IMPORTANT NOTICE THIS OFFERING IS AVAILABLE ONLY TO INVESTORS WHO ARE EITHER (1) A QUALIFIED INSTITUTIONAL BUYER

Transcription

1 IMPORTANT NOTICE THIS OFFERING IS AVAILABLE ONLY TO INVESTORS WHO ARE EITHER (1) A QUALIFIED INSTITUTIONAL BUYER (a QIB ) WITHIN THE MEANING OF RULE 144A UNDER THE U.S. SECURITIES ACT OF 1933 (THE SECURITIES ACT ) OR (2) OUTSIDE OF THE UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (AND, IF INVESTORS ARE RESIDENT IN A MEMBER STATE OF THE EUROPEAN ECONOMIC AREA, A QUALIFIED INVESTOR). IMPORTANT: You must read the following disclaimer before continuing. The following disclaimer applies to the attached offering memorandum. You are advised to read this disclaimer carefully before accessing, reading or making any other use of the attached offering memorandum. In accessing the attached offering memorandum, you agree to be bound by the following terms and conditions, including any modifications to them from time to time, each time you receive any information from us as a result of such access. Confirmation of your Representation: You have accessed the attached offering memorandum on the basis that you have confirmed your representation to the Issuer and to the Initial Purchaser (as such terms are defined in the attached offering memorandum) that (1) you consent to delivery of the attached offering memorandum and any amendments or supplements thereto by electronic transmission and agree to the terms set forth herein, (2) either (A) you are a QIB (within the meaning of Rule 144A under the Securities Act or (B) (i) you are outside the United States and, to the extent you purchase the securities described in the attached offering memorandum, you will be doing so pursuant to Regulation S under the Securities Act, and (ii) the address to which the attached offering memorandum has been delivered is not located in the United States of America (including the States and the District of Columbia), its territories, its possessions and other areas subject to its jurisdiction; and its possessions include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands, (3) you will not transmit the attached offering memorandum (or any copy of it or part thereof) or disclose, whether orally or in writing, any of its contents to any other person except with the consent of the Initial Purchaser and (4) you acknowledge that you will make your own assessment regarding any legal, taxation or other economic conditions with respect to your decision to subscribe for or purchase any securities. The attached offering memorandum has been made available to you in electronic format. You are reminded that documents transmitted in an electronic format may be altered or changed during the process of transmission and consequently none of the Issuer, the Initial Purchaser and their respective affiliates, directors, officers, employees, representatives and agents or any other person controlling the Issuer, the Initial Purchaser or any of their respective affiliates accepts any liability or responsibility whatsoever with respect to any discrepancies between the document distributed to you in electronic format and the hard-copy version. Restrictions: The attached offering memorandum is being furnished in connection with an offering exempt from registration under the Securities Act. Nothing in this electronic transmission constitutes an offer of securities for sale in the United States or any other jurisdiction where it is unlawful to do so. ANY SECURITIES TO BE ISSUED HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE SECURITIES ACT, OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR OTHER JURISDICTION AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES UNLESS REGISTERED UNDER THE SECURITIES ACT OR PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, SUCH REGISTRATION. YOU ARE NOT AUTHORIZED TO AND YOU MAY NOT FORWARD OR DELIVER THE ATTACHED OFFERING MEMORANDUM, ELECTRONICALLY OR OTHERWISE, TO ANY OTHER PERSON OR REPRODUCE SUCH OFFERING MEMORANDUM IN ANY MANNER WHATSOEVER. ANY

2 FORWARDING, DISTRIBUTION OR REPRODUCTION OF THE ATTACHED OFFERING MEMORANDUM IN WHOLE OR IN PART IS UNAUTHORIZED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE SECURITIES ACT OR THE APPLICABLE LAWS OF OTHER JURISDICTIONS. The materials relating to the offering do not constitute, and may not be used in connection with, an offer or solicitation in any place where offers or solicitations are not permitted by law. No action has been or will be taken in any jurisdiction by the Initial Purchaser or the Issuer that would, or is intended to, permit a public offering of the securities, or possession or distribution of the offering memorandum (in preliminary, proof or final form) or any other offering or publicity material relating to the securities, in any country or jurisdiction where action for that purpose is required. If a jurisdiction requires that the offering be made by a licensed broker or dealer and the Initial Purchaser or any affiliate of the Initial Purchaser is a licensed broker or dealer in that jurisdiction, the offering shall be deemed to be made by the Initial Purchaser or such affiliate on behalf of the Issuer in such jurisdiction. Under no circumstances shall this offering memorandum constitute an offer to sell or the solicitation of an offer to buy nor shall there by any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful. The offering memorandum has not been approved by an authorized person in the United Kingdom. The securities may not be offered or sold other than to persons whose ordinary activities involve these persons in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or who it is reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent) for the purposes of their businesses where the issue of the securities would otherwise constitute a contravention of Section 19 of the Financial Services and Markets Act 2000 (the FSMA ) by us. In addition, no person may communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of the securities other than in circumstances in which Section 21(1) of the FSMA does not apply to us. You are reminded that the attached offering memorandum has been delivered to you on the basis that you are a person into whose possession the attached offering memorandum may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located and you may not, nor are you authorized to, deliver this document, electronically or otherwise, to any other person. If you receive this document by , you should not reply by to this announcement. Any reply communications, including those you generate by using the Reply function on your software, will be ignored or rejected. If you receive this document by , your use of this is at your own risk and it is your responsibility to take precautions to ensure that it is free from viruses and other items of a destructive nature.

3 Comfeed Finance B.V. (incorporated in The Netherlands with limited liability) US$225,000, % Senior Notes due 2018 Unconditionally and Irrevocably Guaranteed by PT Japfa Comfeed Indonesia Tbk (incorporated in the Republic of Indonesia with limited liability) Issue Price: % The US$225,000,000 % Senior Notes due 2018 (the Notes ) to be issued by Comfeed Finance B.V. (the Issuer ) will bear interest from May 2, 2013 (the Issue Date ) at the rate of 6.0% per annum payable semi-annually in arrears on May 2 and November 2 of each year (each, a Notes Interest Payment Date ) commencing on November 2, The Notes mature on May 2, 2018 (the Maturity Date ). At any time on or after May 2, 2016, the Issuer may redeem the Notes, in whole or in part, at the redemption prices specified under Description of the Notes Optional Redemption. At any time prior to May 2, 2016, the Issuer, at its option, may redeem the Notes, in whole but not in part, at a redemption price equal to 100% of the principal amount of the Notes redeemed plus the Applicable Premium (as defined herein) as of, and accrued and unpaid interest, if any, to the redemption date. At any time prior to May 2, 2016, the Issuer may redeem up to 35% of the principal amount of the Notes with the proceeds from certain equity offerings at a redemption price of 106% of the principal amount of the Notes, plus accrued and unpaid interest, if any, to the redemption date. No later than 30 days following a Change of Control (as defined herein), the Issuer will make an offer to repurchase all Notes then outstanding at a purchase price equal to 101% of their principal amount plus accrued and unpaid interest, if any, to the date of repurchase. The Notes are subject to redemption in whole, at 100% of their principal amount, together with accrued interest, at the option of the Issuer at any time in the event of certain changes affecting taxes of The Netherlands or the Republic of Indonesia (or certain other jurisdictions). See Description of the Notes Redemption for Taxation Reasons. Payments on the Notes will be made in U.S. dollars without deduction for or on account of taxes imposed or levied by Indonesia or The Netherlands (or certain other jurisdictions) to the extent described under Description of the Notes Additional Amounts. PT Japfa Comfeed Indonesia Tbk (the Company ) and any Subsidiary Guarantors (together the Guarantors ) will unconditionally and irrevocably guarantee (the Note Guarantees ) the due and punctual payment of all amounts at any time becoming due and payable in respect of the Notes. The Issuer is a wholly-owned subsidiary of the Company. Following the offering of the Notes, the Issuer will transfer the net proceeds, after deducting the underwriting discounts and other estimated expenses related to the offering of the Notes, of the offering of the Notes to Comfeed Trading B.V. ( Comfeed Trading ), a company incorporated in The Netherlands with limited liability and a wholly-owned subsidiary of the Issuer, by way of contribution on new and/or existing shares of, and/or a loan to, Comfeed Trading. Comfeed Trading will then lend the proceeds of such transfer to the Company pursuant to an intercompany loan (the Intercompany Loan ). Investing in the Notes involves certain risks. See Risk Factors beginning on page 17. The Notes and the Note Guarantees have not been and will not be registered under the United States Securities Act of 1933, as amended (the Securities Act ), and may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Accordingly, the Notes are being offered and sold (1) in the United States only to qualified institutional buyers in reliance on the exemption from the registration requirements of the Securities Act provided by Rule 144A under the Securities Act ( Rule 144A ) and (2) outside the United States in an offshore transaction in reliance on Regulation S under the Securities Act ( Regulation S ). For a description of certain restrictions on resale or transfer of the Notes, see Transfer Restrictions. Approval in-principle has been received for the listing of the Notes on the Singapore Exchange Securities Trading Limited (the SGX-ST ). The SGX-ST takes no responsibility for the correctness of any of the statements made or opinions or reports contained in this Offering Circular. Admission of the Notes to the Official List of the SGX-ST is not to be taken as an indication of the merits of the Issuer, us or the Notes. The Notes will be in the denomination of US$200,000 each or integral multiples of $1,000 in excess thereof. The Notes will be traded on the SGX-ST in a minimum board lot size of US$200,000 for so long as any of the Notes are listed on the SGX-ST. It is expected that delivery of the Notes will be made through the facilities of The Depository Trust Company ( DTC ) and its participants, including Euroclear Bank S.A./N.V. ( Euroclear ), and Clearstream Banking, société anonyme ( Clearstream ) on or about May 2, Sole Bookrunner & Lead Manager Co-Manager Rabobank International The date of this Offering Circular is April 24, 2013

4 TABLE OF CONTENTS Page Summary Summary of the Offering Summary Consolidated Financial Information and Operating Data Risk Factors Use of Proceeds Exchange Rates and Exchange Controls Capitalization Selected Consolidated Financial Information and Operating Data Management s Discussion and Analysis of Financial Condition and Results of Operations. 57 Industry Overview Business Related Party Transactions Management Principal Shareholders Regulation Description of Indebtedness The Issuer Comfeed Trading B.V Description of the Notes Taxation Global Clearance and Settlement Plan of Distribution Transfer Restrictions Ratings Industry Consultant Legal Matters Independent Auditors Summary of Certain Significant Differences Between Indonesian FAS and U.S. GAAP General Information Index to the Consolidated Financial Statements i

5 This Offering Circular is confidential and has been prepared by us solely for use in connection with the issue and offering of the Notes described herein. Each of us and Credit Suisse (Singapore) Limited ( Credit Suisse or the Initial Purchaser ), as sole lead manager and sole bookrunner of the issue and offering of the Notes, reserves the right to reject any offer to purchase the Notes, in whole or in part, for any reason. This Offering Circular is personal to each offeree and does not constitute an offer to any other person or to the public generally to subscribe for or otherwise acquire the Notes. Any disclosure of any of the contents of this Offering Circular, without our prior written consent, is prohibited. Each prospective purchaser, by accepting delivery of the Offering Circular, agrees to the foregoing and to make no photocopies of this Offering Circular or any documents attached hereto. The distribution of this Offering Circular and the offering or sale of the Notes in certain jurisdictions may be restricted by law. Persons into whose possession this Offering Circular comes are required by us, the Initial Purchaser and Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (also known as Rabobank International), Hong Kong Branch ( Rabobank International ) to inform themselves about and to observe any restrictions. No action is being taken to permit a public offering of the Notes or the distribution of this Offering Circular in any jurisdiction where action would be required for such purposes. No person has been authorized to give any information or to make any representation other than those contained in this Offering Circular in connection with the issue or sale of the Notes and, if given or made, such information or representation must not be relied upon as having been authorized by us, the Initial Purchaser nor Rabobank International. Neither the delivery of this Offering Circular nor any sale made in connection herewith shall, under any circumstances, create any implication that there has been no change in our affairs since the date hereof or the date upon which this Offering Circular has been most recently amended or supplemented or that there has been no adverse change in our financial position since the date hereof or the date upon which this Offering Circular has been most recently amended or supplemented or that any other information supplied in connection with the Notes is correct as at any time subsequent to the date on which it is supplied or, if different, the date indicated in the document containing the same. Information contained in the Industry Overview section in this Offering Circular has been compiled by Rabobank International Food Agribusiness Research & Advisory ( Rabobank International FAR ) from public and private sources which, to the best knowledge and belief of Rabobank International FAR, are reliable. However, there can be no assurance by Rabobank International FAR as to the accuracy, completeness or correctness of such information. Forecasts and assumptions included in this report are inherently uncertain because of events or combinations of events that cannot reasonably be foreseen, including, without limitation, the actions of governments, individuals, third parties and competitors. Credit Suisse, the Trustee, the Registrar, the Paying Agent, the Transfer Agent (each as defined herein) and Rabobank International do not make any representation or warranty, express or implied, as to the accuracy or completeness of the information contained in this Offering Circular. None of Credit Suisse, Rabobank International, the Trustee, the Registrar, the Paying Agent or the Transfer Agent has independently verified any of such information and assumes no responsibility for its accuracy or completeness. Each person receiving this Offering Circular acknowledges that such person has not relied on Credit Suisse, Rabobank International, the Trustee, the Registrar, the Paying Agent, the Transfer Agent or any person affiliated with any of them in connection with its investigation of the accuracy of such information or its investment decision. Each person contemplating making an investment in the Notes must make its own investigation and analysis of our creditworthiness and its own determination of the suitability of any such investment, with particular reference to its own investment objectives and experience and any other factors which may be relevant to it in connection with such investment. Each person should not construe the contents of this Offering Circular as legal, business or tax advice and should be aware that it may be required to bear the financial risks of any investment in the Notes for an indefinite period of time. Each person should consult its own counsel, accountant and other advisors as to legal, tax, business, financial and related aspects of a purchase of the Notes. ii

6 This Offering Circular does not constitute an offer of, or an invitation by or on behalf of us, or the Initial Purchaser or Rabobank International or any affiliate or representative of any of us or them to subscribe for, or purchase, any Notes in any jurisdiction or in any circumstances in which such offer, invitation or solicitation is not authorized or to any person to whom it is unlawful to make such offer, invitation or solicitation. Neither we nor the Initial Purchaser nor Rabobank International nor any affiliate or representative of us or any of them are making any representation to any investor regarding the legality of an investment by such investor under applicable laws. The Notes have not been and will not be registered under the Securities Act. Subject to certain exceptions, the Notes may not be offered, sold or delivered within the U.S. or to U.S. persons. This Offering Circular and the information contained therein are private and confidential and are for the use solely of the person to whom such materials are addressed. The offering of the Notes will not be conducted in a manner which constitutes a public offering of securities under applicable laws and regulations of the Republic of Indonesia. Each purchaser of the Notes must comply with all applicable laws and regulations in force in each jurisdiction in which it purchases, offers or sells such Notes or possesses or distributes this Offering Circular and must obtain any consent, approval or permission required by it for the purchase, offer or sale by it of such Notes under the laws and regulations in force in any jurisdictions to which it is subject or in which it makes such purchases, offers or sales and neither we nor the Initial Purchaser shall have any responsibility therefor. IN CONNECTION WITH THIS OFFERING, CREDIT SUISSE (SINGAPORE) LIMITED, AS STABILIZING MANAGER, OR ANY PERSON ACTING FOR IT, MAY PURCHASE AND SELL THE NOTES IN THE OPEN MARKET. THESE TRANSACTIONS MAY, TO THE EXTENT PERMITTED BY APPLICABLE LAWS AND REGULATIONS, INCLUDE SHORT SALES, STABILIZING TRANSACTIONS AND PURCHASES TO COVER POSITIONS CREATED BY SHORT SALES. THESE ACTIVITIES MAY STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE NOTES. AS A RESULT, THE PRICE OF THE NOTES MAY BE HIGHER THAN THE PRICE THAT OTHERWISE MIGHT EXIST IN THE OPEN MARKET. IF THESE ACTIVITIES ARE COMMENCED, THEY MAY BE DISCONTINUED AT ANY TIME AND MUST IN ANY EVENT BE BROUGHT TO AN END AFTER A LIMITED TIME. THESE NOTES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. SEE TRANSFER RESTRICTIONS AND PLAN OF DISTRIBUTION HEREIN. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. NOTICE TO NEW HAMPSHIRE RESIDENTS NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. iii

7 CONVENTIONS WHICH APPLY TO THIS OFFERING CIRCULAR This Offering Circular includes market share and industry data and forecasts that we have obtained from industry publications and surveys, including a report that we have commissioned from Rabobank International FAR to prepare for inclusion in this Offering Circular. Certain industry publications and surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy or completeness of included information. While we have taken reasonable actions to ensure that the information is extracted accurately and in its proper context, neither we nor the Initial Purchaser nor Rabobank International makes any representation as to the accuracy of that information. References in this Offering Circular to information from Rabobank International FAR are extracted from the Industry Overview section of this Offering Circular. In this Offering Circular, the Issuer refers to Comfeed Finance B.V., Comfeed Trading or the Issuer Subsidiary refers to Comfeed Trading B.V., and unless the context otherwise requires, we, us, our and the Company refer to PT Japfa Comfeed Indonesia Tbk and its subsidiaries taken as a whole. Unless otherwise indicated or otherwise required by the context, all references in this Offering Circular to Rupiah or Rp are to the lawful currency of Indonesia. References to U.S. dollars or US$ are to United States dollars, the lawful currency of the United States. Rounding adjustments have been made in calculating some of the financial information included in this Offering Circular. As a result, numerical figures shown as totals in some tables may not be exact arithmetic aggregations of the figures that precede them. For convenience, certain Rupiah amounts have been translated into U.S. dollar amounts, based on the prevailing exchange rate on December 31, 2012 of Rp9,670 = US$1.00 (being the average of buying and selling rates of exchange for Rupiah against U.S. dollars quoted by Bank Indonesia on that date). Such translations should not be construed as representations that the Rupiah or U.S. dollar amounts referred to could have been, or could be, converted into Rupiah or U.S. dollars, as the case may be, at that or any other rate or at all. See Exchange Rates and Exchange Controls for further information regarding rates of exchange between the Rupiah and U.S. dollar. In this Offering Circular, unless otherwise specified or the context otherwise requires, all references to Indonesia are references to the Republic of Indonesia. All references to the Government herein are references to the Government of the Republic of Indonesia. All references to United States or U.S. herein are to the United States of America. All references to United Kingdom herein are to the United Kingdom of Great Britain and Northern Ireland. PRESENTATION OF FINANCIAL INFORMATION The financial information included in this Offering Circular has been derived from our consolidated financial statements. Unless otherwise indicated, financial information in this Offering Circular has been prepared in accordance with Indonesian Financial Accounting Standards ( Indonesian FAS ), which differ in significant respects from the generally accepted accounting principles in the United States ( U.S. GAAP ). For a summary of the material differences between Indonesian FAS and U.S. GAAP, see Summary of Certain Significant Differences Between Indonesian FAS and U.S. GAAP included elsewhere in this Offering Circular. NON-GAAP FINANCIAL MEASURES Earnings before interest, tax, depreciation and amortization ( EBITDA ) and the related ratios presented in this Offering Circular are supplemental measures of our performance and liquidity that are not required by, or presented in accordance with, Indonesian FAS or U.S. GAAP. EBITDA is not a measurement of financial performance or liquidity under Indonesian FAS or U.S. GAAP iv

8 and should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with Indonesian FAS or U.S. GAAP or as an alternative to cash flow from operating activities as a measure of liquidity. In addition, EBITDA is not a standardized term, hence a direct comparison between companies using such a term may not be possible. We believe that EBITDA facilitates comparisons of operating performance from period to period and company to company by eliminating potential differences caused by variations in capital structures (affecting interest expense and finance charges), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses), the age and booked depreciation and amortization of assets (affecting relative depreciation and amortization of expense). EBITDA has been presented because we believe that it is frequently used by securities analysts, investors and other interested parties in evaluating similar companies, many of whom present such non-gaap financial measures when reporting their results. Finally, EBITDA is presented as a supplemental measure of our ability to service debt. Nevertheless, EBITDA has limitations as an analytical tool, and you should not consider it in isolation from, or as a substitute for analysis of, our financial condition or results of operations, as reported under Indonesian FAS. Because of these limitations, EBITDA should not be considered as a measure of discretionary cash available to invest in the growth of our business. The term Consolidated EBITDA, as used in the section titled Description of the Notes summarizing certain provisions of the Indenture, the Notes and the Note Guarantees, is calculated differently from EBITDA and is not a measurement of financial performance or liquidity under Indonesian FAS or U.S. GAAP. AVAILABLE INFORMATION To permit compliance with Rule 144A in connection with resales of the Notes, the Issuer and us are required to furnish upon request of a Noteholder and a prospective purchaser designated by such Noteholder the information required to be delivered under Rule 144A(d)(4) if at the time of such request the Issuer and us are not subject to the periodic reporting requirements of Section 13 or Section 15(d) of the U.S. Securities Exchange Act of 1934, as amended (the Exchange Act ), nor exempt from such reporting requirements pursuant to Rule 12g3-2(b) thereunder. ENFORCEABILITY Enforceability of Foreign Judgments in Indonesia and The Netherlands The Issuer and Comfeed Trading are incorporated in The Netherlands and the Company is incorporated in Indonesia. Each of the directors of each of the Issuer and Comfeed Trading resides in The Netherlands, while most of the Company s commissioners, directors and executive officers reside in Indonesia. All or a significant portion of the assets of the directors of the Issuer and Comfeed Trading are located outside the United States, while all or a substantial portion of the Company s assets are located in Indonesia. As a result, it may be difficult for investors to effect service of process upon the Issuer, Comfeed Trading, the Company or their respective directors, or to enforce judgments against the Issuer, Comfeed Trading, the Company or such persons obtained in non-dutch courts, including judgments obtained in U.S. courts predicated on the civil liability provisions of U.S. securities laws. The Company has been advised by Indonesian counsel, Assegaf Hamzah & Partners, that judgments of non-indonesian courts are not enforceable in Indonesian courts. A foreign court judgment could be offered and accepted as evidence in a proceeding of the underlying claim in an Indonesian court and may be given such evidentiary weight as the Indonesian court may deem appropriate in its sole discretion. A claimant may be required to pursue claims in Indonesian courts on the basis of Indonesian law. Re-examination of the underlying claim de novo would be required before the Indonesian court. There can be no assurance that the claims or remedies available under Indonesian law will be the same, or as extensive, as those available in other jurisdictions. v

9 Each of the Issuer and Comfeed Trading is incorporated as a private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid) under the laws of The Netherlands. As a result, it may be difficult for investors to enforce against the Issuer or Comfeed Trading judgments obtained in non-dutch courts. As Indonesia and The Netherlands do not currently have a treaty providing for reciprocal recognition and enforcement of judgments (other than arbitral awards) in civil and commercial matters, a final and conclusive judgment for the payment of money rendered by any courts in Indonesia based on civil liability which is enforceable in Indonesia, would not be recognised or enforceable in The Netherlands. In order to obtain a judgment that is enforceable in the Netherlands, the party in whose favor a final and conclusive judgment of an Indonesian court has been rendered will be required to file its claim with a court of competent jurisdiction in the Netherlands. The Dutch court is in principle free to assess if and to what extent effect must be given to a foreign judgment. Generally foreign judgments will be recognized if the following minimum requirements are met in the opinion of the Dutch court; (i) the foreign judge was competent to hear the case on internationally generally accepted grounds, (ii) the foreign judgment was rendered using proper judicial procedure, and (iii) the foreign judgment does not contravene the public policy (openbare orde) of The Netherlands. The enforcement in a Dutch court of judgments rendered by an Indonesian court is subject to Dutch rules of civil procedure. The agreements entered into with respect to the issue of the Notes are governed by the laws of the state of New York. The United States and The Netherlands currently do not have a treaty providing for the reciprocal recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. Consequently, a final and conclusive judgment for the payment of money rendered by a federal or state court in the United States, whether or not predicated solely upon U.S. federal securities laws, would not be recognized or enforceable in The Netherlands. In order to obtain a judgment that is enforceable in The Netherlands, the party in whose favor a final and conclusive judgment of the U.S. court has been rendered will be required to file its claim with a court of competent jurisdiction in The Netherlands. The Dutch court is in principle free to assess if and to what extent effect must be given to a foreign judgment. Generally foreign judgments will be recognized if the following minimum requirements are met in the opinion of the Dutch court; (i) the foreign judge was competent to hear the case on internationally generally accepted grounds, (ii) the foreign judgment was rendered using proper judicial procedure, and (iii) the foreign judgment does not contravene the public policy (openbare orde) of The Netherlands. The enforcement in a Dutch court of judgments rendered by a U.S. court is subject to Dutch rules of civil procedure. Subject to the foregoing and service of process in accordance with applicable treaties, investors may be able to enforce in The Netherlands judgments in civil and commercial matters obtained from Indonesian courts or U.S. federal or state courts. However, no assurance can be given that those judgments will be enforceable. In addition, it is doubtful whether a Dutch court would accept jurisdiction and impose civil liability in an original action commenced in The Netherlands and predicated solely upon U.S. federal securities laws. Enforcement of the Notes and Note Guarantees in Indonesia In several court cases in Indonesia, Indonesian companies that had defaulted on debt incurred through offshore financing entities (using structures similar to that used in this offering) have sued their creditors to, among other things, invalidate their debt obligations and have sought damages from creditors exceeding the original proceeds of the debt issued. In one such case, which was subsequently settled, an Indonesian court annulled the transaction documents in a structure involving a guarantee issued by an Indonesian company for debt of an offshore subsidiary. In a recent case, an Indonesian court (as affirmed by the Indonesian Supreme Court) declared null and void transaction documents in an offering structure involving a guarantee issued by an Indonesian company for debt of its offshore subsidiary and awarded damages to the defaulting borrower. The vi

10 courts reports of the decisions do not provide a clear factual basis or legal rationale for the judgments. As some of these cases are still being adjudicated by the higher courts, it is still possible that either the Indonesian Supreme Court or a panel of Supreme Court judges on judicial review could overturn the decisions of the lower courts. Indonesian court decisions do not constitute binding precedents. While lower courts are not bound by higher court decisions, such decision have persuasive force. Therefore, there can be no assurance that in the future courts in Indonesia will not issue decisions that may be detrimental to the structure of a transaction similar to the one adopted by the Issuer and us. If an Indonesian court takes a similar approach in any future disputes regarding the Notes or any Note Guarantees, it may declare the Notes or Note Guarantees null and void, and may award damages to the Issuer or the Guarantors. In addition, such decisions by Indonesian courts may adversely affect your ability to obtain judgments relating to the Notes or the Note Guarantees in courts outside Indonesia and to seek enforcement of such judgments in the Indonesian courts. Indonesian Regulation of Offshore Borrowings Pursuant to Presidential Decree No. 59/1972 dated October 12, 1972, as amended, each guarantor is required to report details regarding its offshore borrowings to the Minister of Finance of Indonesia and Bank Indonesia, on the acceptance, implementation, and repayment of principal and interest. Ministry of Finance Decree No. KEP-261/MK/IV/5/1973 dated May 3, 1973, as amended by Ministry of Finance Decree No. 417/KMK.013/1989 dated May 1, 1989 and Ministry of Finance Decree No. 279/KMK.01/1991 dated March 18, 1991, as the implementing regulation of Presidential Decree No. 59/1972, further sets forth the requirements to submit periodic reports regarding offshore borrowings to the Ministry of Finance of Indonesia and Bank Indonesia on the effective date of the contract and each subsequent three-month period. Further, pursuant to Presidential Decree No. 39/1991 dated September 4, 1991, all offshore commercial borrowers must submit periodic reports to the Team of Offshore Commercial Borrowing (the PKLN Team ) on the implementation of their offshore commercial borrowing. Presidential Decree No. 39/1991 does not stipulate the time or the format and the content of the periodic reports that must be submitted. According to Bank Indonesia Regulation No. 12/24/PBI/2010 dated December 29, 2010, as implemented by Circular Letter of Bank Indonesia No. 13/1/DInt dated January 20, 2011, any persons, legal entities or other entities domiciled in Indonesia or planning to be domiciled in Indonesia for a year or more, who obtain offshore commercial borrowings in foreign currency and/or Rupiah pursuant to a loan agreement, debt securities, trade credits and other debts without any minimum amount requirement (in contrast to reporting obligations of individuals which only apply to loans in an amount of more than US$200,000 or its equivalent in any other currency) must submit reports to Bank Indonesia. The reports consist of the main data report, any amendments and the monthly realization data report. The main data report must be submitted to Bank Indonesia no later than the 10th day of the month after the signing of the loan agreement or the issuance of the debt securities and/or the debt acknowledgement over the trade credits and/or other loans, and the monthly realization data report must be submitted to Bank Indonesia each month, until the offshore commercial borrowing has been repaid in full between the first and the 10th day of the month. We have been advised by our Indonesian counsel that any failure to submit the required reports will subject us to certain administrative sanctions in the form of fines, but will not invalidate our obligations under the Note Guarantees. In addition, under Bank Indonesia Regulation No. 12/1/PBI/2010 dated January 28, 2010 which regulates offshore borrowing for companies other than banks and which has been implemented by the Circular Letter of Bank Indonesia No. 12/37/DInt dated December 23, 2010 ( PBI 12/1/2010 ), a non-bank borrower, such as us, who intends to obtain either short or long-term offshore loans, is required to implement a risk management function including market risk, liquidity risk and operational risk management. Further, a non-bank borrower who intends to obtain a long-term offshore borrowing in foreign currency and/or Rupiah, is required to submit a report to Bank Indonesia, by no later than March 10 of each year, that consists of (i) information on compliance with financial ratios, (ii) consolidated financial statements (not later than June 10 and December 10 of each year), (iii) a rating assessment, (iv) a consolidated offshore borrowing plan for one year and (v) the results of vii

11 a risk management analysis made by such company. The obligation to obtain a rating only applies to companies that have a credit rating. Beginning on January 1, 2012, failure to comply with PBI 12/1/2010 will result in administrative sanctions, including the issuance of a warning letter and/or notification to related authorities of the failure to comply. However, any failure to submit reports will not invalidate our obligations under the Note Guarantees. We will undertake in the indenture governing the Notes (the Indenture ) to comply with all such requirements in respect of the Intercompany Loan between Comfeed Trading and us and the Note Guarantees. In addition, Bank Indonesia has issued Bank Indonesia Regulation No. 14/21/PBI/2012 on Foreign Exchange Reporting ( PBI 14/21/2012 ) which requires banking institutions, non-bank financial institutions, non-financial institutions, state/regional-owned companies, private companies, business entities and individuals to submit a report to Bank Indonesia on their foreign exchange activities. The report is required to include: (i) trade activities in goods, services and other transactions between residents and non-residents of Indonesia, (ii) the position and changes in the balance of foreign financial assets and/or foreign financial liabilities, and (iii) any plan to incur foreign debt and/or implementation of such plan. Indonesian companies and/or individuals are required to submit a foreign exchange report for any activities stipulated under PBI 14/21/2012, except in connection with any plan to obtain an offshore loan, to Bank Indonesia, by no later than the fifteenth day of the subsequent month. Any plan to obtain an offshore loan is required to be submitted to Bank Indonesia by no later than March 15 of the respective year when the plan is formulated by the company. In the event there is a change to the company s plan to obtain an offshore loan, an amendment to such report must be submitted to Bank Indonesia by no later than July 1 of the year of such change. Further, an Indonesian company which obtains an offshore loan is also required to file its financial data with Bank Indonesia no later than June 15 and December 15 of each year. Failure to submit the foreign exchange report (other than the offshore loan plan report) could result in the imposition of an administrative sanction in the amount of Rp10,000,000. Bank Indonesia will issue a warning letter and/or report to the authority, should the Indonesian companies and/or individuals fail to submit offshore loan report, change on the offshore loan plan report, and/or financial data. The aforementioned sanctions will be effective as of Further, PBI No. 14/21/2012 provides that the reporting requirements as stipulated under PBI No. 12/1/2010 and PBI No. 12/24/2010 will remain valid until July 2013, and PBI No. 12/1/2010 and PBI No. 12/24/2010 will be revoked with effect from August 1, On December 27, 2012, Bank Indonesia issued Bank Indonesia Regulation No. 14/25/PBI/2012 concerning the Export Proceeds Receipt and Offshore Loan Withdrawal in Foreign Exchange ( PBI 14/25/2012 ). Under PBI 14/25/2012, each Indonesian debtor is required to withdraw its offshore loan through foreign exchange banks located in Indonesia, and such withdrawal must be reported to Bank Indonesia. PBI 14/25/2012 also stipulates that the accumulated amount of withdrawals for an offshore loan must be equal to the commitment amount of such offshore loan as stated under the relevant offshore loan agreement. If the accumulated amount of withdrawals is not equal to the commitment amount of the offshore loan, the Indonesian debtor must provide a written explanation to Bank Indonesia. Any violation of PBI 14/25/2012 will subject Indonesian debtors to a fine of Rp10,000,000 for each non-complying withdrawal. Under the Indonesian Civil Code, a guarantor may waive its right to require the obligee to exhaust its legal remedies against the obligor s assets on a guaranteed obligation prior to the obligee exercising its rights under the related guarantee. The Note Guarantees contain a waiver of this obligation. We have been advised by our Indonesian counsel that the waiver of the right will be enforceable under Indonesian law; however, due to the uncertainty of the outcome of specific legal cases in Indonesia, there is no assurance that Indonesian courts will not in the future impose an obligation on the holders of the Notes (the Noteholders ) to pursue all legal remedies against the Issuer if it were to default on its obligations before exercising their rights under the Note Guarantees, even though we waived our rights under the Note Guarantees. See Risk Factors Risks Relating to the Notes and the Note Guarantees Through the purchase of the Notes and Note Guarantees, Noteholders may be exposed to a legal system subject to considerable viii

12 discretion and uncertainty; it may be difficult or impossible for Noteholders to pursue claims under the Notes or the Note Guarantees because of considerable discretion and uncertainty of the Indonesian legal system. Language of the Transaction Documents Pursuant to Law No. 24 of 2009 on Flag, Language, Coat of Arms, and National Anthem that was enacted on July 9, 2009 ( Law No. 24/2009 ), agreements to which Indonesian parties are a party are required to be executed in Bahasa Indonesia, although, when a foreign entity is a party, a dual-language document in English or the national language of the relevant party is permitted. There exists substantial uncertainty on how Law No. 24/2009 will be interpreted and applied, and it is not certain that an Indonesian court would permit the English version to prevail or even consider the English version. See Risk Factors Risks Relating to Indonesia. The Indenture and other documents entered into in connection with the issuance of the Notes will also be prepared in Bahasa Indonesia. However, there can be no assurance, in the event of inconsistencies between the Bahasa Indonesia and English Language version of those documents, an Indonesian court would hold that the English versions of such documents prevail. We will execute dual English and Bahasa Indonesia versions of all transaction agreements, to which the Guarantors are party. All of these documents will provide that in the event of a discrepancy or inconsistency, the parties intend the English version to prevail. Some concepts in the English language may not have a corresponding term in the Indonesian language and the exact meaning of the English text may not be fully captured by the Indonesian language version. If this occurs, there can be no assurance that the terms of the Notes, including the Indenture, will be as described in the Offering Memorandum, or will be interpreted and enforced by the Indonesian courts as intended. FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS This Offering Circular contains words such as believe, plan, expect, intend and anticipate and similar expressions that constitute forward-looking statements. Specifically, statements under the captions Summary Overview, Risk Factors and Business relating to the following matters may include forward-looking statements: the anticipated demand and selling prices for our products; our ability to be and remain competitive; our financial condition, business strategy, budgets and projected financial and operating data as well as the plans and objectives of management for future operations; generation of future receivables; environmental compliance and remediation; and changes in import or export controls, duties, levies or taxes, either in Indonesia or in international markets. ix

13 Such statements are subject to certain risks and uncertainties including: economic, social and political conditions in Indonesia; increases in regulatory burdens in Indonesia and other countries, including environmental regulations and compliance costs; and fluctuations in foreign currency exchange rates. Should one or more of these uncertainties or risks, among others, materialize, actual results may vary materially from those estimated, anticipated or projected. Specifically, but without limitation, capital costs could increase, projects could be delayed and anticipated improvements in production, capacity or performance might not be fully realized. Although we believe that the expectations of our management as reflected by such forward-looking statements are reasonable based on information currently available to us, no assurances can be given that such expectations will prove to have been correct. Accordingly, prospective purchasers are cautioned not to place undue reliance on forward-looking statements. In any event, these statements speak only as at their dates, and we undertake no obligation to update or revise any of them, whether as a result of new information, future events or otherwise. x

14 SUMMARY This summary highlights information contained elsewhere in this Offering Circular. This summary is qualified by, and must be read in conjunction with, the more detailed information and financial statements appearing elsewhere in this Offering Circular. We urge you to read this entire Offering Circular carefully, including our consolidated financial statements and related notes and Risk Factors. OVERVIEW We are one of Indonesia s leading agri-livestock companies specializing in the manufacturing and distribution of animal feed and the production of animal protein. Our poultry operations, which generated approximately 77.3% and 80.9% of our net sales for the years ended December 31, 2011 and 2012, respectively, are our core business activities. Our operations are organized according to the following three key business segments: (i) poultry; (ii) aquaculture; and (iii) beef cattle. Our poultry business segment includes (i) animal feed production and distribution; (ii) day-old chick ( DOC ) breeding and (iii) commercial broiler farming. We are one of Indonesia s largest poultry feed manufacturers, with an approximately 21% market share based on production, as of December 31, 2012, according to Rabobank International FAR. We have a network of poultry feed production facilities located across Indonesia, which allows us to take advantage of raw material procurement opportunities in Indonesia and to better serve our customers whose operations are located throughout Indonesia. For the years ended December 31, 2011 and 2012, we had a total production capacity of approximately 2,796 million kilograms and 2,996 million kilograms, respectively, of poultry feed. We market our poultry feed under the brands of Comfeed and Benefeed which are recognized in Indonesia for their premium product quality and customer service. Our DOC breeding operations involve producing high quality commercial DOCs which we distribute to our own commercial and contract farms and to third party poultry farmers in Indonesia. We are one of Indonesia s largest DOC breeding operations with an approximate market share of 21% as of December 31, 2012, according to Rabobank International FAR. We have rights to sell and distribute Aviagen s Indian River breed of commercial broiler and layer DOCs in Indonesia. Aviagen is a global supplier in the poultry genetics market and the Indian River breed has been specially bred for tropical climate conditions in respect of humidity, heat and disease resistance. All DOC grandparent stock for our DOC breeding and distribution operations are imported from Aviagen s international operations. For the years ended December 31, 2011 and 2012, we produced 469 million and 513 million broiler and layer DOCs, respectively. Approximately 90% of the broilers from our commercial farms are sold as live birds to third party poultry traders for on sale to end consumers, with the remainder being processed by our processing facilities for direct sale to end consumers. In connection with our diversification into downstream poultry operations, we had developed five slaughtering and cold storage facilities as of December 31, 2012 to process broilers from our commercial farms. For the years ended December 31, 2011 and 2012, revenue from our poultry feed, DOC breeding and commercial farms businesses represented approximately 77.3% and 80.9% respectively, of our net sales for the same periods. 1

15 Our aquaculture business primarily focuses on producing feed for commercially farmed fish and shrimp in Indonesia. For the years ended December 31, 2011 and 2012, we had a total production capacity of approximately 280 million kilograms. For the years ended December 31, 2011 and 2012, revenue from our aqua-feed business represented approximately 7.3% and 7.1%, respectively, of our net sales for the same periods. In our beef cattle business, we import cattle from Australia which we fatten to maturity at 90 days before selling them to third parties. We are the largest feedlot player in Indonesia, as of December 31, 2012, according to Rabobank International FAR. In 2012, we processed approximately 69,000 cattle at our three integrated feedlots. Our beef cattle operations contributed approximately 5.1% and 6.1% to our net sales for the years ended December 31, 2011 and 2012, respectively. In addition to wholesale distribution of beef cattle, we also produce a small amount of processed fresh beef and wagyu beef for domestic consumption. Our net sales for the years ended December 31, 2011 and 2012 were Rp15,633.1 billion and Rp17,832.7 billion (US$1,844.1 million), respectively. COMPETITIVE STRENGTHS We are positioned as a well established market leader in Indonesian agri-livestock We are one of the largest companies in the Indonesian poultry feed and breeding industries, with market share of approximately 21% and 21%, respectively, as of December 31, 2012, according to Rabobank International FAR. Competition in the Indonesian poultry feed and breeding business is predominantly domestic, due to strict halal considerations in Indonesia and consumer preference for purchasing live chicken. The domestic industry is made up of small companies that generally operate within a specific area. We believe that our integrated large scale operations, geographic diversification within Indonesia and strong brand reputation enable us to achieve economies of scale in sourcing, production and distribution that are not readily available to our smaller competitors. In addition to our strong market position in the poultry industry, we are also one of the leading aqua-feed and beef cattle businesses in Indonesia. We believe that our national coverage and more than 30 years of cumulative agri-livestock experience puts us in position to maintain a significant share of the industry growth as a result of rising consumption of animal protein in Indonesia. We have a vertically integrated operational platform with diverse geographical reach and economies of scale We are one of Indonesia s largest vertically integrated poultry producers. Our operations cover the entire poultry process, including poultry feed production, DOC breeding, commercial broiler farming and primary processing. The level of our integration also includes supporting infrastructure of after-sales services and laboratories for testing feed ingredients, changes in farming environment, vaccine research and other distribution-related facilities such as feed packaging material production and a transport operation for DOC delivery. Our vertically integrated business gives us control over the entire poultry production process. The vertical integration of our operations enables us to optimize our operations at every stage of the production process. For instance, we have the ability to customize our feed formulation to suit the age and type of poultry, together with the right to purchase a superior strain of DOC suited for tropical climate conditions in respect of humidity, heat and disease resistance. We have improved our breed performance index ( BPI ) significantly from 275 to 304 over five years. 2

16 Our extensive geographic reach makes us less susceptible to regional risks and allows us to maintain product quality. Our geographically diversified network of operations in 50 breeding farms and 22 central hatcheries throughout the Indonesian archipelago makes us less susceptible to risks associated with market shocks or disease outbreaks in one particular region. In addition, because our feedmills and processing facilities are located near our customers, we are able to ensure product freshness and maintain consistent product quality. Our size and vertically integrated position allows us to achieve a higher profit margin. We believe that as one of the largest vertically integrated poultry producers in Indonesia we are able to negotiate better prices when we purchase raw materials and benefit from economies of scale associated with the efficient utilization of capital. In addition, as a vertically integrated producer, we are able to capture profit margin at every stage of the poultry production process. We therefore believe that we enjoy higher profit margins compared to our competitors who are smaller or not fully integrated. We have strong brand reputation and customer relationships We distribute our poultry and aquaculture feed under the brand names Comfeed and Benefeed. Due to our long and successful track record of offering quality products and comprehensive customer support services, both Comfeed and Benefeed are now widely recognized as premium brands with strong value-added attributes. Our commitment to quality extends to all of our other key operations. In poultry breeding, we have the right to distribute a superior strain of broiler DOC well-suited to the Indonesian climate and consumer taste. To support our customer base, as of December 31, 2012, we have established an extensive customer service network throughout Indonesia manned by 1,451 qualified technical and marketing staff who offer a range of support services to help farmers optimize livestock performance. We believe that our leadership position is the result of more than 30 years of relationship and brand building with Indonesian farmers. We maintain a high standard of biosecurity We believe that our ability to maintain a comprehensive biosecurity system at international standards is crucial to protecting our poultry from disease. Our biosecurity measures include locating our DOC farms and hatcheries in isolated or remote areas away from high-density poultry production centers, traffic control, sanitation, disinfection and regular biosecurity audits. Our biosecurity system also covers our distribution of approximately 1.4 million DOCs daily to poultry farms within Indonesia. In addition, we also monitor the health of our poultry at our own laboratories, which serves as an early disease detection system. To better protect our poultry, in 2008 we acquired PT Vaksindo Satwa Nusantara ( Vaksindo ) which enables us to conduct vaccine research and develop vaccines internally for our poultry breeding business. We operate in an attractive industry with significant barriers to entry The poultry industry will benefit directly from macroeconomic growth in Indonesia. According to Rabobank International FAR, Indonesia s six kilograms per capita per annum consumption of chicken, compared to Malaysia s per capita per annum chicken consumption of 34 kilograms, is one of the lowest in Asia. We commenced our poultry operations in 1971 and since then we have incurred significant amounts of capital expenditure to build our poultry feed operations, processing facilities and supporting infrastructure to develop a vertically integrated operating structure. Our long track record, strong customer relationships, national distribution network and technical expertise provide us with significant competitive advantages and serve as barriers to entry for companies 3

17 seeking to enter the Indonesian poultry business. We believe we will be able to maintain our market leadership position in the Indonesian animal protein industry with our extensive investment in breeding, hatchery and logistical infrastructure. Our management team is committed and experienced and has a strong track record Our management team has an average of 19 years of extensive experience in the animal protein industry. Members of our core management team led us through the Asian economic crisis, the Avian Influenza epidemic and the 2008 global financial crisis. Our management team has shown a strong track record of growth, both organically and through acquisitions and, we believe, is well-positioned to steer us through our long-term growth plans. We also have an experienced workforce and believe we are an employer of choice, which is reflected by our low attrition rate. STRATEGY We intend to use the following key capacity expansion strategies to deliver profitable growth. Maintain our leadership and market position in Indonesia s agri-livestock sector Our poultry feed and breeding operations have been the core of our business since To meet the growing demand for poultry meat, which is the primary source of animal protein for the average Indonesian household, we intend to expand our capacity in animal feed production and DOC breeding. Between 2013 and 2015, we plan to increase our total feed capacity from our current capacity of approximately three million tonnes to approximately four million tonnes, in We also intend to increase our current breeding capacity from approximately 546 million to approximately 900 million DOCs per annum by the end of To reinforce the synergy with our poultry feed and DOC breeding activities, we plan to increase our commercial farming capacity from approximately 270 million birds to approximately 410 million birds per annum as well as expand our slaughtering and primary processing capacity to approximately 21 million birds per annum by end of We believe that by strengthening our vertical integration in poultry production, we will be able to capture additional revenue and increase our profit margins along the value chain through increased market penetration and cost efficiencies. In addition, we also seek to continue to expand our leadership position in our aqua-feed and beef cattle businesses. We intend to accelerate expansion of our aqua-feed output and diversify production and distribution sites geographically to provide better market coverage in key aquaculture regions of Indonesia. We plan to increase the existing production capacity and the number of our aquaculture feedmills from five to seven by the end of 2015 and thereby expanding our production capacity from 280,000 tonnes to 430,000 tonnes of aqua-feed per annum. We also intend to diversify our beef cattle supply by breeding local cattle species and optimize our beef cattle products to target the growing number of affluent urban dwellers in Indonesia. Continue to improve our poultry production technology and ensure high quality biosecurity systems We intend to continue to focus on improving the efficiency of our poultry feed and breeding business by introducing internationally adopted farm management processes and focusing on research and development. Our research and development activities are focused primarily on improving our feed formulation, the survival rate of our DOC and BPI and on breeding a superior and high growth poultry breed with improved resistant to disease and suited to Indonesian climatic conditions and consumer preferences. 4

18 We will continue to be committed to implementing high quality biosecurity measures. For instance, on September 3, 2008, we acquired Vaksindo, a company engaged in poultry and animal vaccine production that is one of only three companies in Indonesia with the facilities to research H5N1 virus. In order to continually develop and advance Vaksindo s biosecurity research, it has worked and collaborated with scientists from universities from Europe and the U.S. We believe that Vaksindo s technical capacity will continue to provide us with world leading biosecurity protection measures. We will continue to adapt and improve our biosecurity measures. Focus on our core poultry business to capitalize on the increase in demand in Indonesia We intend to maintain our focus on our core poultry business while growing our aquaculture and beef cattle businesses. According to Rabobank International FAR, consumption of poultry has grown at 4.2% per annum from 2000 to 2012, increasing from four kilograms per capita per annum consumption in 2000 to six kilograms per capita per annum consumption in We plan to further strengthen our significant expertise in the Indonesian poultry industry and capitalize on the increase in demand for animal protein in Indonesia. We believe that the profit margins for the poultry feed and breeding business are significantly higher than the profit margins for the consumer food business because the consumer food business requires intensive marketing that leads to higher sales and marketing expenses. Continue to invest in human capital to support sustainable growth In connection with our company-wide capacity expansion, we continue to invest in human capital. We are committed to training our employees and developing their skills in order to ensure that we are providing consistent and high quality products to our customers. We have introduced training programs and human resource development on technical issues, health and safety and best business practices. Between January 1, 2011 and December 31, 2012, we conducted over 150 training classes for 32 company units, subsidiaries, affiliates including key customer groups. We will continue to develop and implement initiatives for recruiting, developing and retaining top performing employees. We believe our continued investment in human capital will ensure that we remain an employer of choice, which will allow us to retain employees thereby reducing our recruitment and training costs while enhancing overall productivity. CORPORATE INFORMATION Our head office is located at Wisma Millenia, 7th Floor, Jalan MT. Haryono Kav. 16, Tebet Barat, Jakarta, Indonesia and our telephone number at that address is The Issuer is a private company with limited liability incorporated under the laws of the Netherlands. Its corporate seat is in Amsterdam, The Netherlands, and its registered address is Teleportboulevard 110, 1043 EJ Amsterdam, The Netherlands. Comfeed Trading is a private company with limited liability incorporated under the laws of the Netherlands. Its corporate seat is in Amsterdam, The Netherlands, and its registered address is Teleportboulevard 110, 1043 EJ Amsterdam, The Netherlands. 5

19 OUR CORPORATE STRUCTURE The diagram below sets forth the material operating companies in our corporate structure: Japfa Holdings Pte Ltd Public 57.50% 42.50% PT Japfa Comfeed Indonesia Tbk 99.99% 50.00% 99.99% 99.89% 99.90% PT Ciomas Adisatwa PT Indojaya Agrinusa PT Santosa Agrindo PT Suri Tani Pemuka PT Bintang Laut Timur 99.99% PT Austasia Stockfeed 99.55% PT Artha Lautan Mulya 95.00% PT Kraksaan Windu PT Bumiasri Lestari 60.00% PT Iroha Sidat Indonesia 60.00% 99.04% 99.58% 99.99% 99.86% 99.00% PT Wabin Jayatama PT Japfafood Nusantara PT Agrinusa Jaya Santosa PT Bhirawa Mitra Sentosa PT Indonesia Pelleting Apachee Pte Ltd 100% 99.94% 99.80% PT Japfa Indoland PT Vaksindo Nusantara 99.98% PT Tretes Indah Permai PT Jakamitra Indonesia 70.00% 100% Comfeed Finance B.V. 100% Comfeed Trading B.V. 6

20 SUMMARY OF THE OFFERING The following is a general summary of the terms of the Notes and the Note Guarantees. This summary is derived from and should be read in conjunction with the full text of the Description of the Notes and the Indenture relating to the Notes. The Description of the Notes and the Indenture prevail to the extent of any inconsistency with the terms set out in this section. Issuer Parent Guarantor Subsidiary Guarantors Issue Issue Price Comfeed Finance B.V. PT Japfa Comfeed Indonesia Tbk. PT Bintang Laut Timur, PT Suri Tani Pemuka, PT Artha Lautan Mulya, PT Kraksaan Windu, PT Ciomas Adisatwa, PT Agrinusa Jaya Santosa, PT Wabin Jayatama, PT Japfafood Nusantara, PT Vaksindo Satwa Nusantara, Apachee Pte Ltd, PT Japfa Indoland, PT Tretes Indah Permai, PT Indonesia Pelleting, PT Santosa Agrindo, PT Austasia Stockfeed and PT Bhirawa Mitra Sentosa, and any other subsidiary of the Parent Guarantor that executes the Subsidiary Guarantee in accordance with the provisions of the Indenture. US$225,000,000 million aggregate principal amount of 6.0% Senior Notes due % of the principal amount of the Notes. Issue Date May 2, Maturity Date May 2, Notes Interest Payment Dates Ranking Interest will be payable semi-annually in arrears on May 2 and November 2 of each year, commencing November 2, The Notes will: be general obligations of the Issuer; be senior in right of payment to any existing and future obligations of the Issuer expressly subordinated in right of payment to the Notes; rank at least pari passu in right of payment with all unsubordinated Indebtedness of the Issuer (subject to any priority rights of such unsubordinated Indebtedness pursuant to applicable law); be guaranteed by the Parent Guarantor and the Subsidiary Guarantors on an unsubordinated basis; and be effectively subordinated to all existing and future obligations of the Non-Guarantor Subsidiaries. 7

21 Parent Guarantee Ranking of the Parent Guarantee..... Subsidiary Guarantee Ranking of the Subsidiary Guarantee The Parent Guarantor will guarantee the due and punctual payment of the principal of, premium, if any, and interest on, and all other amounts payable under, the Notes. The Parent Guarantee will: be a general obligation of the Parent Guarantor; be effectively subordinated to secured obligations of the Parent Guarantor, to the extent of the value of the assets serving as security therefor; be senior in right of payment to all future obligations of the Parent Guarantor expressly subordinated in right of payment to the Parent Guarantee; and rank at least pari passu in right of payment with all unsecured, unsubordinated Indebtedness of the Parent Guarantor (subject to any priority rights of such unsecured, unsubordinated Indebtedness pursuant to applicable law). The Subsidiary Guarantors will guarantee the due and punctual payment of the principal of, premium, if any, and interest on, and all other amounts payable under, the Notes. The Parent Guarantor will cause each of its future Restricted Subsidiaries, immediately upon becoming a Restricted Subsidiary, to guarantee the payment of the Notes. The Parent Guarantor will cause PT Indojaya Agrinusa, immediately upon becoming a Wholly Owned Subsidiary, to guarantee the payment of the Notes. The Subsidiary Guarantee will: be a general obligation of such Subsidiary Guarantor; be effectively subordinated to secured obligations of such Subsidiary Guarantor, to the extent of the value of the assets serving as security therefor; be senior in right of payment to all future obligations of such Subsidiary Guarantor expressly subordinated in right of payment to such Subsidiary Guarantee; and rank at least pari passu in right of payment with all unsecured, unsubordinated Indebtedness of such Subsidiary Guarantor (subject to any priority rights of such unsecured, unsubordinated Indebtedness pursuant to applicable law). 8

22 Taxation; Additional Amounts Optional Tax Redemption Redemption at the Option of the Issuer All payments of principal and interest in respect of the Notes will be made free and clear of, and without withholding or deduction for or on account of, any taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or within The Netherlands or Indonesia or any authority therein or thereof having power to tax, unless such withholding or deduction is required by law. In that event, the Issuer or the Guarantors, as the case may be, will pay such additional amounts as will result in the receipt by the Noteholders of such amounts as would have been received by them had no such withholding or deduction been required, except in the circumstances specified in Description of the Notes Additional Amounts. Subject to certain exceptions and as more fully described herein, the Notes may be redeemed, in whole but not in part, at the option of the Issuer, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to the redemption date (plus additional amounts due thereon, if any) if, as a result of certain changes in the laws, treaties, regulations or rulings (or the application or interpretation thereof) affecting taxes of The Netherlands or Indonesia, the Issuer or us (as the case may be) would be required to pay certain additional amounts; provided that where the additional amounts are due as a result of such changes affecting Indonesian taxes, the Notes may be redeemed only in the event that the withholding rate required under Indonesian law or laws is in excess of 20%. The Notes may be redeemed, in whole or in part, at the option of the Issuer at any time on or after May 2, 2016 at the redemption prices set forth herein, together with accrued interest to the redemption date. See Description of the Notes Optional Redemption. At any time and from time to time prior to May 2, 2016, the Issuer may redeem up to 35% of the aggregate principal amount of the Notes with the Net Cash Proceeds of one or more Equity Offerings at a redemption price of 106.0% of the principal amount of the Notes, plus accrued and unpaid interest, if any, to the redemption date. The Notes will be redeemable at the Issuer s option, in whole but not in part, at any time prior to May 2, 2016, at a price equal to 100% of the principal amount of the Notes plus a make-whole premium. 9

23 Redemption upon a Change of Control Unless the Notes are previously redeemed, repurchased and cancelled, the Issuer will, no later than 30 days following a Change of Control (as defined herein) make an offer to purchase all outstanding Notes at a purchase price, of 101% of their principal amount together with accrued and unpaid interest, if any. Certain Covenants We and the Issuer have agreed in the Notes and indenture governing the Notes to observe certain covenants, including, among other things: a limitation on the incurrence of additional indebtedness; a limitation on dividends and other restricted payments; a limitation on certain asset sales; a limitation on the issuance and sale of capital stock of Restricted Subsidiaries (as defined in Description of the Notes ); a limitation on transactions with affiliates; a limitation on the incurrence of liens; a limitation on sale/leaseback transactions; a limitation on permitted business activities; a limitation on our ability to consolidate, merge or sell all or substantially all of our assets; and covenants as to the delivery of certain financial statements. These covenants will be subject to a number of important qualifications and exceptions described in Description of the Notes Certain Covenants. Events of Default Use of Proceeds Certain events will permit acceleration of the principal of the Notes (together with all interest and additional amounts accrued and unpaid thereon). These events include default with respect to the payment of principal of, premium, if any, or interest on, the Notes. The net proceeds of the issue of the Notes (after the deduction of fees, commissions, and expenses) are expected to be approximately US$217.0 million. The Issuer will transfer the net proceeds, after deducting the underwriting discounts and other estimated expenses related to the offering of the Notes, of this offering to Comfeed Trading, by way of share contribution on new and/or existing shares of, and/or a loan to, Comfeed Trading, which will then on-lend the proceeds of such transfer to the Company pursuant to 10

24 the Intercompany Loan or through other funding methods to us. The Company plans to use the net proceeds from the Intercompany loan to pay down the amounts outstanding under certain of the Company s working capital loans, to fund capital expenditures and for general corporate purposes. See Use of Proceeds. Selling and Transfer Restrictions Further Issues Form, Denomination and Trading of Notes Book-Entry Delivery of the Notes Rule 144A Global Note Regulation S Global Note The Notes will not be registered under the U.S. Securities Act or under any state securities law of the United States and will be subject to customary restrictions on transfer and resale. See Plan of Distribution and Transfer Restrictions. The Issuer may from time to time without the consent of the Noteholders create and issue further securities having the same terms and conditions as the Notes in all respects so that such further issue shall be consolidated and form a single class with the Notes. The Notes will be issued in registered form in the denomination of US$200,000 each integral multiples of US$1,000 in excess thereof and will be initially represented by Global Notes registered in the name of a nominee of DTC. The Notes sold within the United States in reliance on Rule 144A and outside the United States in reliance on Regulation S and will be issued in book-entry form through the facilities of DTC for the accounts of its participants, including Euroclear and Clearstream. For a description of certain factors relating to clearance and settlement, see Global Clearance and Settlement. Delivery of the Notes, against payment in same-day funds, is expected on or about May 2, 2013, which the Issuer expects will be the sixth business day following the date of this Offering Circular, which we refer to as T+6. You should note that initial trading of the Notes may be affected by the T+6 settlement. See Plan of Distribution. ISIN: US20039AAA88 CUSIP: 20039A AA8 Common Code: ISIN: USN2177AA33 CUSIP: N2177 AA3 Common Code:

25 Trustee, Paying and Transfer Agent and Registrar Governing Law Listing Ratings Risk Factors The Bank of New York Mellon. The Notes and the Indenture will be governed by, and construed in accordance with, the laws of New York. The Notes will be traded on the SGX-ST in a minimum board lot size of US$200,000 for so long as the Notes are listed on the SGX-ST. The Notes are expected to be rated BB- by Fitch and BB- by S&P. The credit ratings accorded the Notes are not a recommendation to purchase, hold or sell the Notes inasmuch as such ratings do not comment as to market price or suitability for a particular investor. There can be no assurance that the ratings will remain in effect for any given period or that the ratings will not be revised by the rating agencies in the future if, in their judgment, circumstances so warrant. See Risk Factors Risks Relating to the Notes and the Note Guarantees The ratings assigned to the Notes may be suspended, lowered or withdrawn at any time which may adversely affect the market price of the Notes. Investment in the Notes involves risks which are described in the Risk Factors section of this Offering Circular. See Risk Factors beginning on page

26 SUMMARY CONSOLIDATED FINANCIAL INFORMATION AND OPERATING DATA You should read the summary consolidated financial information and operating data presented below in conjunction with our consolidated financial statements and the related notes to these financial statements included elsewhere in this Offering Circular. The following tables present our summary consolidated financial information and operating data as of the dates and for each of the years and periods indicated. We have derived the summary consolidated statement of comprehensive income and cash flows and other financial data for the years ended December 31, 2010, 2011 and 2012 and our summary consolidated statement of financial position data as at December 31, 2010, 2011 and 2012, in the tables below, from our historical financial statements as of and for the years ended December 31, 2011 and 2012, which have been audited by Mulyamin Sensi Suryanto & Lianny (the Indonesian member firm of Moore Stephens International Limited), independent auditors, and as of and for the year ended December 31, 2010, which were audited by Mulyamin Sensi Suryanto (formerly the Indonesian member firm of Moore Stephens International Limited), which has ceased operations. Our financial statements have been prepared and presented in accordance with Indonesian FAS, which differs in certain material respects from U.S. GAAP, see Summary of Certain Significant Differences Between Indonesian FAS and U.S. GAAP. For the year ended December 31, Consolidated Statement of Comprehensive Income Rp Rp Rp US$ (Rp billions and US$ millions) Net sales , , , ,844.1 Cost of goods sold (10,906.6) (13,072.7) (14,648.8) (1514.9) Gross Profit , , , Interest income Gain on sale of property, plant and equipment Gain on foreign exchange net General and administrative expense (884.3) (1,018.4) (1,179.4) (122.0) Interest expense (211.3) (331.4) (437.5) (45.2) Selling expense (589.0) (435.0) (336.2) (34.8) Loss on derivative transactions net (58.2) Loss on impairment of assets (1.1) (11.1) Others net Income Before Tax , , Tax Expense (Benefit) Current tax Deferred tax (3.4) (39.3) (4.1) Tax expense Net Income , , Other Comprehensive Income (Loss) Translation adjustment (10.8) (21.3) Total Comprehensive Income , ,

27 As at December 31, Consolidated Statement of Financial Position Rp Rp Rp US$ (Rp billions and US$ millions) Assets Total Current Assets , , , Total Non-Current Assets , , , Total Assets , , , ,133.6 Liabilities and Equity Total Current Liabilities , , , Total Non-Current Liabilities , , , Total Liabilities , , , Equity attributable to: Owners of the Parent Company , , , Non-controlling Interests Total Equity , , , Total Liabilities and Equity , , , ,133.6 For the year ended December 31, Consolidated Cash Flow Data Rp Rp Rp US$ (Rp billions and US$ millions) Net cash provided by (used in) operating activities ,098.2 (75.1) Net cash provided by (used in) investing activities (625.9) (401.6) (1,352.1) (139.8) Net cash provided by (used in) financing activities (232.6) , Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the year Effect of foreign exchange rate changes.... (1.3) Cash and cash equivalents at the end of the year or period

28 For the year ended December 31, Other Consolidated Financial Information and Ratios Rp Rp Rp US$ (Rp billions and US$ millions unless other indicated) EBITDA (1) , , , Net sales , , , ,844.1 Equity (2) , , , Debt , , , Cash Interest Expense Capital Expenditure , , EBITDA Margin (%) (3) % 8.5% 10.9% EBITDA/Cash Interest Expense (X) Debt/EBITDA (X) Debt/Equity (X) (1) We define EBITDA as gross profit less selling expenses and general and administrative expenses, plus depreciation and amortization, as reported in the financial statements included in this Offering Circular prepared under Indonesian FAS. The table below reconciles our gross profit under Indonesian FAS with our definition of EBITDA for the periods indicated. For the year ended December 31, Rp Rp Rp US$ (Rp. billions and US$ millions unless other indicated) Gross profit , , , ( ) Selling expenses (589.0) (435.0) (336.2) (34.8) ( ) General and administrative expenses (884.3) (1,018.4) (1,179.4) (122.0) (+) Depreciation and amortization EBITDA , , , EBITDA is not a standard measure under Indonesian FAS. EBITDA should not be considered in isolation or construed as an alternative to cash flows, net income or any other measure of performance or as an indicator of operating performance, liquidity, profitability or cash flows generated by operating, investing or financing activities. EBITDA does not account for taxes, interest expense or other non-operating cash expenses. In evaluating EBITDA, we believe that investors should consider, among other things, the components of EBITDA such as revenues and operating expenses and the amount by which EBITDA exceeds capital expenditures and other charges. EBITDA presented herein may not be comparable to similarly titled measures presented by other companies. You should not compare EBITDA presented by us to EBITDA presented by other companies because not all companies use the same definition. (2) Excludes minority interests. (3) EBITDA Margin is calculated as EBITDA divided by net sales. 15

29 As at and for the year ended December 31, Operating Data (1) Poultry Feed Feedmills (number) Annual capacity (million kilograms) ,696 2,796 2,996 Sales volume (million kilograms) ,860 2,186 2,427 Utilization rate (%) Day-old chick ( DOC ) breeding Annual capacity (million birds) Sales volume (million birds) Utilization rate (%) Commercial farms Annual capacity (million kilograms) Sales volume (million kilograms) Utilization rate (%) Aquaculture Feedmills (number) Annual capacity (million kilograms) Sales volume (million kilograms) Utilization rate (%) Beef cattle Feedlots (number) Annual capacity (head of cattle) , , ,000 Sales volume (head of cattle) ,441 70,088 69,000 Utilization rate (%) (1) All operating figures are gross figures, including intercompany sales. 16

30 RISK FACTORS An investment in the Notes involves a number of risks. You should carefully consider all of the information contained in this Offering Circular including the risks described below before deciding to invest in the Notes. Additionally, some risks may be unknown to us and other risks currently believed to be immaterial could turn out to be material. Our business, financial condition, results of operations and prospects could be materially and adversely affected by any of these risks. The market price of the Notes could decline due to any of these risks and you may lose all or part of your investment. The risks described below are not the only ones that may affect us or the Notes. RISKS RELATING TO OUR OPERATIONS AND THE INDUSTRY Outbreaks of livestock diseases could have a material adverse effect on our business. Outbreaks of livestock diseases could significantly restrict our ability to conduct our operations. Since 2003, the H5N1 strain of Avian Influenza, or bird flu, which is potentially lethal to humans, has affected poultry flocks and other birds in several countries around the world, including in Indonesia. Avian Influenza is highly contagious among birds and can cause sickness or death of domesticated birds, including chickens, geese, ducks and turkeys. Indonesian governmental authorities have implemented a variety of emergency measures to prevent the further spread of Avian Influenza. Although, as of the date of this Offering Circular, no cases of Avian Influenza have been reported within our farms or production facilities and we have an internal biosecurity policy and biosecurity measures in place at all of our farms and production facilities, there can be no assurance that there will not be an outbreak in the future or that our biosecurity measures will be effective in the event of an outbreak. Previous outbreaks of the H5N1 strain of Avian Influenza in Indonesia have resulted in reduced demand for chickens and the price of DOCs and chicken products we produce and sell. In particular, the initial outbreak of H5N1 strain of Avian Influenza in Indonesia in late 2003/early 2004 resulted in a reduction in our gross profit for the first quarter of 2004 for our poultry business of approximately 12.4% from the previous comparative period. Recently there has been an outbreak of the H7N9 strain of Avian Influenza in China, which has spread to humans and resulted in patient deaths. The strain does not appear to adversely affect the health of birds and, as such, it is difficult to detect prior to human infection. The extent and consequences of this current outbreak on our business are currently unknown. It is possible that the outbreak could spread to Southeast Asia and Indonesia, which would directly impact our business. Any future outbreak of a livestock disease could result in any of the following, all of which could have a material adverse effect on our business: the Indonesian government may introduce requirements for us to destroy one or more of our flocks; the demand for chickens and the price of DOCs and/or chicken products may decrease significantly; one or more of our facilities may be placed in quarantine until the threat of disease spreading is eliminated; the importation of grandparent stocks into Indonesia may be prohibited; and/or the Indonesian government may introduce restrictions on the movement and/or the sale of our unprocessed chicken products. 17

31 We do not maintain insurance to cover the consequences of livestock disease outbreaks, including those cited above, due to the lack of availability of such insurance at commerciallyreasonable cost in Indonesia. There is also no compensation paid by the government in the event that flocks must be culled. Any outbreak of disease in Indonesia or in neighboring countries, even if there is no outbreak at our facilities, could create adverse publicity and any negative perception by potential customers, government authorities, lenders or general insurance providers could harm us through a loss of customers, new regulations or livestock culling requirements, the failure to obtain financing or the loss of insurance coverage generally. Any of these consequences could have a material adverse effect on our business, financial condition, results of operations and prospects. We currently source all our grandparent stocks from Aviagen s foreign-based operations (predominantly Australia). While no cases of Avian Influenza or other livestock diseases have been reported in Aviagen s U.S. or Australia based production facilities, there can be no assurance that this will continue to be the case. Outbreaks of Avian Influenza or other livestock diseases in the U.S. or Australia may result in Indonesia banning imports of grandparent stocks from affected territories in the U.S. or Australia. In the event of such outbreaks resulting in imposition of import bans, the cost of breeder flocks of similar quality imported from alternative sources could be higher than the cost of our current supplies. In addition, there can be no assurance that any such alternative supplies would be readily available to meet our requirements or at all. Any long-term interruption in supplies of breeder flocks would have a material adverse effect on our business, financial condition, results of operations and prospects. In addition, our aquaculture and beef cattle businesses are also vulnerable to diseases and other biological hazards. If disease outbreaks or other biological hazards are not successfully mitigated by the biosecurity measures we have in place, the volume of aqua-feed we produce and the size of our beef cattle may decrease, mortality rates could increase, our stocks could require greater amounts of feed to survive and we may suffer production delays and shortages, which could have a material and adverse effect on our production and/or sales of our products, which would have a material adverse effect on our business, financial condition, results of operations and prospects. The prices of corn and other feed raw materials are subject to fluctuations. Our poultry feed and aqua-feed businesses are dependent upon the price and availability of raw materials. The single largest component of our cost of goods sold is the cost of raw materials used in the preparation of feed, which accounted for approximately 88.3% of our cost of goods sold in the year ended December 31, The price and availability of corn and our other raw material requirements can therefore have a significant effect on our cost of goods sold. We import a portion of our corn from, among other countries, the United States, Brazil, and Argentina and purchase a substantial amount of our corn from domestic farmers. The price of corn in Indonesia is linked to international market prices. The majority of our soybean meal requirements (which is the second largest component of our feed) is met by imports. International market prices for corn and soybean meal may be subject to fluctuations resulting from weather, the size of harvests, transportation and storage costs, governmental agricultural policies, currency exchange rates and other factors. Worldwide corn prices, for example, have increased in recent years due, in part, to increased demand for biofuels in the United States. In the year ended December 31, 2012, the monthly average price for our imported corn fluctuated between approximately US$267.2 per tonne and approximately US$332.9 per tonne. Soybean prices have also increased in recent years. The bulk of the raw materials we procure are purchased on a spot basis, which further exposes us to price fluctuations. Accordingly, we may not be able to negotiate a price for our key raw materials that is acceptable to us. 18

32 Our two largest raw material costs are corn and soybean meal. We do not grow our own corn or other raw materials and do not intend to do so in the near future. Each of these raw materials is a commodity that is priced according to local and international prices. We have not entered into any hedging transactions with respect to the raw materials we use in our products. Although we have historically been able to pass on cost increases to our feed business customers there can be no assurance we will be able to continue doing so in the future. If we are unable to pass on cost increases to our customers and we are unsuccessful in alternatively managing our exposure to the effects of raw material price fluctuations, overall financial performance could be adversely effected. We have limited long term contracts in relation to the supply of our raw materials or the sale of our products. Many of our suppliers are unwilling to enter into long-term supply contracts with us (due, in part, to uncertainty as to future prices and market conditions) and sell to us on a spot basis. We rely heavily upon the strength of our reputation as a market-leader and we believe that our suppliers perceive us as a reliable counterparty. Although we believe that our long-term relationships with local farmers, for example, act as an incentive for them to sell their corn crops to us at market prices, there can be no assurance that this will continue in the future. New market players may approach local farmers and seek to procure their corn crops at rates which exceed the prices that we are prepared to offer. In the event that one or all of our established suppliers were to cease supplying to us, our key raw materials may not be available at a price that is acceptable to us or at all. In addition, we depend on our ability to source raw materials of sufficient quality. Domestically-sourced corn, for example, may be fresher than imported corn (which may become wet during transportation) or alternatively, nutrient levels may be higher in imported corn. If we are unable to source corn and other raw materials of sufficient quality, our business could be adversely affected. Many of our customers operate through purchase orders or short-term contracts. Within our poultry business, we typically sell approximately 90.0% of our final stock DOC and a substantial portion of our feed to our commercial farms. Some of these farmers are unwilling to enter into long-term contracts, preferring the flexibility offered by short-term contractual arrangements. Within our aquaculture business, most of the fish and shrimp feed that we currently produce is sold directly to local farmers and independent distributors located throughout Indonesia. Within our beef cattle business, we either send our cattle to wet markets for sale to distributors, or to our abattoir for processing into beef products. As many of our arrangements with our customers and suppliers are short-term, there can be no assurance that any or all of our suppliers or customers will continue to do business with us in the future. Although we aim to renew contracts as they expire, there can be no assurance that our suppliers and customers will not seek more favorable terms from one of our competitors. If we are unable to renew our contracts with our suppliers or customers, our business, financial condition, results of operations and prospects could be materially adversely affected. Our feed business is exposed to foreign exchange rate fluctuations. For the year ended December 31, 2012, the majority of our cost of goods sold relating to our feed business were denominated in foreign currencies, the bulk of which were U.S. dollar denominated or linked to the U.S. dollar. For the same periods, the majority of our net sales were denominated in Rupiah. As a result, we are exposed through our feed business to certain amounts of risk in the fluctuation in the exchange rates between the U.S. dollar and the Rupiah, even though there is a time lag between the time we pay our suppliers for corn and the time we bill our customers, which allows us to pass on any increases in costs, because our pricing is determined by market conditions. 19

33 We currently do not use hedging instruments to hedge our foreign currency exposure, which could have a material adverse effect on our business, financial condition, results of operations and prospects, including our ability to make interest payments on the Intercompany Loan to Comfeed Trading, which may in turn impact the Issuer s ability to make payments on the Notes. See Management s Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosure about Market Risks Exchange Rate Risks. We may require additional capital in the future in order to continue to grow our business, which may not be available on favorable terms or at all. Our ability to grow our business and maintain our market share within the fast growing animal protein industry, through the expansion of our operations and productions capabilities, is dependent on our ability to raise additional funds, implement our business strategy or refinance our existing debt or for working capital. There can be no assurance that such funds will be available on favorable terms or at all. Additional debt financing may increase our financing costs and reduce our profitability. Our financing agreements may contain terms and conditions that may restrict our freedom to operate and manage our business, such as terms and conditions that require us to maintain certain pre-set debt service coverage ratios and leverage ratios and require us to use our assets, including our cash balances, as collateral for our indebtedness. If we are unable to raise additional funds on favorable terms or at all as and when required, our business, financial condition, results of operations and prospects could be materially adversely affected. Failure to comply with applicable governmental regulations, including licensing and environmental regulations, could harm our operating results, financial condition and reputation. We hold various licenses and permits issued by various government authorities and regulatory agencies in Indonesia and other jurisdictions and such licenses and permits are essential for the conduct of our business. See Business Regulations and Licenses Licenses. These licenses and permits are generally subject to a variety of conditions which are either stipulated within the licenses and permits themselves, or under the particular legislation and/or regulations governing the issuing authorities. The continuation of these licenses and permits may be subject to annual examinations and/or random inspections by the relevant authorities to ensure that our premises comply with all relevant regulations of the issuing authority. Any breach or material non-compliance with the regulations of the issuing authorities may result in suspension, withdrawal or termination or the relevant licenses and permits, financial penalties or cessation of our operations. We cannot guarantee that we will be able to renew all necessary licenses and permits in the future or that we will not be subject to suspension, withdrawal or termination of our licenses and permits, despite our best efforts to maintain high standards, and any such failure to secure renewal, or loss, or a required license or permit, would adversely affect our financial performance and results of operations. We are required to comply with environmental protection, health and safety laws and regulations. Some of these regulations govern the level of fees payable to government entities providing environmental protection services and the prescribed standards relating to the discharge of effluent, or liquid waste. Our DOC farms and our commercial farms are located on large sites which allow us to distance our farming sites and poultry houses from the production sites. Due to the scale of our poultry operations, it is inevitable that a large quantity of poultry waste is produced, requiring appropriate disposal. We use a proportion of the poultry waste as manure and the remainder is disposed of, 20

34 in accordance with the applicable environmental regulations, which we carry out ourselves and report semi-annually to the Indonesian environmental regulatory office. In addition, due to the nature of our aquaculture business, effluent wastes are unavoidably generated in the production processes. If we fail to comply with any of the relevant environmental laws and regulations in Indonesia, depending on the type and severity of any violation, we may be subject to, among other things, warnings from relevant authorities, imposition of fines and/or criminal liability, being ordered to close down our business operations and suspension of relevant permits. As a result, our reputation may be harmed and our business, financial condition, results of operations and prospects could be materially and adversely affected. In addition, because these laws and regulations are becoming increasingly more stringent both in Indonesia and worldwide, there can be no assurance that we will not be required to incur significant costs to comply with such laws and regulations in the future. We depend on our supplier, Aviagen, to provide us with high grade grandparent stock for our DOC breeding business. We are the sole importer into Indonesia of high grade Indian River breed broiler and layer grandparent stock from Aviagen. Aviagen has operations in Australia, Brazil, the United Kingdom and the U.S. Pursuant to our contracts with Aviagen, we have the rights to sell and distribute all Indian River breed of DOC in Indonesia and in other areas approved by Aviagen (including Vietnam, Myanmar, Cambodia, Laos and India). Our contracts with Aviagen with respect to the Indian River breed broiler and layer grandparent stock expire in December We are currently in the process of renegotiating this agreement. While we have more than 20 years experience working with Aviagen, there can be no assurance that we will be successful in negotiating our contracts with them in the future. Aviagen may offer terms that are not commercially attractive to us or may otherwise terminate the contracts or refuse to renew. In the event of a supply failure by Aviagen or the cessation of our relationship with Aviagen, we cannot assure you that it would be possible for us to source an alternative supplier of high grade grandparent stock in a timely manner or at all. In addition, we have invested significant research and development resources in the Indian River breed, including by developing our complementary feed products which may not be appropriately tailored to alternative breeds. Any termination or interruption of our supply relationship with Aviagen could have a material adverse effect on our business, financial condition, results of operations and prospects. We face significant competition in the businesses in which we operate. We face competition from other Indonesian producers in the domestic markets in which we sell our products, and large international producers may seek to penetrate the Indonesian market in the future. Key factors affecting our competitiveness include price, product quality, brand identification, breadth of product line, distribution reach and customer service. As part of our integrated operations, we are able to bundle feed and DOC sales in order to offer a fully integrated package of services and products to our farming customers, including technical advice to optimize results, productivity and the competitive advantages of our customers. While our experience is that we gain a strategic advantage from the integrated services and solutions that we offer, we cannot guarantee that our integrated services and products will continue to appeal to present and future customers, who may move to new or existing competitors who are able to offer similar products and services more cheaply and individually, as and when required, rather than as part of an integrated operation. 21

35 We believe that our primary competitor in the business in which we operate is PT Charoen Pokphand Indonesia, Tbk., which also aims to offer a fully-integrated solution to its customers, and which currently has a larger market share in the poultry breeding and feed production industries. The poultry breeding and feed production business is particularly competitive. Although we believe that we are one of the market leaders in poultry breeding and feed production, we cannot provide assurance that we will be able to compete successfully with any or all of our competitors in the future. The Indonesian poultry industry is still evolving technologically, particularly in relation to biotechnology improvements in breed selection. The right breed, adjusted to local conditions, can lead to significantly higher profits for farmers due to lower mortality, better growth rates and better feed-to-weight conversion ratios. We exclusively use the Indian River breed, a breed which has been specially tailored for tropical climate conditions, particularly in relation to tolerance of heat, humidity and resistance to disease. We cannot guarantee that our competitors will not offer new poultry breeds in the future, for example, as a result of their research and development activities, that are genetically superior to our breeds and more appealing to customers. As Indonesia is a predominantly Muslim country, it is important that poultry be slaughtered and maintained in a halal manner in accordance with religious requirements. Due to this and other factors including import restrictions, imports of poultry products into Indonesia have historically been relatively low. However, if (i) the import prohibition on chicken parts is repealed; (ii) the regulation prohibiting chicken imports not certified as halal by the Indonesian Council of Religious Scholars is amended, or (iii) the removal or reduction of the current 20% import tariff on whole chickens is implemented, imports of chickens and chicken products would likely increase which would adversely affect our financial performance and results of operations. Foreign governments in markets where we export our products may also impose measures that levy quantity restrictions, introduce other non-tariff barriers or impose higher taxes on imports from certain countries that are successfully importing products which are in high demand to protect local producers. Increased competition may result in price reductions for our products and a loss of market share, greater volatility in our revenues, and damage to our reputation which may in turn have a material adverse effect on our business, financial condition, results of operations and prospects. Our success depends upon our management team and other key personnel, the loss of any of whom could disrupt our business operations. We believe that our future success is heavily dependent upon the continued service of our senior management team who have valuable and long-standing experience in the business in which we operate and an important depth of understanding of the demands of our business and our customers needs. The loss of the services of one or more of our key personnel could impede implementation and execution of our business strategies. We do not carry key person life insurance in respect of any of our employees. While we believe we offer attractive terms of employment, there can be no assurance that we will retain our key management personnel or that we will be able to attract, train or retain qualified personnel in the future. The loss of key management personnel (particularly to one of our competitors) may adversely affect the implementation of our business strategies, which could have a material adverse effect on our business, financial condition, results of operations and prospects. 22

36 Our growth strategy subjects us to various risks. We plan to pursue a growth strategy that includes expanding our core poultry breeding and feed production business into new geographic areas within Indonesia. Our growth strategies may include organic growth through the construction of new facilities, as well as acquisitions of other existing companies engaged in a similar business, or companies engaged in the production of other animal proteins. Risks relating to our growth strategy include the following: we may face competition to acquire land for expansion or acquisition opportunities, which may limit the number of chances we have to acquire suitable companies and which may lead to higher acquisition prices as we compete for valuable investments; we may not be able to integrate new operations, whether organically grown or acquired, with our existing operations; we may face increased costs, supply difficulties and competition in obtaining raw materials for our operations; we may not be able to hire and retain workers necessary for our expanded operations or may have to pay higher wages for these workers than we expect; and unforeseen circumstances and problems relating to our expansion projects may distract our management from focusing on our existing operations. We cannot assure you that we will be able to identify, acquire, or profitably manage additional businesses or to successfully integrate newly-acquired businesses into our existing business structure without incurring substantial costs, delays or other operational or financial difficulties. We face certain risks associated with our aquaculture and beef cattle business. The aquaculture segment of our business represented approximately 7.1% and the beef cattle segment of our business represented approximately 6.1% of our total net sales in the year ended December 31, Pricing fluctuations in relation to the raw materials for aqua-feed production and beef cattle breeding can impact upon our margins, profitability and the overall financial performance of our aquaculture and beef cattle businesses. Climatic and environmental changes (including pollution) that affect the oceans of South East Asia can jeopardize the viability of our fish and shrimp ponds activities, resulting in reduced quantity and/or quality of fish or shrimp produced, or mortality of cultured stock. Climatic and environmental changes (including pollution) can also jeopardize the viability of beef cattle breeding, resulting in reduced quantity and/or quality or mortality of our beef cattle. Our aquaculture and beef cattle activities also carry the risk of contamination resulting from disease, pollution or other foreign substances. Any unforeseen social, political or economic events in Indonesia and/or the countries to which we export our value-added shrimp products and beef cattle products could also have a negative effect upon our aquaculture and beef cattle businesses. For example, in Australia a number of groups staged protests in relation to live exports of cattle which resulted in a temporary disruption in the supply of live cattle to Indonesia. There is a risk that these groups could become increasingly active in our beef cattle business and influence the relevant authorities to make changes to current regulations and impose more rigorous standards upon our beef cattle operations. Protests against live cattle exports may also generate negative press about us and beef cattle companies in general. 23

37 Changes in consumer preferences away from our products could materially and adversely affect us. Changes in consumer preferences away from poultry or negative publicity regarding human consumption of poultry may reduce worldwide demand for our poultry products. A reduction in the demand for poultry may in turn adversely affect demand for our poultry feed products. Consumer preferences can change for many reasons including changes in nutritional standards, health advisories and general economic conditions. Similarly, sales of our poultry feed, shrimp feed and fish feed products could be adversely affected by shifts in consumer preferences away from poultry, shrimp or fish, respectively. Rising energy prices could adversely affect our operating results. In the past few financial years, energy prices have risen dramatically, which has resulted in increased energy related costs for our feed production activities. We believe that we are currently able to pass on increases and fluctuations in our operational costs to our customers, through the price of our products, within a relatively short timeframe (typically, within two weeks). However, there can be no assurance that rising energy prices may not have an increasingly adverse impact upon our operational costs and that we will be able to pass on increasing and fluctuating operational costs to our customers in the future. Our insurance coverage may be inadequate. Our insurance coverage may not adequately protect us from the risks associated with our business. We insure our principal assets against risk of physical loss or damage caused by accident, fire, civil disorder and/or natural disasters. However, we do not have coverage against losses arising from Avian Influenza, as such insurance is not customary, and is unavailable in Indonesia on commercially reasonable terms. In addition, there can be no assurance that we will be able to continue to maintain our existing insurance coverage or obtain insurance policies on economically viable terms. If we were to suffer a loss that is not adequately covered by insurance, our business, financial condition, results of operations and prospects could be materially adversely affected. See Business Insurance. RISKS RELATING TO INDONESIA We are incorporated in Indonesia and all of our commissioners and officers are based in Indonesia, while most of our directors are based in Indonesia All of our operations and all of our assets are located in Indonesia. As a result, future political, economic and social conditions in Indonesia, as well as certain actions and policies the Government may take or adopt, or omit from taking or adopting, could have a material adverse effect on our business, financial condition, results of operations and prospects. Political and social instability in Indonesia may adversely affect the economy, which in turn could have a material adverse effect on our business, financial condition, results of operations and prospects. Since the collapse of President Soeharto s regime in 1998, Indonesia has experienced a process of democratic change, resulting in political and social events that have highlighted the unpredictable nature of Indonesia s changing political landscape. These events have resulted in political instability, as well as general social and civil unrest on certain occasions in recent years. Indonesia is a Republic with a President, a Vice President and a presidential system of government. From its independence in 1945 until 1998, there were only two Presidents in Indonesia. At the end of the term of each of these Presidents, Indonesia experienced political instability and many cities in Indonesia, including Jakarta, experienced rioting, unrest and destruction of property. 24

38 Political instability led to the resignation of then-president Soeharto in May Promptly thereafter, Vice President Bacharuddin Jusuf Habibie was sworn in as President and called for reforms and parliamentary elections to be held in October Prior to and during the presidential and parliamentary elections, there was significant social unrest that resulted in additional rioting, unrest and destruction of property. Following the elections, the People s Consultative Assembly (Majelis Permusyawaratan Rakyat, or MPR ) selected Abdurrahman Wahid as President and Megawati Sukarnoputri as Vice President. In February 2001, a committee of the Indonesian parliament, the People s Representative Council (Dewan Perwakilan Rakyat), alleged that the then-president Wahid was involved in instances of corruption. In July 2001, the MPR impeached the then-president Wahid and elected Megawati Sukarnoputri in his place. In 2004, Indonesians directly elected the President, Vice-President and representatives in the Indonesian Parliament for the first time. Indonesians have also begun directly electing heads and representatives of local and regional governments. In April 2009, elections were held to elect the representatives in the Indonesian Parliament (including national, regional and local representatives). The Indonesian presidential elections, held in July 2009, resulted in the re-election of President Susilo Bambang Yudhoyono. Although the April 2009 and July 2009 elections were conducted in a peaceful manner, political campaigns in Indonesia may bring increased political activity in Indonesia as well as a degree of political and social uncertainty to Indonesia. Furthermore, there can be no assurance that the upcoming presidential elections in Indonesia, which will be held in 2014, will not lead to an increase in political or social uncertainty and instability in Indonesia. Separatist movements and clashes between religious and ethnic groups have resulted in social and civil unrest in parts of Indonesia. In the provinces of Aceh and Papua (formerly Irian Jaya), there have been numerous clashes between supporters of those separatist movements and the Indonesian military. In Papua, continued activity by separatist rebels has led to violent incidents. In the provinces of Maluku and West Kalimantan, clashes between religious groups and ethnic groups have produced thousands of casualties and refugees over the past several years. The Government has attempted to resolve problems in these troubled regions with limited success except in the province of Aceh in which an agreement between the Government and the Aceh separatists was reached in 2005 and peaceful local elections were held with some former separatists as candidates, but there can be no assurance that the terms of any agreement reached between the Government and the separatists will be upheld. Political and related social developments in Indonesia have been unpredictable in the past. There can be no assurance that social and civil disturbances will not occur in the future or that such social and civil disturbances will not directly or indirectly, materially and adversely affect our business, financial condition, results of operations and prospects, and the Issuer s ability to meet its payment obligations under the Notes. Changes in the Government and Government policies may have a direct impact on our business and the market price of the Notes. In addition, Indonesia has experienced frequent social unrest arising from economic issues which has, on occasion, escalated into riots and violence. In June 2001, demonstrations and strikes affected at least 19 cities after the Government mandated a 30% increase in fuel prices. Similar demonstrations occurred in January 2003 when the Government tried to increase fuel prices, as well as electricity and telephone charges. In both instances, the Government was forced to repeal, defer or substantially reduce such proposed increases. In March 2005, the Government implemented an approximately 29% increase in fuel prices. In October 2005, the Government decreased fuel subsidies to the public resulting in large public demonstrations. In May 2008, the Government further decreased fuel subsidies to the public, which has also led to large public demonstrations. Similar fuel subsidy cuts contributed to the political instability that led to the resignation of then President Soeharto in 1998, which had adverse effects on businesses in Indonesia. The Government has recently proposed an increase in the price of subsidized fuel prices. There can be no assurance that the recent proposed 25

39 increase in subsidized fuel prices, or cuts in fuel subsidies in the future, will not result in political and social instability. Our business may be affected by similar Government actions including, but not limited to, changes in crude oil or natural gas policy, responses to war and terrorist acts, renegotiation or nullification of existing concessions and contracts, changes in tax laws, treaties or policies, the imposition of foreign exchange restrictions and responses to international developments. Indonesia is located in an earthquake zone and is subject to significant geological risk that could lead to social unrest and economic loss. The Indonesian archipelago is one of the most volcanically active regions in the world. Because Indonesia is located in the convergence zone of three major lithospheric plates, it is subject to significant seismic activity that can lead to destructive earthquakes and tsunamis, or tidal waves. In recent years, a number of natural disasters have occurred in Indonesia, including major earthquakes, which resulted in tsunamis and volcanic activity. In addition to these geological events, Indonesia has also been struck by other natural disasters such as heavy rains and flooding. All of the above resulted in loss of life, the displacement of large numbers of people and widespread destruction of property. While these events did not have a significant economic impact on the Indonesian capital markets, the Government has had to expend significant amounts of resources on emergency aid and resettlement efforts. Most of these costs have been underwritten by foreign governments and international aid agencies. However, such aid may not continue to be forthcoming, and may not be delivered to recipients on a timely basis. If the Government is unable to deliver foreign aid to affected communities in a timely manner, political and social unrest could result. Additionally, recovery and relief efforts are likely to continue to strain the Government s finances and may affect its ability to meet its obligations on its sovereign debt. Any such failure on the part of the Government, or declaration of a moratorium on its sovereign debt, could trigger an event of default under numerous private-sector borrowings, impacting our operations of us and our customers and suppliers, thereby materially and adversely affecting our businesses, financial condition, results of operations and prospects. Future geological occurrences could significantly impact the Indonesian economy. A significant earthquake or other geological disturbance in any of Indonesia s more populated cities could severely disrupt the Indonesian economy and undermine investor confidence, thereby materially and adversely affecting our businesses, financial condition, results of operations and prospects. Terrorist attacks and terrorist activities, and certain destabilizing events have led to substantial and continuing economic and social volatility in Indonesia, which may materially and adversely affect our business and/or property. In Indonesia during the last ten years, there have been numerous bombing incidents directed towards the Government and foreign governments and public and commercial buildings frequented by foreigners, including the Jakarta Stock Exchange Building and Jakarta s Soekarno- Hatta International Airport. On October 12, 2002, over 200 people were killed in a bombing at a tourist area in Bali. In April 2003, bombs exploded outside the main United Nations building in Jakarta and in front of the domestic terminal at Jakarta s Soekarno-Hatta International Airport. On August 5, 2003, a bomb exploded at the JW Marriott Hotel in Jakarta, killing at least 13 people and injuring 149 others. On September 9, 2004, a car bomb exploded in front of the Australian Embassy in Jakarta, killing more than six people. On May 28, 2005, bomb blasts in Central Sulawesi killed at least 21 people and injured at least 60 people. On October 1, 2005, bomb blasts in Bali killed at least 23 people and injured at least 101 others. On July 17, 2009, two separate bomb explosions occurred at the JW Marriott Hotel and the Ritz Carlton Hotel in Jakarta, killing at least nine people and injuring 40 others. Indonesian, Australian and U.S. government officials have indicated that these bombings may be linked to an international terrorist organization. While 26

40 in response to the terrorist attacks, the Government has institutionalized certain security improvements and undertaken certain legal reforms which seek to better implement anti-terrorism measures and some suspected key terrorist figures have been arrested and tried, there can be no assurance that further terrorist acts will not occur in the future. Following military involvement of the United States and its allies in Iraq, a number of governments have issued warnings to their citizens in relation to a perceived increase in the possibility of terrorist activities in Indonesia, targeting foreign, particularly U.S. interests. Such terrorist activities could destabilize Indonesia and increase internal divisions within the Government as it considers responses to such instability and unrest, thereby adversely affecting investors confidence in Indonesia and the Indonesian economy. Violent acts arising from and leading to instability and unrest have in the past had, and could continue to have, a material adverse effect on investment and confidence in, and the performance of, the Indonesian economy, and in turn our business. Future acts of terrorism, violent acts and adverse political developments may have a material adverse effect on us, our business, financial condition, results of operations and prospects. Domestic, regional or global economic changes may adversely affect our business. The economic crisis which affected Southeast Asia, including Indonesia, from mid-1997 was characterized in Indonesia by, among others, currency depreciation, a significant decline in real gross domestic product, high interest rates, social unrest and extraordinary political developments. More recently, the global economic crisis that began in 2008 resulted in a decrease in Indonesia s rate of growth to 4.4% in 2009 from 6.1% in 2008 and 6.3% in These conditions had a material adverse effect on Indonesian businesses. Indonesia s economy remains significantly affected by the Asian economic crisis and, more recently, by the global economic crisis that began in The global financial markets have experienced, and may continue to experience, significant turbulence originating from the liquidity shortfalls in the U.S. credit and sub-prime residential mortgage markets since 2008, which have caused liquidity problems resulting in bankruptcy for many institutions, and resulted in major government bailout packages for banks and other institutions. The global economic crisis has also resulted in a shortage in the availability of credit, a reduction in foreign direct investment, the failure of global financial institutions, a drop in the value of global stock markets, a slowdown in global economic growth and a drop in demand for certain commodities. The global financial markets have also recently experienced volatility as a result of the downgrade of U.S. sovereign debt and concerns over the debt crisis in the Eurozone. Uncertainty over the outcome of the Eurozone governments financial support programs and worries about sovereign finances generally are ongoing. As a result of the economic crisis in 1997, the Government has had to rely on the support of international agencies and governments to prevent sovereign debt defaults. The Government continues to have a large fiscal deficit and a high level of sovereign debt, its foreign currency reserves are modest, the Rupiah continues to be volatile and has poor liquidity, and the banking sector is weak and suffers from high levels of non-performing loans. Government funding requirements to areas affected by the Asian tsunami in December 2004 and other natural disasters, as well as increasing oil prices, may increase the Government s fiscal deficits. The inflation rate (measured by the year on year change in the consumer price index) remains volatile with an annual inflation rate of 7.0% in 2010, 3.8% in 2011 and 4.3% in Interest rates in Indonesia have also been volatile in recent years, which has had a material adverse impact on the ability of many Indonesian companies to service their existing indebtedness. The economic difficulties Indonesia faced during the Asian economic crisis that began in 1997 resulted in, among other things, significant volatility in interest rates, which had a material adverse impact on the ability of many Indonesian companies to service their existing indebtedness. Although the policy rate set by Bank Indonesia was 5.75% as of March 7, 2013, as compared to a peak of 70.8% in late July 1998 for one-month Bank Indonesia certificates, there can be no assurance that the recent improvement in economic conditions will continue or the previous adverse economic 27

41 condition in Indonesia and the rest of the Asia Pacific region will not occur in the future. In particular, a loss of investor confidence in the financial systems of emerging and other markets, or other factors, may cause increased volatility in the international and Indonesian financial markets and inhibit or reverse the growth of the global economy and the Indonesian economy. A continued and significant downturn in the global economy, including the Indonesian economy, could have a material adverse effect on the demand for residential and commercial property, and therefore, on our business, financial condition, results of operations and prospects. In addition, the general lack of available credit and lack of confidence in the financial markets associated with any market downturn could adversely affect our access to capital as well as our suppliers and customers access to capital, which in turn could adversely affect our ability to fund our working capital requirements and capital expenditures. The current global economic situation could further deteriorate or have a greater impact on Indonesia and our businesses. Any of the foregoing could materially and adversely affect our business, financial condition, results of operations and prospects, and the Issuer s ability to pay interest on, and repay the principal of, the Notes. Regional autonomy may adversely affect our business through imposition of local restrictions, taxes and levies. Indonesia is a large and diverse nation covering a multitude of ethnicities, languages, traditions and customs. During the administration of the former President Soeharto, the central Government controlled and exercised decision-making authorities on almost all aspects of national and regional administration, including the allocation of revenues generated from extraction of national resources in the various regions. This control led to a demand for greater regional autonomy, in particular with respect to the management of local economic and financial resources. In response to such demand, the Indonesian Parliament in 1999 passed Law No. 22 of 1999 regarding Regional Autonomy ( Law No. 22/1999 ) and Law No. 25 of 1999 regarding Fiscal Balance between the Central and the Regional Governments ( Law No. 25/1999 ). Law No. 22/1999 has been revoked and replaced by the provisions of regional autonomy Law No. 32 of 2004 ( Law No. 32/2004 ) as amended by Law No. 8 of 2005 regarding the First Amendment of Law No. 32/2004 on Regional Autonomy and Law No. 12 of 2008 regarding the Second Amendment of Law No. 32/2004. Law No. 25/1999 has been revoked and replaced by Law No. 33 of 2004 regarding the Fiscal Balance between the Central and the Regional Governments, respectively. Under these regional autonomy laws, regional autonomy was expected to give the regional governments greater powers and responsibilities over the use of national assets and to create a balanced and equitable financial relationship between central and regional governments. However, under the pretext of regional autonomy, certain regional governments have put in place various restrictions, taxes and levies which may differ from restrictions, taxes and levies put in by other regional governments and/or are in addition to restrictions, taxes and levies stipulated by the central government. Our business and operations are located throughout Indonesia and may be adversely affected by conflicting or additional restrictions, taxes and levies that may be imposed by the applicable regional authorities. Depreciation or volatility in the value of the Rupiah may adversely affect our business, financial condition, results of operations and prospects. One of the most important immediate causes of the economic crisis which began in Indonesia in mid-1997 was the depreciation and volatility of the value of the Rupiah, as measured against other currencies, such as the US dollar. Although the Rupiah has appreciated considerably from its low point of approximately Rp17,000 per US dollar in January 1998, the Rupiah continues to experience significant volatility. See Exchange Rates and Exchange Controls for further information on changes in the value of the Rupiah as measured against the US dollar in recent periods. 28

42 The Rupiah has generally been freely convertible and transferable (except that Indonesian banks may not transfer Rupiah to persons outside of Indonesia and may not conduct certain transactions with non-residents). However, from time to time, Bank Indonesia has intervened in the currency exchange markets in furtherance of its policies, either by selling Rupiah or by using its foreign currency reserves to purchase Rupiah. We cannot assure you that the Rupiah will not be subject to depreciation and continued volatility, that the current floating exchange rate policy of Bank Indonesia will not be modified, that additional depreciation of the Rupiah against other currencies, including the US dollar, will not occur, or that the Government will take additional action to stabilize, maintain or increase the value of the Rupiah, or that any of these actions, if taken, will be successful. Modification of the current floating exchange rate policy could result in significantly higher domestic interest rates, liquidity shortages, capital or exchange controls or the withholding of additional financial assistance by multinational lenders. This could result in a reduction of economic activity, an economic recession, loan defaults or declining interest by our customers, and as a result, we may also face difficulties in funding our capital expenditure and in implementing our business strategy. Any of the foregoing consequences could have a material adverse effect on our business, financial conditions, results of operations and prospects. Downgrades of credit ratings of Indonesia and Indonesian companies could adversely affect us and the market price of the Notes. In 1997, certain recognized statistical rating organizations, including Moody s and S&P, downgraded Indonesia s sovereign rating and the credit ratings of various credit instruments of the Government and a large number of Indonesian banks and other companies. Currently, Indonesia s sovereign foreign currency long-term debt is rated Baa3 by Moody s, BB+ by S&P and BBB- by Fitch, and its short-term foreign currency debt is rated NP by Moody s, B by S&P and F3 by Fitch with a stable outlook from Moody s, a positive outlook from S&P and a stable outlook from Fitch. These ratings reflect an assessment of the Government s overall financial capacity to pay its obligations and its ability or willingness to meet its financial commitments as they become due. Even though the recent trend in Indonesian sovereign ratings has been positive, no assurance can be given that Moody s, S&P or any other statistical rating organization will not downgrade the credit ratings of Indonesia or Indonesian companies in general. Any such downgrade could have an adverse impact on liquidity in the Indonesian financial markets, the ability of the Government and Indonesian companies, including us, to raise additional financing and the interest rates and other commercial terms at which such additional financing is available to us, which could materially and adversely affect our business, financial condition, results of operations and prospects. The outbreak of any severe communicable disease in Indonesia or elsewhere may have an adverse effect on the economies of certain Asian countries and may adversely affect our results of operations. The outbreak of an infectious disease in Asia (including Indonesia) and elsewhere, together with any resulting travel restrictions or quarantines, could have a negative impact on the economy and business activity in Indonesia and thereby adversely affect our businesses, financial condition, results of operations and prospects. Examples include the outbreak in 2003 of Severe Acute Respiratory Syndrome ( SARS ), the outbreak in 2004 and 2005 of Avian influenza, or bird flu, in Asia and, in April 2009, an outbreak of the Influenza A (H1N1) virus which originated in Mexico but spread globally including confirmed reports in Indonesia, Hong Kong, Japan, Malaysia, Singapore, and elsewhere in Asia. An outbreak of avian flu, SARS, the Influenza A (H1N1) virus or another contagious disease or the measures taken by the governments of affected countries, including Indonesia, against such potential outbreaks, could seriously interrupt our operations or the services or operations of our suppliers and customers, which could have a material adverse effect on our businesses, financial condition, results of operations and prospects. The perception 29

43 is that an outbreak of avian flu, SARS, the Influenza A (H1N1) virus or another contagious disease that may occur may also have an adverse effect on the economic conditions of countries in Asia, including Indonesia. Labor activism could adversely affect Indonesian companies, including us, which in turn could affect our business, financial condition, results of operations and prospects. Laws and regulations which facilitate the forming of labor unions, combined with weak economic conditions, have resulted and may continue to result in labor unrest and activism in Indonesia. In 2000, the Government issued Law No. 21 of 2000 on Labor Union (the Labor Union Law ). The Labor Union Law permits employees to form unions without employer intervention. In March 2003, the Government enacted Law No. 13 of 2003 on Labor (the Labor Law ) which, among other things, increased the amount of severance, service and compensation payments payable to employees upon termination of employment. If only one labor union exists in a company, the Labor Law requires further implementation of regulations that may substantively affect labor relations in Indonesia. The Labor Law requires bipartite forums with participation from employers and employees and the participation of more than 50.0% of the employees of a company in order for a collective labor agreement to be negotiated and creates procedures that are more permissive to the staging of strikes. Under the Labor Law, employees who voluntarily resign are also entitled to payments for, among other things, unclaimed annual leave and relocation expenses. Following the enactment, several labor unions urged the Indonesian Constitutional Court to declare certain provisions of the Labor Law unconstitutional and order the Government to revoke those provisions. The Indonesian Constitutional Court declared the Labor Law valid except for certain provisions, including relating to the right of an employer to terminate its employee who committed a serious mistake and criminal sanctions against an employee who instigates or participates in an illegal labor strike. Labor unrest and activism in Indonesia could disrupt our operations and could affect the financial condition of Indonesian companies in general, depressing the prices of Indonesian securities on the Jakarta or other stock exchanges and the value of the Indonesian Rupiah relative to other currencies. Such events could materially and adversely affect our business, financial condition, results of operations and prospects. In addition, any national or regional inflation of wages will directly and indirectly increase operating costs of its business and thus decrease its profit margin. Indonesian corporate and other disclosure and accounting standards differ from those in the United States, countries in the European Union and other jurisdictions. Our financial statements are prepared in accordance with Indonesian FAS, which differ from U.S. GAAP. As a result, our financial statements and reported earnings could be different from those which would be reported under U.S. GAAP. This Offering Circular does not contain a reconciliation of our financial statements to U.S. GAAP, and there can be no assurance that such reconciliation, if performed, would not reveal material differences. See Summary of Significant Differences Between Indonesian FAS and U.S. GAAP. An Indonesian Law requiring agreements involving Indonesian parties to be written in the Indonesian language may raise issues as to the enforceability of agreements entered into in connection with the offer and sale of the Notes and the Note. On July 9, 2009, the Government enacted Law No. 24 of 2009 on Flag, Language, Coat of Arms and National Anthem ( Law No. 24/2009 ) requiring that agreements involving Indonesian parties be written in the Indonesian language. Where an agreement also involves foreign parties, it may also be executed in both the Indonesian language and a foreign language, provided that the agreement in the foreign language and the agreement in the Indonesian language are equally 30

44 authoritative. Law No. 24/2009 is silent on the governing language if there is more than one language used in a single agreement. Article 40 of Law No. 24/2009 states that further stipulation on the use of Bahasa Indonesia shall be regulated by the implementing regulations to be issued. However, as of the date of this Offering Circular, no implementing regulations have been issued. Accordingly, until such implementing regulations are issued, it is unclear whether Bahasa Indonesia will be stipulated as the governing language of agreements related to our business or to the Notes, and when such implementing regulations are issued, English might not be recognized as the governing language of such agreements, even if agreed to by the contracting parties. Although the Indenture governing the Notes and any other agreements to which Indonesian parties are a party will be prepared in dual English and Indonesian versions as required under Law No. 24/2009, we cannot assure you that, in the event of inconsistencies between the Indonesian language and English language versions of these agreements, an Indonesian court would hold that the English version would prevail. Some concepts in the English language may not have a corresponding term in the Indonesian language and the exact meaning of the English text or may not be fully captured by such Indonesian version. If this occurs, we cannot assure you that the terms of the Notes, including the Indenture, will be as described in this Offering Circular, or will be interpreted and enforced by the Indonesian courts as intended. Detailed implementing regulations for Law No. 24/2009 have not been published and Law No. 24/2009 does not specify any sanction for non-compliance. We cannot predict as to how the implementation of this new law will impact the validity and enforceability of the Notes and the Guarantees under Indonesian laws. This creates uncertainty as to the ability of Noteholders to enforce the Notes and the Note Guarantees in Indonesia. RISKS RELATING TO THE NOTES AND THE NOTE GUARANTEES Through the purchase of the Notes and Note Guarantees, Noteholders may be exposed to a legal system subject to considerable discretion and uncertainty; it may be difficult or impossible for Noteholders to pursue claims under the Notes or the Note Guarantees. Indonesian legal principles relating to the rights of debtors and creditors, or their practical implementation by Indonesian courts, may differ materially from those that would apply within the jurisdictions of the United States, the European Union or other countries. Neither the rights of debtors nor the rights of creditors under Indonesian law are as clearly established or recognized as under legislation or judicial precedent in the United States and most European Union member states. In addition, under Indonesian law, debtors may have rights and defenses to actions filed by creditors that these debtors would not have in jurisdictions with more established legal regimes such as those in the United States and the European Union member states. Indonesia s legal system is a civil law system based on written statutes in which judicial and administrative decisions do not constitute binding precedent and are not systematically published. Indonesia s commercial and civil laws, as well as rules on judicial process, were historically based on Dutch law as in effect prior to Indonesia s independence in 1945, and some have not been revised to reflect the complexities of modern financial transactions and instruments. Indonesian courts may be unfamiliar with sophisticated commercial or financial transactions, leading in practice to uncertainty in the interpretation and application of Indonesian legal principles. The application of Indonesian law depends upon subjective criteria such as the good faith of the parties to the transaction and principles of public policy, the practical effect of which is difficult or impossible to predict. Indonesian judges operate in an inquisitorial legal system, have very broad fact-finding powers and a high level of discretion in relation to the manner in which those powers are exercised. In practice, Indonesian court decisions may omit a clear articulation of a legal and 31

45 factual analysis of the issues presented in a case, and as a result, the administration and enforcement of laws and regulations by Indonesian courts and Indonesian governmental agencies may be subject to considerable discretion and uncertainty. Furthermore, corruption in the court system in Indonesia has been widely reported in publicly available sources. See, for example, U.S. Department of State, Indonesia: Country Reports on Human Rights Practices (2009); World Bank, Raising Investment in Indonesia: A Second Generation of Reforms (2005) and Transparency International, International Corruption Perceptions Index (2009). According to Bank Indonesia Regulation No. 12/24/PB1/2010, any Indonesian company obtaining an offshore commercial loan or issuing offshore debt securities must submit reports to Bank Indonesia. Under applicable Indonesian laws and regulations, we are required to report details regarding its offshore borrowings to the Minister of Finance of Indonesia, Bank Indonesia (the central bank of Indonesia) and the PKLN Team on the acceptance, implementation and repayment of principal and interest. In addition, we are required to periodically submit various other reports regarding its offshore borrowings to Bank Indonesia. See Indonesian Regulation of Offshore Borrowings for further details. We have undertaken in the Indenture governing the Notes to comply with all such requirements in respect of the Intercompany Loan between us and Comfeed Trading. The position of the Supreme Court on the impact on offshore borrowings in the event the borrower fails to make the required filings is varied. For example, there has been conflicting Indonesian case law on whether the failure to timely report offshore loan agreements to Bank Indonesia and the Minister of Finance will affect the validity and enforceability of the underlying loan documents. In one Supreme Court case, based on a law on offshore borrowings that has since been superseded, the Supreme Court decided that a borrower s failure to make required filings invalidated the borrower s obligations under the relevant loan agreement. In a separate decision, also based on the superseded law, the Supreme Court ruled otherwise, stating that failure to file a loan agreement did not affect the validity of the borrower s obligations under the relevant loan agreement and that the sanction applicable to such failure to make the necessary filing was the fine stated in the superseded law. Prior decisions of the Supreme Court are, however, generally not considered binding precedents in later cases. Accordingly, failure by us to comply with the reporting requirements in relation to offshore borrowings could affect the validity of the Notes. In addition, under the Indonesian Civil Code, although a guarantor may waive its right to require the obligee to exhaust its legal remedies against the obligor s assets prior to the obligee exercising its rights under the related guarantee, a guarantor may be able to argue successfully that the guarantor can nonetheless require the obligee to exhaust such remedies before acting against the guarantor. No assurance can be given that an Indonesian court would not side with us or a Subsidiary Guarantor on this matter, despite the express waiver by Company and a Subsidiary Guarantor of this obligation in the Note Guarantees. As a result, it may be difficult for Noteholders to pursue a claim against the Issuer, us or the Subsidiary Guarantors in Indonesia, which may adversely affect or eliminate entirely the ability of the Noteholders to obtain and enforce a judgment against the Issuer, us or the Subsidiary Guarantors in Indonesia or increase the costs incurred by Noteholders in pursuing, and the time required to pursue, claims against the Issuer, us or the Subsidiary Guarantors in Indonesia. 32

46 Indonesian companies have filed suits in Indonesian courts to invalidate transactions with structures similar to this offering of Notes and the Note Guarantees and have brought legal action against lenders and other transaction participants; moreover, such legal action has resulted in judgments against such defendants invalidating all obligations under the applicable debt instruments and allowing affirmative recoveries from the lenders in excess of the amounts borrowed. In several cases in Indonesian courts, Indonesian companies which had defaulted on notes and other debt incurred through offshore financing entities using a structure similar to this offering of the Notes and the Note Guarantees, have successfully sued creditors and other transaction participants obtaining, among other relief: a declaration that the entire debt obligation is null and void; disgorgement of prior payments made to holder the notes on the notes; damages from lenders and other transaction participants in amounts exceeding the original proceeds of the debt issued; and injunctions prohibiting holders of notes from enforcing rights under the transaction documents and trading in the notes. In a June 2006 decision that was released in November 2006, the Indonesian Supreme Court affirmed a lower court judgment involving PT Indah Kiat Pulp & Paper Tbk. ( Indah Kiat ), an Indonesian listed company, as plaintiff and various parties as defendants that invalidated US$500 million of notes issued through an offshore offering structure similar to this offering of Notes and the Note Guarantees. The decision involved an Indonesian listed Company, Indah Kiat, as plaintiff and various parties as the defendants using a structure similar to this offering of the Notes and the Note Guarantees, whereby notes were issued through a Dutch subsidiary of Indah Kiat and guaranteed by Indah Kiat. The Indonesian Supreme Court upheld the decisions of a District Court and High Court in Indonesia in favor of Indah Kiat. The Indonesian courts ruled that the defendants (including the trustee, underwriter and security agent for the issuance of the Indah Kiat notes) committed a tort (perbuatan melawan hukum) by entering into the transaction, and therefore the issuance of the notes was declared null and void. The courts nullified the notes by reasoning that the contracts made in relation to the notes were signed without any legal cause, and so did not meet the provision of Article 1320 of the Indonesian Civil Code which requires a legal cause as one of the elements for a valid agreement. The Indonesian courts accepted the plaintiff s argument that Indah Kiat acted both as a debtor and as a guarantor of the same debt even though in the facts of the case Indah Kiat International Finance Company B.V. (lndah Kiat s Dutch subsidiary established for the purpose of the issuance of the notes) was the issuer of the notes and Indah Kiat was the guarantor of such notes. The Indonesian courts also ruled that the establishment of Indah Kiat International Finance Company B.V. was unlawful as it was intended to avoid Indonesian withholding tax payments. On August 19, 2008, the Supreme Court granted a civil review (peninjauan kembali) and annulled the June 2006 Supreme Court decision. The Indonesian Supreme Court in its civil review decision stated that Indah Kiat has failed to prove that the transaction is an act of legal manipulation that caused damages to Indah Kiat. Therefore, the Supreme Court concluded that the defendants did not commit any unlawful act. Further, the Supreme Court is of the view that it was clear that the money borrowed by Indah Kiat from Indah Kiat International Finance Company B.V. originated from the issuance of notes, as evidenced in the recital of the relevant loan agreement and thus the claim that the whole transaction was a manipulation of law had no merit. Moreover, with regard to the validity and enforceability of the security documents, the Supreme Court stated that the security agreements would prevail as long as the underlying agreements were still valid and binding. On the tax issues, the civil review decided that the Supreme Court had misapplied the tax 33

47 law as it did not prohibit tax saving, and thus the claim relating to tax was annulled. The Supreme Court also stated that for certain New York law governed agreements in the transaction (such as the indenture, the loan agreement, the amended and restated loan agreement and the underwriting agreement), the claim should be brought to the appropriate court in the state of New York and not a District Court of Indonesia. The Indonesian Supreme Court in March 2009 refused a civil review (the March 2009 Decision ) of a judgment by the District Court of Kuala Tungkal, South Sumatra, which invalidated US$550 million of notes issued by APP International Finance Company B.V. ( APPC ) and guaranteed by PT Lontar Papyrus Pulp & Paper Industry ( Lontar Papyrus ), a sister corporation of Indah Kiat. Although the Indonesian Supreme Court s official judgment is not publicly available, Lontar Papyrus legal arguments in its lower court case were substantially similar to those made by Indah Kiat and rejected by the Indonesian Supreme Court in its August 2008 Decision. The Indonesian Supreme Court s refusal to grant a civil review effectively affirmed and made final the lower court s decision to invalidate the transaction documents and Lontar Papyrus s guarantor obligations under the notes. The Indonesian Supreme Court reasoned that the loan agreement between APPC and Lontar Papyrus and the indenture with respect to the notes required revisions in order to comply with Indonesia s prevailing laws and regulations and that because Lontar Papyrus had repaid in full the loan from APPC, it had no outstanding legal obligations as debtor under the loan agreement with APPC or as guarantor under the indenture. Lontar Papyrus and Indah Kiat are subsidiaries of Asia Pulp & Paper Company Ltd., and their original lower court cases against their creditors were filed at approximately the same time. While the lower court decisions in certain of these cases have been annulled by the Indonesian Supreme Court, as in the August 2008 Decision, the Indonesian Supreme Court has taken a contradictory view in the March 2009 Decision. In a September 2011 decision, the Indonesian Supreme Court, whose judgment has not been made publicly available, (the September 2011 Decision ) refused a civil review of a decision by the District Court of Bengkalis (whose judgment was the subject of the Indonesian Supreme Court s June 2006 Decision and August 2008 Decision), which invalidated the notes issued by Indah Kiat BV. The facts and legal claims presented by Indah Kiat BV were substantially the same as those made by Indah Kiat in the lower court cases that were the subject of the June 2006 Decision. The September 2011 Decision specifically noted that the Indonesian Supreme Court chose to not consider its August 2008 Decision despite such substantially similar facts and legal claims. The Supreme Court s refusal to grant civil reviews of the lower court decisions in the March 2009 Decision and September 2011 Decision effectively affirmed the lower courts decisions to invalidate the relevant notes and the issuers and guarantors obligations under such notes, and such lower court decisions are now final and not subject to further review. Indonesian court decisions are not binding precedents and do not constitute a source of law at any level of the judicial hierarchy as in common law jurisdictions such as the United States and the United Kingdom. However, we cannot assure you that a court would not issue a decision similar to the September 2011 Decision with respect to the validity and enforceability of the Notes and the Guarantees or grant any additional relief, which in each case would be adverse to the interests of Noteholders. We cannot assure you that the Indonesian Supreme Court and lower Indonesian courts will not invalidate the Notes, the Guarantees and other transaction documents, or that you will be able to enforce your rights in Indonesia, where substantially all of the Guarantors assets are located. In addition, in jurisdictions where courts recognize such Indonesian court decisions, holders of the Notes may also be unable to enforce their rights under the Notes, the Guarantees or other transaction documents, or have recourse to the Issuer s or any Subsidiary Guarantor s assets. Holders of the Notes may have no effective or practical recourse to any assets or legal process in Indonesia to enforce their rights against the Issuer or the Guarantors. 34

48 Noteholders may be exposed to affirmative judgments by Indonesian courts against them in amounts exceeding the value of the notes held by them. (In addition, in jurisdictions where courts recognize such Indonesian court decisions, non-indonesian courts may enforce such judgments against the assets of Noteholders as well as other parties such as underwriters and trustees) located outside of Indonesia. The terms of the Notes and the Note Guarantees will contain covenants limiting our financial and operating flexibility. Covenants contained in the documentation relating to the Notes will restrict the ability of the Issuer, us, Comfeed Trading and any Restricted Subsidiary to, among other things: incur or guarantee additional indebtedness and issue certain redeemable or preferred stock; create or incur certain liens; make certain payments, including dividends or other distributions, with respect to our shares, or the shares of our Restricted Subsidiaries; prepay or redeem subordinated debt or equity; make certain investments and capital expenditures; create encumbrances or restrictions on the payment of dividends, or other distributions, loans or advances to and on the transfer of assets to us or any of our Restricted Subsidiaries; sell, lease or transfer certain assets, including stock of Restricted Subsidiaries; enter into sale and leaseback transactions; engage in certain transactions with certain shareholders and affiliates; enter into unpermitted business or engage in prohibited activities; and consolidate or merge with other entities. All of these covenants are subject to the limitations, exceptions and qualifications described in Description of the Notes Certain Covenants. These covenants could limit our ability to pursue our growth plan, restrict our flexibility in planning for, or reacting to, changes in our business and industry, and increase our vulnerability to general adverse economic and industry conditions. We may also enter into additional financing arrangements in the future, which could further restrict our flexibility. Any defaults of covenants contained in the Notes may lead to an event of default under the Notes and the Indenture and may lead to cross-defaults under our other indebtedness. No assurance can be given that the Issuer will be able to pay any amounts due to Noteholders in the event of such default, and any default may significantly impair the Issuer s ability to pay, when due, the interest of and principal on the Notes and our, and any Subsidiary Guarantor s, ability to satisfy our or its obligations under the Note Guarantees. 35

49 We may incur additional indebtedness, which could further exacerbate the risks described herein. Subject to restrictions in the Indenture governing the Notes, we may incur additional indebtedness, which could increase the risks associated with our existing indebtedness. If we incur any additional indebtedness that ranks equally with the Notes, the relevant creditors will be entitled to share ratably with the Noteholders in any proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution or other winding-up of the Issuer or a Guarantor. This may have the effect of reducing the amount of proceeds paid to the Noteholders. Covenants in agreements governing debt that we may incur in the future may also materially restrict our operations, including our ability to incur debt, pay dividends, make certain investments and payments, and encumber or dispose of assets. The degree to which we will be leveraged in the future could have important consequences for the Noteholders, including, but not limited to, (i) increasing our vulnerability to, and reducing our flexibility to respond to, general adverse economic and industry conditions, (ii) requiring the dedication of a substantial portion of cash flow from operations to the payment of principal of, and interest on, our indebtedness, thereby reducing the availability of such cash flow to fund working capital, capital expenditures, acquisitions, joint ventures or other general corporate purposes, (iii) limiting flexibility in planning for, or reacting to, changes in our business, the competitive environment and the industries in which we operate and (iv) limiting our ability to borrow additional funds and increasing the cost of any such borrowing. Any of these or other consequences or events could materially and adversely affect our ability to satisfy debt obligations, including the Notes and the Note Guarantees. In addition, we could be in default of financial covenants contained in agreements relating to our future debt in the event that our results of operations do not meet any of the terms in the covenants, including the financial thresholds or ratios. A default under one debt instrument may also trigger cross-defaults under other debt instruments. An event of default under any debt instrument, if not cured or waived, could have a material adverse effect on us. We may not be able to generate sufficient cash flows to meet our debt service obligations. Our ability to make scheduled payments on, or to refinance our obligations with respect to, our indebtedness, including the Intercompany Loan and the Notes, will depend on our financial and operating performance, which in turn will be affected by general economic conditions and by financial, competitive, regulatory and other factors beyond our control. We may not generate sufficient cash flow from operations and future sources of capital may not be available to us in an amount sufficient to enable us to service our indebtedness, including the Notes, or to fund our other liquidity needs. If we are unable to generate sufficient cash flow and capital resources to satisfy our debt obligations or other liquidity needs, we may have to undertake alternative financing plans, such as refinancing or restructuring our debt, selling assets, reducing or delaying capital investments or seeking to raise additional capital. There is no assurance that any refinancing would be possible, that any assets could be sold or, if sold, of the timing of the sales and the amount of proceeds that may be realized from those sales, or that additional financing could be obtained on acceptable terms, if at all. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. Other credit facilities and the Indenture that will govern the Notes will restrict our ability to dispose of assets and use the proceeds from the disposition. We may not be able to consummate those dispositions or to obtain the proceeds which we could realize from them and these proceeds may not be adequate to meet any debt service obligations then due. Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms and in a timely manner, would materially and adversely affect our financial condition and results of operations and our ability to satisfy our obligations under the Notes, See Management s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources and Description of the Notes. 36

50 The interest of our principal shareholders may conflict with the interest of Noteholders, and they may take actions that are not in, or may conflict with, the interest of the Noteholders. As of the date of this Offering Circular, 57.5% of our outstanding shares were held by Japfa Holdings Pte. Ltd. For information relating to the ownership of our shares, see Principal Shareholders. Japfa Holdings Pte. Ltd may be able to effectively control matters certain requiring approval by our shareholders, depending on participation at our shareholder meetings. Circumstances may arise in which Japfa Holdings Pte. Ltd interests or the interests of associated companies may conflict with your interest as a Noteholder. From time to time, we enter into, and we may enter into, transactions with entities controlled by any of our principal shareholders and other related parties. As of December 31, 2011 and 2012, the outstanding amounts owed by us to Annona Pte. Ltd. amounted to Rp0.3 billion and Rp186.3 billion (US$19.3 million), respectively. See Related Party Transactions for a summary of our existing transactions with related parties. Although any transaction that we undertake with related parties must be approved in accordance with the rules of Indonesian Financial Services Authority or Otoritas Jasa Keuangan ( OJK ), which replaced and assumed the function, duty and authority of the Indonesian Capital Markets and Financial Supervisory Agency (Badan Pengawas Pasar Modal dan Lembaga Keuangan) ( Bapepam-LK ) with effect from December 31, 2012, and the IDX, we cannot assure you that any amounts we may pay in these transactions would necessarily reflect the prices that would be paid by an independent third party. Enforcing your rights under the Notes or the Note Guarantees across multiple jurisdictions may prove difficult. The Notes will be issued by the Issuer and guaranteed by us and the Subsidiary Guarantors. The Issuer and Comfeed Trading are incorporated in The Netherlands. We and many of the Subsidiary Guarantors are incorporated under the laws of Indonesia. The Notes, the Note Guarantees and the Indenture will be governed by the laws of the State of New York. In the event of a bankruptcy, insolvency or similar event, proceedings could be initiated in Indonesia, The Netherlands and the United States. Such multi-jurisdictional proceedings are likely to be complex and costly for creditors and otherwise may result in greater uncertainty and delay regarding the enforcement of your rights. Your rights under the Notes and the Note Guarantees will be subject to the insolvency and administrative laws of several jurisdictions and there can be no assurance that you will be able to effectively enforce your rights in such complex multiple bankruptcy, insolvency or similar proceedings. In addition, the bankruptcy, insolvency, administrative and other laws of Indonesia, The Netherlands and the United States may be materially different from, or be in conflict with, each other and those with which you may be familiar, including in the areas of rights of creditors, priority of governmental and other creditors, ability to obtain post-petition interest and duration of the proceeding. The application of these laws, or any conflict among them, could call into question whether any particular jurisdiction s laws should apply, adversely affect your ability to enforce your rights under the Notes and the Note Guarantees in the relevant jurisdictions or limit any amounts that you may receive. It may not be possible for you to effect service of process or to enforce judgment of a foreign court on the Guarantors in Indonesia. Each of the Issuer and Comfeed Trading is a private company with limited liability incorporated in The Netherlands. We and many of the Subsidiary Guarantors are limited liability companies incorporated in Indonesia operating within the framework of Indonesian laws relating to investment and our and each of their significant assets are located in Indonesia. In addition, each of the directors of each of the Issuer and Comfeed Trading resides in The Netherlands, while most of the Company s commissioners, directors and executive officers reside in Indonesia. All or a significant portion of the assets of the directors of the Issuer and Comfeed Trading are located outside the United States, while all or a substantial portion of the Company s assets are located 37

51 in Indonesia. The Issuer s assets consist of its equity interest in Comfeed Trading and, after completion of the offering of the Notes, may also consist of intercompany loans. It may be difficult for investors to effect service of process upon the Issuer, Comfeed Trading, the Company or their respective directors, or to enforce judgments against the Issuer, Comfeed Trading, the Company or such persons obtained in non-dutch courts, including judgments obtained in U.S. courts predicated on the civil liability provisions of U.S. securities laws. We have been advised by their Indonesian legal advisor, Assegaf Hamzah & Partners, that judgments of non-indonesian courts are not enforceable in Indonesian courts, although such judgments could be admissible as non-conclusive evidence in a proceeding on the underlying claim in an Indonesian court. Our Indonesian legal advisors have also advised us that there is doubt as to whether Indonesian courts will recognize judgments in original actions brought in Indonesia courts based only upon the civil liability provisions of the securities laws of other countries. In addition, an Indonesian court may refuse to hear an original action based on securities laws of other countries. As a result, Noteholders would be required to pursue claims against us or some Subsidiary Guarantors or our or their respective commissioners, directors and executive officers in Indonesian courts. The claims and remedies available under Indonesian law may not be as extensive as those available in other jurisdictions. No assurance can be given that the Indonesian courts will protect the interests of Noteholders in the same manner or to the same extent as would courts in more developed countries outside of Indonesia. The Note Guarantees may be challenged under applicable financial assistance, insolvency or fraudulent transfer laws, which could impair the enforceability of the Note Guarantees. Under bankruptcy laws, fraudulent transfer laws, financial assistance, insolvency or unfair preference or similar laws in Indonesia, where we and the Subsidiary Guarantors are incorporated and where all of our and their significant assets are currently located (as well as under the law of certain other jurisdictions to which in certain circumstances we or a Subsidiary Guarantor may be subject), the enforceability of the Note Guarantees may be impaired if certain statutory conditions are met. In particular, the Note Guarantees may be voided, or claims in respect of the Note Guarantees could be subordinated to all other debts of such Guarantor, if at the time that such Guarantor incurred the indebtedness evidenced by, or when it gives, its Note Guarantee, it: incurred the debt with the intent to hinder, delay or defraud creditors or was influenced by a desire to put the beneficiary of the Note Guarantee in a position which, in the event of such Guarantor s insolvency, would be better than the position the beneficiary would have been in had the Note Guarantee not been given; received less than reasonably equivalent value or fair consideration for the incurrence of such Guarantee; received no commercial benefit; was insolvent or rendered insolvent by reason of such incurrence; was engaged in a business or transaction for which such Guarantor s remaining assets constituted unreasonably small capital; or intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature. 38

52 The test for insolvency, the other particular requirements for the enforcement of fraudulent transfer law, and the nature of the remedy if a fraudulent transfer is found, may vary depending on the law of the jurisdiction which is being applied. Under the laws of Indonesia, it would also be necessary for the directors to ensure that such Guarantor is solvent immediately after entry into, and performance of any obligation under, the transaction, that: it will be able to satisfy its liabilities as they become due in the ordinary course of its business; and the realizable value of the assets of such Guarantor will not be less than the sum of its total liabilities other than deferred taxes, as shown in the books of account, and its capital. The directors are required to ensure that the issued capital of such Guarantor is maintained and that, after the giving of the Note Guarantee, such Guarantor would have sufficient net assets to cover the nominal value of its issued share capital. If a court voided the Note Guarantee, or held the Note Guarantee unenforceable for any other reason, then the Noteholders would cease to have a claim against such Guarantor based upon such Note Guarantee, and would solely be creditors of the Issuer. If a court subordinated the Note Guarantee to other indebtedness of such Guarantor, then claims under such Note Guarantee would be subject to the prior payment of all liabilities (including trade payables). We cannot assure you that there would be sufficient assets to satisfy the claims of Noteholders after providing for all such prior claims. Claims of the secured creditors of the Guarantors will have priority with respect to their security over the claims of unsecured creditors, such as the Noteholders, to the extent of the value of the assets securing such indebtedness. After giving pro forma effect to the full draw down of all credit facilities as of the date of this Offering Circular but not to the issuance of the Notes, we would have had approximately US$436 million of secured indebtedness outstanding under such facilities. We may also be able to borrow substantial additional indebtedness, including senior debt, in the future under the terms of the Indenture. Claims of the secured creditors of the Guarantors will have priority with respect to the assets securing their indebtedness over the claims of Noteholders. Therefore, the Note Guarantees will be effectively subordinated to any secured indebtedness and other secured obligations of the Guarantors to the extent of the value of the assets securing such indebtedness or other obligations. In the event of any foreclosure, dissolution, winding up, liquidation, reorganization, administration or other bankruptcy or insolvency proceeding of the Guarantors that has secured obligations, holders of secured indebtedness will have prior claims to the assets of the Guarantors that constitute their collateral. The Noteholders will participate ratably with all holders of the unsecured indebtedness of the Guarantors, and potentially with all of their other general creditors, based upon the respective amounts owed to each holder or creditor, in the remaining assets of the Guarantors. In the event that any of the secured indebtedness of the Guarantors becomes due or the creditors thereunder proceed against the assets that secure such indebtedness, the Guarantors assets remaining after repayment of that secured indebtedness may not be sufficient to repay all amounts owing in respect of the Note Guarantees. As a result, Noteholders may receive less than holders of secured indebtedness of the Guarantors. 39

53 We may be subject to future bankruptcy, insolvency and similar proceedings in Indonesia or other jurisdictions, which may delay or prevent payment on the Notes. Under the Indonesian Bankruptcy Law, a creditor that foresees its debtor would not be able to continue to pay its debts when they become due and payable, or a debtor which is unable, or predicts that it would be unable, to pay its debts when they become due and payable, may file for suspension of payment of debt with the Commercial Court. Under the Indonesian Bankruptcy Law, a suspension of debt payment proceeding takes priority over a bankruptcy proceeding and must be decided first. As such, a suspension of debt payment proceeding will effectively postpone the bankruptcy proceeding. As a result, creditors are unlikely to receive any payment during the course of the suspension of debt payment proceeding (with the exception of secured creditors subject to certain conditions) and the bankruptcy estate is likely to be insufficient to fully settle their claims. In addition, during the suspension of debt payment proceeding, the debtor may propose a composition plan to its creditors. Such composition, if approved at a creditors meeting and ratified by the Commercial Court, will be binding on all unsecured creditors and on secured creditors that voted for the composition plan, and the suspension of debt payment proceeding ends. The debtor can then continue its business and service its debt in accordance with the composition plan proposed by the debtor and approved at the creditors meeting and ratified by the court. The secured creditors that did not attend the creditors meeting or vote on the plan are not bound by the plan and are entitled to enforce their security interests. As a composition plan, if approved, is approved by majority of the creditors on a collective basis, it may not be in the best interest of any particular creditor. If a Guarantor becomes a debtor in a bankruptcy proceeding or a suspension of debt payment proceeding in Indonesia, we may file for suspension of debt payment with a proposed composition plan which may not be satisfactory to you. If such composition plan is approved, it will be binding on you. Where a company has its centre of main interests in the Netherlands, it may be subjected to insolvency proceedings in this jurisdiction. This is particularly relevant for the Issuer and Comfeed Trading, which have their corporate seat (statutaire zetel) in Amsterdam, The Netherlands, and which are therefore presumed (subject to proof to the contrary) to have their centre of main interests in the Netherlands. Dutch insolvency law differs significantly from insolvency proceedings in the United States and other jurisdictions, and may make it more difficult for holders of Notes to recover the amount they would normally expect to recover in a liquidation or bankruptcy proceeding in the United States or another jurisdiction. There are two primary insolvency regimes under Dutch law applicable to legal entities: the first, suspension of payments (surseance van betaling), is intended to facilitate the reorganization of a debtor s indebtedness and enable the debtor to continue as a going concern. The second, bankruptcy (faillissement), is primarily designed to liquidate and distribute the proceeds of the assets of a debtor to its creditors. Both insolvency regimes are set forth in the Dutch Bankruptcy Act. The consequences of both proceedings are roughly equal from the perspective of a creditor, with creditors being treated on a pari passu basis subject to exceptions. Unlike Chapter 11 proceedings under U.S. bankruptcy law, in which both secured and unsecured creditors are generally barred from seeking to exercise remedies against the debtor without court approval, in suspension of payments and bankruptcy proceedings under Dutch law secured creditors (and in case of suspension of payment also preferential creditors (including tax and social security authorities)) may enforce their rights against assets of the company to satisfy their 40

54 claims as if there were insolvency proceedings. A recovery under Dutch law could, therefore, involve a sale of assets that does not reflect the going concern value of the debtor. Consequently, your potential recovery could be reduced in Dutch insolvency proceedings. In a suspension of payments and in bankruptcy, a composition (akkoord) may be offered to creditors. A composition will be binding on all unsecured and non-preferential creditors if it is (i) approved by a simple majority of the creditors being present or represented at the creditors meeting, representing at least 50% of the amount of the claims that are admitted for voting purposes, and (ii) subsequently ratified (gehomologeerd) by the Dutch courts. Consequently, Dutch insolvency laws could preclude or inhibit the ability of the holders of the Notes to effect a restructuring and could reduce the recovery of a holder of Notes. The Dutch Bankruptcy Act does not in itself recognize the concept of classes of creditors. Remaining amounts, if any, after satisfaction of the secured and the preferential creditors are distributed among the unsecured non-preferential creditors, who will be satisfied on a pro rata basis. Contractual subordination may to a certain extent be given effect in Dutch insolvency proceedings, with the actual effect largely depending on the way such subordination is construed. If we are unable to comply with the restrictions and covenants contained in the Indenture governing the Notes and the Note Guarantees or in future debt agreements, an event of default could occur under the terms of such agreements or the Indenture, which could cause repayment of our debt to be accelerated. If we are unable to comply with the restrictions and covenants in the Indenture or our future debt agreements, there could be an event of default under the terms of such agreements. If an event of default occurs under these agreements, the holders of the debt could terminate their commitments to lend to us, accelerate the debt and declare all amounts borrowed due and payable or terminate the agreements, as the case may be. Furthermore, the Indenture contains, and future debt or other agreements may contain, cross-acceleration or cross-default provisions. As a result, our default under one debt agreement may cause the acceleration of other debt agreements, including the Notes, or result in a default under our other debt agreements, including the Indenture. If any of these events occur, we cannot assure Noteholders that our assets and cash flow would be sufficient to repay our indebtedness in full, or that we would be able to find alternative financing. Even if we could obtain alternative financing, we cannot assure Noteholders that it would be on terms that are favorable or acceptable to us. The Issuer may not have the ability to raise the funds necessary to finance an offer to repurchase the Notes upon the occurrence of certain events constituting a Change of Control as required by the Indenture governing the Notes. Upon a Change of Control (as defined in the Indenture governing the Notes), the Issuer must make an offer to repurchase all outstanding Notes. Pursuant to this offer, the Issuer must repurchase the outstanding Notes at 101% of their principal amount plus accrued and unpaid interest, if any, up to the date of repurchase. See Description of the Notes Repurchase of Notes Upon a Change of Control. However, the Issuer may not have enough available funds at the time of any Change of Control to make repurchase of tendered outstanding Notes. The Issuer s failure to make the offer to repurchase or repurchase tendered Notes would constitute an Event of Default (as defined in the Indenture). This Event of Default may, in turn, constitute an event of default under other indebtedness, any of which could cause the related debt to be accelerated after any applicable notice or grace periods. If such other debt were accelerated, we may not have sufficient funds to repurchase the Notes and repay the debt. 41

55 In addition, the definition of Change of Control for purposes of the Indenture governing the Notes does not necessarily afford protection for the Noteholders in the event of some highly-leveraged transactions, including certain acquisitions, mergers, refinancings, restructurings or other recapitalizations, although these types of transactions could increase our indebtedness or otherwise affect our capital structure or credit ratings and the Noteholders. The definition of Change of Control for purposes of the Indenture also includes a phrase relating to the sale of all or substantially all of our properties or assets and our subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase substantially all, there is no precise established definition under applicable law. Accordingly, the Issuer s obligation to make an offer to repurchase the Notes, and the ability of a Noteholder to require us to repurchase the Notes pursuant to the offer, as a result of a highly leveraged transaction or a sale of less than all of our assets, may be uncertain. The ratings assigned to the Notes may be suspended, lowered or withdrawn at any time which may adversely affect the market price of the Notes. The ratings assigned to the Notes may be suspended, lowered or withdrawn entirely in the future. The Notes have been assigned a rating of BB- by S&P and BB- by Fitch. The ratings address the ability of each of the Issuer and us to perform its and our respective obligations under the terms of the Notes and the credit risks in determining the likelihood that payments will be made when due under the Notes. A rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time. No assurances can be given that a rating will remain for any given period of time or that a rating will not be lowered or withdrawn entirely by the relevant rating agency if in its judgment circumstances in the future so warrant. We have no obligation to inform Noteholders of any such revision, downgrade or withdrawal. A suspension, reduction or withdrawal at any time of the rating assigned to the Notes may adversely affect the market price of the Notes. An active trading market for the Notes may not develop and the trading price of the Notes could be materially and adversely affected. Although the Initial Purchaser has advised us that they intend to make a market in the Notes, they are not obligated to do so and may discontinue such market making activity at any time without notice. We cannot predict whether an active trading market for the Notes will develop or be sustained. If an active trading market were to develop, the Notes could trade at prices that may be lower than their initial offering price. The liquidity of any market for the Notes depends on many factors, including: the number of Noteholders; the interest of securities dealers in making a market in the Notes; prevailing interest rates and the markets for similar securities; general economic conditions; and our financial condition, historical financial performance and future prospects. If an active market for the Notes fails to develop or be sustained, the trading price of the Notes could be materially and adversely affected. Approval in-principle has been received for the listing of the Notes on the SGX-ST. However, no assurance can be given that we will be able to obtain or maintain such listing or that, if listed, a trading market will develop. We do not intend to apply for listing of the Notes on any securities exchange other than the SGX-ST. The Notes may not be 42

56 publicly offered, sold, pledged or otherwise transferred in any jurisdiction where registration may be required. Lack of a liquid, active trading market for the Notes may adversely affect the price of the Notes or may otherwise impede a Noteholder s ability to dispose of the Notes. The transfer of the Notes is restricted, which may adversely affect their liquidity and the price at which they may be sold. The Notes and the Note Guarantees have not been registered under, and we are not obligated to register the Notes or the Note Guarantees under, the Securities Act or the securities laws of any other jurisdiction and, unless so registered, may not be offered or sold except pursuant to an exemption from, or a transaction not subject to, the registration requirements of the Securities Act and any other applicable laws. See Transfer Restrictions. We have not agreed to or otherwise undertaken to register the Notes or the Note Guarantees (including by way of an exchange offer), and we have no intention to do so. Your investment in the Notes may subject you to foreign exchange risks. The Notes are denominated and payable in U.S. dollars. If you measure your investment returns by reference to a currency other than U.S. dollars, an investment in the Notes entails foreign exchange-related risks, including possible significant changes in the value of the U.S. dollars relative to the currency by reference to which you measure your returns, due to, among other things, economic, political and other factors over which we have no control. Depreciation of the U.S. dollar against the currency by reference to which you measure your investment returns could cause a decrease in the effective yield of the Notes below their stated coupon rates and could result in a loss to you when the return on the Notes is translated into the currency by reference to which you measure your investment returns. In addition, there may be tax consequences for you as a result of any foreign exchange gains resulting from any investment in the Notes. The Issuer is our wholly-owned financing entity and is largely dependent upon payments under the Intercompany Loan to meet its obligations under the Notes. The Indenture governing the Notes will prohibit the Issuer from engaging in any activities other than certain limited activities described in Description of the Notes Certain Covenants Limitations on the Activities of the Issuer. There is no direct contractual claim between the Issuer and us in relating to any Intercompany Loan or through any other funding method granted by Comfeed Trading to us. The Issuer is our wholly-owned financing entity and has limited assets and no business operations other than issuing the Notes and engaging in related transactions and future issuances of debt securities upon and with terms substantially similar to the Notes. The proceeds from the Notes issuance will be used by the Issuer to provide additional financing to us by subscription of additional shares in the capital of and/or by one or more loans to Comfeed Trading, which will then grant one or more Intercompany Loans to us. The Issuer s ability to make payments on the Notes is largely dependent on dividends payments and/or equity repayments made to the Issuer by Comfeed Trading and/or funding through loans granted by Comfeed Trading, other group entities, and/or other loans, which is in turn largely dependent on our ability to make payments and/or other cash transfers or financial funding by group companies to Comfeed Trading under the Intercompany Loan. Our ability to make such payments will depend on a number of factors, some of which may be beyond our control, including those identified elsewhere in this Risk Factors section. If we fail to make scheduled payments under the Intercompany Loan, the Issuer may not have any other source of funds to meet its payment obligations under the Notes. 43

57 Comfeed Trading is a Restricted Subsidiary and is subject to all of the covenants applicable to Restricted Subsidiaries. In addition, it is subject to certain additional restrictions under the Indenture. Unlike the Issuer, the prohibition on the Issuer from engaging in activities other than certain limited activities does not apply to Comfeed Trading. Accordingly, Comfeed Trading would be permitted under the Indenture to engage in certain activities that could give rise to other obligations that may cause it to be unable to make payments to the Issuer in amounts sufficient for the Issuer to make payments due on the Notes, even if we made the required payments to Comfeed Trading under the Intercompany Loan. Furthermore, there is no contractual requirement obligating Comfeed Trading to pay dividends to the Issuer in order for the Issuer to service payments on the Notes and there can be no assurance that Comfeed Trading will make such payments to the Issuer in the ordinary course of business. In any event, payment of dividends by Comfeed Trading may only be made out of its profits and there can be no assurance that this condition will be met to allow Comfeed Trading to make such dividend payments to the Issuer in the future. In the event that Issuer does not receive any dividend payments and/or other payments or distributions from Comfeed Trading, the Issuer may need to enter into other agreements or loans from us to meet is payment obligations under the Notes. There may be insufficient cash in the Issuer to pay amounts due under the Notes. Current OJK regulations may restrict our ability to issue additional debt securities On November 28, 2011, Bapepam-LK Regulation IX.E.2 on Material Transactions and Change of Core Business was issued, which replaced the previous regulation issued in 2009 (the Material Transactions Regulation ). This regulation is applicable to publicly listed companies in Indonesia and their unlisted consolidated subsidiaries. Pursuant to the Material Transactions Regulation, each borrowing and lending in one transaction or a series of related transactions for a particular purpose or activity having a transaction value of 20% to 50% of the publicly listed company s equity, as determined by the latest audited annual financial statements, semi-annual limited reviewed financial statements or audited interim financial statements (if any), must be announced to the public and the listed company must also prepare an appraisal report. The announcement relating to the material transaction must be made to the public in at least one Indonesian language daily newspaper having national circulation and the submission of supporting documents must be made to OJK no later than the end of the second business day after the material transaction is executed. The announcement to the public and submission to OJK are required to include a summary of the transaction, an explanation of the considerations and reasons for such material transaction and the effect of the transaction on the company s financial condition, a summary of the appraisal report (including its purpose, the parties involved, the assumptions, qualifications and methodology used in the appraisal report and a fairness opinion on the transaction), which must not be dated more than six months prior to the date of the material transaction, the amount borrowed or lent, and a summary of the terms and conditions of the borrowing or lending. Publicly listed companies must submit evidence of an announcement as referred to above, including the independent appraisal report to OJK at the latest by the end of the second business day after the announcement is made. The offering of the Notes and the lending of the proceeds of the Notes from Comfeed Trading to us fall within the 20% to 50% threshold. Accordingly, in connection with the offering, we are required to obtain and submit to OJK an appraisal report from an independent appraiser (registered with OJK), a summary of which is required to be published in a newspaper announcement two days after closing of the offering. We have appointed an independent appraiser to prepare this appraisal report, which we expect to be completed on or about the original issue date of the Notes. 44

58 For a material transaction (in this case borrowing and lending) with a value in excess of 50% of a company s equity, it must also obtain shareholders approval whereby shareholders holding more than half of all shares with valid voting rights are present or represented, and more than half of such shareholders present or represented approve the transaction, in addition to fulfilling the appraisal disclosure requirements. If in the future we decide to issue additional debt securities other than through public offering, and the amount issued exceeds the 50% threshold, we would be required to obtain shareholders approval, as well as a new appraisal report. There is no assurance that we would be able to obtain the approval of our shareholders or a favorable appraisal report in order to issue such additional debt securities. This requirement could limit our ability to finance our future operations and capital needs or pursue business opportunities and activities that may be in our interest, which could materially and adversely affect our business, financial condition, results of operations and prospects. The appraisal report may not be accurate or complete, and you will not have access to it. The independent appraiser is relying upon the accuracy and completeness of the information, including certain projections, that we provide to the independent appraiser. The appraisal report will be based on certain assumptions, including certain assumptions with respect to the terms of the Notes and projections, which, by their nature, are subjective and uncertain and may differ from actual results. The independent appraiser has not independently verified such information, and assumes no responsibility for and expresses no view as to any, such information, projections or the assumptions on which they were based. None of the Initial Purchaser, Rabobank International or our independent auditors have examined, reviewed or compiled the projections and accordingly, do not express an opinion or any other form of assurance with respect thereto. Unanticipated results of, or changes in, our business or the residential and/or commercial property industry, or changes in global or local economic conditions or other relevant factors, could affect such projections and the conclusions in the appraisal report. After the issuance of the Notes, we expressly disclaim any duty to, and neither we nor the independent appraiser will, provide an update to the report of the differences between the projections or the assumptions made in the appraisal report. Accordingly, the appraisal report is not a prediction or an indication of the Issuer s or our actual ability to perform its or our obligations under the Notes and the Note Guarantees. Investors should not rely on our requirement to obtain an appraisal report when making an investment decision. The full appraisal report, including the detailed projections underlying the analysis and the assumptions on which the appraiser s conclusions are based, is confidentially submitted to OJK and not available to shareholders or to you for review. The summary of the appraisal report will only be published in a local newspaper two days following closing of the offering and will not include a full statement of all of the relevant facts, information and assumptions on which the appraiser bases its conclusions. The Indonesia-Netherlands tax treaty may be applied in a manner adverse to the interests of the Noteholders. The statutory rate of withholding tax in Indonesia in respect of payments of interest by us to Comfeed Trading under the Intercompany Loan is currently 20.0%. Under the tax treaty between Indonesia and The Netherlands adopted on January 1, 2004, payments of interest under the Intercompany Loan may be exempt from such withholding tax. There is a risk that the Indonesian tax authorities will find the offering structure to be non-compliant with the tax treaty and applicable tax regulations, in which case they could require payment of withholding tax and impose applicable penalties. In addition, should we be found to be non-compliant with the relevant tax treaty and applicable Indonesian tax regulations, there can be no assurance that the Indonesian tax authorities will not unilaterally apply a 20.0% withholding tax rate upon us. 45

59 The Notes will initially be held in book entry form, and therefore you must rely on the procedures of the relevant clearing systems to exercise any rights and remedies. The Notes will initially only be issued in global certificated form and held through DTC and its participants, including Euroclear and Clearstream. Interests in the Global Notes (as defined in Global Clearance and Settlement ) will trade in book entry form only, and Notes in definitive registered form, or definitive registered Notes, will be issued in exchange for book entry interests only in very limited circumstances. Owners of book entry interests will not be considered owners of the Notes or Noteholders. The custodian for DTC will be the sole registered holder of the Global Notes representing the Notes. Payments of principal, interest and other amounts owing on or in respect of the Global Notes representing the Notes will be made to the Paying Agent which will make payments to DTC. Thereafter, these payments will be credited to accounts of participants (including Euroclear and Clearstream) that hold book entry interests in the Global Notes representing the Notes and credited by such participants to indirect participants. After payment to the custodian for DTC, the Issuer will have no responsibility or liability for the payment of interest, principal or other amounts to the owners of book entry interests. Accordingly, if you own a book entry interest, you must rely on the procedures of DTC, Euroclear and Clearstream, and if you are not a participant in DTC, Euroclear and Clearstream, on the procedures of the participant through which you own your interest, to exercise any rights and obligations of a Noteholder under the Indenture. Unlike the Noteholders themselves, owners of book entry interests will not have the direct right to act upon the Issuer s solicitations for consents, requests for waivers or other actions from the Noteholders. Instead, if you own a book entry interest, you will be permitted to act only to the extent you have received appropriate proxies to do so from DTC, Euroclear and Clearstream. The procedures implemented for the granting of such proxies many not be sufficient to enable you to vote on a timely basis. Similarly, upon the occurrence of an event of default under the Indenture, unless and until definitive registered Notes are issued in respect of all book entry interests, if you own a book entry interest, you will be restricted to acting through DTC, Euroclear and Clearstream. The procedures to be implemented through DTC, Euroclear and Clearstream may not be adequate to ensure the timely exercise of rights under the Notes. 46

60 USE OF PROCEEDS The net cash proceeds from the offering and issue of the Notes as described herein, after deducting underwriting discounts and other estimated expenses related to the offering and issue of the Notes, are expected to be approximately US$217.0 million. The Issuer will transfer the net proceeds of this offering to Comfeed Trading, by way of share contribution on new and/or existing shares of, and/or a loan to, Comfeed Trading, which will then on-lend the proceeds of such transfer to the Company pursuant to the Intercompany Loan. We will use the net proceeds of the offering of the Notes as follows: approximately 55.56% of the net proceeds will be used to pay down amounts outstanding under certain of our working capital loans. See Description of Indebtedness ; and the remaining 44.44% of the net proceeds will be used to fund our capital expenditures and for general corporate purposes. Pending application of the net proceeds of the offering of the Notes pursuant to the Intercompany Loan by us, we intend to invest such net proceeds in Temporary Cash Investments as defined under Description of the Notes. The foregoing represents our current intentions and our best estimate of our allocation of the net proceeds of the Offering based upon our current plans and estimates regarding our anticipated expenditures. We may find it necessary or advisable to reallocate the net proceeds within the categories described above or to use portions of the net proceeds for other business related purposes. 47

61 EXCHANGE RATES EXCHANGE RATES AND EXCHANGE CONTROLS Bank Indonesia is the sole issuer of the Rupiah and is responsible for maintaining its stability. Since 1970, Indonesia has implemented three exchange rate systems: (i) a fixed rate between 1970 and 1978, (ii) a managed floating exchange rate system between 1978 and 1997 and (iii) a free-floating exchange rate system since August 14, Under the managed floating exchange rate system, Bank Indonesia maintained the stability of the Rupiah through a trading band policy, pursuant to which Bank Indonesia would enter the foreign currency market and buy or sell Rupiah, as required, when trading in the Rupiah exceeded bid and offer prices announced by Bank Indonesia on a daily basis. On August 14, 1997, Bank Indonesia terminated the trading band policy and instituted the current free-floating exchange rate system, allowing the Rupiah to float without an announced level at which it would intervene, which resulted in a substantial decrease in the value of the Rupiah relative to the U.S. dollar. Under the current system, the exchange rate of the Rupiah is determined by the market, reflecting the interaction of supply and demand in the market. Bank Indonesia may take measures, however, to maintain a stable exchange rate. The following table shows the exchange rate of Indonesian Rupiah to U.S. dollars based on the middle exchange rates at the end of each month during the periods indicated. The Indonesian Rupiah middle exchange rate is calculated based on Bank Indonesia s buying and selling rates. We do not make any representations that the U.S. dollar amounts referred to in this Offering Circular could have been or could be converted into Indonesian Rupiah at the rate indicated or any other rate or at all. Exchange rates Low High Average Period End (Rp. per US$) ,888 9,413 9,085 8, ,460 9,185 8,779 9, ,892 9,707 9,380 9, : January ,635 9,740 9,687 9,698 February ,634 9,722 9,687 9,667 March ,686 9,745 9,709 9,719 April (up to April 12).. 9,688 9,756 9,731 9,710 Source: Statistik Ekonomi dan Keuangan Indonesia (Indonesian Financial Statistics) published monthly by Bank Indonesia Internet website of Bank Indonesia ( (1) For full years, the high and low amounts are determined, and the average shown is calculated, based upon the middle exchange rate announced by Bank Indonesia on the last day of each month during the year indicated. (2) For each month, the high and low amounts are determined, and the average shown is calculated, based on the daily middle exchange rate announced by Bank Indonesia during the month indicated. The middle exchange rate on April 12, 2013 was Rp9,710 = US$1.00. The Federal Reserve Bank of New York does not certify for customs purposes a noon buying rate for cable transfers in Indonesian Rupiah. 48

62 EXCHANGE CONTROLS Indonesia has limited foreign exchange controls. The Indonesian Rupiah has been, and in general is, freely convertible within or from Indonesia. However, to maintain the stability of the Rupiah and to prevent the utilization of the Rupiah for speculative purposes by non-residents, Bank Indonesia has introduced regulations to restrict the movement of Indonesian Rupiah from banks within Indonesia to offshore banks, an offshore branch of an Indonesian bank, or any investment denominated in Rupiah with foreign parties and/or Indonesian parties domiciled or permanently residing outside Indonesia, thereby limiting offshore trading to existing sources of liquidity. In addition, Bank Indonesia has the authority to request information and data concerning the foreign exchange activities of all persons and legal entities that are domiciled, or who plan to be domiciled, in Indonesia for at least one year. Bank Indonesia regulations also require companies that have total assets or total annual gross revenues of at least Rp billion to report to Bank Indonesia all data concerning their foreign currency activities, if the relevant transaction is not conducted via a domestic bank or domestic non-bank financial institution (for example, insurance companies, securities companies, finance companies, or venture capital companies). However, if the transaction is conducted via a domestic bank and/or domestic non-bank financial institution, the requirement to report to Bank Indonesia is imposed instead on the relevant domestic banks or non-bank financial institutions that carried out the transaction. The transactions that must be reported include receipt and payment of foreign currency through bank accounts outside of Indonesia. Purchasing of Foreign Currencies against Rupiah through Banks Pursuant to Bank Indonesia Regulation No. 10/28/PBI/2008 concerning the Purchase of Foreign Currency Against Rupiah Through Banks, the conversion of Indonesian Rupiah to foreign currencies or the purchase of foreign currency in an amount exceeding the equivalent of US$100,000 per month (or its equivalent) by any company (including the purchase of foreign currencies for derivative transactions), must be based on an underlying transaction, which is defined as an activity the basis for which foreign currencies are purchased. Further, the amount of foreign currencies that will be purchased must be at the most equal to the nominal value of the underlying transaction. Indonesian companies purchasing foreign currencies in excess of the equivalent of US$100,000 will be required to submit certain supporting documents to the selling bank, including among others, the relevant underlying transaction document and a duly stamped statement confirming that the underlying agreement is valid and that the foreign currency purchased will only be used for settlement of the payment obligations under the underlying agreement. For purchases of foreign currency not exceeding the equivalent of US$100,000, such company must declare in a duly stamped letter that its aggregate foreign currency purchases do not exceed the equivalent of US$100,000 per month in the Indonesian banking system. 49

63 Currency Law On June 28, 2011, the Government issued Law No. 7 of 2011 (the Currency Law ) concerning the use of Rupiah. The Currency Law requires the use of and prohibits the rejection of Rupiah in certain transactions occurring within the jurisdiction of Indonesia. Article 21 of the Currency Law requires the use of Rupiah in payment transactions, monetary settlements of obligations and other financial transactions (among others, the deposit of money) within the territory of Indonesia. However, there are a number of exceptions to this rule including certain transactions related to the state budget (Anggaran dan Pendapatan Belanja Negara), income and grants from and to foreign countries, international trade transactions, foreign currency savings in a bank and international financing transactions. Article 23 of the Currency Law prohibits the rejection of Rupiah offered as a means of payment, to settle obligations or in other financial transactions within Indonesia unless there is uncertainty regarding the authenticity of the Rupiah bills offered and the relevant parties have agreed in writing to make such payment or settle the obligation in a foreign currency. The said prohibition does not apply to transactions in which the payment or settlement of obligations in a foreign currency has been agreed in writing. Any violation to this requirement is subject to one year of imprisonment and fines up to a maximum of Rp200 million for individuals, and a fine of up to Rp267 million for corporate offenders, as well as the prospect of annulment of business licences and seizure of assets. 50

64 CAPITALIZATION The table below sets forth our consolidated capitalization and indebtedness as at December 31, 2012 and as adjusted to account for this offering and the repayment of certain working capital loans (see Use of Proceeds ). This information has been extracted from our consolidated financial statements as at December 31, You should read this table in conjunction with our consolidated financial statements and the related notes to the financial statements included elsewhere in this Offering Circular and Management s Discussion and Analysis of Financial Condition and Results of Operations and Use of Proceeds. Rp billions As at December 31, 2012 Actual (audited) US$ millions As adjusted (unaudited) Rp billions US$ millions Loans , , Rupiah bonds , , US$ Senior Notes due , Equity Capital Stock Authorized 2,000,000,000 Series A shares with Rp1,000 par value per share ( Series A Shares ) and 5,000,000,000 Series B shares with Rp200 par value per share ( Series B Shares ) Subscribed and paid-up capital 1,549,786,582 Series A Shares and 582,318,000 Series B Shares , , Additional paid-in capital Treasury stock (17.7) (1.8) (17.7) (1.8) Retained earnings , , Comparative period of differences in restructuring value of transactions of entities under common control Other equity components Total Equity , , Total Capitalization and Indebtedness.. 9, , ,034.2 Except as disclosed or contemplated in this Offering Circular, there has been no material change in our capitalization since December 31, See Description of Indebtedness and Use of Proceeds for a description of our existing indebtedness that we expect to pay down with the proceeds of the offering. 51

65 SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OPERATING DATA You should read the summary consolidated financial information and operating data presented below in conjunction with our consolidated financial statements and the related notes to the financial statements included elsewhere in this Offering Circular. The following tables present our summary consolidated financial information and operating data as of the dates and for each of the years and periods indicated. We have derived the summary consolidated statement of comprehensive income and cash flows and other financial data for the years ended December 31, 2010, 2011 and 2012 and our summary consolidated statement of financial position data as at December 31, 2010, 2011 and 2012, in the tables below, from our historical financial statements as of and for the years ended December 31, 2011 and 2012, which have been audited by Mulyamin Sensi Suryanto & Lianny (the Indonesian member firm of Moore Stephens International Limited), independent auditors, and as of and for the year ended December 31, 2010, which were audited by Mulyamin Sensi Suryanto (formerly the Indonesian member firm of Moore Stephens International Limited), which has ceased operations. Our financial statements have been prepared and presented in accordance with Indonesian FAS, which differs in certain material respects from U.S. GAAP, see Summary of Certain Significant Differences Between Indonesian FAS and U.S. GAAP. For the year ended December 31, Consolidated Statement of Comprehensive Income Rp Rp Rp US$ (Rp billions and US$ millions) Net sales , , , ,844.1 Cost of goods sold (10,906.6) (13,072.7) (14,648.8) (1,514.9) Gross Profit , , , Interest income Gain on sale of property, plant and equipment Gain on foreign exchange net General and administrative expense (884.3) (1,018.4) (1,179.4) (122.0) Interest expense (211.3) (331.4) (437.5) (45.2) Selling expense (589.0) (435.0) (336.2) (34.8) Loss on derivative transactions net (58.2) Loss on impairment of assets (1.1) (11.1) Others net Income Before Tax , , Tax Expense (Benefit) Current tax Deferred tax (3.4) (39.3) (4.1) Tax expense Net Income , , Other Comprehensive Income (Loss) Translation adjustment (10.8) (21.3) Total Comprehensive Income , ,

66 Consolidated Statement of Financial Position Assets Current assets As at December 31, Rp Rp Rp US$ (Rp billions and US$ millions) Cash and cash equivalents Short-term investments Trade accounts receivable net of allowance for doubtful accounts Related parties Third parties Other accounts receivable from third parties Inventories , , , Breeding chickens Advances Prepaid taxes Prepaid expenses Total Current Assets , , , Non-Current Assets Restricted cash in bank Deferred tax assets Goodwill Plantations net Breeding cattle Investment properties net of accumulated depreciation Property, plant and equipment net of accumulated depreciation , , , Unused assets net Real estate assets Intangible assets net Other assets Total Non-Current Assets , , , Total Assets , , , ,

67 Consolidated Statement of Financial Position As at December 31, Rp Rp Rp US$ (Rp billions and US$ millions) Liabilities and Equity Current Liabilities Short-term bank loans , , Trade accounts payable Related party Third parties Other accounts payable to third parties Taxes payable Accrued expenses Advances received Current portion of long-term liabilities Long-term loans Liability for the purchase of property, plant and equipment Lease liabilities Bonds payable Total Current Liabilities , , , Non-Current Liabilities Deferred tax liabilities Negative goodwill net Long-term employee benefits liability Long-term liabilities net of current maturities Long-term loans Liability for the purchase of property, plant and equipment Lease liabilities Bonds payable , Total Non-Current Liabilities , , , Total Liabilities , , , Equity Capital stock Authorized 2,000,000,000 Series A shares with Rp1,000 par value per share and 5,000,000,000. Series B shares with Rp200 par value per share Issued and paid-up 1,549,786,582 Series A with Rp1,000 par value per share. 582,318,000 Series B shares with Rp200 par value per share , , , Additional paid-in capital Treasury stocks 4,064,948 shares (17.7) (1.8) Retained earnings Appropriated Unappropriated , Comparative period of differences in restructuring value of transactions of entities under common control (16.0) Other equity components Total , , , Non-controlling Interests Total Equity , , , Total Liabilities and Equity , , , ,

68 For the year ended December 31, Consolidated Cash Flow Data Rp Rp Rp US$ (Rp billions and US$ millions) Net cash provided by (used in) operating activities ,098.2 (75.1) Net cash provided by (used in) investing activities (625.9) (401.6) (1,352.1) (139.8) Net cash provided by (used in) financing activities (232.6) , Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the year Effect of foreign exchange rate changes.... (1.3) Cash and cash equivalents at the end of the year or period Other Consolidated Financial Information and Ratios For the year ended December 31, Rp Rp Rp US$ (Rp billions and US$ millions unless other indicated) EBITDA (1) , , , Net sales , , , ,844.1 Equity (2) , , , Debt , , , Cash Interest Expense Capital Expenditure , , EBITDA Margin (%) (3) % 8.5% 10.9% EBITDA/Cash Interest Expense (X) Debt/EBITDA (X) Debt/Equity (X) (1) We define EBITDA as gross profit less selling expenses and general and administrative expenses, plus depreciation and amortization, as reported in the financial statements included in this Offering Circular prepared under Indonesia FAS. The following table reconciles our gross profit under Indonesian FAS to our definition of EBITDA for the periods indicated. For the year ended December 31, Rp Rp Rp US$ (Rp. billions and US$ millions unless other indicated) Gross profit , , , ( ) Selling expenses (589.0) (435.0) (336.2) (34.8) ( ) General and administrative expenses (884.3) (1,018.4) (1,179.4) (122.0) (+) Depreciation and amortization EBITDA , , ,

69 EBITDA is not a standard measure under Indonesian FAS. EBITDA should not be considered in isolation or construed as an alternative to cash flows, net income or any other measure of performance or as an indicator of operating performance, liquidity, profitability or cash flows generated by operating, investing or financing activities. EBITDA does not account for taxes, interest expense or other non-operating cash expenses. In evaluating EBITDA, we believe that investors should consider, among other things, the components of EBITDA such as revenues and operating expenses and the amount by which EBITDA exceeds capital expenditures and other charges. EBITDA presented herein may not be comparable to similarly titled measures presented by other companies. You should not compare EBITDA presented by us to EBITDA presented by other companies because not all companies use the same definition. (2) Excludes minority interests. (3) EBITDA Margin is calculated as EBITDA divided by net sales. As at and for the year ended December 31, Operating Data (1) Poultry Feed Feedmills (number) Annual capacity (million kilograms) ,696 2,796 2,996 Sales volume (million kilograms) ,860 2,186 2,427 Utilization rate (%) DOC breeding Annual capacity (million birds) Sales volume (million birds) Utilization rate (%) Commercial farms Annual capacity (million kilograms) Sales volume (million kilograms) Utilization rate (%) Aquaculture Feedmills (number) Annual capacity (million kilograms) Sales volume (million kilograms) Utilization rate (%) Beef cattle Feedlots (number) Annual capacity (head of cattle) , , ,000 Sales volume (head of cattle) ,441 70,088 69,000 Utilization rate (%) (1) All operating figures are gross figures, including intercompany sales. 56

70 MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis is based upon information contained in our consolidated financial statements and the related notes to these financial statements included elsewhere in this Offering Circular. You should read the following discussion and analysis in conjunction with our consolidated financial statements and the related notes to these financial statements. This discussion contains forward-looking statements that reflect our current views with respect to future events and financial performance. See Forward-Looking Statements and Associated Risks for a discussion of the risks relating to such forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of factors such as those set forth under Risk Factors and elsewhere in this Offering Circular. Our financial statements have been prepared in accordance with Indonesian FAS. Indonesian FAS differs in certain material respects from U.S. GAAP. For a summary of significant differences between Indonesian FAS and U.S. GAAP, see Summary of Certain Significant Differences Between Indonesian FAS and U.S. GAAP. Overview We are one of Indonesia s leading agri-livestock companies specializing in manufacturing and distributing animal feed and breeding poultry and cattle. Our poultry operations, which consist of animal feed production, breeding of DOCs and commercial farming and which generated 77.3% and 80.9% of our total sales for the years ended December 31, 2011 and 2012, respectively, are our core business activities. Our aqua-feed operations generated 7.3% and 7.1% and our beef cattle operations generated 5.1% and 6.1% of our total sales for the years ended December 31, 2011 and 2012, respectively. After establishing a leadership position in the poultry business in the Indonesian market, where poultry is the primary source of animal protein, we commenced our aquaculture and beef cattle businesses in 1988 and 2008, respectively, to diversify into secondary sources of animal protein for domestic consumption. We believe we are one of the top producers of animal protein in Indonesia. Our net sales for the years ended December 31, 2010, 2011 and 2012 were Rp13,955.8 billion, Rp15,633.1 billion and Rp17,832.7 billion (US$1,844.1 million), respectively. Factors Affecting our Business and Results of Operations Set forth below are some of the significant factors that have affected our results of operations during the period under review, as well as factors that we currently expect to affect our results of operations in the foreseeable future. Other factors beyond those identified below may materially affect our results of operations. See Risk Factors in this Offering Circular. Sales volumes of animal feed, poultry and cattle Our sales volumes depend primarily on consumer demand for our products and the end products of our customers. As Indonesia s GDP per capita grows, we expect the consequent increase in purchasing power to increase the proportion of protein consumption in the Indonesian market, which we expect to consist primarily of poultry and beef, given the halal dietary requirements of a significant majority of the Indonesian population. Sales volumes of poultry and cattle are also affected by changes in consumer preferences, including changes in nutritional guidelines or health advisories, and outbreaks of contagious diseases such as the avian influenza. We expect changes in demand for animal feed to be in tandem with changes in macro-economic conditions in Indonesia and the demand for animal protein in the Indonesian market. 57

71 Production capacity for animal feed, poultry and beef cattle We derived a significant portion of our net sales for the years ended December 31, 2010, 2011 and 2012 from our animal feed, commercial farm and DOC business segments and the results of these segments depend to a significant extent on their production capacities. The volume of animal feed and the number of broilers and DOCs that we can produce annually are dependent on the availability of sufficient production capacity to meet demand. In recent times, our ability to meet demand in certain of these segments has been limited by our capacity and, as such, changes to our capacity could have a significant impact on our net sales. We are currently in the process of expanding our animal feed and DOC production capacities, which we hope will allow us to better meet our customer demand. Conversely, any reduction in our production capacities in these key business segments, whether due to planned maintenance or unforeseen events, may impact our ability to meet customer demand and could potentially reduce our net sales from the affected business segment. Prices of our products The prices of our DOC, broiler and beef products are affected by demand and supply conditions, the prices of raw materials that we require for production, the quality of our products and our customer relationships, which could have an impact on the demand for our products. The selling prices of our feed products typically track the prices of major imported raw materials, any increase in prices of our raw materials will generally result in an increase in our selling prices, which could have an impact on the demand for our products. Economic conditions in Indonesia and growth of the poultry industry As of December 31, 2012, substantially all of our net sales were generated from customers in Indonesia. Accordingly, our results of operations may be affected by significant changes in economic and political developments in Indonesia, which could affect the demand for and pricing of our products in the Indonesian market. We expect our business, in particular our poultry business segment and the poultry industry, to benefit directly from macroeconomic growth in Indonesia. We believe that, as income levels and disposable income available for food purchases increase in Indonesia, animal protein intake will also increase. According to Rabobank International FAR, Indonesia s six kilograms per capita per annum consumption of chicken, compared to Malaysia s per capita per annum chicken consumption of 34 kilograms, is one of the lowest in Asia. We believe that we are well positioned to grow and maintain our leadership position within the Indonesian poultry market. As we grow we may incur additional debt for capital expenditure and working capital purposes. However, we believe that our profits will also increase as we grow. Prices and availability of raw materials For the years ended December 31, 2010, 2011 and 2012, the cost of goods sold relating to the production of animal feed constituted approximately 54.0%, 45.8% and 41.9%, respectively, of the total cost of goods sold for the corresponding periods. Corn and soybean meal constitute a significant proportion of the raw materials that we require for the production of poultry feed. Approximately 20% of our corn and 100% of our soybean meal requirements in 2012 were met by imports. Continued reliance on imported soybean meal in Indonesia is due to rising consumption of poultry products as well as the fact that soybean meal is not available in Indonesia. The demand for corn and soybean meal imports is expected to remain high in The availability and prices of these commodities are influenced by various factors, including production levels, weather conditions, epidemic diseases, global demand for such materials, fluctuations in the U.S. dollar and Rupiah exchange rate (since imported corn and soybean meal are typically priced in U.S. 58

72 dollars), and changes in prices of other commodities such as crude oil. Local corn prices have historically adjusted to global corn prices. Any significant change in the availability or any significant increase in the price of raw materials could materially affect our cost of goods sold. Regulatory environment Our business activities and results of operations are affected by the regulatory environment in Indonesia. Changes in regulations and government policies with regard to the poultry and cattle industry could significantly impact our sales and cost of goods sold. For instance, the Indonesian government has introduced a new scheme to strengthen the domestic beef production sector and reduce the Indonesia s reliance on cattle imports, with an aim to boost cattle production by 200,000 head per year and to limit cattle imports by 10% by This resulted in a restriction of the number of import permits for live cattle since 2010, which directly impacted our cattle breeding activities, as we import approximately 90% of our live cattle requirements from Australia annually, resulting in part to a reduction in our sales from over 130,000 beef cattle in 2009 to 69,000 beef cattle in Seasonality The Indonesian poultry industry is subject to seasonal fluctuations in demand. Typically, poultry consumption is highest during Ramadan and lowest during the period immediately following Ramadan and during the beginning of the school year. This seasonality may cause our net sales to vary across different calendar quarters from year to year. Key Components of Our Income Statement Consolidated Statement of Comprehensive Income For the year ended December 31, Rp Rp Rp US$ (Rp billions and US$ millions) Net sales , , , Cost of goods sold (10,906.6) (13,072.7) (14,648.8) (1,514.9) Gross Profit , , , Interest income Gain on sale of property, plant and equipment Gain on foreign exchange net General and administrative expense... (884.3) (1,018.4) (1,179.4) (122.0) Interest expense (211.3) (331.4) (437.5) (45.2) Selling expense (589.0) (435.0) (336.2) (34.8) Loss on derivative transactions net.. (58.2) Loss on impairment of assets (1.1) (11.1) Others net Income Before Tax , ,

73 Consolidated Statement of Comprehensive Income For the year ended December 31, Rp Rp Rp US$ (Rp billions and US$ millions) Tax Expense (Benefit) Current tax Deferred tax (3.4) (39.3) (4.1) Tax expense Net Income , , Other Comprehensive Income (Loss) Translation adjustment (10.8) (21.3) Total Comprehensive Income , , Net Sales Net sales for each financial period is calculated by our total sales derived from our various business segments less the sales discounts that we provide to our customers and excluding sales between our business segments including, but not limited to, sales by our animal feeds and DOC segments to our commercial farm segment. We derive our net sales primarily from the animal feeds, commercial farm, day-old chick, aquaculture, consumer products and cattle business segments. The following table sets forth information about our sales and the percentage breakdown of net sales for the periods indicated: For the years ended December 31, Rp % Rp % Rp US$ % (Rp billions and US$ millions except percentages) Sales net of sales discounts: Animal feeds , , , Commercial farm , , , Aquaculture , , Day-old chick , , , Cattle , Trading Consumer products , , Others Net sales , , , ,

74 Cost of goods sold Our cost of goods sold consists mainly of the expenses associated with the purchase of raw materials and supplies for our animal feeds, commercial farm, day-old chick, aquaculture and cattle business segments, net of inter-segment eliminations. The principal contributors to costs of good sold for each business segment are: Animal feeds: corn and soybean meal Commercial farm: day-old chick and animal feed Aquaculture: corn and soybean meal Day-old chick: animal feed and depreciation expense relating to our breeding stock Cattle: cost of imported cattle Consumer products: live chicks and slaughtering costs Trading: costs of the raw materials being traded The following table sets forth the breakdown of our cost of sales and each item as a percentage of our total cost of goods sold for the periods indicated: For the years ended December 31, Rp % Rp % Rp US$ % (Rp billions and US$ millions except percentages) Cost of goods sold: Animal feeds , , , Commercial farm , , , Aquaculture , Day-old chick Cattle Consumer products... 1, Trading Others Total , , , , Interest Income Our interest income consists of interest from deposits (Rupiah and foreign currency) and time deposits with banks. Gain on sale of property, plant and equipment Our gain on sale of property, plant and equipment consists of gains from the sale of property, plant and equipment outside of the ordinary course of business, which includes gains from sales of unused land. 61

75 Gain on foreign exchange net Our gain on foreign exchange consists of gains and losses relating to the revaluation of our foreign currency denominated assets and liabilities including, going forward, our indebtedness under the Notes, due to currency fluctuations. General and administrative expenses Our general and administrative expenses primarily consist of expenses for employees salaries and benefits, defined long-term employee benefits, security, depreciation, travel, repairs and maintenance, electricity and water, office supplies, professional fees, building rental, and vehicles maintenance. Selling expenses Our selling expenses primarily consist of expenses incurred for employees salaries and benefits, freight, sales commission, vehicle maintenance, depreciation, travel and courier services, advertising and promotion, export charges and freight forwarding. Interest expenses Our interest expenses primarily consists of interest expenses incurred on our short-term and long-term loan facilities as well as our Rupiah Bonds. See Description of Indebtedness. Loss on impairment of assets Loss on impairment of assets consists of impairment losses relating to our investment properties and unused assets. Loss on derivative transactions net Loss on derivative transactions net consists of losses relating to cross currency swap contracts. We previously managed our exposure to foreign currency fluctuations through cross currency swap contracts. We terminated these swap contracts in Others net Others-net primarily consists of rental income from investment properties, tax refunds and gains/losses on unused raw materials. Tax expense The following table sets forth the breakdown of our current and deferred tax expense for the periods indicated: For the years ended December 31, (Rp billions) (Rp billions) (Rp billions) (US$ millions) Current tax Deferred tax (3.4) (39.3) (4.1) Total tax expense

76 Translations adjustment Our translation adjustment consists of adjustments arising from the translation of certain accounts into our functional currency, Rupiah. Results of Operations Sales volumes referred to in the section below are gross sales figures and include sales between our business segments. Results of operations for the year ended December 31, 2012 compared to the year ended December 31, 2011 Net sales. Our net sales increased 14.1% to Rp17,832.7 billion (US$1,844.1 million) for 2012 from Rp15,633.1 billion for 2011, primarily due to general increases in demand in Indonesia across our business segments: Animal feeds. Sales from animal feeds increased 8.6% to Rp8,039 billion (US$831.3 million) for 2012 from Rp7,404.4 billion for This increase was primarily due to an increase in gross sales volume to 2,427 million kilograms in 2012 from 2,186 million kilograms in 2011, as well as an increase in average selling price to Rp5,113 per kilogram in 2012 from Rp4,840 per kilogram in Commercial farm. Sales from commercial farms increased 44.6% to Rp5,116.5 billion (US$529.1 million) for 2012 from Rp3,539.0 billion for This increase was primarily due to an increase in gross sales volume to million kilograms in 2012 from million kilograms in 2011 resulting from an increase in production capacity due to our acquisition of a commercial farming operation in April 2011, as well as an increase in average selling price to Rp13,438 per kilogram of live bird in 2012 from Rp12,750 per kilogram of live bird in Aquaculture. Sales from aquaculture increased 10.4% to Rp1,266.8 billion (US$131 million) for 2012 from Rp1,147.9 billion for This increase was primarily due to an increase in gross sales volume of fish feed and shrimp feed to million kilograms in 2012 from million kilograms in 2011 and an increase in average selling price in 2012 from 2011 to Rp6,280 per kilogram in 2012 from Rp5,936 per kilogram in Day-old chick. Sales from day-old chicks increased 11.9% to Rp1,270.1 billion (US$131.3 million) for 2012 from Rp1,134.8 billion for This increase was primarily due to an increase in gross sales volume to 513 million day-old chicks in 2012 from 467 million day-old chicks in 2011 and an increase in average selling price of day-old chicks in 2012 from 2011 to Rp3,818 per chick in 2012 from Rp3,232 per chick in Cattle. Sales from cattle increased 37.1% to Rp1,084.1 billion (US$112.1 million) for 2012 from Rp790.9 billion for This increase was primarily due to an increase in average selling price to Rp14 million per head in 2012 from Rp12 million per head in 2011, partially offset by a decrease in gross sales volume to 68,672 head of cattle in 2012 from 70,088 head of cattle in The average sales price increased in 2012 due in part to a rise in demand for beef and the impact of Government regulations restricting the number of import permits for live cattle. Trading. Sales from trading increased 37.4% to Rp465.5 billion (US$48.1 million) for 2012 from Rp338.9 billion for This increase was primarily due to an increase in sales volume of plastic woven bags to 6,703 tonnes in 2012 from 5,710 tonnes in 2011 and an increase in sales volume of copra pellets and coconut oil from 95.5 tonnes in 2012 from 64.9 tonnes in

77 Consumer Products. Sales from consumer products decreased 61.1% to Rp458.1 billion (US$47.4 million) for 2012 from Rp1,178.9 billion for This decrease was primarily due to the sale of PT So Good Food, which was part of our consumer products business, in May Others. Sales from other items increased 34.9% to Rp132.6 billion (US$13.8 million) for 2012 from Rp98.3 billion for This increase was primarily due to increased sales from Vaksindo and the acquisition of Agrinusa Jaya Santosa, a poultry vaccines and equipment distributor. Cost of goods sold. Our cost of goods sold increased 12.1% to Rp14,648.8 billion (US$1,514.9 million) for 2012 from Rp13,072.7 billion for 2011, due to changes in the following items: Animal feeds. Cost of goods sold relating to animal feeds increased 2.6% to Rp6,138.6 billion (US$634.8 million) for 2012 from Rp5,982.3 billion for This increase was primarily due to an increase in the production of animal feeds in 2012 from 2011 as well as an increase of raw material prices in Commercial farm. Cost of goods sold relating to commercial farms increased 43.9% to Rp4,831.8 billion (US$499.7 million) for 2012 from Rp3,358.7 billion for This increase was primarily due to an increase in sales volume in Day-old chick. Cost of goods sold relating to day-old chicks decreased 0.4% to Rp777,3 billion (US$80.4 million) for 2012 from Rp780.5 billion for This decrease was primarily due to improved productivity in our farm management, which helped reduce our costs, which was partially offset by an increase in sales volume in Aquaculture. Cost of goods sold relating to aquaculture increased 7.5% to Rp1,088.9 billion (US$112.6 million) for 2012 from Rp1,012.7 billion for This increase was primarily due to an increase in sales volume in Cattle. Cost of goods sold relating to cattle increased 31.0% to Rp956.0 billion (US$98.9 million) for 2012 from Rp729.9 billion for This increase was primarily due to an appreciation of the Australian dollar against the Rupiah. The majority of our live cattle purchases are denominated in Australian dollars. Trading. Cost of goods sold relating to trading increased 45.8% to Rp427.0 billion (US$44.2 million) for 2012 from Rp292.9 billion for This increase was primarily due to an increase in the cost of raw materials in Consumer products. Cost of goods sold relating to consumer products decreased 54.8% to Rp396.0 billion (US$41.0 million) for 2012 from Rp875.1 billion for This increase was primarily due to an increase in sales volume in Others. Cost of goods sold relating to other items decreased 18% to Rp33.2 billion (US$3.4 million) for 2012 from Rp40.5 billion for This decrease was due to a variety of factors across our various other businesses. Gross profit. Our gross profit increased 24.4% to Rp3,183.9 billion (US$329.3 million) for 2012 from Rp2,560.4 billion for 2011, and our gross margin increased to 17.9% in 2012 from 16.4% in 2011, as a result of the above factors. Margins in our day-old chick segment recovered partially in 2012, compared to low margins in 2011, which contributed to this improvement in our overall gross margin. 64

78 General and administrative expenses. Our general and administrative expenses increased 15.8% to Rp1,179.4 billion (US$122.0 million) for 2012 from Rp1,018.4 billion for This increase was primarily due to increases in salaries and employee benefits and long-term employee benefits mainly as a result of an increase in the number of employees to 15,049 as at December 31, 2012 from 13,653 as at December 31, 2011, as well as an increase in the average cost of wages. Selling expenses. Our selling expenses decreased 22.7% to Rp336.2 billion (US$34.8 million) for 2012 from Rp435.0 billion for This decrease was primarily due to a reduction in advertising and promotion expenses to Rp.6.8 billion in 2012 from Rp118.3 billion in 2011, which arose as a result of the sale of PT So Good Food in May Interest expenses. Our interest expenses increased 32.0% to Rp437.5 billion (US$45.2 million) for 2012 from Rp331.4 billion for 2011, primarily due to interest payable in relation to our Rupiah Bonds. See Description of Indebtedness. Other income/(expenses): Interest income. Interest income increased 144.2% to Rp44.2 billion (US$4.6 million) for 2012 from Rp18.1 billion for 2011, primarily due to interest from the investment of the cash proceeds from our Rupiah Bond. Gain on sale of property, plant and equipment. Gain on sale of property, plant and equipment decreased 54.6% to Rp26.2 billion (US$2.7 million) for 2012 from Rp57.7 billion for 2011, as we sold a reduced amount of unused land in 2012 than in Gain on foreign exchange net. Gain on foreign exchange net increased 316.9% to Rp24.6 billion (US$2.5 million) for 2012 from Rp5.9 billion for 2011, primarily due to higher U.S. dollar denominated deposits and gains on those U.S. dollar denominated deposits resulting from the depreciation of the Rupiah against the U.S. dollar in Loss on impairment of assets. Loss on impairment of assets was nil in 2012 compared to Rp11.1 billion in In 2011 we recorded impairment losses in relation to our investment properties and our unused properties of Rp9.3 billion and Rp1.8 billion, respectively. Others net. Income relating to other items increased 49.6% to Rp39.2 billion (US$4.1 million) for 2012 from Rp26.2 billion for 2011, primarily due to a tax refund received in Income before tax. Our income before tax increased 56.5% to Rp1,364.9 billion (US$141.1 million) for 2012 from Rp872.3 billion for Tax expenses. Tax expenses increased 44.6% to Rp290.3 billion (US$30.0 million) for 2012 from Rp200.8 billion for 2011, primarily due to the increase in income before tax. Net income. As a result of the foregoing factors, our net income increased 60.0% to Rp1,074.6 billion (US$111.1 million) for 2012 from Rp671.5 billion for Results of operations for the year ended December 31, 2011 compared to the year ended December 31, 2010 Net sales. Our net sales increased 12% to Rp15,633.1 billion for 2011 from Rp13,955.8 billion for 2010, primarily due to general increases in demand in Indonesia across most of our business segments, partially offset by decreasing prices for poultry. 65

79 Animal feeds. Sales from animal feeds increased marginally to Rp7,404.4 billion for 2011 from Rp7,260.6 billion for Gross sales volume increased to 2,186 million kilograms in 2011 from 1,860 million kilograms in 2010 and average selling price increased to Rp4,840 per kilogram in 2011 from Rp4,700 per kilogram in Commercial farm. Sales from commercial farms increased 128.9% to Rp3,539.0 billion for 2011 from Rp1,546.2 billion for This increase was primarily due to an increase in sales volume to 278 million kilograms in 2011 from 101 million kilograms in 2010 resulting from an increase in production capacity due to our acquisition of a commercial farming operation in April 2011, partially offset by a decline in average selling price to Rp12,750 per kilogram of live bird in 2011 from Rp13,084 per kilogram of live bird in Day-old chick. Sales from day-old chicks decreased 22% to Rp1,134.8 billion for 2011 from Rp1,455.6 billion for This decrease in net sales was primarily due to a temporary increase in competition in 2011 as a result of a number of new day-old chick producers having entered the market in response to high margins for day-old chicks in prior years. This competition placed downward pressure on the average selling price of day-old chicks, which dropped to Rp3,232 per chick in 2011 from Rp4,484 per chick in Sales from day-old chicks also decreased due to the increased use of our day-old chick production in our commercial farms, supporting increased sales in commercial farms while lowering sales revenue from day-old chicks, as sales to our commercial farms are excluded from our consolidated net sales. Gross sales volumes increased to 469 million chicks in 2011 from 387 million chicks in Aquaculture. Sales from aquaculture increased 25.4% to Rp1,147.9 billion for 2011 from Rp988.7 billion for This increase was primarily due to an increase in sales volume from 187 million kilograms in 2011 from 166 million kilograms in 2010 resulting from an increase in production capacity due to our Lampung plant commencing operations in 2011 to Rp5,936 per kilogram in 2011 from Rp5,671 per kilogram in Cattle. Sales from cattle decreased 17.7% to Rp790.9 billion for 2011 from Rp961.0 billion for This decrease was primarily due to a decrease in sales volume to 70,088 head of cattle in 2011 from 95,441 head of cattle in 2010 as a result of Government regulations restricting the number of import permits for live cattle, partially offset by an increase in average selling price to Rp12 million per head in 2011 from Rp11 million per head in Trading. Sales from trading increased 145.6% to Rp338.9 billion for 2011 from Rp138.0 billion for This increase was primarily due to increased sales of edible oil in Consumer products. Sales from consumer products decreased 24.5% to Rp1,178.9 billion for 2011 from Rp1,562.2 billion for This decrease was primarily due to the sale of PT So Good Food in May 2011, which was part of our consumer products business. Others. Sales from other items increased 126% to Rp98.3 billion for 2011 from Rp43.5 billion for This increase was primarily due to the acquisition of our transportation business in Cost of goods sold. Our cost of goods sold increased 19.9% to Rp13,072.7 billion for 2011 from Rp10,906.6 billion for 2010, due to changes in the following items: Animal feeds. Cost of goods sold relating to animal feeds increased 1.6% to Rp5,982.3 billion for 2011 from Rp5,886.2 billion for This increase was in line with the increase in sales volume in

80 Commercial farm. Cost of goods sold relating to commercial farms increased 150.3% to Rp3,358.7 billion for 2011 from Rp1,342.0 billion for This increase was primarily due to the significant increase in sales volume in Day-old chick. Cost of goods sold relating to day-old chicks decreased 3.5% to Rp780.5 billion for 2011 from Rp808.9 billion for This decrease was primarily due to increased sales to our commercial farms, as costs of sales relating to day-old chicks sold to our commercial farms are excluded from our consolidated cost of goods sold. The decrease was also supported by improved productivity in our farm management. Aquaculture. Cost of goods sold relating to aquaculture increased 20.3% to Rp1,012.7 billion for 2011 from Rp841.5 billion for This increase was primarily due to an increase in sales volume in Cattle. Cost of goods sold relating to cattle decreased 13.1% to Rp729.9 billion for 2011 from Rp840.4 billion for This decrease was primarily due to a decrease in sales volume in Trading. Cost of goods sold relating to trading increased 180.3% to Rp292.9 billion for 2011 from Rp104.5 billion for This increase was primarily due to increased sales of edible oil in Consumer products. Cost of goods sold relating to consumer products decreased 17.6% to Rp875.1 billion for 2011 from Rp1,062.6 billion for This decrease was primarily due to the sale of PT So Good Food, which was part of our consumer products business, in Others. Cost of goods sold relating to other items increased 96.6% to Rp40.5 billion for 2011 from Rp20.6 billion for This increase was primarily due to the acquisition of our transportation business in Gross profit. Our gross profit decreased 16.0% to Rp2,560.4 billion for 2011 from Rp3,049.2 billion for Our gross margin decreased to 16.4% in 2011 from 21.8% in 2010, as a result of the above factors, with decreased margins in our day-old chick segment contributing significantly to this decline. General and administrative expenses. Our general and administrative expenses increased 15.2% to Rp1,018.4 billion for 2011 from Rp884.3 billion for This increase was primarily due to increases in salaries and employee benefits, which increased to Rp billion in 2011 from Rp452.2 billion in 2010 mainly as a result of an increase in the average cost of wages and an increase in the number of employees to 13,653 as at December 31, 2011 from 13,409 as at December 31, Selling expenses. Our selling expenses decreased 26.1% to Rp435.0 billion for 2011 from Rp589.0 billion for This decrease was primarily due to a reduction in advertising and promotion expenses to Rp118.3 billion in 2011 from Rp275.9 billion, which arose as a result of the sale of PT So Good Food, which was part of our consumer products business, in Interest expenses. Interest expenses increased 56.8% to Rp331.4 billion for 2011 from Rp211.3 billion for 2010, primarily due to an increase in our short term bank loans which we obtained for working capital purposes. Other income/(expenses): Interest income. Interest income increased 6.5% to Rp18.1 billion for 2011 from Rp17.0 billion for 2010, primarily due to a reduction in short-term investments in 2011 from

81 Gain on sale of property, plant and equipment. Gain on sale of property, plant and equipment increased to Rp57.7 billion for 2011 from Rp.3.6 billion in 2010, primarily due to an unusually large number of sales of unused land as part of the sale of PT So Good Food, which was part of our consumer products business, in Gain on foreign exchange net. Gain on foreign exchange net decreased 89.8% to Rp5.9 billion for 2011 from Rp58.0 billion for 2010 as we had a significant gain in Our foreign exchange gain in 2010 primarily resulted from the impact of the appreciation of the Rupiah in 2010 on our U.S. Dollar denominated loan with BNP Paribas, which we repaid in full in late Loss on impairment of assets. Loss on impairment of assets was Rp11.1 billion in 2011 compared with Rp1.1 billion in In 2011 we recorded impairment losses in relation to our investment properties and our unused properties of Rp9.3 billion and Rp1.8 billion, respectively. Loss on derivative transactions. Loss on derivative transactions was nil in 2011 compared with Rp58.2 billion in 2010 due to losses relating to cross currency swap contracts incurred in 2010 that hedged our U.S. dollar denominated borrowings. We previously managed our exposure to foreign currency fluctuations through these cross currency swap contracts. We terminated these swap contracts in Others. Income relating to other items decreased 50.8% to Rp26.2 billion for 2011 from Rp53.2 billion for 2010, primarily as a result of the sale of our excess raw materials in Income before tax. Our income before tax decreased 39.3% to Rp872.3 billion for 2011 from Rp1,436.9 billion in Tax expenses. Tax expenses decreased 41.9% to Rp200.8 billion for 2011 from Rp345.6 billion for 2010, primarily due to the decrease in income before tax in 2011 from Net income. As a result of the foregoing factors, our net income increased 38.5% to from Rp671.5 billion for 2011 from Rp1,091.3 billion in Liquidity and Capital Resources We have historically financed our capital requirements primarily through funds generated through our operations, financings from banks and the issuance of Rupiah denominated bonds. Our primary capital requirements have been used for capital expenditure and working capital purposes. We believe that we will have sufficient capital resources from our operations, the net proceeds of this offering and financing from banks to meet our capital requirements for at least the next 12 months. Subject to restrictions in our existing indebtedness, we may incur further indebtedness in connection with the operation of our business, which may result in an increase in our interest expenses. At certain times of the year our working capital requirements increase significantly as we bulk purchase certain raw materials. These consist of the bulk purchase of corn following the domestic corn harvest and the purchase of additional day-old chicks in the months leading up to Ramadan. We finance these working capital requirements through our existing working capital facilities. As of December 31, 2012, we had cash and cash equivalents of approximately Rp872.4 billion (US$90.2 million) and had available credit lines of Rp1,083.4 (US$112.0). For a description of our working capital facilities, see Description of Indebtedness. 68

82 Liquidity The following table sets forth information regarding our cash flows for the years ended December 31, 2010, 2011 and 2012, and our cash and cash equivalents at the end of each period: For the years ended December 31, (Rp billions) (Rp billions) (Rp billions) (US$ millions) Net cash provided by (used in) operating activities ,098.2 (75.1) Net cash provided by (used in) investing activities (625.9) (401.6) (1,352.1) (139.8) Net cash provided by (used in) financing activities (232.6) , Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the year Effect of foreign exchange rate changes (1.3) Cash and cash equivalents at the end of the year or period Cash flows provided by (used in) operating activities In 2012, our net cash provided by operating activities was Rp299.1 billion (US$30.9 million), consisting of cash receipts from customers of Rp17,604.4 billion and cash receipts from income tax refund of Rp21.1 billion, partially offset by cash payments to suppliers and others of Rp15,798.8 billion, cash payments to employees of Rp740.9 billion, income tax paid of Rp363.0 billion and interest paid of Rp423.7 billion. In 2011, our net cash used in operating activities was Rp75.1 billion, consisting of cash payments to suppliers and others of Rp14,376.8 billion, cash payments to employees of Rp649.8 billion, income tax paid of Rp460.8 billion and interest paid of Rp334.9 billion, partially offset by cash receipts from customers of Rp15,743.0 billion and cash receipts from income tax refund of Rp4.1 billion. In 2010, our net cash provided by operating activities was Rp1,098.2 billion, consisting of cash receipts from customers of Rp13,954.9 billion and cash receipts from income tax refund of Rp6.2 billion, partially offset by cash payments to suppliers and others of Rp11,802.3 billion, cash payments to employees of Rp556.4 billion, income tax paid of Rp296.4 billion and interest paid of Rp207.9 billion. 69

83 Cash flows provided by (used in) investing activities In 2012, our net cash used in investing activities was Rp1,352.1 billion (US$139.8 million), consisting cash payments of Rp1,364.0 billion used for the acquisition of property, plant and equipment in connection with the expansion of a poultry feedmill, the expansion of two breeding farms and the construction of an aqua-feedmill, Rp60.6 billion net cash out flow at acquisition date net of cash balance in relation to the acquisition of Agrinusa Jaya Santosa, Rp9.0 billion in acquisitions of software and Rp2.0 billion in temporary investments, partially offset by cash receipts of Rp43.7 billion of interest received and Rp39.8 billion of proceeds from sale of property, plant and equipment. In 2011, our net cash used in investing activities was Rp401.6 billion, consisting of cash payments of Rp992.4 billion used for the acquisition of property, plant and equipment in connection with the construction of two poultry feedmills, the construction of a breeding farm and the construction of hatching facility, Rp376.8 billion net cash out flow at acquisition date net of cash balance of a subsidiary acquired, and Rp0.7 billion in decrease in security deposits, partially offset by cash receipts of Rp805.0 billion from the proceeds of the sale of PT So Good Food, Rp143.7 billion of proceeds from sale of property, plant and equipment and Rp19.3 billion of interest received. In 2010, our net cash used in investing activities was Rp625.9 billion, consisting of cash payments of Rp612.2 billion used for the acquisition of property, plant and equipment in connection with the expansion of poultry feedmills, the expansion of breeding farms, the construction of hatching facility and the construction of an aqua-feedmill and Rp38.6 billion in temporary investments, partially offset by cash receipts of Rp17.0 billion of interest received and Rp9.0 billion of proceeds from sale of property, plant and equipment. Cash flows provided by (used in) financing activities In 2012, our net cash provided by financing activities was Rp1,091.7 billion (US$112.9 million), consisting of proceeds of a bond issuance of Rp1,487.1 billion, proceeds from short term bank loans of Rp484.8 billion, proceeds from the issuance of shares to non-controlling interests of subsidiaries of Rp79.0 billion and proceeds from long-term bank loans of Rp11.3 billion, partially offset by payment of bonds payable of Rp500.0 billion, payment of long term bank loans of Rp283.0 billion, payment of dividends of Rp159.6 billion, payment for the acquisition of treasury stock of Rp17.7 billion and payments of a liability for the purchase of property, plant and equipment of Rp8.8 billion. In 2011, our net cash used in financing activities was Rp541.8 billion, consisting of proceeds from short term bank loans of Rp1,099.4 billion, proceeds from long-term bank loans of Rp368.6 billion and proceeds from the issuance of shares to non-controlling interests of subsidiaries of Rp22.5 billion, partially offset by payment of dividends of Rp756.2 billion, payment of long term bank loans of Rp189.5 billion, payment of lease liabilities of Rp1.9 billion and payments of a liability for the purchase of property, plant and equipment of Rp1.2 billion. In 2010, our net cash used in financing activities was Rp232.6 billion, consisting of payment of restructured debts of Rp1,062.3 billion, payment of long term bank loans of Rp167.9 billion, payment of short term bank loans of Rp72.3 billion and payment of dividends of Rp10.4 billion, partially offset by proceeds from long-term bank loans of Rp1,067.6 billion and proceeds from issuance of shares to minority stockholders of subsidiaries of Rp15.0 billion. 70

84 Contractual Obligations and Commitments The following table sets forth our contractual obligations and commitments to make future payments under our total debt and finance lease obligations as of December 31, 2012: Payment due by period Total Less than 1 year 1-2 years 3-5 years More than 5 years (Rp billions) (US$ millions) (Rp billions) Short-terms bank loans.... 2, ,284.6 Trade payables Related parties Third parties Other accounts payable to third parties Accrued expenses Long-term loans Liability of purchase of property, plant and equipment Lease liabilities Bonds payable , ,489.7 Total , , , Capital Expenditure The following table sets forth information regarding our total capital expenditure for the years ended December 31, 2010, 2011 and 2012: For the years ended December 31, (Rp billions) (Rp billions) (Rp billions) (US$ millions) Animal feed Day-old chicks Commercial Farm Consumer Products Aquaculture Cattle Trading Others Total capital expenditures , ,

85 Our budgeted capital expenditures for 2013 amount to approximately US$182 million, primarily for the expansion of our poultry and aqua-feed operations, which we plan to fund from cash generated form operations and from a portion of the proceeds of the Notes. Off Balance Sheet Arrangements We do not have any off-balance sheet liabilities that are not reflected in our financial statements. Quantitative and Qualitative Disclosures about Market Risks Our business exposes us to a variety of financial risks, including interest rate, foreign exchange, credit and liquidity risks. The following discussion summarizes our exposure to interest rate, foreign exchange, credit and liquidity risks and our policies to address these risks. The following discussion contains forward-looking statements that are subject to risks, uncertainties and assumptions about us. These statements are based upon current expectations and projections about future events. There are important factors that could cause our actual results and performance to differ materially from such forward-looking statements, including those risks discussed under Risk Factors. Exchange Rate Risk We are exposed to exchange rate risk primarily as a result of our short-term bank loans. In addition, for the year ended December 31, 2012, the majority of our cost of goods sold were denominated in or linked to foreign currencies, the bulk of which were U.S. dollar denominated or linked with the remainder denominated in Australian dollars and Singapore dollars. For the same periods, the majority of our net sales were denominated in Rupiah. As a result, we are exposed to certain amounts of risk in the fluctuation in the exchange rates between the U.S. dollar and the Rupiah. We seek to manage this risk by effectively managing our raw material inventory an entering into substantial agreements at advantageous prices wherever possible. We also typically manage to pass on any increases in raw material costs to our customers. We occasionally use hedging instruments to hedge our foreign exchange exposure and may continue to do so in the future. Interest Rate Risk We are exposed to interest rate risk primarily as a result of bank loans, lease liabilities and bonds issued by us. We manage our interest expenses through a mix of fixed rate and variable rate debt by evaluating trends in market rates and conducting assessments of interest rates offered by creditors to obtain the most favorable interest rate before making any decision to enter into a new loan agreement. We currently do not use hedging instruments to hedge our interest rate exposure. Credit Risk We are exposed to credit risk primarily from our deposit of cash and cash equivalents with banks, short-term investments time deposits, trade accounts receivable from third parties and other accounts receivable, in the event of non-performance by our customers or the counterparties to our contracts. We continuously monitor our positions with, and credit quality of, the financial institutions that are counterparties to our financial instruments, as well as other contractual counterparties. 72

86 Liquidity Risk We are subject to the risk that we will not have sufficient funds to meet our operating requirements and financial obligations when they fall due. We manage our liquidity risk by maintaining a level of cash and cash and equivalents we deem adequate to finance our operations and to mitigate the effects of fluctuations in cash flows. We also regularly evaluate our projected and actual cash flows, including our loan maturity profiles, and continuously assess conditions in the financial markets for opportunities to obtain optimal funding sources. Critical Accounting Policies Our consolidated financial statements have been prepared in accordance with Indonesian FAS. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses as well as the disclosure of contingent assets and liabilities. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. We continually evaluate such estimates and judgments. Actual results may differ from these estimates under different assumptions or actual conditions. In order to provide an understanding of how our management forms their judgment about future events, including the variables and assumptions underlying our estimates, and the sensitivity of judgments to different circumstances, we have identified the critical accounting policies discussed below. For more details, see Notes 2 and 3 to our consolidated financial statements included in this Offering Circular for the Significant Accounting and Financial Reporting Polices and Management Use of Estimates, Judgments and Assumptions. Fair Value of Financial Assets and Financial Liabilities Indonesian Financial Accounting Standards require measurement of certain financial assets and liabilities at fair values, and the disclosures require the use of estimates. Significant component of fair value measurement is determined based on verifiable objective evidence (i.e. foreign exchange rate, interest rate), while timing and amount of changes in fair value might differ due to different valuation method used. Allowance for Decline in Value and Inventory Obsolescence We provide allowances for decline in value and obsolescence of inventories based on its estimation that there will be no future usage of such inventories or such inventories will be slow moving in the future. While it is believed that the assumptions used in the estimation of the allowance for decline in the value of inventories reflected in the consolidated financial statements are appropriate and reasonable, significant changes in these assumptions may materially affect the assessment of the carrying value of the inventories and provision for decline in value of inventories which ultimately impact the result of the Group s operation. Estimated Useful Lives of Investment Properties and Property, Plant and Equipment The useful lives of each of the item of our investment properties and property, plant and equipment are estimated based on the period over which the asset is expected to be available for use. Such estimation is based on a collective assessment of similar business, internal technical evaluation and experience with similar assets. The estimated useful life of each asset is reviewed periodically and updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence, and legal or other limits on the use of the asset. It is possible, however, that future results of operations could be materially affected by changes in the amounts and timing of recorded expenses brought about by changes in the factors mentioned above. A reduction in the estimated useful life of any item of investment properties and property, plant and equipment would increase the recorded depreciation and decrease the carrying values of these assets. 73

87 There is no change in the estimated useful lives of investment properties and property, plant and equipment during the year. Impairment of Goodwill and Software Cost and Other Intangible Assets Intangible assets, other than goodwill, are reviewed for impairment whenever impairment indicators are present. While for goodwill, impairment testing is required to be performed at least annually irrespective of whether or not there are indications of impairment. Determining the value in use of assets requires the estimation of cash flows expected to be generated from the continued use and ultimate disposition of such assets (CGU) and a suitable discount rate in order to calculate the present value. While it is believed that the assumptions used in the estimation of the value in use of assets reflected in the consolidated financial statements are appropriate and reasonable, significant changes in these assumptions may materially affect the assessment of recoverable values and any resulting impairment loss could have a material adverse impact on the results of our operations. Impairment of Non-financial Assets Impairment review is performed when certain impairment indicators are present. Determining the fair value of assets requires the estimation of cash flows expected to be generated from the continued use and ultimate disposition of such assets. Any significant changes in the assumptions used in determining the fair value may materially affect the assessment of recoverable values and any resulting impairment loss could have a material impact on results of operations. Post-employment Benefits The determination of the obligation and post-employment benefits is dependent on the selection of certain assumptions used by actuary in calculating such amounts. Those assumptions are described in Note 30 to consolidated financial statements and include, among others, discount rate and rate of salary increase. Actual results that differ from the Group s assumptions are accumulated and amortized over future periods and therefore, generally affect the recognized expense and recorded obligation in such future periods. While it is believed that our assumptions are reasonable and appropriate, significant differences in actual experience or significant changes in assumptions may materially affect the amount of long-term employee benefits liability. Deferred Tax Assets Deferred tax assets are recognized for all temporary differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases to the extent that it is probable that taxable profit will be available against which the temporary differences can be utilized. Significant management estimates are required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits together with future tax planning strategies. 74

88 Recent Accounting Pronouncements New accounting standards have been published that are mandatory for accounting periods beginning on or after January 1, Our assessment of those standards and interpretations that are relevant to our financial statements is set out below: New Bapepam-LK Regulation Bapepam-LK issued Regulation No. IX.L.1, which is included in Appendix of the Decree of the Chairman of Bapepam-LK No. Kep-718/BL/2012 dated December 28, 2012 regarding Quasi-Reorganization, and contains the requirement and administration of an entity s quasireorganization. The new regulation is effective since January 1, The Decree of the Chairman of Bapepam No. KEP-16/PM/2004 dated April 13, 2004 regarding The Administration of Quasi-Reorganization is cancelled upon the effectiveness of the new regulation. The application of the new Regulation does not have any effect on our consolidated financial statements. Prospective Accounting Pronouncements The Indonesian Institute of Accountants has issued the following revised Statements of Financial Accounting Standards (PSAK) and Withdrawal of Statement of Financial Accounting Standards (PPSAK). These standards will be applicable to consolidated financial statements effective for annual period beginning January 1, 2013 as follows: PSAK PSAK No. 38 (Revised 2011), Business Combination Entities Under Common Control PPSAK PPSAK No. 10, Withdrawal of PSAK 51: Accounting for Quasi-Reorganization We are still evaluating the effects of these revised PSAKs and PPSAK and have not yet determined the related effects on the consolidated financial statements. 75

89 INDUSTRY OVERVIEW Unless otherwise specified, market data and certain forecasts used throughout this Offering Circular have been obtained from internal surveys, market research, publicly available information and industry publications. Industry publications generally state that the information that they contain has been obtained from sources believed to be reliable but that the accuracy and completeness of that information is not guaranteed. Similarly, forecasts and market research, while believed to be reliable, have not been independently verified, and none of the Initial Purchaser or Rabobank International make any representation as to the accuracy of that information. This section has been based on a report prepared by Rabobank International FAR. None of the Initial Purchaser or Rabobank International or any of their respective advisors have independently verified the information set forth in this section. Rabobank International FAR has provided industry knowledge, in-house database, independent third-party reports, and publicly available data from reputable industry organizations for this section. The statistical and graphical information contained in this section-including historical data-was produced by compiling, interpreting and analyzing, production, economic, statistical and technical information from many third-party sources. This information was obtained from sources believed by Rabobank International FAR to be reliable, but there can be no assurance as to the accuracy or completeness of included information. Forecasts and assumptions included in this section are inherently uncertain because of events or combinations of events that cannot reasonably be foreseen, including, without limitation, the actions of governments, individuals, third parties and competitors. Indonesian animal protein consumption primarily comprises meat (poultry, beef and pork), seafood (captured fish and aquaculture) and eggs. Indonesian animal meat protein consumption has seen strong and sustained growth over the past decade, driven by a growth of 4% per annum in meat production (excluding seafood) (Figure 1). Poultry has constituted a majority of the meat growth as a result of Indonesia s large working and middle class population and lower production cost stemming from more efficient feed conversion ratios (as compared to pork and beef). Figure 1: Indonesia meat consumption (Million tonnes) Beef Poultry Pork 76

90 Source: USDA, FAPRI, Rabobank International FAR, Beef consumption has shown moderate growth of 3% per annum in recent years ( ) and remains the animal protein of choice for the higher income group. The beef industry has been dependent on imports which account for more than 20% of the Indonesian consumption. Growth in beef has been constrained by limitations in domestic supply infrastructure as well as frequent regulatory interventions on beef imports. The pork industry has stagnated over the last five years and caters mainly to the Chinese population in Indonesia. The large Muslim population in Indonesia limits the future potential of the pork industry growth. The major meat alternatives are tempeh, tofu and eggs, which witness a rise in consumption in periods of economic tightening. Tempeh is the most popular and cheapest protein product, made mostly from U.S. soybeans by commercial and domestic producers, and is a staple protein of choice for the lower income segment of the population. 77

91 POULTRY Overview Poultry meat remains the largest animal protein source in Indonesia accounting for 54% of meat consumption (excluding seafood) in the country. There is virtually no competition between animal protein sources in Java and Sumatera, with poultry meat comprising the majority of the market. Consumers in poorer areas such as Kalimantan, Sulawesi and Eastern Indonesia still rely on fish as their main protein source. The annual per capita consumption of poultry meat has grown at 4.2% per annum increasing from 4 kg to 6 kg between 2000 and Indonesian poultry meat per capita consumption has grown at a much faster pace than pork and beef (Figure 2). Figure 2: Indonesia per capita meat consumption (Kg per annum) Beef Poultry Pork The Indonesian poultry industry is self-sufficient as demand has been more or less equal to production. Despite dependence on imported feed, poultry meat production and consumption have grown 4% per annum over the past decade. However, growth slowed between 2003 and 2005 due to outbreaks of Avian Influenza ( AI ) in the country. Despite this setback, the industry recovered in 2007 and has been growing at close to 4% per annum since (Figure 3). Figure 3: Poultry meat production and consumption (Thousand tonnes) 1,600 1,400 1,200 1, Production (LHS) Consumption (LHS) Population Source: Indonesia Poultry Breeders Association, Rabobank International FAR USDA, IMF,

92 Industry Structure Broiler production in Indonesia is dominated by a handful of large-scale commercial producers that are involved in most levels of the value chain from feed production to value-added processing. Smallholders are mostly involved through contract farming with these commercial producers. Besides the large commercial producers, there are also many independent mid-scale semicommercial farms. About 80% of broiler production is located in Java. The industry has been largely concentrated in Java but in recent years has seen expansion in Sumatra, Kalimantan and Sulawesi. The industry is very fragmented if the non-integrated companies and small farmers are taken into account. However only a few companies, such as Charoen Pokphand and Japfa, have businesses ranging from DOC breeding farms, poultry feed and rearing, vaccines and processing. Integrated companies also have a better business position resulting in more efficient operations, more diversified business risks and present higher barriers to entry for new entrants. Farmers usually purchase the DOCs as well as poultry feed from the integrated players. Indonesia s total DOC production capacity is estimated at 2,400 million per year. However in 2012, production is estimated at only 1,400 million which utilized only 58% of the installed capacity (Figure 4). Charoen Popkhand, Japfa, Malindo and Sierad are among the top DOC producers in the country (Figure 5). The top two industry players control 52% of the DOC capacity and 57% of the feed milling capacity in the country. This oligopolistic structure of this industry gives pricing power to a select few players which positions to better maintain margins under difficult market conditions. Figure 4: Indonesia DOC production (Million/annum) 1,600 1,400 1,200 1, Figure 5: Indonesia DOC production capacity share (Percent) Others 29% CP 31% Source: Indonesia Poultry Breeders Association, Rabobank International FAR estimates, CJ 1% Wonokoyo 5% Sierad 6% Malindo 8% Japfa 21% Source: Rabobank International FAR research, Industry sources,

93 KEY DRIVERS AND RISKS Increasing population and economic growth Statistically it has been observed that economic growth has a strong correlation with the poultry meat consumption of a country (Figure 6). Figure 6: GDP/Poultry meat consumption correlation (Per capita poultry meat consumption and per capital GDP of select country) Hong Kong Malaysia US Singapore Canada Thailand Vietnam China Philippines Indonesia Source: IMF, Rabobank International FAR, S.Korea India Indonesia s GDP growth has performed relatively strongly in recent years despite global economic issues, and is expected to grow at 6.3% in Strong economic growth forecast coupled with the population growth will provide support to the poultry consumption in the country (Figure 7 and 8). Indonesia s vision 2030 aims to increase per capita GDP from current level of US$3,660 to US$18,000 by Per capita animal protein consumption is likely to accelerate on the back of economic growth and the rise in per capita income. The proportion of middle and upper middle class is expected to increase from 30% to 40% offering a consumer base of 100 million people. Figure 7: GDP and GDP per capita growth (Current prices) 0.0% 4.1% % % 4.2% % 1, % 13.9% 14.1% 14.4% 1,843 1,588 1,373 1, A 2009A 2010A 2011A 2012A 2013E 2014E 2015E 2016E 2017E GDP (US$bn) GDP per capita growth (%) Source: IMF. 80

94 Figure 8: Indonesia population and GDP per capita (current prices) ,209 2,299 2,981 3,512 3,660 4,061 4,724 5,381 6,139 7,023 Source: IMF. 2008A 2009A 2010A 2011A 2012A 2013E 2014E 2015E 2016E 2017E GDP per capita (US$) Population (m) Low per capita consumption At six kg per capita, Indonesia s annual per capita poultry meat consumption is still the lowest among key SEA countries offering opportunities to increase the consumption in the country (Figure 9). Figure 9: Southeast Asia per capita poultry meat consumption (Kg/annum) Indonesia Malaysia Philippines Thailand Vietnam India Source: USDA, Rabobank International FAR, Cheap protein source Poultry meat being one of the cheapest sources of protein is expected to benefit from the growing consumption of animal protein. The increasing gap in meat prices (compared to beef) is very supportive of poultry consumption (Figure 10). Further, regulations on beef imports are also supportive of growth in poultry. Pork on the other hand is limited by religious considerations, given the large Muslim population in Indonesia. Finally, growing health consciousness and the belief that white meat is healthier than red meat is also likely to support poultry consumption in Indonesia. 81

95 Figure 10: Indonesia domestic meat retail price (Rp/Kg) 100,000 80,000 60,000 40,000 20, Beef Source: Ministry of Trade, Indonesia, Key risks Poultry The industry continues to be exposed to outbreaks of diseases such as AI. While larger integrated companies have invested in bio-security measures, there remains a need to invest collectively into preventive measures. The poultry industry is also exposed to volatility in raw material costs and exchange rates (Figure 11). Finally, the Indonesian Government has also raised import duties in the past, and there is a risk that the industry s costs increase due to a future increase in similar duties. Figure 11: Indonesia domestic prices against key feed ingredient prices (Thousand Rp/Kg) (US$/tonne) /1/2011 3/1/2011 5/1/2011 7/1/2011 9/1/2011 1/1/2011 1/1/2012 3/1/2012 5/1/2012 7/1/2012 9/1/ /1/2012 1/1/2013 Poultry price (LHS) Corn (RHS) Soymeal (RHS) Source: Ministry of Trade, Indonesia, Bloomberg, 2013 Corn & Soymeal price refer to CBOT prices. 82

96 ANIMAL FEED Overview The Indonesian animal feed production increased at a CAGR of 8%, growing from 6.8 million tonnes in 2004 to an estimated 12.7 million tonnes in To keep pace with feed demand the installed production capacity of the industry also increased at a CAGR of 6%, growing from 10.7 million tonnes in 2004 to 17 million tonnes in The capacity utilization rates have grown from 63% in 2004 to 75% in 2012 (Figure 12). Figure 12: Indonesia animal feed capacity and production volume Million tonnes % 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Production (LHS) Capacity (LHS) Utilisation (RHS) Above volumes are feed produced by the organized players and does not include home mixer production. Source: Indonesia Feed Mill Association, Rabobank International FAR, This growth has been driven by the poultry industry, which constitutes 83% of domestic feed production (Figure 13). Figure 13: Indonesia feed production Aqua 12% Others 6% Poultry 83% Source: Industry inputs, Rabobank International FAR research,

97 Industry Structure The top two industry players namely CP and Japfa control 54% of the feed milling capacity in the country (Figure 14). The feed industry is consolidated with the top six players accounting for 75% of total capacity. These companies also control capacities in the DOC production sector. Similar to the poultry industry, the oligopolistic structure of the industry gives pricing power to a select few players which puts them in a better position to calibrate the demand-supply equation to maintain margins under difficult market conditions. Figure 14: Indonesia feed production capacity share Wonokoyo 4% CJ 8% Others 22% CP 33% Sierad 5% Malindo 6% Japfa 21% Source: Rabobank International FAR research, Industry sources, Animal feed is manufactured at feed milling plants. These are located in four major areas in Indonesia Jakarta, Banten, Surabaya (East Java) and Medan (North Sumatra). An alternative to commercially manufactured animal feed is on-farm feed manufacturing. This is mainly carried in layer operations and is driven by cost efficiencies. Such manufacturing also takes place in pork and some poultry operations that are not integrated. Farmers who manufacture feed on-farm tend to outsource the supply of premix from manufacturing companies and raw ingredients from brokers. The primary raw materials used by animal feed milling plants are corn and soy meal. Corn Corn represents between 50 and 70% of the total inputs for animal feed production in the country. The importance of corn has been emphasized in several government policies that are directed towards achieving national self-sufficiency for corn. This includes the free seed program and expansion of corn cultivation area. Indonesia has one of the highest self-sufficiency rates for corn in Southeast Asia, averaging close to 90% for the last six years. Corn production in the country is mainly dominated by small, backyard farmers who plant corn as a secondary crop alongside their rice fields. When domestic prices of corn rise these farmers respond by producing more corn than rice. The increasing price for corn in the domestic market, favorable weather, and government policies that are supportive of domestic corn farming have led to growth in domestic corn production, increasing from 6.1 million tonnes in 2002/03 to 8.7 million tonnes in 2008/09 (Figure 15). However, production declined to 6.9 million tonnes in 2009/10 due to pest and diseases outbreaks, as well as reduced harvested area caused by unfavorable weather conditions (El Niño and La Niña). Corn production is estimated to be 8.9 million tonnes in 2012/13. 84

98 Figure 15: Indonesia corn production, consumption and imports ( ) (Thousand tonnes) 12,000 8,000 4, / / / / / / / / / /2012 Production (LHS) Consumption (LHS) Imports (RHS) Source: USDA, ,000 3,000 2,000 1,000 To meet the shortfall between demand and supply Indonesia imports corn from the US, Latin America, Thailand and India. In 2011 Indonesia imported 3.2 million tonnes of corn. India was the biggest exporter to Indonesia accounting for 39% of the imports (Figure 16). The import volume reduced in 2012 due to good domestic production. Figure 16: Indonesia corn import volume share (2011) Others Pakistan 4% 3% Brazil 8% USA 13% India 39% Argentina 33% Source: UN Comtrade, Soymeal Soybean meal typically contributes to 20 to 30% of total animal feed ingredients in the country across all animal protein sectors. There is no commercial production of soybean meal in Indonesia. Though Indonesia has local soybean cultivation and imports soybean from various countries, such soybean is mostly used for human food consumption. Soymeal consumption has shown an increasing trend from 1,638 thousand tonnes in 2002/03 to 3,118 thousand tonnes in 2011/12 (Figure 17). Indonesia imports all of the country s soymeal consumption requirements. Imports demonstrated a declining trend in 2008/09 due to the global financial crisis which slowed down the animal protein industry in Indonesia. 85

99 Figure 17: Indonesia soymeal consumption and imports volume ( ) (Thousand tonnes) 4,000 3,000 2,000 1, / / / / / / / / / /2012 Consumption Imports Source: USDA, Indonesia imports soymeal from Argentina, Brazil and India among other countries. About 97% of the imports come from these three countries out of which the Argentina accounted for 78% of the imported volume in 2011 (Figure 18). Figure 18: Indonesia soymeal imports volume share (2011) Brazil 10% Others Paraguay 1% India 2% 9% Argentina 78% Source: UN Comtrade, KEY DRIVERS AND RISKS Large and growing animal feed market Strong demand for animal feed is expected from commercial operators from the poultry industry and aquaculture operations. Rising meat demand is expected to continue to drive capacity growth for feed milling. Key risks The prices of animal feed raw materials are affected by seasonality. Managing the occasional spikes in feed ingredient prices and higher level of volatility is a key challenge for the feed industry. However, animal feed users have generally displayed loyalty to large suppliers. 86

100 OTHER ANIMAL PROTEINS Beef Indonesian beef production has grown 4% per annum from 397,000 tonnes in 2005 to an estimated 502,000 tonnes in 2011 (Figure 19). Local beef cattle production originates mainly from Java (45%), Sumatra (22%), Sulawesi (13%) and Nusa Tenggara (14%). However, consumption has increased at a much faster rate of 6% per annum between 2005 and 2011, increasing the gap between supply and demand. Figure 19: Indonesia production and consumption of bovine meat (Thousand tonne) (Kg/annum) Production (LHS) Per capita consumption (RHS Consumption (LHS) Source: Ministry of Agriculture, Indonesia, Rabobank International FAR, Low levels of domestic supply and the relatively high retail price of bovine meat has kept Indonesian bovine meat consumption low. Indonesia has a cattle population of 14.8 million head, the majority of which are owned by around 6.5 million farmers residing in rural areas. Most of these farmers do not have proper knowledge of animal husbandry. Indonesia s traditional beef production industry is based around low productivity, smallholder operations. It is estimated that more than 80% of cattle farms in Indonesia are owned by smallholders. Approximately 80% of all Indonesian beef is purchased at wet markets, however, western-style supermarkets are gaining market share. Supermarkets now make up around 20% of total retail beef sales. Unlike wet markets, where beef from native cattle dominates, it is estimated that around half of the beef sold in these western-style supermarkets comes from imported cattle or boxed-beef imports. Indonesia is one of the largest importers of beef products in the region; importing 301,172 tonnes of beef products in 2010 (Figure 20). The imports are mainly dominated by live cattle imports which account for 70% of the total imports. Most of the live cattle and boxed-meat imports come from Australia. 87

101 Figure 20: Indonesia beef import volume ( ) 100, ,000 80, ,000 60, ,000 40, ,000 20,000 50, Meat (LHS) Live Cattle (RHS) Source: Commtrade, Intracen, Rabobank International FAR, Indonesia s ambition is to have a self-sufficient beef industry by Under the self-sufficiency policy, Indonesian officials hope to boost local production and cut imports to 10% of total beef consumption. Previously, Indonesia had hoped to reach this target by 2010, but as it was not achieved, the target was shifted to To fulfill this goal Indonesia started capping import quotas with a declining trend. In 2011 live cattle imports were capped at 500,000 heads and boxed meat imports were capped at 50,000 tonnes with a buffer of another 22,000 tonnes. In 2013 this reduced to 230,000 heads of live cattle and 30,000 tonnes of boxed meat respectively. Beef prices have witnessed a significant jump over the last two years (Figure 21). Figure 21: Indonesia beef import volume ( ) (Thousand Rp/Kg) Jan-11 Apr -11 Jul-11 Oct-11 Jan-12 Apr -12 Jul-12 Oct-12 Jan-13 Source: Ministry of commerce, Indonesia,

102 In recent years ( ), there has been considerable investment in large-scale commercial feedlots and in the associated infrastructure such as yards, loading and unloading facilities and dedicated transport ships to move live cattle from northern Australian ports to Indonesia. Due to economies of scale, access to capital, access to imported feeder cattle and professional management, the commercial feedlot industry has proven to be a better production system than traditional small-holder producers. Most of the growth in feedlot capacity has happened among the well-established companies, with a few new entrants to the industry progressively developing their business overtime. Japfa is the largest feedlot player in Indonesia with capacity close to 10% of the country s beef meat production. The beef industry is likely to be supported by rising population, rising income levels, increasing penetration of beef into traditional cuisines and a slowly declining domestic cost of production. The key risk to the feedlot business remains increasingly restrictive import policies with respect to live cattle. Seafood Indonesia s seafood sector consists of capture fisheries and aquaculture. Despite being a highly fragmented industry with many players, it plays an important role in Indonesia s economy. Seafood is the largest source of animal protein in the country and biggest employer among the animal protein sectors employing over six million people. Indonesian production from both capture fisheries and aquaculture has increased steadily since Total seafood production has grown at 6% per annum increasing from 5.6 million tonnes in 2003 to 8.4 million tonnes in 2009 (Figure 22). The share of aquaculture has increased from 18% to 33% between 2003 and While capture fish segment has grown at 3% per annum between 2003 and 2011, aquaculture segment has grown much faster at 16% per annum. Domestic seafood consumption is high as it remains an affordable protein, especially for the poor and those living in coastal regions. In view of that, government policies in this sector tend to be pro-poor, pro-jobs and pro-growth. As such, considerable resources have been invested in ensuring the growth of the seafood industry. At 31 kg per annum Indonesia has one of the highest per capita consumption levels of seafood within Asia and a much higher consumption than the world average of about 18 kg. Figure 22: Indonesia seafood production (Million tonnes) Capture fisheries Aquaculture Aquaculture does not include seaweed production. Source: FAO, Ministry of Marine Affairs and Fisheries, Indonesia,

103 The growth in aquaculture has also resulted in aqua feed growth. Aqua feed production has grown at 8.8% between 2009 and 2012, reaching 1.2 million tonnes of aqua feed production (figure 23). Figure 23: Indonesia Aquafeed production (Million tonnes) Source: GMPT, Driven by the large domestic population which relies on seafood for their livelihood and protein intake, seafood consumption is likely to continue to grow at 5 to 6% per annum. Aquaculture is likely to be the primary driver of the production growth to meet rising demand. However, the fragmented nature of industry, environmental concerns and risk of diseases outbreak are key industry risks. 90

104 BUSINESS OVERVIEW We are one of Indonesia s leading agri-livestock companies specializing in the manufacturing and distribution of animal feed and the production of animal protein. Our poultry operations, which generated approximately 77.3% and 80.9% of our net sales for the years ended December 31, 2011 and 2012, are our core business activities. Our operations are organized according to the following three key business segments: (i) poultry; (ii) aquaculture; and (iii) beef cattle. Our poultry business segment includes (i) animal feed production and distribution; (ii) day-old chick ( DOC ) breeding and (iii) commercial broiler farming. We are one of Indonesia s largest poultry feed manufacturers, with an approximately 21% market share based on production, as of December 31, 2012, according to Rabobank International FAR. We have a network of poultry feed production facilities located across Indonesia, which allows us to take advantage of raw material procurement opportunities in Indonesia and to better serve our customers whose operations are located throughout Indonesia. For the years ended December 31, 2011 and 2012, we had a total production capacity of approximately 2,796 million kilograms and 2,996 million kilograms, respectively, of poultry feed. We market our poultry feed under the brands of Comfeed and Benefeed which are recognized in Indonesia for their premium product quality and customer service. Our DOC breeding operations involve producing high quality commercial DOCs which we distribute to our own commercial and contract farms and to third party poultry farmers in Indonesia. We are one of Indonesia s largest DOC breeding operations with an approximate market share of 21% as of December 31, 2012, according to Rabobank International FAR. We have rights to sell and distribute Aviagen s Indian River breed of commercial broiler and layer DOCs in Indonesia. Aviagen is a global supplier in the poultry genetics market and the Indian River breed has been specially bred for tropical climate conditions in respect of humidity, heat and disease resistance. All DOC grandparent stock for our DOC breeding and distribution operations are imported from Aviagen s international operations. For the years ended December 31, 2011 and 2012, we produced 469 million and 513 million broiler and layer DOCs, respectively. Approximately 90% of the broilers from our commercial farms are sold as live birds to third party poultry traders for on sale to end consumers, with the remainder being processed by our processing facilities for direct sale to end consumers. In connection with our diversification into downstream poultry operations, we had developed five slaughtering and cold storage facilities as of December 31, 2012 to process broilers from our commercial farms. For the years ended December 31, 2011 and 2012, revenue from our poultry feed, DOC breeding and commercial farms businesses represented approximately 77.3% and 80.9% respectively, of our net sales for the same periods. Our aquaculture business primarily focuses on producing feed for commercially farmed fish and shrimp in Indonesia. For the years ended December 31, 2011 and 2012, we had a total production capacity of approximately 280 million kilograms. For the years ended December 31, 2011 and 2012, revenue from our aqua-feed business represented approximately 7.3% and 7.1%, respectively, of our net sales for the same periods. 91

105 In our beef cattle business, we import cattle from Australia which we fatten to maturity at 90 days before selling them to third parties. We are the largest feedlot player in Indonesia, as of December 31, 2012, according to Rabobank International FAR. In 2012, we processed approximately 69,000 cattle at our three integrated feedlots. Our beef cattle operations contributed approximately 5.1% and 6.1% to our net sales for the years ended December 31, 2011 and 2012, respectively. In addition to wholesale distribution of beef cattle, we also produce a small amount of processed fresh beef and wagyu beef for domestic consumption. Our net sales for the years ended December 31, 2011 and 2012 were Rp15,633.1 billion and Rp17,832.7 billion (US$1,844.1 million), respectively. COMPETITIVE STRENGTHS We are positioned as a well established market leader in Indonesian agri-livestock We are one of the largest companies in the Indonesian poultry feed and breeding industries, with market share of approximately 21% and 21%, respectively, as of December 31, 2012, according to Rabobank International FAR. Competition in the Indonesian poultry feed and breeding business is predominantly domestic, due to strict halal considerations in Indonesia and consumer preference for purchasing live chicken. The domestic industry is made up of small companies that generally operate within a specific area. We believe that our integrated large scale operations, geographic diversification within Indonesia and strong brand reputation enable us to achieve economies of scale in sourcing, production and distribution that are not readily available to our smaller competitors. In addition to our strong market position in the poultry industry, we are also one of the leading aqua-feed and beef cattle businesses in Indonesia. We believe that our national coverage and more than 30 years of cumulative agri-livestock experience puts us in position to maintain a significant share of the industry growth as a result of rising consumption of animal protein in Indonesia. We have a vertically integrated operational platform with diverse geographical reach and economies of scale We are one of Indonesia s largest vertically integrated poultry producers. Our operations cover the entire poultry process, including poultry feed production, DOC breeding, commercial broiler farming and primary processing. The level of our integration also includes supporting infrastructure of after-sales services and laboratories for testing feed ingredients, changes in farming environment, vaccine research and other distribution-related facilities such as feed packaging material production and a transport operation for DOC delivery. Our vertically integrated business gives us control over the entire poultry production process. The vertical integration of our operations enables us to optimize our operations at every stage of the production process. For instance, we have the ability to customize our feed formulation to suit the age and type of poultry, together with the right to purchase a superior strain of DOC suited for tropical climate conditions in respect of humidity, heat and disease resistance. We have improved our breed performance index ( BPI ) significantly from 275 to 304 over five years. Our extensive geographic reach makes us less susceptible to regional risks and allows us to maintain product quality. Our geographically diversified network of operations in 50 breeding farms and 22 central hatcheries throughout the Indonesian archipelago makes us less susceptible to risks associated with market shocks or disease outbreaks in one particular region. In addition, because our feedmills and processing facilities are located near our customers, we are able to ensure product freshness and maintain consistent product quality. 92

106 Our size and vertically integrated position allows us to achieve a higher profit margin. We believe that as one of the largest vertically integrated poultry producers in Indonesia we are able to negotiate better prices when we purchase raw materials and benefit from economies of scale associated with the efficient utilization of capital. In addition, as a vertically integrated producer, we are able to capture profit margin at every stage of the poultry production process. We therefore believe that we enjoy higher profit margins compared to our competitors who are smaller or not fully integrated. We have strong brand reputation and customer relationships We distribute our poultry and aquaculture feed under the brand names Comfeed and Benefeed. Due to our long and successful track record of offering quality products and comprehensive customer support services, both Comfeed and Benefeed are now widely recognized as premium brands with strong value-added attributes. Our commitment to quality extends to all of our other key operations. In poultry breeding, we have the right to distribute a superior strain of broiler DOC well-suited to the Indonesian climate and consumer taste. To support our customer base, as of December 31, 2012, we have established an extensive customer service network throughout Indonesia manned by 1,451 qualified technical and marketing staff who offer a range of support services to help farmers optimize livestock performance. We believe that our leadership position is the result of more than 30 years of relationship and brand building with Indonesian farmers. We maintain a high standard of biosecurity We believe that our ability to maintain a comprehensive biosecurity system at international standards is crucial to protecting our poultry from disease. Our biosecurity measures include locating our DOC farms and hatcheries in isolated or remote areas away from high-density poultry production centers, traffic control, sanitation, disinfection and regular biosecurity audits. Our biosecurity system also covers our distribution of approximately 1.4 million DOCs daily to poultry farms within Indonesia. In addition, we also monitor the health of our poultry at our own laboratories, which serves as an early disease detection system. To better protect our poultry, in 2008 we acquired PT Vaksindo Satwa Nusantara ( Vaksindo ) which enables us to conduct vaccine research and develop vaccines internally for our poultry breeding business. We operate in an attractive industry with significant barriers to entry The poultry industry will benefit directly from macroeconomic growth in Indonesia. According to Rabobank International FAR, Indonesia s 6 kilograms per capita per annum consumption of chicken, compared to Malaysia s per capita per annum chicken consumption of 34 kilograms, is one of the lowest in Asia. We commenced our poultry operations in 1971 and since then we have incurred significant amounts of capital expenditure to build our poultry feed operations, processing facilities and supporting infrastructure to develop a vertically integrated operating structure. Our long track record, strong customer relationships, national distribution network and technical expertise provide us with significant competitive advantages and serve as barriers to entry for companies seeking to enter the Indonesian poultry business. We believe we will be able to maintain our market leadership position in the Indonesian animal protein industry with our extensive investment in breeding, hatchery and logistical infrastructure. 93

107 Our management team is committed and experienced and has a strong track record Our management team has an average of 19 years of extensive experience in the animal protein industry. Members of our core management team led us through the Asian economic crisis, the Avian Influenza epidemic and the 2008 global financial crisis. Our management team has shown a strong track record of growth, both organically and through acquisitions and, we believe, is well-positioned to steer us through our long-term growth plans. We also have an experienced workforce and believe we are an employer of choice, which is reflected by our low attrition rate. STRATEGY We intend to use the following key capacity expansion strategies to deliver profitable growth. Maintain our leadership and market position in Indonesia s agri-livestock sector Our poultry feed and breeding operations have been the core of our business since To meet the growing demand for poultry meat, which is the primary source of animal protein for the average Indonesian household, we intend to expand our capacity in animal feed production and DOC breeding. Between 2013 and 2015, we plan to increase our total feed capacity from our current capacity of approximately three million tonnes to approximately four million tonnes, in We also intend to increase our current breeding capacity from approximately 546 million to approximately 900 million DOCs per annum by the end of To reinforce the synergy with our poultry feed and DOC breeding activities, we plan to increase our commercial farming capacity from approximately 270 million birds to approximately 410 million birds per annum as well as expand our slaughtering and primary processing capacity to approximately 21 million birds per annum by end of We believe that by strengthening our vertical integration in poultry production, we will be able to capture additional revenue and increase our profit margins along the value chain through increased market penetration and cost efficiencies. In addition, we also seek to continue to expand our leadership position in our aqua-feed and beef cattle businesses. We intend to accelerate expansion of our aqua-feed output and diversify production and distribution sites geographically to provide better market coverage in key aquaculture regions of Indonesia. We plan to increase the existing production capacity and the number of our aquaculture feedmills from five to seven by the end of 2015 and thereby expanding our production capacity from 280,000 tonnes to 430,000 tonnes of aqua-feed per annum. We also intend to diversify our beef cattle supply by breeding local cattle species and optimize our beef cattle products to target the growing number of affluent urban dwellers in Indonesia. Continue to improve our poultry production technology and ensure high quality biosecurity systems We intend to continue to focus on improving the efficiency of our poultry feed and breeding business by introducing internationally adopted farm management processes and focusing on research and development. Our research and development activities are focused primarily on improving our feed formulation, the survival rate of our DOC and BPI and on breeding a superior and high growth poultry breed with improved resistant to disease and suited to Indonesian climatic conditions and consumer preferences. We will continue to be committed to implementing high quality biosecurity measures. For instance, on September 3, 2008, we acquired Vaksindo, a company engaged in poultry and animal vaccine production that is one of only three companies in Indonesia with the facilities to research H5N1 virus. In order to continually develop and advance Vaksindo s biosecurity research, it has worked 94

108 and collaborated with scientists from universities from Europe and the U.S. We believe that Vaksindo s technical capacity will continue to provide us with world leading biosecurity protection measures. We will continue to adapt and improve our biosecurity measures. Focus on our core poultry business to capitalize on the increase in demand in Indonesia We intend to maintain our focus on our core poultry business while growing our aquaculture and beef cattle businesses. According to Rabobank International FAR, consumption of poultry has grown at 4.2% per annum from 2000 to 2012, increasing from four kilograms per capita per annum consumption in 2000 to six kilograms per capita per annum consumption in We plan to further strengthen our significant expertise in the Indonesian poultry industry and capitalize on the increase in demand for animal protein in Indonesia. We believe that the profit margins for the poultry feed and breeding business are significantly higher than the profit margins for the consumer food business because the consumer food business requires intensive marketing that leads to higher sales and marketing expenses. Continue to invest in human capital to support sustainable growth In connection with our company-wide capacity expansion, we continue to invest in human capital. We are committed to training our employees and developing their skills in order to ensure that we are providing consistent and high quality products to our customers. We have introduced training programs and human resource development on technical issues, health and safety and best business practices. Between January 1, 2011 and December 31, 2012, we conducted over 150 training classes for 32 company units, subsidiaries, affiliates including key customer groups. We will continue to develop and implement initiatives for recruiting, developing and retaining top performing employees. We believe our continued investment in human capital will ensure that we remain an employer of choice, which will allow us to retain employees thereby reducing our recruitment and training costs while enhancing overall productivity. PRODUCTION FACILITIES AND CAPABILITIES As at December 31, 2012, we had 161 production facilities, including 14 poultry feedmills, 50 DOC farms, 22 hatcheries, 50 of our own commercial farms, six poultry processing facilities, four beef cattle feedlots and one abattoir and five aqua-feedmills, located throughout Indonesia. OUR OPERATIONS Our operations are organized in the following key business segments: Poultry; Aquaculture; Beef cattle. Poultry We are a leading Indonesian poultry company. Our poultry business is our largest revenue contributor, accounting for approximately 77.3% and 80.9%, respectively, of our net sales for the years ended December 31, 2011 and For the years ended December 31, 2011 and 2012, net sales from our poultry business were Rp12,078 billion and Rp14,425 billion (US$1,491.7 million), respectively. Although poultry is the primary form of animal protein in Indonesia, consumption levels per capita have been as low as compared to other Asian countries. However we expect this to grow going forward. We believe that growth in consumption levels, together with continued economic and population growth, offer significant opportunities for our business. 95

109 The vertical integration of our poultry production chain can be seen in the following four principal steps: Feedmill Breeding Commercial Farming Primary Processing Feedmill We are one of the largest poultry feed manufacturers in Indonesia, with approximately 21% market share, as of December 31, For the years ended December 31, 2011 and 2012, our total production capacity was approximately 2,796 million kilograms and 2,996 million kilograms, respectively, of poultry feed per annum. As of December 31, 2012, we operated 14 poultry feedmills in nine locations throughout Indonesia. We believe that our scale of operations allows us to maintain cost efficiencies and offers us access to domestically produced raw materials, which are a large component of our business. For the years ended December 31, 2011 and 2012, sales from our poultry feed production business segment were Rp7,404 billion and Rp8,039 billion (US$831.3 million), respectively. The following chart sets forth the typical manufacturing process for our poultry feed: RAW MATERIALS MIXING PRODUCTION PACKING WAREHOUSE Corn, Soya bean meal and others Ground raw material & Vitamins and other components Bagging Grinding Dosing Pelleting Packing Finished product storage Ground raw material Mixing Pellet Crumble Bagged finished product Approximately 80.0% of our poultry feed is produced in pellet or crumble form and can be fed directly to poultry. We market our poultry feed under two premium poultry feed brands, Comfeed and Benefeed. We also produce poultry feed in concentrated forms. We offer a range of poultry feed targeted at each stage of a bird s maturity cycle with size of pellet and nutritional content adjusted to maximize development of the bird at each stage of maturity. We believe that our success in feed production is primarily attributable to our feed formulation expertise. Our qualified nutritionists utilize a range of raw materials to create feed formulas that are tailored to the particular breeds and climatic conditions in Indonesia. We offer poultry feed that is customized to the needs of different poultry types, namely feed that caters to the age of the broilers, feed for the breeder DOCs and feed for the layer DOCs. 96

110 We believe that our ability to customize our feed offers an important benefit to our customers as specifically-formulated poultry feed has been proven to enhance growth rates, while also being cost efficient. Our poultry feed products are continually redesigned to take into account research developments, particularly relating to nutrition and health of the poultry and with the goal of reducing the consumption of each bird required to grow it to maturity and the amount of time such maturity process typically requires. We have been successful in reducing the total amount of feed required per bird on average from kilograms per bird to kilograms per bird in the period from December 31, 2007 to December 31, 2012 and the average maturing period from 35 days to 32 days in the same period. This increased our BPI from 275 to 304 for the period from December 31, 2007 to December 31, 2012 and resulted in cost savings for our customers and reduced waste produced by the poultry during this maturing process. For the years ended December 31, 2011 and 2012, the utilization rate of our poultry feedmills was 78% and 80%, respectively. Raw materials account for approximately 90.0% of our poultry feed production costs. We procure raw materials for our feed production segment from both domestic and international suppliers. We believe that we are competitively placed to secure a stable supply of raw materials at competitive prices from both domestic and international suppliers, with many of whom we have established relationships. When making raw materials purchases, we seek to take advantage of economies of scale to lower costs and improve our profit margins. We purchase the majority of our corn and soybean meal on the spot market, in line with market practice in Indonesia, but, depending on market conditions, may also enter into forward purchase contracts. Typically 50.0% of our poultry feed mix is made up of corn, which provides a carbohydrate component, with other principal ingredients including soybean meal, which provides a protein component. Other components may also include rice bran, wheat bran, meat-bone meal, fish-bone meal, tapioca and vitamins. Depending on market prices, we may also utilize corn substitutes including wheat, broken rice, sorghum and tapioca. For the year December 31, 2012, approximately 80% of the corn we purchased was sourced domestically, primarily from East Java, Lampung and other parts of Indonesia. We strategically locate our corn dryers in corn belts to ensure better access to fresh local corn supplies and to leverage on seasonal supply fluctuations. We are able to buy and store corn at our storage facilities when market prices are low. Corn that has been dried can typically be stored for approximately six months. Our inventory levels may vary depending on whether it is a harvest season or festive season, with average inventory levels typically at two to three months supply. These capabilities to source corn domestically enable us to lower our costs. Our imported corn is primarily from India, Argentina, and the United States. Another key raw material component of our feed is soybean meal, all of which is imported. Our soybean meal is imported primarily from Argentina, India, Brazil, the United States and Ukraine. Although the precise formula of our feed varies and is determined, at least in part, by the availability and prevailing market prices of raw materials and corn in particular, we seek to produce poultry feed of consistent quality. We maintain strict quality control practices, with shipments of raw materials tested for quality compliance on delivery. 97

111 We operate an advanced feed technology system which includes a stringent quality assurance program, in addition to which we conduct regular bench-marking activities, including laboratory tests. 13 of our 14 feedmills have ISO 9001:2000 certification with the remaining one feedmill expected to receive such certification in the end of Approximately 40% of our poultry feed production is sold directly to domestic farmers and independent distributors located throughout Indonesia by our in-house sales team, with the remaining approximately 60% utilized in our DOC breeding and commercial farming business. Our top five poultry feed external customers accounted for 12.6% and 12.0% of our net sales in poultry feed for the years ended December 31, 2011 and 2012, respectively, with no single customer exceeding 5% of total net sales. In addition, our feed production operations include certain supporting businesses. Our factory in Wonoayu, East Java, for example, produces approximately 6.5 million feed bags a year which are used to pack our poultry and aqua-feed products. We also have small operations in trading excess corn and selling copra pellets and edible oils. For the years ended December 31, 2011 and 2012, our supporting businesses generated 3.2% and 2.6%, respectively, of our net sales. Breeding Our DOC production output for the years ended December 31, 2011 and 2012 was approximately 25% and 24% of the total domestic market for DOC, respectively. For the years ended December 31, 2011 and 2012, net sales from our breeding business segment were Rp1,134.8 billion and Rp1,270.1 billion (US$131.3 million), respectively. Our grandparent stock DOC is sourced from Aviagen, which supplies our Indian River layer DOCs that are sent to our grandparent stock breeding farms. The grandparent stock remain at our grandparent stock breeding farms for a period of approximately 24 weeks (known as the growing period ), after which the grandparent stock reach reproductive maturity (from weeks 25 to 67). During this period, fertilization occurs and hatching eggs are produced, which are then sent to our grandparent stock central hatchery. Fertilized hatching eggs are placed in a holding room for a period of seven days, after which they are placed in an industrial incubator for 21 days to produce our parent stock. The parent stock undergoes the same process at our parent stock breeding farms to produce final stock DOC. In 2012, each of our laying parent stock produced an average of approximately 171 viable eggs while each our laying grandparent stock produced an average of approximately 151 viable eggs. We sold a total of approximately 469 million and 513 million DOCs, of which approximately 50% were sold to our commercial farms and contract farmers for the years ended December 31, 2011 and 2012, respectively. The remaining DOC stock was sold to third party customers. 98

112 The following chart sets forth the steps in our breeding process: GRANDPARENT PARENT GRANDPARENT STOCK BREEDING GRANDPARENT HATCHERY PARENT STOCK BREEDING PARENT HATCHERY COMMERCIAL FARM Grandparent DOC Feed and other Parent Stock Hatching Egg Parent Stock DOC Feed and other Final Stock Hatching Egg Final Stock DOC Feed and other Growing Period (0 24 weeks) Holding Room (7 days) Growing Period (0 24 weeks) Holding Room (7 days) Growing Period (32 days) Productive Period (25 66 weeks) Incubator (21 days) Productive Period (25 66 weeks) Incubator (21 days) Parent Stock Hatching Egg Parent Stock DOC Final Stock Hatching Egg Final Stock DOC Live Chicken to Wet Market We import high grade Indian River broiler and layer grandparent stock DOC from Aviagen s various international operations. Long-term cooperation between Aviagen and us has resulted in the refinement of the breed to suit Indonesia s tropical climate, leading to improved production performance. This is also linked to the development of optimal-performance feed formulations which are produced in our feedmills. Our contracts with Aviagen and its subsidiaries provide us with the rights to sell and distribute Indian River DOC in Indonesia and other areas approved by Aviagen and provide for the purchase of grandparent stock DOC at preset contract prices, which we believe acts as a significant barrier to entry for potential new competitors and provides us with a key advantage over our competitors. To increase operational efficiency within our breeding business, we have implemented a biosecurity system that focuses on sanitation and disinfection (including full immersion sanitation), ensuring optimal flock health. As a result, we believe our farms enjoy higher productivity of grandparent and parent stock, lower mortality rates, reduced losses from mishandling and greater consistency in DOC size and weight. We have also introduced a performance benchmarking program that is targeted at improving our breeding operations by comparing the quality of our DOCs to DOCs produced by local farms and DOCs produced by farms in other countries. In 2008, we acquired PT Vaksindo Satwa Nusantara, one of only three Indonesian companies with research capabilities on the H5N1 (avian flu) virus. This acquisition has enabled our breeding operations to develop vaccines internally. 99

113 As of December 31, 2012, we operated 50 DOC breeding farms and 22 hatcheries located in locations throughout Indonesia. These facilities are enclosed and climate-controlled and are typically located in isolated areas which offer improved levels of biosecurity. See Production Facilities and Capabilities. For the years ended December 31, 2011 and 2012, the production capacity of our DOC farms and hatcheries was 489 million birds and 546 million birds, respectively, and the utilization rate of our DOC farms and hatcheries was 98% and 96%, respectively. Commercial farming Typically approximately 90% of our commercial farming operations are through contract farmers, who grow the DOCs on our behalf until maturity, in accordance with standard operating procedures established by us. At harvest time, the sales to customers are controlled by us. We then either utilize the mature chickens in our poultry processing business segment or sell them as live chickens or carcasses. To ensure quality control, we require contract farmers to implement our techniques, including requirements as to feed and vaccinations. Our contract farmers are, primarily, independent local commercial farmers. The rationale for this farming model is that it gives us increased flexibility in adjusting to fluctuations in regional demand, access to markets which are not covered by our own commercial farms and minimize our capital expenditure requirements relating to our commercial farming operations. In addition, through our profit sharing arrangement we have in place with our contract farmers, contract farmers are incentivized to produce high quality chickens. The remaining 10% of our commercial farming operations are at farms directly owned and operated by us. The broilers produced by our own farms are mainly for used in our poultry processing business segment and for sale as live birds. Commercial farming in our own farms provides us with the ability to control the costs and quality of the supply of poultry to our poultry processing plants. As of December 31, 2012, we owned 50 farms in locations throughout Indonesia. We plan to expand our commercial farming operation capacity from 270 million birds to 410 million birds by end This is consistent with our plan to reinforce the integration of our core operations in poultry feed production and poultry breeding. In addition to contract farming, we grow DOCs to maturity at farms owned by us for use in our poultry processing business segment and for sale as live birds. Commercial farming in our owned farms provides us with greater ability to control the costs and quality of the supply of poultry to our poultry processing plants. For the years ended December 31, 2011 and 2012, net sales from commercial farming were Rp3,539.0 billion and Rp5,116.5 billion (US$529.1 million), with a utilization rate of 82% and 82%, respectively. Primary processing In Indonesia, approximately 80% of poultry is sold as live birds or as fresh meat at traditional wet markets, some of which also act as slaughter yards. As of December 31, 2012, we operated five slaughtering and primary processing plants in Bogor, Bali, Makassar, Salatiga and Purwakarta, with a combined annual production capacity of 33 million kilograms as of December 31, Our finished products include freshly chilled or frozen whole chicken, chicken parts and chicken meat. For the years ended December 31, 2011 and 2012, the utilization rate of our poultry processing facilities was approximately 91% and 88%, respectively. 100

114 Throughout our modern processing plants, we are able to meet stringent customer demand for consistency, freshness and hygiene. Our products have been certified as having met the highest quality standards within the industry, and we have HACCP and halal certifications. We have also implemented comprehensive occupational health protection and hygiene measures at our processing plants including protective clothing and comprehensive cleansing and disinfection procedures for all processing staff and temperature controlled environments. Aquaculture Our aquaculture business segment is managed by our wholly-owned subsidiary, PT Suri Tani Pemuka, which is a leading producer of aqua-feed with minor interests in fish and shrimp ponds. Net sales for the years ended December 31, 2011 and 2012 from our aquaculture business were Rp1,147.9 billion and Rp1,266.8 billion (US$131.0 million), respectively. Aqua-Feed Production For the year ended December 31, 2012, approximately 97% of our net sales from our aquaculture business were derived from our aqua-feed business. Our aqua-feed has many of the same basic components as our poultry feed, although there are differences in the production process. We believe we offer customers a complete solution to the growth requirements of aqua-life. All our floating feed is specific-pathogenic free which makes it less susceptible to bacterial contamination. We offer two premium aqua-feed brands, Comfeed and Benefeed. Most of the fish and shrimp feed that we currently produce is sold directly to local farmers and independent distributors located throughout Indonesia. We will substantially increase our aqua-feed production by commencing operations at one additional feedmill by the end of 2013, two additional feedmills by the end of 2014, and one additional feedmill by the end of 2015, and increase our geographical market coverage to meet growing demand for our feed products. As of December 31, 2012, we had five aqua-feedmills located in Sidoarjo, Banyuwangi, Cirebon, Lampung, and Medan. For the years ended December 31, 2011 and 2012, the production capacity of our aqua-feedmills was approximately 280 million kilograms, and the utilization rate of our aqua-feedmills was 67% and 70%, respectively. For the year ended December 31, 2012, approximately 94% of our total production was fish feed and the other 6% was shrimp feed. Supporting Facilities for Aqua-Feed To support our sales in the aqua-feed business, we operate fish and shrimp hatchery ponds to breed commercial grade fingerlings or seedlings for aqua-feed customers who have insufficient means or know-how to acquire suitable starter-species for commercial farming under specific localized environmental conditions. We believe such value-added auxiliary facilities are important to our success in aqua-feed distribution. In addition, we operate an eel farming operation, breeding Anguilla Bicolor and Anguilla Marmorata eels to maturity for sale as ready to consume products. We operate our eel operation in accordance with typical Japanese methods in order to produce a Kabayaki style finished product. As of December 31, 2012, we operated three ponds located at Banyuwangi and Karang Tekok in order to produce approximately 300 tonnes of live eels per year for domestic and export markets. Beef Cattle We have one of the largest beef cattle feedlot operations in Indonesia. As of December 31, 2012, we had four beef cattle feedlots and one abattoir located throughout Indonesia. For the years ended December 31, 2011 and 2012, the production capacity of our beef cattle feedlots was 165,000 head of cattle for each year, and the utilization rate of our beef cattle feedlots was 43% 101

115 and 42%, respectively. The majority of our beef cattle are sold live at wet markets. Net sales from our beef cattle segment were Rp790.9 billion and Rp1,084.1 billion (US$112.1 million), respectively, for the years ended December 31, 2011 and Our beef cattle business segment focuses on fattening our beef cattle from approximately 300 kilograms to approximately 500 kilograms. The following chart sets forth the production process of our beef cattle: Breeding Fattening Wet market Breeder cattle Feeder cattle (local) + Feeder Cattle (imported) Traders Joining natural/artificial insemination (3 months) Butchers Own abattoir Pregnancy (9 months) Fattening (3 months) Calving Live cattle Boning Growing (12 months) Packaging Feeder Cattle Warehouse Our breeder cattle undergo natural or artificial insemination at our breeding farms after which they are pregnant for approximately nine months. The calves then grow for a period of approximately 12 months before they are sent to our feedlots as feeder cattle. After a period of approximately three months during which the feeder cattle undergo the fattening process at the feedlots, the cattle will be sent to the wet markets for sale to distributors, or to our abattoir for processing into beef products for consumption. Breeding is a relatively small component of our beef cattle business and the majority of our beef cattle business comes from the fattening stage. Biosecurity Measures We believe that we have one of the most stringent biosecurity systems in the poultry industry. Our biosecurity measures include isolation and traffic control, sanitation and disinfection, modern farming practices, vaccination and medication, ongoing monitoring, auditing and education of our staff, suppliers and customers. Our DOC breeding farms, in particular, are located in separate, isolated locations, in order to minimize the risk of the spread of infection. We did not suffer any significant losses during the outbreak of Avian Influenza in late 2003/early 2004 and late 2005 and we believe that this was, at least in part, due to our biosecurity measures and stringent quality control policies. In addition, we are not aware of any cases of infections 102

116 having occurred at any of the facilities operated by our contract farmers. None of our processing or production facilities have been quarantined. In addition, our acquisition of PT Vaksindo Satwa Nusantara has enabled our breeding operations to develop vaccines internally. Although we have not experienced any material adverse financial impact as a result of the outbreaks of Avian Influenza, it nevertheless poses a significant risk for us in the future and there can be no assurance that we will not be severely affected by an outbreak in the future. We believe that our biosecurity measures and stringent quality control policies provide us with a degree of protection against infection. However, there can be no assurance that the policies and procedures that we have implemented to date, and which we keep under regular review, will provide us with adequate protection in the future. See Risk Factors Risks Relating to our Operations and the Industry Outbreaks of livestock diseases could have a material adverse effect on our business. We conduct ongoing staff training on biosecurity measures which we believe is important to ensure safe and hygienic operation of our business. We have ISO certification in 13 of our poultry feedmills and expect the remaining poultry feedmill located at Purwakarta to receive ISO certification by the end of To maintain Health and Safety Environment (HSE) Standards, including OSH (Occupational Safety Health), we have introduced a HSE system implemented by a HSE committee in each of our operational locations. INVENTORY CONTROL Inventory levels are centrally monitored by our purchasing department in Jakarta. We utilize a first in, first out (FIFO) policy to maintain freshness. We maintain inventory insurance for losses from certain damage and seek to minimize shortage, shrinkage and demurrage by implementing tight performance standards for employee management of inventory. We generally seek to maintain approximately 1.5 to 2 months inventory stock of raw materials, with 2 to 2.5 months inventory stock for seasonal raw materials, such as locally-sourced corn. Our raw materials inventory stock is dependent upon the timing of harvests, festive seasons, actual and expected weather conditions, prevailing world market prices and our cashflow position. We engage in stringent quality control testing of incoming raw material deliveries utilizing sophisticated lab equipment and reject deliveries that fail to meet our specifications. Corn and certain other raw materials must be kept dry and we therefore monitor moisture content in our silos and operate corn dryers at strategic locations. As of December 31, 2012, we operated nine stand-alone corn dryers located near to our main corn suppliers to facilities (two corn dryers in Central Java, one in South Sulawesi, one in South Kalimantan and five in the Lampung corn belts). Timely delivery and management of inventory is also essential in our DOC breeding business as we deliver approximately 1.4 million DOC per day and deliveries must be made within 24 hours. SALES AND MARKETING STRATEGIES We market all our feed products under two main brands: Comfeed and Benefeed. The development of these brands into reputable and recognized brands, with the requisite degree of brand equity, has taken many years to achieve, through consistent product quality and high service standards. We believe our brands are well-known throughout the industry and to our customers and offer an excellent value proposition to customers who are looking for quality, consistency and reliability. 103

117 Distribution All our feed production, breeding and/or commercial farms and distribution facilities are located within close proximity of our key customers. We currently have an operational presence in 15 key regional hubs across the Indonesian archipelago, thereby reducing logistics costs, decreasing time to market, allowing us better access to local raw material sources, and placing us closer to our customers. This proximity to customers also allows us to develop close working relationships. Management of our distribution and logistic activities is dealt with in-house at various regional hubs as part of our overall supply chain management efforts. Physical delivery services are generally outsourced for feed and other products, whereas chick-vans for DOC delivery are maintained and managed in-house. The decision whether to outsource or manage our activities in-house is largely determined by the sensitivity of the products and the ability of existing vendors to deliver to the standards required by us and our customers. Below is a table of our distribution centers for our key product categories: Feed Location Type of Distribution Center Distribution Coverage Medan Feedmill Aceh, North Sumatra, Riau and West Sumatra Lampung Feedmill South Sumatra & Lampung Palembang Depot South Sumatra Tangerang Feedmill West Java Cirebon Feedmill West Java Sragen Two Feedmills Central Java Yogyakarta Depot Central Java Sidoarjo Feedmill East Java, Kalimantan & Bali Balikpapan Depot East Kalimantan Samarinda Depot East Kalimantan Bali Depot Bali & Lombok Makassar Feedmill South & Central Sulawesi Manado Depot North Sulawesi Grobogan Feedmill Central Java Purwakarta Feedmill West Java, Banten, Central Java and West Kalimantan Bati-bati Feedmill South Kalimantan and Central Kalimantan Padang Feedmill West Sumatra Surabaya Feedmill East Java Cikande Serang Feedmill West Java DOC (Hatchery Locations) Location of Distribution Center Palembang Lampung West Java Distribution Coverage Palembang, Padang, Jambi & Pekanbaru Lampung & Bengkulu West Java, West Kalimantan, Bangka-Belitung 104

118 Location of Distribution Center Central Java East Java Sulawesi and Kalimantan Distribution Coverage Central Java East Java & Bali Sulawesi, Southern & Eastern Kalimantan Beef cattle Location of Distribution Center Probolinggo Baluran, Situbondo Bekri Jabung Distribution Coverage East Java and Jakarta East Java Jakarta, West Java, Riau, Padang, Palembang, Lampung Jakarta, West Java, Riau, Padang, Palembang, Lampung For the domestic market, most of our logistics infrastructure is coordinated in-house, particularly for areas where we have an established presence. For poultry feed, we distribute approximately 40% directly to our key customers and the rest through agents or poultry shops which have long-term, established relationships with us. We maintain control over these agents through strict credit limits, terms of payment and uniform product pricing, as well as requiring agents to pledge assets including land. For the year ended December 31, 2012, sales to the largest of these feed agents constituted approximately 3.9% of our feed sales. DOCs are usually distributed directly to our final customers, who typically place an order on cash before delivery terms. Live broilers produced on our commercial and contract farms are sold directly to regional wholesalers on COD basis while chilled or frozen chicken are sold to wholesalers on prevailing seasonally-adjusted credit terms. Our branded beef products are distributed to major supermarket chains with limited exposure to credit risks. Technical and After Sales Services We seek to provide after-sales servicing, technical support and comprehensive solutions directly to our customers. We provide on-site guidance to our customers to assist them to use our feed products effectively and advise our customers on any technical issues that they may encounter in the poultry breeding process. We offer products tailored to key customers individual specifications and work with them to maximize their overall operational success, which in turn can lead to greater demand for our products. CUSTOMER CREDIT We extend credit to a limited number of customers in connection with sales of our poultry, poultry feed and aqua-feed. Our credit terms for poultry third party sales typically provide for payment within one month or less. We take a number of factors into consideration when agreeing to credit terms with our customers, including volumes purchased, customer relationship and historical track record for timely payment. For the years ended December 31, 2011 and 2012, we wrote off bad debts totaling Rp835 million and Rp85 million, which represented 0.061%, and 0.009%, respectively, of total trade receivables. 105

119 LOGISTICS We maintain our own fleet of more than 169 vehicles for our DOC business so as to maintain our high biosecurity standards and to ensure the timely delivery of DOCs. All DOCs must be shipped to farms within 24 hours of their arrival into Indonesia. We outsource our other transportation requirements to several Indonesian trucking companies. COMPETITION We believe that having a local presence and relationships are key drivers of success in the Indonesian poultry industry and can lead to better control and management over costs and quality (including freshness) and the cultivation of long-term relationships with customers. As in other developing countries, the poultry industry in Indonesia is typically a live bird industry with localized competition. As Indonesia is a predominantly Muslim country, it is important that poultry be slaughtered and maintained in a halal manner in accordance with Muslim religious requirements. Due to this and other factors, including import restrictions, imports of poultry products into Indonesia have historically been relatively low. Integrated operations including ours are able to bundle feed and DOC sales in order to obtain better access to farming customers and to provide fully-integrated solutions (including technical services and buy-back of stock) to our customers. We are also able to work closely with vaccine suppliers and other equipment suppliers to offer a full range of products and services to farmers. We also seek to provide technical and marketing input to our customers to enhance their competitiveness. We believe integration affords us a significant competitive advantage over non-integrated operators. We believe our primary competitor in the markets in which we operate is PT Charoen Pokphand Indonesia Tbk, which also seeks to offer fully-integrated solutions to customers. The Indonesian poultry industry, while ahead of other types of animal protein, is still evolving technologically, particularly in relation to biotechnology improvements in breed selection. We believe that the right breed, adjusted to local conditions, can lead to higher profits for farmers due to lower mortality, better growth rates and better feed-to-weight conversion ratios. The Indian River breed in particular, which we use exclusively, has been specially bred for tropical climate conditions in respect of humidity, heat and disease resistance. INSURANCE We have in place the following insurance policies: property all-risks insurance for our fixed assets and inventory in relation to any damage caused by accidents, fire civil disorder, and/or natural disasters; all-risks insurance in respect of physical loss or damage to grandparent, parent and final DOC stocks, excluding losses arising from Avian Influenza, as such insurance is not customary and is unavailable in Indonesia on commercially reasonable terms; social security insurance for our employees (Employee Social Security or Jamsostek ), as required by Indonesian law, including pension insurance unemployment insurance work injury insurance and medical insurance; earthquake insurance in relation to any damage caused by earthquakes, volcanic eruptions or tsunamis; and motor vehicle insurance for our motor vehicles in relation to any damages. 106

120 Our directors believe that the above insurance policies that we currently hold are adequate for our business and operations, and we will review our insurance coverage annually. See Risk Factors Risks Relating to Our Operations and the Industry Our insurance coverage may be inadequate. INTELLECTUAL PROPERTY RIGHTS We have the right to distribute and market the Indian River brand from Aviagen pursuant to supply agreements. Our distribution and use rights of these trademarks are for all areas in Indonesia. We also have trademarks in respect of the Japfa name and our key brands including Multibreeder, Comfeed and Benefeed. REGULATIONS AND LICENSES Government and Environmental Regulations Our operations and facilities are subject to various regional, state and local environmental laws and regulations governing, among other things, grading, quality control, labeling, sanitary control and waste disposal. Under these laws and regulations, we are also required to obtain permits from governmental authorities, including, but not limited to, wastewater discharge permits. Our feedmills are subject to governmental regulation and inspections. In addition, we maintain our own inspection program to assure compliance with our own standards and customer specifications. We have made, and will continue to make, capital and other expenditures as necessary in order to ensure compliance with existing environmental, health and safety laws and regulations and permits. As at the date of this document, we do not know of any major capital expenditures necessary to comply with such laws and regulations. However, as environmental, health and safety laws and regulations are becoming increasingly more stringent, including those relating to animal wastes and wastewater discharges, there can be no assurance that we will not be required to incur significant costs for compliance with such laws and regulations in the future. We have a focus on health safety and environmental matters and have, to date, not experienced any adverse environmental events or major accidents of any of our facilities. We maintain waste treatment facilities at our facilities in accordance with applicable regulatory requirements. A portion of solid waste produced at our facilities is sold as fertilizer to third parties. For more information on regulations, see Regulation. Licenses We hold a number of licenses and permits which are essential for the conduct of our business. 107

121 Poultry Feed Production In relation to our industrial activities, our principal operating licenses are an Industrial Business License and an Industrial Expansion Business License, which were issued by the Indonesian Capital Investment Coordinating Board ( BKPM ), and are valid for the duration of our operational activities. Companies that are engaged in the animal feed production industry are also required to prepare an Environmental Monitoring Efforts Report/Environmental Management Efforts Report which must be approved by the relevant authorities. These reports have been prepared in respect of each of our applicable factories. We have also been issued with Animal Feed Quality Certificates by the Animal Feed Quality Examination Centre under the Ministry of Agriculture and Animal Feed Registration Numbers by the Director General of Farm Production under the Ministry of Agriculture. The Animal Feed Registration Numbers have been issued for each of our farming locations and are valid for a period of five years and may be extended once for a further period of five years, following which it will be necessary for us to re-register in order to obtain a new Animal Feed Registration Number. Poultry Farming and Breeding and Beef Cattle For our poultry farming activities, we have been granted a Farm Business License by the regional Livestock Agencies in Minahasa and Lampung which is valid for the duration of our operational activities and a Farm Expansion Business License issued by BKPM which is also valid for the duration of our operational activities. As is required in relation to our poultry feed production activities, we are also required to prepare Environmental Monitoring Efforts Reports/Environmental Management Efforts Report. These reports must be approved by the relevant authorities under the State Ministry of the Environment. These reports have been prepared in respect of each of our applicable factories. In relation to imports of our grandparent stock, we are required to obtain an Animal Entry Permit which is applied for, and issued, in relation to each import entry. For such import operations, we are required to obtain principally, a Producer Identification Import Number (APIP) issued by BKPM, a Certificate of Animal Health from authorized institutions of the country of origin of the grandparent stock, a certificate of origin from the breeder in the country of origin and a Temporary Animal Quarantine Permit which is valid for a period of one year, prior to the issuance of a Release Certificate by the quarantine veterinarian under the Quarantine Body, Directorate General of Livestock, Ministry of Agriculture which releases our grandparent stock from quarantine. We are also required, on an occasional basis and subject to local governmental regulations, particularly during an outbreak, or if the area is considered to be at risk for avian flu, to obtain an Avian Influenza Free Certificate from the Regent/Mayor of the Agency of Livestock. Aquaculture In relation to our shrimp culturing activities, we have obtained a Fisheries Business License which remains valid for the duration of our operational activities. We are required to prepare Environmental Monitoring Effort Reports/Environmental Management Effort Reports in relation to our aquaculture activities, which reports have been prepared in respect of each of our ponds and have been approved by the relevant authorities under the State Ministry of the Environment. An Environmental Impact Assessment is carried out by authorized institutions in relation to fisheries which exceed 50 hectares in size. The latest Environmental Impact Assessment was carried out on December 22, 1997 which was further approved by the Ministry of Agriculture on January 12, 1998 for ponds in South Kalimantan. 108

122 Slaughter House, Cold Storage and Processing Facilities We have obtained a Food Business Unit Veterinary Control Certificate for Food from Animals issued by the regional government institution which is valid for as long as we operate. We have also obtained a Large Trade Business License which was issued on June 9, 2011 and remains valid until June 9, As with our poultry feed, farming and breeding operations, we are required to prepare an Environmental Efforts Report/Environmental Management Efforts Report, which have been prepared for each of our slaughterhouse and cold storage facilities. EMPLOYEES As at December 31, 2012, we directly employed 15,049 people, with 12,196 employed in our poultry business, 1,217 in our aquaculture business, 449 in our beef cattle business and 1,187 in our supporting businesses. We currently have approximately 138 management staff, 1,721 sales and marketing staff, 9,383 production staff and 3,807 employees working in other supporting functions. The following table sets forth the breakdown of our employees by business and staff type for the periods indicated: Business Segment As at December 31, Poultry ,749 11,527 12,196 Aquaculture ,002 1,217 Beef cattle Supporting businesses , ,187 Total ,409 13,653 15,049 Staff Type Management Sales and marketing ,554 1,422 1,721 Production ,134 8,644 9,383 Supporting function ,588 3,453 3,807 Total ,409 13,653 15,049 We believe we have a good relationship with our employees. Many of our employees have been with us since our inception, which we believe gives us a competitive edge as our employees have developed a longstanding familiarity with our customers and their needs, enabling us to respond swiftly and efficiently to changes in our customer requirements. We believe we are an employer of choice, which is reflected by our low staff turnover rate of approximately 4.5% during 2012 at the supervisory level and above. Other than our feedmill employees who are unionized, we do not have any formal labor unions. We have established a system of employee cooperatives which work closely together with our management team to ensure that the welfare of our employees is protected. We also conduct regular bipartite forums between employees and management to encourage open communication. We have not experienced any serious labor unrest. 109

123 We employ a range of qualified technical staff who have industry-recognized qualifications comprising graduate, masters and doctorate academic and professional qualifications, as well as significant previous experience in the industry. On commencing employment with us, staff are required to undertake induction and basic skills training. Our technical staff are required to undertake our in-house Total Productive Maintenance training program which includes specific training in relation to machinery and our management staff receive communication and leadership skills training. We also send our employees to participate in seminars and training sessions held by external institutions. We consider strong leadership skills to be a key factor to the success of our business and reinforce this message through the Japfa Manager-Leader Training Program. In 2011 and 2012, 336 of our middle to top-level managers attended the program, which was conducted by our own Training Communication Department. LITIGATION We are not currently a party to any proceedings that, if adversely determined, might have a material adverse effect on our business, financial condition, results of operations or prospects. 110

124 RELATED PARTY TRANSACTIONS Overview Under the regulations of OJK, any conflict of interest transaction by an equity issuer or a public company must be approved by a majority of the shareholders who have no conflict of interest with such transaction and/or are not affiliates of the director, commissioner or principal shareholder who has a conflict of interest (the Independent Shareholders ). A conflict of interest is defined under OJK regulations to mean a conflict between the economic interests of the company, on the one hand, and the personal economic interests of any member of the board of commissioners, board of directors or principal shareholders (a holder of 20% of the issued shares, directly or indirectly, of a public company) in a transaction which can be detrimental to an equity issuer or a public company due to the unfair price determination. OJK has the power to enforce this rule. We believe that there are currently no conflicts of interest between us and our board of commissioners, our directors or our principal shareholders or any of their affiliates. However, we have entered into the following transactions with related parties all of which we believe were on an arm s length basis: Sales to Related Parties Sales to related parties represented 3.47% and 2.56% of our total sales for the years ended December 31, 2012 and 2011, respectively. Sales to PT So Good Food. We sell goods to our related party, PT So Good Food. For the years ended December 31, 2012 and 2011 total sales to PT So Good Food amounted to Rp559.1 billion and Rp257.4 billion, respectively. Sales to PT So Good Food Manufacturing. We sell goods to our related party, PT So Good Food Manufacturing. For the years ended December 31, 2012 and 2011 total sales to PT So Good Food Manufacturing amounted to Rp60.2 billion and Rp143.3 billion, respectively. Purchases from Related Parties Purchasers from related parties represented 17.03% and 7.58% of our total sales for the years ended December 31, 2012 and 2011, respectively. Purchases from Annona Pte Ltd. On October 20, 2010, we entered into a Supply Agreement with our related party, Annona Pte Ltd. Annona Pte Ltd is a global trader company which can provide credit facilities for purchases of raw materials. Under this agreement, Annona Pte Ltd has agreed to restrict its sales margin in relation to sales made to us to a maximum of 5% per annum. The agreement is valid for 5 years until For the years ended December 31, 2012 and 2011 total purchases from Annona Pte Ltd amounted to Rp2,863.3 billion and Rp1,064.7 billion, respectively. Purchases from PT So Good Food. We purchase goods from PT So Good Food. For the years ended December 31, 2012 and 2011 total purchases from PT So Good Food amounted to Rp169.3 billion and Rp114.5 billion, respectively. Purchases from PT So Good Food Manufacturing. We purchase goods from PT So Good Food Manufacturing. For the years ended December 31, 2012 and 2011 total purchases from PT So Good Food Manufacturing amounted to Rp3.9 billion and Rp5.9 billion, respectively. 111

125 Agreements with Related Parties Lease agreements with PT Ometraco Arya Samanta. On January 2, 2012, we entered into two lease agreements with PT Ometraco Arya Samanta for the lease of a building measuring approximately 1,158 square meters, located in Jl. Daan Mogot KM 12 No. 9, Cengkareng Timur, Jakarta Barat, for an aggregate consideration of Rp108.6 million per month. These agreements are valid until August 20, Lease agreement with PT Omega Propertindo. We entered into five lease agreements with PT Omega Propertindo for the lease of a building measuring approximately 6,177 square meters located at 4th, 5th, 6th, 7th, 8th and 9th floor in Wisma Millenia, Jl. MT. Haryono, Kav. 16, Jakarta Selatan for an aggregate consideration of Rp 55,000 per square meter per month. These agreements is valid until Security service agreement. On May 7, 2012 we entered into a security service agreement with PT Jaya Sakti Mandiri Unggul for security services provided in relation to procurement of security personnel service for an aggregate consideration of Rp1,854.5 million per month. This agreement has expired and the we are currently in the process of extending the term of this agreement. Insurance agreement. On December 31, 2012 we entered into a earthquake and property all risk insurance policy insurance policy agreement with PT Pan Pacific Indonesia. The premium payable under this policy is Rp25,388 million per month and this policy provides Rp76.0 billion in insurance coverage. This agreement has expired and the we are currently in the process of extending the term of this agreement. This policy is valid until December 31, In addition to the transactions listed above, we make use of certain of the assets of our shareholders as part of our ordinary course of business, including the use of a club, apartments and a boat owned by the shareholders, for which we pay the shareholders compensation in line with the fair market value of such services. Payments to the shareholders for the use of these services generally total less than US$1 million per year. 112

126 MANAGEMENT In accordance with Indonesian law, we have both a board of commissioners and a board of directors. The two boards are separate and no individual may serve as a member on both boards. The rights and obligations of each member of the board of commissioners and board of directors are regulated by our articles of association (the Articles ) and by the decisions of our shareholders at a general meeting of shareholders. Under the Articles, the board of directors must consist of at least three and, no more than five, members, including a president director and a vice president director. The president director, vice president director or another director appointed by the president director can legally bind us. The board of commissioners must have at least three and, no more than five, members, including a president commissioner and a vice president commissioner. BOARD OF COMMISSIONERS The principle function of the board of commissioners is to give advice and recommendations to, and to supervise, the board of directors. Members of the board of commissioners are appointed and removed by shareholder vote at a general meeting of shareholders. The board of commissioners is currently comprised of two members, including the president commissioner, as set out in Deed No. 86 dated 7 June 2012 ( Deed No. 86/2012 ), following the recent passing away of our previous commissioner, Radityo Hatari, on March 29, We intend for a new commissioner to be appointed at our next annual general meeting of shareholders. The current members of the board of commissioners are as follows: Name Position Age Position Held Since Syamsir Siregar President Commissioner Hendrick Kolonas Vice President Commissioner Syamsir Siregar has served as our President Commissioner from 1998 to 2005 and was re-appointed as our President Commissioner in Before joining our company, he served in the army of the Republic of Indonesia for over 30 years. He graduated from the National Military Academy and the School of Army Commanding Staff. Hendrick Kolonas has served as our Vice President Commissioner since He has extensive experience in financial and banking industry. He graduated from Schiller International University, United Kingdom, with a masters degree in Business Administration and The University of Hull, United Kingdom, with a masters degree in Banking Administration. BOARD OF DIRECTORS Members of the board of directors are appointed and removed by shareholder vote at a general meeting of shareholders. The board of directors is comprised of four directors, including the president director and the vice president director. The board of directors is responsible for the management of our business. 113

127 Based on Deed No. 86/2012, the current members of the board of directors are as follows: Name Position Age Position Held Since Handojo Santosa President Director Bambang Budi Hendarto.... Vice-President Director Ignatius Herry Wibowo Director Tan Yong Nang Director Handojo Santosa joined our company in 1986 as manager in the edible oil division at Nilam in Surabaya. He has served as our President Director since 1997, prior to which he served as Deputy President Director. He has extensive experience in the industry through working in various positions in our business, including poultry feed, breeding and processing, and the aquaculture division. Bambang Budi Hendarto joined our company in 1978 and he has served as our Vice-President Director since 1997, prior to which he served as a Director. He graduated from Brawijaya University, Malang, Indonesia, in 1972 with a qualification in Animal Husbandry, and he has since completed further education in Holland, Taiwan and the United States in relation to animal nutrition. Ignatius Herry Wibowo joined our company as a director in He started his career in 1977 in the banking profession. Prior to joining our company, he held the position of President Director at PT Bank Tiara Asia Tbk. He graduated from Diponegoro University, Semarang, Indonesia in 1977 with a degree in Economics. Tan Yong Nang joined our company as a director in He is a Chartered Financial Analyst and prior to joining our company, he held the posts of managing director, chief executive officer and project director at several companies in Indonesia, Singapore and Hong Kong. He graduated from Cambridge University with a masters degree in Economics. SENIOR MANAGEMENT TEAM The following table sets forth our senior management team: Name Office/Division Age Joined our Company Antonius Harwanto Head of Feed Division Achmad Syaifuddin Head of Aquaculture Division Samuel Wibisono Head of Beef Division Marcus Koesbyanto Head of Corporate Information Technology and Corporate Financial Controller Kevin Monteiro Head of Corporate Finance Arif Widjaja Head of Trading and Corporate Procurement Coordinator Eddy Widadi Head of Human Resources

128 Antonius Harwanto has served as Commissioner of PT Multibreeder Adirama Indonesia Tbk (which has now merged with the Company), and as a Head of our Feed Division, since He graduated from Tujuh Belas Agustus University, Surabaya in Prior to joining us, he worked for EMKL NV Pasir Mas. His professional expertise is in Marketing. Achmad Syaifuddin Haq was appointed Head of Aquaculture Division in He graduated from the University of Widya Mandala in Surabaya, Faculty of Economics in He has almost 40 years had extensive management and operational experience in the animal feed and aquaculture industries. Samuel Budiharso Wibisono currently serves as our Head of Beef Division. He graduated from the California State University, Long Beach, California, USA with a Bachelor of Science Marketing. He has been directly involved in the beef cattle business since Marcus Koesbyanto currently serves as our Head of Corporate Information Technology and Corporate Financial Controller. He graduated from the University of Pajajaran in Bandung, Faculty of Economics in Prior to joining us, he worked for several companies operating in the agribusiness sector and his professional background is Finance & Accounting. Kevin Monteiro currently serves as our Head of Corporate Finance. He qualified as a Chartered Accountant in Australia after graduating from Monash University, Australia, with a Bachelor of Economics degree. Prior to joining us, he was a partner in Callaway & Hecht, a chartered accounting firm based in Melbourne, Australia. Arif Widjaja currently serves as our Head of Trading and Corporate Procurement Coordinator. He has an MBA from the University of Portland, Oregon, USA. He has extensive experience in purchasing and logistics specifically within the animal feed sector. Eddy Widadi currently serves as our Head of Human Resources. He graduated from Diponegoro University, Semarang, Faculty of Law in Prior to joining us, he worked in a Japanese company operating as a general contractor. His professional experience has been focused on human resources and law. COMPENSATION Payment of compensation to the commissioners and directors is determined at the annual general meeting of shareholders. For the year ended December 31, 2012, the aggregate compensation (including bonuses) paid to the commissioners and directors was Rp42,002 million (US$4.3 million). 115

129 PRINCIPAL SHAREHOLDERS Our authorized capital is divided into 10,660,552,910 shares as follows: 7,748,932,910 Series A shares with a par value of Rp200 per share; and 2,911,590,000 Series B shares with a par value of Rp40 per share. As at the date of this Offering Circular, our shareholding composition was as follows: Shareholder Number of Shares % Japfa Holdings Pte. Ltd. (1) Series A Shares ,260,566,615 Series B Shares ,870,133,120 Sub-total ,130,699, Public Series A Shares ,488,366,295 Series B Shares ,456,880 Sub-total ,529,823, Total Series A Shares ,748,932,910 Series B Shares ,911,590,000 Sub-total ,660,522, % (1) Japfa Holdings Pte. Ltd. is beneficially owned by family trusts of Handojo Santosa and his siblings. 116

130 REGULATION Animal Feed Production Industry Regulation of the Indonesian animal feed production industry falls within the jurisdiction of the Directorate General of the Agriculture and Chemical Industry. All industrial activities are regulated by Industrial Law No. 5 of 1984 ( Law No. 5/1984 ). All industrial businesses, including the animal feed production industry, must obtain an Industrial Business License which is issued by the Industry and Trade Department at the regency or municipality level, and the license shall remain valid for as long as the company carries on its industrial activities. Industrial licenses are regulated pursuant to Government Regulation on Industrial Business License No. 13 of 1995 ( Government Regulation No. 13/1995 ). Environmental licenses are considered to be an important requirement in conducting industrial business within Indonesia. A company which carries on animal feed production activities must prepare an Environmental Monitoring Efforts Report or an Environmental Management Efforts Report, as a prerequisite to an application for an Industrial Business License. The objective of environmental licenses is to ensure that industry activities are not conducted in a manner that may be harmful to the environment. Companies that are engaged in production of animal feed must comply with provisions set out in Ministry of Agriculture Decree Number 240/Kpts.OT.210/4/2003 on Guidance on Animal Feed Production ( Decree of 240/2003 ), as well as Minister of Agriculture Regulation No. 65/Permentan/OT.140/9/2007 on Guidance on the Supervision of Animal Feed Quality ( Regulation No. 65/2007 ), and Minister of Agriculture Regulation Number 19/Permentan/OT.140/4/2009 on-stock Feed Registration Procedures and Requirements ( Regulation No. 19/2009 ). Under Regulation No. 19/2009, animal feed which is manufactured for the purpose of sale and distribution must comply with certain quality standards and minimum technical requirements, and it is therefore necessary to register animal feed production operations with the Director General of Farm Production. After completing registration, the company is required to submit an application to the Head of Livestock Agency, following which an examination will be carried out to assess the quality of the animal feed which the company produces. Provided that the feed complies with the relevant quality requirements, the company will receive confirmation that the feed has passed the examination process and the will be granted an Animal Feed Quality Certificate by the Animal Feed Quality Examination Center under the Ministry of Agriculture or private accredited Animal Feed Quality Examination Center. Before the animal feed can be produced and distributed for sale, the feed must be registered with the Director General of Farm Production under the Ministry of Agriculture. Poultry and Cow Breeding and Farming The poultry and cow breeding and farming industry is regulated by specific laws and regulations relating to the importation of animals and, in particular, importation of certain breeds, as well as separate laws and regulations in relation to poultry and cow farming and breeding. Under Government Regulation No. 16/1977, poultry husbandry in Indonesia is classified according to four sub-categories, namely: (i) laying pullet husbandry; (ii) broiler husbandry; (iii) final stock husbandry; and (iv) other poultry husbandry. Cow husbandry is classified into two categories, namely (i) beef cattle husbandry; and (ii) dairy cow husbandry. Generally, the main laws and regulations that govern farming activities in Indonesia are Law No. 18 of 2009 on Animal Husbandry and Health ( Law No. 18/2009 ) and the implementing regulations that were issued prior to the enactment of Law No. 18/2009 such as Government Regulation No. 16 of 1977 on Farm Business ( Government Regulation No. 16/1977 ) and Minister 117

131 of Agriculture Decree Number 404/KPTS/OT.210/6/2002 on the Guidance of Licensing and Registration of Farm Businesses ( Minister Decree No. 404/2002 ), which remain valid as long as they are not in conflict with Law No. 18/2009. Under Law No. 18/2009, every farm must obtain a Farm Business License to conduct farming activities above certain scale. Farms under such scale will be granted a Farm Registration Certificate by the local regent/mayor in the area where the farm is located. The aforementioned Farm Business License may be granted once a company has obtained in-principle approval for its farming activities. Further, Minister Decree No. 404/2002 stipulates that (i) farms with more than 10,000 laying pullet stocks are required to obtain a Farm Business License while farms with 10,000 laying pullet stocks are required to obtain a Farm Registration Certificate; (ii) farms with more than 15,000 broiler stocks/cycle are required to obtain a Farm Business License while farms with 15,000 broiler stocks/cycle are required to obtain a Farm Registration Certificate; and (iii) farms with more than 100 cows are required to obtain a Farm Business License while farms with 100 cows are required to obtain a Farm Registration Certificate. Principal Approval Under Minister Decree No. 404/2002, a company must apply to the local regent/mayor for principal approval prior to obtaining a Farm Business License. The principal approval is granted to enable Farm Business License applicants to start administrative and physical preparation activities in relation to, among other things, their location permits, building permits, expatriate permits, installation permits and other permits required by the prevailing laws and regulations. The principal approval is valid for one year and may be extended once for another one year term. Farm Business License The Farm Business License is issued by the local regent/mayor and is granted to a company that has obtained principle approval and is ready to conduct production activities. The Farm Business License is valid as long as the license holder conducts its farm business activities and may be revoked if the license holder: (a) (b) (c) (d) (e) (f) (g) does not conduct business activities within the 3 months after the issuance of the Farm Business License or ceases its activities for one year; moves the farm location without prior consent from the license issuer; expands its farm business without obtaining a Business Expansion License; does not submit a farm business report to the relevant authority three consecutive time; transfers the license to another party without prior notification to the license issuer; returns the license to the license issuer; and does not conduct infectious animal disease prevention and eradication and work safety procedures in accordance with the prevailing laws and regulations. 118

132 Business Expansion License A company may expand its Farm Business License by obtaining a Business Expansion License. The approval of the Business Expansion License is not required for farm companies that extend and/or expand their business by less than 30% of the number of animals allowed under their license. Local regulations also have an important role in regulating farm businesses, particularly in relation to poultry husbandry businesses. Some local governments may require farm businesses to obtain an Avian Influenza-Free Certificate, particularly in local areas which are at a risk of an Avian Influenza outbreak. Typically, local services (including the Livestock Agency at Regency or City level) will conduct Avian Influenza examinations of local husbandry sites. For more information, see Regulations relating to the prevention and control of Avian Influenza. Health issues are considered to be important in relation to poultry importation activities. Poultry which is imported to Indonesia must be guaranteed as being free from any kind of disease that may harm humans and other animals in Indonesia or which may be harmful to the environment generally. In order to avoid the spread of any animal disease in Indonesia, all animals which are imported are subjected to quarantine procedures before being granted an entry permit to Indonesia. The purpose of these quarantine procedures is to ensure the health of all animals being imported, given the potential significance of a spread of disease. Such quarantine procedures may include examination of individual animals, isolation, observation, treatment, confiscation, rejection, destruction or release, depending upon the outcome of a veterinary examination. Indonesia has a number of laws and regulations governing quarantine requirements and procedures which include, among others, Law No. 16 of 1992 on Animal, Fish and Plant Quarantine, Government Regulation No. 82 of 2000 on Animal Quarantine, and the Minister of Agriculture Decree No. 422/Kpts/LB.720/6/1988, as amended by the Decree of Minister of Agriculture No. 212/Kpts/LB.720/4/2001 on Animal Quarantine Regulation. In order to guarantee the health of all imported animals, a health certificate is required to be granted by the country of origin and the transit country, and such a health certificate must be submitted for verification at designated entry locations. Imported animals that are quarantined will be examined by quarantine veterinarians, and animals that are confirmed as being free from disease may be released from quarantine and are permitted to enter Indonesia. According to Indonesian laws and regulations, a number of documents are required for animal importation including, among others, (i) a Certificate of Animal Health and Certificate of Origin (both of which are granted by the country of origin), as set out in the Minister of Agriculture Decree No. 07/Permentan/OT.140/1/2008 on Requirement and Procedure of Livestock Semen, Seed and Cattle Import,, (ii) a Temporary Animal Quarantine Permit (in order to put the imported animals into quarantine) issued by the Quarantine Body under the Directorate General of Livestock and (iii) an Entering Permission Letter, confirming authorization for the animal(s) to enter Indonesia, as well as (iv) a Release Certificate issued by the veterinarian under the Quarantine Body, Directorate General of Livestock which declares that such animal(s) may be released from quarantine when certified to be healthy and free of disease. Aquaculture The key Indonesian aquaculture laws and regulations include, among others, Law No. 31 of 2004 on Fisheries,, as amended by Law No. 45 of 2009, on Fisheries, Decree of Minister of Marine and Fisheries No. KEP.02/MEN/2007 on Good Aquaculture Practices ( Decree No. 02/2007 ), Decree of the Minister of Marine and Fisheries Number KEP.01/MEN/2007 on Requirements on System Quality and Safety of Fisheries Products on Production, Processing and Distribution Process ( Decree No. 01/2007 ), Decree of the Minister of Marine and Fisheries Number 119

133 KEP.28/MEN/2004 on General Guidance for Shrimp Farming ( Decree No. 28/2004 ), Regulation of the Minister of Marine and Fisheries Number PER.19/MEN/2010 on System Quality and Safety of Fisheries Products Control ( Minister Regulation No. 19/2010 ), and Regulation of the Minister of Marine and Fisheries Number PER.12/MEN/2007 on Licenses in Fish Farm Businesses ( Minister Regulation No. 12/2007 ). Fisheries, including shrimp ponds and farms, must obtain a Fisheries Business License in order to perform fisheries business activities. In addition, fisheries with capital investment facilities must obtain a Capital Investment Recommendation of Fish Farm prior to obtaining capital investment approval or a business license. Whether or not a Fisheries Business License and Capital Investment Recommendation of Fish Farm will be granted to a business will depend upon the size and location of the fisheries, shrimp ponds and farms in question. For shrimp ponds which employ expatriates and which are located in more than 12 nautical mills and/or in two provinces or more, the license and recommendation will be granted by the General Director. The Governor is responsible for granting Fisheries Business Licenses and Capital Investment Recommendations of Fish Farms in respect of fisheries, shrimp ponds and farms which are domiciled within the Governor s administrative jurisdiction, which are located within four to 12 nautical mills and/or consist of two regencies or more, and which do not employ expatriates or use foreign capital. For fisheries, shrimp ponds and farms located in less than four nautical mills and which do not employ expatriates, the Fisheries Business License and Capital Investment Recommendation of Fish Farm will be granted by the Regent or Mayor of the relevant administrative jurisdiction in which the fisheries, pond or farm is located. Businesses which operate shrimp ponds must also apply Good Aquaculture Practices, which is a form of guidance targeted at ensuring that shrimp ponds apply healthy and safe farming practices in carrying out their activities. Good Aquaculture Practices must be applied in order to obtain a Certificate of Good Aquaculture Practices. Shrimp ponds that do not obtain such certification are prohibited from distribution their products as exported raw materials. Businesses which operate shrimp ponds must take into account the environmental impact which might occur as a result of such activities. Such businesses are required to prepare an Environmental Management Efforts Report or an Environmental Monitoring Efforts Report, which are aimed at ensuring that businesses are not carrying out activities which may be harmful to the environment. Large shrimp ponds of over 50 hectares are required to carry out an Environmental Impact Assessment. For more information, see Environmental Regulation. The activities of fisheries businesses are required to comply with certain provisions pursuant to the Decree No. 28/2004 and Decree No. 02/2007. Under Minister Regulation No. 19/2010, fisheries products must be certified, in order to ensure their quality and safety for distribution to, and consumed by, humans. Business units that fulfill these quality and safety requirements in respect of their fisheries products are granted certificates, namely: (a) (b) (c) Certificate of Good Aquaculture Practices, granted by the General Director of Fisheries Farming; Certificate of Good Fish Handling Practices, granted for fish freights and/or fishing vessels by the Chief of Fishing Port or the Head of Provincial Fisheries Agency; Certificate of Good Fish Handling Practices, granted for fish collection, suppliers or distribution unit by the Head of the Technical Implementation Unit of the Fish Quarantine and Inspection Agency; 120

134 (d) (e) Certificate of Hazard Analysis Critical Control Point, granted by the Head of the Fish Quarantine and Inspection Agency; and Certificate of Health, granted by the Head of the Technical Implementation Unit of the Fish Quarantine and Inspection Agency, Head of Laboratory or other competent authority. Breeding and farming activities of fisheries businesses are monitored by the competent authority, which is a segment of the Ministry of Marine Affairs and Fisheries in the Republic of Indonesia. Such monitoring activities are conducted in order to ensure the quality and safety of fisheries products for human consumption. Post-harvest Industries (such as slaughter houses and cold storages) Minister of Agriculture No. 13/PERMENTAN/OT.140/1/2010 on Requirements of Slaughter House for Ruminansia Animal and Meat Cutting Plant ( Minister Regulation No. 13/2010 ). In order to ensure and guarantee the quality and health of meat produced, slaughter houses and cold storage operations must obtain a Veterinary Control Number (Nomor Kontrol Veteriner, NKV ). The granting of the NKV is dependent on fulfillment of certain hygiene and sanitation technical requirements for buildings, facilities and infrastructures. Under Minister Regulation No. 381/2005, prior to obtaining an NKV, slaughter houses and cold storage operations must fulfill certain administrative and technical requirements. The administrative requirements include obtaining a Deed of Establishment, a Domicile Statement Letter, a Trading Business License, a Taxpayer Registration Number and a Nuisance License. The technical requirements include obtaining an Environmental Management Efforts Report or an Environmental Monitoring Efforts Report, in order to ensure that the company s activities are not being carried out in a manner that is harmful to the environment. The NKV must be stamped on the packaging of meat, eggs, and milk. The meat must also be certified by a Statement Letter of Meat Hygiene by the Veterinary Doctor at the slaughter house. Minister Regulation No. 13/2010 regulates the building or building area of a slaughter house. The slaughter house must comply with the technical provisions of the Indonesian National Standard of Slaughter Houses for Animal (SNI ) and the Indonesian National Standard of Slaughter Houses for Poultry (SNI ). In addition, cold storage facilities at slaughter houses that also produce chilled or frozen fresh meat must be a specific size based on the number of frozen products stored there and must be maintained at a required temperature. A company that conducts animal slaughtering or meat cutting business must obtain an Animal Slaughtering and/or Meat Cutting Business License, together with a Slaughtering House Construction License from the Regent/Mayor of the administrative jurisdiction in which the slaughter house is located. The Animal Slaughtering and/or Meat Cutting Business License can be revoked if the company conducts slaughtering and/or meat cutting activities in a location for which it has not obtained a Slaughtering House Construction License. Companies are also required to have a veterinary doctor who is certified in the veterinary social hygiene sector supervise their slaughter houses. General Trade Under Minister of Trade Regulation No. 39/M-DAG/PER/12/2011 on Second Amendment of Minister of Trade Regulation No. 59/M-DAG/PER/9/2012 on Issuance of Trade Business License ( Minister Regulation No. 39/2011 ), companies which conduct General Trade activities must obtain a Trade Business License, which is issued by the Industry and Trade Service. The Trade Business License will remain valid and can be used for as long as the company carries on its trade business activities. General trade is regulated generally by the Minister of Industry and Trade Decree. 121

135 Regulations relating to the prevention and control of Avian Influenza In order to prevent, control, and eradicate the Avian Influenza virus, the Directorate General of Husbandry on Department of Agricultural has issued Decree No /Kpts/PD.610/F/12/2008 on the amendment of Decree of the Directorate General of Husbandry No. 45/KPTS/PD.610/F/06.06 on the Standard Operational Procedure (SOP) of Avian Influenza Epidemic Control in Indonesia ( Decree No /2008 ). The SOP has been a model for every state and regional government in taking action to prevent, control, and eradicate Avian Influenza throughout Indonesia. The Head of Husbandry Services or related government offices that have responsibility for Husbandry and Animal Health Affairs in every province or regency in Indonesia, together with the relevant society, will supervise the performance of controls of Avian Influenza in their region. The SOP provides directions and guidance in relation to the action which must be taken by Poultry Business Industries in order to prevent the spread of Avian Influenza in Indonesia. The SOP applies to all sectors of the poultry industry which consist of Large Scale Poultry and Breeding Farms (Sector 1 and Sector 2), Middle Scale Poultry Farms (Sector 3), Small Scale Poultry Farms (Sector 4) and Poultry Markets, Poultry Shelters, Poultry Slaughter Yards and other locations of poultry nurseries in, among other locations, Zoos, Bird Parks, Animal Parks and Poultry Breeding and Conservation Centers. The contents and chapters of the SOP are: (1) Internal policy on biosecurity, which stipulates the procedures for the first diseases eradication defense which is conducted in order to prevent all possible contact/spread of disease from an infected farm. Our internal policy on biosecurity procedures applies to every poultry farm, shelter and slaughter yard and all veterinary equipment. (2) Depopulation, disposal, and compensation, which stipulates the (i) effective eradication of infected or health poultry in one cage or in a restricted area (depopulation); (ii) disposal of remaining eradicated stock, carcasses, infected eggs, feathers, equipments, husk waste/cage bases or anything that is already infected that cannot be disinfected (disposal); and (iii) compensation for poultry business whose poultry are depopulated with a stipulated amount of compensation (compensation). (3) Vaccination, which stipulates the procedures and techniques for vaccinations, with the Government is responsible for the vaccination for Sector 4 of the poultry industry (Small Scale Poultry Farm). (4) Supervision and limitation of poultry traffic, products, equipment, and poultry waste, which stipulates rules which are targeted at managing traffic, products, equipment, and waste in relation to, among other things, DOC, broilers, layers, eggs, and stock feed. (5) Early detection and pre-diagnostic judgment, which stipulates the initial action which must be taken, and the procedure of reporting any cases of suspected Avian Influenza. This chapter also stipulates directions in relation to rapid testing to detect Avian Influenza and the making of a pre-diagnostic judgment on the basis of clinical, pathological, anatomical, and epidemical indicators. (6) Poultry restocking, which stipulates terms and conditions for re-stocking poultry back into the cage after all disposal, disinfection and cage emptying actions are completed in accordance with the stipulated procedures. (7) Public Awareness Guidance on Avian Influenza which stipulates guidance to promote public awareness on the dangers, effects and prevention steps for certain infectious animal disease. 122

136 Decree No /2008 governs the SOP which is to be applied in every region throughout Indonesia, although it does not stipulate any sanctions for poultry businesses who fail to comply with the SOP. However, regional government authorities may enact Regional Regulations, Governor Regulations or Regent Regulations in relation to the prevention, control, and eradication of Avian Influenza pursuant to Decree No /2008, which may stipulate sanctions for non-compliance. Each individual region may therefore govern different terms and conditions for the treatment of Avian Influenza problems according to local considerations. There are a number of prevailing regulations which apply in several regions and which govern prevention of Avian Influenza as follows: (a) Governor of Banten Regulation No. 1/2007 on Restriction of Poultry Care in Living Environment and Eradication on Avian Influenza (A1)/Bird Flu which Affects Human in Banten Province. This regulation has the same general content to the SOP and is governed by Decree No /2008. However, there are several articles in this regulation which are conducted by all poultry caretakers (including poultry business operators), such as the obligation to obtain a statement of health for poultry (Surat Keterangan Sehat Unggas) from the relevant local authority as stated in article 10 paragraph (1), which applies to anyone who takes care of poultry, as well as article 8 which applies to all birds, and which requires a statement of health for poultry from the relevant local authority. This regulation also requires the relevant local authority to perform supervisory duties at three month intervals, unless an Avian Influenza case occurs, in which case the authorized officer must take visible measures involving all relevant authorities to address and overcome the situation. Article 14 provides that: (1) the Husbandry office or related government office which has responsibility for Husbandry Affairs shall, together with participation from the relevant society, perform certain supervisory duties; and (2) such supervisory duties shall be performed at three month intervals unless a case of Avian Influenza occurs, in which case, as noted above, the authorized officer must take visible measures involving all relevant authorities to address and overcome the situation. (b) Governor of West Java Regulation No. 19/2007 on Intensification for Control of Bird Flu Virus ( Avian Influenza ) in West Java. The terms, conditions, and requirements stipulated in this regulation are similar to the SOP which is stipulated in Decree No /2008. (c) Governor of Lampung Instruction No. 2/2007 on Prevention, Control, and Eradication of Avian Influenza Disease/Bird Flu in Lampung Province. This regulation stipulates certain instructions and directions to the Regent or Mayor of Lampung, the Head of Health Office of the Lampung Province, the Head of Husbandry and Animal Health Office of the Lampung Province, and all Lampung societies to follow certain specified procedures for prevention, control, and eradication of Avian Influenza. 123

137 Environmental Regulation Environmental protection in Indonesia is governed by various laws, regulations and decrees. On October 3, 2009, Law No. 32 of 2009 on Protection and Management of Environment ( Law No. 32/2009 ) replaced Law No. 23 of 1997 on Environmental Management. However, the implementing regulations in respect of Law No. 32/2009 have not yet been issued to date. Therefore, the existing regulations, including Law No. 32/2009, Government Regulation No. 27 of 1999 on Environmental Impact Analysis (Analisa Mengenai Dampak Lingkungan or AMDAL ) and Decree of the State Minister of Environmental Affairs No. 05 of 2012 on Types of Businesses/Activities that Require Environmental Impact Analysis ( Minister Decree No. 05/2012 ) are still applicable to the extent they do not conflict with Law No. 32/2009. Minister Decree No. 05/2012 stipulates, among other matters, that companies whose operations have an environmental or social impact must obtain and maintain an AMDAL document, which according to Government Regulation No. 27 of 2012 on Environmental Licenses ( Government Regulation No. 27/2012 ) consists of Guidelines on Environmental Impact Analysis (Kerangka Acuan Analisis Dampak Lingkungan or Ka ANDAL), an Environmental Impact Analysis (Analisis Dampak Lingkungan or ANDAL), an Environmental Management Plan (Rencana Pengelolaan Lingkungan or RKL) and an Environmental Monitoring Plan (Rencana Pemantauan Lingkungan or RPL). Where the AMDAL document is not required, a company must prepare an Environmental Management Effort (Upaya Pengelolaan Lingkungan) and an Environmental Monitoring Effort (Upaya Pemantauan Lingkungan). Law No. 32/2009 introduced the environmental license (Izin Lingkungan). Pursuant to Law No. 32/2009, any company that has an AMDAL or UKL/UPL must also submit an application to obtain an environmental license (Izin Lingkungan) issued by the Ministry of Environmental Affairs, governor, mayor or regent, as applicable. Government Regulation No. 27/2012 stipulates that the application for an environmental license must be submitted along with its supporting documents, including: (i) AMDAL or UKL/UPL documents, (ii) deed of incorporation of the business entity, and (iii) profile of business/activity. The granting of an environmental license is based on either (i) an environmental feasibility study carried out by an independent third party, which is approved by the AMDAL Assessment Commission (Komisi Penilai Amdal), the Minister of Environmental Affairs, governor, mayor or regent, as applicable or (ii) a recommendation in a UKL and UPL issued by the appropriate Government or regional government institution responsible for the environmental management and control of the relevant area. The environmental license shall be issued by the Minister of Environmental Affairs, governor, mayor or regent, as the case may be, at the same time during the issuance of the Decree of AMDAL worthiness (AMDAL approval) or UKL/UPL Recommendation. Law No. 32/2009 requires that by October 3, 2011 all companies that have business licenses but do not have an AMDAL, UKL/UPL must complete an environmental audit, if they need an AMDAL, or prepare an environment management document, if they need a UKL/UPL. Decree of the State Minister of Environmental Affairs No. 14 of 2010 ( Minister Decree No. 14/2010 ) constitutes that the companies that must complete an environmental audit shall prepare the Environment Evaluation Document (DELH), and the companies that have business licenses but do not have an UKL/UPL shall prepare the Environment Management Document (DPLH). Furthermore, Law No. 32/2009 requires companies to convert their AMDAL or UKL/UPL into an environmental license by October 3, Additionally, under Law No. 32/2009, an environmental license is a prerequisite for a business license. Moreover, on 5 October 2012, the Government has issued the Government Regulation No. 27 of 2012 on Environmental Licenses ( Government Regulation No. 27/2012 ) providing the process for obtaining an environmental license. 124

138 By virtue of Minister Decree No. 05/2012, the following business activities are required to obtain and maintain AMDAL, among others: (a) Fisheries, including fisheries with the following characteristics: Shrimp ponds/fisheries with advanced technology with area 50 hectares; Floating fisheries cultivation: (i) in freshwater, with area 2.5 hectares or 500 units; (ii) in sea water, with an area 5 hectares or 1,000 units; and (b) Industrial Estates, including integrated industrial estates, of any size. Under Indonesian environmental regulations, remedial and preventative measures and sanctions (such as the obligation to rehabilitate tailings areas, the imposition of substantial criminal penalties and fines and the cancellation of approvals) may be imposed to remedy or prevent pollution caused by operations. The sanctions range from three to 15 years of imprisonment applicable to the management of the relevant company and/or fines ranging from Rp500.0 million to Rp15.0 billion. A monetary penalty may be imposed in lieu of performance of an obligation to rehabilitate damaged areas. Law No. 32/2009 also requires licensing of all waste disposal, storage and handling. Waste disposal may only be conducted in specified locations determined by the Minister of Environmental Affairs. Waste water disposal is further regulated by Government Regulation No. 82 of 2001 on Water Quality Management and Water Pollution Control ( Government Regulation No. 82/2001 ). Government Regulation No. 82/2001 requires responsible parties to submit reports regarding their disposal of waste water detailing their compliance with the relevant regulations. Such reports are to be submitted to the relevant mayor or regent, with a copy provided to the Minister of Environmental Affairs, on a quarterly basis. 125

139 DESCRIPTION OF INDEBTEDNESS As at December 31, 2012, we had total outstanding indebtedness of US$488.5 million, of which US$333 million was secured. The following table sets out our indebtedness. Description of Indebtedness Borrower Lender Original Principal Amount Maturity Amount Outstanding (As at December 31, 2012) Letter of credit facilities Working capital facilities PT Japfa Comfeed Indonesia Tbk PT Santosa Agrindo PT Japfa Comfeed Indonesia Tbk and PT Suri Tani Pemuka PT Japfa Comfeed Indonesia Tbk and PT Suri Tani Pemuka PT Japfa Comfeed Indonesia Tbk PT Japfa Comfeed Indonesia Tbk PT Japfa Comfeed Indonesia Tbk (ex. MBAI) PT Japfa Comfeed Indonesia Tbk (ex. MBAI) PT Japfa Comfeed Indonesia Tbk PT Japfa Comfeed Indonesia Tbk PT Ciomas Adisatwa PT Japfa Comfeed Indonesia Tbk PT Vaksindo Satwa Nusantara PT Japfa Comfeed Indonesia Tbk PT Santosa Agrindo PT Santosa Agrindo PT Santosa Agrindo PT Indojaya Agrinusa PT Japfa Comfeed Indonesia Tbk PT Japfa Comfeed Indonesia Tbk PT Austasia Stockfeed PT Bank Rabobank International Indonesia PT Bank Ekonomi Raharja, Tbk PT Bank DBS Indonesia PT Bank Pan Indonesia Tbk. PT Bank Mandiri (Persero) Tbk PT Bank Danamon Indonesia Tbk PT Bank Mandiri (Persero) Tbk PT Bank Mandiri (Persero) Tbk PT Bank Mandiri (Persero) Tbk PT Bank Mandiri (Persero) Tbk PT Bank Mandiri (Persero) Tbk PT Bank Central Asia Tbk PT Bank Central Asia Tbk PT Bank Rakyat Indonesia (Persero) Tbk PT Bank Rakyat Indonesia (Persero) Tbk PT Bank Rakyat Indonesia (Persero) Tbk PT Bank Rakyat Indonesia (Persero) Tbk PT Bank Rakyat Indonesia (Persero) Tbk PT Bank Mandiri (Persero) Tbk PT Bank CIMB Niaga Tbk PT Bank Rakyat Indonesia (Persero) Tbk (Rp billion or US$ million) US$25.0 September 30, 2013 (Rp billion) (US$ million) US$6.0 April 21, 2013 Rp360.0 August 12, Rp150.0 May 20, US$2.0 April 23, 2013 Rp95.0 December 16, 2013 Rp100.0 April 23, Rp100.0 April 23, Rp250.0 April 23, Rp150.0 April 23, Rp80.0 April 24, Rp541.4 October 20, Rp10.0 October 20, Rp270 May 7, Rp198.0 June 21, Rp44.0 June 21, 2013 US$1.3 June 21, Rp120.0 August 2, Rp300.0 June 23, Rp200.0 July 21, Rp50.0 October 16,

140 Description of Indebtedness Borrower Lender Original Principal Amount Maturity Amount Outstanding (As at December 31, 2012) Rupiah Bond Investment loan Refinancing facilities PT Austasia Stockfeed PT Bank Rakyat Indonesia (Persero) Tbk (Rp billion or US$ million) (Rp billion) (US$ million) Rp100.0 October 16, 2013 PT Indojaya Agrinusa PT Bank Permata Tbk Rp50.0 August 13, 2013 PT Japfa Comfeed Indonesia Tbk PT Agrinusa Jaya Santosa PT Vaksindo Satwa Nusantara PT Agrinusa Jaya Santosa PT Bhirawa Mitra Sentosa PT Bhirawa Mitra Sentosa PT Bhirawa Mitra Sentosa PT Suri Tani Pemuka PT Bank CIMB Niaga Tbk PT Bank Central Asia Tbk PT Bank CIMB Niaga Tbk PT Bank Victoria International Tbk PT Bank Victoria International Tbk Rp1,500.0 January 12 and February 1, ,489.7 (1) Rp1.5 May 13, Rp10.0 November 24, 2017 Rp28.5 December 31, 2016 Rp10.3 February 28, Rp20.3 March 28, PT Bank Ganesha Rp20.0 October 5, PT Bank Pan Indonesia Tbk. Rp50.0 May 20, PT Indojaya Agrinusa PT Bank Permata Tbk Rp45.0 September 23, 2016 PT Indojaya Agrinusa PT Bank Permata Tbk Rp40.0 November 17, 2017 PT Ciomas Adisatwa PT Ciomas Adisatwa PT Austasia Stockfeed PT Japfa Comfeed Indonesia Tbk PT Japfa Comfeed Indonesia Tbk PT Bank CIMB Niaga Tbk PT Bank CIMB Niaga Tbk PT Bank Rakyat Indonesia (Persero) Tbk PT Bank Central Asia Tbk PT Bank CIMB Niaga Tbk Overdraft PT Ciomas Adisatwa PT Bank CIMB Niaga Tbk Rp1.5 December 23, 2013 Rp15.0 November 18, 2016 Rp66.3 December 19, 2015 Rp709.0 November 20, Rp300.0 August 24, Rp5.0 August 8, PT Indojaya Agrinusa PT Bank Permata Tbk Rp10.0 August 13, PT Japfa Comfeed Indonesia Tbk PT Bank CIMB Niaga Tbk Rp100.0 July 21, Total Indebtedness Rp6,100.8/US$34.3 4, (1) Net of bond issuance costs in accordance with Indonesian FAS. Short-term Bank Loans PT Bank Mandiri (Persero) Tbk (Bank Mandiri) On October 25, 2011, PT Multibreeder Adirama Indonesia Tbk ( MBAI ), a subsidiary merged into the Company in 2012, obtained a KMK Revolving Loan facility with a maximum amount of Rp130 billion and a KMK Revolving Fixed Loan facility for Rp70 billion from Bank Mandiri, which were used for working capital purposes. This loan bears interest at a floating rate and will mature on April 23, Since July 1, 2012, the effective date of merger of MBAI into the Company, these 127

141 facilities have been transferred to the Company. On October 22, 2012, the limits were increased to Rp100 billion for each facility. On November 27, 2012, the KMK Revolving Fixed Loan was increased to Rp250 billion and the KMK Revolving Loan was increased to Rp150 billion. In June 2010, PT Multiphala Agrinusa ( MAG ), a subsidiary merged into the Company in 2011, obtained a working capital loan (KMK) consisting of Fixed loan and Revolving Loan facilities from Bank Mandiri, for Rp100 billion and Rp50 billion, respectively, with term of 12 months. These loans bear interest at a floating rate will mature on April 23, These facilities were transferred to the Company on the effective date of merger of MAG into the Company. In July 2004, PT Bintang Terang Gemilang ( BTG ), a subsidiary merged into the Company in 2011, obtained a working capital loan facility from Bank Mandiri, for Rp70 billion, which was later increased to Rp111 billion. The facility has a term of 12 months. This facility is collateralized with trade accounts receivable, inventories and land and buildings. This facility was transferred to the Company following the merger. On January 27, 2011, PT Primatama Karya Persada ( PKP ), a subsidiary acquired in 2011, obtained a working capital loan facility from Bank Mandiri for Rp80 billion. This facility is collateralized with trade accounts, inventory and certain property, plant and equipment owned by the Company. Since September 1, 2011, effective date of merger of PKP into PT Ciomas Adisatwa (CA), a subsidiary of the Company, this facility has been transferred to CA. The term of this loan has been extended until April 24, PT Bank Central Asia Tbk (BCA) On October 8, 2010, the Company obtained a working capital loan (KMK) facility from BCA, for Rp250 billion and with a term of 12 months. In October 2011, the loan amount was increased to Rp541 billion. This loan is collateralized by the Company s trade accounts receivable and certain of its land, building and machinery. This facility will be due on October 20, PT Bank Rakyat Indonesia (Persero) Tbk (BRI) In May 2008, the Company obtained a working capital loan facility from BRI, for Rp110 billion which has been extended several times, most recently to May 7, In August 2010, the limit was increased to Rp270 billion. The loan is collateralized by accounts receivable, land, building, inventory, machinery, site facilities and equipment owned by the Company and land, building, machinery, equipment, stable and plant owned by PT Wabin Jayatama, a subsidiary. In June 2007, PT Santosa Agrindo ( SA ) obtained a working capital loan facility from BRI for Rp108 billion, which was subsequently increased to Rp198 billion and has an original term of 12 months. This facility is collateralized by trade accounts receivable, inventories, machinery and equipment and land and buildings. The term of this loan has been extended several times, most recently to June 21, In June 2007, SA obtained a working capital loan facility from BRI for Rp30 billion, which was increased to Rp44 billion and has an original term of 12 months. This facility is collateralized by trade accounts receivable, inventories, machinery and equipment and land. The term of this loan has been extended several times, most recently to June 21, In June 2007, SA obtained a working capital loan facility from BRI for US$1.3 million and with an original term of 12 months. This facility is collateralized by trade accounts receivable, inventories, machinery and equipment and land. The term of this loan has been extended several times, most recently to June 21,

142 In October 2012, PT Austasia Stockfeed, a subsidiary, obtained a working capital loan facility from BRI for Rp50 billion and a import working capital loan facility for Rp100 billion, with term of 12 months. They are collateralized by trade accounts receivable, inventories, machinery and equipment and land. The loans bear interest at a floating rate will mature on October 16, In July 2003, PT Indojaya Agrinusa ( IAG ), a subsidiary, obtained a working capital loan from BRI for Rp15 billion and with an original term of 12 months. This facility is collateralized by trade accounts receivable, inventories and land. The facility has been increased several times, most recently to Rp120 billion in August The term of this loan has been extended several times, most recently to August 2, PT Bank Permata Tbk (Bank Permata) On August 13, 2010, IAG, a subsidiary, obtained an overdraft facility from Bank Permata for Rp5 billion, a revolving loan facility for Rp40 billion and a letter of credit facility for US$1 million. These facilities are used for working capital purposes and will mature on August 13, In November 2011, the overdraft facility was increased to Rp10 billion and the revolving loan was increased to Rp50 billion. PT Bank Ekonomi Raharja Tbk (Bank Ekonomi) On March 15, 2012, PT Santosa Agrindo, a subsidiary, obtained a Sight LC Sublimit TR facility and a FX Line facility from Bank Ekonomi for US$6 million with a term of 12 months. These facilities are collateralized with inventory and breeding cattle. They will mature on April 21, In relation to all of the above credit facilities, we are required to, among others, maintain certain financial ratios and fulfill certain covenants concerning incurrence of indebtedness, sales of property, plant and equipment, investments, reorganization and other matters as stated in the agreements. Long-term Loans PT Bank Central Asia Tbk (BCA) On November 20, 2010, the Company obtained a loan investment credit facility from BCA for Rp750 billion, which was used to fully repay its restructured debt to BNP Paribas, Singapore. The restructured debt amounted to Rp709 billion was fully repaid, with the balance of Rp41 billion used to increase the limit of the Company s Working Capital (KMK) facility. This loan will mature on October 8, 2015 and bears interest rate of JIBOR plus 3.6% per annum. This loan is collateralized by trade accounts receivable, machinery and land and buildings. On October 28, 2011, PT Vaksindo Satwa Nusantara, a subsidiary, obtained a loan investment credit facility from BCA for Rp10 billion, which was used to purchase machinery and buildings. This loan will mature on November 24, 2017 and bears interest rate of JIBOR plus 3.6% per annum. This loan is collateralized with machinery and land and buildings. PT Bank Mandiri (Persero) Tbk (Bank Mandiri) On April 19, 2011, the Company obtained a Non Revolving Loan (NRL) KMK for Rp300 billion from Bank Mandiri which was used for working capital and to fully repay PT Multiphala Agrinusa s (MAG) and BTG s loans from Bank Mandiri. The facility matures on June 23, The facility is collateralized by trade accounts receivable, inventory, and certain property, plant and equipment owned by the Company. The loan was transferred to the Company on January 1,

143 PT Bank CIMB Niaga Tbk (CIMB Niaga) On July 21, 2010, MBAI, a subsidiary merged into the Company in 2012, obtained credit facilities from CIMB Niaga for Rp300 billion, which consist of a Special Loan Transaction (PTK), Overdraft Loan (PRK) and Fixed Loan (PT). The PTK loan bears interest at a floating rate per annum and will mature on August 24, The PRK facility limit has been increased to Rp100 billion and the PT facility limit has been increased to Rp200 billion. The PRK and PT facilities bear interest at a rate of 10.5% per annum and will mature in July 21, Since July 1, 2012, effective date of merger of MBAI to the Company, these facilities have been transferred to the Company. On May 5, 2009, PT Agrinusa Jaya Santosa ( AJS ), a subsidiary acquired in 2012, obtained loans from CIMB Niaga which consist of an Investment Loan (PI) for Rp1.5 billion and a Special Loan Transaction (PTK) for Rp28.5 billion. The PI and PTK loans bear interest at a rate of 11% per annum and will mature on May 13, 2014 and December 31, 2016, respectively. On November 12, 2010, PKP, a subsidiary acquired in 2011, obtained loans from CIMB Niaga which consist of a PTK on Liquidation 1 (PTK 1) for Rp9 billion, a PTK on Liquidation II (PTK 2) for Rp7.5 billion. In December 2010, the limit for PTK 1 was reduced to Rp1.5 billion and the limit for PTK 2 was increased to Rp15 billion. PTK 1 will mature on December 23, 2013 and PTK 2 will mature on November 18, These loans are collateralized by a vehicle owned by PKP. Since September 1, 2011, the effective date of the merger of PKP into CA, this facility has been transferred to CA. On August 1, 2010, PKP obtained an Overdraft Loan (PRK) facility from CIMB Niaga for Rp5 billion. The loan will mature on August 8, 2013 and is collateralized with the same collateral as the longterm loans. Since September 1, 2011, the effective date of the merger of PKP into CA, this facility has been transferred to CA. PT Bank Rakyat Indonesia (Persero) Tbk (BRI) In March 19, 2010, SA obtained an investment loan facility from BRI, for Rp66.3 billion for investment in beef cattle. This facility will mature on December 19, 2015 and is collateralized by trade accounts receivable, inventories, machinery and equipment and land. This loan bears an interest rate of 6% per annum. On March 16, 2012, this facility was novated to PT Austasia Stockfeed. PT Bank Ganesha (Bank Ganesha) On May 24, 2007, PT Bhirawa Mitra Sentosa ( BMS ), a subsidiary acquired in 2011, obtained an investment credit 1 loan (KI-1) from Bank Ganesha for Rp1.2 billion and on February 26, 2008, obtained an investment credit 2 loan (KI-2) for Rp20 billion. The loans were used to purchase vehicles. The KI-1 matured in May 2012 and the KI-2 will mature on October 5, The loan is collateralized by vehicles owned by BMS. PT Bank Victoria International Tbk (Bank Victoria) On September 8, 2006, BMS obtained an investment credit loan from Bank Victoria for Rp10 billion for the purchase of vehicles. In 2010, the limit was increased to Rp20.3 billion. This loan will be due in March 2014 and is collateralized by vehicles owned by BMS. PT Bank Rabobank International Indonesia On April 16, 2010, the Company obtained Letter of Credit, Trust Receipt, and Post Impact Financing (PIF) facilities, for raw materials purchases for US$25 million, which have a term of 90 days. The facilities bear interest at PT Bank Rabobank International Indonesia s cost of funds plus 3.50%. These facilities are available until September 30,

144 PT Bank DBS Indonesia (Bank DBS) On July 19, 2010, the Company obtained Letter of Credit, Trust Receipt, and Account Payable Financing facilities from Bank DBS for raw materials purchases, with a term of 120 days. In May 2011, the limit was increased to US$40 million. In November 2011, the limit was changed to Rp360 billion. This facility bears interest at DBS s cost of funds plus 2% and has been extended until August 12, PT Bank Pan Indonesia Tbk (Bank Panin) On May 3, 2011, the Company and PT Suri Tani Pemuka ( STP ), a subsidiary, obtained a Joint Borrower facility from Bank Panin which consisted of Letter of Credit (LC) for Rp150 billion and a sublimit Revolving Loan (PB) for Rp150 billion. These facilities are collateralized by trade accounts receivable and inventories owned by STP. The LC and PB facilities will mature in May On May 19, 2011, STP obtained a long term loan facility from Bank Panin for Rp50 billion, with an interest rate of 3.5% per annum. The facility is collateralized by land and will mature in May 20, PT Bank Permata Tbk (Bank Permata) On August 13, 2010, IAG, a subsidiary, obtained a Term Loan (TL) facility from Bank Permata for Rp45 billion with a sublimit L/C facility of US$1 million. The loan bears interest at a rate of 10% per annum and will mature on September 23, The loan is collateralized by trade accounts receivable, inventories and property and equipment. On November 17, 2011, IAG obtained Term Loan 2 facility (TL-2) for Rp40 billion. The loan bears interest at a rate of 10% per annum and will mature on November 17, The loan is collateralized by trade accounts receivable, inventories and property and equipment. Rupiah Bond In January and February, 2012, the Company issued two tranches of bonds totaling Rp1,500.0 billion (US$155.1 million) of Rupiah denominated bonds. The bonds mature on January 12 and February 1, 2017 and bear interest at a rate of 9.90% per annum. Interest is payable quarterly and principal is payable on maturity. Pursuant to the bonds, we are subject to certain financial and restrictive covenants, including the maintenance of certain current ratios, debt to equity ratios and EBITDA to interest ratios. As at December 31, 2012, approximately Rp1,489.7 billion (US$154.1 million) was outstanding on the bonds. 131

145 THE ISSUER The Issuer was incorporated as a private company with limited liability under the laws of The Netherlands on April 10, The corporate seat of the Issuer is at Amsterdam, The Netherlands. The registered office of the Issuer is at Teleportboulevard 110, 1043 EJ Amsterdam, The Netherlands, and its telephone number at that address is The Issuer has been registered with the trade registry of the Chamber of Commerce in Amsterdam under No The Issuer is a wholly-owned subsidiary of the Company. The Issuer may be appointed by the Dutch Central Bank (De Nederlandsche Bank N.V.) as a reporter pursuant to the regulation of February 4, 2003, issued by the Dutch Central Bank, implementing reporting instructions under the Act on Financial Foreign Relations 1994 (Wet financiële betrekkingen buitenland 1994), and, if so appointed, the Issuer must file reports with the Dutch Central Bank for the benefit of the composition of the balance of payments for The Netherlands by the Dutch Central Bank. As long as the Notes are listed on a stock exchange, the Issuer will be subject to insider trading rules in The Netherlands pursuant to the Dutch Financial Supervision Act (Wet op het financieel toezicht). The principal objects of the Issuer are set out in Article 3 of its Articles of Association and are, inter alia, to borrow, to lend and to raise funds, including the issue of bonds, debt instruments or other securities or evidence of indebtedness, to finance businesses and companies and to grant guarantees, to bind itself and to pledge its assets for obligations of businesses and companies with which it forms a group and on behalf of third parties. As such, the Issuer is, inter alia, authorized to issue the Notes and to finance our business, including entering into the Indenture and the other transaction documents to which it is or will be a party. The Issuer has not engaged, since its incorporation, in any business activities other than the proposed issue of the Notes. The directors of the Issuer are J.F. van Oosten Slingeland and S.Y. Hoo, whose business address for the purpose of their directorships of the Issuer is at Teleportboulevard 110, 1043 EJ Amsterdam. The Issuer has no authorized share capital which means it can issue an unlimited number of shares in its capital. At the date of this Offering Circular, a total of one share, with a nominal value of US$1, has been issued and paid up. All issued ordinary shares are and will be in registered form, and no share certificates are or will be issued. At the date of this Offering Circular, the Issuer has no borrowings or indebtedness in the nature of borrowings (including loan capital issued, or created but unused), term loans, liabilities under acceptances or acceptance credits, mortgages, charges or guarantees or other contingent liabilities, except as otherwise described in this Offering Circular. 132

146 COMFEED TRADING B.V. Comfeed Trading was incorporated as a private company with limited liability under the laws of The Netherlands on April 11, Its corporate seat is at Amsterdam, The Netherlands. Its registered office is at Teleportboulevard 110, 1043 EJ Amsterdam, The Netherlands and its telephone number at that address is It has been registered with the trade registry of the Chamber of Commerce in Amsterdam under No Comfeed Trading is a wholly-owned subsidiary of the Issuer. The principal objects of Comfeed Trading are set out in Article 3 of its Articles of Association and are, inter alia, to borrow, to lend and to raise funds, including the issue of bonds, debt instruments or other securities or evidence of indebtedness, to finance businesses and companies and to grant guarantees, to bind itself and to pledge its assets for obligations of businesses and companies with which it forms a group and on behalf of third parties. Its directors are J.F. van Oosten Slingeland and S.Y. Hoo, whose business address for the purpose of their directorships of Comfeed Trading is at Teleportboulevard 110, 1043 EJ Amsterdam, The Netherlands. Comfeed Trading has no authorized share capital which means that it can issue an unlimited number of shares in its capital. At the date of this Offering Circular, a total of one share, with a nominal value of US$1, has been issued and paid up. All issued ordinary shares are and will be in registered form, and no share certificates are or will be issued. At the date of this Offering Circular, Comfeed Trading has no borrowings or indebtedness in the nature of borrowings (including loan capital issued, or created but unused), term loans, liabilities under acceptances or acceptance credits, mortgages, charges or guarantees or other contingent liabilities, except as otherwise described in this Offering Circular. 133

147 DESCRIPTION OF THE NOTES For purposes of this Description of the Notes, the term Issuer refers only to Comfeed Finance B.V., a private company with limited liability incorporated under the laws of The Netherlands and a wholly-owned subsidiary of the Parent Guarantor, and any successor obligor of the Notes, and the term Parent Guarantor refers only to PT Japfa Comfeed Indonesia Tbk, a company incorporated with limited liability under the laws of Indonesia, and not to any of its Subsidiaries. The Parent Guarantor s guarantee of the Notes is referred to as the Parent Guarantee. Each Subsidiary of the Parent Guarantor that guarantees the Notes is referred to as a Subsidiary Guarantor, and each such guarantee is referred to as a Subsidiary Guarantee. The term Guarantor refers to either the Parent Guarantor or a Subsidiary Guarantor, as the context requires, and the term Note Guarantee refers to either the Parent Guarantee or a Subsidiary Guarantee, as the context requires. The term Guarantors refers to the Parent Guarantor and the Subsidiary Guarantors collectively, and the term Note Guarantees refers to the Parent Guarantee and the Subsidiary Guarantees collectively. The Notes are to be issued under an indenture (together with any supplemental indenture, the Indenture ), to be dated as of the Original Issue Date, among the Issuer, the Parent Guarantor and the Subsidiary Guarantors as guarantors, and The Bank of New York Mellon, as trustee (the Trustee ). The registered Holder will be treated as the owner of it for all purposes. Only registered Holders will have rights under the Indenture. The following is a summary of certain provisions of the Indenture, the Notes and the Note Guarantees. This summary does not purport to be complete and is qualified in its entirety by reference to all of the provisions of the Indenture, the Notes and the Note Guarantees. It does not restate those agreements in their entirety. Whenever particular sections or defined terms of the Indenture not otherwise defined herein are referred to, such sections or defined terms are incorporated herein by reference. Copies of the Indenture will be available on or after the Original Issue Date during normal office hours at the corporate trust office of the Trustee at 101 Barclay Street, 21st Floor West, New York, NY 10286, United States of America. The Notes are sold in reliance upon Rule 144A under the Securities Act and outside the United States in accordance with Regulation S under the Securities Act. See Transfer Restrictions. Brief Description of the Notes The Notes will: be general obligations of the Issuer; be senior in right of payment to any existing and future obligations of the Issuer expressly subordinated in right of payment to the Notes; rank at least pari passu in right of payment with all unsubordinated Indebtedness of the Issuer (subject to any priority rights of such unsubordinated Indebtedness pursuant to applicable law); be guaranteed by the Parent Guarantor and the Subsidiary Guarantors on an unsubordinated basis, subject to the limitations described below under the caption The Parent Guarantee and The Subsidiary Guarantees and in Risk Factors Risks Relating to the Notes and the Note Guarantees ; and be effectively subordinated to all existing and future obligations of the Non-Guarantor Subsidiaries (as defined below). 134

148 The Issuer will initially issue US$225,000,000 in aggregate principal amount of the Notes, which will mature on May 2, 2018 unless earlier redeemed pursuant to the terms thereof and the Indenture. Subject to the covenants described below under Certain Covenants and applicable law, the Issuer may issue additional Notes ( Additional Notes ) under the Indenture. The Notes offered hereby and any Additional Notes would be treated as a single class for all purposes under the Indenture. Interest The Notes will bear interest at 6.0% per annum from the Original Issue Date or, if interest has already been paid, from the most recent interest payment date to which interest has been paid or duly provided for, payable semi-annually in arrears on May 2 and November 2 of each year (each a Notes Interest Payment Date ) commencing on November 2, Interest on the Notes will be paid to Holders of record at the close of business on the April 17 or October 18 immediately preceding each Notes Interest Payment Date (each a Notes Record Date ), notwithstanding any transfer, exchange or cancellation thereof after a Notes Record Date and prior to the immediately following Notes Interest Payment Date. Interest on the Notes will be calculated on the basis of a 360-day year comprised of twelve 30-day months. Payment of Notes Except as otherwise provided in the Indenture, the Notes may not be redeemed prior to maturity. In any case in which the date of the payment of principal of, premium, if any, or interest on the Notes (including any payment to be made on any date fixed for redemption or purchase of any Note) is not a Business Day in the relevant place of payment, then payment of principal, premium, if any, or interest need not be made in such place on such date but may be made on the next succeeding Business Day in such place. Any payment made on such Business Day will have the same force and effect as if made on the date on which such payment is due, and no interest on the Notes will accrue for the period after such date. The Notes will be issued only in fully registered form, without coupons, in minimum denominations of US$200,000 of principal amount and integral multiples of US$1,000 in excess thereof. See Book-Entry; Delivery and Form. No service charge will be made for any registration of transfer or exchange of Notes, but the Issuer may require payment of a sum sufficient to cover any transfer tax or other similar governmental charge payable in connection therewith. All payments on the Notes will be made in U.S. dollars in immediately available funds by the Issuer at the office or agency of the Issuer maintained for that purpose in the Borough of Manhattan, The City of New York (which initially will be the specified corporate trust administration office of The Bank of New York Mellon (the Paying Agent ), currently located at 101 Barclay Street, 21st Floor West, New York, NY 10286, United States of America), and the Notes may be presented for registration of transfer or exchange at such office or agency; provided that, at the option of the Issuer, payment of interest may be made by check mailed to the address of the Holders as such address appears in the Note register. Interest payable on the Notes held through DTC will be available to DTC participants (as defined herein) on the Business Day following payment thereof. Restricted Subsidiaries As of the Original Issue Date, PT Bintang Laut Timur, PT Suri Tani Pemuka, PT Artha Lautan Mulya, PT Kraksaan Windu, PT Ciomas Adisatwa, PT Wabin Jayatama, PT Japfafood Nusantara, PT Vaksindo Satwa Nusantara, Apachee Pte Ltd, PT Japfa Indoland, PT Tretes Indah Permai, PT Indonesia Pelleting, PT Santosa Agrindo, PT Austasia Stockfeed, PT Agrinusa Jaya Santosa, PT 135

149 Bumi Asri Lestari, PT Iroha Sidat Indonesia, PT Jakamitra Indonesia, PT Indojaya Agrinusa, PT Adiguna Bintang Lestari (in liquidation), PT Bhirawa Mitra Sentosa, the Issuer and Comfeed Trading B.V. (the Issuer Subsidiary ) are the only Subsidiaries of the Parent Guarantor. Each of these Subsidiaries, other than PT Jakamitra Indonesia, PT Bumi Asri Lestari, PT Adiguna Bintang Lestari (in liquidation) and PT Iroha Sidat Indonesia, will be Restricted Subsidiaries. Unless otherwise designated as Unrestricted Subsidiaries in accordance with the Indenture, all of the Parent Guarantor s future Subsidiaries will be Restricted Subsidiaries under the Indenture. After the Original Issue Date, the Board of Directors may designate certain Restricted Subsidiaries (other than the Issuer and the Issuer Subsidiary) as Unrestricted Subsidiaries and may designate Unrestricted Subsidiaries as Restricted Subsidiaries, as provided under the caption Certain Covenants Designation of Restricted and Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be subject to the restrictive covenants in the Indenture and will not guarantee the Notes. The Parent Guarantee The Parent Guarantee will: be a general obligation of the Parent Guarantor; be effectively subordinated to secured obligations of the Parent Guarantor, to the extent of the value of the assets serving as security therefor; be senior in right of payment to all future obligations of the Parent Guarantor expressly subordinated in right of payment to the Parent Guarantee; and rank at least pari passu in right of payment with all unsecured, unsubordinated Indebtedness of the Parent Guarantor (subject to any priority rights of such unsecured, unsubordinated Indebtedness pursuant to applicable law). Under the Indenture, the Parent Guarantor will guarantee the due and punctual payment of the principal of, premium, if any, and interest on, and all other amounts payable under, the Notes. The Parent Guarantor will (1) agree that its obligations under the Parent Guarantee will be enforceable irrespective of any invalidity, irregularity or unenforceability of the Notes or the Indenture and (2) waive its right to require the Trustee to pursue or exhaust its legal or equitable remedies against the Issuer prior to exercising its rights under the Parent Guarantee. Moreover, if at any time any amount paid under a Note or the Indenture is rescinded or must otherwise be restored, the rights of the Holders under the Parent Guarantee will be reinstated with respect to such payments as though such payment had not been made. All payments under the Parent Guarantee are required to be made in U.S. dollars. Release of the Parent Guarantee The Parent Guarantee may be released (at the cost of the Issuer) in certain circumstances, including: upon repayment in full of the Notes; or upon a defeasance as described under Defeasance Defeasance and Discharge. 136

150 The Subsidiary Guarantees The initial Subsidiary Guarantors that will execute the Indenture on the Original Issue Date will consist of PT Bintang Laut Timur, PT Suri Tani Pemuka, PT Artha Lautan Mulya, PT Kraksaan Windu, PT Ciomas Adisatwa, PT Wabin Jayatama, PT Japfafood Nusantara, PT Vaksindo Satwa Nusantara, Apachee Pte Ltd, PT Japfa Indoland, PT Tretes Indah Permai, PT Indonesia Pelleting, PT Santosa Agrindo, PT Austasia Stockfeed, PT Agrinusa Jaya Sentosa and PT Bhirawa Mitra Sentosa. Each Restricted Subsidiary that does not provide a Subsidiary Guarantee in accordance with the Indenture is referred to as a Non-Guarantor Subsidiary. PT Indojaya Agrinusa and the Issuer Subsidiary will be the initial Non-Guarantor Subsidiaries on the Original Issue Date. The Parent Guarantor will cause each of its future Restricted Subsidiaries (other than the initial Non-Guarantor Subsidiaries, subject to the two immediately succeeding sentences), immediately upon becoming a Restricted Subsidiary, to execute and deliver to the Trustee a supplemental indenture to the Indenture pursuant to which such Restricted Subsidiary will guarantee the payment of the Notes. The Parent Guarantor will cause PT Indojaya Agrinusa, immediately upon becoming a Wholly Owned Subsidiary, to execute and deliver to the Trustee a supplemental indenture to the Indenture pursuant to which it will guarantee the payment of the Notes, following which it will become a Subsidiary Guarantor. The Issuer Subsidiary will not provide Subsidiary Guarantee at any time in the future. Each Restricted Subsidiary that Guarantees the Notes after the Original Issue Date is referred to as a Future Subsidiary Guarantor and, upon execution of the applicable supplemental indenture to the Indenture, will be a Subsidiary Guarantor. None of the existing Non-Guarantor Subsidiaries will provide a Subsidiary Guarantee at any time in the future. Although the Indenture contains limitations on the amount of additional Indebtedness that Non-Guarantor Subsidiaries may incur, the amount of such additional Indebtedness could be substantial. In the event of a bankruptcy, liquidation or reorganization of any Non-Guarantor Subsidiary, such Non-Guarantor Subsidiary will pay the holders of its debt and its trade creditors before it will be able to distribute any of its assets to the Issuer. As of December 31, 2012, the Parent Guarantor and its consolidated subsidiaries (including the Non-Guarantor Subsidiaries and the Unrestricted Subsidiary) had total consolidated indebtedness of approximately Rp4, million (US$488.1 million), of which approximately Rp3, million (US$344.0 million) was secured; and the Non-Guarantor Subsidiaries had total indebtedness of approximately Rp51,290 million (US$5.3 million). The Subsidiary Guarantee of each Subsidiary Guarantor will: be a general obligation of such Subsidiary Guarantor; be effectively subordinated to secured obligations of such Subsidiary Guarantor, to the extent of the value of the assets serving as security therefor; be senior in right of payment to all future obligations of such Subsidiary Guarantor expressly subordinated in right of payment to such Subsidiary Guarantee; and 137

151 rank at least pari passu in right of payment with all unsecured, unsubordinated Indebtedness of such Subsidiary Guarantor (subject to any priority rights of such unsecured, unsubordinated Indebtedness pursuant to applicable law). Under the Indenture as applicable, each of the Subsidiary Guarantors will jointly and severally guarantee the due and punctual payment of the principal of, premium, if any, and interest on, and all other amounts payable under, the Notes. Each Subsidiary Guarantor will (1) agree that its obligations under the Subsidiary Guarantees will be enforceable irrespective of any invalidity, irregularity or unenforceability of the Notes or the Indenture and (2) waive its right to require the Trustee to pursue or exhaust its legal or equitable remedies against the Issuer prior to exercising its rights under the Subsidiary Guarantees. Moreover, if at any time any amount paid under a Note or the Indenture is rescinded or must otherwise be restored, the rights of the Holders under the Subsidiary Guarantees will be reinstated with respect to such payments as though such payment had not been made. All payments under the Subsidiary Guarantees are required to be made in U.S. dollars. Under the Indenture as applicable, each Subsidiary Guarantee will be limited in an amount not to exceed the maximum amount that can be guaranteed by the applicable Subsidiary Guarantor without rendering the Subsidiary Guarantee, as it relates to such Subsidiary Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. If a Subsidiary Guarantee were to be rendered voidable, it could be subordinated by a court to all other indebtedness (including guarantees and other contingent liabilities) of the applicable Subsidiary Guarantor, and, depending on the amount of such indebtedness, a Subsidiary Guarantor s liability on its Subsidiary Guarantee could be reduced to zero. The obligations of each Subsidiary Guarantor under its respective Subsidiary Guarantee may be limited, or possibly invalid, under applicable laws. See Risk Factors Risks Relating to the Notes and the Note Guarantees The Note Guarantees may be challenged under applicable financial assistance, insolvency or fraudulent transfer laws, which could impair the enforceability of the Note Guarantees. Release of the Subsidiary Guarantees A Subsidiary Guarantee given by a Subsidiary Guarantor may be released (at the cost of the Issuer) in certain circumstances, including: upon repayment in full of the Notes; upon a defeasance as described under Defeasance Defeasance and Discharge ; upon the designation by the Parent Guarantor of such Subsidiary Guarantor as an Unrestricted Subsidiary in compliance with the terms of the Indenture; or upon the sale of such Subsidiary Guarantor in compliance with the terms of the Indenture (including the covenants under the captions Certain Covenants Limitation on Sales and Issuances of Capital Stock in Restricted Subsidiaries, Certain Covenants Limitation on Asset Sales and Consolidation, Merger and Sale of Assets ) resulting in such Subsidiary Guarantor no longer being a Restricted Subsidiary, so long as (1) such Subsidiary Guarantor is simultaneously released from its obligations in respect of any of the Parent Guarantor s other Indebtedness or any other Indebtedness of any other Restricted Subsidiary and (2) the proceeds from such sale or disposition are used for the purposes permitted or required by the Indenture. 138

152 Further Issues Subject to the covenants described below and in accordance with the terms of the Indenture, the Issuer may, from time to time, without notice to or the consent of the Holders, create and issue Additional Notes having the same terms and conditions as the Notes (including the benefit of the Note Guarantees) in all respects (or in all respects except for the issue date, issue price and the date and/or amount of the first payment of interest on them and, to the extent necessary, certain temporary securities law transfer restrictions) (a Further Issue ) so that such Additional Notes may be consolidated and form a single class with the previously outstanding Notes and vote together as one class on all matters with respect to the Notes; provided that such Additional Notes will not be issued under the same CUSIP, ISIN or Common Code as the Notes unless such Additional Notes are fungible with the Notes for U.S. federal income tax purposes. In addition, the issuance of any Additional Notes by the Issuer will be subject to the following conditions: (1) all Obligations with respect to the Additional Notes shall be guaranteed under the Indenture, the Note Guarantees and any other Note Documents to the same extent and on the same basis as the Notes outstanding on the date the Additional Notes are issued; (2) the proceeds of such Additional Notes are transferred by the Issuer as a contribution on new and/or existing shares in the capital of, and/or one or more loans to, the Issuer Subsidiary by the Issuer; (3) the proceeds of such transfer to the Issuer Subsidiary are on-lent by the Issuer Subsidiary to the Parent Guarantor pursuant to the Intercompany Loan or other intercompany loans and the Parent Guarantor is permitted to Incur the Indebtedness represented by such additional borrowings under the Certain Covenants Limitation on Indebtedness and Preferred Stock covenant; and (4) the Parent Guarantor and the Issuer have delivered to the Trustee an Officers Certificate, in form and substance satisfactory to the Trustee, confirming that the issuance of the Additional Notes complies with the Indenture. Optional Redemption At any time and from time to time on or after May 2, 2016, the Issuer may redeem the Notes, in whole or in part, at a redemption price equal to the percentage of principal amount set forth below, plus accrued and unpaid interest, if any, to (but not including) the redemption date and Additional Amounts, if any, if redeemed during the 12-month period commencing on May 2 of the years indicated below: Period Redemption Price % 2017 and thereafter 101.5% The Issuer may at its option redeem the Notes, in whole but not in part, at any time prior to May 2, 2016, at a redemption price equal to 100% of the principal amount of the Notes redeemed plus the Applicable Premium as of, and accrued and unpaid interest, if any, to (but not including), the redemption date. Neither the Trustee nor any of the Agents will be responsible for calculating or verifying the Applicable Premium. 139

153 At any time and from time to time prior to May 2, 2016, the Issuer may redeem up to 35% of the aggregate principal amount of the Notes with the Net Cash Proceeds of one or more sales of Common Stock of the Parent Guarantor in Equity Offerings at a redemption price of 106.0% of the principal amount of the Notes redeemed, plus accrued and unpaid interest, if any, and Additional Amounts thereon, if any, to (but not including) the redemption date; provided that at least 65% of the aggregate principal amount of the Notes originally issued on the Original Issue Date remains outstanding after each such redemption and any such redemption takes place within 60 days after the closing of the related Equity Offering. Selection and Notice The Issuer will give not less than 30 days nor more than 60 days notice of any redemption. The Issuer shall, at least 15 calendar days prior to the date the notice of redemption is to be sent to the Holders, notify the Trustee of such proposed Redemption Date and of the principal amount of the Notes to be redeemed. If less than all of the Notes are to be redeemed at any time, the Notes for redemption will be selected as follows: (1) if the Notes are listed on any recognized securities exchange or are held through the clearing systems, in compliance with the requirements of the principal recognized securities exchange on which the Notes are listed or the clearing systems through which the Notes are held; or (2) if the Notes are not listed on any recognized securities exchange and/or are not held through the clearing system, on a pro rata basis, by lot or by such other method as the Trustee in its sole and absolute discretion deems fair and appropriate unless otherwise required by applicable stock exchange or clearing system requirement or by applicable law. A Note of US$200,000 in principal amount or less will not be redeemed in part. If any Note is to be redeemed in part only, the notice of redemption relating to such Note will state the portion of the principal amount to be redeemed. A new Note in principal amount equal to the unredeemed portion will be issued (at the Issuer s expense) upon cancellation of the original Note. On and after the redemption date, interest will cease to accrue on Notes or portions of them called for redemption. Repurchase of Notes Upon a Change of Control Not later than 30 days following a Change of Control, the Issuer or the Parent Guarantor will make an Offer to Purchase all outstanding Notes (a Change of Control Offer ) at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, and Additional Amounts, if any, to (but not including) the Offer to Purchase Payment Date. The Issuer and the Parent Guarantor will agree in the Indenture that they will timely repay all Indebtedness or obtain consents as necessary under or terminate, agreements or instruments that would otherwise prohibit a Change of Control Offer required to be made pursuant to the Indenture. If the Issuer or the Parent Guarantor is unable to repay (or cause to be repaid) all of the Indebtedness, if any, that would prohibit repurchase of the Notes or is unable to obtain the requisite consents of the holders of such Indebtedness, or terminate any agreements or instruments that would otherwise prohibit a Change of Control Offer, it will be prohibited from purchasing the Notes. In that case, the failure of either the Issuer or the Parent Guarantor to purchase tendered Notes will constitute an Event of Default under the Indenture. The Parent Guarantor and the Issuer will not be required to make a Change of Control Offer following a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture 140

154 applicable to a Change of Control Offer to be made by the Parent Guarantor or the Issuer and such third party purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. Future debt of the Issuer or the Parent Guarantor may (i) prohibit the Issuer or the Parent Guarantor from purchasing Notes in the event of a Change of Control, (ii) provide that a Change of Control is a default or (iii) require the repurchase of such debt upon a Change of Control. Moreover, the exercise by Holders of their right to require the Issuer or the Parent Guarantor to purchase the Notes could cause a default under other Indebtedness, even if the Change of Control itself does not, due to the financial effect of the purchase on the Issuer or the Parent Guarantor. The ability of the Issuer or the Parent Guarantor to pay cash to Holders following the occurrence of a Change of Control may be limited by the Issuer s or the Parent Guarantor s then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make the required purchase of the Notes. See Risk Factors Risks Relating to the Notes and the Note Guarantees The Issuer may not have the ability to raise the funds necessary to finance an offer to repurchase the Notes upon the occurrence of certain events constituting a Change of Control as required by the Indenture. The Issuer and the Parent Guarantor will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of the covenant described hereunder, the Issuer and the Parent Guarantor will comply with the applicable securities laws and regulations and will not be deemed to have breached its or their obligations under the covenant described hereunder by virtue of such compliance. The Change of Control Offer feature is a result of negotiations between the Issuer, the Parent Guarantor and the Initial Purchaser. Management has no present intention to engage in a transaction involving a Change of Control, although it is possible that the Parent Guarantor will decide to do so in the future. See Risk Factors Risks Relating to the Notes and the Note Guarantees The Issuer may not have the ability to raise the funds necessary to finance an offer to repurchase the Notes upon the occurrence of certain events constituting a Change of Control as required by the Indenture governing the Notes. Subject to certain covenants described below, the Parent Guarantor or the Issuer could, in the future, enter into certain transactions, including acquisitions, refinancings or other recapitalizations, that would not constitute a Change of Control under the Indenture, but that could increase the amount of debt outstanding at such time or otherwise affect the capital structure or credit ratings of the Parent Guarantor or the Issuer. The phrase all or substantially all, as used with respect to the assets of the Parent Guarantor or the Issuer in the definition of Change of Control, will likely be interpreted under applicable law of the relevant jurisdictions and its meaning would depend on particular facts and circumstances. As a result, there may be a degree of uncertainty in ascertaining whether a sale or transfer of all or substantially all the assets of the Parent Guarantor or the Issuer has occurred. Accordingly, if the Parent Guarantor disposes of less than all its assets by any of the means described above, the ability of a Holder to require the Issuer to repurchase its Notes may be uncertain. In such a case, Holders may not be able to resolve this uncertainty without resorting to legal action. Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the Holders to require that the Issuer or the Parent Guarantor purchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction. Neither the Trustee nor the Agents shall have any responsibility to monitor whether a Change of Control Offer, or any event which could lead to the occurrence of a Change of Control Offer, has occurred or may occur. 141

155 Sinking Fund There will be no sinking fund payments for the Notes. Additional Amounts All payments of principal of, and premium, if any, and interest on the Notes and all payments under the Note Guarantees will be made without withholding or deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature imposed or levied by or within any jurisdiction in which the Issuer, any applicable Guarantor or Surviving Person (as defined under the caption Consolidation, Merger and Sale of Assets ) is organized or resident for tax purposes (or any political subdivision or taxing authority thereof or therein) (each, as applicable, a Relevant Taxing Jurisdiction ) or any jurisdiction through which payment is made or any political subdivision or taxing authority thereof or therein (together with the Relevant Taxing Jurisdictions, the Relevant Jurisdictions ), unless such withholding or deduction is required by law or by regulation or governmental policy having the force of law. In the event that any such withholding or deduction is so required, the Issuer, the applicable Guarantor or Surviving Person, as the case may be, will make such deduction or withholding, make payment of the amount so withheld to the appropriate governmental authority and will pay such additional amounts ( Additional Amounts ) as will result in receipt by the Holder of each Note or the Note Guarantees, as the case may be, of such amounts as would have been received by such Holder had no such withholding or deduction been required, provided that no Additional Amounts will be payable: (a) for or on account of: (i) any tax, duty, assessment or other governmental charge that would not have been imposed but for: (A) (B) (C) the existence of any present or former connection between the Holder or beneficial owner of such Note or Note Guarantee, as the case may be, and the Relevant Jurisdiction including, without limitation, such Holder or beneficial owner being or having been a national, domiciliary or resident of such Relevant Jurisdiction or treated as a resident thereof or being or having been physically present or engaged in a trade or business therein or having or having had a permanent establishment therein, other than merely holding such Note, the receipt of payments thereunder or under the Note Guarantee or enforcing payment under the Note or the Note Guarantee; the presentation of such Note (where presentation is required) more than 30 days after the later of the date on which the payment of the principal of, premium, if any, or interest on, such Note became due and payable pursuant to the terms thereof or was made or duly provided for, except to the extent that the Holder thereof would have been entitled to such Additional Amounts if it had presented such Note for payment on any date within such 30-day period; the failure of the Holder or beneficial owner to comply with a timely request of the Issuer, any Guarantor or Surviving Person addressed to the Holder or beneficial owner, as the case may be, to provide information to the Issuer, such Guarantor or Surviving Person concerning such Holder s or beneficial owner s nationality, residence, identity or connection with any Relevant Jurisdiction, if and to the extent that due and timely compliance with such request would have reduced or eliminated any withholding or deduction as to which Additional Amounts would have otherwise been payable to such Holder; or 142

156 (D) the presentation of such Note (where presentation is required) for payment in the Relevant Jurisdiction, unless such Note could not have been presented for payment elsewhere; (ii) (iii) (iv) (v) any estate, inheritance, gift, sale, transfer, excise or personal property or similar tax, assessment or other governmental charge; any withholding or deduction in respect of any tax, duty, assessment or other governmental charge where such withholding or deduction is imposed or levied on a payment to an individual and is required to be made pursuant to European Council Directive 2003/48/EC or any other Directive implementing the conclusions of the ECOFIN Council meeting of November 26-27, 2000 on the taxation of savings income or any law implementing or complying with, or introduced in order to conform to, such Directives; any tax, duty, assessment or other governmental charge which is payable other than (a) by deduction or withholding from payments of principal of or interest on the Note or payments under the Note Guarantees, or (b) by direct payment by the Issuer or applicable Guarantor in respect of claims made against the Issuer or the applicable Guarantor; or any combination of taxes, duties, assessments or other governmental charges referred to in the preceding clauses (i), (ii), (iii) and (iv); or (b) with respect to any payment of the principal of, or premium, if any, or interest on, such Note or any payment under any Note Guarantee to such Holder, if the Holder is a fiduciary, partnership or person other than the sole beneficial owner of any payment to the extent that such payment would be required to be included in the income under the laws of a Relevant Jurisdiction, for tax purposes, of a beneficiary or settlor with respect to the fiduciary, or a member of that partnership or a beneficial owner who would not have been entitled to such Additional Amounts had that beneficiary, settlor, partner, or beneficial owner been the Holder thereof. As a result of these provisions, there are circumstances in which taxes could be withheld or deducted but Additional Amounts would not be payable to some or all beneficial owners of the Notes. Each of the Issuer and the Guarantors, as applicable, will (i) make such withholding or deduction and (ii) remit the full amount deducted or withheld to the relevant authority in accordance with applicable law. Each of the Issuer and the Guarantors, as applicable, will make reasonable efforts to obtain certified copies of tax receipts evidencing the payment of any taxes so deducted or withheld from the Relevant Jurisdiction imposing such taxes. Upon request, the Issuer will furnish to the Holders, within 60 days after the date the payment of any taxes so deducted or withheld is due pursuant to applicable law, either certified copies of tax receipts evidencing such payment or, if such receipts are not obtainable, other evidence of such payments. At least 30 days prior to each date on which any payment under or with respect to the Notes is due and payable, if the Issuer or a Guarantor will be obligated to pay Additional Amounts with respect to such payment, the Issuer will deliver to the Trustee an Officers Certificate stating the fact that such Additional Amounts will be payable and the amounts so payable and will set forth such other information necessary to enable the Paying Agent to pay such Additional Amounts to the Holders on such payment date. 143

157 In addition, each of the Issuer and the Guarantors, as applicable, will pay any stamp, issue, registration, documentary, value added or other similar taxes and other duties (including interest and penalties) payable in any Relevant Jurisdiction in respect of the creation, issue, offering, execution or enforcement of the Notes, or any documentation with respect thereto. Whenever there is mentioned in any context the payment of principal, premium or interest in respect of any Note or under any Note Guarantee, such mention will be deemed to include payment of Additional Amounts provided for in the Indenture to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof. Redemption for Taxation Reasons The Notes may be redeemed, at the option of the Issuer, the Parent Guarantor or a Surviving Person, as a whole but not in part, upon giving not less than 30 days nor more than 60 days notice to the Holders (which notice will be irrevocable), at a redemption price equal to 100% of the principal amount thereof, together with accrued and unpaid interest, if any, and any Additional Amounts to (but not including) the date fixed by the Issuer, the Parent Guarantor or the Surviving Person, as the case may be, for redemption (the Tax Redemption Date ) if, as a result of: (1) any change in, or amendment to, the laws or any regulations or rulings promulgated thereunder of a Relevant Taxing Jurisdiction, excluding any applicable treaty with the Relevant Taxing Jurisdiction, affecting taxation; or (2) any change in, or amendment to, an official position regarding the application or interpretation of such laws, regulations or rulings (including a holding, judgment or order by a court of competent jurisdiction), which change or amendment becomes effective on or after the Original Issue Date (or, in the case of a Surviving Person or future Subsidiary Guarantor, the date such Person became a Surviving Person or Guarantor, as the case may be) with respect to any payment due or to become due under the Notes, the Indenture, the Intercompany Loan or a Note Guarantee, the Issuer, a Guarantor or the Surviving Person, as the case may be, is, or on the next Notes Interest Payment Date would be, required to pay Additional Amounts (or, in the case of any payment with respect to the Intercompany Loan, would be required to withhold or deduct any taxes, duties, assessments or governmental charges of whatever nature), and such requirement cannot be avoided by taking reasonable measures by the Issuer, a Guarantor or the Surviving Person, as the case may be; provided that changing the jurisdiction of the Issuer, a Guarantor or the Surviving Person is not a reasonable measure for the purposes of this section; provided further that no such notice of redemption will be given earlier than 90 days prior to the earliest date on which the Issuer, a Guarantor or the Surviving Person, as the case may be, would be obligated to pay such Additional Amounts (or, in the case of the Intercompany Loan, withhold or deduct such taxes, duties, assessments or governmental charges) if a payment in respect of the Notes (or on the Intercompany Loan, as applicable) were then due; provided further that where any such requirement to pay Additional Amounts (or withhold or deduct an amount from any payment with respect to the Intercompany Loan) is due to taxes of the Republic of Indonesia (or any political subdivision or taxing authority thereof or therein), the Issuer, the Parent Guarantor or the Surviving Person shall be permitted to redeem the Notes in accordance with the provisions above only if the rate of withholding or deduction in respect of which Additional Amounts are required (or in respect of which withholding is required on payments on the Intercompany Loan) is in excess of 20.0%. 144

158 The Issuer shall, at least 15 calendar days prior to the date the notice of redemption is to be sent to the Holders, notify the Trustee of such proposed Redemption Date and of the principal amount of the Notes to be redeemed. Prior to the mailing of any notice of redemption of the Notes pursuant to the foregoing, the Issuer or a Guarantor, as the case may be, and at their expense will deliver to the Trustee: (1) an Officers Certificate stating that such change or amendment referred to in the prior paragraph has occurred, and describing the facts related thereto and stating that such requirement cannot be avoided by the Issuer or such Guarantor, as the case may be, taking reasonable measures available to it; and (2) an Opinion of Counsel of recognized standing with respect to tax matters of the Relevant Taxing Jurisdiction, stating that the requirement to pay such Additional Amounts results from such change or amendment referred to in the prior paragraph. The Trustee will accept such certificate and opinion as sufficient evidence of the satisfaction of the conditions precedent described above, and it will be conclusive and binding on the Holders. The Trustee has no duty to investigate or verify such certificate and opinion. Any Notes that are redeemed will be cancelled. Offers to Purchase; Open Market Purchases Under certain circumstances, the Issuer may be required to offer to purchase Notes as described under the captions Repurchase of the Notes upon a Change of Control and Certain Covenants Limitation on Asset Sales. The Issuer or the Parent Guarantor may at any time and from time to time purchase Notes in the open market or otherwise. Certain Covenants Set forth below are summaries of certain covenants contained in the Indenture. Limitation on Indebtedness and Preferred Stock (a) (b) The Parent Guarantor will not, and will not permit any Restricted Subsidiary to, Incur any Indebtedness (including Acquired Indebtedness) or Preferred Stock (other than Disqualified Stock of Restricted Subsidiaries held by the Parent Guarantor, so long as it is so held); provided that the Parent Guarantor, the Issuer or any Subsidiary Guarantor may Incur Indebtedness (including Acquired Indebtedness) if, after giving effect to the Incurrence of such Indebtedness and the receipt and the application of the proceeds therefrom, (x) no Default has occurred and is continuing and (y) the Fixed Charge Coverage Ratio would be not less than 3.0 to 1.0. Notwithstanding the foregoing, the Parent Guarantor and, to the extent provided below, the Issuer, any Subsidiary Guarantor or any other Restricted Subsidiary, may Incur each and all of the following ( Permitted Indebtedness ): (1) Indebtedness of the Issuer under the Notes (excluding any Additional Notes), of the Parent Guarantor under the Parent Guarantee and Intercompany Loan and of each Subsidiary Guarantor under the respective Subsidiary Guarantee; 145

159 (2) Indebtedness of the Parent Guarantor or any Restricted Subsidiary outstanding on the Original Issue Date, excluding Indebtedness permitted under clause (b)(3) below; (3) Indebtedness of the Parent Guarantor, the Issuer or any Restricted Subsidiary owed to the Parent Guarantor, the Issuer or any Restricted Subsidiary; provided that (x) any event which results in any such Restricted Subsidiary to which such Indebtedness is owed ceasing to be a Restricted Subsidiary or any subsequent transfer of such Indebtedness (other than to the Parent Guarantor, the Issuer or any Restricted Subsidiary) will be deemed, in each case, to constitute an Incurrence of such Indebtedness not permitted by this clause (b)(3), (y) if the Parent Guarantor is the obligor on such Indebtedness, such Indebtedness must be unsecured and expressly be subordinated in right of payment to the Parent Guarantee and (z) if a Subsidiary Guarantor is the obligor on such Indebtedness and a Restricted Subsidiary that is not a Subsidiary Guarantor is the obligee, such Indebtedness must be unsecured and expressly subordinated in right of payment to the Subsidiary Guarantee of such Subsidiary Guarantor; (4) Indebtedness of the Parent Guarantor, the Issuer or any Restricted Subsidiary ( Permitted Refinancing Indebtedness ) issued in exchange for, or the net proceeds of which are used to refinance or refund, replace, exchange, renew, repay, defease, discharge or extend (collectively, refinance and refinances and refinanced shall have a correlative meaning), then-outstanding Indebtedness (or Indebtedness repaid substantially concurrently with but in any case before the Incurrence of such Permitted Refinancing Indebtedness) Incurred under clause (a) or clause (b)(1), (b)(2), (b)(10) or (b)(11) of this covenant and any refinancings thereof in an amount not to exceed the amount so refinanced or refunded (plus premiums, accrued interest, fees and expenses); provided that (A) Indebtedness the proceeds of which are used to refinance or refund the Notes or Indebtedness that is pari passu with, or subordinated in right of payment to, the Notes or a Note Guarantee will only be permitted under this clause (b)(4) if (x) in case the Notes are refinanced in part or the Indebtedness to be refinanced is pari passu with the Notes or a Note Guarantee, such new Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such new Indebtedness is outstanding, is expressly made pari passu with, or subordinate in right of payment to, the remaining Notes or such Note Guarantee, as the case may be, or (y) in case the Indebtedness to be refinanced is subordinated in right of payment to the Notes or a Note Guarantee, such new Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such new Indebtedness is issued or remains outstanding, is expressly made subordinate in right of payment to the Notes or such Note Guarantee, as the case may be, at least to the extent that the Indebtedness to be refinanced is subordinated to the Notes or such Note Guarantee, as the case may be, (B) such new Indebtedness, determined as of the date of Incurrence of such new Indebtedness, does not mature prior to the Stated Maturity of the Indebtedness to be refinanced or refunded, and the Average Life of such new Indebtedness is at least equal to the remaining Average Life of the Indebtedness to be refinanced or refunded, (C) in no event may Indebtedness of the Issuer or any Guarantor be refinanced pursuant to this clause by means of any Indebtedness of any Restricted Subsidiary that is not a Subsidiary Guarantor and (D) in no event may unsecured Indebtedness of the Issuer or any Guarantor be refinanced pursuant to this clause with secured Indebtedness; (5) Indebtedness Incurred by the Parent Guarantor or any Restricted Subsidiaries pursuant to Hedging Obligations entered into in the ordinary course of business and designed solely to protect the Parent Guarantor or any of the Restricted Subsidiaries from fluctuations in interest rates, commodity prices or currencies and not for speculation; 146

160 (6) Indebtedness arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from guarantees or letters of credit, surety bonds or performance bonds securing any obligation of the Parent Guarantor or any Restricted Subsidiary pursuant to such agreements, in any case, incurred in connection with the disposition of any business, assets or Capital Stock of a Restricted Subsidiary, other than guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or Capital Stock of a Restricted Subsidiary for the purpose of financing such acquisition; provided that the maximum aggregate liability in respect of all such Indebtedness shall at no time exceed the gross proceeds actually received by the Parent Guarantor or any Restricted Subsidiary in connection with such disposition; (7) Indebtedness Incurred by the Parent Guarantor or any Restricted Subsidiary arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business; provided, however, that such Indebtedness is repaid in full or otherwise extinguished within five Business Days of Incurrence; (8) Indebtedness Incurred by the Parent Guarantor or any Restricted Subsidiary (other than the Issuer Subsidiary) constituting reimbursement obligations with respect to workers compensation claims or self-insurance obligations or bid, performance or surety bonds (in each case in the ordinary course of business and other than for an obligation for borrowed money); (9) Indebtedness Incurred by the Parent Guarantor or any Restricted Subsidiary (other than the Issuer Subsidiary) constituting reimbursement obligations with respect to letters of credit, bankers acceptances and short form trade guarantees issued in the ordinary course of business to the extent that such letters of credit, bankers acceptances and short form trade guarantees are not drawn upon or, if drawn upon, to the extent such drawing is reimbursed no later than 30 days following receipt by the Parent Guarantor or such Restricted Subsidiary (other than the Issuer Subsidiary) of a demand for reimbursement; (10) Indebtedness of the Parent Guarantor or any Subsidiary Guarantor with a maturity of one year or less used for working capital purposes in an aggregate principal amount at any time outstanding (together with refinancings thereof and including any Indebtedness of the Parent Guarantor or any Subsidiary Guarantor of a maturity of one year or less Incurred pursuant to clause (b)(2) above, together with any refinancings thereof) not to exceed (i) the sum of 50% of Qualified Inventories and 50% of Qualified Receivables, less (ii) the aggregate amount of all Net Cash Proceeds applied by the Parent Guarantor or any Subsidiary Guarantor to permanently repay any such Indebtedness pursuant to the covenant described under the caption Limitation on Asset Sales ; (11) Indebtedness Incurred by the Parent Guarantor or any Subsidiary Guarantor represented by Capitalized Lease Obligations, mortgage financings or purchase money obligations in the ordinary course of business after the Original Issue Date to finance all or any part of the purchase price or cost of construction, installation or improvement of property (real or personal), plant or equipment (including through the acquisition of Capital Stock of any Person that owns property, plant or equipment which will, upon such acquisition, become a Restricted Subsidiary) to be used in the Permitted Business; provided that (i) such Indebtedness shall be Incurred no later than 90 days after the acquisition, construction, installation or improvement of such property (real or personal), plant or equipment and (ii) the aggregate principal amount of such Indebtedness at any time outstanding (together with refinancings thereof) shall not 147

161 exceed an amount equal to 7.5% of Total Assets as of the date of Incurrence of such Indebtedness, less the aggregate amount of all Net Cash Proceeds applied by the Parent Guarantor or any Subsidiary Guarantor to permanently repay any such Indebtedness pursuant to the covenant described under the caption Limitation on Asset Sales ; (12) guarantees by any Guarantor of Indebtedness of any other Guarantor that was permitted to be Incurred by another provision of this covenant; (13) guarantees by any Non-Guarantor Subsidiary of Indebtedness of any other Non- Guarantor Subsidiary that was permitted to be Incurred by another provision of this covenant; and (14) Indebtedness of any Non-Guarantor Subsidiary, provided that the aggregate principal amount outstanding of all such Indebtedness permitted by this clause (14) and the aggregate principal amount outstanding of Indebtedness of any Non-Guarantor Subsidiary permitted to be Incurred under clause (2) above (together with any refinancing thereof) does not exceed US$20.0 million (or the Dollar Equivalent thereof). (c) (d) For purposes of determining compliance with this Limitation on Indebtedness and Preferred Stock covenant, in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described above, including under the proviso in the first paragraph of this covenant, the Parent Guarantor, in its sole discretion, will classify, and from time to time may reclassify, such item of Indebtedness and only be required to include the amount of such Indebtedness as one of such types. Notwithstanding any other provision of this covenant, the maximum amount of Indebtedness that the Parent Guarantor or any Restricted Subsidiary may incur pursuant to this covenant shall not be deemed to be exceeded with respect to any outstanding Indebtedness solely as a result of fluctuations in exchange rates or currency values. Limitation on Restricted Payments The Parent Guarantor will not, and will not permit any Restricted Subsidiary to, directly or indirectly (the payments or any other actions described in clauses (1) through (4) below being collectively referred to as Restricted Payments ): (1) declare or pay any dividend or make any distribution on or with respect to the Parent Guarantor s or any Restricted Subsidiary s Capital Stock (other than dividends or distributions payable solely in shares of the Parent Guarantor s or any Restricted Subsidiary s Capital Stock (other than Disqualified Stock or Preferred Stock) or in options, warrants or other rights to acquire shares of such Capital Stock) held by Persons other than the Issuer, the Parent Guarantor or any Wholly-Owned Restricted Subsidiary; (2) purchase, call for redemption or redeem, retire or otherwise acquire for value any shares of Capital Stock of the Parent Guarantor, any Restricted Subsidiary or any direct or indirect parent of the Parent Guarantor (including options, warrants or other rights to acquire such shares of Capital Stock) held by any Persons other than the Issuer, the Parent Guarantor or any Wholly-Owned Restricted Subsidiary; (3) make any voluntary or optional principal payment, or voluntary or optional redemption, repurchase, defeasance, or other acquisition or retirement for value, of Subordinated Indebtedness (excluding (i) the Intercompany Loan or (ii) any intercompany Indebtedness between or among the Parent Guarantor and any Subsidiary Guarantor); or 148

162 (4) make any Investment, other than a Permitted Investment, if, at the time of, and after giving effect to, the proposed Restricted Payment: (A) (B) (C) a Default has occurred and is continuing or would occur as a result of such Restricted Payment; the Parent Guarantor could not Incur at least US$1.00 of Indebtedness under the proviso in clause (a) of the covenant under the caption Limitation on Indebtedness and Preferred Stock ; or such Restricted Payment, together with the aggregate amount of all Restricted Payments made by the Parent Guarantor and its Restricted Subsidiaries after the Original Issue Date, would exceed the sum of: (1) 50% of the aggregate amount of the Consolidated Net Income of the Parent Guarantor (or, if the Consolidated Net Income is a loss, minus 100% of the amount of such loss) accrued on a cumulative basis during the period (taken as one accounting period) beginning on the first day of the fiscal quarter in which the Original Issue Date occurs and ending on the last day of the Parent Guarantor s most recently ended fiscal quarter for which consolidated financial statements of the Parent Guarantor (which the Parent Guarantor will use its reasonable efforts to compile in a timely manner) are available and have been provided to the Trustee at the time of such Restricted Payment; plus (2) 100% of the aggregate Net Cash Proceeds received by the Parent Guarantor after the Original Issue Date as a capital contribution to its common equity or from the issuance and sale of its Capital Stock (other than Disqualified Stock) to a Person who is not a Subsidiary of the Parent Guarantor, including any such Net Cash Proceeds received upon (x) the conversion by a Person who is not a Subsidiary of the Parent Guarantor of any Indebtedness (other than Subordinated Indebtedness) of the Parent Guarantor into Capital Stock (other than Disqualified Stock) of the Parent Guarantor, or (y) the exercise by a Person who is not a Subsidiary of the Parent Guarantor of any options, warrants or other rights to acquire Capital Stock of the Parent Guarantor (other than Disqualified Stock), in each case after deducting the amount of any such Net Cash Proceeds used to redeem, repurchase, defease or otherwise acquire or retire for value any Subordinated Indebtedness or Capital Stock of the Parent Guarantor; plus (3) an amount equal to the net reduction in Investments (other than reductions in Permitted Investments) that were made after the Original Issue Date in any Person resulting from (a) payments of interest on Indebtedness, dividends or repayments of loans or advances by such Person, in each case to the Parent Guarantor or any Restricted Subsidiary (except, in each case, to the extent any such payment or proceeds are included in the calculation of Consolidated Net Income) after the Original Issue Date, (b) to the extent that an Investment made after the Original Issue Date is sold or otherwise liquidated or repaid for cash, the lesser of (x) cash return of capital with respect to such Investment (less the cost of disposition, if any) and (y) the initial amount of such Investment, or (c) from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries, not to exceed, in each case, the amount of Investments (other than Permitted Investments) previously made by the Parent Guarantor or a Restricted Subsidiary after the Original Issue Date in any such Person. 149

163 The foregoing provision will not be violated by reason of: (1) the payment of any dividend or redemption of any Capital Stock within 60 days after the related date of declaration or call for redemption if, at said date of declaration or call for redemption, such payment or redemption would comply with the preceding paragraph; (2) the redemption, repurchase, defeasance or other acquisition or retirement for value of Subordinated Indebtedness of the Issuer, the Parent Guarantor or any Subsidiary Guarantor with the Net Cash Proceeds of, or in exchange for, a substantially concurrent Incurrence of Permitted Refinancing Indebtedness; (3) the redemption, repurchase, defeasance or other acquisition or retirement for value of Subordinated Indebtedness or Capital Stock of the Parent Guarantor (or options, warrants or other rights to acquire such Capital Stock) in exchange for, or out of the Net Cash Proceeds of a substantially concurrent capital contribution or sale (other than a capital contribution by or sale to a Subsidiary of the Parent Guarantor) of, shares of the Capital Stock (other than Disqualified Stock) of the Parent Guarantor (or options, warrants or other rights to acquire such Capital Stock); provided that the amount of any such Net Cash Proceeds that are utilized for any such Restricted Payment will be excluded from clause (C)(2) of the preceding paragraph; (4) the payment of any dividends or distributions declared, paid or made by a Restricted Subsidiary payable, on a pro rata basis or on a basis more favorable to the Parent Guarantor, to all holders of any class of Capital Stock of such Restricted Subsidiary, a majority of which is held, directly or indirectly through Restricted Subsidiaries, by the Parent Guarantor, (5) a Permitted Investment made under clause (3) of the definition thereof; or (6) any Restricted Payment in an aggregate amount, taken together with all other Restricted Payments made in reliance on this clause (6), not to exceed US$10.0 million (or the Dollar Equivalent thereof). provided that in the case of clause (2), (3), (5) or (6) above, no Default will have occurred and be continuing or would occur as a consequence of the actions or payments set forth therein and no failure by the Issuer to make a required payment of interest on the Notes will have occurred and remain uncured. Each Restricted Payment permitted pursuant to the preceding paragraph (other than pursuant to clauses (2) and (3) and, in the case the Parent Guarantor delivers to the Trustee an opinion of fairness to the Parent Guarantor of the transaction made under clause (3) of the definition of Permitted Investment issued by an accounting, appraisal or investment banking firm of recognized international standing, clause (5)) will be included in calculating whether the conditions of clause (C) of the first paragraph of this Limitation on Restricted Payments covenant have been met with respect to any subsequent Restricted Payments, and the Net Cash Proceeds from any capital contribution or sale of Capital Stock referred to in clause (3) of the preceding paragraph shall not be included in such calculation. The amount of any Restricted Payments (other than cash) will be the Fair Market Value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Parent Guarantor or the Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. The value of any assets or securities that are required to be valued by this covenant will be the Fair Market Value. The Board of Directors determination of the Fair Market Value of a Restricted Payment or any such assets or securities must be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of recognized international standing if the Fair Market Value exceeds US$10.0 million (or the Dollar Equivalent thereof). 150

164 Not later than the date of making any Restricted Payment in an amount in excess of US$10.0 million (or the Dollar Equivalent thereof), the Parent Guarantor will deliver to the Trustee an Officers Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this Limitation on Restricted Payments covenant were computed, together with a copy of any fairness opinion or appraisal required by the Indenture. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries (a) Except as provided below, the Parent Guarantor will not, and will not permit any Restricted Subsidiary to, create or otherwise cause or permit to exist or become effective any encumbrance or restriction of any kind on the ability of any Restricted Subsidiary to: (1) pay dividends or make any other distributions on any Capital Stock of such Restricted Subsidiary owned by the Parent Guarantor or any other Restricted Subsidiary; (2) pay any Indebtedness or other obligation owed to the Parent Guarantor or any other Restricted Subsidiary; (3) make loans or advances to the Parent Guarantor or any other Restricted Subsidiary; or (4) sell, lease or transfer any of its property or assets to the Parent Guarantor or any other Restricted Subsidiary. (b) The provisions of paragraph (a) do not apply to any encumbrances or restrictions: (1) existing in agreements as in effect on the Original Issue Date, or in the Notes, the Note Guarantees, the Indenture, the Intercompany Loan and any extensions, refinancings, renewals or replacements of any of the foregoing agreements; provided that the encumbrances and restrictions in any such extension, refinancing, renewal or replacement, taken as a whole, are no more restrictive in any material respect to the Holders than those encumbrances or restrictions that are then in effect and that are being extended, refinanced, renewed or replaced; (2) existing under or by reason of applicable law, rule, regulation, license, concession, approval, decree or order of any Governmental Instrumentality with jurisdiction over the relevant Restricted Subsidiary; (3) existing with respect to any Person or the property or assets of such Person acquired by the Parent Guarantor or any Restricted Subsidiary, existing at the time of such acquisition and not incurred in contemplation thereof, which encumbrances or restrictions are not applicable to any Person or the property or assets of any Person other than such Person or the property or assets of such Person so acquired, and any extensions, refinancings, renewals or replacements thereof; provided that the encumbrances and restrictions in any such extension, refinancing, renewal or replacement, taken as a whole, are no more restrictive in any material respect to the Holders than those encumbrances or restrictions that are then in effect and that are being extended, refinanced, renewed or replaced; (4) that otherwise would be prohibited by the provision described in clause (a)(4) of this covenant if they arise, or are agreed to, in the ordinary course of business and that (i) restrict in a customary manner the subletting, assignment or transfer of any property or asset that is subject to a lease or license, (ii) exist by virtue of any Lien on, or agreement to transfer, option or similar right with respect to, any property or assets of the Parent Guarantor or any Restricted Subsidiary not otherwise prohibited by the Indenture or (iii) do not relate to any Indebtedness, and that do not, individually or in the aggregate, 151

165 detract from the value of property or assets of the Parent Guarantor or any Restricted Subsidiary in any manner material to the Parent Guarantor or any Restricted Subsidiary; (5) with respect to a Restricted Subsidiary and imposed pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock of, or property and assets of, such Restricted Subsidiary that is permitted by the Limitation on Sales and Issuances of Capital Stock in Restricted Subsidiaries, Limitation on Indebtedness and Preferred Stock and Limitation on Asset Sales covenants; or (6) with respect to any Restricted Subsidiary and imposed pursuant to an agreement that has been entered into for the Incurrence of Indebtedness permitted under clauses (b)(4) or (b)(11) of the Limitation on Indebtedness and Preferred Stock covenant if, as determined by the Board of Directors, the encumbrances or restrictions are (i) customary for such type of agreement and (ii) would not, at the time agreed to, be expected to materially and adversely affect the ability of the Issuer to make required payment on the Notes. Limitation on Sales and Issuances of Capital Stock in Restricted Subsidiaries The Parent Guarantor will not sell, and will not permit any Restricted Subsidiary, directly or indirectly, to issue or sell, any shares of Capital Stock of a Restricted Subsidiary (including in each case options, warrants or other rights to purchase shares of such Capital Stock) except: (1) to the Parent Guarantor, the Issuer or a Wholly Owned Restricted Subsidiary; (2) to the extent such Capital Stock represents director s qualifying shares or is required by applicable law to be held by a Person other than the Parent Guarantor or a Wholly Owned Restricted Subsidiary; (3) the issuance or sale of Capital Stock of a Restricted Subsidiary (other than the Issuer Subsidiary) which remains a Restricted Subsidiary after any such issuance or sale; provided that the Parent Guarantor or such Restricted Subsidiary applies the Net Cash Proceeds of such issuance or sale in accordance with the Limitation on Asset Sales covenant; and (4) the issuance or sale of Capital Stock of a Restricted Subsidiary (other than the Issuer Subsidiary) if, immediately after giving effect to such issuance or sale, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary and any remaining Investment in such Person would have been permitted to be made under the Limitation on Restricted Payments covenant if made on the date of such issuance or sale and provided that the Parent Guarantor complies with the Limitation on Asset Sales covenant. Limitation on Issuances of Guarantees by Restricted Subsidiaries The Parent Guarantor will not permit any Restricted Subsidiary that is not a Subsidiary Guarantor, directly or indirectly, to guarantee any Indebtedness ( Guaranteed Indebtedness ) of the Parent Guarantor, the Issuer or any Subsidiary Guarantor, unless (a) such Restricted Subsidiary simultaneously executes and delivers a supplemental indenture to the Indenture providing for an unsubordinated Subsidiary Guarantee of payment of the Notes by such Restricted Subsidiary and (b) such Restricted Subsidiary waives and will not in any manner whatsoever claim or take the benefit or advantage of, any rights of reimbursement, indemnity or subrogation or any other rights against the Parent Guarantor, the Issuer or any other Restricted Subsidiary as a result of any payment by such Restricted Subsidiary under its Subsidiary Guarantee until the Notes have been paid in full. 152

166 If the Guaranteed Indebtedness (1) ranks pari passu in right of payment with the Notes or any Note Guarantee, then the guarantee of such Guaranteed Indebtedness will rank pari passu in right of payment with, or be subordinated to, the Note Guarantees or (2) is subordinated in right of payment to the Notes or any Note Guarantees, then the guarantee of such Guaranteed Indebtedness will be subordinated in right of payment to the Note Guarantees at least to the extent that the Guaranteed Indebtedness is subordinated to the Notes or the Note Guarantees. Limitation on Transactions with Shareholders and Affiliates The Parent Guarantor will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into, renew or extend any transaction or arrangement (including, without limitation, the purchase, sale, lease or exchange of property or assets, or the rendering of any service) with (x) any holder (or any Affiliate of such holder) of 5% or more of any class of Capital Stock of the Parent Guarantor or (y) any Affiliate of the Parent Guarantor (each an Affiliate Transaction ), unless: (1) the Affiliate Transaction is on fair and reasonable terms that are no less favorable to the Parent Guarantor or such Restricted Subsidiary, as the case may be, than those that would have been obtained, at the time of such transaction, in a comparable arm s-length transaction by the Parent Guarantor or such Restricted Subsidiary with a Person that is not such a holder or an Affiliate of the Parent Guarantor or such Restricted Subsidiary; and (2) the Parent Guarantor delivers to the Trustee: (a) (b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of US$5.0 million (or the Dollar Equivalent thereof), a Board Resolution set forth in an Officers Certificate certifying that such Affiliate Transaction complies with this covenant and such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors; and with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of US$10.0 million (or the Dollar Equivalent thereof), in addition to the Board Resolution required in clause (2)(a) above, an opinion as to the fairness to the Parent Guarantor or such Restricted Subsidiary, as the case may be, of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of recognized international standing. The foregoing limitation does not limit, and will not apply to: (1) the payment of reasonable and customary regular fees to directors and commissioners of the Parent Guarantor or any Restricted Subsidiary who are not employees of the Parent Guarantor or any Restricted Subsidiary; (2) transactions otherwise permitted under the Indenture between or among the Parent Guarantor and any Wholly-Owned Restricted Subsidiary or between or among Wholly- Owned Restricted Subsidiaries; (3) any Restricted Payment of the type described in clause (1) or (2) of the first paragraph of the covenant described under the caption Limitation on Restricted Payments if not prohibited by that covenant; (4) the issuance or sale of any Capital Stock (other than Disqualified Stock) of the Parent Guarantor; and 153

167 (5) the payment of compensation to officers of the Parent Guarantor or any Restricted Subsidiary pursuant to an employee stock or share option or other incentive scheme, so long as such scheme is in compliance with the listing rules of Indonesia Stock Exchange, which as of the Original Issue Date require a majority shareholder approval of any such scheme. In addition, the requirements of clause (2) of the first paragraph of this covenant will not apply to (a) Investments (other than Permitted Investments) not prohibited by the Limitation on Restricted Payments covenant, (b) any transaction between or among the Parent Guarantor and any Restricted Subsidiary that is not a Wholly-Owned Restricted Subsidiary; provided that (i) such transaction is entered into in the ordinary course of business and (ii) none of the minority shareholders or minority partners of or in any such Restricted Subsidiary is a Person described in clauses (x) or (y) of the first paragraph of this covenant or (c) any transaction between or among the Parent Guarantor, the Issuer or the Issuer Subsidiary permitted under the Indenture. Limitation on Liens The Parent Guarantor will not, and will not permit any Restricted Subsidiary to, directly or indirectly, incur, assume or permit to exist any Lien of any nature whatsoever on any of its assets or properties of any kind, whether owned at the Original Issue Date or thereafter acquired, except Permitted Liens, unless the Notes are secured equally and ratably with (or, if the obligation to be secured by such Lien is subordinated in right of payment to the Notes or any Note Guarantee, prior to) the obligations so secured for so long as such obligations are so secured. Limitation on Sale and Leaseback Transactions The Parent Guarantor will not, and will not permit any Restricted Subsidiary to, enter into any Sale and Leaseback Transaction; provided that the Parent Guarantor may enter into a Sale and Leaseback Transaction if: (1) the Parent Guarantor could have (a) incurred Indebtedness in an amount equal to the Attributable Indebtedness relating to such Sale and Leaseback Transaction under the covenant described under Limitation on Indebtedness and Preferred Stock and (b) incurred a Lien to secure such Indebtedness pursuant to the covenant described under the caption Limitation on Liens, in which case, the corresponding Indebtedness and Lien will be deemed incurred pursuant to those provisions; (2) the gross cash proceeds of that Sale and Leaseback Transaction are at least equal to the Fair Market Value of the property that is the subject of such Sale and Leaseback Transaction; and (3) the transfer of assets in that Sale and Leaseback Transaction is permitted by, and the Parent Guarantor applies the proceeds of such transaction in compliance with, the covenant described under the caption Limitation on Asset Sales. Limitation on Asset Sales The Parent Guarantor will not, and will not permit any Restricted Subsidiary to, consummate any Asset Sale, unless: (1) no Default will have occurred and be continuing or would occur as a result of such Asset Sale; (2) the consideration received by the Parent Guarantor or such Restricted Subsidiary, as the case may be, is at least equal to the Fair Market Value of the assets sold or disposed of; 154

168 (3) in the case of an Asset Sale that constitutes an Asset Disposition, the Parent Guarantor could Incur at least US$1.00 of Indebtedness under the proviso in clause (a) of the covenant under the caption Limitation on Indebtedness and Preferred Stock prior to and after giving pro forma effect to such Asset Disposition; and (4) at least 75% of the consideration received consists of cash, Temporary Cash Investment or the Replacement Assets; provided that in the case of an Asset Sale in which the Parent Guarantor or such Restricted Subsidiary receives Replacement Assets involving aggregate consideration in excess of US$5 million (or the Dollar Equivalent thereof), the Parent Guarantor shall deliver to the Trustee an opinion of fairness to the Parent Guarantor or such Restricted Subsidiary of such Asset Sale from a financial point of view issued by an accounting, appraisal or investment banking firm of recognized international standing. For purposes of this provision, each of the following will be deemed to be cash: (a) (b) (c) any liabilities, as shown on the Parent Guarantor s most recent consolidated balance sheet, of the Parent Guarantor or any Restricted Subsidiary (other than liabilities that are contingent or by their terms subordinated to the Notes or any Note Guarantee) that are assumed by the transferee of any such assets pursuant to a customary assumption, assignment, novation or similar agreement that irrevocably and unconditionally releases the Parent Guarantor or such Restricted Subsidiary, as the case may be, from further liability; any securities, notes or other obligations received by the Parent Guarantor or any Restricted Subsidiary from such transferee that are promptly, but in any event within 30 days of closing, converted by the Parent Guarantor or such Restricted Subsidiary, as the case may be, into cash, to the extent of the cash received in that conversion; and any Capital Stock or assets referred to in clauses (2) and (3) of the next paragraph. Within 360 days after the receipt of any Net Cash Proceeds from an Asset Sale, the Parent Guarantor (or the applicable Restricted Subsidiary, as the case may be) will apply such Net Cash Proceeds to: (1) permanently repay any unsubordinated Indebtedness of the Parent Guarantor or a Subsidiary Guarantor (and, if such Indebtedness repaid is revolving credit Indebtedness, to correspondingly reduce commitments with respect thereto) in each case owing to a Person other than the Parent Guarantor or a Restricted Subsidiary; (2) acquire properties or assets other than current assets that will be used in the Permitted Businesses ( Replacement Assets ) (provided that this clause (2) shall be satisfied if the Parent Guarantor (or the applicable Restricted Subsidiary, as the case may be) (x) enters into a definitive agreement committing to invest the relevant amount in Replacement Assets within 360 days of the receipt of such Net Cash Proceeds and (y) actually invests such amount in Replacement Assets with 180 days after entering into such definitive agreement); or (3) acquire all or substantially all of the assets of, or any Capital Stock of, any entity involved in the Permitted Business, if, after giving effect to any such acquisition of Capital Stock, such entity involved in the Permitted Business is or becomes a Restricted Subsidiary. Any Net Cash Proceeds from Asset Sales that are not applied or invested as provided in the immediately preceding paragraph will constitute Excess Proceeds. Excess Proceeds of less than US$10.0 million (or the Dollar Equivalent thereof) will be carried forward and accumulated. 155

169 When accumulated Excess Proceeds exceed US$10.0 million (or the Dollar Equivalent thereof), within 10 days thereof, the Parent Guarantor or the Issuer must make an Offer to Purchase Notes having a principal amount equal to: (1) accumulated Excess Proceeds, multiplied by; (2) a fraction (x) the numerator of which is equal to the outstanding principal amount of the Notes and (y) the denominator of which is equal to the outstanding principal amount of the Notes and all pari passu Indebtedness similarly required to be repaid, redeemed or tendered for in connection with the Asset Sale, rounded down to the nearest US$1,000. The offer price in any Offer to Purchase will be equal to 100% of the principal amount plus accrued and unpaid interest to (but not including) the date of purchase, and will be payable in cash. If any Excess Proceeds remain after consummation of an Offer to Purchase, such remaining Excess Proceeds may be used for any general corporate purpose not prohibited by the Indenture. If the aggregate principal amount of Notes (and any other pari passu Indebtedness) tendered in such Offer to Purchase exceeds the amount of Excess Proceeds, the Trustee may (but shall not be obliged to) in its sole and absolute discretion select the Notes (and such other pari passu Indebtedness) to be purchased on a pro rata basis. The Trustee shall not be liable for such selection and such selection will be conclusive and binding on the Holders and the Issuer. Upon completion of each Offer to Purchase, the amount of Excess Proceeds will be reset at zero. Pending application of any Net Cash Proceeds from any Asset Sale in the manner described in this covenant Limitation on Asset Sales, the Parent Guarantor (or the applicable Restricted Subsidiary, as the case may be) may invest the portion of such Net Cash Proceeds not yet so applied in Temporary Cash Investments with a maturity of 30 days or less; provided that such investment of the Net Cash Proceeds in Temporary Cash Investments shall not extend the time periods for application of the Net Cash Proceeds prescribed by this covenant. Notwithstanding the provisions of this covenant Limitation on Asset Sales, the Issuer and the Parent Guarantor will not, and will not permit the Issuer Subsidiary to, sell the Intercompany Loan. Limitation on the Parent Guarantor s Business Activities The Parent Guarantor will not, and will not permit any Restricted Subsidiary to, directly or indirectly, engage in any business other than Permitted Businesses; provided, however, that the Parent Guarantor or any Restricted Subsidiary (other than the Issuer Subsidiary) may own Capital Stock of an Unrestricted Subsidiary or joint venture or other entity that is engaged in a business other than a Permitted Business as long as any Investment therein was not prohibited when made by the covenant under the caption Limitation on Restricted Payments. Limitation on the Activities of the Issuer Notwithstanding anything contained in the Indenture to the contrary, the Issuer will not engage in any business activity or undertake any other activity, except any activity (a) relating to the offering, sale or issuance of the Notes, the incurrence of Indebtedness represented by the Notes or any Additional Notes issued under the Indenture, (b) relating to the offering, sale or issuance of debt obligations similar to the Notes in the future and the incurrence of Indebtedness represented by such debt obligations (and in connection with which the Issuer transfers the proceeds thereof as provided in the following clause (c)), (c) transfering the proceeds of debt issuances under clauses (a) and (b) to the Issuer Subsidiary, whether as a contribution as share premium on new or existing shares in the capital of the Issuer Subsidiary and whether or not with a subsequent conversion of all or a portion of such share premium into share capital, the granting of loans to the Issuer Subsidiary, or otherwise, (d) undertaken with the purpose of fulfilling any obligations under the 156

170 Indebtedness referred to in clauses (a) and (b) or the Indenture or any future indenture related to such Indebtedness or for purposes of consent solicitation or tender for such Indebtedness or refinancing of such Indebtedness and/or (e) directly related to the establishment and/or maintenance of the Issuer s corporate existence. The Issuer will not (a) issue any Capital Stock other than the issuance of its ordinary shares to the Parent Guarantor, or (b) acquire or receive any property or assets (including, without limitation, any Capital Stock or Indebtedness of any Person), other than (x) the Capital Stock of the Issuer Subsidiary, and (y) cash for ongoing corporate activities of the Issuer described in the preceding paragraph. The Issuer will at all times remain a Wholly-Owned Restricted Subsidiary of the Parent Guarantor. In the event that the Issuer is the obligor on Indebtedness owed to the Issuer Subsidiary, such Indebtedness must be unsecured and expressly subordinated in right of payment to the Notes. Whenever the Issuer receives a dividend or distribution on the Capital Stock of the Issuer Subsidiary, it shall use all or substantially all of the funds received solely to satisfy its obligations (to the extent of the amount owing in respect of such obligations) as described in (a) and (b) of the first paragraph under this caption. For so long as any Notes are outstanding, none of the Issuer, the Issuer Subsidiary or the Parent Guarantor will commence or take any action to cause a winding-up or liquidation of the Issuer or the Issuer Subsidiary except that the Issuer may be wound up or liquidated subsequent to a consolidation, merger or transfer of assets conducted in accordance with the first paragraph of the covenant described under the caption Consolidation, Merger and Sale of Assets. Amendments to or Prepayments of the Intercompany Loan The Issuer will transfer the net proceeds of the offering of the Notes, after deducting underwriting discounts and other estimated expenses relation to the offering, to the Issuer Subsidiary by way of contribution on new and/or existing shares of, and/or a loan to, the Issuer Subsidiary. The net proceeds of such transfer to the Issuer Subsidiary will be on-lent to the Parent Guarantor pursuant to the Intercompany Loan. The Intercompany Loan will be subordinated in right of payment to the Parent Guarantee. Without the consent of the holders of at least a majority in aggregate principal amount of the Notes then outstanding, the Issuer and the Parent Guarantor will not, and will not permit any Restricted Subsidiary to, (i) prepay or otherwise reduce or permit the prepayment or reduction of the Intercompany Loan or (ii) amend, modify or alter the instrument governing the Intercompany Loan in any manner adverse to the Holders; provided that, without the consent of all holders, the Issuer and the Parent Guarantor will not, and will not permit any Restricted Subsidiary to, amend, modify or alter the Intercompany Loan to: (1) change the Stated Maturity of such loan; (2) change the currency for payment of principal or interest on such loan; or (3) reduce the above-stated percentage of Notes the consent of whose holders is necessary to modify or amend such loans. Notwithstanding the foregoing, without the consent of any Holder of Notes, the Intercompany Loan may be amended solely (x) to provide for the issuance of Additional Notes, and may be prepaid or reduced to facilitate or otherwise accommodate or reflect a redemption, repurchase or exchange of outstanding Notes in accordance with the terms of the Indenture or through any 157

171 tender offer or exchange offer or (y) to reduce any withholding or deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature imposed or levied by or within any jurisdiction in which the Issuer or the Parent Guarantor is organized or resident for tax purposes; provided that in the case of clause (y), prior to such amendment, the Issuer or the Parent Guarantor will (at its own costs) deliver to the Trustee an Opinion of Counsel or an opinion of a tax consultant of recognized international standing that such amendment will reduce such withholding or deduction. The Issuer and the Parent Guarantor will not, and will not permit the Issuer Subsidiary to, sell the Intercompany Loan or to directly or indirectly, incur, assume or permit to exist any Lien on the Intercompany Loan. Maintenance of Insurance The Parent Guarantor will, and will cause each Restricted Subsidiary, to maintain insurance with reputable and financially sound carriers against such risks and in such amounts as is customarily carried by similarly situated businesses in the jurisdictions in which the Parent Guarantor or such Restricted Subsidiary conducts its businesses, including, without limitation, property and casualty insurance. Designation of Restricted and Unrestricted Subsidiaries The Board of Directors may designate any Restricted Subsidiary (other than the Issuer or the Issuer Subsidiary) to be an Unrestricted Subsidiary; provided that (i) no Default shall have occurred and be continuing at the time of or giving effect to such designation; (ii) such Restricted Subsidiary does not own any Disqualified Stock of the Parent Guarantor or Disqualified or Preferred Stock of another Restricted Subsidiary or hold any Indebtedness of, or any Lien on any property of, the Parent Guarantor or any Restricted Subsidiary, (iii) such Restricted Subsidiary has no outstanding Indebtedness that could trigger a cross-default to the Indebtedness of the Parent Guarantor or any other Restricted Subsidiary; (iv) neither the Parent Guarantor nor any Restricted Subsidiary guarantees or provides credit support for the Indebtedness or other liabilities of such Restricted Subsidiary; (v) such Restricted Subsidiary does not own any Capital Stock of another Restricted Subsidiary, and all of its Subsidiaries are Unrestricted Subsidiaries or are being concurrently designated to be Unrestricted Subsidiaries in accordance with this paragraph; (vi) the Investment deemed to have been made thereby in such newly-designated Unrestricted Subsidiary and each other newly-designated Unrestricted Subsidiary being concurrently redesignated would be permitted to be made by the covenant described under Limitation on Restricted Payments ; and (vii) such Unrestricted Subsidiary does not own or operate or possess any material license, franchise or right used in connection with the ownership or operation of any part of the Parent Guarantor s or its Restricted Subsidiaries business, the loss of which by such Subsidiary will not, after giving pro forma effect thereto, materially adversely affect the business, results of operations or prospects of the Parent Guarantor and its Restricted Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that (i) no Default shall have occurred and be continuing at the time of or giving effect to such designation; (ii) any Indebtedness of such Unrestricted Subsidiary outstanding at the time of such designation which will be deemed to have been Incurred by such newly-designated Restricted Subsidiary as a result of such designation would be permitted to be Incurred by the covenant described under the caption Limitation on Indebtedness and Preferred Stock ; (iii) any Lien on the property of such Unrestricted Subsidiary at the time of such designation which will be deemed to have been incurred by such newly-designated Restricted Subsidiary as a result of such designation would be permitted to be incurred by the covenant described under the caption Limitation on Liens ; (iv) such Unrestricted Subsidiary is not a Subsidiary of another Unrestricted Subsidiary (that is not concurrently being designated as a Restricted Subsidiary); 158

172 and (v) such Restricted Subsidiary will upon such designation execute and deliver (at the Issuer s expense) to the Trustee a supplemental indenture to the Indenture by which such Restricted Subsidiary will become a Subsidiary Guarantor. The Issuer Subsidiary will at all times remain a Wholly-Owned Subsidiary of the Issuer and a Restricted Subsidiary of the Parent Guarantor. Use of Proceeds The Issuer, the Issuer Subsidiary and the Parent Guarantor (as applicable) will use the net proceeds received from the Notes as set forth in this offering memorandum. Pending application of all such net proceeds in such manner, the Issuer, Subsidiary Guarantors and Parent Guarantor may invest the portion of such net proceeds not yet so applied to Temporary Cash Investments. Government Approvals and Licenses; Compliance with Law The Parent Guarantor will, and will cause each Restricted Subsidiary to, (1) obtain and maintain in full force and effect all governmental approvals, authorizations, consents, permits, concessions and licenses as are necessary to engage in the Permitted Businesses; (2) preserve and maintain good and valid title to its properties and assets (including land-use rights) free and clear of any Liens other than Permitted Liens; and (3) comply with all laws, regulations, orders, judgments and decrees of any governmental body, except to the extent that failure so to obtain, maintain, preserve and comply would not reasonably be expected to have a material adverse effect on (a) the business, results of operations or prospects of the Parent Guarantor and its Restricted Subsidiaries taken as a whole or (b) the ability of the Parent Guarantor or any Subsidiary Guarantor to perform its obligations under the Notes, the relevant Note Guarantee or the Indenture. Anti-Layering The Issuer will not Incur, and the Parent Guarantor will not and will not permit any Subsidiary Guarantor to Incur, any Indebtedness if such Indebtedness is contractually subordinated in right of payment to any other Indebtedness of the Issuer, the Parent Guarantor or such Subsidiary Guarantor, as the case may be, unless such Indebtedness is also contractually subordinated in right of payment to the Notes or the applicable Note Guarantee, on substantially the same terms. This does not apply to distinctions between categories of Indebtedness that exist by reason of any Liens or guarantees securing or in favor of some but not all of such Indebtedness. Provision of Financial Statements and Reports (a) So long as any of the Notes remain outstanding, the Parent Guarantor will file with the Trustee and furnish to the Holders upon request, as soon as they are available but in any event not more than 10 calendar days after they are filed with Indonesia Stock Exchange or any other recognized exchange on which the Parent Guarantor s common shares are at any time listed for trading, true and correct copies of any financial report in the English language filed with such exchange; provided that if at any time the Common Stock of the Parent Guarantor ceases to be listed for trading on a recognized stock exchange, the Parent Guarantor will file with the Trustee and furnish to the Holders: (1) as soon as they are available, but in any event within 120 calendar days after the end of the fiscal year of the Parent Guarantor, copies of its financial statements (on a consolidated basis and in the English language) of the Parent Guarantor in respect of such financial year (including a statement of income, balance sheet and cash flow statement) prepared in accordance with Indonesian GAAP and audited by a member firm of an internationally recognized firm of independent accountants; and 159

173 (2) as soon as they are available, but in any event within 45 calendar days after the end of each of the first, second and third fiscal quarters of the Parent Guarantor, copies of its unaudited financial statements (on a consolidated basis and in the English language) including a statement of income, balance sheet and cash flow statement, prepared on a basis consistent with the audited financial statements of the Parent Guarantor together with a certificate signed by the person then authorized to sign financial statements on behalf of the Parent Guarantor to the effect that such financial statements are true in all material respects and present fairly the financial position of the Parent Guarantor as at the end of, and the results of its operations for, the relevant quarterly period. (b) In addition, so long as any of the Notes remain outstanding, the Parent Guarantor will provide to the Trustee (1) within 120 days after the end of each fiscal year and within 14 days of request made by the Trustee, an Officers Certificate stating the Fixed Charge Coverage Ratio with respect to the four most recent fiscal quarters and showing in reasonable detail the calculation of the Fixed Charge Coverage Ratio, including the arithmetic computations of each component of the Fixed Charge Coverage Ratio, with a certificate from the Parent Guarantor s external auditors verifying the accuracy and correctness of the calculation and arithmetic computation and (2) as soon as possible and in any event within 21 days after the Parent Guarantor becomes aware or should reasonably become aware of the occurrence of a Default, an Officers Certificate setting forth the details of the Default, and the action which the Parent Guarantor proposes to take with respect thereto. Further, the Issuer and the Parent Guarantor have agreed that, during any period in which the Issuer, the Parent Guarantor is neither subject to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act ), nor exempt from reporting pursuant to Rule 12g3-2(b) thereunder, the Issuer or the Parent Guarantor, as the case may be, will supply to (i) any Holder or beneficial owner of a Note or (ii) a prospective purchaser of a Note or a beneficial interest therein designated by such Holder or beneficial owner, the information specified in, and meeting the requirements of Rule 144A(d)(4) under the Securities Act upon the request of any Holder or beneficial owner of a Note. Events of Default The following events will be defined as Events of Default in the Indenture with respect to the Notes: (a) (b) (c) (d) default in the payment of principal of (or premium, if any, on) the Notes when the same becomes due and payable at maturity, upon acceleration, redemption or otherwise; default in the payment of interest or Additional Amounts on any Note when the same becomes due and payable, and such default continues for a period of 30 days; default in the performance or breaches of the provisions of the covenants described under Consolidation, Merger and Sale of Assets ; Certain Covenants Limitation on Indebtedness and Preferred Stock ; Certain Covenants Limitation on Restricted Payments ; or Certain Covenants Limitation on Liens; or fails to make or consummate an Offer to Purchase in the manner described under the captions Repurchase of Notes Upon a Change of Control ; or Certain Covenants Limitation on Asset Sales ; the Parent Guarantor or any Restricted Subsidiary defaults in the performance of or breaches any other covenant or agreement in the Indenture or under the Notes (other than a default specified in clause (a), (b) or (c) above) and such default or breach continues for a period of 30 consecutive days after written notice by the Trustee or the Holders of 25% or more in aggregate principal amount of the Notes; 160

174 (e) (f) (g) (h) (i) (j) there occurs with respect to any Indebtedness of the Parent Guarantor or any Restricted Subsidiary having an outstanding principal amount of US$7.5 million (or the Dollar Equivalent thereof) or more in the aggregate for all such Indebtedness of all such Persons, whether such Indebtedness now exists or will hereafter be created, (A) an event of default that has caused the holder thereof to declare such Indebtedness to be due and payable prior to its Stated Maturity or (B) the failure to make a principal payment of or interest or premium (subject to the applicable grace period in the relevant documents on, or any other amounts in respect of, such Indebtedness when the same becomes due and payable; one or more final judgments or orders for the payment of money are rendered against the Parent Guarantor or any of its Restricted Subsidiaries and are not paid or discharged, and there is a period of 60 consecutive days following entry of the final judgment or order that causes the aggregate amount for all such final judgments or orders outstanding and not paid or discharged against all such Persons to exceed US$7.5 million (or the Dollar Equivalent thereof) during which a stay of enforcement, by reason of a pending appeal or otherwise, is not in effect; an involuntary case or other proceeding is commenced against the Parent Guarantor or any Restricted Subsidiary with respect to it or its debts under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect seeking the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Parent Guarantor or any Restricted Subsidiary or for any substantial part of the property and assets of the Parent Guarantor or any Restricted Subsidiary and such involuntary case or other proceeding remains undismissed and unstayed for a period of 60 consecutive days; or an order for relief is entered against the Parent Guarantor or any Restricted Subsidiary under any applicable bankruptcy, insolvency or other similar law as now or hereafter in effect; the Parent Guarantor or any Restricted Subsidiary (A) commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law, (B) consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Parent Guarantor or any Restricted Subsidiary or for all or substantially all of the property and assets of the Parent Guarantor or any Restricted Subsidiary or (C) effects any general assignment for the benefit of creditors; any Guarantor denies or disaffirms its obligations under its Note Guarantee or, except as permitted by the Indenture, any Note Guarantee is determined in any judicial proceeding to be unenforceable or invalid or will for any reason cease to be in full force and effect; or revocation, termination, suspension or other cessation of effectiveness of any license, consent, approval, permit or other authorization, which results in the cessation or suspension of the Parent Guarantor s operations for a period of more than 30 consecutive days. If an Event of Default (other than an Event of Default specified in clause (g), (h) or (i) above) occurs and is continuing under the Indenture, the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes, then outstanding, by written notice to the Issuer (and to the Trustee if such notice is given by the Holders), may, and the Trustee at the written request of such Holders will, (subject to being indemnified and/or secured and/or pre-funded to its absolute satisfaction) declare the principal of, premium, if any, and accrued and unpaid interest on the Notes to be immediately due and payable. Upon a declaration of acceleration, such principal of, premium, if any, and accrued and unpaid interest will be immediately due and payable. If an Event of Default specified in clause (g), (h) or (i) above occurs with respect to the Parent Guarantor or any Restricted Subsidiary, the principal of, premium, if any, and accrued and unpaid interest on the Notes then outstanding will automatically become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. 161

175 The Holders of at least a majority in principal amount of the outstanding Notes by written notice to the Issuer and to the Trustee, may on behalf of all of the Holders waive all past defaults and rescind and annul a declaration of acceleration and its consequences with respect to the Notes if: (x) (y) all existing Events of Default, other than the nonpayment of the principal of, premium, if any, and interest on the Notes that have become due solely by such declaration of acceleration, have been cured or waived, and the rescission would not conflict with any judgment or decree of a court of competent jurisdiction. Upon such waiver, the Default will cease to exist, and any Event of Default arising therefrom will be deemed to have been cured, but no such waiver will extend to any subsequent or other Default or impair any right consequent thereon. The Holders of at least a majority in aggregate principal amount of the outstanding Notes may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee with respect to the Notes or exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or the Indenture, that may involve the Trustee in personal liability or cause it to expend or risk its own funds or otherwise incur any financial liability in following such direction, or that the Trustee determines may be unduly prejudicial to the rights of Holders not joining in the giving of such direction and may take any other action it deems proper that is not inconsistent with any such direction received from Holders. A Holder may not pursue or institute any proceeding, judicial or otherwise, with respect to the Indenture or the Notes, or for the appointment of a receiver or trustee, or for any other remedy under the Indenture or the Notes, unless: (1) the Holder has previously given the Trustee written notice of a continuing Event of Default; (2) the Holders of at least 25% in aggregate principal amount of outstanding Notes make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer the Trustee security and/or indemnity and/or pre-funding satisfactory to the Trustee against any costs, liability or expense to be incurred in compliance with such written request; (4) the Trustee does not comply with the request within 60 days after receipt of the written request and the offer of indemnity and/or security and/or pre-funding; and (5) during such 60-day period, the Holders of a majority in aggregate principal amount of the outstanding Notes do not give the Trustee a written direction that is inconsistent with the request. However, such limitations do not apply to the right of any Holder of a Note to receive payment of the principal of, premium, if any, or interest, and Additional Amounts, if any, on, such Note or any payment under any Note Guarantee or to bring suit for the enforcement of any such payment, on or after the due date expressed in the Notes, which right will not be impaired or affected without the consent of the Holder. Officers of each of the Issuer and the Parent Guarantor must certify to the Trustee, on or before a date not more than 120 days after the end of each fiscal year, that a review has been conducted of the activities of the Parent Guarantor and its Restricted Subsidiaries and the Parent Guarantor s and its Restricted Subsidiaries performance under the Indenture and the Notes and 162

176 that each of the Issuer, the Parent Guarantor and each Restricted Subsidiary have fulfilled all of their respective obligations thereunder, or, if there has been a default in the fulfilment of any such obligation, specifying each such default and the nature and status thereof. The Issuer and the Parent Guarantor will also be obligated to notify the Trustee of any default or defaults in the performance of any covenants or agreements under the Indenture. See Provision of Financial Statements and Reports. Consolidation, Merger and Sale of Assets The Issuer will not consolidate with, merge with or into, another Person (other than the Parent Guarantor), permit any Person to merge with or into it, or sell, convey, transfer, lease or otherwise dispose of all of its properties and assets to any Person (other than the Parent Guarantor); provided that, in the event the Issuer so consolidates with, merges with or into, the Parent Guarantor or sells, conveys, transfers, leases or otherwise disposes of all or substantially all of its properties and assets to the Parent Guarantor, the Parent Guarantor immediately after such transaction, will (a) assume, by a supplemental indenture to the Indenture, executed and delivered to the Trustee, all the obligations of the Issuer under the Indenture and the Notes, which shall remain in full force and effect and (b) deliver to the Trustee an Officers Certificate and an Opinion of Counsel, in each case stating that such transaction and such supplemental indenture complies with this provision and that all conditions precedent provided for herein relating to such transaction have been complied with. The Parent Guarantor will not consolidate with, merge with or into another Person, permit any Person to merge with or into it, or sell, convey, transfer, lease or otherwise dispose of all or substantially all of its and its Restricted Subsidiaries properties and assets (computed on a consolidated basis) (as an entirety or substantially an entirety in one transaction or a series of related transactions), unless: (1) the Parent Guarantor will be the continuing Person, or the Person (if other than it) formed by such consolidation or merger or that acquired or leased such property and assets (the Surviving Person ) will be a corporation organized and validly existing under the laws of Indonesia and will expressly assume, by a supplemental indenture to the Indenture, executed and delivered to the Trustee, all the obligations of the Parent Guarantor under the Indenture, the Notes and the Parent Guarantee, as the case may be, and the Indenture, the Notes and the Parent Guarantee, as the case may be, will remain in full force and effect; (2) immediately after giving effect to such transaction, no Default will have occurred and be continuing; (3) immediately after giving effect to such transaction on a pro forma basis, the Parent Guarantor or the Surviving Person, as the case may be, shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of the Parent Guarantor immediately prior to such transaction; (4) immediately after giving effect to such transaction on a pro forma basis, the Parent Guarantor or the Surviving Person, as the case may be, could Incur at least US$1.00 of Indebtedness under the proviso in clause (a) of the covenant under the caption Certain Covenants Limitation on Indebtedness and Preferred Stock ; (5) the Issuer or the Parent Guarantor delivers to the Trustee (x) an Officers Certificate (attaching the arithmetic computations to demonstrate compliance with clauses (3) and (4) of this paragraph) and (y) an Opinion of Counsel, in each case stating that such consolidation, merger or transfer and the relevant supplemental indenture complies with this provision and that all conditions precedent provided for in the Indenture relating to such 163

177 transaction have been complied with and that the relevant supplemental indenture is enforceable. The Trustee shall be entitled to conclusively rely on such certificate and shall have no responsibility to verify the arithmetic computations; (6) each Guarantor shall execute and deliver a supplemental indenture to the Indenture confirming that its Note Guarantee shall apply to the obligations of the Parent Guarantor or the Surviving Person, as the case may be, in accordance with the Notes and the Indenture; and (7) no Rating Decline will have occurred. No Subsidiary Guarantor will consolidate with, merge with or into another Person, permit any Person to merge with or into it, or sell, convey, transfer, lease or otherwise dispose of all or substantially all of its and its Restricted Subsidiaries properties and assets (computed on a consolidated basis) (as an entirety or substantially an entirety in one transaction or a series of related transactions) to another Person (other than the Parent Guarantor or another Subsidiary Guarantor), unless: (1) such Subsidiary Guarantor will be the continuing Person, or the Person (if other than it) formed by such consolidation or merger or that acquired or leased such property and assets will be the Parent Guarantor or another Subsidiary Guarantor or will become a Subsidiary Guarantor concurrently with the transaction; (2) immediately after giving effect to such transaction, no Default will have occurred and be continuing; (3) immediately after giving effect to such transaction on a pro forma basis, the Parent Guarantor shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of the Parent Guarantor immediately prior to such transaction; (4) immediately after giving effect to such transaction on a pro forma basis, the Parent Guarantor could incur at least US$1.00 of Indebtedness under the proviso in clause (a) of the covenant under the caption Certain Covenants Limitation on Indebtedness and Preferred Stock ; (5) the Issuer or the Parent Guarantor delivers to the Trustee (x) an Officers Certificate (attaching the arithmetic computations to demonstrate compliance with clauses (3) and (4) of this paragraph) and (y) an Opinion of Counsel, in each case stating that such consolidation, merger or transfer and the relevant supplemental indenture complies with this provision and that all conditions precedent provided for in the Indenture relating to such transaction have been complied with and that the relevant supplemental indenture is enforceable; (6) each Guarantor shall execute and deliver a supplemental indenture to the Indenture confirming that its Note Guarantee shall apply to the obligations of the Parent Guarantor or the Surviving Person, as the case may be, in accordance with the Notes and the Indenture; and (7) no Rating Decline will have occurred; provided that this paragraph will not apply to (a) any sale or other disposition that complies with the Certain Covenants Limitation on Asset Sales covenant or any Subsidiary Guarantor whose Subsidiary Guarantee is unconditionally released in accordance with the provisions described under The Subsidiary Guarantees Release of the Subsidiary Guarantees and (2) a consolidation or merger of any Subsidiary Guarantor with and into the Parent Guarantor or any other Subsidiary Guarantor, so long as the Parent Guarantor or such Subsidiary Guarantor survives such consolidation or merger. 164

178 Although there is a limited body of case law interpreting the phrase substantially all, there is no precise established definition of the phrase under applicable law. Accordingly, in certain circumstances there may be a degree of uncertainty as to whether a particular transaction would involve all or substantially all of the property or assets of a Person. The foregoing provisions would not necessarily afford Holders protection in the event of highly-leveraged or other transactions involving the Parent Guarantor that may adversely affect Holders. No Payments for Consents The Parent Guarantor will not, and will not permit any of its Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture, the Notes or any Note Guarantee, unless such consideration is offered to be paid or is paid to all Holders that consent, waive or agree to amend such term or provision within the time period set forth in the solicitation documents relating to such consent, waiver or amendment. Notwithstanding the foregoing, the Issuer shall be permitted, in any offer or payment of consideration for, or as an inducement to, any consent, waiver or amendment of any of the terms or provisions of the Indenture, to exclude Holders in any jurisdiction where (A) the solicitation of such consent, waiver or amendment in the manner deemed appropriate by the Issuer and the payment of consideration therefor would require the Issuer or the Parent Guarantor to (i) file a registration statement, prospectus or similar document or subject the Issuer or the Parent Guarantor to ongoing periodic reporting or similar requirements under any securities laws (including, but not limited to, the United States federal securities laws and the laws of the European Union or its member states), (ii) qualify as a foreign corporation or other entity or as a dealer in securities in such jurisdiction if it is not otherwise required to so qualify, (iii) generally consent to service of process in any such jurisdiction or (iv) subject the Issuer or the Parent Guarantor to taxation in any such jurisdiction if it is not otherwise so subject; or (B) such solicitation would otherwise not be permitted under applicable law in such jurisdiction. Defeasance Defeasance and Discharge The Indenture will provide that the Issuer will be deemed to have paid and will be discharged from any and all obligations in respect of the Notes on the 183rd day after the deposit referred to below and payments of all amounts due to the Trustee, and the provisions of the Indenture will no longer be in effect with respect to the Notes (except for, among other matters, certain obligations to register the transfer or exchange of the Notes, to replace stolen, lost or mutilated Notes, to maintain paying agencies and to hold monies for payment in trust) if, among other things: (A) the Issuer has (1) deposited with the Trustee, in trust, cash in U.S. dollars, U.S. Government Obligations or a combination thereof that through the payment of interest and principal in respect thereof in accordance with their terms will provide money in an amount sufficient to pay the principal of, premium, if any, and accrued interest on the Notes on the Stated Maturity of such payments in accordance with the terms of the Indenture and the Notes and (2) delivered to the Trustee a certificate of an internationally recognized firm of independent accountants to the effect that the amount deposited by the Issuer is sufficient to provide payment for the principal of, premium, if any, and accrued interest on, the Notes on the Stated Maturity of such payment in accordance with the terms of the Indenture and the Notes and an Opinion of Counsel to the effect that the Holders have a valid, perfected, exclusive security in such trust; 165

179 (B) (C) (D) the Issuer has delivered to the Trustee (1) either (x) an Opinion of Counsel of recognized international standing with respect to U.S. federal income tax matters which is based on a change in applicable U.S. federal income tax law occurring after the Original Issue Date to the effect that beneficial owners will not recognize income, gain or loss for U.S. federal income tax purposes as a result of the Issuer s exercise of its option under this Defeasance provision and will be subject to U.S. federal income tax on the same amount and in the same manner and at the same time as would have been the case if such deposit, defeasance and discharge had not occurred or (y) a ruling directed to the Trustee received from the U.S. Internal Revenue Service to the same effect as the aforementioned Opinion of Counsel and (2) an Opinion of Counsel of recognized international standing to the effect that the creation of the defeasance trust does not violate the U.S. Investment Company Act of 1940, as amended, and after the passage of 183 days following the deposit, the trust fund will not be subject to the effect of Section 547 of the United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law; the Issuer shall have delivered to the Trustee an Officers Certificate stating that the deposit was not made by it with the intent of preferring the Holders over any other of its creditors or with the intent of defeating, hindering, delaying or defrauding any other of its creditors or others; and immediately after giving effect to such deposit on a pro forma basis, no Event of Default, or event that after the giving of notice or lapse of time or both would become an Event of Default, will have occurred and be continuing on the date of such deposit or during the period ending on the 183rd day after the date of such deposit, and such defeasance will not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Parent Guarantor or any of its Restricted Subsidiaries is a party or by which the Parent Guarantor or any of its Restricted Subsidiaries is bound. In the case of either discharge or defeasance of the Notes, the Note Guarantees will terminate. Defeasance of Certain Covenants The Indenture further will provide that the provisions of the Indenture applicable to the Notes will no longer be in effect with respect to clauses (3) and (4) under the second paragraph and third paragraph under Consolidation, Merger and Sale of Assets and all the covenants described herein under Certain Covenants other than as described Certain Covenants Anti-Layering, clause (c) under Events of Default with respect to such clauses (3) and (4) under the second paragraph and third paragraph under Consolidation, Merger and Sale of Assets and with respect to the other events set forth in such clause, clause (d) under Events of Default with respect to such other covenants and clauses (e), (f), (i) and (j) under Events of Default will be deemed not to be Events of Default upon, among other things, the deposit with the Trustee, in trust, of U.S. dollars, U.S. Government Obligations or a combination thereof that through the payment of interest and principal in respect thereof in accordance with their terms will provide money in an amount sufficient to pay the principal of, premium, if any, Additional Amounts, if any, and accrued interest on the Notes on the Stated Maturity of such payments in accordance with the terms of the Indenture and the Notes, the satisfaction of the provisions described in clause (B) (2) and (C) of the preceding paragraph and the delivery by the Issuer to the Trustee of an Opinion of Counsel of recognized international standing with respect to U.S. federal income tax matters to the effect that the beneficial owners of the Notes will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such deposit and defeasance of certain covenants and Events of Default and will be subject to U.S. federal income tax on the same amount and in the same manner and at the same time as would have been the case if such deposit and defeasance had not occurred. 166

180 Defeasance and Certain Other Events of Default If in the event (i) the Issuer exercises its option to omit compliance with certain covenants and provisions of the Indenture as described in the immediately preceding paragraph and the Notes are declared due and payable because of the occurrence of an Event of Default that remains applicable and (ii) the amount of U.S. dollars and/or U.S. Government Obligations on deposit with the Trustee will be sufficient to pay amounts due on the Notes at the time of their Stated Maturity but may not be sufficient to pay amounts due on the Notes at the time of the acceleration resulting from such Event of Default, the obligations of the Issuer and the Parent Guarantors under the Indenture will be revived and no such defeasance will be deemed to have occurred. Amendments and Waivers Amendments Without Consent of Holders The Indenture may be amended, without the consent of any Holder of Notes, to: (1) cure any ambiguity, defect, omission or inconsistency in the Indenture, the Note Guarantees or the Notes; (2) comply with the provisions described under Consolidation, Merger and Sale of Assets ; (3) evidence and provide for the acceptance of appointment by a successor Trustee or collateral agent; (4) release any Guarantor from any Note Guarantee as provided or permitted by the terms of the Indenture or add any Guarantor or any Note Guarantee; (5) provide for the issuance of Additional Notes in accordance with the limitations set forth in the Indenture; (6) in any other case where a supplemental indenture to the Indenture is required or permitted to be entered into pursuant to the provisions of the Indenture without the consent of any Holder; (7) effect any changes to the Indenture in a manner necessary to comply with the procedures of DTC; (8) conform the text of the Indenture, the Notes or the Note Guarantees to any provision of this Description of the Notes to the extent that such provision in this Description of the Notes was intended to be a verbatim recitation of a provision of the Indenture, the Notes or the Note Guarantees; or (9) make any other change that does not materially and adversely affect the rights of any Holder of Notes. Amendments With Consent of Holders Except as provided below, amendments of the Indenture, the Note Guarantees or the Notes may be made by the Issuer, the Parent Guarantor, the Subsidiary Guarantors and the Trustee with the consent of the Holders of not less than a majority in aggregate principal amount of the outstanding Notes, and the holders of a majority in principal amount of the outstanding Notes may waive future compliance by the Issuer, the Parent Guarantor or the Subsidiary Guarantors with any provision of the Indenture, the Notes or the Note Guarantees; provided, however, that no such modification, amendment or waiver may, without the consent of each Holder: 167

181 (1) change the Stated Maturity of the principal of, or any instalment of interest on, any Note; (2) reduce the principal amount of, or premium, if any, or interest on, any Note; (3) change the currency, time or place of payment of principal of, or premium, if any, or interest on, any Note; (4) impair the right to institute suit for the enforcement of any payment on or after the Stated Maturity (or, in the case of a redemption, on or after the redemption date) of any Note or any Note Guarantee; (5) reduce the above stated percentage of outstanding Notes the consent of whose Holders is necessary to modify or amend the Indenture; (6) waive a default in the payment of principal of, premium, if any, or interest on the Notes; (7) release any Guarantor from its Note Guarantee, except as provided in the Indenture; (8) reduce the percentage or aggregate principal amount of outstanding Notes the consent of whose Holders is necessary for waiver of compliance with certain provisions of the Indenture or for waiver of certain defaults; (9) amend, change or modify any Note Guarantee in a manner that adversely affects the Holders; (10) reduce the amount payable upon a Change of Control Offer or an Offer to Purchase with the Excess Proceeds from any Asset Sale or, change the time or manner by which a Change of Control Offer or an Offer to Purchase with the Excess Proceeds or other proceeds from any Asset Sale may be made or by which the Notes must be repurchased pursuant to a Change of Control Offer or an Offer to Purchase with the Excess Proceeds or other proceeds from any Asset Sale; (11) change the redemption date or the redemption price of the Notes from that stated under the captions Optional Redemption or Redemption for Taxation Reasons ; (12) amend, change or modify the obligation of the Issuer or any Guarantor to pay Additional Amounts; or (13) amend, change or modify any provision of the Indenture or the related definition affecting the ranking of the Notes or any Note Guarantee in a manner which adversely affects the Holders. The consent of the Holders is not necessary to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment. After an amendment becomes effective, the Issuer is required to mail to each Holder at such Holder s address appearing in the Register a notice briefly describing such amendment. However, the failure to give such notice to all Holders, or any defect therein, will not impair or affect the validity of the amendment. Unclaimed Money Claims against the Issuer for the payment of principal of, premium, if any, or interest, on the Notes will become void unless presentation for payment is made as required in the Indenture within a period of six years. 168

182 No Personal Liability of Incorporators, Shareholders, Officers, Directors or Employees No recourse for the payment of the principal of, premium, if any, or interest on any of the Notes or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Issuer, the Parent Guarantor or any of the Subsidiary Guarantors in the Indenture, or in any of the Notes or the Note Guarantees or because of the creation of any Indebtedness represented thereby, will be had against any incorporator, shareholder, officer, commissioners director, employee or controlling person of the Issuer, the Parent Guarantor or any of the Subsidiary Guarantors or of any successor Person thereof. Each Holder, by accepting the Notes, waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes and the Note Guarantees. Such waiver may not be effective to waive liabilities under the applicable securities laws. Concerning the Trustee, the Paying Agent and the Registrar The Bank of New York Mellon is to be appointed as Trustee under the Indenture, and also as registrar and paying agent (the Paying Agent ) with regard to the Notes. Except during the continuance of a Default, the Trustee will not be liable for any other duties, except for the performance of such duties as are specifically set forth in the Indenture. If an Event of Default has occurred and is continuing, the Trustee will use the same degree of care and skill in its exercise of the rights and powers vested in it under the Indenture as a prudent person would exercise under the circumstances in the conduct of such person s own affairs. If the Issuer maintains a paying agent in a European Union member state, then it will ensure that it maintains a paying agent in a European Union member state that will not be obliged to withhold or deduct tax pursuant to European Council Directive 2003/48/EC or any other directive implementing the conclusions of the ECOFIN Council meeting of November 2000 (each, a Directive ) or any law implementing or complying with, or introduced in order to conform to, such Directive. The Indenture contains limitations on the rights of the Trustee, should it become a creditor of the Issuer, the Parent Guarantor or any of the Subsidiary Guarantors, to obtain payment of claims in certain cases or to realize on certain property received by it in respect of any such claims, as security or otherwise. The Trustee is permitted to engage in other transactions with the Parent Guarantor and its Affiliates; provided, however, that if it acquires any conflicting interest, it must eliminate such conflict or resign. The Trustee will be under no obligation to exercise any rights or powers conferred under the Indenture for the benefit of the Holders unless such Holders have offered to the Trustee indemnity and/or security satisfactory to the Trustee against any loss, liability or expense. In the exercise of its duties, the Trustee shall not be responsible for the verification of the accuracy or completeness of any certification, opinion or other documents submitted to it by the Issuer or the Parent Guarantor and is entitled to rely conclusively on the information contained therein. Notwithstanding anything described herein, the Trustee has no duty to monitor the performance or compliance of the Issuer, the Parent Guarantor or any Restricted Subsidiary in the fulfilment of their respective obligations under the Indenture and the Notes. For so long as the Notes are listed on the SGX-ST and the rules of the SGX-ST so require, the Issuer will appoint and maintain a paying agent in Singapore, where the Notes may be presented or surrendered for payment or redemption, if definitive Notes are issued in exchange for Global Notes. The Issuer will announce through the SGX-ST any issue of definitive Notes in exchange for Global Notes, including in the announcement all material information on the delivery of the definitive Notes and details of the paying agent in Singapore. 169

183 The Issuer will also maintain one registrar (the Registrar ) with an office in the Borough of Manhattan, The City of New York. The initial Registrar will be The Bank of New York Mellon. The Registrar will maintain a register reflecting ownership of the Notes outstanding from time to time and will make payments on and facilitate transfer of the Notes on behalf of the Issuer. The Issuer may change the Paying Agents or the Registrar without prior notice to the Holders, but only if the Issuer pays Additional Amounts, as defined below, with respect to taxes that may result from such change. Book-Entry; Delivery and Form The certificates representing the Notes will be issued in fully registered form without interest coupons, Notes sold in offshore transactions in reliance on Regulation S under the Securities Act will initially be represented by one or more permanent global notes in definitive, fully registered form without interest coupons (each a Regulation S Global Note ) and will be deposited with The Bank of New York Mellon as custodian for, and registered in the name of a nominee of, DTC for the accounts of Euroclear and Clearstream. Notes sold in reliance on Rule 144A will be represented by one or more permanent global notes in definitive, fully registered form without interest coupons (each a Rule 144A Global Note ; and together with the Regulation S Global Notes, the Global Notes ) and will be deposited with The Bank of New York Mellon as custodian for, and registered in the name of a nominee of, DTC. Each Global Note (and any Notes issued for exchange therefor) will be subject to certain restrictions on transfer set forth therein as described under Transfer Restrictions. Ownership of beneficial interests in a Global Note will be limited to persons who have accounts with DTC ( participants ) or persons who hold interests through participants. Ownership of beneficial interests in a Global Note will be shown on, and the transfer of that ownership will be effected only through, records maintained by DTC or its nominee (with respect to interests of participants) and the records of participants (with respect to interests of persons other than participants). Beneficial owners may hold their interests in a Global Note directly through DTC if they are participants in such system, or indirectly through organizations which are participants in such system. Euroclear and Clearstream will hold interests in the Global Notes on behalf of their participants through DTC. So long as DTC, or its nominee, is the registered owner or holder of a Global Note, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the Notes represented by such Global Note for all purposes under the Indenture and the Notes. No beneficial owner of an interest in a Global Note will be able to transfer that interest except in accordance with DTC s applicable procedures, in addition to those provided for under the Indenture and, if applicable, those of Euroclear and Clearstream. Payments of the principal of, and interest on, a Global Note will be made to DTC or its nominee, as the case may be, as the registered owner thereof. Neither the Issuer, the Parent Guarantor nor any of the Subsidiary Guarantors, the Trustee nor the Agents will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in a Global Note or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. 170

184 The Issuer expects that DTC or its nominee, upon receipt of any payment of principal or interest in respect of a Global Note, will credit participants accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of such Global Note as shown on the records of DTC or its nominee. The Issuer also expects that payments by participants to owners of beneficial interests in such Global Note held through such participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payments will be the responsibility of such participants. The Issuer expects that DTC will take any action permitted to be taken by a holder of Notes (including the presentation of Notes for exchange as described below) only at the direction of one or more participants to whose account the DTC interests in a Global Note is credited and only in respect of such portion of the aggregate principal amount of Notes as to which such participant or participants has or have given such direction. However, if there is an Event of Default under the Notes, DTC will exchange the applicable Global Note for Certificated Notes, which it will distribute to its participants and which may be legended as set forth under the heading Transfer Restrictions. The Issuer understands that: DTC is a limited purpose trust company organized under the laws of the State of New York, a banking organization within the meaning of New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the Uniform Commercial Code and a Clearing Agency registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participants and to facilitate the clearance and settlement of securities transactions between participants through electronic book-entry changes in accounts of its participants, thereby eliminating the need for physical movement of securities certificates. Indirect access to the DTC system is available to others such as banks, brokers, dealers and trust companies and certain other organizations that clear through or maintain a custodial relationship with a participant, either directly or indirectly ( indirect participants ). Although DTC, Euroclear and Clearstream are expected to follow the foregoing procedures in order to facilitate transfers of interests in a Global Note among participants of DTC, Euroclear and Clearstream, they are under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. None of the Issuer, the Parent Guarantor, any of the Subsidiary Guarantors, the Trustee or the Agents will have any responsibility for the performance by DTC, Euroclear or Clearstream or their respective participants or indirect participants of their respective obligations under the rules and procedures governing their operations. If DTC is at any time unwilling or unable to continue as a depositary for the Global Notes and a successor depositary is not appointed by the Issuer within 90 days, the Issuer will issue Certificated Notes in registered form, which may bear the legend referred to under Transfer Restrictions, in exchange for the Global Notes. Holders of an interest in a Global Note may receive Certificated Notes, which may bear the legend referred to under Transfer Restrictions, in accordance with the DTC s rules and procedures in addition to those provided for under the Indenture. 171

185 The Clearing Systems General DTC, Euroclear and Clearstream have advised the Issuer as follows: DTC. DTC is a limited-purpose trust company organized under the laws of the State of New York, a banking organization within the meaning of New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities of its participants and to facilitate the clearance and settlement of securities transactions among its participants in such securities through electronic book-entry changes in accounts of its participants, thereby eliminating the need for physical movement of securities certificates. DTC s participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations, some of whom own DTC, and may include the initial purchaser. Indirect access to the DTC system is also available to others that clear through or maintain a custodial relationship with a DTC participant, either directly or indirectly ( indirect participants ). Transfers of ownership or other interests in Notes in DTC may be made only through DTC participants. In addition, beneficial owners of Notes in DTC will receive all distributions of principal of and interest on the Notes from the Trustee through such DTC participant. Euroclear and Clearstream. Euroclear and Clearstream hold securities for participating organizations and facilitate the clearance and settlement of securities transactions between their respective participants through electronic book-entry changes in accounts of such participants. Euroclear and Clearstream provide to their participants, among other things, services for safekeeping, administration, clearance and settlement of internationally-traded securities and securities lending and borrowing. Euroclear and Clearstream interface with domestic securities markets. Euroclear and Clearstream participants are financial institutions such as underwriters, securities brokers and dealers, banks, trust companies and certain other organizations. Indirect access to Euroclear or Clearstream is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Euroclear or Clearstream participant, either directly or indirectly. Initial Settlement Investors interests in Notes held in book-entry form by DTC will be represented through financial institutions acting on their behalf as direct and indirect participants in DTC. As a result, Euroclear and Clearstream will hold positions on behalf of their participants through DTC. Investors electing to hold their Notes through DTC (other than through accounts at Euroclear or Clearstream) must follow the settlement practices applicable to United States corporate debt obligations. The securities custody accounts of investors will be credited with their holdings against payment in same day funds on the settlement date. Investors electing to hold their Notes through Euroclear or Clearstream accounts will follow the settlement procedures applicable to conventional Eurobonds in registered form. Notes will be credited to the securities custody accounts of Euroclear Holders and of Clearstream Holders on the Business Day following the settlement date against payment for value on the settlement date. 172

186 Secondary Market Trading Secondary market trading between DTC participants will occur in the ordinary way in accordance with DTC rules. Secondary market trading between Clearstream participants and/or Euroclear participants will occur in the ordinary way in accordance with the applicable rules and operating procedures of Clearstream and Euroclear and will be settled using the procedures applicable to conventional eurobonds. Cross-market transfers between persons holding directly or indirectly through DTC, on the one hand, and directly or indirectly through Clearstream participants or Euroclear participants, on the other, will be effected in DTC in accordance with DTC rules on behalf of the relevant European international clearing system by its U.S. depositary; however, such cross-market transactions will require delivery of instructions to the relevant European international clearing system by the counterparty in such system in accordance with its rules and procedures and within its established deadlines (European time). The relevant European international clearing system will, if a transaction meets its settlement requirements, deliver instructions to its U.S. depositary to take action to effect final settlement on its behalf by delivering or receiving Notes in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Clearstream participants and Euroclear participants may not deliver instructions directly to the U.S. depositaries. Because of time zone differences, credits of Notes received in Clearstream or Euroclear as a result of a transaction with a DTC participant will be made during subsequent securities settlement processing and dated the Business Day following the DTC settlement date. Such credits or any transactions in such Notes settled during such processing will be reported to the relevant Clearstream participants or Euroclear participants on such Business Day. Cash received in Clearstream or Euroclear as a result of sales of Notes by or through a Clearstream participant or a Euroclear participant to a DTC participant will be received with value on the DTC settlement date but will be available in the relevant Clearstream or Euroclear cash account only as of the Business Day following settlement in DTC. Notices All notices or demands required or permitted by the terms of the Notes or the Indenture to be given to or by the Holders are required to be in writing (in English) and may be given or served by being sent by prepaid courier or by being deposited, first-class postage prepaid, in the United States mails (if intended for the Issuer, the Parent Guarantor or any Subsidiary Guarantor) addressed to the Issuer, the Parent Guarantor or such Subsidiary Guarantor, as the case may be, at the registered office of the Issuer; (if intended for the Trustee) addressed to the Trustee at the specified corporate trust administration office of the Trustee; and (if intended for any Holder) addressed to such Holder at such Holder s last address as it appears in the Note register. Any such notice or demand will be deemed to have been sufficiently given or served when so sent or deposited and, if to the Holders, when delivered in accordance with the applicable rules and procedures of DTC. Any such notice will be deemed to have been delivered on the day such notice is delivered to DTC or if by mail, when so sent or deposited. Consent to Jurisdiction; Service of Process The Issuer, the Parent Guarantor and each of the Subsidiary Guarantors will irrevocably (i) submit to the non-exclusive jurisdiction of any U.S. federal or New York state court located in the Borough of Manhattan, The City of New York in connection with any suit, action or proceeding arising out 173

187 of, or relating to, the Notes, any Note Guarantee or the Indenture or any transaction contemplated thereby and (ii) designate and appoint CT Corporation for receipt of service of process in any such suit, action or proceeding. Governing Law Each of the Notes, the Parent Guarantee, each of the Subsidiary Guarantees and the Indenture provides that such instrument will be governed by, and construed in accordance with, the laws of the State of New York without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. Definitions Set forth below are defined terms used in the covenants and other provisions of the Indenture. Reference is made to the Indenture for other capitalized terms used in this Description of the Notes for which no definition is provided. Acquired Indebtedness means Indebtedness of a Person existing at the time such Person becomes a Restricted Subsidiary or Indebtedness of a Restricted Subsidiary assumed in connection with an Asset Acquisition by such Restricted Subsidiary and not Incurred in connection with, or in contemplation of, the Person merging with or into or becoming a Restricted Subsidiary or such Asset Acquisition. Additional Amounts has the meaning assigned to such term under the caption Additional Amounts. Adjusted Treasury Rate means, with respect to any redemption date, the rate per annum equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date. Affiliate means, with respect to any Person, any other Person (i) directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person; (ii) who is a director, commissioner or officer of such Person or any Subsidiary of such Person or of any Person referred to in clause (i) of this definition; or (iii) who is a spouse, child or step child, parent or step parent, brother, sister, step brother or step sister, spouse of a brother or sister (or step brother or step sister), parent-in-law, grandchild, grandparent, uncle, aunt, nephew or niece of a Person described in clause (i) or (ii) of this definition. For purposes of this definition, control (including, with correlative meanings, the terms controlling, controlled by and under common control with ), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. Applicable Premium means, with respect to a Note at any redemption date, the greater of (1) 1.00% of the principal amount of such Note and (2) the excess of (A) the present value at such redemption date of the redemption price of such Note on May 2, 2016 (such redemption price being described in the first paragraph in the Optional Redemption section exclusive of any accrued interest), plus all required remaining scheduled interest payments due on such Note through May 2, 2016 (but excluding accrued and unpaid interest to the redemption date), computed using a discount rate equal to the Adjusted Treasury Rate plus 50 basis points, over (B) the principal amount of such Note on such redemption date. Asset Acquisition means (1) an investment by the Parent Guarantor or any of its Restricted Subsidiaries in any other Person pursuant to which such Person will become a Restricted Subsidiary or will be merged into or consolidated with the Parent Guarantor or any of its Restricted 174

188 Subsidiaries, or (2) an acquisition by the Parent Guarantor or any of its Restricted Subsidiaries of the property and assets of any Person other than the Parent Guarantor or any of its Restricted Subsidiaries that constitute substantially all of a division or line of business of such Person. Asset Disposition means the sale or other disposition by the Parent Guarantor or any of its Restricted Subsidiaries (other than to the Parent Guarantor or another Restricted Subsidiary) of (1) all or substantially all of the Capital Stock of any Restricted Subsidiary or (2) all or substantially all of the assets that constitute a division or line of business of the Parent Guarantor or any of its Restricted Subsidiaries. Asset Sale means any sale, transfer or other disposition (including by way of merger, consolidation or Sale and Leaseback Transaction) of any of its property or assets (including any sale of Capital Stock of a Subsidiary or issuance of Capital Stock by a Restricted Subsidiary) in one transaction or a series of related transactions by the Parent Guarantor or any Restricted Subsidiary to any Person other than the Parent Guarantor or any Restricted Subsidiary; provided that Asset Sale will not include: (a) (b) (c) (d) (e) (f) (g) sales or other dispositions of inventory, receivables and other current assets in the ordinary course of business; sales, transfers or other dispositions of assets constituting a Permitted Investment or Restricted Payment permitted to be made under the Certain Covenants Limitation on Restricted Payments covenant; sales, transfers or other dispositions of assets with a Fair Market Value not in excess of US$3.0 million (or the Dollar Equivalent thereof) in any transaction or series of related transactions; any sale, transfer, assignment or other disposition of any property or equipment that has become damaged, worn out, obsolete, unused, unuseful or otherwise unsuitable for use in connection with the business of the Parent Guarantor or its Restricted Subsidiaries; any, transfer, assignment or other disposition deemed to occur in connection with creating or granting any Permitted Lien; a transaction covered by the covenant under the caption Consolidation, Merger and Sale of Assets ; and an issuance of Capital Stock by a Restricted Subsidiary to the Parent Guarantor or to a Subsidiary Guarantor. Attributable Indebtedness means, in respect of a Sale and Leaseback Transaction, the present value at the time of determination, discounted at the interest rate implicit in the Sale and Leaseback Transaction, of the total obligations of the lessee for rental payments during the remaining term of the lease in the Sale and Leaseback Transaction, including any period for which such lease has been extended or may, at the option of lessor, be extended, determined in accordance with Indonesian GAAP; provided, however, that if such Sale and Leaseback Transaction results in Capitalized Lease Obligation, the amount of Indebtedness represented thereby will be determined in accordance with the definition of Capitalized Lease Obligation. Average Life means, at any date of determination with respect to any Indebtedness, the quotient obtained by dividing (1) the sum of the products of (a) the number of years from such date of determination to the dates of each successive scheduled principal payment of such Indebtedness and (b) the amount of such principal payment by (2) the sum of all such principal payments. 175

189 Board of Directors means the board of directors of the Parent Guarantor elected or appointed by the stockholders of the Parent Guarantor to manage the business of the Parent Guarantor or any committee of such board duly authorized to take the action purported to be taken by such committee. Board Resolution means any resolution of the Board of Directors taking an action which it is authorized to take and adopted at a meeting duly called and held at which a quorum of disinterested members (if so required) was present and acting throughout or adopted by written resolution executed by a majority of the Board of Directors. Business Day means any day which is not a Saturday, Sunday, legal holiday or other day on which banking institutions in The City of New York, Hong Kong, Singapore, Indonesia or Amsterdam (or in any other place in which payments on the Notes are to be made) are authorized by law or governmental regulation to close; provided that, solely for purposes of determining the date of any payment to be made on any Note, Business Day means any day which is not a Saturday, Sunday, legal holiday or other day on which banking institutions in the City of New York, Hong Kong or Singapore (or in any other place in which payments on the Notes are to be made) are authorized by law or governmental regulation to close. Capital Stock means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) in equity of such Person, whether outstanding on the Original Issue Date or issued thereafter, including, without limitation, all Common Stock and Preferred Stock, but excluding debt securities convertible into such equity. Capitalized Lease means, with respect to any Person, any lease of any property (whether real, personal or mixed) of which the discounted present value of rental obligations of such Person as lessee, in conformity with Indonesian GAAP, is required to be capitalized on the balance sheet of such Person. Capitalized Lease Obligations means the discounted present value of the rental obligations under a Capitalized Lease. Change of Control means the occurrence of one or more of the following events: (1) the merger, amalgamation, or consolidation of the Parent Guarantor with or into another Person or the merger or amalgamation of another Person with or into the Parent Guarantor, or the sale of all or substantially all the assets of the Parent Guarantor to another Person, other than a Permitted Holder; (2) prior to the Qualified Parent IPO, the Permitted Holders become the beneficial owners of less than 30.0% of the total voting power of the Voting Stock of the Parent Guarantor; (3) any person or group (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the beneficial owner (as such term is used in Rule 13d-3 of the Exchange Act), directly or indirectly, of the total voting power of the Voting Stock of the Parent Guarantor greater than such total voting power held beneficially by the Permitted Holders; (4) individuals who on the Original Issue Date constituted the Board of Directors, together with any new directors whose election to the Board of Directors was approved by a vote of at least a majority of the directors then still in office who were either directors on the Original Issue Date or whose election was previously so approved, cease for any reason to constitute a majority of the Board of Directors then in office; or (5) the adoption of a plan relating to the liquidation or dissolution of the Parent Guarantor. 176

190 Clearstream means Clearstream Banking, société anonyme, Luxembourg or any successor thereof. Commodity Agreement means any forward contract, commodity swap agreement, commodity option agreement or other similar agreement or arrangement designed to protect against fluctuations in commodity prices and not for speculation. Common Stock means, with respect to any Person, any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or non-voting) of such Person s common stock or ordinary shares, whether or not outstanding on the Original Issue Date, and includes, without limitation, all series and classes of such common stock or ordinary shares. Comparable Treasury Issue means the U.S. Treasury security having a maturity comparable to May 2, 2016 that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to May 2, Comparable Treasury Price means, with respect to any redemption date: (1) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third Business Day preceding such redemption date, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated Composite 3:30 p.m. Quotations for U.S. Government Securities ; or (2) if such release (or any successor release) is not published or does not contain such prices on such Business Day, (a) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest of such Reference Treasury Dealer Quotations, or (b) if fewer than three such Reference Treasury Dealer Quotations are available, the average of all such quotations. Consolidated EBITDA means, for any period, Consolidated Net Income for such period plus, to the extent such amount was deducted in calculating such Consolidated Net Income: (1) Consolidated Interest Expense; (2) income taxes (other than income taxes attributable to extraordinary and non-recurring gains (or losses) or sales of assets); (3) depreciation expense; (4) amortization expense; and (5) all other non-cash items reducing Consolidated Net Income (other than non-cash items in a period which reflect cash expenses paid or to be paid in another period), less all non-cash items increasing Consolidated Net Income, all as determined on a consolidated basis for the Parent Guarantor and its Restricted Subsidiaries in conformity with Indonesian GAAP; provided that if any Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary, Consolidated EBITDA will be reduced (to the extent not otherwise reduced in accordance with Indonesian GAAP) by an amount equal to (A) the amount of the Consolidated Net Income attributable to such Restricted Subsidiary multiplied by (B) the percentage ownership interest in the income of such Restricted Subsidiary not owned on the last day of such period by the Parent Guarantor or any Restricted Subsidiary. 177

191 Consolidated Fixed Charges means, for any period, the sum (without duplication) of (i) Consolidated Interest Expense for such period and (ii) all cash and non-cash dividends paid, declared, accrued or accumulated during such period on any Disqualified Stock or Preferred Stock of the Parent Guarantor or any Restricted Subsidiary held by Persons other than the Parent Guarantor or any Wholly Owned Restricted Subsidiary, except for dividends payable in the Parent Guarantor s Capital Stock (other than Disqualified Stock). Consolidated Interest Expense means, for any period, the amount that would be included in gross interest expense on a consolidated income statement prepared in accordance with Indonesian GAAP for such period of the Parent Guarantor and its Restricted Subsidiaries, plus, to the extent not included in such gross interest expense, and to the extent incurred, accrued or payable during such period by the Parent Guarantor and its Restricted Subsidiaries, without duplication, (i) interest expense attributable to Capitalized Lease Obligations, (ii) amortization of debt issuance costs and original issue discount expense and non-cash interest payments in respect of any Indebtedness, (iii) the interest portion of any deferred payment obligation, (iv) all commissions, discounts and other fees and charges with respect to letters of credit or similar instruments issued for financing purposes or in respect of any Indebtedness, (v) the net costs associated with Hedging Obligations (including the amortization of fees), (vi) interest accruing on Indebtedness of any other Person that is guaranteed by the Parent Guarantor or any Restricted Subsidiary or secured by a Lien on assets of the Parent Guarantor or any Restricted Subsidiary, (vii) any capitalized interest and (viii) all other non-cash interest expense; provided that interest expense attributable to interest on any Indebtedness bearing a floating interest rate will be computed on a pro forma basis as if the rate in effect on the date of determination had been the applicable rate for the entire relevant period. Consolidated Net Income means, with respect to any specified Person for any period, the aggregate of the net income (or loss) of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in conformity with Indonesian GAAP; provided that the following items will be excluded in computing Consolidated Net Income (without duplication): (1) the net income (or loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting except that: (a) (b) subject to the exclusion contained in clause (5) below, the Parent Guarantor s equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Parent Guarantor or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to a Restricted Subsidiary, to the limitations contained in clause (3) below); and the Parent Guarantor s equity in a net loss of any such Person for such period shall be included in determining such Consolidated Net Income to the extent funded with cash or other assets of the Parent Guarantor or Restricted Subsidiaries; (2) the net income (or loss) of any Person accrued prior to the date it becomes a Restricted Subsidiary or is merged into or consolidated with the Parent Guarantor or any Restricted Subsidiary or all or substantially all of the property and assets of such Person are acquired by the Parent Guarantor or any Restricted Subsidiary; (3) the net income (but not loss) of any Restricted Subsidiary to the extent that the declaration or payment of dividends or similar distributions by such Restricted Subsidiary of such net income is not at the time permitted by the operation of the terms of its charter, articles of association or other constitutive document or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Restricted Subsidiary; 178

192 (4) the cumulative effect of a change in accounting principles; (5) any net after tax gains realized on the sale or other disposition of (A) any property or assets of the Parent Guarantor or any Restricted Subsidiary which is not sold in the ordinary course of its business or (B) any Capital Stock of any Person (including any gains by the Parent Guarantor realized on sales of Capital Stock of the Parent Guarantor or Restricted Subsidiaries); (6) any translation gains or losses due solely to fluctuations in currency values and related tax effects; and (7) any net after-tax extraordinary or non-recurring gains. Currency Agreement means any foreign exchange forward contract, currency swap agreement or other similar agreement or arrangement designed to protect against fluctuations in foreign exchange rates and not for speculation. Default means any event that is, or after notice or passage of time or both would be, an Event of Default. Disqualified Stock means any class or series of Capital Stock of any Person that by its terms or otherwise is (1) required to be redeemed on or prior to the date that is 366 days after the Stated Maturity of the Notes, (2) redeemable at the option of the holder of such class or series of Capital Stock at any on or prior to the date that is 366 days after the Stated Maturity of the Notes or (3) convertible into or exchangeable for Capital Stock referred to in clause (1) or (2) above or Indebtedness having a scheduled maturity on or prior to the date that is 366 days after the Stated Maturity of the Notes; provided that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders thereof the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an asset sale or change of control occurring prior to the date that is 366 days after the Stated Maturity of the Notes will not constitute Disqualified Stock if the asset sale or change of control provisions applicable to such Capital Stock are no more favorable to the holders of such Capital Stock than the provisions contained in Certain Covenants Limitation on Asset Sales and Repurchase of Notes Upon a Change of Control covenants and such Capital Stock specifically provides that such Person will not repurchase or redeem any such stock pursuant to such provision prior to the Issuer s repurchase of such Notes as are required to be repurchased pursuant to the Certain Covenants Limitation on Asset Sales and Repurchase of Notes Upon a Change of Control covenants. Dollar Equivalent means, with respect to any monetary amount in a currency other than U.S. dollars, at any time for the determination thereof, the amount of U.S. dollars obtained by converting such foreign currency involved in such computation into U.S. dollars at the base rate for the purchase of U.S. dollars with the applicable foreign currency as quoted by the Federal Reserve Bank of New York (provided that the noon U.S. dollar purchase exchange rate for cable transfers at a major commercial bank in the principal financial center of the relevant currency will be used for such computation with respect to any currency that is not so quoted by the Federal Reserve Bank of New York) on the date of determination. DTC means The Depository Trust Company and its successors. Equity Offering means (i) any bona fide public or private offering of Capital Stock (other than Disqualified Stock) of the Parent Guarantor other than to Affiliates of the Parent Guarantor after the Original Issue Date or (ii) any bona fide underwritten secondary public offering or secondary private placement of Capital Stock (other than Disqualified Stock) of the Parent Guarantor beneficially owned by the Permitted Holders, after the Original Issue Date, to the extent that the Permitted Holders or a company controlled by such Person concurrently with such public offering 179

193 or private placement purchases in cash an equal amount of Capital Stock (other than Disqualified Stock) from the Parent Guarantor at the same price as the public offering or private placing price; provided that (i) the aggregate gross cash proceeds received by the Parent Guarantor as a result of such offering described in clause (i) or (ii) or a combination thereof (excluding gross cash proceeds received from the Parent Guarantor or any of its Subsidiaries) shall be no less than US$25.0 million (or the Dollar Equivalent thereof) and (ii) any such offering shall result in such Capital Stock being listed and eligible for dealing on the Indonesia Stock Exchange or on another internationally recognized stock exchange. Euroclear means Euroclear Bank SA/NV or any successor thereof. Fair Market Value means the price that would be paid in an arm s-length transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer under no compulsion to buy, as determined in good faith by the Board of Directors, whose determination will be conclusive if evidenced by a Board Resolution. Fitch means, Fitch Ratings Ltd and its affiliates. Fixed Charge Coverage Ratio means, on any Transaction Date, the ratio of (1) the aggregate amount of Consolidated EBITDA for the Four Quarter Period with respect to such Transaction Date to (2) the aggregate Consolidated Fixed Charges during such Four Quarter Period. In making the foregoing calculation: (A) (B) (C) (D) (E) pro forma effect will be given to any Indebtedness or Preferred Stock Incurred, repaid or redeemed during the Reference Period relating to such Four Quarter Period in each case as if such Indebtedness or Preferred Stock had been Incurred, repaid or redeemed on the first day of such Reference Period; provided that, in the event of any such repayment or redemption, Consolidated EBITDA for such period will be calculated as if the Parent Guarantor or such Restricted Subsidiary had not earned any interest income actually earned during such period in respect of the funds used to repay or redeem such Indebtedness; Consolidated Interest Expense attributable to interest on any Indebtedness (whether existing or being Incurred) computed on a pro forma basis and bearing a floating interest rate will be computed as if the rate in effect on the Transaction Date (taking into account any Interest Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement has a remaining term in excess of 12 months or, if shorter, at least equal to the remaining term of such Indebtedness) had been the applicable rate for the entire period; and pro forma effect will be given to the creation, designation or redesignation of Restricted Subsidiaries and Unrestricted Subsidiaries as if such creation, designation or redesignation had occurred on the first day of such Reference Period; pro forma effect will be given to Asset Dispositions and Asset Acquisitions (including giving pro forma effect to the application of proceeds of any Asset Disposition) that occur during such Reference Period as if they had occurred and such proceeds had been applied on the first day of such Reference Period; and pro forma effect will be given to asset dispositions and asset acquisitions (including giving pro forma effect to the application of proceeds of any asset disposition) that have been made by any Person that has become a Restricted Subsidiary or has been merged with or into the Parent Guarantor or any Restricted Subsidiary during such Reference Period and that would have constituted Asset Dispositions or Asset Acquisitions had such transactions occurred when such Person was a Restricted Subsidiary as if such asset dispositions or asset acquisitions were Asset Dispositions or Asset Acquisitions that occurred on the first day of such Reference Period; 180

194 provided that to the extent that clause (D) or (E) of this sentence requires that pro forma effect be given to an Asset Acquisition or Asset Disposition (or asset acquisition or asset disposition), such pro forma calculation will be based upon the four full fiscal quarters immediately preceding the Transaction Date of the Person, or division or line of business of the Person, that is acquired or disposed for which financial information is available. Four Quarter Period means, as of any Transaction Date, the then most recent four fiscal quarters prior to such Transaction Date for which consolidated financial statements of the Parent Guarantor (which the Parent Guarantor will use its reasonable best efforts to compile in a timely manner) are available and have been provided to the Trustee. Governmental Instrumentality means any national, state or local government (whether domestic or foreign), any political subdivision thereof or any other governmental, quasi-governmental, judicial, public or statutory instrumentality, authority, body, agency, court, tribunal, commission, bureau or entity or any arbitrator with authority to bind a party at law. guarantee means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (1) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such other Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (2) entered into for purposes of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided that the term guarantee will not include endorsements for collection or deposit in the ordinary course of business. The term guarantee used as a verb has a corresponding meaning. Hedging Agreement means any Currency Agreement, Commodity Agreement or Interest Rate Agreement. Hedging Obligation of any Person means the obligations of such Person pursuant to any Hedging Agreement. Holder means the Person in whose name a Note is registered in the Note register. Incur means, with respect to any Indebtedness or Capital Stock, to incur, create, issue, assume, guarantee or otherwise become liable for or with respect to, or become responsible for, the payment of, contingently or otherwise, such Indebtedness or Capital Stock; provided that (1) any Indebtedness and Capital Stock of a Person existing at the time such Person becomes a Restricted Subsidiary (or fails to meet the qualifications necessary to remain an Unrestricted Subsidiary) will be deemed to be Incurred by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary and (2) the accretion of original issue discount will not be considered an Incurrence of Indebtedness. The terms Incurrence, Incurred and Incurring have meanings correlative with the foregoing. Indebtedness means, with respect to any Person at any date of determination (without duplication): (1) all indebtedness of such Person for borrowed money; (2) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; 181

195 (3) all obligations of such Person in respect of letters of credit, bankers acceptances or other similar instruments (or reimbursement obligations with respect thereto); (4) all obligations of such Person to pay the deferred and unpaid purchase price of property or services, except trade payables due within 90 days arising in the ordinary course of business; (5) all Capitalized Lease Obligations and Attributable Indebtedness; (6) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided that the amount of such Indebtedness will be the lesser of (A) the Fair Market Value of such asset at such date of determination and (B) the amount of such Indebtedness; (7) all Indebtedness of other Persons guaranteed by such Person to the extent such Indebtedness is guaranteed by such Person; (8) to the extent not otherwise included in this definition, Hedging Obligations; (9) all Disqualified Stock issued by such Person with the amount of Indebtedness represented by such Disqualified Stock being equal to the greater of its voluntary or involuntary liquidation preference and its maximum fixed repurchase price; and (10) all obligations of such Person under conditional sale or other title retention agreements relating to assets purchased by such Person. Notwithstanding the foregoing, customer deposits and advance payments received from customers in the ordinary course of business shall not be deemed to be Indebtedness for any purpose. The amount of Indebtedness of any Person at any date will be the outstanding balance at such date of all unconditional obligations as described above (as determined in conformity with Indonesian GAAP to the extent applicable) and, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligations; provided (A) (B) (C) that the amount outstanding at any time of any Indebtedness issued with original issue discount is the face amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with Indonesian GAAP, that money borrowed and set aside at the time of the Incurrence of any Indebtedness in order to prefund the payment of the interest on such Indebtedness will not be deemed to be Indebtedness so long as such money is held to secure the payment of such interest, and that the amount of Indebtedness with respect to any Hedging Agreement will be equal to the net amount payable if such Hedging Agreement terminated at that time due to default by such Person. Indonesian GAAP means generally accepted accounting principles in Indonesia as in effect from time to time. Intercompany Loan means the loan in U.S. dollars between the Parent Guarantor, as borrower, and the Issuer Subsidiary, as lender, pursuant to an intercompany loan agreement to be entered into on the Original Issue Date, for an amount equal to at least the net proceeds of the offering after deducting underwriting discounts and other estimated expenses related to the offering of the 182

196 Notes, or any similar intercompany loan entered into between the Parent Guarantor and the Issuer Subsidiary in connection with the sale of Additional Notes or debt obligations similar to the Notes issued after the Original Issue Date under an indenture other than the Indenture. Interest Rate Agreement means any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement, option or future contract or other similar agreement or arrangement designed to protect against fluctuations in interest rates and not for speculation. International Bank means a bank or trust company which is organized under the laws of the United States of America, any state thereof, the European Union, Singapore, the United Kingdom or Japan. Investment means: (i) (ii) (iii) (iv) (v) any direct or indirect advance, loan or other extension of credit to another Person; any capital contribution to another Person (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others); any purchase or acquisition of Capital Stock (or options, warrants or other rights to acquire such Capital Stock), Indebtedness, bonds, notes, debentures or other similar instruments or securities issued by another Person; any guarantee of any obligation of another Person; or all other items that would be classified as investments (including purchases of assets outside the ordinary course of business) on a balance sheet of such Person prepared in accordance with Indonesian GAAP. For the purposes of the provisions of the Certain Covenants Designation of Restricted and Unrestricted Subsidiaries and Certain Covenants Limitation on Restricted Payments covenants, except as described in the last sentence of this paragraph: (i) the Parent Guarantor will be deemed to have made an Investment in an Unrestricted Subsidiary in an amount equal to the Fair Market Value of the assets (net of liabilities owed to any Person other than the Parent Guarantor or a Restricted Subsidiary and that are not guaranteed by the Parent Guarantor or a Restricted Subsidiary) of a Restricted Subsidiary that is designated an Unrestricted Subsidiary at the time of such designation, and (ii) any property transferred to or from any Person will be valued at its Fair Market Value at the time of such transfer, as determined in good faith by the Board of Directors. Investment Grade means a rating of AAA, AA, A or BBB, as modified by a + or - indication, or an equivalent rating representing one of the four highest Rating Categories, by S&P or any of its successors or assigns or a rating of Aaa, Aa, A or Baa, as modified by a 1, 2 or 3 indication, or an equivalent rating representing one of the four highest Rating Categories, by Fitch, or any of its successors or assigns or the equivalent ratings of any internationally recognized rating agency or agencies, as the case may be, which will have been designated by the Parent Guarantor as having been substituted for S&P or Fitch or both, as the case may be. Lien means any mortgage, pledge, fiduciary security, security interest, encumbrance, lien or charge of any kind (including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof or any agreement to create any mortgage, pledge, security interest, lien, charge, easement or encumbrance of any kind). 183

197 Moody s means Moody s Investors Service, Inc. and its affiliates. Net Cash Proceeds means: (a) with respect to any Asset Sale (other than the issuance or sale of Capital Stock), the proceeds of such Asset Sale in the form of cash or cash equivalents, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not interest, component thereof) when received in the form of cash or cash equivalents and proceeds from the conversion of other property received when converted to cash or cash equivalents, net of: (1) brokerage commissions and other fees and expenses (including fees and expenses of counsel and investment banks) related to such Asset Sale; (2) provisions for all taxes (whether or not such taxes will actually be paid or are payable) as a result of such Asset Sale without regard to the consolidated results of operations of the Parent Guarantor and its Restricted Subsidiaries, taken as a whole; (3) payments made to repay Indebtedness or any other obligation outstanding at the time of such Asset Sale that either (x) is secured by a Lien on the property or assets sold or (y) is required to be paid as a result of such sale; (4) appropriate amounts to be provided by the Parent Guarantor or any Restricted Subsidiary as a reserve against any liabilities associated with such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as determined in conformity with Indonesian GAAP and reflected in an Officers Certificate delivered to the Trustee; and (b) with respect to any Asset Sale consisting of the issuance or sale of Capital Stock, the proceeds of such issuance or sale in the form of cash or cash equivalents, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not interest, component thereof) when received in the form of cash or cash equivalents and proceeds from the conversion of other property received when converted to cash or cash equivalents, net of attorneys fees, accountants fees, underwriters or placement agents fees, discounts or commissions and brokerage, consultant and other fees incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. Note Documents means the Indenture, the Notes and the Note Guarantees. Offer to Purchase means an offer to purchase Notes by the Issuer or the Parent Guarantor from the Holders commenced by the Issuer or the Parent Guarantor mailing a notice by first class mail, postage prepaid, to the Trustee and each Holder at its last address appearing in the Note register stating: (1) the provision of the Indenture pursuant to which the offer is being made and that all Notes validly tendered will be accepted for payment on a pro rata basis; (2) the purchase price and the date of purchase (which will be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the Offer to Purchase Payment Date ); (3) that any Note not tendered will continue to accrue interest pursuant to its terms; 184

198 (4) that, unless the Issuer or the Parent Guarantor defaults in the payment of the purchase price, any Note accepted for payment pursuant to the Offer to Purchase will cease to accrue interest on and after the Offer to Purchase Payment Date; (5) that Holders electing to have a Note purchased pursuant to the Offer to Purchase will be required to surrender the Note, together with the form entitled Option of the Holder to Elect Purchase on the reverse side of the Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day immediately preceding the Offer to Purchase Payment Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the third Business Day immediately preceding the Offer to Purchase Payment Date, a facsimile transmission or letter setting forth the name of such Holder, the principal amount of Notes delivered for purchase and a statement that such Holder is withdrawing his election to have such Notes purchased; and (7) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered; provided that each Note purchased and each new Note issued will be in a principal amount of US$200,000 or any amount in excess thereof which is an integral multiples of US$1,000. One Business Day prior to the Offer to Purchase Payment Date, the Issuer or the Parent Guarantor will deposit with the Paying Agent immediately available funds sufficient to pay the purchase price of all Notes or portions thereof to be accepted by the Issuer or the Parent Guarantor for payment on the Offer to Purchase Payment Date. On the Offer to Purchase Payment Date, the Issuer or the Parent Guarantor will (a) accept for payment on a pro rata basis Notes or portions thereof tendered pursuant to an Offer to Purchase; and (b) deliver, or cause to be delivered, to the Trustee all Notes or portions thereof so accepted together with an Officers Certificate specifying the Notes or portions thereof accepted for payment by the Issuer or the Parent Guarantor. The Paying Agent will as soon as reasonably practicable mail to the Holders so accepted payment in an amount equal to the purchase price, and the Trustee will as soon as reasonably practicable authenticate and mail to such Holders a new Note equal in principal amount to any unpurchased portion of the Note surrendered; provided that each Note purchased and each new Note issued will be in a principal amount of US$200,000 or any amount in excess thereof which is an integral multiples of US$1,000. The Issuer or the Parent Guarantor will publicly announce the results of an Offer to Purchase as soon as practicable after the Offer to Purchase Payment Date. The Issuer or the Parent Guarantor will comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable, in the event that the Issuer or the Parent Guarantor is required to repurchase Notes pursuant to an Offer to Purchase. The offer is required to contain or incorporate by reference information concerning the business of the Parent Guarantor and its Subsidiaries which the Issuer or the Parent Guarantor in good faith believes will assist such Holders to make an informed decision with respect to the Offer to Purchase, including a brief description of the events requiring the Issuer or the Parent Guarantor to make the Offer to Purchase, and any other information required by applicable law to be included therein. The offer is required to contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Offer to Purchase. To the extent that the provisions of any securities laws or regulations conflict with the requirements of the relevant Offer to Purchase, the Parent Guarantor and the Issuer will comply with the applicable securities laws and regulations and shall not be deemed to have breached their obligations under the Notes, the Indenture and the Note Guarantees by virtue of their compliance with such securities laws or regulations. 185

199 Officer means one of the executive officers or directors of the Issuer or the Parent Guarantor, as the case may be or, in the case of a Subsidiary Guarantor, one of the directors or officers of such Subsidiary Guarantor. Officers Certificate means a certificate signed by two Officers, at least one of whom is, in the case of the Issuer, a managing director. Opinion of Counsel means a written opinion from external legal counsel selected by the Issuer or Parent Guarantor, provided that such counsel shall be acceptable to the Trustee in its sole discretion. Original Issue Date means the date on which the Notes are originally issued under the Indenture. Permitted Business means any business which is the same as or ancillary or complementary to any of the businesses of the Parent Guarantor and the Restricted Subsidiaries on the Original Issue Date. Permitted Holders means any or all of the following: (1) Handojo Santosa; (2) any Affiliate (other than an Affiliate as defined in clause (ii) of the definition of Affiliate) of the Person specified in clause (1); and (3) any Person both the Capital Stock and the Voting Stock of which are owned 80.0% or more by (or in the case of a trust, that created for the benefit of) one or more of the Persons specified in clauses (1) and (2). Permitted Investment means: (1) Investments by the Parent Guarantor or any Restricted Subsidiary in (a) any Guarantor that is primarily engaged in the Permitted Business or (b) a Person which will, upon the making of such Investment, become a Subsidiary Guarantor that is primarily engaged in the Permitted Business or be merged or consolidated with or into or transfer or convey all or substantially all its assets to, the Parent Guarantor or a Subsidiary Guarantor that is primarily engaged in a Permitted Business; (2) cash and Temporary Cash Investments; (3) the purchase or acquisition of the Capital Stock of PT Indojaya Agrinusa (that is not currently owned by the Parent Guarantor) such that it becomes a Wholly Owned Subsidiary of the Parent Guarantor; (4) payroll, travel and other loans or advances to officers and employees, not in excess of US$500,000 outstanding at any time to cover matters that are expected at the time of such advances ultimately to be treated as expenses in accordance with Indonesian GAAP; (5) stock, obligations or securities received in compromise or settlement of debts created in the ordinary course of business, or by reason of a composition or readjustment of debts or reorganization of another Person, or in satisfaction of claims or judgments; (6) an Investment in an Unrestricted Subsidiary consisting solely of an Investment in another Unrestricted Subsidiary; 186

200 (7) any Investment pursuant to a Hedging Obligation designed solely to protect the Parent Guarantor or any Restricted Subsidiary against fluctuations in commodity prices, interest rates or foreign currency exchange rates and otherwise permitted under the Indenture; (8) receivables or trade credits owing to the Parent Guarantor or any Restricted Subsidiary, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; (9) any securities or other Investments received as consideration in, or retained in connection with, sales or other dispositions of property or assets, including Asset Sale under clause 4(b) or 4(c) of, and made in compliance with the covenant described under Certain Covenants Limitation on Asset Sales ; (10) repurchases of the Notes; (11) pledges, deposits or advances (x) provided to third parties with respect to leases or utilities in the ordinary course of business, (y) provided to third parties with respect to purchases, construction, development, advisory, consultancy, installation, improvement or replacement of machinery, equipment (including spare parts), land or other assets, including raw materials, used in the Permitted Business and dischargeable in accordance with customary trade terms within 120 days or (z) otherwise described in the definition of Permitted Liens ; (12) deposits made in order to comply with statutory or regulatory obligations to maintain deposits for workers compensation claims and other purposes specified by statute or regulation from time to time in the ordinary course of business; (13) loan or advance by the Parent Guarantor or a Subsidiary Guarantor to a Non-Guarantor Subsidiary, provided that such loan or advance is permitted to be Incurred under clause (b)(14) of the covenant described under the caption entitled Certain Covenants Limitation on Indebtedness and Preferred Stock ; and (14) deposits made with tax authorities before the final taxation amount is decided and applied, provided that the deposit is recorded as assets of the Parent Guarantor s balance sheet. Permitted Liens means: (1) Liens for taxes, assessments, governmental charges or claims that are being contested in good faith by appropriate legal or administrative proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as will be required in conformity with Indonesian GAAP will have been made; (2) statutory and common law Liens of landlords and carriers, warehousemen, mechanics, suppliers or repairmen, or other similar Liens arising in the ordinary course of business and with respect to amounts not yet delinquent or being contested in good faith by appropriate legal or administrative proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as required in conformity with Indonesian GAAP will have been made; 187

201 (3) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory or regulatory obligations, bankers acceptances, surety and appeal bonds, government contracts, performance and return-of-money bonds and other obligations of a similar nature incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed money); (4) leases or subleases granted to others that do not materially interfere with the ordinary course of business of the Parent Guarantor or its Restricted Subsidiaries, taken as a whole; (5) Liens on property of, or on shares of Capital Stock or Indebtedness of, any Person existing at the time such Person becomes, or becomes a part of, any Restricted Subsidiary; provided that such Liens do not extend to or cover any property or assets of the Parent Guarantor or any Restricted Subsidiary other than the property or assets of such Person; provided further that such Liens were not created in contemplation of or in connection with the transactions or series of transactions pursuant to which such Person became a Restricted Subsidiary; (6) Liens in favor of the Parent Guarantor, the Issuer or any Subsidiary Guarantor; (7) Liens arising from attachment or the rendering of a final judgment or order against the Parent Guarantor or any Restricted Subsidiary that does not give rise to an Event of Default; (8) Liens securing reimbursement obligations with respect to letters of credit, performance and surety bonds and completion guarantees that encumber documents and other property relating to such letters of credit and the products and proceeds thereof; (9) Liens existing on the Original Issue Date; (10) Liens securing Indebtedness which is Incurred to refinance secured Indebtedness which is permitted to be Incurred under clause (b)(4) of the covenant described under the caption entitled Certain Covenants Limitation on Indebtedness and Preferred Stock ; provided that such Liens do not extend to or cover any property or assets of the Parent Guarantor or any Restricted Subsidiary other than the property or assets securing the Indebtedness being refinanced; (11) easements, rights-of-way, municipal and zoning ordinances or other restrictions as to the use of properties or minor survey exceptions or encumbrances in favor of governmental agencies or utility, telephone or similar companies that do not materially adversely affect the value of such properties or materially impair the use for the purposes of which such properties are held by the Parent Guarantor or any Restricted Subsidiary; (12) Liens on current assets securing Indebtedness which is permitted to be Incurred under clause (b)(10) of the covenant described under the caption entitled Certain Covenants Limitation on Indebtedness and Preferred Stock ; (13) Liens upon real or personal property acquired after the Original Issue Date; provided that (a) such Lien is created solely for the purpose of securing Indebtedness of the type described under clause (b)(11) of the covenant under the caption entitled Certain Covenants Limitation on Indebtedness and Preferred Stock and such Lien is created prior to, at the time of or within 90 days after the later of the acquisition or the completion of development, construction or improvement of such property, (b) the principal amount of the Indebtedness secured by such Lien does not exceed 100% of the cost of such property, development, construction or improvement and (c) such Lien shall not extend to or cover any property or assets other than such item of property and any improvements on such item; 188

202 (14) Liens encumbering customary initial deposits and margin deposits, and other Liens that are within the general parameters customary in the industry and incurred in the ordinary course of business, in each case, securing Indebtedness under Hedging Obligations permitted by clause (b)(5) of the covenant under the caption Certain Covenants Limitation on Indebtedness and Preferred Stock ; (15) any interest or title of a licensor, lessor or sublessor of any of its property, including intellectual property, subject to any licenses, leases or subleases in the ordinary course of business; (16) Liens on deposits made in order to comply with statutory obligations to maintain deposits for workers compensation claims and other purposes specified by statute made in the ordinary course of business and not securing Indebtedness of the Parent Guarantor or any Restricted Subsidiary; (17) Liens encumbering customary initial deposits and margin deposits, and other Liens that are within the general parameters customary in the industry and incurred in the ordinary course of business, in each case, securing Indebtedness under Hedging Obligations of the type described by clause (b)(5) of the covenant under the caption Certain Covenants Limitation on Indebtedness and Preferred Stock ; (18) Liens on assets of any Non-Guarantor Subsidiary securing Indebtedness which is permitted to be Incurred under clause (b)(14) of the covenant described under the caption entitled Certain Covenants Limitation on Indebtedness and Preferred Stock. provided that, with respect to Liens on the property or assets of the Issuer Subsidiary, Permitted Liens will include only Liens described in paragraphs (1), (2), (7) and (15) above. Person means any individual, corporation, partnership, limited liability company, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof. Preferred Stock as applied to the Capital Stock of any Person means Capital Stock of any class or classes that by its term is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person. Qualified Inventories means, as of the date of Incurrence of any Permitted Indebtedness described in clause (b)(10) of the covenant described under the caption entitled Certain Covenants Limitation on Indebtedness and Preferred Stock by the Parent Guarantor or a Restricted Subsidiary, the consolidated inventories (net of allowances for decline in value and net of any otherwise unusable or obsolete items) of the Parent Guarantor and its Restricted Subsidiaries measured in accordance with Indonesian GAAP as of the last day of the most recent fiscal quarter period for which consolidated financial statements of the Parent Guarantor (which the Parent Guarantor shall use its reasonable best efforts to compile on a timely manner) are available and have been provided to the Trustee. Qualified Parent IPO means first public offering of the Common Stock of Japfa Holdings Pte Ltd., provided that (i) the aggregate gross cash proceeds raised as a result of such offering (excluding gross cash proceeds received from the Permitted Holders) shall be no less than US$25.0 million (or the Dollar Equivalent thereof) and (ii) any such offering shall result in such Common Stock being listed and eligible for dealing on the Singapore Stock Exchange or on another internationally recognized stock exchange. 189

203 Qualified Receivables means, as of the date of Incurrence of any Permitted Indebtedness described in clause (b)(10) of the covenant described under the caption entitled Certain Covenants Limitation on Indebtedness and Preferred Stock by the Parent Guarantor or a Restricted Subsidiary, the consolidated trade accounts receivable from third parties and other account receivables (net of allowance for doubtful accounts) of the Parent Guarantor and its Restricted Subsidiaries, in each case not more than 90 days past original due date, measured in accordance with Indonesian GAAP as of the last day of the most recent fiscal quarter period for which consolidated financial statements of the Parent Guarantor (which the Parent Guarantor shall use its reasonable best efforts to compile on a timely manner) are available and have been provided to the Trustee. Rating Agencies means (i) S&P and (ii) Fitch and (iii) if S&P or Fitch or both will not make a rating of the Notes publicly available, one or more nationally recognized statistical rating organizations, as the case may be, within the meaning of Rule 15c3-I(c) (2) (iv) (F) under the Exchange Act, selected by the Parent Guarantor, which will be substituted for S&P or Fitch or both, as the case may be. Rating Category means (i) with respect to S&P, any of the following categories: BB, B, CCC, CC, C and D (or equivalent successor categories); (ii) with respect to Fitch, any of the following categories: BB, B, CCC, CC, C and D (or equivalent successor categories); and (iii) the equivalent of any such category of S&P or Fitch used by another Rating Agency. In determining whether the rating of the Notes has decreased by one or more gradations, gradations within Rating Categories ( + and - for S&P; 1, 2 and 3 for Fitch; or the equivalent gradations for another Rating Agency) will be taken into account (e.g., with respect to S&P, a decline in a rating from BB+ to BB, as well as from BB- to B+, will constitute a decrease of one gradation). Rating Date means in connection with actions contemplated under the caption Consolidation, Merger and Sale of Assets, that date which is 90 days prior to the earlier of (x) the occurrence of any such actions as set forth therein and (y) a public notice of the occurrence of any such actions. Rating Decline means in connection with actions contemplated under the caption Consolidation, Merger and Sale of Assets, the notification by any of the Rating Agencies that such proposed actions will result in any of the events listed below: (a) (b) (c) in the event the Notes are rated by both Fitch and S&P on the Rating Date as Investment Grade, the rating of the Notes by either Rating Agency will be below Investment Grade; in the event the Notes are rated by either, but not both, of the Rating Agencies on the Rating Date as Investment Grade, the rating of the Notes by such Rating Agency will be below Investment Grade; or in the event the Notes are rated below Investment Grade by both Rating Agencies on the Rating Date, the rating of the Notes by either Rating Agency will be decreased by one or more gradations (including gradations within Rating Categories as well as between Rating Categories). Reference Period means, as of any Transaction Date, the period commencing on and including the first day of the Four Quarter Period with respect to such Transaction Date and ending on and including the Transaction Date. 190

204 Reference Treasury Dealer means each of any three investment banks of recognized standing that is a primary U.S. Government securities dealer in The City of New York, selected by the Issuer in good faith. Reference Treasury Dealer Quotations means, with respect to each Reference Treasury Dealer and any redemption date, the average as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to such Trustee by such Reference Treasury Dealer at 5:00 p.m. (New York City Time) on the third Business Day preceding such redemption date. Restricted Subsidiary means any Subsidiary of the Parent Guarantor other than an Unrestricted Subsidiary. S&P means Standard & Poor s Ratings Services and its affiliates. Sale and Leaseback Transaction means any direct or indirect arrangement relating to property (whether real, personal or mixed), now owned or hereafter acquired whereby the Parent Guarantor or any Restricted Subsidiary transfers such property to another Person and the Parent Guarantor or any Restricted Subsidiary leases it from such Person. Securities Act means the U.S. Securities Act of 1933, as amended. Stated Maturity means, (1) with respect to any Indebtedness, the date specified in such debt security as the fixed date on which the final instalment of principal of such Indebtedness is due and payable as set forth in the documentation governing such Indebtedness and (2) with respect to any scheduled instalment of principal of or interest on any Indebtedness, the date specified as the fixed date on which such instalment is due and payable as set forth in the documentation governing such Indebtedness. Subordinated Indebtedness means any Indebtedness of the Issuer, the Parent Guarantor or any Subsidiary Guarantor which is contractually subordinated or junior in right of payment to the Notes, the Parent Guarantee or any Subsidiary Guarantee, as applicable, pursuant to a written agreement to such effect. Subsidiary means, with respect to any Person, any corporation, association or other business entity (i) of which at least 50.0% of the voting power of the outstanding Voting Stock is owned, directly or indirectly, by such Person and one or more other Subsidiaries of such Person or (ii) of which 50% of the outstanding Voting Stock is owned, directly or indirectly, by such Person and which is controlled and consolidated by such Person in accordance with GAAP; provided, however, that with respect to clause (ii) the occurrence of any event (other than the issuance or sale of Capital Stock) as a result of which such corporation, association or other business entity ceases to be controlled by such Person under GAAP and to constitute a Subsidiary of such Person shall be deemed to be a designation of such corporation, association or other business entity as an Unrestricted Subsidiary by such Person and be subject to the requirements under the first paragraph of Designation of Restricted and Unrestricted Subsidiaries covenant. Subsidiary Guarantee means any guarantee of the obligations of the Issuer under the Indenture and the Notes by any Subsidiary Guarantor. Subsidiary Guarantor means the initial Subsidiary Guarantors named herein and any future Restricted Subsidiary which guarantees the payment of the Notes pursuant to the Indenture and the Notes; provided that Subsidiary Guarantor will not include any Person whose Subsidiary Guarantee has been released in accordance with the Indenture and the Notes. 191

205 Temporary Cash Investment means any of the following: (1) direct obligations of the United States of America, Japan, the United Kingdom, Singapore or any agency thereof or obligations fully and unconditionally guaranteed by the United States of America, Japan, the United Kingdom, Singapore, Hong Kong or any agency thereof, in each case maturing within one year; (2) demand or time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America, any state thereof, Japan, the United Kingdom, Hong Kong or Singapore, and which bank or trust company has capital, surplus and undivided profits aggregating in excess of US$500.0 million (or the Dollar Equivalent thereof) and has outstanding debt which is rated A (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act); (3) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (1) above entered into with a bank or trust company meeting the qualifications described in clause (2) above; (4) commercial paper, maturing not more than 180 days after the date of acquisition thereof, issued by a corporation (other than an Affiliate of the Parent Guarantor) organized and in existence under the laws of the United States of America, any state thereof or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of P-1 (or higher) according to Moody s or A-1 (or higher) according to S&P; (5) securities with maturities of six months or less from the date of acquisition thereof, issued or fully and unconditionally guaranteed by any state, commonwealth or territory of the United States of America, or by Japan or the United Kingdom, or by any political subdivision or taxing authority thereof, and rated at least A by S&P or Moody s; (6) any money market fund that has at least 95.0% of its assets continuously invested in investments of the types described in clauses (1) through (5) above; (7) demand or time deposit accounts, certificates of deposit and money market deposits issued by any Indonesia branch of an International Bank, provided that such International Bank has capital, surplus and undivided profits aggregating in excess of US$100.0 million (or the Dollar Equivalent thereof) and has outstanding long-term debt which is rated at least A by S&P, Moody s or Fitch; and (8) time deposit accounts, certificates of deposit and money market deposits by any of the following Indonesian banks: PT Bank Mandiri (Persero) Tbk, PT Bank Rakyat Indonesia (Persero) Tbk, PT Bank Central Asia Tbk, PT Bank Negara Indonesia (Persero) Tbk, PT Bank CIMB-Niaga (Persero) Tbk, PT Pan Indonesia Bank Tbk, PT Bank Permata Tbk, PT Bank Danamon Indonesia Tbk, PT Bank DBS Indonesia, PT Bank Rabobank International Indonesia and PT Bank ICBC Indonesia. Total Assets means, as of the date of Incurrence of any Indebtedness by the Parent Guarantor or a Restricted Subsidiary, the total consolidated assets (excluding goodwill and other intangible asset) of the Parent Guarantor and its Restricted Subsidiaries measured in accordance with Indonesian GAAP as of the last day of the most recent fiscal quarter period for which consolidated financial statements of the Parent Guarantor (which the Parent Guarantor shall use its reasonable best efforts to compile on a timely manner) are available and have been provided to the Trustee; provided that Total Assets shall be calculated after giving pro forma effect to include the 192

206 cumulative value of all of the real or personal property or equipment the acquisition, development, construction or improvement of which requires or required the Incurrence of Indebtedness and calculation of Total Assets thereunder, as measured by the purchase price or cost therefor or budgeted cost provided to the bank or other similar financial institutional lender providing such Indebtedness (but only to the extent that such cumulative value is not reflected in such total consolidated assets as of the last day of such fiscal quarter period). Transaction Date means, with (i) respect to the Incurrence of any Indebtedness, the date such Indebtedness is to be Incurred, and (ii) with respect to any Restricted Payment, the date such Restricted Payment is to be made. Unrestricted Subsidiary means (1) PT Jakamitra Indonesia, (2) PT Bumi Asri Lestari, (3) PT Iroha Sidat Indonesia, (4) PT Adiguna Bintang Lestari (in liquidation), (5) any Subsidiary of the Parent Guarantor that at the time of determination will be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided in the Indenture; and (6) any Subsidiary of an Unrestricted Subsidiary. U.S. Government Obligations means securities that are (1) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (2) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof at any time prior to the Stated Maturity of the Notes, and will also include a depository receipt issued by a bank or trust company as custodian with respect to any such U.S. Government Obligation or a specific payment of interest on or principal of any such U.S. Government Obligation held by such custodian for the account of the holder of a depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of interest on or principal of the U.S. Government Obligation evidenced by such depository receipt. Voting Stock means, with respect to any Person, Capital Stock of any class or kind ordinarily having the power to vote for the election of directors, managers or other voting members of the governing body of such Person. Wholly Owned means, with respect to any Subsidiary of any Person, the ownership of all of the outstanding Capital Stock of such Subsidiary (other than any director s qualifying shares or Investments by foreign nationals mandated by applicable law or a nominal number of shares owned by an Affiliate of such Person solely for purposes of qualifying as a second shareholder as required under Indonesian corporate law) by such Person or one or more Wholly Owned Subsidiaries of such Person. 193

207 TAXATION The following summary is based on tax laws of The Netherlands and Indonesia as in effect on the date of this Offering Circular, and is subject to changes in Dutch and Indonesian law, including changes that could have retroactive effect. The following summary does not take into account or discuss the tax laws of any countries other than The Netherlands and Indonesia. Prospective purchasers in all jurisdictions are advised to consult their own tax advisors as to Dutch, Indonesian or other tax consequence of the acquisition, ownership and disposition of the Notes. DUTCH TAXATION The information given below is neither intended as tax advice nor purports to describe all of the tax considerations that may be relevant to a prospective purchaser of the Notes. Prospective purchasers are advised to acquaint themselves with the overall tax consequences of acquiring, holding, redeeming and/or disposing of Notes. Except as otherwise indicated, this summary only addresses the Netherlands tax legislation as in effect and in force at the date hereof, as interpreted in published case law, without prejudice to any amendments introduced at a later date and implemented with or without retroactive effect. Based upon and subject to the foregoing: (1) No registration, stamp, transfer or turnover taxes or other similar duties or taxes will be payable in the Netherlands in respect of the offering and the issue of the Notes by the Issuer or in respect of the signing and delivery of the documents related to the issue of the Notes, with exception of value added tax on fees payable for services, such as management, administrative and similar services. (2) No Netherlands withholding tax will be due on payments of principal and/or interest, or on any other amounts payable under the Notes that may be issued pursuant to the Programme, and/or payments under the Guarantee. (3) A holder of Notes (a Noteholder ) will not be subject to Netherlands taxes on income or capital gains in respect of the acquisition or holding of Notes or any payment under the Notes or in respect of any gain realized on the disposal or redemption of the Notes, provided that: (i) (ii) such Noteholder is neither a resident nor deemed to be a resident nor has opted to be treated as a resident of the Netherlands; and such Noteholder does not have an enterprise or an interest in an enterprise which, in whole or in part, is carried on through a permanent establishment or a permanent representative in the Netherlands and to which permanent establishment or permanent representative the Notes are attributable; and, if the Noteholder is a legal person, or an open limited partnership ( open commanditaire vennootschap ) or another company with a capital divided into shares, or a special purpose fund ( doelvermogen ), 194

208 (iii) (iv) such Noteholder does not have a substantial interest in the share capital of the Issuer, or in the event that such Noteholder does have such an interest, such interest forms part of the assets of an enterprise, or in the event that such substantial interest does not form part of the assets of an enterprise, the primary objective, or one of the primary objectives of holding the interest is not the avoidance of dividend withholding tax or personal income tax of another party; and such Noteholder does not have a deemed Netherlands enterprise to which enterprise the Notes are attributable, including but not limited to, activities such as serving formally or de facto as a management or supervisory board member of a Dutch resident company; and, if the Noteholder is a natural person, (v) (vi) such Noteholder does not derive income and/or capital gains from activities in the Netherlands other than business income and does not perform employment activities outside the Netherlands for remuneration that is subject to Dutch payroll tax, to which activities the Notes are attributable; and such Noteholder or a person related to the Noteholder by law, contract, consanguinity or affinity to the degree specified in the tax laws of the Netherlands does not have, or is not deemed to have, a substantial interest in the share capital of the Issuer. 4. No gift, estate or inheritance tax will arise in the Netherlands on the transfer, by way of gift or inheritance, of the Notes, if the donor or the deceased at the time of the gift or the death is neither a resident nor a deemed resident of the Netherlands, unless: (i) (ii) at the time of the gift or death, the Notes are attributable to a Dutch enterprise, which is an enterprise or part of an enterprise that is carried out through a permanent establishment or a permanent representative in the Netherlands; or the donor of the Notes dies within 180 days of the time of the gift after becoming a Dutch resident or deemed resident. Exchange of information If the Issuer pays interest directly to, or secure their payment for the immediate benefit of, a Noteholder that is (i) an individual, (ii) a resident of another EU Member State or designated jurisdiction and (iii) the beneficial owner of that interest, they must verify the Noteholder s identity and place of residence and provide information regarding that Noteholder and the interest payments concerned to the Dutch tax authorities. This obligation does not apply if the interest is paid to, or secured for the benefit of, a Noteholder via a bank or other paying agent as defined in Netherlands tax law. INDONESIAN TAXATION The following is a summary with respect to taxes imposed by the Government of Indonesia. The summary does not address any laws other than the tax laws of Indonesia in force and as they are applied in practice as of the date of this Offering Circular. General Resident taxpayers, individual or corporate, are subject to income tax in Indonesia. Subject to the provisions of any applicable agreement for the avoidance of double taxation (a tax treaty ), a non-resident individual is a foreign national who does not reside in Indonesia and is not physically present in Indonesia for more than 183 days during any 12 month period, during which period, such non-resident individual receives income in respect of the ownership or disposition of the Notes 195

209 (unless an individual is deemed as a tax resident if he intends to reside in Indonesia, indicated by obtaining a working visa or limited stay permit card (KITAS) or having a contract of employment, business, or activities that are performed in Indonesia for more than 183 days) and a non-resident entity is a corporation or non-corporate body that is established under the laws of a jurisdiction other than Indonesia, is not domiciled in Indonesia and does not have a fixed place of business or permanent establishment in Indonesia during an Indonesian tax year in which such non-indonesian entity receives income in respect of the ownership or disposition of the Notes. If the income is effectively connected with a permanent establishment of a non-resident corporation in Indonesia, the income is subject to corporate income tax up to a maximum rate of 25.0% and deemed distribution withholding tax of 20.0% of the after-tax profits, subject to applicable tax treaties. For individuals, the income is subject to progressive tax rates with a maximum rate of 30.0%. With regard to asset sales or transfer by non-residents, withholding tax is imposed on the estimated net income. There are implementing regulations to impose tax on sales of unlisted shares of Indonesian corporations but there are currently no implementing regulations with regard to the taxation of sales of notes or bonds other than gains on the sale of bonds traded on, or whose transactions are reported to, an Indonesian stock exchange. Gains on other notes or bonds, including the Notes, are not subject to this treatment. Withholding Tax Payments of principal under the Notes are not subject to withholding tax, but interest payments under the Intercompany Loan sourced from Indonesia are subject to withholding tax. Payments (or accruals) by the Parent Guarantor under the Note Guarantees attributable to interest payable on the Notes to the Issuer Subsidiary will be subject to withholding tax in Indonesia at the rate of 20% or the relevant reduced rate under an applicable tax treaty. In order to benefit from the reduced rate under the relevant double taxation treaty, the Issuer Subsidiary must confirm that it is the beneficial owner of the interest (certain criteria must be met as regulated by the Indonesian tax authorities) and provide a Certificate of Tax Residence to the Parent Guarantor. The Parent Guarantor must submit, as its Certificate of Tax Residence, an Indonesian Directorate General of Taxation ( DGT ) 1 Form. The competent tax authorities of the jurisdiction where the recipient (Issuer Subsidiary) is domiciled must legalize page one of either form. Page one is effective for 12 months from the issuance date. If the DGT 1 Form is used, page two must be completed and signed by the Issuer Subsidiary. If this form cannot be obtained, the Parent Guarantor is obliged to deduct 20.0% withholding tax on the amount of the interest payment. The Netherlands-Indonesia tax treaty provides for a reduced rate of 0% withholding tax on interest provided that the interest is paid on loans with a term of more than two years and the recipient is a resident beneficial owner of the interest under the tax treaty; otherwise the 10% rate of withholding tax provided by the tax treaty would apply. The Indonesian Directorate General of Taxation through its Regulation No. PER-62/PJ/2009 dated November 5, 2009 and amended by Regulation No. PER-25/PJ/2010 dated April 30, 2010 regarding the tax treaty abuse has stated the requirements to qualify for the beneficial owner test to be able to utilize the tax treaty benefits, among others that the creation of the overseas company and the establishment of the structure/transaction scheme is not solely to claiming tax treaty benefits (has economic substance), the overseas company has its own management, etc. The tax treaty with the Netherlands has two different withholding tax rates for interest payments where the general withholding tax rate is 10.0% and 0.0% for loan that has a period of two years or in connection with the sale on credit of any industrial, commercial or scientific equipment. 196

210 Taxes on Capital Gains Subject to applicable tax treaties income derived by non-resident individuals and companies without a permanent establishment in Indonesia from disposal of Indonesian assets is subject to Indonesian income tax. However, as noted above there are currently no regulations issued to implement such tax for the sale of bonds or notes that are not listed on an Indonesian stock exchange. Gains from the disposal of the Notes, however, should not be subject to Indonesian tax. Gains from disposal of the Notes by an Indonesian tax resident is taxable in Indonesia and subject to income tax up to a maximum rate of 30.0% for individuals, 25.0% corporate tax for companies and permanent establishments, and an additional deemed distribution tax for permanent establishments of 20.0% of after-tax profits, subject to applicable tax treaties and fulfilling the requirements to claim tax treaty benefits. Other Indonesian Taxes There are no Indonesian estate, inheritance, succession, or gift taxes generally applicable to the acquisition, ownership or disposition of the Notes. There are no Indonesian stamp, issue, registration or similar taxes or duties payable by Noteholders as a result of their holding of the Notes. The above summary is not intended to constitute a complete analysis of all tax consequences relating to the ownership of the Notes. Prospective purchasers of the Notes should consult their own tax advisors concerning the tax consequences of their particular situations. U.S. FEDERAL INCOME TAXATION CIRCULAR 230: ANY DISCUSSION OF U.S. FEDERAL TAX ISSUES SET FORTH IN THIS OFFERING CIRCULAR WAS WRITTEN IN CONNECTION WITH THE PROMOTION AND MARKETING BY THE COMPANY AND THE INITIAL PURCHASERS OF THE NOTES. SUCH DISCUSSION WAS NOT INTENDED OR WRITTEN TO BE LEGAL OR TAX ADVICE TO ANY PERSON AND WAS NOT INTENDED OR WRITTEN TO BE USED, AND IT CANNOT BE USED, BY ANY PERSON FOR THE PURPOSE OF AVOIDING ANY U.S. FEDERAL TAX PENALTIES THAT MAY BE IMPOSED ON SUCH PERSON. EACH INVESTOR SHOULD SEEK ADVICE BASED ON ITS PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR. The following discussion is a summary of certain U.S. federal income tax considerations relevant to the purchase, ownership and disposition of the Notes. The discussion is not a complete description of all the tax considerations that may be relevant to a particular Noteholder. This summary is based on the Internal Revenue Code of 1986, as amended, administrative pronouncements, judicial decisions and final, temporary and proposed Treasury Regulations, all as of the date hereof, changes to any of which subsequent to the date of this Offering Circular may affect the tax consequences described herein and may apply retroactively. This discussion assumes that the notes will not be issued with more than a de minimis amount of original issue discount for U.S. federal income tax purposes. The discussion addresses only initial purchasers of the Notes that are U.S. Holders (as defined below), that hold the Notes as capital assets, that purchase the Notes at their issue price, which will be the first price at which a substantial amount of the Notes is sold to the public (not including bond houses, brokers or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers) for money, and that have the U.S. dollar as their functional currency. It does not address all of the issues that may be relevant to the tax treatment of investors subject to special rules, such as, banks, insurance companies, investors liable for the alternative minimum tax, beneficial owners of individual retirement accounts and other tax-deferred accounts, tax-exempt organizations, dealers in securities or currencies, traders that elect mark-to-market 197

211 treatment, or investors that will hold the Notes as part of straddles, hedging transactions or conversion transactions for U.S. federal income tax purposes. Further more, it does not address any U.S. federal tax consequences other than U.S. federal income tax consequences, such as estate and gift tax or the Medicare tax on net investment income. PROSPECTIVE PURCHASERS OF THE NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE U.S. FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES. Treatment of the Notes The terms of the Notes provide for payments in excess of stated interest and principal under certain circumstances. For example, in the event of a Change of Control, we would generally be required to offer to repurchase the Notes at 101% of their principal amount plus accrued and unpaid interest (see Description of the Notes Repurchase of Notes Upon a Change of Control ). We intend to take the position that the Notes will not be considered contingent payment debt instruments for U.S. federal income tax purposes. Our position is binding on a U.S. Holder unless such holder discloses that it is taking a contrary position in the manner required by applicable U.S. Treasury regulations. Our position is not, however, binding on the IRS, and if the IRS were to challenge this position, a U.S. Holder might be required to use the accrual method, even if it were otherwise a cash method taxpayer, to take into account interest income on the Notes and to treat as ordinary income rather than capital gain any income that it realizes on the taxable disposition of a Note. The remainder of this discussion assumes that the Notes will not be considered contingent payment debt instruments. U.S. Holders As used here, U.S. Holder means a beneficial owner of Notes that is, for U.S. federal income tax purposes: (i) (ii) (iii) (iv) an individual who is a citizen or resident of the United States; a corporation (or other business entity classified as a corporation) created or organized under the laws of the United States, any State thereof or the District of Columbia; an estate the income of which is subject to U.S. federal income tax without regard to its source; or a trust if (a) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) it has a valid election in effect under applicable United States Treasury regulations to be treated as a U.S. person. If a partnership or other entity or arrangement treated as a partnership for U.S. federal income tax purposes purchases, holds or disposes of the Notes, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. A U.S. Holder that is a partner in a partnership holding the Notes is urged to consult its own tax advisor. Taxation of Interest The gross amount of interest payments received by a U.S. Holder (including any foreign tax withheld and any Additional Amounts) with respect to the Notes will generally be includible in taxable income as ordinary interest income at the time it accrues or is received in accordance with the U.S. Holder s method of tax accounting, provided such interest payments constitute qualified 198

212 stated interest, as defined below. In addition, interest on the notes will be treated as foreign source income for U.S. federal income tax purposes and generally will constitute passive category income for most U.S. Holders. Subject to generally applicable restrictions and conditions (including a minimum holding period requirement), a U.S. Holder generally will be entitled to a foreign tax credit in respect of any foreign income taxes withheld on interest payments on the notes. Alternatively, the U.S. Holder may deduct such taxes in computing taxable income for U.S. federal income tax purposes provided that the U.S. Holder does not elect to claim a foreign tax credit for any foreign income taxes paid or accrued for the relevant taxable year. The rules governing the foreign tax credit are complex. U.S. Holders are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances. Taxation of the Sale, Exchange, Redemption or Retirement of a Note Upon the sale, exchange, redemption, retirement or other taxable disposition of a Note, a U.S. Holder generally will recognize capital gain or loss in an amount equal to the difference between the amount realized on the sale, exchange, redemption, retirement or other taxable disposition (less any accrued but unpaid interest, which will be taxable as such to the extent not previously included in income) and the U.S. Holder s adjusted tax basis in such Note. A U.S. Holder s adjusted tax basis in a Note will generally equal the amount the U.S. Holder paid to acquire the Note. Gain or loss recognized by a U.S. Holder generally will be long-term capital gain or loss if the U.S. Holder has held the Note for more than one year at the time of disposition. Certain non-corporate U.S. Holders (including individuals) may qualify for preferential rates of U.S. federal income taxation in respect of long-term capital gains. The deductibility of capital losses is subject to certain limitations. Gain or loss realized by a U.S. Holder on the sale, exchange, redemption or retirement of a Note generally will be treated for foreign tax credit purposes as gain or loss arising from sources within the United States. Each prospective purchaser is urged to consult their independent tax advisors regarding the tax consequences if a foreign withholding tax is imposed on the disposition of a Note, including the availability of the foreign tax credit under the investor s particular circumstances. Information Reporting and Backup Withholding Payments of interest, principal or proceeds from the disposition of a Note may be subject to information reporting or to backup withholding of U.S. federal income tax if a recipient who is a U.S. Holder fails to furnish to the paying agent with respect to the Notes a U.S. Internal Revenue Service Form W-9 containing such U.S. Holder s taxpayer identification number or to otherwise establish an exemption from backup withholding. Penalties also may be imposed on a recipient that fails to properly supply a U.S. Internal Revenue Service Form W-9 or other evidence of exemption from backup withholding. Any amounts deducted and withheld may be allowed as a credit against the recipient s U.S. federal income tax liability, if any. If backup withholding results in an overpayment of taxes, a refund may be obtained provided that the required information is timely furnished to the U.S. Internal Revenue Service. Recently enacted legislation generally may require certain U.S. Holders to report information with respect to an investment in Notes not held through an account with a U.S. financial institution to the U.S. Internal Revenue Service. If a U.S. Holder fails to report information required under this legislation, the U.S. Holder could become subject to substantial penalties. U.S. Holders are encouraged to consult with their own tax advisors regarding the possible implications of this legislation on an investment in Notes. The above description is not intended to constitute a complete analysis of all tax consequences relating to the ownership of notes. Prospective purchasers of notes should consult their own tax advisors concerning the tax consequences of their particular situations. 199

213 GLOBAL CLEARANCE AND SETTLEMENT The Notes will initially be represented by two global notes in global form that together will represent the aggregate principal amount of the Notes. Notes sold in reliance on Rule 144A under the Securities Act will be represented by a global note (the Rule 144A Global Note ). When issued, the Rule 144A Global Note will be deposited with The Bank of New York Mellon, as custodian for DTC, and registered in the name of Cede & Co., as DTC s nominee. Notes sold outside the United States in reliance on Regulation S under the Securities Act will be represented by a global note (the Regulation S Global Note and, together with the Rule 144A Global Note, the Global Notes ). When issued, the Regulation S Global Note will be deposited with The Bank of New York Mellon, as custodian for DTC, and registered in the name of Cede & Co., as DTC s nominee, for credit to Euroclear and Clearstream. The Notes will be issued only in registered form and in minimum denominations of US$100,000 and integral multiples of US$1,000 in excess thereof. The Notes will be issued on their issue date only against payment in immediately available funds. Investors who are qualified institutional buyers (as defined in Rule 144A) and who purchase Notes in reliance on Rule 144A may hold their interests in the Rule 144A Global Note directly through DTC if they are DTC participants ( Participants ) or indirectly through organizations that are DTC participants ( Indirect Participants ). Investors who hold beneficial interests in the Regulation S Global Note may hold such interests only directly through Euroclear or Clearstream, if they are participants in these systems, or indirectly through organizations that are participants in these systems. Investors may hold interests in the Regulation S Global Note through participants in the DTC system other than Euroclear and Clearstream. Euroclear and Clearstream will hold interests in the Regulation S Global Note on behalf of their participants through their respective depositaries, which in turn will hold the interests in the Regulation S Global Note in customers securities accounts in the depositaries names on the books of DTC. Regulation S prohibits purchasers of the Notes under Regulation S from offering, selling or delivering the Notes within the United States. Beneficial interests in the Rule 144A Global Note may not be exchanged for beneficial interests in the Regulation S Global Note at any time except in the circumstances described below. See Exchanges Between the Global Notes. In addition, transfers of beneficial interests in the Global Notes will be subject to the applicable rules and procedures of DTC and its Participants or its Indirect Participants (including, if applicable, those of Euroclear and Clearstream), which may change from time to time. So long as Cede & Co., as the nominee of DTC, is the registered owner of a Global Note, Cede & Co. for all purposes will be considered the sole holder of the Global Note. Owners of beneficial interests in a Global Note will be entitled to have certificates registered in their names and to receive physical delivery of Notes only in the limited circumstances described below under Exchange of Global Notes for Definitive Notes. The Notes will be subject to certain transfer restrictions and restrictive legends as described under Transfer Restrictions. Depository Procedures The following description of the operations and procedures of DTC, Euroclear and Clearstream is provided solely as a matter of convenience. These operations and procedures are solely within the control of the respective settlement systems and are subject to changes by them from time to time. Neither we nor the guarantor take any responsibility for these operations and procedures, and we urge investors to contact the systems or their participants directly to discuss these matters. 200

214 Upon deposit of the Global Notes, DTC will credit the accounts of Participants designated by the Initial Purchasers with portions of the principal amount of the Global Notes. Payment of principal, premium, if any, interest, and other amounts, if any, on a Global Note will be made to Cede & Co., the nominee for DTC, as registered owner of the Global Note, by wire transfer of immediately available funds on the applicable payment date. None of the Issuer, any Guarantor and the Trustee, nor any agent of any of them, will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in a Global Note or for maintaining, supervising or reviewing any records relating to such beneficial ownership interest. We have been informed by DTC that, with respect to any payment of principal, or premium, if any, interest or other amounts, if any, on a Global Note, DTC s practice is to credit Participants accounts on the applicable payment date, with payments in amounts proportionate to their respective beneficial interests in the Notes represented by the Global Note as shown on the records of DTC, unless DTC has reason to believe that it will not receive payment on such payment date. Payments by Participants to owners of beneficial interests in the Notes represented by the Global Note held through such Participants will be the responsibility of such Participants, as is now the case with securities held for the accounts of customers registered in street name. In particular, payments to owners of beneficial interests in the Notes held through Euroclear and Clearstream will be made in accordance with the rules and operating procedures of Euroclear and Clearstream. Transfers between Participants will be effected in the ordinary way in accordance with DTC s rules and will be settled in immediately available funds. Participants in Euroclear and Clearstream will effect transfers with other participants in the ordinary way in accordance with the rules and operating procedures of Euroclear and Clearstream, as applicable. The laws of some states require that certain persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer beneficial interests in a Global Note to such persons will be limited to that extent. Because DTC can act only on behalf of Participants, which in turn act on behalf of Indirect Participants and certain banks, the ability of a person having beneficial interests in a Global Note to pledge such interests to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of such interests, may be affected by the lack of a physical certificate evidencing such interests. Cross-market transfers between DTC Participants, on the one hand, and directly or indirectly through Euroclear or Clearstream participants, on the other, will be effected in DTC in accordance with DTC rules on behalf of Euroclear or Clearstream, as the case may be, by its respective depositary; however, these cross-market transactions will require delivery of instructions to Euroclear or Clearstream, as the case may be, by the counterparty in the system in accordance with its rules and procedures and within its established deadlines (Brussels time). Euroclear or Clearstream, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its depositary to take action to effect final settlement on its behalf by delivering or receiving interests in the relevant Global Note in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Euroclear participants and Clearstream participants may not deliver instructions directly to the depositaries for Euroclear or Clearstream. Because of time zone differences, the securities account of a Euroclear or Clearstream participant purchasing an interest in a Global Note from a DTC Participant will be credited during the securities settlement processing day (which must be a business day for Euroclear or Clearstream, as the case may be) immediately following the DTC settlement date, and the credit of any transaction s interests in the Global Note settled during the processing day will be reported to the relevant Euroclear or Clearstream participant on that day. Cash received in Euroclear or Clearstream as a result of sales of interests in a Global Note by or through a Euroclear or 201

215 Clearstream participant to a DTC Participant will be received with value on the DTC settlement date, but will be available in the relevant Euroclear or Clearstream cash account only as of the business day following settlement in DTC. None of the Issuer, any Guarantor and the Trustee, nor any agent of any of them, will have responsibility for the performance of DTC, Euroclear, Clearstream or their respective participants of their respective obligations under the rules and procedures governing their operations. DTC has advised us that it will take any action permitted to be taken by a Noteholder (including, without limitation, the presentation of the Notes for exchange as described below) only at the direction of one or more Participants to whose accounts with DTC interests in a Global Note are credited, and only in respect of the Notes represented by the Global Note as to which such Participant or Participants has or have given such direction. However, if there are certain Events of Default under the Notes or any of the Notes has become due and payable in accordance with the terms of the Indenture, DTC reserves the right to exchange the Global Notes for Notes in definitive form, which it will distribute to its Participants. DTC has also advised us that DTC is a limited purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a clearing corporation within the meaning of the Uniform Commercial Code and a clearing agency registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its Participants and to facilitate the clearance and settlement of securities transactions between Participants through electronic book-entry changes to accounts of its Participants, thereby eliminating the need for physical movement of certificates. Participants include securities brokers and dealers, banks, trust companies and clearing corporations and may include certain other organizations such as the initial purchasers. Certain of such Participants (or their representatives), together with other entities, own DTC. Indirect access to the DTC system is available to others such as banks, brokers, dealers and trust companies that clear through, or maintain a custodial relationship with, a Participant, either directly or indirectly. Euroclear advised us that it was created in 1968 to hold securities for participants of Euroclear and to clear and settle transactions among Euroclear participants through simultaneous electronic book-entry delivery against payment, thereby eliminating the need for physical movement of certificates and any risk from lack of simultaneous transfers of securities and cash. Euroclear includes various other services, including securities lending and borrowing, and interfaces with domestic markets in several countries. Euroclear is operated by Euroclear Bank S.A./N.V. (the Euroclear Operator ), under contract with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the Euroclear Clearance System ). All operations are conducted by the Euroclear Operator, and all Euroclear securities clearance accounts and Euroclear cash accounts are accounts with the Euroclear Operator, not the Euroclear Clearance System. The Euroclear Clearance System establishes policies for Euroclear on behalf of Euroclear participants. Euroclear participants include banks (including central banks), securities brokers and dealers and other professional financial intermediaries and may include the Managers. Indirect access to Euroclear is also available to other firms that clear through or maintain a custodial relationship with Euroclear participants, either directly or indirectly. Euroclear is an indirect participant in DTC. The Euroclear Operator is a Belgian bank. The Belgian Banking Commission and the National Bank of Belgium regulate the Euroclear Operator. 202

216 Clearstream advised us that it is incorporated under the laws of Luxembourg and licensed as a bank and professional depositary. Clearstream holds securities for its participating organizations and facilitates the clearance and settlement of securities transactions among its participants through electronic book-entry changes in accounts of its participants, thereby eliminating the need for physical movement of certificates. Clearstream provides to its participants, among other things, services for safekeeping, administration, clearance and settlement of internationallytraded securities and securities lending and borrowing. Clearstream interfaces with domestic markets in several countries. Clearstream has established an electronic bridge with the Euroclear Operator, to facilitate the settlement of trades between Clearstream and Euroclear. As a registered bank in Luxembourg, Clearstream is subject to regulation by the Luxembourg Commission for the Supervision of the Financial Sector. Clearstream customers are recognized financial institutions around the world, including underwriters, securities brokers and dealers, banks, trust companies and clearing corporations. In the United States, Clearstream customers are limited to securities brokers and dealers and banks, and may include the Managers. Other institutions that maintain a custodial relationship with a Clearstream customer may obtain indirect access to Clearstream. Clearstream is an indirect participant in DTC. Although we expect that DTC, Euroclear and Clearstream will agree to the foregoing procedures in order to facilitate transfers of interests in the Global Notes among their respective participants, DTC, Euroclear and Clearstream are under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. Exchange of Global Notes for Definitive Notes A Global Note is exchangeable for Notes in registered definitive form ( Definitive Notes ) only if: (a) (b) (c) (d) DTC notifies us in writing that it is unwilling or unable to continue as depositary for the Global Notes or has ceased to be a clearing agency registered under the Exchange Act, and, in either case, we thereupon fail to appoint a successor depositary within 120 days after the date of such notice; if DTC so requests following notification of certain Events of Default under the Notes or any of the Notes has become immediately due and payable in accordance with the terms of the Indenture; we, at our option, notify the Trustee in writing that we elect to exchange in whole but not in part, the Global Note for Definitive Notes; or the owner of an interest in a Global Note requests such exchange in writing delivered through either DTC, Euroclear or Clearstream upon notification that any of the Notes has become immediately due and payable in accordance with the terms of the Indenture. In all cases, Definitive Notes delivered in exchange for any Global Note or beneficial interests therein will be registered in the names, and issued in any approved denominations, requested by or on behalf of DTC (in accordance with its customary procedures) and will bear the restrictive legend referred to in Transfer Restrictions, unless we determine otherwise in compliance with the requirements of the Indenture. Exchange of Definitive Notes for Definitive Notes If issued, Definitive Notes may be exchanged or transferred by presenting or surrendering such Definitive Notes at the office of the Trustee located in New York, New York or at the office of the transfer agent in Singapore with a written instrument of transfer in form satisfactory to the Trustee, duly executed by the holder of the Definitive Notes or by its attorney, duly authorized in writing. If the Definitive Notes being exchanged or transferred have restrictive legends, such holder must also provide a written certificate (in the form provided in the Indenture) to the effect that such exchange or transfer will comply with the appropriate transfer restrictions applicable to such Notes. See Transfer Restrictions. 203

217 Exchanges Between the Global Notes Beneficial interests in the Regulation S Global Note may be exchanged for beneficial interests in the Rule 144A Global Note only if such exchange occurs in connection with a transfer of the Notes pursuant to Rule 144A and the transferor first delivers to the Trustee a written certificate (in the form provided in the Indenture) to the effect that the Notes are being transferred to a person who the transferor reasonably believes to be a qualified institutional buyer within the meaning of Rule 144A, purchasing for its own account or the account of a qualified institutional buyer in a transaction meeting the requirements of Rule 144A and in accordance with all applicable securities laws of the states of the United States and other jurisdictions. Beneficial interests in the Rule 144A Global Note may be transferred to a person who takes delivery in the form of an interest in the Regulation S Global Note only if the transferor first delivers to the Trustee a written certificate (in the form provided in the Indenture) to the effect that such transfer is being made in accordance with Rule 903 or 904 of Regulation S and that, if such transfer is made to a person who takes delivery during the Distribution Compliance Period, the interest transferred will be held immediately thereafter through Euroclear or Clearstream. Transfers involving an exchange of a beneficial interest in one of the Global Notes for a beneficial interest in another Global Note will be effected in DTC by means of an instruction originated by the Trustee through the DTC Deposit/Withdrawal at Custodian system. Accordingly, in connection with any such transfer, appropriate adjustments will be made to reflect a decrease in the principal amount of the Global Note representing the beneficial interest that is transferred and a corresponding increase in the principal amount of the other Global Note. Any beneficial interest in one of the Global Notes that is transferred to a person who takes delivery in the form of an interest in the other Global Note will, upon transfer, cease to be an interest in such Global Note and will become an interest in the other Global Note and, accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to beneficial interests in such other Global Note for so long as it remains such an interest. Same-Day Settlement and Payment The Notes represented by the Global Notes will be eligible to trade in DTC s Same Day Funds Settlement System, and any permitted secondary market trading activity in such Notes will, therefore, be required by DTC to be settled in immediately available funds. We expect that secondary trading in any Definitive Notes would also be settled in immediately available funds. Because of time zone differences, the securities account of a Euroclear or Clearstream participant purchasing an interest in a Global Note from a Participant in DTC will be credited, and any such crediting will be reported to the relevant Euroclear or Clearstream participant, during the securities settlement processing day (which must be a business day for Euroclear and Clearstream) immediately following the settlement date of DTC. DTC has advised us that cash received in Euroclear or Clearstream as a result of sales of interests in a Global Note by or through a Euroclear or Clearstream participant to a Participant in DTC will be received with value on the settlement date of DTC but will be available in the relevant Euroclear or Clearstream cash account only as of the business day for Euroclear or Clearstream following DTC s settlement date. 204

218 PLAN OF DISTRIBUTION Under the terms and subject to the conditions contained in a purchase agreement dated April 24, 2013 (the Purchase Agreement ) between us and the initial purchaser named below (the Initial Purchaser ), the Initial Purchaser has agreed to purchase from us, and we have agreed to sell to the Initial Purchasers, US$225,000,000 aggregate principal amount of the Notes. The Purchase Agreement provides that the obligation of the Initial Purchaser to purchase for the Notes is subject to the approval of certain legal matters by its counsel and certain other conditions. The Initial Purchaser has agreed to purchase all of the Notes if any are taken. After the initial offering, the offering price and other selling terms may be varied from time to time by the Initial Purchasers. We have agreed not to, for a period of 90 days after the date of this offering memorandum without the prior written consent of the Initial Purchaser, directly or indirectly, issue, sell, offer or agree to sell, grant any option for the sale of, or otherwise dispose of, any other debt securities (as defined in the Securities Act) of the Issuer, the Company or the Subsidiary Guarantors or securities of the Issuer, the Company or the Subsidiary Guarantors that are convertible into, or exchangeable for, the offered Securities or such other debt securities. We have agreed to indemnify the Initial Purchasers against certain liabilities, including liabilities under the Securities Act, and to contribute to payments which the Initial Purchaser may be required to make in respect thereof. The Notes are a new issue of securities with no established trading market. Approval in-principle has been received for the listing and quotation of the Notes on the SGX ST. We have been advised that the Initial Purchaser intends to make a market in the Notes, as permitted by applicable laws and regulations. The Initial Purchaser is not obligated, however, to make a market in the Notes, and any such market making may be discontinued at any time without prior notice at the sole discretion of the Initial Purchaser. Accordingly, no assurance can be given as to the liquidity of, or trading markets for, the Notes. We have been advised by the Initial Purchaser that, in connection with the offering of the Notes, the Initial Purchaser may engage in transactions that stabilize, maintain or otherwise affect the price of the Notes. Specifically, the Initial Purchaser may overallot the offering, creating a syndicate short position. In addition, the Initial Purchaser may bid for, and purchase, the Notes in the open market to cover syndicate shorts or to stabilize the price of the Notes. Any of these activities may stabilize or maintain the market price of the Notes above independent market levels. The Initial Purchaser is not required to engage in these activities, and may end any of these activities at any time. No assurance can be given as to the liquidity of, or the trading market for, the Notes. The Initial Purchaser or certain of its affiliates may purchase the Notes and be allocated Notes for asset management and/or proprietary purposes but not with a view to distribution. Rabobank International is acting as co-manager in relation to the Notes. In such capacity, Rabobank International will not subscribe or pay for any of the Notes. Rabobank International has agreed to participate in the marketing of the Notes outside the United States only, and will be paid a fee directly by the Issuer for its services rendered in connection with the issue of the Notes. We expect that delivery of the Notes will be made against payment therefor on or about the closing date specified on the cover page of this offering memorandum, which will be on or about the sixth business day following the pricing date of the Notes (this settlement cycle being referred to as T+6 ). Under Rule 15c6 1 of the Exchange Act, trades in the secondary market generally are required to settle in three business days, unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade Notes on the date of pricing or the next two succeeding business days will be required, by virtue of the fact that the Notes initially will settle 205

219 in T+6, to specify an alternate settlement cycle at the time of any such trade to prevent a failed settlement. Purchasers of the Notes who wish to trade the Notes on the date of pricing date or the next two succeeding business days should consult their own legal advisor. Selling restrictions United States The Notes have not been and will not be registered under the Securities Act and may not be offered, sold or delivered within the United States except (1) to qualified institutional buyers in reliance on Rule 144A, and (2) outside the United States in offshore transactions in reliance on Regulation S under the Securities Act. The Initial Purchaser has represented and agreed that, except as permitted by the Purchase Agreement, it has not offered, sold or delivered and will not offer, sell or deliver any Notes as part of its distribution in the United States. Member States of the European Economic Area In relation to each Member State of the EEA which has implemented the Prospectus Directive (a Relevant Member State ), the initial purchaser has represented and agreed that, with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State, or the Relevant Implementation Date, it has not made and will not make an offer of bonds which are the subject of the offering contemplated in this document to the public in that Relevant Member State other than: (a) (b) (c) to any legal entity which is a qualified investor as defined in the Prospectus Directive; to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the relevant dealer or dealers nominated by the issuer for any such offer; or in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of Notes shall require the Issuer or the Initial Purchaser to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive. For the purposes of this provision, the expression an offer of Notes to the public in relation to any Notes in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Notes to be offered so as to enable an investor to decide to purchase or subscribe for the Notes, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State and the expression Prospectus Directive means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State) and includes any relevant implementing measure in each Relevant Member State and the expression 2010 PD Amending Directive means Directive 2010/73/EU. 206

220 Indonesia The Initial Purchaser has represented and agreed that it (i) has not offered or sold and will not offer or sell any Notes in Indonesia or to Indonesian nationals, corporations or residents, including by way of invitation, offering or advertisement, and (ii) has not distributed, and will not distribute, this offering memorandum or any other offering materials relating to the Notes in Indonesia or to Indonesian nationals, corporations or residents in a manner which constitutes a public offering of the Notes under the Indonesian capital market laws and its implementing regulations. United Kingdom The Initial Purchaser has represented and agreed that (1) it has complied and will comply with all applicable provisions of the Financial Services and Markets Act 2000 (the FSMA ) with respect to anything done by it in relation to the Notes in, from or otherwise involving the United Kingdom; and (2) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of the Notes in circumstances in which Section 21(1) of the FSMA does not apply to the Company. Singapore The Initial Purchaser has represented and agreed that this offering memorandum has not been registered as a prospectus with the Monetary Authority of Singapore under the Securities and Futures Act, Cap. 289 of Singapore (the SFA ). Accordingly, it has represented that it has not offered or sold any Notes or caused the Notes to be made the subject of an invitation for subscription or purchase, and has not circulated or distributed, nor will it circulate or distribute, whether directly or indirectly, this offering memorandum or any other document or material in connection with the offer or sale, or invitation for subscription or purchase of the Notes to any person in Singapore other than under exemptions provided in the SFA for offers made (a) to an institutional investor under Section 274 of the SFA, (b) to a relevant person pursuant to Section 275(1) or any person pursuant to an offer referred to in Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA or (c) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. Where the Notes are subscribed or purchased under Section 275 of the SFA by a relevant person which is: (a) (b) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the Notes pursuant to an offer made under Section 275 of the SFA, except: (1) to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA; (2) where no consideration is or will be given for the transfer; 207

221 (3) where the transfer is by operation of law; (4) as specified in Section 276(7) of the SFA; or (5) as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore. Hong Kong The Initial Purchasers has represented and agreed that (1) it has not offered or sold and will not offer or sell in Hong Kong, by means of any document, any Notes other than (i) to professional investors as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (ii) in other circumstances which do not result in the document being a prospectus as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance; and (2) it has not issued or had in its possession for the purposes of issue and will not issue or have in its possession for the purposes of issue any advertisement, invitation or document relating to the Notes, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to Notes which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors as defined in the Securities and Futures Ordinance (Cap. 571) and any rules made thereunder. The Netherlands The Notes are not and may not be offered in the Netherlands other than to persons or entities who or which are qualified investors as defined in the Prospectus Directive 2003/71/EC, as amended. Other relationships The Initial Purchaser, Rabobank International and their affiliates have in the past engaged, and may in the future engage, in transactions with us and our affiliates, and have performed, and may in the future perform, services, including lending, cash management, financial advisory and investment banking services, for us and our affiliates, in their ordinary course of business. We may enter into hedging or other derivative transactions as part of our risk management strategy with the Initial Purchaser or Rabobank International, which may include transactions relating to our obligations under the Notes. Our obligations under these transactions may be secured by cash or other collateral. 208

222 TRANSFER RESTRICTIONS The Notes are subject to restrictions on transfer as summarized below. By purchasing Notes, you will be deemed to have made the following acknowledgements, representations to and agreements with the Issuer, us and the Initial Purchaser: (1) You acknowledge that: the Notes and the Note Guarantees have not been and will not be registered under the Securities Act or any other securities laws and are being offered for resale in transactions that do not require registration under the Securities Act or any other securities laws; and unless so registered, the Notes and the Note Guarantees may not be offered, sold or otherwise transferred except under an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act or any other applicable securities laws, and in each case in compliance with the conditions for transfer set forth in paragraph (5) below. (2) You represent that you are not an affiliate (as defined in Rule 144 under the Securities Act) of the Issuer or us, that you are not acting on behalf of the Issuer or us and that either: you are a qualified institutional buyer (as defined in Rule 144A) and are purchasing the Notes for your own account or for the account of another qualified institutional buyer, and you are aware that the Initial Purchaser is selling the Notes to you in reliance on Rule 144A; or you are not a U.S. person (as defined in Regulation S under the Securities Act) or purchasing for the account or benefit of a U.S. person, other than a distributor, and you are purchasing the Notes in an offshore transaction in accordance with Regulation S. (3) You acknowledge that none of the Issuer, us and the Initial Purchaser or any person representing the Issuer, us or the Initial Purchaser has made any representation to you with respect to the Issuer, us or the offering of the Notes, other than the information contained in this Offering Circular. You represent that you are relying only on this Offering Circular in making your investment decision with respect to the Notes. You agree that you have had access to such financial and other information concerning the Issuer and us and the Notes as you have deemed necessary in connection with your decision to purchase Notes, including an opportunity to ask questions of and request information from the Issuer and us. (4) You represent that you are purchasing Notes for your own account, or for one or more investor accounts for which you are acting as a fiduciary or agent, in each case not with a view to, or for offer or sale in connection with, any distribution of the Notes in violation of the Securities Act, subject to any requirement of law that the disposition of your property or the property of that investor account or accounts be at all times within your or their control and subject to your or their ability to resell the Notes pursuant to Rule 144A or any other available exemption from registration under the Securities Act. 209

223 (5) You agree on your own behalf and on behalf of any investor account for which you are purchasing Notes, and each subsequent Noteholder by its acceptance of the Notes will agree, that until the end of the Resale Restriction Period (as defined below), the Notes may be offered, sold or otherwise transferred only: to the Issuer, our or any of its or our respective affiliates; to a person the seller reasonably believes is a qualified institutional buyer purchasing for its own account or for the account of another qualified institutional buyer in compliance with Rule 144A; outside the United States in an offshore transaction in compliance with Rules 903 or 904 under the Securities Act; pursuant to the exemption from registration provided by Rule 144 under the Securities Act (if available); or pursuant to an effective registration statement under the Securities Act. You also acknowledge that: the above restrictions on resale will apply from the closing date until the date that is one year (or such shorter period of time that may be permitted by Rule 144) (in the case of Rule 144A Notes) or 40 days (in the case of Regulation S Notes) after the later of the closing date and the last date that the Issuer, we or any of its or our respective affiliates was the owner of the Notes or any predecessor of the Notes (the Resale Restriction Period ), and will not apply after the applicable Resale Restriction Period ends; the Issuer, the Trustee and any of their respective agents reserve the right to require in connection with any offer, sale or other transfer of Notes under clause (d) above the delivery of an opinion of counsel, certifications and other information satisfactory to the Issuer and the Trustee; and each Note will contain a legend substantially to the following effect: THIS NOTE AND THE NOTE GUARANTEES RELATED TO THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT ) AND, ACCORDINGLY, THIS NOTE MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1) REPRESENTS THAT (A) IT IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A QIB ) OR (B) IT IS NOT A U.S. PERSON, IS NOT ACQUIRING THIS NOTE FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT, PRIOR TO THE DATE THAT IS ONE YEAR (OR SUCH SHORTER PERIOD OF TIME THAT MAY BE PERMITTED BY RULE 144 UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE THAT THE ISSUER, THE GUARANTORS OR ANY OF THEIR RESPECTIVE AFFILIATES WAS THE OWNER OF THE NOTES OR ANY PREDECESSOR OF THE NOTES, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE ISSUER, THE GUARANTORS OR ANY OF THEIR RESPECTIVE 210

224 AFFILIATES, (B) TO A PERSON WHOM THE HOLDER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULES 903 OR 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE OR ANY INTEREST HEREIN WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. AS USED HEREIN, THE TERMS OFFSHORE TRANSACTION, UNITED STATES AND U.S. PERSON HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE OR THE TRANSFER AGENT TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE DATE THE APPLICABLE RESALE RESTRICTIONS TERMINATE. (6) You acknowledge, understand and agree that: (a) you will, and each subsequent purchaser is required to, notify any subsequent purchaser of the Notes from you of the resale restrictions referred to in (5) above; and (b) no representation can be made as to the availability of any exemption provided by Rule 144 under the Securities Act for resale of the Notes. (7) You acknowledge that this Offering Circular has not been and will not be registered as a prospectus with the Monetary Authority of Singapore. Accordingly, you represent and warrant that you have not offered or sold any Notes or caused the Notes to be made the subject of an invitation for subscription or purchase and will not offer or sell any Notes or cause the Notes to be made the subject of an invitation for subscription or purchase, and have not circulated or distributed, nor will it circulate or distribute, this Offering Circular or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Notes, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the SFA, (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. (8) You acknowledge that the Issuer, we, the Initial Purchaser and others will rely upon the truth and accuracy of the above acknowledgments, representations and agreements. You agree that if any of the acknowledgments, representations or agreements you are deemed to have made by your purchase of Notes is no longer accurate, you will promptly notify the Issuer, us and the Initial Purchaser. If you are purchasing any Notes as a fiduciary or agent for one or more investor accounts, you represent that you have sole investment discretion with respect to each of those accounts and that you have full power to make the above acknowledgments, representations and agreements on behalf of each account. 211

225 RATINGS The Notes have been rated BB- by Fitch and BB- by S&P. The credit ratings accorded the Notes are not a recommendation to purchase, hold or sell the Notes inasmuch as such ratings do not comment as to market price or suitability for a particular investor. There can be no assurance that the ratings will remain in effect for any given period or that the ratings will not be revised by the rating agencies in the future if, in their judgment, circumstances so warrant. See Risk Factors Risks Relating to the Notes and the Note Guarantees The ratings assigned to the Notes may be suspended, lowered or withdrawn at any time which may adversely affect the market price of the Notes. 212

226 INDUSTRY CONSULTANT Based upon its report Rabobank International Food Agribusiness Research & Advisory ( Rabobank International FAR ) has given its written consent to the issue of this Offering Circular with the inclusion herein of its name and all references thereto and to the inclusion of the Industry Overview section in this Offering Circular, in the form and context in which it appears in this Offering Circular. The report by Rabobank International FAR has not been updated since April 12, 2013, and changes in the factors upon which Rabobank International FAR s report are based since April 12, 2013 could have materially affected the statements, estimates, forecasts and conclusions contained in the report. Rabobank International is acting as a co-manager of the Offering. 213

227 LEGAL MATTERS Certain legal matters with respect to the Notes will be passed upon for us by Milbank, Tweed, Hadley & McCloy LLP as to matters of United States federal and New York law, Assegaf Hamzah & Partners as to matters of Indonesian law and Linklaters LLP as to matters of Dutch law (other than tax law). Certain legal matters will be passed upon for the Initial Purchaser by Clifford Chance Pte Ltd as to matters of United States federal and New York law, Hiswara, Bunjamin & Tandjung as to matters of Indonesian law. Certain Dutch taxation matters with respect to the Notes will be passed upon for us by KPMG Meijburg & Co and certain Indonesian taxation matters with respect to the Notes will be passed upon by KPMG Hadibroto. 214

228 INDEPENDENT AUDITORS Our consolidated financial statements as at December 31, 2011 and 2012 and for the years ended December 31, 2011 and 2012 included in this Offering Circular have been audited by Mulyamin Sensi Suryanto & Lianny (the Indonesian member firm of Moore Stephens International Limited), independent auditors, as stated in their report appearing herein. Our consolidated financial statements as at December 31, 2010 and for the year ended December 31, 2010 included in this Offering Circular have been audited by Mulyamin Sensi Suryanto, which has ceased operations (formerly Indonesian member firm of Moore Stephens International Limited), as stated in their report appearing herein. The above-mentioned audited consolidated financial statements have been included in this Offering Circular with the consent of Mulyamin Sensi Suryanto & Lianny (the Indonesian member firm of Moore Stephens International Limited), independent auditors, and Mulyamin Sensi Suryanto (formerly Indonesian member firm of Moore Stephens International Limited). 215

229 SUMMARY OF CERTAIN SIGNIFICANT DIFFERENCES BETWEEN INDONESIAN FAS AND U.S. GAAP Our financial statements included in this Offering Circular have been prepared in conformity with Indonesian FAS, which differs in certain significant respects from U.S. GAAP. This summary should not be taken as an exhaustive list of all the differences between Indonesian FAS and U.S. GAAP. No attempt has been made to identify all disclosures, presentation or classification differences that would affect the manner in which transactions or events are presented in our financial statements (or notes thereto). Those differences that may have a material adverse effect on our financial statements are summarized below. Management has not quantified the effects of the differences discussed below. Accordingly, neither of us can assure you that our financial statements would not be materially different if prepared in accordance with U.S. GAAP. Regulatory bodies that promulgate Indonesian FAS and U.S. GAAP have significant ongoing projects that could affect the differences between Indonesian FAS and U.S. GAAP described below and the impact that these differences would have on our financial statements in the future. In making an investment decision, investors must rely upon their own examination of us, the terms of the offering and the financial information. Potential investors should consult their own professional advisors for an understanding of the differences between Indonesian FAS and U.S. GAAP, and how those differences might affect the financial information disclosed in this Offering Circular. Consolidation Determination of control Under Indonesian FAS, consolidation focuses on the power to control, in which, control is defined as the parent s ability to govern the financial and operating policies of an entity to obtain benefits. Control is presumed to exist if the parent owns more than 50% of the votes, and potential voting rights must be considered. Notion of de facto control also may be considered. Under US GAAP, focus is on controlling financial interests. All entities are first evaluated as potential Variable Interest Entities (VIE). If a VIE, the applicable guidance in ASC 810 is followed. If an entity is not a VIE, it is evaluated for control by voting rights. Potential voting rights are generally not included in either evaluation. Changes in ownership interest in a subsidiary without loss of control Under Indonesian FAS, transactions that result in the decreases in ownership of interest in a subsidiary (even applies to business or not for profit activities) without a loss of control, are accounted for as equity transactions in the consolidated entity (that is, no gain or loss is recognized). Under US GAAP, transactions that result in decrease in ownership of interest in a subsidiary without a loss of control, are accounted for as equity transactions in the consolidated entity but only when: (1) subsidiary is a business or nonprofit activity (with two exceptions: a sale of in substance real estate and a conveyance of oil and gas mineral rights); or (2) subsidiary is not a business or nonprofit activity, but the substance of the transaction is not addressed directly by other ASC Topics. 216

230 Loss of control of a subsidiary Under Indonesian FAS, in the event certain transactions result in a loss of control of a subsidiary or a group of assets, any retained noncontrolling investment in the former subsidiary or group of assets, is re-measured to fair value on the date control is lost, with the gain or loss included in income along with any gain or loss on the ownership interest sold. This guideline applies to all subsidiaries, even those that are not businesses or not for profit activities or those that involve sales of in substance real estate or conveyance of oil and gas mineral rights. In addition, the standard does not address whether this guidance should be applied to transactions involving non-subsidiaries that are businesses or nonprofit activities. It does not also address the derecognition of assets outside the loss of control of a subsidiary. Consistent with Indonesian FAS, except that under US GAAP, this accounting is limited to the following transactions: (1) loss of control of a subsidiary that is a business or nonprofit activity or a group of assets that is a business or nonprofit activity (with two exceptions: a sale of in substance real estate, or a conveyance of oil and gas mineral rights); (2) loss of control of a subsidiary that is not a business or nonprofit activity if the substance of the transaction is not addressed directly by other ASC Topics. Business Combinations Measurement of noncontrolling interest Under Indonesian FAS, noncontrolling interest components that are present ownership interests and entitle their holders to a proportionate share of the acquiree s net asset in the event of liquidation may be measured at: (1) fair value, including goodwill, or (2) at the noncontrolling interest s proportionate share of the fair value of the acquiree s identifiable net assets, exclusive of goodwill. All other components of noncontrolling interest are measured at fair value unless another basis of measurement is required. The choice is available on a transaction-by-transaction basis. Under US GAAP, noncontrolling interest is measured at fair value, including goodwill. Push down accounting Under Indonesian FAS, push down accounting, whereby fair value adjustments are recognized in the financial statements of the acquiree, is not permitted. IFRS is consistent with Indonesian FAS. Under US GAAP, push down accounting is required for SEC registrants in certain circumstances and permitted for non-sec registrants. Business Combination of Entities Under Common Control Under Indonesian FAS, restructuring transactions among entities under common control are recorded at book values. Any difference between the transfer price and book value is presented as a component of equity. Under US GAAP, the receiving entity records the net assets at their carrying amount of the accounts of the transferor (historical cost). 217

231 Financial Instruments Classification of financial assets and liabilities Under Indonesian FAS, at initial recognition, financial instruments are classified in the following categories: financial assets at FVPL, loans and receivables, held-to-maturity (HTM) investments, available for sale (AFS) financial assets, financial liabilities at FVPL and other financial liabilities; and, where allowed and appropriate, re-evaluate such classification at every reporting date. For loans and receivables, these are carried at amortized cost. Under US GAAP, financial assets are classified in the following categories: held-for-trading, AFS, and HTM for debt and marketable equity securities. Unlike IFRS and Indonesian FAS, these categories do not include equity securities not quoted in an active market, which are measured at costs unless the fair value option is elected. Loans are measured at amortized cost or classified as held-for-sale. The US GAAP does not prescribe classification categories for financial liabilities. For loans and receivables, unless the fair value option is elected, these are classified as either: (1) held for investment, which are measured at amortized cost, or (2) held for sale, which are measured at the lower of cost or fair value. Effective Interest Method Amortized Cost Indonesian FAS requires the original effective interest rate to be used throughout the life of the instrument for all financial assets and liabilities, except for certain reclassified financial assets, in which case the effect of increases in cash flows are recognized as prospective adjustments to the effective interest rate. Under US GAAP, it requires catch-up approach, retrospective method or prospective method of calculating the interest for amortized cost-based assets, depending on the type of instrument. Derecognition of financial assets Under Indonesian FAS, derecognition of financial assets is based on transfer of risks and rewards and control. Transfer of control is considered only when the transfer of risks and rewards assessment is not conclusive. If the transferor has neither retained nor transferred substantially all of the risks and rewards, there is then an evaluation of the transfer of control. Control is considered to be surrendered if the transferee has the practical ability to unilaterally sell the transferred asset to a third party without restrictions. There is no legal isolation test. The derecognition provisions may be applied to a portion of a financial asset if the cash flows are specifically identified or represent a pro rata share of the financial asset or a pro rata share of specifically identified cash flows. Under US GAAP, derecognition of financial assets (i.e., sales treatment) occurs when effective control over the financial asset has been surrendered: The transferred financial assets are legally isolated from the transferor; Each transferee (or, if the transferee is a securitization entity or an entity whose sole purpose is to facilitate an asset-backed financing, each holder of its beneficial interests), has the right to pledge or exchange the transferred financial assets (or beneficial interests); and The transferor does not maintain effective control over the transferred financial assets or beneficial interests (e.g., through a call option or repurchase agreement). The derecognition criteria may be applied to a portion of a financial asset only if it mirrors the characteristics of the original entire financial asset. 218

232 Impairment of financial assets Under Indonesian FAS, an entity assesses whether there is objective evidence of impairment of financial assets carried at amortized cost. In case of equity securities classified as available-forsale (AFS), assessment of any impairment would include a significant decline in the fair value or prolonged decline in the fair value of the investment below its cost. Any impairment loss of these financial assets is recognized in profit or loss. Under Indonesian FAS, the impairment loss of an HTM instrument is measured as the difference between the carrying amount of the instrument and the present value of estimated future cash flows discounted at the instrument s original effective interest rate. The carrying amount of the instrument is reduced either directly or through the use of an allowance account. The amount of impairment loss is recognized in the statement of comprehensive income. Under US GAAP, there is not a single requirement that there be evidence of impairment for assessing the impairment of financial assets. Rather, different impairment models are applied to different categories of financial instruments. An impairment loss on a security is recognized only if it is other than temporary even if there is objective evidence that the security may be impaired. If the impairment is impairment is permanent, then any impairment loss is recognized in profit or loss, except in certain situations involving debt securities in which case the impairment loss is split between profit or loss or OCI. Under US GAAP, the impairment loss of an HTM instrument is measured as the difference between its fair value and amortized cost basis. The amount of the total impairment related to the credit loss is recognized in the income statement, and the amount related to all other factors is recognized in other comprehensive income. The carrying amount of an HTM investment after recognition of an impairment is the fair value of the debt instrument at the date of the impairment. The new cost basis of the debt instrument is equal to the previous cost basis less the impairment recognized in the income statement. The impairment recognized in other comprehensive income is accreted to the carrying amount of the HTM instrument through other comprehensive income over its remaining life. Inventory Costing Under Indonesian FAS, the same cost formula must be applied to all inventories having a similar nature and use to the entity. LIFO is prohibited. Under US GAAP, the same cost formula to all inventories similar in nature or use to the entity is not explicitly required. LIFO is an acceptable method. Measurement Under Indonesian FAS, inventory is carried at the lower of cost or net realizable value. Net realizable value is defined as the estimated selling price less the estimated costs of completion and the estimated costs necessary to make the sale. Under US GAAP, inventory is carried at the lower of cost or market. Market is defined as current replacement cost, but not greater than net realizable value (estimated selling price less reasonable costs of completion and sale) and not less than net realizable value reduced by a normal sales margin. 219

233 Reversal of inventory write-downs Under Indonesian FAS, previously recognized impairment losses are reversed up to the amount of the original impairment loss when the reasons for the impairment no longer exist. Under US GAAP, any write-down of inventory to the lower of cost or market creates a new cost basis that subsequently cannot be reversed. Agriculture Under Indonesian FAS, there is no accounting standard for agriculture (including biological assets). In practice, accounting for agriculture is still based on cost model. Under US GAAP, biological assets are stated at lower of cost and market. The terms growing crops and animals being developed for sale are used to describe what would be biological assets under IFRS. Agricultural produce is measured at either at lower of cost and market or at sales price (fair value) less costs of disposal when certain conditions are met. The terms harvested crops and animals held for sale are used to describe what would be agricultural produce under IFRS. Investment in Associates Under Indonesian FAS, investment in associates generally requires investors to use the equity method of accounting in their consolidated financial statements. If separate financial statements are presented (i.e., by a parent), subsidiaries and associates can be accounted for at either cost or fair value. Equity accounting does not apply to an investee that is acquired with a view to its subsequent disposal, if the criteria is met for the classification as held-for sale. In applying the equity method, an associate s accounting policies should be consistent with those of the investor. In determining significant influence, potential voting rights are considered if currently exercisable. The fair value option is not available to investors (i.e. not parent) to account for their investments in associates. Under US GAAP, an entity may elect to account for equity-method investees as financial assets at fair value through profit or loss. Additionally, investment companies account for investments in equity-method investees as financial assets at fair value through profit or loss. There is no exemption from use of the equity method for an equity-method investee that is acquired with a view to subsequent sale. In applying the equity method, or in limited cases, proportionate consolidation, an equity-method investee s accounting policies need not be consistent with those of the investor. Potential voting rights are generally not considered in the determination of significant influence. Property and equipment Subsequent Measurement Under Indonesian FAS, revaluation model is a permitted accounting policy election for an entire class of assets, requiring revaluation to fair value on a regular basis. Under US GAAP, revaluation of property, plant and equipment is not permitted. 220

234 Estimates of useful life, residual value and depreciation method Under Indonesian FAS, estimates of useful life and residual value and the method of depreciation are reviewed, as a minimum, at each annual reporting date, and any changes are accounted for prospectively as a change in estimate. Under US GAAP, estimates of useful life and residual value and the method of depreciation are reviewed only when events or changes in circumstances indicate that the current estimates or depreciation method is no longer appropriate. Land Use Rights In Indonesia, land use is regulated through the granting of landrights where the holder of the rights enjoys the full use of the land for a stated period of time subject to extension. Under Indonesian FAS, landrights is not amortized unless there is an indication that the renewal or extension of the rights is not probable or cannot be obtained. Costs to obtain those rights for the first time are capitalized as land under property and equipment, but subsequent costs to extend or renew the rights are recognized as intangible assets and amortized over the shorter of the economic life of the land or term of the right. Under US GAAP, the cost of acquired landrights is amortized over the period for which the holder is expected to retain the landrights. Investment Property Under Indonesian FAS, investment property is property (land or building) held to earn rentals or for capital appreciation, or both which are initially recorded at cost and subsequently measured under either fair value model (subject to limited exceptions) or the cost model. When the fair value model is used, changes in fair value is recognized in profit or loss. Under US GAAP, there is no specific definition of investment property ; such property is accounted for as property, plant and equipment measured at cost, unless it meets the criteria to be classified as held-for-sale which is carried at the lower of its carrying amount or fair value less costs to sell. Borrowing Costs Under Indonesian FAS, qualifying assets may include internally developed intangible assets and investment properties. Eligible borrowing costs include exchange rate differences from foreign currency borrowings. For borrowings associated with a specific qualifying asset, actual borrowing costs are capitalized offset by investment income earned on those borrowings. IFRS is consistent with Indonesian GAAP. Under US GAAP, qualifying assets may include an equity-method investee (associates). Internally-developed intangible assets generally do not qualify for capitalization and therefore cannot be a qualifying asset. Eligible borrowing costs do not include exchange rate differences. Interest earned on the investment of borrowed funds generally cannot offset interest costs incurred during the period. For borrowings associated with a specific qualifying asset, borrowing costs equal to the weighted-average accumulated expenditures times the borrowing rates are capitalized. 221

235 Intangible assets Advertising costs Under Indonesian FAS, advertising and promotional costs are expensed as incurred. A prepayment may be recognized as an asset only when payment for the goods or services is made in advance of the entity having access to the goods or receiving the services. Under US GAAP, advertising and promotional costs are expensed as incurred, except for direct response advertising which may be capitalized if the specific criteria are met and are amortized over the period of the future benefits. Impairment of property and equipment, goodwill and other intangible assets Impairment of property and equipment and intangible assets (other than goodwill) Under Indonesian FAS, impairment uses a one-step approach which requires impairment loss calculation be performed if impairment indicators exist. Impairment loss is the amount by which the carrying amount of the asset exceeds its recoverable amount; recoverable amount is the higher of: (1) fair value less costs to sell and (2) value in use (the present value of future cash flows in use, including disposal value). Under US GAAP, impairment uses a two-step approach which requires a recoverability test be performed first (carrying amount of the asset is compared with the sum of future undiscounted cash flows generated through use and eventual disposition). If it is determined that the asset is not recoverable, an impairment loss calculation is required. Impairment loss is the amount by which the carrying amount of the asset exceeds its fair value, as calculated in accordance with ASC 820. Impairment of goodwill Under Indonesian FAS, goodwill is allocated to a cash-generating unit (CGU) or group of CGUs that represents the lowest level within the entity at which the goodwill is monitored for internal management purposes and cannot be larger than an operating segment (before aggregation). For impairment purposes, it uses one-step approach which requires that an impairment test be done at the CGU level by comparing the CGU s carrying amount, including goodwill, with its recoverable amount. Impairment loss on the CGU (amount by which the CGU s carrying amount, including goodwill, exceeds its recoverable amount) is allocated first to reduce goodwill to zero, then, subject to certain limitations, the carrying amount of other assets in the CGU are reduced pro rata, based on the carrying amount of each asset. Under US GAAP, goodwill is assigned to a reporting unit, which is defined as an operating segment or one level below an operating segment (component). For impairment purposes, companies have the option to qualitatively assess whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If so, a two-step approach requires a recoverability test to be performed first, at the reporting unit level (carrying amount of the reporting unit is compared with the reporting unit fair value). If the carrying amount of the reporting unit exceeds its fair value, then impairment testing must be performed. Impairment loss is the amount by which the carrying amount of goodwill exceeds the implied fair value of the goodwill within its reporting unit. 222

236 Reversal of impairment loss Under Indonesian FAS, reversal of impairment loss is prohibited for goodwill. Property and equipment must be reviewed at the end of each reporting period for reversal indicators. If appropriate, loss should be reversed up to the newly estimated recoverable amount, not to exceed the initial carrying amount adjusted for depreciation. Under US GAAP, reversal of loss is prohibited for all assets to be held and used. Leases Under Indonesian FAS, a finance lease is recognized when one of the following criteria is met: (a) the lease transfers ownership of the asset to the lessee by the end of the lease term; (b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will be exercised; (c) the lease term is for the major part of the economic life of the asset even if title is not transferred; (d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset; and (e) the leased assets are of such a specialized nature, that only the lessee can use them without major modifications. The discount rate to be used in calculating the present value of the minimum lease payments is the interest rate implicit in the lease, if this is practicable to determine; if not, the lessee s incremental borrowing rate shall be used. Under US GAAP, capital lease (finance) leases are recognized if one of the following criteria is met: (a) the lease transfers ownership of the property to the lessee by the end of the lease term; (b) the lease contains an option to purchase the leased property at a bargain price; (c) the lease term is equal to or greater than 75% of the estimated economic life of the leased property; and (d) the present value of the minimum lease payments equals or exceeds 90% of the fair value of the leased property less any investment tax credit retained by the lessor. Lessors always use the interest rate implicit in the lease in calculating the present value of the minimum lease payments. The lessee uses the lower of the implicit interest rate and their own incremental borrowing rate. Income Taxes Taxes on intercompany transfers of assets that remain within a consolidated group Under Indonesian FAS, taxes paid on intercompany profits is to be recognized as incurred, and requires the recognition of deferred taxes on temporary differences between the tax bases of assets transferred between entities/tax jurisdictions that remain within the consolidated group. Under US GAAP, taxes paid on intercompany profits are required to be deferred and the standard prohibits the recognition of deferred taxes on temporary differences between the tax bases of assets transferred between entities/tax jurisdictions that remain within the consolidated group. Recognition of deferred tax assets Under Indonesian FAS, deferred tax assets are recognized for deductible temporary differences and carry forward tax benefit of unused fiscal losses, to the extent that it is probable that taxable income will be available in future periods, against which the deductible temporary differences and carry forward tax benefit of unused fiscal losses can be utilized which is consistent with the treatment under IFRS. Under US GAAP, deferred tax assets are recognized in full (except for certain outside basis differences), but valuation allowance reduces asset to the amount that is more likely than not to be realized. 223

237 Exemption on recognition of deferred taxes Under Indonesian FAS, deferred tax effects arising from the initial recognition of an asset or liability are not recognized when: (1) the amounts don t arise from a business combination, and (2) upon occurrence, the transaction affects neither accounting nor taxable profit (e.g., acquisition of non-deductible assets). Under US GAAP, there is no exemption for non-recognition of deferred tax effects for certain assets or liabilities. Calculation of current and deferred taxes Under Indonesian FAS, current and deferred taxes are calculated at the tax rates that have been enacted or substantively enacted at the reporting date. Under US GAAP, current and deferred taxes are measured based on rates and tax laws that are enacted at the reporting date. Revenue Sale of goods Under Indonesian FAS, revenue in sales of goods is recognized only when risks and rewards of ownership have been transferred, the buyer has control of the goods, revenues can be measured reliably and it is probable that the economic benefits will flow to the entity. Under US GAAP, public companies must follow SAB Topic 13, Revenue Recognition, which requires that delivery has occurred (the risks and rewards of ownership have been transferred), there is persuasive evidence of an arrangement, the fee is fixed or determinable and collectability is reasonably assured. Employee Benefits Actuarial method used for defined benefit plans Under Indonesian FAS, a liability is recognized for an employer s obligation under a defined benefit plan. The liability and expense are measured (actually/accurately) under the Projected Unit Credit method. The measurement of the defined benefit obligations includes estimated future salary increases, and future changes in state benefits if there is reliable evidence that the change will occur. Under US GAAP, liability is also recognized for an employer s obligation under a defined benefit plan. The liability and expense are generally measured actuarially under the Projected Unit Credit method, and under the traditional credit method (Projected Unit Credit method without the future increases in salary) for certain cash balance plans. The measurement of the defined benefit obligation generally includes estimated future salary increases. However, future changes in estate benefits are yet to be enacted. Treatment of actuarial gains and losses Under Indonesian FAS, actuarial gains or losses of defined benefit plans need not be recognized in full amount in the statement of financial position. Actuarial gains and losses may be recognized in profit or loss, or immediately in other comprehensive income (OCI). Amounts recognized in OCI are not reclassified to profit or loss. If the actuarial gains and losses of a defined benefit plan are 224

238 recognized in profit or loss, then a minimum, gains and losses that exceed a corridor are required to be recognized over the average remaining working lives of employees in the plan. Faster recognition (including immediate recognition) in profit or loss is permitted. Under US GAAP, actuarial gains or losses are recognized in full in the statement of financial position. All actuarial gains and losses that are not included in profit or loss are recognized in other comprehensive income (OCI). Amounts recognized in accumulated OCI are reclassified to profit or loss. Actuarial gains and losses that exceed a corridor are required to be recognized in profit or loss, generally over the remaining working lives of active employees in the plan. Faster recognition in profit or loss is permitted. Provisions Measurement of provisions Under Indonesian FAS, an obligation that is probable (in which probable is interpreted as more likely than not) and estimable should be accrued. More likely than not, refers to a probability of greater than 50%. For a large population of items being measured, such as warranty costs, best estimate is typically expected value, although midpoint in the range may also be used when any point in a continuous range is as likely as another. Best estimate for a single obligation may be the most likely outcome, although other possible outcomes should still be considered. Under US GAAP, most probable (in which probable is interpreted as likely) within the range should be accrued. While ASC 450 does not ascribe a percentage to probable, it is intended to denote a high likelihood (e.g., 70% or more). When no one outcome is more likely than the others, the minimum amount in the range of outcomes should be accrued. Discounting provisions Under Indonesian FAS, provisions should be recorded at the estimated amount to settle or transfer the obligation taking into consideration the time value of money. The discount rate to be used should be a pre-tax rate (or rates) that reflect(s) current market assessments of the time value of money and the risks specific to the liability. Under US GAAP, provisions may be discounted only when the amount of the liability and the timing of the payments are fixed or reliably determinable, or when the obligation is a fair value obligation (e.g., an asset retirement obligation under ASC ). The discount rate to be used is dependent upon the nature of the provision. However, when a provision is measured at fair value, the time value of money and the risks specific to the liability should be considered. Operating Segments Determination of Segments and Disclosure Requirements Under Indonesian FAS, operating segments are identified on the basis of internal reports that the entity s chief operating decision maker (CODM) regularly reviews in allocating resources to segments and in assessing their performance. Under US GAAP, entities with a matrix form of organization (i.e., in some public entities, the chief operating decision maker (CODM) is responsible for different product and service lines worldwide, while other CODMs are responsible for specific geographic areas) must determine segments based on products and services. 225

239 GENERAL INFORMATION (1) The Issuer was incorporated in The Netherlands on April 10, 2013 as a private company with limited liability under the laws of The Netherlands and its trade register registration number is The registered office of the Issuer is located at Teleportboulevard 110, 1043 EJ Amsterdam, The Netherlands, and its telephone number at that address is (2) Comfeed Trading was incorporated in The Netherlands on April 11, 2013 as a private company with limited liability under the laws of The Netherlands and its trade register registration number is The registered office of Comfeed Trading is located at Teleportboulevard 110, 1043 EJ Amsterdam, The Netherlands, and its telephone number at that address is (3) We are registered with the Company Registrar in Indonesia. Our registration number is According to our Articles of Association, the scope of our business is (i) to engage in farming, poultry and fishery business, (ii) to engage in industrial business; (iii) to engage in general trading. (4) Copies of the Issuer s, Comfeed Trading and our Articles of Association and copies of the Indenture will be available for inspection by any Noteholder during usual business hours on any weekday (except Saturdays and public holidays) at the Issuer s, Comfeed Trading and our registered office, as applicable. (5) The Notes have been accepted for clearance through the facilities of Euroclear, Clearstream and DTC. Certain trading information with respect to the Notes is set forth below: CUSIP ISIN Common Code Rule 144A Notes A AA8 US20039AAA Regulation S Notes N21177 AA3 USN21177AA Only Notes evidenced by a Global Note have been accepted for clearance through Euroclear, Clearstream and DTC. (6) Mulyamin Sensi Suryanto & Lianny (the Indonesian member firm of Moore Stephens International Limited), independent auditors, and Mulyamin Sensi Suryanto (formerly Indonesian member firm of Moore Stephens International Limited), have given and not withdrawn their written consent to the inclusion of their reports with respect to our audited consolidated financial statements as of and for the years ended December 31, 2010, 2011 and 2012 in this Offering Circular. Our financial statements consolidate the financial results of our subsidiaries if and when required under Indonesian FAS. (7) Submission by us to the jurisdiction of the courts of the State of New York, and the appointment of an agent for service of process, are valid and binding under Indonesian law. The choice of New York law as the governing law is a valid choice of law under the laws of the Republic of Indonesia and should be honored by the courts of the Republic of Indonesia, subject to proof thereof and considerations of public policy. A judgment of a foreign (non-indonesian) court will not be enforceable in the courts of Indonesia, although such a judgment could be admissible as evidence in a proceeding on the underlying claim in an Indonesian court and would be given such evidentiary weight as the court may deem appropriate. (8) So long as the Notes are listed on the SGX-ST and the rules of the SGX-ST so require, the Issuer shall appoint and maintain a paying agent in Singapore, where the Notes may be presented or surrendered for payment or redemption, in the event that the Global Certificate is exchanged for Definitive Certificates. In addition, an announcement of such exchange 226

240 shall be made by or on behalf of the Issuer through the SGX-ST and such announcement will include all material information with respect to the delivery of the Definitive Notes, including details of the paying agent in Singapore. 227

241 INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS Consolidated financial statements as of and for the years ended December 31, 2010, 2011 and Page Report of Mulyamin Sensi Suryanto& Lianny for the years ended December 31, 2012 and F-4 Consolidated Financial Positions for the years ended December 31, 2012, 2011 and F-6 Consolidated Statements of Comprehensive Income for the years ended December 31, 2012, 2011 and F-8 Consolidated Statements of Changes in Equity for the years ended December 31, 2012, 2011 and F-9 Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011 and F-10 Notes to the Consolidated Financial Statements for the years ended December 31, 2012, 2011 and F-11 Report of Mulyamin Sensi Suryanto for the year ended December 31, F

242 F-1

243 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES TABLE OF CONTENTS Page The Directors Statement on the Responsibility for Consolidated Financial Statements of PT Japfa Comfeed Indonesia Tbk and Its Subsidiaries for the Years Ended December 31, 2012, 2011 and 2010 Independent Auditors Report 1 CONSOLIDATED FINANCIAL STATEMENTS - for the years ended December 31, 2012, 2011 and 2010 Consolidated Statements of Financial Position 3 Consolidated Statements of Comprehensive Income 5 Consolidated Statements of Changes in Equity 6 Consolidated Statements of Cash Flows 7 Notes to Consolidated Financial Statements 8 Attachment CONSOLIDATING SUPPLEMENTARY INFORMATION Parent Company Financial Statements For the years ended December 31, 2012, 2011 and 2010 Parent Company Statements of Financial Position I.1 Parent Company Statements of Comprehensive Income I.3 Parent Company Statements of Changes in Equity I.4 Parent Company Statements of Cash Flows I.6 F-2

244 F-3

245 F-4

246 F-5

247 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Consolidated Statements of Financial Position December 31, 2012, 2011 and 2010 (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Notes ASSETS CURRENT ASSETS Cash and cash equivalents 2e,2g,2i,3,4,22,37,38 872, , ,187 Short-term investments 2e,2h,2i,3,5,12,22,37,38 13,283 11,283 52,366 Trade accounts receivable - net of allowance for doubtful accounts of Rp 985, Rp 1,016 and Rp 2,302 as of December 31, 2012, 2011 and 2010, respectively 2e,2i,3,6,12,14,17,22,37,38 Related parties 2f,34 45,459 48,142 - Third parties 859, , ,358 Other accounts receivable from third parties 2i,3,22,37 51,965 47,414 37,363 Inventories - net of allowance for decline in value and inventory obsolescence of nil, nil and Rp 2,127 as of December 31, 2012, 2011 and 2010, respectively 2k,3,7,12,17,19 3,634,152 2,640,526 2,185,129 Breeding chickens 2l,8,12,17 409, , ,246 Advances , , ,382 Prepaid taxes 2z,9 219, ,389 42,871 Prepaid expenses 2m 28,283 25,329 36,312 Total Current Assets 6,429,500 4,932,300 4,435,214 NONCURRENT ASSETS Restricted cash in bank 2e,2h,2i,3,22,37,38 1,806 2,982 2,287 Deferred tax assets 2z,3,31 113,819 73,382 70,864 Goodwill 2c,2s,2v,3,21 70,013 70,013 1,345 Plantations - net 2n,2v 2,235 2,267 2,371 Breeding cattles 2l,8,12,17 162, , ,349 Investment properties - net of accumulated depreciation of Rp 36,960, Rp 38,469, and Rp 39,780 as of December 31, 2012, 2011 and 2010, respectively 2o,2v,3,10,28 46,035 50,880 75,768 Property, plant and equipment - net of accumulated depreciation of Rp 2,055,229, Rp 1,812,294, and Rp 1,625,275 as of December 31, 2012, 2011 and 2010, respectively 2p,2v,3,11,12,17,18,28 4,064,770 2,933,581 2,224,592 Unused assets - net 2p,2v,11 10,832 2,832 3,371 Real estate assets 2r,2v 19,542 17,990 19,318 Intangible assets - net 2s, ,780 Other assets 2i,2t,3,22,37 40,782 39,355 24,848 Total Noncurrent Assets 4,531,964 3,334,117 2,545,893 TOTAL ASSETS 10,961,464 8,266,417 6,981,107 See accompanying notes to consolidated financial statements which are an integral part of the consolidated financial statements F-6

248 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Consolidated Statements of Financial Position December 31, 2012, 2011 and 2010 (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Notes LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term bank loans 2e,2i,3,5,6,7,8,11,12,22,37,38 2,284,599 1,799, ,403 Trade accounts payable 2e,2i,3,13,22,37,38 Related party 2f,34 186, Third parties 370, , ,127 Other accounts payable to third parties 2i,3,14,22,37 99,431 47,704 41,882 Taxes payable 2z,15 99,350 36, ,027 Accrued expenses 2i,3,16,22,37 109,985 73, ,733 Advances received 30,729 43,136 51,648 Current portion of long-term liabilities: Long-term loans 2e,2i,3,6,7,11,12,17,22,37,38 334, , ,411 Liability for the purchase of property, plant and equipment 2i,3,22,37 4,334 7,415 1,343 Lease liabilities 2q,3,18,22,37 3,727 1, Bonds payable 2i,3,7,19,22,37-499,266 - Total Current Liabilities 3,523,891 3,099,991 1,686,714 NONCURRENT LIABILITIES Deferred tax liabilities 2z,31 34,431 34,270 9,970 Negative goodwill - net 2c, ,881 Long-term employee benefits liability 2y,3,30 534, , ,245 Long-term liabilities - net of current portion: Long-term loans 2e,2i,3,6,7,11,12,17,22,37,38 610, , ,876 Liability for the purchase of property, plant and equipment 2i,3,22,37 1,176 3, Lease liabilities 2q,3,18,22,37 4,216 1, Bonds payable 2i,3,7,19,22,37 1,489, ,756 Total Noncurrent Liabilities 2,674,246 1,381,079 1,807,526 Total Liabilities 6,198,137 4,481,070 3,494,240 EQUITY Equity Attributable to Owners of the Company Capital stock Authorized - 2,000,000,000 Series A shares with Rp 1,000 par value per share (in full Rupiah) and 5,000,000,000 Series B shares with Rp 200 par value per share (in full Rupiah) Issued and paid-up - 1,549,786,582 Series A shares with Rp 1,000 par value per share (in full Rupiah) as of December 31, 2012 and 1,489,414,660 Series A shares with Rp 1,000 par value per share (in full Rupiah) as of December 31, 2011 and 2010, respectively 582,318,000 Series B shares with Rp 200 par value per share (in full Rupiah) as of December 31, 2012, 2011 and ,666,250 1,605,878 1,605,878 Additional paid-in capital , , ,227 Treasury stocks - 4,064,948 shares 1c,2u,24 (17,717) - - Retained earnings Appropriated 120, ,000 80,000 Unappropriated 1,680, , ,555 Difference in value arising from restructuring transactions among entities under common control 1b,1d,2d 316, ,232 (15,971) Other equity components 2e,2j 4,143 1,287 22,592 Total 4,348,654 3,317,932 3,074,281 Noncontrolling Interests 2c,23 414, , ,586 Total Equity 4,763,327 3,785,347 3,486,867 TOTAL LIABILITIES AND EQUITY 10,961,464 8,266,417 6,981,107 See accompanying notes to consolidated financial statements which are an integral part of the consolidated financial statements F-7

249 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Consolidated Statements of Comprehensive Income For the Years Ended December 31, 2012, 2011 and 2010 (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Notes NET SALES 2f,2w,26,34 17,832,702 15,633,068 13,955,792 COST OF GOODS SOLD 2f,2w,27,34 (14,648,797) (13,072,723) (10,906,624) GROSS PROFIT 3,183,905 2,560,345 3,049,168 Interest income 2w,4,5 44,199 18,104 16,978 Gain on sale of property, plant and equipment 2w,11 26,181 57,677 3,559 Gain on foreign exchange - net 2e 24,606 5,877 57,950 General and administrative expense 2f,2y,6,10,11,28,30,34 (1,179,442) (1,018,369) (884,331) Interest expense 2w,12,14,17,18,19,20,29 (437,531) (331,404) (211,327) Selling expense 2w,28 (336,209) (434,971) (589,036) Loss on derivative transactions - net 2i, (58,156) Loss on impairment of assets 2v,10,11 - (11,140) (1,125) Others - net 5,10,11,17 39,182 26,190 53,175 INCOME BEFORE TAX 1,364, ,309 1,436,855 TAX EXPENSE (BENEFIT) 2z,31 Current tax 329, , ,705 Deferred tax (39,300) (3,398) 4,871 Tax expense 290, , ,576 NET INCOME 1,074, ,474 1,091,279 OTHER COMPREHENSIVE INCOME (LOSS) Translation adjustment 2e 2,856 (21,305) (10,809) TOTAL COMPREHENSIVE INCOME 1,077, ,169 1,080,470 Net income attributable to: Owners of the Company 991, , ,161 Noncontrolling interests 82,918 54, ,118 1,074, ,474 1,091,279 Comprehensive income attributable to: Owners of the Company 994, , ,352 Noncontrolling interests 2c,23 82,918 54, ,118 1,077, ,169 1,080,470 BASIC EARNINGS PER SHARE aa (in full amounts of Rupiah) See accompanying notes to consolidated financial statements which are an integral part of the consolidated financial statements F-8

250 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Consolidated Statements of Changes in Equity For the Years Ended December 31, 2012, 2011, and 2010 (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Equity Attributable to Owners of the Company Difference in Value Arising from Restructuring Share in Transactions Among Non- Issued and Additional Translation Changes in Equity Entities Under Retained Earnings Controlling Total Notes Paid Up Paid-in Capital Adjustment of a Subsidiary Common Control Treasury Stock Appropriated Unappropriated Total Equity Interests Equity Balance as of January 1, 2010 before adjustment 1,605, ,227 32,020 1,381 (15,971) ,005 2,101, ,438 2,369,978 Changes in equity for the year 2010 Effect of first adoption of PSAK 50 (Revised 2006) and PSAK 55 (Revised 2006) 2i ,748 34,748-34,748 Balance as of January 1, 2010 after adjustment 1,605, ,227 32,020 1,381 (15,971) ,753 2,136, ,438 2,404,726 Appropriation for general reserve ,000 (80,000) Dividends (10,359) (10,359) - (10,359) Issuance of additional shares of subsidiarys' stock to noncontrolling interest ,030 12,030 Total comprehensive income - - (10,809) , , ,118 1,080,470 Balance as of December 31, ,605, ,227 21,211 1,381 (15,971) - 80, ,555 3,074, ,586 3,486,867 Balance as of January 1, 2011 before adjustment 1,605, ,227 21,211 1,381 (15,971) - 80, ,555 3,074, ,586 3,486,867 Changes in equity for the year 2011 Derecognition of negative goodwill in accordance with transition provision of PSAK 22 (Revised 2010) 2c, ,881 71,881-71,881 Balance as of January 1, 2011 after adjustment 1,605, ,227 21,211 1,381 (15,971) - 80,000 1,027,436 3,146, ,586 3,558,748 Appropriation for general reserve ,000 (24,000) Dividends (756,182) (756,182) - (756,182) Increase in noncontrolling interest Difference in value arising from restructuring transaction among entities under common control 1b,1d,2d , , ,203 Total comprehensive income - - (21,305) , ,749 54, ,169 Balance as of December 31, ,605, ,227 (94) 1, , , ,308 3,317, ,415 3,785,347 Balance as of January 1, ,605, ,227 (94) 1, , , ,308 3,317, ,415 3,785,347 Issuance of capital stock 1b 60, , ,528 (213,528) - Treasury stock 1c,2u, (17,717) - - (17,717) - (17,717) Appropriation for general reserve ,000 (16,000) Dividends (159,604) (159,604) - (159,604) Increase in noncontrolling interest ,868 77,868 Total comprehensive income - - 2, , ,515 82,918 1,077,433 Balance as of December 31, ,666, ,383 2,762 1, ,232 (17,717) 120,000 1,680,363 4,348, ,673 4,763,327 See accompanying notes to consolidated financial statements which are an integral part of the consolidated financial statements F-9

251 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Consolidated Statements of Cash Flows For the Years Ended December 31, 2012, 2011 and 2010 (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) CASH FLOWS FROM OPERATING ACTIVITIES Cash receipts from customers 17,604,400 15,742,973 13,954,905 Cash paid to suppliers and others (15,798,760) (14,376,764) (11,802,308) Cash paid to employees (740,910) (649,789) (556,363) Net cash generated from operations 1,064, ,420 1,596,234 Cash receipts from income tax refund 21,108 4,075 6,227 Income tax paid (363,036) (460,757) (296,396) Interest paid (423,677) (334,882) (207,903) Net Cash Provided by (Used in) Operating Activities 299,125 (75,144) 1,098,162 CASH FLOWS FROM INVESTING ACTIVITIES Interest received 43,741 19,252 16,978 Proceeds from sale of property, plant and equipment 39, ,670 8,980 Placements in temporary investments (2,000) - (38,611) Acquisitions of software (9,035) - - Net cash outflow at acquisition date - net of cash balance of subsidiaries acquired (60,579) (376,754) - Acquisitions of property, plant and equipment (1,363,965) (992,400) (612,229) Increase in security deposits - (757) (997) Proceeds from sale of a subsidiary - 805,028 - Proceeds from sale of investment property Acquisitions of invesment properties - (317) (13) Net Cash Used in Investing Activities (1,352,052) (401,590) (625,892) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from bond issuance 1,487, Proceeds from (Payment of) short-term bank loans 484,795 1,099,401 (72,259) Proceeds from issuance of shares to noncontrolling interest of subsidiaries 79,000 22,500 15,000 Proceeds from long-term bank loans 11, ,625 1,067,613 Payments of lease liabilities (1,534) (1,859) (261) Payments of liability for purchase of property, plant and equipment (8,750) (1,184) (2,076) Payment for acquisition of treasury stock (17,717) - - Payments of dividends (159,604) (756,182) (10,359) Payments of long-term bank loans (282,988) (189,519) (167,908) Payment of bonds payable (500,000) - - Payments of restructured debts - - (1,062,316) Net Cash Provided by (Used in) Financing Activities 1,091, ,782 (232,566) NET INCREASE IN CASH AND CASH EQUIVALENTS 38,727 65, ,704 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 827, , ,812 Effect of foreign exchange rate changes 6, (1,329) CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 872, , ,187 See accompanying notes to consolidated financial statements which are an integral part of the consolidated financial statements F-10

252 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) 1. General a. Establishment and General Information PT Japfa Comfeed Indonesia Tbk (the Company ) was established within the framework of the Foreign Capital Investment Law No. 1 year 1967 based on Notarial Deed No. 59 dated January 18, 1971 of Djojo Muljadi, S.H., public notary, as amended by Notarial Deed No. 60 dated February 15, 1972, of the same notary. The Deed of Establishment was approved by the Minister of Justice of the Republic of Indonesia in his Decision Letter No. Y.A.5/39/8 dated October 4, 1972, and was published in the State Gazette of the Republic of Indonesia No. 86 dated October 25, 1974, Supplement No The Company s status was changed from a Foreign Capital Investment (PMA) company to a Domestic Capital Investment company based on Decision Letter No. 10/V/1982 dated June 25, 1982 of the Capital Investment Coordinating Board (BKPM) as stated in Notarial Deed No. 29 dated October 27, 1982 of Sastra Kosasih, S.H. The Company s Articles of Association have been amended several times, most recently by Notarial Deed No. 87 dated June 7, 2012 of Dr. Irawan Soerodjo, S.H., M.Si, a notary in Jakarta, concerning the merger of PT Multibreeder Adirama Indonesia Tbk, PT Multiphala Adiputra and PT Hidon to the Company. The amendment was approved by the Ministry of Law and Human Rights of the Republic of Indonesia in its Decision Letter No. AHU AH dated June 19, The Company started commercial operations in January The Company is domiciled in Jakarta and its head office is located in Wisma Millenia 7 th Floor Jl. MT Haryono Kav. 16, Jakarta The Company s manufacturing plants are located in Sidoarjo - East Java, Tangerang - Banten, Cirebon - West Java, Makasar - South Sulawesi, Lampung, Padang - West Sumatera and Bati-bati - South Kalimantan. The Company and its subsidiaries are hereinafter referred to as the Group. In accordance with article 3 of the Company's Articles of Association, the scope of its activities comprises of the following: To engage in processing of all kinds of materials for the manufacture/ production of animal feeds, including but not limited to copra and other materials containing vegetable oils, cassava and others; To engage in breeding, poultry and other farms such as fisheries and others including but not limited to cultivation of all types of livestock, poultry, fishery and related businesses, and To engage in domestic and international trading of the above-mentioned materials and products. The Company s products are marketed both locally and internationally, including Asia, Europe and USA. Malvolia Pte. Ltd, which is based in Singapore, is the immediate holding company of the Company F-11

253 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) b. Merger Merger With PT Multibreeder Adirama Indonesia Tbk, PT Multiphala Adiputra and PT Hidon Based on Merger Plan of PT Multibreeder Adirama Indonesia Tbk (MBAI), PT Multiphala Adiputra (MA) and PT Hidon (Hidon) into PT Japfa Comfeed Indonesia Tbk (JCI), JCI intends to merge MBAI, MA and Hidon into JCI. Merger of animal feeds and Day Old Chick (DOC) will give benefits as follow: Integration and control in the operations so as to accelerate the operational decision - making and determining the business strategy; Decrease the overall cost of funding; Administrative efficiency through streamlining corporate structure; Avoid duplication in relation to compliance with the provisions of the Capital Market, Stock Exchange, taxation and other relevant authorities; and Make the Company s stock trading more liquid which will provide easy liquidity for shareholders ex-mbai. Merger of the companies will combine the power of the Company in production and trade of animal feeds with excellence of MBAI, MPA and Hidon in chicken breeding. Merging the power of each of the Merged Company's business through merger will result in a company which is able to compete and thrive in the poultry business in Indonesia that is increasingly competitive. JCI will be the Surviving Company and MBAI, MA and Hidon as the Merged Companies. Based on the approval from the Capital Investment Coordinating Board (BKPM) through Decision Letter No.6/1/IU/IV/PMDN/INDUSTRI/PERTANIAN/2012 dated June 28, 2012 and Letter of the Minister of Law and Human Rights of Republic of Indonesia No. AHU-AH dated June 14, 2012, the aforementioned merger is effective on July 1, 2012 as documented in Notarial Deed No. 87 dated June 7, 2012 of Dr. Irawan Soerodjo, S.H., M.Si, a notary in Jakarta. This merger has been approved by Bapepam-LK through its letter No. S-699/BL/2012 dated June 6, Since the merger date, all legal relationships with ex MBAI, MA and Hidon have been transferred to and are assumed by JCI F-12

254 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) The shareholders composition before and after the merger date was effective is as follow: JCI's shareholders JCI's shareholders before the merger MBAI's shareholders before the merger after the merger Number of Number of Number of shares before shares after Number of shares % conversion % conversion shares % Series A shares Malvolia Pte Ltd 634,274, ,274, JCI ,042, Union Indonesia Venture Limited - - 7,040, ,298,753 21,298, Lo Kheng Hong 5,889, ,815,738 17,815, Public (below 5% each) 855,139, ,027, ,257, ,397, Series B shares Malvolia Pte Ltd 574,026, ,026, Public (below 5% each) 8,291, ,291, Total 2,071,732, ,000, ,371,922 2,132,104, Based on report No. RSR/R/ dated May 9, 2012 and No. 030/SRR/SR- B/MBAI/OR/V/12 dated May 9, 2012 issued by KJPP Ruky, Safrudin & Rekan and KJPP Suwendho, Rinaldy & Rekan, independent appraisers, management decided that the fair value per share of JCI and MBAI for share conversion purposes are Rp 4,352 (in full Rupiah) and Rp 13,164 (in full Rupiah) per share, respectively. Based on this valuation, each holder of 1 share of MBAI received 3,025 (rounded-off) of Series A shares of JCI which are issued with Rp 1,000 (in full Rupiah) par value per share. For the calculation of capital stock and additional paid-in capital, JCI s management used the market price of JCI s shares on the date of merger. As a result, JCI s capital stock and additional paid-in capital increased by Rp 60,372 and Rp 153,156, respectively (Notes 24 and 25). Merger of PT Primatama Karya Persada to PT Ciomas Adisatwa Based on Notarial Deed Nos. 83 and 84 dated August 2011 of Buntario Tigris, S.H., S.E., M.H., a public notary in Jakarta, the stockholders of PT Ciomas Adisatwa (CA), a subsidiary which is 100% owned by the Company and PT Primatama Karya Persada (PKP), a subsidiary which is 100% owned by CA, agreed to merge both companies. This merger has been approved by the Capital Investment Coordinating Board (BKPM) through Decision Letter No. 8/1/IU/IV/PMDN/PERTANIAN/PERDAGANGAN/2011 dated August 19, The merger of PKP into CA was effective on September 1, Since the merger date, all legal relationships between ex PKP customers/ business relationship with ex PKP have been transferred to and are assumed by CA. This merger has no impact on the consolidated financial statements of the Group since the financial statements of CA and PKP have already been combined with the financial statements of the Company even before this merger, both being 100% owned subsidiaries of the Company F-13

255 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Merger With PT Multiphala Agrinusa and PT Bintang Terang Gemilang Based on Merger Plan of PT Multiphala Agrinusa (MAG) and PT Bintang Terang Gemilang (BTG) into PT Japfa Comfeed Indonesia Tbk (JCI), JCI intends to merge MAG and BTG into JCI in order to simplify JCI s group structure by merging the subsidiaries which engage in the same activities with JCI. JCI will be the Surviving Company and MAG and BTG as the Merged Companies. Based on the approval from the Capital Investment Coordinating Board (BKPM) through Decision Letter No. 5/1/IU/IV/PMDN/INDUSTRI/2010 dated December 31, 2010 and Letter of the Minister of Law and Human Rights of Republic of Indonesia No. AHU-AH dated December 8, 2010, the aforementioned merger is effective on January 1, 2011 as documented in Notarial Deed No. 16 dated November 23, 2010 of Fransiskus Yanto Widjaja, S.H., a notary in Jakarta. This merger has been approved by Bapepam-LK through its letter No. S-10511/BL/2010 dated November 19, Since the merger date, all legal relationships with ex MAG and BTG have been transferred to and are assumed by JCI. Merger With PT Multi Agro Persada Tbk Based on the Merger Plan of PT Japfa Comfeed Indonesia Tbk (JCI) and PT Multi Agro Persada Tbk (MAP), both companies have signed the Letter of Intent on June 25, 2009 in order to integrate their businesses through merger. Based on the approval from the Bapepam-LK through its letter No. S-8714/BL/2009 dated September 30, 2009 and Capital Investment Coordinating Board (BKPM) through Decision Letter No. 124/III/PMDN/2009 dated November 9, 2009, regarding the merger plan of MAP into JCI, the merger was effective on December 1, 2009 as documented in Notarial Deed No. 8 dated October 12, 2009 of Fathiah Helmi, S.H., a public notary in Jakarta. This merger has been approved by Minister of Law and Human Rights of Republic Indonesia through its letter No. AHU AH Tahun 2009 dated November 19, Since the merger date, all legal relationships between ex MAP customers/ business relationships with ex MAP have been transferred and are assumed by JCI. Difference in Value Arising from Restructuring Transactions of Entities Under Common Control At the effective date of the merger, JCI and MAP are under common control of Malvolia Pte. Ltd. Accordingly, the merger of both companies was accounted for using the pooling of interest method (Note 2d) F-14

256 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) c. Public Offering of Shares On August 31, 1989, the Company obtained the Notice of Effectivity of Share Registration No. SI-046/SHM/MK.10/1989 from the Chairman of the Capital Market Supervisory Agency (Bapepam) (currently Bapepam - LK) for its public offering of 4,000,000 shares. On October 23, 1989, these shares were listed in the Indonesia Stock Exchange. On February 8, 1990, the Company obtained the Notice of Effectivity of Share Registration No. S-139/PM/1990 from the Chairman of Bapepam (Currently Bapepam - LK) for its limited offering of 24,000,000 shares on a 2:3 basis. These shares were listed in the Indonesia Stock Exchange on February 12, On July 26, 1991, the Company obtained the Notice of Effectivity of Share Registration No. S-1149/PM/1991 from the Chairman of Bapepam (currently Bapepam - LK) for its limited offering of 80,000,000 shares on a 1:2 basis. These shares were listed in the Indonesia Stock Exchange on July 29, On March 20, 1992, the Company obtained the Notice of Effectivity of Registration No. S-599/PM/1992 from the Chairman of Bapepam (currently Bapepam - LK) for the issuance of additional 28,941,466 shares in connection with the offering of convertible bonds abroad. On November 1, 2002, the Company obtained the approval at the Extraordinary Stockholders Meeting for the increase in issued and paid-up capital through issuance of 1,340,473,194 shares with Rp 1,000 par value per share to non-affiliated creditors without pre-emptive rights according to Bapepam regulation No. IX.D.4 as attachment to the decision of the Chairman of Bapepam (currently Bapepam - LK) No. Kep-44/PM/1998 on August 14, On May 16, 2007, the Company obtained the Notice of Effectivity from Chairman of Bapepam-LK in his letter No. 021/JAPFA-BPM/LD-CS/V/07 for its public offering of Japfa I Bonds year 2007 totaling to Rp 500 billion (Note 19). On December 29, 2011, the Company obtained the Notice of Effectivity from Chairman of Bapepam-LK in his letter No. S-13948/BL/2011 for its Public Offering of Japfa I Sustainable Bonds year 2012 totaling to Rp 1,500 billion (Note 19). On June 28, 2012, the Company has submitted a Statement to Bapepam - LK and Indonesia Stock Exchange (ISE) regarding the reacquisition of Company s capital stock which was issued and recorded in ISE (as treasury stock). The reacquisition transaction was consumated on June 29, As of December 31, 2012, the Company's treasury stocks totaled to 4,064,948 shares at Rp 4,352 per share (in full Rupiah). As of December 31, 2012, the Company's outstanding shares totaling to 2,132,104,582 shares and as of December 2011 and 2010, the Company's outstanding shares totaling to 2,071,732,660 shares, respectively, were listed in the Indonesia Stock Exchange F-15

257 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) d. Consolidated Subsidiaries The Company s subsidiaries owned directly or indirectly, are as follows: Subsidiary Start of Commercial Effective Percentage of Ownership Total Assets (Before Elimination) Domicile Nature of Business Operations PT Suri Tani Pemuka (STP) Sidoarjo Production of shrimp feed, shrimp farming, cold storage and shrimp hatchery % % % 832, , ,398 - PT Kraksaan Windu (KW) Probolinggo Shrimp farming % % % 2,528 1,910 2,114 - PT Artha Lautan Mulya (ALM) Situbondo Shrimp farming ,55% 99,55% 99.55% 24,128 16,724 12,468 - PT Bumiasri Lestari (BL) Situbondo Shrimp farming % 60.00% 60.00% 8,397 5,252 4,322 - PT Iroha Sidat Indonesia (ISI) Banyuwangi Shrimp farming % , PT Multibreeder Adirama Indonesia Tbk (MBAI) Jakarta Chicken breeding % 73.39% - 1,523,492 1,134,007 - PT Multiphala Adiputra (MA) Purwakarta Chicken breeding % % - 8,467 8,963 - PT Hidon (Hidon) Sukabumi Chicken breeding % 99.99% - 4,659 5,191 PT Ciomas Adisatwa (CA) Jakarta Trading, commercial farm and chicken slaughter house % % % 1,765,198 1,312, ,317 - PT Japfa Intitrada (intitrada) Jakarta Trading (dormant) % 99.97% PT Japfa Indoland Jakarta Real estate % % % 234, ,414 70,245 - PT Tretes Indah Permai (TIP) Tretes Real estate % % % 7,735 16,945 13,845 - PT Jakamitra Indonesia Surabaya Real estate % 70.00% 70.00% 296, ,710 60,971 - PT Indonesia Pelleting (IP) Jakarta Pellets manufacturing (dormant) % 99.00% 99.00% ,104 12,939 - PT Japfa Food Nusantara (JFN) Jakarta Foods (dormant) % % % 3,146 24,103 24,695 - PT Wabin Jayatama Serang Plantations and farming % % % 20,086 19,598 21,862 - PT Java Citra Indonusa (Java Citra) Jakarta Marine transportation services (dormant) % % PT So Good Food Jakarta Trading % ,134 - PT Supra Anekaboga (SAB) Bogor Foods % PT Septatrada Hardaguna (STH) Bogor Foods % PT Japfa Santori Indonesia (JSI) Tangerang Trading ,01% ,882 - Japfa Comfeed International Pte., Ltd. (JCIP) Singapore Trading, investing and poultry % ,141 - Japfa Comfeed India Private Ltd. (JCIL) India Poultry % ,668 - PT Vaksindo Satwa Nusantara (VSN) Jakarta Production of vaccine % % % 96,430 59,821 38,480 - Apachee Pte., Ltd (APC) Singapore Transportation service % % % 48,502 43,032 20,370 PT Adiguna Bintang Lestari (ABL) (In Liquidation Process) Jakarta Commercial farm % % - 9,503 18,445 - PT Bhirawa Mitra Sentosa (BMS) Surabaya Transportation services % % - 29,381 37,002 - PT Agrinusa Jaya Santosa (AJS) Jakarta Trading and Production of vaccine % , PT EMKL Bintang Laut Timur (EMKL) Surabaya Marine transportation services % % % 16,185 2,432 2,391 PT Multiphala Agrinusa (MAG) Jakarta Animal feeds manufacturing % ,654 - PT Indojaya Agrinusa (IAG) Medan Animal feeds manufacturing and chicken breeding % 50.00% 50.00% 746, , ,863 PT Santosa Agrindo (SA) Jakarta Trading, cattle breeding and cattle slaughter house % % % 525, , ,424 - PT Austasia Stockfeed (ASF) Jakarta Trading, cattle breeding and production of animal feeds % % % 269, , ,403 PT Bintang Terang Gemilang (BTG) Serang Animal feeds manufacturing % ,541 Establishment of Subsidiaries PT Iroha Sidat Indonesia (ISI) ISI was established based on Notarial Deed No. 1 dated January 4, 2012 of Buntario Tigris Darmawa, Ng, S.H., S.E., M.H., a public notary in Jakarta. The Deed of Establishment was approved by the Minister of Justice and Human Rights of the Republic of Indonesia in his Decision Letter AHU AH year 2012 dated February 8, 2012, which has been amended by Notarial Deed No. 171 dated April 24, 2012 of the same notary. This amendment was approved by the Minister of Justice and Human Rights of the Republic of Indonesia in his Decision Letter No. AHU-AH dated May 15, F-16

258 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Acquisition of Subsidiaries PT Agrinusa Jaya Santosa (AJS) Based on Notarial Deed No. 7 and No. 9 dated July 5, 2012 of H. Teddy Anwar, S.H., S.pN., a notary in Jakarta, PT Ciomas Adisatwa (CA) and PT Bintang Laut Timur (BLT), subsidiaries, acquired 15,000,000 and 2,500 shares, respectively, or equivalent to 25% and 0.004%, respectively, ownership interest in AJS for an acquisition cost of Rp 15 billion and Rp 3, respectively. Further based on Notarial Deed No. 12 dated August 1, 2012 of H. Teddy Anwar, S.H., S.pN., a notary in Jakarta, CA, a subsidiary, acquired 44,997,500 shares, or equivalent to % ownership interest in AJS from third parties for an acquisition cost of Rp 56,247. Thus, percentage of ownership interest in AJS become %. The following table is the reconciliation of cash flow payment and received from of business combinations: July 31, 2012 Cash consideration 71,249 Less balance of cash acquired 10,670 Cash inflow investing activities 60,579 The following table summarizes the consideration paid for AJS and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date: July 31, 2012 Cash paid 71,249 Fair value of equity interest held before the business combination - Total consideration 71, F-17

259 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Recognized amounts of identifiable assets acquired and liabilities assumed are as follows: Fair Value Cash and cash equivalents 10,670 Property, plant and equipment 59,215 Inventories 43,008 Trade accounts receivable 35,546 Other accounts receivable 813 Prepaid tax 5,794 Prepaid expense 1,943 Advance and guarantee 3,195 Deferred tax assets 976 Trade accounts payable (37,280) Other accounts payable (112) Tax payable (3,524) Accrued expense (253) Advance received (629) Long-term employee benefits liability (6,589) Long-term bank loans (19,857) Lease liabilities (6,070) Other long-term liabilities (11,844) Total identifiable net assets 75,002 Negative goodwill (3,753) Purchase consideration 71,249 PT Primatama Karya Persada (PKP) Based on Notarial Deed Nos. 7 and 8 dated April 1, 2011 of Buntario Tigris, S.H., S.E., M.H., a notary in Jakarta, PT Ciomas Adisatwa (CA) and PT Multiphala Adiputra (MA), subsidiaries, acquired 219,950,000 and 50,000 shares, respectively, or equivalent to 99.98% and 0.02%, respectively, ownership interest in PKP from third parties for an acquisition cost of Rp 349,920 and Rp 80, respectively. Further, based on Notarial Deed No. 73 dated June 30, 2011 of H. Teddy Anwar, S.H., SpN., a notary in Jakarta, MA sold all of the shares in PKP to CA at par value. The balance of PKP s cash and cash equivalents at the time of acquisition amounted to Rp 29,886. The total assets acquired and liabilities assumed were as follows: Current assets 404,996 Noncurrent assets 131,539 Total liabilities 349, F-18

260 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) PT Adiguna Bintang Lestari (ABL) Based on Notarial Deed Nos. 1 and 2 dated May 2, 2011 of H. Teddy Anwar, S.H., SpN., a notary in Jakarta, PT Ciomas Adisatwa (CA) and PT Multiphala Adiputra (MA), subsidiaries, acquired 7,170 shares and 30 shares, respectively, or equivalent to 99.58% and 0.42%, respectively, ownership interest in ABL from PKP for an acquisition cost of Rp 7,671.9 and Rp 32.1, respectively. Further, based on Notarial Deed No. 75 dated June 30, 2011 of H. Teddy Anwar, S.H., SpN., a notary in Jakarta, MA sold all of its shares in ABL to CA at par value. The balance of ABL s cash and cash equivalents at the time of acquisition amounted to Rp 795. The total assets acquired and liabilities assumed were as follows: Current assets 15,846 Noncurrent assets 4,219 Total liabilities 12,240 PT Bhirawa Mitra Sentosa (BMS) Based on Notarial Deed Nos. 5 and 6 dated May 2, 2011 of H. Teddy Anwar, S.H., SpN., a notary in Jakarta, PT Ciomas Adisatwa, a subsidiary, acquired 11,980 shares or equivalent to 99.87% ownership interest in BMS from PKP and 3,000 shares from third parties for an acquisition cost of Rp 19, Further, based on Notarial Deed No. 7 dated May 2, 2011 of H. Teddy Anwar, S.H., SpN., a notary in Jakarta, PT Multiphala Adiputra, a subsidiary, acquired 20 shares or equivalent to 0.13% ownership interest in BMS from PKP for an acquisition cost of Rp The balance of BMS s cash and cash equivalents at the time of acquisition amounted to Rp 408. The total assets acquired and liabilities assumed were as follows: Current assets 15,207 Noncurrent assets 28,200 Total liabilities 24,683 The fair value of PKP and its subsidiaries (ABL and BMS) net identifiable assets and liabilities amounted to Rp 279,985. At the effective date of the acquisition, the excess of the cost of acquisition over the fair value amounting to Rp 70,015 was recorded as goodwill (Note 21). Apachee Pte., Ltd. (APC) Based on Declaration of Trust, dated June 11, 2010, of Goldriver Finance Limited., PT Ciomas Adisatwa (CA), a subsidiary, acquired 1 share or equivalent to 100% ownership interest in APC from a third party for acquisition cost of US$ 1, paid in cash. The balance of APC s equity at the time of acquisition amounted to US$ 1, there is no asset and liabilities at the time of acquisition F-19

261 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Liquidation of Subsidiaries PT Japfa Intitrada (Intitrada) Based on Notarial Deed No. 43 dated October 5, 2012 of Buntario Tigris, S.H., S.E., M.H., notary in Jakarta, PT Ciomas Adisatwa, a subsidiary, decided to terminate the operations of Intitrada. PT Adiguna Bintang Lestari (ABL) Based on Notarial Deed No. 3 dated November 2, 2012 of H. Teddy Anwar, S.H., S.pN., notary in Jakarta, PT Ciomas Adisatwa and PT Bintang Laut Timur, subsidiaries, decided to terminate the operations of ABL. The termination process of the operations of the Company is expected to be completed by the end of PT Java Citra Indonusa (Java Citra) Based on Notarial Deed No. 156 dated May 15, 2012 of Buntario Tigris, S.H., S.E., M.H., notary in Jakarta, PT Ciomas Adisatwa and PT Bintang Laut Timur, subsidiaries, decided to terminate the operations of Java Citra. Disposal of Subsidiaries PT So Good Food Based on the Sale and Purchase Agreement dated April 25, 2011, the Company agreed to sell to Jupiter Foods Pte Ltd ( Jupiter ) and Annona Pte Ltd ( Annona ) its 99.92% and 0.08% ownership interest, respectively, in PT So Good Food ( SGF ), a subsidiary, for US$ 100 million (equivalent to Rp 853,000). Jupiter and Annona are subsidiaries of Malvolia Pte Ltd ( Malvolia ), a majority stockholder of JCI. The sale was consumated on May 31, Based on Notarial Deed No. 88 dated April 11, 2011 of Buntario Tigris, S.H., S.E., M.H., a notary in Jakarta, PT Ciomas Adisatwa (CA), subsidiary, sold all of the shares in PT So Good Food Manufacturing (SGFM) to SGF for Rp 9,352. The difference between the sales price and book value of SGF of Rp 333,195 is recorded in the account Difference in Value arising from Restructuring Transactions Among Entities Under Common Control included in the equity section of the consolidated statement of financial position. Japfa Comfeed International Pte., Ltd. (JCIP) and Japfa Comfeed India Ltd. (JCIL) Based on the Sale and Purchase Agreement dated October 20, 2010, PT Ciomas Adisatwa (CA), a subsidiary, agreed to sell to Malvolia Pte., Ltd., a majority stockholder, its 100% ownership interest in Japfa Comfeed International Pte., Ltd. (JCIP) and 65% ownership interest in Japfa Comfeed India Ltd. (JCIL) for US$ 11,750,000 (equivalent to Rp 105,492). The sale was consumated on January 3, The difference between the sales price and book value of JCIP and JCIL of (Rp 991) is recorded in the account Difference in Value arising from Restructuring Transactions Among Entities Under Common Control included in the equity section of the 2011 consolidated statement of financial position F-20

262 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) e. Board of Commissioners, Directors and Employees As of December 31, 2012, based on Notarial Deed No. 86 dated June 7, 2012 of Dr. Irawan Soerodjo, S.H., MSi, a public notary in Jakarta, the Company s management consists of the following: Board of Commissioners President Commissioner : Syamsir Siregar Vice President Commissioner : Hendrick Kolonas Independent Commissioner : Radityo Hatari Directors President Director : Handojo Santosa Vice President Director : Bambang Budi Hendarto Directors : Ignatius Herry Wibowo Tan Yong Nang As of December 31, 2011 and 2010, based on Notarial Deed No. 61 dated June 8, 2011 of Dr. Irawan Soerodjo, S.H., MSi, a public notary in Jakarta and Notarial Deed No. 16 dated November 23, 2010 of Fransiskus Yanto Widjaja, S.H., a public notary in Jakarta, respectively, the Company s management consists of the following: Board of Commissioners President Commissioner : Syamsir Siregar Vice President Commissioner : Osa Masong Independent Commissioner : Radityo Hatari Commissioner : Hariono Soemarsono Directors President Director : Handojo Santosa Vice President Director : Bambang Budi Hendarto Directors : Ignatius Herry Wibowo Tan Yong Nang As a public company, the Company has an Independent Commissioner and an Audit Committee as required by Bapepam-LK. The Company s Audit Committee consists of two members, wherein Radityo Hatari, who acts as the Independent Commissioner, is also the Chairman of the Audit Committee. Key management personnel of the Group consists of Commissioners, Directors, Corporate Financial Controller, Deputy Corporate Financial Controller, Financial Controller and Accounting Manager. The Company had an average total number of employees (unaudited) of 15,049 in 2012, Rp 13,653 in 2011 and Rp 13,409 in The aggregate salaries and benefits paid or accrued by the Company to all commissioners and directors amounted to Rp 42,002 in 2012, Rp 18,251 in 2011 and Rp 14,763 in F-21

263 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) The consolidated financial statements of PT Japfa Comfeed Indonesia Tbk and its subsidiaries for the year ended December 31, 2012 were completed and authorized for issuance on March 21, 2013 by the Company s Directors who are responsible for the preparation and presentation of the consolidated financial statements. 2. Summary of Significant Accounting and Financial Reporting Policies a. Basis of Consolidated Financial Statements Preparation and Measurement The consolidated financial statements have been prepared and presented in accordance with Indonesian Financial Accounting Standards SAK, which comprise the statements and interpretations issued by the Board of Financial Accounting Standards of the Indonesian Institute of Accountants and Regulation No. VIII.G.7 regarding Presentation and Disclosures of Public Companies Financial Statements included in the Appendix of the Decree of the Chairman of the Capital Market and Financial Institutions Supervisory Agency (Bapepam-LK) No. KEP-347/BL/2012 dated June 25, As disclosed further in relevant succeeding notes, several amended and published accounting standards were adopted effective January 1, Such consolidated financial statements are not intended to present the financial position, results of operations, and cashflows in accordance with accounting principles and reporting practices generally accepted in other countries and jurisdictions. The consolidated financial statements are prepared in accordance with the Statement of Financial Accounting Standard ( PSAK ) No. 1 (Revised 2009), Presentation of Financial Statements. The measurement basis used is the historical cost, except for certain accounts which are measured on the bases described in the related accounting policies. The consolidated financial statements, except for the consolidated statements of cash flows, are prepared under the accrual basis of accounting. The consolidated statements of cash flows are prepared using the direct method with classifications of cash flows into operating, investing, and financing activities. The accounting policies adopted in the preparation of the consolidated financial statements for the year ended December 31, 2012 are consistent with those adopted in the preparation of the consolidated financial statements for the years ended December 31, 2011 and 2010, except for the impact of the adoption of several amended PSAKs effective January 1, 2012 as disclosed in this Note. The reporting currency used in the preparation of the consolidated financial statements is the Indonesian Rupiah (Rupiah) which is also the functional currency of the Company. The preparation of the consolidated financial statements in conformity with Indonesian Financial Accounting Standards requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note F-22

264 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) b. Adoption of Statements and Interpretations of Financial Accounting Standards Effective January 1, 2012 On January 1, 2012, the Group adopted new and revised Statements of Financial Accounting Standards (PSAKs) and Interpretations of Financial Accounting Standards (ISAKs) that are mandatory for application from that date. Changes to the Group s accounting policies have been as required, in accordance with the transitional provisions in the respective standards and interpretations. 1. PSAK No. 24 (Revised 2010), Employee Benefits, clarifies that all share-based awards granted to employees should be accounted using principles of PSAK No. 53, Shared- Based Payments. This revised standard introduces a new alternative method to recognize actuarial gains (losses) that is to recognize all actuarial gains (losses) in full through other comprehensive income. The Group has elected to continue using the corridor approach in the recognition of actuarial gains (losses). The Group has additional disclosures in Note 29 as required by the Standard. 2. ISAK No. 25, Landrights, which is an interpretation of PSAK No. 16 (Revised 2011), prescribes that the costs incurred in order to acquire legal rights over land in the form of Hak Guna Usaha (HGU), Hak Guna Bangunan (HGB) and Hak Pakai (HP) upon initial acquisition of land be recognized as part of acquisition cost of the land and are not amortized. Meanwhile, costs incurred in connection with the extension or renewal of the above rights are recognized as part of other assets and are amortized over the legal life of the rights or the economic useful life of the land, whichever is shorter. 3. PSAK No. 60, Financial Instruments: Disclosures, which requires more extensive disclosures of an entity s financial risk management compared to PSAK No. 50 (Revised 2006), Financial Instruments: Presentation and Disclosures. The requirements consist of the following: a. The significance of financial instruments for an entity s financial position and performance. These disclosures incorporate many of the requirements previously in PSAK No. 50 (Revised 2006). b. Qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk and market risk. The qualitative disclosures describe management s objectives, policies and processes for managing those risks. The quantitative disclosures provide information about the extent to which the entity is exposed to risk, based on information provided internally to the entity s key management personnel. The Group has incorporated disclosure requirements of PSAK No. 60 in the consolidated financial statements for the year ended December 31, F-23

265 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) The following are the new and revised PSAKs and ISAKs which are relevant and have been adopted effective January 1, 2012 but do not have material impact to the consolidated financial statements: PSAK 1. PSAK No. 10 (Revised 2010), The Effects of Changes in Foreign Exchange Rates 2. PSAK No. 13 (Revised 2011), Investment Property 3. PSAK No. 16 (Revised 2011), Property, Plant, and Equipment 4. PSAK No. 26 (Revised 2011), Borrowing Costs 5. PSAK No. 30 (Revised 2011), Leases 6. PSAK No. 46 (Revised 2010), Income Taxes 7. PSAK No. 50 (Revised 2010), Financial Instruments: Presentation 8. PSAK No. 55 (Revised 2011), Financial Instruments: Recognition and Measurement 9. PSAK No. 56 (Revised 2011), Earnings per Share ISAK 1. ISAK No. 23, Operating Leases - Incentives 2. ISAK No. 24, Evaluating the Substance of Transactions Involving the Legal Form of a Lease 3. ISAK No. 26, Reassessment of Embedded Derivatives c. Principles of Consolidation and Accounting for Business Combination Principles of Consolidation Effective January 1, 2011, the Group retrospectively adopted PSAK No. 4 (Revised 2009), Consolidated and Separate Financial Statements, except for the following items that were applied prospectively: (i) losses of a subsidiary that result in a deficit balance to noncontrolling interests ( NCI ); (ii) loss of control over a subsidiary; (iii) change in the ownership interest in a subsidiary that does not result in a loss of control; (iv) potential voting rights in determining the existence of control; and (v) consolidation of a subsidiary that is subject to long-term restriction. The consolidated financial statements include the accounts of the Company and Subsidiaries mentioned in Note 1d. Inter-company transactions, balances and unrealized gains or losses on transactions between Group companies are eliminated F-24

266 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Subsidiaries are fully consolidated from the date of acquisitions, being the date on which the Company obtained control, and continue to be consolidated until the date such control ceases. Control is presumed to exist if the Company owns, directly or indirectly through another subsidiary, more than a half of the voting power of an entity unless, in exceptional circumstances, it can be clearly demonstrated that such ownership does not constitute control. Control also exists under certain circumstances when there is: power over more than half of the voting rights by virtue of an agreement with other investors; power to govern the financial and operating policies of the entity under a statute or an agreement; power to appoint or remove the majority of the members of the board directors or equivalent governing body and control of the entity is by that board or body; or power to cast the majority of votes at meetings of the board of directors or equivalent governing body and control of the entity is by the board or body. Losses of a non-wholly owned subsidiary are attributed to the Noncontrolling interests (NCI) even if that results in a deficit balance. In case of loss of control over a subsidiary, the Group: derecognizes the assets (including goodwill) and liabilities of the subsidiary; derecognizes the carrying amount of any NCI; derecognizes the cumulative translation differences, recorded in equity, if any; recognizes the fair value of the consideration received; recognizes the fair value of any investment retained; recognizes any surplus or deficit in profit or loss; and reclassifies the parent s share of components previously recognized in other comprehensive income to profit or loss or retained earnings, as appropriate. NCI represents the portion of the profit or loss and net assets of the subsidiaries attributable to equity interests that are not owned directly or indirectly by the Company, which are presented in the consolidated statements of comprehensive income and under the equity section of the consolidated statements of financial position, respectively, separately from the corresponding portion attributable to the owners of the Company. Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions. The difference between the fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. Accounting Policies Prior to January 1, 2011 Prior to January 1, 2011, losses attributable to the NCI in certain non-wholly owned subsidiaries that have exceeded the NCI s portion in the equity of the said subsidiaries were temporarily charged against the controlling shareholder unless the NCI has a binding obligation to cover these losses. Subsequent profits of the said subsidiaries are allocated to the controlling shareholder until the NCI s share of losses previously absorbed by the controlling shareholder has been recovered F-25

267 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Business Combination Accounting Policies Effective January 1, 2011 Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any NCI in the acquiree. For each business combination, the acquirer measures the NCI in the acquiree either at fair value or at the proportionate share of the acquiree s identifiable net assets. Acquisition related costs incurred are directly expensed and included in administrative expenses. When the Group acquires a business, it assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. If the business combination is achieved in stages, the acquisition date fair value of the acquirer s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss. Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognized in accordance with PSAK No. 55 either in profit or loss or as other comprehensive income. If the contingent consideration is classified as equity, it should not be measured until it is finally settled within equity. At acquisition date, goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount recognized for NCI over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognized in profit or loss. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. 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 ( CGU ) that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquired are assigned to those CGUs. Where goodwill forms part of a CGU and part of the operation within that CGU 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 CGU retained. Accounting Policies Prior tojanuary 1, 2011 In comparison to the above, the following were the accounting policies applied on business combination prior to January 1, 2011: business combinations were accounted for using the purchase method. Transaction costs directly attributable to the acquisition formed part of the acquisition costs. The NCI was measured at the book value of the proportionate share of the acquiree s identifiable net assets; F-26

268 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) business combinations achieved in stages were accounted for as separate steps. Any additional acquired equity interest did not affect previously recognized goodwill; and contingent consideration was recognized if, and only if, the Group had a present obligation, the economic outflow was more likely than not and a reliable estimate was determinable. Subsequent adjustments to the contingent consideration were recognized as part of goodwill. d. Transactions Among Entities Under Common Control Entities under common control are parties (individual, company, or other form of entities) which directly or indirectly (through one or more intermediaries) control or are controlled by or are under the same control. Acquisition of a subsidiary from entities under common control which is a reorganization of companies under common control (pooling of interest), is accounted for in accordance with PSAK No. 38 (Revised 2004) Accounting for Restructuring Transactions among Entities Under Common Control. Transfer of assets, liabilities, shares and other instruments of ownership among entities under common control do not result in a gain or loss to the Group or to the individual company within the same group. Since a restructuring transaction among entities under common control does not result in a change of the economic substance of the ownership of assets, liabilities, shares and other instruments of ownership which are exchanged, assets or liabilities transferred are recorded at book values as business combination using the pooling of interest method. Any difference between the transfer price and book value of each restructuring transaction between entities under common control are recorded in the account Difference in value arising from restructuring transactions among entities under common control, presented as a component of equity. The balance of Difference in value arising from restructuring transactions among entities under common control account is taken to the consolidated statements of comprehensive income as realized gain or loss as a result of (1) loss of under common control substance, and (2) transfer of the assets, liabilities, equity or other ownerhip instruments to another party who is not under common control. On the other hand, when there are reciprocal transactions between entities under common control, the existing balance is set-off with the new transaction, hence creating a new balance of this account. e. Foreign Currency Translation Functional and Reporting Currencies Items included in the financial statements of each of the Group s companies are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial statements are presented in Rupiah which is the Company s functional and presentation currency F-27

269 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Transactions and Balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the consolidated statement of comprehensive income. Non-monetary assets that are measured at fair value are translated using the exchange rate at the date that the fair value was determined. Translation differences on equities and similar non-monetary items measured at fair value are recognized in profit or loss. As of December 31, 2012, 2011 and 2010, the exchange rates used were as follows: U.S. Dollar 9,670 9,068 8,991 Singapore Dollar 7,907 6,974 6,981 Australian Dollar 10,025 9,203 9,143 Euro 12,810 11,739 11,956 China Yuan 1,537 1,439 1,358 Indian Rupee Group Companies The results and financial position of all the Group companies that have a functional currency different from the reporting currency are translated into the reporting currency as follows: a. assets and liabilities for each statement of financial position presented are translated at the closing rate at the date of that statement of financial position; b. income and expenses for each statement of income are translated at average exchange rates; and c. all resulting exchange differences are recognized in other comprehensive income. The functional currency of Japfa Comfeed International Pte., Ltd. (JCIP), Japfa Comfeed India Private Ltd. (JCIL) and Apachee Pte, Ltd. are Singapore Dollar, Indian Rupee and U.S. Dollar, respectively. Its financial statements were translated into reporting currency using the following exchange rates as of December 31, 2012, 2011 and 2010: Statement of Financial Position Accounts U.S. Dollar 9,670 9,068 - Singapore Dollar - *) - *) 6,981 Indian Rupee - *) - *) 201 Profit and Loss Accounts U.S. Dollar 9,419 8,773 - Singapore Dollar - *) - *) 6,676 Indian Rupee - *) - *) 198 *) JCIP and JCIL were sold by PT Ciomas Adisatwa to Malvolia Pte. Ltd. on January 3, 2011 (Note 1d) F-28

270 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) On consolidation, exchange differences arising from the translation of the net investment in foreign entities are taken to equity. When a foreign operation is sold, such exchange differences are recognized in the consolidated statement of comprehensive income as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. f. Transactions with Related Parties Accounting Policies Effective January 1, 2011 A related party is a person or entity that is related to the Group: a. A person or a close member of that person's family is related to the Group if that person: (i) (ii) has control or joint control over the Group; has significant influence over the Group; or (iii) Is a member of the key management personnel of the reporting entity or of a parent of the Group. b. An entity is related to the Group if any of the following conditions applies: (i) The entity and the Group are members of the same group. (ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member). (iii) Both entities are joint ventures of the same third party. (iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity. (v) The entity is a post-employment defined benefit plan for the benefit of employees of either the Group or an entity related to the Group. If the Group is itself such a plan, the sponsoring employers are also related to the Group. (vi) The entity is controlled or jointly controlled by a person identified in (a). (vii) A person identified in (a) (i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity). Accounting Policies Prior to January 1, 2011 Related parties consist of the following: 1. Companies that, through one or more intermediaries, control or are controlled by, or are under common control with, the Company (including holding companies, subsidiaries, and fellow subsidiaries); 2. Associated companies; F-29

271 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) 3. Individuals owning, directly or indirectly, an interest in the voting power of the Company that gives them significant influence over the Company, and close family members of such individuals (close family members are those who can influence or can be influenced by such individuals in their transactions with the Company); 4. Key management personnel, that is, those persons having authority and responsibility for planning, directing and controlling the activities of the Company, including commissioners, directors and managers of the Company and close family members of such individuals; and 5. Companies in which a substantial interest in the voting power is owned, directly or indirectly, by any person described in (3) or (4) or over which such person is able to exercise significant influence. These include companies owned by commissioners, directors or major stockholders of the Company, and companies that have a common member of key management with that of the Company. All transactions with related parties, whether or not done under similar terms and conditions as those done with third parties, are disclosed in the consolidated financial statements. g. Cash and Cash Equivalents Cash consists of cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three (3) months or less from the date of placements, and which are not used as collateral and are not restricted. h. Time Deposits and Restricted Cash in Banks Time deposits with maturities of three months or less from the date of placement which are used as collateral or are restricted, and time deposits with maturities of more than three months from the dates of placement and current bank accounts which are used as collateral or are restricted, are presented as investments. Time deposits are stated at nominal values. i. Financial Instruments Effective January 1, 2010, the Group adopted PSAK No. 50 (Revised 2006), Financial Instruments: Presentation and Disclosures and PSAK No. 55 (Revised 2006), Financial Instruments: Recognition and Measurement. The effect of the transition to PSAK No. 50 (Revised 2006) and PSAK No. 55 (Revised 2006) to the Group s consolidated statement of financial position as of January 1, 2010 is set out in the following table: As reported Transition As adjusted January 1, 2010 Adjustments January 1, 2010 Assets Current Assets Trade accounts receivables 756,051 40, ,974 Noncurrent Assets Deferred tax assets 79,198 (9,284) 69,914 Total Assets 835,249 31, ,888 The above transition adjustments were derived from the reassessment of impairment losses for financial assets using the market interest rate and the related deferred tax effect F-30

272 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Further, the Group has adopted the PPSAK No. 3, Deletion of PSAK 54: Accounting for Restructuring of Troubled Debt, which regulates the accounting principles and reporting practices of troubles debt restructuring, both for debtor and creditor. In connection with this adoption, the subsidiary has recalculated the present value of future cash flows and related debt using incremental interest rate at effective date of this Statement. In accordance with transition provision of PPSAK No. 3, the excess between present value and the carrying amount amounting to Rp 4,092 was adjusted to retained earnings as of January 1, As reported Transition As adjusted January 1, 2010 Adjustments January 1, 2010 Liabilities Noncurrent Liabilities Deferred tax liabilities 3, ,149 Restructured debts 1,110,570 (4,092) 1,106,478 Total Liabilities 1,113,736 (3,109) 1,110,627 The net effect of transition provision of PSAK No. 50 (Revised 2006), PSAK No. 55 (Revised 2006) and PPSAK 3, Deletion of PSAK 54: Accounting for Restructuring of Troubled Debt, to consolidated equity amounted to Rp 34,748. Effective January 1, 2012, the Group has applied PSAK No. 50 (Revised 2010), Financial Instruments: Presentation, PSAK No. 55 (Revised 2011), Financial Instruments: Recognition and Measurement, and PSAK No. 60, Financial Instruments: Disclosures. The Group recognizes a financial asset or a financial liability in the consolidated statement of financial position when it becomes a party to the contractual provisions of the instrument. All regular way purchases and sales of financial instruments are recognized on the transaction date. Financial instruments are recognized initially at fair value, which is the fair value of the consideration given (in case of an asset) or received (in case of a liability). The fair value of the consideration given or received is determined by reference to the transaction price or other market prices. If such market prices are not reliably determinable, the fair value of the consideration is estimated as the sum of all future cash payments or receipts, discounted using the prevailing market rates of interest for similar instruments with similar maturities. The initial measurement of financial instruments, except for financial instruments at fair value through profit and loss (FVPL), includes transaction costs. Transaction costs include only those costs that are directly attributable to the acquisition of a financial asset or issue of financial liability and they are incremental costs that would not have been incurred if the instrument had not been acquired or issued. Such transaction costs are amortized over the terms of the instruments based on the effective interest rate method. Effective interest rate method is a method of calculating the amortized cost of a financial asset or a financial liability and allocating the interest income or expense over the relevant period by using an interest rate that exactly discounts estimated future cash payments or receipts through the expected life of the instruments or, when appropriate, a shorter period to the net carrying amount of the financial instruments. When calculating the effective interest, the Group estimates future cash flows considering all contractual terms of the financial instruments excluding future credit losses and includes all fees and points paid or received that are an integral part of the effective interest rate F-31

273 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Amortized cost is the amount at which the financial asset or financial liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortization using the effective interest rate method of any difference between the initial amount recognized and the maturity amount, minus any reduction for impairment. The classification of the financial instruments depends on the purpose for which the instruments were acquired and whether they are quoted in an active market. At initial recognition, the Group classifies its financial instruments in following categories: financial assets at FVPL, loans and receivables, held-to-maturity (HTM) investments, Available for sale (AFS) financial assets, financial liabilities at FVPL, and other financial liabilities; and, where allowed and appropriate, re-evaluates such classification at every reporting date. Determination of Fair Value The fair value of financial instruments traded in active markets at the statements of financial position date is based on their quoted market price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. When current bid and asking prices are not available, the price of the most recent transaction is used since it provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction. For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include net present value techniques, comparison to similar instruments for which market observable prices exist, options pricing models, and other relevant valuation models. As of December 31, 2012, 2011 and 2010, the Group has financial instruments under loans and receivables, financial assets at FVPL, HTM investments and other financial liabilities categories. Thus, accounting policies related to AFS financial assets and financial liabilities at FVPL were not disclosed. Day 1 Profit/Loss Where the transaction price in a non-active market is different from the fair value of other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable market, the Group recognizes the difference between the transaction price and fair value (a Day 1 profit/loss) in the consolidated statement of comprehensive income unless it qualifies for recognition as some other type of asset. In cases where the data is not observable, the difference between the transaction price and model value is only recognized in the consolidated statement of comprehensive income when the inputs become observable or when the instrument is derecognized. For each transaction, the Group determines the appropriate method of recognizing the Day 1 profit/loss amount. Financial Assets (1) Financial Assets at FVPL Financial assets at FVPL include financial assets held for trading and financial assets designated upon initial recognition at FVPL. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives are also classified as held for trading unless they are designated as effective hedging instruments F-32

274 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Financial assets may be designated at initial recognition at FVPL if the following criteria are met: a. the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the financial assets or recognizing gains or losses on them on a different basis; b. the assets are part of a group of financial assets, financial liabilities or both which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy; or c. the financial instruments contain an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately recorded. Financial assets at FVPL are recorded in the consolidated statement of financial position at fair value. Changes in fair value are recognized directly in the consolidated statement of comprehensive income. Interest earned is recorded as interest income, while dividend income is recorded as part of other income according to the terms of the contract, or when the right of payment has been established. As of December 31, 2012 and 2011 the Group has not classified any financial asset under this category, while as of December 31, 2010, this category includes the Group s investments in marketable securities as disclosed in Note 5 to the consolidated financial statements. (2) Loans and Receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are not entered into with the intention of immediate or short-term resale and are not classified as financial assets at FVPL, HTM investments or AFS financial assets. After initial measurement, loans and receivables are subsequently measured at amortized cost using the effective interest method, less allowance for impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the effective interest rate. The amortization is included as part of interest income in the consolidated statements of comprehensive income. The losses arising from impairment are recognized in the consolidated statements of comprehensive income. As of December 31, 2012, 2011 and 2010, the Group s cash and cash equivalents, short-term investments - time deposits, trade accounts receivable, other accounts receivable, restricted cash in banks, and other assets - guarantee deposits are included in this category. (3) HTM Investments HTM investments are non-derivative financial assets with fixed or determinable payments and fixed maturities for which the Group s management has the positive intention and ability to hold to maturity. When the Group sells or reclassifies other than an insignificant amount of HTM investments before maturity, the entire category would be tainted and reclassified as AFS financial assets F-33

275 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) After initial measurement, these investments are subsequently measured at amortized cost using the effective interest method, less impairment in value. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate. The amortization is included as part of interest income in the consolidated statement of comprehensive income. Gains and losses are recognized in the consolidated statement of comprehensive income when the HTM investments are derecognized and impaired, as well as through the amortization process using effective interest method. As of December 31, 2012 the Group s investments in PT Celebes Artha Ventura bonds are classified under this category, while as of December 31, 2011 and 2010 the Group has not classified any financial asset under this category. Financial Liabililities - Other Financial Liabilities This category pertains to financial liabilities that are not held for trading or not designated at FVPL upon the inception of the liability. Issued financial instruments or their components, which are not classified as financial liabilities at FVPL are classified as other financial liabilities, where the substance of the contractual arrangement results in the Group having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares. Other financial liabilities are recognized initially at fair value and are subsequently carried at amortized cost, taking into account the impact of applying the effective interest method of amortization (or accretion) for any related premium, discount and any directly attributable transaction costs. As of December 31, 2012, 2011 and 2010, the Group s short-term and long-term bank loans, trade accounts payable, other accounts payable to third parties, accrued expenses, bonds payable, and liability for the purchase of property, plant and equipment are included in this category. Derivative Financial Instruments An embedded derivative is separated from the host contract and accounted for as derivative if all the following conditions are met: a. the economic characteristics and risks of the embedded derivative are not closely related to economic characteristics of the host contract. b. separate instrument with the same terms as the embedded derivative would meet the definition of the derivative; and c. hybrid or combined instrument is not recognized at fair value through profit or loss. Freestanding and separated embedded derivatives are classified as financial assets or financial liabilities at FVPL unless they are designated as effective hedging instruments. Derivative instruments are initially recognized at fair value on the date in which a derivative transaction is entered into or bifurcated, and are subsequently re-measured at fair value F-34

276 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Consequently, gains and losses from changes in fair value of these derivatives are recognized immediately in the consolidated statements of comprehensive income. The management assesses whether embedded derivatives are required to be separated from host contracts when the Group first becomes party to the contract. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required. Offsetting of Financial Instruments Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position if, and only if, there is a currently enforceable right to offset the recognized amounts and there is intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. Impairment of Financial Assets at Amortized Cost The management first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the management determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss, is or continues to be recognized are not included in a collective assessment of impairment. If there is an objective evidence that an impairment loss 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 asset s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through the use of an allowance account. The amount of loss is charged to the consolidated statement of comprehensive income. If, in a subsequent year, the amount of the impairment loss decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in the consolidated statement of comprehensive income, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date. Derecognition of Financial Assets and Liabilities (1) Financial Assets Financial asset (or, where applicable,a part of a financial asset or part of a group of similar financial assets) is derecognized when: a. the rights to receive cash flows from the asset have expired; b. the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a passthrough arrangement; or F-35

277 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) c. the Group has transferred its rights to receive cash flows from the asset and either (i) has transferred substantially all the risks and rewards of the asset, or (ii) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. Where the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Group s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. (2) Financial Liabilities A financial liability is derecognized when the obligation under the contract is discharged, cancelled or has expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability. The recognition of a new liability and the difference in the respective carrying amounts is recognized in the consolidated statement of comprehensive income. j. Share in Changes in Equity of the Subsidiaries The changes in value of investments (under the equity method) due to changes in equity of the subsidiaries which do not arise from capital transactions between the investor company and such subsidiaries are recognized as Share in changes in equity of the subsidiaries, as a component of equity. At the time the investment is disposed of, the difference resulting from changes in equity of the subsidiaries is recognized as income or expense in the same period in which the related gain or loss on disposal is recognized. k. Inventories Inventories are stated at cost or net realizable value, whichever is lower. Cost is determined using the weighted average method. Allowance for inventory obsolescence and decline in value of the inventories are provided to reduce the carrying value of inventories to their net realizable values. Net realizable value is an estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. l. Breeding Livestock Breeding Chickens Breeding livestock (chickens) include grandparent stocks that produce hatchable eggs for parent stocks, and parent stocks that produce hatchable eggs for trade livestock inventories. Breeding livestock can be classified as productive breeding livestock and unproductive breeding livestock F-36

278 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Unproductive breeding livestock are stated at acquisition cost plus accumulated growing costs. The accumulated costs of unproductive breeding livestock are reclassified to productive breeding livestock at optimal production age. In general, unproductive broiler breeding livestock reach optimal production age after 25 weeks and unproductive layer breeding livestock reach optimal production age after 20 weeks. Productive breeding livestock are stated at cost at the time of reclassification from unproductive breeding livestock and are amortized over the economic egg-laying lives of the breeding livestock considering residual value. Breeding Cattles Breeding cattles are cattles that are being nurtured for production of calves. Breeding cattles can be classified as productive breeding cattles and unproductive breeding cattles. Unproductive cattles are stated at acquisition cost plus accumulated growing costs. The accumulated costs of unproductive cattles are reclassified to productive catles at optimal production age. In general, unproductive cattle livestocks reach the average optimal production age after 15 months. Productive cattles are stated at cost at the time of reclassification from unproductive cattle livestocks and amortized over the economic lives of the cattle livestock considering their residual value. m. Prepaid Expenses Prepaid expenses are amortized over their beneficial periods using the straight-line method. n. Plantations Immature plantations are stated at cost, which includes cost of seeds, planting and cultivation. Immature plantations are transferred to the mature plantations at the time the plantations become productive. Mature plantations are stated at cost less accumulated depreciation and any impairment in value. Depreciation is computed using the straight-line method over a period of twenty (20) years starting from the time the plantation becomes productive. o. Investment Properties Investment properties, except land, are measured at cost, including transaction costs, less accumulated depreciation and any impairment loss. The carrying amount includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met; and excludes the costs of day-to-day servicing of an investment property. Land is not depreciated and is carried at cost less any impairment in value. Depreciation is computed on a straight-line basis over the investment properties useful lives of 4-20 years. Investment properties are derecognized when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognized in the consolidated statements of comprehensive income in the year of retirement or disposal F-37

279 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Transfers are made to investment properties when, and only when, there is a change in use, evidenced by ending of owner-occupation, commencement of an operating lease to another party or ending of construction or development. Transfers are made from investment properties when, and only when, there is a change in use, evidenced by commencement of owner-occupation or commencement of development with a view to sale. p. Property, Plant and Equipment Direct Acquisition Property, plant and equipment, except land, are carried at cost, excluding day-to-day servicing, less accumulated depreciation and any impairment in value. Land is not depreciated and is carried at cost less any impairment in value. The initial cost of property, plant and equipment consists of its purchase price, including import duties and taxes and any directly attributable costs in bringing the property, plant and equipment to its working condition and location for its intended use. Initial legal costs incurred to obtain legal rights are recognized as part of the acquisition cost of the land, and these costs are not depreciated. Costs related to renewal of land rights are recognized as intangible assets and amortized during the period of the land rights. Expenditures incurred after the property, plant and equipment have been put into operations, such as repairs and maintenance costs, are normally charged to operations in the year such costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of the property, plant and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as additional costs of property, plant and equipment. Depreciation is computed on a straight-line basis over the property, plant and equipment s useful lives as follows: Years Buildings and site facilities : 4-20 Machinery and equipment : 5-10 Office furniture and fixtures : 2-5 Transportation equipment : 3-5 The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying values may not be recoverable. When each major inspection is performed, its cost is recognized in the carrying amount of the item of property, plant and equipment as a replacement if the recognition criteria are satisfied. Such major inspection is capitalized and amortized over the next major inspection activity. An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. When assets are sold on retired, the cost and related accumulated depreciation and amortization and any impairment loss are eliminated from the accounts. Any gains or loss arising from derecognition of property, plant and equipment (calculated as the difference between the net disposal proceeds, if any, and the carrying amount of the item) is included in the consolidated statement of comprehensive income in the year the item is derecognized F-38

280 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) The asset s residual values, if any, useful lives and depreciation method are reviewed and adjusted if appropriate, at each financial year end. Construction in Progress Construction in progress represents property, plant and equipment under construction which is stated at cost and is not depreciated. The accumulated cost will be reclassified to the respective property, plant and equipment accounts and will be depreciated when completed and ready for its intended use. q. Lease Transactions The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if one of the following applies: a. there is a change in contractual terms, other than a renewal or extension of the agreement; b. a renewal option is exercised or extension granted, unless the term of the renewal or extension was initially included in the lease term; c. there is a change in the determination of whether the fulfillment is dependent on a specified asset; or d. there is a substantial change to the asset. Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise to the reassessment for scenarios a, c or d and the date of renewal or extension period for scenario b. Company or its subsidiaries as Lessee Leases which transfer to the Company or its subsidiaries substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income. Capitalized leased assets are depreciated over the estimated useful life of the assets except if there is no reasonable certainty that the Company or its subsidiaries will obtain ownership by the end of the lease term, in which case the lease assets are depreciated over the shorter of the estimated useful life of the assets and the lease term. Operating lease payments are recognized as an expense in the consolidated statements of comprehensive income on a straight-line basis over the lease term. Company or its subsidiaries as Lessors Leases where the Company or its subsidiaries retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased assets and recognized over the lease term on the same rental income F-39

281 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) r. Real Estate Assets Real estate inventories consist of land and houses under construction and land under development which are stated at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. The cost of land under development consists of the acquisition cost of the land for development, and direct and indirect development costs. The total costs of land under development is transferred to land and houses ready for sale when the land development is completed, based on the area of saleable lots. The cost of houses under construction consists of construction and borrowing costs, and is transferred to land and houses ready for sale when the development of land and construction of houses are completed. Cost is determined using the specific identification method. Costs which are not related to real estate development are charged as an expense when incurred. s. Intangible Assets Intangible Assets Acquired Separately Intangible assets acquired separately are reported at cost less accumulated amortization and accumulated impairment losses. Amortization is charged on a straight line basis over their estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each annual reporting period, with the effect of any change in estimate being accounted for on a prospective basis. Goodwill Acquired in Business Combination Goodwill represents the excess of the cost of an acquisition over the fair value of the Group s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in Goodwill and other intangible assets account. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to CGU for the purpose of impairment testing. The allocation is made to those CGU or groups of CGU that are expected to benefit from the business combination in which the goodwill arose. t. Deferred Charges and Other Intangible Assets Landrights Certain expenditures, which consists mainly of landrights, whose benefits extend over a period of more than one year, are deferred and amortized using the straight-line method. Landrights are amortized over the legal life because the legal life is shorter than the economic life F-40

282 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Software Cost Costs incurred from the acquisition of computer software and software service fee are deferred and are amortized using the straight-line method over the term of the agreement. u. Treasury Shares Where the Company purchases the Company s equity share capital (treasury shares), the consideration paid, including any directly attributable incremental transaction costs (net of income taxes) is deducted from equity attributable to the Company s equity holders until the shares are cancelled or reissued. Where such ordinary share are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company s equity holders. v. Impairment of Non-Financial Assets The Group assesses at each annual reporting period whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset 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 CGU 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. 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 of continuing operations are recognized in the consolidated statements of comprehensive income as impairment losses. In assessing the value in use, the estimated net 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. In determining fair value less costs to sell, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used to determine the fair value of the assets. These calculations are corroborated by valuation multiples or other available fair value indicators. Impairment losses are recognized in the consolidated statements of comprehensive income under expense categories that are consistent with the functions of the impaired assets. An assessment is made at each annual reporting period as to whether there is any indication that previously recognized impairment losses recognized for an asset may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss for an asset is reversed only if there has been a change in the assumptions used to determine the asset s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. The reversal is limited so that the carrying amount of the assets does not exceed its recoverable amount nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Reversal of an impairment loss is recognized in the consolidated statements of comprehensive income. After such a reversal, the depreciation charge on the said asset 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 F-41

283 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Goodwill is tested for impairment annually (as of December 31) and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. Where the recoverable amount of the CGU is less than their carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods. w. Revenue and Expense Recognition Borrowing costs are interest and exchange difference on foreign currency denominated borrowings and other costs (amortization of discounts/premiums on borrowings, etc.) incurred in connection with the borrowing of funds. Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized: Rental revenue is recognized on a straight line basis over the term of the lease contract, while service revenue is recognized when services are rendered to the lessees. Revenue is measured as the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group s activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the Group. Interest income and interest expense for all financial instruments are recognized in the consolidated statements of comprehensive income on accrual basis using the effective interest rate method. Expenses are recognized when incurred (accrual basis). Transaction costs incurred and are directly attributable to acquisition or issuance of financial instruments not measured at FVPL are amortized over the life of the financial instruments using the effective interest rate method and recorded as part of interest income for financial assets directly attributable transaction costs, and as part of interest expense for transaction costs related to financial liabilities. x. Borrowing Costs Borrowing costs are interest and exchange difference on foreign currency denominated borrowings and other costs (amortization of discounts/premiums on borrowings, etc.) incurred in connection with the borrowing of funds. Borrowing costs which are directly attributable to the acquisition, construction, or production of qualifying assets which are capitalized as part of the acquisition cost of the qualifying assets. Other borrowing costs are recognized as an expense in the period in which they are incurred. To the extent that the Group borrows funds specifically for the purpose of obtaining a qualifying asset, the entity shall determine the amount of borrowing costs eligible for capitalization as the actual borrowing costs incurred on that borrowing during the year less any investment income on the temporary investment of those borrowings. The Group suspends capitalization of borrowing costs during extended periods in which they suspend active development of a qualifying asset F-42

284 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) The Group ceases capitalizing borrowing costs when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete. y. Employee Benefits Short-term employee benefits Short-term employee benefits are in the form of wages, salaries, and social security (Jamsostek) contribution. Short-term employee benefits are recognized at its undiscounted amount as a liability after deducting any amount already paid in the consolidated statements of financial position and as an expense in the consolidated statements of comprehensive income. Long-term employee benefits liability Long-term employment benefits liability represents post-employment benefits, unfunded defined-benefit plans which amounts are determined based on years of service and salaries of the employees at the time of pension. The actuarial valuation method used to determine the present value of defined-benefit liability, related current service costs, and past service costs is the Projected Unit Credit. Current service costs, interest costs, vested past service costs, and effects of curtailments and settlements (if any) are charged directly to current operations. Past service costs which are not yet vested and actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in excess of the corridor or greater of 10% of the fair value of plan assets or 10% of the present value of the defined benefit obligation are charged or credited to profit or loss over the employees expected average remaining working lives, until the benefits become vested. z. Income Tax Current tax expense is determined based on the taxable income for the year computed using prevailing tax rates. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax liabilities are recognized for all taxable temporary differences and deferred tax assets are recognized for deductible temporary differences to the extent that it is probable that taxable income will be available in future periods against which the deductible temporary differences can be utilized. Deferred tax is calculated at the tax rates that have been enacted or substantively enacted at statement of financial position date. Deferred tax is charged to or credited in the consolidated statements of comprehensive income, except when it relates to items charged to or credited directly in equity, in which case the deferred tax is also charged to or credited directly in equity. Deferred tax assets and liabilities are offset in the consolidated statement of financial position, except if these are for different legal entities, in the same manner the current tax assets and liabilities are presented. Amendments to tax obligations are recorded when an assessment is received or, if appealed against by the Group, when the result of the appeal is determined F-43

285 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) aa. Earnings per Share Basic earnings per share are computed by dividing net income attributable to the owners of the Company by the weighted average number of shares outstanding during the year. The weighted average number of shares used in the computation of basic earnings per share is 2,099,886,147 shares in 2012 and 2,071,732,660 shares in 2011 and bb. Segment Information Segment information is prepared using the accounting policies adopted for preparing and presenting the consolidated financial statements. Operating segments are identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segments and to assess their performances. An operating segment is a component of an entity: a) That engages in business activities which it may earn revenue and incur expenses (including revenue and expenses relating to the transaction with other components of the same entity); b) Whose operating results are reviewed regularly by the entity s chief operating decision maker to make decision about resources to be allocated to the segments and assess its performance; and c) For which discrete financial information is available. Information reported to the chief operating decision maker for the purpose of resources allocation and assessment of its performance is more specifically focused on the category of each product, which is similar to the business segment information reported in the prior period. cc. Events after the Reporting Period Post year-end events that provide additional information about the Group financial position at the reporting date (adjusting events), if any, are reflected in the consolidated financial statements. Post year-end events that are not adjusting events are disclosed in the notes to consolidated financial statements when material. 3. Management Use of Estimates, Judgments and Assumptions In the application of the Group s accounting policies, which are described in Note 2 to the consolidated financial statements, management is required to make estimates, judgments, and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and assumptions are based on historical experience and other factors that are considered to be relevant. Management believes that the following represent a summary of the significant estimates, judgments, and assumptions made that affected certain reported amounts and disclosures in the consolidated financial statements F-44

286 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Judgments The following judgments are made by management in the process of applying the Group s accounting policies that have the most significant effects on the amounts recognized in the consolidated financial statements: a. Functional Currency In the process of applying the Group s accounting policies, management has made judgment on the determination of functional currency of the foreign subsidiaries. The functional currency of the Company and its subsidiaries is the currency of the primary economic environment in which each of them operates. It is the currency, among others, that mainly influences sales prices for goods and services, and of the country whose competitive forces and regulations mainly determine the sales prices of its goods and services, and the currency in which funds from financing activities are generated. b. Classification of Financial Assets and Financial Liabilities The Group determines the classifications of certain assets and liabilities as financial assets and liabilities by judging if they meet the definition set forth in PSAK No. 55 (Revised 2011). Accordingly, the financial assets and financial liabilities are accounted for in accordance with the Group s accounting policies disclosed in Note 2i. c. Allowance for Impairment of Financial Assets Allowance for impairment losses is maintained at a level considered adequate to provide for potentially uncollectible receivables. The Group assesses specifically at each consolidated statement of financial position date whether there is an objective evidence that a financial asset is impaired (uncollectible). The level of allowance is based on past collection experience and other factors that may affect collectibility such as the probability of insolvency or significant financial difficulties of the debtors or significant delay in payments. If there is an objective evidence of impairment, timing and collectible amounts are estimated based on historical loss data. Allowance for doubtful accounts is provided on accounts specifically identified as impaired. Loans and receivables written off are based on management s decisions that the financial assets are uncollectible or cannot be realized in whatsoever actions have been taken. Evaluation of receivables to determine the total allowance to be provided is performed periodically during the year. Therefore, the timing and amount of allowance for doubtful accounts recorded at each period might differ based on the judgments and estimates that have been used F-45

287 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) The carrying value of the Group s held to maturity investment and loans and receivables as of December 31, 2012, 2011 and 2010 are as follows: Loans and receivables Cash and cash equivalents 872, , ,187 Short-term investments - time deposits 11,283 11,283 3,147 Trade accounts receivable 905, , ,358 Other accounts receivable - third parties 51,965 47,414 37,363 Restricted cash in banks 1,806 2,982 2,287 Other assets - guarantee deposits 6,110 8,390 7,633 HTM Short-term investments - bonds 2, Total 1,850,639 1,576,228 1,615,975 d. Lease Commitments Operating lease commitments - Group as lessee The Group has entered into various lease agreements for commercial spaces. The Group has determined that these are operating leases since the Group does not bear substantially all the significant risks and rewards of ownership of the related assets. Operating lease commitments - Group as lessor The Group has entered into various commercial lease agreements. The Group has determined that these are operating leases since the Group bears substantially all the significant risks and rewards of ownership of the related assets. Finance lease commitments - Group as Lessee The Group has entered into machinery and equipment, and transportation leases. The Group has determined that these are finance leases since it bears substantially all the significant risks and benefits incidental to the ownership of these properties. Estimates and Assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period are disclosed below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments may change due to market changes on circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when they occur. a. Fair Value of Financial Assets and Financial Liabilities Indonesian Financial Accounting Standards require measurement of certain financial assets and liabilities at fair values, and the disclosures require the use of estimates. Significant component of fair value measurement is determined based on verifiable objective evidence (i.e. foreign exchange rate, interest rate), while timing and amount of changes in fair value might differ due to different valuation method used. The fair value of financial assets and financial liabilities are set out in Note F-46

288 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) b. Allowance for Decline in Value and Inventory Obsolescence The Group provides allowance for decline in value and obsolescence of inventories based on its estimation that there will be no future usage of such inventories or such inventories will be slow moving in the future. While it is believed that the assumptions used in the estimation of the allowance for decline in the value of inventories reflected in the consolidated financial statements are appropriate and reasonable, significant changes in these assumptions may materially affect the assessment of the carrying value of the inventories and provision for decline in value of inventories which ultimately impact the result of the Group s operation. The carrying value of inventories as of December 31, 2012, 2011 and 2010 amounted to Rp 3,634,152, Rp 2,640,526 and Rp 2,185,129, respectively, while the allowance for decline in value and inventory obsolescence amounted to nil, nil and Rp 2,127 as of December 31, 2012, 2011 and 2010, respectively. c. Estimated Useful Lives of Investment Properties and Property, Plant and Equipment The useful lives of each of the item of the Group s investment properties and property, plant and equipment are estimated based on the period over which the asset is expected to be available for use. Such estimation is based on a collective assessment of similar business, internal technical evaluation and experience with similar assets. The estimated useful life of each asset is reviewed periodically and updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence, and legal or other limits on the use of the asset. It is possible, however, that future results of operations could be materially affected by changes in the amounts and timing of recorded expenses brought about by changes in the factors mentioned above. A reduction in the estimated useful life of any item of investment properties and property, plant and equipment would increase the recorded depreciation and decrease the carrying values of these assets. There is no change in the estimated useful lives of investment properties and property, plant and equipment during the year. The carrying value of these assets as of December 31, 2012, 2011 and 2010 are as follows: Investment properties 46,035 50,880 75,768 Property, plant and equipment 4,064,770 2,933,581 2,224,592 Total 4,110,805 2,984,461 2,300,360 d. Impairment of Goodwill and Software Cost and Other Intangible Assets Intangible assets, other than goodwill, are reviewed for impairment whenever impairment indicators are present. While for goodwill, impairment testing is required to be performed at least annually irrespective of whether or not there are indications of impairment. Determining the value in use of assets requires the estimation of cash flows expected to be generated from the continued use and ultimate disposition of such assets (CGU) and a suitable discount rate in order to calculate the present value F-47

289 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) While it is believed that the assumptions used in the estimation of the value in use of assets reflected in the consolidated financial statements are appropriate and reasonable, significant changes in this assumptions may materially affect the assessment of recoverable values and any resulting impairment loss could have a material adverse impact on the the results of the Group s operations. Based on the assessment of management, an impairment loss on goodwill of Rp 1,345 was recognized in The carrying values of goodwill, on which impairment analysis are applied, were described in Note 21 to the consolidated financial statements. The carrying values of software cost amounted to Rp 9,035 as of December 31, 2012, and Rp 3,780 as of December 31, 2010 for other intangible assets. There are no balances for other years. e. Impairment of Non-financial Assets Impairment review is performed when certain impairment indicators are present. Determining the fair value of assets requires the estimation of cash flows expected to be generated from the continued use and ultimate disposition of such assets. Any significant changes in the assumptions used in determining the fair value may materially affect the assessment of recoverable values and any resulting impairment loss could have a material impact on results of operations. The carrying value of these assets as of December 31, 2012, 2011 and 2010 are as follows: Investment properties 46,035 50,880 75,768 Property, plant and equipment 4,064,770 2,933,581 2,224,592 Total 4,110,805 2,984,461 2,300,360 f. Post-employment Benefits The determination of the obligation and post-employment benefits is dependent on the selection of certain assumptions used by actuary in calculating such amounts. Those assumptions are described in Note 30 and include, among others, discount rate and rate of salary increase. Actual results that differ from the Group s assumptions are accumulated and amortized over future periods and therefore, generally affect the recognized expense and recorded obligation in such future periods. While it is believed that the Group s assumptions are reasonable and appropriate, significant differences in actual experience or significant changes in assumptions may materially affect the amount of long-term employee benefits liability. As of December 31, 2012, 2011 and 2010, long-term employee benefits liability amounted to Rp 534,062, Rp 427,653 and Rp 365,245, respectively (Note 30). g. Deferred Tax Assets Deferred tax assets are recognized for all temporary differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases to the extent that it is probable that taxable profit will be available against which the temporary differences can be utilized. Significant management estimates are required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits together with future tax planning strategies F-48

290 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) As of December 31, 2012, 2011 and 2010, deferred tax assets amounted to Rp 113,819, Rp 73,382 and Rp 70,864, respectively (Note 31). 4. Cash and Cash Equivalents Cash on hand 37,401 17,323 11,224 Cash in banks Rupiah PT Bank Central Asia Tbk 103,483 53,321 60,662 PT Bank Victoria 77, PT Bank CIMB Niaga Tbk 61,749 55,635 50,373 PT Bank Mandiri (Persero) Tbk 52,406 11,976 10,384 PT Bank Danamon Indonesia Tbk 44,985 97,457 59,864 PT Bank Permata Tbk 25, ,482 PT Bank Negara Indonesia (Persero) Tbk 22,680 13,770 16,933 PT Bank Pan Indonesia Tbk 13,839 51, ,738 PT Bank Rakyat Indonesia (Persero) Tbk 10,698 16,986 31,416 PT Bank Muamalat 5, PT Bank UOB Buana Tbk 935 2,446 1,687 PT Bank OCBC NISP Tbk 116 1,511 1,479 PT Bank Kesawan Tbk - - 1,264 Others*) 1,881 1,123 1,320 Foreign currencies (Note 38) U.S. Dollar PT Bank DBS Indonesia 52, ,884 PT Bank Danamon Indonesia Tbk 29, , ,185 PT Bank CIMB Niaga Tbk 5, ,247 34,476 PT Bank Rabobank International Indonesia Tbk 5,082 5,426 16,277 PT Bank Pan Indonesia Tbk 3,581 93,533 71,836 PT Bank Standard Chartered 1,452 1,031 - PT Bank Rakyat Indonesia (Persero) Tbk - - 1,493 Others*) 1,123 1,945 1,226 Singapore Dollar Bank of America, Singapore - - 5,325 Others*) Australian Dollar Others*) Europe, Euro The ICICI Bank, Ltd., India ,648 The Axis Bank Ltd., India - - 3,188 Others*) LKR, Sri Lanka Others*) Total - Cash in banks 521, , , F-49

291 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Time deposits Rupiah PT Bank ICBC Indonesia 20, PT Bank Permata Tbk 20,000-12,259 PT Bank Victoria 17,000 77,100 - PT Bank CIMB Niaga Tbk 3,000 14,600 13,190 PT Bank Perkreditan Rakyat 2,000 3,906 6,607 PT Bank Pan Indonesia Tbk - 47, PT Bank Mandiri (Persero) Tbk - 41, PT BPR Celebes Mitra Perdana - 1,573 - PT Bank Artha Graha Tbk ,600 Foreign currency (Note 38) U.S. Dollar PT Bank Rabobank International Indonesia Tbk 96,700-3,559 PT Bank CIMB Niaga Tbk 82, PT Bank DBS Indonesia 48, PT Bank ICBC Indonesia 24, Others*) - - 1,040 Total - Time deposits 313, , ,704 Total 872, , ,187 *) Below Rp 1 billion each Interest rates per annum on time deposits Rupiah 5.00% % 4.60% % 5.25% % U.S. Dollar 2.90% % % % 5. Short-term Investments Time deposits Rupiah PT Bank Mandiri (persero) Tbk 11,283 11,283 - Foreign currency (Note 38) Rupee, India United Bank of India, India - - 2,468 The Axis Bank Ltd., India The ICCI Bank Ltd., India Subtotal 11,283 11,283 3,147 Marketable securities Trading Ceylon Grains - Elevator Ltd., Sri Lanka (S$ 5,268,116 in 2010) ,775 Three Acre Farms Ltd., Sri Lanka (S$ 1,043,722 in 2010) - - 7,286 Prigo-Agro Industries Ltd., Sri Lanka (S$ 738,882 in 2010) - - 5,158 HTM - Bonds Celebes Artha Ventura 2, Subtotal 2,000-49,219 Total 13,283 11,283 52,366 Interest rates per annum on time deposits Rupiah 5.25% 6.75% - Rupee %-6.25% F-50

292 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) The investment in 2012 and 2011 represents time deposit of PT Japfa Comfeed Indonesia Tbk, which is used as collateral for short-term bank loans (Note 12). Unrealized gain on increase in fair value of marketable securities held for trading amounted to Rp 34,303 in 2010, which was recorded under Others - net in the 2010 consolidated statement of comprehensive income. On August 1, 2012 and December 3, 2012, PT Bhirawa Mitra Sentosa, a subsidiary, purchased HTM Celebes Artha Ventura bonds with nominal value of Rp 1,212 and Rp 688, and cost of Rp 1,250 and Rp 750, respectively. These bonds bear interest per annum at 12.5%. 6. Trade Accounts Receivable a. By Debtor Related parties (Note 34) PT So Good Food 42,659 31,927 - PT So Good Food Manufacturing 2,800 16,215 - Subtotal 45,459 48,142 - Third parties Local debtors 859, , ,292 Foreign debtors 840 1,381 15,368 Subtotal 860, , ,660 Allowance for doubtful accounts (985) (1,016) (2,302) Net 859, , ,358 Total 905, , ,358 b. By Age (Days) Not past due and unimpaired 683, , ,825 Past due but not impaired 1-30 days 153,552 85,239 87, days 26,125 24,826 24, days 12,322 10,138 6, days 10,495 3,010 1,126 More than 120 days 18,880 26,938 51,785 Past due and impaired 985 1,016 2,302 Total 906, , ,660 Allowance for doubtful accounts (985) (1,016) (2,302) Net 905, , , F-51

293 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) c. By Currency Rupiah 905, , ,292 Foreign currencies (Note 38) U.S. Dollar 840 1, EUR Singapore Dollar ,789 Total 906, , ,660 Allowance for doubtful accounts (985) (1,016) (2,302) Net 905, , ,358 Changes in allowance for doubtful accounts Beginning balance 1,016 2,302 49,390 Balance of acquired subsidiary Provisions (Note 28) ,146 Balance of subsidiary in liquidation process (3) - - Write-off (85) (835) (9,538) Unwinding of discount (573) (954) (42,696) Balance of sold subsidiary - (611) - Ending balance 985 1,016 2,302 Based on management s evaluation of the collectibility of the individual receivable account as of December 31, 2012, 2011 and 2010, they believe that the allowance for doubtful accounts is adequate to cover possible losses from uncollectible accounts. Management believes that there are no significant concentrations of credit risk in trade accounts receivable from third parties. Trade accounts receivable are used as collateral on short-term bank loans, other accounts payable to third parties and long-term loans (Notes 12, 14 and 17). 7. Inventories Available for sale livestock 226, , ,968 Raw materials in transit 220,304 75,902 93,669 Finished goods in transit ,334 Raw materials 2,127,205 1,387,300 1,218,521 Finished goods 382, , ,504 Inventory in process 314, , ,215 Hatchable eggs 81, ,852 54,139 Indirect materials 95,905 67,332 51,129 Spareparts 94,476 74,182 69,153 Packaging materials 39,051 36,123 62,620 Fuel and oil 16,855 14,810 10,928 Others 34,754 36,950 24,076 Total 3,634,152 2,640,526 2,187,256 Allowances for decline in value and inventory obsolescence - - (2,127) Net 3,634,152 2,640,526 2,185, F-52

294 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Changes in allowances for decline in value and inventory obsolescence Beginning balance - 2,127 2,102 Provision (Note 28) - 5,371 13,783 Balance of allowances of sold subsidiary - (7,498) - Write-off - - (13,758) Ending balance - - 2,127 Management believes that the allowance for decline in value of inventories and obsolescence as of December 31, 2010 is adequate to cover possible losses on decline in value of inventories and obsolescence. Management believes that the carrying value of inventories as of December 31, 2012 and 2011 has reflected the net realizable value of these inventories, thus, no allowance for decline in value and obsolence is necessary. As of December 31, 2012, inventories are insured with PT Asuransi Allianz Utama Indonesia, PT Asuransi Rama Satria Wibawa, PT Kurnia Insurance Indonesia, PT Asuransi Sinar Mas, PT MAA General Insurance, PT Asuransi Himalaya Pelindung, PT Asuransi Umum Mega, PT Asuransi Wahana Tata, PT Asuransi Multi Artha Guna, PT Asuransi Tugu Pratama Indonesia, PT Zurich Insurance Indonesia, PT Chartis Insurance Indonesia, PT Asuransi Central Asia, and PT Jaya Proteksi Takaful, third parties and PT Pan Pacific Indonesia, a related party, against fire, theft and other possible risks for Rp 2,869,227, while as of December 31, 2011, these are insured with PT Asuransi AIU Indonesia, PT Asuransi Sinar Mas and PT Asuransi Wahana Tata, third parties, and PT Pan Pacific Indonesia, related party, against fire, theft and other possible risks for Rp 2,374,668. Further as of December 31, 2010, these are insure with PT Asuransi AIU Indonesia and PT Asuransi Ramayana Tbk, third parties, against fire, theft, and other possible risk for Rp 2,273,075 million and US$ 1,450,000. Management believes that the insurance coverages are adequate to cover possible losses on the assets insured. As of December 31, 2012, inventories are used as collateral on short-term bank loans and longterm loans (Notes 12 and 17), while as of December 31, 2011 and 2010, inventories are used as collateral on short-term bank loans, long-term loans and bonds payable (Notes 12, 17 and 19). 8. Breeding Livestock Breeding Chickens Productive (production age) Balance at the beginning of the year 209, , ,994 Reclassifications from unproductive breeding chickens 545, , ,736 Amortization of productive breeding chickens (518,685) (433,235) (346,466) Balance at the end of the year 236, , ,264 Unproductive (growth age) Balance at the beginning of the year 172, ,982 95,951 Growing costs during the year 546, , ,767 Reclassifications to productive breeding chickens (545,625) (467,544) (336,736) Balance at the end of the year 173, , ,982 Total 409, , , F-53

295 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Breeding Cattles Productive (production age) Balance at the beginning of the year 97,836 95,606 63,721 Costs in production age during the year 56,686 56,707 68,853 Purchase of cattles 42,780 12,264 27,284 Reclassifications from unproductive breeding cattles 69,769 17,032 12,870 Amortization of productive breeding cattles (2,353) (1,775) (17,231) Reclassifications costs from parents to calves (64,216) (38,735) (23,272) Sale/mortality of cattles (63,126) (43,263) (36,619) Balance at the end of the year 137,376 97,836 95,606 Unproductive (growth age) Balance at the beginning of the year 42,999 21,743 6,551 Growing costs during the year 21,816 26,334 16,358 Purchase of cattles Reclassifications to productive breeding cattles (69,769) (17,032) (12,870) Reclassifications costs from parents to calves 64,216 38,735 23,272 Sale/mortality of cattles (34,508) (26,781) (11,579) Balance at the end of the year 24,754 42,999 21,743 Total 162, , ,349 As of December 31, 2012, all breeding livestocks are insured with PT Asuransi Rama Satria Wibawa, PT Kurnia Insurance Indonesia, PT Asuransi Umum Mega, PT MAA General Insurance, PT Asuransi Himalaya Pelindung, PT Asuransi Sinar Mas, PT Asuransi Allianz Utama Indonesia, PT Asuransi Wahana Tata and PT Asuransi Multi Artha Guna, third parties, and PT Pan Pacific Indonesia, a related party, against earthquake, fire, riot and other possible risks for Rp 606,592, while as of December 31, 2011, these are insured with PT Asuransi AIU Indonesia and PT Asuransi Umum Mega, third parties, against earthquake, fire, riot and other possible risks for Rp 449,613. Further as of December 31, 2010, these are insured with PT Asuransi AIU Indonesia and PT Asuransi Ramayana Tbk, third parties against earthquake, fire, riot, and other possible risks for Rp 444,367. Management believes that the insurance coverage is adequate to cover possible losses on the assets insured. As of December 31, 2012, 2011 and 2010, breeding livestocks are used as security for shortterm bank loans and long-term loans (Notes 12 and 17). 9. Prepaid Taxes Income tax Article 28a (Note 31) , , , ,368 6, , ,182 18, ,501 Value Added Tax 4, ,165 Total 219, ,389 42, F-54

296 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Deductions in income tax Article 28A year 2008 represent income tax Article 28A of PT So Good Food, a subsidiary which was sold to Jupiter Foods Pte Ltd and Annona Pte Ltd on April 25, 2011 (Note 1d). During 2012, 2011 and 2010, the following tax refunds were received based on Assessment Letters of Tax Overpayment from the Tax Service Office: Amount of Tax Refund Name of Company Year Covered PT Santosa Agrindo , ,949 PT Adiguna Bintang Lestari PT Multiphala Agrinusa PT Japfa Food Nusantara , PT Bintang Terang Gemilang ,712 PT Suri Tani Pemuka ,075 - Total 21,108 4,075 6, Investment Properties As of December 31, 2012, 2011 and 2010, the movement in investment properties which are being leased out to third parties to earn rentals are as follows: January 1, Changes during 2012 December 31, 2012 Additions Deductions Reclassifications 2012 Cost: Land 45, (3,391) 41,982 Buildings and site facilities 43, (2,963) 41,013 Total 89, (6,354) 82,995 Accumulated depreciation and amortization and impairment in value - Buildings and site facilities 38, (2,131) 36,960 Net Book Value 50,880 46,035 January 1, Changes during 2011 December 31, 2011 Additions Deductions Reclassifications 2011 Cost: Land 56,302 - (2,118) (8,811) 45,373 Buildings and site facilities 59, (3,132) (12,455) 43,976 Total 115, (5,250) (21,266) 89,349 Accumulated depreciation and amortization and impairment in value - Buildings and site facilities 39,780 11,046 (2,598) (9,759) 38,469 Net Book Value 75,768 50, F-55

297 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) January 1, Changes during 2010 December 31, 2010 Additions Deductions Reclassifications 2010 Cost: Land 58, (76) (2,296) 56,302 Buildings and site facilities 59,330 - (84) - 59,246 Total 117, (160) (2,296) 115,548 Accumulated depreciation and amortization and impairment in value - Buildings and site facilities 37,326 2,537 (83) - 39,780 Net Book Value 80,665 75,768 Rental income from the investment properties recognized in 2012, 2011 and 2010 amounted to Rp 1,781, Rp 673 and Rp 719, respectively, which was reported as part of Others - net in the consolidated statements of comprehensive income. Depreciation of these investment properties, excluding land, in 2012, 2011 and 2010 amounted to Rp 622, Rp 1,719 and Rp 2,537, respectively, which was recorded as part of Operating Expenses (Note 28). Deductions in 2011 represent sale and write off of certain investment properties with net book values amounting to Rp 957 and Rp 1,695, respectively. The loss on sale amounting to Rp 270 and the carrying amount of investment property written off were both charged to other expense, in the 2011 consolidated statement of comprehensive income. In 2012, 2011 and 2010, investment properties with net book values amounting to Rp 4,223, Rp 11,507 and Rp 2,296, respectively, were reclassified to property, plant and equipment (Note 11). In 2011, the Group s management, recorded impairment loss on investment properties amounting to Rp 9,327 which was recorded under Loss on impairment of assets in the 2011 consolidated statement of comprehensive income, and credited to accumulated depreciation and amortization and impairment in value. As of December 31, 2012 and 2010, management believes that there is no impairment in values of the aforementioned investment properties. As of December 31, 2012, building and site facilities, are insured with PT Asuransi Allianz Utama Indonesia, PT Asuransi Rama Satria Wibawa, PT Kurnia Insurance Indonesia, PT Asuransi Sinar Mas, PT MAA General Insurance, PT Asuransi Himalaya Pelindung, PT Asuransi Umum Mega, PT Asuransi Wahana Tata, PT Asuransi Multi Artha Guna, PT Asuransi Tugu Pratama Indonesia, PT Zurich Insurance Indonesia, PT Chartis Insurance Indonesia, PT Asuransi Central Asia and PT Jaya Proteksi Takaful, third parties, and PT Pan Pacific Indonesia, a related party, against fire, theft and other possible risks for Rp 22,804, while as of December 31, 2011, these are insured with PT Asuransi Allianz Utama Indonesia, PT Asuransi Rama Satria Wibawa, PT Asuransi Sinar Mas, PT Zurich Insurance, PT Chartis Insurance, PT Asuransi Dayin Mitra Tbk, PT Kurnia Insurance Indonesia, PT MAA General Insurance, PT Asuransi Himalaya Pelindung, PT Asuransi Multi Artha Guna and PT Asuransi Tugu Pratama Indonesia, third parties, and PT Pan Pacific Indonesia, a related party, against fire, theft and other possible risks for Rp 58,841. Further as of December 31, 2010, these are insured with PT Asuransi AIU Indonesia, PT Asuransi Allianz Utama Indonesia, PT Asuransi Tri Pakarta, PT Asuransi Raksa Pratikara, Incombank-Asia Insurance Co. Ltd., American Home Assurance Co., AXA Insurance Singapore Pte., Ltd, and United India Insurance Co. Ltd., third parties, against fire, theft and other possible risks for the Rp 54,051. Management believes that the insurance coverages are adequate to cover possible losses on the assets insured F-56

298 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) 11. Property, Plant and Equipment January 1, Translation Changes during 2012 December 31, 2012 adjustment Additions Deductions Reclassifications Effect of ISAK Cost: Direct acquisitions Land 796, ,230 (7,908) (3,790) 7,072 1,029,216 Buildings and site facilities 1,281,562-53,630 (14,248) 377,867-1,698,811 Machinery and equipment 1,470,968-30,803 (29,462) 390,901-1,863,210 Office furniture and fixtures 357,207-96,752 (16,581) 18, ,962 Transportation equipment 368,145 1,355 71,768 (9,803) 42, ,371 Constructions in progress Buildings and site facilities 175, ,137 - (380,235) - 233,811 Machinery and equipment 272, ,423 - (383,054) - 336,376 Office furniture and fixtures ,303 - (13,303) - - Transportation equipment 15,220-30,983 - (42,558) - 3,645 Leased assets Transportation equipment 8,245-16,700 - (348) - 24,597 Total 4,745,875 1,355 1,436,729 (78,002) 6,970 7,072 6,119,999 Accumulated depreciation: Direct acquisitions Buildings and site facilities 479,796-74,448 (9,603) 2, ,803 Machinery and equipment 877, ,576 (27,846) 8, ,214 Office furniture and fixtures 233,742-50,246 (15,909) 1, ,360 Transportation equipment 217, ,970 (8,838) ,879 Leased assets Transportation equipment 3,395-7,839 - (261) - 10,973 Total 1,812, ,079 (62,196) 11,943-2,055,229 Net Book Value 2,933,581 4,064,770 January 1, Translation Changes during 2011 December 31, 2011 adjustment Additions Deductions Reclassifications 2011 Cost: Direct acquisitions Land 550, ,685 (88,706) 141, ,612 Buildings and site facilities 1,032, ,469 (197,852) 216,313 1,281,562 Machinery and equipment 1,446,844-94,070 (295,392) 225,446 1,470,968 Office furniture and fixtures 304,426-94,365 (49,160) 7, ,207 Transportation equipment 238, ,782 (21,632) 5, ,145 Constructions in progress Buildings and site facilities 111, ,185 (9,033) (215,536) 175,909 Machinery and equipment 164, ,633 (141) (209,207) 272,007 Office furniture and fixtures - - 8,908 (23) (8,885) - Transportation equipment 3-19,931 - (4,714) 15,220 Leased assets Transportation equipment 1,161-8,480 (812) (584) 8,245 Total 3,849, ,401,508 (662,751) 157,078 4,745,875 Accumulated depreciation: Direct acquisitions Buildings and site facilities 392, ,809 (39,681) 12, ,796 Machinery and equipment 901, ,369 (134,572) 8, ,959 Office furniture and fixtures 195,661-61,039 (22,840) (118) 233,742 Transportation equipment 134, ,952 (16,065) ,402 Leased assets Transportation equipment 795-3,816 (632) (584) 3,395 Total 1,625, ,985 (213,790) 21,795 1,812,294 Net Book Value 2,224,592 2,933, F-57

299 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) January 1, Translation Changes during 2010 December 31, 2010 adjustment Additions Deductions Reclassifications 2010 Cost: Direct acquisitions Land 513,378 (31) 37,340 (2,577) 2, ,354 Buildings and site facilities 917,576 (496) 8,520 (5,050) 112,082 1,032,632 Machinery and equipment 1,336,457 (741) 26,754 (29,824) 114,198 1,446,844 Office furniture and fixtures 244, ,388 (3,758) (92) 304,426 Transportation equipment 178,471 (17) 62,471 (5,573) 3, ,432 Constructions in progress Buildings and site facilities 40,725 (2) 181,289 - (110,719) 111,293 Machinery and equipment 50,979 (16) 230,537 (195) (116,583) 164,722 Transportation equipment 745-1,930 - (2,672) 3 Leased assets Machinery and equipment (67) - - Transportation equipment 1, (676) 1,161 Total 3,284,675 (855) 612,229 (47,044) 862 3,849,867 Accumulated depreciation: Direct acquisitions Buildings and site facilities 349, ,891 (3,042) - 392,741 Machinery and equipment 845,433 (201) 82,211 (26,267) - 901,176 Office furniture and fixtures 167, ,926 (3,366) - 195,661 Transportation equipment 115,685 (6) 23,535 (4,721) ,902 Leased assets Machinery and equipment (67) - - Transportation equipment (409) 795 Total 1,479,945 (43) 182,836 (37,463) - 1,625,275 Net Book Value 1,804,730 2,224,592 Depreciation expense was allocated to the following: Direct acquisitions Cost of goods sold 214, , ,553 Operating expenses (Note 28) 65,584 53,637 42,010 Leased assets Cost of goods sold 1,580 1,580 - Operating expenses (Note 28) 1,340 3, Total 282, , ,836 Constructions in progress include buildings and improvements as well as machinery and equipment and vehicles being constructed by the Group, which are estimated to be completed in As of December 31, 2012, the percentage of completion of constructions in progress range from 4% - 98%. Additions to property, plant and equipment for the year ended December 31, 2012, included property, plant and equipment of the acquired subsidiary, PT Agrinusa Jaya Sentosa, with cost amounting to Rp 69,339 and accumulated depreciation amounting to Rp 10,345 at the time of acquisition, while additions to property, plant and equipment for the year ended December 31, 2011 included the property, plant and equipment of the acquired subsidiaries, PT Primatama Karya Persada, PT Adiguna Bintang Lestari and PT Bhirawa Mitra Sentosa with cost amounting to Rp 394,450 and accumulated depreciation amounting to Rp 152,593 at the time of acquisition F-58

300 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Deductions in 2012, 2011 and 2010 include sales and write off of certain property, plant and equipment. Further deductions in 2011 included the property, plant and equipment of the subsidiaries sold, PT So Good Food and its subsidiaries, Japfa Comfeed International Pte., Ltd. and Japfa Comfeed India Ltd. with net book value amounting to Rp 353,141. Property, plant and equipment with net book value amounting to Rp 2,201, Rp 9,827 and Rp 4,160 in 2012, 2011 and 2010, respectively, have been disposed and charged to other expenses. The details of sale of property, plant and equipment are as follows: Selling price 39, ,670 8,980 Net book value 13,605 85,993 5,421 Gain on sale 26,181 57,677 3,559 The Group owns several parcels of land located in Jakarta, Bogor, Tangerang, Serang, Lampung, Surabaya, Sidoarjo, Cirebon, Karo (North Sumatra), Tanah Laut (South Kalimantan), Banyuwangi, Singaraja, Probolinggo, Situbondo, Semarang, Malang, Purwakarta, Subang, Pasuruan, Mojokerto, Tabanan (Bali), Maros (Ujung Pandang), Kampar (Riau), Palembang, Manado, Samarinda and Kalimantan with Building Use Rights (Hak Guna Bangunan or HGB) for periods of 20 to 35 years until 2031 to Management believes that it is probable to extend the term of the landrights on its expiration since all the land were acquired legally and supported by sufficient evidence of ownership. The certificates representing 3.66%, 2.88%, and 3.68% of the total land area owned by the Group in 2012, 2011 and 2010, respectively, are still under the names of third parties. In 2012, certain land amounting to Rp 7,872 was reclassified from from property, plant and equipment to Unused property, plant, and equipment, while in 2011, certain land amounting to Rp 133,173 was reclassified from Advances to property, plant and equipment. On initial adoption of ISAK No. 25, the Group reclassified remaining unamortized balance of deferred expense included in Other assets related to the initial legal cost paid to obtain land use rights to the carrying amount of the land amounting to Rp 7,072. Certain property, plant and equipment of the Group amounting to Rp 2,769,273 in 2012, Rp 2,719,479 in 2011 and Rp 2,262,708 in 2010, are used as collateral on short-term bank loans, long-term loans and lease liabilities (Notes 12, 17 and 18). As of December 31, 2012 property, plant and equipment, except for land, are insured with PT Asuransi Allianz Utama Indonesia, PT Asuransi Rama Satria Wibawa, PT Kurnia Insurance Indonesia, PT Asuransi Sinar Mas, PT MAA General Insurance, PT Asuransi Himalaya Pelindung, PT Asuransi Umum Mega, PT Asuransi Wahana Tata, PT Asuransi Multi Artha Guna, PT Asuransi Tugu Pratama Indonesia, PT Zurich Insurance Indonesia, PT Chartis Insurance Indonesia, PT Asuransi Central Asia and PT Jaya Proteksi Takaful, third parties, and PT Pan Pacific Indonesia, a related party, against fire, theft and other possible risks for Rp 3,949 billion and US$ 6,287, F-59

301 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) While as of December 31, 2011, these, are insured with PT Asuransi Allianz Utama Indonesia, PT Asuransi Rama Satria Wibawa, PT Asuransi Sinar Mas, PT Zurich Insurance, PT Chartis Insurance, PT Asuransi Dayin Mitra Tbk, PT Kurnia Insurance Indonesia, PT MAA General Insurance, PT Asuransi Himalaya Pelindung, PT Asuransi Multi Artha Guna and PT Asuransi Tugu Pratama Indonesia, third parties, and PT Pan Pacific Indonesia, a related party, against fire, theft and other possible risks for Rp 3,055 billion and US$ 2,751,450 (in full Dollar). Further as of December 2010, these are insured with PT Asuransi AIU Indonesia, PT Asuransi Allianz Utama Indonesia, PT Asuransi Tri Pakarta, PT Asuransi Raksa Pratikara, Incomebank Asia Insurance Co. Ltd., American Home Assurance Co., AXA Insurance Singapore Pte., Ltd., third parties against fire, theft and other possible risks for Rp 2,710 billion and US$ 8,776,550. Management believes that the insurance coverages are adequate to cover possible losses on the assets insured. The Group s land, buildings and improvements were last revalued on April 9, 2012 by independent valuers. Valuations were made on the basis of recent market transactions on arm s length terms. Fair value is determined by reference to market-based evidence. This means that valuations performed by the valuer are based on active market prices, adjusted for any difference in the nature, location or condition of the specific property. There s no significant difference between the carrying value and fair value of property, plant and equipment. As of December 31, 2012, 2011 and 2010, management believes that there is no impairment n values of the aforementioned property, plant, and equipment. Unused property, plant and equipment of the Group which were reclassified to unused assets are as follows: Cost Land 7, Buildings and site facilities 1, ,057 Machinery and equipment 3,077 12,952 10,346 Office furniture and fixtures - 1,361 1,481 Transportation equipment Total 11,951 15,039 16,996 Less accumulated depreciation and impairment in value (1,119) (12,207) (13,625) Net Book Value 10,832 2,832 3,371 In 2012, certain machinery and equipment with cost and accumulated depreciation of Rp 9,875 and Rp 9,731, respectively, were reclassified to property, plant and equipment. As of December 31, 2011 and 2010, the Group s management recognized impairment in value of Rp 1,813 and Rp 1,125, on unused assets which was recorded under Loss on impairment of assets in the consolidated statement of comprehensive income F-60

302 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) 12. Short-term Bank Loans Rupiah PT Bank Mandiri (Persero) Tbk 630, , ,576 PT Bank Central Asia Tbk 467, , ,586 PT Bank Rakyat Indonesia (Persero) Tbk 320, , ,020 PT Bank CIMB Niaga Tbk 291, ,070 - PT Bank DBS Indonesia 257,688 99,992 - PT Bank Rabobank International Indonesia 219, ,274 - PT Bank Pan Indonesia Tbk 79,596 96,969 - PT Bank Permata Tbk 7, Foreign currency (Note 38) U.S.Dollar PT Bank Rakyat Indonesia (Persero) Tbk (US$ 1,200,883 in 2012, US$ 1,200,000 in 2011 and US$ 1,203,000 in 2010) 11,612 10,882 10,816 PT Rabobank International Indonesia (US$ 12,451,821 in 2010) ,954 PT Bank DBS Indonesia (US$ 11,385,989 in 2010) ,372 Rupee, India The ICICI Bank, Ltd., India (Rs 217,769,527 in 2010) ,695 The Axis Bank Ltd., India (Rs 71,689,694 in 2010) ,384 Total 2,284,599 1,799, ,403 Interest rates per annum Rupiah 7.03% % 8.02% % 9.25% % U.S. Dollar 5.25% % 6.50% 6.50% % Rupee % % PT Bank Mandiri (Persero) Tbk (Bank Mandiri) On October 25, 2011, PT Multibreeder Adirama Indonesia Tbk (MBAI), a subsidiary merged into the Company in 2012, obtained KMK Revolving Loan facility with a maximum amount of Rp 130 billion and KMK Revolving Fixed Loan facility with a maximum amount of Rp 70 billion from Bank Mandiri, which was used as working capital. This loan bears a floating interest rate of 10.25% per annum and will mature on April 23, Since July 1, 2012, effective date of merger of MBAI to the Company, these facilities have been transferred to the Company (Note 1b). On October 22, 2012, KMK Revolving Loan and KMK Fixed Loan Facility have been changed to Rp 100 billion each facility F-61

303 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) In July 2004, PT Bintang Terang Gemilang (BTG), a subsidiary merged into the Company in 2011, obtained a working capital loan facility from Bank Mandiri, with maximum loanable amount of Rp 70 billion and later increased to Rp 111 billion and with term of 12 months. This facility is collateralized with trade accounts receivable, inventories, and land and building (Notes 6, 7 and 11). This facility has been transferred to the Company. In June 2010, PT Multiphala Agrinusa, (MAG), a subsidiary merged into the Company in 2011, obtained a working capital loan (KMK) consisting of Fixed loan and Revolving Loan facilities from Bank Mandiri, with maximum loanable amount of Rp 100 billion and Rp 50 billion, respectively, with term of 12 months. The working capital loan obtained will be used to refinance facility from PT Bank Bukopin Tbk and PT Bank Syariah Bukopin. This facility has been transferred to the Company. On April 19, 2011, the Company obtained several loan facilities from Bank Mandiri consisting of KMK Fixed Loan (FL) with maximum loanable amount of Rp 150 billion, KMK Revolving (RL) with maximum loanable amount of Rp 50 billion, Non Cash Loan (NCL) sublimit of Trust Receipt (TR) with maximum loanable amount of US$ 2 million, and Treasury Line (TL) with maximum loanable amount of US$ 5 million. The Company starts using the FL and RL facilities on April 20, 2011 as working capital. These loan facilities are due on April 23, These facilities have been extended until April 23, These facilities are collateralized with trade accounts receivable, inventories, breeding livestocks and certain property, plant and equipment owned by the Company (Notes 6, 7, 8 and 11). These loan were transferred from MAG dan BTG, subsidiaries, which have been merge to the Company on January 1, 2011 (Note 1b). On November 27, 2012, KMK Fixed Loan increased to Rp 250 billion and KMK Revolving increased to Rp 150 billion. On January 27, 2011, PT Primatama Karya Persada (PKP), a subsidiary acquired in 2011, obtained a working capital loan facility from Bank Mandiri with maximum loanable amount of Rp 80 billion. This facility is collateralized with trade accounts, inventory and certain property, plant and equipment owned by the Company (Notes 6, 7 and 11). Since September 1, 2011, effective date of merger of PKP to PT Ciomas Adisatwa (CA), subsidiary, this facility has been transferred to CA (Note 1b). The term of this loan has been extended until April 24, In May 2009, PT Austasia Stockfeed, a subsidiary, obtained a working capital loan facility from Bank Mandiri, with maximum loanable amount of Rp 99 billion, with term of 12 months and collateralized with trade accounts receivable, inventories, machinery and equipment, and land (Notes 6, 7 and 11). In October 2009, the maximum credit facility was increased to Rp billion. This loan has been fully paid on August 8, PT Bank Central Asia Tbk (BCA) On October 8, 2010, the Company obtained a working capital loan (KMK) facility from BCA, with maximum loanable amount of Rp 250 billion and with a term of 12 months. In October 2011, the maximum loanable amount was increased to Rp 541 billion. This loan is collateralized with the Company s trade accounts receivable and land, building and machinery (Notes 6 and 11). This facilitiy will be due on October 20, On October 28, 2011, PT Vaksindo Satwa Nusantara (VSN), a subsidiary, obtained a Local Credit facility from BCA with maximum loanable amount of Rp 10 billion and will mature in October 20, This loan is collateralized with machinery, land and building (Note 11) F-62

304 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) PT Bank Rakyat Indonesia (Persero) Tbk (BRI) In June 2007, PT Santosa Agrindo (SA), a subsidiary, obtained a working capital loan facility from BRI, with maximum loanable amount of Rp 108 billion and has been increased to Rp 198 billion and with a term of 12 months. This facility is collateralized with trade accounts receivable, inventories machinery and equipment and land and building (Notes 6, 7 and 11). The term of this loan has been extended several times, the latest is until June 21, In June 2007, SA obtained a working capital loan facility from BRI, with maximum loanable amount of Rp 30 billion and has been increased to Rp 44 billion and with a term of 12 months. This facility is collateralized with trade accounts receivable, inventories, machinery and equipment, and land (Notes 6, 7 and 11). The term of this loan has been extended several times, the latest is until June 21, In June 2007, SA obtained a working capital loan sublimit Letter of Credit facility from BRI, with maximum loanable amount of US$ 1,263 thousand and with a term of 12 months. This facility is collateralized with trade accounts receivable, inventories, machinery and equipment, and land (Notes 6, 7 and 11). The term of this loan has been extended several times, the latest is until June 21, In May 2008, the Company obtained a working capital loan facility from BRI, with maximum loanable amount of Rp 110 billion which already matured in May 2009 but has been extended several times, the latest on May 7, In August 2010, the maximum loanable amount increased to Rp 270 billion. These loan are collateralized with accounts receivable, land, building, inventory, machinery, site facilities, and equipment owned by the Company and land, building, machinery, equipment, stable, and plant owned by PT Wabin Jayatama, a subsidiary (Notes 6, 7 and 11). In July 2003, PT Indojaya Agrinusa (IAG), a subsidiary, obtained a working capital loan from BRI, with maximum loanable amount of Rp 15 billion and with a term of 12 months. This facility is collateralized with trade accounts receivable, inventories and land (Notes 6, 7 and 11). The maximum credit facility has been increased several times, the latest was increased to Rp 120 billion in August The term of this loan has been extended several times, the latest is until August 2, In October 2012, PT Austasia Stockfeed (ASF), a subsidiary, obtained several loan facilities from BRI consisting of working capital loan facility with maximum loanable amount of Rp 50 billion, import working capital loan facility with maximum loanable amount of Rp 100 billion, forex line facility with maximum loanable amount of USD 5 million and guarantee bank facility with maximum loanable amount of Rp 15 billion. This loan bears a floating interest rate of 10.00% per annum and will mature on October 16, These facilities are collateralized with accounts receivable, inventory, land, building, machinery, site facilities, and equipment (Note 6, 7, and 11). PT Bank CIMB Niaga Tbk (Bank CIMB Niaga) On July 21, 2010, PT Multibreeder Adirama Indonesia Tbk (MBAI), a subsidiary merged into the Company in 2012, obtained Fixed Loan (PT) and Overdraft Loan (PRK) facilities as part of several loan facilities from Bank CIMB Niaga (Note 17). PT facility consists of Tranche A with loanable amount of Rp 80 billion and Tranche B with loanable amount of Rp 100 billion. MBAI starts using these facilities on May 9, 2011 as working capital. These facilities bear floating interest rate of 10.5% per annum and will mature in July PRK facility with maximum loanable amounted to Rp 20 billion. These facilities have been extended until July 2012 and are collateralized with the same collaterals of long-term loan (Note 17) F-63

305 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) On October 25, 2011, the facility was amended into Tranche A facility amounting to Rp 130 billion and Tranche B facility amounting to Rp 100 billion, while PRK facility has a maximum loanable amount of Rp 70 billion, and will mature in July On July 19, 2012, the facility was amended into fixed loan facility amounting to Rp 200 billion, while PRK facility has a maximum loanable amount of Rp 100 billion and will mature in July These facilities bear floating interest rate of 10.5% per annum. Since July 1, 2012, effective date merger of MBAI to the Company, this facility has been transferred to the Company (Note 1b). On August 1, 2010, PT Primatama Karya Persada (PKP), a subsidiary acquired in 2011, obtained Overdraft Loan (PRK) facility as part of several loan facilities from CIMB Niaga (Note 17) with maximum amount of Rp 5 billion. PRK will mature on August 8, This loan is collateralized with time deposit (Note 4). Since September 1, 2011, effective date of merger of PKP to PT Ciomas Adisatwa (CA), a subsidiary, this facility has been transferred to CA (Note 1b). PT Bank DBS Indonesia (DBS) On July 19, 2010, the Company obtained Letter of Credit (LC), Trust Receipt, and Account Payable Financing facilities, for raw materials purchases. In May 2011, the maximum loanable amount was increased to US$ 40 million with a term of 120 days. In November 2011, this facility has been change to Rp 360 billion. This facility bears interest at Cost of Funds (COF) + 2% and have been extended until August 12, PT Bank Rabobank International Indonesia (Rabobank) On April 16, 2010, the Company obtained Letter of Credit (LC), Trust Receipt, and Post Impact Financing (PIF) facilities, for raw materials purchases with maximum loanable amount of US$ 25 million and has a term of 90 days. This facility bears interest at Cost of Funds (COF) %. These facilities are available until September 30, PT Bank Pan Indonesia Tbk (Bank Panin) On May 3, 2011, the Company and PT Suri Tani Pemuka (STP), a subsidiary, obtained a Joint Borrower facility from Bank Panin which consisted of Letter of Credit (LC) sublimit Revolving Loan (PB) with maximum loanable amount of Rp 150 billlion. These facilities are collateralized with trade accounts receivable and inventories owned by STP (Notes 6 and 7). LC and PB facilities will mature in May PT Bank Permata Tbk (Permata) On August 13, 2010, PT Indojaya Agrinusa (IAG), subsidiary, obtained overdraft facility from Permata with maximum loanable Rp 5 billion, revolving loan facility with maximum loanable amount of Rp 40 billion and letter of credit facility with maximum amount of USD 1 million. These facilities will be used for working capital purpose and will mature in August In November 2011, overdraft facility increased to Rp 10 billion and revolving loan increased to Rp 50 billion. The ICICI Bank, Ltd., India (ICICI) Japfa Comfeed India Private Ltd. (JCIL), a subsidiary, obtained an overdraft facility from ICICI with maximum amount of Rs 206 million (equivalent to Rp billion). This loan bears floating interest rate and collateralized with trade receivable, inventories and property, plant and equipment (Note 6, 7 and 11). JCIL has been sold to related parties on January 3, 2011, thus, this facility has no outstanding balance as of December 31, 2012 and 2011 (Note 1d) F-64

306 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) The Axis Bank Ltd., India (Axis) Japfa Comfeed India Private Ltd, a subsidiary, obtained an overdraft facility from Axis with maximum amount of Rs 90 million (equivalent to Rp billion). This loan bears floating interest rate and collateralized with inventories and property, plant and equipment (Notes 7 and 11). JCIL has been sold to related parties on January 3, 2011, thus, this facility has no outstanding balance as of December 31, 2012 and 2011 (Note 1d). PT Bank Ekonomi Raharja Tbk (Bank Ekonomi) On March 15, 2012, PT Santosa Agrindo (SA), subsidiary, obtained Sight LC Sublimit TR facility, and FX Line facility from Bank Ekonomi, with maximum loanable amount of USD 8 million with a term of 12 months. These facilities are collateralized with inventory and breeding cattle (Notes 7 and 8). This loan has been fully paid in on November In relation to the above credit facilities, the Group is required, among others, to maintain certain financial ratios and fulfill certain covenants concerning incurrence of indebtedness, sale of property, plant and equipment, investments, reorganization and other matters as stated in the agreements. Interest expense on the abovementioned loans amounted to Rp billion in 2012, Rp billion in 2011 and Rp billion in 2010 (Note 29). 13. Trade Accounts Payable a. By Supplier Related party (Note 34) Annona Pte. Ltd 186, Third parties Local suppliers 329, , ,783 Foreign suppliers 41,479 44,179 69,344 Subtotal 370, , ,127 Total 556, , ,127 b. By Age Less than or equal to 1 month 391, , ,314 More than 1 month but less than 3 months 109,209 42,876 29,962 More than 3 months but less than 6 months 54,319 34,805 54,974 More than 6 months 2,100 3, Total 556, , ,127 c. By Currency Rupiah 515, , ,783 Foreign currencies (Note 38) U.S. Dollar 41,479 41,878 12,149 Singapore Dollar ,506 Euro - 2,248 1,689 Total 556, , ,127 Purchases of raw and indirect materials, both from local and foreign suppliers, have credit terms of 14 to 120 days F-65

307 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) 14. Other Accounts Payable to Third Parties Agent 35,620 7,007 - Freight 17,488 11,705 7,250 Technical goods and spare parts 11,284 12,974 12,821 Project 6,541 2,499 3,231 Others 28,498 13,519 18,580 Total 99,431 47,704 41, Taxes Payable Income taxes Article 21 13,051 13,443 10,092 Article 23 2,479 1,012 1,184 Article 25 35,776 13,419 8,446 Article Article 29 (Note 31) 42,724 5, ,525 Value Added Tax 4,390 2,219 7,159 Final income tax Corporate income tax of foreign subsidiaries Total 99,350 36, ,027 The filing of tax returns is based on the Group s own calculation of tax liabilities (selfassessment). Based on the third amendment of the General Taxation Provisions and Procedures No. 28 Year 2007, the time limit for the tax authorities to assess or amend taxes was reduced from ten (10) to five (5) years, subject to certain exceptions, since the tax became payable and for year 2007 and prior years, the time limit will end at the latest on fiscal year Accrued Expenses Interest 42,099 18,487 21,965 General 18,543 7,637 26,093 Maintenance 14,368 8,478 6,627 Marketing 9,142 18,605 75,518 Importation 6,976 1, Transportation 4,573 5,320 3,857 Telephones and electricity 2,564 4,566 4,451 Production 2,167 1,075 1,712 Salaries and employees' benefits 2,145 1,851 2,108 Others 7,408 5,939 8,114 Total 109,985 73, , F-66

308 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) 17. Long-term Loans Rupiah PT Bank Central Asia Tbk 469, , ,439 PT Bank Mandiri (Persero) Tbk 240, ,000 6,500 PT Bank CIMB Niaga Tbk 129, , ,709 PT Bank Rakyat Indonesia (Persero) Tbk 49,315 66,315 73,218 PT Bank Pan Indonesia Tbk 27,371 35,031 - PT Bank Permata Tbk 29,187 31,600 14,683 PT Bank Ganesha (Ganesha) 2,040 6,985 - PT Bank Victoria International Tbk 2,027 4,346 - PT BNI Multi Finance - - 6,645 Foreign currency (Note 38) Rupee, India The Axis Bank Ltd., India (Rs 93,694,536 in 2010) ,800 The ICICI Bank, Ltd., India (Rs 43,007,807 in 2010) - - 8,629 Total 949,211 1,197,778 1,064,623 Less current portion (334,847) (276,969) (195,411) Total 614, , ,212 Unamortized provision fee and transaction costs (3,716) (6,314) (7,336) Long-term portion - Net 610, , ,876 Interest rates per annum Rupiah 5.00% % 5.00% % 5.00% % Rupee % % PT Bank Central Asia Tbk (BCA) On October 20, 2010, the Company obtained a loan investment credit facility from BCA with maximum loanable amount of Rp 750 billion which will be used to fully pay the restructured debt to BNP Paribas, Singapore (Note 20). Restructured debt which has been fully paid amounted to Rp 709 billion, thus, the balance of Rp 41 billion was used to increase the maximum loanable amount of Working Capital (KMK) facility (Note 12). This loan will mature on October 20, 2015 and bears interest rate of JIBOR + 3.6% per annum. This loan is collateralized with trade accounts receivable, machinery, land and building (Notes 6 and 11). On October 11, 2011, PT Vaksindo Satwa Nusantara (VSN), a subsidiriary, obtained a loan investment credit facility from BCA with maximum loanable amount of Rp 10 billion which will be used to purchase machinery and building. This loan will mature in November 2017 and bears interest rate of JIBOR + 3.6% per annum. This loan is collateralized with machinery, land and building (Note 11). On April 14, 2010, PT So Good Food (SGF), a subsidiary sold in 2011, obtained an installment loan facility from BCA, with maximum loanable amount of Rp 20 billion for working capital. This facility will be due on April 14, 2013, and bears interest rate of 11.25% per annum. This loan is collateralized with trade accounts receivable, inventories, machinery and land, owned by the Company (Notes 6, 7, and 11). In June 2011, SGF was sold to Malvolia Pte. Ltd, thus, this loan has no outstanding balance as of December 31, 2012 and 2011 (Note 1d) F-67

309 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) PT Bank Mandiri (Persero) Tbk (Bank Mandiri) On September 23, 2009, PT Bintang Terang Gemilang (BTG) a subsidiary merged into the Company in 2011, obtained an investment loan facility from Bank Mandiri, with maximum loanable amount of Rp 9 billion for the purchase of machinery. This payable will be due in 5 years. This loan is collateralized with the purchased machinery (Note 11) and corporate guarantee from the Company. This loan has been transferred to the Company. On April 19, 2011, the Company obtained a Non Revolving Loan (NRL) KMK with maximum loanable amount of Rp 300 billion from Bank Mandiri which will be used as working capital and to fully pay PT Multiphala Agrinusa s (MAG) and PT Bintang Terang Gemilang s (BTG), subsidiaries merged into the Company, loans from Bank Mandiri. This facility will mature on June 23, This facility is collateralized with trade accounts receivable, inventory, and certain property, plant and equipment owned by the Company (Notes 6, 7 and 11). These loan were transferred from MAG and BTG, subsidiaries which have been merge to the Company on January 1, 2011 (Note 1b). PT Bank CIMB Niaga Tbk (CIMB Niaga) On May 5, 2009, PT Agrinusa Jaya Santosa (AJS), a subsidiary acquired in 2012, obtained loans from CIMB Niaga which consist of Investment Loan (PI) with maximum loanable amounted to Rp 1.5 billion and Special Loan Transaction (PTK) with maximum loanable amounted to Rp 28.5 billion. PI and PTK bears interest of 11% and will mature on May 13, 2014 and December 31, 2016, respectively. These loans are collateralized with inventory, machinery and land owned by AJS (Note 7 and 11). On July 21, 2010, PT Multibreeder Adirama Indonesia Tbk (MBAI), a subsidiary merged into the Company in 2012, obtained credit facilities from CIMB Niaga with a maximum amount of Rp 500 billion which consist of a Special Loan Transaction (PTK), Overdraft Loan (PRK) and Fixed Loan (PT). PTK loan bears floating interest rate ranging 10.75% - 11% per annum and will mature in August On October 25, 2011, These facilities were amended with the following term, PRK facility with maximum loanable amount of Rp 70 billion and PT facility Rp 230 billion, bears interest of 10.5% per annum and will mature in July On July 19, 2012, these facilities were amended with the following term, PRK facility with maximum loanable amount of Rp 100 billion, bears interest of 10.5% per annum and PT facility with maximum loanable amount of Rp 200 billion and will mature on July 21, Since July 1, 2012, effective date of merger of MBAI to the Company, these facilities have been transferred to the Company (Note 1b). On November 12, 2010, PT Primatama Karya Persada (PKP), a subsidiary acquired in 2011, obtained loans from CIMB Niaga which consist of PTK on Liquidation 1 (PTK 1) with a maximum amount of Rp 9 billion, PTK on Liquidation II (PTK 2) with a maximum amount of Rp 7.5 billion. In December 2010, the maximum loanable amount for PTK 1 was amounted to Rp 1.5 billion and for PTK 2 was increased to Rp 15 billion. PTK 1 will mature on December 23, 2013, PTK 2 will mature on June 13, These loans are collateralized with a vehicle owned by PKP (Note 11). Since September 1, 2011, effective date of merger of PKP to PT Ciomas Adisatwa (CA), a subsidiary (Note 1b), this facility has been transferred to PT CA F-68

310 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) PT Bank Rakyat Indonesia (Persero) Tbk (BRI) On March 19, 2010, PT Santosa Agrindo (SA), a subsidiary, obtained Kredit Usaha Pembibitan Sapi (KUPS) facility from BRI, with maximum loanable amount of Rp billion for purchases of cattles. This loan will mature on December 19, 2015 and bears interest of 5% per annum. This loan is collateralized with trade accounts receivable, inventories, machinery and equipment, and certain property, plant and equipment owned by SA (Notes 6, 7 and 11). In March, 2012, based on PK Novasi Kredit No. 31, SA transferred this loan to PT Austasia Stockfeed (ASF), SA s subsidiary. In October 2012, PT Austasia Stockfeed (ASF), a subsidiary, obtained several loan facilities from BRI consisting of working capital loan facility with maximum loanable amount of Rp 50 billion, import working capital loan facility with maximum loanable amount of Rp 100 billion, forex line facility with maximum loanable amount of USD 5 million and guarantee bank facility with maximum loanable amount of Rp 15 billion. This loan bears a floating interest rate of 10.00% per annum and will mature on October 16, These facilities are collateralized with accounts receivable, inventory, land, building, machinery, site facilities, and equipment (Note 6, 7, and 11). In February 2009, PT Indojaya Agrinusa (IAG), a subsidiary, obtained investment loan from BRI, with maximum amount of Rp 23 billion. This loan is collateralized with land and building (Note 11) owned by IAG. This loan has been fully paid in In August 2005, IAG, a subsidiary, obtained an Investment Credit Facility from BRI amounting to Rp 20 billion, which was used for expansion of IAG through construction of fish feed factory. The loan is collateralized with trade accounts receivable, inventories, land, building and machinery (Notes 6, 7 and 11) owned by IAG. This loan has been fully paid in July PT Bank Pan Indonesia Tbk (Bank Panin) On May 19, 2011, PT Suri Tani Pemuka (STP), a subsidiary, obtained a long-term loan facility as part of several loans facility from Bank Panin (Note 12), with maximum amount of Rp 50 billion with term of 60 months. This loan is collateralized with land and building (Note 11). PT Bank Permata Tbk (Bank Permata) On August 13, 2010, PT Indojaya Agrinusa (IAG), a subsidiary, obtained Term Loan (TL) facility from Bank Permata, with maximum loanable amount of Rp 45 billion with sublimit L/C of US$ 1 million. This loan will mature in September This loan is collateralized with trade accounts receivable, inventories and property and equipment (Notes 6, 7 and 11). On November 17, 2011, IAG obtained Term Loan 2 facility (TL-2) with maximum loanable amounted Rp 40 billion. This loan will mature in November This loan is collateralized with trade accounts receivable, inventories and property and equipment (Notes 6, 7 and 11) PT Bank Ganesha (Ganesha) On May 24, 2007, PT Bhirawa Mitra Sentosa (BMS), a subsidiary acquired in 2011 (Note 1d), obtained an investment credit 1 loan (KI-1) from Bank Ganesha with maximum amount of Rp 1.2 billion and investment credit 2 loan (KI-2) with maximum amount of Rp 20 billion on February 26, The loans are used for purchase of vehicles. KI-1 has matured in May 2012, meanwhile, KI-2 consisting of several credit agreements will mature in October These loans are collateralized with vehicles owned by BMS (Note 11) F-69

311 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) PT Bank Victoria International Tbk (Bank Victoria) On September 8, 2012, PT Bhirawa Mitra Sentosa (BMS), a subsidiary acquired in 2011, obtained an investment credit loan from Bank Victoria with maximum amount of Rp 2.05 billion for the purchase of vehicles. On August 2007, this facility increased to Rp biliion. On March 2010, the Company obtained loan investment credit facility amounted to Rp billion. This loan will be due in March This loan is collateralized with vehicles owned by BMS (Note 11). PT BNI Multi Finance (BNIMF) In September 1997, PT Septatrada Hardaguna (STH), a subsidiary, obtained a long-term credit facility from BNIMF, with maximum amount of Rp 11.2 billion. Loan principal is payable semi-annually until February This loan is collateralized with inventories, machinery, land and building located in Gunung Putri - Bogor and Malang (Notes 7 and 11), and corporate guarantee from PT So Good Food (SGF), a subsidiary sold in On April 10, 2007, this facility was taken-over by SGF (a major stockholder of STH), a subsidiary sold in 2011 (Note 1d), and rescheduled the loan principal payments. Loan principal amounting to Rp 10.6 billion is repayable in 96 months on a quarterly basis. The accrued interest on this loan amounting to Rp 3.8 billion, which is recorded under accrued expenses (Note 16), will be waived if SGF could pay the total outstanding principal. Nonetheless, if SGF default to pay as scheduled, SGF still has to pay the outstanding interest amounting to Rp 3.8 billion. This loan has been fully paid in April Accordingly, the abovementioned accrued expenses were credited in other income in the 2011 consolidated statement of comprehensive income. The Axis Bank Ltd., India (Axis) Japfa Comfeed India Private Ltd., a subsidiary sold in 2011 (Note 1d), obtained a loan facility from Axis with a maximum amount of Rs 183 million (equivalent to Rp 36.7 billion), which is collateralized with certain inventories and property, plant and equipment (Note 7 and 11), and will mature in June On January 3, 2011, JCIL has been sold to related parties, thus, this facility has no outstanding balance as of December 31, 2012 and The ICICI Bank, Ltd., India (ICICI) Japfa Comfeed India Private Ltd., a subsidiary sold in 2011 (Note 1d), obtained loan facility from ICICI with a maximum amount of Rs 212 million (equivalent to Rp 42.5 billion), which is collateralized with certain property, plant and equipment (Note 11), and would have matured in January On January 3, 2011, JCIL has been sold to related parties, thus, this facility has no outstanding balance as of December 31, 2012 and Interest expense on the abovementioned loans amounted to Rp billion in 2012, Rp billion in 2011 and Rp billion in 2010 (Note 29). In relation to the above credit facilities and those of short term bank loans (Note 12), the Group is required, among others, to maintain certain financial ratios and fulfill certain covenants concerning incurrence of indebtedness, sale of property, plant and equipment, investments, reorganization and other matters as stated in the agreements F-70

312 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) 18. Lease Liabilities a. By Due Date Minimum lease payments , ,592 1, , , Total minimum lease payments 9,480 3, Interest (1,537) (887) (50) Present value of minimum lease payments 7,943 2, Less current portion (3,727) (1,582) (140) Long-term lease liabilities - Net 4,216 1, b. By Lessor Bank Jasa Jakarta 5, PT BCA Finance 1,288 2,822 - Bank Dipo Star Bank Victoria United Overseas Bank, Singapore PT Sinar Mitra Sepadan Total 7,943 2, In 2012, lease liabilities pertain to the transactions with Bank Jasa Jakarta, Bank Victoria and Dipo Star Finance for transportation equipment purchased by PT Agrinusa Jaya Santosa, a subsidiary acquired in 2012, (Note 1d). As of December 31, 2011, lease liabilities represent liabilities for the acquisition of transportation equipment by PT Bhirawa Mitra Sentosa, a subsidiary. Further, as of December 31, 2010, lease liabilities represent liabilities for the acquisition of transportation equipment by the Company, Japfa Comfeed International Pte., Ltd., a subsidiary sold in 2011, and PT Multibreeder Adirama Indonesia Tbk, a subsidiary merged into the Company in These liabilities have terms of 3 until 7 years with effective interest rates at 4.40% to 14.67% per annum in 2012 and 2.2% to 16% per annum in 2011 and 2010, which are collateralized with the related leased assets (Note 11). Interest expense amounted to Rp 839, Rp 764 and Rp 20 in 2012, 2011 and 2010, respectively (Note 29) F-71

313 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) 19. Bonds Payable Details of bonds payable are as follows: Current Nominal value - 500,000 - Bonds issuance cost - (734) - Net - 499,266 - Noncurrent Nominal value 1,500, ,000 Bonds issuance cost (10,287) - (2,244) Net 1,489, ,756 In January 2012, the Company issued Rupiah Denominated Japfa I Sustainable Bonds level 1 year 2012 totaling to Rp 1,250 billion. The bonds have term of 5 years until Interest rate is fixed at 9.9% per annum, payable quarterly. All the bonds were sold at its nominal value and are listed at the Indonesia Stock Exchange, with PT Bank CIMB Niaga Tbk as trustee. The proceeds were used to build animal feed factories and corn dryer units, to pay bank loan, to pay Japfa I Bonds year 2007, and for working capital purposes. The Company has an option to redeem the bonds, partially or in full, after a year from the issuance date. In February 2012, the Company issued Rupiah denominated Japfa I Sustainable Bonds level 2 year 2012 totaling to Rp 250 billion. The bonds have term of 5 years until Interest rate is fixed at 9.9% per annum, payable quarterly. All the bonds were sold at its nominal value and are listed at the Indonesia Stock Exchange, with PT Bank CIMB Niaga Tbk as trustee. The proceeds were used to build animal feed factories and corn dryer units, to pay bank loan and for working capital purposes. The Company has an option to redeem the bonds, partially or in full, after a year from the issuance date. On October 31, 2011, the Company has submitted a Statement of Registration to Bapepam - LK regarding Public Offering of Japfa I Sustainable Bonds. On December 29, 2011, the Company obtained the Notice of Effectivity from Chairman of Bapepam-LK in his letter No. S-13948/BL/2011 for its Public Offering of Japfa I Sustainable Bonds year 2012 totaling to Rp 1,500 billion. In July 2007, the Company issued Rupiah denominated Japfa I Bonds year 2007 in Jakarta totaling to Rp 500 billion, secured with the fiduciary of inventories (Note 7) of the Company, in the form of finished goods and raw materials. The bonds have a term of 5 years until Interest rate is fixed at 12.75% per annum, payable quarterly. All the bonds were sold at its nominal value and are listed at the Indonesia Stock Exchange, with PT Bank Mega Tbk as trustee. The proceeds were used to build animal feed factories, corn dryer units, to pay bank loan and for working capital purpose. The Company has an option to redeem the bonds, partially or in full, after a year from the issuance date. Amortization of bonds issuance cost amounted to Rp 3,306, Rp 1,510 and Rp 1,509 in 2012, 2011 and 2010, respectively F-72

314 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) The Company is not required to establish a bond sinking fund in relation to the bonds issued. However, the Company is required to maintain certain financial ratios, among others. Based on the rating issued by PT Pemeringkat Efek Indonesia (Pefindo) on October 8, 2012, the bonds are rated id A (single A). In 2012, interest expense on the abovementioned bonds payable amounted to Rp 178,835, while in 2011 and 2010, interest expense on the abovementioned bonds payable amounted to Rp 63,750 each year (Note 29). 20. Restructured Debts This account represents the Company s, PT Multibreeder Adirama Indonesia Tbk s (MBAI) and PT Suri Tani Pemuka s (STP) debts that have been restructured in The debts have been restructured through debt buy-back, debt-to-equity conversion and modification of loan terms. Restructuring of the Company s, MBAI s and STP s debts was coordinated by BNP Paribas, Singapore Branch. The restructured debts (Tranches A and B) are subject to the following interest rates: LIBOR + 1% per annum for the first 36 months commencing July 1, After the first 36 months, the Company, MBAI and STP have the option to determine the interest rate to be used: - Floating interest rate, which is the aggregate of the LIBOR and 1% margin per annum for 6 months following thereafter, 1.5% per annum for 36 months following thereafter and 2% per annum for 36 months following thereafter. - Fixed interest rate of 5.5% per annum which increases by 0.5% per annum for every 12 months following thereafter, maximum of 8.5% per annum. On July 1, 2005, the Company, MBAI and STP opted to use the floating interest rate. In 2010, the interest rates per annum range from 2.31% to 3.50%, respectively. Deferred credit on restructured debts represents the difference between the carrying value of the debts after restructuring (with modified loan terms) with the future cash flows. The Company Other accounts payable, accrued interest, notes payable, bank loans and long-term loans amounting to US$ 146,835,392 have been restructured into new loans amounting to US$ 115,000,000, divided into: a. Tranche A facility amounting to US$ 60,000,000, wherein debt principal is payable in 37 quarterly installments starting December 31, 2002 until December 31, b. Tranche B facility amounting to US$ 55,000,000, wherein full repayment of debt principal should be made on December 31, The debts are secured with investment properties and guarantee rights over strategic land that are significant to the Company s property, plant and equipment (Notes 10 and 11). Guarantees on the Company s significant assets include shares of subsidiaries. In 2010, the Company has paid installments for Tranche A principal amounting tous$ 7,687,500. Interest paid in 2010 amounted to Rp 16 billion (Note 29) F-73

315 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) The Company has fully paid the restructured debts to BNP Paribas, Singapore on November 30, 2010 amounting to US$ 68,312,500 (equivalent Rp 616 billion). MBAI The syndicated loans and notes payable amounting to US$ 60,000,000 had been restructured to become US$ 48,000,000. The debts consist of the following: a. Tranche A facility amounting to US$ 24,000,000 with a term of 9.5 years wherein debt principal is repayable in 37 quarterly installments starting December 31, b. Tranche B facility amounting to US$ 24,000,000 is due on December 31, In 2003, MBAI paid US$ 3,789,562 of the Tranche B facility, thus, the remaining balance of the Tranche B facility amounted to US$ 20,210,438. The debts are secured with land and buildings (Note 11) owned by MBAI and its subsidiary, pledge of MBAI s shares in its subsidiary, corporate guarantee from the Company and fiduciary right over insurance claims of MBAI and its subsidiary. In 2010, MBAI paid Tranche A installment amounting to US$ 2.5 million. Interest paid in 2010 amounted to Rp 4.9 billion (Note 29). MBAI has fully paid the restructured debts to BNP Paribas, Singapore on August 24, 2010 amounting to US$ 28,210,438 (equivalent Rp 253 billion). STP Liability to PT Gani Asset Manajemen and notes payable amounting to US$ 20,000,000 had been restructured to become US$ 18,000,000, which consists of the following: a. Tranche A facility amounting to US$ 9,000,000 with a term of 9 years, wherein debt principal is repayable in 36 quarterly installments amounting to US$ 1,000,000 per year starting on March 31, 2003 until December 31, b. Tranche B facility amounting to US$ 9,000,000 will be paid in full on December 31, The debts are secured with the land and buildings (Note 11) owned by STP and its subsidiaries (KW, ALM and BL), pledge of STP s shares in its subsidiaries, corporate guarantee from the Company and fiduciary right over insurance claims of STP and its subsidiaries. Total future cash payments, including future interest and principal, regardless of calculated present value, is more than the carrying amount, thus, no gain on restructuring was recognized. The difference between the carrying amount of principal and interest and future cash payments amounting to Rp 31.3 billion was recorded as deferred credit on debt restructuring. This account will be amortized when the recognition of new accrued interest is made. Constant effective interest rate is 0.245% per annum. In 2010, STP paid Tranche A principal installment amounting to US$ 750,000. In 2010, interest expense on restructured debts amounted to Rp 2.4 billion (Note 29) of which Rp 4 billion in 2009 were deducted from the deferred credit on restructured debts. STP has fully paid the restructured debts to BNP Paribas Singapore on November 30, 2010 amounting to US$ 10,250,000 (equivalent to Rp 92 billion) F-74

316 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) 21. Goodwill Changes during 2012 January 1, 2012 Additions Deductions December 31, 2012 At cost Goodwill 71, ,358 Impairment Goodwill 1, ,345 Net Book Value 70,013 70,013 Changes during 2011 January 1, 2011 Additions Deductions December 31, 2011 At cost Goodwill 1,345 70,015 (2) 71,358 Impairment Goodwill - 1,345-1,345 Net Book Value 1,345 70,013 Transition Adjustments based on As reported PSAK No. 22 As adjusted January 1, 2011 (Revised 2010) January 1, 2011 At cost Goodwill 6,051 (4,706) 1,345 Negative goodwill (84,566) 84,566 - Total (78,515) 79,860 1,345 Accumulated Amortization Goodwill 4,706 (4,706) - Negative goodwill (12,685) 12,685 - Total (7,979) 7,979 - Net Book Value (70,536) 1, F-75

317 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Changes during 2010 January 1, 2010 Additions Deductions December 31, 2010 At cost Goodwill 6, ,051 Negative goodwill (84,566) - - (84,566) Total (78,515) - - (78,515) Accumulated Amortization Goodwill 2,689 2,017-4,706 Negative goodwill (8,468) (4,217) - (12,685) Total (5,779) (2,200) - (7,979) Net Book Value (72,736) (70,536) In 2011, the Group acquired PT Pritama Karya Persada (PKP), PT Adiguna Bintang Lestari (ABL) and PT Bhirawa Mitra Sentosa (BMS) (Note 1d). At the effective date of the acquisition, the excess of acquisition cost over the fair value of identifiable assets and liabilities acquired totaling to Rp 70,015 was recorded as part of goodwill as of December 31, In 2008, the Group acquired PT Santosa Agrindo (SA), PT Austasia Stockfeed (ASF) and PT Vaksindo Satwa Nusantara (VSN) (note 1d). at effective date of acquisition, the excess of net assets acquired over the cost of acquisition totaling to Rp 84,566 million was recorded as negative goodwill on December 31, The amount of negative goodwill arising from the business combination prior to January 1, 2011 was adjusted to retained earnings as of January 1, Further, starting January 1, 2011, the Group ceased amortization of goodwill and just subject this to annual impairment testing. As of December 31, 2011, the carrying amount of these assets has been reduced to its recoverable amount through recognition of of an impairment loss amounting to Rp 1,345 against goodwill. This loss has been included in 2011 the consolidated statement of comprehensive income. Based on impairment testing performed as of December 31, 2012, there s no further impairment in goodwill. Impairment Test for Goodwill The carrying value of goodwill was all allocated to the Cash Generating Unit (CGU) commercial farm unit of the Group. The recoverable amount of the abovementioned CGU is determined based on value-in-use calculations. Value in use was determined by discounting the future cash flows expected to be generated for the continuing use of the units. The calculation of value in use was based on the following key assumptions: Based on financial projection prepared by management for years and the net cashflows will be discounted with an appropriate discount rate. Pre-tax discount rate of 11.32%, was applied in determining the recoverable amounts. This discount rate was determined based on the weighted average cost of capital allocated by the Group to this unit. The key assumptions described above may change as economic and market conditions change F-76

318 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) 22. Fair Value of Financial Assets and Liabilities Fair value is defined as the amount at which the financial instruments could be exchanged in a current transaction between knowledgeable, willing parties in an arm s length transaction, other than in a forced sale or liquidation. Fair values are obtained from quoted prices, discounted cash flows model, as appropriate. The following table sets forth the carrying amounts and estimated fair values of the Group s financial assets and liabilities as of December 31, 2012, 2011 and 2010: Carrying Amounts Estimated Fair Values Carrying Amounts Estimated Fair Values Carrying Amounts Estimated Fair Values Financial Assets Loans and receivables Cash and cash equivalents 872, , , , , ,187 Short-term investments 11,283 11,283 11,283 11,283 52,366 52,366 Trade accounts receivable Related parties 45,459 45,459 48,142 48, Third parties 859, , , , , ,358 Other accounts receivable from third parties 51,965 51,965 47,414 47,414 37,363 37,363 Restricted cash in banks 1,806 1,806 2,982 2,982 2,287 2,287 Other assets - guarantee deposits 6,110 6,110 8,390 8,390 7,633 7,633 HTM Short-term investments - bonds 2,000 2, Total Financial Assets 1,850,639 1,850,639 1,576,228 1,576,228 1,665,194 1,665,194 Financial Liabilities Other financial liabilities Short-term bank loans 2,284,599 2,284,599 1,799,804 1,799, , ,403 Trade accounts payable Related party 186, , Third parties 370, , , , , ,127 Other accounts payable to third parties 99,431 99,431 47,704 47,704 41,882 41,882 Accrued expenses 109, ,985 73,190 73, , ,733 Bonds payable 1,489,713 1,541, , , , ,494 Long-term loans (including current and noncurrent) 945, ,211 1,191,464 1,197,778 1,057,287 1,064,623 Liability for the purchase of property, plant and equipment (including current and noncurrent) 5,510 5,510 10,836 10,836 1,981 1,981 Lease liabilities (including current and noncurrent) 7,943 7,943 2,822 2, Total Financial Liabilities 5,499,565 5,554,768 3,939,190 3,911,238 2,862,469 2,874,543 The following methods and assumptions were used by the Group to estimate the fair value of each class of financial instrument for which it is practicable to estimate such value: Current financial assets and liabilities Current financial instruments with remaining maturities of one (1) year or less consist of cash and cash equivalents, short-term investments, trade accounts receivable, other accounts receivable, short-term bank loans, trade accounts payable, other accounts payable to third parties and accrued expenses. Due to the short term nature of the transactions, the carrying amounts of the non-derivative current financial assets and financial liabilities approximate the estimated fair market values F-77

319 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Noncurrent financial assets and liabilities The fair value of long-term loans, liability for purchase of property plant and equipment, and lease liabilities are determined by discounting future cash flows using applicable rates from observable current market transactions for instruments with similar terms, credit risk and remaining maturities. The fair value of guarantee deposits under other assets is based on discounted future cash flows adjusted to reflect counterparty risk using current market rates for similar instruments. The fair values of bonds payable are determined based on the latest published quoted price as of December 31, 2012, 2011 and Noncontrolling Interests a. Distributable equity to noncontrolling interests PT Indojaya Agrinusa 292, , ,610 PT Jakamitra Indonesia 87,308 48,450 15,519 PT Suri Tani Pemuka 34,858 (2,654) - PT Indonesia Pelleting PT Ciomas Adisatwa Japfa Comfeed India Ltd ,022 PT Multibreeder Adirama Indonesia Tbk - 192, ,323 Total 414, , ,586 b. Distributable income (loss) to noncontrolling interests PT Indojaya Agrinusa 63,585 47,202 62,932 PT Multibreeder Adirama Indonesia Tbk 20,834 6,372 68,795 PT Indonesia Pelleting PT Jakamitra Indonesia (142) (69) 519 PT Suri Tani Pemuka (1,427) Japfa Comfeed India Ltd - - 6,090 PT So Good Food Manufacturing (formerly PT Japfa Santori Indonesia) - - (6,218) Total 82,918 54, , F-78

320 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) 24. Capital Stock The following composition of stockholders is in accordance with PT Kustodian Sentral Efek Indonesia and the Share Registration Bureau (Registrasi Biro Administrasi Efek Perusahaan) as of December 31, 2012: Name of Stockholder 2012 Percentage of Total Paid-up Number of Shares Ownership Capital Stock % Malvolia Pte Ltd Series A shares 652,113, ,113 Series B shares 574,026, ,805 Public (below 5% each) 901,899, ,615 Total outstanding shares 2,128,039, ,648,533 Treasury stock 4,064, ,717 Total 2,132,104, ,666,250 In relation to merger of PT Multibreeder Adirama Indonesia Tbk (MBAI), PT Multiphala Adiputra (MA) and PT Hidon (Hidon) to the Company effective dated July 1, 2012, each holder of 1 share of MBAI received 3,025 (rounded-off) of Series A shares with Rp 1,000 (in full Rupiah) par value per share. As a result, JCI issued 60,371,922 series A shares (Note 1b). On June 28, 2012, the Company has submitted a statement to Bapepam LK and Indonesia Stock Exchange (ISE) regarding the reacquisition of Company s capital stock which issued and recorded in ISE (as treasury stock). The reacquisition transaction was consumated on June 29, As of December 31, 2012, the Company s treasury stock totaled to 4,064,948 shares at Rp 4,352 per share (in full Rupiah). The following composition of stockholders is in accordance with PT Kustodian Sentral Efek Indonesia and the Share Registration Bureau (Registrasi Biro Administrasi Efek Perusahaan) as of December 31, 2011 and 2010: 2011 and 2010 Percentage of Total Paid-up Name of Stockholder Number of Shares Ownership Capital Stock % Malvolia Pte Ltd Series A shares 634,274, ,275 Series B shares 574,026, ,805 Public (below 5% each) 863,431, ,798 Total 2,071,732, ,605, F-79

321 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) The creditors have locked-up the Company s shares as a result of the conversion equivalent to 20% of paid-up capital after loan restructuring in The shares would be transferred to Rangi Management Ltd. (RM), a company owned by the Company s management located in British Virgin Islands. The provisions of the transfer are as follows: 1. 5% effective at the date of the restructuring agreement % will be held in escrow by JP Morgan Chase Bank, Jakarta branch (transferred to PT Bank Danamon Indonesia Tbk) on behalf of the Company s creditors that will be transferred with the following terms: - If the Company, MBAI and STP are not in default, the lock-up shares that will be transferred is equivalent to 1% per annum during the restructuring period, up to a maximum of 10%. For every 1% transfer to RM, 0.5% will be returned to the creditors at maximum of 5%. - If the Company, MBAI and STP defaulted, RM s right to obtain the rest of the lock-up shares will be extinguished and the rest of the lock-up shares will be returned to the creditors. In relation to merger of PT Multi Agro Persada Tbk (MAP) with the Company dated December 1, 2009, each holder of 1 share of MAP received (rounded) of Series B shares with Rp 200 (full amount) par value per share. As a result, JCI issued 582,318,000 Series B shares (Note 1b) F-80

322 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) 25. Additional Paid-in Capital This account represents additional paid-in capital in connection with the following: Sales of the Company's shares through public offering in 1989 Proceeds from the issuance of 4,000,000 shares 28,800 Amount recorded as paid-up capital (4,000) Net 24,800 Rights offering to stockholders in 1990 Proceeds from the issuance of 24,000,000 shares 84,000 Amount recorded as paid-up capital (24,000) Net 60,000 Balance of additional paid-in capital as of December 31, ,800 Distribution of bonus shares in 1991 of 80,000,000 shares (80,000) Net 4,800 Conversion of convertible bonds into shares in 1991 Total bonds converted 66,565 Amount recorded as paid-up capital (28,941) Net 37,624 Balance of additional paid-in capital as of December 31, ,424 Conversion of restructured debts in ,495 Balance of additional paid-in capital as of December 31, ,919 Issuance of Series B shares Proceeds from the issuance of 582,318,000 shares 369,772 Amount recorded as paid-up capital (116,464) 253,308 Balance of additional paid-in capital as of December 31, 2011 and ,227 Issuance of Series A shares Proceeds from the issuance of 60,371,922 shares 213,528 Amount recorded as paid-up capital (60,372) 153,156 Balance of additional paid-in capital as of December 31, , F-81

323 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) 26. Net Sales Details of sales by business segment: Animal feeds 8,243,891 7,534,196 7,546,845 Commercial farm 5,118,608 3,540,155 1,513,129 Aquaculture 1,461,649 1,326,823 1,057,741 Day old chick 1,271,910 1,136,137 1,409,535 Cattle 1,084, , ,980 Trading 465, , ,950 Consumer products 459,376 1,197,394 1,620,875 Others 133, ,487 45,585 Total 18,238,142 15,964,495 14,292,640 Sales discounts (405,440) (331,427) (336,848) Net 17,832,702 15,633,068 13,955,792 There were no sales to a single customer which exceeded 10% of the net sales in 2012, 2011 and Sales to related parties represent 3.47%, 2.56% and nil of the total net sales for the years ended December 31, 2012, 2011 and 2010, respectively (Note 34). 27. Cost of Goods Sold Details of cost of goods sold are as follows: Raw materials used 12,941,819 11,698,408 8,727,155 Direct labor 172, , ,620 Manufacturing expenses 1,248,302 1,004, ,868 Total manufacturing costs 14,362,677 12,855,344 9,820,643 Work in process At beginning of year 244, , ,087 Balance of acquired subsidiary ,413 - Balance of sold subsidiary - (28,963) - Purchases - 3,378 1,878 At end of year (314,676) (244,515) (107,215) Cost of goods manufactured 14,292,676 12,849,872 9,823,393 Finished goods At beginning of year 289, , ,137 Balance of acquired subsidiary 29,033 2,438 - Balance of sold subsidiary - (8,753) - Purchases 419, ,585 1,068,598 At end of year (382,567) (289,923) (255,504) Cost of goods sold 14,648,797 13,072,723 10,906,624 These were no purchases of raw materials from a single supplier which exceeded 10% of the net sales in 2012, 2011 and Purchases from related parties represent 17.03%, 7.58% and nil of the net sales for the years ended December 31, 2012, 2011 and 2010, respectively (Note 34) F-82

324 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) 28. Operating Expenses Selling Expenses Salaries and employee benefits 98,755 90,872 79,327 Freight 60,840 68,305 87,236 Sales Commission 38,900 37,149 29,183 Vehicles maintenance 31,516 27,342 23,346 Depreciation (Notes 10 and 11) 17,461 13,743 11,118 Travel and courier services 12,799 13,868 16,870 Advertising and promotion 6, , ,890 Export charges 5,709 4,746 4,324 Freight forwarding 4,881 6,567 11,110 Telephone, telex, and facsimile 4,339 4,458 5,079 Office supplies 4,192 4,979 5,823 Rental 3,940 10,506 14,086 Maintenance 2,060 2,052 2,140 Others 44,044 32,107 23,504 Total 336, , , General and Administrative Expenses Salaries and employee benefits 642, , ,167 Long-term employee benefits (Note 30) 113,893 78,708 73,000 Security 57,624 49,936 44,053 Depreciation (Notes 10 and 11) 50,085 45,429 33,702 Travel 47,542 38,904 37,039 Repairs and maintenance 28,223 26,826 26,232 Electricity and water 28,030 24,372 20,775 Office supplies 26,073 24,956 22,611 Professional fees 24,910 29,297 23,900 Building rental 23,390 23,719 25,034 Vehicles maintenance 18,803 15,841 13,283 Bank charges 16,533 13,092 10,962 Telephone, telex, and facsimile 16,128 14,255 16,724 Licenses 12,520 11,525 7,056 Public relations 10,798 10,948 6,651 Stationery and printing 9,592 7,522 7,875 Donation and representation 8,549 11,190 5,345 Insurance 4,683 4,144 4,242 Amortization 4,416 2,451 2,484 Subscription and membership fees 4,113 3,995 3,296 Sanitation 2,684 3,235 5,144 Information technology services 2,074 2,851 11,691 Provisions for doubtful accounts (Note 6) ,146 Provisions for decline in value of inventory (Note 7) - 5,371 13,783 Others 25,920 10,426 12,136 Total 1,179,442 1,018, , F-83

325 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) 29. Interest Expense Interest Expense on: Short-term and long-term bank loans (Notes 12 and 17) 257, , ,789 Bonds payable (Note 19) 178,835 63,750 63,750 Lease liabilities (Note 18) Liability for the purchase of property, plant and equipment Other accounts payable to third parties (Note 14) Restructured debts (Note 20) ,341 Total 437, , , Post-Employment Benefits The Group provides post-employment benefits to its qualified employees in accordance with Labor Law No. 13/2003. In 2012, 2011 and 2010, there are 10,282, 9,457 and 9,266 employes, respectively, who are entitled to the benefits. Reconciliation of the present value of the unfunded long-term employee benefits liability to the amount of long-term employee benefits liability in the consolidated statements of financial position is as follows: Present value of unfunded long-term employee benefits liability 740, , , , ,409 Unrecognized actuarial losses (201,739) (116,468) (47,452) (22,003) (8,186) Unrecognized past service costs (4,553) (6,914) (8,655) (3,747) (14,962) Long-term employee benefits liability 534, , , , ,261 Details of long-term employee benefits expense recognized in the consolidated statements of comprehensive income are as follows: Current service costs 45,414 33,536 29,604 Interest costs 35,086 33,469 31,092 Present value of obligations for transferred employees - 3,267 15,411 Past service costs 2,146 1,898 2,085 Net recognized actuarial losses 5,127 1, Effect of curtailment (755) 1,231 - Adjustment 26,875 3,378 (5,647) Total 113,893 78,708 73, F-84

326 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Movements of the long-term employee benefits liability recognized in the consolidated statements of financial position are as follows: Beginning of the year 427, , ,503 Provision for the year 113,893 78,708 73,000 Effect of curtailment - - (184) Payment during the year (14,073) (32,697) (7,074) Balance of acquired subsidiary 6,589 16,397 - End of the year 534, , ,245 The cost of providing post-employment benefits was calculated by an independent actuary, PT Dayamandiri Dharmakonsilindo through its actuarial valuation report, dated January 7, The actuarial valuation was carried out using the following key assumptions: Discount rate : 5.75% per annum in 2012, 6.5% per annum in 2011 and 8.5% per annum in 2010 Salary increase rate : 8% per annum in 2012, 7.5% per annum in 2011 and 8.5% per annum in 2010 Mortality rate : Based on Commissioners Standard Ordinary (CSO) Withdrawal/Resignation rate : 10% at age 25 and decreasing linearly up to age Income Tax a. Tax expense of the Group consists of the following: Current tax 329, , ,705 Deferred tax (39,300) (3,398) 4,871 Total 290, , , F-85

327 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) b. Current Tax A reconciliation between income before tax per consolidated statements of comprehensive income and taxable income is as follows: Income before tax per consolidated statements of comprehensive income 1,364, ,309 1,436,855 Income before tax of the subsidiaries (550,130) (366,030) (1,163,962) Income before tax of the Company 814, , ,893 Temporary differences: Long-term employee benefits 58,628 24,600 27,564 Provision for doubtful accounts Difference between fiscal and commercial depreciation (32,277) (10,324) (1,645) Bonus - (10,353) (10,538) Capital leases - (14) (47) Net 26,371 4,405 15,409 Permanent differences: Facility expenses 55,422 28,662 25,806 Rental income (3,607) (4,667) (4,420) Interest income already subjected to final tax (30,014) (6,257) (6,254) Net 21,801 17,738 15,132 Taxable income during the year 862, , ,434 The current tax expense and overpayment are computed as follows: Current tax of the Company 20% x Rp 862,933 in 2012 Rp 528,422 in 2011 and Rp 303,434 in , ,685 60,687 Less prepaid income tax 221, ,939 62,985 Total current tax overpayment 49,352 65,254 2, F-86

328 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Current tax expense The Company 172, ,685 60,687 Subsidiaries 157,028 98, ,018 Total Current Tax 329, , ,705 Details of current tax overpayment The Company 49,352 65,254 2,298 Subsidiaries 7,540 83,134 4,561 Total (Note 9) 56, ,388 6,859 Details of current tax payable The Company Subsidiaries 42,724 5, ,525 Total (Note 15) 42,724 5, ,525 The taxable income and tax expense of the Company in 2011 are in accordance with the Corporate Tax Return filed with the Tax Service Office. In December 2007, the Government issued a regulation relating to a further tax rate reduction of 5% from the applicable tax rates for publicly listed entities effective January 1, 2008, if they comply with certain requirements relating to shareholding composition. The Company has complied with these requirements and expects to still comply at the time that the Company expects to realize the deferred tax and therefore, has applied the reduced tax rates in determining its 2012, 2011 and 2010 deferred tax benefit. Further, the deferred tax assets - net as of December 31, 2012, 2011 and 2010 have been calculated using these enacted rates. c. Deferred Tax The details of the Group s deferred tax assets and liabilities are as follows: Balance of Subsidiary Credited in (Charged to) Assets Related with the Consolidated Statement of Acquisition of Subsidiary Comprehensive Income January 1, 2012 and Merger for the Year December 31, 2012 The Company Deferred tax assets (liabilities): Allowance for doubtful accounts Gain (loss) on sale of property, plant, and equipmen Provision for bonus (118) - Long-term employee benefits liability 42,613 27,053 6,315 75,981 Accumulated depreciation of property, plant and equipment (15,454) (17,965) 28,221 (5,198) Lease liabilities (19) Total 27,377 9,279 34,440 71,096 Subsidiaries Deferred tax assets 11,735 (8,303) 4,860 8,292 Total 39, ,300 79,388 Deferred tax assets 73, ,819 Deferred tax liabilities (34,270) (34,431) F-87

329 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Balance of Subsidiary Credited in (Charged to) Assets Related with the Consolidated Statement of Acquisition of Subsidiary Comprehensive Income January 1, 2011 and Merger for the Year December 31, 2011 The Company Deferred tax assets (liabilities): Allowance for doubtful accounts Gain (loss) on sale of property, plant, and equipmen 2,520 (331) (2,071) 118 Provision for bonus 33,514 5,224 3,875 42,613 Long-term employee benefits liability (369) (5,846) (9,239) (15,454) Accumulated depreciation of property, plant and equipment Lease liabilities (14) - (5) (19) Total 35,666 (947) (7,342) 27,377 Subsidiaries Deferred tax assets 25,228 (24,233) 10,740 11,735 Total 60,894 (25,180) 3,398 39,112 Deferred tax assets Deferred tax liabilities 70,864 73,382 (9,970) (34,270) Credited in (Charged to) Consolidated PSAK 55 December 31, 2009 Statement of Income January 1, 2010 Transition Adjustments after Adjustments for the Year December 31, 2010 The Company Deferred tax assets (liabilities): Allowance for doubtful accounts 3,968 (3,942) 26 (11) 15 Provision for bonus 4,628-4,628 (2,108) 2,520 Long-term employee benefits liability 28,001-28,001 5,513 33,514 Accumulated depreciation of property, plant and equipment (839) - (839) 470 (369) Lease liabilities (3) - (3) (11) (14) Total 35,755 (3,942) 31,813 3,853 35,666 Subsidiaries Deferred tax assets (liabilities) 40,277 (6,325) 33,952 (8,724) 25,228 Total 76,032 (10,267) 65,765 (4,871) 60,894 Deferred tax assets 79,198 70,864 Deferred tax liabilities (3,166) (9,970) F-88

330 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Reconciliation between the total tax expense and the amounts computed by applying the effective tax rates to income before tax of the Company is as follows: Income before tax per consolidated statements of comprehensive income 1,364, ,309 1,436,855 Income before tax of the subsidiaries (550,130) (366,030) (1,163,962) Income before tax of the Company 814, , ,893 Tax expense at effective tax rates 162, ,256 54,579 Permanent differences: Facility expenses 11,084 5,733 5,161 Rental income (721) (933) (884) Interest income already subjected to final tax (6,003) (1,251) (1,251) Net 4,360 3,549 3,026 Adjustment on deferred tax (29,166) 8,222 (771) Tax expense of the Company 138, ,027 56,834 Tax expense of the subsidiaries 152,168 87, ,742 Tax expense 290, , , Dividends and General Reserve Based on the General Stockholder s Meeting as documented in Notarial Deed No. 85 dated June 7, 2012 of Dr. Irawan Soerodjo, SH, Msi, a public notary in Jakarta, the stockholders approved the declaration of cash dividends for the year 2011 totaling to Rp 159,604 or Rp 75 per share (in full Rupiah) and appropriation of general reserve amounting to Rp 16,000. These dividends were settled on July 20, Based on the General Stockholder s Meeting as documented in Notarial Deed No. 60 dated June 8, 2011 of Dr. Irawan Soerodjo, SH, Msi, a public notary in Jakarta, the stockholders approved the declaration of cash dividends for the year 2010 totaling to Rp 756,182 or Rp 365 per share (in full Rupiah) and appropriation of general reserve amounting to Rp 24,000. These dividends were settled in July Based on the General Stockholder s Meeting as documented in Notarial Deed No. 91 dated June 10, 2010 of Dr. Irawan Soerodjo, SH, Msi, a public notary in Jakarta, the stockholders approved the declaration of cash dividends for the year 2009 totaling to Rp 10,359 or Rp 5 per share (in full Rupiah) and appropriation of general reserve amounting to Rp 80,000. These dividends were settled on July 20, F-89

331 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) 33. Derivative Financial Instruments The Company utilizes cross currency swap contracts to manage exposure to foreign currency fluctuations. These derivative financial instruments consist mainly of U.S. Dollar to Rupiah nondeliverable swaps. Losses on derivative transactions was recognized as loss on derivative transaction net, details of which are as follows: 2010 Net change in fair value (33,642) Net settlements (24,514) Net loss (58,156) For accounting purposes, these contracts are not designated and documented as hedging instruments, and therefore, hedge accounting was not applied. Gains or losses on these contracts are recognized in earnings. In 2011, the Company has terminated these cross currency swap contracts. 34. Nature of Relationship and Transactions with Related Party Nature of Relationship Malvolia Pte Ltd is the majority stockholder of the Company Related parties whose stockholders are the same as the majority shareholder of Group are as follows: PT So Good Food (SGF) PT So Good Food Manufacturing (SGFM) Annona Pte Ltd (Annona) PT Ometraco Arya Samanta and subsidiaries: a. PT Omega Propertindo b. PT Jaya Sakti Mandiri Unggul c. PT Pan Pacific Indonesia Transactions with Related Parties a. Sales to related parties represent 3.47%, 2.56% and nil of the total sales for the years ended December 31, 2012, 2011 and 2010, respectively. As of December 31, 2012, 2011 and 2010, the receivables arising from these sales were presented as part of trade accounts receivable (Note 6) which constituted 0.41%, 0.58% and nil, respectively, of the total assets F-90

332 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) The details of sales to related parties are as follows: SGF 559, ,372 - SGFM 60, ,262 - Total 619, ,634 - b. Purchases from related parties represent 17.03%, 7.58% and nil of the total sales for the years ended December 31, 2012, 2011 and 2010, respectively. At the consolidated statements of financial position date, the liabilities for these purchases were presented as part of trade accounts payable (Note 13), which constituted 3.01%, 0.01% and nil, respectively, of the total liabilities. The details of purchases from the related parties are as follows: Annona (Note 36a) 2,863,307 1,064,706 - SGF 169, ,517 - SGFM 3,860 5,861 - Total 3,036,488 1,185,084 - c. The Group entered into the following agreements: 1. Lease agreements for the lease of a building with an area of 3,031 square meters and construction project with PT Ometraco Arya Samanta; 2. Lease agreements with PT Omega Propertindo for the lease of building with an area of 6,207 square meters; 3. Security service agreements with PT Jaya Sakti Mandiri Unggul; and 4. Insurance agreements with PT Pan Pacific Indonesia. The rent expense, security expense, and insurance expense are included in general and administrative expenses (Note 28). d. The Group provides compensation to key management personnel. The renumeration of directors, commissioners and other members of key management during the years were as follows: 2012 Board of Directors Commissioners Management Personnel % % % Salary and other short-term employee benefits 47 41, , ,687 Termination benefits 30 26, , ,974 Post-employment benefits 23 19, , ,875 Total , , , F-91

333 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) 2011 Board of Directors Commissioners Management Personnel % % % Salary and other short-term employee benefits 38 23, , ,519 Termination benefits 27 17, ,673 Post-employment benefits 35 21, ,962 Total , , , Board of Directors Commissioners Management Personnel % % % Salary and other short-term employee benefits 30 26, , ,773 Termination benefits 33 28, ,595 Post-employment benefits 37 32, ,582 Total , , , Segment Information Business Segment Operating segments are reported in accordance with the internal reporting provided to the chief operating decision maker, which is responsible for allocating resources to the reportable segments and assesses its performance. For management reporting purposes, the Group is currently organized into eight operating divisions animal feeds, day old chick, commercial farm, consumer products, aquaculture, cattle, trading and others. - Each division s main activities are as follows: - Animal feed production - Day old chick breeding - Chicken s farming - Cow, buffalo and sheep s farming - Meat nugget and beverages production and slaughter house - Fish and shrimp feed production, shrimp hatchery and shrimp farming - General trading - Real estate, plantations and vaccine production F-92

334 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Total Total Animal Day old Commercial Consumer before Eliminasi/ after 2012 feeds chick farm products Aquaculture Cattle Trading Others elimination Elimination elimination CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME REVENUES External sales 8,037,862 1,269,490 4,660, ,923 1,266, , , ,250 17,213,334-17,213,334 International segment sales 1, ,895 36, , , ,368 Inter-segment sales 4,076, , , ,811 95,470 5,131,029 (5,131,029) - Total revenues 12,115,747 2,177,407 5,116, ,055 1,303,287 1,084, , ,092 22,963,731 (5,131,029) 17,832,702 RESULTS Segment results 1,512, , ,378 21,804 54,490 69,210 21,109 (315,096) 1,670,739 (2,485) 1,668,254 Income (loss) from operations 1,512, , ,378 21,804 54,490 69,210 21,109 (315,096) 1,670,739 (2,485) 1,668,254 Gain on sale of property, plant and equipment and investment property 1, , ,229 26,181-26,181 Interest income 3, , , ,595 44,199-44,199 Gain (loss) foreign exchange - net 4,006 (1,399) 1 7 (164) (2,241) (1,315) 25,711 24,606-24,606 Interest expense (23,453) (54,650) (69) - (13,209) (27,463) (323,040) (441,884) (437,531) - 4,353 Equity ini net income , ,044 (315,044) - of subsidiaries - Others - net 11,060 (1,182) 33,114 62,853 (23,671) 39,182 1,661 8,717 1,906 7, Income before tax 1,508,784 76, ,240 50,986 45,066 47,723 20,513 (227,443) 1,701,738 (336,847) 1,364,891 Tax expense (43,070) (29,896) (840) - (7,659) (12,049) - (196,800) (290,314) - (290,314) Net income 1,465,714 46, ,400 50,986 37,407 35,674 20,513 (424,243) 1,411,424 (336,847) 1,074,577 Net income attributable to: Owners of the Company 1,465,714 46, ,332 50,986 38,834 35,674 20,513 (430,166) 1,406,860 (415,201) 991,659 Non-controlling interests (1,427) - - (142) (1,501) (84,419) 82,918 Net income 1,465,714 46, ,400 50,986 37,407 35,674 20,513 (430,308) 1,405,359 (421,266) 1,074,577 OTHER INFORMATION CONSOLIDATED STATEMENT OF FINANCIAL POSITION ASSETS Segment assets 2,299,450 1,246, , , , ,552 15,475 7,198,713 13,325,803 (2,767,207) 10,558,596 Unallocated assets ,868 Total consolidated assets 2,299,450 1,246, , , , ,552 15,475 7,198,713 13,325,803 (2,767,207) 10,961,464 LIABILITIES Segment liabilities 3,288, , ,165 38, , ,711 84, ,552, ,001 6,064,356 Unallocated liabilities ,781 - Total consolidated liabilties 3,288, , ,165 38, , ,711 84, ,552, ,001 6,198,137 Capital expenditures 351, ,006 46,456 44, ,260 10,758 4, ,821 1,363,965-1,363,965 Depreciation 84, ,582 26,412 5,092 22,284 10,162 4,830 23, , ,356 Non-cash expenses other than depreciation and amortization 3,607 10, ,607 3,729 85, , , F-93

335 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Total Total Animal Day old Commercial Consumer before Eliminasi/ after 2011 feeds chick farm products Aquaculture Cattle Trading Others elimination Elimination elimination CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME REVENUES External sales 7,404,445 1,131,058 3,262,764 1,070,874 1,147, , ,370 86,058 15,232,434-15,232,434 International segment sales - 3, , , , , ,634 Inter-segment sales 3,350, ,310 1,612-54,361 79,141 12,774 43,820 4,109,485 (4,109,485) - Total revenues 10,754,912 1,702,105 3,540,645 1,178,924 1,202, , , ,942 19,742,553 (4,109,485) 15,633,068 RESULTS Segment results 1,063,771 51,546 76,219 84,345 28,972 8,687 30,301 (240,691) 1,103,150 3,855 1,107,005 Income (loss) from operations 1,063,771 51,546 76,219 84,345 28,972 8,687 30,301 (240,691) 1,103,150 3,855 1,107,005 Gain on sale of property, plant and equipment and investment property (2,195) 2,175 2,897 53, , ,677 Interest income 4,471 1,833 3,110 3, ,377 18,104 18,104 - Gain (loss) foreign exchange - net (2,062) (313) (2) 92 (136) (827) 2,429 6,696 5,877-5,877 Interest expense (45,591) (41,542) (1,494) (610) (4,880) (28,273) (209,014) (331,404) - (331,404) - Loss on impairment - - (11,140) (11,140) - (11,140) of assets - - Equity in net income of subsidiaries , ,736 (223,736) - Others - net 18,305 (2,392) (824) 13,320 5,261 41,838 (15,648) 26,190 1,191 6, Income before tax 1,036,699 11,307 81, ,312 13,251 (6,873) 33,090 (208,966) 1,107,741 (235,432) 872,309 Tax expense (31,516) (9,987) 2,845 (27,280) 7,662 (6,084) - (136,475) (200,835) - (200,835) Net income 1,005,183 1,320 84, ,032 20,913 (12,957) 33,090 (345,441) 906,906 (235,432) 671,474 Net income attributable to: Owners of the Company 1,005,183 1,320 84, ,032 19,998 (12,957) 33,090 (345,372) 905,663 (288,609) 617,054 Non-controlling interests (69) 1,243 53,177 54,420 Net income 1,005,183 1,320 85, ,032 21,828 (12,957) 33,090 (345,510) 906,906 (235,432) 671,474 OTHER INFORMATION CONSOLIDATED STATEMENT OF FINANCIAL POSITION ASSETS Segment assets 3,535,005 1,701, , , , , ,691 3,334,487 10,681,805 (2,732,172) 7,949,633 Unallocated assets ,784 Total consolidated assets 3,535,005 1,701, , , , , ,691 3,334,487 10,681,805 (2,732,172) 8,266,417 LIABILITIES Segment liabilities 240,812 1,042, ,813 50, , ,431 (6,623) 2,595,115 5,147,164 (737,184) 4,409,980 Unallocated liabilities ,090 - Total consolidated liabilties 240,812 1,042, ,813 50, , ,431 (6,623) 2,595,115 5,147,164 10,053,516 4,481,070 Capital expenditures 309, ,060 30, ,895 59,526 12,787 1,900 16,838 1,007,374-1,007,374 Depreciation 66,112 75,890 21,990 12,288 17,171 10,769 4,725 19, , ,112 Non-cash expenses other than depreciation and amortization 2,712 19, ,314 4, ,259 79,685-79, F-94

336 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Total Total Animal Day old Commercial Consumer before after 2010 feeds chick farm products Aquaculture Cattle Trading Others elimination Elimination elimination CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME REVENUES External sales 7,260,649 1,455,617 1,546,202 1,562, , , ,950 43,487 13,955,792 13,955,792 Inter-segment sales 1,839, , ,994 75, ,244 14,313 3,057,217 (3,057,217) - Total revenues 9,100,377 1,736,021 1,546,202 1,562,165 1,001,736 1,036, ,194 57,800 17,013,009 (3,057,217) 13,955,792 RESULTS Segment results 1,060, , ,868 82,710 70,640 67,291 5,483 (236,182) 1,541,110 34,691 1,575,801 Income (loss) from operations 1,060, , ,868 82,710 70,640 67,291 5,483 (236,182) 1,541,110 34,691 1,575,801 Interest income 7,481 1,176 1,407 4,041 1, ,296 16,978-16,978 Rental income - - 1, ,244-2,244 - Gain (loss) foreign (1,390) (12,586) (117) (319) (4,331) (13,602) (26,373) (57,950) - (57,950) exchange - net 768 Gain on sale on sale of raw materials and indirect materials 18, ,861-18, Gain on sale of property, plant and equipment and investment property 1,861 1,033-3,559-3, Equity in net income of subsidiaries Equity in net income of associated companies (743,101) (743,101) 743, Interest expense (44,144) (15,656) (35,490) (106,111) (211,327) - (211,327) (3,512) (2,827) (3,572) (15) Others - net 11,564 22,316 (426) (3,323) (23,057) (10,378) (61,100) 298, , , ,581 Income before tax 1,065, , ,378 84,737 99, ,178 79, ,738 2,278,050 (841,195) 1,436,855 Tax expense (124,237) (88,127) - (23,781) (12,828) (10,420) (596) (85,587) (345,576) (345,576) Net income 941, , ,378 60,956 86, ,758 79, ,151 1,932,474 (841,195) 1,091,279 Net income attributable to: Owners of the Company 878, , ,638 49,668 86, ,758 79, ,143 1,860,506 (901,345) 959,161 Non-controlling interests 62,932 - (6,260) 11, ,008 71,968 60, ,118 Net income 941, , ,378 60,956 86, ,758 79, ,151 1,932,474 (841,195) 1,091,279 OTHER INFORMATION CONSOLIDATED STATEMENT OF FINANCIAL POSITION ASSETS Segment assets 2,602,925 1,265, , , , , ,079 4,138,664 10,186,756 (3,320,729) 6,866,027 Unallocated assets 115,080 Total consolidated assets 2,602,925 1,265, , , , , ,079 4,138,664 10,186,756 6,981,107 LIABILITIES Segment liabilities 1,420, , , , , , ,121 1,009,337 4,375,093 (1,095,731) 3,279,362 Unallocated liabilities 214,878 Total consolidated liabilties 1,420, , , , , , ,121 1,009,337 4,375,093 3,494,240 Capital expenditures 208, ,502 47,080 15,451 57,731 13,438 28,153 24, , ,242 Depreciation 64,103 56,723 13,808 13,332 14,836 9,844 4,866 7, , ,373 Non-cash expenses other than depreciation and amortization 8,908 15,362 1,200 6,457 6,422 2,839-36,957 78, , F-95

337 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) 36. Commitments a. On October 20, 2010, the Company entered into a Supply Agreement with Annona Pte Ltd (Annona), a related party which is a subsidiary of Malvolia Pte Ltd, shareholder of the Company. Annona is a global trader company which can provide credit facility for purchase of raw materials for the Company. In this agreement, Annona agreed to restrict their sales margin maximum of 5% per annum to the Company. The agreement is valid for 5 years until b. PT Santosa Agrindo (SA) and PT Austasia Stockfeed (ASF), subsidiaries, obtained foreign exchange facility from PT ANZ Panin Bank to facilitate the requirement for hedging original foreign currency and for hedging. The agreement has been extended several times, the latest will be due on April 30, c. Based on Corporate Facility Agreement No. JAK/100587/U/100607, dated July 23, 2010, from The Hongkong and Shanghai Banking Corporation Limited, Jakarta (HSBC), PT Santosa Agrindo (SA), a subsidiary, obtained Treasury facility to facilitate SA s requirement for hedging genuine foreign currency exposures through plain vanilla through tom, spot and forward transactions, with maximum amount of US$ 1,000,000. This facility has no outstanding balance as of December 31, d. On May 12, 2009, PT Austasia Stockfeed (ASF), a subsidiary, obtained Treasury Line facility from PT Bank Mandiri (Persero) Tbk (Bank Mandiri), to facilitate the requirement for hedging genuine foreign currency exposures to minimize losses from the foreign exchange fluctuation, but it is not intended for speculative purpose, with maximum amount of US$ 5,000,000 and will mature on May 11, This facility has been closed as of August 9, e. In November 2006, the Company obtained sight and/or usance letter of credit facility from PT Bank Danamon Indonesia Tbk, Jakarta, with maximum amount of US$ 3,000,000. This facility is for importation purposes. On March, 2012, This facility increased to US$ 6,000,000. This facility has been closed as of December 16, In December 2011, the Company obtained Letter of Credit facility sublimit Trust Receipt (TR) from PT Bank Danamon Indonesia Tbk amounted to Rp 95 billion. This facility will mature on December 16, Until December 31, 2012, the Company has not used this facility. f. On February 29, 2000, PT Multibreeder Adirama Indonesia Tbk (MBAI), a subsidiary merged into the Company in 2012, entered into an agreement with Lohmann Tierzucht GmbH concerning the purchase of layer grandparent stock for parent stock breeding which is valid until This agreement has been extended until Since July 1, 2012, effective date of merger of MBAI to the Company, this agreement has been transferred to the Company (Note 1b). g. On May 16, 2002, MBAI entered into an agreement with Aviagen Limited concerning the purchase of broiler grand parent stock for parent stock breeding. The agreement is being renewed every year. Since July 1, 2012, effective date of merger of MBAI to the Company, this agreement has been transferred to the Company (Note 1b). h. In August 2008, PT Suri Tani Pemuka (STP), a subsidiary, entered into cooperative and lease agreements with third parties for shrimp farms and coldstorage located in Tanah Laut, South Kalimantan covering an area of 1,225 hectares with rental period from August 2008 until December 2013 and July The value of this contract is US$ 270,000 for five years for cold storage and Rp 50 per annum for shrimp farms F-96

338 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) i. On January 7, 2008, PT So Good Food (SGF), a subsidiary, entered into profit sharing agreement with PT Greenfields Indonesia (GI), a third party, where SGF agreed to provide the services of physical distribution to GI on a fixed profit sharing per liter of GI s products delivered basis. The agreement is valid for one year and was extended until December 31, In June 2011, SGF was sold to Malvolia Pte. Ltd. (Note 1d). 37. Capital Management and Financial Risk Management Objectives and Polices Capital Management The primary objective of the Group s capital management is to ensure that it maintains healthy capital ratios in order to support its business and maximize shareholder value as well as maintain an optimal capital structure to reduce the cost of capital. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. The Group monitors its capital using gearing ratios, by dividing net debt with the total capital. The Group s capital structure consists of total equity (consisting of capital stock, additional paidin capital, retained earnings and other equity components) and net debts (consisting of shortterm bank loans, liability for the purchase of property, plant and equipment, lease liabilities, longterm loans and bonds payable, reduced by cash and cash equivalents). Ratio of net debt to equity as of December 31, 2012, 2011 and 2010 are as follows: Total borrowings 4,733,260 3,504,192 2,257,727 Less: cash and cash equivalents (872,441) (827,444) (762,187) Net debt 3,860,819 2,676,748 1,495,540 Total equity 4,763,327 3,785,347 3,486,867 Gearing ratio 81.05% 70.71% 42.89% Financial Risk Management Objectives and Polices The Group s activities are exposed to a variety of financial risks: market risk (including currency risk and fair value interest rate risk and commodity risk), credit risk and liquidity risk. The Group s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group s financial performance. Risk management is the responsibility of the Board of Directors (BOD). The BOD has the responsibility to determine the basic principles of the Group s risk management as well as principles covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, the use of derivative financial instruments and the investment of excess liquidity. Market Risk a. Foreign Exchange Risk Foreign exchange rate risk is the risk that the fair value or future contractual cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group s exposures to the foreign exchange risk relates primarily to short-term bank loans F-97

339 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Other than the short-term bank loans, the Company has transactional currency exposures. Such exposure arises when the transaction is denominated in currencies other than the functional currency of the operating unit or the counterparty. Foreign currency risk exposure of the Group is only minimal. The following table shows the sensitivity analysis of the changes in fair value of foreign currency exchange rates against the dollar with all other variables constant, to the profit before tax for the year ended December 31, 2012: 2012 Increase In Percentage Effect On Income Before Income Tax % Rp IDR to: United States Dollar 2 1,298 Euro 1 8 Singapore Dollar 1 4 China Yuan 2 - Australian Dollar 2 6 b. Commodity Risk Commodity risk is the risk of fluctuations in the price of raw material feed production such as corn and soybean, which are commodities. Management s policies to mitigate this risk are to use a formula that allows the use of raw material substitute for the raw materials commodity without reducing the quality of the product, and the transfer of price increases to customers. Besides the Company is continuously overseeing the optimal inventory level by entering into a purchase agreement when the prices are cheap with reference to the production plan and material requirement. c. Cash Flow and Fair Value Interest Rate Risk The Group s interest rate risk arises from short-term and long-term borrowings. Borrowings issued at floating rates expose the Group to cash flow interest rate risk. During 2012, 2011 and 2010, the Group s borrowings at floating rates were denominated in the Rupiah and U.S. Dollar. As of December 31, 2012, 2011 and 2010, the Group has the following floating rate borrowings: Weighted Average Weighted Average Weighted Average Interest Rate Balance Interest Rate Balance Interest Rate Balance % % % Short-term bank loans ,284, ,799, ,403 Long-term bank loans , ,191, ,057,287 Net exposure to cash flow interest rate risk 3,230,094 2,991,268 1,757,690 The sensitivity analysis below has been determined based on the Group s exposure to interest rates for interest bearing assets and liabilities at the consolidated statement of financial position date and the stipulated change in interest rate taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates F-98

340 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) An assumed basis point increase or decrease of 7.5 basis points used when reporting interest rate risk internally to key management personnel and represents the management s assessment of a reasonably possible change in interest rates. If interest rates increased (decreased) by 7.5 basis point and all other variables are constant, the Group s consolidated comprehensive income for the year ended December 31, 2012 would (decrease) increase by Rp 2,388, mainly due to the increase (decrease) in interest expense. In accordance with the Group s policy, the Directors monitor and review the Group s overall interest rate sensitivity analysis on a monthly basis. Credit Risk Credit risk is the risk that the Group will incur a loss arising from the customers or counterparties which fail to fulfill their obligations. Credit risk arises mainly from cash and cash equivalents, short-term investments - time deposits, trade accounts receivables and other accounts receivables. The Group manages credit risk exposed from cash and cash equivalents and short-term investment - time deposit by monitoring reputation, credit ratings and limiting the aggregate risk to any individual counterparty. With regards to credit exposures given to customers, the Group manages and controls the credit risk by dealing only with recognized and credit worthy parties, setting internal policies on verifications and authorizations of credit, and regularly monitoring the collectibility of receivables to reduce the exposure for bad debts. Management believes that there are no significant concentrations of credit risk. Refer to Note 6 for the information regarding not past due and unimpaired receivables and also past due receivables but not impaired. Accordingly, the Group has assessed the credit quality of the following financial assets: Cash and cash equivalents and short-term investments - time deposits is assessed as high grade since it is deposited in reputable banks in the country as approved by the Board of Directors and which have low probability of insolvency. Receivables from officers and employees which are included in other accounts receivable account are assessed as high grade since these are collectible based on historical experience F-99

341 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) The table below shows the maximum exposure to credit risk for the component of the consolidated statements of financial position as of December 31, 2012, 2011 and Trading Short-term investments - marketable securities ,219 Loans and receivables Cash and cash equivalents 835, , ,963 Short-term investments - time deposits 11,283 11,283 3,147 Trade accounts receivable Third parties 859, , ,358 Related parties 45,459 48,142 - Other accounts receivable 51,965 47,414 37,363 Restricted cash in banks 1,806 2,982 2,287 Other assets - guarantee deposits 6,110 8,390 7,633 HTM Short-term nvestments - bonds 2, Total 1,813,238 1,558,905 1,653,970 Liquidity Risk Liquidity risk is a risk arising when the cash flow position of the Group is not enough to cover the liabilities which become due. In managing the liquidity risk, management monitors and maintains a level of cash and cash equivalents deemed adequate to finance the Group s operations and to mitigate the effects of fluctuation in cash flows. Management also regularly evaluates the projected and actual cash flows, including loan maturity profiles, and continuously assess conditions in the financial markets for opportunities to obtain optimal funding sources. The table below analyzes the Group s financial liabilities into relevant maturity groupings based on the remaining period to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows < 1 year 1-2 years 3-5 years >5 years Total Transaction Costs As Reported Other Financial Liabilities Short - term bank loans 2,284, ,284,599-2,284,599 Trade accounts payable Related parties 186, , ,294 Third parties 370, , ,595 Other accounts payable to third parties 99, ,431-99,431 Accrued expenses 109, , ,985 Long term loans 334, , , ,211 (3,716) 945,495 Liabilitiy for purchase of property, plant and equipment 4,334 1, ,510-5,510 Lease liabilities 3,727 2,367 1,849-7,943-7,943 Bonds payable - - 1,489,713-1,489,713-1,489,713 Total 3,393, ,996 1,712, ,503,281 (3,716) 5,499, F-100

342 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) 2011 < 1 year 1-2 years 3-5 years >5 years Total Transaction Costs As Reported Other Financial Liabilities Short - term bank loans 1,799, ,799,804-1,799,804 Trade accounts payable Related parties Third parties 313, , ,758 Other accounts payable to third parties 47, ,704-47,704 Accrued expenses 73, ,190-73,190 Long term loans 276, , ,880 4,488 1,197,778 (6,314) 1,191,464 Liabilitiy for purchase of property, plant and equipment 7,415 3, ,836-10,836 Lease liabilities 1,582 1, ,822-2,822 Bonds payable 499, , ,266 Total 3,020, , ,880 4,488 3,945,504 (6,314) 3,939, < 1 year 1-2 years 3-5 years >5 years Total Transaction Costs As Reported Other Financial Liabilities Short - term bank loans 700, , ,403 Trade accounts payable to third parties 412, , ,127 Other accounts payable to third parties 41, ,882-41,882 Accrued expenses 150, , ,733 Long term loans 195, , , ,444 1,064,623 (7,336) 1,057,287 Liabilitiy for purchase of property, plant and equipment 1, ,981-1,981 Lease liabilities Bonds payable - 497, , ,756 Total 1,502,039 1,031, , ,444 2,869,805 (7,336) 2,862, Net Monetary Assets and Liabilities Denominated in Foreign Currencies The following table shows consolidated monetary assets and liabilities: Original Currency Equivalent in Rp Original Currency Equivalent in Rp Original Currency Equivalent in Rp Assets Cash and cash equivalents US$ 36,553, ,470 35,189, ,099 27,245, ,967 SGD 34, , , ,680 AUD 60, , , EUR 45, CNY 2, , Short-terms investments SGD ,050, ,219 Rupee ,656, ,147 Trade accounts receivable USD 86, , ,252 64, SGD ,789 EUR , Restricted cash in banks USD 146, , , ,431 Total Assets 357, , ,130 Liabilities Current Liabilities Short-term bank loans US$ 1,200, ,612 1,200, ,882 25,040, ,142 Rupee ,459, ,079 Trade accounts payable US$ 4,289, ,479 4,618, ,878 1,351, ,149 EUR , , , ,689 SGD , ,506 Long-term loans Rupee ,702, ,429 Total Liabilities 53,091 55, ,994 Net Assets 304, ,366 (54,864) At December 31, 2012, 2011 and 2010, the conversion rates used by the Group were disclosed in Note 2e to consolidated financial statements F-101

343 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) 39. Legal Matters Nyo Ailing, a third party, filed a lawsuit against the Company concerning the auction sale of land and building under the name of Subismo, based on order Banjar Baru District Court in Banjarmasin as realization/execution of the Amicable Settlement Banjar Baru District Court No. 07/PDT.G/2004/PH.BJB dated June 24, 2004, between the Company and Subismo. This case has been decided by the Judge of Banjar Baru District Court, in its Decision No. 13/Pdt.Plw/2005/PN.BJB dated June 29, 2006, accepting the Company s appeal to continue with the execution of the auction sale of the abovementioned land and building. Based on the letter from the Company s legal counsel, the abovementioned cases with Nyo Ailing are still under appeal until the date of completion of financial statements. 40. Subsequent Events a. On March 21, 2013, the Company filed a letter No. 022/JAPFA-OJK/LD-CS/III/2013 to the Chairman of Supervisory Capital Market - Financial Authority Services regarding the result of the Extraordinary General Stockholders Meeting held on March 20, 2013, which was contained in Letter No. 288/SL.Not/III/2013, dated March 20, 2013 of Dr. Irawan Soerodjo, SH, Msi, a public notary in Jakarta. Based on the said Letter, the stockholders agreed to perform stock split of the Company s nominal value of Series A shares from par value of Rp 1,000 per share (in full Rupiah) to Rp 200 per share (in full Rupiah), and Series B shares from par value of Rp 200 per share (in full Rupiah) to Rp 40 per share (in full Rupiah). b. On January 18, 2013, PT Vaksindo Satwa Nusantara (VSN), a subsidiary, obtained a loan investment credit facility from PT Bank Central Asia Tbk with maximum loanable amount of Rp 15 billion, which will be used to purchase machine and equipment. The loan investment credit facility will be due in 6.5 years. The facility bear floating interest rate of JIBOR + 3.6% per annum and are collateralized with land, machinery and equipment owned by VSN. c. On February 25, 2013, the Company and PT Suri Tani Pemuka (STP), a subsidiary, obtained a loan investment credit facility and a working capital facility from PT Bank ICBC Indonesia with maximum loanable amount of Rp 70 billion and Rp 130 billion, respectively, which will be used to finance a new production plant of fish feed mills of STP and as the Company s working capital. The loan investment credit facility will be due in 6 years and the working capital facility will be due in 1 year. Both of the facilities bear floating interest rate of 9% per annum and are collateralized with land, building, machinery and equipment, trade accounts receivable and inventory owned by the Company and STP. d. On March 7, 2013, PT Bhirawa Mitra Sentosa (BMS), a subsidiary, obtained a loan investment credit facility from PT Bank Central Asia Tbk with maximum loanable amount of Rp 19,792 which will be used to purchase vehicle - truck. This loan will be due in 5 years and bears floating interest rate of 9% per annum. This loan is collateralized with vehicle owned by BMS F-102

344 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) 41. Supplemental Disclosures for Consolidated Statements of Cash Flows The following are the noncash investing and financing activities of the Group: Addition of property, plant and equipment arising from acquisition of subsidiaries 69, ,450 - Reclassification of advances to property, plant and equipment - 133,173 - Reclassification from invesment property to property, plant and equipment - net 4,223 11,507 2,296 Liability arising from acquisition of property, plant and equipment 3,425 10,040 - Acquisition of property, plant and equipment through capital lease 6,655 4,618 - Reclassification from property, plant and equipment to unused property, plant and equipment - net 6, Information on New Regulations New Bapepam-LK Regulation Bapepam-LK issued Regulation No. IX.L.1, which is included in Appendix of the Decree of the Chairman of Bapepam-LK No. Kep-718/BL/2012 dated December 28, 2012 regarding Quasi- Reorganization, and contains the administration of an entity s quasi-reorganization. The new regulation will be applicable effective January 1, The Decree of the Chairman of Bapepam No. KEP-16/PM/2004 dated April 13, 2004 regarding The Administration of Quasi- Reorganization shall be cancelled upon the effectivity of the new regulation. The application of the new Regulation does not have any effect on the Group s consolidated financial statements. Prospective Accounting Pronouncements The Indonesian Institute of Accountants has issued the following revised Statements of Financial Accounting Standards (PSAK) and Withdrawal of Statement of Financial Accounting Standards (PPSAK). These standards will be applicable to consolidated financial statements effective for annual period beginning January 1, 2013 as follows: PSAK PSAK No. 38 (Revised 2011), Business Combination Entities Under Common Control PPSAK PPSAK No. 10, Withdrawal of PSAK 51: Accounting for Quasi-Reorganization The Group is still evaluating the effects of these revised PSAKs and PPSAK and has not yet determined the related effects on the consolidated financial statements F-103

345 PT JAPFA COMFEED INDONESIA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012, 2011, and 2010 and For the Years then Ended (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) 43. Transfer of Regulating and Monitoring Functions on Financial Services Activities to the Financial Services Authority (OJK) Starting December 31, 2012, the functions, duties and authorities of regulating and monitoring on financial service activities in capital market sector, insurance, pension fund, multi-finance, and other financial services was transferred from the Minister of Finance and the Capital Market and Financial Institution Supervisory Agency (Bapepam-LK) to the Financial Services Authority (OJK) ******** F-104

346 PT JAPFA COMFEED INDONESIA Tbk Consolidating Supplementary Information - Parent Company Statements of Financial Position* December 31, 2012, 2011 and 2010 (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) ASSETS CURRENT ASSETS Cash and cash equivalents 459, , ,386 Short-term investments 11, Trade accounts receivable Related parties 290, ,952 80,156 Third parties - net of allowance for doubtful accounts of Rp 611, Rp 596, and Rp 74 as of December 31, 2012, 2011, and 2010, respectively 524, , ,785 Other accounts receivable 23,838 30,704 14,516 Inventories - net 2,467,531 1,473, ,279 Breeding chickens 342, Advances 154,565 52,770 46,189 Prepaid taxes 142,377 68,564 2,298 Prepaid expenses 16,134 11,230 21,963 Total Current Assets 4,432,634 2,784,153 1,497,572 NONCURRENT ASSETS Restricted cash in banks 1,806 2,982 2,287 Due from related parties 293, , ,364 Deferred tax assets 70,564 27,380 35,666 Investment in shares of stock 1,235, ,584 1,317,442 Investment properties - - 1,447 Property, plant and equipment - net of accumulated depreciation of Rp 1,443,966, Rp 801,141, and Rp 591,754 as of December 31, 2012, 2011, and 2010, respectively 2,629,714 1,055, ,497 Unused assets - net 8, Other assets 34,383 26,196 12,453 Total Noncurrent Assets 4,273,723 2,363,779 2,732,156 TOTAL ASSETS 8,706,357 5,147,932 4,229,728 * Using cost method - i.1 - F-105

347 PT JAPFA COMFEED INDONESIA Tbk Consolidating Supplementary Information - Parent Company Statements of Financial Position* December 31, 2012, 2011 and 2010 (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term bank loans 1,918,788 1,051, ,524 Trade accounts payable Related parties 208,521 3, Third parties 248, , ,123 Other accounts payable 31,887 22,144 12,042 Taxes payable 49,012 16,178 7,424 Accrued expenses 69,265 32,248 41,803 Advances received 15,328 3,133 11,335 Current portion of long-term liabilities Long-term loans 295, , ,283 Liability for the purchase of property, plant and equipment 3, Lease liabilities Bonds payable - 499,266 - Total Current Liabilities 2,840,092 1,997, ,803 NONCURRENT LIABILITIES Due to related parties 11,969 7, ,904 Deferred tax liabilities 1, Long-term employee benefits liability 379, , ,571 Long-term liabilities - net of current portion Long-term loans 513, , ,047 Liability for the purchase of property, plant and equipment 1, Bonds payable 1,489, ,756 Total Noncurrent Liabilities 2,398, ,767 1,458,278 Total Liabilities 5,238,305 2,915,683 2,020,081 EQUITY Capital stock Authorized - 2,000,000,000 Series A shares with Rp 1,000 par value per share (in full Rupiah) and 5,000,000,000 Series B shares with Rp 200 par value per share (in full Rupiah) Issued and paid-up - 1,549,786,582 Series A shares with Rp 1,000 par value per share (in full Rupiah) as of December 31, 2012 and 1,489,414,660 Series A shares with Rp 1,000 par value per share (in full Rupiah) as of December 31, 2011 and ,318,000 Series B shares with Rp 200 par value Series B shares with Rp 200 par value per share (in full Rupiah) as of December 31, 2012, 2011, and ,666,250 1,605,878 1,605,878 Additional paid-in capital 579, , ,227 Treasury stocks - 4,064,948 shares (17,717) - - Retained earnings (Deficit) Appropriated 120, ,000 80,000 Unappropriated 799,761 (221,375) 90,921 Difference in value arising from restructuring transactions among entities under common control 316, ,232 (15,971) Other components of equity 4,143 1,287 22,592 Total Equity 3,468,052 2,232,249 2,209,647 TOTAL LIABILITIES AND EQUITY 8,706,357 5,147,932 4,229,728 * Using cost method - i.2 - F-106

348 PT JAPFA COMFEED INDONESIA Tbk Consolidating Supplementary Information - Parent Company Statements of Comprehensive Income* For the Years Ended December 31, 2012, 2011 and 2010 (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) NET SALES 12,491,234 10,304,613 5,577,842 COST OF GOODS SOLD 10,551,982 8,969,323 4,703,295 GROSS PROFIT 1,939,252 1,335, ,547 Interest income 34,824 6,245 6,254 Gain on foreign exchange - net 28,429 5,198 28,272 Gain (loss) on sale of property, plant and equipment 1,330 (2,163) 1,239 Selling expenses (190,945) (160,490) (95,574) Interest expense (361,060) (245,712) (108,317) General and administrative expenses (660,378) (435,575) (352,635) Loss on sales of raw material and auxiliary materials - - (19,008) Loss on derivative transactions - - (58,156) Dividend income - 2, Others - net 23,309 3,486 (3,728) INCOME BEFORE TAX 814, , ,169 TAX EXPENSE 138, ,026 56,834 NET INCOME 676, , ,335 OTHER COMPREHENSIVE INCOME (LOSS) Translation adjustment 2,856 (21,305) (10,809) TOTAL COMPREHENSIVE INCOME 679, , ,526 * Using cost method - i.3 - F-107

349 PT JAPFA COMFEED INDONESIA Tbk Consolidating Supplementary Information - Parent Company Statements of Changes in Equity* For the Years Ended December 31, 2012, 2011, and 2010 (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Difference in Value Arising from Restructuring Issued and Transactions Among Fully Paid Up Additional Entities Under Translation Share in Changes in Retained Earnings (Deficit) Capital Stock Paid-in Capital Treasury Stock Common Control Adjustment Equity of a Subsidiary Appropriated Unappropriated Total Equity Balance as of January 1, 2010 as previously reported 1,605, ,227 - (15,971) 32,020 1,381-52,005 2,101,540 Effect of adoption of PSAK No. 4 (Revised 2009) (121,808) (121,808) Effect of first adoption of PSAK No. 50 (Revised 2006) and PSAK No. 55 (Revised 2006) ,748 34,748 Balance as of January 1, 2010 after adjustment 1,605, ,227 - (15,971) 32,020 1,381 - (35,055) 2,014,480 Appropriation for general reserve ,000 (80,000) - Dividends (10,359) (10,359) Total comprehensive income - As previously reported (10,809) , ,352 - Effect of adoption of PSAK No. 4 (Revised 2009) (742,826) (742,826) Total comprehensive income as restated (10,809) , ,526 Balance as of December 31, ,605, ,227 - (15,971) 21,211 1,381 80,000 90,921 2,209,647 Balance as of January 1, 2011 before adjustment 1,605, ,227 - (15,971) 21,211 1,381 80, ,555 3,074,281 Effect of adoption of PSAK No. 4 (Revised 2009) (864,634) (864,634) Derecognition of negative goodwill in accordance with transition provision of PSAK No. 22 (Revised 2010), Business Combination ,881 71,881 Balance as of January 1, 2011 after adjustment 1,605, ,227 - (15,971) 21,211 1,381 80, ,802 2,281,528 Appropriation for general reserve ,000 (24,000) - Dividends (756,182) (756,182) Difference in value arising from restructuring transactions under common control , ,203 Total comprehensive income (21,305) , ,700 Balance as of December 31, ,605, , ,232 (94) 1, ,000 (221,375) 2,232,249 * Using cost method - i.4 - F-108

350 PT JAPFA COMFEED INDONESIA Tbk Consolidating Supplementary Information - Parent Company Statements of Changes in Equity* For the Years Ended December 31, 2012, 2011, and 2010 (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) Difference in Value Arising from Restructuring Issued and Transactions Among Fully Paid Up Additional Saham Treasuri/ Entities Under Translation Share in Changes in Retained Earnings (Deficit) Capital Stock Paid-in Capital Treasury Stock Common Control Adjustment Equity of a Subsidiary Appropriated Unappropriated Total Equity Balance as of January 1, ,605, , ,232 (94) 1, ,000 (221,375) 2,232,249 Issuance of capital stock 60, , ,528 Increase in retained earnings due to merger , ,125 Treasury stock - - (17,717) (17,717) Appropriation for general reserve ,000 (16,000) - Dividends (159,604) (159,604) Total comprehensive income , , ,471 Balance as of December 31, ,666, ,383 (17,717) 316,232 2,762 1, , ,761 3,468,052 * Using cost method - i.5 - F-109

351 PT JAPFA COMFEED INDONESIA Tbk Consolidating Supplementary Information - Parent Company Statements of Cash Flows* For the Years Ended December 31, 2012, 2011 and 2010 (Figures are Presented in Millions of Rupiah, unless Otherwise Stated) CASH FLOWS FROM OPERATING ACTIVITIES Cash receipts from customers 12,361,919 9,911,864 5,620,025 Cash paid to suppliers and others (11,770,086) (9,266,602) (5,071,128) Cash paid to employees (406,267) (287,988) (215,515) Net cash generated from operations 185, , ,382 Tax refund Income tax paid (203,433) (168,641) (24,645) Interest paid (333,482) (246,977) (107,120) Net Cash Provided by (Used in) Operating Activities (350,914) (58,344) 201,617 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from (Payment to) related parties 68, ,873 (115,962) Interest received 34,824 6,258 6,254 Proceeds from sale of property, plant and equipment 2,201 4,810 3,381 Increase in security deposits (1,148) (630) (240) Acquisition of computer software (9,035) - - Addition of investment in shares (346,155) - (20,994) Acquisitions of property, plant and equipment (869,469) (690,554) (144,292) Decrease in investment of shares - 427,858 - Acquisition of investment property - - (13) Dividends received - 2, Proceeds from sale of investment properties Net Cash Used in Investing Activities (1,120,400) (23,162) (271,591) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of bonds 1,487, Proceeds from short-term bank loans 867, , ,072 Proceeds from related parties 4, Payments of liabilities for purchase plant, property and equipment (9,306) - - Payment for acquisition of treasury stock (17,717) - - Payments of dividends (159,604) (756,182) (26,571) Payments of long-term loans (238,796) (106,113) - Payments of bonds payable (500,000) - - Payment of restructured debts - - (639,045) Proceeds from long-term loans - 300, ,555 Payments of lease liabilities - (64) (97) Net Cash Provided by Financing Activities 1,433, , ,914 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (37,594) 139, ,940 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 477, , ,033 Effect of foreign exchange rate changes 20,518 1,930 2,413 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 459, , ,386 * Using cost method - i.6 - F-110

352 F-111

353 F-112