner-operator of permanent dormitories, we are also regularly evaluating potential acquisitions which provide us with a good knowledge of the worker dormitory industry and management practices. Since acquiring our Westlite Dormitory in 2008, we have demonstrated that we have been able to record profits and strong operating cash flow, with a significant proportion of revenue from repeat customers. We believe this is due to our dual ability to both effectively manage our assets to optimize returns, and at the same time operate the dormitories in a professional manner. Our dormitory is well located with easy access to the workplace of our residents Our Westlite Dormitory is located in an area easily accessible by various transportation modes, such as expressways and major roads, the mass rapid transit system, and bus routes, making transport to and from our dormitory to the workplace of our residents very convenient. As such, this reduces travel costs and transit time for our customers whose workers are housed at our dormitory. In addition, our dormitory is near a major shopping centre, which we believe makes our dormitory an accommodation of choice. A-8

84 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE Our dormitory is well equipped and offers a conducive living environment Our dormitory is designed and built as a permanent dormitory. The facilities are built for functionality, durability and aesthetic value. Our dormitory is well-maintained and our dormitory units are equipped with attached toilet and kitchen facilities for the residents to prepare their own meals. The toilet attached to each dormitory unit offers our residents greater privacy and convenience compared to a communal bathroom. The availability of kitchen facilities enables our residents to prepare meals in accordance with their dietary preferences. The various recreational facilities located right on the dormitory premises are convenient for our residents. Such recreational facilities provide a means for our residents to mingle and socialise with one another, contributing to the communal atmosphere which we cultivate in our dormitory. As such, we believe that our dormitory offers an attractive choice of accommodation for foreign workers. We cater to the well-being of residents at our dormitory We organise various programmes to improve the well-being of our residents. We arrange for free health screening by voluntary organisations for our residents from time to time. We also have reading rooms supplied with various reading materials in the native languages of our residents, including newspapers from their home countries to enable them to keep up with the current affairs at home. Internet services are made available for residents to communicate with family and friends. We also organise celebrations to commemorate the national days and cultural festivals of the major nationalities that are represented in our dormitory. From time to time, we screen sporting programmes, which are well-received by our residents. Our customers operate in diverse industries Unlike some other dormitories which are only allowed to house workers from certain industries, such as the construction industry, we are not restricted in this regard and may house workers from all industries. As we serve companies from diverse industries such as the marine, engineering, oil and gas, and construction industries, we are less affected by economic fluctuations or government policies affecting any one industry. We have the discretion to decide whether or not to increase or reduce the percentage of units tenanted out to any one industry, depending on our view of the stability of companies in such an industry. This diversification of customer base and ability to limit our exposure to any one industry insulates us, to a certain extent, from being overly reliant on any particular industry. Relationships with existing customers Many of our existing customers have been housing their foreign workers with us since we acquired Westlite Dormitory in We believe that our customers are satisfied with the facilities at our dormitory and with the management and operation of our dormitory and we believe that we have a good relationship with our customers. We constantly strive to maintain and improve on this relationship with our customers. 8. PROSPECTS The following discussion about Westlite s prospects includes forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those that may be projected in these forward-looking statements. Please refer to the Section entitled Cautionary Note On Forward Looking Statements of this Circular. A-9

85 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE Prospects and Trend Information The following discussion is based on the information set out in the Singapore Foreign Worker Dormitory Market Study by the Industry Expert set out in Appendix H of the Circular. The worker dormitory market in which Westlite operates is characterised by strong underlying demand for foreign workers on the one hand, and a limited supply of available sites for worker dormitory accommodation on the other, resulting in a demand / supply imbalance as reflected by near 100% occupancy levels within the industry and by rising rental rates. Underlying demand for foreign workers is driven primarily by economic expansion, with Singapore s gross domestic product ( GDP ) experiencing a 14.5% year-on-year (y-o-y) growth in 2010, and forecasted to grow further in 2011 by 4.0 to 6.0%. This GDP growth has in turn been driven largely by expansion in the manufacturing and construction sectors. In 2010, the manufacturing sector remained the single largest contributor to Singapore s GDP (at 26.5% of GDP in 2010 and 23.4% in 2009), on the back of strong performance from the electronics sector; while the construction sector contributed 3.9% to Singapore s GDP in 2010 (4.2% in 2009). Both sectors are heavily reliant on foreign labour, which accounts for about 48% and 70% of the total workforce within the manufacturing and construction industries in Singapore respectively. Against this backdrop of strong economic growth, demand for foreign workers is further reinforced by (i) Singapore s historically and continuing heavy reliance on foreign workers within its construction, manufacturing, marine and processing industries; (ii) Singaporeans aversion to jobs typically undertaken by foreign workers; and (iii) the relatively lower labour cost of foreign workers compared to local ones. The Singapore government has attempted to temper this strong demand for foreign workers by increasing foreign worker levies (most recently on 18 February 2011). Despite this levy hike, the estimated cost of hiring a foreign worker is still relatively lower (10.5% to 41.5% lower) than hiring a local worker for unskilled and semi-skilled jobs. Meanwhile, the supply side continues to be constrained by a lack of suitable worker dormitory sites allocated by the authorities. Potential sites close to residential areas have encountered public resistance, while sites in more isolated locations suffer from a lack of access to amenities and supporting infrastructure. Sites in some industrial areas may also not qualify, due to the presence of potential contaminants. Notwithstanding the shortage of worker dormitories, the authorities have in recent years taken stricter measures against employers who fail to provide appropriate accommodation for their foreign workers, in a bid to reduce illegal housing for such workers, which has the effect of bolstering demand for approved workers dormitory accommodation. The market imbalance between high total demand for worker dormitories (estimated at 429,116 foreign workers) and limited supply (of about 151,618 beds) has led to constant rental rate increases and increasing capital values of foreign worker dormitories. This is likely to be sustainable in the short term, while the medium to longer term may see more private players enter the market. Based on the foregoing and barring any unforeseen circumstances, our director is of the view that the future prospects for Westlite s business will generally remain positive, and is optimistic about the continued sustainability and growth of Westlite s business. Our major costs and expenses include staff costs, interest on borrowings, utilities, outsourced services including security and cleaning and maintenance and repairs. Barring unforeseen circumstances, our director generally does not expect a major increase in these costs other than in line with general inflation. A-10

86 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE Order book Due to the nature of our business where our lease agreements with our customers are for one to two year terms and are typically renewed two to three month before expiry of the term, we do not have an order book. 9. BUSINESS STRATEGY AND FUTURE PLANS Westlite s objective is to be a leading foreign worker dormitory operator in Singapore and the region by providing foreign workers with quality accommodation in a safe and conducive living environment. To this end, we intend to achieve this objective through the following plans: (a) Increase the bed capacity in Westlite Dormitory On 9 March 2011, Westlite was granted Written Permission by the URA for the increase of the Westlite Dormitory s plot ratio from 2.0 to 3.2. The approved plot ratio of 3.2 would allow us to upgrade Westlite Dormitory and increase its capacity from approximately 5,300 beds to approximately 8,000 beds. The upgrading works would involve the demolition of part of the Westlite Dormitory which currently houses approximately 40 dormitory units and commercial spaces, and the construction of a new 18-storey block. As at the Latest Practicable Date, the Upgrading Works have yet to commence. The plans for the 18-storey block, the costs of development and construction and the timing of the Upgrading Works have yet to be finalised. The current plan is for the Upgrading Works to commence in Construction is estimated to take 12 to 18 months. However, depending on market conditions, operational requirements and other factors, we may commence the Upgrading Works earlier. Under the terms of the Written Permission, the Upgrading Works need to be completed by 9 March If necessary, we will seek an extension of the Written Permission. Based on current plans and current costing, the cost of the Upgrading Works is presently estimated to be in the range of S$35 million to S$40 million (inclusive of construction costs, professional fees, development charges and/or premiums payable to the SLA). However, such costs may change depending on various factors such as the final design and building plans, professional fees and construction costs at the time of carrying out the Upgrading Works. The Upgrading Works will be subject to obtaining of building permit and other approvals. Westlite intends to finance the Upgrading Works through internal resources and external borrowings. It has obtained bank financing of S$40 million from DBS Bank Ltd to finance the payment of the differential premium as well as the other costs of the Upgrading Works. Subject to final plans, it is estimated that 40 dormitory units and the commercial spaces will be demolished as part of the Upgrading Works. The estimated loss of income from these affected units and commercial spaces is estimated to be approximately 15% of the total revenue per year. It is possible that tenancy of some operational dormitory units (other than the dormitory units to be demolished) may be affected due to the construction activities and disruption caused by the Upgrading Works but we are unable to assess the impact at this point. Please refer to the risk factor The Upgrading Works may have an impact on our business operations and financial position in section 10 of this Letter to Shareholders from Westlite for more details. A-11

87 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE (b) Grow our dormitory portfolio through the acquisition of dormitory assets and/or development of new dormitories We are constantly on the lookout for opportunities to acquire additional dormitory assets to grow our dormitory portfolio in Singapore and overseas. In this regard, we intend to acquire existing dormitory assets and suitable land sites that can be developed as worker dormitory or assets that can be converted for worker dormitory use. We may carry out such acquisitions and investments, either on our own or through strategic relationships or ventures with suitable partners. (c) Provide worker dormitory management services to third party dormitory owners and investors Worker dormitories have become an investment asset class in Singapore which attracts investors such as institutional or financial investors who have limited experience in managing dormitories. Leveraging on our management expertise, we intend to seek opportunities to manage worker dormitories owned by these investors. The extensive network and contacts of our management and controlling shareholders would allow us to seek out such management opportunities. We may also enter into strategic relationships or ventures with suitable partners to carry out management of dormitories owned by third parties. (d) Expand our presence to the region by leveraging on the strong network of our controlling shareholder Our controlling shareholder is Centurion, which is a company within the Centurion Group. The Centurion Group has business holdings and connections throughout the region which provide us with a valuable network of contacts to source for opportunities in the region. The Proposed New Directors, Wong Kok Hoe and Bin Hee Din Tony, are the Chief Operating Officer of Centurion Global Ltd, the parent company of the Centurion Group, and the Chief Executive Officer of Centurion, respectively. We intend to leverage on the regional network of the Centurion Group to seek out opportunities for expansion and growth. Our overseas expansion and growth will include investments in and management of worker dormitories and related businesses. Countries that may provide us with such opportunities include Malaysia, China, Vietnam as well as certain Middle East countries. 10. RISK FACTORS A. Risks relating to the business of Westlite in the worker dormitory industry Our business may be affected by policy changes in Singapore which reduce the number of foreign workers The worker dormitory industry in Singapore is dependent on the presence of a certain transient population of foreign workers in Singapore and is also subject to the policies (including those governing foreign worker levies and the granting of work permits) imposed by the Ministry of Manpower or other governmental bodies. Any change in such policies which increases the foreign worker levies payable by companies employing foreign workers in Singapore or which reduces the number of work permits granted to foreign workers could result in a reduction of foreign workers in Singapore. In addition, there could be pressure to reduce the number of foreign workers present in Singapore to minimise any potential social problems that may arise with a large foreign worker presence. If such policy changes materialise, these could reduce the population of foreign workers in Singapore leading to a reduced demand for our dormitory accommodation. A-12

88 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE The uncertain global economic outlook may adversely affect our business operations, financial condition, prospects and future plans Since 2008, disruption in global credit markets, coupled with a repricing of credit risks, and a slowdown in the global economy have created increasingly difficult conditions in the financial markets. These developments have resulted in historic volatility in equity securities markets, tightening of liquidity in credit markets, widening of credit spread and loss of market confidence. Most recently, these developments have resulted in the failure of a number of financial institutions in the United States and unprecedented actions by governmental authorities and central banks around the world. There is a potential for new laws and regulations regarding lending and funding practices and liquidity stands, and governments and bank regulatory agencies are expected to be aggressive in adopting such new measures in response to concerns and identified trends. It is difficult to predict how long these developments and measures will exist and how our markets and businesses may be affected. These developments may be exacerbated by persistent volatility in the financial sector and the capital markets or concerns about, or a default by, one or more institutions which could lead to significant market wide liquidity problems, losses or defaults by other institutions. Accordingly, these developments and measures could potentially present risks to us for an extended period of time, including a slowdown in securing new customers, increase in interest expenses on our bank borrowings, or reduction of the amount of banking facilities currently available to us, our customers and our suppliers, thereby adversely affecting our future financial performance or results of operations. We may be adversely affected by changes in the social, economic or political conditions in Singapore and globally Our business may be materially and adversely affected by local and global developments in relation to inflation, bank interest rates, government policies and regulations and other conditions which impact on social, economic and political stability. We have no control over such conditions and developments and there is no assurance that such conditions and developments will not occur and adversely affect our business operations. Westlite is dependent on the industries our customers operate in Westlite is dependent on the industries in which our customers operate in. Our customers comprise companies that rent our dormitory units to house their foreign workers. As at the Latest Practicable Date, such customers principally comprise companies operating in the marine, engineering, oil and gas, and construction industries in Singapore. As such, Westlite will be affected by the cyclical changes of such industries in Singapore. A downturn in these industries may result in fewer marine, engineering, oil and gas or construction projects which may lead to a fluctuation of the number of foreign workers brought into Singapore to work on such projects. A downturn may also halt existing projects thereby causing existing foreign workers to be repatriated to their home countries due to a lack of suitable employment for them. We are subject to policies of foreign governments on the employment of foreigners Our dormitory provides housing for foreign workers employed in Singapore. As such, demand for our services and dormitory will depend on the presence of sufficient numbers of foreign workers in Singapore. The employers of these foreign workers may have to comply with the rules and conditions imposed by the immigration and other authorities of the different countries from where the foreign workers come from, with regard to the employment of these foreigners to work in Singapore. Any future changes to the policies of the immigration department of any country that restricts their travel and employment may adversely affect the numbers of foreigners of that nationality who are employed to work in Singapore. In the event that suitable replacements from other countries cannot be obtained, this may affect the number of foreign workers in Singapore, and hence the occupancy rate of our dormitory and our business operations. A-13

89 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE Our business may be affected by changes in regulations relating to the worker dormitory industry The worker dormitory industry in Singapore is subject to various government regulations which regulate general matters such as compulsory land acquisition, urban redevelopment and planning, as well as restrictions on the design, construction and use of properties as worker dormitories in particular. Compliance with such regulations may increase our cost of operations. Changes in laws and governmental regulations relating to real estate including those governing usage, zoning, taxes and government charges may lead to an increase in the costs of managing our dormitory or unforeseen capital expenditure in order to ensure compliance. Our usage of the worker dormitory may also be restricted by legislative actions, such as revisions to the relevant building standards laws, city planning laws, or the enactment of new laws relating to the use and/or redevelopment of properties. In addition, the government may introduce policies concerning the worker accommodation industry in general or restrictions on areas that can be used for worker dormitories, which could have a material adverse effect on our financial condition and results of operation. We face competition from our competitors and new entrants We may face competition and price-cutting pressures from our competitors. Further, such competition may increase due to the entry of new players in the worker accommodation industry or completion of new dormitory developments. If we are unable to respond competitively, the occupancy rate at our dormitory could fall and our profitability and financial performance will be adversely affected. Any failure by us to compete effectively with our existing and future competitors and to adapt to changing market conditions and trends and remain competitive will adversely affect the demand for our business, results of operations and financial condition. We are exposed to increases in property expenses and other operating costs Factors that could increase Westlite s property expenses and other operating expenses include: increases in property taxes and other statutory charges; changes in statutory laws, regulations or government policies which increase the cost of compliance with such laws, regulations or policies; increase in insurance premiums; increase in the rate of inflation; increase in labour costs; increase in repair and maintenance costs; and increase in management costs and utility charges. There can be no assurance that should the property expenses and operating expenses increase, such increase will not have a significant impact on our business and financial position. A-14

90 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE Losses or liabilities from latent building or equipment defects may adversely affect our business and financial performance Our Westlite Dormitory was constructed in Whilst we have not experienced any material building or equipment defects (other than that arising from normal wear and tear) since we acquired Westlite Dormitory in 2008, any design, construction or other latent property or equipment defects in our dormitory, should they arise, may require additional capital expenditure, special repair or maintenance costs or the payment of damages or other obligations to third parties. Costs or liabilities arising from such property or equipment defects may involve significant and potentially unpredictable patterns and levels of expenditure which may have a material adverse effect on our earnings and cash flows. The contractual representations, warranties and indemnities given to us by the vendor of the Westlite Dormitory have already lapsed. In addition, statutory representations, warranties and indemnities given to us by the vendor of the Westlite Dormitory or statutory or contractual representations, warranties and indemnities given to us by any supplier of equipment may not accord satisfactory protection from costs or liabilities arising from such property or equipment defects. Furthermore, if we are unable to repair any latent defects in our dormitory or carry out structural repairs, there may be an impact on our ability to rent out the units at our dormitory, which will have an adverse impact on our business and financial performance. Our business operations may be affected by an outbreak of severe acute respiratory syndrome ( SARS ) or an outbreak of any other contagious or virulent disease The outbreak of SARS or other contagious or virulent diseases in Singapore or other parts of the world will disrupt global and regional businesses. Such an outbreak will have a material adverse effect on our operations, as well as the operations of our customers, such as the shutting down of the dormitory and quarantining workers in the event the residents in our dormitory are infected with SARS or other diseases to prevent the spread of such diseases. In addition, the suspension of operations by our customers may result in cashflow problems for them, potentially leading to a delay or default in payment of rental to Westlite. If any of these should arise, our business and results of operations would be adversely affected. Westlite may suffer material losses in excess of insurance proceeds We are insured against claims from accidental bodily injury, loss of or damage to buildings, losses from business interruption, and public liability up to certain limits. However, in the event that the amount of such claims exceed the coverage of the insurance policies which we have taken up, we may be liable for the shortfall. Our Westlite Dormitory could suffer catastrophic losses such as physical damage caused by fire or other causes or we could suffer public liability claims, all of which may result in losses (including loss of rent) that may not be fully compensated by insurance policies. In addition, certain types of risks (such as terrorism, war risk and losses caused by the withholding of supply, such as utilities, by a supply authority and contamination or other environmental breaches) may be uninsurable, become uninsurable or the cost of insurance may be prohibitive when compared to the risk. Currently, our insurance policies do not cover certain types of risks such as acts of war and terrorism. Should we experience an uninsured loss or losses in excess of limits stipulated in our insurance policies, we could be required to pay compensation and/or lose capital invested in our property as well as anticipated future revenue from our property. In addition, we may also be liable for any debt or other financial obligation related to that property. No assurance can be given that material losses in excess of insurance proceeds will not occur in the future. If such event happens, our results of operations and financial position will be adversely affected. A-15

91 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE B. Other Risk Factors Relating to Westlite We currently own a single asset with a limited operating life span for our worker dormitory Currently, our sole operating asset is the Westlite Dormitory. Westlite Dormitory is built on part of a larger land parcel sold by the Urban Redevelopment Authority of Singapore in 1997 on a 60-year leasehold which is zoned Clean and Light Industrial. The land parcel on which Westlite Dormitory is built has been approved for worker dormitory use for 30 years from 12 Sept 2002, after which, it shall revert to Clean and Light Industrial Use. In the event that we are, for any reason, unable to continue operating the Westlite Dormitory, or if we are unable to acquire or set up additional dormitories or businesses and operations prior to the reversion of the land where Westlite Dormitory is built on to Clean and Light Industrial Use after 30 years, we would cease to have business operations and our financial position would accordingly be adversely affected. We are exposed to risk of illegal immigrants found at our dormitory Under the Immigration Act (Chapter 133) of Singapore, any person who is found guilty of harbouring illegal immigrants shall be subject to imprisonment or fine, or both. Landlords who rent out their premises to foreign tenants are required by law to ensure that these tenants have valid permits and/or passes to stay in Singapore before renting out their premises and landlords are required to perform checks to ensure that the premises are not let out to illegal immigrants. Our dormitory caters to the housing needs of foreign workers employed in various industries in Singapore, primarily the marine, engineering, oil and gas, and construction industries. We are accordingly required to ensure that the foreigners residing in our dormitory are not illegal immigrants. We have taken precautionary measures to ensure that the persons residing at our dormitory have the necessary work passes/permits, such as issuing the access passes to workers registered as residents of our dormitory, conducting regular checks on the validity of their work passes/permits. Although we have not previously been found guilty of harbouring illegal immigrants, we cannot assure you that such measures are foolproof or that no illegal immigrants will be found at our dormitory or dormitories in the future. We may fail to implement successfully our growth and expansion strategies As set out in the section entitled Business Strategy and Future Plans in this Letter to the Shareholders from Westlite, we intend to explore and/or pursue various expansion and growth initiatives. Our growth and future success will be dependent on, amongst others, the successful completion of such expansion and growth initiatives proposed to be undertaken by us and the sufficiency of demand for our services. There is no assurance that these initiatives undertaken will achieve results that commensurate with our investment costs or that we will be successful in securing new customers. Should we fail to implement our expansion plans or there is insufficient demand for our services, our business, results of operation and financial position will be materially and adversely affected. The Upgrading Works may have an impact on our business operations and financial position The actual cost for our Upgrading Works may be different from our current estimates. In the event that the actual cost is higher than our current estimated cost, our financial position could be adversely affected. The Upgrading Works will entail the demolition of a number of our dormitory units and commercial spaces. The loss of income from such affected units could have an adverse effect on our business and financial position. In addition, tenancy of some operational dormitory units may also be affected by the construction activities and disruption caused by the Upgrading Works and this could have an adverse effect on our business and financial position. A-16

92 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE We may face uncertainties associated with the expansion of our business We intend to explore strategic alliances, acquisitions or investment opportunities (in Singapore and overseas) in businesses that are complementary to our business. Expansion involves numerous risks, including but not limited to the financial costs of setting up overseas operations and working capital requirements. There can be no assurance that our expanded operations will achieve a sufficient level of revenue which will cover our operational costs and if we fail to manage such costs, our profitability and financial position may be adversely affected. Participation in strategic alliances, acquisitions or investments similarly involves numerous risks, including but not limited to difficulties in assimilation of the management, operations, services, products and personnel and the possible diversion of management attention from other business concerns. The successful implementation of our growth strategies depends on our ability to identify suitable partners and the successful integration of their operations with ours. There can be no assurance that we will be able to execute such growth strategies successfully and as such, the performance of any strategic alliances, acquisitions or investments could fall short of expectations. Our acquisition or future acquisitions may be subject to risks and may not yield expected returns While we believe that reasonable due diligence investigations and feasibility studies have been conducted with respect to our property, there can be no assurance that our property or future acquisitions will not have defects or deficiencies requiring significant capital expenditure, repair or maintenance costs, or payment or other obligations to third parties. Certain building defects and deficiencies may be difficult or impossible to ascertain due to the limitations inherent in the scope of the inspections, the technologies or techniques used and other factors. We are subject to restrictions imposed pursuant to our financing arrangements The financing agreement(s) of Westlite contain certain restrictive and financial covenants, in particular, an obligation to maintain a positive networth and an undertaking that the market value of the Westlite Dormitory must not at any time be less than 125% of the total indebtedness (failing which Westlite would need to provide additional security or prepay the loan). Westlite has not breached any such restrictive and financial covenants. These covenants may limit our ability to operate or expand our business in the manner we would otherwise choose. Further, should we breach any financial or other covenants contained in any of our financing agreement(s), we may be required to immediately repay our borrowings together with any related costs, which could adversely impact our business and financial performance. We face risks associated with debt financing and may require additional financing in future We are subject to the risks associated with debt financing, including the risk that our cash flow will be insufficient to meet required payments of principal and interest under such financing. We may need to obtain additional debt or equity financing to fund our business operations, acquisitions or capital expenditure in the future. Additional equity financing may result in dilution to the holders of our shares and hence our contribution to the Company. Additional debt financing may include conditions that would restrict our freedom to operate our business, such as conditions that: limit our ability to pay dividends or require us to seek the lenders consent for payment of dividends; A-17

93 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE impose restrictions on acquisitions of new businesses; require us to set aside a portion of cash flow from business operations towards repayment of our debt, thereby reducing the availability of our cash flow to fund capital expenditure, working capital and other general corporate purposes; and/or limit our flexibility in planning for, or reacting to, changes in our business and industry. We cannot ensure that we will be able to obtain any additional financing on terms that are acceptable to us, or at all. Failure to obtain additional financing on favourable terms will result in us foregoing expansion opportunities and this could affect our business materially and adversely. Furthermore, if prevailing interest rates or other factors at the time of refinancing result in higher interest rates upon refinancing, the interest expense relating to such refinanced indebtedness would increase, which would adversely affect our cash flow. An increase in interest rates, especially for a prolonged period, could have a material and adverse effect on our business and financial performance. We may be affected by changes to tax laws and tax rates There is no assurance that the taxes which we are subject to will remain as forecast and projected. Our tax expenses may increase due to reasons including but not limited to the following: increase in applicable tax rates; changes to the basis of assessment for the applicable taxes; and changes to the tax legislation. There can be no assurance that should the taxes increase, such increase will not have a significant impact on our business and financial position. We may be affected by legal proceedings which may arise from our development of dormitories We may be involved in disputes with various parties involved in the development of new dormitory projects or upgrading of our existing dormitory such as contractors, subcontractors, suppliers, construction companies and other parties. Such disputes may lead to legal or arbitration proceedings, and may cause us to suffer additional costs and delays. In addition, whilst we do not currently have and have not previously had disputes or disagreements with regulatory bodies during the course of our operations, in the event that such disputes or disagreements arise, we may be subjected to administrative proceedings and unfavourable decrees that result in financial losses and delays in the construction or completion of our projects or upgrading works. We are exposed to the risk of loss from natural disasters and other events outside our control that affect the place where our dormitories are or may be located We face the risk of loss or damage to the Westlite Dormitory and such other dormitories or properties that we may own or lease from time to time due to riots, fire, theft and natural disasters including but not limited to earthquakes and floods. The occurrence of any of the aforesaid where our properties or customers are located could interrupt our business. Such events may cause disruptions or cessation in our operations, and thus adversely affect our financial results. A-18

94 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE 11. MANAGEMENT DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF WESTLITE 11.1 Selected Audited Financial Information of Westlite Shareholders should read the following audited financial information of Westlite presented below in conjunction with the audited financial statements of Westlite found in Appendix D. A summary of the results of operations of Westlite in respect of FY2008, FY2009 and FY2010 is set out below: Results of Operations of Westlite FY2008 FY2009 FY2010 S$ S$ S$ Revenue 8,955,215 12,087,286 12,020,114 Other Items of income Interest income 2,517 4,729 3,794 Other credits 20,572 3,597 Items of expense Depreciation 1,572,025 1,572,934 1,575,405 Employee benefits expense 267, , ,112 Management fee 440, , ,000 Property tax 431, , ,000 Administrative expense 778, , ,637 Other expenses 28,601 49,168 26,160 Other charges 1,340 Finance costs 1,170,463 1,321,069 1,176,892 Profit before income tax 4,268,422 7,099,699 7,116,299 Income tax expense 1,019,662 1,437,189 1,435,767 Profit net of tax and Total Comprehensive Income for the year 3,248,760 5,662,510 5,680,532 EPS (1) Note: (1) The basic EPS for the financial years under review is computed based on the profit net of tax for the financial year and the issued share capital of Westlite of 1,000,000 shares. A-19

95 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE The financial position of Westlite as at 31 December 2010 is set out below: Financial Position of Westlite As at 31 December 2010 S$ ASSETS Non-Current Assets Plant and Equipment 124,500 Investment Property 57,308,036 Total non-current assets 57,432,536 Current Assets Other receivables 72,934 Cash and cash equivalents 2,902,520 Total current assets 2,975,454 Total Assets 60,407,990 EQUITY AND LIABILITIES Share capital 1,000,000 Retained earnings 4,183,710 Equity 5,183,710 Shareholders loans 17,094,600 22,278,310 Non-current Liabilities Deferred tax liabilities 1,797 Other financial liabilities 30,711,130 Total non-current liabilities 30,712,927 Current Liabilities Income tax payable 1,639,730 Trade and other payable 2,310,367 Other financial liabilities 3,466,656 Total current liabilities 7,416,753 Total Liabilities 38,129,680 Total Liabilities and Equity 60,407,990 Net Asset Value ( NAV ) per share (1) Note: (1) The NAV per share is computed based on the total equity of S$22,278,310 (which comprises the equity of the company of S$5,183,710 and the shareholders loans of S$17,094,600 being assumed capitalised into equity) as at 31 December 2010 and the issued share capital of Westlite of 1,000,000 shares. Based on total equity of S$5,183,710 and after adjusting for the surplus arising from revaluation of the Westlite Dormitory and the Premises on a redevelopment basis (at a plot ratio of 3.2) as at 31 December 2010 of S$62,691,964, and assuming that the shareholders loans of S$17,094,600 is capitalised into equity, the revalued net asset value of Westlite is S$84,970,274. The shareholders loans will be assigned to the Company upon completion of the Westlite Acquisition. Please refer to Shareholders loan under the section entitled Capitalisation and Indebtedness of this Letter to Shareholders from Westlite for more details. A-20

96 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE 11.2 Management Discussion and Analysis of The Results of Operations and Financial Condition of Westlite Shareholders should read the following discussion and analysis of financial condition and results of operations of Westlite in conjunction with its financial statements included in Appendix D of this Circular. Overview We are engaged in the business of providing foreign worker accommodation and related services. We own and operate Westlite Dormitory located at 12 to 28 Toh Guan Road East, which we acquired in February We derive our income primarily from rental of foreign worker dormitory units to our customers from various industries including the marine, engineering, oil and gas, and construction industries. These companies house their foreign workers that they employ in our dormitory, which is one of the approved dormitories for workers as listed on the website of the Ministry of Manpower Our standard lease agreements for rental of dormitory units are generally for one to two years, and are signed with such companies, and not with individual foreign workers. Rentals are charged on per dormitory unit basis, irrespective of the number of workers housed in each unit but is capped at 12 workers per dormitory unit. The majority of our customers are required to pay a rental deposit of two months and rentals are payable monthly in advance. The majority of payments are made via electronic direct debit payment system. We also derive rental income by leasing commercial spaces to third party operators to operate a canteen, a provision shop and a barber shop. Some space is also leased to a third-party company as an office. These commercial spaces and office space are within the compound of the Westlite Dormitory. Our current commercial lease contracts are for one year. Revenue Our revenue consists of rental income from investment property, conservancy income from investment property, and other revenue. Our rental income and conservancy income are mainly earned through the rental of our dormitory units to our customers, and are recognised in accordance with the terms of the relevant agreements unless, having regard to the substance of the agreement, it is more appropriate to recognise revenue based on some other systematic and rational basis. We also earn rental income and conservancy income from leasing commercial spaces to third party operators to operate a canteen, a provision shop and a barber shop. Some space is also leased to a third-party company as an office. Rental and conservancy income from leasing out commercial spaces amounted to 4.1%, 3.3% and 3.3% of total rental and conservancy income for FY2008, FY2009 and FY2010 respectively. The following tables sets forth the breakdown of our rental and conservancy income in FY2008, FY2009 and FY2010 between rental of worker accommodation and commercial spaces: A-21

97 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE FY2010 Worker accommodation Commercial spaces (S$) (S$) Rental income from investment 6,622, ,800 property Conservancy income from 4,777,283 6,000 investment property Total 11,399, ,800 FY2009 Worker accommodation Commercial spaces (S$) (S$) Rental income from investment 6,631, ,445 property Conservancy income from 4,813,819 6,000 investment property Total 11,444, ,445 FY2008 Worker accommodation Commercial spaces (S$) (S$) Rental income from investment 4,500, ,400 property Conservancy income from 3,881,662 5,500 investment property Total 8,382, ,900 Rental vs conservancy income Our dormitory units and commercial spaces are rented out on a gross rental basis which is split into two components: rental income and conservancy income. Rental income refers to income derived from the rental of dormitory units and commercial spaces to our customers. Conservancy income refers to income derived from the provision of ancillary services such as cleaning and maintenance of common areas, security services, and provision of furniture and fittings within the dormitory units. Our other revenue includes revenue from renting out spaces for service provider roadshows, administrative fees (such as those charged for preparing lease documents and premature termination of leases), penalties for violating dormitory rules, fees charged for making residents security passes and utilities connection fees. A-22

98 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE The following table sets forth the breakdown by segment of our revenue in FY2008, FY2009 and FY2010: FY2008 FY2009 FY2010 S$ % S$ % S$ % Revenue Rental income from investment property 4,856, % 7,015, % 7,005, % Conservancy income from investment property 3,887, % 4,819, % 4,783, % Other revenue 211, % 251, % 231, % Total revenue 8,955, % 12,087, % 12,020, % Factors affecting rental income and conservancy income The factors that affect rental income and conservancy income include: Rental rates We charge rental of worker accommodation in Westlite on a per dormitory unit basis. Our rental rates for dormitory units are dependent on, inter alia: (i) (ii) demand for worker dormitory accommodation which is in turn dependent on the general economic environment, the general demand for foreign workers in Singapore, and our reputation for providing a safe and conducive living environment for foreign workers, and supply of worker dormitory accommodation which is in turn dependent on the level of competition from other providers of worker accommodation including our rental rates and other attributes such as location, accessibility, amenities, etc vis-à-vis our competitors, and the availability of alternative forms of accommodation for foreign workers. Our unit rates vary and are adjusted from time to time, depending on a number of factors such as the conditions in the dormitory industry, demand for the dormitory units and the unit rate offered by our competitors. Occupancy of our dormitory units We enjoy strong demand for our dormitory units in the past three financial years. In FY2008 and FY2010, our dormitory units were fully rented out except for the brief downtime of between one to three days when units were vacated in preparation for new residents. In FY2009, 11 units were vacant for about one month due to a cancellation by a customer. A-23

99 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE Operating Expenses Our total operating expenses amounted to approximately S$3.52 million, S$3.70 million and S$3.73 million in FY2008, FY2009 and FY2010 respectively. Our operating expenses comprise the following: FY2008 FY2009 FY2010 S$ % S$ % S$ % Operating expenses Depreciation 1,572, % 1,572, % 1,575, % Employee benefits expense 267, % 322, % 347, % Management fee 440, % 370, % 360, % Property tax 431, % 477, % 650, % Administrative expenses 778, % 898, % 775, % Other expenses 28, % 49, % 26, % Other charges 1, % Total operating expenses 3,518, % 3,691, % 3,734, % Depreciation Depreciation expenses consisted of depreciation on investment property and plant and equipment such as air-conditioners, computers, furniture and fittings, and equipment. Westlite s depreciation expenses amounted to approximately S$1.57 million for each of FY2008, FY2009 and FY2010 respectively. The following table sets forth the details of our depreciation in FY2008, FY2009 and FY2010: FY2008 FY2009 FY2010 S$ % S$ % S$ % Depreciation Investment Property 1,548, % 1,548, % 1,548, % Plant and Equipment 23, % 24, % 26, % Total Depreciation 1,572, % 1,572, % 1,575, % Employee benefits expense Employee benefits expense consisted mainly of salaries, bonuses, staff medical benefit and welfare, and related statutory contributions for employees. Westlite s employee benefits amounted to S$267,969, S$322,840 and S$347,112 in FY2008, FY2009 and FY2010 respectively. Management fee The management fee paid by Westlite to Centurion amounted to S$440,000, S$370,000 and S$360,000 in FY2008, FY2009 and FY2010 respectively. This represented approximately 4.9%, 3.1% and 3.0% of Westlite s revenue in FY2008, FY2009 and FY2010 respectively. A-24

100 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE Management fee is paid to Centurion for services rendered in such areas as general administration, financial and accounting and general operations. Management fee paid amounted to S$40,000 per month from February 2008 to January 2009 and was revised to S$30,000 per month from February Please see the section entitled Interested Person Transactions in this Letter to Shareholders from Westlite for more details. Property tax Property tax was based on the annual value of our investment property as assessed by the Inland Revenue Authority of Singapore. Administrative expenses Our administrative expenses consisted of cleaning expenses, security and card system expenses, bank charges (such as charges relating to electronic direct debit payment system and commitment fees), utilities expenses, upkeep of dormitory expenses, GST expense (which is payable based on the excess of rental income from dormitory units over the annual value of our investment property), and tenant welfare expenses (such as sick bay expense and expenses relating to provision of entertainment for our residents). The following table sets forth the details of our administrative expenses in FY2008, FY2009 and FY2010: FY2008 FY2009 FY2010 S$ % S$ % S$ % Administrative expenses Bank charges 112, % 1, % 1, % Cleaning expenses 158, % 184, % 187, % GST expense 37, % 141, % 31, % Security & card system expenses 141, % 157, % 165, % Service rendered 48, % 57, % 59, % Upkeep - Dormitory 70, % 157, % 91, % Utilities 101, % 119, % 141, % Tenant welfare 9, % 21, % Others 107, % 69, % 74, % Total administrative 778, % 898, % 775, % expenses Other expenses Other expenses refer to costs related to earning our other revenue as described in the section Revenue above. Other charges Other charges refer to loss on disposal of plant and equipment. A-25

101 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE Finance Costs The finance costs comprised of interest expenses on our bank borrowings and shareholders loans. The details of finance costs for FY2008, FY2009 and FY2010 are set out below: FY2008 FY2009 FY2010 S$ % S$ % S$ % Finance costs Interest expense on loans payable to shareholders 469, % 512, % Interest expense on bank term loans 1,170, % 851, % 664, % Total finance costs 1,170, % 1,321, % 1,176, % Our finance costs amounted to S$1.17 million, S$1.32 million and S$1.18 million for FY2008, FY2009 and FY2010 respectively. Income Tax Expense Our income tax expense amounted to S$1.02 million, S$1.44 million and S$1.44 million for FY2008, FY2009 and FY2010 respectively. Westlite s effective tax rates of 23.9%, 20.2% and 20.2% for FY2008, FY2009 and FY2010 respectively were higher than the statutory corporate tax rate as depreciation on investment property is not a tax allowable expense. FY2009 vs FY2008 Revenue Our revenue increased by approximately S$3.13 million or 35.0% from S$8.96 million in FY2008 to S$12.09 million in FY2009. Rental income and conservancy income from investment property increased by S$3.09 million or 35.4% to S$11.84 million in FY2009 mainly due to (i) recognition of a full year revenue from rental of dormitory units in FY2009 compared to 11 months in FY2008 as we only acquired the Westlite Dormitory in February 2008, and (ii) higher rental rates charged for dormitory units due to overall higher market rental rate and an increase in the cap on number of workers per unit from 10 per dormitory unit to 12 per dormitory unit which allowed us to charge higher rental rates. Other revenue increased by S$40,810 or 19.3% to S$251,925 due to recognition of a full year s revenue in FY2009 compared to 11 months in FY2008. Depreciation Depreciation remained relatively unchanged at S$1.57 million as we did not make any major purchase of plant and equipment in FY2009. Employee Benefits Expense Employee benefits expense increased by S$54,871 or 20.5% from S$267,969 in FY2008 to S$322,840 in FY2009. This increase was mainly due to 12 months operations of our worker dormitories in FY2009 as compared to 11 months in FY2008. In addition, we paid a bonus in FY2009 but did not in FY2008. A-26

102 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE Management Fee Management fees amounted to S$370,000 in FY2009 as compared to S$440,000 in FY2008 as management fee charged was S$40,000 per month from February 2008 to January This was subsequently revised down to S$30,000 per month from February Property Tax Property tax increased by S$45,515 or 10.5% from S$431,933 in FY2008 to S$477,448 in FY2009 mainly as we only operated our worker dormitories for 11 months in FY2008 compared to 12 months in FY2009. Administrative Expenses Administrative expenses increased by S$119,770 or 15.4% from S$778,319 in FY2008 to S$898,089 in FY2009. This increase was mainly due to an increase in cleaning expenses, GST expense, upkeep of dormitory expense, and utilities expenses of approximately S$25,197, S$103,913, S$87,222 and S$17,510 respectively, which was partially offset by a decrease in bank charges of approximately S$110,192. The increase in cleaning, utilities and upkeep of dormitory expenses were mainly due to the operation of our worker dormitories for 12 months in FY2009 as compared to 11 months in FY2008. In addition, the increase in upkeep of dormitory expenses was also due to a one-off cost incurred to increase the water pressure in the dormitory. GST expense increased due to an increase in excess rental revenue over the annual value of the investment property. Other Expenses Other expenses increased by S$20,567 or 71.9% from S$28,601 in FY2008 to S$49,168 in FY2009. This increase was mainly due to an increase in costs relating to provision of services to our residents such as season parking charges at nearby car parks and gas burner and connection fees. Other Charges There was a loss on disposal of plant and equipment amounting to S$1,340 in FY2009 compared to FY2008 when no other charges were recorded. Finance Costs Finance costs increased by S$150,606 or 12.9%, from S$1.17 million in FY2008 to S$1.32 million in FY2009, as Westlite started to pay 3% interest on shareholders loan from February Prior to that, the shareholders loan was an interest free loan extended by our shareholders, Centurion and TPK. The finance costs incurred for the shareholders loan interest was partially offset by lower interest rates on bank loan in FY2009. Profit before Income Tax Our profit before income tax increased by approximately S$2.8 million or 66.3%, from S$4.3 million in FY2008 to S$7.1 million in FY2009 mainly attributable to higher revenue. Income Tax Our income tax expenses increased by S$417,527 or 40.9%, from S$1.02 million in FY2008 to S$1.44 million in FY2009. The increase was primarily attributable to higher taxable income. Profit Net of Tax Our profit net of tax increased by approximately S$2.41 million or 74.3%, from S$3.25 million in FY2008 to S$5.66 million in FY2009 mainly attributable to higher profit before income tax. A-27

103 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE FY2010 vs FY2009 Revenue Our total revenue decreased marginally by S$67,172 or 0.6% from S$12.09 million in FY2009 to S$12.02 million in FY2010. Rental income and conservancy income from investment property together remained relatively unchanged at S$11.84 million in FY2009 and S$11.79 million in FY2010. Due to the recession, some of the new contracts signed in FY2009 necessitated us to give a one-month rebate in rental in the 12 th month or 12 th and 24 th months for one and two-year contracts respectively. These onemonth rebates, which occurred in the 12th month, were accounted for in FY2010. This was offset by higher rental rates achieved in FY2010. Other revenue remained relatively unchanged at S$231,513 in FY2010 compared with S$251,925 in FY2009. Depreciation Depreciation remained relatively unchanged at S$1.57 million as we did not make any major purchase of plant and equipment in FY2010. Employee Benefits Expense Employee benefits expense increased by approximately S$24,272 or 7.5% from S$322,840 in FY2009 to S$347,112 in FY2010. This increase was mainly attributable to higher staff salaries due to increments and bonuses in FY2010 as compared to FY2009. Management Fee Management fees amounted to S$360,000 in FY2010 as compared to S$370,000 in FY2009 as management fee was revised down to S$30,000 per month from February Property Tax Property tax increased by S$172,552 or 36.1% from S$477,448 in FY2009 to S$650,000 in FY2010, mainly due to an increase in annual value of our investment property. Administrative Expenses Administrative expenses decreased by S$122,452 or 13.6% from S$898,089 in FY2009 to S$775,637 in FY2010. This decrease was mainly attributable to our lower GST expenses (due to a decrease in the excess of revenue from rental of worker dormitories over the revised annual value of our investment property) and upkeep of dormitory expenses (due to the absence of cost relating to one-off costs to increase water pressure) of S$109,363 and S$66,102 respectively, which was partially offset by higher utilities expenses and tenant welfare expenses of S$22,425 and S$11,504 respectively. We incurred more tenant welfare expenses as we provided additional welfare for our workers such as gifts and activities in FY2010. Other Expenses Other expenses decreased by S$23,008 or 46.8% from S$49,168 in FY2009 to S$26,160 in FY2010. This decrease was mainly due to the absence of season parking charges at a car park near Westlite Dormitory paid by Westlite. These are costs of sales items which are charged to tenants who require such services. Other charges No other charges were recorded in FY2010 as compared to a loss on disposal of plant and equipment of S$1,340 in FY2009. A-28

104 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE Finance costs Finance costs decreased by S$144,177 or 10.9%, from S$1.32 million in FY2009 to S$1.18 million in FY2010 mainly due to lower bank interest rates, which was partially offset by higher interest expense on shareholders loan. Interest expense on shareholders loan was paid for 12 months in FY2010 compared to 11 months for FY2009. Profit before Income Tax Our profit before income tax remained relatively unchanged at S$7.10 million in FY2010 as compared with FY2009, as a result of revenue and net expenses (total expenses net of other income) remaining relatively unchanged between FY2009 and FY2010. Revenue and net expenses amounted to S$12.02 million and S$4.90 million respectively in FY2010. Income Tax Our income tax expenses remained relatively unchanged at S$1.44 million in FY2010 as compared with FY2009, as profit before tax also remained relatively unchanged at S$7.10 million in FY2010 as compared with FY2009. Profit Net of Tax Our profit net of tax remained relatively unchanged at S$5.68 million in FY2010 as compared with FY2009, as profit before tax also remained relatively unchanged at S$7.10 million in FY2010 as compared with FY2009. (a) Review of Past Financial Position A review of the financial position of Westlite as at 31 December 2010 is set out below: Current Assets As at 31 December 2010, our current assets amounted to S$2.98 million and represented approximately 4.9% of or total assets of S$60.41 million. Our current assets comprised cash and cash equivalents of S$2.90 million and other receivables, which mainly comprised of our refundable deposits for utilities of S$57,100. Non-Current Assets As at 31 December 2010, our non-current assets amounted to S$57.43 million and represented approximately 95.1% of our total assets. Our non-current assets comprised of investment property of S$57.31 million and plant and equipment of S$124,500. Current Liabilities As at 31 December 2010, our current liabilities amounted to S$7.42 million and represented approximately 19.5% of our total liabilities of S$38.13 million. Our current liabilities comprised trade and other payables of S$2.31 million, income tax payable of S$1.64 million and current portion of bank borrowings of S$3.47 million. Trade and other payables comprised trade payable, accrued bank expenses and accrued operating expenses of S$202,051, deposits received from tenants of S$2.09 million and rental received in advance of S$20,876. Non-Current Liabilities As at 31 December 2010, our non-current liabilities amounted to approximately S$30.71 million representing approximately 80.5% of our total liabilities. Our non-current liabilities mainly comprised long-term bank borrowings of S$30.71 million. Our long-term bank borrowings were incurred to finance our investment property. A-29

105 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE Total Equity As at 31 December 2010, our total equity amounted to S$5.18 million and comprised of paid-up share capital of S$1.0 million and retained earnings of S$4.18 million. Shareholders Loans As at 31 December 2010, shareholders loan amounted to S$17.09 million and comprised of S$1.69 million payable to TPK and S$15.4 million payable to Centurion. (b) Liquidity and Capital Resources Westlite s growth and operations have been funded through a combination of shareholders equity, shareholders loan, cash generated from operating activities and external borrowings. Our principal uses of cash have mainly been for meeting our capital expenditures, working capital requirements, operating expenses, repayment of borrowings and financial expenses. Westlite has been servicing our loan repayments on a timely basis. As at the Latest Practicable Date, Westlite has approximately S$4.86 million in cash and cash equivalents. As at the Latest Practicable Date, our director is of the opinion that after taking into account our cash and bank balances, and cash generated from our operating activities, Westlite has adequate working capital to meet our present requirements. Cash from operations is expected to continue to be our primary source of liquidity. Our cash flow summary for FY2008, FY2009 and FY2010 are as follows: FY2008 FY2009 FY2010 S$ S$ S$ Net cash generated from operating activities 8,953,052 9,401,443 8,489,785 Net cash used in investing activities (57,328,944) (13,323) (4,993) Net cash generated from / (used in) financing activities 51,250,677 (8,498,845) (9,543,555) Net increase / (decrease) in cash and cash equivalents 2,874, ,275 (1,058,763) Cash and cash equivalents at beginning of the year 197,223 3,072,008 3,961,283 Cash and cash equivalents at end of the year 3,072,008 3,961,283 2,902,520 FY2008 Net cash generated from our operating activities in FY2008 amounted to approximately S$8.95 million. This mainly comprised of operating cash flows before changes in working capital of S$7.01 million and a net increase in working capital of S$1.94 million which was due mainly to an increase in trade and other payables (attributable to deposits received from tenants). Net cash used in investing activities amounted to approximately of S$57.33 million. This was mainly attributable to the purchases of our investment property of S$61.95 million and plant and equipment of S$171,428. A-30

106 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE Net cash generated from financing activities amounted to approximately S$51.25million in FY2008, due to Westlite taking bank loans of S$40.82 million, the advance of shareholders loan of S$13.10 million (total outstanding shareholders loan as at FY2008 amounted to S$17.09 million as S$3.99 million was extended by our shareholders in 2007 when Westlite was incorporated), interest expense paid of S$1.17 million and dividends paid of S$1.50 million. FY2009 Net cash generated from our operating activities in FY2009 amounted to approximately S$9.40 million. This comprised operating cash flows before changes in working capital of S$9.99 million as well as an increase in trade and other payables of S$221,114, and partially offset by income tax paid of S$836,550. Net cash used in investing activities amounted to only S$13,323 as there was no major purchase during the year except for some additional plant and equipment. Net cash used in financing activities amounted to approximately S$8.50 million in FY2009, mainly due to the dividend payment of S$4.00 million, repayment of bank borrowing of S$3.18 million and interest paid amounting to S$1.32 million. FY2010 Net cash generated from our operating activities in FY2010 amounted to approximately S$8.49 million. This mainly comprised operating cash flows before changes in working capital of S$9.86 million as well as an increase in trade and other payables of S$52,859, and partially offset by income tax paid of S$1.41 million. Net cash used in investing activities was negligible in FY2010 as there was no major purchase during the year except for some additional plant and equipment. Net cash used in financing activities of approximately S$9.54 million in FY2010, mainly due to the dividend payment of S$4.9 million, repayment of bank borrowing of S$3.47 million and interest paid amounting to S$1.18 million Capitalisation and Indebtedness The following table shows Westlite s (i) audited cash and cash equivalents, indebtedness and capitalisation as at 31 December 2010 and (ii) unaudited cash and cash equivalents, indebtedness and capitalisation as at the Latest Practicable Date. You should read this table in conjunction with the Audited Financial Statements of Westlite For the Financial Years Ended 31 December 2008, 2009 and 2010 in Appendix D of this Circular, and the sections entitled Selected Audited Financial Information of Westlite and Management Discussion and Analysis of the Results of Operations and Financial Position of Westlite of this Letter to Shareholders from Westlite respectively. A-31

107 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE Audited Unaudited As at As at the Latest 31 December Practicable 2010 Date (S$) (S$) Cash and cash equivalents 2,902,520 4,861,950 Short-term debts Bank loans, secured 3,466,656 3,466,656 Long-term debts Bank loans, secured 30,711,130 28,977,797 Shareholders Loan 17,094,600 17,094,600 Total indebtedness / borrowings 51,272,386 49,539,053 Total equity attributable to the equity holders of Westlite 5,183,710 8,363,822 Total capitalisation and indebtedness 56,456,096 57,902,875 Bank borrowings As at 31 December 2010, our total borrowings amounted to S$51.27 million, comprising both short-term and long-term bank borrowings of S$34.18 million, and shareholders loans of S$17.09 million respectively. All our bank borrowings are term loans secured by our investment property, assignment of our rental proceeds and insurance, and joint and several guarantees from TPK and Centurion. Out of our total bank borrowings, S$3.47 million was current and payable within 12 months, while S$30.71 million was non-current. The applicable interest rate range for our outstanding bank borrowings was between 1.66% and 2.11% per annum for FY2010. As at the Latest Practicable Date, our total indebtedness was S$49.54 million, comprising both bank borrowings of S$32.44 million and shareholders loans of S$17.09 million. Shareholders loans As at 31 December 2010, shareholders loans totalled S$17.09 million, of which S$1.69 million and S$15.40 million were extended to Westlite by TPK and Centurion respectively. Shareholders loans are unsecured and bear interest at 3.0% per annum. Shareholders loans will be assigned to the Company upon completion of the Westlite Acquisition. Please refer to the section entitled Past Interested Person Transactions of this Letter to Shareholders from Westlite for more details. Maturity Profile The maturity profile of our total bank borrowings of S$34.18 million and S$32.44 million, as at 31 December 2010 and the Latest Practicable Date, respectively are set out as follows: Audited Unaudited As at As at the Latest 31 December Practicable 2010 Date (S$) (S$) Less than 1 year 3,466,656 3,466,656 Within 2 to 5 years 11,599,998 11,200,002 After 5 years 19,111,132 17,777,795 Total bank borrowings 34,177,786 32,444,453 A-32

108 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE Gearing Our gross and net gearing as at 31 December 2010 and the Latest Practicable Date are set out as follows: As at As at the Latest 31 December Practicable 2010 Date Adjusted gross gearing (1) (times) Adjusted net gearing (2) (times) Notes: (1) Adjusted gross gearing is computed based on the ratio of total borrowings to total equity attributable to equity holders of Westlite which comprises the equity of Westlite and the shareholders loans of S$17,094,600 which is assumed to be capitalised into equity. The shareholders loans will be assigned to the Company upon completion of the Westlite Acquisition. Please refer to Shareholders loan under the section entitled Capitalisation and Indebtedness of this Letter to Shareholders from Westlite for more details. (2) Adjusted net gearing is computed based on the ratio of total net borrowings after deducting cash and cash equivalents to total equity attributable to equity holders of Westlite which comprises the equity of Westlite and the shareholders loans of S$17,094,600 which is assumed to be capitalised into equity. The shareholders loans will be assigned to the Company upon completion of the Westlite Acquisition. Please refer to Shareholders loan under the section entitled Capitalisation and Indebtedness of this Letter to Shareholders from Westlite for more details Capital Expenditure and Divestments The majority of Westlite s capital expenditure comprises purchase of leasehold investment property and plant and equipment. The details of such expenditure and investment property for FY2008, FY2009, FY2010 and from 1 January 2011 to the Latest Practicable Date are set out below: From 1 January 2011 to the Latest Practicable FY2008 FY2009 FY2010 Date (S$) (S$) (S$) (S$) Investment property 61,954,633 Plant and equipment 171,428 20,193 8, ,860 Total 62,126,061 20,193 8, ,860 There were no material divestments for the last three financial years ended 31 December 2008, 2009 and 2010 and from 1 January 2011 to the Latest Practicable Date Commitments As at 31 December 2010 and the Latest Practicable Date, our commitment in respect of the differential premium (inclusive of GST and stamp duty) expected to be paid in FY2011 for increasing Westlite s plot ratio from 2.0 to 3.2 times is approximately S$7.4 million, which will be funded from internal resources and bank borrowings Significant changes in accounting policies There has been no significant change in Westlite s accounting policy for the periods under review. For the periods under review, Westlite has adopted the Singapore Financial Reporting Standards. Please refer to Appendix D of this Circular for details of Westlite s accounting policies. A-33

109 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE 11.7 Contingent Liabilities As at 31 December 2010 and the Latest Practicable Date, Westlite does not have any material contingent liabilities Foreign Exchange Exposure Westlite is not exposed to any significant foreign currency risk as our business transactions are primarily denominated in Singapore dollars, which is Westlite s functional currency. 12. DIVIDEND POLICY As at the Latest Practicable Date, Westlite does not have any dividend policy. The declaration and payment of future dividends will be determined at the sole discretion of our board of directors, subject to shareholders approval, and will depend upon Westlite s operating results, financial position, other cash requirements including working capital, capital expenditure, the terms of borrowing arrangements (if any), expansion plans and other factors deemed relevant by our board of directors. In making his recommendation, our director will consider, among other things, Westlite s future earnings, operations, capital requirements, cash flow and financial condition, as well as general business conditions and other factors which our board may consider appropriate. There is no assurance that dividends will be paid in the future. Westlite paid the following dividends in respect of FY2008, FY2009 and FY2010: Net dividends paid FY2008 FY2009 FY2010 Total Per share (1) Total Per share (1) Total Per share (1) (S$) (S$) (S$) 1,500, ,000, ,900, Note: (1) The dividends paid per share are computed based on the share capital of Westlite prior to the completion of the Proposed Transactions of 1,000,000 shares. As at the Latest Practicable Date, Westlite has not paid any dividends in respect of FY EXCHANGE CONTROLS There are no laws or regulations in Singapore that may affect (a) the repatriation of capital, including the availability of cash and cash equivalents for use by the Enlarged Group; and (b) the remittance of profits that may affect dividends, interests or other payment by Westlite to the Company. 14. INTERESTED PERSON TRANSACTIONS In general, transactions between Westlite and any of its interested persons (namely, Westlite s director, chief executive officers, controlling shareholders and/or their associates) are known as interested person transactions. The discussion below sets out Westlite s material transactions with interested persons for FY2008, FY2009, FY2010 and the period from 1 January 2011 up to the Latest Practicable Date (the Relevant Period ). Save as disclosed in this Circular, none of Westlite s director, chief executive officer, controlling shareholders and/or their associates was or is interested, whether directly or indirectly, in any material transaction with Westlite within the Relevant Period. A-34

110 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE 14.1 Past Interested Person Transactions Provision of shareholders loans by Centurion and TPK Between October 2007 and March 2008, each of Centurion and TPK, as the shareholders of Westlite, had advanced to Westlite shareholders loans in the aggregate amounts of S$16,714,600 and S$380,000 respectively in various tranches. The majority of the shareholders loans were utilised by Westlite for the acquisition of Westlite Dormitory and the balance was used for working capital purposes. The shareholders loans are unsecured and with no fixed repayment terms, and were initially advanced on an interest-free basis. With effect from 1 February 2009, interest of 3% per annum was charged on the shareholders loans. Such interest rate was and continues to be favourable to Westlite as compared to the then prevailing bank interest rates for unsecured loans. The amount of the loans outstanding and owed by Westlite to each of Centurion and TPK as at 31 December 2008, 31 December 2009, 31 December 2010 and the Latest Practicable Date are as follows: As at As at As at As at the Latest 31 December 31 December 31 December Practicable Date (S$) (S$) (S$) (S$) Amount outstanding to Centurion 16,534,600 16,032,653 15,400,934 15,043,248 Amount outstanding to TPK 560,000 1,061,947 1,693,666 2,051,352 Whilst there has been no change in the aggregate outstanding amount of shareholders loan owed by Westlite during the Relevant Period, there have been certain assignments by Centurion of a portion of its shareholders loan to TPK in each of the financial years and financial period comprised in the Relevant Period. As at the Latest Practicable Date, Westlite has not repaid any principal portion of the shareholders loans. Interest on the shareholders loans have been paid in respect of FY2009 and FY2010. Interest in respect of FY2011 have been paid on a monthly basis and will be paid up to the date of completion of the Westlite Acquisition. The largest principal amount of the shareholders loans outstanding to Centurion and TPK during the Relevant Period is S$16,534,600 and S$2,051,352 respectively. Such shareholders loans will be assigned by Centurion and TPK to the Company on completion by the Company of its acquisition of the shares in Westlite Present and ongoing Interested Person Transactions (1) Provision of administration, finance and related support services by Centurion With effect from 1 February 2008, Centurion has been providing general administration, financial and accounting and general operational support services to Westlite following the acquisition of the Westlite Dormitory. Such services were initially for a fixed fee of S$40,000 per month (excluding out-of-pocket expenses). Subsequently, on 30 January 2009, such arrangement was formalised and Westlite entered into a contract for the provision by Centurion of such services for a fixed fee of S$30,000 per month with effect from 1 February A-35

111 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE During the first year following the acquisition by Westlite of the Westlite Dormitory, there had been extensive support provided by Centurion in relation to integration, administrative, finance and system setup. Such scope of support services was reduced from the second year onwards, and the fee payable by Westlite to Centurion for such services of S$40,000 per month was consequently reduced to S$30,000 per month with effect from 1 February The arrangement was entered into on an arm s length basis. The total fees paid by Westlite to Centurion pursuant to such arrangement in FY2009, FY2010 and the period from 1 January 2011 up to the Latest Practicable Date are as follows: From 1 January 2011 up to the Latest Practicable FY2008 FY2009 FY2010 Date Fees paid by Westlite to Centurion 440, , , ,000 To facilitate a smooth transaction following the Company s acquisition of the Westlite Shares, such arrangement between Centurion and Westlite will continue for a period of up to six months after completion of the acquisition by the Company of all the shares in Westlite, on similar or more favourable terms. (2) Personal and corporate guarantees by the former directors and a shareholder of Westlite Our former directors, TPK and Chong Nien, have jointly and severally provided a personal guarantee, and our controlling shareholder, Centurion, has provided a corporate guarantee, to secure banking and financing facilities extended by DBS Bank Ltd to Westlite. TPK has on 21 April 2011 ceased to be a director of Westlite. Chong Nien has on 23 June 2011 ceased to be a director of Westlite. Details of the joint and several personal guarantee given by TPK and Chong Nien and the corporate guarantee given by Centurion are as follows: Amount of Largest guaranteed sum amount of outstanding guaranteed as at the Facilities sum during Latest Name of Date of secured by the the Relevant Practicable guarantor guarantee guarantee Period Date (S$) (S$) TPK and Chong 31 January 2008 Term loan facility 44,000,000 32,444,453 Nien (joint and of S$44 million several) granted by DBS Bank Ltd to Westlite Centurion 25 January 2008 Term loan facility 44,000,000 32,444,453 of S$44 million granted by DBS Bank Ltd to Westlite A-36

112 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE Westlite has in June 2011 obtained bank financing of S$40 million from DBS Bank Ltd to finance inter alia, the other costs of the Upgrading Works and payment of the differential premium. (Please refer to paragraph (a) (Increase the bed capacity in Westlite Dormitory) in Section 9 of this letter entitled Business Strategy and Future Plans for further details of the Upgrading Works.) Such bank financing will be secured by joint and several personal guarantees provided by TPK and Chong Nien and a corporate guarantee provided by Centurion. No fees are paid by Westlite to TPK, Chong Nien or Centurion for the granting of the guarantees. Following completion of the acquisition by the Company of all the shares in Westlite, the Company intends to arrange for the release of the above guarantees and for the same to be replaced by a corporate guarantee by the Company. In the event that the Company is unable to procure the release of the guarantees, TPK and Chong Nien, and Centurion (as the case may be) will continue to provide such guarantees, and the Company shall indemnify TPK, Chong Nien and/or Centurion (as the case may be) in the event that any claims are made against them under their respective guarantees Future Interested Person Transactions Following completion of the Westlite Acquisition, all interested person transactions between the Enlarged Group and the directors, chief executive officer and controlling shareholders of the Company, and their respective associates, will be subject to the Company s internal interested person transaction procedures and the requirements under Chapter 9 of the Listing Manual. 15. POTENTIAL CONFLICTS OF INTERESTS In general, after completion of the acquisition by the Company of the Westlite Shares, a conflict of interests arises when any of the directors, chief executive officer or controlling shareholders of the Company or their associates carry on or have any interest in any other corporation carrying on the same business as the Enlarged Group. Save as disclosed in section 3.1.7(e) of this Circular in relation to JVCo, none of the Proposed New Directors or controlling shareholders of the Company immediately after the completion of the Westlite Acquisition has an interest in any entity carrying on or dealing in the same businesses and services as Westlite which gives rise to a material conflict of interest with Westlite. 16. INTERESTS OF THE DIRECTOR AND SUBSTANTIAL SHAREHOLDERS Save as disclosed in this Circular, neither the director nor the substantial shareholders of Westlite, or any of their associates has any interests or is deemed to be interested in the Proposals. 17. INFORMATION ON THE PROPOSED NEW DIRECTORS AND PROPOSED KEY EXECUTIVE 17.1 Management reporting structure of the Enlarged Group The proposed management reporting structure of the Enlarged Group can be found in the section Appointment of Proposed New Directors in the Letter to Shareholders from the Company. A-37

113 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE 17.2 Proposed New Directors The particulars of the Proposed New Directors following the completion of the Proposed Acquisitions are set out below: Proposed position Name Age Address in Enlarged Group Mr Wong Kok Hoe Sunset Close, Non-executive Chairman Singapore Mr Bin Hee Din Tony Evelyn Road #19-03 Executive Director Residences at Evelyn, Singapore Information on the business and working experience, education and professional qualifications, if any, and areas of responsibilities of the Proposed New Directors are set out below: Mr Wong Kok Hoe is proposed to be the Non-executive Chairman of the Company after completion of the Westlite Acquisition. Mr Wong joined the Centurion Group in 2009 as the Group Chief Operating Officer. The Centurion Group is involved in a diverse range of business activities including, real estate development and investment, private equity, investment management, sports and resources, with offices in Shanghai, Hong Kong and Singapore. The Centurion Group invests in public listed companies and private companies in a wide range of industries in various jurisdictions. Prior to this, he was a partner in a local advocates and solicitors firm. He has more than 18 years of experience in legal practice and his main areas of practice were corporate law, corporate finance, mergers and acquisitions and venture capital. He is also a director of the following public listed companies in Singapore: CFM Holdings Limited, Hartawan Holdings Limited, Lifebrandz Ltd. and SBI Offshore Limited. Mr Wong holds a Bachelor of Laws (Honours) degree from the National University of Singapore. Mr Bin Hee Din Tony is proposed to be an Executive Director of the Company after completion of the Westlite Acquisition. As an Executive Director, he will be primarily responsible for the strategic planning and overall management of the dormitory business of the Enlarged Group. He joined the Centurion Group in 2007 as the Chief Executive Officer of Centurion, the controlling shareholder of Westlite. Prior to joining the Centurion Group, he was the concurrent General Manager of Guthrie Properties/ Heartland Retail Holdings/ Asia Malls Management Pte Ltd between 1999 to Between 1989 to 1997, Mr Bin was in the financial industry, specifically in the areas of corporate banking (real estate) and debt capital markets. Between 1984 to 1989, he was with a statutory board and a property developer. Mr Bin graduated from the National University of Singapore in 1984 with a degree in Bachelor of Science (Estate Management). A-38

114 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE The present and past directorships of the Proposed New Directors held in the five years preceding the Latest Practicable Date, excluding directorships held in the Company, are as follows: Name Present Directorships Past Directorships Mr Wong Kok Hoe Enlarged Group Companies Enlarged Group Companies Nil Other Companies Accurate Wealth Ltd Centurion Football Pte. Ltd. Centurion Global Ltd Centurion Holdings (BVI) Limited Centurion Management and Consultancy Services Pte. Ltd. Centurion Private Equity Ltd Centurion Properties (Jingshan) Limited Centurion Properties Pte. Ltd. Centurion Properties (Qingdao) Limited Centurion RE Pte. Ltd. Centurion Resources Pte. Ltd. Centurion Sports Events Ltd Centurion Sports Limited Centurion Wine Ltd CFM Holdings Limited Football Asia 888 Pte. Ltd. Hartawan Holdings Limited Lifebrandz Ltd. SBI Offshore Limited UTAC Holdings Ltd. Well Land Properties Limited Nil Other Companies Centillion Environment & Recycling Ltd (formerly known as Citiraya Industries) China Environment Ltd. (formerly known as Gates Electronics Limited) Hosen Group Ltd. Net Pacific Financial Holdings Limited (formerly known as K PIas Holdings Limited) R&T Corporate Services Pte Ltd SW Alliance Pte Ltd UMS Holdings Ltd (formerly known as Norelco UMS Holdings Limited) Mr Bin Hee Din Tony Enlarged Group Companies Enlarged Group Companies Centurion Dormitory (Westlite) Pte. Ltd. Lian Beng-Centurion (Mandai) Pte. Ltd. Other Companies Accurate Wealth Ltd Centurion Investments (Vietnam) Private Limited Centurion Kovan Private Limited Centurion Properties (JingShan) Limited Centurion Properties Pte. Ltd. Centurion Properties (Qingdao) Limited Centurion RE Private Limited Education House Pte Ltd Regatta Properties Pte Ltd. Sardinia Properties Private Limited Well Land Properties Limited Nil Other Companies East Coast (Cecil) Investment Private Limited Geylang Evangelical Free Church Ltd 17.3 Proposed Key Executive The particulars of TPK following the completion of the Proposed Acquisitions are set out below. Proposed Position Name Age Address in Enlarged Group Mr Teo Peng Kwang Ash Grove, Chief Operating Officer, Singapore Dormitory Business A-39

115 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE Information on the business and working experience, education and professional qualification, if any, and areas of responsibilities of Mr Teo Peng Kwang are set out below: Mr Teo Peng Kwang is proposed to be appointed the Chief Operating Officer of the Dormitory Business of Centurion Dormitories, after completion of the Westlite Acquisition. TPK will primarily be responsible for the day to day operations of the dormitory business of the Enlarged Group, which will include overseeing expansion of the existing dormitory operations in the Westlite Dormitory through the upgrading of the Westlite Dormitory and the construction of the proposed dormitory in Mandai and identifying growth opportunities for the dormitory business of the Enlarged Group in the region. In addition, he will assist the Board in the strategic planning and overall management of the dormitory business of the Enlarged Group. However, he will not be directly involved in handling the accounts, finance, compliance and corporate governance matters of the Enlarged Group. Mr Teo has more than 25 years of diverse experience in construction, dormitory, property development, manpower and other related businesses. Mr Teo joined Westlite in 2007 as an executive director of Westlite. He has an extensive experience in the foreign worker dormitory industry, and since 1994 has been involved in the operations of various dormitories in Singapore including Westlite Dormitory and Central Staff Apartments. Between 1991 to 2001, Mr Teo engaged in property development through various companies and successfully completed several projects including a condominium development and two terrace housing projects. His construction experience goes back to the late 1980s when he became a shareholder and director of Tricords Engineering & Construction Pte Ltd, a main contractor, and was involved in upgrading works of landed properties and a hotel. He has also been involved in various other companies and projects as a sub-contractor for construction works. The present and past directorships of Mr Teo Peng Kwang, the Proposed Key Executive, held in the five years preceding the Latest Practicable Date are as follows: Name Present Directorships Past Directorships Mr Teo Peng Kwang Enlarged Group Companies Enlarged Group Companies Nil Centurion Dormitory (Westlite) Pte. Ltd. Lian Beng-Centurion (Mandai) Pte. Ltd. Other Companies Serangoon Garden Staff Apartment Pte Ltd (applying for strike off) Other Companies A&D Manpower Management (Pte) Ltd Catig Construction Pte Ltd Desaway Corporation Pte. Ltd. Etrek Construction Pte. Ltd. Haru Engineering Pte. Ltd. Iconic Property Pte Ltd Intertrade (S) Enterprise Pte. Ltd. ISO Industry Pte. Ltd. Maxi Consultancy Pte Ltd Maxi Global Management Pte Ltd Maxfresh Leisure Pte Ltd Multi Sentosa Pratama (S) Pte. Ltd. Pointbuilt Pte Ltd Planet Agency Pte. Ltd. Sin-Dhaka Investment Pte. Ltd. Swissplan Dormitory Management Pte. Ltd. A-40

116 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE A summary of the principal work and business experience of TPK is set out below: Position/ Description of From To Name of Company Type of Business Description Designation Responsibilities Jan Feb Kim Long Health Equipment Sole proprietorship Trading of health equipment Not applicable Manage the operations & Trading Company of the company Feb Nov Tricords Engineering & Construction Main contractor engaged in Executive Director Manage the operations Construction Pte Ltd upgrading, addition and alteration of the company works of terrace shop house along Mcnair Road and alteration and addition works of Apollo Hotel Mar Nov C&T Development Pte Ltd Property development Property development including Executive Director Manage the operations development of four units of terrace of the company at Joo Chiat Oct Nov Glory Development Pte Ltd Property development Property development of Executive Director Manage the operations condominiums on South Buona of the company Vista Road May Nov Haru Corporation Pte Ltd Dormitory operations Management of workers dormitory Executive Director Manage the operations (has ceased operations) of the company Jul Nov Etrek Network Building Pte Ltd Dormitory operations Management of workers dormitory Executive Director Manage the operations of the company (No longer having managerial role) 1999 To Delgro-Setsco Training & Testing Training Overseas Approved Test Centre Chairman Oversees the operations date Centre, Dhaka accredited by BCA to conduct multiskill testing and certification for construction, engineering and marine industry in Dhaka, Bangladesh Jan March Etrek Construction Pte. Ltd. Construction/Dormitory Sub-contractor engaged in the Executive Director Manage the operations operations construction of reinforcement works of the company and management of workers (No longer having dormitory managerial role) A-41

117 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE Position/ Description of From To Name of Company Type of Business Description Designation Responsibilities Jan Jun Multi Sentosa Pratama (S) Property development/ Company was set up to develop, Executive Director None Pte. Ltd. construction construct properties but was not able to secure any development projects Jan July Intertrade (S) Enterprise Pte. Ltd. Trading Trading of chemicals Executive Director Manage the operations of the company Mar Mar Haru Engineering Pte. Ltd. Construction Sub-contractor engaged in the Executive Director Manage the operations construction of reinforcement works of the company and management of workers (No longer having dormitory managerial role) Mar Feb ISO Industry Pte Ltd Dormitory operations Management of workers dormitory Executive Director Manage the operations of the company (No longer having managerial role) Nov Jan Planet Agency Pte. Ltd Employment Agency Recruitment services specialising Executive Director Manage the operations in recruiting workers from China, of the company India, Bangladesh, Thailand, Myanmar, Philippines and Malaysia for marine industry Nov Jun A&D Manpower Management Employment Agency Recruitment services specialising Executive Director Manage the operations (Pte) Ltd. in recruiting workers from China, of the company India, Bangladesh, Thailand, Myanmar, Philippines and Malaysia for construction industry Jul May Desaway Corporation Pte. Ltd. Construction Sub-contractor engaged in the Executive Director Manage the operations construction of reinforcement works of the company Aug Nov Iconic Property Pte Ltd Property investment Investment in property Executive Director Manage the operations of the company Aug May Catig Construction Pte Ltd. Construction Sub-contractor engaged in the Executive Director Manage the operations construction of reinforcement works of the company A-42

118 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE Position/ Description of From To Name of Company Type of Business Description Designation Responsibilities Sept Apr Swissplan Dormitory Dormitory operations Management of workers dormitory Executive Director Manage the operations Management Pte. Ltd. of the company (no longer having managerial role) July To Centurion Dormitory (Westlite) Dormitory operations Management of workers dormitory Executive Director Manage the operations 2007 date Pte. Ltd. up to April 2011 and of the company became Executive Officer following resignation as Executive Director May Feb Point Built Pte Ltd Construction/Dormitory Sub-contractor engaged in the Executive Director Manage the operations (has ceased dormitory operations construction of reinforcement works of the company operations) and management of workers (no longer having dormitory managerial role) Nov Apr Sin-Dhaka Investment Pte Ltd Trading/Investment Supply of training school equipment Executive Director Manage the operations and material of the company Dec Jan Maxi Consultancy Pte Ltd Dormitory operations Management of workers dormitory Executive Director Manage the operations of the company (no longer having managerial role) Mar Serangoon Garden Staff Property Management/ Management of property and Executive Director None 2009 Apartment Pte Ltd (in the Dormitory Operations workers dormitory process of striking off) (process of being struck off) Mar Apr Maxi Global Management Employment/housing Provision of Housing Services for Executive Director Manage the operations Pte Ltd Services foreign workers of the company Aug April Maxfresh Leisure Pte Ltd Rental Provide fishing boats for rentals Executive Director Manage the operations of the company. A-43

119 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE 17.4 Remuneration The compensation paid or payable to each of the Proposed New Directors (including directors fees) and Proposed Key Executive for services rendered to the Enlarged Group in remuneration bands of S$0.25 million per annum, namely for remuneration bands of up to S$0.25 million per annum ( Band I ), above S$0.25 million and up to S$0.5 million per annum ( Band II ), and above S$0.5 million and up to S$0.75 million per annum ( Band III ) are as follows: (i) Remuneration of each of the Proposed New Directors in remuneration bands FY2008 FY2009 FY2010 Wong Kok Hoe Band I Band I Band I Bin Hee Din Tony Band I Band I Band I (ii) Remuneration of the Proposed New Key Executive in remuneration bands FY2008 FY2009 FY2010 Teo Peng Kwang Band I Band I Band I Other than for amounts set aside or accrued in respect of mandatory employee funds under Singapore laws and regulations, no amounts have been set aside or accrued to provide pension, retirement or similar benefits. As at the Latest Practicable Date: (i) (ii) no portion of the compensation was paid or is to be paid pursuant to any bonus or profitsharing plan or any other profit-linked agreement or arrangement; and no portion of the compensation was paid or is to be paid in the form of stock options. 18. INTERESTS OF EXPERTS AND FINANCIAL ADVISERS None of CIMB Bank Berhad, Singapore Branch, Provenance Capital Pte. Ltd., PricewaterhouseCoopers LLP, RSM Chio Lim LLP, Chesterton Suntec International Pte Ltd and Jones Lang LaSalle: (a) (b) (c) is employed on a contingent basis by Westlite; has a material interest, whether direct or indirect, in the shares of Westlite; or has a material economic interest, whether direct or indirect, in Westlite, including an interest in the success of the Proposed Transactions. 19. MATERIAL BACKGROUND INFORMATION ON THE PROPOSED NEW DIRECTORS, PROPOSED KEY EXECUTIVE AND CONTROLLING SHAREHOLDERS 19.1 Save as disclosed below, no Proposed New Director or Proposed Key Executive or Controlling Shareholder: (a) has at any time during the last 10 years, an application or a petition under any bankruptcy laws of any jurisdiction been filed against him or against a partnership of which he was a partner at the time when he was a partner or at any time within two years from the date he ceased to be a partner; A-44

120 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE (b) (c) (d) (e) (f) (g) (h) (i) (j) has at any time during the last 10 years, an application or a petition under any law of any jurisdiction been filed against an entity (not being a partnership) of which he was a director or an equivalent person or a key executive, at the time when he was a director or an equivalent person or a key executive of that entity or at any time within two years from the date he ceased to be a director or an equivalent person or a key executive of that entity, for the winding up or dissolution of that entity or, where that entity is the trustee of a business trust, that business trust, on the ground of insolvency; has any unsatisfied judgment against him; has ever been convicted of any offence, in Singapore or elsewhere, involving fraud or dishonesty which is punishable with imprisonment, or has been the subject of any criminal proceedings (including any pending criminal proceedings of which he is aware) for such purpose; has ever been convicted of any offence, in Singapore or elsewhere, involving a breach of any law or regulatory requirement that relates to the securities or futures industry in Singapore or elsewhere, or has been the subject of any criminal proceedings (including any pending criminal proceedings of which he is aware) for such breach; has at any time during the last 10 years, had judgment entered against him in any civil proceedings in Singapore or elsewhere involving a breach of any law or regulatory requirement that relates to the securities or futures industry in Singapore or elsewhere, or a finding of fraud, misrepresentation or dishonesty been made on his part, or has been the subject of any civil proceedings (including any pending civil proceedings of which he is aware) involving an allegation of fraud, misrepresentation or dishonesty on his part; has ever been convicted in Singapore or elsewhere of any offence in connection with the formation or management of any entity or business trust; has ever been disqualified from acting as a director or an equivalent person of any entity (including the trustee of a business trust), or from taking part directly or indirectly in the management of any entity or business trust; has ever been the subject of any order, judgment or ruling of any court, tribunal or governmental body permanently or temporarily enjoining him from engaging in any type of business practice or activity; has ever, to his knowledge, been concerned with the management or conduct, in Singapore or elsewhere, of the affairs of: (i) (ii) (iii) (iv) any corporation which has been investigated for a breach of any law or regulatory requirement governing corporations in Singapore or elsewhere; any entity (not being a corporation) which has been investigated for a breach of any law or regulatory requirement governing such entities in Singapore or elsewhere; any business trust which has been investigated for a breach of any law or regulatory requirement governing business trusts in Singapore or elsewhere; or any entity or business trust which has been investigated for a breach of any law or regulatory requirement that relates to the securities or futures industry in Singapore or elsewhere, in connection with any matter occurring or arising during the period when he was so concerned with the entity or business trust; and/or A-45

121 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE (k) has been the subject of any current or past investigation or disciplinary proceedings, or has been reprimanded or issued any warning, by the Monetary Authority of Singapore or any other regulatory authority, exchange, professional body or government agency, whether in Singapore or elsewhere. Disclosure relating to Proposed New Director Wong Kok Hoe, a Proposed New Director, was appointed as an independent non-executive director of Citiraya Industries Ltd (now known as Centillion Environment & Recycling Limited) ( Citiraya ) in September Citiraya is listed on the Main Board of the SGX-ST. In January 2005, the Corrupt Practices Investigation Bureau investigated the management and staff of Citiraya and staff of client companies of Citiraya in connection with alleged offences under the Prevention of Corruption Act, Chapter 241 of Singapore and the Penal Code, Chapter 224 of Singapore. Separately, the Commercial Affairs Department also commenced investigations on staff of Citiraya and staff of some private companies who were in collusion with Citiraya to create fictitious transactions to inflate the sales and purchases of Citiraya. Since then, various management and staff of Citiraya and certain persons from the client companies have been charged and convicted. At the time the investigations commenced, Wong Kok Hoe had only been appointed to the board of Citiraya for a few months. He was never involved in the operations of Citiraya and he does not believe that he was the subject of the investigations. He has also not been charged with any offences. Wong Kok Hoe resigned from Citiraya in September 2006 after assisting with its restructuring exercise. Disclosures relating to Proposed Key Executive TPK had been a director of five Singapore incorporated companies that had failed to file their annual returns and to hold their annual general meetings in accordance with the timelines prescribed by the Companies Act (the Affected Companies ). TPK was a financial investor in the Affected Companies and was not involved in the day to day management and operations of these companies. Sometime in or around the late 1990s to the early 2000s, ACRA had issued various summonses against TPK, being a director of the Affected Companies, in respect of noncompliance by the Affected Companies of their filing obligations under the Companies Act. TPK pleaded guilty to the offences and was fined accordingly. As a result of the offences, the Registrar of Companies and Businesses had pursuant to a letter dated 11 April 2002 disqualified TPK from acting as a director pursuant to Section 155 of the Companies Act. The period of disqualification under Section 155 of the Companies Act is five years after the offender has last been adjudged guilty of the relevant offence leading to the disqualification. Pursuant to such disqualification, TPK took steps to resign from the Singapore-incorporated companies in which he was a director. However, he had inadvertently failed to resign from his directorship in three companies. Two of these companies were subsequently struck off the register of companies. Sometime in or around 2005, TPK received an ACRA summons in respect of the non-compliance by the third company of its filing obligations under the Companies Act. TPK pleaded guilty to the offence and was fined. He subsequently resigned as a director of such company in late From 2006 through 2010, TPK assumed directorships in various other Singapore incorporated companies. It was brought to TPK s attention during the course of preparation of this Letter to Shareholders from Westlite that, due to TPK s previous offences mentioned above, and the disqualification imposed by the Registrar of Companies and Businesses pursuant to Section 155 of the Companies Act in 2002, such new directorships taken up by TPK during the period of restriction may have been in breach of Section 155 of the Companies Act. TPK has not since his resignation from the companies as aforesaid received any notice of actions taken against him for breach of the Companies Act in this regard, nor has he received any notice of disqualification to act as a director. TPK is currently seeking clarification from ACRA as to whether he is in breach of Section 155 of the Companies Act, and if so, the sanctions that may be imposed on him. A-46

122 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE It is unlikely that Westlite would be guilty of any offence for previously appointing TPK as a director. There appears to be no provision in the Companies Act (applicable to the present situation) which makes it an offence on the part of Westlite or penalises Westlite for appointing TPK in light of the fact that he was disqualified to act as director under the Companies Act within a five-year period prior to the said appointment. TPK was formerly a director of Pointbuilt Pte Ltd ( Pointbuilt ), a company engaging in construction activities. In 2009, Pointbuilt was fined S$3,000 under the Employment of Foreign Manpower Act for failing to comply with the conditions of the work pass issued to one of its employees by failing to ensure that such employee was under its direct employment. TPK was not charged or fined in connection with the incident. TPK had in the early 1980s been fined for engaging in gambling related activities. Disclosure relating to the Controlling Shareholders Our Controlling Shareholders, Messrs Loh Kim Kang David and Han Seng Juan, had each been a holder of a capital market services representative licence issued under the SFA. A capital market services representative is required under the relevant regulations to notify the Monetary Authority of Singapore (the MAS ) of changes in particulars, including changes in directorships and substantial shareholdings in companies, within 14 days after such change. Each of Messrs Loh and Han had in 2007 and 2008 made late notifications of their respective appointments as directors of and acquisition of substantial shareholdings in various companies in which they held investments in. In February 2008, each of Messrs Loh and Han paid a composition sum of S$5,000 to the MAS for such breaches Save for Mr Bin Hee Din Tony who is the brother-in-law of Mr Loh Kim Kang David, no Proposed New Director or Proposed Key Executive is related by blood or marriage to one another nor are they so related to any of the substantial shareholders of Westlite There is no shareholding qualification for the Directors of Westlite in its articles of association No sum or benefit has been paid or is agreed to be paid to any Proposed New Director or expert, or to any firm in which such Proposed New Director or expert is a partner or any corporation in which such Proposed New Director or expert holds shares or debentures, in cash or in shares or otherwise, by any person to induce him to become, or qualify him as, a Proposed New Director, or otherwise for services rendered by him or by such firm or corporation in connection with the promotion or formation of the Company No Proposed New Director or expert is interested, directly or indirectly, in the promotion of, or in any assets acquired or disposed of by, or leased to, the Company or any of the companies within the Enlarged Group within the two years preceding the Latest Practicable Date, or in any proposal for such acquisition or disposal or lease as aforesaid. 20. MATERIAL CONTRACTS Save for the service agreement to be entered into between Westlite and TPK, Westlite has not entered into any contracts, other than contracts entered into in the ordinary course of business, within the two years preceding the date of this Circular, which are or may be material. A-47

123 APPENDIX A LETTER TO SHAREHOLDERS FROM WESTLITE 21. MISCELLANEOUS 21.1 Details, including the names, addresses and professional qualifications (including membership in a professional body) of the auditors of Westlite for FY2008, FY2009 and FY2010 and up to the date of this Circular are as follows: Partner-in-charge / Professional Name and Address Professional Body Qualification Period RSM Chio Lim LLP Institute of Certified Mr Chan Weng Keen / With effect from 12 May 8 Wilkie Road Public Accountants of Member of Institute of 2010 #04-08, Wilkie Edge Singapore Certified Public Singapore Accountants of Singapore Odds & Even Associates Institute of Certified Mr Poh Hock Heng / 25 May 2009 to 12 May 151 Chin Swee Road Public Accountants of Member of Institute of 2010 #06-01 Singapore Certified Public Manhattan House Accountants of Singapore Singapore 21.2 There has not been any public take-over offer by a third party in respect of Westlite s shares or by Westlite in respect of the shares of another corporation or the units or a business trust, which has occurred between 1 January 2011 and the Latest Practicable Date There have been no changes in the issued and paid-up share capital of Westlite within the three years preceding the Latest Practicable Date. There has been no change in the percentage of ownership of shares in Westlite in the last three years prior to the Latest Practicable Date Save as disclosed in the section entitled Risk Factors in this Letter to Shareholders from Westlite, our director is not aware of any event which has occurred since 1 January 2011 and up to the Latest Practicable Date which may have a material effect on the financial position and results of Westlite. 22. WESTLITE DIRECTOR S RESPONSIBILITY STATEMENT This Circular has been seen and approved by the director of Westlite, and he accepts full responsibility to the Company and the Shareholders and the Company s advisors for the truth and accuracy of the information contained in the Letter to Shareholders from Westlite and all information given in this Circular in respect of Westlite. Where information has been extracted from the Singapore Foreign Worker Dormitory Market Study and/or the Westlite Property Valuation Report, the sole responsibility of the director of Westlite has been to ensure that such information has been accurately and correctly extracted from these sources or, as the case may be, reflected or reproduced. The director of Westlite also confirms, having made all reasonable enquiries, to the best of his knowledge and belief, the facts stated and opinions expressed in this Circular in respect of Westlite are fair and accurate in all materials respects and that there are no material facts the omission of which would make any statement in this Circular misleading in any material respect. Yours faithfully, For and on behalf of the board of directors of Centurion Dormitory (Westlite) Pte. Ltd. Bin Hee Din Tony Director A-48

124 APPENDIX B INFORMATION ON JVCO Information on JVCo On 4 January 2011, JVCo was incorporated by Lian Beng and Centurion as a joint venture company to acquire a piece of industrial land situated at Mandai Estate and, subject to all necessary approvals from the relevant authorities, to develop and operate dormitories on all or part of the land. JVCo is a private company limited by shares incorporated in Singapore, and is owned by Centurion and Lian Beng Group Ltd in the proportions of 45% and 55% respectively. Save for the JVCo Acquisition, Centurion has no current intention to change its shareholding in JVCo. Acquisition of the Mandai Land and proposed development costs On 7 January 2011, JVCo exercised an option to purchase Land Lots No. 202V, 203P, 240K and 241N of MK 14 at Mandai Estate Singapore (the Mandai Land ), a freehold industrial land in Mandai Estate, of approximately 18,700 square metres in size, at a purchase price of S$67 million from Mandai Estate Pte. Ltd.. Based on current plans and subject to receipt of the necessary approvals from the relevant authorities, JVCo intends to divide the Mandai Land into three plots of land for separate developments. The first plot will be developed as a worker dormitory with approximately 5,000 beds; the second plot will be developed as industrial spaces for sale. The third plot of land may be developed as worker dormitory or industrial spaces, which will be determined at a later date. The acquisition of the Mandai Land was completed on 7 April JVCo s land acquisition costs of S$67 million, payment for the associated goods and services tax of approximately S$4.7 million, stamp duty payable of approximately S$2.0 million and related expenses (collectively, the Land Acquisition Costs ) are being funded by: (i) (ii) a land loan granted by Hong Leong Finance Limited ( HLF ) to JVCo of S$53.6 million, which is secured by a first legal mortgage of the Mandai Land, corporate guarantees by Lian Beng and Centurion in proportion to their shareholdings in JVCo and an assignment of sale proceeds; and shareholders loan and equity contributed by Lian Beng and Centurion. The contribution to the Land Acquisition Costs by Lian Beng and Centurion is to be proportionate to their shareholding interest in JVCo. Upon completion of the JVCo Acquisition, the corporate guarantee given by Centurion to HLF is to be replaced and substituted with a corporate guarantee to be given by the Company in lieu of Centurion. Based on costing estimates as at the Latest Practicable Date, the costs of developing and constructing the dormitory on the first plot of land is estimated to be approximately S$40 million to S$45 million and the costs of developing and constructing the industrial spaces on the second plot of land is estimated to be approximately S$37 million to S$42 million. The costs are inclusive of construction costs, professional fees, development charges and/or premiums payable to the SLA (but exclude interest charges on bank financing). However, such costs may change depending on various factors such as the final design and building plans, professional fees and construction costs at the time of carrying out the development works. JVCo intends to fund the development of the Mandai Land through bank borrowings of up to 70% of the total costs of development and construction and the balance through shareholders loan and equity. As at the Latest Practicable Date, JVCo has secured bank financing from HLF for the development and construction costs based on the lowest of: (i) (ii) (iii) S$51.4 million; 70% of the confirmed contract sum (including professional fees); and 70% of estimated construction costs (including professional fees). B-1

125 APPENDIX B INFORMATION ON JVCO Such financing was secured based on existing approval for industrial development on the Mandai Land as JVCo has not obtained the relevant approvals and permits for a portion of the Mandai Land to be used for the development of dormitories. JVCo has informed HLF that it has submitted plans to the relevant authorities to revise the proposed development to consist of part dormitory and part industrial, and HLF has indicated to JVCo that it is prepared to consider giving its consent to funding the development of the Mandai Land to include a workers dormitory when the revised development plans for use as worker dormitory are approved. The balance of the development and construction costs will be funded by shareholders loan and equity to be contributed by the shareholders of JVCo proportionately. Accordingly, assuming completion of the JVCo Acquisition, the Company will be required to contribute 45% of such funding needs of JVCo. Based on the cost estimates and bank financing arrangement as set out above, it is expected that the Company will be required to contribute approximately S$11.5 million to S$16.0 million in relation to the proposed development of part dormitory and part industrial on the first and second plots of land as described above. This amount will be funded through existing internal sources, or proceeds from the Compliance Placement. If necessary, the Company may raise further funds from equity funding through future share placement, bank borrowing at corporate level or issuance of debt instruments. As at the Latest Practicable Date, JVCo has no immediate plans for the development of the third plot of land on the Mandai Land. The above estimates of expected future contribution by the Company does not take into consideration any costs of development for the third plot of land. Financial Information on JVCo JVCo was incorporated on 4 January 2011 with a paid up capital of S$100. As at the Latest Practicable Date, the paid up capital of JVCo had been increased to S$1 million, of which S$450,000 has been contributed by Centurion. In addition, Centurion has as at the Latest Practicable Date extended to JVCo the JVCo Shareholders Loan amounting to approximately S$6.7 million. Prior to completion of the JVCo Acquisition, Centurion will contribute an additional amount of approximately S$2.8 million to JVCo, making a total contribution of S$10 million, representing its 45% share of the total amount of S$22 million to be contributed by Lian Beng and Centurion to JVCo for the acquisition of the Mandai Land. Details of the Mandai Land The Mandai Land is the sole asset held by JVCo. The Mandai Land is located at 4A and 6 Mandai Estate within the Mandai Industrial Estate. The property comprises four plots of industrial development sites, namely Lots 200V, 203P, 240K and 241N of Mukim 14, with a total land area of approximately 18,700 square metres. The land plots are of freehold tenure and are zoned Business 2 with a gross plot ratio of 2.5. The Mandai Land is served by Kranji Expressway and major artery roads such as Woodlands Road, Upper Bukit Timah Road and Mandai Road. It is located proximate to Sungei Kadut Industrial Estate, Woodlands Industrial Estate, and Kranji Industrial Estate and to housing estates such as Chua Chu Kang, Woodlands and Bukit Panjang. The Company has commissioned the Property Valuer to carry out a valuation of the Mandai Land. Based on such valuation, the Mandai Land has an open market value as at 13 January 2011 of S$70.5 million. A copy of the Mandai Property Valuation Report is set out in Appendix J to this Circular. B-2

126 APPENDIX B INFORMATION ON JVCO Seeking of approvals for use as worker dormitories and proposed industrial development Dormitory development It is a condition precedent under the JVCo Sale and Purchase Agreement that JVCo obtains, on or before 30 September 2011, all necessary approvals and permits required for the Mandai Land to be used for the development and operation of worker dormitories with a capacity of at least 4,000 beds. Whilst such minimum number of 4,000 beds had been determined based on a commercial assessment of the scale that will be viable and feasible, it should be noted that based on current plans, it is intended that part of the Mandai Land be developed as worker dormitory with approximately 5,000 beds. Please refer to the paragraph entitled Acquisition of the Mandai Land and proposed development costs in this Appendix B for further details. As at the Latest Practicable Date, JVCo is in the process of seeking such relevant approval for the Mandai Land to be used for the development of a worker dormitory on part of the Mandai Land. In this regard, JVCo had on 19 January 2011 submitted its outline application to URA for the proposed development of a worker dormitory with 5,000 beds on the Mandai Land. This was followed by a second submission on 19 March 2011 after obtaining no-objection responses from technical departments of various government agencies as required by URA. JVCo is currently awaiting the grant of provisional permission from URA. Industrial Development Further to an application submitted by JVCo to URA on 10 May 2011, JVCo has been granted provisional permission on 25 May 2011 for the proposed industrial development on the Mandai Land. Joint Venture Agreement Centurion is presently in discussion with Lian Beng on the terms of a joint venture agreement to be entered into between Centurion, Lian Beng and JVCo (the JVA ). It is expected that the JVA will contain provisions on the following: Shareholding proportion Type of development on the land Funding and financing of project Composition of board of directors Voting rights Reserved matters Pre-emptive rights It is intended that Lian Beng or its related companies shall be appointed to carry out the construction and project management of the dormitory and industrial building on the Mandai Land and Centurion or its related companies shall be appointed to manage and operate the dormitories, on terms to be mutually agreed. Such arrangement is intended to be set out in the JVA. It is further intended that on completion of the JVCo Acquisition that Centurion Dormitories replaces Centurion as a party to the JVA, and that Centurion Dormitories or its related companies be the relevant party to be appointed to manage and operate the dormitories. B-3

127 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED 30 June 2011 To: The Directors of SM Summit Holdings Limited (deemed to be independent in respect of the Proposed Acquisitions and the Proposed Whitewash Resolution) Mr Lee Kerk Chong Mr Kong Chee Min Mr Gn Hiang Meng Mr Chandra Mohan s/o Rethnam Dear Sirs (1) PROPOSED ACQUISITION BY SM SUMMIT HOLDINGS LIMITED (THE COMPANY ) OF THE ENTIRE ISSUED SHARE CAPITAL OF CENTURION DORMITORY (WESTLITE) PTE. LTD. ( WESTLITE ) AND 45% OF THE ISSUED SHARE CAPITAL OF LIAN BENG-CENTURION (MANDAI) PTE LTD ( JVCO ) (TOGETHER, THE PROPOSED ACQUISITIONS ) AS AN INTERESTED PERSON TRANSACTION; AND (2) PROPOSED WHITEWASH RESOLUTION FOR THE WAIVER OF THE RIGHTS OF INDEPENDENT SHAREHOLDERS TO RECEIVE A MANDATORY GENERAL OFFER FOR THE COMPANY FROM LOH KIM KANG DAVID AND HAN SENG JUAN AND PARTIES ACTING IN CONCERT WITH THEM PURSUANT TO THE PROPOSED ACQUISITIONS Unless otherwise defined or the context otherwise requires, all terms used herein have the same meanings as defined in the circular to the Shareholders of the Company dated 30 June 2011 (the Circular ). 1. INTRODUCTION 1.1 On 13 January 2011 (the Term Sheet Announcement Date ), the Board of Directors of the Company announced, inter alia, that the Company had on the same day, entered into the following term sheets: (a) a term sheet with Centurion Properties Pte Ltd ( Centurion ) and Mr Teo Peng Kwang (collectively, the Westlite Vendors ), in relation to the acquisition by the Company of: (i) (ii) all the issued and paid-up shares in Westlite from the Westlite Vendors (the Westlite Acquisition ); and the 45% interest in JVCo held by Centurion (the JVCo Acquisition ); and (b) a term sheet with Jian Yu Construction Pte Ltd ( Jian Yu ) and NCL Housing Pte Ltd ( NCL ) (collectively, the JYC-NCL Vendors ), in relation to the acquisition by the Company of 75% of the issued and paid-up shares in JYC-NCL Pte Ltd ( JYC-NCL ) (the JYC-NCL Acquisition ) from the JYC-NCL Vendors. 1.2 On 6 April 2011 (the Announcement Date ), the Company announced, inter alia, that it had on the same day entered into a conditional sale and purchase agreement with the Westlite Vendors and Centurion, respectively, for the Westlite Acquisition and the JVCo Acquisition. The Company also announced that it had mutually agreed with the JYC-NCL Vendors to cease negotiations and further work in relation to the JYC-NCL Acquisition. The Westlite Acquisition is not conditional upon the completion of the JVCo Acquisition but the JVCo Acquisition is conditional upon the completion of the Westlite Acquisition. Details of the Westlite Acquisition and the JVCo Acquisition are set out in Section 4 of this Letter (as defined below) and in Section 3 of the Letter to Shareholders in the Circular. C-1

128 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED 1.3 As at the Latest Practicable Date, Messrs Loh Kim Kang David and Han Seng Juan (the Controlling Shareholders ), together with their jointly owned company, Thinkpac Limited ( Thinkpac ), are the controlling Shareholders of the Company with an aggregate interest in 116,247,000 Shares, representing 32.1% of the issued share capital of the Company. As Centurion is 100% owned by the Controlling Shareholders, the Proposed Acquisitions are considered as interested person transactions as defined in Chapter 9 of the Listing Manual. 1.4 The Westlite Consideration is approximately S$85 million which represents approximately 180% of the latest audited NTA of the Group as at 31 December The JVCo Consideration is S$10.0 million and represents 21% of the latest audited NTA of the Group as at 31 December Accordingly, the Proposed Acquisitions are subject to the approval of the Company s independent Shareholders at the forthcoming EGM and the appointment of an independent financial adviser ( IFA ) to advise on whether the Proposed Acquisitions are on normal commercial terms and are not prejudicial to the interest of the Company and its minority Shareholders. 1.5 In addition, pursuant to the Proposed Acquisitions, Centurion will be allotted the Westlite Consideration Shares and the JVCo Consideration Shares which will result in Centurion and its concert parties increasing their shareholding interests in the Company from 32.1% to 73.5% of the enlarged share capital of the Company of 1,312,122,240 Shares, immediately after the completion of the Proposed Acquisitions but before the Compliance Placement. The Controlling Shareholders and Thinkpac are concert parties to Centurion (together, the Obliged Parties or Centurion and its concert parties ). As the Obliged Parties presently hold not less than 30% and not more than 50% of the voting rights of the Company, the Proposed Acquisitions (collectively and individually) will result in the Obliged Parties acquiring additional Shares carrying more than 1% of voting rights of the Company. Under such circumstances, the Obliged Parties will be required pursuant to the Code to make a mandatory general offer for the remaining Shares not already owned, controlled or agreed to be acquired by them (the General Offer ), unless the SIC grants the Obliged Parties a waiver of the aforesaid requirement (the Whitewash Waiver ) and the Proposed Whitewash Resolution is approved by the Independent Shareholders at the EGM. The SIC had on 27 May 2011, granted the Whitewash Waiver to the Obliged Parties subject to the satisfaction of certain conditions as set out in Section 7 of the Letter to Shareholders in the Circular, including, inter alia, the approval by a majority of holders of voting rights of the Company present and voting at the EGM, held before the issue of the Westlite Consideration Shares to the Obliged Parties, by way of a poll, on the Proposed Whitewash Resolution to waive their rights to receive a General Offer from the Obliged Parties, and the appointment of an IFA to advise the Independent Shareholders on the Whitewash Resolution. 1.6 Accordingly, Provenance Capital Pte. Ltd. ( Provenance Capital ) has been appointed as the IFA to advise the Directors of the Company who are deemed to be independent in respect of the Proposed Acquisitions and the Proposed Whitewash Resolution ( Independent Directors ). Save for Mr Tang Kay Hwa and Ms Mak Bang Mui who are deemed interested in the Proposed Acquisitions and the Proposed Whitewash Resolution, as they hold certain executive positions within the Centurion group of companies, the rest of the Directors are deemed to be Independent Directors. This letter ( Letter ) sets out, inter alia, our evaluation of the Proposed Acquisitions and the Proposed Whitewash Resolution and our advice to the Independent Directors in relation to their recommendations to the Independent Shareholders on the Proposed Acquisitions and the Proposed Whitewash Resolution, and forms part of the Circular providing, inter alia, details of the Proposed Acquisitions and the recommendations of the Independent Directors in respect thereof. C-2

129 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED As stated in Section 3 of the Letter to Shareholders in the Circular, the Proposed Acquisitions are conditional upon, inter alia, the Proposed Whitewash Resolution being approved by the Independent Shareholders at the EGM. Hence, in the event that the Proposed Acquisitions are approved by the Shareholders at the EGM but the Proposed Whitewash Resolution is not approved by the Independent Shareholders at the EGM, the Company will not be able to proceed with the Proposed Acquisitions. 2. TERMS OF REFERENCE We have been appointed as the IFA to advise the Independent Directors in respect of the Proposed Acquisitions and the Proposed Whitewash Resolution. We are not and were not involved or responsible, in any aspect, of the negotiations in relation to the Proposed Acquisitions, nor were we involved in the deliberations leading up to the decision on the part of the Directors to propose the Proposed Acquisitions or to obtain the approval of the Independent Shareholders for the Proposed Acquisitions and the Proposed Whitewash Resolution, and we do not, by this Letter, warrant the merits of the Proposed Acquisitions other than to express an opinion on whether the Proposed Acquisitions and/or the Proposed Whitewash Resolution is prejudicial to the interests of the Independent Shareholders. It is not within our terms of reference to evaluate or comment on the legal, strategic, commercial and financial merits and/or risks of the Proposed Acquisitions or to compare its relative merits visà-vis alternative transactions previously considered by the Company (if any) or that may otherwise be available to the Company currently or in the future, and we have not made such evaluation or comment. Such evaluation or comment, if any, remains the sole responsibility of the Directors and/or the management of the Company (the Management ) although we may draw upon the views of the Directors and/or the Management or make such comments in respect thereof (to the extent deemed necessary or appropriate by us) in arriving at our opinion as set out in this Letter. It is also not within our terms of reference to provide an opinion on the Westlite Profit Warranty (as defined in Section of this Letter), and we have not made such opinion. Such confirmation or statement or opinion in respect thereof will be provided by the Directors and/or their professional advisers to the extent required by the SGX-ST Listing Manual. In the course of our evaluation, we have held discussions with the Directors and Management and/or their professional advisers and have examined and relied on publicly available information collated by us as well as information provided and representations made to us, both written and verbal, by the Directors, the Management and the professional advisers of the Company, including information contained in the Circular. We have not independently verified such information or representations, whether written or verbal, and accordingly cannot and do not make any representation or warranty, express or implied, in respect of, and do not accept any responsibility for the accuracy, completeness or adequacy of such information or representations. The Directors (including those who may have delegated detailed supervision of the Circular) have confirmed that, having made all reasonable enquiries, to the best of their respective knowledge and belief, information and representations as provided by the Directors and Management are accurate and have confirmed to us that, upon making all reasonable enquiries and to their best knowledge and abilities, all material information available to them in connection with the Proposed Acquisitions, the Proposed Whitewash Resolution, the Company, the Group and/or the Enlarged Group has been disclosed to us, that such information is true, complete and accurate in all material respects and that there is no other information or fact, the omission of which would cause any information disclosed to us or the facts of or in relation to the Company or the Group or the Enlarged Group stated in the Circular to be inaccurate, incomplete or misleading in any material respect. The Directors have jointly and severally accepted full responsibility for such information described herein. C-3

130 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED We have not independently verified and have assumed that all statements of fact, belief, opinion and intention made by the Directors in the Circular have been reasonably made after due and careful enquiry. Whilst care has been exercised in reviewing the information on which we have relied on, we have not independently verified the information but nevertheless have made such enquiry and judgment as were deemed necessary and have found no reason to doubt the accuracy of the information and representations. Save as disclosed, we would like to highlight that all information relating to the Company and the Group and the Enlarged Group that we have relied upon in arriving at our recommendation or advice has been obtained from publicly available information and/or from the Directors and the Management. We have not independently assessed and do not warrant or accept any responsibility as to whether the aforesaid information adequately represents a true and fair position of the financial, operational and business affairs of the Company or the Group or the Enlarged Group at any time or as at the Latest Practicable Date. The scope of our appointment does not require us to conduct a comprehensive independent review of the business, operations or financial condition of the Company, the Group and/or the Enlarged Group, or to express, and we do not express, a view on the future growth prospects, value and earnings potential of the Company, the Group and/or the Enlarged Group. Such review or comment, if any, remains the responsibility of the Directors and the Management, although we may draw upon their views or make such comments in respect thereof (to the extent required by the Code and/or the SGX-ST Listing Manual and/or deemed necessary or appropriate by us) in arriving at our advice as set out in this Letter. We have not obtained from the Company, the Group and/or the Enlarged Group any projection of the future performance including financial performance of the Company, the Group and/or the Enlarged Group, and further, we did not conduct discussions with the Directors and the Management on, and did not have access to, any business plan and financial projections of the Company, the Group and/or the Enlarged Group. In addition, we are not expressing any view herein as to the prices at which the Shares may trade or the future value, financial performance or condition of the Company, the Group and/or the Enlarged Group, upon or after completion of the Proposed Acquisitions or if the Proposed Acquisitions are not effected. We have not made an independent evaluation or appraisal of the assets and liabilities of the Company, the Group and/or the Enlarged Group (including without limitation, property, plant and equipment) and we have not been furnished with any such evaluation or appraisal except for valuation certificates from the independent valuers appointed by the Company set out in Appendix I and J to the Circular on which we have placed sole reliance on for such asset appraisals. Our view as set out in this Letter is based upon market, economic, industry, monetary and other conditions (if applicable) prevailing as of the Latest Practicable Date and the information provided and representations provided to us as of the Latest Practicable Date. In arriving at our view, with the consent of the Directors or the Company, we have taken into account certain other factors and have been required to make certain assumptions as set out in this Letter. We assume no responsibility to update, revise or reaffirm our opinion in light of any subsequent development after the Latest Practicable Date that may affect our opinion contained herein. Shareholders should further take note of any announcements relevant to the Proposed Acquisitions and/or the Proposed Whitewash Resolution which may be released by the Company after the Latest Practicable Date. In rendering our advice and giving our recommendations, we did not have regard to the specific investment objectives, financial situation, tax position, risk profiles or unique needs and constraints of any Independent Shareholder or any specific group of the Independent Shareholders. As each Independent Shareholder would have different investment objectives and profiles, we recommend that any individual Independent Shareholder or group of the Independent Shareholders who may require specific advice in relation to his or their investment portfolio(s) or objective(s) consult his or their stockbroker, bank manager, solicitor, accountant, tax adviser or other professional adviser immediately. C-4

131 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED We have prepared this Letter for the use of the Independent Directors in connection with their consideration of the Proposed Acquisitions and the Proposed Whitewash Resolution and their advice to the Independent Shareholders arising thereof. The recommendations made to the Independent Shareholders in relation to the Proposed Acquisitions and the Proposed Whitewash Resolution remains the responsibility of the Independent Directors. Our opinion in relation to the Proposed Acquisitions and the Proposed Whitewash Resolution should be considered in the context of the entirety of this Letter and the Circular. 3. BACKGROUND INFORMATION OF THE GROUP The Company was incorporated in Singapore on 31 March 1984 and was listed on SGX-SESDAQ on 26 January 1995 before being upgraded to the Mainboard of the SGX-ST on 28 October Thinkpac became a controlling shareholder of the Company in March As at the Latest Practicable Date, Thinkpac and the Controlling Shareholders own 116,247,000 Shares, representing 32.1% of the issued share capital of the Company. Thinkpac had, when it became the controlling shareholder of the Company, introduced the proposed acquisition of TES-Envirocorp Pte. Ltd. (the TES Acquisition ) to the Company in an effort to help the Company to diversify from its existing current business and create a new revenue stream for the Group. Unfortunately, the TES Acquisition coincided with the global financial crisis and in view of the difficult operating environment, the likelihood of a prolonged economic downturn and having taken note of the results of the Company and TES-Envirocorp Pte. Ltd. for the financial year ended 31 December 2008, the Company announced the termination of the TES Acquisition on 11 March The business environment of the Group remained difficult thereafter, with manufacturing demands from customers not recovering to pre-financial crisis levels and as a result, the Board continued to reiterate its intentions to explore new investment opportunities. A summary of the audited profit and loss statements of the Group for FY2008, FY2009 and FY2010 and the unaudited profit and loss statement of the Group for the first quarter ended 31 March ( 1Q ) for FY2010 and FY2011 is set out below and should be read together with the annual reports of the Company in respect of the relevant financial years and the results announcements by the Company: Audited Unaudited (S$ 000) FY2008 FY2009 FY2010 1Q2010 1Q2011 Sales 58,865 42,940 38,326 7,976 8,588 Gross Profit 10,157 8,690 9,280 1,389 2,096 Profit/(Loss) before taxation (5,029) (180) 541 (810) (394) Profit/(Loss) after taxation (4,576) (419) 631 (773) (401) Source: The Company s annual reports for the respective financial years and the announcements relating to the unaudited financial results of the Group for 1Q2010 and 1Q2011 We note that the sales of the Group have deteriorated over the last three financial years from FY2008 to FY2010 as the business environment of the Group remained weak. However, the cost cutting measures implemented by the Group proved effective and the Group managed to record a net profit after taxation of S$0.63 million for FY2010. Based on the latest available unaudited financial statements of the Group for 1Q2011, the Group recorded a net loss after taxation of S$0.40 million as compared to a net loss after taxation of S$0.77 million for 1Q2010. C-5

132 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED 4. SALIENT TERMS OF THE PROPOSED ACQUISITIONS The details of the Proposed Acquisitions and related matters are set out in the Circular. We recommend that the Independent Directors advise the Independent Shareholders to read the Circular carefully. The key terms and certain pertinent matters of the Proposed Acquisitions are highlighted below: 4.1 The Westlite Acquisition Key Terms of the Westlite Acquisition On 6 April 2011, the Company entered into the Westlite Acquisition pursuant to which the Company agreed to acquire the entire issued and paid-up share capital of Westlite from the Westlite Vendors and the assignment by the Westlite Vendors to the Company of shareholders loans of approximately S$17.1 million that have been extended by the Westlite Vendors to Westlite on or prior to 6 April 2011, being the date of the Westlite Sale and Purchase Agreement (the Westlite Shareholders Loans ). The aggregate consideration for Westlite and the assignment of the Westlite Shareholders Loans is S$84,970,274, to be satisfied in full by the allotment and issue of an aggregate of 849,702,740 Westlite Consideration Shares at an Issue Price of S$0.10 each, to the Westlite Vendors (or such other number of Westlite Consideration Shares and Issue Price as adjusted for the share consolidation to be carried out by the Company) on the date of completion of the Westlite Acquisition. The Westlite Shares will be acquired with all rights and benefits accruing thereto with effect from the date of completion of the Westlite Acquisition. All retained earnings of Westlite from 1 January 2011 up to and including the date of completion of the Westlite Acquisition and any distributions or dividends declared and/or paid out of such retained earnings shall be for the account of the Westlite Vendors, subject to certain conditions and limitations as set out in Section of the Letter to Shareholders in the Circular. As disclosed in Section 3.1.2(A) of the Letter to Shareholders in the Circular, the Westlite Consideration Shares, when issued will rank pari passu in all respects with the existing Shares. The Westlite Vendors and the Company acknowledge and agree that the terms of the Westlite Acquisition including the Issue Price for each Westlite Consideration Share have been arrived at after arms length negotiations, on a willing-buyer willing-seller basis Conditions Precedent Details of the conditions precedent for the Westlite Acquisition can be found in Section of the Letter to Shareholders in the Circular, a list of which has been extracted and set out below: The Westlite Acquisition is conditional upon, inter alia: (a) completion of a business, legal and financial due diligence exercise by the Company on Westlite, which shall include, without limitation, (i) the review of the business and operations of Westlite including management meetings and site visits; (ii) the review of Westlite s historical financial figures; and (iii) the review of any and all documents relating to legal and taxation matters of Westlite, the results of such exercise being satisfactory to the Company in its sole and absolute discretion; C-6

133 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED (b) the SIC having granted Centurion and its concert parties a waiver of their obligation to make a mandatory offer under Rule 14 of the Code arising from the allotment and issue of the Westlite Consideration Shares and the allotment and issue of the JVCo Consideration Shares, such waiver not having been revoked, repealed or amended as of the Westlite Completion Date, and such waiver being subject to: (i) (ii) any conditions that the SIC may impose, such conditions being acceptable to Centurion and the Company (to the extent that any condition imposed relates to matters to be fulfilled or complied with by the Company), and to the extent that any such conditions are required to be fulfilled on or before the Westlite Completion Date, they are so fulfilled; and the Proposed Whitewash Resolution having been passed by the Independent Shareholders at the EGM; (c) (d) (e) (f) (g) (h) (i) the SGX-ST having granted its in-principle approval for the Westlite Acquisition and its approval in-principle for the listing and quotation of the Westlite Consideration Shares and the Placement Shares; the Company having received the requisite approvals from the Shareholders at the EGM for the Westlite Acquisition, the Proposed Whitewash Resolution, the issue of the Westlite Consideration Shares, the issue of the Placement Shares and the Proposed Share Consolidation; no material adverse change in Westlite (as determined by the Company in its sole and absolute discretion) occurring since the date of the Westlite Sale and Purchase Agreement until the Westlite Completion Date; no material adverse change in the Company (as determined by the Westlite Vendors in their sole and absolute discretion) occurring since the date of the Westlite Sale and Purchase Agreement until the Westlite Completion Date; save as disclosed, all representations, warranties and undertakings provided by the Westlite Vendors under the Westlite Sale and Purchase Agreement being complied with, true, accurate and correct in all material respects as at the date of the Westlite Sale and Purchase Agreement and as at the Westlite Completion Date; save as disclosed, all representations, warranties and undertakings provided by the Company under the Westlite Sale and Purchase Agreement being complied with, true, accurate and correct in all material respects as at the date of the Westlite Sale and Purchase Agreement and as at the Westlite Completion Date; all approvals and consents as may be necessary from any third party, governmental or regulatory body or relevant competent authority having jurisdiction over the Westlite Acquisition, the Proposed Whitewash Resolution, the issue of the Westlite Consideration Shares, the issue of the Placement Shares and the Proposed Share Consolidation or to the entry into and completion of the Westlite Sale and Purchase Agreement by the parties, being granted or obtained on, and being in full force and effect and not having been withdrawn, suspended, amended or revoked as at completion, and if such consents or approvals are granted or obtained subject to any conditions, such conditions being reasonably acceptable to the Company; C-7

134 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED (j) (k) (l) (m) (n) (o) (p) (q) the Company being satisfied, in its sole and absolute discretion, that the business of Westlite has been carried on in a satisfactory manner and in its usual course, and all approvals and consents (including any governmental, regulatory and/or corporate approvals and consents) required for the business of Westlite have been obtained, and are and shall remain as at the Westlite Completion Date valid and effective and not withdrawn or amended; the execution and performance of the Westlite Sale and Purchase Agreement by the parties not being prohibited, restricted, curtailed, hindered, impaired or otherwise adversely affected by any relevant statute, order, rule, directive or regulation promulgated by any legislative, executive or regulatory body or authority; the execution of deeds of non-competition and non-solicitation by each of the Westlite Vendors; the execution of a deed of assignment for the assignment of the Westlite Shareholders Loans; the approval of the Controller of Residential Property for Westlite to be converted into a converted foreign company under section 9 of the Residential Property Act (Chapter 274), and where applicable, for the completion of the sale and purchase of the Westlite Shares resulting in the Company owning 100% of Westlite, being obtained; the entry by TPK into a service agreement in the agreed form with the Company and/or a subsidiary or associate of the Company (which will include Westlite) and/or JVCo, for an initial term of 2 years and each of which may be extended for a further 2-year term at the option of the Company; the supplemental disclosure letter to be provided by the Westlite Vendors (if any) being in form and substance satisfactory to the Company at the Company s sole discretion; and the supplemental disclosure letter to be provided by the Company (if any) being in form and substance satisfactory to the Westlite Vendors at the Westlite Vendors sole discretion Information on Westlite The following are selected information on Westlite as extracted or summarized from the contents of the Circular. Detailed information on Westlite including, a description of its history, business, risk factors, prospects and financial performance are set out in the Letter to Shareholders from Westlite in the Circular. We recommend that the Independent Directors advise Shareholders to read the relevant sections of the Circular carefully. Overview of Westlite Operations Westlite (formerly known as Duchess Dormitory Pte Ltd) is a private company limited by shares incorporated in Singapore in July 2007 which carries on the business of providing foreign worker accommodation and related services. It owns and operates the Westlite Dormitory which it had acquired in February Westlite is owned as to 88% by Centurion and 12% by Mr Teo Peng Kwang. C-8

135 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED Westlite derives its income primarily from rental of worker dormitory units to tenants comprising companies from various industries including marine, engineering, oil and gas, and construction. These companies house foreign workers that they employ in the Westlite Dormitory. Westlite currently owns and operate the Westlite Dormitory, which is an investment property located at 12 to 28 Toh Guan Road East, Singapore It consists of a piece of leasehold land with an aggregate land area of 11, square metres ( sq m ) together with buildings erected on it. Currently, it comprises 5 blocks of 5-storey and 3 blocks of 6-storey worker dormitory building with 1 block of 3-storey amenity building. Westlite Dormitory has a total of 448 dormitory units which can house up to approximately 5,300 residents. The tenure of the leasehold land is 60 years with effect from 1 December Selected Financial Information The following information should be read in conjunction with the relevant sections of the Circular. A summary of the key financial information, as extracted from the audited financial statements of Westlite for FY2008, FY2009 and FY2010, is as follows: Audited (S$ 000) FY2008 FY2009 FY2010 Revenue 8,955 12,087 12,020 Profit before tax 4,268 7,100 7,116 Profit after tax 3,249 5,663 5,681 As at 31 December 2010: Non-current assets 57,433 Current assets 2,975 Total Assets 60,408 Total Equity 5,184 Shareholders Loans 17,094 Total 22,278 Current liabilities 7,417 Non-current liabilities 30,713 Total Equity and Liabilities 60,408 Based on the audited accounts of Westlite for FY2010, the principal asset of Westlite is the investment property, namely the Westlite Dormitory and the premises upon which the property is located (the Premises ), which accounted for S$57.3 million, representing 94.9% of the total assets of Westlite. It comprises leasehold land amounting to S$43.7 million and leasehold building of S$13.6 million. The fair value of the Westlite Dormitory and the Premises as at 12 January 2011 based on the property s existing use basis was estimated by the management of Westlite to be S$103 million based on the valuation made by Chesterton Suntec International Pte Ltd ( Chesterton ). The directors of Westlite also estimated the fair value of the Westlite Dormitory and the Premises to be S$120 million on a redevelopment basis based on the Westlite Valuation Report (as defined in Section of this Letter). Accordingly, the above valuation on a redevelopment basis will give rise to a revaluation surplus of S$62.7 million on the Westlite Dormitory and the Premises. The Upgrading Works is estimated to cost S$35.0 million to S$40.0 million, inclusive of all related fees, development charges and/or premiums payable to SLA. C-9

136 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED As at the Latest Practicable Date, the Upgrading Works have yet to commence. The current plan is for the Upgrading Works to commence in 2013 and construction is estimated to take 12 to 18 months. Depending on market conditions, operational requirements and other factors, Westlite may commence the Upgrading Works earlier. Subject to final plans, Westlite estimates that 40 dormitory units and the commercial spaces will be demolished as part of the Upgrading Works. The estimated loss of income from these affected units and commercial spaces is estimated to be approximately 15% of the total revenue per year. In addition, the tenancy of some operational dormitory units (other than the dormitory units to be demolished) may be affected due to the construction activities and disruption caused by the Upgrading Works. However, Westlite is of the opinion that it is unable to assess the impact at this point. We further note that under the terms of the provisional permission that was granted by URA on 9 March 2011, the Upgrading Works need to be completed by 9 March 2013 and Westlite will be seeking an extension of such provisional permission if necessary. Following the Westlite Acquisition, the Company will have to bear such redevelopment cost should it proceed to carry out such works. We note that Westlite was previously granted an approval pursuant to the URA s grant of provisional permission dated 9 September 2008, for additions and alterations to its existing workers dormitories development as well as the erection of a new 18-storey block at a plot ratio of 3.2. Such grant of provisional permission is valid for 6 months and extension can be applied for with re-submission of the proposal within 6 months. We note that Westlite has applied for several extensions of the provisional permissions since it first obtained the approval. On 9 March 2011, the provisional permission has been extended until 9 March Westlite has a paid up capital of S$1 million. Its operations are funded mainly by bank borrowings and shareholders loans to the company. As at 31 December 2010, bank borrowings amounted to S$34.2 million which bear interests on a floating rate basis and are secured, inter alia, on the legal mortgage on the Westlite Dormitory and the Premises and assignment of all rental proceeds and insurances relating to the Westlite Dormitory and the Premises. Shareholders loans amounted to S$17.1 million as at 31 December These loans are unsecured, bear interest at 3% per annum and have no fixed repayment date. These loans are subordinated to the aforementioned bank loans of Westlite. We note that pursuant to the Westlite Acquisition, all the shareholders loans extended to Westlite that are outstanding as at 31 December 2010 will be assigned to the Company and hence the Westlite Consideration which is based on a revalued net asset value ( RNAV ) basis is calculated on the assumption that such shareholders loans have been capitalized into equity. We further note that Westlite will continue to pay interest on the above assigned shareholders loans to the Company at the same rate of 3% per annum until such time when the loans have been fully repaid. The Westlite Vendors may, from 1 January 2011 up to and including the date of the completion of the Westlite Acquisition, provide further shareholders loans to Westlite to fund its business and operations, including payments made on behalf of Westlite in connection with the Upgrading Works for payments to any governmental, statutory or regulatory authorities fees in respect of the differential premium or the developmental charge for the increase in plot ratio of the Premises and professional fees such as architects fees, legal fees, engineers fees (the Additional Shareholders Loans ). Pursuant to the terms of the Westlite Acquisition, the Company will repay or procure the repayment of the Additional Shareholders Loan within 30 days from the completion date of the Westlite Acquisition. As at the Latest Practicable Date, there is no Additional Shareholders Loan. The Company intends to fund payment of the Additional Shareholders Loans (if any) from internal resources. C-10

137 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED Accordingly, the RNAV of Westlite on a redevelopment basis will amount to approximately S$85 million as at 31 December 2010, consisting of total equity and shareholders loans of S$22.3 million and revaluation surplus of S$62.7 million. 4.2 The JVCo Acquisition Key Terms of the JVCo Acquisition On 6 April 2011, the Company entered into the JVCo Acquisition pursuant to which the Company agreed to acquire the 45% interest in JVCo from Centurion and the assignment by Centurion to the Company of certain shareholders loans advanced by Centurion to JVCo on or before the completion date of the JVCo Acquisition for the purpose of funding its share of the acquisition costs of a freehold industrial land in Mandai Estate, of approximately 18,700 sq m in size ( Mandai Land ) (the JVCo Shareholders Loans ). The aggregate consideration for the JVCo Shares and assignment of the JVCo Shareholders Loans is equivalent to the total amount of equity financing and JVCo Shareholders Loan contributed by Centurion to JVCo up to and including the completion date of the JVCo Acquisition. The JVCo Consideration is subject to the condition that such contribution by Centurion shall not be less than S$10.0 million as at the completion date of the JVCo Acquisition. As at the Latest Practicable Date, Centurion has contributed a total amount of S$7,191,326 (comprising S$450,000 by way of equity and S$6,741,326 by way of shareholders loan). As at the Latest Practicable Date, Centurion s contribution by way of shareholders loan is not in accordance to its shareholding proportion in JVCo. In this regard, Centurion will contribute at least S$2.8 million to JVCo prior to the completion of JVCo Acquisition, such that its total contribution to JVCo is representative of its 45% shareholding interest in JVCo. The JVCo Consideration shall be fully satisfied as follows: (a) (b) S$10.0 million of the JVCo Consideration shall be satisfied by the allotment and issue, credited as fully paid-up, of 100,000,000 JVCo Consideration Shares to Centurion at the Issue Price (or such other number of JVCo Consideration Shares and Issue Price as adjusted for the share consolidation to be carried out by the Company) on the completion date of the JVCo Acquisition; and if the total amount of equity financing and JVCo Shareholders Loan contributed by Centurion to JVCo exceeds S$10.0 million, the Company shall pay Centurion such excess amount in cash as soon as reasonably practicable but in any event, no later than 30 days after the completion date of the JVCo Acquisition. As disclosed in Section of the Letter to Shareholders in the Circular, the JVCo Consideration Shares, when issued, will rank in pari passu all respects with the existing Shares. The vendor of JVCo and the Company acknowledge and agree that the terms of the JVCo Acquisition including the Issue Price for each JVCo Consideration Share have been arrived at after arms length negotiations, on a willing-buyer willing-seller basis, and having regard to the valuation of the Mandai Land (as set out in the Mandai Land Valuation Report set out in Appendix J to the Circular). The JVCo Consideration effectively represents Centurion s investment costs in JVCo. C-11

138 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED Conditions Precedent Details of the conditions precedent for the JVCo Acquisition can be found in Section of the Letter to Shareholders in the Circular, a list of which has been extracted and set out below: The JVCo Acquisition is conditional upon, inter alia, the conditions precedent in the JVCo Sale and Purchase Agreement: (a) (b) (c) completion of a business, legal and financial due diligence exercise by the Company on JVCo which shall include, without limitation, the review of any and all documents relating to legal and taxation matters of JVCo, the results of such exercise being satisfactory to the Company, in its sole and absolute discretion; the Westlite Acquisition having been completed; the SIC having granted to Centurion and their concert parties a waiver of their obligation to make a mandatory offer under Rule 14 of the Singapore Code on Take- Overs and Mergers arising from the issue of the Westlite Consideration Shares and the issue of JVCo Consideration Shares, such waiver not having been revoked, repealed or amended as of the completion date, and such waiver being subject to: (i) (ii) any conditions that the SIC may impose, such conditions being acceptable to Centurion and the Company (to the extent that any condition imposed relates to matters to be fulfilled or complied with by the Company), and to the extent that any such conditions are required to be fulfilled on or before the JVCo Completion Date, they are so fulfilled; and the Proposed Whitewash Resolution having been passed by the Independent Shareholders at the EGM; (d) (e) (f) (g) (h) the SGX-ST having granted its approval in-principle for the listing and quotation of the JVCo Consideration Shares; the Company having received the requisite approvals from its shareholders, at an extraordinary general meeting to be convened by the Company, for the JVCo Acquisition, the Westlite Acquisition, the Proposed Whitewash Resolution, the issue of the JVCo Consideration Shares and the consolidation of its shares based on such ratio as may be advised by the Company s financial advisors; no material adverse change in the JVCo (as determined by the Company in its sole and absolute discretion) occurring since the date of the JVCo Sale and Purchase Agreement until the JVCo Completion Date; no material adverse change in the Company (as determined by Centurion in its sole and absolute discretion) occurring since the date of the JVCo Sale and Purchase Agreement until the JVCo Completion Date; save as disclosed, all representations, warranties and undertakings on the part of Centurion set out in the JVCo Sale and Purchase Agreement provided by Centurion under the JVCo Sale and Purchase Agreement being complied with, true, accurate and correct in all material respects as at the date of the JVCo Sale and Purchase Agreement and as at the JVCo Completion Date; C-12

139 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED (i) (j) (k) (l) (m) (n) save as disclosed, all warranties provided by the Company under the JVCo Sale and Purchase Agreement being complied with, true, accurate and correct in all material respects as at the date of the JVCo Sale and Purchase Agreement and as at the JVCo Completion Date; all approvals and consents as may be necessary from any third party, governmental or regulatory body or relevant competent authority having jurisdiction over the transactions contemplated by the JVCo Sale and Purchase Agreement or to the entry into and completion of the JVCo Sale and Purchase Agreement by the parties, being granted or obtained, and being in full force and effect and not having been withdrawn, suspended, amended or revoked as at the completion date, and if such consents or approvals are granted or obtained subject to any conditions, such conditions being reasonably acceptable to the Company; the execution and performance of the JVCo Sale and Purchase Agreement by the parties not being prohibited, restricted, curtailed, hindered, impaired or otherwise adversely affected by any relevant statute, order, rule, directive or regulation promulgated by any legislative, executive or regulatory body or authority; JVCo having obtained, on or before 30 September 2011, all necessary approvals and permits required for the Mandai Land to be used for the development and operation of worker dormitories with a capacity of at least 4,000 beds (for the avoidance of doubt, the approvals and permits referred to herein shall only relate to the permitted use of all or part of the Mandai Land as worker dormitories and shall not include planning, construction and other approvals and permits relating to the building of the worker dormitories); the supplemental disclosure letter to be provided by Centurion (if any) being in form and substance satisfactory to the Company at the Company s sole discretion; and the supplemental disclosure letter to be provided by the Company (if any) being in form and substance satisfactory to Centurion at Centurion s sole discretion Information on JVCo The following are selected information on JVCo as extracted or summarized from the contents of the Circular. Detailed information on JVCo including are set out in Appendix B to the Circular. We recommend that the Independent Directors advise Shareholders to read the relevant sections of the Circular carefully. JVCo is a private company limited by shares incorporated in Singapore on 4 January JVCo is owned by Centurion and Lian Beng Group Ltd in the proportions of 45% and 55% respectively. JVCo had exercised an option to purchase the Mandai Land, of approximately 18,700 sq m in size, at S$67.0 million. The acquisition of the Mandai Land was completed on 7 April The Mandai Land is a freehold property located at 4A and 6 Mandai Estate, Singapore and It comprises 4 plots of industrial development sites located within an existing industrial estate in Mandai Estate. An independent valuation of the Mandai Land was carried out by Chesterton on an open market value basis as a freehold industrial development site with a potential gross plot ratio of 2.5. On this basis, the open market value of the Mandai Land as at 13 January 2011 was S$70.5 million. C-13

140 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED The Mandai Land is the sole asset held by JVCo. Based on current plans and subject to receipt of the necessary approvals from the relevant authorities, JVCo intends to divide the Mandai Land into 3 plots of land for separate developments. The first plot will be developed as a worker dormitory with approximately 5,000 beds and the second plot will be developed as industrial spaces for sale. The third plot of land may be developed as a worker dormitory or industrial spaces to be determined at a later date. Shareholders attention is drawn to Section of the Letter to Shareholders in the Circular in relation to the arrangements between Centurion and the Company in the situation where the necessary approvals and permits granted to JVCo is for the Mandai Land to be used for the development of worker dormitories with a capacity of less than 4,000 beds on or before 30 September THE PROPOSED WHITEWASH RESOLUTION As at the Latest Practicable Date, the Obliged Parties own an aggregate of 116,247,000 Shares, representing 32.1% of the issued share capital of the Company. Upon the completion of the Proposed Acquisitions, the allotment and issue of the Westlite Consideration Shares and the JVCo Consideration Shares to Centurion will result in an increase in the shareholding interests of the Obliged Parties to 73.5% of the enlarged share capital of the Company of 1,312,122,240 Shares immediately after the completion of the Proposed Acquisitions but before the Compliance Placement. As the Obliged Parties hold not less than 30% but not more than 50% of the voting rights of the Company, the Proposed Acquisitions (collectively and individually) will result in the Obliged Parties acquiring additional Shares carrying more than 1% of voting rights of the Company and thereby resulting in the Obliged Parties incurring an obligation under Rule 14 of the Code to make the General Offer for the remaining Shares not already owned or controlled by them. Accordingly, the Company had applied to the SIC on behalf of the Obliged Parties for the Whitewash Waiver to waive the Obliged Parties of their obligation to make the General Offer for the Company under Rule 14 of the Code as a result of them receiving the Westlite Consideration Shares and the JVCo Consideration Shares. The SIC had on 27 May 2011, granted the Whitewash Waiver to the Obliged Parties subject to the satisfaction of certain conditions as set out in Section 7 of the Letter to Shareholders in the Circular, including, inter alia, the approval by a majority of holders of voting rights of the Company present and voting at the EGM, held before the issue of the Westlite Consideration Shares to the Obliged Parties, by way of a poll, on the Proposed Whitewash Resolution to waive their rights to receive a General Offer from the Obliged Parties. The Company intends to seek approval from the Independent Shareholders for the Proposed Whitewash Resolution at the forthcoming EGM to be convened. The Independent Directors should advise Independent Shareholders that: (a) by voting for the Proposed Whitewash Resolution: (i) (ii) they are waiving their rights to receive a mandatory general offer which the Obliged Parties would otherwise have been obliged to make for their Shares at the highest price paid by the Obliged Parties for the Shares in the 6 months preceding the commencement of the offer; they will be foregoing the opportunity to receive a general offer from another person who may be discouraged from making a general offer for their Shares by virtue of the potential increase in shareholding interests of the Obliged Parties pursuant to the Proposed Acquisitions; and C-14

141 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED (iii) the allotment and issue of Westlite Consideration Shares to the Obliged Parties will result in the Obliged Parties holding Shares carrying more than 49% of the voting rights of the Company, based on the enlarged issued share capital, and the Obliged Parties will thereafter be free to acquire further Shares (including the JVCo Consideration Shares) without incurring any obligation under Rule 14 of the Code to make a General Offer for the Company; and (b) the Proposed Acquisitions is conditional upon, inter alia, the Proposed Whitewash Resolution being approved by a majority of the Independent Shareholders by way of poll at the EGM. Accordingly, if a majority of the Independent Shareholders do not vote in favour of the Proposed Whitewash Resolution, the Proposed Acquisitions will not proceed to completion. To rely on the Proposed Whitewash Resolution, the acquisition of the Westlite Consideration Shares by the Obliged Parties must be completed within 3 months of the approval of the Proposed Whitewash Resolution. 6. EVALUATION OF THE PROPOSED ACQUISITIONS AND THE PROPOSED WHITEWASH RESOLUTION In our evaluation of the Proposed Acquisitions and the Proposed Whitewash Resolution, we have given due consideration to, inter alia, the following key factors: (a) (b) (c) (d) (e) (f) (g) rationale for the Proposed Acquisitions; the Proposed Acquisitions are conditional upon, inter alia, the approval of the Independent Shareholders for the Proposed Whitewash Resolution; assessment of the Issue Price for the Proposed Acquisitions; assessment of the Westlite Consideration and the JVCo Consideration; financial effects of the Proposed Acquisitions on the Group; dilution impact arising from the Proposed Acquisitions; and other relevant considerations in relation to the Proposed Acquisitions. 6.1 Rationale for the Proposed Acquisitions The full text of the rationale for the Proposed Acquisitions is set out in Section 10 of the Letter to Shareholders in the Circular. We recommend that the Independent Directors advise the Shareholders to read the section of the Circular carefully. It is not within our terms of reference to comment or express an opinion on the merits of the Proposed Acquisitions or the future prospects of the Group. Nevertheless, we have reviewed the rationale of the Proposed Acquisitions and we note, inter alia, the following: (i) the Directors are of the view that the business environment in the Group s current business of manufacturing compact discs, digital versatile discs, data storage and related products/services will remain weak, owing to weak customer demand for optical disc products and high raw material cost; C-15

142 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED (ii) (iii) (iv) the Proposed Acquisitions will allow the Company to venture into the workers accommodation sector and with regards to the Westlite Acquisition, allow it to acquire a profitable business with healthy operating cashflows which should improve its prospects with a view to exploring further opportunities in the sector in the future. This is consistent with the stated strategy of the Group as outlined in the Group s results announcement for the third quarter ended 30 September 2010 which stated that the Group will be looking for business opportunities to increase revenue and income stream ; The JVCo Acquisition, which is offered to the Company effectively at cost, also provides the Company with an attractive opportunity for further expansion of the dormitory business; and The Proposed Acquisitions are likely to increase the market capitalization of the Company significantly and will help raise the profile of the Company and generate more investor interest in the Company. 6.2 The Proposed Acquisitions are conditional upon, inter alia, the approval of the Independent Shareholders for the Proposed Whitewash Resolution As set out in Section 3 of the Letter to Shareholders in the Circular and highlighted in Section 5 of this Letter, the approval of the Independent Shareholders for the Proposed Whitewash Resolution is, inter alia, one of the conditions precedent for the Proposed Acquisitions. Accordingly, if the approval of the Independent Shareholders is not obtained for the Proposed Whitewash Resolution, the Proposed Acquisitions will not proceed to completion. 6.3 Assessment of the Issue Price for the Proposed Acquisitions In connection with the Proposed Acquisitions, the Company will be issuing an aggregate of 949,702,740 new Shares, at the Issue Price of S$0.10 per Share, consisting of: (i) (ii) 747,738,412 new Shares and 100,000,000 new Shares to Centurion in satisfaction of the Westlite Consideration and the JVCo Consideration respectively; and 101,964,328 new Shares to Mr Teo Peng Kwang in satisfaction of the Westlite Consideration. In assessing the Issue Price, we have considered the following: (i) (ii) (iii) (iv) The Issue Price in comparison with the share price performance of the Company on the SGX-ST; Assessed valuation of the Group as implied by the Issue Price; Comparison of valuation ratios of selected listed companies whose business are broadly comparable to the Group; and Comparison of valuation statistics of selected listed companies which have completed very substantial acquisitions ( VSA ) or reverse takeover transactions ( RTO ). C-16

143 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED Share price performance of the Company We set out below a chart on the price movement and trading volume of the Shares from 14 January 2010 (being the 1-year period prior to the Term Sheet Announcement Date) to the Latest Practicable Date (the Period Under Review ): Price movement and traded volume of the Shares for the Period Under Review Price (S$) Volume Source: Bloomberg In addition, we have tabulated below selected statistical information on the share price and trading liquidity of the Shares during the Period Under Review: Volume Daily Weighted Discount Average trading Average of Issue Highest Lowest daily volume as Price Price to Closing Closing trading percentage ( VWAP ) VWAP Price Price volume (1) of free Reference period (S$) (%) (S$) (S$) ( 000) float (2) (%) Periods prior to the Term Sheet Announcement Date 1 year (4.89) months (7.55) months (15.10) month (18.68) C-17

144 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED Discount of Issue Price to Highest Lowest Last done the last intra-day intra-day Volume price done price Price Price transacted (S$) (%) (S$) (S$) ( 000) After the Term Sheet Announcement Date 11 January 2011, the last transaction date prior to the Term Sheet Announcement Date (25.93) ,911 6 April 2011, the last transaction date prior to the Announcement Date (39.39) ,018 As at the Latest Practicable Date (37.50) ,023 Source: Bloomberg Notes: (1) The average daily trading volume of the Shares is calculated based on the total volume of Shares traded during the period divided by the number of market days during that period. (2) Free float refers to the Shares other than those held by the Directors and the substantial shareholders of the Company, and amounts to approximately million Shares or approximately 49.9% of the issued Shares as at the Latest Practicable Date. Based on the above, we made the following observations: (i) Over the 12 months period prior to the Term Sheet Announcement Date, the Shares had mainly traded between S$0.075 and S$0.12, at a VWAP of S$0.1051, and average daily volume traded was low at 618,000 shares, representing 0.34% of the free float of the Company s issued Shares. The Company had confirmed that discussions between the Company and the Westlite Vendors had started in August 2010 and the key broad terms of the Proposed Acquisitions were negotiated and agreed in-principle in September 2010 with the involvement of various professional parties then, based on the then prevailing market share price when the Shares were trading at or below S$0.10 for most parts of 2010 up to September We noted that the share price moved to S$0.135 prior to the announcement of the Term Sheet on heavy trading volume of 2.91 million shares. The Shares continued to spike to a high of S$0.22 on 17 January 2011 on heavier trading volume of million shares after the announcement of the Term Sheet before retreating to S$0.19 on another day of heavy trading volume of million shares on 18 January By the Announcement Date, the share price was last traded at S$0.165 on 6 April 2011 and on the Latest Practicable Date, the share price was last traded at S$ The Issue Price therefore represents a significant discount to the market share prices as at the Term Sheet Announcement Date, the Announcement Date and the Last C-18

145 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED Practicable Date of 25.93%, 39.39% and 37.50% respectively. In spite of the potential issuance of a significant number of new Shares for the Proposed Acquisitions at S$0.10 per Share, the market continued to maintain its positive view of the Proposed Acquisitions as evidence by the holding up of the share price performance significantly above S$0.10. The daily trading liquidity of the Shares over all the reference periods prior to the Term Sheet Announcement Date has generally been low. The average daily trading volume of the Shares was between approximately 618,000 and 881,000 Shares, representing 0.34% and 0.49% of the Company s free float respectively over all the reference periods prior to the Term Sheet Announcement Date; and Daily trading liquidity of the Shares for the period after the Term Sheet Announcement Date increased significantly. The average daily trading volume for the period between the Term Sheet Announcement Date and the Latest Practicable Date was approximately 3.66 million Shares, representing 2.02% of the Company s free float. Shareholders should note that the market price performance of the Shares may be due to various market factors, the individual factors of which may not be easily isolated and identified with certainty. As such, Shareholders should note that past trading performance of the Shares should not be relied upon as a promise of its future trading performance Assessed valuation of the Group as implied by the Issue Price Based on the Issue Price, the implied valuation of the Group is S$36.2 million. The Group had reported NTA backing of between S$44.1 million and S$47.9 million as at 30 September 2009, 31 December 2009, 31 March 2010, 30 June 2010 and 30 September 2010 and the NTA per Share of the Group as at the respective dates were S$0.130, S$0.132, S$0.131, S$0.122 and S$ Based on the daily share price chart for the Period Under Review, we note that the Shares had been trading at significant discounts to the Group s NTA per Share during most of 2010 prior to the Term Sheet Announcement Date as shown in the chart below: Price movement of the Shares and NTA per Share From 14 January 2010 up to the Term Sheet Announcement Date Price (S$) Price NTA per Share C-19

146 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED From the above observation, we note that the market had accorded a valuation to the Company which is not reflective of its full NTA backing. This is not uncommon among some listed companies on the SGX-ST and could be a reflection of the market s perception of the prospects of such companies and/or the ability of these companies to achieve or maintain their profitability. We note that the Group had recorded net losses of S$4.6 million and S$419,000 for FY2008 and FY2009 respectively before turning around to record a net profit after taxation of S$0.63 million for FY2010. The Group subsequently recorded a net loss after taxation of S$0.40 million for 1Q2011. As such, an earnings-based approach in assessing the valuation of the Company is not meaningful. The unaudited NTA per Share of the Group as at 30 September 2010 was S$ At the time of the Term Sheet Announcement Date, the Issue Price represents a discount of approximately 19.35% to the NTA per Share as at 30 September The NTA per Share of the Group as at 31 December 2010 was S$ At the time of the Announcement Date, the Issue Price represents a discount of approximately 23.08% to the NTA per Share as at 31 December In view that the Issue Price was determined in September 2010 based on the then prevailing market share price which was prior to the run-up of the share price, the Issue Price will likewise represent a discount to the NTA per Share of the Group. The valuation of the Company as implied by the Issue Price does not fully reflect the NTA backing of the Group and therefore appears to be undervaluing the Company. However, we note that the Issue Price was determined based on the then prevailing market share price at the time of the negotiations between the Company and the Westlite Vendors, and the Shares had been trading mostly below its NTA value. Based on the latest available unaudited financial statements of the Group for 1Q2011, the NTA per Share of the Group was S$ The Issue Price represents a discount of approximately 22.48% to the NTA per Share as at 31 March In our evaluation of the financial terms of the Issue Price, we have also considered whether there are any tangible assets which should be valued at an amount that is materially different from that which were recorded in the statement of financial position of the Group as at 31 March In this respect, the Directors have confirmed to us that to the best of their knowledge and belief, that there are no material differences between the realisable value of these assets and their respective book values as at 31 March 2011 which would have a material impact on the NTA of the Group. We have also considered whether there are any factors which have not been otherwise disclosed in the financial statements of the Group that are likely to impact the unaudited book NTA as at 31 March In this respect, the Directors have confirmed to us that to the best of their knowledge and belief, other than that already provided for or disclosed in the Company s unaudited financial statements as at 31 March 2011, there are no other contingent liabilities which are likely to have a material impact on the NTA of the Group as at the Latest Practicable Date. In addition, as at the Latest Practicable Date, the Directors are not aware of any litigation, claim or proceeding pending or threatened against the Company or any of its subsidiaries or of any fact likely to give rise to any proceeding which might materially and adversely affect the financial position of the Company and its subsidiaries taken as a whole. C-20

147 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED Comparison of valuation ratios of selected listed companies whose business are broadly comparable to the Group For the purpose of assessing the Issue Price, we have compared the valuation ratios of the Company implied by the Issue Price with those of selected companies listed on the SGX-ST Mainboard and SGX Catalist that are principally engaged in the business of compact discs and data storage products and are, in our opinion, broadly comparable to the Group (the Comparable Companies ). In addition, we have expanded our coverage to include broader Comparable Companies which are engaged in the manufacture and sale of electronic products that are related to the media industry such as audiovisual entertainment devices, including liquid crystal display (LCD) televisions, portable digital versatile disc (DVD) players and DVD recorders. We wish to highlight that the Comparable Companies are not exhaustive and they differ from the Company in terms of, inter alia, market capitalisation, size of operations, clientele base, composition of business activities, asset base, geographical spread, track record, operating and financial leverage, risk profile, liquidity, accounting policies, future prospects and other relevant criteria. As such, any comparison made is necessarily limited and merely serves as an illustrative guide. The following is a brief description of the Comparable Companies: Company Action Asia Limited Anwell Technologies Limited Contel Corporation Limited Datapulse Technology Limited Plastoform Holdings Limited Swing Media Technology Group Limited Principal Business Action Asia Limited designs, manufactures, and assembles color television liquid crystal display receivers and black and white television receivers with or without players. Anwell Technologies Limited manufactures thin film solar modules and optical media with its proprietary technologies and in-house designed equipment. The company also designs, produces and sells industrial equipments for manufacture of solar modules, optical media and organic light emitting diode panels. Contel Corporation Limited manufactures and markets digital media products. The company produces digital versatile disc ( DVD ) players, home theatre systems, DVD recordable players, digital media players, and portable DVD players. Datapulse Technology Limited manufactures and sells media storage products used in content distribution including compact discs, digital versatile discs, and micro floppy diskettes. The company also distributes Quantegy professional lines of audio and video products. Plastoform Holdings Limited manufactures audio speakers. The company produces speakers for personal computers, and mobile and multimedia devices. Swing Media Technology Group Limited is a manufacturer of data storage products. The company manufactures video cassette housing products, compact discs, digital versatile discs, compact disk-recordables and business card compact discs. Sources: Bloomberg, Annual Reports of the Comparable Companies C-21

148 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED For the purpose of our evaluation and for illustration, we have made comparisons between the Company and the Comparable Companies on a historical basis using the following: (a) (b) Price-earnings ratio ( PER ). The historical PER is commonly used for the purposes of illustrating the profitability and hence the valuation of a company as a going concern; and Price-to-book NTA ratio ( P/NTA ). The P/NTA ratio or the NTA-based approach is used to show the extent the value of each share is backed by assets. The NTAbased approach of valuing a group of companies is based on the aggregate value of all the assets of the group in their existing condition, after deducting the sum of all liabilities of the group. However, we wish to highlight that the NTA-based approach would be relevant in the event that a company decides to realise or convert the use of all or most of its assets and will not be as meaningful in valuing a company as a going concern with earnings potential. In making the comparison of the P/NTA of the Company with those of the Comparable Companies, we have not considered the revaluation of any of the tangible assets that may show a materially different amount from that recorded in the statement of financial position of the Company or those of the Comparable Companies. Market Capitalisation as at the Latest Last Practicable Historical Historical financial Date PER (1) P/NTA (2) Comparable Company year end (S$ million) (times) (times) Action Asia Limited 31-Dec Anwell Technologies Limited 31-Dec n.m. (3) 0.58 Contel Corporation Limited 31-Mar n.m. (4) Datapulse Technology Limited 31-Jul Plastoform Holdings Limited 31-Dec n.m. (3) 1.09 Swing Media Technology Group Limited 31-Mar High Low Mean Median Company (Implied by the Issue Price) 31-Dec Sources: Bloomberg, Annual Reports and latest publicly available financial information of the respective Comparable Companies C-22

149 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED Notes: (1) The historical PER of the respective companies were computed based on their historical basic consolidated earnings per share as set out in their latest available published full-year results as at the Latest Practicable Date. (2) The P/NTA ratios of the respective companies were computed based on their respective NTA values as set out in their latest available published financial statements and their market capitalisation as at the Latest Practicable Date. The P/NTA of the Company was computed based on the Issue Price. (3) n.m. denotes not meaningful as Anwell Technologies Limited and Plastoform Holdings Limited were lossmaking according to their latest available published full-year results as at the Latest Practicable Date. (4) n.m. denotes not meaningful as Contel Corporation Limited was in a net liabilities position based on its latest available published financial statement. Based on the above, we note that: (i) (ii) the historical PER as implied by the Issue Price of times is significantly higher than the PERs of the Comparable Companies. In this regard, we wish to highlight that unlike Action Asia Limited, Datapulse Technology Limited and Swing Media Technology Group Limited, which had been profitable for their respective past 3 financial years, the Company had incurred losses for FY2008 and FY2009 before recording a net profit after taxation of S$0.63 million for FY2010 (or an EPS of S$ per Share). Hence, a PER comparison in this case for the Company may not be meaningful; and the historical P/NTA ratio as implied by the Issue Price of 0.78 times is within the range of the P/NTA ratios of the Comparable Companies, and is comparable to the median and mean of the historical P/NTA ratios of the Comparable Companies Comparison of valuation statistics of selected listed companies which have completed VSAs or RTOs In our assessment of the Issue Price, we have also compared the valuation statistics implied by the Issue Price with those of selected recently completed VSA or RTO of companies listed on the SGX-ST Mainboard and SGX Catalist announced since January 2009 to the Latest Practicable Date (the Recent VSA/RTO Transactions ). The comparison is to illustrate: (a) (b) the premium or discount represented by the Issue Price to the last traded price prior to the announcement of the respective Recent VSA/RTO Transactions; and the premium or discount represented by the Issue Price to the NTA of the respective listed companies. We wish to highlight that the list of companies involved in the Recent VSA/RTO Transactions as set out in the analysis below are not directly comparable to the Group or each of Westlite and JVCo in terms of size, market capitalisation, business activities, asset base, geographical spread, track record, accounting policy, future prospects and other relevant criteria. Each transaction must be judged on its own commercial and financial merits. In addition, the list of Recent VSA/ RTO Transactions is by no means exhaustive and information relating to the Recent VSA/RTO Transactions was compiled from publicly available information. Therefore, any comparison with the Recent VSA/RTO Transactions is for illustrative purpose only and merely serves as a guide to illustrate the relative premiums or discounts for the transactions. C-23

150 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED SGX Mainboard/ Company SGX Catalist Summary of the VSA/RTO C&G Industrial Holdings Limited ( C&G ) (Currently known as C&G Environmental Protection Holdings Limited) Westech Electronics Limited ( Westech ) (Currently known as WE Holdings Ltd.) Friven & Co. Ltd. ( Friven ) Wepco Ltd ( Wepco ) (Currently known as HSR Global Limited) Esmart Holdings Limited ( Esmart ) (Currently known as Duty Free International Limited) SGX Mainboard SGX Catalist SGX Catalist SGX Catalist SGX Catalist C&G acquired the entire issued and paid up share capital of CuGu Environmental Protection International Limited for a consideration of RMB564 million by the allotment and issue of new shares, resulting in the vendors of CuGu Environmental Protection International Limited holding approximately 70.6% of the enlarged share capital of the company. Westech acquired the entire issued and paid up share capital of Plexus Components Pte Ltd for a consideration of S$10 million by the allotment and issue of new shares, resulting in the vendors of Plexus Components Pte Ltd holding approximately 84.0% of the enlarged share capital of the company. Friven acquired the entire issued and paid up share capital of China Children Fashion Holdings Pte. Ltd. for a consideration of S$64 million by the allotment and issue of new shares, resulting in the vendors of China Children Fashion Holdings Pte. Ltd. holding approximately 62.7% of the enlarged share capital of the company. Wepco acquired the entire issued and paid up share capital of HSR International Realtors Pte Ltd for a consideration of S$40 million by the allotment and issue of new shares, resulting in the vendors of HSR International Realtors Pte Ltd holding approximately 73.7% of the enlarged share capital of the company. Esmart acquired the entire issued and paid up share capital of Darul Metro Sdn Bhd and a controlling stake of 74.7% interests in DFZ Capital Berhad for an aggregate consideration of S$285 million by the allotment and issue of new shares, resulting in the vendors of Darul Metro Sdn Bhd and DFZ Capital Berhad holding approximately 96.2% of the enlarged share capital of the company. C-24

151 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED SGX Mainboard/ Company SGX Catalist Summary of the VSA/RTO Eagle Brand Holdings Limited ( Eagle Brand ) (Currently known as Nam Cheong Limited) SGX Mainboard Eagle Brand acquired the entire issued and paid up share capital of Nam Cheong Dockyard Sdn. Bhd. and 50% of the issued and paid-up share capital of Nam Cheong Offshore Pte. Ltd. for an aggregate consideration of S$472 million by the allotment and issue of new shares, resulting in the vendors of Nam Cheong Dockyard Sdn. Bhd. and Nam Cheong Offshore Pte. Ltd. holding approximately 74.9% of the enlarged share capital of the company. Premium/(Discount) of issue price Issue over/(to) the last Issue price/ Date of Price traded price prior to NTA Name of Company announcement (S$) announcement (%) (times) C&G (1) 11-May Westech 1-Jul (2) (94.00) n.m. (3) Friven & Co. 10-Sep Wepco 16-Nov Esmart 28-Jun Eagle Brand 1-Oct High Low (94.00) 0.66 Mean Median Jan-11 (Term Sheet Announcement Date) Company 0.10 (25.93) Apr-11 (Announcement Date) 0.10 (39.39) 0.78 Source: Circulars of the respective Recent VSA/RTO Transactions Notes: (1) On 16 April 2009, C&G announced that it had entered into a non-binding memorandum of understanding ( MOU ) in relation to the proposed acquisition of CuGu Environmental Protection International Limited (the CuGu Acquisition ). On 11 May 2009, C&G announced that it had entered into a sale and purchase agreement for the CuGu Acquisition at an issue price of S$0.21 per share and subsequently on 26 June 2009, C&G announced that the issue price has been revised to S$0.24 per share pursuant to a supplemental sale and purchase agreement. C-25

152 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED The premium of the issue price over the last transacted price as set out in the table above is based on the initial issue price of S$0.21 per share over the last transacted price prior to the announcement of the sale and purchase agreement as the MOU announcement did not contain details on the issue price for the consideration shares. The ratio of the issue price to NTA is based on the revised issue price of S$0.24 per share to the book value per share as extracted from the circular dated 29 December (2) Based on the adjusted issue price which was adjusted based on the consolidation ratio of every 100 shares into one consolidated share pursuant to the proposed share consolidation. (3) n.m. denotes not meaningful as Westech was in a net liabilities position. Based on the above, we note that: (i) (ii) (iii) the discount implied by the Issue Price to the last transacted price prior to the Term Sheet Announcement Date and the Announcement Date of 25.93% and 39.39% respectively is within the range of premia/discounts to the last traded price of the Recent VSA/RTO Transactions but below the mean and median statistics of the Recent VSA/RTO Transactions; the historical P/NTA ratio as implied by the Issue Price of 0.78 times is within but at the lower end of the range of the P/NTA ratios of the Recent VSA/RTO Transactions; and as explained in Section of this Letter, the share price of the Company had moved significantly since the start of negotiations of the Proposed Acquisitions and had maintained well above the Issue Price, resulting in the discounts statistics as shown in the table above. 6.4 Assessment of the Westlite Consideration and the JVCo Consideration Assessment of the Westlite Consideration We note that the Westlite Consideration of S$84,970,274 was arrived at after arms length negotiations, on a willing-buyer willing-seller basis, and was determined based on, and is equivalent to, the RNAV of Westlite as at 31 December 2010 (adjusted to assume that shareholders loans as at 31 December 2010 have been capitalized into equity), and on the basis of an independent valuation of the Westlite Dormitory and the Premises on a redevelopment basis. Please see further details on Westlite as set out in Section of this Letter. The Westlite Shares will be acquired with all rights and benefits accruing thereto with effect from the date of completion of the Westlite Acquisition. It should be noted that all retained earnings of Westlite from 1 January 2011 and up to and including the date of completion of the Westlite Acquisition and any distributions or dividends declared and/or paid out of such retained earnings shall be for the account of the Westlite Vendors, subject to certain conditions and limitations as set out in Section of the Letter to Shareholders in the Circular. The Company has engaged Chesterton to carry out an independent valuation of the Westlite Dormitory and the Premises. Based on the valuation report by Chesterton (the Westlite Valuation Report ) (a copy of which is set out in Appendix I to the Circular), the valuation of the Westlite Dormitory and the Premises as at 12 January 2011 on a redevelopment basis was S$120.0 million. This will result in a revaluation surplus of S$62.7 million above the net book value of S$57.3 million of the leasehold land and building constituting the Westlite Dormitory and the Premises. It should be noted that the associated development and construction costs for the redevelopment of a new block to the Westlite Dormitory estimated at S$35.0 million to S$40.0 million would be further incurred by the Company when the Upgrading Works is undertaken. C-26

153 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED Based on the audited financial statements of Westlite for FY2010, shareholders equity was S$5.2 million and shareholders loans to Westlite was S$17.1 million, totalling S$22.3 million. On the basis that the shareholders loans are to be assigned to the Company and assumed as though they are capitalized as equity, the RNAV of Westlite as at 31 December 2010 on a redevelopment basis will amount to approximately S$85 million. We note that Westlite made profit after taxation of approximately S$5.7 million and S$5.7 million on revenue of S$12.1 million and S$12.0 million for FY2009 and FY2010, achieving commendable net profit after tax margins of 46.8% and 47.3% respectively. Its NTA as at 31 December 2010 was S$5.2 million. On a PER basis, the Westlite Consideration represents a PER of approximately 15 times. However, as the property is an investment property yielding income, we have considered evaluating the Westlite Consideration on a yield basis. Its historical net profit after taxation of S$5.7 million for FY2010 represents a net profit yield of 6.7% on the Westlite Consideration. In addition, we note that based on the Singapore Foreign Worker Dormitory Market Study by Jones Lang LaSalle Property Consultants Pte Ltd dated April 2011 as set out in Appendix H to the Circular, the worker dormitory market in Singapore is characterized by near 100% occupancy levels, with significant demand and supply imbalances and a constant backlog of prospective tenants and rising rental rates. We further note that as set out in Section 2.11 of the Letter to Shareholders from Westlite in the Circular, (i) the units in the Westlite Dormitory are generally fully rented out except for brief downtime of between one to three days when units were vacated in preparation of new residents and (ii) there is a waiting list of customers who wish to rent units in the Westlite Dormitory. As part of the terms of the Westlite Acquisition, the Westlite Vendors are giving a Westlite Profit Warranty for an Adjusted Aggregate NPAT of S$10.2 million for FY2011 and FY2012, as detailed in Section 3.1.2(B) of the Letter to Shareholders in the Circular. On the back of this Westlite Profit Warranty, the Westlite Consideration will ensure a minimum net profit yield of 6% for FY2011 and FY2012 on average. However, it should be noted that depending on the date of completion of the Westlite Acquisition, as noted above, retained earnings accruing from 1 January 2011 and up to and including the date of completion of the Westlite Acquisition and any distributions or dividends declared and/or paid out of such retained earnings shall be for the account of the Westlite Vendors, subject to certain conditions and limitations as set out in Section of the Letter to Shareholders in the Circular. In addition, pursuant to the terms of the Westlite Acquisition, the Additional Shareholders Loan will be repaid by the Company within 30 days from the completion date of the Westlite Acquisition. In evaluating the reasonableness of the Weslite Consideration, we have considered the following: (i) (ii) (iii) Independent valuation of the Westlite Dormitory and the Premises by Chesterton; Comparison with the dividend yields of selected industrial real estate investment trusts ( REITs ) listed on the SGX-ST Mainboard; and Comparison with recent sales transactions of dormitories in Singapore. C-27

154 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED Independent valuation of the Westlite Dormitory and the Premises by Chesterton We have reviewed the Westlite Valuation Report and we note, inter alia, the following: (i) (ii) (iii) The valuation of the subject property at S$120.0 million, is valued on a redevelopment basis by taking into consideration the potential enhancement through the Upgrading Works at a higher plot ratio of 3.2; Chesterton had adopted the income capitalisation method and the discounted cash flow ( DCF ) analysis to value the subject property. Under the Income Approach, the net income is capitalized at an appropriate yield rate to arrive at the open market value. The net income is derived by deducting from the gross rentals and other income, operating expenses like property management service fees, utilities and property tax. Under the DCF approach, Chesterton had adopted an 11-year cash flow in computing the valuation. The DCF approach is based on an analysis of the cashflows of rental revenue from dormitory use and commercial rent with provision for appropriate growth rates and inflation rates over the period of the balance lease term for dormitory use. Upon expiry of the initial term for dormitory use, Chesterton had made a projection on the capital value of the land for general industrial use for its reversionary interest in the property. The projected net income of the property is discounted at an appropriate market derived rate to arrive at the present value of the net income for the term. The reversionary capital value of the land and the sum of the net present values will provide the capital value of the subject property. The subject property is on a lease approved for use as worker dormitory for 30 years from 12 September 2002 to 11 September Upon expiry of the initial 30-year term, the subject plot will revert to clean and light industrial development use only; and The valuation of the Westlite Dormitory and the Premises by Chesterton, on a redevelopment basis, had taken into account the written permission from the URA to increase the plot ratio of the subject property from 2.0 to 3.2 which includes the proposed additions and alternations to the existing workers dormitories development and the erection of a new 18-storey block dormitory. The enhancement will, inter alia, increase the gross floor area by 14,022 sq m from 23,371 sq m to 37,393 sq m and the proposed 18-storey block dormitory will provide an additional 207 dormitory units, having 12 beds per unit, thereby increasing its capacity from approximately 5,300 beds to 8,000 beds. The estimated development cost inclusive of all related fees, development charges and premiums payable is S$35.0 million. The Upgrading Works have not commenced yet. As at the Latest Practicable Date, Westlite has updated the estimates for the proposed redevelopment work to be in the range of S$35.0 million to S$40.0 million. In light of this higher estimated cost, Chesterton has confirmed that its valuation of S$120.0 million is still reasonable and supportable as the overall market demand and rental rates for workers dormitories is still healthy and on the uptrend. In light of the aforementioned, we note that the basis of the Westlite Consideration is supported by the independent market valuation of the Westlite Dormitory and the Premises (on a redevelopment basis), being the principal asset of Westlite. C-28

155 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED Comparison with the dividend yields of selected industrial REITs listed on the SGX-ST Mainboard For the purpose of our evaluation of the Westlite Consideration, we have considered companies whose business activities are broadly comparable with Westlite. We note that there are no comparable companies for the dormitory accommodation and services provision business of Westlite as the said business is specifically for the foreign worker dormitory market. In light of the lack of comparables, we have expanded our coverage to include companies, more specifically, selected Singapore industrial REITs, listed on the SGX-ST Mainboard, which are in the business of managing industrial properties and are, in our opinion, broadly comparable to Westlite based on the nature of Westlite s business operations (the Westlite Comparable Companies ). We wish to highlight that the list of the Westlite Comparable Companies is not exhaustive and they differ from Westlite in terms of, inter alia, the trust structure, the composition of the business activities, company size, types of properties, clientele base, risk profile, geographical spread, track record, operating and financial leverage, accounting standards and policies used, future prospects and such other relevant criteria. As such, any comparison made is necessarily limited and merely serves as an illustrative guide. A brief description of the Westlite Comparable Companies is set out as below: REIT AIMS AMP Capital Industrial REIT Ascendas REIT CACHE Logistics Trust Cambridge Industrial Trust Mapletree Industrial Trust Mapletree Logistics Trust Sabana Shari ah Compliant REIT Description AIMS AMP Capital Industrial REIT invests in industrial properties in Singapore. Ascendas REIT owns and invests in diverse, income producing portfolio of business park (including science park), light industrial, hi-tech industrial and logistic properties in Singapore. CACHE Logistics Trust invests in income-producing real estate used for logistic purposes in Asia-Pacific, as well as real estate related assets. Cambridge Industrial Trust invests in industrial income-producing real estate and related assets. Mapletree Industrial Trust invests directly or indirectly, in a diversified portfolio of income-producing real estate used primarily for industrial purposes, whether wholly or partially in Singapore as well as real estate-related assets. Mapletree Logistics Trust is an Asian-focused logistics real estate investment trust which invests in a diversified portfolio of incomeproducing real estate that is used for logistics purposes. Sabana Shari ah Compliant REIT was established principally to invest in income-producing real estate used for industrial purposes in Asia as well as real estate related assets, in line with Shari ah investment principles. Source: Bloomberg, Annual Reports of the respective Westlite Comparable Companies C-29

156 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED For the purpose of our evaluation and for illustration, we have made comparisons of the Westlite Comparable Companies using their respective annualised dividend yield which is commonly used as a measure to compare the distributable income of REITs and compared them with the net profit yield of Westlite based on the net profit of Westlite for FY2010 and the Westlite Consideration. The valuation statistics of the Westlite Comparable Companies based on their last traded price as at the Latest Practicable Date are set out below: Market Capitalisation Trailing as at the Latest 12 months Practicable Date Dividend Westlite Comparable Company (S$ million) Yield (1) (%) AIMS AMP Capital Industrial REIT Ascendas REIT 4, CACHE Logistics Trust (2) Cambridge Industrial Trust Mapletree Industrial Trust 1, (3) Mapletree Logistics Trust 2, Sabana Shari ah Compliant REIT (4) High 9.58 Low 6.49 Mean 7.87 Median 7.00 Westlite net profit yield (implied by the Westlite Consideration) (5) Source: Bloomberg, Annual Reports and financial results announcements of the respective Westlite Comparable Companies Notes: (1) The trailing 12 months distributable income figures are based on the latest 12-month results sourced from the latest available quarterly results announcements and annual reports as at the Latest Practicable Date. (2) CACHE Logistics Trust was listed on the Mainboard of the SGX-ST on 12 April 2010 and the distributable income per unit is based on the annualised distributable income per unit for the period from 11 February 2010 to 31 March (3) Mapletree Industrial Trust was listed on the Mainboard of the SGX-ST on 21 October 2010 and the distributable income per unit is based on the annualised distributable income per unit for the period from 21 October 2010 to 31 March (4) Sabana Shari ah Compliant REIT was listed on the Mainboard of the SGX-ST on 26 November 2010 and the distributable income per unit is based on the annualised distributable income per unit for the period from 29 October 2010 to 31 March (5) Based on the net profit after taxation of Westlite of S$5.7 million for FY2010. C-30

157 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED Based on the above, we note that the dividend yield implied by the Westlite Consideration of 6.71% is within the range of the dividend yield of the Westlite Comparable Companies but is below the mean and median dividend yield of the Westlite Comparable Companies Comparison with recent sales transactions of dormitories in Singapore We noted the following recent physical market transactions of the Dormitories (as defined below) which could be used broadly as a comparison to evaluate the reasonableness of the Westlite Consideration for the Westlite Acquisition. In November 2010, Avery Strategic Investments sold four dormitories, namely Kian Teck Dormitory, Woodlands Dormitory, Tampines Dormitory and Avery Lodge (collectively, the Dormitories ) to a consortium comprising local and foreign investors for a total consideration of approximately S$380 million. For illustration purposes only, the key statistics of the Dormitories and Westlite are set out below: Westlite (on Kian Teck Woodlands Tampines Avery redevelopment Dormitory (1) Dormitory (1) Dormitory (1) Lodge (1) basis) Lot Area 293, , , , ,779 (2) (square feet) Land Tenure 30 years 30 years 30 years 30 years 30 years expiring expiring expiring expiring expiring 30 Oct May Mar Sep Sep 2032 Gross Floor Area (square feet) 473, , , , ,490 (2) No. of Blocks 11 blocks of 3 blocks of 3 blocks of 5 blocks of 5 blocks of 5- / Floors 5-storey 6-storey 6-storey 6-storey storey buildings, buildings & buildings & buildings & buildings & 3 blocks of 6-1 block of 1 block of 1 block of 1 block of storey buildings & 2-storey 2-storey 2-storey 2-storey 1 block of 18- building building building building storey building Worker Capacity (Number of Beds) 5,424 4,862 4,818 8,004 8,000 Occupancy Rate 100% 100% 100% 100% 100% (for FY2010) Implied value per bed S$16,445 S$15,621 (3) Notes: (1) Information of the respective Dormitories are based on the Singapore Foreign Worker Dormitory Market Study by Jones Lang LaSalle Property Consultants Pte Ltd dated April 2011 as set out in Appendix H to the Circular. (2) Information of Westlite is based on the Westlite Valuation Report and conversion from sq m to sq ft (based on 1 sq m : sq ft) for comparison purposes. (3) The implied value per bed of the Westlite Acquisition (on a redevelopment basis) is calculated based on the aggregate sum of (i) the Weslite Consideration of S$84,970,274 and (ii) the estimated development and construction costs of up to S$40.0 million to be incurred by the Company when the Upgrading Works is undertaken, divided by the enlarged number of beds after the Upgrading Works is completed. C-31

158 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED Based on the above information, we note that the implied value per bed of the Westlite Acquisition is slightly lower and comparable to the implied value per bed of the Dormitories. In this aspect, we wish to highlight that the Comparable Transactions shown above are by no means exhaustive and are meant for illustrative purposes only. In addition, we wish to highlight that the above comparison is limited due to, inter alia, the differing location, tenure, lot area and capacity of the dormitories Assessment of the JVCo Consideration The JVCo Acquisition comprises the acquisition of Centurion s entire 45% shareholding interest in JVCo and the assignment by Centurion of its share of the shareholders loans advanced to JVCo up to the completion date of the JVCo Acquisition. The purpose of the shareholders loans to JVCo is to fund the acquisition costs of the Mandai Land, applicable taxes, related expense and operational expense of JVCo. The JVCo Consideration is equivalent to the total amount of the equity financing and shareholders Loans contributed by Centurion to JVCo up to and including the completion date of the JVCo Acquisition, subject to the condition that such contribution by Centurion shall not be less than S$10 million as at the completion date of the JVCo Acquisition. The JVCo Consideration will be fully satisfied by the issue of 100 million new shares of the Company at the Issue Price. In the event that the total amount of equity financing and shareholders loans contributed by Centurion to JVCo exceeds S$10 million, the Company will pay Centurion the excess amount in cash no later than 30 days after the date of completion of the JVCo Acquisition. As at the Latest Practicable Date, Centurion has contributed a total amount of S$7,191,326 (comprising S$450,000 by way of equity and S$6,741,326 by way of shareholders loan). As at the Latest Practicable Date, Centurion s contribution by way of shareholders loan is not in accordance to its shareholding proportion in JVCo. In this regard, Centurion will contribute at least S$2.8 million to JVCo prior to the completion of JVCo Acquisition, such that its total contribution to JVCo is representative of its 45% shareholding interest in JVCo. In our assessment of the JVCo Consideration, we have given due consideration to the following pertinent factors: (i) (ii) JVCo was only incorporated on 4 January The Mandai Land, which JVCo eventually acquired for S$67.0 million on 7 April 2011, is the sole asset of JVCo. In this regard, we note that the open market value of the Mandai Land as at 13 January 2011, as appraised by Chesterton, was S$70.5 million (a copy of which is set out in Appendix J to the Circular), representing a revaluation surplus of approximately 5.2%. Please see further information on JVCo in Section of this Letter; As at the Latest Practicable Date, the paid up capital of JVCo was S$1 million, of which S$450,000 has been contributed by Centurion, representing its shareholding interest in JVCo. As at the Latest Practicable Date, the total investment by Centurion in JVCo amounted to S$7.19 million (comprising S$0.45 million by way of equity and S$6.74 million by way of shareholders loan). The Directors have confirmed that they expect the total investment by Centurion in JVCo will be no less than S$10 million by the date of completion of the JVCo Acquisition as this is a condition of the JVCo Acquisition. We note that as at 31 May 2011, total shareholders loans to JVCo amounted to S$19.67 million, of which Centurion extended shareholders loans of S$6.74 million, representing 34.3% of the total shareholders loans to JVCo; C-32

159 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED (iii) (iv) The Issue Price for the new shares of the Company to satisfy the JVCo Consideration is also at S$0.10 each. Our analysis and evaluation of reasonableness of the Issue Price are as set out in Section 6.3 of this Letter; and the JVCo Acquisition is conditional upon, inter alia, the completion of the Westlite Acquisition. Accordingly, if the Westlite Acquisition does not complete, the JVCo Acquisition will not proceed to completion. Accordingly, we are of the opinion that the JVCo Consideration is reasonable taking into consideration that (i) the Company is essentially acquiring JVCo effectively at cost from Centurion; (ii) the revaluation surplus of approximately 5.2% over the acquisition price paid by JVCo for the Mandai Land and (iii) JVCo does not as yet have any other business or assets other than the Mandai Land. 6.5 Financial effects of the Proposed Acquisitions on the Group The financial effects of the Proposed Acquisitions, the Proposed Share Issue and the Proposed Share Consolidation (the Proposed Transactions ) on the Group are set out in Section 5 of the Letter to Shareholders in the Circular, are based, inter alia, on the latest audited financial statements of the Group for FY2010 and certain assumptions. We recommend the Independent Directors to advise the Independent Shareholders that the financial effects are for illustrative purposes only and do not purport to be an indication or a projection of the results and financial position of the Company and the Group after the completion of, inter alia, the Proposed Acquisitions. From the above, in summary, we note that the Proposed Acquisitions would result in following financial effects for the Group: (a) (b) (c) (d) the share capital of the Company will increase substantially as a result of the issuance of the Consideration Shares for the Proposed Acquisitions; the earnings of the Group and the earnings per Share of the Group will increase as a result of the Proposed Acquisitions due mainly to the accretive earnings of the Westlite Acquisition; the NTA of the Group will increase as a result of the Proposed Acquisitions but the NTA per Share will decrease due mainly to the issuance of the Consideration Shares which is higher in proportion to the increase in NTA; and the net gearing of the Group will increase after the Proposed Acquisitions as a result of higher borrowings despite the increase in shareholders equity of the Group arising from the issuance of the Consideration Shares. In addition, we note that as set out in Section 5 of the Letter to Shareholders in the Circular, upon completion of the Proposed Transactions, in accordance with FRS 103 Business Combinations, the Enlarged Group is required to carry out a purchase price allocation exercise to assess the fair values of the net identifiable assets of the Group. The excess of the cost of the reverse acquisition over the fair values of the net identifiable assets will be recorded as goodwill in the balance sheet and subject to an annual impairment test. If the cost of the reverse acquisition is less than the fair values of the net identifiable assets, the difference is recognised directly in profit and loss as a gain on bargain purchase. In this regard, we wish to draw the attention of the Shareholders to the following risk factor as set out in Section 12 of the Letter to Shareholders in the Circular: If goodwill arises from the Proposed Acquisitions, the impairment of goodwill in the current or subsequent financial periods may materially affect the income statement and financial position of the Enlarged Group. C-33

160 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED The Proposed Acquisitions upon completion may result in goodwill being recognised in the financial statements of the Enlarged Group for FY2011. The goodwill represents an excess of the cost of the reverse acquisition over the fair values of the net identifiable assets of the Group. The cost of reverse acquisitions will depend on the share price of the Company at the date of the actual transfer of shares at the completion of these Proposed Transactions. As such, the actual goodwill will be determined at the completion of the Proposed Transactions, and will be accounted for in accordance with the accounting policies of the Enlarge Group. The accounting policies also requires the goodwill to be tested for impairment on an annual basis or more frequently if there are indication of impairment. This assessment may lead to an impairment charge to be recorded in the income statements of the Enlarged Group in the current or subsequent financial periods. Any impairment charge against the goodwill could have a material negative impact on the profits of the Enlarged Group to be reported in respect of the current or subsequent financial periods. 6.6 Dilution impact arising from the Proposed Acquisitions The shareholding figures referred to in this Section 6.6 of this Letter do not take into account the Proposed Share Consolidation. The shareholding structure of the Company before and after the Proposed Acquisitions is set out below and in Section 11.4 of the Letter to Shareholders in the Circular: Before Proposed Acquisitions After Proposed Acquisitions No. of shares % No. of shares % Non-Public Shareholders Lee Kerk Chong 58,432, ,432, Kong Chee Min 34,375 n.m. 34,375 n.m. Gn Hiang Meng 450, ,000 n.m. Bin Hee Din Tony (1) 100,000 n.m. 100,000 n.m. Teo Peng Kwang (1) 625, ,589, Other non-public Shareholders 6,363, ,363, Obliged Parties 116,247, ,985, Public Shareholders (1) 180,167, ,167, Total 362,419, ,312,122, Notes: (1) Bin Hee Din Tony and Teo Peng Kwang are deemed public shareholders prior to the completion of the Proposed Acquisitions. However, we have excluded their respective shareholding interests from the public shareholding figures in our analysis below as Bin Hee Din Tony will become an Executive Director of the Company and Teo Peng Kwang will become a substantial shareholder of the Company, and both will thus cease to be public shareholders after the Proposed Acquisitions. (2) n.m. denotes not meaningful. As shown above, immediately upon the completion of the Proposed Acquisitions but before the Compliance Placement, the Controlling Shareholders, through their direct and indirect interests, will have their shareholding interests increased from 32.1% to approximately 73.5% of the enlarged issued share capital of the Company. C-34

161 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED There is therefore no change in controlling interest in the Company, controlling interest being defined as shareholding interest of at least 15% under the SGX Listing Manual. The Obliged Parties will continue to be the single largest controlling shareholding group of the Company after the Proposed Acquisitions. Public Shareholders will, however, have their shareholding interest substantially diluted from 49.7% to 13.7% after the completion of the Proposed Acquisitions but before the Compliance Placement. We note that the Company is proposing to allot and issue new Shares (or new Consolidated Shares subsequent to the Proposed Share Consolidation) via the Compliance Placement so as to meet the free float requirements of the SGX Listing Manual to maintain its listing status following the Proposed Acquisitions. Such placement of new Shares will result in the decrease in the Obliged Parties shareholding interest in the Company, and will further dilute the existing public shareholders interest in the Company. Nonetheless, it appears that the dilution may be limited to the extent to meet the SGX-ST s minimum free float requirement of at least 25% to be held in the hands of at least 500 public shareholders. Based on the above table, the public float of the Company after the Proposed Acquisitions but before the Compliance Placement will be 13.7%. Pursuant to the Compliance Placement of up to 200 million New Shares, the shareholding interest of the Public Shareholders will be further diluted to 11.9% and the Obliged Parties shareholding interest will be reduced from 73.5% to 63.8%. 6.7 Other relevant considerations in relation the Proposed Acquisitions Profit Warranty provided by the Westlite Vendors As set out in Section 3.1.2(B) of the Letter to Shareholders in the Circular, we note that the Westlite Vendors have jointly and severally represented, warranted and undertaken to the Company that the NPAT of Westlite for FY2011 and for FY2012, adjusted for the Excluded NPAT in respect of Westlite, shall be at least S$10.2 million in total (the Westlite Profit Warranty ). In the event that the Aggregate NPAT (as adjusted for the Excluded NPAT (the Adjusted Aggregate NPAT ) is less than the Westlite Profit Warranty, the Westlite Vendors shall jointly and severally pay to the Company the full amount of shortfall (the NPAT Shortfall ) in cash, within seven (7) days after notice of the Adjusted Aggregate NPAT is delivered to the Westlite Vendors. Details of the Excluded NPAT is set out in in Section 3.1.2(B) of the Letter to Shareholders in the Circular. Pursuant to Rule 1013(1) and (2) of the Listing Manual, the Board of Directors of the Company and the auditors to Westlite, have provided their respective confirmations on the Westlite Acquisition. In this regard, we note that, as set out in Sections 3.1.2(B) of the Letter to Shareholders and Appendix F to the Circular: (i) (ii) The Board of the Company is of the view that it was reasonable for the Westlite Vendors to provide the Westlite Profit Warranty, so as to safeguard the interest of the Company in the Westlite Acquisition; and PricewaterhouseCoopers LLP, the Reporting Auditor, is of the opinion that based on its examination of the evidence supporting the stated assumptions by Westlite, nothing has come to its attention which causes it to believe that the stated assumptions by Westlite do not provide a reasonable basis for the profit forecast for FY2011 and the profit projection for FY2012 of Westlite, on which the Westlite Profit Warranty was based. C-35

162 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED Moratorium undertakings by the Westlite Vendors and Centurion As set out in Section 17 of the Letter to Shareholders in the Circular, the Westlite Vendors, namely, Centurion and Teo Peng Kwang, have undertaken that they shall not, during the period of 6 months commencing on the date of issue of the Westlite Consideration Shares, sell, transfer or otherwise dispose of the Westlite Consideration Shares, to be issued to it/him on the completion date of the Westlite Acquisition, in whole or in part. The Obliged Parties have also undertaken a 6-month moratorium on their existing direct and indirect shareholdings in the Company. In addition, Centurion has undertaken that it shall not during the period commencing on the date of the issue of the JVCo Consideration Shares and ending on the date falling 6 months after the date of completion of the Westlite Acquisition, sell, transfer or otherwise dispose of the JVCo Consideration Shares to be issued to it on completion of the JVCo Acquisition, in whole or in part. The above Shares that are subject to moratorium represent 81.2% of the enlarged share capital of 1,312,122,240 Shares after the completion of the Proposed Acquisitions but before the Compliance Placement, and represent 70.5% of the enlarged share capital of 1,512,122,240 Shares after the completion of the Proposed Acquisitions and the Compliance Placement Non-competition and non solicitation deeds by the Westlite Vendors As set out in Section of the Letter to Shareholders in the Circular, the completion of the Westlite Acquisition is conditional upon, inter alia, the execution of deeds of noncompetition and non-solicitation by each of the Westlite Vendors for an agreed period of restriction and with exceptions as disclosed in the Circular Non-Interested Person on the same terms as the Interested Person in the Westlite Acquisition We note that Mr Teo Peng Kwang, the other Westlite Vendor, being an independent third party, is transacting his Westlite Shares on the same terms as Centurion. As disclosed in Section 11.7 of the Letter to Shareholders in the Circular, Mr Teo Peng Kwang will be appointed as the Chief Operating Officer of the Dormitory Business of Centurion Dormitories Pte Ltd, after the Proposed Acquisition and will be entering into a 2 years service agreement with the Company. Centurion Dormitories Pte Ltd is to be set up as a wholly-owned subsidiary of the Company to hold its interest in the shares of Westlite and JVCo. 7. OUR RECOMMENDATION In arriving at our recommendation, we have reviewed and evaluated all the factors, including the views and representations of the Directors and management of the Company, which we deemed to have significant relevance to our assessment of the Proposed Acquisitions and the Proposed Whitewash Resolution. We have also made an evaluation as to whether the Proposed Acquisitions are on normal commercial terms and are not prejudicial to the interests of the Company and its minority Shareholders. In arriving at our conclusion, we have taken into account the following principal factors: (a) (b) the rationale of the Proposed Acquisitions which is to allow the Group to diversify from its current business and create a new revenue stream via the venture into the workers accommodation sector; the Proposed Acquisitions is conditional upon, inter alia, the approval of the Independent Shareholders for the Proposed Whitewash Resolution. Accordingly, if the approval of the Independent Shareholders is not obtained for the Proposed Whitewash Resolution, the Proposed Acquisitions will not proceed to completion; C-36

163 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED (c) (d) (e) (f) (g) (h) the Issue Price for the Proposed Acquisitions is reasonable after taking into consideration: (i) the share price performance of the Company over a 12-month period prior to the Term Sheet Announcement Date and up to the Latest Practicable Date, in particular, that the Issue Price was determined in September 2010 based on the then prevailing market share price which was prior to the run-up of the share price; (ii) the assessed valuation of the Group as implied by the Issue Price relative to the relevant NTA backing of the Group, and noting that the Shares have been trading mostly below its NTA value; and (iii) comparison of various valuation ratios with selected Comparable Companies and with other selected Recent VSA/RTO Transactions; the Westlite Consideration is reasonable as it supported by the independent market valuation of the Westlite Dormitory and the Premises (on a redevelopment basis), being the principal asset of Westlite, and after taking into consideration comparison with the dividend yields of selected Singapore industrial REITs listed on the SGX-ST (the Westlite Comparable Companies) and comparison with recent physical market transactions of dormitories in Singapore; the JVCo Acquisition is reasonable as the Company is acquiring JVCo effectively at cost from Centurion; the financial effects that the Proposed Acquisitions may have on the Group, in particular by the Westlite Acquisition as it is expected to contribute positively to the earnings of the Group in view of the Westlite Profit Warranty; the significant dilution impact on the shareholdings of existing Shareholders including the public Shareholders arising from the issue of the Westlite Consideration Shares and the JVCo Consideration Shares to the Obliged Parties. Nevertheless, it should be noted that the Obliged Parties will continue to be the single largest controlling shareholding group of the Company after the Proposed Acquisitions; and other relevant considerations including the reasonableness of the Westlite Profit Warranty provided by the Westlite Vendors as opined by the Board of Directors and PricewaterhouseCoopers LLP and the commitment of the Obliged Parties, the Westlite Vendors and Centurion to undertake a 6-month moratorium on their existing Shares, the Westlite Consideration Shares and the JVCo Consideration Shares, as the case may be. Having considered all of the above, we are of the view that, on balance, the Proposed Acquisitions and the Proposed Whitewash Resolution, when considered in the context of the Proposed Acquisitions, are on normal commercial terms and are not prejudicial to the interests of the Company and its minority Shareholders. Aside from the financial terms of the Proposed Acquisitions, Shareholders should take into consideration the Directors rationale for the Proposed Acquisitions, the Directors belief in the potential profit contribution by Westlite and JVCo to the Company which will enhance the prospects of the Group as well as shareholder value. In particular, with the existing business of the Group currently facing intense competition, the Proposed Acquisitions provide the Company with an opportunity to venture into the workers accommodation sector and allow it to acquire profitable businesses with healthy cashflows, thereby creating a new revenue stream for the Company. We therefore advise the Independent Directors to recommend that Independent Shareholders vote in favour of the Proposed Acquisitions and the Proposed Whitewash Resolution to be proposed at the EGM. C-37

164 APPENDIX C LETTER FROM THE IFA TO THE NON-INTERESTED DIRECTORS OF SM SUMMIT HOLDINGS LIMITED The Independent Directors should note that we have arrived at these conclusions based on information made available to us prior to and including the Latest Practicable Date. Our advice on the Proposed Acquisitions and the Proposed Whitewash Resolution cannot and does not take into account the future trading activity or patterns or price levels that may be established for the Shares as these are governed by factors beyond the scope of our review and would not fall within our terms of reference in connection with the Proposed Acquisitions and the Proposed Whitewash Resolution. Our opinion is addressed to the Independent Directors for their benefit and for the purpose of their consideration of the Proposed Acquisitions and the Proposed Whitewash Resolution. The recommendation to be made by them to the Independent Shareholders shall remain the responsibility of the Independent Directors. Whilst a copy of this Letter may be reproduced in the Circular, neither the Company nor the Directors may reproduce, disseminate or quote this Letter (or any part thereof) for any other purpose other than for the purpose of the EGM and for the purpose of the Proposed Acquisitions and the Proposed Whitewash Resolution, at any time and in any manner without the prior written consent of Provenance Capital in each specific case. Our opinion is governed by, and construed in accordance with, the laws of Singapore, and is strictly limited to the matters stated herein and does not apply by implication to any other matter. Nothing herein shall confer or be deemed or is intended to confer any right of benefit to any third party and the Contracts (Rights of Third Parties) Act, Chapter 53B of Singapore and any amendments thereto shall not apply. Yours faithfully For and on behalf of PROVENANCE CAPITAL PTE. LTD. Wong Bee Eng Chief Executive Officer Terence Lim Director C-38

165 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 CENTURION DORMITORY (WESTLITE) PTE LTD (Formerly known as Duchess Dormitory Pte. Ltd.) (Co. Reg. No M) Annual Report for the year ended 31 December 2008 ODDS & EVEN ASSOCIATES CERTIFIED PUBLIC ACCOUNTANTS D-1

166 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 CENTURION DORMITORY (WESTLITE) PTE. LTD. (Registration No: M) Directors Report The directors are pleased to submit this annual report to the members together with the audited financial statements of the Company for the financial year ended 31 December Directors The directors are as follows:- TEO PENG KWANG CHONG NIEN TONY BIN HEE DIN (Appointed on 01/02/2008) TANG KOK ONN SIMON (Appointed on 01/02/2008, Resigned on 31/08/2008) Directors Interests in Shares or Debentures According to the register kept by the Company for the purposes of Section 164 of the Companies Act, Chapter 50 (the Act ), particulars of interests of directors who held office at the end of the financial year in shares or debentures in the Company are as follows:- The Company Other holdings in which the Holdings in the name of the director is deemed to have director or nominee an interest At beginning At end At beginning At end of the year of the year of the year of the year Ordinary shares TEO PENG KWANG 120, ,000 CHONG NIEN TONY BIN HEE DIN Except as disclosed in this report, no director who held office at the end of the financial year had interests in shares or debentures of the Company at the beginning of the financial year, or date of appointment, if later, or at the end of the financial year. Neither at the end of, nor at any time during the financial year, was the Company a party to any arrangement whose objects are, or one of whose objects is, to enable the directors of the Company to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate. Directors Interests in Contracts Since the end of last financial year, no director has received or become entitled to receive a benefit by reason of a contract made by the Company or a related corporation with the director or with a firm of which he is a member or with a company in which he has a substantial financial interest. D-2

167 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 Share Options During the financial year, there were:- (i) (ii) no options granted by the Company to any person to take up unissued shares in the Company; and no shares issued by virtue of any exercise of option to take up unissued shares of the Company. As at the end of the financial year, there were no unissued shares of the Company under option. Auditors The auditors, Odds & Even Associates, have indicated their willingness to accept re-appointment. On behalf of the Board of Directors... TEO PENG KWANG Director... CHONG NIEN Director Singapore Date: 26 June 2009 D-3

168 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 CENTURION DORMITORY (WESTLITE) PTE. LTD. (Registration No: M) Statement by Directors We, being directors of CENTURION DORMITORY (WESTLITE) PTE LTD, do hereby state that in our opinion:- (a) (b) the financial statements and the notes thereon are drawn up so as to give a true and fair view of the state of affairs of the Company as at 31 December 2008 and of the results of the business, cash flows and changes in equity of the Company for the year ended on that date; and at the date of this statement there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due. The board of directors has, on the date of this statement, authorised these financial statements for issue. On behalf of the Board of Directors... TEO PENG KWANG Director... CHONG NIEN Director Singapore Date: 26 June 2009 D-4

169 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 Independent Auditors Report to the Members of CENTURION DORMITORY (WESTLITE) PTE. LTD. (Registration No: M) We have audited the accompanying financial statements of CENTURION DORMITORY (WESTLITE) PTE LTD (the Company) which comprise the balance sheet as at 31 December 2008, profit & loss account, statement of changes in equity and cash flow statement of the Company for the year then ended, and a summary of significant accounting policies and other explanatory notes. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the provisions of the Singapore Companies Act, Cap. 50 (the Act ) and Singapore Financial Reporting Standards. This responsibility includes: (a) (b) (c) devising and maintaining a system of internal accounting controls sufficient to provide a reasonable assurance that assets are safeguarded against loss from unauthorized use or disposition; and transactions are properly authorized and that they are recorded as necessary to permit the preparation of true and fair profit and loss accounts and balance sheets and to maintain accountability of assets; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessments of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. In our opinion:- (a) (b) the financial statements are properly drawn up in accordance with the provisions of the Act and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the Company as at 31 December 2008 and of the results, changes in equity and cash flows of the Company for the year ended on that date; and the accounting and other records required by the Act to be kept by the Company, have been properly kept in accordance with the provisions of the Act. Odds & Even Associates Certified Public Accountants Singapore Date: 26 June 2009 D-5

170 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 CENTURION DORMITORY (WESTLITE) PTE. LTD. (Registration No: M) BALANCE SHEET AS AT 31 DECEMBER 2008 Note S$ S$ ASSETS Non-current assets Investment property 5 60,405,767 Plant & equipments 6 148,269 60,554,036 Current assets Trade receivables 7 28,405 Deposits 8 59,100 4,794,600 Cash and cash equivalents 9 3,072, ,223 3,159,513 4,991,823 Total assets 63,713,549 4,991,823 EQUITY AND LIABILITIES Capital and reserves Share capital 11 1,000,000 1,000,000 Retained earnings 1,740,668 (8,092) 2,740, ,908 Equity loans 12 17,094,600 3,994,600 19,835,268 4,986,508 Non current liabilities Term loan- secured 13 37,355,569 Deferred tax 19 1,797 37,357,366 Current liabilities Trade payables 51,045 Other payables and accruals 10 1,985,349 4,230 Term loan- secured 13 3,466,656 Amount due to a director 4 1,085 Provision for income tax 1,017,865 6,520,915 5,315 Total equity and liabilities 63,713,549 4,991,823 See accompanying notes to the financial statements D-6

171 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 CENTURION DORMITORY (WESTLITE) PTE. LTD. (Registration No: M) PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER /01/08 23/07/07 to to Note 31/12/08 31/12/07 S$ S$ REVENUE 8,955,215 INTEREST INCOME 2,517 6 Administrative and operating expenses (3,518,847) (8,098) Finance costs (1,170,463) Profit/ (Loss) before tax 4,268,422 (8,092) Taxation 18 (1,019,662) Net Profit/ (Loss) for the year 17 3,248,760 (8,092) See accompanying notes to the financial statements D-7

172 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 CENTURION DORMITORY (WESTLITE) PTE. LTD. (Registration No: M) STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2008 Share Retained Note Capital earnings Total S$ S$ S$ Balance at 23 July Issue of share capital , ,999 Net Loss for the period (8,092) (8,092) Balance at 31 December ,000,000 (8,092) 991,908 Interim dividend paid (1,500,000) (1,500,000) Net Profit for the year 3,248,760 3,248,760 Balance at 31 December ,000,000 1,740,668 2,740,668 See accompanying notes to the financial statements D-8

173 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 CENTURION DORMITORY (WESTLITE) PTE. LTD. (Registration No: M) CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER S$ S$ Cash Flows from Operating activities Net Profit/ (Loss) before taxation 4,268,422 (8,092) Adjustments for: Depreciation 1,572,025 Operating profit/ (loss) before working capital changes 5,840,447 (8,092) Changes in trade and other receivables (87,505) Changes in trade and other payables 2,032,164 4,230 Net Cash from/ (used in) operating activities 7,785,106 (3,862) Cash Flows from Investing activities Purchase of investment properties (61,954,633) Purchase of plant & equipments (171,428) Deposit paid for purchase of dormitory 4,794,600 (4,794,600) Net Cash used in investing activities (57,331,461) (4,794,600) Cash Flows from Financing activities Proceeds from issuance of share capital 1,000,000 Proceeds from bank loans 40,822,225 Proceeds from loan from holding compnay 12,620,000 3,914,600 Advances from a director 478,915 81,085 Divdend paid (1,500,000) Net Cash from financing activities 52,421,140 4,995,685 Net Increase in cash and cash equivalents 2,874, ,223 Cash and Cash Equivalents at beginning of year 197,223 Cash and Cash Equivalents at end of year 3,072, ,223 Cash and Cash Equivalents comprise of the followings: Cash and Bank balances 2,874, ,223 Fixed deposits 197,223 3,072, ,223 See accompanying notes to the financial statements D-9

174 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 CENTURION DORMITORY (WESTLITE) PTE. LTD. (Registration No: M) Notes to the Financial Statements 31 December 2008 These notes form an integral part of the financial statements: 1. Domicile and activities CENTURION DORMITORY (WESTLITE) PTE LTD (Co. Reg. No M) (the Company ) is incorporated and domiciled in the Republic of Singapore with its registered office at 47 SCOTTS ROAD, #18-01 GOLDBELL TOWERS, SINGAPORE With effect from 1 June 2008, the Company changed its name to Centurion Dormitory (Westlite) Pte. Ltd., formerly known as Duchess Dormitory Pte. Ltd. The principal activities of the Company are those of property investments, provision of dormitory accommodation and dormitory services. 2. Significant accounting policies 2.1 Basis of preparation The financial statements have been prepared in accordance with Singapore Financial Reporting Standards (FRS) and Interpretations of Financial Reporting Standards (INT FRS) as required by the Companies Act. The financial statements are prepared under the historical cost convention except where an FRS requires certain fixed assets and financial assets to be measured at their fair values. At the beginning of the financial year, the Company adopted all new/revised FRSs and Interpretations to FRS (INT FRS) that are mandatory for application from that date. Changes to the Company s accounting policies have been made as required, in accordance with the relevant transitional provision in the respective FRS and INT FRS. The adoption of the above FRSs during the year did not result in any adjustments to the opening balances of accumulate profits of the prior and current periods. 2.2 Critical accounting estimates, assumptions and judgments The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future period affected. In particular, information about significant areas of estimation, uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are described in the following notes: Valuation of investment property The Company adopted the cost model for its investment property and account for investment property at cost less accumulated depreciation and impairment loss. As changes in the market condition and wear and tear of the assets could impact the economic useful lives and residual values of the investment property, future depreciation charges could be revised. D-10

175 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Significant accounting policies (Cont d) 2.3 Functional currency The functional currency of the Company is the Singapore dollar. As investment incomes and expenses are denominated primarily in Singapore dollars, the directors are of the opinion that the Singapore dollar reflects the economic substance of the underlying events and circumstances relevant to the Company. The financial statements are presented in Singapore dollars, unless stated otherwise. 2.4 Foreign currency translation Transactions in currencies other than the entity s functional currency are recorded at the exchange rates prevailing on the date of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rate prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences arising on the settlement of monetary items, and on retranslation of monetary items are included in the income statement for the period. Exchange difference arising on the retranslation of non-monetary items carried at fair value are included in the income statement for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognized directly in equity. For such non-monetary items, any exchange component of that gain or loss is also recognized directly in equity. 2.5 Investment property Investment property includes leasehold land and leasehold buildings that are held for long-term rentals yields and/or for capital appreciation, is measured at cost less accumulated depreciation and any impairment loss. Depreciation is provided on a straight-line basis so as to allocate the depreciable amounts of the investment property over its estimated useful life as follows:- Leasehold land Leasehold buildings - 50 years (remaining lease period) - 25 years (remaining lease period) 2.6 Plant and equipments All other items of plant and equipments are stated at cost less accumulated depreciation and impairment losses. The initial cost of plant and equipments comprises its purchase price, including import duties and non-refunded purchases taxes and any directly attributable costs of bringing the asset to its working condition and location for its intended uses, and trade discounts and rebates are deducted in arriving at the purchase price Depreciation is provided on a straight-line basis so as to write off items of plant and equipments from the date they are available for use over their estimated useful lives as follows:- Computer Furniture and fittings Air conditioners Office equipments - 3 years - 5 years - 5 years - 3 years Fully depreciated assets are retained in the financial statements until they are no longer in use. D-11

176 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Significant accounting policies (Cont d) 2.7 Impairment of non-financial assets At each balance sheet date, the company reviewed the carrying amount of its non-financial assets to determine whether there is any indication that those assets have suffered an impairment loss. If such indication exists, the recoverable amount of the assets is estimated in order to determine that extent of the impairment loss. If the recoverable amount of an asset/cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset/cash-generating unit is reduced to its recoverable value. 2.8 Financial assets Financial assets are classified as either financial assets at fair value through profit or loss, loans and receivables, held to maturity investments or available-for-sale financial assets, as appropriate. Financial assets are recognised on the balance sheet when, and only when, the company becomes a party to the contractual provisions of the financial instrument. When financial assets are recognised initially, they are measured at fair value, plus, in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs. The Company determines the classification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at each financial year-end. Loans and receivables Non-derivative financial assets with fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Such assets are carried at amortised cost using the effective interest method, less impairment losses. Gains and losses are recognised in profit and loss account when the loans and receivables are derecognised or impaired, as well as through the amortisation process. The Company classifies the following financial assets as loans and receivables: - Cash and cash equivalents - Trade and other receivables - Deposits The Company assesses at each balance sheet date whether there is any objective evidence that a financial asset carried at amortised cost is impaired. If there is objective evidence (such as significant financial difficulties of the debtor and default or significant delay in payments) that an impairment loss on financial assets carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the financial asset s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account. The impairment loss is recognised in the income statement. As at year end, no assets were classified as held-to maturity financial assets, available-for-sale financial assets or financial assets at fair value through profit or loss. 2.9 Cash and cash equivalents Cash and cash equivalents comprise cash balances and bank deposits. D-12

177 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Significant accounting policies (Cont d) 2.10 Financial liabilities Financial liabilities are recognised on the balance sheet when, and only when, the company becomes a party to the contractual provisions of the financial instrument. Financial liabilities are initially recognised at fair value of consideration received less directly attributable transaction costs and subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in the profit and loss account when the liabilities are derecognised as well as through the amortisation process. The liabilities are derecognised when the obligation under the liability is discharged or cancelled or expired Employee benefits (a) Defined contribution plan The Company participates in the defined contribution national pension and other welfare schemes as provided by the laws of the countries in which the Company operates. These include Central Provident Fund, a defined contribution plan regulated and managed by the Government of Singapore and other welfare schemes as provided by the laws in the PRC. The contributions to these schemes are charged to the income statement in the period to which the contribution relate. (b) Employee leave entitlement Employee entitlements to annual leave are recognized as a liability when they accrue to employees. The estimated liability for leave is recognized for services rendered by employees up to balance sheet date Income tax expenses Income tax expense comprises current and deferred tax. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognized using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which temporary differences can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized Revenue recognition Rental incomes are recognized on an accrual basis. Service income are recognized when the contractual rights providing the income has been obtained and service performed. Interest income is accrued on a time proportionate basis, by reference to the principal outstanding and at the interest rate applicable, on an effective yield basis. No income is recognized if there are significant uncertainties regarding recovery of the consideration due and associated costs. D-13

178 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Immediate and ultimate holding company The Company is a subsidiary of Centurion Properties Pte. Ltd., a company incorporated in Singapore. The ultimate holding company of the Company is Centurion Global Ltd, a company incorporated in The British Virgin Islands. 4. Amount due to a director The amount due to a director is non-trade, unsecured, interest-free and is payable on demand. 5. Investment property Leasehold Leasehold Land Buildings Total S$ S$ S$ Cost At 31/12/2007 Additions 46,465,975 15,488,658 61,954,633 At 31/12/ ,465,975 15,488,658 61,954,633 Depreciation At 31/12/2007 Charge for the year 929, ,546 1,548,866 At 31/12/ , ,546 1,548,866 Charge for 2007 Carrying amount At 31/12/ ,536,655 14,869,112 60,405,767 At 31/12/2007 On the basis of open market value, the fair value of the investment property estimated by the directors is approximately S$87 millions. D-14

179 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Plant and equipments Furniture Air Office Work in Computers & Fittings Conditioners Equipments Progress Total S$ S$ Cost At Additions 5,850 44,115 1,500 36,258 83, ,428 At ,850 44,115 1,500 36,258 83, ,428 Depreciation At Charge for the year 1,950 8, ,086 23,159 At ,950 8, ,086 23,159 Charge for 2007 Net Book Value At ,900 35,292 1,200 24,172 83, ,269 At Trade receivables Trade receivables are denominated in Singapore dollars, non-interest bearing and are generally repayable on presentation. They are recognised at their original invoice amounts which represent their fair values on initial recognition. As at 31 December 2008, the Company had trade receivables amounting to $28,405 (2007: $Nil) that were past due but not impaired. These receivables are unsecured and the analysis of the ageing at the balance sheet date was as follows: Trade receivables past due: S$ S$ Lesser than 90 days 28,282 More than 90 days , Deposits Deposit comprises of utilities deposits. D-15

180 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Cash and cash equivalents S$ S$ Cash at bank 3,071, ,223 Cash at hand 1,000 3,072, ,223 At the balance sheet date, the carrying amounts of cash and cash equivalents approximate their fair values and are denominated in Singapore dollars 10. Other payables and accruals S$ S$ Rental deposits received 1,948,930 Accrued bank interest 10,274 Other payables 4, Accrued operating expense 21,495 4,000 1,985,349 4,230 At the balance sheet date, the carrying amounts of other payables and accruals approximate their fair values and are denominated in Singapore dollars 11. Share capital Shares S$ Shares S$ Issued ordinary share capital At the beginning of financial year 1,000,000 1,000, Issued during financial year 999, ,999 At end of financial year 1,000,000 1,000,000 1,000,000 1,000,000 The ordinary shares of no par value carry no right to fixed income and are fully paid. The company is not subject to any externally imposed capital requirements. The primary objective of the company s capital management is to ensure that it maintains an appropriate capital structure in order to support its business and maximize equity holders value. The company manages capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the company may adjust the dividend payment to equity holders, return capital to equity holders or issue new shares. No changes were made in the objectives, policies or processes during the year ended 31 December 2008 and 31 December 2007 respectively. D-16

181 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Share capital (Cont d) The company monitors capital using a gearing ratio, which is bank borrowings divided by equity plus bank borrowings as follows: S$ S$ Term loan 40,822,225 Equity attributable to equity holders of the Company 19,835,268 60,657,493 Gearing ratio 67% The Company is in compliance with all borrowing covenants for the financial years ended 31 December Equity loans S$ S$ From a director 560,000 80,000 From holding company 16,534,600 3,914,600 17,094,600 3,994,600 Loans from holding company and a director are non-trade in nature, unsecured, interest-free and are only repayable when the Company is able to. The loans are deemed to be quasi-equity in nature. 13. Bank borrowing S$ S$ Term loan A- secured 37,555,558 Term loan B- secured 3,266,667 40,822,225 The term loans are repayable: Within one year 3,466,656 Between 2 to 5 years 13,133,338 After 5 years 24,222,231 40,822,225 Both Term loan A and B s carrying amount approximate their fair value, bear floating interest rate at 2.08% to 3.78% and secured over the investment property with carrying book value of S$60,405,767, assignment of rental income, insurances, personal and corporate guarantee from directors and the immediate holding Company respectively. D-17

182 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Staff costs Staff costs are recognised in the following line items in the profit and loss accounts: S$ S$ Administrative and operating expenses Director s remuneration (note 15) 67,424 Other staff s salaries and bonuses 168,554 Employer s contribution to defined contribution plans 25,147 Others 6, , Key management personnel compensation Key management personnel refer to persons having authority and responsibilities for planning, directing and controlling activities of the entity, including directors and officers of the companies. Key management personnel remuneration is recognised in the following line items in the profit and loss accounts: S$ S$ Administrative and operating expenses Short term employment benefits 67, Related parties transactions Identity of related parties For the purpose of these financial statements, parties are considered to be related to the Company if the Company has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Company and the party are subject to common control or common significant influence. Related parties may be individuals or other entities. Related parties transactions S$ S$ Management fees paid 440, Net profit for the year Except disclosed in other parts of the reports, the following items have been included in arriving at net profit for the year: S$ S$ Depreciation 1,572,025 Property tax paid 431,933 Staff costs (note 14) 267,969 Term loan interest 1,170,463 D-18

183 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Taxation S$ S$ Current taxation charge 1,017,865 Deferred taxation 1,797 1,019,662 The income tax expense varied from the amount of income tax expense determined by applying the Singapore income tax rate of 18% (2007: 18%) to profit before income tax as a result of the following differences: S$ S$ Profit before tax 4,268,422 (8,092) Income tax at 18% (2007: 18%) 768,316 (1,457) Non-deductible expenses 278, Effect of tax exemption (27,450) Deferred tax assets not recognised 1,262 Total income tax expenses 1,019, Deferred tax Movement in deferred tax (assets) and liabilities during the year are as follows: Charged / (Credited) to At Profit and At 31/12/07 Loss Account 31/12/08 S$ S$ S$ Deferred tax liabilities / (assets) Taxable temporary differences 1,797 1,797 1,797 1, New accounting standards and Interpretations not yet adopted The Company has not applied the following FRS and INT FRS that have been issued but not yet effective: Effective date (Annual periods beginning on or after) FRS 1 :Presentation of Financial Statements (Revised Presentation) 1 January 2009 FRS 23 :Amendment to FRS23, Borrowing Costs 1 January 2009 FRS 32 :Financial Instruments: Presentation 1 January 2009 FRS 102 :Share-based payment (Vesting conditions and cancellations) 1 January 2009 FRS 108 :Operating Segments 1 January 2009 D-19

184 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND New accounting standards and Interpretations not yet adopted (Cont d) The directors expect that the adoption of the above pronouncements will have no material impact to the financial statements in the period of initial application. 21. Financial risk management 21.1 Objectives and policies The main risks arising from the Company s financial instruments are credit risk, liquidity risk and foreign currency risk. The Company monitors its risk on an ongoing basis to ensure that the net exposure is at an acceptable level. Credit risk Credit risk is the potential financial loss resulting from the failure of a customer or a counterparty to settle its financial and contractual obligations to the Company, as and when they fall due. At balance sheet date, there were no significant concentrations of credit risk. Cash and fixed deposits are placed with banks and financial institutions which are regulated. Transactions involving derivative financial instruments are restricted with counterparties who meet the appropriate credit criteria and/or are of high credit standing. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheets. Liquidity risk The Company actively manages its debt maturity profile, operating cash flows and the availability of funding to ensure that all refinancing, repayment and funding needs are met. As part of its overall liquidity management, the Company maintains sufficient level of cash or cash convertible investments to meet its working capital requirements. In addition, the Company strives to maintain available banking facilities of a reasonable level compared to its overall debt position. When necessary, the Company will raise committed funding from either the capital markets and/or financial institutions and prudently balance its portfolio with some short term funding so as to achieve overall cost effectiveness. Interest rate risk The Company manages its interest rate exposure by actively reviewing its debt portfolio and switching to cheaper sources of funding in a low interest rate environment to achieve a certain level of protection against interest rate hikes. When necessary, the Company will utilise hedging instruments, such as interest rate swaps, denominated in Singapore dollars to minimise its exposure to interest rate volatility. Interest rate swaps, which are denominated in Singapore dollars, have been entered into to achieve an appropriate mix of fixed and floating rate exposures within the Company s policy. D-20

185 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Financial risk management (Cont d) 21.1 Objectives and policies (Cont d) Sensitivity analysis For the interest rate swap and the other variable rate financial assets and liabilities, a change of 100 bp in interest rate at the reporting date would increase/(decrease) amounts capitalised or credited to the balance sheet and amounts charged or credited to the income statement as shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. Profit before income tax in income statement Balance sheet 100bp 100bp 100bp 100bp increase decrease increase decrease S$ S$ S$ S$ Interest rate derivatives: swaps 2008 Variable rate instruments 391,602 (391,602) Interest rate swaps 391,602 (391,602) 2007 Variable rate instruments Interest rate swaps 21.2 Fair value The carrying amounts of deposits, cash and cash equivalents, and trade and other payables approximate their fair values because of the short period to maturity. Derivatives The fair value of the interest rate swaps is based on banks quotes. These quotes are tested for reasonableness by discounting estimated future cash flows based on the terms and maturity of each contract and using market interest rates for a similar instrument at the measurement date. Where discounted cash flow techniques are used, estimated future cash flows are based on management s best estimates and the discount rate is a market related rate for a similar instrument at the balance sheet date. Where other pricing models are used, inputs are based on market related data at the balance sheet date. Interest-bearing bank loans (secured) The carrying value of interest-bearing bank loans that reprice within six months of the balance sheet date approximate their fair values. Fair value is calculated based on discounted expected future principal and interest cash flows. 22. Authorisation of financial statements The financial statements for the year ended 31 December 2008 were authorized for issue in accordance with a resolution of the directors on 26 June D-21

186 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 CENTURION DORMITORY (WESTLITE) PTE. LTD. (Registration No: M) Directors Report and Financial Statements Year Ended 31 December 2009 D-22

187 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 CENTURION DORMITORY (WESTLITE) PTE. LTD. (Registration No: M) Directors Report The directors of the company are pleased to present their report together with the audited financial statements of the company for the financial year ended 31 December Directors at Date of Report The directors of the company in office at the date of this report are: Teo Peng Kwang Chong Nien Tony Bin Hee Din 2. Arrangements to Enable Directors to Acquire Benefits by Means of The Acquisition of Shares and Debentures Neither at the end of the financial year nor at any time during the financial year did there subsist any arrangement whose object is to enable the directors of the company to acquire benefits by means of the acquisition of shares or debentures in the company or any other body corporate. 3. Directors Interests In Shares and Debentures The directors of the company holding office at the end of the financial year had no interests in the share capital and debentures of the company and related corporations as recorded in the register of directors shareholdings kept by the company under section 164 of the Companies Act, Cap. 50 except as follows: Direct Interest Name of directors and companies At beginning At end in which interests are held of the year of the year The company Number of Shares of No Par Value Teo Peng Kwang 120, , Contractual Benefits of Directors Since the beginning of the financial year, no director of the company has received or become entitled to receive a benefit which is required to be disclosed under section 201(8) of the Companies Act, Cap. 50, by reason of a contract made by the company or a related corporation with the director or with a firm of which he is a member, or with a company in which he has a substantial financial interest. Certain directors of the company received remuneration from related corporations in their capacity as directors and or executives of those related corporations. There were certain transactions (shown in the financial statements under related party transactions) with a corporation/corporations in which certain directors have an interest. 5. Options to Take up Unissued Shares During the financial year, no option to take up unissued shares of the company was granted. 6. Options Exercised During the financial year, there were no shares of the company issued by virtue of the exercise of an option to take up unissued shares. D-23

188 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Unissued Shares under Option At the end of the financial year, there were no unissued shares under option. 8. Independent Auditors The independent auditors, RSM Chio Lim LLP, have expressed their willingness to accept reappointment. On Behalf of The Directors... Teo Peng Kwang Director... Chong Nien Director 15 July 2010 D-24

189 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 CENTURION DORMITORY (WESTLITE) PTE. LTD. (Registration No: M) Statement by Directors In the opinion of the directors, (a) (b) the accompanying statement of comprehensive income, statement of financial position, statement of changes in equity, statement of cash flows, and notes thereto are drawn up so as to give a true fair view of the state of affairs of the company as at 31 December 2009 and of the results, changes in equity and cash flows of the company for the financial year then ended; and at the date of this statement, there are reasonable grounds to believe that the company will be able to pay its debts as and when they fall due. On Behalf of The Directors... Teo Peng Kwang Director... Chong Nien Director 15 July 2010 D-25

190 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 Independent Auditors Report to the Members of CENTURION DORMITORY (WESTLITE) PTE. LTD. (Registration No: M) We have audited the accompanying financial statements of Centurion Dormitory (Westlite) Pte. Ltd., which comprise the statement of financial position as at 31 December 2009, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the provisions of the Singapore Companies Act, Cap. 50 ( the Act ) and Singapore Financial Reporting Standards. This responsibility includes: (a) (b) (c) devising and maintaining a system of internal accounting controls sufficient to provide a reasonable assurance that assets are safeguarded against loss from unauthorised use or disposition; and transactions are properly authorised and that they are recorded as necessary to permit the preparation of true and fair statement of comprehensive income and statement of financial position and to maintain accountability of assets; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Independent Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, (a) (b) the accompanying financial statements are properly drawn up in accordance with the provisions of the Act and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the company as at 31 December 2009 and the results, changes in equity and cash flows of the company for the year ended on that date; and the accounting and other records required by the Act to be kept by the company have been properly kept in accordance with the provisions of the Act. D-26

191 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 Other Matter The financial statements for the year ended 31 December 2008 were audited by other independent auditors whose report dated 26 June 2009 expressed an unqualified opinion on those financial statements. RSM Chio Lim LLP Public Accountants and Certified Public Accountants Singapore 15 July 2010 Partner-in-charge of audit: Chan Weng Keen D-27

192 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 CENTURION DORMITORY (WESTLITE) PTE. LTD. (Registration No: M) Statement of Comprehensive Income Year Ended 31 December 2009 Notes $ $ Revenue 4 12,087,286 8,955,215 Other Items of Income Interest Income 4,729 2,517 Other Credits 5 20,572 Items of Expense Depreciation (1,572,934) (1,572,025) Employee Benefits Expense 6 (324,283) (267,969) Management Fee (370,000) (440,000) Property Tax (477,448) (431,933) Administrative Expenses (896,646) (778,319) Other Expenses (49,168) (28,601) Other Charges 5 (1,340) Finance Costs 7 (1,321,069) (1,170,463) Profit Before Income Tax 7,099,699 4,268,422 Income Tax Expense 8 (1,437,189) (1,019,662) Profit Net of Tax and Total Comprehensive Income for The Year 5,662,510 3,248,760 The accompanying notes form an integral part of these financial statements D-28

193 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 CENTURION DORMITORY (WESTLITE) PTE. LTD. (Registration No: M) Statement of Financial Position As at 31 December 2009 Notes $ $ ASSETS Non-Current Assets Plant and Equipment , ,269 Investment Property 11 58,856,901 60,405,767 Total Non-Current Assets 58,999,154 60,554,036 Current Assets Trade and Other Receivables 12 59,599 87,505 Cash and Cash Equivalents 13 3,961,283 3,072,008 Total Current Assets 4,020,882 3,159,513 Total Assets 63,020,036 63,713,549 EQUITY AND LIABILITIES Share Capital 14 1,000,000 1,000,000 Retained Earnings 3,403,178 1,740,668 Equity 4,403,178 2,740,668 Shareholders Loans 15 17,094,600 17,094,600 21,497,778 19,835,268 Non-Current Liabilities Deferred Tax Liabilities 1,797 1,797 Other Financial Liabilities 16 34,177,793 37,355,569 Total Non-Current Liabilities 34,179,590 37,357,366 Current Liabilities Income Tax Payable 1,618,504 1,017,865 Trade and Other Payables 17 2,257,508 2,036,394 Other Financial Liabilities 16 3,466,656 3,466,656 Total Current Liabilities 7,342,668 6,520,915 Total Liabilities 41,522,258 43,878,281 Total Equity and Liabilities 63,020,036 63,713,549 The accompanying notes form an integral part of these financial statements. D-29

194 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 CENTURION DORMITORY (WESTLITE) PTE. LTD. (Registration No: M) Statement of Changes in Equity Year Ended 31 December 2009 Share Retained Equity Capital Earnings $ $ $ Current Year: Opening Balance at 1 January ,740,668 1,000,000 1,740,668 Total Comprehensive Income for the Year 5,662,510 5,662,510 Dividends Paid (Note 9) (4,000,000) (4,000,000) Closing Balance at 31 December ,403,178 1,000,000 3,403,178 Previous Year: Opening Balance at 1 January ,908 1,000,000 (8,092) Total Comprehensive Income for the Year 3,248,760 3,248,760 Dividends Paid (Note 9) (1,500,000) (1,500,000) Closing Balance at 31 December ,740,668 1,000,000 1,740,668 The accompanying notes form an integral part of these financial statements D-30

195 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 CENTURION DORMITORY (WESTLITE) PTE. LTD. (Registration No: M) Statement of Cash Flows Year Ended 31 December $ $ Cash Flows From Operating Activities Profit Before Income Tax 7,099,699 4,268,422 Interest Income (4,729) (2,517) Interest Expense 1,321,069 1,170,463 Depreciation of Investment Property 1,548,866 1,548,866 Depreciation of Plant and Equipment 24,068 23,159 Operating Cash Flows Before Changes in Working Capital 9,988,973 7,008,393 Trade and Other Receivables 27,906 (87,505) Trade and Other Payables 221,114 2,032,164 Net Cash Flows From Operations Before Interest and Tax 10,237,993 8,953,052 Income Tax Paid (836,550) Net Cash Flows From Operating Activities 9,401,443 8,953,052 Cash Flows From Investing Activities Disposal of Plant and Equipment 2,141 Purchase of Plant and Equipment (20,193) (171,428) Purchase of Investment Property (61,954,633) Deposit Paid for Purchase of Investment Property 4,794,600 Interest Income Received 4,729 2,517 Net Cash Flows Used in Investing Activities (13,323) (57,328,944) Cash Flows From Financing Activities Dividends Paid to Equity Owners (4,000,000) (1,500,000) (Decrease) / Increase in Other Financial Liabilities (3,177,776) 40,822,225 Shareholders Loans 13,098,915 Interest Expense Paid (1,321,069) (1,170,463) Net Cash Flow (Used in) / From Financing Activities (8,498,845) 51,250,677 Net Increase in Cash and Cash Equivalents 889,275 2,874,785 Cash and Cash Equivalents, Statement of Cash Flows, Beginning Balance 3,072, ,223 Cash and Cash Equivalents, Statement of Cash Flows, Ending Balance (Note 13) 3,961,283 3,072,008 The accompanying notes form an integral part of these financial statements D-31

196 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 CENTURION DORMITORY (WESTLITE) PTE. LTD. (Registration No: M) Notes to the Financial Statements 31 December General The company is incorporated in Singapore with limited liability. The financial statements are presented in Singapore dollars. The board of directors approved and authorised these financial statements for issue on 15 July The principal activities are those of property investments, and provision of dormitory accommodation and services. The registered office is: 47 Scotts Road, #18-01 Goldbell Tower, Singapore The company is domiciled in Singapore. 2. Summary of Significant Accounting Policies Accounting Convention The financial statements have been prepared in accordance with the Singapore Financial Reporting Standards ( FRS ) and the related Interpretations to FRS ( INT FRS ) as issued by the Singapore Accounting Standards Council and the Companies Act, Cap 50. The financial statements are prepared on a going concern basis under the historical cost convention except where an FRS requires an alternative treatment (such as fair values) as disclosed where appropriate in these financial statements. Basis of Preparation of the Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires the management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting year. Actual results could differ from those estimates. The estimates and assumptions are reviewed on an ongoing basis. Apart from those involving estimations, management has made judgements in the process of applying the entity s accounting policies. The areas requiring management s most difficult, subjective or complex judgements, or areas where assumptions and estimates are significant to the financial statements, are disclosed at the end of this note to financial statements, where applicable. Revenue Recognition The revenue amount is the fair value of the consideration received or receivable from the gross inflow of economic benefits during the year arising from the course of the activities of the entity and it is shown net of any related sales taxes, estimated returns and rebates. Rental income is recognised in accordance with the accounting policy on operating leases (see below). Interest income is recognised using the effective interest method. D-32

197 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Summary of Significant Accounting Policies (Cont d) Employee Benefits Contributions to defined contribution retirement benefit plans are recorded as an expense as they fall due. The entity s legal or constructive obligation is limited to the amount that it agrees to contribute to an independently administered fund which is the Central Provident Fund in Singapore (a government managed retirement benefit plan). For employee leave entitlement the expected cost of short-term employee benefits in the form of compensated absences is recognised in the case of accumulating compensated absences, when the employees render service that increases their entitlement to future compensated absences; and in the case of non-accumulating compensated absences, when the absences occur. A liability for bonuses is recognised where the entity is contractually obliged or where there is constructive obligation based on past practice. Income Tax The income taxes are accounted using the asset and liability method that requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequence of events that have been recognised in the financial statements or tax returns. The measurements of current and deferred tax liabilities and assets are based on provisions of the enacted or substantially enacted tax laws; the effects of future changes in tax laws or rates are not anticipated. Income tax expense represents the sum of the tax currently payable and deferred tax. Current and deferred income taxes are recognised as income or as an expense in profit or loss unless the tax relates to items that are recognised in the same or a different period outside profit or loss. For such items recognised outside profit or loss the current tax and deferred tax are recognised (a) in other comprehensive income if the tax is related to an item recognised in other comprehensive income and (b) directly in equity if the tax is related to an item recognised directly in equity. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same income tax authority. The carrying amount of deferred tax assets is reviewed at each end of the reporting year and is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realised. A deferred tax amount is recognised for all temporary differences, unless the deferred tax amount arises from the initial recognition of an asset or liability in a transaction which (i) is not a business combination; and (ii) at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss). Borrowing Costs All borrowing costs that are interest and other costs incurred in connection with the borrowing of funds that are directly attributable to the acquisition, construction or production of a qualifying asset that necessarily take a substantial period of time to get ready for their intended use or sale are capitalised as part of the cost of that asset until substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete. Other borrowing costs are recognised as an expense in the period in which they are incurred. The interest expense is calculated using the effective interest method. Plant and Equipment Depreciation is provided on a straight-line basis to allocate the gross carrying amounts of the assets less their residual values over their estimated useful lives of each part of an item of these assets as follows: Air conditioners 5 years Computers 3 years Furniture & fittings 5 years Equipments 3 years An asset is depreciated when it is available for use until it is derecognised even if during that period the item is idle. Fully depreciated assets still in use are retained in the financial statements. D-33

198 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Summary of Significant Accounting Policies (Cont d) Plant and Equipment (Cont d) Plant and equipment are carried at cost on initial recognition and after initial recognition at cost less any accumulated depreciation and any accumulated impairment losses. The gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item and is recognised in profit or loss. The residual value and the useful life of an asset is reviewed at least at each end of the reporting year and, if expectations differ significantly from previous estimates, the changes are accounted for as a change in an accounting estimate, and the depreciation charge for the current and future periods are adjusted. Cost also includes acquisition cost, any cost directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Subsequent cost are recognised as an asset only when it is probable that future economic benefits associated with the item will flow to the entity and the cost of the item can be measured reliably. All other repairs and maintenance are charged to profit or loss when they are incurred. Investment Property Investment property is property owned or held under a finance lease to earn rentals or for capital appreciation or both, rather than for use in the production or supply of goods or services or for administrative purposes or sale in the ordinary course of business. It includes an investment property in the course of construction. After initial recognition at cost including transaction costs, the investment property is carried at cost less any accumulated depreciation and any accumulated impairment losses. An investment property that meets the criteria to be classified as held for sale is carried at the lower of carrying amount and fair value less costs to sell. For disclosure purposes, the fair values are determined periodically on a systematic basis at least once yearly by management having an appropriate recognised professional qualification and recent experience in the location and category of property being valued. Depreciation of investment property is provided on a straight-line basis to allocate the gross carrying amount over the estimated useful lives as follows: Leasehold land over the period of the leased term of 60 years Leasehold building 30 years Operating Leases Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased assets are classified as operating leases. For operating leases, lease payments are recognised as an expense in profit or loss on a straight-line basis over the term of the relevant lease unless another systematic basis is representative of the time pattern of the user s benefit, even if the payments are not on that basis. Lease incentives received are recognised in profit or loss as an integral part of the total lease expense. Rental income from operating leases is recognised in profit or loss on a straight-line basis over the term of the relevant lease unless another systematic basis is representative of the time pattern of the user s benefit, even if the payments are not on that basis. Initial direct cost incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term. D-34

199 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Summary of Significant Accounting Policies (Cont d) Impairment of Non-Financial Assets The carrying amount of non-financial assets is reviewed at each end of the reporting year for indications of impairment and where an asset is impaired, it is written down through profit or loss to its estimated recoverable amount. The impairment loss is the excess of the carrying amount over the recoverable amount and is recognised in profit or loss. The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). At each end of the reporting year non-financial assets with impairment loss recognised in prior periods are assessed for possible reversal of the impairment. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognised. Financial Assets Initial recognition and measurement and derecognition: A financial asset is recognised on the statement of financial position when, and only when, the entity becomes a party to the contractual provisions of the instrument. The initial recognition of financial assets is at fair value normally represented by the transaction price. The transaction price for financial asset not classified at fair value through profit or loss includes the transaction costs that are directly attributable to the acquisition or issue of the financial asset. Transaction costs incurred on the acquisition or issue of financial assets classified at fair value through profit or loss are expensed immediately. The transactions are recorded at the trade date. Irrespective of the legal form of the transactions performed, financial assets are derecognised when they pass the substance over form based derecognition test prescribed by FRS 39 relating to the transfer of risks and rewards of ownership and the transfer of control. Subsequent measurement: Subsequent measurement based on the classification of the financial assets in one of the following four categories under FRS 39 is as follows: 1. Financial assets at fair value through profit or loss: As at end of the reporting year, there were no financial assets classified in this category. 2. Loans and receivables: Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Assets that are for sale immediately or in the near term are not classified in this category. These assets are carried at amortised costs using the effective interest method (except that short-duration receivables with no stated interest rate are normally measured at original invoice amount unless the effect of imputing interest would be significant) minus any reduction (directly or through the use of an allowance account) for impairment or uncollectibility. Impairment charges are provided only when there is objective evidence that an impairment loss has been incurred as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The methodology ensures that an impairment loss is not recognised on the initial recognition of an asset. Losses expected as a result of future events, no matter how likely, are not recognised. For impairment, the carrying amount of the asset is reduced through use of an allowance account. The amount of the loss is recognised in profit or loss. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. Typically the trade and other receivables are classified in this category. D-35

200 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Summary of Significant Accounting Policies (Cont d) Financial Assets (Cont d) 3. Held-to-maturity financial assets: As at end of the reporting year, there were no financial assets classified in this category. 4. Available-for-sale financial assets: As at end of the reporting year, there were no financial assets classified in this category. Cash and Cash Equivalents Cash and cash equivalents include bank and cash balances. For the statement of cash flows, the item includes cash and cash equivalents less cash subject to restriction, if any. Financial Liabilities Initial recognition and measurement: A financial liability is recognised on the statement of financial position when, and only when, the entity becomes a party to the contractual provisions of the instrument. The initial recognition of financial liability is at fair value normally represented by the transaction price. The transaction price for financial liability not classified at fair value through profit or loss includes the transaction costs that are directly attributable to the acquisition or issue of the financial liability. Transaction costs incurred on the acquisition or issue of financial liability classified at fair value through profit are expensed immediately. The transactions are recorded at the trade date. Financial liabilities including bank and other borrowings are classified as current liabilities unless there is an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting year. Subsequent measurement: Subsequent measurement based on the classification of the financial liabilities in one of the following two categories under FRS 39 is as follows: 1. Liabilities at fair value through profit or loss: As at end of the reporting year, there were no financial liabilities classified in this category. 2. Other financial liabilities: All liabilities, which have not been classified as in the previous category fall into this residual category. These liabilities are carried at amortised cost using the effective interest method. Trade and other payables and borrowings are usually classified in this category. Items classified within current trade and other payables are not usually remeasured, as the obligation is usually known with a high degree of certainty and settlement is short-term. D-36

201 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Summary of Significant Accounting Policies (Cont d) Fair Value of Financial Instruments The carrying values of current financial instruments approximate their fair values due to the shortterm maturity of these instruments. Disclosures of fair value are not made when the carrying amount of current financial instruments is a reasonable approximation of fair value. The fair values of non-current financial instruments may not be disclosed separately unless there are significant differences at the end of the reporting year and in the event the fair values are disclosed in the relevant notes. The maximum exposure to credit risk is the fair value of the financial instruments at the end of the reporting year. The fair value of a financial instrument is derived from an active market or by using an acceptable valuation technique. The appropriate quoted market price for an asset held or liability to be issued is usually the current bid price without any deduction for transaction costs that may be incurred on sale or other disposal and, for an asset to be acquired or liability held, the asking price. If there is no market, or the markets available are not active, the fair value is established by using an acceptable valuation technique. The fair value measurements are classified using a fair value hierarchy of 3 levels that reflects the significance of the inputs used in making the measurements, that is, Level 1 for the use of quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 for the use of inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and Level 3 for the use of inputs for the asset or liability that are not based on observable market data (unobservable inputs). The level is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. Where observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Equity Equity instruments are contracts that give a residual interest in the net assets of the company. Ordinary shares are classified as equity. Equity instruments are recognised at the amount of proceeds received net of incremental costs directly attributable to the transaction. Dividends on equity are recognised as liabilities when they are declared. Interim dividends are recognised when declared by the directors. Provisions A liability or provision is recognised when there is a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are made using best estimates of the amount required in settlement and where the effect of the time value of money is material, the amount recognised is the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense. Changes in estimates are reflected in profit or loss in the period they occur. D-37

202 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Summary of Significant Accounting Policies (Cont d) Critical Judgements, Assumptions and Estimation Uncertainties The critical judgements made in the process of applying the accounting policies that have the most significant effect on the amounts recognised in the financial statements and the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting year, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. These estimates and assumptions are periodically monitored to ensure they incorporate all relevant information available at the date when financial statements are prepared. However, this does not prevent actual figures differing from estimates. Investment property: An assessment is made at each reporting date whether there is any indication that the asset may be impaired. If any such indication exists, an estimate is made of the recoverable amount of the asset. It is impracticable to disclose the extent of the possible effects. It is reasonably possible, based on existing knowledge, that outcomes within the next financial year that are different from assumptions could require a material adjustment to the carrying amount of the balances affected. The carrying amount of investment property of the company at the end of the reporting year is $58,856,901 (2008: $60,405,767). Income tax: The entity recognises expected liabilities for tax based on an estimation of the likely taxes due, which requires significant judgement as to the ultimate tax determination of certain items. Where the actual liability arising from these issues differs from these estimates, such differences will have an impact on income tax and deferred tax provisions in the period when such determination is made. It is impracticable to disclose the extent of the possible effects. It is reasonably possible, based on existing knowledge, that outcomes within the next financial year that are different from assumptions could require a material adjustment to the carrying amount of the balances affected. 3. Related Party Transactions FRS 24 defines a related party as an entity or person that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common or joint control with, the entity in governing the financial and operating policies, or that has an interest in the entity that gives it significant influence over the entity in financial and operating decisions. It also includes members of the key management personnel or close members of the family of any individual referred to herein and others who have the ability to control, jointly control or significantly influence by or for which significant voting power in such entity resides with, directly or indirectly, any such individual. The definition includes parents, subsidiaries, fellow subsidiaries, associates, joint ventures and post-employment benefit plans, if any. D-38

203 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Related Party Transactions (Cont d) #3.1 Related companies: The company is a subsidiary of Centurion Properties Pte. Ltd., incorporated in Singapore. The company s ultimate parent company is Centurion Global Ltd, incorporated in the British Virgin Islands. Related companies in these financial statements include the subsidiaries and associates of the ultimate parent company s group of companies. There are transactions and arrangements between the company and members of the group and the effects of these on the basis determined between the parties are reflected in these financial statements. The current related company balances are unsecured without fixed repayment terms and interest unless stated otherwise. For significant non-current balances, unless stated otherwise, an interest is imputed based on the prevailing market interest rate for similar debt less the interest rate (if any) provided in the agreement for the balance.for financial guarantees a fair value is imputed and is recognised accordingly if significant where no charge is payable. Significant related company transactions: In addition to transactions and balances disclosed elsewhere in the notes to the financial statements, this item includes the following: Parent company $ $ Management fee expense 370, ,000 Interest expense 447,335 Dividend paid 3,520,000 1,320,000 #3.2. Other related parties: There are transactions and arrangements between the company and related parties and the effects of these on the basis determined between the parties are reflected in these financial statements. The current related party balances are unsecured without fixed repayment terms and interest unless stated otherwise. For significant non-current balances, unless stated otherwise, an interest is imputed based on the prevailing market interest rate for similar debt less the interest rate (if any) provided in the agreement for the balance.for financial guarantees a fair value is imputed and is recognised accordingly if significant where no charge is payable. Significant related party transactions: In addition to transactions and balances disclosed elsewhere in the notes to the financial statements, this item includes the following: Non-controlling interest $ $ Interest expense 21,947 Dividend paid 480, ,000 D-39

204 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Related Party Transactions (Cont d) #3.3 Key management compensation: $ $ Remuneration of director of the company 73,561 67,424 The above amount is included under employee benefits expense. Key management personnel are the directors and those persons having authority and responsibility for planning, directing and controlling the activities of the company, directly or indirectly. The above amounts for key management compensation are for a director. The above amounts do not include compensation if any of certain key management personnel and directors of the company who received compensation from related corporations in their capacity as directors and/ or executives of those related corporations. #3.4 Other receivables from and other payables to related parties: The trade transactions and the trade receivables and payables balances arising from sales and purchases of goods and services are disclosed elsewhere in the notes to the financial statements. The movements in other payables to related parties are as follows: Parent company $ $ Other payables: Balance at beginning of year 16,534,600 3,914,600 Amounts paid out (501,947) Amounts paid in 12,620,000 Balance at end of year (Note 15) 16,032,653 16,534,600 Non-controlling interest $ $ Other payables: Balance at beginning of year 560,000 80,000 Amounts paid in 501, ,000 Balance at end of year (Note 15) 1,061, , Revenue $ $ Rental income from investment property 7,015,542 4,856,938 Conservancy income from investment property 4,819,819 3,887,162 Others 251, ,115 12,087,286 8,955,215 D-40

205 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Other Credits and (Other Charges) $ $ Loss on disposal of plant and equipment (1,340) Government grant income from Jobs Credit Scheme 20,572 Net 19,232 Presented in profit or loss as: Other Credits 20,572 Other Charges (1,340) Net 19, Employee Benefits Expense $ $ Employee benefit expense including director s: Salaries and bonuses 277, ,978 Contributions to defined contribution plan 36,691 25,147 Other benefits 9,854 6,844 Total employee benefits expense 324, , Finance Costs $ $ Interest expense on loans payable to a director and parent company 469,282 Interest expense on bank term loans 851,787 1,170,463 Total finance costs 1,321,069 1,170, Income Tax Expense 8A. Components of tax expense recognised in profit or loss include: $ $ Current income tax: Current income tax expense 1,444,963 1,017,865 Over adjustments in respect of prior years (7,774) Subtotal 1,437,189 1,017,865 Deferred income tax: Deferred tax expense 1,797 Total income tax expense 1,437,189 1,019,662 D-41

206 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Income Tax Expense (Cont d) 8A. Components of tax expense recognised in profit or loss include (Cont d): The income tax in profit or loss varied from the amount determined by applying the Singapore income tax rate of 17% (2008: 18%) to in profit before income tax as a result of the following differences: $ $ Profit before income tax 7,099,699 4,268,422 Income tax expense at the above rate 1,206, ,316 Not deductible items 263, ,796 Tax exemptions (25,925) (27,450) Over adjustments to current tax in respect of prior years (7,774) Other minor items less than 3% each 632 Total income tax expense 1,437,189 1,019,662 There are no income tax consequences of dividends to shareholders of the company. In 2009, the government announced a change in the national income tax rate from 18% to 17% with effective of Year Assessment B. Deferred tax expense recognised in profit or loss include: The deferred tax amounts and movements in the year are as follows: $ $ Net deferred tax liabilities: Excess of net book value of plant and equipment over tax values 1,797 8C. Deferred tax balance in the statement of financial position: Deferred tax liabilities: $ $ Excess of net book value of plant and equipment over tax values 1,797 1, Dividends on Equity Shares $ $ Interim tax exempt (1-tier) dividend paid of $4 (2008: $1.50) per share 4,000,000 1,500,000 D-42

207 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Plant and Equipment Plant and Work-in- Equipment Progress Total $ $ $ Cost: At 1 January 2008 Additions 87,723 83, ,428 At 31 December ,723 83, ,428 Additions 7,385 12,808 20,193 Disposals (3,211) (3,211) At 31 December ,897 96, ,410 Accumulated depreciation: At 1 January 2008 Depreciation for the year 23,159 23,159 At 31 December ,159 23,159 Depreciation for the year 24,068 24,068 Disposals (1,070) (1,070) At 31 December ,157 46,157 Net book value: At 1 January 2008 At 31 December ,564 83, ,269 At 31 December ,740 96, ,253 The depreciation expense is charged to administrative expenses. 11. Investment Property Leasehold Leasehold Land Building Total $ $ $ Cost: At 1 January 2008 Additions 46,465,975 15,488,658 61,954,633 At 31 December 2008 and ,465,975 15,488,658 61,954,633 Accumulated depreciation: At 1 January 2008 Charge for the year 929, ,546 1,548,866 At 31 December , ,546 1,548,866 Depreciation for the year 929, ,546 1,548,866 At 31 December ,858,640 1,239,092 3,097,732 Net book value: At 1 January 2008 At 31 December ,536,655 14,869,112 60,405,767 At 31 December ,607,335 14,249,566 58,856,901 D-43

208 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Investment Property (Cont d) $ $ Rental and service income from investment property 11,835,361 8,744,100 Direct operating expenses (including repairs and maintenance) for the year 2,741,870 2,543,004 The investment property is leased out under operating leases. The investment property is an aggregate land area of 11, square metres together with the building erected located at 28 Toh Guan Road East, Singapore The investment property is pledged as security for the bank facilities (see Note 16). The fair value of the investment property is estimated by management to be $87,000,000 (2008: $87,000,000). The fair value is regarded as the lowest level for fair value measurement as the valuation includes inputs for the asset that are not based on observable market date (unobservable inputs). 12. Trade and Other Receivables $ $ Trade receivables: Outside parties 28,405 Other receivables: Refundable deposits 59,599 59,100 Total trade and other receivables 59,599 87, Cash and Cash Equivalents $ $ Not restricted in use 3,961,283 3,072,008 The interest earning balances are not significant. 14. Share Capital Number of shares issued Share capital $ Ordinary shares of no par value: Balance at beginning and end of years 31 December 2008 and 31 December ,000,000 1,000,000 The ordinary shares of no par value which are fully paid carry no right to fixed income. The company is not subject to any externally imposed capital requirements. D-44

209 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Share Capital (Cont d) Capital Management: The objectives when managing capital are: to safeguard the entity s ability to continue as a going concern, so that it can continue to provide returns for owners and benefits for other stakeholders, and to provide an adequate return to owners by pricing products and services commensurately with the level of risk. The management sets the amount of capital to meet its requirements and the risk taken. There were no changes in the approach to capital management during the year. The management manages the capital structure and makes adjustments to it where necessary or possible in the light of changes in conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the management may adjust the amount of dividends paid to owners, return capital to owners, issue new shares, or sell assets to reduce debt. The company s borrowings are secured by specific assets. The debt-to-adjusted capital ratio may not provide a meaningful indicator of the risk of borrowings. 15. Shareholders Loans $ $ Loans payable to non-controlling interest 1,061, ,000 Loans payable to parent company 16,032,653 16,534,600 17,094,600 17,094,600 Loans payable to the parent company and a shareholder are unsecured, bear interest at 3% (2008: 3%) per annum and settlement is neither planned nor likely to occur in the foreseeable future. These balances are, in substance, the parent company and the shareholder s net investments in the company. The above loans payable are subordinated to the bank loans (Note 15). 16. Other Financial Liabilities $ $ Non-current: Term Loan A (secured) 32,444,437 34,888,894 Term Loan B (secured) 1,733,356 2,466,675 Total 34,177,793 37,355,569 Current: Term Loan A (secured) 2,666,664 2,666,664 Term Loan B (secured) 799, ,992 Total 3,466,656 3,466,656 Grand total 37,644,449 40,822,225 Term Loan A is repayable by 179 equal monthly instalments of $222,222 which commenced on 31 January 2008 and a final instalment of $222,247. The rates of interest for the Term Loan A ranged between 1.80% and 3.14% (2008: 2.08% and 3.78%) per annum. D-45

210 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Other Financial Liabilities (Cont d) Term Loan B is repayable by 59 equal monthly instalments of $66,666 which commenced on 31 January 2008 and a final instalment of $66,706. The rates of interest for the Term Loan B ranged between 1.80% and 2.48% (2008: 2.08% and 3.78%) per annum. The term loans are secured by the company s investment property disclosed in Note 11, assignment of all rental proceeds and insurances, and covered by personal joint and several guarantee from certain directors of the company and the parent company respectively. The purpose of the term loans are to purchase an investment property of the company. 17. Trade and Other Payables $ $ Trade payables: Outside parties and accrued liabilities 230,273 87,464 Other payables: Deposits received 2,016,480 1,948,930 Other for advances 10,755 Subtotal 2,027,235 1,948,930 Total trade and other payables 2,257,508 2,036, Financial Instruments: Information on Financial Risks 18A. Classification of Financial Assets and Liabilities The following table summarises the carrying amount of financial assets and liabilities recorded at the end of the reporting year by FRS 39 categories: $ $ Financial assets: Cash and cash equivalents 3,961,283 3,072,008 Loans and receivables 59,599 87,505 4,020,882 3,159,513 Financial liabilities: Trade and other payables at amortised cost 2,257,508 2,036,394 Borrowings at amortised cost 37,644,449 40,822,225 39,901,957 42,858,619 Further quantitative disclosures are included throughout these financial statements. There are no significant fair value measurements recognised in the statement of financial position. D-46

211 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Financial Instruments: Information on Financial Risks (Cont d) 18B. Financial Risk Management The main purpose for holding or issuing financial instruments is to raise and manage the finances for the entity s operating, investing and financing activities. There are exposures to the financial risks on the financial instruments such as credit risk, liquidity risk and market risk comprising interest rate, currency risk and price risk exposures. The management has certain practices for the management of financial risks. However these are not documented in formal written documents. The following guidelines are followed: All financial risk management activities are carried out and monitored by senior management staff. All financial risk management activities are carried out following good market practices. 18C. Fair value of financial instruments stated at amortised cost in the statement of financial position The financial assets and financial liabilities at amortised cost are at a carrying amount that is a reasonable approximation of fair value. 18D. Credit Risk on Financial Assets Financial assets that are potentially subject to concentrations of credit risk and failures by counterparties to discharge their obligations in full or in a timely manner consist principally of cash balances with banks and receivables. The maximum exposure to credit risk is: the total of the fair value of the financial instruments; the maximum amount the entity could have to pay if the guarantee is called on; and the full amount of any loan payable commitment at the end of the reporting year. Credit risk on cash balances with banks is limited because the counter-parties are entities with acceptable credit ratings. For credit risk on receivables an ongoing credit evaluation is performed of the financial condition of the debtors and a loss from impairment is recognised in profit or loss. The exposure to credit risk is controlled by setting limits on the exposure to individual customers and these are disseminated to the relevant persons concerned and compliance is monitored by management. There is no significant concentration of credit risk, as the exposure is spread over a large number of counter-parties and customers. All unencumbered bank deposits with the banks licensed by the Monetary Authority of Singapore are guaranteed by the Singapore Government until 31 December Cash and cash equivalents as disclosed in Note 13 represent amounts with a less than 90-days maturity. Other receivables are normally with no fixed terms and therefore there is no maturity. D-47

212 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Financial Instruments: Information on Financial Risks (Cont d) 18E. Liquidity Risk The following table analyses the non-derivative financial liabilities by remaining contractual maturity (contractual and undiscounted cash flows): Gross borrowings Trade and commitments other payables Total $ $ $ 2009: Less than 1 year 3,538,336 2,257,508 5,795, years 12,655,093 12,655,093 Over 5 years 22,231,049 22,231,049 At end of year 38,424,478 2,257,508 40,681, : Less than 1 year 3,552,362 2,036,394 5,588, years 13,448,445 13,448,445 Over 5 years 24,726,053 24,726,053 At end of year 41,726,860 2,036,394 43,763,254 The above amounts disclosed in the maturity analysis are the contractual undiscounted cash flows and such undiscounted cash flows differ from the amount included in the statement of financial position. When the counterparty has a choice of when an amount is paid, the liability is included on the basis of the earliest date on which it can be required to pay. The liquidity risk is managed on the basis of expected maturity dates of the financial liabilities. The average credit period taken to settle trade payables by the company is about 30 days (2008: 30 days). The other payables are with short-term durations. Apart from the classification of the assets in the statement of financial position, no further analysis is deemed necessary. The liquidity risk refers to the difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. It is expected that all the liabilities will be paid at their contractual maturity. In order to meet such cash commitments, the operating activities are expected to generate sufficient cash inflows. D-48

213 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Financial Instruments: Information on Financial Risks (Cont d) 18F. Interest Rate Risk The interest rate risk exposure is mainly from changes in fixed rate and floating interest rates. The interest from financial assets including cash balances is not significant. The following table analyses the breakdown of the significant financial instruments (excluding derivatives) by type of interest rate: $ $ Financial liabilities: Floating rate 37,644,449 40,822,225 The floating rate debt obligations are with interest rates that are re-set regularly at one, three or six month intervals. The interest rates are disclosed in the respective notes. Sensitivity analysis: $ $ A hypothetical increase in interest rates by 10 basis points with all other variables held constant, would increase the amount of interest expense capitalised in development property by 37,644 40,822 A hypothetical decrease in interest rates by 10 basis points with all other variables held constant, would reduce the amount of interest expense capitalised in development property by (37,644) (40,822) 18G. Foreign Currency Risk The company is not exposed to significant foreign currency risk as its business transactions are primarily denominated in Singapore dollars, which is the company s functional currency. 19. Operating Lease Income Commitments At the end of the reporting year the total of future minimum lease receivables committed under non-cancellable operating leases are as follows: $ $ Not later than one year 9,041,630 6,908,700 Later than one year and not later than five years 2,330,080 1,219,800 Total rental income for the year 11,835,361 8,744,100 Operating lease income commitments are for the investment property. The lease rental income terms are negotiated for an average term of three years and rentals are subject to an escalation clause but the amount of the rent increase is not exceed a certain percentage. Such increases are not included in the above amounts. D-49

214 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Event Subsequent to the End of the Reporting Year Subsequent to the end of the reporting year, a subsidiary declared and paid an interim dividend of $2.50 per share amount to $2,500, Changes and Adoption of Financial Reporting Standards For the year ended 31 December 2009, the following new or revised Singapore Financial Reporting Standards were adopted. The new or revised standards did not require any material modification of the measurement method or the presentation in the financial statements. FRS No. Title FRS 1 Presentation of Financial Statements (Revised) FRS 18 Revenue (Amendments to) FRS 23 Borrowing Costs (Amendments to) FRS 32 Financial Instruments: Presentation and FRS 1 Presentation of Financial Statements Puttable Financial Instruments and Obligations Arising on Liquidation (Amendments to) (*) FRS 27 Consolidated and Separate Financial Statements Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate (Amendments to) (*) FRS 102 Share-based Payment Vesting Conditions and Cancellations (Amendments to) (*) FRS 103 Business Combinations and consecutive amendments in other FRSs (Revised) (*) FRS 107 Financial Instruments: Disclosures (Amendments to) FRS 108 Operating Segments (*) INT FRS 109 Reassessment of Embedded Derivatives and FRS 39 Financial Instruments: Recognition and Measurement Embedded Derivatives (Amendments to) (*) INT FRS 113 Customer Loyalty Programs (*) INT FRS 116 Hedges of a Net Investment in a Foreign Operation (*) INT FRS 117 Distributions of Non-cash Assets to Owners (*) INT FRS 118 Transfers of Assets from Customers (*) (*) Not relevant to the entity. The main objective of revising FRS 1 was to aggregate information in the financial statements on the basis of shared characteristics. All owner changes in equity are presented in the statement of changes in equity, separately from non-owner changes in equity. It does not change the recognition, measurement or disclosure of specific transactions and other events required by other FRSs. It introduces a requirement to include in a complete set of financial statements, a statement of financial position as at the beginning of the earliest comparative period whenever the entity retrospectively applies an accounting policy or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements. D-50

215 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Future Changes in Financial Reporting Standards The following new or revised Singapore Financial Reporting Standards that have been issued will be effective in future. The transfer to the new or revised standards from the effective dates are not expected to result in material adjustments to the financial position, results of operations, or cash flows for the following year. Effective date for periods beginning FRS No. Title on or after FRS 27 Consolidated and Separate Financial Statements (Amendments to) (*) FRS 38 Intangible Assets (Amendments to) (*) FRS 39 Financial Instruments: Recognition and Measurement Eligible Hedged Item (Amendments to) (*) FRS 102 Share-based Payment (Amendments to) (*) FRS 103 Business Combinations (Revised) (*) FRS 105 Non-current Assets Held for Sale and Discontinued Operations (Amendments to) (*) INT FRS 109 Reassessment of Embedded Derivatives (Amendments to) (*) INT FRS 116 Hedges of a Net Investment in a Foreign Operation (Amendments to) (*) INT FRS 117 Distributions of Non-cash Assets to Owners (*) INT FRS 118 Transfers of Assets from Customers (*) FRS 1 Presentation of Financial Statements (Amendments to) FRS 7 Statement of Cash Flows (Amendments to) FRS 17 Leases (Amendments to) FRS 36 Impairment of Assets (Amendments to) FRS 39 Financial Instruments: Recognition and Measurement (Amendments to) (*) FRS 105 Non-current Assets Held for Sale and Discontinued Operations (Amendments to) (*) FRS 108 Operating Segments (Amendments to) (*) (*) Not relevant to the entity. 23. Comparative Figures The financial statements for the year ended 31 December 2008 were audited by other independent auditors (other than RSM Chio Lim LLP) whose report dated 26 June 2009 expressed an unqualified opinion on those financial statements. D-51

216 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 CENTURION DORMITORY (WESTLITE) PTE. LTD. (Registration No: M) Directors Report and Financial Statements Year Ended 31 December 2010 D-52

217 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 CENTURION DORMITORY (WESTLITE) PTE. LTD. (Registration No: M) Directors Report The directors of the company are pleased to present their report together with the audited financial statements of the company for the reporting year ended 31 December Directors at Date of Report The directors of the company in office at the date of this report are: Teo Peng Kwang Chong Nien Tony Bin Hee Din 2. Arrangements to Enable Directors to Acquire Benefits by Means of the Acquisition of Shares and Debentures Neither at the end of the reporting year nor at any time during the reporting year did there subsist any arrangement whose object is to enable the directors of the company to acquire benefits by means of the acquisition of shares or debentures in the company or any other body corporate. 3. Directors Interests in Shares and Debentures The directors of the company holding office at the end of the reporting year had no interests in the share capital and debentures of the company and related corporations as recorded in the register of directors shareholdings kept by the company under section 164 of the Companies Act, Cap. 50 except as follows: Direct Interest Name of directors and companies At beginning of At end of the in which interests are held the reporting year reporting year The company Number of shares of no par value Teo Peng Kwang 120, , Contractual Benefits of Directors Since the beginning of the reporting year, no director of the company has received or become entitled to receive a benefit which is required to be disclosed under section 201(8) of the Companies Act, Cap. 50, by reason of a contract made by the company or a related corporation with the director or with a firm of which he is a member, or with a company in which he has a substantial financial interest except as disclosed in the financial statements. Certain directors of the company received remuneration from related corporations in their capacity as directors and or executives of those related corporations. 5. Options to Take Up Unissued Shares During the reporting year, no option to take up unissued shares of the company was granted. 6. Options Exercised During the reporting year, there were no shares of the company issued by virtue of the exercise of an option to take up unissued shares. 7. Unissued Shares Under Option At the end of the reporting year, there were no unissued shares under option. D-53

218 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Independent Auditors The independent auditors, RSM Chio Lim LLP, have expressed their willingness to accept reappointment. On Behalf of The Directors... Teo Peng Kwang Director... Chong Nien Director 28 February 2011 D-54

219 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 CENTURION DORMITORY (WESTLITE) PTE. LTD. (Registration No: M) Statement by Directors In the opinion of the directors, (a) (b) the accompanying statement of comprehensive income, statement of financial position, statement of changes in equity, statement of cash flows and notes thereto are drawn up so as to give a true and fair view of the state of affairs of the company as at 31 December 2010 and of the results, changes in equity and cash flows of the company for the reporting year then ended; and at the date of this statement, there are reasonable grounds to believe that the company will be able to pay its debts as and when they fall due. On Behalf of The Directors... Teo Peng Kwang Director... Chong Nien Director 28 February 2011 D-55

220 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 Independent Auditors Report to the Members of CENTURION DORMITORY (WESTLITE) PTE. LTD. (Registration No: M) Report on the Financial Statements We have audited the accompanying financial statements of Centurion Dormitory (Westlite) Pte. Ltd., which comprise the statement of financial position as at 31 December 2010, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes. Management s Responsibility for the Financial Statements Management is responsible for the preparation of financial statements that give a true and fair view in accordance with the provisions of the Singapore Companies Act (the Act ) and Singapore Financial Reporting Standards, and for devising and maintaining a system of internal accounting controls sufficient to provide a reasonable assurance that assets are safeguarded against loss from unauthorised use or disposition; and transactions are properly authorised and that they are recorded as necessary to permit the preparation of true and fair statement of comprehensive income and statement of financial position and to maintain accountability of assets. Independent Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the accompanying financial statements are properly drawn up in accordance with the provisions of the Act and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the company as at 31 December 2010 and the results, changes in equity and cash flows of the company for the reporting year ended on that date. D-56

221 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 Report on Other Legal and Regulatory Requirements In our opinion, the accounting and other records required by the Act to be kept by the company have been properly kept in accordance with the provisions of the Act. RSM Chio Lim LLP Public Accountants and Certified Public Accountants Singapore 28 February 2011 Partner-in-charge: Chan Weng Keen D-57

222 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 CENTURION DORMITORY (WESTLITE) PTE. LTD. (Registration No: M) Statement of Comprehensive Income Year Ended 31 December 2010 Notes $ $ Revenue 4 12,020,114 12,087,286 Other Items of Income Interest Income 3,794 4,729 Other Credits 5 3,597 20,572 Items of Expense Depreciation Expense (1,575,405) (1,572,934) Employee Benefits Expense 6 (347,112) (322,840) Management Fee (360,000) (370,000) Property Tax (650,000) (477,448) Administrative Expenses (775,637) (898,089) Other Expenses (26,160) (49,168) Other Charges 5 (1,340) Finance Costs 7 (1,176,892) (1,321,069) Profit Before Income Tax 7,116,299 7,099,699 Income Tax Expense 8 (1,435,767) (1,437,189) Total Comprehensive Income for the Year 5,680,532 5,662,510 The accompanying notes form an integral part of these financial statements. D-58

223 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 CENTURION DORMITORY (WESTLITE) PTE. LTD. (Registration No: M) Statement of Financial Position As at 31 December 2010 Notes $ $ ASSETS Non-Current Assets Plant and Equipment , ,253 Investment Property 11 57,308,036 58,856,901 Total Non-Current Assets 57,432,536 58,999,154 Current Assets Other Receivables 12 72,934 59,599 Cash and Cash Equivalents 13 2,902,520 3,961,283 Total Current Assets 2,975,454 4,020,882 Total Assets 60,407,990 63,020,036 EQUITY AND LIABILITIES Equity Share Capital 14 1,000,000 1,000,000 Retained Earnings 4,183,710 3,403,178 Total Equity 5,183,710 4,403,178 Shareholders Loans 15 17,094,600 17,094,600 22,278,310 21,497,778 Non-Current Liabilities Deferred Tax Liabilities 8 1,797 1,797 Other Financial Liabilities 16 30,711,130 34,177,793 Total Non-Current Liabilities 30,712,927 34,179,590 Current Liabilities Income Tax Payable 1,639,730 1,618,504 Trade and Other Payables 17 2,310,367 2,257,508 Other Financial Liabilities 16 3,466,656 3,466,656 Total Current Liabilities 7,416,753 7,342,668 Total Liabilities 38,129,680 41,522,258 Total Equity and Liabilities 60,407,990 63,020,036 The accompanying notes form an integral part of these financial statements. D-59

224 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 CENTURION DORMITORY (WESTLITE) PTE. LTD. (Registration No: M) Statement of Changes in Equity Year Ended 31 December 2010 Total Share Retained Equity Capital Earnings $ $ $ Current Year: Opening Balance at 1 January ,403,178 1,000,000 3,403,178 Total Comprehensive Income for the Year 5,680,532 5,680,532 Dividends Paid (Note 9) (4,900,000) (4,900,000) Closing Balance at 31 December ,183,710 1,000,000 4,183,710 Previous Year: Opening Balance at 1 January ,740,668 1,000,000 1,740,668 Total Comprehensive Income for the Year 5,662,510 5,662,510 Dividends Paid (Note 9) (4,000,000) (4,000,000) Closing Balance at 31 December ,403,178 1,000,000 3,403,178 The accompanying notes form an integral part of these financial statements. D-60

225 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 CENTURION DORMITORY (WESTLITE) PTE. LTD. (Registration No: M) Statement of Cash Flows Year Ended 31 December $ $ Cash Flows From Operating Activities Profit Before Income Tax 7,116,299 7,099,699 Adjustments for: Interest Income (3,794) (4,729) Interest Expense 1,176,892 1,321,069 Depreciation of Investment Property 1,548,865 1,548,866 Depreciation of Plant and Equipment 26,540 24,068 Operating Cash Flows before Changes in Working Capital 9,864,802 9,988,973 Other Receivables (13,335) 27,906 Trade and Other Payables 52, ,114 Net Cash Flows From Operations Before Interest and Tax 9,904,326 10,237,993 Income Taxes Paid (1,414,541) (836,550) Net Cash Flows From Operating Activities 8,489,785 9,401,443 Cash Flows From Investing Activities Proceeds From Disposal of Plant and Equipment 2,141 Purchase of Plant and Equipment (8,787) (20,193) Interest Income Received 3,794 4,729 Net Cash Flows Used in Investing Activities (4,993) (13,323) Cash Flows From Financing Activities Dividends Paid to Equity Owners (4,900,000) (4,000,000) Repayment of Bank Loans (3,466,663) (3,177,776) Interest Expense Paid (1,176,892) (1,321,069) Net Cash Flows Used in Financing Activities (9,543,555) (8,498,845) Net (Decrease) / Increase in Cash and Cash Equivalents (1,058,763) 889,275 Cash and Cash Equivalents, Statement of Cash Flows, Beginning Balance 3,961,283 3,072,008 Cash and Cash Equivalents, Statement of Cash Flows, Ending Balance (Note 13) 2,902,520 3,961,283 The accompanying notes form an integral part of these financial statements. D-61

226 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 CENTURION DORMITORY (WESTLITE) PTE. LTD. (Registration No: M) Notes to the Financial Statements 31 December General The company is incorporated in Singapore with limited liability. presented in Singapore dollar. The financial statements are The board of directors approved and authorised these financial statements for issue on 28 February The principal activities are those of property investments, and provision of dormitory accommodation and services. The registered office is: 47 Scotts Road, #18-01 Goldbell Towers, Singapore The company is domiciled in Singapore. 2. Summary of Significant Accounting Policies Accounting Convention The financial statements have been prepared in accordance with the Singapore Financial Reporting Standards ( FRS ) and the related Interpretations to FRS ( INT FRS ) as issued by the Singapore Accounting Standards Council and the Companies Act, Cap 50. The financial statements are prepared on a going concern basis under the historical cost convention except where an FRS requires an alternative treatment (such as fair values) as disclosed where appropriate in these financial statements. Basis of Preparation of the Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires the management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting year. Actual results could differ from those estimates. The estimates and assumptions are reviewed on an ongoing basis. Apart from those involving estimations, management has made judgements in the process of applying the entity s accounting policies. The areas requiring management s most difficult, subjective or complex judgements, or areas where assumptions and estimates are significant to the financial statements, are disclosed at the end of this note to the financial statements, where applicable. Revenue Recognition The revenue amount is the fair value of the consideration received or receivable from the gross inflow of economic benefits during the reporting year arising from the course of the activities of the entity and it is shown net of any related sales taxes, estimated returns and rebates. Rental income is recognised in accordance with the accounting policy on operating leases below. Rental revenue and conservancy income are recognised in accordance with the terms of the relevant agreement unless, having regard to the substance of the agreement, it is more appropriate to recognise revenue bases on some other systematic and rational basis. Interest income is recognised using the effective interest method. D-62

227 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Summary of Significant Accounting Policies (Cont d) Employee Benefits Contributions to defined contribution retirement benefit plans are recorded as an expense as they fall due. The entity s legal or constructive obligation is limited to the amount that it agrees to contribute to an independently administered fund which is the Central Provident Fund in Singapore (a government managed retirement benefit plan). For employee leave entitlement the expected cost of short-term employee benefits in the form of compensated absences is recognised in the case of accumulating compensated absences, when the employees render service that increases their entitlement to future compensated absences; and in the case of non-accumulating compensated absences, when the absences occur. A liability for bonuses is recognised where the entity is contractually obliged or where there is constructive obligation based on past practice. Income Tax The income taxes are accounted using the asset and liability method that requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequence of events that have been recognised in the financial statements or tax returns. The measurements of current and deferred tax liabilities and assets are based on provisions of the enacted or substantially enacted tax laws; the effects of future changes in tax laws or rates are not anticipated. Income tax expense represents the sum of the tax currently payable and deferred tax. Current and deferred income taxes are recognised as income or as an expense in profit or loss unless the tax relates to items that are recognised in the same or a different period outside profit or loss. For such items recognised outside profit or loss the current tax and deferred tax are recognised (a) in other comprehensive income if the tax is related to an item recognised in other comprehensive income and (b) directly in equity if the tax is related to an item recognised directly in equity. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same income tax authority. The carrying amount of deferred tax assets is reviewed at each end of the reporting year and is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realised. A deferred tax amount is recognised for all temporary differences, unless the deferred tax amount arises from the initial recognition of an asset or liability in a transaction which (i) is not a business combination; and (ii) at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss). Foreign Currency Transactions The functional currency is the Singapore dollar as it reflects the primary economic environment in which the entity operates. Transactions in foreign currencies are recorded in the functional currency at the rates ruling at the dates of the transactions. At each end of the reporting year, recorded monetary balances and balances measured at fair value that are denominated in non-functional currencies are reported at the rates ruling at the end of the reporting year and fair value dates respectively. All realised and unrealised exchange adjustment gains and losses are dealt with in profit or loss except when recognised in other comprehensive income and if applicable deferred in equity such as for qualifying cash flow hedges. The presentation is in the functional currency. Borrowing Costs All borrowing costs that are interest and other costs incurred in connection with the borrowing of funds that are directly attributable to the acquisition, construction or production of a qualifying asset that necessarily take a substantial period of time to get ready for their intended use or sale are capitalised as part of the cost of that asset until substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete. Other borrowing costs are recognised as an expense in the period in which they are incurred. The interest expense is calculated using the effective interest method. D-63

228 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Summary of Significant Accounting Policies (Cont d) Plant and Equipment Depreciation is provided on a straight-line basis to allocate the gross carrying amounts of the assets less their residual values over their estimated useful lives of each part of an item of these assets as follows: Air conditioners 5 years Computers 3 years Furniture & fittings 5 years Equipments 3 years An asset is depreciated when it is available for use until it is derecognised even if during that period the item is idle. Fully depreciated assets still in use are retained in the financial statements. Plant and equipment are carried at cost on initial recognition and after initial recognition at cost less any accumulated depreciation and any accumulated impairment losses. The gain or loss arising from the derecognition of an item of plant and equipment is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item and is recognised in profit or loss. The residual value and the useful life of an asset is reviewed at least at each end of the reporting year and, if expectations differ significantly from previous estimates, the changes are accounted for as a change in an accounting estimate, and the depreciation charge for the current and future periods are adjusted. Cost also includes acquisition cost, borrowing cost capitalised and any cost directly attributable to bringing the asset or component to the location and condition necessary for it to be capable of operating in the manner intended by management. Subsequent cost are recognised as an asset only when it is probable that future economic benefits associated with the item will flow to the entity and the cost of the item can be measured reliably. All other repairs and maintenance are charged to profit or loss when they are incurred. Investment Property Investment property is a property owned or held under a finance lease to earn rentals or for capital appreciation or both, rather than for use in the production or supply of goods or services or for administrative purposes or sale in the ordinary course of business. It includes an investment property in the course of construction. After initial recognition at cost including transaction costs, the investment property is carried at cost less any accumulated depreciation and any accumulated impairment losses. An investment property that meets the criteria to be classified as held for sale is carried at the lower of carrying amount and fair value less costs to sell. For disclosure purposes, the fair values are determined periodically on a systematic basis at least once yearly by management having an appropriate recognised professional qualification and recent experience in the location and category of property being valued. Depreciation of investment property is provided on a straight-line basis to allocate the gross carrying amount over the estimated useful lives as follows: Leasehold land over the remaining lease period of 50 years Leasehold building 25 years D-64

229 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Summary of Significant Accounting Policies (Cont d) Operating Leases Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased assets are classified as operating leases. For operating leases, lease payments are recognised as an expense in profit or loss on a straight-line basis over the term of the relevant lease unless another systematic basis is representative of the time pattern of the user s benefit, even if the payments are not on that basis. Lease incentives received are recognised in profit or loss as an integral part of the total lease expense. Rental income from operating leases is recognised in profit or loss on a straight-line basis over the term of the relevant lease unless another systematic basis is representative of the time pattern of the user s benefit, even if the payments are not on that basis. Initial direct cost incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term. Impairment of Non-Financial Assets The carrying amount of other non-financial assets is reviewed at each end of the reporting year for indications of impairment and where an asset is impaired, it is written down through profit or loss to its estimated recoverable amount. The impairment loss is the excess of the carrying amount over the recoverable amount and is recognised in profit or loss. The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). At each end of the reporting year, non-financial assets with impairment loss recognised in prior periods are assessed for possible reversal of the impairment. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognised. Financial Assets Initial recognition and measurement and derecognition: A financial asset is recognised on the statement of financial position when, and only when, the entity becomes a party to the contractual provisions of the instrument. The initial recognition of financial assets is at fair value normally represented by the transaction price. The transaction price for financial asset not classified at fair value through profit or loss includes the transaction costs that are directly attributable to the acquisition or issue of the financial asset. Transaction costs incurred on the acquisition or issue of financial assets classified at fair value through profit or loss are expensed immediately. The transactions are recorded at the trade date. Irrespective of the legal form of the transactions performed, financial assets are derecognised when they pass the substance over form based on the derecognition test prescribed by FRS 39 relating to the transfer of risks and rewards of ownership and the transfer of control. D-65

230 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Summary of Significant Accounting Policies (Cont d) Financial Assets (Cont d) Subsequent measurement: Subsequent measurement based on the classification of the financial assets in one of the following four categories under FRS 39 is as follows: #1. Financial assets at fair value through profit or loss: As at end of the reporting year, there were no financial assets classified in this category. #2. Loans and receivables: Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Assets that are for sale immediately or in the near term are not classified in this category. These assets are carried at amortised costs using the effective interest method (except that short-duration receivables with no stated interest rate are normally measured at original invoice amount unless the effect of imputing interest would be significant) minus any reduction (directly or through the use of an allowance account) for impairment or uncollectibility. Impairment charges are provided only when there is objective evidence that an impairment loss has been incurred as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The methodology ensures that an impairment loss is not recognised on the initial recognition of an asset. Losses expected as a result of future events, no matter how likely, are not recognised. For impairment, the carrying amount of the asset is reduced through use of an allowance account. The amount of the loss is recognised in profit or loss. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. Typically the trade and other receivables are classified in this category. #3. Held-to-maturity financial assets: As at end of the reporting year, there were no financial assets classified in this category. #4. Available for sale financial assets: As at end of the reporting year, there were no financial assets classified in this category. Cash and Cash Equivalents Cash and cash equivalents include bank and cash balances. For the statement of cash flows, the item includes cash and cash equivalents less cash subject to restriction, if any. D-66

231 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Summary of Significant Accounting Policies (Cont d) Financial Liabilities Initial recognition and measurement: A financial liability is recognised on the statement of financial position when, and only when, the entity becomes a party to the contractual provisions of the instrument. The initial recognition of financial liability is at fair value normally represented by the transaction price. The transaction price for financial liability not classified at fair value through profit or loss includes the transaction costs that are directly attributable to the acquisition or issue of the financial liability. Transaction costs incurred on the acquisition or issue of financial liability classified at fair value through profit or loss are expensed immediately. The transactions are recorded at the trade date. Financial liabilities including bank and other borrowings are classified as current liabilities unless there is an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting year. Subsequent measurement: Subsequent measurement based on the classification of the financial liabilities in one of the following two categories under FRS 39 is as follows: #1. Liabilities at fair value through profit or loss: As at end of the reporting year, there were no financial liabilities classified in this category. #2. Other financial liabilities: All liabilities, which have not been classified as in the previous category fall into this residual category. These liabilities are carried at amortised cost using the effective interest method. Trade and other payables and borrowings are usually classified in this category. Items classified within current trade and other payables are not usually remeasured, as the obligation is usually known with a high degree of certainty and settlement is short-term. Fair Value of Financial Instruments The carrying values of current financial instruments approximate their fair values due to the shortterm maturity of these instruments. Disclosures of fair value are not made when the carrying amount of current financial instruments is a reasonable approximation of fair value. The fair values of non-current financial instruments may not be disclosed separately unless there are significant differences at the end of the reporting year and in the event the fair values are disclosed in the relevant notes. The maximum exposure to credit risk is the fair value of the financial instruments at the end of the reporting year. The fair value of a financial instrument is derived from an active market or by using an acceptable valuation technique. The appropriate quoted market price for an asset held or liability to be issued is usually the current bid price without any deduction for transaction costs that may be incurred on sale or other disposal and, for an asset to be acquired or for liability held, the asking price. If there is no market, or the markets available are not active, the fair value is established by using an acceptable valuation technique. The fair value measurements are classified using a fair value hierarchy of 3 levels that reflects the significance of the inputs used in making the measurements, that is, Level 1 for the use of quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 for the use of inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and Level 3 for the use of inputs for the asset or liability that are not based on observable market data (unobservable inputs). The level is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. Where observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. D-67

232 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Summary of Significant Accounting Policies (Cont d) Equity Equity instruments are contracts that give a residual interest in the net assets of the company. Ordinary shares are classified as equity. Equity instruments are recognised at the amount of proceeds received net of incremental costs directly attributable to the transaction. Dividends on equity are recognised as liabilities when they are declared. Interim dividends are recognised when declared by the directors. Provisions A liability or provision is recognised when there is a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are made using best estimates of the amount required in settlement and where the effect of the time value of money is material, the amount recognised is the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense. Changes in estimates are reflected in profit or loss in the reporting year they occur. Critical Judgements, Assumptions and Estimation Uncertainties The critical judgements made in the process of applying the accounting policies that have the most significant effect on the amounts recognised in the financial statements and the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting year, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next reporting year are discussed below. These estimates and assumptions are periodically monitored to ensure they incorporate all relevant information available at the date when financial statements are prepared. However, this does not prevent actual figures differing from estimates. Investment property: An assessment is made at each reporting date whether there is any indication that the asset may be impaired. If any such indication exists, an estimate is made of the recoverable amount of the asset. It is impracticable to disclose the extent of the possible effects. It is reasonably possible, based on existing knowledge, that outcomes within the next financial year that are different from assumptions could require a material adjustment to the carrying amount of the balances affected. The carrying amount of investment property of the company at the end of the reporting year is $57,308,036 (2009: $58,856,901). Fair value of investment property on redevelopment basis: The fair value of the company s investment property on a redevelopment basis as disclosed in Note 11 is estimated by its directors based on a valuation made by a firm of independent professional valuers in January The disclosure is not required by FRS 40, Investment Property. In determining the fair value of the investment property on a redevelopment basis, the valuers have made certain assumptions regarding the additions and alterations to the existing worker dormitory development and the erection of a new 18-storey block at a plot ratio of 3.2. In addition, a degree of judgement is required in estimating expected future cash flows and discount rates etc which are inputs in the valuation. Changes in the assumptions and estimates used in the valuation could affect the reported fair value of the investment property. Actual results could be different from the current valuation since anticipated events may not occur as expected and the variation may be material. D-68

233 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Summary of Significant Accounting Policies (Cont d) Critical Judgements, Assumptions and Estimation Uncertainties (Cont d) Income tax: The entity recognises expected liabilities for tax based on an estimation of the likely taxes due, which requires significant judgement as to the ultimate tax determination of certain items. Where the actual liability arising from these issues differs from these estimates, such differences will have an impact on income tax and deferred tax provisions in the period when such determination is made. It is impracticable to disclose the extent of the possible effects. It is reasonably possible, based on existing knowledge, that outcomes within the next financial year that are different from assumptions could require a material adjustment to the carrying amount of the balances affected. 3. Related Party Relationships and Transactions FRS 24 defines a related party as a person or entity that is related to the reporting entity and it includes (a) A person or a close member of that person s family if that person: (i) has control or joint control over the reporting entity; (ii) has significant influence over the reporting entity; or (iii) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity; (b) An entity is related to the reporting entity if any of the following conditions applies; (i) The entity and the reporting entity are members of the same group; (ii) One entity is an associate or joint venture of the other entity; (iii) Both entities are joint ventures of the same third party; (iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity; (v) The entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity; (vi) The entity is controlled or jointly controlled by a person identified in (a); (vii) A person identified in (a) (i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity). The ultimate controlling parties are Mr Han Seng Juan and Mr David Loh Kim Kang. #3.1 Related companies: The company is a subsidiary of Centurion Properties Pte. Ltd., incorporated in Singapore. The company s ultimate parent company is Centurion Global Ltd, incorporated in the British Virgin Islands. Related companies in these financial statements include the subsidiaries and associates of the ultimate parent company s group of companies. There are transactions and arrangements between the reporting entity and members of the group and the effects of these on the basis determined between the parties are reflected in these financial statements. The current related company balances are unsecured without fixed repayment terms and interest unless stated otherwise. For non-current balances if significant an interest is imputed unless stated otherwise based on the prevailing market interest rate for similar debt less the interest rate if any provided in the agreement for the balance. For financial guarantees an amount is imputed and is recognised accordingly if significant where no charge is payable. Significant related company transactions: In addition to transactions and balances disclosed elsewhere in the notes to the financial statements, this item includes the following: Immediate parent company $ $ Management fee expense 360, ,000 Interest expense 469, ,335 Dividends paid 4,312,000 3,520,000 D-69

234 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Related Party Relationships and Transactions (Cont d) #3.2. Other related parties: There are transactions and arrangements between the reporting entity and related parties and the effects of these on the basis determined between the parties are reflected in these financial statements. The current related party balances are unsecured without fixed repayment terms and interest unless stated otherwise. For non-current balances if significant an interest is imputed unless stated otherwise based on the prevailing market interest rate for similar debt less the interest rate if any provided in the agreement for the balance. For financial guarantees an amount is imputed and is recognised accordingly if significant where no charge is payable. Significant related party transactions: In addition to transactions and balances disclosed elsewhere in the notes to the financial statements, this item includes the following: Non-controlling shareholder $ $ Interest expense 43,720 21,947 Dividends paid 588, ,000 Related parties $ $ Services rendered 57,291 55,968 #3.3 Key management compensation: $ $ Remuneration of director of the company 71,674 73,561 The above amounts are included under employee benefits expense. Key management personnel are the directors and those persons having authority and responsibility for planning, directing and controlling the activities of the company, directly or indirectly. The above amount for key management compensation is for a director. The above amount does not include compensation if any of certain key management personnel and directors of the company who received compensation from related corporations in their capacity as directors and/ or executives of those related corporations. D-70

235 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Related Party Relationships and Transactions (Cont d) #3.4 Other receivables from and other payables to related parties: The trade transactions and the trade receivables and payables balances arising from sales and purchases of goods and services are disclosed elsewhere in the notes to the financial statements. The movements in other payables to related parties are as follows: Immediate parent company $ $ Other payables: Balance at beginning of the year 16,032,653 16,534,600 Amounts paid out (631,719) (501,947) Balance at end of the year (Note 15) 15,400,934 16,032,653 Non-controlling shareholder $ $ Other payables: Balance at beginning of the year 1,061, ,000 Amounts paid in 631, ,947 Balance at end of the year (Note 15) 1,693,666 1,061, Revenue $ $ Rental income from investment property 7,005,318 7,015,542 Conservancy income from investment property 4,783,283 4,819,819 Others 231, ,925 12,020,114 12,087, Other Credits and (Other Charges) $ $ Loss on disposal of plant and equipment (1,340) Government grant income from Jobs Credit Scheme 3,597 20,572 Net 3,597 19,232 Presented in profit or loss as: Other Credits 3,597 20,572 Other Charges (1,340) Net 3,597 19,232 D-71

236 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Employee Benefits Expense $ $ Employee benefits expense including director s: Salaries and bonuses 299, ,738 Contributions to defined contribution plan 38,000 36,691 Other benefits 9,895 8,411 Total employee benefits expense 347, , Finance Costs $ $ Interest expense on loans payable to shareholders 512, ,282 Interest expense on bank term loans 664, ,787 Total finance costs 1,176,892 1,321, Income Tax Expense 8A. Components of tax expense recognised in profit or loss include: $ $ Current income tax: Current income tax expense 1,447,153 1,444,963 Over adjustments in respect of prior years (11,386) (7,774) Total income tax expense 1,435,767 1,437,189 The income tax in profit or loss varied from the amount determined by applying the Singapore income tax rate of 17% (2009: 17%) to profit before income tax as a result of the following differences: $ $ Profit before income tax 7,116,299 7,099, $ $ Income tax expense at the above rate 1,209,771 1,206,949 Not deductible items 263, ,307 Tax exemptions (25,925) (25,925) Over adjustments to current tax in respect of prior years (11,386) (7,774) Other minor items less than 3% each 632 Total income tax expense 1,435,767 1,437,189 There are no income tax consequences of dividends to owners of the company. D-72

237 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Income Tax Expense (Cont d) 8B. Deferred tax balance in the statement of financial position: $ $ Deferred tax liabilities: Excess of net book value of plant and equipment over tax values 1,797 1, Dividends on Equity Shares $ $ Interim tax exempt (1-tier) dividend paid of $4.90 (2009: $4.00) per share 4,900,000 4,000, Plant and Equipment Plant and Work-in- Equipment progress Total $ $ $ Cost: At 1 January ,723 83, ,428 Additions 7,385 12,808 20,193 Disposals (3,211) (3,211) At 31 December ,897 96, ,410 Additions 8, ,787 At 31 December ,274 96, ,197 Accumulated depreciation: At 1 January ,159 23,159 Depreciation for the year 24,068 24,068 Disposals (1,070) (1,070) At 31 December ,157 46,157 Depreciation for the year 26,540 26,540 At 31 December ,697 72,697 Net book value: At 1 January ,564 83, ,269 At 31 December ,740 96, ,253 At 31 December ,577 96, ,500 D-73

238 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Investment Property Leasehold Leasehold Land Building Total $ $ $ Cost: At 1 January 2009, 31 December 2009 and ,465,975 15,488,658 61,954,633 Accumulated depreciation: At 1 January , ,546 1,548,866 Charge for the year 929, ,546 1,548,866 At 31 December ,858,640 1,239,092 3,097,732 Depreciation for the year 929, ,546 1,548,865 At 31 December ,787,959 1,858,638 4,646,597 Net book value: At 1 January ,536,655 14,869,112 60,405,767 At 31 December ,607,335 14,249,566 58,856,901 At 31 December ,678,016 13,630,020 57,308, $ $ Rental and conservancy income from investment property 11,788,601 11,835,361 Direct operating expenses (including repairs and maintenance) for the reporting year 2,887,898 2,741,870 The investment property is leased out under operating leases. The investment property is located at 12, 14, 16, 18, 20, 22, 24, 26, 28 Toh Guan Road East, Singapore It consists of a leasehold land of an aggregate land area of 11, square metres together with buildings erected. Currently, it houses 448 units of worker dormitory and a 3- storey amenity block housing a canteen, a sundry shop/minimart and offices. The tenure of the leasehold land is 60 years with effect from 1 December The investment property is pledged as security for the bank facilities (see Note 16). The fair value of the investment property is estimated by management to be $103,000,000 (2009: $87,000,000), based on a valuation made by a firm of independent professional valuers in January This valuation is based on the property s existing use basis to reflect the actual market state and circumstances as of the end of the reporting year and not as of either a past or future date. The directors of the company have also estimated the fair value of the investment property to be $120,000,000 on a redevelopment basis. This value is based on a valuation made by the same firm of independent professional valuers as above in January 2011 and assumes additions and alterations to the existing worker dormitory development and the erection of a new 18-storey block at a plot ratio of 3.2. Under these assumptions, the investment property would have an additional 207 units of worker dormitory and increase in commercial area. The additions, alterations and erection of a new 18-storey block have been approved by the Urban Redevelopment Authority under a Grant of Provisional Permission dated 9 September The disclosure of fair value on a redevelopment basis is not required by FRS 40, Investment Property. D-74

239 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Other Receivables $ $ Outside parties 13,376 Refundable deposits 59,100 59,599 Prepayment 458 Total 72,934 59, Cash and Cash Equivalents $ $ Not restricted in use 2,902,520 3,961,283 The interest earning balances are not significant. 14. Share Capital Number of shares issued Share capital $ Ordinary shares of no par value: Balance at 1 January 2009, 31 December 2009 and 31 December ,000,000 1,000,000 The ordinary shares of no par value which are fully paid carry no right to fixed income. The company is not subject to any externally imposed capital requirements. Capital Management: The objectives when managing capital are: to safeguard the reporting entity s ability to continue as a going concern, so that it can continue to provide returns for owners and benefits for other stakeholders, and to provide an adequate return to owners by pricing the sales commensurately with the level of risk. The management sets the amount of capital to meet its requirements and the risk taken. There were no changes in the approach to capital management during the reporting year. The management manages the capital structure and makes adjustments to it where necessary or possible in the light of changes in conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the management may adjust the amount of dividends paid to owners, return capital to owners, issue new shares, or sell assets to reduce debt. The company s borrowings are secured by specific assets. The debt-to-adjusted capital ratio may not provide a meaningful indicator of the risk of borrowings. D-75

240 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Shareholders Loans $ $ Loans payable to non-controlling shareholder 1,693,666 1,061,947 Loans payable to immediate parent company 15,400,934 16,032,653 17,094,600 17,094,600 Loans payable to immediate parent company and a non-controlling shareholder are unsecured, bear interest at 3% (2009: 3%) per annum and settlement is neither planned nor likely to occur in the foreseeable future. These balances are, in substance, the parent company and the shareholder s net investments in the company. The above loans payable are subordinated to the bank loans (Note 16). 16. Other Financial Liabilities $ $ Non-current: Term Loan A (secured) 29,777,788 32,444,437 Term Loan B (secured) 933,342 1,733,356 Total 30,711,130 34,177,793 Current: Term Loan A (secured) 2,666,664 2,666,664 Term Loan B (secured) 799, ,992 Total 3,466,656 3,466,656 Grand total 34,177,786 37,644,449 The non-current portion is repayable as follows: Due within 2 to 5 years 11,599,998 12,400,012 After 5 years 19,111,132 21,777,781 All the amounts are at floating interest rates. 30,711,130 34,177,793 Term Loan A is repayable by 179 equal monthly instalments of $222,222 which commenced on 31 January 2008 and a final instalment of $222,247. The rates of interest for the Term Loan A ranges between 1.66% and 2.11% (2009: 1.80% and 3.14%) per annum. Term Loan B is repayable by 59 equal monthly instalments of $66,666 which commenced on 31 January 2008 and a final instalment of $66,706. The rates of interest for the Term Loan B range between 1.66% and 2.09% (2009: 1.80% and 2.48%) per annum. The bank agreements for the term loans provide among other matters for the following: (a) (b) (c) a legal mortgage over the company s investment property disclosed in Note 11 and assignment of all rental proceeds and insurances relating to this investment property; personal joint and several guarantee from certain directors of the company and the immediate parent company; and the need to comply with certain financial covenants. D-76

241 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Trade and Other Payables $ $ Trade payables: Outside parties and accrued liabilities 202, ,273 Other payables: Rental deposits received 2,087,440 2,016,480 Others 20,876 10,755 Subtotal 2,108,316 2,027,235 Total trade and other payables 2,310,367 2,257, Financial Instruments: Information on Financial Risks 18A. Classification of Financial Assets and Liabilities The following table summarises the carrying amount of financial assets and liabilities recorded at the end of the reporting year by FRS 39 categories: $ $ Financial assets: Cash and cash equivalents 2,902,520 3,961,283 Loans and receivables 72,934 59,599 2,975,454 4,020,882 Financial liabilities: Trade and other payables at amortised cost 2,310,367 2,257,508 Borrowings at amortised cost 34,177,786 37,644,449 36,488,153 39,901,957 Further quantitative disclosures are included throughout these financial statements. There are no significant fair value measurements recognised in the statement of financial position. 18B. Financial Risk Management The main purpose for holding or issuing financial instruments is to raise and manage the finances for the entity s operating, investing and financing activities. There are exposures to the financial risks on the financial instruments such as credit risk, liquidity risk and market risk comprising interest rate, currency risk and price risk exposures. The management has certain practices for the management of financial risks. However these are not documented in formal written documents. The following guidelines are followed: All financial risk management activities are carried out and monitored by senior management staff. All financial risk management activities are carried out following good market practices. There have been no changes to the exposures to risk, the objectives, policies and processes for managing the risk and the methods used to measure the risk. D-77

242 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Financial Instruments: Information on Financial Risks (Cont d) 18C. Fair value of financial instruments stated at amortised cost in the statement of financial position The financial assets and financial liabilities at amortised cost are at a carrying amount that is a reasonable approximation of fair value. 18D. Credit Risk on Financial Assets Financial assets that are potentially subject to concentrations of credit risk and failures by counterparties to discharge their obligations in full or in a timely manner consist principally of cash balances with banks and receivables. The maximum exposure to credit risk is: the total of the fair value of the financial instruments; the maximum amount the entity could have to pay if the guarantee is called on; and the full amount of any loan payable commitment at the end of the reporting year. Credit risk on cash balances with banks is limited because the counter-parties are entities with acceptable credit ratings. For credit risk on receivables an ongoing credit evaluation is performed of the financial condition of the debtors and a loss from impairment is recognised in profit or loss. The exposure to credit risk is controlled by setting limits on the exposure to individual customers and these are disseminated to the relevant persons concerned and compliance is monitored by management. There is no significant concentration of credit risk, as the exposure is spread over a large number of counter-parties and customers. Cash and cash equivalents as disclosed in Note 13 represent amounts with a less than 90-days maturity. As at the end of reporting year, no trade receivables amount were overdue or impaired. Other receivables are normally with no fixed terms and therefore there is no maturity. 18E. Liquidity Risk The following table analyses the non-derivative financial liabilities by remaining contractual maturity (contractual and undiscounted cash flows): Gross borrowings Trade and commitments other payables Total $ $ $ 2010: Less than 1 year 3,466,656 2,310,367 5,777, years 13,293,009 13,293,009 Over 5 years 20,122,344 20,122,344 At end of year 36,882,009 2,310,367 39,192, : Less than 1 year 3,538,336 2,257,508 5,795, years 12,655,093 12,655,093 Over 5 years 22,231,049 22,231,049 At end of year 38,424,478 2,257,508 40,681,986 The above amounts disclosed in the maturity analysis are the contractual undiscounted cash flows and such undiscounted cash flows differ from the amount included in the statement of financial position. When the counterparty has a choice of when an amount is paid, the liability is included on the basis of the earliest date on which it can be required to pay. At the end of the reporting year, no claims on the financial guarantees are expected. D-78

243 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Financial Instruments: Information on Financial Risks (Cont d) 18E. Liquidity Risk (Cont d) The liquidity risk refers to the difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. It is expected that all the liabilities will be paid at their contractual maturity. The average credit period taken to settle trade payables by the company is about 30 days (2009: 30 days). The other payables are with short-term durations. Apart from the classification of the assets in the statement of financial position, no further analysis is deemed necessary. In order to meet such cash commitments, the operating activities are expected to generate sufficient cash inflows. 18F. Interest Rate Risk The interest rate risk exposure is mainly from changes in floating interest rates. The interest from financial assets including cash balances is not significant. The following table analyses the breakdown of the significant financial instruments (excluding derivatives) by type of interest rate: $ $ Financial liabilities: Floating rate 34,177,786 37,644,449 The interest rates are disclosed in the respective notes. The floating rate debt obligations are with interest rates that are re-set regularly at one, three or six month intervals. Sensitivity analysis: $ $ A hypothetical variation in interest rates by 10 basis points with all other variables held constant, would have an increase / decrease in pre-tax profit for the year by 34,177 37,644 18G. Foreign Currency Risk The company is not exposed to significant foreign currency risk as its business transactions are primarily denominated in Singapore dollar, which is the company s functional currency. 19. Operating Lease Income Commitments At the end of the reporting year the total of future minimum lease receivables committed under non-cancellable operating leases are as follows: $ $ Not later than one year 8,502,490 9,041,630 Later than one year and not after than five years 587,520 2,330,080 Rental income for the year 11,788,601 11,835,361 Operating lease income commitments are for the investment property. The lease rental income terms are negotiated for an average term of 18 months. D-79

244 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Event after the End of the Reporting Year Centurion Properties Pte Ltd and Mr Teo Peng Kwang, the company s immediate parent company and non-controlling shareholder respectively, collectively own 100% interest in the capital of the company. On 13 January 2011, Centurion Properties Pte Ltd and Mr Teo Peng Kwang entered into a term sheet with SM Summit Holdings Limited, a company listed on the Singapore Exchange, for the sale of 100% interest in the capital of the company to SM Summit Holdings Limited. The purchase consideration for the company s shares shall be determined based on the Revalued Net Asset Value ( RNAV ) of the company as at 31 December 2010, and the RNAV shall be determined on the basis of a revaluation of the company s dormitory to be supported by an independent valuation at not less than $120 million. This proposed acquisition by SM Summit Holdings Limited is subject to certain conditions being met and these include the approvals of the Singapore Exchange Securities Trading Limited and the shareholders of SM Summit Holdings Limited. 21. Changes and Adoption of Financial Reporting Standards For the reporting year ended 31 December 2010, the following new or revised Singapore Financial Reporting Standards were adopted. The new or revised standards did not require any material modification of the measurement methods or the presentation in the financial statements. FRS No. Title FRS 1 Presentation of Financial Statements (Amendments to) FRS 7 Statement of Cash Flows (Amendments to) FRS 17 Leases (Amendments to) FRS 27 Consolidated and Separate Financial Statements (Revised) (*) FRS 28 Investments in Associates (Revised) (*) FRS 36 Impairment of Assets (Amendments to) (*) FRS 38 Intangible Assets (Amendments to) (*) FRS 39 Financial Instruments: Recognition and Measurement Eligible Hedged Item (Amendments to) (*) FRS 39 Financial Instruments: Recognition and Measurement (Amendments to) FRS 102 Share-based Payment (Amendments to) (*) FRS 103 Business Combinations (Revised) (*) FRS 105 Non-current Assets Held for Sale and Discontinued Operations (Amendments to) (*) FRS 108 Operating Segments (Amendments to) (*) INT FRS 109 Reassessment of Embedded Derivatives (Amendments to) (*) INT FRS 116 Hedges of a Net Investment in a Foreign Operation (Amendments to) (*) INT FRS 117 Distributions of Non-cash Assets to Owners (*) INT FRS 118 Transfers of Assets from Customers (*) (*) Not relevant to the entity. D-80

245 APPENDIX D AUDITED FINANCIAL STATEMENTS OF WESTLITE FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND Future Changes in Financial Reporting Standards The following new or revised Singapore Financial Reporting Standards that have been issued will be effective in future. The transfer to the new or revised standards from the effective dates is not expected to result in material adjustments to the financial position, results of operations, or cash flows for the following year. Effective date for periods beginning FRS No. Title on or after FRS 24 Related Party Disclosures (revised) 1 January 2011 FRS 32 Classification Of Rights Issues (Amendments to) (*) 1 February 2010 FRS 107 Financial Instruments: Disclosures (Amendments to) 1 January 2011 INT FRS 114 Prepayments of a Minimum Funding Requirement 1 January 2011 (revised) (*) INT FRS 115 Agreements for the Construction of Real Estate (*) 1 January 2011 INT FRS 119 Extinguishing Financial Liabilities with Equity Instruments (*) 1 July 2010 (*) Not relevant to the entity. D-81

246 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 The Board of Directors SM Summit Holdings Limited 45 Ubi Road 1 Summit Building Singapore June 2011 Dear Sirs This report has been prepared for inclusion in the circular to shareholders (the Circular ) of SM Summit Holdings Limited (the Company ) and its subsidiaries (the Group ) in connection with the proposed acquisition of the entire issued paid up share capital of Centurion Dormitory (Westlite) Pte Ltd ( Westlite ) and the proposed acquisition of the 45% interest in the issued and paid up capital of Lian Beng - Centurion (Mandai) Pte Ltd ( JVco ) (the Proposed Acquisitions ). We report on the Unaudited Pro Forma Consolidated Financial Statements of the Group after the completion of the Proposed Acquisitions (collectively, the Enlarged Group ) set out on pages E-3 to E-60 of the Circular, which have been prepared for illustrative purposes only, in accordance with the provision set out in the Listing Rules of the Singapore Exchange Securities Trading Limited and are based on certain assumptions after making certain adjustments to show what: (a) (b) the financial results and comprehensive income/(expenses) of the Enlarged Group for the financial years ended 31 December 2008, 2009 and 2010 would have been if the Proposed Transactions had occurred on 1 January 2008 (as described in Note 2 to the Unaudited Pro Forma Consolidated Financial Statements); the financial position of the Enlarged Group as at 31 December 2010 would have been if the Proposed Transactions had occurred on 31 December 2010; and (c) the changes in equity, and cash flows of the Enlarged Group for the financial year ended 31 December 2010 would have been if the Proposed Transactions had occurred on 1 January The Unaudited Pro Forma Consolidated Financial Statements of the Enlarged Group, because of their nature, may not give a true picture of the Enlarged Group s actual profit and loss, comprehensive income/(expenses), balance sheet, changes in equity and cash flow. The Unaudited Pro Forma Consolidated Financial Statements are the responsibility of the directors of SM Summit Holdings Limited (the Directors ). Our responsibility is to express an opinion on the Unaudited Pro Forma Consolidated Financial Statements based on our work. We carried out procedures in accordance with Singapore Statement of Auditing Practice ( SSAP ) 24: Auditors and Public Offering Documents. Our work, which involved no independent examination of the underlying financial statements, consisted primarily of comparing the Unaudited Pro Forma Consolidated Financial Statement to the financial statements (or where statements is not available in the financial statements of these entities, to accounting records) considering the evidence supporting the adjustments and discussing the Unaudited Pro Forma Consolidated Financial Statements with the Directors. E-1

247 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 In our opinion: (a) the Unaudited Pro Forma Consolidated Financial Statements have been properly prepared: (i) (ii) in a manner consistent with the accounting policies of the Enlarged Group, and on the basis set out in Note 3 to the unaudited Pro Forma Consolidated Financial Statements; and (b) each material adjustment made to the information used in the preparation of the Unaudited Pro Forma Consolidated Financial Statements is appropriate for the purpose of preparing such financial statements. Without qualifying our opinion on the Unaudited Pro Forma Consolidation Financial Statements, we draw attention to Note 3.6 which sets out that the (i) actual goodwill or gain on bargain purchase arising from the reverse acquisition of the Group; and (ii) the actual fair value of the investment in JVco, could be materially different from the amount derived based on the assumptions used. Yours faithfully PricewaterhouseCoopers LLP Public Accountants and Certified Public Accountants Singapore Partner-in-charge: Chua Lay See E-2

248 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENTS OF THE ENLARGED GROUP For the financial years ended 31 December 2008, 2009 and 2010 Note S$ 000 S$ 000 S$ 000 Sales 7 67,820 55,027 50,346 Cost of Sales 8 (51,093) (37,241) (32,205) Gross Profit 16,727 17,786 18,141 Other gains /(losses) - net 7 (69) 3,091 1,725 Expenses Distribution 8 (4,418) (3,664) (2,607) Administrative 8 (13,260) (9,169) (8,415) Finance 9 (1,537) (1,476) (1,268) Share of profit of associated companies Profit/(loss) before income tax (2,260) 6,919 7,658 Income tax expense 11 (567) (1,676) (1,346) Net Profit/(loss) after tax (2,827) 5,243 6,312 Profit/(loss) attributable to: Equity holders of the Company (2,827) 5,243 6,369 Non-Controlling Interest (57) (2,827) 5,243 6,312 Earnings/(losses) per share attributable to equity holders of the Company (cent per share) 12 (0.43) The accompanying notes form an integral part of these Unaudited Pro Forma Financial Statements. E-3

249 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OF THE ENLARGED GROUP For the financial years ended 31 December 2008, 2009 and S$ 000 S$ 000 S$ 000 Profit/(loss) for the year (2,827) 5,243 6,312 Other comprehensive income/(expense): Financial assets, available-for-sale - Fair value gains/(losses) (476) Currency translation difference arising from consolidation (4,419) 3,259 (146) Other comprehensive income/(expense) net of tax (4,895) 3,659 (59) Total comprehensive income/(expense) (7,722) 8,902 6,253 Total comprehensive income/(expense) attributable to: Equity holders of the Company (7,722) 8,902 6,310 Non-controlling interests (57) (7,722) 8,902 6,253 The accompanying notes form an integral part of these Unaudited Pro Forma Financial Statements. E-4

250 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET OF THE ENLARGED GROUP As at 31 December 2010 Note 2010 S$ 000 ASSETS Current assets Cash and cash equivalents 13 22,413 Trade and other receivables 14 17,186 Inventories 15 2,796 Other current assets 16 1,849 44,244 Non-current assets Financial assets, available-for-sale 17 4,488 Investments in associated companies 18 2,647 Investment in a joint venture 19 10,000 Property, plant and equipment 20 12,756 Investment property 21 57,308 Intangible assets ,263 Total assets 131,507 LIABILITIES Current liabilities Trade and other payables 23 12,602 Current income tax liabilities 11 2,540 Borrowings 24 3,959 19,101 Non-current liabilities Borrowings 24 30,783 Other liabilities 26 2,938 Deferred income tax liabilities ,406 Total liabilities 53,507 NET ASSETS 78,000 EQUITY Capital and reserves attributable to the equity holders of the Company Share Capital 58,222 Capital reserve 28 17,095 Retained earnings 2,683 Total equity 78,000 The accompanying notes form an integral part of these Unaudited Pro Forma Financial Statements. E-5

251 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF CHANGES IN EQUITY OF THE ENLARGED GROUP For the financial years ended 31 December 2010 Attributable to equity holders of the Group Non- Note Share Capital Retained controlling Total capital reserve earnings Total interest equity $ 000 $ 000 $ 000 $ 000 $ 000 $ Equity as at 1 January ,000 3,402 4,402 4,402 Acquisition of Westlite 13 47,222 47,222 47,222 Issuance of shares to acquire JVco 10,000 10,000 10,000 Shareholders contributions 28 17,095 17,095 17,095 Pro forma effects arising from the different basis of preparation of the Unaudited Pro Forma Consolidated Statement of Changes in Equity 57,222 17,095 74,317 74,317 58,222 17,095 3,402 78,719 78,719 Pro Forma Comprehensive Income for the year 6,310 6,310 (57) 6,253 Dividend paid to existing shareholders of Westlite (4,900) (4,900) (4,900) Pro Forma effects arising from different basis of preparation of the Unaudited Pro Forma Consolidated Balance Sheet (2,129) (2,129) 57 (2,072) Equity as reflected in the Unaudited Pro Forma Consolidated Balance Sheet as at 31 Dec ,222 17,095 2,683 78,000 78,000 The accompanying notes form an integral part of these Unaudited Pro Forma Financial Statements. E-6

252 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 UNAUDITED PRO FORMA CONSOLIDATED CASH FLOW STATEMENT OF THE ENLARGED GROUP For the financial years ended 31 December 2010 Note 2010 S$ 000 Cash flow from operating activities Net Profit 6,312 Adjustments for: Tax expense 1,346 Depreciation and amortisation 6,392 Net gain on disposal of other property, plant and equipment (11) Write back of reinstatement cost (186) Dividend income (212) Interest income (556) Interest expense 1,268 Share of profit of associated companies (82) Operating cash flow before working capital changes 14,271 Change in working capital Inventories (133) Trade and other receivables 352 Other current assets 66 Trade and other payables (2,218) Currency translation differences (192) Cash generated from operations 12,146 Income tax paid (665) Net cash provided by operating activities 11,481 Cash flows from investing activities Net cash received from reverse acquisition 13 16,606 Proceeds from disposal of property, plant and equipment 155 Purchase of property, plant and equipment (799) Loan to an associated company (100) Capital injection in an associated company (4) Dividend received 212 Interest received 556 Dilution of share holdings from subsidiary to associated company Net cash provided by investing activities 17,080 Cash flows from financing activities Proceeds from borrowings 54 Repayment of borrowings (4,215) Interest paid (1,268) Dividends paid to shareholders (6,712) Net cash used in financing activities (12,141) Net increase in cash and cash equivalents 16,420 Cash and cash equivalents at beginning of the financial year 3,961 Effects of exchange rate changes on cash and cash equivalents 82 Cash and cash equivalents at end of the financial year 13 20,463 The accompanying notes form an integral part of these Unaudited Pro Forma Financial Statements. E-7

253 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and General information SM Summit Holdings Limited (the Company ) is listed on the Singapore Exchange Securities Trading Limited ( SGX-ST ) and incorporated and domiciled in Singapore. The address of its registered office is 45 Ubi Road 1, Summit Building, Singapore The principal activities of the Company include investment holding and provision of management services. The principal activities of the subsidiaries consist of the manufacture and sale of compact discs, digital versatile discs and data storage products The principal activities of the Centurion Dormitory (Westlite) Pte Ltd ( Westlite ) are those of property investments and provision of dormitory accommodations and services. 2. Proposed Transactions (a) Proposed Acquisitions On 6 April 2011, the Company had entered into the following agreements: (i) (ii) a conditional sale and purchase agreement (the Westlite Sale and Purchase Agreement ) with Centurion Properties Pte Ltd ( Centurion ) and Mr Teo Peng Kwang ( TPK ) (collectively, the Westlite Vendors ) in relation to the proposed acquisition by the Company of all the issued and paid-up capital in Centurion Dormitory (Westlite) Pte Ltd (the Westlite Acquisition ) and the assignment by the Westlite vendors to the Company of a shareholders loan of approximately S$17,095,000 extended by Westlite vendors to Westlite (the shareholders loan ). a conditional sale and purchase agreement (the JVCo Sale and Purchase Agreement ) with Centurion, in relation to the proposed acquisition by the Company of 45% interest in the issued and paid up capital in Lian Beng Centurion (Mandai) Pte Ltd ( JVCo ) (the JVCo Acquisition ). The Westlite Acquisition and the JVCo Acquisition are referred to as the Proposed Acquisitions. (b) Proposed Share Consolidation The Company proposes to undertake a share consolidation to consolidate every 2 shares into one Consolidated Share after the the completion of the Proposed Acquisition. 3 Basis of presentation of the Unaudited Pro Forma Consolidated Financial Statements 3.1 The Unaudited Pro Forma Consolidated Financial Statements of the Company and its subsidiaries (the Enlarged Group ) have been prepared for illustrative purposes only and are based on certain assumptions after making certain adjustments to show what: (a) (b) the financial results and comprehensive income/(expenses) of the Enlarged Group for the financial years ended 31 December 2008, 2009 and 2010 would have been if the Proposed Transactions had occurred on 1 January 2008; the financial position of the Enlarged Group as at 31 December 2010 would have been if the Proposed Transactions had occurred on 31 December 2010; and E-8

254 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Basis of presentation of the Unaudited Pro Forma Consolidated Financial Statements (Cont d) (c) the changes in equity, and cash flows of the Enlarged Group for the financial year ended 31 December 2010 would have been if the Proposed Transactions had occurred on 1 January The Unaudited Pro Forma Consolidated Financial Statements of the Enlarged Group, because of their nature, may not give a true picture of the Enlarged Group s actual profit and loss, comprehensive income/(expenses) balance sheet, changes in equity and cash flow. 3.3 The Unaudited Pro Forma Consolidated Financial Statements of the Enlarged Group for the financial years ended 31 December 2008, 2009 and 2010 have been compiled based on the following: (a) (b) (c) The Audited Consolidated Financial Statements of SM Summit Holdings Ltd and its subsidiaries (the Group ) for the financial years ended 31 December 2008, 2009 and 2010, which were prepared in accordance with Singapore Financial Reporting Standards and audited by PricewaterhouseCoopers LLP, Public Accountants and Certified Public Accountants, in accordance with Singapore Standards on Auditing; The Audited Financial Statements of Centurion Dormitory (Westlite) Pte Ltd for the financial year ended 31 December These financial statements were prepared in accordance with Singapore Financial Reporting Standards and audited by Odds and Even, Public Accountants and Certified Public Accountants, in accordance with Singapore Standards on Auditing; and The Audited Financial Statements of Centurion Dormitory (Westlite) Pte Ltd for the financial years ended 31 December 2009 and These financial statements were prepared in accordance with Singapore Financial Reporting Standards and audited by RSM Chio Lim LLP, Public Accountants and Certified Public Accountants, in accordance with Singapore Standards on Auditing. The auditors reports on the financial statements described above do not contain any qualification. 3.4 The investment in JVCo is recorded at cost based on the fair value of the equity instrument issued by the Company. 3.5 The proposed Westlite acquisition will result in the shareholders of Westlite obtaining the majority of the voting rights in the Enlarged Group, which Centurion itself (the controlling shareholder of Westlite) obtaining the majority of the voting rights over the Enlarged Group. As such, the proposed transaction is accounted for as a reverse acquisition, in which it is deemed that it is Westlite which acquired SM Summit. The Unaudited Pro Forma Consolidated Financial Statements of the Enlarged Group presented for the financial year ended 31 December 2008, 2009 and 2010 have been prepared using reverse acquisition accounting for the Westlite Acquisition as set out in FRS 103 Business Combination. Under reverse acquisition accounting: (a) the accounting acquirer (legal subsidiary) will be Westlite and the accounting acquiree (legal parent) will be the Company; E-9

255 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Basis of presentation of the Unaudited Pro Forma Consolidated Financial Statements (Cont d) 3.5 (b) the cost of the reverse acquisition by Westlite (the legal subsidiary) of the Company (the legal parent) is deemed to be incurred by the legal subsidiary in the form of equity issued to the owners of the legal parent and will be determined using the fair value of the issued equity of the Company just before the acquisition; (c) (d) (e) (f) the assets and liabilities of Westlite are recognised and measured at their pre-combination carrying amounts; the assets and liabilities of the Group are recognised and measured at fair value in accordance with FRS 103 Business Combination as disclosed in Note 5.3(a)(ii); the retained earnings and other equity balances are those of Westlite before the business combination; and the amount recognised as issued equity interests in the Unaudited Pro Forma Consolidated Financial Statements of the Enlarged Group determined by adding the issued equity interests of Westlite outstanding immediately before the business combination to the cost of reverse acquisition of the Group determined in accordance with FRS 103 Business Combination. 3.6 The following key adjustments and assumptions were made for the preparation of the Unaudited Pro Forma Consolidated Financial Statements of the Enlarged Group. (a) (b) (c) the cost of reverse acquisition has been assumed to be equivalent to the carrying amounts of the net assets of the Group as at 31 December 2010 for the purpose of this transaction. This may differ from the actual cost of reverse acquisition as the actual cost of reverse acquisition will depend on the share price of the Company at the date of the actual transfer of shares at the completion of these Proposed Transactions. As the actual goodwill or gain on bargain purchase will be determined at the completion of the Proposed Transactions, the eventual amounts could be materially different from the amount derived based on the assumption used; the fair values of the net assets of the Group are assumed to be equivalent to the carrying amounts of the net assets of the Group as at the relevant acquisition dates. This may differ from the fair values of the net assets as at the actual date of completion of the Proposed Transactions upon the full completion of a purchase price allocation exercise. As the carrying value of the net assets of the Group excludes the effect of fair value adjustments to the assets, liabilities and contingent liabilities arising from the Proposed Transactions, the financial effects exclude the effects of any changes to depreciation and amortisation, and any other adjustments arising from these fair value adjustments. As the actual goodwill or gain on bargain purchase will be determined at the completion of the Proposed Transactions, the eventual amounts could be materially different from the amount derived based on the assumption used; the fair value of the investment in JVCo is assumed to be S$10 million. This may differ from the actual investment in JVCo as the fair value of the JVCo Consideration Shares will be based on the share price at the issue date of the JVCo Consideration Shares at the completion of the JVCo; E-10

256 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Basis of presentation of the Unaudited Pro Forma Consolidated Financial Statements (Cont d) 3.6 (d) the acquisition costs relating to the Proposed Acquisitions are assumed to be S$1.5 million; and (e) The Westlite Purchase Consideration is satisfied by the issuance of 849,702,740 Westlite Consideration Shares and the JVCo Purchase Consideration is satisfied by the issuance of 100,000,000 JVCo Consideration Shares, at the issue price of S$0.10 each. 4. Statement of adjustments (a) Unaudited Pro Forma Consolidated Income Statement and Statement of Comprehensive Income for the financial year ended 31 December 2008 The following adjustments have been made in arriving at the unaudited Pro Forma Consolidated Income Statement and Statement of Comprehensive Income for the financial year ended 31 December 2008: Pro Forma Adjustments Per Audited Per Audited Unaudited Consolidated Income Pro Forma Income Statement Statement Consolidated of SM Summit Group of Westlite for Income Statement for the financial the financial for the financial year ended year ended year ended 31 December December December 2008 $ 000 $ 000 S$ 000 S$ 000 S$ 000 [a] [b] [c] Gross revenue 58,865 8,955 67,820 Cost of sales (48,348) (2,272) (473) (51,093) Gross profit 10,517 6,683 (473) 16,727 Other gains/(losses) - net (72) 3 (69) Expenses Distribution (4,418) (4,418) Administrative (10,986) (1,247) 473 (1,500) (13,260) Finance (367) (1,170) (1,537) Share of profit from associates Profit/(Loss) before income tax (5,029) 4,269 (1,500) (2,260) Income tax expense 453 (1,020) (567) Net profit/(loss) (4,576) 3,249 (1,500) (2,827) Profit/(loss) attributable to: Equity holders of the Company (4,576) 3,249 (1,500) (2,827) Non-controlling interests (4,576) 3,249 (1,500) (2,827) E-11

257 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Statement of adjustments (Cont d) (a) Unaudited Pro Forma Consolidated Income Statement and Statement of Comprehensive Income for the financial year ended 31 December 2008 (Cont d) Pro Forma Adjustments Per Audited Per Audited Unaudited Consolidated Income Pro Forma Income Statement Statement Consolidated of SM Summit Group of Westlite for Income Statement for the financial the financial for the financial year ended year ended year ended 31 December December December 2008 $ 000 $ 000 S$ 000 S$ 000 S$ 000 [a] [b] [c] Net profit / (loss) for the year (4,576) 3,249 (1,500) (2,827) Other comprehensive income: Financial assets, available-for-sale - Fair value gains (476) (476) Currency translation difference arising from consolidation (4,419) (4,419) Other comprehensive income, net of tax (4,895) (4,895) Total comprehensive income (9,471) 3,249 (1,500) (7,722) Total comprehensive income/ (losses) attributable to: Equity holders of the Company (9,471) 3,249 (1,500) (7,722) Non-controlling interests (9,471) 3,249 (1,500) (7,722) Notes: [a] Being adjustment to include the financial results of Westlite for the financial year ended 31 December [b] [c] Being reclassification to the presentation of Administrative and Cost of sales in the Audited Income Statement of Westlite for the financial year ended 31 December For the purpose of the unaudited Pro Forma Income Statement, these acquisition costs were assumed to be incurred in the financial year ended 31 December E-12

258 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Statement of adjustments (Cont d) (b) Unaudited Pro Forma Consolidated Income Statement and Statement of Comprehensive Income for the financial year ended 31 December 2009 The following adjustments have been made in arriving at the unaudited Pro Forma Consolidated Income Statement and Statement of Comprehensive Income for the financial year ended 31 December 2009: Pro Forma Adjustments Per Audited Consolidated Per Audited Unaudited Pro Forma Income Statement Income Statement Consolidated of SM Summit Group of Westlite for Income Statement for the financial the financial for the financial year ended year ended year ended 31 December December December 2009 $ 000 $ 000 S$ 000 S$ 000 [a] [b] Gross revenue 42,940 12,087 55,027 Cost of sales (34,250) (2,373) (618) (37,241) Gross profit 8,690 9,714 (618) 17,786 Other gains/ (losses) - net 3, ,091 Expenses Distribution (3,664) (3,664) Administrative (8,468) (1,319) 618 (9,169) Finance (155) (1,321) (1,476) Share of profit from associates Profit/(Loss) before income tax (180) 7,099 6,919 Income tax expense (239) (1,437) (1,676) Net profit /(loss) (419) 5,662 5,243 Profit/(loss) attributable to: Equity holders of the Company (419) 5,662 5,243 Non-controlling interests (419) 5,662 5,243 E-13

259 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Statement of adjustments (Cont d) (b) Unaudited Pro Forma Consolidated Income Statement and Statement of Comprehensive Income for the financial year ended 31 December 2009 (Cont d) Pro Forma Adjustments Per Audited Consolidated Per Audited Unaudited Pro Forma Income Statement Income Statement Consolidated of SM Summit Group of Westlite for Income Statement for the financial the financial for the financial year ended year ended year ended 31 December December December 2009 $ 000 $ 000 S$ 000 S$ 000 [a] [b] Net profit / (loss) for the year (419) 5,662 5,243 Other comprehensive income: Financial assets, available-for-sale - Fair value gains Currency translation difference arising from consolidation 3,259 3,259 Other comprehensive income, net of tax 3,659 3,659 Total comprehensive income 3,240 5,662 8,902 Total comprehensive income/ (losses) attributable to: Equity holders of the Company 3,240 5,662 8,902 Non-controlling interests 3,240 5,662 8,902 Notes: [a] Being adjustment to include the financial results of Westlite for the financial year ended 31 December [b] Being reclassification to the presentation of Administrative and Cost of sales in the Audited Income Statement of Westlite for the financial year ended 31 December E-14

260 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Statement of adjustments (Cont d) (c) Unaudited Pro Forma Consolidated Income Statement and Statement of Comprehensive Income for the financial year ended 31 December 2010 The following adjustments have been made in arriving at the unaudited Pro Forma Consolidated Income Statement and Statement of Comprehensive Income for the financial year ended 31 December 2010: Pro Forma Adjustments Per Audited Unaudited Consolidated Income Per Audited Pro Forma Statement Income Statement Consolidated of SM Summit Group of Westlite for Income Statement for the financial the financial for the financial year ended year ended year ended 31 December December December 2010 $ 000 $ 000 S$ 000 S$ 000 [a] [b] Gross revenue 38,326 12,020 50,346 Cost of sales (29,046) (2,573) (586) (32,205) Gross profit 9,280 9,447 (586) 18,141 Other gains/ (losses) - net 1, ,725 Expenses Distribution (2,607) (2,607) Administrative (7,840) (1,161) 586 (8,415) Finance (91) (1,177) (1,268) Share of profit from associates Profit/(Loss) before income tax 541 7,117 7,658 Income tax expense 90 (1,436) (1,346) Net profit 631 5,681 6,312 Profit attributable to: Equity holders of the Company 688 5,681 6,369 Non-controlling interest (57) (57) 631 5,681 6,312 E-15

261 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Statement of adjustments (Cont d) (c) Unaudited Pro Forma Consolidated Income Statement and Statement of Comprehensive Income for the financial year ended 31 December 2010 (Cont d) Pro Forma Adjustments Per Audited Unaudited Consolidated Income Per Audited Pro Forma Statement Income Statement Consolidated of SM Summit Group of Westlite for Income Statement for the financial the financial for the financial year ended year ended year ended 31 December December December 2010 $ 000 $ 000 S$ 000 S$ 000 [a] [b] Net profit / (loss) for the year 631 5,681 6,312 Other comprehensive income: Financial assets, available-for-sale - Fair value gains Currency translation difference arising from consolidation (146) (146) Other comprehensive income, net of tax (59) (59) Total comprehensive income 572 5,681 6,253 Total comprehensive income/ (losses) attributable to: Equity holders of the Company 629 5,681 6,310 Non-controlling interests (57) (57) 572 5,681 6,253 Notes: [a] Being adjustment to include the financial results of Westlite for the financial year ended 31 December [b] Being reclassification to the presentation of Administrative and Cost of sales in the Audited Income Statement of Westlite for the financial year ended 31 December E-16

262 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Statement of adjustments (Cont d) (d) Unaudited Pro Forma Consolidated Balance Sheet as at 31 December 2010 The following adjustments have been made in arriving at the Unaudited Pro Forma Consolidated Balance Sheet as at 31 December 2010: Pro Forma Adjustments Per Audited Unaudited Consolidated Per Audited Pro Forma Balance Sheet of Balance Sheet Consolidated SM Summit Group as of Westlite as at Balance Sheet as at at 31 December December December 2010 $ 000 $ 000 S$ 000 S$ 000 S$ 000 S$ 000 [a] [b] [c] [d] [e] ASSETS Current assets Cash and cash equivalents 21,010 2,903 (1,500) 22,413 Trade and other receivables 17, ,186 Inventories 2,796 2,796 Other current assets 1, ,849 42,768 2,976 (1,500) 44,244 Non-current assets Financial assets, available-for-sale 4,488 4,488 Investments in associated companies 2,647 _ 2,647 Investment in a subsidiary 47,222 (47,222) Investment in a joint venture 10,000 10,000 Property, plant and equipment 12, ,756 Investment property - 57,308 57,308 Intangible assets ,831 57,432 47,222 (47,222) 10,000 87,263 Total assets 62,599 60,408 47,222 (47,222) 10,000 (1,500) 131,507 LIABILITIES Current liabilities Trade and other payables 10,292 2,310 12,602 Current income tax liabilities 900 1,640 2,540 Borrowings 492 3,467 3,959 11,684 7,417 19,101 E-17

263 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Statement of adjustments (Cont d) (d) Unaudited Pro Forma Consolidated Balance Sheet as at 31 December 2010 (Cont d) Pro Forma Adjustments Per Audited Unaudited Consolidated Per Audited Pro Forma Balance Sheet of Balance Sheet Consolidated SM Summit Group as of Westlite as at Balance Sheet as at at 31 December December December 2010 $ 000 $ 000 S$ 000 S$ 000 S$ 000 S$ 000 [a] [b] [c] [d] [e] Non-current liabilities Borrowings 72 30,711 30,783 Deferred income tax liabilities Other liabilities 2,938 2,938 Shareholders loan 17,095 (17,095) 3,693 47,808 (17,095) 34,406 Total liabilities 15,377 55,225 (17,095) 53,507 Net assets attributable to equity holders 47,222 5,183 64,317 (47,222) 10,000 (1,500) 78,000 EQUITY Capital and reserves attributable to the equity holders of the Company Share capital 40,194 1,000 47,222 (40,194) 10,000 58,222 Capital reserve 17,095 17,095 Other reserves 470 (470) Retained earnings 6,558 4,183 (6,558) (1,500) 2,683 47,222 5,183 64,317 (47,222) 10,000 (1,500) 78,000 Total equity 47,222 5,183 64,317 (47,222) 10,000 (1,500) 78,000 Notes [a] Being adjustment to include the financial results of Westlite as at 31 December [b] Being adjustment to reflect the cost of investment of Westlite and the assignment of a shareholders loan accounted for as a shareholders contribution. [c] Being adjustment to reflect the effects of reverse acquisition. [d] Being adjustment to reflect the cost of investment of a JVCo. [e] Being adjustment to reflect the acquisition costs to be incurred in the financial year ended 31 December E-18

264 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Significant Accounting Policies The significant accounting policies adopted by the Enlarged Group, which have been consistently applied in preparing the Pro Forma Financial Statements set out in this report, are as follows: 5.1 Basis of preparation The Unaudited Pro Forma Consolidated Financial Statements have been compiled from the financial statements stated in Note 3 and are based on the accounting policies to be adopted by the Enlarged Group. The significant accounting policies of the Enlarged Group, which are in conformity with Singapore Financial Reporting Standards ( FRS ), are set out below. The financial statements have been prepared under the historical cost convention, except as disclosed in the accounting policies below. The preparation of financial statements in conformity with FRS requires management to exercise its judgement in the process of applying the Group s accounting policies. It also requires the use of certain critical accounting estimates and assumptions. Areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in Note Revenue recognition Revenue comprises of the fair value of the consideration received or receivable for the sale of goods and rendering of services in the ordinary course of the Enlarged Group s activities. Sales are presented net of value-added tax, rebates and discounts, and after eliminating sales within the Enlarged Group. The Enlarged Group recognises revenue when the amount of revenue and related cost can be reliably measured, when it is probable that the collectibility of the related receivables is reasonably assured and when the specific criteria for each of the Enlarged Group s activities are met as follows: (a) (b) (c) (d) Sale of goods Revenue from sales of goods is recognised when an Enlarged Group entity has delivered the products to the customer and the customers have accepted the products and collectibility of the related receivables is reasonably assured. Rendering of services Revenue from rendering of services is recognised when the services are rendered, using the percentage of completion method based on the actual service provided as a proportion of the total services to be performed. Interest income Interest income is recognised using the effective interest method. Dividend income Dividend income is recognised when the right to receive payment is established. E-19

265 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Significant accounting policies (Cont d) 5.2 Revenue recognition (Cont d) (e) Conservancy income Conservancy income is recognised in accordance with the terms of the relevant agreement unless, having regard to the substance of the agreement, it is more appropriate to recognise revenue bases on some other systematic and rational basis. (f) Rental income Rental income from operating leases (net of any incentive given to the lessees) is recognised on a straight-line basis over the lease term. 5.3 Group accounting (a) Subsidiaries (i) Consolidation Subsidiaries are entities (including special purpose entities) over which the Enlarged Group has power to govern the financial and operating policies, generally accompanied by a shareholding giving rise to a majority of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Enlarged Group controls another entity. Subsidiaries are consolidated from the date on which control is transferred to the Enlarged Group. They are de-consolidated from the date on which control ceases. In preparing the consolidated financial statements, transactions, balances and unrealised gains on transactions between group entities are eliminated. Unrealised losses are also eliminated but are considered an impairment indicator of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Enlarged Group. Non-controlling interests are that part of the net results of operations and of net assets of a subsidiary attributable to the interests which are not owned directly or indirectly by the equity holders of the Company. They are shown separately in the consolidated statement of comprehensive income, statement of changes in equity and balance sheet. Total comprehensive income is attributed to the non-controlling interests based on their respective interests in a subsidiary, even if this results in the non-controlling interests having a deficit balance. (ii) Acquisition of businesses The acquisition method of accounting is used to account for business combinations by the Group. The consideration transferred for the acquisition of a subsidiary comprises the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes the fair value of any contingent consideration arrangement and the fair value of any pre-existing equity interest in the subsidiary. E-20

266 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Significant accounting policies (Cont d) 5.3 Group accounting (Cont d) (a) Subsidiaries (Cont d) (ii) Acquisition of businesses (Cont d) Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Enlarged Group recognises any noncontrolling interest in the acquiree at the date of acquisition either at fair value or at the non-controlling interest s proportionate share of the acquiree s net identifiable assets. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the net identifiable assets acquired is recorded as goodwill. Please refer to the paragraph Intangible assets - Goodwill for the subsequent accounting policy on goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired and the measurement of all amounts has been reviewed, the difference is recognised directly in profit and loss as a bargain purchase. (iii) Disposals of subsidiaries or businesses When a change in the Company s ownership interest in a subsidiary results in a loss of control over the subsidiary, the assets and liabilities of the subsidiary including any goodwill are derecognised. Amounts recognised in other comprehensive income in respect of that entity are also reclassified to profit or loss or transferred directly to retained earnings if required by a specific Standard. Any retained interest in the entity is remeasured at fair value. The difference between the carrying amount of the retained investment at the date when control is lost and its fair value is recognised in profit or loss. (iv) Reverse acquisition Consolidated financial statements prepared following a reverse acquisition are issued under the name of the legal parent (accounting acquiree) but described in the notes as a continuation of the financial statements of the legal subsidiary (accounting acquirer), with one adjustment, which is to adjust retroactively the accounting acquirer s legal capital to reflect the legal capital of the accounting acquiree. E-21

267 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Significant accounting policies (Cont d) 5.3 Group accounting (Cont d) (a) Subsidiaries (Cont d) (iv) Reverse acquisition (Cont d) Because the consolidated financial statements represent the continuation of the financial statements of the legal subsidiary except for its capital structure, the consolidated financial statements reflect: the assets and liabilities of the legal subsidiary (the accounting acquirer) recognised and measured at their pre-combination carrying amounts. the assets and liabilities of the legal parent (the accounting acquiree) are recognised at fair value and measured in accordance with FRS 103. the retained earnings and other equity balances of the legal subsidiary (accounting acquirer) before the business combination. the amount recognised as issued equity interests in the consolidated financial statements is determined by adding the issued equity interest of the legal subsidiary (the accounting acquirer) outstanding immediately before the business combination to cost of reverse acquisition determined in accordance with FRS 103. However, the equity structure (ie the number and type of equity interests issued) reflects the equity structure of the legal parent (the accounting acquiree), including the equity interests the legal parent issued to effect the combination. Accordingly, the equity structure of the legal subsidiary (the accounting acquirer) is restated using the exchange ratio established in the acquisition agreement to reflect the number of shares of the legal parent (the accounting acquiree) issued in the reverse acquisition. the non-controlling interest s proportionate share of the legal subsidiary s (accounting acquirer s) pre-combination carrying amounts of retained earnings and other equity interests (b) (c) Transactions with non-controlling interests Changes in the Company s ownership interest in a subsidiary that do not result in a loss of control over the subsidiary are accounted for as transactions with equity owners of the Group. Any difference between the change in the carrying amounts of the non-controlling interest and the fair value of the consideration paid or received is recognised in a separate reserves within equity attributable to the equity holders of the Company. Associated companies and joint ventures Associated companies are entities over which the Enlarged Group has significant influence, but not control, and generally accompanied by a shareholding giving rise to between and including 20% and 50% of the voting rights. The Enlarged Group s joint ventures are entities over which the Enlarged Group has contractual arrangements to jointly share the control over the economic activity of the entities with one or more parties. Investments in associated companies and joint ventures are accounted for in the consolidated financial statements using the equity method of accounting less impairment losses. E-22

268 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Significant accounting policies (Cont d) 5.3 Group accounting (Cont d) (c) Associated companies and joint ventures (Cont d) Investments in associated companies and joint ventures are initially recognised at cost. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued or liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Goodwill on associated companies and joint ventures represents the excess of the cost of acquisition of the associate over the Enlarged Group s share of the fair value of the identifiable net assets of the associate and joint venture, and is included in the carrying amount of the investments. In applying the equity method of accounting, the Enlarged Group s share of its associated companies and joint ventures post-acquisition profits or losses are recognised in the consolidated income statement and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income directly. These postacquisition movements are adjusted against the carrying amount of the investment. When the Enlarged Group s share of losses in an associated company and joint venture equals or exceeds its interest in the associated company and joint venture, including any other unsecured non-current receivables, the Enlarged Group does not recognise further losses, unless it has obligations or has made payments on behalf of the associated company or joint venture. Unrealised gains on transactions between the Enlarged Group and its associated companies and joint ventures are eliminated to the extent of the Enlarged Group s interest in the associated companies and joint ventures. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred accounting policies of associated companies and joint ventures have been changed where necessary to ensure consistency with the accounting policies adopted by the Enlarged Group. Gains and losses arising from partial disposals or dilutions in investments in associated companies and joint ventures are recognised in profit or loss. Investments in associated companies and joint ventures are derecognised when the Enlarged Group loses significant influence. Any retained interest in the entity is remeasured at its fair value. The difference between the carrying amount of the retained investment at the date when significant influence is lost and its fair value is recognised in profit or loss. 5.4 Property, plant and equipment (a) Measurement (i) Land and buildings Land and buildings are initially recorded at cost. Buildings and leasehold land are subsequently carried at cost less accumulated depreciation and accumulated impairment losses. E-23

269 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Significant accounting policies (Cont d) 5.4 Property, plant and equipment (Cont d) (a) Measurement (Cont d) (ii) Other property, plant and equipment All other items of property, plant and equipment are initially recognised at cost and subsequently carried at cost less accumulated depreciation and accumulated impairment losses. (iii) Component of costs The cost of an item of property, plant and equipment initially recognised includes its purchase price and any cost that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. (b) Depreciation Freehold land and capital work-in-progress are not depreciated. Depreciation on other items of property, plant and equipment is calculated using the straight-line method to allocate their depreciable amounts over their estimated useful lives as follows: Useful lives Buildings and leasehold land Plant, machinery and equipment Renovation, furniture and fittings Motor vehicles Office equipment and computers 20 years 3-10 years 4-10 years 4-5 years 3-10 years The residual values, estimated useful lives and depreciation method of property, plant and equipment are reviewed, and adjusted as appropriate, at each balance sheet date. The effects of any revision are recognised in the consolidated income statement when the changes arise. (c) (d) Subsequent expenditure Subsequent expenditure relating to property, plant and equipment that has already been recognised is added to the carrying amount of the asset only when it is probable that future economic benefits associated with the item will flow to the Enlarged Group and the cost of the item can be measured reliably. All repair and maintenance expenses are recognised in the consolidated income statement when incurred. Disposal On disposal of an item of property, plant and equipment, the difference between the disposal proceeds and its carrying amount is recognised in profit or loss within Revenue and other gains/(losses) - net. E-24

270 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Significant accounting policies (Cont d) 5.5 Investment Properties Investment properties include properties that are held for long-term rental yields and/or for capital appreciation and land under operating leases that is held for long-term capital appreciation or for a currently indeterminate use. Investment properties include properties that are being constructed or developed for future use as investment properties. Investment properties are initially recognised at cost and less any accumulated depreciation and any impairment losses and subsequently carried at cost. For disclosure purposes, the fair values are determined periodically on a systematic basis at least once yearly by management having an appropriate recognised professional qualification and recent experience in the location and category of property being valued. Depreciation of investment properties are provided on a straight-line basis to allocate the gross carrying amount over the estimated useful lives as follows:- Useful lives Leasehold land Leasehold building over the remaining lease period of 50 years 25 years 5.6 Intangible assets (a) Goodwill on acquisitions Goodwill represents the excess of the cost of an acquisition over the fair value of the Enlarged Group s share of the identifiable assets and contingent liabilities of the acquired subsidiaries and associated companies and joint ventures at the date of acquisition. Goodwill on subsidiaries is recognised separately as intangible assets and carried at cost less accumulated impairment losses. Goodwill on associated companies and joint ventures is included in the carrying amount of the investments. Gains and losses on the disposal of the subsidiaries and associated companies and joint ventures include the carrying amount of goodwill relating to the entity sold. (b) Development of software Costs directly attributable to the development of computer software are capitalised as intangible assets only when technical feasibility of the project is demonstrated, the Enlarged Group has an intention and ability to complete and use the software and the costs can be measured reliably. Such costs include purchase of materials and services and payrollrelated costs of employees directly involved in the project. These costs are amortised to the consolidated income statement using the straight-line method over their estimated useful lives of 5 years. The amortisation period and amortisation method of intangible assets other than goodwill are reviewed at each balance sheet date. The effects of any revision are recognised in the consolidated income statement when the changes arise. E-25

271 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Significant accounting policies (Cont d) 5.7 Borrowing costs Borrowing costs are recognised in the consolidated income statement using the effective interest method. 5.8 Investments in subsidiaries, joint ventures and associated companies Investments in subsidiaries, joint ventures and associated companies are carried at cost less accumulated impairment losses in the Company s balance sheet. On disposal of investments in subsidiaries, joint ventures and associated companies, the difference between disposal proceeds and the carrying amounts of the investments are recognised in the consolidated income statement. 5.9 Impairment of non-financial assets (a) Goodwill Goodwill is tested for impairment annually and whenever there is indication that the goodwill may be impaired. Goodwill included in the carrying amount of an investment in associated companies and joint ventures is tested for impairment as part of the investment, rather than separately, and only when there is an indication that the investments maybe impaired. For the purpose of impairment testing of goodwill, goodwill is allocated to each of the Group s cash-generating-units ( CGU ) expected to benefit from synergies arising from the business combination. An impairment loss is recognised when the carrying amount of a CGU, including the goodwill, exceeds the recoverable amount of the CGU. The recoverable amount of a CGU is the higher of the CGU s fair value less cost to sell and value-in-use. The total impairment loss of a CGU is allocated first to reduce the carrying amount of goodwill allocated to the CGU and then to the other assets of the CGU pro-rated on the basis of the carrying amount of each asset in the CGU. An impairment loss on goodwill is recognised in the consolidated income statement and is not reversed in a subsequent period. (b) Intangible assets Property, plant and equipment Investments in joint ventures and associated companies Intangible assets, property, plant and equipment and investments in subsidiaries, joint ventures and associated companies are tested for impairment whenever there is any objective evidence or indication that these assets may be impaired. For the purpose of impairment testing, the recoverable amount (i.e. the higher of fair value less cost to sell and the value-in-use) is determined on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. If this is the case, the recoverable amount is determined for the CGU to which the asset belongs. E-26

272 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Significant accounting policies (Cont d) 5.9 Impairment of non-financial assets (Cont d) (b) Intangible assets Property, plant and equipment Investments in joint ventures and associated companies (Cont d) If the recoverable amount of the asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount. The difference between the carrying amount and recoverable amount is recognised as an impairment loss in the consolidated income statement. An impairment loss for an asset other than goodwill is reversed if, and only if, there has been a change in the estimates used to determine the asset s recoverable amount since the last impairment loss was recognised. The carrying amount of this asset is increased to its revised recoverable amount, provided that this amount does not exceed the carrying amount that would have been determined (net of any accumulated amortisation or depreciation) had no impairment loss been recognised for the asset in prior years. A reversal of impairment loss for an asset other than goodwill is recognised in the consolidated income statement Financial assets (a) Classification The Enlarged Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, held to maturity and available-for-sale. However, the Enlarged Group has financial assets only in the categories of loans and receivables and financial assets, available-for-sale. The classification depends on the purpose for which the assets were acquired. Management determines the classification of its financial assets at initial recognition. (i) (ii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are presented as current assets, except for those maturing later than 12 months after the balance sheet date which are presented as non-current assets. Loans and receivables are presented as trade and other receivables and cash and cash equivalents on the balance sheet. Financial assets, available-for-sale Financial assets, available-for-sale are non-derivatives that are either designated in this category or not classified in any of the other categories. They are presented as non-current assets unless management intends to dispose off the assets within 12 months after the balance sheet date. E-27

273 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Significant accounting policies (Cont d) 5.10 Financial assets (Cont d) (b) Recognition and derecognition Regular way purchases and sales of financial assets are recognised on trade-date - the date on which the Enlarged Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Enlarged Group has transferred substantially all risks and rewards of ownership. On disposal of a financial asset, the difference between the carrying amount and the sale proceeds is recognised in the consolidated income statement. Any amount in the fair value reserve relating to that asset is transferred to the consolidated income statement. (c) (d) Initial measurement Financial assets are initially recognised at fair value plus transaction costs. Subsequent measurement Financial assets, available-for-sale are subsequently carried at fair value. Loans and receivables are subsequently carried at amortised cost using the effective interest method. Interest and dividend income on financial assets, available-for-sale are recognised separately in the consolidated income statement. Changes in the fair values of available-forsale debt securities (i.e. monetary items) denominated in foreign currencies are analysed into currency translation differences on the amortised cost of the securities and other changes; the currency translation differences are recognised in the consolidated income statement and the other changes are recognised in the fair value reserve. Changes in fair values of available-for-sale equity securities (i.e. non-monetary items) are recognised in the fair value reserve, together with the related currency translation differences. (e) Impairment The Enlarged Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired and recognises an allowance for impairment when such evidence exists. (i) Loans and receivables Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy, and default or significant delay in payments are objective evidence that these financial assets are impaired. The carrying amount of these assets is reduced through the use of an impairment allowance account which is calculated as the difference between the carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. When the asset becomes uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are recognised against the same line item in the consolidated income statement. E-28

274 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Significant accounting policies (Cont d) 5.10 Financial assets (Cont d) (e) Impairment (Cont d) (i) Loans and receivables (Cont d) The allowance for impairment loss account is reduced through the consolidated income statement in a subsequent period when the amount of impairment loss decreases and the related decrease can be objectively measured. The carrying amount of the asset previously impaired is increased to the extent that the new carrying amount does not exceed the amortised cost, had no impairment been recognised in prior periods. (ii) Financial assets, available-for-sale Significant or prolonged declines in the fair value of the security below its cost and the disappearance of an active trading market for the security are objective evidence that the security is impaired. The cumulative loss that was recognised in the fair value reserve is transferred to the consolidated income statement. The cumulative loss is measured as the difference between the acquisition cost (net of any principal repayments and amortisation) and the current fair value, less any impairment loss previously recognised in the consolidated income statement on debt securities. The impairment losses recognised in the consolidated income statement on equity securities are not reversed through the consolidated income statement Financial guarantees The Company has issued corporate guarantees to banks for borrowings of its subsidiaries. These guarantees are financial guarantees as they require the Company to reimburse the banks if the subsidiaries fail to make principal or interest payments when due in accordance with the terms of their borrowings. Financial guarantees are initially recognised at their fair values plus transaction costs in the Company s balance sheet. Financial guarantees are subsequently amortised to profit or loss over the period of the subsidiaries borrowings, unless it is probable that the Company will reimburse the bank for an amount higher than the unamortised amount. In this case, the financial guarantees shall be carried at the expected amount payable to the bank in the Company s balance sheet. Intra-group transactions are eliminated on consolidation Borrowings Borrowings are presented as current liabilities unless the Enlarged Group has unconditional right to defer settlement for at least 12 months after the balance sheet date. Borrowings are initially recognised at fair value (net of transaction costs) and subsequently carried at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the consolidated income statement over the period of the borrowings using the effective interest method. E-29

275 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Significant accounting policies (Cont d) 5.13 Trade and other payables Trade and other payables are initially recognised at fair value, and subsequently carried at amortised cost using the effective interest method Fair value estimation of financial assets and liabilities The fair values of financial instruments traded in active markets (such as exchange-traded and over-the-counter securities and derivatives) are based on quoted market prices at the balance sheet date. The quoted market prices used for financial assets are the current bid prices; the appropriate quoted market prices for financial liabilities are the current asking prices. The fair values of current financial assets and liabilities carried at amortised cost approximate their carrying amounts Leases (a) When the Enlarged Group is the lessee: The Enlarged Group leases motor vehicles and certain property, plant and equipment under finance and operating leases from non-related parties. (i) Lessee - Finance leases Leases where the Enlarged Group assumes substantially the risks and rewards incidental to ownership of the leased assets, are classified as finance leases. The leased assets and the corresponding lease liabilities (net of finance charges) under finance leases are recognised on the balance sheet as property, plant and equipment and borrowings respectively, at the inception of the leases based on the lower of the fair value of the leased assets and the present value of the minimum lease payments. Each lease payment is apportioned between the finance expense and the reduction of the outstanding lease liability. The finance expense is recognised in the consolidated income statement on a basis that reflects a constant periodic rate of interest on the finance lease liability. (ii) Lessee - Operating leases Leases of property, plant and equipment where substantially all risks and rewards incidental to ownership are retained by the lessors are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessors) are recognised in profit or loss on a straight-line basis over the period of the lease. E-30

276 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Significant accounting policies (Cont d) 5.15 Leases (Cont d) (a) When the Enlarged Group is the lessee (Cont d) (ii) Lessee - Operating leases (Cont d) Profits on sale and leaseback transactions which constitute operating leases are recognised immediately in the consolidated income statement when such sale and leaseback transactions are established at fair value. If the sale price is below fair value, any profit or loss shall be recognised immediately except that, if the loss is compensated for by future lease payments at below market price, it shall be deferred and amortised in proportion to the lease payments over the period for which the asset is expected to be used. If the sale price is above fair value, the excess over fair value shall be determined and amortised over the period for which the asset is expected to be used. (b) When the Enlarged Group is the lessor: The Enlarged Group sublease its leased office premises under operating leases to nonrelated parties. Leases of investment properties where the Enlarged Group retain substantially all risks and rewards incidental to ownership are classified as operating lease. Rental income from operating leases (net of any incentives given to lessees) is recognised in profit or loss on a straight-line basis over the lease term. Initial direct costs incurred by the Enlarged Group in negotiating and arranging operating leases are added to the carrying amount of the leased assets and recognised as an expense in the consolidated income statement over the lease term on the same basis as the lease income Inventories Inventories are carried at the lower of cost and net realisable value. Cost is determined on a weighted average basis. The cost of finished goods and work-in-progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity) but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses Income taxes Current income tax for current and prior periods are recognised at the amounts expected to be paid to or recovered from the tax authorities, using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. Deferred income tax is recognised for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements except when the deferred income tax arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and affects neither accounting nor taxable profit or loss at the time of the transaction. E-31

277 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Significant accounting policies (Cont d) 5.17 Income taxes (Cont d) A deferred income tax liability is recognised on temporary differences arising on investments in subsidiaries, associated companies and joint ventures except where the Enlarged Group is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. A deferred income tax asset is recognised to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences and tax losses can be utilised. Deferred income tax is measured: (i) (ii) at the tax rates that are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date; and based on the tax consequence that will follow from the manner in which the Enlarged Group expects, at the balance sheet date, to recover or settle the carrying amounts of its assets and liabilities. Current and deferred income taxes are recognised as income or expense in the consolidated income statement, except to the extent that the tax arises from a business combination or a transaction which is recognised directly in equity. Deferred tax arising from a business combination is adjusted against goodwill on acquisition Employee compensation The Enlarged Group s contributions are recognised as employee compensation expense when they are due, unless they can be capitalised as an asset. (a) (b) Defined contribution plans Defined contribution plans are post-employment benefit plans under which the Enlarged Group pays fixed contributions into separate entities such as the Central Provident Fund on a mandatory, contractual or voluntary basis. The Enlarged Group has no further payment obligations once the contributions have been paid. Defined benefit plans The Enlarged Group also has an unfunded defined benefit plan as part of a subsidiary s national severance, gratuity and corporation benefits plan. An independent actuary s valuation is obtained in determining the defined benefit obligation using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms of maturity approximating the terms of the related liability. E-32

278 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Significant accounting policies (Cont d) 5.18 Employee compensation (Cont d) (c) Employee leave entitlements Employee entitlements to annual leave and long service leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the balance sheet date. (d) Termination benefits Termination benefits are those benefits which are payable when employment is terminated before the normal retirement date. The Enlarged Group recognises termination benefits when it is demonstrably committed to terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal. Benefits falling due more than 12 months after balance sheet date are discounted to present value Currency translation (a) Functional and presentation currency Items included in the financial statements of each entity in the Enlarged Group are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The financial statements are presented in Singapore Dollar, which is the functional currency of the Company. (b) Transactions and balances Transactions in a currency other than the functional currency ( foreign currency ) are translated into the functional currency using the exchange rates at the dates of the transactions. Currency translation differences from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at the closing rates at the balance date are recognised in the consolidated income statement, unless they arise from borrowings in foreign currencies or other currency instruments which are designated and qualifying as net investment hedges, and net investment in foreign operations. These currency translation differences are recognised in the currency translation reserve in the consolidated financial statements and transferred to the consolidated income statement as part of the gain or loss on disposal of the foreign operation. Non-monetary items measured at fair values in foreign currencies are translated using the exchange rates at the date when the fair values are determined. (c) Translation of Enlarged Group entities financial statements The results and financial position of all the Enlarged Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (i) Assets and liabilities are translated at the closing exchange rates at the date of the balance sheet; E-33

279 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Significant accounting policies (Cont d) 5.19 Currency translation (Cont d) (c) Translation of Enlarged Group entities financial statements (Cont d) (ii) Income and expenses are translated at average exchange rates (unless the average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated using the exchange rates at the date of the transactions); and (iii) All resulting exchange currency translation differences are recognised in the currency translation reserve. Goodwill and fair value adjustments arising on the acquisition of foreign operations on or after 1 January 2005 are treated as assets and liabilities of the foreign operations and translated at the closing rates at the date of the balance sheet. For acquisitions prior to 1 January 2005, the exchange rates at the dates of acquisition are used Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided by the senior management whose members are responsible for allocating resources and assessing performance of the operating segments Cash and cash equivalents For the purpose of presentation in the consolidated cash flow statement, cash and cash equivalents include cash on hand, deposits with financial institutions which are subject to an insignificant risk of change in value, and bank overdrafts. Bank overdrafts are presented as current borrowings on the balance sheet Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of new ordinary shares are deducted against the share capital account Dividends to the Company s shareholders Dividends to the Company s shareholders are recognised when the dividends are approved for payments Government grants Grants from the government are recognised as a receivable at their fair value when there is reasonable assurance that the grant will be received and the Enlarged Group will comply with all the attached conditions. Government grants receivable are recognised as income over the periods necessary to match them with the related costs which they are intended to compensate, on a systematic basis. Government grants relating to expenses are shown separately as other income. Government grants relating to assets are deducted against the carrying amount of the assets. E-34

280 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Critical accounting estimates, assumptions and judgements Estimates, assumptions and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Enlarged Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. (a) Impairment of loans and receivables Management reviews its loans and receivables for objective evidence of impairment at least quarterly. Significant financial difficulties of the debtor, the probability that the debtor will enter bankruptcy, and default or significant delay in payments are considered objective evidence that a receivable is impaired. In determining this, management makes judgement as to whether there is observable data indicating that there has been a significant change in the payment ability of the debtor, or whether there have been significant changes with adverse effect in the technological, market, economic or legal environment in which the debtor operates in. Where there is objective evidence of impairment, management makes judgements as to whether an impairment loss should be recorded as an expense. In determining this, management uses estimates based on historical loss experience for assets with similar credit risk characteristics. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between the estimated loss and actual loss experience. (b) Income taxes The Enlarged Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the capital allowances and deductibility of certain expenses during the estimation of the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Enlarged Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred income tax provisions in the period in which such determination is made. E-35

281 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Revenue and other gains/(losses) - net $ 000 $ 000 $ 000 Sales of goods 56,477 40,443 36,963 Services rendered 2,388 2,497 1,363 Rental income from investment property 4,857 7,016 7,005 Conservancy income from investment property 3,887 4,820 4,783 Others Total sales 67,820 55,027 50,346 Other gains/(losses) - net: Rental income Interest income Dividend income Currency exchange gain/(loss) - net (1,432) Government grant Jobs Credit Scheme Write back in relation to cost incurred on the disposal of investment property Net (loss)/gain on disposal of other property, plant and equipment 110 (12) 11 Loss on disposal of investment property and property, plant and equipment (131) Write back/(cost incurred) in relation to the aborted acquisition of TES-Envirocorp (600) 100 Others Other gains/(losses) net (69) 3,091 1,725 The Jobs Credit Scheme is a cash grant introduced in the Singapore Budget 2009 to help businesses preserve jobs in the economic downturn. The amount of an employee can receive would depend on the fulfillment of the conditions as stated in the scheme. E-36

282 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Expenses by nature $ 000 $ 000 $ 000 Purchase of raw materials and consumables 20,574 13,251 12,755 Depreciation of property, plant and equipment 5,623 5,461 4,706 Depreciation of investment properties 1,559 1,549 1,549 Amortisation of intangible assets Impairment of property, plant and equipment 492 Employee compensation 19,887 13,879 12,025 Rental on operating leases 3,350 2,857 2,543 Utilities 2,420 2,022 2,194 Repairs and maintenance 2,614 2,044 1,848 Insurance Freight outwards Writeback of reinstatement cost (186) Changes in inventories of raw materials, work-in-progress and finished goods (133) Non-audit fees paid/payable to: - Auditors of the Company Other auditors Others * (1) 10,518 6,628 4,957 Total cost of sales, distribution and administrative expenses 68,771 50,074 43,227 Note: * (1) includes acquisition costs of $1,500,000 in Finance expenses $ 000 $ 000 $ 000 Interest expense: - bank borrowings 1, shareholders loan bank overdrafts finance lease liabilities ,537 1,476 1, Employee compensation $ 000 $ 000 $ 000 Wages and salaries 17,213 11,895 10,487 Employer s contribution to defined contribution plans, including Central Provident Fund 2,217 1,573 1,216 Post-employment benefits Termination benefits ,887 13,879 12,025 E-37

283 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Income taxes Income tax expense Tax expense attributable to the results is made up of: $ 000 $ 000 $ 000 Current income tax - Singapore 1,367 1,501 1,527 - Foreign ,402 1,660 1,821 Deferred income tax (252) 1,486 1,684 1,569 Overprovision in prior financial years - Deferred tax (87) - Singapore income tax (919) (8) (136) (919) (8) (223) 567 1,676 1,346 The tax on the Group s profit before tax and share of profit of associated companies differs from the theoretical amount that would arise using the Singapore standard rate of income tax as follows: $ 000 $ 000 $ 000 (Loss)/profit before tax and share of profit of associated companies (2,557) 6,568 7,576 Tax calculated at a tax rate of 17% (2009:17% and 2008:18%) (460) 1,117 1,288 Effects of: - changes in tax rates (29) - different tax rates in other countries (572) (62) 56 - partial tax exemption (55) (26) (57) - expenses not deductible for tax purposes income not subject to tax (288) (319) (158) - utilisation of previously unrecognised tax losses (12) (101) (193) capital allowances (13) (93) - others 227 (17) Withholding tax Unrecognised deferred tax assets 1, ,486 1,684 1,569 E-38

284 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Income taxes (Cont d) Income tax expense (Cont d) Deferred income tax assets of approximately $2,503,000 (2009:$2,561,000 and 2008:$2,125,000) for the Group have not been recognised for unutilised tax losses and capital allowances of certain subsidiaries as there is no reasonable certainty that future taxable profits will be available for utilisation of these temporary differences. As at 31 December 2010, total balances of unutilised tax losses and capital allowances available for offset against future taxable income are disclosed in Note 27 to the financial statements. The current income tax account comprises the following: $ 000 $ 000 $ 000 Current income tax recoverable (476) (543) Current income tax liabilities 1,483 2,067 2,540 1,007 1,524 2, Earnings per share Basic earnings per share is calculated by dividing the net (loss)/profit attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding during the financial year. The number of ordinary shares outstanding is based on the number of shares of the Company as at 31 December 2008, 2009 and 2010 after the Proposed Acquisitions, Proposed Share Issue and Proposed Share Consolidation assuming the Proposed Acquisitions occurred on 1 January 2008: Net (losses)/earnings attributable to equity holders of the Company ($ 000) (2,827) 5,243 6,369 Weighted average number of ordinary shares outstanding for basic earnings per share ( 000) 656, , ,061 Basic and diluted (loss)/earnings per share (0.43) The diluted earnings per share is the same as basic earning per share as there are no dilutive potential ordinary shares. E-39

285 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Cash and cash equivalents 2010 $ 000 Cash at bank and on hand 9,867 Short-term bank deposits 12,546 22,413 As at 31 December 2010, short-term bank deposits at the balance sheet date have an average maturity of 3 months from the end of the financial year with the following weighted average effective interest rates: Singapore Dollar 0.42% Hong Kong Dollar 0.01% Australian Dollar 4.11% As at 31 December 2010, short-term bank deposits of the Enlarged Group amounting to $1,555,000 are charged to a bank as security for the issue of a banker s guarantee in connection with a bank loan drawn by an associated company. For the purposes of presenting the unaudited pro forma consolidated cash flow statement, the pro forma consolidated cash and cash equivalents comprise the following: $ 000 Cash and bank balances (as above) 22,413 Less: Bank overdrafts (Note 24) (395) Short-term bank deposits charged as security to bank (1,555) Cash and cash equivalents per unaudited pro forma consolidated cash flow statement 20,463 Significant non-cash transactions As part of the Proposed Acquisition sets out in Note 2(a)(i), the shareholders loan of approximately $17,095,000 was assigned to the Company and capitalised as capital reserve. E-40

286 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Cash and cash equivalents (Cont d) Dilution of shareholding from subsidiary to associate company On 20 August 2010, SM Summit Holdings Limited diluted its interest in Wow Vision Pte Ltd from 51.6% to 34.0% for nil cash consideration as SM Summit did not partake in the new shares issued by Wow Vision Pte Ltd. As such, Wow Vision Pte Ltd is accounted as an associated company with effect from 20 August The effects of the dilution on the cash flows of the Enlarged Group were: 2010 $ 000 Carrying amounts of assets and liabilities diluted Cash and cash equivalents (32) Trade and other receivables (212) Property, plant and equipment (Note 20) (29) Intangible assets (Note 22) (835) Other current assets (2) Total assets (1,110) Trade and other payables 113 Bank overdraft 486 Total liabilities 599 Net assets derecognised (511) Less: Non-controlling interests 511 Net assets disposed The aggregate cash inflows arising from the dilution of Wow Vision Pte Ltd were: 2010 $ 000 Net assets disposed (as above) Cash proceeds from disposal Less: Cash and cash equivalents (454) Net cash inflow on disposal 454 E-41

287 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Cash and cash equivalents (Cont d) Reverse Acquisition of SM Summit The acquisition as set out in Note 2 is assumed to be occurred at 31 December 2010 for the purpose of pro forma statement balance sheet. The recognised amounts of identifiable assets acquired and liabilities of the Group assumed at the date of acquisition and based on the assumptions in Note 3.6 are as follows: 2010 $ 000 Plant and equipment 12,632 Intangible assets 64 Financial assets, available-for-sale 4,488 Investment in associated companies 2,647 Current assets 42,768 Current liabilities (11,684) Non-current liabilities (3,693) Net assets acquired 47,222 Less: Deemed consideration [Note 3.6(a)] (47,222) Less: Cash and cash equivalent acquired (19,060) Effects on pro forma adjustments arising from the different basis of preparation of pro forma statement of financial position and income statement 954 (18,106) Transaction cost 1,500 Net cash inflow (16,606) 14. Trade and other receivables Current 2010 $ 000 Trade receivables third parties 11,920 Less: Allowance for impairment (2,119) 9,801 Receivables from associated companies - trade non-trade 339 Loans to associated companies 6,260 6,746 Other receivables ,186 The non-trade receivables from associated companies, and loans to associated company are unsecured, interest-free and repayable on demand. E-42

288 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Inventories 2010 $ 000 Finished goods 197 Work-in-progress 67 Raw materials 2,532 2, Other current assets 2010 $ 000 Deposits 1,538 Prepayments 311 1,849 Included in the deposits is an amount of $464,000 being the cost of an option to acquire additional shares of an associated company. 17. Financial assets, available-for-sale 2010 $ 000 Beginning of financial year 4,401 Fair value gains 87 End of financial year 4,488 Financial assets, available-for-sale are analysed as follows: 2010 $ 000 Listed equity securities - Singapore 4,488 The fair value of listed equities are based on quoted market prices at the balance sheet dates. E-43

289 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Investments in associated companies 2010 $ 000 Investments in associated companies 2,647 (a) The summarised financial information of associated companies are as follows: 2010 $ Assets 19,385 - Liabilities 11,174 - Revenue 6,341 - Net profit 50 (b) The associated companies of the Enlarged Group are as follows: Country of incorporation and Equity Name of companies Principal activities business carried on in holding 2010 % Held directly by the Company Sherford (M) Sdn Bhd+ Property investment Malaysia 25 WOW Vision Pte Ltd ^ Provision of wireless Singapore 34 applications and solutions Held by subsidiaries Shanghai Huade Manufacture and replication People s 49 Photoelectron Science & of compact discs, data Republic Technology Co. Ltd* ++ storage products and related of China components AVSM Logistics Pte Ltd ^ Provide warehousing and Singapore 40 logistic services Typhoon Creations Pte Ltd ^ Marketing services Singapore 40 + Audited by M.S. Wong & Co. * Audited by Shanghai LSC Certified Public Accountants Co., Ltd. ++ Holdings through Advance Technology Investment Limited. ^ Audited by Messrs James Chan & Partners. E-44

290 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Investment in a joint venture 2010 $ 000 Investment in a joint venture 10,000 The Enlarged Group has a 45% equity interest at a cost of $10,000,000 in JVCo. The principal activity of JVCo is to develop and operate workers dormitories subject to all necessary approvals from the relevant authorities. However, the Company has not commenced operation as at 31 December Property, plant and equipment Plant, Office Leasehold machinery Renovation, equipment Capital land & and furniture Motor and work in Building equipment and fittings vehicles computers progress Total As at 31 December ,727 9,226 1, ,756 (a) (b) (c) At the balance sheet date, the net book value of property, plant and equipment of the Group under finance lease agreements amounted to $261,000 [Note 24(b)]. Certain property, plant and machinery of the Group are mortgaged to banks for term loans and other credit facilities extended to certain subsidiaries. The net book value of these property, plant and machinery amounted to approximately $1,668,000. The leasehold land and buildings of the Group comprise: Location Tenure Use of Property Indonesia: MM2100 Industrial Town 22 years lease from 30 JI. Bali Blok H1-1 September 2004, with an Cibitung option to extend for a Bekasi further 20 years Industrial factory building 21. Investment property 2010 $ 000 Leasehold land 43,678 Leasehold building 13,630 57,308 The investment property is leased out under operating leases. The investment property is an aggregate land area of 11, square metres together with the building erected located at 12, 14, 16, 18, 20, 22, 24, 26, 28 Toh Guan Road East, Singapore E-45

291 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Investment property (Cont d) The investment property is pledged as security for the bank facilities (Note 24). The fair value of the investment property is estimated by management to be $120,000,000 on a redevelopment basis using the Income Capitalisation Method and Discounted Cash Flow (DCF) Analysis. This value is based on a valuation made by the same firm of independent professional valuers as above in January 2011 and assumes additions and alterations to the existing worker dormitory development and the erection of a new 18-storey block at a plot ratio of 3.2. Under these assumptions, the investment property would have an additional 207 units of worker dormitory development and increase in commercial area. The additions, alterations and erection of a new 18- storey block have been approved by the Urban Development Authority under a Grant of Provisional Permission dated 9 September Intangible assets 2010 $ 000 Composition: Goodwill arising on consolidation Trade and other payables 2010 $ 000 Trade payables unrelated parties 4,388 Deferred income 668 Deposits received 2,232 Payables to associated companies 11 Accrued operating expenses 4,849 Other payables , Borrowings 2010 $ 000 Current Bank Overdrafts [Note (a)] 395 Long term bank loans [Note (b)] 3,467 Finance lease liabilities [Note (c) and 25] 97 3,959 Non-Current Long term bank loans [Note (b)] 30,711 Finance lease liabilities [Note (c) and 25] 72 30,783 34,742 E-46

292 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Borrowings (Cont d) (a) Bank overdrafts The bank overdrafts of the Enlarged Group are supported by a guarantee given by Company. The weighted average effective interest rate of the bank overdrafts at the balance sheet date is 5.75% per annum. (b) Long term bank loans 2010 $ 000 Current Term Loan A (secured) 2,667 Term Loan B (secured) 800 3,467 Non-Current Term Loan A (secured) 29,778 Term Loan B (secured) 933 The long term bank loans is repayable as follows: 30,711 34, $ not later than one year 3,467 - between two to five years 11,600 - after five years 19,111 All the amounts are at floating interest rates. 34,178 Term Loan A is repayable by 179 equal monthly instalments of $222,222 which commenced on 31 January 2008 and a final instalment of $222,247. The rates of interest for the Term Loan A ranges between 1.66% and 2.11% (2009: 1.80% and 3.14%) per annum. Term Loan B is repayable by 59 equal monthly instalments of $66,666 which commenced on 31 January 2008 and a final instalment of $66,706. The rate of interest for the Term Loan B ranges between 1.66% and 2.09% (2009: 1.80% and 2.48%) per annum. The bank agreements for the term loans provide among other matters for the following: 1. a legal mortgage over the Enlarged Group s investment property disclosed in Note 21 and assignment of all rental proceeds and insurances relating to this investment property; 2. personal joint and several guarantee from certain directors of Westlite and the Centurion Properties Pte. Ltd. ; and 3. the need to comply with certain financial covenants. E-47

293 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Borrowings (Cont d) (c) Finance lease liabilities The finance lease liabilities are secured on certain property, plant and machinery purchased under finance leases of the Enlarged Group. The Enlarged Group s weighted average effective interest rate of finance lease liabilities at the balance sheet date is 4.51% per annum. (d) Interest rate risk The periods in which the borrowings reprice or mature, whichever is earlier, are as follows: Variable rates Fixed rates Less than 6 to 12 1 to 5 More than Less than 6 to 12 1 to 5 6 months months years 5 years 6 months months years Total $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 Group 2010 Total borrowings 2,129 1,733 11,600 19, ,742 (e) Carrying amounts and fair values At the balance sheet date, the carrying amounts of the borrowings approximated their fair values. 25. Finance lease liabilities 2010 $ 000 Minimum lease payments due: - not later than one year between one and five years Less: Future finance charges (16) Present value of finance lease liabilities 169 The present value of finance lease liabilities may be analysed as follows: - not later than one year (Note 24) 97 - between one and five years (Note 24) E-48

294 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Other liabilities 2010 $ 000 Provision for long service leave 364 Deferred income arising from sale and leaseback 1,094 Provision for post-employment benefits [Note (a)] 240 Others 1,240 2,938 (a) The amounts recognised in the consolidated income statement for the unfunded defined post-employment benefit plan are as follows: 2010 $ 000 Current service cost 32 Interest cost 23 The principal actuarial assumptions used are as follows: Retirement age 55 years Future salary increases per annum 8% Discount rate per annum 10.5% (c) Carrying amounts and fair values At the balance sheet date, the carrying amounts of the non-current other payables approximated their fair values. 27. Deferred income tax liabilities Deferred income tax assets and liabilities are offset when there is a legally enforceable right to setoff current income tax assets against current income tax liabilities and when the deferred income taxes relate to the same fiscal authority. The amounts, determined after appropriate offsetting, are shown on the balance sheets as follows: 2010 $ 000 Deferred income tax liabilities: - to be settled within one year to be settled after more than one year E-49

295 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Deferred income tax liabilities (Cont d) Deferred income tax assets are recognised for tax losses and capital allowances carried forward to the extent that realisation of the related tax benefits through future taxable profits is probable. The Enlarged Group has unrecognised tax losses of $9,160,000 and capital allowances of $1,255,000 at the balance sheet date which can be carried forward and used to offset against future taxable income subject to meeting certain statutory requirements by those companies with unrecognised tax losses and capital allowances in their respective countries of incorporation. The tax losses and capital allowances have no expiry date. The balances in deferred income tax assets and liabilities (prior to offsetting of balances within the same tax jurisdiction) is as follows: Deferred income tax liabilities Accelerated tax depreciation Others Total $ 000 $ 000 $ End of financial year Deferred income tax assets Provisions $ End of financial year (151) 28. Capital reserves As part of the Proposed Acquisition set out in Note 2(a)(i), the shareholders loan of approximately S$17,095,000 was assigned to the Company and it is accounted for as a shareholders contribution. 29. Commitments (a) Operating lease expenses commitments - where the Enlarged Group is a lessee The Enlarged Group leases various buildings under non-cancellable operating lease agreements. The leases have varying terms and renewal rights. The future aggregate minimum lease payments under non-cancellable operating leases contracted for at the reporting date but not recognised as liabilities, are as follows: 2010 $ 000 Not later than one year 3,015 Between one and five years 4,578 7,593 E-50

296 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Commitments (Cont d) (b) Operating lease income commitments - where the Enlarged Group is a lessor Operating lease income commitments are for the investment property. The lease rental income terms are negotiated for an average term of 18 months. The future minimum lease receivables under non-cancellable operating leases contracted for at the balance sheet date but not recognised as receivables, are as follows: 2010 $ 000 Not later than one year 8,502 Between one and five years 588 9,090 (c) Other commitments 2010 $ 000 Uncalled capital contribution in respect of investment in Sherford (M) Sdn Bhd Financial risk management Financial risk factors The Enlarged Group s activities expose it to market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk. The Enlarged Group s overall risk management strategy seeks to minimise adverse effects from the unpredictability of financial markets on the Enlarged Group s financial performance. Financial risk management is carried out by management in accordance with the policies approved by the Board of Directors. Management identifies, evaluates and hedges financial risks in close cooperation with the Enlarged Group s operating units. (a) Market risk (i) Currency risk The Enlarged Group operates in Asia with dominant operations in Singapore, Indonesia and Australia. Entities in the Enlarged Group regularly transact in currencies other than their respective functional currencies ( foreign currencies ). Currecy risk arises within the entities in the Enlarged Group when transactions are denominated in foreign currencies such as Singapore Dollar ( SGD ), Australian Dollar ( AUD ) and United States Dollar ( USD ). The Enlarged Group also has a number of investments in foreign subsidiaries, whose net assets are exposed to currency risk. Exposures to foreign currency risks are managed as far as possible by natural hedges and monitoring to ensure the exposure is minimised. E-51

297 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Financial risk management (Cont d) Financial risk factors (Cont d) (a) Market risk (Cont d) (i) Currency risk (Cont d) The Enlarged Group s currency exposure based on the information provided to key management is as follows: SGD USD AUD Other Total 2010 $ 000 $ 000 $ 000 $ 000 $ 000 Financial assets Cash and cash equivalents 12, ,570 1,171 22,413 Financial assets, available-for-sale 4,488 4,488 Inter-company balances 27, , ,788 Trade and other receivables 2,157 4,574 5,438 5,017 17,186 Other financial assets ,538 46,944 6,039 16,954 6,476 76,413 Financial liabilities Trade and other payables 4,889 4,044 4,616 1,991 15,540 Inter-company balances 27, , ,788 Borrowings 34, ,742 66,542 4,508 7,550 2,470 81,070 Net financial assets (19,598) 1,531 9,404 4,006 (4,657) Less: Net financial assets denominated in the respective entities functional currencies 18,001 (5,172) (1,574) Currency risk exposures (1,597) 1,531 4,232 2,432 If the USD or AUD change against SGD by 4% with all other variables including tax rate being held constant, the effects arising from the net financial asset position would be as follows: 2010 Increase/(Decrease) Profit after tax $ 000 Group USD against SGD - strengthened 61 - weakened (61) AUD against SGD - strengthened weakened (169) E-52

298 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Financial risk management (Cont d) (a) Market risk (Cont d) (ii) Price risk The Enlarged Group is exposed to equity securities price risk arising from the investments held by the Enlarged Group and classified on the consolidated balance sheet as available-for-sale. These securities are listed in Singapore. If prices for equity securities listed in Singapore change by 9% with all other variables including tax rate being held constant, the effects on equity will be: 2010 Increase/(Decrease) Equity $ 000 Group Listed in Singapore - increased by decreased by (403) (iii) Cash flow and fair value interest rate risks Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the fair value of a financial instrument will fluctuate due to changes in market interest rates. The Enlarged Group has cash and bank balances and deposits placed with creditworthy licensed banks and financial institutions. The Enlarged Group s policy is to enter into fixed and variable interest rates borrowings. The Enlarged Group s exposure to cash flows interest rate risks arises mainly from non-current variable-rate borrowings. At 31 December 2010, profit after tax for the year would have been $127,451 lower or higher if SGD interest rates had been 50 basis points higher or lower with all other variables held constant. (b) Credit risk Credit risk refers to the risk that a counter party will default on its contractual obligations resulting in financial loss to the Enlarged Group. For trade receivables, the Enlarged Group adopts the policy of dealing only with customers of appropriate credit history, where appropriate to mitigate credit risk. For other financial assets, the Enlarged Group adopts the policy of dealing only with high credit quality counterparties. Credit exposure to an individual counterparty is restricted by credit limit that are approved by management based on ongoing credit evaluation. The counterparty s payment profile and credit exposure are continuously monitored at the entity level by the respective management and at the Enlarged Group level. The Enlarged Group has no major concentration of credit risk. The top 5 debtors of the Enlarged Group represented 35% of trade receivables in E-53

299 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Financial risk management (Cont d) (b) Credit risk (Cont d) As the Enlarged Group does not hold any collateral, the maximum exposure to credit risk for each class of financial instruments is the carrying amount of that class of financial instruments presented on the balance sheet. The Enlarged Group s major classes of financial assets are bank deposits and trade receivables. The Enlarged Group s credit risk for trade receivables based on the information provided to key management is as follows: 2010 $ 000 By geographical areas Asia 5,802 Australia 3,999 Financial assets that are neither past due nor impaired 9,801 Bank deposits that are neither past due nor impaired are mainly deposits with banks with high credit-ratings assigned by international credit-rating agencies. Trade receivables that are neither past due nor impaired are substantially companies with a good collection track record with the Enlarged Group. Financial assets that are past due and/or impaired There is no other class of financial assets that is past due and/or impaired except for trade receivables. The age analysis of trade receivables past due but not impaired are as follows: 2010 $ 000 Past due < 3 months 3,528 Past due 3 to 6 months 462 3,990 E-54

300 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Financial risk management (Cont d) (b) Credit risk (Cont d) The carrying amount of trade receivables individually determined to be impaired and the movement in the related allowance for impairment are as follows: 2010 $ 000 Gross amount 2,119 Less: Allowance for impairment (2,119) The impaired trade receivables arise mainly from sales to customers who have financial difficulties and significant delays in payments. (c) Liquidity risk The table below analyses the maturity profile of the Enlarged Group s financial liabilities based on contractual undiscounted cash flows. Between Between Less than 1 and 2 2 and 5 Over 5 1 year years years years $ 000 $ 000 $ 000 $ 000 Group 2010 Trade and other payables 12, ,314 1,243 Borrowings 3,959 3,526 8,146 19,111 16,561 3,907 9,460 20,354 (d) Capital risk The Enlarged Group s objectives when managing capital are to safeguard the Enlarged Group s ability to continue as a going concern and to maintain an optimal capital structure so as to maximise shareholder value. In order to maintain or achieve optimal capital structure, the Enlarged Group may adjust the amount of dividend payment, return capital to shareholders, issue new shares, buy back issued shares, obtain new borrowings or sell assets to reduce borrowings. Consistent with others in the industry, management monitors capital based on a gearing ratio. The gearing ratio is calculated as the sum of total borrowings, net of cash and cash equivalents and divided by total equity. E-55

301 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Financial risk management (Cont d) (d) Capital risk (Cont d) The gearing ratios are computed as follows: 2010 $ 000 Borrowings (Note 24) 34,742 Less: Cash at bank, on hand and short-term bank deposits (Note 13) (22,413) Net borrowings 12,329 Total equity 78,000 Gearing ratio 16% The Enlarged Group is in compliance with all externally imposed capital requirements for the financial year ended 31 December (e) Fair value measurements Level 1 $ 000 As at 31 December 2010 Financial assets, available-for-sale 4,488 The fair value of financial instruments traded in active markets (such as trading and available-for-sale securities) is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the Enlarged Group and Company is the current bid price. These instruments are included in Level 1. The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Enlarged Group for similar financial instruments. The fair value of current borrowings approximated their carrying amount. 31. Related party transactions In addition to information disclosed elsewhere in the financial statements, the following transactions took place between the Enlarged Group and related parties at terms agreed between the parties: (a) Sales and purchases of goods $ 000 $ 000 $ 000 Sales to associate Management fee income from an associated company 136 Rendering of services to a minority interest Purchase of services from a minority interest Purchase of services from a company in which a director has an interest E-56

302 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Related party transactions (Cont d) (a) Sales and purchases of goods (Cont d) Outstanding balances at 31 December 2010 arising from sales and purchases of goods are set out in Notes 14 and 23, respectively. (b) Key management s personnel compensation The key management s personnel compensation is as follows: $ 000 $ 000 $ 000 Wages and salaries 1,317 1,241 1,061 Employer s contribution to defined contribution plans, including Central Provident Fund ,347 1,278 1, Segment information Management has determined the operating segments based on the reports reviewed by the Senior Management that are used to make strategic decisions. The Senior Management comprises the Chairman and Managing Director, the Chief Financial Officer, and the Chief Executive Officer of each business/geographic segment. The Management manages and monitors the business in two business segments which is the manufacture and sale of optical discs and related data storage products ( Optical ) and provision of dormitory accommodation and services ( Dormitory ), no other segment information by business segment is presented. The segment information provided to the Senior Management for the reportable segments for the year ended 31 December 2008 is as follows: Optical Dormitory Total $ 000 $ 000 $ 000 Sales: Total segment sales 58,865 8,955 67,820 Inter-segment sales Sales to external parties 58,865 8,955 67,820 Segment results (5,908) 5,436 (472) Interest income Dividend income Finance expense (367) (1,170) (1,537) Others (1,500) Share of profit of associated companies 297 Loss before income tax (2,260) Income tax expense (567) Net loss (2,827) E-57

303 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Segment information (Cont d) Optical Dormitory Total $ 000 $ 000 $ 000 Other segment items: - Capital expenditure 3, ,448 - Depreciation 5,609 1,573 7,182 - Amortisation Property, plant and equipment 19, ,862 - Intangible assets The segment information provided to the Senior Management for the reportable segments for the year ended 31 December 2009 is as follows: Optical Dormitory Total $ 000 $ 000 $ 000 Sales: Total segment sales 42,940 12,087 55,027 Inter-segment sales Sales to external parties 42,940 12,087 55,027 Segment results (972) 8,414 7,442 Interest income Dividend income Finance expense (155) (1,321) (1,476) Share of profit of associated companies 351 Profit before income tax 6,919 Income tax expense (1,676) Net profit 5,243 Other segment items: - Capital expenditure Depreciation 5,437 1,573 7,010 - Amortisation Property, plant and equipment 16, ,798 - Intangible assets E-58

304 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Segment information (Cont d) The segment information provided to the Senior Management for the reportable segments for the year ended 31 December 2010 is as follows: Optical Dormitory Total $ 000 $ 000 $ 000 Sales: Total segment sales 38,326 12,020 50,346 Inter-segment sales Sales to external parties 38,326 12,020 50,346 Segment results (214) 8,290 8,076 Interest income Dividend income Finance expenses (91) (1,177) (1,268) Share of profit of associated companies 82 Profit before income tax 7,658 Income tax credit (1,346) Net profit 6,312 Segment assets 42,918 58, ,826 Short-term bank deposits 12,546 12,546 Financial assets, available-for-sale 4,488 4,488 Investments in associated companies 2,647 Investments in joint venture 10,000 Consolidated total assets 131,507 Segment liabilities 13,230 2,310 15,540 Borrowings ,178 34,742 Current income tax liabilities 2,540 Deferred income tax liabilities 685 Consolidated total liabilities 53,507 Other segment items: - Capital expenditure Depreciation 4,679 1,576 6,255 - Amortisation Property, plant and equipment 12, ,756 - Intangible assets Sales revenue is based on the country in which the assets are located. Inter-segment transactions are determined on an arm s length basis. Segment assets consists primarily of property, plant and equipment, investment property, intangible assets, inventories, receivables, other current assets and operating cash, and exclude deferred tax assets, taxes currently recoverable and short-term bank deposits. Segment liabilities comprise operating liabilities and exclude items such as tax liabilities and bank borrowings. Capital expenditure comprises additions to property, plant and equipment. E-59

305 APPENDIX E REPORTING AUDITOR S REPORT ON EXAMINATION OF THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE ENLARGED GROUP FOR THE FINANCIAL YEARS ENDED 31 DECEMBER 2008, 2009 AND 2010 NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS For the financial years ended 31 December 2008, 2009 and Segment information (Cont d) Geographical market of the customers The following details show the distribution of the Enlarged Group s consolidated sales based on the countries in which the customers are located, regardless of where the goods are produced $ 000 $ 000 $ 000 External sales revenue Asia 32,763 31,434 30,733 Australia 34,827 21,848 19,443 Others 230 1, ,820 55,027 50,346 As the Enlarged Group operates substantially in two business segments which is the manufacture and sale of optical discs and related data storage products and provision of dormitory accommodation and services, no other segment information by business segment is presented. 33. New accounting standards and FRS interpretations Certain new accounting standards and interpretations have been published that are mandatory for accounting periods beginning on or after 1 January The Enlarged Group does not expect that adoption of these accounting standards or interpretations will have a material impact on the Enlarged Group s financial statements. 34. Authorisation of financial statements These financial statements were authorised for issue in accordance with a resolution of the directors on 30 June E-60

306 APPENDIX F THE LETTER FROM THE REPORTING AUDITOR ON THE PROFIT FORECAST FOR THE YEAR ENDING 31 DECEMBER 2011 AND PROFIT PROJECTION FOR THE YEAR ENDING 31 DECEMBER 2012 OF CENTURION DORMITORY (WESTLITE) PTE LTD The Board of Directors SM Summit Holdings Limited 45 Ubi Road 1 Summit Building Singapore June 2011 Dear Sirs Letter from the Reporting Auditor on the Profit Forecast for the year ending 31 December 2011 ( Profit Forecast ) and Profit Projection for the year ending 31 December 2012 ( Profit Projection ) of Centurion Dormitory (Westlite) Pte Ltd ( Westlite ) This letter is provided solely to the Directors of SM Summit Holdings Limited ( Summit Directors ) in connection with SM Summit Holdings Limited ( Group ) proposed acquisition of Westlite for a purchase consideration of S$84,970,274 to be satisfied by the allotment and issue of 849,702,740 ordinary shares at issue price of S$0.10 each. Our work in connection with the Profit Forecast and Profit Projection has been undertaken to enable the Summit Directors to comply with the regulatory requirements for the Circular to the Shareholders dated 30 June 2011 ( Circular ) as set out in the Listing Rules of the Singapore Exchange Securities Trading Limited. The shareholders of Westlite have jointly and severally represented, warranted and undertaken to the Group that the net profits after tax of Westlite for the financial year ending 31 December 2011 and for the financial year ending 31 December 2012 shall be at least $10.2 million in total (the Profit Warranty ). We have examined the Profit Forecast and Profit Projection on which the Profit Warranty is based, in accordance Singapore Standard on Assurance Engagements 3400 Examination of Prospective Financial Information applicable to the examination of prospective financial information. The Directors of Westlite are responsible for the Profit Forecast and Profit Projection, including the assumptions on which they are based. Profit Forecast In our opinion, the Profit Forecast is properly prepared on the basis of the assumptions, is consistent with the accounting policies of the Enlarged Group, and is presented in accordance with the accounting policies adopted by the Enlarged Group. Further, based on our examination of the evidence supporting the assumptions, nothing has come to our attention which causes us to believe that these assumptions do not provide a reasonable basis for the Profit Forecast. Profit Projection The Profit Projection is intended to show a possible outcome based on the stated assumptions. As the length of the period covered by the Profit Projection extends beyond the period covered by the Profit Forecast, the assumptions used in the Profit Projection (which included hypothetical assumptions about future events which may not necessarily occur) are more subjective than would be appropriate for the Project Forecast. The Profit Projection does not therefore constitute a Profit Forecast. In our opinion, the Profit Projection is properly prepared on the basis of the assumptions, is consistent with the accounting policies of the Enlarged Group, and is presented in accordance with the accounting policies adopted by the Group. Further, based on our examination of the evidence supporting the assumptions, nothing has come to our attention which causes us to believe that these assumptions do not provide a reasonable basis for the Profit Projection. F-1

307 APPENDIX F THE LETTER FROM THE REPORTING AUDITOR ON THE PROFIT FORECAST FOR THE YEAR ENDING 31 DECEMBER 2011 AND PROFIT PROJECTION FOR THE YEAR ENDING 31 DECEMBER 2012 OF CENTURION DORMITORY (WESTLITE) PTE LTD Events and circumstances frequently do not occur as expected. Even if the events anticipated under the assumptions occurs, actual results are still likely to be different from the Profit Forecast and Profit Projection since other anticipated events frequently do not occur as expected and the variation may be material. The actual results may therefore differ materially from those forecasted and projected. For these reasons, we do not express any opinion as to the possibility of achievement of the Profit Forecast and Profit Projection. Attention is drawn, in particular, to the risk factors set out on pages A-12 to A-18 of the Circular which describe the principal risks associated with the Acquisition, to which the Profit Forecast and Profit Projection relates. Our report is provided on the basis that it is solely for the information of the Summit Directors to enable them to fulfill the requirements of the Listing Rules of the Singapore Exchange Securities Trading Limited. Our report should not be quoted or referred to, in whole or in part, without our prior written permission, for any other purpose. We do not assume any responsibility or liabilities for losses occasioned to the Summit Directors or any other party as a result of the circulation, publication, reproduction or use of the report contrary to the provision of this paragraph. Yours faithfully PricewaterhouseCoopers LLP Public Accountants and Certified Public Accountants Singapore Partner-in-charge: Chua Lay See F-2

308 APPENDIX G SUMMARY OF SINGAPORE LAWS ON TAXATION The following is a discussion of certain tax matters relating to Singapore income tax, capital gains tax, stamp duty and estate duty consequences in relation to the purchase, ownership and disposal of our Shares. The discussion is limited to a general description of certain tax consequences in Singapore with respect to the ownership of shares and is based on laws, regulations and interpretations now in effect and available as of the date of this Offer Document. The laws, regulations and interpretations, however, may change at any time, and any change could be retroactive to the date of issuance of our Shares. These laws and regulations are also subject to various interpretations and the relevant tax authorities or the courts of Singapore could later disagree with the explanations or conclusions set out below. Prospective purchasers of our Shares should consult their tax advisors concerning the tax consequences of owning and disposing of our Shares. Neither our Company, our Directors nor any other persons involved in this Invitation accepts responsibility for any tax effects or liabilities resulting from the subscription, purchase, holding or disposal of our Shares. SINGAPORE INCOME TAX General Scope of Tax A corporate taxpayer is regarded as resident in Singapore for Singapore tax purposes if the control and management of its business is exercised in Singapore. Corporate taxpayers who are Singapore tax residents are subject to Singapore income tax on all Singapore source income, and on foreign source income received or deemed received in Singapore (unless specifically exempted). In general, individuals are subject to Singapore income tax only on Singapore source income. However, foreign source income received through a partnership may be subject to Singapore income tax if it is received or deemed received in Singapore (unless specifically exempted). Rates of Tax The prevailing corporate income tax rate is 17% with partial tax exemption for normal chargeable income of up to S$300,000 as follows:- 75% exemption of up to the first S$10,000 and 50% exemption of up to the next S$290,000. For newly incorporated Singapore tax resident companies, with no more than 20 individual shareholders at least one of which is an individual holding at least 10% of the total number of issued ordinary shares throughout the basis period relating to the Year of Assessment of claim, the following exemptions for normal chargeable income apply for the first three Years of Assessment:- 100% exemption of up to the first S$100,000 and 50% of exemption of up to the next S$200,000. An individual is regarded as tax resident in Singapore for a year of assessment if, in the preceding year, he was physically present or had exercised employment in Singapore (other than as a director of a company) for 183 or more days, or if he resides in Singapore. All foreign-sourced income received in Singapore on or after January 1, 2004 by a Singapore tax resident individual (except for income received through a partnership in Singapore) is exempt from Singapore income tax if the Comptroller of Income Tax in Singapore is satisfied that the tax exemption would be beneficial to the individual. Singapore tax-resident individuals are generally subject to tax based on a progressive scale. The top marginal rate of tax is currently 20%. G-1

309 APPENDIX G SUMMARY OF SINGAPORE LAWS ON TAXATION Non-Singapore resident individuals are generally subject to tax at a rate equivalent to the prevailing corporate income tax rate. Subject to certain exceptions and conditions, non-singapore resident individuals are subject to Singapore income tax on income accruing in or derived from Singapore at the rate of 20%. Dividend Distributions The one-tier system of taxation for companies completely replaced Singapore s full imputation system on 1 January Under the one-tier system, dividends paid out by our company are exempt from income tax in the hands of the shareholders. The dividends will have no tax credit attached. No withholding tax is imposed on dividend payments made, whether to resident or non-resident shareholders. Gains on Disposal of Ordinary Shares Singapore does not impose tax on capital gains. However, gains arising from the disposal of our ordinary shares that are construed to be of an income nature will be subject to tax. Hence, any profits derived from the disposal of ordinary shares are not taxable in Singapore unless the seller is regarded as having derived gains of an income nature, in which case the gains on disposal of the ordinary shares will be taxable. Likewise, if the gains are regarded by the Inland Revenue Authority of Singapore as having arisen from the carrying on of a trade or business in Singapore, such gains may be taxed as trading income. In addition, shareholders who apply, or who are required to apply, the Singapore Financial Reporting Standard 39 Financial Instruments Recognition and Measurement ( FRS 39 ) for the purposes of Singapore income tax may be required to recognise gains or losses (not being gains or losses in the nature of capital) in accordance with the provisions of FRS 39 (as modified by the applicable provisions of Singapore income tax law) even though no sale or disposal of our Shares is made. Shareholders who may be subject to such tax treatment should consult their own accounting and tax advisers regarding the Singapore income tax consequences of their acquisition, holding and disposal of our Shares. STAMP DUTY No stamp duty is payable on the subscription and issuance of our Shares. Where existing Shares evidenced in certificated form are acquired in Singapore, stamp duty is payable on the instrument of transfer of the Shares at the rate of $2 for every $1,000 or any part thereof of the consideration for or market value of, the Shares, whichever is higher. The purchaser is liable for the stamp duty charge, unless otherwise agreed by the parties to the transaction. No stamp duty is payable if no instrument of transfer is executed (such as in the case of scripless shares, the transfer of which does not require an instrument of transfer to be executed) or if the instrument of transfer is executed outside of Singapore. However, stamp duty may be payable if the instrument of transfer which is executed outside Singapore is subsequently brought into Singapore. ESTATE DUTY The Singapore estate duty was abolished with respect to all deaths occurring on or after 15 February G-2

310 APPENDIX G SUMMARY OF SINGAPORE LAWS ON TAXATION GOODS AND SERVICES TAX ( GST ) GST is a tax on domestic consumption of goods and services. The standard rate of GST is currently 7 percent. The sale of our Company s ordinary shares by an investor belonging in Singapore through an SGX-ST member or to another person belonging in Singapore is an exempt supply not subject to GST. Any GST incurred by a GST registered investor in the making of such an exempt supply is generally not recoverable from the Comptroller of GST. Where our Company s ordinary shares are sold by a GST registered investor to a person belonging outside Singapore, the sale is a taxable supply subject to GST at zero rate if certain conditions are met. Any GST incurred by a GST registered investor in the making of this supply in the course or furtherance of a business may be recovered from the Comptroller of GST. Services such as brokerage, handling and clearing charges rendered by a GST registered person to an investor belonging in Singapore in connection with the investor s purchase, sale or holding of shares will be subject to GST at the standard rate. Similar services rendered to an investor belonging outside Singapore may be zero-rated if certain conditions are met. G-3

311 APPENDIX H SINGAPORE FOREIGN WORKER DORMITORY MARKET STUDY PRIVATE AND CONFIDENTIAL SINGAPORE FOREIGN WORKER DORMITORY MARKET STUDY SM SUMMIT HOLDINGS LIMITED April 2011 Singapore Foreign Worker Dormitory Market Study April 2011 H-1

312 APPENDIX H SINGAPORE FOREIGN WORKER DORMITORY MARKET STUDY Agency License No. L E TABLE OF CONTENTS 1 INTRODUCTION Introduction The Property Foreign Worker Housing Market Location Map EXECUTIVE SUMMARY SINGAPORE ECONOMIC OVERVIEW Singapore s Economic Performance Main Drivers of the Singapore Economy Population & Employment Employment Overview Key Trends in Supply / Demand of Foreign Workers Legislation Impacting Foreign Workers Supply / Demand SINGAPORE FOREIGN WORKER DORMITORY MARKET OVERVIEW Foreign Worker Housing Quantity and Quality of Current Supply Future Supply Forecasts Historical and Forecast Pricing Levels (Yield Analysis) Demand / Supply Imbalance Rental/Capital Values & Comparative Yield Analysis S-REIT Market APPENDICES Appendix 1: Demand Breakdown Appendix 2: Supply Breakdown Singapore Foreign Worker Dormitory Market Study April 2011 H-2

313 APPENDIX H SINGAPORE FOREIGN WORKER DORMITORY MARKET STUDY Agency License No. L E DISCLAIMER This Report has been prepared by Jones Lang LaSalle solely for the information of potential investors to assist them in deciding whether they are sufficiently interested in the assets offered for sale to proceed with further investigation of the property. The information does not constitute all or any part of an offer or Contract for Sale, and is intended as a guide only. The information contained in the Report has been prepared in good faith and with due care by Jones Lang LaSalle. Potential investors should take note however, that the calculations contained in the Report may be based on figures provided to Jones Lang LaSalle by outside sources and have not been independently verified by Jones Lang LaSalle. Any projections contained in the Report therefore represent best estimates only and may be based on assumptions which, while reasonable, may not be correct. If a projection has been made in respect of net income, such a projection is an estimate and represents only one possible result, depending on the assumption made as to the manner in which the rent review negotiations are undertaken. Potential investors should therefore satisfy themselves as to the current status of any rent review negotiations and make their own judgment as to the likely outcome. Potential Investors should not rely on any material contained in this brochure as a statement or representation of fact but should satisfy themselves as to its correctness by such independent investigation as they or their legal or financial advisors see fit. No liability for negligence or otherwise is assumed by Jones Lang LaSalle for the material contained in the Report. This Report is provided to the recipient on a confidential basis and is not to be resupplied to any other person without the prior written consent of Jones Lang LaSalle. Singapore Foreign Worker Dormitory Market Study April 2011 H-3

314 APPENDIX H SINGAPORE FOREIGN WORKER DORMITORY MARKET STUDY Agency License No. L E 1 INTRODUCTION 1.1 Introduction Jones Lang LaSalle ( JLL ) has been appointed by SM Summit Holdings and Centurion Dormitory (Westlite) Pte Ltd to conduct a market study on the Singapore Foreign Worker Dormitory Market. We understand that the purpose of the market study is to provide an overview of the sector and we acknowledge that the material may be publicly disclosed for use in shareholder circulars and other documentation. We understand that the dormitory that is the subject of this study is a permanent dormitory, however for informational purposed we will cover both the permanent and temporary dormitory markets within this market study. 1.2 The Property The subject property under consideration is as follows: TABLE 1 Centurion Dormitory Address Current Operator Property Type No. 18, Toh Guan Road East Singapore Centurion Permanent Capacity (No. beds) 5,300 Govt. Certified Approved Industries Zoning Yes All Civic & Community Institution Centurion Dormitory is a permanent dormitory and is targeted towards workers in all industry types (i.e. construction, manufacturing, marine and processing), as such it has a wide variety of tenant supply. 1.3 Foreign Worker Housing Market This report will explore the demand and supply dynamics surrounding the foreign worker dormitory market. It will become evident that there is a substantial demand / supply imbalance with considerable constraints on the development of new supply. The foreign worker housing market is expected to be a relatively stable market due to the constant demand for foreign workers and government regulation that is forcing employers of foreign workers to upgrade the accommodation to approved housing facilities. As such this is putting upward pressure on rents and increasing capital values of foreign worker dormitories. 1.4 Location Map Singapore Foreign Worker Dormitory Market Study April 2011 H-4

315 APPENDIX H SINGAPORE FOREIGN WORKER DORMITORY MARKET STUDY Agency License No. L E 2 EXECUTIVE SUMMARY The Singapore economy has been growing strongly with an expansion of 14.5% recorded in 2010 and forecast growth of % in This has been driven by the manufacturing and construction sectors which both experienced strong growth in Singapore has experienced strong employment demand with a low and falling unemployment rate. All these factors have lead to a rise in the demand for foreign workers (skilled and unskilled). Singstat population statistics highlight that non-residents are rising as a proportion of Singapore s population; accordingly increasing the dependence on foreign workers. Whilst there are currently global risks in association with the crisis in the Middle East and the natural disaster in Japan Singapore is expected to remain strong. The strong manufacturing and construction industries have been driving the demand for foreign workers and accordingly the strong demand for foreign worker housing. This has been accentuated by the increasing Government measures ensuring strict enforcement of rules and regulations relating to foreign worker housing. In addition, there is currently a large supply deficit of legal, licensed foreign worker housing which has caused a large imbalance between supply and demand. The supply deficit is likely to remain in the short-term due to the lack of suitable development sites for foreign worker dormitories. The large current imbalance is currently accounted for by illegal housing and housing in private HDB buildings. Whilst there are some risks the outlook for the foreign worker housing market is strong as the Singapore economy continues its steady growth and maintains its position as one of Asia s key markets. The evident demand / supply imbalance will continue to put pressure on rents in the short term until the Government releases new land sites or private developers change existing uses to allow for the building of foreign worker housing. Singapore Foreign Worker Dormitory Market Study April 2011 H-5

316 APPENDIX H SINGAPORE FOREIGN WORKER DORMITORY MARKET STUDY Agency License No. L E 3 SINGAPORE ECONOMIC OVERVIEW 3.1 Singapore s Economic Performance Singapore is well positioned for the next phase of global growth, as world economic recovery continues from the global financial crisis. Global growth will be driven by emerging markets (particularly East Asian economies), from which Singapore s geographical proximity and status as a regional financial hub will ensure flow on growth effects. SINGAPORE GDP GROWTH Source: IMA Asia, Jones Lang LaSalle Research, Feb 2011 Singapore s GDP expanded by 14.5% year-on-year (y-o-y) in FY2010, and the government has forecast growth of % in The strong 2010 financial year was largely a result of the manufacturing sector which expanded 29.7% in 2010 as a result of output increasing in the electronics sector. The electronics sector was driven by the sustained performance in the semiconductor segment on the back of continued demand for consumer electronics. The biomedical manufacturing cluster also witnessed a substantial increase in output. The economy was also enhanced by the construction industry which grew 6.1% y-o-y in 2010 driven by strong demand for development projects throughout Singapore. The construction activity is expected to remain steady due to public infrastructure developments such as the MRT lines extensions and a strong backlog of private projects including numerous residential apartment projects and the continued development of the Marina Bay district. Whilst the outlook for the Asian economy is relatively strong recent events such as the recent situation in Libya and the crisis Japan have sparked speculation of rising oil prices due to Libya s oil supply being removed from the market and debate about what will replace uranium if the Japan crisis undermines the momentum for nuclear energy. In addition, reconstruction works in Japan will raise demand for building materials and commodities like oil, gas and steel. Rising oil prices would lead to more expensive shipping costs which would have a negative effect on Singapore s trade. 3.2 Main Drivers of the Singapore Economy Manufacturing (inclusive of the marine industry) was the largest single component contributor to overall real GDP in 2010 at 26.5% (23.4% in 2009) while the construction industry contributed 3.9% (4.2% in 2009). Singapore Foreign Worker Dormitory Market Study April 2011 H-6

317 APPENDIX H SINGAPORE FOREIGN WORKER DORMITORY MARKET STUDY Agency License No. L E Ownership of Dwellings 2.2% Other Services Industries 9.5% Business Services 10.9% Contributors of real GDP 2010 Taxes on Products 4.1% Manufacturing 26.5% Financial Services 11.9% Information & Communications 3.5% Hotels & Restaurants 1.8% Transport & Storage 8.4% General Manufacturing sector breakdown in 2010 Manufacturing Industries 10.3% Chemicals 10.7% Construction 3.9% Utilities 1.4% Wholesale & Retail Trade 16.0% Electronics 31.4% Precision Engineering 13.4% Transport Engineering 14.7% Biomedical Manufacturing 19.6% Source: Ministry of Trade and Industry Economic Survey of Singapore 2010; JLL Research The manufacturing industry is driven by the electronics sector (31.4% of total manufacturing), followed by the biomedical manufacturing (19.6%) and the transport engineering (marine) sector (14.7%) 1. The manufacturing industry which is the largest contributor to Singapore s GDP is heavily reliant on foreign labour which make up 48% 2 of the total workforce within the industry. 3.3 Population & Employment Demand for foreign workers is positively reflected in Singapore s population growth trends. Of Singapore s total 5.1 million population, 1.3 million or 25.7% are non-residents. From 2009 to 2010 non-residents grew at a faster rate than residents at 4.1% and 1.0% respectively. Non-residents have grown steadily as a percentage of the population over the past decade increasing 73.0% from 2000 to Population 000s 6,000 5,000 4,000 3,000 2,000 1,000 0 Total Singapore Population 24.7% 25.1% 25.7% 19.9% 21.9% 18.7% 19.6% 19.0% 18.2% 18.1% 18.7% Non Residents (Foreigners) Singapore Residents & PRs Source: Singstat, 2010 Census updated 31 August 2010; JLL Research 1 Ministry of Trade and Industry Economic Survey of Singapore Labour Market 2009, Ministry of Manpower Singapore Foreign Worker Dormitory Market Study April 2011 H-7

318 APPENDIX H SINGAPORE FOREIGN WORKER DORMITORY MARKET STUDY Agency License No. L E As of December 2010, foreign workers currently constitute 34.7% (1.09 million) of Singapore s million labour force. Of the foreign workers there are approximately 871,000 work permit holders, 98,000 4 S Pass holders and 120,000 employment pass holders. 3.4 Employment Overview Singapore experienced net employment growth during 2010, with unemployment rate easing significantly from 2.3% in 4Q 2009 to 2.2% in 4Q Out of Singapore s 3.14 million labour force employed in 2010, 17.2% (536,400 workers) were employed in manufacturing industries and 18.3% (395,400 workers) in construction. 3.5 Key Trends in Supply / Demand of Foreign Workers Historically Singapore has relied heavily upon foreign workers within its construction, manufacturing, marine and processing industries. Demand for foreign labour is further accentuated due to Singaporeans typically being unwilling to conduct the jobs undertaken by foreign workers and the discounted cost of employing foreign workers over local workers (see Table 3). The Governments attempts to increase productivity by increasing foreign worker levies is not expected to have a significant cooling effect on the demand of foreign worker dormitories. Firstly there is the underlying demand for foreign workers resulting from the strong current and forecast growth within the construction, manufacturing and marine sectors. Secondly there is a large undersupply of foreign worker housing (as identified in Section 3.6, Table 5) that even if productivity was raised and foreign worker numbers decreased there would still be an imbalance between demand and supply in the short term. Singapore s recent infrastructure upgrades and major construction projects have contributed to further demand for construction workers. Foreign labour accounts for approximately 70% (273,434 6 ) of Singapore s total construction workforce. Of this figure, we estimate that 218,756 are Work Permit holders 7. We expect this trend to continue as Singapore s public and private construction projects remain strong. Likewise, the manufacturing, marine and processing sectors will continue to require foreign workers as strong growth is maintained within these industries. We estimate that these sectors currently employ 262,887 7 foreign workers of which an estimated 210,339 are work permit holders and hence requiring foreign worker housing. 3.6 Legislation Impacting Foreign Workers Supply / Demand Over the past 5 years, the government has increased the quota for employment of foreign workers. The current ratio of foreign workers allowed per company, also known as the dependency ceiling, varies by industry and is outlined as follows: SECTOR Manufacturing Marine Process Construction TABLE 2 DEPENDENCY CEILING (DC) Up to 1.85 foreign workers to 1 local worker 5 foreign workers to 1 local worker 7 foreign workers to 1 local worker 7 foreign workers to 1 local worker 3 Report on Labour Force in Singapore, Singapore National Paper (MyPaper) Tuesday February 22, 2011 (Pages 1 & A2) 5 Employment Situation in Q Ministry of Manpower 6 Labour Market Report Based on % breakdown from 2009 Labour Report and proportionately applying to 2010 Singapore construction labour force Singapore Foreign Worker Dormitory Market Study April 2011 H-8

319 APPENDIX H SINGAPORE FOREIGN WORKER DORMITORY MARKET STUDY Agency License No. L E The Ministry of Manpower (MOM) announced on 18 th Feb 2011 a rise in foreign worker levies however the overall dependency ratio will remain unchanged. This means that access to foreign workers remains unaffected for employers. Despite the recent foreign worker levy increases, the estimated cost of hiring a foreign worker for a range of unskilled and semi skilled jobs is still approximately 26.0% lower than hiring a Singaporean. As outlined in the following table, a typical Work Permit Holder costs S$1,050-2,050 per month in total whilst the average salary for the equivalent Singapore Resident is estimated at S$1,160-S$2,900 per month. TABLE 3 COMPONENTS OF COMPENSATION WORK PERMIT HOLDER 8 EQUIVALENT SINGPORE WORKER Estimated Average Base Salary $600 - $1,200 $1000-2,500 9 Government Levy $160 - $ Housing Costs $140 - $200 - Miscellaneous Costs (e.g. food, clothing, $150 - $180 - travel, etc) Central Provident Fund (CPF) 11 - $ Total $1,050 - $2,050 >$1,160-2,900 Remarks 10.5% % lower 8 Work Permit Holders: For unskilled / semi-skilled foreign workers whose basic monthly salary is less than S$1,800 9 Report on Wages in Singapore, Factors in the recent 2010 Budget where foreign worker levy rates will increase $10-$30 for work permit holders effective from 1 July Assumes CPF contribution of 16.0% by employer for employees below 50 years of age to be implemented in September 2011 Singapore Foreign Worker Dormitory Market Study April 2011 H-9

320 APPENDIX H SINGAPORE FOREIGN WORKER DORMITORY MARKET STUDY Agency License No. L E 4 SINGAPORE FOREIGN WORKER DORMITORY MARKET OVERVIEW 4.1 Foreign Worker Housing The government is increasingly focused on ensuring strict enforcement of the rules and regulations governing the foreign worker sector. Employers are required to ensure that their foreign workers are registered in accommodation approved by the Ministry of Manpower ( MOM ). As a result, employers are mindful to abide by government regulations and ensure proper accountability as well as to provide safe and quality housing for their foreign workers. In recent times, authorities have stepped up their policing and prosecution of errant employers who do not provide appropriate accommodation for their foreign workers. All of the government s pro-active efforts have translated into a diminishing supply of illegal housing and an improved demand for the approved housing sector. The government is a strong and active supporter of the foreign worker housing sector. Authorities have taken on an enforcement role, but they also recognise the importance of privatization, allowing free-market forces to naturally improve the industry. There are two types of approved foreign worker housing, Permanent and Temporary Dormitories. Permanent Dormitories are held on a longer lease term, typically of 30 years leasehold compared with Temporary Dormitories which have much shorter lease terms of year leasehold. Permanent Dormitories are generally higher quality with amenities such as food halls and sporting facilities, they are also in self-contained apartments. Temporary Dormitories are barrack-style units with communal kitchens and toilets with little or no retail amenities. Temporary Dormitories generally cater for the construction industry however there are a few who cater for both the construction and a combination of the manufacturing, marine, process and other industries. The majority of Permanent Dormitories are catered towards manufacturing, marine and process industries, however there are a few that provide for the construction industry and some that will accommodate all industries. In addition, temporary dormitories are typically priced at a 10% discount to permanent dormitories. However, this discount varies between dormitories depending on utility fees, amenity charges and meal costs. 4.2 Quantity and Quality of Current Supply As the following table denotes there are a total of 17 Permanent Dormitories with an accumulative total of 80,820 beds. There are 22 Temporary Dormitories with a total of 70,798 beds. Therefore throughout the entire market there are 39 Dormitories providing a total of 151,618 beds. TABLE 4 Description Permanent Dormitories Temporary Dormitories No. of dormitories No of beds 80,820 70,798 Land Tenure 30 year leasehold Short ground lease terms of no more than 9 years year leasehold Building Structure Permanent concrete structures with piling Quality of Housing Higher quality, self-contained apartments Shared amenities provided within the development Target Market Mainly cater to workers in the manufacturing, marine and process industries, who demand higher quality accommodation. Some are available to construction workers as well. Temporary structures with no piling Low quality, barrack-style units with communal kitchens and toilets Typically little or no retail amenities Mainly for construction workers. Some dormitories have allocations to all industries however generally the BCA approves to cater for its workers. Singapore Foreign Worker Dormitory Market Study April 2011 H-10

321 APPENDIX H SINGAPORE FOREIGN WORKER DORMITORY MARKET STUDY Agency License No. L E All-types 14% Permanent Dorms: 80,820 beds Construction 12% Manufacturing / Marine 74% Temporary Dorms: 70,798 beds All-types 13% Construction 87% Foreign worker dormitories tend to be located close to industrial areas, particularly in the island s north and west. There are also 8 areas where off-site workers dormitories cannot be constructed. These are: Jurong Island, Changi South, Sungei Kadut/Mandai, Science Park, One-North/Tanglin Halt, Tai Seng Street, International Business Park, Serangoon North Centurion Dormitory Permanent dormitory Temporary dormitory Industrial Areas 1. Jurong 5. Woodlands/Senoko 2. JurongIsland 6. Pasir Panjang 3. Tuas 7. Tai Seng/Ubi 4. Kranji 8. Changi Singapore Foreign Worker Dormitory Market Study April 2011 H-11

322 APPENDIX H SINGAPORE FOREIGN WORKER DORMITORY MARKET STUDY Agency License No. L E Planning evaluation has to be attained from the Urban Redevelopment Authority ( URA ) for development approval, and operating dormitories are subject to basic facility checks by statutory boards such as the Public Utilities Board ( PUB ), National Environment Agency ( NEA ) and Fire, Safety and Shelter Bureau ( FSSB ). Operators are expected to provide amenities for their residents. For a large dormitory which houses more than 500 workers, a minimum of 100 sqm of gross floor area has to be set aside for recreational purposes. However, governmental regulations do not define the quality of the recreational amenities specifically. The standard and quality of these facilities thus vary from dormitory to dormitory. The complexities of these regulations, as well as the specialized nature of the operations have limited development to a niche group of players. This has limited supply and is contributing to a wide mismatch between demand and supply, with supply clearly insufficient to cater for such a major market. The following is a breakdown of the dormitory operators: TABLE 5 Operator Beds % of supply Consortium of investors led by Valparaiso 23,108 15% Aik Chuan Construction 21,500 14% Mini Environment 20,000 13% Keppel 14,912 10% Crest Capital 14,600 10% JYC NCL 9,000 6% Capital Development 6,000 4% TTJ Engineering 5,300 3% Centurion 5,300 3% JSMS 3,500 2% HLS Group 3,000 2% Sembawang Shipyard 2,000 1% BCA 1,640 1% JTC / SLA 1,520 1% Sin Soon Lee 1,188 1% Private Operator 19,050 13% Total 151, % Future Supply Forecasts Future supply is limited by the scarcity of available and suitable sites. Potential sites that have been proposed in or near residential areas have faced significant public backlash from local residents while those in remote areas are unsuitable as they are too far away from amenities and often lack required infrastructure (transport connectivity, utilities etc.). Sites near heavy industrial areas with potential contaminants and sewage issues also do not qualify. Hence the authorities have found it challenging allocating suitable sites, resulting in future supply constraints. In the 10 years prior to 2011 there have only been 6 permanent sites tendered by Jurong Town Council ( JTC ) / Singapore Land Authority ( SLA ) / URA / BCA. The sites are identified in the table on the following page. 12 Slight variation due to rounding. Singapore Foreign Worker Dormitory Market Study April 2011 H-12

323 APPENDIX H SINGAPORE FOREIGN WORKER DORMITORY MARKET STUDY Agency License No. L E TABLE 6 Dormitory No. of Owner Location Type of Industry Status Beds Served Avery Lodge 8,004 ASI 2D Jalan Papan Marine & In Operation (2009) Manufacturing 5 Star Dormitory 6,000 Crest Capital 39 Kaki Bukit Ave 3 Construction & Others In Operation (2003) Kian Teck Hostel 3,500 JSMS 30 Kian Teck Avenue Marine- JSMS Only In Operation (2004) Blue Stars Dormitory Jurong Penjuru Dormitory 1 Jurong Penjuru Dormitory 2 4,500 Mini Environment 6,000 Mini Environment 6,000 Mini Environment 3 Kian Teck Lane Marine & Manufacturing 58 Penjuru Place Marine & Manufacturing 36 Penjuru Place Marine & Manufacturing In Operation (2007) In Operation (2005) In Operation (2005) A further two sites were launched in 2011 by the BCA for Temporary Dormitories. These have not been completed and hence are not factored in our supply calculations. The sites released are located at Kranji Road (Kranji Lodge One) and Seletar West Farmway 6 (Seletar Lodge One). As of March 2011, the tenders have closed but have not been awarded. Singapore Foreign Worker Dormitory Market Study April 2011 H-13

324 APPENDIX H SINGAPORE FOREIGN WORKER DORMITORY MARKET STUDY Agency License No. L E 4.4 Historical and Forecast Pricing Levels (Yield Analysis) The most recent comparable transaction was completed in November 2010 and involved the disposition of four permanent workers dormitories by Morgan Stanley to a consortium of foreign and local investors led by Valparaiso. The dormitories which are called Kian Teck Dormitory, Woodlands Dormitory, Tampines Dormitory and Avery Lodge was sold for approximately S$380 million which translates to an estimated net yield of 9.75 to 10.25%. Morgan Stanley had purchased the portfolio three years prior to the transaction date for circa for S$ million thereby generating a profit in excess of S$100 million over the portfolio. Details of the assets are highlighted in the following table: Property Name Kian Teck Dormitory Woodlands Dormitory Tampines Dormitory Avery Lodge Photo Lot Area 293,090 sq ft 215,436 sq ft 210,812 sq ft 205,326 sq ft Land Tenure years expiring 30 Oct years expiring 13 May years expiring 19 Mar years expiring 26 Sept 2037 Existing Gross Floor Area 473,006 sq ft 366,059 sq ft 364,487 sq ft 410,664 sq ft No. of Blocks / Floors 11 blocks of 5-storey buildings & 1 block of 2-storey building 3 blocks of 6-storey buildings & 1 block of 2-storey building 3 blocks of 6-storey buildings & 1 block of 2-storey building Worker Capacity (No. of Beds) 5,424 4,862 4,818 8,004 Occupancy Rate 100% 100% 100% 100% 5 blocks of 6-storey buildings & 1 block of 2-storey building Rental levels in both temporary and permanent dormitories have been increasing in recent times and are expected to continue increasing in the future due to the demand /supply imbalance. 13 At the time of acquisition in Oct 2007, JTC had given in-principle approval for 'top-ups' of the ground leases at Woodlands Dormitory and Tampines Dormitory to fresh 30-year leases. Singapore Foreign Worker Dormitory Market Study April 2011 Singapore Foreign Worker Dormitory Market Study April 2011 H-14

325 APPENDIX H SINGAPORE FOREIGN WORKER DORMITORY MARKET STUDY Agency License No. L E 4.5 Demand / Supply Imbalance As identified in Table 5 there is a total demand of 429,116 foreign workers requiring housing which includes 210,339 workers from the manufacturing, marine and processing industries and 218,756 workers from the construction industry 14. Our calculations have only taken into consideration foreign workers holding work permit passes and not those holding S-Pass permits who also contribute to the overall demand for foreign worker dormitories. As such our figures can be regarded as conservative estimates. The supply of foreign worker dormitories is broken down into temporary and permanent dorms. There is currently a total of 80,820 beds within permanent dormitories and 70,798 beds within temporary dormitories amounting to 151,618 (see Table 5) beds within dormitories servicing all dormitory sectors (construction, manufacturing, marine and processing. As previously mentioned the subject property (Centurion) caters for all dormitory types and hence has the above supply competition. The total demand as calculated in Table 5 is 429,116 thereby generating a demand / supply imbalance of 2.8x. This imbalance is currently accounted for by illegal housing which the Government is trying to remove and private HDB housing which typically costs more than dormitory housing. DEMAND / SUPPLY IMBALANCE TABLE 7 DEMAND WORKERS Foreign Workers Requiring Housing Manufacturing / Marine / Processing 210,339 Construction 218,756 Total Demand 429,116 SUPPLY BEDS IMBALANCE Permanent Purpose-Built Dormitories (16 Approved) Centurion Dormitory (catered towards all industry types) 5,300 Other Dormitories catered towards all industry types 6,000 Dormitories catered toward Construction Workers 9,500 Dormitories catered toward Marine & Manufacturing Workers 60,020 Total Supply - Permanent Dormitories Purpose Built Dormitories 80, x Temporary Dormitories (22 Approved) Dormitories catered towards Construction Workers 63,610 Dormitories catered towards all industry types 7,188 Total Supply Temporary Dormitories 70,798 Total Supply Permanent and Temporary Dormitories 151, x 14 Note the methodology on how these figures were calculates is outlined in Appendix 1 Singapore Foreign Worker Dormitory Market Study April 2011 H-15

326 APPENDIX H SINGAPORE FOREIGN WORKER DORMITORY MARKET STUDY Agency License No. L E The scarcity of supply is reflected by near 100% occupancy levels throughout the industry where most dormitories have a constant backlog of prospective tenants and is also seen in the constantly rising rental rates. In the medium term the imbalance will adjust back to more normal levels. The foreign worker dormitory market will become cyclical like other types of real estate markets in Singapore. The current imbalance between supply and demand and rising prices for housing foreign workers will bring more private players into the dormitory market who will develop their own dormitories. This will be done through converting existing industrial land zoning to dormitory zoning (Civic & Community Institution) or by converting HDB or private housing to foreign worker housing. The other factor that will help the market come back to natural levels is the possibility of a change in Government policy. Whilst it does not introduce controls on rental prices it can change the dynamics of the industry by releasing supply, which will inevitably bring down price s. 4.6 Rental/Capital Values & Comparative Yield Analysis The permanent foreign worker dormitory market has seen constant increases in the average rental per workers bed per month from S$130 to S$150 in 2008 to S$150 to S$170 in 2009 and S$160 to S$180 in Note this estimation is only for the rental of a worker s bed only and does not include commonly available additional services such as cleaning / laundry / food, etc. As the supply / demand imbalance of foreign worker housing continues in the short-medium term the upward rental trend is expected to keep rising. The industrial real estate market is used as a proxy to land value for the sector. Current land and capital values for the industrial sector are rising following sharp declines during the global financial crisis. This is highlighted in the following graphs: Conventional Industrial Rental Values Source: Jones Lang LaSalle Research Singapore Foreign Worker Dormitory Market Study April 2011 H-16

327 APPENDIX H SINGAPORE FOREIGN WORKER DORMITORY MARKET STUDY Agency License No. L E Conventional Industrial Capital Values Source: Jones Lang LaSalle Research Industrial real estate in Singapore has traditionally traded at a yield premium to the office, retail and residential sectors. Current indicative yields for conventional and high-tech industrial space are at circa 6.9%. This compares favorably to yields in the office and retail investment markets, which are in the range of 4.1% - 5.0%. Source: Jones Lang LaSalle Research Outlook There is currently 1.2 million sqm of supply due to be completed in We expect industrial rents to continue expanding in 2011 as the market continues to respond to the manufacturing expansion witnessed in 2010, before moderating from 2012 onwards. Yields are also expected to contract in 2011 as capital values exceed rental growth due to strong performance from the economy and increased confidence from investors. Singapore Foreign Worker Dormitory Market Study April 2011 H-17

328 APPENDIX H SINGAPORE FOREIGN WORKER DORMITORY MARKET STUDY Agency License No. L E 4.7 S-REIT Market Singapore s REIT market has grown substantially since its first REIT listing in In particular, the industrial sector is particularly sought after due to the strength of Singapore s manufacturing industry, low volatility of demand and limited number of development sites. Industrial REITs were achieving NOI yields of between 6.3%-7.8% as of February There has been increased activity within the industrial REIT market over 2010 with the listing of Cache Logistics Trust (CLT) and the heavily over-subscribed Mapletree Industrial Trust (MIT). The strong investor interest in the S-REIT market and particularly in industrial S-REITs is a result of relatively high dividend yields. Source: UBS Investment Research, Asian Property, 21 March 2011 Singapore Foreign Worker Dormitory Market Study April 2011 H-18

329 APPENDIX H SINGAPORE FOREIGN WORKER DORMITORY MARKET STUDY Agency License No. L E 5 APPENDICES 5.1 Appendix 1: Demand Breakdown 5.2 Appendix 2: Supply Breakdown Singapore Foreign Worker Dormitory Market Study April 2011 H-19

330 APPENDIX H SINGAPORE FOREIGN WORKER DORMITORY MARKET STUDY Agency License No. L E APPENDIX 1: DEMAND BREAKDOWN 15 Demand calculations As a 2010 local/foreign breakdown of sector-specific workers was not available, we obtained a foreign worker ratio for the three foreign-worker dominated industries from the 2009 Ministry of Manpower Labour Market report as such: Foreign Workers as at 31 Dec 2009 (By Industry; All Permit Types; '000s), based on market report Local Foreign Total 2009 Foreign ratio Manufacturing / Marine / Processing % Construction % Services 1, ,042 25% Others Total 2,990 1,054 4,044 26% 2010 total worker statistics were available on a per-sector basis, and we then applied our calculated 2009 foreign ratio for the three industries onto those figures. Note that we used the Others sector to make up for a minor shortfall in calculations. Foreign Workers as at 31 Dec 2010 (By Industry; All Permit Types; '000s), computed Local Foreign Total 2009 Foreign ratio Manufacturing / Marine / Processing % Construction % Services 1, ,153 25% Others % Total 2,047 1,089 3,136 35% To obtain a more conservative figure, we have also removed S-Pass and Employment Pass holders, leaving behind Work Permit holders who typically make-up the majority of foreign worker dormitory residents. We applied national percentages of foreign worker types on our previous calculations. Foreign Workers as at 31 Dec 2010 (By Permit Type; 000s,) Permit Type Ratio Employment Pass % S-Pass 98 9% Work Permit % Total 1, % As Manufacturing/Marine/Processing and Construction workers are the main markets for dormitory demand, we applied our permit ratio. Total Foreign Worker Dormitory Demand as at 31 Dec 2010 (exc EP Holders ; '000s) Number of Workers Work Permit Ratio Manufacturing / Marine / Processing 210 Construction 219 Total Demand as at 31 Dec % Total Foreign Worker Dormitory Demand as at 31 Dec 2010 (exc EP Holders ; '000s) Number of Workers Manufacturing / Marine / Processing % Construction 219 Total Demand as at 31 Dec Work Permit Ratio 15 Source: Labour Market 2009, Ministry of Manpower Singapore Foreign Worker Dormitory Market Study April 2011 H-20

331 APPENDIX H SINGAPORE FOREIGN WORKER DORMITORY MARKET STUDY Agency License No. L E APPENDIX 2: SUPPLY BREAKDOWN PERMANENT DORMITORIES Dormitory No. of Beds Owner Location Type of Industry Served Avery Lodge 8,004 Consortium of 2D Jalan Papan Marine & investors led by Manufacturing Valparaiso Kian Teck 5,424 Consortium of 26 Kian Teck Avenue Marine & Dormitory investors led by Manufacturing Valparaiso Tampines Dormitory Woodlands Dormitory Toh Guan Dormitory Centurion Dormitory (Westlite) 4,818 Consortium of investors led by Valparaiso 4,862 Consortium of investors led by Valparaiso 6,000 Capital Development 2 Tampines Place Marine & Manufacturing 27 Woodlands Sector 1 19A Toh Guan Road East 5,300 Centurion 18 Toh Guad Road East Marine & Manufacturing All Types All Types Status In Operation In Operation In Operation In Operation In Operation In Operation 5 Star Dormitory 6,000 Crest Capital 39 Kaki Bukit Ave 3 Construction & Others In Operation Kian Teck Hostel 3,500 JSMS 30 Kian Teck Avenue Marine In Operation- JSMS Only Acacia Lodge 4,000 Keppel 540 Bukit Batok St 23 Marine In Operation- Keppel Only Juniper Lodge 1,912 Keppel / Lian Group 23 Mandai Estate Marine In Operation- Keppel Only Marine Housing Services Dormitory 9,000 Keppel / Sembawang Kaki Bukit Hostel 3,500 Mini Environment Blue Stars Dormitory Jurong Penjuru Dormitory 1 Jurong Penjuru Dormitory 2 Brani Residences 4,500 Mini Environment 6,000 Mini Environment 6,000 Mini Environment Not Available PSA Alaunia Lodge 2,000 Sembawang Shipyard Total 80,820 Penjuru Road Marine In Operation- Keppel & Sembawang Shipyard Only 2 Kaki Bukit Ave 4 Construction & Others In Operation 3 Kian Teck Lane Marine & Manufacturing 58 Penjuru Place Marine & Manufacturing 36 Penjuru Place Marine & Manufacturing 85 and 89 Brani Terminal Avenue Marine In Operation In Operation In Operation In Operation- Sembarang Shipyard only Admiralty Road West Marine In Operation- Sembarang Shipyard only Singapore Foreign Worker Dormitory Market Study April 2011 H-21

332 APPENDIX H SINGAPORE FOREIGN WORKER DORMITORY MARKET STUDY Agency License No. L E TEMPORARY DORMITORIES Dormitory No. of Beds Owner Location Type of Industry Served Status Ama Keng Hostel 2,500 Private Operator 25 Ama Keng Road All Types In Operation Cochrane Lodge 1 5,000 Aik Chuan Construction Murai Lodge 2 8,000 Aik Chuan Construction Simpang Lodge 1 4,000 Aik Chuan Construction Soon Lee Lodge 4,500 Aik Chuan Construction 51 Admiralty Road West Construction In Operation 1A Murai Farmway Construction In Operation 2B Yishun Ave 7 Construction In Operation 31 Soon Lee Road Construction In Operation Tuas Lodge 1 8,600 Crest Capital Tuas South Ave 9 Construction In Operation Jurong Apartments 440 JTC / SLA 555 Upper Jurong Road Construction In Operation Greenfield Dormitory 3,000 JYC NCL 41 Soon Lee Road Construction In Operation SCAL Dormitory 3,000 JYC NCL 21 Soon Lee Road Construction In Operation Farmway Dormitory 3,000 JYC NCL 15 Seletar West Farmway Construction In Operation Murai Lodge 1 4,000 Private Operator 1B Murai Farmway Construction In Operation Cochrane Lodge 2 4,000 Private Operator Admiralty Road West Construction In Operation Terusan Lodge 1 5,300 TTJ Engineering 5A Jalan Papan Construction In Operation Marsiling Apartments 2,000 Private Operator 50 & 52 Woodlands St 13 All Types In Operation Kallang Dormitory 1,500 Private Operator 85 Kallang Avenue All Types In Operation Etrek 1,188 Sin Soon Lee 10 Shaw Road All Types In Operation Jurong Apartments 1,640 BCA 553 Upper Jurong Road Construction In Operation Jurong Apartments 1,080 JTC / SLA 529 Upper Jurong Road Construction In Operation Seletar Flats 3,650 Private Operator 2 Seletar West Farmway Construction In Operation View Road Lodge 800 Private Operator 10 View Road Construction In Operation Serangoon Gardens Dorm 600 Private Operator Construction In Operation SCAL Hougang 3,000 HLS Group 200 Hougang Avenue 3 Construction In Operation Total 70,798 Singapore Foreign Worker Dormitory Market Study April 2011 H-22

333 APPENDIX I WESTLITE PROPERTY VALUATION REPORT Valuation of 12 to 28 Toh Guan Road East Westlite Dormitory Singapore to Introduction This valuation report is prepared for SM Summit Holdings Ltd based on its recent instruction to determine the Open Market Value of the above-mentioned subject property for an intending corporate transaction. We have conducted an inspection of the subject property on 3 November Market Value Definition Our valuation is based on the Open Market Value, which is in accordance with the requirements of the instruction and with the international definition of Open Market Value as defined by the Royal Institution of Chartered Surveyor, which is the best price at which the sale of an interest in the property would have been completed unconditionally for cash consideration on the date of valuation assuming: (a) (b) (c) (d) (e) a willing seller; that, prior to the date of valuation, there had been a reasonable period (having regard to the nature of the property and the state of the market for similar properties) for the proper marketing and negotiation of the sale, for the agreement of the price and terms and for the completion of the sale; and that the state of the market, level of values and other circumstances were, on any earlier assumed date of exchange of contracts, the same as on the date of valuation; and that no account is taken of any additional bid by a prospective purchaser with a special interest; and that both parties to the transaction had acted knowledgeably, prudently and without compulsion. No allowances are made for any expenses or taxation which might arise in the event of a disposal. The property is considered as if it is free and clear of all mortgages, encumbrances and other outstanding premiums, charges and liabilities. 3.0 Qualifications and Disclaimer Chesterton Suntec International Pte Ltd has relied upon information supplied by the client as well as the registered lessee, which we assume to be true and accurate. The valuer takes no responsibility for inaccurate data supplied by the client and the registered lessee, and the subsequent conclusions related to such data. The reported analyses, opinions and conclusions are limited only by the reported assumptions and limiting conditions and are our personal, unbiased professional analyses, opinions and conclusions. We have no present or prospective interest in the subject property and are not a related corporation or nor do we have a relationship with the various parties involved in the transaction of the property. The valuers compensation is not contingent upon the reporting of a predetermined value or direction in value that favours the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event. I-1

334 APPENDIX I WESTLITE PROPERTY VALUATION REPORT Valuation of 12 to 28 Toh Guan Road East Westlite Dormitory Singapore to Qualifications and Disclaimer (Cont d) In our valuation, we have not carried out any structural survey of the property nor any testing of services. We have assumed that there are no structural defects and that all building services are fully functional. We have also not carried out any investigations on the suitability of the site and ground conditions for the existing or any new development, nor have we undertaken any archeological, ecological or environmental surveys. Our valuation is on the basis that theses aspects are satisfactory. We hereby certify that our valuers undertaking these valuations are authorized to practice as valuers and have the necessary expertise and experience in valuing similar types of properties. 4.0 Location The subject property is located along Toh Guan Road East, off the Pan-Island Expressway (PIE), on the eastern flank of Jurong River. It is approximately 13 kilometres from the city centre at Collyer Quay. The surrounding area generally comprises a mix of light industrial developments such as Enterprise Hub, Toh Guan Centre, LW Technocentre and purpose-built factories and the Jurong East New Town and Bukit Batok Housing Estate. Public transport facilities are available along Toh Guan Road East and Toh Guan Road. It enjoys easy access to the Ayer Rajah Expressway (AYE). 5.0 Legal Details Legal Description : Lot 7661T, Mukim 5 Land Area : 11,685.3 square metres Tenure : Leasehold for 60 years with effect from 1 December 1997 Registered Lessee : Westlite Development Pte Ltd Ground Rent : Annual rent of $12/- payable on the 1 st of January of each succeeding calendar year. Property Tax : Address Annual Value 12 to 20 Toh Guan Road East $3,099,000/- 22 to 28 Toh Guan Road East $1,613,000/- Current Gross Plot Ratio : Not exceeding 2.0 Property tax is payable at 10% of the annual value per year. Other Details : i) A copy of the Lease Agreement (Lease No ) is attached as appendix to the report) ii) No title search has been carried out for the subject site. However, we recommend that they be carried out through your solicitors. I-2

335 APPENDIX I WESTLITE PROPERTY VALUATION REPORT Valuation of 12 to 28 Toh Guan Road East Westlite Dormitory Singapore to Town Planning Master Plan Zoning (2008) : Civic & Community Institution Approved Use : According to Supplemental Lease to Lease No , Approval for use as workers dormitory shall be for 30 years from 12 September 2002 to 11 September Upon Expiry of the initial 30-year term, the subject plot will revert to clean and light industrial development use only. 7.0 Description of Subject Development The subject property is a workers dormitory known as Westlite Dormitory. The existing Gross Floor Area is 23,358 square metres. Currently, it houses five 5-storey blocks and three 6-storey blocks with a total of 448 units and a 3- storey amenity block housing a canteen, a sundry shop/ minimart and offices. Facilities provided include two open badminton courts, exercise corner, open car park lots and a multi-purpose room. 8.0 Proposed Additions & Alterations (According to Architect s Brief provided by client) According to a URA Grant of Provisional Permission dated 9 September 2008, the proposal for additions & alterations to the existing workers dormitories development and the erection of a new 18-storey block at a plot ratio of 3.2 is approved. (Grant of Provisional Permission is valid for six months and extension can be applied for with re-submission of the proposal within 6 months.) A copy of the URA grant of Provisional Permission and Extension of Provisional Permission is enclosed in the Appendix. We have been advised by the registered lessee that the proposed extension will cost an estimated S$35 million, inclusive of all related fees, development charges and premiums payable. Based on the proposal, the development data for the proposed extension with gross plot ratio of 3.2 is as follows: Use Quantum Type GFA (square metres) Percentage of Overall GFA Non-Commercial GFA 36, % (including worker s dormitory, substation, bin centre, guard room, management office & sick bay) Commercial GFA (including canteen, supermarket & shops % The proposed 18-storey block dormitory will provide an additional 207 dormitory units, potentially increasing the capacity to 7,860. I-3

336 APPENDIX I WESTLITE PROPERTY VALUATION REPORT Valuation of 12 to 28 Toh Guan Road East Westlite Dormitory Singapore to Proposed Additions & Alterations (Cont d) (According to Architect s Brief provided by client) The GFA Breakdown for Proposed Dormitory & Amenities is as follows: Use Existing GFA Proposed GFA Increase in GFA (square metres) (square metres) (square metres) Dormitory 22, , , Commercial Amenity 269 4, , Total 23, , , Public Schemes We have not carried out any searches with regards to any proposed road, drainage or public schemes. However, we recommend that they be carried out through your solicitors and refer back to us for further comments Basis of Valuation We have been instructed to value the subject property on two basis : (i) in its continued existing use without taking into account any redevelopment potential it may have. (ii) taking into consideration the potential enhancement from a higher plot ratio of Method of Valuation We have adopted the Income Capitalization Method and Discounted Cash Flow (DCF) analysis to value the subject property. Under the Income Approach, the net income is capitalized at an appropriate yield rate to arrive at the Open Market Value. The net income is derived by deducting from the gross rentals and other income, operating expenses like property management service fees, utilities and property tax. Under the DCF approach, we have adopted an 11-year cash flow in computing the valuation. The Discounted Cash Flow Approach is based on an analysis of the cash flows of rental revenue from dormitory use and commercial rent with provision for appropriate growth rates and inflation rates over the period of the balance lease term for dormitory use. Upon expiry of the initial term for dormitory use, we have made a projection on the capital value of the land for general industrial use for its reversionary interest in the property. The projected net income of the property from the additional dormitory units is derived from the gross income outgoings such as property tax, maintenance, capital expenditure, management fees and a vacancy rate, where appropriate. The projected net income is then discounted at an appropriate market derived rate to arrive at the present value of the net income for the term. The reversionary capital value of the land and the sum of the net present values will provide the capital value of the subject property. I-4

337 APPENDIX I WESTLITE PROPERTY VALUATION REPORT Valuation of 12 to 28 Toh Guan Road East Westlite Dormitory Singapore to Valuation Assumptions and Rationale 12.1 Based on Existing Use (as a 448-unit workers dormitory) a) Revenue Our valuation has taken into consideration the following sources of revenue: Revenue Source Rental from worker s accommodations Assumptions Base on an initial average rate of $180 to $200 per bed per month Occupancy rate is assumed at 99% for the 5,376 beds. Rental from Canteen and Minimart Growth Base on projected monthly gross rental of $32,400/- for both the canteen and minimart Based on an average of 2.5% per annum b) Outgoings The following are the outgoings and assumptions: Outgoings Assumptions Operation Expenses Base on 17% of the total annual gross Utilities revenue Administration Security Cleaning & Pest Control Insurance General repair & Maintenance Other related expenses Property Tax Inflation Base on an average of 2.5% per annum c) Discount Factors Rates Percentage Discount rates (initial 10 years) 8.50% Terminal Yield 8.25% I-5

338 APPENDIX I WESTLITE PROPERTY VALUATION REPORT Valuation of 12 to 28 Toh Guan Road East Westlite Dormitory Singapore to Valuation Assumptions and Rationale (Cont d) 12.2 On Redevelopment Basis (at a plot ratio of 3.2) with additional 207 units & increase in commercial area a) Revenue Our valuation has taken into consideration the following sources of revenue: Revenue Source Rental from worker s accommodations Assumptions Upon completion and commencement of operation of the additional 207 units, the average rate is projected to be at $205 per bed per month. Occupancy rate is assumed at 99%. Rental from Canteen and Minimart Growth Base on projected monthly gross rental of $37,500/- for the increased commercial area Based on an average of 2.5% per annum b) Outgoings The following are the outgoings and assumptions: Outgoings Assumptions Operation Expenses Upon completion and commencement of Utilities operation of the additional 207 units, the Administration overall operating expense is assumed to be Security at 15% of the total annual gross revenue Cleaning & Pest Control Insurance General repair & Maintenance Other related expenses Property Tax Inflation Base on an average of 2.5% per annum I-6

339 APPENDIX I WESTLITE PROPERTY VALUATION REPORT Valuation of 12 to 28 Toh Guan Road East Westlite Dormitory Singapore to Valuation Assumptions and Rationale (Cont d) c) Discount Factors Rates Percentage Discount rates (initial 10 years) 8.50% Terminal Yield 8.25% Other relevant parameters related to the proposed redevelopment include: No. Parameters Value 1. Construction Period 2 years 2. Estimated development cost inclusive of all related fees, S$35 million development charges and premiums payable 13.0 Opinion of Values - as at 12 January 2011 Having considered all relevant factors, we are of the opinion that the Open Market Value of the unexpired leasehold interest of the subject property, free from all encumbrances, are 1) In Existing Use (as a 448-unit workers dormitory) S$103,000,000/- (Singapore Dollars One Hundred And Three Million) 2) On Redevelopment Basis (at a plot ratio of 3.2) with additional 207 units & increase in commercial area S$120,000,000/- (Singapore Dollars One Hundred And Twenty Million) The valuation of S$120 million reflects the potential to increase the plot ratio of the premises to 3.2, and is net of upgrading costs. In other words, it represents the residual value of the property, arrived at by taking the gross development value of the redeveloped property (as if it is already completed), and deducting from that the upgrading costs required to achieve the upgrading. Chesterton Suntec International Pte Ltd Chng Shih Hian Senior Executive Director Licensed Appraiser : AD D MSISV I-7

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367 APPENDIX J MANDAI PROPERTY VALUATION REPORT Our Ref: /ET/CSH 13 January 2011 The Board of Directors SM Summit Holdings Ltd 45 Ubi Road 1 Summit Building Singapore Dear Sirs VALUATION OF INDUSTRIAL DEVELOPMENT SITE AT 4A AND 6 MANDAI ESTATE We refer to your recent instructions to determine the Open Market Value of the above-mentioned property. We confirm that we have inspected the property and we are pleased to report our opinion. Basis of Valuation Our valuation is based on the Open Market Value as defined by the Royal Institution of Chartered Surveyor, which is the best price at which the sale of an interest in the property would have been completed unconditionally for cash consideration on the date of valuation, assuming: (a) (b) (c) (d) (e) a willing seller; that, prior to the date of valuation, there had been a reasonable period (having regard to the nature of the property and the state of the market) for the proper marketing of the interest for the negotiation and agreement of price and terms and for the completion of the sale; that the state of the market, level of values and other circumstances were, on any earlier assumed date of exchange of contracts, the same as on the date of valuation; that no account is taken of any additional bid by a prospective purchaser with a special interest; and that both parties to the transaction had acted knowledgeably, prudently and without compulsion. No allowances are made for any expenses or taxation which might arise in the event of a disposal. The property is considered as if free and clear of all mortgages, encumbrances and other outstanding premiums, charges and liabilities. J-1

368 APPENDIX J MANDAI PROPERTY VALUATION REPORT VALUATION OF INDUSTRIAL DEVELOPMENT SITE AT 4A AND 6 MANDAI ESTATE Page 2 Qualifications and Disclaimer We have carried out a search with the relevant authorities to ascertain the legal description, tenure and area of the subject properties only. However, we have not carried out any title search to check on the ownership or any other encumbrances affecting the site. Neither have we carried out any searches regarding any proposed road, drainage or public schemes. We recommend that they be carried out through your solicitors and refer back to us for further comments. The reported analyses, opinions and conclusions are limited only by the reported assumptions and limiting conditions and are our personal, unbiased professional analyses, opinions and conclusions. We have no present or prospective interest in the subject property and are not a related corporation of nor do we have a relationship with the various parties involved in the transaction of this property. The valuers compensation is not contingent upon the reporting of a predetermined value or direction in value that favours the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event. We hereby certify that our valuers undertaking these valuations are authorized to practise as valuers and have the necessary expertise and experience in valuing similar types of properties. In our valuation, we have not carried out any structural survey of the property nor any testing of services. We have assumed that there are no structural defects and that all building services are fully functional. We have also not carried out any investigations on the suitability of the site and ground conditions for the existing or any new development, nor have we undertaken any archeological, ecological or environmental surveys. Our valuation is on the basis that these aspects are satisfactory. Finally and in accordance with our practice, we must emphasize that these reports are for the use only of M/s SM Summit Holdings Ltd for purposes of an intending corporate transaction. Our opinion of the Open Market Value of the subject property is in the Valuation Certificate attached. Yours truly For and on behalf of CHESTERTON SUNTEC INTERNATIONAL PTE LTD Chng Shih Hian Senior Executive Director /ET/CSH 13/01/2011 J-2

369 APPENDIX J MANDAI PROPERTY VALUATION REPORT VALUATION CERTIFICATE Address of Property : 4A & 6 Mandai Estate Singapore & Type of Property : The subject property comprises 4 plots of industrial development sites located within an existing industrial estate in Mandai Estate. Legal Description : Lot 240K Mukim 14-3,469.5 sqm & Site Area Lot 241N Mukim 14-3,622.9 sqm Lot 202V Mukim 14-11,584.6 sqm Lot 203P Mukim sqm Total 18,714.7 sqm Tenure : Freehold Master Plan Zoning (2008) : Business 2 with allowable Gross Plot Ratio of 2.5 Location & Site Plans : See attached plans Basis of Valuation : We have valued the subject sites as a freehold industrial development site with a potential Gross Plot Ratio of 2.5 Opinion of Value Open Market Value : S$70,500,000/- (Singapore Dollars Seventy Million as at 13 January 2011 And Five Hundred Thousand Only) (reflecting $1506 per sq m or $140 per sq ft of potential gross floor area) /ET/CSH 13/01/2011 J-3

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