KING S SAFETYWEAR LIMITED

Transcription

1 CIRCULAR DATED 20 OCTOBER 2008 THIS CIRCULAR IS IMPORTANT AS IT CONTAINS THE RECOMMENDATION OF THE INDEPENDENT DIRECTORS OF KING S SAFETYWEAR LIMITED AND THE ADVICE OF DMG & PARTNERS SECURITIES PTE LTD. THIS CIRCULAR REQUIRES YOUR IMMEDIATE ATTENTION. PLEASE READ IT CAREFULLY. This circular is issued by King s Safetywear Limited (the Company ). If you are in any doubt in relation to this Circular or as to the action you should take, you should consult your stockbroker, bank manager, solicitor, accountant or other professional adviser immediately. If you have sold or transferred all your shares in the capital of the Company, you should immediately forward this Circular to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for onward transmission to the purchaser or transferee. The Singapore Exchange Securities Trading Limited assumes no responsibility for the correctness of any of the statements made, reports contained or opinions expressed in this Circular. KING S SAFETYWEAR LIMITED (Company Registration No E) (Incorporated in the Republic of Singapore) CIRCULAR TO SHAREHOLDERS in relation to the VOLUNTARY CONDITIONAL CASH OFFER by PRIMEPARTNERS CORPORATE FINANCE PTE LTD (Company Registration No D) (Incorporated in the Republic of Singapore) for and on behalf of SAFE STEP GROUP LTD (Company Registration No /C1/GBL) (Incorporated in the Republic of Mauritius) to acquire all the issued and paid-up ordinary shares in the capital of the Company Independent Financial Adviser to the Independent Directors of the Company DMG & PARTNERS SECURITIES PTE LTD SHAREHOLDERS SHOULD NOTE THAT THE OFFER DOCUMENT STATES THAT THE OFFER WILL CLOSE AT 5.30 P.M. ON 18 NOVEMBER 2008 OR SUCH LATER DATE(S) AS MAY BE ANNOUNCED FROM TIME TO TIME BY OR ON BEHALF OF THE OFFEROR. THE OFFEROR DOES NOT INTEND TO REVISE THE OFFER PRICE, EXCEPT THAT THE OFFEROR RESERVES THE RIGHT TO DO SO IN A COMPETITIVE SITUATION.

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3 CONTENTS PAGE SUMMARY TIMETABLE... 9 LETTER TO SHAREHOLDERS INTRODUCTION THE OFFER OPTIONS PROPOSAL IRREVOCABLE UNDERTAKINGS INFORMATION ON THE OFFEROR AND ARRANGEMENTS WITH THE MANAGEMENT OF THE COMPANY RATIONALE FOR THE OFFER AND FUTURE PLANS FOR THE COMPANY LISTING STATUS AND COMPULSORY ACQUISITION FINANCIAL ASPECTS OF THE OFFER ADVICE AND RECOMMENDATION OF THE INDEPENDENT DIRECTORS ACTION TO BE TAKEN BY SHAREHOLDERS OVERSEAS SHAREHOLDERS INTEREST IN SHARES DIRECTORS RESPONSIBILITY STATEMENT APPENDIX I LETTER FROM DMG TO THE INDEPENDENT DIRECTORS OF KING S SAFETYWEAR LIMITED IN RESPECT OF THE OFFER APPENDIX II GENERAL AND STATUTORY INFORMATION APPENDIX III INFORMATION ON THE OFFEROR APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY APPENDIX V UNAUDITED RESULTS OF THE GROUP FOR THE HALF-YEAR ENDED 30 JUNE APPENDIX VI STATEMENT OF PROSPECTS APPENDIX VII LETTER FROM ERNST & YOUNG LLP IN RELATION TO THE STATEMENT OF PROSPECTS APPENDIX VIII LETTER FROM DMG IN RELATION TO THE STATEMENT OF PROSPECTS APPENDIX IX RELEVANT ARTICLES IN THE ARTICLES OF ASSOCIATION OF THE COMPANY APPENDIX X VALUATION REPORT

4 CORPORATE INFORMATION Board of Directors : Frankie Chan Sian Lek (Executive Chairman) : Jimmy Chan Sen Fock (Executive Director) : David Chan Sian Kheong (Executive Director) : Chan Sen Meng (Executive Director) : Alex Teo Mui Kwang (Executive Director) : Lloyd Yeo Loy Kiang (Executive Director) : Bernard Chen Tien Lap (Independent Non-Executive Director) : Patrick Chee Teck Kwong (Independent Non-Executive Director) : Jen Shek Voon (Independent Non-Executive Director) (1) Company Secretary : Lynn Wan Tiew Leng, FCIS Registered Office : 22 Defu Lane 1 Defu Industrial Estate Singapore Share Transfer Agent : Boardroom Corporate & Advisory Services Pte. Ltd. (Previously known as Lim Associates (Pte) Ltd) 3 Church Street #08-01 Samsung Hub Singapore Independent Financial Adviser to the Independent Directors in relation to the Offer Legal Adviser to the Company in relation to the Offer : DMG & Partners Securities Pte Ltd 20 Raffles Place #22-01 Ocean Towers Singapore : KhattarWong 80 Raffles Place #25-01 UOB Plaza 1 Singapore Auditors to the Company : Ernst & Young LLP Public Accountants and Certified Public Accountants One Raffles Quay, North Tower Level 18 Singapore Partner in Charge: Yee Woon Yim 2

5 DEFINITIONS Except where the context otherwise requires, the following definitions apply throughout this Circular: Act : The Companies Act, Chapter 50 of the Republic of Singapore, as modified, supplemented or amended from time to time Articles : The Articles of Association of the Company Board or Board of Directors : The Board of Directors of the Company as at the Latest Practicable Date Business Day : A day which is not a Saturday, a Sunday or a gazetted public holiday in Singapore CDP : The Central Depository (Pte) Limited CEO : Chief Executive Officer of the Company Circular : This Circular to Shareholders dated 20 October 2008 in relation to the Offer enclosing, inter alia, the recommendation of the Independent Directors, and the IFA Letter Circular Date : 20 October 2008, being the date of this Circular to Shareholders Closing Date : 18 November 2008 or such later date(s) as may be announced from time to time by or on behalf of the Offeror, being the last day for the lodgement of acceptances of the Offer Code : The Singapore Code on Take-overs and Mergers, as modified, supplemented or amended from time to time Company : King s Safetywear Limited Directors : The directors of the Company (including the Independent Directors) as at the Latest Practicable Date Despatch Date : 6 October 2008, being the date of despatch of the Offer Document Encumbrances : All liens, equities, charges, encumbrances, rights of preemption and any other third party rights or interests of any nature whatsoever ESOS : The Kingsafetywear Employee Share Option Scheme, approved at the Extraordinary General Meeting held on 25 September 2003 and attached as Appendix C to the Company s Prospectus dated 20 October 2003 ( Appendix C ). Rule 9.1 of the ESOS states that inter alia, in the event of a take-over being made for the Shares, an Optionholder shall be entitled to exercise any Option held by him and as yet unexercised, in respect of such number of Shares comprised in that Option as may be determined by the Directors in their absolute discretion, in the period commencing on, if the offer 3

6 DEFINITIONS is conditional, the date on which such offer becomes or is declared unconditional, as the case may be and ending on the earlier of:- (a) (b) the expiry of six (6) months thereafter, unless prior to the expiry of such six-month period, at the recommendation of the offeror and with the approvals of the Directors and the SGX-ST, such expiry date is extended to a later date (in either case, being a date falling not later than the expiry of the Exercise Period as defined in Appendix C relating thereto); or the date of expiry of the Exercise Period relating thereto, whereupon the Option then remaining unexercised shall also lapse. Provided that if during such period, the offeror becomes entitled or bound to exercise rights of compulsory acquisition under the provisions of the Companies Act (Cap. 50) and, being entitled to do so, gives notice to the Optionholders that it intends to exercise such rights on a specified date, the Option shall remain exercisable by the Optionholder until the expiry of such specified date or the expiry of the Exercise Period relating thereto, whichever is earlier. Any Option not so exercised shall lapse provided that the rights of acquisition or obligations to acquire shall have been exercised or performed, as the case may be. If such rights or obligations have not been exercised or performed the Option shall remain exercisable until the expiry of the Exercise Period relating thereto. FAA : Form of Acceptance and Authorisation, which forms part of the Offer Document and which is issued to Shareholders whose Shares are deposited with CDP FAT : Form of Acceptance and Transfer, which forms part of the Offer Document and which is issued to Shareholders whose Shares are not deposited with CDP Full Year Announcement : The announcement dated 20 February 2008 on the unaudited financial statements of the Company for the financial year ended 31 December 2007 FY : Financial year ended or ending on, as the case may be, 31 December Group : The Company, its subsidiaries and associated companies Independent Directors : The Directors who are independent for the purpose of making recommendations to Shareholders in respect of the Offer, namely, Frankie Chan Sian Lek, Jimmy Chan Sen Fock, David Chan Sian Kheong, Chan Sen Meng, Alex Teo Mui Kwang, Lloyd Yeo Loy Kiang, Bernard Chen Tien Lap, Patrick Chee Teck Kwong and Jen Shek Voon 4

7 DEFINITIONS Interested Person : As defined in Note on Rule 24.6 of the Code and read with Note on of the Code, an Interested Person is: (a) (b) (c) (d) (e) (f) director, CEO, or Substantial Shareholder of the Company; The immediate family of a director, the CEO, or a Substantial Shareholder (being an individual) of the Company; The trustees acting in their capacities as trustees, of any trust of which a director, the CEO, or a substantial shareholder (being an individual) and his immediate family is a beneficiary; Any company in which a director, the CEO, or a substantial shareholder (being an individual) together and his immediate family together (directly or indirectly) have an interest of 30% or more; Any company that is the subsidiary, holding company or fellow subsidiary of the substantial shareholder (being a company); or Any company in which a Substantial Shareholder (being a company) and any of the companies listed in (e) above together (directly or indirectly) have an interest of 30% or more IFA or DMG : DMG & Partners Securities Pte Ltd, the independent financial adviser appointed in respect of the Offer IFA Letter : The letter dated 20 October 2008 from the IFA to the Independent Directors containing their advice in respect of the Offer as set out in Appendix I to this Circular Irrevocable Undertakings : The irrevocable undertakings given by Chan Kee Tong & Sons Holdings Pte Ltd, Frankie Chan Sian Lek, Chan Sen Fock, Chan Sian Kheong, Chan Sen Meng, Karta Winata, Herlena Winata, Alex Teo Mui K wang and Darren Tan Wai Kang, in favour of the Offeror to, inter alia, accept the Offer in respect of an aggregate 154,000,110 Shares held by them representing approximately 69.45% of the issued share capital of the Company and (to the extent that they hold Options) accept the Options Proposal in respect of the Options of an aggregate of 4,163,000 Options held by them Latest Practicable Date : 15 October 2008, being the latest practicable date prior to the printing of this Circular Listing Manual : The Listing Manual of the SGX-ST, as amended to the Latest Practicable Date Market Day : A day on which the SGX-ST is open for the trading of securities NTA : Net tangible assets 5

8 DEFINITIONS Offer : The voluntary conditional cash offer made by PrimePartners, for and on behalf of the Offeror, to acquire the Offer Shares on the terms and subject to the conditions set out in the Offer Document despatched on 6 October 2008, the FAA and the FAT, as such Offer may be amended, extended or revised from time to time by or on behalf of the Offeror Offer Announcement : The announcement released by PrimePartners, for and on behalf of the Offeror, on the Offer Announcement Date Offer Announcement Date : 19 September 2008, being the date of the Offer Announcement Offer Document : The Offer Document dated 6 October 2008 and any other document(s) which may be issued by or on behalf of the Offeror, to amend, revise, supplement or update such document from time to time Offer Period : The period from the Offer Announcement Date until the date the Offer is declared to have closed or lapsed Offer Price : The offer price of S$0.438 in cash for each Offer Share Offer Shares : All the Shares to which the Offer relates Offeree : King s Safetywear Limited Offeror : Safe Step Group Ltd Option : A share option granted by the Company pursuant to the ESOS to subscribe for new Shares Optionholder : A holder of an Option Options Proposal : The proposal to Optionholders by PrimePartners, for and on behalf of the Offeror Overseas Shareholder(s) : Shareholders whose addresses are outside Singapore, as shown on the Register or, as the case may be, in the records of CDP PBT : Profit before tax of the Company for each financial year PrimePartners : PrimePartners Corporate Finance Pte Ltd Register : The register of holders of the Shares as maintained by the Registrar Registrar : Boardroom Corporate & Advisory Services Pte Ltd Securities Account : The securities account maintained by a Depositor with CDP but not including a securities sub-account SGX-ST : Singapore Exchange Securities Trading Limited Share or Shares : Issued and fully paid-up ordinary share(s) in the capital of the Company 6

9 DEFINITIONS Shareholder(s) : The holder(s) of the Offer Shares, including persons whose Offer Shares are deposited with CDP or who have purchased Offer Shares on the SGX-ST SIC : Securities Industry Council of Singapore Statutes : The Act and every other written law for the time being in force concerning companies and affecting the Company Substantial Shareholder : A person who has an interest in not less than 5% of the Shares of the Company Trading Day : A Market Day on which the Shares are traded Undertaking Shareholders : Shareholders of the Company who have given Irrevocable Undertakings, namely Chan Kee Tong & Sons Holdings Pte Ltd, Frankie Chan Sian Lek, Jimmy Chan Sen Fock, David Chan Sian Kheong, Chan Sen Meng, The Winata Family, Alex Teo Mui Kwang, Lloyd Yeo Loy Kiang and Darren Tan Wai Kang Valuation Report : The report issued by the Valuer dated 20 October 2008 containing their valuation of assets as set out in Appendix X to this Circular Valuer : Brand Finance Consultancy (Singapore) Pte Ltd VWAP : Volume weighted average price per Share on the SGX-ST S$ or SGD and cents : Singapore dollars and cents, respectively, being the lawful currency of Singapore % or per cent. : Percentage or per centum Acting in Concert and Associate. The expression acting in concert and associate shall have the meanings ascribed to them, respectively, in the Code. Depositor and Depository Register. The terms Depositor and Depository Register shall have the meanings ascribed to them respectively by Section 130A of the Act. Genders. 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 gender. References to persons shall, where applicable, include corporations. Headings. The headings in this Circular are inserted for convenience only and shall be ignored when construing this Circular. Offer Document. References to Offer Document shall include the FAA and FAT. Rounding. Any discrepancies in this Circular between the listed amounts and the total thereof are due to rounding. Shareholders. References to you, your and yours in this Offer Document are, as the context so determines, to Shareholders (including persons whose Shares are deposited with CDP or who have purchased Shares on the SGX-ST). 7

10 DEFINITIONS Statutes. 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 in the Act, the Listing Manual or the Code or any statutory modification thereof and used in this Circular shall, where applicable, have the meaning assigned to it under the Act, the Listing Manual or the Code or any statutory modification thereof, as the case may be, unless the context otherwise requires. Subsidiary and Related Corporations. The expressions subsidiary and related corporations shall have the meanings ascribed to them respectively in Sections 5 and 6 of the Act. Time and Date. Any reference to a time of day and date in this Circular shall be a reference to Singapore time and date, unless otherwise stated. Total Number of Shares. In this Circular, the total number of Shares is 221,732,110 Shares as at the Latest Practicable Date. Terms not defined herein are as stated in the Offer Document. 8

11 SUMMARY TIMETABLE Date of despatch of Offer Document : 6 October 2008 Date of despatch of Circular : 20 October 2008 Close of Offer Period : 5.30 p.m. on 18 November 2008 or such later date(s) as may be announced from time to time by or on behalf of the Offeror Date of settlement of consideration for valid acceptances of the Offer : (i) in respect of acceptances of the Offer which are complete in all respects and are received on or before the date on which the Offer becomes or is declared to be unconditional in accordance with its terms, within 10 days of that date; or (ii) in respect of acceptances which are complete in all respects and are received after the Offer becomes or is declared unconditional in accordance with its terms, but before the Offer closes, within 10 days of the date of such receipt. 9

12 LETTER TO SHAREHOLDERS KING S SAFETYWEAR LIMITED (Registration Number: E) (Incorporated in Singapore) Board of Directors: Registered Office: Frankie Chan Sian Lek 22 Defu Lane 1 Jimmy Chan Sen Fock Defu Industrial Estate David Chan Sian Kheong Singapore Chan Sen Meng Alex Teo Mui Kwang Lloyd Yeo Loy Kiang Bernard Chen Tien Lap Patrick Chee Teck Kwong Jen Shek Voon 20 October 2008 To: The Shareholders of King s Safetywear Limited Dear Sir / Madam VOLUNTARY CONDITIONAL CASH OFFER BY SAFE STEP GROUP LTD FOR ALL THE ISSUED AND PAID-UP ORDINARY SHARES IN THE CAPITAL OF KING S SAFETYWEAR LIMITED 1. INTRODUCTION On the Offer Announcement Date, PrimePartners made the Offer Announcement, for and on behalf of the Offeror, that the Offeror intends to make a voluntary conditional cash offer for all the Offer Shares. A copy of the Offer Announcement is available on the website of the SGX-ST at Shareholders should now have received a copy of the Offer Document, despatched on 6 October 2008, setting out, inter alia, the terms and conditions of the Offer. The principal terms and conditions of the Offer are set out in Paragraphs 2 and 3 and Appendix IV of the Offer Document. Shareholders are urged to read the terms and conditions of the Offer set out in the Offer Document carefully. The Independent Directors have appointed DMG as their Independent Financial Adviser in respect of the Offer. The purpose of this Circular is to provide relevant information to the Shareholders pertaining to the Offer and to set out the recommendation of the Independent Directors and the opinion of DMG to the Independent Directors in relation to the Offer. Shareholders should consider carefully the recommendation of the Independent Directors and the opinion of DMG before deciding whether or not to accept or reject the Offer. 2. THE OFFER Based on the Offer Document, the Offer for the Offer Shares will be made on the following terms and conditions: 2.1 Offer Price For each Offer Share: S$0.438 in cash. 10

13 LETTER TO SHAREHOLDERS 2.2 Shares The Offer is extended, on the same terms and conditions, to: (a) (b) all the issued Shares owned, controlled or agreed to be acquired by parties acting in concert with the Offeror in connection with the Offer; and all new Shares unconditionally issued or to be issued pursuant to the valid exercise of Options on or prior to the close of the Offer. For the purposes of the Offer, the expression Offer Shares shall include such Shares. 2.3 No Encumbrances The Offer Shares are to be acquired (a) fully-paid; (b) free from all liens, equities, mortgages, charges, encumbrances, rights of pre-emption and other third party rights and interests of any nature whatsoever; and (c) together with all rights, benefits and entitlements attached thereto as at the Offer Announcement Date and thereafter attaching thereto (including the right to receive and retain all dividends and other distributions (if any) which may be announced, declared, paid or made thereon by the Company on or after the Offer Announcement Date). 2.4 Adjustment for Dividends If any dividend, other distribution or return of capital is declared, made or paid on or after the Offer Announcement Date, the Offeror reserves the right to reduce the Offer Price by the amount of such dividend, distribution or return of capital. 2.5 Revision of Offer The Offeror does not intend to revise the Offer Price, except that the Offeror reserves the right to do so in a competitive situation. 2.6 Offer Conditions The information on the Offer Conditions has been extracted from the Offer Document and is set out in italics below. All terms and expressions used in the extract below shall have the same meanings as those defined in the Offer Document, unless otherwise stated. 2.3 Conditions of the Offer The Offer will be subject to the following conditions: (a) (b) the Offeror having received, by the close of the Offer, valid acceptances in respect of such number of Offer Shares which, together with the Shares owned, controlled or agreed to be acquired by the Offeror and parties acting in concert with it either before or during the Offer and pursuant to the Offer or otherwise, will result in the Offeror and parties acting in concert with it holding such number of Shares carrying more than 50% of the voting rights attributable to the issued share capital of the Company as at the close of the Offer (including any voting rights attributable to the Shares issued or to be issued pursuant to the valid exercise of Options on or prior to the close of the Offer); and the Undertaking Shareholders having performed and complied in all material respects with all undertakings, obligations and conditions of the Irrevocable Undertakings that they are required to perform and comply with. Accordingly, for the purposes of paragraph 2.3(a), the Offer will not become or be capable of being declared unconditional as to acceptances until the close of the Offer, unless at any time prior to the close of the Offer, the Offeror has received valid acceptances in respect of such number of Offer Shares which will result in the Offeror and parties acting in concert with it holding such number of Shares carrying more than 50% of the maximum potential 11

14 LETTER TO SHAREHOLDERS issued share capital of the Company. For this purpose, the maximum potential issued share capital of the Company means the total number of Shares which would be in issue had all the Options been validly exercised as at the date of such declaration. If the condition in paragraph 2.3(b) is not fulfilled, it may be invoked by the Offeror only after consent has been obtained from the SIC. On 7 October 2008, PrimePartners announced for and on behalf of the Offeror that as at 5.00pm on 7 October 2008, the total number of (a) Shares owned, controlled or agreed to be acquired by the Offeror, and (b) valid acceptances to the Offer, amounted to an aggregate of 148,980,110 Shares, representing approximately 67.19% of the issued share capital of the Company. In the same announcement, PrimePartners also mentioned that the said number of Shares is more than 50% of the maximum potential issued share capital of the Company, being the total number of Shares which would be in issued had all the Options been validly exercised. Accordingly, the Offer became and was thereby declared unconditional as to acceptances. As stated in the Offer Document, the Offeror when entitled, intends to exercise its rights of compulsory acquisition under Section 215(1) of the Companies Act. On 15 October 2008, PrimePartners announced for and on behalf of the Offeror that as at 5.00 pm on 14 October 2008, the total number of (a) Shares owned, controlled or agreed to be acquired by the Offeror, and (b) valid acceptances to the Offer, amounted to an aggregate of 200,892,108 Shares, representing approximately 90.60% of the issued share capital of the Company. As such, the Offeror is entitled to compulsorily acquire the remaining Shares pursuant to Section 215(1) of the Companies Act, at the consideration of S$0.438 for each remaining Share. Shareholders are urged to read the Offeror s announcement dated 15 October 2008 carefully. 2.7 Warranty Acceptance of the Offer will be deemed to constitute an unconditional and irrevocable warranty by the accepting Shareholder that each Offer Share tendered in acceptance of the Offer is sold by the accepting Shareholder, as or on behalf of the beneficial owner(s) thereof, (a) fully-paid; (b) free from all liens, equities, mortgages, charges, encumbrances, rights of pre-emption and other third party rights and interests of any nature whatsoever; and (c) together with all rights, benefits and entitlements attached thereto as at the Offer Announcement Date and thereafter attaching thereto (including the right to receive and retain all dividends and other distributions (if any) which may be announced, declared, paid or made thereon by the Company on or after the Offer Announcement Date). 2.8 Details of the Offer The Offer is made in accordance with the principal terms and conditions as set out in Section 2 of the letter from PrimePartners to the Shareholders contained in the Offer Document and Appendix IV of the Offer Document. The procedures for acceptance of the Offer are set out in Appendix V of the Offer Document. A copy of each of the Offer Announcement and the Offer Document is available on the website of the SGX-ST at 3. OPTIONS PROPOSAL The information on the Offeror s Options Proposal has been extracted from the Offer Document and is set out in italics below. All terms and expressions used in the extract below shall have the same meanings as those defined in the Offer Document, unless otherwise stated. THE OPTIONS PROPOSAL 3.1 Outstanding Options As at the Latest Practicable Date, there are 13,892,000 Options granted under the Scheme. 12

15 LETTER TO SHAREHOLDERS 3.2 Options Not Transferable Under the rules of the Scheme, the Options are not transferable by the Optionholders. In view of this restriction, the Offeror will not make an offer to acquire the Options (although for the avoidance of doubt, the Offer will be extended to all new Shares unconditionally issued or to be issued pursuant to the valid exercise of Options on or prior to the close of the Offer). Instead, PrimePartners will, for and on behalf of the Offeror, make a proposal to the Optionholders on the terms described in paragraph 3.3 below. 3.3 Terms of the Options Proposal PrimePartners, for and on behalf of the Offeror, proposes, subject to: (a) (b) the Offer becoming or being declared unconditional; and the relevant Options continuing to be exercisable into new Shares, to pay the Optionholders a cash amount (determined as provided below) (the Option Price ) in consideration of such Optionholders agreeing: (i) (ii) not to exercise any of such Options into new Shares; and not to exercise any of their rights as Optionholders, in each case from the date of their acceptance of the Options Proposal to the respective dates of expiry of such Options. Further, if the Offer becomes or is declared unconditional, Optionholders who have accepted the Options Proposal will also be required to surrender all their Options for cancellation. If the Offer lapses or is withdrawn or if the relevant Options cease to be exercisable into new Shares, the Options Proposal will lapse accordingly. The Option Price is computed on a see-through basis. In other words, the Option Price in relation to any Option is the amount by which the Offer Price is in excess over the exercise price of that Option. A separate letter setting out more fully details of the Options Proposal will be despatched to the Optionholders no later than the date of despatch of this Offer Document. 3.4 Offer and Options Proposal Mutually Exclusive For the avoidance of doubt, whilst the Options Proposal is conditional upon the Offer becoming or being declared unconditional, the Offer will not be conditional upon acceptances received in relation to the Options Proposal. The Offer and the Options Proposal are separate and mutually exclusive in this respect. The Options Proposal does not form part of the Offer, and vice versa. Without prejudice to the foregoing, if the Optionholders exercise their Options in order to accept the Offer in respect of the new Shares to be issued pursuant to such exercise, they may not accept the Options Proposal in respect of such Options. Conversely, if Optionholders wish to accept the Options Proposal in respect of their Options, they may not exercise those Options in order to accept the Offer in respect of the new Shares to be issued pursuant to such exercise. 4. IRREVOCABLE UNDERTAKINGS The information on the irrevocable undertakings has been extracted from the Offer Document and is set out in italics below. All terms and expressions used in the extract below shall have the same meanings as those defined in the Offer Document, unless otherwise stated. 1.1 Irrevocable Undertakings On 19 September 2008, the Offeror received irrevocable undertakings ( Irrevocable Undertakings ) from certain Shareholders (collectively, the Undertaking Shareholders ) in favour of the Offeror to, inter alia, accept the Offer in respect of the Offer Shares of an 13

16 LETTER TO SHAREHOLDERS aggregate of 154,000,110 Shares held by them representing approximately 69.45% of the issued share capital of KSW and (to the extent that they hold Options) accept the Options Proposal in respect of the Options of an aggregate of 4,163,000 Options held by them. The Irrevocable Undertakings will lapse on the date on which the Offer lapses or is withdrawn. Appendix III of this Offer Document sets out certain additional information on the Irrevocable Undertakings and the Undertaking Shareholders. APPENDIX III- ADDITIONAL GENERAL INFORMATION 1. DISCLOSURE OF INTERESTS (c) As noted in paragraph 1.1 of this Offer Document, the following Undertaking Shareholders have given Irrevocable Undertakings in favour of the Offeror to, inter alia, accept the Offer in respect of the Offer Shares held by them and (to the extent that they hold Options) accept the Options Proposal in respect of the Options held by them: Undertaking Shareholder Number of Shares Percentage of Shares in issue as at Announcement Number of Date (1) (%) Options Exercise Period Exercise Price per Share S($) Chan Kee Tong & Sons Holdings Pte Ltd ( CKT & Sons ) 107,708,110 (2) Frankie Chan Sian Lek ( FC ) 7,944,000 (2) 3.58 Chan Sen Fock ( CSF ) 6,196, Chan Sian Kheong ( CSK ) 3,196, Chan Sen Meng ( CSM ) 7,546, The Winata 18,132, Family (3) Alex Teo Mui Kwang 1,027, , October 2004 to 20 October ,000 1 December 2005 to 30 November , December 2006 to 30 December , December 2007 to 29 December , December 2008 to 28 December

17 LETTER TO SHAREHOLDERS Undertaking Shareholder Number of Shares Percentage of Shares in issue as at Announcement Number of Date (1) (%) Options Exercise Period Exercise Price per Share S($) Lloyd Yeo Loy Kiang Darren Tan Wai Kang 2,002, , October 2004 to 20 October ,000 1 December 2005 to 30 November , December 2006 to 30 December , December 2007 to 29 December , December 2008 to 28 December , , October 2004 to 20 October ,000 1 December 2005 to 30 November , December 2006 to 30 December , December 2007 to 29 December , December 2008 to 28 December Total 154,000, ,163,000 Notes: (1) Based on 221,732,110 Shares in issue as at the Latest Practicable Date. (2) As at the Offer Announcement Date, each of FC, CSF, CSK and CSM holds one (1) ordinary share representing 25% of the issued share capital of CKT & Sons. Each of FC, CSF, CSK and CSM has undertaken pursuant to the Irrevocable Undertaking that he will procure that CKT & Sons restructure the beneficial ownership of interests in the Company ( Restructuring ) after the Offer Announcement Date and before the date of despatch of this Offer Document so that he will hold directly the number of Shares he is beneficially entitled to. As a result of the Restructuring, FC, CSF, CSK and CSM will be accepting the Offer in respect of 34,871,027, 33,123,028, 30,123,027 and 34,473,028 Offer Shares representing approximately 15.73%, 14.94%, 13.59% and 15.55% of the Shares in issue respectively. 15

18 LETTER TO SHAREHOLDERS (3) The Winata Family s holding of 18,132,000 Shares representing approximately 8.18% of the Shares in issue as at the Offer Announcement Date is derived from Karta Winata holding 3,132,000 Shares and Herlena Winata holding 15,000,000 Shares. The Irrevocable Undertakings will lapse on the date on which the Offer lapses or is withdrawn. 5. INFORMATION ON THE OFFEROR AND ARRANGEMENTS WITH THE MANAGEMENT OF THE COMPANY The information on the Offeror has been extracted from the Offer Document and is set out in italics below. All terms and expressions used in the extract below shall have the same meanings as those defined in the Offer Document, unless otherwise stated. INFORMATION ON THE OFFEROR AND ARRANGEMENTS WITH THE MANAGEMENT OF THE COMPANY 4.1 The Offeror The Offeror is an investment holding company incorporated in the Republic of Mauritius on 29 August The Offeror has not carried on any business since its incorporation except to enter into certain arrangements ( Management Equity Arrangements ) with the Undertaking Shareholders and Key Management (as defined below) of the Company. 4.2 Shareholders of the Offeror The sole shareholder of the Offeror is Safe Step Holdings Ltd ( SSHL ), a Mauritiusincorporated special purpose vehicle company. The Offeror intends to fund the Offer through Navis Fund V, L.P. and its parallel funds, Navis Asia Fund V (2), L.P., Navis Asia Fund V-E, L.P. and Navis Asia Fund V-S, L.P. (collectively, the Navis Funds ). Save for Navis Asia Fund V-S, L.P., the Navis Funds hold shares in SSHL for this purpose. It is the intention of the Offeror that Navis Asia Fund V-S, L.P. will hold shares in SSHL at a later date. The Navis Funds are exempted limited partnerships organised under the laws of the Cayman Islands. Navis Asia V Fund Management Company, Ltd. is the investment manager of the Navis Funds. Navis Asia V Fund Management Company, Ltd. is part of the Navis group, a private and public equity fund management group with offices in South East Asia, Hong Kong, India and Australia. The management team in the Navis group has extensive experience in private equity investments in various industries throughout the region. Appendix I of this Offer Document sets out certain additional information on the Offeror. 4.3 Directors of the Offeror The directors of the Offeror are: (a) (b) (c) (d) (e) (f) (g) Rodney Chadwick Muse, a director of Navis; Jean-Christophe Michel Marti, a director of Navis; Jonathan Daryl Gartner, the Chief Administrative Officer of Navis; Srikala Janarhanan, the Group Financial Controller of Navis; Gerald Chiu Yoong Chian, an investment director of Navis; Boopendradas Sungker, a Mauritian resident director; and M. Aslam Koomar, a Mauritian resident director. 16

19 LETTER TO SHAREHOLDERS 4.4 Management Equity Arrangements It is the intention and desire of the Offeror that the following key members of the management team (the Key Management ) of the Company continue in their current functions in the Group: (a) (b) (c) (d) Frankie Chan Sian Lek, Executive Chairman of the Company; Alex Teo Mui Kwang, Executive Director and Chief Executive Officer of the Company; Lloyd Yeo Loy Kiang, Executive Director of the Company; and Darren Tan Wai Kang, Senior Vice President (Group Finance & Accounting) of the Company. Each of the Key Management has given an Irrevocable Undertaking in favour of the Offeror. Their obligations under the Irrevocable Undertaking include, inter alia, subscribing for shares in the Offeror ( SSGL Shares ) and applying 60% of the total proceeds that they receive for their Offer Shares and Options pursuant to the Offer and the Options Proposal (as the case may be) as consideration for the subscription. The obligation of each Key Management to pay for the new SSGL Shares in cash will be set off against the obligation of the Offeror to pay 60% of the Offer Price for his Offer Shares tendered in acceptance of the Offer and 60% of the Options Price for Options in respect of which the Options Proposal is accepted (as the case may be) (the Set-Off Amount ). The Offeror also proposes to extend the Management Equity Arrangements to other members of the management team of the Group (the Management Personnel ) with the primary objective of retaining their services following the close of the Offer by: (i) (ii) making available an opportunity (but not the obligation) for the Management Personnel to apply up to 60% of the proceeds they receive for their Offer Shares and Options pursuant to the Offer and the Options Proposal (as the case may be) towards acquisition of SSGL Shares from SSHL; and making available an opportunity (but not the obligation) for Sasmita Winata, the Group s managing director for Indonesian Sales and director of one of its Indonesian subsidiaries, to further acquire up to 2% of SSGL Shares from SSHL, in addition to the opportunity to acquire as set out in paragraph 4.4(i) above, as the Offeror believes that Sasmita Winata plays a critical role in the Group s Indonesian operations with the Indonesian business forming a significant part of the Group s business. In addition, the Offeror also intends to make available the opportunity for the Key Management, the Management Personnel and other employees of the Group (collectively, the Participants ) to participate in a management incentive plan (the MIP ) to be established by the board of SSGL following the close of the Offer, pursuant to which fully paid SSGL Shares will be transferred from SSHL to the Participants. The SIC has confirmed that the Management Equity Arrangements as described in this paragraph 4.4 do not constitute special deals for the purposes of the Code. 4.5 Resultant Position It is envisaged that following the close of the Offer and the implementation of the Management Equity Arrangements (excluding the MIP), the shareholding in the Offeror will be as follows: (a) (b) SSHL at least 86.0% of SSGL Shares in issue; Key Management approximately 10.5% of SSGL Shares in issue; 17

20 LETTER TO SHAREHOLDERS (c) (d) Management Personnel approximately up to 1.5% of SSGL Shares in issue; and Sasmita Winata approximately 2% of SSGL Shares in issue. The above-mentioned shareholding percentages are based on the assumption that the Company becomes a wholly-owned subsidiary of the Offeror. 6. RATIONALE FOR THE OFFER AND FUTURE PLANS FOR THE COMPANY The rationale for the Offer and future plans has been extracted from the Offer Document and is set out in italics below. All terms and expressions used in the extract below shall have the same meanings as those defined in the Offer Document, unless otherwise stated. 6. RATIONALE FOR THE OFFER AND FUTURE PLANS FOR KSW As noted in paragraph 8 below, the Offeror is making the Offer with a view to delisting KSW from the SGX-ST and exercising any rights of compulsory acquisition. The Offeror believes that privatising KSW will give the Offeror and the Key Management more flexibility to manage the business of the Group and optimise the use of its management and capital resources and facilitate the implementation of any operational change. It is the intention of the Offeror that the Group will continue to develop and grow its existing business and distribution activities and pursue and develop investment opportunities (including acquisitions) across various geographical regions and such acquisitions may be funded by equity financing. Subject to normal business conditions, the Offeror does not intend to make changes to the Key Management and Management Personnel of KSW. However, it is anticipated that certain directors of KSW may resign from the board of KSW after the close of the Offer. As stated in paragraph 4.4 above, it is the intention of the Offeror that the Key Management and Management Personnel be retained to ensure continuity in the operations of KSW and to steer KSW s future growth and development. In the event it obtains control of KSW, the Offeror would undertake a strategic and operational review of the organisation, businesses and operations of the Group including reconstituting the board of directors, through participation in the board meetings and the management of KSW, with a view to realising growth potential. It is also anticipated that certain executives may leave the employment of KSW after the close of the Offer. Save as disclosed in this Offer Document, the Offeror currently has no intentions to introduce any major changes to (a) the business of KSW; (b) the deployment of fixed assets of KSW; or (c) the employment of the employees of the Group, other than in the ordinary course of business. Nonetheless, the Offeror retains the flexibility at any time to consider any options or opportunities which may present themselves and which it regards to be in the interests of the Offeror. Shareholders are urged to read this section carefully. 7. LISTING STATUS AND COMPULSORY ACQUISITION It is noted that the Offer Document states that the Offeror intends to make the Company its whollyowned subsidiary and does not intend to preserve the listing status of the Company. The full text of the compulsory acquisition and de-listing of the company has been extracted from the Offer Document and set out in italics below. All terms and expressions used in the extract below shall have the same meanings as those defined in the Offer Document, unless otherwise stated. 18

21 LETTER TO SHAREHOLDERS 8. LISTING STATUS AND COMPULSORY ACQUISITION 8.1 Trading Suspension and Listing Status Under the provisions of the Listing Manual, upon the announcement by the Offeror that valid acceptances have been received that bring the Shares owned by it and parties acting in concert with it to more than 90% of the total number of issued Shares excluding treasury shares, the SGXST may suspend the listing of the Shares in the Ready and Odd-Lots markets until it is satisfied that at least 10% of the total number of issued Shares excluding treasury shares are held by at least 500 Shareholders who are members of the public ( Free Float ). In addition, based on Rule 724 of the Listing Manual, if the percentage of the total number of issued Shares excluding treasury shares held in public hands falls to below 10%, the Company must, as soon as possible, announce that fact and the SGX-ST may suspend trading of all the Shares. Rule 725 of the Listing Manual states that the SGX-ST may allow the Company a period of three (3) months, or such longer period as the SGX-ST may agree, for the Free Float to be raised to at least 10%, failing which the Company may be de-listed. 8.2 Compulsory Acquisition Pursuant to Section 215(1) of the Companies Act, in the event the Offeror acquires not less than 90% of the Shares (other than those already held by the Offeror, its related corporations or their respective nominees as at the date of the Offer and excluding any Shares in the Company held as treasury shares), the Offeror would be entitled to exercise the right to compulsorily acquire all the Shares of the Shareholders who have not accepted the Offer at a price equal to the Offer Price. In addition, Shareholders who have not accepted the Offer have the right under and subject to Section 215(3) of the Companies Act to require the Offeror to acquire their Shares in the event that the Offeror, its related corporations and/or their respective nominees acquire not less than 90% of the Shares (excluding treasury shares). Shareholders who have not accepted the Offer and who wish to exercise their rights under Section 215(3) of the Companies Act are advised to seek their own independent legal advice. 8.3 Offeror s Intentions The Offeror intends to make the Company its wholly-owned subsidiary and does not intend to preserve the listing status of the Company. Accordingly, the Offeror when entitled, intends to exercise its rights of compulsory acquisition under Section 215(1) of the Companies Act in the manner as described in paragraph 8.2 above and does not intend to take steps for any trading suspension of the Shares by the SGX-ST in the manner described in paragraph 8.1 above to be lifted in the event that, inter alia, less than 10% of the Shares (excluding treasury shares) are held in public hands. 8. FINANCIAL ASPECTS OF THE OFFER The following information on the benchmarking of the Offer has been extracted from the Offer Document and is set out in italics below. All terms and expressions used in the extract below shall have the same meanings as those defined in the Offer Document, unless otherwise stated. 7. BENCHMARKING THE OFFER The information below relating to certain financial aspects of the Offer has been based on data extracted from publicly available sources. The Offer Price of S$0.438 for each Offer Share represents the following premium over the market prices of the Shares: 19

22 LETTER TO SHAREHOLDERS Description Share Price* (S$) Offer Price Premium over Share Price (%) (a) Last transacted price per Share on 29 September 2008, being the Latest Practicable Date (b) Last transacted price per Share on 18 September 2008 (being the last day on which the Shares were traded prior to the Offer Announcement Date) (c) VWAP for the one (1)-month period prior to the Offer Announcement Date (d) VWAP for the three (3)-month period prior to the Offer Announcement Date (e) VWAP for the six (6)-month period prior to the Offer Announcement Date (f) VWAP for the twelve (1)-month period prior to the Offer Announcement Date Note: *The figures set out in paragraph 7 of this Offer Document are based on the last done prices extracted from Bloomberg 9. ADVICE AND RECOMMENDATION OF THE INDEPENDENT DIRECTORS Shareholders should read and consider carefully the recommendations of the Independent Directors and the advice of DMG set out in the IFA Letter in its entirety before deciding whether or not to accept the Offer. The IFA Letter is set out in Appendix I to this Circular. Shareholders are also urged to read carefully the letter from PrimePartners to Shareholders contained in the Offer Document. 9.1 Key Considerations relied upon by DMG In arriving at its advice on the Offer, DMG has relief on the key considerations as set out in paragraph 10 of the IFA Letter and reproduced below. The considerations set out below should be considered in the context of the entirety of the IFA Letter. All capitalised terms in the analysis set out below shall have the same meanings as defined in the IFA Letter. 10. OUR RECOMMENDATION In arriving at our recommendation in respect of the Offer, we have taken into account the factors which we consider to have a significant bearing on our assessment which includes our analyses set out in earlier sections of the following: (a) (b) (c) (d) (e) Market quotation and trading activities of the Shares; Share price performance relative to selected market indices; NAV and Revalued NAV of the Group against the Offer Price; Valuation ratios of the Company implied by the Offer Price versus those of selected comparable listed companies; Comparison with the financial terms of selected concluded takeovers of companies listed on the SGX-ST; 20

23 LETTER TO SHAREHOLDERS (f) (g) Comparison with recent successful acquisitions of companies listed on various exchange and engaged in the shoe manufacturing business; and Other relevant considerations in relation to the Offer. 9.2 Advice of DMG to the Independent Directors on the Offer DMG has advised the Independent Directors to make the following recommendation to Shareholders in relation to the Offer, as set out in paragraph 10 of the IFA Letter and reproduced below: Based on the considerations set out in this letter and the information available to us as at the Latest Practicable Date, we are of the opinion that the financial terms of the Offer are fair and reasonable, from a financial point of view. Accordingly, our recommendation to the Independent Directors of the Company in respect of the Offer is that they should recommend the Shareholders to ACCEPT the Offer. 9.3 Recommendation of the Independent Directors In reaching the recommendation set out below, the Independent Directors have considered carefully, amongst other things, the terms of the Offer and the advice given by DMG in the IFA Letter. Having taken all of the above matters into consideration, the Independent Directors concur with the recommendation of DMG in respect of the Offer. Accordingly, the Independent Directors recommendation to Shareholders in respect of the Offer is set out in Section 9.2 above. In giving the above recommendation, the Independent Directors have not had regard to the general or specific investment objectives, tax position, financial situation, tax status, risk profiles or unique needs and constraints of any individual Shareholder. As different Shareholders would have different investment objectives and profiles, the Independent Directors would recommend that any individual Shareholder who may require advice in the context of his specific investment portfolio including his investment in the Company should consult his stockbroker, bank manager, solicitor, accountant, tax adviser or other professional adviser immediately. Shareholders should also note that DMG s opinion should not be relied upon by any Shareholder as the sole basis for deciding whether or not to accept the Offer. 10. ACTION TO BE TAKEN BY SHAREHOLDERS Shareholders wishing to accept the Offer must do so not later than 5.30 p.m. on 18 November 2008, or such later date(s) as may be announced from time to time by or on behalf of the Offeror, and should take note of the Procedures of Acceptance of the Offer as set out in Appendix V of the Offer Document. Shareholders who do not wish to accept the Offer should take no further action in respect of the Offer Document and the FAA and/or FAT which have been sent to them. 11. OVERSEAS SHAREHOLDERS The information on Overseas Shareholders has been extracted from the Offer Document and is set out in italics below. All terms and expressions used in the extract below shall have the same meanings as those defined in the Offer Document, unless otherwise stated. 10. OVERSEAS SHAREHOLDERS The availability of the Offer to Shareholders whose addresses are outside Singapore, as shown on the register of members of KSW or, as the case may be, in the records of CDP (each, an Overseas Shareholder ) may be affected by the laws of the relevant overseas 21

24 LETTER TO SHAREHOLDERS jurisdictions. Accordingly, any Overseas Shareholder should inform himself about and observe any applicable legal requirements. Where there are potential restrictions on sending this Offer Document, the FAAs and/or the FATs to any overseas jurisdiction, the Offeror and PrimePartners reserve the right not to send these documents to Shareholders in such overseas jurisdictions. For the avoidance of doubt, the Offer is open to all Shareholders, including those to whom this Offer Document, the FAAs and/or the FATs have not been, or may not be, sent. Copies of this Offer Document and any other formal documentation relating to the Offer are not being, and must not be, directly or indirectly, mailed or otherwise forwarded, distributed or sent in or into or from any jurisdiction where the making of or the acceptance of the Offer would violate the law of that jurisdiction ( Restricted Jurisdiction ) and will not be capable of acceptance by any such use, instrumentality or facility within any Restricted Jurisdiction and persons receiving such documents (including custodians, nominees and trustees) must not mail or otherwise forward, distribute or send them in or into or from any Restricted Jurisdiction. The Offer (unless otherwise determined by the Offeror and permitted by applicable law and regulation) will not be made, directly or indirectly, in or into, or by the use of mails of, or by any means or instrumentality (including, without limitation, telephonically or electronically) of interstate or foreign commerce of, or any facility of a national, state or other securities exchange of, any Restricted Jurisdiction, and the Offer will not be capable of acceptance by any such use, means, instrumentality or facilities. Overseas Shareholders may, nonetheless, obtain copies of this Offer Document, the FAAs, the FATs and any related documents, during normal business hours and up to the Closing Date, from the Offeror through its receiving agent, Boardroom Corporate & Advisory Services Pte. Ltd., at its office located at 3 Church Street #08-01, Samsung Hub, Singapore Alternatively, an Overseas Shareholder may write in to the Offeror through Boardroom Corporate & Advisory Services Pte. Ltd. at the address listed above to request for this Offer Document, the FAAs, the FATs and any related documents to be sent to an address in Singapore by ordinary post at the Overseas Shareholder s own risk, up to three (3) Market Days prior to the Closing Date. It is the responsibility of any Overseas Shareholder who wishes to (a) request for this Offer Document, the FAAs, the FATs and/or any related documents, or (b) accept the Offer, to satisfy himself as to the full observance of the laws of the relevant jurisdiction in that connection, including the obtaining of any governmental or other consent which may be required, and compliance with all necessary formalities or legal requirements and the payment of any taxes, imposts, duties or other requisite payments due in such jurisdiction. Such Overseas Shareholder shall be liable for any such taxes, imposts, duties or other requisite payments payable and the Offeror and any person acting on its behalf (including PrimePartners) shall be fully indemnified and held harmless by such Overseas Shareholder for any such taxes, imposts, duties or other requisite payments as the Offeror and/or any person acting on its behalf (including PrimePartners) may be required to pay. In (i) requesting for this Offer Document, the FAAs, the FATs and any related documents and/or (ii) accepting the Offer, the Overseas Shareholder represents and warrants to the Offeror and PrimePartners that he is in full observance of the laws of the relevant jurisdiction in that connection, and that he is in full compliance with all necessary formalities or legal requirements. Any Overseas Shareholder who is in any doubt about his position should consult his professional adviser in the relevant jurisdiction. The Offeror and PrimePartners each reserves the right to notify any matter, including the fact that the Offer has been made, to any or all Overseas Shareholders by announcement to the SGX-ST and if necessary, paid advertisement in a daily newspaper published and circulated in Singapore, in which case such notice shall be deemed to have been sufficiently given notwithstanding any failure by any Shareholder to receive or see such announcement or advertisement. 22

25 LETTER TO SHAREHOLDERS 12. INTEREST IN SHARES Save as disclosed below, as at the Latest Practicable Date, none of the Directors has an interest, direct or indirect, in the Shares. Direct Interest Deemed Interest Name of Director No. of Shares % No. of Shares % Frankie Chan Sian Lek Jimmy Chan Sen Fock David Chan Sian Kheong Chan Sen Meng Alex Teo Mui Kwang Lloyd Yeo Loy Kiang Bernard Chen Tien Lap 100, Patrick Chee Teck Kwong 50, Jen Shek Voon 250, DIRECTORS RESPONSIBILITY STATEMENT Save for the opinions expressed by the IFA as set out in this Circular, in the IFA Letter appended as Appendix I to this Circular and in its letter appended as Appendix VIII to this Circular, and the opinions expressed by the auditors of the Company in their letter appended as Appendix VII to this Circular, and the opinions expressed by the Valuers in the Valuation Report appended as Appendix X to this Circular, the Directors (including those who have delegated detailed supervision of this Circular) collectively and individually accept full responsibility for the accuracy of the information given in this Circular and confirm that, after having made all reasonable enquiries and 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 there are no material facts the omission of which would make any statement in this Circular misleading in any material respect. In respect of the IFA Letter and the Valuation Report appended as Appendices I and X respectively to this Circular, the sole responsibility of the Directors has been to ensure that the facts stated therein with respect to the Company are fair and accurate. In respect of the information extracted from the Offer Document, from published or otherwise publicly available sources, or obtained from the Offeror, the sole responsibility of the Directors has been to ensure that such information has been accurately and correctly extracted from such sources or, as the case may be, accurately reflected or reproduced in this Circular. The recommendation of the Independent Directors set out in Section 9.3 of the letter to Shareholders in this Circular is the sole responsibility of the Independent Directors. Yours faithfully For and on behalf of the Board of Directors of KING S SAFETYWEAR LIMITED Jimmy Chan Sen Fock Executive Director 23

26 APPENDIX I LETTER FROM DMG TO THE INDEPENDENT DIRECTORS OF KING S SAFETYWEAR LIMITED IN RESPECT OF THE OFFER 20 October 2008 The Board of Directors King s Safetywear Limited 22 Defu Lane 1 Singapore Dear Sirs: VOLUNTARY CONDITIONAL CASH OFFER BY PRIMEPARTNERS CORPORATE FINANCE PTE. LTD. ( PPCF ) FOR AND ON BEHALF OF SAFE STEP GROUP LTD ( SSGL OR THE OFFEROR ) TO ACQUIRE ALL THE ISSUED AND PAID-UP ORDINARY SHARES IN THE CAPITAL OF KING S SAFETYWEAR LIMITED ( KSW OR THE COMPANY ) OTHER THAN THOSE ALREADY HELD, DIRECTLY OR INDIRECTLY, BY THE OFFEROR AS AT THE DATE OF THE OFFER 1. INTRODUCTION We, DMG & Partners Securities Pte Ltd ( DMG ), have been appointed by the Company to advise the Independent Directors (as defined below) in connection with the voluntary conditional general cash offer by SSGL, as announced on 19 September 2008 (the Offer Announcement Date ) for all the issued ordinary shares (the Shares ) in the capital of the Company, other than those already held, directly or indirectly, by the Offeror as at date of the offer (each an Offer Share and collectively, the Offer Shares ) (the Offer ). Registered holders of the Offer Shares are referred to as Shareholders for the purpose of the Offer. DMG & Partners Securities Pte Ltd ( DMG ) has been appointed by the Company to advise the Independent Directors (as defined below) in connection with the Offer. All the directors of the Company (the Directors ) are considered to be independent for the purposes of making a recommendation to the Shareholders, in respect of the Offer. This letter sets out our evaluation and assessment of the financial terms of the Offer and our recommendation to the Independent Directors. This letter will form part of the circular dated 20 October 2008 (the Circular ) to be issued by the Company providing details of the Offer and the recommendations of the Independent Directors with regard to the Offer. Unless otherwise defined or the context otherwise requires, all terms defined in the Circular shall have the same meaning herein. 2. TERMS OF REFERENCE DMG has been appointed by the Company to provide an opinion regarding the Offer to the Independent Directors in compliance with the provisions of The Singapore Code on Take-overs and Mergers (the Code ). We have confined our evaluation and assessment to the financial terms of the Offer. Our terms of reference do not require us to evaluate, comment, advise or form a view on the commercial risks or merits of the Offer or the future prospects and earnings potential of the Company and its subsidiaries (the Group ) (other than the Statement of Prospects as set out in Appendix VI of the Circular). Such evaluation or comment, if any, remains the sole responsibility of the Directors and the management of the Company, although we may draw upon their views or make such comments in respect thereof to the extent deemed necessary or appropriate by us in arriving at our views as set out in this letter. We have not been instructed or authorised to solicit, and we have not solicited, any indications of interest from any third party with respect to the Offer 24

27 APPENDIX I LETTER FROM DMG TO THE INDEPENDENT DIRECTORS OF KING S SAFETYWEAR LIMITED IN RESPECT OF THE OFFER Shares. Accordingly, we do not compare nor express any opinion on the relative merits of the Offer vis-à-vis any alternative transactions previously considered by the Company or that may otherwise be available to the Company in the future. In evaluating the financial terms of the Offer, we have held various discussions with the Directors and management of the Company 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, both written and verbal, by the Directors, the management and the professional advisers of the Company (which includes its solicitors and auditors). We have not independently verified such information or representations, whether written or verbal, and therefore 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. However, we have made reasonable enquiries and exercised our judgment on the reasonable use of such information and found no reason to doubt the accuracy or reliability of such information. We have relied upon the assurances of the Directors and management of the Company that, upon making all reasonable inquiries and to the best of their respective knowledge, information and belief, all material information in connection with the Offer and/or the Company and/or the 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 and/or the 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. In evaluating the financial terms of the Offer and in arriving at our opinion thereon, we have not relied upon any financial projections or forecasts in respect of the Company and/or the Group. We are not required to express and we do not express any view on the growth prospects (other than the Statement of Prospects as set out in Appendix VI of the Circular) and earnings potential of the Company and/or the Group in connection with our opinion herein. Accordingly, we are not expressing any view herein as to the prices at which the Shares may trade in the absence of the Offer or if the Offer was not effected. Our advice and opinion as set out herein is based upon market, economic, industry, monetary and other conditions prevailing on, and the information provided to us as of 15 October 2008, being the latest practicable date prior to the printing of the Circular (the Latest Practicable Date ). Such conditions may change significantly over a relatively short period of time. 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 take note of any announcements relevant to their consideration of the Offer which may be released by the Company and/or the Offeror after the Latest Practicable Date. The Company has been separately advised by its own professional advisers in the preparation of the Circular (other than this letter and the Letter from DMG & Partners Securities Pte Ltd in respect of the Statement of Prospects). We have no role or involvement and have not provided any advice, financial or otherwise, whatsoever in the preparation, review and verification of the Circular (other than this letter and the Letter from DMG & Partners Securities Pte Ltd in respect of the Statement of Prospects). Accordingly, we take no responsibility for and express no views, express or implied, on the contents of the Circular (other than this letter and the Letter from DMG & Partners Securities Pte Ltd in respect of the Statement of Prospects). A copy of this letter may be reproduced in the Circular. However, neither the Company nor the Directors may reproduce, disseminate or quote this letter (or any part thereof) for any other purposes at any time and in any manner without the prior written consent of DMG in each specific case. Our advice in relation to the Offer should be considered in the context of the entirety of this letter and the Circular. 25

28 APPENDIX I LETTER FROM DMG TO THE INDEPENDENT DIRECTORS OF KING S SAFETYWEAR LIMITED IN RESPECT OF THE OFFER 3. TERMS AND CONDITIONS OF THE OFFER Shareholders should by now have received a copy of the Offer Document dated 6 October 2008 issued by PPCF, for and on behalf of the Offeror, setting out, inter alia, the terms and conditions of the Offer. Shareholders are advised to read the terms and conditions contained therein. Independent Directors should note that the latest practicable date referred to in the Offer Document is 29 September We reproduce below details of the Offer as set out in Section 2 of the Circular. THE OFFER Based on the Offer Document, the Offer for the Offer Shares will be made on the following terms and conditions: Offer Price For each Offer Share: S$0.438 in cash. Shares The Offer is extended, on the same terms and conditions, to: (a) (b) all the issued Shares owned, controlled or agreed to be acquired by parties acting in concert with the Offeror in connection with the Offer; and all new Shares unconditionally issued or to be issued pursuant to the valid exercise of Options on or prior to the close of the Offer. For the purposes of the Offer, the expression Offer Shares shall include such Shares. No Encumbrances The Offer Shares are to be acquired (a) fully-paid; (b) free from all liens, equities, mortgages, charges, encumbrances, rights of pre-emption and other third party rights and interests of any nature whatsoever; and (c) together with all rights, benefits and entitlements attached thereto as at the Offer Announcement Date and thereafter attaching thereto (including the right to receive and retain all dividends and other distributions (if any) which may be announced, declared, paid or made thereon by the Company on or after the Offer Announcement Date). Adjustment for Dividends If any dividend, other distribution or return of capital is declared, made or paid on or after the Offer Announcement Date, the Offeror reserves the right to reduce the Offer Price by the amount of such dividend, distribution or return of capital. Revision of Offer The Offeror does not intend to revise the Offer Price, except that the Offeror reserves the right to do so in a competitive situation. Offer Conditions The information on the Offer Conditions has been extracted from the Offer Document and is set out in italics below. All terms and expressions used in the extract below shall have the same meanings as those defined in the Offer Document, unless otherwise stated. 26

29 APPENDIX I LETTER FROM DMG TO THE INDEPENDENT DIRECTORS OF KING S SAFETYWEAR LIMITED IN RESPECT OF THE OFFER 2.3 Conditions of the Offer The Offer will be subject to the following conditions: (a) (b) the Offeror having received, by the close of the Offer, valid acceptances in respect of such number of Offer Shares which, together with the Shares owned, controlled or agreed to be acquired by the Offeror and parties acting in concert with it either before or during the Offer and pursuant to the Offer or otherwise, will result in the Offeror and parties acting in concert with it holding such number of Shares carrying more than 50% of the voting rights attributable to the issued share capital of the Company as at the close of the Offer (including any voting rights attributable to the Shares issued or to be issued pursuant to the valid exercise of Options on or prior to the close of the Offer); and the Undertaking Shareholders having performed and complied in all material respects with all undertakings, obligations and conditions of the Irrevocable Undertakings that they are required to perform and comply with. Accordingly, for the purposes of paragraph 2.3(a), the Offer will not become or be capable of being declared unconditional as to acceptances until the close of the Offer, unless at any time prior to the close of the Offer, the Offeror has received valid acceptances in respect of such number of Offer Shares which will result in the Offeror and parties acting in concert with it holding such number of Shares carrying more than 50% of the maximum potential issued share capital of the Company. For this purpose, the maximum potential issued share capital of the Company means the total number of Shares which would be in issue had all the Options been validly exercised as at the date of such declaration. If the condition in paragraph 2.3(b) is not fulfilled, it may be invoked by the Offeror only after consent has been obtained from the SIC. Warranty Acceptance of the Offer will be deemed to constitute an unconditional and irrevocable warranty by the accepting Shareholder that each Offer Share tendered in acceptance of the Offer is sold by the accepting Shareholder, as or on behalf of the beneficial owner(s) thereof, (a) fully-paid; (b) free from all liens, equities, mortgages, charges, encumbrances, rights of pre-emption and other third party rights and interests of any nature whatsoever; and (c) together with all rights, benefits and entitlements attached thereto as at the Offer Announcement Date and thereafter attaching thereto (including the right to receive and retain all dividends and other distributions (if any) which may be announced, declared, paid or made thereon by the Company on or after the Offer Announcement Date). 4. THE OPTIONS PROPOSAL Optionholders should have by now received the Options Letter. We reproduce below details of the Options Proposal as set out in Section 3 of the Offer Document. All terms and expressions used in the extract below shall have the same meaning as those defined in the Offer Document, unless otherwise stated. Outstanding Options As at the Latest Practicable Date, there are 13,892,000 Options granted under the Scheme. Options Not Transferable Under the rules of the Scheme, the Options are not transferable by the Optionholders. In view of this restriction, the Offeror will not make an offer to acquire the Options (although for the avoidance of doubt, the Offer will be extended to all new Shares unconditionally issued or to be 27

30 APPENDIX I LETTER FROM DMG TO THE INDEPENDENT DIRECTORS OF KING S SAFETYWEAR LIMITED IN RESPECT OF THE OFFER issued pursuant to the valid exercise of Options on or prior to the close of the Offer). Instead, PrimePartners will, for and on behalf of the Offeror, make a proposal to the Optionholders on the terms described in paragraph 3.3 below. Terms of the Options Proposal PrimePartners, for and on behalf of the Offeror, proposes, subject to: (a) (b) the Offer becoming or being declared unconditional; and the relevant Options continuing to be exercisable into new Shares, to pay the Optionholders a cash amount (determined as provided below) (the Option Price ) in consideration of such Optionholders agreeing: (i) (ii) not to exercise any of such Options into new Shares; and not to exercise any of their rights as Optionholders, in each case from the date of their acceptance of the Options Proposal to the respective dates of expiry of such Options. Further, if the Offer becomes or is declared unconditional, Optionholders who have accepted the Options Proposal will also be required to surrender all their Options for cancellation. If the Offer lapses or is withdrawn or if the relevant Options cease to be exercisable into new Shares, the Options Proposal will lapse accordingly. The Option Price is computed on a see-through basis. In other words, the Option Price in relation to any Option is the amount by which the Offer Price is in excess over the exercise price of that Option. A separate letter setting out more fully details of the Options Proposal will be despatched to the Optionholders no later than the date of despatch of this Offer Document. Offer and Options Proposal Mutually Exclusive For the avoidance of doubt, whilst the Options Proposal is conditional upon the Offer becoming or being declared unconditional, the Offer will not be conditional upon acceptances received in relation to the Options Proposal. The Offer and the Options Proposal are separate and mutually exclusive in this respect. The Options Proposal does not form part of the Offer, and vice versa. Without prejudice to the foregoing, if the Optionholders exercise their Options in order to accept the Offer in respect of the new Shares to be issued pursuant to such exercise, they may not accept the Options Proposal in respect of such Options. Conversely, if Optionholders wish to accept the Options Proposal in respect of their Options, they may not exercise those Options in order to accept the Offer in respect of the new Shares to be issued pursuant to such exercise. 5. IRREVOCABLE UNDERTAKINGS The information on the irrevocable undertakings has been extracted from Section 1.1 of the Offer Document and is set out in italics below. All terms and expressions used in the extract below shall have the same meanings as those defined in the Offer Document, unless otherwise stated. Irrevocable Undertakings On 19 September 2008, the Offeror received irrevocable undertakings ( Irrevocable Undertakings ) from certain Shareholders (collectively, the Undertaking Shareholders ) in favour of the Offeror to, inter alia, accept the Offer in respect of the Offer Shares of an aggregate of 154,000,110 Shares held by them representing approximately 69.45% of the issued share capital of KSW and (to the extent that they hold Options) accept the Options Proposal in respect of the Options of an aggregate of 4,163,000 Options held by them. The Irrevocable Undertakings will 28

31 APPENDIX I LETTER FROM DMG TO THE INDEPENDENT DIRECTORS OF KING S SAFETYWEAR LIMITED IN RESPECT OF THE OFFER lapse on the date on which the Offer lapses or is withdrawn. Appendix III of this Offer Document sets out certain additional information on the Irrevocable Undertakings and the Undertaking Shareholders. On 7 October 2008, the Offer became and was declared unconditional as to acceptances. The following information has been extracted from Section 2.6 of the Circular and is set out in italics below. On 7 October 2008, PrimePartners announced for and on behalf of the Offeror that as at 5.00pm on 7 October 2008, the total number of (a) Shares owned, controlled or agreed to be acquired by the Offeror, and (b) valid acceptances to the Offer, amounted to an aggregate of 148,980,110 Shares, representing approximately 67.19% of the issued share capital of the Company. In the same announcement, PrimePartners also mentioned that the said number of Shares is more than 50% of the maximum potential issued share capital of the Company, being the total number of Shares which would be in issued had all the Options been validly exercised. Accordingly, the Offer became and was thereby declared unconditional as to acceptances. 6. INFORMATION ON THE OFFEROR AND ARRANGEMENTS WITH THE MANAGEMENT OF THE COMPANY The information on the Offeror and arrangements with the management of the Company set out below in italics has been extracted from Section 4 of the Offer Document. All terms and expressions used in the extract below shall have the same meanings as those defined in the Offer Document, unless otherwise stated. The Offeror The Offeror is an investment holding company incorporated in the Republic of Mauritius on 29 August The Offeror has not carried on any business since its incorporation except to enter into certain arrangements ( Management Equity Arrangements ) with the Undertaking Shareholders and Key Management (as defined below) of the Company. Shareholder of the Offeror The sole shareholder of the Offeror is Safe Step Holdings Ltd ( SSHL ), a Mauritius-incorporated special purpose vehicle company. The Offeror intends to fund the Offer through Navis Fund V, L.P. and its parallel funds, Navis Asia Fund V (2), L.P., Navis Asia Fund V-E, L.P., and Navis Asia Fund V-S, L.P. (collectively, the Navis Funds ). Save for Navis Asia Fund V-S, L.P., the Navis Funds hold shares in SSHL for this purpose. It is the intention of the Offeror that Navis Asia Fund V-S, L.P. will hold shares in SSHL at a later date. The Navis Funds are exempted limited partnerships organized under the laws of the Cayman Islands. Navis Asia V Fund Management Company, Ltd. is the investment manager of the Navis Funds. Navis Asia V Fund Management Company, Ltd. is part of the Navis group, a private and public equity fund management group with offices in South East Asia, Hong Kong, India and Australia. The management team in the Navis group has extensive experience in private equity investments in various industries throughout the region. Appendix I of this Offer Document sets out certain additional information on the Offeror. Directors of the Offeror The directors of the Offeror are: (i) (ii) Rodney Chadwick Muse, a director of Navis; Jean-Christophe Michel Marti, a director of Navis; 29

32 APPENDIX I LETTER FROM DMG TO THE INDEPENDENT DIRECTORS OF KING S SAFETYWEAR LIMITED IN RESPECT OF THE OFFER (iii) (iv) (v) (vi) (vii) Jonathan Daryl Gartner, the Chief Adminstrative Officer of Navis; Srikala Janarhanan, the Group Financial Controller of Navis; Gerald Chiu Yoong Chian, an investment director of Navis; Boopendradas Sungker, a Mauritian resident director; and M. Aslam Koomar, a Mauritian resident director Management Equity Arrangements It is the intention and desire of the Offeror that the following key members of the management team (the Key Management ) of the Company continue their current functions in the Group: (a) (b) (c) (d) Frankie Chan Sian Lek, Executive Chairman of the Company; Alex Teo Mui Kwang, Executive Director and Chief Executive Officer of the Company; Lloyd Yeo Loy Kiang, Executive Director of the Company; and Darren Tan Wai Kang, Senior Vice President (Group Finance & Accounting) of the Company. Each of the Key Management has given an Irrevocable Undertaking in favour of the Offer or. Their obligations under the Irrevocable Undertaking include, inter alia, subscribing for shares in the Offeror ( SSGL Shares ) and applying 60% of the total proceeds that they receive for their Offer Shares and Options pursuant to the Offer and the Options Proposal (as the case may be) as consideration for the subscription. The obligation of each Key Management to pay for the new SSGL Shares in cash will be set off against the obligation of the Offeror to pay 60% of the Offer Price for his Offer Shares tendered in acceptance of the Offer and 60% of the Options Price for Options in respect of which the Options Proposal is accepted (as the case may be) (the Set-Off Amount ). The Offeror also proposes to extend the Management Equity Arrangements to other members of the management team of the Group (the Management Personnel ) with the primary objective of retaining their services following the close of the Offer by: (i) (ii) making available an opportunity (but not obligation) for the Management Personnel to apply up to 60% of the proceeds they receive for their Offer Shares and Options pursuant to the Offer and Options Proposal (as the case may be) towards acquisition of SSGL Shares from SSHL; and making available an opportunity (but not obligation) for Sasmita Winata, the Group s managing director for Indonesia Sales and director of one of its Indonesian subsidiaries, to further acquire up to 2% of SSGL Shares from SSHL, in addition to the opportunity to acquire as set out in paragraph 4.4(i) above, as Offeror believes Sasmita Winata plays a critical role in the Group s Indonesian operations with the Indonesian business forming a significant part of the Group s business. In addition, the Offeror also intends to make available the opportunity for the Key Management, the Management Personnel and other employees of the Group (collectively, the Participants ) to participate in a management incentive plan (the MIP ) to be established by the board of SSGL following the close of the Offer, pursuant to which fully paid SSGL Shares will be transferred from SSHL to the Participants. The SIC has confirmed that the Management Equity Arrangements as described in this paragraph 4.4 does not constitute special deals for the purposes of the Code. 30

33 APPENDIX I LETTER FROM DMG TO THE INDEPENDENT DIRECTORS OF KING S SAFETYWEAR LIMITED IN RESPECT OF THE OFFER Resultant Position It is envisaged that following the close of the Offer and the implementation of the Management Equity Arrangements (excluding the MIP), the shareholding in the Offeror will be as follows: (a) (b) (c) (d) SSHL at least 86.0% of SSGL Shares in issue; Key Management approximately 10.5% of SSGL Shares in issue; Management Personnel approximately up to 1.5% of SSGL Shares in issue; and Sasmita Winata approximately 2% of SSGL Shares in issue. The above-mentioned shareholding percentages are based on the assumption that the Company becomes a wholly-owned subsidiary of the Offeror. 7. INFORMATION ON THE COMPANY The information on the Company is set out in Appendix II of the Circular and the audited financial statements of the Group for FY2007 and the unaudited results for the Group for the half-year ended 30 June 2008 are set out in Appendix IV and V to this Circular respectively. 8. THE RATIONALE FOR THE OFFER AND FUTURE PLANS FOR THE COMPANY The rationale for the Offer and future plans for the Company have been extracted from Section 6 of the Offer Document and set out in italics below. All terms and expressions used in the extract below shall have the same meaning as those defined in the Offer Document, unless otherwise stated. As noted in paragraph 8 below, the Offeror is making the Offer with a view to delisting KSW from the SGX-ST and exercising any rights of compulsory acquisition. The Offeror believes that privatising KSW will give the Offeror and the Key Management more flexibility to manage the business of the Group and optimise the use of its management and capital resources and facilitate the implementation of any operational change. It is the intention of the Offeror that the Group will continue to develop and grow its existing business and distribution activities and pursue and develop investment opportunities (including acquisitions) across various geographical regions and such acquisitions may be funded by equity financing. Subject to normal business conditions, the Offeror does not intend to make changes to the Key Management and Management Personnel of KSW. However, it is anticipated that certain directors of KSW may resign from the board of KSW after the close of the Offer. As stated in paragraph 4.4 above, it is the intention of the Offeror that the Key Management and Management Personnel be retained to ensure continuity in the operations of KSW and to steer KSW s future growth and development. In the event it obtains control of KSW, the Offeror would undertake a strategic and operational review of the organisation, businesses and operations of the Group including reconstituting the board of directors, through participation in the board meetings and the management of KSW, with a view to realising growth potential. It is also anticipated that certain executives may leave the employment of KSW after the close of the Offer. Save as disclosed in this Offer Document, the Offeror currently has no intentions to introduce any major changes to (a) the business of KSW; (b) the deployment of fixed assets of KSW; or (c) the employment of the employees of the Group, other than in the ordinary course of business. Nonetheless, the Offeror retains the flexibility at any time to consider any options or opportunities which may present themselves and which it regards to be in the interests of the Offeror. 31

34 APPENDIX I LETTER FROM DMG TO THE INDEPENDENT DIRECTORS OF KING S SAFETYWEAR LIMITED IN RESPECT OF THE OFFER 9. FINANCIAL ASPECTS OF THE OFFER In evaluating and assessing the financial terms of the Offer, we have performed, inter alia, the following analyses which we consider pertinent in arriving at our recommendation as set out in Section 9 of this letter: (a) (b) (c) (d) (e) (f) (g) Market quotation and trading activities of the Shares; Share price performance relative to selected market indices; Net Asset Value ( NAV ) and Revalued NAV ( Revalued NAV ) of the Group against the Offer Price; Valuation ratios of the Company implied by the Offer Price versus those of selected comparable listed companies; Comparison with the financial terms of selected concluded takeovers of companies listed on the SGX-ST; Comparison with recent successful acquisitions of companies listed on various exchange and engaged in the shoe manufacturing business; and Other relevant considerations in relation to the Offer. 9.1 Market quotation and trading activities of the Shares We have compared Offer Price against the historical prices of the Shares. We set out below a chart showing the Offer Price relative to daily closing prices and trading volumes of the Shares during the period from 20 September 2007 (being 12 months prior to the Offer Announcement Date) to the Latest Practicable Date: Of f er Announcement Date 19 September ,000 5,000 Share Price (S$) Offer Price S$ ,000 3,000 2,000 1,000 Daily Volume Traded (thousands) Source: Bloomberg 32

35 APPENDIX I LETTER FROM DMG TO THE INDEPENDENT DIRECTORS OF KING S SAFETYWEAR LIMITED IN RESPECT OF THE OFFER Set out in the table below is a summary of the salient announcements made by the Company for the period from 20 September 2007 (being 12 months prior to the Offer Announcement Date) to the Latest Practicable Date. The table below is to be read in the context of the chart above. Date Event 9 January 2008 The Company announced the appointment of Ms Barbara Lehnert-Bauckhage as an Executive Officer of the Company. 20 February 2008 The Company announced its unaudited financial results for the year ended 31 December Net profit after tax increased from S$5,090,000 for the financial year ended 2006 to S$7,286,000 for the financial year ended 31 December August 2008 The Company announced its unaudited financial results for the six months ended 30 June Net profit after tax increased from S$3,573,000 for the six months ended 30 June 2007 to S$5,824,000 for the six months ended 30 June September 2008 Offer Announcement. Source: SGX-ST announcements made by the Company We have compared the Offer Price against the volume weighted average prices ( VWAP ) for selected reference periods both prior to and after the Announcement Date as set out in the table below. Reference Periods Periods prior to the Offer Announcement Date VWAP (1) (S$) Premium of Offer Price over VWAP (%) From 20 September Last 6 months Last 3 months Last 1 month Last transacted price for the market day immediately prior to the Offer Announcement Date (2) Periods after the Offer Announcement Date Last transacted price for the market day immediately after the Offer Announcement Date Between the market day immediately after the Offer Announcement Date and the Latest Practicable Date (3) Last transacted price on the Latest Practicable Date (4) 0.69 Source: Bloomberg Notes: (1) The VWAP is weighted based on the transacted prices of the Shares for the trading days in the respective periods. (2) This is the closing price of the Shares as at 18 September 2008, being the market day immediately prior to the Offer Announcement Date. 33

36 APPENDIX I LETTER FROM DMG TO THE INDEPENDENT DIRECTORS OF KING S SAFETYWEAR LIMITED IN RESPECT OF THE OFFER (3) This is the closing price of the Shares as at 20 September 2008, being the market day immediately after the Offer Announcement Date. (4) This is closing price of the Shares as at 15 October 2008, being the Latest Practicable Date. The key observations in respect of the above are highlighted below: (a) (b) (c) (d) (e) (f) During the period from 20 September 2007 to the Latest Practicable Date, the Shares have closed between a low of S$0.225 and a high of S$0.430; The Offer Price represents a premium of 26.96%, 24.08%, 15.57% and 12.89% to the VWAP for the period from 20 September 2007, 6-month, 3-month and 1-month periods prior to the Announcement Date respectively; The Offer Price represents a premium of 14.06% to the last transacted price for the market day immediately prior to the Offer Announcement Date; The Offer Price represents a premium of 4.78% to the last transacted price for the market day immediately after the Offer Announcement Date; The Offer Price represents a premium of 2.82% to the VWAP for the period between the market day immediately after the Offer Announcement Date and the Latest Practicable Date; The Offer Price represents a premium of 0.69% to the last transacted price as at the Latest Practicable Date. The past trading performance of the Shares should not in any way be relied upon as an indication of the future trading performance of the Shares. The table below shows the average daily traded volume of the Shares for the selected reference periods. Reference Periods Periods prior to the Announcement Date Average Daily Trading Volume (1) Approximate Percentage of Free Float (2) (%) From 20 September , Last 6 months 322, Last 3 months 273, Last 1 month 392, The market day immediately prior to the Announcement Date 1,079, Periods after the Announcement Date The market day immediately after the Announcement Date 4,805, Between the market day immediately after the Announcement Date and the Latest Practicable Date 1,113, On the Latest Practicable Date 194, 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 over the same period. 34

37 APPENDIX I LETTER FROM DMG TO THE INDEPENDENT DIRECTORS OF KING S SAFETYWEAR LIMITED IN RESPECT OF THE OFFER (2) Free Float refers to approximately 66,747,000 Shares or approximately 30.20% of the issued share capital of the Company held by the public as at 12 March 2008 as disclosed in the annual report of the Company for FY2007. The key observations in respect of the above are highlighted below: (a) (b) (c) (d) During the period from 20 September 2007 to the Offer Announcement Date, trading liquidity of the Shares had been low. The Shares were traded with an average trading liquidity of approximately 254,530 Shares (or approximately 0.381% of Free Float); The volume of Shares traded on the market day immediately prior to the Offer Announcement Date was approximately 1,079,000 (or 1.617% of Free Float); The volume of Shares traded on the market day immediately after the Offer Announcement Date was approximately 4,805,000 (or 7.199% of Free Float); and The volume of Shares traded on 15 October 2008 (being the Latest Practicable Date) was 194,000 (or 0.291% of Free Float). We note however that in the last 12 months preceding the Offer Announcement Date, the absolute volume of trades made on average in the Shares is low compared to the Company s issued share capital. 9.2 Share price performance relative to selected market indices To assess the market price performance of the Share vis-à-vis the general price performance of the Singapore equity market, we have compared the daily closing price of the Shares against the Straits Times Index ( FSSTI ) for the period from 20 September 2007 (being 12 months prior to the Offer Announcement Date) to the Offer Announcement Date. The FSSTI is an index comprising the top 30 SGX Mainboard listed companies selected by full market capitalisation. The chart below sets out the daily closing prices of the Shares and the FSSTI that are indexed relative to their respective closing share price from 20 September 2007 (being 12 months prior to the Offer Announcement Date) to the Offer Announcement Date. Normalised Price Sep Aug Jul Jun May Apr Mar Feb Jan Dec Nov Oct Sep-07 FSSTI Company Source: Bloomberg We note that on a normalised basis, the Company s share price has generally performed in line with the FSSTI for the period from 20 September 2007 up to 20 April 2008 whereby the Company s share price subsequently outperformed the FSSTI. 35

38 APPENDIX I LETTER FROM DMG TO THE INDEPENDENT DIRECTORS OF KING S SAFETYWEAR LIMITED IN RESPECT OF THE OFFER 9.3 NAV and Revalued NAV of the Group against the Offer Price NAV Based on the Group unaudited consolidated financial statements for HY2008, the unaudited NAV of the Group as at 30 June 2008 was approximately S$47.73 million or approximately S$0.215 per Share. The Offer Price represents a premium of approximately % over the NAV per Share of the Group as at 30 June Revalued NAV In our evaluation of the financial terms of the Offer, we have also considered whether there are any assets which should be valued at an amount that is materially different from that which is recorded in the unaudited consolidated balance sheet of the Group as at 30 June To obtain an estimate of the Revalued NAV of the Group as at 30 June 2008, we have relied upon KSW s unaudited consolidated financial statement as at 30 June 2008 as a base and made the appropriate adjustments (based on information provided by the Company). We have also relied on the letter from Brand Finance Consultancy (Singapore) Private Limited, which can be found in Appendix X. Save as stated below, the other assets of the Group have not been revalued for the purpose of determining the Revalued NAV of the Group. The Company has confirmed the open market value for the following properties. Description of the properties Open market value (S$ million) Net revaluation surplus on properties after potential tax liabilities (1) (S$ million) 22 Defu Lane 1, Singapore Singapore No. 1 Jalan Permas 9/14, Bandar Baru Permas Jaya, Masal. Johor Darul Takzim Malaysia Premises Nos. 22 & 24, Jalan Metro Perdana Barat 8, Sri Edaran Light Industrial Park, Kepong, Kuala Lumpur Malaysia Latrade Industrial Park (Block G Lot 1, 2, 3, 4), Sungai Binti Street, Tanjung Uncang, Batu Aji, Batam, Indonesia Xantener Strasse 6, D M lheim an der Ruhr, Germany Louredo de Cima, Selho de Sao Loureno, Apartado 445, , Guimaraes, Portugal Notes: (1) The potential tax effects arising from the hypothetical sale of the revalued property are computed by the management of the Company. For the purpose of the computation, the open market values are taken to be the hypothetical sales proceeds arising from the disposal of the revalued property. 36

39 APPENDIX I LETTER FROM DMG TO THE INDEPENDENT DIRECTORS OF KING S SAFETYWEAR LIMITED IN RESPECT OF THE OFFER The Group had commissioned Brand Finance Consultancy (Singapore) Private Limited ( Brand Finance ) to perform an independent valuation on the Company s King s and Otter brands ( Trademarks ). The valuation is carried out based on the Relief from Royalty method. Based on Brand Finance s analysis, the estimated fair value of the Group s King s and Otter trademarks is S$22.96 million and S$7.19 million respectively, amounting to a total of S$ million. As the trademark is intangible in nature, there is no assurance that the Company will be able to sell its Trademarks at above value. For illustrative purposes, we have computed the Revalued NAV of the Company based on the gains from the properties (net of tax liabilities) as mentioned above and Trademarks. S$ million Unaudited NAV as at 30 June 2008 (1) Net revaluation surplus on the properties after potential tax liabilities 6.68 Trademarks (2) Revalued NAV as at 30 June Revalued NAV per Share as at 30 June Premium of the Offer Price over the Revalued NAV per Share as at 30 June % Notes: (1) Based on KSW s HY2008 unaudited consolidated financial statements. (2) Based on valuation report from Brand Finance Consultancy (Singapore) Private Limited. Please refer to Appendix X of the Circular for the valuation report. The Offer Price represents a premium of approximately 15.0% over the Revalued NAV per Share of the Group as at 30 June 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 other assets and their respective book values as at 30 June 2008 which would have a material impact on the Revalued NAV of the Group. The Directors have confirmed to us that there have been no material acquisitions and disposals of assets by the Group, its joint venture companies and its associated companies since 30 June 2008 up to the Latest Practicable Date. Further, the Directors have also confirmed to us that to the best of their knowledge and belief, other than that already provided for or disclosed in the Company s audited consolidated financial statements for the year ended 30 June 2008, there are no other contingent liabilities which are likely to have a material impact on the NAV of the Group as at the Latest Practicable Date. 9.4 Valuation ratios of the Company implied by the Offer Price versus those of selected comparable listed companies In considering what may be regarded as a reasonable range of valuation for the purpose of accessing the financial terms of the Offer, we have referred to selected companies listed and traded on a relevant stock exchange, with business operations that are broadly comparable with those of the Group, in order to provide an indication of the current market expectations with regards to the perceived valuation of such businesses. For the purpose of evaluating the reasonableness of the Offer, we have reviewed the valuation statistics of the Group implied by the Offer Price and compared them with companies involved in the manufacturing of shoes and have generally excluded shoe manufacturing companies that target 37

40 APPENDIX I LETTER FROM DMG TO THE INDEPENDENT DIRECTORS OF KING S SAFETYWEAR LIMITED IN RESPECT OF THE OFFER the sports wear and fashion wear market segments. These companies that are listed on the Asia- Pacific (excluding Japan) stock exchanges which, in our opinion and after consultation with the Company, can be used for purposes of comparison (the Selected Comparable Companies ). We recognise that there is no company or group listed on any relevant stock exchange which may be considered identical to the Group in terms of business activities, market capitalisation, scale of operations, risk profile, geographical spread of activities, track record and future prospects. In addition, each of the Selected Comparable Companies is a listed company which may engage in various and separate business activities, of which the business of manufacturing shoes accounts for only part of its business activities. Comparisons made may be affected, inter alia, by differences in their accounting policies. Our analysis has not attempted to adjust for such differences. Any comparison made herein is therefore strictly limited in scope and serves solely for illustration purposes only. Shareholders should note that the valuation statistics of the Group implied by the Offer Price may not be directly comparable with that of the Selected Comparable Companies. Selected Comparable Companies Description of the business activities of the Selected Comparable Companies Market Capitalization as at the Latest Practicable Date (S$ million) Bata Shoe of Thailand Public Co. Limited (listed on Thailand Stock Exchange) Manufactures and distributes rubber, leather, and microloan sandals and shoes Daphne International Holdings Limited (listed on Hong Kong Stock Exchange) Kingmaker Footwear Holdings Limited (listed on Hong Kong Stock Exchange) Manufactures and markets footwear products Manufactures, trades and distribute shoes Mirza International Limited (listed on India Stock Exchange) Pan Asia Footwear PCL (listed on Thailand Stock Exchange) PT Sepatu Bata Tbk (listed on Indonesia Stock Exchange) Manufactures and distributes footwear and related apparel. Manufactures leather and distributes athletic shoes and casual shoes. Manufactures leather, canvas, and sport shoes. The company also manufactures sandals, slippers, and industrial safety footwear Source: Bloomberg 38

41 APPENDIX I LETTER FROM DMG TO THE INDEPENDENT DIRECTORS OF KING S SAFETYWEAR LIMITED IN RESPECT OF THE OFFER For the purpose of our analyses, we have included the following valuation statistics: Valuation ratio P/E P/NAV General Description P/E or price-to-earnings ratio illustrates the ratio of the market price of a company s shares relative to its earnings per share. The P/E ratio is affected by, inter alia, the capital structure of a company, its tax position as well as its accounting policies relating to depreciation and intangible assets. P/NAV or price-to-book net asset value ratio illustrates the ratio of the market Capitalization of a company relative to its audited historical book net asset value. P/E Comparison Share Price (1) Historical EPS/ (LPS) (2) Historical PER (S$) (S$) (Times) Bata Shoe of Thailand Public Co. Limited (3) (3) 7.65 Daphne International Holdings Limited (4) (4) 8.44 Kingmaker Footwear Holdings Limited (4) (4) 9.33 Mirza International Limited (5) (5) (7) Pan Asia Footwear PCL (3) (0.019) (3) n.m (8) PT Sepatu Bata Tbk (6) (6) 7.33 High 9.33 Mean 8.19 Median 8.44 Low 7.33 Company (9) Source: Bloomberg and the respective published annual reports of the Company and the Selected Comparable Companies Notes: (1) Based on the closing price of the Selected Comparable Companies as at the Latest Practicable Date. (2) EPS = Earnings per share. LPS = Loss per share. The historical EPS or LPS of the companies were obtained from their respective latest annual reports. (3) Based on the conversion rate of S$1: THB as at Latest Practicable Date. (4) Based on the conversion rate of S$1: HKD as at Latest Practicable Date. (5) Based on the conversion rate of S$1: INR as at Latest Practicable Date. (6) Based on the conversion rate of S$1: IDR 6, as at Latest Practicable Date. (7) Mirza International Limited PER multiple is deemed as statistical outlier and has been excluded from the mean, median and range analysis. (8) Pan Asia Footwear PCL made a loss in its most recent financial year and hence its PER is not meaningful. (9) Based on the FY2007 audited profit after tax of S$7.3 million. Based on the above, we note that the PER of times for the Company as implied by the Offer Price is above the mean and median, and within the range of the PER of the Selected Comparable Companies. 39

42 APPENDIX I LETTER FROM DMG TO THE INDEPENDENT DIRECTORS OF KING S SAFETYWEAR LIMITED IN RESPECT OF THE OFFER P/NAV Comparison Selected Comparable Companies Share Price (1) (S$) NAV/Share (2) (S$) P/NAV (times) Bata Shoe of Thailand Public Co. Limited (3) (3) 0.53 Daphne International Holdings Limited (4) (4) 2.32 Kingmaker Footwear Holdings Limited (4) (4) 0.65 Mirza International Limited (5) (5) 0.71 Pan Asia Footwear PCL (3) (3) 0.33 PT Sepatu Bata Tbk (6) (6) 1.22 High 2.32 Mean 0.96 Median 0.68 Low 0.33 Company (7) 2.09 Source: Annual reports of the Company and the Selected Comparable Companies Notes: (1) Based on the closing price of the Selected Comparable Companies as at the Latest Practicable Date. (2) NAV figures are based on the latest available published financial statements as at the Latest Practicable Date. NAV excludes minority interests. (3) Based on the conversion rate of S$1: THB as at Latest Practicable Date. (4) Based on the conversion rate of S$1: HKD as at Latest Practicable Date. (5) Based on the conversion rate of S$1: INR as at Latest Practicable Date. (6) Based on the conversion rate of S$1: IDR 6, as at Latest Practicable Date. (7) NAV per share is based on the FY2007 audited net asset value of S$46.5 million. Based on the above, we note that both the P/NAV implied by the Offer Price of 2.09 times is above the mean and median, and the within the range of the P/NAV of the Selected Comparable Companies. 9.5 Comparison with the financial terms of selected concluded takeovers of companies listed on the SGX-ST We have included a comparison with selected completed/closed takeover offers for companies listed on the SGX-ST announced during the 12-month period prior to the Offer Announcement Date which share the same characteristics with the Offer, i.e. where the Offeror does not intend to preserve the listing status of the Company on the SGX-ST (the Selected Takeovers ). Accordingly, we have excluded offers that were non cash, partial offers, and offers which were announced but not completed. For the takeovers which we have excluded for purpose of our comparison, the financial terms of their offers could possibly include different rationale, valuation and terms that are more or less aligned with the respective intentions of the offerors. We also wish to highlight that the list of Selected Takeovers is by no means exhaustive and has been compiled based on publicly available information as at the Latest Practicable Date. In making the comparison herein, we wish to highlight that the Selected Takeovers selected and covered herein are not directly comparable to the Group and may largely differ from the Group in terms of, inter alia, size and scale of operations, composition of business activities and 40

43 APPENDIX I LETTER FROM DMG TO THE INDEPENDENT DIRECTORS OF KING S SAFETYWEAR LIMITED IN RESPECT OF THE OFFER specialisation, asset base, geographical spread, track record, financial performance, capital structure, operating and financial leverage, risk profile, liquidity, accounting policies, future prospects and other relevant criteria. In addition, Independent Directors should note that the level of premium (if any) an acquirer would normally pay for acquiring a listed company (as the case may be) varies in different circumstances depending on, inter alia, the attractiveness of the underlying business to be acquired, the synergies to be gained by the acquirer from its investment in the target company, the possibility of a significant revaluation of the assets to be acquired, the availability of substantial cash reserves, the liquidity in the trading of the target company s shares, the presence of competing bids for the target company, the extent of control the acquirer already has in the target company and prevailing market expectations. Consequently, each Selected Takeover has to be judged on its own merits (or otherwise). Accordingly, the Independent Directors should note that the comparison below merely serves as a general guide to provide an indication of the premium or discount in connection with the Selected Takeovers. Conclusions drawn from the comparisons made may not necessarily reflect any perceived market valuation for the Company. Any comparison made herein is therefore strictly limited in scope and serves solely for illustration purposes only. Premium of the Offer Price to Companies Last transacted Date of market price prior announcement of to announcement offer (%) 1-month VWAP prior to announcement (%) 3-month VWAP prior to announcement (%) PER P/NAV Labroy Marine Limited 29-Oct Frontline Technologies 5-Dec Corp Limited Sincere Watch Limited (1) 7-Dec The Ascott Group Limited 8-Jan Robinson & Co. Ltd (2) 20-Jan China Education Limited 1-Feb Sing Lun Holdings 30-Mar Limited (3) Unisteel Technology 7-Jun Limited (4) SNP Corporation Ltd (5) 10-Jun Pokka Corporation (Singapore) Limited (6) 13-Jun High Mean Median Low Company 19 September Source: SGX announcements, offer documents and circulars of the respective Selected Takeovers and Bloomberg Notes: (1) On 7 December 2007, a pre-conditional voluntary conditional offer for Sincere Watch Limited was announced. The offer price for each share in Sincere Watch Limited was S$2.051 in cash and new share in the capital of Peace Mark Holdings Limited (a company listed on Hong Kong Exchange) at the issue price of HK$ each, equivalent to a total notional value of S$ The computations in the table above were based on such notional value and over the relevant periods prior to the pre-conditional offer announcement on 7 December

44 APPENDIX I LETTER FROM DMG TO THE INDEPENDENT DIRECTORS OF KING S SAFETYWEAR LIMITED IN RESPECT OF THE OFFER At the close of the offer on 18 March 2008, as a result of acceptance of the offer, the public float in Sincere Watch Limited had fallen below 10% and consequently, its shares were suspended since 19 March The offeror had then stated that it intended to preserve the listing status of Sincere Watch Limited and would take steps to restore public float. However, on 27 March 2008, the offeror announced that it had changed its intention and would seek the SIC s consent for the compulsory acquisition of Sincere Watch Limited. On 28 April 2008, the offeror announced that SIC had rejected the application. On 8 August 2008, Sincere Watch Limited was de-listed from the Main Board of the SGX-ST. (2) On 20 January 2008, the offeror announced that it intended to make a voluntary conditional cash offer for the shares in the capital of Robinson and Company, Limited at a price of S$6.25. Subsequently, the offeror increased the offer price to S$7.00 on 17 March 2008, and to S$7.20 on 3 April The market premia in the table above, as extracted from the relevant circular were computed based on the final offer price of S$7.20 and market prices prior to the first offer announcement on 20 January In computing the premium of the offer price over the last transacted price, the last transacted price on 18 January 2008 had been adjusted for interim dividend declared. (3) On 24 March 2008, Sing Lun Holdings Limited announced that it had been informed that certain parties were engaged in discussions to consider making a general offer for the Shares. On 30 March 2008, the voluntary conditional cash offer was announced. The market premia in the table above were computed based on prices prior to the holding announcement on 24 March (4) On 15 April 2008, Unisteel Technology Limited announced that it had been informed that certain parties were engaged in discussions to consider making a general offer for the shares. On 30 March 2008, Unisteel Technology Limited released several holdings announcements. The market premia in the table above, as extracted from the relevant circular, were computed based on prices prior to 15 April (5) On 18 April 2008, SNP Corporation Ltd announced that it had been informed by Green Dot Capital Pte Ltd which owned approximately 54 per cent. of its issued share capital that it was evaluation its options with respect to such stake. The market premia in the table above were computed based on prices prior to the holding announcement on 18 April (6) On 13 June 2008, the offeror announced that it intends to make a voluntary unconditional cash offer for the shares in the capital of Pokka Corporation (Singapore) Limited at a price of S$0.66 for each share. Subsequently, the offeror increased the offer price to S$0.75 for each share on 15 August The computations in the table above, as extracted from the relevant circular, were computed based on the final offer price of S$0.75 for each share and market prices prior to the first offer announcement on 13 June We observe the following: (a) (b) (c) (d) (e) The Offer Price represents a premium of 14.1% to the last transacted market price of the Shares immediately prior to the Offer Announcement Date which is within the range of a premium of 3.4% and a premium of 65.1% and below the mean and median of a premium of 34.2% and 36.3% respectively as implied by the relevant offer prices in relation to the Selected Takeovers over the last transacted market price of the shares prior to their respective announcement dates; The Offer Price represents a premium of 12.9% to the VWAP for the 1-month period prior to the Offer Announcement Date which is within the range of a premium of 9.2% and a premium of 64.4% and below the mean and median of a premium of 36.9% and premium of 39.6% respectively as implied by the relevant offer prices in relation to the Selected Takeovers over the VWAP for the 1-month period prior to their respective announcement dates; The Offer Price represents a premium of 15.6% to the VWAP for the 3-month period prior to the Offer Announcement Date which is within the range of a premium of 2.3% and a premium of 73.6% and below the mean and median of a premium of 38.4% and premium of 37.9% respectively as implied by the relevant offer prices in relation to the Selected Takeovers over the VWAP for the 3-month period prior to their respective announcement dates; The PER of the Company implied in the Offer Price is within range but lower than the median and mean PER of companies under the list of Selected Takeovers; and The P/NAV ratio of the Company implied in the Offer Price is within range but lower than the median and mean P/NAV ratios of companies under the list of Selected Takeovers. 42

45 APPENDIX I LETTER FROM DMG TO THE INDEPENDENT DIRECTORS OF KING S SAFETYWEAR LIMITED IN RESPECT OF THE OFFER 9.6 Comparison with recent successful acquisitions of companies listed on various exchange and engaged in the shoe manufacturing business We have compared the valuation ratios of the Company as implied by the Offer against those of companies listed on various exchange and engaged in the manufacturing of shoes. We have excluded shoe manufacturing companies that target the sports wear and fashion wear market segments. These shoe manufacturing companies were successfully acquired and announced during the 24-month period prior to the Offer Announcement Date (the Comparable Transactions ). We wish to highlight that the list set out below is by no means exhaustive. In addition, as KSW is not directly comparable to the target companies in the Comparable Transactions in terms of scale of operations, market capitalisation, geographical spread, accounting policies, financial performance, operating and financial leverage, track record and future prospects, the comparison merely serves as a general guide to provide an indication of the premia/discounts paid to acquire a controlling interest in a company in the Comparable Transactions. Each Comparable Transaction must be judged on its own commercial and financial merits and any comparison made herein is strictly limited in scope and for illustration purposes only. Premium of the Offer Price to Companies Date of announcement of offer Last transacted market price prior to announcement (%) 1-month VWAP prior to announcement (%) 3-month VWAP prior to announcement (%) PER P/NAV Calcados Azaleia SA Wellco Enterprises, Inc 20-Dec-07 n.a (1) n.a (1) n.a (1) Feb High n.m n.m n.m Mean n.m n.m n.m Median n.m n.m n.m Low n.m n.m n.m Company 19 September Source: Bloomberg Notes: (1) Information on the historical share price of Calcados Azleia SA is not available. We observe the following: (a) (b) The Offer Price represents a premium of 14.1% to the last transacted market price of the Shares immediately prior to the Offer Announcement Date which is below the premium of 18.9% as implied by the offer price in relation to the acquisition of Wellco Enterprises, Inc ( Wellco ) over the last transacted market price of the shares prior to Wellco s announcement date; The Offer Price represents a premium of 12.9% to the VWAP for the 1-month period prior to the Offer Announcement Date which is below the premium of 20.2% as implied by the offer price in relation to the acquisition of Wellco over the VWAP for the 1-month period prior to Wellco s announcement date; 43

46 APPENDIX I LETTER FROM DMG TO THE INDEPENDENT DIRECTORS OF KING S SAFETYWEAR LIMITED IN RESPECT OF THE OFFER (c) (d) (e) The Offer Price represents a premium of 15.6% to the VWAP for the 3-month period prior to the Offer Announcement Date which is below premium of 23.2% as implied by the offer price in relation to the acquisition of Wellco over the VWAP for 3-month period prior to Wellco s announcement date; The PER of the Company implied in the Offer Price is within the range of the PER of companies under the list of Comparable Transactions; and The P/NAV ratios of the Company implied in the Offer Price is higher than the median and mean P/NAV ratios of companies under the list of Comparable Transactions. 9.7 Other relevant considerations in relation to the Offer Dividend track record of the company Set out below is also a summary of the dividend per Share declared in respect of each of FY2005, FY2006 and FY2007 by the Company. FY2005 FY2006 FY2007 Gross dividend per Share (cents) (1) (3) Gross dividend yield (%) (2) Source: Company s annual reports and Financial Statements and Dividends Announcement for FY2007 Notes: (1) Based on dividend declared in respect of each financial year. (2) Based on the Offer Price of S$ (3) Recommended by the Directors based on Financial Statements and Dividend Announcement for FY2007. As shown in the table above, the Company declared and paid dividends, or recommended for the previous three years with gross dividend yields of 1.37% and 2.51% and 2.97% for FY2005, FY2006 and FY2007 respectively. Independent Directors and Shareholders should note that the Offer Shares will be acquired fully paid and free from all liens, charges, pledges and other encumbrances and together with all rights, benefits and entitlements attached thereto as at the Offer Announcement Date and thereafter attaching thereto, including the right to all dividends, rights and other distributions (if any) declared, made or paid thereon on or after the Offer Announcement Date. For illustration purposes only, Shareholders who accept the Offer and choose to re-invest the cash proceeds in a 12-month Singapore Dollar fixed deposit account with local commercial banks (namely, DBS Bank, United Overseas Bank Limited and Oversea-Chinese Banking Corporation Limited) can expect to receive a gross interest income of approximately 0.925% per annum (based on the simple average of the 12-month fixed deposit rate for deposit amounts of at least S$50,000 with the three local commercial banks as quoted on the official website of the respective banks as at the Latest Practicable Date). On the basis of the gross dividends declared by the Company in respect of FY2005, FY2006 and FY2007 as set out in the table above, it is uncertain whether Shareholders will be able to increase their investment income by liquidating their investment in the Company and reinvesting their proceeds in fixed deposit accounts with the local commercial banks at the rates as described in the paragraph above. Independent Directors should note that an equity investment provides a fundamentally different risk-return profile as compared to that of a bank deposit, and therefore the above comparison serves purely as a guide only. It should be noted that the above analysis is made on a pre-tax basis and that it is not possible to make the same 44

47 APPENDIX I LETTER FROM DMG TO THE INDEPENDENT DIRECTORS OF KING S SAFETYWEAR LIMITED IN RESPECT OF THE OFFER analysis on a post-tax basis as this would vary, depending on the tax status of each individual Shareholder. Furthermore, it should also be noted that the above analysis ignores the effect of any potential capital gain or capital loss that may accrue to the Shareholders arising from their investment in the Shares due to market fluctuations in the price of the Shares during the relevant corresponding periods in respect of which the above dividend yields were analyzed. Additionally, no views are being expressed with regard to the future dividend policy of the Company and the Directors have confirmed that the Company does not have a formal dividend policy Outlook of the Group In the Company s recent half year results announcement for FY2008, the following commentary was made on significant trends and competitive conditions of the industry in which the Group operates: The global economic outlook has become more challenging since the beginning of 2008 due to inflationary pressures caused by steep increases in oil and commodity prices, a tighter credit environment and slower growth in the USA. While the weakening economic backdrop could affect demand from the Group s end-user markets in some of its geographical regions, the Group believes its well-diversified customer base and geographical exposure will continue to provide opportunities to grow its business in select markets. As such, the Group intends to continue with its global sales strategy. For existing markets, the Group aims to increase market share of its proprietary safety footwear brands by continually strengthening its sales and distribution management, and through constant product innovation to suit individual markets. At the same time, the Group will continue identifying and targeting new geographical and end-user markets with the relevant product range. Due to the global inflationary environment, raw material costs are widely expected to increase in 2H08. The Group is closely monitoring the price of raw materials to ensure it has sufficient supply at a reasonable price for its manufacturing operations. Barring any unforeseen circumstances, the Group expects to remain profitable in FY Offeror s intentions Information relating to the Offeror s intention of the Company have been extracted from Section 8.3 of the Offer Document and set out in italics below. All terms and expressions used in the extract below shall have the same meaning as those defined in the Offer Document, unless otherwise stated. Offeror s Intentions The Offeror intends to make the Company its wholly-owned subsidiary and does not intend to preserve the listing status of the Company. Accordingly, the Offeror when entitled, intends to exercise its rights of compulsory acquisition under Section 215(1) of the Companies Act in the manner as described in paragraph 8.2 above and does not intend to take steps for any trading suspension of the Shares by the SGX-ST in the manner described in paragraph 8.1 above to be lifted in the event that, inter alia, less than 10% of the Shares (excluding treasury shares) are held in public hands. 45

48 APPENDIX I LETTER FROM DMG TO THE INDEPENDENT DIRECTORS OF KING S SAFETYWEAR LIMITED IN RESPECT OF THE OFFER Trading suspension and listing status As at the Latest Practicable Date, the Offeror had announced that the total number of (a) Shares owned, controlled or agreed to be acquired by the Offeror, and (b) valid acceptances to the Offer, amount to an aggregate of 203,111,108 Shares, representing approximately 91.60% of the issued share capital of the Company. Shareholders should note that that the Free Float will fall below 10% after the close of the Offer. In such an event, pursuant to Rule 1105 of the Listing Manual, the SGX-ST may suspend the listing of the Shares in the Ready and Odd-Lots markets until such time is satisfied that at least 10% of the Shares in issue are held by at least 500 shareholders who are members of the public. Information relating to the listing status of the Company have been extracted from Section 8.1 of the Offer Document and set out in italics below. All terms and expressions used in the extract below shall have the same meaning as those defined in the Offer Document, unless otherwise stated. Trading Suspension and Listing Status Under the provisions of the Listing Manual, upon the announcement by the Offeror that valid acceptances have been received that bring the Shares owned by it and parties acting in concert with it to more than 90% of the total number of issued Shares excluding treasury shares, the SGX-ST may suspend the listing of the Shares in the Ready and Odd-Lots markets until it is satisfied that at least 10% of the total number of issued Shares excluding treasury shares are held by at least 500 Shareholders who are members of the public ( Free Float ). In addition, based on Rule 724 of the Listing Manual, if the percentage of the total number of issued Shares excluding treasury shares held in public hands falls to below 10%, the Company must, as soon as possible, announce that fact and the SGX-ST may suspend trading of all the Shares. Rule 725 of the Listing Manual states that the SGX-ST may allow the Company a period of three (3) months, or such longer period as the SGX-ST may agree, for the Free Float to be raised to at least 10%, failing which the Company may be de-listed Compulsory Acquisition Based on the above, the Offeror will be acquiring 90% or more of the Offer Shares pursuant to the Offer, the Offeror will be entitled to exercise the right of compulsory acquisition under Section 215(1) of the Act at the Offer Price. Information relating to the compulsory acquisition of the Company have been extracted from Section 8.2 of the Offer Document and set out in italics below. All terms and expressions used in the extract below shall have the same meaning as those defined in the Offer Document, unless otherwise stated. Compulsory Acquisition Pursuant to Section 215(1) of the Companies Act, in the event the Offeror acquires not less than 90% of the Shares (other than those already held by the Offeror, its related corporations or their respective nominees as at the date of the Offer and excluding any Shares in the Company held as treasury shares), the Offeror would be entitled to exercise the right to compulsorily acquire all the Shares of the Shareholders who have not accepted the Offer at a price equal to the Offer Price. In addition, Shareholders who have not accepted the Offer have the right under and subject to Section 215(3) of the Companies Act to require the Offeror to acquire their Shares in the event that the Offeror, its related corporations and/or their respective nominees acquire 46

49 APPENDIX I LETTER FROM DMG TO THE INDEPENDENT DIRECTORS OF KING S SAFETYWEAR LIMITED IN RESPECT OF THE OFFER not less than 90% of the Shares (excluding treasury shares). Shareholders who have not accepted the Offer and who wish to exercise their rights under Section 215(3) of the Companies Act are advised to seek their own independent legal advice Alternative offers from third parties The Directors have confirmed that, as at the Latest Practicable Date, apart from the Offer proposed by the Offeror, no alternative offers and/or proposals from any third party have been received Liquidity of Shares Should the Offer not result in the Company being de-listed and subject to the level of acceptance, the trading liquidity of the Shares would be adversely affected. 10. OUR RECOMMENDATION In arriving at our recommendation in respect of the Offer, we have taken into account the factors which we consider to have a significant bearing on our assessment which includes our analyses set out in earlier sections of the following: (a) (b) (c) (d) (e) (f) (g) Market quotation and trading activities of the Shares; Share price performance relative to selected market indices; NAV and Revalued NAV of the Group against the Offer Price; Valuation ratios of the Company implied by the Offer Price versus those of selected comparable listed companies; Comparison with the financial terms of selected concluded takeovers of companies listed on the SGX-ST; Comparison with recent successful acquisitions of companies listed on various exchange and engaged in the shoe manufacturing business; and Other relevant considerations in relation to the Offer. Based on the considerations set out in this letter and the information available to us as at the Latest Practicable Date, we are of the opinion that the financial terms of the Offer are fair and reasonable, from a financial point of view. Accordingly, our recommendation to the Independent Directors of the Company in respect of the Offer is that they should recommend the Shareholders to ACCEPT the Offer. In rendering our advice and giving our recommendation, we have not had regard to the general or specific investment objectives, financial situation, risk profiles, tax position or particular needs and constraints of any Shareholder. As different Shareholders have different investment profiles and objectives, we advise the Independent Directors to recommend that any Shareholder who may require specific advice in relation to the Offer consult his stockbroker, bank manager, solicitor, accountant, tax advisor or other professional advisor immediately. Directors and/or Shareholders should note that the trading of the Shares are subject to, inter alia, the performance and prospects of the Group, prevailing economic conditions, economic outlook and stock market conditions and sentiments. Accordingly, our advice on the Offer does not and cannot take into account future trading activities or patterns or price levels that may be established for the Shares after the Latest Practicable Date since these are governed by factors beyond the ambit of our review and also, such advice, if given, would not fall within our terms of reference in connection with the Offer. 47

50 APPENDIX I LETTER FROM DMG TO THE INDEPENDENT DIRECTORS OF KING S SAFETYWEAR LIMITED IN RESPECT OF THE OFFER Our recommendation is addressed to the Independent Directors for their benefit in connection with and for the purposes of their consideration of the Offer. Any recommendation made by the Independent Directors in respect of the Offer shall remain their responsibility. Our recommendation may not be used and/or relied on by any other person for any purpose at any time and in any manner except with our prior written consent in each specific case. Our recommendation is governed by the laws of Singapore, and is strictly limited to the matters stated in this letter and do not apply by implication to any other matter. 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 at any time and in any manner without the prior written consent of DMG in each specific case. This 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 DMG & Partners Securities Pte Ltd BRENDAN GOH DIRECTOR HEAD OF CORPORATE FINANCE TAY VON KIAN VICE PRESIDENT CORPORATE FINANCE 48

51 APPENDIX II GENERAL AND STATUTORY INFORMATION 1. DIRECTORS The names, addresses and appointments of the Directors as at the Latest Practicable Date are set out below: Name Address Appointment Frankie Chan Sian Lek Jimmy Chan Sen Fock David Chan Sian Kheong Chan Sen Meng 70 Sommerville Road Singapore Frankel Avenue Frankel Estate Singapore Robey Crescent Singapore Frankel Avenue Frankel Estate Singapore Executive Chairman Executive Director Executive Director Executive Director Alex Teo Mui Kwang 53 Simei Rise #07-46 Savannah Condopark Singapore Executive Director Lloyd Yeo Loy Kiang Bernard Chen Tien Lap Patrick Chee Teck Kwong Jen Shek Voon 60 Duchess Avenue #04-04 Singapore Mayflower Place Mayflower Gardens Singapore Jalan Mastuli Charlton Park Singapore Swettenham Road Singapore Executive Director Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director 2. HISTORY AND BUSINESS The Company was incorporated in Singapore on 6 March The constitution of the Company is defined in the Memorandum and Articles of Association of the Company. The Company was listed on the Main Board of the SGX-ST on 29 October The Company is principally engaged in the design, manufacture and sale of industrial safety footwear and personal protective equipment. The Company markets its industrial safety footwear under the King s and Otter brands. 49

52 APPENDIX II GENERAL AND STATUTORY INFORMATION 3. SHARE CAPITAL As at the Latest Practicable Date, the Company has only one class of shares, being ordinary shares. 3.1 Paid-up share capital As at the Latest Practicable Date No. of ordinary shares Amount (S$) Issued and fully paid-up 221,732,110 31,874, The Shares are quoted and listed on the Official List of the SGX-ST. 3.2 Rights of Shareholders in respect of capital, dividends and voting The rights of Shareholders in respect of capital, dividends and voting are contained in the Articles. The provisions in the Articles relating to the rights of Shareholders in respect of capital, dividends and voting are set out in Appendix IX of this Circular. 3.3 Number of shares issued since the end of the last financial year During the current financial year, the Company issued 866,000 ordinary shares upon the exercise of options granted under the ESOS. The share capital of the Company as at the end of the last financial year comprised 220,866,110 Shares. 3.4 Outstanding instruments convertible into, rights to subscribe for and options in respect of, securities being offered for or which carry voting rights affecting the Shares As at the Latest Practicable Date, there are outstanding Shares under Options for 13,892,000 shares granted under the ESOS. 3.5 Others Save as disclosed in this paragraph 3, as at the Latest Practicable Date, no new Shares have been issued since the end of the last financial year and there are no other outstanding instruments convertible into, rights to subscribe for, and options in respect of, new Shares or securities of the Company which carry voting rights affecting the Shares. 4. DISCLOSURE OF INTERESTS 4.1 Shareholdings (a) Interests of the Company in shares of the Offeror The Company does not have any direct or deemed interest in the shares, or securities which carry voting rights, or instruments convertible into or rights to subscribe for or options in respect of shares or securities which carry voting rights (collectively, convertible securities ) of the Offeror as at the Latest Practicable Date. (b) (c) Dealing in shares of the Offeror by the Company The Company has not dealt for value in the shares or convertible securities of the Offeror during the period commencing 6 months prior to 19 September 2008, being the date of the Offer Announcement, and ending on the Latest Practicable Date. Interests of Directors in Shares Save as disclosed in Section 12 of the letter to Shareholders in this Circular, none of the Directors has any direct or deemed interest in the Shares or convertible securities of the Company as at the Latest Practicable Date. 50

53 APPENDIX II GENERAL AND STATUTORY INFORMATION (d) Dealings in Shares by the Directors Save for the Directors who have tendered their acceptances of the Offer in respect of Shares legally and/or beneficially owned by them and save as disclosed below, none of the Directors has dealt for value in the Shares or convertible securities of the Company during the period commencing 6 months prior to 19 September 2008, and ending on the Latest Practicable Date. Directors Transaction Date Nature of transaction Shares bought Transaction Price per Share Frankie Chan Sian Lek 11 April 2008 Open market purchase 26 September 2008 Jimmy Chan Sen Fock 26 September 2008 David Chan Sian Kheong 26 September 2008 Chan Sen Meng 26 September 2008 Transferred from Chan Kee Tong & Sons Holdings Pte Ltd Transferred from Chan Kee Tong & Sons Holdings Pte Ltd Transferred from Chan Kee Tong & Sons Holdings Pte Ltd Transferred from Chan Kee Tong & Sons Holdings Pte Ltd Lloyd Yeo Loy Kiang 19 March 2008 Open market purchase 9 April 2008 Open market purchase 11 April 2008 Open market purchase 17 April 2008 Open market purchase 98,000 S$ ,927,027 S$ ,927,028 S$ ,927,027 S$ ,927,028 S$ ,000 S$ ,000 S$ ,000 S$ ,000 S$0.282 (e) Interests of Directors in shares of the Offeror Save for Frankie Chan Sian Lek, Alex Teo Mui Kwang and Lloyd Yeo Loy Kiang, who have or will have an interest in shares in the Offeror (further details of which are set out in Section 5 of the letter to Shareholders in this Circular), none of the Directors has any direct or deemed interest in the shares or convertible securities of the Offeror as at the Latest Practicable Date. (f) Dealings in shares of the Offeror by the Directors Save for Frankie Chan Sian Lek, Alex Teo Mui Kwang and Lloyd Yeo Loy Kiang, who have or will have an interest in shares in the Offeror (further details of which are set out in Section 5 of the letter to Shareholders in this Circular), none of the Directors has dealt for value in the shares or convertible securities of the Offeror during the period commencing six (6) months prior to 19 September 2008, being the date of the Offeror s Announcement, and ending on the Latest Practicable Date. (g) Interests of the IFA in Shares Neither DMG nor any funds whose investments are managed by DMG on a discretionary basis owns or controls any Shares as at the Latest Practicable Date. 51

54 APPENDIX II GENERAL AND STATUTORY INFORMATION (h) Dealings in Shares by the IFA None of DMG nor funds whose investments are managed by DMG on a discretionary basis has dealt for value in the Shares during the period commencing 6 months prior to 19 September 2008, being the date of the Offer Announcement, and ending on the Latest Practicable Date. 4.2 Directors Intentions On 19 September 2008, Alex Teo Mui Kwang has tendered his acceptance of the Offer in respect of the 1,027,000 Shares owned by him, representing approximately 0.46% of the Shares. On 19 September 2008, Jimmy Chan Sen Fock has tendered his acceptance of the Offer in respect of the 33,123,028 Shares owned by him, representing approximately 14.94% of the Shares. On 19 September 2008, David Chan Sian Kheong has tendered his acceptance of the Offer in respect of the 30,123,027 Shares owned by him, representing approximately 13.59% of the Shares. On 19 September 2008, Chan Sen Meng has tendered his acceptance of the Offer in respect of the 34,473,028 Shares owned by him, representing approximately 15.55% of the Shares. On 19 September 2008, Frankie Chan Sian Lek has tendered his acceptance of the Offer in respect of the 34,871,027 Shares owned by him, representing approximately 15.73% of the Shares. On 19 September 2008, Lloyd Yeo Loy Kiang has tendered his acceptance of the Offer in respect of the 2,002,000 Shares owned by him, representing approximately 0.90% of the Shares. It is the current intention of Bernard Chen Tien Lap, Patrick Chee Teck Kwong and Jen Shek Voon to accept the Offer in relation to their respective holdings of Shares. 4.3 Other Disclosures (a) Directors Service Contracts (i) save as disclosed below, there are no service contracts between any of the Directors with the Company or any of its subsidiaries which have more than twelve (12) months to run and which are not terminable by the employing company within the next twelve (12) months without paying any compensation; and (ii) there are no such contracts entered into or amended during the period commencing six (6) months prior to 19 September 2008, being the date of the Offer Announcement, and the Latest Practicable Date. Alex Teo Mui Kwang entered into a service contract with the Company on 1 January 2008, which took effect on 1 January 2008 (the AT Service Contract ). The AT Service Contract will expire on 31 December Except for grounds leading to immediate termination as stated therein, under the terms of the AT Service Contract, in the event that the Company terminates Alex Teo Mui Kwang s employment, the Company shall pay to Alex Teo Mui Kwang a sum equivalent to six (6) months of his last drawn basic monthly salary of S$23,100 as compensation in lieu of six (6) months notice. Under the terms of the AT Service Contract, Alex Teo Mui Kwang is entitled to a total base remuneration of up to S$300,300 per annum. Alex Teo Mui Kwang is further entitled to an annual incentive bonus based on a profit sharing scheme under the terms of the AT Service Contract. The incentive bonus is payable to Alex Teo Mui Kwang upon the Company reaching certain profit objectives measured by PBT. Where the PBT of the Company is < S$4 million, S$ 4 million < S$7 million, S$7 million < S$9 million and/or S$9 million, the percentage of PBT to be set aside for sharing shall be 0%, 3%, 5% and/or 7% respectively. 52

55 APPENDIX II GENERAL AND STATUTORY INFORMATION Jimmy Chan Sen Fock entered into a service contract with the Company on 1 January 2008, which took effect on 1 January 2008 (the CSF Service Contract ). The CSF Service Contract will expire on 31 December Except for grounds leading to immediate termination as stated therein, under the terms of the CSF Service Contract, in the event that the Company terminates Jimmy Chan Sen Fock s employment, the Company shall pay to Jimmy Chan Sen Fock a sum equivalent to six (6) months of his last drawn basic monthly salary of S$20,000 as compensation in lieu of six (6) months notice. Under the terms of the CSF Service Contract, Jimmy Chan Sen Fock is entitled to a total base remuneration of up to S$260,000 per annum. Jimmy Chan Sen Fock is further entitled to an annual incentive bonus based on a profit sharing scheme under the terms of the CSF Service Contract. The incentive bonus is payable to Jimmy Chan Sen Fock upon the Company reaching certain profit objectives measured by PBT. Where the PBT of the Company is < S$4 million, S$ 4 million < S$7 million, S$7 million < S$9 million and/or S$9 million, the percentage of PBT to be set aside for sharing shall be 0%, 3%, 5% and/or 7% respectively. David Chan Sian Kheong entered into a service contract with the Company on 1 January 2008, which took effect on 1 January 2008 (the CSK Service Contract ). The CSK Service Contract will expire on 31 December Except for grounds leading to immediate termination as stated therein, under the terms of the CSK Service Contract, in the event that the Company terminates David Chan Sian Kheong s employment, the Company shall pay to David Chan Sian Kheong a sum equivalent to six (6) months of his last drawn basic monthly salary of S$18,000 as compensation in lieu of six (6) months notice. Under the terms of the CSK Service Contract, David Chan Sian Kheong is entitled to a total base remuneration of up to S$234,000 per annum. David Chan Sian Kheong is further entitled to an annual incentive bonus based on a profit sharing scheme under the terms of the CSK Service Contract. The incentive bonus is payable to David Chan Sian Kheong upon the Company reaching certain profit objectives measured by PBT. Where the PBT of the Company is < S$4 million, S$ 4 million < S$7 million, S$7 million < S$9 million and/or S$9 million, the percentage of PBT to be set aside for sharing shall be 0%, 3%, 5% and/or 7% respectively. Chan Sen Meng entered into a service contract with the Company on 1 January 2008, which took effect on 1 January 2008 (the CSM Service Contract ). The CSM Service Contract will expire on 31 December Except for grounds leading to immediate termination as stated therein, under the terms of the CSM Service Contract, in the event that the Company terminates Chan Sen Meng s employment, the Company shall pay to Chan Sen Meng a sum equivalent to six (6) months of his last drawn basic monthly salary of S$16,309 as compensation in lieu of six (6) months notice. Under the terms of the CSM Service Contract, Chan Sen Meng is entitled to a total base remuneration of up to S$212,017 per annum. Chan Sen Meng is further entitled to an annual incentive bonus based on a profit sharing scheme under the terms of the CSM Service Contract. The incentive bonus is payable to Chan Sen Meng upon the Company reaching certain profit objectives measured by PBT. Where the PBT of the Company is < S$4 million, S$ 4 million < S$7 million, S$7 million < S$9 million and/or S$9 million, the percentage of PBT to be set aside for sharing shall be 0%, 3%, 5% and/or 7% respectively. Frankie Chan Sian Lek entered into a service contract with the Company on 1 January 2008, which took effect on 1 January 2008 (the FC Service Contract ). The FC Service Contract will expire on 31 December Except for grounds leading to immediate termination as stated therein, under the terms of the FC Service Contract, in the event that the Company terminates Frankie Chan Sian Lek s employment, the Company shall pay to Frankie Chan Sian Lek a sum equivalent to six (6) months of his last drawn basic monthly salary of S$27,000 as compensation in lieu of six (6) months notice. Under the terms of the FC Service Contract, Frankie Chan Sian Lek is entitled to a total base remuneration of up to S$351,000 per annum. Frankie Chan Sian Lek is further entitled to an annual incentive bonus based on a profit sharing scheme under the terms of the FC Service Contract. The incentive bonus is payable upon the Company reaching certain profit objectives measured by PBT. Where the PBT of the Company is < S$4 million, S$ 4 million < S$7 million, S$7 million < S$9 million and/or S$9 million, the percentage of PBT to be set aside for sharing shall be 0%, 3%, 5% and/or 7% respectively. 53

56 APPENDIX II GENERAL AND STATUTORY INFORMATION Lloyd Yeo Loy Kiang entered into a service contract with the Company on 1 March 2008, which took effect on 1 April 2008 (the LY Service Contract ). The LY Service Contract will expire on 31 March Except for grounds leading to immediate termination as stated therein, under the terms of the LY Service Contract, in the event that the Company terminates Lloyd Yeo Loy Kiang s employment, the Company shall pay to Lloyd Yeo Loy Kiang a sum equivalent to six (6) months of his last drawn basic monthly salary of S$20,400 as compensation in lieu of six (6) months notice. Under the terms of the LY Service Contract, Lloyd Yeo Loy Kiang is entitled to a total base remuneration of up to S$265,200 per annum and is also entitled to benefits such as an accommodation allowance of S$60,000 per annum, and a car allowance of S$60,000 per annum. Lloyd Yeo Loy Kiang is further entitled to an annual incentive bonus based on a profit sharing scheme under the terms of the LY Service Contract. The incentive bonus is payable to Lloyd Yeo Loy Kiang upon the Company reaching certain profit objectives measured by PBT. Where the PBT of the Company is < S$4 million, S$ 4 million < S$7 million, S$7 million < S$9 million and/or S$9 million, the percentage of PBT to be set aside for sharing shall be 0%, 3%, 5% and/or 7% respectively. (b) Arrangements affecting Directors (i) As at the Latest Practicable Date, it is not proposed, in connection with the Offer, that any payment or other benefit be made or given to any Director or any director of any corporation which is, by virtue of Section 6 of the Act, deemed to be related to the Company, as compensation for loss of office or otherwise in connection with the Offer. (ii) (iii) As at the Latest Practicable Date, saved for the Irrevocable Undertakings and Management Equity Arrangements as disclosed in Sections 4 and 5 of the letter to Shareholders in this Circular, there is no agreement or arrangement made between any Director and any other person in connection with or conditional upon the outcome of the Offer. As at the Latest Practicable Date, saved for the Irrevocable Undertakings and Management Equity Arrangements as disclosed in Sections 4 and 5 of the letter to Shareholders in this Circular, none of the Directors has any material personal interest, whether direct or indirect, in any material contract entered into by the Offeror. 5. FINANCIAL INFORMATION 5.1 Financial information of the Group A summary of the audited financial information of the Group and the Company for the past three financial years ended 31 December 2005 ( FY2005 ), 31 December 2006 ( FY2006 ), and 31 December 2007 ( FY2007 ) (based on audited financial statements), and the unaudited financial results for the half-year ended 30 June 2008 ( HY2008 ), is set out below. The audited financial statements of the Group for FY2007 and the unaudited results of the Group for the half-year ended 30 June 2008 are set out in Appendices IV and V, respectively. The following financial information should be read together with the audited financial statements for the relevant financial periods and related notes thereto:- 54

57 APPENDIX II GENERAL AND STATUTORY INFORMATION (a) Consolidated income statement HY2008 FY2007 FY2006 FY2005 $ $ $ $ Revenue 55,922, ,706,576 91,412,069 82,038,792 Cost of sales (37,056,120) (67,533,668) (63,375,403) (55,045,003) Gross profit 18,866,673 33,172,908 28,036,666 26,993,789 Marketing costs (5,207,159) (9,917,501) (9,250,142) (9,914,858) Administrative costs (6,087,059) (12,543,591) (10,836,598) (11,677,985) 7,572,455 10,711,816 7,949,926 5,400,946 Other income 136, , ,197 24,596 Finance costs (643,003) (1,221,535) (1,068,462) (858,626) Share of gain/(losses) of associated company 23,086 (62,213) (142,428) (84,121) Profit before taxation 7,089,452 9,580,641 7,224,233 4,482,795 Taxation (1,265,901) (2,294,683) (2,133,722) (1,797,444) 5,823,551 7,285,958 5,090,511 2,685,351 Earnings Per share Basic Diluted (cents) (b) Consolidated balance sheet Group Company HY2008 (S$ 000) FY2007 (S$ 000) FY2006 (S$ 000) FY2005 (S$ 000) HY2008 (S$ 000) FY2007 (S$ 000) FY2006 (S$ 000) FY2005 (S$ 000) Non-current assets Fixed assets 17,174 18,042 19,063 19,685 Intangible assets ,088 1,174 Deferred tax assets Subsidiary companies 22,963 22, ,815 26,180 Associated company Loans to subsidiary companies 3,793 3,708 3,557 Loan to associated company ,407 20,133 21,104 21,452 27,945 27,755 27,251 26,619 Current assets Stocks 32,901 36,911 23,408 27,094 Trade debtors 27,559 25,025 23,445 20,112 Other debtors ,390 7 Prepaid operating expenses

58 APPENDIX II GENERAL AND STATUTORY INFORMATION Group Company HY2008 (S$ 000) FY2007 (S$ 000) FY2006 (S$ 000) FY2005 (S$ 000) HY2008 (S$ 000) FY2007 (S$ 000) FY2006 (S$ 000) FY2005 (S$ 000) Amounts due from subsidiary company 10,043 7,789 6,691 4,403 Amounts due from related company Derivative financial instruments Cash and bank balances 8,829 7,414 7,940 7, ,360 70,885 56,644 56,421 10,080 8,148 6,824 4,471 Current liabilities Trade creditors 6,417 7,233 7,768 6,679 Other creditors and accruals 3,953 4,256 3,620 3, Amounts due to bankers, secured 24,489 24,278 16,882 Hire purchase creditors Provision for taxation 843 1,146 1, ,914 37,207 29, , Net current assets 34,446 33,678 26,697 23,508 9,979 8,003 6,753 4,384 Non-current liabilities Amounts due to bankers, secured 5,795 6,902 4,093 3,725 Hire purchase creditors Deferred tax liabilities ,123 7,295 4,835 4,761 Net assets 47,730 46,516 42,966 40,199 37,924 35,758 34,004 31,003 Represented by: Share capital 31,943 31,778 31,531 21,982 31,943 31,778 31,531 21,982 Share premium 9,549 9,549 Reserves 15,787 14,738 11,435 8,668 5,981 3,980 2,473 (528) Total equity 47,730 46,516 42,966 40,199 37,924 35,758 34,004 31, Significant accounting policies The significant accounting policies of the Group which are disclosed in the notes to the audited financial statements for FY2007 are reproduced in Appendix IV to this Circular. 56

59 APPENDIX II GENERAL AND STATUTORY INFORMATION 5.3 Changes in accounting policies The changes in the significant accounting policies of the Group which are disclosed in the notes to the audited financial statements for FY2007 are reproduced in Appendix IV to this Circular. 6. STATEMENT OF PROSPECTS In its announcement dated 12 August 2008 of the unaudited financial results for the half-year ended 30 June 2008 the Company stated that: Barring any unforeseen circumstances, the Group expects to remain profitable in FY2008. (the Statement of Prospects ). Please refer to Appendices VI, VII and VIII of this Circular for the Statement of Prospects, the letter from Ernst & Young LLP in relation to the Statement of Prospects, and the letter from DMG in relation to the Statement of Prospects, respectively. 7. MATERIAL CHANGES IN FINANCIAL POSITION Save as disclosed in this Circular, the audited results of the Group for FY2007 set out in Appendix IV to this Circular, the unaudited results of the Group for HY2008 set out in Appendix V of to this Circular, as well as any publicly available information on the Group, as at the Latest Practicable Date, there ha ve been no material changes in the financial position of the Company since 31 December 2007, being the date of the last published audited financial statements of the Company. 8. MATERIAL CONTRACTS WITH INTERESTED PERSONS Neither the Company nor its subsidiaries has entered into any material contract (other than those entered into in the ordinary course of business) with interested persons during the period commencing 3 years prior to 19 September 2008, being the date of the Offer Announcement, and ending on the Latest Practicable Date. Notes:- An interested person, as defined in the Note on Rule 24.6 read with the Note on Rule of the Code, is: (a) (b) (c) (d) (e) (f) A director, chief executive officer, or Substantial Shareholder of the company; the immediate family of a director, the chief executive officer, or a Substantial Shareholder (being an individual) of the company; the trustees, acting in their capacity as such trustees, of any trust of which a director, the chief executive officer or a Substantial Shareholder (being an individual) and his immediate family is a beneficiary; any company in which a director, the chief executive officer or a Substantial Shareholder (being an individual) together and his immediate family together (directly or indirectly) have an interest of 25% or more; any company that is the subsidiary, holding company or fellow subsidiary of the Substantial Shareholder (being a company); or any company in which a Substantial Shareholder (being a company) and any of the companies listed in (e) above together (directly or indirectly) have an interest of 30% or more. 9. MATERIAL LITIGATION As at the Latest Practicable Date, none of the Company and its subsidiaries is engaged in any material litigation, either as plaintiff or defendant, which might materially and adversely affect the financial position of the Company or the Group, taken as a whole. The Directors are not aware of any litigation, claims or proceedings pending or threatened against the Company or any of its subsidiaries or any facts likely to give rise to any litigation, claims or proceedings which materially and adversely affect the financial position of the Company or the Group, taken as a whole. 57

60 APPENDIX II GENERAL AND STATUTORY INFORMATION 10. GENERAL (a) All expenses and costs incurred by the Company in relation to the Offer will be borne by the Company. (b) (c) (d) DMG ha ve given and have not withdrawn their written consent to the issue of this Circular with the inclusion of their letters and the references to them and their name in the form and context in which they appear in this Circular. Ernst & Young LLP have given and have not withdrawn their written consent to the issue of this Circular with the inclusion of their letters and the references to them and their name in the form and context in which they appear in this Circular. Brand Finance Consultancy (Singapore) Pte Ltd have given and have not withdrawn their written consent to the issue of this Circular with the inclusion of their Valuation Report and the references to them and their name in the form and context in which they appear in this Circular. 11. DOCUMENTS AVAILABLE FOR INSPECTION Copies of the following documents are available for inspection at the registered office of the Company at 22 Defu Lane 1, Defu Industrial Estate, Singapore during normal office hours for the period during which the Offer remains open for acceptance: ( i) the Memorandum and Articles of Association of the Company; ( ii) the annual reports of the Company for FY2005, FY2006 and FY2007; ( iii) the unaudited results of the Group for the half-year ended 30 June 2008; ( iv) the IFA Letter; ( v) the letter from Ernst & Young LLP in relation to the Statement of Prospects; ( vi) the letter from DMG in relation to the Statement of Prospects; ( vii) the Valuation Report; and ( viii) the letters of consent referred to in Section 10 above. 58

61 APPENDIX III INFORMATION ON THE OFFEROR The following information on the Offeror has been extracted from Appendix I of the Offer Document. Unless otherwise defined, all terms and expressions used in the extract below shall have the same meanings as those defined in the Offer Document. Please note that in the extract below, the term Latest Practicable Date refers to 29 September 2008, being the latest practicable date for the printing of the Offer Document. 1. DIRECTORS The names, addresses and descriptions of the Directors as at the Latest Practicable Date are as follows: Name Address Description Rodney Chadwick Muse No. 17 Bangsar Hill 26 Jalan Medang Serai Bukit Bandaraya Kuala Lumpur Malaysia Jean-Christophe Michel Marti 233 Desa Damansara Block 2 Jalan Setiakasih Damansara Heights Kuala Lumpur Malaysia Jonathan Daryl Gartner Srikala Janarhanan Gerald Chiu Yoong Chian Boopendradas Sungker #B-4-1, No.1 Persiaran Persekutuan Sri Bukit Persekutuan Kuala Lumpur Malaysia No. 4 Lorong SS7/17E Taman Sri Kelana Petaling Jaya, Selangor Malaysia 50 Sunset View Singapore Cambridge Lane Avenue Ollier Rose-Hill Mauritius M. Aslam Koomar 31, Impasse Dr. Eugene Laurent Str. Port-Louis Mauritius Director Director Director Director Director Director Director 2. PRINCIPAL ACTIVITIES AND SHARE CAPITAL The principal activity of the Offeror is that of an investment holding company. As at the Latest Practicable Date, the Offeror has an issued an paid-up capital of US$1.00, consisting of one (1) ordinary share of par value USS$ REGISTERED OFFICE The registered office of the Offeror is at 608, St James Court, St. Denis Street, Port Louis, Republic of Mauritius. 59

62 APPENDIX III INFORMATION ON THE OFFEROR 4. SUMMARY OF FINANCIAL PERFORMANCE As the Offeror was incorporated on 29 August 2008 no audited financial statements of the Offeror have been prepared since the date of its incorporation. 5. MATERIAL CHANGES IN FINANCIAL POSITION Save as a result of the making and financing of the Offer, there have been no known material changes in the financial position of the Offeror since 29 August 2008 being the date of its incorporation. 60

63 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY2007 CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2007 Note $ $ Revenue 3 100,706,576 91,412,069 Cost of sales (67,533,668) (63,375,403) Gross profit 33,172,908 28,036,666 Marketing costs (9,917,501) (9,250,142) Administrative costs (12,543,591) (10,836,598) 10,711,816 7,949,926 Other income 4 152, ,197 Finance costs 5 (1,221,535) (1,068,462) Share of losses of associated company 13 (62,213) (142,428) Profit before taxation 6 9,580,641 7,224,233 Taxation 7 (2,294,683) (2,133,722) Profit for the year attributable to equity holders of the Company 7,285,958 5,090,511 Earnings per share Basic Diluted (cents) The accompanying policies and explanatory notes form an integral part of the financial statements

64 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY2007 Group Company Note $ $ $ $ Non-current assets Fixed assets 9 18,041,528 19,062, Intangible assets ,476 1,087, Deferred tax assets , , Subsidiary companies ,858,258 22,815,141 Associated company 13 3,738 65, , ,500 Loan to subsidiary companies ,708,265 3,557,357 Loan to an associated company , , , ,175 BALANCE SHEETS AS AT 31 DECEMBER ,133,703 21,103,910 27,755,434 27,251,173 Current assets Stocks 16 36,911,320 23,407, Trade debtors 17 25,024,865 23,444, Other debtors , , Prepaid operating expenses 268, ,033 9,372 8,100 Amounts due from subsidiary companies ,788,682 6,690,507 Amounts due from a related party , , Derivative financial instrument 20 15, Cash and bank balances 28 7,414,157 7,940, , ,210 70,885,035 56,643,634 8,147,670 6,823,817 Current liabilities Trade creditors 21 7,232,625 7,767, Other creditors and accruals 21 4,255,568 3,620, ,510 70,969 Bank overdrafts , Amounts due to bankers, secured 22 24,277,555 16,881, Hire purchase creditors , , Provision for taxation 1,146,363 1,129, ,207,157 29,946, ,510 70,969 Net current assets 33,677,878 26,696,950 8,003,160 6,752,848 Non-current liabilities Amounts due to bankers, secured 22 6,902,370 4,093, Hire purchase creditors 23 42, , Deferred tax liabilities , , ,295,325 4,835, Net assets 46,516,256 42,965,781 35,758,594 34,004,021 Equity attributable to equity holders of the Company Share capital 25 31,778,405 31,530,901 31,778,405 31,530,901 Reserves 26 14,737,851 11,434,880 3,980,189 2,473,120 Total equity 46,516,256 42,965,781 35,758,594 34,004,021 The accompanying policies and explanatory notes form an integral part of the financial statements

65 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY2007 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2007 Note $ $ Issued share capital (1) Balance at the beginning of year 31,530,901 21,982,211 Transfer from share premium (2) - 9,548,690 Issuance of ordinary shares on exercise of employee share options 193,455 - Exercise of employee share options 54,049 - Balance at the end of year 25 31,778,405 31,530,901 Share premium Balance at the beginning of year - 9,548,690 Transfer to share capital (2) - (9,548,690) Balance at the end of year - - Share options reserve Balance at the beginning of year 551, ,277 Exercise of employee share options (54,049) - Grant of equity-settled share options to employees (a), (b) 103, ,837 Balance at the end of year 600, ,114 Revenue reserve Balance at the beginning of year 13,632,293 9,860,715 Profit for the year (b) 7,285,958 5,090,511 Dividend 37 (2,422,573) (1,318,933) Balance at the end of year 18,495,678 13,632,293 Exchange translation reserve Balance at the beginning of year (2,748,527) (1,621,562) Adjustment for the year (a), (b) (1,609,483) (1,126,965) Balance at the end of year (4,358,010) (2,748,527) Reserves 14,737,851 11,434,880 Attributable to equity holders of the Company 46,516,256 42,965,781 (a) Net expenses recognised directly in equity (1,506,365) (1,005,128) (b) Total recognised income and expenses for the year 5,779,593 4,085,383 (1) The holders of ordinary shares are entitled to receive dividend as and when declared by the Company. All ordinary shares carry one vote per share without restriction. (2) In accordance with the Companies (Amendment) Act 2005, with effect from 30 January 2006, the concepts of par value and authorised share capital was abolished and the shares of the company ceased to have a par value. The amount in the share premium reserve as at 30 January 2006 became part of the Company s share capital. The accompanying policies and explanatory notes form an integral part of the financial statements

66 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY $ $ Cash flows from operating activities: Profit before taxation 9,580,641 7,224,233 Adjustments for:- Amortisation of patents and trademarks 93,360 90,374 Depreciation of fixed assets 1,996,595 2,165,337 Fair value loss on derivative financial instrument 4,827 - Interest income (128,796) (141,089) Interest expense 1,221,535 1,068,462 Share of loss in associated company 62, ,428 (Gain)/loss on disposal of fixed assets (563) 16,251 Fixed assets written off 16,904 19,588 Expense of share-based payments 103, ,837 Exchange translation adjustment (1,033,704) (402,080) Operating cash flows before changes in working capital 11,916,130 10,305,341 (Increase)/decrease in stocks (13,503,684) 3,686,264 Increase in debtors (1,671,159) (3,200,335) Decrease in prepaid operating expenses 45, ,336 Decrease/(increase) in net amount with a related party 377,701 (874,824) Increase in creditors 41,955 1,288,576 Increase in derivative financial instrument (20,640) - Cash flows (used in)/generated from operations (2,814,385) 11,519,358 Taxation paid (2,242,475) (1,549,889) Interest paid (1,163,298) (1,151,024) Net cash flows (used in)/generated from operating activities (6,220,158) 8,818,445 Cash flows from investing activities: Purchase of fixed assets (Note 9c) (1,438,505) (2,268,373) Proceeds from disposal of fixed assets 52,841 73,487 Interest income 97, ,984 Loan to an associated company (Note 15) (278,570) (424,820) CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2007 Net cash flows used in investing activities (1,567,104) (2,493,722) Cash flows from financing activities Dividends paid (2,422,573) (1,318,933) Proceeds from exercise of employee share options 193,455 - Proceeds from term loan 11,050,500 1,500,000 Repayments of term loan/bill payables (845,489) (6,233,370) Repayments to hire purchase creditors (306,361) (303,971) Net cash flows generated from/(used in) financing activities 7,669,532 (6,356,274) Net decrease in cash and cash equivalents (117,730) (31,551) Cash and cash equivalents at beginning of year (Note 27) 7,698,904 7,793,137 Effects of exchange rate changes on opening cash and cash equivalents (167,017) (62,682) Cash and cash equivalents at end of year (Note 27) 7,414,157 7,698,904 The accompanying policies and explanatory notes form an integral part of the financial statements

67 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY2007 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER Corporate information King s Safetywear Limited is a limited liability company which is incorporated in Singapore. The registered office and principal place of business of the Company is located at 22 Defu Lane 1, Singapore The principal activity of the Company is that of an investment holding company. The principal activities of the subsidiary companies are those of manufacturing and trading of safety footwear and trading of other personal protective equipment. Please refer to Note 12 for more details on their principal activities. There have been no significant changes in the nature of these activities during the financial year. 2. Summary of significant accounting policies 2.1 Basis of preparation The consolidated financial statements of the Group and the balance sheet of the Company have been prepared in accordance with Singapore Financial Reporting Standards (FRS). The financial statements have been prepared on a historical cost basis except as disclosed in the accounting policies below. The financial statements are presented in Singapore Dollars (SGD or $). 2.2 Changes in accounting policies The accounting policies have been consistently applied by the Group and the Company and are consistent with those used in the previous year, except for the changes in accounting policies discussed below: (a) Adoption of revised/new FRS FRS 107, Financial Instruments: Disclosures and amendment to FRS 1 (revised), Presentation of financial statements (Capital Disclosures) FRS 107 introduces new disclosures to improve the information about financial instruments. It requires the disclosure of qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk, including sensitivity analysis to market risk. The amendment to FRS 1 requires the Group to make new disclosures to enable users of the financial statements to evaluate the Group s objectives, policies and processes for managing capital. The adoption of FRS 107 and FRS 1 (revised) assessed to have no material financial impact on the results and the opening balance of the accumulated profits of the Company for the year ended 31 December

68 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY Summary of significant accounting policies (cont'd) 2.2 Changes in accounting policies (cont'd) (b) Changes in the basis of allocating expenses to segments The Group has made the following changes to the allocation of expenses to the respective market segments: (i) Marketing costs from holding company and partial marketing costs from its main operating subsidiary, King s Shoe Manufacturing Pte Ltd, have ceased to be allocated but recorded as expenses in Asia segment. Only export related marketing costs are being allocated to Oceania and Middle East & Others segments. (ii) Administrative costs from holding company and its main operating subsidiary, King s Shoe Manufacturing Pte Ltd, have ceased to be allocated but recorded as expenses in Asia segment. (iii) The basis of allocation has been changed from sales value to sales pairage in the respective segments. As Oceania and Middle East & Others segments have their own sets of marketing and administrative costs due to our presence in these regions, the Group is of the opinion that the revised allocation basis reflects a more accurate indication of the operating performance in the respective market segments as it provides a better matching of expenses incurred to generate revenue in these markets segments The effect of the change in basis of allocation is as follows: 2006 As As previously restated reported $ $ NOTES TO THE FINANCIAL STATEMENTS (Cont d) Segment results Asia 8,093,514 8,439,976 Europe (554,571) (638,323) Oceania 115,429 (26,923) Middle East & Others 295, ,196 7,949,926 7,949,

69 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY2007 NOTES TO THE FINANCIAL STATEMENTS (Cont d) 2. Summary of significant accounting policies (cont'd) 2.2 Changes in accounting policies (cont'd) (c) FRS and INT FRS not yet effective The Group and the Company have 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 23: Amendment to FRS 23, Borrowing Costs 1 January 2009 FRS 108: Operating Segments 1 January 2009 INT FRS 111: Group and Treasury Share Transactions 1 March 2007 INT FRS 112: Service Concession Arrangements 1 January 2008 The Group expects that the adoption of the pronouncements listed above will have no material impact on the financial statements in the period of initial application except for FRS 108 as indicated below: (i) FRS 108, Operating Segments FRS 108 requires entities to disclose segment information based on the information reviewed by the entity s chief operating decision maker. The impact of this standard on the other segment disclosures is still to be determined. As this is a disclosure standard, it will have no impact on the financial position or financial performance of the Group when implemented in (ii) INT FRS 111, Group and Treasury Share Transactions INT FRS 111 clarifies that the arrangement where an entity receives goods and services as consideration for its own equity-instruments shall be accounted for as an equity-settled shared-based payment ( SBP ) transaction, regardless of how the equity instruments needed are obtained. It also provides guidance on whether group SBP arrangements shall be classified as equity-settled or cash-settled SBP arrangements. The Group operates an employee share option scheme. As the Group has been recognising those share option grants as equity-settled and does not operate any other SBP group arrangements, INT FRS 111 does not have any impact to the Group

70 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY Summary of significant accounting policies (cont'd) 2.3 Significant accounting estimates and judgements The preparation of the Group s financial statements requires management to make judgements, estimates and assumption that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future Judgements made in applying accounting policies In the process of applying the Group s accounting policies, management has made the following judgements, apart from those involving estimations, which has the most significant effect on the amounts recognised in the financial statements: (a) Income taxes The Group has exposure to income taxes in numerous jurisdictions. Significant judgement is involved in determining the group-wide provision for income taxes. There are certain transactions and computations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for expected tax 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 recognised, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. The carrying amount of the Group s tax payables and deferred tax liabilities at 31 December 2007 was $1,146,363 (2006: $1,129,041) and $350,375(2006: $404,325) respectively Key sources of estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, 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. NOTES TO THE FINANCIAL STATEMENTS (Cont d) (a) Impairment of intangible assets The Group determines whether goodwill is impaired on an annual basis. This requires an estimation of the value in use of the cash-generating units to which goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate present value of those cash flows. The carrying amount of the Group s goodwill at 31 December 2007 was $920,566 (2006 : $920,566). More details are given in Note 10. Patents and trademarks are amortised on a straight-line basis over their estimated useful lives. Management have estimated the useful lives of the patents and trademarks to be 10 and 15 years respectively. The carrying amount of the Group s intangible assets at 31 December 2007 was $78,910 (2006 : $167,042). Changes in the expected level of usage, technological developments and market and competitive trends could impact the economic useful lives and the residual values of these assets, therefore future amortisation charges could be revised. More details are given in Note

71 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY2007 NOTES TO THE FINANCIAL STATEMENTS (Cont d) 2. Summary of significant accounting policies (cont'd) 2.3 Significant accounting estimates and judgements (cont'd) Key sources of estimation uncertainty (cont'd) (b) Depreciation of fixed assets Fixed assets are depreciated on a straight-line basis over their estimated useful lives. Management have estimated the useful lives of these fixed assets to be within 2 to 99 years. The carrying amount of the Company s fixed assets at 31 December 2007 was $18,041,528 (2006 : $19,062,520). Changes in the expected level of usage and technological developments could impact the economic useful lives and the residual values of these assets, therefore future depreciation charges could be revised. (c) Provision for warranty A provision is recognised for expected warranty claims on products sold during the last one year, based on past experience of the level of returns. Assumptions used to calculate the provision for warranties were based on current sales levels and current information available about returns based on the one-year warranty period for all products sold. During 2007, management concluded, based on the earlier mentioned statistics and warranty claims experience, the provision warranties is sufficient to cover warranty claims on products sold during the previous year. Accordingly, no additional warranty provision has been made. (d) Impairment of loans and receivable The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset is impaired. To determine whether there is objective evidence of impairment, the Group considers factors such as the probability of insolvency or significant financial difficulties of the debtors and default or significant delay in payments. Where there is objective evidence of impairment, the amount and timing of future cash flows are estimated based on historical loss experience for assets with similar credit risk characteristics. The carrying amount of the Group s loans and receivables at the balance sheet date is disclosed in Notes 15, 17, 18 and 19 to the financial statements. (e) Deferred tax assets Deferred tax assets are recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. The carrying value of deferred tax assets at 31 December 2007 was $192,550 (2006 : $301,656). No deferred tax assets was recognised on tax losses of $7,100,000 (2006 : $8,100,000) at 31 December 2007 due to uncertainty of its recoverability

72 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY Summary of significant accounting policies (cont'd) 2.3 Significant accounting estimates and judgements (cont'd) Key sources of estimation uncertainty (cont'd) (f) Defined benefit plan The cost of defined benefit pension plans is determined using actuarial valuations. The actuarial valuation involved making assumptions about discount rates, expected rates of return on assets, future salary increase, mortality rates and future pension increase. Due to the long term nature of these plans, such estimates are subject to significant uncertainty. The net employee liability at the balance sheet date is $100,370 (2006: $200,472). Further details are given in Note 28. (g) Employee share options The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the employee share options at the date at which they are granted. Judgement is required in determining the most appropriate valuation model for the share options granted, depending on the terms and conditions of the grant. Management are also required to use judgement in determining the most appropriate inputs to the valuation model including expected life of the option, volatility and dividend yield. The assumptions and model used are disclosed in Note Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiary companies as at the balance sheet date. The financial statements of the subsidiaries are prepared for the same reporting date as the Company. The consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. NOTES TO THE FINANCIAL STATEMENTS (Cont d) All intra-group balances, transactions, income and expenses and profits and losses resulting from intragroup transactions that are recognised in assets, are eliminated in full. Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. Acquisitions of subsidiary companies are accounted for using the purchase method. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus cost directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. Any excess of the cost of the business combination over the Group s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities represents goodwill. The goodwill is accounted for in accordance with the accounting policy for goodwill stated in Note Any excess of the Group s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of business combination is recognised in the profit and loss account on the date of acquisition

73 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY2007 NOTES TO THE FINANCIAL STATEMENTS (Cont d) 2. Summary of significant accounting policies (cont'd) 2.5 Financial assets Financial assets within the scope of FRS 39 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 Group 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 Group determines the classification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at each financial year-end. A financial asset is derecognised where the contractual right to receive cash flows from the asset has expired. On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of the consideration received and any cumulative gain or loss that has been recognised directly in equity is recognised in the profit and loss account. 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. 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 Group classifies the following financial assets as loans and receivables: cash and short-term deposits; trade and other receivables, including amounts due from subsidiaries, associates, and related party. As at 31 December 2007, total loans and receivables amounted to $34,585,592 (2006: $33,508,140) and $12,742,974 (2006: $10,959,249) for the Group and the Company respectively. 2.6 Subsidiary companies A subsidiary is an entity over which the Group has the power to govern the financial and operating policies so as to obtain benefits from its activities. The Group generally has such power when it directly or indirectly, holds more than 50% of the issued share capital, or controls more than half of the voting power, or controls the composition of the board of directors. In the Company s separate financial statements, investments in subsidiary companies are accounted for at cost less any impairment losses

74 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY Summary of significant accounting policies (cont'd) 2.7 Associated company An associate is an entity, not being a subsidiary or joint venture, in which the Group has significant influence. This generally coincides with the Group having 20% or more of the voting power, or has representative on the board of directors. The Group s investment in associate is accounted for using the equity method. Under the equity method, the investment in associate is carried in the balance at cost plus post-acquisition changes in the Group s share of net assets of the associate. The Group s share of the profit or loss of the associate is recognised in the consolidated profit and loss account. Where there has been a change recognised directly in the equity of the associate, the Group recognises its share of such changes. After application of the equity method, the Group determines whether it is necessary to recognise any additional impairment loss with respect to the Group s net investment in the associate. The associate is equity accounted for from the date of the Group obtains significant influence until the date the Group ceases to have significant influence over the associate. Goodwill relating to an associate is included in the carrying amount of the investment. Any excess of the Group s share of the net fair value of the associate s identifiable assets, liabilities and contingent liabilities over the cost of investment is excluded from the carrying amount of the investment and is instead included as income in the determination of the Group s share of the associate s profit or loss in the period in which the investment is acquired. When the Group s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payment on behalf of the associate. The most recent available audited financial statements of the associate are used by the Group in applying the equity method. Where the dates of the audited financial statements used are not coterminous with those of the Group, the share of results is arrived at from the latest audited financial statements available or unaudited management financial statements to the end of the accounting period. Consistent accounting policies are applied for like transactions and events in similar circumstances. NOTES TO THE FINANCIAL STATEMENTS (Cont d) In the Company s separate financial statements, investment in associate is accounted for at cost less impairment losses. 2.8 Functional and foreign currency (a) Functional currency The management has determined the currency of the primary economic environment in which the Company operates (i.e. functional currency), to be Singapore dollars. Dividends, if any, and major operating expenses are primarily influenced by fluctuations in Singapore dollars

75 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY2007 NOTES TO THE FINANCIAL STATEMENTS (Cont d) 2. Summary of significant accounting policies (cont'd) 2.8 Functional and foreign currency (cont'd) (b) Foreign currency transactions Transactions in foreign currencies are measured in the respective functional currencies of the Company and its subsidiary companies and are recorded on initial recognition in the functional currencies at exchange rates approximating those ruling at transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the closing rate of exchange ruling at the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates when the fair value was determined. Exchange differences arising on the settlement of monetary items or on translating monetary items at the balance sheet date are recognised in the profit and loss account except for exchange differences arising on monetary items that form part of the Group s net investment in foreign subsidiary companies, which are recognised initially in a separate component of equity as exchange translation reserve in the consolidated balance sheet and recognised in the consolidated profit and loss account on disposal of the subsidiary. In the Company s separate financial statements, such exchange differences are recognised in the profit and loss account. (c) Foreign currency translation The results and financial position of foreign entities/operations are translated into SGD using the following procedures: Assets and liabilities for each balance sheet presented are translated at the closing rate ruling at that balance sheet date; and Income and expenses for each income statement are translated at average exchange rates for the year, which approximates the exchange rates at the dates of the transactions. All resulting exchange differences are recognised in a separate component of equity as exchange 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 are recorded in the functional currency of the foreign operations and translated at the closing rate at the balance sheet date. Goodwill and fair value adjustments which arose on acquisitions of foreign subsidiaries before 1 January 2005 are deemed to be assets and liabilities of the parent company and are recorded in SGD at the rates prevailing at the date of acquisition. On disposal of a foreign operation, the cumulative amount of exchange differences deferred in equity relating to that foreign operation is recognised in the profit and loss account as a component of the gain or loss on disposal

76 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY Summary of significant accounting policies (cont'd) 2.9 Cash and cash equivalents Cash and cash equivalents comprise cash on hand and at bank, demand deposits and short-term, highly liquid investments readily convertible to known amounts of cash and subject to an insignificant risk of change in value. These also include bank overdrafts. For the purposes of the cash flow statement, cash and cash equivalents are shown net of outstanding bank overdrafts which are repayable on demand and which form an integral part of the Group s cash management. Cash and bank balances, and bank overdrafts carried in the balance sheets are classified and accounted for as loans and receivables under FRS 39. The accounting policy for this category of financial assets is stated in Note Fixed assets All items of fixed assets are initially recorded at cost. Subsequent to recognition, fixed assets are stated at cost less accumulated depreciation and any impairment loss. The initial cost of fixed assets comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after the fixed assets has been put into operation, such as repairs and maintenance and overhaul costs, are normally charged to the profit and loss account in the period in which the costs are incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of an item of fixed assets beyond its originally assessed standard of performance, the expenditure is capitalised as an additional cost of fixed assets. Depreciation of an asset begins when it is available for use and is computed on a straight-line basis over the estimated useful life of the asset as follows: Computer equipment - 3 years Electrical equipment and installation - 5 years Freehold industrial properties years Furniture and fittings years Leasehold industrial building years Leasehold land - over the term of lease of years Machinery equipment years Motor vehicles years Office equipment - 5 years NOTES TO THE FINANCIAL STATEMENTS (Cont d) No depreciation is provided on freehold land. The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. The residual values, useful life and depreciation method are reviewed at each financial year-end to ensure that the amount, method and period of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of property, plant and equipment. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is included in the profit and loss account in the year the asset is derecognised

77 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY2007 NOTES TO THE FINANCIAL STATEMENTS (Cont d) 2. Summary of significant accounting policies (cont'd) 2.11 Intangible assets (a) Goodwill arising on consolidation Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Group s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group s cash-generating units, or groups of cashgenerating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated: Represents the lowest level within the Group at which the goodwill is monitored for internal management purposes; and Is not larger than a segment based on either the Group s primary or the Group s secondary reporting format. A cash-generating unit (or group of cash-generating units) to which goodwill has been allocated are tested for impairment annually and whenever there is indication that the unit may be impaired, by comparing the carrying amount of unit, including the goodwill, with the recoverable amount of the unit. Where the recoverable amount of the cash-generating unit (or group of cashgenerating units) is less than the carrying amount, an impairment loss is recognised. Where goodwill forms part of a cash-generating unit (or group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. (b) Other intangible assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair values as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised on a straight-line basis over the estimated economic useful lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. The amortisation expense on intangible assets with finite lives is recognised in the profit and loss account. Intangible assets with indefinite useful lives are tested for impairment annually or more frequently if the events or changes in circumstances indicate that the carrying value may be impaired either individually or at the cash-generating unit level. Such intangibles are not amortised. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether the useful life assessment continues to be supportable

78 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY Summary of significant accounting policies (cont'd) 2.11 Intangible assets (cont'd) (c) Patents and trademark Patents and trademark were acquired through business combinations. Patents and trademark are stated at cost less accumulated amortisation and any impairment loss. The costs are amortised on a straight-line basis over their estimated useful lives of 10 years and 15 years respectively Receivables Trade and other receivables, including amounts due from subsidiary companies and related party, are classified and accounted for as loans and receivables under FRS 39. The accounting policy for this category of financial assets is stated in Note 2.5. Trade receivables, which generally have been granted on between 30 and 90 days credit terms, are recognised and carried at original invoice amount less allowance for any uncollectible amounts. An allowance is made for uncollectible amounts when there is objective evidence that the Group will not be able to collect the debts. Bad debts are written off when identified. Further details on the accounting policy for impairment of financial assets are stated in Note Stocks Stocks are valued at the lower of cost and net realisable value. Cost of raw materials comprise purchase cost determined on a weighted average basis and, in the case of finished goods and work-in-progress, also includes labour and a proportion of manufacturing overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. NOTES TO THE FINANCIAL STATEMENTS (Cont d) 2.14 Financial liabilities Financial liabilities include trade creditors which are normally settled on day terms, other amounts creditors, payables to subsidiary companies and amounts due to bankers. Financial liabilities are recognised on the balance sheet when, and only when, the Group becomes a party to the contractual provisions of the financial instrument. Financial liabilities are recognised initially at fair value, plus, in the case of financial liabilities other than derivatives, directly attributable transaction costs. Subsequent to initial recognition, all financial liabilities are measured at amortised cost using the effective interest method, except for derivatives, which are measured at fair value. A financial liability is derecognised when the obligation under the liability is extinguished. For financial liabilities other than derivatives, gains and losses are recognised in the profit and loss account when the liabilities are derecognised or impaired, and through the amortisation process. Any gains or losses arising from changes in fair value of derivatives are recognised in the profit and loss account. Net gains or losses on derivatives include exchange differences. As at 31 December 2007, total financial liabilities carried at amortised cost amounted to $43,005,744 (2006: $33,248,397) and $144,510 (2006: $70,969) for the Group and the Company respectively

79 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY2007 NOTES TO THE FINANCIAL STATEMENTS (Cont d) 2. Summary of significant accounting policies (cont'd) 2.15 Leases (a) Finance lease Finance leases, which effectively transfer to the Group substantially all the risks and rewards incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased item or, if lower, at the present value of the minimum lease payments. Any initial direct costs are also added to the amount capitalised. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant periodic rate of interest on the remaining balance of the liability. Finance charges are charged directly to the profit and loss account. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term. (b) Operating lease Leases where the lessor effectively retains substantially all the risks and rewards of ownership of the leased items are classified as operating leases. Operating lease payments are recognised in the profit and loss account on a straight-line basis over the term of the lease Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) where, 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. The expense relating to any provision is presented in the profit and loss account net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as finance costs. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed. A provision for warranty is recognised for all products under warranty at the balance sheet date based on experience of the number of repairs and returns Loans and borrowings All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Gain and losses are recognised in the profit and loss account when the liabilities are derecognised as well as through the amortisation process. Borrowing costs are recognised as expenses in the period in which they are incurred

80 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY Summary of significant accounting policies (cont'd) 2.18 Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: Sale of goods Revenue is recognised upon the transfer of significant risk and rewards of ownership of the goods to the customer, which generally coincides with delivery and acceptance of the goods sold. Revenue is not recognised to the extent where there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods. Royalty Revenue is recognised on an annual basis based on a percentage of the total annual turnover of subsidiary companies. Dividends Revenue is recognised when the shareholders right to receive the payment is established. Interest income Interest income is recognised as interest accrues (using the effective interest method) unless collectibility is in doubt. Rental income NOTES TO THE FINANCIAL STATEMENTS (Cont d) Rental income arising on properties is accounted for on a straight-line basis over the lease terms on ongoing leases. The aggregate cost of incentives provided to lessees is recognised as a reduction of rental income over the lease term on a straight-line basis Employee benefits Defined contribution plan The Group participates in the national pension schemes as defined by the laws of the countries in which it has operations. In particular, the Singapore companies in the Group make contributions to the Central Provident Fund scheme in Singapore, a defined contribution pension scheme. Contributions to national pension schemes are recognised as an expense in the period in which the related service is performed. Employee leave entitlement Employee entitlements to annual leave are recognised when they accrue to employees. The estimated liability for leave is recognised for services rendered by employees up to balance sheet date

81 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY2007 NOTES TO THE FINANCIAL STATEMENTS (Cont d) 2. Summary of significant accounting policies (cont'd) 2.19 Employee benefits (cont'd) Retrenchment benefits Termination benefits are payable when employment is terminated before the normal retirement date or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminate the employment of current employees according to a detailed plan without possibly withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy. In the case of an offer made to encourage voluntary redundancy, the measurement of termination benefits is based on the number of employees expected to accept the offer. Benefits falling due more than 12 months after balance sheet date are discounted to present value. Pension and other post employment benefits The Group operates defined benefit pension plans which provide benefits to employees who achieve the retirement age of 55 based on the provisions of Labour Law in Indonesia. These benefits are unfunded. The cost of providing benefits under the defined benefit plans is determined separately for each plan using the projected unit credit actuarial valuation method. Actuarial gains and losses are recognised as income or expense when the net cumulative unrecognised actuarial gains and losses for each individual plan at the end of the previous reporting year exceeded 10% of the higher of the defined benefit obligation and the fair value of plan assets at that date. These gains or losses are recognised over the expected average remaining working lives of the employees participating in the plans. The past service cost is recognised as an expense on a straight-line basis over the average period until the benefits become vested. If the benefits are already vested immediately following the introduction of, or changes to, a pension plan, past service cost is recognised immediately. The defined benefit liability is the aggregate of the present value of the defined benefit obligation and actuarial gains and losses not recognised, reduced by past service cost not yet recognised and the fair value of plan assets out of which the obligations are to be settled directly. If such aggregate is negative, the asset is measured at the lower of such aggregate or the aggregate of cumulative unrecognised net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan. If the asset is measured at the aggregate of cumulative unrecognised net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan, net actuarial losses of the current period and past service cost of the current period are recognised immediately to the extent that they exceed any reduction in the present value of those economic benefits. If there is no change or an increase in the present value of the economic benefits, the entire net actuarial losses of the current period and past service cost of the current period are recognised immediately. Similarly, net actuarial gains of the current period after the deduction of past service cost of the current period exceeding any increase in the present value of the economic benefits stated above are recognised immediately if the asset is measured at the aggregate of cumulative unrecognised net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan. If there is no change or a decrease in the present value of the economic benefits, the entire net actuarial gains of the current period after the deduction of past service cost of the current period are recognised immediately

82 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY Summary of significant accounting policies (cont'd) 2.19 Employee benefits (cont'd) Pension and other post employment benefits (cont d) The Group s right to be reimbursed of some or all of the expenditure required to settle a defined benefit obligation is recognised as a separate asset at fair value when and only when reimbursement is virtually certain. Employee share option scheme Employees (including senior executives) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for share options ( equity-settled transactions ). Equity-settled transactions The cost of equity-settled transactions with employees is measured by reference to the fair value at the date on which the share options are granted. In valuing the share options, no account is taken of any performance conditions, other than conditions linked to the price of the shares of the company ( market conditions ), if applicable. The cost of equity-settled transactions is recognised, together with a corresponding increase in the employee share option reserve, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the vesting date ). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group s best estimate of the number of equity instruments that will ultimately vest. The profit or loss charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period. NOTES TO THE FINANCIAL STATEMENTS (Cont d) No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vested irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied. Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any modification, which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph. The employee share option reserve is transferred to retained earnings upon expiry of the share options. When the options are exercised, the employee share option reserve is transferred to share capital if new shares are issued

83 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY2007 NOTES TO THE FINANCIAL STATEMENTS (Cont d) 2. Summary of significant accounting policies (cont'd) 2.20 Impairment The Group assesses at each balance sheet date whether there is any objective evidence that an asset is impaired. Financial assets carried at amortised cost If there is objective evidence that an impairment loss on loans and receivables 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 (excluding future credit losses that have not been incurred) discounted at the financial assets original effective interest rate (i.e. the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced through the use of an allowance account. The amount of the loss is recognised in the profit an loss account. When the asset becomes uncollectible, the carrying amount of impaired financial assets is reduced directly or if an amount was charged to the allowance account, the amounts charged to the allowance account are written off against the carrying value of the financial asset. To determine whether there is objective evidence that an impairment loss on financial assets has been incurred, the Group considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the profit and loss account, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date. Non-financial assets If any such indication exists, or when annual impairment testing for an asset (i.e. goodwill acquired in a business combination) is required, the Group makes an estimate of the asset s recoverable amount. An asset s recoverable amount is the higher of an asset s or cash-generating unit s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. 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. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Impairment losses are recognised in the profit and loss account as other operating expenses or treated as a revaluation decrease for assets carried at revalued amount to the extent that the impairment loss does not exceed the amount held in the asset revaluation reserve for that same asset

84 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY Summary of significant accounting policies (cont'd) 2.20 Impairment (cont'd) Non-financial assets (cont d) An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses recognised for an asset other than goodwill may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed 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. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Reversal of an impairment loss is recognised in the profit and loss account. After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. The Group does not reverse in a subsequent period, any impairment loss recognised for goodwill Taxation (a) Current tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date. Current taxes are recognised in the profit and loss account. (b) Deferred tax Deferred income tax is provided using the liability method on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. NOTES TO THE FINANCIAL STATEMENTS (Cont d) Deferred tax liabilities are recognised for all taxable temporary differences, except: Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences (other than those mentioned above), carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilised

85 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY2007 NOTES TO THE FINANCIAL STATEMENTS (Cont d) 2. Summary of significant accounting policies (cont'd) 2.21 Taxation (cont'd) (b) (c) Deferred tax (cont'd) The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Sales tax Revenues, expenses and assets are recognised net of the amount of sales tax except: Where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and Receivables and payables that are stated with the amount of sales tax included. The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet Segment reporting A business segment is a distinguishable component of the Group that is engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is a distinguishable component of the Group that is engaged in providing products or services within a particular economic environment and that is subject to risks and returns that are different from those of components operating in other economic environments

86 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY Revenue Revenue represents invoiced value of goods supplied after allowance for goods returned and trade discounts. 4. Other income Interest income derived from:- Bank accounts 97, ,984 Loan to an associated company 31,666 15,105 Total interest income 128, ,089 Rental income 41,818 11,366 Gain/(loss) on disposal of fixed assets 563 (16,251) Realised foreign exchange (loss)/gain (92,414) 120,803 Unrealised foreign exchange loss (413,055) (78,220) Royalty income 63,145 30,605 Commission income 8,624 13,373 Insurance claims 4,850 40,642 Logistic services income 65,704 47,546 Fair value loss on derivative financial instrument (4,827) - Sundry income 349, , , , Finance costs Interest expenses on:- Bank overdrafts 26,597 11,907 Bills payable and other bank financing Hire purchase 26,690 27,057 Term loan 1,168,188 1,029,329 NOTES TO THE FINANCIAL STATEMENTS (Cont d) 1,221,535 1,068,

87 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY2007 NOTES TO THE FINANCIAL STATEMENTS (Cont d) 6. Profit before taxation Profit before taxation included the following for the year ended 31 December:- Group $ $ Amortisation of patents and trademarks 93,360 90,374 Non-audit fees paid to: Auditors of the Company 10,000 10,000 Other auditors 30,592 49,107 Impairment of trade debtors (Note 17) 17,732 32,308 Allowance for stock obsolescence 160, ,533 Bad trade debts written off 5,290 - Depreciation of fixed assets 1,996,595 2,165,337 Directors fee 335, ,904 Employee benefits (Note 28) 20,498,167 18,150,206 Fixed assets written off 16,904 19,588 Reversal of impairment of trade debtors (Note 17) (44,654) (2,937) Expense of share-based payments 103, , Taxation Major components of taxation The major components of taxation for the years ended 31 December 2007 and 2006 are:- Current taxation: Singapore 1,310,000 1,454,422 Overseas 723, ,474 Deferred taxation: - Movement in temporary differences Singapore (31,750) - Overseas 135,886 (94,078) - Effect of reduction in tax rate (38,647) - 2,098,645 2,259,818 Under/(over) provision in respect of previous years Current 226,641 (126,096) Deferred (30,603) - 196,038 (126,096) 2,294,683 2,133,

88 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY Taxation (cont'd) Relationship between taxation and accounting profit The reconciliation between the taxation charge and the product of accounting profits multiplied by the applicable corporate tax rate for the years ended 31 December is as follows : Group $ $ Profit before taxation 9,580,641 7,224,233 Tax at the domestic rates applicable to profits in the countries where the Group operates 1 2,031,326 1,357,309 Adjustments: Tax effect of expenses that are not deductible in determining tax profit 596, ,148 Tax effect of income subject to lower tax rate (6,943) (17,325) Tax effect of utilisation of tax incentive (10,753) (10,500) Tax effect of income which is tax-exempt (77,934) (52,381) Double tax relief (95,936) (266,077) Double tax deduction (648) (1,560) Benefits from previously unrecognised tax losses (379,656) - Deferred tax assets not recognised - 806,171 Under/(over) provision in respect of previous years 196,038 (126,096) Effect of reduction in tax rate (38,647) - Others 79,661 13,033 Taxation charge 2,294,683 2,133,722 NOTES TO THE FINANCIAL STATEMENTS (Cont d) 1. The reconciliation is prepared by aggregating separate reconciliations for each national jurisdiction. The corporate income tax rate applicable to Singapore companies of the Group was reduced to 18% for the year of assessment 2008 onwards from 20% for year of assessment The corporate income tax rate applicable to Malaysian companies of the Group was reduced from 28% to 27% and 26% for the year of assessment 2007 and the year of assessment 2008 onwards respectively. The Group has tax losses of approximately $7,100,000 (2006 : $8,100,000) that are available for offset against future taxable profits of the companies in which the losses arose for which no deferred tax asset is recognised due to uncertainty of its recoverability. The use of these tax losses is subject to the agreement of the tax authorities and compliance with certain provisions of the tax legislation of the respective countries in which the companies operate. There are no income tax consequences attached to the dividends to the shareholders proposed by the Company but not recognised as a liability in the financial statements (Note 37)

89 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY2007 NOTES TO THE FINANCIAL STATEMENTS (Cont d) 8. Earnings per share Basic earnings per share are calculated by dividing the profit from continuing operations attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share is calculated by dividing the profit from continuing operations attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the year (adjusted for the effect of dilutive options). The following reflects the income and share data used in the basic and diluted earnings per share computations for the years ended 31 December: Group $ $ Net profit attributable to ordinary shareholders for basic and diluted earnings per share 7,285,958 5,090,511 Number of Number of shares shares Weighted average number of ordinary shares on issue applicable to basic earnings per share 220,419, ,822,110 Effect of dilutive securities: Share options 1,681,432 61,001 Adjusted weighted average number of ordinary shares applicable to diluted earnings per share 222,101, ,883,111 3,813,000 (2006 : 3,063,000) of share options granted to employees under the existing employee share option plans have not been included in the calculation of diluted earning per share because they are anti-dilutive for the current and previous financial periods presented. Since the end of the year, senior executives have exercised the option to acquire 337,000 (2006 : Nil) ordinary shares. There have been no other transactions involving ordinary shares or potential ordinary shares since the reporting date and before the completion of these financial statements

90 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY Fixed assets Electrical Leasehold equipment Furniture Freehold industrial Computer and and Machinery Motor Office Construction properties properties equipment installation fittings equipment vehicles equipment in progress Total $ $ $ $ $ $ $ $ $ $ Cost At ,182,659 7,746,378 1,097,282 1,178,328 1,043,243 17,227,191 1,441,819 1,465,615-37,382,515 Exchange translation adjustment 82,428 (374,187) (7,694) (49,731) (17,884) (217,022) (8,309) 17,186 (28,943) (604,156) Additions 6,880 9, ,024-52,864 1,076, ,875 36, ,705 2,310,550 Disposals (8,316) - (144,362) - - (224,595) (110,337) (53,145) - (540,755) Written off (1,211) (170,823) - (152) - (172,186) At and at ,263,651 7,381,219 1,154,250 1,128,597 1,077,012 17,691,689 1,460,048 1,465, ,762 38,375,968 Transfer from construction in progress - 753, (753,762) - Exchange translation adjustment 208,260 (289,053) 4,163 (42,727) (10,469) (149,026) (32,918) 41,238 - (270,532) Additions - 261, ,217 72,809 13, ,467 56, ,120-1,438,505 Disposals - - (36,352) (850) (18,963) (1,411) (93,559) (1,358) - (152,493) Written off - - (2,424) (36,472) - (530,345) (569,241) At ,471,911 8,107,473 1,239,854 1,121,357 1,061,148 17,796,374 1,390,350 1,633,740-38,822,207 Accumulated depreciation At ,857 2,075, , , ,969 10,407, ,467 1,272,820-17,696,802 Exchange translation adjustment 19,299 (13,347) (2,003) (10,902) (6,240) 54,695 (4,871) 18,293-54,924 Charge for the year 122, , , ,784 58,772 1,145, ,127 68,842-2,165,337 Disposals (8,315) - (143,750) - - (173,259) (72,803) (52,890) - (451,017) Written off (1,211) (151,235) - (152) - (152,598) NOTES TO THE FINANCIAL STATEMENTS (Cont d) At and at ,120,863 2,340, , , ,290 11,283, ,920 1,306,913-19,313,448 Exchange translation adjustment 46,744 (19,031) 2,200 (20,118) (4,564) 102,871 (30,076) 45, ,188 Charge for the year 126, , , ,384 58, , ,737 63,819-1,996,595 Disposals - - (36,352) (850) (18,963) - (43,031) (1,019) - (100,215) Written off - - (2,424) (36,472) - (513,441) (552,337) At ,293,947 2,626, , , ,303 11,863, ,550 1,414,875-20,780,679 Net book value At ,177,964 5,481, , , ,845 5,932, , ,865-18,041,528 At ,142,788 5,040, , , ,722 6,408, , , ,762 19,062,

91 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY2007 NOTES TO THE FINANCIAL STATEMENTS (Cont d) 9. Fixed assets (cont d) (a) Freehold properties held by the Group refer to freehold land and buildings. Details of freehold properties held by the Group are as follows:- Location Description Land area (Sqm) Held by subsidiary companies Freehold land and factory building at Factory unit 4,119 No. 1 Jalan Permas 9/14, Bandar Baru Permas Jaya, Johor Bahru, Johor, Malaysia Freehold office unit at Office unit 3,207 Xantener Stra e 6, D Mulheim an der Ruhr, Germany Held by a subsidiary company of a subsidiary company Freehold land and factory and office units at Factory and 5,054 Louredo de Cima, Selho de Sao Loureno, office units Apartado 445, , Guimaraes, Portugal (b) Details of leasehold properties held by the Group are as follows:- Location Description Tenure Land area (Sqm) Held by subsidiary companies Leasehold factory and office building at Office unit 35 years 4, Defu Lane 1, Singapore warehouse commencing 1979 Leasehold land and office and warehouse Sales office 99 years No. 22 and 24 Jalan 6/34B, Off Jalan Kepong and warehouse from ,157 Sri Edaran Light, Industrial Park Kuala Lumpur, Malaysia Leasehold land factory and office Factory and 30 years 30,000 Latrade Industrial Park, Block G Lot 1, 2, 3, 4 office units from Jl Sei Binti, Tanjung Uncang, Batam, Indonesia (c) As at 31 December 2007, the total net book value of machinery equipment acquired under hire purchase arrangements was $1,184,518 (2006: $1,355,086). The total net book value of motor vehicles acquired under hire purchase arrangements was $87,393 (2006: $103,116). (d) Certain properties of the Group described in (a) and (b) above are mortgaged to the banks for banking facilities (Note 22)

92 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY Intangible assets Group Goodwill Patents arising on and consolidation trademark Total $ $ $ Cost At 1 January ,566 1,286,419 2,206,985 Exchange translation adjustments - 26,047 26,047 At 31 December 2006 and 1 January ,566 1,312,466 2,233,032 Exchange translation adjustments - 55,677 55,677 At 31 December ,566 1,368,143 2,288,709 Accumulated amortisation and impairment At 1 January ,033,162 1,033,162 Amortisation - 90,374 90,374 Exchange translation adjustments - 21,888 21,888 At 31 December 2006 and 1 January ,145,424 1,145,424 Amortisation - 93,360 93,360 Exchange translation adjustments - 50,449 50,449 At 31 December ,289,233 1,289,233 Net carrying amount At 31 December , ,042 1,087,608 At 31 December ,566 78, ,476 NOTES TO THE FINANCIAL STATEMENTS (Cont d) The remaining amortisation period for the two patents is 6 months (2006 : 1 year 6 months) and 4 years 6 months (5 years 6 months) respectively. The remaining amortization period for the trademark is 6 months (2006 : 1 year 6 months). Impairment testing of goodwill Goodwill acquired through business combinations has been allocated to an individual cash-generating unit, the Europe segment

93 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY2007 NOTES TO THE FINANCIAL STATEMENTS (Cont d) 10. Intangible assets (cont'd) Impairment testing of goodwill (cont d) The recoverable amount is determined based on a value in use calculation using cash flow projections based on financial budgets approved by management covering a five-year period. The pre-tax discount rate applied to the cash flow projections is 6.8% (2006: 7.1%) per annum. The Company has factored a zero growth rate to extrapolate the cash flows of the Europe segment beyond the five-year period. Calculations of value in use for the cash-generating unit are most sensitive to the following assumptions: Budgeted gross margins - the basis used to determine the value assigned to the budgeted gross margins is the average gross margins achieved in the year immediately before the budgeted year increased for expected efficiency improvements. Pre-tax discount rates - Discount rates reflect management s estimate of the risks specific to the cash-generating unit. In determining appropriate discount rates for the cash-generating unit, regard has been given to the yield on a 10-year Germany government bond rate at the beginning of the budgeted year. Cost price inflation - an annual increase of 5% (2006 : 1%-5%) is assumed for the marketing and administrative costs. Values assigned to key assumptions are consistent with external information sources. 11. Deferred tax assets Group $ $ Differences in carrying values of fixed assets 123, ,228 for accounting and income tax purposes Employee retirement benefits 30,302 54,722 Others 38,956 34,705 Deferred taxation assets 192, , Subsidiary companies Company $ $ Unquoted shares at cost 22,264,027 22,264,027 Additional investment (a) 654, ,114 Impairment losses (60,000) - 22,858,258 22,815,141 (a) This arises from the cost of options in the shares of the Company granted under the Kingsafetywear Employee Share Option Scheme to the employees of the subsidiary companies

94 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY Subsidiary companies (cont'd) The subsidiary companies at 31 December were as follows:- Name of Company Principal activities Percentage of (Country of incorporation) (Place of business) Cost equity held $ $ % % Held by the Company King s Shoe Manufacturing Trading of safety 2,645,184 2,645, Pte Ltd (1) (Singapore) footwear and other personal protective equipment (Singapore) Kingshoe Manufacturing Manufacture and 4,971,202 4,971, Sdn Bhd (2) (Malaysia) trading of safety footwear and other personal protective equipment (Malaysia) King s Safetywear Investment holding 6,274,321 6,274, Indonesia Pte Ltd (1) (Singapore) (Singapore) Otter Schutz GmbH (3) Trading of safety (Germany) footwear 8,046,120 8,046, (Germany) NOTES TO THE FINANCIAL STATEMENTS (Cont d) King s Safetywear Trading of safety 327, , Shanghai Co. Ltd footwear and (People s Republic other personal of China) (7) protective equipment (People s Republic of China) 22,264,027 22,264,

95 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY2007 NOTES TO THE FINANCIAL STATEMENTS (Cont d) 12. Subsidiary companies (cont'd) The subsidiary companies at 31 December were as follows:- Name of Company Principal activities Percentage of (Country of incorporation) (Place of business) Cost equity held $ $ % % Held by subsidiary companies Held by King's Shoe Manufacturing Pte Ltd King s Safetywear (4) Trading of safety (Australia) Pty Limited footwear (Australia) (Australia) Held by Kingshoe Manufacturing Sdn Bhd Tuffshu Trading Sdn Bhd (2) Trading of safety (Malaysia) footwear and other personal protective equipment (Malaysia) Held by King's Safetywear Indonesia Pte Ltd PT King s Safetywear (6) Manufacturing and (Indonesia) trading of safety footwear and other personal protective equipment (Indonesia) PT KSW Batam (6) Manufacturing of (Indonesia) safety footwear (Indonesia) Held by Otter Schutz GmbH Otter Portuguesa Ind stria Manufacturing of de Calcado Lda., safety footwear Guimaraes (5) (Portugal) (Portugal) (1) Audited by Ernst & Young, Singapore (2) Audited by Ernst & Young, Malaysia (3) Audited by Ernst & Young, Germany (4) Audited by Low & Company, Australia (5) Audited by Ernst & Young, Portugal (6) Audited by Ernst & Young, Indonesia (7) Audited by Shanghai RSM Chio Lim, The People s Republic of China 62 93

96 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY Associated company Group Company $ $ $ $ Unquoted equity shares, at cost 292, , , ,500 Share of post acquisition reserves (288,762) (226,549) - - Carrying amount of investment 3,738 65, , ,500 The associated company at 31 December is as follows:- Name of Company Principal activities Percentage of (Country of incorporation) (Place of business) Cost equity held $ $ % % Held by the Company Aegle Alliance Pte Ltd (1) Investment holding 292, , (Singapore) (Singapore) Held by Aegle Alliance Pte Ltd Aegle Safety Equipment Trading and sourcing (Shanghai) Corp Ltd (2) of personal protective (People s Republic of China) equipment (People s Republic of China) (1) Audited by Cypress Singapore PAC, Singapore (2) Audited by Shanghai RSM Chio Lim, The People s Republic of China NOTES TO THE FINANCIAL STATEMENTS (Cont d) The summarised financial information of the associated company are as follows: $ $ Assets and liabilities: Current assets 3,292,976 3,353,801 Non-current assets 85,426 85,456 Total assets 3,378,402 3,439,257 Total liabilities (3,257,692) (3,148,750) Results: Revenue 5,607,186 4,101,254 Loss for the year (162,765) (198,383) 63 94

97 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY2007 NOTES TO THE FINANCIAL STATEMENTS (Cont d) 14. Loan to subsidiary companies This loan is interest-free, unsecured and not expected to be repayable within the next 12 months. 15. Loan to an associated company Group Company $ $ $ $ Long-term loan to associated company 849, , , ,070 Interest on long-term loan to associated company 46,771 15,105 46,771 15, , , , ,175 This loan is unsecured and not expected to be repayable within the next 12 months. Interest is charged on the average amount outstanding at year end based on the prevailing market interest rate of 4.25% (2006: 4.25%) per annum. Pursuant to the Shareholders Agreement ( Agreement ) dated 23 April 2005, the involved parties agreed to extend the following loans: First Tranche Shareholders loan of up to $750,000 within the period of 12 months after the Completion date. The Group and Company s proportionate share of the loan is $292,500. As at year end, $292,500 (2006: $292,500) has been drawndown. Second Tranche Shareholders loan of up to $1,000,000 after the expiry of a period of 24 months after the Completion date. The Group and Company s proportionate share of the loan is $557,140. As at year end, $557,140 (2006: $278,570) has been drawndown. These loans shall be for an indefinite period but shall be repaid when the associated company achieved the minimum net profit after tax as stipulated in the Agreement. The associated company may declare dividends provided that there is availability of profits and no loans owing to its shareholders, and in accordance with the Agreement. 16. Stocks Group $ $ Raw materials 17,193,707 10,106,590 Work-in-progress 9,533,144 4,565,839 Finished goods 10,184,469 8,735,207 Total stocks at lower of cost and net realisable value 36,911,320 23,407,636 Cost of stocks 67,533,668 63,375,403 Stocks written off/down directly to profit and loss account 490, ,131 Reversal of write-down of stocks * (51,887) (113,030) * Reversal of write-down of stocks was made pursuant to the sales of these stocks

98 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY Trade debtors Group $ $ Trade debtors 23,421,913 22,640,516 GST/VAT recoverable 1,654, ,767 25,076,892 23,535,283 Allowance for impairment: Trade debtors (52,027) (90,411) 25,024,865 23,444,872 Trade debtors are non-interest bearing and are generally on 30 to 90 days terms. They are recognised at their original invoice amounts which represents their fair values on initial recognition. As at 31 December 2007, the Group s trade debtors that were denominated in currencies other than the respective functional currencies of the Group entities comprised $2,818,219 (2006 : $2,420,004) in United States dollars. Debtors that are past due but not impaired The Group has trade debtors amounting to $5,556,407 (2006 : $5,341,288) that are past due at the balance sheet date but not impaired. These debtors are unsecured and the analysis of their aging at the balance sheet date is as follows: Group $ $ NOTES TO THE FINANCIAL STATEMENTS (Cont d) Trade debtors past due: Less than 30 days 3,438,713 2,792, to 60 days 778, , to 90 days 233, , to 120 days 70, ,684 More than 120 days 1,035,720 1,483,223 5,556,407 5,341,

99 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY2007 NOTES TO THE FINANCIAL STATEMENTS (Cont d) 17. Trade debtors (cont'd) Debtors that are impaired Group s trade debtors that are impaired at the balance sheet date and the movement of the allowance accounts used to record the impairment are as follows: Group Collectively impaired Individually impaired $ $ $ $ Trade debtors - nominal amounts - 54,213 52,027 43,344 Less: Allowance for impairment - (54,213) (52,027) (36,198) ,146 Movement in allowance accounts: At 1 January 54,213 54,527 36,198 6,512 Charge for the year ,732 32,308 Written off (15,543) Write-back (40,938) - (3,716) (2,937) Exchange differences 2,268 (314) 1, As at 31 December - 54,213 52,027 36,198 Trade debtors that are individually determined to be impaired at the balance sheet date relate to debtors that are in significant financial difficulties and have defaulted on payments. These debtors are not secured by any collateral or credit enhancements. For the year ended 31 December 2007, an impairment loss of $17,732 (2006 : $32,308) was recognised in the profit and loss account subsequent to a debt recovery assessment performed on trade debtors as at 31 December There was also a reversal of allowance for impairment of $44,654 (2006 : $2,937). 18. Other debtors Group Company $ $ $ $ Deposits 116, , Interest bearing loans to employees * - 18, Non-interest bearing loans to employees 216 3, Tax recoverable 234, , Account receivable 110, , Sundry debtors 260,013 34, , , * Loans to employees are unsecured, bear interest of 5% (2006: 5%) per annum and are repayable on demand

100 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY Other debtors (cont'd) As at 31 December 2007, the Group s other debtors that were denominated in currencies other than the respective functional currencies of the Group entities comprised $110,302 (2006 : $92,976) in Eurodollars. 19. Amounts due from subsidiary companies and a related party The amounts due from subsidiary are non-trade in nature, unsecured, interest free, repayable on demand and are to be settled in cash. The amount due from a related party is trade in nature. 20. Derivative financial instrument Group $ $ Contract/Notional Contract/Notional Amount Assets Amount Assets Interest rate cap Outstanding loan balance 15, at the beginning of each calculation period During the financial year, the Group has entered into an interest rate cap contract with a bank. The interest rate cap is used to hedge cash flow interest rate risk arising from a floating rate Eurodollars bank loan at a cap strike rate of 4%, and have the same maturity terms as the bank loan. The outstanding Eurodollars bank loan as at 31 December 2007 amounted to $1,300,939 (2006: $1,535,811). NOTES TO THE FINANCIAL STATEMENTS (Cont d) 21. Trade creditors, other creditors and accruals Trade creditors As at 31 December 2007, the following amounts are included in trade creditors for the Group that were denominated in currencies other than the respective functional currencies of the Group entities: $260,931 (2006: $325,491) denominated in Singapore dollars $2,416,035 (2006: $2,440,482) denominated in United States dollars $801,634 (2006: $829,912) denominated in Eurodollars 67 98

101 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY2007 NOTES TO THE FINANCIAL STATEMENTS (Cont d) 21. Trade creditors, other creditors and accruals (cont'd) Other creditors and accruals Group Company $ $ $ $ Accruals 2,576,429 1,940, ,510 70,969 Retirement benefit (Note 28) 100, , Provision for warranty 147, , Accrual for employee leave entitlement 446, , Accrued interest payable 307, , Rebates due to customers 89, , Employee insurance payable 117, , Withholding income tax payable 105, , Sundry creditors 366, , ,255,568 3,620, ,510 70,969 Analysis of provision for warranty: Balance at beginning of year 141, , Exchange translation adjustment 5,985 2, Balance at end of year 147, , A subsidiary provides a one-year warranty on its products. The amount of the provision is calculated based on a percentage of the sales of the current year after taking into account past experiences. As at 31 December 2007, the Group s other creditors and accruals that were denominated in currencies other than the respective functional currencies of the Group entities comprised $394,958 (2006 : $330,608) in Indonesian Rupiah

102 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY Amounts due to bankers, secured Group $ $ Revolving loans 13,000,000 8,000,000 Terms loans 18,179,925 12,974,914 31,179,925 20,974,914 Repayable within 12 months 24,277,555 (16,881,827) Repayable after 12 months 6,902,370 4,093,087 (a) This SGD revolving loans bear interest from 3.17% to 5.18% (2006 : 4.65% to 5.18%) per annum with tenure ranging from 2 weeks to 3 months (2006 : 3 to 12 months). (b) Term loans bear a fixed interest rate from 3.72% to 6.0% (2006 : 3.72% to 6.0%) per annum. The details of the loans are as follows:- Term loan (i) 269, ,203 Term loan (ii) 1,375,000 1,875,000 Term loan (iii) 7,353,500 7,658,900 Term loan (iv) 1,300,939 1,535,811 Term loan (v) 1,200,000 1,500,000 Term loan (vi) 1,680,000 - Term loan (vii) 5,000,000-18,179,925 12,974,914 Term loans : NOTES TO THE FINANCIAL STATEMENTS (Cont d) (i) This loan is repayable over 8 years till 2011 and bears pre-determined interest rates at 4.5% per annum for the first year, 6.5% per annum for the second year and 8.45% per annum for the remaining repayment years. The interest rate is revised to 6.0% per annum with effect from 25 September 2003 until the end of the term loan on 25 September This loan is denominated in Malaysian Ringgit. (ii) This SGD loan is repayable over 5 years till 10 July 2010 and bears a fixed interest rate at 3.72% (2006 : 3.72%) per annum. (iii) This is a 1-year term loan due on 24 April 2008 and bears interest at Euribor +0.8% (2006 : Euribor +0.8%) per annum. The fixed interest rate in 2007 is 5.067% (2006 : 4.077%) per annum. This loan is denominated in Eurodollars. (iv) This loan is repayable over 7 years till 12 April 2012 and bears interest at Euribor +1.5% (2006 : Euribor +1.5%) per annum. The weighted average effective interest rate in 2007 is 5.67% (2006 : 4.64%). This loan is denominated in Eurodollars. (v) This SGD loan is repayable over 5 years till 17 April 2011 and bears interest at Cost of Fund +1.5% per annum. The weighted average effective interest rate in 2007 is 4.44% (2006 : 5.1%)

103 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY2007 NOTES TO THE FINANCIAL STATEMENTS (Cont d) 22. Amounts due to bankers, secured (cont'd) (vi) This is a 6-month term loan due on 27 February 2008 and bears interest at Euribor + 1.5% (2006 : Nil) per annum. The fixed interest rate in 2007 is 5.547% (2006 : Nil). This loan is denominated in Eurodollars. (vii) This SGD loan is repayable over 5 years till 21 December 2012 and bears a fixed interest rate at 4.355% (2006 : Nil) per annum. These loans are obtained by : (a) a corporate guarantee from King s Safetywear Limited; (b) a mortgage over the Group s freehold properties (Note 9) known as : (i) No. 1 Jalan Permas 9/14, Johor Bahru, Johor, Malaysia; (ii) Xantener Strasse 6, D-45479, Mulheim an der Ruhr, Germany; and (iii) Louredo de Cima, Selho de Sao Loureno, Apartado 445, , Guimaraes, Portugal (c) a mortgage over the Company s leasehold property at No. 22 Defu Lane 1; and (d) Standby Letter of Credit of Euro 4,000,000 (S$8,404,000 equivalent) (2006: S$8,062,000). 23. Hire purchase creditors The Group has hire purchase arrangements for certain items of plant and equipment (Note 9). These leases have purchase options but no escalation clauses. There are no restrictions placed upon the Group by entering into these leases. The average discount rates implicit in the leases range from 4.38% to 6.25% (2006 : 4.38% to 6.61%) per annum. The Group s future minimum lease payments under hire purchase arrangements together with the present value of the net minimum lease payments are as follows: Present Present Minimum value of Minimum value of Group payments payments payments payments $ $ $ $ Within one year 321, , , ,320 After one year but not more than five years 47,188 42, , ,667 Total minimum lease payments 368, , , ,987 Less : amounts representing finance charges (30,938) - (52,902) - Present value of minimum hire purchase payments 337, , , ,

104 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY Deferred tax liabilities Group $ $ Differences in carrying values of patents and trademarks for accounting and income tax purposes 5,597 10,047 Differences in carrying values of fixed assets for accounting and income tax purposes 258, ,085 Overseas unremitted income 30, ,566 Others 56,026 35,627 Deferred taxation liabilities 350, ,325 As at 31 December 2007, there was no recognised deferred tax liability (2006 : Nil) for taxes that would be payable on the unremitted earnings of certain of the Company s subsidiaries. 25. Share capital No. No. of shares $ of shares $ Issued and fully paid:- At 1 January 219,822,110 31,530, ,822,110 21,982,211 *Transfer of share premium reserve to share capital ,548,690 Issuance of ordinary shares on exercise of employee share options 1,044, , Exercise of employee share options - 54, NOTES TO THE FINANCIAL STATEMENTS (Cont d) At 31 December 220,866,110 31,778, ,822,110 31,530,901 The Company has an employee share option scheme under which options to subscribe for the Company s ordinary shares have been granted to employees of the Group. * In accordance with the Singapore Companies (Amendment) Act 2005, on 30 January 2006, the shares of the Company ceased to have a par value and the amount standing in the share premium reserve became part of the Company s capital

105 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY2007 NOTES TO THE FINANCIAL STATEMENTS (Cont d) 26. Reserves Group Company $ $ $ $ Revenue reserve/(accumulated losses) Balance at the beginning of year 13,632,293 9,860,715 1,922,006 (957,048) Profit for the year 7,285,958 5,090,511 3,880,573 4,197,987 Dividends paid (Note 37) (2,422,573) (1,318,933) (2,422,573) (1,318,933) Balance at the end of year 18,495,678 13,632,293 3,380,006 1,922,006 Share options reserve (a) Balance at the beginning of year 551, , , ,277 Exercise of employee share options (54,049) - (54,049) - Grant of equity-settled share options to employees 103, , , ,837 Balance at the end of year 600, , , ,114 Exchange translation reserve (b) Balance at the beginning of year (2,748,527) (1,621,562) - - Adjustment for the year (1,609,483) (1,126,965) - - Balance at the end of year (4,358,010) (2,748,527) - - Total reserves 14,737,851 11,434,880 3,980,189 2,473,120 (a) Share options reserve Employee share option reserve represents the equity-settled share options granted to employees (Note 28). The reserve is made up of the cumulative value of services received from employees recorded over the vesting period commencing from the grant date of equity-settled share options, and is reduced by the expiry of the share options. (b) Exchange translation reserve The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign operations whose functional currencies are different from that of the Group s presentation currency

106 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY Cash and cash equivalents Cash and cash equivalents included in the consolidated statement of cash flow comprise the following balance sheet accounts: Group $ $ Cash at banks and in hand 7,414,157 7,940,399 Bank overdrafts - (241,495) 7,414,157 7,698,904 Cash at banks earns interest at floating rates based on daily bank deposit rates of 0.05% to 5.25% (2006: 0.05% to 4.5%) per annum. Short-term deposits are made for varying periods of at least one day depending on the immediate cash requirements of the Group. The weighted average effective interest rate of shortterm deposits and bank overdrafts is Nil% (2006: 2.72%) and 9.71% (2006: 9.1%) per annum respectively. 28. Employee benefits Employee benefits expense (including directors) Salaries, bonuses and fee 17,190,883 15,801,797 Central Provident Fund contributions 1,600,276 1,534,700 Expense of share-based payments (Note 28a) 103, ,837 Post-retirement employee benefits (Note 28b) (89,457) 33,088 Retrenchment benefits 1,479, ,637 Others 214, ,147 NOTES TO THE FINANCIAL STATEMENTS (Cont d) 20,498,167 18,150,

107 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY2007 NOTES TO THE FINANCIAL STATEMENTS (Cont d) 28. Employee benefits (cont'd) (a) Employee share option scheme The Company has an Employee Share Option Scheme ( Scheme ) for the granting of non-transferable options. The options are exercisable beginning on the first anniversary of the date of grant. There are no cash settlement alternatives. During the year, the directors and executive officers of the Group were granted with 550,000 options and 800,000 options respectively. As at 31 December 2007, the aggregate options outstanding for directors and executive officers were 3,113,000 (2006 : 2,750,000) and 5,050,000 (2006 : 3,800,000) respectively. Information with respect to the total number of options granted under the Scheme and the movement of share options during the financial year is as follows: Number of options to subscribe for ordinary share No. of Exercise Balance at options Lapsed/ Balance at price Exercise period granted Exercised Waived per share Grant date 21 October 2004 to 4,475, (75,000) 4,400,000 $ October October December 2005 to 2,575,000 - (561,000) (75,000) 1,939,000 $ November November December 2006 to 2,751,000 - (483,000) (75,000) 2,193,000 $ December December December 2007 to 3,063, (75,000) 2,988,000 $ December December December 2008 to - 3,813, ,813,000 $ December December 2017 Total 12,864,000 3,813,000 (1,044,000) (300,000) 15,333,000 The weighted average fair value of options granted during the financial year was $0.026 (2006: $0.034). The weighted average share price at the date of exercise of the options exercised during the financial year was $0.28 (2006 : Nil). The fair value of share options as at the date of grant, is estimated by an external valuer using a Trinomial model, taking into account the terms and conditions upon which the options were granted. The inputs to the model used for the years ended 31 December are shown below: Dividend yield (%) 7.86% Expected volatility (%) Historical volatility (%) Risk-free interest rate (%) Expected life of option (years) Weighted average share price ($) * Options granted on 29 December 2006 have been valued during the financial year ended 31 December No valuation has been performed for the options granted on 28 December 2007 as the directors are of the opinion that the impact to the financial statements is not significant

108 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY Employee benefits (cont'd) (a) (b) Employee share option scheme (cont'd) The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. No other features of the option grant were incorporated into the measurement of fair value. Post-retirement employee benefits The Group provides post-retirement employee benefit for its employees in Indonesia who have reached the retirement age of 55 years. This benefit is unfunded. The following tables summarise the component of net benefit expense recognised in the profit and loss account and the amount recognised in the balance sheet $ $ Net benefit expense Current service cost 72,049 54,204 Interest cost 16,840 18,360 Past service cost (vested) 4,301 (4,384) Amortisation of unvested past service cost Effect of curtailment (183,738) (34,748) Actuarial loss/(gain) recognised 1,351 (171) Adjustment (521) (446) Total post-retirement benefit cost/(write-back) (89,457) 33,088 Liability recognised in balance sheet Present value of benefit obligation 146, ,177 Unrecognised past service cost (unvested) (464) (3,658) Unrecognised actuarial loss (45,969) (46,047) NOTES TO THE FINANCIAL STATEMENTS (Cont d) 100, ,472 Movements in the benefit liability during the years ended 31 December are as follows: Liability at the beginning of year 200, ,332 Benefit expenses/(write-back) (89,457) 33,088 Payment during the year - (637) Exchange translation adjustment (10,645) (1,311) Liability at the end of year (Note 21) 100, ,472 Changes in the present value of the defined benefit obligation are as follows: Defined benefit obligation at the beginning of year 250, ,522 Current service cost 72,049 54,204 Interest cost 16,840 18,360 Past service cost (vested) 4,301 (4,283) Effect of curtailment (213,518) (2,450) Actuarial loss/(gain) 35,349 (32,714) Benefits paid (1,989) 64,817 Exchange translation adjustment (16,406) (3,279) Defined benefit obligation at the end of year 146, ,

109 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY2007 NOTES TO THE FINANCIAL STATEMENTS (Cont d) 28. Employee benefits (cont'd) (b) Post-retirement employee benefits (cont'd) The principal assumptions used in determining retirement benefits as of 31 December are as follows: Discount rate 10% 10.5% Annual salary increment rate 6% 6% Mortality rate - Table of Mortality Indonesia (TMI) 100% TMI 2 100% TMI 2 Resignation rate 1% p.a. 1% p.a. Disability rate 5% TMI 2 5% TMI 2 Proportion of normal retirement 100% 100% 29. Related party disclosures An entity or individual is considered a related party of the Group for the purposes of the financial statements if: i) it possess the ability (directly or indirectly) to control or exercise significant influence over the operating and financial decisions of the Group or vice versa; or ii) it is subject to common control or common significant influence. (a) Compensation of key management personnel $ $ Short-term employee benefits 3,682,459 3,076,637 Defined contribution plan and other statutory contribution 144, ,278 Share-based payments 58,260 85,162 Total compensation paid to key management personnel 3,885,716 3,268,077 Comprise of the amount paid and/or payable to: Directors 3,110,607 2,522,871 Other key management personnel 775, ,206 3,885,716 3,268,077 Directors' interests in an employee share option plan At 1 January 2007, two of the company s executive directors held options to purchase ordinary shares of the company under the Employee Share Option Scheme as follows: 1,100,000 ordinary shares at a price of $0.31 each, exercisable between 21 October 2004 and 20 October 2013; 550,000 ordinary shares at a price of $0.22 each, exercisable between 1 December 2005 and 30 November 2014; 550,000 ordinary shares at a price of $0.145 each, exercisable between 31 December 2006 and 30 December 2015; and 550,000 ordinary shares at a price of $0.14 each, exercisable between 30 December 2007 and 29 December

110 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY Related party disclosures (cont'd) (a) (b) Compensation of key management personnel (cont'd) During the year ended 31 December 2007, Options of 550,000 ordinary shares at a price of $0.34 each were granted to the aforementioned executive directors which will be exercisable between 29 December 2008 and 28 December One of the directors exercised options for 125,000 ordinary shares at $0.22 each and 62,000 ordinary shares at $0.145 each, with a total cash consideration of $36,490 (2006 : Nil) paid to the Company. No share options have been granted to the Company s non-executive directors. Other significant related party transactions In addition to those related party information disclosed elsewhere in the financial statements, the following significant transactions between the Group and related parties who are not members of the Group took place during the year at terms agreed between the parties: Group $ $ Sale of goods to a subsidiary of an associated company 592, , Operating lease commitments As lessee The Group leases two properties, computer equipment, and motor vehicles under lease agreements that are non-cancellable within one year. The leases for the two properties expire in 2010 and 2014 respectively and contain provisions for rental adjustments. The leases for both computer equipment and motor vehicles expire between 2006 and There are no restrictions placed upon the Group by entering into these leases Future minimum lease payments for the lease are as follows: NOTES TO THE FINANCIAL STATEMENTS (Cont d) Payable within 1 year 743, ,605 Payable 2 to 5 years 1,373,141 1,828,346 Payable after 5 years 219, ,370 2,336,119 3,046,321 Minimum lease payments recognised as an expense in the profit and loss account for the financial year ended 31 December 2007 amounted to $820,408 (2006 : $765,705). As lessor The Group has entered into a lease on its property. This non-cancellable lease has remaining lease terms of 5 years. The lease includes a clause to revise the rental charge every 2 years. Future minimum rentals receivable under non-cancellable operating leases at the balance sheet date are as follows: Payable within 1 year 37,278 - Payable 2 to 5 years 170, ,

111 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY2007 NOTES TO THE FINANCIAL STATEMENTS (Cont d) 31. Capital commitments Capital commitments not provided for in the financial statements as at 31 December are as follows: Group Company $ $ $ $ Commitments in respect of Balance payment on the construction of new building in Batam, Indonesia - 265, Fair value of financial instruments The face value for financial assets and liabilities with a maturity of less than one year (including trade and other receivables, amounts due from subsidiary companies, amount due from a related party, cash and cash equivalents, bank overdrafts, trade and other payables and revolving loans) are assumed to approximate their fair values due to their short-term nature. The fair value of financial liabilities is estimated by discounting the future contractual cash flows at the current market interest rate available to the Group for similar financial instruments. The aggregate net fair values of financial liabilities of the Group which are not carried at fair value in the balance sheet as of year ended 31 December is presented in the following table: Total carrying amount Aggregate net fair value $ $ $ $ Financial liabilities Term loan (Note 22) 6,644,687 2,280,203 6,016,016 2,034,360 Hire purchase creditors (Note 23) 337, , , ,467 The fair values of loans and hire purchase creditors are estimated using discounted cash flow analysis, based on current incremental lending rates for similar types of borrowing arrangements. The carrying value of the revolving loans approximates its fair value because of its floating rate nature. The loans to subsidiary and associated companies of $3,708,265 (2006 : $3,557,357) and $896,411 (2006 : $586,175) respectively have no repayment terms and are repayable only when the cash flows of the borrowers permit. Accordingly, the fair values of the loans are not determinable as the timing of the future cash flows arising from the loans cannot be estimated reliably. The fair value of interest rate cap contract is determined by reference to market values for similar instruments

112 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY Financial risk management objectives and policies The Group and the Company is exposed to financial risks arising from its operations and the use of financial instruments. The key financial risks include credit risk, liquidity risk, interest rate risk, foreign currency risk and market price risk. The Board of directors reviews and agrees policies and procedures for the management of these risks, which are executed by the Chief Financial Officer. The Audit Committee provides independent oversight to the effectiveness of the risk management process. It is, and has been throughout the current and previous financial year the Group s policy that no derivatives shall be undertaken except for the use as hedging instruments where appropriate and cost-efficient. The Group and the Company do not apply hedge accounting. The following sections provide details regarding the Group s and Company s exposure to the above mentioned financial risks and objectives, policies and processes for the management of these risks. Credit risk Credit risk is the risk of loss that may arise on outstanding financial instruments should a counterparty default on its obligations. The Group s and the Company s exposure to credit risk arises primarily from trade and other receivables. For the other financial assets such as cash and cash equivalents and derivatives, the Group and the Company minimise credit risk by dealing with good credit rating counterparties. The Group s objective is to seek continual revenue growth while minimising losses incurred due to increased credit risk exposure. The Group trades only with recognised and creditworthy third parties. It is the Group s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the Group s exposure to bad debts is not significant. For transaction that do not occur in the country of the relevant operating unit, the Group does not offer credit terms without the approval of the authorised personnel. Exposure to credit risk At the balance sheet date, the Group s and the Company s maximum exposure to credit risk is represented by : NOTES TO THE FINANCIAL STATEMENTS (Cont d) The carrying amount of each class of financial assets recognised in the balance sheets, including derivatives with positive fair values; and A nominal amount of $49,294,985 (2006 : $45,305,840) relating to a corporate guarantee provided by the Company to banks on subsidiaries banking facilities. Information regarding credit enhancements for trade receivables is disclosed in Note

113 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY2007 NOTES TO THE FINANCIAL STATEMENTS (Cont d) 33. Financial risk management objectives and policies (cont'd) Credit risk concentration profile The Group determines concentrations of credit risk by monitoring the country profile of its trade debtors on an on-going basis. The credit risk concentration profile of the Group s trade debtors at the balance sheet date is as follows: Group $'000 % $'000 % By country: Malaysia 5,389 23% 4,878 22% Indonesia 5,214 22% 6,832 30% Singapore 4,333 19% 3,600 16% Europe 3,579 15% 3,303 15% Philippines 1,385 6% 1,109 5% Thailand 1,272 5% 1,244 5% Other countries 2,250 10% 1,675 7% Trade debtors (Note 17) 23, % 22, % Financial assets that are neither past due nor impaired Trade and other debtors that are neither past due nor impaired are creditworthy debtors with good payment record with the Group. Cash and cash equivalents and derivatives that are neither past due nor impaired are placed with or entered into with reputable institutions or companies with good credit ratings and no history of default. Financial assets that are either past due or impaired Information regarding financial assets that are either past due or impaired is disclosed in Note 17. Liquidity risk Liquidity risk is the risk that the Group or the Company will encounter difficulty in meeting financial obligations due to shortage of funds. The Group s and the Company s exposure to liquidity risk arises primarily from mismatches of the maturities of financial assets and liabilities. The Group s and the Company s objective is to maintain a balance between continuity of funding and flexibility through the use of standby credit facilities. The Group s and the Company s liquidity risk management policy is to maintain sufficient liquid assets and standby credit facilities with more than 1 bank. At balance sheet date, approximately 78% (2006 : 80%) of the Group s loans and borrowings (Note 22) will mature in less than one year based on the carrying amount reflected in the financial statements. The Group is of the opinion that it has sufficient assets and credit facilities to meet its financial obligations

114 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY Financial risk management objectives and policies (cont'd) Liquidity risk (cont'd) The table below summarises the maturity profile of the Group s and the Company s financial liabilities at the balance sheet date based on contractual undiscounted payments More More Within 1-5 than Within 1-5 than 1 year years 5 years Total 1 year years 5 years Total $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 Group Trade and other payables 11, ,488 11, ,388 Hire purchase creditors Amount due to bankers 24,278 6,902-31,180 16,882 3, ,975 36,061 6,945-43,006 28,576 4, ,007 Company Trade and other payables Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of the Group s financial instruments will fluctuate because of changes in market interest rates. The Group s exposure to interest rate risk arises primarily from their loans and borrowings and interest-bearing loans given to related party. The Group s loans at floating rate given to related party form a natural hedge partially for its floating rate bank loan. All the Group s financial assets and liabilities at floating rates are contractually repriced at interval of 6 months or less (2006 : 6 months or less) from the balance sheet date. NOTES TO THE FINANCIAL STATEMENTS (Cont d) The Group s policy is to manage interest cost using a mix of fixed and floating rate debts, but weightage is higher towards the floating rate debts as it is currently more favourable. As at 31 December 2007, the fixed rate debts accounted for approximately 21% (2006 : 11%) of the total debts

115 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY2007 NOTES TO THE FINANCIAL STATEMENTS (Cont d) 33. Financial risk management objectives and policies (cont'd) Interest rate risk (cont'd) Sensitivity analysis for interest rate risk Increase/ Effect on decrease in profit net Effect on basis point of tax equity $'000 $'000 Group Singapore dollars +25 (33) (33) - Eurodollars +25 (26) (26) - Singapore dollars Euro dollars Singapore dollars +25 (22) (22) - Eurodollars +25 (23) (23) - Singapore dollars Eurodollars The Company is an investment holding company with no significant exposure to market price risk Foreign currency risk The Group has transactional currency exposures arising from sales or purchases that are denominated in a currency other than the respective functional currencies of the Group entities, primarily, Singapore Dollars (SGD), Malaysian Ringgit (RM), Indonesia Rupiah (Rp), U.S. Dollars (USD), Australian Dollars (A$), Eurodollars (Euro) and Renminbi (RMB). The Group also holds cash and cash equivalents denominated in foreign currencies for working capital purposes. At the balance sheet date, such foreign currency balances (mainly in RM) amounted to $4.7 million for the Group Forward foreign contract is entered into to manage exposure to fluctuations in foreign currency exchange rate on specific transaction. The Group does not use foreign exchange forward contracts for trading purposes. As at 31 December 2007, there were no open forward foreign exchange contracts. In addition to transactional exposures, the Group is also exposed to currency translation risk arising from its net investments in foreign subsidiary companies in Malaysia, Indonesia, Australia, Europe and China. The Group s net investment in foreign subsidiary companies are not hedged as currency positions in RM, Rp, USD, A$, Eurodollars and RMB are considered to be long-term in nature

116 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY Financial risk management objectives and policies (cont d) Foreign currency risk (cont d) Sensitivity analysis for foreign currency risk The following table demonstrates the sensitivity to a reasonably possible change in the RM, Rp, US$, A$, Eurodollars and RMB exchange rates (against SGD), with all other variables held constant, of the Group s profit net of tax and equity $ 000 $ 000 Profit Profit net of tax Equity net of tax Equity RM - Strengthened 3% (2006 : 3%) Weakened 3% (2006 : 3%) - (306) - (302) Rp - Strengthened 3% (2006 : 3%) (11) 192 (9) Weakened 3% (2006 : 3%) 11 (192) 9 (210) USD - Strengthened 3% (2006 : 3%) Weakened 3% (2006 : 3%) (10) (337) (1) (331) A$ - Strengthened 3% (2006 : 3%) (3) - Weakened 3% (2006 : 3%) - (7) (4) (7) NOTES TO THE FINANCIAL STATEMENTS (Cont d) Eurodollars - Strengthened 3% (2006 : 3%) (20) 205 (22) Weakened 3% (2006 : 3%) 20 (205) 22 (182) RMB - Strengthened 3% (2006 : 3%) Weakened 3% (2006 : 3%) - (8) (4) (7) Market price risk Market price risk is the risk that the fair value or future cash flows of the Group s financial instruments will fluctuate because of changes in market prices (other than interest or exchange rates). The Group does not have exposure to market price risk

117 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY2007 NOTES TO THE FINANCIAL STATEMENTS (Cont d) 34. Capital management The primary objective of the Group s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize shareholder value. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes during the years ended 31 December 2007 and 31 December The Group monitors capital using a gearing ratio, which is net interest bearing debt divided by total equity. The Group does not have a formal policy with regards to the gearing ratio but aim to keep it below 100%. The Group includes within net interest bearing debt, loans and borrowings and hire purchase creditors less cash and cash equivalents. Group $ $ Bank overdrafts (Note 27) - 241,495 Amounts due to bankers, secured (Note 22) 31,179,925 20,974,914 Hire purchase creditors (Note 23) 337, ,987 Less : Cash and bank balances (Note 27) (7,414,157) (7,940,399) Net debt 24,103,394 13,919,997 Total equity 46,516,256 42,965,781 Gearing ratio 52% 32% 35. Segment information The primary segment reporting format is determined to be geographical segments as the Group s operating businesses are organised and managed separately according to different markets served. In presenting information on the basis of geographical segments, segment revenue and results, segment assets, liabilities and capital expenditure are based on the geographical location of customers. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items mainly comprise corporate assets and expenses. Segment assets do not include deferred tax assets and tax recoverable. Segment liabilities do not include taxation, deferred taxation and interest bearing liabilities. Segment accounting policies are the same as the policies of the Group as described in Note 2. The Group generally accounts for inter-segment sales and transfers on an arm s length basis

118 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY Segment information (cont'd) Business segments The Group s principal activity consists wholly of the manufacture and distribution of safety footwear and other personal protective equipment. As the information on other personal protective equipment is not significant to the financial statements, no segment information based on business activity is presented. Geographical segments The following table presents revenue and expenditure information regarding geographical segments for the years ended 31 December and certain asset information regarding geographical segments as at 31 December: Restated $ $ Segment revenue Sales to external customers: Asia 65,252,343 62,180,156 Europe 29,113,154 24,826,915 Oceania 2,760,446 2,318,517 Middle East & Others 3,580,633 2,086, ,706,576 91,412,069 Segment results* Asia 9,570,918 8,093,514 Europe 569,628 (554,571) Oceania 287, ,429 Middle East & Others 283, ,554 NOTES TO THE FINANCIAL STATEMENTS (Cont d) 10,711,816 7,949,926 Unallocated income 152, ,197 Finance costs (1,221,535) (1,068,462) Share of loss of associated company (62,213) (142,428) 9,580,641 7,224,233 Taxation (2,294,683) (2,133,722) Profit for the year 7,285,958 5,090,511 * FY2006 comparatives have been restated due to a change in the basis of allocation of expenses as disclosed in Note

119 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY2007 NOTES TO THE FINANCIAL STATEMENTS (Cont d) 35. Segment information (cont'd) Geographical segment based on location of customers $ $ Segment assets Asia 65,184,306 56,114,565 Europe 23,151,219 19,576,587 Oceania and Middle East & Others 2,256,123 1,573,371 Unallocated assets 427, ,021 91,018,738 77,747,544 Segment liabilities Asia 7,928,683 8,840,296 Europe 3,484,373 2,503,269 Oceania and Middle East & Others 75,137 44,437 Unallocated liabilities 33,014,289 23,393,761 44,502,482 34,781,763 Other segment information : Capital expenditure Asia 1,204,115 2,127,590 Europe 230, ,993 Oceania and Middle East & Others 4,024 13,967 1,438,505 2,310,550 Depreciation Asia 1,470,624 1,653,240 Europe 514, ,684 Oceania and Middle East & Others 11,713 13,413 1,996,595 2,165,337 Amortisation of intangible assets Asia - - Europe 93,360 90,374 Oceania and Middle East & Others ,360 90,374 Differences in relation to the disclosure required for geographical segment by location of assets is disclosed below: Segment assets by location of assets Asia 66,371,487 56,961,108 Europe 23,151,219 19,576,587 Oceania and Middle East & Others 1,068, ,828 Unallocated assets 427, ,021 91,018,738 77,747,

120 APPENDIX IV AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR FY Contingent liabilities During the year, there were corporate guarantees given by the Company to banks for banking facilities (Note 22). As at 31 December 2007, approximately $39,930,121 (2006 : $29,620,251) has been utilised under the banking facilities. 37. Dividends paid and proposed During the year, the Company paid a first and final tax exempt dividend of 1.1 (2006 : 0.6) cents per ordinary share amounting to $2,422,573 (2006 : $1,318,933) in respect of the year ended 31 December The directors propose that a first and final tax exempt dividend of 1.3 (2006 : 1.1) cents per ordinary share amounting to approximately $2,871,000 (2006 : $2,422,573) be paid for the year ended 31 December These financial statements do not reflect this dividend payable, which will be accounted for in the shareholders equity as an appropriation of retained earnings in the financial year ending 31 December Authorisation of financial statements The financial statements for the year ended 31 December 2007 were authorised for issue in accordance with a resolution of the directors on 10 March NOTES TO THE FINANCIAL STATEMENTS (Cont d)

121 APPENDIX V UNAUDITED RESULTS OF THE GROUP FOR THE HALF-YEAR ENDED 30 JUNE 2008 KING S SAFETYWEAR LIMITED Half Year Financial Statement for the Period Ended 30 June 2008 PART I - INFORMATION REQUIRED FOR ANNOUNCEMENTS OF QUARTERLY (Q1, Q2 & Q3), HALF-YEAR AND FULL YEAR RESULTS 1(a) An income statement (for the group) together with a comparative statement for the corresponding period of the immediately preceding financial year. Note 6 months ended 30 June Increase/ (decrease) S$ 000 S$ 000 % Group Group Revenue 8 55,923 50, % Cost of sales (37,056) (33,048) 12.1% Gross profit 8 18,867 17, % Gross profit margin 33.7% 34.3% Marketing costs 8 (5,207) (4,945) 5.3% Administrative costs 8 (6,087) * (7,241) (15.9%) 7,573 5, % Other income (65.0%) Finance costs 8 (643) (555) 15.9% Share of results of associated company 8 23 (26) N.M. Profit before taxation 8 7,090 4, % Taxation 8 (1,266) (1,326) (4.5%) Profit after taxation 8 5,824 3, % N.M. Not Meaningful * Include a one-time retrenchment expense of S$1.5 million. Profit before tax was stated after crediting/(charging): 6 months ended 30 June S$ 000 S$ 000 Group Group Amortisation of patents and trademarks (48) (46) Bad trade debt written off (16) (5) Compensation expenses (share options) (105) (61) Depreciation of fixed assets (945) (999) Fixed assets written off (2) (4) Impairment of trade debtors (92) - Interest income Gain on disposal of fixed assets 2 2 Foreign exchange (loss)/gain (207)

122 APPENDIX V UNAUDITED RESULTS OF THE GROUP FOR THE HALF-YEAR ENDED 30 JUNE (b)(i) A balance sheet (for the issuer and group), together with a comparative statement as at the end of the immediately preceding financial year. Note 30/06/ /12/ /06/ /12/2007 S$ 000 S$ 000 S$ 000 S$ 000 Group Group Company Company Non-current assets Fixed assets 17,174 18, Intangible assets Deferred tax assets Subsidiary companies ,963 22,858 Associated company Loan to subsidiary ,793 3,708 companies Loan to associated company 19,407 20,133 27,945 27,755 Current assets Stocks 32,901 36, Trade debtors 27,559 25, Other debtors Prepaid operating expenses Amounts due from ,043 7,789 subsidiary company Amounts due from related company Derivative financial instruments Cash and bank balances 8,829 7, ,360 70,885 10,080 8,148 Current liabilities Trade creditors 6,417 7, Other creditors and 3,953 4, accruals Amounts due to bankers, 1(b)(ii) 24,489 24, secured Hire purchase creditors 1(b)(ii) Provision for taxation 843 1, ,914 37, Net current assets 34,446 33,678 9,979 8,003 Non-current liabilities Amounts due to bankers, 1(b)(ii) 5,795 6, secured Hire purchase creditors 1(b)(ii) Deferred tax liabilities ,123 7, Net assets 47,730 46,516 37,924 35,758 Represented by: Share capital 31,943 31,778 31,943 31,778 Reserves 15,787 14,738 5,981 3,980 47,730 46,516 37,924 35,

123 APPENDIX V UNAUDITED RESULTS OF THE GROUP FOR THE HALF-YEAR ENDED 30 JUNE (b)(ii) Aggregate amount of group s borrowings and debt securities. Amount repayable in one year or less, or on demand As at 30/06/2008 As at 31/12/2007 Secured Unsecured Secured Secured S$ 000 S$ 000 S$ 000 S$ , , Amount repayable after one year As at 30/06/2008 As at 31/12/2007 Secured Secured Secured Unsecured S$ 000 S$ 000 S$ 000 S$ 000 5, , Details of any collateral The amount due to bankers are secured by : (a) Corporate guarantee by King s Safetywear Limited on banking facilities extended to its subsidiaries; and. (b) Charge over the Group s freehold and leasehold properties, machinery and motor vehicles

124 APPENDIX V UNAUDITED RESULTS OF THE GROUP FOR THE HALF-YEAR ENDED 30 JUNE (c) A cash flow statement (for the group), together with a comparative statement for the corresponding period of the immediately preceding financial year. 6 months ended 30 June S$ 000 S$ 000 Cash flows from operating activties: Profit before taxation 7,090 4,899 Adjustments for:- Amortisation of patents and trademarks Depreciation of fixed assets Fair value changes in derivative financial instruments (10) (2) Interest income (39) (53) Interest expense Share of (profit)/loss in associated company (23) 26 Gain on disposal of fixed assets (2) (2) Fixed assets written off 2 4 Compensation expense (share options) Exchange translation adjustment (1,256) 62 Operating cashflow before reinvestments in working capital 7,503 6,595 Decrease/(Increase) in stocks 4,010 (5,934) Increase in debtors (2,343) (5,013) Decrease(increase) in prepaid operating expenses 65 (603) Decrease/(increase) in net amount due from related parties 218 (13) (Decrease)/increase in creditors (920) 3,871 Increase in derivative financial instruments -- (18) Cash generated from / (used in) operations 8,533 (1,115) Tax paid (1,807) (986) Interest paid (841) (658) Net cash generated from / (used in) operations 5,885 (2,759) Cash flows from investing activities: Purchase of fixed assets (756) (874) Proceeds from disposal of fixed assets Interest income Loan to associated company -- (279) Net cash used in investing activities (637) (1,051) Cash flows from financing activities Dividends paid (2,881) (2,423) Proceeds from issuance of new shares Proceeds from bank loans -- 6,828 Repayment of amount due to bankers (895) (363) Repayment of finance lease obligations (112) (151) Net cash (used in) / generated from financing activities (3,753) 3,999 Net increase in cash and cash equivalents 1, Cash and cash equivalents at beginning of the period 7,414 7,699 Effects of exchange rate changes on opening cash and (80) 55 cash equivalents Cash and cash equivalents at end of the period 8,829 7,943 6 months ended 30 June S$ 000 S$ 000 Cash at banks and in hand 8,829 7,967 Bank overdrafts -- (24) 8,829 7,

125 APPENDIX V UNAUDITED RESULTS OF THE GROUP FOR THE HALF-YEAR ENDED 30 JUNE (d)(i) A statement (for the issuer and group) showing either (i) all changes in equity or (ii) changes in equity other than those arising from capitalisation issues and distributions to shareholders, together with a comparative statement for the corresponding period of the immediately preceding financial year. Share capital S$ 000 Share options Reserve S$ 000 Accumulated profit/(losses) S$ 000 Translation reserve S$ 000 Total S$ 000 Group At 1 January , ,633 (2,749) 42,966 Net profit for the period , ,573 Issurance of ordinary shares on exercise of employee share options Exercise of employee share options 28 (28) Employees share options expenses Translation reserve Dividends (2,423) -- (2,423) Balance as at 30 June , ,783 (2,451) 44,583 At 1 January , ,496 (4,358) 46,516 Net profit for the period , ,824 Issurance of ordinary shares on exercise of employee share options Exercise of employee share options 30 (30) Employees share options expenses Translation reserve (1,969) (1,969) Dividends (2,881) -- (2,881) Balance as at 30 June , ,439 (6,327) 47,730 Company As at 1 January , , ,004 Net profit for the period -- 4, ,082 Issurance of ordinary shares on exercise of employee share options Exercise of employee share options 28 (28) Employees share options expenses Dividends (2,423) -- (2,423) Balance as at 30 June , , ,832 As at 1 January , , ,758 Net profit for the period ,807 4,807 Issurance of ordinary shares on exercise of employee share options Exercise of employee share options 30 (30) Employees share options expenses Dividends (2,881) -- (2,881) Balance as at 30 June , , ,

126 APPENDIX V UNAUDITED RESULTS OF THE GROUP FOR THE HALF-YEAR ENDED 30 JUNE (d)(ii) Details of any changes in the company's share capital arising from rights issue, bonus issue, share buy-backs, exercise of share options or warrants, conversion of other issues of equity securities, issue of shares for cash or as consideration for acquisition or for any other purpose since the end of the previous period reported on. State also the number of shares that may be issued on conversion of all the outstanding convertibles, as well as the number of shares held as treasury shares, if any, against the total number of issued shares excluding treasury shares of the issuer, as at the end of the current financial period reported on and as at the end of the corresponding period of the immediately preceding financial year. Issue of shares on exercise of share options during the year 1H2008 FY ,000 1,044,000 Total outstanding share options as at 30 June 2008 is 13,942,000 (12,219,000 as at 30 June 2007). 1(d)(iii) To show the total number of issued shares excluding treasury shares as at the end of the current financial period and as at the end of the immediately preceding year. Total number of issued shares excluding treasury shares As at 30/6/2008 As at 31/12/ ,682, ,866,110 1(d)(iv) A statement showing all sales, transfers, disposal, cancellation and/or use of treasury shares as at the end of the current financial period reported on. None. 2. Whether the figures have been audited or reviewed and in accordance with which auditing standard or practice. The figures have not been audited or reviewed. 3. Where the figures have been audited or reviewed, the auditors report (including any qualifications or emphasis of a matter). Not applicable. 4. Whether the same accounting policies and methods of computation as in the issuer s most recently audited annual financial statements have been applied. The unaudited full year financial statements have been prepared by applying policies and methods of computation consistent with those used in the preparation of the most recently audited financial statements. 5. If there are any changes in the accounting policies and methods of computation, including any required by an accounting standard, what has changed, as well as the reasons for, and the effect of, the change. Not applicable

127 APPENDIX V UNAUDITED RESULTS OF THE GROUP FOR THE HALF-YEAR ENDED 30 JUNE Earnings per ordinary share of the group for the current financial period reported on and the corresponding period of the immediately preceding financial year, after deducting any provision for preference dividends. Earnings per ordinary share (in cents) of the Group, after deducting any provision for preference dividends 6 months ended FY 2008 FY 2007 (a) based on weighted average number of ordinary shares on issue; and (b) on a fully diluted basis Net asset value (for the issuer and group) per ordinary share based on the total number of issued shares excluding treasury shares of the issuer at the end of the:- (a) current financial period reported on; and (b) immediately preceding financial year. Net asset value per ordinary share (cents) 30/6/2008 Group 30/6/2008 Company 31/12/2007 Group 31/12/2007 Company A review of the performance of the group, to the extent necessary for a reasonable understanding of the group s business. It must include a discussion of the following:- (a) any significant factors that affected the turnover, costs, and earnings of the group for the current financial period reported on, including (where applicable) seasonal or cyclical factors; and (b) any material factors that affected the cash flow, working capital, assets or liabilities of the group during the current financial period reported on. Revenue For the six months ended 30 June 2008 ( 1H08 ), the Group achieved an 11.1% increase in revenue to S$55.9 million on the back of higher sales from all its key geographical markets. This broad-based sales improvement can be attributed to steady end-user demand, strengthened distribution channels, higher average selling prices in selected markets and change in product mix. Revenue Analysis by Geographical Region Region 1H08 1H07 Change 1H08 1H07 S$ m S$ m revenue revenue contribution contribution Asia % 63.8% 65.9% Europe % 29.5% 28.5% Oceania % 3.5% 2.6% Middle East and Others % 3.2% 3.0% Total % 100.0% 100.0% 7 125

128 APPENDIX V UNAUDITED RESULTS OF THE GROUP FOR THE HALF-YEAR ENDED 30 JUNE 2008 Sales in Asia rose 7.6% year-on-year to S$35.6 million in 1H08, driven largely by steady sales growth in the Group s key markets in Southeast Asia. In particular, sales in Singapore continued to gain on strong end-user demand for KING S safety footwear from the buoyant marine-related and offshore industries as well as the construction sector. The Group is also making encouraging progress in developing new markets of Vietnam and China. The Group notched up strong sales growth of 15.0% in Europe to reach S$16.5 million in 1H08. This was mainly attributed to increased penetration of the Group s OTTER brand of safety footwear in Europe, where the Group continues to leverage on growing support from more of the larger distributors in Germany and its wider distribution coverage in other developed markets in Western Europe. Sales in Oceania rose 46.3% to S$1.9 million in 1H08, lifted primarily by the continued good demand for OTTER safety footwear in Australia. The Group also continued to widen its distribution network in Oceania and has appointed a new distributor in Papua New Guinea. The Group continues to benefit from the high level of construction activity in the Middle East and registered sales growth of 22.4% to S$1.8 million in this region in 1H08. Besides improving its sales in Dubai, the Group also increased its penetration of the safety footwear market in Qatar. In terms of geographical breakdown, Asia remained as the Group s largest market with a revenue contribution of 63.8% in 1H08. Sales in Europe made up 29.5% of total revenue, making it the Group s second largest market. By product breakdown, sales of industrial safety footwear in 1H08 were up 8.2% to S$51.9 million, representing 92.9% of Group revenue. The remaining 7.1% of Group revenue came from sales of its non-footwear personal protection equipment (PPE) which rose 71.9% to S$4.0 million. This increase was driven largely by sales of its safety eyewear. Gross Profit Despite higher raw material prices in 1H08 compared to 1H07, gross profit margin decreased only marginally to 33.7% in 1H08, compared to 34.3% previously. The higher raw material costs was cushioned by a higher proportion of OTTER safety footwear sales which commands higher Average Selling Price (ASP); an increase in ASP in selected markets during 1H08; and a reduction in import duties in Malaysia in April Marketing and Administrative Costs Marketing costs increased by 5.3% to S$5.2 million during 1H08 due primarily to increased sales headcount in Europe. Administrative costs fell 15.9% to S$6.1 million in 1H08, compared to 1H07 when there was a oneoff retrenchment expense of S$1.5 million in relation to the shift of manufacturing operations from Jakarta to Batam in June Net Operating Profit As a result of the stable gross profit margin, and a slower increase in marketing and administrative costs compared to revenue growth, the Group registered a 48.8% increase in net operating profit to S$7.6 million for 1H08. Finance Costs Finance costs during 1H08 increased by 15.9% or S$88,000 to S$643,000 during 1H08 due to an increase in interest rates as well as a higher average outstanding quantum of loans compared to 1H

129 APPENDIX V UNAUDITED RESULTS OF THE GROUP FOR THE HALF-YEAR ENDED 30 JUNE 2008 Other Income Other income during 1H08 decreased by 65.0% to S$137,000 due primarily to an foreign exchange loss from the weaker US Dollar and Malaysian Ringgit against the Singapore Dollar, as compared to a foreign exchange gain in 1H07. Share of Profit of Associated Company The Group s associated company Aegle Alliance Pte Ltd swung into the black for the period, adding around S$23,000 to Group profit in 1H08, compared to a loss of around S$26,000 in the previous corresponding period. The turnaround at Aegle Alliance can be attributed to improvement in sales. Profit Before Tax and Net Profit As a result of the above factors, the Group s profit before tax increased by 44.7% to S$7.1 million for 1H08. With a lower effective tax rate of 17.9% in 1H08 compared to 27.1% in the prior period, the Group reported a net profit of 5.8 million in 1H08, an increase of 63.0% over 1H07. Correspondingly, net profit margin expanded to 10.4% in 1H08. Balance Sheet and Cash Flow Analysis The significant increased in inventories in FY2007, to ensure sufficient stock level at a reasonable cost amid the shortage and rising price of leather, has been drawn down. As at 30 June 2008, the Group s inventories decreased 10.9% to S$32.9 million from S$36.9 million as at 31 December Consequently, inventory turnover for 1H08 was reduced to 160 days (annualised basis) against 197 days in FY2007. Trade debtors, including amount due from related party, increased in line with sales by 9.1% to S$27.9 million at the end of the period. This translates into a trade debtor turnover of 90 days (annualised basis) which is stable when compared to 91 days for FY2007. Trade creditor turnover was reduced slightly to 31 days (annualised basis) for 1H08 from 39 days in FY2007. The Group s net borrowings decreased by approximately S$895,000 as at end 1H08 due primarily to repayment of long-term borrowings. The Group ended 1H08 with cash and bank balances of S$8.8 million. During the period, the Group generated positive cashflow of S$5.9 million from operating activities, purchased around S$756,000 of fixed assets primarily for equipment at its Batam factory, and distributed dividends of S$2.9 million. During 1H08, the Group also registered proceeds of around S$135,000 from the issuance of new shares under its Kingsafetywear Employees Share Option Scheme. As a result, the Group s share capital base has increased to 221,682,110 shares as at 30 June 2008, from 220,866,110 shares as at 31 December The Group s return-on-equity ratio increased to 24.4% (annualised basis) for 1H08, compared against 15.7% in FY Where a forecast, or a prospect statement, has been previously disclosed to shareholders, any variance between it and the actual results. The results for the six-month period up to 30 June 2008 are in line with the statement made by the Company in the announcement of results on 20 February A commentary at the date of the announcement of the significant trends and competitive conditions of the industry in which the group operates and any known factors or events that may affect the group in the next reporting period and the next 12 months. The global economic outlook has become more challenging since the beginning of 2008 due to inflationary pressures caused by steep increases in oil and commodity prices, a tighter credit environment and slower growth in the USA

130 APPENDIX V UNAUDITED RESULTS OF THE GROUP FOR THE HALF-YEAR ENDED 30 JUNE 2008 While the weakening economic backdrop could affect demand from the Group s end-user markets in some of its geographical regions, the Group believes its well-diversified customer base and geographical exposure will continue to provide opportunities to grow its business in select markets. As such, the Group intends to continue with its global sales strategy. For existing markets, the Group aims to increase market share of its proprietary safety footwear brands by continually strengthening its sales and distribution management, and through constant product innovation to suit individual markets. At the same time, the Group will continue identifying and targeting new geographical and end-user markets with the relevant product range. Due to the global inflationary environment, raw material costs are widely expected to increase in 2H08. The Group is closely monitoring the price of raw materials to ensure it has sufficient supply at a reasonable price for its manufacturing operations. Barring any unforeseen circumstances, the Group expects to remain profitable in FY Dividend (a) Current Financial Period Reported On Any dividend declared for the current financial period reported on? None. (b) Corresponding Period of the Immediately Preceding Financial Year Any dividend declared for the corresponding period of the immediately preceding financial year? None. (c) Date payable Not Applicable. (d) Books closure date Not Applicable. 12. If no dividend has been declared/recommended, a statement to that effect. No interim dividend for the first half-year ended 30 June 2008 has been recommended

131 APPENDIX V UNAUDITED RESULTS OF THE GROUP FOR THE HALF-YEAR ENDED 30 JUNE 2008 PART II - ADDITIONAL INFORMATION REQUIRED FOR FULL YEAR ANNOUNCEMENT (This part is not applicable to Q1, Q2, Q3 or Half Year Results) 13. Segmented revenue and results for business or geographical segments (of the group) in the form presented in the issuer s most recently audited annual financial statements, with comparative information for the immediately preceding year. Not applicable. 14. In the review of performance, the factors leading to any material changes in contributions to turnover and earnings by the business or geographical segments. Not applicable. 15. A breakdown of sales. Not applicable. 16. A breakdown of the total annual dividend (in dollar value) for the issuer s latest full year and its previous full year. Not applicable. Total Annual Dividend (Refer to Para 16 of Appendix 7.2 for the required details) Latest Full Year 2008 (S$ 000) Previous Full Year 2007 (S$ 000) Ordinary 0 0 Preference 0 0 Total: Interested person transactions Name of Interested Person Aggregate value of all interested person transactions during the financial year under review (excluding transactions less than $100,000 and transactions conducted under shareholders mandate pursuant to Rule 920) Aggregate value of all interested person transactions conducted during the financial year under review under shareholders mandate pursuant to Rule 920 (excluding transactions less than $100,000) None None None

132 APPENDIX V UNAUDITED RESULTS OF THE GROUP FOR THE HALF-YEAR ENDED 30 JUNE Negative Assurance As per SGX Listing Rule 705 (4), we confirm that to the best of our knowledge, nothing has come to the attention of the Board of Directors which may render the above interim financial results to be false or misleading in any material aspect. This confirmation has been made without an audit of these financial statements. BY ORDER OF THE BOARD Frankie Chan Sian Lek Executive Chairman 11/08/

133 APPENDIX VI STATEMENT OF PROSPECTS 1. STATEMENT OF PROSPECTS In its announcement dated 11 August 2008 of the unaudited financial results for the half-year period ended 30 June 2008 ( Half-Year Financial Statement for the Period Ended 30 June 2008 ), the Company stated that: Barring unforeseen circumstances, the Group expects to remain profitable in FY (the Statement of Prospects ). The Statement of Prospects, for which the Directors are solely responsible, was arrived at on bases consistent with the accounting policies normally adopted by the Company and has been made on the following assumptions: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) (m) (n) (o) There will be no material change in the existing political, regulatory, legal or economic conditions affecting the activities of the Group, the industry and the countries in which the Group operates. There will be no material change in the principal activities, management and organization structure of the Group. There will be no major adverse change to existing and anticipated orders from customers. There will be no material adverse change in the relationships the Group has with major customers which may affect the Group s financial performance. There will be no material adverse effect from any changes in the economic and financial positions of the Group, its suppliers and its customers. There will be no material disruption arising from any delays from any suppliers. There will be no material adverse change in the costs of supplies, labour costs, overheads, and other costs from those currently prevailing. There will be no material disruption arising from industrial disputes or labour strikes by the Group s employees or workers employed by the Group s sub-contractors or the supply of labour, or any other causes that may affect the operations of the Group. There will be no material change to relevant foreign currency exchange rates which may adversely affect the Group s financial performance. There will be no material change in the accounting policies of the Group. There will be no material impairment to the carrying values of assets of the Group including assets held for investment. There will be no material change to the bases or rates of taxation and provident fund contributions. There will be no material change to the existing employment benefits and incentive scheme of the Group. There will be no exceptional circumstances that requires material provisions to be made by the Group in respect of any contingent liability, litigation, or arbitration threatened or otherwise, abnormal bad debts or unexpected termination of contracts. There will be no material acquisitions or disposals of subsidiaries by Group. 131

134 APPENDIX VI STATEMENT OF PROSPECTS (p) (q) There will be no material change to the budgeted capital expenditure of the Group. There will be no material change in inflation rates. To the best of the director s knowledge and belief, the current economic conditions as at the Latest Practicable Date have not materially affected the validity of the assumptions made. 2. DIRECTORS STATEMENT ON THE STATEMENT OF PROSPECTS The Directors wish to inform the Shareholders that the underlying bases and assumptions on which the Statement of Prospects was based, were arrived at in light of information available to the Board as at 11 August 2008 (being the date of the Half-Year Financial Statement for the Period Ending 30 June 2008). Accordingly, the Board is conscious that there consequently may or may not be changes to the underlying bases and assumptions on which the Statement of Prospects was based subsequent to the close of the offer. 132

135 APPENDIX VII LETTER FROM ERNST & YOUNG LLP IN RELATION TO THE STATEMENT OF PROSPECTS 17 October 2008 The Board of Directors King s Safetywear Limited 22 Defu Lane 1 Singapore Statement of Prospects of King s Safetywear Limited and its subsidiaries (the Group ) for the year ending 31 December 2008 Dear Sirs: We have provided this letter solely to the Directors of King s Safetywear Limited (the Company and Offeree ) for inclusion in the circular to be issued in connection with the voluntary conditional cash offer (the Offer ) by PrimePartners Corporate Finance Pte Ltd for and on behalf of Safe Step Group Ltd to acquire all the issued and paid-up ordinary shares in the capital of King s Safetywear Limited. This letter is prepared in connection with the Offer and pursuant to Rule 25 of The Singapore Code on Take-overs and Mergers. On 11 August 2008, the Company has announced its unaudited consolidated financial results for the 6 months ended 30 June The announcement contained the following statement on the prospects of the Group ( Statement of Prospects ): Barring any unforeseen circumstances, the Group expects to remain profitable in FY2008. We have examined the Statement of Prospects of the Group for the year ending 31 December 2008 in accordance with Singapore Standards on Assurance Engagements applicable to the examination of prospective financial information. The directors are responsible for the Statement of Prospects including the bases and assumptions set out on Appendix VI of the circular on which it is based. Based on our review of the evidence supporting the assumptions, nothing has come to our attention which causes us to believe that these bases and assumptions do not provide a reasonable basis for the Statement of Prospects. Further, in our opinion, the Statement of Prospects, so far as the accounting policies and calculations are concerned, is properly prepared on the bases and assumptions, and in all material respects, is based on financial information which is consistent with the accounting policies normally adopted by the Group. Actual results are likely to be different from the forecast since anticipated events frequently do not occur as expected and the variation may be material. Yours faithfully, Ernst & Young LLP Public Accountants and Certified Public Accountants Singapore 133

136 APPENDIX VIII LETTER FROM DMG IN RELATION TO THE STATEMENT OF PROSPECTS 17 October 2008 The Board of Directors King s Safetywear Limited 22 Defu Lane 1 Singapore Dear Sirs VOLUNTARY CONDITIONAL CASH OFFER FROM SAFE STEP GROUP LTD FOR ALL THE ISSUED AND PAID-UP ORDINARY SHARES IN THE CAPITAL OF KING S SAFETYWEAR LIMITED This letter has been prepared for inclusion in the circular (the Circular ) dated 20 October 2008 issued by King s Safetywear Limited (the Company ) to its shareholders in relation to the voluntary conditional cash offer by PrimePartners Corporate Finance Pte. Ltd. for and on behalf of Safe Step Group Ltd. The Circular contains a Statement of Prospects by the Company which is reproduced in Appendix VI to the Circular. We have reviewed and held discussions with the Directors and the management of the Company on the Statement of Prospects as well as the underlying bases and assumptions for the Statement of Prospects prepared by the Company. We have also considered the letter by Ernst & Young LLP dated 17 October 2008 and addressed to the Board of Directors of the Company (a copy of which is reproduced in Appendix VII to the Circular) relating to their examination of the Statement of Prospects and the accounting policies, bases and assumptions upon which the Statement of Prospects was prepared. Based on the above, we are of the opinion that the Statement of Prospects (for which the Directors of the Company are solely responsible) has been made by the Directors of the Company after due and careful enquiry. For the purpose of rendering our opinion in this letter, we have relied upon and assumed the accuracy and completeness of all financial and other information provided to or discussed with us. Save as provided in this letter, we do not express any other opinion on the Statement of Prospects. This letter is provided to the Directors of the Company solely for the purpose of complying with Rule 25 of The Singapore Code on Take-overs and Mergers and not for any other purpose. We do not accept any responsibility to any person (other than the Directors of the Company) in respect of, arising out of, or in connection with this letter. Yours faithfully For and on behalf of DMG & Partners Securities Pte Ltd BRENDAN GOH DIRECTOR HEAD OF CORPORATE FINANCE TAY VON KIAN VICE PRESIDENT CORPORATE FINANCE 134

137 APPENDIX IX RELEVANT ARTICLES IN THE ARTICLES OF ASSOCIATION OF THE COMPANY The provisions in the Articles of Association of the Company relating to the rights of Shareholders in respect of capital, voting and dividends are as follows: There is no restriction in the Memorandum of Association of the Company on the right to transfer the Shares. Therefore there is no requirement for holders of Offer Shares, before transferring them, to offer them for purchase to members of the Company or to any other persons. The rights of shareholders in respect of capital, dividends and voting as stated in the Memorandum and Articles of Association of the Company are set out below:- The rights of Shareholders in respect of capital Article 4 Subject to the Act and these presents, no shares may be issued by the Directors without the prior approval of the Company in General Meeting but subject thereto and to Article 8, and to any special rights attached to any shares for the time being issued, the Directors may allot and issue shares or grant options over or otherwise dispose of the same to such persons on such terms and conditions and for such consideration and at such time and subject or not to the payment of any part of the amount thereof in cash as the Directors may think fit, and any shares may be issued with such preferential, deferred qualified or special rights, privileges or conditions as the Directors may think fit, and preference shares may be issued which are or at the option of the Company are liable to be redeemed, the terms and manner of redemption being determined by the Directors, Provided always that:- (A) (B) (C) no shares shall be issued to transfer a controlling interest in the Company without the prior approval of the members in a General Meeting; (subject to any direction to the contrary that may be given by the Company in General Meeting) any issue of shares for cash to members holding shares of any class shall be offered to such members in proportion as nearly as may be to the number of shares of such class then held by them and the provisions of the second sentence of Article 8(A) with such adaptations as are necessary shall apply; and any other issue of shares, the aggregate of which would exceed the limits referred to in Article 8(B), shall be subject to the approval of the Company in General Meeting. Article 5 (A) In the event of preference shares being issued preference, shareholders shall have the same rights as ordinary shareholders as regards receiving of notices, reports and balance sheets and attending General Meetings of the Company, and preference shareholders shall also have the right to vote at any meeting convened for the purpose of reducing the capital or winding-up or sanctioning a sale of the undertaking or where the proposal to be submitted to the meeting directly affects their rights and privileges or when the dividend on the preference shares is more than six months in arrear. (B) The Company has power to issue further preference capital ranking equally with, or in priority to, preference shares already issued. Article 6 (A) Whenever the share capital of the Company is divided into different classes of shares subject to the provisions of the Act, preference capital other than redeemable preference capital may be repaid and the special rights attached to any class may be varied or abrogated either with the consent in writing of the holders of three-quarters of the issued shares of the class or with the sanction of a Special Resolution passed at a separate General Meeting of the holders of the shares of the class (but not otherwise) and may be so repaid, varied or abrogated either whil st the Company is a going concern or during or in contemplation of a winding-up. To every such separate General Meeting all the provisions of these presents relating to General Meetings of the Company and to the proceedings thereat shall mutatis mutandis apply, except that the necessary quorum shall be two persons at least holding or representing by proxy at least one-third of the issued shares of the 135

138 APPENDIX IX RELEVANT ARTICLES IN THE ARTICLES OF ASSOCIATION OF THE COMPANY class and that any holder of shares of the class present in person or by proxy may demand a poll and that every such holder shall on a poll have one vote for every share of the class held by him, Provided always that where the necessary majority for such a Special Resolution is not obtained at such General Meeting, consent in writing if obtained from the holders of three-quarters of the issued shares of the class concerned within two months of such General Meeting shall be as valid and effectual as a Special Resolution carried at such General Meeting. The foregoing provisions of this Article shall apply to the variation or abrogation of the special rights attached to some only of the shares of any class as if each group of shares of the class differently treated formed a separate class the special rights whereof are to be varied. (B) The special rights attached to any class of shares having preferential rights shall not unless otherwise expressly provided by the terms of issue thereof be deemed to be varied by the creation or issue of further shares ranking as regards participation in the profits or assets of the Company in some or all respects pari passu therewith but in no respect in priority thereto. Article 7 The Company may from time to time by Ordinary Resolution increase its capital by such sum to be divided into such number of shares as the resolution shall prescribe. Article 8 (A) Subject to any direction to the contrary that may be given by the Company in General Meeting or except as permitted under the listing rules of the Singapore Exchange Securities Trading Limited, all new shares shall before issue be offered to such persons as at the date of the offer are entitled to receive notices from the Company of General Meetings in proportion, as nearly as the circumstances admit, to the number of the existing shares to which they are entitled. The offer shall be made by notice specifying the number of shares offered, and limiting a time within which the offer, if not accepted, will be deemed to be declined, and, after the expiration of that time, or on the receipt of an intimation from the person to whom the offer is made that he declines to accept the shares offered, the Directors may dispose of those shares in such manner as they think most beneficial to the Company, The Directors may likewise so dispose of any new shares which (by reason of the ratio which the new shares bear to shares held by persons entitled to an offer of new shares) cannot, in the opinion of the Directors, be conveniently offered under this Article 8(A). Subject to the terms and conditions of any application for shares, the Directors shall allow shares applied for within 10 Market Days of the closing date (or such other period as may be approved by the Singapore Exchange Securities Trading Limited) of any such application. (B) General Meeting to give to the Directors a general authority, either unconditionally or subject to such conditions as may be specified in the Ordinary Resolution to:- (i) (a) issue shares in the capital of the Company ( shares ) whether by way of rights, bonus or otherwise; and or (b) make or grant offers, agreements or options (collectively, instruments ) that might or would require shares to be issued, including but not limited to the creation and issue of (as well as adjustments to) warrants, debentures or other instruments convertible into shares; and (ii) (notwithstanding the authority conferred by the Ordinary Resolution may have ceased to be in force) issue shares in pursuance of any instrument made or granted by the Directors while the Ordinary Resolution was in force, provided that:- (1) the aggregate number of shares to be issued pursuant to the Ordinary Resolution (including shares to be issued in pursuance of instruments made or granted pursuant to the Ordinary Resolution) does not exceed 50 per cent. (or such other limit as may be prescribed by the Singapore Exchange Securities Trading Limited) of the issued 136

139 APPENDIX IX RELEVANT ARTICLES IN THE ARTICLES OF ASSOCIATION OF THE COMPANY share capital of the Company (as calculated in accordance with sub-paragraph (2) below), of which the aggregate number of shares to be issued other than on a pro-rata basis to the shareholders of the Company (including shares to be issued in pursuance of Instruments made or granted pursuant to the Ordinary Resolution) does not exceed 20 per cent. (or such other limit as may be prescribed by the Singapore Exchange Securities Trading Limited (of the issued share capital of the Company (as calculated in accordance with sub-paragraph (2) below); (2) (subject to such manner of calculation as may be prescribed by the Singapore Exchange Securities Trading Limited) for the purpose of determining the aggregate number of shares that may be issued under sub-paragraph (1) above, the percentage of issued share capital shall be based on the issued share capital of the Company at the time of the passing of the Ordinary Resolution, after adjusting for:- (a) (b) new shares arising upon the conversion or exercise of any convertible securities or share options or vesting of share awards which are outstanding or subsisting at the time of the passing of the Ordinary Resolution; and any subsequent consolidation or subdivision of shares; (3) in exercising the authority conferred by the Ordinary Resolution, the Company shall comply with the provisions of the Listing Manual of the Singapore Exchange Securities Trading Limited for the time being in force (unless such compliance is waived by the Singapore Exchange Securities Trading Limited) and these presents; and (4) (unless revoked or varied by the Company in General Meeting) the authority conferred by the Ordinary Resolution shall not continue in force beyond the conclusion of the Annual General Meeting of the Company next following the passing of the Ordinary Resolution, or the date by which such Annual General Meeting of the Company is required by law to be held, or the expiration of such other period as may be prescribed by the Act (whichever is the earliest). Article 9 The Company may by Ordinary Resolution:- ( a) consolidate or divide all or any of its share capital into shares of larger amount than its existing shares; ( b) cancel any shares which, at the date of the passing of the resolution, have not been taken, or agreed to be taken, by any person and diminish the amount of its capital by the amount of the shares so cancelled; ( c) sub-divide its shares, or any of them, into shares of smaller amount than is fixed by the Memorandum of Association (subject, nevertheless, to the provisions of the Act), and so that the resolution whereby any share is sub-divided may determine that, as between the holders of the shares resulting from such sub-division, one or more of the shares may, as compared with the others, have any such preferred, deferred or other special rights, or be subject to any such restrictions, as the Company has power to attach to unissued new shares; and ( d) subject to the provisions of the Act, convert any class of shares into any other class of shares. Article 10 (A) The Company may reduce its share capital or other undistributable reserve in any manner and with and subject to any authorisation and consent required by law. Without prejudice to the generality of the foregoing, upon cancellation of any share purchased or otherwise acquired by the Company pursuant to these presents, the number of the issued shares of the Company shall be diminished 137

140 APPENDIX IX RELEVANT ARTICLES IN THE ARTICLES OF ASSOCIATION OF THE COMPANY by the number of shares so cancelled, and where any such cancelled share was purchased or acquired out of the capital of the Company, the amount of share capital of the Company shall be reduced accordingly. (B) The Company may, subject to and in accordance with the Act, purchase or otherwise acquire shares in the issued share capital of the Company on such terms and in such manner as the Company may from time to time think fit. If required by the Act, any share which is so purchased or acquired by the Company shall be deemed to be cancelled immediately on purchase or acquisition by the Company. On the cancellation of any share as aforesaid, the rights and privileges attached to that share shall expire. In any other instance, the Company may deal with any such share which is so purchased or acquired by it in such manner as may be permitted by, and in accordance with, the Act. The rights of Shareholders in respect of voting Article 65 Each member who is a holder of ordinary shares in the capital of the Company shall be entitled to be present at any General Meeting. Subject and without prejudice to any special privileges or restrictions as to voting for the time being attached to any special class of shares for the time being forming part of the capital of the Company, each member entitled to vote may vote in person or by proxy. On a show of hands, every member who is present in person or by proxy shall have one vote (provided that in the case of a member who is represented by two proxies, only one of the two proxies as determined by that member or, failing such determination, by the Chairman of the meeting (or by a person authorised by him) in his sole discretion shall be entitled to vote on a show of hands) and on a poll, every member who is present in person or by proxy shall have one vote for every share which he holds or represents. For the purpose of determining the number of votes which a member, being a Depositor, or his proxy may cast at any General Meeting on a poll, the reference to shares held or represented shall, in relation to shares of that Depositor, be the number of shares entered against his name in the Depository Register as at 48 hours before the time of the relevant General Meeting as certified by the Depository to the Company. Article 66 In the case of joint holders of a share the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders and for this purpose seniority shall be determined by the order in which the names stand in the Register of Members or (as the case may be) the Depository Register in respect of the share. Article 67 Where in Singapore or elsewhere a receiver or other person (by whatever name called) has been appointed by any court claiming jurisdiction in that behalf to exercise powers with respect to the property o r affairs of any member on the ground (however formulated) of mental disorder, the Directors may in their absolute discretion, upon or subject to production of such evidence of the appointment as the Directors may require, permit such receiver or other person on behalf of such member to vote in person or by proxy at any General Meeting or to exercise any other right conferred by membership in relation to meetings of the Company. Article 68 No member shall, unless the Directors otherwise determine, be entitled in respect of shares held by him to vote at a General Meeting either personally or by proxy or to exercise any other right conferred by membership in relation to meetings of the Company if any call or other sum presently payable by him to the Company in respect of such shares remains unpaid. Article 69 No objection shall be raised as to the admissibility of any vote except at the meeting or adjourned meeting at which the vote objected to is or may be given or tendered and every vote not disallowed at such meeting shall be valid for all purposes. Any such objection shall be referred to the chairman of the meeting whose decision shall be final and conclusive. 138

141 APPENDIX IX RELEVANT ARTICLES IN THE ARTICLES OF ASSOCIATION OF THE COMPANY Article 70 On a poll, votes may be given either personally or by proxy and a person entitled to more than one vote need not use all his votes or cast all the votes he uses in the same way. Article 71 (A) A member may appoint not more than two proxies to attend and vote at the same General Meeting, Provided that if the member is a Depositor, the Company shall be entitled and bound:- (a) (b) to reject any instrument or proxy lodged if the Depositor is not shown to have any shares entered against his name in the Depository Register as at 48 hours before the time of the relevant General Meeting as certified by the Depositor to the Company; and to accept as the maximum number of votes which in aggregate the proxy or proxies appointed by the Depositor is or are able to cast on a poll a number which is the number of shares entered against the name of that Depositor in the Depository Register as at 48 hours before the time of the relevant General Meeting as certified by the Depository to the Company, whether that number is greater or small than the number specified in any instrument of proxy executed by or on behalf of that Depositor. (B) (C) (D) The Company shall be entitled and bound, in determining rights to vote and other matters in respect of a completed instrument of proxy submitted to it, to have regard to the instructions (if any) given by the notes (if any) set out in the instrument of proxy. In any case where a form of proxy appoints more than one proxy, the proportion of the shareholding concerned to be represented by each proxy shall be specified in the form of proxy. A proxy need not be a member of the Company. Article 72 (A) An instrument appointing a proxy shall be in writing in any usual or common form or in any other form which the Directors may approve and:- (a) (b) in the case of an individual, shall be signed by the appointor or his attorney; and in the case of a corporation, shall be either given under its common seal or signed on behalf by an attorney or a duly authorised officer of the corporation. (B) The signature on such instrument need not be witnessed. Where an instrument appointing a proxy is signed on behalf of the appointor by an attorney, the letter or power of attorney or a duly certified copy thereof must (failing previous registration with the Company) be lodged with the instrument of proxy pursuant to the next following Article, failing which the instrument may be treated as invalid. Article 73 An instrument appointing a proxy must be left at such place or one of such places (if any) as may be specified for that purpose in or by way of note to or in any document accompanying the notice convening the meeting (or, if no place is so specified, at the Office) not less than 48 hours before the time appointed for the holding of the meeting or adjourned meeting (or in the case of a poll taken otherwise than at or on the same day as at the meeting or adjourned meeting) for the taking of the poll at which it is to be used, and in default shall not be treated as valid. The instrument shall, unless the contrary is stated thereon, be valid as well for any adjournment of the meeting as for the meeting to which it relates; Provided that an instrument of proxy relating to more than one meeting (including any adjournment thereof) having once been so delivered for the purposes of any meeting shall not be required again to be delivered for the purposes of any subsequent meeting to which it relates. 139

142 APPENDIX IX RELEVANT ARTICLES IN THE ARTICLES OF ASSOCIATION OF THE COMPANY Article 74 An instrument appointing a proxy shall be deemed to include the right to demand or join in demanding a poll, to move any resolution or amendment thereto and to speak at the meeting. Article 75 A vote cast by proxy shall not be invalidated by the previous death or insanity of the principal or by the revocation of the appointment of the proxy or of the authority under which the appointment was made, Provided that no intimation in writing of such death, insanity or revocation shall have been received by the Company at the Office at least one hour before the commencement of the meeting or adjourned meeting or (in the case of a poll taken otherwise than at or on the same day as the meeting or adjourned meeting) the time appointed for the taking of the poll at which the vote is cast. The rights of Shareholders in respect of dividends Article 121 The Company may by Ordinary Resolution declare dividends by no such dividend shall exceed the amount recommended by the Directors. Article 122 If and so far as in the opinion of the Directors the profits of the Company justify such payments, the Directors may declare and pay the fixed dividends on any class of shares carrying a fixed dividend expressed to be payable on fixed dates on the half-yearly or other dates prescribed for the payment thereof and may also from time to time declare and pay interim dividends on shares of any class of such amounts and on such dates and in respect of such periods as they think fit. Article 123 Unless and to the extent that the rights attached to any shares or the terms of issue thereof otherwise provide, and subject to the Act, all dividends shall be declared and paid according to the number of issued and fully paid shares. Where shares are partly paid, dividend shall be apportioned and paid proportionately to the amount paid or credited as paid thereon. For the purposes of this Article no amount paid on a share in advance of calls shall be treated as paid on the share. Article 124 No dividend shall be paid otherwise than out of profits available for distribution under the provisions of the Act. Article 125 No dividend or other moneys payable on or in respect of a share shall bear interest as against the Company. Article 126 (A) The Directors may retain any dividend or other moneys payable on or in respect of a share on which the Company has a lien and may apply the same in or towards satisfaction of the debts, liabilities or engagements in respect of which the lien exists. (B) The Directors may retain the dividends payable upon shares in respect of which any person is under the provisions as to the transmission of shares hereinbefore contained entitled to become a member, or which any person is under those provisions entitled to transfer, until such person shall become a member in respect of such shares or shall transfer the same. 140

143 APPENDIX IX RELEVANT ARTICLES IN THE ARTICLES OF ASSOCIATION OF THE COMPANY Article 127 The waiver in whole or in part of any dividend on any share by any document (whether or not under seal) shall be effective only if such document is signed by the shareholder (or the person entitled to the share in consequence of the death or bankruptcy of the holder) and delivered to the Company and if or to the extent that the same is accepted as such or acted upon by the Company. Article 128 The Company may upon the recommendation of the Directors by Ordinary Resolution direct payment of a dividend in whole or in part by the distribution of specific assets (and in particular of paid-up shares or debentures of any other company) and the Directors shall give effect to such resolution. Where any difficulty arises in regard to such distribution, the Directors may settle the same as they think expedient and in particular may issue fractional certificates, may fix the value for distribution of such specific assets or any part thereof, may determine that cash payments shall be made to any members upon the footing of the value so fixed in order to adjust the rights of all parties and may vest any such specific assets in trustees as may seem expedient to the Directors. Article 129 Any dividend or other moneys payable in cash or in respect of a share may be paid by cheque or warrant sent through the post to the registered address appearing in the Register of Members or (as the case may be) the Depository Register of a member or person entitled thereto (or, if two or more persons are registered in the Register of Members or (as the case may be) entered in the Depository Register as joint holders of the share or are entitled thereto in consequence of the death or bankruptcy of the holder, to any one of such persons) or to such person a s such address or such member or person or persons may be writing direct. Every such cheque or warrant shall be made payable to the order of the person to whom it is sent or to such person as the holder or joint holders or person or persons entitled to the share in consequence of the death or bankruptcy of the holder may direct and payment of the cheque or warrant by the banker upon whom it is drawn shall be a good discharge to the Company. Every such cheque or warrant shall be sent at the risk of the person entitled to the money represented thereby. Notwithstanding the foregoing provisions of this Article and the provisions of Article 131, the payment by the Company to the Depository of any dividend payable to the Depositor shall, to the extent of the payment made to the Depository, discharge the Company from any liability to the Depositor in respect of that payment. Article 130 If two or more persons are registered in the Register of Members (as the case may be) the Depository Register as joint holders of any share, or are entitled jointly to a share in consequence of the death or bankruptcy of the holder, any one of them may give effectual receipts for any dividend or other moneys payable or property distributable on or in respect of the share. Article 131 Any resolution declaring a dividend on shares of any class, whether a resolution of the Company in General Meeting or a resolution of the Directors, may specify that the same shall be payable to the persons registered as the holders of such shares in the Register of Members or (as the case may be) the Depository Register at the close of business on a particular date and thereupon the dividend shall be payable to them in accordance with their respective holdings so registered, but without prejudice to the rights inter se in respect of such dividend of transferors and transferees of any such shares. 141

144 APPENDIX X VALUATION REPORT 13 th October 2008 The Board of Directors King s Safetywear Limited 22 Defu Lane 1 Singapore Dear Sirs, VALUATION OF KING S AND OTTER BRANDS This letter has been prepared for inclusion in the circular ( Circular ) to shareholders of King s Safetywear Limited in connection with the voluntary general cash offer made by Safe Step Group Limited for all the issued and paid up ordinary shares in the capital of King s Safetywear Limited ( KSW ). 2. King s Shoe Manufacturing Pte Ltd ( KSMPL ) a wholly owned subsidiary of KSW has requested Brand Finance Consultancy (Singapore) Private Limited ( Brand Finance ), a subsidiary of Brand Finance PLC, to conduct an independent valuation of the King s and Otter brands. Brand when used in the context of this letter and the valuation report dated 13 th October 2008 is referred to as trademarks and associated goodwill and include the logo, symbol and the visual representations of King s and Otter trademarks that can be legally protected, sold or licensed. In the context of the valuation, we have used the term brand and trademark interchangeably throughout the report. 3. In the context of our valuation, King s and Otter comprises all registered trademarks of King s and Otter in word, device and word mark in classes 9 and 25. The legal registered owners are King's Safetywear Ltd, King's Shoe Manufacturing Pte Ltd and Kingshoe Manufacturing Sdn Bhd ( KSMSB ). Both KSMPL and KSMSB are both subsidiaries of KSW. 4. Our valuation is based on fair market value, which is defined by International Valuation Standards 1 (Market Value Basis of Valuation), as the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion. 5. The date of valuation is 19 th September Our valuation was based on the scope of work defined in our engagement letter dated 30th September Our procedures did not include an audit or investigation of, and we assume no responsibility for, the titles to, or liens against the King s and Otter trademarks. We assume no unapparent or unexpected conditions that could affect the value of the brand, and accept no responsibility for discovering any such conditions 7. We have carried out the valuation based on the information provided to us by the management representatives of KSMPL as well as information obtained through discussions with key personnel of KSMPL, KSW and appointed financial adviser. We have also relied on reports and data from external sources, where appropriate, Brand Finance Consultancy (Singapore) Pte Ltd One North Bridge Road, Level 6 Unit 34, Singapore T F bfs@brandfinance.com Registered in Singapore No E Registered address: 150 Orchard Road, #08-01 Orchard Road, Singapore

145 APPENDIX X VALUATION REPORT including available published market data from Bloomberg, and other public information, including available published market data from Bloomberg, Datamonitor, Euromonitor International and other public information, for which we are not responsible in terms of content and accuracy. All surveys, observations, analysis and forecasts contained in the report are made on the basis of the information available during the course of the engagement and are stated as at date of the report issued on 13 October In our opinion, the trademark valuation of King s and Otter is estimated to be SGD22,957,447 (SGD 23 million, without Tax Amortisation Benefits, or TAB ) and SGD7,195,672 (SGD 7.2 million, rounded, no TAB). The combined value is SGD 30,153,120 (or SGD30 million, rounded, no TAB). With TAB, the value would be SGD35 million (rounded). 9. The conclusions expressed are the opinions of Brand Finance and are not intended to be warranties or guarantees that a particular value or projection can be achieved in a related transaction. 10. This letter and the valuation report dated 13 th October 2008 has been prepared solely for King's Shoe Manufacturing Pte Ltd and is not intended for any legal or court proceedings, publication or reproduction in any form without our prior written consent. We assume no responsibility to any third party for the whole or parts of its content. We also assume no liability for any losses incurred by you or any third party as a result of unauthorised circulation, publication, reproduction of the report in any form and/or if used contrary to the purpose stated herein. Yours faithfully, For and on behalf of Brand Finance Yours sincerely, Mr. David Haigh Chief Executive Officer Brand Finance plc Date : 13 th October 2008 Ms. Lucy Gwee Managing Director Brand Finance Consultancy Singapore Pte Ltd Date: 13 th October 2008 Brand Finance Consultancy (Singapore) Pte Ltd One North Bridge Road, Level 6 Unit 34, Singapore T F bfs@brandfinance.com Registered in Singapore No E Registered address: 150 Orchard Road, #08-01 Orchard Road, Singapore